Cepton, Inc. (NASDAQ:CPTN) Q1 2023 Earnings Call Transcript May 13, 2023

Operator: Good day, and welcome to Ceptons’ First Quarter 2013 Earnings Call and Business Update. At this time, all lines in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Tuesday, May 9, 2023. I would now like to turn the conference over to Hull Xu, Chief Financial Officer. Hull, please go ahead.

Hull Xu: Thank you, and welcome to Ceptons’ first quarter 2023 earnings call and business update. With me today are Jun Pei, Co-Founder and Chief Executive Officer; and Mitch Hourtienne, Senior Vice President of Business Development. During the call, we may refer to our unaudited GAAP and non-GAAP measures in our earnings release. The non-GAAP financial measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with GAAP. Reconciliations for non-GAAP measures are included in our earnings release. I would like to remind everyone that comments made in this conference call may include forward-looking statements regarding the Company’s expected operational and financial performance for future periods.

These statements are based on the Company’s current expectation and are subject to the Safe Harbor statements, relating to forward-looking statements contained in our earnings release and the slides that accompany this call. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of risks, uncertainties or other factors, including those discussed in the earnings release or during today’s call, and those described in our filings with the US SEC. We are not undertaking any commitment to update these statements as a result of future events except as required by law. As a quick reminder, this call is being recorded, and you can find the earnings release and slides that accompany this call as well as a Webcast replay for this call at investors.cepton.com.

Now I’d like to turn the call over to Jun.

Jun Pei: Thank you, Hull, and good afternoon, everyone. Thank you for joining Cepton’s first quarter 2023 earnings call. We will provide a business update and review our first quarter financial results with you. I will start with an update on our series production execution. On the product side, we continue to ship preproduction units to Koito throughout the quarter. While the exact date of vehicle production launch is for the OEM to decide, our lidar remains on track to receive final validation from our OEM customer for production in saleable vehicles. Our products are being evaluated across multiple vehicle models under our existing production award. As a result of our continued performance OEM customer and the versatility of our flagship Vista-X90 lidar products are for vehicle integration, we expect to receive additional vehicle models in the next couple of months to expand the coverage of our existing series production award.

We’re encouraged by the commitment to our technology from our OEM customer. This is reflective of our efforts and dedication to enabling lidar as a critical component of automotive safety. In addition to hardware, our embedded software allows us to meet stringent automotive OEM requirement, such as cybersecurity, over-the-air updates, and functional safety. It also allows us to deliver additional custom features we delivered for our OEM customers. These capabilities were developed by our in-house software teams, and it is a tremendous value add for our OEM customers. Software is subject to the same standard as hardware. And our OEM customer has some of the highest standards in the industry when it comes to the reliability and safe operation of their vehicles.

We believe having the ability to deliver a combined hardware and software solution to our OEM customer under a series production environment, positions us beyond a simple lidar hardware provider. It actually positions us as a total lidar solution provider, and as a leader in driving market adoption to enable lidar for everyday vehicles. As our products near the final stages towards the production validation, we’re also working on increasing production capacity at our contract manufacturers and tier-1 partner facilities. We have mentioned in previous quarters that we work closely with our tier-1 partner Koito to enable the future scale of production of our lidar products. Our continued efforts in scaling production include securing raw materials at scale and implementing production processes in both hardware and software to ensure we can deliver consistent quality at volume.

For example, in this past quarter, we were able to increase the throughput by five times were one of the critical manufacturing steps. And we feel confident in meeting production milestones as we move towards SOP. Following the announcement of our Vista-X120 Plus product earlier this year at CES, we unveiled the Vista-X90 Plus this quarter. X90 Plus carries over the same slim form factor improvements to our current X90, the product that is launching with our lead OEM program. These improvements enhance our advantages in vehicle integration placed behind the windshield and unlocks the placement in other areas of the vehicles such as the headlamps and [face shield]. Our X90 product is a direct result of working closely with our lead OEM customer to drive lidar adoption across the majority of the OEM customer suite.

Cepton is the first and only known lidar company to launch a high performance lidar in-passenger vehicles behind the windshield. It is not a trivial task, and it requires a huge competitive moat for the distant future. Our new X90 Plus will also feature our recently announced the point cloud process ASIC, the Komodo. Developed in-house, this new ASIC is designed to improve our point cloud quality, reduce power consumption, and at the same time, replace FPGA and other merchant silicon devices to drive cost savings. In the years ahead for production, where volume is high and on-time delivery is key, we are reducing reliance on the semiconductor supply chain with our own ASIC solutions. In addition, we expect to continue extending the technology leadership with our proprietary ASIC chipset.

The accomplishments we have made to start out the year highlight our continued commitment and dedication to be allied our market leader. As our products mature, we continue to make improvements in embedded software and innovate at the chip level to solidify our technology leadership. Transitioning from product development phase to the production phase stresses the importance of maintaining Cepton’s standard quality at the volume demanded by our OEM customers. There are distinct challenges in maintaining the same level of precision and reliability in every lidar unit, when the volume scales to tens and hundreds of thousands. Our investment towards production readiness will prove to be the key areas of differentiation in both lead time and cost.

With that, I’ll turn it over to Mitch for an update on our customer programs.

Mitch Hourtienne: Thank you, Jun. I’m happy to announce we recently hired a new Director of Customer Programs, Luis Gonçalves, who joined us from General Motors. He brings over a decade of automotive experience from global OEMs such as GM and Honda. And Luis will support our [Detroit] OEM program. As Jun indicated, our existing lead OEM series production program is expected to expand in the coming quarter, at least three additional vehicle models. This is the result of joint collaboration efforts between Cepton, Koito, and General Motors in product maturity, customized software development, and vehicle integration. Beyond our current OEM business, we received an RFQ in the past quarter that we believe to be the top automotive OEM opportunity in terms of program volume this year.

Cepton already has a rich history with its automotive OEM, and as such with selected to respond to this RFQ directly as a tier-1 technology supplier. This is a recognition of our maturity as a lidar company, and leverages all of the collaboration history with Koito manufacturing. More importantly, the decision to have Cepton respond directly as a tier-1 technology supplier is made by the OEM in this case. It is not a self-proclaimed aspiration to become a tier-1. We believe this is how the lidar industry will continue to evolve, building trust, winning series production programs, executing and launching and allowing the OEM to help guide final supply chains for the future. In addition to this opportunity, as a result of General Motors’ recent sensor suite announcement for their Ultra Cruise program, where Cepton lidar is placed behind the windshield, executives from a global top-three European OEM visited our headquarters last month.

And we are now in an advanced RFI phase for their future passenger vehicles. We look forward to sharing more information with you in the coming calls Onto near range lidar products. Cepton is one of very few lidar companies with an automotive grade near range lidar product, that has a very large vertical field of view suitable for trucking applications. Over the past quarter, we have made strong progress with multiple top trucking OEM customers. We have progressed to the RFQ phase with a global top-three trucking OEM for our long-range lidar product called Nova. Lastly, a word on the smart infrastructure segment. We started shipping units to our tolling customer, fulfilling the multimillion-dollar contract announced at the end of last year.

While our NOVA product is suitable for trucking applications, it’s also an ideal product for smart industrial applications, and we continue to ship our Nova sensors to support autonomous ground vehicle use cases. Now, I’ll turn the call back over to Hull.

Hull Xu: Thank you, Mitch. Starting with our first quarter results. Total revenue for the quarter was $1.5 million, same as the prior year period and a slight decrease compared to our previous quarter. Product revenue was $1.2 million, a slight decrease compared to the prior year period, but a 27% increase compared to our previous quarter. We also have development revenue of $0.2 million based on the timing of completion of our second projects. While we are still early and achieving volume production for automotive programs, we have shipped a record number of lidar units per quarter and a record number of lidar units for automotive customers. We expect this trend to continue as we ramp production to fulfil purchase orders for our base series production program.

Gross margin was negative 5% for the quarter, primarily driven by revenue mix shift between automotive and smart infrastructure. As our sales volume shifts towards preproduction units and later production units for automotive, where ASP is slightly lower than that of smart infrastructure, we expect our gross margin to experience some pressure in the short term, until component volume pricing kicks in and fixed cost leverage can be realized as a result of increased volume ASP on the Smart Infrastructure side is expected to remain at similar levels as that of last year. And development projects typically have higher margins, which should help with overall gross margin for the year. First quarter GAAP net loss was $14.7 million or $0.09 per share, basic and diluted.

Non-GAAP net loss was $11.4 million, or $0.07 per share, basic and diluted. First quarter non-GAAP adjusted EBITDA was negative $11.6 million. As of March 31, 2023, we had approximately $80 million in cash and short-term investments, and none of that is held at regional banks. As a reminder, our cash position increased from the closing of the $100 million preferred stock investment from Koito that closed in January this year. We look forward to seeing everyone at our Annual Meeting scheduled on May 18 at 9:00 am Pacific time. And with that, I’d like to turn the call over for questions.

Q&A Session

Operator: [Operator Instructions] One moment please for your first question. Your first question comes from the line of Richard Shannon, Craig-Hallum. Your line is now open.

Operator: Your next question comes from the line of Gus Richard, Northland. Your line is now open.

Operator: Your next question comes from the line of Matthew Galinko, Maxim Group. Your line is now open.

Operator: [Operator Instructions] There are no further questions at this time. Please continue.

Jun Pei: Okay. Thank you for joining us today. We are really looking forward to this new year, and a lot of excitement in the automotive business. We’ll report to you next quarter, hopefully with a lot more exciting news. Thank you.

Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.