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DSP Group, Inc. Reports Fourth Quarter 2010 Earnings

SAN JOSE, Calif., Jan 31, 2011 (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 fourth quarter ended December 31, 2010.

Fourth Quarter Results:

Revenues for the fourth quarter of 2010 were $43,372,000, a decrease of 21% from revenues of $54,720,000 for the fourth quarter of 2009. Net loss for the fourth quarter of 2010 was $8,792,000, as compared to net loss of $2,871,000 for the fourth quarter of 2009. Loss per share for the fourth quarter of 2010 was $0.38, as compared to a loss per share of $0.13 for the fourth quarter of 2009.

Year End Results:

Revenues for the year ended December 31, 2010 were $225,482,000, an increase of 6% over 2009 revenues of $212,186,000. Net loss for 2010 was $7,425,000, compared to a net loss of $8,436,000 for 2009. Loss per share for 2010 was $0.32, compared to a loss per share of $0.36 for 2009.

Non-GAAP Results:

Non-GAAP net loss and loss per share for the fourth quarter of 2010 were $4,017,000 and $0.17, respectively, as compared to non-GAAP net income of $2,827,000 and diluted EPS of $0.12 for the fourth quarter of 2009. Non-GAAP net loss and loss per share for the fourth quarter of 2010 excluded the impact of amortization of acquired intangible assets of $2,495,000 associated with the acquisition of NXP's CIPT business; equity-based compensation expenses of $2,211,000; and restructuring expenses of $69,000 associated with the reorganization of our operations. Non-GAAP net income and diluted EPS for the fourth quarter of 2009 excluded the impact of amortization of acquired intangible assets of $3,081,000 associated with the acquisition of NXP's CIPT business and equity-based compensation expenses of $2,617,000.

Non-GAAP net income and diluted EPS for the year ended December 31, 2010 were $9,495,000 and $0.40, respectively, representing an increase of 191% from the non-GAAP net income of $3,258,000 and an increase of 186% from the non-GAAP diluted EPS of $0.14 for the year ended December 31, 2009. Non-GAAP net income and diluted EPS for the year ended December 31, 2010 excluded the impact of amortization of acquired intangible assets of $9,975,000 associated with the acquisition of NXP's CIPT business; equity-based compensation expenses of $9,553,000; restructuring expenses of $463,000 associated with the reorganization of our operations; 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 statutes of limitation; and income of $2,500,000 resulting from the reversal of a reserve that was determined to be no longer needed due to the expiration of applicable statutes of limitation included in the cost of goods sold.

Non-GAAP net income and diluted EPS for the year ended December 31, 2009 excluded the impact of amortization of acquired intangible assets of $12,258,000 associated with the acquisition of NXP's CIPT business; equity-based compensation expenses of $11,100,000; gains from realization of previously impaired available-for-sale securities of $531,000; a tax benefit of $3,488,000 resulting from a settlement agreement with the tax authorities and a tax benefit of $7,645,000 resulting from the reversal of certain income tax contingency reserves that were determined to be no longer needed due to the expiration of applicable statutes of limitation.

Ofer Elyakim, CEO of DSP Group, stated: "Despite the overhang and depletion of excess inventory at several ODM and OEM customers during the fourth quarter, we were able to execute and deliver on our 2010 business plan as reflected in the year-on-year improvements in all of our annual financial metrics. In addition, we generated $17 million of free cash flow during the year and ended the year with a strong cash position of approximately $140 million in cash and cash equivalents."

Mr. Elyakim also added: "The Consumer Electronics Show in January displayed a number of new products which will be based on DSP Group platforms. We expect that these new products based on our XpandR, CAT iq and VOIP platforms will be commercially launched during the course of the year, with more product launches expected in the second half of the year. As we look to 2011, we expect conditions in our markets to improve and based on forecasts and prospects received from customers, we project annual revenues in the range of $227 million to $245 million, representing approximately an increase of 5% in revenues in 2011 as compared to 2010."

The Company believes that the non-GAAP presentation of net income, loss per share and diluted EPS presented in this press release is useful to investors in comparing results for the quarter and year ended December 31, 2010 to the same periods 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 commercial launches of products based on DSP Group technology in 2011, improvements in market conditions in 2011 and annual revenue guidance for 2011. 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; assumption that excess inventory would be completely depleted by the end of the first quarter of 2011; unexpected delays in the introduction of new products, especially the new generation of multimedia products; the sustainability of the market recovery; 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 fourth 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=3660099.

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:

  -- US Dial-In #                      1-888-286-8010  (passcode: 94886247)
  -- International Dial-In #           1-617-801-6888  (passcode: 94886247)



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


                                    Three Months Ended      Twelve Months Ended
                                       December 31,             December 31,

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

  Product revenues and other        $ 43,372     $ 54,720    $ 225,482  $ 212,186
  Cost of product revenues and
   other                              27,652       33,339      137,571    133,590
                                 -----------  -----------  -----------  ---------

  Gross profit                        15,720       21,381       87,911     78,596
  Operating expenses:
   Research and development           14,491       13,557       55,588     56,148
   Sales and marketing                 4,196        4,423       17,199     17,889
   General and administrative          3,499        3,833       14,362     15,228
   Amortization of intangible
    assets                             2,495        3,081        9,975     12,258

   Restructuring costs                    69           --          463         --
                                 -----------  -----------  -----------  ---------


   Total operating expenses           24,750       24,894       97,587    101,523
                                 -----------  -----------  -----------  ---------

  Operating loss                     (9,030)      (3,513)      (9,676)   (22,927)
  Other income:
   Interest and other income ,
    net                                  398          559        1,468      2,857
                                 -----------  -----------  -----------  ---------

  Loss before income tax
   benefit                           (8,632)      (2,954)      (8,208)   (20,070)

  Income tax expense (benefit)           160         (83)        (783)   (11,634)
                                 -----------  -----------  -----------  ---------


  Net loss                         $ (8,792)    $ (2,871)    $ (7,425)  $ (8,436)
                                 ===========  ===========  ===========  =========

  Net loss per share:
   Basic                            $ (0.38)     $ (0.13)     $ (0.32)   $ (0.36)
   Diluted                          $ (0.38)     $ (0.13)     $ (0.32)   $ (0.36)

  Weighted average number of
   shares of common stock used
   in the computation of:
   Basic                              23,308       22,901       23,229     23,655
   Diluted                            23,308       22,901       23,229     23,655



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


                                    Three Months Ended        Twelve Months Ended
                                       December 31,              December 31,

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

  Product revenues and other        $ 43,372     $ 54,720    $ 225,482    $ 212,186
  Cost of product revenues and
   other                              27,486       33,175      139,367      132,812
                                 -----------  -----------  -----------  -----------

  Gross profit                        15,886       21,545       86,115       79,374
  Operating expenses:
   Research and development           13,394       12,410       50,876       50,895
   Sales and marketing                 3,841        4,029       15,706       16,116

   General and administrative          2,906        2,921       11,718       11,932
                                 -----------  -----------  -----------  -----------


   Total operating expenses           20,141       19,360       78,300       78,943
                                 -----------  -----------  -----------  -----------

  Operating income (loss)            (4,255)        2,185        7,815          431
  Other income:
   Interest and other income,
    net                                  398          559        1,468        2,326
                                 -----------  -----------  -----------  -----------

  Income before provision for
   income taxes                      (3,857)        2,744        9,283        2,757
  Provision for income taxes
   (income tax benefit)                  160         (83)        (212)        (501)
                                 -----------  -----------  -----------  -----------


  Net income (loss)                $ (4,017)      $ 2,827      $ 9,495      $ 3,258
                                 ===========  ===========  ===========  ===========

  Net earnings (loss) per
   share:
   Basic                            $ (0.17)       $ 0.12       $ 0.41       $ 0.14
   Diluted                          $ (0.17)       $ 0.12       $ 0.40       $ 0.14

  Weighted average number of
   shares of common stock used
   in the computation of:
   Basic                              23,308       22,901       23,229       23,655
   Diluted                            23,308       23,058       23,623       23,926



                         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,

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

  GAAP net income (loss)                                              $ (8,792)  $ (2,871)  $ (7,425)  $ (8,436)
                                                                     ==========  =========  =========  =========
  Equity-based compensation expense included in cost of product
   revenues                                                                 166        164        704        778

  Equity-based compensation expense included in R&D                       1,097      1,147      4,712      5,253

  Equity-based compensation expense included in SG&A                        948      1,306      4,137      5,069

  Amortization of intangible assets related to NXP transaction            2,495      3,081      9,975     12,258

  Restructuring costs                                                        69         --        463         --

  Unrealized loss (realized gain) related to certain
   available-for-sale marketable securities                                  --         --         --      (531)

  Reversal of income tax contingency reserve that was determined to
   be no longer needed due to the expiration of applicable statutes
   of limitation                                                             --         --      (571)    (7,645)

  Reversal of a reserve that was determined to be no longer needed
   due to the expiration of applicable statutes of limitation
   included in costs of goods sold                                           --         --    (2,500)         --

  Tax benefit resulting from settlement agreement with tax
   authorities                                                               --         --         --    (3,488)


  Non-GAAP net income (loss)                                          $ (4,017)    $ 2,827    $ 9,495    $ 3,258
                                                                     ==========  =========  =========  =========
  Non-GAAP diluted earnings (loss) per share                           $ (0.17)     $ 0.12     $ 0.40     $ 0.14



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

                                December     December
                                   31,         31,

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

                               (Unaudited)   (Audited)
                               -----------  ----------
  Assets
  Current assets:
   Cash and cash equivalents       $33,912     $37,986
   Restricted deposits                 121         120
   Marketable securities and
    short term deposits             29,903      19,567
   Trade receivables, net           25,170      28,352
   Inventories                      18,803      12,427
   Other accounts receivable
    and prepaid expenses             6,302      12,162

   Deferred income taxes                --         178
                               -----------  ----------
  Total current assets             114,211     110,792

  Property and equipment, net        7,786      10,090

  Long term marketable
   securities and deposits          75,825       5,392
  Severance pay fund                11,336       9,521
  Deferred income taxes                121          15

  Intangible assets, net            10,434      20,473

  Investment in other
   companies                         2,200       2,200
  Long term prepaid expenses
   and lease deposits                  642       1,286
                               -----------  ----------

                                   100,558      98,887
                               -----------  ----------


  Total assets                   $ 222,555   $ 219,769
                               ===========  ==========

  Liabilities and
   Stockholders' Equity
  Current liabilities:
  Trade payables                  $ 19,206    $ 18,309

  Other current liabilities         23,053      24,470
                               -----------  ----------
  Total current liabilities         42,259      42,779

   Accrued severance pay            12,419      10,572

   Accrued pensions                    774         929
                               -----------  ----------
   Total long term
    liabilities                     13,193      11,501

  Stockholders' equity:
   Common stock                         23          23
   Additional paid-in capital      335,132     325,579
   Accumulated other
    comprehensive income               355       2,174
   Less -- Cost of treasury
    stock                        (119,280)   (123,350)

  Accumulated deficit             (49,127)    (38,937)
                               -----------  ----------

  Total stockholders' equity       167,103     165,489
                               -----------  ----------

  Total liabilities and
   stockholders' equity          $ 222,555   $ 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