Cepton, Inc. (NASDAQ:CPTN) Q3 2023 Earnings Call Transcript

Cepton, Inc. (NASDAQ:CPTN) Q3 2023 Earnings Call Transcript November 12, 2023

Operator: Hello and welcome to the Third Quarter 2023 Cepton Inc. Business Update and Earnings 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. Please go ahead.

Hull Xu: Thank you and welcome to Cepton's third quarter 2023 earnings call and business update. With me today are Jun Pei, Co-Founder and Chief Executive Officer; and Mitch Hourtienne, Chief Commercial Officer. 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'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 Harbor statements relating to the 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 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.cepton.com.

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

Jun Pei: Thank you, Hull and good afternoon, everyone. Thank you for joining Cepton's 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 Mitch 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, we shipped the highest number of lidar units, to our automotive end customers as we continue to deliver on milestones to prepare for startup 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 our customers. I'm proud to report that we have passed the final software milestone for launch of series production, fully integrating AUTOSAR and the cybersecurity software under one of the most rigid set of requirements in the automotive industry. We're proud to be one of the first lidar companies in the industry that is series production qualified. While Cepton stands ready to meet start-up 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 our efforts in preparing for the anticipated production volume will be fully appreciated in the near future. On the smart infrastructure side, we have seen the smart tolling application flourish with the addition of a new tolling operator customer, while we continue to fulfill our existing smart tolling contracts. In addition, we continue to support application for smart airports in partnership with the Indoor Labs. We expect these projects to mature into production orders for commercial deployment in the next few months. Moving on to the technology. Our 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 automotive application where our lidar is a key sensor modality, our domain expertise enables plug-and-play software solutions that can integrate into the broader ADAS stack. Our software development capabilities extends our domain expertise to both the manufacturing production line as well as the quality control processes so we have visibility in all stages of a sensors life cycle. As we have discussed in prior quarters, we're continuing to build our business and delivered yet another record second quarter for revenue. Cepton remains steadfast in pursuing opportunities in automotive industry and remains in a 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.

A modern car with the latest automotive electronics installed, parked in front of a city skyline.

Mitch Hourtienne: Thank you, Jun. With our lead OEM customer, Cepton has continued to deliver on software development, meeting software release milestones and fine-tuning software validation tools for production readiness. The delay in launch of certain contracted vehicle models was a result of the OEM wanting to fine-tune products at the system and vehicle level. Additionally, our partner, Koito 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, our lidars are ready to go as we await further instructions from our OEM customer on vehicle rollouts and pursue new customer programs.

On our RFI and RFQ activity, we remain in the final sourcing 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 has been delayed somewhat as a result of macroeconomic headwinds in the automotive industry. We've also entered final sourcing discussions with a major trucking OEM for our short-range lidar with the decision also expected by the end of the year. We hope to share more details in the upcoming months about production sourcing awards. On the smart infrastructure side, as Jun 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 of Cepton lidars into new U.S. states as well as internationally.

We are also happy to announce continued maturity of projects in the airport application with our partner, the Indoor Lab, with design wins at Tampa, New York's JFK, Denver and San Francisco airports. The initial use case of our lidar sensors will be security and passenger traffic management but we'll 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 Hull now.

Hull Xu: 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 our previous 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 to the 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 a fixed cost leverage on a record level of unit shipments.

Third quarter GAAP net loss was $11.3 million or $0.71 per share basic and diluted. Non-GAAP net loss was $9.2 million or $0.58 per share basic and diluted. As a reminder, we completed our previously announced one-for-ten 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 30, 2023, we had approximately $61 million in cash and short-term investments and no debt. As a result of our lead OEM start of 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 million, driven by higher operating efficiencies and increased discipline on expenses.

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

Operator: [Operator Instructions] Today's first question comes from Tom Narayan with RBC Capital Markets.

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