Diluted EPS for 2004 Increased 97% and 4%, on GAAP and Pro Forma Basis,
Respectively
Strong Backlog at Year End Leads to Improved Visibility and Updated
Projections
SANTA CLARA, Calif., Jan 25 /PRNewswire-FirstCall/ -- DSP Group, Inc.
(Nasdaq: DSPG) a worldwide leader in developing and providing chip-set
solutions for residential wireless connectivity announced today its results
for fourth quarter and year ended December 31, 2004.
Fourth Quarter Results:
Revenues for the fourth quarter of 2004 were $28,555,000, a decrease of
25% from revenues of $38,136,000 for the fourth quarter of 2003. Net income
for the fourth quarter was $1,229,000, a decrease of 79% from net income of
$5,961,000 for the fourth quarter of 2003. Diluted earnings per share (EPS)
for the fourth quarter of 2004 were $0.04, a decrease of 80% from $0.20 for
the fourth quarter of 2003. Results for the fourth quarter of 2004 included a
one-time write-off in the amount of $2,682,000 for in-process research and
development related to the acquisition of Bermai Inc.'s WiFi assets in October
2004.
Year End Results:
Revenues for the year ended December 31, 2004, were $157,511,000, an
increase of 3% over 2003 revenues of $152,875,000. Net income for 2004 was
$51,094,000, an increase of 102% from $25,355,000 for 2003. Diluted EPS for
2004 was $1.70, an increase of 98% from $0.86 for 2003.
Pro Forma Results:
Pro forma net income for the fourth quarter of 2004, excluding the
one-time write-off of in-process research and development related to the
Company's acquisition of the assets of Bermai Inc. and related tax benefit, as
stated above, was $2,972,000, a 50% decrease compared to $5,961,000 for the
fourth quarter of 2003. Pro forma diluted EPS were $0.10 for the fourth
quarter of 2004, a 50% decrease from $0.20 for the fourth quarter of 2003.
Results for 2004 included an aggregate capital gain of $44,448,000
resulting from the sale of all of our holdings in the AudioCodes Ltd. stock
and the Tomen Corporation stock. The tax effect of these capital gains was
$16,450,000. 2004 results also included a one-time write-off in the amount of
$2,682,000 for in-process research and development related to the Bermai
acquisition and related tax benefit of $939,000, as well as a one-time
goodwill impairment charge of $4,304,000 arising from the GAAP-required
re-evaluation of the remaining goodwill associated with the acquisition of
VoicePump Inc. in March 2000. The capital gain is included in the Company's
statements of income, and the write-off and impairment charge are included in
the Company's operating expenses.
Results for 2003 included a one-time write-off in the second quarter of
2003 in the amount of $2,727,000 for in-process research and development
related to the Teleman Multimedia Inc. acquisition and a one-time capital gain
of $241,000 from the sale of Tower Semiconductor Ltd. shares. The related net
tax benefit arising from the write-off and capital gain was $272,000.
Pro forma net income for the year 2004, excluding the effects of the
aforementioned capital gains, as well as the write-off and impairment charge
and related tax benefit, was $29,143,000, a 6% increase compared to
$27,569,000 for the year 2003. Pro forma diluted EPS were $0.97 for the year
2004, a 4% increase over $0.93 for the year 2003.
The Company believes that this pro forma presentation of net income and
diluted EPS is useful to investors in comparing results for the quarter and
year ended December 31, 2004 to the same periods during 2003, because it
excludes items that management does not consider meaningful for purposes of
analyzing the Company's operating results and making budget-planning
decisions.
Eli Ayalon, Chairman and CEO of DSP Group, stated: "In 2004 DSP Group
accomplished major technology and strategic achievements. Our customers won
five CES "innovative product awards" at the last Consumer Electronics Show in
Las Vegas. All these products are powered by our new chip-sets. We launched
our new DECT chip-set product line targeting the European market that offers a
one-stop-shop concept for residential wireless connectivity products. We
designed and added new video, data and CoIP (Cordless over IP) capabilities to
the traditional voice enabled market. Recently, we enhanced our future product
roadmap by adding Wi-Fi technology for transmission of voice, video and data
in the residential markets. These achievements, new market opportunities and
new product offerings give us confidence in the future growth of our
business."
Mr. Ayalon added: "As we all know the second half of 2004 was challenging
for the consumer electronics industry. The industry has encountered demand and
inventory issues which impacted our business. We believe that these issues are
now behind us. The strong flow of orders in the fourth quarter of 2004
resulted in a backlog of $40 million at year end, which gives us very good
visibility into the first quarter of 2005. Based on these factors and
additional input from our marketing channels we have updated our projections
for the first quarter of 2005 and year 2005, and shall give further details in
our scheduled conference call today."
Moshe Zelnik, VP Finance & CFO of DSP Group stated: "Despite increasing
research and development expenses in the year 2004 and a challenging market
environment in the fourth quarter, we are proud to report an increase in our
net profit and diluted EPS in 2004 as compared to 2003."
During the fourth quarter of 2004, the Company repurchased 90,000 shares
of its common stock at an average price of $20.31 per share, for approximately
$1.8 million, bringing the total number of shares repurchased in the year 2004
to 1.6 million shares at an average price of $20.09 per share and an aggregate
repurchase of $31.7 million worth of common stock. As of December 31, 2004,
approximately 3.7 million shares remained available for repurchase from
previous Board authorizations. Our cash position at year end, consisting of
cash, cash equivalents and marketable securities, reached a level of
approximately $331 million. We generated $27.4 million of cash from operating
activities in 2004.
About DSP Group
DSP Group, Inc. is a fabless semiconductor company, offering advanced
chip-set solutions for a variety of applications. DSP Group is a world leader
in the short-range wireless communication market, enabling home networking
convergence for voice, video & data. By combining its in-house technologies of
Digital Signal Processors (DSPs), portfolio of wireless communication
protocols, including DECT, Bluetooth and Wi-Fi, most advanced Radio Frequency
CMOS and SiGe, as well as VoIP ICs, DSP Group is a world leader and a
one-stop-shop for a wide range of applications. These applications include,
but are not limited to: ISM band digital 900MHz, 2.4GHz, 5.8GHz telephony,
European DECT (1.9GHz) telephony, Bluetooth systems for voice, data and video
communication and are deployed in residential, SOHO, SME, enterprise and
automotive applications. DSP Group ICs provide solutions for MP3 players, VoIP
Phones, Gateways, and Integrated Access Devices (IADs) and are widely used in
Digital Voice Recorders (DVRs). More information about DSP Group is available
at http://www.dspg.com.
Earnings conference call
DSP Group has scheduled a conference call for 8:30 a.m. EDT today to
discuss the financial results for the fourth quarter and year of 2004 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 http://www.dspg.com or link to:
http://ir.dspg.com./phoenix.zhtml?c=101665&p=irol-calendar .
If you cannot join the call, please listen to the replay, which will be
available for approximately two weeks after the call on DSP Group's Web site
or by calling the following numbers:
-- US Dial-In # 1-888-286-8010 (passcode: 73336102)
-- International Dial-In # 1-617-801-6888 (passcode: 73336102)
Forward-Looking Statements
This press release may contain statements that qualify as "forward-looking
statements" under the Private Securities Litigation Reform Act of 1995,
including statements made by Mr. Ayalon concerning new market opportunities,
his confidence in the future growth of our business, the end of the demand and
inventory issues that impacted the last half of 2004, and our visibility into
the first quarter of 2005. 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. DSP Group's actual results could differ
materially from those described in this press release as a result of various
factors, including unexpected delays in the introduction of new products;
failure of DSP Group's new products to achieve broad market acceptance,
especially in the European markets; DSP Group's inability to develop and
produce new products at competitive costs and in a timely manner; declines or
fluctuations in selling prices and gross margins as a result of entry into new
markets; challenges faced by the consumer electronics industry; changes in
silicon manufacturing costs; and general market demand for products that
incorporate DSP Group's technology. Further, although the backlog information
is useful, it may not be a reliable measure of our sales for any future
period. These and other factors which may affect future operating results and
DSP Group's stock price are discussed under "RISK FACTORS" in the Form 10-K
for the year ended December 31, 2003, as well as other reports, including Form
10-Qs, DSP Group has filed with the Securities and Exchange Commission and
which are available on DSP Group's Web site (http://www.dspg.com) under Investor
Relations.
DSP GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME - US GAAP
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
2004 2003 2004 2003
Product revenues and other $ 28,555 $ 38,136 $ 157,511 $ 152,875
Cost of product revenues
and other 14,191 19,451 80,368 83,077
Gross profit 14,364 18,685 77,143 69,798
Operating expenses:
Research and development 8,820 8,197 32,147 25,599
Sales and marketing 2,278 3,361 11,292 11,977
General and administrative 1,854 1,947 7,112 6,953
Impairment of goodwill -- -- 4,304 --
In-process research and
development write-off 2,682 -- 2,682 2,727
Total operating expenses 15,634 13,505 57,537 47,256
Operating income (loss) (1,270) 5,180 19,606 22,542
Other income:
Interest and other income, net 2,169 2,002 8,522 7,947
Capital gains -- -- 44,448 241
Income before provision
for income taxes 899 7,182 72,576 30,730
Provision (benefit)
for income taxes (330) 1,221 21,482 5,375
Net income $ 1,229 $ 5,961 $ 51,094 $ 25,355
Net earnings per share:
Basic $ 0.04 $ 0.21 $ 1.79 $ 0.91
Diluted $ 0.04 $ 0.20 $ 1.70 $ 0.86
Weighted average number
of shares of Common Stock
used in the computation of:
Basic 27,959 28,615 28,574 27,912
Diluted 29,092 30,344 30,026 29,593
DSP GROUP, INC.
CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(In thousands, except per share amounts)
Three Months Ended Year Ended
December 31, December 31,
2004 2003 2004 2003
Product revenues and other $ 28,555 $ 38,136 $ 157,511 $ 152,875
Cost of product revenues
and other 14,191 19,451 80,368 83,077
Gross profit 14,364 18,685 77,143 69,798
Operating expenses:
Research and development 8,820 8,197 32,147 25,599
Sales and marketing 2,278 3,361 11,292 11,977
General and administrative 1,854 1,947 7,112 6,953
Total operating expenses 12,952 13,505 50,551 44,529
Operating income 1,412 5,180 26,592 25,269
Other income:
Interest and other income, net 2,169 2,002 8,522 7,947
Income before provision for
income taxes 3,581 7,182 35,114 33,216
Provision for income taxes 609 1,221 5,971 5,647
Net income $ 2,972 $ 5,961 $ 29,143 $ 27,569
Net earnings per share:
Basic $ 0.11 $ 0.21 $ 1.02 $ 0.99
Diluted $ 0.10 $ 0.20 $ 0.97 $ 0.93
Weighted average number of
shares of Common Stock used
in the computation of:
Basic 27,959 28,615 28,574 27,912
Diluted 29,092 30,344 30,026 29,593
The above pro forma
consolidated statements
of income have been
adjusted to exclude
the following items to
US GAAP reported net income:
Reported net income per US GAAP $ 1,229 $ 5,961 $ 51,094 $ 25,355
Adjustments:
Impairment of goodwill -- -- 4,304 --
In-process research &
development write- off 2,682 -- 2,682 2,727
Capital gains -- -- (44,448) (272)
Tax expenses (benefit) (939) -- 15,511 (241)
Pro forma net income $ 2,972 $ 5,961 $ 29,143 $ 27,569
DSP GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31, December 31,
2004 2003
Assets
Current assets:
Cash and cash equivalents $ 72,102 $ 36,812
Marketable securities and cash deposits 63,222 42,490
Trade receivables, net 5,976 15,844
Inventories 9,469 8,466
Other accounts receivable 2,213 1,462
Deferred income taxes 1,168 1,326
Total current assets 154,150 106,400
Property and equipment, net 6,683 7,108
Long term marketable securities 195,671 197,071
Investment in equity securities of traded companies -- 47,138
Severance pay fund 3,437 2,360
Long term pre-paid expenses and lease deposits 628 513
Goodwill 1,500 5,804
Deferred income taxes 1,410 --
Other intangible assets 3,482 2,076
Total assets $366,961 $368,470
Liabilities and Stockholders' Equity
Current liabilities:
Trade payable $ 7,830 $ 11,221
Other current liabilities 39,857 34,292
Total current liabilities 47,687 45,513
Long term liabilities:
Accrued severance pay 3,784 2,555
Long term liability -- 1,429
Deferred income taxes -- 14,592
Total long term liabilities 3,784 18,576
Stockholders' equity:
Common Stock 28 29
Additional paid-in capital 187,471 174,700
Accumulated other comprehensive income 65 23,045
Retained earnings 157,723 107,799
Less - Cost of treasury stock (29,797) (1,192)
Total stockholders' equity 315,490 304,381
Total liabilities and stockholders' equity $366,961 $368,470
CONTACT:
Yaniv Arieli
President of US Operations, Investor Relations
DSP Group Inc
+1-408-986-4423
yarieli@dspg.com.
SOURCE DSP Group, Inc.
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CONTACT:
Yaniv Arieli, President of US Operations,
Investor Relations, of DSP Group Inc., +1-408-986-4423, or
yarieli@dspg.com
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