Good day and welcome to the Pixelworks Inc. Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Brett Perry with Shelton Group Investor Relations. Please go ahead, sir.

Good afternoon, and thank you for joining us on today's call. With me 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 second quarter of 2024. Before we begin, I'd 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, Wednesday, August 7, 2024. 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, 2023 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. The company uses these non-GAAP measures internally to assess operating performance. 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 not as a substitute for nor, superior to the company's consolidated financial results as presented in accordance with U.S. GAAP. Also note, throughout the company’s press release and management statements during this conference, we refer to net loss attributable to Pixelworks Inc. as simply net loss. For additional details and reconciliation 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 the webcast. We appreciate you joining today's call. As discussed on our conference call in May, we expected the second quarter to be a challenging one, due to specific near-term headwinds in our mobile business. Earlier today, we reported revenue for the quarter at midpoint of guidance, reflecting the anticipated pause in orders from a large mobile customer. Gross margin ticked up sequentially, remaining above 50% and representing more than a 1,000 basis point improvement year-over-year. Operating expenses and bottom line results for the quarter, were both better than the midpoint of our guidance. We continue to believe that the current headwinds are primarily near-term, with signs of an initial improvement and sequential revenue growth expected in the third quarter. Acknowledging the current drawdown in quarterly revenue, we have implemented a number of cost reduction actions, to better align our operating expenses with near-term revenue levels. In addition to a series of other measures taken over the last several months, to maximize operational efficiencies, we implemented a reduction in headcount across all areas of the business, effective June 30. Never an easy action, the reduced headcount is anticipated to result in approximately $4 million of annualized cost savings beginning in the third quarter. Combined with other cost containment measures, we believe the collective expense reductions we've implemented to-date, will contribute to total OpEx savings of $10 million over the next 18 months. Turning to a review of our mobile business. As previously indicated, second quarter mobile revenue was down significantly, and primarily reflected the impact of a pause in new orders from what had, recently been our largest mobile customer. This customer experienced unanticipated weaker sell-through, of its newly launched smartphone models in the first half of…

Thank you, Todd. Revenue for the second quarter of 2024 was $8.5 million, which was at the midpoint of our guidance. The revenue decrease from the prior quarter was primarily driven, by the anticipated near-term headwinds in mobile. The breakdown of revenue in the second quarter was as follows: revenue from mobile was approximately $2.1 million, comprised primarily of shipments of our X-series visual processors. Home and enterprise revenue was approximately $6.4 million. Second quarter non-GAAP gross profit margin expanded 30 basis points sequentially, to 51% from 50.7% in the first quarter of 2024, and increased over 1,000 basis points from 40.5% in the second quarter of 2023. The significant year-over-year expansion in gross margin, reflects our ongoing focus to drive healthy margins. Non-GAAP operating expenses, were $12.8 million in the second quarter, compared to $12.6 million in the prior quarter and $10.7 million in the second quarter of 2023. With respect to the year-over-year comparison, as a reminder, lower operating expenses in the second quarter of 2023, included the benefit of a $1.9 million credit to R&D related to the now completed co-development agreement, with our largest projector customer. As Todd previously highlighted, we've recently implemented expense reduction actions, to more appropriately align expenses with current revenue levels, including an approximately 16% reduction in workforce, which was affected at the end of the second quarter. As a result, we expect to realize approximately $4 million in annualized savings. On a non-GAAP basis, second quarter 2024 net loss was $7.7 million, or a loss of $0.13 per share compared to a net loss of $4 million, or a loss of $0.07 per share in the prior quarter, and a net loss of $4.8 million, or a loss of $0.09 per share in the second quarter of 2023. Adjusted EBITDA for…

Thank you. [Operator Instructions] Our first question comes from the line of Nick Doyle with Needham & Co.

Hi, guys. Thanks for taking my question. The first one would be on the international expansion. Did you guys - did you have any shipments this quarter or just otherwise, what's the kind of interest you're getting and any detail on orders in general. And then, also if there is, I mean are you seeing more interest on the low side or the mid-tier? Thanks.

If you were on, Nick, I didn't hear you. I just heard you at the end there.

Okay. I'll repeat. The international expansion, just looking for if you had any shipments in the quarter, and just generally what kind of interest you're getting and if that's tilted to the low-tier or the mid-tier? Thanks.

Sure. So to just to summarize for everybody, the two previous models that were targeted in the international market were OnePlus in Q1 launched a phone, their OnePlus 13 as their flagship. I would say it's more of a flagship-oriented phone. They did include our visual processor and target IRX internationally, but it wasn't all-in in gaming, let's say. Then the second phone was this phone that we did with the division of Transsion, the Infinix GT 20. That was absolutely targeted at competitive gaming, but they've seen good demand. It's probably tripled over their previous model, their GT 10. They did a very good job marketing it toward competitively priced international markets. They ship no phones into China. Their target markets are Africa, South America, Southeast Asia, Central Asia. And they did a very good job in marketing. Right now, we see reasonable volume - for what we expected going into the design activity.

Okay. That's helpful. And that's great to hear about the Transsion phone. For the new projector SoC, congrats on the progress there, will the ramp in the fourth quarter be able to offset the general seasonality?

I would say that, yes, normally, Q4 is a little bit seasonally down over Q3. I would say it won't be this year. But in general, what they're going to do is slowly replace some of the older models. So what you'll do is, as the new processor comes online, it will give a little bit of positivity to the overall projector numbers. The ASP is higher than the previous devices. So as it replaces, it does two things. It replaces some of our own devices, but it also replaces a competitor's device. So once it's been fully adopted, we'll have a higher market share at our largest customer. And then, we have a derivative product that we're introducing to the rest of the market, but those models will not start shipping until 2025.

Thank you.

You're welcome. Thanks, Nick

Thank you. [Operator Instructions] I'm showing no questions in the queue at this time. I would like to turn the call back over to management, for any closing remarks.

Thank you for attending today's call. We look forward to bringing progress over the next coming months. We'll talk to you on the next quarterly call.

This concludes today's program. Thank you all for participating. You may now disconnect.