Steve Moore - CFO Bruce Walicek - President & CEO

Good afternoon and welcome to Pixelworks, Incorporated second quarter 2012 financial results conference call. At this time, all participants are in a listen-only mode. At the conclusion of today's conference, instructions will be given for the question-and-answer session. As a reminder, this conference call is being recorded today, Thursday, July 19, 2012. I would now like to turn the conference over to 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 second quarter ended June 30, 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, July 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, earnings per share 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 second quarter financial results and discuss our outlook for the third quarter of 2012.

Thanks Steve. Good afternoon everyone and thank you for taking the time to join us today. I will start by making a few comments and observations about our 2nd quarter 2012, and then Steve will follow with details on our financial results and outlook for Q3. : Also in Q2, we achieved another key milestone as we won a significant co-development project with a major customer to develop a highly integrated next generation chip that will result in significant revenue impact in 2014 and beyond. This engagement is a significant positive for Pixelworks and reinforces Pixelworks’ market leadership position in video. In both of these engagements, Pixelworks was selected because of our industry leading display technology, recognized leadership in video quality, and world class execution capability. Overall TV/Panel products came in at 28% of revenues and were up 166% year over year and 6% sequentially, driven by volume production of our PA Series products, and by the recognition of the 2nd phase of the license mentioned above. Projector products came in at 65% of revenues and were up 25% sequentially, reflecting the production ramp of Topaz products, and improving order patterns noted on our Q1 conference call. Overall book to bill was much greater than one, as order patterns continued strong throughout the quarter, driven by new products ramping, resulting in visibility greater than normal going into Q3. Non-GAAP gross margin came in above the range of guidance at 50.6% and combined with below the range operating expenses of $8.1M, resulted in positive EBITDA for the quarter and cash generation from operations of $4.1M, a significant up-tick from Q1. On the product front, in our TV/Panel Product Line, our current generation PA Series products continued to experience good design win traction at tier 1 customers in smart and advanced TV…

Thank you, Bruce. Revenue in the second quarter 2012 was $15.5 million, compared to $14.3 million in the first quarter and $15.7 million in the year-ago quarter. Revenue increased 8.4% sequentially as a result of increased demand for our products sold in the digital projection and advanced TV markets. The split of our second quarter revenue by market was 65% digital projection, 28% TV and panel and 7% embedded video display. Licensing revenue during the quarter totaled approximately $2.3 million, and was comprised of $300,000 recorded in our digital projector market category and $2 million related to advanced TV as part of our achievement of additional milestones according to the licensing agreements we have for our current generation technology. Digital projection revenue, which includes sales targeted at the advanced digital projection market, increased by approximately $2.1 million during the quarter to $10.1 million. Projector revenue increased primarily due to ramping of our Topaz family and higher demand for other projector solutions as well as the recognition of licensing revenue. TV and panel revenue, which includes sales targeted at the large screen flat panel display market, increased $300K sequentially to approximately $4.3 million in the second quarter as a result of increased demand for products at certain tier one TV OEMs. Both Q1 and Q2 2012 TV revenues include approximately $2 million of licensing revenue. Embedded video display revenue during the second quarter was approximately $1.1 million. Non-GAAP gross profit margin was 50.6% in the second quarter, compared to 55.7% in the first quarter and 48.3% in the second quarter of 2011. The sequential decrease in gross margin was effected by by a shift in product mix within both our digital projector and advanced TV end markets. Also of note in Q2, we recorded approximately $400,000 of costs related to our…