Prepared remarks
Good afternoon. Thank you for attending GCT Semiconductor Holdings Inc. Second Quarter 2020 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 Brian Schlaefer, GCT's Chief Executive Officer, and Fong Ting Cheng, Chief Financial Officer, to discuss our second quarter 2020 results. During the 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-Q that will be filed today, which provide further detail about the risks related to our business. Additionally, as required by law, we undertake no obligation to update any forward-looking statements. Our call and earnings release include presentation of non-GAAP financial measures. We use non-GAAP measures because we believe they provide useful information about our operating performance that should be considered by investors in conjunction with the GAAP measures. A reconciliation of these non-GAAP measures to comparable GAAP measures is included in our earnings release. I would now like to turn the conference over to John Brian Schlaefer. Please, sir, go ahead.
Thank you, and thanks to everyone for joining us today for our second quarter 2020 earnings call. I will begin by discussing the operational progress we have made during the second quarter and provide an update on where we stand in the commercialization of our 5G platform. Following my remarks, our Chief Financial Officer, Fong Ting Cheng, will review our second quarter financial results in more detail. When we spoke with you last quarter, we highlighted that 2026 would be a year of continued commercialization as our customers progress from development and integration into early deployments of our 5G chipset. Progression has continued, and the second quarter demonstrates the importance of working closely with customers as they advance through their respective commercialization milestones. While the broader macro environment of several of our customers has influenced the timing of certain deployment schedules, we have not seen any change in the level of customer engagement or the long-term demand for our technology. So rather than viewing the second quarter through the lens of financial performance, we believe it is more meaningful to view it as another important step forward in building a diversified pipeline for the anticipated 5G commercialization ramp. One of our priorities entering 2026 was to broaden the opportunity at hand beyond any single customer, application, or end market. Today, we believe we have made meaningful progress toward that objective. Our 5G pipeline now spans three strategic growth pillars: terrestrial broadband, satellite and non-terrestrial connectivity, and industrial IoT and specialized networking applications. We believe this diversification strengthens the long-term opportunity for GCT, while reducing our dependence on any individual customer deployment. Beginning with terrestrial broadband, this year we have advanced multiple FWA and CPE programs with carrier, OEM, and ODM partners. Engineering activities, product integration, and certification efforts progressed across these programs. While several customer deployment schedules shifted modestly, these initiatives are moving forward, and we are encouraged by the progress across our partner ecosystem. As operators invest in next generation broadband infrastructure, we believe our technology is well positioned to support these deployments and participate in the long-term growth of this market. Next, within satellite and non-terrestrial connectivity, we continue expanding our engagement with partners developing direct-to-device and hybrid satellite-cellular solutions. We believe this is one of the most compelling long-term opportunities for our technology as terrestrial and satellite networks increasingly converge. Throughout the quarter, we advanced development and certification activities with several partners and remain confident in the role our modem technology can play in enabling seamless connectivity across multiple network environments. Our third strategic growth pillar is IoT and specialized networking applications, where we are expanding our presence across industrial positioning, aviation, and defense-related markets. Subsequent to the quarter end, we signed a new customer supporting UAV and defense-related connectivity. While confidentiality provisions prevent us from naming that customer today, we believe this relationship further validates the flexibility and scalability of our platform while extending our reach into another attractive vertical. These efforts are translating into measurable progress as customers advance through their respective commercialization phases. During the second quarter, we shipped more than 5.1 thousand 5G chipsets, representing approximately 71% sequential growth compared to the first quarter. This growth reflects increasing customer engagement across our targeted markets, as programs progress through development, certification, and early deployment phases. While the timing of our individual customer ramps can vary, we believe the momentum behind our platform and growing adoption of our technology provides a strong foundation as we continue scaling 5G chipset commercialization. Across each of these markets, the common theme remains the same: customer engagement continues to increase, our pipeline continues to broaden, and the underlying demand environment remains healthy. The primary variable today is deployment timing rather than customer interest. As customers complete certification activities and finalize deployment schedules, the timing of commercial production may shift modestly from quarter to quarter, but we remain confident in the long-term opportunity ahead. Our focus continues to be on execution. We are investing in our manufacturing readiness, strengthening our supply chain, supporting customer deployments, and ensuring we are able to scale production as commercialization accelerates. While there will inevitably be quarter-to-quarter variability as customers complete their deployment plans, we believe the work we are doing today positions GCT for sustained long-term growth. Overall, we believe the second quarter represents another meaningful step in our transition from development to commercialization. The foundations we have built across our technology, customer relationships, and strategic partnerships continue to strengthen, and we are excited about the opportunity ahead. With that, I will turn the call over to Fong Ting Cheng to discuss our second quarter results.
Thank you, John. As John discussed, we view the second quarter as another important step in our commercialization journey. While our reported financial results continue to reflect a business in the early stages of transitioning from development into commercialization, the progress we are making with customers continues to reinforce our confidence in the significant long-term opportunity ahead. One measure of that progress was the continued run-in of 5G chipset shipments, with more than 5.1 thousand units shipped during the second quarter, representing approximately 71% sequential growth. This growth reflects ongoing advancement of customer programs through integration, certification, and early deployment activities. Before reviewing our financial results, I would like to note that starting from this quarter, we are introducing adjusted EBITDA as an additional supplemental performance metric. Because our reported GAAP results include significant noncash fair value adjustments associated with our warrant liability, we believe adjusted EBITDA provides investors with a more meaningful view of the underlying operating performance of the business as we continue investing in commercialization. With that, I will now review our second quarter 2026 financial results. Further details can be found in the 10-Q that will be on file with the SEC. Net revenues decreased by $200 thousand, or 8%, from $1.2 million for the three months ended 06/30/2025 to $1.0 million for the three months ended 06/30/2026. The change was due to a decrease of $200 thousand in service revenues reflecting the shift to 5G service offerings. Product sales were consistent year over year with growth in 5G product sales. Also, our revenue for the first half of this year slightly exceeds the revenue for the full year of 2020. Cost of net revenues increased by $400 thousand, or 49%, from $800 thousand for the three months ended 06/30/2025 to $1.2 million for the three months ended 06/30/2026, largely driven by increased cost from increased unit volume. Our gross margin was 32% for the three months ended 06/30/2025. Our gross margin for the three months ended 06/30/2026 was negative and not representative of our expectations regarding profitability of our products and services in future reporting periods. We expect gross margins to improve as 5G product sales increase and contribute more significantly to overall revenue. Research and development expenses decreased by $200 thousand from $3.5 million for the three months ended 06/30/2025 to $3.3 million for the three months ended 06/30/2026, primarily due to the completion of our 5G chip design project, which resulted in a $500 thousand reduction in professional services as well as a $100 thousand decrease in stock-based compensation expense. This reduction was partially offset by a $400 thousand increase in payroll-related costs. Sales and marketing expenses remained consistent year over year, totaling $1.1 million for the three months ended 06/30/2025 compared to $1.0 million for the three months ended 06/30/2026. General and administrative expenses decreased by $600 thousand from $3.4 million for the three months ended 06/30/2025 compared to $2.8 million for the three months ended 06/30/2026. The decrease was primarily due to a lower loss resulting from changes in the allowance for credit losses on accounts receivable. Net loss increased by $8.1 million from $13.5 million for the three months ended 06/30/2025 to $20.4 million for the three months ended 06/30/2026. Net loss for Q2 2026 also included $12.3 million in losses from change in the fair value of common stock warrant liabilities, driven by increases in our common stock price and the market price of our publicly traded warrants during the quarter. Adjusted EBITDA loss decreased by $100 thousand from $6.7 million for the three months ended 06/30/2025 to $6.6 million for the three months ended 06/30/2026. While we have not previously reported adjusted EBITDA, we see our stabilized performance here as an important indicator. Shifting to liquidity, we finished the quarter with cash and cash equivalents of $30.2 million. With this improved liquidity, we have the financial flexibility and resources to support the commercial ramp of our customer programs. By now, we have already secured the required production capacity for the remainder of 2026 and through the first quarter of 2027 in anticipation of the expected chip demand. We also have access to our at-the-market equity program which we initiated in April 2025. During the quarter, we amended the agreement to increase the maximum aggregated gross proceeds available under the program from $75 million to $120 million while the total shelf registration maximum capacity remains unchanged at $200 million. These resources provide us with flexibility to support and execute our commercialization strategy as we scale production of our 5G chips. We also have net accounts receivable of $1.1 million and net inventory of $1.5 million. Entering the second half of the year, our financial priorities are unchanged. While customer deployment timelines can progress at various paces, we continue to expect second half shipments to exceed first half levels as commercialization progresses. Our focus is on disciplined capital allocation supporting customer production ramps, and converting our growing commercial pipeline into sustainable long-term revenue growth. Although the timing of customer deployments may continue to fluctuate in the near term, we believe the long-term opportunity remains significant, especially in the three strategic pillars which John has mentioned. The investment we have made over the past several years position GCT well for the next phase of growth. With this, I will turn it back to John Brian Schlaefer.
Thanks, Fong. As we have discussed today, the second quarter was another important step in advancing our commercialization strategy. While the pace of customer deployments continues to evolve, the breadth of our customer engagements, technology platform, and strategic partnerships continues to expand, reinforcing our confidence in the long-term opportunity ahead. We continue to expect to ship more and more 5G chipsets with the second half of 2020 surpassing the first half in quantity of chips and customers we are shipping to. We remain focused on execution. We are supporting customer launch preparation, expanding manufacturing readiness, strengthening our strategic partnerships, and positioning the business to convert our growing pipeline into meaningful long-term revenue growth. We believe the foundation we have built over the past several years places GCT in a strong position as 5G chipset commercialization continues to accelerate and we remain excited about the opportunities in front of us. I would like to thank our employees for their continued dedication, our customers and partners for their collaboration, and our shareholders for their continued support and confidence in GCT. I will now turn the call back over to the operator, who will assist us in taking your questions.
Questions and answers
Thank you. To ask a question, please press 1-1 on your telephone and wait for your name to be announced. Please standby while we compile our Q&A roster. Our first question is going to come from the line of Craig Ellis with B. Riley Securities. Your line is open. Please go ahead.
Nice to see the broadening interest in the 5G solutions. I wanted to start just by understanding some of the dynamics that were at play. As we look back at Q2, you mentioned that there were program shifts and a few other headwinds. Is it possible to size how big those were either from a unit standpoint or a revenue standpoint?
Yeah. I would say that all we can really say right now is that they were meaningful in the quarter, and we thought that we would have significantly higher revenue in the quarter. Because of these things, they have pushed out. So they are still very much alive and very much viable. And we believe that we will see this in the later part of the year.
Good for you.
And then, understanding the shipments in a little bit more detail, the company shipped 5.1 thousand units. John, how many customers were those shipments to? Was it up from the two that I think we had in the prior quarter? This was primarily to four customers. And these were across, I would say, four different applications. So almost equally across FWA, aviation, and mobile hotspot with an additional application added for a push-to-talk phone application.
Okay. So it sounds like some of the broadening interest that you talked about was already visible there inside of the second quarter. Alright. So I think one of the things that came up a couple of times in the comments was that the units underpinning customer programs are something you now have line of sight to through the first quarter of 2027. Can you provide some more color on how many customer programs we are seeing through Q1 2027? And I know you expect units to be up in the second half of this calendar year, half on half. Can you help us with what the unit optics look like when we look out to Q1 2027 as well?
Yeah. So we are hesitant to provide that sort of guidance at this point. I think it is reflective of what we have seen so far. It is the front end and the variability on these customer programs, but they are all working feverishly to get their ramps started. We did say that we had visibility, and we were planning the wafer supply so that we have secured that through Q1, and this is in anticipation of what we believe is a relatively large ramp.
Okay. So relatively large. Okay. Good to hear.
Then lastly for me, we have identified terrestrial broadband, satellite and non-terrestrial, and IoT and specialized products as three vectors where there are degrees of customer interest in solution uptake. Can you talk more about where you see the greatest near-term volume interest and maybe contrast that with where you are seeing the greatest breadth of customer interest across those? And can you quantify how many customers you are seeing across all of those and maybe compare it to what you saw at Mobile World Congress where I think you met with over 50 different potential customers? So I would say that right now, the most significant from a revenue uptake standpoint is going to be in terrestrial broadband and satellite and non-terrestrial connectivity. And that is just because these are applications that we are very mature with in the FWA space and the satellite space that we have been working on for a while. I would say in these two spaces, there is a lot of latent activity that has not ramped yet, and these are the two areas that we have high expectations for. In the IoT and specialized network space, that has probably the most breadth in it and actually breadth of applications. As you can imagine for IoT, there are many machine-to-machine applications that are very vast in quantity. But also for IoT, the ASPs are a little lower than they would be in the FWA and satellite space.
Got it. And can you specify or maybe I have missed it, where you see the highest volume between here and Q1 2027 within those three areas? Would it be terrestrial broadband and satellite non-terrestrial?
I would say probably equally in the first two that I mentioned: terrestrial broadband and satellite and non-terrestrial connectivity. The IoT and specialized networks, like I said, has a lot of breadth and a lot of activities that have just begun, and the ASPs there will be a little lower than we are seeing in the other areas.
Okay. With that, I will hop back in the queue. Thank you, John.
Thank you, Craig.
Thank you. And one moment for our next question. Our next question is going to come from the line of Scott Buck with Titan Partners. Your line is open. Please go ahead.
Hi. Good afternoon, guys. Thanks for the time. So I think you said earlier that you have already secured required production capacity for the remainder of 2026 and through the first quarter of 2027. What does that entail in terms of purchase or take-or-pay obligations? And I guess what I really want to know is what your exposure is if the delayed customer launches continue to slip.
Yeah. So it basically means we are talking about wafer capacity, which everybody is talking about right now because the fabs are full. The foundry capacity is being used for memory and so forth. So having wafer capacity committed to us is very important. With regard to a slip, I think we are actually right-sized in our capacity, but if that were to happen, we could slow down our purchases in the future. There is nothing perishable here that is going to happen. Fortunately, on the wafers that we have right now, we can produce all the SKUs that we need for all of these applications. So there is nothing that is custom by application until you get to the very, very end. So I think on the front end, having wafer capacity secured really does not have any negative effects from a supply standpoint if things were to push out.
Okay. That is very helpful, John. And then my second question, just on liquidity but more so cash burn. How should we be thinking about quarterly cash burn over the next four to six quarters? And at some point, do you have to spend or burn more in the near term to hit that inflection point on commercialization or should we expect kind of steady burn trends from here until we start to see a real ramp in the top line?
Scott, that is a very good question. At the current moment, there is a very tight supply chain environment from the standpoint that John has alluded to. The foundries are basically full. Their production schedule has been scheduled through the first quarter of next year. In Q2, we actually prepaid all the way to the end of this year for wafer capacity, and that actually in a way increased our cash burn for Q2. If you take a look at it, our Q2 cash burn was affected by $7 million to $7.5 million because of that portion of the supply chain situation. Going forward, we have a six-month rolling type of situation that we would normalize to, and that would not have as severe an impact as in Q2. What we are looking at is that on a quarterly basis we anticipate our cash burn to be between $8 million to $8.5 million per quarter. Now with this tight supply chain situation, we anticipate our cash burn to be between $9 to $9.5 million per quarter. We are managing it from that perspective. As you also alluded to, we can adjust our future payments for the wafers depending on our inventory and our demand situation — we can either ramp up or ramp down depending on inventory and demand, and we can rebalance that including our cash flow as well.
Okay. Perfect. That is very helpful, Fong. I appreciate that. That is all I had, guys. I appreciate the extra time.
Thank you, Scott.
Thank you. And one moment for our next question. Our next question comes from the line of Thompson with Zacks Investment Research. Your line is open. Please go ahead.
Hi. Good afternoon.
Hi, Lisa. We covered a lot, but I still have a few more questions here.
Sure. Okay. Can you just expand a little on the sentence where you said customer restructuring and evolving deployment schedules shifted the timing? Can you describe what happened there?
Yeah. I would say that I do not know if you want to call it macro events, but when you have customers that actually push out by one to two quarters, there is nothing that we can do about that. In some cases, it has to do with their own corporate restructuring or refocus even though their product strategy is unchanged. In some cases, it has to do with things outside their control that actually push out their launch schedule.
Is that having to do with their own supply chain problems?
I would not say they are supply chain problems. Even though each one of them is actually challenged and they have to manage that on their own — they are not immune to that — that is not what this is related to.
Okay. And could you just talk a little bit more about the new customer you signed after the quarter ended? What industry are they in and what are you doing for them?
So I would say that is in the UAV space and has applications across consumer and defense applications. Our device is very flexible and very useful for control, telemetry, and so forth.
Is that in products they already have announced?
They have not announced. No.
And speaking of that, are we ever going to know the name of the satellite communications provider?
We will. We are waiting for their green light. We have NDAs with them that we have to honor, and I would say that as soon as they launch, they will be less sensitive about that. It could be Q4 or it could be Q1 — sooner than you might think.
Okay. Great. Thank you. That is all my questions.
Thank you. Thank you for joining us. This concludes our second quarter 2020 conference call. A replay will be available for a limited time on our website later today. Thank you for joining. You may now disconnect. Everyone, have a great day. Okay. Thank you.