Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Item 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the unaudited financial statements and related notes appearing elsewhere in this quarterly report. This discussion contains forward-looking statements that involve risks and uncertainties. Any or all of our forward-looking statements in this quarterly report may turn out to be wrong. These forward-looking statements can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. Factors which could cause actual results to differ materially include those set forth under in Part II - Item 1A - "Risk Factors," as well as those discussed elsewhere in this quarterly report. See "Forward-Looking Statements."

The financial information presented in this quarterly report includes the results of Ceva, Inc. and its subsidiaries.

BUSINESS OVERVIEW

We enable Physical AI, the artificial intelligence embedded in billions of devices that connect, sense and infer data in the real world. We view Physical AI as the natural evolution of Edge AI. While Edge AI refers to running AI workloads locally on devices rather than in the cloud, Physical AI extends this concept further: it unifies connectivity, sensing and inference layers into a single fabric that allows devices not only to process data at the edge, but also to interact intelligently with their physical environment and the cloud. Ceva is uniquely positioned as the only company with leadership in innovative silicon and software IP solutions across all three layers.

According to IPnest, we commanded 68% of the wireless connectivity IP market in 2024. Since 2003, more than 20 billion devices have shipped with Ceva IP, including approximately 2 billion in 2024 alone. Our technologies power the connectivity, perception and intelligence in today's most advanced smart edge products across consumer IoT, automotive, industrial and infrastructure, and mobile and PC markets. Based on market research, we believe these sectors will represent a $170 billion total addressable market for Physical AI and Edge AI by 2030.

Our portfolio spans:

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Connectivity layer (wireless transport): Bluetooth, Wi-Fi, Ultra-Wideband (UWB), cellular internet-of-things (IoT), and 5G-Advanced IP platforms that form the backbone of ubiquitous, secure, and high-performance communication.

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Sensing layer (software and DSPs): Sensor fusion processors, RealSpace spatial audio, MotionEngine software, and general-purpose digital signal processors (DSPs) that transform raw sensor data into actionable intelligence.

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Inference layer (NPUs and AI DSPs): The NeuPro family of neural processing units (NPUs), from NeuPro-Nano for embedded AI to NeuPro-M for generative AI, supported by a unified toolchain and software stack for simple model deployment, and the SensPro family of AI DSPs for high-performance signal and AI workloads.

Together, these layers make Ceva, with our unified AI fabric, an essential enabler of Physical AI that breaks down barriers to entry and accelerates time-to-market for our customers.

For more than three decades, we have been a trusted partner to hundreds of leading semiconductor and original equipment manufacturer (OEM) companies, serving not only our largest target growth markets but also a wide variety of other applications, including smart home, surveillance, robotics and medical. Our transformative semiconductor IP and embedded software offerings are incorporated by customers into application-specific integrated circuits (ASICs) and application-specific standard products (ASSPs) to enable power-efficient, intelligent, secure and connected devices that connect, sense and infer - the three critical pillars of the rapidly evolving era of AI-enabled smart edge technology.

We license our portfolio of wireless communications and scalable Edge AI IP to our customers, breaking down barriers to entry and enabling them to bring new cutting-edge products to market faster, more reliably, efficiently and economically.

We believe our portfolio of technologies comprised of connectivity, sensing and inference - the three foundational layers of Physical AI - positions Ceva at the center of the most important megatrends shaping the semiconductor industry, including 5G expansion, generative and embedded AI, industrial automation and vehicle electrification. Demand across these areas continues to drive strong interest in our IP portfolio, both in established markets and in new, emerging use cases. In the third quarter of 2025, we signed twelve IP licensing agreements that underscore this momentum: a comprehensive deal with Microchip to adopt our full NeuPro NPU portfolio and embed AI across their product families; multiple agreements for our SensPro AI DSPs, including one with a global electronics OEM targeting home appliances and another with an automotive customer developing an ADAS chiplet architecture; and a major connectivity win with a leading customer licensing our Wi-Fi 7 and Bluetooth High Data Throughput IP for their upcoming roadmaps. These agreements not only validate the breadth of our portfolio but also cement multi-year volume and royalty ramps, reinforcing Ceva's role as the enabler of Physical AI across consumer, automotive, industrial and infrastructure markets.

We believe the following key elements represent significant growth drivers for Ceva as the leader in silicon and software IP enabling Physical AI, spanning the three foundational layers of connectivity, sensing and inference:

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Connectivity layer - Foundation for billions of devices: Our broad Bluetooth, Wi-Fi, UWB, and cellular IoT IP platforms address the high-volume IoT, industrial, consumer, and smart home markets. ABI Research projects more than 16.5 billion devices annually by 2029. With leadership in Wi-Fi 6 and Wi-Fi 7 IP, and record Wi-Fi 6 shipments in 2025, we believe we are positioned to capture higher royalty revenues as customers transition to newer standards.

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Connectivity layer - 5G everywhere: Our PentaG2 platform and DSPs for 5G mobile broadband and 5G RedCap provide one of the industry's most comprehensive baseband IP solutions, enabling fixed wireless access, satellite communications, robotics, automotive and industrial applications.

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Connectivity layer - Infrastructure intelligence: Our PentaG RAN platform, including the Ceva-XC22 multi-thread DSP, extends our leadership into 5G RAN and 5G Advanced for data centers and infrastructure, enabling scalable, customizable solutions for next-generation networks.

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Sensing layer - Consumer audio and spatial intelligence: High-volume consumer audio markets such as TWS earbuds, AR/VR headsets, and wearables represent incremental growth opportunities for our Bluetooth, Audio AI DSPs, NPUs and RealSpace Spatial Audio & Head Tracking software. Recent design wins with Nothing and other consumer brands highlight growing adoption.

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Sensing layer - Software intelligence at scale: Our MotionEngine software, already shipped in more than 400 million devices, enhances MEMS-based inertial and environmental sensors across robotics, smartphones, laptops, TWS earbuds, and more. Combined with our SensPro DSPs and NeuPro NPUs, we believe this positions Ceva as a one-stop shop for sensor processing and AI-driven user experiences.

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Inference layer - Generative and classic AI at the edge: Our NeuPro-M AI NPU family delivers efficient, high-performance architectures for generative and classic AI across devices from gateways and notebooks to AR/VR and smartphones. Recent agreements include Microchip's portfolio license win for our NeuPro-M and NeuPro-Nano family of NPUs.

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Inference layer - Embedded AI and TinyML: Our NeuPro-Nano NPUs bring cost- and power-efficient AI to microcontrollers and systems-on-chips (SoCs), enabling artificial IoT (AIoT) devices for sound, vision, vibration, and health monitoring. ABI Research projects that by 2030, over 50% of TinyML shipments will be powered by dedicated embedded AI hardware such as NeuPro-Nano.

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Inference layer - AI DSPs for perception and sensor intelligence: Our SensPro2 AI DSP family addresses demand for efficient, high-performance AI signal processing across sensor-rich applications, from smartphones and drones to automotive ADAS and industrial IoT. Bloomberg Intelligence forecasts $58 billion in computer vision AI hardware and $110 billion in conversational AI hardware revenues by 2032, underscoring the scale of this opportunity. SensPro, as an inference-class AI DSP, extends Ceva's leadership beyond NPUs into versatile, programmable AI compute.

As a result of our focus on silicon and software IP solutions spanning the connectivity, sensing and inference layers of Physical AI, we believe Ceva is well positioned for sustained, long-term growth in both shipments and royalty revenues. Our diversified royalty streams reflect a broad range of advanced semiconductor packages (ASPs) - from high-volume Bluetooth and Wi-Fi connectivity platforms that power billions of consumer devices to higher-value inference engines and AI DSPs such as NeuPro and SensPro, as well as infrastructure-class platforms like PentaG-RAN. We believe this mix provides both scale and resilience, enabling us to capture growth across consumer, automotive, industrial and infrastructure markets while reinforcing our role as the enabler of Physical AI.

CURRENT TRENDS

We believe the long-term trend of digital transformation is evolving into a new era defined by Physical AI - the next phase of Edge AI - where intelligence is embedded directly into the devices that connect, sense and interact with the real world. Our ubiquitous IP portfolio and collaborative licensing model position us to capture secular growth across consumer IoT, automotive, industrial and infrastructure, and mobile and PC markets.

Our customers are increasingly receptive to our roadmap because it aligns with their need to add connectivity, sensing and intelligence at the edge. In 2024, this strategy returned us to year-over-year revenue growth of 10%, outperforming our initial expectations of 4% to 8%. For 2025, we expected continued expansion of licensing and related revenues driven by demand for intelligent, connected devices, particularly in industrial IoT and consumer IoT devices. The third quarter of 2025 provided further evidence of this trend, with twelve total licensing agreements, including a comprehensive NPU portfolio deal with Microchip, new AI DSP wins in consumer electronics and automotive ADAS, and multi-year connectivity ramps in Wi Fi 7 and Bluetooth.

On royalties, we anticipate continued growth in 2025 from our connectivity platforms, particularly Bluetooth, Wi Fi and cellular IoT, which achieved record shipments in 2024. In the third quarter of 2025, we recorded a record high volume of our cellular IoT and Wi-Fi IP powering customer shipments. We also expect incremental royalties from a leading U.S. mobile OEM's in-house 5G modem powered by our DSPs, which expanded into smartphones and tablets in 2025. These milestones reinforce our role as the leader in silicon and software IP enabling Physical AI across both high volume consumer devices and high value infrastructure and automotive applications.

In addition, we expect to complement our strong presence in the Asia-Pacific region by further expanding our customer base and revenues in Europe and the U.S., as reflected in our increasingly diversified geographic revenue mix from 2022 through 2024. This balance strengthens our resilience and underscores Ceva's role as the leader in silicon and software IP enabling Physical AI across global markets.

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

Instability in the Middle East

Our operations in Israel remain largely unaffected by the war between Israel and Hamas that began on October 7, 2023 and escalated to conflicts with Lebanon, Hezbollah and Iran. Nevertheless, we continue to drive our business and support our customers globally. However, a portion of our employees in Israel have been or are called to active reserve duty and additional employees may be called in the future, if needed. The Company has executed its business continuity plan with respect to those employees. It is possible that some of our operations in the region may be disrupted if this continues for a significant period of time or if the situation further deteriorates. Currently a cease-fire is in place, resulting in "back to normal" work and life and travel environments. For more information, please refer to the risk factor titled "Our operations in Israel may be adversely affected by instability in the Middle East region" in Part I-Item IA-"Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024.

RESULTS OF OPERATIONS

Total Revenues

Total revenues were $28.4 million and $78.3 million for the third quarter and first nine months of 2025, respectively, representing an increase of 4% and 1% as compared to the corresponding periods in 2024. The increase in total revenues for the third quarter of 2025 was due to higher licensing and related revenues and higher royalty revenues, as further described below. The increase in total revenues for the first nine months of 2025 was due to higher licensing and related revenues, offset by lower royalty revenues, as further described below.

Our five largest customers accounted for 45% and 39% of our total revenues for the third quarter and first nine months of 2025, respectively, as compared to 48% and 44% for the comparable periods in 2024. Three customers each accounted for 11% of our total revenues for the third quarter of 2025, as compared to two customers that accounted for 17% and 13% of our total revenues for the third quarter of 2024. One customer accounted for 15% of our total revenues for the first nine months of 2025, as compared to one customer that accounted for 13% of our total revenues for the first nine months of 2024. Sales to UNISOC (formerly Spreadtrum Communications, Inc. and RDA Corporation) represented 11% and 15% of our total revenues for the third quarter and first nine months of 2025, respectively. Generally, the identity of our customers representing 10% or more of our total revenues varies from period to period, especially with respect to our IP licensing customers as we generate licensing revenues generally from new customers on a quarterly basis. With respect to our royalty revenues, two royalty paying customers represented 10% or more of our total royalty revenues for both the third quarter and first nine months of 2025 and collectively represented 36% and 35% of our total royalty revenues for the third quarter and first nine months of 2025, respectively. Two royalty paying customers represented 10% or more of our total royalty revenues for both the third quarter and first nine months of 2024 and collectively represented 43% of our total royalty revenues for both the third quarter and first nine months of 2024. We expect that a significant portion of our future revenues will continue to be generated by a limited number of customers. The concentration of our customers is explainable in part by consolidation in the semiconductor industry.

The following table sets forth use cases for the Ceva technology portfolio as percentages of our total revenues for each of the periods set forth below:

		First Nine Months 2025				First Nine Months 2024				Third Quarter 2025				Third Quarter 2024
Connect (baseband for handset and other devices, Bluetooth, Wi-Fi and NB-IoT)			71	%			83	%			67	%			80	%
Sense & Infer (sensor fusion, audio, sound, imaging, vision and AI)			29	%			17	%			33	%			20	%

Licensing and Related Revenues

Licensing and related revenues were $16.0 million and $46.1 million for the third quarter and first nine months of 2025, respectively, representing an increase of 3% and 4% as compared to the corresponding periods in 2024. In licensing, we secured several strategic agreements that reinforce our market-leading position in wireless connectivity and accelerate our expansion in AI. The third quarter of 2025 was marked by strong execution across our core pillars - connect, sense and infer - and highlights the breadth and strength of our IP portfolio. The most significant win was in AI, where Microchip, one of the world's leading microcontroller and connectivity providers, adopted our full NeuPro NPU portfolio for its future roadmap. We believe this win represents a strong proof point of a broader industry trend: major microcontroller unit and semiconductor vendors are standardizing to embed AI across their product lines, bringing more on-device intelligence for performance, user experience, privacy and cost. The increase in licensing and related revenues for the first nine months of 2025 was primarily due to the aforementioned increase in revenue coming from our Edge AI technologies, as well as several key deals signed with strategic customers incorporating our new Bluetooth 7 solutions in their long-term roadmaps, partially offset by two strategic deals signed in the second quarter of 2024 with our large OEM customers in wireless infrastructure for their development of next-generation ASICs.

During the quarter, twelve IP licensing agreements were signed, targeting a wide range of end markets and applications, including NPU for AI across industrial, consumer, automotive and other end markets, AI DSP for automotive ADAS and home appliances, communications DSPs for vehicle-2-everything (V2X) and satellite, and Bluetooth and Wi-Fi connectivity for a wide range of consumer, wearables, smart home and industrial smart edge devices. One of the deals signed was with a first-time customer and one was with an OEM customer.

Licensing and related revenues accounted for 56% and 59% of our total revenues for the third quarter and first nine months of 2025, respectively, as compared to 57% for both the comparable periods of 2024.

Royalty Revenues

Royalty revenues were $12.4 million and $32.2 million for the third quarter and first nine months of 2025, respectively, representing an increase of 6% and a decrease of 4% as compared to the corresponding periods in 2024. The first nine months of 2025 included revenue of $0.3 million following the resolution of royalty audits. The third quarter and first nine months of 2024 included revenue of $0.3 million and $2.0 million, respectively, following the resolution of royalty audits. Excluding these amounts, the third quarter and first nine months of 2025 would have been up by 9% and 1%, respectively, as compared to the comparable periods of 2024. Royalty revenues accounted for 44% and 41% of our total revenues for the third quarter and first nine months of 2025, respectively, as compared to 43% for both the comparable periods of 2024. We delivered solid growth across most of our markets, with royalties up 6% year-over-year and 16% sequentially. Consumer IoT was a key driver, posting 9% year-over-year growth, supported by record shipments in cellular IoT and Wi-Fi. Our 5G RAN infrastructure customers also had a strong quarter, with revenues up 91% compared to last year. In automotive, ADAS ramps at our two large semiconductor customers continued to accelerate, contributing to overall royalty growth in the quarter. Mobile royalties grew 4% year-over-year and 7% sequentially, driven by a recovering low-end smartphone segment. At the high end, our U.S. OEM customer launched a second smartphone model featuring its in-house 5G modem with Ceva technology, and as this model expands into more markets in the fourth quarter, we expect further royalty growth.

The five largest royalty-paying customers accounted for 54% of our total royalty revenues for both the third quarter and first nine months of 2025, as compared to 61% and 60% for the comparable periods of 2024.

Geographic Revenue Analysis

		Nine Months 2025								Nine Months 2024								Third Quarter 2025								Third Quarter 2024
		(in millions, except percentages)
United States		$	15.9				20	%		$	12.0				15	%		$	6.8				24	%		$	8.1				30	%
Europe and Middle East		$	5.0				7	%		$	11.6				15	%		$	1.5				5	%		$	2.7				10	%
Asia Pacific (1) (2)		$	57.3				73	%		$	54.0				70	%		$	20.1				71	%		$	16.4				60	%
(1) China		$	44.6				57	%		$	39.7				51	%		$	14.7				52	%		$	10.7				39	%
(2) South Korea		$	*)				*)			$	*)				*)			$	*)				*)			$	3.0				11	%
*) Less than 10%

Due to the nature of our license agreements and the associated potential large individual contract amounts, the geographic split of revenues both in absolute dollars and percentage terms generally varies from quarter to quarter.

Cost of Revenues

Cost of revenues was $3.4 million and $10.4 million for the third quarter and first nine months of 2025, respectively, as compared to $4.0 million and $9.4 million for the comparable periods of 2024. Cost of revenues accounted for 12% and 13% of our total revenues for the third quarter and first nine months of 2025, respectively, as compared to 15% and 12% for the comparable periods of 2024. The decrease for the third quarter of 2025 primarily reflected lower third-party IP costs, and lower payments to the Israeli Innovation Authority of the Ministry of Economy and Industry in Israel (the IIA). The increase for the first nine months of 2025 principally reflected higher strategically beneficial customization and implementation work associated with the strategic 5G-Advanced deals we signed in the second half of 2024, partially offset by lower payments to the IIA. Included in cost of revenues for the third quarter and first nine months of 2025 was a non-cash equity-based compensation expense of $168,000 and $493,000, respectively, as compared to $176,000 and $570,000 for the comparable periods of 2024.

Gross Margin

Gross margin for the third quarter and first nine months of 2025 was 88% and 87%, respectively, as compared to 85% and 88% for the comparable periods of 2024. The increase for the third quarter of 2025 mainly reflected lower cost of revenues, as set forth above. The decrease for the first nine months of 2025 mainly reflected higher cost of revenues, as set forth above.

Operating Expenses

Total operating expenses were $27.1 million and $78.8 million for the third quarter and first nine months of 2025, respectively, as compared to $25.9 million and $75.9 million for the comparable periods of 2024. The net increase for the third quarter of 2025 principally reflected higher salaries and employee-related costs and higher non-cash equity-based compensation expenses, partially offset by lower allowance for credit losses. The net increase for the first nine months of 2025 principally reflected higher salaries and employee-related costs and higher non-cash equity-based compensation expenses, partially offset by higher allocation of customization and implementation work for our licensees to cost of revenues.

Research and Development Expenses, Net

Total research and development expenses, net were $19.5 million and $55.9 million for the third quarter and first nine months of 2025, respectively, as compared to $18.0 million and $54.7 million for the comparable periods of 2024. The increase for the third quarter of 2025 principally reflected higher salaries and employee-related costs. The increase for the first nine months of 2025 principally reflected higher salaries and employee-related costs and higher non-cash equity-based compensation expenses, partially offset by higher allocation of customization and implementation work for our licensees to cost of revenues. Included in research and development expenses for the third quarter and first nine months of 2025 were non-cash equity-based compensation expenses of $2,639,000 and $7,778,000, respectively, as compared to $2,421,000 and $6,866,000 for the comparable periods of 2024. Research and development expenses as a percentage of our total revenues were 69% and 71% for the third quarter and first nine months of 2025, as compared to 66% and 70% for the comparable periods of 2024. The percentage increase for both the third quarter and first nine months of 2025, as compared to the comparable periods of 2024, was mainly due to the same reasons as set forth above for the increase in research and development expenses.

The number of research and development personnel was 322 at September 30, 2025, as compared to 326 at September 30, 2024.

Sales and Marketing Expenses

Our sales and marketing expenses were $3.0 million and $9.8 million for the third quarter and first nine months of 2025, respectively, as compared to $3.1 million and $9.0 million for the comparable periods of 2024. The increase for the first nine months of 2025 principally reflected higher salaries and employee-related costs, and higher non-cash equity-based compensation expenses. Included in sales and marketing expenses for the third quarter and first nine months of 2025 were non-cash equity-based compensation expenses of $571,000 and $1,735,000, respectively, as compared to $491,000 and $1,307,000 for the comparable periods of 2024. Sales and marketing expenses as a percentage of our total revenues were 11% and 12% for the third quarter and first nine months of 2025, respectively, as compared to 11% and 12% for the comparable periods of 2024.

The total number of sales and marketing personnel was 32 at both September 30, 2025, and 2024.

General and Administrative Expenses

Our general and administrative expenses were $4.4 million and $12.7 million for the third quarter and first nine months of 2025, respectively, as compared to $4.6 million and $11.8 million for the comparable periods of 2024. The decrease for the third quarter of 2025 primarily reflected lower allowance for credit losses, partially offset by higher non-cash equity-based compensation expenses. The increase for the first nine months of 2025 primarily reflected higher non-cash equity-based compensation expenses and higher professional services costs, partially offset by lower allowance for credit losses. Included in general and administrative expenses for the third quarter and first nine months of 2025 were non-cash equity-based compensation expenses of $1,495,000 and $4,092,000, respectively, as compared to $ 1,120,000 and $2,936,000 for the comparable periods of 2024. General and administrative expenses as a percentage of our total revenues were 15% and 16% for the third quarter and first nine months of 2025, respectively, as compared to 17% and 15% for the comparable periods of 2024.

The number of general and administrative personnel was 49 at September 30, 2025, as compared to 45 at September 30, 2024.

Amortization of Intangible Assets

Our amortization charges were $0.1 million and $0.4 million for the third quarter and first nine months of 2025, respectively, as compared to $0.1 million and $0.4 million for the comparable periods of 2024. The amortization charges for both the third quarter and first nine months of 2025 and 2024 were incurred in connection with the amortization of intangible assets associated with the acquisitions of the Hillcrest Labs and VisiSonics business.

Financial Income, Net (in millions)

		Nine Months 2025				Nine Months 2024				Third Quarter 2025				Third Quarter 2024
Financial income, net		$	5.47			$	4.96			$	1.25			$	2.30
of which:
Interest income and gains and losses from marketable securities, net		$	4.56			$	4.44			$	1.51			$	1.50
Foreign exchange gain (loss)		$	0.91			$	0.52			$	(0.26	)		$	0.80

Financial income, net, consists of interest earned on investments, gains and losses from sale of marketable securities, accretion (amortization) of discounts (premiums) on marketable securities and foreign exchange movements.

The increase in interest income and gains and losses from marketable securities, net, during both the third quarter and first nine months of 2025 principally reflected higher yields, partially offset by lower combined bank deposits and marketable securities balances held.

We review our monthly expected major non-U.S. dollar denominated expenditures and look to hold equivalent non-U.S. dollar cash balances to mitigate currency fluctuations. However, our Euro cash balances increase significantly on a quarterly basis beyond our Euro liabilities, mainly from applicable French research tax credits, which are generally refunded every three years. This has resulted in a foreign exchange loss of $0.26 million and a foreign exchange gain of $0.91 million for the third quarter and first nine months of 2025, respectively, as compared to a foreign exchange gain of $0.80 million and $0.52 million for the comparable periods of 2024.

Remeasurement of Marketable Equity Securities

We recorded a gain of $1,000 and a loss of $261,000 for the third quarter and first nine months of 2025, respectively, as compared to a gain of $21,000 and a loss of $97,000 for the comparable periods of 2024, related to remeasurement of marketable equity securities, which we hold at fair value. Over time, other income (expense), net, may be affected by market dynamics and other factors. Equity values generally change daily for marketable equity securities and upon the occurrence of observable price changes or upon impairment of marketable equity securities. In addition, volatility in the global economic climate and financial markets could result in a significant change in the value of our investments.

Provision for Income Taxes

Our income tax expenses was $1.7 million and $3.8 million for the third quarter and first nine months of 2025, respectively, as compared to $1.0 million and $4.3 million for the comparable periods of 2024. The increase for the third quarter of 2025 primarily reflected higher tax expenses on income generated in our French subsidiary (under the French IP Box regime). The decrease for the first nine months of 2025 primarily reflected lower withholding tax expenses in our Israeli subsidiary for which we will not be able to obtain a refund from the tax authorities.

We are subject to income and other taxes in the United States and in numerous foreign jurisdictions. Our domestic and foreign tax liabilities are dependent on the jurisdictions in which profits are determined to be earned and taxed. Additionally, the amount of taxes paid is subject to our interpretation of applicable tax laws in the jurisdictions in which we operate. A number of factors influence our effective tax rate, including changes in tax laws and treaties as well as the interpretation of existing laws and rules. Federal, state, and local governments and administrative bodies within the United States, and other foreign jurisdictions have implemented, or are considering, a variety of broad tax, trade, and other regulatory reforms that may impact us. On July 4, 2025, President Donald Trump signed the One Big Beautiful Bill Act ("OBBBA") into law, which is considered the enactment date under U.S. GAAP. Key corporate tax provisions of OBBBA include the restoration of 100% bonus depreciation, immediate expensing for domestic research and experimental expenditures, changes to Section 163(j) interest limitations, modification of several international tax provisions, and expanded Section 162(m) aggregation requirements. In accordance with ASC 740, we have recognized the effects of the new tax law in the period of enactment. The impact of OBBBA for the quarter ended September 30, 2025 did not have a material impact on our financial position for the period. We continue to evaluate the impact of OBBBA on our consolidated financial statements and will update its estimates as additional guidance becomes available.

We have significant operations in Israel and operations in France and the Republic of Ireland. A substantial portion of our taxable income is generated in Israel and France, as well as potentially in the U.S. due to GILTI and the requirement to capitalize research and development expenditures under IRC Section 174 over 15 years if sourced internationally. Although our Israeli, French and Irish subsidiaries are taxed at rates substantially lower than U.S. tax rates, the tax rates in these jurisdictions could nevertheless result in a substantial increase as a result of withholding tax expenses with respect to which we are unable to obtain a refund from the relevant tax authorities.

Our Irish subsidiary qualified for a 12.5% tax rate on its trade. Interest income generated by our Irish subsidiary is taxed at a rate of 25%.

Our French subsidiary is entitled to a tax benefit of 10% applied to specific revenues under the French IP Box regime. The French IP Box regime applies to net income derived from the licensing, sublicensing or sale of several IP rights such as patents and copyrighted software, including royalty revenues. This elective regime requires a direct link between the income benefiting from the preferential treatment and the research and development expenditures incurred and contributing to that income. Qualifying income may be taxed at a favorable 10% CIT rate (plus social surtax, hence 10.3% in total). Income not eligible for a tax benefit under the French IP Box regime is taxed at a regular rate of 25%.

Our Israeli subsidiary is entitled to various tax benefits as a technological enterprise. In December 2016, the Economic Efficiency Law (Legislative Amendments for Applying the Economic Policy for the 2017 and 2018 Budget Years), 2016, which includes the Amendment to the Law for the Encouragement of Capital Investments, 1959 (Amendment 73) (the "Amendment"), was published. The Amendment, among other things, prescribes special tax tracks for technological enterprises, which are subject to rules that were issued by the Minister of Finance in April 2017.

The tax track under the Amendment, which is applicable to our Israeli subsidiary, is the "Technological Preferred Enterprise". Technological Preferred Enterprise is an enterprise for which total consolidated revenues of its parent company and all subsidiaries are less than 10 billion New Israeli Shekel (NIS). A Technological Preferred Enterprise, as defined in the Amendment, that is located in the center of Israel (where our Israeli subsidiary is currently located), is taxed at a rate of 12% on profits deriving from IP. Any dividends distributed to "foreign companies", as defined in the Amendment, deriving from income from technological enterprises will be taxed at a rate of 4%.

Critical Accounting Policies and Estimates

Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.

We believe that the assumptions and estimates associated with revenue recognition, equity-based compensation and credit losses have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

See our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 27, 2025, for a discussion of additional critical accounting policies and estimates. There have been no changes in our critical accounting policies as compared to what was previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2024.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2025, we had approximately $17.3 million in cash and cash equivalents, $2.8 million in bank deposits, and $132.0 million in marketable securities, totaling $152.1 million, as compared to $163.6 million at December 31, 2024. The decrease for the first nine months of 2025 principally reflected cash used in operating activities and funds used to repurchase 340,295 shares of common stock for an aggregate consideration of approximately $7.2 million, partially offset by cash proceeds from exercise of stock-based awards and our receipt of cash proceeds of $3.5 million in connection with the sale of Intrinsix that were released from escrow in the second quarter of 2025.

Out of total cash, cash equivalents, bank deposits and marketable securities of $152.1 million, $127.5 million was held by our foreign subsidiaries. Our intent is to permanently reinvest earnings of our foreign subsidiaries, and our current operating plans do not demonstrate a need to repatriate foreign earnings to fund our U.S. operations. However, if these funds were needed for our operations in the United States, we would be required to accrue and pay taxes to repatriate these funds. The determination of the amount of additional taxes related to the repatriation of these earnings is not practicable, as it may vary based on various factors such as the location of the cash and the effect of regulation in the various jurisdictions from which the cash would be repatriated.

During the first nine months of 2025, we invested $52.5 million of cash in bank deposits and marketable securities with maturities up to 36 months from the balance sheet date. In addition, during the same period, bank deposits and marketable securities were sold or redeemed for cash amounting to $65.1 million. All our marketable securities are classified as available-for-sale. The purchase and sale or redemption of available-for-sale marketable securities are considered part of investing cash flow. Available-for-sale marketable securities are stated at fair value, with unrealized gains and losses reported in accumulated other comprehensive income (loss), a separate component of stockholders' equity, net of taxes. Realized gains and losses on sales of investments, as determined on a specific identification basis, are included in the interim condensed consolidated statements of loss. The amount of credit losses recorded for the first nine months of 2025 was immaterial. For more information about our marketable securities, see Note 7 to the interim condensed consolidated financial statements for the three and nine months ended September 30, 2025.

Bank deposits are classified as short-term bank deposits and long-term bank deposits. Short-term bank deposits are deposits with maturities of more than three months but no longer than one year from the balance sheet date, whereas long-term bank deposits are deposits with maturities of more than one year as of the balance sheet date. Bank deposits are presented at their cost, including accrued interest, and purchases and sales are considered part of cash flows from investing activities.

Operating Activities

Cash used in operating activities for the first nine months of 2025 was $12.1 million and consisted of net loss of $9.5 million, adjustments for non-cash items of $15.7 million, and changes in operating assets and liabilities of $18.3 million. Adjustments for non-cash items primarily consisted of $3.1 million of depreciation and amortization of intangible assets, and $14.1 million of equity-based compensation expenses, partially offset by $1.1 million of unrealized foreign exchange gain. The decrease in operating assets and liabilities primarily consisted of an increase in trade receivables of $12.2 million, a decrease in accrued expenses and other payables of $0.9 million, a decrease in accrued payroll and related benefits of $4.2 million (mainly as a result of a yearly bonus payments), and a decrease in deferred revenues of $0.5 million.

Cash used in operating activities for the first nine months of 2024 was $4.6 million and consisted of net loss of $7.0 million, adjustments for non-cash items of $13.6 million, and changes in operating assets and liabilities of $11.2 million. Adjustments for non-cash items primarily consisted of $3.0 million of depreciation and amortization of intangible assets, and $11.7 million of equity-based compensation expenses, partially offset by $0.7 million of amortization of premiums on available-for-sale marketable securities and $0.5 million of unrealized foreign exchange gain. The decrease in operating assets and liabilities primarily consisted of an increase in trade receivables of $7.8 million, and an increase in prepaid expenses and other assets of $3.7 million (mainly related to unbilled receivables of $2.7 million classified as "other long-term assets" in the Interim Condensed Consolidated Balance Sheets).

Cash flows from operating activities may vary significantly from quarter to quarter depending on the timing of our receipts and payments. Our ongoing cash outflows from operating activities principally relate to payroll-related costs and obligations under our property leases and design tool licenses. Our primary sources of cash inflows are receipts from our accounts receivable, to some extent, funding from research and development government grants and French research tax credits, and interest earned from our cash, deposits and marketable securities. The timing of receipts of accounts receivable from customers is based upon the completion of agreed milestones or agreed dates as set out in the contracts.

Investing Activities

Net cash provided by investing activities for the first nine months of 2025 was $14.6 million, compared to $1.1 million of net cash used in investing activities for the comparable period of 2024. We had a cash outflow of $49.8 million and a cash inflow of $63.1 million with respect to investments in marketable securities during the first nine months of 2025, as compared to a cash outflow of $41.3 million and a cash inflow of $34.4 million with respect to investments in marketable securities during the first nine months of 2024. For the first nine months of 2025, we had a net investment of $0.7 million in bank deposits, as compared to net proceeds of $8.0 million from bank deposits for the comparable period of 2024. We had a cash outflow of $1.4 million and $1.9 million during the first nine months of 2025 and 2024, respectively, from purchase of property and equipment. For the first nine months of 2025 and 2024, we had a cash inflow of $3.5 million and $0.5 million, respectively, in connection with the release of escrowed funds associated with the sale of Intrinsix. For the first nine months of 2024, we had a cash outflow of $0.8 million for the acquisition of a Greek-based company.

Financing Activities

Net cash used in financing activities for the first nine months of 2025 was $3.9 million, as compared to net cash used in financing activities in the amount of $4.6 million for the comparable period of 2024.

In August 2008, we announced that our board of directors approved a share repurchase program for up to one million shares of common stock pursuant to Rule 10b-18 of the Exchange Act, which was extended by an additional 7,800,000 shares collectively across further approvals in 2010, 2013, 2014, 2018, 2020, 2023 and November 2024. During the first nine months ended September 30, 2025, we repurchased 340,295 shares of common stock at an average purchase price of $21.01 per share for an aggregate purchase price of $7.2 million. During the first nine months ended September 30, 2024, we repurchased 343,604 shares of common stock at an average purchase price of $21.70 per share for an aggregate purchase price of $7.5 million. As of September 30, 2025, we had 684,486 shares available for repurchase.

During the first nine months of 2025, we received $3.2 million from the exercise of stock-based awards, as compared to $2.9 million received for the comparable period of 2024.

We believe that our cash and cash equivalents, short-term bank deposits and marketable securities, along with cash from operations, will provide sufficient capital to fund our operations for at least the next 12 months. We cannot provide assurances, however, that the underlying assumed levels of revenues and expenses will prove to be accurate.

In addition, as part of our business strategy, we occasionally evaluate potential acquisitions of businesses, products and technologies and minority equity investments. Accordingly, a portion of our available cash may be used at any time for the acquisition of complementary products or businesses or minority equity investments. Such potential transactions may require substantial capital resources, which may require us to seek additional debt or equity financing. We cannot assure you that we will be able to successfully identify suitable acquisition or investment candidates, complete acquisitions or investments, integrate acquired businesses into our current operations, or expand into new markets. Furthermore, we cannot provide assurances that additional financing will be available to us in any required time frame and on commercially reasonable terms, if at all.

Contractual Obligations and Commitments

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