GlobeNewswire Inc | Aug 10, 2020 04:05PM EDT

August 10, 2020

Announces Restructuring to Reduce Operating Expenses by $3.2 Million Annually

Anticipates Additional Smartphone Wins to Drive Mobile Revenue Growth in Second Half

SAN JOSE, Calif., Aug. 10, 2020 (GLOBE NEWSWIRE) -- Pixelworks, Inc. (NASDAQ: PXLW), a leading provider of innovative video and display processing solutions, today announced financial results for the second quarter ended June 30, 2020.

Second Quarter and Recent Highlights

-- Mobile revenue for the first half of 2020 grew 24% year-over-year, driven by increased shipments of Iris visual processing solutions in support of 12 smartphones launched across six OEM customers -- GAAP gross margin expanded to 54.6% and non-GAAP gross margin increased to 59.2%, reflecting a combination of ongoing product cost reduction initiates and a favorable product mix -- Restructuring plan implemented in August to further reduce operating expenses and minimize cash used from operations, while focusing resources on Mobile growth initiatives -- ASUS ROG Phone 3 leverages Pixelworks patented high-efficiency color calibration, HDR tone mapping and brightness smoothing features to deliver an exceptional visual experience to mobile gamers -- Black Shark incorporated Pixelworks 5th generation visual processor with dual-channel MIPI support and color calibration software in the latest cutting-edge gaming smartphone, the Tencent Black Shark 3S -- Continued to advance TrueCut platform initiatives in North America with expanded Hollywood presence and newly opened office in Burbank, California and installation of on-premises TrueCut evaluation tools -- Completed successful tape-out of 6th generation Iris visual processor for mobile in advance of planned product introduction during the second half of 2020 -- Ended the quarter with $21.4 million in cash and short-term investments

President and CEO of Pixelworks, Todd DeBonis, commented, Our second quarter results reflected the broad economic impact from the COVID-19 pandemic on all of our target end markets. While our team has continued to do an excellent job of operating effectively in the current environment, the pandemic has significantly impacted customer demand and our business in the Projector and Video Delivery markets. As a result of this negative impact, we have implemented a restructuring to further reduce operating expenses, preserve cash and focus available resources on the largest growth opportunities of our business. We anticipate these actions will generate an incremental $3.2 million in annualized cost savings, while minimizing the impact on our ability to fully support Pixelworks customers and advance our new product development.

Despite the current challenging business environment, we have maintained our market-leading position in our respective target end markets, and weve continued to execute on our Mobile and TrueCut growth initiatives. In 2020, Pixelworks Iris visual processing solutions have been incorporated in 12 smartphones launched across six different OEM customers. We have also sustained a solid pipeline of new programs and are well positioned to build on our momentum in the second half of the year as customers continue to incorporate more advanced displays and premium viewing experiences, including HDR, higher frame rates and auto-adaptive visual enhancements, in conjunction with their introductions of new 5G-enabled smartphones.

Second Quarter 2020 Financial Results

Revenue in the second quarter of 2020 was $9.3 million, compared to $13.8 million in the first quarter of 2020 and revenue of $18.0 million in the second quarter of 2019. The sequential and year-over-year decline in revenue reflected an ongoing inventory correction in the Projector and Video Delivery market, compounded by significantly lower customer demand due to the negative impacts of the COVID-19 pandemic across each of the Companys target end markets.

On a GAAP basis, gross profit margin in the second quarter of 2020 was 54.6%, compared to 49.2% in the first quarter of 2020 and 52.0% in the second quarter of 2019. Second quarter 2020 GAAP operating expenses were $11.5 million, compared to operating expenses of $12.1 million in the first quarter of 2020 and $11.7 million in the year-ago quarter.

For the second quarter of 2020, the Company recorded a GAAP net loss of $6.6 million, or ($0.17) per share, compared to a GAAP net loss of $5.4 million, or ($0.14) per share, in the first quarter of 2020 and a GAAP net loss of $2.4 million, or ($0.06) per share, in the year-ago quarter.

On a non-GAAP basis, second quarter 2020 gross profit margin was 59.2%, compared to 52.1% in the first quarter of 2020 and 54.1% in the year-ago quarter. Second quarter 2020 non-GAAP operating expenses were $9.3 million, compared to $9.7 million in the first quarter of 2020 and $9.6 million in the year-ago quarter.

For the second quarter of 2020, the Company recorded a non-GAAP net loss of $3.9 million, or ($0.10) per share, compared to a non-GAAP net loss of $2.6 million, or ($0.07) per share, in the first quarter of 2020 and a non-GAAP net loss of $97,000, or ($0.00) per share, in the second quarter of 2019.

Adjusted EBITDA in the second quarter of 2020 was a negative $2.9 million, compared to a negative $1.5 million in the first quarter of 2020 and a positive $1.0 million in the year-ago quarter.

Cash and cash equivalents and short-term investments increased to $21.4 million in the current quarter from $20.4 million in the first quarter of 2020.

Business Outlook

The Companys current business outlook, including guidance for the third quarter of 2020, will be provided as part of the scheduled conference call.

Conference Call Information

Pixelworks will host a conference call today, August 10, 2020, at 2:00 p.m. Pacific Time, which can be accessed by calling 1-877-359-9508 and using passcode 7672736. A live audio webcast of the call can also be accessed by visiting the Company's investor page at www.pixelworks.com. For those unable to listen to the live webcast, it will be archived for approximately 90 days. A replay of the conference call will also be available through Monday, August 17, 2020, and can be accessed by calling 1-855-859-2056 and using passcode 7672736.

About Pixelworks, Inc.

Pixelworks provides industry-leading content creation, video delivery and display processing solutions and technology that enable highly authentic viewing experiences with superior visual quality, across all screens from cinema to smartphone and beyond. The Company has a 20-year history of delivering image processing innovation to leading providers of consumer electronics, professional displays and video streaming services. Pixelworks is headquartered in San Jose, CA. For more information, please visit the companys web site at www.pixelworks.com.

Note: Pixelworks and the Pixelworks logo are registered trademarks of Pixelworks, Inc.

Non-GAAP Financial MeasuresThis earnings release makes reference to non-GAAP gross profit margins, non-GAAP operating expenses, non-GAAP net loss and non-GAAP net loss per share, which exclude gain on sale of patents, inventory step-up and backlog amortization, amortization of acquired intangible assets, stock-based compensation expense, and restructuring expenses, which are all required under GAAP as well as the tax effect of the non-GAAP adjustments. The press release also makes reference to and reconciles GAAP net loss and adjusted EBITDA, which Pixelworks defines as GAAP net loss before interest income and other, net, income tax provision , depreciation and amortization, as well as the specific items listed above.

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 managements review of the comparability of our core operating results on a period to period basis.

Because the Companys 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 Companys 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 StatementThis 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 Companys 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 the business outlook and current market environment and the impact of the COVID-19 pandemic on the same. 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 expanding 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; our ability to attract and retain key personnel; and the impact of the COVID-19 pandemic on our business and on our suppliers and customers. 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, 2019 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 Six Months Ended June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019 Revenue, net $ 9,253 $ 13,774 $ 18,027 $ 23,027 $ 34,675 Cost of revenue 4,204 6,999 8,651 11,203 16,827 (1)Gross profit 5,049 6,775 9,376 11,824 17,848 Operating expenses:Research and 6,314 6,267 6,364 12,581 12,836 development (2)Selling,general and 5,156 5,193 4,935 10,349 10,395 administrative(3)Restructuring - 592 398 592 398 Total operating 11,470 12,052 11,697 23,522 23,629 expensesLoss from (6,421 ) (5,277 ) (2,321 ) (11,698 ) (5,781 )operationsInterest income(expense) and (24 ) 54 104 30 200 other, netGain on sale of - - - - 3,905 patentsTotal otherincome (24 ) 54 104 30 4,105 (expense), netLoss before (6,445 ) (5,223 ) (2,217 ) (11,668 ) (1,676 )income taxesProvision for 107 176 231 283 639 income taxesNet loss $ (6,552 ) $ (5,399 ) $ (2,448 ) $ (11,951 ) $ (2,315 )Net loss pershare - basic $ (0.17 ) $ (0.14 ) $ (0.06 ) (0.31 ) (0.06 )and dilutedWeightedaverage sharesoutstanding - 39,444 38,868 37,688 39,156 37,469 basic anddiluted?????? (1) Includes: Amortization ofacquired 298 298 298 596 596 intangibleassetsStock-based 127 101 83 228 178 compensationInventorystep-up and - - - - 12 backlogamortization(2) Includesstock-based 806 648 703 1,454 1,364 compensation(3) Includes: Stock-based 1,310 1,073 879 2,383 1,812 compensationAmortization ofacquired 76 76 76 152 160 intangibleassets

PIXELWORKS, INC.RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *(In thousands, except per share data)(Unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019 Reconciliationof GAAP and non-GAAP grossprofitGAAP gross $ 5,049 $ 6,775 $ 9,376 $ 11,824 $ 17,848 profitAmortization ofacquired 298 298 298 596 596 intangibleassetsStock-based 127 101 83 228 178 compensationInventorystep-up and - - - - 12 backlogamortizationTotalreconciling 425 399 381 824 786 items includedin gross profitNon-GAAP gross $ 5,474 $ 7,174 $ 9,757 $ 12,648 $ 18,634 profitNon-GAAP gross 59.2 % 52.1 % 54.1 % 54.9 % 53.7 %profit margin Reconciliationof GAAP andnon-GAAP operatingexpensesGAAP operating $ 11,470 $ 12,052 $ 11,697 $ 23,522 $ 23,629 expensesReconcilingitem included in research anddevelopment:Stock-based 806 648 703 1,454 1,364 compensationReconcilingitems includedin selling, general andadministrative:Stock-based 1,310 1,073 879 2,383 1,812 compensationAmortization ofacquired 76 76 76 152 160 intangibleassetsRestructuring - 592 398 592 398 Totalreconcilingitems included 2,192 2,389 2,056 4,581 3,734 in operatingexpensesNon-GAAPoperating $ 9,278 $ 9,663 $ 9,641 $ 18,941 $ 19,895 expenses Reconciliationof GAAP and non-GAAP netlossGAAP net loss $ (6,552 ) $ (5,399 ) $ (2,448 ) $ (11,951 ) $ (2,315 )Reconcilingitems included 425 399 381 824 786 in gross profitReconcilingitems included 2,192 2,389 2,056 4,581 3,734 in operatingexpensesReconcilingitems included - - - - (3,905 )in total otherincome, netTax effect ofnon-GAAP 18 (25 ) (86 ) (7 ) 133 adjustmentsNon-GAAP net $ (3,917 ) $ (2,636 ) $ (97 ) $ (6,553 ) $ (1,567 )loss Non-GAAP netloss per share $ (0.10 ) $ (0.07 ) $ (0.00 ) $ (0.17 ) $ (0.04 )- basic anddiluted Non-GAAPweightedaverage shares 39,444 38,868 37,688 39,156 37,469 outstanding -basic anddiluted *Set forth above are reconciliations of the non-GAAP financial measure to themost directly comparable GAAP financial measure. The non-GAAP financial measuredisclosed by the company has limitations and should not be considered asubstitute for, or superior to, the financial measure prepared in accordancewith GAAP, and the reconciliations from GAAP to Non-GAAP actuals should becarefully evaluated. Please refer to "Non-GAAP Financial Measures? in thisdocument for an explanation of the adjustments made to the comparable GAAPmeasures, the ways management uses the non-GAAP measures, and the reasons whymanagement believes the non-GAAP measures provide useful information forinvestors.

PIXELWORKS, INC.RECONCILIATION OF GAAP AND NON-GAAP EARNINGS PER SHARE *(Figures may not sum due to rounding)(Unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019 Dollars per share Dollars per share Dollars per share Dollars per share Dollars per share Basic Diluted Basic Diluted Basic Diluted Basic Diluted Basic DilutedReconciliation of GAAP and non-GAAP net lossGAAP net loss $ (0.17 ) $ (0.17 ) $ (0.14 ) $ (0.14 ) $ (0.06 ) $ (0.06 ) $ (0.31 ) $ (0.31 ) $ (0.06 ) $ (0.06 )Reconciling items included 0.01 0.01 0.01 0.01 0.01 0.01 0.02 0.02 0.02 0.02 in gross profitReconciling items included 0.06 0.06 0.06 0.06 0.05 0.05 0.12 0.12 0.10 0.10 in operating expensesReconciling items included - - - - - - - - (0.10 ) (0.10 )in total other income, netTax effect of non-GAAP 0.00 0.00 (0.00 ) (0.00 ) (0.00 ) (0.00 ) (0.00 ) (0.00 ) 0.00 0.00 adjustmentsNon-GAAP net loss $ (0.10 ) $ (0.10 ) $ (0.07 ) $ (0.07 ) $ (0.00 ) $ (0.00 ) $ (0.17 ) $ (0.17 ) $ (0.04 ) $ (0.04 ) *Set forth above are reconciliations of the non-GAAP financial measure to themost directly comparable GAAP financial measure. The non-GAAP financial measuredisclosed by the company has limitations and should not be considered asubstitute for, or superior to, the financial measure prepared in accordancewith GAAP, and the reconciliations from GAAP to Non-GAAP actuals should becarefully evaluated. Please refer to "Non-GAAP Financial Measures? in thisdocument for an explanation of the adjustments made to the comparable GAAPmeasures, the ways management uses the non-GAAP measures, and the reasons whymanagement believes the non-GAAP measures provide useful information forinvestors.

PIXELWORKS, INC.RECONCILIATION OF GAAP AND NON-GAAP GROSS PROFIT MARGIN *(Figures may not sum due to rounding)(Unaudited)

Three Months Ended Six Months Ended June March June June June 30, 31, 30, 30, 30, 2020 2020 2019 2020 2019Reconciliation of GAAP and non-GAAP gross profit marginGAAP gross profit margin 54.6 % 49.2 % 52.0 % 51.3 % 51.5 %Amortization of acquired 3.2 % 2.2 % 1.7 % 2.6 % 1.7 %intangible assetsStock-based compensation 1.4 % 0.7 % 0.5 % 1.0 % 0.5 %Inventory step-up and backlog - % - % - % - % 0.0 %amortizationTotal reconciling items 4.6 % 2.9 % 2.1 % 3.6 % 2.3 %included in gross profitNon-GAAP gross profit margin 59.2 % 52.1 % 54.1 % 54.9 % 53.7 % *Set forth above are reconciliations of the non-GAAP financial measure to themost directly comparable GAAP financial measure. The non-GAAP financial measuredisclosed by the company has limitations and should not be considered asubstitute for, or superior to, the financial measure prepared in accordancewith GAAP, and the reconciliations from GAAP to Non-GAAP actuals should becarefully evaluated. Please refer to "Non-GAAP Financial Measures? in thisdocument for an explanation of the adjustments made to the comparable GAAPmeasures, the ways management uses the non-GAAP measures, and the reasons whymanagement believes the non-GAAP measures provide useful information forinvestors.

PIXELWORKS, INC.RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION *(In thousands)(Unaudited)

Three Months Ended Six Months Ended June 30, March 31, June 30, June 30, June 30, 2020 2020 2019 2020 2019 Reconciliationof GAAP net loss andadjusted EBITDAGAAP net loss $ (6,552 ) $ (5,399 ) $ (2,448 ) $ (11,951 ) $ (2,315 )Stock-based 2,243 1,822 1,665 4,065 3,354 compensationAmortization ofacquired 374 374 374 748 756 intangibleassetsTax effect ofnon-GAAP 18 (25 ) (86 ) (7 ) 133 adjustmentsRestructuring - 592 398 592 398 Gain on sale of - - - - (3,905 )patentsInventorystep-up and - - - - 12 backlogamortizationNon-GAAP net $ (3,917 ) $ (2,636 ) $ (97 ) $ (6,553 ) $ (1,567 )lossEBITDA adjustments:Depreciationand $ 871 $ 1,022 $ 887 $ 1,893 $ 1,800 amortizationNon-GAAPinterestexpense 24 (54 ) (104 ) (30 ) (200 )(income) andother, netNon-GAAPprovision for 89 201 317 290 506 income taxesAdjusted EBITDA $ (2,933 ) $ (1,467 ) $ 1,003 $ (4,400 ) $ 539 *Set forth above are reconciliations of the non-GAAP financial measure to themost directly comparable GAAP financial measure. The non-GAAP financial measuredisclosed by the company has limitations and should not be considered asubstitute for, or superior to, the financial measure prepared in accordancewith GAAP, and the reconciliations from GAAP to Non-GAAP actuals should becarefully evaluated. Please refer to "Non-GAAP Financial Measures? in thisdocument for an explanation of the adjustments made to the comparable GAAPmeasures, the ways management uses the non-GAAP measures, and the reasons whymanagement believes the non-GAAP measures provide useful information forinvestors.

PIXELWORKS, INC.CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands)(Unaudited) June 30, December 31, 2020 2019ASSETS Current assets: Cash and cash equivalents $ 20,417 $ 7,257Short-term marketable securities 992 6,975Accounts receivable, net 5,925 10,915Inventories 4,767 5,401Prepaid expenses and other current assets 1,783 1,689Total current assets 33,884 32,237Property and equipment, net 6,138 4,608Operating lease right of use assets 7,324 5,434Other assets, net 1,264 1,267Acquired intangible assets, net 1,955 2,704Goodwill 18,407 18,407Total assets $ 68,972 $ 64,657LIABILITIES AND SHAREHOLDERS? EQUITY Current liabilities: Accounts payable $ 1,071 $ 818Accrued liabilities and current portion of 10,972 8,692long-term liabilitiesShort-term line of credit 4,329 -Current portion of income taxes payable 219 164Total current liabilities 16,591 9,674Long-term liabilities, net of current portion 2,184 982Operating lease liabilities, net of current portion 5,470 4,212Income taxes payable, net of current portion 2,272 2,260Total liabilities 26,517 17,128Shareholders? equity 42,455 47,529Total liabilities and shareholders? equity $ 68,972 $ 64,657

Contacts:Investor ContactShelton Group Brett PerryP: +1-214-272-0070 E: bperry@sheltongroup.com

Company ContactPixelworks, Inc.Elias NaderP: +1-408-200-9271E: enader@pixelworks.com