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Pixelworks Reports Second Quarter 2005 Financial Results
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TUALATIN, Ore., Jul 27, 2005 (BUSINESS WIRE) -- Pixelworks, Inc. (NASDAQ:PXLW) :
Conference Call at 2 p.m. PDT, July 27, 2005 - Pixelworks will host a conference call at 2 p.m. PDT, July 27, 2005, which can be accessed at (719) 457-2633 and using pass code 6358643. The conference call will also be available through a Web broadcast that can be accessed by visiting the Investor Relations section at www.pixelworks.com. A replay of the conference call will be available through July 30, 2005, and can be accessed by calling (719) 457-0820 using pass code 6358643. A replay of the Web broadcast will be available through August 28, 2005.
- The second quarter financial results include the results of operations of Equator Technologies from June 15, 2005 through the end of the second quarter.
- Revenue of $41.3 million in the second quarter increased 3% from $40.3 million in the first quarter and decreased 15% from $48.5 million in the second quarter of 2004. Revenue contribution in the second quarter from Equator Technologies products was negligible.
- Projector revenue increased 18% sequentially while LCD monitor and advanced TV revenue decreased 6% and 3%, respectively.
- GAAP net loss in the second quarter was ($2.3) million, or ($0.05) per share, pro forma(A) net loss was ($1.6) million, or ($0.03) per share.
- The total purchase price of Equator Technologies was $117.9 million, which includes $8.3 million representing the fair value of 1.3 million Pixelworks stock options that were exchanged for outstanding Equator stock options.
(A) Pro forma gross profit, income (loss) before income taxes, and net income (loss), which differs from gross profit, income (loss) before income taxes, and net income (loss) in accordance with accounting principles generally accepted in the United States of America (GAAP), excludes non-cash expenses for the amortization of various acquired intangible assets, amortization of adjustments to the value of inventory acquired in acquisitions, amortization of stock-based compensation, and a loss on the sale of marketable securities used to fund the acquisition of Equator Technologies. A schedule reconciling these amounts for the three and six months ended June 30, 2005 and 2004 is included in this news release. Pixelworks' management believes the presentation of these non-GAAP financial measures provides useful information to investors regarding Pixelworks' results of operations allowing investors to better evaluate ongoing business performance. Pixelworks' management also uses these non-GAAP financial measures internally to monitor performance of the business. Pixelworks, however, cautions investors to consider these non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.
Pixelworks, Inc. (NASDAQ:PXLW), a leading provider of system-on-chip ICs for the advanced display industry, today announced financial results for the second quarter ended June 30, 2005. As a result of the acquisition of Equator Technologies, which closed June 14, 2005, second quarter financial results include the results of operations from Equator Technologies from June 15, 2005 through June 30, 2005.
Revenue for the second quarter of 2005 was $41.3 million, a 15 percent decrease from $48.5 million in the second quarter of 2004 and a 3 percent increase from $40.3 million in the first quarter of 2005. Revenue in the second quarter of 2005 from Equator Technologies was negligible.
"Overall, revenue in the second quarter came in as expected, although the mix was a little different than we had anticipated. Projectors were a bright spot, experiencing robust growth, up 18 percent sequentially. On the other hand, following several strong quarters of growth, our advanced television business came in weaker than we expected, down 3 percent sequentially. This was largely due to unanticipated softness from TV customers serving the European market," said Allen Alley, President, CEO and Chairman of Pixelworks.
Net loss in accordance with generally accepted accounting principles (GAAP) in the second quarter of 2005 was ($2.3) million, or ($0.05) per share, compared with net income of $5.8 million or $0.12 per diluted share, in the second quarter of 2004 and net income of $836,000, or $0.02 per diluted share, in the first quarter of 2005. GAAP results include non-cash expenses for the amortization of various acquired intangible assets, amortization of adjustments to the value of inventory acquired from Equator Technologies, amortization of stock-based compensation, and the loss on the sale of marketable securities used to fund the acquisition of Equator Technologies. These non-cash and acquisition-related expenses, which are excluded when reporting pro forma financial results, totaled approximately $1.7 million in the second quarter of 2005 compared to $345,000 in the second quarter of 2004.
Pro forma net loss in the second quarter of 2005 was ($1.6) million, or ($0.03) per share, which compared to pro forma net income of $6.1 million, or $0.12 per diluted share in the second quarter of 2004 and pro forma net income of $1.1 million, or $0.02 per diluted share, in the first quarter of 2005.
The purchase price of Equator Technologies of $117.9 million was allocated as follows for accounting purposes (in millions):
Current Assets $ 20.6 Non-current Assets $ 24.6 Acquired Intangible Assets: - Developed Technology $ 36.8 - Orders Backlog $ 0.6 - Trademarks $ 0.2 - Customer Relationships $ 3.4 - Deferred Stock Compensation $ 2.2 - Goodwill $ 39.7 Less: Liabilities Assumed ($ 10.2) Total Purchase Price $117.9
Business Outlook for Third Quarter 2005
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 June 30, 2005. 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 estimates the net loss per share in the third quarter of 2005 will be ($0.10) to ($0.13) on a GAAP basis and ($0.01) to ($0.02) on a pro forma basis, based on the following estimates:
- Revenue of $47 to $51 million. 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, advanced television, set-top box, and videoconferencing markets, levels of inventory at distributors and customers, and increased supply of products from the Company's third party foundries.
- GAAP gross profit margin of 29 to 31 percent. Pro forma gross profit margin of 41 to 43 percent, which excludes an estimated $5.5 to $6.0 million in non-cash expenses for the amortization of acquired inventory mark-up and amortization of various intangibles. 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 changes in estimated product mix.
- R&D and SG&A expenses, combined, of $23.5 to $24.5 million.
- Non-cash operating expenses for stock-based compensation and amortization of purchased intangible assets of approximately $1.1 million (excluded for pro forma reporting purposes).
- Interest income, net of approximately $225,000.
- Effective tax rate of 40 to 50 percent of net loss before income taxes on a GAAP basis and 75 to 85 percent of pro forma net loss before taxes on a pro forma basis. Both the GAAP and pro forma effective tax rates are subject to significant variation on an ongoing basis due to changes in the level of income before taxes, research and development tax credits, and other factors.
About Pixelworks, Inc.
Pixelworks, headquartered in Tualatin, Oregon, is a leading provider of system-on-chip ICs for the advanced display industry. Pixelworks' solutions provide the intelligence for advanced televisions, multimedia projectors and flat panel monitors by processing and optimizing video and computer graphics signals to produce high quality images. Many of the world's leading manufacturers of consumer electronics and computer display products utilize our technology to enhance image quality and ease of use of their products.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (GAAP BASIS)
(In thousands, except per share data)
(Unaudited)
Three Months Six Months Ended
Ended
June 30, June 30,
----------------- -----------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenue $41,315 $48,509 $81,576 $93,779
Cost of revenue (1) 25,113 25,477 48,456 47,360
-------- -------- -------- --------
Gross
profit 16,202 23,032 33,120 46,419
Operating expenses:
Research and
development 11,571 7,953 21,013 15,657
Selling, general
and
administrative 6,900 6,056 13,968 11,530
Stock-based
compensation and
amortization
of purchased
intangible
assets (2) 385 213 522 498
-------- -------- -------- --------
Total
operating
expenses 18,856 14,222 35,503 27,685
-------- -------- -------- --------
Income
(loss)
from
operations (2,654) 8,810 (2,383) 18,734
Interest income 1,693 528 3,408 764
Interest expense (660) (294) (1,317) (295)
Realized loss on sale of marketable
securities (779) - (779) -
Amortization of debt issuance costs (178) (115) (355) (115)
-------- -------- -------- --------
Interest
and other
income,
net 76 119 957 354
-------- -------- -------- --------
Income
(loss)
before
income
taxes (2,578) 8,929 (1,426) 19,088
Provision for (recovery of) income
taxes (303) 3,170 13 6,776
-------- -------- -------- --------
Net income
(loss) $(2,275) $5,759 $(1,439) $12,312
======== ======== ======== ========
Net income (loss) per share:
Basic $(0.05) $0.12 $(0.03) $0.26
======== ======== ======== ========
Diluted $(0.05) $0.12 $(0.03) $0.25
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 47,101 46,636 47,064 46,479
======== ======== ======== ========
Diluted 47,101 51,194 47,064 49,658
======== ======== ======== ========
-----------------------------------
(1) Includes amortization of:
Acquired
developed
technology $439 $132 $571 $264
Acquired
inventory
mark-up 85 - 85 -
Acquired
backlog 19 - 19 -
Deferred
stock-based
compensation 11 - 11 -
(2) Consists of amortization of:
Deferred
stock-based
compensation 208 91 224 255
Acquired
assembled
workforce 122 122 243 243
Acquired
customer
relationships 47 - 47 -
Acquired
trademark 8 - 8 -
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (PRO FORMA BASIS)
(In thousands, except per share data)
(Unaudited)
Three Months Six Months Ended
Ended
June 30, June 30,
----------------- -----------------
2005 2004 2005 2004
-------- -------- -------- --------
Revenue $41,315 $48,509 $81,576 $93,779
Cost of revenue 24,559 25,345 47,770 47,096
-------- -------- -------- --------
Pro forma
gross
profit 16,756 23,164 33,806 46,683
Operating expenses:
Research and
development 11,571 7,953 21,013 15,657
Selling,
general and
administrative 6,900 6,056 13,968 11,530
-------- -------- -------- --------
Total
operating
expenses 18,471 14,009 34,981 27,187
-------- -------- -------- --------
Pro forma
income
(loss)
from
operations (1,715) 9,155 (1,175) 19,496
Interest income 1,693 528 3,408 764
Interest expense (660) (294) (1,317) (295)
Amortization of debt issuance costs (178) (115) (355) (115)
-------- -------- -------- --------
Interest
income,
net 855 119 1,736 354
-------- -------- -------- --------
Pro forma
income
(loss)
before
income
taxes (860) 9,274 561 19,850
Provision for income taxes 783 3,170 1,099 6,776
-------- -------- -------- --------
Pro forma
net income
(loss) $(1,643) $6,104 $(538) $13,074
======== ======== ======== ========
Pro forma net income (loss) per
share:
Basic $(0.03) $0.13 $(0.01) $0.28
======== ======== ======== ========
Diluted $(0.03) $0.12 $(0.01) $0.27
======== ======== ======== ========
Weighted average shares
outstanding:
Basic 47,101 46,636 47,064 46,479
======== ======== ======== ========
Diluted 47,101 51,194 47,064 49,658
======== ======== ======== ========
The above pro forma financial statements are presented for
informational purposes only. Our presentation of pro forma financial
information excludes non-cash expenses resulting from acquisitions and
the issuance of stock options, as well as unusual or infrequent
expenses that are not directly attributable to our ongoing operations
and are expected to be incurred over a limited period of time. Because
of these exclusions, our presentation is not in accordance with U.S.
generally accepted accounting principles (GAAP). Additionally, our
presentation of pro forma financial information may not be consistent
with that of other companies.
We believe that the exclusion of non-cash charges may help the
investor better understand our liquidity position and the use of
tangible resources in our operations, and the exclusion of unusual or
infrequent items provides an alternative measure which may help the
investor evaluate our underlying operating performance. Pro forma
information is not, and should not be considered, a substitute for
financial information prepared in accordance with GAAP.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF GAAP TO PRO FORMA BASIS
(In thousands, except per share data)
(Unaudited)
Three Months Three Months
Ended Ended
June 30, 2005 June 30, 2004
--------------------------- --------------------------
GAAP Adjustments Pro GAAP Adjustments Pro
forma forma
------ ----------- ------- ----- --------- -------
Revenue $41,315 $- $41,315 $48,509 $- $48,509
Cost of
revenue 25,113 (554)(1) 24,559 25,477 (132)(1) 25,345
------- ------- ------- ------- ------- ------
Gross
profit 16,202 554 16,756 23,032 132 23,164
Operating expenses:
Research and
development 11,571 - 11,571 7,953 - 7,953
Selling, general
and administra-
tive 6,900 - 6,900 6,056 - 6,056
Stock-based
compensation and
amortization
of purchased
intangible
assets 385 (385)(2) - 213 (213)(2) -
------- ------- ------- ------- ------- ------
Total
operating
expenses 18,856 (385) 18,471 14,222 (213) 14,009
------- ------- ------- ------- ------- ------
Income
(loss)
from
opera-
tions (2,654) 939 (1,715) 8,810 345 9,155
Interest income 1,693 - 1,693 528 - 528
Interest
expense (660) - (660) (294) - (294)
Realized loss on sale
of marketable
securities (779) 779(3) - - - -
Amortization of debt
issuance costs (178) - (178) (115) - (115)
------- ------- ------- ------- ------- ------
Interest
and other
income,
net 76 779 855 119 - 119
------- ------- ------- ------- ------- ------
Income
(loss)
before
income
taxes (2,578) 1,718 (860) 8,929 345 9,274
Provision for
(recovery of) income
taxes (303) 1,086(4) 783 3,170 - 3,170
------- ------- ------- ------- ------- ------
Net income
(loss) $(2,275) $632 $(1,643) $5,759 $345 $6,104
======= ======= ======= ======= ======= ======
Net income (loss) per
share:
Basic $(0.05) $(0.03) $0.12 $0.13
======= ======= ======= ======= ======= ======
Diluted $(0.05) $(0.03) $0.12 $0.12
======= ======= ======= ======= ======= ======
Weighted average
shares outstanding:
Basic 47,101 47,101 46,636 46,636
======= ======= ======= ======= ======= ======
Diluted 47,101 47,101 51,194 51,194
======= ======= ======= ======= ======= ======
---------------------
(1) Non-cash expenses for the amortization of acquired developed
technology, acquired inventory mark-up, acquired backlog and deferred
stock-based compensation.
(2) Non-cash expenses for the amortization of deferred stock-
based compensation, acquired assembled workforce, acquired customer
relationships and acquired trademark.
(3) Realized loss associated with the sale of marketable
securities to fund the Equator acquisition.
(4) Adjustment to record the tax impact of the pro forma
adjustments.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF GAAP TO PRO FORMA BASIS
(In thousands, except per share data)
(Unaudited)
Six Months Six Months
Ended Ended
June 30, 2005 June 30, 2004
--------------------------- --------------------------
GAAP Adjustments Pro GAAP Adjustments Pro
forma forma
------ ----------- ------- ----- --------- -------
Revenue $81,576 $- $81,576 $93,779 $- $93,779
Cost of
revenue 48,456 (686)(1) 47,770 47,360 (264)(1) 47,096
------- ------- ------- ------- ------- -------
Gross
profit 33,120 686 33,806 46,419 264 46,683
Operating expenses:
Research and
development 21,013 - 21,013 15,657 - 15,657
Selling, general
and administra
-tive 13,968 - 13,968 11,530 - 11,530
Stock-based
compensation and
amortization
of purchased
intangible
assets 522 (522)(2) - 498 (498)(2) -
------- ------- ------- ------- ------- -------
Total
operating
expenses 35,503 (522) 34,981 27,685 (498) 27,187
------- ------- ------- ------- ------- -------
Income
(loss)
from
operations (2,383) 1,208 (1,175) 18,734 762 19,496
Interest
income 3,408 - 3,408 764 - 764
Interest
expense (1,317) - (1,317) (295) - (295)
Realized loss on sale
of marketable
securities (779) 779(3) - - - -
Amortization of debt
issuance costs (355) - (355) (115) - (115)
------- ------- ------- ------- ------- -------
Interest
and other
income,
net 957 779 1,736 354 - 354
------- ------- ------- ------- ------- -------
Income
(loss)
before
income
taxes (1,426) 1,987 561 19,088 762 19,850
Provision for income
taxes 13 1,086(4) 1,099 6,776 - 6,776
------- ------- ------- ------- ------- -------
Net income
(loss) $(1,439) $901 $(538) $12,312 $762 $13,074
======= ======= ======= ======= ======= =======
Net income (loss) per
share:
Basic $(0.03) $(0.01) $0.26 $0.28
======= ======= ======= ======= ======= =======
Diluted $(0.03) $(0.01) $0.25 $0.27
======= ======= ======= ======= ======= =======
Weighted average
shares outstanding:
Basic 47,064 47,064 46,479 46,479
======= ======= ======= ======= ======= =======
Diluted 47,064 47,064 49,658 49,658
======= ======= ======= ======= ======= =======
----------------------
(1) Non-cash expenses for the amortization of acquired developed
technology, acquired inventory mark-up, acquired backlog and deferred
stock-based compensation.
(2) Non-cash expenses for the amortization of deferred stock-
based compensation, acquired assembled workforce, acquired customer
relationships and acquired trademark.
(3) Realized loss associated with the sale of marketable
securities to fund the Equator acquisition.
(4) Adjustment to record the tax impact of the pro forma
adjustments.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30, Dec. 31,
2005 2004
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $35,234 $32,585
Short-term marketable securities 106,615 160,213
Accounts receivable, net 18,133 14,605
Inventories, net 25,000 18,575
Prepaid expenses and other current assets 7,190 4,856
--------- ---------
Total current assets 192,172 230,834
Long-term marketable securities 20,831 79,483
Property and equipment, net 15,328 12,444
Other assets, net 13,799 8,101
Debt issuance costs, net 4,135 4,483
Deferred tax assets, net 28,591 4,868
Acquired intangible assets, net 42,632 2,520
Goodwill 120,603 80,836
--------- ---------
Total assets $438,091 $423,569
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,526 $5,946
Accrued liabilities and current portion of
long-term liabilities 18,811 12,842
Income taxes payable 314 2,393
--------- ---------
Total current liabilities 26,651 21,181
Long-term liabilities, net of current portion 3,674 365
Long-term debt 150,000 150,000
--------- ---------
Total liabilities 180,325 171,546
Shareholders' equity 257,766 252,023
--------- ---------
Total liabilities and shareholders'
equity $438,091 $423,569
========= =========
SOURCE: Pixelworks, Inc.
Pixelworks, Inc.
Investor Inquiries
Jeff Bouchard, 503-454-1771
jeffb@pixelworks.com
www.pixelworks.com
or
Media Inquiries
Chris Bright, 503-454-1770
cbright@pixelworks.com