Pixelworks Reports Third Quarter 2018 Financial Results

PIXELWORKS, INC. RECONCILIATION OF GAAP AND NON-GAAP GROSS PROFIT MARGIN * (Figures may not sum due to rounding) (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 margin
GAAP gross profit margin	52.3	%	49.5	%	48.0	%	51.0	%	52.4	%
Amortization of acquired intangible assets	1.4	%	1.5	%	1.1	%	1.6	%	0.3	%
Inventory step-up and backlog amortization	0.5	%	1.2	%	5.4	%	0.8	%	1.6	%
Stock-based compensation	0.4	%	0.4	%	0.3	%	0.4	%	0.3	%
Deferred revenue fair value adjustment	0.2	%	—	%	0.1	%	0.1	%	—	%
Total reconciling items included in gross profit	2.5	%	3.2	%	6.9	%	2.9	%	2.3	%
Non-GAAP gross profit margin	54.7	%	52.7	%	54.9	%	53.9	%	54.7	%

*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.

PIXELWORKS, INC. RECONCILIATION OF GAAP AND NON-GAAP FINANCIAL INFORMATION * (In thousands) (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 net income (loss) and adjusted EBITDA
GAAP net income (loss)	$	231		$	(2,613	)	$	(4,706	)	$	(2,980	)	$	(621	)
Stock-based compensation		1,458			1,387			1,357			4,045			3,096
Restructuring		414			602			1,481			1,035			1,481
Amortization of acquired intangible assets		399			399			266			1,197			266
Inventory step-up and backlog amortization		97			239			1,016			458			1,016
Deferred revenue fair value adjustment		52			—			25			52			25
Tax effect of non-GAAP adjustments		(181	)		(154	)		(268	)		(236	)		157
Gain on debt extinguishment		—			—			—			(1,272	)		—
Discount accretion on convertible debt fair value		—			—			72			69			72
Acquisition and integration		—			—			1,611			—			2,505
Fair value adjustment on convertible debt conversion option		—			—			122			—			122
Non-GAAP net income (loss)	$	2,470		$	(140	)	$	976		$	2,368		$	8,119
EBITDA adjustments:
Depreciation and amortization	$	933		$	923		$	900		$	2,682		$	2,714
Interest expense and other, net		112			131			334			474			534
Non-GAAP provision for income taxes		269			186			68			632			745
Adjusted EBITDA	$	3,784		$	1,100		$	2,278		$	6,156		$	12,112

*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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