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Good day, and welcome to the CEVA, Inc. second quarter 2026 earnings conference call. [Operator Instructions] Please note, today's event is being recorded.

I'd now like to turn the conference over to Richard Kingston, Vice President, Market Intelligence, Investor, and Public Relations. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's second quarter 2026 earnings conference call. Joining me today are Amir Panoush, Chief Executive Officer, and Yaniv Ariyeli, Chief Financial Officer. Before handing the call over to Amir, I'd like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties, as well as assumptions that if they materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such statements. We will also discuss certain non-GAAP financial measures, which we believe provide investors with additional insight into our core operating performance. Reconciliations between our GAAP and non-GAAP results are included in the earnings release issued this morning and available on the Investor Relations section of our website. With that, I'll turn the call over to Amir.

Thank you, Richard, and good morning, everyone. We delivered another strong quarter with revenue increasing 13% year over year to $29 million, fueled by licensing and related revenue growing 21% to its highest level in 3 years. The quarter also benefited from a sequential recovery in royalty revenue, driven by continuing momentum across wireless connectivity, ramping automotive AI programs, and market share gains in smartphones. During the quarter, we signed 10 licensing agreements, including 2 with first-time customers and 2 directly with OEMs. More important than the number of agreements is the quality of those agreements. Increasingly, customers are adopting broader platforms and deeper collaborations that transcends both our near-term licensing business and our long-term royalty opportunity.

I would like to focus today on two themes that we believe highlight an important shift in the semiconductor industry and explain why CEVA and our technologies are increasingly well positioned for long-term growth. The first is the continuing migration of intelligence from the cloud to the smart edge. This is a trend we have discussed for several years and one that is increasingly driving demands for our higher performance, connectivity, sensing, and AI technologies. During the quarter, we announced what we believe is one of the most strategically significant AI licensing agreements in a leading global AI and computing platform company, selected our NeuPro-M NPU IP for its next-generation custom AI silicon.

This agreement is significant for several reasons. First, it represents a new category of AI customers for CEVA. Historically, our AI licensing activity has primarily been with semiconductor companies and device OEMs. This customer develops both the hardware platform and the operating system, allowing us to collaborate at a much deeper level by optimizing not only the NPU hardware, but also the AI software stack for its models, applications, and workloads. The expertise we gain through these engagements extends well beyond a single customer program. So optimizing AI hardware and software at the platform level will strengthen both our hardware and software roadmaps and further enhance our AI offering for future customers.

More broadly, we believe these agreements reflect an important industry trend where companies with some of the world's large engineering organizations are increasingly choosing to leverage proven AI IP rather than developing every component internally. For these companies, the question is no longer whether they have the engineering capability to build an NPU, but whether doing so represents the best use of their engineering resources. By licensing production-proven IP, they can focus their investments on the hardware, software, and AI experiences that differentiate their platforms while reducing development risk and accelerating time to market.

The second trend we are seeing is customers increasingly adopting broader platform solutions rather than individual IP blocks. Two agreements from the quarter illustrate this well. A high-volume U.S. semiconductor company chose to adopt 1 complete chip built on our Wi-Fi 6 and Bluetooth Low Energy IP, originally developed in partnership with another CEVA customer, rather than licensing the underlying IP blocks individually. The decision reflects the same preference for production-proven, complete solutions over developing internally or licensing component IP. Separately, another U.S. customer expanded a relationship that began with a single baseband component by adopting our complete baseband processing subsystem.

As semiconductor development becomes increasingly complex, customers are recognizing that leveraging proven subsystem IP can significantly reduce engineering effort and execution risk, all while accelerating time to market, enabling them to concentrate their internal resources that most differentiate their products. These are different customers and different technologies, but they demonstrate the same underlying trend. Companies are increasingly choosing production-proven hardware, software, and system expertise that delivered as a complete platform rather than assembling individual IP blocks themselves. For CEVA, this expands both the scope and value of our engagement.

Broader platform adoption increases our content per design, deepens our integration into customer products, creates larger, longer-term customer relationships, and increases the royalty opportunity associated with each customer platform as those products enter production. These successful outcomes also validate the strategy we have been executing over the past several years. We have invested in expanding our diverse portfolio beyond individual IP blocks to more complex hardware and software platforms across connectivity, sensing, and AI. As customers look to accelerate development while reducing execution risk, we believe this positions CEVA to capture a greater share of silicon content in future design.

Beyond this strategic engagement, activity remains broad-based across our business. In addition to the AI and platform wins I just discussed, we signed multiple follow-on agreements with existing customers, alongside our new customer engagement, demonstrating our ability to both expand long-term relationships and consistently win new business. Across connectivity, we secured customer engagement spanning the United States, Europe, China, and the broader Asia-Pacific region, reinforcing the global demand for our technology.

We also expanded our sensing portfolio with the launch of our Microsoft-certified RealSpace Elevate embedded application software, extending our spatial audio technology into the PC gaming market for the first time. Taken together, these achievements reinforce the strength of our Connect, Sense, and Infer offering to enable physical AI use cases. While AI is creating exciting new opportunities for CEVA, connectivity remains the foundation of physical AI and continues to be the entry point for many of our customers' relationships. Increasingly, this relationship expands over time as customers adopt additional technologies across our portfolio.

Now, turning to royalties. We are beginning to see the benefits of the broader customer engagement we have been building over the past several years translate into an increasingly diversified royalty business. Royalty revenues increase both sequentially and year over year, supported by continued trends across our wireless connectivity portfolio, drawing contribution from automotive AI deployment, and share gains in smartphones. Wireless connectivity remains particularly strong with healthy year-over-year growth in both Wi-Fi and Bluetooth shipments, while Cellular IoT shipments reach another quarterly record.

In automotive, customer programs continue to ramp, reflecting increasing AI content in next-generation vehicles. Overall, the quarter demonstrates the continued evolution of CEVA's business and the continued market leadership of our IP, expanding the breadth of our licensing engagement, increasing the value of every customer relationship through broader platform adoption, and building a more diversified royalty engine. Together, these trends reinforce our confidence in both our near-term outlook and long-term growth opportunity. With that, I'll turn the call over to Yaniv to review our financial results.

Thank you, Amir. Good morning, everyone. I'll now review our financial results for the second quarter. Revenue for the second quarter increased 13% year over year and 7% sequentially to $29 million, reflecting another exceptionally strong licensing quarter and continued improvement in our royalty business. Trailing 12-month licensing and related revenue increased 13% to around $70 million. The revenue breakdown is as follows. Licensing and related revenue increased 21% year over year to $18.2 million, reflecting 63% of our total revenues and our strongest licensing quarters in 3 years. Importantly, the strength of the quarter reflects the broader platform engagements Amir described earlier, not only increase licensing and related revenues today, but also expand the future royalty opportunity associated with those customer programs.

Royalty revenue was $10.8 million, reflecting 37% of our total revenues, compared with $10.7 million for the prior year, and up 17% sequentially reflecting continued strength across wireless connectivity and automotive AI and share gains in smartphones. Gross margin was 87% on GAAP basis and 88% on non-GAAP basis in line with our guidance. GAAP operating expenses were $27.5 million below the low end of our guidance range. Non-GAAP operating expenses excluding equity-based compensation expenses, amortization of acquired intangibles, and acquisition-related costs were $22.5 million, $3 million at the low end of our guidance. GAAP operating loss improves to $2.1 million compared to $4.5 million in the second quarter of last year. Non-GAAP operating income increased to $3.1 million compared with $0.8 million in the prior year, while non-GAAP operating margins expanded to 11% up from 3% a year ago.

Both measures also improved significantly on a sequential basis, demonstrating continued operating leverage. Net financial income was $1 million compared to $2.1 million in the second quarter of 2025 and below our guidance of $1.7 million, primarily due to foreign exchange effects related to our Israeli shekel-denominated lease obligations. Income tax expenses approximately $1.8 million, slightly above the guidance, reflecting the geographic mix of licensing and royalty revenues recognized during the quarter. GAAP net loss was $2.9 million or $0.10 per diluted share compared with GAAP net loss of $3.7 million or $0.15 per share in the second quarter of 2025. Non-GAAP net income increased 28% year over year to $2.3 million, while non-GAAP diluted earnings per share increased to $0.08 compared to $0.07 in the prior year period. On a sequential basis, both non-GAAP and net income and diluted earnings per share doubled.

With respect to other related data, during the quarter, customers shipped 567 million CEVA-powered devices, an increase of 16% compared to the second quarter of 2025. Of those shipments, 61 million units, or 11% of the total, were mobile handset modem shipments, compared with 55 million units in the prior year period, reflecting improving smartphone royalties driven by stronger market share in entry-level smartphones together with continued expansion in the premier tier. Consumer IoT increased to 487 million units compared to 409 million units a year ago. Industrial IoT shipments were 19 million units compared to 24 million units in the prior year. Despite the lower unit volume, industrial royalty revenues increased 7% year over year, reflecting a richer mix of higher value products, including automotive AI and wireless infrastructure.

Looking at our connectivity technologies, these shipment metrics continue to demonstrate the breadth and diversification of our royalty base across multiple end markets. Bluetooth shipments decreased 16% year over year to 295 million units. Cellular IoT shipment reached another record of 68 million units, up 3% year over year. Wi-Fi shipments increased 28% year over year to 80 million units. As for the balance sheet items, we ended the quarter with approximately $221 million in cash, cash equivalents, marketable securities, and cash deposits, providing significantly financial flexibility to support continued investments in our technology roadmap while maintaining a disciplined approach to capital allocation including selective strategic M&A opportunities.

Days sales outstanding were 70 days. During the quarter we generated $5.8 million of cash from operating activities. Depreciation and amortization expenses were $0.8 million, where capital expenditure totaled $0.6 million. At the end of the quarter we employed 406 people including 327 engineers reflecting our continued investment in innovation while maintaining disciplined expense management. Turning to the outlook. We delivered a strong first half of 2026, supported by strong licensing execution, improving royalty trends, and meaningful expansion in non-GAAP profitability. Just as importantly, the quality of the customer engagement we secured during the first half provides a strong foundation for future growth across both licensing and royalties. Reflecting our first half performance and current visibility, we are raising our full year revenue outlook.

We now expect 2026 revenue to increase between 13% and 15% over 2025, compared with our previous expectation of 12% growth that we shared at the end of the first quarter. We continue to expect the second half to be stronger than the first, consistent with our normal seasonal profile while recognizing that memory pricing dynamics and broader supply constraints remain important industry variables. On the expenses, we maintain our previous guidance. Total non-operating cost of revenues and operating expenses are still expected to increase by approximately 8% on an annual basis over 2025. As we continue to invest in our roadmap while carefully managing costs, mitigation, and foreign exchange headwinds. As a result, the stronger revenue growth together with disciplined expense management, we now expect non-GAAP operating income to increase approximately 70% year over year, while non-GAAP net income is expected to increase approximately 50%, five-zero, both above our previous expectations.

Third quarter guidance. Revenue is expected to be in the range of $30.5 million to $34.5 million. Gross margin is expected to be approximately 87% on GAAP bases and 88% on non-GAAP bases, including approximately $0.2 million equity-based compensation expenses, and $0.1 million of amortization of acquired intangibles. GAAP operating expenses are expected to be between $28.2 million and $29.2 million, including approximately $5.4 million of equity-based compensation expense and $0.1 million for amortization of acquired intangibles and $0.1 million for acquisition-related costs. Non-GAAP operating expenses are expected to be similar to the second quarter level between $22.5 million to $23.5 million. Net financial income is expected to be approximately $2 million. Income tax expense is expected to be approximately $1.9 million. And weighted average diluted share count is expected to be approximately 28.2 million shares on GAAP basis and 30 million shares on non-GAAP basis. Rocco, we are ready to take the questions now.

Yes, sir. We will now begin the question-and-answer session. [Operator Instructions] And today's first question comes from Kevin Cassidy at Rosenblatt Securities. Please go ahead.

Congratulations on the strong results. You had mentioned about a large company bringing their wireless design in-house rather than buying someone else. Is that a trend you're seeing longer term? And maybe you could talk about the trend you're seeing for more integration of technologies vertically within your customers.

Yes, definitely Kevin. Good morning and thanks. Yes, definitely we see this as a trend. As part of our strategy, as I mentioned also on the previous calls, was to really come with a complete offering of IP, including the radio IP. And what we see is some of the customers are basically looking for a complete offering that they can so-called integrate into their complete portfolio and taking that very quickly in terms of time to market and proven technology and solution. Definitely, we see some of those OEM and semiconductors companies looking to get the full solution from us.

Okay. What does that mean for CEVA? I mean, a little more stickiness to your IP if you're selling more to 1 customer or I guess just less OpEx involved. I guess what, is that a, this is a positive trend for CEVA?

Yes, Kevin, thanks for the question. Yes, that's definitely a very positive trend. It actually brings three additional values for us. One, on the agreement itself, the licensing agreement, what we see both the licensing as well as the future royalty is meaningfully higher than just setting the component IP. That helps the customers to reduce their own engineering effort and relying more on CEVA capabilities, which they drive stronger stickiness moving forward. As well as really it helps significantly in the discussion of the make versus buy. It's harder for large companies to rely on CEVA technology if we provide only partial solution or just part of the component IP.

The more we offering the complete solution, it's easier for them and drive more the decision towards buying IP from CEVA rather than doing that internally. So overall, this is a very, very positive trend, and fits very well to our strategy of how we drive our engineering activities and overall innovation in IP.

Kevin, I maybe would add one more thing that in the wireless markets, there are new trends that come every couple of years, every year to 2 years, and depends on the technology itself, new standards, the new features, so by being able to provide those, we also have revenues of new licensing deals for every one of these enhancements going forward. So it's a very strong stickiness mechanism also because of the nature of those wireless connectivity that get constantly upgraded and updated all the time.

And we're able, obviously, to do that. Okay, great. Congratulations again.

Thank you. And our next question today comes from Suji De Silva at Roth Capital. Please go ahead.

Hi, Amir. Hi, Yaniv. Congratulations on the progress here. Amir, you talked at length about how you're engaging deeper with the customers, maybe a hardware-software integration, perhaps more sort of product development effort. Is this going to result in more custom IP blocks or more standard products and will it affect kind of how we should think about royalty rate for you guys? Is that the right framework to think about these kind of engagements?

Yes, so definitely overall we've been our, thanks for the question Suji, overall we've been our mix of licensing agreements. We do see more, I would call it, custom solutions offering and demands from the market. And that's again, that goes along very nicely with the trends of how we're investing in our resources and what we should do is a potential in the market. Going back to your point on royalty, it's actually where we see significant potential increase of those royalty as the royalty per unit that we can extract by providing the custom offering and the complete offering is meaningfully higher than a component IP. For example, we talked about a very strategic new AI deal that we've just signed with one of the top large OEMs out there that have both operating system capabilities and hardware and software. That level of integration and customization drives significantly much higher royalty per unit that we will get versus our typical NPU offering.

Okay Amir, that's great, thanks. And then my other question is on the edge AI market and the trend toward edge AI in the cloud. There's a lot of kind of chip and IP sort of opportunity there from various parts. I'm wondering if there are any particular end applications that are initially good opportunities for you as you see traction in the edge AI market or where we should think about your best near-term efforts opportunities are.

So we definitely see that in the high-end compute edge markets, wherever it's, you know, the PC, the mobile, those type of application. We also see it right now entrenched very, very deeply in the automotive for either system. And what we will see more is into robotics humanized. This is right now coming also into play.

Thank you. Our next question today comes from Natalia Winkler with UBS. Please go ahead.

So one is on the smartphone. You mentioned improving share of the entry smartphone, as well as premium. Could you please speak a bit more? What are you seeing there, and maybe what's helpful from standpoint you'll share share gains on the entry-level smartphones for you guys.

Thanks for the question. So related to the entry point customer or the lower tier customers in the health and mobile market, definitely we've seen very meaningful recovery and the royalty between Q2 and Q1. So this quarter we've seen very nice recovery. And we're also seeing that they are basically gaining market share against their competition. We see there is a very positive momentum as we go into the second half of the year. And definitely the other large U.S. OEM, the expectation is that we go more with their internal modem that should provide for us also a market gain share as we move into the second half.

I'll add some more color. Unisoc, our Chinese customer and the low-cost smartphone, first is moving gradually more and more to 5G from being the leader volume-wise in 4G and the prior generation. That means also higher ASPs for us. And if you Google a look around you'll see that they have won a few dozens of different design wins recently in the last quarter with good brands the local and Chinese brands including Vivo, Xiaomi which in the past got used their MediaTek to more extensively. So these are nice design wins. As long as this continues, both market share gains for them and volume expansion with the higher 5G share in that market going to Unisoc, that will also benefit the CEVA. And this is an important high volume market for us as well.

Thank you. That's very helpful. And then the second question I had was, you know, now that [ AHRQ ] has been acquired by [ global funders ], are you guys seeing sort of any additional momentum in your licensing business, maybe the NPU licensing business with that transition?

Yes, definitely we see it as a tailwind for our business moving forward, especially for NPU and NeuPro product line, where the competition will be more favorable for us. Because we really focus on that IP as a complete platform, while over there it will be done differently. So that's a good point, Natalia. We will definitely see there is a tailwind and helping us to compete better in the U.S. and the Western world with our NPUs, which assigns one of those very strategic deals this quarter as part of that momentum.

Awesome. Thank you. Rocco, next question. Hello. Hey, Rocco, are we taking more questions? Sorry, everybody, just hold on 1 minute. We're trying to get re-established here with the call center.

Thank you. Sorry, everyone. We are still trying to work this out.

Sort of lost the operator. Hi, just in the interest of time here, I'm going to see if any of the other analysts in the queue want to email me their questions and I'll read them out and we can answer that way if that makes sense. So if any of the analysts in the queue want to email me directly now I'll ask the question on the line. Thanks.

Okay, I have a couple of questions that have just come in over email. First one is from Joseph Cardoso at JPMorgan. He wants to follow up on the entry-level smartphone momentum and maybe tie that back to the risks we're hearing at the low-end portion of the market given the component cost inflation. How are you thinking about the risks there? And are you starting to see any signs of risk there or generally across the portfolio on that front?

I think we've talked about this in the past, that the low-end smartphones in a sense need much less memory and more high-end devices, which are higher priced these days than the supply to high demand. So we haven't seen, at least in the last couple of quarters, significant issues around that. There's still part of the constraint in the market, but to a less degree than the higher end, the $1,000 phones type. So it's still a play in the industry. No doubt it hurts margins in the supply, but for the time being, if we look sequentially from Q1 to Q2, we've seen a tremendous increase in volume. Part of it is seasonal, and that means that our customer was able to address that supply the demand that they plan to at least.

We saw significant increase both in volume and dollars. Yes, maybe I'll add to that. Yes, overall with the trends that we've seen from Q1 to Q2 with the typical seasonality and our customers actually gaining a new socket, we expect good seasonality expansion in the second half as well. Having said that, definitely the memory shortage has an impact on the wireless handset industry, and it's hard to quantify exactly how that will make an impact in the second half, but overall we expect a continued expansion seasonality of our customers as we go through the second half.

Great, thanks. Another question here from Josh Bookhalter at TD Cowen. And Josh asks, can you provide more context on how NeuPro is being used by new custom silicon engagement? Any details on the functionality, that chip, and timeline to materiality?

Yes, great question. First, let me a little bit explain more really about the engagement and the utilization of our NPU IP. For instance, we go, for example, in this case, into more custom silicon offering. And what we are doing with the customers, they have a very good deep access to our core architecture of our IP. And then together we basically go and define what additional special features capabilities with that specific neural networks will be run on our silicon and hardware IP in a very very efficient way. So the whole only great here is one to be able to run special networks with special features and capabilities but not but even less importantly to be able to run them in a very high efficient performance, so-called tokens per watt, tokens per second in terms of latency, all those very important metrics for edge devices.

What these customers with their ability of accessing the complete software stack, including the operating system, because all their product lines helps for both of us together to optimize it even further. So that's a big, big plus both from how you can use our IP, which is very, very deeply configurable, as well as how we can work together on the complete hardware software operating system integration. Now, in terms of timing, this is engagement that started typically within a few quarters. Our customers go to tape-out and then from there, a few quarters between, close to about 1 and a half years to 2 years, they go to production.

Even though this is a custom offering, we expect it to go in terms of the timeline the same as with any other kind of IP and product that we are offering in the domain. So we don't expect it to be any time longer because we are very quickly we can configure the solutions and optimize it with this customer. That's the very unique approach that we have with our IP and capabilities. And what helps us actually to win that socket with that large customers against so-called doing on their own.

Thanks, Amir. We have another question here from Gary Mobley at Benchmark, a StoneX company. Gary asks, when we talk to the U.S. customer in the quarter adding a baseband subsystem in addition to the DSP, are we referring to RF in this case or is it something else? Sure, sorry, the U.S. customer that we said upgraded to the complete baseband subsystem in the quarter, was that, were we relating to RF in this scenario or is it some other sort of a function in the subsystem that they upgraded from just DSP?

Thanks. Yes, this is related to a WLAN or wireless access subsystem with complete cellular configuration. This is a complete so-called modem technology, but excluding the RF. The whole modem baseband technology, hardware and software, complete offering, complete subsystem. While we are hardening that to the specific process, not to the customer needs.

Okay. We have a question here from Charles Shi at Needham. He asks about the full year guidance. Full year guidance is now raised 13% to 15%. Can you provide more details on the growth of licensing and royalty relative to the company average growth?

Yes, sure. If you look at the first two quarters of last year, the licensing and related revenue run rate was $15-ish, $16 million. When you look at the first half of this year, the first two quarters were $17.8 million and now $18.2 million, so the $18-ish million, so there's no doubt from all what we explained today, the solution aspect of providing not just standalone IP, but a full solution to our customers, whether it includes multiple technology, wireless or other, whether it includes RF, and now it's part of their wireless offering or AI and technologies this enabled us at least in the first part of the half of the year to increase significantly the licensing and related revenue level and we believe that these levels they can continue. This is the at least our plan is part of our internal a forecast.

We don't break down licensing and royalties, but guys on a full revenue basis, but do have a strong pipeline for these types of deals and do believe that we are and have achieved the step function with adding AI, which is a significant part of our revenue these days, about 20%. We've seen that last year. We've seen that in the first part of this year. This continues. It doesn't replace anything. We could see that it is an increase to our overall licensing and related revenue. So that's on one hand.

On the royalty front, the annual guidance, the higher annual guidance is also part of the normal seasonal shift with the stronger second half. If you look at the last 3 years every second half of those last 3 years volume-wise we increased the north of 30% year over year for the full second half so we do believe that that seasonality will play in our favor with other aspects of new royalty payers like automotive that started only this year at the beginning of the year. On top of that, the market share gains in smartphones that we mentioned and the combo Bluetooth, Wi-Fi type of solution that are a better solution to our customers and higher ASPs to us.

So all this in place puts us in a stronger position. As Richard mentioned, 13% to 15% year-over-year growth and significant improvement in operating margins as we are keeping expenses tight and managing all these R&D investments with growth in the top line. We're looking at about 70% growth in non-GAAP operating margins year over year and about 50% growth in net income year over year and that's part of our guidance.

Thanks, Yaniv. I have another question here. This is from Martin Yang at Oppenheimer. It's a two part. First part is, do you see more platform companies in your pipeline? How big of an opportunity is that in the broader context of your business?

I'll answer that first and I'll do the second one afterwards. Yes, overall as I mentioned previously, we definitely see this as a growing trend, both in terms of the market needs, our customer needs, as well as what we can offer with our complete portfolio of IP. I cannot break down specifically what portion of the solution was more component IP, but the important thing is that this really helps us to drive a continuous increase in our licensing and we've seen it through the first half of the year that has been stronger than what we originally expected as well as the actual results. And that helps us to drive also or to guide the second half to be stronger than what we discussed just last quarter. So overall this is a very positive trend. This will help us to drive more licensing but the exact portion of each can fluctuate between quarter to quarter and not something that specifically I can support point to.

Okay, and the second part from Martin relates to Bluetooth HDT. It asks, does a HDT class design win carry a materially higher royalty per unit than your current Bluetooth designs? And when does the HDT royalties start contributing?

Yes, so first, yes, the HDT, it's much improved technology, both from throughput that it supports as well as the new use cases that can support. So definitely that helps us to drive higher royalty per unit versus the legacy Bluetooth. Even more so, with this technology, we are also now offering it complete solution with our RF IP supporting HDT. And the combination of the two increase even further the royalty per unit that we can get for those sockets. So overall we received as a positive trend. Volume ramp will start towards the end of this year and the significant ramp of course we go through 2027, 2028. And the customer action that we have announced is they are basically right now ramping that product in the marketplace. So very soon we'll start seeing worth use of that platform as well.

Thank you. And I've got a question just we can briefly address it. It's multiple analysts have asked about this, but I'll relate this one to Charles Shi at Needham. Asking about for the second half of the year, are we assuming normal seasonality for mobile handsets in the second half of the year? And at the same time, are we assuming a significant market share gain at a premium tier mobile vendor in the second half of the year. So those two kind of tied in together.

Yes, overall we're assuming the seasonality as we've typically seen for our current so-called mobile customers. With the caveat that of course we need to take into account the memory allocation challenges that the mobile market is going through. And on top of that, definitely we are expecting the gain share with our U.S. customers as they continue to use more of their internal modem.

Great, thanks. And then just one last question here. I'll come back to Joseph Cardoso at JPMorgan. He asked about Wi-Fi units. They declined sequentially in the quarter following a few quarters in a row of sequential expansion. Just curious if you could dive into the drivers of the volatility in the quarter and how you're thinking about trajectory for Wi-Fi going.

Yes, actually I wouldn't look at one specific quarter so-called on a sequential level, although year over year we continue to see very significant growth of any of our technology, including Wi-Fi and wireless connectivity. It's more related to our customer mix and when they ramp their own specific product. So some of those high volume can actually start in Q3 and Q4. I would expect our Wi-Fi shipments to continue to go very nicely year over year through the rest of the year.

Okay, great. Thanks. Yes, I think that's all we'll take for now. Amir, do you want to go to the CEO closing remarks?

Yes, thanks, Richard. In closing, this quarter reinforces our confidence in the direction of the business and the strength of our IP. We are seeing increasing demand for our technologies across AI, connectivity, and sensing, strong adoption of broader hardware and software platforms, and continued diversification of our royalty base. At the same time, our licensing momentum is translating into improving profitability and gives us confidence in raising our outlook for the year. The opportunity ahead of us continues to expand as intelligence moves to the edge, and more companies develop custom silicon to differentiate their products. With our Connect, Sense, and Infer portfolio, we believe CEVA is uniquely positioned to enable that transition. Just as importantly, we are seeing customers engage with us at the broader platform level, increasing both the strategic value of our relationship and our long-term royalty opportunity. The momentum we built in the first half of the year gave us confidence heading into the second half.

Thanks, Amir, and thanks, everybody, for keeping your patience with us there. As a reminder, the prepared remarks for this conference call are accessible through the Investors section of our website. And with regards to upcoming investor events we will be attending, here are some of the conferences. The Rosenblatt 6th Annual Technology Summit Part 2, August 17 and 18 being held virtually. The 7th Annual Needham Virtual Semiconductor and Semicap Conference, August 19 and 20 being held virtually. Piper Sandler Tech Executive Summit, August 24th and 25th in Deer Valley, Utah. Jefferies Semiconductor, IT Hardware & Communications Infrastructure Conference, August 25th and 26th in Chicago, and Benchmark, a StoneX Company, TMT Conference, September the 10th in New York, New York.

Further information on these events and all events we will be participating in can be found on the investors section of our website. Thank you and goodbye.

Good day, and welcome to the CEVA, Inc. First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead.

Thank you, Betsy. Good morning, everyone, and welcome to CEVA's First Quarter 2026 Earnings Conference Call. Joining me today are Amir Panush, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. We will also be discussing certain non-GAAP financial measures, which we believe provide a meaningful analysis of our core operating results and comparison of quarterly results.

Please see the earnings release we issued this morning for a reconciliation of our non-GAAP financial measures. Our earnings release can be found in the SEC filings section of our Investor Relations website. With that said, I'd like to turn the call over to Amir, who will review our business performance for the quarter and provide some insight into our ongoing business. Amir?

Thank you, Richard, and good morning, everyone. We are pleased to report a strong start to 2026, building on our momentum from 2025. We exceeded our expectations on both revenues and non-GAAP EPS, including licensing and related revenues of $17.8 million, our strongest licensing quarter in 3 years, reflecting the strength of our pipeline, customer momentum and future earnings power. This performance reflects strong execution and alignment with key market trends, including the convergence of edge AI and wireless connectivity, rising system complexity and growing demand for integrated solutions that accelerate time to market.

As the industry faces increasing constraints in scaling centralized AI compute, the reality of shifting towards running inference at the edge and leveraging local resources is becoming more critical. Against this backdrop, intelligent connected device shipments are expected to exceed 40 billion units annually by 2030, reinforcing the value of our Connect, Sense and infer strategy. In the quarter, we signed several multi-technology engagements and 3 strategically important deals that demonstrate our strategy is translating into results. Starting with connectivity. In early 2025, we introduced our CEVA [indiscernible] platform to deliver fully integrated system-level wireless solutions across RF, basebands and software, helping customers accelerate time to market.

This quarter, we secured a major licensing win for a complete Bluetooth High data throughput or HDT solution, a foundational capability for the upcoming Bluetooth 7 standard. We licensed this full solution, including modem software and RF to a leading U.S.-based semiconductor company. Bluetooth 7 is expected to enable higher throughput and more advanced use cases, including multichannel audio, wireless video, XR and gaming peripherals and AI-enabled edge devices. Our HTC solution is a key building block enabling this next generation of high-performance wireless and AI-enabled edge devices. This builds on our prior Bluetooth engagement with the same customer, which is now approaching high-volume production and further expands our footprint through a more integrated RF modem and software platform engagement. This also reflects a broader shift in the industry from internally developed connectivity to licensing proven platforms.

We believe that moving to a full stack solution increases value per design for CEVA through higher licensing fees and greater royalty content while also deepening integration and enabling multi-generation engagements. For the quarter, we expect it to deliver faster time to market and lower development risk, allowing them to focus on their core differentiation while leveraging our proven IP, ultimately driving a stronger return on investment for both parties.

Turning now to 5G and satellite communications. During the quarter, our [indiscernible] 5G advanced modem platform, extending our cellular portfolio into satellite communications. Non-terrestrial networks or NTN, an emerging market expected to scale to billions of devices over the coming decade as satellite connectivity becomes an integral part of global communications infrastructure, complementing and in some cases, extending beyond traditional terrestrial 5G networks. This is being driven by a wide range of use cases, including remote and undeserved area coverage, asset tracking and industrial IoT, where ubiquitous always-on connectivity is critical.

It is also increasingly important for enabling more resilient and independent communications infrastructure. Customer response has been highly encouraging with clear momentum building across our pipeline. Building on this, we expanded an existing customer relationship with a satellite OEM from DSP cores to a more integrated baseband processing solution. As with our Bluetooth [indiscernible] engagement, this reflects a deepening relationship with an existing customer and an expansion in the scope and value of our IP within their platform. In ultra-wideband, during the first quarter, we introduced our next-generation UWB platform and secured a new customer win with a major U.S.-based MCU provider, augmenting its internal UWB capabilities.

With our IPM combining its system expertise with our proven connectivity solution to accelerate development and reduce risk. This engagement also builds on a broader relationship with the customer who has licensed multiple CEVA technologies over the past 2 years. We are seeing a transition in UWB towards higher-value industrial, automotive and enterprise applications, driven by demand for precise, secure location awareness in use cases such as access, asset tracking and indoor navigation. As the market expands, customers are increasingly choosing to license proven IP to accelerate time to market and reduce development risk. Across these wins, a clear pattern is emerging.

The Bluetooth NTN and UWB engagements we highlighted this quarter are all within existing customers who have expanded their use of CEVA IP over the past 2 years. More broadly, customers are increasingly adopting more integrated system-level solution from CEVA, expanding our value per design while strengthening long-term royalty and margin potential. In sensing, we continue to see growing traction for our spatial audio solutions as demand for immersive audio experience expands. During the quarter, Lenovo launched its latest [indiscernible] headset powered by our RealSpace spatial audio with heat tracking, building on recent wins with consumer brands like nothing and Bats. Finally, in AI, we continue to execute on our strategy to enable efficient, scalable inference at the edge with AI representing more than 20% of our licensing and related revenues and the signing of 2 new licensing agreements in the quarter.

We are seeing a structural shift towards hybrid AI, where inference is increasingly moving to the device while more complex processing remains in the cloud or across connected systems. This right AI model, right place, right time approach enables real-time on-device decision-making while maintaining the flexibility to scale compute as needed. As a result, demand for highly efficient ultra-low power solutions is growing across wearables, automotive, industrial and smart home applications. And IP and AI content per device is increasing as more products require local connect, sense and inferred capabilities.

We believe the rise of hybrid and agent-based AI will further accelerate the shift towards distributed intelligence at the edge, where devices need to locally sense, infer, communicate, coordinate and act in real time while selectively leveraging cloud AI resources. This trend is expected to drive growing demand for efficient AI processing alongside advanced wireless connectivity across increasingly complex connected systems. This is now translating into production.

Reansas' RCA V4H platform, which integrates our AI DSP and accelerator is now in production in the 2026 Toyota ReV4, one of the highest volume passengers vehicle globally, marking our first mass volume automotive AI deployment. We believe this represents the beginning of a meaningful long-term royalty stream with growing AI content per device. We also announced a collaboration with NXP during the quarter, integrating our AI DSP and accelerator into their S32E2 and S32Z2 software-defined vehicle processors. further validating our position in automotive AI.

In addition, our new PO Nano NPU won a leading artificial intelligence award at Embedded World 2026, further emphasizing our leadership position. Our AI licensing pipeline remains strong with multiple evaluation and investment negotiations underway across a broad range of end markets. Stepping back, overall, we signed 14 licensing agreements in the quarter, including 2 with OEMs. In addition to the deals I highlighted earlier, we secured a Wi-Fi 7 design targeting consumer IoT, a Wi-Fi 6 Bluetooth combo engagement with a leading edge AI SoC platform company and multiple additional Bluetooth and WiFi wins across our connectivity portfolio. Turning now to royalties. We continue to see encouraging momentum across our diversified Smart Edge market with growth in IoT, industrial and AI-driven applications. While total royalties were flat year-over-year, non-mobile royalties grew 8%, reflecting strength across our Smart Edge markets, partially offset by softness in smartphone. Wi-Fi shipments reached an all-time high in the quarter, driven by record Wi-Fi 6 volumes, highlighting the continuing expansion of this market as customers ramp deployments across a broad range of devices.

More broadly, Wi-Fi and Bluetooth continue to be durable multiyear growth drivers, as customers scale current generation technologies such as Wi-Fi 6 and Bluetooth 6, they are also developing next-generation platforms, including Wi-Fi 7 and Bluetooth 7. These overlapping cycles are expected to support sustained unit growth, increased IP content per design and long-term margin expansion. We expect the continued shift towards combo chips to further reinforce our strategy as customers integrated multiple CEVA technologies into a single design, increasing value per device and driving stronger overall economics.

AI-driven royalties also continue to grow, highlighted by our automotive AI deployment at Toyota and a ramping AI SoC for surveillance, representing early signs of the long-term contribution we expect from Edge AI across multiple end markets. Against these tailwinds, first quarter royalties were impacted by typical seasonal softness in mobile, combined with near-term effects from memory availability constraints and channel inventory in the lower-tier segments. We view these mobile dynamics as largely timing related and expect improvements as the year progresses, supported by inventory normalization and typical seasonality, along with what we anticipate will be stronger high-end smartphone royalties in the second half.

Overall, this quarter reinforces our ability to execute on our strategy and increase value per design as we move towards more integrated, higher-value engagements. I will now turn the call over to Yaniv for the financials.

Thank you. I'll now review the financial results for the first quarter, which reflect the strong licensing performance and continued execution Amir just outlined. Revenues for the first quarter increased 11% year-over-year to $27 million. The revenue breakdown is as follows: licensing and related revenue increased 18% year-over-year to $17.8 million, reflecting 66% of our total revenues. Royalty revenues were $9.2 million, in line with last year, reflecting 34% of total revenues. Gross margins were 86% on GAAP basis and 87% on a non-GAAP basis.

Our total GAAP operating expenses for the first quarter were $28.4 million, just over the mid-range of our guidance. Total non-GAAP operating expenses for the first quarter, excluding equity-based compensation expenses, amortization of intangibles and deal costs were $23 million, just over the midrange of our guidance. GAAP operating loss for the first quarter was $5.1 million as compared to GAAP operating loss of $4.4 million in the same quarter last year.

Non-GAAP operating margins and income were 2% of revenues and $0.5 million. Net income was $1.9 million compared to $2.1 million for the first quarter of 2025. Taxes were approximately $1.3 million. GAAP net loss for the first quarter was $4.5 million and diluted loss per share was $0.16 as compared to net loss of $3.3 million and diluted loss per share of $0.14 for the first quarter of '25.

Non-GAAP net income and non-GAAP diluted earnings per share for the first quarter of '26 were $1.1 million and $0.04, respectively, as compared to non-GAAP net income of $1.4 million and non-GAAP diluted earnings per share of $0.06 for the first quarter of '25. With respect to other related data, we shipped 458 million units of CEVA power devices, up 9% for the first quarter of 2025. Of the 458 million reported, 46 million units or 10% were for mobile handset modems, down from 49 million units in the first quarter last year. 394 million units were consumer IoT devices, up from 337 million units for the first quarter last year. 18 million units were for industrial IoT products, down from 34 million units in the first quarter last year.

However, associated industrial IoT royalty revenues were up 19% year-over-year, reflecting a better mix of higher ASP product shipments, including 5G wireless infrastructure and automotive AI. Bluetooth shipments were 206 million units in the quarter, down from 233 million units in the first quarter of last year. Cellular IoT shipments were 66 million units, up 38% year-over-year, and Wi-Fi shipments were a record 91 million units, up 158% year-over-year. As for the balance sheet items.

Our cash equivalent balances, marketable securities and bank deposits were approximately $216 million, providing strong financial flexibility. We remain focused on disciplined capital allocation, including continued investments in our road map and a selective approach for strategic M&A opportunities that can accelerate our growth. Our DSOs for the first quarter of '26 was 59 days. During the first quarter, we used $4.9 million of cash in operating activities. Ongoing depreciation and amortization was $0.9 million and purchase of fixed assets was $2.3 million, including approximately $1 million related to leasehold improvements. At the end of the first quarter, our headcount was 430 people, of whom 348 were engineers.

Now for the guidance. As Amir highlighted, we delivered a strong start for the year, supported by continued enhancements to our IP portfolio, solid licensing execution and growing fundamental for future royalty expansion. From a financial perspective, we continue to view 2026 as a year of growth across multiple dimensions. Reflecting our first quarter performance, we're upgrading our annual outlook towards the higher end of our previously communicated range. For the full year, we now expect total revenue growth to be at the top end of our 8% to 12% range over 2025, with a typical seasonality profile of lower growth in the first half and stronger growth in the second half, subject to memory pricing dynamics and supply conditions.

On the expense side, we maintain focus on cost discipline and operating leverage while continuing to manage foreign exchange headwinds with the strengthening of the euro and the Israeli shekel against the U.S. dollars. Overall expenses, cost of revenues and OpEx combined are expected to increase approximately 8% over 2025. As we continue to invest to support growth, we expect a portion of the incremental revenue to be translated to the bottom line, driving continued improvement in non-GAAP operating income, net income and EPS.

Based on our performance to date and current business momentum, we now expect non-GAAP operating margins and non-GAAP net income to increase by 40% to 50% year-over-year, which is above our prior expectations. Guidelines for the second quarter of 2026. Revenues are expected to be in the range of $26 million to $30 million, reflecting continued growth both sequentially and year-over-year.

Gross margin is expected to be 87% on a GAAP basis and 88% on non-GAAP basis, excluding an aggregate $0.2 million of equity-based compensation expenses and $0.1 million of amortization of acquired intangibles. GAAP OpEx for the second quarter of '26 is expected to be similar to the first quarter and in the range of $27.7 million to $28.7 million. Of our anticipated total OpEx for the second quarter, $5.3 million is expected to be attributed to equity-based compensation expenses, $0.1 million of amortization of acquired intangibles and $0.1 million of costs associated with business acquisitions.

Non-GAAP OpEx is also expected to be similar to the first quarter and in the range of $22.2 million to $23.2 million. Net interest income is expected to be approximately $1.7 million. Taxes for the second quarter is expected to be approximately $1.5 million, and the share count for the second quarter of '26 is expected to be approximately 28 million shares for GAAP and 29.7 million shares for non-GAAP. Betsy, we could now take questions, please.

[Operator Instructions] The first question today comes from Ruben Roy with Stifel.

Congrats on the nice start to the year. I guess to start, Amir, on the Bluetooth [indiscernible] win, I'm not sure if you guys had RF wins previous, but it seems to me like that would be a nice step-up in your value per design strategy that you've been talking about. So can you maybe just talk a little bit more about what you're doing for the RF? And also, I guess, as part of that, is that sort of an architecture that you can replicate across other areas of the business, eventually, WiFi, ultra-wideband, et cetera? And anything you talk about in terms of the royalty rate relative to your traditional Bluetooth licenses?

Yes. Rory, first, thanks a lot for the congratulation. Yes, definitely, this is a very important win for us. As you pointed out, this is a win that of a full system solution, all the way so-called from the antenna up to the full stack and the software, including our own internal developed RF, which is an investment that we've put in the last year or 2 to really build those systems up. The key value here is really that our customers, they can get the full solution. They don't need to do more of the pretesting validation of those things, and we provide them that as a full solution, then time to market and ability to be successful in the market is much higher. And even more so with this customer and overall other customers, what we see, that really helps them to drive more and more so-called the next versus buy decision and move away from so-called internal development to a complete solution based on our technology. So we are very happy with that win with the RF, and we expect more of those wins to come through the year and then, of course, in the next few years. The other piece that you pointed out, this is definitely a technology that we are planning to expand beyond the Bluetooth HDT. We have multiple other wireless technology with digital IP and the same strategy we are going to basically deploy and apply in the marketplace, more and more integrated solution, complete system around our leadership in wireless connectivity. So we are super, super excited about this momentum and that what can build for the future. Last piece that you point on the royalty. As I mentioned in the previous calls, at the end of the royalty comes back to what value we bring to our customers. And in this case, because it's not just the whole different components of the system, it's the fact that it's fully integrated, our customers definitely appreciate it, and we see meaningfully higher royalty than so-called 1 plus 1 is more than 2, and that helps -- will help us to drive much more royalty growth in the future with overall very strong flywheel across our wireless connectivity technology.

That's great. I guess if I could ask a quick follow-up just on sort of the way the year is playing out. You continue to expect a stronger second half, and I think you gave us a lot of sort of data points and kind of visibility into how you're thinking about that. But you do have some factors coming into play. You mentioned memory pricing and overall sort of macro sort of dynamics going on. So either Amir or Yaniv, can you maybe just give us a little bit of detail on what you're hearing from customers relative to some of those impacts that we might see as we kind of go through the year? I think memory pricing has started to impact some of the end markets. We're hearing from PC guys, et cetera, talk about potential impacts there. So any additional detail on how you're thinking about the second half versus the first half? And what you're hearing from customers would be great. That's all I have.

Yes, definitely. One thing first, I would say, just if we look at this quarter, as we started the year, I'm extremely encouraged by the fact that even though so-called mobile hasn't been that strong, considering the challenge with memory allocation and so-called the inventory utilization, we still deliver really great results driven by, one, very good execution across the licensing and solution-based offering. And second, we see a very good momentum overall in the broader IoT. And going back to what you asked about the memory that if we look at the IoT, it's a market that is less impacted by that. We have a great access across a very diversified set of customers, use cases and products and technologies. So I think overall, we can do so-called better than others in terms of potential impact from memory allocation. And specifically on mobile, with the inventory drawdown that happened this quarter and maybe to some degree through the first half, it probably will put us in a good spot as we go to the second half, which on top of that, of course, what we expect is increased market share in the premium tier. So I think overall, we are well positioned going through so-called that challenges overall in the marketplace. And it goes back to how we execute basically driving our licensing and ensuring that our customers are happy with the ramp-up of our technology.

Ruben, maybe I will add. Historically, if you look at the volumes of shipments of our royalties, our customer shipments in the second half of every given year in the last 3 years, you'll see about a 40% increase. So -- and then every year, there is some issues, whether it's pricing or inventory in our memory. So with that said, the trend was mainly around 40% sequential growth second half versus first half, and we are building that in also in our pros for 2026.

The next question comes from Suji Desilva with ROTH Capital.

Congratulations on the progress here. Amir, maybe you can talk about your -- as you came in, you talked about sense, connect and infer. And maybe today, you could give us an update on that in terms of the example of traction at the same customer to 2 of those or 3 of those versus just 1, that would be helpful to understand.

Definitely, Suji. I think several names that we mentioned in the past, including these times, we see them basically licensing multiple technologies from us. It can be multiple technologies across Connect, but also we have more and more across multiple technologies of Connect and infer and in some cases, the whole fee Connect, Sense and infer. So this is -- we see that progression going very well, and we expect more as we keep driving those technology into the marketplace. But definitely, what drives the baseline flywheel or success with our customers is very high appreciation of our wireless connectivity portfolio. And on top of that, our investment and expansion in the AI or infer overall portfolio. The other thing, as we pointed out, Lenovo with the headset this quarter, we announced that basically, they've been using or start ramping with our wheel space or 3D spatial audio technologies. And they are also a wireless connectivity basically customer through the semi guys that are delivering those solutions to them.

Okay. I appreciate that, Amir. Great. And then in the connectivity specifically, Bluetooth is already well penetrated. Can you update us on where Wi-Fi is in the attach curve going up in terms of attach? And then will UWB follow a similar path? Or is that more of a niche technology?

Yes. So on the WiFi, Yaniv can point more into the specific numbers, but we're extremely encouraged with the ramp that we've seen first through all 2025 and now continuing and even more in Q1 '26. We reached all record high volume this quarter, and we expect that to continue with a very nice ramp moving so-called from the more legacy WiFi to WiFi 6. And then within a year or 2, we'll start seeing the transition into Wi-Fi 7 plus lots of the combos of the Wi-Fi and Bluetooth. So overall, from a pattern and penetration in the marketplace, we expect, as we mentioned on other calls, right, that Wi-Fi shipments will reach very high volume above the $0.5 billion and more as we keep progressing and then basically augment very nicely our penetration with Bluetooth plus the combos. In terms of UWB, this is, I would call it, overall a newer technology. There are a lot of very good indication in the marketplace from the use cases and with that, the potential demand for the technology. We've seen more penetration right now in smartphone from there into different type of edge devices for location base for access and control. So we are very encouraged with that. Now we just got a major license deals with a U.S. customer, and there will be more to follow. But overall, from a volume penetration, I said, we are highly penetrated with Bluetooth. We are getting to the same level with Wi-Fi and the next to follow will be [indiscernible]

On that I would add to that, Suji, is that we talked about Amir mentioned the combo chips. If you look at the Bluetooth Wi-Fi combo chip year-over-year, the volume has doubled. We haven't opened that number up yet. We'll do it in due time. But some of the reason also that we mentioned that the Bluetooth is going down because we are counting those combo chips is combo and not Bluetooth necessarily. So there is no issue in the market. It's just our count and ASPs for those combo chips are higher than the individual WiFi or Bluetooth solutions in the past.

And you've been counting those in WiFi units, is what you saying?

The combo Bluetooth and WiFi units, yes, doubled year-over-year for Q1.

The next question comes from Samik Chatterjee with JPMorgan.

Congrats on the strong results here. Maybe just another follow-up on Wi-Fi. The $91 million number that you had there, it's pretty strong considering a seasonal sort of you typically see a seasonal downtick into 1Q. Can you just outline if there was anything in terms of new customer volume, et cetera, ramping into 1Q that drove that seasonality? And from this sort of 1Q base, should we expect to see a similar pickup into the second half that you've historically seen from first half to second half perspective in Wi-Fi? And I have a follow-up.

Yes, Samik, this is a great question. And actually, the ramp of the volume in Q1 of our Wi-Fi shipments is not related to the seasonality, as you pointed out. It's really the migration of multiple customers adopting our technology. So either migration from Wi-Fi 4 to Wi-Fi 6 or many of them actually new customers that start ramping with the Wi-Fi 6. And I will remind everyone that we talked about more than 30 licenses agreements that we have made in the last 2, 3 years of Wi-Fi technology. And those basically customers are now coming more and more into production. So that momentum, we expect to continue. And actually, we should expect second half to be stronger than the first half, both based on the seasonality plus basically more and more new customers and new program basically ramping in volume for Wi-Fi. So Wi-Fi, we are really still in the ramp-up in terms of market penetration and our customers basically ramping their portfolio and their product line.

Got it. Got it. And just maybe...

And it's true -- by the way, both through industrial and consumer. So we are really doing well on both fronts with our Wi-Fi.

Just my quick follow-up. Any updates on how you're thinking about capital allocation, particularly in relation to M&A, given that it's a pretty strong year, you'll generate more cash. How are you thinking about sort of the alternatives in front of you, including if you do pursue M&A, what would be the more sort of targeted technology areas that you would look for?

Yes, definitely, this is a key important item within what we're looking to execute on our overall strategy to scale up the company, looking into an M&A options for us. The focus there will be around so-called technologies that complement our success in the smart edge era. We have more focus on IT overall in order to build the scale. So we're talking about [indiscernible] and infer within those technologies and augmented technologies. I think that's what we are really targeting. And hopefully, we'll be able to talk about it as we progress through the year.

The next question comes from Gary Mobley with Loop Capital.

Looking specifically at the CEVA wavelengths, the RF subsystem there, I know the highlight that you put in front of us today is more of a system-level license agreement, including the RF. But if I'm not mistaken, that RF subsystem might be unique to a specific manufacturing process node, TSMC 12-nanometer specifically. Can you speak to how you might move forward in broadening that -- I guess, the scope of the RF subsystem across different process nodes and different foundries and how that might affect the overall licensing for wavelengths?

Yes, Gary, great question. So yes, the Linux 200 that we announced previously was around 12-nanometers TSMC. And overall, what we are executing our strategy is actually to go beyond one process node or one foundry. And also, I think we are well positioned with the access that we have in the market from the number of customers that have licensed our digital IP technology to have a very good sense of where the road map is heading in terms of the process node needs as well as the type of foundries that they are looking to partner with. And yes, we are not going to support all different options out there in permutation. And definitely some customers will build with their own RF. But I'm very confident that we can so-call go and support the majority or the significant portion of where the market is heading in terms of the process need and the foundry. So we'll have so-called multiple options there, but we are not going to cover the whole spectrum.

And for my follow-up, I want to ask in general about the license pipeline. How does it look compared to maybe a year ago? And if you can give us an update as to what might be recurring in license revenue and what percent still remains onetime in nature?

There are several so-called fundamental trends that we are -- that encourage us, and we feel good with the perspective of our licensing business. One, we see more and more customers, repeating customers coming again going from one generation to the next. The other one is more customers are coming to license multiple technologies either by adding additional technology or just from the start looking for multiple technology. And the last piece is what we are highlighting this quarter is really coming in licensing solutions, which at end brings more value to our customers and help us so-called to have better economics of the deals, including the licensing portion. When we take all those 3 into account, overall, we feel good. We feel confident with where we are in terms of the pipeline, our ability to execute our licensing business. And I think the last few quarters have shown that, including this quarter. So I would say, overall, we look at the year as a good growth year in licensing and the pipeline really supports it well.

The next question comes from Josh Buchalter with TD Cowen.

Congrats on the results. Maybe I want to start big picture. We're seeing sort of a lot of positivity in the CPU space as compute resources are moving increasingly away from or in addition to like being complemented by outside of the AI server rack. I mean could you maybe reflect on where we are on the embedded side in that adoption curve? And specifically, any updates or major momentum on the MPU side from the quarter we could -- you want to highlight?

Yes. Great question, Josh. So first from so-called the momentum of CPU, this is what we have been talking about for the last few quarters about so-called the hybrid AI model and things are more moving into the edge. So this is very encouraging to see that's really happening in the market and also other customers are able to -- other players in the market are able to basically execute to that and show that progress. We need to keep in mind that when we look at our Connect sensor IP portfolio, it actually complements extremely well CPU, whether that's CPU based on that architecture or the other risk price architecture. So we are really indifferent to that, and we can support both. So that puts us in a good position. On the NPU specifically, that's where we are building, again, a portfolio of NPUs that goes along any kind of CPU architecture. And I think that's where we're also uniquely positioned, focusing on the NPU technology itself as accelerator to the CPUs that are out there. The more CPU drives more adoption of AI at the edge, the more opportunities we will see with our NPUs. So overall, all those things are encouraging so-called activities and potential tailwinds for us as we progress through the year and next year.

And then maybe I could follow up on the second half outlook. A lot of companies have flagged potential cuts in the second half from the memory headwinds. Have you guys seen anything yet that's impacted your customers? And then I was also hoping you could maybe walk through what are the expectations that you have in your second half outlook for the large North American smartphone customer that has some of your IP on their modem.

Sure. So we built some of our expectations top down with knowing that the market in the second half with the seasonality of the Christmas and the ramp-up for introduction of new products around that time frame is strong. We'll need to see how the market deals with the memory pricing and shortages. But right now, we haven't heard anything specific from our customers other than what we have seen in the mobile space on the low-tier phones that we have seen and other companies have talked about Qualcomm in the first quarter of the year with mentioning the recovery going forward. So I don't think we have seen anything yet. I think the market has its way to overcome some of the hurdles when we get to the high season. And we have built all that in, including the North American OEM that doesn't share its internal plans that doesn't share exactly the timing of introduction of new products, whether they're based on their own modem or not. And we have our own estimates that we have built in this model. The rest will look and get the royalty reports on a quarterly basis. And based on that, be able to report. Again, historically, and the more we have added the combo chips that we talked about today with higher ASPs, the more that we have the automotive AI, NXP and Renaissance helping us this year, which were around last year with royalty contribution, the more 5G networks that started the year very strong and then the OEM opportunities in the U.S., it looks like a stronger and promising second half. And this is the reason we took our guidance to the top range of the previous annual guidance of the 8% to 12%...

The next question comes from Madison De Paola with [indiscernible] Securities.

This is [indiscernible] calling on behalf of [indiscernible]. I was just wondering which end markets you are expressing the most interest for [indiscernible]?

Say that again, Matt, sorry?

Which end markets are expressing the most interest in the new [indiscernible]?

Yes. It's broad-based, I would say. We see it in automotive. We see it in some industrial application. We see it also in smart home and consumer application. if we look at the 10-plus more deals that we saw license last year, it's really across all those 4 markets that I mentioned. So I can't point to one that is much more than the others very significantly. It's nicely distributed and wide base. So we mentioned also last quarter, PC OEM. So we are in the PC market, consumer, again, smartphone surveillance and automotive, industrial.

The last question today comes from Martin Yang with Oppenheimer.

First question is on the Bluetooth radio. Is there any plan or intention to extend the IP to other connectivity products, notably Wi-Fi?

Yes, Martin, good question. Yes, definitely. So we started and announced this product first. At the end of the day, we have very strong capabilities across the spectrum of wireless connectivity technology. And the intention and the plan is definitely to expand this to so-call a full solution offering across our wireless connectivity portfolio. So starting with Bluetooth, as you mentioned, the next natural thing will be Wi-Fi and then also UWB and our other technologies. Definitely, that's the plan. And overall, also this quarter, we announced on the satellite side that we're also moving more into complete so-called basement solution, not just so-called offering the components like DSP accelerators, but really the whole basement subsystem. And that resonates very, very nicely with customers, especially customers that wants to make a decision moving from make to buy because they need to rely on more of a so-called ready-to-go solution to help them with time to market and success overall.

A follow-up on your answer, you mentioned that satellite communication, is that primarily still in -- on the market deployment regarding smartphone with satellite-based messaging capabilities? Or are you seeing more emerging applications that?

No, we're actually seeing much more potential on the emerging applications as well. So if we look at the different types of OEM out there, they are basically moving to provide more and more as a service and part of the service, they need a complete solution end-to-end. And we are offering the wireless communication both on the terminal side as well as from the satellite side. and then they will build so-called the complete end-to-end offering with the service. And that service is really to be able to have ubiquitous type of connectivity, whether it's for industrial use cases or logistical use cases and so on or even places where there is very little coverage of wireless infrastructure, and they want to provide that augmentation. So those are all about system well beyond just mobile.

This concludes our question-and-answer session. I would like to turn the conference back over to Amir Panush for any closing remarks.

Thank you. In closing, we believe CEVA is well positioned as the industry continues to evolve towards physical AI, where connectivity, sensing and inference converge at the edge. Our expanding portfolio, combined with our strategy to deliver more integrated system-level solutions is enabling us to increase our value per customer and strengthen our long-term royalty model. We remain focused on executing our strategy, deepening customer relationships and driving sustainable growth. Thank you for your continued support. Richard, I will hand over to you to wrap it up.

Thank you, Amir. As a reminder, the prepared remarks for this conference call are accessible through the Investors section of our website. With regards to upcoming events, we will be participating in the following conferences: Oppenheimer 27th Annual Israeli Conference on May 18 in Tel Aviv; the JPMorgan 2026 Global Technology, Media and Communications Conference, May 20 in Boston, Massachusetts; TD Cowen's 54th Annual Technology, Media and Communications Conference, May 27 in New York; Stifel's Boston Cross Sector One-on-one Conference, June 2 in Boston; the 6th Annual Rosenblatt Technology Summit, the age of AI, June 10, being held virtually; and the 16th Annual ROTH London Conference, June 16 to 18 in London, England. Further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you, and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the CEVA, Inc. Fourth Quarter and Year-End 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead. .

Thank you, Betsy. Good morning, everyone, and welcome to CEVA's Fourth Quarter and Full Year 2025 Earnings Conference Call. Joining me today on the call are Amir Pan, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions. .

We will also be discussing certain non-GAAP financial measures, which we believe provide a meaningful analysis of our core operating results and comparisons of quarterly results. Please see the earnings release we issued this morning for a reconciliation of our non-GAAP financial measures. Our earnings release can be found in the SEC filings section of our Investor Relations website. And with that said, I'd like to turn the call over to Amir, who will review our business performance for the quarter and provide some insight into our ongoing business. Amir?

Thank you, Richard. Welcome, everyone, and thank you for joining us today. 2025 was a landmark year for CEVA. We strengthened our foundation, reinforce our leadership position in wireless connectivity and accelerated our expansion into AI for the Smart Edge. Throughout the year, we continued executing on our long-term strategy, partnering closely with customers to solve their most critical technology challenges through a comprehensive, best-in-class portfolio of IP platforms that enable smart edge devices to connect sense and infer data locally.

This strategy matters now more than ever. the shift of AI inference from the cloud to the edge and towards hybrid AI continues to accelerate, and the next wave of innovation is increasingly about physical AI where devices must connect to and send their environment, process data locally and infer in real time to make decisions. CEVA is uniquely positioned for the physical AI era by offering a comprehensive portfolio of IP building blocks, spanning connect, sense and infer use cases, we provide the flexibility our customers need.

Whether license individually or in multi-IP configurations, these technologies drive superior customer outcomes and strengthen our long-term economic model. Before reviewing the year and our key achievements, I'll first provide an overview of our fourth quarter performance. For the fourth quarter, we delivered the highest quarterly revenue in CEVA's history, which was 7% higher year-over-year, excluding the intrinsic design services business, which we divested in 2023. Licensing revenue increased 11%, exceeding our expectation through strong execution across all 3 of our technologies pillars and reflecting more demand across multiple end markets.

In the quarter, we signed 18 licensing agreements including 3 NPU licensing deals, multiple WiFi 7 and combo connectivity wins and a meaningful software engagement, reinforcing the breath of our portfolio. Of the 18 deals signed, 5 were with OEMs. Turning to licensing highlights regarding AI. We reached 1 of the most significant AI milestones for CEVA to date during the fourth quarter. Signing an NPU licensing agreement with 1 of the world's leading PC OEMs developing its next-generation AI personal compute architecture.

Their selection of CEVA's Newport NPU portfolio is a strong validation of our technology and represents a breakthrough for on-device air adoption in the PC category. This win underscores our ability to set the standards for high-performance AI integration into next-generation computing. This partnership is strategically important on 2 points. First, it demonstrates top-tier customers trust in CEVA's leading and optimized IP foundations to their AI road maps, allowing them to focus their engineering talent on software, model optimization and user experience differentiation.

Second, it confirms that the PC ecosystem has reached a tipping point where dedicated NPUs are a baseline requirement for competitive AI performance. As AI features proliferate across operating systems, creative workflows, productivity applications and local LLM acceleration, the ability to deliver superior performance per is the new strategic differentiator, and CEVA is a key player in this transition.

Importantly, our AI momentum is also increasingly reflected in our financial mix as well as deal activity. A Poesia License Inc. represented a meaningful portion of our licensing revenue in 2025. While AI design cycles can be longer than traditional connectivity deployments, these agreements typically carry a higher per unit and longer-term royalty potential. Expanding content per device and strengthening the durability of our royalty model over time. As for licensing highlighting connectivity, our connectivity business delivered another strong performance in the fourth quarter highlighting the depth and durability of our wireless franchise.

Bluetooth and WiFi IPs continue to see strong demand as customers upgrade to WiFi 7 and Bluetooth high data output throughput. This quarter's deals include WiFi 7 for IoT, a multiuse Bluetooth HDT agreement and 3 Bluetooth WiFi combo wins. One notable win was with the semiconductor division of 1 of the world's largest white good manufacturers, which licensed our WiFi 6 and Bluetooth IP for a combo connectivity chipset supporting smart home applications. This illustrates a broader trend, consumer, industrial and automotive OEMs are increasingly designing their own connectivity silicon to deliver tightly integrated up centric experiences and selecting CEVA as a trusted partner for roadmap critical platforms.

As for sensing, another standout deal in the fourth quarter was a software licensing agreement with a leading TV platform, planning to integrate our motion engine technology into its smart TV operating system used by multiple global TV brands. As TVs evolved into interactive experience hubs, motion-based inputs and enhanced user interactions are becoming increasingly important give us long-standing presence in this market provides deep domain expertise and platform credibility.

Now turning to royalties. This was our strongest royalty quarter in more than 4 years. Growth across our diversified Smart Edge royalty customers more than offset mobile softness, underscoring the strength and resilience of our business model. In the fourth quarter, WiFi shipments reached a record high, up 31% year-over-year, reflecting increased deployment often as part of combo connectivity chips. Cellular IT shipments were up [ 30% ] year-over-year, driven by smart edge applications and Bluetooth shipments continue to be our largest volume category.

We also saw a recovery from a China-based handset customers during the quarter. However, memory pricing and supply constraints continue to impact smart phone shipments. Now turning for the full year 2025 review. For the full year, total revenue increased 2% year-over-year. Licensing and related revenue grew 6%, reflecting strong demand across AI and advanced connectivity. Royalty revenue was down 2% and primarily due to smart phone softness and memory supply shortage, impacting overall unit shipments.

Importantly, royalties grew sequentially each quarter and we exited the year with our strongest royalty quarter in more than 4 years. CEVA Power devices shipped in 2025 reached a record 2.1 billion units up 6% year-over-year with record WiFi shipments, which grew 48% year-over-year and a record cellular IoT shipments, up 42% year-over-year. Overall, we signed 54 licensing agreements in 2025 across our extensive IP portfolio, including 10 OEMs agreements.

Importantly, 12 customers licensed multiple CEVA technologies, a clear indication that our strategy to offer a broad portfolio across connect, sense and infer is resonating and enabling customers to address multiple requirements within a single engagement. Taking a step back, 2025 features several important milestones that reinforce our long-term opportunities. The strength of our connectivity franchise is defined by deep customer integration and scale.

During the year, we signed nearly 30 new engagements for our Bluetooth and WiFi IP underscoring continuous relevance across smart edge markets. We also secured WiFi 7 agreements with 2 of our largest connectivity customers who together have shipped more than 3 billion CEVA power devices. Effectively, establishing long-lived royalty engines that we expect to drive billions of units and tens of millions of dollars in royalties over the life of these programs.

In addition, our ability to deliver integrated combo solutions continues to differentiate us and improve deal economics over time. 2025 was a breakthrough year for CEVA in AI and NPU licensing. During the year, we signed 10 Newport NPU agreements, headlined by a comprehensive new portfolio license with Microchip and strategic engagement with a leading global PC OEM, underscoring our traction across embedded consumer, automotive, industrial and compute markets. This momentum is increasingly reflected not only in deal activity, but also in our financial mix.

With AI processor licensing, representing a meaningful portion of licensing revenue in 2025. Strategically, the licensing agreements we signed during 2025 are building long-term royalty trajectory and visibility. Based on these science agreements and our insights into customers' road maps, we estimate that they represent an aggregated lifetime royalty potential of $125 million over the expected product line.

While this value will be realized over multiple years and is dependent on customer deployment and market adoption, the magnitude of this opportunity relative to our current royalty base, underscores the strength, durability and accelerating momentum of the licensing and royalty flywheel we are building. In terms of scale and credibility, we celebrated reaching 20 billion cumulative CEVA power devices shipped to date during the year and, in fact, exceeding 21 billion cumulative units by the end of the fourth quarter.

These milestones reflect the trust we have built with the industry over decades and position CEVA strongly for the physical AI era now underway. A key strength of our business that is often underappreciated is our diversification across smart edge end markets. In 2025, smart edge applications generated 86% of total revenue, driven by market share gains by CEVA-powered customers across consumer, automotive, industrial and infrastructure markets. As intelligence continue to move into physical devices, this diversified and expanding customer footprint position CEVA to evolve naturally from enabling the smart edge to enabling physical AI where connectivity, sensing and inference converge to drive the next phase of growth.

Entering 2026, we are focused on extending our leadership in established categories. and deepening our integration with our customers' road maps. By providing a more complete IP stack, we are becoming an even more essential partner to our customers, effectively increasing the value per device. Now I will turn the call over to Yaniv to review the financials.

Thank you, Amir. Good morning. I'll now start by reviewing the results of our operations for the fourth quarter of 2025. Revenue for the fourth quarter increased 7% year-over-year and 10% sequentially to an all-time record high of $31.1 million. The revenue breakdown is as follows: Licensing and related revenue increased 11% year-over-year and 9% sequentially to $17.5 million, reflecting 56% of our total revenues. .

Royalty revenue increased 2% year-over-year and 12% sequentially to $13.8 million, reflecting 44% of our total revenue. Quarterly gross margin were 88% on GAAP basis and 89% on a non-GAAP basis. Total GAAP operating expenses for the fourth quarter were $28 million, and total non-GAAP operating expenses for the fourth quarter, excluding equity-based compensation expenses, amortization of intangibles and deal costs were $22.2 million.

GAAP operating loss for the fourth quarter was $0.4 million as compared to GAAP operating income of $0.1 million for the same period last year. Non-GAAP operating margins and income were 18% of revenue and $5.7 million and grew 20% and 26% year-over-year, respectively as compared to non-GAAP operating margins of 15% and non-GAAP operating income of $4.5 million recorded for the fourth quarter of 2024, respectively. Financial income was $1.4 million compared to a net loss of $0.1 million for the fourth quarter of last year.

GAAP and non-GAAP taxes were approximately $2.2 million higher than our guidance of $1.8 million and affected by the adverse tax asset write-off associated with the utilization, limitation of withholding taxes and from a regular geography relocation of revenue recognized from deals and royalty revenues in the quarter. GAAP net loss for the fourth quarter was $1.1 million and diluted loss per share, $0.04 as compared to a net loss of $1.7 million and diluted loss per share of $0.07 for the fourth quarter of 2024.

Non-GAAP net income and non-GAAP diluted income per share for the fourth quarter of '25 increased 86% and 71% to $4.9 million, $0.18 year-over-year, respectively compared to non-GAAP net income of $2.7 million and non-GAAP diluted income per share of $0.11 for the fourth quarter of '24. With respect to other related data. Shipped 606 million units of CEVA power devices, down 3% from the fourth quarter of last year. Of the $606 million reported 108 million units or 18% were for mobile handset models. 479 million units were for consumer IoT products up from 459 million for the fourth quarter of last year.

19 million units were for industrial IoT products, down from 35 million units in the fourth quarter of last year. Bluetooth shipments were 303 million units for the quarter, down from 343 million units for the quarter of '24

Our IoT shipments were a quarterly record 60 million units, up 30% year-over-year, and our WiFi shipments were a record 86 million units up 30% year-over-year. As for the year, total unit shipments were a record [indiscernible] billion devices in 2025, up 6% year-over-year. which equivalents to approximately 66 CEVA power device sold every second in 2025.

Annual modem shipments were down 18% year-over-year to 280 million units, reflecting softness in smart phones. Bluetooth shipments were 1.1 billion units similar to last year. Annual consumer IoT-related shipments were 1.7 billion units, up 14% year-over-year. Annual industrial IoT related shipments were 87 million units, down 31% year-over-year. WiFi, cellular IT and audio AI shipments all showed strong year-over-year growth of north of 40% each.

In terms of royalty contribution, WiFi royalties were up 70% year-over-year, reflecting higher volumes and ASPs from our WiFi 6 customers and cellular IoT royalties were up 20% year-over-year. On an annual financial metrics. Revenue increased 2% to $109.6 million, in line with our updated outlook we shared in May last year. Non-GAAP gross profit remains strong at 88%. Our non-GAAP net income increased 20% year-over-year and diluted EPS increased 17% year-over-year, all contributing to sustainable and gradual growth and profitability.

As for the balance sheet items at the end of the year, cash, cash equivalent, balances, marketable securities and bank deposits were approximately $222 million. In the fourth quarter, we successfully executed a 3.5 million share follow-on offering for approximately $63 million net to strengthen our balance sheet. Our DSA for the fourth quarter was 57 days. And during the fourth quarter, we generated $8.7 million of cash from operating activities, our ongoing depreciation and amortization was $1.1 million and purchase of fixed assets was $1.5 million.

At the end of the fourth quarter, our headcount was 420 for people, of whom 343 were engineers. Now for the guidance. Amir highlighted our achievements in 2025 and the strong fundamentals we have in place to build long-term growth and profitability. From a financial perspective, this execution translates into solid progress across key metrics with annual non-GAAP net income increasing 20% year-over-year and non-GAAP fully diluted EPS growing 7%.

These results were supported by record high revenues in the fourth quarter of 25% and non-GAAP operating margin of 18%, reflecting both operating discipline and improving mix. Building on the consistent progress we have made over the last 2 years gives us the confidence as we enter into 2026, which we view as another year of growth across multiple financial and business dimensions.

In licensing and related revenues, we expect growth to be driven by continued expansion of AI adoption across multiple industries, an increasing mix of higher-value, more integrated engagements and our leadership in wireless connectivity supported by the diversified product portfolio of connectivity, AI and sensing IPs.

On the royalty side, we are encouraging momentum we're encouraging the momentum across our connectivity product lines, including 5G handset modems, Bluetooth, WiFi and cellular IoT as deployment broaden and program license in recent years continue to ramp. While we do not have the control and the precise timing of royalty growth and continue to monitor factors such as memory pricing and the broader market conditions, the underlining trajectory for our business and our diversified end market exposure positions us well moving into 2026.

On an annual basis, our total revenue is expected to grow 8% to 12% over 2025 with lower growth in the first half of the year and higher in the second half similar to prior years and seasonal trends and subject to the memory pricing fluctuation and supply challenges. On the expense side, we continue to demonstrate strong cost discipline and operating leverage. Excluding currency impacts, our overall 2026 non-GAAP expense base including both cost of goods and operating expenses is expected to increase in the range of 1% to 3%, significantly below our expected top line growth reflecting the scalability of our business model, but excluding any FX costs.

During the second half of 2025 and so far this year, the strengthening of the euro and the Israeli shekel against the U.S. dollar has created foreign exchange headwinds across the industry, particularly for companies with global distributed engineering teams. As a result, our non-GAAP -- our non-U.S. dollar-based expenses, which are mainly the research and development teams in Europe and in Israel, are expected to increase by approximately 10% year-over-year, representing an incremental impact of around $5 million.

Taking both factors into account, modest organic expense growth with FX impact, we expect total non-GAAP expenses in 2026 to be in the range of $104.4 million to $108.4 million, with non-GAAP cost of goods sold increasing by approximately $0.5 million and non-GAAP operating expenses increasing by approximately $6.1 million.

Importantly, this outlook reflects our continued focus on disciplined investments efficiency and maintaining flexibility as we support growth across our diversified smart edge markets. From the guidance and activities we have just discussed, we anticipate non-GAAP operating income and non-GAAP net income to increase significantly by approximately 35% to 40% year-over-year.

Annual 2026 equity-based compensation expenses is forecasted to be between $22 million and $23.5 million and the amortization of acquired intangibles and costs associated with business acquisition, approximately $0.4 million to $0.5 million each. Gross margin is expected to be approximately 88% on a GAAP basis for the year. Specifically for the first quarter with traditional seasonality in shipments of consumer IoT and mobile products post the holiday season, revenue is forecasted to be between $24 million to $28 million.

Sequentially lower than the record fourth quarter we just reported, but still significantly higher than the first quarter of 2025 at the midpoint. Gross margin is expected to be approximately 86% on GAAP basis and 87% on a non-GAAP basis due to lower seasonal royalties, excluding an aggregate $0.2 millon equity-based compensation expense and $0.1 million of amortization of acquired intangibles.

GAAP OpEx for the first quarter is expected to be between the range of $27.6 million to $28.6 million higher than the level we just reported for the fourth quarter of 25% at the midpoint of our guidance range, mainly due to the FX effect that I just walked through. Of our anticipated operating expenses for the first quarter, $5.2 million is expected to be attributed to equity-based compensation expense, $0.1 million for amortization of acquired intangibles and another $0.1 million of costs associated with business acquisitions. Non-GAAP OpEx is expected to be in the range of $22.2 million to $23.2 million.

Net income is expected to be approximately $1.7 million. Taxes for the first quarter are expected to be approximately $1.3 million, and the share count for the first quarter of '26 is expected to be approximately 27.7 million shares on GAAP and 29.4 million shares for non-GAAP basis. Betsy, you could now open the Q&A session, please.

[Operator Instructions] The first question today comes from Kevin Cassidy with Rosenblatt Securities.

Congratulations on the great results. for your NPU pipeline, can you just give an idea of the scale? How much -- how many more engagements do you have right now compared to, say, this time last year? And maybe even with the end market exposures are.

Yes, Kevin, thanks a lot for congratulating -- as for the questions. First of all, we started I'm very, very encouraged by how we executed in 2025, our penetration into the that was a year of very significant market share gains as well as more than 10 deals that we have been able basically to capture. With that, we have built a complete portfolio of NPUs for all the different type of edge, smart edge markets and has that transition to the physical AI. So overall, we are very well positioned right now going to 2026.

The pipeline overall is -- keeps growing across pretty much all the different type submarket segments that we see across the market. This is true for consumer, different type of computing devices, different type of embedded MCU type of applications as well as in the industrial as well as in automotive. Really, we see a very healthy pipeline across all these submarkets, very encouraged with how we have executed and how we see the future going to 2026 on this.

Okay. Great. And just as a follow-up, a little clarification on the PC OEM, and congratulations on that. But I just wanted to make it clear, I think you saw the dedicated NPU. So is this a separate chip? Or is it integrated in CPU package shoot in the same silicon with the CPU. .

Yes. So first, it's definitely a design wins are that we're extremely, extremely excited about. This is 1 of the top PC OEMs out there. And this is for an OEM that decided to build so-called their own internal AI and NPU functionality within so-called the SoC platform that they're integrating into. So basically, what we are delivering them is the whole core NPU functionality, and then they integrated into the SOC that they are building.

So a separate chip separate for NPU. .

Next question comes from Ruben Roy with Stifel.

And echo the congrats on a nice end to '25. Amir, maybe I could follow up on Kevin's question and just talk a little bit more about the NPU win. Can you talk a little bit about the competitive dynamics for that because you have others like ARM sort of integrating NPUs. So how should we think about the functionality? Are there going to be multiple NPUs, do you think in PCs going forward as the AI workloads evolve? Or is this something where from a competitive basis, you guys were able to displace sort of the existing solutions maybe that are available to the OEM.

Yes, definitely, Ruben. So first, I would say that the way that we see right now on the landscape and definitely for the high-end compute devices is that there is stronger and stronger need to really best-in-class performance. And by that, I mean, the power provides that you can generate, the so-called the latency or the performance of throughput per token that you generate -- this really requires so-called a co-architecture and flexibility of the architecture to deliver best-in-class, what we call PPA, power performance area that deliver basically a very competitive landscape for our customers.

With this specific OEM, they looked at what is available out there and they want to make sure that they have complete internal integration between the hardware and the software to drive the so called the high performance that they need. But what they need is the underlying core silicon IP technology with the software has come on top of that, that deliver for them the best-in-class performance. And I think we are well, well positioned competitively and that's why they picked up in this specific basically designed.

Right. Okay. Very helpful. And then as a follow-up, just to go through the guidance again a bit here. You guys talked a little bit about recovery in China from a handset customer and obviously, there's some moving parts with memory pricing, et cetera. So in thinking through sort of the first half versus second half commentary, can you just give us a little bit of a a little more detail on how you're thinking about sort of end demand relative to dynamics out of your control, like memory pricing, et cetera, on first half. Is it much different would you say, from typical seasonality? I mean if you look at as Jan has said, you're up year-over-year at the midpoint. And seasonally, it looks pretty similar to what you saw last year. So I'm just wondering what some of the assumptions on things out of your control might be in the first half, maybe if that's much different from typical seasonality.

Yes. I would start first that our business, a significant portion of our business is really not so-called dependent on mobile. It's well were diversified across the different submarkets of the smart edge. And in that market, we keep gaining market share our customers keep ramping with our different type of technologies. And overall, we expect similar seasonality as we have seen in previous years. But with that seasonality, we keep increasing our market share. Now more specifically on mobile, where potentially there is so-called more dependency or can be some impacts related to the memory supply.

First, again, we are going to see increase in market share, thanks to the mobile OEM that is going to integrate more and more the internal modem, at least to -- that's our expectation moving forward. But on a so-called integrated basis, with the other smart phone OEM that we have, definitely, again, there is potential impact coming from the memory shortage. And even there, we do expect meaningful seasonality between the first half and the second half. So on an aggregated basis, we're still expecting quite strong seasonality in 2026 as well, while driven by market share gain across all the different markets for us.

Rubin maybe add to that, that our customer in China that you referred to, most of his sales are export to the rest of the world, India a big market, Latin America, Africa, Eastern Europe type, so it's not necessarily domestic use. And therefore, the demand and demand is good. The question is how they will perform with the memory shortages and price. That's just a little bit of another at dose with regards to demand and demand at least for the products. .

And back to your first question, another references to the NPU, we came up with another press release of highlighting the entire notes Q4, but the entire activity and results and achievements we had with AI and in that press release, we are -- this morning, we are saying that 6 of the NPU customers that have signed with us over the last year to 2 years, should be ready in production by the end of the year and then probably or hopefully a royalty contribution at the beginning of 2027 for us from this relatively new product line. So that's quite encouraging and we'll wait and continue to monitor their progress.

That's really helpful, Jan. And I guess you just made me think of another question. So apologies, but I'd just love to follow up on that last point that you made, which is I mean you talked about the $125 million in lifetime royalty potential and you've got a PC NPU deal here, PC design cycles maybe are a little bit quicker than some of the stuff that you might expect from, let's say, a microchip that's much more broad-based into a lot of different markets.

So if we think about the waterfall of the $125 million, it sounds like you're going to start to see, some of that in '27, any way to think about that pipeline relative to how it will flow into the model outside of what I just said, PCs may be a little bit faster than some of the broader markets? Or anything else you can add on the pipeline, that would be great.

I think that over time and not necessarily the first 6 part of them, yes, we're going to see -- on 1 hand, the higher royalty contribution because as Amir explained, our offering today is both the high end and low end, very sophisticated automotive, PC type of application as well as IoT and wearables and low power type of devices.

So the most important thing is higher volume for these new royalties. But on top of that, also higher ASPs on at least the higher end stuff. It's all a mix, and this is a little bit more difficult to predict exactly how 2027 will look like and when it's going to hit with the first half or the second half, but when we monitor these customers of ours and when we support them in their design cycle, these are the dates and the opportunities we see in front of us.

Overall, an increase in dollar revenue content from a new market for us. This is on top of the connectivity, this is on top of the IoT and mobile. It's essentially the third leg of AI. we did very well in licensing, just over 20% of our licensing revenue for the first time ever in 2025 come out on that market. And potentially, in '27, we could see also those royalties start to kick in, indeed, exciting signs.

Yes, I would just add to that, Yarin. Definitely, we are extremely excited and encouraged by the fact that those design wins are going to generate our estimation, $125 million in terms of royalty potential. And you pointed out very correctly on the consumer PC and so on, the time to royalty is shorter. And definitely, we expect with that market type of design wins that it will also start generating in 2027.

The next question comes from Suji Casita with Roth Capital.

Congratulations on the strong year and the progress here. The PC OEM win, just keeping up on that, is it more likely that it was a one-off special case for this OEM? Or would you think on the other hand, there's pipeline potential for additional OEMs to follow suit considering CEVA-based solutions as well.

I would say first the PC landscape is such that the number of customers, of course, is not super large versus, let's say, they had a more diversified IoT market segment that we're addressing as well. But within that landscape, having the ability to internalize the AI capabilities, and we've had the software hardware integration and the specific optimization to the use cases that they want to drive it's a big value add.

So definitely, there is potential that others will follow suit with the same type of configuration. And regardless of that, of course, we are extremely excited by the fact that after very significant lengthy type of valuation, we came at the top based on very, very strong performance metrics that we can provide to, in this case, with the PC, but for potentially other PC customers as well as in other high-end compute devices that need the high-performance type of metrics.

Very interesting. And then separately, you highlighted in your prepared remarks, Aamir, physical AI. I was curious what pipeline opportunities there are there or current opportunities there are in physical AI that you would call out in terms of apps and which physical app categories are the largest incremental royalty opportunity for you as that ramps up?

I think what is emerging more and this is so-called the grow far beyond so called our traditional market segments that you're after is everything related to robotics. We're already addressing and in we'll keep gaining market share in the type of like automotive and under industrial application and the border IoT. But what is really exciting right now so called specifically related to physical expansion of those capabilities on a cross wireless connectivity, they need, of course, to sense and understand the environment and then make an inference on a decision based on all that information that really is going to happen across robotics.

And now robotics moving so-called for a small volume in, let's say, warehouses to potentially be everywhere and supporting all human beings worldwide. So there is a very big potential there. Of course, as the year progresses, we will see the real impact of that.

[Operator Instructions] The next question comes from Alex Valero with Loop Capital.

This is Alex on for Gary. My first question is on your fiscal 2026 guidance. What specifically would need to improve in fiscal '26 to trend toward the high end of your guidance range or even above your end of the guide?

Yes. Obviously, in guidance, you have the 2 aspects, revenue and expenses. On the revenue front, the 8% to 12% was our long-term growth trajectory back from on the Analyst Day that we did back in December of 2 or so 3 years ago. So that's still intact. Maybe we've been behind in '25, but we're back to back to that. Stronger licensing, obviously, could help us royalty ramp up for many of these markets that we talked about this year, less or more effect from memory.

Those are the normal typical events that could influence the royalty level, obviously, the timing of different product ramp-ups and things like that. On the expense side, some of the biggest element for us this year is less associated to the organic plans and running the company. It's more of a macro thing, which is what I talked about earlier, the currency exchange rate differences between this year and last year and dollar compared to many other currencies around the world.

And while most of our R&D is outside the U.S., this is hurting us. If there will be some type of future change throughout the next 6 months or so, 1 way or the other, that could shorten or increase the gap. But on the other hand, we are fully in control to still offset that or enjoy that if it's on the positive side. So I think these are the more or less moving pieces in our business from a cost management we came out with a pretty low expense increase and are managing our investments very, very tight and efficient to try to maximize shareholder value.

But maybe just to add on that, Alex, in terms of unpacking so-called what are the driver for the top line growth as we look First, definitely, our very strong leadership in wireless communication, we see us keep gaining more both on licensing and the royalty keeps increasing very, very nicely across all those different types of submarkets. The second, of course, is our momentum in AI, extremely encouraged about what we have seen in 2025, and we have all the so-called the capabilities from a product portfolio and engineering capabilities to drive that momentum even further in 2026.

And then last but not least, is overall, our expectation will keep gaining market share both in mobile and WiFi from a royalty basis, mobile coming from the U.S. mobile OEM and on the WiFi coming from just the continued penetration of our technology and the transition into WiFi 6 and 7 and Bluetooth 7, the driving higher royalty per unit.

Got it. I really appreciate all that color. Just a quick follow-up. So with your recent capital, your recent equity capital raise, I believe you are about that. $200 million in the balance sheet. How do you think about M&A today? And what do you think about the current valuation?

I think you guys are the expert for that, right? We wanted to strengthen our balance sheet. We're looking for nonorganic growth to grow faster and gap that licensing to royalty 18 to 24 months time frame. That's the merit in raising that cash. And that's our goal. That's our goal for the next 12 months to find the right state, Technology-wise, market-wise, business-wise, to increase that.

Hopefully, when the market -- if we do well and continue to execute and the market understand that CEVA is a very interesting AI play which I'm not sure we're yet being recognized for that. I see a lot of value for shareholders, but those -- that's your quarter 4, not hours. -- manage the business.

One thing to -- thanks, Jenny. One thing to add to that, Alex, in terms of the balance sheet or the cash position, I strongly believe we really have built excellent, excellent IP enterprise in terms of being able to deliver so-called IP licensing across many different markets. And the goal, of course, is to utilize that balance sheet to find additional assets out there in the IP domain that we can take on and expand even further our potential for growth and profitability. So this really helps us to have the financial strength to go and be able to expand it further.

This concludes our question-and-answer session. I would like to turn the conference summary.

I want to thank our employees worldwide for their dedication and execution through 2025. We entered 2026 from a position of strength with a diversified business model and deep customer integration across the market, driving the emergence of physical AI with leadership in connectivity, accelerating traction in AI and a portfolio designed to scale across connect, sense and infer, we believe CEVA is well positioned to continue building long-term value for our customers and shareholders. Richard, I will hand over to you to wrap it up.

Thank you, Amir. As a reminder, the prepared remarks for this conference call are accessible through the Investors section of our website. And with regard to upcoming conferences, we will be participating in the following events. Mobile World Congress, March 2 through 5th in Barcelona, Spain. Loop Capital Markets Seventh Annual Investor Conference, March 10 in New York, the Stifel 2026 New York City Technology InOne Conference, March 11 in New York and the 38th Annual Roth Conference March 22 in California.

Further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you, and goodbye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the CEVA Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded.

I'd now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence and Investor Relations. Please go ahead, sir.

Thank you, Rocco. Good morning, everyone, and welcome to CEVA's Third Quarter 2025 Earnings Conference Call. Joining me today on the call are Amir Panush, Chief Executive Officer; and Yaniv Arieli, Chief Financial Officer of CEVA. Before handing over to Amir, I would like to remind everyone that today's discussion contains forward-looking statements that involve risks and uncertainties and as well as assumptions that if they materialize or prove incorrect, could cause the results of CEVA to differ materially from those expressed or implied by such forward-looking statements and assumptions.

Forward-looking statements include statements regarding our market position and industry trends, including with respect to embedding of AI across customer product lines and customer licensing of NPUs for AI interfacing, regarding demand for and benefits of our technologies, expectations regarding revenues, including higher royalty potential for AI agreements and our financial goals and guidance regarding future performance. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

We will also be discussing certain non-GAAP financial measures, which we believe provide a more meaningful analysis of our core operating results and comparison of quarterly results. A reconciliation of non-GAAP financial measures is included in the earnings release we issued this morning and in the SEC filings section of our Investor Relations website at investors.ceva.com.

With that said, I'd like to turn the call over to Amir, who will review our business performance for the quarter and provide some insight into our ongoing business. Amir?

Thank you, Richard, and good morning, everyone. We are pleased to report a third quarter that exceeded our expectations on both revenue and non-GAAP EPS, with revenue of $28.4 million and non-GAAP EPS of $0.11. In licensing, we secured several strategic agreements that reinforce our market-leading position in wireless connectivity and accelerate our expansion in AI. This quarter was marked by strong execution across our core pillars; connect, sense and [indiscernible] and highlights the breadth and strength of our IP solution portfolio.

The most significantly in this quarter was in we are Microchip, one of the world's leading microcontroller and connectivity providers and whose products power billions of devices across industrial, consumer, automotive and other end markets, adopted our full NeuPro NPU portfolio for its future road map. This win is a strong proof point of a broad industry trend, major MCUs and semiconductor vendors are embedding AI capabilities across their product lines, bringing more on-device intelligence or performance, user experience, privacy and costs.

Selecting CEVA gives Microchip a complete portfolio of AJI inference solutions for ultra low power inference for MCUs to high-performance AI in advanced systems, all under a unified software stack. This flexibility allows them to standardize AI deployments across industrial, automotive, consumer, communications and compute market without compromising on power or costs. Let me take a moment to talk about the role of NPUs in the boiler AI ecosystem. At the end of the day, an NPU is optimized compute engine for AI inference, just as CPUs orchestrate system control and GPUs accelerate graphics. Companies rarely reinvent CPUs or GPUs, they license, proven process of IP and focus on system integration and software differentiation.

We believe MPUs will follow the same path, licensing, a proven and scalable NPC texture delivers the performance and scalability customer needs while bring resources to focus on optimized model and application-specific experiences. CEVA is uniquely positioned to lead this transition. We have a full-range NPO portfolio, a unified software framework and tools and a strong partner ecosystem. This enables customers to focus on differentiated model and experiences while we provide the scalable proven technology foundation. Our recent NeuPro engagement with a leading MCU vendor is a powerful validation of this approach.

Beyond the NeuPro portfolio win, we signed 3 AI DSP agreements that broaden our reach across consumer electronics and automotive. First, a leading global electronics brand is integrating our AI DSP into its next-generation edge SoC family for home appliances and any [indiscernible] voice contextual awareness in connected devices. Second, a high-profile automotive customer expanded its use of CEVA AI DSPs and accelerators for [indiscernible] compute platforms now entering production. And new engagements with an innovative ADAS chipless architecture company, strengthening our position in automotive.

AI processor licensing is now a very meaningful and growing part of our business, contributing roughly 1/3 of the licensing revenue in both the second and third quarters. The first time AI has had such a significant impact on our licensing mix. In addition, this AI agreement typically carry a higher royalty potential than our traditional licensing business. further enhancing long-term value.

Moving now on to wireless connectivity, which represents a core pillar of our growth strategy and a powerful hotel engine into AI. We had another impactful quarter. We delivered wins in both established standards like WiFi 6 and Bluetooth 5 and next-generation standard. This quarter, a long-term customer licensed our latest WiFi 7 and Bluetooth high data throughput IP for upcoming road maps. These standards offer higher throughput, lower latency and improved power efficiency, which are essential for advanced audio, wearables, robotics and border physical AI use cases.

These transitions are not one-off wins. They cement multiyear royalty ramps as customers build on power generation and continue forward with CEVA technologies as core, enablers of connectivity and AI. By consistently delivering end-to-end multi-standard connectivity solution, together with advanced sensing an AI IP, we provide a unified foundation for intelligent connected devices. This positions us as the de facto partner for next-generation connectivity and strengthen our leadership as AI and sensing adoption expense across markets.

Now turning into royalties. We delivered street growth across most of our markets with royalties up 6% year-over-year and 16% sequentially. Consumer IoT was a key driver, posting 9% year-over-year growth supported by record shipments in cellular IoT and wire. Our 5G ran infrastructure customers also had a strong quarter with revenues up 91% compared to last year. In automotive, 2 large semiconductor customers continue to ramp up volume shipments for ADAS solution based on our AI DSP, contributing to overall royalty growth in the quarter and beyond.

Mobile royalties grew 4% year-over-year and 7% sequentially, driven by recovering low-end smartphone segment. At the high end, our U.S. OEM customers launched a second smartphone model, featuring its in-house 5G model with CEVA technology. And as this model expands into more markets in fourth quarter, we expect further royalty growth. In summary, this quarter's AI-led licensing momentum and continued progress in wireless connectivity highlights the berth and scalability of our IP across Sense, Connect and infer. These wins strengthen our pipeline, increased visibility into future revenues and reinforce CVA wall as a foundational technology provider for intelligence, connected and increasingly physical AI devices.

Now I will hand the call over to Yaniv for the financials.

Good morning. Thank you, Amir. I will now start by reviewing the results of our operations for the third quarter of 2025. Revenue for the third quarter was $28.4 million up 4% compared to $27.2 million for the same quarter last year and up 11% sequentially. The revenue going down is as follows. Licensing and related revenue totaled $16 million, representing 56% of our total revenue for the quarter. This reflects a 3% year-over-year increase and a 7% sequential increase. Licensing revenue for the first 3 quarters of '25 reached $46.1 million a 4% increase compared to $44.3 million for the same period of '24.

As Amir noted, this growth preliminary represents strong traction in AI following multiple significant design win for NPUs and AI DSPs. AI processor licensing contributed roughly 1/3 of the licensing revenue in both the second and third quarters demonstrating solid momentum and strategic progress. Tesco to the importance of our NeuPro NPU portfolio and AI DSP offerings as key growth drivers going forward. Royalty revenue for the third quarter was $12.4 million, reflecting 44% of total revenue, a 16% sequential increase and a 6% increase year-over-year. Consumer IoT is a key driver with posted 9% year-over-year growth supported by record shipments in cellular IoT and WiFi.

Gross margin came slightly better than our guidance, 88% on GAAP basis and 89% on non-GAAP basis, compared to 85% and 87%, respectively, a year ago. Total operating expenses for the third quarter were $27.1 million at the higher end of our guidance. Our total non-GAAP operating expense for the fourth the third quarter, excluding equity-based compensation expenses, amortization of intangibles and related acquisition costs for $22.1 million, at the higher end of our guidance as well, mainly due to higher employee benefit provisions associated with better financial results.

Non-GAAP operating margins and net income improved significantly over the first and second quarters of 2025, reaching 11% of revenue and $3.1 million, also higher than 80% and $2.1 million recorded in the third quarter of last year. GAAP operating loss in the third quarter was $2.1 million as compared to GAAP operating loss of $2.6 million for the same period in 2024. GAAP and non-GAAP taxes were $1.7 million, just below our guidance. GAAP and not the admitted loss for the third quarter of 2025 was $2.5 million, [indiscernible] loss per share was $0.10 as compared to a net loss of $1.3 million and then loss per share of $0.06 for the same period last year.

Our net GAAP income -- non-GAAP net income and diluted income per share for the third quarter of '25 was $2.7 million and 11%, respectively, representing $0.01 over street estimates. In the same period last year, net income was $3.4 million and diluted income per share was $0.14. With respect to other related data, shifts units by CEVA sbe licensees during the third quarter of 2025 and 559 million units. -- up 19% sequentially and 11% up year-over-year. Of these, 69 million units or 12% were mobile handset volumes. -- a record 10 million units were for IoT, up 13% year-over-year with consumer IoT reaching 500 million units and industrial IoT totaling 10 million units. Net shipments were 303 million units in the quarter, down 1% from $306 million in the third quarter of 2024.

Cellular [indiscernible] were all-time record high with 69 million units, up 41% year-over-year. While price shipments also reached an all-time high of 82 million units, up 73% from 47 million units a year ago. WiFi 6 shipments also set a new record, up 194% year-over-year as customers continue to ramp up deco. Our wireless IP portfolio, which includes Bluetooth, WiFi, UWB and cellular IoT achieved its strongest royalty revenue quarter on record. These shipments and loyalty trends reinforce the adoption of next-generation connectivity standards. We serve the foundation for AI embedded devices and position CEVA for multiyear royalty growth.

For the balance sheet items. As of September 30, 2025, sales cash, cash equivalent balances, marketable securities and bank deposits were approximately $162 million. In the third quarter, we purchased about 40,000 shares for approximately $1 million. all of 2025 repurchased approximately 40,000 shares for approximately $7.2 million. And today, around 684,000 shares are available for repurchase under the repurchase program, which was extended in November of last year. Our DSOs for the third quarter of this year, 47 days, a bit higher than the last quarter, but in line to our norm in prior quarters.

During the third quarter, we used $5.9 million of cash flotation activity. Ongoing depreciation and amortization was $1.2 million in the purchase of fixed assets was $0.4 million. At the end of the third quarter, our headcount was 434 people improved $35 million our engineers.

Now for the guidance. Our licensing business remains strong. supported by robust pipeline and deal flow across our 3 core billions, connect, send and insure. We delivered the sixth consecutive quarters with licensing revenue above $15 million, underscoring consistent execution. Royalty revenue typically strengthen in any given second half and third quarter reflects this trend with 16% sequential growth and 6% year-over-year.

Looking ahead, we expect continued seasonal momentum in the fourth quarter driven by share gains and a U.S. OEM smart for customers using our technology and its in-house 5G modem and by strong ramps, WiFi and cellular IoT. We're maintaining our full year revenue guidance as previously discussed and aligned with Street estimates for the year. As for the fourth quarter, total revenue is expected to be in the range of $29 million to $33 million. Gross margin is expected to remain high and at the same level of Q3, approximately $0.88 of GAAP basis and 89% on non-GAAP basis, exclude aggregate of $0.2 million for equity-based compensation expenses and $0.1 million of amortization of acquired intangibles.

OpEx is expected to be higher than third quarter in the range of $27 million to $28 million. Of our anticipated total operating expenses for the third quarter $4.7 million is expected to be attributable to equity-based compensation expenses, $0.2 million for amortization of acquired intangibles and $0.1 million for expenses related to a business acquisition. Non-GAAP OpEx is also be expected to be higher than the third quarter in the range of $22 million to $23 million. Net interest income is expected to be approximately $1.5 million. Taxes for the third quarter are expected to be approximately $1.8 billion and the share count for the third quarter is expected to be approximately 25.8 million shares.

Rocco, we can now open the Q&A session, please.

[Operator Instructions]

Today's first question comes from Chris Reimer from Barclays.

Congratulations on the strong quarter. Looking at shipments, you mentioned the strong momentum in the smartphone customer that was driving the royalties. I was wondering if you could describe any of the other segments and how they're doing, if there might be any other ramp-ups coming to market in the near term?

Yes, Chris, this is Amir. Thanks for the question. Definitely, we see growth momentum in terms of our royalty book in terms of seasonality and overall coming from basically a multiple different opportunities. One, of course, is the mobile that we mentioned with the large U.S. OEM. The other thing, from a seasonality point of view in mobile, the low-tier customers, which we have in mobile, we expect them to continue basically the sequential growth as we go through the year.

The other things that we mentioned and when we see more and more that's happening is basically the WiFi shipment volume growth and the transition from WiFi [indiscernible] to the more latest standard WiFi 6 which on its own also basically goes with higher ASP per unit. And with that, will drive higher royalty overall. In addition to that, we see the cell of IoT keeps growing very nicely and we had another record high this quarter, like the [indiscernible] shipments. And the last year that we mentioned things related to automotive ADAS system. We have now 2 customers that started to ramp in volume for , and we expect that to continue to grow in Q4 and for the next few years as well.

And additionally, in [indiscernible] we had a customer that was acquired by Qualcomm and this is also growing and ramping right now, and we expect that to continue to drive additional work -- so all in all, for significant WiFi growth, [indiscernible], gaining more market share in mobile and doing better in automotive, all these will drive votes we move forward.

Yes, that's great color. Just touching on the Microchip partnership and -- in addition, with the other NPU deals that you're making, is there any change in the time line to development and getting products into the market? And is there any change in the types of flex? Just wondering about any color there?

Thanks, Chris. So first, we are super excited about this opportunity where Microchip decided licensed our complete portfolio of NPUs all the way from the lower power performance type of MCU needs all the way to more high-end type of influence needs in infrastructure and data centers. So this is really great opportunity to collaborate with a great company like Microchip. n

In terms of the time to market, it's similar to to the most part, other technology that we see, which particularly it's between 18 and 24 months from the time that we started design until our customers basically go to production and start to ramp up. So overall, I would say this is not different than much for many of the other design wins that we have had.

Got it. Got it. That's it for me. I'll jump back.

[Operator Instructions]

And our next question comes from [indiscernible] Securities.

This is [indiscernible] calling on behalf of Kevin Cassidy. I was just wondering when can we expect to see the Microchip shipments hit CEVA's royalty revenue? And what is the time frame of the license?

Yes. It's a typical license agreement is a few years and then usually a customer come and licenses, the next generation or different enhancements and new features that we come up and develop over the years. That's our normal life cycle of a licensing deal. And royalty, I think Amir mentioned that we don't see the NPU or AI business line any differences or significant differences versus the other IoT and we connected the die, usually design cycle of the chip run anywhere between 1 to 2 years and then productization and ramp up. So anywhere between the 2 years to 3 years, you usually find and see the royalty stream, especially for big and a successful company, that's the norm that we have seen in recent years. So we don't think AR is any different than the other IP that we license.

Maybe 1 more comment I will add. This is Amir. First, in terms of the deal itself, this is a multiyear deal. So this is really to provide great access to our technology to Microchip to element that they cause all the product line, and we are very excited with that. but also definitely, AI is the markets where technology in terms of innovation and new needs coming very quickly.

So we do expect, especially in the AI domain that the cycle of innovation and speed towards innovation will drive a renewal of those deals of additional capabilities to come on a regular basis of every year or 2. So definitely, there is more opportunity to keep upsell the technology as we drive more of that development.

[Operator Instructions]

Our next question comes from Zhihua Yang at Oppenheimer.

Can you maybe go into more details on which Microchip product family or verticals will be prioritized initially? Is it industrial, automotive, any other data centers? And how do you think about the attractive of those end markets, respectively, based on when or which goes to market first?

Yes. So Martin, thanks great question. Again, to clarify, in terms of the deal itself, this is to provide full access for all the different ranges of needs of NPUs to all the different markets that Microchip have business at -- in terms of which will come first, we can't really go into the details of what our customers is planning to do, but it will definitely be on so-called the full spectrum of that range. So we do expect -- we have multiple programs where some of them are more, I would call it, the embedded entry product lines, and some of them are more towards the infrastructure and the data center type of solutions.

One more question. How do you think about the process that of getting new Pro integrated with your connectivity IP. Is there a strong interest by customers for both of those? And if so, how far along with productization and mass production?

Yes, that's a great question. First, with this specific customer, for example, yes, we have, in the past, license connectivity and very likely to continue licensing additional connectivity technology as we move forward. So we definitely see a good synergy or the ability to license both connectivity technology and NPL technology. And then as you go towards more the embedded system, that's where the integration of the 2 technologies makes lots of sense and provide additional time-to-market advantage, cost and power efficiency of the solution.

And those are the things that we typically really master very well and can enable our customers to compete very successfully in the marketplace. So that combination will play to our strengths as we keep moving forward in the previous quarter. We talked about several deals of NPU coming together with 1 and that trend will continue. So we are very, very informed with what we have seen so far, really building on the wireless connectivity leadership. And then on top of that, we are now driving very good access in terms of design wins and accessing the markets with our AI solution.

Our next question comes from David O'Connor of BNP Paribas.

Yes, thanks so much for letting ask a question. Maybe, Amir, just firstly on -- again, sorry to go back to the Microchip deal. But if you could give us just a bit more color around what the competitive landscape looks like for you to kind of secure that win. Was it mainly internal IP that you were competing against -- was there a lot of kind of anything you can share around what that led to that? And why exactly now?

I mean, you for itself, you guys have been developing for some time. Why exactly now did the Microchip license NeuPro? And also, maybe as a follow-on, can you talk as well around the sustainability of that kind of AI looking forward. So when we look in the bike how does that look? Is there other potential microchip? Any kind of color you can share on that would be helpful.

Yes. Thanks, David. Really like 3 different questions. I'll try to address each of them. So first, from a competitive landscape, this is also what I mentioned in the prepared remarks related specifically to NPU. NPU feel like we believe like other processors, whether it's a CPE or a DSP or GP -- we believe that the majority of the companies out there are not going to build on their own or make on their own, and they will go and license this -- the technology. So we believe there is a good opening and opportunity ahead of us to license NPU technology.

And the same then they apply to the customer, which we competed with other potential ice vendors rather than the mix versus pipe. And we believe, again, that's a great opportunity for us. The reason that we have won in this account, and now we're seeing the momentum, which is, honestly, it's not just now, it's for the last 2 quarters in bigger numbers. And for the last 4 quarters, we're really starting gaining the momentum. It's because we are delivering 3 major ingredients, but each of them is quite unique to us, and all of them is extremely unique of what we can offer.

One is now a complete portfolio of NPUs, starting again from the low end to the higher end of the spectrum for inference use cases. So again, folly. Second is combined software stack that can support all the different hardware configuration underneath and 1 that can quite easily get integrated by our customers into their whole software stack. So again, very after state supports all our combined portfolio. And the last piece is that within each of those different configuration, we believe that we have 1 of the best, if not the best, optimization in terms of the architecture and technologies with an order of the head of between power, cost, size and performance.

So again, extremely competitive offering on each ingredient on its own on top of the portfolio and then the software aspect that comes on top of it. And we believe all those 3 ingredients coming together provide us a very good competitive advantage in the marketplace.

The last is about the sustainability of the business. And then when we look at pipeline ahead of us, it aligns quite nicely with the momentum that we have generated in the last 2 quarters. So a significant portion of the pipeline comes from AR NPU product line, that, as you mentioned, we have invested in that for the last few years, and now we really see that materializing nicely. So I cannot say that on a quarterly basis, that's exactly going to be the revenue recognition fees can vary on a quarterly basis, but it's a long-term trajectory, our pipeline definitely supports this level of revenue and potentially even above it.

Very helpful. That's great color. And maybe just following on from that 1 for Yaniv, on the OpEx side of things. Given the kind of interest and acceleration you're seeing on the new Pro AI side of things, can you just speak to the OpEx? Is that in the base? Or can we expect maybe a step-up in optics required there to support that growth that you're seeing? Anything around the OpEx related to new pool [indiscernible]?

Yes, sure, David. 2 things on that. One, definitely, as you have seen for the last few years, we definitely manage very fully expenses, and we would like to drive continued momentum on the bottom line. Having said that, definitely, we see a significant opportunity ahead of us, both actually on keep expanding our wireless connectivity leadership as on the AI that now we really have the proof points and the success in the marketplace.

So when I take these 2 points into consideration, definitely, we look how we can keep investing and adding the capabilities to drive revenue growth. all while at the end of day stay quite disciplined on how we invest our money.

So for lab, for Q4, we gave the specific guidance. You won't see big changes in OpEx in R&D investments. Going forward, we need to do planning and discussion and probably we'll do it later or early next year about 2026 investments and how we see the opportunities and the potential ROI in this specific very, very exciting market. see that we have managed to penetrate into and something the sign some very, very interesting and lucrative deals.

Yes. And overall, David, I would just conclude, we're really excited about the momentum that we are seeing right now and the competitiveness of our technology. Again, both on AI and overall, the ones connectivity leadership with the volume keeps going up quarter-over-quarter. Great color.

And that concludes our question-and-answer session. I'd like to turn the conference back over to pause for any closing remarks. Please go ahead.

That's fine. I'll take it here. Thanks very much, Rocco. On behalf of the CEVA team, thank you for joining us today. With AI now contributing over 1/3 of licensing revenue and connectivity shipments hitting record highs we are well positioned for sustainable growth and expanding our role as a foundational technology provider for intelligent connected devices. We look forward to meeting many of you at the -- during the third quarter at investor conferences.

As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8-K and accessible through the Investors section of our website. With regards to upcoming conferences, we will be participating in the following conferences the 14th Annual ROTH Technology Conference, November 19 in New York, the UBS Global Technology and AI Conference, December 2 in Scottsdale, Arizona; and the Northland Growth Conference, December 16 being held virtually. Further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you, and goodbye.

Thank you. That concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.