CEVA Inc. CEVA - $ NASDAQ Buy

Transcription

1 Suji Desilva, CFA, (415) Sales (800) , Trading (800) COMPANY NOTE EQUITY RESEARCH August 07, 2018 Semiconductors & IT Hardware CEVA Inc. CEVA - $ NASDAQ Buy Analysis of Sales/Earnings Estimates Changed, Target Price Changed Stock Data 52-Week Low - High $ $51.80 Shares Out. (mil) Mkt. Cap.(mil) $ Mo. Avg. Vol. 144, Mo.Price Target $35.00 Cash (mil) $170.0 Tot. Debt (mil) $0.0 EPS $ Yr Dec E 2019E Curr Prev Curr Prev 1Q 0.28A 0.04A 0.04A 0.19E 0.27E 2Q 0.28A 0.04A 0.10E 0.21E 0.28E 3Q 0.36A 0.21E 0.31E 0.25E 0.36E 4Q 0.25A 0.25E 0.50E 0.27E 0.39E YEAR 1.17A 0.54E 0.95E 0.92E 1.30E P/E 27.8x 60.3x 34.3x 35.4x 25.0x Non-GAAP Revenue ($ millions) Yr Dec E 2019E Curr Prev Curr Prev 1Q 21.3A 17.6A 17.6A 22.0E 23.5E 2Q 20.6A 17.5A 19.0E 22.7E 24.1E 3Q 24.0A 21.5E 24.5E 23.5E 26.5E 4Q 21.0A 24.0E 30.0E 24.2E 27.5E YEAR 87.5A 80.6E 91.1E 92.4E 101.6E Vol (m) CEVA One-Year Price and Volume History Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug Price CEVA: Mixed Smartphone and Infrastructure Ramp Lowering PT, Maintain Buy We believe CEVA represents a differentiated investment opportunity in high-margin licensing and royalty revenue, levered to growth across communications and IoT applications. In the quarter, smartphone baseband results were mixed with a measured wireless infrastructure ramp now expected in 2H18. We are lowering our price target from $44 to $35 but maintain our Buy rating. Mixed Royalty Trend Near-Term. CEVA reported 2Q18 revenue and EPS below consensus, with impact from share shift at its smartphone baseband customers as well as measured ramp of its wireless infrastructure customer platforms. Licensing remained steady around the $10.0m (-1% q/ q) level in the quarter. Royalty (-1% q/q) remained relatively flat sequentially experiencing limited seasonal uplift due to smartphone baseband customer share shift. Specifically, a large China baseband CEVA customer lost share in a flagship platform. We are encouraged by diversification of the royaltystream, with non-smartphone baseband growing and now representing more than ~40% of royalty units up from 17% in the year ago quarter. Licensing remained healthy with nine new licenses in the quarter (most nonsmartphone baseband). EPS of $0.04 was below consensus, reflecting the lower than expected revenue Intermediate-Term Growth Outlook Intact Lowering PT, Maintain Buy. For 2018, CEVA expects now expects revenue to come in around ~$80m (-8% y/y), representing steady licensing and 10% lower royalty revenue y/y. We believe share gains for one its large smartphone baseband customers is offsetting to some extent the share loss discussed above. We are conservative with our expectation wireless infrastructure ramp contribution in 2H18, with advanced wireless infrastructure programs ramps coming in more measured than previously expected. However, we believe CEVA remains well positioned with its products for new strategic market growth areas such as connectivity, artificial intelligence (AI), voice processing and cellular IoT. In the quarter, CEVA secured a third NeuPro AI lead customers, ahead of plan. We believe these higher-end CEVA products represents higher ASP opportunities for the company. We are lowering our price target from $44 to $35 but maintain our Buy rating. Important Disclosures & Regulation AC Certification(s) are located on page 4 to 5 of this report. Roth Capital Partners, LLC 888 San Clemente Drive Newport Beach CA Member FINRA/SIPC

2 VALUATION Our price target of $35 represents an ex-cash C19 P/E of 30x, in-line with the comparable group median of 29x, which we believe is justifiable given the company s high margin business model. Impediments to achieving our target price include exposure to maturing smartphone growth, potential for customer content loss and intensifying connectivity competition in the WiFi market. RISKS Several considerations could cause CEVA's fundamental and stock price performance to deviate from the total return expectations implied by our price target, including: - Dependence on semiconductor licensing environment and exposure to semiconductor industry consolidation - Competition from in-house DSP efforts - Exposure to maturing smartphone and tablet growth Please see our initiation report for additional risks. COMPANY DESCRIPTION CEVA, Inc. (CEVA) is a licensor of DSP IP. CEVA addresses the requirements of the mobile, consumer, automotive, industrial and IoT markets by designing and licensing a range of application-specific signal processing platforms, which enable the design of a range of applications, including communications and connectivity, audio and voice, imaging and vision, and storage. Founded in 2003, CEVA corporate headquarters are located in Mountain View, CA, with significant engineering effort in Israel, and 273 employees. Page 2 of 5

3 CEVA Income Statement (Suji De Silva CFA, ROTH Capital Partners, ) FY End Dec Mar-17 Jun-17 Sep-17 Dec-17 Mar-18 Jun-18 Sep-18 Dec-18 Mar-19 Jun-19 Sep-19 Dec-19 CEVA - 8/7/ Q17 2Q17 3Q17 4Q Q18 2Q18 3Q18e 4Q18e 2018e 1Q19e 2Q19e 3Q19e 4Q19e 2019e Revs COGS GM R&D SG&A Op Inc Int Inc (Exp) & Oth PBT Taxes Net Inc EPS, Non-GAAP $0.94 $0.28 $0.28 $0.36 $0.25 $1.17 $0.04 $0.04 $0.21 $0.25 $0.54 $0.19 $0.21 $0.25 $0.27 $0.92 Shrs (M) Margins GM % 92.0% 92.5% 92.7% 93.3% 91.7% 92.6% 89.7% 89.6% 92.1% 92.0% 91.0% 92.1% 92.1% 92.2% 92.2% 92.2% R&D % 38.5% 42.3% 46.4% 37.6% 41.5% 41.8% 61.2% 59.9% 49.0% 47.5% 53.6% 51.0% 50.0% 48.0% 46.8% 48.9% SG&A % 23.4% 19.1% 23.8% 19.4% 23.3% 21.3% 27.2% 27.1% 21.9% 21.0% 23.9% 22.2% 21.9% 21.3% 20.7% 21.5% OM % 30.1% 31.0% 22.6% 36.3% 26.9% 29.5% 1.3% 2.6% 21.2% 23.5% 13.5% 18.9% 20.2% 22.9% 24.7% 21.8% Tax Rate 15% 13% -17% 13% 14% 8% 29% 29% 11% 11% 14% 10% 10% 10% 10% 10% NM % 28% 29% 31% 34% 27% 30% 5% 5% 22% 24% 15% 20% 22% 24% 26% 23% Growth - % q/q Rev - % q/q 0.4% -3.3% 16.9% -10.2% -18.7% -0.4% 22.9% 11.6% -8.3% 3.2% 3.5% 3.0% R&D 27% 6% -5% -1% 20% -2% 0% 8% -2% 1% -1% 0% SG&A -10% 20% -5% 8% -5% -1% -1% 7% -3% 2% 1% 0% Op Inc -18% -29% 88% -34% -96% 106% 897% 24% -26% 10% 17% 11% EPS -13% NM 29% -31% -84% NM 425% 19% -24% 11% 19% 8% Growth - % y/y Rev - % y/y 22% 29% 20% 35% 2% 20% -17% -15% -11% 11% -8% 25% 30% 9% 1% 15% R&D 6% 24% 36% 37% 27% 31% 19% 10% 17% 27% 18% 4% 8% 7% -1% 5% SG&A 2% 0% 18% 10% 11% 10% 17% -3% 1% 0% 3% 2% 5% 6% -1% 3% Op Inc 94% 83% 2% 54% -28% 18% -97% -90% -48% -3% -58% 1773% 903% 18% 6% 85% EPS 77% 65% 33% 50% -22% 24% -86% -86% -42% 0% -54% 375% 425% 19% 8% 70% Source: SEC Filings, Eikon, ROTH Capital Partners US$ in millions, except EPS Page 3 of 5

4 Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report. Disclosures: ROTH makes a market in shares of CEVA Inc. and as such, buys and sells from customers on a principal basis. Within the last twelve months, ROTH has received compensation for non-investment banking securities-related services from CEVA Inc.. Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a rating or price target, except for the first box, which may only represent the first note written during the past three years. Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate received compensation for investment banking services in the past 12 month. Distribution of IB Services Firmwide IB Serv./Past 12 Mos. as of 08/07/18 Rating Count Percent Count Percent Buy [B] Neutral [N] Sell [S] Under Review [UR] Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12- month price target. Ratings System Definitions - ROTH employs a rating system based on the following: Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least 10% over the next 12 months. Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between negative 10% and 10% over the next 12 months. Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate by more than 10% over the next 12 months. Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied upon for UR-rated securities. Not Covered [NC]: ROTH does not publish research or have an opinion about this security. Page 4 of 5

5 ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright Member: FINRA/SIPC. Page 5 of 5