Cepton, Inc. (NASDAQ:CPTN) Q4 2022 Earnings Call Transcript

Cepton, Inc. (NASDAQ:CPTN) Q4 2022 Earnings Call Transcript March 14, 2023

Operator: Good day everyone and welcome to the Q4 2022 Cepton, Inc. Business Update and Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Hull Xu, the CFO. Please go ahead, sir.

Hull Xu: Thank you, and welcome to Cepton’s fourth quarter and full year 2022 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 expectations and are subject to the safe harbor statements related 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 risk, uncertainties or other factors including those discussed in the earnings release or during today’s call, and those described in our filings with the U.S. SEC. We’re not undertaking any commitment to update those 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 released and slides that accompany this call, as well as the webcast replay of this call at investors.cepton.com.

Now, I would like to turn the call over to Jun.

Jun Pei : Thank you, Paul, and good afternoon, everyone. Thank you for joining Cepton’s fourth quarter and full year 2022 earnings call. We will provide a business update, review fourth quarter and full year 2022 financial results and provide our view for 2023. Starting with our business update, over the past year, we have shared with your quarterly updates on our progress towards series production. Rather than hearing from me this quarter, I will point towards — to our OEM customers’ announcement, notably General Motors’ announcement of its Ultra Cruise ADAS system on March 7th, last Tuesday. GM offered the most comprehensive look into the role of lidar in their sensor suite in the deployment of their next generation ADAS system designed to enable hands-free driving in 95% of all driving scenarios.

Highlighting our unique lidar integration behind the windshield, our lidar produced an accurate three-dimensional view of the scene, enabling more precise object detection, even in inclement weather conditions. Our lidar sensor is a key enabler to safely deploy GM’s next generation ADAS offering. At the end of last year, we began shipping preproduction units to our OEM customers. This year, we look to start off series production. We are excited to move yet another step closer to commercialization of our products. At CES this year, we unveiled our next generation lidar, the Vista X-120 Plus recognized by the CES Innovation Award Program, the X-120 Plus has a 30-degree wider field of view, and 20% reduction in size and 50% reduction in height compared to our X-90, which is our flagship lidar selected for the series production.

This new sensor builds on our core MMT technology for a superior resolution and offers additional vehicle integration options with its slim design. Many OEM customers, both existing and new are interested in testing and evaluating our new sensor for their next generation vehicle platforms. We have shipped the first samples to our global top 10 OEM for evaluation. And we expect the Vista X-120 Plus series of products to be a major contender for upcoming automotive for production programs. At the end of last year, we successfully taped out our next generation ASIC chip and expect the first two samples to be available starting early this year. This new image processing ASIC is complementary to our existing industry leading signal processing ASIC.

The combination of both will be featured in our new Vista X-120 Plus, working in unison to improve performance and significantly reduce cost. Our proprietary ASIC extends unique differentiation to our products, offering signal level compute, moving up to point level compute and eventually frame level compute capabilities. In the year ahead, we look forward to sharing with you our full ASIC chipset roadmap. With our leadership team, it is my pleasure to announce the appointment of Dr. Dongyi Liao as the Chief Technology Officer of Cepton. Dongyi previously served as our Senior Vice President of Applications since 2017 and is responsible for all software effort of the Company. We look forward to his contributions to expanding the value of software in the growing deployment of our lidar.

Mark McCord, our current CTO, will continue with the Company to serve as the Chair of Cepton’s newly created Technical Advisory Board and will remain in charge of our intellectual property portfolio. Please join me in congratulating both Dongyi and Mark in their new roles. 2023 will be a landmark year for Cepton as we look to transition into series production. Staying true to our principles that our sensors must achieve a balance of performance, cost and reliability is ever more important. As our sensors enter mainstream vehicles, we are hyper focused on delivering also grade quality at scale volume costs. Our Tier 1 partner, Koito, brings decades of volume manufacturing expertise to complement our technology. In the year end, our collaboration efforts will not only focus on series production execution, but the winning additional automotive OEM programs, which Mitch will share more details with you next.

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Mitch Hourtienne: Thank you, Jun. Starting with our automotive programs, as Jun indicated, preproduction shipments started at the end of the previous year and have expanded to multiple vehicles in multiple vehicle manufacturing sites. We are in advanced discussions to expand our existing business award to additional vehicle models. GM kicked-off the announcement of the Celestiq late last year and followed up with a comprehensive announcement of the sensor suite in the Ultra Cruise system a week ago. We expect more announcements across additional models in the year ahead. Over the past year in the automotive industry, we have seen accelerated investments and focus on L2 plus ADAS offerings, as a result of Level 4 programs being pushed out.

Of course, I’m always speaking about our target customers, leading global top 10 automotive OEMs. We expect additional OEMs to take a similar approach to GM on L2 plus or L3 system deployments with announcements in the near future. We remain in a very good position for additional production awards with our target OEMs. We are in advanced discussions with several global top 10 OEMs at this stage. As we have seen across the lidar industry over the past year, the competitive landscape is a smaller list of lidar companies that have existing automotive production awards. We have gained trust across the industry, having gone through an extensive development process and launch efforts with General Motors. This entire process spans over three years in both, hardware and software development, establishing Cepton as one of a few auto grade lidar suppliers for automotive OEMs. In 2023, we will direct efforts in winning series production awards toward our newly launched Vista X-120 Plus product.

Our public launch in January has received a lot of interest among the OEMs, hoping to deploy lidar in the next gen vehicle platforms. Turning to smart infrastructure, we recently announced a multimillion dollar contract from a leading U.S. highway tolling systems operator. We believe our contract is the largest commercial deployment of lidar to date for this application, with the potential to scale across more highways in the U.S. and outside the U.S. for future deployments. Our strategy to partner and work with systems integrators in targeted applications helps us extend our reach across smaller end customers in a more fragmented market. We will continue to focus on executing our strategy in our target applications, including airports in the year ahead.

Finally, we have a new autonomous ground vehicle project with a top 10 automotive OEM to announce. Cepton is supporting the safe deployment of Level 4 autonomous ground vehicles with our Nova near range lidar. Details of this customer and application will be forthcoming soon. So, stay tuned. I’ll turn it back to Hull now.

Hull Xu: Thank you, Mitch. Starting with our fourth quarter results, total revenue for the quarter was $1.6 million, a 23% increased compared to the prior year period. Fourth quarter product revenue was $1 million, consistent with the prior year period. And in the fourth quarter, we had development revenue of $0.6 million based on timing of achieving milestones on those projects. Our gross profit margin improved in the fourth quarter to 35%, primarily driven by revenue mix shift between product and development revenues. Fourth quarter GAAP net loss was $15.3 million or $0.10 per share, basic and diluted. Fourth quarter non-GAAP net loss was $13.4 million or $0.09 per share basic and diluted. Fourth quarter non-GAAP adjusted EBITDA was negative $12.3 million.

We achieved full year revenue of $7.4 million, meeting our revenue guidance and represents a 65% increase compared to the prior year. While our development revenue was consistent year-over-year, our product revenue was $5.6 million, a 92% increase compared to the prior year, reflecting our ongoing commercialization efforts of our products. Full year gross profit margin was slightly positive at 2.6% and is consistent with the prior year. Our full year GAAP operating expenses were $61.6 million, meeting our operating expense guidance. Excluding transactional costs, one-time and non-cash items, our operating expenses for the year was $50.6 million, well under our OpEx guide. Full year GAAP net income was $9.6 million or $0.06 per share basic and diluted.

For years non-GAAP net loss was $53.2 million or $0.36 per share basic and diluted. Non-GAAP adjusted EBITDA for the year was negative $50.3 million. As of December 31, 2022, we had available liquidity of approximately $134 million. Total available liquidity consists of approximately $36 million in cash and short-term investments and a commitment to purchase up to $98 million in equity from Lincoln Park Capital. In January, we closed the $100 million preferred stock investment from Koito after obtaining shareholder approval for the transaction. As a reminder, the preferred stock will be convertible beginning one year after the issuance date at an initial conversion price of $2.585 and will carry a dividend rate of 4.25% if paid in kind or 3.25% if paid in cash.

At close, we’ll use the proceeds from the transaction to repay our outstanding term loan from Koito, increasing our cash and cash equivalent to approximately $89 million. Including the commitment to purchase up to $98 million in equity from Lincoln Park Capital, our available liquidity increases to approximately $187 million, which we believe provides sufficient cash and available liquidity to support the launch and ramp up of current series production award. Turning to 2023 guidance, we’re expecting full year revenue between $15 million and $20 million, weighted in the back half of the year as we launch series production and unit volume begins to ramp. We expect gross margin to be positive for the year. On the cost side, we expect full year operating expenses to be in line with that of 2022 or between $55 million and $65 million.

We have many notable achievements in our first year as a public company. With the closing of the Koito preferred stock transaction, we believe we have sufficient financial resources to fund our next stage of growth as we look to launch series production this year. We look forward to connecting with investors at our annual stockholders meeting to be held in May with details of the event to follow. Now, I’d like to open up the call for questions.

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Q&A Session

Operator: First question comes from Tom Narayan with RBC. Please go ahead.

Tom Narayan: First, congratulations on the GM press announcement. The first question has to do with the 2023 guidance. You have $7.2 million in revenue in ’22, increasing what it looks like to $15 million to $20 million in 2023. Could you help us maybe understand what is driving the incremental revenue, the guidance here? Maybe just a further breakout? Is this assuming new auto OEM wins beyond GM, or is it mostly GM, and maybe organic growth in smart infrastructure as well?

Hull Xu: Yes. Happy to do that. Tom, thanks for the question. Yes, let me provide a little bit more color on our guidance. So, the short of it is that it’s primarily driven by the GM program. So just to provide some numbers behind it. So for 2022, in terms of unit shipments, we shipped about 1,500 units. And that’s 45% to automotive and 55% to smart infrastructure. Right now, we have six months of visibility into the program. When you have series production programs, you do have a little bit more visibility. So, in our hands right now we have purchase orders of over 10,000 units. So, that’s going forward to six months. So, in relation to last year’s unit shipments, this is a significant increase in terms of units. So, that’s just automotive — actually that’s just the GM program in automotive.

And turning to smart infrastructure, we announced that we had won this multimillion dollar contract from an electronic tolling provider in the U.S. The bulk of that will occur this year. So, that also gives us a lot of confidence in our guidance. Did I answer your questions, Tom?

Tom Narayan: Yes, yes. And then, so it sounds like there is not — you are not assuming new OEM revenues beyond GM for the auto piece for ’23 in the guidance?

Hull Xu: We will have some, but not meaningful, as it compares to the GM program, right? So, when we win additional large programs with automotive OEMs, the real ramp isn’t going to be immediate. It’s going to take a couple of years to work through. So, the real ramp this year is going to be just GM and the next year will be even higher. But in the meantime, we are in late stages of discussion with other large global top 10 OEMs. And there will be some revenue toward those, maybe in the forms of NREs. But volume wise we will not be able to match the GM program.

Tom Narayan: Got it. And then my second one, if I could. There seems to be a handful of winners today in the lidar space. It seems like there — it’s kind of solidifying before us today, like who is kind of winning, and you guys are in there with GM. Just curious how you see the industry in let’s say five years from now? Do you see consolidation happening, maybe with a couple of dominant players, or do you see just many, many players with kind of equal market shares across OEMs? Yes, just how do you see this kind of playing out in your eyes?

Jun Pei: Yes. Thanks, Tom. Jun here. I’ll start the question, maybe follow that with some additional comments from Mitch. The consolidation is already happening, as can see it in this industry. But the plain fact is, the winners right now with a well defined automotive program will continue to be the winners because we go through all those sophisticated process of bringing automotive component into marketplace. So, yes indeed, it’s not a winner takes all position. But for sure, it will be concentrated into a small group of people that basically can be counted by one hand.