GCT Semiconductor Holding, Inc. Reports First Quarter 2024 Financial Results

SAN JOSE, Calif. — (BUSINESS WIRE) — May 14, 2024 — GCT Semiconductor Holding, Inc. (“GCT” or the “Company”) (NYSE: GCTS), a leading designer and supplier of advanced 5G and 4G semiconductor solutions, today reported financial results for the first quarter ended March 31, 2024.

First Quarter 2024 Financial Summary and Recent Operational Highlights

  • Revenues up by 7% as compared to the same quarter in 2023, to $3.3 million.
  • Income from operations of $7.2 million due to an operating gain of $14.6 million on extinguishment of liability attributable to a termination under the Company’s development agreement with Samsung. This resulted in greater efficiency and cost savings, as GCT has partnered with Alpha Holdings Co., LTD (“Alpha Holdings”) to further progress the Company’s 5G chipset on Samsung’s Foundry. GCT’s products and product features have not changed as a result of these contract changes and the 5G products will still be manufactured at Samsung’s 8nm wafer line.
  • Announced a MOU with Aramco to accelerate the development of the 4G and 5G ecosystem in Saudi Arabia. Next steps for GCT include formalizing GCT’s role for defining and developing the 5G chipsets and related reference platforms that would best meet Aramco’s market needs.
  • GCT common stock commenced trading on the NYSE on March 27, 2024, following its business combination with Concord Acquisition Corp III (the “Business Combination”).
  • On April 23, 2024, the Company entered into an equity line of credit agreement (“ELOC”) with an affiliate of B. Riley Securities, Inc., pursuant to which the Company may sell shares of common stock, from time to time, up to $50 million, and the ELOC is expected to provide us with additional cash flow to fund our operations.

“We are excited about our operational progress during the first quarter of 2024. While we are still in a transition period from 4G toward 5G sales, our revenues for the quarter nevertheless increased slightly year over year, with our gross margin up as a result of high margin platform sales becoming a large portion of overall revenue,” said John Schlaefer, CEO of GCT. “Additionally, and as a result of successful contract negotiations, our income from operations was positive for the quarter, despite an increase in OpEx related to 5G R&D expense, primarily due to a onetime gain related to the termination in obligations of the Samsung contract.”

“In Q1 2024, we’ve entered into a 5G development agreement with Alpha Holdings as well as with several IP vendors. Work under and related to these agreements will complete and or replace the work originally begun under the Samsung 5G development agreement. This change will allow us to achieve materially identical results, but with significant cost savings to GCT, and it is driven and supported by a change in Samsung business model, whereby GCT interacts directly with Samsung’s qualified design house and related IP vendors.”

“As previously announced, we have signed a MOU with Aramco for a strategic collaboration to help develop the 4G and 5G ecosystem in Saudi Arabia. While we are currently defining the next steps with our partners, the longer-term goal, of course, would be for GCT to be a leading 4G/5G chipset supplier and partner for Aramco and Aramco’s suppliers for the Saudi Arabia market and that of the broader region.”

First Quarter 2024 Financial Results

Net revenues increased by $0.2 million, or 7%, to $3.3 million for the three months ended March 31, 2024 from $3.1 million for the three months ended March 31, 2023. The increase was primarily due to an increase of $3.1 million in LTE platform sales and service revenue, and were partially offset by a reduction in LTE sales and service revenue due to customers transitioning from 4G to 5G and the conclusion of several large service projects during the three months ended March 31, 2023.

Cost of net revenues decreased by $0.2 million, or 15%, to $1.3 million for the three months ended March 31, 2024 from $1.5 million for the three months ended March 31, 2023. These decreases were primarily due to lower sales of LTE units which was partially offset by an increase in sales of the LTE platform.

Gross margin improved to 60% for the three months ended March 31, 2024 from 50% for the three months ended March 31, 2023 primarily due to the increase in higher margin platforms sales. This change in mix was the primary factor that improved our product gross margin to 72% in 2024 from (63)% in 2023. Our service gross margins fell to 26% in 2024 compared to 77% in 2023 due to increased service costs related to new projects.

Research and development expenses increased by $4.6 million, or 512%, to $5.5 million for the three months ended March 31, 2024 from $0.9 million for the three months ended March 31, 2023. This increase was primarily due to a $2.4 million increase in research and development expenses mainly related to services provided by Alpha to design 5G chip products, $1.1 increase in expensed intellectual property (“IP”) costs related to services provided by Alpha to design 5G chip products, $0.7 million increase in expensed IP costs related to our LTE platform for which sales began in the second quarter of 2023 and a $0.4 million increase in R&D personnel costs due to our heavier focus on research and development activities as sales of our LTE platform continued to increase.

Sales and marketing expenses increased by $0.2 million, or 19%, to $1.0 million for the three months ended March 31, 2024 from $0.8 million for the three months ended March 31, 2023. The $0.2 million increase was primarily due to several immaterial increases in various costs for the three months ended March 31, 2024.

General and administrative expenses increased by $1.4 million, or 92%, to $2.8 million for the three months ended March 31, 2024 from $1.5 million for the three months ended March 31, 2023. The increase was primarily due to a $1.0 million increase in stock-based compensation related to the vesting of equity awards after performance conditions were met on the closure of the merger and a $0.2 million increase in other expenses related to debt fees.

Liquidity

The Company’s existing sources of liquidity as of March 31, 2024, include cash and cash equivalents of $16.1 million and net accounts receivable of $5.1 million. Prior to the Business Combination, the Company historically funded operations primarily with issuances of capital stock and the incurrence of debt.

The Company received $17.2 million in cash proceeds from the reverse recapitalization and PIPE Financing, net of transaction costs. On April 23, 2024, Company entered into an ELOC with an affiliate of B. Riley Securities, Inc., pursuant to which the Company may sell shares of common stock, from time to time, up to $50 million, and the ELOC is expected to provide GCT with additional cash flow to fund operations. The Company believes the proceeds received in connection with the Business Combination and other capital resources including the ELOC agreement signed with B. Riley Securities available to the Company, and proceeds from sales of products and services, will be sufficient to fund the Company’s operations for 12 months after the filing date of this Quarterly Report on Form 10-Q. Over the longer term, the Company will need to raise additional capital through debt or equity financing to fund future operations until it generates positive cash flows from profitable operations. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to the Company, or at all.

5G Outlook

The Company is confident with the progress of the 5G chipset development and expects to have its 5G chipsets available for broad sampling to customers during the fourth quarter of 2024, with volume shipments commencing in the first half of 2025.

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