PXLW - Earnings call transcript Q3 2018

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Operator

Good day, ladies and gentlemen, and welcome to Pixelworks’ Third Quarter 2018 Earnings Conference Call. I will be your operator for today’s call. At this time, all participants are in a listen-only mode.

Following management’s prepared remarks, we will conduct a question-and-answer session. This conference call is being recorded for replay purposes. to call like CFO, to now Mr. would turn over the Pixelworks’ I Moore. Steve Please begin.

Steve Moore

and joining release for President XXXX. Good me you provided financial call thank afternoon for results the supplement today, call purpose today’s information Todd announcing is The company’s to on our us quarter is DeBonis, earlier CEO. the Pixelworks’ press third and in of conference issued the With today. the

a the and to events on occurring based to company’s reflect today. Thursday, or make forward-looking of facts on no we that economic actual that differ we today, results Annual Before of any cause our press XX-K These Report I this historical on various statements our forward-looking are on update for refer Please year subject that forward-looking the December factors XXXX, about made materially to from our to and differ actual SEC forward-looking undertake to to would and constitute filings may cause materially. statements. are to and results, call, of you remind this for other projected after statements begin, we and X, such XX, could like uncertainties as trends, subsequent XXXX, release, ended today’s Form competitive description statements All circumstances financial a beliefs statements those and November position, including not results. call that statements remarks future are number obligation all risks market

margin, on debt, expenses, per net loss information terms, of discount net and convertible press include step-up during fair adjustment convertible inventory amortization extinguishment value, net certain measures and and non-GAAP option acquisition expense, expenses, the income of in share. acquired debt this and cost. financial restructuring operating stock-based release backlog and adjustment, gross loss, company’s conference discussions statements amortization, deferred revenue non-GAAP fair fair loss on of accretion management’s and including GAAP convertible income These will intangible Additionally, measures and integration value assets, income and value compensation exclude conversion debt call

all these With The items internally ViXS use measures company measures these consider that a we to caution of loss remarks. our non-GAAP EBITDA, to adjusted not these the press financial our accordance as of loss, flow and the stock-based to, non-GAAP But performance. a Systems. in and opening with perspective operating believes definitions in provide assess of underlying to that and acquisition to meaningful income results these additional on related the non-GAAP provide the We I addition Todd measures will over of and integration GAAP exception are dynamics. Included to GAAP investors compensation, for substitute adjusting operating in details. for, core results income his consolidated nor superior now as company’s GAAP. net presented turn company’s to, release are to With call the net which said, reconciliations cash

Todd DeBonis

call. on afternoon Thank and to those Steve, good today’s us you, joining

and sequentially consolidated As revenue across to million, basis over the were growth margin expanding was XX% $X.XX $XX.X of reported quarter. Gross our third by to our markets. margin guidance of share reflecting improving end points at EPS with press and high XX% the three over and gross both more earnings grew in per XX.X% XXX prior quarter range, sequentially release, end today’s than up year-over-year all

a both GAAP of to were and profitable being delivering from addition non-GAAP quarter, to accretive we in In our cash ViXS generated over on flow million and basis third the $X.X earnings in we commitment operations.

demand Consistent and relatively core were was lean Customer sequential with growth significant major broadly projector market, in and the inventories across several up in spread third and starting followed quarter. business. which order reported markets end the digital our our revenue accounts remained the of mid-single-digits the quarter, each of updates trends to second patterns seasonal Turning quarter. with exiting we the channel in projector

Additionally, projector with the over large emphasize of in next nearly offset this other end resulting across during customer of our remained gradual and the intellectual this customer, agreement the to business well we remaining execution that our $X property our the solid we this place development recognition project, which XXXX portfolio the quarter. as of for final I co-development our product be customers. projector we and take R&D course production projector the milestone co-development year, customer’s development I while recently long-term team’s of sustainable million our by third to multi-year am to from of to proud expenses all of release completed on as into will transition anticipate leveraged that can across chip on their XXXX. multiple track generation want SoC new generate be

with to a revenue XX% had Turning growing delivery, sequentially. quarter video very strong we

the in primarily transcoders OEMs by our in this ramp TV strength Japan. electronic of transition expected, driven XCode broadcast advance of consumer anticipated As was the to in shipments

of combined our accretive was video previous to with actions result business streamline this to in earnings a delivery As the the third growth, the business, quarter.

incorporate go new to well as this a and are discussed a customers meaningful processors PVR the set our in December in full series consumer designed rollout Japan, to in on are quality. generation scheduled broadcast converter advanced of and standard transition the into upgrade in Japan which broadcast next boxes HDR supports expected calls, XK and terrestrial cycle. prior TV DD specific anticipated do our top transcoding boxes. This devices of is on multiple XCode family both year Pixelworks’ result SoCs broadcast well of as customer in As to programs their over-the-air decoding Pixelworks live positioned that is in of

a compatible or announced more combination those devices processors have month. In have boxes higher that of to anticipation in demand, especially utilizing converter start our broadcast full equipment top one that consumers, quality this XK set existing XCode the we’ll purchase Japanese order this box shipping view and As TVs new customers signal. of feature

market, or OTA here is The our second U.S. in delivery the broadcast primarily area focus video of in over-the-air business

As highlighted on transcoding AirTV of DVR channels OTA feature no September, functionality OTA the designed our Nuvyyo’s local In launched as by into added technology. to family watch local be customers, last home for live monthly inside DVR quarter, new and powered solutions. both users and and such subscription and existing and conference which our of required. AirTV This AirTV to with is streaming SoCs new Pixelworks recorded products Tablo new call channels’ transcoding outside the both allows continue

bandwidth our functionality for number a alternative AirTV including connected content, quality a reducing continues also DVR for technology growing device, there devices HD OTA recording market critical provides incorporate wireless on broadly, to needed to picture content. the of capacity platforms proprietary display record playback to transcoding In the storage addition to optimizing the enabling of benefits, streaming required the recorded broadcast to and the and the More the and ability access, be content. that recorded save quality video HD stream preserving

support functionality. Amazon As recently evidenced, both TiVo launched new OTA devices and that

awareness among that market increase OTA match serve as the Pixelworks’ these believe each technology, opportunity, neither validation broader devices of consumers. the we further of of the they performance helping Although of while transcoding to

Pixelworks key promote OTA to transcoding consumer educate actively is In fact, innovative streaming devices solutions. and a as pursuing OTA with for awareness of enabler ways our technology, leading

announced with leading launch we group called video the a of During collaboration and shared display initiative quarter, Pixelworks’ delivery in a innovators branding to FlexVU.

to cord-cutting initiative XXX% awareness the high growing adoption is to most simplifying experience from satellite objective collective mobile, performance traction of the and number best-in-class over-the-air of volume FlexVU consumers subscriptions, over-the-top production orders on partners by with We driven year-over-year, the increased seared of of revenue mobile solutions by demonstrated for during cord As increased consumers growing and the believe help ecosystem we and processors. cut Shifting promote OTA and the the the and Pixelworks sequentially Iris select enhancing the traditional our XX% quarter notable cable and video consumers. will benefit solutions. seamless and

consecutive three smartphones. we delivered of mobile. growth our on small QX fourth we’ve launched is building still wins base, trend the from Since a revenue significant call, Although relatively quarter announced conference newly as our in

X Then, XXX Generation Processor, motion first motion Pixelworks’ ZTE smartphone, Iris smartphone process featuring Pixelworks’ industry-leading or with to launched First Axon incorporate in estimation October, Xrd Qualcomm becoming Pro Iris technology. Generation the launched Nokia Nokia together September, in incorporating compensation our MEMC X.X, Xth Apps its the Processor Processor.

processing targeted unit potential More opportunity priced serves the as certified incorporated it by specifically, global mobile addition Helo, of SDR smartphones. into fully that the Shark addressable in the technology, technology incorporates avid the the latest Xiaomi announced while mid-tier Amazon. effectively our most is Gen our smartphone. had the of X.X Black HDR X.X as flagship the this In enabled for Expanded Nokia for Most Iris join to exclusive technology, being Black a Iris X.X a Conservatively, mid-tier positioned notably, validation that devices HDR previously Xrd Most the commercial Pixelworks’ leveraging about that doubles Nokia display segment. are Shark Processor SAM the Pixelworks’ Generation recently and market we flagship of advanced list Xth quality gamers. their to to smartphone

and value is smartphone video on Following our to received choose SDR Generation significant previously to is mode, our Unique proposition capability processor to again we recently gaming engineering HDR the a to offer time provide proprietary generation Pixelworks now mobile their features Generation customers. available extensive on phone, for newest Xrd demand in Generation. Black processing technology our Shark adds decision testament as the always offered Pixelworks’ advanced as expanded our product we Shark’s the of conversion the that notoriety technology capability support which enables HDR Iris. real inaugural only the image Xrd and Xth with Black to This Helo and its well a

expansion growing wins interest display processing Our materializing technology, and in increased number industry-leading announced is which the customer of Pixelworks is pipeline. in our driving quality of

opportunities proof with mid-tier the increasingly serving of part success. our on targeted smartphones point our of first targeted as Nokia we X.X As initial approach, more are sales pursuing the

Carson spearheading quarter Mobile. product the Qualcomm. prominence existing forward Marketing in technology an multiple end, is recently appointment the of Peter our industry Peter and of Peter to He market. most veteran, mobile holding President at I semiconductor roles the Pixelworks intellectual team. efforts our as further new marketing brings subsequent a for look of to we Additionally, Vice announced and to of brand true track experience mobile increase record extensive to wireless

year. delivery, to a introducing As video our out we our advancing scheduled roadmap forward the financials product we To Xth a and customer are currently wins early in formally end and close look out and Processor launched the of this are take XXXX. Iris quarter prepared before Mobile to series continuously complemented traction of product I by note, final mobile our my newly in market were products remarks, including on strong increased features. mobile third more

of expand customer and support sustainable both importantly continue long-term our more the to We the of number engagements a quality growth. in

over growth more guidance with the into our leading expect to the the seasonality products, for image fourth grow, consumer financials I’ll of being video further continued our deliver solutions third quarter and a delivery by year-over-year In delivery quarter. prominence Steve? our strength of revenue to continue projector review detailed mobile technology our associated market. As to the for centric are increased a the leading With will fourth call in larger in and that, to offset and number business processing momentum. adoption Pixelworks video we and and turn incorporated with quarter Steve

Steve Moore

mobile Todd. projector you, digital OEM chips our third $XX.X shipments XXXX support quarter of customers business, expanded a a in which of of of transcoding Revenue XCode ramp growth Iris to new million, Japan. processors seasonal the shipments Thank smartphone combination and launches was in of in for reflected in

in breakeven of the and $X was operating video in profit Revenue million was on that XXXX and third found reported in the was today's For in We quarter the of respectively, diluted our in million. basis approximately delivery third XXXX recognition compared the quarter was of reflected and of third customer. XXXX as XX.X% XX.X% XX.X% to or in expenses of $XX XXXX revenue the quarter to $X.X margin XXXX. non-GAAP third $XX.X $X.XX quarter income from And $X.X share compared in and Note projects XXXX. to loss digital million compared third approximately were projector a in diluted in in the second of million of million to may the second for Non-GAAP and prior of quarter XXXX third EBITDA million, to in compared net per of associated and $XXX,XXX quarter of million. million from third third Adjusted income in was a follows. $X.X per the or revenue of the the million XXXX quarter $X.X gross to million quarter third be million quarter second mobile million in third XXXX R&D second quarter of adjusted third of quarter XXXX $X.X GAAP share of XXXX. large in of in press approximately income million and share expenses the the non-GAAP quarter. loss during the $X.X third release. The breakdown of the comparison, Reconciliation projector net Non-GAAP $XXX,XXX per the co-development $XX was or XXXX the of was lower revenue of with both was quarter of quarter net EBITDA revenue operating $XX.X $X.XX non-GAAP of with offsets quarter of the net $X.X quarter XXXX. the XXXX quarter approximately $X.X $X.X million XXXX,

of ended Moving were third metrics second XX Inventory times include third quarter of quarter, with investments the cash, million Other operations. compared XXXX the driven an balance quarter the prior approximately at XXXX. sheet, day equivalents times compared of end sheet of largely and to prior from the XX balance cash to in $X end, with the from we $XX.X sales days XX.X increase the XX.X outstanding quarter cash by nearly million, during quarter. of at days turns the quarter short-term

XXXX is Our of guidance follows. as for the quarter fourth

in in approximately QX by to of delivery. growth be and offset partially video revenue projection typical mobile million We year-over-year includes range the revenue. million digital life of seasonality expect reflecting between of projected $XX revenue in the $XX market, continued end $X.X and planned million,

between expect We non-GAAP margin gross of and XX%. XX% profit

a we fourth the operating million For and expenses, basis. to $X.X non-GAAP on million expect between range quarter $XX.X

large for Our offsets with $XXX,XXX of XXXX approximately operating the our to R&D project of related a fourth digital co-development expectations expenses quarter anticipated of projector to in included recognition the customer.

fourth share between of to $X.XX R&D we'll the offset be non-GAAP quarter co-development We we share. be fourth earnings now the call in open for last expect quarter offset diluted the in the agreement. that, current with associated per to the the per to And and questions. finally, range With expect breakeven

Operator

[Operator comes Shannon Instructions] Craig-Hallum. Our first question Richard from of the line of

Your line is now open.

Richard Shannon

I for Hey, guys. on a my bit questions. little Thanks taking jumped late.

you're in sure can not or Todd, forward if wait Or is I'm us know, things One, apologize if can your us give later give happening of your business might a I I'm Japan, of about there? expect of customers, particularly about volatility? I'll so inventory your So Maybe you ask sort here. sense acceleration of build repeating us that caught and kind build all talked Japan. sense forecasts that help a from inventory XCode if transition if forecast hearing this beginning quarter you remarks. understand there and you through whether in an a I

Todd DeBonis

Yes.

the top see So, the Richard. and set good QX, it I were box in on already both We this and converter formal question, pipeline is mean in the launch the November. think QX, formal up in announced But in I they've QX, of building both I boxes last -- they mentioned availability the call. did for available,

as as already. year it’s forecast until year, go And sell strong. rate what actually, really we’re far forecasts through live. for forecast a at I And already is, the for so is orders, say next see the when they for follow would they next through seen QX we and conservative

guess, much Just because this it's, us into really I market. the of basis shipping not

sell-through see it I probably what handle month we'll Depending think sell we'll next season, on the was. have call. is, the be through a the into selling on better what post-Christmas we’ll by a

Richard Shannon

fair recently. that board hearing question wins to on Maybe promising We about up some Okay, so sounds next very here a quarter. on That had put the to forward mobile, far. look enough. nice

increasing. sizeable, that as continuing per love comment see as if the I volumes can breadths breadth customer when base when And depths Todd, and much larger of here? might year. could we'd be think could is be a pipeline building it you fold? -- just well see some maybe in to both and how on coming customer both we potentially of more millions many breadth sense the see Obviously, it to

Todd DeBonis

Yes, good question. another

So, the at the really almost announcement wins, extended, the of hit significantly of out has not when ticked market, gaming these up the design the phones, quality phones larger space. looking went everybody the the competitors of customers, the and but engagement certainly acquired our the and but these since is larger of pipeline quantity level has again first once most

like their dozen been have So, out half which I from positive. a perspective, analysis customer that said, what and me pulled phone, phone large the told where meetings gaming customer very was the Black to Shark a a

And so, working a momentum device. continued why right confident now, to we’re about take and out I’m that’s seriously Xth feeling Generation

Richard Shannon

Okay. to making I’ll question, about quarter, but is the seeing me. situation you’re ask there? more We what projector characterize have you opportunity about to One in the directly. the on as inventory decline, talking would decline What last a it, out side, normal look seasonal ask for how but on well. forward know I seasonal you’re since I’m that, this it probably I assumption hearing question fourth

Todd DeBonis

the inventory Well, didn’t really change.

inventory customers, which customers which channel general the large let’s and all our general, six access customer, say one inventory But maybe manufacturing probably of go inventory. anywhere forecast looking They their a rest about through four quarterly the would say our of month to inventories both five I customers we you to weeks. inventory, between two in get Our some see then some hold weeks of of partner. in forward to

from no So, that. we saw change

anticipate seasonality. do customers their Now

they to pull orders inventory. saw their maintain in no We when So, in that. they change their try or that level orders, expand of

Richard Shannon

the That’s questions perfect. Okay, me. all you. Thank for

Operator

Thank you.

line from of the Company. comes question Charlie next Dougherty Our of Anderson &

Your line is now open.

Charlie Anderson

my Yes, thanks for questions. taking

cetera. the Sorry, that to if any so some like challenges I seeing guys some if been production calls seeing of in bouncing I apologize of maybe opportunities sort some you’re asked. take maybe Todd, anything between I averting are that it there or right now produced wonder And war if there challenges I’m are your terms impact, not up. then you’re tariffs, in could are looks But et here, imagine China follow others I’ve has got of some customers degree market trade share. is they’re in China. where markets there maybe a in some you

Todd DeBonis

Yes.

really yet. haven’t seen We it

For projector. Taiwan predominantly ship we for Taiwan China and and manufacture mobile us, and Japan video then in we into both delivery and into for

So, come of there few our here. manufactured very come products -- and back

the from don’t heard the aren’t that. perspective, tariff, think directly has haven’t a they’re from I list, the So, tariff tariff seen market I really an And impacted. on I we projector impact don’t think

projectors come is ship back so, pretty China. this even that from into And China. the they’re China into from in we market, consumed not Everything much they’re Japan,

tariff the see eventually it share. as impact. much the just just high probably not hit mature in think see general, that come we’re and XX% we’re economy slow don’t space of market exposed. impact I especially But overseas, economy. in market see is is the will call us, projector here, because XLCD we’ll for XX%, it It’s slowing general I the a we’ll this down effects So we’re market would to share, the Where here, a the starting tiff bit, a I’ll in

to in So, its if economy down slowed market, going that. we’re mature feel it

everything mean, show I even think down to the bit. based upon I execution if our be going mobile, is market a little slows For we

just for We’re it execution. I coming use we from such a don’t could of as small an excuse base, see that lack

Charlie Anderson

it. got Yes,

market. good think momentum and OTA we're some there Okay, seeing in that then pretty on I

look they And script to seem on lot mentioned promotional of maybe your TiVo. really point, I pushing been considering terms looks OTA. what activity design technology these customer anonymously it the base are think then, days like in there of has you AirTV, there fair another a that people I on Amazon in broadening be for of and other pipeline it. about like company wonder a at this this it amount Thanks. was

Todd DeBonis

up the It them hit promotion expect the I've product, as next we harder since the still much announced over they it as seen much to three swing months.

doesn't we the announcement OTT that's are offered percent service they'll of that vendors From service online to they're that stream we it's cost they providers one that compliant and going. more were disadvantage has ability their OTA of large that -- if take announcement that that then like somebody just is a swing. the be see video a and slow free customer active signed XXXX. volume initiatives they an home come to to bring is is in the have case and larger the to to the you going had they it OTA. math deals. agreements incentives going based So XXXX program initiative, OTT for a see of and video quoted and -- the one the And -- this with service retransmission going their for and the believe it’s that mobile not reason do previously in We cost have signals it right? severe this is to can hardware is OTA which math just can't that to that flexivu.com have the players hardware with a collaboration devices expanded But content your was going I transcoding get to more XX mobile integrated they program, FlexVU I consumer to have other The is two this would give outside customer broaden expand and to what go large until that the today the to offering, a include an because you disadvantage awareness have the video to discounts. same partners service is said increase. believe launch I believe T-Mobile offerings that offering. the And over-the-air plus streaming back to still

matters. a of cost offering think I service

and I I seamless already the channels after out consumer that and going a have advantage think consumer to available are make what for are those that think enough we available those think just make the but that not free still in charge a go channels it to really for installation. to integrate we're free is market, the significant It's will cost I the Charlie. early stages, hardware

Charlie Anderson

Got guys. it. so much, Great. Thanks

Operator

[Operator instructions].

comes Street Our of Smith Lake next question from Jason Capital.

Your line now open. is

Jason Smith

when Hey, think should guys. touch across segments just any pipelines my been of Thanks in for your taking your XXXX wanted But the line, we most out expect have the with OpEx to on ordinary? ramps OpEx design about questions answered. we win

Steve Moore

from None development to the out of will we have those credit credits ordinary not we the that are now the related of sales get agreement continuing of we benefit finished. chips, development

you're that backwards account sure that you had XXXX. credits that you significant make So want to into in if looking we that take

Todd DeBonis

$X million.

-- we of $X was a little credit have million under We $X.X like think it have million. -- I

that's know, on table. now we and if but have never don't not another we just so, headwind, is credits deal that the major Jason the sign And you those right that's

Jason Smith

lot. a sense. makes that Thanks Okay,

Operator

any for [Operator you. at am call closing to remarks. I’d I questions Thank further this back like to no time, management hand showing instructions]. over the

Todd DeBonis

going a next excited proud well listening pretty we’re year. was into and we’re It All of for it us, very in. quarter right, Thanks robust thanks. for

Operator

thank participating today’s gentlemen, you That does program. conclude and in Ladies conference. for today’s

great may disconnect. You Everyone a day. all have

Pixelworks (PXLW) 1 Nov 182018 Q3 Earnings call transcript