Q4 2022 Pixelworks Inc Earnings Call

February 9, 2023

Good day, ladies and gentlemen, and welcome to Pixel works, Inc. Fourth quarter 2022 earnings Conference call.

I'll be your operator for today's call at this time, all participants are in a listen only mode.

Following management's prepared remarks instructions will be given for the question and answer session.

This conference call is being recorded for replay purposes, I would now like to turn the call over to Brett Perry of Shelton Group Investor Relations.

Thank you Andrew Good afternoon, and thank you for joining today's call with me on the call are <unk>, President and CEO , Todd <unk> Chief Financial Officer.

The purpose of today's conference call is to supplement the information provided in <unk> press release issued earlier today announcing the company's financial results for the fourth quarter of 2022.

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 Thursday February nine 2023.

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, our annual report on Form 10-K for the year ended December 31, 2021, and subsequent SEC filings for a description of factors that could cause forward looking statements to differ materially from actual results. Additionally.

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 expense at loss net loss per share.

non-GAAP measures exclude amortization of acquired intangible assets and stock based compensation expense as well as the tax effect of the non-GAAP adjustments and the impact of non-GAAP adjustments to redeemable noncontrolling interests.

The company uses these non-GAAP measures internally to assess operating performance. We believe these non-GAAP measures provide a meaningful perspective.

It's a 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 GAAP.

Also note throughout the company's press release and management statements. During this conference call. We refer to net loss attributable to <unk>, Inc. Is simply net loss for additional details and a 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 Todd for his opening remarks. Please go ahead.

Thank you Brett and good afternoon to those participating on the call.

I am pleased to be joining you today from.

Good morning, and Shanghai, I've recently been catching up with the team and our customers.

Let me start with a few observations that I've made over the last two weeks here in China.

First with the rollback of China's strict COVID-19 policies in mid November.

Many might not realize is that a majority of people here, including nearly all of the employees throughout China our employees.

Spent December at home with Covid, and then recovery.

Making it a very weak month in terms of productivity.

It wasn't until the turn of the calendar year that real normalization began and increased productivity and the return of the consumer engagement.

And having personally witnessed the tail end of the recent Chinese lunar new year holiday.

It is readily apparent that people are enthusiastic about getting back to normal traveling locally and spending again.

At a high level. These are encouraging and positive signs not only for our China based employees and their families. But also for pixel works overall business as well as the global macro environment macroeconomic environment.

Turning to a recap of our financial results.

For the fourth quarter, both top and bottom line were slightly lower than the midpoint of our guidance total revenue was up 2% year over year as our team to continue to execute well in the face of growing macro and market specific challenges.

Looking at the full year, we delivered double digit growth across each of our target end markets and total revenue growing 27% over the prior year.

And this was following our annual growth of 35% in 2021.

During what has been a challenging period for most of the semiconductor industry. This solid growth combined with pixel picture works history of technology leadership in visual processing.

Has served us well in the local private capital markets here in China.

In late December we completed the agreement to taken another strategic investment in our Shanghai subsidiary.

Which was fully closed and funded in early February .

The latest capital investment, which was funded by two previous investors as well as picks works Shanghai employees generated proceeds equivalent to approximately $15 $7 million in exchange for just over 3% equity interest in the subsidiary.

Recalling that some U S investors were skeptical when we announced the first private placement in <unk> Shanghai in October of 2020, I would highlight that this third round of strategic investment value of the subsidiary at more than $500 million.

And today Pixel works, Inc continues to hold a majority equity interest of approximately 78%.

Collectively these strategic investments are a testament to the recognized value of pixel works technology in China.

Well as the future growth opportunity of the business.

These transactions have also served to fund our ongoing growth initiatives as well as properly capitalized picks were Shanghai in advance of applying for local listing later this year.

Shifting to the end markets and starting with mobile.

The industry wide inventory correction in smartphones.

Coupled with softer consumer demand in China continued to play out as expected, resulting in lower mobile revenue in the fourth quarter.

As discussed on our last conference call, we've kept internal inventory of our visual processor Ic's leanne.

While reducing our channel inventory back to normal levels.

For pixel works in Q4, the impact is largely a derivative of the current market dynamics with mobile Oems slowing the pace of new smartphone launches rescheduling various other models and canceling certain programs as they prioritize working down excess component inventory.

Although the gap in OEM launches of Nextgen smartphone models has temporarily paused our quarterly growth.

Our mobile business still had a very solid year in spite of this in spite of the weaker overall smartphone market.

For the full year mobile revenue was up 17% over 2021, which was up 200% over 2020.

With our visual processing solutions incorporated in 'twenty newly launched smartphone models in 'twenty two.

Our mobile customers continue to include nearly all of the tier one handset Oems and their affiliate premium brands in China.

And despite taking a little longer than originally targeted.

We will announce models from the fourth tier one for our visual processor lineup in 2023.

Underpinning our expanded penetration of these tier ones has been our commitment to maintaining a deep level of engagement with the customers and deliver uniquely differentiated visual performance as well as our ongoing strategic initiatives to cultivate a more collaborative mobile display ecosystem.

As highlighted on previous calls we've made multiple ground breaking achievements over the last year and our efforts to champion a comprehensive and engaged ecosystem for mobile gaming.

This included our first ever direct collaboration with multiple leading gaming engine platforms and design studios.

Which we expect to yield the release of a series of additional top mobile games over the coming year.

Specifically designed to support the rendering an accelerator in our X seven visual processor.

As the most recent example of our broader ecosystem efforts in November we announced an expanded collaboration with Mediatek to incorporate pixel works visual processing pro software into their latest demented <unk> 90, 205 smartphone chipset.

This new cooperation specifically targeted the enabling of precision color and high frame rate displays ensuring that smartphones built on dementia the 9200 platform.

Are capable of delivering a true next gen flagship gaming experience.

This ongoing technical collaboration will serve to further improve the gaming experience and encourage broader market adoption of high frame rate mobile gaming models and content.

Briefly highlighting a few recent announced mobile wins in late December .

The honor 80, GT and <unk> Racing addition, smartphones were both launched incorporating picks works upgraded X five plus visual processor.

Each of these phones are built on Qualcomm's recently released snap kit Snapdragon eight plus Gen. One mobile platform and they support 120 Hertz refresh rate, while leveraging <unk> X five series of our patented motion engine technology.

HDR enhancement and multiple other dimensions of visual effect enhancement.

All of which are tailored to provide.

Our superior high frame rate gaming experience.

In January one plus launched its latest flagship smartphone the one plus 11, incorporating pixel works X seven visual processor.

It is one of the first phones launched with our newest generation X F series X 700 series the.

The one plus 11 redefines, the meaning of visual excellence for mobile gaming.

Built on the Snapdragon eight Gen two mobile platform.

As smartphone sports and eye catching six seven inch <unk> curved display.

With the real LTP O 300 technology, while simultaneously supporting refresh rates of up to 120 Hertz.

Following the first of its kind in depth collaborations with one plus on this flagship smartphone leverages the core technologies and our <unk> chipset and features our new ultra low latency motion engine for high frame rate together with low power Super resolution.

For simultaneous display in <unk> resolution.

Earlier this week, one plus followed up with the launch of the Oneplus eight two smartphone also incorporating our <unk> chipset.

The one plus <unk> is built on our Snapdragon eight plus Gen. One mobile platform and it comes with a one five <unk> screen supporting refresh rates up to 120 Hertz.

This model. Similarly features our <unk>, new ultra low latency motion engine and low power Super resolution together with always on HDR and industry, leading color calibration.

Also noteworthy is that pixel works ultra low latency motion engine technology in both the one plus 11% and the oneplus eight two smartphones have now been optimized for over 100 of the most popular mobile games.

Turning to the latest developments of our true Cup motion platform.

Following the release of light storm entertainments Avatar in September I can now confirm that pixel works true cut motion grading was also utilized and James Cameron's newly released avatar the way of the water.

This long awaited sequel frequently referred to as Avatar two.

Was distributed globally to theaters by 20th century in <unk> HDR high frame rate and uniquely shown in cinematic high frame rate.

When I first looked the film had surpassed gross box office sales of $2 1 billion ranking us among the top five highest grossing movies of all time in less than two months.

Equally amazing.

Whether they realize it or not is it tens of millions of people from around the world have now personally experienced true cut motion.

Most importantly, this extremely successful and highly praised release proved that there was a global ecosystem in place capable capable of supporting cinematic high frame rate.

<unk> the way for expanded industry adoption.

As previously announced true cut motion will also be featured in the rerelease of Titanic remastered and <unk> HDR later this month.

These three high profile titles have significantly heightened interest and awareness of our true cut motion platform.

We aim to continue building on the strong momentum in 2023 by assembling a critical mass of theatrical titles together why growing a global home entertainment ecosystem.

Shifting to our projector business.

Demand remained relatively steady through the back half of the year with revenue in the fourth quarter, increasing more than 13% year over year.

For the full year revenue was up 23% as projector customers placed significant orders in response to very tight supply environment.

Speaking projector Oems have continued to see the gradual improvement in their supply chains. However.

However, supply lead times and pricing on certain components have yet to fully normalize.

Combined with two consecutive years of roughly 20% growth. The current consensus among these customers has been to moderate their orders and expectations entering 2023 until they have better visibility into the global macro trends and.

Market demand.

More specific to picks works in the fourth quarter I am pleased to report that the team successfully completed a significant milestone on our co development project with our largest projector customer.

As a result of this milestone we recognized an R&D credit, reducing our opex for the quarter.

All remaining activity associated with this co development project remains on track.

And we currently expect this new SSE chip to be available for the production at the end of this year.

Briefly following on my comments last quarter related to end of life, we implemented a group of legacy IC products.

We have historically sold into very niche video delivery applications.

As previously discussed these applications typically require unique packaging and lower unit volumes, making them increasingly difficult to source materials for and supply efficiently.

We received solid customer response on the last time purchase orders for the fourth quarter.

Which contributed to a sizeable one time increase in revenue.

<unk> of these non strategic products will lower quarterly revenue contribution from video delivery going forward.

However, it will also will limit eliminate operational inefficiencies and enable a more productive reallocation of our team and resources.

Although going forward, we will address a relatively small legacy market in which we will continue to market and sell our selective series of our Transco to Ics for consumer applications in Japan, and as well as OTI devices in the U S.

In summary, the team has done a good job of mitigating impacts of both the macro and industry specific headwinds over the past couple of quarters.

Although we expect market conditions to remain challenging in the current quarter. The entire organization is now well capitalized to continue executing on our longer term strategic initiatives.

This includes ongoing efforts to further expand the ecosystem and supportive mobile gaming, including an aggressive visual processor roadmap and our true cut motion platform.

While we continue to prepare our pixel works Shanghai subsidiary to apply for a star market listing.

We believe we are well positioned for the market recovery in mobile and are currently seeing channel inventories and design activity support this with a growing pipeline of design ins for X seven visual processor.

In addition, we are on target to introduce a new mobile visual processor in the second half of this year and.

And sample, our new project or SSC in Q2 of this year.

Lastly, we also continue to field significant inbound interest and are evaluating multiple perspective strategic license agreement engagements.

That represent the potential for expanded growth opportunities.

Spanning both our existing and new adjacent end markets.

Taken altogether I firmly believe that we can achieve renewed momentum and resume our recent growth trajectory in the coming quarters of 2023.

With that I'll hand, the call to Hayley review, the financials and provide our guidance for the first quarter.

Thank you Todd.

Revenue for the fourth quarter of 2020 to $16 9 million or.

Our top line results in the quarter were primarily driven by continued year over year growth projector market.

Combined with an increase in revenue contribution from video delivery related to increased sales.

Got it.

The breakdown of revenue in the fourth quarter was as follows.

Revenue from mobile was approximately $3 6 million, representing 22% of total revenue in the fourth quarter.

Revenue from projector was approximately $9 2 million.

Video delivery revenue in the fourth quarter increased to approximately $4 million, reflecting the last time purchase orders for specific end of life products.

Following the whole in the fourth quarter, we anticipate lower quarterly revenue contribution from sales into the video delivery market.

Beginning with the first quarter of 2023, the revenue breakout that I just provided.

Group revenue contributions from projector and video delivery into a single market category category called home and enterprise.

non-GAAP gross profit margin was 53, 3% in the fourth quarter of 2022.

Compared to 49, 8% in the third quarter of 2022 and compared to 55% in the fourth quarter at 2021.

non-GAAP operating expenses were $10 8 million in the fourth quarter compared to $12 2 million last quarter and $11 million in the fourth quarter of 2021.

As indicated on our previous conference call during the quarter. We completed the next milestone related to our co development agreement and as a result, we are.

Recognized a $2 $5 million credit to R&D, which reduced our total operating expenses for the fourth quarter.

On a non-GAAP basis.

Fourth quarter 2022, net loss was approximately 800000.

Or a loss of <unk> <unk> per share compared to a net loss of $3 2 million or a loss of six cents per share in the prior quarter and.

And a net loss of $1 4 million or a loss of <unk> <unk> per share in the fourth quarter of 2021.

Adjusted EBITDA for the fourth quarter of 2022 was a negative $1 million compared to a negative $2 1 million last quarter and a negative $1 1 million in the fourth quarter of 2021.

Turning to the balance sheet.

We ended the quarter with cash and cash equivalents of $56 8 million.

Like to point out that the cash balance at quarter end does not include the proceeds from the most recent sale of equity interest in our Shanghai subsidiary, which we announced in late December .

As Todd mentioned, we successfully closed this transaction at the end of the quarter.

And the proceeds will be included in the Companys reported cash balance for the first quarter of 2023.

Shifting to our current expectations and guidance for the first quarter of 2023.

Based on current order trends and backlog, we expect a weaker than normal first quarter.

In addition to historical seasonality in the projector market. We are also expecting projector customers to continue to work through existing inventory in the first quarter.

Also as Todd mentioned, we expect the first quarter to reflect the trough of the inventory correction in the smartphone market.

With that we anticipate total revenue in the first quarter to be in a range of between $9 million and $11 million.

We believe this quarter will be the low point for the year with revenue beginning to recover in the second quarter, followed by an anticipated return to year over year growth in the second half of the year.

non-GAAP gross profit margin in the first quarter is expected to be between 43% and 45%.

This anticipated gross margin range reflects product mix and reduced absorption rate associated with lower revenue.

As unit sales of Ics and total revenue recover we expect gross margin to return to our targeted historical range in the low <unk>.

We expect the operating expenses in the first quarter to range between $12 5 million and $13 5 million on a non-GAAP basis.

As a reminder, operating expenses in the fourth.

The quarter benefited from a $2 5 million milestone credit R&D related to our co development project.

Excluding this credit anticipated first quarter operating expenses at the midpoint would be approximately flat to down compared to the fourth quarter.

Lastly, we expect first quarter non-GAAP EPS to range between a loss of 18 cents.

Sure and a loss of <unk> 14 per share.

That completes our prepared remarks, and we look forward to taking your questions. Operator. Please proceed with the Q&A session. Thank you certainly.

Ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone and wait for your name to be announced towards draw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

Yes.

And our first question comes from the line of Rajiv Gill with Needham <unk> company.

Yes. Thank you for taking my questions I appreciate it.

Just wondering in terms of the commentary in the Chinese smartphone.

You're indicating that it will bottom in Q1 I'm just wondering if you could maybe elaborate a little bit further in terms of where the channel inventory is right now.

You talked about kind of growth in the second quarter.

It's based on kind of feedback you're getting from customers that they are starting to.

Plan for that just any issues on the questions on the mobile China segment.

So I think there is youre getting all kinds of feedback rajeev from all different companies there.

<unk>.

Like we are in our particular case.

We can.

Lee Lean. So then the next thing is to keep an eye on the channel inventories are channel inventories peaked in Q3 for mobile.

And they came down.

Reasonably well in Q4, but part of that was the was a down revenue quarter four for mobile in Q4.

We will see another down quarter in Q1, but as of today.

Our mobile inventories or either back to normal levels or I would suggest given the ramp we're going to see in the back half of the year their lead.

Now the customer inventory levels.

I would say, it's a mixed bag I have one customer that over bought.

The older processor Youll see more phone launches from them out of the older processes.

They digest that inventory, but they're sitting on that inventory right, they're working through that inventory they will prompt that customer probably get through that inventory.

In Q2 into early Q3.

But the rest of the customers.

I'd say are at normal inventory levels today.

And if they are.

Leaning on our new processor, they don't have inventory, we're ramping those inventories.

So.

For example, one plus you've already seen some some models come out of them, you'll probably see more models come out of them, they're all <unk> related.

We're not sitting on inventory of X seven alright.

Alright.

So if you put the whole thing together.

Our mobile inventories.

I would suggest are.

Our back to normal or below normal and so the growth.

Going forward Q2, Q3, Q4 will purely depend on how successful we are.

With new phone launches.

And then the volume of those phone launches.

And probably to give you one more layer of granularity there.

In the first two weeks. So these two one plus launches.

<unk> have been well received.

They have uptick there forecast from us in the first two weeks.

I appreciate all that color. Thank you just staying on the topic of China, If I can.

What's been.

The feedback in terms of.

The customer forecast and then you mentioned the one plus.

The uptick in their forecast when you kind of look at the China handset customers.

Yeah.

I appreciate it somewhere kind of it's a mixed bag, but in general when Theyre looking at their forecast for 2023, and then maybe even 2024 is there a.

Conservative kind of rebuild that.

Being kind of felt in their forecast or.

Because they're going to be more cautious of what happened last year or how do you think.

So theyre hard forecasts and their ordering patterns are cautious.

My personal expectation is too cautious.

I think theyre going to get bid.

On the upside of demand in the back half of the year.

And then you talked a little bit about anecdotally and kind of what youre seeing in China.

I guess, how would you describe from your vantage point, the Chinese economy, and the China consumer based on your conversations with folks there.

And talking to the employees as well is there an expectation that there's going to be more of a reopening.

Things will get back to normal relatively soon or is there still kind of caution there.

Please standby I see we have Todd having some technical difficulties.

Please standby.

Okay.

Once again, ladies and gentlemen, please standby your conference will resume momentarily.

Yeah.

Okay.

Ladies and.

Gentlemen, please remain on your lines your conference will resume momentarily please standby.

Yes.

Okay. Todd I see you are now connected please continue and Rajiv.

Right.

Right Raj you still there, yes I am.

Okay. So I don't know where I dropped off I think I dropped off somewhere I was talking about the.

The phone.

Phone OEM customers had to do abnormal behavior, which is digest older technology inventory.

And.

And I think their end markets were soft so this caused them to be cautious.

Yeah.

They're hard forecasts and their ordering pattern is still cautious right.

Yes, Hi, particular case these phones their uptick, but I would say in general they're still cautious.

The dialogue, though.

I can see them warming up.

And it really has been.

They're trying to gauge.

Collectively all four tier one Oems.

So I would suggest some are more exposed to the international markets.

And then others, but collectively 70% of their volume.

It comes to China.

And so it's the main driver for them and that's the main driver for their sentiment.

And.

<unk>.

Yeah.

<unk>.

If you just walk around.

Yes.

It is busy.

People people are not.

I figured they would be shell shocked from what they went through for the last.

12 months.

Not theirs.

Ready to get out and were ready to resume their lives.

And I think youll start to see some.

The consumer come back.

I think there'll be cautious and I think that the.

The phone Oems are sort of warming up to that.

I've talked to.

Three of the four tier ones already in the first two weeks have been here.

They.

Two of them.

Our bullish one of them is sanguine.

Right.

It's a mixed color I think it's going to change.

What they're worried about is that theyre seeing a near term ups.

Uptick in business.

They don't know if its sustainable.

No.

Okay.

In terms of the inventory of components that the.

The Chinese handset customers are holding do you think we're at.

Bare bone levels is there any way to kind of quantify that relative to history.

Well.

Like I said different vendors.

Different situations right.

I've also met with.

I have many friends in the industry over here that.

Represent other.

Suppliers into the supply chain for mobile phones.

And I had dinner with a gentleman two nights ago and he represents.

A large supplier into the market.

There are channel inventories are still.

At six to eight months.

And their customer inventories are at another six months.

And so in that particular that particular supplier situation.

I would call normal four months of.

Customer inventory maybe.

Maybe three months of customer inventory, depending if you are ramping or not.

And.

45 days of channel inventory.

So there.

They are a long ways from normal.

Okay I appreciate all the color.

You can go on those same numbers I would say.

Our channel inventory is normal.

In aggregate our customer inventory is still a little bloated, which is why would you have the Q1 forecast.

But the question for Us is.

How much does it bounce back.

In Q2, if I look at the long term programming.

Short term.

What is the market.

Telling us.

It's cautiously optimistic and then picks of works is okay is your strategic initiative to be adopted by more.

More customers and then have those customers widen the exposure of the use of your visual processor and reinforce that.

Use of your visual processor by having the ecosystem come in.

And and support your features.

If I look at the back half of the year. Our strategy is absolutely intact, we will expand our customers and expand the models within the customers and we will announce.

Ecosystem partners that previously had not supported our solution.

So in our case.

Bullish for the back half of the year, if the market comes back to normalize I'm really bullish.

Thank you.

And our next question comes from the line of <unk> Desilva with Roth capital.

Hi, Todd I Ali So maybe this question is a little hard but David.

How far out the <unk>.

Crossovers for X, 7% ticket idea of how that would ramp up or are there too many moving parts in that question to be able to answer that.

Meaning that.

We shipped more than seven to the next five right.

Today, we're shipping more extend over the next five.

You already are.

Yes.

Okay.

Got it.

You got to remember I think collectively we shipped last year all processors.

Which were predominantly <unk> and the ramp up of <unk> seven.

Oh, yes.

Between 910 million unit something like this.

Okay.

We had customers telling you know at the beginning of last year are telling us they were going to consume way more than that.

That was capacity limited okay.

Of course coming into the back half of the year. Some of those customers were not so bullish and they were there.

Over bought we held them accountable for their aggressive purchases. So those are the customers some of those customers one of them in particular that sitting on some they're burning through X five inventory right.

But as far as.

And we still have some customers putting the X five new programs, it's not like it's that it's just because it's at a different cost point than etc.

And.

But I would say on an ongoing basis, we've already crossed that point.

There are some people talking.

We expand the models within the customers we've already announced.

The.

They usually start at flagship premium with us.

And so there's only so many flagship premium models. So that means to expand sometimes you have to push down into mid market two to lower premiums.

And in those models they are very price sensitive right.

So you could see an uptick.

If we're very successful there you could see an uptick in X five volume I don't.

I think it will cross back.

But it could.

Okay. It sounds like a lot of X five has already shipped and the customers can absorb it and is the pricing on X seven Todd still roughly two X X five is that.

Think about it.

I wouldn't say quite <unk>.

I would say I would say, we've been aggressive, but it's significantly higher between.

50% to 80% higher than.

Then okay X sight.

Great and then my last question is on licensing you talked about in the prepared remarks licensing opportunity you Werent specific there I'm wondering if that was.

Reference to true cut or whether the other core video licensing opportunities or projector somehow and if truecar.

I'm sorry go ahead go.

Go ahead no go ahead.

Alright, if it's good enough, but if it's too.

The pipeline there is coming in with the movie success, and so forth to formalize sort of revenue opportunity there.

Okay.

To make sure we cleared that up for everybody on the call.

That was not a reference to true cut.

Our business model is too.

No.

It's a service support and licensing model for the content creators.

So that they can use our technology.

To create four K HDR high frame rate cinematic.

Content.

With that engagement they have the rights to distribute that content for theatrical releases.

So there is no further licensing for theatrical releases beyond the initial engagement.

But they don't have the right to <unk>.

Distribute.

For home Entertainment.

That high frame rate content that they use true cut motion.

So the.

The business model is the distributors, whether they be streaming companies et cetera.

Have to support the true cut motion ecosystem and have the rights to distribute high frame rate true Cup motion high premium content.

And the device manufacturers would have to have the rights to display true cut motion.

Content.

What I was referring there when the previous statement was it had nothing to do with true cut but I wanted to take the opportunity to make sure everybody understood. The business model with true pad, but I think I've seen a lot of <unk>.

Questioning on Pete where people don't understand the business model well, that's the business model I just explained.

I've asked all the analysts.

To not model revenue from true cut right now.

Now, we clearly are getting some revenue I, just don't want to model it because intel.

We really gain.

Major support from a large distributors streaming companies.

Youre just looking at theatrical releases, which is not a big revenue.

If it gets to the point, where it's material.

Have you guys start to model that.

Once we have a signed on.

Distributor.

The device Oems.

Are very excited about adding true cut motion to their devices and using high frame rate.

Content.

To illustrate.

Their newest devices, whether they be Tvs phones other.

Digital devices, especially devices that.

That can show <unk> content.

So.

I just didn't I just don't want you guys to model until we get a little bit further ahead with that.

The distribution part of that.

Ecosystem once that happens.

We're going to have to model. It will have to talk about it a lot more okay. So with that said what I was referring to in the prepared remarks.

We have been approached by several companies now that.

It is clear to me.

This distributed architecture approach for mobile gaming in China.

Is here to stay at least for the foreseeable future.

And there are people working on.

Silicon solutions to address that market and now they want to they've engaged with us to see if we would support them with the licensing of our rendering accelerated radio architecture.

We are not in the IP business.

But yes, depending on who it is.

And if it supports our overall strategy to get more devices in the market.

Because the more devices in the market that support this the more that the gaming ecosystem that entered the studios are willing to optum.

Optimize their games to work with the hardware, it's a virtuous cycle.

And so if we could license our technology to somebody that I have that.

Theres two things one does it.

I don't want to.

Take the air out of our market momentum.

But two if its additive without taking the ear of the market momentum. It may make a lot of sense for us not just from a financial standpoint of the licensing, but putting more devices out there in the long term.

The more devices, we have out there.

That's the number one thing we talk to with the content people.

How many phones is your process are going to be on.

Today Tomorrow next year, the following year et cetera.

The bigger those numbers are.

The more they want to support us.

Okay.

Great color. Thanks, Todd.

Thank you.

Our next question comes from the line of Richard Shannon with Craig Hallum.

Yeah.

Hi.

Thanks for taking my questions and good morning to Todd.

Let's see here I want to make sure I heard.

Some of your language here, specifically on how to think about the second half of the year. I think you said the first quarter as a bottom of growing in the second quarter and did I hear you correctly that you're expecting year on year growth in the second half of the year.

So does that mean each quarter or just collectively in the second half.

So we expect for sure year over year growth for the mobile business.

<unk>.

I'm still.

Projector.

Youll see a dip in Q1, but it will come back in the back half does it come back to the point where it shows.

Strong year over year growth I think thats yet to be seen.

And then with video delivery because we did this big end of life in the second half of this year you won't see year over year growth in video delivery. Okay. Now if the mobile year over year growth is strong enough youll see.

Corporate year over year growth in the second half.

Okay. So that comment wasn't it wasn't across the entire company is across specific segment that I just want to be clear.

Yes, I think I made that the growth comment specifically I mean, hey, Lee mentioned that we expect growth in the back half of the year, which is I think the mobile growth is going to be strong enough exited the year.

That youll.

You'll see corporate year over year growth.

Okay.

That's helpful. So how do we how do you think.

Distribution of mobile revenues as we get through the end of the second half.

Thats progresses, you've talked specifically and hopefully I caught your comments correctly about alright.

I'm, just calling up on my notes.

We expect to yield a series of top mobile games.

And the next year supporting our rendering accelerator in <unk> seven.

How do we think of is this entirely driven by gaming and how broad.

Are we expecting the pay ups.

Take care bye all the tier one targets you have in China.

I would say, it's not entirely driven by gaming so one of the things right now that we're doing.

As many.

Many of the models we win.

Some of the Oems will go out and market that model globally.

But they will have a different SKU for China than they do.

International.

We are gaming mobile gaming is.

If you really go look at how these guys are marketing their premium inflate ship phones.

Try to market it.

The new utility.

That their new phones will give you and why you should spend money and upgrade your fault.

And in China.

Mobile gaming is either the key utility that theyre trying to bring you.

Depending on the model and the demographic, they're targeting or the second biggest feature you are targeting which the first would be Campbell.

And internationally.

And then.

Then.

Consuming.

Social and video content, which we also improve.

Is further down on the list as far as what utility they bring you.

Yes.

What we're trying to get these.

China Mobile Oems to do is take this.

Expertise and differentiation that they've built into their China models, which is unique.

And marketed internationally.

Because that's what differentiates them.

In many of these international markets, because you know who they bought up against in the international markets.

And I am talking about Android they bought up against Samsung.

So this gives all of those four tier ones are significant differentiation advantage and not just because of us.

But because this is where mobile gaming.

Content.

Is king.

And so if they have optimized content and our visual processor in your models.

Many of those studios that I, just did I mentioning so the mihail with <unk> impact <unk> with many of their games <unk> <unk> has multiple studios developing games.

Many of those game manufacturers, given what's going on here in China.

Are putting a great deal of effort to market their gaming content internationally.

So we are trying to convince the mobile Oems.

To start to do that so that's another.

It's not just getting in the models, but boneless convincing them to get into the international models on the renal reasonably bring all that up C. J as you said is it just mobile gaming.

One of the things that they did they clearly recognize is the internationally.

The consumption of quality video content.

Is higher on the rank.

Then in China.

And so they asked us to provide.

Improvements.

Who are consuming video long form video content on their phone and one of the features we put in X seven we haven't highlighted a lot is we have a way to do.

Cinematic high frame rate conversion on the phone. This is not true cut motion, Okay. You've got motion converts the content and makes it high frame rate content at the source.

But what we do is have a feature to do cinematic high frame rate content conversion on the phone.

And so we are pushing that and specifically to expand into more international models here in China, but yes, with all that said.

The reason, we're really gaining momentum is mobile gaming.

The ecosystem for mobile gaming.

Performance of using our processor with that ecosystem of mobile gaming targeting the Chinese consumer.

Okay.

So would it be fair to concur.

Conclude from what you just said here that you think the biggest single factor and upside potential for your mobile business second half and going forward is internationally introduction of your ex <unk> enabled phones.

Or is it some other single factor that you think is more important.

Well, there's two there's two so.

If we gain a fourth tier one that's enough.

In market for us So if you see us announce.

The one tier one we haven't announced yet and that's an uptick.

Second if we can expand.

All the customers.

From just targeting.

What they call their domestic miles or China specific models to expanding their international model you get to leverage the R&D work Thats already done on that model and you just get higher higher volume from the same R&D work.

And then three.

We are talking with customers to expand.

Two higher volume lower priced models.

The gaming functionality and features there customers are pushing them and demanding it we've had customers come to us and say, we get a great deal of feedback and they want to know why we don't have the display processor technology on this particular model.

Which is usually a lower end model.

And so there are companies that are exploring.

Whether they can put it on these these lower volume models.

But of course, the first approach is to come in and want me to sell it for no cost.

And our answer is no.

So those are the three ways right the candour.

And the customers one.

Sandy International models with the same target targets, we're doing too.

And then expand the model lineup within the existing customers three.

And to that last point there Todd.

These lower priced models or when do you expect any of them would be doing it with <unk> seven or that would be most of the next five or even older.

Opportunity.

Different discussions with different Oems.

Uh huh.

We're going to lean on the costs are very cost driven so I would if I was a betting person I would say that some of these higher volumes, they're going to try to go to the lowest cost technology lab.

But at the same time.

We make such.

Yes.

The actual visual improvement.

But you can see.

Between <unk> five and <unk> seven is palatable.

<unk>.

And if you look at our roadmap, which we haven't announced yet.

But the.

Some of that to your cluster tier one customers have seen it.

Youre going to see another fundamental leap forward.

2024.

Asp's.

We will go up not because we're just trying to extract more value, but to make these fundamental leaps and performance we.

We have to be.

More aggressive on how we do the technology, which.

Twofold, one we're putting more transistors down and two we're moving to.

Lower process nodes, which are more expensive.

Okay.

Sure enough. That's that's great perspective cadre last quick question for me.

I haven't heard anything any direct statements here about how you feel like the engagement with Truecar is going with potential streaming partners here, but.

I guess, we're not close enough to have any sort of big announcement, maybe just characterize the progress in the last quarter.

Any feedback you've gotten from.

From Avatar, two and potential other releases and then how do we think about these other theatrical releases youre looking for this year.

Okay.

So I mean, we've had discussions with major distributors about high frame rate technology, and we continue to have those discussions.

They are bullish by the way.

But they want to kick it off.

They want more content.

Okay.

Now they are actually even helping us by.

By making introductions.

Q2.

Studios that they rely on for console.

So there I would say certainly discussions are a positive thing but to get it to the point, where they're ready to go out and really.

So once the announcement what do they have to do the aftermarket.

And they have to go communicate to all of their streaming customers the value proposition of <unk>.

True cut motion.

And so they want to be sure that when they go spend all that energy and money.

That they've got enough content to follow through with the value proposition.

So with that said.

Anytime they extend help to us we take it.

We were already spending a lot of time.

<unk>.

Trying to cultivate.

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