Pixelworks, Inc. Aktie

Good day, ladies and gentlemen. This is Haley Aman, Chief Financial Officer of Pixelworks. On behalf of the Board of Directors and officers of the company, I want to welcome you to this Annual Meeting of Shareholders, and thank you for your attendance.

Our annual meeting is being held today for the purpose of electing 5 directors, approving an amendment to the 2006 Stock Incentive Plan, to hold an advisory vote on executive compensation, ratifying the appointment of Grant Thornton LLP as Pixelworks' independent registered public accounting firm for the current fiscal year and transacting such other business as may properly come before the annual meeting.

Before we cover the business matters of today's meeting, I'd like to introduce the members of the Board, senior management and special guests in attendance today. I am pleased to introduce the current members and nominees for our Board of Directors; Todd DeBonis, Chairman of the Board, who is also our CEO; Dean Butler, Lead Independent Director; Douglas Darrow, Scott Gibson, and Daniel Heneghan.

I would also like to introduce Greg Zafiris, Pixelworks' Chief Legal Officer; Leah Grant, who will be serving as Inspector of Elections; and Rimma Tabakh from Grant Thornton LLP.

The agenda for this meeting will be as follows: one, election of directors; two, approval of amendment to the 2006 Stock Incentive Plan; three, advisory vote on executive compensation; four, ratification of the appointment of Grant Thornton LLP as Pixelworks' independent registered public accounting firm for the current fiscal year; five, vote count; six, formal meeting adjournment; and seven, question-and-answer period.

Notice of this meeting was properly mailed on April 17, 2026, and to the shareholders of record at March 16, 2026. Broadridge has been appointed by the Board of Directors as Inspector of Elections. They will determine the number of votes represented here in person or by proxy, the validity of proxies, the existence of a quorum and the number of votes cast on all matters. The Inspector of Elections has advised me that we have a quorum. I, therefore, declare this annual meeting lawfully convened, and we will proceed to the first proposal.

The first proposal is the election of 5 directors. The nominees for election to the Board of Directors are as follows: Todd DeBonis, Dean Butler, Douglas Darrow, Scott Gibson and Dan Heneghan. Our bylaws require nominations by shareholders to have been received prior to the date of this meeting and no such nominations were received.

Proposal #2 is to approve an amendment to the 2006 Stock Incentive Plan. The proxy statement for the annual meeting, which was mailed to shareholders on April 17, 2026, contains detailed information on this proposal.

Proposal 3 is an advisory vote on executive compensation. The proxy statement contains detailed information on the proposal.

And finally, Proposal 4 is to ratify the appointment of Grant Thornton LLP as Pixelworks' independent registered public accounting firm for the current fiscal year.

We did not receive notice from any shareholders of their intent to attend the meeting and vote telephonically during the meeting, so the polls are now closed.

I now recognize Leah Grant, our Inspector of Elections, who will present the preliminary voting results.

Thank you, Haley. The preliminary results of voting are as follows: for proposal 1, the election of 5 directors, each nominee received more than 87% of the votes cast.

For proposal 2, more than 90% of votes were cast in favor of the approval of the amended and restated 2006 Stock Incentive Plan.

For proposal 3, more than 89% of votes were cast in favor of the advisory vote to approve the company's executive compensation.

And finally, for proposal 4, more than 98% of votes were cast in favor of the ratification of the company's independent registered public accounting firm.

I, therefore, declare that the Board of Directors, 5 nominees for election of directors, Todd DeBonis, Dean Butler, Douglas Darrow, Scott Gibson and Daniel Heneghan have been duly elected and proposal numbers 2, 3 and 4 have been duly approved.

This completes the formal business to come before this annual meeting. There being no formal business, this annual meeting stands adjourned.

Good day, ladies and gentlemen, and welcome to Pixelworks' First Quarter 2026 Earnings Conference Call. I will be your operator for today's call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations.

Thank you, Victor. Good afternoon, and thank you for joining us on today's call. With me on the call are Pixelworks' Chairman and CEO, Todd DeBonis; and Chief Financial Officer, Haley Aman. The purpose of today's conference call is to supplement the information provided in Pixelworks' press release issued earlier today announcing the company's financial results for the first quarter of 2026.

Before we begin, I'd like to remind you that various remarks we make on this call, including those about projected future financial results, economic and market trends and 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 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, May 14, 2026. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, the company's annual report on Form 10-K for the year ended December 31, 2025, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results. Please note that throughout the company's press release and management statements during this conference call, we refer to net loss attributable to Pixelworks as simply net loss.

With that, it's now my pleasure to turn the call over to Pixelworks' Chairman and CEO. Todd, please go ahead.

Thank you, Brett. Good afternoon, and welcome to everyone joining us for today's conference call. As previewed on the previous conference call in February, Q1 was a transformational quarter for Pixelworks. After closing the sale of our Shanghai-based semiconductor subsidiary and receiving the net cash proceeds from the transaction in early January, we completed a series of planned restructuring actions to streamline the remaining organization and cost structure. The onetime severance and other related costs resulting from these actions were recognized during the first quarter, and we expect to realize a significantly lower run rate for operating expenses beginning in the second quarter.

Also during the quarter, we settled all remaining cash outlays associated with the sale of our Shanghai subsidiary. And we ended the first quarter with cash balance of $58 million and $0 debt. Taken together, we exited the first quarter as a repositioned, well-capitalized and focused company with our entire team supporting the go-forward strategy of building a global technology licensing business.

As a reminder, post transaction, we continue to have ownership of salient intellectual property, including over 60 issued and pending patents anchored by our industry-leading TrueCut Motion platform and motion grading services. Our strategy is centered on enabling a truly differentiated viewing experience while continuing to expand our core strengths in visualization enhancement solutions and pursuing new and existing licensing initiatives.

Today, our TrueCut Motion platform continues to be utilized by leading filmmakers to enhance the cinematic experience across premium theatrical screens. We recently completed work on one of our most complex motion grading projects to date in support of the most technically ambitious theatrical release of the year, Billie Eilish: Hit Me Hard and Soft - The Tour Live in 3D. Directed by Billie Eilish and Academy Award-winning James Cameron and distributed globally by Paramount Pictures, the film was released to premium large-format 3D theaters on May 8, where it generated an estimated worldwide box office of $20 million in the opening weekend, effectively recouping the film's full production budget in a matter of days.

Working in postproduction alongside Lightstorm and multiple contributing technology providers, our TrueCut Motion platform was tasked with overcoming unprecedented motion-grading challenges, including novel world-first camera systems and multiple source frame rates. The end result was a stunning and immersive concert experience in which TrueCut Motion enabled the creative team to preserve the raw energy of live performances while delivering perfect cinematic motion clarity.

The New York Times review summed it up as the pure quality of image and visceral sense of 3D immersion is spectacular. This high-profile collaboration and highly technical implementation of TrueCut Motion grading further validates the unique value proposition of our core cinematic solution, positioning Pixelworks as a recognized enabler of next-generation immersive entertainment experiences.

In addition, there continues to be consistent indications by both the studios and theater operators shifting towards premium large-format experiences. At the Annual CinemaCon Conference held in April, the atmosphere was observably upbeat with year-to-date box office sales tracking approximately 20% higher over the same period in 2025. Leading studios expressed renewed volume of theatrical releases and commitments to longer exhibition exclusivity periods with Paramount committing to 30 films annually and Amazon MGM scaling to 15 targeted releases, while also endorsing a 45-day theatrical window that establishes a stable pipeline of content for exhibitors.

Also in conjunction with CinemaCon, Disney launched its new Infinity Vision certification aimed at expanding consumer awareness of premium large-format screens, underscoring the increased importance of higher-margin revenue from premium large-format content and experience-based pricing. Collectively, these observed trends at the world's largest show for global motion picture industry continue to validate our thesis and the industry's increasing emphasis on premium large-format theatrical experiences.

As part of our strategy to accelerate expanded adoption of our TrueCut Motion platform, our near-term focus is on supporting the theatrical release of premium visually stunning films. This includes broadening our direct engagement with leading premium exhibitors who share our motivation to encourage both studios and filmmakers to consistently make more premium format content available.

Following the collaborative ecosystem partnerships that we announced with Marcus Theatres and Odeon Cinemas Group earlier this year and in addition to our previously launched collaboration with CINITY, we recently added another published endorsement with Vue, the largest privately owned cinema operator in Europe to bring our advanced TrueCut Motion grading technology to their premium theaters.

This includes prioritizing TrueCut content as part of Vue's most advanced EPIC brand cinema experience, featuring world-leading HDR laser projection by Barco and advanced light steering technology that delivers up to 6x the brightness of standard cinema screens.

With TrueCut Motion's unique and commercially proven capability to enable the most authentic high-fidelity viewing experience, you will see us continue to expand our TrueCut Motion ecosystem of leading premium exhibitors. As we grow this ecosystem, it will naturally drive increasing market demand for premium large-format content from filmmakers and studios. And while our R&D team continues to expand on the existing capabilities and increasing productivity of our TrueCut Motion grading tools, we are also simultaneously pursuing compelling adjacent market opportunities to deliver enhanced visualization solutions, leveraging our core technology and expertise. I look forward to elaborating on these efforts and complementary opportunities as they evolve and mature over the coming quarters.

In closing, I want to reiterate that during the quarter, we completed all targeted restructuring and streamlining actions following the closed sale of our prior Shanghai semiconductor subsidiary. As a result, we exited the first quarter fully repositioned as a global technology licensing company with a unified organization that's more nimble, scalable and asset-light and focused on delivering highly differentiated cinematic and visualization enhancement solutions. We are well capitalized to execute on our strategic growth objectives and are committed to maintaining a robust balance sheet as we continue to build a broader and highly profitable licensing business centered around cinematic and visual enhancement solutions.

With that, I'll turn the call over to Haley to provide some additional financial details for the quarter, including our current balance sheet position.

Thank you, Todd. As Todd previously discussed, on January 6, 2026, we completed the transaction to sell all equity interest and associated assets of our Pixelworks Shanghai semiconductor business. The contribution from our previous Shanghai subsidiary to operating results in the first quarter of 2026 prior to the close of the sale was determined to be immaterial. Therefore, the company's reported financial results contained in today's press release do not include discontinued operations activity from the first several days of January 2026 before the sale closed.

Starting with a review of the balance sheet. Upon closing the sale of Pixelworks Shanghai semiconductor subsidiary in early January, Pixelworks received cash proceeds net of transaction costs and withholding taxes paid in China, totaling approximately $51 million. After the transaction closed, we paid out the remaining transaction expenses during the first quarter, including accounting, legal and advisory fees as well as bonuses. We also completed a series of planned restructuring actions to streamline the remaining organization, resulting in the recognition of onetime severance costs.

After accounting for all nonrecurring cash items related to the sale transaction and our associated restructuring actions, the company ended the first quarter with cash and cash equivalents of approximately $58 million, consistent with our previously communicated expectations.

Additionally, I want to highlight that all previously reported liabilities and commitments, including the redeemable noncontrolling interest associated with our prior Shanghai subsidiary were fully released in conjunction with the closed sale, and therefore, the company's reported financial statements for the first quarter of 2026 reflect the elimination of all such prior contingencies.

Finally, with respect to balance sheet, we believe the company's existing cash and cash equivalents balance provides ample runway and flexibility to execute our strategy of building a pure-play technology licensing business. As such, in early March, we elected to cancel our previously available but recently unused at-the-market stock facility. And then on March 30, the Board of Directors authorized a newly established stock repurchase program in the amount of $5 million. This authorization provides an initial 2-year window for the potential repurchase of shares of Pixelworks' common stock at the company's discretion beginning on May 15, 2026.

Turning to the income statement. Revenue for the first quarter of 2026 was approximately $450,000, comprised entirely of revenue from our TrueCut Motion platform and related motion grading services. For context, full year 2025 revenue from TrueCut Motion and related motion grading services was approximately $690,000. Gross profit for the first quarter of 2026 was $253,000 or 56.7% of revenue. Total operating expenses for the first quarter were $5.2 million, which included approximately $2 million of anticipated restructuring costs associated with streamlining the remaining organization following the completed sale and also approximately $360,000 of stock-based compensation expense.

I want to point out that reported operating expenses for the first quarter reflect only a partial period of the anticipated benefits from certain headcount reductions and other streamlining actions taken during the quarter. Although we are not providing quarterly financial guidance, I would like to reiterate our previously provided high-level framework for thinking about the company's anticipated near-term operating results. First, starting in the second quarter, we are targeting to maintain cash operating expenses of around $2 million. Additionally, based on the company's existing cash balance and the current interest rate environment, we expect to generate interest income of between $400,000 and $500,000 quarterly.

That completes our prepared remarks, and we look forward to taking your questions. Operator, please proceed with the Q&A session.

[Operator Instructions] Our first question will come from the line of Suji Desilva from ROTH Capital.

So a quick question for Haley. So the $2 million you expect in cash OpEx, I think that compares if I adjust the 1Q number to $2.9 million. Is that the right magnitude of savings from the streamlining efforts? Just want the ballpark level.

Yes. So did you take the $5.2 million minus the restructuring minus the stock comp?

Correct.

Yes. And then there's also some benefit in Q2 from like layoffs that happened in Q1 and there's just normal salaries. So yes, that would be the number.

Okay. So that's a good run rate to go forward then, $2 million roughly? [ Growth ] level?

Yes.

Okay. And Todd, let's see, the partner strategy, which of the partners you've already announced is most strategic to near-term revenue generation? And maybe what's your partnership plan going forward? Are we -- do you have the people in place? Or are there key partners you still need to secure to establish the licensing base? Hello?

Speaker, you are on mute.

Sorry about that Suji. I was muted. You there?

I'm here, yes, I didn't hear.

That's all right. I'll start over. So listen, for now, and I said this last call, we are focused on theatrical content, premium theatrical content going to our premium large-format exhibitor partners. We've announced, as I summarized here, a collection of 4 announced exhibitor partners. There's many more that we're targeting, okay? Most of -- if you go look at the exhibition landscape, most of the capital that they're spending is on premium large-format theaters, either upgrading older theaters or building new theaters but premium large format. It's very clear from IMAX, Dolby, CINITY Vue, Odeon, Marcus, Cinemark, Regal, AMC that when you have a compelling theatrical release coming to a premium large-format experience, the box office response, the amount of money they make in those premium large-format facilities versus non-premium is big. I mean it's like almost 10:1.

And so all capital is being targeted towards the premium experience. And what we're trying to do is go convince the studios and filmmakers don't just let the exhibitors carry the load through their capital investment of new facilities, bring them premium content that showcases those facilities. And so that's what we're working on. We're working on partners that are exhibitors, and we're working on studios to bring out visually stunning content that's been motion graded. And we're not going to make a ton of money off this initially, okay? We're greasing the skids, okay? And then at some point, you'll start to see us announce avenues for leveraging this content into licensing deals.

Okay. And then, Todd, you talked about adjacencies to TrueCut. I know you wanted to kind of wait until some of those came to light. But how should we think about just the areas that are in your purview beyond TrueCut just to understand where we might be going with the assets you already have in place?

Well, I mean -- so today, if you go look at what we do with TrueCut, I mean, we use -- we've been using AI trained motion modeling for the last 5 years. We fine-tuned our motion model and its expertise. And then how do you deliver that not only to 2D but 3D immersive environment. When you really look at some of the fundamental tools that we use to deliver that technology, they can be leveraged in many of these new up-and-coming AI-based segments that people are looking into. But I'm really not ready to talk about it in detail, Suji.

And then maybe last 2 questions. The -- you announced the switch from the ATM to the buyback. That's a good start there. Just wondering with the cash balance you have, what inorganic or other concepts? Just any color there would be helpful.

That's the first time in a long time that we have had the luxury of ample cash balances. So it gives you lots of opportunity. It gives you opportunity to pursue deals with companies that maybe we need to invest into technology, maybe we need to invest into content creation. It does leave M&A open if there's opportunity that would be supportive to our strategy. We're not viewing it as we're looking for a home for the money right now. We're just looking at it that it is ammunition to go out and pursue our strategy.

Okay. That helps. Yes. So the thought of joint development agreement sounds interesting, obviously. I hope you're not going to get into the streaming content creation business yourself, but we never know.

We're not that ambitious.

Good. Leave it to Amazon. So -- and then lastly, on org structure. I guess, is it clean now with all the restructuring you've done and the transactions that it's essentially one organization focused on TrueCut? Or maybe you can give us some picture of what -- how the organization is arranged now, that will be helpful to understand.

Well, so it's an organization today of approximately 25 people. In the way that this type of business works is we do leverage. One of the things about Hollywood. There are some very talented people that go project to project. And they're not permanent employees of any one studio, one technology provider, one special effects company, whatever it may be, but they're very talented and they go project by project. We do have these types of people available to us without bringing them in as employees.

So the 25 people is just our core employment base. But we have many of these contractors available to us from time to time on projects. So we will expand when needed and pull back. And this is the norm in this industry. Of the 25 permanent people, over half is R&D. So we're -- I mean, we -- if you look at our spend, it's not high. It's a couple of million a quarter. Most of it's going in tool development. We -- and we're not talking about tools that we're using today. We're talking about tools that we would introduce for either new features for our current market or new tools for a new market.

I'm not showing any further questions in the queue. I'd like to turn it back over to management for closing remarks.

Well, I think that's it for Q1 quarterly update. I look forward to giving you further updates to shareholders, further updates as we move along in our strategy. Thank you.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Good day, ladies and gentlemen, and welcome to Pixelworks, Inc.'s Fourth Quarter 2025 Earnings Conference Call. I will be your operator for today's call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations. Please go ahead.

Thank you, Didi. Good afternoon, and thank you for joining us on today's call. With me on the call are Pixelworks' Chairman and CEO, Todd DeBonis; and Chief Financial Officer, Haley Aman. The purpose of today's conference call is to supplement the information provided in Pixelworks' press release issued earlier today announcing the company's financial results for fiscal year 2025.

Before we begin, I'd like to remind you that various remarks we make on this call, including those about 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, March 12, 2026. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, the company's annual report on Form 10-K for the year ended December 31, 2025, and subsequent SEC filings for a description of factors that could cause forward-looking statements to differ materially from actual results. Please note, throughout the company's press release and management statements during this conference call, we refer to net loss attributable to Pixelworks, Inc. as simply net loss.

With that, it's now my pleasure to turn the call over to Pixelworks' Chairman and CEO. Todd, please go ahead.

Thank you, Brett. Good afternoon, and welcome to everyone joining us on today's conference call. As a foundation for discussing our go-forward business and strategy, I want to begin today's call with a review of our recently completed sale of the company's Shanghai-based subsidiary. Following a roughly year-long process, in October, we signed a definitive purchase agreement to sell all of Pixelworks, Inc.'s ownership of its Shanghai semiconductor subsidiary to a special purpose entity controlled by VeriSilicon.

Then on January 6 of this year, we announced the successful closing of the transaction, which resulted in net cash proceeds to Pixelworks of approximately $51 million. The cash proceeds from the sale were received in early January, and with the approximate $11 million we had on hand at the end of 2025, our cash balance starting this year was approximately $62 million. In addition, there is still approximately $1.2 million in escrow for a tax dispute that looks to be resolved in our favor.

As outlined in my letter to shareholders last November, the rationale for the transaction was threefold. First, it unlocks significant value for our shareholders by monetizing a key asset that was exposed to increasingly complex business and geopolitical environments. In addition to repatriating the cash proceeds to the U.S., the transaction also completely eliminated all prior obligations of Pixelworks, Inc. to minority investors in the Shanghai subsidiary.

Second, with the exit of the semiconductor hardware business, we were able to reposition Pixelworks as a global technology licensing business, focused on cinematic visualization solutions, which I'll talk more about in a minute.

Lastly, the transaction meaningfully strengthened our balance sheet. increasing both the company's financial stability and flexibility. Without the financial and capital burdens associated with operating a resource-intensive semiconductor business in China, Pixelworks can focus on expanding our core strengths in visualization enhancement solutions, pursuing new and existing licensing initiatives and allocating capital to the highest ROI market opportunities.

Since the transaction closed in January, we have taken additional steps to transform the remaining organization. These included reducing headcount that primarily were supporting the Shanghai subsidiary as well as adding a few key hires, most notably the appointment of our new EVP of Business Development, Sevan Brown. We also made changes to Pixelworks' Board of Directors to better align with and support our go-forward strategy.

Having provided that background, I want to frame what our business looks like today post transaction. We have effectively transformed Pixelworks into a lean, asset-light global technology licensing company. We continue to have 100% ownership of a significant intellectual property portfolio, underpinned by over 60 issued and pending patents related to our TrueCut Motion grading platform as well as broader visual enhancement technologies.

As of today, the company is comprised of less than 25 full-time employees with roughly 60% being dedicated to R&D. To the extent we choose to grow the size of our team, it will be based upon demand for our technology as opposed to arbitrary growth targets.

Today and going forward, as a pure-play technology licensing company, we are focused on providing a combination of new and existing cinematic visualization solutions that enable truly differentiated viewing experiences. Our current portfolio of solutions is anchored by Pixelworks' TrueCut Motion platform, which continues to be utilized by leading filmmakers to enhance the cinematic experience across premium theatrical screens.

In 2025, we were accredited with several notable releases featuring TrueCut Motion, including DreamWorks Animation's The Bad Guys 2 and Universal Pictures' Nobody 2 released to worldwide premium large-format theaters. Additionally, Jurassic World Rebirth was showcased in TrueCut Motion format on CINITY premium screens. And then our motion grading technology was most recently used in Universal Pictures' theatrical release of Wicked: For Good.

As part of our refined strategy to accelerate expanded adoption of our TrueCut Motion platform, we are putting increased emphasis on supporting premium, visually stunning films that are released theatrically. Together with today's growing premium large-format theatrical experiences, these tent-pole titles generate an outsized share of the total theater box office sales.

Further validating this fact is the rapidly growing number of premium large format, or PLF, screens with the industry's largest exhibitors allocating a majority of their new CapEx spending to expand their premium theatrical experiences. As such, we are pursuing further direct engagement with the leading premium exhibitors who are naturally aligned with our objective of engaging studios and filmmakers to deliver more premium format content.

The initial results of these direct engagement efforts have been very positive. In January, we announced a partnership with Marcus Theatres to prioritize TrueCut Motion across their premium screens. For context, Marcus is the fourth largest theater chain in the United States, with nearly 1,000 screens across 78 cinema complexes operated under multiple different brands. Most recently, we secured a similar endorsement from Odeon Cinemas Group, the largest cinema operator in Europe and also affiliate of AMC, to bring additional titles to TrueCut Motion format to their premium auditoriums. We are currently in discussions with and expect to announce partnerships with additional leading premium exhibitors in the near future.

Collectively, we anticipate these collaborations with exhibitors will result in increased demand for our TrueCut Motion format. Our near-term objective is to be associated with many of the most visually impactful titles released to theaters in a given year, which we believe will accelerate our growth path towards increased market awareness and expanding ecosystem partnerships.

With TrueCut Motion's unique ability to enable the most authentic high-fidelity viewing experience and a growing number of premium screens, we continue to believe there is a large and compelling market opportunity for our motion grading technology and expertise. The primary focus of our advanced algorithm team is to further expand the capabilities of our motion grading tools, both for productivity and better picture quality.

Today, we are working on our most complex projects to date, which is providing us with real-time feedback from our motion grading supervisors. In addition to this activity, we identified adjacent opportunities for our motion processing technology. We, like others, are leaning into the benefits that AI technology can bring to our development process.

In summary, the successful exit from our previous semiconductor business has enabled us to transform the company into a more nimble, scalable and asset-light organization. That's well capitalized. Our immediate strategic focus is enabling additional premium large-format theatrical experiences and currently have a growing demand for our TrueCut Motion grading services.

I also want to emphasize that maintaining a robust balance sheet remains a high priority. We are committed to prudently managing resources and efficiently using our cash on operations as we work to build a broader and highly profitable licensing business centered around cinematic and visual enhancement solutions.

With that, I'll turn the call over to Haley to provide some additional information and details as well as our current balance sheet position.

Thank you, Todd. As Todd previously discussed, on January 6, 2026, we completed the transaction to sell all equity interests and associated assets of our Pixelworks Shanghai semiconductor subsidiary business.

In December, this business met all criteria to be considered held for sale, at which time the operating results of our Shanghai subsidiary became designated as discontinued operations. Therefore, the company's reported financial results contained in today's press release for fiscal years 2024 and 2025 represent the company's results on a continuing operations basis. With respect to the reported approximately $690,000 in revenue from continuing operations for fiscal year 2025, this is comprised entirely of revenue generated from our TrueCut Motion platform and related motion grading services.

With a large portion of our business prior to January 2026 now classified as discontinued operations, I will predominantly focus the remainder of my comments on continuing operations and the company's financial position subsequent to the sale of the subsidiary on January 6, 2026.

Starting with the balance sheet. I want to briefly review several items that contributed to our current and projected cash balance. Following our previously announced and completed registered direct offering and sale of nonstrategic patents during the fourth quarter, the continuing company ended the year with approximately $11.2 million in cash and cash equivalents.

Then, in January, we closed the sale of Pixelworks Shanghai semiconductor subsidiary, resulting in cash proceeds to Pixelworks, net of transaction costs and withholding taxes paid in China, totaling approximately $51 million. Hypothetically, had all of these items taken place before year-end, we would have entered 2026 with approximately $62 million.

Subsequent to closing the sale of our Pixelworks Shanghai subsidiary, we paid out all remaining transaction expenses, including accounting, legal and advisory fees as well as bonuses. We also completed a series of restructuring actions to streamline the remaining organization, which will result in recognizing certain severance costs in the first quarter.

Lastly, we believe that a previously pending tax matter in China has been fully resolved, and we expect an additional approximately $1.2 million of cash proceeds from the transaction to be released from escrow in the coming weeks. Taking all of these items into account, combined with expected results from continuing operations in the first quarter, we currently anticipate our cash and cash equivalents balance as of March 31 to be approximately $58 million. We believe this cash balance provides ample runway and flexibility to execute on our strategy of building a pure-play technology licensing business. As such, in early March, we elected to cancel our previously available but recently unused at-the-market stock facility.

Lastly, with respect to the balance sheet, I want to reiterate that all previously reported liabilities and commitments, including redeemable noncontrolling interest associated with our prior Shanghai subsidiary were fully released in conjunction with the closed sale. The elimination of these prior contingencies will be reflected in the company's reported financial statements for the first quarter ending March 31.

Another important change to our financial profile going forward relates to operating expenses. As mentioned earlier, during the first quarter, we took a number of actions to meaningfully reduce the company's overall cost structure and streamline the continuing operations portions of the business. These measures included a reduction in headcount and associated organizational expenses, reflecting our transition to focus on technology licensing. As a result, we expect cash used for operating expenses to be approximately $2 million per quarter beginning in the second quarter.

Although we are not providing quarterly financial guidance, I would like to provide a high-level framework for thinking about the company's current cash position and anticipated near-term operating results. First, we expect to maintain cash operating expenses of $2 million or less again starting in the second quarter. Then based on the current interest rate environment, we expect to generate at least $1.5 million of interest income annually from the cash currently held on the balance sheet.

That completes our prepared remarks, and we look forward to taking your questions.

Operator, please proceed with the Q&A session.

[Operator Instructions] And our first question comes from Suji Desilva of ROTH Capital.

Congratulations on the transaction here and the go-forward opportunity. So maybe, Todd, you can start with sort of the big picture in terms of the media chain, from content creators to the end theaters and streaming guys in between. Where are the best near-term opportunities for you to drive revenue? Maybe we can start there and talk about the model for those given components -- for those...

I think I've been through this before. I think maybe people didn't focus in last year when we were in the middle of the transaction, but I'll bring it up again. So our business model is, first, we have advanced tools and technology where we create cinematic high frame rate or motion-graded content that's branded under the TrueCut Motion brand.

When we do this work, we get paid for it. But we usually don't charge what the cost structure is, okay? So even though we make revenue there, we do not want it to be an inhibitor for content creators to come to us. So all the revenue that we've had so far have come -- in the last couple of years, has come from this content creation, but it's in a subsidized format. We are as busy as we've ever been. We're working on more complex projects today. We're advancing the tools that work on these projects. And so you could probably see an increase in revenue. But once again, that will not be the primary source of revenue.

Then today, for those content creators and studios that engage with us, we give the theatrical rights to that content. for effectively free, right? It's included in the engagement to do the motion grading work. And so we encourage them and we encourage more theaters to bring cinematic high frame rate content, TrueCut Motion content to as many theaters and as many visually stunning pieces of content as possible.

We expect, and we've been in discussions with several people that as this continues to expand, studios and distributors of content will want to deliver this premium experience to premium home entertainment devices. We will engage with those studios and distributors that want to distribute the content, and we will engage with device manufacturers of premium devices that want to have that differentiated content on their device. They need to be certified. They need to meet certain criteria and needs to operate in a mode that effectively guarantees the creator's intent, will be shown on those devices. And so we expect most of the revenue to come from this home entertainment ecosystem.

TrueCut Motion is not the only technology we're working on. We're working on other licensing technologies. They may or may not use the same model as far as our revenue profile. But we're running pretty lean, Suji. And I believe if we execute on this, we will be profitable with TrueCut Motion stand-alone.

Okay. Maybe, Todd, you can help think about the margin structure of this as the revenue forms, where you think it will head and as a pathway to thinking about what the breakeven revenue opportunity might be so we can think about your runway there?

So our margin is very high, even on the content creation. But understand we put a lot of R&D investment in, and we have a lot of administrative costs in both marketing and as a small public company. And so those aren't always absorbed. So you'll see gross margins be very high. So most revenue, whether it comes from content creation or distribution licensing or device certification licensing will have extremely high margins.

Okay. And again, as we look forward, can you maybe talk about how we should think about your pipeline or how it's formed today and maybe some metrics we'd be using in the future to track your progress?

Yes. We're not going to go out and set that right. I mean I would say how we're going to track our progress is, today, we are -- clearly, we have a good cash position, okay? And as much as we're not subsidizing the content like some people have in the licensing business, they've gone out and subsidized the engagement early on prior to making money on it. We're not doing that, okay? We're being somewhat selective.

But the way to gauge this is how fast are we expanding the exhibitor footprint that's pulling and -- pulling the studios to deliver more premium content to them, TrueCut Motion content, and how much content do we deliver to those theatrical experiences. That's the best way. That's the best way to figure out how we're succeeding in the near term, right? And then you'll see announcements at some point from the home entertainment portion of the ecosystem.

Okay. Yes, that makes sense. And then, I think, Haley, I appreciate you giving us 1Q some guidance we can work with, the OpEx being less than $2 million, the interest income for the year. What was the cash burn number you gave? Was that -- did you give a 1Q expected cash flow from operations?

No. I just said we expect to end the quarter with $58 million approximately, March 31.

Did you imply an amount of cash used in the quarter or...

Well, so I mean, we're paying severances and bonuses and other transaction costs plus operating cash, and we started sort of with the $62 million number.

$62 million, right? That's the delta, right? Okay. And then I saw some patent sales. Was that -- maybe last year, was that a one-off? Or is that something that could recur, Todd or Haley?

No, that's not going to be recurring revenue. Recurring revenue is going to come from licensing. We're -- listen, we sold off some patents that were not really specific to our TrueCut business. If you go back and looked at pre-transaction of the subsidiary sale, I would say 60% of our total patent portfolio was in the subsidiary, so that went with the subsidiary and the sale. Of what remains from what we didn't sell with the subsidiary transaction or outright to this person that wanted to buy these other patents, I would say we have no real intention of selling any more patents, and we're actively trying to add to that patent portfolio specific to our go-forward business.

Right. Okay. And then Todd, I might well just ask this question I asked a lot of companies who are kind of embarking on newer paths. What are maybe, as an executive, your 2 or 3 top priorities to try to accomplish in 2026 to get this off and running in the right direction?

Well, I mean, first and foremost, today, our technology is only used by Pixelworks TrueCut Motion editors. We are working on getting the product in a place where we could actually license it. And so you could expand upon our own people working on the technology to where we have third parties doing motion grading work using our tools. So that's a big priority for us. And then developing the demand profile. Those are the 2 biggest issues I have right now.

And I mean, frankly, I was very focused on a transaction. I had a group of people running this. They gave me something. Now I'm very focused on this business. That was in a good place. It takes a long time to create an awareness for technology like this. And I would say that the awareness is strong. Now we need to convert that into pull and content.

Okay. Great. And just one quick housekeeping. Just to be 100% sure, the cash that you've gotten, it's all in the U.S. at this point. Is that correct?

Yes. It's been in the U.S. since mid-January.

Thank you. This concludes our question-and-answer session. I'd like to turn it back to management for closing remarks.

Yes. Thanks, everybody, for keeping up to speed on this transition of the company. From time to time, we'll have some more salient information to give to you. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect.

Good day, ladies and gentlemen, this is Haley Aman, Chief Financial Officer of Pixelworks. I'm acting as Chairperson of the special meeting in accordance with Section 5.7 of our bylaws. This meeting was lawfully convened on November 26, 2025, was reconvened on December 8, 2025 and reconvened again on December 19, 2025, at which time it was adjourned until 09:00 a.m. Pacific Time today and is hereby reconvened. Pursuant to the Oregon Business Corporation Act, a quorum continues to be present.

The agenda for this meeting is as follows: Vote on Proposal 1 to approve the sale of common stock of Pixelworks Semiconductor Technology (Shanghai) Co. Ltd., held by a subsidiary of Pixelworks; two, advisory vote on Proposal 2 to approve compensation that may be paid to Pixelworks executive officers in connection with the sale referenced in Proposal 1; three, vote count; four, formal meeting adjournment.

Proposal 1 is to vote on the sale of common stock of Pixelworks Shanghai held indirectly by the company. The proxy statement contains detailed information on this proposal.

Proposal 2 is an advisory vote on compensation that may be paid or become payable to the executive officers of the company relating to the sale referenced in Proposal 1. The proxy statement contains detailed information on this proposal. I now recognize Leah Grant, our Inspector of Elections, who will present the preliminary voting results.

Thank you, Haley. The preliminary results of voting are as follows: For proposal 1, approximately 60% of the total shares of Pixelworks common stock outstanding on the record date for the meeting were cast in favor of the sale of common stock of Pixelworks Shanghai.

For Proposal 2, approximately 89% of the total votes cast were cast in favor of approval of the company's executive officer compensation related to the sale referenced in Proposal 1.

I therefore declare that proposal 1 has not received the approval of the holders of 67% of the total shares of Pixelworks' common stock outstanding on the record date as specified in the proxy statement for the special meeting, and that proposal 2 has been approved. The final vote count on proposals 1 and 2 will be reported under cover of Form 8-K filed with the SEC in due course.

This completes the formal business to come before this special meeting. There being no further formal business, this concludes the special meeting. Thank you.

Good day, ladies and gentlemen, and welcome to Pixelworks, Inc's. Third Quarter 2025 Earnings Conference Call. I will be your operator for today's call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Brett Perry with Shelton Group Investor Relations. Please go ahead.

Thank you, Peter. Good afternoon, and thank you for joining today's conference call. With me today on the call are Pixelworks President and CEO, Todd DeBonis, and Chief Financial Officer, Haley Aman. The purpose of today's conference call is to supplement the information provided in Pixelworks' press release issued earlier today announcing the company's financial results for the third quarter of 2025.

Before we begin, I'd like to remind you that various remarks we make on this call, including those about 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, Tuesday, November 11, 2025. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, the company's annual report on Form 10-K for the year ended December 31, 2024, 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 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 and net loss per share. Non-GAAP measures exclude restructuring costs and stock-based compensation expense as well as the tax effect of the non-GAAP adjustments. The company uses these non-GAAP measures internally to assess its internal operating performance. We believe these measures -- we believe these non-GAAP measures provide a meaningful perspective on core operating results and underlying cash flow dynamics. We caution investors to consider these measures in addition to and not as a substitute for nor superior to, the company's consolidated financial results as presented in accordance with U.S. GAAP.

Please note throughout the company's press release and management statements during this conference call, we refer to net loss attributable to Pixelworks, Inc. as simply net loss. Also note, on January 6, 2025, the company effected a 1-for-12 reverse stock split of the company's common stock and all shares of the company's common stock per share data and related information included in today's published condensed consolidated financial statements have been retroactively adjusted as though the reverse stock split had been affected prior to all periods presented. For additional details and reconciliations of GAAP to non-GAAP net loss and GAAP net loss to adjusted EBITDA, please refer to the company's press release issued earlier today.

With that, it's now my pleasure to turn the call over to Pixelworks' CEO, Todd DeBonis, please go ahead.

Thank you, Brett. Good afternoon, and welcome to everyone on the phone and on the webcast. We appreciate you joining us for today's conference call. I'll start with a brief overview of the results for the quarter, and then I'll follow with the 2 primary objectives for today's call. The first is to review the background and rationale for the proposed transaction involving our Shanghai-based subsidiary. And second is to provide a preview of what the future Pixelworks will look like after the proposed transaction closes. With respect to results for the third quarter, both top and bottom line results were within our guidance.

Revenue grew by 6% sequentially, and and gross margin improved to approximately 50%, a little better than expected. We also realized continued benefits from our previous cost reduction actions with third quarter operating expenses decreasing sequentially and down $3.1 million year-over-year. Through a combination of our prior restructuring and ongoing cost reductions, we reduced cash burn from operations by more than 60% year-over-year to under $3 million in the third quarter.

Turning to our Pixelworks Shanghai subsidiary and the proposed transaction. As background, our Shanghai-based subsidiary was formed in 2021 as part of a comprehensive realignment of the larger Pixelworks organization. This included restructuring our Shanghai-based subsidiary to serve as the center of operations for all of Pixelworks semiconductor business and then securing investment from China-centric investors as well as our Pixelworks Shanghai employees. More specifically, this business comprises all generations of our open market and codeveloped visual display processing ships, for both digital projector and the mobile markets.

Today, the subsidiary represents a substantial amount of our operating revenue and expenses and also accounts for the majority of our employees. After several prior investment rounds in the subsidiary, Pixelworks ownership ended up at approximately 78%, which is where it is today. On October 15, 2025, we signed a definitive purchase agreement to sell all of Pixelworks, Inc's. ownership in the Pixelworks Shanghai subsidiary to a special purpose entity led by VeriSilicon. For those not familiar with this name, VeriSilicon is a well-established Chinese company that provides platform-based custom silicon services and semiconductor IP licensing services. Most participating on today's call are aware, however, I would like to emphasize that this proposed transaction did not come about suddenly nor without extensive deliberation and due diligence.

The recently entered definitive agreement is the result of a thorough strategic review process launched in the latter part of 2024. And that started with the engagement of Morgan Stanley as an adviser to evaluate potential alternative ownership structures for the Shanghai subsidiary, in a large part due to inpatients, from the subsidiaries China-based investors, escalating geopolitical tensions and capital market constraints within China and after evaluating all serious interest in the subsidiary. The Board and I unanimously concluded that the currently proposed transaction was in the best interest of our shareholders. Although still subject to the approval by Pixelworks, Inc. shareholders as well as other customary closing conditions and after satisfying agreed upon and contractually reduced obligations to minority equity holders of the subsidiary, transaction costs and withholding taxes.

The proposed transaction is expected to result in net cash proceeds to Pixelworks of between $50 million and $60 million upon closing. As outlined in my recent published letter to shareholders on November 4, the rationale for the proposed transaction is threefold. First, it unlocks significant value for shareholders while eliminating minority investor obligations, acknowledging the strategic and potential long-term value in our Pixelworks Shanghai subsidiary, this transaction captures the optimal realizable value in the current environment and allows the company to monetize a significant asset in the form of cash proceeds repatriated to the U.S. Second, it enables a renewed focus and expansion of core strengths, following a successful exit of the semiconductor hardware business, Pixelworks will be positioned as a global technology licensing business, specializing in cinematic visualization solutions.

As an asset-light, IP-rich company in this space the company will have competitive differentiation and compelling long-term growth potential. And third, it will achieve financial flexibility. The net cash proceeds from the transaction will significantly enhance the balance sheet. Pixelworks will have the flexibility to invest in growth opportunities support new and existing licensing initiatives and enable the allocation of capital to the highest return projects. As a reminder, shareholders as of October 17, record date have the right to vote. And I strongly encourage those investors to consider the published proxy materials and vote their shares for in support of the proposed transaction. Importantly, I want to emphasize that all current shareholders will have equal per share participation in the future growth opportunity and success of our transformed business going forward.

Having said that, I want to frame what this future transformed business looks like. Post-transaction, Pixelworks become a low head count pure-play technology licensing company. Specializing in cinematic visualization solutions. Our existing TrueCut Motion platform used by leading filmmakers to enhance the cinematic experience across premium theatrical and home screens will anchor a portfolio of proprietary imaging technologies extending beyond film and into high-growth enterprise, consumer visualization and entertainment markets. specific to TrueCut Motion. I want to reiterate that Pixelworks continues to own and control 100% of TrueCut Motion including all related assets and intellectual property.

Irrespective of the proposed transaction with our Shanghai subsidiary. Even though a majority of our recent TrueCut engagement activity with new prospective ecosystem partners has remained behind the scenes we are continuing to make tangible progress in support of expanded market awareness and adoption of our TrueCut Motion platform. As previously highlighted on our August conference call, during the third quarter, we were credited in 3 new theatrical releases. Universal Pictures drastic World rebirth, DreamWorks Animation, The Bad Guys 2; and Universal Pictures, Nobody 2.

Today, I can confirm the next theatrical release to feature our award-winning TrueCut Motion grading technology will be universal pictures [ with ] for good, which is slated to hit theaters on November 21. Earlier today, we confirmed that the TrueCut Motion version of [ WICED ] for good was selected for last night's U.K. Premier of the film. Separately, we believe we are getting close to completing an agreement with a strategic ecosystem partner to license the broader distribution of TrueCut Motion content to consumer devices in their home. This prospective partner is currently in the process of late-stage certification and if successful, we believe it can open and accelerate the path to device licensees. While we continue to be encouraged by this and other ongoing engagement activity, we see our TrueCut Motion platform as a foundation to build upon. Exiting the obligations associated with Pixelworks Shanghai's manufacturing and design business will free up the company's management and capital resources to grow an attractive high-margin licensing business. As we grow the post-transaction Pixelworks into a global technology licensing company, TrueCut Motion will not remain the company's exclusive offering.

Coupled with significantly lower head count and cost structure, we envision a post-transaction business model that will be inherently more scalable, less capital intensive, and has the potential to deliver high return on invested capital. With more than 2 decades of image processing innovation and our industry-leading TrueCut Motion platform serving as the flagship offering. We believe Pixelworks is poised to enable the most authentic high-fidelity viewing experiences across all screens, both today's and the advanced screens of the future.

With that, I'll turn the call over to Haley to review the financials for the third quarter. As well as a couple of positive new balance sheet developments that took place subsequent to quarter end.

Thank you, Todd. Revenue for the third quarter of 2025 was $8.8 million compared to $8.3 million in the second quarter and $9.5 million in the third quarter of 2024. The sequential increase in third quarter revenue reflected growth across both of our end markets, led by increased sales in the home and enterprise market. The breakdown of revenue in the third quarter was as follows: Home and Enterprise revenue was approximately $7.4 million. Revenue from Mobile was approximately $1.4 million. Third quarter non-GAAP gross profit margin was 49.9%, compared to 46% in the second quarter of 2025 and 51.3% in the third quarter of 2024.

The sequential increase in gross profit margin primarily reflected a more favorable product mix on shipments into the home and enterprise market. Non-GAAP operating expenses were $9.2 million in the third quarter compared to $9.7 million in the prior quarter and $12.4 million in the third quarter of 2024. The sequential and year-over-year decrease in operating expenses reflects the ongoing realized benefits of our previously taken actions to reduce expenses. On a non-GAAP basis, third quarter 2025 net loss was $3.8 million or a loss of $0.69 per share compared to a net loss of $5.3 million or a loss of $1 per share in the prior quarter and a net loss of $7.1 million or a loss of $1.45 per share in the third quarter of 2024.

Adjusted EBITDA for the third quarter of 2025 was a negative $3.6 million compared to a negative $4.3 million in the prior quarter and a negative $6.3 million in the third quarter of 2024. With respect to our outlook, the company is [ looking ] not to provide financial guidance for the fourth quarter due to the previously announced definitive agreement to sell substantially all of the assets [indiscernible] or Shanghai. However, we want to highlight that in October 2025, we closed a registered direct offering and the sale of patents pertaining to technologies we no longer pursue collectively contributing approximately $10 million to our cash position. As of October 31, 2025, our cash and cash equivalents balance was approximately $22 million, of which roughly half is associated with Pixelworks Shanghai, and the other half is associated with it Pixelworks, Inc.

That completes our prepared remarks, and we look forward to taking your questions. Operator, please proceed with the Q&A session. Thank you.

[Operator Instructions] Our first question comes from the line of Suji Desilva of ROTH Capital.

Congratulations on the transformative transaction. So maybe you can start with the transaction itself. And maybe, Todd, you can help us bridge or Haley, the $133 million of consideration to the $50 million to $60 million you're going to get, just understanding what the amounts were and the circumstance of the, I guess, the minority shareholders receiving a portion of this?

I'll take it. I'll give you a rough guideline on how to. So first of all, we do only own 78% of the entity. So the value of the entire entity was valued at RMB 950 million or USD 133 million. Then we had obligations, either redemption obligations to like our employees, and we had actually preferred return obligations to all of the outstanding investors. As part of this transaction, they've all agreed to release the preferred return benefit in return for just redemption. So we're using some of our ownership to effectively redeem them at this lower valuation. I'll remind you that when we raised capital for the subsidiary, it was at significantly higher valuations than what we are selling the entity for.

In fact, the later stage investors, it was valued over USD 500 million. So that's the main reason why we're not getting 78% of returns because we're redeeming the shareholders. But in return, they're foregoing their preferred return, which would have been significantly higher. And then there's just your normal transaction costs and legal costs. The final step is that there is a -- withholding tax as we're selling a Chinese asset to a Chinese buyer in China to repatriate our cash, we have to pay withholding tax in China of approximately 10%. So once you go through all of that, you get to this net proceeds delivered in the U.S. between $50 million and $60 million.

Okay. Todd, I appreciate the detail there. Second question is really on the Shanghai subsidiary. Have you seen actual impact to the business in the last few weeks or months? Due to geopolitical just to understand that asset and this deal closing? Just to understand if there has been any impact there or whether it's more normal course?

It's hard to be definitive on this, but there is a delete a -- you could call it a policy, it's an undercurrent Delta a being Delete America. There is a big effort. And you can see this in the AR world right now where the government steps in and pushes the large buyers of semiconductors, so large equipment manufacturers to the smartphone manufacturers, et cetera, to -- they want a preferred preference on local semiconductor companies. We were a hybrid, Pixelworks Shanghai was effectively a little giant, it got subsidies, et cetera, but they knew it was 80% owned by a U.S. public entity. We felt it. We felt it for the last 18 months. We tried to sell through it. In some cases, we were successful in some cases, we weren't.

I can tell you since the deal was announced in public. I've seen several opportunities show up to the subsidiary that I do not think would have showed up to the subsidiary if we would have kept the existing ownership intact. Now whether the VeriSilicon will convert those opportunities or not remains to be seen, but you can feel it, Suji.

Right. No, that really helps. And then lastly, turning to the forward look, the TrueCut business you have here. Just maybe give me the before and after this transaction, how you are running that business? And what -- if this question makes sense, what this transaction unlocks and how you will run the TrueCut opportunity here differently going forward, whether it's capital employees, customer discussions, anything of color there would help to kind of look forward to the pro forma business?

That's a good question. I never really thought about it in running it differently, okay? I thought we were running it appropriately up to this point. And now we are going to focus on it and try to accelerate it. I do believe the nature of the business and the way we went to market, which is a very difficult way to go to market, where you have to bring the whole ecosystem together. So from content generation to theatrical distribution, then to home entertainment distribution and then device manufacturers. And you have to bring this whole ecosystem sort of forward together. It takes a lot of evangelism.

And so during that evangelism period, not always throwing money and resources accelerates it. And so since we sort of first [ won ] awards for this technology from HPA and other Hollywood technical bodies. We've been evangelizing -- could we have done more of it maybe with more capital and more focus. But for the most part, it took its own time. We see now that, that evangelism is starting to pay dividends. And so now might be the time to accelerate the investment and energy into the business. So I would say that's probably the only difference between then and now. I will say, as a public company, you're very focused on trying to be cash flow positive and earnings growth.

And so when we ran into headwinds in China, we definitely slowed down our investment in TrueCut. So maybe for the last year or so, it was artificially constrained.

Thank you. I would now like to turn the conference back to management for closing remarks.

Yes. So thanks, everybody. I once again would like to repeat, I encourage all shareholders of record to vote your proxy shares as an Oregon corporation we require 67% of all outstanding shareholders to vote for in order for this to pass. So I encourage you all to vote your shares. And thanks for your time.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day ladies and gentlemen and welcome to the Pixelworks, Inc's Second Quarter 2025 Earnings Conference Call. I will be your operator for today's call. [Operator Instructions] This conference call is being recorded for replay purposes.

I would like to turn the call over to Brett Perry with Shelton Group Investor Relations.

Thank you, Didi. Good afternoon, and thank you for joining us on today's call. With me on the call are Pixelworks' President and CEO, Todd DeBonis; and Chief Financial Officer, Haley Aman. The purpose of today's conference call is to supplement the information provided in Pixelworks' press release issued earlier today announcing the company's financial results for the second quarter of 2025.

Before we begin, I'd 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 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 risks to differ materially. All forward-looking statements are based on the company's beliefs as of today, Tuesday, August 12, 2025. The company undertakes no obligation to update any such statements to reflect events or circumstances occurring after today. Please refer to today's press release, the company's annual report on Form 10-K for the year ended December 31, 2024, 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 statements during this conference call will include discussions of certain measures and financial information in both GAAP and non-GAAP terms, including gross margin, operating expenses, net loss and net loss per share. Non-GAAP measures exclude restructuring costs and stock-based compensation expense as well as the tax effect of the non-GAAP adjustments. The company uses these non-GAAP measures internally to assess its operating performance. We believe these non-GAAP measures provide a meaningful perspective on core operating results and underlying cash flow dynamics.

We caution investors to consider these measures in addition to and not as a substitute for nor superior to the company's consolidated financial results as presented in accordance with U.S. GAAP. Please note throughout the company's press release and management statements during this conference call, we refer to net loss attributable to Pixelworks, Inc. as simply net loss.

Also note on June 6, 2025, the company effected a 1-for-12 reverse stock split of the company's common stock and all shares of the company's common stock per share data and related information included in today's published condensed consolidated financial statements have been retroactively adjusted as though the reverse stock split had been affected prior to all periods presented. For additional details and reconciliations of GAAP to non-GAAP net loss and GAAP net loss to adjusted EBITDA, please refer to the company's press release issued earlier today. With that, it's now my pleasure to turn the call over to Pixelworks' CEO, for his opening remarks. Todd, please go ahead.

Thank you, Brett. Good afternoon, and welcome to everyone on the phone and webcast. We appreciate you joining us for today's conference call. Earlier today, we reported top and bottom line results that were within our guidance and reflected our expectations for a return to sequential revenue growth in the second quarter. Gross margin came in better than anticipated due to yield improvements on a ramping new co-development projector SoC. We also realized another step down in recurring costs with second quarter operating expenses decreasing more than $3 million year-over-year to below $10 million.

Staying with the same order of our most recent calls, I'll start with an update on our TrueCut Motion business, then provide remarks specific to our majority-owned Pixelworks Shanghai subsidiary and the strategic review process. Starting with our TrueCut Motion platform. Following a quiet first half of the year in terms of new titles across the industry, we've recently been accredited with 3 new theatrical releases. First, in early July, Universal Pictures, Jurassic World: Rebirth, then earlier this month, DreamWorks Animation, The Bad Guys 2, and yesterday, we announced Universal Pictures, Nobody 2. As discussed in the past, exhibitors are investing significantly in laser PLF theater upgrades that drive higher box office revenues.

TrueCut Motion delivers major improvements to the viewing experience in these theaters, and exhibitors are increasingly asking for the format, driving increased pool for TrueCut Motion at the studios. Notably, China's flagship CINITY theaters promoted that Jurassic World Rebirth was exclusively available in the TrueCut Motion format on their screens. Studios understand that premium screens generate an outsized portion of the box office sales. So we confidently expect to see expanded presence of TrueCut Motion format and the brand in theaters worldwide.

While exhibitor and audience pool are growing, an important indication of studio and filmmaker acceptance is the quality and success of the titles on which we've been credited. As of today, titles that utilize TrueCut Motion have achieved over $4 billion at the box office, proving that our current studio partners, Universal, DreamWorks, Disney, Legendary and Lightstorm see the value that TrueCut brings to their tentpole production films. These encouraging results clearly show that we are moving towards sustained growth for titles and brand awareness.

Also notable, we were excited to recently receive confirmation that in advance of the scheduled theatrical release of Avatar: Fire and Ash in December, James Cameron's highly successful Avatar: The Way of The Water (sic) [ Avatar: The Way of Water ] will return to selected IMAX screens in October using the TrueCut Motion format. Based upon our recent momentum, we believe TrueCut Motion format is quickly moving towards becoming a standard for premium large-format cinemas.

With cinema format standards, a leading indicator of future home entertainment standards, there is a growing consumer desire to bring the TrueCut Motion PLF experience home. The first home entertainment device to support TrueCut Motion is also one of the world's best ways to watch movies outside of the cinema, namely the Apple Vision Pro.

Streaming services, Disney+ and Apple TV+ both brought Avatar: The Way of the Water (sic) [ Avatar: The Way of Water ] and the 4K rerelease of the original Avatar to their respective platforms and apps for this device. We encourage anyone who has the opportunity and wants to fully appreciate what TrueCut Motion can do for the movie experience to watch either title on the Apple Vision Pro and compare that to the experience of titles that don't utilize TrueCut Motion format. Recognizing the differentiated sales opportunity and growing consumer awareness, premium streaming services and home entertainment device brands are engaging closely with us to roll out the format.

Turning to an update on our Pixelworks Shanghai subsidiary. As a reminder, and for newer participants on today's call, as part of the strategic realignment initiated in the 2021 time frame, we restructured our Shanghai-based subsidiary to serve as the center of operations for all Pixelworks semiconductor business. This includes all generations of our open market and co-developed visual display processor chips for both the digital projector and mobile markets as well as previously end-of-life transcoding chips for video delivery.

Starting with an update on the mobile business. Second quarter mobile revenue had a similar profile to the prior quarter, with shipments largely in support of residual demand from customers' previously launched smartphone models. Although design-ins for newly launched smartphones and the expected revenue recovery has taken longer to materialize, we remain committed to several existing engagements that we will -- we believe will contribute to achieving renewed mobile growth over the coming quarters.

Our strategy and efforts are focused on 2 defined approaches based upon the market segment. The first is expansion of our served target market with a new low-cost mobile graphics accelerator solution for mid- and entry-level smartphones. Our open market road map will continue to focus on improving the visual performance of graphics, animation and gaming in mobile phones with ASPs below $350. We have created a completely new architecture to dramatically improve the performance of application processors used in this market segment.

Second, we continue to pursue the premium gaming experience for mobile phones with ASPs over $350 with our current X7 prime and X8 flagship mobile visual processors. Within this premium segment, we have seen growing interest and a trend towards a more customer-optimized solution. And going forward, we are increasingly focused on IP licensing and custom design engagements. Highlighting our most recent win resulting from an in-depth collaboration with the customer, over the weekend, OPPO's affiliate brand, realme, previewed their upcoming launch of its realme P4 series in India targeted for August 20. Both the realme P4 and P4 Pro smartphones are explicitly marketed as incorporating Pixelworks X7 Gen 2 visual processor. The realme P4 series will be the first phones in the segment of the market to feature dual chips based upon our distributed rendering architecture.

The P4 Pro model pairs our X7 visual processor alongside a Snapdragon 7 Gen 4 applications processor and the standard P4 model will pair our processor alongside a MediaTek Dimensity 7400 Ultra 5G apps processor. In both device models, our visual processor enables 144 frame per second gaming on over 100 mobile games with real-time frame generation and AI-enhanced 1.5K resolution upscaling. In addition to delivering visual performance typically reserved for flagship smartphones, our rendering acceleration solution contributes to improved system responsiveness and extended gameplay while eliminating overheating and the need for performance throttling.

Touching briefly on our home and enterprise business, which comprises of our visual processor system on a chips for 3LCD digital projector market. Revenue increased by over 20% sequentially, driven by a combination of the traditional bounce back from seasonally lower first quarter demand as well as a growing ramp in shipments of our newest SoC to our large co-development projector customer. Despite the ongoing dynamic global trade environment, we have yet to see evidence of meaningful impacts from our customers' order patterns. Consistent with our comments last quarter, we continue to anticipate our total projector business in '25 to look very similar to 2024.

Shifting gears to a brief update on the adjacent revenue opportunities discussed in recent quarters. Starting with transcoding, which, again, as a reminder, we completed all scheduled end-of-life shipments of transcoding products during the fourth quarter of last year. Subsequently, we were approached by 2 different prior transcoding customers that expressed interest in sizable onetime orders for our prior transcoding chips that are no longer in production. As of today, we have a purchase order in hand from one of the customers, and we expect to fulfill the entirety of this order during the fourth quarter. The second prior customer representing the larger opportunity is still evaluating whether to move forward. We have communicated a deadline to this customer, and we will know that the outcome on the second opportunity by quarter end.

Next, with respect to ASIC design services. Having established a framework earlier this year, we now have a pipeline of prospective ASIC design service engagements. We are currently engaged with 2 different companies with the potential to become our first design service customer. Both of these initial ASIC design service customers have the potential to contribute revenue later this year, and we expect increased visibility on these respective opportunities in the coming months. In addition to working towards winning these 2 programs, we are continuing to focus on expanding our pipeline of design service opportunities.

Lastly, in terms of IP licensing. Since our previous conference call, the number of discussions and evaluations underway with third parties have expanded meaningfully. Given the binary and sometimes open-ended nature of these programs, it's challenging to provide definitive time lines and qualitative updates on these collective discussions. However, we are seeing progression, and we currently have active IP evaluations underway with 3 Tier 1 system companies in China and 1 Tier 1 system company in North America.

Given our previous actions to significantly reduce our cost structure and ongoing efforts to streamline the business, today, we are better positioned to drive bottom line results from a reasonably small uplift in revenue. Although the planned recovery in mobile revenue is taking a bit longer than previously anticipated, we are still targeting for our Pixelworks Shanghai subsidiary to reach profitability as soon as the fourth quarter.

Having said that, I want to share the latest status on our strategic review process. To briefly recap how and when this process originated, in the latter part of 2024, we received inbound strategic interest in our Pixelworks Shanghai subsidiary. We engaged Morgan Stanley as an adviser and initiated a formal review process. In addition to reviewing the initial inbound interest, the process was expanded to include strategic -- a strategic evaluation of potential alternative ownership structures as well as possible collaboration structures, all specific to our Shanghai-based subsidiary.

Relatively early in the process, we received additional inbound interest from multiple other unrelated third parties. Following early-stage discussions with all interested parties as well as some preliminary due diligence, Pixelworks, Inc. imposed a deadline of May 31st to receive term sheets from all parties that were interested in moving forward. We received nonbinding term sheets from 3 different potential buyers. We have since been engaged with due diligence with all 3 parties. I traveled to Shanghai last week, and although the outcome is yet to be determined, we believe the process is progressing well and nearing closure and likely to result in a new strategic direction for our Pixelworks Shanghai subsidiary before the end of the third quarter. With that, I'll turn the call to Haley to review financials and provide guidance for the third quarter.

Thank you, Todd. Revenue for the second quarter of 2025 was $8.3 million compared to $7.1 million in the first quarter and $8.5 million in the second quarter of 2024. The sequential increase in second quarter revenue was primarily driven by product shipments in the home and enterprise market. The breakdown of revenue in the second quarter was as follows: Home and enterprise revenue was approximately $7.1 million. Revenue from mobile was approximately $1.2 million.

Second quarter non-GAAP gross profit margin was 46% compared to 49.9% in the first quarter of 2025 and 51% in the second quarter of 2024. The sequential decrease in gross profit margin reflected a unique mix consisting of a new product ramp within home and enterprise. However, yields related to this new product ramp were better than originally expected, leading to gross margin that was above our second quarter guidance range.

Non-GAAP operating expenses of $9.7 million in the second quarter compared to $10.4 million in the prior quarter and $12.8 million in the second quarter of 2024. The sequential and year-over-year decrease in operating expenses reflects the results of our previously taken actions to reduce operating expenses and streamline our overall cost structure. Additionally, during the second quarter, our Pixelworks Shanghai subsidiary received approximately $1.6 million in cash subsidies as part of its certified status in China's Little Giant program. These subsidies effectively serve as reimbursement for certain purchases of IP and design tools as well as various R&D expenses.

We recognized $800,000 of other income in the second quarter with the remainder of the total subsidies allocated as offsetting credits to applicable expense and balance sheet items. On a non-GAAP basis, second quarter 2025 net loss was $5.3 million or a loss of $1 per share compared to a net loss of $6.5 million or a loss of $1.30 per share in the prior quarter and a net loss of $7.7 million or a loss of $1.60 per share in the second quarter of 2024. Adjusted EBITDA for the second quarter of 2025 was a negative $4.3 million compared to a negative $5.8 million in the prior quarter and a negative $7 million in the second quarter of 2024.

Turning to the balance sheet. We ended the second quarter with cash and cash equivalents of $14.3 million compared to $18.5 million at the end of the first quarter. Shifting to our current expectations and guidance for the third quarter of 2025. Based on our existing backlog, we currently expect total revenue for the third quarter to be in a range of between $8.5 million and $9.5 million. For the third quarter, we expect non-GAAP gross profit margin to be between 47% and 49%. This range primarily reflects a more favorable product mix within home and enterprise.

With respect to operating expenses, we expect third quarter operating expenses to be in a range of between $8.5 million and $9.5 million on a non-GAAP basis. Note that this range reflects the expected incremental benefits associated with our cost reduction actions taken during the first and second quarters. Lastly, we expect third quarter non-GAAP EPS to range between a loss of $0.70 per share and a loss of $1.02 per share. That completes our prepared remarks, and we look forward to taking your questions. Operator, please proceed with the Q&A.

[Operator Instructions] And our first question comes from Suji Desilva of ROTH Capital.

Maybe first, Todd, you could talk about why your mobile customers in China in the premium side are emphasizing custom ASIC versus your standard merchant products? I'm just curious the trends underneath that, that's driving that opportunity for you.

Yes. The main driver is they want differentiation. They want something that the other phone -- I mean, Suji, it's a flat market. I don't expect high growth in the overall mobile market. I expect the Chinese OEMs to try to expand globally beyond their reach where they don't have strong market shares.

They're clearly very strong in China. They're reasonably strong in Southeast Asia. They're not that strong in the rest of the world. With the exception -- you could say at the very low end, like in Africa and emerging markets. But if you look in the premium segment, which is where your question is, right, they have very little position in developed countries. Those countries are dominated by Apple, Samsung and to some degree, Motorola, and Google. Frankly, Google is doing okay right now with the Pixel.

So our target customers are these Chinese OEMs for the most part. We talk to others, but for the most part, Chinese OEMs. I think as we go to an IP sale, it expands that horizon for us. But if you look at the specific Chinese OEMs, they're in a hypercompetitive market. My personal belief is you'll see consolidation in that market either through attrition or M&A. There's 1 or 2 too many large or larger companies, but the market is not there to support all of them, in my opinion.

So what you're going to see is a hypercompetitive environment. And in the premium segment, they're going to want to differentiate and especially in the geopolitical environment we're in showing technology leadership. And so buying a standard product that is similar across the board doesn't give them that differentiation. The current 2 AP manufacturers really don't give them much differentiation because they sell them the same APs across the board.

So one way for them to differentiate, and if you go look at these customers and they're premium phones, they're not just putting a custom visual processor in. I think one of Xiaomi's last phones, they announced 4 custom chips inside their phone from pre-ISP, AI enhancement, visual processing, what they call display chip, which is their own custom DDIC. So these Chinese manufacturers are very focused on trying to bring their own intellectual property into the phone. And one way to do it is work with partners like us on custom solutions.

Okay. That's very helpful, Todd. And just as a follow-up on that, after you do this design work for a customer, would you be the one manufacturing the chips and selling it to them? Or is this meant to be more of a royalty model where the customer takes over the manufacturing?

There's only one Chinese -- well, that's not true. There's 2 Chinese OEMs that produce their own SoCs. In that particular case, it would be design services and IP. Although they still use external visual processors, none of them have integrated our capabilities into the AP yet. The other manufacturers are going to differentiate by ancillary chips. So to answer your specific question, if it's an ancillary chip opportunity, we would do the production. If it's somebody who is trying to integrate this into their own apps SoC, it would probably be a combination of IP and design services.

Okay. And then maybe a question for Haley. The transcoding onetime customer, you have the PO now. Is that revenue hitting in the third quarter or the fourth quarter? And maybe you can give us some idea of the magnitude of how much that's helping the second half?

Yes, that would be hitting in the fourth quarter. Magnitude, I don't know that we're going to share the magnitude right now.

Okay. And maybe one last one for Todd, and I'll pass it along. Todd, just kind of you said that Pixelworks post the -- what's going on with the Shanghai division restructuring-wise or strategically would make kind of a different post that transaction, Pixelworks. Maybe give us some sense of how Pixelworks will be different pre and post that transaction to the best of your ability. I know it's an ongoing process, but it would be helpful to understand...

It's too early to give any color on that, Suji. I appreciate the question, and as soon as I'm in a position to give color in that regard, I will.

And our next question comes from Nick Doyle of Needham & Company.

Really interesting commentary on the ASIC design and IP. I mean, I guess my question would be, how broad does that go with these prospective customers? Is it limited to the smartphone AP? Or can your IP be used in other components or other markets?

Good question, Nick. No, it is not limited to smartphone only. I mean we've already had -- some of the prescriptive engagements we've had and have been in the tablet area. There's a clear need to improve the performance -- display performance, visual performance in tablets. It's a growing segment. And then this up-and-coming AR/VR market, whether it's augmented reality glasses or complete virtual reality headsets, there is a need to utilize technology like ours in these applications. There's also people -- I mean, there's more, I'll call them, journeyman markets from LED panel walls to monitors, gaming monitors. So we clearly are too small to go build products for all these environments. But if we open up from an IT and design services and collaboration standpoint, we can pursue more of these adjacent markets.

Yes, a lot of potential customers, bigger market there, thank you. Seeing strength in the home and enterprise market, I mean, can you just talk about the product market fit with your new SoC that's driving this recovery? What about the new product is driving that strength?

Yes, no problem. I don't want to be misrepresented here. The overall market, we have a strong position in 3LCD, well over 90% share, okay, from what I can tell. So the overall market, even though our core sequentially -- and then even with guidance, we're going up a little bit, our overall market, I would say, is flat, okay, the market we sell into. But when we are ramping a new SoC, which happens to be a higher ASP than our old SoC, initially, the customers need to put in production-based inventory, some buffer inventory. So they'll pull harder on those new chips than they're on -- than what their actual production is, at least for a period of time, right? So we see -- the reason we're seeing some growth is partly because of the higher ASP of the mix and partly because of the stocking of this new chip. Whether that's sustained pull-through in 2026 or not, will completely depend on the end markets.

Understood. And if I could just squeeze one last one. Can you just confirm if you did any EOL business in 2Q or we're waiting until 4Q to see that?

So what we were saying is we EOLed the visual -- the last of our consumer visual -- our video delivery products, our transcoding chips. And when we -- that was a process of notification to customers in early '24, and they had to take last shipments by the end of '24. That was all complete. We had a couple of customers that came back, which is almost predictable any time you end of life a series of devices like this that have been in the market for well over 10 years that somebody comes back, even though you've notified them and says, "Hey, we need more. Oh, hey, we have a new program. Hey, can you support us on some derivative program?" And so we've had 2 customers that we've engaged in those discussions.

As long as you have the ability to go back to our supply chain and manufacture it, which we have validated, we can do it. But because you're no longer supporting this as a standard product, the engagement with those customers is a very specific engagement where they have to take the liability of the production. And they have to make it. There's usually large minimum orders required and certain delivery lead times, which they're probably going to have to inventory, the devices that they want them. And so if it's a large opportunity, it's a lot for a customer to bite off on. And so they need to think about it, but that's the terms of coming back after an EOL is done.

I show no further questions at this time. I'd like to turn it back to management for closing remarks.

Well, thanks. We clearly have a lot of activity over here. I look forward to updating you most probably on the strategic process before our next quarterly call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.