The other use cases of 5G and connectivity have gone into other segments in other markets. And there, we have seen licensing activity over the last two to three years, and royalties should also come from that, not the handset market per se, but private RAN and now lots of other solutions that could use 5G. Hopefully, that helps to answer the question. Right now, the last three or four years, if we looked at the slides we presented also in the Analyst Day, you could see that the overall revenue of CEVA in the last five years doubled from just shy of $50 million to more than double $100 million coming from edge — smart edge devices versus the mobile devices. So, mobile is still there, but the big growth comes from the newer markets that we’ve added on.
Amir Panush: Yes. And just more specifically on that Martin specifically on cellular IoT that is extension of the 5G and mobile, that’s where we have seen already this year a very significant growth, both in consumer, industrial, consumer, more in smart watches and those type of things where 5G or other types of technology, so that technology is getting more and more embedded. And in the industrial space also for all the different type of logistics tracking, smart tracking and other so-called industry 4.0 use cases. And beyond, as we move towards this year and the next year also for decent type of satellite type of use cases where 5G, 5G advance will also propagate. We believe it can create for us a nice growth trajectory moving forward.
Martin Yang: Got it. Great color. Thank you. That’s all for me.
Amir Panush: Welcome Martin.
Operator: The next question comes from Chris Reimer with Barclays. Please go ahead.
Chris Reimer: Hi, thanks for taking my question and congratulations on the strong results. I wanted to ask about your long-term guidance around operating margin. I think at the conference recently, you gave a target of 20% operating margin. I’m just wondering, I realize it’s a long-term target, but I’m just wondering what — how you — what’s the constellation — what’s the makeup of actually getting there? Does that consist of increasing — expanding gross margins? Or is that specifically no expansion whatsoever? I’m just wondering what the moving parts around that are to you get to that number?
Yaniv Arieli: Deep magic. That’s the way. One step at a time, with a much more focused, and this is what Amir undertook last year, and we have shared with you over the — in the prepared remarks. If you look at the overall non-GAAP operating margin of the year, we ended up with about 4%. It was stronger in the second half, 7%, 8% in Q3 and Q4. And when we look into 2024, based on the guidance that we gave, we are planning to probably double it, maybe slightly do even better than doubling it for 2024. So, that’s one milestone if you reach the revenue level that we talked about, if we execute our R&D plans and focus on the expense — with the right expense levels that we have talked about. That’s what that milestone will get you to.
And if that continues over a few years, that’s how we could and with more royalties, which bear very high gross margins and fall to the pre-tax line, that could get us to the next milestone or a few months or it’s not going to happen overnight to taking that next stage to 20% non-GAAP operating margin. So, hopefully, that gives you a little bit more color on the timeline.
Amir Panush: Maybe just to add on that, just from the top level strategically of that. So, first, this year, we — or sorry, last year 2023, we came back to a pure IP business model after the divestment of Intrinsix. And with that, we guided will be 90% or above gross margin. And — so that’s on the gross margin. On the operating margin, it’s really twofold. One is continuous improvement and growth in our topline, where the guidance we just gave for this year and from that on the long-term model that we gave in the Analyst Day. And then on the OpEx side, it’s really maintaining strong focus on where we see and where we believe we will see a long-term growth potential. One example of that is also the acquisition that we did last year of VisiSonics for 3D special audio software capabilities and very quickly, we’ll be able to convert it into licensing agreements and royalty bearing with the customer, which overall has been very synergistic on the OpEx side and with that, bringing a very good profitability moving forward to our business.
So, both organically and inorganically, we are heavily focusing on the bottom line of how we can drive that synergy as well as the operational margin leverage as we move forward.
Chris Reimer: Got it. Thanks. That’s great color. That’s it for me.
Yaniv Arieli: Thank you.
Operator: The next question comes from Gus Richard with Northland. Please go ahead.
Gus Richard: Yes, good morning or afternoon. Thank you for taking the question. I just want to make sure I understand the revenue guidance for the full year. Does the comp include Intrinsix revenue? Or is it just continuing ops in terms of the growth expectations?
Yaniv Arieli: No, no, continuing — it’s just the CEVA IP part of it. Intrinsix, we took that out last quarter, discontinued operation. It’s not in your topline, it’s starting your expense. It’s just in the GAAP one line before the — of discontinued operation. So, it’s not included in the numbers, the numbers, the revenue — overall net revenue numbers for last year were $97.4 million, and that is the basis for the growth in the percentages that we gave.
Gus Richard: That was the number I needed. Thank you so much.
Yaniv Arieli: No problem. Sure.
Operator: The next question comes from David O’Connor with BNP Paribas. Please go ahead.
David O’Connor: Great. Good morning — afternoon, gentlemen and thanks for taking my questions. Just one or two from my side. Maybe, Amir, firstly, one for you. Given the excitement that we’re hearing around the AI PC and the AI smartphone. Just wondering with your strong positioning at the edge and around IoT devices. Do you think there is a wave of edge AI licensing that’s in front that has yet to happen, and you just haven’t kind of seen that yet? That’s my first question. And then maybe for Yaniv, just on the model again for that 6% sales growth for 2024. Can you rank for us kind of licensing versus royalties switches higher or lower than that 6% just to get an idea of the trend there? And also, do you expect to grow revenues on a quarterly basis through 2024? Thanks guys.
Amir Panush: Sure David. I’ll take the first one. Good morning. Sorry, can you repeat the question, David, sorry for that.
David O’Connor: Yes, sure. So, just with the excitement around the AI PC and AI smartphone — and your positioning at the edge, I’m just thinking, is there a wave of licensing at the edge yet to happen? Because you talked in your opening comments that kind of licensing is a bit lumpy. So, just trying to put that in context was all the — what we’re hearing around AI?
Amir Panush: Yes. So, — yes, definitely, David. So, first, this is a focus area for us in 2024, basically delivering our NPU and overall AI portfolio into the smart edge market segments, including automotive, industrial, the consumer IoT later on into the infrastructure. We have already several customers that are evaluating our technology in a very deeper evaluation, and we expect to be able to close some of those deals during 2024. So, that’s definitely part of our target and also part of our expectation in terms of the revenue growth in 2024.
Yaniv Arieli: And with regards to the model, we don’t break out. We never did, again, because we don’t have that crystal ball in royalties and volumes between licensing and royalties on an annual basis. We believe both could grow year-over-year. So, again, if you look at the numbers, excluding Intrinsix, that we were just asked about, $57.6 million in the licensing and related revenue basis from 2023. We believe it could — it should go higher and be higher in 2024. And the $39.9 million of royalties, which suffered year-over-year, mainly because of the base station market that we talked about earlier should also be the basis for the growth. Not sure where it’s going to end up, both we have them growing. Our model showed incremental growth on an overall quarter-by-quarter as the year progresses with Q1 being the lowest because of the seasonality of the modem and consumer devices in royalties.
Here, we have a little bit more insight because we have seen that trend in recent years. And I hope I answered the question. That’s the high level how we see the model for next year next year — this year.
David O’Connor: Yes, that’s very clear. Thanks guys.
Amir Panush: Thanks David.
Yaniv Arieli: Thank you.
Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Richard Kingston for any closing remarks.
Richard Kingston: Thank you, Betsy, and thank you, everyone 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. And with regards to upcoming events, we will be participating in the following conferences. Mobile World Congress from February 26th to 29th in Barcelona, Spain. The Loop Capital Markets 5th Annual Investor Conference, March 12 in New York. The 36th Annual ROTH Conference, March 18 and 19 in Dana Point, California. And the Mizuho Americas Israel Growth Conference, March 25th in New York. For further information on these events and all events we will be participating in can be found on the Investors section of our website. Thank you all, and good bye.
Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
