Operator
Good day ladies and gentlemen and welcome to Pixel Works Inc's second 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 there will be a question and answer session. To ask the question during the 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 1-1 again. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Brett Curry with Shelton Group Investor Relations.
Thank you. Good afternoon, and thank you for joining us on today's call. With me on the call are Pixel Works Chairman and CEO Todd DeBonis and Chief Financial Officer Haley Amon. 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 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 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 11, 2026. The company undertakes no obligation to update any 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 differ materially from actual results. Please note, throughout the company's press release and management statements during this call, we refer to net loss attributable to Pixel Works as simply net loss. With that, I'd now like to turn the call over to Pixel Works Chairman and CEO, Todd DePotis. Please go ahead, Todd.
Thanks, Brett. Good afternoon and welcome to everyone joining us on today's conference call. having completed our strategic transformation of pixworks earlier this year q2 represented our first full quarter of operations as a pure play technology licensing company the entire organization its resources and our team are now focused on building and scaling our global licensing business centered around true cut motion platform and the visualization enhancement solutions. As previously conveyed, we expect quarter-to-quarter revenue to be lumpy in the near term as we build our theatrical pipeline and begin to scale the business over time. Although not a significant amount, revenue for the quarter was consistent with our internal expectations. Revenue will be higher in the third quarter, but again, it will continue to be lumpy until we achieve increased scale. I also want to reemphasize that we are now a very lean organization with minimal overhead and a relatively low threshold to reach break-even. After successfully monetizing our prior semiconductor business and restructuring the remaining company, we were also well capitalized and ended the second quarter with $53 million in cash and zero debt. This is net of the company's repurchase of common stock, which was the single largest use of cash during the second quarter. Our overarching strategy is to be an enabler of truly differentiated viewing experiences. Anchored by our industry-leading TrueCut motion platform and motion grading services, we are also committed to continuing to expand PixelWorks core strengths in visualization enhancement solutions and pursuing complementary licensing initiatives. Our TrueCut motion platform remains the only commercially validated, scalable, and filmmaker-endorsed end-to-end solution for creating and delivering the premium clarity of high frame rate imaging while preserving the intended cinematic look and feel. when first conceived true cut motion and the concept of motion grading content were ahead of their time and well ahead of the industry's broad acceptance of high frame rate cinematic content and premium format displays following steady incremental adoption of high frame rate content by leading filmmakers coupled with growing consumer demand for differentiated high-quality cinematic experiences, the broader industry is rapidly moving to embrace and deliver premium large format experiences. The primary motivation for this shift by studios and exhibitors is straightforward. Premium large format theaters are increasingly capturing a disproportionate share of box office revenue. As evidence, I want to share a few excerpts of recent public comments made by leading exhibitors and related technology providers. On its most recent earnings call, AMC highlighted that roughly 750 premium and extra-large format auditoriums, representing only 8% of total screens, generated more than half of gross ticket sales for major releases such as the Odyssey. They also outlined plans to add 100 to 250 additional premium large format and Excel screens over the next two to four years. IMAX delivered record second quarter results driven by exceptional demand for its premium experience, with the company citing the Odyssey as contributing to the highest global opening weekend in the company's history. Additionally, Dolby continues to expand its premium Dolby Cinema footprint and has reported strong year-over-year growth in domestic box office from the format. So far in 2026, premium formats accounted for almost 20% of total domestic box office from approximately 4% of total screens. As further evidence, I would point to Disney's launch of its Infinity Vision certification program for premium large format theaters. Developed in collaboration with a group of exhibition partners, Infinity Vision is designed to help audiences identify auditoriums that meet rigorous technical standards for the biggest screens, laser projection for superior brightness and clarity, and premium immersive audio. This further validates the entire industry's growing emphasis on premium large format experiences and the higher margin revenue they generate. With our True Cut Motion platform, we are uniquely positioned to help filmmakers, studios, and exhibitors deliver authentic, high-fidelity motion across these premium large format venues. In support of driving adoption, we are focused on continued expansion of the True Cut Motion ecosystem of premium large format exhibitors and a growing pipeline of high-quality, motion-graded content. During the second quarter, we secured Kannapolis Group's endorsement and preferred exhibition of TrueCut motion-enhanced versions for the theatrical titles on Kannapolis' laser-ultra-large-format screens across Europe and North America. We also formally announced a partnership with CINITY, expanding the TrueCut motion ecosystem and prioritizing advanced TrueCut motion grading technology in Synity's premium large format theaters. Notably, Synity is both a pure play operator of premium large format theaters while also specializing in the development and deployment of advanced PLF projection and LED systems, integrating 4K, high frame rate, high brightness, HDR, wide color gamut, and immersive audio into venues operated by exhibitors across China and increasingly internationally. Synity's decision to prioritize TrueCut motion enhanced content across its growing network represents a strong validation of our platform's ability to deliver a more immersive experience in their advanced premium large format environments. These announcements build on previously disclosed collaborative relationships with Marcus Theatres, Odeon Cinemas Group, and VIEW, strengthening our network of leading exhibitors committed to bringing True Cut Motion to premium screens spanning key international markets. In terms of content, we have a solid and growing pipeline of TrueCut motion-enhanced titles, including work currently underway on multiple projects in support of targeted releases over the coming months and through the early part of next year. As in the past, we will announce our involvement with individual titles as they are released. In summary, I want to reiterate or reiterate that we are now operating as a fully repositioned and well-capitalized global technology licensing company, one that is nimble, scalable, and asset-light. Our stated objective for 2026 has consistently been to build out the theatrical exhibitor ecosystem and expand the availability of premium TrueCut motion content. To date, we've made significant headway on expanding our network of premium exhibitors. We also remain on track to grow the slate of True Cut Motion enhanced content with multiple titles planned for future releases. We expect to demonstrate further momentum in the second half of the year. And over time, we anticipate successful theatrical adoption to drive increasing pull from studios and eventually unlocking growing home entertainment and device opportunities. Speaking of device opportunities, I do have one more important update to share. We recently secured a new agreement with a large device manufacturer. Over the past six months, they completed an extensive evaluation of TrueCut motion, our motion grading technology, and existing TrueCut motion titles. This led to signing a multi-year device certification agreement, which will result in certification of a family of devices. Additionally, they will help to bring new motion graded content to their platform. We are not ready to name them yet, as we are currently targeting an announcement in conjunction with this partner's product plans for later this year. This partner represents our first major device licensee. We are excited to be ahead of our planned timeline with respect to our device licensing program. In addition, this partnership will result in accelerating the pipeline of immersive, true-cut, motion-graded content. With that, I'll turn the call to Haley to provide some additional financial details on the quarter.
Thank you, Todd. As reported in our press release today, revenue for the second quarter of 2026 was approximately $64,000, bringing first six months total revenue to $510,000. For context, full-year 2025 revenue from TrueCut Motion and related motion grading services was approximately $690,000. Gross profit margin for the second quarter was 60.9% compared to 56.7% in the previous quarter. Total GAAP operating expenses for the second quarter were $3.4 million compared with $5.2 million in the first quarter of 2026. The $1.8 million sequential decrease reflects the completion of our restructuring plan and streamlining actions taken in the first quarter. Turning to the balance sheet, the company ended the second quarter with cash and cash equivalents of approximately $53 million. The sequential net change in the cash balance from the prior quarter was primarily comprised of approximately $1.7 million used from operations and approximately $3.2 million used to repurchase shares of Pixelworks common stock during the second quarter. We remain committed to maintaining a strong balance sheet, and we continue to believe the existing cash and cash equivalence balance provides ample runway and flexibility to execute our strategy of building a peer-play technology licensing business. Finally, although we are not providing formal quarterly guidance, we do expect revenue to increase sequentially in the third quarter based on currently booked business, including licensing and related motion grading services. That said, I would also like to reiterate our previously provided high-level operating model. Consistent with our second quarter results, we expect to maintain cash operating expenses of less than $2.5 million per quarter through the remainder of 2026. 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.
Operator
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 1-1 on your telephone, then 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. Our first question comes from the line of Suji DeSilva with WAF Capital. Your line is open.
Hi, Todd. Hi, Haley. Maybe just a housekeeping question first. How much is left on the buyback after the $3.2 million you've done?
Maybe Suji's not with us today.
I hear you, Suji. Can you hear me? Can you hear me?
I can. Oh, great. Todd, can you hear me? Ellie, should I drop back in?
Well, first of all, let me answer your question. $1.8 million is what's left. $1.8 million.
I can try asking the questions.
Hang on a second. For some reason, I did not hear you, Suji. Can you hear me now, Todd? I can hear you now.
So for the bigger picture question, for the group of ecosystem partners and stakeholders that you're working with right now, which of those are the most critical in the next six months to kind of get over the line to get the flywheel going here? well i mean i think we're still very focused um there's a movement going on with major studios and the larger exhibitors of migrating i mean you can see where the revenue is coming in it's coming from premium large format theaters and they want to tailor the experience for that and so i think that's very important that we continue to participate and are at the forefront of that But this deal was somewhat unexpected. They approached us. They're making a major investment in trying to have an immersive premium home entertainment experience on these devices, and they are making an effort, this particular device partner, on bringing content to their platform. And so I think it's important, and they believe that motion grading will enhance the experience of that immersive content. So I think it's important that we execute on both. Up until this device manufacturer approaches, I was very focused on the theatrical experience. So I think both are important in the next six months, and you will hear more about each of them in the next six months.
Todd, on the device manufacturer, I know you can't say much, but can you talk about what geography that device manufacturer is from or focuses on?
Well, they're consumers or global.
Global consumer. Okay, got it. And then last question. As we look ahead to the licensing, like the deal you announced, Which of the ones have the most – the royalty-grading opportunity would be baked into it?
Well, we have what we call a device certification agreement, right, which has certification fees, which are like royalty, right? Today, all theatrical releases, we do not gain any revenue from the theatrical release. We do motion grading, and we get motion grading service fees, but it's really to build up the pipeline of content. So the one that will have the shortest-term impact on our revenue will be the device certification partner. But to me, if you really want to have a broad acceptance of the technology and broad announcement of multiple device partners, it's about quality content. And it's about reproducing the premium theatrical experience. okay thanks Todd thank you thank you ladies and gentlemen I'm showing no further questions in the queue I would now like to turn the call back over to Todd for closing remarks all right well thanks for those that did participate in today's call very exciting time for pixel works given the transition to pre-play licensing and frankly being ahead of what we where we thought we would be with device licensing in 2026 so I look forward to giving you update
Operator
That concludes today's conference call. You may now disconnect.
