GCT Semiconductor Q4 2024 Earnings Call Transcript

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March 25, 2025

There are 5 speakers on the call.

Operator

Good afternoon. Thank you for attending GCT Semiconductor Holdings Inc. Fourth Quarter and Full Year twenty twenty four 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. Joining the call today are John Schlaefer, GCT's Chief Executive Officer and Ed Maching, CFO, to discuss our fourth quarter and full year results.

Operator

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 provision for forward looking statements that can be found at the end of our earnings press release and also in our Form 10 ks 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 forward looking statement. I will now turn the call over to John Schlaefer. Sir, you may begin.

Speaker 1

Thank you, and thanks to everyone for joining us today for our fourth quarter and full year twenty twenty four earnings call. In my remarks, I will provide a quick summary of our Q4 financial statements, and Edmund, our CFO, will provide details for our full year 2024 financial disclosure. But mainly and despite reviewing 2024 financials today, we are mostly focused on what will impact our financial goals going forward and would encourage investors to do so as well. While our 2024 financials were shaped by transitional four gs sales and five gs service revenues, which we expect to remain as revenue sources, we expect the second half of twenty twenty five and onward to be strongly shaped by five gs chipset sales. We think of this as almost a binary event for the company.

Speaker 1

Anyway, more about that in just a minute. Let's begin first with Q4 financials. As mentioned before in our last update, the fourth quarter was another transitional quarter for us on the way to commercial rollout of our five gs chipsets. With that as a background, our net revenues were $1,800,000 which contributes to a gross margin of 32.3%. While our total operating expenses were $7,900,000 we are happy to report that we were able to reduce our net loss to $5,000,000 which is a 51% reduction compared to Q4 twenty twenty three.

Speaker 1

We are very pleased with this as we strive to position GCT for profitable growth in the future coupled with the expectation of the upcoming five gs sales ramp, which brings me finally to the most exciting part, five gs. We are happy to report that we are now at the one yard line when it comes to the sampling of our five gs chipsets. To celebrate this upcoming milestone, we've introduced the 2025 GCT Year of five gs program to streamline and focus our efforts on development and mass production of five gs chipsets. Under the program, we will not only commence the availability of the chipset within the first half of twenty twenty five as previously guided, but also take action to accelerate the ongoing announced and unannounced programs with world renowned partners. Globalstar, the European Tier one telco supplier, Aramco Digital, Samsung and Kyocera to list just a few of the household names that we have previously disclosed.

Speaker 1

And with five gs use cases and overall market volume now significantly higher than that of four gs and chipset prices at several times that of four gs, it is easy to see why the launch of our five gs chipset will be transformative for the company and even the industry as we hear from our valued research analysts. We're now doubling down on our efforts in 2025 as we will finally be in the position to benefit from the ever growing demand for high speed, ubiquitous wireless data communications with the upcoming release and shipment of our five gs chipsets. Additionally, under the program and as mentioned earlier, we plan to further align the company's balance sheet with the expected upcoming ramp in sales. Already now, we have made progress in the reduction of debt and extending debt maturities. Edmund will have more to say about that in a minute.

Speaker 1

But before I turn the microphone over to him, I will want to stress again how pivotal this moment is for us here at GCT. Once the five gs chipset is available and finds its way into our customers' products, we expect to have a very different conversation in our future earnings calls. And with that, Edmund?

Speaker 2

Thank you, John. As John said, we have been managing our capital allocation and cash flow tightly with priorities given to funding the development of the five gs chipset and further strengthening our balance sheet. We managed to reduce our debt by close to 50% during 2024. With that position as better for our future profitable growth. We also remain in advanced discussion with potential investors to fill some of our near term capital funding needs that aim at supporting us to bridge to the second half of the year.

Speaker 2

Lastly, when comparing to our full year results, please keep in mind that some of the line items are influenced by our status now as a public company versus previously when we were a private company. Turning now to our full year 2024 financial results, further details can be found in the 10 K that will be on file with the SEC. Net revenues decreased by $6,900,000 or 43% from $16,000,000 for the year ended 12/31/2023 to $9,100,000 for the year ended 12/31/2024. The decrease was due to a decrease of $6,200,000 in product sales and a slightly decrease of RMB0.7 million in service revenue. The decrease in product sales was primarily driven by a reduction of RMB5 million of LTE product sales and a decrease of $1,200,000 in LTE platform sales as we transition to five gs.

Speaker 2

Again, when modeling our expected upcoming five gs revenue, we will be benefited drastically in higher five gs chipset market prices. Cost of net revenues decreased by CNY5.2 million or 56% from RMB9.3 million for the year ended 12/31/2023 to RMB4.1 million for the year ended 12/31/2024, driven primarily by the reduction of our product sales. Our gross margins increased to 56% for the year ended 12/31/2024, compared to 42% for the year ended 12/31/2023, primarily due to changes in the product and revenue offerings mix. Specifically, we increased the share of reference platform sales and generated higher margins from our service offerings during the year ended 12/31/2024. In addition, this reference platform sales will help our customers accelerate the integration and adoption of our five gs chips in their respective product development activities once our five gs chips are launched.

Speaker 2

Research and development expenses increased by $6,600,000 or 62% from $10,700,000 for the year ended 12/31/2023 to RMB 17,300,000.0 for the year ended 12/31/2024, primarily in connection with our development project. This increase reflects our increased five gs development program activity during 2024 and was primarily due to a $4,100,000 increase in research and development expenses, mainly related to professional services provided by Alfa. Related to the design of five gs chip products, a $2,900,000 increase in development expenses related to our new five gs chip products, a $500,000 increase in stock based compensation expense due to issuance and vesting of share based awards, and a CNY0.4 million increase in allocated overhead, partially offset by a CNY0.2 million decrease in preproduction costs and a CNY0.2 million reduction in support and maintenance. Sales and marketing expenses increased by C0.7 million dollars or 23% from C3.2 million dollars for the year ended 12/31/2023 to RMB 3,900,000.0 for the year ended 12/31/2024. This change was primarily due to a RMB 200,000.0 increase in temporary services and a $100,000 increase in personnel related costs, allocations, travel and stock based compensation.

Speaker 2

General and administrative expenses increased by $3,400,000 dollars or 46% from $7,400,000 for the year ended 12/31/2023 to $10,800,000 for the year ended 12/31/2024. The change was primarily due to a RMB2 million increase in stock based compensation related to the issuance and vesting of stock based awards, a CNY0.9 million increase in professional expenses related to the public company operations, a CNY0.7 million increase in temporary services and a C0.5 million dollars increase in personnel costs, partially offset by a C0.5 million dollars decrease in allocations and a C0.4 million dollars decrease in other expenses. We've closed the year with cash and cash equivalent of RMB 1,400,000.0. We also had net accounts receivable of RMB 5,700,000.0 and net inventory of RMB 3,000,000, which we expect to sell in the coming quarters. In 2024, we managed to reduce our debt from RMB 79,900,000.0 at the beginning of the year to RMB 42,600,000.0 at the end of twenty twenty four.

Speaker 2

With the support of our creditors, we are able to roll over the remaining debt from 2024 to 2025, which helps to align maturity date better with our expected ramp of sales in five gs chipset. In addition to the current e log with B. Riley and to further strengthen our financial position, we are in advanced discussion with potential investors to fill some of our near term capital funding needs that will help us to bridge to the second half of the year. With this, I will turn it back over to John.

Speaker 1

Thanks, Edmund. In closing, we are thrilled about what is ahead of us With the announcement of our 2025 GCT year of five gs program, we are putting the product, customer and financial building blocks in place for substantial growth based on our five gs chipset launch and are excited about the impact of that for the 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 innovation, supporting the global transition to five gs solutions and delivering strong profitable growth. We are entering a new phase here at GCT and are thrilled to have you with us.

Speaker 1

I will now turn the call back over to the operator who will assist us in taking your questions.

Operator

Thank Our first question comes from the line of Craig Ellis with B. Riley Securities. Your line is open.

Speaker 3

Yes. Thanks for taking the question guys. I just want to start with a clarification on the fourth quarter of twenty twenty four before talking about five gs potential in 2025. Edmund, can you help us with a breakout even if more qualitative than quantitative on product revenues, products versus platform sales given the strength of platform sales in the prior quarter? And then any indication on the mix of services in that quarter?

Speaker 4

Yes. Craig, in Q4, we do not have any platform sales. So all the $660,000 in revenue for products primarily coming from our chip sales in our four gs LTE chips.

Speaker 3

Got it. And then guys looking ahead to 2025, you talked about your enthusiasm for five gs's ramp. Would love to get more color on how you see things playing out. You've got a big partnership with Ramco Digital. Do you expect that to contribute?

Speaker 3

And what does that ramp sine wave look like? And then you announced other partnerships Kyocera, Globalstar, how do we think about the potential contribution from those partnerships or other partnerships that you may be unable to press release at this time? Thank you.

Speaker 1

Yes. Thanks for the question, Craig. So we have a number of Valpo customers that we've been working with. So we will be supporting them and you've named you've named them already. In the Ramco situations, it's a little further out as they're working on their infrastructure right now.

Speaker 1

So we would expect that to be probably more of a 2026 thing for five gs. But in the 2025 timeframe, it will be the partners that we've already talked about initially, launching FWA products, mobile hotspot, as well as the conversion of existing or actually previous four gs customers also converting to five gs and continuing with their product launches.

Speaker 3

Got it. And then John, one more for you before I switch to Edmond with a follow-up on the Aramco Digital related ramp point. I think you've said in the past that you'd expect four gs revenues to persist for numerous years as five gs ramps. And one of the messages today is that we're going to be doubling down on our five gs ramp. The question, do you still have that same multi year long tail four gs revenue ramp expectation?

Speaker 3

And if so, how do we expect that contour to lift this year?

Speaker 1

Yes. So we do expect four gs will continue. And like we've said before, it's really not a large contributor to our growth, but it will be steady revenue source for us through 2025 and 2026. And I think as we've pointed out before, we have one additional product that we'll be launching that is the 7,243 SL that will be supporting, you know, industrial application, satellite application. I think we had an announcement with Globalstar in the last quarter.

Speaker 1

So that product has a lot of interest for satellite applications. And so we'll continue to see our legacy four gs products as well as that new four gs products into the 2026 and beyond.

Speaker 3

Thank you. So clearly, not only do you have five gs product momentum going, but you remain active with four gs. Edmond, I'll switch it over to you. So very good progress on cash burn in the quarter down to $5,000,000 The question is, as you look ahead and I know you don't provide quantitative guidance for the first quarter, but can you provide some color on how you'd expect cash burn to perform and if there was any other color on other dynamics in the first quarter even if qualitative that would be helpful?

Speaker 4

Yes. And very good question, Clay. If you look into Q4 versus our Q3 year to date last year, you can tell that in Q4, we managed our cash burn really, really, I would say, tightly from that sense and primarily focusing on allocating resources to the five gs chip development and also focusing on our debt repayment from that sense. If you're looking at Q4 just for the quarter alone, you're looking at the changes in operating assets and liabilities, including operating activities. There is a net cash burn for the quarter about $2,300,000 So we expect this to be continued in maybe very similar level in Q1 this year and until probably Q2 when we see a slight shipment of samples of our five gs chips and we can see the ramp up in second half of twenty twenty five this year.

Speaker 3

Got it. And then the question that's more longer term, I think we've always looked at the potential for the company to be adjusted EBITDA breakeven at around $25,000,000 in sales. Given the progress you're making on cash burn, is that still the right number or you structurally lowered that number and given the business potential to get to an adjusted EBITDA positive number at something lower than mid-20s million revenue? Thank you.

Speaker 4

That would still be the number that we are modeling at this point of time, especially with the gross margin target that we are looking at. It seems to be that remains to be the same.

Speaker 3

Got it. Thanks for the help guys.

Operator

Thank you. I'm showing no further questions in the queue. Thank you for joining us and that concludes our fourth quarter and full year '20 '20 '4 conference call. A replay will be available for a limited time on our website later today. You may now disconnect.

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