Ceva Inc: Form 10-Q for the period ended Jun 30, 2025

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, 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 68% of the wireless connectivity market share based on IP design revenues in 2024, 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, covering consumer IoT, automotive, industrial and infrastructure, as well as the mobile and PC markets where we have well established customers and presence Based on our research, we believe that these sectors will represent a $5 billion total addressable market by 2027. Since 2003, more than 20 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 products 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 technology.

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), cellular IoT 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.

Ceva is committed to being a responsible and respected global corporate citizen and a more sustainable company in the countries where we have operations and employees. We adhere to our Code of Business Conduct and Ethics and emphasize and focus on environmental controls, resource conservation and recycling and the welfare of our employees.

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 second quarter of 2025, we concluded thirteen IP licensing deals for a range of wireless and smart sensing use cases, including four licensing agreements for NeuPro family of NPUs, which we believe represents a pivotal moment for our AI business as we entered the broad adoption phase of our Edge AI NPUs. These NPU agreements include a high-volume connectivity customer expanding into AI-powered audio features, the second high volume connectivity in recent quarters to adopt our NeuPro-Nano NPU for their product lines. We also secured a notable automotive-related agreement with Qualcomm, following the acquisition of our long time V2X customer Autotalks by Qualcomm, and another automotive related agreement with a U.S. customer developing a 4D radar platform.

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

• 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 particular, 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. In the second quarter, our customers shipped a record number of Wi-Fi 6 chips based on our IP, illustrative of the continuing ramp. These Wi-Fi 6 shipments generate a higher royalty per unit on average than the previous generations of Wi-Fi 4 and Wi-Fi 5 that represent the majority of our Wi-Fi shipments to date.
• 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.
• 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.
• The high-volume consumer audio markets, including True Wireless Stereo (TWS) earbuds, smartwatches, AR and VR headsets, and other wearable assisted devices, offer an incremental growth segment for us for our Bluetooth, Audio AI DSPs and NPUs and software IP. For OEMs to better address this market, our RealSpace Spatial Audio & Head Tracking Solution continues to gain traction. In the second quarter, we announced that Nothing, a consumer technology company, launched their first headphones in the market with our RealSpace software, and we also signed a new RealSpace licensing deal with another established consumer brand for their upcoming spatial audio headphone product line.
• 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. In the second quarter, we signed a licensing deal with a U.S. company developing a 4D radar platform for the automotive market, aimed at improving automotive safety and reliability.
• Transformer and classic neural networks are increasingly being deployed in a wide range of devices to make these devices “smarter.” 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. In the second quarter of 2025, we signed two new agreements for our NeuPro-M Edge AI NPU, targeting diverse use cases of communications acceleration within the cloud for AI inference processing and with ALi Corp, a leader in set top box platforms and multimedia SoC to integrate AI into their next-generation video platform.
• AI is rapidly making its way into IoT devices, thanks in part to the emergence of embedded AI, including TinyML models, which enable small AI networks to be embedded in Artificial Intelligence of Things (AIoT) devices for sensing use cases including sound, vision, vibration and health monitoring. Our 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. Indicative of this trend, in the second quarter, we signed two licensing agreements for our NeuPro-Nano, both related to AI audio workloads in high volume consumer products
• 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.

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.

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 returned us to year-over-year revenue growth in 2024, with overall revenue growing 10% over 2023, outperforming the 4% to 8% we expected at the beginning of 2024. 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. We saw the first evidence for solid IP expansion into AI during the second quarter of 2025, with four of thirteen deals signed for AI use cases and strong licensing revenue contribution. On royalties, we expect our connectivity products to continue to also show growth in 2025, particularly related to our Bluetooth, Wi-Fi and cellular IoT business lines which enjoyed record shipments in 2024 and from an in-house 5G modem powered by our cellular DSP from a leading U.S. mobile OEM that launched its first smartphone based on its own modem in the first quarter of 2025. In the second quarter of 2025, we recorded an all-time record high volume of our cellular IoT and Wi-Fi 6 IPs powering customer shipments.

However, the global economy continues to be impacted by macroeconomic conditions, including as a volatile interest rate environment, ongoing inflation and recent changes in legislation and regulations, including enacted and proposed tariffs and other trade policies, have introduced additional uncertainty in the global economy. In periods of perceived or actual unfavorable economic conditions, our customers or potential customers could delay or re-evaluate their decisions to initiate various projects which in turn could result in a delay or cessation of engagement or other business activities with us, and which could result in lower licensing revenues. In addition, lower consumer demand may result in lower royalty revenues as our customers ship fewer units. These factors may make it difficult for us to forecast and plan future budgetary decisions or business activities accurately. Accordingly, while we do not currently expect our IP solutions will themselves be subject to tariffs, the indirect impact on consumer demand, among other factors, has increased the uncertainty about the year. Given these evolving dynamics, as well as our lower than anticipated revenues for the first quarter, in May 2025, we adopted a more cautious outlook, and lowered our revenue guidance for the 2025 fiscal year from around a high-single digits range to a low-single digits range for growth over 2024 annual revenues.

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, Hezbollah and Iran. Nevertheless, 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.

RESULTS OF OPERATIONS

Total Revenues

Total revenues were $25.7 million and $49.9 million for the second quarter and first half of 2025, respectively, representing a decrease of 10% and 1% as compared to the corresponding periods in 2024. The decrease in total revenues for the second quarter of 2025 was mainly due to lower licensing and related revenues, as further described below. The decrease in total revenues for the first half of 2025 was due to lower royalty revenues, offset by higher licensing and related revenues, as further described below.

Our five largest customers accounted for 42% of our total revenues for both the second quarter and first half of 2025, respectively, as compared to 66% and 50% for the comparable periods in 2024. Two customers each accounted for 11% of our total revenues for the second quarter of 2025, as compared to three customers that accounted for 23%, 21% and 13% of our total revenues for the second quarter of 2024. One customer accounted for 17% of our total revenues for the first half of 2025, as compared to three customers that each accounted for 13% of our total revenues for the first half of 2024. Sales to UNISOC (formerly Spreadtrum Communications, Inc. and RDA Corporation) represented 11% and 17% of our total revenues for the second quarter and first half of 2025, respectively. 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 both the second quarter and first half of 2025 and collectively represented 38% and 34% of our total royalty revenues for the second quarter and first half of 2025, respectively. Two royalty paying customers represented 10% or more of our total royalty revenues for both the second quarter and first half of 2024 and collectively represented 45% and 43% of our total royalty revenues for the second quarter and first half of 2024, respectively. 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 $15.0 million and $30.1 million for the second quarter and first half of 2025, respectively, representing a decrease of 13% and an increase of 5%, as compared to the corresponding periods in 2024. The decrease in licensing and related revenues for the second quarter of 2025 was primarily due to a catch-up in licensing revenue recognized in the second quarter of 2024 following a slip in the first quarter of 2024. In licensing, this quarter marked a pivotal moment for our AI business as we entered the broad adoption phase for our Edge AI NPUs. Following extensive evaluations with leading customers, we secured four strategic, high impact NPU customer agreements, validating the market’s readiness and our innovative, market leading NPU portfolio. These included two NeuPro-Nano deals related to audio in embedded applications and two NeuPro-M deals targeting two diverse use cases: communications and data processing acceleration, and efficient scalable LLM compute support. The increase in licensing and related revenues for the first half of 2025 was primarily due to the aforementioned increase in revenue coming from our Edge AI technologies, as well as several key deals signed with strategic customers incorporating our new Wi-Fi 7 and Bluetooth 7 solutions in their long-term roadmaps, partially offset by a strategic deal signed in the second quarter of 2024 for the 5G-Advanced modem markets.

During the quarter, thirteen IP licensing agreements were concluded, targeting a wide range of end markets and applications, including five first-time customers and four OEM customers, highlighting the breadth and strength of our IP portfolio.

Licensing and related revenues accounted for 59% and 60% of our total revenues for the second quarter and first half of 2025, respectively, as compared to 61% and 57% for the comparable periods of 2024.

Royalty Revenues

Royalty revenues were $10.7 million and $19.9 million for the second quarter and first half of 2025, respectively, representing a decrease of 5% and 9%, as compared to the corresponding periods in 2024. Royalty revenues accounted for 41% and 40% of our total revenues for the second quarter and first half of 2025, respectively, as compared to 39% and 43% for the comparable periods of 2024. We saw good sequential growth across most of our markets, with royalties up 16% sequentially. On a year-over-year basis, royalties declined in the second quarter of 2025 by 5%, mainly attributable to the lackluster smartphone market, where widespread softness has been reported by our peers, and which we also experienced, at the lower end of the market. With regards to the higher end of the smartphone market, we continue to see our volumes grow at a leading U.S. OEM using our technology in their in-house 5G modem. Outside of mobile, our consumer IoT customers showed strong sequential and year-over-year growth in shipments, driven by record high cellular IoT and Wi-Fi 6 shipments. Overall consumer IoT shipments were up 21% sequentially and 16% year-over-year. We expect that the sequential growth in royalties will continue throughout the rest of the year, as our customers build towards the holiday season and our U.S. OEM smartphone customer introduces additional models featuring their in-house 5G modem later in the year.

The five largest royalty-paying customers accounted for 58% and 54% of our total royalty revenues for the second quarter and first half of 2025, respectively, as compared to 63% and 59% for the comparable periods of 2024.

Geographic Revenue Analysis

(in millions, except percentages)

*) Less than 10%

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 $3.5 million and $7.0 million for the second quarter and first half of 2025, respectively, as compared to $2.9 million and $5.4 million for the comparable periods of 2024. Cost of revenues accounted for 14% of our total revenues for both the second quarter and first half of 2025, as compared to 10% and 11% for the comparable periods of 2024. The increase for both the second quarter and first half of 2025 principally reflected higher strategically beneficial customization and implementation work associated with the strategic 5G-Advanced deals we signed in the second half of 2024. Included in cost of revenues for the second quarter and first half of 2025 was a non-cash equity-based compensation expense of $166,000 and $325,000, respectively, as compared to $191,000 and $394,000 for the comparable periods of 2024.

Gross Margin

Gross margin for both the second quarter and first half of 2025 was 86%, as compared to 90% and 89% for the comparable periods of 2025. The decrease for both the second quarter and first half of 2025 mainly reflected higher cost of revenues, as set forth above, and lower total revenues.

Operating Expenses

Total operating expenses were $26.6 million and $51.8 million for the second quarter and first half of 2025, respectively, as compared to $25.5 million and $50.1 million for the comparable periods of 2024. The net increase for both the second quarter and first half of 2025 principally reflected higher salaries and employee-related costs and higher non-cash equity-based compensation expenses, partially offset by higher allocation of customization and implementation work for our licensees to cost of revenues.

Research and Development Expenses, Net

Total research and development expenses, net were $18.8 million and $36.4 million for the second quarter and first half of 2025, respectively, as compared to $18.8 million and $36.7 million for the comparable periods of 2024. The decrease for the first half of 2025 principally reflected higher allocation of customization and implementation work for our licensees to cost of revenues, partially offset by higher salaries and employee-related costs and higher non-cash equity-based compensation expenses. Included in research and development expenses for the second quarter and first half of 2025 were non-cash equity-based compensation expenses of $2,673,000 and $5,139,000, respectively, as compared to $2,438,000 and $4,445,000 for the comparable periods of 2024. Research and development expenses as a percentage of our total revenues were 73% for both the second quarter and first half of 2025, as compared to 66% and 73% for the comparable periods of 2024. The percentage increase for the second quarter of 2025, as compared to the comparable period of 2024, was mainly due to lower revenues.

The number of research and development personnel was 323 at June 30, 2025, as compared to 332 at June 30, 2024.

Sales and Marketing Expenses

Our sales and marketing expenses were $3.3 million and $6.8 million for the second quarter and first half of 2025, respectively, as compared to $3.1 million and $5.9 million for the comparable periods of 2024. The increase for both the second quarter and first half of 2025 principally reflected higher salaries and employee-related costs, mainly due to a greater number of personnel, as well as higher non-cash equity-based compensation expenses. Included in sales and marketing expenses for the second quarter and first half of 2025 were non-cash equity-based compensation expenses of $598,000 and $1,164,000, respectively, as compared to $451,000 and $816,000 for the comparable periods of 2024. Sales and marketing expenses as a percentage of our total revenues were 13% and 14% for the second quarter and first half of 2025, respectively, as compared to 11% and 12% for the comparable periods of 2024.

The total number of sales and marketing personnel was 34 at June 30, 2025, as compared to 30 at June 30, 2024.

General and Administrative Expenses

Our general and administrative expenses were $4.4 million and $8.3 million for the second quarter and first half of 2025, respectively, as compared to $3.5 million and $7.1 million for the comparable periods of 2024. The increase for the second quarter of 2025 primarily reflected higher non-cash equity-based compensation expenses. The increase for the first half of 2025 primarily reflected higher non-cash equity-based compensation expenses and higher professional services costs. Included in general and administrative expenses for the second quarter and first half of 2025 were non-cash equity-based compensation expenses of $1,465,000 and $2,597,000, as compared to $ 820,000 and $1,816,000 for the comparable periods of 2024. General and administrative expenses as a percentage of our total revenues were 17% for both the second quarter and first half of 2025, as compared to 12% and 14% for the comparable periods of 2024.

The number of general and administrative personnel was 47 at June 30, 2025, as compared to 45 at June 30, 2024.

Amortization of Intangible Assets

Our amortization charges were $0.2 million and $0.3 million for the second quarter and first half of 2025, respectively, as compared to $0.1 million and $0.3 million for the comparable periods of 2024. The amortization charges for both the second quarter and first half of 2025 and 2024 were incurred in connection with the amortization of intangible assets associated with the acquisitions of the Hillcrest Labs and VisiSonics business.

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 slight increase in interest income and gains and losses from marketable securities, net, during both the second quarter and first half of 2025 principally reflected higher yields, partially offset by lower combined 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 applicable French research tax credits, which are generally refunded every three years. This has resulted in a foreign exchange gain of $0.57 million and $1.17 million for the second quarter and first half of 2025, respectively, as compared to a foreign exchange loss of $0.09 million and $0.28 million for the comparable periods of 2024.

Remeasurement of Marketable Equity Securities

We recorded a loss of $208,000 and $262,000 for the second quarter and first half of 2025, respectively, as compared to a loss of $58,000 and $118,000 for the comparable periods of 2024, related to remeasurement of marketable equity securities, which we hold at fair value. 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 $1.1 million and $2.1 million for the second quarter and first half of 2025, respectively, as compared to $1.6 million and $3.3 million for the comparable periods of 2024. The decrease for both the second quarter and first half of 2025 primarily reflected lower withholding tax expenses in our Israeli subsidiary for which we will not be able to obtain a refund from the tax authorities, and lower tax expenses on income generated in our French subsidiary (under the French IP Box regime).

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, on July 4, 2025, President Trump signed into law Public Law 119-21, commonly known as the One Big Beautiful Bill Act (the “Act”). The Act contained several tax reform proposals that may impact on our current deferred tax liabilities and assets. As the Act was signed into law subsequent to the current quarter end, the impact of the Act on our current and deferred tax liabilities and assets are not included in this filing. We are currently evaluating the effects of these changes; however, we do not expect that the Act will have a material impact on our financial position.

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 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%.

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, equity-based compensation and credit losses 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, 2024, filed with the SEC on February 27, 2025, 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, 2024.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2025, we had approximately $29.1 million in cash and cash equivalents, $2.8 million in bank deposits, and $125.6 million in marketable securities, totaling $157.5 million, as compared to $163.6 million at December 31, 2024. The decrease for the first six months of 2025 principally reflected cash used in operating activities and funds used to repurchase 300,000 shares of common stock for an aggregate consideration of approximately $6.2 million, partially offset by our receipt of cash proceeds of $3.5 million in connection with the sale of Intrinsix that were released from escrow in the second quarter of 2025.

Out of total cash, cash equivalents, bank deposits and marketable securities of $157.5 million, $134.2 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 six months of 2025, we invested $31.5 million of cash in bank deposits and marketable securities with maturities up to 33 months from the balance sheet date. In addition, during the same period, marketable securities were sold or redeemed for cash amounting to $49.8 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 six months of 2025 was immaterial. For more information about our marketable securities, see Note 7 to the interim condensed consolidated financial statements for the three and six months ended June 30, 2025.

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 six months of 2025 was $6.2 million and consisted of net loss of $7.0 million, adjustments for non-cash items of $9.3 million, and changes in operating assets and liabilities of $8.5 million. Adjustments for non-cash items primarily consisted of $2.0 million of depreciation and amortization of intangible assets, and $9.2 million of equity-based compensation expenses, partially offset by $1.7 million of unrealized foreign exchange gain. The decrease in operating assets and liabilities primarily consisted of an increase in prepaid expenses and other assets of $2.9 million (mainly as a result of payment of a yearly design tool subscription and an increase in French research tax benefits applicable to the CIR which is generally refunded every three years), a decrease in accrued expenses and other payables of $1.4 million, and a decrease in accrued payroll and related benefits of $4.6 million (mainly as a result of a yearly bonus payments), partially offset by a decrease in trade receivables of $0.9 million.

Cash used in operating activities for the first six months of 2024 was $5.0 million and consisted of net loss of $5.7 million, adjustments for non-cash items of $9.3 million, and changes in operating assets and liabilities of $8.6 million. Adjustments for non-cash items primarily consisted of $2.0 million of depreciation and amortization of intangible assets, and $7.5 million of equity-based compensation expenses. The decrease in operating assets and liabilities primarily consisted of an increase in trade receivables of $5.0 million, an increase in prepaid expenses and other assets of $2.2 million (mainly related to unbilled receivables of $2.1 million classified as “other long-term assets” in the Interim Condensed Consolidated Balance Sheets), and a decrease in accrued payroll and related benefits of $2.0 million (mainly as a result of a yearly bonus payments), partially offset by a decrease in accrued interest on bank deposits in the amount of $0.4 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 six months of 2025 was $20.8 million, compared to $8.2 million of net cash provided by investing activities for the comparable period of 2024. We had a cash outflow of $30.8 million and a cash inflow of $49.8 million with respect to investments in marketable securities during the first six months of 2025, as compared to a cash outflow of $30.0 million and a cash inflow of $31.9 million with respect to investments in marketable securities during the first six months of 2024. For the first six months of 2025, we had an investment of $0.7 million in bank deposits, as compared to proceeds of $8.0 million from bank deposits for the comparable period of 2024. We had a cash outflow of $1.0 million and $1.5 million during the first six months of 2025 and 2024, respectively, from purchase of property and equipment. For the first six months of 2025 and 2024, we had a cash inflow of $3.5 million and $0.5 million, respectively, in connection with the release of escrowed funds associated with the sale of Intrinsix. For the first six months of 2024, we had a cash outflow of $0.8 million for the acquisition of a Greek-based company.

Financing Activities

Net cash used in financing activities for the first six months of 2025 was $4.5 million, as compared to net cash used in financing activities in the amount of $1.7 million for the comparable period of 2024.

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 7,800,000 shares collectively across further approvals in 2010, 2013, 2014, 2018, 2020, 2023 and November 2024. During the first six months ended June 30, 2025, we repurchased 300,000 shares of common stock at an average purchase price of $20.54 per share for an aggregate purchase price of $6.2 million. During the first six months ended June 30, 2024, we repurchased 157,303 shares of common stock at an average purchase price of $20.83 per share for an aggregate purchase price of $3.3 million. As of June 30, 2025, we had 724,781 shares available for repurchase.

During the first six months of 2025, we received $1.6 million from the exercise of stock-based awards, as compared to $1.6 million received for the comparable period of 2024.

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.

Contractual Obligations and Commitments

We believe that our contractual obligations and commitments have not changed materially from those included in our Annual Report on Form 10-K for the year ended December 31, 2024.

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 gain of $574,000 and $1,174,000 for the second quarter and first half of 2025, respectively, and a foreign exchange loss of $86,000 and $279,000 for the comparable periods of 2024.

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 second quarter and first half of 2025, we recorded accumulated other comprehensive gain of $1,151,000 and $785,000, respectively, from our forward and option contracts, net of taxes, with respect to anticipated payroll expenses for our non-U.S. employees. During the second quarter and first half of 2024, we recorded accumulated other comprehensive loss of $371,000 and $946,000, respectively, from our forward and option contracts, net of taxes, with respect to anticipated payroll expenses for our non-U.S. employees. As of June 30, 2025, the amount of other comprehensive gain from our forward and option contracts, net of taxes, was $785,000, which will be recorded in the consolidated statements of income (loss) during the following four months. We recognized a net gain of $281,000 and $361,000 for the second quarter and first half of 2025, respectively, and a net gain of $227,000 and $607,000 for the comparable periods of 2024, 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 June 30, 2025, the unrealized losses associated with our investments were approximately $0.5 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 six months of 2025. 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 $1.55 million and $3.05 million for the second quarter and first half of 2025, respectively, as compared to $1.49 million and $2.94 million for the comparable periods of 2024. The slight increase in interest income, and gains and losses from marketable securities, net, during both the second quarter and first half of 2025 principally reflected higher yields, partially offset by lower combined bank deposits and marketable securities balances held.

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 June 30, 2025.

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, 2024, 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, except as set forth below. 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, 2024, 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.

Changes in the U.S. trade environment, including uncertainty over global tariffs and the financial impact of tariffs, as well as economic uncertainty associated with geopolitics, may negatively affect our business, financial condition and results of operations.

The United States has enacted and proposed to enact significant new tariffs, as well as changes to existing tariffs. In addition, changes to U.S. trade policies, treaties and tariffs have resulted and may continue to result in retaliatory tariffs enacted by trading partners in response to such actions. Trade restrictions and rising political tensions could reduce trade volume, investment and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets. Any of these factors could negatively impact our customers and other stakeholders. For example, these developments or a perception of these developments could cause our customers or potential customers to delay or re-evaluate their decisions to initiate various projects which in turn could result in a delay or cessation of engagement or other business activities with us, and which could result in lower licensing revenues. In addition, lower consumer demand may result in lower royalty revenues as our customers ship fewer units. All these developments could negatively impact our business, financial condition and results of operations, and may make it difficult for us to forecast and plan future budgetary decisions or business activities accurately.