Q2 2024 GCT Semiconductor Holding Inc Earnings Call
Operator: Good afternoon. Thank you for attending GCT Semiconductor Holding's Second Quarter 2024 financial results call. Online will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. Joining the call today are John Schlafer, GCT's Chief Executive Officer, and Edmund Chang, CFO, to discuss our second quarter results. During this call, certain statements we make will be forward-looking. These statements are subject to risk and uncertainties, including those set forth in our Safe Harbor provisions for forward-looking statements, which can be found at the end of our earnings press release and also in our Form 10-Q that will be filed today, which provides further detail about the risks related to our business. Additionally, except as required by law, we undertake no obligation to update any looking statements or when I'm trying to cut over to John Schlafer.
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Speaker Change: Good afternoon. Thank you for attending GCT, Semiconductor Holding, Inc.'s second quarter 2024 financial results call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end.
Speaker Change: Joining the call today are John Schlafer.
Speaker Change: GCT's Chief Executive Officer, and Edmund Chang.
Edmund Chang: CFO to discuss our second quarter results.
Speaker Change: During this call, certain statements we make will be forward-looking. These statements are subject to risks and uncertainties, including those set forth in our Safe Harbor provisions for forward-looking statements that can be found at the end of our earnings press release and also in our Form 10-Q that will be filed today.
Speaker Change: which provide further detail about the risks related to our business. Additionally, except as required by law, we undertake no obligation to update any forward-looking statements. I will now turn the call over to Dr. John Schlafer.
John Schlafer: Thank you and thanks to everyone for joining us today for our second quarter 2024 and inaugural earnings call. In light of the fact that some of you might be new to our story, I want to spend a few minutes discussing our business operations and history before focusing on our Q2 financial results. Important to know, despite being new to earning calls, we are not new to the world of communication technologies. DCD was founded in Silicon Valley in 1998 and is a fabulous semiconductor company that specializes in the design, manufacturing, and sale of communication semiconductors, including high-speed wireless technologies.
John Schlafer: Thank you and thanks to everyone for joining us today for our second quarter 2024 and inaugural earnings call. In light of the fact that some of you might be new to our story, I want to spend a few minutes to discuss our business operations and history before focusing on our Q2 financial results.
John Schlafer: Important to know, despite being new to earning calls. We are not new to the wireless communication.
John Schlafer: technologies.
John Schlafer: PCD was founded in Silicon Valley in 1998 and is a fabulous semiconductor company that specializes in the design, manufacturing, and sale of communication semiconductors, including high-speed wireless technology.
John Schlafer: We have successfully developed and supplied communication chipsets and modules to leading wireless operators and their suppliers worldwide, specifically to original design manufacturers and original equipment manufacturers, ODMs and OEMs for portable wireless hotspots, indoor and outdoor fixed wireless modems, and industrial machine-to-machine applications, which includes a very broad to the use cases like security, tracking, metering, and satellite. Starting from the 2010 timeframe, we were focused on the fourth-generation chipsets, or 4GLD. That has paved the way for more advanced technology, specifically 5G chipsets, which we are now... Close to finalizing the develop.
John Schlafer: We have successfully developed and supplied communication chipsets and modules to leading wireless operators and their suppliers worldwide, specifically to original design manufacturers and original equipment manufacturers, ODMs and OEMs.
John Schlafer: For portable wireless hotspots, indoor and outdoor fixed wireless modems, And industrial machine to machine applications, which includes a very broad Set of use cases like security, tracking, metering, And satellite applications.
John Schlafer: Starting from the 2010 timeframe, we were focused on the 4th generation chipsets, or 4GLD. That has paved the way for more advanced technology, specifically 5G chipsets, which we are now.
John Schlafer: While most people recognize 5G in connection with smartphones, our focus is on the non-smartphone. Segments of the market. We're targeting is not only very large and diverse but also benefits from several tailwinds like the rise of artificial intelligence, the lack of established alternatives in the West to Qualcomm, and geopolitical... To give you just one example, just last month, Germany followed in the footsteps of the U.S., Britain, Sweden, Japan, Australia, New Zealand, and Canada by announcing plans to bar or restrict imports of electronic components from Chinese tech giants Huawei and PCT is well-positioned to benefit from these geopolitical shifts, as well as from other economic shifts.
John Schlafer: Close to finalizing the development of while most people recognize 5G in connection with smartphones. Our focus is on the non smartphone sectors. It's a segment to the market. We're targeting is not only very large and diverse, but also benefits from several.
John Schlafer: tailwinds, like the rise of artificial intelligence, the lack of established alternatives in the West to Qualcomm, and geopolitical factors.
John Schlafer: To give you just one example, just last month, Germany followed in the footsteps of the U.S., Britain, Sweden, Japan, Australia, New Zealand, and Canada by announcing plans to bar or restrict imports of electronic components
John Schlafer: from Chinese tech giants Huawei and ZTE in core parts of its 5G networks. TCT is well positioned to benefit from these geopolitical shifts as well as from other economic trends.
John Schlafer: Turning now from macroeconomic aspects to an overview of our second quarter and some of our operational highlights since we last updated the bank. As we have guided the capital markets in the past, the industry is currently in the midst of a plan transition from sales and 4G chips that's 2-5-B. During this phase, we have purposely focused on increasing our design and service revenue IP customers to offset the decrease in 4G product sales.
Speaker Change: Turning now from macronomic aspects to an overview of our second quarter and some of our operational highlights since we last updated in May.
Speaker Change: As we have guided the capital markets in the past, the industry is currently in the midst of a plan transition from sales and 4G chipset to 5G chipset. During this phase, we have purposely focused on increasing our design and service revenue 5G customers to offset the decrease in 4G product sales.
John Schlafer: And while 2G marked an anomaly regarding 4G product sales, we expect a positive rebound effect for our 4G sales to take place in the future, in conjunction with the initial deliveries of our 5G chipset. Even as we focus on launching our 5G products and servicing that demand, we anticipate continuous demand from both existing and new 4G products. As an example, our recently announced multi-mode 4G chipset, CDM7243SL, is ideal for industrial utility and satellite applications, including for 450 megahertz networks, and has received a lot of positive feedback.
Speaker Change: And while 2G marked an anomaly regarding 4G product sales, we expect a positive rebound effect of our 4G sales to take place in the future in conjunction with the initial deliveries of our 5G chipsets.
Speaker Change: even as we focus on launching our 5G product.
Speaker Change: servicing that demand. We anticipate continuous demand from both existing and new 4G products.
Speaker Change: As an example, our recently announced multi-mode 4G chipset, CDM7243SL, is ideal for industrial utility and satellite applications, including for 450 MHz networks, and has received a lot of positive attention.
John Schlafer: We expect strong demand for this product even as the market evolves towards 5G. With the additional expected initial deliveries of our 5G chipsets, we are looking forward to offering high-demand, high-quality products to a large and rapidly growing market. Which brings me to our most important. Our 5G chipset development is progressing as projected, and we expect the commencement of initial deliveries to alpha customers to take place during the fourth quarter of 2024. Focusing now on some of the exciting announcements that we've made. We are pleased to continue our collaboration with our longstanding partner, SAMHSA.
Speaker Change: We expect strong demand for this product even as the market evolved towards 5G. With the additional expected initial deliveries of our 5G chipset, we are looking forward to our current size demand, high quality products.
Speaker Change: to a large and rapidly growing market, which brings me to our most important topic.
Speaker Change: Our 5G chipset development is progressing as projected and we expect the commencement of initial deliveries to alpha customers to take place During the 4th quarter of 2024. Focusing now on some of the exciting announcements that we've made.
John Schlafer: We have announced an MOU with Samsung Electronics for collaboration to accelerate the development of 4G and 5G chipsets and modules and their adoption by device makers. As a chipset and base station maker, GCT and Samsung share interests in many 5G-related markets, and as a result, this collaboration is mutually beneficial to us both. We will work together with Samsung to promote the total Samsung GCT solution and to strengthen the ecosystem of OEM and ODM device makers in order to support wireless operators worldwide, including the Saudi Arabian oil group, or S, in the 450 megahertz and 4 gigahertz business, mission critical, public safety, and more.
Speaker Change: We are pleased to continue the collaboration with our longstanding partner, SAMHSA.
Speaker Change: We have announced.
Speaker Change: and MOU with SAMHSA Electronics for collaboration to accelerate
Speaker Change: the development of 4G, 5G chipsets and modules.
Speaker Change: and adoption by device makers. As a chipset and base station maker, GCT and Samsung share interests in many 5G related markets. And as a result, collaboration is mutually beneficial to us both.
Speaker Change: We will work together with Samsung to promote the total Samsung GCT solution and to strengthen the ecosystem of OEM and ODM device makers in order to support wireless operators worldwide.
Speaker Change: Including the Saudi Arabian oil group or info in the form of 50 megahertz and four gigahertz business mission critical public safety and more.
John Schlafer: We also recently announced a collaboration with Kyocera to develop a 5G reference platform aiming to accelerate VCP's development of 5G millimeter wave modems and CPEs, or fixed wireless access. This collaboration will bring together first-class millimeter wave antenna technology with superior 5G expertise to provide a complete solution for Kyocera's product platform and our 5G customers.
Speaker Change: We also recently announced the collaboration with KSARA to develop a 5G reference platform aiming to accelerate DCP's development of 5G millimeter wave modems from CTE.
Speaker Change: or fixed wireless access.
Speaker Change: This collaboration will bring together first-class millimeter-wave antenna technology with superior 5G expertise to provide a complete solution for Kyocera's product platform and our 5G customers. I firmly believe this will further strengthen our position as a leader in the growing 5G millimeter-wave CPE market.
John Schlafer: I firmly believe this will further strengthen our position as a leader in the growing 5G millimeter wave CDE market. At the end of July, we made an announcement together with legato networks about the commercial availability of band 54 modules. Paving the way for nationwide infrastructure, private network use of the license. Mid band.
Speaker Change: At the end of July , we made an announcement together with Legato Networks about the commercial availability of BAN54 modules, paving the way for nationwide critical infrastructure private network use of the licensed mid-BAN spectrum.
John Schlafer: Last but not least, at the end of May, we announced the world's first highly integrated multi-mode LTE chipset supporting, among other things, the 450 megahertz spectrum and utility space. As you can tell, we are not short of exciting partnerships, customer, and product analysis, a clear testament to our progress in transitioning to 5G. And the announcements we have made over the last few weeks showcase the momentum we are gaining in building the customer foundation for outsized growth based on our 5G chipset sales.
Speaker Change: That's the not least at the end of the May we announced the world's first highly integrated multi-mode LT-TITSFET supporting
Speaker Change: Among other things, the 450 megahertz spectrum and utility space.
Speaker Change: As you can tell, we are not short of exciting partnerships, customer and product announcements, a clear testimonial.
Speaker Change: more progress.
Speaker Change: in transitioning to 5G.
Speaker Change: And the announcements we have made over the last few weeks showcase the momentum we are gaining in building the customer foundation for an outsized growth based on our 5G chipset sales. I couldn't be more excited about the progress we are making.
John Schlafer: I couldn't be more excited about the progress we are making. In addition, we're happy to now be included in the Russell 2000 index as well as other Russell growth and value indices as part of the yearly Brussels 3000 reconstitution.
Speaker Change: In addition, we are happy to now be included in the Russell 2000 Index, as well as other Russell growth and value style indices as part of the yearly Russell 3000 Reconstitution. With that, I'll turn it over to Edmond to discuss our financial results.
Edmund Chang: Thank you, John. Turning now to our second quarter financial results, further details of which can be found in the 10Q that will be on file with the SEC. Our net revenue was $1.5 million for the three months ended June 30 of 2024, a decrease of $2.8 million from $4.3 million for the three months and June 30 of 2023. The decrease was primarily attributable to a decrease of $4 million in product sales, offset by an increase in service revenue.
Edmund Chang: Cost of net revenues decreased by 0.9 million to 0.5 million for the three months and the June 30th, 2024. From 1.5 million for the three months and the June 30th, 2023. Product costs decreased by $0.8 million from $1.0 million for the three months end of June 30, 2023, to $0.2 million for the three months end of June 30, 2024. The decrease was primarily driven by the decrease in direct product curves as we saw fewer units.
Edmund Chang: Thank you, John . Turning now to our second quarter financial results, further details on which can be found in the 10Q that will be on file with the SEC. Our net revenue was 1.5 million for the three months ended June 30th, 2024.
Edmund Chang: a decrease of 2.8 million from 4.3 million for the three months and June 30th, 2023.
Edmund Chang: The decrease was primarily attributable to a decrease of 4 million in product sales offset by an increase in service revenue.
Edmund Chang: Cost of net revenues decreased by $0.9 million to $0.5 million for the three months ended June 30, 2024, from $1.5 million for the three months ended June 30, 2023.
Edmund Chang: Product costs decreased by $0.8 million from $1.0 million for the three months end of June 30th, 2023, to $0.2 million for the three months end of June 30th, 2024.
Speaker Change: The decrease was primarily driven by the decrease in direct product cost, as we sold fewer units.
Edmund Chang: Service costs remain comparable for the three months ended June 30, 2024 and 2023. However, our gross margin decreased to 63% for the three months ended June 30, 2024 from 66% for the three months ended June 30, 2023, primarily due to decreased product sales. Our product costs for the three months ended June 30th, 2024 were primarily comprised of allocated overhead and inventory after lessons costs. I want to remind everyone that these high margins are due to our comparably higher percentage of service revenue and not necessarily reflective of our overall gross margins once we are ramping up a higher percentage of product revenue.
Speaker Change: Service costs remain comparable for the three months and the June 30th, 2024 and 2023.
Speaker Change: Our gross margin decreased to 63% for the three months ended June 30th, 2024, from 66% for the three months ended June 30th, 2023, primarily due to decreased product sales.
Speaker Change: Our product costs for the three months and June 30, 2024 were primarily comprised of all located overhead and inventory after lessons cost.
Speaker Change: I want to remind everyone that these high margins are due to our comparably higher percentage of service revenue, and not necessarily reflective of our overall gross margins.
Speaker Change: once we are ramping up a higher percentage of product revenue.
Edmund Chang: Research and development expenses increased by 0.2 million or 4% from 4.0 million for the three months ended June 30, 2023 to 4.2 million for the three months ended June 30, 2024. This increase was primarily due to a $0.3 million increase in R&D expenses, mainly related to services provided to designing 5G chip products. Sales and marketing expenses increased by 0.2 million or 29% from 0.8 million for the three months ended June 30th, 2023, to 1.0 million for the three months ended June 30th, 2024.
Speaker Change: Research and development expenses increased by 0.2 million, or 4% from 4.0 million for the three months ended June 30th, 2023, to 4.2 million for the three months ended June 30th, 2024.
Speaker Change: This increase was primarily due to a 3.3 million increase in R&D expenses, mainly related to services provided to designing 5G chip products.
Speaker Change: Sales and marketing expenses increased by 0.2 million, or 29% from 0.8 million for the three months ended June 30th, 2023, to 1.0 million for the three months ended June 30th, 2024.
Speaker Change: This increase was primarily due to personnel related costs.
Edmund Chang: This increase was primarily due to personnel related costs. General and administrative expenses increased by $0.2 million, or 9% from $2.6 million for the three months end of June 30, 2023, to $2.9 million for the same period last year.
Speaker Change: General and administrative expenses increased by $0.2 million, or 9% from $2.6 million for the three months and the June 30th, 2023, to $2.9 million for the same period last year.
Edmund Chang: The change was primarily due to a $1.2 million increase in professional expenses related to the public company operations, partially offset by a net reduction of 0.8 million in provision for credit losses and 0.2 million net reduction in other expenses. Before turning back over to John for the closing remarks. I want to spend some time talking about our balance sheet and our liquidity as a simple look at what will be on fire for our ending balance for the second quarter, which might not fully mirror the progress as of today. While we closed the second quarter with cash and cash equivalents of 4 million, we also had net accounts receivable of 5.2 million.
Speaker Change: The change was primarily due to a $1.2 million increase in professional expenses related to the public company operations.
Speaker Change: partially offset by a net reduction of $0.8 million in provision for credit losses and $0.2 million net reduction in other expenses.
Speaker Change: Before turning back over to John for the closing remarks.
John Schlafer: I want to spend some time talking about our balance sheet and our liquidity as a simple look on what will be on fire for our ending balance for the second quarter, which might not fully mirror the progress as of today.
John Schlafer: While we closed the second quarter with cash and cash equivalents of $4 million, we also had net accounts receivable of $5.2 million.
Edmund Chang: Since the completion of our public offering earlier this year, we have succeeded in strengthening the company's capital structure by deleveraging and recapitalizing the company's balance sheet, highlighted by the repayment of $6.3 million of debt. I am pleased to announce that we have also successfully restructured the terms of some of our outstanding debt.
Speaker Change: Since the completion of our public offering earlier this year, we have succeeded in strengthening the company's capital structure by deleveraging and recapitalizing the company's balance sheet highlighted by the repayment of $6.3 million of debt.
Speaker Change: I am pleased to announce that we have also successfully restructured the terms of some of our outstanding debt.
Edmund Chang: They extended the maturities of several terminals, which are now in line with expected proceeds from our 5G chipset sales and our financing cash flows in 2025. Additionally, we have since continued to cautiously make use of our equity line of credit with Be Ready Security to provide liquidity and funding for our business operations, under this facility and subject to market conditions. We may raise up to $15 million through at-the-market offerings from time to time. But I want to stress how balanced and cautious our approach has been. Looking ahead, we will continue to monitor all relevant elements to ensure that we are well capitalized.
Speaker Change: The extended maturities of several term loans are now in line with expected proceeds from our 5G chipset sales and our financing cash flows in 2025.
Speaker Change: Additionally, we have since continued to cautiously make use of our equity line of credit with B-Ready Securities.
Speaker Change: to provide liquidity and funding for our business operations.
Speaker Change: Under this facility and subject to market conditions, we may raise up to $15 million through as a market offering from time to time.
Speaker Change: I want to stress how balanced and cautious our approach has been. Looking ahead, we will continue to monitor all relevant elements to ensure that we are well capitalized.
John Schlafer: Especially until our 5G product sales run, find their way into our financial state. With this, I will turn it back over to John. Thanks, Evan.
Speaker Change: especially until our 5G product sales run, find its way into our financial statements.
John Schlafer: In closing, we are more than ever excited about the growth opportunity ahead of us. We have announced major partnerships and have made significant operational progress that shows the momentum we are gaining in building the customer foundation, for substantial growth based on our 5G tickets that. We remain on track to launch initial deliveries of our 5G TIPS sets to Alpha customers during the fourth quarter of this year. Finally, I would like to thank our employees, partners, and our customers for their continued efforts and dedication to the company, which ultimately drives our success as an organization.
Speaker Change: With this, I will turn it back over to John.
John Schlafer: Thanks, Evan. In closing, we are more than ever excited about the growth opportunity ahead of us.
John Schlafer: We have announced major partnerships and have made significant operational progress that shows the momentum we are gaining in building the customer foundation for substantial growth based on our 5G tip set launch. We remain on track to launch initial deliveries of our 5G tip sets to alpha customers during the fourth quarter of this year.
John Schlafer: Finally, I would like to thank our employees, partners, and our customers for their continued efforts and dedication to the company, which ultimately drives our success as an organization. Together, we focus on driving innovation, supporting the global transition to 5G solutions, and delivering strong profitable growth for our shareholders.
John Schlafer: Together, we focus on driving innovation, supporting the global transition to 5G solutions, and delivering strong profitable growth for our shareholders. We are entering a new phase as we transition toward the commercialization of our 5G technology, and we hope you are with us for the journey. This is truly an exciting time to be part of.
John Schlafer: We are entering a new phase as we transition toward the commercialization of our 5G technology and hope you are with us for the journey. This is truly an exciting time to be part of PCC. I will now turn back over to the operator who will assist us in taking your questions.
Operator: I will now turn back over to the operator, who will assist us in taking your questions. Thank you, and for just a question, you need to press star 11 on your telephone and wait for me to be announced. To withdraw your question, please press star 11 again. Please stand by.
Speaker Change: Thank you. And to ask a question, you will need to press star 1 1 on your telephone and wait for a name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.
Operator: We can call the Q&A roster. One moment for our first question. Our first question will come from the line of Craig Ellis from B Riley Securities. Your line is open.
Operator: Good afternoon. Thank you for attending GCT summit conductor holding in second quarter 2024 financial results call. Online will be muted during the presentation portion of the call with an opportunity for question and answers at the end.
Speaker Change: Our first question will come from the line of Craig Ellis from B Riley Securities. Your line is open.
John Schlafer: Yeah, thank you for taking the question, guys, and congratulations on all the big announcements in the quarter. John, I wanted to start with just a clarification. You indicated that you expect 4G revenues to rise in the third quarter. Can you talk a little bit about what's giving you confidence in the rebound and then how do the programs that are driving that rebound play out in your mind as we look to the fourth quarter of this year?
Craig Ellis: Yeah, thank you for taking the question, guys, and congratulations on all the big announcements in the quarter.
Operator: Joining the call today are John Schlafer, GCT's chief executive officer and Edmund Chen, CFO, to discuss our second quarter results. During this call certain statements we make will be forward looking. These statements are subject to risk and uncertainties including those set forth in our safe harbor provisions for four looking statements that can be found at the end of our earnings press release and also in our form 10Q that will be filed today which provide further detail about the risks related to our business. Additionally, except as required by law, we undertake no obligations to update any forward looking statements.
Craig Ellis: John , I wanted to start with just a clarification you indicated that you expect 4G revenues to rise in the third quarter. Can you talk a little bit about what's giving you confidence in the rebound back and
Speaker Change: How do the programs that are driving that rebound play out in your mind as we look to the fourth quarter of this year?
John Schlafer: Yeah, so... Thank you, Craig. Well, in this. What we said was that we expected the 4G Pirates Hill, rebound in the future. We weren't specific about.
Speaker Change: Yeah. So...
Speaker Change: Thank you, Greg.
Speaker Change: Well, in this, what we said was that we expected 4G product sales to actually rebound in the future. We weren't specific about actually Q3. But what we see right now is a...
John Schlafer: But what we see right now is a transition with our customers and with our customers. Their programs are not homogeneous, so they've got 4G projects, and they've got 5G projects. Yeah, and um...
John Schlafer: I want to call over to John Schlafer. Thank you and thanks to everyone for joining us today for our second quarter 2024 and inaugural earnings call. In light of the fact that some of you might be new to our story, I want to spend a few minutes to discuss our business operations and history before focusing on our Q2 financial results.
Speaker Change: is a transition with our customers, and with our customers, their programs are not homogenous. So they've got 4G projects and they've got 5G projects.
John Schlafer: So there's a tension between the 5G projects and some slowdown on the 4G projects, as you might expect. And then there's also... channel inventory, as a result of that, as a result of operators transitioning to 5G. So, you know, we're looking at that right now, in the short term, how that will, um, how that will, um, transition, but we do see that both 4G and 5G will continue to coexist over time. We don't have a picture of that yet.
Speaker Change: So there's a tension that's being consumed on the 5G projects and slowdown on the 4G projects as you might expect. And then there's also...
John Schlafer: Important to note, despite being new to earning calls, we are not new to the wireless communication technologies. GCT was founded in Silicon Valley in 1998 and is a fabulous semiconductor company that specializes in the design, manufacturing, and sale of communication semiconductors including high speed wireless technologies. We have successfully developed and supplied communication chipsets and modules to leading wireless operators and their suppliers worldwide, specifically to original design manufacturers and original equipment manufacturers, ODMs and Aliens, for portable wireless hotspots, indoor and outdoor six wireless modems and industrial machine and machine applications, which includes a very broad to the use cases like security tracking, metering, and satellite applications.
Speaker Change: channel inventory that
Speaker Change: You know as a result of that as a result of also operators Transitioning
Speaker Change: So, we're looking at that right now to see what we can do.
Speaker Change: You know in the short term how that will
Speaker Change: how that will transition, but we do see that both 4G and 5G will continue to coexist over time.
Speaker Change: We don't have a clear picture for that at the moment.
John Schlafer: Got it, and it sounds like there are some cross currents in play, but for the most part, your 4G customer programs remain active. They're just being managed, but they also manage the ramp up of 5G. Yeah, so then moving on to something that's that may be a little bit more in the strategic sweet spot as we think about the exit to this year and next year. Can you just provide some more color on 5G chipset development for your alpha customer and any color on the breadth of engagement as we think about what can drive the volume ramp in the first half of next year with 5G?
Speaker Change: Got it, and it sounds like there are some cross currents in play, but for the most part, your 4G customer programs remain active. They're just being managed, but they also manage the ramp up of 5G.
John Schlafer: Starting from the 2010 timeframe, we were focused on the fourth generation chipset or 4GLD that has paved the way for more advanced technology, specifically 5B chipsets, which we are now close to finalizing the development of. While most people recognize 5D in connection with smartphones, our focus is on the non-smartphone sector since the segment to the market where targeting is not only very large and diverse, but also benefits from several technologies. Kelvin's like the rise of artificial intelligence, the lack of established alternatives in the west, the Qualcomm, and geopolitical factors.
Speaker Change: Okay.
Speaker Change: Yeah, so then moving on to something that...
Speaker Change: That may be a little bit more in the strategic sweet spot as we think about the exit to this year and next year. Can you just provide some more color on
Speaker Change: 5G chipset development for your alpha customer and any color on the breadth of engagement as we think about what can drive the volume ramp in the first half of next year with 5G.
John Schlafer: Right, so we've got a number of 5G engagements, so it's not just one alpha customer, you know, four or more that we have, contracts with and added. Sarah to do that, through there, an announcement, customers we're working with right now and they're developing their products and their platforms based around our 5P chip. So we'll be sampling those in the fourth quarter, and, They each have their own schedule for how they would ramp in the 2025, time frame, and then there's the other.
Speaker Change: Right. So we've got a number of 5G engagements, so it's not just one alpha customer, there's four or more that we have.
John Schlafer: To give you just one example, this last month, Germany followed in footsteps of the US, Britain, Sweden, Japan, Australia, and New Zealand and Canada by announcing plans to bar or restrict imports of electronic components from Chinese tech giants, Huawei and ZT in core parts of its 5D networks. TCT is well positioned to benefit from these geopolitical shifts, as well as from other economic trends.
Speaker Change: with, and we've just added Kiesera to that with our recent announcement. So these...
Speaker Change: these customers we're working with right now and they're developing their products and their platforms based around our 5p chipset and so we'll be sampling those in the fourth quarter and You know, they each have their own schedule for how they would ramp You know in the in the 2025
John Schlafer: Starting now from macroeconomic aspects, to an overview of our second quarter and some of our operational highlights since we last updated in vain. As we have guided the capital markets in the past, the industry is currently in the midst of a planned transition from sales of 4G chips that's to 5D. During this phase, we have purposefully focused on increasing our design and service revenue IV customers to offset the decreased and 4G products sales.
Speaker Change: And then, there's the other 4G.
John Schlafer: 4G, customers that we have now that might not be considered, you know, alpha customers for our 5G product but are actually waiting for samples. Also, that would engage with us on 5G in 2025. Got it. So quite a bit of activity there. And then, before I hop back in the queue, you mentioned Kyocera.
Speaker Change: customers that we have now that that might not be considered, you know, alpha customers for our 5G products, but are actually waiting for samples also that would engage with that song 5G in the 2025.
John Schlafer: And while 2G marked an anomaly regarding 4G products sales, we expect a positive rebound effect of our 4G sales to take place in the future in conjunction with the initial deliveries of our 5G chipsets. Even as we focus on launching our 5G product and servicing that demand, we anticipate continuous demand from both existing and new 4G products. As an example, our recently announced multi-mode 4G chipset, CDM7243SL, is ideal for industrial utility and satellite applications, including 450 MHz networks, and as we see the lot of positive attention. We expect strong demand for this product, even as the market evolves towards 5G.
Speaker Change: Can I pray?
Speaker Change: Got it. So quite a bit of activity there. And then the last one before I hop back in the queue.
Speaker Change: You mentioned Kyocera.
Speaker Change: So, can you just provide a little bit more color?
Speaker Change: on what that announcement means for GTC, its ability to commercialize product in different parts of the world. And since.
Speaker Change: Um, an extended agreement was announced with Samsung yesterday. Can you also, um.
John Schlafer: With the additional expected initial deliveries of our 5G chipsets, we are looking forward to offering high demand, high quality products to a large and rapidly growing markets, which brings me to our most important topic. Our 5G chipset development is progressing as predicted, and we expect the commencement of initial deliveries to alpha customers to take place during the 4th quarter of 2024. Focusing now on some of the exciting announcements that we've made, we are pleased to continue the collaboration with our longstanding partner, SAMHSA.
Speaker Change: Uh, provide more detail on what the Samsung agreement does for the company as you pursue the 5G chipset product path. Thank you, John . Yeah.
John Schlafer: So can you just provide a little bit more color on what that announcement means for GTC, its ability to commercialize products in different parts of the world? And since an extended agreement was announced with Samsung yesterday, can you also provide more detail on what the Samsung agreement does for the company as it pursues the 5G chipset product path? Thank you, John.
John Schlafer: So on the Kyocera side, so that's focused on. Oh, no. 5G millimeter wave platform for, for FWA and so it's common for us to provide reference designs to our customers. And so we will continue, do that in. 5G era. And one of the challenging aspects of that might be the millimeter wave antenna module. So actually Kyocera will be providing that part of the platform, that will allow us to provide a complete millimeter wave, reference design and also they will have access, that for their own internal use, for whatever, or whatever, uh, FWA activity, they have in the.
Speaker Change: So, I'll take the first one first. So, on the Kyocera side, so that's focused on a,
Speaker Change: 5G millimeter wave platform for FWA and so it's common for us to
John Schlafer: We have announced an MOU with SAMHSA electronics for collaboration to accelerate the development of 4G5G chipset and modules and adoption by device makers. As a chipset and base station maker, GCT and SAMHSA ensure interest in many 5G related markets. And as a result, this collaboration is mutually beneficial to us both. We will work together with SAMHSA to promote the total SAMHSA on GCT solution and to strengthen the ecosystem of OEM and OEM device makers in order to support wireless operators worldwide, including the Saudi Arabian oil group Oranco in the foreign and 50 megahertz and four gigahertz business, mission-critical, public safety, and more.
Speaker Change: to provide reference designs to our customers and so we will continue to do that in the
Speaker Change: in the 5G arena, and one of the challenging aspects of that might be the mmWave antenna module. So actually Kyocera will be providing that part of the platform.
Speaker Change: that will allow us to provide a complete,
Speaker Change: a millimeter wave
Speaker Change: reference design and also they will have access.
John Schlafer: We also recently announced the collaboration with Kacera to develop a 5G reference platform aiming to accelerate BCT development of 5U millimeter wave modem from CTE for fixed wireless access. This collaboration will bring together a first-class millimeter wave antenna technology with superior 5G expertise to provide a complete solution for Kacera's product platform and our 5G customers. I firmly believe this will further strengthen our position as a leader in the growing 5G millimeter wave CTE market.
Speaker Change: For whatever SWA activity they have in the...
Speaker Change: Japanese market and beyond. So those two key focuses.
John Schlafer: Japanese market and beyond of those two key folks. And I'd like to say that our 5G chip is specifically designed... not only to work with our own internal millimeter wave products but also to work with third parties as well.
Speaker Change: And I'd like to say that our 5G chip is specifically designed to not only work with our own internal millimeter wave network.
Speaker Change: products, but also to work with third parties as well.
John Schlafer: Oh, and then on the Samsung side, I think we've kind of.., stated that in the in the press release but you know, As we start, you know, rolling out the 5P products, I mean, clearly, there's collaboration that happens with.., with the infrastructure partner, with the, base station partner and actually a big part of that is the interoperability, testing that happens between those two aspects, so this collaboration will have us working closer together on that as well as certain certain features that Samsung may want to promote in their, Next station, through discussion and through collaboration, we can optimize for that. Got it. Thank you, John, Thank you.
John Schlafer: At the end of July, we made an announcement together with legato networks about the potential availability of Dan 54 modules, saving the way for nationwide critical infrastructure private network use of the licensed mid-dan spectrum. That's the not least at the end of the May, we announced the world's first highly integrated multi-mode L.D, tips that supporting among other things, the four and 50 megahertz spectrum and utility space. As you can tell, we are not sure of exciting partnerships, customer and product announcements.
Speaker Change: Oh, and then on the Samsung side, I think we've kind of...
Speaker Change: you know, stated that in the press release, but, you know,
Speaker Change: As we start, you know, rolling out the 5P products, I mean, clearly there's a collaboration that happens with the infrastructure partner, with the...
Speaker Change: a base station partner, and actually, a big part of that is the interoperability testing that happens between.
John Schlafer: A clear testimonial to our progress in transitioning to 5G. The announcements we have made over the last few weeks showcase the momentum we are gaining in building the customer foundation for an outsized growth based on our 5G tips that failed. I couldn't be more excited about the progress, we are making. In addition, we are happy to now be included in the Russell 2000 index as well as other Russell growth and value style indices as part of the yearly Russell 3000 reconstitution.
Speaker Change: Those two aspects, so this collaboration will have us working closer together on that as well as, you know, certain features that Samsung may want to promote in their...
Speaker Change: the base station. We
Speaker Change: through discussion and through collaboration, we can optimize for that.
John Schlafer: For that, I'll turn it over to Edmunds to discuss our financial results. Thank you, John.
John Schlafer: Got it. Thank you, John .
Edmund Chen: Turning now to our second quarter financial results, certain details on which can be fun in the 10th queue that will be on fire with their SEC. Our net revenue was 1.5 million for the three months and the June 30, 2024. A decrease of 2.8 million from 4.3 million for the three months and June 30, 2023. The decrease was primarily attributable to a decrease of 4 million in product sales offset by an increase in service revenue.
John Schlafer: Welcome.
Speaker Change: Thank you. One moment for our next question.
Operator: One moment for our next question. Our next question comes from Matt Ramsey from TD Calendar. Your line is open. Hey, guys, this is actually Shauna Laughlin on behalf of Matt.
Speaker Change: i
Speaker Change: Our next question comes from Matt Ramsey from TD Calendars. Your line is open.
Operator: Congratulations on getting the first call under your belt, and as Craig mentioned, the momentum on the customer engagement side. John, I wanted to ask about those customer engagements and some of these, you know, MOUs that you've been announcing over the last few months. If you go back six months or so to when you did the recapitalization and all of that, how much of this customer engagement was sort of contemplated at that time versus how much of this is increasing momentum and sort of broadening engagement beyond your initial customer and, I guess, would sort of You know, in the announcements that we've had, there's probably, maybe only one that is probably additional to that. And these things actually take a long time, you know, to develop.
Sean O'Loughlin: Hey guys, this is actually Sean O'Loughlin on for Matt. Congrats on getting the first call under your belt, and as Craig mentioned, the momentum on the customer engagement side.
Sean O'Loughlin: John , I wanted to ask on those customer engagements and some of these, you know, MOUs that you've been announcing over the last few months, if you go back six months or so,
Edmund Chen: Cost of net revenues decreased by 0.9 million to 0.5 million for the three months and the June 30, 2024. From 1.5 million for the three months and the June 30, 2023. Product costs decreased by 0.8 million from 1.0 million for the three months and June 30, 2023 to 0.2 million for the three months and June 30, 2024. The decrease was primarily driven by the decrease in direct product costs as we saw fewer units.
Sean O'Loughlin: to, you know, when you did the recapitalization and all of that, how much of this...
Sean O'Loughlin: Customer engagement was sort of contemplated at that time.
Speaker Change: versus how much of this is, you know, increasing momentum and sort of broadening engagement beyond your initial customer. And I guess would sort of represent quote unquote upside to what you were thinking at the time when you did the transaction.
Speaker Change: I think that
Speaker Change: Let me just think about what the split might be.
Edmund Chen: Service costs remain comparable for the three months and the June 30, 2024 and 2023. Our gross margin decreased to 63% for the three months and the June 30, 2024 from 66% for the three months and the June 30, 2023. Primarily due to decreased product sales. Our product costs for the three months and the June 30, 2024 were primarily comprised of allocated overhead and inventory after lessons costs. I want to remind everyone that these high margins are due to our comparably higher percentage of service revenue and not necessarily the reflectors of our overall gross margins once we are ramping up a higher percentage of product revenue.
Speaker Change: You know, in the announcements that we've had, there's probably maybe only one that is probably additional to that, and these things actually take a long time, you know, to develop. So, you know, just...
John Schlafer: So, you know, just, fact that we have an MOU, we've been talking about these things for a while, and so we're happy to.., to be able to close this sort of chapter with a.., written document, but I think these are things that as part of our 5G strategy we've been working on. Great. And then maybe just to clarify on some of the commentary regarding the 5G revenue timing, I guess, should we expect then that, you know, this sort of.
Speaker Change: The fact that we have an MOU, we've been talking about these things for a while, and so we're happy to be able to close this sort of chapter with a written document, but I think these are things that as part of our 5G strategy we've been working on.
Speaker Change: Great. And then maybe just to clarify on some of the commentary regarding the 5G revenue timing, I guess, should we expect then that
John Schlafer: Let not not the specific dollar figure necessarily, but sort of the depressed relative 4G based product revenue should continue at least, you know, for the next couple of quarters if if we're thinking about 4G customers waiting for 5G product to sample and then maybe some of the new products on in the 4G. In the 4G standard is still in the early stages of ramping and sampling, so should we kind of think about the 4G revenue is depressed for a couple quarters.
Speaker Change: you know, this sort of...
Speaker Change: Let not not the specific dollar figure necessarily, but sort of the depressed relative 4G based product revenue should.
Speaker Change: Continue, at least, you know, for the next couple of quarters, if if we're thinking about 4G customers waiting for 5G product to sample, and then maybe some of the new products in the 4G.
Edmund Chen: Research and development expenses increased by 0.2 million or 4% from 4.0 million for the three months and the June 30, 2023 to 4.2 million for the three months and the June 30, 2024. This increase was primarily due to a sales.3 million increase in R&D expenses mainly related to services provided to designing 5G chip products. Sales and marketing expenses increased by 0.2 million or 29% from 0.8 million for the three months and the June 30, 2023 to 1.0 million for the three months and the June 30, 2024.
Speaker Change: you know, in the 4G standard is still in the early stages of ramping and sampling. So should we kind of think about the 4G revenue as depressed for a couple quarters?
John Schlafer: Well, that's probably a reasonable way to think about it and, you know, our focus and our energies are going on 5G as that's the future and for a number of reasons, for, you know, volume, technology, ASPs, everything, and so, you know, two... extract that with, you know, recess, and resources pursuing. 4G platforms. That's not the right thing for us to do, so it's probably an accurate.
Speaker Change: Well, that's probably a reasonable way to think about it, and our focus and our energies are going on 5G as that's the future, and for a number of reasons, for volume, technology.
Speaker Change: ASPs, everything, and so, you know, to distract that with, you know, resources pursuing, you know, 4G platforms.
Edmund Chen: This increase was primarily due to customer outrelated costs. General and administrative expenses increased by 0.2 million or 9% from 2.6 million for the three months and the June 30, 2023 to 2.9 million for the same period last year. The change was primarily due to a 1.2 million increase in professional expenses related to the public company operations partially upset by a net reduction of 0.8 million in provision for credit losses and 0.2 million net reduction in other expenses.
Speaker Change: It's not the right thing for us to do, so it's probably an accurate...
John Schlafer: We definitely want the 4G revenue, and we want to be shipping product into those applications, and we will, but you know, like I said, I'll... our resources are appropriate. Yeah, totally makes sense. I guess last one for me and I guess this one is probably more for Edmund but on the balance sheet commentary, I noticed that you mentioned some extension of terms to align with 2025, but I do see still sort of a chunk or the large, large part of the borrowing still sort of in that current bucket rather than the long-term bucket.
Speaker Change: depiction. We definitely want 4G revenue and we want to be shipping
Speaker Change: product into those applications, and we will, but, you know, like I said, I'll...
Speaker Change: Our resources are focused on 5G.
Speaker Change: Yeah, totally makes sense.
Edmund Chang: I guess last one for me, and I guess this one is probably more for Edmund, but on the, you know, the balance sheet commentary, I noticed that you mentioned some extension of terms to align with the 2025, but I do see still sort of a chunk.
Edmund Chen: Before turning back over to John for the closing remarks, I want to spend some time talking about our banishing and our liquidity as a simple look on what will be on fire for our ending balance for the second quarter, which may not fully mirror the progress as of today. While we close the second quarter with cash and cash equivalent of 4 million, we also have net accounts receivable of 5.2 million since the completion of our public offering earlier this year.
Edmund Chang: Or the large large part of the borrowing still sort of in that current bucket rather than the long term bucket. So is that why is that either a timing thing? Like, maybe some of the restructuring took place after after the end of the quarter? Or is it? Should I just think about that as very literal?
Speaker Change: You know.
Speaker Change: the June 2025 timeframe as where some of those extensions went out to.
John Schlafer: So is that one is that either a timing thing like maybe some of the restructuring took place after the end of the quarter, or should I just think about that as very literal, you know? The June 2025 time frame as some of those extension, uh, as, as where some of those extensions went out. Hi, Sheldon. This is Edmund.
Speaker Change: Hi Sheldon, this is Edmund. You are exactly correct in that sense. A majority of those negotiations of the extension of the loan was completed in early July from that perspective, so it didn't meet the cut-off time of June 30th.
Edmund Chang: You are exactly correct in that sense. A majority of those negotiations of the extension of the loan was completed in early July from that perspective, so it didn't meet the cut-off time of June 30th. So we have actually successfully renegotiated more than close to $21 million of our existing current debt, basically from Q3 of 2024 to Q1, Q2, and Q3 of 2025. So that actually aligning the debt to some of the ramp-up that we expect from our Q3 launch in 2025. That's yeah, that's super helpful. And then I guess it to the extent that you're able to, you know, kind of comment on that. Would you then.
Edmund Chen: We have succeeded in strengthening the company's capital structure by delivering and recatulating the company's balance sheet highlighted by the repayment of $6.3 million of debt. I am pleased to announce that we have also successfully restructured the terms of some of our outstanding debt, the extended maturity of several term loans, and now in line we have expected proceed from our 5G chipset sales and our financing cash flows in 2025. Additionally, we have since continued to cautiously make use of our equity line of credit with B-Radi securities.
Speaker Change: So we have actually successfully renegotiated more than close to $21 million.
Speaker Change: of our existing current debt, basically from Q3 of 2024 to Q1, Q2 and Q3 of 2025.
Speaker Change: So that's actually aligning the debt to some of the ramp-up that we expect from our Q3 launch in 2025.
Edmund Chen: To provide liquidity and funding for our business operations, under this facility and subject to market conditions, we may raise up to 15 million through at the market offering some time to time. I want to stress how balanced and cautious our approach has been. Looking ahead, we will continue to monitor all relevant elements to ensure that we are well capitalized. Expecially until our 5G product sales run, find its way into our financial statements.
Speaker Change: That's yeah, that's super helpful. And then, I guess, to the extent that you're able to, you know, kind of comment on that, would you then.
Edmund Chang: Would you then expect to use some of the proceeds from this 5G ramp to then pay down some of that debt? Is that why you're aligning the term structure in that way, or is it just you expect to have a better capital position at that time and therefore can feel stronger about refinancing? Actually, Sean, it's a combination of both.
Speaker Change: But would you then expect to use...
Speaker Change: some of the proceeds from this 5G ramp to then pay down some of that debt? Is that why you're aligning the term structure in that way? Or is it just you expect to have a better capital position at that time and therefore can feel stronger about refinancing?
John Schlafer: With this, I will turn it back over to John. Thanks Evan, in closing, we are more than ever excited about the growth opportunity ahead of us. We have announced major partnerships and have made significant operational progress that shows the momentum we are gaining in building the customer foundation for substantial growth based on our 5G chipset launch.
Edmund Chang: We feel that with the ramping up of our 5G chip in terms of revenue, it will also improve on our cash flow situation operationally. In addition to that, we also will be able to gradually improving our capital structure, and that will give us a much more sound financial standing at that point of time. So it is a journey that we are moving towards to basically adequately recapitalize the company balance sheet so as to support the company's growth plan into 2025. Got it. Very clear. That's all for me. Congrats again, guys. Thanks. Hey, Sean. It's just one second here.
Speaker Change: Actually, Sean, it's a combination of both. We feel that with the ramping up of our 5G chip in terms of revenue,
Sean O'Loughlin: It will also improve on our cash flow situation operationally.
Speaker Change: In addition to that, we also will be able to gradually improving our capital structure and that will give us a much more sound financial standing at that point of time.
John Schlafer: We remain on track to launch initial deliveries of our 5G chipset to alpha customers during the fourth quarter of this year. Finally, I would like to thank our employees, partners, and our customers for their continued efforts and dedication for the company, which ultimately drives their success as an organization. Together, we focus on driving innovation, supporting the global transition to 5G solutions and delivering strong, profitable growth for our shareholders.
Speaker Change: So it is a journey that we are moving towards to basically adequately recapitalize the company balance sheet so as to encourage, I mean support the company's growth plan into 2025.
John Schlafer: We are entering a new phase that we transition toward the commercialization of our 5G technology and hope you are with us for the journey. This is truly an exciting time to be part of.
John Schlafer: One clarification on my 4G. You know, in our announcement, we do talk about a new 4G product, which is the 7243SL, and that is important because it's going to have, actually, long legs. But, um... But that's not going to help us.
Speaker Change: Got it. Very clear. That's all for me. Congrats again, guys. Thanks. Hey, Sean, just one second here. One clarification on my 4G comment.
Operator: I'll now turn back over to the operator who will discuss and take your questions. Thank you. And, Jack, the question, you need to press star 11 on your telephone. And, wait for a name to be announced. To withdraw your question, please press star 11 again. Please stand by. We can pause the Q&A roster. One moment for our first question.
Speaker Change: In our announcement, we do talk about a new 4G product, which is a 7243SL, and that is important to us, and we think that's going to have long legs to it, but that's not going to help us in the future. So, that's it.
John Schlafer: 3 and Q4. Just a clarification. Yeah. No, totally understood. Yeah, I interpreted you in that way as well.
Speaker Change: in Q3 and Q4, so just a clarification on that. Yeah.
Speaker Change: No, totally understood. Yeah, I interpreted you in that way as well. So, appreciate the clarification.
Craig: Thank you for taking the question, guys, and congratulations and all the big announcements in the quarter. John, I wanted to start with just a clarification you indicated that you expect 4G revenues to rise in the third quarter. Or can you talk a little bit about what's giving you confidence in the rebound back and then how do the programs that are driving that rebound play out in your mind as we look to the fourth quarter of this year?
John Schlafer: So I appreciate the clarification. Thank you. One moment for our next question. And as a reminder, that's star 11 for questions.
Speaker Change: Thank you. One moment for our next question. And as a reminder, that's star 11 for questions, star 11.
Operator: Our next question will be a follow-up from the mind of Craig Ellis from B. Riley, the United's Open. Yeah, so I'll start just with a follow-up on the recent line of inquiry taking off on some of the questions around the first half's 5G ramp, but I'll do it this way. As we think about what can ramp up in the first half of next year, how should we think about how customers intend to use the product across the opportunities that they have with either CPE-type implementations, mobile router implementations, or IoT implementations? What's the appetite you're seeing in those different areas as your customers get started on 5G early next year?
Speaker Change: Our next question will be a follow-up from the line of Craig Ellis from B Riley. Your line is open.
Craig Ellis: Yeah, so I'll start just with a follow-up on
Craig Ellis: the recent line of inquiry taking off on some of the questions around the first half's 5G ramp, but I'll do it this way. As we think about what can ramp up in the first half of next year, how should we think about how customers intend to use product across
Craig: Yeah, so thank you, Craig. Well, in this, what we said was that we expected the 4G product sales to actually rebound in the future. We weren't specific about, about actually Q3. But what we see right now is a transition with our customers. And with our customers, their programs are not a margin, so they've got 4G projects and they've got 5G projects. And so there's a tension that's being consumed on the 5G projects and slowed out on the 4G projects as you might expect.
Craig: And then there's also a channel inventory that as a result of that, as a result of also operators transitioning to 5G. So we're looking at that right now to see in the short term how that will transition. But we do see that that both 4G and 5G will continue to coexist over time, so we don't have a clear picture for that at the moment. Got it, and it sounds like there are some cross-currents in play, but for the most part, your 4G customer programs remain active. They're just being managed, but they also manage the ramp up of 5G. Okay.
Craig Ellis: the opportunities that they have with either
Speaker Change: CPE type implementations, mobile router implementations, or IOT implementations, what's the appetite you're seeing in those different areas as your customers get started on 5G early next year?
Operator: Yeah, I see that we've got a strong interest across all those categories. So certainly, you know, hotspot related, certainly FWA, you know, CPE type of product. And then there are products that actually fall into the other categories of, you know, module-based applications that are machine-to-machine. I'm sorry. No, go ahead, John.
Speaker Change: Yeah, I see that we've got strong interest across all those categories, so certainly hotspot related.
Speaker Change: certainly FWA, you know, CPE type of products, and then there's products that actually fall into the other categories of, you know, module-based applications that are, you know, machine-to-machine.
Speaker Change: type. Thank you.
John Schlafer: Yeah, no. So I would say that we have a full breadth of interest in product categories. Okay, that sounds good. And then the second question has a bit of a technical twist to it.
Speaker Change: I'm sorry.
Speaker Change: No, go ahead, John . Yeah, no. So, I would say that we have a full...
John Schlafer: breadth of interest in
John Schlafer: in product categories.
Speaker Change: OK. That sounds good. And then the second question has a bit of a technical twist to it. So
John Schlafer: So, I think one of the things your product is known for is its multi-antenna capability. And since you commented on doing development work with infrastructure companies, I'm wondering, you know, what might be possible as you partner with somebody like Samsung to develop specific differentiation around that for CPE-type devices, and what you think that will mean in different markets with respect to your ability to really differentiate your product versus competitors? Yeah, I think that we'll be looking into that. I mean, however, we can we can see ways to, you know, optimize for the, uh... for the market that we're in specifically the FWA space. I mean, that's where that has the most, value.
Speaker Change: I think one of the things your product is known for is its multi-antenna capability, and since you commented on doing development work with
John Schlafer: Yeah, so then moving on to something that may be a little bit more in the strategic sweet spot as we think about the exit to this year and next year. Can you just provide some more color on 5G chipset development for your alpha customer? And any color on the breadth of engagement as we think about what can drive the volume ramp in the first half of next year with 5G? Right, so we've got a number of 5G engagements, so it's not just one alpha customer.
Speaker Change: infrastructure companies. I'm wondering.
Speaker Change: you know, what might be possible as you partner with somebody like Samsung.
Speaker Change: to develop specific differentiation around that for CPE type devices and what you think that will mean in different markets with respect to your ability to really differentiate your product versus competitors.
John Schlafer: There's 4 or more that we have contracts with, and we've just added... Kia's era to that with our recent announcement so these customers we're working with right now and they're developing their products and their platforms based around our 5P chips set and so we'll be sampling those in the fourth quarter and you know they each have their own schedule for how they would ramp you know in the 2025 timeframe and then there's the other 4G customers that we have now that that you know might not be considered you know alpha customers for our 5G products but are actually waiting for samples also that would engage with us on 5G in the 2025 timeframe.
Speaker Change: Yeah, I think that we'll be looking into that. I mean, however, we can see ways to, you know, optimize for the markets that we're in, specifically, you know, the FWA space. I mean, that's where that has the most...
John Schlafer: I mean, we're going to do that and that can be either be from, a hardware perspective or software. And we see, you know, optimization, both those areas that can happen. But I think working together closely with a partner like Samsung will help us identify that. And then lastly, for me, it was helpful to get some earlier color on the texture within some of the pushes and pulls with potential product revenues over the next couple quarters.
Speaker Change: I mean, we're going to do that, and that can either be from a hardware perspective or a software perspective.
Speaker Change: perspective, and we see, you know, optimization in...
Speaker Change: both those areas that can happen, but I think working together closely with a partner like Samsung will help us identify that.
Speaker Change: Yep.
Speaker Change: And then lastly for me, it was helpful to get some earlier color on the texture within some of the pushes and pulls with potential product revenues over the next couple of quarters. Guys, can you talk a little bit more about what's possible with services revenues as we think about what can happen?
John Schlafer: Guys, can you talk a little bit more about what's possible with services revenues as we think about what can happen through the back half of this year and early next year? Thank you. Yeah, I think that, um... We, um... We're going to do, I mean, we've got some engagements that are in the works, and it's possible that we'll be having a few other MOUs that we might announce, and each one of those would have the possibility of additional service revenue.
Speaker Change: through the back half of this year and early next year. Thank you.
Speaker Change: Yeah, I think that, um, we, um,
Speaker Change: Um...we...
John Schlafer: Got it so quite a bit of activity there and then the last one before I hop back in the queue you mentioned Kia's era so can you just provide a little bit more color on what that what that announcement means for GTC it's ability to commercialize product in different parts of the world and since an extended agreement was announced with Samsung yesterday can you also provide more detail on what the Samsung agreement does for the company as you pursue the 5G chipset product pack. Thank you John.
Speaker Change: We're going to do, I mean, we've got some engagements that are in the works, and it's possible that we'll be
Speaker Change: having a few other MOUs that we might announce and each one of those would have the possibility of additional service revenue so you know
John Schlafer: With service revenues, we recognize that revenue as we make progress on those contracts. So there is some that's already in the pipeline for us from that perspective. And then as we close on any new MOUs that we have, I think that's a contract, those would have additional service revenue aspects to them, and those would layer on top. So I mean, we very much are looking for, you know, other opportunities to add to what we're... Yeah, and John anything that's meaningful from a single engagement standpoint that would be wrapping up in the back half of the year. Because it sounds like there's I would say that what we have in the pipeline now is reasonably flat through Q4 from a service revenue perspective, and uh...
Speaker Change: With service revenues, we recognize that revenue as we make.
Speaker Change: So there is some that's already in the pipeline for us from that perspective. And then as we close on any new MOUs and or contracts.
John Schlafer: Yeah so I'll take that's focused on on a 5G millimeter wave platform for FWA and so it's it's common for us to us to provide reference designs to our customers and so we will continue to do that in the 5G arena and one of the challenging aspects of that might be the millimeter wave antenna modules so actually Kia's era will be providing that part of the platform that will that will allow us to provide a complete millimeter wave reference design and and also you know they will have access to that for their own internal use for whatever FWA activity they have in the Japanese market and beyond so those two key focuses and like to say that you know our 5G chip is specifically designed to not only work with our own internal millimeter wave RF products but also to work with actually third parties as well and then on the Samsung side I think I think we've kind of a You know, stated that in the press release, but, you know, as we start, you know, rolling out the 5P products, I mean, clearly there's collaboration that happens with the infrastructure partner, with the base station partner, and actually a big part of that is just the interoperability testing that happens between those two aspects. So, this collaboration will have us working closer together on that, as well as, you know, certain features that Samsung may want to promote in their base station. We, you know, through discussion and through collaboration, we can optimize for that. Got it. Thank you, John. You're welcome. Thank you.
Speaker Change: those would have additional service revenue aspects to it and those would layer on top. So, I mean, we very much are looking for, you know, other opportunities to...
Speaker Change: to add to what we're currently doing.
Speaker Change: And John , anything that's meaningful with a single engagement standpoint that we'd be wrapping up in the back half of the year? Because it sounds like there's a number of things that would put an upward bias on services. Or is there a project or two that rolls off that we need to be aware of?
Speaker Change: I would say that what we have in the
Speaker Change: in the pipeline now is reasonably flat through Q4 from a service revenue.
Speaker Change: perspective, and so, but, you know, we have a couple, like I mentioned, we have a couple of other opportunities that we'd like to add.
John Schlafer: So, um, let you know... We have a couple. Like I mentioned, we have a couple of other opportunities that we'd like to add. Got it. Thanks again for all the help.
John Schlafer: Good luck. Thank you. I'm not showing any further queues or anybody else in the queue.
Speaker Change: Got it. Thanks again for all the help. Good luck.
Speaker Change: Thank you.
Speaker Change: Thank you. I'm not showing any further
Operator: With this, I'll close the call. And thank you for your participation in today's conference. This is the end of the program. You may know it. Disconnect everyone. Have a great day. Thank you.
Speaker Change: andent
Speaker Change: And thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.
Sean O'Lachlan: One moment for an next question. And our next question, Kofalina, Matt Ramsey from TV Kallen. Your line is open. Hey, guys, this is actually Sean O'Lachlan on for Matt. Congrats on getting the first call under your belt. And as Craig mentioned, the momentum on the customer engagement side.
John Schlafer: John, I wanted to ask on those customer engagements and some of these, you know, MOUs that you've been announcing over the last few months, if you go back six months or so to, you know, when you did the recapitalization and all that, how much of this customer engagement was sort of contemplated at that time versus how much of this is, you know, increasing momentum and sort of broadening engagement beyond your initial customer. And I guess would sort of represent, quote, unquote, upside to what you were thinking at the time when you did the transaction.
John Schlafer: I think that, let me just think about what the split might be. You know, in the announcements that we've had, there's probably maybe only one that is probably additional to that. And these things actually take a long time to develop. So, you know, just, you know, the fact that we have at MOU, we've been talking about these things for a while. And so we're happy to, you know, to be able to close this sort of chapter with a, you know, a written document. But I think these are things that, as part of our 5P strategy, we've been working on. Great.
Sean O'Lachlan: And then, and then maybe just to clarify on some of the commentary regarding the 5G revenue timing, I guess, should we expect then that, you know, this sort of let not not the specific dollar figure necessarily, but sort of the depressed relative 4G based product revenue should continue at least, you know, for the next couple of quarters. If we're thinking about 4G customers waiting for 5G product to sample and then maybe some of the new products on in the 4G, you know, in the, in the 4G standard is still in the early stages of ramping and sampling.
Sean O'Lachlan: So should we kind of think about the 4G revenue is depressed for a couple quarters through the rest of the year? That's probably a reasonable way to think about it. And, you know, our focus and our energies are going on 5G is that's the future. And for a number of reasons, for, you know, volume, technology. ASPs, everything, and so to distract that with resources pursuing 4G platforms, it's not the right thing for us to do, so it's probably an accurate depiction. We definitely want the 4G revenue, and we want to be shipping product into those applications, and we will. But, you know, like I said, our resources are focused on 5G. Yeah, totally makes sense.
Edmund Chen: I guess last one for me, and I guess this one is probably more for Edmund, but on the, you know, the balance sheet commentary, I noticed that you mentioned some extension of terms to align with the 2025, but I do see still sort of a chunk or the large, large port of the borrowing still sort of in that current bucket rather than the long term bucket. So is that what is that either a timing thing like maybe some of the restructuring took place after after the end of the quarter, or should I just think about that as very literal, you know, the June 2025 timeframe as some of those extension, as where some of those extensions went out to?
Edmund Chen: Hi, Sean. This is Edmund. You are exactly correct from that sense. A majority of those legalization of the extension of the loan was completed in early July from that perspective, so it didn't meet the club time of June 30th. So we are actually successfully really negotiated more than close to 21 million of our existing current debt. But basically from Q3 of 2024 to Q1, Q2 and Q3 of 2025. So that actually aligning the debt to some of the remap that we expect from our Q3 launch in 2025.
Edmund Chen: That's, yeah, that's super helpful. And then I guess to the extent that you're able to kind of comment on that, would you then expect to use some of the proceeds from this 5G ramp to then pay down that? Is that why you're aligning the term structure in that way, or is it just you expect to have a better capital position at that time, and therefore can feel stronger about refinancing? Actually, Sean, it's a combination of both.
Edmund Chen: We feel that with the ramping up of our 5G chip in terms of revenue, it will also improve on our cash flow situation operationally. In addition to that, we also will be able to gradually improving our capital structure and that will give us in a much more fund financial standing at that point of time. So it is a journey that we are moving towards to basically adequately recapitalize the company balance sheet. So as we're encouraged, I mean support the company's growth plan into 2020. Thanks. Got it. Very clear. That's all for me. Congrats again, guys. Thanks.
John Schlafer: Hey, Sean. Just one second here. One clarification on my 4G comment. You know, in our announcement, we do talk about a new 4G product, which is a 7243SL. And that is important to us. And we think that's going to have actually long legs to it. But that's not going to help us in EQ3 and Q4. So just a clarification. Yeah. No, it's totally understood. Yeah, I interpreted you in that way as well. So I appreciate the clarification. Thank you.
Operator: One moment for our next question. And as a reminder, that star 101 for questions, star 101.
Craig: Our next question will be a follow-up from the mind of Craig Ellis from Be Riley. The United is open. Yeah.
John Schlafer: So I'll start just with a follow-up on the recent line of inquiry, taking off on some of the questions around the first half 5G ramp that I'll do it this way. As we think about what can ramp up in the first half of next year. How should we think about how customers intend to use product across the opportunities that they have with either. CPE type implementations, mobile router implementations or IOT implementations.
John Schlafer: What's the appetite you're seeing in those different areas as your customers get started on 5G really next year? Yeah, I see that we've got strong interest across all those categories. So certainly hotspot related, certainly FWA, CPE type of products. And then there's products that actually fall into the other categories of module-based applications that are machine-to-machine type. Sorry. No, go ahead, John. Yeah, no. So I would say that we have a full breadth of interest in product categories. Okay, that sounds good.
John Schlafer: And then the second question has a bit of a technical twist to it. So I think one of the things your product is known for is its multi-antana capability. And since you commented on doing development work with infrastructure companies, I'm wondering what might be possible as you partner with somebody like Samsung to develop specific differentiation around that for CPE type devices. And what you think that will mean in different markets with respect to your ability to really differentiate your product versus competitors.
John Schlafer: Yeah, I think that we'll be looking into that. I mean, however we can see ways to optimize for the markets that we're in specifically, the FWA space. I mean, that's where that has the most... I mean we're going to do that and that can either be from a hardware perspective or software perspective. Then we see optimization in both those areas that can happen. But I think working together closely with a partner like Samson will help us identify that.
John Schlafer: And then lastly for me, it was helpful to get some earlier color on the texture within some of the pushes and pulls with potential product revenues over the next couple of quarters. Guys, can you talk a little bit about what's possible with services revenues as we think about what can happen through the back half of this year and early next year. Thank you. Yeah, I think that we're going to do, I mean we've got some engagements that are in the works.
John Schlafer: And it's possible that we'll be having a few other MOUs that we might announce. And each one of those would have the possibility of additional service revenues. So with service revenues, we recognize that revenue as we make progress on those contracts. So there is some that's already in the pipeline for us from that perspective. And then as we close on any new MOUs and work contracts, those would have additional service revenue aspects to it.
John Schlafer: And those would layer on top. So we very much are looking for other opportunities to add to what we're currently doing. Yep. And John, anything that's meaningful with a single engagement standpoint that we'd be wrapping up in the back half of the year, because it sounds like there's a number of things that would put an upward bias on services. Or is there a project or two that rolls off that we need to be aware of?
John Schlafer: I would say that what we have in the pipeline now is reasonably flat through Q4 from a service revenue perspective. And so we have a couple of other opportunities that we'd like to add. Got it. Thanks again for all the help. Good luck. Thank you.
Operator: I'm not sure we're going to further queue in anybody else in the queue with this out. Close the call. And thank you for participation in today's conference. This concludes the program. You may now disconnect everyone. Have a great day. Thank you.