PXLW

Pixelworks, Inc. (PXLW)

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Pixelworks, Inc. (PXLW)

Q4 2012 Earnings Call

January 31, 2013, 05:00 pm ET

Executives

Steve Moore - VP & CFO

Bruce Walicek - President & CEO

Analysts

Krishna Shankar - ROTH Capital Partners

Presentation

Operator

Good afternoon and welcome to the Pixelworks Incorporated Fourth Quarter and Full-Year 2012 Financial Results Conference Call. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded today, Thursday, January 31, 2013.

I would now like to turn the conference over to Mr. Steve Moore. Please proceed.

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 fourth quarter ended December 31, 2012.

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, January 31, 2013, 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, 2011 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, net income loss per share. These non-GAAP measures exclude stock-based compensation expense, gain on sale of patents, gain on sale of marketable securities and additional amortization of 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 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 Q4 financial results and discuss our outlook for the first quarter of 2013.

Bruce Walicek

Thanks Steve. Good afternoon everyone and thank you for taking the time to join us today. 2012 was a year of solid progress for Pixelworks despite the headwinds of a difficult macro environment and a contracting semiconductor industry. Overall revenues for 2012 came in at $60 million, down 8% versus 2011 driven by a difficult global consumer and education spending environment.

Despite these headwinds, 2012 was a significant year for demonstrating the value of Pixelworks’ technology and capability as we closed 12 million of licensing and co-development deals. In first half of 2012, we closed a significant licensing and partnership for our advanced video display technology, which combined with our penetration of the top tier customer base, validates Pixelworks’ leading position in providing innovative solutions in video processing.

Also in 2012, we achieved another key milestone as we engaged in a significant customer funded co-development project to develop a highly integrated next-generation chip that will result in significant revenue and market share gain in 2014 and beyond. In both of these engagements, Pixelworks was selected because of our industry leading video processing technology and product execution capability.

In our PA series product line for large screen display applications, during 2012 we shipped volume production of our PA136 to Tier-1 customers and captured the first wave of 4Kx2K resolution Ultra High Definition design wins to Tier-1 customers. In the second half of the year, the first 84 inch 4Kx2K Ultra Definition display from industry leader LG Electronics was introduced to the market with Pixelworks’ leading video processing technology based on the PA138.

In Q4 2012, we introduced the PA168 which is started for Ultra HD 4Kx2K applications such as TVs panels, monitors and projectors and this quarter we delivered mass production units of the PA168 and expect volume production to build into 2013 and positively impact the second half of the year. The PA168 video display processor is designed to meet the demanding performance requirements of new high resolution 4Kx2K screens and Pixelworks’ technology handles the most demanding and difficult video processing problems to create the best video quality in the industry.

These displays establish the latest standard for immersive viewing delivering truly remarkable picture quality with 8 million pixels per frame. Pixelworks’ PA168 raises the bar for video processing technology featuring Halo Free performance and the ability to eliminate unperceivable pixels to deliver more realistic images. The depth and richness of the Ultra Definition experience is a revolutionary improvement over today’s full high definition displays and Pixelworks is pleased to be working with leading Tier-1 manufacturers that have chosen our technology to power the latest state of the art Ultra HDTVs and we believe we are the leader in this market with multiple Tier-1 engagements for the PA168.

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