OREGON | 000-30269 | 91-1761992 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
(d) | Exhibits. |
PIXELWORKS, INC. | ||
(Registrant) | ||
Dated: | January 31, 2013 | /s/ Steven L. Moore |
Steven L. Moore Vice President, Chief Financial Officer, Secretary and Treasurer |
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, | ||||||||||||||||
2012 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
Revenue, net | $ | 13,571 | $ | 16,285 | $ | 16,828 | $ | 59,710 | $ | 64,609 | ||||||||||
Cost of revenue (1) | 6,979 | 8,497 | 8,908 | 29,862 | 34,242 | |||||||||||||||
Gross profit | 6,592 | 7,788 | 7,920 | 29,848 | 30,367 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Research and development (2) | 6,247 | 4,702 | 5,375 | 20,757 | 22,906 | |||||||||||||||
Selling, general and administrative (3) | 3,576 | 3,557 | 4,134 | 14,944 | 15,266 | |||||||||||||||
Total operating expenses | 9,823 | 8,259 | 9,509 | 35,701 | 38,172 | |||||||||||||||
Loss from operations | (3,231 | ) | (471 | ) | (1,589 | ) | (5,853 | ) | (7,805 | ) | ||||||||||
Interest expense and other, net | (108 | ) | (105 | ) | (89 | ) | (412 | ) | (484 | ) | ||||||||||
Gain on sale of patents | — | — | — | — | 1,600 | |||||||||||||||
Gain on sale of marketable securities | — | — | — | — | 264 | |||||||||||||||
Total other income (expense) | (108 | ) | (105 | ) | (89 | ) | (412 | ) | 1,380 | |||||||||||
Loss before income taxes | (3,339 | ) | (576 | ) | (1,678 | ) | (6,265 | ) | (6,425 | ) | ||||||||||
Provision (benefit) for income taxes | 218 | (176 | ) | 279 | (571 | ) | 141 | |||||||||||||
Net loss | $ | (3,557 | ) | $ | (400 | ) | $ | (1,957 | ) | $ | (5,694 | ) | $ | (6,566 | ) | |||||
Net loss per share - basic and diluted | $ | (0.19 | ) | $ | (0.02 | ) | $ | (0.11 | ) | $ | (0.31 | ) | $ | (0.40 | ) | |||||
Weighted average shares outstanding - basic and diluted | 18,401 | 18,338 | 17,944 | 18,252 | 16,330 | |||||||||||||||
—————— | ||||||||||||||||||||
(1) Includes: | ||||||||||||||||||||
Additional amortization of non-cancelable prepaid royalty | $ | 135 | $ | 142 | $ | 120 | $ | 565 | $ | 441 | ||||||||||
Stock-based compensation | 44 | 42 | 36 | 162 | 129 | |||||||||||||||
(2) Includes stock-based compensation | 274 | 214 | 221 | 893 | 845 | |||||||||||||||
(3) Includes stock-based compensation | 316 | 296 | 266 | 1,109 | 1,037 |
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, | ||||||||||||||||
2012 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
Reconciliation of GAAP and non-GAAP gross profit | ||||||||||||||||||||
GAAP gross profit | $ | 6,592 | $ | 7,788 | $ | 7,920 | $ | 29,848 | $ | 30,367 | ||||||||||
Additional amortization of non-cancelable prepaid royalty | 135 | 142 | 120 | 565 | 441 | |||||||||||||||
Stock-based compensation | 44 | 42 | 36 | 162 | 129 | |||||||||||||||
Total reconciling items included in cost of revenue | 179 | 184 | 156 | 727 | 570 | |||||||||||||||
Non-GAAP gross profit | $ | 6,771 | $ | 7,972 | $ | 8,076 | $ | 30,575 | $ | 30,937 | ||||||||||
Non-GAAP gross profit margin | 49.9 | % | 49.0 | % | 48.0 | % | 51.2 | % | 47.9 | % | ||||||||||
Reconciliation of GAAP and non-GAAP operating expenses | ||||||||||||||||||||
GAAP operating expenses | $ | 9,823 | $ | 8,259 | $ | 9,509 | $ | 35,701 | $ | 38,172 | ||||||||||
Reconciling item included in research and development: | ||||||||||||||||||||
Stock-based compensation | 274 | 214 | 221 | 893 | 845 | |||||||||||||||
Reconciling item included in selling, general and administrative: | ||||||||||||||||||||
Stock-based compensation | 316 | 296 | 266 | 1,109 | 1,037 | |||||||||||||||
Total reconciling items included in operating expenses | 590 | 510 | 487 | 2,002 | 1,882 | |||||||||||||||
Non-GAAP operating expenses | $ | 9,233 | $ | 7,749 | $ | 9,022 | $ | 33,699 | $ | 36,290 | ||||||||||
Reconciliation of GAAP and non-GAAP net income (loss) | ||||||||||||||||||||
GAAP net loss | $ | (3,557 | ) | $ | (400 | ) | $ | (1,957 | ) | $ | (5,694 | ) | $ | (6,566 | ) | |||||
Reconciling items included in cost of revenue | 179 | 184 | 156 | 727 | 570 | |||||||||||||||
Reconciling items included in operating expenses | 590 | 510 | 487 | 2,002 | 1,882 | |||||||||||||||
Gain on sale of patents | — | — | — | — | (1,600 | ) | ||||||||||||||
Gain on sale of marketable securities | — | — | — | — | (264 | ) | ||||||||||||||
Tax effect of non-GAAP adjustments | (20 | ) | 28 | 7 | — | — | ||||||||||||||
Non-GAAP net income (loss) | $ | (2,808 | ) | $ | 322 | $ | (1,307 | ) | $ | (2,965 | ) | $ | (5,978 | ) | ||||||
Non-GAAP net income (loss) per share - basic and diluted | $ | (0.15 | ) | $ | 0.02 | $ | (0.07 | ) | $ | (0.16 | ) | $ | (0.37 | ) | ||||||
Non-GAAP weighted average shares outstanding - basic | 18,401 | 18,338 | 17,944 | 18,252 | 16,330 | |||||||||||||||
Non-GAAP weighted average shares outstanding - diluted | 18,401 | 19,105 | 17,944 | 18,252 | 16,330 | |||||||||||||||
* Our non-GAAP gross profit, non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (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 gain on the sale of patents, gain on the sale of marketable securities, 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 income (loss) and non-GAAP net income (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 | Twelve Months Ended | |||||||||||||||||||
December 31, | September 30, | December 31, | December 31, | December 31, | ||||||||||||||||
2012 | 2012 | 2011 | 2012 | 2011 | ||||||||||||||||
Reconciliation of GAAP net loss and adjusted EBITDA | ||||||||||||||||||||
GAAP net loss | $ | (3,557 | ) | $ | (400 | ) | $ | (1,957 | ) | $ | (5,694 | ) | $ | (6,566 | ) | |||||
Stock-based compensation | 634 | 552 | 523 | 2,164 | 2,011 | |||||||||||||||
Additional amortization of non-cancelable prepaid royalty | 135 | 142 | 120 | 565 | 441 | |||||||||||||||
Gain on sale of patents | — | — | — | — | (1,600 | ) | ||||||||||||||
Gain on sale of marketable securities | — | — | — | — | (264 | ) | ||||||||||||||
Tax effect of non-GAAP adjustments | (20 | ) | 28 | 7 | — | — | ||||||||||||||
Non-GAAP net income (loss) | $ | (2,808 | ) | $ | 322 | $ | (1,307 | ) | $ | (2,965 | ) | $ | (5,978 | ) | ||||||
EBITDA adjustments: | ||||||||||||||||||||
Depreciation and amortization | $ | 1,194 | $ | 1,193 | $ | 1,314 | $ | 4,735 | $ | 5,114 | ||||||||||
Interest expense and other, net | 108 | 105 | 89 | 412 | 484 | |||||||||||||||
Non-GAAP provision (benefit) for income taxes | 238 | (204 | ) | 272 | (571 | ) | 141 | |||||||||||||
Adjusted EBITDA | $ | (1,268 | ) | $ | 1,416 | $ | 368 | $ | 1,611 | $ | (239 | ) | ||||||||
* Adjusted EBITDA differs from GAAP net loss due to the exclusion of gain on the sale of patents, gain on the sale of marketable securities, 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) | |||||||
December 31, 2012 | December 31, 2011 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 13,404 | $ | 15,092 | |||
Accounts receivable, net | 3,772 | 4,557 | |||||
Inventories | 2,702 | 4,107 | |||||
Prepaid expenses and other current assets | 1,727 | 2,341 | |||||
Total current assets | 21,605 | 26,097 | |||||
Property and equipment, net | 6,283 | 7,366 | |||||
Other assets, net | 1,653 | 2,914 | |||||
Total assets | $ | 29,541 | $ | 36,377 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 2,224 | $ | 4,428 | |||
Accrued liabilities and current portion of long-term liabilities | 8,666 | 8,247 | |||||
Current portion of income taxes payable | 207 | 212 | |||||
Total current liabilities | 11,097 | 12,887 | |||||
Long-term liabilities, net of current portion | 1,445 | 2,467 | |||||
Income taxes payable, net of current portion | 2,331 | 3,223 | |||||
Total liabilities | 14,873 | 18,577 | |||||
Shareholders’ equity | 14,668 | 17,800 | |||||
Total liabilities and shareholders’ equity | $ | 29,541 | $ | 36,377 |
• | 2012 was a year of solid progress for Pixelworks, despite the headwinds of a difficult macro-environment and contracting semiconductor industry. |
• | Overall revenues for 2012 came in at $60M, down 8% versus 2011, driven by a difficult global consumer and education spending environment. |
• | Despite these headwinds, 2012 was a significant year for demonstrating the value of Pixelworks' technology and capability, as we closed $12M of licensing and co-development deals/engagements. |
• | In 1H 2012 we closed a significant license and partnership for our advanced video display technology, which combined with our penetration of the Top Tier customer base, validates Pixelworks' leading position in providing innovative solutions in video processing. |
• | Also in 2012, we achieved another key milestone as we engaged in a significant customer funded co-development project to develop a highly integrated next generation chip that will result in significant revenue and market share gain in 2014 and beyond. |
• | In both of these engagements, Pixelworks was selected because of our industry leading video processing technology and product execution capability. |
• | During 2012 we shipped volume production of our PA136 to Tier 1 customers and captured the first wave of 4Kx2K resolution Ultra High Definition design wins at Tier 1 customers. |
• | In the 2H of 2012, the first 84” 4Kx2K Ultra Definition Display from an industry leader was introduced to the market with Pixelworks' leading video processing technology, based on the PA138. |
• | In Q4 2012 we introduced the PA168 which is targeted for Ultra HD 4Kx2K applications such as TVs, Panels, Monitors, and Projectors. |
• | And this quarter we delivered mass production units of the PA168 and expect volume production to build during 2013 and positively impact the second half of the year. |
• | The PA168 Video Display Processor is designed to meet the demanding performance requirements of new high resolution 4Kx2K screens, and PXLW technology handles the most demanding and difficult video processing problems to create the best video quality in the industry. |
• | These displays establish the latest standard for immersive viewing, delivering truly remarkable picture quality with 8 million pixels per frame. |
• | Pixelworks' PA168 raises the bar for video processing technology featuring “halo free” performance and the ability to illuminate “unperceivable pixels” to deliver more realistic images. |
• | The depth and richness of the Ultra Definition experience is a revolutionary improvement over todays Full High Definition displays. |
• | And Pixelworks is pleased to be working with leading Tier 1 TV manufacturers that have chosen our technology to power the latest, state-of-the-art Ultra HD TVs, and we believe we are the leader in this market with multiple Tier 1 engagements for the PA168. |
• | At CES this year higher resolution screens were everywhere. |
• | And the clear overriding theme at the show was that we are at the beginning of a massive shift to higher resolutions across all displays. |
• | This shift is analogous to the major transition from standard resolution CRT Analog Displays, to high definition flat panel Digital Displays a decade ago, but much more pervasive. |
• | Just as a point of reference, the new 4Kx2K Ultra High Definition screens have 4 times the number of pixels of today's Full High Definition displays. |
• | This time the trend to higher resolution displays is happening across all screens, stationary and mobile alike, driven by the capability of new display technology, packing more pixels into less space, while at the same time these displays are making the transition from simple video playback devices to being communication and computing platforms as well. |
• | A good example of this trend is the current Retina display in Apple's iPad3, which at 2Kx1K resolution contains 1M more pixels than today's leading 1080P Full HD TVs. That device did not exist three years ago and already has spawned a new category generating tens of millions of units worldwide. |
• | We are in the middle of a convergence of the PC, TV and Phone which is generating new product categories and use models and they all have one thing in common - consumers are increasingly using these products to watch video. |
• | Industry research from bandwidth providers, switching manufacturers, and communication chip makers all point to the same thing: across all these screens, video content consumption is going up, and it's being consumed on a wide variety of mobile and stationary screens. |
• | There are plenty of statistics to quantify this trend, but one that I find especially graphic is from Cisco, and they predict that in just three years, video will make up over 85% of all Internet traffic, and that it would take over 6 million years to watch it all. |
• | Higher resolutions, more video content, and more opportunities to view that content collide, the quality of visual user experience will increasingly become a key element in product quality and brand differentiation. |
• | At this year's Consumer Electronics Show in Las Vegas, advanced large screen ULTRA HD TVs from Tier 1 customers incorporating Pixelworks' technology were prominently displayed on the floor. |
• | And we're very pleased to be working with leading Tier 1 TV manufacturers that have chosen our Video display technology to power the latest, state-of-the art Ultra High Definition TVs. |
• | These are the very largest screens at this point and we are solving the industry's most difficult video display issues, on the grandest scale. |
• | Higher resolution, of course, means more noticeable visual quality problems, and the visual quality problems associated with high resolution larger screens are now migrating to smaller ones. |
• | As customers become exposed to higher video quality on HD and Ultra HD screens, they will naturally demand an experience similar to the high resolution they're used to on whatever screen they are viewing. |
• | This next wave of pixels will require advanced approaches to video processing that address not just feeding a higher resolution screen, but also taking into account the issues of size, heat and power consumption. |
• | All of these issues point to a need for a holistic approach to video processing that will address all of these problems. |
• | In our projector product line, in 2012, we expanded the Topaz family of solutions across the spectrum of the projection market by introducing several new members. |
• | PWC868 and 878 for the midrange and high end of the market. |
• | As well as the TOPAZ lite series for the sub $500 value segment. |
• | And in Q4 we further expanded the Topaz family by introducing the PWC858 which is specifically targeted for DLP based projectors. |
• | Pixelworks projector solutions, enable advanced applications in the business, consumer, and education segment. |
• | And in 2013 we will be adding additional members of the Topaz family and enhancing our software suite to enable mobile and wireless connected applications. |
• | We experienced outstanding Tier 1 design win traction in 2012 and expect the Topaz family to contribute positively to growth in 2013. |
• | In closing, 2012 was a year of significant progress for Pixelworks despite macro-economic headwinds. |
• | We demonstrated the value of Pixelworks Video Display Technology by closing $12M of licensing and co-development deals. |
• | We expanded our Topaz family of projector products. |
• | And we introduced our next generation Video Display Processor, the PA168, for Ultra HD Displays, which was adopted by an industry leader and others to power their flagship products. |
• | We are at the beginning of a massive trend to higher resolutions and video consumption across all screens and in 2013 we will focus on applying our video display processing technology and innovation to all displays to enable the highest quality video experience. |
• | Now, I'd now like to turn the call over to Steve to discuss the environment and review the financial details of the quarter. |