DSP Group, Inc. Reports Second Quarter 2016 Results

Aug 1, 2016

Record Quarterly Contribution from New Products of $15.9 million or 44% of Revenues

Second Quarter GAAP EPS of $0.05 and Non-GAAP EPS of $0.11, Exceeding Guidance

LOS ALTOS, Calif., Aug. 01, 2016 (GLOBE NEWSWIRE) -- DSP Group^®, Inc. (NASDAQ:DSPG), a leading global provider of wireless chipset solutions for converged communications, announced today its results for the second quarter ended June 30, 2016.

Second Quarter Financial Highlights:

GAAP and non-GAAP diluted earnings per share of $0.05 and $0.11, respectively
Revenues of approximately $36.2 million, above the mid-point of guidance
Non-GAAP gross margin of 44.2%, compared to non-GAAP gross margin of 41.1% in the second quarter of 2015
Non-GAAP operating income of $2.5 million, compared to non-GAAP operating income of $2.4 million in the second quarter of 2015
Non-GAAP net income of $2.6 million, compared to non-GAAP net income of $2.4 million in the second quarter of 2015
Generated $9.0 million of cash flow from operations, compared to $7.9 million in the second quarter of 2015
Repurchased 132,000 shares for a total consideration of $1.3 million
Cash, deposits and marketable securities of $122.7 million as of June 30, 2016

Management Comments:
Commenting on the results, Ofer Elyakim, CEO of DSP Group, stated, “Our second quarter performance reflects record results from new products of $15.9 million, or 44% of total revenues, propelled by market demand for our Mobile and Office/VoIP products. Also, we delivered better than expected non-GAAP gross margins of 44.2%, an expansion of 310 basis points year-over-year and 160 basis points sequentially, driven by record contributions from our new products that continue to capture a greater share of revenue.”

Mr. Elyakim added, “In the third quarter of 2016, we expect sequential revenue growth, led by the continued success of our new product initiatives and sequential improvement in the cordless segment. Our growth and long-term value propositions are now driven by our proven new product initiatives. We are achieving market leadership in Office/VoIP, and HDClear is rapidly gaining recognition as a key technology for voice activation and voice user interface across a range of IoT, audio and mobile devices.”

Second Quarter Product and Market Highlights:

Record new product revenues of $15.9 million, a year-over-year increase of 55%
Office/VoIP segment revenues of $7.4 million, a year-over-year increase of 42%
Mobile/HDClear segment revenues of $4.6 million, 13% of total revenues
IoT revenues of $1.3 million, a year-over-year increase of 42%
Home gateway revenues of $2.6 million, in line with guidance
Secured HDClear design win with a leading OEM for a non-smartphone application
Orange selected our DECT/CAT-iq products for its recently-launched home gateway
Ball-b selected our ULE SoC for its smart city rodent control metropolitan system
Smarte selected our ULE SoCs to power its new smart home product line

Second Quarter GAAP Results:
Revenues for the second quarter of 2016 were $36.2 million, a decrease of 3% from revenues of $37.2 million for the second quarter of 2015. Net income for the second quarter of 2016 was $1.1 million, as compared to net income of $0.7 million for the second quarter of 2015. Basic and diluted earnings per share for the second quarter of 2016 were $0.05, as compared to basic and diluted earnings per share of $0.03, for the second quarter of 2015.

Second Quarter Non-GAAP Results:
Non-GAAP net income and diluted earnings per share for the second quarter of 2016 were $2.6 million and $0.11, respectively, as compared to non-GAAP net income and diluted earnings per share of $2.4 million and $0.10, respectively, for the second quarter of 2015. Non-GAAP net income and earnings per share for the second quarter of 2016 exclude the impact of amortization of acquired intangible assets in the amount of $321,000 associated with the acquisition of BoneTone Communications; equity-based compensation expenses of $1.3 million; and amortization of deferred tax liability related to intangible assets acquired in the BoneTone acquisition in the amount of $80,000. Non-GAAP net income and earnings per share for the second quarter of 2015 exclude the impact of amortization of acquired intangible assets of $321,000 associated with the BoneTone acquisition; equity-based compensation expenses of $1.4 million; and amortization of deferred tax liability related to intangible assets acquired in connection with the BoneTone acquisition in the amount of $85,000.

Earnings Conference Call Details:
DSP Group will discuss its second quarter financial results, along with its outlook and guidance for the third quarter of 2016, on its conference call at 8:30 a.m. ET today, and invites you to listen via our conference call or a live broadcast over the Internet.

Investors may access the conference call by dialing + 1877 280 2342 (domestic US) or +1646 254 3388 (international) approximately 10 minutes prior to the starting time. The password is DSP Group. The broadcast via the Internet can be accessed by all interested parties through the Investor Relations section of DSP Group’s website at www.dspg.com or link to: http://edge.media-server.com/m/p/ktfne8sd

A replay of the conference call will be available for a week following the call. To listen to the session, please dial +1 347 366 9565 (domestic US) or +44(0)20 3427 0598 (international) and enter the company access code: 479321#

Presentation on Non-GAAP Net Income Calculation
The Company believes that the non-GAAP presentation of net income and diluted earnings per share presented in this press release is useful to investors in comparing results for the quarter ended June 30, 2016 to the same period in 2015 because the exclusion of the above noted expenses may provide a more meaningful analysis of the Company’s core operating results. Further, the Company believes it is useful to investors to understand how the expenses associated with equity-based compensation are reflected in its statements of income.

Forward Looking Statements
This press release contains statements that qualify as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995, including Mr. Elyakim’s statements regarding sequential revenue growth in the third quarter of 2016 led by new product initiatives, sequential improvement in the cordless segment in the third quarter of 2016, as well as achieving market leadership in office VoIP and HDClear gaining recognition. The results from these statements may not actually arise as a result of various factors, including the market penetration of new products such as HDClear and in the Office segment; unexpected delays in the commercial launch of new products; seasonality and inventory adjustments in the cordless segment; DSP Group's ability to manage costs; DSP Group’s ability to develop and produce new products at competitive costs and in a timely manner and the ability of such products to achieve broad market acceptance; and general market demand for products that incorporate DSP Group’s technology in the market. These factors and other factors which may affect future operating results or DSP Group’s stock price are discussed under “RISK FACTORS” in the Form 10-K for fiscal 2015, as well as other reports DSP Group has filed with the Securities and Exchange Commission and which are available on DSP Group’s website (www.dspg.com) under Investor Relations. DSP Group assumes no obligation to update any forward-looking statements or information, which speak as of their respective dates.

About DSP Group
DSP Group®, Inc. (NASDAQ:DSPG) is a leading global provider of wireless chipset solutions for converged communications. Delivering semiconductor system solutions with software and hardware reference designs, DSP Group enables OEMs/ODMs, consumer electronics (CE) manufacturers and service providers to cost-effectively develop new revenue-generating products with fast time to market. At the forefront of semiconductor innovation and operational excellence for over two decades, DSP Group provides a broad portfolio of wireless chipsets integrating DECT/CAT-iq, ULE, Wi-Fi, PSTN, HDClear™, video and VoIP technologies. DSP Group enables converged voice, audio, video and data connectivity across diverse mobile, consumer and enterprise products – from mobile devices, connected multimedia screens, and home automation & security to cordless phones, VoIP systems, and home gateways. Leveraging industry-leading experience and expertise, DSP Group partners with CE manufacturers and service providers to shape the future of converged communications at home, office and on the go. For more information, visit www.dspg.com.


DSP GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
		2016		2015			2016			2015
		(Unaudited)		(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	36,164	$	37,247		$	63,823		$	75,282
Cost of revenues		20,279		22,012			36,221			44,512

Gross profit		15,885		15,235			27,602			30,770
Operating expenses:
Research and development, net		9,036		8,855			17,925			17,971
Sales and marketing		3,323		2,974			6,715			6,037
General and administrative		2,275		2,460			4,558			4,981
Amortization of intangible assets		321		321			642			642

Total operating expenses		14,955		14,610			29,840			29,631

Operating income (loss)		930		625			(2,238	)		1,139

Financial income, net		273		291			565			626

Income (loss) before taxes on income		1,203		916			(1,673	)		1,765
Taxes on income		123		186			160			262

Net income (loss)	$	1,080	$	730		$	(1,833	)	$	1,503
Net earnings (loss) per share:
Basic	$	0.05	$	0.03		$	(0.08	)	$	0.07
Diluted	$	0.05	$	0.03		$	(0.08	)	$	0.06

Weighted average number of shares used in per share computations of net earnings (loss) per share:
Basic		21,739		22,064			21,725			22,115
Diluted		22,845		23,717			21,725			23,801

Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
		2016			2015				2016			2015
		Unaudited			Unaudited				Unaudited			Unaudited
GAAP net income	$	1,080		$	730			$	(1,833	)	$	1,503
Equity-based compensation expense included in cost of revenues		83			83				144			153
Equity-based compensation expense included in research and development, net		521			613				947			1,151
Equity-based compensation expense included in sales and marketing		194			178				325			330
Equity-based compensation expense included in general and administrative		461			537				828			1,030
Amortization of intangible assets		321			321				642			642
Amortization of deferred tax liability related to intangible assets		(80	)		(85	)			(160	)		(170	)
Non-GAAP net income	$	2,580		$	2,377			$	893		$	4,639

Weighted-average number of common stock used in computation of GAAP diluted net earnings per share (in thousands)		22,845			23,717				21,725			23,801

Weighted-average number of shares related to outstanding options, stock appreciation rights and restricted share units (in thousands)		509			406				1,444			379

Weighted-average number of common stock used in computation of non-GAAP diluted net earnings per share (in thousands)		23,354			24,123				23,169			24,180

GAAP diluted net earnings (loss) per share	$	0.05		$	0.03			$	( 0.08	)	$	0.06
Equity-based compensation expense		0.06			0.07				0.10			0.11
Amortization of intangible assets		0.01			0.01				0.03			0.03
Amortization of deferred tax liability related to intangible assets		(0.01	)		(0.01	)			(0.01	)		(0.01	)
Non-GAAP diluted net earnings per share	$	0.11		$	0.10			$	0.04		$	0.19

DSP GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)

		June 30,			December 31,
		2016			2015
		(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	17,808		$	13,704
Restricted deposits		168			168
Marketable securities and short term deposits		22,784			18,070
Trade receivables, net		17,136			19,211
Inventories		12,850			11,453
Other accounts receivable and prepaid expenses		2,364			3,319
Total current assets		73,110			65,925
Property and equipment, net		3,956			3,764
Long term marketable securities and deposits		81,962			89,714
Severance pay fund		11,795			11,578
Deferred income taxes		1,001			1,311
Intangible assets, net		8,485			9,127
Investment in other companies		1,800			1,800
Long term prepaid expenses and lease deposits		1,240			743
		106,283			114,273
Total assets	$	183,349		$	183,962
Liabilities and Stockholders’ Equity
Current liabilities:
Trade payables	$	12,910		$	13,103
Other current liabilities		15,058			14,470
Total current liabilities		27,968			27,573

Accrued severance pay		11,948			11,703
Accrued pensions		727			892
Deferred income taxes		316			476
Total long term liabilities		12,991			13,071
Stockholders’ equity:
Common stock		22			22
Additional paid-in capital		363,267			361,023
Accumulated other comprehensive loss		(474	)		(1,267	)
Less – Cost of treasury stock		(123,749	)		(125,697	)
Accumulated deficit		(96,676	)		(90,763	)
Total stockholders’ equity		142,390			143,318
Total liabilities and stockholders’ equity	$	183,349		$	183,962

Contact:
DSP Group Inc.Daniel Amir
Corporate Vice President, Business Development,
Strategy and Investor Relations
Work: 1-415-726-5900
Daniel.amir@dspg.com

The Piacente Group | Investor Relations
Don Markley, 1-212-481-2050
dspg@thepiacentegroup.com

DSP Group, Inc.