Pixelworks, Inc.

Good day, ladies and gentlemen, and welcome to the Pixelwork Inc.' 's first quarter 2025 earnings conference call. I will be your operator for today's call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. As a reminder, 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. Please go ahead.

Thank you, Kevin. Good afternoon, and thank you for joining today's call. With me on the call are Pixelworks President and CEO Todd DeBonis and Chief Financial Officer Haley Amund. 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 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, May 13, 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 expense, net loss, and net loss per share. Non-GAAP measures exclude restructuring costs and stock-based compensation expense. The company uses these non-GAAP measures internally to assess its operating performance. We believe the 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. Also note, throughout the company's press release and management statements during this conference, we'll refer to net loss attributable to Pixworks Inc. as simply net loss. For additional details on a reconciliation of GAAP to non-GAAP net loss, and gap net loss to adjusted EBITDA, please refer to the company's press release issued earlier today. With that, it's now my pleasure to serve the call over to Pixwork's CEO. 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. As reported in our press release earlier today, first quarter results were consistent with our expectations. Revenue reflected anticipated first quarter seasonality in the home and enterprise market, which was partially offset by sequential growth in our mobile business. We also realized significant benefits from our previous and continued actions to streamline our cost structure, with first quarter operating expenses down more than $2 million year over year. Similar to the format and flow of remarks last quarter, I'll begin with comments on our true cut motion business in the U.S., and then review the development specific to our majority-owned Pixelworks Shanghai subsidiary, including an update on the strategic review process. Starting with our TrueCut Motion platform, as discussed last quarter, achieving a tipping point for broader adoption and commercialization requires creating momentum across an ecosystem comprised of filmmakers, studios, content distributors and exhibitors, and device manufacturers. We continue to make tangible progress on all these strategic fronts over the last quarter. First, with respect to the broader film industry. For the first time since the pandemic, there are indications of an uptick in activity from filmmakers and studios. This includes a positive trajectory for both the planned number and quality of new release theatrical titles, representing a positive shift in the overall industry landscape. from prolonged headwinds to a tailwind. Specific to true cut motion content, we are still targeting to double the number of titles year over year from five in 2024 to 10 in 2025. In line with this growth in titles, we are seeing announcements of major capital investments from both or by exhibitors in both the standard and large format premium laser theaters that benefit the most from the true cut motion format. As of today, our exhibition ecosystem includes over 1500 of the world's highest grossing premium theaters. Additionally, we have maintained our focused efforts to expand the true cut ecosystem in support of accelerating future content growth and scaling access to motion grading capabilities. As evidence, of our most recent progress and traction. During the corner, we formalized a strategic partnership with a market-leading post-production company. Notably, this partnership serves to bring True Cut Motion further upstream in the larger post-production process, streamlining the accessibility of True Cut Motion grading tools to more filmmakers. As this and other partners come on board, we will scale our ability to bring filmmaker awareness of TrueCut, leading to further growth in title releases. With our collective theatrical ecosystem efforts approaching critical mass, we've begun engaging deeper discussions with targeted leading device companies to incorporate TrueCut motion capability and certification in future devices. On our previous conference call, I referred to active dialogue with three major device brands, What I can share today is we have recently completed rigorous certification testing with one of these brands, allowing us to start jointly engaging with streaming service providers. This robust demonstration of a major improvement in the user experience for film in the home validates our progress towards the end goal of bringing true cut motion to the mass market via home entertainment devices. Turning to our Pixelwork Shanghai subsidiary, which as a reminder, comprises all of our semiconductor business, including open market and co-developed visual display processing chips for the mobile as well as home enterprise markets. Starting with an update on the mobile business. As expected, mobile revenue increased sequentially in the first quarter, primarily reflecting shipments of visual processors in support of customers' previously launched smartphone models. Driving renewed and sustained growth in mobile remains among our top priorities. We are making steady progress on the product transition to our latest visual processing solutions. This includes expanding our serve target market with our new low-cost mobile graphics accelerator solution for the mid and entry-level smartphones. Our current focus continues to be on a co-development of capabilities with a lead mobile OEM customer on multiple programs targeted for launch later this year. Separately, we also have multiple active program engagements with additional mobile OEMs for both our X7 Prime solution as well as our latest flagship mobile visual processor. Alongside our focused efforts to secure new design ends for our latest visual processor solutions, we are continuing to drive innovation aimed at expanding the mobile gaming ecosystem. In April, We announced our strategic collaboration with Tencent's PerfDog, a well-established platform for performing mobile gaming testing. The motivation behind this collaborative project was to help the gaming ecosystem overcome the specific technical challenges associated with objectively and reliably testing visual display performance across mobile devices that incorporate a dedicated visual processor. As a result, we jointly introduced the PerfDOG, the Frame Generation Index, with PerfDOG, the Frame Generation Index, which is a multidimensional framework for quantifying and evaluating mobile gaming performance. This innovative index for performance testing provides gaming and smartphone developers with precise real-time data for benchmarking, enabling enhanced optimization, and ultimately superior visual display performance for mobile gaming. Shifting to our home and enterprise business, which following our completed end-of-life shipments of transcoding products in the fourth quarter, is now exclusively comprised of our visual processor system on a chips for 3LCD digital projector market. Revenue was down sequentially, consisting with the typical first quarter seasonality, as Japanese OEM customers managed down internal inventories in advance of their fiscal year end. Projector-only revenue for the quarter was effectively flat year over year. Acknowledging the increasingly dynamic global macro and trade environment, we haven't seen any significant impacts on the projector market, nor any change in order patterns from our large co-development customer. Barring any larger global economic shifts, we continue to anticipate total projector business in 2025 to look similar to 2024. Apart from our primary mobile and home enterprise businesses, I previously outlined several new adjacent revenue opportunities that our team is pursuing. Today, all of these engagements remain in play with the potential to contribute meaningful upside revenue in support of our focus on driving renewed growth and paving a path to profitability. Briefly recapping these opportunities and their current status. First, we established a framework to provide ASIC design services, and we are engaged with a large international OEM to become the first customer for turnkey services, as well as a potential licensing of our display IP. We are currently in advanced discussions, including review and negotiation of technical details with this anticipated lead customer, and we believe this initial design services engagement could contribute meaningful revenue as soon as the third quarter. Separately, we're continuing to advance discussions with several unrelated parties to license specific intellectual property for their products. These respective license opportunities span multiple different end markets and include the potential to accelerate our efforts towards expanding the mobile gaming ecosystem. Finally, we now have two different prior transcoding customers that have indicated interest in ordering our recently end-of-life transcoding chips that are no longer in production. Our team has recently confirmed that a limited production run of these legacy chips is technically feasible if initiated within a prescribed period. As such, we're prepared to accommodate one or both customers should they choose to move forward. Bringing everything together and looking at the big picture, we expected the first half to be challenging from a total revenue perspective. We proactively took a series of actions to significantly reduce our cost structure and streamline the entire organization. Today, we have engagements across a diverse set of primary and secondary opportunities to drive renewed top line growth. Taken together, we are well positioned to meaningfully benefit from the upside revenue, and we continue to believe that our Pixelworks Shanghai subsidiary is poised to reach profitability in the second half of 2025. As most on this call are aware, we engaged Morgan Stanley and initiated a formal review process in the later part of 2024 after receiving inbound strategic interest in our Pixelwork Shanghai subsidiary. Together with our financial advisor, we have since been engaged in due diligence with several qualified parties while also continuing to evaluate potential ownership and collaboration structures to determine a more optimal scenario for enhancing Pixelwork Shanghai's long-term growth potential, as well as maximizing value for existing shareholders. Although the outcome is yet to be determined, we believe the process itself is nearing closure and likely to result in a clear strategic direction for our Pixelwork Shanghai subsidiary within 90 days. In summary, we're focused on executing our strategic and operational objectives in a dynamic global macro environment, We significantly reduced our overall cost structure and expect to realize continued benefits from a more streamlined organization. With respect to our Pixelworks Shanghai subsidiary, we're encouraged by the depth of customer engagements on smartphone programs, particularly for our new mobile graphics accelerator solution. We are also continuing to advance and expect to capitalize on multiple near-term adjacent revenue opportunities over the next several quarters. additionally remain committed to the path for our Pixelworks Shanghai subsidiary to reach profitability in the second half of 2025. With our TrueCut business, we are continuing to make inroads towards an expanded ecosystem and achieving critical mass required to bring Pixelworks TrueCut Motion platform to more consumers, both in premium large format theaters and ultimately to home entertainment devices. With that, I'll turn the call to Haley Review Financials and provide guidance for the second quarter.