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DSP Group, Inc. Reports Third Quarter 2018 Results

Growth Initiatives Account for 58% of Revenues;
VoIP Revenues Reach a Record $12.1 Million;
GAAP and Non GAAP Gross Margins of 50.0% and 50.3%, Respectively, Exceeding Guidance

SAN JOSE, Calif., Nov. 01, 2018 (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, 2018.

Third Quarter Financial Highlights:

  • Total revenues of $32.6 million, a year-over-year decrease of 5%:
    • Revenues from growth initiatives of $18.9 million, accounted for 58% of total revenues, a year-over-year increase of 18%.
      • Office/VoIP segment revenues of $12.1 million, a year-over-year increase of 20%.
      • SmartVoice segment revenues of $3.0 million, a year-over-year increase of 123%.
      • SmartHome segment revenues of $3.8 million, a year-over-year decrease of 17%.
    • Revenues from cordless products of $13.7 million accounted for 42% of total revenues, a year-over-year decrease of 25%.
  • GAAP and non-GAAP gross margin of 50.0% and 50.3%, reflecting a year-over-year improvement of 330 bps and 340 bps, respectively.
  • GAAP operating income of $0.3 million and non-GAAP operating income of $2.4 million, compared to GAAP operating income of $0.3 million and non-GAAP operating income of $2.1 million for the third quarter of 2017.
  • GAAP net income of $0.4 million and non-GAAP net income of $2.6 million, compared to GAAP net income of $0.6 million and non-GAAP net income of $2.3 million for the third quarter of 2017.
  • GAAP income per share of $0.02 and non-GAAP diluted earnings per share of $0.11, compared to GAAP income per share of $0.02 and non-GAAP diluted earnings per share of $0.10 for the third quarter of 2017.
  • Used less than $0.1 million of cash for operating activities, compared to $1.7 million of cash used for operating activities during the third quarter of 2017.
  • Repurchased during the third quarter of 2018 approximately 313,000 shares for a total consideration of $3.9 million, $7.8 million left for repurchase under the existing share buyback program.
  • Cash, deposits and marketable securities of approximately $119.7 million as of September 30, 2018.

Management Comments:

Commenting on the results, Ofer Elyakim, CEO of DSP Group, stated, “We are pleased with our third quarter results that were better than our guidance, and especially with our growth initiatives comprising 58% of revenues and increasing 18% year-over-year, thereby driving GAAP and non-GAAP gross margin expansion to 50.0% and 50.3%, respectively. We are also confident that we are well positioned for 2019 as a result of solid momentum and recent design wins in our growth initiatives.  For instance, in our SmartVoice segment, we recently secured wins with six of the world’s leading brands in consumer electronics, including a tier 1 Chinese smartphone OEM.”

Mr. Elyakim added, “While these and other design wins set us up well for 2019, we do expect a decline in the fourth quarter, which will negatively impact our full year 2018 results, mainly due to weaker quarterly demand for cordless that we attribute primarily to a supply chain correction, as well as timing of orders for SmartHome and Office/VoIP products. We believe the anticipated decline in the fourth quarter is temporary as our existing design wins, pipeline and customer demand continue to strengthen across our growth initiatives and position us well for future growth. Additionally, we expect these initiatives to be important revenue contributors next year and to account for over two thirds of our total sales.”

Mr. Elyakim added further, “As separately announced today, we are delighted to welcome Eric Stauffer as DSP Group’s new Chief Revenue Officer in charge of global sales, and based in Silicon Valley.  Eric joins DSP Group at an exciting time and we look forward to his contributions to the leadership and growth of our company.”

Third Quarter Financial Highlights:

  • Continue to extend our position in the unified communications market as demonstrated by our design wins with leading OEMs and a record revenue quarter: 
    • Cisco launched its new unified communication wireless headsets based on our DVF and DCX81 chipsets.
    • Cisco launched a new line of IP phone expansion modules, its 6800 and 8851/61, based on our DVF9919 SoC.
    • Snom Technology, a leading European IP phone vendor, launched its D735, a new top-line IP phone, based on our DVF9919 SoC.
  • Continue to grow our engagement pipeline and design wins for voice as a user interface with leading consumer electronics OEMs, thereby helping to drive growth of a burgeoning new market:
    • A leading Korean OEM launched a series of tablet models based on our SmartVoice SoC.
    • A tier 1 Chinese smartphone OEM selected our SmartVoice SoC for a high volume smartphone model launching in the first quarter of 2019.
    • A leading camera OEM selected our SmartVoice technology for its new line of action cameras.
    • Jabra selected our SmartVoice technology for its new BlueParrott B550 Bluetooth headset.
    • A tier 1 home networking OEM selected our SmartVoice technology for its new Wi-Fi security camera.
    • A leading Turkish smartphone OEM selected our SmartVoice technology for its new smartphone model.
  • Continue to expand ULE reach into new markets with innovative products that leverage ULE’s unmatched characteristics for wireless indoor IoT:
    • Deutsche Telekom selected our DECT ULE SoC solution for its new smart speaker with two-way HD voice to support hands-free calling from the speaker.
    • Zipato, a leading European provider in home automation, incorporated our DECT ULE SoC solution into their new home automation controller - Zipatile2.
    • AwoX, a leading European smart lighting provider, incorporated our DECT ULE SoC solution into their new connected LED bulb products.   

Third Quarter GAAP Results:

Revenues for the third quarter of 2018 were $32.6 million, a decrease of 5% from revenues of $34.3 million for the third quarter of 2017.  Net income and diluted earnings per share for the third quarter of 2018 were $0.4 million and $0.02, respectively. Net income and diluted earnings per share for the third quarter of 2017 were $0.6 million and $0.02, respectively.

Third Quarter Non-GAAP Results:
Non-GAAP net income and diluted earnings per share for the third quarter of 2018 were $2.6 million and $0.11, respectively, as compared to non-GAAP net income and diluted earnings per share of $2.3 million and $0.10, respectively, for the third quarter of 2017.  Non-GAAP net income and diluted earnings per share for the third quarter of 2018 excluded the impact of amortization of acquired intangible assets in the amount of $425,000 associated with previous acquisitions and equity-based compensation expenses of $1.8 million. Non-GAAP net income and diluted earnings per share for the third quarter of 2017 excluded the impact of amortization of acquired intangible assets of $425,000 associated with previous acquisitions, equity-based compensation expenses of $1.4 million, and changes in deferred taxes in the amount of $157,000 related to intangible assets acquired in previous acquisitions and equity-based compensation expenses.

Earnings Conference Call Details
DSP Group will discuss its first quarter financial results, along with its outlook and guidance for the fourth quarter of 2018, 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 +1 800 458 4121 (domestic US) or +1 929 477 0324 (international) approximately 10 minutes prior to the starting time. The password is 8368261. 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/sg9ez874

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 20 7660 0134 (international) and enter the company access code: 8368261#.

Presentation of Non-GAAP Net Income and EPS
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, 2018 to the same period in 2017 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 statements that (i) the company is well positioned for 2019 due to solid momentum and recent design win in its growth initiatives, (ii) there will be a decline in the fourth quarter, which will negatively impact the company’s full year 2018 results and the company’s rationale for such decline, including the temporary nature of some of the factors, (iii) confidence that the company’s design wins, pipeline and customer demand in the growth initiatives will continue to strengthen and position the company well for future growth, and (iv) the expectation that the growth initiatives to be important revenue contributors and will account for over 2/3 of the total revenues in 2019. The results from these statements may not actually arise as a result of various factors, including the market penetration of new products such as products with Voice User Interface; 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 2017, 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
Work: 1-415-726-5900, Daniel.amir@dspg.com

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

    Three Months Ended
September 30
Nine Months Ended
September 30
     2018  2017 2018 2017
    (Unaudited) (Unaudited) (Unaudited) (Unaudited)
           
Revenues    $ 32,619 $ 34,277 $ 91,381   $ 93,511  
Cost of revenues     16,315   18,270   46,311     50,760  
Gross profit       16,304     16,007     45,070       42,751  
Operating expenses:          
Research and development, net      9,614    9,214    27,503      27,565  
Sales and marketing     3,640   3,635     11,468       10,640  
General and administrative     2,362   2,483   7,612     7,342  
Amortization of intangible assets     425   425   1,276     1,275  
Total operating expenses     16,041   15,757   47,859     46,822  
Operating income (loss)       263   250   (2,789 )   (4,071 )
           
Financial income, net       492     382   1,291     1,216  
Income (loss) before taxes on 
  income
     
  755
   
  632
   
  (1,498


)
   
  (2,855


)
Income tax expenses      

350
   

54
   

139
     

19
 
Net Income (loss)   $   405 $   578 $   (1,637 ) $   (2,874 )
Net earnings (loss) per share:          
  Basic   $   0.02 $   0.03 $   (0.07 ) $   (0.13 )
  Diluted   $   0.02 $   0.02 $   (0.07 ) $   (0.13 )
           
Weighted average number of shares used in per share computations of  earnings (loss) per share:            
  Basic     22,449   22,276 22,603     22,186  
  Diluted     23,338   23,243 22,603     22,186  




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,
      2018 2017 2018 2017
      Unaudited Unaudited Unaudited Unaudited
GAAP net income (loss)     $   405 $   578   $   (1,637 ) $   (2,874 )
Equity-based compensation expense included in cost of revenues        

114
   

84
     

320
     

275
 
Equity-based compensation expense included in research and development, net        

781
   

576
     

2,134
     

1,815
 
Equity-based compensation expense included in sales and marketing        

283
   

273
     

954
     

870
 
Equity-based compensation expense included in general and administrative        

574
   

505
     

1,703
     

1,566
 
Amortization of intangible assets       425   425     1,276     1,275  
Changes of deferred taxes related to intangible assets and equity-based compensation expense        

 

39
   

 

(157




)
   

 

(342




)
   

 

(319




)
Non-GAAP net income     $   2,621 $   2,284   $   4,408   $   2,608  
             
Weighted-average number of common stock used in computation of GAAP diluted net earnings (loss) per share (in thousands)       23,338   23,243     22,603     22,186  
             
Weighted-average number of shares related to outstanding options, stock appreciation rights and restricted share units (in thousands)       420   392     1,355     1,404  
             
Weighted-average number of common stock used in computation of non-GAAP diluted net earnings per share (in thousands)       23,758   23,635     23,958     23,590  
             
GAAP diluted net income  (loss) per share     $   0.02 $   0.02   $   (0.07 ) $   ( 0.13 )
Equity-based compensation expense       0.07   0.06     0.21     0.19  
Amortization of intangible assets       0.02   0.02     0.05     0.06  
Changes of deferred taxes related to intangible assets and equity-based compensation expense        
-
   -      (0.01 )    (0.01 )
Non-GAAP diluted net earnings per share     $   0.11 $   0.10   $   0.18   $   0.11  


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

      September 30, December 31,
      2018 2017
      (Unaudited) (Audited)
Assets         
Current assets:        
Cash and cash equivalents
Restricted deposits
    $

11,359
503
  $

21,324
524
 
Marketable securities and short term deposits       34,410     24,697  
Trade receivables, net       21,448     13,416  
Inventories       8,247     9,422  
Other accounts receivable and prepaid expenses       2,843     3,167  
Total current assets        78,810     72,550  
                 
Property and equipment, net       2,854     3,184  
                 
Long term marketable securities and deposits         73,398       82,669  
Severance pay fund       14,755     15,190  
Deferred income taxes       855     1,043  
Intangible assets, net       7,746     9,022  
Long term prepaid expenses and lease deposits         1,642     1,541  
        98,396     109,465  
Total assets      $ 180,060   $ 185,199  
                 
Liabilities and Stockholders’ Equity    
Current liabilities:        
Trade payables     $ 9,393   $ 8,660  
Other current liabilities       12,342     12,819  
Total current liabilities       21,735     21,479  
         
 Accrued severance pay       14,944     15,463  
 Accrued pensions       868     883  
 Deferred income taxes         146       424  
 Total long term liabilities       15,958     16,770  
Stockholders’ equity:        
 Common stock       22     22  
 Additional paid-in capital       377,162     372,041  
 Accumulated other comprehensive loss       (2,658 )   (1,874 )
 Less – Cost of treasury stock        (121,286 )    (118,397 )
Accumulated deficit         (110,873 )     (104,842 )
Total stockholders’ equity         142,367     146,950  
Total liabilities and stockholders’ equity     $ 180,060   $ 185,199  


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DSP Group, Inc.