GCT Semiconductor Holding, Inc.

Previous wording

On March 26, 2024 (the “Closing Date” or “Closing”), GCT Semiconductor, Inc. (“Legacy GCT”) and Concord Acquisition Corp III, a Delaware corporation (“Concord III”), consummated the Merger pursuant to the Business Combination Agreement and Concord III changed its name to GCT Semiconductor Holding, Inc. (“GCT”). As a result, the financial statements of Legacy GCT are now the financial statements of GCT. This discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024 and related notes appearing elsewhere in this Quarterly Report and Legacy GCT’s audited consolidated financial statements as of and for the years ended December 31, 2023 and 2022 and related notes included in our Form 8‑K filing with the Securities and Exchange Commission (“SEC”) on April 1, 2024.

Current wording

This discussion and analysis of our financial condition and results of operations should be read together with our unaudited condensed consolidated financial statements as of and for the three months ended March 31, 2025 and related notes appearing elsewhere in this Quarterly Report and our audited consolidated financial statements as of and for the years ended December 31, 2024 and 2023 and related notes included in our Form 10‑K filing with the Securities and Exchange Commission (“SEC”) on March 25, 2025.

Previous wording

We are a fabless semiconductor company that specializes in the design, manufacturing and sale of communication semiconductors, including high-speed wireless communication technologies such as 5G/4.75G/4.5G/4G transceivers (“RF”) and modems, which are essential for a wide variety of industrial, B2B and consumer applications. We have successfully developed and supplied communication semiconductor chipsets and modules to leading wireless operators worldwide, as well as to original design manufacturers (“ODMs”) and original equipment manufacturers (“OEMs”) for portable wireless routers (e.g., Mobile Router/MiFi), indoor and outdoor fixed wireless routers (e.g., CPE), industrial M2M applications and smartphones.

Current wording

We are a fabless semiconductor company that specializes in the design, manufacturing and sale of communication semiconductors, including high-speed wireless communication technologies such as 5G/4.75G/4.5G/4G transceivers (“RF”) and modems, which are essential for a wide variety of industrial, B2B and consumer applications. We have successfully developed and supplied communication semiconductor chipsets and modules to leading wireless operators worldwide, as well as to original design manufacturers (“ODMs”) and original equipment manufacturers (“OEMs”) for portable wireless routers (e.g., Mobile Router (“MiFi”)), indoor and outdoor fixed wireless routers (e.g., customer premise equipment (“CPE”)), industrial machine-to-machine (“M2M”) applications and smartphones.

Previous wording

Since inception, we have financed our operations primarily through cash receipts from customers, the issuance of convertible promissory notes, borrowings, issuance of capital stock and the exercise of stock options.

Current wording

Since inception, we have financed our operations primarily through cash receipts from customers, the issuance of convertible promissory notes, borrowings, and the issuance of capital stock.

Previous wording

Downturns in the semiconductor industry have been attributed to a variety of factors, including the COVID‑19 pandemic, ongoing trade disputes between the United States and China, weakness in demand and pricing for semiconductors across applications, and excess inventory. In addition, from the end of 2022, the semiconductor industry experienced a downturn due to inventory corrections and reduced consumer demands. These downturns have directly impacted GCT’s business, suppliers, distributors, and end customers. More recently the semiconductor industry has normalized however there have been lingering effects that continue to effect certain segments including that for 4G LTE, where channel inventories continue to exist and where demand has been reduced due to expedited customer transition from 4G LTE to 5G.

Current wording

Downturns in the semiconductor industry have been attributed to a variety of factors, including the COVID‑19 pandemic, ongoing trade disputes between the United States and China, weakness in demand and pricing for semiconductors across applications, and excess inventory. More recently, the announcement and implementation of tariffs and other trade policies by the United States and other countries have resulted in a significant degree of uncertainty and risks in the global economic condition, which may negatively impact the semiconductor industry and the markets in which we operate. These downturns have directly impacted GCT’s business, suppliers, distributors, and end customers.

Previous wording

Because a significant portion of our expenses are fixed in the near term or are incurred in advance of anticipated sales, we may not be able to reduce our expenses rapidly enough to offset any unanticipated shortfall in revenue. If this situation were to occur, it could adversely affect our operating results, cash flow, and financial condition. In addition, the semiconductor industry has periodically experienced increased demand and production constraints. As a fabless semiconductor company, we rely exclusively on third-party foundries, including certain major semiconductor foundries such as UMC, Alpha and TSMC, for the manufacturing and supplies of its wafers and products. We do not have any formal foundry agreements that guarantee a minimum level of manufacturing capacity. In times of significant increasing demand for capacity, these foundries may experience production shortages and may not allocate sufficient manufacturing capacity to us. If this happens, we may not be able to produce sufficient quantities of our products to meet the increased demand. Any disruption in our supply chain can make it more difficult for us to obtain sufficient wafer, assembly, and test resources from our subcontract manufacturers. Any factor adversely affecting the semiconductor industry in general, or the particular segments of the industry that our products target, may adversely affect our ability to generate revenue and impact our operating results.

Current wording

Because a significant portion of our expenses are fixed in the near term or are incurred in advance of anticipated sales, we may not be able to reduce our expenses rapidly enough to offset any unanticipated shortfall in revenue. If this situation were to occur, it could adversely affect our operating results, cash flow, and financial condition. In addition, the semiconductor industry has periodically experienced increased demand and production constraints. As a fabless semiconductor company, we rely exclusively on third-party foundries, including certain major semiconductor foundries such as United Microelectronics Corporation, Samsung and Taiwan Semiconductor Manufacturing Corporation, for the manufacturing and supplies of its wafers and products. We do not have any formal foundry agreements that guarantee a minimum level of manufacturing capacity. In times of significant increasing demand for capacity, these foundries may experience production shortages and may not allocate sufficient manufacturing capacity to us. If this happens, we may not be able to produce sufficient quantities of our products to meet the increased demand. Any disruption in our supply chain can make it more difficult for us to obtain sufficient wafer, assembly, and test resources from our subcontract manufacturers. Any factor adversely affecting the semiconductor industry in general, or the particular segments of the industry that our products target, may adversely affect our ability to generate revenue and impact our operating results.

Previous wording

Other expenses, net for the three months ended September 30, 2024 of $0.5 million was primarily from the loss of $1.0 million on foreign currency transactions and $0.2 million loss from the change in fair value of convertible promissory notes, partially offset by a $0.8 million gain on warrants valuation. Other income, net for the three months ended September 30, 2023 of $0.9 million was primarily from gains on foreign currency transactions.

Current wording

Change in fair value of convertible promissory notes

Previous wording

Net revenues decreased by $1.9 million, or 42%, to $2.6 million for the three months ended September 30, 2024 from $4.5 million for the three months ended September 30, 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.

Current wording

Net revenues decreased by $2.8 million, or 85%, from $3.3 million for the three months ended March 31, 2024 to $0.5 million for the three months ended March 31, 2025. The reduction was primarily attributable to a decrease of $2.3 million in product sales and a decrease of $0.5 million in service revenue.

Previous wording

Sales and marketing expenses increased by $0.2 million, or 28%, from $0.7 million for the three months ended September 30, 2023 to $0.9 million for the three months ended September 30, 2024. This increase was primarily due to personnel-related costs.

Current wording

Sales and marketing expenses increased by $0.1 million, or 12%, from $1.0 million for the three months ended March 31, 2024 to $1.1 million for the three months ended March 31, 2025. This increase was primarily due to personnel-related and other costs.

Previous wording

Gain on extinguishment of liability was $14.6 million for the nine months ended September 30, 2024 due to the release by a vendor of amounts payable by us for research and development services received in prior years. There was no similar transaction that took place during the comparable period of 2023.

Current wording

Gain on extinguishment of liability was $14.6 million for the three months ended March 31, 2024 due to the release by a vendor of amounts payable by us for research and development services received in prior years. No similar transactions took place during the year ended three months ended March 31, 2025.

Previous wording

Interest expense decreased by $0.6 million or 45%, from $1.2 million for the three months ended September 30, 2023 to $0.7 million for the three months ended September 30, 2024. The decrease was primarily due to the conversion of significant amounts of outstanding convertible notes upon the closing of the Business Combination.

Current wording

Interest expense decreased by $1.0 million or 49%, from $2.1 million for the three months ended March 31, 2024 to $1.1 million for the three months ended March 31, 2025. This decrease was primarily due to the conversion of significant amounts of outstanding convertible notes and repayment of outstanding borrowings during 2024.

Previous wording

With limited exceptions, we have incurred and expect that we will continue to incur significant operating losses. For the three and nine months ended September 30, 2024, we had a net loss of $7.1 million and $7.4 million, respectively. For the nine months ended September 30, 2024 and 2023, we had cash used in operating activities of $28.7 million and $7.9 million, respectively. As of September 30, 2024, we had an accumulated deficit of $557.1 million. Our unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary if we are unable to obtain adequate financing in the future.

Current wording

With limited exceptions, we have incurred and expect that we will continue to incur significant operating losses. For the three months ended March 31, 2025, we had a net loss of $7.0 million. For the three months ended March 31, 2025 and 2024, we had cash used in operating activities of $8.0 million and $14.4 million, respectively. As of March 31, 2025, we had an accumulated deficit of $569.0 million. Our unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary if we are unable to obtain adequate financing in the future.

Previous wording

In April 2024, we entered into a common stock purchase agreement (the “Purchase Agreement”) and a related registration rights agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”). Pursuant to the Purchase Agreement, we have the right but not the obligation, to sell, from time to time, to B. Riley up to $50.0 million in aggregate gross purchase price of shares of our common stock in our sole discretion, subject to certain conditions and limitations, during the term of 24 months. Pursuant to the Registration Rights Agreement, the Company filed a registration statement on Form S-1 to register the resale of shares of common stock to be sold to B. Riley, which became effective on June 6, 2024. Through September 30, 2024, we sold an aggregate of 2,100,177 shares of our common stock for $8.8 million under the Purchase Agreement and received cash proceeds of $7.8 million, which included $1.0 million that was withheld by B. Riley against the outstanding amounts payable. In addition, in October 2024 we sold 103,596 shares of our common stock under the Purchase Agreement and received cash proceeds of $0.3 million.

Current wording

In April 2024, we entered into a common stock purchase agreement (the “Purchase Agreement”) and a related registration rights agreement (the “Registration Rights Agreement”) with B. Riley Principal Capital II, LLC (“B. Riley”). Pursuant to the Purchase Agreement, we have the right but not the obligation, to sell, from time to time, to B. Riley up to $50.0 million in aggregate gross purchase price of shares of our common stock in our sole discretion, subject to certain conditions and limitations, during the term of 24 months. Through March 31, 2025, we sold an aggregate of 2,438,037 shares of our common stock for $9.9 million under the Purchase Agreement and received cash proceeds of $8.7 million and $1.0 million was withheld by B. Riley against the outstanding amounts payable. In addition, in April 2025 we sold 700 shares of our common stock under the Purchase Agreement and received cash proceeds of approximately $1,000.

Previous wording

While a portion of the cash proceeds received in connection with the Business Combination was expended to support our 5G activity and fund other operational expenses, we expect that further and significant ongoing operating expenditures will be necessary to successfully implement our business plan and market our products. With the start of manufacturing, shipments and commercialization of our first 5G chipset expected during the first half of 2025, we anticipate significant related expenditures in the form of production-related costs, including mask sets, wafers, and design service fees, and most such costs will be incurred prior to the commencement of manufacturing and production. If we do not have sufficient funds to make such payments, or if we cannot extend the terms of our existing commercial loans or to raise additional capital, the payments can be delayed, which may adversely affect our business operations and financial performance. For a more detailed description of such risks, please see the section entitled “Risk Factors” disclosed in our Registration Statement on Form S-1 filed with the SEC on May 22, 2024.

Current wording

While a portion of the cash proceeds received in connection with the Business Combination was expended to support our 5G activity and fund other operational expenses, we expect that further and significant ongoing operating expenditures will be necessary to successfully implement our business plan and market our products. With the start of manufacturing, shipments and commercialization of our first 5G chipset expected during the first half of 2025, we anticipate significant related expenditures in the form of production-related costs, including mask sets, wafers, and design service fees, and most such costs will be incurred prior to the commencement of manufacturing and production.

Previous wording

As of September 30, 2024, we have outstanding convertible promissory notes and borrowings with a total principal amount of $41.8 million, of which $36.8 million is contractually due within 12 months from this reporting date. During July and October 2024, we were able to renegotiate the timing of payments for some of the obligations that initially were due in the third fiscal quarter of 2024 and first fiscal quarter of 2025. However, our existing debt obligations largely remain due within one year from September 30, 2024. In November 2024, we entered into a term loan agreement with Kyeongho Lee pursuant to which the Company borrowed $2.9 million maturing in December 2024. We will need to start generating positive cash flows, renegotiate our existing debt obligations and raise additional capital through debt or equity financing. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to us or at all.

Current wording

As of March 31, 2025, our existing sources of liquidity include cash and cash equivalents of $1.0 million. As of March 31, 2025, we have outstanding convertible promissory notes and borrowings with a total principal amount of $50.2 million, which are entirely contractually due within 12 months from this reporting date. We will need to start generating positive cash flows, renegotiate our existing debt obligations and raise additional capital through debt or equity financing. There can be no assurance that such additional debt or equity financing will be available on terms acceptable to us or at all.

Previous wording

We intend to mitigate the risk of any working capital deficit by continuing to seek and execute appropriate actions to secure funding as a publicly traded company, including extension and refinancing of existing loans, executing public or private equity offerings, debt financings, and other means. We have historically been able to raise capital through the issuance and sale of equity and equity-linked instruments, such as redeemable convertible preferred stock, convertible promissory notes, and borrowings, although no assurance can be provided that we would continue to be successful in doing so in the future.

Current wording

We intend to mitigate the risk of any working capital deficit by continuing to seek and execute appropriate actions to secure funding as a publicly traded company, including extension and refinancing of existing loans, executing public or private equity offerings, debt financings, and other means. In addition, we recently filed a universal shelf registration statement on Form S-3 that will allow us to raise up to $200.0 million from the issuance of our securities, which includes the $75.0 million for the ATM Offering. We have historically been able to raise capital through the issuance and sale of equity and equity-linked instruments, such as redeemable convertible preferred stock, convertible promissory notes, and borrowings, although no assurance can be provided that we would continue to be successful in doing so in the future.

Previous wording

Acquisition of IP and tool enhancement to develop next generation of product;

Current wording

Acquisition of IP and tool enhancement to develop the next generation of product;

Previous wording

Hiring of additional personnel in engineering and sales and marketing functions; and

Current wording

Hiring of additional personnel in engineering, sales, and marketing functions; and

Previous wording

Cash flow Comparison for the Nine Months Ended September 30, 2024 and 2023

Current wording

Cash Flow Comparison for the Three Months Ended March 31, 2025 and 2024

Previous wording

Cash used in operating activities of $28.7 million during the nine months ended September 30, 2024 was primarily attributable to our net loss of $7.4 million, non-cash adjustments of $12.2 million, and a net change in our operating assets and liabilities of $9.1 million. Non-cash adjustments consisted primarily of a $14.6 million gain from the extinguishment of liability, a $2.8 million gain from the change in fair value of warrant liabilities, a $0.5 million decrease in provision for credit loss, partially offset by $2.1 million in stock-based compensation, a $1.4 million loss from the change in fair value of convertible promissory notes, $0.7 million in non-cash expense related to the issuance of common stock to an underwriter, $0.5 million in depreciation and amortization charges, and a $0.5 million in operating lease right-of-use amortization. The change in our operating assets and liabilities of $9.1 million primarily resulted from a decrease of $3.0 million in accrued and other current liabilities due to the payment of costs incurred related to our Business Combination, a decrease of $2.3 million in accounts payable, an increase of $1.7 million in contract assets, an increase of $1.6 million in inventory, an increase or $0.9 million in accounts receivable, a decrease of $0.5 million in lease liabilities, and a decrease of $0.3 million in other liabilities, partially offset by an increase of $0.7 million in net defined benefit liabilities, an increase of $0.5 million in contract lease liabilities, and a decrease of $0.1 million in other assets.

Current wording

Cash used in operating activities of $8.0 million during the three months ended March 31, 2025 was primarily attributable to our net loss of $7.0 million, non-cash adjustments of $0.8 million, and a net change in our operating assets and liabilities of $0.2 million. Non-cash adjustments consisted primarily of a $1.6 million gain from the change in fair value of warrant liabilities and a $0.3 million gain from the change in fair value of common stock forward liability, partially offset by $0.5 million in stock-based compensation, a $0.3 million increase in provision for credit losses, $0.2 million in depreciation and amortization charges, and $0.2 million in amortization of operating lease right-of-use assets. The change in our operating assets and liabilities of $0.2 million primarily resulted from a decrease of $1.9 million in accrued and other current liabilities, an increase of $0.4 million in contract assets, a decrease of $0.2 million in other liabilities, a decrease of $0.2 million in lease liabilities, an increase of $0.1 million in inventory, and a decrease of $0.1 million in income tax payables, partially offset by a decrease of $1.1 million in prepaid expenses and other current assets, a decrease of $0.9 million in accounts receivable, an increase of $0.4 million in accounts payable, and an increase of $0.2 million in net defined benefit liabilities.

Previous wording

Cash used in operating activities of $7.9 million during the nine months ended September 30, 2023 was primarily attributable to our net loss of $12.3 million, partially offset by $0.9 million in non-cash adjustments and $3.5 million change in our operating assets and liabilities. Non-cash adjustments consisted primarily of a $0.8 million increase in credit loss allowance, $0.7 million in depreciation and amortization charges, and $0.6 million in operating lease right-of-use amortization, partially offset by $1.1 million gain from the change in fair value of convertible promissory notes. The change in our operating assets and liabilities of $3.5 million primarily resulted from an increase of $7.4 million in our accrued and other current liabilities related to the timing of payments, a decrease of $1.8 million in inventory, a decrease of $0.8 million in prepaid expenses and other current assets, and a decrease of $0.1 million in other assets, partially offset by an increase of $3.3 million in accounts receivable, an increase of $2.0 million in in contract assets due to unbilled services provided under certain projects, a decrease of $0.8 million in lease liabilities and an decrease of $0.7 million in accounts payable and a decrease of $0.1 million in income tax payable.

Current wording

Cash used in operating activities of $14.4 million during the three months ended March 31, 2024 was primarily attributable to our net income of $0.8 million, offset by non-cash adjustments of $7.0 million, and a net change in our operating assets and liabilities of $8.2 million. Non-cash adjustments consisted primarily of a $14.6 million gain from the extinguishment of a liability, partially offset by a $4.6 million loss from the change in fair value of warrant liabilities, $1.2 million gain from the change in fair value of convertible promissory notes, $1.2 million in stock-based compensation, $0.2 million in depreciation and amortization charges, $0.2 million in operating lease right-of-use amortization, and $0.2 million in provision for credit losses. The change in our operating assets and liabilities of $8.2 million primarily resulted from a decrease in $2.7 million in accounts payable, a decrease of $1.1 million in our accrued and other current liabilities, and a decrease of $0.3 million in other liabilities due to the payment of costs incurred related to our Business Combination, as well as an increase of $2.3 million in prepaid expenses and other current assets related to the timing of payments for inventory and manufacturing of wafers, an increase of $0.9 million in in contract assets due to unbilled services provided under certain projects, an increase of $0.5 million in accounts receivable primarily due to slower collections from certain customers, an increase of $0.3 million in inventory due to lower sales, and a decrease of $0.2 million in our lease liabilities.

Previous wording

Cash used in investing activities during the nine months ended September 30, 2024 and 2023 was related solely to the purchases of property and equipment.

Current wording

Cash used in investing activities during the three months ended March 31, 2025 was related solely to the purchases of property and equipment. There were no cash flows related to our investing activities during the three months ended March 31, 2024.

Previous wording

Cash provided by financing activities of $31.6 million during the nine months ended September 30, 2024 consisted of $17.2 million from proceeds received from the reverse recapitalization and PIPE Financing, net of transaction costs, $16.3 million in proceeds from the issuance of convertible promissory notes, $7.8 million proceeds received from issuance of common stock to B. Riley under the Purchase Agreement, $3.7 million in proceeds from borrowings, and $2.2 million proceeds received from issuance of common stock in a private placement, partially offset by $14.1 million in repayment of our borrowings and $1.6 million repayment of convertible promissory notes.

Current wording

Cash provided by financing activities of $30.3 million during the three months ended March 31, 2024 consisted of $17.2 million from proceeds received from the reverse recapitalization and PIPE Financing, net of transaction costs, $16.3 million in proceeds from the issuance of convertible promissory notes, partially offset by $3.2 million repayment of our bank borrowings.

Previous wording

There have been no material changes to our critical accounting estimates from those described in “Management’s Discussion and Analysis of Financial Condition,” “Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates” disclosed in our Form 8-K filing with the SEC on April 1, 2024, except that from the Closing we have certain contracts in our own equity that are subject to liability classification and remeasurement each reporting periods.

Current wording

There have been no material changes to our critical accounting estimates from those described in “Management’s Discussion and Analysis of Financial Condition,” “Results of Operations – Critical Accounting Policies and Significant Judgments and Estimates” disclosed in our Form 10-K filing with the SEC on March 25, 2025, except that from the Closing we have certain contracts in our own equity that are subject to liability classification and remeasurement each reporting periods.

Previous wording

Accounts receivable balances are primarily derived from revenues earned from customers located in the United States, China, South Korea, Japan, and Taiwan. We perform ongoing credit evaluations of the financial conditions of our customers and distributors, and generally do not require collateral from our customers. We continuously monitor collections and payments from customers and maintain a provision for credit losses based upon the collectibility of our customer accounts. We review the provision by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customer’s ability to pay. Uncollectible receivables are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered. We cannot guarantee that we will continue to experience the same credit loss rates that we had in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectibility of our accounts receivable and our future operating results. The provision for credit losses was $1.1 million and $1.6 million as of September 30, 2024 and December 31, 2023, respectively.

Current wording

Accounts receivable balances are primarily derived from revenues earned from customers located in the United States, China, South Korea, Japan, and Taiwan. We perform ongoing credit evaluations of the financial conditions of our customers and distributors, and generally do not require collateral from our customers. We continuously monitor collections and payments from customers and maintain a provision for credit losses based upon the collectibility of our customer accounts. We review the provision by considering certain factors such as historical experience, industry data, credit quality, age of balances and current economic conditions that may affect a customer’s ability to pay. Uncollectible receivables are written off when all efforts to collect have been exhausted and recoveries are recognized when they are recovered. We cannot guarantee that we will continue to experience the same credit loss rates that we had in the past. A significant change in the liquidity or financial position of any of our significant customers could have a material adverse effect on the collectibility of our accounts receivable and our future operating results. The provision for credit losses was $1.5 million and $1.2 million as of March 31, 2025 and December 31, 2024, respectively.

Previous wording

Our convertible promissory notes are valued using a discounted cash flow (“DCF”) model or binomial lattice model (“BLM”), and, prior to the Business Combination, were valued using a combination of an option pricing model and Probability-Weighted Expected Return Method (“PWERM”), which are a Level 3 fair value measurements. Significant assumptions used in the DCF include the remaining term and discount rate. Significant assumptions used in the BLM include volatility, remaining term, risk-free rate, and credit spread. The PWERM is a scenario-based methodology that estimates the fair value based using an analysis of future values for the Company that assumes various outcomes. The value is based on the probability-weighted present value of expected future investment returns considering each of the possible outcomes available. The future value under each outcome is discounted back to the valuation date at an appropriate risk-adjusted discount rate and probability-weighted to arrive at an indication of value. Significant assumptions used in the PWERM include volatility, discount rate, and the probability of a future liquidity event.

Current wording

Our convertible promissory notes are valued using a discounted cash flow (“DCF”) model or binomial lattice model (“BLM”). which are a Level 3 fair value measurements. Significant assumptions used in the DCF include the remaining term and discount rate. Significant assumptions used in the BLM include volatility, remaining term, risk-free rate, and credit spread.

Previous wording

Contracts in Own Equity – Fair Value of Warrants

Current wording

Contracts in Own Equity – Fair Value of Liability-Classified Warrants

Previous wording

We classify contracts in equity, including warrants to purchase shares of the Company’s common stock, that do not meet the indexation guidance as liabilities. At the end of each reporting period, these liability-classified instruments are remeasured using an option pricing model or BLM. Significant assumptions are used in determining the fair value of our warrants and include volatility and the risk-free rate.

Current wording

We classify share-settled contracts, including warrants to purchase shares of the Company’s common stock, that do not meet the indexation guidance as liabilities. At the end of each reporting period, these liability-classified instruments are remeasured using an option pricing model or BLM. Significant assumptions are used in determining the fair value of our warrants and include volatility and the risk-free rate.