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Pixelworks Reports Fourth Quarter and 2002 Financial Results
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TUALATIN, Ore.--(BUSINESS WIRE)--Jan. 21, 2003--
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Record fourth quarter revenue of $29.1 million increased 29 percent year over year and 8 percent sequentially; Record 2002 revenue of $102.6 million increased 13 percent over $90.8 million in 2001
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Fourth quarter 2002 GAAP net income was $0.7 million, or $0.01 per diluted share
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Fourth quarter pro forma(1) net income was $2.2 million, or $0.05 per diluted share
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Third quarter 2002 financial results are being restated to reflect a change in accounting for the acquisition of Jaldi Semiconductor; GAAP net loss per share for the third quarter increased to ($0.44) from ($0.12); Pro forma earnings per share remained unchanged at $0.04
(1) Pro forma net income (loss), which differs from net income (loss) in accordance with accounting principles generally accepted in the United States of America (GAAP), excludes non-cash charges for amortization of purchased developed technology, amortization of goodwill and assembled workforce, in-process research and development expense, and amortization of deferred stock compensation. A detailed reconciliation between pro forma and GAAP net income (loss) is included with the attached financial statements.
Pixelworks, Inc. (Nasdaq:PXLW), a leading provider of system-on-a-chip ICs for the advanced display market, today announced financial results for the fourth quarter and year ended December 31, 2002. Additionally, the Company is restating the financial results for the third quarter ended September 30, 2002 to reflect a change in accounting for the acquisition of Jaldi Semiconductor (Jaldi) that was completed on September 6, 2002.
Revenue for the fourth quarter of 2002 was $29.1 million, a 29 percent increase over revenue of $22.7 million in the fourth quarter of 2001 and an 8 percent increase over revenue of $26.9 million in the third quarter of 2002.
Net income according to GAAP in the fourth quarter was $0.7 million, or $0.01 per diluted share, compared to a net loss of ($2.0) million, or ($0.05) per diluted share, in the fourth quarter of 2001 and a restated net loss of ($19.0) million, or ($0.44) per diluted share, in the third quarter of 2002.
Pro forma net income for the fourth quarter of 2002 was $2.2 million, or $0.05 per diluted share compared to pro forma net income of $4.0 million, or $0.09 per diluted share in the fourth quarter of 2001 and pro forma net income of $2.0 million, or $0.04 per diluted share in the third quarter of 2002.
As a result of revised guidance from the Company's auditors regarding the proper accounting treatment for the acquisition of Jaldi, the Company is restating its financial results for the third quarter of 2002 to reflect the reclassification of Jaldi at the time of acquisition to that of a "development stage company" rather than a "business" under the guidelines set forth in FASB 141. The Company and its auditors originally concluded, after carefully reviewing the facts, that Jaldi was a "business;" however, after further review of the same facts by the auditors at year-end, they revised their original guidance that Jaldi was a "business" and concluded that at the time of acquisition Jaldi should have been considered a "development stage company." The acquisition of a development stage company is properly accounted for as an acquisition of assets, and as such, no goodwill is recognized in the transaction and the excess of the purchase price over the fair value of the assets acquired and liabilities assumed is allocated to the workforce in place and to in-process research and development. Relative to previously reported third quarter financial results, the changes to the balance sheet are a decrease of $16.7 million in goodwill (an intangible asset), increase of $2.9 million in assembled workforce (an intangible asset), and decrease of $13.8 million in shareholder's equity. The change to the income statement is an increase of $13.8 million in non-cash, in-process research and development expense that results in a $13.8 million increase in the GAAP net loss in the quarter. The GAAP net loss increased from ($5.1) million, or ($0.12) per diluted share to ($19.0) million, or ($0.44) per diluted share. Because the revised accounting treatment relates to non-cash intangible assets, there is no change to the Company's reported third quarter pro forma net income of $2.0 million, or $0.04 per diluted share. The restated third quarter 2002 financial results, including a comparison to previously reported third quarter 2002 financial results, are included with the attached financial statements.
Revenue for the year of $102.6 million increased 13 percent over revenue of $90.8 million in 2001. The GAAP net loss for the year of ($20.9) million, or ($0.48) per diluted share improved from a net loss of ($42.6) million, or ($1.05) per diluted share in 2001. Pro forma net income of $7.2 million, or $0.16 per diluted share compared to pro forma net income of $14.3 million, or $0.33 per diluted share in 2001.
The Company's balance sheet remains strong, with $101.6 million in cash and marketable securities as of December 31, 2002, including $14.5 million of marketable securities classified as non-current investments to reflect maturity dates beyond 12 months from the balance sheet date. Working capital at December 31, 2002 totaled $95.8 million and the Company has no long-term debt.
"2002 was another very good year for Pixelworks," said Allen Alley, President, CEO, and Chairman of Pixelworks. "We shipped a record five million chips that resulted in record revenue for the year, improved gross profit margins, and delivered 16 cents of pro forma earnings per share during an incredibly difficult year for technology companies in general," added Alley. "We achieved this while acquiring and integrating two early stage companies, nDSP and Jaldi, and believe both of these acquisitions have significantly strengthened our competitive position in the rapidly growing advanced television market," concluded Alley.
Conference Call at 2 p.m. PST, January 21, 2003 -- Pixelworks will host a conference call at 2 p.m. PST, January 21, 2003, which can be accessed at (913) 981-5592 and using pass code 653368. The conference call will also be available through a Web broadcast that can be accessed at http://www.firstcallevents.com/service/ajwz372486041gf12.html or by visiting the Investor Relations section at www.pixelworks.com. A replay of the conference call will be available until 5 p.m. PST, January 24, 2003, and can be accessed by calling (719) 457-0820 using pass code 653368. A replay of the Web broadcast will be available through February 4, 2003.
Business Outlook
The following statements are based on 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, or mergers or acquisitions that may be completed after December 31, 2002. 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.
Due to very uncertain and unpredictable economic conditions, it is particularly difficult to predict product demand and other related matters.
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The Company estimates first quarter 2003 revenue will be $29.5 to $31.0 million, which represents a year over year increase of 34 to 41 percent. Revenue is highly dependent on a number of factors including, but not limited to, general economic conditions, timely new product introductions, the company's ability to secure additional design wins with customers, growth rates in the flat panel monitor, multimedia projector, and advanced television markets, levels of inventory at distributors and customers, and increased supply of products from the company's third party foundries.
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The Company expects pro forma gross profit margins to be 46 to 47 percent in the first quarter of 2003. Pro forma gross profit margins exclude non-cash expenses for the amortization of purchased developed technology resulting from the January 2002 acquisition of nDSP. These non-cash expenses are expected to be $132,000 in each quarter of 2003. Gross profit margins 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 changes in estimated product mix.
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The Company expects combined operating expenses for R&D and SG&A of approximately $12.4 to $12.8 million in the first quarter of 2003, up from $12.1 million in the fourth quarter of 2002.
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The Company expects non-cash charges for the amortization of assembled workforce of approximately $242,000 in each quarter of 2003. These non-cash charges result from the September 2002 acquisition of Jaldi Semiconductor.
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The Company expects non-cash charges related to the amortization of deferred stock compensation to be approximately $450,000 in each quarter of 2003.
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The Company expects interest income of approximately $475,000 in the first quarter of 2003. This estimate is dependent on no material change to average cash balances and interest rates from those at December 31, 2002.
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The Company expects the tax rate in 2003 will be approximately 35 percent of pro forma income before income taxes. Pro forma income (loss) before income taxes represents income (loss) before income taxes excluding non-cash expenses for the amortization of developed technology, amortization of goodwill and assembled workforce, in-process research and development expense, and amortization of deferred stock compensation. Pro forma income (loss) before income taxes excluding these expenses differs from income (loss) before income taxes in accordance with GAAP.
About Pixelworks, Inc.
Pixelworks, headquartered in Tualatin, Oregon, is a leading provider of system-on-a-chip ICs for the advanced display market. Pixelworks' solutions process and optimize video, computer graphics and Web information for display on a wide variety of devices used in business and consumer markets, including flat-panel monitors, digital televisions and multimedia projectors. Our broad IC product line is used by the world's leading manufacturers of consumer electronics and computer display products to enhance image quality and ease of use. For more information, please visit the company's Web site at www.pixelworks.com.
Pixelworks is a trademark of Pixelworks, Inc. All other trademarks and registration marks are the property of their respective corporations.
Safe Harbor Statement
The statements by Allen Alley and the statements in the business outlook above are forward-looking statements within the meaning of the 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: business and economic conditions, changes in growth in the flat panel monitor, multimedia projector, and advanced television industries, changes in customer ordering patterns, competitive factors, such as rival chip architectures, pricing pressures, insufficient, excess or obsolete inventory and variations in inventory valuation, continued success in technological advances, shortages of manufacturing capacity from our third-party foundries, litigation involving antitrust and intellectual property, the non-acceptance of the combined technologies by leading manufacturers, and other risk factors listed from time to time in the company's Securities and Exchange Commission filings. In addition, such statements are subject to the risks inherent in investments in and acquisitions of technologies and businesses, including the timing and successful completion of technology and product development through volume production, integration issues, unanticipated costs and expenditures, changing relationships with customers, suppliers and strategic partners, potential contractual, intellectual property or employment issues, accounting treatment and charges, and the risks that the investment or acquisition cannot be completed successfully or that anticipated benefits are not realized. The forward-looking statements contained in this press release speak only as of the date on which they are made, and the company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this news release. If the company does update one or more forward-looking statements, investors and others should not conclude that the company will make additional updates with respect thereto or with respect to other forward-looking statements.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
Three Months Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(unaudited) (unaudited)
Revenue $29,129 $22,659 $102,641 $90,808
Cost of revenue (1) 15,268 9,832 51,715 46,499
----------- ----------- ----------- -----------
Gross profit 13,861 12,827 50,926 44,309
Operating expenses:
Research and
development 6,540 5,183 23,730 18,096
Selling, general and
administrative 5,606 4,540 21,865 16,373
Amortization of
goodwill &
assembled workforce 242 4,359 242 15,982
In-process R&D
expense - - 24,342 32,400
Amortization of
deferred stock
compensation 1,115 1,588 2,993 8,461
----------- ----------- ----------- -----------
Total
operating
expenses 13,503 15,670 73,172 91,312
----------- ----------- ----------- -----------
Income (loss)
from
operations 358 (2,843) (22,246) (47,003)
----------- ----------- ----------- -----------
Interest income 498 857 2,349 4,444
Interest expense (4) - (74) -
----------- ----------- ----------- -----------
Interest
income and
other
expense, net 494 857 2,275 4,444
----------- ----------- ----------- -----------
Income (loss)
before
income taxes 852 (1,986) (19,971) (42,559)
----------- ----------- ----------- -----------
Income tax provision 173 - 880 -
----------- ----------- ----------- -----------
Net income
(loss) $679 $(1,986) $(20,851) $(42,559)
=========== =========== =========== ===========
Basic net
income (loss)
per share $0.02 $(0.05) $(0.48) $(1.05)
=========== =========== =========== ===========
Diluted net
income (loss)
per share $0.01 $(0.05) $(0.48) $(1.05)
=========== =========== =========== ===========
Weighted average
shares-basic 44,847,272 41,279,292 43,397,296 40,661,642
=========== =========== =========== ===========
Weighted average
shares-diluted 46,158,026 41,279,292 43,397,296 40,661,642
=========== =========== =========== ===========
Proforma net
income (2) $2,168 $3,961 $7,210 $14,284
=========== =========== =========== ===========
Basic proforma
net income per
share $0.05 $0.10 $0.17 $0.35
=========== =========== =========== ===========
Diluted
proforma net
income per
share $0.05 $0.09 $0.16 $0.33
=========== =========== =========== ===========
Weighted average
shares-basic 44,847,272 41,279,292 43,397,296 40,661,642
=========== =========== =========== ===========
Weighted average
shares-diluted 46,158,026 43,421,736 44,823,303 43,209,771
=========== =========== =========== ===========
(1) Includes amortization of purchased developed technology of
$132 and $484 for the three and twelve months ended December 31, 2002,
respectively.
(2) Proforma net income excludes amortization of purchased
developed technology, amortization of goodwill & assembled workforce,
in-process R&D expense, and amortization of deferred stock
compensation.
RECONCILIATION OF GAAP NET INCOME (LOSS) TO PRO FORMA NET INCOME -
unaudited
Three Months
Ended Year Ended
December 31, December 31,
2002 2001 2002 2001
------- -------- --------- ---------
GAAP net income (loss) $679 $(1,986) $(20,851) $(42,559)
Non-cash expenses:
Amortization of developed
technology (1) 132 - 484 -
Amortization of goodwill &
assembled workforce (2) 242 4,359 242 15,982
In-process R&D expense (3) - - 24,342 32,400
Amortization of deferred stock
compensation (4) 1,115 1,588 2,993 8,461
------- -------- --------- ---------
Pro forma net income $2,168 $3,961 $7,210 $14,284
======= ======== ========= =========
(1) Non-cash expenses for amortization of value assigned to an
acquired company's developed and other core technology at time
of acquisition
(2) Non-cash expenses for amortization of intangible assets recorded
in connection with an acquisition.
(3) A one-time, non-cash expense for the value assigned to acquired
companies existing research and development projects.
(4) Non-cash expenses associated with certain stock options issued to
employees prior to the company's Initial Public Offering and to
employees of acquired companies.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
Dec. 31, Dec. 31,
ASSETS 2002 2001
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $62,152 $53,288
Short-term marketable securities 24,915 40,517
Accounts receivable, net 10,421 6,378
Inventories, net 6,788 4,176
Prepaid expenses and other current assets 3,896 3,667
--------- ---------
Total current assets 108,172 108,026
Long-term marketable securities 14,500 7,450
Property and equipment, net 9,073 5,463
Goodwill and assembled workforce, net 85,215 69,162
Other assets, net 10,252 12,738
--------- ---------
Total assets $227,212 $202,839
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $5,084 $2,391
Accrued liabilities and current portion of
long-term debt 7,312 6,815
--------- ---------
Total current liabilities 12,396 9,206
Shareholders' equity 214,816 193,633
--------- ---------
Total liabilities and shareholders' equity $227,212 $202,839
========= =========
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except share and per share data)
(unaudited)
Three Months Ended
September 30, 2002
As
Previously As
Reported Change (3) Restated
----------- ---------------------
Revenue $26,862 $26,862
Cost of revenue (1) 13,647 13,647
----------- --------- -----------
Gross
profit 13,215 13,215
Operating expenses:
Research and
development 6,463 6,463
Selling, general
and
administrative 5,232 5,232
In-process R&D
expense 6,300 13,842 20,142
Amortization of
deferred stock
compensation 676 676
----------- --------- -----------
Total
operating
expenses 18,671 13,842 32,513
----------- --------- -----------
Loss from
operations (5,456) (13,842) (19,298)
----------- --------- -----------
Interest income 559 559
Interest expense (17) (17)
----------- --------- -----------
Interest
income and
other
expense,
net 542 542
----------- --------- -----------
Loss before
income
taxes (4,914) (13,842) (18,756)
----------- --------- -----------
Income tax provision 229 229
----------- --------- -----------
Net loss $(5,143) $(13,842) $(18,985)
=========== ========= ===========
Basic net
loss per
share $(0.12) $(0.32) $(0.44)
=========== ========= ===========
Diluted net
loss per
share $(0.12) $(0.32) $(0.44)
=========== ========= ===========
Weighted average
shares-basic 43,491,996 43,491,996
=========== ===========
Weighted average
shares-diluted 43,491,996 43,491,996
=========== ===========
Proforma net
income(2) $1,965 $1,965
=========== ===========
Basic
proforma net
income per
share $0.05 $0.05
=========== ===========
Diluted
proforma net
income per
share $0.04 $0.04
=========== ===========
Weighted average
shares-basic 43,491,996 43,491,996
=========== ===========
Weighted average
shares-diluted 44,713,961 44,713,961
=========== ===========
Nine Months Ended
September 30, 2002
As
Previously As
Reported Change (3) Restated
----------- ---------------------
Revenue $73,512 $73,512
Cost of revenue (1) 36,447 36,447
----------- --------- -----------
Gross
profit 37,065 37,065
Operating expenses:
Research and
development 17,190 17,190
Selling, general
and
administrative 16,259 16,259
In-process R&D
expense 10,500 13,842 24,342
Amortization of
deferred stock
compensation 1,878 1,878
----------- --------- -----------
Total
operating
expenses 45,827 13,842 59,669
----------- --------- -----------
Loss from
operations (8,762) (13,842) (22,604)
----------- --------- -----------
Interest income 1,850 1,850
Interest expense (70) (70)
----------- --------- -----------
Interest
income and
other
expense,
net 1,780 1,780
----------- --------- -----------
Loss before
income
taxes (6,982) (13,842) (20,824)
----------- --------- -----------
Income tax provision 707 707
----------- --------- -----------
Net loss $(7,689) $(13,842) $(21,531)
=========== ========= ===========
Basic net
loss per
share $(0.18) $(0.32) $(0.50)
=========== ========= ===========
Diluted net
loss per
share $(0.18) $(0.32) $(0.50)
=========== ========= ===========
Weighted average
shares-basic 42,909,408 42,909,408
=========== ===========
Weighted average
shares-diluted 42,909,408 42,909,408
=========== ===========
Proforma net
income(2) $5,041 $5,041
=========== ===========
Basic
proforma net
income per
share $0.12 $0.12
=========== ===========
Diluted
proforma net
income per
share $0.11 $0.11
=========== ===========
Weighted average
shares-basic 42,909,408 42,909,408
=========== ===========
Weighted average
shares-diluted 44,394,496 44,394,496
=========== ===========
(1) Includes amortization of purchased developed technology of $132 and $352
for the three and nine months ended September 30, 2002, respectively.
(2) Proforma net income excludes amortization of purchased developed
technology, amortization of goodwill & assembled workforce, in-process R&D expense,
and amortization of deferred stock compensation.
(3) Reflects acquisition of Jaldi as the acquisition of assets resulting in the excess
of the purchase price being allocated on a pro-rata basis to assembled workforce and
in-process research and development
RECONCILIATION OF GAAP NET LOSS TO PRO FORMA NET INCOME - unaudited
Three Months Ended Nine Months Ended
September 30, 2002 September 30, 2002
Previous Change Restated Previous Change Restated
------------------ --------- ------------------ ---------
GAAP net
loss $(5,143) $(13,842) $(18,985) $(7,689) $(13,842) $(21,531)
Non-cash
expenses:
Amortization
of developed
technology(1) 132 132 352 352
In-process
R&D
expense(2) 6,300 13,842 20,142 10,500 13,842 24,342
Amortization
of deferred
stock compen-
sation(3) 676 676 1,878 1,878
-------- --------- --------- -------- --------- ---------
Pro forma net
income $1,965 $ - $1,965 $5,041 $ - $5,041
======== ========= ========= ======== ========= =========
(1) Non-cash expenses for amortization of value assigned to an
acquired company's developed and other core technology at time of
acquisition.
(2) A one-time, non-cash expense for the value assigned to acquired
companies existing research and development projects.
(3) Non-cash expenses associated with certain stock options issued to
employees prior to the company's Initial Public Offering and to
employees of acquired companies.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2002
(In thousands)
(unaudited)
As
Previously As
Reported Change(1) Restated
----------- --------- ---------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $68,062 $68,062
Short-term marketable securities 23,042 23,042
Accounts receivable, net 9,947 9,947
Inventories, net 4,032 4,032
Prepaid expenses and other current
assets 3,815 3,815
----------- ---------- ---------
Total current assets 108,898 - 108,898
Long-term marketable securities 9,482 9,482
Property and equipment, net 8,712 8,712
Goodwill and assembled workforce, net 100,284 (13,842) 86,442
Other assets, net 9,092 9,092
----------- ---------- ---------
Total assets $236,468 $(13,842) $222,626
=========== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $4,237 $4,237
Accrued liabilities and current
portion of long-term debt 6,732 6,732
----------- ---------- ---------
Total current liabilities 10,969 - 10,969
Shareholders' equity 225,499 (13,842) 211,657
----------- ---------- ---------
Total liabilities and shareholders'
equity $236,468 $(13,842) $222,626
=========== ========== =========
(1) Reflects acquisition of Jaldi as the acquisition of assets
resulting in the excess of the purchase price being allocated
on a pro-rata basis to assembled workforce and in-process research
and development.
CONTACT:
Pixelworks, Inc.
Investor Inquiries:
Jeff Bouchard, 503/454-1750 ext. 604
jeffb@pixelworks.com
or
Media Inquiries:
Chris Bright, 503/454-1750 ext. 594
cbright@pixelworks.com
Web site: www.pixelworks.com