Pixelworks(PXLW) - 2025 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Q1 2025, including balance sheets, statements of operations, comprehensive loss, cash flows, and shareholders' equity, with notes on strategic plans and restructuring Condensed Consolidated Balance Sheets As of March 31, 2025, total assets decreased to $58.5 million from $64.1 million, primarily due to reduced cash, while total shareholders' equity significantly declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Cash and cash equivalents | $18,504 | $23,647 | | Total current assets | $30,593 | $34,852 | | Total assets | $58,460 | $64,072 | | Total current liabilities | $8,834 | $8,346 | | Total liabilities | $23,996 | $24,194 | | Redeemable non-controlling interest | $27,533 | $27,396 | | Total shareholders' equity | $6,931 | $12,482 | Condensed Consolidated Statements of Operations Q1 2025 net revenue declined to $7.1 million from $16.1 million in Q1 2024, resulting in an $8.1 million operating loss and a $7.8 million net loss attributable to Pixelworks, Inc Q1 2025 vs. Q1 2024 Statement of Operations (in thousands, except per share data) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Revenue, net | $7,094 | $16,054 | | Gross profit | $3,452 | $8,114 | | Loss from operations | $(8,096) | $(5,493) | | Net loss attributable to Pixelworks, Inc. | $(7,761) | $(5,066) | | Net loss per share - basic and diluted | $(0.13) | $(0.09) | Condensed Consolidated Statements of Comprehensive Loss Comprehensive loss attributable to Pixelworks, Inc. increased to $8.0 million in Q1 2025 from $4.3 million in Q1 2024, including a negative foreign currency translation adjustment Comprehensive Loss (in thousands) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net loss | $(8,020) | $(5,164) | | Foreign currency translation adjustment | $(252) | $775 | | Total comprehensive loss attributable to Pixelworks, Inc. | $(8,013) | $(4,291) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities significantly increased to $6.7 million in Q1 2025, leading to a $5.1 million net decrease in cash and cash equivalents Cash Flow Summary (in thousands) | Activity | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,716) | $(815) | | Net cash used in investing activities | $(17) | $(386) | | Net cash provided by (used in) financing activities | $1,590 | $(150) | | Net decrease in cash and cash equivalents | $(5,143) | $(1,351) | Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, the strategic plan to list Chinese subsidiary PWSH on the STAR Market, recent restructuring activities, and risks from redeemable non-controlling interests - The company is pursuing a strategic plan to re-align its Mobile and Home & Enterprise businesses under its Chinese subsidiary, PWSH, with the intention of an IPO on the Shanghai STAR Market, though market conditions are not currently conducive[31][32] - A restructuring plan was executed in February 2025, involving a 6% workforce reduction and incurring $468,000 in total restructuring expenses during Q1 2025[48][49] - Investors in PWSH hold redemption rights exercisable if a STAR Market listing is not completed by June 30, 2024, and the company is in discussions to extend or remove this option, while ESOPs hold similar rights with a December 31, 2024 deadline[83][84][89] - Subsequent to the quarter end, on May 1, 2025, the Board approved another restructuring plan involving a 4% workforce reduction, with expected charges of approximately $600,000 in Q2 2025[99] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 56% Q1 2025 revenue decline to a significant Mobile market drop and delayed product transition, with operating expenses decreasing due to cost-cutting Revenue by End Market (in thousands) | End Market | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Home & Enterprise | $5,761 | $6,198 | (7)% | | Mobile | $1,310 | $9,200 | (86)% | | Total IC Sales | $7,071 | $15,398 | (54)% | - The decrease in IC revenue was primarily due to an 86% ($7.9 million) decline in the Mobile market, associated with a delayed transition to the company's latest generation mobile products[112] - Operating expenses decreased year-over-year, with R&D down $1.6 million (19%) and SG&A down $0.9 million (16%), mainly due to reduced headcount from the June 2024 restructuring and other cost control measures[114][116][118][119] - The company's cash and cash equivalents decreased by $5.1 million to $18.5 million, and during the quarter, the company raised approximately $1.8 million in net proceeds from a registered direct offering and its 'at the market' equity program[123][128][129] Item 3. Quantitative and Qualitative Disclosure About Market Risk This section is noted as not applicable for the current reporting period - This item is noted as 'Not applicable'[138] Item 4. Controls and Procedures Management, including CEO and CFO, deemed disclosure controls effective as of March 31, 2025, with no material changes to internal control over financial reporting - Management concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period[139] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[140] PART II – OTHER INFORMATION Item 1A. Risk Factors This section details significant risks, including those from China operations, potential failure of the PWSH STAR Market listing, dependence on limited customers and manufacturers, and Nasdaq delisting risk - The company faces significant risks from its majority operations in China, including changes in political/economic conditions, PRC legal system uncertainties, and potential difficulties in transferring funds from its Chinese subsidiary, PWSH[221][222][223] - The strategic plan to list PWSH on the STAR Market is uncertain, and investors and ESOPs hold redemption rights that could trigger if the listing is not completed by set deadlines (June 30, 2024, and Dec 31, 2024, respectively), which would materially impact the company's cash position[226][227] - The company is highly dependent on a limited number of customers and distributors, with the top five end customers accounting for 98% of revenue for Q1 2025[156] - The company is not in compliance with Nasdaq's minimum bid price requirement of $1.00 per share and has until September 6, 2025, to regain compliance, which may necessitate a reverse stock split[244] - The company relies on a limited number of sole-source, third-party manufacturers, exposing it to risks of shortages, price increases, and supply chain disruptions[191][192] Item 5. Other Information During Q1 2025, no director or officer adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement - During the three months ended March 31, 2025, no director or officer adopted or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement'[249] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate documents, a common stock purchase agreement, and CEO/CFO certifications - The exhibits include key corporate documents, the Form of Common Stock Purchase Agreement dated March 24, 2025, and required CEO/CFO certifications[251] SIGNATURE - The report was signed on May 14, 2025, by Haley F. Aman, Chief Financial Officer[253][255]