Pixelworks, Inc. (PXLW) Earnings Call Transcript

Thank you. Good day, ladies and gentlemen, and welcome to Pixelworks, Inc. 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. withdraw your question, please press star 11 again. As a reminder, this conference call is being recorded for replay purposes. 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 Pixelworks 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 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. 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 to 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 Pixelworks as simply net loss. With that, I'd now like to turn the call over to Pixelworks Chairman and CEO, Todd DePonis. 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 PIX Works 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 re-emphasize 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 are 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 True Cut 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, TrueCut 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 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 outline 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 a 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 traditional Chinese medicine. True Cut 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 True Cut Motion ecosystem and prioritizing advanced True Cut Motion grading technology in CINITY's premium large format theaters. Notably, CineD 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. CineD'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 True Cut 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 iterate or reiterate that we are now operating as a fully repositioned and well-capitalized global technology licensing company. 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 true cut 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 TrueCut 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 direct 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 True Cut 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 because 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 True Cut 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 Total gap 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 pure 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.

Thank you. Ladies and gentlemen, as a reminder to ask the question, please press star 11 on your telephone. Then wait for your name to be announced. To withdraw your question, please press star 11 again. Please. stand by while we compile the Q&A roster. Our first question comes from the line of Suji DeSilva with Wask 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 us?.

Can you hear me? I can. Oh, great. Todd, can you hear me? Oh. Oh.

Kelly, should I drop back in? Right. Okay. Well, first of all, let me answer your question. 1.8 is what's left. 1.8 million. Okay.