Good day and welcome to the Second Quarter 2022 Cepton Inc. Business Update and Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Hull Xu, Chief Financial Officer. Hull, please go ahead..

Thank you, and welcome, everyone, to Cepton's second quarter 2022 earnings call and business update. With me today is Jun Pei, our Co-Founder and CEO; and Mitch Hourtienne, 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 prepared in accordance with GAAP. Reconciliation for non-GAAP measures are included in our earnings release.

I would like to remind everyone that comments made in this conference call may include forward-looking statements regarding the company's expected operational and financial performance for future periods.

These statements are based on the company's current expectations and are subject to the safe harbor statements relating to forward-looking statements contained in our earnings release and the slides that accompany this call.

Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of 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 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 release and slides that accompany this call as well as the webcast replay of this call at investors.cepton.com.

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

Thank you, Hull, and good afternoon, everyone. Thank you for joining Cepton's second quarter earnings call. We will provide a business update and review second quarter 2022 financial results with you.

Joining us today is also Mitch Hourtienne, SVP of Business Development who will share updates on our exciting projects underway with automotive and the smart infrastructure customers. I'll start off with an update on our OEM series production execution.

We continue to ramp D-samples shipments to Koito for final assembly, calibration, test and delivery to multiple-vehicle manufacturing plants across multiple states in the U.S. As a reminder, D-samples represents the final stage in hardware validation with production intent.

In the second quarter, multiple Cepton teams visited the Koito's Manufacturing facility in Japan in support of production readiness.

Seen the automated production line at Koito in action was truly significant milestone for us as it represents our company's journey to light our commercialization and how close we are to achieving our goal of making Cepton lidars available in everyday consumer vehicles.

As we recently announced we're expanding collaboration efforts with Koito to extend beyond our current OEMs series production program. This will cover both long range and near range lidar products and both companies will jointly undertake go-to-market activities initially targeting the Japanese automotive OEMs.

Koito has been a key partner in the commercialization and manufacturing of Cepton's lidar technology and we anticipate the extended partnership will bolster production capabilities and accelerate time to market.

This expanded partnership further demonstrates that lidar is an integral part of automotive, safety and that we are well on our way to transforming Cepton's technological innovations into commercially viable and scalable products.

We also recently announced the selection of Fabrinet as a supplier of key sub modules for our flagship OEM series production program. Fabrinet will also be our supplier for full turnkey lidar our solutions targeting the non-automotive end markets, as well as select automotive applications.

Cepton lost initial production of our Vista-X 90 lidar at Fabrinet Thailand facility back in September 2021, and we are excited to see our partnership advanced to be ready for scale production.

Securing manufacturing capabilities and capacity remains our top priority in tight supply environment and our recent partnership activity reflects the progress towards being production-ready by the end of the year. More broadly on automotive, we expanded our office in Detroit to serve as our Company's automotive hub in North America.

This office will accommodate the team's rapid growth and support existing active engagement with OEM customers. Our expanding presence in Detroit deepens our relationship with OEM customers and our field engineers are actively involved in deploying lidars as a standard automotive component for safety.

Our lidar's unique balance of performance, cost and reliability continues to drive progress with top 10 automotive OEMs.

One question many followers of the lidar our market have continued to ask is, when will we see lidar on salable vehicles? While we can't provide specific names, a couple of our awarded vehicle models started taking orders recently and consumer demand for those vehicles was extremely strong.

Our unique ability to place Cepton lidar behind the windshield as a result of our lidar small form factor and low power consumption continues to be a point of differentiation separating Cepton from its competitors. The early positive reception for these models and Cepton's growing presence with OEMs creates a favorable outlook for our products.

On the technology side we achieved the ISO-26262 SOP certification on our first basic. Our in-house ASIC development capabilities remain as an important piece of our technology roadmap as we tape out our seven ASICs towards the end of the year to drive further performance enhancement and cost reductions.

Our software development team continues to make progress on our open-source software development kit and we look forward to sharing more exciting news in the future quarters. As you can see, Cepton has expanded its capabilities beyond lidar design and development.

Our lidar solutions are designed and refined based on continuous OEM inputs while working with our Tier 1 partners to ensure scale production readiness. We expect to be one of the first to commercialize lidar our technology in everyday consumer cars. Now I will turn it over to Mitch..

Thank you, Jun. On our automotive programs we received our first firm production order from Koito for our OEM series production program. This is a major commercial milestone on our path to production deliveries next year.

During several trips to Japan, our engineering teams implemented production software on the Koito's Manufacturing line in preparation for this OEM series production and completed the initial OEM site audit of Koito's Manufacturing facility. As Jun said, we remain committed and on track to being production-ready by the end of this year.

Additionally, we reviewed our technology roadmap with other top automotive OEMs in Japan and we received very positive feedback. Our efforts to reduce size, focus on vehicle integration behind the windshield, and the ability to tailor a performance to application-specific needs our key differentiation factors for Cepton.

Recently, we hosted three top 10 OEMs for technical reviews here at our San Jose headquarters to progress ongoing RFI projects. Consensus feedback was at Cepton has clearly been heads down executing a real automotive lidar product, the past few years and we are very well positioned for additional OEM programs.

On the smart infrastructure side, projects continue to mature beyond the proof-of-concept phase into lidar deployment. To name a few examples of projects we're working on; our products are being implemented for smart tolling stations in the Midwest.

Obstacle detection for railway applications both domestically and abroad in China, as well as security and monitoring at domestic airports. The smart infrastructure market is much more fragmented than automotive and we've begun to see some customers push out their deployment time lines as a result of the recent economic conditions.

Despite this, our products are still favored in their target applications and we're confident the long-term demand remains strong. Next, I will turn it back over to Hull..

Thank you, Mitch. Starting with our second quarter results. Total revenue for the quarter was $2.6 million up 186% year-over-year and 72% sequentially and consists of $1.4 million product revenue and $1.1 million development revenue.

The increase in revenue for the quarter was driven primarily by development revenue as we achieved incremental milestones on outstanding projects.

Our gross profit was slightly negative for the quarter, primarily driven by the effects of supply chain shortages and a mix shift between automotive and smart infrastructure revenue resulting in lower overall ASPs. Excluding the supply chain effects, our gross profit would have been slightly positive.

GAAP net income was $0.8 million or $0.01 per share basic and diluted, non-GAAP net loss was $14.5 million or $0.09 per share basic and diluted. Weighted average basic shares outstanding for the first quarter was $154.1 million and $161.8 million shares on a diluted basis.

Non-GAAP adjustments include a $15.6 million gain on remeasurement of earn-out shares liability, stock-based compensation of $2.2 million and a $1.9 million gain on remeasurement of our warrant liabilities. Adjusted EBITDA was negative $13.7 million.

As of June 30, 2022 we had available liquidity of approximately $146 million, total available liquidity consists of approximately $31 million and cash and short-term investments, $15 million remaining on the Trinity lone facility and a commitment to purchase up to 100 million in equity from income Park Capital.

Turning to full year guidance, we are revising our revenue guidance for full year 2022 to between $7 million and $9 million.

Most of the decline is driven by smart infrastructure projects being pushed out and our desire to focus on automotive program execution and instead of incurring substantial cost overrun in order to meet smart infrastructure demands.

In automotive, we remain on track as we continue to focus on OEM series production execution and winning additional programs. On the operating cost side, we continue to expect our full year operating expenses to be between $55 million and $65 million. Our focus remains on executing the programs in front of us.

In automotive, we continue to ship production samples and support other ongoing programs for the remainder of the year. Based on initial production orders we received, we expect our next year's unit volume contribution from automotive to more than double this year's total volume. Now I'd like to open up the call for questions..

[Operator Instructions] And our first question will come from Joseph Spak with RBC Capital Markets. Please go ahead..

Thanks so much. A couple of questions here, first I think previously you mentioned -- you thought there was an expectation that could be gross margin positive in the back, Hull given some of the shifts you just talked about, what sort of the current outlook here for the rest of the year..

For the year we are still expecting positive gross margin although not hugely positive but in the mid-single digit range..

Okay. And then I was wondering if you could help us out with some units and ASPs, because you mentioned a couple of things here. One you mentioned that the mix between auto and infrastructure sort of weighed on it. So it'd be helpful to have some sort of context there in terms of how many units may be between each of those two end markets.

And then you went on to say '23 auto more than 2x total '22. But I think having a some sort of base to help ground people would be helpful..

Yes, the first question is on ASP. So we generally have slightly lower ASPs on automotive than smart infra can think of it as you know, automotive, at least in the near term being maybe two-third of the ASP of smart infra.

And the second question was about automotive volume for next year, we're not providing obviously full-year guidance for next year, but some color on, based on the production order so we do expect our unit volume from automotive for next year to more than double this year's total volume..

Right.

Can you just -- can you tell us how many total units, you shipped in this quarter?.

Total units shipped in the quarter. We're about 400..

Okay. Maybe one last one if I could, you mentioned a couple of talks with customers and it sounds encouraging. If you could, obviously the first GM Ultra Cruise vehicles was sort of a big way win. Any progress on commercial talks with a sort of a second wave of Ultra Cruise and sort of confidence and being sole-sourced for such a program..

Yes, definitely, Joe, this is Mitch Hourtienne, I can take that one. Yes, we're still very much engaged with GM as our lead OEM customer. The discussions are all -- have a positive trend to the extension of the duration, additional models, additional applications for lidar, we can't get into specifics there, but it's all in the positive direction.

I'll just say other OEMs are progressing just as we have expected despite the macroeconomic environment were traditionally working with top 10 global OEMs here in North America and Japan and their strategies are still very much intact. So the progress has been really good with the top 10 OEMs and specifically with GM..

Our next question will come from Matthew Galinko with Maxim Group. Please go ahead..

Hi, good afternoon and thanks for taking my questions. Maybe if we could go into the kind of delays in smart infra. Is there any flavor to the types of projects that are getting pushed out or any differences between regions where you're seeing delays or is it pretty broad based.

And I guess what gives you confidence that you'll continue to have that business that comes back..

Thanks, Matt. This is Mitch Hourtienne, again, I'll take that one too. So I did mention a few specific applications, domestic airports here in the U.S. So, we're finding that while our solution is favored there is more of - more time being spent in the POC phase and the actual deployment afterward is taking a bit longer.

Similarly, another application as electronic tolling stations in different states here in the U.S. starting out in the Midwest.

But there are additional states coming online and anytime you're dealing with a government entity or a large infrastructure like airports, these projects can take a bit longer, but we do say that the end demand remains the same. We're still positive on the end demand but from POC to mass deployment is taking a bit longer than what we expected..

Jun, thanks.

I mean is there bid ability and I know you said it's pretty opaque I think but, are there any factor there, do you have any visibility at all as to when that might move the 2023 event or is it something that could get pushed out multiple years?.

I don't think it's a multiple year push. It's a bit difficult to predict the phases of the deployment. So we have good visibility and the application, all the way down to what they're using our lidar for in the tooling stations, airports, these applications. We know how many they using per site. It's just predicting the phases of that rollout.

Again you're going across multiple states, you're going across multiple airports that have different strategies themselves. So it's more on the order of quarters versus years..

Our next question will come from Richard Shannon with Craig-Hallum. Please go ahead..

Hi guys, thanks for taking my questions. I also apologize, I've had a spotty cell reception here, sorry I missed out on some blocks of comments here, but I guess the first question I had was regarding the guidance for the year, down to the 7.9 million range here.

If I understood correctly, a lot of it, or most of it's coming from smart infrastructure considering impact from automotive in that in anyway..

Yes, Richard. Thanks for the question. Yes, you're right, the most of the decline is from smart infra. We're not seeing any significant impact on automotive..

Okay. Unfortunately, I just went $0.5 their side, I didn't catch that. I don't know how to fix this, so I apologize. I'll ask another question then probably get a line or read the transcript over here. But --.

No worries. I just said, there is no significant impact from automotive, primarily from our infra..

Okay. I didn't catch all I have. Thanks, Hull. My second question here is on the comments I think was part of one of the earlier questions regarding your comment about next year in automotive volumes doubling, I am assuming that means on a unit basis.

Wondering if you could kind of characterize what you, what you mean there, I guess, I would expect an early stage ramp here to be able to do well more than double. So I wonder if you could give us any context or is there any upside any sort of limit that you could see next year like tripling or some way you could characterize that please..

Sure, sure. So that comment is primarily based on the initial production order that we received from Koito that there is definitely upside to that, and as you know, in automotive, we have a little bit longer visibility than we do in smart infra. Smart infra will have maybe around a couple of quarters, automotive will have a little bit longer..

Okay, fair enough. And then just in terms of cash burn here in the second of the year, Hull, what should we expect here. I probably not able to do the math, real quick on your revenue and OpEx numbers for the second half. Maybe if you can just give us a sense of what you're expecting there. Please..

Sure, our total OpEx for the year remains anywhere between $55 million to $65 million for the year and for gross profit over the year is essentially roughly zero right, so there's not a lot of growth -- gross profit contribution to profitability. So we've done with half a year. So the second half it's essentially half of OpEx..

[Operator Instructions] Our next question will come from Gus Richard with Northland. Please go ahead..

Yes, thanks for taking my question. Just you mentioned early in the call that you are shipping D-samples to multiple OEMs. I was just wondering if you could give sort of how many and potentially how many programs that might address..

Yes, just to clarify, we said multiple OEM vehicle factories across all states. Yes. So it's all the same OEM..

Okay, got it. And then you also are moving some production over to Fabrinet and will serve as some of your markets. Is that mostly infrastructure and then you mentioned some vehicle types of applications? I was just wondering if you could provide any color on what's going on there..

Yes just -- so Fabrinet will supply a key submodule as part of our automotive OEM program so supplying that to Koito.

Koito remains the Tier 1 for the OEM but in addition to that work stream we're also working with Fabrinet on other applications including smart infrastructure customers and potentially other automotive applications outside of the initial OEM series production win..

And I'll just add back those other applications Fabrinet will be doing a full turnkey unit as opposed to supplying a module..

Okay. And the other automotive applications. I'm assuming those wouldn't be a mainstream type of program, but something more unique like an autonomous golf cart or something..

That's a safe assumption for today, yes..

This concludes our question-and-answer session. I would like to turn the conference back over to Jun Pei for any closing remarks..

Okay.

Thanks, everyone for spending time with us today, as you have heard from ramping up D-samples to production line readiness at Koito, we're getting closer and closer to having lidars into everyday vehicles and Cepton is going to be a big part of it and we're certainly excited and looking forward to giving you guys more updates in the coming quarters.

Thank you very much..

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