Pixelworks Inc (PXLW) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2010 Pixelworks earnings call.

My name is Melanie, and I will be your coordinator today.

(Operator Instructions).

As a reminder, today's call is being recorded.

I would now like to turn the call over to Steve Moore.

Please proceed.

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, 2010.

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.

The 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, 2009, 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, gains on the sale of marketable securities, restructuring charges, acquisition-related items, stock-based compensation expense, and additional amortization of a noncancelable 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 Q2 results and discuss our outlook for the 2010 third quarter.

Thanks, Steve.

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

Q2 2010 was another solid performance for Pixelworks, with all financial metrics coming in in the midrange of guidance.

Revenues were up 31% year over year, coming in at the midpoint of guidance, and OpEx was up 4% sequentially, driven by R&D spending and reflecting continued investment in ramping up of new products.

Additionally, we generated positive EBITDA and added cash to the balance sheet.

We had another strong performance from new products in the quarter, coming in at 26% of revenues and driven by new programs ramping into full-volume production.

All told, new and current products accounted for 82% of revenue in the quarter, while legacy products continued to be a less significant part of our revenue stream.

In Q2, we began initial production of our new devices that were introduced last quarter -- the PA130, which is our third-generation MotionEngine device that offers support for advanced 120hz and 240hz applications, and incorporates Pixelworks' proprietary end-to-end technology, which enhances the viewing experience of Internet video; and the PWC970, which brings advanced video processing and connectivity to next-generation digital projection systems.

Both of these innovative new products are receiving excellent customer reception.

Pixelworks also had another outstanding new product introduction quarter as we delivered initial samples of several new devices.

In Q2, we introduced the PWC808 and 806 version, which offer extended connectivity and performance for the value segment of the digital projection market, and the PWC980, which offers leading video performance and connectivity for the high end of the projector market.

Both of these new products support the Pixelworks Networked Display Software Suite, which enables advanced connectivity and content sharing for the next generation of digital projection systems.

And we released the latest upgrade, Version 1.1, during the quarter.

Additionally, we received and are currently sampling the PA132, which is our fourth-generation MotionEngine device and offers robust support for 3D video systems in addition to 240hz performance and advanced LED backlight control.

The PA132 will offer unparalleled performance and video quality for next-generation advanced flat-panel and digital projection 3D systems, and it also supports Pixelworks' proprietary end-to-end technology.

Continuing the new product momentum, in the current quarter we will sample the PA131, which offers many of the features and video quality of the PA132, but provides leading price-performance for the advanced 120hz segment of the market.

We are seeing very strong customer interest for these innovative new products.

Pixelworks continues to deliver industry-leading differentiated products that play directly into a number of exciting and explosive trends.

Without exception, all of these major technology transitions are driving the need for high performance and innovation in video quality.

The most visible of these trends is the rapid transition to 3D video, which is requiring a new level of video quality and performance.

We are at the initial stages of this broad trend, which is impacting not only the TV market, but a wide variety of display markets, such as digital projection and advanced monitors, and over time will impact the entire video creation, delivery and consumption ecosystem.

DisplaySearch projects the market for 3D-capable TVs alone to increase tenfold over the next three years, increasing from 2.5 million unit this year to 27 million sets in 2013.

Also, the explosion of video content, including user-generated, combined with increasing penetration of both wired and wireless broadband access, is opening up new markets for content, requiring enhancement in bandwidth efficiency.

According to DisplaySearch, Internet connectivity has emerged as a key feature in TVs this year, and this is expected to translate into over 45 million connected TVs in 2010.

And they forecast the connected segment to reach 119 million units in 2014, accounting for 42% of all TVs shipped worldwide.

Pixelworks is bringing innovation to this market with our proprietary end-to-end technology that improves the viewing experience of Internet video.

In addition to these trends, large LCD panel performance is rapidly moving to 240hz, driven in part by 3D and has also experienced a rapid transition to LED lighting sources to improve the video quality and power consumption of LCD displays.

All of these trends are increasing the need for advanced solutions like our PA132.

In closing, Q2 2010 was another solid quarter as we ramped our recently introduced products into production and introduced several new products that address markets that are experiencing rapid growth and demanding innovation.

Our focus is to continue to build on the momentum and drive our new products to market while at the same time continuing to invest in our new product pipeline.

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

Thank you, Bruce.

Revenue in the second quarter of 2010 was $18.7 million, in the middle of the range of guidance we gave at the beginning of the quarter of $17.5 million to $19.5 million, driven by continued strong sales into the projector market.

Q2 2010 revenue increased 31% year over year from $14.2 million in the second quarter of 2009 and was flat compared with $18.7 million in the first quarter of 2010.

The split for our second-quarter revenue by market was 76% digital projection, 7% TV and panel, and 17% other.

The split for our second-quarter revenue by new, current and legacy products was 26% new, 66% current and 18% legacy.

Second-quarter digital projection revenue was approximately $14.1 million, down slightly compared with the previous quarter.

Projection revenue includes sales of our chips targeted at the advanced digital projection industry.

TV and panel revenue in Q2 was approximately $1.4 million, down from the previous quarter due to the timing of customer transitions to our new designs.

TV revenue includes sales of our chips targeted at the large-screen flat-panel display market.

Other revenue in the second quarter was approximately $3.2 million, up 24% from Q1 2010.

Other revenue includes sales of chips to other segments, including videoconferencing and monitors.

For the third quarter of 2010, we expect revenue to be in the range of $18 million to $20 million.

Looking now at gross profit margin, GAAP gross profit margin in the second quarter of 2010 was 46.3% compared with 47.7% in Q2 2009 and 46.3% in Q1 2010.

Included in cost of sales during the 2010 second quarter was $494,000 of noncash expenses primarily for the amortization of acquired intangible assets.

Excluding these non-cash expenses, non-GAAP gross profit margin was 49% in the second quarter, in the middle of the range of guidance provided.

This compares with non-GAAP gross profit margin of 52% in the second quarter of 2009 and 49.4% in Q1 2010.

We expect gross profit margin in the third quarter of 2010 to be in the range of 46% to 50% on both a GAAP and non-GAAP basis.

This range reflects the potential impact of one-time costs associated with ramping our recently introduced new products into volume production in Q3.

We expect to mitigate these costs in future quarters as these products come down the cost curve.

Pixelworks' gross margin is subject to variability based on changes in revenue levels, product mix, startup costs, timing and execution of manufacturing ramp and other factors.

Non-GAAP operating expenses were $9.3 million in the second quarter, at the low end of the range of management guidance of $9 million to $10 million, and excluded $251,000 in noncash stock-based compensation expense.

Q2 non-GAAP operating expenses were up 4% sequentially and up 21% year on year, driven by higher R&D spending and reflecting our increased investment in new products.

We expect our operating expense run rate to vary based on the timing of development activities.

For the third quarter of 2010, we expect GAAP operating expenses to be between $9.5 million and $10.5 million and non-GAAP operating expenses to be between $9 million and $10 million, reflecting continued spending on new product development.

Looking now at non-GAAP EBITDA, strong revenues and gross margins allowed us to achieve positive EBITDA of $1 million in Q2 compared with EBITDA of $1.4 million in Q1 2010.

On a non-GAAP basis, we recorded net loss in the second quarter of $438,000 or $0.03 loss per share compared to net loss of $918,000 or $0.07 loss per share in the second quarter of 2009, and net income of $5.2 million or $0.37 income per diluted share in the first quarter of 2010, which included a benefit from income taxes of $5 million.

Looking forward, in the third quarter of 2010, we expect to record a tax benefit of between $300,000 and $600,000 on both a GAAP and a non-GAAP basis.

We also expect GAAP net income loss per share in the third quarter 2010 to be between $0.07 net income and $0.15 net loss per share, and non-GAAP net income loss per share to be between $0.10 net income and $0.12 net loss per share.

Moving to the balance sheet, cash and marketable securities, which consists of cash and cash equivalents, as well as short- and long-term marketable securities were $32.9 million at June 30, 2010, up approximately $200,000 from $32.7 million at March 31, 2010.

Cash provided by operations was $3.4 million in Q2, primarily as a result of strong collections during the quarter.

Accounts receivable, net, at June 30 was $4.7 million, down $1.2 million from $5.9 million at March 31.

Days sales outstanding was 23 days at June 30 compared with 29 days at March 31.

Inventory, net, at June 30 was $5.7 million compared with $6.1 million at March 31.

Inventory turns were 6.5 times in the second quarter compared with 6.1 times in the first quarter.

That concludes my comments about the quarter.

We can now open the call for your questions.

(Operator Instructions).

I am showing no questions at this time.

Okay, well, thank you for joining our conference call today, and we'll look forward to discussing our Q3 results in October.

Thank you.

Ladies and gentlemen, thank you for your participation in today's conference.

That does conclude the presentation.

You may disconnect.

Have a wonderful day.