Earnings Call: Q1 2021

May 10, 2021

Good day, and welcome to the CEVA, Inc. 1st Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, today's event is being recorded. I would now like to turn the conference over to Richard Kingston, Vice President of Market Intelligence, Investor and Public Relations. Please go ahead, sir. Thank you, Rocco. Good morning, everyone, and welcome to CEVA's Q1 2021 earnings conference call. I'm joined today by Gideon Wertheiser, Chief Executive Officer and Yaniv Arieli, Chief Financial Officer of CEVA. Gideon will cover the business aspects and the highlights from the Q1 and provide general qualitative data. Yaniv will then cover the financial results for the Q1 also provide qualitative data for the Q2 and full year 2021. I will start with the forward looking statements. Please note that today's discussion contains forward looking statements that involve risks and uncertainties as well as assumptions that if they materialize or prove incorrect could cause the results of CEVA to differ materially from those expressed or implied by such forward looking statements and assumptions. Forward looking statements include statements regarding demand for and benefits of our technologies, including 5 gs technologies and our Blue Bud platform IP and related deal flow expectations regarding market trends, including growth shipments of ultra wideband devices and true wireless earbuds and secular growth in the IoT space, Release regarding benefits of the Intrinsics acquisition as well as the closing of the acquisition our ability to help customers mitigate risks associated with supply constraints and guidance and qualitative data for the Q1 and full year 2021. For information on the factors that could cause a difference in our results, please refer to our filings with the Securities and Exchange Commission. These include the scope and duration of the pandemic, the extent and length of the restrictions associated with the pandemic And the impact on customers, consumer demand and the global economy generally the ability of CEVA's IPs for smarter connected devices continue to be strong growth drivers for us, our success in penetrating new markets and maintaining our market position in existing markets, The ability of new products incorporating our technologies to achieve market acceptance, the speed and extent of the expansion of the 5 gs and IoT networks, Our ability to execute more base station and IoT license agreements, the effect of intense industry competition and consolidation And global chip market trends, including supply chain issues as a result of COVID-nineteen and other factors. Visa assumes no obligation to update any forward looking statements or information, which speak as of their respective dates. And with that said, I'll now hand the call over to Gideon. Thank you, Richard. Good morning, everyone, and thank you for joining us today. 2021 is off to a robust start with strong licensing execution and royalties exceeding our expectations. During the quarter, we unveiled BlueBot, A first of its kind IP platform for the booming market of the true wireless TWS earbuds, smartwatches, gaming handset and other wielder. Today, we are announcing the acquisition of Intrinsics, Enabro, Massachusetts based leading chip design and secure processor IP company with an extensive experience and solid business in the aerospace and defense market. I will elaborate shortly on these strategic initiatives. Total revenue for the Q1 of 2021 was $24,400,000 up 8% year over year. The licensing environment continues to be healthy With $14,400,000 in licensing revenue, down 1% year over year, we signed 11 new agreements, which too well with first time customers. China continues to be a very strong market for wireless connectivity technologies, with high adoption rate, both by strong incumbents and newcomers. We are experiencing increasing interest for our 5 gs technologies, specifically the new 5 gs provision known as Red We have a reduced capability, which is target for the proliferation of IoT devices, such as wearable industrial wireless sensor, surveillance cameras and more. Our Bluetooth and Wi Fi technologies continues to be in high demand for a variety of IoT devices for smart home and mobile devices. We also signed up a lead customer for ultra wideband QWB UWB is a short range wireless communication that is able to precisely triangulate Location of devices with high security. It is already widely used in the automotive industry And recently, Apple, Samsung and Xiaomi have embedded UWP in their flagship models And our gradually embedded UWD in other high volume devices, such as the recently announced EPILE Airtan. According to ABI Research, 285,000,000 UWB devices are expected to be Shipped this year and forecast to reach to 1,000,000,000 devices by 2025. Royalty revenue reached $11,000,000 up 21% year over year, ahead of our expectations. This was driven by a robust demand for our consumer and IoT product and above seasonal demand in smartphone. We believe our customer is facing tight supply constraint as is most of the industry and are working hard to expedite shipments for high demand products. Let me now go through the rationale for the acquisitions of intrinsic, which we are announcing today. Intrinsic is a leading chip design and secure processor IP specialist, targeting the growing chip development program in the aerospace and defense market and a range of our other IC designs for medical and industrial product. Infinix has successfully executed more than 1500 Complete chip design project in its 34 years history and build a successful business They generate more than $20,000,000 in annual revenue. Over the years, They have built strong relationship with leading chip semiconductor companies and OEMs, Among which are Intel, IBM, Leidos, Lockheed Martin, Honeywell and many more. Their chief design skills and expertise are scarce and include proven competencies in RF, mixed signal, digital, software, Security and RISC V Processors. With the additions of intrinsics, CEVA stands to benefit from 3 growth pillars. 1st, extending CEVA market reach Into the sustainable and sizable aerospace and defense space, a market forecasted to reach to $6,000,000,000 in annual semiconductor spending. 2nd, Increasing our content in customer design and accordingly increasing license and royalty revenue opportunity By offering 10T IP platform that combine fiber connectivity and smart sensing IP with increasing chip design expertise and security and interface IPs. 3rd, extending fee by IP portfolio with secure processor IP for IoT devices And heterogeneous SoC interface IP for the growing adoption of chiplets, which offer a faster and less expensive alternative with the high R and D cost In complexities associated with monolithic IC developments. We welcome the intrinsic to the CIVO family and look forward to the exciting opportunities ahead. We expect the closing of the agreements to take place during this quarter. Janine will discuss the financial aspect of this acquisition later on. Another important product we recently introduced is the BlueBot Platform IP. The proliferation of true wireless earbuds is skyrocketing as millions of workers, students, doctors and other professions are required to spend much more time in voice or video calls and each stable and high quality audio experience from the wireless earbud. According to recent data from Counterpoint 3 Search and Strategy Analytics, the PWS market is expected to reach to 600,000,000 units by 2022 and to see 70% CAGR over the next 3 years. The underlying technology used for PWS has broader uses and be carried forward to smartwatches, over the counter hearing aids, mobile gaming, AR headset, Home entertainment speakers and smart home appliances. With the BlueVac proposition, CEVA strives to become the de facto standout for wireless audio in the IP industry. Our unique technology competencies and holistic view allow us to address the substantial technology challenges derived from the need for extreme low power consumption and intelligible audio quality. Bluabody is a self content platform enabled by our high runner CEVA BX1 DSP and incorporates all the software framework and hardware peripherals required for a wireless audio system. BlueBot also offers optional value add SDK, including our WhisPro AI based voice recognition software, Tearworx, our echo cancellation and noise suppression software and motion engineer for IMU based user control. I'm pleased to share that we have already signed up a high volume lead customer for BlueBot at the beginning of the Q2 and are expecting more deals to follow as the product is released to the wider market. So in summary, we are very pleased with our solid performance in the Q1. Our business fundamentals are strong. And with the acquisition of Intrinsics, we are expanding into the aerospace and defense market and in reaching our value proposition and content by offering current key IP platform, A new IP for security and H SoC interface. With our technology based core competencies and customer relationship, we are well positioned to capitalize on secular growth in the IoT space. Lastly, we are monitoring closely the impact the industry on the industry wide Supply constraint and will help our customers to mitigate their risk and challenges where we can as they become empowered. With that said, let me hand over the call to Yaniv for the financials. Thank you, Peter. I'll start by reviewing the results of our operations for the Q1 of 2021. Revenue for the Q1 was up 8 Percent grew $25,400,000 as compared to $23,600,000 for the same quarter last year. Revenue breakdown is as follows. Licensing and related revenue was approximately $14,400,000 reflecting 57% of our total revenue, just slightly lower than $14,500,000 for the Q1 of 2020. Royalty revenue was up 21 percent to $11,000,000 reflecting 43% of our total revenue compared to $9,100,000 for the same quarter last year. Quarterly gross margin was 91% On a GAAP basis and 92% on non GAAP basis, both better than what we projected. Non GAAP quarterly gross margin excluded approximately $1,100,000 for equity based compensation and $200,000 for the impact of the amortization of acquired intangible. Total operating GAAP operating expenses for the first Quarter was just over the high end of our guidance, dollars 24,400,000 Our total operating expenses for the first for excluding equity based compensation expenses and amortization of intangibles were $20,700,000 also just over the high end of our guidance. Tax expense for the Q1 came higher than expected due to an uncommon revenue mix in which the majority of our revenues recognized are associated with our connectivity products, Bluetooth and WiFi originating in France, which is a higher corporate tax rate of 26.5%. In an ongoing basis, our corporate tax rate should be lower and in line with our original expectations, but mainly prudent on the outcome of the revenue allocation mix. U. S. GAAP net loss for the quarter was $3,600,000 and diluted loss per share was $0.16 for the Q1 as compared to an EBITDA loss of $1,200,000 and $0.05 loss for the Q1 of 2020. Our non GAAP net income and diluted EPS for the Q1 were $300,000 and $0.01 respectively. This is compared to the Q1 of 2020 with $3,200,000 of net income and 0 or $0.11 With respect to other related data, Shipped units by CEVA's licensees during the Q1 of 2021 were 341,000,000 units, Down 30% sequentially and up 31% for the fiscal 2020 reported shipments. The 341,000,000 unit shipped, 129,000,000 or 38% were for handset baseband chips, reflecting a sequential decrease of 41% from 217,000,000 units of handset baseband shipped during the Q4 of 2020 and the 16% increase from 111,000,000 units shipped Thank you, Bill. Our base station and IoT product shipments were 212,000,000 units, down 21% sequentially and up 41% year over year. As for the balance sheet item that ended the end of March 31st, CEVA's cash, cash equivalents, balances, marketable securities and bank deposits were $174,000,000 We did not exercise our buyback program this quarter as we focus on the intrinsic acquisition and the expansion of the business. Upon closing the deal, our cash balances will be reduced by approximately $33,000,000 in acquisition consideration as well as deal cost. Our DSOs for the Q1 was 49 days similar to the prior quarter. And during the quarter, we generated $15,200,000 of net cash from operations, depreciation Expenses and amortizations were $1,500,000 and the purchase of fixed assets was 1,100,000 At the end of the Q1, our headcount was 412 people, of which 346 were engineers, up from a total of 404 people at the end of 2020. Now for the guidance. We continue to experience a healthy licensing environment and pipeline is solid. Royalty, we believe our customers are still dealing with industry wide supply constraints, which may prolong for the remaining of the year. With that said, the demand for products based on our technology It's strong, and our customers, with our support, are working fearlessly to fulfill their purchase orders. We announced earlier today, we agreed to acquire Intrinsic and expect to close the deal later in the quarter. From a financial point of view, we expect intrinsic to contribute between $10,000,000 to $11,000,000 To see the top line in the second half of the year and that this deal will be accretive as early as 2021 on a non GAAP basis. We'll provide more information on the next earnings call. On the back of this, we forecast our new total revenues for 2021 be between $116,000,000 to $117,000,000 compared to about $100,000,000 in 2020. This is subject to the intrinsic acquisition closing on the anticipated time line. Specifically for the Q2 of 2021. Gross margin is expected to be approximately 89% on GAAP basis and 91% on non GAAP basis, excluding an aggregated $100,000 of equity based compensation and $200,000 of amortization of under assets. OpEx for the 2nd quarter should be lower than the 1st quarter. For the Q2, GAAP based OpEx is expected to be in the range of $22,900,000 to $23,900,000 Our anticipated total operating expenses for the 2nd quarter, dollars 2,900,000 is expected to be attributed equity based compensation and 0.6 expected to be in the range of $19,500,000 to $20,500,000 Net interest income is expected to be Cost in the $500,000 and taxes for the 2nd quarter are expected to be Around $700,000 on both GAAP and non GAAP basis, in line with our prior expectations and model. Share count for the Q2 is expected to be approximately 23,500,000 shares. Rocco, you could now open the Q and A session. Thank you. Thank you. We will now begin the question and answer session. Today's first question comes from Matt Ramsay with Cowen. Please go ahead. Thank you very much. Good afternoon. Good morning, everybody. Congratulations on the acquisition, Gideon. Maybe you could Give us a little bit more background on Intrinsics, your relationship with them. Have you guys collaborated with them on other projects in the past? And If you could walk us through what are the particular pulls from the, I guess, the aerospace and defense and government sectors for Technologies that are appropriate for CEVA's portfolio, which pieces you might have had in house, which pieces you're acquiring. Looks like a good deal. It was just a little bit anyway, we externally weren't familiar with the company. I imagine a lot of your investors weren't. If you could give us a little background, that would be great. Thank you. Good morning, Matt. Let me start by explaining about intrinsics and the rationale for us to do. So It's a very it's very hard to find such a skill set under one roof that they can do Complex design involve different disciplines like RF, mixed signal, security, which everybody Has to do it in the IoT and do it all the way from specification to design. And we found this company and they have a 35 or 36 year of track record of doing such project. Now with that in mind, We plan to take advantage of it in true gross pillars. 1 is security and aerospace and defense. This is a market that we were looking to expand into in conjunction of what you do in the consumer and the telecom market. It's a big market. It's a DSP intensive because you do a lot on radar GPS. You do a lot of DSP processing. And they have designs, they have a very solid business. In general, aerospace and defense, you have big spender, big spender system companies. It's a high entry barrier to penetrate, but once you are there, it's for the long haul. So what We plan to do there is basically increase the content because we can bring in our DSP in conjunction of the design that they do and the customer that They have and with that in place, get exposure to a market that anyway we plan to do and much faster exposure and higher content with our IPs, all the portfolio that we're going to do. That's one pillar. The second pillar is what we call internally turnkey IP or what we define a turnkey IP. There are many system companies today that they want to build a chip to create a Competitive edge. And those guys are they need to Not all of them can build a team, a design team because this is again a scarce release, so very hard to find, take a long time to build a Cohesive design team. So those guys go either to AC company Or either way, or ASSP company, I want them to change. So what we plan to do is Take our IP and if you take KWS is one example like BlueBot, And basically come to the customer with a proposition that not just will surround IT with Add their hardware and basically provide to the customer the design of the chip, then they can go directly to the foundry and the manufacturer of the chip. And this is something that we see a lot Of interest from customers coming and then requiring such capabilities to do it. You can think it's a very similar equivalent to what AMD is doing in semicustom. When AMD designed chip PlayStation or Xbox, they're bringing their IP and provide the design for Sony or Microsoft, Same thing in a different example close to what the market that we are in is what led Marvel to acquire Avera, Because Marvel has been the IP and Avera can do the tailor made design for the customer. So we are not going to be cheap Manufacturing, we'll be a VIP company, but we allow our customers to go directly to the foundry and not take any intermediary in between. So that's the 2nd pillar. The 3rd pillar It's IT that we didn't have and this is the security IP, secure processor IP. This is something that you have to have in any IoT device and IoT is our main market. And if you don't do it, you'll be hacked. And they have the technology. They deal with it for many years starting from backup projects. And the other IP that they bring in is what is called HOS, SOC, which is hybrid SOC, And this is basically chiplets. Going back to those system companies, Very difficult, very complicated to do a monolithic SoC like what Apple is doing in their chips or Oh, semi companies in doing. And the chiplet is basically, you take different die and connect it under what is calling proposal, a combiner into 1 chip. And Infiniti has a strategic relationship with Intel He is a leader in this area and one of the anchor of their Fundraise strategy, the new fund raise strategy. So we will be looking to capitalize on this. So that's all the consideration that led us to for this transaction. Intensit is very familiar with BSPs, very familiar with our technology. We didn't have projects in the past, But we already communicate and shared with key customer, this capability and those good feedbacks. Great. Thanks, Gideon, for all the details there. Good luck with the deal. Yaniv, a couple of financial questions. Once that is on the acquisition, I think you said on your script $10,000,000 to $11,000,000 for the back half of the year. If you could Give us any sense of the rest of the P and L of the acquisition around margins, OpEx, taxes, Things like that. And I guess the second part of the question is on the core business, the tax rate in the March quarter very different than any of us had modeled. And I get the mix of revenue between Europe and the U. S, etcetera, and Asia. But it sounds like something must have went differently in the quarter than you guys had forecast Initially, in terms of revenue mix and if you could enlighten us on that, that would be great. Thanks, guys. Let me answer Matt's Second question about to give you a background for the revenue mix that we've been. I mean, this revenue mix came with, I would say unexpected surge in revenue. We start seeing things in the second half of twenty twenty where we the demand of our connectivity product, We saw much stronger demand that we do. But what happened late in the year end in this quarter is that it Comes with more comprehensive agreements with customers. They are looking for the portfolio of our technology. They are looking for Folio of our technology, they are looking for architecture, a license. These are much more expensive product line. And in the Q1, we had Kind of a concentration of at least 2 or 3 large agreements in the connectivity space That basically, we didn't anticipate this demand, but on the other hand, it's good news because you talked about Large customers that are willing to pay and appreciate our technologies. Yes. So take that very strange mix that Even for us, it was a surprise. As Gideon explained, it was a surprise. 1 of the deals are $1,000,000 deal Many 1,000,000 of dollar deals with a leading handset OEM, but it all happened in France. Tax rate is much higher, so the concentration was Almost everything in France in the Q1. On an annual basis, that will level out. I mean, it was more of a we see it And it's just something very awkward, but they had a large payment to that top line. But when we add the next couple of quarters at the Same run rate that we talked about last quarter with annual guidance, we did give 22% and said that France Has more business these days, not in the level of Q1 across the year. But if you go back to the normal mix of revenues between Israel, U. S, Ireland, Not just France. We should be back in more normal territory in this We have never seen that type of concentration in France yet, and I don't see that repeating itself in the near future. It could happen, but It's very rare. It's very rare. So I think from a tax perspective, we will have a higher tax dollar Overall, the year, the percentages in the next couple of quarters will not change. We kept the model the same, the 22% with a higher Q1. With that said, we see a standalone before intrinsics, we already added or adding about $1,000,000 to our Prior guidance, so instead of the $106,000,000 we're looking more like a $107,000,000 for this year. This is CEVA standalone, Higher taxes and a very solid entry into the Q2. Gideon talked about the pipeline. I mentioned what we see both in royalties and in licensing. So we don't give quarterly revenue guidance, But we are looking and feeling very comfortable with at least the licensing environment that we have control over. So over the year, that itself could close the gap or start closing the gap versus the higher Q1 taxes. If you add to that Intrinsics, which you had a good question, top line, we're adding maybe $10,000,000 of revenues in the second half. I would look at operating margins of about 10% for this type of business. And on that front, we should have a tax Benefit in the U. S. When we combine that business with CEVA. So all in all, that is going to be accretive based on the current model that we have today with the actual Q1 and its higher taxes. And that should be able to also offset the Q1 Spencer. So all in all, better revenues for the year, specifically with the intrinsic acquisition, if all closes on time. And some recovery, maybe even all of it, we just don't know and we don't buy for EPS, we just give the trends in the business, But we could see some corrections in those few cents that were lost in Q1, making it either from higher revenues or just more expense monitoring and things like that. And better normal tax rates for the rest of the year. Thanks guys for all the details there. Really appreciate it. Thank you. Sure. Thank you, Ben. And our next question today comes from Suji Desilva with ROTH Capital. Please go ahead. Hi, Gideon. Hi, Yaniv. Congratulations on the Intrinsic acquisition. Based on your last few acquisitions, I'd be expecting good things in this one as well. Can you talk about the competition for Intrinsic and also the secure IP, the RISC V IP, what opportunities there are to take that outside the aero defense market? Hi, Sufi. Good morning. You were welcome. The only thing that I managed to Capture is the secure question about security. Anything in the other And the competition, Gideon. Gideon, the competition. The competition. Okay. So security is basically It's a complete solution based on RISC V that has hardware it's a hardware based platform that was developed on few projects for the DARPA. And it's the security or security of SLP is It's a very dynamic market because threats are being developed or innovated every day and you need to find a way to somehow detect and deal with it. And Intrinsic has this platform available. They as a company, they didn't do IT business thus far because That's not all the focus here. They couldn't afford doing boasting. We have the platform. We have the sales channels In terms of competition, Rambus is a competitor. I think these are the main competitor. We'll as time goes by, we look more closely on the competitive landscape and add our own A flavor to make it IP business. But for us, it's an easy licensing add on because We come to the customer with a basket. We have the connectivity, we have the sensors and now we are adding security into the mix. Okay. Very helpful. Thanks. And then perhaps on the current royalty run rates, the wireless infrastructure market, 5 gs Infrastructure, can you talk about how that's been trending the last quarter this quarter and then what the outlook for the rest of the year is including perhaps new customers coming online as well? The trend is positive. So we see the growth moving both on a year over year and also on a quarter over quarter. I would say that it's a bit slower than we thought about it. And we see it across the board because it's a matter of the operator or capital On the next wave or the next services in 5 gs, which are small cells in the private network, but it's moving. There's no question about the pitch will come. In terms of customer, we have 1 customer. Another customer publicly said that it goes into production in this Maybe I'll add some color. Suji, if you look at some other factors of the base station IoT, Bluetooth was up 84% year over year in royalties and our sensor fusion Was up 51% year over year. So these are pieces of IP that like now with Intrinsics, we bought over the years. We invested there and we see the In recent years, hopefully, that's what we'll see in few years from Intrinsics as well. But the overall growth in the Q1 Also, it's positively surprised us. And for now, our customers, especially in the IoT space, Consumer devices, TV, robot cleaners were super strong in the Q1, which is Obviously, an anomaly because they're usually post Christmas quarter and that was not the case this year with COVID around. Okay. Appreciate the color. Thanks guys. Thank you. And our next question today comes from Tavy Rosner with Barclays. Please go ahead. Hi, this is Peter Zvezia on for Tavi. Thanks for taking my question. I wondered if you could comment on the type of growth that Intrinsics Historically, and maybe your going forward expectations, say, 1 or 2 years out, given some of these synergies and The customer overlap that you discussed earlier? Okay. So hi, Tevig. The The intrinsic as a standalone business is a growing business. We see I mean, we saw from their financial, it's a consistent growth Starting from 2007 where they really turned the corner in the aerospace and demand. The aerospace and demand, defense space Is a growing space, more spending by the DoD in semiconductor. It It has highest quality than 5 gs from DoD standpoint and also highest quality than AI. And intrinsic is basically growing by Taking more projects, more lucrative projects. That's they bring in as an inertia. Now what we are adding to this one is what We're seeing is the IP. So when you go to the defense, we're going to Present to the prospect, the customers, the IP that we have and most of them, They need the DSP there or connectivity things that we have. And the other things that we're going to go is to go to our end customers, A lot of them are now coming to us to purchase IP and we'll come to them, why don't you we do For you, the whole design, including IP, because we are the expert in IP and we can combine all the we are the Has the most experience and Internet understanding on combined IP with the design around IP. So that's initiatives that we're going to take. And as I mentioned, they also bring in IP that we're going to add to our IoT. Let me try to summarize. If we are looking at the on a half year for this year, we are looking at $10,000,000 Obviously, with simple math, you could double that for next year. On top of that, in the pillars that Gideon talked about growth, we'll give more color after we close the deal and Closer when we get closer to 2022. But there's no doubt that with CEVA on board and bring these together, that $20,000,000 we It is a growth driver in the next couple of years, both organic and the non organic is the combination of services and IP. Okay, great. That's helpful color. Thank you. And then just wanted to ask about the licensing results, given that revenues were pretty strong sequentially, But the deal count was a bit lighter. Was that simply related to some of those deals last quarter that were signed but not yet recognized in revenues? Yes. This is a question we have always asked, and we said it's not that important to divide the $1,000 by the deal count. We are not able to recognize. Some, specific in this quarter, is a very large deal that we talked about earlier with the OEM, Handset OEM, which was a multimillion dollar deal. And at the end of the day, if you look at $14,000,000 something, this is the 3rd time ever that CEVA was recording $14,000,000 and higher. It is true, Paul. It was all in the last year and our 5 quarters that it happened at the start of Q4 'nineteen for the very first time And then again in Q1 and again now. So this is just to show that this The combination of new markets and new technologies have worked out well and the pipeline for us and the backlog for us for the Q2 is as strong. Great. Thanks again and congrats on the quarter. Thank you. And our next question today comes from Martin Yang at Oppenheimer. 1st, I want to ask about the Turnkey IP business model. And can you comment on what are how long are the design cycles? And does that Usually involve just one time fees from customers or maybe higher royalties as they choose to go with turnkey IP? Yes. The timeline or the cycle, the design cycle depends on the complexity of the project And it could range between 6 months to 1 year, and then This is the magnitude of the project. In terms of payment, it will be the component that we are familiar, A license fee for the IP, NRE for the development and royalties will be higher because we combine both for the combination of the design and IP. Great. Thanks. Can you also comment on the development of Bluetooth new LE audio? Now it's been announced for over years now. How are the adoption rate in the market? And do you see that as a meaningful driver for your Bluetooth products? Yes. It does carry some big potential. The platform that we are we announced, the Blue Bud, support both the BLE audio and the classical Bluetooth. The BLA audio is not yet Deployed in mass market because we have a lot of legacy to support. So the BlueBot support the dual mode, which is a combination of the BLE and the classical Bluetooth. But the benefit of BLE audio is substantially higher The classical purpose is no more than 1. And we expect this to be mainstream, but it's going to take few years. Next, I have no more questions. Thank you. And Our next question today comes from David O'Connor at Exane BNP Paribas. Please go ahead. Great. Good morning. Thanks for taking my question. Maybe, Gideon, just going back to the intrinsic deal, Just to clarify, was the business entirely design services as it exists today? So imagine they get paid per NRE Per design. And is the plan to transform that existing business of theirs into more classic SABL licensing and royalties And where you get paid per shipment versus just NRE on a design? And also then on that NRE side of things, I mean, how scalable That's because I mean it's all relative to the number of engineers that you have and the ability to kind of rapidly grow that part of the business. That's my first question. And then a follow-up on the ultra wideband. Can you just give us a quick overview of the ultra wideband? How many As you have today, is this your first customer, Ultra Wideband? What the pipeline looks like? And what is the end application for this customer In terms of end markets? Thank you. Hi, David. So let me start with intrinsic. Indeed, the intrinsic model is on an NRE basis, they get paid through the resources that they put in this project. The model under CEVA will be a hybrid of both 2 because we'll continue And their primary market into this model and add licensing or IP, which is just a license fee in royalties. But when it comes to what we call the turnkey IP, here It's more of a back containment, meaning higher royalties that it's more close, as you pointed out, to what we do in the IP model. We'll get NRE for the project. And think about the same thing that what People in the semiconductor are doing, they take some burden of the cost. So the cost could be The payment will be higher than the cost, but it's on the back end, you get higher royalties. So that's in terms of intrinsic. Now Uber Eident is It's a very promising space that we decided to do. We have a lead cast and we didn't finish the design. It will take us few more months to finish the design. In terms of go to the market strategy, we that's another entry point Through the mobile. We have what we have in the handset space in terms of baseband. And last quarter, We signed another big deal of connectivity, meaning people are using our technology, not for the baseband, but also for the connectivity side, Wi Fi and Bluetooth. And there was an agreement that WiFi and Bluetooth, and there was an agreement that some of it came into revenue this quarter. This was a very big agreement. And that's a way to get into the mobile ecosystem or mobile customer base through the connectivity. Uber Weidman will be a 3rd entry point into the market. I believe that most of the flagship model will include ultra wideband because people We'd like to see the benefit of location, precise location and the epic of Apple is just one example to do it. I believe that going forward, they'll put it in PWS and watches because you tend to Forget those all over the place. So it's a technology that we decided to develop. We have the resources working. We have a lead customer that has seen the direction that we do. And And it's a big market. I put the numbers in the $1,000,000,000 as far as I recall by 2025. Very helpful. Thanks, Gideon. And if I could just squeeze one in for Yaniv. Yaniv, maybe I missed it, but the gross margin for Q1 that you mentioned, I think it was better Than expected. What was it within the mix there that drove that better than expected gross margin? Thanks guys. Sure. So 2 things. 1, sometimes we do some type of customization or changes to our customers when we license in Some projects in Q1 because most of the deals were Bluetooth and Wi Fi and that's a standard almost off the shelf. We had less of a mix of R and D costs that we needed to bring up to the cost of goods. So that was one reason and that's why We had more mature deals coming out of France because that's usually 100% recognizable with no additional work. The second, because the DSP also was lower than the normal mix, we had less payments to the chief to the Israeli Innovation Authorities in a normal course. These are the two elements that brought up slightly, but nicely the margins. Understood. Thanks, guys. Thank you. And ladies and gentlemen, this concludes the question and answer session. I'd like to turn the call back over to the management team for your final remarks. Thank you, Rocco. Thank you all for joining us today and for your continued interest in CEVA. As a reminder, the prepared remarks for this conference call are filed as an exhibit to the current report on Form 8 ks and accessible through the Investors section of our website. With regards to upcoming conferences and events we will be attending, we will be attending the Needham Virtual Technology and Media Conference, May 17 Oppenheimer's 22nd Annual Israeli Conference on May 23 the Q1 49th Annual Technology, Media and Telecom Conference on June 1 and the Baird's 2021 Global Consumer Technology and Services Conference, June 8 through 10. All of these conferences, we will be attending virtually. And for further information on this event And all these events we will be participating in can be found on the Investors section of our website. Thank you and goodbye. Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.