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DSP Group, Inc. Reports Third Quarter 2011 Earnings

SAN JOSE, Calif., Oct 27, 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 third quarter ended September 30, 2011.

Third Quarter Results:

Revenues for the third quarter of 2011 were $48,373,000, a decrease of 26% from revenues of $65,154,000 for the third quarter of 2010. Net loss for the third quarter of 2011 was $4,814,000, as compared to net income of $1,917,000 for the third quarter of 2010. Diluted earnings per share (EPS) for the third quarter of 2011 were a loss of $0.21 per share, as compared to a diluted EPS of $0.08 per share for the third quarter of 2010.

Non-GAAP Results:

Non-GAAP net loss and EPS for the third quarter of 2011 were $846,000 and a loss of $0.04 per share, respectively, as compared to non-GAAP net income of $6,501,000 and diluted EPS of $0.27 per share for the third quarter of 2010. Non-GAAP net loss and EPS for the third quarter of 2011 excluded the impact of amortization of acquired intangible assets of $2,197,000 associated with the acquisition of NXP's CIPT business; equity-based compensation expenses of $1,351,000 and restructuring expenses of $420,000. 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 the Cordless and VoIP Terminals business of NXP B.V.; equity-based compensation expenses of $2,266,000; restructuring expenses of $394,000 and a tax benefit of $570,000 resulting from the reversal of income tax contingency reserve that was determined to be no longer needed due to the expiration of applicable limitation statutes.

Ofer Elyakim, CEO of DSP Group, stated: "Despite the present weakness in our core cordless telephony business, we continue to see solid market traction and revenue growth for our new products going forward. These new products present a material and exciting opportunity with new customers for DSP Group, that we are starting to realize through many new design wins and expect these products to post solid revenues and accelerated growth through 2012. Moreover, we have successfully implemented the cost reduction program we announced back in July and our third quarter and fourth quarter non-GAAP operating expenses already reflect an annual operating expense run rate of $75 million."

Mr. Elyakim also stated, "The weakness in bookings that began in the third quarter continues into the fourth quarter of 2011, resulting in softer than expected outlook for the fourth quarter. Based on our internal assessment and forecasts received from our customers, we now expect our fourth quarter revenues to be in the range of $34 to $38 million."

"In the third quarter we accelerated our share buyback activity and repurchased approximately 500,000 shares for approximately $3.4 million, for an average price of $6.75 per share, bringing the total number of shares available for repurchase under the board authorization to 2.1 million shares. We believe that the repurchase of shares at or near current price levels is an attractive investment for the company and its shareholders."

Presentation on non-GAAP Net Income Calculation

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, 2011 to the same period in 2010 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 temporary nature of the softening market demand in cordless telephony products; the Company's financial guidance for fourth quarter revenues; the Company's expectations for solid and accelerated revenue growth for new products through 2012 and the Company's expectations of an annual operating expense run rate of 75 million. 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 duration and extent of the slowdown in consumer demand for traditional cordless telephony products; the growth of the residential gateway market; our ability to lower operating expenses; our ability to secure additional design wins and the success of our new XpandR, IP telephony and CAT iq product introductions; unexpected delays in the commercial launch of new products; the impact of reductions in lead times and inventory levels by DSP Group customers and their customers; 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 2010 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.

Earnings conference call

DSP Group has scheduled a conference call for 8:30 a.m. ET today to discuss the financial results for the third quarter of 2011 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 of DSP Group's Web site at www.dspg.com or link to: http://www.media-server.com/m/p/4y99av68

If you cannot join the call, please 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: 28671166)

--International Dial-In # 1-617-801-6888 (passcode: 28671166)

For more information, please contact Victor Halpert, Director of Business Development and Investor Relations. Tel: +1 917 602 2965, Email: victor.halpert@dspg.com


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


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

                                     2011          2010           2011           2010
                                --------------  -----------  ---------------  -----------
                                 (Unaudited)    (Unaudited)    (Unaudited)    (Unaudited)

  Revenues                            $ 48,373     $ 65,154        $ 155,666    $ 182,110

  Cost of revenues                      30,853       39,806           99,167      109,919
                                --------------  -----------  ---------------  -----------

  Gross profit                          17,520       25,348           56,499       72,191
  Operating expenses:
   Research and development             12,570       14,066           40,970       41,098
   Sales and marketing                   4,179        4,332           12,357       13,003
   General and administrative            3,282        3,487            9,952       10,864
   Amortization of intangible
    assets                               2,197        2,494            6,591        7,479
   Restructuring expenses
    (income)                               420          394            (170)          394
                                --------------  -----------  ---------------  -----------


   Total operating expenses             22,648       24,773           69,700       72,838
                                --------------  -----------  ---------------  -----------

  Operating income (loss)              (5,128)          575         (13,201)        (647)


  Financial income, net                    455          382            1,333        1,070
                                --------------  -----------  ---------------  -----------

  Income (loss) before taxes
   on income                           (4,673)          957         (11,868)          423
  Taxes on income (income tax
   benefit)                                141        (960)            (448)        (943)
                                --------------  -----------  ---------------  -----------


  Net income (loss)                  $ (4,814)      $ 1,917       $ (11,420)      $ 1,366
                                ==============  ===========  ===============  ===========

  Net earnings (loss) per
   share:
   Basic                              $ (0.21)       $ 0.08         $ (0.49)       $ 0.06
   Diluted                            $ (0.21)       $ 0.08         $ (0.49)       $ 0.06

  Weighted average number of
   shares of common stock used
   in the computation of:
   Basic                                23,371       23,352           23,397       23,202
   Diluted                              23,371       23,420           23,397       23,225




                            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,

                                                                             2011       2010       2011        2010
                                                                          ---------  ---------  ----------  ---------
                                                                          Unaudited  Unaudited   Unaudited  Unaudited
  GAAP net income (loss)                                                   ($4,814)     $1,917   ($11,420)     $1,366
  Equity-based compensation expense included in cost of product revenues
   and other                                                                     94        168         328        537
  Equity-based compensation expense included in Research and Development        635      1,115       2,241      3,617
  Equity-based compensation expense included in Sales and Marketing             231        370         794      1,138
  Equity-based compensation expense included in General and
   Administrative                                                               391        613       1,700      2,051
  Amortization of intangible assets related to NXP transaction                2,197      2,494       6,591      7,479
  Reversal of income tax contingency reserve that was determined to be
   no longer needed                                                              --      (570)          --      (570)
  Reversal of a reserve that was determined to be no longer needed due
   to the expiration of applicable limitation statutes included in costs
   of goods sold                                                                 --         --          --    (2,500)
  Restructuring expenses (income)                                               420        394       (170)        394

  Non-GAAP net income (loss)                                                $ (846)    $ 6,501        $ 64   $ 13,512
                                                                          =========  =========  ==========  =========

  GAAP weighted-average number of Common stock used in computation of
   basic and diluted income and loss per share (In thousands)                23,371     23,352      23,397     23,202

  weighted -- average number of shares related to outstanding options
   and SARS                                                                      --        298          --        526

  weighted-average number of Common stock used in computation of
   Non-GAAP diluted net income and loss per share                            23,371     23,650      23,397     23,728

  GAAP Diluted net income (loss) per share                                 ($ 0.21)     $ 0.08    ($ 0.49)     $ 0.06
  Equity-based compensation expense                                            0.06       0.10        0.22       0.31
  Amortization of intangible assets related to NXP transaction                 0.09       0.10        0.28       0.32
  Reversal of income tax contingency reserve that was determined to be
   no longer needed                                                              --     (0.03)          --     (0.03)
  Reversal of a reserve that was determined to be no longer included in
   costs of goods sold                                                           --                     --     (0.11)
  Restructuring expenses (income)                                              0.02       0.02      (0.01)       0.02
  Non-GAAP diluted net income (loss) per share                             $ (0.04)     $ 0.27      $ 0.00     $ 0.57



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


                                 September 30,       December 31,

                                      2011               2010
                               -----------------  -----------------

                                  (Unaudited)         (Audited)
                               -----------------  -----------------
  Assets
  Current assets:
   Cash and cash equivalents            $ 28,575           $ 33,912
   Restricted deposits                       121                121
   Marketable securities and
    short term deposits                   33,421             29,903
   Trade receivables, net                 29,991             25,170
   Inventories                            14,964             18,803
   Other accounts receivable
    and prepaid expenses                   4,364              6,302

   Deferred income taxes                     116                121
                               -----------------  -----------------
  Total current assets                   111,552            114,332

  Property and equipment, net              6,444              7,786

  Long term marketable
   securities and deposits                69,437             75,825
  Severance pay fund                      10,482             11,336
  Intangible assets, net                   3,854             10,434
  Investment in other
   companies                               2,200              2,200
  Long term prepaid expenses
   and lease deposits                        499                642
                               -----------------  -----------------

                                          86,472            100,437
                               -----------------  -----------------
  Total assets
                                       $ 204,468          $ 222,555
                               =================  =================
  Liabilities and
   Stockholders' Equity
  Current liabilities:
  Trade payables                        $ 18,368           $ 19,206

  Other current liabilities               18,683             23,053
                               -----------------  -----------------
  Total current liabilities               37,051             42,259

   Accrued severance pay                  10,719             12,419

   Accrued pensions                          823                774
                               -----------------  -----------------
   Total long term
    liabilities                           11,542             13,193

  Stockholders' equity:
   Common stock                               23                 23
   Additional paid-in capital            340,195            335,132
   Accumulated other
    comprehensive income                 (1,339)                355
   Less -- Cost of treasury
    stock                              (119,068)          (119,280)

  Accumulated deficit                   (63,936)           (49,127)
                               -----------------  -----------------

  Total stockholders' equity             155,875            167,103
                               -----------------  -----------------
  Total liabilities and
   stockholders' equity                $ 204,468          $ 222,555
                               =================  =================

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

SOURCE: DSP Group, Inc.

CONTACT: Victor Halpert
Director of Business Development and Investor Relations
Tel: +1 917 602 2965
Email: victor.halpert@dspg.com