Pixelworks Reports Fourth Quarter 2012 Financial Results

  Pixelworks Reports Fourth Quarter 2012 Financial Results

Business Wire

SAN JOSE, Calif. -- January 31, 2013

Pixelworks, Inc. (NASDAQ:PXLW), a pioneer in innovative video and display
processing technology, today announced financial results for the fourth
quarter ended December 31, 2012.

Fourth quarter 2012 revenue was $13.6 million, compared to $16.3 million
reported in the third quarter of 2012 and $16.8 million in the fourth quarter
of 2011. The decline in revenue was primarily due to a weak macro environment
across the Company’s product lines.

On a GAAP basis, gross profit margin in the fourth quarter of 2012 was 48.6%,
compared to 47.8% in the third quarter of 2012 and 47.1% in the fourth quarter
of 2011. Fourth quarter 2012 GAAP operating expenses were $9.8 million,
compared with $8.3 million in the previous quarter and $9.5 million in the
fourth quarter of 2011. For the fourth quarter of 2012, the Company recorded a
GAAP net loss of $3.6 million, or $0.19 per share, compared to a GAAP net loss
of $0.4 million, or $0.02 per share, in the third quarter of 2012 and GAAP net
loss of $2.0 million, or $0.11 per share, in the fourth quarter of 2011.

On a non-GAAP basis, fourth quarter 2012 gross profit margin was 49.9%,
compared to 49.0% in the third quarter of 2012 and 48.0% in the fourth quarter
of 2011. The improvement in gross margin was largely the result of a favorable
product mix. Fourth quarter 2012 operating expenses on a non-GAAP basis were
$9.2 million, compared to $7.7 million in the previous quarter and $9.0
million in the fourth quarter of 2011. Operating expenses in the third quarter
of 2012 were positively impacted by a reimbursement credit to research and
development expense related to a co-development partnership with a major
customer, based on the achievement of certain milestones. Fourth quarter 2012
research and development expense did not include a reimbursement credit,
however future reimbursement credits to research and development expense are
anticipated in 2013 as additional milestones associated with the
co-development partnership are achieved. The Company expects the product being
developed under this co-development project to begin contributing significant
revenue in 2014.

On a non-GAAP basis, net loss in the fourth quarter of 2012 was $2.8 million,
or $0.15 per share, compared with net income of $0.3 million, or $0.02 per
diluted share, in the third quarter of 2012 and a net loss of $1.3 million, or
$0.07 per share, in the fourth quarter of 2011. Adjusted EBITDA in the fourth
quarter of 2012 was negative $1.3 million, compared with positive $1.4 million
in the previous quarter and positive $0.4 million in the fourth quarter of
2011.

“During 2012, we demonstrated the value of Pixelworks’ video display
technology and expertise through significant licensing engagements with key
customers and partners,” said Bruce Walicek, President and CEO of Pixelworks.
“The recent introduction of our next-generation Video Display Processor, the
PA168 for Ultra HD Displays, positions us to address the explosive growth
opportunity as displays transition to higher resolutions. During the course of
2013, we are focused on taking advantage of the growth in video consumption by
applying our industry leading video display processing technology to deliver
the highest quality video experience to displays of all sizes."

The Company will discuss the details of its business outlook for the first
quarter of 2013 during its conference call scheduled for today, January 31,
2013, at 2:00 p.m. Pacific Time.

Conference Call Information

Pixelworks will host a conference call today at 2:00 p.m. Pacific Time, which
can be accessed by calling 866-510-0708 and using passcode 61361354. A Web
broadcast of the call can be accessed by visiting the Company's investor page
at www.pixelworks.com. For those unable to listen to the live Web broadcast,
it will be archived for approximately 30 days. A replay of the conference call
will also be available through Thursday, February 7, 2013, and can be accessed
by calling 888-286-8010 and using passcode 10001690.

About Pixelworks, Inc.

Pixelworks creates, develops and markets video display processing technology
for digital video applications that demand the very highest quality images. At
design centers around the world, Pixelworks engineers constantly push video
performance to keep manufacturers of consumer electronics and professional
displays worldwide on the leading edge. The company is headquartered in San
Jose, CA.

For more information, please visit the company’s Web site at
www.pixelworks.com.

Note: Pixelworks and the Pixelworks logo are registered trademarks of
Pixelworks, Inc.

Non-GAAP Financial Measures

This press release makes reference to non-GAAP gross profit margins, non-GAAP
operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss)
per share which exclude stock-based compensation expense, gain on sale of
patents, gain on the sale of marketable securities and additional amortization
of a non-cancelable prepaid royalty, all of which are required under GAAP. The
press release also reconciles GAAP net loss and adjusted EBITDA which
Pixelworks defines as GAAP net income before interest expense and other, net,
income tax provision, depreciation and amortization, as well as the specific
items listed above. The Company believes these non-GAAP measures provide a
meaningful perspective on the Company's core operating results and underlying
cash flow dynamics, but cautions investors to consider these measures in
addition to, not as a substitute for, its consolidated financial results as
presented in accordance with GAAP. A reconciliation between GAAP and non-GAAP
financial measures is included in this earnings release which is available in
the investor relations section of the Company's website.

Safe Harbor Statement

This release contains statements, including, without limitation, the
statements in Bruce Walicek's quote that are forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. All statements
other than statements of historical fact are forward-looking statements for
purposes of this release, including any projections of revenue or other
financial items or any statements regarding the plans and objectives of
management for future operations. Such statements are based on management's
current expectations, estimates and projections about the Company's business.
These statements are not guarantees of future performance and involve numerous
risks, uncertainties and assumptions that are difficult to predict. Actual
results could vary materially from those contained in forward-looking
statements due to many factors, including, without limitation: our ability to
deliver new products in a timely fashion; our new product yield rates; changes
in estimated product costs; product mix; supply of products from third-party
foundries; failure or difficulty in achieving design wins; timely customer
transition to new product designs; competitive factors, such as rival chip
architectures, introduction or traction by competing designs, or pricing
pressures; the success of our products in expanded markets; current global
economic challenges; levels of inventory at distributors and customers;
changes in the digital display and projection markets; changes in customer
ordering patterns or lead times; seasonality in the consumer electronics
market; our efforts to achieve profitability from operations; insufficient,
excess or obsolete inventory and variations in inventory valuation; the
outcome of any litigation related to our intellectual property rights; and our
lower cash position as a result of our debt repurchases. More information
regarding potential factors that could affect the Company's financial results
and could cause actual results to differ materially is included from time to
time in the Company's Securities and Exchange Commission filings, including
our Annual Report on Form 10-K for the year ended December 31, 2011 and
subsequent SEC filings.

The forward-looking statements contained in this release speak as of the date
of this release, and we do not undertake any obligation to update any such
statements, whether as a result of new information, future events or
otherwise.



PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)

                 Three Months Ended                         Twelve Months Ended
                   December     September    December       December     December
                   31,            30,            31,            31,            31,
                    2012         2012         2011         2012         2011   
Revenue, net       $ 13,571       $ 16,285       $ 16,828       $ 59,710       $ 64,609
Cost of             6,979        8,497        8,908        29,862       34,242 
revenue (1)
Gross profit         6,592          7,788          7,920          29,848         30,367
Operating
expenses:
Research and
development          6,247          4,702          5,375          20,757         22,906
(2)
Selling,
general and         3,576        3,557        4,134        14,944       15,266 
administrative
(3)
Total
operating           9,823        8,259        9,509        35,701       38,172 
expenses
Loss from            (3,231 )       (471   )       (1,589 )       (5,853 )       (7,805 )
operations
Interest
expense and          (108   )       (105   )       (89    )       (412   )       (484   )
other, net
Gain on sale         —              —              —              —              1,600
of patents
Gain on sale
of marketable       —            —            —            —            264    
securities
Total other
income              (108   )      (105   )      (89    )      (412   )      1,380  
(expense)
Loss before          (3,339 )       (576   )       (1,678 )       (6,265 )       (6,425 )
income taxes
Provision
(benefit) for       218          (176   )      279          (571   )      141    
income taxes
Net loss           $ (3,557 )     $ (400   )     $ (1,957 )     $ (5,694 )     $ (6,566 )
Net loss per
share - basic      $ (0.19  )     $ (0.02  )     $ (0.11  )     $ (0.31  )     $ (0.40  )
and diluted
Weighted
average shares
outstanding -       18,401       18,338       17,944       18,252       16,330 
basic and
diluted
——————
(1) Includes:
Additional
amortization
of                 $ 135          $ 142          $ 120          $ 565          $ 441
non-cancelable
prepaid
royalty
Stock-based          44             42             36             162            129
compensation
(2) Includes
stock-based          274            214            221            893            845
compensation
(3) Includes
stock-based          316            296            266            1,109          1,037
compensation



PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *
(In thousands, except per share data)
(Unaudited)

                  Three Months Ended                         Twelve Months Ended
                    December     September    December       December     December
                    31,            30,            31,            31,            31,
                     2012         2012         2011         2012         2011   
Reconciliation
of GAAP and
non-GAAP gross
profit
GAAP gross          $ 6,592        $ 7,788        $ 7,920        $ 29,848       $ 30,367
profit
Additional
amortization of       135            142            120            565            441
non-cancelable
prepaid royalty
Stock-based          44           42           36           162          129    
compensation
Total
reconciling
items included       179          184          156          727          570    
in cost of
revenue
Non-GAAP gross      $ 6,771       $ 7,972       $ 8,076       $ 30,575      $ 30,937 
profit
Non-GAAP gross       49.9   %      49.0   %      48.0   %      51.2   %      47.9   %
profit margin
                                                                                
Reconciliation
of GAAP and
non-GAAP
operating
expenses
GAAP operating      $ 9,823        $ 8,259        $ 9,509        $ 35,701       $ 38,172
expenses
Reconciling
item included
in research and
development:
Stock-based           274            214            221            893            845
compensation
Reconciling
item included
in selling,
general and
administrative:
Stock-based          316          296          266          1,109        1,037  
compensation
Total
reconciling
items included       590          510          487          2,002        1,882  
in operating
expenses
Non-GAAP
operating           $ 9,233       $ 7,749       $ 9,022       $ 33,699      $ 36,290 
expenses
                                                                                
Reconciliation
of GAAP and
non-GAAP net
income (loss)
GAAP net loss       $ (3,557 )     $ (400   )     $ (1,957 )     $ (5,694 )     $ (6,566 )
Reconciling
items included        179            184            156            727            570
in cost of
revenue
Reconciling
items included        590            510            487            2,002          1,882
in operating
expenses
Gain on sale of       —              —              —              —              (1,600 )
patents
Gain on sale of
marketable            —              —              —              —              (264   )
securities
Tax effect of
non-GAAP             (20    )      28           7            —            —      
adjustments
Non-GAAP net        $ (2,808 )     $ 322         $ (1,307 )     $ (2,965 )     $ (5,978 )
income (loss)
Non-GAAP net
income (loss)
per share -         $ (0.15  )     $ 0.02        $ (0.07  )     $ (0.16  )     $ (0.37  )
basic and
diluted
Non-GAAP
weighted
average shares       18,401       18,338       17,944       18,252       16,330 
outstanding -
basic
Non-GAAP
weighted
average shares       18,401       19,105       17,944       18,252       16,330 
outstanding -
diluted

* Our non-GAAP gross profit, non-GAAP operating expenses, non-GAAP net income
(loss) and non-GAAP net income (loss) per share differs from GAAP gross
profit, GAAP operating expenses, GAAP net loss and GAAP net loss per share due
to the exclusion of gain on sale of patents, gain on the sale of marketable
securities, stock-based compensation expense and additional amortization of a
non-cancelable prepaid royalty. Pixelworks' management believes the
presentation of non-GAAP gross profit, non-GAAP operating expenses, non-GAAP
net income (loss) and non-GAAP net income (loss) per share provides useful
information to investors regarding Pixelworks' results of operations by
allowing investors to better evaluate underlying cash flow dynamics.
Pixelworks' management also uses each of these non-GAAP measures internally to
better evaluate underlying cash flow dynamics. Pixelworks, however, cautions
investors to consider these non-GAAP financial measures in addition to, and
not as a substitute for, our GAAP financial measures.



PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *
(In thousands)
(Unaudited)

                 Three Months Ended                        Twelve Months Ended
                   December     September   December       December     December
                   31,            30,           31,            31,            31,
                    2012         2012        2011         2012         2011   
Reconciliation
of GAAP net
loss and
adjusted
EBITDA
GAAP net loss      $ (3,557 )     $ (400  )     $ (1,957 )     $ (5,694 )     $ (6,566 )
Stock-based          634            552           523            2,164          2,011
compensation
Additional
amortization
of                   135            142           120            565            441
non-cancelable
prepaid
royalty
Gain on sale         —              —             —              —              (1,600 )
of patents
Gain on sale
of marketable        —              —             —              —              (264   )
securities
Tax effect of
non-GAAP            (20    )      28          7            —            —      
adjustments
                                                                                       
Non-GAAP net       $ (2,808 )     $ 322         $ (1,307 )     $ (2,965 )     $ (5,978 )
income (loss)
                                                                              
EBITDA
adjustments:
Depreciation
and                $ 1,194        $ 1,193       $ 1,314        $ 4,735        $ 5,114
amortization
Interest
expense and          108            105           89             412            484
other, net
Non-GAAP
provision           238          (204  )      272          (571   )      141    
(benefit) for
income taxes
Adjusted           $ (1,268 )     $ 1,416      $ 368         $ 1,611       $ (239   )
EBITDA

* Adjusted EBITDA differs from GAAP net loss due to the exclusion of gain on
sale of patents, gain on the sale of marketable securities, stock-based
compensation expense, additional amortization of a non-cancelable prepaid
royalty, interest expense and other, net, income tax provision (benefit) and
depreciation and amortization. Pixelworks' management believes the
presentation of adjusted EBITDA provides useful information to investors
regarding Pixelworks' results of operations by allowing investors to better
evaluate underlying cash flow dynamics and core operating results and are used
by Pixelworks' management for these purposes. Pixelworks, however, cautions
investors to consider these non-GAAP financial measures in addition to, and
not as a substitute for, our GAAP financial measures.



PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

                                               December 31,   December 31,
                                                 2012             2011
ASSETS
Current assets:
Cash and cash equivalents                        $   13,404       $   15,092
Accounts receivable, net                             3,772            4,557
Inventories                                          2,702            4,107
Prepaid expenses and other current assets           1,727           2,341
Total current assets                                 21,605           26,097
Property and equipment, net                          6,283            7,366
Other assets, net                                   1,653           2,914
Total assets                                     $   29,541       $   36,377
                                                                  
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                 $   2,224        $   4,428
Accrued liabilities and current portion of           8,666            8,247
long-term liabilities
Current portion of income taxes payable             207             212
Total current liabilities                            11,097           12,887
Long-term liabilities, net of current                1,445            2,467
portion
Income taxes payable, net of current portion        2,331           3,223
Total liabilities                                    14,873           18,577
Shareholders’ equity                                14,668          17,800
Total liabilities and shareholders’ equity       $   29,541       $   36,377

Contact:

Investor Contact
Shelton Group
Brett L Perry, +1-972-239-5119 ext 159
bperry@sheltongroup.com
or
Company Contact
Pixelworks, Inc.
Steven Moore, +1-408-200-9221
smoore@pixelworks.com
 
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