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DSP Group, Inc. Reports Third Quarter 2010 Earnings

SAN JOSE, Calif., Oct 25, 2010 (GlobeNewswire via COMTEX) --

DSP Group, Inc. (Nasdaq:DSPG), a leading global provider of wireless chipset solutions for converged communications at home, announced today its results for the third quarter ended September 30, 2010.

Third Quarter Results:

Revenues for the third quarter of 2010 were $65,154,000, a decrease of 1% from revenues of $65,532,000 for the third quarter of 2009. Net income for the third quarter of 2010 was $1,917,000, as compared to net income of $6,803,000 for the third quarter of 2009. Diluted earnings per share (EPS) for the third quarter of 2010 was $0.08 per share, as compared to a diluted EPS of $0.29 per share for the third quarter of 2009

Non-GAAP Results:

Non-GAAP net income and diluted EPS for the third quarter of 2010 were $6,501,000 and $0.27 per share, respectively, as compared to non-GAAP net income of $4,336,000 and diluted EPS of $0.18 per share for the third quarter of 2009. Non-GAAP net income and diluted EPS for the third quarter of 2010 excluded the impact of amortization of acquired intangible assets of $2,494,000 associated with the acquisition of NXP's CIPT business; equity-based compensation expenses of $2,267,000; restructuring expenses of $394,000 associated with the reorganization of our operations; and a tax benefit of $571,000 resulting from the reversal of an income tax contingency reserve that was determined to be no longer needed due to the expiration of applicable statute of limitations. Non-GAAP net income and diluted EPS for the third quarter of 2009 excluded the impact of amortization of acquired intangible assets of $3,072,000 associated with the acquisition of NXP's CIPT business; equity-based compensation expenses of $2,637,000; gains from realization of previously impaired available-for-sale securities of $531,000; and a tax benefit of $7,645,000 resulting from the reversal of an income tax contingency reserve that was determined to be no longer needed due to the expiration of applicable statute of limitations.

Ofer Elyakim, CEO of DSP Group, stated: "The third quarter was another strong quarter for DSP Group. We ended the quarter with non-GAAP operating profit of $5.7 million, or 9% of revenues, representing an increase of 50% from non-GAAP operating profit of $3.8 million, or 6% of revenues, in the third quarter of 2009, and our cash balance increased by $11 million to $132 million. In addition, we began shipments of our XpandR ICs for the anticipated Android cordless phone and other telephony products, such as Wi-Fi phones."

Mr. Elyakim also added: "Following a capacity shortage during the first nine months of this year, many customers were prompted to procure materials earlier in order to secure capacity. Now with capacity stabilizing, we are seeing a depletion of this safety stock inventory, which according to our checks, should be mostly exhausted during the fourth quarter. As a result of that inventory buildup, our customers' projections for the fourth quarter have decreased. The Company now expects revenues for the year to be in the range of $222 million to $226 million, representing an annual growth rate in the range of 5% to 7% in comparison to 2009."

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 ended September 30, 2010 to the same period in 2009 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 compensations expenses are reflected on 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 about the fourth quarter and fiscal 2010 financial guidance, the capacity shortage condition and the depletion of the safety stock inventory. 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 as a result of various factors, including the impact of reductions in lead times and inventory levels by DSP Group customers and their customers; the supply chain capacity conditions for the remainder of 2010; the sustainability of the market recovery; unexpected delays in the introduction of new products, especially the new generation of multimedia products; fluctuations in gross margins associated with the sale of existing products; slower than expected change in the nature of residential communications domain; DSP Group's inability to develop and produce new products at competitive costs and in a timely manner or failure 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 2009 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.

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 consumer electronics (CE) manufacturers to cost-effectively develop new revenue-generating applications with fast time to market. At the forefront of semiconductor innovation and operational excellence for over two decades, and with a growing share of the wireless home telephony market, DSP Group provides a broad portfolio of wireless chipsets integrating DECT, Wi-Fi, PSTN and VoIP 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 connected multimedia screens -- DSP Group proactively partners with CE manufacturers to shape the future of converged communications at home. For more information, visit www.dspg.com.

The DSP Group, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=6171

Earnings conference call

DSP Group has scheduled a conference call for 8:30 AM ET today to discuss the financial results for the third quarter of 2010 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://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=101665&eventID=3413969.

If you cannot join the call, you may listen to the replay, which will be available for one week after the call on DSP Group's Web site or by calling the following numbers:

  --- U.S. Dial-In #                1-888-286-8010  (passcode: 28323028)
  --- International Dial-In #       1-617-801-6888  (passcode: 28323028)



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

                                    Three Months Ended        Nine Months Ended
                                      September 30,             September 30,

                                    2010         2009         2010         2009
                                 -----------  -----------  -----------  -----------
                                 (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)

  Product revenues and other        $ 65,154     $ 65,532    $ 182,110    $ 157,466
  Cost of product revenues and
   other                              39,806       40,807      109,919      100,251


                                 -----------  -----------  -----------  -----------
  Gross profit                        25,348       24,725       72,191       57,215
  Operating expenses:
   Research and development           14,066       15,221       41,098       42,590
   Sales and marketing                 4,332        4,666       13,003       13,466
   General and administrative          3,487        3,655       10,864       11,395
   Amortization of intangible
    assets                             2,494        3,072        7,479        9,177
   Restructuring costs                   394           --          394           --


                                 -----------  -----------  -----------  -----------
   Total operating expenses           24,773       26,614       72,838       76,628


                                 -----------  -----------  -----------  -----------
  Operating income (loss)                575      (1,889)        (647)     (19,413)
  Other income:
   Interest and other income ,
    net                                  382        1,113        1,070        2,297


                                 -----------  -----------  -----------  -----------
  Income (loss) before income
   tax benefit
                                         957        (776)          423     (17,116)
  Income tax benefit                     960        7,579          943       11,551


                                 -----------  -----------  -----------  -----------

  Net income (loss)                  $ 1,917      $ 6,803      $ 1,366    $ (5,565)
                                 ===========  ===========  ===========  ===========

  Net earnings (loss) per
   share:
   Basic                              $ 0.08       $ 0.30         0.06       (0.23)
   Diluted                            $ 0.08       $ 0.29         0.06       (0.23)
  Weighted average number of
   shares of common stock used
   in the computation of:
   Basic                              23,352       22,901       23,202       23,906
   Diluted                            23,420       23,662       23,225       23,906



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

                                   Three Months Ended        Nine Months Ended
                                     September 30,             September 30,

                                   2010         2009         2010         2009
                                -----------  -----------  -----------  -----------
                                (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)

  Product revenues and other       $ 65,154     $ 65,532    $ 182,110    $ 157,466
  Cost of product revenues and
   other                             39,638       40,596      111,882       99,637


                                -----------  -----------  -----------  -----------
  Gross profit                       25,516       24,936       70,228       57,829
  Operating expenses:
   Research and development          12,950       14,093       37,481       38,484
   Sales and marketing                3,962        4,213       11,865       12,087
   General and administrative         2,874        2,810        8,813        9,011


                                -----------  -----------  -----------  -----------
   Total operating expenses          19,786       21,116       58,159       59,582


                                -----------  -----------  -----------  -----------
  Operating income (loss)             5,730        3,820       12,069      (1,753)
  Other income:
   Interest and other income,
    net                                 382          582        1,070        1,766


                                -----------  -----------  -----------  -----------
  Income before provision for
  income taxes                        6,112        4,402       13,139           13
  Provision for income taxes
   (income tax benefit)               (389)           66        (373)        (417)
                                -----------  -----------  -----------  -----------


  Net income                        $ 6,501      $ 4,336     $ 13,512        $ 430
                                ===========  ===========  ===========  ===========
  Net earnings per share:
   Basic                             $ 0.28       $ 0.19       $ 0.58       $ 0.02
   Diluted                           $ 0.27       $ 0.18       $ 0.57       $ 0.02
  Weighted average number of
   shares of common stock used
   in the computation of:
   Basic                             23,352       22,901       23,202       23,906
   Diluted                           23,650       23,662       23,728       24,215




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

                                             Three Months Ended    Nine Months Ended
                                               September 30,         September 30,

                                               2010       2009       2010       2009
                                            ---------  ---------  ---------  ---------
                                            Unaudited  Unaudited  Unaudited  Unaudited


  GAAP net income (loss)                      $ 1,917    $ 6,803    $ 1,366  $ (5,565)
                                            =========  =========  =========  =========
  Equity-based compensation expense               168        211        538        614
   included in cost of product revenues
  Equity-based compensation expense             1,116      1,128      3,617      4,106
  included in R&D
  Equity-based compensation expense               983      1,298      3,189      3,763
   included in SG&A
  Amortization of intangible assets
   related to                                   2,494      3,072      7,479      9,177
   NXP transaction
  Restructuring costs                             394         --        394         --
  Realized gain related to certain
   available--                                     --      (531)         --      (531)
   for-sale marketable securities
  Reversal of income tax contingency
   reserve                                      (571)    (7,645)      (571)    (7,645)
   that was determined to be no longer
   needed due to the expiration of
   applicable statute of limitations
    included
   in  tax
  Reversal of a reserve that was
   determined to                                   --         --    (2,500)         --
  be no longer needed due to the
   expiration
  of applicable statute of limitations
  included in costs of goods sold
  Tax benefit resulting from settlement            --         --         --    (3,489)
   agreement with tax authorities

  Non-GAAP net income                         $ 6,501    $ 4,336   $ 13,512      $ 430
                                            =========  =========  =========  =========
  Non-GAAP diluted earnings per share          $ 0.27     $ 0.18     $ 0.57     $ 0.02



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

                                                December
                                September 30,     31,

                                    2010          2009
                               --------------  ----------

                                (Unaudited)     (Audited)
                               --------------  ----------
  Assets
  Current assets:
   Cash and cash equivalents          $30,106     $37,986
   Restricted deposits                    121         120
   Marketable securities and
    short term deposits                31,064      19,567
   Trade receivables, net              44,497      28,352
   Inventories                         17,315      12,427
   Other accounts receivable
    and prepaid expenses                8,826      12,162

   Deferred income taxes                   --         178
                               --------------  ----------
  Total current assets                131,929     110,792

  Property and equipment, net           8,411      10,090

  Long term marketable
   securities and deposits             70,623      65,392
  Severance pay fund                   10,432       9,521
  Deferred income taxes                   172          15
  Intangible assets, net               12,940      20,473
  Investment in other
   companies                            2,200       2,200
  Long term prepaid expenses
   and lease deposits                     643       1,286
                               --------------  ----------

                                       97,010      98,887
                               --------------  ----------

  Total assets                      $ 237,350   $ 219,769
                               ==============  ==========
  Liabilities and
   Stockholders' Equity
  Current liabilities:
  Trade payables                     $ 26,495    $ 18,309

  Other current liabilities            22,205      24,470
                               --------------  ----------
  Total current liabilities            48,700      42,779

   Accrued severance pay               11,584      10,572

   Accrued pensions                       964         929
                               --------------  ----------
   Total long term
    liabilities                        12,548      11,501
  Stockholders' equity:
   Common stock                            23          23
   Additional paid-in capital         332,922     325,579
   Accumulated other
    comprehensive income                1,949       2,174
   Less -- Cost of treasury
    stock                           (118,528)   (123,350)

  Accumulated deficit                (40,264)    (38,937)
                               --------------  ----------

  Total stockholders' equity          176,102     165,489
                               --------------  ----------
  Total liabilities and
   stockholders' equity             $ 237,350   $ 219,769
                               ==============  ==========

This news release was distributed by GlobeNewswire, www.globenewswire.com

SOURCE: DSP Group, Inc.

CONTACT:  DSP Group, Inc.
Orly Garini-Dil
+1-408-240-6839
orly.garini@dspg.com