Q3 2022 Cepton Inc Earnings Call
Welcome to the SAP Dawn incorporated Q3, 2022 business update and earnings call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
Now I'll turn the call over your host Paul <unk>, Chief Financial Officer, Paul You May begin. Thank you and welcome everyone to <unk> third quarter 2022 earnings call and business update with me today is Jim <unk>.
Co founder and Chief Executive Officer, and Mitch <unk> Senior Vice President of business development. During the call. We may refer to our unaudited GAAP financials and non-GAAP measures in our earnings release, the non-GAAP financial measures should not be considered as a substitute or superior to the measures of financial performance.
In accordance with GAAP.
Reconciliations for non-GAAP measures are included in our earnings release.
I'd like to remind everyone that comments made during this conference call may include forward looking statements regarding the company's expected operational and financial performance for the future periods. These statements are based on the company's current expectations and are subject to the safe Harbor statements.
Actual results for future periods may differ materially from those expressed or implied by these forward looking statements due to a number of factors.
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 the webcast replay of this call at investors to accept on Dot com.
Now I'd like to turn the call over to Jay.
Yes.
Thank you Paul and good afternoon, everyone.
Thank you for joining us up to host our third quarter earnings call.
We will provide a business update and review of third quarter of 2022 financial results with you.
I would like to start our business updates with an exciting announcement.
We recently entered into a binding agreement for a $100 million investments from our long term automotive tier one partner and current shareholder coed on manufacturing of Japan.
This transaction marks <unk> third investment in Satcom.
And as a testament to <unk> continued commitment to our company and for the future of Lidar.
We're very appreciative of Korea to support it.
This will solidify stockpiles financial positions.
And further strengthen our partnership our serious production execution as well as collaboration efforts towards winning automotive OEM programs. In addition to the general Motors design win we have already captured.
We founded the company with a market focus on building Lidar as a safety device and everyday vehicles.
Quickly targeting on the Adas market to help save lives.
This thesis has been the guiding principle of our development efforts and commercial engagements over the past six years.
We aim to create lidar sensors that achieve a balance of performance cost and reliability for mainstream vehicles.
2017 marked the beginning of a successful long term relationship between <unk> and <unk>.
And in the five year since our teams have successfully collaborated to be selected as the lidar provider for general Motors also crude system.
This development journey with General Motors has taken three years.
The land and the extent of effort involved cannot be understated.
That compounding Koito, a partner who not only believed in the prospect of Lidar, but also stood behind <unk> innovative technology as well as invest in the stockpile for the future of automotive safety.
Going forward with this latest investment sometime koito teams are sharply focused on the commercialization and scale of manufacturing of our lidar products.
<unk> is proud to support Gm's vision of zero crashes zero emissions and zero congestion with our intelligent Lidar solutions being an integral part of the ultra cruise program.
This quarter, we saw the first public review offset ton lidar integrated behind the windshield in a production vehicle.
This marks a tremendous achievement for the company.
<unk> is proud to be enabling one of the first OEM deployments of in vehicle Lidar technology.
Looking further ahead, our serious production award is secured up to model year 2027, and we are in advanced discussions to extend this program further beyond.
There are a number of other notable achievement for sub count this quarter.
Sometimes NOLA Lidar has been selected as the automotive sensor a hardware solution of the year in the third annual Oncotype Breakthrough Award program.
This trial is a light on our emerging products that provides the versatility for large scale deployment in many different short range Lidar applications.
In addition, <unk> announced the multiple collaboration partnerships, including with Nvidia on their drive Sim platform and light our Swiss for high Fidelity mapping.
From industry experts to emerging technology companies Samsung has been the lidar provider and collaboration partner of choice for a wide variety of automotive and non automotive use cases.
Yes.
Looking further ahead, we remain on track to tape out our next generation ASIC.
This new chip will be complementary with our current asset and will enable <unk> next generation product line targeting both automotive and non automotive customers, while featuring performance benefits and cost efficiencies.
Further out in January 2023 were expected to unveil our next generation product at CES.
Please subscribe to soft on social media to watch a short teaser to be released in the coming weeks.
On digital media, we launched our new brand New video and we invite you to our website to learn more about our company and our vision.
Next I will turn it over to Mitch.
Thank you Jim.
Starting with our automotive programs set downs positioned to win additional automotive Adas business has improved significantly since our last update.
We completed the RFP process at two top 10 global Oems and are in prime position to continued towards our SKU and eventual business Awards.
At both target Oems Koito maintains a leadership position on lighting products and the recognition of kudos value as a tier one is gaining traction among top automotive companies in North America and Japan.
Furthermore, we added one more major automotive program to our advanced engagement stage. This immediate program opportunity is another testament to the commercial validation of our Lidar technology and solidify their competitive position as the light our winner in the industry.
Unique to step down as the ability for our MMP based lidar to enable and transcend all levels of autonomy from <unk> plus systems to L three and beyond.
In the automotive industry, we have seen Oems allocate additional resources to accelerate development of das versus full autonomy, which puts stepped on editor and vegetation is positioned to leverage our major program win at GM to capture additional large series production programs in the near future.
With the added financial resources from our Quito investment, we expect very positive outcomes in both OEM sourcing and smart infrastructure deployments the.
The Lidar landscape has really begun to crystallize over the past three months as such we are redoubling our efforts on major automotive lidar opportunities and we will keep an opportunistic approach towards smart infrastructure opportunities.
Our lidar solutions have been designed into major airports across the United States and we expect to see significant deployments of our products in the coming year.
Tolling and smart airports are two use cases, continuing to emerge as the most promising applications for lidar within this space.
Next I will turn it back to Paul.
Thank you Mitch starting with our third quarter results total revenue for the quarter was $1 8 million down 5% year over year, and 30% sequentially and consists almost entirely of product revenue.
Third quarter product revenue was $1 8 million.
171% compared to the prior year period, and 23% sequentially driven by increased product sales to customers.
We had minimal development revenue this quarter due to timing of various planned milestones on outstanding projects.
Our gross profit was slightly negative for the quarter as a result of revenues being solely from products and no development revenue of almost.
As compared to the prior quarter, our product revenue gross margin improved meaningfully largely due to less elevated component costs as we work through supply chain constraints.
GAAP net loss was $17 4 million.
Or 11 cents per share basic and diluted non-GAAP net loss was $13 2 million or <unk> <unk> per share basic and diluted.
Weighted average shares outstanding for the third quarter was $155 7 million shares both basic and diluted.
non-GAAP adjustments include stock based compensation of $2 4 million and a $1 4 million loss on re measurement of earn out shares liability and 0.1 million loss on re measurement of our warrant liabilities.
non-GAAP adjusted EBITDA for the quarter was negative $12 7 million.
As of September 32022, we had available liquidity of approximately $120 million.
Total available liquidity consists of approximately $21 6 million in cash and short term investments and the remaining $98 million from Lincoln Park capital on a 100 million equity purchase commitment.
With the recently signed a 100 billion investment from Koido. Our total available liquidity is expected to increase significantly at the close of the transaction in the first quarter of 2023.
On a full year 2022, we are maintaining our prior revenue guidance of between $7 million and $9 million.
On the cost side, we maintain our full year operating expense guidance between $55 million and $65 million.
Lastly, I'll summarize the key terms of the investment agreement with coil.
The investment is expected to close in the first quarter of 2023 subject to set top shareholder approval.
As part of the transaction <unk> will sell 100000 shares of series a convertible preferred stock at a $1000 each share for a total purchase price of $100 million.
The preferred stock will be convertible beginning one year. After the issuance date at an approximate initial conversion price of $2 58 and hot.
And well carry an annual dividend rate of 3.25% if paid in cash of 4.25% of paid in kind.
Conversion price represented a one day premium of 13, 4%.
Our 14, 4% premium to a 30 <unk> web and a 25, 5% to 90 day <unk> of <unk> common stock.
I'm currently with execution of the investment agreement.
<unk> entered into a secured term loan agreement for $5 8 billion Japanese yen or approximately $39 million U S dollars.
Proceeds will be used to repay the Trinity loan and for general corporate purposes.
The term loan has a fixed annual interest rate of 1% and has to be paid back at the close of the convertible preferred stock transaction.
We are very appreciative of Quito support and looking forward to our continued collaboration towards series production and additional OEM wins.
Now I'd like to open up the call for questions.
If you would like to ask a question. Please press star one on your telephone keypad now you'll be placed into the queue and are do we seen please be prepare to ask your question. One pumpkin once again to ask a question. Please press star one on your phone now.
Our first question comes from Cemig Chatterji from Jpmorgan Chase. Please state your question.
Hi, Yes. This is Joe Cardoso on for Sonic chatter.
My first question is on the Q2 Q2 investment of 100 million can you help us think about how you plan to leverage this funding and more specifically is there anything different from disinvestment relative to prior best investments and then a second part to that is you just as you discussed this would mark the third invest.
From this partner how should investors think about future funding materializing from them. Thank you and then I have a follow up.
Okay.
This is a whole I'll I'll take your question Joe So how do we plan on using quite as investment.
Primarily it's going to be for corporate purposes right.
To extend our runway extend our liquidity as we execute the.
Mr Expression award and also in terms of winning New awards.
How is it different from their prior investments so in a prior investments koido essentially subscribe to a common shares so they bought common shares.
And this one is cps or convertible preferred and preferred shares. So these will be preferred shares that's convertible into.
Into common and are eligible to convert one year from the issuance date.
And then just yeah.
And then just I have another one as well, but just in.
The last part of that was just how should investors think about future funding from this partner.
Future right, Yeah, maybe Jim pay here I'll take that question.
With this latest investment that will certainly have a much higher levels of collaboration between core Ito.
And somehow you know this.
This will lead into a lot of things, including more synergy.
Operating efficiency cost savings for our ultimate customers are all of the things I will actually be converging I do we expect continuous support from call. It all down the road.
Yeah, and this obviously extends our runway you know quite a quite a bit right and in addition to this pending transaction. We also have the Lincoln Park.
That's that's still available for us so in the near term we don't expect additional.
Investments are funding or their phone from Quito.
Got it and then just my second question you know two of your peers in the space announced a merger. This morning, just curious to hear your thoughts on that specific merger and then maybe more broadly how you're thinking about industry consolidation going forward and do you see a role for <unk> to be a consolidator and then maybe even touch on do you think it's too early to see.
Consolidation from both an industry and or step down perspective. Thank you.
Okay, well a lot of questions packed in there maybe I'll Miss a couple you can continue to follow up with these questions at June here I will answer your questions.
You know the latest news.
It.
Appears to makes sense.
For the non auto.
The market, even though that market the non auto market is rather fragmented.
And this consolidation.
As the effect of that is yet to be seen.
For us as for <unk>, we certainly believe the future scaling of our automotive lidar product will promote more reasonable prices that that will lead into more adoption into the non auto area.
But specific to get to this announcement I think the.
Like I said the effect is yet to be seen well, what's the overall in terms of future consolidations and possibilities are we always have our eyes open but for US we're very focused on automotive end market and we believe in very naturally this is the big.
The biggest market the biggest opportunity in the coming decade, we remain you know very much optimistic about infrastructure as well but.
You know for us our focus on the automotive end market that is really the key.
We don't expect any competitive.
Competitive pressure from this.
From this announcement since our focus is rather different.
And.
You want to yes, so I think Joe you other you're part of the other question is is it too early for consolidation right.
I mean, our view my view is that outside of automotive end market focused companies.
We think it's it's not too early.
There are a number of public companies addressing the non auto market.
We know that tomorrow that market is very fragmented and we actually think consolidation helps in terms of driving adoption.
Yes. Thanks, I appreciate all the color and answering that very long question. Thanks, guys I appreciate it. Thank you.
Our next question comes from Joseph Spak from RBC capital markets. Please state your question.
Hey, good afternoon, everyone.
Couple of questions.
Paul maybe just to start to sort of.
You know better understand the quarter, if we back out the developmental revenue in the second quarter, then and revenue was up actually a little bit of quarter over quarter. So I think last quarter you talked about maybe 400 units. So is was it <unk>.
Higher units in the third quarter sequentially or are perhaps was there. Some some movement in asps, maybe maybe you took some pricing for some of the inflationary pressure yeah, it's a little bit of both Joe. So in terms of units, we did ship more units than the second quarter.
Also a S. P. A were higher in the third quarter than the second quarter and second.
Second quarter, we had I think one fairly significant infrastructure Congress a shipment that was slightly below our normal.
Okay and that pricing is that is there more like is that just a mix issue or are you sort of taking some pricing for some of the costs that you've seen in the world.
It's primarily primarily a mix a mix issue.
Okay.
If we <unk>.
Maybe you know look at look at.
The guidance, which you reiterated in.
We could sort of get some implied.
Fourth quarter numbers here.
A couple of things one.
How much developmental revenue if any do you expect in the fourth quarter.
You've got to you've got the gross the gross margins are effectively breakeven in the third quarter I think in the past you sort of talked about potentially positive in the fourth quarter. I was wondering if that's still on the table and then.
Just remind me on guidance that Opex 55 to six 5% does that include SPC are excluded.
Yeah. So so that includes SBC.
And.
The fourth quarter.
Yes, we do expect some development revenue, we're planning for some of the milestones to be achieved.
So we can factor that into it and then on gross margin we do.
We expect to have a solid positive gross margin as we become more efficient in test and also to work out some of the Kinks in terms of on the operational side right. So this quarter's negative.
Gross margin if we were to take.
Take out some of the inventory discounts and all that.
I have been slightly positive.
Okay. I mean, it was it was only.
Yeah.
I mean, I guess I don't know exactly the split of SBC at time I'm sure, we'll get that but it seems like it was only modestly negative adjusting for some of those factors. This quarter is that right, yes, its very modesty.
Okay.
I guess the last question is.
Joe and I. Appreciate you started talking about the opportunity from auto it's obviously there's.
A lot more unit potential obviously, there then on infrastructure as you sort of our non auto as you sort of mentioned.
But and you have the GM Award.
But you know like this the seller steek.
Which is where the ultra cruise is starting right I think I could count on all my digits named in a number that are going to be made next year. So I know youre not giving 'twenty three guidance now, but maybe at a high level can you talk about how you eat.
Expect the industry and your business to evolve going into next year, because you know without the auto units coming in it's hard to see how you get higher from that $2 million a quarter ex developmental revenue run rate.
Yeah I guess.
Everybody, where they have a very natural questions like you know where the numbers are in.
And when are they coming in.
This is just the beginning of a lighter.
Our industry, we're at the cusp of breaking through and you actually saw pictures now with our Lidar in the vehicles is actually more real much more real than comparative even one year ago. So slowly surely these numbers all will actually start to get into into you know.
A form that we can start with talk in this call is that it's not.
You know it's.
As I have said in the past many times for sure I don't Wanna be happening it will get into the vehicles is a evolutionary process for for the higher level of autonomy and safety.
At this moment.
It's just having things nailed down to the details.
Little bit.
You know, we're not at Liberty to disclose everything yes, Joe. This is mature teeny I'll just add to John's comment. So [noise] stepped down in Colorado are continuing to work on further vehicle platforms.
Kind of after GM, which which of those vehicles. They begin to showcase at different times, yes. This summer it was the celestial <unk> complete.
Completely agree with you that the luxury class vehicle volume is going to be pretty low.
But we can't we can't disclose ourselves unilaterally the exact number of additional vehicle platforms of the classes, but this work continues and I can safely say that our overall expected contract value continues to increase and it did this past quarter and we're continuing to work on that.
This quarter as well.
Okay.
Yes, just on your second point about what does that mean for smart infrastructure. We yes, we've made inroads in the smart infrastructure market.
However, if you look at that that market.
There's still some cost sensitivities and we believe having the automotive production line in place with Quito will help us gain traction in the smart infra market by lowering our costs and improving the delivery situation.
Okay, I guess, maybe just to follow up on that point I appreciate all the color and completely get that you know.
You have a sensitivity as to sort of.
What you can announce with with your partners, but at least at a at a high level or at a at a <unk> specific level. When do you think youre going to be in a little bit of a better position to.
To educate the market as to sort of how the trajectory looks here over over the next couple of years.
Hey, Joe I think.
At the beginning of next year, when we owe it to our full year summary, an update will be able to provide more color, but for now I think in terms of unit volume for automotive you can think of next year.
Even in the first quarter, we will be able to ship more units.
Hum.
Probably twice as much units as we will have shipped in this year.
That helps.
Okay.
For infrastructure or automotive.
But but what youre shipping for automotive isn't cereal products. So can you just help me understand that right because yes, well Sop is next year right startup production is 2023 next year.
We're already we already have purchase orders from from Quito.
Because we supply to quote unquote suffice to Jan.
For the ultra cruise program.
Okay. So you're saying, there's a lead time issue of which is what a quarter or so or how should we think about that a couple a couple of quarters couple of quarters. Okay. I appreciate that thank you.
Yep.
Okay.
Our next question comes from Gus Richard from Northland Securities. Please state your question.
Yes, thanks for taking the question.
I think you made a comment earlier in the call that <unk>.
Oems are starting to focus more on Adas and autonomy.
Wondering how that.
Changes.
Specifications that theyre looking for and your competitive position.
Yes, I think.
Think its public you know what Ford announced about the wind down of Argo and then they said there.
Creasing their investments in Adas.
<unk> specifically.
That definitely plays into our market focus we spent three or four years working with general Motors. We had spent just as much time working with Ford couple of the Japanese Oems so.
It's a good thing for our product portfolio, our specs are opportunities in the short term definitely.
Yes, the EV space has they required longer range 200, 5300 meters in some cases, we have tech that can support all four.
But right now the shift to LTE plus L. Three focus is a really good thing for our immediate opportunities.
Yeah, Gus tune here I want to just add on.
You know for for the Adas field.
Having the design focus so from the very beginning as a key in terms of getting the specifications. In this specification is not only on the performance part of that.
You know you get to see how far you get to a CEO with whatever resolution.
You also have to consider this as a everyday vehicle automotive for safety part. So you got to have the reliability.
And also you know not to mention you absolutely have to hit the cost target. So.
As we always have promoted ourselves and mentioned in the past that the Disbalances, where the key technology M. M. T from SAP, Tom hit the Sweet spot and that's where we actually you know one of the fundamentals we captured a design win so yeah, you know the spec for avs versus eight us.
Or rather different.
And are you know, we actually are happy to work here on something that's going to be scaled to a large volume yeah, and then I will just add one anecdote because to the to this industry trend. We've seen you know as we address the RFID on refuse we've.
We've seen OEM pulling in the timeline or deployment, so can share, which OEM that is but is it a global top 10 OEM.
Got it and that was actually leads me into the next question. You mentioned you had two Oems that you move from the RFP process. They are a SKU.
Just wondering.
What exactly does that mean, what does it look like.
What added activities are there with these two Oems.
Yeah.
Yes, I mean these are two Oems we've worked with for multiple years. So it's really about solidifying the specification for that the exact target vehicles that they have planned.
Whereas a few years ago may have been more proof of concept data collection activities now it's more about vehicle integration, where does the part go on the car.
That cost commercials nailing down the timing.
That's all done in the RFID fades RFP you, you're just that's a rubber stamp on all of those elements and a committed launch schedule in commercial.
Got it got it.
Very helpful and then.
The last one I always like to ask a question nobody.
Somebody willing to answer can.
Can you give us a sense of your overall contract value with it where do you think that stands at this point.
Ah yes.
We will answer that.
For the GM Ultra Crows program, we based on our own estimates, which is fairly conservative at this point.
Well over $1 billion.
With the current contract.
Existing projects with existing awarded awarded vehicles.
Got it got it and you know these two Oems youre working with any any sense of how big those contracts could be.
It will be the same at least one of them will be the same or larger.
Perfect.
Got it alright very good thank you so much.
Yes.
Our next question comes from Matthew <unk> from Maxim Group. Please state your question.
Hey, Paul.
Thanks for taking my questions and congrats on that.
Some of the narrow show you're you're building in automotive.
Yes.
Maybe just another way of asking.
Funding question, but.
Does the does this investment.
On the preferred shares.
Sort of allow you to expand.
Little bit more.
And be more opportunistic on the non automotive.
Side or.
You too.
To engage with more automotive Oems or just can you talk about is there a fairly direct connection activity you're seeing.
Yeah, let's say both right.
You know, we remain pretty opportunistic on smart infrastructure side.
We want to see that there's a real real programs and real.
<unk> deployments and we also want to see profitability on that side are in the near term for the automotive side of things as you see the recent focus on AWS and.
And we actually do need to increase our resources to focus on to eat what happened.
Even more focus on automotive.
To meet the needs of the Oems as they kind of accelerate timeline and everything so that does give us a lot more resources financially to do all of these things.
Got it. Thank you and then my follow up is.
I guess with respect to the comments on Oems refocusing on <unk>.
Any changes to the competitive landscape.
Whether it's within Lidar.
Automotive focused fly at R. R.
Non lidar sensor.
Sensor option that Oems might.
At their disposal now.
Is it a more competitive environment today than it was a couple of years ago. When you were working towards the G M.
Award or.
Does it feel a little you know just what is the competitive dynamic.
Like today.
Sure I can start that one Matt.
This is Mitch.
I never want to say, it's becoming less competitive it's always competitive in automotive, but the number of competitors is you can count on one hand now versus you know even two years ago. It was still a couple of dozen companies.
So when you talk about top 10 automotive companies, it's down to you know definitely one hand, maybe just a couple of companies.
Yeah, I would also say that the Oems want to see track record of execution right and that track record. It can only get you know with the time so.
Kind of.
Echoing niches.
Statement of the number of companies a number of competitors, becoming less that is part of it is because of only a handful it's been able to execute on real OEM programs overtime.
And you're already seeing basically the company's though with automotive design wins will continue to have automotive design wins.
Got it thank you.
Sure.
Okay.
Our next question comes from Richard Shannon from Craig Hallum Capital Group. Please state your question.
Hi, guys. Thanks for taking my questions as well I think I've got a follow up on the topic of the.
Two completed RFP processes that move around RF Q do you know what and do you know what they are and can you talk about what you know what if any competitors are still remaining in those processes.
Yeah, just hey, Richard this is Mitch just to clarify what what's your first question you said, what do we know what they are competitors.
Do you know how many competitors, yes, we know exactly the competitors that each of the three so one of one of the three there is no competitor and.
And the other two there's two or three competitors.
Yeah.
Okay.
Alright, great. That's helpful. And then the second question is the other bullet here from the press release, you talked about is a new top 10 automotive OEM program added two advanced engagement stage, what does that mean that.
I mean, how do you set that in the nomenclature RFID, our Q, where does that fit and can you describe that a little bit more please.
Yeah. So.
So that one is.
The new opportunity that we discovered in Q3 or that came to us in Q3.
And that's actually the one where I mentioned that there really isn't a competitor.
Thought out stepped on.
I'm very familiar with our part from past engagements.
And so there isn't really there is no RFID fades.
<unk> updated commercials and timing.
Yeah, and Richard if you remember back when when when when we shared our.
Forecast, we have awarded we have advanced engagement and then different you know the other lessor.
Less advanced categories right. So avast engagement, you know what I mean.
You know very close to being awarded.
Okay perfect.
I think thats all for me guys. Thank you very much.
Once again, if you would like to ask a question. Please press star one on your phone now.
At this time, we have no further questions.
Yes.
Okay. So thank you all for joining US today's conference. We appreciate your time and questions certainly I say exciting landscape a lot of things are happening at <unk> is continuing to execute execute well.
And we will continue to report on our progress and the focus of the automotive industry.
And we'll talk again in the quarter.
Thank you Erika. This concludes today's conference call. Thank you for attending.
The host has ended this call goodbye.