Pixelworks Reports Second Quarter 2015 Financial Results

This release contains forward-looking statements, including, without limitation, the statements in Bruce Walicek's quote with respect to the Company’s growth opportunities, product shipments, product demand, customer engagements, and the Company’s potential and position for the future, 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,” “believe,” and similar terms or the negative of such terms. 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 deliver new products in a timely fashion; our new product yield rates; changes in estimated product costs; product mix; supply of products from third-party foundries; failure or difficulty in achieving design wins; timely customer transition to new product designs; competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; risks related to licensing our intellectual property; the success of our products in expanded markets; current global economic challenges; levels of inventory at distributors and customers; changes in the digital display and projection markets; changes in customer ordering patterns or lead times; seasonality in the consumer electronics market; our efforts to achieve profitability from operations; insufficient, excess or obsolete inventory and variations in inventory valuation; the outcome of any litigation related to our intellectual property rights; our limited financial resources and our ability to attract and retain key personnel. More information regarding potential factors that could affect the Company's financial results and could cause actual results to differ materially is included from time to time in the Company's Securities and Exchange Commission filings, including our Annual Report on Form 10-K for the year ended December 31, 2014 as well as subsequent SEC filings.

The forward-looking statements contained in this release speak as of the date of this release, and we do not undertake any obligation to update any such statements, whether as a result of new information, future events or otherwise.



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,
		2015			2015			2014			2015			2014
Revenue, net	$	15,078		$	14,392		$	15,166		$	29,470		$	28,707
Cost of revenue (1)		7,844			7,425			7,505			15,269			13,051
Gross profit		7,234			6,967			7,661			14,201			15,656
Operating expenses:
Research and development (2)		6,105			6,318			5,887			12,423			12,272
Selling, general and administrative (3)		3,584			3,887			3,709			7,471			7,758
Total operating expenses		9,689			10,205			9,596			19,894			20,030
Loss from operations		(2,455	)		(3,238	)		(1,935	)		(5,693	)		(4,374	)
Interest expense and other, net		(105	)		(107	)		(130	)		(212	)		(252	)
Loss before income taxes		(2,560	)		(3,345	)		(2,065	)		(5,905	)		(4,626	)
Provision for income taxes		236			19			317			255			263
Net loss	$	(2,796	)	$	(3,364	)	$	(2,382	)	$	(6,160	)	$	(4,889	)
Net loss per share - basic and diluted	$	(0.12	)	$	(0.14	)	$	(0.11	)		(0.26	)		(0.22	)
Weighted average shares outstanding - basic and diluted		23,539			23,328			22,667			23,434			22,437
——————
(1) Includes:
Stock-based compensation	$	42		$	53		$	41		$	95		$	130
Additional amortization of non-cancelable prepaid royalty		—			—			35			—			91
(2) Includes stock-based compensation		429			489			413			918			1,239
(3) Includes stock-based compensation		422			536			487			958			1,275



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,
		2015			2015			2014			2015			2014
Reconciliation of GAAP and non-GAAP gross profit
GAAP gross profit	$	7,234		$	6,967		$	7,661		$	14,201		$	15,656
Stock-based compensation		42			53			41			95			130
Additional amortization of non-cancelable prepaid royalty		—			—			35			—			91
Total reconciling items included in cost of revenue		42			53			76			95			221
Non-GAAP gross profit	$	7,276		$	7,020		$	7,737		$	14,296		$	15,877
Non-GAAP gross profit margin		48.3	%		48.8	%		51.0	%		48.5	%		55.3	%

Reconciliation of GAAP and non-GAAP operating expenses
GAAP operating expenses	$	9,689		$	10,205		$	9,596		$	19,894		$	20,030
Reconciling item included in research and development:
Stock-based compensation		429			489			413			918			1,239
Reconciling item included in selling, general and administrative:
Stock-based compensation		422			536			487			958			1,275
Total reconciling items included in operating expenses		851			1,025			900			1,876			2,514
Non-GAAP operating expenses	$	8,838		$	9,180		$	8,696		$	18,018		$	17,516

Reconciliation of GAAP and non-GAAP net loss
GAAP net loss	$	(2,796	)	$	(3,364	)	$	(2,382	)	$	(6,160	)	$	(4,889	)
Reconciling items included in cost of revenue		42			53			76			95			221
Reconciling items included in operating expenses		851			1,025			900			1,876			2,514
Tax effect of non-GAAP adjustments		(46	)		(20	)		(47	)		(66	)		(85	)
Non-GAAP net loss	$	(1,949	)	$	(2,306	)	$	(1,453	)	$	(4,255	)	$	(2,239	)
Non-GAAP net loss per share - basic and diluted	$	(0.08	)	$	(0.10	)	$	(0.06	)	$	(0.18	)	$	(0.10	)
Non-GAAP weighted average shares outstanding - basic and diluted		23,539			23,328			22,667			23,434			22,437

* Our non-GAAP gross profit, non-GAAP gross profit margin, non-GAAP operating expenses, non-GAAP net loss and non-GAAP net loss per share differs from GAAP gross profit, GAAP operating expenses, GAAP net loss and GAAP net loss per share due to the exclusion of stock-based compensation expense and additional amortization of a non-cancelable prepaid royalty. Pixelworks' management believes the presentation of non-GAAP gross profit, non-GAAP operating expenses, non-GAAP net loss and non-GAAP net loss per share provides useful information to investors regarding Pixelworks' results of operations by allowing investors to better evaluate underlying cash flow dynamics. Pixelworks' management also uses each of these non-GAAP measures internally to better evaluate underlying cash flow dynamics. Pixelworks, however, cautions investors to consider these non-GAAP financial measures in addition to, and not as a substitute for, our GAAP financial measures.



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,
		2015			2015			2014			2015			2014
Reconciliation of GAAP net loss and adjusted EBITDA
GAAP net loss	$	(2,796	)	$	(3,364	)	$	(2,382	)	$	(6,160	)	$	(4,889	)
Stock-based compensation		893			1,078			941			1,971			2,644
Additional amortization of non-cancelable prepaid royalty		—			—			35			—			91
Tax effect of non-GAAP adjustments		(46	)		(20	)		(47	)		(66	)		(85	)
Non-GAAP net loss	$	(1,949	)	$	(2,306	)	$	(1,453	)	$	(4,255	)	$	(2,239	)
EBITDA adjustments:
Depreciation and amortization	$	1,041		$	1,098		$	1,141		$	2,139		$	2,285
Interest expense and other, net		105			107			130			212			252
Non-GAAP provision for income taxes		282			39			364			321			348
Adjusted EBITDA	$	(521	)	$	(1,062	)	$	182		$	(1,583	)	$	646

* Adjusted EBITDA differs from GAAP net loss due to the exclusion of stock-based compensation expense, additional amortization of a non-cancelable prepaid royalty, interest expense and other, net, income tax provision and depreciation and amortization. Pixelworks' management believes the presentation of adjusted EBITDA provides useful information to investors regarding Pixelworks' results of operations by allowing investors to better evaluate underlying cash flow dynamics and core operating results and are used by Pixelworks' management for these purposes. Pixelworks, however, cautions investors to consider these non-GAAP financial measures in addition to, and not as a substitute for, our GAAP financial measures.



PIXELWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

	June 30, 2015		December 31, 2014
ASSETS
Current assets:
Cash and cash equivalents	$	14,432	$	17,926
Accounts receivable, net		4,733		4,648
Inventories		2,875		2,898
Prepaid expenses and other current assets		1,239		888
Total current assets		23,279		26,360
Property and equipment, net		7,030		6,402
Other assets, net		926		1,382
Total assets	$	31,235	$	34,144
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	4,004	$	3,154
Accrued liabilities and current portion of long-term liabilities		9,185		8,539
Current portion of income taxes payable		187		197
Short-term line of credit		3,000		3,000
Total current liabilities		16,376		14,890
Long-term liabilities, net of current portion		919		1,476
Income taxes payable, net of current portion		2,079		2,094
Total liabilities		19,374		18,460
Shareholders’ equity		11,861		15,684
Total liabilities and shareholders’ equity	$	31,235	$	34,144

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