Q3 2023 Cepton Inc Earnings Call

Hello, and welcome to the third quarter 'twenty twenty-three Septum, Inc business update and earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.

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I would now like to turn the conference over to wholesale Chief Financial Officer. Please go ahead.

Thank you and welcome to September 3rd quarter, 2023 earnings call and business update with me today are Jim pay co founder and the Chief Executive Officer, and MS Fortini, Chief Commercial officer.

During the call we may refer to our unaudited GAAP and non-GAAP measures in our earnings release, and 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'd like to remind everyone that comments made in this conference call May include forward looking statements regarding the Companys 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 statement.

Lighting to the forward looking statements containing 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 U S. S E T.

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 the slides that accompany this call as well as the webcast replay of this call at investors Dot Dot dot dot com.

Now I'd like to turn the call over to Jed.

Thank you Paul and good afternoon, everyone.

Thank you for joining sub count for the third quarter 2023 earnings call.

We will provide you with a business update and review our third quarter financial results with you.

Before that I'd like to congratulate Mrs on his promotion to Chief commercial officer.

He has been a critical part of our business development efforts and we look forward to his continued contributions in his new role.

For the second straight quarter I'm proud to announce that we have delivered a new company record for quarterly product revenue.

This quarter was shipped the highest number of Lidar units tour, our automotive end customers.

As we continue to deliver on milestones to prepare for start up production.

For the second straight quarter, we met our internal production targets, we're beginning to see our scale production efforts translate into revenue as we demonstrate our capability to meet demands of.

For our customers.

I'm proud to report that we have passed the final software milestone for launch of serious production fully integrating auto Saar and cyber security software under one of the most recent set of requirements in the automotive industry.

We're proud to be one of the first slide our companies in the industry that is serious production qualified.

Well, sometimes stands ready to meet the startup production volume requirements. Our lead OEM customer has experienced some recent automotive industry headwinds that was publicly known which resulted in some vehicle launch delays. We're working through these and are confident that our efforts in preparing for the anticipated production volume will be.

Really appreciate it in the near future.

On the smart infrastructure side, we have seen the smart coding application flourish with the addition of a new coding offer you a customer while we continue to fulfill our existing smart coding contracts.

In addition, we continue to support the application for smart airports in partnership with the indoor Das.

We expect these projects to mature into production orders for commercial deployment in the next few months.

But we all know technology or software development work has become increasingly important matching our hardware development work with our customers.

Through extensive collaboration with our automotive OEM customers. Our software teams have developed the best in class automotive software validation suite for Ethernet based sensors.

In the automotive application, where our lidar is a key sensor modality.

Our domain expertise enables plug and play software solutions that can be integrated into the broader Adas stack.

Our software development capabilities extended our domain expertise to both the manufacturing production line as well as the quality control processes. So we have visibility in all stages of our sensors lifecycle.

As we have discussed in prior quarters, we're continuing to build our business and delivered yet another record second quarter for revenue.

<unk> remains steadfast in pursuing opportunities in the automotive industry and remains in good position to win additional series production award with sourcing decisions on the horizon.

With that I'll turn it over to Mitch for details on our efforts with customer programs.

Thank you Jim.

With our lead OEM customer subprime has continued to deliver on software development meeting software release milestone and fine tuning software validation tool for production readiness.

The delay in launch of certain contracted vehicle model. What's the result of the OEM wanted to fine tune products at the system and vehicle level.

Additionally, our partner Quito manufacturing has publicly unveiled their automotive manufacturing line in Japan to support the production of our Vista X 90, automotive grade behind the windshield Lidar.

Thanks to our continued development and scaling efforts are liners are ready to go as we await further instructions from our OEM customer and vehicle rollout and pursue new customer programs.

On our Rsi and RFP activity, we remain in the final, forcing discussion for another major Oems Lidar sourcing decision for our long range Lidar. The same as we have reported last quarter.

This decision is expected by the end of the year and it has been delayed somewhat as a result of macroeconomic headwinds and the automotive industry.

We've also entered final sourcing discussion with a major trucking OEM for our short range Lidar with a decision also expect expected by the end of the year.

We hope to share more details in the upcoming months about production sourcing awards.

I'm, a smart infrastructure side as John mentioned, we continue to ship against our largest commercial contract in the tolling application.

This quarter, we added a new tolling operator customer expanding our geographic reach accept online ours into new U S state as well as internationally.

We are also happy to announce continued maturity of projects in the airport application with our partner the indoor lap with design wins at Tampa, New Yorks, JFK, Denver, and San Francisco airports.

The initial use case of our lidar sensors will be security and passenger traffic management, but we will be expanding into operations optimization and efficiency improvement for both indoor and outdoor applications.

We started shipping sensors to fill these orders this quarter and we expect several other airports to enter the decision and deployment phases, both domestically and internationally in coming quarters.

I'll turn it back to hold now.

Thank you Mitch.

Starting with our third quarter results.

Total revenue for the quarter was $3 $8 million, an increase of 112% compared to the prior year period and up 38% compared to you I'll probably this quarter.

Product revenue was $3 8 million a new record for the company this quarter, an increase of 114% compared to the prior year comparable period and up 37% compared to our previous quarter.

Our strong product revenue growth was driven by an increase in shipment volumes due to automotive OEM customers.

There was minimal development revenue this quarter.

We achieved positive gross margin of 13% on a GAAP basis, primarily driven by revenue mix shift between automotive and smart infrastructure customers and the fixed cost leverage.

Our record level of unit shipments.

Third quarter GAAP net loss was $11 3 million or seven.

71 cents per share basic and diluted.

non-GAAP net loss was $9 $2 million or <unk> 58 per share basic and diluted.

As a reminder, we completed our previously announced a one for 10 reverse stock split this quarter. So all historical per share metrics have been adjusted.

For comparative purposes.

Third quarter non-GAAP, adjusted EBITDA was negative $9 9 million.

As of September 30th 'twenty, 'twenty, three we had approximately $61 million in cash and short term investments and no debt.

Yeah.

As a result of our lead OEM startup production delay we are revising our full year guidance to reflect the impact on our business.

We now expect our full year revenue to be between $9 million and $11 million and we expect our non-GAAP operating expenses for the year to be below $15 billion, driven by higher operating efficiencies and increased discipline on expenses.

And now with that I'd like to open up the call for questions.

Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Sure.

Today's first question comes from Tom Marian with RBC capital markets. Please go ahead.

Hi, Thanks.

The question and congrats Mitch I.

The first question is on I guess, the major OEM, they called out with the delay there.

Just curious I mean that OEM has also talked about pushing out there I think there you'd be schedule as well and.

I guess the question is just understanding their what their ambitions are in light of issues they've been having also with their robo taxi business and delays there.

You know you know how convicted are you that that that business is it's just it's just a matter of a delay as opposed to.

Something more more serious that's the first question.

Yeah. Thanks, Tom This is Mitch.

I can speak to that.

I can't get too far out in front of the OEM in terms of details. So we'll defer to them on you know specific vehicle and feature details for the launch.

The information we have now is it a few months delay.

As indicated in Gms earnings released on October 24th they talked a little bit about a new software organization led by Michael Abbott and the fact that theyre going to be doing some software fine tuning at the vehicle and in system level.

And we've reflected that in our Q4 revenue update today.

Okay.

Hum Who's a whole just to add to to ask your question.

You're asking how committed we are in terms of that program.

From <unk> point of view, we are very committed to supporting G&A in that program. So nothing on that has changed.

Okay, and then I mean that is there's no indication on your end that there was a risk to that.

You know its more of a delay is the point not not I can't I'm, not not like that and how 'bout face completely right.

Yeah. It's June here that that is correct and you can refer to our Gms earnings call transcript out for that though I'd say its really meant to be a delay yes, okay and then the other OEM Amit you talked about E.

Any thing just to give a sense of what.

Or magnitude or.

Anything we can understand about about that OEM you know.

Potential there.

Yeah, Hi, it's it's relatively the same size as our initial maybe even bigger than our initial OEM series production win.

You know, we advanced even further through the process through the quarter.

I you know I indicated there's been some small delays.

The final decision because of some of the headwinds I'm out in the market.

You're aware of but.

But we still expect a favorable decision before the end of this year.

Okay, and then my last one.

On that macroeconomic backdrop, you know, obviously EV slowdown and in that there is a narrative that Oems might.

If price mix falls in addition, with higher labor costs.

That they may try to reduce content per vehicle.

What is your sense of the appetite for for for you know a lot lidar them you know in the vehicle like is there some concern or is it more of a it was just kind of a narrative of what ive been asking before it like more of delays as opposed to outright cancellations. It sounds like I mean, how do you see this macro backdrop impacting I mean, how come.

Do you think Oems will be to you.

Hum.

To lidar and yeah, and those sorts of technologies.

Thanks, Tom that's a good question.

We're still very engaged with all of our target OEM customers. We believe this is more of a transitory impact that these delays as they re org and figure out how they want to launch I mean, let's remember lidar as part of the safety suite, there's no ending appetite for safety. So.

With that comment it's not tied strictly to evs.

Our contracted vehicles are also ice vehicles.

So the need for increased safety is real and the investments by the Oems continue to increase and we don't see that going away. We think this is a delay as they reorganize and and figure out how to launch.

Yeah, and I'll add Tom here.

Since we're talking about the macro I know industry automotive industry trend.

You know on.

On the EV side, you know yeah that definitely go into a price war right that by Tesla.

And margins got compressed because of that Asps coming down and also the labor costs are going up.

So you know as you think about where they make money is actually on the optional equipment.

And and for Lidar.

No.

Safety is a necessity initially those are going to be optional equipment right. So that's actually Monday it makes them it makes them profit margin.

Yep got it.

Thanks, a lot.

Thanks, Tom.

Thank you.

As a reminder, if you have a question you May press Star then one.

Okay.

The next question comes from Kevin Garrigan with West Park Capital. Please go ahead.

Yeah, Hey, guys I appreciate you taking my questions and congrats on all the progress. So in your previous answer you had mentioned.

About your.

Seeing delays along with E vs R.

Are the companies that are developing in turtle or the company.

Our Oems are doing more internal combustion engines are they not nearly as delayed as.

As automotive Oems that are kind of focusing more on an EV platform.

Okay.

It's a good question Kevin This is Mitch.

Yeah. So the traditional Oems have both right there, they're transitioning from ice to EV, but theyre going to maintain the ice vehicles and.

Mary Barra talked about it in the GM earnings release about.

The traction they had gained in the luxury segment.

And in that spans across ice and <unk>. So I wouldn't say you know one way or the other theres been delays on ice versus evs are traditional companies versus up and coming companies.

I think this resorbs back to the Mega trend whole was talking about yeah and also the just the macro events associated with the automobile industry that is pretty obvious in the last couple of months.

This final they resolved as you may be aware of and all of these are not the E. D specific so it kind of across the board. So it's not one way or the other it's really a macro effect here.

Yeah, and I'd add that you know EV.

Although it does kind of changes.

And priorities right.

He has been the priority for.

Quite quite some time, maybe a couple of years and the recent headwind on E. V. You know, having some of the Oems refocus their attention on Ice's ice vehicles and bring those vehicles up to you know technology standard.

So that internally it would take some time and the good thing with.

Our award is that we are awarded both of ice vehicles platform and also EV platforms.

Okay perfect no I appreciate that color and then you mentioned youre fully integrating cyber security software, how big of a talking point as cyber security and in dealing with Lidar systems and perception software.

Yeah, I mean, cyber security is table stakes for launching a lidar for automotive I mean, its similar to radar cameras.

Any any element of perception that could pose a threat. If it was accessed externally a go through very rigid cyber security requirements early lead OEM General Motors as you know has a notable.

Requirement on that front, that's one of the most rigid in the industry and that's what we talked about today finally, integrating all those requirements.

Yeah.

Okay perfect I appreciate the color thanks, guys.

Thanks, Kevin.

Thank you. The next question is from Matthew <unk> with Maxim Group. Please go ahead.

Thank you for taking my question.

Can we.

I guess.

With respect to your to the delayed or primary automotive customer.

Did that.

<unk> or or does that delay any further decisions on new vehicle platforms or programs at that OEM or can you talk about how.

How are those conversations and decisions are progressing.

Yes, Matt.

Good question that Matt This is Mitch.

We have to defer to the OEM in that case, we can and can't get into too too many specifics on vehicles.

<unk> been concentrated on the contracted and awarded vehicles of course, and we're still engaged with general Motors Ray we're still engaged with our target customers. So we're constantly talking about additional vehicles. Additional programs features I think I have to just leave it at that and the communication.

We have been getting from G. M is really a few months of delay based on you know basically their release and there was no discussion they're further vehicle platforms, along with all the other mhm.

Got it okay.

Two quick follow ups one being.

I guess.

Past P.

Automotive.

Uh huh.

Decision that you expect between now and the end of the year are there any other programs that you're.

Far along in that the U S.

To be decided.

In 2024.

Or.

Is that sort of the end of the.

Of the Decisioning process for the time being.

Yeah. This is Mitch there's one other major opportunity we've been working on a major European trucking OEM, that's for our short range Lidar called Nova.

And we're in the final phase of that RF, Q and expect a decision before the end of the year.

Yeah.

Got it okay, but but for just automotive.

Contra God.

In 2024, and that's pretty much all year.

Are you able to talk about today.

Oh, Okay, you're asking other automotive a long range lidar sourcing in 2024.

Yeah, there's always Oems in the pipeline there there's some in the RFP phase right now I don't I don't think there's anything as immediate as.

A couple of we talked about today, but there will be additional sourcing next year for sure.

Got it all right and last question for me is just on the smart infrastructure opportunities.

It sounds like you're you're building off that base and expanding out with it.

Can you give us a maybe preliminary sense of what you have in the pipeline what that means and maybe baseline looking out to 2024, just given the delays on the automotive side and I assume.

You know you're not really in a place to talk about about that side of the business at this point, but on the infrastructure side can you give us kind of a preview of what we should expect for for 2024.

I think one one comment I can make as you know we talked about are our tolling customer that we landed earlier in 2023, a multimillion dollar contract that we've been fulfilling this year today, we updated we have another major customer in the tolling space.

We see the airport.

We're offering more details on the airport installations I'll just say the size of the contracts are all in that multimillion dollar range and we expect to be fulfilling multiple contracts in 2024, whereas we just basically filled one major contract in 2023.

Got it alright, thank you.

Thank you. The next question comes from Richard Shannon with Craig Hallum. Please go ahead.

Well, thanks, guys for taking my questions.

Jumped on the call late here so during the Q&A and then I wanted to follow up on an answer that I don't think I heard the question very clearly sorry, if I'm repeating this but.

I think you've talked about a.

The award here and I think it's referring to the one you listed in the on the front page of your press release here about.

Final sourcing.

Visions for another major vehicle OEM award is that the one that you're referring to when he said, it's a perhaps a bigger.

Size of initial at the initial start of ramp than your current one is that the one do you expect to be decided before the end of this calendar year.

Hey, Richard This is Mitch yeah, you're exactly right.

That's the one thing we were talking about.

Okay and are you are you aware of whether you are the only one at this at this stage or there's still competition.

Presence.

I can't comment on.

If if there are others, we know it's down to the final stage. We've been on this process for six months now so at this stage, there's likely no more than one or two company.

Okay Fair enough then.

Wonderful upon the industry dynamic here in terms of software integration you know on the broader sensor suite, including lighter that seems to be.

Presenting some issues across the industry and I'm wondering if you're seeing any any further signs of that in and of those issues that have come up here are those generally been solved and are you seeing any.

Delays in our in sourcing decisions because of this dynamic.

Yes, I think one thing June talked about today is the integration of Ethernet based sensors. So most light ours have an ethernet output a lot of the newest radar or seven Ethernet output.

So we've developed a suite of software validation tools are working on the GM program.

It's really state of the art, but that's a big challenge to overcome them outside of that there's the perception software side, which you know we're not taking care of for this particular OEM contract.

So I think that's another area that is challenging and I think you know what you're seeing today isn't much different from some of the other news that you're talking about from other Oems over the past year. Yeah. So the Adas software integration is indeed challenging, but it's not really specific to a lidar in fact, sometimes we make lidar and we took.

To make our lidar with these Ethernet based tool so validation procedures still make it certainly not the bottleneck off the entire stack of Adas and <unk> and we actually very much sign in that but there is a there are certainly challenges in the entire stack of integration as you can see in the indie.

History, but it's part of the growing pain and it will be over in a few months.

Okay Fair enough one last question for me and I'll jump out of line here.

Another interesting passenger in your press releases about technology in fact, you're on track to launch your Nextgen long range Lidar, what's your what's your timeframe for launching and assuming everything stays on track here what would be the first time you'd be Oh, I can see a sample and then getting to production. That's just something that could happen in calendar 'twenty six or is it farther and farther out than that.

Yeah.

Yeah.

Yes, the nexgen sample it will definitely be ready for calendar year, 'twenty six and beyond we're already starting to demonstrate two to some of the lead candidate Oems and we will continue that process through the first half of next year and even working with Quito you know on some of your customers on that.

Okay Fair enough. That's all for me guys. Thank you.

Thank you. The next question is a follow up from Tom Marian with RBC capital markets. Please go ahead.

Hey, guys. Thanks for taking the follow up actually just had a follow up on something hall was saying about safety.

Safety and I was just wondering if you know right now it's an optionality you were talking about but I wonder if you can kind of flip the script maybe and.

Is this something that maybe you guys could lobby or maybe the greater lidar industry could lobby regulators to potentially.

Mandate, you know something like you know use of Lidar. In addition to radar camera, but just like level two plus level three even further offerings is that something that you guys do lobbying regulators or do you see that as a potential.

Catalyst for you guys down the road.

You know.

We've all seen the numbers on on safety you know Tesla FSD notoriously gives those stats I think their product is like five times safer than a regular car on the road.

So yeah, just on that greater topic of.

Lobbying regulators to make this mandatory or is that something that you think could happen. Yeah. Thanks, yeah definitely thanks for the question. So that's a great point in fact I did have a meeting with the department of transportation officials, maybe couple of months ago about you know some of these.

Topics broader oh.

All centered around safety, whether it's a vehicular service safety are our infrastructure.

Safety, but absolutely we do see light or taking the path of a camera and in seatbelts and airbags.

Airbags and the safety of vehicles over time so.

And that's exactly what we're driving toward and the prerequisite of that also.

It was one of economics to right. So you know the cost has to come down overtime.

And that's exactly what we are working on you know performance goes up it goes up cost goes down over over a period of time.

Got it thanks a lot.

Of course.

Thank you. This concludes our question and answer session and I would now like to hand, the call back to CEO June pay for closing remarks.

Oh, Yeah again, thank you very much for joining us summarizing this a record revenue quarter. We look forward to meet again next time to Italia off this exciting year of 2023 and the share more exciting news. Thank you.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Yeah.

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