Ceva Inc: Form 10-Q for the period ended Mar 31, 2024

You should read the following discussion together with the unaudited financial statements and related notes appearing elsewhere in this quarterly report. This discussion contains forward-looking statements that involve risks and uncertainties. Any or all of our forward-looking statements in this quarterly report may turn out to be wrong. These forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors which could cause actual results to differ materially include those set forth under in Part II – Item 1A – “Risk Factors,” as well as those discussed elsewhere in this quarterly report. See “Forward-Looking Statements.”

The financial information presented in this quarterly report includes the results of Ceva, Inc. and its subsidiaries.

BUSINESS OVERVIEW

Headquartered in Rockville, Maryland, Ceva is the leader in innovative silicon and software IP solutions that enable smart edge products to connect, sense, and infer data more reliably and efficiently. With the industry’s only portfolio of comprehensive communications and scalable edge AI IP, Ceva powers the connectivity, sensing, and inference in today’s most advanced smart edge products across consumer IoT, mobile, automotive, infrastructure, industrial, and personal computing. More than 17 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 are powered by Ceva.

Ceva is a trusted partner to over 400 of the leading semiconductor and original equipment manufacturer (OEM) companies targeting a wide variety of cellular and IoT end markets, including mobile, PC, consumer, automotive, smart-home, surveillance, robotics, industrial and medical. The customers incorporate our IP into application-specific integrated circuits (ASICs) and application-specific standard products (ASSPs) that they manufacture, market and sell to consumer electronics companies. Our application software IP is licensed primarily to OEMs who embed it in their System on Chip (SoC) designs to enhance the user experience, and OEMs also license our hardware IP products and solutions for their SoC designs to create power-efficient, intelligent, secure and connected devices.

Ceva’s wireless communications, sensing and edge AI technologies are at the heart of some of today’s most advanced smart edge products. From Bluetooth connectivity, Wi-Fi, ultra-wide band (UWB) and 5G platform IP for ubiquitous, robust communications, to scalable edge AI neural processing unit (NPU) IPs, sensor fusion processors and embedded application software that make devices smarter.

We licenses 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.

Ceva is 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 and sensing and edge AI technologies address some of the most important megatrends, including 5G, generative 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 first quarter of 2024, eleven IP licensing deals were concluded for a range of wireless and smart sensing use cases.

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

• Our broad Bluetooth, Wi-Fi, UWB and cellular IoT IPs 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 15 billion devices annually by 2027 based on research from ABI Research. In the first quarter of 2024, we signed strategic licensing deals for our next-generation Bluetooth 6 and Wi-Fi 7 IPs, reinforcing our market leading position for these technologies. In particular, we believe that Wi-Fi presents a significant royalty revenue opportunity, given our dominant market position in licensing Wi-Fi 6 with more than 40 customers to date and leadership position in Wi-Fi 7 IP.
• Our PentaG2 platform and digital signal processors (DSPs) for 5G mobile broadband and 5G RedCap is the most comprehensive baseband IP platform 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 Ips, in the first quarter of 2024, we signed three deals for 5G new use cases, two of which target RedCap and one for 5G V2X.

25

• Our PentaG RAN platform for 5G RAN settings is the most comprehensive baseband processor IP in the industry today and provides newcomers and incumbents with a comprehensive solution to address the need for 5G and other communications in data centers and infrastructure.
• 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 IPs. 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.
• 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 $61 billion and $108 billion, respectively by 2030, 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.
• Transformer and classic neural networks are increasingly being deployed in a wide range of devices in order to make these devices “smarter.” Our newest generation family of 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 Yole Group, 2.5 billion Edge AI devices will ship annually by 2026, illustrating the huge potential of the market.
• 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 in order 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 300 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 complete, one-stop-shop for processing all classes and types of sensors.

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 are comprised of a range of ASPs, spanning 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 as the continuing digital transformation drives 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 intend to focus on four main markets, which are consumer, 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 can expand our customer base and revenues in Europe and the U.S., complementing our strong presence in China, Taiwan, Japan and the remainder of the APAC region.

In 2024, we believe our strategy will return Ceva to year-over-year revenue growth, with overall revenue expected to grow 4% to 8% over 2023. Most of this growth is expected to be concentrated in the second half of the year, In 2024, we expect our licensing and related revenues business will continue to expand into new markets and use cases in the industrial IoT (IIoT) and consumer IoT, 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 2024, particularly related to our Bluetooth, Wi-Fi and cellular IoT business lines, with the expected ramp of automotive ADAS royalties in the second half of the year. The smartphone market related revenues have continued to decrease for us in recent years due to these trends.

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 we continue to drive our business and support our customers globally. However, a portion of our employees in Israel have been 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.

RESULTS OF OPERATIONS

Total Revenues

Total revenues were $22.1 million for the first quarter of 2024, representing a decrease of 16% as compared to the corresponding period in 2023. The decrease in total revenues for the first quarter of 2024 was mainly due to lower licensing and related revenues, offset by higher royalty revenues, as further described below.

Our five largest customers accounted for 45% of our total revenues for the first quarter of 2024, as compared to 43% for the comparable period in 2023. Two customers accounted for 15% and 14% of our total revenues for the first quarter of 2024, as compared to one customer that accounted for 14% of our total revenues for the first quarter of 2023. Generally, the identity of our customers representing 10% or more of our total revenues varies from period to period, especially with respect to our IP 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 represented 10% or more of our total royalty revenues for the first quarter of 2024, and collectively represented 41% of our total royalty revenues for the first quarter of 2024. Two royalty paying customers represented 10% or more of our total royalty revenues for the first quarter of 2023, and collectively represented 28% of our total royalty revenues for the first quarter of 2023. 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 following table sets forth use cases for Ceva technology portfolio as percentages of our total revenues for each of the periods set forth below:

Licensing and Related Revenues

Licensing and related revenues were $11.4 million for the first quarter of 2024, representing a decrease of 37%, as compared to the corresponding period in 2023. Licensing revenues for the first quarter of 2024 were lower than anticipated, as some deals were delayed into the second quarter and later in the year. We signed strategic early-adopter deals with lead customers for our Bluetooth 6 and Wi-Fi 7 IPs in the quarter and have already concluded a significant deal with a strategic customer for a next-generation IP since the close of the quarter.

Eleven IP license agreements were concluded during the first quarter of 2024, targeting a wide variety of end markets and applications, including Bluetooth 5 connectivity for wearables and industrial IoT, Bluetooth 6 for wireless audio, Wi-Fi 6, Wi-Fi 7 and UWB for smart edge consumer devices, 5G RedCap for consumer and industrial devices, 5G V2X modems for automotive, and audio for smartphones. Two of the eleven deals were with first-time customers.

Licensing and related revenues accounted for 52% of our total revenues for the first quarter of 2024, as compared to 69% for the comparable period of 2023.

Royalty Revenues

Royalty revenues were $10.7 million for the first quarter of 2024, representing an increase of 33%, as compared to the corresponding period in 2023. Royalty revenues accounted for 48% of our total revenues for the first quarter of 2024, as compared to 31% for the comparable period of 2023. The first quarter of 2024 included revenue of $1.0 million following the resolution of a royalty audit. Excluding this amount, the first quarter of 2024 would have been up by 20% as compared to the comparable period of 2023. In the first quarter of 2024 we saw shipment volumes up 25% year-over-year, and increase in every end market we serve, as restocking continued across the broad IoT markets. Smartphone units, while up year-over-year, were down quite sharply from the fourth quarter, a similar trend to what we saw last year. Also, the infrastructure market remains soft, reflecting low CapEx for 5G networks globally.

The increase in royalty revenues for the first quarter of 2024 was mainly due to customer inventory adjustments and prolonged weak demand for smartphones and PCs in the first quarter of 2023.

Our customers reported sales of 371 million chipsets incorporating our technologies for the first quarter of 2024, an increase of 25% from the corresponding period in 2023 for actual shipments reported.

The five largest royalty-paying customers accounted for 58% of our total royalty revenues for the first quarter of 2024, as compared to 49% for the comparable period of 2023.

Geographic Revenue Analysis

(in millions, except percentages)

Due to the nature of our license agreements and the associated potential large individual contract amounts, the geographic split of revenues both in absolute dollars and percentage terms generally varies from quarter to quarter.

Cost of Revenues

Cost of revenues was $2.5 million for the first quarter of 2024, as compared to $3.5 million for the comparable period of 2023. Cost of revenues accounted for 11% of our total revenues for the first quarter of 2024, as compared to 13% for the comparable period of 2023. The decrease for the first quarter of 2024 principally reflected lower customization work for our licensees and lower cost of unit shipments related to our sensor fusion chip business. Included in cost of revenues for the first quarter of 2024 was a non-cash equity-based compensation expense of $203,000, as compared to $206,000 for the comparable period of 2023.

Gross Margin

Gross margin for the first quarter of 2024 was 89%, as compared to 87% for the comparable period of 2023. The increase for the first quarter of 2024 mainly reflected lower cost of revenues as set forth above, offset by lower total revenues. The gross margin for the first quarter of 2023 reflects historical period on a re-cast basis excluding the Intrisix business as a discontinued operation, is also illustrative of our decision to return to pure IP licensing and royalty business model.

Operating Expenses

Total operating expenses were $24.5 million for the first quarter of 2024, as compared to $25.4 million for the comparable period of 2023. The net decrease for the first quarter of 2024 principally reflected lower contractor costs.

Research and Development Expenses, Net

Our research and development expenses, net, were $18.0 million for the first quarter of 2024, as compared to $18.7 million for the comparable period of 2023. The decrease for the first quarter of 2024 principally reflected lower contractor costs. Included in research and development expenses for the first quarter of 2024 were non-cash equity-based compensation expenses of $2,007,000, as compared to $2,102,000 for the comparable period of 2023. Research and development expenses as a percentage of our total revenues were 82% for the first quarter of 2024, as compared to 71% for the comparable period of 2023. The percentage increase for the first quarter of 2024, as compared to the comparable period of 2023, was mainly due to lower revenues.

The number of research and development personnel was 331 at March 31, 2024, as compared to 337 at March 31, 2023.

Sales and Marketing Expenses

Our sales and marketing expenses were $2.8 million for the first quarter of 2024, as compared to $2.7 million for the comparable period of 2023. Included in sales and marketing expenses for the first quarter of 2024 were non-cash equity-based compensation expenses of $365,000, as compared to $378,000 for the comparable period of 2023. Sales and marketing expenses as a percentage of our total revenues were 13% for the first quarter of 2024, as compared to 10% for the comparable period of 2023.

The total number of sales and marketing personnel was 28 at March 31, 2024, as compared to 31 at March 31, 2023.

General and Administrative Expenses

Our general and administrative expenses were $3.6 million for the first quarter of 2024, as compared to $3.8 million for the comparable period of 2023. The decrease for the first quarter of 2024 primarily reflected lower salaries and related costs. Included in general and administrative expenses for the first quarter of 2024 were non-cash equity-based compensation expenses of $996,000, as compared to $866,000 for the comparable period of 2023. General and administrative expenses as a percentage of our total revenues were 16% for the first quarter of 2024, as compared to 15% for the comparable period of 2023.

The number of general and administrative personnel was 46 at March 31, 2024, as compared to 41 at March 31, 2023.

Amortization of Intangible Assets

Our amortization charges were $0.2 million for both the first quarter of 2024 and 2023. The amortization charges for the first quarter of 2024 were incurred in connection with the amortization of intangible assets associated with the acquisitions of the Hillcrest Labs and VisiSonics business. The amortization charges for the first quarter of 2023 were incurred in connection with the amortization of intangible assets associated with the acquisitions of the Hillcrest Labs.

Financial Income, Net (in millions)

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

The increase in interest income and gains and losses from marketable securities, net, during the first quarter of 2024 principally reflected higher combined bank deposits and marketable securities balances held (mainly because of cash received from the sale of Intrinsix in October 2023) and higher yields.

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 applicable French research tax credits, which are generally refunded every three years. This has resulted in a foreign exchange loss of $0.19 million for the first quarter of 2024, as compared to foreign exchange gain of $0.26 million for the comparable period of 2023.

Remeasurement of Marketable Equity Securities

We recorded a loss of $0.0 million for the first quarter of 2024, as compared to a loss of $0.1 million for the comparable period of 2023, related to remeasurement of marketable equity securities, which we hold at cost. 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

Our income tax expenses was $1.7 million for the first quarter of 2024, as compared to $1.4 million for the comparable period of 2023. The increase for the first quarter of 2024 primarily reflected higher withholding tax expenses in our Israeli subsidiary for which we will not be able to obtain a refund from the tax authorities.

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 these or 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 global intangible low-taxed income (GILTI) and the requirement to capitalize R&D expenditures under IRC Section 174 over 5 years if sourced from the U.S. and over 15 years if sourced internationally. Although our Israeli and Irish subsidiaries, and, from 2022 onward, our French subsidiary, 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 R&D 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).

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 new 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 intellectual property. 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%. We are applying the Technological Preferred Enterprise tax track for our Israeli subsidiary from tax year 2020 and onwards.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with revenue recognition, fair value of financial instruments, equity-based compensation and income taxes have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

See our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 7, 2024, for a discussion of additional critical accounting policies and estimates. There have been no changes in our critical accounting policies as compared to what was previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2024, we had approximately $21.2 million in cash and cash equivalents, $10.7 million in bank deposits, and $126.9 million in marketable securities, totaling $158.8 million, as compared to $166.5 million at December 31, 2023. The decrease for the first three months of 2024 principally reflected cash used in operating activities.

Out of total cash, cash equivalents, bank deposits and marketable securities of $158.8 million, $129.7 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.

During the first three months of 2024, we invested $12.7 million of cash in marketable securities with maturities up to 36 months from the balance sheet date. In addition, during the same period, marketable securities were sold or redeemed for cash amounting to $18.9 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 interim condensed consolidated statements of loss. The amount of credit losses recorded for the first three months of 2024 was immaterial. For more information about our marketable securities, see Note 7 to the interim condensed consolidated financial statements for the three months ended March 31, 2024.

Bank deposits are classified as short-term bank deposits and long-term bank deposits. Short-term bank deposits are deposits with maturities of more than three months but no longer than one year from the balance sheet date, whereas long-term bank deposits are deposits with maturities of more than one year as of 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 used in operating activities for the first three months of 2024 was $7.3 million and consisted of net loss of $5.4 million, adjustments for non-cash items of $4.6 million, and changes in operating assets and liabilities of $6.5 million. Adjustments for non-cash items primarily consisted of $1.0 million of depreciation and amortization of intangible assets, and $3.6 million of equity-based compensation expenses. The decrease in operating assets and liabilities primarily consisted of an increase in trade receivables of $3.0 million, an increase in prepaid expenses and other assets of $3.2 million (mainly as a result of payment of a yearly design tool subscription), a decrease in deferred revenues of $0.5 million, and a decrease in accrued expenses and other payables of $1.0 million, partially offset by an increase in accrued payroll and related benefits of $0.5 million and an increase in trade payables of $0.4 million.

Cash used in operating activities for the first three months of 2023 was $5.1 million and consisted of net loss of $4.9 million, adjustments for non-cash items of $5.0 million, and changes in operating assets and liabilities of $5.2 million. Adjustments for non-cash items primarily consisted of $1.4 million of depreciation and amortization of intangible assets, and $3.9 million of equity-based compensation expenses, offset with $0.3 million of unrealized foreign exchange gain. The decrease in operating assets and liabilities primarily consisted of an increase in trade receivables of $3.8 million, an increase in prepaid expenses and other assets of $2.2 million (mainly as a result of payment of a yearly design tool subscription), and an increase in deferred taxes, net of $0.9 million, partially offset by an increase in deferred revenues of $0.8 million, and an increase in accrued payroll and related benefits of $0.7 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, funding from research and development government grants and French research tax credits, and 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 provided by investing activities for the first three months of 2024 was $5.1 million, compared to $6.5 million of net cash provided by investing activities for the comparable period of 2023. We had a cash outflow of $12.7 million and a cash inflow of $18.9 million with respect to investments in marketable securities during the three months of 2024, as compared to a cash inflow of $6.6 million with respect to investments in marketable securities during the first three months of 2023. We had a cash outflow of $0.9 million and $0.1 million during the first three months of 2024 and 2023, respectively, from purchase of property and equipment. For the first three months of 2024, we had a cash inflow of $0.5 million in connection with the sale of Intrinsix, and a cash outflow of $0.8 million for the acquisition of the Greek-based company.

Financing Activities

Net cash provided by financing activities for the first three months of 2024 was $0.3 million, as compared to $1.7 million of net cash provided by financing activities for the comparable period of 2023.

In August 2008, we announced that our board of directors approved a share repurchase program for up to one million shares of common stock pursuant to Rule 10b-18 of the Exchange Act, which was extended by an additional 7,100,000 shares collectively across further approvals in 2010, 2013, 2014, 2018, 2020 and 2023. During the first three months ended March 31, 2024, we repurchased 56,872 shares of common stock at an average purchase price of $22.48 per share for an aggregate purchase price of $1,278. There were no repurchases of our common stock during the three months ended March 31, 2023. As of March 31, 2024, we had 643,128 shares available for repurchase.

During the first three months of 2024, we received $1.6 million from the exercise of stock-based awards, as compared to $1.7 million received for the comparable period of 2023.

We believe that our cash and cash equivalents, 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 assurances, 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 assurances that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all.

A majority of our revenues and a portion of our expenses are transacted in U.S. dollars and our assets and liabilities together with our cash holdings are predominately denominated in U.S. dollars. However, the majority of our expenses are denominated in currencies other than the U.S. dollar, principally the NIS and the Euro. Increases in volatility of the exchange rates of currencies other than the U.S. dollar versus the U.S. dollar could have an adverse effect on the expenses and liabilities that we incur when remeasured into U.S. dollars. We review our monthly expected 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 French research tax benefits applicable to the CIR, which is generally refunded every three years. This has resulted in a foreign exchange loss of $193,000 for the first quarter of 2024, and a foreign exchange gain of $263,000 for the comparable period of 2023.

As a result of currency fluctuations and the remeasurement of non-U.S. dollar denominated expenditures to U.S. dollars for financial reporting purposes, we may experience fluctuations in our operating results on an annual and quarterly basis. To protect against the increase in value of forecasted foreign currency cash flow resulting from salaries paid in currencies other than the U.S. dollar during the year, we follow a foreign currency cash flow hedging program. We hedge portions of the anticipated payroll for our non-U.S. employees denominated in currencies other than the U.S. dollar for a period of one to twelve months with forward and option contracts. During the first quarter of 2024 and 2023, we recorded accumulated other comprehensive loss of $575,000 and $253,000, respectively, from our forward and option contracts, net of taxes, with respect to anticipated payroll expenses for our non-U.S. employees. As of March 31, 2024, the amount of other comprehensive gain from our forward and option contracts, net of taxes, was $413,000, which will be recorded in the consolidated statements of income (loss) during the following four months. We recognized a net gain of $380,000 and a net loss of $171,000 for the first quarter of 2024 and 2023, respectively, related to forward and options contracts. We note that hedging transactions may not successfully mitigate losses caused by currency fluctuations. We expect to continue to experience the effect of exchange rate and currency fluctuations on an annual and quarterly basis.

The majority of our cash and cash equivalents are invested in high-grade certificates of deposits with major U.S., European and Israeli banks. Generally, cash and cash equivalents and bank deposits may be redeemed and therefore minimal credit risk exists with respect to them. Nonetheless, deposits with these banks exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits or similar limits in foreign jurisdictions, to the extent such deposits are even insured in such foreign jurisdictions. While we monitor on a systematic basis the cash and cash equivalent balances in the operating accounts and adjust the balances as appropriate, these balances could be impacted if one or more of the financial institutions with which we deposit our funds fails or is subject to other adverse conditions in the financial or credit markets. To date, we have experienced no loss of principal or lack of access to our invested cash or cash equivalents; however, we can provide no assurance that access to our invested cash and cash equivalents will not be affected if the financial institutions that we hold our cash and cash equivalents fail.

We hold an investment portfolio consisting principally of corporate bonds. We have the ability to hold such investments until recovery of temporary declines in market value or maturity. As of March 31, 2024, the unrealized losses associated with our investments were approximately $3.5 million due to the dramatic changes in the interest rate environment that took place in 2022. As we tend to hold such bonds with unrealized losses to recovery, the allowance for credit losses was not material during the first quarter of 2024. However, we can provide no assurance that we will recover present declines in the market value of our investments.

Interest income and gains and losses from marketable securities, net, were $1.45 million for the first quarter of 2024, as compared to $1.19 million for the comparable period of 2023. The increase in interest income, and gains and losses from marketable securities, net, during the first quarter of 2024, reflected higher combined bank deposits and marketable securities balances held (mainly because of cash received from the sale of Intrinsix in October 2023) and higher yields.

We are exposed primarily to fluctuations in the level of U.S. interest rates. To the extent that interest rates rise, fixed interest investments may be adversely impacted, whereas a decline in interest rates may decrease the anticipated interest income for variable rate investments. We typically do not attempt to reduce or eliminate our market exposures on our investment securities because the majority of our investments are short-term. We currently do not have any derivative instruments but may put them in place in the future. Fluctuations in interest rates within our investment portfolio have not had, and we do not currently anticipate such fluctuations will have, a material effect on our financial position on an annual or quarterly basis.

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2024.

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected or is reasonably likely to materially affect our internal control over financial reporting.

We have not identified any material changes to the Risk Factors previously disclosed in Part I—Item IA—“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, any one or more of which could, directly or indirectly, cause our actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of those factors, in whole or in part, could materially and adversely affect our business, financial condition, operating results and stock price. You should carefully consider the risks and uncertainties described in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2023, together with all of the other information in this Quarterly Report on Form 10-Q, including in “Part I—Item 2—”Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the condensed consolidated financial statements and related notes.