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. 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, Latif. 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, Haley Aman. 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 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 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 expenses, net loss and net loss per share. Non-GAAP measures exclude restructuring costs and stock-based compensation expense as well as the tax effect of the non-GAAP adjustments. The company uses these non-GAAP measures internally to assess its internal operating performance. We believe these 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. 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 effected 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 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, and 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. The 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, VeriSilicon 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. This started with the engagement of Morgan Stanley as an adviser to evaluate potential alternative ownership structures for the Shanghai subsidiary, largely due to impatience from the subsidiary's China-based investors, escalating geopolitical tensions, and capital market constraints within China. 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 million and $60 million 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 in the current environment and allows the company to monetize a significant asset in the form of cash proceeds repatriated to the U.S. 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. 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 17 record date have the right to vote, and I strongly encourage those investors to consider the published proxy materials and vote their shares 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 transformed business looks like. Post-transaction, Pixelworks will become a low head count pure-play 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 Pixelworks 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 Animation, The Bad Guys 2; and Universal Pictures, Nobody 2. Today, I can confirm the next theatrical release to feature our award-winning TrueCut Motion grading technology will be Universal Pictures, Wicked: For Good, which is slated to hit theaters on November 21. Earlier today, we confirmed that the TrueCut Motion version of Wicked: For Good was selected for last night's U.K. premier 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 homes. 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 a significantly lower head count 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 to 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&A session. Thank you.

Our first question comes from Suji Desilva of ROTH Capital.

Congratulations on the 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 million 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 a 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 RMB 950 million or USD 133 million. Then we had obligations, either redemption obligations to 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 USD 500 million. So that's the main reason why we're not getting 78% of returns; 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 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 million and $60 million.

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

It's difficult to provide a clear answer, but there is a policy, often referred to as "Delete America." This is currently evident in the augmented reality sector where the government is influencing major buyers of semiconductors, such as large equipment and smartphone manufacturers, to favor local semiconductor companies. Our subsidiary, Pixelworks Shanghai, operated like a smaller giant and received subsidies, but it was 80% owned by a U.S. public company. We have felt the effects of this for the last 18 months. We tried to navigate through it, achieving success in some areas and not in others. Since the public announcement of the deal, I've noticed several opportunities arise for the subsidiary that I don't think would have emerged had we maintained the previous ownership structure. Whether VeriSilicon will be able to capitalize on those opportunities remains uncertain, but it's noticeable.

Right. That really helps. Lastly, regarding the future of the TrueCut business, can you describe how you are managing it before and after this transaction? Specifically, what does this transaction open up for you, and how will your approach to the TrueCut opportunity change moving forward? Any insights on aspects like capital, staffing, or customer interactions would be beneficial for understanding the projected business.

That's a good question. I hadn't really considered running it differently until now. I thought our approach was suitable until this point, but we are now going to concentrate on it and seek to accelerate our efforts. I believe the nature of the business and our market entry strategy, which is quite challenging, involves integrating the entire ecosystem. This includes everything from content creation to theatrical release, home entertainment distribution, and working with device manufacturers. Coordinating this whole ecosystem takes significant effort. During the outreach phase, simply investing money and resources doesn't always result in faster progress. Since we first received awards for this technology from organizations like HPA and other Hollywood technical bodies, we have been promoting it. Could we have done more with additional capital and focus? Perhaps, but the progress occurred in its own time. We're seeing the benefits of that outreach now, which suggests that it might be time to increase our investment and energy in the business. I think that's the key difference between then and now. As a public company, we are focused on achieving positive cash flow and earnings growth. Consequently, when we faced challenges in China, we scaled back our investment in TrueCut, leading to an artificial constraint over the past year or so.

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

Yes. 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.