Good day, ladies and gentlemen, and welcome to Pixelworks' Second Quarter 2021 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 remarks, there will be a question-and-answer session. I would now like to turn the call over to Pixelworks' CFO, Mr. Elias Nader.

Thank you. Good afternoon, ladies and gentlemen, and welcome to Pixelworks' Inc second quarter 2021 earnings conference call. With me on the call is Todd DeBonis, Pixelworks' President and CEO. 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 2021. Before we begin, I would 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 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, August 10, 2021. 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, our annual report on Form 10-K for the year ended December 31, 2020, and subsequent SEC filings for descriptions 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 amortization of acquired intangible assets, stock-based compensation expense, and restructuring expense. The company uses these non-GAAP measures internally to assess our operating performance. We believe these non-GAAP measures provide a meaningful perspective on our 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 GAAP. Also included in the company’s press release are definitions and reconciliations of GAAP to non-GAAP net loss and GAAP net loss to adjusted EBITDA, which provide additional details. With that said, I will now turn the call over to Todd for his opening remarks.

Thank you, Elias, and good afternoon to those joining us on today's call and webcast. I'm looking forward to walking through the significant developments that we announced as part of our 8-K filing yesterday. But first, I'll provide a brief recap of our results for the second quarter. Total revenue came in just above the midpoint of guidance at $14.1 million, representing over 50% growth on both a sequential and year-over-year basis. Revenue from mobile set another quarterly record of $4.5 million, and we've benefited from a recovery in our projector business, which more than doubled over the previous quarter. Gross margin was also in line with the midpoint of our guidance, improving to nearly 53% as we began passing through higher material costs to customers and realized the benefit of increased unit volumes. Additionally, we did a good job of managing operational expenses in the second quarter, all of which contributed to sequential and year-over-year improvement in our bottom line results. As announced in our 8-K filing yesterday, we have completed a series of actions as part of a broader strategic plan designed to accelerate Pixelworks' future growth and success by transforming our existing Shanghai R&D center Pixelworks Shanghai into a profit center. This will enable us to enhance the focus of our mobile, projector, and video delivery businesses on their global center in Asia, increasing our ability to access capital, ecosystem partners, customers, and key talent. As part of the strategic plan to establish greater prominence in Asia, we realigned our mobile, projector, and video delivery resources and established our existing subsidiary Pixelworks Shanghai to operate as a profit center. This does not represent a fundamental shift from our previous product strategies, but rather an optimization of our operating structure to accelerate the growth of the company. The new structure provides the following benefits: 1. Direct equity ownership by employees through a newly established ESOP in the Shanghai-based subsidiary enhances our ability to attract and retain key talent. We had approximately 75% participation from our existing employees reporting into Pixelworks Shanghai. 2. Provide access to a new source of capital that's aligned with strategic relationships and opens adjacent markets for our industry-leading visual processing technology. 3. Addresses specific qualification requirements for our Pixelworks Shanghai subsidiary to pursue an initial public offering and listing of shares on the star market in China. 4. Further aligns our resources closer to our key customers, ecosystem partners, and end markets. 5. Allows Pixelworks US to increase the focus on its TrueCut as well as other licensing opportunities. In addition to the realignment of resources, Pixelworks entered into an agreement with a private equity fund and other strategic investors that are based in China, as well as with entities owned by approximately 75% of the Pixelworks Shanghai employees under which committed investments will be made in exchange for equity interest in Pixelworks Shanghai. The private equity funds are affiliates of M2M, to which the company sold common stock in December of 2020, and the strategic investors are funds owned by their Silicon Cannon and Chip One Technology. In aggregate, the capital increase agreements consist of the commitment by employee entities to pay the amounts in RMB equating to approximately $12.3 million in exchange for a total equity interest of 5.95% interest in Pixelworks Shanghai, reflecting a pre-money valuation of approximately $173 million. And then by non-employee investors to pay amounts equating to approximately $30.8 million in exchange for a total equity interest of 10.45% in Pixelworks Shanghai, reflecting a pre-money valuation of approximately $247 million. Following the closing of these transactions, Pixelworks would continue to hold an 83.6% equity interest in Pixelworks Shanghai. Specific to pursuing a listing of the Pixelworks Shanghai subsidiary on the Star exchange, we would like to emphasize that this is a lengthy process that is comprised of meeting certain regulatory criteria and multiple periods of review. As such, we currently intend to qualify the subsidiary and apply for its listing as early as Q3 2022, but no later than June of 2023. Longer term, we believe listing of Pixelworks Shanghai subsidiary in China will provide expanded access to future potential capital at what could be more competitive valuations. Coming back to our second quarter results and updates on our end markets. In our mobile business, we continue to gain increased traction across an expanding number of OEMs and launch smartphone models. And in Q2, we delivered the fourth consecutive quarter of sequential revenue growth. Mobile revenue for the first half of 2021 grew by nearly 200% compared to the first half of 2020. Year to date, our visual processing and enhancement technologies have been incorporated into more than a dozen models across a half a dozen different OEMs, including two first-time mobile customers and two tier one mobile OEMs. A number of these launch phones using Pixelworks technology set new industry records for display performance, and several have been ranked by independent third-party reviews as delivering visual quality on par with the industry's ultra-flagships while selling at a fraction of the price. Even more important has been very positive feedback from end-user consumers on the display features and functionality enabled by Pixelworks across these launched devices. This market validation has reinforced the value proposition of our technology and ability to influence customer buying decisions, resulting in OEMs returning and incorporating our solutions into more of their future devices. Further supporting our realignment to directly operate our mobile business from within Asia, we've recently recruited Leo Shen to join the company in a newly created role of Senior VP and General Manager of our mobile business. Leo is a seasoned mobile industry executive with over 20 years of mobile experience, having spent the last 10 years in various roles at Qualcomm in China. He is based in Shanghai, and he will lead our team's mobile growth and expansion initiatives throughout Asia. During the quarter, we secured several new design wins for our X5Pro and i6 visual processes with multiple phones scheduled to launch in the second half of the year, as well as in early 2022. In addition, we believe we are close to securing our third tier one mobile OEM customer on a device targeted for launch later this year. We've also continued to secure additional wins for our Soft Iris solution, which is serving a strategic benefit in the current hardware-constrained environment. In addition to continuously increasing the value proposition of our software-only solution, our mobile team has been actively working to expand Soft Iris's compatibility for use with a new family of application processors. Pixelworks' mobile value proposition remains well aligned with the most prominent market trends, including mainstream adoption of AMOLED displays, higher refresh rates on those displays, and 5G enabled mobile gaming. As OEMs continue to confront the non-trivial challenges of combining these three attributes into their next-generation smartphones, they are increasingly coming to Pixelworks for solutions. While higher frame rates are fundamental to providing the most immersive and realistic gaming experience, the need to render high resolution at ever-increasing frame rates creates a challenging system engineering problem. When not addressed properly, it results in reduced battery life and overheating that impact device performance and the mobile gaming experience. Our visual processors utilize a distributed visual architecture to offload this intensive processing and upscaling both resolution and frame rate from the app's processor, enabling less power drain and lower operating temperature, even during sustained high frame rate gaming, providing a unique mobile gaming experience. According to recent third-party estimates, revenue from mobile gaming in 2020 exceeded $90 billion and represented just over half of the total global video game market. With the growing popularity of mobile gaming in China and improved gaming experience, it has become one of the highest priorities for mobile OEMs on their next-generation devices. Our newest and most advanced seventh-generation visual processor, which we taped out last month, is specifically designed to address the fundamental challenges associated with delivering high-performance gaming on a mobile device. I'll defer a full review of the specs and industry-first features until we formally unveil the chip to the market later this year. However, we will begin sampling this visual processor to select customers later this month. We already have an alpha customer committed to using this chip in a device scheduled for mid-next year. Shifting to the projector business, following initial improvement in order patterns that began early in the year, we realized a significant recovery in shipments and bookings during Q2, with revenue more than doubling sequentially and increasing 30% year over year. A number of factors contributed to this outsized rebound, including channel inventories that were unsustainably low after having adjusted to the weaker sell-through in 2020 due to the pandemic, coupled with improving end market demand in China and parts of the US. During the quarter, our operations team worked with our supply chain partners to eliminate a large majority of the supply gap going into the quarter and meet a significant portion of the customer demand in Q2. As a result of the ongoing supply constraint environment, we have continued to extend our required lead times on orders, and customers are placing orders through early next year. As notable for our projector business, in late July, we finalized a $10.6 million multi-year agreement to develop an advanced SoC for large existing customer’s planned next-generation product family. As part of this co-development agreement, the customer will effectively fund a significant portion of the research and development expenses related to the new product, which we in turn expect to deliver and ramp into production at the beginning of 2023. Keeping in mind the relatively long life cycles of our solutions in the projector market, our successful execution of this new SoC that can be repurposed and targeted to the broader projector market represents an opportunity to solidify and extend Pixelworks' market-leading position through the majority of this decade. Regarding the broader supply constraint environment across the semiconductor industry and more specifically what we're doing to mitigate the impact on Pixelworks and our ability to meet customer demand in all end markets. Our customers have responded favorably to our extending lead times across all product lines, resulting in increased backlog and visibility for the second half of the year. We've also been making progress with our supply partners to mostly meet anticipated demand throughout the rest of this year. Our operations team, which focuses on all elements of our supply chain, has been doing an incredible job at successfully backfilling customer demand in Q1 and Q2 and securing supply during the second half of the year. These focused efforts also include back-end assembly and testing, where we recently qualified two additional testing houses for projectors to give us multiple sources of testing. While we currently have very good visibility into future demand, we expect supply constraints to remain an ongoing challenge and element of uncertainty. Our ability to support further upside demand in mobile and sustained recovery in projectors beyond Q3 will continue to be contingent on mitigating the prevailing supply constraints in the latter part of this year. Turning to a brief update on TrueCut, following an industry-wide halt in more than a year on theatrical production due to COVID, the major studios have started to reopen, and production activity is ramping up again in Hollywood. While progress has been slower during this period, our team's ongoing efforts have been very productive over the last few months, especially as it relates to building out and supporting the ecosystem for TrueCut adoption. Today, we are focused on a narrow group of existing engagements and in-depth technology evaluations with a combination of prospective TrueCut Ecosystem Partners. We are increasingly optimistic about securing our first breakthrough partners for TrueCut North America before year-end. In summary, we've been extremely busy. We are executing well during the dynamic and supply-constrained environment, and we had a solid second quarter with significant growth and improved operating results. Our team continues to be aggressive and focused on securing supply from both our foundry and back-end packaging partners to support growing product demand from our customers. Entering the second half of the year, we have strong bookings from a combination of mobile and projector customers with orders extending into 2022. This includes a healthy pipeline of mobile design on next-generation smartphones across both existing and new tier-one mobile OEMs. We are also on track to begin sampling our recently taped out seventh-generation visual processor in the third quarter. With the implementation of the strategic plan introduced today, we have repositioned the company to fully align with our customers in Asia and accelerate Pixelworks' growth trajectory. Although the magnitude of our growth in the near term will depend in large part on our ability to secure incremental support from the supply chain, I am confident we will deliver sustained solid revenue growth through the remainder of the year. With that, I'll hand the call over to Elias to review the second-quarter financials and provide our guidance for the third quarter.

Thank you, Todd. Revenue for the second quarter of 2021 was $14.1 million compared to $9.3 million in the first quarter of 2021 and compared to revenue of $9.3 million in the second quarter of 2020. As Todd previously highlighted, the sequential year-over-year revenue increase of over 50% reflected a combination of continued strong growth on record revenue in the mobile market and the solid recovery of demand in the projector market. The breakdown of revenue in the second quarter was as follows; revenue from mobile increased to approximately $4.5 million, representing 32% of total revenue, driven by strong growth in sales of both visual display processes and software solutions. Revenue from digital projectors increased to approximately $8.5 million. Video delivery revenue was approximately $1.1 million. Non-GAAP gross profit margin increased by over 900 basis points sequentially to 52.7% in the second quarter of 2021 from 43.7% in the first quarter of 2021, and compared to 59.2% in the second quarter of 2020. As we dictated last quarter, the lower than historical gross margin in Q1 was primarily the result of product mix and temporary pricing extended to a new mobile customer. We anticipate gross margin will remain near historical ranges for the remainder of 2021 while continuing to trend higher from Q2 levels as mobile revenue expands and demand stabilizes in the projector market. Non-GAAP operating expenses were $10.1 million in the second quarter of 2021, compared to $10.2 million last quarter and $9.3 million in the same period last year. On a non-GAAP basis, second quarter 2021 net loss was $2.6 million, or a loss of $0.05 per share, compared to a net loss of $6.4 million, or a loss of $0.12 per share in the prior quarter and a net loss of $3.9 million, or a loss of $0.10 per share in the second quarter of 2020. Adjusted EBITDA for the second quarter of 2021 was a negative $1.8 million compared to a negative $5.2 million in the first quarter of 2021 and a negative $2.9 million in the second quarter of 2020. Moving to the balance sheet, we ended the second quarter of 2021 with cash and cash equivalents of approximately $23.6 million. In terms of other balance sheet metrics for the second quarter, day sales outstanding were 41 days at quarter-end compared to 54 days at the end of the first quarter. Inventory terms were 16 times in the second quarter, up from 10 times in the prior quarter. Now turning to our guidance for the third quarter of 2021, based on recent order trends and our current backlog, we expect another quarter of very strong year-over-year revenue growth in the third quarter, driven by sustained solid demand in both mobile and projectors. We expect to remain supply-constrained in Q3 for both mobile on 22 nanometers and the projector on 40 nanometers, and we are working with our supply to resolve all delinquencies by the end of the year. Specifically, we anticipate total revenue in the third quarter to range between $14 million and $16 million. Consistent with my previous comments, we anticipate gross margin to remain in historical range in the third quarter, supported by sustained trends in mobile and projectors, as well as the benefits of better overhead absorption associated with higher total revenues. More specifically, we expect non-GAAP gross profit margin in the third quarter to be between 52% and 55%. We anticipate operating expenses in the third quarter to range between $10 million and $11 million on a non-GAAP basis. Finally, we expect third quarter non-GAAP EPS to be in the range of a loss of $0.07 to a non-GAAP loss of $0.02 per share. That concludes our prepared remarks. We will now open the call for questions.

Thank you, presenters. We have our first question from Suji Desilva from ROTH Capital. Your line is open.

Hi Todd. Hi Elias. Congratulations on the strong recovery here and obviously the restructuring announcement. Very exciting for the company. Yeah, no problem. So the mobile, Todd, I kind of caught in your remarks, you talked about expecting additional growth from existing and new customers. I want to get a sense of the statement about new mobile customers, if that is not an expanding opportunity versus what we might've expected or whether that's just kind of sweeping across the China OEMs that we're familiar with. Just want to get some color there.

It's a new tier one, so, and they're going through some particular changes where they're spending a lot of energy on a new family of flagship processes, and it looks like they're going to use Pixelworks across their flagship processors. Not done yet, but that's what I'm referring to.

Okay. And would you care, Todd, to provide some timing timeframe of when that might come to market? Or is that still to be?

The first of the family of phones would be launched at the latter part of this year.

Okay. Late '21. Okay. And then the restructuring, we were all trying to get a handle around it. So is there any longer term operating impact, operating expense impact of this restructuring? And would you be able to provide Shanghai standalone operating metrics profitability? Is that a meaningful data point to help us with?

We are unlikely to provide that information here. However, we will have it available in the future, as we are preparing a financial operating entity that we plan to file to go public on the stock exchange, and Chinese regulators will require financials for that entity. In the short term, there will be no changes to our operating expenses. In the long term, we expect additional costs in finance due to audits taking place in both China and the US, supported by finance teams in both locations. While it's not a complete duplication of efforts, there are added costs involved. Additionally, we anticipate significant growth next year and into 2023, which will require us to expand our organization to support that growth.

Okay. That's helpful. And we'll look for that as that plays out. And then lastly, on the projector business, I know Todd you gave a lot of color in the prepared remarks, but just the kind of the key essence elements of the driver of the sharp recovery here and more importantly, your comfort with the sustainability of this recovered level of demand, any help there would be appreciated.

So specific to project you're talking about the recovery?

Correct? Correct. Yeah.

So I call it a snapback when it comes back to 100%. I don't think their demand went up a 100% right. Their sell-through didn't go up a 100%. Clearly, it started to pick up for them, but they were at very low, there's a very big whip. And a lot of it's finished good projectors around the world and distributors and resellers of their equipment. And so as we went into the pandemic last year, we saw an overcompensating because if you have this expanded whip of material throughout the process, so, raw goods and materials, like semiconductors from us, finished goods that they hadn't shipped out to distributors and VARs yet, and then inventories around the world of distributors and VARs. It contracts and so we went through the contraction last year. And what you just saw was a bounce back. Now, the business, the actual end business of the projector customers, I would say is that they are maybe at 70% of what they expect to be normalized when we completely come out of the pandemic and so it's snapping back to not a full utilization. Okay. It's snapping back to the 70% level. And so we would expect probably over, it really depends on global reopening, the U.S. is, is fairly open, at least let's hope it stays open. Europe is reopening, and most of Asia, China's even going through some closures right now. So, and Southeast Asia is going through fits and starts. So I would suggest that we're probably going to see another year of fits and starts. So we'll see gentle recovery from the projector market during that year. And then as we go into the latter part of 2022 and 2023, I expect them, we're going to get up to full recovery.

We have our next question from Richard Shannon from Craig and Helen. Your line is open.

Thank you, Todd. I want to congratulate you on a strong recovery following the exciting announcements about strategic initiatives. I would like to follow up on Suji's initial question regarding the tier one partnerships and request more context. Specifically, I'm curious about the existing tier one partners and their plans to increase their usage of Pixelworks. I know there's been one established for some time and a new one launched earlier this year. Given that, how do you expect them to broaden their deployments? Additionally, how does this compare in terms of potential size to the new tier one partnership when we look ahead a year or two?

Well, so I'm not going to go into too much specifics about our tier ones because a lot of its confidential, but what I'll say is of the two tier ones, both are still utilizing Pixelworks technology across a broader swath of phones. I would say that the existing tier ones we have, we're launching between a half a dozen to 10 models each with various products from Pixelworks between Soft Iris and the X5 processor. And then they are both focused on a new seventh-generation device. And the new OEM I would say is they're starting off very consistent to where we started off with the first two.

That's fair perspective. Second question I think, Todd, you announced here you're going to work with a new applications processing partner when, if he could help us understand the drivers of that? Is this driven by a particular customers like potentially this tier one customer or not maybe just kind of give us a sense of one that will happen when you start seeing benefit from?

This collaboration between us and the other applications processing company has been ongoing for some time, but we required a catalyst to move forward. Even large application companies face resource constraints. Although both parties recognized the benefits of working together, we needed an initial program to create a sense of urgency. One customer has provided that urgency for our efforts.

Let's see here, question on, and I guess it relates to the third quarter and potentially beyond here, but you're talking about supply constraints, any way that you could quantify how much you think you could shift this quarter if you didn't have these select constraints?

I could, but I'm not going to, but I'll try to give you a little bit of color. I'll try to give you a little bit of color. So when you say this quarter, do you mean the quarter we just closed and announced?

Third quarter?

Oh, you're talking about a quarter we're in because we definitely left the revenue that we recorded for Q2 was short of demand. Okay. And the revenue in Q3 with the guidance we just gave is short of demand. And the revenue, not so much in Q2 because that – this really started to, we weren't really, we were a little bit affected in Q1 or affected in Q2, but beginning that it was for us, it was sort of the beginning stages of constraint. We didn't turn any programs down. So I wouldn't say, that's a revenue when I say we were short of revenue that's to the backlog, right. And the way that backlog exists is it just rolls over to the next quarter of backlog. We're pretty much on a go-forward basis, getting secured orders from customers out in time. So not only are we getting longer lead times, we're getting binding orders, right. That they can't back out of. So if we can't ship it, it doesn't go away. It rolls over. But also in Q3, I would say there was a program as we started this year and we understood the constraints, there was at least one high-volume program we had to walk away from because of, we couldn't anticipate enough capacity to support it. That's a little harder to quantify what that would be. We have forecasted for what it would be, but, so if I really got down and said, how much did supply constraints affect the guidance in Q3? Reasonable for backlog, that's rolling over to Q4, and considerably more that we probably turned away in new design-in activity.

That is helpful. Last question for me, on your funding agreement with the projector customer. I think the last time it was few years ago, we had to provide a step down in ESPs, but an increase in gross margin. Wondering if you're expecting similar dynamics and then when do we see the offsets to OpEx that start later this year, next year? How do we think about that?

Okay. So, you're asking me that as mobile increases, will we see a downward trajectory and margins? Is that what you're asking me?

No, it was related to funding agreement that I think it was with the projector customer.

The funding agreement. Okay. So this particular development has a lot of outside IP that we bring in for the system of chip, in addition to our own IP. A lot of the upfront money, we secured about half of that contract was paid upfront by the customer or invoiced upfront. Most of that's going to go right out the door to design tools, IP providers, and third-party support, right? So there'll be no offset that hits this year. I would call it it's neutral to slightly negative for us. We may absorb more costs this year than we actually take in. Next year it'll reverse. Next year we'll have offsets.

We have our next question from Derek. Your line is open.

Hi guys. Thanks for taking my questions. I did have a question on mobile. Just want to get a sense of customer response to Iris. I think for the most part, you guys continue to resign Iris on to the next generation device or the refreshed version of the device. Are you seeing more discussions with your customers to move from maybe those higher-end phones to mid-tier with higher volumes? Any update on that or detail on some of the discussions you're having would be great.

The first tier client has maintained most of the solutions they use from Pixelworks primarily for higher ASP phones, which are around $600. The second tier client has introduced their first product family, Iris, our Xi Pro, which ranges from about $300 to $450, representing new territory for us with a reasonable volume. They are planning additional launches soon, likely for higher-end phones, but going forward, we anticipate our solutions will reach the upper mid-range, with tier two phone companies using our Iris solutions in the $250 range alongside several tier two OEMs. I've noticed that these companies are facing volume challenges for two main reasons: one, they are having difficulty securing production capacity outside of Pixelworks, particularly in terms of AP capacity; and two, in our current market, there are still segments where customers are tied to service providers and others serving direct-to-consumer markets, both of which show customers shifting towards larger OEMs. Data illustrates that the top five or six mobile OEMs worldwide, whether in Europe, China, or the Americas, have consistently gained market share and shown significant year-over-year growth, with Huawei being an exception. Conversely, tier two companies have lost market share and are essentially flat year over year, reflecting a tough year last year. The pressing question is whether this trend will persist and if there will be further consolidation among the top OEMs. Some tier two companies have invested heavily to generate volume to support their efforts but have not seen returns on their investments over the past two years. It's uncertain whether they will continue this strategy or if further consolidation will take place in the next two years. While I have personal opinions on the matter, it's ultimately up to the market to determine outcomes. For us, as we target lower-priced phones with lower ASP solutions from Pixelworks, we expect to increase volume. However, we are approaching silicon and access to capacity with greater care this year and next than in the past, which influences our roadmap. This may lead us to focus on selling higher ASP solutions with potentially lower volume due to secured capacity or using available capacity on higher ASP solutions that differentiate higher-end phones. If we can improve both our top line and margins by following this roadmap rather than shifting downwards, we will prefer that path. All the factors we've discussed are likely shaping our future direction, the customers we target, and our ecosystem partners, as well as the solutions we prioritize in our roadmap.

Got it. Got it. And my apologies, if some of this has been covered, I've been jumping around multiple calls.

That was a new one. That was a good one. That was a new one.

Okay. And then just quickly on TrueCut, I think in the past, you guys have spoken about some large potential customers there. Just curious how those conversations are progressing, and I'm wondering if you can maybe size that opportunity in some sense providing sort of pricing details there. But just generally, how are you feeling about TrueCut and some of the opportunities there?

The conversations with customers are progressing well. It's important to note that our approach isn't simply about providing tools to content creators and post-production houses; we need their support in recognizing the value we bring. Their advocacy is crucial for the adoption of TrueCut. If content creators don't see the benefits of how our technology can enhance their filmmaking and the final product across various platforms, TrueCut won't succeed. Therefore, gaining buy-in from these creators and post-production houses is essential, and I believe we are making good progress in generating interest. Another significant factor is the content distributors. Depending on the situation, content creators may have varying levels of influence over their distribution channels. However, for TrueCut to thrive, distributors must also appreciate the value of our technology. Our discussions with them are ongoing, but it's clear they are currently focused on the quantity of content as they recover from the pandemic. There is a noticeable shortage of new content being produced, paralleling issues in the semiconductor industry. More streaming services require content than there is supply available. For those of us using services like Disney, Paramount, Netflix, and others, the volume of new content introduced has not returned to pre-pandemic levels, indicating a significant gap. The industry is looking elsewhere at the moment, which makes it challenging to market our technological innovations while they prioritize quantity over quality. However, the content creators we've engaged with recognize the value proposition. If they are convinced enough, they might influence distributors to prioritize our initiatives. The third aspect of our ecosystem involves device manufacturers and licensing, and we are having positive discussions there. We are collaborating with a major device OEM that is working to persuade other partners in the ecosystem of our technology's advantages. This is the first time I have publicly shared such detailed insights about our situation. The task at hand is challenging, but we are making substantial progress. Looking towards the long term—let’s say five to seven years from now—the vision is to have device manufacturers worldwide licensing TrueCut master technology on their devices. Additionally, we hope content creators will utilize our tools in their post-production processes to offer a premium experience across these devices. For a company of our size, the potential here is significant.

Yup. Got it. No, I really appreciate the color. If I could squeeze another quick one in just on the star exchange, I'm not too familiar with the process. So what are sort of the next steps for that listing and how would that impact sort of the stock trading on the US markets and are you guys going to trade on both exchanges? What is sort of the listing mean for your engagements in China? Any benefits there? Just any additional detail on that announcement would be great.

That's a great question. It's a challenging one to address. Assuming we successfully list our subsidiary on the Star exchange, we do not plan to abandon our US listing. Both listings will be maintained. It's not exactly a dual listing since it isn't an ADR; it's a subsidiary listing in China. Regarding TrueCut, depending on the scale of our licensing business here, investors in Pixelworks on the NASDAQ would benefit from the cash flow potential of that licensing business while also holding majority ownership in the subsidiary on the Star exchange. This illustrates the value of holding US shares. The key value proposition in China with this listing is particularly significant for those of us in the semiconductor industry. We are advancing in display system engineering, focusing on low power solutions. To achieve this, we need highly skilled talent, most of which is situated in Shanghai, where a much larger pool of electrical engineers, software engineers, and display experts is available compared to the US. Therefore, it's crucial for that talent pool to feel a personal stake in the company. Although our employees in the US received stock options, it has been challenging for local talent in China to maintain long-term ownership of that stock. They grasp the importance of being part of a locally listed company. Once we communicated our plans to pursue this listing and established the ESOP, we received overwhelmingly positive feedback from our employees eager for this change. Notably, 75% of our employees invested in Pixelworks Shanghai at a pre-money valuation of $173 million when our overall market cap was around $150 million. Moreover, attracting new talent, which is highly competitive in that region, becomes significantly easier with our setup and the prospect of a Star listing. Ultimately, the primary advantage is talent retention and access, with the secondary benefit being capital. While it can be challenging for small semiconductor companies to attract capital in North America, it is much easier in China. I hope this clarifies things.

Yeah. Thanks for the color again. Yeah, thanks guys.

We have a follow-up question from Suji Desilva from ROTH Capital. Your line is open.

Thanks for indulging me for the follow-up, but a lot going on this quarter here. On the US business, when you do the restructuring, you mentioned TrueCut and licensing. I just want to make sure if the mention of licensing along with TrueCut was purposeful and that there's a pipeline potentially of patent type opportunities that have been dormant and underserved because you've been busy. Is that the case, or is that just meant to be a generic label for TrueCut?

It was intentional. I invested significant time in these prepared remarks. I'm pleased you noticed it, Suji. It's not about our patents. When you license intellectual property, part of what companies look for is the patent protection for the licensed IP, the methodology used, your system expertise, and your support. That’s what I was referring to. We have always had opportunities to license our intellectual property. While we were previously involved in the TV chipset business and aren't innovating in that area anymore, we have valuable IP. We possess general display IP applicable to various solutions, including projectors and mobile devices, as well as specific IP for our target markets, and we've had inquiries to license all of that. Until now, I believed pursuing this would distract the company from building momentum in mobile. However, with our current progress and hiring efforts, it feels like a suitable time to explore these opportunities, especially if they are in adjacent markets that do not compete with our core businesses. That is the context I was referencing.

That's great. And the other one I'll try to make it quick. In the 8K yesterday, you mentioned some new investors, which were very interesting Silicon Cannon and Chip On. I don't know the other two, but know very Silicon pretty well. They're good at pumping out chips. Could this increase the velocity and the cadence of your product introductions going forward? Or was there any specific sort of thought in that investor base, or any color there would be helpful.

There was specific thoughts of every one of those? We'd been in dialogue prior to the investment with every one of those companies. I'll give a little context, who their Silicon is for those on the call that don't know who their Silicon is, they're a turnkey, ASIC and IP provider that recently went public about nine months ago on the Star exchange themselves, and they're doing very well. Then there's, Cannan, who's also went public, and they're Chinese-based ASIC provider that has done both bit mining, Bitcoin mining ASICs and recently they announced a very neat edge AI processor, and so we're in discussions with them about some adjacent markets and collaboration. And then Chip One is a display company, but not a display processing company. They're more in the very front end DDICs TCON analog front end devices for large displays that you would see a lot in Asia, like advertising displays all over. And then of course they're getting into the mobile phone market etcetera. And so we're in discussions with them about some adjacent markets, and so all of those investments was, it was more than money at a reasonable valuation. It was also about collaboration.

There are no further questions. At this time, I will turn the call over back to the presenters.

All right. Well I'll finish in a minute, but I just wanted to say, listen, a lot to digest. I hope this was helpful for everybody. And thanks for your attendance today.

Just thank you for participating. We are excited about this ride we're taking. We want you guys on the same train. Take care. Thank you.

Ladies and gentlemen, this concludes today's presentation. Thank you for participating. You may now disconnect.