Pixelworks, Inc.

Good day, ladies and gentlemen, and welcome to Pixelworks' first quarter 2026 earnings conference call. I will be your operator for today's call. At this time, all participants are in a listen-only mode. After the speaker's presentation, we'll open up for questions. To ask a question during a session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 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.

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 Munn. 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 one-time 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 zero 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 True Cut 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 8th, 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 post-production alongside Lightstorm and multiple contributing technology providers, our True Cut 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 true-cut 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 true-cut 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 True Cut 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 CineD, we recently added another published endorsement with Vue, the largest privately owned cinema operator in Europe, to bring our advanced TruCut motion grading technology to their premium theaters. This includes prioritizing TruCut content as part of Vue's most advanced Epic brand cinematic experience. Featuring world-leading HDR laser projection by Barco and advanced light steering technology, that delivers up to six times the brightness of standard cinema screens. With True Cut Motion's unique and commercially proven capability to enable the most authentic, high-fidelity viewing experience, you will see us continue to expand our True Cut 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 close 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 interests and associated assets of our Pickleworks 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 the 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 one-time severance costs. After accounting for all non-recurring 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 non-controlling 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 the balance sheet, we believe the company's existing cash and cash equivalence balance provides ample runway and flexibility to execute our strategy of building a peer-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 30th, the board of directors authorized a newly established stock repurchase program in the amount of $5 million. This authorization provides an initial two year window for the potential repurchase of shares of Pixelworks common stock at the company's discretion beginning on May 15th, 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.

Thank you. And as a reminder, to ask a question, you need to 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. One moment for our first question. Our first question will come from Suji De Silva from Roth Capital. Your line is open.

Hi, Todd. Hi, Haley. How you doing? So 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 to know the ballpark level.

Yeah, so did you take the 5.2 minus the restructuring minus the stock comp?

Correct.

Yeah, and then there's also some, you know, benefit in Q2 from, like, you know, layoffs that happen in Q1, and they're just normal salaries. So, yeah, that would be the number.

Okay, so that's a good run rate to go forward then, $2 million roughly? Roughly, yes. Okay, great, thanks. Okay, and Todd, let's see, the partner strategy is, 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? Do you have the people in place or are there key partners you still need to secure to establish the licensing base?

Hello?

That's because you're on mute. Sorry about that, Suzy. I was muted. You there?

Well, I'm here.

Yeah, I didn't hear. That's all right. I'll start over. Okay. 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, you know, as I summarized here, a collection of four 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, Sinity, 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 to 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 TrueCat. 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 asset 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 five 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.

Well, that color is definitely helpful, Todd. I appreciate it. And then maybe last two questions. You announced a switch from the ATM to the buyback. That's a good start there. Just wondering, you know, with the cash balance you have, is it an organic or other concepts? Just any color there would be helpful.

Well, it's the first time in a long time that we have had the luxury of of ample cash balances. So, you know, 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, yeah. So the thought of joint development agreement sounds interesting, obviously. I hope you're not going to get into streaming content creation business yourself, but we never know.

We're not that ambitious.

Good. Leave it to Amazon. And 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 Truecard? Or maybe you can give us some picture of how the organization's arranged now. That would 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... If you look at our spend, it's not high. It's a couple million a quarter. Most of it's going in tool development. 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.

Okay. That's very helpful, Todd. Thanks. Appreciate the Great.

Thanks, Suji. I appreciate the interest, as always.

Thank you. 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, the 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.