This earnings release makes reference to non-GAAP gross profit margins, non-GAAP operating expenses, non-GAAP net loss and non-GAAP net loss per share, which exclude gain on sale of patents, inventory step-up and backlog amortization, amortization of acquired intangible assets, stock-based compensation expense, and restructuring expenses, which are all required under GAAP as well as the tax effect of the non-GAAP adjustments. The press release also makes reference to and reconciles GAAP net loss and adjusted EBITDA, which Pixelworks defines as GAAP net loss before interest income and other, net, income tax provision, depreciation and amortization, as well as the specific items listed above.

Pixelworks management uses these non-GAAP financial measures internally to understand, manage and evaluate the business and establish its operational goals, review its operations on a period to period basis, for compensation evaluations, to measure performance, and for budgeting and resource allocation. Pixelworks management believes it is useful for the Company and investors to review, as applicable, both GAAP information and non-GAAP financial measures to help assess the performance of Pixelworks’ continuing business and to evaluate Pixelworks’ future prospects. These non-GAAP measures, when reviewed together with the GAAP financial information, provide additional transparency and information for comparison and analysis of operating performance and trends. These non-GAAP measures exclude certain items to facilitate management’s review of the comparability of our core operating results on a period to period basis.

Because the Company’s non-GAAP financial measures are not calculated in accordance with GAAP, they may not necessarily be comparable to similarly titled measures employed by other companies. These non-GAAP financial measures should not be considered in isolation or as a substitute for the comparable GAAP measures and should be read only in conjunction with the Company’s 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 Pixelworks' website.

Safe Harbor Statement
This release contains forward-looking statements 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,” “expect”, “believe,” “anticipate” and similar terms or the negative of such terms, and include, without limitation, statements about the Company’s digital projection, mobile and video delivery businesses, including market movement and demand, customer engagements, growth in the mobile market, strategy, and additional guidance, particularly as to the business outlook and current market environment and the impact of the COVID-19 pandemic on the same. 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 execute on our strategy; competitive factors, such as rival chip architectures, introduction or traction by competing designs, or pricing pressures; the success of our products in expanding markets; current global economic challenges; changes in the digital display and projection markets; seasonality in the consumer electronics market; our efforts to achieve profitability from operations; our limited financial resources; our ability to attract and retain key personnel; and the impact of the COVID-19 pandemic on our business and on our suppliers and customers. More information regarding potential factors that could affect the Company's financial results and could cause actual results to differ materially from those discussed in the forward-looking statements is included from time to time in the Company's Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the year ended December 31, 2019 as well as subsequent SEC filings.

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

[Financial Tables Follow]

PIXELWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2020			2020			2019			2020			2019
Revenue, net	$	8,190		$	9,253		$	18,057		$	31,217		$	52,732
Cost of revenue (1)		4,214			4,204			8,710			15,417			25,537
Gross profit		3,976			5,049			9,347			15,800			27,195
Operating expenses:
Research and development (2)		6,062			6,314			6,458			18,643			19,294
Selling, general and administrative (3)		4,621			5,156			5,333			14,970			15,728
Restructuring		1,430			-			-			2,022			398
Total operating expenses		12,113			11,470			11,791			35,635			35,420
Loss from operations		(8,137	)		(6,421	)		(2,444	)		(19,835	)		(8,225	)
Interest income (expense) and other, net		(28	)		(24	)		70			2			270
Gain on sale of patents		-			-			-			-			3,905
Total other income (expense), net		(28	)		(24	)		70			2			4,175
Loss before income taxes		(8,165	)		(6,445	)		(2,374	)		(19,833	)		(4,050	)
Provision (benefit) for income taxes		(26	)		107			(68	)		257			571
Net loss	$	(8,139	)	$	(6,552	)	$	(2,306	)	$	(20,090	)	$	(4,621	)
Net loss per share - basic and diluted	$	(0.20	)	$	(0.17	)	$	(0.06	)		(0.51	)		(0.12	)
Weighted average shares outstanding - basic and diluted		40,766			39,444			38,086			39,697			37,677
——————
(1) Includes:
Amortization of acquired intangible assets		298			298			298			894			894
Restructuring		166			-			-			166			-
Stock-based compensation		117			127			89			345			267
Inventory step-up and backlog amortization		-			-			-			-			12
(2) Includes stock-based compensation		820			806			570			2,274			1,934
(3) Includes:
Stock-based compensation		913			1,310			839			3,296			2,651
Amortization of acquired intangible assets		76			76			76			228			236