Pixelworks Reports First Quarter 2013 Financial Results

  Pixelworks Reports First Quarter 2013 Financial Results

Business Wire

SAN JOSE, Calif. -- April 25, 2013

Pixelworks, Inc. (NASDAQ: PXLW), a pioneer in innovative video and display
processing technology, today announced financial results for the first quarter
ended March 31, 2013.

First quarter 2013 revenue was $8.3 million, compared to $13.6 million
reported in the prior quarter and $14.3 million in the first quarter of 2012.
The decline in first quarter revenue reflects greater than normal seasonality
coupled with a push-out of certain licensing revenue.

On a GAAP basis, gross profit margin in the first quarter of 2013 was 48.1%,
compared to 48.6% in the prior quarter and 54.5% in the first quarter of 2012.
The sequential decline in gross profit margin was driven by reduced fixed cost
absorption during the first quarter of 2013 offset by a favorable product mix.
First quarter 2013 GAAP operating expenses were $9.5 million, compared to $9.8
million in the previous quarter and $9.1 million in the first quarter of 2012.
For the first quarter of 2013, the Company recorded a GAAP net loss of $5.4
million, or $0.29 per share, compared to a GAAP net loss of $3.6 million, or
$0.19 per share, in the fourth quarter of 2012 and a GAAP net loss of $0.6
million, or $0.04 per share, in the first quarter of 2012.

On a non-GAAP basis, gross profit margin in the first quarter of 2013 was
49.7%, compared to 49.9% in the prior quarter and 55.7% in the first quarter
of 2012. First quarter 2013 operating expenses on a non-GAAP basis were $8.9
million, compared to $9.2 million in the prior quarter and $8.6 million in the
first quarter of 2012. The sequential decline in operating expenses was
primarily due to modest decreases in certain development costs. First quarter
2013 research and development expense did not include any reimbursement credit
related to a co-development partnership with a major customer; 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 significantly to revenue in 2014.
For the first quarter of 2013, the Company recorded a non-GAAP net loss of
$4.7 million, or $0.25 per share, compared with a net loss of $2.8 million, or
$0.15 per share, in the prior quarter and a net loss of $0.1 million, or $0.01
per share, in the first quarter of 2012.

“The first quarter was a difficult quarter due to an ongoing inventory
correction that led to a weaker demand environment for our products as well as
the push-out of an IP licensing deal into Q2,” said Bruce Walicek, President
and CEO of Pixelworks. “Despite these first quarter challenges, we expect our
robust IP licensing pipeline, strong design win activity, and ramping of new
products to contribute to topline growth in the second quarter and for the
balance of 2013. As the industry begins a major shift to higher resolutions
across all screens, we remain focused on capitalizing on this trend and
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 second
quarter of 2013 during its conference call scheduled for today, April 25,
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 866-318-8614 and using passcode 28846278. 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, May 2, 2013, and can be accessed by
calling 888-286-8010 and using passcode 11476943.

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 earnings 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 excludes stock-based compensation expense and
additional amortization of a non-cancelable prepaid royalty, which are
required under GAAP. The press release also reconciles GAAP net loss and
adjusted EBITDA which Pixelworks defines as GAAP net income (loss) 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; risks related to licensing our intellectual property; 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; our limited financial resources and our
ability to attract and retain key personnel. 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, 2012 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
                                        March 31,   December 31,  March 31,
                                         2013        2012        2012   
Revenue, net                            $ 8,271      $  13,571      $ 14,330
Cost of revenue (1)                      4,294       6,979       6,521  
Gross profit                              3,977         6,592         7,809
Operating expenses:
Research and development (2)              5,884         6,247         5,093
Selling, general and administrative      3,598       3,576       4,019  
(3)
Total operating expenses                 9,482       9,823       9,112  
Loss from operations                      (5,505 )      (3,231  )     (1,303 )
Interest expense and other, net          (98    )     (108    )    (98    )
Loss before income taxes                  (5,603 )      (3,339  )     (1,401 )
Provision (benefit) for income taxes     (198   )     218         (763   )
Net loss                                $ (5,405 )   $  (3,557  )   $ (638   )
Net loss per share - basic and          $ (0.29  )   $  (0.19   )   $ (0.04  )
diluted
Weighted average shares outstanding -    18,456      18,401      18,029 
basic and diluted
——————
(1) Includes:
Additional amortization of              $ 91         $  135         $ 132
non-cancelable prepaid royalty
Stock-based compensation                  40            44            39
(2) Includes stock-based compensation     258           274           222
(3) Includes stock-based compensation     386           316           241

                                      
PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *
(In thousands, except per share data)
(Unaudited)
                                        Three Months Ended
                                        March 31,   December 31,  March 31,
                                         2013        2012        2012   
Reconciliation of GAAP and non-GAAP
gross profit
GAAP gross profit                       $ 3,977      $  6,592       $ 7,809
Additional amortization of                91            135           132
non-cancelable prepaid royalty
Stock-based compensation                 40          44          39     
Total reconciling items included in      131         179         171    
cost of revenue
Non-GAAP gross profit                   $ 4,108     $  6,771      $ 7,980  
Non-GAAP gross profit margin             49.7   %     49.9    %    55.7   %
                                                                    
Reconciliation of GAAP and non-GAAP
operating expenses
GAAP operating expenses                 $ 9,482      $  9,823       $ 9,112
Reconciling item included in research
and development:
Stock-based compensation                  258           274           222
Reconciling item included in selling,
general and administrative:
Stock-based compensation                 386         316         241    
Total reconciling items included in      644         590         463    
operating expenses
Non-GAAP operating expenses             $ 8,838     $  9,233      $ 8,649  
                                                                    
Reconciliation of GAAP and non-GAAP
net loss
GAAP net loss                           $ (5,405 )   $  (3,557  )   $ (638   )
Reconciling items included in cost of     131           179           171
revenue
Reconciling items included in             644           590           463
operating expenses
Tax effect of non-GAAP adjustments       (43    )     (20     )    (144   )
Non-GAAP net loss                       $ (4,673 )   $  (2,808  )   $ (148   )
Non-GAAP net loss per share - basic     $ (0.25  )   $  (0.15   )   $ (0.01  )
and diluted
Non-GAAP weighted average shares         18,456      18,401      18,029 
outstanding - basic and diluted


* Our non-GAAP gross profit, non-GAAP operating expenses, non-GAAP net loss
and non-GAAP net 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
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 loss and non-GAAP net 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
                                         March 31,   December 31,  March 31,
                                          2013        2012        2012  
Reconciliation of GAAP net loss and
adjusted EBITDA
GAAP net loss                            $ (5,405 )   $  (3,557  )   $ (638  )
Stock-based compensation                   684           634           502
Additional amortization of                 91            135           132
non-cancelable prepaid royalty
Tax effect of non-GAAP adjustments        (43    )     (20     )    (144  )
Non-GAAP net loss                        $ (4,673 )   $  (2,808  )   $ (148  )
EBITDA adjustments:
Depreciation and amortization            $ 1,058      $  1,194       $ 1,172
Interest expense and other, net            98            108           98
Non-GAAP provision (benefit) for          (155   )     238         (619  )
income taxes
Adjusted EBITDA                          $ (3,672 )   $  (1,268  )   $ 503   


* Adjusted EBITDA differs from GAAP net loss due to the exclusion of
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)
                                                      March 31,   December 31,
                                                               
                                                      2013        2012
ASSETS
Current assets:
Cash and cash equivalents                             $  12,647   $   13,404
Accounts receivable, net                                 2,398        3,772
Inventories                                              2,424        2,702
Prepaid expenses and other current assets               1,708       1,727
Total current assets                                     19,177       21,605
Property and equipment, net                              5,316        6,283
Other assets, net                                       1,494       1,653
Total assets                                          $  25,987   $   29,541
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable                                      $  2,195    $   2,224
Accrued liabilities and current portion of               8,337        8,666
long-term liabilities
Current portion of income taxes payable                  150          207
Short-term line of credit                               2,300       —
Total current liabilities                                12,982       11,097
Long-term liabilities, net of current portion            953          1,445
Income taxes payable, net of current portion            2,000       2,331
Total liabilities                                        15,935       14,873
Shareholders’ equity                                    10,052      14,668
Total liabilities and shareholders’ equity            $  25,987   $   29,541

Contact:

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