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DSP Group, Inc. Reports Fourth Quarter 2008 Earnings

SAN JOSE, Calif., February 2, 2009—DSP Group, Inc. (NASDAQ: DSPG), a worldwide leader in developing and providing chip-set solutions for residential wireless connectivity, announced today its results for the fourth quarter ended December 31, 2008.

Fourth Quarter Results:
Revenues for the fourth quarter of 2008 were $71,551,000, a decline of 16% from revenues of $85,198,000 for the fourth quarter of 2007. Net loss for the fourth quarter was $194,405,000, as compared to a net loss of $1,586,000 for the fourth quarter of 2007. Earnings per share (EPS) for the fourth quarter of 2008 were a loss of $7.23 per share vs. a loss of $0.05 per share for the fourth quarter of 2007.

Year End Results:
Revenues for the year ended December 31, 2008 were $305,800,000, an increase of 23% over 2007 revenues of $248,788,000. Net loss for 2008 was $212,394,000, compared to a net loss of $4,753,000 for 2007. Diluted EPS for 2008 was a loss of $7.48 per share, compared to a loss of $0.16 per share in 2007.

Non-GAAP Results:
Non-GAAP net income and diluted EPS for the fourth quarter of 2008 were $3,987,000 and $0.15 per share, respectively, representing a decrease of 56% from the non-GAAP net income of $9,111,000 and a decrease of 48% from the non-GAAP diluted EPS of $0.29 per share for the fourth quarter of 2007. Non-GAAP net income and diluted EPS for the fourth quarter of 2008 excluded the impact of amortization of acquired intangible assets of $5,654,000, associated with the acquisition of the Cordless and VoIP Terminals business of NXP B.V.; equity-based compensation expenses of $3,188,000; impairment of goodwill and other intangible assets of $181,534,000; unrealized loss related to certain available-for-sale marketable securities of $2,290,000 and the net tax effect of all items cited above along with valuation allowance of deferred tax assets of $5,726,000. Non-GAAP net income and diluted EPS for the fourth quarter of 2007 excluded the impact of the amortization of acquired intangibles and other acquisition-related assets of $8,244,000, associated with the acquisition; equity-based compensation expenses of $3,281,000 and the aggregate tax benefits associated with such expenses.
Non-GAAP net income and diluted EPS for the year ended December 31, 2008 were $13,816,000 and $0.49 per share, respectively, representing a decrease of 53% from the non-GAAP net income of $29,230,000 and a decrease of 51% from the non-GAAP diluted EPS of $0.99 per share for the year ended December 31, 2007. Non-GAAP net income and diluted EPS for the year ended December 31, 2008 excluded the impact of amortization of acquired intangible assets of $22,853,000, associated with the acquisition; equity-based compensation expenses of $13,938,000; impairment of goodwill and other intangible assets of $181,534,000; unrealized loss related to certain available-for- sale marketable securities of $2,961,000; restructuring expenses of $1,870,000 associated with our cost cutting measures at various operating sites and the net tax effect of all items cited above along with valuation allowance of deferred tax assets of $3,054,000. Non-GAAP net income and diluted EPS for the year ended December 31, 2007 excluded the impact of an in-process R&D expense of $10,120,000 and amortization of acquired intangible assets of $11,948,000, both associated with the acquisition, as well as equity-based compensation expenses of $ 14,022,000, a loss related to certain marketable securities of $997,000 and the aggregate tax benefits associated with such expenses.

Impairment of Goodwill and Other Intangible Assets
Consistent with accounting rules, the Company performed an impairment analysis. This impairment analysis, which is based on a forecasted discounted cash flows model, indicated a $181,534,000 non-cash impairment of goodwill and other intangible assets. Factors within the analysis that led to this outcome include an extended decline in the market capitalization of the Company’s shares at December 31, 2008 combined with a decline in the Company’s forecasted business outlook, which management attributes to the impact of a weakening macroeconomic environment for consumer electronics market.

Share Buyback
During the fourth quarter of 2008, the Company repurchased 847,596 shares of its Common Stock at an average price of $6.23 per share, for an aggregate price of approximately $5.3 million.
For the full year ended December 31, 2008, the Company repurchased 4,798,224 shares of its Common Stock at an average price of $10.21 per share, for an aggregate price of approximately $49.0 million

Share Repurchase
On January 27, 2009, the Company and NXP entered into a Stock Repurchase Agreement pursuant to which the Company agreed to repurchase all of the Company’s shares held by NXP, approximately 4.2 million shares or roughly 16% of the outstanding shares of the Company, that were issued to NXP in connection with the acquisition of the of the Cordless and VoIP Terminals business. The per share purchase price for the shares to be repurchased will be the average closing price per share of the Company’s Common Stock on the NASDAQ Global Market during the 20 business days commencing on February 5, 2009, less fifteen percent of such average. The share repurchase will occur on the fifth business day following the pricing period.
Eli Ayalon, Chairman and CEO of DSP Group, stated: “Despite the world economic downturn and challenging market conditions, we generated positive operating cash flow of $8.2 million in the fourth quarter. The ongoing concerns related to the underlying global economy place limitations on our visibility for 2009. In light of the uncertain market conditions in 2009 and our objective to generate positive operating cash flows in the second half of 2009, we will continue to closely monitor trends in our markets and, where appropriate, take additional measures and implement further synergies to meet our goals. Nevertheless, we are excited that following the recent Consumer Electronics Show in Las Vegas we successfully secured several design wins for XpandR, our new line of multimedia products.”
Mr. Ayalon further added: “We are pleased to have the opportunity to repurchase NXP’s equity stake in the company; we consider this to be a very positive act for the company and its shareholders.”
The Company believes that the non-GAAP presentation of net income and diluted EPS presented in this press release is useful to investors in comparing results for the quarter and year ended December 31, 2008 to the same periods during 2007, because the exclusion of the above noted expenses may provide a more meaningful analysis of the Company’s core operating results. Also, the results for the quarter and year ended December 31, 2007 did not include the impairment of goodwill and other intangible assets, the unrealized loss related to certain available-for- sale marketable securities and the valuation allowance of deferred tax assets. Further, the Company believes it is useful to investors to understand how the expenses associated with equity-based compensations expenses are reflected on its statements of income.

About DSP Group
DSP Group, Inc. (NASDAQ: DSPG) is a leading global provider of wireless chipset solutions for converged communications at home. Delivering system solutions that combine semiconductors and software with reference designs, DSP Group enables world-leading consumer electronics (CE) manufacturers to cost-effectively develop innovative revenue-generating applications with fast time to market. At the forefront of wireless semiconductor development and operational excellence for over two decades, DSP Group provides a broad portfolio of chipsets integrating DECT, Wi-Fi, PSTN and VoIP/CoIP technologies with state-of-the-art application processors. Enabling converged voice, audio, video and data connectivity across diverse consumer products – from cordless and VoIP phones to home gateways and infotainment centres – DSP Group proactively partners with CE manufacturers to shape the future of residential converged communications. For more information, visit www.dspg.com .

Forward Looking Statements
This press release may contain statements that qualify as “forward-looking statements” under the Private Securities Litigation Reform Act of 1995, including Mr. Ayalon’s statements about the company’s objective to generate positive operating cash flows in the second half of 2009 and where appropriate, implement further synergies to meet the company’s goals. These forward-looking statements are based on current expectations and DSP Group assumes no obligation to update this information. In addition, the events described in these forward-looking statements may not actually arise. DSP Group’s actual results could differ materially from those described in this press release as a result of various factors, including gross margin fluctuations; the impact of reductions in lead times and inventory levels by our customers and their customers; our ability to obtain better pricing from our suppliers and improve yields; the timing and success of implementation of restructuring efforts to reduce 2009 operating expenses; slower than expected change in the nature of residential communications domain; unexpected delays in the introduction of new products or failure of such products to achieve broad market acceptance; DSP Group’s inability develop and produce new products at competitive costs; 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 2007 as well as other reports DSP Group has filed with the Securities and Exchange Commission and which are available on DSP Group’s Web site (www.dspg.com) under Investor Relations.

Earnings conference call
DSP Group has scheduled a conference call for 8:30 a.m. EDT today to discuss the financial results for the fourth quarter of 2008 and invites you to listen to a live broadcast over the Internet. The broadcast can be accessed by all interested parties through the Investor Relations section (investor message board) of DSP Group’s Web site at www.dspg.com or link to: http://ir.dspg.com./phoenix.zhtml?c=101665&p=irol-calendar.

If you cannot join the call, please listen to the replay, which will be available for approximately two weeks after the call on DSP Group’s Web site or by calling the following numbers:

--US Dial-In # 1-888-286-8010 (Passcode: 52517576)
--International Dial-In # 1-617-801-6888 (Passcode: 52517576)

For more information, please contact:
Ofer Elyakim, + 852 9017-5426, or e-mail: ofere@dsp.co.il.


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

 

 

  Three Months Ended

     Twelve Months Ended

 

 

           December 31,

          December 31,

 

   

2008

2007

2008

2007

 

 

(Unaudited)

(Unaudited)

(Unaudited)

(Audited)

 

 

 

 

 

 

Product revenues and other

 

$ 71,551

$ 85,198

$ 305,800

$ 248,788

Cost of product revenues and other

 

  43,350

  49,641

   191,811

   148,075

 

 

 ¾¾¾

 ¾¾¾

 ¾¾¾

 ¾¾¾

Gross profit

   

  28,201

  35,557

   113,989

   100,713

Operating expenses:

 

 

 

 

 

Research and development

 

17,032

19,394

73,856

58,488

Sales and marketing

 

5,587

6,073

  22,712

  19,060

General and administrative

 

4,535

4,418

17,871

14,614

In-process R&D

 

-

-

-

10,120

Amortization of intangible assets

 

5,654

8,275

22,853

11,332

Impairment of goodwill and other intangible assets

 

181,534

-

181,534

-

Restructuring costs

 

-

-

1,870

-

 

 

  ¾¾¾

  ¾¾¾

  ¾¾¾

  ¾¾¾

Total operating expenses

 

214,342

38,160

320,696

113,614

 

 

  ¾¾¾

  ¾¾¾

  ¾¾¾

  ¾¾¾

Operating loss

 

(186,141)

   (2,603)

    (206,707)

    (12,901)

Other income :

 

 

 

 

 

  Interest and other income (loss), net

 

 (1,787)

 1,394

160

  10,541

 

 

¾¾¾

¾¾¾ 

¾¾¾

¾¾¾

Loss before provision for           
  income taxes

 

     (187,928)

    
   (1,209)

    
     (206,547)

    
     (2,360)

Provision for income taxes

 

     6,477

     377

    5,847

    2,393

 

 

 ¾¾¾

 ¾¾¾

 ¾¾¾

 ¾¾¾

Net loss

 

$ (194,405)

  $ (1,586)

    $ (212,394)

    $ (4,753)

 

Net loss per share:

 

 

 

 

 

    Basic

 

    $ (7.23)

  $ (0.05)

    $ (7.48)

    $ (0.16)

    Diluted

 

    $ (7.23)

  $ (0.05)

    $ (7.48)

    $ (0.16)

 

 

 

 

 

 

Weighted average number of shares of Common stock used in the computation of:

 

 

 

 

 

    Basic

 

  26,892

  31,832

28,387

29,495

    Diluted

 

   26,892

   31,832

28,387

   29,495


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

 

 

  Three Months Ended

      Twelve Months Ended

 

 

           December 31,

          December 31,

 

   

2008

2007

2008

2007

 

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

 

 

 

 

 

 

Product revenues and other

 

$ 71,551

$ 85,198

$ 305,800

$ 248,788

Cost of product revenues and other

 

  43,143

  49,484

   190,892

   146,796

 

 

 ¾¾¾

 ¾¾¾

 ¾¾¾

 ¾¾¾

Gross profit

   

   28,408

   35,714

  114,908

  101,992

Operating expenses:

 

 

 

 

 

Research and development

 

 15,409

 17,718

66,608

51,345

Sales and marketing

 

5,183

5,673

  21,017

  17,444

General and administrative

 

3,581

3,401

13,795

10,014

 

 

  ¾¾¾

  ¾¾¾

  ¾¾¾

  ¾¾¾

Total operating expenses

 

24,173

26,792

101,420

78,803

 

 

  ¾¾¾

  ¾¾¾

  ¾¾¾

  ¾¾¾

Operating income

 

   4,235

   8,922

    13,488

    23,189

Other income :

 

 

 

 

 

  Interest and other income, net

 

 503

 1,394

  3,121

  11,538

 

 

¾¾¾

¾¾¾ 

¾¾¾

¾¾¾

Income before provision for           
  income taxes

 

    
     4,738

    
    10,316

  
    16,609

    
    34,727

Provision for income taxes

 

     751

     1,205

    2,793

    5,497

 

 

 ¾¾¾

 ¾¾¾

 ¾¾¾

 ¾¾¾

Net income

 

    $ 3,987

    $ 9,111

    $ 13,816

    $ 29,230

 

Net earnings per share:

 

 

 

 

 

    Basic

 

    $ 0.15

    $ 0.29

    $ 0.49

    $ 0.99

    Diluted

 

    $ 0.15

    $ 0.29

    $ 0.49

    $ 0.99

 

 

 

 

 

 

Weighted average number of shares of Common stock used in the computation of:

 

 

 

 

 

    Basic

 

  26,892

  31,832

28,387

29,495

    Diluted

 

   26,897

   31,876

  28,442

  29,646


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

 

 

Three Months Ended

Twelve Months Ended

 

 

December 31,

December 31,

 

 

2008

2007

2008

2007

 

 

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

GAAP net loss

 

$ (194,405)

$ (1,586)

$ (212,394)

$ (4,753)

Equity-based compensation expense
included in cost of product revenues

 

207

188

919

663

Amortization of adjustment of inventories to market values included in cost of product
revenues

 

-

(31)

-

616

Equity-based compensation expense
included in R&D

 

1,623

1,676

7,248

7,143

Equity-based compensation expense
included in SG&A

 

1,358

1,417

5,771

6,216

Loss related to certain available-for-sale marketable securities

 

2,290

-

2,961

997

In-process R&D

 

-

-

-

10,120

Amortization of intangible assets related to NXP transaction

 

5,654

8,275

22,853

11,332

Impairment of goodwill and other intangible assets

 

181,534

-

181,534

-

Restructuring costs

 

-

-

1,870

-

 

Tax (benefit) expenses ,net ,resulting from equity-based
compensation, loss related to
certain marketable securities, in-
process R&D , amortization and impairment of goodwill and other intangibles assets, restructuring costs and valuation allowance of deferred taxes.

 

 

5,726

 

(828)

 

3,054

 

(3,104)

Non-GAAP net income

 

$ 3,987

$ 9,111

$ 13,816

$ 29,230

 

Non-GAAP basic earnings per share

 

$ 0.15

$ 0.29

$ 0.49

$ 0.99

Non-GAAP diluted earnings per share

 

$ 0.15

$ 0.29

$ 0.49

$ 0.99


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

 

 

  December 31,

December 31,

 

           

     2008

       2007 

 

 

(Unaudited)

(Audited)

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents
Restricted deposits                          

 

$ 71,404
115

$ 69,586

Marketable securities and cash deposits

 

9,931

63,682

Trade receivables, net

 

39,603

51,636

Inventories

 

14,098

16,361

Other accounts receivable

 

17,367

7,582

Deferred income taxes

 

306

    4,011

Total current assets

 

152,824

212,858

Property and equipment, net

 

14,822

14,270

 

 

 

 

Long term marketable securities

 

40,051

34,469

Severance pay fund

 

7,286

6,883

Deferred income taxes

 

212

5,109

Goodwill and other intangible assets

 

32,728

237,969

Other assets

 

1,331

694

 

 

_________

_________

Total assets

 

$ 249,254

$ 512,252

Liabilities and Stockholders’ Equity

 

Current liabilities:

 

 

 

Accounts payable

 

$ 20,136

$ 30,428

Other current liabilities

 

40,329
_______

47,906
_______

Total current liabilities

 

60,465

78,334

 

 

 

 

 Accrued severance pay

 

8,008

7,303

 Accrued pensions

 

1,675

1,758

Deferred tax liability                 

 

24

-

Other long term liabilities

Total long term liabilities                 

 

455
 ________
10,162

-
 ________
9,061

Stockholders’ equity:

 

 

 

 Common stock

 

27

31

 Additional paid-in capital

 

314,484

300,542

 Accumulated other comprehensive income

 

51

1,025

 Retained earnings (loss)

 

(28,186)

187,063

Less – Cost of treasury stock

 

(107,749)

        (63,804)

Total stockholders’ equity

 

178,627

424,857

 

 

__________

__________

Total liabilities and stockholders’ equity

 

$ 249,254

$ 512,252