GCT Semiconductor Holding, Inc.

Good afternoon. Thank you for attending GCT Semiconductor Holding, Inc.' 's 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. Joining the call today are John Schlafer, GCT's chief executive officer, and Edmonton CFO to discuss our third quarter results. During the 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 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 details about the risk 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 John Schlafer.

Thank you, and thanks to everyone for joining us today for our third quarter 2024 earnings call. As 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. 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 communication technologies. We have successfully developed and supplied communication semiconductor 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, wireless modems, and industrial machine-to-machine applications, which includes a very broad set of use cases like security, tracking, metering, and satellite applications. Our focus on fourth-generation chipsets, or 4G LTE, has paved the way for even more advanced technology, specifically 5G chipsets, which we are now close to finalizing the development of. The segment of the market we are targeting nearly all the other wireless devices besides smartphones is not only very large and diverse, but also benefits from several positive tailwinds 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. As I have mentioned back then too, the industry is currently in the midst of a planned transition from sales of 4G chipsets to 5G for many use cases. But even as we focus on launching our 5G product and servicing that demand, we anticipate continuous demand for both our existing and new 4G 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 5G. With the additional expected initial deliveries of our 5G chipsets, we are looking forward to offering high demand, high quality products to 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 5G chipsets in the first half of 2025, as previously 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 communications supplier for development collaborations on fixed wireless access devices using GCT's 5G chipsets. This MOU marks a continuation of an existing key customer relationship now moving to include 5G. We expect the launch of FWA devices related to this activity to commence in the second half of 2025 and look forward to reporting further positive updates on this in the future. The announcements we have made for this earnings call and last are a clear testimonial to our progress in transitioning to 5G and showcasing the momentum we are gaining in building the customer foundation for upcoming growth. With that, I'll turn it over to Edmund to discuss our financial results.

Thank you, John. Turning now to our third quarter financial results. Further details on which can be found in the thank you that will be on file with the SEC. Net revenues decreased by 1.9 million or 42% to 2.6 million for the three months ended September 30th, 2024 from 4.5 million for the three months ended September 30th, 2023. The decrease was primarily attributable to a decrease of 2.3 million in product sales, partially offset by an increase of 0.4 million in service revenue. However, sequentially when compared to Q2, net revenue has risen by 77.8% or $1.1 million. Cost of net revenues decreased by $3 million or 75% to $1 million for the three months ended September 30, 2024. from $3.9 million for the three months ended September 30th, 2023. Product costs decreased by $3.3 million from $4 million for the three months ended September 30th, 2023 to $0.7 million for the three months ended September 30th, 2024. The decrease was primarily driven by a decrease in direct product costs as we sold fewer units. Service costs were $0.3 million for the three months ended September 30th, 2024. Service costs were nominal for the three months ended September 30th, 2023. Gross margin increased to 62% for the three months end of September 30th, 2024, from 12% for the three months end of September 30th, 2023, primarily due to changes in the product mix. Specifically, we increased the share of reference platform sales and generated higher margins from our service offerings during the third fiscal quarter of 2024. In addition, this reference platform sales will help our customers accelerate the integration and adoption of our 5G chip in their respective product development activities. once our 5G chips are launched. Research and development expenses increased by $1.8 million, or 78%, from $2.4 million for the three months end of September 30, 2023, to $4.2 million for the three months end of September 30, 2024. 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 5G chip products. Sales and marketing expenses increased by $0.2 million or 28% from $0.7 million for the three months end of September 30th, 2023 to $0.9 million for the three months end of December 30th, 2024. This increase was primarily due to personnel related costs. General and administrative expenses increased by $0.9 million, or 66% from $1.4 million for the three months ended September 30, 2023, to $2.4 million for the three months ended September 30, 2024. The change was primarily due to a $0.4 million increase in stock-based compensation related to RSUs, a $0.4 million increase in professional and other expenses related to the private company operations, and a $0.1 million increase in personnel-related costs. Before turning back over to John for his closing remarks, I want to spend some time talking about our balance sheet and our liquidity, related to what will be on file for our ending balance for the third quarter, which might not fully mirror this progress as of today. While we closed the third quarter with cash and cash equivalents of 1.8 million, we also had net accounts receivable of 6.4 million. During the third quarter, we have negotiated with some of our lenders and successfully extended approximately $22.6 million of current liabilities into 2025. We also repaid $2.5 million of bank borrowings and $1 million of promissory notes to further clean up our balance sheet. In addition to the current ELOC, with b rally and to further strengthen our financial position we are in active discussions with our financial advisors and potential investors to pursue financing and capital raising transactions as we are preparing for the commercial launch of our 5g products with this i will turn it back over to john thanks edmund