Pixelworks reports Q3 revenue growth of 6% and plans strategic sale to enhance financial flexibility and focus on licensing business.

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. At this time, all participants are in a listen-only mode. 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. Good 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 Hayley Amatin. 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 a 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 10K 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 effects 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 US 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 affected 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 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, then I'll follow with the two 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 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 co developed visual display processing chips 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, verasilicon 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 that started with the engagement of Morgan Stanley as an advisor to evaluate potential alternative ownership structures for the Shanghai subsidiary. In a large part due to impatience from the subsidiary's 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 and 60 million dollars 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 of in the current environment and allows the company to monetize a significant asset in the form of cash proceeds repatriated to the us. 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 17th 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 Pixworks become a low headcount pureplay 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 Pixworks 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 three new theatrical releases, Universal Pictures Jurassic World Rebirth DreamWorks animations the Bad Guys 2 and Universal Pictures Nobody 2. Today I can confirm the next theatrical release to feature our award winning Trukut Motion grading technology will be Universal Pictures Wicked for Good, which is slated to hit theaters on November 21st. Earlier today we confirmed the TrueCut, the Tru Cut Motion version of Wicked for Good, was selected for last night's UK premiere 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 headcount 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 two 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 electing not to provide financial guidance for the fourth quarter due to the previously announced definitive agreement to sell substantially all of the assets at Pixelworks 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 Pixelworks Inc. That completes our prepared remarks and we look forward to taking your questions. Operator, Please proceed with the Q and A session. Thank you.

Thank you. As a reminder to ask a question, you will need to press Star 11 on your telephone to remove yourself from the queue. You may Press Star one one again. Please stand by while we compile the Q and A roster. Our first question comes from the line of Suji da Silva of Roth Capital. Please go ahead. Suji.

Hi Todd. Hi Haley. And congratulations on this 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 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 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 950 million RMB or 133 million USD.. 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 500 million USD.. So that's the main reason why we're not getting 78% of the return is 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 a 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 and 60 million dollars.

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

You know, it's hard to be definitive on this, but there is a de-Americanization, you could call it a policy, it's an undercurrent de-Americanization being delete America. There's a big effort and I mean I, 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. 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 US public entity. We felt it. We felt it for the last 18 months. We tried to sell through it. 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 that verisilicon will convert those opportunities or not remains to be seen. But you can feel it Suji.

Right now. That really helps out. 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 you know, 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, you know, 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. When we ran into headwinds in China, we definitely slowed down our investment in Trukut. So maybe for the last year or so, it was artificially constrained.

Okay. Thanks, Todd. Thanks, Haley.

Thank you, Suji.. Good questions.

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

Yeah. 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.