PIXELWORKS INC

Previous wording

As of June 30, 2024, we had an intellectual property portfolio of 265 patents related to the visual display of digital image data. We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost, bandwidth and increase overall system performance and device functionality. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.

Current wording

As of September 30, 2024, we had an intellectual property portfolio of 263 patents related to the visual display of digital image data. We focus our research and development efforts on developing video algorithms that improve quality, and architectures that reduce system power, cost, bandwidth and increase overall system performance and device functionality. We seek to expand our technology portfolio through internal development and co-development with business partners, and we continually evaluate acquisition opportunities and other ways to leverage our technology into other high-value markets.

Previous wording

Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon. On August 2, 2017, we acquired ViXS Systems, Inc., a corporation organized in Canada ("ViXS").

Current wording

Pixelworks was founded in 1997 and is incorporated under the laws of the state of Oregon.

Previous wording

Net revenue for the three and six months ended June 30, 2024 and 2023, was as follows (dollars in thousands):

Current wording

Net revenue for the three and nine months ended September 30, 2024 and 2023, was as follows (dollars in thousands):

Previous wording

Revenue recorded in the second quarter of 2024 consisted of $8.4 million in revenue from the sale of integrated circuit ("IC") products and $0.1 million in revenue related to engineering services, license revenue and other. Revenue recorded in the second quarter of 2023 consisted of $13.5 million in revenue from the sale of IC products and $0.1 million in revenue related to engineering services, license revenue and other.

Current wording

Revenue recorded in the third quarter of 2024 consisted of $9.5 million in revenue from the sale of integrated circuit ("IC") products and negligible revenue related to engineering services, license revenue and other. Revenue recorded in the third quarter of 2023 consisted of $16.0 million in revenue from the sale of IC products and negligible revenue related to engineering services, license revenue and other.

Previous wording

Revenue recorded in the first half of 2024 consisted of $23.8 million in revenue from the sale of IC products and $0.8 million in revenue related to engineering services, license revenue and other. Revenue recorded in the first half of 2023 consisted of $23.2 million in revenue from the sale of IC products and $0.4 million in revenue related to engineering services, license revenue and other.

Current wording

Revenue recorded in the first nine months of 2024 consisted of $33.3 million in revenue from the sale of IC products and $0.8 million in revenue related to engineering services, license revenue and other. Revenue recorded in the first nine months of 2023 consisted of $39.2 million in revenue from the sale of IC products and $0.4 million in revenue related to engineering services, license revenue and other.

Previous wording

The decrease in IC revenue in the second quarter of 2024 compared to the second quarter of 2023 is due to the following factors:

Current wording

The decrease in IC revenue in the third quarter of 2024 compared to the third quarter of 2023 is due to the following factors:

Previous wording

•Sales into the Mobile market decreased approximately $4.8 million or 70% due to decreased units sold.

Current wording

•Sales into the Mobile market decreased approximately $6.3 million or 76% due to decreased units sold.

Previous wording

•Sales into the Home & Enterprise market decreased approximately $0.3 million or 4%.

Current wording

•Sales into the Home & Enterprise market decreased approximately $0.2 million or 3%.

Previous wording

The increase in IC revenue in the first half of 2024 compared to the first half of 2023 is due to the following partially offsetting factors:

Current wording

The decrease in IC revenue in the first nine months of 2024 compared to the first nine months of 2023 is due to the following factors:

Previous wording

•Sales into the Home & Enterprise market decreased $0.7 million or 5%.

Current wording

•Sales into the Home & Enterprise market decreased $0.9 million or 5%.

Previous wording

Cost of revenue and gross profit for the three and six months ended June 30, 2024 and 2023, were as follows (dollars in thousands):

Current wording

Cost of revenue and gross profit for the three and nine months ended September 30, 2024 and 2023, were as follows (dollars in thousands):

Previous wording

Gross profit margin increased to 51% in the second quarter of 2024 compared to 40% in the second quarter of 2023 and increased to 51% in the first half of 2024 compared to 42% in the first half of 2023.

Current wording

Gross profit margin increased to 51% in the third quarter of 2024 compared to 43% in the third quarter of 2023 and increased to 51% in the first nine months of 2024 compared to 42% in the first nine months of 2023.

Previous wording

The increase in gross profit margin in the second quarter of 2024 compared to the second quarter of 2023 is primarily due to decreased unit sales into the Mobile market which generally have lower margins than products sold into the Home & Enterprise market, increased average selling prices ("ASP") on IC products sold into the Home & Enterprise market and decreased costs on Mobile products. These factors which positively impacted margin were partially offset by reduced absorption due to reduced revenue and inventory charges recorded in the second quarter of 2024.

Current wording

The increase in gross profit margin in the 2024 periods compared to the 2023 periods is primarily due to decreased unit sales into the Mobile market which generally have lower margins than products sold into the Home & Enterprise market, increased average selling prices ("ASP") on IC products sold into the Home & Enterprise market and decreased costs on Mobile products. These factors which positively impacted margin were partially offset by reduced absorption due to reduced revenue and increased inventory charges.

Previous wording

Under the co-development agreement, $5.8 million was payable by the customer within 60 days of the date of the agreement and three additional payments of $2.5 million, $1.9 million and $1.3 million were each payable upon completion of certain development milestones. As amounts became due and payable, they were offset against research and development expense on a pro rata basis. We did not recognize any offsets to research and development expense during the three months ended June 30, 2024 and 2023 or during the six months ended June 30, 2024. We recognized an offset to research and development expense of $1.9 million during the six months ended June 30, 2023. All milestones under the co-development agreement were completed as of December 31, 2023.

Current wording

Under the co-development agreement, $5.8 million was payable by the customer within 60 days of the date of the agreement and three additional payments of $2.5 million, $1.9 million and $1.3 million were each payable upon completion of certain development milestones. As amounts became due and payable, they were offset against research and development expense on a pro rata basis. We did not recognize any offsets to research and development expense during the three or nine months ended September 30, 2024. We recognized a negligible offset to research and development expense during the three months ended September 30, 2023. We recognized an offset to research and development expense of $1.9 million during the nine months ended September 30, 2023. All milestones under the co-development agreement were completed as of December 31, 2023.

Previous wording

•A $1.9 million benefit related to theco-development agreement wasrecognized in the second quarter of 2023 compared to no benefit recognized in the second quarter of 2024.

Current wording

•A $1.9 million benefit related to the co-development agreement was recognized in the first nine months of 2023 compared to no benefit recognized in the first nine months of 2024.

Previous wording

•Stock based compensation expense decreased $0.2 million primarily due to the change in our stock price.

Current wording

•Stock based compensation expense decreased $0.5 million primarily due to the change in our stock price.

Previous wording

Selling, general and administrative expense decreased $0.3 million, or 2% in the first half of 2024 compared to the first half of 2023 primarily due to a decrease in professional fees incurred related to our strategic plan with our subsidiary, PWSH.

Current wording

Selling, general and administrative expense decreased $1.0 million, or 6% in the first nine months of 2024 compared to the first nine months of 2023 primarily due to a decrease in accounting and other professional fees incurred related to our strategic plan with our subsidiary, PWSH.

Previous wording

During the three and six months ended June 30, 2024, we recorded $1.4 million in restructuring expense related to the Plan. During the three and six months ended June 30, 2023, we did not record any restructuring expense. As we continue to implement the Plan, we expect to incur additional restructuring charges of $0.2 million over the remainder of 2024.

Current wording

During the three and nine months ended September 30, 2024, we recorded $0.1 million and $1.5 million, respectively, in restructuring expense related to the Plan. During the three and nine months ended September 30, 2023, we did not record any restructuring expense. As we continue to implement the Plan, we expect to incur additional restructuring charges of $0.1 million over the remainder of 2024.

Previous wording

The provision for income taxes during the 2024 and 2023 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a negligible benefit for the reversal of previously recorded foreign tax contingencies during the first six months of 2024 and 2023.

Current wording

The provision for income taxes during the 2024 and 2023 periods is primarily comprised of current and deferred tax expense in profitable cost-plus foreign jurisdictions, accruals for tax contingencies in foreign jurisdictions and benefits for the reversal of previously recorded foreign tax contingencies due to the expiration of the applicable statutes of limitation. We recorded a negligible benefit for the reversal of previously recorded foreign tax contingencies during the first nine months of 2024 and 2023.

Previous wording

Total cash and cash equivalents decreased $9.7 million to $37.8 million at June 30, 2024 from $47.5 million at December 31, 2023. The net decrease during the first six months of 2024 was the result of $6.4 million used in operating activities, $2.9 million used for purchases of property and equipment and $0.5 million used for payments on other asset financings. These decreases were partially offset by $0.1 million in proceeds from the issuances of common stock under our employee equity incentive plans.

Current wording

Total cash and cash equivalents decreased $18.7 million to $28.8 million at September 30, 2024 from $47.5 million at December 31, 2023. The net decrease during the first nine months of 2024 was the result of $14.2 million used in operating activities, $3.7 million used for purchases of property and equipment and $1.0 million used for payments on other asset financings. These decreases were partially offset by $0.2 million in proceeds from the issuances of common stock under our employee equity incentive plans.

Previous wording

As of June 30, 2024, our cash and cash equivalents balance consisted of $24.3 million in cash, $13.0 million held in U.S. dollar denominated certificates of deposit and $0.5 million in cash equivalents held in U.S. dollar denominated money market funds. Although we did not hold short- or long-term investments as of June 30, 2024, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months. Additionally, no maturities can extend beyond 24 months and concentrations with individual securities are limited. At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSRO") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSRO. Our investment policy is reviewed at least annually by our Audit Committee.

Current wording

As of September 30, 2024, our cash and cash equivalents balance consisted of $20.3 million in cash, $8.0 million held in U.S. dollar denominated certificates of deposit and $0.5 million in cash equivalents held in U.S. dollar denominated money market funds. Although we did not hold short- or long-term investments as of September 30, 2024, our investment policy requires that our portfolio maintain a weighted average maturity of less than 12 months. Additionally, no maturities can extend beyond 24 months and concentrations with individual securities are limited. At the time of purchase, the short-term credit rating must be rated at least A-2 / P-2 / F-2 by at least two Nationally Recognized Statistical Rating Organizations ("NRSRO") and securities of issuers with a long-term credit rating must be rated at least A or A3 by at least two NRSRO. Our investment policy is reviewed at least annually by our Audit Committee.

Previous wording

Accounts receivable, net decreased to $4.9 million as of June 30, 2024 from $10.1 million as of December 31, 2023. The average number of days sales outstanding decreased to 52 days as of June 30, 2024 from 56 days as of December 31, 2023. The decrease in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the second quarter of 2024, and the fourth quarter of 2023 as well as a decrease in revenue in the second quarter of 2024 compared to the fourth quarter of 2023.

Current wording

Accounts receivable, net decreased to $4.5 million as of September 30, 2024 from $10.1 million as of December 31, 2023. The average number of days sales outstanding decreased to 42 days as of September 30, 2024 from 56 days as of December 31, 2023. The decrease in accounts receivable and days sales outstanding was due to normal fluctuations in the timing of sales and customer receipts within the third quarter of 2024, and the fourth quarter of 2023 as well as a decrease in revenue in the third quarter of 2024 compared to the fourth quarter of 2023.

Previous wording

Inventories were $5.0 million as of June 30, 2024 compared to $4.0 million at December 31, 2023. Inventory turnover decreased to 4.0 as of June 30, 2024 from 8.6 as of December 31, 2023 primarily due to lower cost of goods sold as a result of lower revenue during the second quarter of 2024 compared to the fourth quarter of 2023. Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.

Current wording

Inventories were $4.4 million as of September 30, 2024 compared to $4.0 million at December 31, 2023. Inventory turnover decreased to 3.9 as of September 30, 2024 from 8.6 as of December 31, 2023 primarily due to lower cost of goods sold as a result of lower revenue during the third quarter of 2024 compared to the fourth quarter of 2023. Inventory turnover is calculated based on annualized quarterly operating results and average inventory balances during the quarter.

Previous wording

On June 5, 2020, we entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen"), pursuant to which we may issue and sell shares of the Company's common stock, par value $0.001 per share, having an aggregate offering price of up to $25.0 million, from time to time, through an "at the market" equity offering program under which Cowen will act as sales agent. Under the Sales Agreement, Cowen may sell the shares by methods deemed to be an "at the market offering" as defined in Rule 415(a)(4) promulgated under the Securities Act of 1933, as amended, including sales made by means of ordinary brokers’ transactions on the Nasdaq Global Market or on any other existing trading market for the common stock or otherwise at market prices prevailing at the time of sale, in block transactions, or as otherwise directed by us. We pay Cowen a commission equal to three percent (3.0%) of the gross sales proceeds of any common stock sold through Cowen under the Sales Agreement. The Sales Agreement may be terminated by us upon prior notice to Cowen or by Cowen upon prior notice to us, or at any time under certain circumstances, including but not limited to the occurrence of a material adverse change in the Company. We are not obligated to sell any shares under the Sales Agreement.

Current wording

On June 5, 2020, we entered into a sales agreement (the "Sales Agreement") with Cowen and Company, LLC ("Cowen"), pursuant to which we could issue and sell shares of the Company's common stock, par value $0.001 per share, having an aggregate offering price of up to $25.0 million, from time to time, through an "at the market" equity offering program under which Cowen acted as sales agent (the "2020 ATM Program"). On November 6, 2024, we notified Cowan that we were terminating the Sales Agreement and the underlying 2020 ATM Program, pursuant to which we sold an aggregate of 1,808,484 shares of common stock.

Previous wording

There was no activity under this at the market offering during the six months ended June 30, 2024 or June 30, 2023.

Current wording

There was no activity under the 2020 ATM Program during the nine months ended September 30, 2024 or September 30, 2023.

Previous wording

As of June 30, 2024, our cash and cash equivalents balance of $37.8 million was highly liquid. We anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for the next twelve months and beyond. We may pursue financing arrangements including the issuance of debt or equity securities or reduce expenditures, or both, to meet our cash requirements, including in the longer term. There is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which, in turn, may have an adverse effect on our financial position, results of operations and cash flows.

Current wording

As of September 30, 2024, our cash and cash equivalents balance of $28.8 million was highly liquid. We anticipate that our existing working capital will be adequate to fund our operating, investing and financing needs for at least the next twelve months. If our cash is insufficient to meet our needs, including in the longer term, we may seek to raise capital by pursuing financing arrangements, including the issuance of debt or equity securities, or reducing expenditures, or both, to meet our cash requirements. There is no assurance that, if required, we will be able to raise additional capital or reduce discretionary spending to provide the required liquidity which, in turn, may have an adverse effect on our financial position, results of operations and cash flows.

Previous wording

Other than as set forth above, there were no material changes to our liquidity and capital resources during the six month period ended June 30, 2024 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 13, 2024.

Current wording

Other than as set forth above, there were no material changes to our liquidity and capital resources during the nine month period ended September 30, 2024 from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 13, 2024.