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Pixelworks Reports Third Quarter 2004 Financial Results
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TUALATIN, Ore.--(BUSINESS WIRE)--Oct. 20, 2004--Pixelworks, Inc. (Nasdaq:PXLW):
- Revenue of $44.0 million in the third quarter increased 24% from $35.5 million in the third quarter of 2003
- GAAP net income in the third quarter of $5.4 million, or $0.11 per diluted share, improved from GAAP net loss of ($4.1) million, or ($0.09) per diluted share, in the third quarter of 2003
- Pro forma(A) net income of $5.8 million, or $0.12 per diluted share, improved from $0.8 million, or $0.02 per diluted share, in the third quarter of 2003
(A) Pro forma gross profit, operating income, income before income taxes, and net income, differ from gross profit, operating income, income before income taxes, and net income in accordance with U.S. generally accepted accounting principles by excluding merger-related, restructuring, and non-cash expenses for amortization of purchased developed technology, and stock-based compensation and amortization of assembled workforce. A schedule reconciling these amounts for the three and nine months ended September 30, 2004 and 2003 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 as these non-GAAP financial measures allow 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 third quarter ended September 30, 2004.
Revenue for the third quarter of 2004 was $44.0 million, a 24 percent increase over revenue of $35.5 million in the third quarter of 2003 and a 9 percent decrease from revenue of $48.5 million in the second quarter of 2004.
Net income in accordance with U.S. generally accepted accounting principles (GAAP) in the third quarter of 2004 was $5.4 million, or $0.11 per diluted share, compared with a net loss of ($4.1) million or ($0.09) per diluted share, in the third quarter of 2003 and net income of $5.8 million, or $0.12 per diluted share, in the second quarter of 2004. Third quarter 2004 GAAP results include non-cash expenses for stock-based compensation, amortization of assembled workforce, and amortization of acquired developed technology of $340,000 (excluded for pro forma reporting purposes).
Pro forma net income in the third quarter of 2004 was $5.8 million, or $0.12 per diluted share, which compared to pro forma net income of $801,000, or $0.02 per diluted share in the third quarter of 2003 and pro forma net income of $6.1 million, or $0.13 per diluted share, in the second quarter of 2004.
"While third quarter revenue came in below our July outlook, largely due to unexpected softness in LCD monitor and advanced television business, we were pleased that we were still able to achieve the high end of our earnings estimates as a result of better than expected operating margins," said Allen Alley, President, CEO and Chairman of Pixelworks. "The order softness we experienced in September has continued into October and lacks the seasonal strength we were previously expecting. We now believe we are too late into the season to expect to see meaningful order upside during the remainder of the fourth quarter, and accordingly, believe fourth quarter revenues will be below those of the third quarter."
"Looking forward, we are pleased with our competitive position entering 2005. Our new Photopia products are just beginning to ramp from the handful of lead customers we had in the third quarter to what we expect will be a very broad group of customers representing every geography and application by the first quarter of 2005," added Alley.
Conference Call at 2 p.m. PDT, October 20, 2004 - Pixelworks will host a conference call at 2 p.m. PDT, October 20, 2004, which can be accessed at 719-457-2622 and using pass code 890311. 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 October 23, 2004, and can be accessed by calling 719-457-0820 using pass code 890311. A replay of the Web broadcast will be available through November 19, 2004.
Business Outlook for Fourth Quarter 2004
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 September 30, 2004. 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 net income per share in the fourth quarter of 2004 will be $0.04 to $0.07 on a GAAP basis and $0.05 to $0.08 on a pro forma basis, based on the following estimates:
- Revenue of $37.0 to $41.0 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, and advanced television 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 46.0 to 48.0 percent. Pro forma gross profit margin, which excludes an estimated $132,000 in non-cash expense for the amortization of acquired developed technology, of 46.3 to 48.3 percent. 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 $15.0 to $15.5 million.
- Non-cash expenses for stock-based compensation and amortization of assembled workforce of approximately $200,000 (excluded for pro forma reporting purposes).
- Interest income, net of approximately $600,000.
- The estimated effective tax rate for the fourth quarter is expected to be 20 to 25 percent of income before taxes on a GAAP basis, and slightly lower on a pro forma basis. The fourth quarter effective tax rate is based on an estimated effective tax rate for the year of 31 to 32 percent of income before taxes.
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.
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 for Fourth Quarter 2004 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: changes in growth in the multimedia projector, advanced television, and flat panel monitor industries; changes in customer ordering patterns or lead times; 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; lack of continued success in technological advances; shortages of manufacturing capacity from our third-party foundries; litigation involving intellectual property or other matters, 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. 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 STATEMENTS OF OPERATIONS (GAAP BASIS)
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2004 2003 2004 2003
-------- -------- --------- --------
Revenue $43,970 $35,516 $137,749 $100,080
Cost of revenue (1) 21,896 20,453 68,598 55,625
------- ------- -------- --------
Gross profit 22,074 15,063 69,151 44,455
Operating expenses:
Research and development 7,782 6,375 22,507 19,976
Selling, general and
administrative 6,900 5,464 20,020 16,341
Merger related expenses - 5,971 - 8,948
Restructuring - 3,927 - 3,927
Stock-based compensation and
amortization of assembled
workforce 208 268 706 1,141
------- ------- -------- --------
Total operating expenses 14,890 22,005 43,233 50,333
------- ------- -------- --------
Income (loss) from
operations 7,184 (6,942) 25,918 (5,878)
Interest income 1,474 248 2,238 937
Interest expense (657) (1) (952) (10)
Amortization of debt issuance
costs (179) - (294) -
------- ------- -------- --------
Interest income, net 638 247 992 927
------- ------- -------- --------
Income (loss) before
income taxes 7,822 (6,695) 26,910 (4,951)
Provision for (recovery of)
income taxes 2,373 (2,554) 9,149 (1,478)
------- ------- -------- --------
Net income (loss) $ 5,449 $(4,141) $ 17,761 $ (3,473)
======= ======= ======== ========
Net income (loss) per share:
Basic $ 0.12 $ (0.09) $ 0.38 $ (0.08)
======= ======= ======== ========
Diluted $ 0.11 $ (0.09) $ 0.37 $ (0.08)
======= ======= ======== ========
Weighted average shares
outstanding:
Basic 46,827 45,374 46,596 45,196
======= ======= ======== ========
Diluted 47,802 45,374 48,214 45,196
======= ======= ======== ========
(1) Includes amortization of acquired developed technology of $132 for
each of the three months ended September 30, 2004 and 2003, and
$396 for each of the nine months ended September 30, 2004 and
2003.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (PRO FORMA BASIS)
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
2004 2003 2004 2003
--------- -------- --------- --------
Revenue $43,970 $35,516 $137,749 $100,080
Cost of revenue 21,764 20,321 68,202 55,229
------- ------- -------- --------
Pro forma gross profit 22,206 15,195 69,547 44,851
Operating expenses:
Research and development 7,782 6,375 22,507 19,976
Selling, general and
administrative 6,900 5,464 20,020 16,341
------- ------- -------- --------
Total operating expenses 14,682 11,839 42,527 36,317
------- ------- -------- --------
Pro forma income from
operations 7,524 3,356 27,020 8,534
Interest income 1,474 248 2,238 937
Interest expense (657) (1) (952) (10)
Amortization of debt issuance
costs (179) - (294) -
------- ------- -------- --------
Interest income, net 638 247 992 927
------- ------- -------- --------
Pro forma income before income
taxes 8,162 3,603 28,012 9,461
Provision for income taxes 2,373 2,802 9,149 4,496
------- ------- -------- --------
Pro forma net income $ 5,789 $ 801 $ 18,863 $ 4,965
======= ======= ======== ========
Pro forma net income per share:
Basic $ 0.12 $ 0.02 $ 0.40 $ 0.11
======= ======= ======== ========
Diluted $ 0.12 $ 0.02 $ 0.39 $ 0.11
======= ======= ======== ========
Weighted average shares
outstanding:
Basic 46,827 45,374 46,596 45,196
======= ======= ======== ========
Diluted 47,802 46,660 48,214 46,454
======= ======= ======== ========
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 Ended
September 30, 2004
-----------------------------------
GAAP Adjustments Pro forma
----------- -------------- ----------
Revenue $ 43,970 $ - $ 43,970
Cost of revenue 21,896 (132)(1) 21,764
---------- ---------- ---------
Gross profit 22,074 132 22,206
Operating expenses:
Research and development 7,782 - 7,782
Selling, general and
administrative 6,900 - 6,900
Merger related expenses - - -
Restructuring - - -
Stock-based compensation and
amortization of assembled
workforce 208 (208)(4) -
---------- ---------- ---------
Total operating expenses 14,890 (208) 14,682
---------- ---------- ---------
Income (loss) from
operations 7,184 340 7,524
Interest income 1,474 - 1,474
Interest expense (657) - (657)
Amortization of debt issuance
costs (179) - (179)
---------- ---------- ---------
Interest income, net 638 - 638
---------- ---------- ---------
Income (loss) before income
taxes 7,822 340 8,162
Provision for (recovery of)
income taxes 2,373 - 2,373
---------- ---------- ---------
Net income (loss) $ 5,449 $ 340 $ 5,789
========== ========== =========
Net income (loss) per share:
Basic $ 0.12 $ 0.12
========== ==========
Diluted $ 0.11 $ 0.12
========== ==========
Weighted average shares
outstanding:
Basic 46,827 46,827
========== ==========
Diluted 47,802 47,802
========== ==========
Three Months Ended
September 30, 2003
-----------------------------------
GAAP Adjustments Pro forma
--------- --------------- ----------
Revenue $ 35,516 $ - $ 35,516
Cost of revenue 20,453 (132)(1) 20,321
-------- ---------- ---------
Gross profit 15,063 132 15,195
Operating expenses:
Research and development 6,375 - 6,375
Selling, general and
administrative 5,464 - 5,464
Merger related expenses 5,971 (5,971)(2) -
Restructuring 3,927 (3,927)(3) -
Stock-based compensation and
amortization of assembled
workforce 268 (268)(4) -
-------- ---------- ---------
Total operating expenses 22,005 (10,166) 11,839
-------- ---------- ---------
Income (loss) from
operations (6,942) 10,298 3,356
Interest income 248 - 248
Interest expense (1) - (1)
Amortization of debt issuance
costs - - -
-------- ---------- ---------
Interest income, net 247 - 247
-------- ---------- ---------
Income (loss) before income
taxes (6,695) 10,298 3,603
Provision for (recovery of)
income taxes (2,554) 5,356(5) 2,802
-------- ---------- ---------
Net income (loss) $ (4,141) $ 4,942 $ 801
======== ========== =========
Net income (loss) per share:
Basic $ (0.09) $ 0.02
======== =========
Diluted $ (0.09) $ 0.02
======== =========
Weighted average shares
outstanding:
Basic 45,374 45,374
======== =========
Diluted 45,374 46,660
======== =========
(1) Non-cash expenses for amortization of value assigned to an
acquired company's developed and other core technology at time of
acquisition.
(2) Expenses related to proposed (now terminated) merger with Genesis
Microchip.
(3) A one-time write off of assets associated with corporate
restructuring.
(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. Also includes non-cash expense
associated with amortization of the intangible assembled workforce
asset recorded in connection with the Jaldi Semiconductor asset
acquisition.
(5) Adjustment to record the tax effect of pro forma expense
adjustments.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF GAAP TO PRO FORMA BASIS
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30, 2004
------------------------------------
GAAP Adjustments Pro forma
------------ ------------- ---------
Revenue $ 137,749 $ - $137,749
Cost of revenue 68,598 (396)(1) 68,202
---------- --------- --------
Gross profit 69,151 396 69,547
Operating expenses:
Research and development 22,507 - 22,507
Selling, general and
administrative 20,020 - 20,020
Merger related expenses - - -
Restructuring - - -
Stock-based compensation and
amortization of assembled
workforce 706 (706)(4) -
---------- --------- --------
Total operating expenses 43,233 (706) 42,527
---------- --------- --------
Income (loss) from
operations 25,918 1,102 27,020
Interest income 2,238 - 2,238
Interest expense (952) - (952)
Amortization of debt issuance
costs (294) - (294)
---------- --------- --------
Interest income, net 992 - 992
---------- --------- --------
Income (loss) before income
taxes 26,910 1,102 28,012
Provision for (recovery of)
income taxes 9,149 - 9,149
---------- --------- --------
Net income (loss) $ 17,761 $ 1,102 $ 18,863
========== ========= ========
Net income (loss) per share:
Basic $ 0.38 $ 0.40
========== ========
Diluted $ 0.37 $ 0.39
========== ========
Weighted average shares
outstanding:
Basic 46,596 46,596
========== ========
Diluted 48,214 48,214
========== ========
Nine Months Ended
September 30, 2003
-----------------------------------
GAAP Adjustments Pro forma
----------- ------------- ---------
Revenue $ 100,080 $ - $100,080
Cost of revenue 55,625 (396)(1) 55,229
---------- --------- --------
Gross profit 44,455 396 44,851
Operating expenses:
Research and development 19,976 - 19,976
Selling, general and
administrative 16,341 - 16,341
Merger related expenses 8,948 (8,948)(2) -
Restructuring 3,927 (3,927)(3) -
Stock-based compensation and
amortization of assembled
workforce 1,141 (1,141)(4) -
---------- --------- --------
Total operating expenses 50,333 (14,016) 36,317
---------- --------- --------
Income (loss) from
operations (5,878) 14,412 8,534
Interest income 937 - 937
Interest expense (10) - (10)
Amortization of debt issuance
costs - - -
---------- --------- --------
Interest income, net 927 - 927
---------- --------- --------
Income (loss) before income
taxes (4,951) 14,412 9,461
Provision for (recovery of)
income taxes (1,478) 5,974(5) 4,496
---------- --------- --------
Net income (loss) $ (3,473) $ 8,438 $ 4,965
========== ========= ========
Net income (loss) per share:
Basic $ (0.08) $ 0.11
========== ========
Diluted $ (0.08) $ 0.11
========== ========
Weighted average shares
outstanding:
Basic 45,196 45,196
========== ========
Diluted 45,196 46,454
========== ========
(1) Non-cash expenses for amortization of value assigned to an
acquired company's developed and other core technology at time of
acquisition.
(2) Expenses related to proposed (now terminated) merger with Genesis
Microchip.
(3) A one-time write off of assets associated with corporate
restructuring.
(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. Also includes non-cash expense
associated with amortization of the intangible assembled workforce
asset recorded in connection with the Jaldi Semiconductor asset
acquisition.
(5) Adjustment to record the tax effect of pro forma expense
adjustments.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, December 31,
2004 2003
------------- ------------
ASSETS
Current assets:
Cash and cash equivalents $113,921 $75,165
Short-term marketable securities 85,835 5,656
Accounts receivable, net 17,902 8,468
Inventories, net 21,251 10,478
Prepaid expenses and other current
assets 5,268 4,826
------------- ------------
Total current assets 244,177 104,593
Long-term marketable securities 66,274 19,875
Property and equipment, net 10,309 6,561
Other assets, net 8,556 12,511
Deferred tax assets, net 6,598 3,694
Debt issuance costs, net 4,635 -
Acquired intangible assets, net 2,774 3,535
Goodwill 82,007 82,548
------------- ------------
Total assets $425,330 $233,317
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $7,646 $4,330
Accrued liabilities and current
portion of long term liabilities 12,275 8,582
Income taxes payable 5,976 -
------------- ------------
Total current liabilities 25,897 12,912
Long-term liabilities 1,098 100
Long-term debt 150,000 -
------------- ------------
Total liabilities 176,995 13,012
Shareholders' equity 248,335 220,305
------------- ------------
Total liabilities and
shareholders' equity $425,330 $233,317
============= ============
CONTACT: Pixelworks, Inc.
Investor Inquiries -
Jeff Bouchard, 503-454-1771
jeffb@pixelworks.com
or
Pixelworks, Inc.
Media Inquiries -
Chris Bright, 503-454-1770
cbright@pixelworks.com
Web site: www.pixelworks.com
SOURCE: Pixelworks, Inc.