SAN JOSE, Calif. — (BUSINESS WIRE) — November 7, 2013 — Pixelworks, Inc. (NASDAQ: PXLW), a pioneer in innovative video and display processing technology, today announced financial results for the third quarter ended September 30, 2013.

Revenue for the third quarter 2013 was $15.3 million, compared to $9.6 million in the second quarter of 2013 and $16.3 million in the third quarter of 2012. Revenue was up 60.2% sequentially driven by licensing revenue recognized during the third quarter and further ramping of the PA168 for the advanced TV market. Third quarter revenue was lower compared to the prior year quarter primarily as a result of lower chip revenue.

On a GAAP basis, gross profit margin in the third quarter of 2013 was 60.9%, compared to 48.4% in the prior quarter and 47.8% in the third quarter of 2012. Third quarter 2013 GAAP operating expenses were $7.5 million, compared to $9.3 million in the previous quarter and $8.3 million in the third quarter of 2012. For the third quarter of 2013, the Company recorded GAAP net income of $1.5 million, or $0.07 per diluted share, compared to a GAAP net loss of $4.9 million, or $0.26 per share in the second quarter of 2013 and a GAAP net loss of $0.4 million, or $0.02 per share in the third quarter of 2012.

On a non-GAAP basis, gross profit margin in the third quarter of 2013 was 61.6%, compared to 49.7% in the prior quarter and 49.0% in the third quarter of 2012. The increase in gross margin during the quarter was primarily driven by the recognition of higher margin licensing revenue. Third quarter 2013 operating expenses on a non-GAAP basis were $7.0 million, compared to $8.7 million in the prior quarter and $7.7 million in the third quarter of 2012. Operating expenses for the third quarter of 2013 and third quarter of 2012 include a reimbursement to research and development expense as the result of achieving certain milestones related to a previously announced customer co-development agreement. For the third quarter of 2013, the Company recorded non-GAAP net income of $2.1 million, or $0.10 per diluted share, compared with a net loss of $4.2 million, or $0.23 per share, in the prior quarter and net income of $0.3 million, or $0.02 per diluted share, in the third quarter of 2012.

“During the third quarter Pixelworks returned to profitability with revenue growing 60% sequentially driven by increased licensing and product revenues,” said Bruce Walicek, President and CEO of Pixelworks. “We also achieved a number of other significant milestones during the quarter, as we captured a significant licensing engagement, delivered initial samples of our co-development chip, and completed a $10 million equity offering that strengthened our balance sheet. With the achievement of these key milestones, a robust pipeline of customer engagements and licensing opportunities, and mobile products on the horizon, we are excited about the potential for Pixelworks and are well positioned for the future.”

The Company will discuss the details of its business outlook for the fourth quarter of 2013 during its conference call scheduled for today, November 7, 2013, at 2:00 p.m. Pacific Time.

Conference Call Information

Pixelworks will host a conference call today at 2:00 p.m. Pacific Time, which can be accessed by calling 866-515-2912 and using passcode 35487225. 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, November 14, 2013, and can be accessed by calling 888-286-8010 and using passcode 19002753.

About Pixelworks, Inc.

Pixelworks creates, develops and markets video display processing technology for digital video applications that demand the very highest quality images. At design centers around the world, Pixelworks engineers constantly push video performance to keep manufacturers of consumer electronics and professional displays worldwide on the leading edge. The company is headquartered in San Jose, CA.

For more information, please visit the Company's Web site at www.pixelworks.com.

Note: Pixelworks and the Pixelworks logo are registered trademarks of Pixelworks, Inc.

Non-GAAP Financial Measures

This earnings release makes reference to non-GAAP gross profit margins, non-GAAP operating expenses, non-GAAP net income (loss) and non-GAAP net income (loss) per share which excludes stock-based compensation expense and additional amortization of a non-cancelable prepaid royalty, which are required under GAAP. The press release also reconciles GAAP net income (loss) and adjusted EBITDA which Pixelworks defines as GAAP net income (loss) before interest expense and other, net, income tax provision (benefit), depreciation and amortization, as well as the specific items listed above. The Company believes these non-GAAP measures provide a meaningful perspective on the Company's core operating results and underlying cash flow dynamics, but cautions investors to consider these measures in addition to, not as a substitute for, its consolidated financial results as presented in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is included in this earnings release which is available in the investor relations section of the Company's website.