Pixelworks Inc (PXLW) 2012 Q1 法說會逐字稿

(Inaudible) Pixelworks Incorporated first-quarter 2012 financial results conference call.

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

At the conclusion of today's conference call, instructions will be given for the question-and-answer session.

(Operator Instructions) As a reminder this conference call is being recorded today, Thursday, April 19, 2012.

I would now like to turn the conference over to Mr.

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 first quarter ended March 31, 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, April 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 and net loss per share.

These non-GAAP measures exclude stock-based compensation expense, gain on sale of patents, gain on sales 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 and 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 first-quarter financial results and discuss our outlook for the second quarter of 2012.

Thanks, Steve.

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

Let me start out by making a few comments and observations about our first-quarter 2012, and then Steve will follow with more details on our financial results and our outlook for Q2.

Q1 came in at $14.3 million, which was above the range of guidance we outlooked on our Q4 2011 conference call.

This above-the-range performance was driven by the recognition of the license of our video of technology for the TV market during the quarter.

This is a positive validation of Pixelworks' leadership in video.

Overall TV panel products came in at 28% of revenues, and were down sequentially but up 59% year-over-year, reflecting the license mentioned above.

Projector products came in at 56% of revenues and were down sequentially and year-over-year, reflecting the worse-than-normal seasonality combined with supply chain disruptions due to the flood in Thailand.

Overall, book-to-bill was greater than one, reflecting improving order patterns as customers recovered from the effects of the flood and the industry-wide inventory correction.

Gross margin came in above the range of guidance at 55.7%, and combined with low end of the range operating expenses resulted in positive EBITDA for the quarter.

On the product front, in our TV panel product line, we continued to ramp and ship our PA136 series products, which continued to experience [good design] with traction, as well as the PA138, which is targeted for advanced high-end systems in [assigning] traction in the first wave of 4k x 2k ultra-definition systems.

Most importantly, we demonstrated the performance and technology of our next-generation PA168 to tier 1 customers, which was well received.

Early next quarter we will sample the PA168, which is targeted for high-resolution TVs, monitors, panels and projectors, and positions Pixelworks in a leadership position at the high end of the market.

PA168 is our six-generation device with industry-leading halo free MEMC performance and it integrates scaling and frame rate conversion in an expandable architecture to address future needs for higher refresh rates and higher resolutions.

And it provides full support for all major 3D formats, significantly improved 2D to 3D conversion performance and support for multi-view capabilities, which enables emerging glasses-free 3D TVs.

Also during the quarter, we closed a significant license for our advanced video technology, which combined with our penetration of the top-tier customer base, confirms Pixelworks' leading position in providing innovative solutions in video processing technology to the market.

In our digital projection product line, we ramped the first member of the Topaz platform into volume production, the PWC868, which is the 2D networking version of the Topaz family.

This will be followed into production in the current quarter by the PWC878, which is the industry's first cost-effective 3D display processor that is designed for the business, education, and mainstream home theater projector markets.

The Topaz family of products covers the full range of the projector market from entry-level 2D education and business projectors to high-end 3D home theater systems.

This quarter we introduced the Topaz light version for the sub-$500 segment of the projector market, as well as released the next version of our software suite, which enabled the advanced features of the Topaz platform.

Design win momentum continues to be strong for this product, and during the quarter, we received design commitments from tier 1 customers.

In closing, as expected, Q1 was a difficult quarter, as we dealt with the factors of seasonality and industry-wide inventory correction and the aftereffects of the flood in Thailand.

Although, despite these headwinds, we were able to exceed our guidance.

We experienced good design win traction for our PA136 and PA138, in the first wave of 4k x 2k ultra- definition TVs, and we ramped the Topaz PWC868 into volume production, as well as introduced Topaz light for the sub-$500 projector market.

And lastly, we closed a significant license for our advanced video technology, which combined with our penetration of top-tier customer base, confirms Pixelworks' leading technology position in video.

Now I'd like to turn the call over to Steve to review the financial details of the quarter and our outlook for Q2 2012.

Thank you, Bruce.

Revenue in the first quarter of 2012 was $14.3 million, compared to $16.8 million in the fourth quarter of 2011, and $14.7 million in the year-ago quarter.

Revenue declined sequentially, primarily due to expected weaker demand in both the digital projection and advanced TV markets.

The split of our first-quarter revenue by market was 56% digital projection, 28% TV panel, 16% embedded video display.

As Bruce mentioned, during the quarter, we signed a licensing agreement for our current generation advanced video technology.

Our achievement of the first milestone of that agreement generated approximately $2 million of licensing revenue during the first quarter, which is included in our TV market category.

Digital projection revenue, which includes sales targeted at the advanced digital projection market, was down sequentially to approximately $8.1 million in the first quarter as a result of the previously-mentioned inventory correction, coupled with typical seasonality.

TV panel revenue, which includes sales targeted at the large-screen, flat-panel display market, declined to $4 million in Q1.

Revenue was down sequentially in our advanced TV product line, due primarily to a seasonal decrease in demand.

Embedded video display revenue in Q1 was approximately $2.2 million.

Non-GAAP gross profit margin was 55.7% in the first quarter, compared to 48% in the previous quarter and 45.5% in the first quarter of 2011.

The sequential increase in gross margin was primarily the result of licensing revenue recognized during the quarter, as well as a shift in product mix.

Pixelworks' gross margin is subject to variability based on changes in revenue levels, recognition of license revenue, product mix, start-up costs, and the timing and execution of manufacturing ramps, as well as other factors.

Non-GAAP operating expenses were $8.6 million in the first quarter, compared to $9 million in Q4 and $9.4 million in Q1 2011.

Our operating expense levels continue to reflect our commitment to prudent expense management and will continue to vary based on the timing of future development activities.

Adjusted EBITDA was a positive $503,000 in Q1, a sequential improvement compared to $368,000 in the fourth quarter of 2011.

The reconciliation of adjusted EBITDA to GAAP net loss may be found in today's press release.

On the non-GAAP basis, we recorded a net loss of $148,000 or $0.01 loss per share in the first quarter.

This compares with a net loss in Q4 2011 of $1.3 million, or $0.07 loss per share, and non-GAAP net loss of $2.8 million, or $0.20 loss per share in the first quarter of 2011.

Moving to the balance sheet, cash and marketable securities ended the quarter at approximately $11.6 million versus $15.1 million at December 31, 2011.

Cash (inaudible) in Q1 as revenue growth through the quarter created working capital needs.

A quarter end -- at quarter end the Company had no long-term debt and a zero balance on its short-term line of credit.

Other balance sheet metrics include day sales outstanding, which increased to 42 days at March 31 compared to 24 days at December 31, primarily as the result of certain revenues being recognized later in the quarter.

Inventory turns were seven times in Q1 compared to eight times at year end.

For guidance, for the second quarter of 2012 we expect revenue to be in the range of $14 million to $16 million.

We expect gross profit margin for Q2 to range between 48% to 50% on a non-GAAP basis and 47% to 49% on a GAAP basis.

We expect operating expenses in the second quarter to range between $8.5 million and $9.5 million on a non-GAAP basis and $9 million to $10 million on a GAAP basis.

And finally, we expect non-GAAP second-quarter 2012 results of between a net loss of $0.04 and $0.18 per share, and on a GAAP of basis we expect a net loss per share of between $0.08 and $0.22.

That concludes my comments.

We will now open the call for your questions.

(Operator Instructions) And your first question's from the line of Krishna Shankar of Roth Capital.

Please go ahead.

Yes, congratulations on the improving financial metrics and design win momentum.

A couple of questions.

Can you talk about the ramp that we should expect for the PA168 and also what you see in terms of advanced TV demand going into Q2 with this projector?

Thanks, Krishna.

So I think on -- we just mentioned that we will sampling the PA168 early next quarter, and so given design cycles and so forth, it's a very late 2012 volume product and more impacting 2013 in a higher volume sense.

I think -- just commentary on projector and TV, I think like a lot of other chip companies we see Q1 as the trough and so I think we see improvement in both of those product categories.

So for the second half of this year, really, in terms of the TV market PA136 and 138 will be the mainstream revenue drivers and in projector will it be --?

Yes.

Go ahead.

Yes.

And we still are shipping 131 and 132's, as well.

Okay.

And then can you elaborate a little bit on the nature of this IP licensing agreement?

Even if you can't name the customer, the type of relationship and whether there might be more of these IP licensing deals going forward?

Sure.

This is a technology license for, as Steve mentioned, our current generation TV technology, sort of what is shipping in high volume today.

Just to characterize this aspect of our business, it more comes in the form of a deeper relationship with partners and customers.

It is a component of our offering.

It's not like maybe [ARM], who sells IP licenses and markets IP products, it comes in the context of a partnership or a closer relationship with a customer.

We're not going to -- we're not at liberty to say who it was and I think that we will see that as a component of our business.

And actually it's been a component of the business in the past off and on, but we'll see that as a component of our business going forward.

So this customer presumably would license this for -- your current mainstream technology for high-volume products, but they would still engage with you on something like the 168 as a standalone chip for future products?

I won't narrow it down, but I could -- is exactly the more detail on this relationship, but in describing the potential relationship, yes, that is sort of the way it works and so this technology license, which is non-exclusive, by the way, this possibly would be used internally or integrated or that sort of use for the technology.

Great, thank you.

Thanks.

(Operator Instructions) Okay, we have a follow up from the line of Krishna Shankar with Roth Capital.

Please go ahead.

Yes, Steve, as you look to ramp revenues for the rest of this year, can you talk about the use of cash and how the balance sheet will be impacted in terms of billing, inventory and so on over the next couple of quarters?

Sure.

Clearly, in Q1, the use of cash was impacted by the timing of the revenues and the timing of the IP revenue that we talked about.

We certainly believe we have sufficient capital cash to handle are working capital needs.

I honestly don't expect to see any continued growth in working capital or receivables or inventory through the year and expect these levels to be either flat or down later in the year.

Okay.

And Bruce, also, can you talk a little bit about the competitive environment out there?

It seems like you folks have clearly moved to leadership and the high end of both the TV and projector market.

You're seeing more consolidation in the competitive landscape, can you just talk about happening out there?

Yes.

As you mentioned we've seen quite about bit of consolidation, sort of our historic head-to-head competitors.

I think that I'll never -- there's always -- semiconductors are a competitive business so there's always competition at some level, but I think I would say mostly right now it tends to be internal.

A lot of -- we're engaged with most of the Tier 1's in the industry on both fronts and historically they've had a lot of internal efforts.

A lot of these companies chip divisions, as well, and do some of their own products.

We are seeing a continuing trend towards what I might call out-sourcing, but I think maybe less investment in the chip side, particularly, especially on the TV side given the lack of profitability and the difficulties the industry's been going through, which has presenting us opportunities as the technology leader for hopefully more relationships and more deeper relationships with our customers and our partners.

So I would think that competitive landscape's pretty much the same as we talked last time.

It is -- it has changed quite bit, but we're always vigilant and focused and always expect to have tough competition.

Thank you.

And that'll conclude the Q&A section portion of our call and I'd like to turn it back over to management for closing.

Well, thank you for joining us today and we'll look forward to updating you on our Q2 2012 conference call coming up later in July.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for joining us.

You may now disconnect.

Everyone have a great day.