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Pixelworks Reports Fourth Quarter and Fiscal Year 2017 Financial Results
[February 15, 2018]

Pixelworks Reports Fourth Quarter and Fiscal Year 2017 Financial Results


SAN JOSE, Calif., Feb. 15, 2018 (GLOBE NEWSWIRE) -- Pixelworks, Inc. (NASDAQ:PXLW), a leading provider of power efficient visual processing solutions, today announced financial results for the fourth quarter and fiscal year ended December 31, 2017.

Fourth Quarter Highlights

  • Revenue of $18.4 million increased 15.4% year-over-year
  • Mobile revenue grew over 120% sequentially
  • Cash flow from operations was $1.4 million
  • HDR reference design for Iris mobile display processor approved by leading streaming service provider
  • Increased number of engagements for mobile programs incorporating Iris display processor
  • Finalized multi-million dollar development agreement with OEM in Japan for next-generation video delivery products

Full Year and 2017 Highlights

  • Revenue of $80.6 million, including $15.3 million related to End of Life (EOL) products
  • Revenue excluding EOL grew 34.6% year-over-year
  • GAAP gross profit margin of 51.8%, and non-GAAP gross profit margin of 55.2%
  • Achieved GAAP profitability in first half of 2017, and achieved non-GAAP profitability for the full year
  • Completed acquisition of ViXS Systems in August, followed by a streamlining of the business to drive an estimated $4.0 million in annualized cost savings
  • Recorded adjusted EBITDA of $12.9 million, and ended year with a net cash balance of $27.5 million

President and CEO of Pixelworks, Todd DeBonis, commented, “Fourth quarter revenue was at the high-end of our guidance range and grew 15.4% year-over-year. Excluding over $15 million in revenue contribution from end-of-life products during 2017, which added over $10 million of non-dilutive capital to the balance sheet, we achieved full year revenue growth of 35% – marking a transformational year of growth for Pixelworks. Additionally, gross margin expanded by over 450 basis points year-on-year in 2017, and we generated over $12 million in cash flow from operations and delivered non-GAAP profitability for the full year.

“Also during the year, we opportunistically acquired ViXS’ highly synergistic group of video-centric engineers and video delivery products, as well as a complementary portfolio of over 450 patents. We’ve now focused this business exclusively on consumer electronics applications, including OTA streaming devices. In the mobile market, we successfully completed and began sampling our fourth generation Iris mobile display processor, and entering 2018 we have customer engagements for both our third and fourth generation Iris chips that are anticipated to ramp later this year. As market trends continue toward the increased adoption of higher-quality image and video-centric solutions, I believe Pixelworks is well positioned to execute on and capture sizable growth opportunities in both our mobile and video delivery end markets.”

Fourth Quarter and Fiscal 2017 Financial Results

For the fourth quarter 2017, revenue was $18.4 million, compared to $18.8 million in the prior quarter and $16.0 million in the fourth quarter of 2016. The year-over-year increase in revenue was primarily driven by higher demand for chips sold into the digital projection market as well as contribution from the video delivery business the Company acquired in August 2017. For the full year 2017, revenue was $80.6 million, which included approximately $15.3 million of end-of-life (EOL) product revenue, compared to full year revenue of $53.4 million in 2016. Excluding the contributions from EOL, full year 2017 revenue grew 34.6% year-over-year.

On a GAAP basis, gross profit margin in the fourth quarter of 2017 was 49.7%, compared to 48.0% in the third quarter of 2017 and 53.2% in the fourth quarter of 2016. GAAP gross profit margin for the full year 2017 was 51.8%, representing an increase of 480 basis point from 47.0% in the prior year. Fourth quarter 2017 GAAP operating expenses were $12.2 million, compared to $13.4 million in the previous quarter and $8.1 million in the fourth quarter of 2016.

For the fourth quarter of 2017, the Company recorded a GAAP net loss of $3.6 million, or ($0.10) per share, compared to a GAAP net loss of $4.7 million, or ($0.14) per share, in the third quarter of 2017 and GAAP net income of $337,000, or $0.01 per diluted share, in the fourth quarter of 2016. GAAP net loss for the full year 2017 was $4.2 million, or ($0.13) per share, compared to a net loss of $11.1 million, or ($0.39) per share, for the full year 2016.

On a non-GAAP basis, fourth quarter 2017 gross profit margin was 56.9%, compared to 54.9% in the third quarter of 2017 and 53.6% in the fourth quarter of 2016. Fourth quarter 2017 operating expenses on a non-GAAP basis were $10.6 million, compared to $8.9 million in the previous quarter and $7.3 million in the fourth quarter of 2016. Non-GAAP gross profit margin for the full year 2017 was 55.2%, representing an increase of 450 basis points from 50.6% in the prior year.

For the fourth quarter of 2017, the Company recorded non-GAAP net loss of $379,000, or ($0.01) per share, compared to non-GAAP net income of $976,000, or $0.03 per diluted share, in the third quarter of 2017 and non-GAAP net income of $1.2 million, or $0.04 per diluted share, in the fourth quarter of 2016. For the full year 2017, non-GAAP net income was $7.7 million, or $0.23 per diluted share, compared to a non-GAAP net loss of $4.1 million, or ($0.14) per share, for the full year 2016.

Adjusted EBITDA in the fourth quarter of 2017 was $778,000, compared to $2.3 million in the previous quarter and $2.1 million in the fourth quarter of 2016. For the full year 2017, adjusted EBITDA was $12.9 million, compared to adjusted EBITDA of $174,000 for the full year 2016.

Business Outlook for the First Quarter of 2018

Pixelworks expects revenue to be between $14.5 million and $15.5 million for the first quarter of 2018. Additional guidance will be provided as part of the Company’s earnings conference call.

Conference Call Information

Pixelworks will host a conference call today, February 15, 2018, at 2:00 p.m. Pacific Time, which can be accessed by calling 877-359-9508 and using passcode 8198038. 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 Friday, February 23, 2018, and can be accessed by calling 855-859-2056 and using passcode 8198038.

About Pixelworks, Inc.

Pixelworks creates, develops and markets high efficiency visual display processing and advanced video delivery solutions for the highest quality display and streaming applications. The Company enables worldwide manufacturers to provide leading edge consumer electronics and professional displays, as well as video delivery and streaming solutions. 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 exclude amortization of deferred revenue fair value adjustment, inventory step-up and backlog amortization, amortization of acquired intangible assets, acquisition and integration related costs, stock-based compensation expense, restructuring expenses, fair value adjustment on convertible debt conversion option, discount accretion on convertible debt fair value, gain on extinguishment of convertible debt and a tax benefit associated with new tax treatment under the tax reform, which are all required under GAAP as well as the tax effect of the non-GAAP adjustments. The press release also makes reference to and reconciles GAAP net income (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.

Pixelworks management uses these non-GAAP financial measures internally to understand, manage and evaluate the business and establish its operational goals, review its operations on a period to period basis, for compensation evaluations, to measure performance, and for budgeting and resource allocation. Pixelworks management believes it is useful for the Company and investors to review, as applicable, both GAAP information and non-GAAP financial measures to help assess the performance of Pixelworks continuing businesses and to evaluate Pixelworks future prospects. These non-GAAP measures, when reviewed together with the GAAP financial information, provide additional transparency and more complete information for comparison and analysis of operating performance and trends. These non-GAAP measures exclude certain items to facilitate managements review of the comparability of our core operating results on a period to period basis.

In calculating the above non-GAAP results, management specifically adjusted for certain items related to the acquisition of ViXS Systems, Inc., including amortization of acquired intangible assets, amortization of inventory step up and deferred revenue both related to fair valuing the items, acquisition and integration related costs such as accounting and legal fees and CEO severance, restructuring expenses related to a reduction in workforce, accretion on convertible debt of ViXS fair value adjustments on embedded derivative features of such convertible debt and extinguishment of such convertible debt. Management considers these items as either limited in term or having no impact on Pixelworks cash flows, and therefore has excluded such items to better facilitate a review of current operating performance and comparisons to our past operating performance.

Because the Companys non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures, and should be read only in conjunction with the Companys 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 Pixelworks' website.

Safe Harbor Statement

This release contains 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. These statements may be identified by use of terms such as begin, continue, will, expect, believe, anticipate and similar terms or the negative of such terms, and include, without limitation, statements about the Companys digital projection, mobile and OTA businesses, including market movement and demand, customer engagements, and growth in the mobile and video delivery markets, synergies and additional guidance. 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: whether the Company will be able to implement the restructuring program as planned, whether the expected amount of the costs associated with the restructuring program will differ from or exceed the Company's estimates and whether the Company will be able to realize the full amount of estimated savings from the restructuring program or within the timeframe expected; our ability to execute on our strategy, including the integration of ViXS; 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; changes in the digital display and projection markets; seasonality in the consumer electronics market; our efforts to achieve profitability from operations; 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 from those discussed in the forward-looking statements 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, 2016 as well as subsequent SEC filings.

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

- Financial Tables Follow -

PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
     
  Three Months Ended Twelve Months Ended
  December 31, September 30, December 31, December 31, December 31,
   2017   2017   2016   2017   2016 
Revenue, net (1) $  18,448  $  18,758  $  15,987  $  80,637  $  53,390 
Cost of revenue (2)   9,288    9,747    7,483    38,873    28,322 
Gross profit   9,160    9,011    8,504    41,764    25,068 
Operating expenses:          
Research and development (3)   6,695    5,325    4,415    21,427    19,036 
Selling, general and administrative (4)   5,068    6,583    3,653    20,450    13,770 
Restructuring   439    1,481    —    1,920    2,608 
Total operating expenses   12,202    13,389    8,068    43,797    35,414 
Income (loss) from operations   (3,042)   (4,378)   436    (2,033)   (10,346)
Interest expense and other, net (5)   (919)   (528)   (101)   (1,647)   (406)
Income (loss) before income taxes   (3,961)   (4,906)   335    (3,680)   (10,752)
Provision (benefit) for income taxes (6)   (409)   (200)   (2)   493    355 
Net income (loss) $  (3,552) $  (4,706) $  337  $  (4,173) $  (11,107)
Net income (loss) per share:          
Basic $  (0.10) $  (0.14) $  0.01    (0.13)   (0.39)
Diluted $  (0.10) $  (0.14) $  0.01    (0.13)   (0.39)
Weighted average shares outstanding:          
Basic   34,359    32,552    28,684    31,507    28,276 
Diluted   34,359    32,552    30,244    31,507    28,276 
——————          
(1) Includes deferred revenue fair value adjustment $  68  $  25  $  —  $  93  $  — 
(2) Includes:          
Inventory step-up and backlog amortization   949    1,016    —    1,965    — 
Amortization of acquired intangible assets   298    199    —    497    — 
Stock-based compensation   64    57    51    243    190 
Restructuring   —    —    7    —    1,784 
(3) Includes stock-based compensation   527    445    378    1,648    1,600 
(4) Includes:          
Stock-based compensation   556    855    377    2,352    872 
Amortization of acquired intangible assets   101    67    —    168    — 
Acquisition and integration   (45)   1,611    —    2,460    — 
(5) Includes:          
Fair value adjustment on convertible debt conversion option   621    122    —    743    — 
Discount accretion on convertible debt fair value   124    72    —    196    — 
Gain on debt extinguishment   (29)   —    —    (29)   — 
(6) Includes benefit related to tax reform   (343)   —    —    (343)   — 
           


PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP  FINANCIAL  INFORMATION *
(In thousands, except per share data)
(Unaudited)
 
      
  Three Months Ended Twelve Months Ended 
  December 31, September 30, December 31, December 31, December 31, 
   2017   2017   2016   2017   2016  
Reconciliation of GAAP and non-GAAP gross profit           
GAAP gross profit $  9,160  $  9,011  $  8,504  $  41,764  $  25,068  
Inventory step-up and backlog amortization   949    1,016    —    1,965    —  
Amortization of acquired intangible assets   298    199    —    497    —  
Deferred revenue fair value adjustment   68    25    —    93    —  
Stock-based compensation   64    57    51    243    190  
Restructuring   —    —    7    —    1,784  
Total reconciling items included in gross profit   1,379    1,297    58    2,798    1,974  
Non-GAAP gross profit $  10,539  $  10,308  $  8,562  $  44,562  $  27,042  
Non-GAAP gross profit margin  56.9%  54.9%  53.6%  55.2%  50.6% 
            
Reconciliation of GAAP and non-GAAP operating expenses           
GAAP operating expenses $  12,202  $  13,389  $  8,068  $  43,797  $  35,414  
Reconciling item included in research and development:           
Stock-based compensation   527    445    378    1,648    1,600  
Reconciling items included in selling, general and administrative:           
Stock-based compensation   556    855    377    2,352    872  
Amortization of acquired intangible assets   101    67      168    —  
Acquisition and integration   (45)   1,611    —    2,460    —  
Restructuring   439    1,481    —    1,920    2,608  
Total reconciling items included in operating expenses   1,578    4,459    755    8,548    5,080  
Non-GAAP operating expenses $  10,624  $  8,930  $  7,313  $  35,249  $  30,334  
            
Reconciliation of GAAP and non-GAAP net income (loss)           
GAAP net income (loss) $  (3,552) $  (4,706) $  337  $  (4,173) $  (11,107) 
Reconciling items included in gross profit   1,379    1,297    58    2,798    1,974  
Reconciling items included in operating expenses   1,578    4,459    755    8,548    5,080  
Reconciling items included in interest expense and other, net   716    194    —    910    —  
Tax effect of non-GAAP adjustments   (157)   (268)   8    —    —  
Benefit related to tax reform   (343)   —    —    (343)   —  
Non-GAAP net income (loss) $  (379) $  976  $  1,158  $  7,740  $  (4,053) 
Non-GAAP net income (loss) per share:           
Basic $  (0.01) $  0.03  $  0.04  $  0.25  $  (0.14) 
Diluted $  (0.01) $  0.03  $  0.04  $  0.23  $  (0.14) 
Non-GAAP weighted average shares outstanding:           
Basic   34,359    32,552    28,684    31,507    28,276  
Diluted   34,359    34,656    30,244    33,668    28,276  
            
*Set forth above are reconciliations of the non-GAAP financial measure to the most directly comparable GAAP financial measure. The non-GAAP financial measure disclosed by the company has limitations and should not be considered a substitute for, or superior to, the financial measure prepared in accordance with GAAP, and the reconciliations from GAAP to Non-GAAP actuals should be carefully evaluated. Please refer to "Non-GAAP Financial Measures” in this document for an explanation of the adjustments made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.

 
  


PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP  EARNINGS PER SHARE *
(Figures may not sum due to rouding)
(Unaudited)
 
     
 Three Months Ended Twelve Months Ended 
 December 31, September 30, December 31, December 31, December 31, 
  2017   2017   2016  2017   2016  
  Dollars per share Dollars per share Dollars per share Dollars per share Dollars per share 
  Basic Diluted Basic Diluted Basic Diluted Basic Diluted Basic Diluted 
Reconciliation of GAAP and non-GAAP net income (loss)                     
GAAP net income (loss) $  (0.10) $  (0.10) $  (0.14) $  (0.14) $  0.01 $  0.01 $  (0.13) $  (0.12) $  (0.39) $  (0.39) 
Reconciling items included in gross profit   0.04    0.04    0.04    0.04    0.00   0.00   0.09    0.08    0.07    0.07  
Reconciling items included in operating expenses   0.05    0.05    0.14    0.13    0.03   0.02   0.27    0.25    0.18    0.18  
Reconciling items included in interest expense and other, net   0.02    0.02    0.01    0.01    —   —   0.03    0.03    —    —  
Tax effect of non-GAAP adjustments   —    —    (0.01)   (0.01)   —   —   —    —    —    —  
Benefit related to tax reform   (0.01)   (0.01)   —    —    —   —   (0.01)   (0.01)   —    —  
Non-GAAP net income (loss) $  (0.01) $  (0.01) $  0.03  $  0.03  $  0.04 $  0.04 $  0.25  $  0.23  $  (0.14) $  (0.14) 
                      
*Set forth above are reconciliations of the non-GAAP financial measure to the most directly comparable GAAP financial measure. The non-GAAP financial measure disclosed by the company has limitations and should not be considered a substitute for, or superior to, the financial measure prepared in accordance with GAAP, and the reconciliations from GAAP to Non-GAAP actuals should be carefully evaluated. Please refer to "Non-GAAP Financial Measures” in this document for an explanation of the adjustments made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.

 
 


PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP  GROSS PROFIT MARGIN *
(Figures may not sum due to rouding)
(Unaudited)
    
 Three Months Ended Twelve Months Ended
 December 31, September 30, December 31, December 31, December 31,
 2017  2017  2016  2017  2016 
Reconciliation of GAAP and non-GAAP gross profit margin          
GAAP gross profit margin 49.7% 48.0% 53.2% 51.8% 47.0%
Inventory step-up and backlog amortization 5.1% 5.4% % 2.4% %
Amortization of acquired intangible assets 1.6% 1.1% % 0.6% %
Deferred revenue fair value adjustment 0.4% 0.1% % 0.1% %
Stock-based compensation 0.3% 0.3% 0.3% 0.3% 0.4%
Restructuring % % % % 3.3%
Total reconciling items included in gross profit 7.4% 6.9% 0.4% 3.5% 3.7%
Non-GAAP gross profit margin 56.9% 54.9% 53.6% 55.2% 50.6%
           
*Set forth above are reconciliations of the non-GAAP financial measure to the most directly comparable GAAP financial measure. The non-GAAP financial measure disclosed by the company has limitations and should not be considered a substitute for, or superior to, the financial measure prepared in accordance with GAAP, and the reconciliations from GAAP to Non-GAAP actuals should be carefully evaluated. Please refer to "Non-GAAP Financial Measures” in this document for an explanation of the adjustments made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.
 


PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP  FINANCIAL  INFORMATION *
(In thousands)
(Unaudited)
     
  Three Months Ended Twelve Months Ended
  December 31, September 30, December 31, December 31, December 31,
   2017   2017   2016   2017   2016 
Reconciliation of GAAP net income (loss) and adjusted EBITDA          
GAAP net income (loss) $  (3,552) $  (4,706) $  337  $  (4,173) $  (11,107)
Stock-based compensation   1,147    1,357    806    4,243    2,662 
Inventory step-up and backlog amortization   949    1,016    —    1,965    — 
Fair value adjustment on convertible debt conversion option   621    122    —    743    — 
Restructuring   439    1,481    7    1,920    4,392 
Amortization of acquired intangible assets   399    266    —    665    — 
Discount accretion on convertible debt fair value   124    72    —    196    — 
Deferred revenue fair value adjustment   68    25    —    93    — 
Acquisition and integration   (45)   1,611    —    2,460    — 
Gain on debt extinguishment   (29)   —    —    (29)   — 
Benefit related to tax reform   (343)   —    —    (343)   — 
Tax effect of non-GAAP adjustments   (157)   (268)   8    —    — 
Non-GAAP net income (loss) $  (379) $  976  $  1,158  $  7,740  $  (4,053)
EBITDA adjustments:          
Depreciation and amortization $  863  $  900  $  828  $  3,577  $  3,466 
Interest expense and other, net   203    334    101    737    406 
Non-GAAP provision (benefit) for income taxes   91    68    (10)   836    355 
Adjusted EBITDA $  778  $  2,278  $  2,077  $  12,890  $  174 
           
*Set forth above are reconciliations of the non-GAAP financial measure to the most directly comparable GAAP financial measure. The non-GAAP financial measure disclosed by the company has limitations and should not be considered a substitute for, or superior to, the financial measure prepared in accordance with GAAP, and the reconciliations from GAAP to Non-GAAP actuals should be carefully evaluated. Please refer to "Non-GAAP Financial Measures” in this document for an explanation of the adjustments made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.

 


PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
     
 December 31,
2017
 December 31,
2016
 
ASSETS    
Current assets:    
Cash and cash equivalents$  27,523 $  19,622 
Accounts receivable, net  4,640   3,118 
Inventories  2,846   2,803 
Prepaid expenses and other current assets  1,328   736 
Total current assets  36,337   26,279 
Property and equipment, net  5,605   3,793 
Other assets, net  1,338   785 
Acquired intangible assets, net  5,856   — 
Goodwill  18,407   — 
Total assets$  67,543 $  30,857 
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Current liabilities:    
Accounts payable$  1,436 $  1,734 
Accrued liabilities and current portion of long-term liabilities  16,387   7,860 
Current portion of income taxes payable  445   140 
Total current liabilities  18,268   9,734 
Long-term liabilities, net of current portion  1,487   194 
Convertible debt  6,069   — 
Income taxes payable, net of current portion  2,282   1,880 
Total liabilities  28,106   11,808 
Shareholders’ equity  39,437   19,049 
Total liabilities and shareholders’ equity$  67,543 $  30,857 
 


Contacts:

Investor Contact
Shelton Group
Brett Perry
P: +1-214-272-0070
E: [email protected]

Company Contact
Pixelworks, Inc.
Steven Moore
P: +1-408-200-9221
E: [email protected]

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