Steve Moore – CFO Bruce Walicek - President and CEO

Good afternoon and welcome to Pixelworks Incorporated's first quarter 2012 financial results conference call. At this time, all participants are in a listen only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. If anyone needs assistance at any time during the conference call, please press the star followed by the zero on your touchtone phone. As a reminder, this conference call is being recorded today, Thursday, April 19, 2012. I would now like to turn the conference over to Mr. 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 first quarter ended March 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, April 19, 2012, 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 loss, and net 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 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 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 our first quarter financial results and discuss our outlook for the second quarter of 2012.

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 first quarter 2012, and then Steve will follow with more details on our financial results and our outlook for Q2. Q1 revenues came in at $14.3M which was above the range of guidance we outlooked on our Q4 2011 conference call. This above the range performance was driven by the recognition of a license of our video technology for the TV market during the quarter, which is a positive validation of Pixelworks' leadership position in video. Overall TV/Panel products came in at 28% of revenues and were down sequentially, but up 59% year over year reflecting the license mentioned above. Projector products came in at 56% of revs and were down sequentially and year over year reflecting worse than normal seasonality combined with supply chain disruptions due to the flood in Thailand. Overall book-to-bill was greater than one, reflecting improving order patterns as customers recovered from the effects of the flood and the industry-wide inventory correction. Gross margin came in above the range of guidance at 55.7% and combined with low end of the range operating expenses, resulted in positive EBITDA for the quarter. On the product front, in our TV/Panel Product Line we continued to ramp and ship our PA136 Series products, which continued to experience good design win traction. As well as the PA138, which is targeted for advanced high end systems and is finding traction in the first wave of 4Kx2K Ultra Definition Systems. Most importantly, we demonstrated the performance and technology of our next generation PA168 to Tier 1 customers which was well received. Early next quarter we will sample the PA168 which is targeted for High…

Thank you, Bruce. Revenue in the first quarter 2012 was $14.3 million, compared to $16.8 million in the fourth quarter of 2011 and $14.7 million in the year-ago quarter. Revenue declined sequentially primarily due to expected weaker demand in both the digital projection and advanced TV markets. The split of our first quarter revenue by market was 56% digital projection, 28% TV and panel, and 16% embedded video display. As Bruce mentioned, during the quarter we signed a licensing agreement for our current generation advanced video technology. Our achievement of the first milestone of that agreement generated approximately $2 million of licensing revenue during the first quarter, which is included in our TV market category. Digital projection revenue, which includes sales targeted at the advanced digital projection market, was down sequentially to approximately $8.1 million in the first quarter as a result of the previously mentioned inventory correction coupled with typical seasonality. TV and panel revenue, which includes sales targeted at the large screen flat panel display market, declined to $4.0 in Q1. Revenue was down sequentially in our advanced TV product line due primarily to a seasonal decrease in demand. Embedded video display revenue in Q1 was approximately $2.2 million. Non-GAAP gross profit margin was 55.7% in the first quarter, compared to 48% in the previous quarter and 45.5% in the first quarter of 2011. The sequential increase in gross margin was primarily the result of licensing revenue recognized during the quarter as well as a shift in product mix. Pixelworks' gross margin is subject to variability based on changes in revenue levels, recognition of license revenue, product mix, startup costs, and the timing and execution of manufacturing ramps as well as other factors. Non-GAAP operating expenses were $8.6 million in the first quarter, compared to $9 million in…