Pixelworks, Inc.

headwinds during the quarter. Our prudent management of inventory has positioned us to rebound faster than many of our industry peers, and today our bookings fully support strong sequential revenue growth in mobile, and we are also seeing the initial improvement in order patterns in the projector market. Acknowledging the remains uncertainty in the global economy, we are feeling increasingly optimistic about the balance of the year. We are well capitalized to continue executing on our growth initiatives while maintaining our focus on an aggressive new product roadmap, as well as expanded ecosystems for both advanced mobile gaming and true cut motion platform. With that said, I'll hand the call to Haley to review financials and provide our guidance for the second quarter.

Thank you, Todd. Revenue for the first quarter of 2023 was 10 million. in line with the midpoint of our guidance. The sequential and year-over-year decline was driven by lower demand in mobile related to the industry-wide inventory correction in smartphones, combined with historical first quarter seasonality in the projector market. Additionally, as anticipated, video delivery revenue declined sequentially following higher sales of certain end-of-life products during the fourth quarter. The resulting breakdown of revenue in the first quarter was as follows. Revenue from mobile was approximately $3.3 million. Home and enterprise revenue was approximately $6.7 million. As a reminder, home and enterprise now reflects the combination of revenue from projector and video delivery end markets. Projector accounted for approximately 90% of home and enterprise revenue in the first quarter, and we expect it to continue to represent a majority of home and enterprise revenue in future quarters. Non-GAAP gross profit margin was 44.1% in the first quarter of 2023 compared to 53.3% in the fourth quarter of 2022 and compared to 53.2% in the first quarter of 2022. Gross margin for the quarter reflected a combination of product mix and reduced absorption rate associated with lower revenue. Non-GAAP operating expenses were $13.6 million in the first quarter compared to $10.8 million last quarter and $11.6 million in the first quarter of 2022. As a reminder, operating expenses in the fourth quarter benefited from a $2.5 million credit to R&D related to our co-development project. Excluding this credit, first quarter operating expenses were largely consistent with the OpEx level in the fourth quarter of 2022. On an on-gap basis, First quarter 2023 net loss was 8.2 million or a loss of 15 cents per share compared to a net loss of approximately 800,000 or a loss of 1 cent per share in the prior quarter and a net loss of 3.5 million or a loss of 6 cents per share in the first quarter of 2022. Adjusted EBITDA for the first quarter of 2023 was a negative 7.8 million compared to a negative $1 million last quarter and a negative $2.2 million in the first quarter of 2022. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $62.8 million. As discussed on our last conference call, and as Todd just mentioned, during the first quarter, we closed the previously announced sale of equity interest in our Shanghai subsidiary, which was the primary contributor to the increased cash balance at quarter end. In addition to cash used from operations, a portion of the cash proceeds from the transaction were offset by the purchase of two mask sets during the quarter. Shifting to our current expectations and guidance for the second quarter of 2023. Based on current order trends and backlogs, we anticipate second quarter total revenue to be in a range of between 12.5 million and 14.5 million. At the midpoint of this range, total revenue would represent sequential growth of approximately 35%, led by an anticipated increase in sales of ICs into the mobile market. Non-GAAP gross profit margin in the second quarter is expected to be between 40% and 42%. This gross margin range reflects anticipated product mix, including higher revenue contribution from mobile. Additionally, The lower than historical gross margin levels in the first half of 2023 reflect previous increases in cost of materials, a portion of which we chose not to immediately pass through to mobile customers during a period of weaker demand associated with the inventory correction in smartphones. As demand and unit sales of ICs increase in the second half of 2023, we expect to pass through incrementally higher material costs to customers, resulting in improved gross margins, particularly in mobile. We continue to target gross margins returning to levels near 50%. We expect operating expenses in the second quarter to range between $11 million and $12 million on a non-GAAP basis. This range reflects our expectation to achieve another planned milestone related to our co-development agreement. As of previous treatment, the milestone payment will be recognized as a credit to R&D, reducing our anticipated reported operating expenses for the second quarter. Lastly, we expect second quarter non-GAAP EPS to range between a loss of $0.08 per share and a loss of $0.12 per share. That completes our prepared remarks, and we look forward to taking your questions. Operator, please proceed with the Q&A session.

If you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from a line of Raji Gill with Needham.