Techwell Reports Third Quarter 2007 Financial Results

SAN JOSE, Calif.—(BUSINESS WIRE)—October 29, 2007— Techwell, Inc., (Nasdaq: TWLL), a leading provider of mixed signal integrated circuits for multiple video applications in the security surveillance, automotive and consumer markets, today announced financial results for the third quarter ended September 30, 2007.

Highlights:

-- Reported net revenue of $15.1 million in the third quarter of 2007

-- Improved gross margin to 60 percent

-- Achieved net income of $5.4 million, representing $0.25 earnings per diluted share (includes $0.10 per diluted share from a tax benefit) on a GAAP basis

-- Grew net revenue 15 percent for the first nine months in 2007 when compared to the same period in 2006

Net revenue for the third quarter of 2007 was $15.1 million, compared to net revenue of $14.7 million in the preceding quarter and $15.1 million in the third quarter of 2006.

Net revenue in the third quarter for each of the Company's product lines consisted of $10.2 million in security surveillance, $1.3 million in LCD display, $3.3 million in video decoders and $262,000 in other revenue. Gross margin for the third quarter of 2007 was 60 percent, compared to gross margin of 59 percent in the preceding quarter and 58 percent in the same period a year ago. Operating expenses for the third quarter of 2007 totaled $6.6 million, or 44 percent of total revenue. This compares to operating expenses of $5.7 million, or 39 percent of revenue, in the preceding quarter and $4.4 million, or 29 percent of revenue, in the same period a year ago.

Net income for the third quarter of 2007 totaled $5.4 million, or $0.25 per diluted share, which includes a $2.2 million tax benefit from the release of a valuation allowance, or $0.10 per diluted share. In the third quarter, the Company released the remaining amount of its $5.5 million valuation allowance on all of its deferred tax assets. "We have concluded that the release of the valuation allowance under Statement of Financial Accounting Standard No. 109 is necessary as a result of our continued profitability," said Mark Voll, Chief Financial Officer of Techwell, Inc.

Net income for the third quarter also included pre-tax stock-based compensation expenses under Statement of Financial Accounting Standard No. 123R (SFAS 123R) of $1.3 million, before the tax effect of $141,000, or a charge of $0.06 per diluted share. This compares to net income in the second quarter of 2007 of $2.6 million, or $0.12 per diluted share, and net income of $4.5 million, or $0.21 per diluted share, in the third quarter of 2006. Shares used to compute GAAP net income per diluted share for the third quarter of 2007 totaled approximately 21,768,000 shares.

Cash and cash equivalents, short and long-term investments increased by $4.5 million in the quarter, resulting in cash and cash equivalents, short and long-term investments of approximately $65.4 million as of September 30, 2007, compared to approximately $60.9 million as of June 30, 2007.

"During the third quarter, we continued to experience strength in security surveillance, with a significant increase in product shipments into the China market. Additionally, we further improved gross margin primarily as a result of a favorable mix of new products as well as our higher margin security surveillance products," stated Hiro Kozato, President and Chief Executive Officer of Techwell, Inc. "Looking forward, we plan to continue to invest in research and development to expand our new product offerings across each of our product lines, which we believe will contribute to the Company's growth in the coming years."

Business Outlook

Techwell expects revenue for the fourth quarter of 2007 to be in a range of $16 million to $16.5 million. The Company expects revenue for the fiscal year of 2007 to be in the range of $59 million to $59.5 million. The Company expects its effective tax rate in the fourth quarter to be approximately zero as result of additional benefits from the release of a valuation allowance on the Company's deferred tax assets that occurred in the third quarter of 2007.

Third Quarter 2007 Financial Results Conference Call and Web Cast

Techwell, Inc. will host a conference call with the financial community today, October 29, 2007, at 2:15 p.m. Pacific Time (PT), 5:15 p.m. Eastern Time (ET). The conference call will be broadcast live on the Company's Investor Relations website at http://www.techwellinc.com. Those parties interested in participating via telephone should dial 888.680.0865 with the conference ID number 13689272. International participants should dial 617.213.4853 and provide the same pass code at the prompt. A telephonic replay of the call will be available approximately two hours after the end of the call and will be available until midnight ET Friday, November 2, 2007. The replay number is 888-286-8010 with a pass code of 68683208. International callers should dial 617-801-6888 and enter the same pass code at the prompt. An archived version of the Web cast will also be available on the Company's web site.

Forward-Looking Statements

This press release and related conference call contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements may be identified by terminology such as may, will, could, should, anticipate and expect and the negative of these terms or other similar expressions. These are statements that relate to future events and include, but are not limited to Techwell's plan to expand its product offerings in each of its product lines, the expected impact of Techwell's research and development investments on future products and growth and, statements related to anticipated revenues for the fourth quarter and fiscal year 2007 and its anticipated effective tax rate for the fourth quarter. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in these forward-looking statements. These risks and uncertainties include but are not limited to: a determination, upon completion of further quarterly closing and review procedures, that the financial results for the third quarter of 2007 are different than the results set forth in this press release, Techwell's dependence on increased demand for digital video applications for the consumer, security surveillance and automotive markets, the potential decline in average selling prices for Techwell's products, competition, dependence on key and highly skilled personnel, the ability to develop new products, as well as other risks detailed from time to time in its SEC filings, including those described in Techwell's Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 9, 2007. Statements included in this release are based upon information known to Techwell as of the date of this release, and Techwell assumes no obligation to update information contained in this press release.

About Techwell

Techwell is a fabless semiconductor company that designs, markets and sells mixed signal integrated circuits for multiple video applications in the consumer, security surveillance and automotive markets. Techwell designs both general purpose and application specific products that enable the conversion of analog video signals to digital form and perform advanced digital video processing to facilitate the display, storage and transport of video content. Headquartered in San Jose, CA, Techwell currently has over 100 employees in the U.S., Korea, Taiwan, China and Japan. Please visit www.techwellinc.com for more information.

Non-GAAP Reporting

Techwell reports both GAAP and non-GAAP measures to evaluate our financial results. The non-GAAP measures used are: net income, excluding stock-based compensation expense and related tax effect and tax effect on the release of a valuation allowance on deferred tax assets, and net income per diluted share, excluding stock-based compensation expense and related tax effect and tax effect on the release of the valuation allowance on deferred tax assets. Techwell believes that the non-GAAP measures, when viewed in addition to and not in lieu of our reported GAAP results, assist investors in understanding its results of operations. The Company also believes non-GAAP measures provide useful supplemental information for investors to evaluate the operating results in the same manner as the research analysts that follow Techwell, all of whom present non-GAAP projections in their published reports. As such, non-GAAP measures provided by Techwell facilitate a more direct comparison of its performance with the financial projections published by the analysts. However, non-GAAP measures should not be considered in isolation from, or as a substitute for, financial information prepared in accordance with GAAP.

Techwell, Inc. and the Techwell, Inc. logo are trademarks of Techwell, Inc. All other trademarks are the property of their respective owners.

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

                                                                            Three  Months            Nine  Months
                                                                                      Ended                        Ended
                                                                            September  30,        September  30,
                                                                              2007        2006          2007        2006
                                                                          -------  --------  -------  --------


Revenues                                                          $15,122  $15,101    $43,382  $37,702

Cost  of  revenues                                              6,048      6,374      17,828    16,112

                                                                          -------  --------  -------  --------
Gross  profit                                                      9,074      8,727      25,554    21,590
                                                                          -------  --------  -------  --------

Operating  expenses
  Research  and  development                            3,496      2,033        8,581      6,984
  Selling,  general  and  administrative      3,135      2,362        8,767      6,064
                                                                          -------  --------  -------  --------
                Total  operating  expenses              6,631      4,395      17,348    13,048
                                                                          -------  --------  -------  --------

  Income  from  operations                                2,443      4,332        8,206      8,542
  Interest  income                                                  819          617        2,235      1,024
                                                                          -------  --------  -------  --------

  Income  before  income  taxes                        3,262      4,949      10,441      9,566
  Benefit  (provision)  for  income
    taxes                                                                2,154        (440)            80    (1,194)
                                                                          -------  --------  -------  --------

Net  income                                                      $  5,416  $  4,509    $10,521  $  8,372
                                                                          =======  ========  =======  ========

Net  income  per  share
  Basic                                                              $    0.26  $    0.22    $    0.51  $    0.82
                                                                          =======  ========  =======  ========
  Diluted                                                          $    0.25  $    0.21    $    0.48  $    0.42
                                                                          =======  ========  =======  ========


Shares  used  in  computing  net  income
  per  share
  Basic                                                                20,822    20,093      20,741    10,213
  Diluted                                                            21,768    21,787      21,795    19,794
 


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