Q4 2022 Cepton Inc Earnings Call
Speaker 1: And to.
Speaker 2: Good day everyone and welcome to the Q4 2022 SeptonInk Business Update and Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Speaker 2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on a touch tone phone. To withdraw your question, please press star then 2.
Speaker 2: Please note this event is being recorded. I would now like to turn the conference over to Halshu, the CFO . Please go ahead, sir.
Speaker 3: Thank you and welcome to CEPTON's fourth quarter and four-year 2022 earnings call and business update. With me today are Junpei, Co-founder and Chief Executive Officer, and Mitch Hortini, Senior Vice President of Business Development.
Speaker 3: 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.
Speaker 3: I'd 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 Hopper statements.
Speaker 3: related to forward-looking statements contained in our earnings release and the slides that accompany this call.
Speaker 3: 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.
Speaker 3: We are 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 8.
Speaker 3: Now, I would like to turn the call over to Jun. Thank you, Hall, and good afternoon, everyone. Thank you for joining Sept. 4th Quarter and full year 2022 earnings call. We will provide a business update, review 4th Quarter and full year 2022 financial results.
Speaker 3: and provide our view for 2023.
Speaker 3: Starting with our business update, over the past year, we have shared with you 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 ADA system on March 7th, last Tuesday.
Speaker 3: GM offered the most comprehensive look into the role of LiDAR in their sensor suite in the deployment of their next generation ADAR system designed to enable hands-free driving in 95% of all driving scenarios.
Speaker 3: 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.
Speaker 3: Our LiDAR sensor is a key enabler to safely deploy GM's next generation ADAS offering.
Speaker 3: At the end of last year, we began shipping pre-production units to our OEM customers.
Speaker 3: This year, we look to start of series production. We are excited to move yet another step closer to commercialization of our products.
Speaker 3: At CES this year, we unveiled our next generation LiDAR, the Vista X120 Plus.
Speaker 3: Recognized by the CES Innovation Award program, the X120 Plus has a 30 degree wider field of view, and 20% reduction in size, and 50% reduction in height compared to our X90, which is our flagship lidar selected for the series production.
Speaker 3: This new sensor builds on our core MMT technology for superior resolution and offers additional vehicle integration options with its slim design.
Speaker 3: Many OEM customers, both existing and new, are interested in testing and evaluating our new sensor for their next generation vehicle platforms.
Speaker 3: 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 production programs.
Speaker 3: At the end of last year, we successfully taped out our next generation ASIC chip and expect the first samples to be available starting early this year.
Speaker 3: This new image processing ASIC is complementary to our existing industry leading signal processing ASIC.
Speaker 3: The combination of both will be featured in our new Vista X120 Plus.
Speaker 3: working in unison to improve performance and significantly reduce cost.
Speaker 3: Our proprietary ASIC extends a unique differentiation to our products, offering signal level compute, moving up to point level compute, and eventually frame level compute capabilities.
Speaker 3: In the year ahead, we look forward to sharing with you our full ASIC chipset roadmap.
Speaker 3: With our leadership team, it is my pleasure to announce the appointment of Dr. Dong Yi Liao as the Chief Technology Officer of Zetang.
Speaker 3: Dongyi previously served as our Senior Vice President of Applications since 2017 and is responsible for all software efforts of the company.
Speaker 3: We look forward to his contributions to expanding the value of software in the growing deployment of our LiDAR.
Speaker 3: Marc McCord, our current CTO, will continue with the company to serve as the chair of Sepsong's newly created technical advisory board and will remain in charge of our intellectual property portfolio.
Speaker 3: Please join me in congratulating both Dong Yi and Mark in their new roles.
Speaker 3: 2023 will be a landmark year for SEPTEL as we look to transition into series production.
Speaker 3: Staying true to our principles that our sensors must achieve a balance of performance, cost, and reliability is ever more important.
Speaker 3: As our sensors enter mainstream vehicles, we are hyper-focused on delivering auto grade quality at scale volume costs.
Speaker 3: Our Tier 1 partner, Kuito, brings decades of volume manufacturing expertise to complement our technology.
Speaker 3: In the year-end, our collaboration efforts will not only focus on series production execution, but winning additional automotive OEM programs, which Mitch will share more details with you next.
Speaker 4: Thank you, June . Starting with our automotive programs, as June indicated, pre-production shipments started at the end of the previous year and have expanded to multiple vehicles and multiple vehicle manufacturing sites.
Speaker 4: We are in advanced discussions to expand our existing business award to additional vehicle models.
Speaker 4: GM kicked off the announcement of the Celesteek late last year and followed up with a comprehensive announcement of the sensor suite in the UltraCruise system a week ago. We expect more announcements across additional models in the year ahead.
Speaker 4: Over the past year in the automotive industry, we've seen accelerated investments and focus on L2 Plus ADAS offerings as a result of Level 4 programs being pushed out.
Speaker 4: Of course, I'm always speaking about our target customers, leading global top 10 automotive OEMs.
Speaker 4: We expect additional OEMs to take a similar approach to GM on L2 Plus or L3 system deployments, with announcements in the near future.
Speaker 4: We remain in a very good position for additional production awards with our target OEMs.
Speaker 4: We are in advanced discussions with several global top 10 OEMs at this stage.
Speaker 4: 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.
Speaker 4: We have gained trust across the industry having gone through an extensive development process and launch efforts with General Motors.
Speaker 4: This entire process spans over three years in both hardware and software development. Establishing Septon is one of a few auto-grade lidar suppliers for automotive OEMs.
Speaker 4: In 2023, we will direct efforts in winning series production awards toward our newly launched Vista X120 Plus product.
Speaker 4: Our public launch in January has received a lot of interest among the OEMs hoping to deploy LIDAR in the next-gen vehicle platforms.
Speaker 4: Turning to smart infrastructure, we recently announced a multimillion dollar contract from a leading US 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 US and outside the US for future deployments.
Speaker 4: 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.
Speaker 4: We will continue to focus on executing our strategy in our target applications, including airports in the year ahead.
Speaker 4: Finally, we have a new autonomous ground vehicle project with a top 10 automotive OEM to announce.
Speaker 4: CEPTAN is supporting the safe deployment of Level 4 autonomous ground vehicles with our NOVA near-range LIDAR.
Speaker 4: Details of this customer and application will be forthcoming soon, so stay tuned.
Speaker 4: I'll turn it back to Holt now.
Speaker 3: Thank you, Mitch. Starting with our fourth quarter results, total revenue for the quarter was $1.6 million, a 23% increase compared to the prior year period. Fourth quarter product revenue was $1 million, consistent with the prior year period. In the fourth quarter, we had development revenue of $0.6 million based on timing of the quarter.
Speaker 3: or 10 cents per share, basic and diluted. Fourth quarter non-GAAP net loss was $13.4 million or 9 cents per share, basic and diluted. Fourth quarter non-GAAP adjusted EBITDA was negative $12.3 million.
Speaker 3: We achieved a four-year revenue of $7.4 million, meeting our revenue guidance and represents a 65% increase compared to the prior year.
Speaker 5: While our development revenue was consistent,
Speaker 5: 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. Four year gross profit margin was slightly positive at 2.6% and is consistent with the prior year.
Speaker 5: 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 expense for the year was $50.6 million while under our OPEX guide.
Speaker 5: Full year gap net income was $9.6.
Speaker 5: million or six cents per share, basic and diluted. For your non-GAAP net loss was 53.2 million or 36 cents per share, basic and diluted.
Speaker 5: non-GAAP adjusted EBITDA for the year was negative $50.3 million.
Speaker 5: 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.
Speaker 5: In January , we closed the 100 million preferred stock investment from Coito after obtaining shareholder approval for the transaction.
Speaker 5: As a reminder, the preferred stock will be convertible beginning one year after the issuance date at an initial conversion price of $2.58.5 and will carry a dividend rate of 4.25% paid in-kind or 3.25% paid in-kind cash.
Speaker 5: At close, we use the proceeds from the transaction to repay our outstanding term loan from COITO, increasing our cash and cash equivalent to approximately $89 million.
Speaker 5: 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 of our current Service Production Award. For more information, visit www.larryweaver.com
Speaker 5: Turning to 2023 guidance, we're expecting four-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.
Speaker 5: On the cost side, we expect four-year operating expenses to be in line with that of 2022, or between $55 and $65 million.
Speaker 5: We have many notable achievements in our first year as a public company. With the closing of the Koido 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 the investors at our annual stockholders meeting to be held in May.
Speaker 2: If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker 2: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster.
Speaker 2: Our first question comes from Tom Narayan with RBC. Please go ahead.
Speaker 6: Oh yeah, thanks Tom and I received thanks for taking the questions. First congratulations on the GM press announcement. The first question has to do with the 2023 guidance. You have a $7.2 million in revenue in 2022 increasing what it looks like to $50 to $20 million in 2023.
Speaker 6: Could you help us understand what is driving the incremental revenue of the guidance here? Maybe just a further breakout. Is this assuming new auto OEM wins beyond GM? Or is it mostly GM? And is there maybe organic growth in smart infrastructure as well?
Speaker 5: Happy to do that, Tom. Thanks for the question. Yeah, 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, are we shipped on
Speaker 5: about 1,500 units. And that's 45% to automotive and 55% to smart infrastructure.
Speaker 5: And that's 45% to automotive and 55% to smart infrastructure.
Speaker 5: Right now we have six months of visibility into the program. When you have
Speaker 5: series production programs do have a little bit more visibility. So in our hands right now we have purchase orders of over 10,000 units.
Speaker 5: 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.
Speaker 5: So that's just automotive, actually that's just the GM program in automotive.
Speaker 5: And turning to smart infrastructure, we announced that we had won this multi-million dollar contract from an electronic tolling provider in the US.
Speaker 5: The bulk of that will occur this year, so that also gives us a lot of confidence in our guidance.
Speaker 6: Did I answer your question, Tom? Yeah, yeah. And then, so it sounds like there's not, you're not assuming new OEM revenues beyond GM for the auto piece for 23 in the guidance? We will have some, but not meaningful as it compares to the GM program, right? So I don't care who you are you can go for a Robin marine boat, but even if you were a
Speaker 5: 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.
Speaker 5: 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 they will not be able to match the GM program.
Speaker 6: And then my second one, if I could... There seems to be a handful of winters today in the LIDAR space. It seems like they're... Thank you.
Speaker 6: And then my second one, if I could, you know, there seems to be a handful of winners today in the LIDAR space. It seems like they're...
Speaker 6: solidifying before us today, like who's kind of winning out, 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, with a couple of dominant players or do you see just many, many players with kind of equal market share across?
Speaker 3: OEMs. How do you see this kind of playing out in your eyes? Yeah, thanks Tom. Jun here. I'll start a question, maybe follow that with some additional comments from Mitch. The consolidation is already happening as you can see it in this industry, but you know the plain fact is the winners right now with a well-defined automotive industry.
Speaker 4: Yeah, Tom, this is Mitch. I'll just add, once you see the vehicles on the road, which Hol just talked about, we have orders for over 10,000 units this year, so that puts them on the road late this year, early next year. Take care,DERP.
Speaker 4: That's really the final proof point, right, for these companies that have made claims of design wins and projections. So that's what we're working towards. Once you're integrated into the vehicle, especially like we are behind the windshield, it's very hard for any competitor to...
Speaker 4: get to that location or Replace that socket. So these these design ones with OEMs are really on the order of five to ten years minimum Right, and so the last one I have is in an environment where let's say lidar becomes required
Speaker 6: for vehicles for safety. Kind of like how we had with airbags, rear view mirrors, that sort of thing.
Speaker 6: Do you view that as a positive or a negative in that could that create an incentive for tons of competitors to come into the space or perhaps it becomes more commoditized where pricing comes down? How do you see that world developing? Or is it just great for you guys because it's a positive or a negative in that sense?
Speaker 6: know not winner-take-all but the better guys went out and and you guys could be you know beneficiaries of that
Speaker 3: Well, if it's already a common place to have LIDAR in cars, if that's what you're referring to, and to the extent it could be even regulated into a car safety device, I think that's always a good thing for us. For one of the front runners in the LIDAR business.
Speaker 4: having a foothold into this space. As long as the space is expanding, we're gonna enjoy that benefit. Yeah, I think I'd just add, it'll follow a similar path as radar and camera. It took them 15 to 20 years to establish.
Speaker 4: a so-called commoditized where OEMs had a handful of qualified suppliers to choose from. So I think we're very far from that situation, I would say at least 10 to 15 years. So these winners that launch are going to be the winners for the next decade.
Speaker 5: Yeah, and I'll add that on the ASP front, I think Tom that was part of your question also, you know We do expect ASP to come down as this becomes proliferated Right and as a technology company in the valley and that's what we're good at which is in doing our engineering work to bring the cost down and I'll point to The fact that we are we have already taped out our second ASIC Which will automatically reduce
Speaker 5: some of the component cost in our current version and our next generation products.
Speaker 2: Great, thanks a lot. I'll turn it over. Again, if you have a question, please press star, then 1 to be joined into the queue. The next question comes from Samik Chatterjee with J.B. Morgan. Please go ahead.
Speaker 7: Hey guys, thank you for taking my question. I guess if I could start, I think you mentioned, Hul, you mentioned the visibility that you have in relation to production, the series production with about six months of visibility and 10,000...
Speaker 7: unit as the order pipeline there. Just wondering if that sort of, we should read that as sort of the 10K unit volume in terms of series production over a six month period and does that give you a little more visibility about.
Speaker 7: What the take rate on sort of the options that the OEM is planning for in relation to ADAS related to their vehicles? Has that given you any more sort of...
Speaker 7: in terms of what the OEM is thinking about in relation to attach of that ARA solution on the platforms you're on. I have a quick follow-up as well. Thank you. Hi, Samak. This is Mitch Hortini. I think I can offer some color on that. All wrong guys. Just keep talking.
Speaker 4: The units that Hole is talking about, we have orders for that. That just covers the first couple of platforms at GM.
Speaker 4: And so there will be a mix of take rates, you know, whether it's the high-end luxury vehicle, could be up to 100% versus the mid-grade models, which don't start until...
Speaker 4: next year where the take rate could be a little bit lower, but they're higher volume platforms. So yeah, I think we're getting more insight, obviously, as we get the firm orders, but I don't think there's anything surprising so far or different from our original assumptions from the nine vehicle platforms at GM.
Speaker 7: Okay, so I mean just to clarify, you're implying that that 10,000 is a pretty high
Speaker 7: pay grade on the platforms you're launching on initially in 2023.
Speaker 4: Yeah, on the first few vehicles, yes.
Speaker 7: But then just secondly, I think most of your peers who have reported this earnings season
Speaker 7: have been setting milestones in terms of number of OEMs, number of wins they expect to get through in 2023. Wondering, I know you've talked about expansion of the opportunity with GM being something you're targeting for 2023, but.
Speaker 7: Any milestones in terms of new customer additions, etc. that you're targeting for 2023 that we should be tracking you against. Any color on that front.
Speaker 4: Once again, this is Mitch. I'll answer that and then you can add any comments. We always have the goal of adding additional OEMs, but more than that, this year I'd say, as Hul mentioned......
Speaker 4: We're in the late stages at two OEMs right now in the top 10.
Speaker 4: And so we do really expect them to make decisions within the next six months or so. Of course, no LIDAR company can dictate the timing from an OEM, and if you look at our target customers, there have been a lot of changes. GM's revealed more details on UltraCruise, so that's a value.
Speaker 4: a joint venture with Sony, so that's a step in adopting new ADAS tech, and then Toyota just changed CEOs. So there's a lot of movement at the OEMs that sometimes delays some of their sourcing decisions here, but we're very much in the discussion.
Speaker 4: I would even expand that to Korea and Europe . We're in the discussion in all the major sourcings. Thank you. Thanks for taking my questions. Next question comes from Richard Shannon with Craig Hallam. Please go ahead.
Speaker 6: Well, thanks guys for taking my question. I think I'm going to follow up on the very first question asked here regarding the 2023 revenue profile here. Hall, I think you mentioned this being a back-end loaded year. Maybe you can give more clarity to that, like how much bigger will the second half be in the first half or some way, just to kind of get a sense of what you're expecting.
Speaker 5: Yeah, so the RAMP does take a little bit of non-linear fashion. So I'd say the back end is probably twice as much as the first half.
Speaker 4: Okay, all right, and then in terms of your lead OEM here, can you clarify or characterize how many models that you're shipping into now?
Speaker 4: or at least are covered in that 10,000 units in your order book? Yeah, the pre-production shipments right now are going into multiple vehicle models. It's more than two.
Speaker 4: And the hard orders that we have, they also cover the same number of models, so two or three models.
Speaker 4: But they're all staged in timing, right? Like they don't launch the same month.
Speaker 6: I figured they would be staged throughout the year. That is helpful in understanding this dynamic here. Let's see here. I think in the last earnings call, you talked about a couple of RFIs that you were hoping to go to RFQ. I did not hear you talk about language to that effect here. I think, Mitch, you just... You have something else to challenge.
Speaker 6: use some different language to maybe describe those situations. Then you also mentioned a relationship in the advanced engagement stage that appeared to be without competition. So I guess in the first two RFIs, have those officially moved to RFQs or not? And then any statements you can make on that advanced engagement that didn't have any competition.
Speaker 4: that'd be great. Sure sure yeah there has been some progress on both of those so on the first point on RFIs yes we've advanced to the RFQ phase with another major OEM recently so we're very much in the RFQ phase with them.
Speaker 4: The second point, this has evolved into the point that I made about advanced discussions about additional vehicle models and extended duration. That's where we're at with our lead OEM General Motors.
Speaker 6: I know you mentioned, someone mentioned that in the last earnings call about that. There have been discussions, but you haven't extended beyond. I think you mentioned the past model year 27. It's still in model year 27? Yeah, yeah, that's right.
Speaker 6: Okay, that is helpful. Maybe one or two other ones here. I guess just a question on the OPEX guide here, kind of keep it in the similar range as last year.
Speaker 6: I guess in the context of thinking about where you're able to compete well, I know you've done pretty well in Asia, at least with your tier ones there. But you also mentioned, Mitch, I think some engagements in your competitive in Korea and Europe as well. It was announced I think a few months ago opening up your offense in Munich.
Speaker 6: But with your OPEX here staying flat, how do you manage being competitive across the world, especially with at least one of your LIDAR peers here in the public market spending at rates well above what you are? How are you able to do that with keeping your OPEX flat this year?
Speaker 5: I think one of the operative words is focus. We are very much focused on the top 10 global OEMs. While maybe others could say they've got wins with other OEMs, but we're really just top 10.
Speaker 5: So I think you know North America is our key geography and Japan because of relationship with Korydo You know we're very much plugged in there Europe . We've had an office for for a little while now and We've actually gotten quite a bit more activity
Speaker 4: In Europe , in recent months, I think that's owing to the success we've had with GM. Maybe Mitch can talk about some of the European OEM attractions. Yeah, I think, Richard, we can do a lot more with a lot less than the competition because of our relationship with Koweto and General Motors.
Speaker 4: Koweto is doing a lot more on the front end business development, especially in Japan and the Asia region, so we can rely on them. And now with General Motors divulging a lot more details about this system, especially where LIDAR is, other OEMs are viewing these public announcements and understand more about the BA French tricky, most important concept on solutions.
Speaker 4: You're right, we are doing more with less, but that's because we have two big companies we're working on this with. Okay, I think that's all the questions for me. I'll jump out of line, guys. Thank you very much.
Speaker 2: The next question comes from Tosses with Growth Capital. Please go ahead....
Speaker 8: Hello guys. Just a couple of questions for me.
Speaker 8: I just wanted to ask, when do you expect to see the first batch of GM cars using stepped-in glider?
Speaker 8: I just wanted to ask, when do you expect to see the first batch of GM cars using stepped-in glider at actual dealerships?
Speaker 4: That's a good question, Teso. So this is Mitch. Yeah, I mean, GM revealed publicly the first Celestic last July on stage, but you know that's not at a dealership. So the target is before the end of the year that these vehicles will be at dealerships. And of course we're relying on General Motors hitting their own internal milestone.
Speaker 5: So if you put the two together, they wouldn't be ordering that many units if only a handful of celestics are on the road.
Speaker 8: Okay, thanks, that gives a lot of color. The other thing I wanted to ask is regarding the latest data collection, the data collection to the2nd person for our team and when we fully reattach them, at first it was at faces but
Speaker 8: share price pressure. Can you comment at all if this was related at all to the SVD situation or the Signature Bank?
Speaker 8: Can you comment at all if this was related at all to the SVD situation or the signature ban situation?
Speaker 9: Can you comment at all?
Speaker 5: We can't really comment on our own share price, but with regards to SBB, we could share some information.
Speaker 5: The SBB has been the company's operating bank ever since you know since we were a private company and Several years back the company did have a small loan with SBB which was paid back a long time ago But that was in the filing When we went through the process, so not sure if that's that's related or not, but
Speaker 5: As of now, it shouldn't be of a concern. SOAB is probably the safest place to put our funds, but we already have other bank accounts open with national banks that can take over in terms of operating, you know, operational needs, and we're doing that already.
Speaker 10: You're okay. Thanks a lot.
Speaker 10: Thanks a lot.
Speaker 2: The next question comes from Matthew Galinko with Maxon. Please go ahead. You're welcome.
Speaker 11: Good afternoon, thanks for taking my questions.
Speaker 11: Maybe if we could start with the
Speaker 11: I guess the guidance, you talked about having about six month visibility with your primary customer. So how do you think about...
Speaker 11: fourth quarter and sort of you know 2023 beyond the six-month window how are you
Speaker 11: or thinking about how that factors into the guidance provided.
Speaker 5: Sure. So what we have visibility into is until September , right? So in terms of the PO that we have received. And I would expect the second half to be before deck.
Speaker 5: to have more volume than the first half. So we expect right now, the last quarter will be higher volume than the previous quarters.
Speaker 4: One of the OEM checkpoints is demonstrating capacity. The capacity we're putting in place is obviously much larger than the actual unit shipments we're making this year. Got it. And then...
Speaker 11: I think you mentioned the potential to expand within your current tolling system when the
Speaker 11: What is the timeline for potential expansion? I think you mentioned most of the revenue in that deal or at least the initial phase in 2023. When and how would we see expansion within that? Thanks for your attention.
Speaker 4: Yeah, that tolling wind covers, I believe, three or four highway sections across a couple different states.
Speaker 4: It's roughly an 18 month long project if you look at from first install to final install. We already have the customer, so the next acquisition should be quicker. Those should be on the order to 3 to 6 months to win additional projects there.
Speaker 5: Yeah, to add that, this initial order probably covers 10% of the highways that this operator has. So there's quite a bit of potential once this launches and this follow on projects to do. I'm
Speaker 11: Is your sense that there's a
Speaker 11: period of sort of performance that they're going to want to see how it works at that scale before moving through more of the
Speaker 4: of that portfolio or I guess what's stopping them from moving more quickly through the next 10% or more? The performance is already proven. All the commercials are proven so that the value is obviously recognized by the three different states. Look at that performance ratio showing ourAREA memory gain is around LCPDD1.
Speaker 4: But it's really a state by state decision. The end customer is the Department of Transportation within each state. As you know, some states are more aggressive adopting new tech. Some lag. Some have expedited processes. Some have slower processes. The main gating item is just additional states adopting the technology and...
Speaker 10: All right, thank you.
Speaker 6: The next question is a follow-up from Richard Shannon with Craig Hailem. Please go ahead. Great, thank you. Maybe one or two questions here. Hall, I think you mentioned is your guidance for gross margin something to be positive here.
Speaker 4: I wonder if you could help us kind of think through this as we go throughout the year. Obviously we know there's a mix of auto and infrastructure and some product and some you know NRA type of stuff here, but as we gain some volumes here how do we think about kind of the exit rate of your product gross margins? I don't know if you want to quantify or qualify in some way but I'd love to get a sense of kind of that exit exit.
Speaker 5: 50% or more, and in the future also depends on is it more software development or something else. Product revenue, it really depends on the cost, BOM cost and also the ASP. ASP for automotive, we're launching below 1.3 million.
Speaker 5: than automotive. For example last year our smart infrastructure ASP somewhere around 4,000 or 4,500 and we do expect that to come down a little bit but gradually very gradually we do expect smart infrastructure ASP this year to be
Speaker 5: Still quite a bit higher than that of automotive.
Speaker 5: So all of these play into the gross margin picture and I think what we guided to is what we feel confident seeing right now.
Speaker 10: Okay, you know, I think that would be my only question. Thank you much. Okay, thanks.
Speaker 2: The next question is from Gus Richard with Northland. Please go ahead.
Speaker 11: Thanks for taking my question. Just to follow on Richard's question, can you give us a rough idea of what the mix is going to be this year between NRE Auto and infrastructure?
Speaker 9: Yeah, so
Speaker 9: Yeah so in our
Speaker 5: guidance there's not a lot of NRE right now so additional NRE will be upside
Speaker 5: So essentially the majority of the guide is product revenue and then in terms of auto versus smart infra
Speaker 5: I'd say it's
Speaker 5: Maybe three to one kind of relationship, three for auto, one for smart info in terms of revenue.
Speaker 11: Got it. And then your OPEX is expected to be flat. I'm assuming R&D will be flat. I'm just wondering, is that because you had a tape out last year and you don't have a major tape out this year, how do you hold the R&D flat?
Speaker 3: Well, this has been always, June here Gus, this has been always a very efficient operating place in terms of R&D budget. We actually have continuous tape-outs for our new ASIC chips or new product as you also call it, tape-out. This is basically a small system where miners grab enforced
Speaker 3: Again, it's an extremely efficient operation here. We actually do not expect any slowdown in our research and development. As you heard from the CES, there's a new product that just came out with a lot of improvement, a lot of changes. But we do have some improvements that can, you know, impact our community at risk for real-life serious conditions. So we strongly encourage you to always look into this as a clinicalza chimpan restart work group. So, again, it's an extremely efficient operation. There is a lot of stuff going on across this industry and this partnership would need
Speaker 3: Some of them even goes beyond our MMT technology. All of these came out of the existing budget. So we're just gonna charge forwards as is. There is no reason to waste more money if we can just make the best use of what we have now.
Speaker 4: Mitch, I'll just add, we're building upon something that we're already launching. Our incremental investments on new products like we launched at CES are only a fraction, OPEX-wise, of the original product. We can reuse ASICs and software from our GM development. Got it. Very helpful. And the last one for me, I think you...
Speaker 4: mentioned you know you're working on a level four ground vehicle you know any color as to what what kind of ground vehicle that is is that a you know and any any color there a little bit yeah I mean it operates in remote sites outside it'll be you know more details will be revealed it's at a
Speaker 4: remote construction sites.
Speaker 2: That's helpful. That's it for me. Thank you. As we have no further questions, this concludes the question and answer session.
Speaker 3: I would like to turn the conference back over to Junpei for any closing remarks. Okay, just to wrap it up, it's another quarter of good progress on our OEM program execution and certainly a very good past year for SEPTA. As we move forward with higher speed and higher intensity, please pay attention to us as we strive to bring additional levels of safety.
Speaker 2: to the automotive industry. Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.