Steven L. Moore – Chief Financial Officer and Vice President Bruce A. Walicek – President and Chief Executive Officer

Good afternoon and welcome to Pixelworks Incorporated Third Quarter 2013 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 (Operator Instructions). As a reminder, this conference call is being recorded today, Thursday, November 7, 2013. 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 third quarter ended September 30, 2013. 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, November 7, 2013 and we undertake no obligation to update any such statements in respect to 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, 2012, and subsequent SEC filing for descriptions 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 discussion 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 and additional amortization of the pre-paid 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 income loss and GAAP net income loss to adjusted EBITDA, which provide additional details. Bruce will begin today’s call with a strategic update on the business. Afterwards, I will review our Q3 financial results and discuss our outlook for the fourth quarter of 2013.

Thanks Steve. Good afternoon, everyone and thank you for taking the time to join us today. Q3 2013 revenues of $15.3 were up 60% of Q2, driven growth in our product business as well as success in our licensing initiative. We returned to profitability as all other non-GAAP metrics came within the range of guidance and we generated positive EBITDA cash flow and delivered EPS of $0.10. Overall book-to-bill was greater than $0.01, reflecting success in our licensing business and an improving environment as customers ramps the PA168 our next-generation video processor into volume production. Q3 was an important quarter on a number of fronts, as we achieved several major milestones with significantly improved our business and financial position. During the quarter, we closed $10.3 million license and services engagement for our advanced video technology. This is significant milestone and validation of our technology and expertise, and reinforces our thesis regarding the growing important and need for video processing. We also completed $10 million equity offering to further strengthen our balance sheet and significantly improve the financial position of the Company, and we delivered initial samples of the advance chip we are developing under our co-development partnership. This is an important milestone of this project and we are on track for volume production and the first half of next year, which we believe our result and significant market share gains in 2014. As mentioned last quarter we continue to see strong demand for our technology, which tends for the growing importance of our portfolio of advance video display processing techniques and we continue to experience a robust licensing pipeline. Pixelworks had a 15 year legacy of innovation in video with the portfolio of over a 120 issued patents and we continue to focus on developing and advancing our intellectual property…

Thank you, Bruce. Revenue for the third quarter 2013 was $15.3 million compared to $9.69 million in the second quarter of 2013 and $16.3 million in the year ago quarter. As Bruce mentioned, the sequential increase in revenue was due to the recognition of notable licensing revenue during the quarter as well as further ramping of our PA168 for the advanced TV market. Third quarter revenue was down compared to a year ago quarter primarily as a results of lower chip sales. The split of our third quarter chip revenue by market was 63% digital projection, 27% TV and panel and 10% embedded video display. Licensing revenue was $4.8 million in the third quarter compared to effectively no licensing revenue during the previous quarter. Revenue for digital projection in Q3 was approximately flat quarter-over-quarter at $6.6 million. Revenue from TV and panel grew for the second consecutive quarter increasing $1.2 million sequentially to $2.8 million in the third quarter. As previously mentioned, the strength was largely driven by the continued ramp of our PA168 for Ultra High Definition Televisions. Embedded video display revenue in Q3 was approximately $1 million. Non-GAAP gross profit margin was 61.6% in the third quarter compared to 49.7% in the previous quarter and 49% in the third quarter of 2012. The increase in gross margin during the quarter was primarily driven by this higher margin licensing revenue recognizing the quarter. Non-GAAP operating expenses were $7 million in the third quarter of 2013 compared to $8.7 million in the prior quarter and $7.7 million in Q3 2012. Operating expenses for the third quarter of 2013 as well as the year ago quarter include a reimbursement to research and development expense that’s a result of achieving certain milestones related to our perviously announced co-development agreement. As we discussed…

Hello

Hello, Questioner?

Yeah, I’m here. Can you hear me?

Yes, we can hear you.

Yes, congratulations on the good results. Could you give me again, I missed the revenue mix by product line for the third quarter? Could you just give the revenue mix again by projectors TV panel embedded in licensing?

Sure, for the chip revenue 63% projection, 27% TV and panel and 10% embedded video. The licensing revenue was $4.8 million projection was $6.6 million, TV was $2.8 million and embedded video was $1 million.

Okay, all right. And then with respect to guidance for the quarter you said revenues $14 million to $16 million, will the fourth quarter also see I guess continuing you’ll recognizing that licensing deals that you got last quarter, there will be one more incremental that recognized in the fourth quarter?

Yes, as I said last quarter, we expected higher license for most all of the license and services to be recognized over six to nine months. We do expect to recognize the rest of the license and services over the next six months.

Okay. And then Bruce you talked about a healthy pipeline of customer engagement and you said you capture significant licensing engagement. Is that an additional new licensing engagement this third quarter or where you just referring to the one that you had last quarter. Can you talk about the pipeline and the licensing engagement?

No, I’m referring to the one that we actually booked in Q3.

Oh, I see.

We 8-K-ed that that was actually captured in the third quarter.

I see, okay. All right, so and then you already captured at in the third quarter and then you recognized one-third of those revenues in the third quarter, right?

Well, we had only – we’ve based on the – what we said in the 8-K was to be recognized over the next six to nine months. So that was first piece of it.

Okay. And then can you talk a little bit about the pipeline, what types of customer engagements and applications and how that looks?

Sure, I don’t give a whole lot of granularly into who is in the pipeline and what these look like. I would say though we’ve been continuing to see opportunities for licensing our video technology on a number of fronts, continued to be very healthy and we’re seeing a healthy pipeline going forward as well.

Okay. And then given that your co-developed custom chip that you finished development here in Q4 and revenues in the first half of 2014; could a new product ramp like that half year seasonality or you would still expect some seasonal impact in the first quarter?

Yes, we do expect normal seasonality in the first quarter. We haven’t given any guidance to that, but we don’t know of anything that this is going to change the normal patterns within the projector market or the TD market. The co-development will start to ramp in the first half of that – the sales of that chip begin to ramp in the first half of 2014 and have a larger impact in the second half of 2014.

Okay. And then, Bruce, can you talk about the ultra-high-def TV customer, new product introductions, I’m sure we’ll see a lot more of this product to CES and what customers and designments that you have in that area?

Yes, I think, you are correct. We’ll see a lot of 4K/2K at CES this year. I think it’s certainly at the beginning of the market, and a lot of attentions being paid to it. I think, we only - I think – we’ve actually talk about was LG. The other ones we sort of haven’t discussed their names. Typically most customers are okay with us, making a press release and talking about it, we honored their confidentiality and say to what is. But if we step back a couple of quarters, I think we made a press release nothing – we pointed to that in previous conference calls before.

Okay. Thank you, and then finally I had just one final question. Can you talk about you chip development process for the tablet and mobility market; you said you will have new chip? Revenues also targeting that segment where you stand in that development and then you…

Yes, so I think what I said was really you would see product from us in the first half of 2014, and we are on track to execute to that. If we were, we’re well down that path. It is a stage and we’re anticipating a demonstrations at a very D technical level coming up to CES and like I said, we’ve introduced products in the first half of 2014.

Great, thank you.

All right. Thank you, Krishna. Okay, I’d like to thank everyone for joining us today and we’ll look forward to discussing the results of our Q4 2013 with you early next year. Thank you.