CEVA Inc (CEVA) Q1 2021 Earnings Call Transcript

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CEVA Inc (CEVA 1.97%)
Q1 2021 Earnings Call
May 10, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the CEVA, Inc., First Quarter 2021 Earnings Conference Call.

[Operator Instructions]

After today's presentation, there will be an opportunity to ask questions.

[Operator Instructions]

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.

Richard Kingston -- Vice President of Market Intelligence, Investor & Public Relations

Thank you, Rocco. Good morning everyone and welcome to CEVA's first quarter 2021 earnings conference call. I'm joined today by Gideon Wertheizer, Chief Executive Officer, and Yaniv Arieli, Chief Financial Officer of CEVA.

Gideon will cover the business aspects and the highlights from the first quarter and provide general qualitative data. Yaniv will then cover the financial results for the first quarter and also provide qualitative data for the second quarter 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 5G technologies, and our Bluebud platform IP and related deal flow; expectations regarding market trends, including growth in shipments of ultrawide band devices and True Wireless earbuds, and secular growth in the IoT space; beliefs regarding benefits of the Intrinsix 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 first quarter 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 to 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 5G 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-19 and other factors. CEVA assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

And with that said, I will now hand the call over to Gideon.

Gideon Wertheizer -- Chief Executive Officer

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 Bluebud, a first-of-its-kind IP Platform for the booming markets of True Wireless TWS earbuds, smart watches, gaming headset, and other wearables.

Today, we are announcing the acquisition of Intrinsix, a Marlborough, 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 first quarter of 2021 was $25.4 million, up 8% year-over-year. The licensing environment continues to be healthy with $14.4 million in licensing revenue, down 1% year-over-year. We signed 11 new agreements; of which, two were 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 5G technologies, specifically the new 5G provision known as RedCap or reduced capability, which is targeted for the proliferation of IoT devices such as wearables, industrial wireless sensor, surveillance cameras and more. Our Bluetooth and Wi-Fi technologies continues to be in high demand for variety of IoT devices for smart home and mobile devices.

We also signed up a lead customer for ultrawide band (UWB) technology that we are currently developing. 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 UWB in their flagship models and have gradually embedded UWB in other high-volume devices such as the recently announced Apple AirTag. According to ABI Research, 285 million UWB devices are expected to be shipped this year and forecast to reach to 1 billion devices by 2025.

Royalty revenue reached $11 million, up 21% year-over-year, ahead of our expectations. This was driven by a robust demand for our consumer and IoT products, and above-seasonal demand in smartphone. We believe our customers are facing tight supply constraints as most of the industry and are working hard to expedite shipments for high-demand products.

Let me now go through the rationale for the acquisition of Intrinsix, which we are announcing today.

Intrinsix is a leading chip design and secure processor IP specialist, targeting the growing chip development programs in the aerospace and defense market, and a range of other IC designs for medical and industrial products. Intrinsix has successfully executed more than 1,500 complex chip design projects in its 34 years history and built a successful business that generates more than $20 million 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. The chip design skills and expertise are scarce and include proven competencies in RF, mixed signal, digital, software security, and RISC-V processors.

With the addition of Intrinsix, CEVA stands to benefit from three growth pillars.

First, extending CEVA market reach into the sustainable and sizable aerospace and defense space, a market forecasted to reach to $6 billion in annual semiconductor spending.

Second, increasing our content in customers' designs; and accordingly, increasing license and royalty revenue opportunity by offering turnkey IP platforms that combine CEVA connectivity and smart sensing IP with Intrinsix's chip design expertise, and security and interface IPs.

Third, extending CEVA 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 to the high R&D costs and complexities associated with monolithic IC developments.

We welcome the Intrinsix team to the CEVA family and look forward to the exciting opportunities ahead. We expect the closing of the agreement to take place during this quarter. Yaniv will discuss the financial aspects of this acquisition later on.

Another important product we recently introduced is the Bluebud platform IP. The proliferation of True Wireless earbuds is skyrocketing as millions of workers, students, doctors, and other provisions are required to spend much more time in voice or video calls and need stable and high-quality audio experience from their wireless earbuds. According to recent data from Counterpoint Research and Strategy Analytics, TWS market is expected to reach to 600 million units by 2022 and to see 70% CAGR over the next three years. The underlying technology used for PWS has broader uses and be carried forward to smart watches, over-the-counter hearing aids, mobile gaming, AR headsets, home entertainment speakers, and smart home appliances.

With the Bluebud proposition, CEVA strives to become the de facto standard for wireless audio in the IP industry. Again, our unique technology consistencies and holistic view allow us to address the substantial technology challenges derived from the need for extreme low-power consumption and intelligible audio quality. Bluebud is a self-contained platform enabled by high-runner CEVA-BX1 DSP and incorporates all the software framework and hardware peripherals required for wireless audio system. Bluebud also offer optional value-add SDK, including our Whispro, AI-based voice recognition software; ClearVox, our echo cancellation and noise suppression software; and MotionEngine Hear for IMU-based user control.

I'm pleased to share that we have already signed up a high-volume lead customer for Bluebud at the beginning of the second quarter 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 first quarter. Our business fundamentals are strong. And with the acquisition of Intrinsix, we are expanding into the aerospace and defense market and enriching our value proposition and content by offering turnkey IP platform and new IP for security and HSoC interface.

With our technology base, 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 industrywide supply constraint and will help our customers to mitigate their risk and challenges, where we can, as they become apparent.

With that said, let me hand over the call to Yaniv for the financials.

Yaniv Arieli -- Chief Financial Officer

Thank you, Gideon. I'll start by reviewing the results of our operations for the first quarter of 2021.

Revenue for the first quarter was up 8% to $25.4 million, as compared with $23.6 million for the same quarter last year.

Revenue breakdown is as follows.

Licensing and related revenue was approximately $14.4 million, reflecting 57% of our total revenues, just slightly lower than $14.5 million for the first quarter of 2020. Royalty revenue was up 21% to $11 million, reflecting 43% of our total revenues, compared to $9.1 million for the same quarter last year.

Quarterly gross margin was 91% on a GAAP basis and 92% on a non-GAAP basis, both better than what we projected. Non-GAAP quarterly gross margin excluded approximately $0.1 million for equity-based compensation and $0.2 million for the impact of the amortization of acquired intangibles.

Total GAAP operating expenses for the first quarter was just over the high end of our guidance, $24.4 million. Total operating expenses for the first quarter, excluding equity-based compensation expenses and amortization of intangibles, of $20.7 million, also just over the high end of our guidance.

Tax expense for the first quarter 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 Wi-Fi, originating in France, which has a higher corporate tax rate of 26.5%. On ongoing basis, our corporate tax rate should be lower and in line with our original expectations, but mainly dependent [phonetic] on the outcome of the revenue allocation mix.

U.S. GAAP net loss for the quarter was $3.6 million and diluted loss per share was $0.16 for the first quarter, as compared to a net loss of $1.2 million and $0.05 loss for the first quarter of 2020.

Our non-GAAP net income and diluted EPS for the first quarter was $0.3 million and $0.01, respectively. This is compared to the first quarter of 2020 with $3.2 million of net income and $0.11.

With respect to other related data.

Shipped units by CEVA licensees during the first quarter of 2021 were 341 million units, down 30% sequentially and up 31% from the first of 2020 reported shipments. Of the 341 million units shipped, 129 million, or 38%, were for handset baseband chips, reflecting a sequential decrease of 41% from 217 million units of handset baseband chips shipped during the fourth quarter of 2020 and a 16% increase from 111 million units shipped a year ago.

Our base station and IoT product shipments were 212 million units, down 21% sequentially and up 41% year-over-year.

As for the balance sheet items, as of the end of March 31, CEVA's cash, cash equivalent balances, marketable securities and bank deposits were $174 million. We did not exercise our buyback program this quarter, as we focused on the Intrinsix acquisition and expansion of the business. Upon closing the deal, our cash balances will be reduced by approximately $33 million in acquisition consideration, as well as deal costs.

Our DSOs for the first quarter was 49 days, similar to the prior quarter. And during the quarter, we generated $15.2 million of net cash from operations; depreciation expenses and amortizations were $1.5 million; and the purchase of fixed assets was $1.1 million.

At the end of the first quarter, 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. On royalties, we believe our customers are still dealing with industrywide supply constraints, which may prolong for the remaining of the year. With that said, the demand for the products based on our technology is strong and our customers with our support are working fiercely to fulfill the purchase orders.

As we announced earlier today, we agreed to acquire Intrinsix and expect to close the deal later in the quarter. From The financial point of view, we expect Intrinsix to contribute between $10 million to $11 million to CEVA's 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 to be between $116 million to $117 million, compared to about $100 million in 2020. This is subject to the Intrinsix acquisition closing on the anticipated timeline.

Specifically for the second quarter of 2021, gross margin is expected to be approximately 89% on GAAP basis and 91% on non-GAAP basis, excluding an aggregated $0.1 million of equity-based compensation and $0.2 million of amortization of other assets.

Opex for the second quarter should be lower than the first quarter. For the second quarter, GAAP-based opex is expected to be in the range of $22.9 million to $23.9 million. Of our anticipated total operating expenses for the second quarter, $2.9 million is expected to be attributed to equity-based compensation and $0.6 to amortization of intangibles. So, our non-GAAP opex is expected to be in the range of $19.5 million to $20.5 million.

Net interest income is expected to be approximately $0.45 million. And taxes for the second quarter are expected to be around $0.7 million on both GAAP and non-GAAP basis, in line with our prior expectations and model. Share count for the second quarter is expected to be approximately 23.5 million shares.

Rocco, you could now open the Q&A session. Thank you.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session.

[Operator Instructions]

Today's first question comes from Matt Ramsay with Cowen. Please go ahead.

Matthew D. Ramsay -- Cowen -- Analyst

Thank you very much. Good afternoon and good morning everybody. Congratulations on the acquisition, Gideon. Maybe you could give us a little bit more background on Intrinsix, 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, 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. So, if you could give us a little background. That would be great. Thank you.

Gideon Wertheizer -- Chief Executive Officer

Good morning, Matt.

Let me start by explaining about Intrinsix and the rationale for us to do. So, it's very hard to find such 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 35 or 36 years of track record of doing such projects.

Now, with that in mind, we plan to take advantage of it two growth pillars. One is security, and aerospace and defense; this is a market that we were looking to expand into, in conjunction with what we were doing with consumer and the telecom markets. It's a big market; it's DSP-intensive because we do lot on radar, GPS; we do a lot of DSP processing. And they have designs, they have a very solid business.

In general, aerospace and defense, you have big spending system companies; it's a high entry barrier to penetrate. But once you are there, it's for the long haul. So, what we are planning to do there is basically increase the content because we have been bringing our DSP in conjunction of the design that they do and the customer that they have. And with that in place, they have exposure to a market that anyway we plan to do and much faster exposure and higher content with our IPs, on 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 would define as turnkey IP. There are many system companies today, that they want to build a chip to create a competitive edge. And those guys, they need to--, not all of them can build a team, a design team, because this is again a skill very hard to find, take a long time to build a cohesive design team. So, those guys go either to ASIC company or other way, or [Indecipherable] to change.

So, what we plan to do is make it our IP. And if you take TWS is one example like Bluebud, it basically come to the customer with a proposition that not just will sell our IP with other hardware and basically provide to the customers the design of the chip, then they can go directly to the foundry and manufacture the chip. And this is something that we see lot of interest from customers coming in and then requiring such capabilities to do it. You can think it's very similar--, equivalent to work AMD is doing in semi-custom.

When AMD design chips for a PlayStation or Xbox, they're bringing their IP and provide the design for Sony or Microsoft. Sensing different example close to what the market that we are in is what led Marvell to acquire Avera, because Marvell have had been the IP and Avera can do the tailor-made design for the customer. So, we are not going to be chip manufacturing. We will be IP company, but we allow our customers to go directly to the foundry and not take any intermediary in between. So, that's the second pillar.

Third pillar is IPs that we didn't have. And this is the security IP, secure processor IP. This is something [Indecipherable] many IoT devices and IoT is our main market. And if you don't do the deal, you'll be hecked [phonetic]. They have the technology; they did use it for many, starting from big DARP projects.

And the other IP that they bring in is what is called HSoC, 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 semi-companies have been doing. And chiplet is basically, you take different dye and connect it under, [Indecipherable] into one chip. And Intrinsix has a strategic relationship with Intel, that is the leader in this area and one of the anchor of their Foundry Strategy, the new Foundry Strategy.

So, we will be looking to capitalize on this. So, that's all the configuration that led us to do this transaction. Intrinsix is very familiar with DSP; they're familiar with our technology; we didn't have projects in the past, but we already engaged--, communicated and shared with key customer, their capability and got good feedbacks.

Matthew D. Ramsay -- Cowen -- Analyst

Great. Thanks, Gideon, for all the details there. Good luck with the deal.

Gideon Wertheizer -- Chief Executive Officer

Thank you.

Matthew D. Ramsay -- Cowen -- Analyst

Yaniv, a couple of financial questions. One set is on the acquisition. I think you said on your script, $10 million to $11 million for the back half of the year. If you could give us any sense of the rest of the P&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., etc., 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.

Gideon Wertheizer -- Chief Executive Officer

Let me answer, Matt, second question about, to give you guidance for the revenue mix that we did. This revenue mix came with, I would say, unexpected surge in revenue. We would start seeing things in the second half of this year with the demand of our connectivity products; we saw much stronger demand than we do. But, what happened late in the year end and this quarter is that it comes with non-comprehensive agreements with customers. They are looking for the portfolio of our technology, they are looking for architecture and license. These are much more expensive product lines.

And in the Q1, we had kind of a concentration of at least two or three 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.

Yaniv Arieli -- Chief Financial Officer

So, take that very strange mix, that even for us was a surprise. As Gideon explained, [Indecipherable] one of the deals are million dollar deal, many millions dollars with leading handset OEMs. But, it all happened in France. Tax rate is much higher, so the concentration was almost everything in France in the first quarter. On an annual basis, that will level out. I mean, it was--, more of that, we see it as that's 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 the annual guidance, we did get to 22% in Fed [phonetic]. But, France has more business these days, larger than the level of Q1 across the year. And if you go back to the normal mix of revenues between Israel, U.S., Ireland, not just France, we should be back in a 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 in the year. The percentages in the next couple of quarters will not change. We kept the model with same 22% with a higher Q1. With that said, CEVA's stand-alone before Intrinsix, we already added or adding about $1 million to our prior guidance. So, instead of the $106 million, we're looking at more like a $107 million for this year; this is CEVA's stand-alone, higher taxes, and a very solid entry into the second quarter.

Gideon talked about the pipeline. I mentioned what we see both in royalty and in licensing. So, we don't give quarterly revenue guidance, but we are looking at--, and we're feeling very comfortable with at least licensing environment that we have control over. So, over the years, that itself could close the gap or start closing the gap versus the higher Q1 taxes.

And if you add to that Intrinsix's, which you had a good question. Top line, we're adding maybe $10 million 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 the 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 few actual Q1 and higher taxes. And that should be able to also offset the Q1 expenses. So, all in all, better revenues for the year, specifically with Intrinsix acquisition if our close is on time.

And some recovery, maybe even all of it, we just don't know and we don't guide for EPS. We just give you the trends in the business, but we could see some up--, 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.

I hope that you...

Matthew D. Ramsay -- Cowen -- Analyst

Thanks guys for all the details there. Really appreciate it. Thank you.

Yaniv Arieli -- Chief Financial Officer

Sure. Thank you, Matt.

Operator

And our next question today comes from Suji Desilva with Roth Capital. Please go ahead.

Matthew D. Ramsay -- Cowen -- Analyst

Hi, Gideon and hi, Yaniv, congratulations on the Intrinsix acquisition. Based on your last acquisitions, I'd be expecting good things in this one as well.

Can you talk about the competition for Intrinsix and also the secure IP, the RISC-V IP, what opportunities there are to take that, outside of the aero defense market?\

Gideon Wertheizer -- Chief Executive Officer

Hi, Suji, good morning and you are welcome.

The only thing that I managed to capture is the secure--, question about security. Anything--, any other questions?

Suji Desilva -- Roth Capital -- Analyst

Oh, and the competition, Gideon? Yeah, Gideon, the competition.

Gideon Wertheizer -- Chief Executive Officer

The competition, OK.

So, security is basically a complete solution based on RISC-V that has a hardware-- it's a hardware-based platform that was developed on few projects for the DARPA. And it's an--, the security or secure IP, the secure processor IP is 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 Intrinsix has this platform available. As a company, they didn't do IP business thus far because that's not at all their focus here; they couldn't afford doing both things.

We have the platform, we have the sales channels today. In terms of competition, [Indecipherable] is a competitor. I think these are the main competitor. We will--, as time goes by, we will look more closely on the competitive landscape and add our own flavors to make it IP business. But--, so, ours is an easy licensing [Indecipherable] 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.

Suji Desilva -- Roth Capital -- Analyst

Okay, very helpful. Thanks.

And then, perhaps on the current royalty run rates. The wireless infrastructure market, 5G infrastructure, can you talk about how that's been trending the last--, this quarter, last quarter, this quarter? And then, what's the outlook for the rest of the year, including perhaps new customers coming online as well?

Gideon Wertheizer -- Chief Executive Officer

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 spending on the next wave, or the next services in 5G, which are small cells in the private network. But, it's moving and no question about that it will come.

In terms of customer, we have one customer. And another customer publicly said that it goes into production in this quarter, so we are positive. Maybe I'll add some color, Suji. If you look at some of the 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 as Intrinsix's, we bought over the years, we invested there, and we see the fruits in recent years.

Hopefully, that's what we will see in few years from Intrinsix as well. But, the overall growth in the first quarter also positively surprised us. And for now, our customers, especially in the IoT space, in the consumer devices, TV, robotic cleaners were super strong in the first quarter, which is obviously an anomaly, because they usually fill post-Christmas quarter and that was not the case this year with COVID around.

Suji Desilva -- Roth Capital -- Analyst

Okay. Appreciate the color, thanks guys.

Gideon Wertheizer -- Chief Executive Officer

Thank you.

Operator

And our next question today comes from Tavy Rosner with Barclays. Please go ahead.

Peter Zdebski -- Barclays Capital -- Analyst

Hi, this is Peter Zdebski on for Tavy. Thanks for taking my question.

I wondered if you could comment on the type of growth that Intrinsix has had historically and maybe your going-forward expectation, say, one or two years out given some of these synergies and customer overlap that you discussed earlier?

Gideon Wertheizer -- Chief Executive Officer

Okay. So, hi, Zdebski. The Intrinsix, as a stand-alone business, is a growing business, which we--, I mean, they have financially pre-consistent growth, starting from 2007 where they really turned the corner in aerospace and defense. The aerospace and defense space is a growing space, more and more spending by the DoD in semiconductor. It has highest dollar paid in 5G from DoD's standpoint and also highest dollar paid in AI. And Intrinsix is basically growing by taking more projects, more lucrative projects, that they bring in as an inertia.

Now, what we are adding to this one is what we're seeing as IP. So, when you go to the defense, we're going to present to the prospective customers the IP that we have. And most of them, they need a DSP there, all connectivity things that we have.

And the other thing that we're going to grow is to go to our handset [phonetic] customers, a lot of them are now coming to us to purchase IP. And we turn to them, why don't you take--, we do for you the whole design, including IP, because we are expert in IP and we can combine all the--. We have the most experience and intimate understanding on combined IP with design around the IP. So, that's the initiative that we're going to take--. And as I mentioned, they also bring in IP that we're going to add it to our IoT.

Yaniv Arieli -- Chief Financial Officer

Gideon, let me try to summarize. If we are looking on a half-year, for this year, we are looking at $10 million. Obviously, with simple math, you could double that for next year. On top of that is the pillars that Gideon talked about growth. We will give more color after we close the deal and close to--, when we get closer to 2022.

But, there is no doubt that with CEVA on board and doing these together, that $20 million, we see it as a growth driver in the next couple of years, both organic and inorganic is the combination of services and IP.

Peter Zdebski -- Barclays Capital -- Analyst

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?

Yaniv Arieli -- Chief Financial Officer

Yeah, Yaniv here. This is the question we've always asked and we said it's not that important to divide the [Indecipherable] dollars by the deal count. Some are not able, we are not able to recognize some. Specifically, this quarter has a very large deal that we talked about earlier with OEM, handset OEMs, which was a multi million-dollar deal. And at the end of the day, if you look at $14 million and $17 million [phonetic], this is the third time ever that CEVA was recording a $40 million and higher. And thanks to it all, it was all in the last year, five quarters that it happened. First in Q4 '19 for the very first time, and then again in Q1, and again now.

So, this is just to show that this combination of new markets and new technologies worked out well. And the pipeline for us and the backlog for us for the second quarter, it is strong.

Peter Zdebski -- Barclays Capital -- Analyst

Okay, thanks again, and congrats on the quarter.

Operator

Thank you. Our next question today comes from Martin Yang with Oppenheimer. Please go ahead.

Martin Yang -- Oppenheimer -- Analyst

Hi, Gideon and Yaniv, thanks for taking my question.

First, I wanted to ask about the turnkey IP business model. And can you comment on what or how long are the design cycles? And does that usually involve just one-time fees for our customers or maybe higher royalties as they choose to go with that turnkey IP?

Gideon Wertheizer -- Chief Executive Officer

Yeah. The timeline of the cycle, the design cycle, depends on the complexity of the project and it could range between six months to one year, based on the magnitude of the project. In terms of payment, it will be--, it's a component that we're familiar, license fee for the IP and NRE for the development. And all this will be higher because we combine both, for the combination of the design and the IP.

Martin Yang -- Oppenheimer -- Analyst

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?

Gideon Wertheizer -- Chief Executive Officer

Yeah. If we deemed, it does carry a big potential. The platform that we announced, the Bluebud supports both, the BLE Audio and the classical Bluetooth. The new LE audio is not yet deployed in mass market, where we have lot of legacy to support. So, the Bluebud supports the dual mode, which is a combination of the BLE and the classical Bluetooth. But, the benefit of BLE Audio is substantially higher than the classical Bluetooth is not more than one. And we expect this to be in the mainstream, but it's gonna take few years.

Martin Yang -- Oppenheimer -- Analyst

Thanks. I have no more questions.

Gideon Wertheizer -- Chief Executive Officer

Thank you.

Operator

Our next question today comes from David O'Connor with Exane BNP Paribas. Please go ahead.

David O'Connor -- Exane BNP Paribas -- Analyst

Great. Good morning, thanks for taking my question.

Maybe, Gideon, just going back to the Intrinsix deal, just to clarify, was the business entirely design services as it exists today? So, I imagine they get paid per NRE, per design. And it's the plan to transform that existing business of theirs into more classic CEVA license and royalties, and you get paid per shipment versus just NRE on a design.

And also then on that NRE side of things, I mean, how scalable is that? 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 ultrawide band. Can you just give us a quick overview of the ultrawide band. How many customers you have today? Is this your first customer in ultrawide band? What the pipeline looks like? And what is the end application for this customer, in terms of end markets? Thank you.

Gideon Wertheizer -- Chief Executive Officer

Hi, David. So, let me start with Intrinsix. Indeed, the Intrinsix model is, on NRE basis, they get paid for the resources that they put in this project. The model under CEVA will be a hybrid [Indecipherable] because they will continue in their primary market into this model and add licensing IP, which is just a license fee and royalties. But, when it comes to what we call the turnkey IP, really it's more of [Indecipherable], meaning higher royalties. It's more close as you pointed out.

So, what we do in the IP model is we get NRE for the project and think about the same thing that what people in the semiconductor was doing. They take some building of the costs, so the cost could be--, the payment will be higher than the costs. But, it's, on the back end, you get higher royalties. So, that's in terms of Intrinsix. Now, ultrawide band is a very promising space that we decided to do. We have a lead customer, we didn't finish the design; it would take us few more months to finish the design.

In terms of go-to-the-market strategy, that's another entry point to the mobile. We have now--, what we have in the handset space in terms of baseband. And last quarter, we signed another big deal of connectivity. Many people are using our technology not for the baseband, but also for the connectivity side, Wi-Fi and Bluetooth. And this 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, mobile customer base to the connectivity.

Ultrawide band will be the third entry point into the market. I believe that most of the flagship model will include ultrawide band because people would like to see the benefit of location, the precise location. And the AirTag of Apple is just one example to do it. I believe that going forward they'll put it in TWS and watches because [Indecipherable] all over the place. So, it's a technology that we decided to develop; we have the resources working. We have a lead customer [Indecipherable] the direction that we do. And it's a big market, they put the numbers in the 1 billion [Indecipherable] by 2025.

David O'Connor -- Exane BNP Paribas -- Analyst

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, 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.

Yaniv Arieli -- Chief Financial Officer

Sure, so, two things. One, 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&D costs that were needed to bring up for 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 Israeli Innovation Authority than in normal quarters. These are the two elements that brought up slightly, but nicely there the margins.

David O'Connor -- Exane BNP Paribas -- Analyst

Understood. Thanks guys.

Gideon Wertheizer -- Chief Executive Officer

Thank you.

Operator

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 any final remarks.

Richard Kingston -- Vice President of Market Intelligence, Investor & Public Relations

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-K 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 Cowen 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 all these events we will be participating, it can be found on the Investors Section of our website. Thank you and goodbye.

Operator

[Operator Closing Remarks]

Duration: 54 minutes

Call participants:

Richard Kingston -- Vice President of Market Intelligence, Investor & Public Relations

Gideon Wertheizer -- Chief Executive Officer

Yaniv Arieli -- Chief Financial Officer

Matthew D. Ramsay -- Cowen -- Analyst

Suji Desilva -- Roth Capital -- Analyst

Peter Zdebski -- Barclays Capital -- Analyst

Martin Yang -- Oppenheimer -- Analyst

David O'Connor -- Exane BNP Paribas -- Analyst

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