PXLW

Pixelworks, Inc. (PXLW)

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Pixelworks, Inc. (PXLW)

Q3 2011 Earnings Conference Call

October 20, 2011 5:00 PM ET

Executives

Bruce Walicek – President and CEO

Steven Moore – VP and CFO

Presentation

Operator

Good day ladies and gentlemen, and welcome to the third quarter 2011 Pixelworks Inc earnings conference call. My name is Caris, and 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. I would now like to turn the call over to Mr. Steve Moore.

Steve Moore

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 third quarter ended September 30, 2011.

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, October 20, 2011, 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, 2010, 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’s 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 loss, and net income loss per share. These non-GAAP measures exclude restructuring charges, amortization of acquired developed technology, stock-based compensation expense, gain on sale of patents, gain on sale of marketable securities, and 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 income/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 Q3 financial results and discuss our outlook for the fourth quarter of 2011.

Bruce Walicek

Thanks Steve. Good afternoon everyone and thank you for taking the time to join us today. Let me start out by making a few comments and observations about our third quarter 2011, and then Steve will follow with more details on our financial results.

The third quarter was a solid quarter of growth as revenues increased 11% sequentially, and came in at the midpoint of guidance. This increase was primarily driven by a rebound in our Advanced TV/Panel product line, as new customers ramped into volume production. TV/Panel products were 17% of revenue and were up 84% sequentially and 102% year over year. While overall book-to-bill was less than one reflecting customers providing less lead time on orders, the book-to-bill in TV/Panel products was 1.2 to 1, as we continued to have success with our PA series devices. Overall our new products continued their growth, rising 33% year over year, and up 21% sequentially. New products accounted for 56% of revenue during the quarter, up from 40% in the 3rd quarter of 2010, reflecting continued adoption and success across our product lines. Gross margin came in above the range of guidance and combined with topline growth and low end of the range operating expenses, resulted in positive EBITDA and positive cash flow from operations for the second quarter in a row.

On the Product front, we introduced and ramped into production, several new devices across our product lines. In our TV/Panel Product Line: We ramped our 5th generation Advanced Video Processor, the PA136, into high-volume production. The PA136 provides industry leading video quality, and incorporates a number of advanced features, such as real-time static and motion based 2D-to-3D conversion and Pixelworks’ innovative n2m technology which ensures smooth playback of low frame-rate Internet video. In the third quarter, we sampled the PA138, which includes all the improvements and features of the 136, but is targeted for advanced high end systems and support for the latest generation high speed panel interface. Our momentum in the Tier 1 segment of the Advanced TV market continued in the third quarter, as we penetrated another Top 5/Tier 1 TV OEM for our PA series products and these programs will begin shipping in production in the fourth quarter. Our penetration of the Top Tier customer base, confirms Pixelworks’ leading position in providing innovative solutions in video processing to this market. These customers are selecting Pixelwork’s products because, we provide superior video quality and innovative value added features at a competitive price/performance point, combined with the ability to deliver product in high volume to the highest quality standards.

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