As these platforms are developed and deployed, we expect our technology to play an increasingly important role in supporting global connectivity use cases. Initial 5G chipset shipments to this partner remain on track to begin in the second half of 2026. Our focus continues to revolve around driving 5G chipset commercial traction by strengthening our supply chain and operational infrastructure to support higher 5G chipset volumes as customer demand accelerates. Supported by increasing activity from our lead customers, we continue to expect sequential growth in 5G chipset shipments as commercialization continues to scale throughout the year. Further, the headway achieved thus far reinforces our expectation and aligns with our previous product launches such as our 4G chipsets.
We believe the work we are doing now will ensure that we are positioned to scale efficiently. At the same time, we remain mindful that the timing and pace of deployments can vary as customers finalize their rollout plans. As a result, we are maintaining a disciplined approach with a focus on execution and operational readiness moving through this next phase. Overall, we believe the first quarter represents meaningful progress in our transition from development to commercialization of our 5G chipset. We are encouraged by the momentum we are seeing and believe we are building a strong base for continued growth throughout 2026. And with that, I’ll turn the call over to Edmond to discuss our first quarter results. Edmond?
Fong Cheng: Thank you, John. Over the past several quarters, we have noted that our path to 5G commercialization will not be defined by a single event, but rather consistent strides forward like customer sampling inaugural commercial shipments, real-world customer deployments and production scaling, all of which will ultimately culminate in significant revenue contribution. In the first quarter, we delivered meaningful improvements across both the top and bottom line results, driven by increased 5G chipset shipments and diligent capital deployment. As John mentioned, there is still work to be done, and these financial results are modest in comparison to the opportunity ahead, but we are progressing as expected, and we remain focused on disciplined execution.
Also in supporting the expanding of the addressable TAM to include NTN, we are considering at the appropriate time to break down our product revenue into these 3 verticals: FWA, IoT and NTN. With that context, I will now review our first quarter 2026 financial results. Further details can be found in the 10-Q that will be on file with the SEC. Net revenues increased by $1.4 million or 287% from $0.5 million for the 3 months ended March 31, 2025, to $1.9 million for the 3 months ended March 31, 2026. The change was due to an increase of $0.4 million in product sales and an increase of $1 million in service revenues.
The growth in product sales was led by both 4G and 5G product sales, while the increase in service revenue was driven by 5G operations, partially offset by lower LTE service revenue as we shift our portfolio to 5G. Cost of net revenue increased by $0.6 million or 138% from $0.4 million for the 3 months ended March 31, 2025 to $1 million for the 3 months ended March 31, 2026, primarily due to higher costs driven by increased unit volume.
Our gross margin increased to 49% for the 3 months ended March 31, 2026 from 18% for the 3 months ended March 31, 2025, largely due to changes in the revenue mix, especially higher margins from our service offerings and increased share of 5G and product sales during the quarter. Research and development expenses decreased by $0.9 million or 23% from $4.1 million for the 3 months ended March 31, 2025, to $3.2 million for the 3 months ended March 31, 2026. The decrease was largely driven by a $0.5 million reduction in project-specific intellectual property expenses and a $0.4 million reduction in professional services provided by Alpha for the completion of a 5G chipset design last year.
Sales and marketing expenses remained consistent year-over-year, totaling $1.1 million for the 3 months ended March 31, 2025, compared to $1.2 million for the 3 months ended March 31, 2026. General and administrative expenses were relatively flat year-over-year, totaling $2.6 million for the 3 months ended March 31, 2025, comparing to $2.7 million for the 3 months ended March 31, 2026. Turning to liquidity. We finished the quarter with cash and cash equivalents of $7.2 million. We also had net receivables — accounts receivables of $2.4 million and net inventory of $1.6 million.
We have access to our at-the-market equity program of up to $75 million and ample capacity on the remaining $125 million of our $200 million S-3 shelf-registration statement, which has been effective since April 1, 2025. These resources equip us with financial flexibility to support working capital requirements, commercial readiness and broader production. Moving further into 2026, our priorities remain consistent. We are focused on maintaining financial flexibility and disciplined capital allocation to support 5G chipset commercial traction and volume production readiness, ensuring that we are well positioned to capitalize on the expanding 5G opportunity. With this, I will turn it back to John.
John Schlaefer: Thank you, Edmond. The first quarter reflects sustained execution in driving commercialization. We are seeing increasing 5G chipset shipments activity, continued expansion in our customer engagements and steady progression as customer programs move toward deployment. While still in the early stages, we are building a sustainable launch pad to position the company for long-term success across both existing and new 5G opportunities as adoption continues to grow. We believe the framework we have established across our technology, partnerships and operations positions us well for this next phase of growth, and we look forward to building on this momentum throughout the year.
I would like to thank our employees, partners and shareholders for their continued support, and we will update you on our progress in the coming quarters. I will now turn the call back over to the operator, who will assist us in taking your questions.
Operator: [Operator Instructions] We have a question from the line of Craig Ellis with B. Riley Securities.
Rebecca Zamsky: This is Rebecca Zamsky on for Craig Ellis. Revenue of $1.9 million on increased 5G chipset shipments implies like a meaningful service and licensing revenue contribution alongside chipset sales. How should we think about that mix evolving as chipset volume scale through the second half of the year?
John Schlaefer: Yes, that’s a good question. So the service revenues tend to be aligned with various contracts that we engage in and is recognized as we make actual progress against those contracts. So — and right now, that’s a larger portion of the quarterly sales. As the chipset sales increase, the chipset sales and product revenue will far outpace that service revenue. So it will become a much more meaningful part and a substantial part of the overall revenue quarter-to-quarter as we grow. I mean that is our growth. We’re not in the service business.
Rebecca Zamsky: And in gross margins, the 49.3% margin was well above prior quarters. How much of this is structural reflecting the higher-margin service and licensing mix versus like a onetime in nature? And how should we think about gross margins going into the second half of the year?
John Schlaefer: Yes. So that’s a good observation. So the margins for the quarter were higher than usual, and they’re higher than what we would expect when the products dominate. So we’ve often said that the gross margin coming from the products that we move forward would be in the 35% and growing into the low 40s, and we still believe that. And because the service revenue was more substantial this quarter. That’s the result of — that actually resulted in a higher gross margin.
So in the future, because service revenue will be a much smaller portion of overall revenue, it will contribute less to the gross margin, and we’ll see the margin stabling out in the 35% and then actually growing into the 40s, the low 40% range.
Fong Cheng: Yes. Rebecca, in other words, our gross margin, once the chipset sales grows significantly, it would normalize to the high 30s to low 40s.
Operator: Our next question comes from Lisa Thompson with Zacks Investment Research.
Lisa Thompson: Glad to see some progress in getting towards profitability. I just have a few questions about, I guess, the revenue breakdown. So first off, on services, I don’t know if you answered — is there anything onetime in this quarter? Or do we expect numbers over $1 million going forward per quarter?
Fong Cheng: Yes, this — on the service side, we have the licensing revenue that we have recognized in Q1, and that will be considered as a onetime recognition from that sense. But going forward, we are also expecting to have our service contracts as when the milestone is achieved, and we will recognize the revenue accordingly.
Lisa Thompson: Do you have a feel for what the number is going to be near this quarter?
John Schlaefer: Well, so it’s — we do, and it won’t be as high as it was in Q1. But I mean, we are considering other service contracts and other engagements where that could add into the future. But these tend to be — in advance, they tend to be a little bit unpredictable as to when they’re going to start. And as we’ve said, there — we recognize revenue as the milestones are achieved, and it’s hard to predict that in advance.
Lisa Thompson: Okay. And maybe — could you just maybe talk a little bit about the product revenue and characterize like where it came from? I think last quarter, you had, I don’t know, 3 customers for products and one was a production order. Is that right? And what does that look like this quarter?
John Schlaefer: Yes. Let me comment on that. So yes, this quarter for products, there was at least 5 customers, and that was between 5 and 7. So some of this stuff actually goes through distribution and can actually be multiple customers, at least 5 as high as 7.
Lisa Thompson: Good. So that’s progress. Yes. So what should we expect for the next 3 quarters? Like how is the ramp going to work? And is there any one customer that’s going to lead the charge?
John Schlaefer: Well, we see continued distribution. And what ends up happening when our product revenue is relatively small is it can be bursty. I mean you can see one customer come in and have a larger portion of the quarter and then they may slow down in the next quarter and someone else picks up. So — but over time, I think we’re going to have a good distribution. We’re seeing that build out now. And once we hit a steady state, I think we’ll have a good distribution of customers and spread of revenue across them.
Lisa Thompson: All right. And Edmond, as far as operating expenses go, they’ve come down quite a bit. Do we expect that level to be the same level for this quarter going forward?
Fong Cheng: Well, this is a good run rate level in that sense, but we expect in the second half of this year to ramp up our R&D expenses for — to match our product road map. So we expect quarterly operating expenses to be running at about $8 million per quarter level.
Lisa Thompson: Did that start in Q2?
Fong Cheng: That will be starting in Q3.
Lisa Thompson: Looks like everything is going well and you’re making progress, and we’ll just see what happens. Thank you so much.
John Schlaefer: Thank you, Lisa.
Operator: Thank you for joining us. That concludes our first quarter 2026 conference call. A replay will be available for a limited time on our website later today.
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GCT (GCTS) Q1 2026 Earnings Transcript was originally published by The Motley Fool
