Q3 2024 GCT Semiconductor Holding Inc Earnings Call
Okay.
Speaker Change: Good afternoon, and thank you for attending GCT Semiconductors Holdings, Inc. Third 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.
Speaker Change: Schlafer.
G C Ts Chief Executive Officer, and Edwin Chen CFO to discuss our third quarter results during the call certain statements, we make will be forward looking.
Statements are subject to risks and uncertainties, including those set forth in our safe Harbor provision 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: Yes.
Which provides further detail about the risk related to our business. Additionally, except as required by law, we undertake no obligation to update any forward looking statement.
I'll now turn the call over to John Schlafer.
John Schlafer: Thank you and thanks to everyone for joining us today for our third quarter of 2024 earnings call.
John Schlafer: There's some listeners might still be new to our story I will give a short summary of our business operation and history before focusing on our Q3 financial results.
John Schlafer: G. T was founded in Silicon Valley in 1998 and is a fabless semiconductor company that specializes in the design manufacturing and sale of communications semiconductors, including high speed wireless communication technologies, we have successfully developed and supplied communications semiconductor chipsets and modules to leading wireless operators and their suppliers worldwide.
John Schlafer: Specifically to original design manufacturers and original equipment manufacturers Oems and Oems for portable wireless hotspots indoor and outdoor 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: Our focus on fourth generation chipsets or four G. L. T has paved the way for even more advanced technology, specifically five G chipsets, which we are now close to finalizing the development of the segment of the market we are targeting.
John Schlafer: Nearly all the other wireless devices. Besides smartphones is not only very large and diverse but also benefits from several positive tailwind like the rise of artificial intelligence. The lack of established alternatives in the west to Qualcomm and other geopolitical factors.
Turning now to an overview of our third quarter and some of our operational highlights since we last updated the public in August. We are pleased to report that we have seen positive rebound of our product sales in the third quarter as we have guided the capital markets in our last earnings call.
John Schlafer: As I have mentioned back then to the industry is currently in the midst of a planned transition from sales of forgery chipsets to five G for many use cases.
John Schlafer: But even as we focus on launching our <unk> product and servicing that demand, we anticipate continuous demand for both our existing and new <unk> products. As these products are ideal for industrial utility and satellite applications, which have long term use cases, we expect continued demand for these products, even as the market evolves towards five G.
John Schlafer: With the additional expected initial deliveries of RFID chip sets. 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. We have made significant advancements towards the anticipated commencement of volume shipments of our <unk> chipsets in the first half of 2025.
Needless to say guided we are very excited about this milestone coming closer and closer and are looking forward to the beginning of next year. However, we have not only progressed. Our chipsets. We have also progressed some of our key relationships that we expect to drive demand for our chipsets as we have announced earlier in Q3, we have signed an Mou with a global tier one.
John Schlafer: <unk> supplier or development collaborations on fixed wireless access devices using gct's five G. Chipsets. This mou marks a continuation of an existing customer relationship now moving to include five G. We expect the launch of FW a devices related to this activity to commence in the second half of 2020.
John Schlafer: And look forward to reporting further positive updates on this in the future.
Speaker Change: The announcements we have made for this earnings call and last our clear testimonial to our progress in transitioning to <unk> and showcasing the momentum we're gaining in building the customer foundation for upcoming growth with that I'll turn it over to Edmund to discuss our financial results.
Edmund: Thank you John turning now to our third quarter financial results.
Other details of which can be found in the 10-Q that will be a while.
Edmund: Net revenues decreased by $1 9 million or 42% to $2 6 million for the three months ended September 30 year pardon me 40 for pulp.
$4 5 million for the three months ended September 3rd year 2023.
Edmund: The decrease was.
Edmund: Primarily attributable to a decrease of two 3 million and product sales.
Edmund: Partially offset by an increase of $1 billion in service revenue.
Edmund: However sequentially when compared to Q2 net revenue has referred by February seven, 8% or $1 1 million.
Edmund: Cost of revenues decreased by $3 million.
Edmund: Every 5% to 1 million.
Edmund: And at September 32034 from $3 9 million for the three months ended September 32000 alternative Street.
Edmund: Other costs decreased by three 3 million from me then.
Edmund: At September 30th Kudos.
Edmund: <unk> 33 to two 7 million for the three months ended September 32010 before.
Edmund: The decrease was primarily driven by a decrease in direct product.
Edmund: <unk> <unk>.
Edmund: So fewer units.
Edmund: Severance costs were <unk> 3 million for the three months ended September 32034.
Edmund: Service costs were nominal for the three months.
Edmund: 2023.
Edmund: Gross margin increased to 62% for the three months ended September 32010 before from 12% for the three months ended September 30.
Speaker Change: 2033 pardon.
Speaker Change: Primarily.
Speaker Change: Changes in the product mix.
Speaker Change: Basically we increased the share of reference platform scale and generate higher margins from our service offering during the trip.
Speaker Change: <unk> quarter of 2010 before.
Speaker Change: In addition, this reference platform sales will help our customers.
Speaker Change: Right that integration and adoption of our <unk> chip in their respective product development activity.
Our <unk> chip launch.
Speaker Change: Research and development rentals increased by $1 8 million or 78% from $2 4 billion.
Speaker Change: Right.
Speaker Change: And at September 32033 to a $4 2 billion for the three months ended September 32034.
Speaker Change: This change was primarily due to a $1 5 million increase in research and development expenses, mainly related to professional services related to the design of <unk> chip products.
Speaker Change: Sales and marketing expenses increased by $2 2 million or 28% from $4 7 million for the three months ended September 32003 to $2 nine.
Speaker Change: <unk> 9 million for the three months ended September 32034.
Speaker Change: This increase was primarily due to personnel related costs.
Speaker Change: General and administrative expenses increased by <unk> 9 million or <unk>.
Speaker Change: From one 4 million for the three months ended September.
Third the 2023.
Speaker Change: $2 4 million for the three months ended September 30 of 2024.
Speaker Change: The change was primarily due to a <unk> 4 million.
Speaker Change: An increase in stock based compensation related to our ask us.
Speaker Change: <unk> 4 million increase in professional and other expenses related to the public company operations.
Speaker Change: Steel, but muted increase in personnel related costs.
Speaker Change: Before turning back over to John for his closing remarks, I want to spend some time talking about our balance sheet and our liquidity.
Speaker Change: Related to what will be on Empire.
Ending balance for the third quarter, which may not worthy.
Speaker Change: This progress as of today.
Speaker Change: While we closed the third quarter with cash and cash equivalents of $1 8 million.
Speaker Change: We also had <unk>.
Speaker Change: Net accounts receivable of $6 4 million.
Speaker Change: During the third quarter, we have negotiated with some of our lenders.
Speaker Change: Secondly, extended approximately target $2 6 million of current liabilities into two <unk> hundred 35, we also repaid $2 5 million of bank borrowings at 1 million Humber theory Knox, who.
Speaker Change: Further clean up our balance sheet.
Speaker Change: In addition to the current <unk> with <unk>.
Speaker Change: <unk> Valley and to further strengthen our financial position.
Speaker Change: We are in active discussions with our financial advisor and potential investors to pursue financing and capital raising transactions.
We are preparing for the commercial launch of our <unk> products.
Speaker Change: With this I will turn it back over to John.
John Schlafer: Thanks, Edmund in closing we are thrilled 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 to build the customer foundation for substantial growth based on our <unk> chipset launch we remain on track to launch volume shipments of our <unk> chipsets.
John Schlafer: In the first half of 2025 and are excited about the impact of that for our company and for our stock as we value all of our shareholders. 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're focused on driving.
John Schlafer: Supporting the global transition to <unk> solutions, and delivering strong profitable growth. We are entering a new phase as we transition towards the commercialization of our <unk> technology and help you are with us for the journey. This is truly a great time to be part of DCT I will now turn the call back over to the operator, who will assist us in taking your questions.
Speaker Change: Thank you to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
Moment for our first question.
Speaker Change: Okay.
Speaker Change: Our first question is going to come from the line of Craig Ellis with B Riley Securities. Your line is open. Please go ahead.
Speaker Change: Yes. Thank you for taking my question and guys congratulations on the strong quarter.
Speaker Change: Quarter.
Speaker Change: John I wanted to start just by understanding some of the dynamics within products, which seem to outperform can you talk a little bit more about the nature of the strength how broad based was that.
Speaker Change: Was the was the program or programs that you are involved in something that was.
John Schlafer: Fulfilled inside of the quarter or is there a benefit from this.
John Schlafer: Program, a program spilling in the fourth quarter or even the first quarter.
Speaker Change: Youre talking about the.
Product sales right.
Speaker Change: Yeah.
Product sales sweatshop were up significantly quarter on quarter, yes.
Speaker Change: So so that was that was comprised of.
Speaker Change: Chip sales and.
Speaker Change: Also platt.
Speaker Change: Platform sale.
Speaker Change: And.
Speaker Change: And.
Speaker Change: The.
Speaker Change: The product sales that we had in the quarter.
Speaker Change: We will continue to see that.
Speaker Change: In future quarters.
Speaker Change: So thats.
Speaker Change: That's a continuing activity.
Speaker Change: And the platform sales will those persist or were those.
Speaker Change: Thank you.
Speaker Change: You recorded in <unk> that are.
Speaker Change: Put customers instead, four five products ramping next year and won't recur in <unk>.
Speaker Change: I would say that that is.
Speaker Change: The platform sales, although we tend to.
Speaker Change: We tend to do that as often as we can they're hard to predict.
Speaker Change: And they tend to.
Speaker Change: So not be.
Speaker Change: Repeating but it is.
Speaker Change: How you characterize it is it is something that will help with future <unk> chip sales in the future.
John Schlafer: Got it and on that note John.
Speaker Change: You expressed confidence in five cheese volume ramp in the <unk>.
Speaker Change: First half of the year can you talk a little bit more about what's happening with some of the things that would proceed.
Speaker Change: Volumes moving up whether it's customer sampling getting production started some of the curtailment things et cetera.
Alright so.
Speaker Change: The the sampling right now will happen in the January timeframe.
Speaker Change: And.
Speaker Change: As soon as that.
Speaker Change: Happens, we'll be we'll be expediting the completion of the certification process and then of course, we will we will go into.
Speaker Change: Manufacturing.
Speaker Change: For sure.
Speaker Change: Volume shipments.
Speaker Change: Also I would say that.
Speaker Change: The previous platforms that we've sold for.
Speaker Change: Florida.
Speaker Change: <unk> sales as well as the recent.
Speaker Change: Recent announcements that we've had.
Speaker Change: With.
Speaker Change: Development activities for <unk>.
Speaker Change: Devices, and so forth will will actually drive.
Drive volumes for those products.
Got it and.
Speaker Change: And so it sounds like just given those activities in the first quarter is it fair to say that the volume shipments would really be occurring more into Q inside the first half or do you think youll actually be shipping in volume in Rev. Racking inside of <unk>.
Speaker Change: We could we could see some in Q1. Thank you right it'll it'll ramp up more and we will see more in.
Speaker Change: Q2.
Speaker Change: Got it and then not to leave you out at mentor I'll just.
Speaker Change: Ask one for you and then go back into the queue.
Speaker Change: We obviously had.
A very nice gross margin quarter.
Speaker Change: In the third quarter.
Speaker Change: It seems that that was due to intra segment mix items in both services.
And products and products.
Speaker Change: Margins side helped by platform sales and any color on what we might expect for the way those dynamics might play out as we look at.
Speaker Change: Either <unk> or <unk>.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Yes.
This is a very good question from that thanks.
Speaker Change: Yeah.
Speaker Change: Gross margin for Q3 actually too.
<unk>.
Speaker Change: Posted gross margin number one.
Speaker Change: Now that mix, including.
Speaker Change: Platform sales that we have.
Speaker Change: So in Q3.
Very nice gross margin.
Speaker Change: Breaking up the whole product gross margin segment for us So we anticipate that that.
Speaker Change: Our long term guidance.
Speaker Change: Our gross margin for products in the high Thirty's.
Two basically.
Speaker Change: Maybe 40% from that sense.
Speaker Change: Eight to 2025.
Speaker Change: When we launch our <unk> product so.
The basic can meet the guidance.
Speaker Change: We have been expecting and discussing from that sense.
Speaker Change: The surface side of the gross margin we expect that.
Speaker Change: Stay relatively the same.
50%.
Speaker Change: Perfect.
Speaker Change: <unk>.
Speaker Change: Yes.
Speaker Change: Wrapping up thanks.
Here, we'll be slowly decreasing.
Speaker Change: Thanks, Yes, the reason for that.
Speaker Change: Okay.
Speaker Change: The project will ramp up fast from that perspective, as a service through relatively maintained.
Speaker Change: Level two of this year so from that sense.
Speaker Change: Not too sure.
Speaker Change: And for your questions.
That really that had been the bottom line is I think if I'm hearing you correctly, yes, but you would expect.
Speaker Change: Gross margin and gross margin.
Speaker Change: Overall to migrate back towards 40%, because five key ramps and as volumes pick up significantly in this mix skewed much more towards products I think that's what you were conveying correct.
Speaker Change: That's correct.
So the fact that we met.
The yield from the <unk> standpoint, and also when we first rolled out our <unk> product, we have to stay competitive in order to gain share. So we don't expect the margin to be.
Speaker Change: Hi.
Speaker Change: First launch of products, but hopefully overtime, but we gained more market stability and share from that sense.
Speaker Change: You would improve over time, we expect the margin maybe improving into 2026.
Speaker Change: Got it thank you.
Thank you and as a reminder to ask a question at this time. Please press star one on your telephone.
Speaker Change: I'm showing no further questions at this time. So this is going to conclude today's question and answer session.
Speaker Change: Thank you for joining us. This concludes our third quarter 2024 conference call. A replay play will be available for a limited time on our website later today.
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