# CEVA INC (CEVA) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CEVA INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1173489/000143774925005523/ceva20241231_10k.htm
Accession: 0001437749-25-005523
Filing date: 2025-02-27
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/CEVA/
All MD&A years: /company/CEVA/mda/
Previous year: /company/CEVA/mda/fy2023/ (FY 2023)
Next year: /company/CEVA/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the consolidated financial statements and related notes appearing elsewhere in this annual report. This discussion contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those included in such forward-looking statements. Factors that could cause actual results to differ materially include those set forth under “Risk Factors,” as well as those otherwise discussed in this section and elsewhere in this annual report. See “Forward-Looking Statements and Industry Data.”

BUSINESS OVERVIEW

The following discussion and analysis is intended to provide an investor with a narrative of our financial results and an evaluation of our financial condition and results of operations. The discussion should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2024, both appearing elsewhere in this annual report.

We are the leader in innovative silicon and software IP solutions that enable smart edge products to connect, sense, and infer data more reliably and efficiently. Commanding 67% of the wireless connectivity market share based on IP design revenues in 2023, according to IPnest, we believe we have the industry’s broadest portfolio of comprehensive wireless communications and Edge AI IP platforms and embedded software solutions. We power the connectivity, sensing, and inference capabilities in today’s most advanced smart edge products across four large, diversified markets with significant opportunity for long-term growth, consumer IoT, automotive, industrial and infrastructure, as well as the mobile and PC markets where we have well established customers and presence, which based on our research we believe will represent a $5 billion total addressable market by 2027. Since 2003, more than 19 billion of the world’s most innovative smart edge products from AI-infused smartwatches, IoT devices and wearables to autonomous vehicles, 5G mobile networks and more have been shipped with Ceva IP, with approximately 2 billion shipped in 2024 alone.

For more than three decades, we have been a trusted partner to hundreds of leading semiconductor and original equipment manufacturer (OEM) companies servicing not just our largest target growth and incumbent markets, but also a wide variety of other end markets and applications, including smart-home, surveillance, robotics and medical. Our transformative semiconductor IP and embedded software offerings are incorporated by customers into application-specific integrated circuits (ASICs) and application-specific standard products (ASSPs) to enable power-efficient, intelligent, secure and connected devices that connect, sense, and infer - the three critical pillars of the rapidly evolving era of AI-enabled smart edge. 

Our wireless communications, sensing and edge AI technologies are at the heart of some of today’s most advanced smart edge products. Our comprehensive portfolio includes:

● Advanced wireless connectivity solutions: Bluetooth, Wi-Fi, Ultra-Wideband (UWB), and 5G-Advanced platform IP for ubiquitous and robust communication;

● Scalable Edge AI capabilities: neural processing unit (NPU) IP to enable AI, on-device; and

● Sensor fusion processors and embedded application software that make devices smarter and more responsive.

We license our portfolio of wireless communications and scalable Edge AI IP to our customers, breaking down barriers to entry and enabling them to bring new cutting-edge products to market faster, more reliably, efficiently and economically.

We are a sustainability and environmentally conscious company. We have adopted both a Code of Business Conduct and Ethics and a Sustainability Policy, in which we emphasize and focus on environmental preservation, recycling, the welfare of our employees and privacy – which we promote on a corporate level. At Ceva, we are committed to social responsibility, values of preservation and consciousness towards these purposes.

We believe our portfolio of wireless communications, sensing and Edge AI technologies address some of the most important megatrends, including 5G expansion, generative AI, embedded AI, industrial automation and vehicle electrification. We continue to experience strong interest across our IP portfolio due to these trends, in both traditional and new areas. In the fourth quarter of 2024, we concluded twelve IP licensing deals for a range of wireless and smart sensing use cases, including two notable strategic licensing deals. The first was with a top-tier global MCU company, which has signed a long-term architecture licensing agreement for our Wi-Fi platform to be used across their product portfolio. The second major strategic deal relates to the mobile market, where we executed a long-term licensing agreement with a leading U.S. OEM to use our technology in their in-house 5G modem. In relation to the second deal, we anticipate that this agreement will lead to significant market share expansion of our wireless communication IP, and we expect this agreement to drive a meaningful, long-term royalty stream in the years to come.

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We believe the following key elements represent significant growth drivers for the company:

[[GREPCENT_TABLE]]
[["","\u25cf","Our broad Bluetooth, Wi-Fi, UWB and cellular IoT IP allow us to address the high volume IoT industrial, consumer and smart home markets. Our addressable market size for Bluetooth, Wi-Fi, UWB and cellular IoT is expected to be more than 16.5 billion devices annually by 2029 based on research from ABI Research. In the fourth quarter of 2024, we signed multiple licensing deals for our range of wireless connectivity IP, including a Wi-Fi architecture licensing agreement with one of the world\u2019s leading MCU companies. We also signed deals for our latest generation Wi-Fi 7 and Bluetooth 6 and next generation 7 IP, underscoring the leadership we command in this space. We also reached multiple shipment milestones in the quarter, reporting a record 343 million Bluetooth units and a record 66 million Wi-Fi units. These record volumes reflect our market leadership in IP in these markets, where we already command more than 30% of the Bluetooth market share worldwide, excluding mobile. In addition, we believe that Wi-Fi continues to present a significant royalty revenue opportunity, given our leading market position in licensing Wi-Fi 6 with more than 40 customers to date and leadership position in Wi-Fi 7 IP."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","We believe our PentaG2 platform and digital signal processors (DSPs) for 5G mobile broadband and 5G RedCap is one of the most comprehensive baseband IP platforms in the industry today and provides newcomers and incumbents with a comprehensive solution to address the need for 5G processing for fixed wireless access, satellite communications and a range of connected devices such as robots, cars, smart cities and other devices for industrial applications. Indicative of the demand for our 5G IP, in the fourth quarter of 2024, we signed another deal for 5G and 5G-Advanced new use cases with a new licensee targeting the fast-growing cellular market."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our PentaG RAN platform for 5G RAN, including the recently announced Ceva-XC22 multi-thread DSP, ensures we offer one of the most comprehensive baseband processor IP platforms in the industry today. Our 5G IP provides newcomers and incumbents with a customizable solution to address the need for 5G, 5G Advanced and other communications in data centers and infrastructure."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","The high-volume consumer audio markets, including True Wireless Stereo (TWS) earbuds, smartwatches, AR and VR headsets, and other wearable assisted devices, offers an incremental growth segment for us for our Bluetooth, Audio AI DSPs and software IP. For OEMs to better address this market, our RealSpace Spatial Audio & Head Tracking Solution and ClearVox voice input software are available to enhance the user experience and offer premium features. In the fourth quarter, we signed a licensing deal with a mobile device OEM to incorporate our MotionEngine solution in their upcoming tablet peripheral device."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our SensPro2 sensor hub AI DSP family is designed to address the growing demand for efficient, high-performance signal processing in sensor-based applications across various industries and applications such as smartphones, automotive safety (ADAS), autonomous driving (AD), drones, robotics, security and surveillance, augmented reality (AR) and virtual reality (VR), natural language processing (NLP) and voice recognition. Research from Bloomberg Intelligence forecasts that hardware revenue associated with computer vision AI products and conversational AI devices will reach $58 billion and $110 billion, respectively by 2032, indicating the size of the market opportunity. This sensor hub AI DSP enables us to address the transformation in devices enabled by these applications, and expand our footprint and content in smartphones, drones, consumer cameras, surveillance, automotive ADAS, voice-enabled devices and industrial IoT applications."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Transformer and classic neural networks are increasingly being deployed in a wide range of devices to make these devices \u201csmarter.\u201d Our newest generation family of NeuPro-M AI NPUs present a highly efficient and high-performance architecture to enable generative and classic AI on any device including communication gateways, optically connected networks, cars, notebooks and tablets, AR/VR headsets, smartphones, and any other cloud or edge use case from the edge all the way to the cloud. Per research from Research and Markets, more than 6 billion Edge AI hardware units will ship annually by 2030, illustrating the huge potential of the market."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","AI is rapidly making its way into IoT devices, thanks in part to the emergence of embedded AI, including tiny machine learning (TinyML) models, which enable small AI networks to be embedded in AIoT devices for sensing use cases including sound, vision, vibration and health monitoring. Our recently announced NeuPro-Nano family of AI NPUs present a compelling proposition to add a cost- and power-efficient processor to microcontroller units and SoC designs to handle the complete AI workloads, on-device. Per ABI Research, by 2030, over 50% of TinyML shipments will be powered by dedicated embedded AI hardware such as NeuPro-Nano, representing billions of devices annually. In the fourth quarter, we added another design win for our NeuPro-Nano NPU with a first-time customer, engaged in developing Edge AI processors targeting consumer electronics."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Our sensor fusion and spatial audio application software allows us to address an important technology piece used in personal computers, robotics, TWS earbuds, smart TVs and many other smart sensing IP products, in addition to our existing portfolio for camera-based computer vision and AI processing, and microphone-based sound processing. MEMS-based inertial and environmental sensors are used in an increasing number of devices, including robotics, smartphones, laptops, tablets, TWS earbuds, spatial audio headsets, remote controls and many other consumer and industrial devices. Our innovative and proven MotionEngine software supports a broad range of merchant sensor chips and is processor-agnostic to address the requirements of any OEM or semiconductor company that wishes to enhance their customer user experience. The MotionEngine software has already shipped in more than 400 million devices, indicative of its market traction and excellence. Along with our SensPro sensor hub AI DSPs, our licensees now benefit from our capabilities as a one-stop-shop for processing many types of sensors."]]
[[/GREPCENT_TABLE]]

As a result of our focus on silicon and software IP solutions that enable products to connect, sense, and infer data, we believe we are well positioned for long-term growth in shipments and royalty revenues derived from smart edge products. Royalty rates from these products comprise a range of ASPs, from high volume Bluetooth and Wi-Fi to high value sensor fusion and base station RAN. The royalty ASP of our other products will be in between the two ranges.

CURRENT TRENDS

We believe that with digital transformation being a long-term trend that continues to drive industries to become connected and intelligent, our ubiquitous technology and collaborative business model present a significant and secular growth prospect. We intend to continue to capitalize on the semiconductor momentum with our portfolio of technologies to enable three main use cases associated with smart edge devices: connect, sense and infer. We focus on four main markets, which are consumer IoT, automotive, industrial and infrastructure, which we believe are large, diversified and represent the greatest opportunities for long-term growth. We will also continue to serve the mobile and PC markets where we have established customers and market presence. We believe our key customers are keenly receptive to our products roadmap around connect, sense and infer, and that they are willing to expand the scope of engagements with us as our roadmap aligns with their technology needs. Furthermore, we anticipate that we complement our strong presence in the APAC region by further expanding our customer base and revenues in Europe and the U.S., as evidenced by our increasingly diversified revenue split by geography from 2022 through 2024.

Our strategy has returned us to year-over-year revenue growth 2024, with overall revenue growing 10% over 2023, versus the 4% to 8% we expected at the beginning of the year. We believe that our growth will continue in 2025, with overall revenue expected to grow 7%-11% for 2025. In 2025, we expect our licensing and related revenues business will continue to expand into new markets and use cases for industrial IoT (IIoT) and consumer IoT devices, offering connectivity platforms, sensing platforms and software, AI solutions (including AI engines, NPUs and software) and more. On royalties, we expect our connectivity products to continue to show strength in 2025, particularly related to our Bluetooth, Wi-Fi and cellular IoT business lines which enjoyed record shipments in 2024 and with the initial ramp of an in-house 5G modem powered by our cellular DSP from a leading U.S. mobile OEM expected to launch its first smartphone based on the modem in the first quarter.

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Instability in the Middle East

Our operations in Israel remain largely unaffected by the war between Israel and Hamas that began on October 7, 2023 and escalated to conflicts with Lebanon and Hezbollah, and we continue to drive our business and support our customers globally. However, a portion of our employees in Israel have been or are called to active reserve duty and additional employees may be called in the future, if needed. The Company has executed its business continuity plan with respect to those employees. It is possible that some of our operations in the region may be disrupted if this continues for a significant period of time or if the situation further deteriorates.

CRITICAL ACCOUNTING POLICIES, ESTIMATES AND ASSUMPTIONS

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States (U.S. GAAP). These accounting principles require us to make certain estimates, judgments and assumptions. We believe that the estimates, judgments and assumptions upon which we rely are reasonable based upon information available to us at the time that these estimates, judgments and assumptions are made. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the periods presented. To the extent there are material differences between these estimates, judgments or assumptions and actual results, our financial statements will be affected. The significant accounting policies that we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:

[[GREPCENT_TABLE]]
[["","\u25cf","revenue recognition;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","equity-based compensation; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","credit losses."]]
[[/GREPCENT_TABLE]]

In many cases, the accounting treatment of a particular transaction is specifically dictated by U.S. GAAP and does not require management’s judgment in its application. There are also areas in which management’s judgment in selecting among available alternatives would not produce a materially different result.

Revenue Recognition

Significant management judgments and estimates must be made and used in connection with the recognition of revenue in any accounting period. Material differences in the amount of revenue in any given period may result if these judgments or estimates prove to be incorrect or if management’s estimates change on the basis of development of business or market conditions. Management’s judgments and estimates have been applied consistently and have been reliable historically.

The following is a description of principal activities from which we generate revenue. Revenues are recognized when control of the promised goods or services are transferred to the customers in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

We determine revenue recognition through the following steps:

[[GREPCENT_TABLE]]
[["","\u25cf","Identification of the contract with a customer;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Identification of the performance obligations in the contract;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Determination of the transaction price;"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","\u25cf","Allocation of the transaction price to the performance obligations in the contract; and"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u25cf","Recognition of revenue when, or as, we satisfy a performance obligation."]]
[[/GREPCENT_TABLE]]

We enter into contracts that can include various combinations of products and services, as detailed below, which are generally capable of being distinct and accounted for as separate performance obligations.

We generate our revenues from (1) licensing intellectual properties, which in certain circumstances are modified for customer-specific requirements, (2) royalty revenues and (3) other revenues, which include revenues from support, training and sale of development systems and chips. We license our IP to semiconductor companies throughout the world. These semiconductor companies then manufacture, market and sell custom-designed chipsets to OEMs of a variety of consumer electronics products. We also license our technology directly to OEMs, which are considered end users.

We account for our IP license revenues and related services, which provide our customers with rights to use our IP, in accordance with ASC 606, "Revenue from Contracts with Customers" (ASC 606"). A license may be perpetual or time limited in its application. In accordance with ASC 606, we recognize revenue from IP license at the time of delivery when the customer obtains control of the IP, as the IP is functional without professional services, updates and technical support. We have concluded that our IP licenses are distinct as the customer can benefit from the licenses on their own.

Most of our contracts with customers contain multiple performance obligations. For these contracts, we account for individual performance obligations separately, if they are distinct. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. Stand-alone selling prices of IP licenses are typically estimated using the residual approach, since the selling price is uncertain. Stand-alone selling prices of services are typically estimated based on observable transactions when these services are sold on a standalone basis. Standalone selling prices of significant customization of our IP to customer-specific specifications are typically estimated based on expected cost plus normal profit margin approach.

Revenues from contracts that involve significant customization of our IP to customer-specific specifications are considered as one performance obligation satisfied over-time. Revenue related to these projects is recognized over time, usually based on a percentage that incurred labor effort to date bears to total projected labor effort. Incurred effort represents work performed, which corresponds with, and thereby best depicts, the transfer of control to the customer. When total cost estimates for these types of arrangements exceed revenues in a fixed-price arrangement, the estimated losses are recognized immediately. Significant judgment is required when estimating total labor effort and progress to completion on these arrangements.

Revenues that are derived from the sale of a licensee’s products that incorporate our IP are classified as royalty revenues. Royalty revenues are recognized during the quarter in which the sale of the product incorporating our IP occurs. Royalties are calculated either as a percentage of the revenues received by our licensees on sales of products incorporating our IP or on a per unit basis, as specified in the agreements with the licensees. Royalty revenues are recognized during the quarter in which we receive the actual sales data from our customers after the quarter ends and accounts for it as unbilled receivables. When we do not receive actual sales data from the customer prior to the finalization of our financial statements, royalty revenues are recognized based on our estimation of the customer’s sales during the quarter. This estimation process for the royalty revenue accrual is based on inputs and estimations received from our customers, as well as sales trends and various market factors. Adjustments to royalty revenues are made in subsequent periods to reflect updated estimates as soon as the final royalty reports are sent to us. We may engage a third party to perform royalty audits of our licensees, and if these audits indicate any over- or under-reported royalties, we account for the results when the audits are resolved.

Contracts with customers generally contain an agreement to provide for training and post contract support, which consists of telephone or e-mail support, correction of errors (bug fixing) and unspecified updates and upgrades. Fees for post contract support, which takes place after delivery to the customer, are specified in the contract and are generally mandatory for the first year. After the mandatory period, the customer may extend the support agreement on similar terms, usually on an annual basis. We consider the post contract support performance obligation as a distinct performance obligation that is satisfied over time, and as such, we recognize revenue for post contract support on a straight-line basis over the period for which technical support is contractually agreed to be provided to the licensee (typically 12 months, since the services have a consistent continuous pattern of transfer to the customers). Revenues from the sale of development systems and chips are recognized when control of the promised goods or services are transferred to the customers.

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When contracts involve a significant financing component, we adjust the promised amount of consideration for the effects of the time value of money if the timing of payments agreed to by the parties to the contract (either explicitly or implicitly) provide the customer with a significant benefit of financing, unless the financing period is under one year and only after the products or services were provided, as we elected to use the practical expedient under ASC 606.

Deferred revenues, which represent a contract liability, include unearned amounts received under license agreements, unearned technical support and amounts paid by customers not yet recognized as revenues.

We capitalize sales commission as costs of obtaining a contract when they are incremental and, if they are expected to be recovered, amortized in a manner consistent with the pattern of transfer of the good or service to which the asset relates. If the expected amortization period is one year or less, the commission fee is expensed when incurred.

Equity-Based Compensation

We account for equity-based compensation in accordance with FASB ASC No. 718, “Stock Compensation” which requires the recognition of compensation expenses based on estimated fair values for all equity-based awards made to employees and non-employee directors. Equity-based compensation primarily includes restricted stock unit (RSUs), as well as options, stock appreciation right (SAR), performance-based stock units (PSUs) and employee stock purchase plan awards.

We use the straight-line recognition method for awards subject to graded vesting based only on a service condition and the accelerated method for awards that are subject to performance or market conditions. The fair value of each RSU and PSU (excluding PSUs based on market condition awards) is the market value as determined by the closing price of the common stock on the grant date. We estimate the fair value of PSU based on market condition awards on the date of grant using the Monte Carlo simulation model. We estimate the fair value of stock option awards on the date of grant using the Black & Scholes model.

Credit Losses

Marketable securities consist mainly of corporate bonds. We determine the appropriate classification of marketable securities at the time of purchase and re-evaluate such designation at each balance sheet date. In accordance with FASB ASC No. 320, “Investments Debt Securities,” we classify marketable debt securities as available-for-sale. Available-for-sale securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes. Realized gains and losses on sales of marketable securities, as determined on a specific identification basis, are included in financial income, net. The amortized cost of marketable securities is adjusted for amortization of premium and accretion of discount, both of which, together with interest, are included in financial income, net. We have classified all marketable securities as short-term, even though the stated maturity date may be one year or more beyond the current balance sheet date, because these securities are available to support current operations, and we may sell these debt securities prior to their stated maturities.

We determine realized gains or losses on sale of marketable securities on a specific identification method and record such gains or losses as financial income, net.

For each reporting period, we evaluate whether declines in fair value below the amortized cost are due to expected credit losses, as well as our ability and intention to hold the investment until a forecasted recovery occurs, in accordance with ASC 326. Allowance for credit losses on available for sale debt securities are recognized as a charge in financial income on the consolidated statements of income, and any remaining unrealized losses, net of taxes, are included in accumulated other comprehensive income (loss). For the years ended December 31, 2024, 2023 and 2022, credit losses were immaterial.

Our trade receivables are geographically diverse, mainly in the Asia Pacific region, and also in the United States and Europe. Concentration of credit risk with respect to trade receivables is limited by credit limits, ongoing credit evaluation and account monitoring procedures. We perform ongoing credit evaluations of our customers. We make estimates of expected credit losses based upon our assessment of various factors, including historical experience, the age of the trade receivable balances, credit quality of our customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect our ability to collect from customers.

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For the years ended December 31, 2024 and 2023, allowance for credit losses amounted to $2,626 and $288, respectively. The increase in the credit loss allowance as of December 31, 2024 is due to a specific credit loss provision recorded during the year ended December 31, 2024 for a customer that has experienced financial difficulties.

Accounting Standards

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions, which clarifies the guidance when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security and introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The guidance is effective for annual periods beginning after December 15, 2023, with early adoption permitted. We adopted ASU 2022-03 as of January 1, 2024. The adoption did not result in a material impact on our financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We adopted ASU 2023-07 as of December 15, 2024.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023-09.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosure (Subtopic 220-40), Disaggregation of Income Statement Expenses, which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. In addition, it provides new segment disclosure requirements for entities with a single reportable segment. We adopted this guidance for the annual period beginning January 1, 2024.

RESULTS OF OPERATIONS

The following table presents line items from our consolidated statements of loss as percentages of our total revenues for the periods indicated:

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["Consolidated Statements of Loss Data:"],["Revenues:"],["Licensing and related revenue","","","62.4","%","","","59.1","%","","","56.1","%"],["Royalties","","","37.6","%","","","40.9","%","","","43.9","%"],["Total revenues","","","100.0","%","","","100.0","%","","","100.0","%"],["Cost of revenues","","","12.5","%","","","12.0","%","","","11.9","%"],["Gross profit","","","87.5","%","","","88.0","%","","","88.1","%"],["Operating expenses:"],["Research and development, net","","","58.3","%","","","74.6","%","","","67.0","%"],["Sales and marketing","","","9.5","%","","","11.3","%","","","11.8","%"],["General and administrative","","","11.8","%","","","15.3","%","","","15.8","%"],["Amortization of intangible assets","","","1.7","%","","","0.6","%","","","0.6","%"],["Impairment of assets","","","2.9","%","","","\u2014","","","","\u2014"],["Total operating expenses","","","84.2","%","","","101.8","%","","","95.2","%"],["Operating income (loss)","","","3.3","%","","","(13.8",")%","","","(7.1",")%"],["Financial income, net","","","2.3","%","","","5.4","%","","","4.6","%"],["Remeasurement of marketable equity securities","","","(2.1",")%","","","(0.0",")%","","","(0.1",")%"],["Income (loss) before taxes on income","","","3.5","%","","","(8.4",")%","","","(2.6",")%"],["Taxes on income","","","15.0","%","","","10.5","%","","","5.6","%"],["Net loss from continuing operations","","","(11.5",")%","","","(18.9",")%","","","(8.2",")%"],["Net income (loss) from discontinued operations","","","(7.7",")%","","","6.7","%","","","\u2014"],["Net loss","","","(19.2",")%","","","(12.2",")%","","","(8.2",")%"]]
[[/GREPCENT_TABLE]]

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Discussion and Analysis

Below we provide information on the significant line items in our consolidated statements of loss for each of the past three fiscal years, including the percentage changes year-on-year, as well as an analysis of the principal drivers of change in these line items from year-to-year.

Revenues

Total Revenues

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["Total revenues (in millions)","","$","120.6","","","$","97.4","","","$","106.9"],["Change year-on-year","","","\u2014","","","","(19.2",")%","","","9.8","%"]]
[[/GREPCENT_TABLE]]

For 2024, we reported total revenue of $106.9 million, 10% higher than 2023. In 2024, we strengthened our leadership and influence around our key technology pillars, reinforcing our dominant position in wireless connectivity while expanding our sense and inference product offerings and global customer base. We also launched multiple innovative products like the NeuPro-Nano Edge AI NPUs. Highlights for 2024 included several key and large design wins in the cellular communication markets for satellite, base station and handset advanced technology use cases, which drove overall revenues higher than 2023.

In royalties, we delivered strong year-over-year 18% revenue growth and shipped a record 2 billion Ceva-powered units, marking the first time in our history to reach this milestone number. Shipment strength was across the board, with numerous records achieved.

We derive a significant amount of revenues from a limited number of customers. Sales to UNISOC represented 15%, 13% and 16% of our total revenues for 2024, 2023 and 2022, respectively. Generally, the identity of our other customers representing 10% or more of our total revenues varies from period to period, especially with respect to our licensing customers as we generate licensing revenues generally from new customers on a quarterly basis. With respect to our royalty revenues, two royalty paying customers each represented 10% or more of our total royalty revenues for 2024, and collectively represented 46% of our total royalty revenues for 2024. Two royalty paying customers each represented 10% or more of our total royalty revenues for 2023, and collectively represented 45% of our total royalty revenues for 2023. Two royalty paying customers each represented 10% or more of our total royalty revenues for 2022, and collectively represented 46% of our total royalty revenues for 2022. We expect that a significant portion of our future revenues will continue to be generated by a limited number of customers. The concentration of our customers is explainable in part by consolidation in the semiconductor industry. The loss of any significant customer could adversely affect our near-term future operating results.

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The following table sets forth use cases for Ceva technology portfolio as percentages of our total revenues in each of the periods set forth below:

[[GREPCENT_TABLE]]
[["","","Year ended December 31,"],["","","2022","","","2023","","","2024"],["Connect (baseband for handset and other devices, Bluetooth, Wi-Fi and NB-IoT)","","","78","%","","","82","%","","","84","%"],["Sense & Infer (sensor fusion, audio, sound, imaging, vision and AI)","","","22","%","","","18","%","","","16","%"]]
[[/GREPCENT_TABLE]]

We expect to continue to generate a significant portion of our revenues for 2025 from the above technologies.

Licensing and related revenue

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["Licensing and related revenue (in millions)","","$","75.2","","","$","57.6","","","$","60.0"],["Change year-on-year","","","\u2014","","","","(23.5",")%","","","4.2","%"]]
[[/GREPCENT_TABLE]]

Licensing and related revenue was $60.0 million, representing a 4% increase in 2024 as compared to 2023. We signed 43 licensing agreements across our extensive IP portfolio, down from 53 last year; 11 of those deals were with OEMs who are integrating our IP into their end products. In terms of end markets, 21 of the deals target consumer, 19for IIoT, with the remainder targeting mobile, including two with our anchor mobile customers that signed long-term agreements in the fourth quarter. Twelve of the customers licensed multiple technologies from our portfolio, demonstrating the synergistic strengths of our strategy to offer a broad portfolio of IP around connect, sense and infer.

This deal breakdown also indicates the benefits of our focus on the end markets with the largest licensing base and the greatest projected growth potential. In 2024, we experienced increased licensing revenue in the U.S., due to a few significant design wins in the second half of the year. We also witnessed good design activity for advanced 5G cellular technologies for multiple end markets. Moreover, we concluded multiple deals or upgrades and new deals for our Wi-Fi and Bluetooth 6 and 7 platforms with customers in consumer and industrials end markets. In 2023, we experienced a decrease in licensing revenue attributed to a slowdown in new design activity due to various reasons, including lack of funding of semiconductor companies, in part due to the higher interest rate environment, as well as the end of a period of exceptional consumer end market demand related to COVID spending following the substantial completion of most companies’ shift to hybrid work environments.

Licensing and related revenue accounted for 56.1% of our total revenues for 2024, compared with 59.1% and 62.4% of our total revenues for 2023 and 2022, respectively.

Royalty Revenues

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["Royalty revenues (in millions)","","$","45.4","","","$","39.9","","","$","46.9"],["Change year-on-year","","","\u2014","","","","(12.2",")%","","","17.8","%"]]
[[/GREPCENT_TABLE]]

We generate royalty revenues from our customers who ship units of chips incorporating our technologies. Our royalty revenues represent what our customers shipped during any quarter, or our best estimates for such shipments. The royalty rate is based either on a certain percent of the chipset price or a fixed amount per unit basis.

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Royalty revenue increased in 2024 compared to 2023, as we delivered strong year-over-year 18% revenue growth and shipped a record 2 billion Ceva-powered units, marking the first time in our history to reach this milestone number. Shipment strength was across the board, with numerous records achieved. To highlight a few of these: we powered a record 1.1 billion Bluetooth devices, a record 179 million Wi-Fi devices, a record 170 million cellular IoT devices, 340 million smartphones, and 170 million other smart edge devices powered by our DSPs, AI Accelerators and sensor fusion software. In terms of end markets, consumer IoT was 53% of annual royalties, followed by mobile at 32% and IIoT at 16%. Looking ahead into 2025, we anticipate that our Wi-Fi royalties and shipments will continue to grow, with several high-volume Wi-Fi 6 customers getting into production and ramping now. Similarly, we expect continued growth of our Bluetooth and cellular IoT shipments with additional customers coming to market and strengthening our dominant position in these markets. Also, on the back of signing new long-term licensing deals with our 2 main mobile customers, we expect the royalty contribution from mobile to grow year-over-year.

Royalty revenue was down in 2023 as compared to 2022 reflecting broad macroeconomic and consumer demand weakness and elevated inventory levels, especially in the first half of 2023. The decline is mainly attributable to mobile and 5G RAN related royalties, which combined to be down 22% year-over-year. On the positive side and in line with the strength of our connectivity products, royalty revenues related to our Bluetooth, Wi-Fi and cellular IoT business lines combined to grow 5% year-over-year, mainly due to higher royalty rate contribution from our new Wi-Fi 6 customers. In terms of end markets, consumer IoT was 41% of royalties, followed by mobile at 36% and the growing IIoT end markets at 23%. Total shipments in 2023 decreased 4% year-over-year to 1.62 billion units, down from 1.70 billion in 2022.

The five largest royalty-paying customers accounted for 61% of our total royalty revenues for 2024, compared to 58% of our total royalty revenues for 2023 and 64% of our total royalty revenues for 2022.

Geographic Revenue Analysis

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["","","(in millions, except percentages)"],["United States","","$","14.2","","","","11.8","%","","$","9.6","","","","9.8","%","","$","20.3","","","","19.0","%"],["Europe, Middle East (EME)","","$","9.9","","","","8.2","%","","$","12.2","","","","12.5","%","","$","12.8","","","","12.0","%"],["Asia Pacific (APAC) (1)","","$","96.5","","","","80.0","%","","$","75.7","","","","77.7","%","","$","73.8","","","","69.0","%"],["(1) China","","$","75.7","","","","62.8","%","","$","57.5","","","","59.0","%","","$","52.7","","","","49.3","%"]]
[[/GREPCENT_TABLE]]

A majority of our revenues during the past three years have originated in the APAC region, with China representing the largest revenue share of countries in the APAC region. The decrease in revenues in absolute dollars in APAC from 2022 to 2023 was partially attributed to the slowdown in the start of new design activity. The decrease in revenues in absolute dollars in APAC from 2023 to 2024 was partially attributed to China, were we witnessed slower design starts, continued geopolitical tensions and the continued impact of the prior year’s slowdown in the local macroeconomic environment.

The increase in revenues in absolute dollars in the United States from 2023 to 2024 was primarily driven by few key agreements signed with U.S.-based customers. One of them a long-term licensing agreement with a leading U.S. OEM to incorporate our technology into their in-house 5G modem. The decrease in revenues in absolute dollars in the United States from 2022 to 2023 was mainly attributed to a large, non-recurring licensing deal in our BlueBud platform, as well as the continued decrease in Intel based royalties post their divestment from the modem business. Moreover, we witnessed lower royalties from our sensor fusion empowered chips.

Revenues in the EME region remained constant from 2023 to 2024. The increase in revenues in absolute dollars and percentage in the EME region from 2022 to 2023 is primarily due to a significant new Wi-Fi / Bluetooth combo deal with a leading platform OEM in the electronics maker community whose devices are widely used in education and prototyping.

Cost of Revenues

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["Cost of revenues (in millions)","","$","15.1","","","$","11.6","","","$","12.8"],["Change year-on-year","","","\u2014","","","","(23.0",")%","","","9.6","%"]]
[[/GREPCENT_TABLE]]

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Cost of revenues equaled 11.9% of our total revenues for 2024, compared to 12.0% of our total revenues for 2023 and 12.5% of our total revenues for 2022. The absolute dollar increases in cost of revenues for 2024 as compared to 2023 principally reflected higher strategically beneficial customization work associated with the strategic 5G-Advanced deals we signed in the second half of 2024. The absolute dollar decreases in cost of revenues for 2023 as compared to 2022 principally reflected impairment charges, incurred in 2022, of prepaid assets with respect to (1) Immervision-related assets and services, and (2) certain non-performing assets related to NB-IoT technology, as well as lower customization work for our licensees.

Cost of revenues includes labor-related costs and, where applicable, costs related to overhead, subcontractors, materials, travel, royalty expenses payments to the Israeli Innovation Authority of the Ministry of Economy and Industry in Israel (IIA), amortization of acquired assets and non-cash equity-based compensation expenses. Non-cash equity-based compensation expenses included in cost of revenues for the years 2024, 2023 and 2022 were $713,000, $826,000 and $687,000, respectively. Royalty expenses relate to royalties payable to the IIA that amount to 3%-3.5% of the actual sales of certain of our products, the development of which previously included grants from the IIA. The obligation to pay these royalties is contingent on actual sales of these products. Amortization of acquired assets related to the purchase of a license of NB-IoT technologies in the first quarter of 2018 and to certain intangible assets associated with the VisiSonics acquisition in the second quarter of 2023. Our amortization charges were $0.5 million, $0.4 million and $0.6 million for 2024, 2023 and 2022, respectively. In 2022 we recorded impairment charges of $2.0 relating to discontinued Immervision technology and non-performing assets of certain NB-IoT technology.

Operating Expenses

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["","","(in millions)"],["Research and development, net","","$","70.3","","","$","72.7","","","$","71.6"],["Sales and marketing","","$","11.5","","","$","11.0","","","$","12.6"],["General and administration","","$","14.2","","","$","14.9","","","$","16.9"],["Amortization of intangible assets","","$","2.0","","","$","0.6","","","$","0.6"],["Impairment of assets","","$","3.6","","","$","\u2014","","","$","\u2014"],["Total operating expenses","","$","101.6","","","$","99.2","","","$","101.7"],["Change year-on-year","","","\u2014","","","","(2.3",")%","","","2.5","%"]]
[[/GREPCENT_TABLE]]

The increase in total operating expenses for 2024 as compared to 2023 principally reflected higher allowance for credit losses. The decrease in total operating expenses for 2023 as compared to 2022 principally reflected: (1) an impairment charge of $3.6 million recorded in the third quarter of 2022 with respect to Immervision technology acquired in August 2019, as we decided to cease the development of this product line; (2) lower amortization of intangible assets, mainly related to Immervision; and (3) lower salary and employee-related costs, mainly associated with lower employee-related performance costs, partially offset with lower research grants received, mainly from the IIA, and higher non-cash equity-based compensation expenses.

Research and Development Expenses, Net

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["Research and development expenses, net (in millions)","","$","70.3","","","$","72.7","","","$","71.6"],["Change year-on-year","","","\u2014","","","","3.4","%","","","(1.5",")%"]]
[[/GREPCENT_TABLE]]

The net decrease in research and development expenses for 2024 as compared to 2023 principally reflected higher allocation of customization work for our licensees to cost of revenues and lower salaries and employee-related costs. The net increase in research and development expenses for 2023 as compared to 2022 principally reflected lower research grants received, mainly from the IIA, lower customization work for our licensees and higher non-cash equity-based compensation expenses, partially offset by lower salaries and employee-related costs mainly associated with lower employee-related performance costs. The average number of research and development personnel in 2024 was 327, compared to 330 in 2023 and 325 in 2022. The number of research and development personnel was 323 at December 31, 2024 as compared to 322 in 2023 and 328 in 2022.

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We anticipate that our overall expense (cost of revenues and operating expenses) will continue to increase in 2025 but at a significantly lower growth rate than our topline growth, at a range of 2%-6%.

Research and development expenses, net of related government grants and French research tax benefits applicable to CIR, were 67.0% of our total revenues for 2024, as compared with 74.6% for 2023 and 58.3% for 2022. We recorded research grants under funding programs of $1,407,000 in 2024, compared with $1,668,000 in 2023 and $4,850,000 in 2022. We recorded UK tax credits and CIR benefits of $2,954,000, $2,641,000 and $2,316,000 for 2024, 2023 and 2022, respectively.

Research and development expenses consist primarily of salaries and associated costs, facilities expenses associated with research and development activities, project-related expenses connected with the development of our IP which are expensed as incurred, and non-cash equity-based compensation expenses. Non-cash equity-based compensation expenses included in research and development expenses, net for the years 2024, 2023 and 2022 were $9,298,000, $9,133,000 and $8,259,000, respectively. Research and development expenses are net of related government research grants, UK tax credits and research tax benefits applicable to CIR. We view research and development as a principal strategic investment and have continued our commitment to invest heavily in this area, which represents the largest of our ongoing operating expenses. We will need to continue to invest in research and development and such expenses may increase in the future to keep pace with new trends in our industry.

Sales and Marketing Expenses

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["Sales and marketing expenses (in millions)","","$","11.5","","","$","11.0","","","$","12.6"],["Change year-on-year","","","\u2014","","","","(3.8",")%","","","14.3","%"]]
[[/GREPCENT_TABLE]]

The increase in sales and marketing expenses for 2024 as compared to 2023 principally reflected higher commission expenses and higher salaries and employee-related costs. The decrease in sales and marketing expenses for 2023 as compared to 2022 principally reflected lower salary and employee related costs, mainly associated with a one-time separation charge recorded in 2022 as a result of the departure of our former executive vice president of worldwide sales.

Sales and marketing expenses as a percentage of our total revenues were 11.8% for 2024, as compared with 11.3% for 2023 and 9.5% for 2022. The total number of sales and marketing personnel was 34 in 2024, as compared with 29 in 2023 and 36 in 2022. Sales and marketing expenses consist primarily of salaries, commissions, travel and other costs associated with sales and marketing activities, as well as advertising, trade show participation, public relations and other marketing costs and non-cash equity-based compensation expenses. Non-cash equity-based compensation expenses included in sales and marketing expenses for the years 2024, 2023 and 2022 were $1,801,000, $1,776,000 and $1,503,000, respectively.

General and Administrative Expenses

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["General and administrative expenses (in millions)","","$","14.2","","","$","14.9","","","$","16.9"],["Change year-on-year","","","\u2014","","","","5.1","%","","","13.2","%"]]
[[/GREPCENT_TABLE]]

The increase in general and administrative expenses for 2024 as compared to 2023 principally reflected higher allowance for credit losses. The increase in general and administrative expenses for 2023 as compared to 2022 principally reflected higher professional services cost and higher non-cash equity-based compensation expenses, partially offset with lower salaries and related costs.

General and administrative expenses as a percentage of our total revenues were 15.8% for 2024, as compared with 15.3% for 2023 and 11.8% for 2022. The total number of general and administrative personnel was 45 in 2024, as compared with 45 in 2023 and 46 in 2022. General and administrative expenses consist primarily of fees for directors, salaries for management and administrative employees, accounting and legal fees, expenses related to investor relations and facilities expenses associated with general and administrative activities, allowance for credit losses and non-cash equity-based compensation expenses. Non-cash equity-based compensation expenses included in general and administrative expenses for the years 2024, 2023 and 2022 were $3,763,000, $3,795,000 and $2,888,000, respectively.

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Amortization of Intangible Assets

Our amortization charges were $0.6 million, $0.6 million and $2.0 million for 2024, 2023 and 2022 respectively. The amortization charges in both 2024 and 2023 were incurred in connection with the amortization of intangible assets associated with the acquisition of the Hillcrest Labs and VisiSonics business. The amortization charges in 2022 were incurred in connection with the amortization of intangible assets associated with the acquisition of the Hillcrest Labs and the strategic investment in Immervision. As of December 31, 2024, the net amount of intangible assets associated with the acquisitions was $1.1 million.

Impairment of Assets

In 2022, we recorded an impairment charge of $3.6 million with respect to Immervision technology acquired in August 2019, as we decided to cease the development of this product line.

Financial Income, net

[[GREPCENT_TABLE]]
[["","","2022","","","2023","","","2024"],["","","(in millions)"],["Financial income, net","","$","2.81","","","$","5.26","","","$","4.88"],["of which:"],["Interest income and gains and losses from marketable securities, net","","$","2.74","","","$","4.57","","","$","5.89"],["Foreign exchange gain (loss)","","$","0.07","","","$","0.69","","","$","(1.01",")"]]
[[/GREPCENT_TABLE]]

Financial income, net, consists of interest earned on investments, gains and losses from sale of marketable securities, accretion (amortization) of discount (premium) on marketable securities and foreign exchange movements.

The increase in interest income and gains and losses from marketable securities, net, for 2024 as compared to 2023 principally reflected higher combined cash, bank deposits and marketable securities balances held (mainly because of cash received from the sale of Intrinsix in October 2023) and higher yields. The increase in interest income and gains and losses from marketable securities, net, for 2023 as compared to 2022 reflected higher yields, offset with lower combined cash, bank deposits and marketable securities balances held.

We review our monthly expected major non-U.S. dollar denominated expenditures and look to hold equivalent non-U.S. dollar cash balances to mitigate currency fluctuations. However, our Euro cash balances increase significantly on a quarterly basis beyond our Euro liabilities, mainly from the French research tax benefits applicable to CIR, which is generally refunded every three years. This has resulted in a foreign exchange loss of $1.01 million (due to the devaluation of our Euro cash balances as the U.S. dollar strengthened significantly during this period as compared to the Euro), a foreign exchange gain of $0.69 million and a foreign exchange gain of $0.07 million for 2024, 2023 and 2022, respectively.

Remeasurement of Marketable Equity Securities

We recorded a loss of $0.1 million, a loss of $0.0 million, and a loss of $2.5 million in 2024, 2023 and 2022, respectively, related to remeasurement of marketable equity securities. Over time, other income (expense), net, may be affected by market dynamics and other factors. Equity values generally change daily for marketable equity securities and upon the occurrence of observable price changes or upon impairment of marketable equity securities. In addition, volatility in the global economic climate and financial markets could result in a significant change in the value of our investments.

Provision for Income Taxes

During the years 2024, 2023 and 2022, we recorded tax expenses of $6.0 million, $10.2 million and $18.1 million, respectively.

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The decrease in provision for income taxes in 2024 as compared to 2023 principally reflected (1) a charge in 2023 to our deferred tax assets in the US, primarily related to a reduction of estimated forecasted GILTI inclusions, and (2) lower tax expenses on income generated in our French subsidiary (under the French IP Box regime). The decrease in provision for income taxes in 2023 as compared to 2022 principally reflected the impact of a charge to record a valuation allowance in 2022 due to a change in the estimation for taxable income for future years of our Israeli operations (as further described below), offset with a charge to our deferred tax assets in the U.S. primarily related to a reduction of estimated forecasted GILTI inclusions, and additional tax charges as a result of the completion of a tax audit in a certain foreign tax jurisdiction.

In 2022, based on the weight of available positive and negative evidence, we recorded a valuation allowance for certain deferred tax assets (including withholding tax assets) of our Israeli subsidiary due to uncertainty regarding its future taxable income. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included the Company’s cumulative taxable loss for the past three years, current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences, as well as projections for future annual results. Accordingly, we recorded a charge of $15.6 million in 2022 as a reserve against our deferred tax assets.

We are subject to income and other taxes in the United States and in numerous foreign jurisdictions. Our domestic and foreign tax liabilities are dependent on the jurisdictions in which profits are determined to be earned and taxed. Additionally, the amount of taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we operate. A number of factors influence our effective tax rate, including changes in tax laws and treaties as well as the interpretation of existing laws and rules. Federal, state, and local governments and administrative bodies within the United States, and other foreign jurisdictions have implemented, or are considering, a variety of broad tax, trade, and other regulatory reforms that may impact us. For example, the Tax Cuts and Jobs Act (the “U.S. Tax Reform”) enacted on December 22, 2017 resulted in changes in our corporate tax rate, our deferred income taxes, and the taxation of foreign earnings. It is not currently possible to accurately determine the potential comprehensive impact of future changes, but these changes could have a material impact on our business and financial condition.

We have significant operations in Israel and operations in France and the Republic of Ireland. A substantial portion of our taxable income is generated in Israel and France, as well as potentially in the U.S. due to GILTI and the requirement to capitalize research and development expenditures under IRC Section 174 over 5 years if sourced from the U.S. and over 15 years if sourced internationally. Although our Israeli, French and Irish subsidiaries are taxed at rates substantially lower than U.S. tax rates, the tax rates in these jurisdictions could nevertheless result in a substantial increase as a result of withholding tax expenses with respect to which we are unable to obtain a refund from the relevant tax authorities.

Our Irish subsidiary qualified for a 12.5% tax rate on its trade. Interest income generated by our Irish subsidiary is taxed at a rate of 25%.

Our French subsidiary is entitled to a tax benefit of 10% applied to specific revenues under the French IP Box regime. The French IP Box regime applies to net income derived from the licensing, sublicensing or sale of several IP rights such as patents and copyrighted software, including royalty revenues. This elective regime requires a direct link between the income benefiting from the preferential treatment and the research and development expenditures incurred and contributing to that income. Qualifying income may be taxed at a favorable 10% CIT rate (plus social surtax, hence 10.3% in total). Income not eligible for a tax benefit under the French IP Box regime is taxed at a regular rate of 25%.

Our Israeli subsidiary is entitled to various tax benefits as a technological enterprise. In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016, which includes the Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73) (the “Amendment”), was published. The Amendment, among other things, prescribes special tax tracks for technological enterprises, which are subject to rules that were issued by the Minister of Finance in April 2017.

The tax track under the Amendment, which is applicable to our Israeli subsidiary, is the “Technological Preferred Enterprise”. Technological Preferred Enterprise is an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than 10 billion New Israeli Shekel (NIS). A Technological Preferred Enterprise, as defined in the Amendment, that is located in the center of Israel (where our Israeli subsidiary is currently located), is taxed at a rate of 12% on profits deriving from IP. Any dividends distributed to “foreign companies”, as defined in the Amendment, deriving from income from technological enterprises will be taxed at a rate of 4%.

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To maintain our Israeli subsidiary’s eligibility for the above tax benefits, it must continue to meet certain conditions under the Investment Law. Should our Israeli subsidiary fail to meet such conditions in the future, these benefits would be cancelled and it would be subject to corporate tax in Israel at the standard corporate rate and could be required to refund tax benefits already received, with interest and adjustments for inflation based on the Israeli consumer price index.

For more information about our provision for income taxes, see Note 14 to the attached Notes to Consolidated Financial Statement for the year ended December 31, 2024.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2024, we had approximately $18.5 million in cash and cash equivalents, $2.0 million in short term bank deposits and $143.1 million in marketable securities, totaling $163.6 million, as compared to $166.5 million at December 31, 2023. The decrease in 2024 as compared to 2023 principally reflected funds used to repurchase 375,219 shares of common stock for an aggregate consideration of approximately $8.5 million, partially offset by cash used in operating activities and unrealized investment gain on marketable securities of approximately $2.2 million.

Out of total cash, cash equivalents, bank deposits and marketable securities of $163.6 million at year end 2024, $135.1 million was held by our foreign subsidiaries. Our intent is to permanently reinvest earnings of our foreign subsidiaries and our current operating plans do not demonstrate a need to repatriate foreign earnings to fund our U.S. operations. However, if these funds were needed for our operations in the United States, we would be required to accrue and pay taxes to repatriate these funds. The determination of the amount of additional taxes related to the repatriation of these earnings is not practicable, as it may vary based on various factors such as the location of the cash and the effect of regulation in the various jurisdictions from which the cash would be repatriated. Moving off-shore cash to our U.S. entity would result in significant additional tax expenses.

During 2024, we invested $48.9 million of cash in bank deposits and marketable securities with maturities up to 34 months from the balance sheet date. In addition, during the same period, bank deposits and marketable securities were sold or redeemed for cash amounting to $49.6 million. During 2023, we invested $42.0 million of cash in bank deposits and marketable securities with maturities up to 36 months from the balance sheet date. In addition, during the same period, bank deposits and marketable securities were sold or redeemed for cash amounting to $28.8 million. During 2022, we invested $63.9 million of cash in bank deposits and marketable securities with maturities up to 45 months from the balance sheet date. In addition, during the same period, bank deposits and marketable securities were sold or redeemed for cash amounting to $52.3 million. All of our marketable securities are classified as available-for-sale. The purchase and sale or redemption of available-for-sale marketable securities are considered part of investing cash flow. Available-for-sale marketable securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders’ equity, net of taxes. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the consolidated statements of income (loss). The amount of credit losses recorded for the twelve months ended December 31, 2024, 2023, and 2022, was immaterial. For more information about our marketable securities, see Notes 1 and 3 to the attached Notes to Consolidated Financial Statement for the year ended December 31, 2024.

Short-term bank deposits are deposits with maturities of more than three months but no longer than one year from the balance sheet date. Bank deposits are presented at their cost, including accrued interest, and purchases and sales are considered part of cash flows from investing activities.

Operating Activities

Cash provided by operating activities in 2024 was $3.5 million and consisted of a net loss of $8.8 million, adjustments for non-cash items of $20.0 million, and changes in operating assets and liabilities of $7.7 million. Adjustments for non-cash items primarily consisted of $4.1 million of depreciation and amortization of intangible assets, and $15.6 million of equity-based compensation expenses. The decrease in cash from changes in operating assets and liabilities primarily consisted of an increase in trade receivables, net of $6.8 million, and an increase in prepaid expenses and other current assets of $4.8 million (mainly related to unbilled receivables of $2.6 million classified as “other long-term assets” in our consolidated balance sheets), partially offset by an increase in accrued payroll and related benefits of $2.7 million.

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Cash used in operating activities in 2023 was $6.3 million and consisted of a net loss of $11.9 million, adjustments for non-cash items of $8.8 million, and changes in operating assets and liabilities of $3.2 million. Adjustments for non-cash items primarily consisted of $4.9 million of depreciation and amortization of intangible assets (including $1.1 million from discontinued operations), $16.2 million of equity-based compensation expenses (including $0.7 million from discontinued operations), and $11.6 million of gain on sale of Intrinsix. The decrease in cash from changes in operating assets and liabilities primarily consisted of an increase in prepaid expenses and other current assets of $4.9 million, a decrease in accrued payroll and related benefits of $3.7 million, and a decrease in trade payables of $0.8 million, partially offset by a decrease in deferred taxes, net of $6.7 million.

Cash provided by operating activities in 2022 was $6.9 million and consisted of a net loss of $23.2 million, adjustments for non-cash items of $28.2 million, and changes in operating assets and liabilities of $1.9 million. Adjustments for non-cash items primarily consisted of $7.6 million of depreciation and amortization of intangible assets (including $2.2 million from discontinued operations), $14.5 million of equity-based compensation expenses (including $1.2 million from discontinued operations), $2.5 million of remeasurement of marketable equity securities, and $3.6 million of impairment of intangible assets with respect to Immervision technology acquired in August 2019, as we decided to cease the development of this product line. The increase in cash from changes in operating assets and liabilities primarily consisted of a decrease in deferred taxes, net of $7.8 million (primarily reflect the impact of a charge to record a valuation allowance in 2022), an increase in trade payable of $0.5 million, an increase in accrued payroll and related benefits of $1.0 million, and an increase in accrued expenses and other payables, including income taxes payable, of $2.5 million, partially offset by an increase of trade receivables of $3.8 million, an increase of prepaid expenses and other assets of $1.1 million, and a decrease in deferred revenues of $5.5 million.

Cash flows from operating activities may vary significantly from quarter to quarter depending on the timing of our receipts and payments. Our ongoing cash outflows from operating activities principally relate to payroll-related costs and obligations under our property leases and design tool licenses. Our primary sources of cash inflows are receipts from our accounts receivable, to some extent interest earned from our cash, deposits and marketable securities. The timing of receipts of accounts receivable from customers is based upon the completion of agreed milestones or agreed dates as set out in the contracts.

Investing Activities

Net cash used in investing activities in 2024 was $2.4 million, as compared to net cash provided by investing activities of $10.8 million in 2023 and net cash used in investing activities of $15.1 million in 2022. We had a cash outflow of $46.9 million with respect to investments in marketable securities and a cash inflow of $39.6 million with respect to maturity, and sale, of marketable securities during 2024. Included in the cash inflow during 2024 was net proceeds of $8.0 million from bank deposits. We had a cash outflow of $40.0 million with respect to investments in marketable securities and a cash inflow of $22.8 million with respect to maturity, and sale, of marketable securities during 2023. Included in the cash inflow during 2023 was net proceeds of $4.0 million from bank deposits. We had a cash outflow of $49.9 million with respect to investments in marketable securities and a cash inflow of $21.4 million with respect to maturity, and sale, of marketable securities during 2022. Included in the cash inflow during 2022 was net proceeds of $16.9 million from bank deposits. Capital equipment purchases of computer hardware and software used in engineering development, furniture and fixtures amounted to approximately $3.0 million in 2024, $2.9 million in 2023 and $3.5 million in 2022. In 2024 and 2023, we had a cash inflow of $0.5 million and $30.6 million, respectively, following the sale of Intrinsix. We had a cash outflow of $0.8 million in 2024 for the acquisition of a Greek-based company and a cash outflow of $3.6 million in 2023 for the acquisition of VisiSonics.

Financing Activities

Net cash used in financing activities in 2024 was $5.6 million, as compared to net cash used in financing activities of $2.8 million in 2023 and net cash used in financing activities of $3.3 million in 2022.

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In August 2008, we announced that our board of directors approved a share repurchase program for up to one million shares of common stock which was further extended collectively by an additional 7,100,000 shares in 2010, 2013, 2014, 2018, 2020 and 2023. In November 2024, our board of directors authorized the repurchase by us of an additional 700,000 shares of common stock pursuant to Rule 10b-18 of the Exchange Act. In 2024, we repurchased 375,219 shares of common stock pursuant to our share repurchase program at an average purchase price of $22.54 per share, for an aggregate purchase price of $8.5 million. In 2023, we repurchased 278,799 shares of common stock pursuant to our share repurchase program at an average purchase price of $22.11 per share, for an aggregate purchase price of $6.2 million. In 2022, we repurchased 218,809 shares of common stock pursuant to our share repurchase program at an average purchase price of $31.01 per share, for an aggregate purchase price of $6.8 million.

In 2024, 2023 and 2022, we received $2.9 million, $3.4 million and $3.5 million, respectively, from the exercise of stock-based awards.

We believe that our cash and cash equivalent, short-term bank deposits and marketable securities, along with cash from operations, will provide sufficient capital to fund our operations for at least the next 12 months. We cannot provide assurance, however, that the underlying assumed levels of revenues and expenses will prove to be accurate.

In addition, as part of our business strategy, we occasionally evaluate potential acquisitions of businesses, products and technologies and minority equity investments. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses or minority equity investments. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition or investment candidates, complete acquisitions or investments, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot provide assurance that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all. See “Risk Factors—We may seek to expand our business in ways that could result in diversion of resources and extra expenses.” for more detailed information.

Contractual Obligations

The table below presents the principal categories of our contractual obligations as of December 31, 2024:

[[GREPCENT_TABLE]]
[["","","Payments Due by Period"],["","","($ in thousands)"],["","","Total","","","Less than 1 year","","","1-3 years"],["Operating Lease Obligations \u2013 Leasehold properties","","","818","","","","551","","","","267"],["Purchase Obligations \u2013 design tools","","","4,693","","","","4,144","","","","549"],["Other purchase Obligations","","","1,317","","","","1,317","","","","\u2014"],["Total","","","6,828","","","","6,012","","","","816"]]
[[/GREPCENT_TABLE]]

Operating leasehold obligations principally relate to our offices in Israel, Ireland, United Kingdom, France, China, Japan, Serbia, Sweden and the United States. Purchase obligations relate to license agreements entered into for maintenance of design tools. Other purchase obligations consist of capital and operating purchase order commitments. Other than set forth in the table above, we have no long-term debt or capital lease obligations.

At December 31, 2024, our income tax payable, net of withholding tax credits, included $462,000 related to uncertain tax positions. Due to uncertainties in the timing of the completion of tax audits, the timing of the resolution of these positions is uncertain and we are unable to make a reasonably reliable estimate of the timing of payments. As a result, this amount is not included in the above table.

In addition, at December 31, 2024, the amount of accrued severance pay was $7,365,000. Severance pay relates to accrued severance obligations to our Israeli employees as required under Israeli labor laws. These obligations are payable only upon termination, retirement or death of the respective employee. Of this amount, $204,000 is unfunded.

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