Pixelworks Reports Fourth Quarter and Full Year 2019 Financial Results

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 business 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, and impact of inventory step up and backlog amortization, all related to fair valuing the items, restructuring expenses related to a reduction in workforce and facility closure and consolidations, gain on debt extinguishment, and discount 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.

Safe Harbor Statement
This release contains forward-looking statements 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,” “expect”, “believe,” “anticipate” and similar terms or the negative of such terms, and include, without limitation, statements about the Company’s digital projection, mobile and video delivery businesses, including market movement and demand, customer engagements, growth in the mobile market, strategy, and additional guidance, particularly as to revenue for the first quarter of 2020. 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 execute on our strategy, competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; the success of our products in expanded markets; current global economic challenges; changes in the digital display and projection markets; seasonality in the consumer electronics market; our efforts to achieve profitability from operations; 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 from those discussed in the forward-looking statements is included from time to time in the Company's Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the year ended December 31, 2018 as well as subsequent SEC filings.

The forward-looking statements contained in this release are as of the date of this release, and the Company does not undertake any obligation to update any such statements, whether as a result of new information, future events or otherwise.

[Financial Tables Follow]


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,
    2019    2019    2018    2019    2018 
Revenue, net (1) $16,023  $ 18,057     $ 20,539     $ 68,755     $ 76,554  
Cost of revenue (2)     8,723       8,710       9,634       34,260       37,076  
Gross profit     7,300       9,347       10,905       34,495       39,478  
Operating expenses:                    
Research and development (3)     6,724       6,458       6,673       26,018       22,881  
Selling, general and administrative (4)     5,474       5,333       5,310       21,202       19,953  
Restructuring                 429       398       1,464  
Total operating expenses     12,198       11,791       12,412       47,618       44,298  
Loss from operations     (4,898 )     (2,444 )     (1,507 )     (13,123 )     (4,820 )
Interest income and other, net (5)     324       70       90       594       1,355  
Gain on sale of patents                       3,905        
Total other income, net     324       70       90       4,499       1,355  
Loss before income taxes     (4,574 )     (2,374 )     (1,417 )     (8,624 )     (3,465 )
Provision (benefit) for income taxes     (118 )     (68 )     52       453       448  
Net loss   $ (4,456 )   $ (2,306 )   $ (1,469 )   $ (9,077 )   $ (3,913 )
Net loss per share - basic and diluted   $ (0.12 )   $ (0.06 )   $ (0.04 )     (0.24 )     (0.11 )
Weighted average shares outstanding - basic and diluted     38,370       38,086       36,736       37,851       35,959  
——————                    
(1) Includes deferred revenue fair value adjustment   $     $     $     $     $ 52  
(2) Includes:                    
Amortization of acquired intangible assets     298       298       298       1,192       1,192  
Stock-based compensation     100       89       93       367       324  
Inventory step-up and backlog amortization                 17       12       475  
(3) Includes stock-based compensation     611       570       635       2,545       2,466  
(4) Includes:                    
Stock-based compensation     1,086       839       910       3,737       2,893  
Amortization of acquired intangible assets     76       76       101       312       404  
(5) Includes:                    
Gain on debt extinguishment                             (1,272 )
Discount accretion on convertible debt fair value                             69  
                     



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