GlobeNewswire Inc | Jul 30, 2020 07:00AM EDT

July 30, 2020

SAN JOSE, Calif., July 30, 2020 (GLOBE NEWSWIRE) -- DSP Group, Inc. (NASDAQ: DSPG), a leading global provider of voice and wireless chipset solutions for converged communications, announced today its results for the second quarter ended June 30, 2020.

Second Quarter Financial Highlights (and Comparisons to Second Quarter of 2019):

-- Total revenues of $28.3 million, a 2% decrease: Revenues from IoAT (Internet of Audio Things) businesses (formerly growth initiatives) of $18.4 million accounted for 65% of total revenues, an increase of 4%. Unified Communications segment revenues of $10.1 million, an increase of 15%. SmartVoice segment revenues of $3.9 million, a decrease of 26%. SmartHome segment revenues of $4.3 million, an increase of 18%.Cordless revenues of $9.9 million, a decrease of 12%. -- GAAP and non-GAAP gross margin of 50.3% and 50.8%, respectively, a 60 and 70 basis point increase, respectively. -- GAAP loss per share of $0.05 and non-GAAP diluted earnings per share of $0.06, compared to GAAP loss per share of $0.02 and non-GAAP diluted earnings per share of $0.07 for the second quarter of 2019. -- GAAP operating loss of $1.4 million and non-GAAP operating income of $1.0 million, compared to GAAP operating loss of $1.3 million and non-GAAP operating income of $0.9 million, respectively for the second quarter of 2019. -- GAAP net loss of $1.1 million and non-GAAP net income of $1.6 million, compared to GAAP net loss of $0.5 million and non-GAAP net income of $1.7 million for the second quarter of 2019. -- Generated $8.0 million of cash from operations, compared to $3.0 million of cash from operations in the second quarter of 2019. -- Repurchased 29,000 shares of common stock for a total consideration of $0.4 million. -- Cash, deposits and marketable securities of approximately $137.5 million as of June 30, 2020.

Management Comments:

Commenting on the results, Ofer Elyakim, CEO of DSP Group, stated: Our second quarter performance reflects prudent execution while navigating through a disrupted business environment brought about by the COVID-19 pandemic. We ended the quarter with revenues of $28.3 million, above the mid-point of our guidance range, driven by solid performance in our IoAT businesses that grew by 4% year over year to a total of $18.4 million and comprised 65% of total revenues. Our performance benefitted from solid results in our SmartHome and Unified Communications segments. Moreover, during the quarter, we announced our entry into the rapidly growing hearables market and strengthened our offerings with the acquisition of SoundChip that we closed on July 1st. By combining our core low-power voice processing and audio codec expertise with SoundChips system-level design expertise and patents around ambient noise cancellation, we have effectively doubled our potential service addressable market (SAM).

Mr. Elyakim continued: Primarily due to the pandemics impact on the global workforce, we currently expect a decline in revenues in the third quarter, particularly in the Unified Communications market. However, looking forward, the pandemic has changed culture and habits globally in ways that we believe will drive increased demand for our products in an environment that is increasingly reliant on high quality communications and remote collaboration tools. For instance, DSP Groups best-in-class technologies for voice-as-a-user-interface, IoT and unified communications are key enabling technologies for major trends that have arisen from increased sensitivity to health and safety as well as convenience and efficiency for consumers and businesses. We are well positioned for long-term sustainable growth in the SmartVoice, SmartHome and Unified Communications markets and are very excited about the increase in our SAM and growth opportunities with our recent entry into the hearables market.

Second Quarter Business Highlights:

-- Expanded our SAM by enabling a wide variety of features to support the growing hearables and VUI-enabled consumer products by leveraging our voice, edge-AI and ANC, thereby driving dynamic growth in a burgeoning market: A leading Korean OEM launched an innovative always-on remote control based on our SmartVoice SoC which enables multiple simultaneous wake-word detection, including Alexa Voice Services (AVS) supportA leading U.S. retail brand launched a new branded tablet product based on our SmartVoice solutionLeading Japanese and U.S. brands launched true wireless stereo (TWS)headsetproducts based on our best-in-classSmartANCCodecsolution -- Grew and diversified our SmartHome ecosystem with leading IoT vendors that recognize ULEs unmatched characteristics for wireless indoor connectivity. These characteristics include superior range, interference-free spectrum and native support for two-way voice: A leading European service provider selected our DECT/ULE technology for its new smart home gateway productDeutsche Telecom and Orange each launched a new smart speaker that leverages our DECT/ULE solution to offer reliable, high-performance, two-way voice supportOrange expanded its smart home devices ecosystem and launched a flood sensor -- Solidified our leadership position in the Unified Communications market as demonstrated by the following business wins: A tier 1 OEM launched a premium conference phone with high-quality audio for smart meetings and sharing based on our DVF platform.A tier 1 European networking OEM launched a new family of SIP desktop IP phones that provides enterprise grade communication experience based on our DVF97 and DVF99 SoCs.Grandstreams GRP series of Carrier-Grade IP Phones based on our DVF solution was awarded the 2020 TMC Labs INTERNET TELEPHONY Innovation Award

Second Quarter GAAP Results:

Revenues for the second quarter of 2020 were $28.3 million, a decrease of 2% from revenues of $29 million for the second quarter of 2019. Net loss and loss per share for the second quarter of 2020 were ($1.1) million and ($0.05), respectively. Net loss and loss per share for the second quarter of 2019 were ($0.5) million and ($0.02), respectively.

Second Quarter Non-GAAP Results:

Non-GAAP net income and diluted earnings per share for the second quarter of 2020 were $1.6 million and $0.06, respectively, as compared to non-GAAP net income and diluted earnings per share of $1.7 million and $0.07, respectively, for the second quarter of 2019. Non-GAAP net income and diluted earnings per share for the second quarter of 2020 excluded the impact of amortization of acquired intangible assets in the amount of $0.1 million associated with previous acquisitions, equity-based compensation expenses of $2.3 million, non-cash expenses from exchange rate differences resulting from the new lease accounting standard (ASC 842) in the amount of $0.3 million, and expenses resulted from changes in deferred taxes in the amount of $0.1 million related to intangible assets acquired in previous acquisitions and equity-based compensation expenses. Non-GAAP net income and diluted earnings per share for the second quarter of 2019 excluded the impact of amortization of acquired intangible assets in the amount of $0.1 million associated with previous acquisitions, equity-based compensation expenses of $2.1 million, non-cash expenses from exchange rate differences resulting from ASC 842 in the amount of $0.2 million, and income resulted from changes in deferred taxes in the amount of $0.1 million related to intangible assets acquired in previous acquisitions and equity-based compensation expenses.

Earnings Conference Call Details

DSP Group will discuss its second quarter financial results, along with its outlook and guidance for the third quarter of 2020, 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) 870-9135 (domestic US) or +44 (0) 2071 928338 (international) approximately 10 minutes prior to the starting time. The password is 5493607

The broadcast via the Internet can be accessed by interested parties through the Investor Relations section of DSP Groups website at www.dspg.com or link to: https://edge.media-server.com/mmc/p/mjjkf9nc

A replay of the conference call will be available for a week following the call. To listen to the session, please dial +1 (917) 677-7532, domestically or +44 (0) 3333009785, internationally and enter the company access code: 5493607#

Presentation of Non-GAAP Net Income and EPS

The Company believes that the non-GAAP presentation of net income (loss) and diluted earnings per share presented in this press release is useful to investors in comparing results for the second quarter and ended June 30, 2020 and 2019 because the exclusion of the above noted expenses may provide a more meaningful analysis of the Companys 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. Elyakims statements that: (i) by combining DSP Groups core low-power voice processing and audio codec expertise with SoundChips system-level design expertise and patents around ambient noise cancellation, the company has doubled its potential SAM; (ii) DSP Group currently expects a decline in revenues in the third quarter; (iii) DSP Groups belief that the pandemic has changed culture and habits globally in ways that will drive increased demand for its products; (iv) DSP Groups best-in-class technologies for voice-as-a-user-interface, IoT and unified communications are key enabling technologies for major trends that have arisen from the pandemic; (v) DSP Group is well positioned for long-term sustainable growth in the SmartVoice, SmartHome and Unified Communications markets; and (vi) DSP Groups expectation of increasing its SAM and growth opportunities with its recent entry into the hearables market. The results from these statements may not actually arise as a result of various factors, including the scope and duration of the pandemic; the extent and length of the shelter-in-place and other restrictions associated with the pandemic and the impact on the demand for consumer electronics and the global economy; market penetration of DSP Groups Unified Communications, ULE, VUI, SmartVoice and SmartHome products; unexpected delays in the commercial launch of new products; unexpected inventory adjustments, the speed of decline in the cordless market; DSP Groups ability to manage costs; DSP Groups 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 Groups technology in the market. These factors and other factors which may affect future operating results or DSP Groups stock price are discussed under RISK FACTORS in the Form 10-K for fiscal 2019, as well as other reports DSP Group has filed with the Securities and Exchange Commission and which are available on DSP Groups 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 global leader in wireless chipsets for a wide range of smart-enabled devices. The company was founded in 1987 on the principles of experience, insight and continuous advancement which enable the company to consistently deliver next-generation solutions in the areas of voice, audio, video and data connectivity. DSP Group, an expert in voice processing, invests heavily in innovation for the smart future and designs leading-edge semiconductor technology that is enabling our customers to develop a new wave of products that bring enhanced user experiences through innovation. For more information, visit www.dspg.com.

Contact:

Tali Chen, Chief Marketing Officer, Tali.Chen@dspg.com

SECOND QUARTER 2020 RESULTS - INFOGRAPHIC

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

Three Months Ended Six Months Ended June 30 June 30 2020 2019 2020 2019 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Revenues $ 28,336 $ 29,034 $ 56,575 $ 57,310 Cost of revenues 14,075 14,615 27,933 28,435 Gross profit 14,261 14,419 28,642 28,875 Operating expenses: Research and development, 8,455 8,559 18,809 17,481 netSales and marketing 4,435 4,386 9,446 8,869 General and administrative 2,627 2,674 4,975 5,229 Amortization of intangible 104 104 208 208 assets Total operating expenses 15,621 15,723 33,438 31,787 Operating loss (1,360 ) (1,304 ) (4,796 ) (2,912 ) Financial income, net 289 400 1,192 713 Loss before taxes (1,071 ) (904 ) (3,604 ) (2,199 )onincome Income tax expenses 6 (383 ) (62 ) (612 )(benefit) Net loss $ (1,077 ) $ (521 ) $ (3,542 ) $ (1,587 )Net loss per share: Basic and diluted $ (0.05 ) $ (0.02 ) $ (0.15 ) $ (0.07 ) Weighted average number ofshares used in per share computations of loss pershare:Basic and diluted 23,301 22,757 23,321 22,650

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

Three Months Ended Six Months Ended June 30, June 30, 2020 2019 2020 2019 Unaudited Unaudited Unaudited UnauditedGAAP net loss $ (1,077 ) $ (521 ) $ (3,542 ) $ (1,587 )Equity-based compensationexpense included in cost of 129 122 249 237 revenuesEquity-based compensationexpense included in 826 775 1,577 1,525 research and development,netEquity-based compensationexpense included in sales 620 474 1,175 876 and marketingEquity-based compensationexpense included in general 706 689 1,112 1,327 and administrativeAmortization of intangible 104 104 208 208 assetsNon-cash expenses (income)from exchange ratesdifferences resulting from 255 206 (161 ) 512 the new lease accountingstandard (ASC 842)Expenses (income) fromchanges of deferred taxesrelated to intangible 50 (105 ) (16 ) (186 )assets and equity-basedcompensation expenseNon-GAAP net income $ 1,613 $ 1,744 $ 602 $ 2,912 Weighted-average number ofcommon stock used incomputation of GAAP diluted 23,301 22,757 23,321 22,650 net loss per share (inthousands) Weighted-average number ofshares related tooutstanding options, stock 1,663 1,522 1,572 1,457 appreciation rights andrestricted share units (inthousands) Weighted-average number ofcommon stock used incomputation of non-GAAP 24,964 24,279 24,893 24,107 diluted net earnings pershare (in thousands) GAAP diluted net loss per $ (0.05 ) $ (0.02 ) $ (0.15 ) $ (0.07 )shareEquity-based compensation 0.09 0.08 0.17 0.17 expenseAmortization of intangible 0.01 0.01 0.01 0.01 assetsNon-cash expenses (income)from Exchange ratesdifferences resulting from 0.01 0.01 (0.01 ) 0.02 the new lease accountingstandard (ASC 842)Expenses (income) fromchanges of deferred taxesrelated to intangible - (0.01 ) - (0.01 )assets and equity-basedcompensation expenseNon-GAAP diluted net $ 0.06 $ 0.07 $ 0.02 $ 0.12 earnings per share

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

June 30, December 31, 2020 2019 (Unaudited) (Audited)Assets Current assets: Cash and cash equivalents $ 38,198 $ 28,737 Restricted deposits 512 518 Marketable securities and short-term deposits 50,645 39,141 Trade receivables, net 10,564 15,382 Inventories 8,127 7,464 Other accounts receivable and prepaid expenses 3,829 3,551 Total current assets 111,875 94,793 Property and equipment, net 6,582 6,805 Long term marketable securities and deposits 48,171 62,884 Severance pay fund 15,605 15,800 Operating leases? right of use assets 10,987 11,655 Deferred income taxes 6,607 6,377 Intangible assets, net 6,695 6,904 Long term prepaid expenses and lease deposits 850 707 Total long-term assets 88,915 104,327 Total assets $ 207,372 $ 205,925 Liabilities and Stockholders? Equity Current liabilities: Trade payables $ 9,127 $ 8,511 Operating lease liability 2,403 2,569 Other current liabilities 16,198 14,159 Total current liabilities 27,728 25,239 Accrued severance pay 16,059 16,074 Operating lease liability 9,768 10,436 Accrued pensions 973 963 Deferred income taxes 82 119 Total long term liabilities 26,882 27,592 Stockholders? equity: Common stock 23 23 Additional paid-in capital 390,734 386,534 Accumulated other comprehensive loss (554 ) (889 )Less ? Cost of treasury stock (111,532 ) (113,862 )Accumulated deficit (125,909 ) (118,712 )Total stockholders? equity 152,762 153,094 Total liabilities and stockholders? equity $ 207,372 $ 205,925