pxlw-20240630

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________

FORM 10-Q

________________________________

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 000-30269

____________________________________

PIXELWORKS, INC.

(Exact name of registrant as specified in its charter)

Oregon

91-1761992

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

16760 SW Upper Boones Ferry Rd., Ste. 101

Portland

Oregon

97224

(Address of principal executive offices)

(Zip Code)

(503) 601-4545

(Registrant’s telephone number, including area code)

____________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	PXLW	The Nasdaq Global Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☐

Accelerated Filer

☐

Non-accelerated Filer

☒

Smaller Reporting Company

☒

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

The number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 58,551,684 as of August 8, 2024

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PIXELWORKS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2024

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	Note regarding Forward Looking Statements	3
	Summary Risk Factors	4

	PART I – FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)	6

	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Operations	7
	Condensed Consolidated Statements of Comprehensive Loss	8
	Condensed Consolidated Statements of Cash Flows	9
	Condensed Consolidated Statements of Shareholders' Equity	10
	Notes to Condensed Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 4.	Controls and Procedures	33

	PART II – OTHER INFORMATION

Item 1A.	Risk Factors	34

Item 5.	Other Information	55

Item 6.	Exhibits	57

	SIGNATURE	58

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NOTE REGARDING FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains "forward-looking statements" that are based on current expectations, estimates, beliefs, assumptions and projections about our business. Words such as "may," "will," "appears," "predicts," "continue," "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and the negative or other variations of such words and similar expressions are intended to identify such forward-looking statements. These forward-looking statements include, but are not limited to, statements regarding: the redeemable non-controlling interests in our subsidiary, Pixelworks Semiconductor Technology (Shanghai) Co., Ltd. (“PWSH”), including the possible redemption thereof and the impact thereof, and the possible renegotiation of such redemption and any changes in carrying value of such interests that are attributable to foreign currency, and the rights related thereto; our restructuring plan and restructuring charges related thereto; our strategic plan of re-aligning our Mobile and Home & Enterprise businesses and expectations related thereto, including the potential Listing and the timing and benefits thereof; our international operations; our strategy, including with respect to our intellectual property portfolio, research and development efforts and acquisition and investment opportunities; our gross profit margin; any future restructuring programs; our liquidity, capital resources and the sufficiency of our working capital and need for, or ability to secure, additional financing and the potential impact thereof; our contractual obligations, exchange rate and interest rate risks; our income taxes, including our ability to realize the benefit of net deferred tax assets, our uncertain tax position liability; accounting policies and use of estimates and potential impact of changes thereto; our revenue, the potential impact on our business of certain risks, including the concentration of our suppliers, risks of technological change, risks related to system security and data protection breaches, concentration of credit risk, changes in the markets in which we operate, our international operations, including in China and other parts of Asia and our exchange rate risks, our indemnification obligations and litigation risks; our operations in China, including the risk of changes in the political, economic, legal or social conditions there; and statements relating to our customer agreement that defrays R&D expenses, including amounts to be received thereunder, the accounting treatment thereof, the timing of the work thereunder, expenses and offsets related thereto and our expectations with respect to sales and offsets related thereto. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict and which may cause actual outcomes and results to differ materially from what is expressed or forecasted in such forward-looking statements. A detailed discussion of risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements, including risks related to the global economy, risks related to our operations in China, risks related to our business, risks related to our industry, and risks related to our strategic plan and STAR Market listing is included in Part II, Item 1A of this Quarterly Report on Form 10-Q. These forward-looking statements speak only as of the date on which they are made, and we do not intend to update any forward-looking statement to reflect events or circumstances after the date of this Quarterly Report on Form 10-Q unless required by law or regulation. If we do update or correct one or more forward-looking statements, you should not conclude that we will make additional updates or corrections with respect thereto or with respect to other forward-looking statements. Except where the context otherwise requires, in this Quarterly Report on Form 10-Q, the "Company," "Pixelworks," "we," "us" and "our" refer to Pixelworks, Inc., an Oregon corporation, and its subsidiaries.

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SUMMARY RISK FACTORS

Our business is subject to varying degrees of risk and uncertainty. Investors should consider the risks and uncertainties summarized below, as well as the risks and uncertainties discussed in Part I, Item 1A, “Risk Factors” of this Quarterly Report on Form 10-Q. Investors should also refer to the other information contained or incorporated by reference in this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, including our condensed consolidated financial statements and related notes, and our other filings made from time to time with the Securities and Exchange Commission. Our business operations could also be affected by factors that we currently consider to be immaterial or that are unknown to us at the present time. If any of these risks occur, our business, financial condition, and results of operations could be materially and adversely affected, and the trading price of our common stock could decline.

Our business is subject to the following principal risks and uncertainties:

•The continued uncertain global economic environment and volatility in global credit, banking and financial markets could materially and adversely affect our business and results of operations.

•If we fail to meet the evolving needs of our markets, identify new products, services or technologies, or successfully compete in our target markets, our revenue and financial results will be adversely impacted.

•Our product strategy may not address the demands of our target customers and may not lead to increased revenue in a timely manner or at all, which could materially adversely affect our results of operations and limit our ability to grow.

•Achieving design wins involves lengthy competitive selection processes that require us to incur significant expenditures prior to generating any revenue or without any guarantee of any revenue related to this business. If we fail to generate revenue after incurring substantial expenses to develop our products, our business and operating results would suffer.

•System security and data protection breaches, as well as cyber-attacks, could disrupt our operations, reduce our expected revenue and increase our expenses, which could adversely affect our stock price and damage our reputation.

•If we fail to retain or attract the specialized technical and management personnel required to successfully operate our business, it could harm our business and may result in lost sales and diversion of management resources.

•We have significantly fewer financial resources than most of our competitors, which limits our ability to implement new products or enhancements to our current products, which in turn could adversely affect our future sales and financial condition.

•If we are not profitable in the future, we may be unable to continue our operations.

•A significant amount of our revenue comes from a limited number of customers and distributors exposing us to increased credit risk and subjecting our cash flow to the risk that any of our customers or distributors could decrease or cancel their orders.

•We generally do not have long-term purchase commitments from our customers and if our customers cancel or change their purchase commitments, our revenue and operating results could suffer.

•Our revenue and operating results can fluctuate from period to period, which could cause our share price to decline.

•If we are unable to generate sufficient cash from operations and are forced to seek additional financing alternatives our working capital may be adversely affected and our shareholders may experience dilution or our operations may be impaired.

•We license our intellectual property, which exposes us to risks of infringement or misappropriation, and may cause fluctuations in our operating results.

•We face a number of risks as a result of the concentration of our operations and customers in Asia.

•Our operations in Asia expose us to heightened risks due to natural disasters.

•Our international operations expose us to risks resulting from the fluctuations of foreign currencies.

•If we are unable to maintain effective disclosure controls and internal controls over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, and the market price of our common stock may be materially and adversely affected.

•Our dependence on selling to distributors and integrators increases the complexity of managing our supply chain and may result in excess inventory or inventory shortages.

•We may be unable to successfully manage any future growth, including the integration of any acquisition or equity investment, which could disrupt our business and severely harm our financial condition.

•Continued compliance with regulatory and accounting requirements will be challenging and will require significant resources.

•Regulations related to conflict minerals may adversely impact our business.

•Dependence on a limited number of sole-source, third-party manufacturers for our products exposes us to possible shortages based on low manufacturing yield, errors in manufacturing, uncontrollable lead-times for manufacturing, capacity allocation, price increases with little notice, volatile inventory levels and delays in product delivery, any of which could result in delays in satisfying customer demand, increased costs and loss of revenue.

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•Shortages of materials used in the manufacturing of our products and other key components of our customers’ products may increase our costs, impair our ability to ship our products on time and delay our ability to sell our products.

•Our highly integrated products and high-speed mixed signal products are difficult to manufacture without defects and the existence of defects could result in increased costs, delays in the availability of our products, reduced sales of products or claims against us.

•The development of new products is extremely complex and we may be unable to develop our new products in a timely manner, which could result in a failure to obtain new design wins and/or maintain our current revenue levels.

•Intense competition in our markets may reduce sales of our products, reduce our market share, decrease our gross profit and result in large losses.

•If we are not able to respond to the rapid technological changes and evolving industry standards in the markets in which we compete, or seek to compete, our products may become less desirable or obsolete.

•We use a customer-owned tooling process for manufacturing most of our products, which exposes us to the possibility of poor yields and unacceptably high product costs.

•We depend on the manufacturers of our semiconductor products not only to respond to changes in technology and industry standards but also to continue the manufacturing processes on which we rely.

•Because of our long product development process and sales cycles, we may incur substantial costs before we earn associated revenue and ultimately may not sell as many units of our products as we originally anticipated.

•Our developed software may be incompatible with industry standards and challenging and costly to implement, which could slow product development or cause us to lose customers and design wins.

•The competitiveness and viability of our products could be harmed if necessary licenses of third-party technology are not available to us on terms that are acceptable to us or at all.

•Our limited ability to protect our IP and proprietary rights could harm our competitive position by allowing our competitors to access our proprietary technology and to introduce similar products.

•Our products are characterized by average selling prices that can decline over relatively short periods of time, which will negatively affect our financial results unless we are able to reduce our product costs or introduce new products with higher average selling prices.

•The cyclical nature of the semiconductor industry may lead to significant variances in the demand for our products and could harm our operations.

•Risks associated with our operations in China, including the risk of changes in China's political, economic or social conditions or changes in U.S.-China relations, as well as liquidity risks, any of which may adversely and materially affect our results of operations, financial position and value of our securities.

•Legal and operational risks related to the People's Republic of China ("PRC") legal system, including uncertainties regarding the enforcement of laws, and sudden or unexpected changes in laws, required approvals and permissions, and regulations in China, which could adversely affect us and limit the legal protections available to the Company and its shareholders, as well as materially and adversely affect our business and value of our securities.

•If we are unable to negotiate for an extension or cancellation, we may be required to repurchase the shares of PWSH held by those investors who elect for repurchase under the provisions of the August 2021 Capital Increase Agreement or the agreements governing the employee-owned entities known as “ESOPs,” which would materially and adversely impact our cash position.

•If we are unable to implement our strategy to expand our PRC operations, our ability to access capital, customers, and talent in China could suffer, which in turn may materially and adversely affect our worldwide growth and revenue potential.

•Even if we complete a listing of PWSH on The Shanghai Exchange’s Science and Technology Innovation Board, known as the STAR Market (the “Listing”), we may not achieve the results contemplated by our business strategy and our strategy for growth in the PRC may not result in increases in the price of our common stock.

•If the Listing is completed, PWSH status as a publicly traded company in China that is controlled, but less than wholly owned, by Pixelworks could have an adverse effect on us.

•The STAR Market is relatively new, and as a result, it is difficult to predict the effect of the proposed Listing, which may in turn negatively affect the price of our common stock on the Nasdaq Global Market.

•If the Listing is completed, Pixelworks and PWSH both will be public reporting companies, but each will be subject to separate, and potentially inconsistent, accounting and disclosure requirements, which may lead to investor confusion or uncertainty that could cause decreased demand for, or fluctuations in the price of, one or both of the companies’ publicly traded shares.

•The price of our common stock has and may continue to fluctuate substantially.

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PART I – FINANCIAL INFORMATION

Item 1.Financial Statements.

PIXELWORKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	37,824	$	47,544

Accounts receivable, net	4,910		10,075
Inventories	5,021		3,968
Prepaid expenses and other current assets	2,222		3,138
Total current assets	49,977		64,725
Property and equipment, net	7,051		5,997
Operating lease right-of-use assets	4,547		4,725
Other assets, net	1,652		2,115

Goodwill	18,407		18,407
Total assets	$	81,634	$	95,969
LIABILITIES, REDEEMABLE NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	2,500	$	2,416
Accrued liabilities and current portion of long-term liabilities	9,148		9,692

Current portion of income taxes payable	220		189
Total current liabilities	11,868		12,297
Long-term liabilities, net of current portion	673		1,373
Deposit liability	14,098		13,781
Operating lease liabilities, net of current portion	2,463		2,567

Income taxes payable, net of current portion	1,006		939
Total liabilities	30,108		30,957
Commitments and contingencies (Note 13)
Redeemable non-controlling interest	27,517		28,214
Shareholders’ equity:
Preferred stock	—		—
Common stock	488,449		486,324
Accumulated other comprehensive income	4,413		3,378
Accumulated deficit	(492,376)		(477,161)
Total Pixelworks, Inc. shareholders’ equity	486		12,541
Non-controlling interest	23,523		24,257
Total shareholders' equity	24,009		36,798
Total liabilities, redeemable non-controlling interest and shareholders’ equity	$	81,634	$	95,969

See accompanying notes to condensed consolidated financial statements.

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PIXELWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Revenue, net	$	8,535	$	13,605	$	24,589	$	23,571
Cost of revenue (1)	4,209		8,121		12,149		13,720
Gross profit	4,326		5,484		12,440		9,851
Operating expenses:
Research and development (2)	7,943		6,507		16,016		15,173
Selling, general and administrative (3)	5,722		5,468		11,256		11,540
Restructuring	1,403		—		1,403		—
Total operating expenses	15,068		11,975		28,675		26,713
Loss from operations	(10,742)		(6,491)		(16,235)		(16,862)
Interest income and other, net	327		473		761		1,144

Total other income, net	327		473		761		1,144
Loss before income taxes	(10,415)		(6,018)		(15,474)		(15,718)
Provision for income taxes	32		126		137		160
Net loss	(10,447)		(6,144)		(15,611)		(15,878)
Less: Net loss attributable to redeemable non-controlling interest and non-controlling interest	298		107		396		445
Net loss attributable to Pixelworks, Inc.	$	(10,149)	$	(6,037)	$	(15,215)	$	(15,433)
Net loss attributable to Pixelworks, Inc. per share - basic and diluted	$	(0.17)	$	(0.11)	$	(0.26)	$	(0.28)


Weighted average shares outstanding - basic and diluted	58,151		55,917		57,812		55,666


(1) Includes:
Restructuring	16	—	16	—
Stock-based compensation	10	22	28	46


(2) Includes stock-based compensation			316						527						646						1,018



(3) Includes stock-based compensation	599	710	1,326	1,361

See accompanying notes to condensed consolidated financial statements.

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PIXELWORKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

(Unaudited)

SEC Form 10-Q filed by Pixelworks Inc.