8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): February 4, 2021

DSP GROUP, INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware
(State or Other Jurisdiction of Incorporation)

1-35256 (Commission File Number)	94-2683643 (I.R.S. Employer Identification No.)
2055 Gateway Place, #480, San Jose, California (Address of Principal Executive Offices)	95110 (Zip Code)

972-9-952-9696
(Registrant’s Telephone Number, Including Area Code)

With a copy to:
Jaclyn Liu, Esq.
Morrison & Foerster llp
425 Market Street
San Francisco, CA 94105

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $.001 per share	DSPG	The NASDAQ Stock Market LLC

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

ITEM 2.02. RESULTS OF OPERATIONS AND FINANCIAL CONDITION

On February 4, 2021, DSP Group, Inc. (the “Company”) announced its financial results for the quarter and year ended December 31, 2020.  A copy of the press release, dated February 4, 2021, is attached and filed herewith as Exhibit 99.1.  On the same day, the Company held a conference call to discuss its financial results for the quarter and year ended December 31, 2020.  A copy of the script of the conference call is attached hereto as Exhibit 99.2. This information, including Exhibits 99.1 and 99.2 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.

In addition to the disclosure of financial results for the quarter and year ended December 31, 2020 in accordance with generally accepted accounting principles in the United States (“GAAP”), the press release also included non-GAAP net income and diluted earnings per share, for the quarters and years ended December 31, 2020 and 2019 that excluded (a) for the quarter ended December 31, 2020, the impact of amortization of acquired intangible assets in the amount of $0.4 million associated with previous acquisitions, equity-based compensation expenses of $3.2 million, non-cash expenses from exchange rate differences resulting from lease accounting standard (ASC 842) in the amount of $0.7 million, amortization of employees retention expenses related to the acquisition of SoundChip S.A. (“SoundChip”) in the amount of $0.25 million and income resulting from changes in deferred taxes in the amount of $0.3 million related to intangible assets acquired in previous acquisitions and equity-based compensation expenses; (b) for the quarter ended December 31, 2019, the impact of amortization of acquired intangible assets in the amount of $0.1 million associated with previous acquisitions, equity-based compensation expenses of $1.8 million, non-cash exchange rate differences resulting from ASC 842 in the amount of $0.1 million and changes in deferred taxes in the amount of $0.3 million related to intangible assets acquired in previous acquisitions and equity-based compensation expenses; (c) for the year ended December 31, 2020, the impact of amortization of acquired intangible assets of $1.1 million associated with current and previous acquisitions; equity-based compensation expenses of $9.7 million, non-cash exchange rate differences resulting from ASC 842 in the amount of $0.6 million, transaction expenses related to the acquisition of SoundChip in the amount of $0.25 million, amortization of employees retention expenses related to the acquisition of SoundChip in the amount of $0.5 million and changes in deferred taxes related to intangible assets acquired in current and previous acquisitions and equity-based compensation expenses in the amount of $0.5 million; and (d) for the year ended December 31, 2019, the impact of amortization of acquired intangible assets of $0.4 million associated with previous acquisitions; equity-based compensation expenses of $7.6 million, non-cash exchange rate differences resulting from ASC 842 in the amount of $0.8 million, and changes in deferred taxes related to intangible assets acquired in previous acquisitions and equity-based compensation expenses in the amount of $0.6 million.

The Company believes that the non-GAAP presentation in the press release is useful to investors in analyzing the results for the quarter and year ended December 31, 2020 and 2019 because the exclusion of such expense may provide a more meaningful analysis of the Company’s core operating results. Further, the Company believes it is useful for investors to understand how the expenses associated with the application of FASB ASC No. 718 are reflected on its statements of income. The non-GAAP financial measures are used in addition to and in conjunction with results presented in accordance with GAAP, and are intended to provide additional insight into the Company’s operations that, when viewed with its GAAP results and the accompanying reconciliations to corresponding GAAP financial measures, offer a more complete understanding of factors and trends affecting the Company’s business. The non-GAAP presentation should not be viewed as a substitute for the Company’s reported GAAP results.

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ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS.

d. Exhibits

Exhibit No.	Description
99.1	Press Release of DSP Group, Inc., dated February 4, 2021.
99.2	Script of the conference call of DSP Group, Inc., dated February 4, 2021
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	DSP GROUP, INC.
Date:     February 4, 2021	By:	/s/ Dror Levy
		Dror Levy
		Chief Financial Officer
		and Secretary

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EX-99.1

Exhibit 99.1

DSP Group, Inc. Reports Fourth Quarter 2020 and Full Year Results

Fourth quarter revenues of $31.9 million, up 9% YoY, exceeding guidance

Record high fourth quarter non-GAAP gross margins of 51.9%

San Jose, Calif., February 4, 2021 - DSP Group^®, Inc. (NASDAQ: DSPG), a leading global provider of wireless chipset solutions for converged communications, announced today its results for the fourth quarter and full year ended December 31, 2020.

Fourth Quarter 2020 Financial Highlights (and Comparison to Fourth Quarter 2019):

● Total revenues of $31.9 million, a 9% increase:

o Revenues from IoAT (Internet of Audio Things) businesses of $18.1 million accounted for 57% of total revenues, a decrease of 8%.

o Unified Communications segment revenues of $8.2 million, a decrease of 17%.

o SmartVoice segment revenues of $5.0 million, an increase of 2%.

o SmartHome segment revenues of $4.8 million, an increase of 3%.

o Cordless revenues of $13.8 million, an increase of 42%.

● GAAP and non-GAAP gross margin of 51.3% and 51.9%, respectively, an increase of 40 and 70 basis points, respectively.

● GAAP loss per share of $0.06 and non-GAAP diluted earnings per share of $0.12, compared to zero GAAP diluted loss per share and non-GAAP diluted earnings per share of $0.06 for the fourth quarter of 2019.

● GAAP operating loss of $1.0 million and non-GAAP operating income of $2.9 million, compared to GAAP operating loss of $1.2 million and non-GAAP operating income of $0.7 million for the fourth quarter of 2019.

● GAAP net loss of $1.4 million and non-GAAP net income of $2.9 million, compared to GAAP net loss of $0.1 million and non-GAAP net income of $1.6 million for the fourth quarter of 2019.

● Generated $8.6 million of cash from operations, compared to $10.8 million of cash generated from operations in the fourth quarter of 2019.

● Cash, deposits and marketable securities of approximately $128.6 million as of December 31, 2020.

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Full Year 2020 Financial Highlights (and Comparison to Full Year 2019):

● Total revenues of $114.5 million, vs. $117.6 million in 2019, a 3% decrease.

o Revenues from IoAT businesses of $68.1 million, a year-over-year decrease of 8% when compared to 2019.

o Unified Communications segment revenues of $31.2 million, a year-over-year decrease of 18%.

o SmartVoice segment revenues of $20.2 million, a year-over-year increase of 4%.

o SmartHome revenues of $16.8 million, a year-over-year increase of 3%.

o Cordless revenues of $46.3 million, a year-over-year increase of 6%.

● GAAP and non-GAAP gross margin of 50.8% and 51.4%, respectively, an increase of 20 and 40 basis points, as compared to 2019 gross margin of 50.6% on GAAP and 51.0% on non-GAAP basis.

● GAAP operating loss of $8.1 million and non-GAAP operating income of $3.4 million, compared to GAAP operating loss of $4.4 million and non-GAAP operating income of $3.6 million in 2019.

● GAAP net loss of $6.8 million and non-GAAP net income of $4.8 million, compared to GAAP net loss of $1.2 million and non-GAAP net income of $7.0 million in 2019.

● GAAP loss per share of $0.29 and non-GAAP diluted earnings per share of $0.19, compared to GAAP loss per share of $0.05 and non-GAAP earning per share of $0.29 in 2019.

● Generated $14.6 million of cash from operating activities, compared to $10.5 million in 2019.

Management Comments:

Commenting on the results, Ofer Elyakim, CEO of DSP Group, stated: “We are very pleased with our fourth quarter financial results, and particularly with our diversified voice centric product portfolio that drove a strong finish to a volatile year. Fourth quarter revenues of $31.9 million exceeded our guidance range and grew by 9% year over year and 23% sequentially. These results were further propelled by digitally transformed work-live-study routines as evidenced by the accelerating demand for work from home products, including remote collaboration tools, cordless phones, voice AI and IoT devices.”

Mr. Elyakim continued, “Looking ahead, we are excited about the momentum surrounding our business and the pivotal role that our innovative technologies are playing in the newly emerging voice centric marketplace. While industry-wide supply chain constraints are placing limitations on product deliveries, we are experiencing solid end-market demand across our different businesses and expect first quarter revenues to grow both sequentially and year-over-year. Moreover, the transformation to a voice-centric world positions us well for sustainable growth. Our dedicated focus and R&D investments in voice communications, Edge AI and IoT are paying off and have created a deep and diversified technology offering, which is evidenced by the following accomplishments: positioning ULE as a prime connectivity in the home security market, establishing SmartVoice franchise as the market leading solution in key consumer categories and proliferating our voice and video technologies in the evolving collaboration market.”

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Fourth Quarter Business Highlights:

● Continued to grow and strengthen our SmartVoice franchise with design wins and product launches for voice user interfaces (VUIs) with leading consumer electronics OEMs, thereby driving dynamic growth in a burgeoning market:

o Major U.S. retail brand and Lenovo launched new tablet models based on our SmartVoice solution.

o A leading U.S. platform company launched its second-generation smart wearable product leveraging our SmartVoice edge AI SoC

o TaoTronics launched a new TWS headset based on our SmartVoice solution for its differentiated edge AI capabilities.

● Grew and diversified our SmartHome ecosystem with leading global IoT vendors that recognize ULE’s unmatched characteristics for wireless indoor IoT, including superior range, interference-free spectrum and native support for two-way voice:

o A leading European service provider chose our DECT/ULE for its next generation professional smart security offering.

o A leading U.S. brand selected our DECT/ULE for its elderly care system that includes hub, pendant and additional assisted voice-enabled devices.

o Atlinks selected our DECT/ULE solution for its wireless Hi-Fi audio streaming product.

● Solidified our leadership position and expanded our market share in the Unified Communications market, as demonstrated by the following business wins:

o A Tier 1 UC OEM selected our high-end DVFxx solution to drive its next generation personal video collaboration system.

o A leading U.S. video collaboration vendor brand selected our SmartVoice voice communication engine for a hybrid collaboration endpoint.

o Yealink announced its new Microsoft Teams wireless DECT headset based on our industry leading solution.

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Fourth Quarter and Year End GAAP Results:

Revenues for the fourth quarter of 2020 were $31.9 million, an increase of 9% from revenues of $29.3 million for the fourth quarter of 2019. Net loss and loss per share for the fourth quarter of 2020 were $1.4 million and $0.06, respectively. Net loss and loss per share for the fourth quarter of 2019 were $0.1 million and $0.00, respectively.

Revenues for the year ended December 31, 2020 were $114.5 million, a decrease of 3% from 2019 revenues of $117.6 million. Net loss for 2020 was $6.8 million, compared to a net loss of $1.2 million for 2019. Loss per share for 2020 was $0.29, compared to loss per share of $0.05 for 2019.

Fourth Quarter and Year-End Non-GAAP Results:

Non-GAAP net income and diluted earnings per share for the fourth quarter of 2020 were $2.9 million and $0.12, respectively, as compared to non-GAAP net income and diluted earnings per share of $1.6 million and $0.06, respectively, for the fourth quarter of 2019. Non-GAAP net income and diluted earnings per share for the fourth quarter of 2020 excluded the impact of amortization of acquired intangible assets in the amount of $0.4 million associated with previous acquisitions, equity-based compensation expenses of $3.2 million, non-cash expenses from exchange rate differences resulting from lease accounting standard (ASC 842) in the amount of $0.7 million, amortization of employees retention expenses related to the acquisition of SoundChip in the amount of $0.25 million and income resulting from changes in deferred taxes in the amount of $0.3 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 fourth 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 $1.8 million, non-cash expenses from exchange rate differences resulting from ASC 842 in the amount of $0.1 million, and income resulting from changes in deferred taxes in the amount of $0.3 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 year ended December 31, 2020 were $4.8 million and $0.19, respectively, as compared to non-GAAP net income and diluted earnings per share of $7.0 million and $0.29, respectively, for the year ended December 31, 2019.

Non-GAAP net income and diluted earnings per share for the year ended December 31, 2020 excluded the impact of amortization of acquired intangible assets of $1.1 million associated with current and previous acquisitions; equity-based compensation expenses of $9.7 million, non-cash exchange rate differences resulting from ASC 842 in the amount of $0.6 million, transaction expenses related to the acquisition of SoundChip in the amount of $0.25 million, amortization of employees retention expenses related to the acquisition of SoundChip in the amount of $0.5 million and changes in deferred taxes related to intangible assets acquired in current and previous acquisitions and equity-based compensation expenses in the amount of $0.5 million.

Non-GAAP net income and diluted earnings per share for the year ended December 31, 2019 excluded the impact of amortization of acquired intangible assets of $0.4 million associated with previous acquisitions; equity-based compensation expenses of $7.6 million, non-cash exchange rate differences resulting from ASC 842 in the amount of $0.8 million, and changes in deferred taxes related to intangible assets acquired in previous acquisitions and equity-based compensation expenses in the amount of $0.6 million.

Earnings Conference Call Details 

DSP Group will discuss its fourth quarter financial results, along with its outlook and guidance for the first quarter of 2021, 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 +16467413167 (domestic US) or +44 (0) 2071 928338 (international) approximately 10 minutes prior to the starting time. The password is 4996754.

The broadcast via the Internet can be accessed by interested parties through the Investor Relations section of DSP Group’s website at www.dspg.com or link to:

https://edge.media-server.com/mmc/p/4wohuk4f

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: 4996754#

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Presentation of Non-GAAP Net Income and EPS

The Company believes that the non-GAAP presentation of net income (loss) and diluted earnings (loss) per share presented in this press release is useful to investors in comparing results for the fourth quarter and ended December 31, 2020 and 2019 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 and amortization of employees’ retention expenses related to the acquisition 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 about: (i) the optimism about the company’s momentum for its business and the pivotal role that its technologies are playing in the newly emerging voice-centric marketplace, (ii) the improving end market demand across the company’s different businesses, (iii) expectation of first quarter revenues to grow both sequentially and year-over-year, (iv) belief that the transformation to a voice-centric world positions the company well for sustainable growth, and (v) dedicated focus and R&D investments in voice communications, Edge AI and IoT are paying off and have created a deep and diversified technology offering. 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 remote work environment and other restrictions associated with the pandemic and the impact on the demand for consumer electronics; SmartVoice and unified communications products and the global economy; the impact of industry-wide supply chain constraints; market penetration of DSP Group’s 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 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 2019, 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 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:

Shiri Weiss, IR & Communications, Shiri.Weiss@dspg.com

5

DSP GROUP, INC.

    CONSOLIDATED STATEMENTS OF INCOME

    (In thousands, except per share amounts)

	Three Months Ended December 31						Twelve Months Ended December 31
	2020			2019			2020			2019
	(Unaudited)			(Unaudited)			(Unaudited)			(Audited)
Revenues	$	31,885		$	29,261		$	114,480		$	117,613
Cost of revenues		15,543			14,369			56,290			58,066
Gross profit		16,342			14,892			58,190			59,547
Operating expenses:
Research and development, net		8,580			8,827			35,511			35,552
Sales and marketing		4,642			4,485			18,205			17,665
General and administrative		3,671			2,701			11,510			10,318
Amortization of intangible assets		430			104			1,065			416
Total operating expenses		17,323			16,117			66,291			63,951
Operating loss		(981	)		(1,225	)		(8,101	)		(4,404	)
Financial income (expenses), net		(304	)		525			1,231			1,654
Loss before taxes on income		(1,285	)		(700	)		(6,870	)		(2,750	)
Taxes on income (tax benefit)		72			(613	)		(80	)		(1,560	)
Net loss	$	(1,357	)	$	(87	)	$	(6,790	)	$	(1,190	)
Net loss per share:
Basic and Diluted	$	(0.06	)	$	(0.00	)	$	(0.29	)	$	(0.05	)
Weighted average number of shares used in per share computations of loss per share:
Basic and Diluted		23,661			23,054			23,466			22,827

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Unaudited Reconciliation of GAAP to Non-GAAP Financial Measures

    (In thousands, except per share amounts)

	Three Months Ended						Twelve Months Ended
	December 31,						December 31,
	2020			2019			2020			2019
	Unaudited			Unaudited			Unaudited			Unaudited
GAAP net loss	$	(1,357	)	$	(87	)	$	(6,790	)	$	(1,190	)
Equity-based compensation expense included in cost of revenues		133			102			524			448
Equity-based compensation expense included in research and development, net		925			640			3,448			2,842
Equity-based compensation expense included in sales and marketing		605			440			2,426			1,758
Equity-based compensation expense included in general and administrative		1,504			611			3,315			2,583
Amortization of employee’s retention expenses related to the acquisition of SoundChip included in cost of revenues		67			-			134			-
Amortization of employee’s retention expenses related to the acquisition of SoundChip included in sales and marketing		149			-			298			-
Amortization of employee’s retention expenses related to the acquisition of SoundChip included in research and development, net		34			-			68			-
Transaction expenses related to the acquisition of SoundChip		-			-			249			-
Amortization of intangible assets		430			104			1,065			416
Non-cash expenses from exchange rates differences resulting from lease accounting standard (ASC 842)		678			62			607			785
Income from changes of deferred taxes related to intangible assets and equity-based compensation expense		(277	)		(297	)		(526	)		(618	)
Non-GAAP net income	$	2,891		$	1,575		$	4,818		$	7,024
Weighted-average number of common stock used in computation of GAAP diluted net loss per share (in thousands)		23,661			23,054			23,466			22,827
Weighted-average number of shares related to outstanding options, stock appreciation rights and restricted share units (in thousands)		1,459			1,342			1,542			1,420
Weighted-average number of common stock used in computation of non-GAAP diluted net earnings per share (in thousands)		25,120			24,396			25,008			24,247
GAAP diluted net loss per share	$	(0.06	)	$	(0.00	)	$	(0.29	)	$	(0.05	)
Equity-based compensation expense		0.13			0.07			0.40			0.31
Amortization of intangible assets		0.02			0.00			0.04			0.02
Transaction expenses related to the acquisition of SoundChip		-			-			0.01			-
Amortization of employee’s retention expenses related to the acquisition of SoundChip		0.01			-			0.02			-
Non-cash expenses from Exchange rates differences resulting from lease accounting standard (ASC 842)		0.03			0.00			0.03			0.03
Income from changes of deferred taxes related to intangible assets and equity-based compensation expense		(0.01	)		(0.01	)		(0.02	)		(0.02	)
Non-GAAP diluted net earnings per share	$	0.12		$	0.06		$	0.19		$	0.29

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DSP GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	December 31,			December 31,
	2020			2019
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	16,936		$	28,737
Restricted deposits		548			518
Marketable securities and short-term deposits		50,411			39,141
Trade receivables, net		11,003			15,382
Inventories		9,061			7,464
Other accounts receivable and prepaid expenses		3,460			3,551
Total current assets		91,419			94,793
Property and equipment, net		6,574			6,805
Long term marketable securities and deposits		60,658			62,884
Severance pay fund		16,285			15,800
Operating leases– right of use assets		11,157			11,655
Deferred income taxes		6,893			6,377
Intangible assets, net		20,654			6,904
Long term prepaid expenses		2,888			707
Total long-term assets		118,535			104,327
Total assets	$	216,528		$	205,925
Liabilities and Stockholders’ Equity
Current liabilities:
Trade payables	$	10,708		$	8,511
Operating lease liability		3,004			2,569
Other current liabilities		15,724			14,159
Total current liabilities		29,436			25,239
Accrued severance pay		16,647			16,074
Operating lease liability		10,100			10,436
Accrued pensions		1,089			963
Deferred income taxes		1,073			119
Other long-term liabilities		1,945			-
Total long-term liabilities		30,854			27,592
Stockholders’ equity:
Common stock		24			23
Additional paid-in capital		396,335			386,534
Accumulated other comprehensive loss		(637	)		(889	)
Less – Cost of treasury stock		(108,509	)		(113,862	)
Accumulated deficit		(130,975	)		(118,712	)
Total stockholders’ equity		156,238			153,094
Total liabilities and stockholders’ equity	$	216,528		$	205,925

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EX-99.2

Exhibit 99.2

DSP Group, Inc.

Fourth Quarter and Full Year 2020 Financial Results Conference Call

Prepared Remarks of Ofer Elyakim, Chief Executive Officer and
 

Dror Levy, Chief Financial Officer

February 4, 2021

Tali Chen

Good morning, ladies and gentlemen. I am Tali Chen, CVP and Chief Business Officer at DSP Group. Welcome to our fourth quarter and full year 2020 earnings conference call. On today’s call, we also have with us Mr. Ofer Elyakim, Chief Executive Officer, and Mr. Dror Levy, Chief Financial Officer. Before we begin, I would like to remind you that during this conference call, we will be making forward-looking statements about our financial guidance for the first quarter of 2021, revenue growth in 2021, optimism about our engagement pipeline with strategic customers, optimism about DSP Group leveraging trends arising from the pandemic, including accelerated voice-centric products, Voice User Interfaces and increased voice communications, recovery of Unified Communications segment in 2021 to return to solid growth, optimism about ULE technology as a key wireless connectivity solution for the global smart home and security industries, and our ability to sustain long-term growth. We assume no obligation to update these forward-looking statements. For more information about the risks and factors that could affect the forward-looking statements made herein, please refer to the risk factors discussed in our 2019 Form 10-K and other SEC reports we have filed. Now I would like to turn the call over to Ofer Elyakim, our Chief Executive Officer. Ofer, the floor is yours.

Ofer Elyakim:

Thank you Tali. Good morning everyone and thanks for joining us today. I hope that you had the opportunity to read our press release, which we distributed earlier this morning. I would like to begin by reviewing our results for the fourth quarter and the full year, then commenting on the progression of our business plan, and finally providing context for our outlook. In a short while, Dror will provide you with detailed comments about our financial results for the fourth quarter, full year 2020 and outlook for the first quarter of 2021.

We are very pleased with our business performance and the momentum that lies ahead.

Our fourth quarter results exceeded our guidance on most financial metrics. Revenues of $31.9 million, came well ahead of our guidance range, and grew by 9% year-over-year and by 23% sequentially. These better than expected results are the outcome of improving demand across our diversified product offering. We are excited about the solid momentum surrounding our business and the pivotal role that our innovative technologies are playing in the newly emerging voice-centric marketplace, highlighted by the following trends:

1. A surge in voice calls: the ongoing social distancing and global lockdown restrictions made voice communications essential and have led to a much increased usage of phones at home.

2. Voice User Interface, or VUI, has evolved into a “must have feature.” Potential health hazards associated with “high-touch” surfaces have accelerated the adoption of voice as a user interface for a broad array of products and use cases.

3. Collaboration and work from home: These two trends have become essential for preserving business continuity and productivity in the now “elastic” enterprise.

While industry-wide supply-chain constraints are curbing product deliveries, the above-mentioned voice-centric trends have fueled demand for cordless and SmartHome products, drove faster-than-expected recovery of our Unified Communications segment, and solid demand for SmartVoice products—following a record quarter. These achievements further drove record-high non-GAAP quarterly gross margins of 51.9%, which benefitted from a proportionally lower fixed cost portion, which offset the product mix.

From an annual perspective, we ended 2020 with revenues of approximately $114.5 million, vs. $117.6 million in 2019, representing a 3% decrease, primarily due to weaker and volatile demand for unified communications products as a result of a shift in enterprise IT spending from on-prem to WFH.

Nevertheless, DSP Group is a major beneficiary of the wide adoption of voice-centric technologies that thrived during the pandemic. The diversity of our products and technology portfolio proved invaluable this year as demonstrated by the strong performance of the cordless product line which greatly offset the weakness in Unified Communications segment.

Looking ahead, we are off to a solid start for the year on the heels of a robust design pipeline and a record number of new Tier 1 customer engagements across our IoAT businesses. We are leveraging our proven leadership position in Voice, EdgeAI and IoT, as demonstrated by the following major accomplishments:

1) Positioning of ULE as a prime connectivity in the home security market.

2) Establishing SmartVoice franchise as the market leading solution in key consumer categories.

3) Proliferating our voice and video technologies in the evolving collaboration market.

These achievements coupled with the solid momentum positions us well for a successful 2021.

Now I’d like to provide you with more color on our performance in each of the product segments.

Starting with SmartVoice:

During the fourth quarter, we generated revenues of approximately $5 million from sales of SmartVoice solutions, reflecting a year-over year growth of 2%, while 30% down on a sequential basis following a record third quarter.

We are pleased with the performance of the SmartVoice segment in 2020, and despite a weaker first half mainly impacted by demand shortfall for certain applications due to shelter in place restrictions, demand for VUI-based products recovered nicely in the second half, ending the year with record revenues of $20.2 million, representing an increase of 4% vs. 2019.

This growth was driven by strong demand for devices incorporating VUI, underscoring a shift in consumer preference in favor of voice-based interfaces, a trend that accelerated during the year.

During the quarter, we continued to grow and strengthen our SmartVoice franchise by securing new design wins and commenced MP shipments ahead of new product launches by leading consumer electronics OEMs and established our leadership in key market segments including:

1. Hearables: The WFH environment drove increased demand for hearable products such as True Wireless Stereo (TWS) and over-the-ear headphones. During 2020, we entered into this rapidly growing market through the acquisition of SoundChip and complemented our low-power DSP offering with best-in-class smart codecs with digital hybrid ANC. During this quarter, TaoTronics launched its TWS headset leveraging our solutions including always-on voice and voice AI

2. Tablets: 2020 marked a record year for screen-based products driven by work-from-home and remote learning. DSP Group, as the leading vendor of voice activated screens, benefited from this growing demand. There are now more than 30 different voice-activated tablets powered by our SmartVoice technology. During the fourth quarter a major US retailer, Lenovo and other leading brands launched new tablet models based on our SmartVoice solution to enable VUI and Edge AI use cases.

3. Lastly, a leading platform brand launched a commercial version of its smart wearable product leveraging our advanced SmartVoice Edge AI SoC.

These customer wins and the record number of new product launches illustrate the depth and diversity of our SmartVoice franchise as well as the strength of our customer relationships and our ability to continuously introduce new technologies and raise the bar on quality and performance, while simultaneously driving down power consumption.

During the quarter, we announced the availability of the DBM10 SoC – the newest member of our SmartVoice family. The DBM10 is a low-power edge AI/ML SoC with two processors: a highly efficient and LP DSP and a dedicated neural network inference processor. The SoC is a scalable solution based on an open platform architecture, with cost- and power-optimized design mind to simplify and shorten TTM of AI and ML products for mobile, wearables, hearables, and IoT applications.

We believe that our SoC expertise and signal-processing proficiency, combined with our on-going technology innovation in the areas of ANC, smart CODEC and AI/ML for voice devices, will ensure that our SmartVoice business will be a pivotal growth driver to our business at a time of rapid change and new product innovation and the introduction of exciting new applications.

Moving on to our Unified Communications segment

In the fourth quarter, we generated revenues of approximately $8.2 million, representing a year-over-year decrease of 17%, and a sequential increase of 218%, demonstrating a faster-than-expected rebound from a stalemate situation in the third quarter.

We ended the year with total revenues of $31.2 million, representing a year-over-year decrease of 18%. We are highly disappointed by these results and attribute the broad weakness and revenue decline to the fundamental change in the workplace environment during 2020, enforcing sharp IT budgets shifts from on- Prem to off-Prem. This trend created less demand for traditional Unified Communications end points that typically serve office desks, in favor of WFH devices, including headset, loudspeakers, cordless phones and more.

Nonetheless, we remain highly confident in the continued recovery of this segment as evidenced by better than expected demand in the fourth quarter driven by a robust recovery and product intake by large enterprises and government institutions for Unified Communications products.

Moreover, businesses around the globe are gradually returning to the office and adopting a hybrid model that supports on prem and remote work. This trend should stimulate budgets shifts towards renewed investments on office re-modelling and infrastructure to incorporate more technology and higher performance requirements to meet more elastic end-user expectations.

In addition, the pandemic has created new opportunities to support the significant digital transformation this market went through this year. Newer players as well as incumbents are in the process of defining and building new HW and SW designed to fit with the hybrid working model and our design wins and achievements this quarter reflect this trend:

● A tier-one Unified Communications OEM selected our high end DVFxx solution for its next-generation video collaboration system. Leveraging DSP Group’s expertise to support high end voice and video in a device targeted for the hybrid work environment that enables high-quality communication and collaboration.

● A leading US vendor of video collaboration equipment selected our best-in-class voice communication engine for a purpose built HW to serve the rising need for high quality collaboration systems.

● And last, Yealink announced its new Microsoft Teams wireless DECT headset based on our technology. The rapid and largely successful shift to remote working in response to the coronavirus lockdown has raised the demand for such product categories as people look to sustain or improve productivity while enhancing the virtual collaborative experiences. Headsets have become a key tool for those trying to enhance collaboration and, according to some analysts, demand for such products grew by over 100% in 2020 amid the pandemic.

Looking forward, these developments, the improving demand pattern and our new business wins position us well for solid revenue growth in the Unified Communication segment this year— and beyond.

Turning to our SmartHome product line:

During the fourth quarter, we generated revenues of $4.8 million, posting a record quarter, with a year over year increase of 3% and 31% on a sequential basis.

Full-year SmartHome revenues of $16.8 million, grew by 3% year over year.

More importantly, 2020 was a breakthrough year for our SmartHome business. We successfully established our ULE technology as a key wireless connectivity solution for the global smart home and security industries. Furthermore, the surge in voice calls made from home drove more adoption of DECT/ULE in CPEs by leading telecommunication service providers, creating a much larger DECT/ULE install base.

During the quarter, we continued to grow and diversify our SmartHome ecosystem with leading global IoT vendors that recognize ULE’s unmatched characteristics for wireless indoor IoT, including superior range, interference-free spectrum and native support for two-way voice, such as:

● A leading European SP chose our DECT/ULE solution for its next-generation Smart Security offering.

● A US brand selected our DECT/ULE solution for its elderly care system that includes hub, pendant and additional assisted voice enabled devices.

● Atlinks chose our DECT/ULE solution for its wireless Hi-Fi audio streaming system.

The momentum behind DECT/ULE technology is strong, and we expect our robust engagement pipeline with security and telecommunication service providers to fuel faster expansion of the DECT/ULE ecosystem with additional products by leading brands. The broad adoption by industry bellwethers will serve as an important pillar of our growth strategy in 2021 and beyond.

And now for an update on the cordless phone market:

During the fourth quarter, we experienced a stronger-than-expected demand for cordless products. Social distancing, work from home, remote learning, and other outgrowths of the pandemic stimulated a resurgence in voice traffic and propelled demand for cordless products, such unexpected surge in demand completely depleted retail and channel inventory. This forced vendors to invest heavily in expediting shipments and increasing demand, driving revenues to $13.8M, up 42% year over year and 10% on a sequential basis.

For the full year 2020, our cordless business generated revenues of $46.3 million, representing an increase of 5% year-over-year.

With the ongoing social distancing restrictions and the future dependency on hybrid forms of living, a greater emphasis is placed on our protected and native environment – our home. And the role of voice as the lowest common denominator for human interactions is irreplaceable. DSP Group, as the undisputed market leader in voice, is benefiting from the increased demand for voice centric products such as cordless products. Looking ahead to the first quarter, we expect the strong demand for cordless phones and other Voice centric products to continue as users upgrade and refine their home-office environment.

Now for an update on our outlook for the first quarter-

Taking into account the strong business momentum across our different product lines, the lean inventory situation at most of our customers, while taking into consideration the severe supply constraints, we expect our first quarter revenues to be in the range of $31 million to $33 million. The midpoint of this guidance range implies year-over-year revenue growth of 13%.

We expect that our IoAT Businesses to account for 60% - 63% of our first quarter revenues.

To summarize, the shift towards a voice-centric future is driving demand for DSP Group’s products and technologies. We are thrilled about our business momentum and we are confident that our leadership in voice, AI and IoT technologies and solutions will determine our future success, coming on the heels of a strong pipeline of design wins with a record number of new customers that are expected to contribute to solid performance and revenue growth this year.

Now, I would like to turn the call over to Dror, our Chief Financial Officer. Dror, the floor is yours.

Dror Levy:

Thank you Ofer, I will now review the income statement for the fourth quarter of 2020 from top to bottom. For each line item I will provide the US GAAP results as well as the equity based compensation expenses included in that line item and the expenses related to previous acquisitions.

● Our revenues for the fourth quarter of 2020 were $31.9 million.

● Gross margin for the quarter was 51.3%. Gross margin for the quarter included equity based compensation expenses in the amount of $0.1 million and amortization of intangible assets related to SoundChip acquisition in the amount of $0.1 million.

● R&D expenses were $8.6 million, including equity based compensation expenses in the amount of $0.9 million.

● Operating expenses for the quarter were $17.3 million, including equity based compensation expenses in the amount of $3.0 million and amortization expenses of intangible assets related to acquisitions of $0.6 million.

● Operating expenses on a non-GAAP basis, excluding the items mentioned above were $13.7 million.

● Financial expenses for the quarter were $0.3 million. Financial expenses for the quarter included $0.7 million of exchange rate differences related the accounting standard related to long term leases. These exchange rate differences were excluded from our non-GAAP results for the quarter. Financial income on non-GAAP basis was $0.4 million.

● Tax expenses for the quarter was $0.1 million, tax expenses for the quarter included benefit from deferred taxes changes related to intangible assets and equity-based compensation expense in the amount of $0.3 million.

● Net loss was $1.4 million, including equity based compensation expenses of $3.2 million, amortization expenses related to previous acquisitions of $0.7 million, exchange rate differences in the amount of $0.7 million and tax benefit related to deferred taxes in the amount of $0.3 million.

● Non-GAAP net income, excluding the items I have just described, was $2.9 million.

● GAAP loss per share for the quarter was $0.06.

● The negative impact of equity based compensation expenses on EPS was $0.13.

● The negative impact of the amortization of acquired intangible assets on the EPS was $0.03.

● The negative impact of the exchange rate differences on the EPS was $0.03.

● The positive impact of the changes in deferred tax assets was $0.01.

● Non-GAAP diluted income per share, excluding the items I have just described, was $0.12.

Please see the Current Report on Form 8-K that we filed with the SEC this morning for a reconciliation of the non-GAAP presentation to the GAAP presentation.

Now to the Balance Sheet:

● Accounts receivable at the end of the fourth quarter of 2020 decreased to $11.0 million, compared to $11.6 million at the end of the third quarter, representing a level of 31 days of sales.

● Inventory increased from $8.2 million as of the end of the third quarter to $9.1 million, representing a level of 53 days.

● Our cash and marketable securities increased by $8.4 million during the fourth quarter and were at a level of $128.6 million as of December 31, 2020.

● Our cash and marketable securities position during the quarter was affected by the following:

● $8.6 million of cash generated by operations

● $0.3 million of cash was used for the purchase of property and equipment.

● $0.2 million of cash provided by exercise of stock options, and;

● $0.1 was the change and amortization of marketable securities.

Now, I would like to provide you with our projections for the first quarter of 2021:

Our first quarter of 2021 projections, including the impact of equity based compensation expenses and acquisition related amortization expenses, are as follows:

● Revenues are expected to be in the range of $31 to $33 million.

● We expect our gross margin to be in the range of 51% and 53%.

● R&D expenses are expected to be in the range of $10 to $11 million.

● Operating expenses are expected to be in the range of $18.0 to $19.5 million.

● Financial income is expected to be in the range of $300,000 to $400,000.

● Taxes on income are expected to be approximately 0.3 million on a non-GAAP basis.

● Shares outstanding are expected to be approximately 25.5 million shares.

Our first quarter of 2021 projections include $0.4 million of amortization of intangible assets.

Our first quarter of 2021 projections also include the following amounts forecasted for equity based compensation expenses and intangible assets related to previous acquisitions:

● Cost of goods sold includes $0.2 million,

● R&D expenses include $1.0 to $1.2 million, and

● S&M includes $0.7 to $0.9 million.

● G&A includes $0.6 to $0.8 million.

And now I would like to open up the line for questions and answers.

XML

Document And Entity Information	Feb. 04, 2021
Document Information [Line Items]
Entity, Registrant Name	DSP GROUP, INC.
Document, Type	8-K
Document, Period End Date	Feb. 04, 2021
Entity, Incorporation, State or Country Code	DE
Entity, File Number	1-35256
Entity, Tax Identification Number	94-2683643
Entity, Address, Address Line One	2055 Gateway Place, #480
Entity, Address, City or Town	San Jose
Entity, Address, State or Province	CA
Entity, Address, Postal Zip Code	95110
City Area Code	972
Local Phone Number	952-9696
Written Communications	false
Soliciting Material	false
Pre-commencement Tender Offer	false
Pre-commencement Issuer Tender Offer	false
Title of 12(b) Security	Common Stock
Trading Symbol	DSPG
Security Exchange Name	NASDAQ
Entity, Emerging Growth Company	false
Amendment Flag	false
Entity, Central Index Key	0000915778