Cepton Q1 2023 Earnings Call Transcript

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May 9, 2023

There are 8 speakers on the call.

Operator

Good day, and welcome to Septon's First Quarter 2023 Earnings Call and Business Update. At this time, all lines are in a listen only mode. Following the presentation, we will conduct the question and answer session. This call is being recorded on Tuesday, May 9, 2023. I would now like to turn the conference over to Hal Xu, Chief Financial Officer.

Operator

Hall, please go ahead.

Speaker 1

Thank you, and welcome to ZEPTAN's Q1 2023 earnings call and business update. With me today are Junpei, Co Founder and Chief Executive Officer and Mitch Orteini, Senior Vice President of Business Development. During the call, we may refer to our unaudited GAAP and non GAAP measures in our earnings release. The non GAAP financial measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance With GAAP, reconciliations for non GAAP measures are included in our earnings release. I would like to remind everyone The comments made in this conference call may include forward looking statements regarding the company's expected operational and financial performance These statements are based on the company's current expectations and are subject to The Safe Harbor statements relating to forward looking statements contained in our earnings release and the slides that accompany this call.

Speaker 1

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. SEC. We are not undertaking any commitments to update these statements as a result As a quick reminder, this call is being recorded and you can find the earnings release And lines that accompany this call as well as webcast replay for this call at investors. Septaun.com.

Speaker 1

Now, I'd like to turn the call over to Jim.

Speaker 2

Thank you, Hall, and good afternoon, everyone. Thank you for joining First Quarter 2023 Earnings Call. We will provide a business update and review our Q1 financial results with you. I will start with an update on our series production execution. On the product side, We continue to ship preproduction units to Coitou throughout the quarter.

Speaker 2

While the exact date of vehicle production launch is for the OEM to decide, Our LiDAR remains on track to receive final validation from our OEM customers for production in saleable vehicles. Our products are being evaluated across multiple vehicle models under our existing production award. As a result of our continued performance of OEM customer and the versatility of our flagship vista X90 LiDAR product for We expect to receive additional vehicle models in the next couple of months to expand the coverage of our existing series production award. We're encouraged by the commitment to our technology from our OEM customer. This is reflective of our efforts and dedication to enabling LiDARs as a critical component of automotive safety.

Speaker 2

In addition to hardware, our embedded software allows us to meet the stringent automotive OEM requirement such as cybersecurity, Over the air update and functional safety. It also allows us to deliver additional custom features We delivered for our OEM customers. These capabilities were developed by our in house software teams and is a tremendous value add Software is subject to the same standard as hardware and our OEM customer has some of the highest standards In the industry, when it comes to the reliability and safe operation of their vehicles. We believe Having the ability to deliver a combined hardware and software solution to our OEM customer under a serious production environment positions us Beyond a simple lidar hardware provider, it actually positions us as a total lidar solution provider and as a leader In driving market adoption to enable LiDAR for everyday vehicles. As our products near the final stages towards the production validation, We are also working on increasing production capacity at our contract manufacturers and Tier 1 partner facilities.

Speaker 2

We have mentioned in previous quarters that we work closely with our Tier 1 partner, Coitou, to enable the future scale production of our LiDAR products. Our continued efforts in scaling production include securing raw materials at scale And implementing production processes in both hardware and software to ensure we can deliver consistent quality at volume. For example, in this past quarter, we were able to increase the throughput by 5 times, we're one of the critical manufacturing steps, and we feel confident in meeting production milestones as we move towards SOP. Following the announcement of our Vista X120 Plus product earlier this year at CES, we unveiled the Vista X90 plus this quarter. X90 plus carries over the same slim form factor improvements to our current X90, The product that is launching with our lead OEM program.

Speaker 2

These improvements enhance our advantages in vehicle integration placed behind the windshield And unlocks the placement in other areas of the vehicle such as the headlamp and fascia. Our X90 product It's a direct result of working closely with our lead OEM customer to drive LiDAR adoption across the majority of the OEM customer's fleet. Shatcong is the 1st and only known lidar company to launch a high performance lidar in passenger vehicles behind the windshield. It is not a trivial task and it creates a huge competitive mode for the distance future. Our new X90 plus will also feature our recently announced point cloud processor ASIC, the Komodo.

Speaker 2

Developed in house, this new ASIC is designed to improve our point cloud quality, reduce power consumption and at the same time Replace FPGA and other merchant silicon devices to drive cost savings. In the years ahead, where production volume is High and on time delivery is key. We are reducing reliance on the semiconductor supply chain with our own ASIC solutions. In addition, we expect to continue extending the technology leadership with our proprietary ASIC chipset. The accomplishments we have made to start off the year highlight our continued commitment And dedication to be a LiDAR market leader.

Speaker 2

As our products mature, we continue to make improvements in embedded software And innovate at the chip level to solidify our technology leadership. Transitioning from product development phase To the production phase, stresses the importance of maintaining septum standard quality at the volume demanded by our OEM customers. There are distinct challenges in maintaining the same level of precision and reliability in every LiDAR unit When the volume scales to tens and hundreds of thousands, our investment towards production readiness will prove to be the Key areas of differentiation in both lead time and cost. With that, I'll turn it over to Mitch for an update on our customer programs.

Speaker 3

Thank you, June. I'm happy to announce we recently hired a new Director of Customer Program, Luis Goncal, who joined us from General Motors. He brings over a decade of automotive experience from global OEMs such as GM and Honda, And Luis will support our Detroit OEM programs. As June indicated, our existing lead OEM series production program is expected to expand in the coming quarters by at least 3 additional vehicle model. This is the result of joint collaboration efforts Between Septon, Koweto and General Motors in product maturity, customized software development and vehicle integration.

Speaker 3

Beyond our current OEM business, we received an RFQ in the past quarter that we believe to be the top automotive OEM opportunity In terms of program volume this year, Step Down already has a rich history with this automotive OEM And as such, we selected to respond to this RFQ directly as a Tier 1 technology supplier. This is a recognition of our maturity as a LiDAR company and leverages all of the collaboration history with Koweto Manufacturing. More importantly, the decision to have Septon respond directly as a Tier 1 technology supplier is made by the OEM in this case And it's not a self proclaimed aspiration to become a Tier 1. We believe this is how the LiDAR industry will continue to evolve, Building trust, winning series production programs, executing and launching and allowing the OEM to help guide final supply chains In addition to this opportunity, as a result of General Motors' recent sensor suite announcement For their ultra cruise program, where septon lidar is placed behind the windshield, executives from a global top 3 European OEM visited our headquarters last month. We are now in an advanced RFI phase for their future passenger vehicles.

Speaker 3

We look forward to sharing more information with you in the coming calls. On to near range lidar products. Tepton is one of very few lidar companies with an automotive grade near range lidar product that has a very large vertical field of view Suitable for trucking applications. Over the past quarter, we have made strong progress with multiple top trucking OEM customers. We have progressed to the RFQ phase with a global top 3 trucking OEM for our near range LiDAR product called Nova.

Speaker 3

Lastly, a word on the Smart Infrastructure segment. We started shipping units to our tolling customer, fulfilling the multimillion dollar contract announced at the end of last year. While our Nova product is suitable for trucking applications, it's also an ideal product For smart industrial applications, and we continue to ship our Nova Sensors to support autonomous ground vehicle use cases. Now, I'll turn the call back over to Hal.

Speaker 1

Thank you, Mitch. Starting with our Q1 results. Total revenue for the quarter was $1,500,000 same as the prior year period and a slight decrease compared to our previous quarter. Product revenue was $1,200,000 a slight decrease compared to the prior year period, but a 27% increase compared to our previous quarter. We also have development revenue of $200,000 based on the timing of completion of our second projects.

Speaker 1

While we are still early in achieving volume production for automotive programs, we have shipped a record number of LiDAR units per quarter And a record number of LiDAR units for automotive customers. We expect this trend to continue as we ramp production to fulfill purchase orders for our lead series production program. Gross margin was negative 5% for the quarter, Primarily driven by revenue mix shift between automotive and smart infrastructure. As our sales volume shifts Towards preproduction units and later production units for automotive where ASP is slightly lower And that of Smart Infrastructure, we expect our gross margin to experience some pressure in the short term until component volume pricing kicks in And fixed cost leverage can be realized as a result of increased volume. ASP on the smart infrastructure side is expected to remain At similar levels as that of last year and development projects typically have higher margins, which should help with overall gross margin for the year.

Speaker 1

1st quarter GAAP net loss was $14,700,000 or $0.09 per share basic and diluted. Non GAAP net loss was $11,400,000 or $0.07 per share basic and diluted. 1st quarter non GAAP Adjusted EBITDA was negative $11,600,000 As of March 31, 2023, we had approximately $80,000,000 in cash and short term investments and none of that is held at regional banks. As a reminder, Our cash position increased from the closing of the $100,000,000 preferred stock investment from Kooido that closed in January this year. We look forward to seeing everyone at our Annual Meeting scheduled on May 18 at 9 am Pacific Time.

Speaker 1

And with that, I'd like to turn the call over for questions.

Operator

Thank you. Ladies and gentlemen, we will now You will hear a one tone prompt acknowledging your request. One moment please for your first question. Your first question comes from the line of Richard Shannon from Craig Hallum. Your line is now

Speaker 4

open. Hi, guys. Thanks for taking my question. I have to apologize for getting on late here at a Number of calls after market today. I got in late and I didn't hear anything about a change or any discussion on the guidance that you gave last quarter about revenues

Speaker 5

No, no change for the year.

Speaker 4

Okay, perfect. That's what I thought. Just want to make sure here. I came in during, I think it was Mitch's commentary on some of these bullet points in the Press release here that I probably missed some key detail here, but I guess the first bullet here about executing an RFQ response. I think I understand that this is unusual for a component supplier.

Speaker 4

It's really more for Tier 1s here. I just want to make sure that I'm gathering all the importance of this. Maybe if you can talk about, how long you've been engaged with

Speaker 6

Yes. Thanks, Richard. This is Mitch. So in case you missed my section, This is an RFQ that we've been prepping for, for a long time. I stated this SEPTA already has a rich history with this automotive OEM.

Speaker 6

We were selected to respond directly as a Tier 1 technology supplier, I'm kind of validating our maturity as a LiDAR company. And we believe this to be the biggest Open automotive opportunity this year to bid on.

Speaker 4

Okay. So assuming, I think, as you said in the last call, you expected 1 or more awards to be given this year, I think, within 6 months, I assume that this is one of those. Is that right, Mitch?

Speaker 6

That's correct. Yes.

Speaker 4

Okay. Okay. Maybe just stepping back a bit here on the automotive side, can you tell us where you sit in terms How many RFIs and RFQs you're currently in process with?

Speaker 6

Yes. We're always in various stages of The RFI phase with most of the top 10 automotive OEMs, RFQs we really only talk about or give airtime to them once they get to a critical milestone like we are today with this top 10 OEM. But I would say, within the top ten, there's probably 2 or 3 RFQs open And always 5 to 7 RFIs open.

Speaker 4

Okay. That is fair enough then. Maybe let's ask about kind of the visibility with your primary, your first big automotive customer. I I think you mentioned in the last call you have 6 months of rolling visibility here. Wondering, Hal, if you can kind of update us on what that looks like today as have you seen increases to that Or just kind of characterize what's your what the change has been since the last call?

Speaker 5

Yes. So, thanks, Richard. So, We do have over 10,000 units of purchase orders. So that's plenty of visibility for us to execute on, which We are very focused on executing on fulfilling those units. You'll see Higher volume ramp towards the second half of this year as we work out the logistics with the buyers and country manufacturers As well as with, Cuyo.

Speaker 4

Okay. And with this visibility here, you said over 10,000 years, I think that's a number You may have used it on the last call. Does this assume, the same number of vehicles you're shipping into or has there been an increase in that as well?

Speaker 5

This assumes the same number of vehicles we're shipping into. The vehicles That are already planned to have started production in 2024 hasn't changed From our OEM customer, Mitch did mention that we have commitment from the OEMs to add additional vehicles, right now at least 3 into the overall program and those vehicles are not expected to have SOP in 2024.

Speaker 4

Okay. Fair enough and that's good perspective. Maybe last question, I'll jump out of line here. On the last call, you talked about having a win with the top 10 global OEM for an autonomous ground vehicle. And I haven't seen any news out there that suggests who that might be.

Speaker 4

Maybe I haven't searched hard enough here. In the new press release, you talked about shipping these samples To Autonomous ground vehicle customer, is that one of the is one of those customers the one you referred to in the last earnings call? And is there any way you can help us think about Who that might be?

Speaker 6

Yes, that's right. I mean, we can't disclose the name yet, but I think in Q4 of this year, there'll be some more public Disclosures about the project and how Septon is supporting this OEM customer. It is a level 4 autonomous ground vehicle use case. It's been exhibited at a couple of industry shows or it's starting to be exhibited at a couple of industry shows, But exact details are looking like Q4 this year.

Speaker 5

Yes. And I'll add that, I mean, it is a top global top ten Automotive OEM that has a significant play in power products.

Speaker 4

Okay. And is this customer is QOVIA involved with this customer, with both with this Level 4 autonomous ground vehicle and their higher volume passenger vehicles as well?

Speaker 6

Yes, they are.

Speaker 4

Okay. Okay, good to know. I will jump out of line here guys. Thank you.

Speaker 5

Thanks Richard.

Operator

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

Speaker 7

Yes. Thanks for taking my questions. Just in terms of GM and start of production, when do you anticipate that to occur?

Speaker 6

Yes. I think GM publicly stated in their March press release around the Ultra Cruise sensor suite that they're Aiming to actually have the available vehicles to the consumers in December of this year. That's for the lead Celestiq vehicle. Beyond that, the additional vehicle models will continue to launch in first half of twenty twenty four and then the remaining in second half of 2024 half of twenty twenty five.

Speaker 7

Okay. And at the end of 2024, you should be in Four vehicles, am I doing the math right there?

Speaker 6

At least 4, yes.

Speaker 7

Got it. And then just turning to the infrastructure business, you announced When this quarter and I'm just wondering how many states, how much of that Order have you shipped and do you expect any follow ons?

Speaker 6

Yes, definitely. We started shipping against that order in April. So there's a regular shipment every month for this tolling operator. It's going across Three states initially, but there are many more, that they're bidding on, and we expect to expand Through early next year, 2 additional states.

Speaker 7

Okay. Just Rough numbers. What percentage of the U. S. Population does that cover, roughly?

Speaker 6

Oh, wow. I think that's

Speaker 5

say 10% is what we had.

Speaker 6

Yes. I mean, there's a populous East Coast state there, I think we listed the states.

Speaker 5

Yes, 10% is probably the coverage of what we With that operator, in terms of equipping the toll roads with LiDAR, right? So there is still a vast majority of toll roads that's not going that's not equipped with LiDAR In this first phase.

Speaker 7

Right. Got it. Got it. All right. Super helpful.

Speaker 7

That's it for me. Thank you.

Speaker 1

Thanks, Richard.

Operator

Your next question comes from the line of Matthew Galinko From Maxim Group, your line is now open. Hey, guys. Thanks for taking my question. Just was curious about what the pipeline looks like For the Smart Infrastructure business, as of this point beyond the highway win you've discussed previously?

Speaker 6

Yes, definitely. We're still supporting dozens of different applications. I would say there's increasingly more applications that are starting to ramp now beyond just proof of concept. Previously, we've talked about airports. We expect those to be officially announced and ramp later this year.

Speaker 6

The autonomous ground vehicle use case is a result of our Nova near range lidar product, And we've begun collaborating with Koweto on that, because there's a lot of interest in the short range LiDAR for various applications. And to just put a little bit more

Speaker 4

And to just put a

Speaker 5

little bit more finer details on that, for this year, We expect Smart Infrastructure in terms of revenue will be in a single digit millions area, Towards mid single digits and we do expect next year to be in the double digits area, millions.

Operator

Got it. Thanks. And then maybe just if you could touch on What you're seeing in the competitive environment, in the RFPs you're responding to on the automotive side and On the Smart Infrastructure side as well.

Speaker 6

Yes. On the automotive side, it's really stepped on And one competitor, at most accounts, I would say there's never more than 1 or 2 serious competitors In automotive because they have a pretty lengthy vetting process with their RFIs. Once they get to RFQ, they have it narrowed down to 1 or 2 companies. On the smart infrastructure side, we're still seeing where directional lidars Are replacing spinning lidars in applications. So in that case, some of the spinning lidar companies Are being conquested with directional lidars.

Speaker 6

I think there's a Few more competitors within smart infrastructure as lighter companies, try to pivot to that space if they didn't get an automotive program.

Operator

Got it. Thank you.

Speaker 1

Thanks, Matt.

Operator

There are no further questions at this time. Please continue.

Speaker 2

Okay. Thank you for joining Today, we're really looking forward to this New Year and a lot of excitement in the automotive business. We'll report to you next quarter, hopefully, with A lot more exciting news. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now

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