Pixelworks, Inc. (PXLW)

Q2 2012 Earnings Call

July 19, 2012, 5:00 PM ET


Steve Moore - CFO

Bruce Walicek - President & CEO



Good afternoon and welcome to Pixelworks, Incorporated second quarter 2012 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference, instructions will be given for the question-and-answer session.

As a reminder, this conference call is being recorded today, Thursday, July 19, 2012. I would now like to turn the conference over to Steve Moore.

Steve Moore

Good afternoon and thank you for joining us. This is Steve Moore, Chief Financial Officer of Pixelworks. With me today is Bruce Walicek, President and CEO. The purpose of today’s conference call is to supplement the information provided in our press release issued earlier today announcing the Company’s financial results for the second quarter ended June 30, 2012.

Before we begin, I would like to remind you that various remarks we make on this call -- including those about our projected future financial results, economic and market trends, and our competitive position constitute forward-looking statements. These forward-looking statements and all other statements made on this call that are not historical facts are subject to a number of risks and uncertainties that may cause actual results to differ materially.

All forward-looking statements are based on the Company's beliefs as of today, Thursday, July 19, 2012, and we undertake no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today’s press release, our Annual Report on Form 10-K for the year ended December 31, 2011, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results.

Additionally, the Company's press release and management’s statements during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms, including gross margin, operating expenses, net loss, earnings per share and net loss per share. These non-GAAP measures exclude stock-based compensation expense, gain on sale of patents, gain on sale of marketable securities, and additional amortization of a prepaid royalty.

We use these non-GAAP measures internally to assess our operating performance. The Company believes these non-GAAP measures provide a meaningful perspective on our core operating results and underlying cash flow dynamics, but we caution investors to consider these measures in addition to, not as a substitute for, nor superior to, the Company's consolidated financial results as presented in accordance with GAAP.

Included in the Company's press release are definitions and reconciliations of GAAP to non-GAAP net loss and GAAP net loss to adjusted EBITDA, which provide additional details.

Bruce will begin today’s call with a strategic update on the business, after which I will review our second quarter financial results and discuss our outlook for the third quarter of 2012.

Bruce Walicek

Thanks Steve. Good afternoon everyone and thank you for taking the time to join us today. I will start by making a few comments and observations about our 2nd quarter 2012, and then Steve will follow with details on our financial results and outlook for Q3.

Q2 was an outstanding quarter on many fronts, as revenues were up 8% sequentially, coming in at $15.5M, which was at the high end of the range of guidance we outlooked on our Q1 2012 conference call. The quarter was positively impacted by the ramping into production of our new TOPAZ family of Projector chips and by the continuing execution and recognition of a license of our current generation video technology for the TV market, to one of our industry partners.

Also in Q2, we achieved another key milestone as we won a significant co-development project with a major customer to develop a highly integrated next generation chip that will result in significant revenue impact in 2014 and beyond. This engagement is a significant positive for Pixelworks and reinforces Pixelworks’ market leadership position in video. In both of these engagements, Pixelworks was selected because of our industry leading display technology, recognized leadership in video quality, and world class execution capability.

Overall TV/Panel products came in at 28% of revenues and were up 166% year over year and 6% sequentially, driven by volume production of our PA Series products, and by the recognition of the 2 nd phase of the license mentioned above. Projector products came in at 65% of revenues and were up 25% sequentially, reflecting the production ramp of Topaz products, and improving order patterns noted on our Q1 conference call.

Overall book to bill was much greater than one, as order patterns continued strong throughout the quarter, driven by new products ramping, resulting in visibility greater than normal going into Q3. Non-GAAP gross margin came in above the range of guidance at 50.6% and combined with below the range operating expenses of $8.1M, resulted in positive EBITDA for the quarter and cash generation from operations of $4.1M, a significant up-tick from Q1.

On the product front, in our TV/Panel Product Line, our current generation PA Series products continued to experience good design win traction at tier 1 customers in smart and advanced TV applications. In particular, the PA138, which is targeted for advanced high end systems is finding traction in the 1 st wave of 4Kx2K Ultra Definition Systems.

We expect to see the first wave of 4Kx2K flagship model high end TVs from tier 1 customers introduced in this year, powered by up to 4 Pixelworks PA138s. These products will be in the most advanced systems available at the apex of the market, which validates Pixelworks’ industry leadership position in advanced video technology.

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