SAN JOSE, Calif. — (BUSINESS WIRE) — July 28, 2016 — Pixelworks, Inc. (NASDAQ: PXLW), an innovative provider of video display processing technology, today announced financial results for the second quarter ended June 30, 2016.

Second Quarter Highlights

• Revenue increased 12% sequentially to $12.6 million;
• ASUS ZenPad Z8 launched by tier-one North American carrier incorporates Iris video display processor;
• Iris incorporated into first-ever smartphone with launch of ASUS ZenFone 3 Ultra; and
• David Sabo joined Pixelworks in June as Senior Vice President, Business Development and IP Licensing.

For the second quarter of 2016, revenue was $12.6 million, compared to $11.2 million in the prior quarter and $15.1 million in the second quarter of 2015. Revenue during the second quarter reflected the expected sequential increase in the sale of chips sold into both the digital projection and mobile markets.

On a GAAP basis, gross profit margin in the second quarter of 2016 was 51.0%, compared to 32.2% in the first quarter of 2016 and 48.0% in the second quarter of 2015. Second quarter 2016 GAAP operating expenses were $7.8 million, compared to $12.1 million in the previous quarter and $9.7 million in the second quarter of 2015.

For the second quarter of 2016, the Company recorded a GAAP net loss of $1.6 million, or $0.06 per share, compared to a GAAP net loss of $8.6 million, or $0.31 per share, in the first quarter of 2016, which included $4.3 million, or $0.15 per share, in charges related to the Company’s announced restructuring. GAAP net loss was $2.8 million, or $0.12 per share, in the second quarter of 2015.

On a non-GAAP basis, gross profit margin in the second quarter of 2016 was 51.6%, compared to 48.0% in the first quarter of 2016 and 48.3% in the second quarter of 2015. Second quarter 2016 gross margin was higher compared to the prior periods primarily due to a more favorable product mix specific to revenue generated in the digital projection market. Second quarter 2016 operating expenses on a non-GAAP basis were $7.0 million, compared to $9.2 million in the previous quarter and $8.8 million in the second quarter of 2015. Lower operating expenses compared to the prior periods reflected the net benefit of the Company’s announced restructuring.

For the second quarter of 2016, the Company recorded a non-GAAP net loss of $756,000, or $0.03 per share, compared to a non-GAAP net loss of $4.0 million, or $0.14 per share, in the first quarter of 2016 and non-GAAP net loss of $1.9 million, or $0.08 per share, in the second quarter of 2015. Adjusted EBITDA in the second quarter of 2016 was a positive $0.3 million, compared to a negative $2.9 million in the previous quarter and a negative $0.5 million in the second quarter of 2015.

“Our second quarter results exceeded expectations across all metrics, reflecting the team's strong execution as well as the benefits of our recent restructuring and cost reduction efforts,” stated Todd DeBonis, president and CEO of Pixelworks. “We also made significant forward progress on our mobile initiative during the quarter, with the announcement of our first design win for both a smart phone, the ASUS ZenFone 3 Ultra, and a tier-one North American carrier launched tablet, the ZenPad Z8. Our renewed sales focus combined with the mobile market naturally moving in the direction of higher quality video is driving a decided increase in the amount of interest and opportunities for Pixelworks’ technology.”

Business Outlook for the Third Quarter of 2016

The Company’s expectations for the third quarter of 2016 include:

• Revenue to be between $13 million and $14 million;
• Gross profit margin of approximately 48% to 50% on both a GAAP basis and non-GAAP basis; and
• Operating expenses of $8 million to $9 million on a GAAP basis and $7 million to $8 million on a non-GAAP basis. The difference in estimated operating expenses on a GAAP basis, versus a non-GAAP basis, is stock-based compensation expense, of which a range between $0.5 million to $1.0 million is included on a GAAP basis. Stock-based compensation expense is excluded from the calculation of estimated operating expenses on a non-GAAP basis.

Conference Call Information

Pixelworks will host a conference call today at 2:00 p.m. Pacific Time, which can be accessed by calling 877-359-9508 and using passcode 47925364. A Web broadcast of the call can be accessed by visiting the Company's investor page at www.pixelworks.com. For those unable to listen to the live Web broadcast, it will be archived for approximately 30 days. A replay of the conference call will also be available through Thursday, August 4, 2016, and can be accessed by calling 855-859-2056 and using passcode 47925364.