Pixelworks Reports Fourth Quarter 2012 Financial Results

Pixelworks Reports Fourth Quarter 2012 Financial Results

SAN JOSE, Calif.--(BUSINESS WIRE)-- Pixelworks, Inc. (NAS: PXLW) , a pioneer in innovative video and display processing technology, today announced financial results for the fourth quarter ended December 31, 2012.

Fourth quarter 2012 revenue was $13.6 million, compared to $16.3 million reported in the third quarter of 2012 and $16.8 million in the fourth quarter of 2011. The decline in revenue was primarily due to a weak macro environment across the Company's product lines.


On a GAAP basis, gross profit margin in the fourth quarter of 2012 was 48.6%, compared to 47.8% in the third quarter of 2012 and 47.1% in the fourth quarter of 2011. Fourth quarter 2012 GAAP operating expenses were $9.8 million, compared with $8.3 million in the previous quarter and $9.5 million in the fourth quarter of 2011. For the fourth quarter of 2012, the Company recorded a GAAP net loss of $3.6 million, or $0.19 per share, compared to a GAAP net loss of $0.4 million, or $0.02 per share, in the third quarter of 2012 and GAAP net loss of $2.0 million, or $0.11 per share, in the fourth quarter of 2011.

On a non-GAAP basis, fourth quarter 2012 gross profit margin was 49.9%, compared to 49.0% in the third quarter of 2012 and 48.0% in the fourth quarter of 2011. The improvement in gross margin was largely the result of a favorable product mix. Fourth quarter 2012 operating expenses on a non-GAAP basis were $9.2 million, compared to $7.7 million in the previous quarter and $9.0 million in the fourth quarter of 2011. Operating expenses in the third quarter of 2012 were positively impacted by a reimbursement credit to research and development expense related to a co-development partnership with a major customer, based on the achievement of certain milestones. Fourth quarter 2012 research and development expense did not include a reimbursement credit, however future reimbursement credits to research and development expense are anticipated in 2013 as additional milestones associated with the co-development partnership are achieved. The Company expects the product being developed under this co-development project to begin contributing significant revenue in 2014.

On a non-GAAP basis, net loss in the fourth quarter of 2012 was $2.8 million, or $0.15 per share, compared with net income of $0.3 million, or $0.02 per diluted share, in the third quarter of 2012 and a net loss of $1.3 million, or $0.07 per share, in the fourth quarter of 2011. Adjusted EBITDA in the fourth quarter of 2012 was negative $1.3 million, compared with positive $1.4 million in the previous quarter and positive $0.4 million in the fourth quarter of 2011.

"During 2012, we demonstrated the value of Pixelworks' video display technology and expertise through significant licensing engagements with key customers and partners," said Bruce Walicek, President and CEO of Pixelworks. "The recent introduction of our next-generation Video Display Processor, the PA168 for Ultra HD Displays, positions us to address the explosive growth opportunity as displays transition to higher resolutions. During the course of 2013, we are focused on taking advantage of the growth in video consumption by applying our industry leading video display processing technology to deliver the highest quality video experience to displays of all sizes."

The Company will discuss the details of its business outlook for the first quarter of 2013 during its conference call scheduled for today, January 31, 2013, 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 866-510-0708 and using passcode 61361354. 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, February 7, 2013, and can be accessed by calling 888-286-8010 and using passcode 10001690.

About Pixelworks, Inc.

Pixelworks creates, develops and markets video display processing technology for digital video applications that demand the very highest quality images. At design centers around the world, Pixelworks engineers constantly push video performance to keep manufacturers of consumer electronics and professional displays worldwide on the leading edge. The company is headquartered in San Jose, CA.

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 press 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 exclude 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 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; 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; and our lower cash position as a result of our debt repurchases. 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 Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2012

2012

2011

2012

2011

Revenue, net

$

13,571

$

16,285

$

16,828

$

59,710

$

64,609

Cost of revenue (1)

6,979

8,497

8,908

29,862

34,242

Gross profit

6,592

7,788

7,920

29,848

30,367

Operating expenses:

Research and development (2)

6,247

4,702

5,375

20,757

22,906

Selling, general and administrative (3)

3,576

3,557

4,134

14,944

15,266

Total operating expenses

9,823

8,259

9,509

35,701

38,172

Loss from operations

(3,231

)

(471

)

(1,589

)

(5,853

)

(7,805

)

Interest expense and other, net

(108

)

(105

)

(89

)

(412

)

(484

)

Gain on sale of patents

1,600

Gain on sale of marketable securities

264

Total other income (expense)

(108

)

(105

)

(89

)

(412

)

1,380

Loss before income taxes

(3,339

)

(576

)

(1,678

)

(6,265

)

(6,425

)

Provision (benefit) for income taxes

218

(176

)

279

(571

)

141

Net loss

$

(3,557

)

$

(400

)

$

(1,957

)

$

(5,694

)

$

(6,566

)

Net loss per share - basic and diluted

$

(0.19

)

$

(0.02

)

$

(0.11

)

$

(0.31

)

$

(0.40

)

Weighted average shares outstanding - basic and diluted

18,401

18,338

17,944

18,252

16,330

——————

(1) Includes:

Additional amortization of non-cancelable prepaid royalty

$

135

$

142

$

120

$

565

$

441

Stock-based compensation

44

42

36

162

129

(2) Includes stock-based compensation

274

214

221

893

845

(3) Includes stock-based compensation

316

296

266

1,109

1,037

PIXELWORKS, INC.

RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *

(In thousands, except per share data)

(Unaudited)

Three Months Ended

Twelve Months Ended

December 31,

September 30,

December 31,

December 31,

December 31,

2012

2012

2011

2012

2011

Reconciliation of GAAP and non-GAAP gross profit

GAAP gross profit

$

6,592

$

7,788

$

7,920

$

29,848

$

30,367

Additional amortization of non-cancelable prepaid royalty

135

142

120

565

441

Stock-based compensation

44

42

36

162

129

Total reconciling items included in cost of revenue

179

184

156

727

570

Non-GAAP gross profit

$

6,771

$

7,972

$

8,076

$

30,575

$

30,937

Non-GAAP gross profit margin

49.9

%

49.0

%

48.0

%

51.2

%

47.9

%

Reconciliation of GAAP and non-GAAP operating expenses

GAAP operating expenses

$

9,823

$

8,259

$

9,509

$

35,701

$

38,172

Reconciling item included in research and development:

Stock-based compensation

274

214

221

893

845

Reconciling item included in selling, general and administrative:

Stock-based compensation

316

296

266

1,109

1,037

Total reconciling items included in operating expenses

590

510

487

2,002

1,882

Non-GAAP operating expenses

$

9,233

$

7,749

$

9,022

$

33,699

$

36,290

Reconciliation of GAAP and non-GAAP net income (loss)

GAAP net loss

$

(3,557

)

$

(400

)

$

(1,957

)

$

(5,694

)

$

(6,566

)

Reconciling items included in cost of revenue

179

184

156

727

570

Reconciling items included in operating expenses

590

510

487

2,002

1,882

Gain on sale of patents

(1,600

)

Gain on sale of marketable securities