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Pixelworks Reports First Quarter 2009 Financial Results

PORTLAND, Ore.--(BUSINESS WIRE)--Apr. 23, 2009-- Pixelworks, Inc. (NASDAQ:PXLW), an innovative provider of powerful video and pixel processing technology, today announced financial results for the first quarter ended March 31, 2009.

First quarter 2009 revenue was $10.8 million, within the range of management guidance and reflecting customer order delays and reductions as a result of the cautionary economic environment worldwide. Revenue in the 2009 first quarter was down 43% sequentially from $18.9 million in the fourth quarter of 2008 and down 55% from $24.0 million in the first quarter of 2008.

First quarter 2009 GAAP gross profit margin was 38.6%, compared with 45.4% in the fourth quarter of 2008 and 48.7% in the first quarter of 2008. First quarter 2009 non-GAAP gross profit margin was 45.4%, compared with 50.4% in the fourth quarter of 2008 and 51.7% in the first quarter of 2008. Both GAAP and non-GAAP gross profit margin in the first quarter of 2009 were within the range of guidance provided by management, which anticipated the impact of lower overhead cost absorption in the quarter.

As a result of cost reduction measures taken during the quarter, first quarter 2009 operating expenses were lower than management’s original estimate on both a GAAP and non-GAAP basis. First quarter 2009 GAAP operating expenses were $8.7 million, compared with $11.1 million in the fourth quarter of 2008 and $12.5 million in the first quarter of 2008. Non-GAAP operating expenses were $8.3 million in the first quarter of 2009, down 18% from $10.1 million in the fourth quarter of 2008 and down 21% from $10.5 million in the first quarter of 2008.

A tax benefit of $1.6 million on both a GAAP and non-GAAP basis was realized in the first quarter of 2009, resulting from the reversal of a tax contingency item. A similar tax benefit was realized in the first quarter of 2008.

On a GAAP basis, the Company recorded net income of $5.9 million, or $0.44 per share in the first quarter of 2009, compared to net loss of $(5.1) million, or $(0.37) per share in the fourth quarter of 2008 and net income of $6.1 million, or $0.41 per share in the first quarter of 2008. On a non-GAAP basis, net loss was $(2.0) million, or $(0.15) per share in the first quarter of 2009, compared to net loss of $(1.2) million, or $(0.08) per share in the fourth quarter of 2008 and net income of $3.8 million, or $0.25 per share in the first quarter of 2008.

Included in GAAP net income in the first quarter of 2009 was a net gain of $9.0 million realized on the repurchase of $27.1 million of the Company’s convertible subordinated debentures. In the first quarter of 2008, GAAP net income included a net gain of $11.6 million realized on the repurchase of $50.2 million of the Company’s convertible subordinated debentures, and a $6.5 million unrealized loss on an equity investment in a publicly-traded foundry partner, of which $4.8 million was reclassified from shareholders’ equity.

Under its previously announced stock repurchase program, the Company repurchased approximately 229,000 shares during the first quarter of 2009.

“As anticipated, Q1 was a difficult quarter, as the global economic downturn impacted orders for semiconductors across nearly every market, including video processing. Quick action to further reduce expenses helped maximize cost savings during the quarter. In addition, our bond repurchase further strengthened our balance sheet, supporting our ability to effectively execute our business strategy. Despite the cautionary economic environment, Pixelworks’ next-generation products continue to build momentum in the market,” said Bruce Walicek, President and CEO of Pixelworks.

Business Outlook for Second Quarter 2009

The following statements are based on the Company’s current expectations. These statements are forward-looking, subject to risks and uncertainties, and actual results may differ materially. These statements do not include the potential impact of any investments outside the ordinary course of business, mergers or acquisitions that may be completed after March 31, 2009 or other future events. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The inclusion of any statement in this release does not constitute a suggestion by the Company or any other person that the events or circumstances described in such statements are material. The Company does not undertake to publicly update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied in this release will not be realized.

The Company expects to record GAAP net loss per share in the second quarter of 2009 of ($0.23) to $(0.41) and to record non-GAAP net loss per share of $(0.14) to $(0.32), based on the following estimates:

  • The Company anticipates second quarter revenue of $13 million to $15 million. Revenue is highly dependent on a number of factors including, but not limited to, general economic conditions, levels of inventory at distributors and customers, consumer confidence and spending, timely customer transition to new product designs, new product introductions, the Company’s ability to secure additional design wins, production yields and seasonality in the consumer electronics market.
  • GAAP gross profit margin of approximately 38% to 42% and non-GAAP gross profit margin of approximately 43% to 47%. Gross profit margin may be higher or lower than expected due to many factors including, but not limited to, revenue levels and product mix, new product yields, changes in estimated product costs, competitive pricing actions, and inventory reserve changes.
  • GAAP operating expenses of $9.0 million to $10.0 million and non-GAAP operating expenses of $8.5 million to $9.5 million.

Conference Call Information

Pixelworks will host a conference call today at 2 p.m. Pacific time, which can be accessed by calling 866-202-0886 and using passcode 78907597. 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 30 days. A replay of the conference call will also be available through midnight on April 28, 2009, and can be accessed by calling 888-286-8010 and using passcode 91166824.

About Pixelworks, Inc.

Pixelworks, headquartered in Portland, Oregon, 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 trademarks of Pixelworks, Inc. All other trademarks are the property of their respective owners.

Non-GAAP Financial Measures

This press release makes reference to non-GAAP gross profit margins, non-GAAP operating expenses and non-GAAP net income (loss), which exclude gains on the repurchase of long-term debt, other-than-temporary impairments of a marketable security, restructuring charges, acquisition-related items, stock-based compensation expense and additional amortization of a non-cancelable prepaid royalty, all of which are required under GAAP. The Company believes these non-GAAP measures provide a meaningful perspective on its 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 the statements in Bruce Walicek’s quote and the “Business Outlook for Second Quarter 2009” section above, that are forward-looking statements within the meaning of the “Safe Harbor” provisions of the federal Securities Litigation Reform Act of 1995. Such statements are based on current expectations, estimates and projections about the Company’s business. These statements are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including those described above and the following: current global economic challenges, changes in the digital display and projection markets; competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; changes in customer ordering patterns or lead times; seasonality in the consumer electronics market; new product yield rates; supply of products from third party foundries; the success of our products in expanded markets; our efforts to achieve profitability from operations; insufficient, excess or obsolete inventory and variations in inventory valuation; changes in the recoverability of intangible assets and long lived assets; and other risk factors listed from time to time in the Company’s Securities and Exchange Commission filings.

The forward-looking statements we make today, speak as of today, and we do not undertake any obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2008 and subsequent SEC filings for a description of factors that could cause actual results to differ materially from the preliminary results announced.

 
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
           
Three Months Ended
March 31, December 31, March 31,
2009 2008 2008
 
Revenue, net $ 10,780 $ 18,916 $ 23,976
Cost of revenue (1)   6,624     10,335     12,305  
Gross profit 4,156 8,581 11,671
 
Operating expenses:
Research and development (2) 4,776 6,121 6,722
Selling, general and administrative (3) 3,873 4,355 4,686
Restructuring 37 618 1,008
Amortization of acquired intangible assets   -     -     90  
Total operating expenses   8,686     11,094     12,506  
Loss from operations (4,530 ) (2,513 ) (835 )
 
Gain on repurchase of long-term debt, net 9,024 - 11,557
Interest expense (251 ) (360 ) (573 )
Interest income 98 161 983
Amortization of debt issuance costs (61 ) (72 ) (146 )
Other-than-temporary impairment of marketable security   -     (1,400 )   (6,490 )
Interest and other income, net   8,810     (1,671 )   5,331  
Income (loss) before income taxes 4,280 (4,184 ) 4,496
 
Provision (benefit) for income taxes   (1,617 )   940     (1,637 )
 
Net income (loss) $ 5,897   $ (5,124 ) $ 6,133  
 
Net income (loss) per share - basic and diluted $ 0.44   $ (0.37 ) $ 0.41  
 
Weighted average shares outstanding:
Basic   13,352     13,716     14,930  
Diluted   14,023     13,716     16,648  
       
(1) Includes:
Amortization of acquired developed technology $ 617 $ 705 $ 705
Additional amortization of non-cancelable prepaid royalty 68 144 -
Restructuring 47 91 -
Stock-based compensation 7 12 18

(2) Includes stock-based compensation

118 175 449
(3) Includes stock-based compensation 252 233 425
 
 
PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *
(Dollars in thousands)
(Unaudited)
 
        Three Months Ended
March 31,   December 31,   March 31,
2009 2008 2008
Reconciliation of GAAP gross profit and non-GAAP gross profit
 
GAAP gross profit $ 4,156 $ 8,581 $ 11,671
 
Amortization of acquired developed technology 617 705 705
Additional amortization of non-cancelable prepaid royalty 68 144 -
Restructuring 47 91 -
Stock-based compensation   7     12     18  
Total reconciling items included in cost of revenue   739     952     723  
Non-GAAP gross profit $ 4,895   $ 9,533   $ 12,394  
 
Non-GAAP gross profit margin   45.4 %   50.4 %   51.7 %
 
Reconciliation of GAAP and non-GAAP operating expenses
 
GAAP operating expenses $ 8,686 $ 11,094 $ 12,506
 
Reconciling item included in research and development:
Stock-based compensation 118 175 449
Reconciling item included in selling, general and administrative:
Stock-based compensation 252 233 425
Restructuring 37 618 1,008
Amortization of acquired intangible assets   -     -     90  
Total reconciling items included in operating expenses   407     1,026     1,972  
Non-GAAP operating expenses $ 8,279   $ 10,068   $ 10,534  
 
Reconciliation of GAAP and non-GAAP net income (loss)
 
GAAP net income (loss) $ 5,897 $ (5,124 ) $ 6,133
 
Gain on repurchase of long-term debt, net (9,024 ) - (11,557 )
Reconciling items included in cost of revenue 739 952 723
Reconciling items included in operating expenses 407 1,026 1,972
Other than temporary impairment of marketable security - 1,400 6,490
Tax effect of non-GAAP adjustments   31     596     -  
 
Non-GAAP net income (loss) $ (1,950 ) $ (1,150 ) $ 3,761  
 
Non-GAAP net income (loss) per share - basic and diluted $ (0.15 ) $ (0.08 ) $ 0.25  
 
Non-GAAP weighted average shares outstanding
Basic   13,352     13,716     14,930  
Diluted   13,352     13,716     14,943  
                   
* Our non-GAAP gross profit, non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss) per share differs from GAAP gross profit, GAAP operating expenses, GAAP net income (loss) and GAAP net income (loss) per share due to the exclusion of gains on the repurchase of long-term debt, other-than-temporary impairments of a marketable security, restructuring charges, acquisition-related items, stock-based compensation expense and additional amortization of a non-cancelable prepaid royalty. Pixelworks' management believes the presentation of non-GAAP gross profit, non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss) per share provides useful information to investors regarding Pixelworks' results of operations by allowing investors to better evaluate underlying cash flow dynamics. Pixelworks' management also uses each of these non-GAAP measures internally to better evaluate underlying cash flow dynamics. Pixelworks, however, cautions investors to consider these non-GAAP financial measures in addition to, and not as a substitute for, our GAAP financial measures.
 
 
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
       
March 31, December 31,
2009 2008
 
ASSETS
 
Current assets:
Cash and cash equivalents $ 32,539 $ 53,149
Short-term marketable securities 5,706 8,058
Accounts receivable, net 4,457 6,149
Inventories, net 4,165 4,981
Prepaid expenses and other current assets   2,849   3,381
Total current assets 49,716 75,718
 
Long-term marketable securities 1,920 2,110
Property and equipment, net 4,331 5,187
Other assets, net 5,630 5,331
Acquired intangible assets, net   2,769   3,386
Total assets $ 64,366 $ 91,732
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
Current liabilities:
Accounts payable $ 2,674 $ 4,215
Accrued liabilities and current portion of long-term liabilities 6,816 9,419
Current portion of income taxes payable   157   137
Total current liabilities 9,647 13,771
 
Long-term liabilities, net of current portion 1,722 2,035
Income taxes payable, net of current portion 8,868 10,581
Long-term debt   33,544   60,634
Total liabilities 53,781 87,021
 
Shareholders' equity   10,585   4,711
Total liabilities and shareholders' equity $ 64,366 $ 91,732
 

Source: Pixelworks, Inc.

Pixelworks, Inc.
Steven Moore, 408-200-9221
smoore@pixelworks.com