Pixelworks Reports Third Quarter 2018 Financial Results

PIXELWORKS, INC. RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION * (In thousands, except per share data) (Unaudited)

	Three Months Ended									Nine Months Ended
	September 30,			June 30,			September 30,			September 30,			September 30,
	2018			2018			2017			2018			2017
Reconciliation of GAAP and non-GAAP gross profit
GAAP gross profit	$	11,237		$	9,534		$	9,011		$	28,573		$	32,604
Amortization of acquired intangible assets		298			298			199			894			199
Inventory step-up and backlog amortization		97			239			1,016			458			1,016
Stock-based compensation		87			78			57			231			179
Deferred revenue fair value adjustment		52			—			25			52			25
Total reconciling items included in gross profit		534			615			1,297			1,635			1,419
Non-GAAP gross profit	$	11,771		$	10,149		$	10,308		$	30,208		$	34,023
Non-GAAP gross profit margin		54.7	%		52.7	%		54.9	%		53.9	%		54.7	%

Reconciliation of GAAP and non-GAAP operating expenses
GAAP operating expenses	$	10,806		$	11,984		$	13,389		$	31,886		$	31,595
Reconciling item included in research and development:
Stock-based compensation		609			627			445			1,831			1,121
Reconciling items included in selling, general and administrative:
Stock-based compensation		762			682			855			1,983			1,796
Amortization of acquired intangible assets		101			101			67			303			67
Acquisition and integration		—			—			1,611			—			2,505
Restructuring		414			602			1,481			1,035			1,481
Total reconciling items included in operating expenses		1,886			2,012			4,459			5,152			6,970
Non-GAAP operating expenses	$	8,920		$	9,972		$	8,930		$	26,734		$	24,625

Reconciliation of GAAP and non-GAAP net income (loss)
GAAP net income (loss)	$	231		$	(2,613	)	$	(4,706	)	$	(2,980	)	$	(621	)
Reconciling items included in gross profit		534			615			1,297			1,635			1,419
Reconciling items included in operating expenses		1,886			2,012			4,459			5,152			6,970
Reconciling items included in interest expense and other, net		—			—			194			(1,203	)		194
Tax effect of non-GAAP adjustments		(181	)		(154	)		(268	)		(236	)		157
Non-GAAP net income (loss)	$	2,470		$	(140	)	$	976		$	2,368		$	8,119
Non-GAAP net income (loss) per share:
Basic	$	0.07		$	(0.00	)	$	0.03		$	0.07		$	0.27
Diluted	$	0.07		$	(0.00	)	$	0.03		$	0.06		$	0.25
Non-GAAP weighted average shares outstanding:
Basic		36,195			35,704			32,552			35,697			30,545
Diluted		37,993			35,704			34,656			37,634			32,632

*Set forth above are reconciliations of the non-GAAP financial measure to the most directly comparable GAAP financial measure. The non-GAAP financial measure disclosed by the company has limitations and should not be considered a substitute for, or superior to, the financial measure prepared in accordance with GAAP, and the reconciliations from GAAP to Non-GAAP measures should be carefully evaluated. Please refer to "Non-GAAP Financial Measures” in this document for an explanation of the adjustments made to the comparable GAAP measures, the ways management uses the non-GAAP measures, and the reasons why management believes the non-GAAP measures provide useful information for investors.

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