Earnings call transcript: GCT Semiconductor’s Q1 2025 revenue drops sharply

GCT Semiconductor Holdings Inc. reported a significant decline in its Q1 2025 financial performance, with net revenues plummeting by 85% to $500,000. The company’s gross margin also fell substantially, from 60% to 18%. According to InvestingPro data, this continues a concerning trend, with revenue declining 43% over the last twelve months to $9.13 million. The company’s overall Financial Health Score currently stands at WEAK, reflecting ongoing operational challenges. Despite these challenges, GCT is making strategic moves into the 5G market, which it anticipates will drive future growth. Following the earnings announcement, the company’s stock experienced a notable fluctuation, with a 30.95% increase during regular trading hours, closing at $1.68, but falling by 13.63% to $1.90 in aftermarket trading.

Key Takeaways

• GCT’s net revenues dropped by 85% in Q1 2025 compared to the previous year.
• The company is transitioning to the 5G market, expecting higher average selling prices.
• Stock price surged by 30.95% during regular trading but fell by 13.63% in aftermarket.
• Strategic partnerships are being formed to enhance 5G product offerings.

Company Performance

GCT Semiconductor faced a challenging quarter, with a dramatic decrease in net revenues to $500,000 from $3.3 million in the same period last year. The decline is attributed to lower shipments of its 5G platform. However, the company is optimistic about its future, having officially entered the 5G product era and completed significant production milestones for its 5G chipset.

Financial Highlights

• Revenue: $500,000, down from $3.3 million year-over-year
• Gross Margin: 18%, down from 60% year-over-year
• Cash and Cash Equivalents: $1 million
• Net Accounts Receivable: $4.5 million
• Net Inventory: $3.1 million

Market Reaction

GCT Semiconductor’s stock showed significant volatility following the earnings announcement. During regular trading, the stock rose by 30.95%, closing at $1.68. However, in aftermarket trading, the stock price dropped by 13.63% to $1.90. InvestingPro analysis shows the stock has delivered a strong 17.48% return over the past week, despite being down over 71% in the past year. With a beta of 1.24, investors should note the stock’s higher volatility compared to the broader market. This movement reflects investor uncertainty about the company’s short-term challenges and long-term potential in the 5G market.

Outlook & Guidance

GCT anticipates a substantial revenue impact in the latter half of 2025, driven by volume shipments of its 5G chipsets expected in Q3. The company forecasts a significant increase in average selling prices for its 5G products, which are projected to be four times higher than current 4G offerings. GCT is also exploring operational efficiency improvements to support its transition.

Executive Commentary

CEO John Schlafer stated, "We are officially in the end zone," emphasizing the company’s commitment to the 5G market. CFO Edmund Chang highlighted the anticipated increase in selling prices, noting, "We anticipate that the average selling price of our 5G chipset will be approximately four times higher than that of our current 4G offering."

Risks and Challenges

• Continued revenue decline due to slow 5G platform shipments.
• Dependence on successful 5G market transition for future growth.
• Potential supply chain disruptions affecting 5G production.
• Competitive pressure from established 5G technology providers.
• Market volatility impacting investor confidence.

Q&A

During the earnings call, analysts inquired about the potential of the new partnership with Orbit North America, which is expected to be multi-product and multi-regional. Executives assured that the supply chain is prepared for 5G volume production and that operational expenses will remain controlled during the 5G ramp-up.

Full transcript - GCT Semiconductor Holding Inc (GCTS) Q1 2025:

Conference Operator, GCT Semiconductor Holdings Inc.: Good afternoon. Thank you for attending GCT Semiconductor Holdings Inc. First Quarter twenty twenty five 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 Edmund Chang, CFO, to discuss the first quarter twenty twenty five results.

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 Q that will be filed today, which provide 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 Schlafer.

John Schlafer, Chief Executive Officer, GCT Semiconductor Holdings Inc.: Thank you and thanks to everyone for joining us today for our first quarter twenty twenty five earnings call. I’ll focus my remarks on our five gs chipset and important partnership updates within our 2025 GCT year of five gs program. And Edmund, our CFO will provide details for our first quarter financial disclosure. And without any further delay, I am pleased to say that we’ve officially begun the five gs product era here at GCT. And as I use the one yard line analogy during last quarter’s earnings call, we’re officially in the end zone.

As a result of our focused efforts under the 2025 GCT year of five gs program, we are currently evaluating our finalized five gs chipset in our own lab facilities. This is following successful acceleration and completion of our production milestones through early May. This marks a monumental milestone for us here at GCT, a binary catalyst as we are moving directly to five gs customer sampling starting this month, which will then lead to volume shipments in Q3 and beyond. And within our 2025 GCT year of five gs program, we have also further accelerated and prioritized our partnership and customer programs that are focused on five gs. On our last earnings call, I already mentioned that we have taken action to accelerate the ongoing announced and unannounced programs with world renowned partners like Globalstar, European Tier one telco supplier, Aramco Digital, Samsung and Kyocera.

Additionally, we have recently signed a letter of intent with Orbit North America to jointly develop and supply a mobile hotspot and FWA gateway utilizing a Verizon certified five gs module based on our new five gs chipset. The LOI outlines the framework for collaboration between the parties, including terms related to volume purchase for supply to Verizon and other operators. Before I turn the microphone over to Edmund, I do want to stress again how pivotal this moment is for us here at GCT. The five gs chipset is now becoming available and is finding its way into our customers’ products. And while we expect certain use cases to continue to benefit from our advanced four gs solutions, we are fully focused on driving sales for our five gs chipsets.

And I expect Edmund to have a very different story to tell regarding our income statement in our future earnings calls. And with that, Edmund.

Edmund Chang, Chief Financial Officer, GCT Semiconductor Holdings Inc.: Thank you, John. As John said, we are incredibly excited about the impact five gs will have to our company and specifically to our income statement and balance sheet, starting from the second half of the year. In the meantime, and until we see that impact coming through, I want to remind all listeners that we are reporting the transitional four gs results. They are not in all representative of what we are expecting in the second half of the year. Once five gs chipset sales are occurring, we anticipate that the average selling price of our five gs chipset will be approximately four times higher than that of our current four gs offering.

As we focus on sampling and launching our five gs chipset, we have fully aligned our internal resources with this strategic priority, including our marketing and sales team’s focus on new business development activities in building the potential pipeline. Turning now to our first quarter twenty twenty five financial results. Further details can be found in the 10 Q that will be on file with the SEC. Net revenues decreased by $2,800,000 or 85% from $3,300,000 for the three months ended 03/31/2024, to $500,000 for the three months ended 03/31/2025. The reduction was primarily attributable to a decrease of 2,300,000 in product sales and a decrease of $500,000 in service revenue.

The decrease was due to low five gs platform shipments in the first fiscal quarter of twenty twenty five, as compared to two five gs platform shipments in the first fiscal quarter of twenty twenty four, which accounts for the most of the differences. Again, when modeling our expected upcoming five gs revenue, we will be benefited from both higher global market demand and market prices in the five gs chip market. Cost of net revenues decreased by $900,000 or 69% from $1,300,000 for the three months ended 03/31/2024 to $2,400,000 for the three months ended 03/31/2025. This decrease in the cost of net revenues was driven primarily by the reduction of our product sales and involvement in service projects. Once our five gs chipsets have been launched, we expect new service revenues in terms of NRE in assisting our customers in their product development projects in using our five gs chipsets.

Our gross margin decreased to 18 for the three months ended 03/31/2025, from 60% for the three months ended 03/31/2024. The gross margin for our service business was at 50.4%. This gross margin for our product sales was at negative 120, mainly due to the low volume of product sales, which cannot cover the overhead costs. Our gross margin is distorted by the low volume of product sales, which makes it less indicative of the underlying profitability of our future product sales, especially for the upcoming five gs product. Nevertheless, we are actively exploring measures to improve operational efficiencies and look forward to restoring product sales and service project volume with five gs.

Research and development expenses decreased by 1,400,000.0 or 26% from $5,500,000 for the three months ended 03/31/2024, to $4,100,000 for the three months ended 03/31/2025. This decrease was primarily due to $1,300,000 related to project specific intellectual property expenses incurred during the first fiscal quarter of twenty twenty four. Sales and marketing expenses increased by $100,000 or 12% from $1,000,000 for the three months ended 03/31/2024 to $1,100,000 for the three months ended 03/31/2025. This increase was primarily due to personnel related and other costs. General and administrative expenses decreased by 200,000.0 or 8% from $2,800,000 for the three months ended 03/31/2024 to $2,600,000 for the three months ended 03/31/2025.

This decrease was primarily due to a $700,000 reduction in stock based compensation related to the vesting of performance based funded shares in the first fiscal quarter of twenty twenty four, partially offset by a $300,000 increase in business liability insurance premiums and $200,000 increase in personnel related costs driven by our transition to public company operations during the first fiscal quarter of twenty twenty four. We’ve closed the quarter with cash and cash equivalents of 1,000,000 We also had net accounts receivable of $4,500,000 and net inventory of $3,100,000 As we advance towards securing external financing, our recently filed shelf registrations providing up to $200,000,000 in capacity, including a $75,000,000 at the market facility, which will significantly enhance the company’s financial flexibility and expand our available funding options. With this, I will turn it back over to John.

John Schlafer, Chief Executive Officer, GCT Semiconductor Holdings Inc.: Thanks, Edmund. In closing, we are thrilled about what is ahead of us. With the announcement of our five gs chipset availability under our twenty twenty five GCT year five gs program, we are in the final stages of 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 our company and for our stock as we value all of our shareholders. Finally, 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 are 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. I will now turn the call back over to the operator who will assist us in taking your questions.

Conference Operator, GCT Semiconductor Holdings Inc.: Our first question comes from Craig Ellis with B. Riley Securities.

Craig Ellis, Analyst, B. Riley Securities: Thanks, team, for taking the questions, and congratulations on continued five gs progress. John, I wanted to start just by following up on one of the newer announcements that the company’s made, the announcement with Orbit on the five gs mobile hotspot for Verizon. Can you just talk a little bit more about how that relationship will proceed going forward and what you would expect for the second half of ’twenty five and ’twenty six, even at a high level for what might be possible in terms of what you’d be able to do with that partnership and what you’d be able to ship?

John Schlafer, Chief Executive Officer, GCT Semiconductor Holdings Inc.: Yes. Thanks, Craig. Yes. So we’re excited about the Orbit relationship. As you know, they’re a major supplier into Verizon right now in the mid tier space.

And we expect to be a part of that actually going forward. So the plan and not just for Verizon, but they have they’re working with other operators around the world. So I think that the we’ll be sampling them as part of the activities for this quarter. And then they’ll go through their normal process of implementing that in their device. We’ll be working with them.

I think we mentioned in our announcement that this will be module based. So we’ll go through the process of actually providing them a module that we’ll work on together. And also we’ll be working on hotspot and FWA gateway together for multiple operators. So we’re going to have to take this a step at a time. I don’t want to get over our skis here, but we’re very excited about this as we go into the second half of the year and 2026.

Craig Ellis, Analyst, B. Riley Securities: Yeah, so the bottom line though is that this is something that’s multi product and looks like it can be multi region for you. So without specifying specific volume numbers, there’s a number of angles that the company can gauge with the product set with this one partner.

Edmund Chang, Chief Financial Officer, GCT Semiconductor Holdings Inc.: I’m sorry. Moving on and oh,

Craig Ellis, Analyst, B. Riley Securities: well, that was just my reflection back, John.

Edmund Chang, Chief Financial Officer, GCT Semiconductor Holdings Inc.: Yeah, yeah.

John Schlafer, Chief Executive Officer, GCT Semiconductor Holdings Inc.: I agree with you. Yeah. So

Craig Ellis, Analyst, B. Riley Securities: moving on, can you talk a little bit more about the sampling that commences in the second half of this quarter for five gs? It sounds like Orbit may be one of the entities, but any color there? And then related to that, I think the company conveyed that we’ll be moving into commercial shipments in the second half of the year. Can you talk a little bit more about the breadth of that activity and what we can expect?

John Schlafer, Chief Executive Officer, GCT Semiconductor Holdings Inc.: Yes. So we’ve been talking about our work with our alpha customers for a long time and we’ve done announcements about that about those engagements over the last six months. So there’s six customers that are in particular that will be sampling first as actually primary activities. And very shortly after that and even in this quarter, there’ll be others that we’ll be sampling. And then again, one is going to have their own product focus.

Each one is going to have their own schedule. And so we’ll be working with as many as we can as fast as we can to move forward into the second half and then beyond that.

Craig Ellis, Analyst, B. Riley Securities: Yep, sounds good. And then two more for me. First one’s probably more for you, the second one probably for Edmund. As you get ready for the volume ramp in the second half of the year, obviously you’ve had a supply chain in place for some time, but now we’re turning the knobs a little bit as we get ready for five gs. How are you feeling about your supply chain’s capability to move into volume production around the corner?

John Schlafer, Chief Executive Officer, GCT Semiconductor Holdings Inc.: I think we’ve I mean, this is we’ve been doing this with four gs for a long time now. So this is just a different product on the same supply line and the same relationship. So I think that our supply partners are ready for this and are very excited about this as well.

Craig Ellis, Analyst, B. Riley Securities: Great. And then lastly, Edmund, for you. A couple of color as you went through the income statement, with some of the specifics and OpEx. As we think about the general arc of things, as we move into more intensive sampling and then volume shipments, Anything that we should have our eye on with the OpEx line items in 2Q or the second half of the year? Thanks, team.

Edmund Chang, Chief Financial Officer, GCT Semiconductor Holdings Inc.: Hi, Craig. Thank you for the question. As we look into the second half of the year and looking at our OpEx line, we don’t expect our OpEx will run up the same type of scale as what our revenue will be in the second half. So at this point of time, most of the major investment in R and D has been done in our five gs chip. So we will be running the cost as we usually will do from that sense, and we have a very tight control process, cost control process in place.

Craig Ellis, Analyst, B. Riley Securities: Got it, thank you.

Conference Operator, GCT Semiconductor Holdings Inc.: Please press 11 on your touchtone phone. I’m showing no further questions in queue at this time. That will conclude today’s question and answer session. Thank you for joining us. That concludes our first quarter twenty twenty five conference call.

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