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 -- 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 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 2 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 codeveloped visual display processing ships, 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…

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 it 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.

[Operator Instructions] Our first question comes from the line of 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 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 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 hard to be definitive on this, but there is a delete a -- you could call it a policy, it's an undercurrent Delete A being Delete America. There is a big effort. And 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, to -- 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 U.S. public entity. We felt it. We felt it for the last 18 months. We tried to sell through it. In 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 the VeriSilicon will convert those opportunities or not remains to be seen, but you can feel it, Suji.

Right. No, that really helps. 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 -- 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 -- 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. And so when we ran into headwinds in China, we definitely slowed down our investment in TrueCut. So maybe for the last year or so, it was artificially constrained.

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.