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Pixelworks Reports Second Quarter 2020 Financial Results

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Pixelworks, Inc.
·18 min read
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Announces Restructuring to Reduce Operating Expenses by $3.2 Million Annually

Anticipates Additional Smartphone Wins to Drive Mobile Revenue Growth in Second Half

SAN JOSE, Calif., Aug. 10, 2020 (GLOBE NEWSWIRE) -- Pixelworks, Inc. (NASDAQ: PXLW), a leading provider of innovative video and display processing solutions, today announced financial results for the second quarter ended June 30, 2020.

Second Quarter and Recent Highlights

  • Mobile revenue for the first half of 2020 grew 24% year-over-year, driven by increased shipments of Iris visual processing solutions in support of 12 smartphones launched across six OEM customers

  • GAAP gross margin expanded to 54.6% and non-GAAP gross margin increased to 59.2%, reflecting a combination of ongoing product cost reduction initiates and a favorable product mix

  • Restructuring plan implemented in August to further reduce operating expenses and minimize cash used from operations, while focusing resources on Mobile growth initiatives

  • ASUS ROG Phone 3 leverages Pixelworks’ patented high-efficiency color calibration, HDR tone mapping and brightness smoothing features to deliver an exceptional visual experience to mobile gamers

  • Black Shark incorporated Pixelworks’ 5th generation visual processor with dual-channel MIPI support and color calibration software in the latest cutting-edge gaming smartphone, the Tencent Black Shark 3S

  • Continued to advance TrueCut® platform initiatives in North America with expanded Hollywood presence and newly opened office in Burbank, California and installation of on-premises TrueCut evaluation tools

  • Completed successful tape-out of 6th generation Iris visual processor for mobile in advance of planned product introduction during the second half of 2020

  • Ended the quarter with $21.4 million in cash and short-term investments

President and CEO of Pixelworks, Todd DeBonis, commented, “Our second quarter results reflected the broad economic impact from the COVID-19 pandemic on all of our target end markets. While our team has continued to do an excellent job of operating effectively in the current environment, the pandemic has significantly impacted customer demand and our business in the Projector and Video Delivery markets. As a result of this negative impact, we have implemented a restructuring to further reduce operating expenses, preserve cash and focus available resources on the largest growth opportunities of our business. We anticipate these actions will generate an incremental $3.2 million in annualized cost savings, while minimizing the impact on our ability to fully support Pixelworks’ customers and advance our new product development.

“Despite the current challenging business environment, we have maintained our market-leading position in our respective target end markets, and we’ve continued to execute on our Mobile and TrueCut growth initiatives. In 2020, Pixelworks’ Iris visual processing solutions have been incorporated in 12 smartphones launched across six different OEM customers. We have also sustained a solid pipeline of new programs and are well positioned to build on our momentum in the second half of the year as customers continue to incorporate more advanced displays and premium viewing experiences, including HDR, higher frame rates and auto-adaptive visual enhancements, in conjunction with their introductions of new 5G-enabled smartphones.”

Second Quarter 2020 Financial Results

Revenue in the second quarter of 2020 was $9.3 million, compared to $13.8 million in the first quarter of 2020 and revenue of $18.0 million in the second quarter of 2019. The sequential and year-over-year decline in revenue reflected an ongoing inventory correction in the Projector and Video Delivery market, compounded by significantly lower customer demand due to the negative impacts of the COVID-19 pandemic across each of the Company’s target end markets.

On a GAAP basis, gross profit margin in the second quarter of 2020 was 54.6%, compared to 49.2% in the first quarter of 2020 and 52.0% in the second quarter of 2019. Second quarter 2020 GAAP operating expenses were $11.5 million, compared to operating expenses of $12.1 million in the first quarter of 2020 and $11.7 million in the year-ago quarter.

For the second quarter of 2020, the Company recorded a GAAP net loss of $6.6 million, or ($0.17) per share, compared to a GAAP net loss of $5.4 million, or ($0.14) per share, in the first quarter of 2020 and a GAAP net loss of $2.4 million, or ($0.06) per share, in the year-ago quarter.

On a non-GAAP basis, second quarter 2020 gross profit margin was 59.2%, compared to 52.1% in the first quarter of 2020 and 54.1% in the year-ago quarter. Second quarter 2020 non-GAAP operating expenses were $9.3 million, compared to $9.7 million in the first quarter of 2020 and $9.6 million in the year-ago quarter.

For the second quarter of 2020, the Company recorded a non-GAAP net loss of $3.9 million, or ($0.10) per share, compared to a non-GAAP net loss of $2.6 million, or ($0.07) per share, in the first quarter of 2020 and a non-GAAP net loss of $97,000, or ($0.00) per share, in the second quarter of 2019.

Adjusted EBITDA in the second quarter of 2020 was a negative $2.9 million, compared to a negative $1.5 million in the first quarter of 2020 and a positive $1.0 million in the year-ago quarter.

Cash and cash equivalents and short-term investments increased to $21.4 million in the current quarter from $20.4 million in the first quarter of 2020.

Business Outlook

The Company’s current business outlook, including guidance for the third quarter of 2020, will be provided as part of the scheduled conference call.

Conference Call Information

Pixelworks will host a conference call today, August 10, 2020, at 2:00 p.m. Pacific Time, which can be accessed by calling 1-877-359-9508 and using passcode 7672736. A live audio webcast of the call can also be accessed by visiting the Company's investor page at www.pixelworks.com. For those unable to listen to the live webcast, it will be archived for approximately 90 days. A replay of the conference call will also be available through Monday, August 17, 2020, and can be accessed by calling 1-855-859-2056 and using passcode 7672736.

About Pixelworks, Inc.

Pixelworks provides industry-leading content creation, video delivery and display processing solutions and technology that enable highly authentic viewing experiences with superior visual quality, across all screens – from cinema to smartphone and beyond. The Company has a 20-year history of delivering image processing innovation to leading providers of consumer electronics, professional displays and video streaming services. Pixelworks 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 loss and non-GAAP net loss per share, which exclude gain on sale of patents, inventory step-up and backlog amortization, amortization of acquired intangible assets, stock-based compensation expense, and restructuring expenses, 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 loss and adjusted EBITDA, which Pixelworks defines as GAAP net loss before interest income 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 business and to evaluate Pixelworks’ future prospects. These non-GAAP measures, when reviewed together with the GAAP financial information, provide additional transparency and information for comparison and analysis of operating performance and trends. These non-GAAP measures exclude certain items to facilitate management’s review of the comparability of our core operating results on a period to period basis.

Because the Company’s 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 Company’s 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 Company’s digital projection, mobile and video delivery businesses, including market movement and demand, customer engagements, growth in the mobile market, strategy, and additional guidance, particularly as to the business outlook and current market environment and the impact of the COVID-19 pandemic on the same. 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 execute on our strategy; competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; the success of our products in expanding 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; our ability to attract and retain key personnel; and the impact of the COVID-19 pandemic on our business and on our suppliers and customers. 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 its Annual Report on Form 10-K for the year ended December 31, 2019 as well as subsequent SEC filings.

The forward-looking statements contained in this release are 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

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2020

2020

2019

2020

2019

Revenue, net

$

9,253

$

13,774

$

18,027

$

23,027

$

34,675

Cost of revenue (1)

4,204

6,999

8,651

11,203

16,827

Gross profit

5,049

6,775

9,376

11,824

17,848

Operating expenses:

Research and development (2)

6,314

6,267

6,364

12,581

12,836

Selling, general and administrative (3)

5,156

5,193

4,935

10,349

10,395

Restructuring

-

592

398

592

398

Total operating expenses

11,470

12,052

11,697

23,522

23,629

Loss from operations

(6,421

)

(5,277

)

(2,321

)

(11,698

)

(5,781

)

Interest income (expense) and other, net

(24

)

54

104

30

200

Gain on sale of patents

-

-

-

-

3,905

Total other income (expense), net

(24

)

54

104

30

4,105

Loss before income taxes

(6,445

)

(5,223

)

(2,217

)

(11,668

)

(1,676

)

Provision for income taxes

107

176

231

283

639

Net loss

$

(6,552

)

$

(5,399

)

$

(2,448

)

$

(11,951

)

$

(2,315

)

Net loss per share - basic and diluted

$

(0.17

)

$

(0.14

)

$

(0.06

)

(0.31

)

(0.06

)

Weighted average shares outstanding - basic and diluted

39,444

38,868

37,688

39,156

37,469

——————

(1) Includes:

Amortization of acquired intangible assets

298

298

298

596

596

Stock-based compensation

127

101

83

228

178

Inventory step-up and backlog amortization

-

-

-

-

12

(2) Includes stock-based compensation

806

648

703

1,454

1,364

(3) Includes:

Stock-based compensation

1,310

1,073

879

2,383

1,812

Amortization of acquired intangible assets

76

76

76

152

160


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

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2020

2020

2019

2020

2019

Reconciliation of GAAP and non-GAAP gross profit

GAAP gross profit

$

5,049

$

6,775

$

9,376

$

11,824

$

17,848

Amortization of acquired intangible assets

298

298

298

596

596

Stock-based compensation

127

101

83

228

178

Inventory step-up and backlog amortization

-

-

-

-

12

Total reconciling items included in gross profit

425

399

381

824

786

Non-GAAP gross profit

$

5,474

$

7,174

$

9,757

$

12,648

$

18,634

Non-GAAP gross profit margin

59.2

%

52.1

%

54.1

%

54.9

%

53.7

%

Reconciliation of GAAP and non-GAAP operating expenses

GAAP operating expenses

$

11,470

$

12,052

$

11,697

$

23,522

$

23,629

Reconciling item included in research and development:

Stock-based compensation

806

648

703

1,454

1,364

Reconciling items included in selling, general and administrative:

Stock-based compensation

1,310

1,073

879

2,383

1,812

Amortization of acquired intangible assets

76

76

76

152

160

Restructuring

-

592

398

592

398

Total reconciling items included in operating expenses

2,192

2,389

2,056

4,581

3,734

Non-GAAP operating expenses

$

9,278

$

9,663

$

9,641

$

18,941

$

19,895

Reconciliation of GAAP and non-GAAP net loss

GAAP net loss

$

(6,552

)

$

(5,399

)

$

(2,448

)

$

(11,951

)

$

(2,315

)

Reconciling items included in gross profit

425

399

381

824

786

Reconciling items included in operating expenses

2,192

2,389

2,056

4,581

3,734

Reconciling items included in total other income, net

-

-

-

-

(3,905

)

Tax effect of non-GAAP adjustments

18

(25

)

(86

)

(7

)

133

Non-GAAP net loss

$

(3,917

)

$

(2,636

)

$

(97

)

$

(6,553

)

$

(1,567

)

Non-GAAP net loss per share - basic and diluted

$

(0.10

)

$

(0.07

)

$

(0.00

)

$

(0.17

)

$

(0.04

)

Non-GAAP weighted average shares outstanding - basic and diluted

39,444

38,868

37,688

39,156

37,469

*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 rounding)
(Unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2020

2020

2019

2020

2019

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 loss

GAAP net loss

$

(0.17

)

$

(0.17

)

$

(0.14

)

$

(0.14

)

$

(0.06

)

$

(0.06

)

$

(0.31

)

$

(0.31

)

$

(0.06

)

$

(0.06

)

Reconciling items included in gross profit

0.01

0.01

0.01

0.01

0.01

0.01

0.02

0.02

0.02

0.02

Reconciling items included in operating expenses

0.06

0.06

0.06

0.06

0.05

0.05

0.12

0.12

0.10

0.10

Reconciling items included in total other income, net

-

-

-

-

-

-

-

-

(0.10

)

(0.10

)

Tax effect of non-GAAP adjustments

0.00

0.00

(0.00

)

(0.00

)

(0.00

)

(0.00

)

(0.00

)

(0.00

)

0.00

0.00

Non-GAAP net loss

$

(0.10

)

$

(0.10

)

$

(0.07

)

$

(0.07

)

$

(0.00

)

$

(0.00

)

$

(0.17

)

$

(0.17

)

$

(0.04

)

$

(0.04

)

*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 rounding)
(Unaudited)

Three Months Ended

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2020

2020

2019

2020

2019

Reconciliation of GAAP and non-GAAP gross profit margin

GAAP gross profit margin

54.6

%

49.2

%

52.0

%

51.3

%

51.5

%

Amortization of acquired intangible assets

3.2

%

2.2

%

1.7

%

2.6

%

1.7

%

Stock-based compensation

1.4

%

0.7

%

0.5

%

1.0

%

0.5

%

Inventory step-up and backlog amortization

-

%

-

%

-

%

-

%

0.0

%

Total reconciling items included in gross profit

4.6

%

2.9

%

2.1

%

3.6

%

2.3

%

Non-GAAP gross profit margin

59.2

%

52.1

%

54.1

%

54.9

%

53.7

%

*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

Six Months Ended

June 30,

March 31,

June 30,

June 30,

June 30,

2020

2020

2019

2020

2019

Reconciliation of GAAP net loss and adjusted EBITDA

GAAP net loss

$

(6,552

)

$

(5,399

)

$

(2,448

)

$

(11,951

)

$

(2,315

)

Stock-based compensation

2,243

1,822

1,665

4,065

3,354

Amortization of acquired intangible assets

374

374

374

748

756

Tax effect of non-GAAP adjustments

18

(25

)

(86

)

(7

)

133

Restructuring

-

592

398

592

398

Gain on sale of patents

-

-

-

-

(3,905

)

Inventory step-up and backlog amortization

-

-

-

-

12

Non-GAAP net loss

$

(3,917

)

$

(2,636

)

$

(97

)

$

(6,553

)

$

(1,567

)

EBITDA adjustments:

Depreciation and amortization

$

871

$

1,022

$

887

$

1,893

$

1,800

Non-GAAP interest expense (income) and other, net

24

(54

)

(104

)

(30

)

(200

)

Non-GAAP provision for income taxes

89

201

317

290

506

Adjusted EBITDA

$

(2,933

)

$

(1,467

)

$

1,003

$

(4,400

)

$

539

*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)

June 30, 2020

December 31, 2019

ASSETS

Current assets:

Cash and cash equivalents

$

20,417

$

7,257

Short-term marketable securities

992

6,975

Accounts receivable, net

5,925

10,915

Inventories

4,767

5,401

Prepaid expenses and other current assets

1,783

1,689

Total current assets

33,884

32,237

Property and equipment, net

6,138

4,608

Operating lease right of use assets

7,324

5,434

Other assets, net

1,264

1,267

Acquired intangible assets, net

1,955

2,704

Goodwill

18,407

18,407

Total assets

$

68,972

$

64,657

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

1,071

$

818

Accrued liabilities and current portion of long-term liabilities

10,972

8,692

Short-term line of credit

4,329

-

Current portion of income taxes payable

219

164

Total current liabilities

16,591

9,674

Long-term liabilities, net of current portion

2,184

982

Operating lease liabilities, net of current portion

5,470

4,212

Income taxes payable, net of current portion

2,272

2,260

Total liabilities

26,517

17,128

Shareholders’ equity

42,455

47,529

Total liabilities and shareholders’ equity

$

68,972

$

64,657

Contacts:
Investor Contact
Shelton Group
Brett Perry
P: +1-214-272-0070
E: bperry@sheltongroup.com

Company Contact
Pixelworks, Inc.
Elias Nader
P: +1-408-200-9271
E: enader@pixelworks.com