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Pixelworks Reports Fourth Quarter 2007 Financial Results
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Higher gross margin and lower expenses yield non-GAAP net income of $2.3 million
TUALATIN, Ore., Jan 29, 2008 (BUSINESS WIRE) -- Pixelworks, Inc. (NASDAQ:PXLW), an innovative provider of powerful video and pixel processing technology, today announced financial results for the fourth quarter ended December 31, 2007.
Fourth quarter 2007 revenue was $27.0 million, at the high end of management guidance, reflecting strength in the Company's core projector and advanced television businesses as well as sales of legacy products. Revenue for the fourth quarter represented a 4% sequential decrease from $28.1 million in the third quarter of 2007 and a decrease of 10% from $29.8 million in the fourth quarter of 2006.
Fourth quarter 2007 GAAP gross profit margin was 48.7 percent, compared to 43.0 percent in the third quarter of 2007 and 31.5 percent in the fourth quarter of 2006. Cost of sales included restructuring charges and non-cash expenses totaling $0.8 million in the fourth quarter of 2007, $0.7 million in the third quarter of 2007 and $2.9 million in the fourth quarter of 2006. Fourth quarter 2007 non-GAAP gross profit margin was 51.5 percent, compared with 45.7 percent in the third quarter of 2007 and 41.1 percent in the fourth quarter of 2006. Higher GAAP and non-GAAP gross profit margin in the fourth quarter of 2007 was the result of a favorable mix of products sold, as well as continued improvements in material pricing and production yields.
Fourth quarter 2007 GAAP operating expenses were $19.7 million, compared with $16.4 million in the third quarter of 2007 and $31.9 million in the fourth quarter of 2006. Fourth quarter 2007 GAAP operating expenses included $6.2 million in restructuring charges and $1.6 million in non-cash expenses; third quarter GAAP operating expenses included $1.6 million in restructuring charges and $1.3 million in non-cash expenses; and fourth quarter 2006 GAAP operating expenses included $10.6 million in restructuring charges and $2.2 million in non-cash expenses.
Non-GAAP operating expenses were $11.9 million in the fourth quarter of 2007, down $1.6 million from $13.4 million in the third quarter of 2007 and down $7.2 million from $19.1 million in the fourth quarter of 2006. The significant year over year decrease in GAAP and non-GAAP operating expenses was a direct result of the Company's restructuring actions throughout 2007, which are focused on returning Pixelworks to profitability.
Fourth quarter 2007 GAAP net loss was $(6.4) million, or $(0.14) per share, compared to $(4.4) million, or $(0.09) per share in the third quarter of 2007 and $(15.5) million, or $(0.32) per share in the fourth quarter of 2006. On a non-GAAP basis, the Company recorded net income of $2.3 million, or $0.05 per share in the fourth quarter 2007, compared to $(0.9) million, or $(0.02) per share in the third quarter of 2007 and $(4.7) million, or $(0.10) per share in the fourth quarter of 2006.
Under its previously announced stock repurchase program, the Company repurchased approximately 3.8 million shares during the fourth quarter of 2007.
"Pixelworks exits 2007 with a solidly profitable final quarter on a non-GAAP basis, a significantly lower expense base and the recent introduction of two important new products," said Bruce Walicek, Acting President and CEO of Pixelworks. "The restructuring initiatives that we executed in 2007 have created a sound financial foundation from which to return the Company to growth and profitability. In addition to reshaping the Company's expense base, the Pixelworks team was able to bring new solutions to market within a more restricted spending environment. Our primary focus over the next year will be to maintain the strength of our financial model, aggressively market our new products, and continue to leverage our core technology into emerging growth markets. While there is still plenty of work to do, we enter 2008 with a streamlined business model, renewed focus on our core markets and a portfolio of innovative, next generation video processing products."
Conference Call at 2 p.m. PDT, January 29, 2008 -- Pixelworks will host a conference call at 2 p.m. PDT, January 29, 2008, which can be accessed by calling 617-597-5391 and using pass code 35127384. The Web broadcast 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 February 3, 2008, and can be accessed by calling 617-801-6888 and using pass code 52347321.
Business Outlook for First Quarter 2008
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 December 31, 2007 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 first quarter of 2008 of ($0.00) to $(0.06) and to record non-GAAP net income per share of $0.00 to $0.06, based on the following estimates:
-- The Company anticipates first quarter revenue of $22 million to $24 million. Revenue is highly dependent on a number of factors including, but not limited to, consumer confidence and spending, seasonality in the consumer electronics market, general economic conditions, the Company's ability to secure additional design wins, timely customer transition to new product designs, new product introductions, production yields, growth rates in the advanced television, multimedia projector, advanced media processor, and LCD monitor and panel markets, levels of inventory at distributors and customers, and supply of products from third party foundries.
-- GAAP gross profit margin of approximately 46.5 to 49.5 percent. Non-GAAP gross profit margin of approximately 49.5 to 52.5 percent, which excludes an estimated $0.7 million for the amortization of acquired intangible assets, restructuring charges and stock-based compensation. Gross profit margin may be higher or lower than expected due to many factors including, but not limited to, competitive pricing actions, changes in estimated product costs, revenue levels and product mix, new product yields, and inventory and warranty reserve changes.
-- GAAP operating expenses of $12.4 million to $13.4 million and non-GAAP operating expenses of $10.5 million to $11.5 million. Non-GAAP operating expenses exclude approximately $1.9 million in expenses for stock-based compensation, restructuring charges and amortization of acquired intangible assets.
-- Interest and other income, net of approximately $450,000 on both a GAAP and non-GAAP basis.
-- A tax provision of approximately zero on both a GAAP and non-GAAP basis.
About Pixelworks, Inc.
Pixelworks, headquartered in Tualatin, Oregon, is an innovative provider of powerful video and pixel processing technology for manufacturers of digital projectors and flat panel display products. Pixelworks' flexible design architecture enables our unique technology to produce outstanding image quality in our customers' display products in a range of solutions including system-on-chip ICs, co-processor and discrete ICs. At design centers in Shanghai and San Jose, Pixelworks engineers relentlessly 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.
Pixelworks(R) and the Pixelworks logo(R) 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, operating expenses and net income (loss) which exclude restructuring charges, acquisition-related items, goodwill and intangible asset impairments, stock-based compensation expense, settlement proceeds received and a gain on the repurchase of long-term debt, 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 First Quarter 2008" 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: changes in growth in the advanced television, multimedia projector, advanced media processor, and LCD panel and monitor markets; changes in consumer confidence or spending; changes in customer ordering patterns or lead times; seasonality in the consumer electronics market; the success of our products in expanded markets; success in achieving operating efficiencies from our restructuring efforts, our efforts to achieve profitability and a positive EBITDA, competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; insufficient, excess or obsolete inventory and variations in inventory valuation; our product mix; new product yield rates, changes in regional demand for our product, non-acceptance of the combined technologies by leading manufacturers; changes in the recoverability of intangible assets and long lived assets; supply of products from third party foundries; 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, 2006, Quarterly Report on Form 10-Q for the quarter ended September 30, 2007, 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 Year Ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
--------- --------- ------------------------------
2007 2007 2006 2007 2006
-------- -------- --------- --------- ----------
Revenue, net $26,970 $28,133 $ 29,829 $105,980 $ 133,607
Cost of revenue (1) 13,826 16,025 20,447 59,273 107,506
-------- -------- --------- --------- ----------
Gross profit 13,144 12,108 9,382 46,707 26,101
Operating expenses:
Research and
development (2) 8,180 8,962 13,045 38,792 57,019
Selling, general
and
administrative
(3) 5,202 5,697 8,169 25,437 35,053
Restructuring 6,237 1,645 10,565 13,285 13,316
Amortization of
acquired
intangible assets 90 89 89 359 602
Impairment loss on
goodwill - - - - 133,739
Impairment loss on
acquired
intangible assets - - - - 1,753
-------- -------- --------- --------- ----------
Total operating
expenses 19,709 16,393 31,868 77,873 241,482
-------- -------- --------- --------- ----------
Loss from
operations (6,565) (4,285) (22,486) (31,166) (215,381)
Interest income 1,361 1,454 1,592 5,786 5,833
Interest expense (639) (658) (680) (2,642) (2,721)
Amortization of
debt issuance
costs (165) (165) (165) (661) (667)
Settlement
proceeds, net - - 4,800 - 4,800
Gain on repurchase
of long-term debt,
net - - - - 3,009
-------- -------- --------- --------- ----------
Interest and
other income,
net 557 631 5,547 2,483 10,254
-------- -------- --------- --------- ----------
Loss before
income taxes (6,008) (3,654) (16,939) (28,683) (205,127)
Provision (benefit)
for income taxes 441 775 (1,489) 2,237 (949)
-------- -------- --------- --------- ----------
Net loss $(6,449) $(4,429) $(15,450) $(30,920) $(204,178)
======== ======== ========= ========= ==========
Net loss per share
- basic and
diluted $ (0.14) $ (0.09) $ (0.32) $ (0.64) $ (4.23)
======== ======== ========= ========= ==========
Weighted average
shares
outstanding:
Basic and diluted 46,292 48,921 48,626 48,208 48,289
======== ======== ========= ========= ==========
-------------------
(1)Includes:
Amortization of
acquired
developed
technology $ 705 $ 705 $ 705 $ 2,820 $ 4,087
Restructuring 25 11 2,119 172 2,119
Stock-based
compensation 28 22 46 98 208
Impairment loss
on acquired
developed
technology - - - - 21,330
Amortization of
acquired
inventory mark-
up - - - - 26
(2)Includes stock-
based compensation 602 538 796 2,320 3,884
(3)Includes stock-
based compensation 894 684 1,292 3,527 5,464
PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION (a)
(Dollars in thousands)
(Unaudited)
Three Months Ended Year Ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
--------- --------- --------- ------------------
2007 2007 2006 2007 2006
--------- --------- --------- -------- ---------
Reconciliation of GAAP and
non-GAAP gross profit
GAAP gross profit $13,144 $12,108 $ 9,382 $46,707 $ 26,101
Amortization of
acquired developed
technology 705 705 705 2,820 4,087
Restructuring 25 11 2,119 172 2,119
Stock-based
compensation 28 22 46 98 208
Impairment loss on
acquired developed
technology - - - - 21,330
Amortization of
acquired inventory
mark-up - - - - 26
-------- -------- -------- -------- ---------
Total reconciling
items included in
cost of revenue 758 738 2,870 3,090 27,770
-------- -------- -------- -------- ---------
Non-GAAP gross profit $13,902 $12,846 $12,252 $49,797 $ 53,871
======== ======== ======== ======== =========
Non-GAAP gross profit
margin 51.5% 45.7% 41.1% 47.0% 40.3%
======== ======== ======== ======== =========
Reconciliation of GAAP and
non-GAAP operating expenses
GAAP operating
expenses $19,709 $16,393 $31,868 $77,873 $241,482
Reconciling item included in
research and development:
Stock-based
compensation 602 538 796 2,320 3,884
Reconciling item included in
selling, general and
administrative:
Stock-based
compensation 894 684 1,292 3,527 5,464
Restructuring 6,237 1,645 10,565 13,285 13,316
Amortization of
acquired intangible
assets 90 89 89 359 602
Impairment loss on
goodwill - - - - 133,739
Impairment loss on
acquired intangible
assets - - - - 1,753
-------- -------- -------- -------- ---------
Total reconciling
items included in
operating expenses 7,823 2,956 12,742 19,491 158,758
-------- -------- -------- -------- ---------
Non-GAAP operating
expenses $11,886 $13,437 $19,126 $58,382 $ 82,724
======== ======== ======== ======== =========
----------------------------------------------------------------------
(a) - 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 loss and
GAAP net loss per share due to the exclusion of restructuring
charges, acquisition-related items, goodwill and intangible asset
impairments, stock-based compensation expense, settlement proceeds
received, and a gain on the repurchase of long-term debt. Pixelworks'
management believes that 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 allowing investors to
better evaluate underlying cash flow dynamics. Pixelworks' management
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, its GAAP financial measures.
PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION (a)
(In thousands, except per share data)
(Unaudited)
Three Months Ended Year Ended
Dec. 31, Sept. 30, Dec. 31, Dec. 31,
--------- --------- ---------- --------------------
2007 2007 2006 2007 2006
--------- --------- ---------- --------- ----------
Reconciliation of GAAP and
non-GAAP net income (loss)
GAAP net loss $(6,449) $(4,429) $(15,450) $(30,920) $(204,178)
Reconciling items
included in cost
of revenue 758 738 2,870 3,090 27,770
Reconciling items
included in
operating
expenses 7,823 2,956 12,742 19,491 158,758
Settlement
proceeds, net - - (4,800) - (4,800)
Gain on repurchase
of long-term
debt, net - - - - (3,009)
Tax effect of non-
GAAP adjustments 123 (134) (98) - -
-------- -------- --------- --------- ----------
Non-GAAP net
income (loss) $ 2,255 $ (869) $ (4,736) $ (8,339) $ (25,459)
======== ======== ========= ========= ==========
Non-GAAP net
income (loss) per
share - basic and
diluted $ 0.05 $ (0.02) $ (0.10) $ (0.17) $ (0.53)
======== ======== ========= ========= ==========
Non-GAAP weighted
average shares
outstanding:
Basic 46,292 48,921 48,626 48,208 48,289
======== ======== ========= ========= ==========
Diluted 46,357 48,921 48,626 48,208 48,289
======== ======== ========= ========= ==========
----------------------------------------------------------------------
(a) - 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 loss and
GAAP net loss per share due to the exclusion of restructuring
charges, acquisition-related items, goodwill and intangible asset
impairments, stock-based compensation expense, settlement proceeds
received, and a gain on the repurchase of long-term debt. Pixelworks'
management believes that 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 allowing investors to
better evaluate underlying cash flow dynamics. Pixelworks' management
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, its GAAP financial measures.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31,
------------------
2007 2006
--------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 74,572 $ 63,095
Short-term marketable securities 34,581 53,985
Accounts receivable, net 6,223 9,315
Inventories, net 11,265 13,809
Prepaid expenses and other current assets 3,791 6,374
--------- --------
Total current assets 130,432 146,578
Long-term marketable securities 9,804 17,504
Property and equipment, net 6,148 21,931
Other assets, net 6,902 9,287
Debt issuance costs, net 2,260 2,922
Acquired intangible assets, net 6,370 9,549
--------- --------
Total assets $161,916 $207,771
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,992 $ 8,093
Accrued liabilities and current portion of long-
term liabilities 13,848 19,319
Current portion of income taxes payable 232 10,997
--------- --------
Total current liabilities 18,072 38,409
Long-term liabilities, net of current portion 1,236 7,414
Income taxes payable, net of current portion 10,635 -
Long-term debt 140,000 140,000
--------- --------
Total liabilities 169,943 185,823
Shareholders' equity (deficit) (8,027) 21,948
--------- --------
Total liabilities and shareholders'
equity $161,916 $207,771
========= ========
SOURCE: Pixelworks, Inc.
Pixelworks, Inc.
Steven Moore, 408-200-9221
smoore@pixelworks.com