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DSP Group, Inc. Reports Third Quarter 2017 Results

Office/VoIP Revenues Reaching Record $10.1 Million and Major New Design Win for SmartVoice

DSP Group Q3 17 Infographic
DSP Group Q3 17 Infographic


GAAP and Non-GAAP Gross Margins Improve to 46.7% and 46.9%, respectively

LOS ALTOS, Calif., Nov. 02, 2017 (GLOBE NEWSWIRE) -- DSP Group®, Inc. (NASDAQ:DSPG), a leading global provider of wireless chipset solutions for converged communications, announced today its results for the third quarter ended September 30, 2017.

Third Quarter Financial Review:

  • GAAP and non-GAAP diluted income per share of $0.02 and $0.10, respectively, compared to GAAP and non-GAAP diluted income per share of $0.23 and $0.19 for the third quarter of 2016, respectively
  • Revenues of $34.3 million, down 12% year-over-year
  • GAAP and non-GAAP gross margin of 46.7% and 46.9%, respectively, a 190 basis point improvement year-over-year
  • GAAP and non-GAAP operating income  of $0.3 million and $2.1 million, respectively, compared to GAAP and non-GAAP operating income of $5.3 and $4.6 million for the third quarter of 2016, respectively
  • GAAP and non-GAAP net income  of $0.6 million and $2.3 million, respectively, compared to GAAP and non-GAAP net income of $5.3 million and $4.5 million for the third quarter of 2016, respectively
  • Repurchase of 145,500 shares of common stock for approximately $1.7 million
  • Cash, deposits and marketable securities of $122.2 million as of September 30, 2017

Management Comments:
Commenting on the results, Ofer Elyakim, CEO of DSP Group, stated, “We are very pleased with our third quarter results that were ahead of our guidance in almost every financial metric, including a sequential new products revenue growth of 9%. Our GAAP and non-GAAP gross margin improved to a ten-year high, reaching 46.7% and 46.9%, respectively. Moreover, we are very excited about the solid momentum in our SmartVoice segment, as evidenced by eight new product launches, including by some of the world’s leading brands in consumer electronics. In our Office/VoIP segment, we delivered another record quarter with revenues surpassing $10 million for the first time.”

Mr. Elyakim further added, “While we do expect our fourth quarter revenues to soften on a sequential basis, mainly due to seasonal weakness in demand for cordless and VoIP products, following a record quarter for VoIP, we are well-positioned to resume revenue growth in 2018. We expect our SmartVoice business to be an important contributor to that growth with a broad array of exciting applications, including a noteworthy high volume design win for SmartVoice in a smartphone product by a leading mobile OEM. We also anticipate that the growth in our new product initiatives coupled with improved efficiencies will help to drive continued margin expansion.”

Third Quarter Product and Market Highlights:

  • New product revenues of $16.0 million or 47% of total revenues, representing a YoY decrease of 3%
  • Office/VoIP segment revenues of $10.1 million, representing a YoY increase of 32%
  • Home gateway revenues of $3.1 million, representing a YoY increase of 1%
  • IoT revenues of $1.5 million, representing a YoY increase of 24%
  • SmartVoice segment revenues of $1.4 million, representing a YoY decrease of 71%
  • High volume design win for SmartVoice in a smartphone product by a leading mobile phone OEM
  • GoPro selected our SmartVoice technology for its new Hero 6 black action camera
  • Four new smart speaker products by leading OEMs were launched that incorporate our SmartVoice technology for microphones beamforming and barge in
  • A leading OEM selected our SmartVoice technology for its newly launched smart watch
  • Libre Wireless selected our SmartVoice technology for its Mic-to-Cloud voice and media streaming module
  • LISNR created an advanced, ultra-low power acoustic data transmission solution based on our SmartVoice Technology
  • Howdens Joinery selected an IoT solution by Cloud of Things based on our ULE technology
  • Greenwave Systems incorporated our ULE and SmartVoice technology for voice assistance

Third Quarter GAAP Results:
Revenues for the third quarter of 2017 were $34.3 million, a decrease of 12% from revenues of $38.8 million for the third quarter of 2016.  Net income for the third quarter of 2017 was $0.6 million, as compared to a net income of $5.3 million for the third quarter of 2016.  Earnings per share for the third quarter of 2017 were $0.02, as compared to $0.23 earnings per share for the third quarter of 2016.

Third Quarter Non-GAAP Results:
Non-GAAP net income and earnings per share for the third quarter of 2017 were $2.3 million and $0.10, respectively, as compared to non-GAAP net income and earnings per share of $4.5 million and $0.19, respectively, for the third quarter of 2016.  Non-GAAP net income and earnings per share for the third quarter of 2017 exclude the impact of amortization of acquired intangible assets in the amount of $425,000 associated with previous acquisitions; equity-based compensation expenses of $1.4 million; and changes in deferred taxes in the amount of $0.2 million related to intangible assets acquired in previous acquisitions and equity-based compensation expenses.  Non-GAAP net income and earnings per share for the third quarter of 2016 exclude the impact of amortization of acquired intangible assets of $390,000 associated with previous acquisitions; equity-based compensation expenses of $1.5 million, changes in deferred taxes in the amount of $0.1 million related to intangible assets acquired in previous acquisitions  and other income in the amount of $2.5 million related to reversal of provisions due to the elapse of applicable  statute  of limitations.

Earnings Conference Call Details
DSP Group will discuss its third quarter financial results, along with its outlook and guidance for the fourth quarter of 2017, 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 +1 877 280 2296 (domestic US) or +1 646 254 3367 (international) approximately 10 minutes prior to the starting time. The password is 5789812. 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: https://edge.media-server.com/m6/p/3pf2io5c

A replay of the conference call will be available for a week following the call. To listen to the session, please dial +1 719 457 0820 (domestic US) or +44 207 984 7568 (international) and enter the company access code: 5789812#

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 September 30, 2017 to the same period in 2016 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 projection regarding the softening of the Company’s fourth quarter revenues and statements that the Company is well-positioned to resume revenue growth in 2018, that the Company’s SmartVoice technology is an important contributor to that growth and the anticipation that growth in the Company’s new product initiatives coupled with improved efficiencies will help to drive continued margin expansion.  The results from these statements may not actually arise as a result of various factors, including the market penetration of new products, especially incorporating SmartVoice technology; unexpected delays in the commercial launch of new products; speed of decline in the cordless market; 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 2016, 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.

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

An infographic accompanying this announcement is available at http://www.globenewswire.com/NewsRoom/AttachmentNg/c4525904-5727-4f68-8a08-1059ec9eee8f


CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
 
 
 
  Three Months Ended
September 30
Nine Months Ended
September 30
   2017  2016  2017 2016
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Revenues  $ 34,277 $ 38,768   $ 93,511   $ 102,591  
Cost of revenues   18,270   21,418     50,760     57,639  
         
Gross profit     16,007     17,350       42,751       44,952  
Operating expenses:        
Research and development, net    9,214    8,504      27,565      26,430  
Sales and marketing   3,635   3,617       10,640       10,332  
General and administrative   2,483   2,064     7,342     6,622  
Amortization of intangible assets   425   390     1,275     1,032  
Other income     (2,549 )     (2,549 )
         
Total operating expenses   15,757   12,026     46,822     41,867  
         
Operating income (loss)   250     5,324     (4,071 )   3,085  
         
Financial income, net     382     344     1,216     910  
           
Income (loss) before taxes on income     632     5,668     (2,855 )    3,995  
Taxes on income   54   334     19     494  
         
Net income (loss) $   578 $   5,334   $   (2,874 ) $   3,501  
Net earnings (loss) per share:        
Basic $   0.03 $   0.24   $   (0.13 ) $   0.16  
Diluted $   0.02 $   0.23   $   (0.13 ) $   0.15  
         
Weighted average number of shares used in per share computations of net earnings (loss) per share:        
Basic   22,276   21,943     22,186     21,798  
Diluted   23,243   23,185     22,186     22,882  


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,
      2017     2016     2017     2016  
    Unaudited Unaudited Unaudited Unaudited
GAAP net income (loss)   $   578   $   5,334   $   (2,874 ) $   3,501  
Equity-based compensation expense included in cost of revenues     84     98     275     242  
Equity-based compensation expense included in research and development, net     576     668     1,815     1,615  
Equity-based compensation expense included in sales and marketing     273     230     870     555  
Equity-based compensation expense included in general and administrative     505     465     1,566      1,293  
Amortization of intangible assets     425     390     1,275     1,032  
Other income related to reversal of provisions due to elapse of the respective statute of limitations     -     (2,549 )   -     (2,549 )
Changes of deferred taxes related to intangible assets and equity-based compensation expense     (157 )   (93 )   (319 )   (253 )
Non-GAAP net income   $   2,284   $   4,543   $   2,608   $   5,436  
           
Weighted-average number of common stock used in computation of GAAP diluted net earnings (loss) per share (in thousands)     23,243     23,185     22,186     22,882  
           
Weighted-average number of shares related to outstanding options, stock appreciation rights and restricted share units (in thousands)     392     373     1,404     416  
           
Weighted-average number of common stock used in computation of non-GAAP diluted net earnings per share (in thousands)     23,635     23,558     23,590     23,298  
           
GAAP diluted net earnings (loss) per share   $   0.02   $   0.23   $   ( 0.13 ) $  0.15  
Equity-based compensation expense     0.06     0.06     0.19     0.16  
Amortization of intangible assets     0.02     0.02     0.06     0.04  
Other income related to reversal of provisions           (0.11 )         (0.11 )
Changes of deferred taxes related to intangible assets and equity-based compensation expense     -     (0.01 )   (0.01 )   (0.01 )
Non-GAAP diluted net earnings per share   $   0.10   $   0.19   $   0.11   $   0.23  


DSP GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
 
    September 30, December 31,
      2017     2016   
    (Unaudited) (Audited)
Assets       
Current assets:      
Cash and cash equivalents
  $
14,698
  $
17,752
 
Restricted deposits     514     70  
Marketable securities and short term deposits     28,107     29,031  
Trade receivables, net     19,990     19,069  
Inventories     10,693     9,748  
Other accounts receivable and prepaid expenses     2,838     2,331  
Total current assets      76,840     78,001  
               
Property and equipment, net     3,485     4,130  
               
Long term marketable securities and deposits     78,855     78,092   
Severance pay fund     14,772     12,751  
Deferred income taxes     701     918  
Intangible assets, net     9,447     10,723  
Long term prepaid expenses and lease deposits       1,483       1,329  
      105,258     103,813  
Total assets    $ 185,583   $ 185,944  
   
Liabilities and Stockholders’ Equity  
Current liabilities:      
Trade payables   $ 11,999   $ 12,540  
Other current liabilities     11,393     13,359  
Total current liabilities     23,392     25,899  
       
Accrued severance pay     15,053     12,908  
Accrued pensions     897     803  
Deferred income taxes       490       787  
Total long term liabilities     16,440     14,498  
               
Stockholders’ equity:      
Common stock     22     22  
Additional paid-in capital     370,647     366,121  
Accumulated other comprehensive loss     (1,458 )   (1,852 )
Less – Cost of treasury stock      (119,909 )    (122,632 )
Accumulated deficit       (103,551 )     (96,112 )
Total stockholders’ equity       145,751     145,547  
Total liabilities and stockholders’ equity   $ 185,583   $ 185,944  


DSP Group, Inc.