Pixelworks Inc (PXLW) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2009 Pixelworks earnings conference call.

My name is Eric.

I'll be your audio coordinator for today.

At this time, all participants are in a listen-only mode.

We'll facilitate the question-and-answer session towards the end of the presentation.

(Operator Instructions).

I would now like to turn your presentation over to your host, Mr.

Steve Moore, Chief Financial Officer.

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 first quarter ended March 31, 2009.

Before we begin, I would like to remind you that various remarks we make today 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.

Forward-looking statements we make today speak as of today and we do not undertake any 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, 2008, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results.

During this conference call, we will also be making reference to non-GAAP results or projections, including gross margin, operating expenses, EBITDA, net income loss, and net income loss per share.

These non-GAAP measures exclude gains on the repurchase of long-term debt, other than temporary impairment of a marketable security, restructuring charges, acquisition-related items, stock-based compensation expense, and additional amortization of a non-cancelable prepaid royalty.

Pixelworks uses these non-GAAP measures internally to assess our operating performance.

The Company believes these non-GAAP measures provide a meaningful perspective on our underlying cash flow dynamics, but cautions investors to consider these measures in addition to, not as a substitute for nor superior to, Pixelworks' consolidated financial results as presented in accordance with GAAP.

A complete reconciliation between GAAP and non-GAAP financial measures is included in the press release, which is available in the investor relations section of Pixelworks' website.

Bruce will begin today's call with a strategic update on the business, after which I will review our Q1 '09 results and discuss our outlook for the second quarter.

Good afternoon, everyone, and thank you for taking the time to join us today.

As previewed, Q1 was a difficult quarter for Pixelworks and the overall industry as the global economic downturn reduced demand across all electronics end markets, delayed spending decisions by manufacturers, and impacted orders for semiconductors across nearly every market, including video processing.

Q1 '09 revenues, coming in within our guided range, were down 43% sequentially, primarily as a result of a worldwide inventory correction taking place in the semiconductor industry as customers drastically reduced orders in reaction to a steep drop-off in demand.

In response, we took quick action to reduce our cost base, which enabled Q1 operating expenses to come in significantly below the low end of our guidance for the quarter.

Operating expenses were down 18% from last quarter and 21% year on year on a non-GAAP basis.

Additionally, proactive inventory management also allowed us to reduce inventory 16% versus Q4 '08.

In reaction to the distressed macroenvironment, we executed a 5% reduction in force in January and, more recently, we have implemented a temporary 10% salary cut across our employee base, in addition to a range of other expense-reduction measures.

These actions will reduce our expense runrate, while allowing us to continue to execute our new product roadmaps.

Our focus in the coming quarters will be to continue to keep a tight rein on expenses, worked to preserve cash, and remain proactive in looking for opportunities to reduce spending and maximize capital efficiency.

During the quarter, we also took steps to further improve our balance sheet with the repurchase of an additional $27 million of convertible bonds.

This follows repurchases of approximately $79.4 million of Pixelworks' outstanding debentures in 2008.

We have now reduced the Company's long-term debt from $140 million at the beginning of 2008 to approximately $33.5 million today, putting Pixelworks on a much stronger financial footing.

Our focus on tight expense management, capital efficiency, and balance sheet improvement support our ability to effectively execute our business strategy.

On the product side, momentum continues to build for our new next-generation advanced display products.

Customer engagement with Tier 1 electronics manufacturers for our new and current products remained strong during the quarter, despite the difficult market environment.

We secured new design wins for our PW9800 and PW9801 motion engine products, which significantly improve the performance and viewing experience of large, high-end LCD TVs, advanced projectors, and other products requiring 120 Hz support.

And these products are now in volume production.

We also delivered production volumes of our fifth-generation digital projection platform, code named Ruby.

Ruby is our first digital video network display processor, and delivers a significant upgrade in video capability and connectivity, which plays into the emerging trend of connected video.

We secured new design wins for major projection customers for the Ruby platform during the quarter.

And most significantly, our revenue from new products introduced in 2008 represented 21% of total sales in the quarter and we expect this percentage to continue to increase through 2009.

As we have discussed on past calls, we believe there are significant opportunities for long-term revenue growth available to Pixelworks as a result of the dramatic changes occurring in video.

New video processing solutions must address these changes, which include the rapid shift to 1080p high-resolution displays, the transition in LCD technology to 120 Hz, and now to 140 Hz refresh, and ultimately the trend to connect the network display devices together.

As video becomes more pervasive, there is increasing demand for ever higher video quality, and this requirement is spanning more and more products, from advanced TVs to digital projectors.

Pixelworks has a long history of delivering industry-leading solutions to deliver high-quality video, and we are well positioned to capitalize on the opportunities.

While 2009 is proving to be a difficult year, as expected, we began to see some improvement in order patterns at the end of the quarter as customers began to order in reaction to low inventory levels, and that is reflected in the book-to-bill for the quarter, which was about 1.2 to 1.

While we are cautiously optimistic, we remain vigilant with regard to tight inventory management and expense control as the macroeconomic climate remains challenged.

While the environment is still challenging, we believe that Pixelworks is well positioned to continue to execute our business strategy.

We have continued to strengthen our financial base, our new products are gaining traction in the market, our customer relationships remain strong, and we have in place a team of seasoned semiconductor executives to continue to drive execution.

Now I like to turn the call over to Steve to review the financial details of our first quarter.

Thank you, Bruce.

Revenue in the first quarter of 2009 was $10.8 million, within the range of guidance we gave at the beginning of the quarter of $10 million to $13 million.

This is a decrease of 43% from $18.9 million in the fourth quarter of 2008 and down 55%, year over year, from $24 million in the first quarter of 2008.

The split for our first-quarter revenue by market was 42% projector, 22% TV, and 36% other.

Note that we have revised the breakout of our revenue into categories that better represent our primary areas of focus in the market.

These are the categories we will be reporting going forward.

First-quarter projector revenue was approximately $4.5 million, down 61% from Q4 2008.

Projector revenues include sales of our chips targeted at the advanced digital projector industry.

Revenues from our projector products were severely affected by inventory drawdowns in Q1 at our Japanese customers, related both to global economic uncertainties as well as the end of the Japanese fiscal year, which is March 31.

TV revenue in Q1 was approximately $2.4 million, down 24% sequentially.

TV revenues include sales of our chips targeted at the LCD panel market, which are primarily used in flatscreen and higher-resolution digital televisions.

Other revenues in the first quarter was approximately $3.9 million, down 5% from Q4 2008.

Other revenue includes sales of chips to non-target segments, including advanced media processor, monitor, and other legacy markets.

For the second quarter of 2009, we expect revenue to be in the range of $13 million to $15 million, reflecting the increase in order levels we are seeing from our customers, mitigated by the cautionary economic environment overall.

Looking now at gross profit margin, GAAP gross profit margin in the first quarter of 2009 was 38.6%, down from 45.4% in Q4 '08.

Included in cost of sales during the first quarter of 2009 was approximately $739,000 of non-cash expenses, primarily for the amortization of acquired intangible assets.

Excluding these non-cash expenses, non-GAAP gross profit margin was 45.4% in the first quarter, in the middle of the range of guidance provided of 42% to 46%.

This compares with non-GAAP gross profit margin of 50.4% in Q4 '08.

The decrease in non-GAAP gross profit percentage in Q1 was primarily due to the lower cost absorption given our lower level of revenue in the first quarter, as well as a less favorable product mix.

We expect GAAP gross profit margin in the second quarter of 2009 to be in the range of 38% to 42%, and non-GAAP gross profit margin to be in the range of 43% to 47%, excluding an estimated $700,000 in non-cash expense.

The Q2 margin outlook assumes a less favorable mix of products sold.

Non-GAAP operating expenses were $8.3 million in the first quarter, excluding $407,000 in noncash stock-based compensation and restructuring charges.

This represents an 18% decrease in non-GAAP expenses sequentially.

As Bruce mentioned, we implemented a reduction in force in Q1, and have subsequently initiated a temporary reduction in employee salaries that we expect will allow us to keep our expense runrate below $9.5 million on a non-GAAP basis.

We have mitigated our cash usage, while at the same time positioning the Company to more quickly return to profitability as revenue recovers.

We expect GAAP operating expenses in the second quarter of 2009 to be between $9 million and $10 million, and non-GAAP operating expenses to be between $8.5 million and $9.5 million.

Looking now at non-GAAP EBITDA.

Lower revenue levels resulted in a decrease in EBITDA to negative $2.1 million.

This is our first negative EBITDA in eight quarters, and compares with a positive EBITDA of $1.2 million in Q4.

We realized a gain on the pre-purchase of long-term debt in Q1 of approximately $9 million.

This gain was the net result of repurchasing approximately $27.1 million of convertible bonds at a cost of approximately $17.8 million, plus the write-off of previously capitalized debt issuance costs of approximately $288,000.

We recorded a benefit from income taxes of $1.6 million in the first quarter, which was due to the reversal of a tax contingency accrual, offset by tax accruals in profitable foreign jurisdictions.

We recorded GAAP net income in the first quarter of $5.9 million, or $0.44 income per share.

On a non-GAAP basis, we recorded net loss in the first quarter of $2 million, or $0.15 loss per share, compared to a net loss of $1.2 million, or $0.08 loss per share, in the fourth quarter of 2008, and net income of $3.8 million, or $0.25 income per diluted share, in the first quarter of 2008.

The first quarter of 2009 non-GAAP's net loss per share of $0.15 was at the more favorable end of the range of our outlook of $0.13 to $0.33 of loss per share.

These net income and loss per share figures reflect the one-for-three reverse stock split we affected during the second quarter of 2008.

And all past periods have been restated to reflect the revised share amounts.

Looking forward, we expect to record a GAAP net loss per share in the second quarter of 2009 of between $0.23 and $0.41 loss per share, and record non-GAAP net loss per share of between $0.14 and $0.32 loss per share.

Now let's move to the balance sheet.

Cash and marketable securities, which consist of cash and cash equivalents, as well as short- and long-term marketable securities, were $40.2 million at March 31, 2009, down approximately $23.1 million from $63.3 million at December 31, 2008.

As I mentioned, $17.8 million of this amount was used for the repurchase of debt.

At March 31, total cash continued to exceed long-term debt.

Accounts receivable net at March 31 was $4.5 million, compared with $6.1 million at December 31, 2008.

As a result of the timing of shipments in the quarter, days sales outstanding increased to 37 days at March 31, compared with 29 days at December 31.

Inventory net at March 31 was $4.2 million, down from $5 million at December 31.

We are pleased with our ongoing ability to improve inventory levels and continue to pay close attention to inventory management.

Inventory turns decreased to 5.1 times in the first quarter, compared with 7 times in the fourth quarter.

To wrap up my comments about the quarter, during Q1 we repurchased approximately 229,000 shares of Pixelworks stock under our stock repurchase program.

Since the program's inception, we have repurchased over 3.1 million shares with 2.9 million shares remaining of the -- with $2.9 million remaining of the $10 million authorized.

That concludes my comments.

We now open up the call for your questions.

(Operator Instructions).

We are showing no questions in queue at this time.

Thank you.

And we'll look forward to speaking with you again on our Q2 '09 conference call.

Thank you for your attendance.

Thank you for your participation in today's conference.

This concludes our presentation.

You may now disconnect.

Have a good day.