Pixelworks Reports Third Quarter 2012 Financial Results

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Pixelworks Reports Third Quarter 2012 Financial Results

SAN JOSE, Calif.--(BUSINESS WIRE)-- Pixelworks, Inc. (NAS: PXLW) , an innovative provider of powerful video and pixel processing technology, today announced financial results for the third quarter ended September 30, 2012.

Third quarter 2012 revenue was $16.3 million, compared to $15.5 million reported in the prior quarter and $17.4 million in the third quarter of 2011. The 4.9% sequential increase in total revenue was driven by higher sales of the Company's products in its primary end markets with chip revenue increasing 18.5% over the prior quarter. Licensing revenue was approximately $0.6 million, compared to $2.3 million in the prior quarter.


On a GAAP basis, gross profit margin in the third quarter of 2012 was 47.8%, compared to 49.3% in the second quarter and 48.6% in the third quarter of 2011. The sequential decline in gross profit was primarily driven by lower licensing revenue recognized in the third quarter of 2012. Third quarter GAAP operating expenses were $8.3 million, compared to $8.5 million in the previous quarter and $9.6 million in the third quarter of 2011. Operating expenses in the current and prior quarter include a reimbursement to research and development expense related to a previously announced customer co-development agreement. For the third quarter of 2012, the Company recorded a GAAP net loss of $0.4 million, or $0.02 per share, compared to a GAAP net loss of $1.1 million, or $0.06 per share, in the second quarter and a GAAP net loss of $1.1 million, or $0.06 per share, in the third quarter of 2011.

On a non-GAAP basis, third quarter gross profit margin was 49.0%, compared to 50.6% in the second quarter and 49.4% in the third quarter of 2011. Third quarter operating expenses on a non-GAAP basis were $7.7 million, compared to $8.1 million in the prior quarter and $9.1 million in the third quarter of 2011. On a non-GAAP basis, the Company recorded net income during the third quarter of $0.3 million, or $0.02 per share, compared with a net loss of $0.3 million, or $0.02 per share, in the second quarter and a net loss of $0.5 million, or $0.03 per share, in the third quarter of 2011.

"I am pleased to report sequential revenue growth of 5 percent and the achievement of non-GAAP profitability during the quarter," said Bruce Walicek, President and CEO of Pixelworks. "Our results for the quarter were driven by increased chip sales in both of our end markets as well as continued execution on our engagements with key technology partners. These engagements with industry leaders are further validation of Pixelworks' recognized leadership in video technology, as the industry introduces the next level of realism and an exponential increase in resolutions across all displays."

Also during the third quarter, the Company hired and appointed Richard Miller as senior vice president of technology. Mr. Miller most recently served as CTO for the multimedia group at RMI Corporation where he managed and developed video processor products prior to RMI being acquired by Netlogic Microsystems. Previous to his role at RMI, he was the CTO, vice president and general manager of the wireless products group at PortalPlayer. Mr. Miller has extensive experience in technology leadership and product development at companies such as Genesis Microchip, VM Labs and Atari Corporation.

The Company will discuss the details of its business outlook for the fourth quarter of 2012 during its conference call scheduled for today, October 18, 2012, at 2:00 p.m. Pacific Time.

Conference Call Information

Pixelworks will host a conference call today at 2:00 p.m. Pacific Time, which can be accessed by calling 866-700-7441 and using passcode 32295076. A Web broadcast of the call can be accessed by visiting the Company's investor page at www.pixelworks.com. For those unable to listen to the live Web broadcast, it will be archived for approximately 30 days. A replay of the conference call will also be available through Thursday, October 25, 2012, and can be accessed by calling 888-286-8010 and using passcode 89769240.

About Pixelworks, Inc.

Pixelworks, headquartered in San Jose, California, is an innovative designer, developer and marketer of video and pixel processing technology, semiconductors and software for high-end digital video applications. At design centers in Shanghai and San Jose, Pixelworks engineers push pixel performance to new levels for leading manufacturers of consumer electronics and professional displays worldwide.

For more information, please visit the Company's Web site at www.pixelworks.com.

Note: Pixelworks and the Pixelworks logo are registered trademarks of Pixelworks, Inc.

Non-GAAP Financial Measures

This earnings release makes reference to non-GAAP gross profit margins, non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss) per share which excludes stock-based compensation expense, gain on sale of patents, gain on the sale of marketable securities and additional amortization of a non-cancelable prepaid royalty, all of which are required under GAAP. The press release also reconciles GAAP net loss and adjusted EBITDA which Pixelworks defines as GAAP net income (loss) before interest expense and other, net, income tax provision, depreciation and amortization, as well as the specific items listed above. The Company believes these non-GAAP measures provide a meaningful perspective on the Company's core operating results and underlying cash flow dynamics, but cautions investors to consider these measures in addition to, not as a substitute for, its consolidated financial results as presented in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is included in this earnings release which is available in the investor relations section of the Company's website.

Safe Harbor Statement

This release contains statements, including, without limitation, the statements in Bruce Walicek's quote that are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact are forward-looking statements for purposes of this release, including any projections of revenue or other financial items or any statements regarding the plans and objectives of management for future operations. Such statements are based on management's current expectations, estimates and projections about the Company's business. These statements are not guarantees of future performance and involve numerous risks, uncertainties and assumptions that are difficult to predict. Actual results could vary materially from those contained in forward-looking statements due to many factors, including, without limitation: our ability to deliver new products in a timely fashion; our new product yield rates; changes in estimated product costs; product mix; supply of products from third-party foundries; failure or difficulty in achieving design wins; timely customer transition to new product designs; competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; risks related to licensing our intellectual property; the success of our products in expanded markets; current global economic challenges; levels of inventory at distributors and customers; changes in the digital display and projection markets; changes in customer ordering patterns or lead times; seasonality in the consumer electronics market; our efforts to achieve profitability from operations; insufficient, excess or obsolete inventory and variations in inventory valuation; the outcome of any litigation related to our intellectual property rights; our limited financial resources and our ability to attract and retain key personnel. More information regarding potential factors that could affect the Company's financial results and could cause actual results to differ materially is included from time to time in the Company's Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2011 and subsequent SEC filings.

The forward-looking statements contained in this release speak as of the date of this release, and we do not undertake any obligation to update any such statements, whether as a result of new information, future events or otherwise.

 
PIXELWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

  
Three Months EndedNine Months Ended
September 30, June 30, September 30,September 30, September 30,
20122012201120122011
Revenue, net$16,285$15,524$17,391$46,139$47,781
Cost of revenue (1) 8,497  7,865  8,935  22,883  25,334 
Gross profit7,7887,6598,45623,25622,447
Operating expenses:
Research and development (2)4,7024,7155,98214,51017,531
Selling, general and administrative (3) 3,557  3,792  3,641  11,368  11,132 
Total operating expenses 8,259  8,507  9,623  25,878  28,663 
Loss from operations(471)(848)(1,167)(2,622)(6,216)
Interest expense and other, net(105)(101)(89)(304)(395)
Gain on sale of patents----1,600
Gain on sale of marketable securities -  -  -  -  264 
Total other income (expense) (105) (101) (89) (304) 1,469 
Loss before income taxes(576)(949)(1,256)(2,926)(4,747)
Provision (benefit) for income taxes (176) 150  (173) (789) (138)
Net loss$(400)$(1,099)$(1,083)$(2,137)$(4,609)
Net loss per share - basic and diluted$(0.02)$(0.06)$(0.06)$(0.12)$(0.29)
Weighted average shares outstanding - basic and diluted 18,338  18,238  17,905  18,202  15,787 

——————

(1) Includes:
Additional amortization of non-cancelable prepaid royalty$142$156$103$430$321
Stock-based compensation42373411893
(2) Includes stock-based compensation214183214619624
(3) Includes stock-based compensation296256260793771
 
 
PIXELWORKS, INC.

RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *

(In thousands, except per share data)

(Unaudited)

 
Three Months EndedNine Months Ended
September 30, June 30, September 30,September 30, September 30,
20122012201120122011
Reconciliation of GAAP and non-GAAP gross profit
GAAP gross profit$7,788$7,659$8,456$23,256$22,447
Additional amortization of non-cancelable prepaid royalty142156103430321
Stock-based compensation 42  37  34  118  93 

Total reconciling items included in cost of revenue

 184  193  137  548  414 
Non-GAAP gross profit$7,972 $7,852 $8,593 $23,804 $22,861 
Non-GAAP gross profit margin 49.0% 50.6% 49.4% 51.6% 47.8%
 

Reconciliation of GAAP and non-GAAP operating expenses

GAAP operating expenses$8,259$8,507$9,623$25,878$28,663
Reconciling item included in research and development:
Stock-based compensation214183214619624
Reconciling item included in selling, general and administrative:
Stock-based compensation 296  256  260  793  771 
Total reconciling items included in operating expenses 510  439  474  1,412  1,395 
Non-GAAP operating expenses$7,749 $8,068 $9,149 $24,466 $27,268 
 
Reconciliation of GAAP and non-GAAP net income (loss)
GAAP net loss$(400)$(1,099)$(1,083)$(2,137)$(4,609)
Reconciling items included in cost of revenue184193137548414
Reconciling items included in operating expenses5104394741,4121,395
Gain on sale of patents----(1,600)
Gain on sale of marketable securities----(264)
Tax effect of non-GAAP adjustments 28  136  2  20  (7)
Non-GAAP net income (loss)$322 $(331)$(470)$(157)$(4,671)
Non-GAAP net income (loss) per share - basic and diluted$0.02 $(0.02)$(0.03)$(0.01)$(0.30)
Non-GAAP weighted average shares outstanding - basic 18,338  18,238  17,905 
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