GCT Semiconductor Holding, Inc. (GCTS) Earnings Call Transcript & Summary

Thank you, and I appreciate all of you being with us today for the earnings call covering our third quarter of 2026. I'll start by updating you on our 5G shipments and customer progress made during that third quarter, and then I'll talk about where we stand on commercializing our 5G platform. After I finish, Edmond Cheng, our Chief Financial Officer, will go through the third quarter financial results with you in greater detail. GCT made continued progress in the third quarter. We kept shipping 5G chipsets to a range of customers and applications, brought on a new customer in a completely new application, and successfully widened the total addressable market for our 5G platform. All of our existing customer programs are still moving ahead, and our customer base is bigger today than it was three months ago. Altogether, we shipped over 3,200 5G chipsets in the third quarter, which brings our year-to-date shipments to more than 11,300 units. Most of the third-quarter shipments went toward our new customers' proof-of-concept work, and we're still delivering 5G chipsets to existing customers in both our terrestrial and satellite programs. As we said last quarter, customer deployment timelines have turned into the main variable in our 5G ramp. The question is when, not if. Our customers keep pushing their programs forward, but getting our 5G chipset integrated into their own products is taking longer than they first planned, which has stretched out the path from development to purchase orders. The important point is that we haven't lost a single customer, and we're working closely with each of them as they move through their integration and commercialization timelines. Our 5G pipeline still spans our three strategic growth pillars: terrestrial broadband, satellite, and non-terrestrial connectivity, and IoT and specialized networking applications. This quarter we added a new dimension to that third pillar, and I'll go through each one, starting with terrestrial broadband. Our fixed wireless access and customer premises equipment programs with carrier OEM and ODM partners keep advancing through engineering, integration, and certification. During the quarter, we moved our ongoing terrestrial 5G development and integration work forward with a leading global telecom supplier and delivered additional 5G chipsets in support of that program. As operators keep investing in next-generation broadband infrastructure, we believe our technology is well-positioned to take part in this market's long-term growth. In satellite and non-terrestrial connectivity, we're still making progress on our program with one of the world's largest satellite communications providers as it develops next-generation user equipment for high-bandwidth, high-speed communications across satellite and terrestrial networks using our 5G chipset; we continue to believe that the convergence of satellite and terrestrial networks is among the most compelling long-term opportunities for our technology, and we remain engaged with several partners developing direct-to-device and hybrid satellite-cellular solutions. Our third pillar, IoT and specialized networking applications, is where the third quarter brought the latest development; we added a new 5G customer that is a leader in next-generation terrestrial-based geolocation solutions designed to augment or replace GNSS or GPS. What they're aiming to provide is accurate 3D location, which includes vertical or Z-axis positioning, in locations where positioning that relies on satellites has trouble: indoors, in dense urban canyons, and settings where GPS signals are jammed. We can't name that customer at this point, but we think this relationship confirms how flexible our platform is and takes our 5G chipsets into a market that we weren't serving when the year began. Also, during the quarter, we received a sizable order — 150,000 units — for a private network wireless tablet application. 18% of that shipped in the quarter, and the remainder is slated for Q4 and later shipments. It's for one of our 4G products, and it shows these devices continue to have life. We stay confident about the performance and competitiveness of our 5G platform as well as the demand outlook. Shipment volumes by quarter may stay uneven as individual customers transition from development into production, yet the count of applications and customers adopting our 5G chipsets keeps rising. With that, I'll hand the call to Edmond for our third-quarter results. Edmond.

Thanks, John. As John explained, the shipment volumes we saw in the third quarter were a reflection of customer deployments taking longer than expected, not any diminished potential in our 5G programs. Every one of those programs is still active. The results we reported continue to reflect a business that is in the early stages of commercialization, but they also demonstrate continued revenue growth year over year and a lower operating cost base; with that said, I will now walk through our financial results for the third quarter of 2026. More detail is available in the Form 10-Q that will be on file with the SEC. Net revenue went up $0.6 million, a 149% increase, from $0.4 million in the three months ended September 30, 2025, to $1.1 million in the three months ended September 30, 2026. Product sales climbed $0.4 million, fueled by a $0.2 million gain in 5G product sales plus a $0.2 million gain in 4G product sales. Service revenues increased $0.3 million, mainly because 5G service revenue grew $0.5 million, partly offset by a $0.2 million decline in LTE service revenue as our service portfolio shifted toward 5G service offerings. For the three months ended September 30, 2026, cost of net revenues dropped to $1.2 million, a decline of $0.3 million, or 22%, compared with $1.5 million for the three months ended September 30, 2025. Product costs were down $0.4 million, driven mainly by a $0.7 million decrease in inventory write-downs and a $0.4 million decrease in allocated overhead costs, partly offset by a $0.6 million rise in direct manufacturing and related costs tied to higher 5G product sales, along with a $0.2 million increase in depreciation expense for 5G mask sets. Gross margin was negative in both the three months ended September 30, 2025, and the three months ended September 30, 2026. Even though our gross loss went down from $1.1 million to $0.1 million, the gross margins we recorded in the third quarter of 2026 don't reflect what we anticipate for the profitability of our products and services in future reporting periods. As sales of 5G products rise and make up a larger share of overall revenue, we expect gross margins to improve. Research and development expenses were fairly steady, at $3.3 million in each of the three months ended September 30, 2025, and 2026. Sales and marketing expenses were also fairly steady, at $1 million in each of the three months ended September 30, 2025, and 2026. G&A costs came down by $1 million, going from $3.9 million in the quarter that ended September 30, 2025, to $2.9 million in the quarter ending September 30, 2026. The main driver of that drop was a $1.3 million reduction in stock-based compensation tied to equity-classified common stock warrants that were issued to certain investors during the third quarter of 2025, though this was partly offset by a $0.4 million rise in other G&A expenses, largely from higher bad debt expense. Net loss improved by $6.5 million, moving from $13.8 million in the quarter ended September 30, 2025, to $7.4 million in the quarter ended September 30, 2026. There were a couple of significant items within the net loss for Q3 2026. First, we recorded a $6.2 million gain tied to the change in fair value of common stock warrant liabilities; that came about because the market price of our publicly traded warrants and our common stock declined during the quarter. Second, we had a $5.4 million loss on foreign currency transactions, since the Korean won strengthened against the USD, which impacted remeasurement of our term loans denominated in Korean won. Adjusted EBITDA loss decreased 8.1%, moving from $7 million in the three months ended September 30, 2025 to $6.5 million in the three months ended September 30, 2026. Adjusted EBITDA loss likewise narrowed on a sequential basis, coming in at $6.6 million for the second quarter of 2026, down from the prior level. Turning now to liquidity: we closed Q3 with $17.2 million in cash and cash equivalents, net accounts receivable of $0.5 million, and net inventory of $3.3 million. Throughout the quarter, we continued to manage the balance sheet proactively — pushing out by one year the maturities on $26.5 million of loans — and the IRS abated an excise tax that had previously been assessed. That freed up a $3.6 million liability from other tax payable, plus a refund of roughly $216,000 in payments, interest included. We also reduced net cash used in operating activities, bringing it from $16.6 million in Q2 2026 down to $8.5 million in Q3 2026. Looking ahead to Q4, our financial priorities haven't changed. However, longer timelines for customer integration have pushed back when we expect 5G volumes to build. Our current expectation is that the 5G shipment ramp will now stretch into the first half of 2027, and we're matching our production investment and spending to that schedule. We've locked in the production capacity required through the first half of 2027, and we'll keep aligning wafer commitments with customer demand. As John mentioned, no customers have been lost as a result of these timing shifts. Moving forward, we're focused on keeping a disciplined cost structure, matching production investment to customer demand, and turning a growing commercial pipeline into sustainable long-term revenue growth. Even though when customers roll out may keep shifting over the short term, we see a substantial long-term opportunity spanning the three strategic pillars John outlined, and the investments we have made so far leave GCT strongly placed for the coming stage of growth. With that said, I'll hand things back to John.

Thanks, Edmond. As we discussed earlier today, the third quarter showed just how widely our 5G platform can be put to use — from fixed wireless and satellite connectivity all the way to precise terrestrial positioning — and it also made clear that commercialization follows our customers' own product schedules. The relationships underpinning our pipeline remain intact, and the opportunities ahead of us now span a broader range than they did when the year began. Even so, bringing their products to market is taking our customers longer than we anticipated, and volume shipments are now expected to build during the first half of 2027. The reasons we feel confident about that ramp are unchanged. Programs continue to progress, the technology is ready, and new applications — such as the one added this quarter — keep widening the opportunity. Execution stays our focus. With wafer capacity secured into 2027 and costs managed carefully, we are helping customers through integration and certification and reinforcing our strategic partnerships, so that we can scale production as the launches arrive. We believe the foundation we have built puts GCT in a strong position as 5G chipset commercializations advance, and we continue to be excited about the opportunity ahead. I want to thank our employees for their ongoing dedication, our customers and partners for working alongside us, and our shareholders for their continuing support and confidence in GCT. I will now hand the call back to the operator, who will help us take your questions.

Hi there. Yes, Rebecca here, filling in for Craig Ellis. Someone pointed out that the 5G ramp is now stretching into the first half, since customers are taking longer to integrate. Could you give us some detail on how many of the current 5G programs have transitioned from development into purchase orders, and what milestones we should be watching across the coming several quarters to confirm, you know, to track that the ramp stays on schedule?

Yeah. Thanks. As for the purchase orders we've gotten so far, and we put a number on this, we've shipped 11,300 units so far this year. All of those have been for pre-production samples, that kind of thing, to get our customers ready with their products. One customer has launched, and we announced that back in Q4 of last year. But the rest of these customers are all in the pre-production or sampling phase; and I think we mentioned five customers in that situation. The other four, the launch we're expecting would come in the first half.

Thank you. I appreciate the color. You mentioned sequential revenue growth for the fourth quarter. Could you give us some color on what's driving that growth? Is it mostly the 5G product shipments, or does service revenue play a part?

Yes. That will be 5G revenue. We expect some 4G revenue growth throughout 2027 as well. Service revenue could also be a possibility, since we continue engaging with customers, but we really aren't forecasting that as a major portion of our growth. In fact, it will stay as kind of a steady part of our revenue mix. The growth is all coming from 5G mainly.

Thanks. I’ll rejoin the queue.

Yeah. Thanks.

Hi there. I'd like to hear a bit more about this new customer and geolocation. What's the size of that market, and how far along are they with taking product? Did they move ahead of any of the other existing customers, or where exactly do they stand?

Yes. We said they are at the proof-of-concept stage, and the product shipments for that were tied to it; it will take a little while before we see more product there; but we believe that is a very exciting area, given what that application is used for.

What's happening with them at this point? Are these completely new offerings, or do they belong to another generation? At what stage do they stand with their product?

Pardon me, at what stage do they stand with their, uh? Well, they're going to run their own service too, and beyond that there will in fact be products that make use of that service.

Is it brand new?

Lisa, this one is a 5G product.

Yes, that's a 5G product.

Do they also have a 4G product, or is this something entirely new?

Yes, they do have some 4G prototype work going on.

Okay, that's intriguing. I saw inventory rose roughly $2 million versus the prior quarter. Is that because you're getting ready to ship, or because customers didn't take as much as you expected?