Q2 2021 Dsp Group Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to today's Q2, 2021DSP Group earnings Conference call. At this time, all participants are in a listen only mode of.

After the speaker's presentation, there will be a question and answer session 2 of.

Ask the questions. During the session you will need to press star 1 on your telephone I must advice you that this conference is being recorded today on that would not like to hand. The conference. So that she also speaker Todd He Chen Chief Business Officer. Please go ahead.

Thank you Valerie.

Good morning, ladies and gentlemen, I'm, Sally Chan Chief Business Officer, Sarah DSP group.

Welcome to our second quarter 2021 earnings conference call on today's call. We also have we've asked Mr. Ofer, <unk>, Chief Executive Officer, and Mr. Dror Levy Chief Financial Officer before we begin I would like to remind you. The during this conference call, we will be making forward looking statements about the work on.

I'm not sure of guidance for the third quarter 2021 or believes the teller expertise and product offering uniquely position us to capitalize on growth opportunities associated with the increasing voice centric usage and devices and hybrid work model our ability to successfully manage the supply chain challenges.

Optimism about the demand for cordless phones increased adoption of UN edict prospect per our unified communications Smart voice on smartphone market of royalty costs as well as all of our engagement pipeline and customer product launches, we assume no obligation to update these forward looking statements for more informed.

And about the risks and factors that could affect the forward looking statements made herein. Please refer to the risk factor of discussing our 2020 something say in other OCC of reports we have filed now I would like to turn the call over to offer of Licking, Our Chief Executive Officer Ofer the floor is yours.

Thank you Charlie good morning, everyone in terms of all joining us today.

Hope that you have the opportunity to read our press release, which were distributed earlier this morning.

I'd like to begin the call by reviewing the highlights of the second quarter on to provide context for our outlook in a short while probably will provide you with details on the progression of our business plan, followed by Dror will discuss our financial results for the second quarter.

The projections for the third quarter.

The start.

Without standing second quarter results.

Hosting the of record quarter of on virtually all fronts.

Feeding of our guidance on most financial metrics and successfully navigating the impact of substantial supply chain challenges.

We ended the second quarter with revenues of $35.8 million at the.

The high end of our guidance range.

Going by 26% year over year.

And by 10% sequentially.

These strong revenues were driven by rising demand for voice centric product.

Resulting in record revenues for our <unk> businesses.

For the second consecutive quarter.

In total I only 2 businesses generated almost $25 million.

This translates to <unk>, 35% growth year over year.

And 19% on the sequential basis and accounts for 69% of.

The second quarter revenue.

The higher total revenues.

Which contributed to a lower proportion of the fixed portion of our cost of the sold combined with the record contribution from Iowa, the businesses fulfilled our non-GAAP gross margins to a record high of 54, 1%.

The global pandemic created new models of living working and interacting all of which are increasingly relying on voice centric usage.

Which is the enduring stimulating record demand across all of our Iot businesses.

The breadth and depth of our software and silicon offerings combined with our core expertise market focused partnership the leadership.

The key position DSP group to capitalize on.

On large growth opportunities associated with the voice centric trends now let me elaborate.

In the unified communication.

And then the new paradigm of working from anywhere.

<unk> needed to effectively handle and manage a distributed workforce utilize the intelligent technologies to support and complement day to day operations in the hybrid working environment and quickly adapt and respond to change its clear the technology is the underlying enabler for businesses to adapt.

These new paradigm more and more companies are investing in the remodeling over their spaces.

And are incorporating the new it infrastructure concept to employ new flexible technologies that meet the needs of her.

Rapid line evolving hybrid working environment.

Incumbents as well as new players are defining and building that triggered base innovative hardware and software.

<unk> focused on providing best in class communication and productivity tool.

DSP group is at the forefront of these new developments and emerging opportunities our focus the expertise and successful track record in the unified communication domain positions us well to continue and play a leadership role in addressing the demand for high quality and performance for.

The increasingly essential voice and video communication.

In the voice user interface the.

<unk> you.

Became mainstream through its ubiquitous the adoption across different applications.

In addition in the next wave of mass adoption, we see a clear shift towards local intelligence.

And real time processing on edge devices.

To enable the proliferation of AI algorithms to fully run locally on the edge Moor.

More products are incorporated such on device smart assistant with local speech recognition and command processing without an internet connection.

Processing, such requests offline alleviates privacy concerns reduces latency to support the immediate responsiveness.

On our smart voice portfolio is very well positioned to support local voice processing and edge AI, combining ultra low power consumption flexible architecture and best in class for sales performance.

Unlike competing solutions that cover only the natural language processing part of the equation, our smart voice products also leverage our proven acoustics signal processing capabilities to provide superior performance in challenging acoustic environment.

In the Iot connectivity solutions, Inc.

Creasing, the availability of smart security, well being and home monitoring solution at the reasonable price is the dominant calculates for home automation further development and the widespread deployment.

At the same time customers are becoming more technically savvy and are demanding more from the devices in terms of features ease of use of reliability and timely response.

The translates to a seamless frictionless user experience and of <unk>.

Dressing these growing demands arguably products provide the perfect much towards secure low latency long range low power Iot connectivity with 2 voice and data capability.

Offering users frictionless experience.

We have successfully established <unk> as the key enabling technology in the U S and global home security market.

With the most leading participants realizing and leveraging the unique value proposition. This technology provides.

This recognition is opening up for DSP group, and even larger and more promising market segment.

Lastly on cordless phones during the past 4 quarters, we have experienced unprecedented demand for cordless phone product.

However, this demand was and still is constrained by supply chain challenges.

Nevertheless, we are expecting the strong momentum to continue into the third quarter. This demand is mainly driven by end customer refreshing their home telephone with multiple handset packages as a result of the increased remote work reality and social distancing restrictions that still apply in summary.

We are excited by the progress made across all of our Iot businesses.

And we believe that we are extremely well positioned for solid revenue growth ahead.

These are exciting times for the DSP group as the market shift favorably in our direction draw.

Driving record demand for our core expertise.

We expect the momentum in our business to remain strong also in the third quarter.

Taking into account the robust demand across our different product lines and factoring in the ongoing supply chain constraints that we face in our business. We expect our third quarter revenues to be in the range of 36 million to $39 million.

The midpoint of this guidance range implies both year over year on sequential revenue growth.

We also project debt, our Iowa, the businesses will continue to outperform and drive our revenue growth in the fourth quarter and comprise 68% to 72% of our revenue.

To summarize the digital transformation created new ways of living working and interacting the.

These new mode of our north tempering there are here to stay in various forms.

And as such create sustainable continued demand for voice centric products that are supported by the expertise innovation partnerships and diverse portfolio of DSP groups of products and technologies.

We are thrilled about the strong business momentum and on.

Are confident that our continued leadership in voice AI, and Iot technologies and solutions will drive our future success.

We are benefiting from a very strong pipeline of design wins with a record number of new customers that are expected to contribute to solid performance and revenue growth ahead.

Now I'd like to turn the call over to Charlie to discuss our performance in each of the product segments tally. The floor is yours. Thank you Ofer I would like to begin by providing you with an update on our smart voice of the BMO.

During the quarter, we generated revenue of approximately $7.2 million from sales of smart voice products, reflecting the year over year increase of 82% and a sequential increase of 20%.

The strong results match, our highest smart voice quarter on record and were driven by solid increase the adoption of voice user interface and AI on the edge.

The wide range of applications.

This increase underscores what we see as the market chief of consumer preference in favor of <unk>.

<unk> based interfaces.

The group is playing a key role in addressing the D C.

With our smart voice portfolio in our edge AI suite of algorithms, which together are powering a broad array of applications and products, allowing greater flexibility accuracy and reliability.

Moreover, during the quarter, we continued to expand and diversify our product reach and engagement with leading consumer electronics the brain as demonstrated by the following the achievement.

In the entertainment domain of tier 1 platform.

Selected our smart voice solution for Steve the accessories, and tablet product to enable the robust and Flores far field voice activation and control as well as high quality 2 way.

Voice interaction.

<unk> also support the 1 trigger award and include additional audio related features.

And leaving the U S consumer brand you're on.

The wearable device the 3 lives on our smart voice DSP solution to enable a more complete augmented reality.

The solution also support.

Up to 40 lockout of voice commands in addition to cloud base Trigger award.

Gold fund chose our smart voice solution to enable voice control.

Smart switch product.

Voice has already made significant inroads into the smart home space and the Covid pandemic accelerated the trend by transforming the use of voice in devices like light switch or other common touch control surfaces from an interesting feature into a necessity.

FERC to avoid contact spread and improve overall.

This achievement, coupled with the strong momentum in voice user interface and edge AI at the reflected by our pipeline of opportunities with vision. Our smart voice franchise is if people start growth driver in our ability to enable broad array of exciting new application.

King.

Moving on to the unified Communications segment.

In the second quarter, we generated revenue of $11.8 million.

Presenting the year over year increase of 16% and a sequential increase of 19%, reflecting solid market demand and this was actually due to the supply constraints we.

We think the new hybrid environment businesses and employers around the globe and to renovate and the Doctor office space to cope with the new challenges derived from hybrid workforce. These true yard a hardware replacement cycle and purchases of additional devices.

14 per ads.

Their home are the 2 idle fee as well is there maintenance. In addition in this new environment ITD Theyre worried about compatibility usability security and digital therapy and loan volume per year.

DSP group is at the forefront of addressing different needs.

Of our end to end portfolio of <unk>.

Ocean Park, the Bell and fixed Jeremy Hudson.

The <unk> speakers and other cooperation towards.

During this quarter, we demonstrated our continued commitment to this market bypassing Microsoft teams Slops Compliancy testing for voice conferencing, Microsoft teams usage jumped 145 million daily active users and driving demand for <unk> therapy.

The devices such as speakers and addition of portable devices.

The cheeseman will enable our customer faster time to market when launching new team certified devices.

Moreover, during the quarter, we continued to expand our pipeline and achieved the following noteworthy wins in.

And nature of unified Communications player chose our smart voice solution for work from home devices any indication of the level of adaptation traditional UC suppliers ethylene. She Inc. In addition, sangamo launching in line of IP phones based on our highly integrated <unk>.

<unk> system on chip platform.

We remain very bullish about the growth prospect of the segment.

Sales by the market dynamics, we described coupled with remarkable pipeline of engagement and pending opportunities.

Turning to our smart home product line during the second quarter, we delivered record revenue of <unk>.

$5.7 million price.

Presenting the year over year increase of 33% and 19% on a sequential basis.

During the year, we experience unparallel interest and traction from security service providers. This interest translated to hence the design win pipeline, starting with ADP blue continuing within the additional European security service providers to now 1 of the largest.

<unk> seen diesel line ending the <unk> enabled products.

2 of mainstream security group.

We believe the solid design pipeline, we'd be of major growth driver for our smart home business performance in the future.

Moreover, during the quarter, we continued to expand our partnership ecosystem as demonstrated by the aforementioned wings.

Cloud of things introduced the free minutes and certified Iot cloud services of Gateway based on our U N. The module. This solution will enable customers that want to leverage and the benefits without investing in a hub development Inc.

The solution was demonstrated recently at the ISC West the first in person event, we have participated in since the beginning of the pandemic.

Second we continued the increased adoption of <unk> by telecommunication service provider.

Given by the need.

To deliver higher quality of service more reliable communications and full home coverage at low power, but also enabling Iot data and 2 way voice services this quarter additional European service provider the launch of new broadband.

The new broadband gateway that includes our debt and the connectivity to enable such features.

To summarize the momentum behind the Q&A technology strong and we expect of where engagement pipeline to further accelerate the business going forward.

Now for an update on the on the cordless phone market.

During the second quarter with continued to experience solid demand for cordless product.

Revenue increased by 11% year over year, while declining 7% sequentially.

Demand for cordless product is strong and we are currently affected by severe supply constraints, we are working diligently with our customer.

Balancing the rising needs with the supply limitations.

From home lifestyles are driving increased usage and voice, calling on all fronts preparing demand for cordless phones, and we expect harvest revenue to remain at similar levels in the next quarter.

Now I would like to turn the corner over to Dror to provide you with.

With an update on our financial results and third quarter projections sure.

Thank you the tally.

I will now review of the income statement for the second quarter of 2021 from top to bottom.

Each line item of provides the U S. GAAP results as well as the equity based compensation expenses included in that line item and the expenses related to the previous acquisition.

Our revenues for the second quarter of 2021.

$35.8 million.

Gross margin for the quarter was 53, 4%.

Gross margin for the quarter income.

The equity based compensation expenses in the amount of $2 million and the amortization of intangible assets related to some type of acquisition in the amount of <unk> 1 million volume.

R&D expenses were $10.6 million Inc.

Including $1.3 million of equity based compensation expenses and amortization expenses related to some type of acquisition.

Operating expenses for the quarter were $19.5 million on including equity based compensation expenses.

The amount of $2.8 million and.

And the amortization expenses related to previous acquisitions.

The amount of $47 million.

Operating expenses on the non-GAAP basis, including the items, just mentioned were $16.1 million zone.

Financial income for the quarter was $1 million on.

Financial income for the quarter included expenses of $2 million due to exchange the difference related to accounting standard related to long term leases.

Accenture of differences were excluded from our non-GAAP results for the quarter.

The financial income on a non-GAAP basis was $3 million.

The income tax for the quarter was <unk> 1 million zone.

Income tax for the quarter included benefits of deferred tax changes related to intangible assets and equity based compensation expenses in the mouth.

The 3 million zone.

Net loss was.

$4 million, including equity based compensation expenses of $3 million amortization expenses related to periods the acquisition of <unk>.

The 7 million of dollar.

Expenses of expense of differences in the amount of <unk>.

The $2 million.

Tax benefit related to deferred taxes in the amount of <unk> 3 million.

Non-GAAP net income excluding these items I've just described was $3.2 million for the second of all of them.

GAAP loss per share for the quarter was to fund the.

Negative impact of frequency based compensation expenses on the EPS was 12.

The negative impact of the amortization of acquired intangible assets on the EPS of 2 things.

The negative impact of exchange of differences on the EPS was <unk>.

And the positive impact of the deferred taxes was 1.

Non-GAAP diluted income per share excluding these items I've just described worked well for.

For the quarter.

Let's see of the current report on form 8-K filed with the Securities morning for the for reconciliation of the non-GAAP presentation to the Gulf of inflation.

Now turning to the balance sheet.

Accounts receivable at the end of the second quarter 2021Inc.

Group to $13.5 million compared to $11.2 million is the handle the first quarter, representing the level of 34 days of sales.

Inventory decreased from 7.9 million on Golar as of day.

And of the first quarter to $6.4 million per.

Representing the level of 35 day.

Our cash on marketable securities increased by <unk> <unk>.

$9 million during the second quarter, and whereas the level of $129.9 million as of June 30.

Our cash amount of the security position during the quarter was affected by the following.

Fix ethylene medulla of cash generated by operation.

$3 million of cash was used for purchase of property and equipment.

$5.2 of them in the Gulf cash used for repurchase of approximately 230000 shares.

And forming the Gulf of cash was the change in market price and the amortization of marketable securities.

Now I will provide the projections for the first quarter of 2021.

Our third quarter projections, including the impact of equity based compensation expenses and acquisition related amortization expenses are as follows.

Revenue are expected to be on the range of $36 million to 39 million zone.

We expect gross margin to be on the range of 53% and 54%.

R&D expenses are expected to be in the range of 11 million to $12 million.

Operating expenses are expected to be on the range of non 10 million to 21 million of normal.

Financial income is expected to be on the range of 2 on your thoughts on 2.

<unk> 3 on the $1000.

Taxes on income are expected to be approximately 15% of pre tax income on the non-GAAP basis and approximately half of million.

On the U S GAAP basis.

Shares outstanding on the diluted basis are expected to be approximately 26 million shares.

Our third quarter projections include <unk> 4 million of.

The amortization of intangible assets.

Our third quarter projections also include the following demand forecast debt for equity based compensation expenses and the intangible assets read of the proof of the physicians.

Cost of goods and group 2 million zone.

R&D expenses include $1.1 million to $1.3 million of Dor.

Sales of marketing expenses include <unk> 7 million dollar $2.9 million.

And G&A expenses include $6 million to the.

The minerals.

Now we'd like to open up the line for question of the ounces operator please.

Thank you, Sir ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question. Please press star 1 on your telephone and wait for your name to be announced if you wish to Kansas City of request at the time. Please first of the Husky.

But the second stall and wanted to ask a question and your first question comes from the line of Matt Trups Rumsey, sorry of with Cowen. Please go ahead.

Yes. Thank you very much good morning, everybody.

Ofer, obviously really strong results.

The challenging supply environment, if you could maybe help quantify for us some of the supply chain challenges, particularly in the the cordless business.

The sense of the magnitude would be helpful. Thank you.

On the thanks for the question.

So with respect to the of supply chain challenges so.

I think of most of you are.

Familiar with what's going on in the industry in general in the.

On the 3 most specifically.

<unk>.

Do you see.

We do see very strong demand in the visibility, but the supply fairly side.

The.

Pretty much across the for us, it's mainly more on the traditional technology nodes.

We are seeing today.

<unk> the supply environment in a number of product line. This includes of course fuel question cordless phone, but it doesn't end. There also of unified communications is that constrains as well as the smart home and.

And some portion of the growth of the smart voice.

When we look at the overall imbalance between demand and supply we can say that right now.

The second quarter to third quarter.

Around 20% to 30% of the demand is challenged by by our inability to day to supply it.

So this is where it is currently we do hope that the.

On the future.

We will enable us to deliver more goods.

And the ability to serve our customers with more products, but the.

The all of that is called the <unk>.

Our supply chain to increase lead times, and we're working through that so far this year successfully but still not being able to meet the demand out there.

Got it got it thanks for that.

1 of the things that piqued my interest on on the call was I think you announced.

Sort of the main product line wins for <unk> with the home security vendor I Wonder if you might be able to elaborate on that a little bit as debt.

Furthering the engagement with ADT, where you were in the DIY business before is it of.

Is it another service provider on if it is can you maybe shed, some light or which which geography that soon thanks.

Yeah sure. So this is another.

The security service provider.

It's more of the global European the fire of either 1 of the top 3 worldwide.

And the.

Basically this design is the.

Our products and newly as the connectivity standards of the day part of there.

The main a security gate that is launched around Europe and also in other geographies as well.

So for US it does represent the pretty significant win and endorsement for the full year, Lee and I would say.

A fit within the.

The.

The main market the players and I think that really opens up the door for many more.

The service providers in the security domain as well as the ecosystem partner.

There is of professional installer of this is that professional type of installed a design win.

It doesn't just come with the security products, the folks who come with an ecosystem of other the smart will being 5 of the products and services. So it definitely opens up.

The market for more newly adoption.

And I think that we're very happy with that and as we discussed on.

On this call and also on previous calls it's the pipeline. So this is not the last 1 so there are many additional such service providers in the pipeline that are going to launch.

The products and new services based on the what we believe is really the best in class the standouts for it to meet their needs.

Got it just the last quick 1 from me on on Dror on gross margin.

54% of the heck of a milestone I think since you guys have been working with my team over the last 6 or 7 years, that's 15 points higher than I remember margins back in the day so.

Congratulations on that it's quite an achievement I wonder if you might give us just a little context. If you think those kind of levels in the low to mid fifties are sustainable from here. Thanks.

Yeah. So first of it through is the thing that can always true recall of this is something that we've been discussing the couple of years now, saying that basically we see and we will continue to save the correlation between.

The percentage of the growth what we used to call growth initiative called the Iot. So this is something other than we've been discussing for a couple of years now that 1 we will see the.

Product pick up will also see like the.

Correlation to the percentage of gross margin because these products are coming with higher margins. This is 1 thing and the second thing is of course will relate with us in the call is like the percentage of off of the fixed costs. So once we grow revenues on absolute basis the.

Percentage of the fixed costs by by now, but just by the about the market decreases and this also pushed the gross margins of these levels of the.

And low 50 of them, yes, definitely that will deliver in the if you look at our guidance for the fourth.

The third quarter as this is day like in this range of $53.54, and we believe that will continue to free market is 1 of the index guidance.

Thanks I appreciate it.

Thank you. Your next question comes on the line of Jason Schmidt of Lake Street. Please go ahead.

Hey, guys. Thanks for taking my questions I just wanted to follow up on the supply chain, just curious if youre seeing any programs or the designs, maybe not getting the officially cancelled, but maybe getting pushed out and definitely just given the tightness out there.

Hi, Jason and the impacts of the question.

So with respect to the supply chain.

At the moment and again this is the at the moment, we don't really know what the future of custom.

Customers are pretty much also our customers as well as the customers were pretty much.

The appreciative of the ability to supply even if it's delayed.

I think everyone's trying to do the best with respect to with transportation with respect to applying all kinds of tools to expedite the.

In the booth.

So so far I think that the debt.

Patients and the customers are appreciative of the efforts that are being made.

It is true the based on the fact that the demand does exceed the ability to supply by by the yardstick. It does imply the single surgeon customers of products are moving so as well as it should be and this is of course, the impacting but at the moment I believe that the.

The demand out there is fairly healthy and the need this neutral product is there and we hope that the remains.

So for now I think that the we believe that the end markets continue to stay healthy and the.

The product.

The all being shaped the unusually.

2 the most of what we could we could check in terms of.

To a certain channel checks.

The supply chain is fairly healthy.

Okay. That's really helpful and just curious if youre seeing anything significant from the inflationary pressure standpoint, and if so if you are passing along those cost to customers.

I think it is no secret that the.

This type of the supply chain situation of course.

As of move upwards.

We see.

In almost every aspect of our lives.

We consume reported.

And services, but also we see debt in.

In in certain parts.

Of our supply chain.

<unk>.

I think the what we tried to do is create.

Is the balance between certain cost that we absorbed certain cost that we must the platform.

But I would say that it's a healthy balance between the 2 of them.

Okay, and then just the last 1 from me and I'll jump back into queue looking at that the smart voice segment.

This momentum.

I think in the past you've sort of highlights of the PC and tablet market as being some of the near term drivers just curious as we look into the second half of this year. If you think those sales.

The med market youre really going to be the ones that propelled the segment.

Yes, I think that.

According to expectations.

The market the market of Pcs and tablets are going to be important players in the product mix of smart voice as well as of the entertainment segment, which I think we announced now.

A number of products and I think the third part of that will be on the Wearables front. So I think these are the 3 main.

The move there and grow as the with respect to the mix.

Okay. Thanks, a lot guys.

Thank you.

Your next question comes from the line of Sushi disable us from Roth Capital. Please go ahead.

Hi, Ofer Hydro artale congratulations on the progress here.

So.

Just a quick quick question on on the Smart voice as you talk about the edge AI capabilities, which sound very compelling what percentage of the design wins, you're seeing now for smart voice are leveraging edge AI or is it really kind of all of them. It's a feature in the smart voice.

Hi, Fujian and thanks for the question so with respect to the.

Small small voice portfolio.

Also within the.

All the path.

In the portfolio, we were able to win his support.

Hey, Jay I processing this was done in mainly utilizing.

The digital signal processing tools.

We can run the <unk>.

This type of the.

Machine learning classifiers as well as traditional type of the.

The algorithm.

In the some of our new products, we do have the today of dedicated.

How the accelerator to run such products and I think that most of the new designs are really based on.

Such such of capability.

And some also leveraging.

We are using some of the multi cool.

The DSP is that we have the truly provides a lot of on chip memory together with them.

Pretty robust and capable of inefficient multi core force.

Cecil.

So if you were to ask me about let's say of the revenue composition this year.

Probably.

Over a third we'll use we'll run Hai processing on our silicon.

Okay. That's helpful. Ofer and then the can you update us on the headset market and the design ins there are the opportunity how that's tracking.

Yes, absolutely so.

A lot of the fact the.

Just the.

The <unk> in the next coming the days.

We're expecting another zone.

The important.

Mobile of headsets to launch with our ANC in the also the agi capabilities and the.

This is something that is the.

The plan to launch as I said the very soon.

Will you incorporate the.

<unk>.

Best in class, a and C together with the.

With smart voice.

The smart processing and then that is the debt will be I think.

The fourth or fifth product that is being launched with the <unk>.

Without without silicon.

Okay look forward to that as well and then the last question from me on the Unified Communications front can you just I mean, the enterprise demand of replacement cycle seems very strong can you talk about the your visibility into the sustainability of that and can you talk of Microsoft Windows of 11 upgrade in the next year.

Is the voice UI upgrade cycle opportunity for you as well.

Yeah.

Thanks, Tim.

Quite capture the question was on.

On the comments made on the unified communication line correct Enterprise, Matt and then more broadly Microsoft Windows of 11 is the driver for enterprise.

Yes.

As discussed.

We're seeing in the way a number of drivers.

In the enterprise 1 has to do with the traditional business, where we see of the need to support over the top content also basically be fully open to the cloud based platform because this is work.

The people have been using the during the pandemic if the growth in the low to more capabilities.

The the need to be always connected and collaborate and the phase today of the workforce gradually returned to the office.

And I think that doesn't bring a need to the flash.

Flesh and bring a lot more.

<unk> the support over the top capabilities. In addition, the fact that in the hybrid work environment not all of the team members are going to be in joining efficiency in person some are going to be joining remotely.

You need to accommodate a lot of the on Prem facilities to do so that we're in.

The team can meet the some in person some joining over video and so that will necessitate the need to do and more.

Upgrades in Alberta.

And I think the third is the emergence of new how the software products that are coming to facilitate the mainly those the.

Protection of that are working from home or from anywhere that we need to recruit in sales with better cameras bit of speakers better accessories, et cetera, et cetera to be able to win in the.

The collaborating with the right the quality and performance.

And some of the platforms that.

Kind of been emerging as the.

Thirdly in wide use of platforms like Microsoft teams and zoom and the <unk>.

<unk> and many other.

Were these over the top capabilities.

We are also being the complemented with the dedicated hardware that can further facilitate and enhance.

The the performance of the quality and I think that the experience of both sides. Both the front of fees utilizing it as the as the Mic and speaker, but also is the other parts of this worth of the people can.

In listening and builds very well.

We believe voice is the lowest common denominator and this the online collaboration environment and without it you don't have any collaboration that you can still have the call voice only without video of course video is great but the.

<unk>.

The the need for high and great quality of voice is mandated in the this is where we see all of the investment growing and this is what we're supporting also now with these.

Microsoft certification on of course of the.

On the divisions.

It gets updated.

The schools the support all of it.

As the necessary certification.

Like the.

Okay. Thank you very much thanks, guys.

Thank you. Your next question comes from the line of Derik. So does that make some Korean securities. Please go ahead.

Everyone. Thanks for taking my questions I want to start with guidance.

On sort of backup cordless in Iowa.

Revenues, but I'm wondering if you can give us any directional guidance to Q3 within those.

Segments.

Sure.

We did not.

<unk> zone.

The guide I think.

We have not done so for the last couple of quarters, but.

But I think in general.

We said on the in the prepared comments, we do see fairly healthy and robust demand the oil accruals.

And so this is also our expectations for Q3 to continue to see it.

Group to victory of the of performance.

As of right now.

Sure.

All of them all of the market verticals of if we do.

The <unk> dosing of healthy in the.

I think that is also reflected in the deal with the guidance the disease, the almost a double from where it towards the end at the same time, the Q3 of 2020.

Awesome very fair and then as my follow up.

You guys bought back a decent amount of shares on the quarter I guess what are your plans going forward on on share buybacks do you have authorized program currently in place and do you expect to continue to repurchase shares.

Yeah. So so the plan that we have in place the actually we utilized all of it. So it was like a $10 million at the.

We started utilizing the I think.

Early 2020, and now with the full utilize all of this of course, something that will bring to the board on the overall if you look at like the buybacks that we've done of the last couple of years you see that we have done I think in average.

Over $10 million per year. So you can assume that we'll continue to be of buying in the market.

Awesome. Thanks.

Thank you and your next question comes from the line of question Chuck You of Needham. Please go ahead.

Hi, guys. Thanks for taking my question here to ask on behalf of Rajiv Dennis I was just wondering could you provide any more color potentially on the manufacturing capacity situation on the wafer capacity from the manufacturing partners have they provided any kind of timeframe for when they expect the alleviation or what can we expect to go on through the rest of this calendar year. The next 1.

Hi, Dennis so in.

And with respect of the manufacturing capacity.

As we all know.

<unk>.

The what gets the publicized announced by.

The vendors so there is the.

Investment in <unk>.

Adding the local capacity with local of Capex plans et cetera.

The.

And we do all of that we also had benefit.

From such capacity expansions.

But at the moment I think that based on what you can see it.

Getting very strong support from our manufacturing partners and we do hope that the.

Such a tight collaboration and partnerships. It does continue and enable us to continue to do well.

Also in the in the future, meaning the remainder of this year and also into next year.

But.

On the.

The availability of such.

New capacity build up I think we're starting perhaps you can see that in our backend unless on the front end, but of course, we're keeping.

With the close touch with the all of our partners to see when exactly this new dry powder of 10 utilized.

Got it. Thank you that was helpful and then.

There anything you can share of what kind of progress that youre in the facility in Germany, the starving facility and the new projects any kind of design wins kind of what are your plans going forward for that facility.

Sure.

Youre talking about the our newest scrubbing the facility.

That is basically.

It was launched the couple of months ago and we.

We have there.

The.

In class type of the.

The quality and lab facilities.

That's enabled us to with take or pay.

Our game.

1 note the higher with respect to our ability to test and prototype.

On that end.

Our goal with this facility is also to win.

Bill to have an offering.

The overall core competence.

Regarding Vaughan.

Voice processing and name in audio processing also for the automotive market, which has not been part of the markets that we focused on in the.

I think that we were very lucky and also successful in lending of team that does come exactly from that market that has been serving the.

The the tier 1.

In players in the automotive market for decades, so really the theme of the.

The top experts in the domain of the voice processing and audio in the.

Automotive market and this is ware.

We plan to invest.

Resources and this is exactly will be seen as of now doing both the supporting.

Existing.

The opportunities are.

Existing roadmap items that relate to enhancing and further.

Securing.

The top performance and also in creating the skills.

Deal flow.

Such core competence into the automotive market offering.

Got it I appreciate the color that's it for me. Thank you.

Thank you once again, ladies and gentlemen at stall on 1 if you wish to ask a question.

We don't seem to have any additional questions I would now like to turn the call back to Terry Chen for closing remarks. Please go ahead.

Thank you I would like to mentions of during the coming months. We are scheduled to prevented the following Investor Conference of Jefferies semi conference on August 31st per.

<unk> Investor Conference on September 9 and.

The next truth copied on market conference on September 14th.

Thank you for listening in and for your interest in DSP group and we are looking forward to report back to you in 90 days.

Thank you, ladies and gentlemen that does conclude your conference call for today. Thank you for participating and you may now disconnect.

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Good morning, ladies and gentlemen, I'm, Sally Chan Chief business Officer of DSP Group welcome to our second quarter 2021 earnings Conference call on today's call. We also have we've asked Mr. Ofer, <unk>, Chief Executive Officer, and Mr. Dror Levy Chief Financial Officer.

Before we begin I would like to remind you. The during this conference call, we will be making forward looking statements about our financial guidance for the third quarter of 2021.

I believe with all of our expertise and product offering uniquely position us to capitalize on growth opportunities associated with increasing voice centric usage and devices and hybrid work model our ability to successfully manage the supply chain challenges and optimism about the continued demand for our net increase.

The adoption of <unk> debt prospect for our unified Communications Smart voice on smartphone market royalty cash.

Well as all of our engagement pipeline on customer product content.

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 factor of discussing our 2020 content.

And the other SEC reports, we have filed now I would like to turn the call over to offer any of King our Chief Executive Officer Ofer the floor is yours.

Thank you Sterling and good morning, everyone and thanks for joining us today.

Hope that you have the opportunity to read our press release, which we distributed earlier this morning.

Yes.

I'd like to begin this call by reviewing the highlights of the second quarter on to provide context for our outlook in a short while Charlie will provide you with details on the progression of our business plan, followed by Dror will discuss our financial results for the second quarter and our projections for the third quarter.

To start we are pleased with outstanding second quarter results.

The finger record quarter of on virtually all fronts.

<unk> our guidance on most financial metrics and successfully navigating the impact of substantial supply chain challenges.

We ended the second quarter with revenues of $35.8 million at the high end of our debt in <unk> range growing by 26% year over year.

And by 10% sequentially.

These strong revenues were driven by rising demand for voice centric products.

<unk> in record revenues for our Iowa, the businesses for the second consecutive quarter.

In total Iot businesses generated almost $25 million.

This translates to 35% growth year over year.

And 19% on a sequential basis and accounts for 69% of second quarter revenue.

The higher total revenues.

Which contributed to a lower proportion of the fixed portion of our cost of the sold combined with the record contribution from Iowa, the businesses propelled our non-GAAP gross margins to a record high of 54, 1%.

The global pandemic created new models of living working and interacting all of which are increasingly relying on voice centric usage.

Which is the insurance stimulating record demand across all of our Iot businesses.

The breadth and depth of our software and silicon offerings.

Combined with our core expertise market focused partnership the leadership uniquely positioned DSP group to capitalize on.

On large growth opportunities associated with the voice centric trends now let me elaborate.

In the unified communication.

And then the new paradigm of working from anywhere.

<unk> need to effectively handle and manage a distributed workforce utilize the intelligence technologies to support and complement day to day operations in the hybrid working environment and quickly adapt and respond to change its clear the technologies the underlying enabler for businesses to adapt.

This new paradigm more and more companies are existing in the remodeling over their spaces and.

And our incorporate the new it infrastructure concept to employ new flexible technologies that meet the needs of.

The whole rapidly evolving hybrid working environment incumbents as well as new players are defining and building at triggered base.

<unk> hardware and software.

Focused on providing best in class communication and productivity too.

DSP group is at the forefront of these new developments and emerging opportunities our focus the expertise and successful track record in the unified communication domain positions us well to continue and play a leadership role in addressing the demand for high quality and performance.

The increasingly essential voice and video communication.

In the voice user interface the UI.

Became mainstream to reach ubiquitous the adoption across different applications in.

In addition in the next wave of mass adoption, we see a clear shift towards local intelligence.

And real time processing on edge devices.

To enable the proliferation of AI algorithms to fully run locally on the edge Moor.

More products are incorporated such on device smart assistant with local feature of cognition and command processing without an internet connection.

Processing, such request of flying alleviates privacy concerns reduces latency to support the immediate responsiveness.

On our smart voice portfolio is well positioned to support local voice processing and edge AI.

Binding ultra low power consumption flexible architecture and best in class sales performance.

Unlike competing solutions that cover only the natural language processing part of the equation, our smart voice products also leverage our proven acoustics signal processing capabilities to provide superior performance in challenging acoustic environment.

In the Iot connectivity solutions the <unk>.

Creasing, the availability of smart security will being in home monitoring solution at the reasonable price is the dominant capitalist for home automation and further development and the widespread deployment.

At the same time customers are becoming more technically savvy and are demanding more from their devices in terms of features ease of use the reliability and timely response.

The translates to a seamless frictionless user experience and of <unk>.

Dressing these growing demands are usually products provide a perfect match for a secure low latency long range low power Iot connectivity with 2 voice and data capabilities.

Offering users frictionless experience.

We have successfully established <unk> as the key enabling technology in the U S and global home security market.

With the most leading participants realizing and leveraging the unique value proposition. This technology provides.

This recognition is opening up for DSP group, and even larger and more promising market segment.

Lastly on cordless phones during the past 4 quarters, we have experienced unprecedented demand for cordless phone product.

However, this demand was and still is constrained by supply chain challenges. Nevertheless, we are expecting the strong momentum to continue into the third quarter. This demand is mainly driven by end customer refreshing their home telephone with multiple handset packages as a result of increase true.

Work reality, and social distancing restrictions that still apply in summary.

We are excited by the progress made across all of our Iot businesses.

And we believe that we are extremely well positioned for solid revenue growth ahead.

These are exciting times, the DSP group as the market shift favorably in our direction drew.

Driving record demand for our core expertise.

We expect of the momentum in our business to remain strong also in the third quarter.

Taking into account the robust demand across our different product lines and factoring in the ongoing supply chain constraints that we face in our business. We expect our third quarter revenues to be in the range of 36 million to $39 million.

The midpoint of this guidance range implies both of year over year on sequential revenue growth.

We also project that our Iowa, the businesses will continue to outperform and drive our revenue growth in the third quarter and comprised 68% to 72% of our revenue to.

To summarize the digital transformation created new ways of living working and interacting these new mode of our north tempering. There are here to stay in various forms.

And as such create sustainable continued demand for voice centric products that are supported by the expertise innovation partnerships and diverse portfolio of DSP groups of products and technologies.

We are thrilled about the strong business momentum and are confident that our continued leadership in the voice AI and Iot technology, the solution will drive our future success.

We are benefiting from a very strong pipeline of design wins with the record number of new customers that are expected to contribute to solid performance and revenue growth ahead.

Now I would like to turn the call over to Charlie to discuss our performance in each of the product segments tally. The floor is yours. Thank you Ofer I would like to begin by providing you with an update on our smart voice of BMO.

During the quarter, we generated revenue of approximately $7.2 million from sales of smart voice products, reflecting the year over year increase of 82% and a sequential increase of 20%.

The strong results match, our highest smart voice quarter on record and were driven by solid increase the adoption of voice user interface and AI on the edge across a wide range of applications.

This increase underscores what we see as the market shift in consumer preference in favor of <unk>.

<unk> based interfaces.

The group is playing a key role in addressing these needs with our smart voice portfolio in our edge AI suite of algorithms, which together are powering a broad array of applications and products, allowing greater flexibility accuracy and reliability.

Moreover, during the quarter, we continued to expand and diversify our product reach and engagement with leading consumer electronic brands as demonstrated by the following the achievement.

In the entertainment domain at tier 1 platforms.

Selected our smart voice solution for Steve the accessories, and tablet product to enable the robot and far field voice activation and control as well as high quality 2 way voice interaction with the.

<unk> also support the 1.3.

The award and include additional audio related features.

And leaving the U S consumer brands Youre on.

The wearable device the 3 lives on our smart voice DSP solution to enable a more complete augmented reality.

The solution also.

Up to 40 local voice commands in addition to cloud base Trigger award.

Gold fund chose our smart <unk> solution to enable voice control smart switch product.

Voice has already made significant inroads into the smartphone space and the Covid pandemic accelerated the trend by transforming the use of voice in devices like light switch or other common touch control surfaces from an interesting feature into uncertainty in an effort to.

Voice contact spread and improve overall.

These achievements coupled with the strong momentum in voice user interface and edge AI anti reflected by our pipeline of operating teams position. Our smart voice franchise is if people start growth driver in our ability to enable broad array of exciting new application.

<unk>.

Moving on to the unified Communications segment.

In the second quarter, we generated revenue of $11.8 million, representing a year over year increase of 16% and a sequential increase of 19%.

<unk> solid market demand and this was touching on due to the supply constraints.

Within the new hybrid environment businesses, and employers around the globe and to renovate and the Doctor office space to cope with the new challenges derived from an average workforce. This true yard a hardware replacement cycle and purchases of additional devices.

Parking per at their home or the 2 idle fee as well as their main of fees. In addition in this new environment.

Neither of us worried about compatibility usability security and digital therapy among volume per Inc.

DSP group is at the forefront of addressing the needs.

On our end to end portfolio of <unk>.

Ocean, FERC portable and fixed Jeremy Hudson.

<unk> speakers and other cooperation towards.

During this quarter, we demonstrated our continued commitment to this market bypassing Microsoft teams Slops Compliancy testing for voice conferencing Michael.

Microsoft teams usage jumped to 145 million daily active users.

Demand for <unk> certified devices, such as speakers and addition of portable devices the search.

<unk>, we enable our customer faster time to market when launching new <unk> certified devices.

Moreover, during the quarter, we continued to expand our pipeline and achieved the following noteworthy wins.

And major unified Communications player chose our smart voice solution for work from home devices any indication of the level of adaptation traditional UC suppliers at Wuxi, Inc.

In addition, sangamo launching a line of IP phones based on our highly integrated DBS system on chip platform. We remain very bullish about the growth prospect of the segment prepared by the market dynamics. We described coupled with the remarkable pipeline of engagement and pending opportunities.

Yes.

Turning to our smart home product line during the second quarter, we delivered direct current revenue of $5.7 million representing.

Representing the year over year increase of 33% and 19% on the sequential basis.

During the year, we experience on <unk>.

Net interest and traction from security service providers. This interest translated to hence the design win pipeline, starting with ADT Blue continuing with an addition on European Security service provider to now 1 of the largest players in this domain and in UAE and EBIT.

Product.

2 of mainstream securities.

We believe the solid design pipeline will be of major growth driver for our smart home business performance in the future.

Our other during the quarter, we continued to expand our partnership ecosystem as demonstrated by the aforementioned wings.

Cloud of things introduced the free minutes and certified Iot Cloud services Gateway based on our USB module. This solution will enable customers that want to leverage and the benefits without investing in of have developed from the.

The solution was demonstrated recently at ISC West the 13 person event, we have participated in since the beginning of the pandemic.

Second we continued the increased adoption of <unk> by telecommunication service provider driven by the need to.

To deliver higher quality of service more reliable communications and full home coverage at low power, but also enabling Iot data and 2 way voice services.

This quarter additional European service provider the launch of new broadband.

The new broadband gateway that includes our debt and the connectivity to enable such features to summarize the momentum behind <unk> technology is strong and we expect of where engagement pipeline to further accelerate the business going forward.

Now for an update on on the cordless phone market.

During the second quarter with continued to experience solid demand for cordless product <unk>.

Revenue increased by 11% year over year, while declining 7% sequentially.

The man for Cordless product is strong and we are currently affected by severe supply constraints. We are working diligently with our customer balancing the rising needs with the supply limitations.

From home lifestyles are driving increased usage in voice, calling on all fronts preparing demand for cordless phones, and we expect <unk> revenue to remain at similar levels in the next quarter.

Now I would like to turn the corner over to Dror to provide you with.

With an update on our financial results and third quarter projection.

Thank you the tally.

I will now review of the income statement for the second quarter of 2021 from top to bottom.

Each line item of provides the U S. GAAP results as well as the equity based compensation expenses included in that line item and the expenses related to the previous acquisition.

Our revenues for the second quarter of 2021.30.

$35.8 million zone.

Gross margin for the quarter was 53, 4%.

Gross margin for the quarter included equity based compensation expenses in the amount of <unk> 2 million and amortization.

Possession of intangible assets related to some type of acquisition in the amount of <unk> 1 million volume.

R&D expenses were $10.6 million <unk>.

Including $1.3 million of equity based compensation expenses and amortization expenses related to some type of acquisition.

Operating expenses for the quarter were $19.5 million zone, including equity based compensation expenses.

The amount of $2.8 million and amortization expenses related to previous acquisition and the EMR.

The $7 million.

Operating expenses on a non-GAAP basis, including the items, just mentioned were $16.1 million zone.

Financial income for the quarter was $1 million on.

Financial income for the quarter included expenses of $2 million due to exchange the differences related to accounting standard related to long term leases.

This accenture of differences were excluded from our non-GAAP results for the quarter.

The financial income on the non-GAAP basis was $3 million.

Income tax for the quarter was <unk> 1 million zone.

Income tax for the quarter included benefit from deferred tax changes related to intangible assets and equity based compensation expenses.

The <unk> 3 million zone.

Net loss was.

$4 million, including equity based compensation expenses of $3 million amortization expenses related to periods the acquisition of <unk>.

$7 million.

Expenses of exchange of the differences in the amount of $2 million.

In tax benefit related to deferred taxes in the amount of point of 3 million zone.

Non-GAAP net income excluding these items as just described was $3.2 million for the second half of them.

GAAP loss per share for the quarter was 2 fronts.

The negative impact of equity based compensation expenses on the EPS was <unk> 12.

The negative impact of the amortization of acquired intangible assets on the EPS work too.

The negative impact of exchange of differences on the EPS was 1.

And the positive impact of the deferred taxes was 1 of them.

Non-GAAP diluted income per share excluding these items I've just described.

For the quarter.

Let's see of the current report on form 8-K filed with the Securities morning for the for reconciliation of the non-GAAP presentation to the governor of inflation.

Now turning some of the balance sheet.

Cost of centered on the end of the second quarter 2021, Inc.

Greece to $13.5 million compared to $11.2 million at the end of the first quarter.

Representing the level of 34 days of things.

Inventory decreased from 7.9 million on Golar as of <unk>.

End of the first quarter to $6.4 million, representing the level of 35 day.

Our cash and marketable securities increased by 9.

$9 million during the second quarter and were at the level of $129.9 million as of the.

Thank you.

Our cash amount less security provision during the quarter was affected by the following.

Fix at the moment of cash generated by operation.

The $3 million of cash was used for purchase of property and equipment.

$5.2 million of of cash flow for repurchase of approximately 330000 shares.

And $4 million of cash was the change in market price and the amortization of marketable securities.

Now I will provide the projections for the first quarter of 2021.

Our third quarter projections, including the impact of equity based compensation expenses and acquisition related amortization expenses are as follows.

Revenue are expected to be on the range of $36 million to 39 million zone.

We expect gross margin to be on the range of 53% and 54%.

R&D expenses are expected to be in the range of 11 million to $12 million.

Operating expenses are expected to be in the range of 19 million to 21 million of normal.

Financial income is expected to be on the range of 2 on $1000 to 3 on the $1000.

Taxes on income are expected to be approximately 15% of pre tax income on the non-GAAP basis and approximately half of million.

On the GAAP basis.

Shares outstanding on the <unk>.

Diluted basis are expected to be approximately 26 million shares.

Our third quarter projections include <unk> 4 million.

Amortization of intangible assets on.

Our third quarter projections also include the following demand forecast debt for equity based compensation expenses and the intangible assets rest of the person of physicians.

Cost of goods and group.

Don.

R&D expenses include $1.1 million to $1.3 million door.

The marketing expense of include.

$7 million to $9 million.

G&A expenses include 6 million to 8 million rentals.

Now, we'd like to open up the line for questions on ounces operator please.

Thank you, Sir ladies and gentlemen, we will now begin the question and answer session. As a reminder, if you wish to ask a question. Please press star 1 on your telephone on late for your name to be announced if you wish to Kansas City of request outside of your time. Please first of the husky.

For the second stall and wanted to ask a question and your first question comes from the line of Matt Trups.

<unk> from Cowen. Please go ahead.

Yes. Thank you very much good morning, everybody.

Ofer, obviously really strong results in a challenging supply environment. If you could maybe help quantify for us some of the supply chain challenges, particularly in the the cordless business.

Just a sense of the magnitude would be helpful. Thank you.

On that thanks for the question.

So with respect to the of supply chain challenges so.

Think of most of you are.

Familiar with what's going on in the industry in general and in our industry more specifically.

Yes.

Do see.

We do see very strong demand and visibility, but the supply fairly flight.

The.

Pretty much across the for us, it's mainly among the traditional technology node.

We are seeing today.

Your line is the supply environment in a number of our product line. This includes of course your question cordless phone, but it doesn't barrels through unified communication is the constrains as well as the smart almond.

And some portion of the gross of the Smart voice.

When we look at the overall in bonds between demand and supply we can say that right now.

Is that the second quarter to third quarter.

Yeah.

<unk>.

Around 20% to 30% of the demand is.

The challenge side by our inability to day to supply it.

So this is where it is currently we do hope that the.

In the future.

<unk> will enable us to deliver more goods.

And the ability to serve our customers with more products, but the the.

The all of that of course the end.

Our supply chain to increase lead times and we're working through that so far I think this year of successfully but still not being able to to meet the demand out there.

Got it got it thanks for that.

1 of the things that piqued my interest on on the call was I think you announced.

On sort of the main product line wins for <unk> with the home security vendor I Wonder if you might be able to elaborate on that a little bit as debt.

Furthering the engagement with ADT, where you were in the DIY business before is it.

Is it another service provider and if it is can you maybe shed some light on which which geography that soon thanks.

Yeah sure. So this is another.

The security service provider.

The small of the global European Firefox so.

Are the 1 of the top 3 worldwide.

And the.

Basically this design is the.

In our products and newly as the connectivity standards of the day part of there.

The main a security gate that is launched around Europe and also in other geographies as well.

So for US it does represent the pretty significant win and endorsement for the full year lead in it.

A fit within.

The.

The main market the players and I think that really opens up the door for many more.

The service providers in the security domain as well as the ecosystem partners as you know when there is of professional installer of this is it professional type of install a design win.

It doesn't just come with the security products, the folks who come with an ecosystem of other the smart will being type of the products and services. So we definitely opens up.

The market for more Uli adoption.

And I think that we're very happy with that and as we discussed on.

This call and also on previous calls it's the pipeline. So this is not the last plant. So there are many additional such service providers in the pipeline that are going to launch.

The products and new services based on the what we believe is really the best in class the standouts for it to meet their needs.

Got it just the.

The last quick 1 from me on on Dror on gross margin.

54% of the heck of a milestone I think since you guys have been working with my team over the last 6 or 7 years, that's 15 points higher than I remember margins back in the day so.

Congratulations on that it's quite an achievement I wonder if you might give us a little context. If you think those kind of levels in the low to mid fifties are sustainable from here. Thanks.

Yeah. So firstly, it's towards the things that you know if you'll recall that this is something that we've been discussing the couple of years now, saying that basically we said we will continue on to save the corals.

Correlation between.

The percentage of the growth what we used to call growth initiatives to the call value of the peso. This is something other than we've been discussing for a couple of years of it once we will see the pro.

<unk> pick up will also see like.

Correlation to the percentage of gross margin because of these products are coming with higher margins. This is 1 thing and the second thing is off of also related to that in the call is like the percentage of all of the fixed costs. So once we grow revenues on absolute basis, the percentage of the fixed costs by buying of about just by the but the market has decreased.

And this also pushed the gross margin to these levels of of.

And low 50 of them, yes, definitely that will deliver the if you look at our guidance for the for the third quarter. This is day like in this range of $53.54, and we believe it will continue to free market is 1 of these guidance.

Thanks I appreciate it.

Thanks. Thank you your next.

<unk> comes on the line of Jason Smith of Lake Street. Please go ahead.

Hey, guys. Thanks for taking my questions I just wanted to follow up on the supply chain. Just curious if youre seeing any programs or designs, maybe not getting officially cancelled, but maybe getting pushed out and definitely just given the tightness out there.

Hi, Jason the effects of the question.

So with respect to the supply chain.

At the moment and again this is the at the moment, we don't really know what the future of customers.

Pretty much also our customers as well as those customers were pretty much.

Appreciative of the ability to supply even if it's delayed.

No.

Everyone's trying to do the best with respect to with transportation with respect to applying.

Applying all kinds of foods to expedite the.

In the booth.

And so so far I think that the patients and the customers are appreciative of the total being made.

It is true the based on the fact that the demand it does exceed the ability to supply buy by a yardstick. It does imply the single certain customers of products are moving so as well as it should be and this is of course, the impacting but at the moment I believe that the.

The demand out there is fairly healthy and the need this neutral product is there and we hope that the remains.

So for now I think that the we believe that the end markets. The continued to stay healthy and the.

The products.

They are being shaped the unusually.

2 the most of what we could we could check in terms of.

During the certain channel checks.

The supply chain is fairly healthy.

Okay. That's really helpful and just curious if youre seeing anything significant from the inflationary pressure standpoint, and if so if you are passing along those cost to customers.

I think of it is no secret that the.

With this type of the supply chain situation of course.

As of move upwards.

We see.

Most of we aspect of our lives.

We consume.

Products and services, but also we see debt.

And in certain parts.

Of our supply chain.

<unk>.

I think the what we tried to do is create.

The healthy balance between certain cost that we absorbed certain cost that we must the platform.

But I would say that it's a healthy balance between the 2 of them.

Okay, and then just the last 1 from me and I'll jump back into queue looking at that the smart voice segment.

Nice momentum.

I think in the past you've sort of highlights of the PC and tablet market as being some of the near term drivers just curious as we look into the second half of this year. If you think those same end markets are really going to be the ones that propelled the segment.

Yes, I think that.

According to expectations the market the multiples with Pcs and tablets are going to the important players in the product mix of smart voice as well as of the entertainment segment, which I think we announced now.

Number of products.

And I think the third part of that will be on the Wearables front. So I think these are the 3 main.

The movers and growers with respect to the mix.

Okay. Thanks, a lot guys.

Thank you.

Your next question comes from the line of Sushi day from.

From the capital. Please go ahead.

Hi, Ofer Hydro artale congratulations on the progress here.

So.

Just a quick question on on the Smart voice as you talk about the edge AI capabilities, which sound very compelling what percentage of the design wins, you're seeing now for smart voice are leveraging edge AI or is it really kind of all of them. It's a feature in the smart voice.

Hi, Fujian and thanks for the question so with respect to the.

The small small voice portfolio.

Also within the.

All of the path.

In the portfolio, we were able to win his support.

The Hai processing. This was done immediately utilized inc.

The digital signal processing tools.

We can run the.

This type of of the machine learning classifiers as well as traditional type of the.

Algorithm.

In the some of the new products, we do have with today is dedicated.

Hello accelerator to run such products and I think that most of the new designs are really based on.

The such such of capability.

And some also leveraging the jr. Using some of the multi cool.

The <unk> DSP is that we have the <unk> provides a lot of launch of memory together with.

Pretty robust and capable and efficient multi core processor.

Vessel.

So if you were to asking about let's say of the revenue composition this year.

Probably.

Over a third we'll use we'll run Hai processing on our silicon.

Okay. That's helpful. And then the can you update us on the headset market and the design ins there the opportunity how that's tracking.

Yes, absolutely.

And it is not the fact.

Just the.

The <unk> the next coming the days, we are expecting another zone.

Important.

Mobile of headsets to launch.

With our ANC in the also.

<unk> capabilities in.

This is something that is the.

A plan to launch as I said, the very soon that will incorporate the hybrid the best.

Best in class, a and C together with the.

With smart voice.

The.

The processing and then that is the debt will be I think.

The fourth or fifth product that is being launched with the <unk>.

With our silicon.

Okay look forward to that as well and then last question from me on the unified Communications front can you just I mean, the enterprise demand of replacement cycle seems very strong can you talk about the your visibility into the sustainability of that and can you talk of Microsoft Windows of 11 upgrade in the next year.

I mean is the voice UI.

Great cycle opportunity for you as well.

Okay.

Thanks.

<unk> cash.

The question was on.

The comments made on the unified communication line correct Enterprise, Matt and then more broadly Microsoft Windows of 11 is the driver for enterprise.

The answers.

As discussed we're seeing in a way a number of drivers.

In the enterprise 1 has to do with the traditional business, where we see of the need to support over the top content also basically be fully open to a cloud based platform because this is work.

The pizza has been using the during the pandemic protein a lot more capabilities.

The need to be always connected and collaborate and the phase today of the workforce gradually returns to the office.

And I think that does bring a need to.

The flesh and bring a lot more.

The support over the top capabilities. In addition, the fact that.

In the hybrid work environment, not all of the team members.

Are going to be.

In joining efficient in person some are going to be joining remotely.

You need to accommodate a lot of the on Prem facilities.

To do so that we're in.

The team can meet the some inputs on some joining over video and so that will necessitate the need to do and more.

Upgrades in Alberta.

And I think the third is the emergence of new software products that are coming to facilitate the mainly those is the.

A prediction is that are working from a form of from anywhere that we need to recruit in sales with better cameras debt of speakers bidder accessories et cetera, et cetera to be able to win.

Collaborating with the right the quality and performance.

And some of the platforms that.

Kind of been emerging as the.

Thirdly in wide use of platforms like Microsoft teams and zoom and the Olympics and many other.

There is these over the top capabilities.

<unk> are also being the complemented with the dedicated hardware that can further facilitate and enhance.

The performance of the quality and I think that of the experience of both sides. Both the front that is utilizing it as it is the Mike on speaker, but also is the other part of worth of the people can.

The in listening and behaved very well.

We believe voice is the lowest common denominator in the online collaboration environment and without it you don't have any collaboration that you can still have the call voice only without video of course video is great but the.

<unk>.

The the need for high and great quality voice is mandated in the this is where we see all of the investment growing and this is what we're supporting also now with the.

Microsoft certification on of course of the.

On the.

The vision.

You get updated.

The source of support.

The necessary certification in the.

Okay. Thank you very much thanks, guys.

Thank you. Your next question comes from the line of Derik. So does that mix of Korean Securities. Please go ahead.

Everyone. Thanks for taking my questions I wanted to start with the guidance, we can sort of back out of cordless in Iowa.

Revenues, but I'm wondering if you can give us any directional guidance to Q3 within those.

Segments.

Yeah sure.

We did not the.

<unk> zone.

The guide I think.

We have not done so for the last couple of quarters.

But I think in general it is.

We said on the in the pit.

Comments, we do see fairly healthy and robust demand the oil accruals.

And so this is also our expectations for Q3 to continue to see the good trajectory of the <unk>.

<unk>.

As of right now.

The.

For all of them all of the markets verticals of this we serve.

The dosing healthy and.

I think debt is also reflected in the DIY the guidance the Pcs the almost a double from where it towards the end of the same time the Q3.2020.

Awesome very fair and then as my follow up.

You guys bought back a decent amount of shares on the quarter I guess what are your plans going forward on on share buybacks do you have authorized programs currently in place and do you expect to continue to repurchase shares.

Yeah. So so the plan that we have in place the actually we utilized all of it. So it was like a $10 million at the.

We started to utilize on Greg Fink.

Early 2020, and now it's fully utilize all of this of course, something that will grant to the board on the overall if you look at like the buybacks that we have done in the last couple of years. The theaters, we've done I think an average.

Over $10 million per year. So you can assume that we will continue to be of buying in the market.

Awesome. Thanks.

Thank you on your next question comes from the line of question Chuck Taylor of data on please.

Please go ahead.

Hi, guys. Thanks for taking my question here, you're asking on behalf of Rajiv Dennis.

I was just wondering could you provide any more color potentially on the manufacturing capacity situation on the wafer capacity from the manufacturing partners have the.

<unk> provided any kind of timeframe for when they expect alleviation or what can we expect to go on through the rest of this calendar year of the next 1.

Hi, Dennis so in.

And with respect of the manufacturing capacity.

We on the.

The CN.

On what gets it publicized announced by the.

The vendors so there is the.

Investment in <unk>.

Adding the lot more capacity with local capex plans et cetera.

The.

And we do all of that we also benefit from such capacity expansions.

But at the moment I think that based on what you can see it.

<unk>.

Getting very strong support from our manufacturing partners and we do hope that the such a tight collaboration and partnerships does continue and enable us to continue to do well.

The wholesale in the in the future, meaning the remainder of this year and also into next year.

But.

The.

The availability of such.

The new capacity build up I think we're starting perhaps youll see that in our backend and less on the front end, but of course, we're keeping.

The pretty close touch with the all of our partners to see when exactly is this new dry powder can be utilized.

Got it. Thank you that was helpful and then.

Is there anything you can share of what kind of progress that youre in the facility in Germany disturbing facility and the new projects any kind of design wins kind of what are your plans going forward for that facility.

Sure. So first of all Youre talking about the our new way of stopping the facility.

Debt is basically.

<unk> was launched the couple of months, though in the.

We are there.

The best in class type of the.

The quality and the law.

<unk> facilities.

That's enabled us to take.

Take our array of.

Our game.

1 note the higher with respect to our ability to test and prototype.

On that end.

What we do the analysis that our goal with these facilities also to win.

<unk> has an offering.

Overall core competence.

It resides in Vaughan.

<unk> processing in name.

The audio processing also for the automotive market, which has not been part of the markets that we focused on them.

I think that we were very lucky and also successful in landing the team that does come exactly from that market that has been serving them.

The debt.

Tier 1.

The in players in the automotive market for decades, so really the theme of the.

The top experts in the domain of the voice processing and audio in the automotive market and this is where.

We plan to invest.

The forces and this is exactly will be seen as of now doing both the supporting all of it.

The existing.

The opportunities are.

Existing roadmap items that relate to enhancing and further.

Securing.

The top notch performance and also in.

Creating a day.

This deal flow.

Such core competence into the automotive market offering.

Got it I appreciate the color that's it for me. Thank you.

Thank you once again, ladies and gentlemen.

On 1 if you wish to ask a question.

We don't seem to have any additional questions I would now like to turn the call back to Paddy Chen for closing remarks. Please go ahead.

Thank you I would like to mention the during the coming months. We are scheduled to presented the following Investor conference of.

The Jefferies semi conference on August 31st per year.

The Investor Conference on September 9 and makes tweaked the copied on market conference on September 14th.

Thank you for listening in and for your interest in DSP group and we are looking forward to report back to you on 90 days.