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Pixelworks Reports Third Quarter 2005 Financial Results
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TUALATIN, Ore., Oct 25, 2005 (BUSINESS WIRE) -- Pixelworks, Inc. (NASDAQ:PXLW) :
Conference Call at 2 p.m. PDT, October 25, 2005 - Pixelworks will host a conference call at 2 p.m. PDT, October 25, 2005, which can be accessed at 312-461-9409 and using pass code 9939949. 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 28, 2005, and can be accessed by calling 719-457-0820 using pass code 9939949. A replay of the Web broadcast will be available through November 24, 2005.
Pixelworks Reports Third Quarter 2005 Financial Results
- Revenue of $46.8 million in the third quarter increased 13 percent from $41.3 million in the second quarter of 2005 and increased 6 percent from $44.0 million in the third quarter of 2004.
- GAAP net loss in the third quarter was ($5.3) million, or ($0.11) per share; non-GAAP net loss was ($592,000), or ($0.01) per share.
- Non-GAAP(a) gross profit margins of 43.8 percent improved sequentially from 40.6 percent in the second quarter of 2005.
- The company has restructured its workforce resulting in the elimination of a total of 36 positions. This is expected to result in one-time severance expenses of approximately $1.0 million in the fourth quarter of 2005. Within the next two quarters the company also expects to incur additional costs to move its employees currently located in two separate facilities in Silicon Valley into a new single facility.
(a) Non-GAAP 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 nine months ended September 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 third quarter ended September 30, 2005.
Revenue for the third quarter of 2005 was $46.8 million, a 6 percent increase from $44.0 million in the third quarter of 2004 and a 13 percent increase from $41.3 million in the second quarter of 2005.
Net loss in accordance with generally accepted accounting principles (GAAP) in the third quarter of 2005 was ($5.3) million, or ($0.11) per share, compared with net income of $5.4 million or $0.11 per diluted share, in the third quarter of 2004 and net loss of ($2.3) million, or ($0.05) per share, in the second 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 a 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 non-GAAP financial results, totaled approximately $6.9 million in the third quarter of 2005 compared to $340,000 in the third quarter of 2004 and $1.7 million in the second quarter of 2005.
The non-GAAP net loss in the third quarter of 2005 was ($592,000), or ($0.01) per share, which compared to non-GAAP net income of $5.8 million, or $0.12 per diluted share in the third quarter of 2004 and a non-GAAP net loss of ($1.6) million or ($0.03) per share, in the second quarter of 2005.
"From a bottom line perspective, the financial results were in line with our outlook," said Allen Alley, President, CEO, and Chairman. "Revenue was slightly below our outlook while a favorable mix of business generated better than anticipated gross profit margins. Better than expected revenue from projectors and LCD monitors was offset by weaker than expected television revenue, due largely to new products for advanced televisions shipping later in the quarter than we originally anticipated."
Alley continued, "The start of the production of our new digital television products is significant for Pixelworks. It has not been easy, but we now believe we are shipping the most complete, fully integrated, ATSC compliant solution in the industry. I am particularly pleased that Dell was our first customer to go into production with their newly introduced 37-inch LCD TV and 50-inch high-definition plasma TV. We expect to be able to leverage our significant investment in software development to secure other digital television customers in the coming quarters," added Alley.
The company also announced today a restructuring of its workforce in its facilities in Oregon and Silicon Valley resulting in the elimination of 36 positions, or approximately 7 percent of its workforce. As a result of these changes, the company expects to incur one-time severance expenses of approximately $1.0 million in the fourth quarter. Within the next two quarters the company also expects to incur additional costs to move its employees located in Silicon Valley into one new facility from two existing facilities.
"We believe it was essential to make these changes to improve our efficiency and effectiveness as a company," explained Alley. "Besides reducing expenses in the short term, the main objective with the reorganization is to improve the effectiveness and timeliness of our product development efforts. As part of the reorganization, we have appointed Richard J. Tobias, recently hired as our Chief Technology Officer, to also serve as our Vice President of Engineering responsible for all of our research and development centers. We are already seeing positive impact on our product development teams and processes as a result of changes in our engineering organization. I firmly believe that this reorganization will make us a better company with a clearer focus and the ability to make critical investments necessary to deliver world-class products in an efficient and timely manner," concluded Alley.
Business Outlook for Fourth 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 September 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 fourth quarter of 2005 will be ($0.10) to ($0.11) on a GAAP basis and ($0.02) to ($0.03) on a non-GAAP basis, based on the following estimates:
- Revenue of $45.0 to $48.0 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, advanced television, set-top box, videoconferencing, broadcast, and imaging 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 34.0 to 36.0 percent. Non-GAAP gross profit margin of 42.5 to 44.5 percent, which excludes an estimated $3.8 million in non-cash expenses for the amortization of various acquired intangible assets and amortization of acquired inventory mark-up. 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 (excluding stock-based compensation), combined, of $22.5 to $23.5 million.
- Non-cash operating expenses for stock-based compensation and amortization of purchased intangible assets of approximately $0.9 million (excluded for non-GAAP reporting purposes).
- Restructuring expenses of approximately $1.0 million (excluded for non-GAAP reporting purposes).
- Interest income, net of approximately $0.2 million.
- Effective tax rate of 35 to 45 percent of net loss before income taxes on a GAAP basis and 50 to 60 percent of non-GAAP net loss before taxes on a non-GAAP basis. Both the GAAP and non-GAAP 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 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 2005 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, advanced television set top box, network communications, imaging, and broadcast 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, the timing of product introductions, shortages of manufacturing capacity from our third-party foundries, litigation involving employment, 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. 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 Nine Months
Ended Ended
September 30, September 30,
----------------- -------------------
2005 2004 2005 2004
-------- -------- --------- ---------
Revenue $46,794 $43,970 $128,370 $137,749
Cost of revenue (1) 32,147 22,260 80,603 69,620
-------- -------- --------- ---------
Gross profit 14,647 21,710 47,767 68,129
Operating expenses:
Research and development 15,573 8,454 36,586 24,111
Selling, general and
administrative 8,202 5,864 22,170 17,394
Stock-based compensation and
amortization
of purchased intangible
assets (2) 1,042 208 1,564 706
-------- -------- --------- ---------
Total operating
expenses 24,817 14,526 60,320 42,211
-------- -------- --------- ---------
Income (loss)
from
operations (10,170) 7,184 (12,553) 25,918
Interest income 1,031 1,474 4,439 2,238
Interest expense (657) (657) (1,974) (952)
Realized loss on sale of
marketable securities - - (779) -
Amortization of debt issuance
costs (177) (179) (532) (294)
-------- -------- --------- ---------
Interest and
other income,
net 197 638 1,154 992
-------- -------- --------- ---------
Income (loss)
before income
taxes (9,973) 7,822 (11,399) 26,910
Provision for (recovery of)
income taxes (4,716) 2,373 (4,703) 9,149
-------- -------- --------- ---------
Net income
(loss) $(5,257) $5,449 $(6,696) $17,761
======== ======== ========= =========
Net income (loss) per share:
Basic $(0.11) $0.12 $(0.14) $0.38
======== ======== ========= =========
Diluted $(0.11) $0.11 $(0.14) $0.36
======== ======== ========= =========
Weighted average shares outstanding:
Basic 47,520 46,827 47,218 46,596
======== ======== ========= =========
Diluted 47,520 53,961 47,218 51,185
======== ======== ========= =========
---------------------------------
(1) Includes amortization of:
Acquired developed
technology $1,972 $132 $2,543 $396
Acquired inventory mark-up 3,244 - 3,329 -
Acquired backlog 581 - 600 -
Deferred stock-based
compensation 36 - 47 -
(2) Consists of amortization of:
Deferred stock-based
compensation 590 87 814 342
Acquired assembled
workforce 119 121 362 364
Acquired customer
relationships 283 - 330 -
Acquired trademark 50 - 58 -
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (NON-GAAP BASIS)
(In thousands, except per share data)
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
----------------- -------------------
2005 2004 2005 2004
-------- -------- --------- ---------
Revenue $46,794 $43,970 $128,370 $137,749
Cost of revenue 26,314 22,128 74,084 69,224
-------- -------- --------- ---------
Non-GAAP gross profit 20,480 21,842 54,286 68,525
Operating expenses:
Research and development 15,573 8,454 36,586 24,111
Selling, general and
administrative 8,202 5,864 22,170 17,394
-------- -------- --------- ---------
Total operating expenses 23,775 14,318 58,756 41,505
-------- -------- --------- ---------
Non-GAAP income (loss)
from operations (3,295) 7,524 (4,470) 27,020
Interest income 1,031 1,474 4,439 2,238
Interest expense (657) (657) (1,974) (952)
Amortization of debt issuance
costs (177) (179) (532) (294)
-------- -------- --------- ---------
Interest income, net 197 638 1,933 992
-------- -------- --------- ---------
Non-GAAP income (loss)
before income taxes (3,098) 8,162 (2,537) 28,012
Provision for (recovery of)
income taxes (2,506) 2,373 (1,406) 9,149
-------- -------- --------- ---------
Non-GAAP net income
(loss) $(592) $5,789 $(1,131) $18,863
======== ======== ========= =========
Non-GAAP net income (loss) per share:
Basic $(0.01) $0.12 $(0.02) $0.40
======== ======== ========= =========
Diluted $(0.01) $0.12 $(0.02) $0.38
======== ======== ========= =========
Weighted average shares outstanding:
Basic 47,520 46,827 47,218 46,596
======== ======== ========= =========
Diluted 47,520 53,961 47,218 51,185
======== ======== ========= =========
The above non-GAAP financial statements are presented for
informational purposes only. Our presentation of non-GAAP 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 non-GAAP 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. Non-GAAP
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 NON-GAAP BASIS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30, 2005
---------------------------------
GAAP Adjustments Non-GAAP
---------- ----------- --------
Revenue $46,794 $- $46,794
Cost of revenue 32,147 (5,833)(1) 26,314
---------- --------- ---------
Gross profit 14,647 5,833 20,480
Operating expenses:
Research and development 15,573 - 15,573
Selling, general and
administrative 8,202 - 8,202
Stock-based compensation and
amortization
of purchased intangible assets 1,042 (1,042)(2) -
---------- --------- ---------
Total operating expenses 24,817 (1,042) 23,775
---------- --------- ---------
Income (loss) from
operations (10,170) 6,875 (3,295)
Interest income 1,031 - 1,031
Interest expense (657) - (657)
Amortization of debt issuance costs (177) - (177)
---------- --------- ---------
Interest income, net 197 - 197
---------- --------- ---------
Income (loss) before income
taxes (9,973) 6,875 (3,098)
Provision for (recovery of) income
taxes (4,716) 2,210(3) (2,506)
---------- --------- ---------
Net income (loss) $(5,257) $4,665 $(592)
========== ========= =========
Net income (loss) per share:
Basic $(0.11) $(0.01)
========== =========
Diluted $(0.11) $(0.01)
========== =========
Weighted average shares outstanding:
Basic 47,520 47,520
========== =========
Diluted 47,520 47,520
========== =========
Three Months Ended
September 30, 2004
---------------------------------
GAAP Adjustments Non-GAAP
---------- ----------- --------
Revenue $43,970 $- $43,970
Cost of revenue 22,260 (132)(1) 22,128
--------- --------- ---------
Gross profit 21,710 132 21,842
Operating expenses:
Research and development 8,454 - 8,454
Selling, general and
administrative 5,864 - 5,864
Stock-based compensation and
amortization
of purchased intangible assets 208 (208)(2) -
--------- --------- ---------
Total operating expenses 14,526 (208) 14,318
--------- --------- ---------
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 53,961 53,961
========= =========
-------------------------------------
(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) Adjustment to record the tax impact of the non-GAAP
adjustments.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
RECONCILIATION OF GAAP TO NON-GAAP BASIS
(In thousands, except per share data)
(Unaudited)
Nine Months Ended
September 30, 2005
------------------------------
GAAP Adjustments Non-GAAP
-------- ----------- --------
Revenue $128,370 $- $128,370
Cost of revenue 80,603 (6,519)(1) 74,084
--------- ------- ---------
Gross
profit 47,767 6,519 54,286
Operating expenses:
Research and
development 36,586 - 36,586
Selling, general
and administrative 22,170 - 22,170
Stock-based
compensation and
amortization
of purchased
intangible
assets 1,564 (1,564)(2) -
--------- ------- ---------
Total
operating
expenses 60,320 (1,564) 58,756
--------- ------- ---------
Income
(loss)
from
operations (12,553) 8,083 (4,470)
Interest income 4,439 - 4,439
Interest expense (1,974) - (1,974)
Realized loss on sale
of marketable
securities (779) 779(3) -
Amortization of debt
issuance costs (532) - (532)
--------- ------- ---------
Interest
and other
income,
net 1,154 779 1,933
--------- ------- ---------
Income
(loss)
before
income
taxes (11,399) 8,862 (2,537)
Provision for
(recovery of) income
taxes (4,703) 3,297(4) (1,406)
--------- ------- ---------
Net income
(loss) $(6,696) $5,565 $(1,131)
========= ======= =========
Net income (loss) per
share:
Basic $(0.14) $(0.02)
========= =========
Diluted $(0.14) $(0.02)
========= =========
Weighted average
shares outstanding:
Basic 47,218 47,218
========= =========
Diluted 47,218 47,218
========= =========
Nine Months Ended
September 30, 2004
----------------------------
GAAP Adjustments Non-GAAP
-------- ----------- --------
Revenue $137,749 $- $137,749
Cost of revenue 69,620 (396)(1) 69,224
--------- ------- ---------
Gross
profit 68,129 396 68,525
Operating expenses:
Research and
development 24,111 - 24,111
Selling, general
and administrative 17,394 - 17,394
Stock-based
compensation and
amortization
of purchased
intangible
assets 706 (706)(2) -
--------- ------- ---------
Total
operating
expenses 42,211 (706) 41,505
--------- ------- ---------
Income
(loss)
from
operations 25,918 1,102 27,020
Interest income 2,238 - 2,238
Interest expense (952) - (952)
Realized loss on sale
of marketable
securities - - -
Amortization of debt
issuance costs (294) - (294)
--------- ------- ---------
Interest
and other
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 $0.36 $0.38
========= =========
Weighted average
shares outstanding:
Basic 46,596 46,596
========= =========
Diluted 51,185 51,185
========= =========
----------------------
(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 non-GAAP
adjustments.
PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September December
30, 31,
2005 2004
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $54,054 $32,585
Short-term marketable securities 75,025 160,213
Accounts receivable, net 27,420 14,605
Inventories, net 27,809 18,575
Prepaid expenses and other
current assets 14,126 4,856
--------- ---------
Total current assets 198,434 230,834
Long-term marketable securities 18,297 79,483
Property and equipment, net 14,806 12,444
Other assets, net 16,843 8,101
Debt issuance costs, net 3,958 4,483
Deferred tax assets, net 13,081 4,868
Acquired intangible assets, net 39,627 2,520
Goodwill 134,022 80,836
--------- ---------
Total assets $439,068 $423,569
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,852 $5,946
Accrued liabilities and current
portion of long-term liabilities 23,570 12,842
Income taxes payable - 2,393
--------- ---------
Total current liabilities 32,422 21,181
Long-term liabilities, net of
current portion 3,372 365
Long-term debt 150,000 150,000
--------- ---------
Total liabilities 185,794 171,546
Shareholders' equity 253,274 252,023
--------- ---------
Total liabilities and
shareholders' equity $439,068 $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