CEVA — Q2 2026 Financial Report Analysis

Licensing carried the quarter; royalties are lagging the shipment numbers

Ceva designs chip building blocks (wireless, sensing and AI processor designs) and licenses them to chipmakers rather than selling chips itself. It is paid twice: an up-front licensing fee when a customer signs up to use a design, and a royalty for every chip the customer later ships with that design inside. In the second quarter of 2026 (three months to June 30), total revenue rose 13% to $29.0 million. Almost all of that growth came from licensing, which rose 21% to $18.2 million, the company's best licensing quarter in more than three years. Royalties, the recurring part of the business, rose just 1% to $10.8 million. The GAAP net loss narrowed to $2.9 million from $3.7 million.

At a glance

• Licensing revenue $18.2M, +21%: ten new license deals, including one with what Ceva calls "a leading global AI and computing platform company" for its NeuPro-M AI processor design. These fees are lumpy and are not guaranteed to repeat next quarter.
• Royalties $10.8M, +1%, while Ceva-powered chip shipments rose 16% to 567 million units: volume is growing much faster than royalty dollars, so Ceva is earning less per chip shipped.
• GAAP operating loss $2.1M vs $4.5M a year ago: the 13% revenue gain mostly fell through to the bottom line because costs rose only 3%, though the business is still unprofitable on a GAAP basis.

Key figures

The year-ago shipment figure is implied from the 16% growth rate Ceva reports; the filing states only the current-quarter count. For the first half of 2026, revenue was $56.1 million (+12%) and the net loss was $7.4 million versus $7.0 million.

Takeaway: Ceva's 13% growth is a licensing story, and licensing fees arrive in lumps when deals are signed. The part that compounds, royalties, grew 1% even though 16% more chips containing Ceva designs shipped. Until royalty dollars start growing in line with unit volumes, the earnings improvement depends on signing big license deals every quarter.

Where the revenue came from

Licensing. Ceva signed ten licensing agreements: two with first-time customers and two directly with device makers (OEMs) rather than chip companies. Management singles out two deals. The first is the NeuPro-M agreement for "next-generation custom AI silicon", which the filing calls "one of the most strategically significant AI licensing agreements in our history". The second is a high-volume U.S. semiconductor company adopting a complete Wi-Fi 6 and Bluetooth Low Energy chip design built on Ceva IP, rather than licensing the individual blocks. AI-related licensing was more than 20% of licensing revenue. Remaining contracted licensing revenue not yet recognized (excluding royalties) is $7.6 million for the rest of 2026, $3.3 million for 2027 and $0.7 million after that. That is a thin backlog relative to an $18 million quarter, which confirms most licensing revenue has to be won fresh each quarter.

Royalties. Royalties of $10.8 million were up 17% from a seasonally weak first quarter ($9.2 million) but up only 1.5% from a year earlier. The 10-Q attributes the improvement to "market share gains in entry-level smartphones, continued expansion at the premium tier and ongoing strength across our wireless connectivity portfolio", plus automotive AI programs ramping. Shipments by type: Bluetooth 295 million units (+16%), Wi-Fi 80 million (+28%), cellular IoT a record 68 million (+3%).

Customers and geography. Revenue is concentrated. The five largest customers were 55% of Q2 revenue (42% a year ago), and two customers alone were 21% and 11%. One royalty payer was 25% of royalty revenue. U.S. revenue nearly doubled to $10.9 million (38% of total) from $5.6 million, consistent with the U.S. license wins described above. China was flat at $13.9 million (48% of total, down from 54%).

Costs and margins

Gross margin (revenue left after the direct cost of delivering it) rose to 87% from 86% because of the higher licensing mix. Operating expenses rose 3% to $27.5 million. The 10-Q says the increase "principally reflected higher salaries and employee-related costs, mainly associated with higher currency exchange expenses as a result of the devaluation of the U.S. dollar against the NIS". Most of Ceva's engineers are paid in Israeli shekels (NIS) while revenue is in dollars, so a weaker dollar raises costs without any extra hiring. Headcount actually fell: research and development staff dropped to 295 from 323, and sales and marketing to 28 from 34. R&D spending was still 67% of revenue.

What the headline numbers hide

• Royalty per chip is falling. By our calculation, $10.8 million across 567 million units is about 1.9 cents per device, versus roughly 2.2 cents a year ago (on the implied ~489 million units), a decline of about 12%. The fastest-growing categories (Bluetooth, Wi-Fi) are high-volume, low-price chips. The filing describes AI and higher-value processor royalties as being in "the initial phase", so they do not yet offset this.
• The per-share loss improved faster than the actual loss because there are more shares. The net loss shrank 21%, but the loss per share shrank 33% ($0.15 to $0.10), because the weighted share count rose 17% to 28.0 million after the November 2025 follow-on stock offering.
• The pre-tax line is better than the net line. The loss before tax fell to $1.1 million from $2.6 million, but tax expense rose to $1.8 million from $1.1 million. The 10-Q attributes this to "higher withholding tax expenses" and the absence of a prior-year tax benefit from a French subsidiary's loss carryforwards, which now carry a full valuation allowance. Ceva pays tax in some countries while losing money overall.
• Currency hit the bottom line twice. Besides the higher shekel payroll, financial income fell to $1.0 million from $2.1 million. Interest income rose to $2.0 million from $1.5 million (more cash after the offering), but a $1.0 million foreign-exchange loss replaced a $0.6 million gain a year earlier.
• GAAP vs. adjusted. Ceva's non-GAAP operating income of $3.1 million (11% margin) mainly excludes $5.2 million of stock-based pay. Stock-based pay is a real cost to shareholders through dilution, so the GAAP loss is the more conservative read.
• Cash conversion is weak but improving. Operating cash flow for the first half was +$0.9 million against a $7.4 million net loss, helped by $10.5 million of non-cash stock compensation. That compares with -$6.2 million in the first half of 2025. Cash, deposits and marketable securities totalled $220.7 million, against $222.0 million at year-end, with no debt. No shares were repurchased in 2026.

Outlook

Neither the 10-Q nor the earnings release (Exhibit 99.1) states a numeric revenue or margin outlook, so none is given here. Management's narrative points to AI licensing, broader connectivity subsystem deals and an automotive and AI royalty ramp.

Our read: three things need watching in the third quarter.

1. Whether licensing holds above $15 million without another landmark deal. Trailing-twelve-month licensing revenue was $69.6 million (+13%), per the release.
2. Whether royalties grow year over year by more than low single digits. Shipments have been growing at mid-teens rates, so the gap between unit growth and royalty-dollar growth is the number that matters.
3. Whether the shekel stays strong, since a 10% weaker dollar adds about $1.6 million a quarter to payroll costs by the company's own sensitivity estimate.

The NeuPro-M platform deal matters more for future royalties than for this quarter's fee. The filing does not say when those chips ship, so any royalty benefit is unlikely before 2027 at the earliest.