Revenue increased 14% year-over-year with sequential growth in Projector, Video Delivery and Mobile; Video Delivery business accretive to earnings

SAN JOSE, Calif., Nov. 01, 2018 (GLOBE NEWSWIRE) -- Pixelworks, Inc. (NASDAQ: PXLW), a leading provider of power efficient visual processing solutions, today announced financial results for the third quarter ended September 30, 2018.

Third Quarter and Recent Highlights

• Mobile revenue grew 33% sequentially, driven by volume production orders of Iris mobile processors
• Announced wins on newly launched smartphones, the ZTE Axon 9 Pro, Nokia 7.1 and Black Shark Helo
• Video Delivery revenue grew 70% sequentially and was accretive to quarterly earnings
• Ramped shipments of XCode transcoding chips to leading consumer electronics OEMs in Japan
• Recorded GAAP profitability and generated $3.6 million in cash flow from operations

President and CEO of Pixelworks, Todd DeBonis, commented, “Consolidated revenue in the third quarter grew 14% year-over-year to $21.5 million, reflecting sequential growth across all end markets. Gross margin and earnings per share were both at the high-end of our guidance range, generating GAAP profitability and solid cash flow from operations. Also notable, our video delivery business was accretive to earnings in the third quarter.

“We continue to gain momentum in Mobile, as evidenced by achieving the fourth consecutive quarter of sequential revenue growth. Our advanced video processing technology is providing important differentiation to a growing number of handset OEMs that are incorporating Pixelworks’ Iris processor to enable high-quality, HDR display processing on their next-generation smartphones. Additionally, our Video Delivery business benefited from strong demand for our XCode transcoding chips in support of the upcoming broadcast transition in Japan.

“Collectively, our recently secured wins and customers’ product launches are driving increased awareness of Pixelworks’ market-leading image and video processing technology, as we continue to enhance the quality of engagements with both prospective customers and partners. We are well positioned to further capitalize on this momentum and deliver continued year-over-year growth in Mobile and Video Delivery in the fourth quarter.”

Third Quarter 2018 Financial Results

Revenue in the third quarter of 2018 was $21.5 million, compared to $19.3 million in the second quarter of 2018 and $18.8 million in the third quarter of 2017. The sequential and year-over-year increase in third quarter revenue was driven by growth across all of the Company’s target end markets.

On a GAAP basis, gross profit margin in the third quarter of 2018 was 52.3%, compared to 49.5% in the second quarter of 2018 and 48.0% in the third quarter of 2017. Third quarter 2018 GAAP operating expenses were $10.8 million, compared to $12.0 million in the second quarter of 2018 and $13.4 million in the year-ago quarter.

For the third quarter of 2018, the Company recorded GAAP net income of $231,000, or $0.01 per diluted share, compared to a GAAP net loss of $2.6 million, or $(0.07) per share, in the second quarter of 2018 and a GAAP net loss of $4.7 million, or $(0.14) per share, in the year-ago quarter.

On a non-GAAP basis, third quarter 2018 gross profit margin was 54.7%, compared to 52.7% in the second quarter of 2018 and 54.9% in the year-ago quarter. Third quarter 2018 non-GAAP operating expenses were $8.9 million, compared to $10.0 million in the second quarter of 2018 and $8.9 million in the year-ago quarter. Operating expenses in the third quarter of 2018 included the recognition of approximately $1.8 million of anticipated offsets to R&D related to the Company’s co-development project with a large digital projector customer.

For the third quarter of 2018, the Company recorded non-GAAP net income of $2.5 million, or $0.07 per diluted share, compared to a non-GAAP net loss of $140,000, or $(0.00) per share, in the second quarter of 2018 and non-GAAP net income of $976,000, or $0.03 per diluted share, in the year-ago quarter. Adjusted EBITDA in the third quarter of 2018 was $3.8 million, compared to $1.1 million in the second quarter of 2018 and $2.3 million in the year-ago quarter.

Business Outlook

For the fourth quarter of 2018, Pixelworks expects revenue to be in a range of between $20 million and $21 million, reflecting typical seasonality in the digital projection market partially offset by continued year-over-year growth in the Company’s Mobile and Video Delivery businesses. Additional guidance will be provided as part of the Company’s earnings conference call.

Conference Call Information

Pixelworks will host a conference call today, November 1, 2018, at 2:00 p.m. Pacific Time, which can be accessed by calling 1-877-359-9508 and using passcode 3757089. 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 Thursday, November 8, 2018, and can be accessed by calling 1-855-859-2056 and using passcode 3757089.

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 has a 20-year history of delivering image processing innovation to providers of leading-edge consumer electronics and professional displays. Pixelworks is headquartered in San Jose, Calif. 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 deferred revenue fair value adjustment, inventory step-up and backlog amortization, amortization of acquired intangible assets, stock-based compensation expense, restructuring expenses, acquisition and integration expenses, gain on extinguishment of convertible debt, fair value adjustment on convertible debt conversion option and discount accretion on convertible debt fair value, 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 income (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 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.

In calculating the above non-GAAP results, management specifically adjusted for certain items related to the acquisition of ViXS Systems, Inc., including deferred revenue fair value adjustment, amortization of acquired intangible assets, impact of inventory step up,  all related to fair valuing the items, acquisition and integration costs, restructuring expenses related to a reduction in workforce and facility closure and consolidations, gain on debt extinguishment, fair value adjustment on convertible debt conversion option, and accretion on 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 facilitate a review of current operating performance and comparisons to our past operating performance.

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.