Pixelworks Inc (PXLW) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pixelworks fourth-quarter 2014 financial results conference call.

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

Later we will conduct a question-and-answer session and instructions will be given at that time.

(Operator Instructions) As reminder, today's conference is being recorded.

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

Please go ahead, sir.

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 fourth quarter ended December 31, 2014.

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, February 5, 2015, 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, 2013, 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 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 income and loss, net income loss per share, and these non-GAAP measures exclude stock-based compensation expense and an 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 income 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 fourth-quarter financial results and then provide our outlook for the first quarter of 2015.

Thanks, Steve.

Good afternoon, everyone, and thank you for joining us today.

2014 was an outstanding year of progress and strong growth for Pixelworks, as overall revenues came in at $61 million, up 27% year over year, driven by product revenues, which increased 44% over 2013.

It was also a key year for confirming our thesis of the growing need for video processing technology as trends driving our business accelerated and we enter 2015 with significant momentum and an exciting set of opportunities.

During the year, we completed key milestones that advanced our progress and moved the Company forward as we completed our codevelopment partnership to develop a highly integrated next-generation SoC.

We delivered initial prototype samples right on schedule and ramped a mass production version into high-volume reduction in Q3, with on-time execution.

We successfully executed and delivered on our licensing partnership engagements, which are a major validation of our innovation, technology, and expertise.

And we launched our first product line of mobile video processors targeted at laptop, ultrabooks, tablets, and smartphones, with screen sizes from 5 1/2 inches to 14.9 inches, and delivered initial silicon samples in the second half of the year.

And finally, we strengthened our Board of Directors with the addition of David Tupman, who brings extensive experience in management and advisory roles at leading consumer electronics companies.

Turning to the results for the quarter, Q4 2014 was in line with guidance, as revenues of $15 million were down sequentially, but we had outstanding product revenue growth, which increased 27% over Q4 2013.

All other non-GAAP metrics came within the range of guidance, and despite seasonality at year end, we expect to see solid double-digit growth in our core business in 2015.

Steve will review the results of the quarter and provide the outlook for Q1 2015 later in this call.

At the Consumer Electronics Show in Las Vegas this quarter, we demonstrated the range and breadth of our current and future-generation technology across large and small displays, from 5 1/2 inches to large projected images.

And we introduced our True Clarity branding concept, which is our brand name for the totality of Pixelworks' display technology enhancements, such as smooth motion video, daylight viewing, and color accuracy as it applies across all screens.

What is remarkable is that True Clarity brings out the fullest capabilities of the display.

This means that every display can now deliver its optimum performance in order to show whatever is on the screen to its best advantage and provide the best visual user experience.

Next-generation displays are requiring innovative video solutions as companies begin to recognize the importance of the visual experience to the differentiation and positioning of their products.

And as products merge and become not only productivity devices, but content consumption devices as well, True Clarity provides a framework for positioning their product.

At the show, we also demonstrated the power and capability of Pixelworks' technology for all displays across our product lines, from VueMagic collaboration applications running on Topaz chip-based projectors to Iris mobile video processor silicon running on Intel and QUALCOMM platforms.

Iris brings the cinematic experience of large screens to mobile screens, while enhancing system performance and lowering power consumption.

Iris represents several years of research to leverage Pixelworks' technology for large-screen applications to create the best video quality in smaller mobile displays and our first product includes the full array of advanced video processing techniques.

Iris technology not only optimizes all aspects of the display that affect video quality, but it also works at the system level, improving battery life and freeing up valuable system resources to create the optimal viewing experience.

The PX-3883 is the first device in the product line of Iris chips on our roadmap based on our video display processing technology and we have an aggressive roadmap that will expand the Iris product line in the first half of 2015.

We will be previewing our next-generation Iris technology at the upcoming Mobile World Congress Conference in Barcelona later this quarter.

The value propositions of Iris are resonating with customers and partners alike.

Interest in Iris in our customer base and partner ecosystem has never been stronger.

And we are seeing design when traction at new and existing customers as well as a wide range of licensing opportunities for Pixelworks video technology.

Increasing mobile video consumption is a key driving factor of the need for next-generation video solutions, as customers increasingly view their content on their ultrabooks, tablets, and smartphones.

China in particular is an explosive opportunity for mobile video, as China smartphone users are expected to exceed 700 million in 2018 and video is expected to reach 50% of mobile traffic by 2019.

Another driving factor is the ongoing progress in new display technology, as the industry accelerates advancements with no end in sight.

The entire video ecosystem will upgrade to 4K resolutions in the coming years.

And we are just at the beginning of a multiyear transition to more capable displays across all screens.

Delivering great video quality is an art as well as a science and it takes many years to develop the expertise necessary to provide solutions that are tested by the industry's most demanding customers.

Leveraging a portfolio of 130 patents and over 15 years of TV industry experience in the marketplace solving the most difficult video problems, we have now brought that expertise and innovation to mobile screens as well.

In our large screen projected and panel display applications, at CES, we shared our latest VueMagic connectivity application running on VueMagic Mate and projectors based on Topaz chips that allow up to four devices to connect and share their displays with a projector.

Unlike traditional screen-sharing solutions such as Mirrorcast, VueMagic allows interaction and collaboration with the content.

And during the quarter, we announced that BenQ licensed VueMagic for their QPresenter line of projectors.

BenQ reviewed all solutions and VueMagic was adopted due to its multiscreen and annotate features that make it easy to interact with content, making it ideally suited for education and collaborative meetings.

During the quarter, we also delivered high-volume production of the advanced SoC we developed under our codevelopment partnership and expect this project to continue to ramp into 2015 and drive year-on-year growth in our overall product business for large-screen applications.

Design win momentum remains strong and we continue to see outstanding adoption for our Topaz family of SoCs for projectors.

And we continue to see opportunities across our families of video coprocessors for rough large-screen panels, as 4K applications broaden out to include monitor, digital signage, and projected displays in addition to large-screen TVs.

In summary, 2014 was a great year of growth, driven by product revenues, which were up 44%, and overall revenues that increased 27% over 2013.

Q4 was a solid quarter of product growth, increasing 27% year over year and we expect to see solid double-digit growth in our core business in 2015.

During the quarter, we shipped high-volume production of the advanced SoC for large screen applications we developed under our codevelopment partnership.

And we will be demoing our current and latest technology and products for mobile displays at the upcoming Mobile World Congress Conference later this quarter.

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

Thank you, Bruce.

Revenue for the fourth quarter of 2014 was $15.1 million, which compares with $17.1 million in the prior quarter.

Q4 total revenue was flat compared with total revenue from the fourth quarter of 2013, but revenue from chip sales was up 27% compared with the prior-year quarter.

The split of our fourth-quarter chip revenue by market was 89% digital projection, 11% TV and panel.

Digital projection revenue was $13.4 million compared to $14.9 million in the third quarter and revenue from TV and panel totaled $1.6 million in the fourth quarter compared to $2.2 million in the prior quarter.

Sequential revenues declined due to seasonality and inventory adjustments in our customer base.

Licensing revenue was approximately $200,000 in the fourth quarter compared to a negligible contribution in the prior quarter.

And we continue to expect the recognition of licensing revenue to be lumpy in future quarters.

Non-GAAP gross profit margin was 50.3% in the fourth quarter compared to 50.4% in the third quarter.

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

Non-GAAP operating expenses were $8.8 million in the fourth quarter compared to $9.3 million in the prior quarter.

Adjusted EBITDA was a negative $137,000 in the fourth quarter compared to positive $423,000 in the third quarter.

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

On a non-GAAP basis, we recorded a net loss of $1.4 million or a loss of $0.06 per share in the fourth quarter of 2014 as compared to a non-GAAP net loss of $950,000 or loss of $0.04 per share in the prior quarter.

Moving to the balance sheet, we ended the fourth quarter with cash and cash equivalents of approximately $17.9 million compared to $19.3 million at the end of the third quarter.

The Company has no long-term debt and similar to previous quarters, the Company had a balance of $3 million on its working capital line of credit.

Other balance sheet metrics include days sales outstanding of 28 days at quarter end compared to 32 days at the end of the third quarter and inventory turns ticked up just to over 13 times from approximately 12 times last quarter.

Guidance -- for the first quarter of 2015, we expect revenue to be in a range of between $14 million and $16 million.

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

In terms of operating expenses, we expect the first quarter to range between $8.5 million and $9.5 million on a non-GAAP basis and $9.5 million and $10.5 million on a GAAP basis.

And finally, we expect non-GAAP first-quarter net loss of between $0.03 and $0.13 per share and we expect a GAAP net loss of between $0.08 and $0.18 per share.

This concludes my comments.

We will now open the call for your questions.

(Operator Instructions) Charlie Anderson, Dougherty & Company.

I wanted to start maybe with the core business.

I'm wondering what you are implying between projection and TV and panel in Q1?

TV and panel has been a little bit of a drag on your growth rate the last couple quarters.

What are your expectations the rest of the year in that portion of the business?

Well, we expect it to continue to contribute, but we don't see it as a growth driver in 2015.

And then in terms of the projection business, I wonder if you could give us any sort of rough sense of -- you said double-digit growth.

I wonder if you could go maybe beyond that on the year at all.

I think we are comfortable saying double-digit growth in the core business, which we would classify as large panel and projection.

And that's a yearly outlook.

We only guide one quarter out, so -- but overall, we see growth north of double digits -- I mean, double-digit growth.

Perfect.

And then just to switch to mobile.

In the commentary, you talked about design win traction, licensing opportunities.

I wonder if maybe, Bruce, you could just expand on that a little bit.

Are you in the process of being qualified for anything?

Do you have a design win?

Just roughly help us with where you guys are at right now.

Sure.

So to frame this for you, last time we said in terms of adoption horizon, it could range anywhere from six to nine months all the way up to a year plus, depending on the product, depending on what type of product it is, the customer, and also what kind of platform it is.

Keep in mind that our first Iris product to market is fairly broad.

It has all the video enhancements, a wider array of video enhancements integrated into it.

And it addresses anywhere from 5 1/2 inches all the way up to I would call it 14.9 inch laptops.

So that's sort of Win-tel core platforms in the ultrabook and tablet and PC world.

And then there's a host of different providers of the platforms for the mobile world as well.

We are seeing some good early traction.

We have some early wins.

I would -- but keep in mind always the disclaimer: design wins do not necessarily result in production.

But we are very encouraged with the design win traction we are getting right now.

And with that six- to nine-month adoption horizon, if you do the math on that, we are right in there for some early traction and some early design commits.

I will say that we are pursuing designs across all segments with Iris.

And as I mentioned, you can imagine over time Iris becoming a product line and branching out for different value propositions in different market segments over time as well.

And last one from me -- the $200,000 of licensing revenue.

Could you maybe specify if that was licensing or if it was royalties and maybe what end market, perhaps?

Well, we haven't gone into a breakout of our licensing revenue.

As far as end market, it is related to a previously booked license and services contract.

So it is a combination.

Perfect.

Thank you so much.

(Operator Instructions) Krishna Shankar, ROTH Capital.

As you look at the mobile video market for Iris, would you expect revenues from the Iris product line to begin in the second half of this year?

Or can you give us some sense for how mobile revenues may ramp through the year?

Sure, Krishna.

If you do the -- look at the adoption horizons, sort of adoption and then our customers, it takes them time to get their product to market and ramp it into market -- ramp it into production.

You can do the timelines there and that's a reasonable assumption as to the timelines.

Again, we are dependent on our customers -- when we get design wins, on the timing and the ramp, and all those sorts of things, in terms of getting those products to market.

But I think that if that was to happen, that would be a reasonable assumption into how that would rollout in 2015.

So potentially maybe some revenues in second-half 2015?

I'm dating it.

Yes.

Okay.

Yes, I was just saying would that imply maybe some revenues in the second half of 2015 for the mobile Iris product line?

Yes, potentially.

Yes, we certainly think that's a reasonable goal, yes.

Okay.

And then what is the visibility on the projector business?

I know that that was a big contributor to Q4 growth.

So can you talk about the momentum and cadence of that continuing through 2015, broadening out to different platforms, other customers.

Just visibility on the projector business?

Sure.

I think what we said last quarter was we saw seasonality a little earlier than normal in a -- in sort of -- the normal pattern for that business and the large panel business as well is a seasonally weak sort of Q1.

And normally we see 10%, plus or minus, down in Q1.

I think we experienced that more in Q4, so you can see we have a flattish outlook going into Q1, whereas we normally would experience seasonality going into Q1.

I think given where the market is, it's in its normal environment.

And going into the first part of the year, which tends to be the weakest part of the year, a lot of the customers, a number of the customers in this segment are Japan-based, which has a March 31 fiscal year.

And then they tend to pick up quite a bit going into Q2 and so forth.

So that's the normal historical pattern.

As you know, history doesn't always repeat itself.

But nevertheless, that's typically what we've seen from a seasonal standpoint in this business.

I think what we are saying overall is for our overall core business, we are feeling good about double-digit growth for the full year 2015, based on the market.

And then, of course, based on the ramping of our codevelopment projects.

Okay.

And then on the TV panel, you said that that may be -- it could contribute just modestly to growth, if any, in 2015.

We are seeing some pretty good adoption in terms of price points for 4K TVs.

Can you talk about your activity in the 4K TV market and also the usage of your technology in 4K monitors, digital signage, how that's going?

Yes.

I think what we said on the call was you are starting to see 4K broaden out into projection at the very high end, monitors at the high end, some digital signage applications, those sorts of other type of applications as they are transitioning to 4K.

And we are seeing good opportunities and traction on those markets as well.

I think what we said about TV, it will be a contributor in 2015, but not especially a large growth driver.

As we mentioned, the other half of the business and our codevelopment, which is continuing to ramp throughout 2015, would be the core driver in our overall core business.

Okay.

And then my final question is on the IP licensing.

Any comments on how that might shape up through 2015, what types of -- I assume you folks continue to have different IP deals in the pipeline.

So can you give us some sense for what kind of growth you might see there and the cadence of IP licensing over the next several quarters?

That tends to be very lumpy.

And since there tend to be, some of them, strategic in nature, those are -- in terms of predicting, we don't outlook those and we don't guide to those, like in the near-term basis, as well.

So those are a little tough to predict.

I will tell you that we have a good pipeline of these opportunities.

And I think it's a testament to the growing need and torque to this technology, because we are seeing a wide range of opportunities that we are working on.

We have goals to do this in 2015, but certainly don't provide to add any kind of outlook or guidance.

Okay, thank you.

Jaeson Schmidt, Lake Street Capital.

I'm wondering if you could comment on your thoughts on current channel inventory, both in the projector market and then the TV market as well.

Well, for our products, certainly, we've seen some overbuilding in both of those products in Q3.

And that has continued to be worked down in Q4 and through Q1.

So it's not across the board.

It's actually pretty spotty.

There are certain customers where that has taken place and other customers which have had a more normal, a more steady order pattern.

But we have certainly seen it in a couple of customers in both of the TV and projection markets.

Okay.

And given the number of opportunities it seems you guys have in front of you, how should we look at OpEx ramping this year?

And could you remind me what your breakeven revenue run rate is?

Sure.

OpEx year over year will be up by inflation in compensation.

We are not adding headcount in any meaningful way within the company.

And our development program is similar to our 2014 development program.

So it would be comparable, but somewhat up because of inflation.

Breakeven on a operating income basis is approximately $17.5 million to $18.5 million, in that range, depending on, again, what is happening in a given quarter for development expenses.

Okay, great.

Thanks, guys.

I am showing no further questions.

I would now like to turn the call back over to management for any closing remarks.

Thanks, everyone, for joining us today.

And we will look forward to talking to you at our next conference call for our Q1 2015 results.

And if you are going to Mobile World Congress, please stop by and see some of our demos.

Thank you.

Ladies and gentlemen, that does conclude the conference for today.

Again, thank you for your participation.

You may all disconnect.

Have a good day.