Pixelworks Reports Third Quarter 2014 Financial Results

Safe Harbor Statement

This release contains forward-looking statements, including, without limitation, the statements in Bruce Walicek's quote with respect to the Company’s growth opportunities, product launch, product demand, and the Company’s potential and position for the future, 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,” “believe,” and similar terms or the negative of such terms. 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, 2013 as well as 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     Nine Months Ended
September 30,     June 30,     September 30, September 30,     September 30,
  2014     2014     2013     2014     2013  
Revenue, net $ 17,111 $ 15,166 $ 15,309 $ 45,818 $ 33,134
Cost of revenue (1)   8,545     7,505     5,987     21,596     15,213  
Gross profit 8,566 7,661 9,322 24,222 17,921
Operating expenses:
Research and development (2) 6,634 5,887 4,234 18,906 16,128
Selling, general and administrative (3)   3,900     3,709     3,296     11,658     10,168  
Total operating expenses   10,534     9,596     7,530     30,564     26,296  
Income (loss) from operations (1,968 ) (1,935 ) 1,792 (6,342 ) (8,375 )
Interest expense and other, net   (123 )   (130 )   (101 )   (375 )   (296 )
Income (loss) before income taxes (2,091 ) (2,065 ) 1,691 (6,717 ) (8,671 )
Provision for income taxes   209     317     182     472     149  
Net income (loss) $ (2,300 ) $ (2,382 ) $ 1,509   $ (7,189 ) $ (8,820 )
Net income (loss) per share:
Basic $ (0.10 ) $ (0.11 ) $ 0.07     (0.32 )   (0.46 )
Diluted $ (0.10 ) $ (0.11 ) $ 0.07     (0.32 )   (0.46 )
Weighted average shares outstanding:
Basic   23,007     22,667     20,128     22,629     19,085  
Diluted   23,007     22,667     21,290     22,629     19,085  
——————
(1) Includes:
Additional amortization of non-cancelable prepaid royalty $ 4 $ 35 $ 77 $ 95 $ 266
Stock-based compensation 61 41 29 191 100
(2) Includes stock-based compensation 562 413 209 1,801 682
(3) Includes stock-based compensation 634 487 301 1,909 1,041
 
 
PIXELWORKS, INC.
RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *
(In thousands, except per share data)
(Unaudited)
 
    Three Months Ended     Nine Months Ended
September 30,     June 30,     September 30, September 30,     September 30,
  2014     2014     2013     2014     2013  
Reconciliation of GAAP and non-GAAP gross profit
GAAP gross profit $ 8,566 $ 7,661 $ 9,322 $ 24,222 $ 17,921
Additional amortization of non-cancelable prepaid royalty 4 35 77 95 266
Stock-based compensation   61     41     29     191     100  
Total reconciling items included in cost of revenue   65     76     106     286     366  
Non-GAAP gross profit $ 8,631   $ 7,737   $ 9,428   $ 24,508   $ 18,287  
Non-GAAP gross profit margin   50.4 %   51.0 %   61.6 %   53.5 %   55.2 %
 
Reconciliation of GAAP and non-GAAP operating expenses
GAAP operating expenses $ 10,534 $ 9,596 $ 7,530 $ 30,564 $ 26,296
Reconciling item included in research and development:
Stock-based compensation 562 413 209 1,801 682
Reconciling item included in selling, general and administrative:
Stock-based compensation   634     487     301     1,909     1,041  
Total reconciling items included in operating expenses   1,196     900     510     3,710     1,723  
Non-GAAP operating expenses $ 9,338   $ 8,696   $ 7,020   $ 26,854   $ 24,573  
 
Reconciliation of GAAP and non-GAAP net income (loss)
GAAP net income (loss) $ (2,300 ) $ (2,382 ) $ 1,509 $ (7,189 ) $ (8,820 )
Reconciling items included in cost of revenue 65 76 106 286 366
Reconciling items included in operating expenses 1,196 900 510 3,710 1,723
Tax effect of non-GAAP adjustments   91     (47 )   8     6     (17 )
Non-GAAP net income (loss) $ (948 ) $ (1,453 ) $ 2,133   $ (3,187 ) $ (6,748 )
Non-GAAP net income (loss) per share:
Basic $ (0.04 ) $ (0.06 ) $ 0.11   $ (0.14 ) $ (0.35 )
Diluted $ (0.04 ) $ (0.06 ) $ 0.10   $ (0.14 ) $ (0.35 )
Non-GAAP weighted average shares outstanding:
Basic   23,007     22,667     20,128     22,629     19,085  
Diluted   23,007     22,667     21,290     22,629     19,085  

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