Cepton Inc (CPTN) 2021 Q4 法說會逐字稿

Good afternoon, and welcome to Cepton's fourth-quarter and full-year 2021 business update and earnings conference call. Today's call is being recorded, and a question-and-answer session will follow the prepared remarks.

At this time, I'd like the call to be turned over to Mr. Hull Xu, Vice President of Finance and Strategy for Cepton. Thank you. You may now begin, sir.

Thank you, and welcome, everyone, to Cepton's inaugural earnings call, covering FY 2021 results and 2022 business update. With me today are Jun Pei, Chief Executive Officer; and Winston Fu, Chief Financial Officer. Jun will provide an overview of Cepton, a business update, and objectives for 2022. Winston will discuss the fourth-quarter and full-year 2021 financial performance and 2022 outlook.

During the call, we may refer to our unaudited GAAP financials and non-GAAP measures in our 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 for forward-looking statements that you'll find in today's news release.

Actual results for future periods may differ materially from those expressed or implied by these future-looking statements due to a number of risks or other factors described in our Form S-4 recently filed with the US SEC. We are not undertaking any commitment to update these statements if conditions change.

As a quick reminder, this call is being recorded. And you can find the earnings release, 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.

Thank you, Hull, and good afternoon, everyone. Thank you for joining Cepton's very first earnings call as a public company. We will provide a business update, review full-year 2021 performance, and share our 2022 outlook with you.

But before I dive into the details, I'd like to give my thanks to our employees, customers, partners, and investors who have supported Cepton since our inception in 2016, all the way until now as a public traded company.

When we first started Cepton, we saw an opportunity to equip lidar sensors in every vehicle to improve safety and enable autonomy. We believe full autonomy will be a reality in due course. But in the meantime, ADAS is a very large and near-term market opportunity ripe for technology disruption. As a result, we have focused our effort primarily on serving the ADAS market, and our effort has paid off.

Along with our Tier 1 partner, Koito Manufacturing of Japan, we have won the largest series production award in the lidar industry from General Motors, in support of its Ultra Cruise program. Looking back at the competition for this program, virtually every lidar company win the race. Cepton was the only company that won this massive program due to our ability to achieve the perfect balance between performance, reliability, and cost, as well as our ability to do all that behind the windshield.

So that happened at the end of 2019. Since then, we've been working diligently on the execution of this program. And then I'm proud to report that we are on track to meet the timeline requirement from GM. As you can see, we have been working on executing this program for over two years now. And we expect at least another year of intense work between all three parties -- Cepton, Koito, and General Motors -- before consumers are able to buy GM vehicles equipped with Cepton lidars.

We knew the GM program is a big achievement for Cepton. But finally realizing our vision of Cepton's lidar in everyday vehicles would be a monumental achievement. And we can see that day very clearly in the not-too-far-distant future.

Many people ask me how Cepton differentiates itself among all the other lidar companies. My answer has always been, let the commercial validation be the ultimate differentiation. Even though I have been a technologist all my professional life, I believe technology without commercial success is and will remain a science experiment.

Cepton invented the unique MMT lidar to address a need in ADAS, where a perfect balance between performance, cost, and reliability must be achieved before wide-scale adoption can take place. We believe our MMT lidar has achieved this balance, supported by the trust placed in us from North America's number one and number two auto OEMs by volume, and that is General Motors and Ford Motor Company, by the way.

Many people also ask me, what does it take to win a large series production award like ours? In addition to having the right product, a Tier 1 automotive supplier partner is also critical, as they stand behind the product. Many large auto OEMs will not even entertain a discussion if we don't have a Tier 1 partner. And we are fortunate that Koito Manufacturing of Japan, a Tier 1 supplier to the automotive industry for many decades, is one of our key Tier 1 partners.

Looking back the last two years, even though COVID condition constrained many facets of our normal interaction between our engineers, partners, and customers, I'm proud to report that our teams worked around these new challenges and hit every milestone on the schedule that was crafted before COVID.

We completed the A-samples, B-samples, and on track to complete C-samples in the first half of 2022. We will also complete D-samples by the end of the year, such that we will be in a position to ship products to salable OEM vehicles by the year-end.

While our series production award covers multiple platforms and vehicle models, the same Cepton lidar is used across these vehicles. This allows us to take advantage of the economies of scale to reduce costs. However, scale is only one of the factors contributing to attractive cost profile. Cost is a key design parameter in every component choice we make, from the very first time when we put pen to paper.

As we mature our product offerings, we continue to invest in performance enhancement and cost-reduction effort, such as combining multiple electronics components into an ASIC. We expect to tape out our seven ASIC this year as a result of these efforts.

General Motors announced the Ultra Cruise at its Investor Day event in October and disclosed the location of the lidar integration being behind the windshield. Since then, several other OEMs have reached out to us to learn how a similar integration can be achieved in their future fleet. We expect to advance our discussion with these OEMs and potentially secure additional large series production award this year.

From a product perspective, we saw a need for near-range lidar with superior horizontal and vertical field-of-view performance for surround-view applications, such as pedestrian detection, automatic parking, low-speed maneuvering, just to name a few.

To address these applications, we introduced our smallest lidar -- the Nova -- that can easily fit into your palm and cost significantly less than our long-range lidar product. By utilizing the same MMT concept and engineering approach, we're able to further leverage our technology innovation, including our ASIC.

Our process and software platform also accelerates Nova's adoption in automotive and smart infrastructure market. We expect to complete B-sample design for Nova and complete Nova evaluation with multiple global top-10 automotive OEMs and with multiple top global trucking OEMs this year.

On the software front, I wanted to mention that we currently have more software engineers than we do hardware engineers. We've taken on the challenging task of embedded automotive software that is required for our lidar to be deployed in everyday vehicles that you and I can buy. While this work is not often well advertised or well understood, it is absolutely table stakes for serious production readiness.

Moving higher up in the software stack, our perception software is already being sold to smart infrastructure customers. And we expect our automotive perception software to be evaluated by three of the global top-10 automotive OEMs this year. Consistent with our vision of enabling safe and autonomous transportation for everyone, we expect to make available our perception software stack to the broader developer community and accelerate the development of various autonomous applications for the automotive and other markets.

2022 will be a momentous year for Cepton. We will accelerate our commercial engagement, not only in North America, but also in the rest of the world. In particular, we have begun executing our China strategy, and we look forward to sharing more news on that front in future calls.

I'll now turn the call over to our CFO, Winston Fu.

Thank you, Jun. As John mentioned, 2022 will be a pivotal year as we accelerate our commercial progress on multiple fronts.

On the automotive front, we expect to increase the number of advanced engagements with OEMs globally, including expanding our presence in China.

On the smart infrastructure front, we expect to double the production awards and increase the number of engagements by 50%. These engagements include autonomous trucking, highway tolling, security applications, last-mile delivery, warehouse logistics, robotics, aeronautic and astronautic applications to name a few.

Cepton has been very capital-efficient company from inception to the beginning of becoming a publicly traded company. Last month, we raised only $100 million, and that funding enabled us to win the largest series production award in the industry. On the closing of the transaction last month, we have access to cash and available liquidity of $175 million. And we believe our liquidity position is adequate to support our current growth plans.

We exceeded our revenue guidance in 2021 by posting $4.5 million, and we are maintaining our prior revenue guidance for 2022 of $15 million. However, we expect 2022 revenues to be weighted on the back half of the year because there are some significant development milestones in the second half of the year, and we expect the global electronics supply chain issues to ease up a bit by that time.

Our operating expenses for 2021 totaled $35 million. And we expect our annual operating expenses this year to increase to a total of $55 million to $65 million, as we accelerate our product development and commercial activities on all fronts. Even with increased operating expenses, we expect to end the year with over $100 million in cash and available liquidity.

As many of you know, the electronics supply chain is stretched, and Cepton is not immune from that condition. In the near term, we do expect certain components to have extraordinarily long lead time and/or cost multiple times their normal cost. As Jun spoke earlier, each component was designed by taking into account its normal cost basis. And as an automotive safety device, components are not easily replaceable even if cheaper alternatives functionally are available.

These near-term constraints present challenges for our supply chain management, but do not affect our long-term outlook.

A word on CapEx. As a technology company, we do not expect to manufacture our products in large quantities ourselves.

For automotive scale production, our Tier 1 partners will be responsible for manufacturing units and ship to OEMs. For smart infrastructure customers, we will use contract manufacturers with the bulk of the volume production. As such, we anticipate just a little over $2 million this year in CapEx to maintain our small pilot line and certain equipment for prototyping and engineering milestones.

Finally, I would like to end my remarks by saying that Cepton is executing well. With our public listing, we are well equipped to execute our growth plans and secure additional wins.

Now I'd like to open the call up for questions.

(Operator Instructions) Matthew Galinko, Maxim Group.

Hi. Thanks for taking my question, and congrats on making it to the public markets. Can you frame the investments you're making in OpEx for 2022? Is that going to be relatively linear through the year and where the focus is, or is that going to be back-end weighted as well?

Thank you very much for the question. I'll let our CFO, Winston, answer that question.

Thanks, Matt, for the question, and thanks, Jun. The investments we plan to make are going to be focused on the key milestones that we outlined for 2022. For the most part, there is some linearity to it because the sooner we're able to invest, the quicker the engineering and manufacturing team can get those milestones done. So yes, the investment is planned to be more linear.

Got it. Thank you. And then in terms of the infrastructure, smart infrastructure engagements, what is the geographic distribution of your current pipeline? And can you talk about the kind of the time to convert on a sales cycle there?

Yeah, the infrastructure projects are unlike the automotive projects that's very concentrated. The infrastructure projects tend to be little distributed. So I'll ask Mitch to describe a little bit more in detail of where those projects are and maybe comment on the progression. Mitch?

Yeah. Thanks, Jun. I'm Mitch Hourtienne, Senior VP of Business Development for Cepton, for those that don't know me. Yeah, good question.

So the smart infrastructure market and the production partners that we've outlined in our deck are primarily located in North America and European regions, although there are a few outside of that base today. As you can imagine, like Jun said, compared to automotive, they're more dispersed across the globe.

Got it. Thank you. Can you -- last question for me and I'll jump back in the queue. In terms of the supply chain challenges that you're facing, can you opine on whether your competitors are up against similar challenges? Or do you think you have an easier path through, given your product design? Just any sort of comparison there would be helpful.

Mitch, would you like to take that? And I can complement your answer.

Yeah, sure. I'm actually going to answer that because I'm on the front end of the business, working with customers.

I think all of the players in the industry are probably facing similar challenges, but there's a priority process that's well known within the supply chain. And when you have a customer like Koito Manufacturing and General Motors, you get very high priority. So I do think we have an advantage when it comes to that process, and we've seen that play out.

Thank you. That's helpful. I'll jump back in the queue.

Richard Shannon, Craig-Hallum.

Hi, guys. Thanks for taking my questions. I think I'm going to follow up on the topic of supply chain that you just talked about in a slightly different way. Can you characterize the issues here in terms of more commodity type of ICs versus ones that are designed specifically for Cepton?

Well, like Mitch mentioned a little earlier, it's really across the board. Of course, the commodity is really being impacted in a big way. It's not only affecting us. It's across all lidar space and all space in general.

But specifically to our design modules, our ASIC, for example, are -- we're actually fine. We have plenty of preparation in anticipation for this shortage. And we're actually -- have a lot of reserves that's good enough for literally the foreseeable future.

So I don't know whether Hull -- you have any other comments on this. Hull is our VP of Finance and Strategy.

Yeah. Hi, Richard. Yes, so it's more on commodity electronics as the whole industry is experiencing. So things like [op band] and those kind of things that could be tied across the board. It's not specific to our own design.

Okay, perfect. Appreciate that characterization.

Second question is -- I think a couple of times in your prepared remarks, Jun, you talked about future focus in China. Obviously, your first big customer automotive is in North America, and I think you're engaged elsewhere as well.

We haven't heard you mention much about Europe or Japan, which is the side of your Tier 1 Koito that you're, well, partnered with there. Maybe characterize the kind of the profile of expected business across all the geographies outside North America. That'd be great.

Okay. Yeah. Yeah, we did mention China, and it's exciting place. We just set up our office there and have quite a number of engagements already. But I'll let Mitch comment on the Japan market, European market, which is also quite exciting. Mitch?

Yeah, definitely. There's a lot of activity in Japan, especially because of our relationship with Koito Manufacturing -- probably not as much out in the public space. If you think about the Japanese automotive OEMs, they have a little bit longer development cycle on the front end. But we're very much engaged with all of them.

On the smart infrastructure side, we have, I would say, just about as many engagements in Japan as we have in North America. So quite a bit of penetration in that region.

When it comes to Europe, there is a bit of regional difference within automotive as far as features when they adopt lidar. So there's a bit more focus on luxury and high speed with the European OEMs compared to North America and Japan.

But in smart infrastructure, again, we've partnered with quite a few companies in the European landscape, I would say, to a lesser extent in the China region for smart infrastructure. But with the opening of the office there and the building of the team, I think you'll see a lot coming out of that region as well.

Just added comment here, Richard, you know, being a public company really has helped in terms of increasing our profile with all the OEMs. We're certainly being taken notice by all the notable Japanese OEMs and European OEMs. So we have the momentum going.

Okay, perfect. Appreciate that.

One more question for me, and I'll jump out of line here. Correct me if I heard this incorrectly, but I think you said that you're -- related to your software for automotive OEMs, you're expecting to be evaluated by three of the top-10 OEMs worldwide. Is this accurate, and if so, can you characterize how long these evaluations go on and any other color you can add there? Thanks, Jun.

Yeah, thanks. I mean, software is always a big aspiration for the company. We have developed the static perception software that's on sale already. And we actually have developed the perception software stack for the automobile that is, as I have mentioned -- you heard it right -- that being evaluated right now.

And I certainly would not be able to disclose who's evaluating and to what stage. But these are very desired features coming out of lidar -- not just a plain point cloud data coming out but would perceive the data in a more abstracted form. And the OEMs really loved it.

Of course, that will have to go through a process of evaluation and validation and making sure the reported objects, for example, are correct. So that will take a little while.

Mitch, do you have anything to add on this subject?

Yeah, I think you're right, Jun. That process can take anywhere from six months to 18 months, depending on the evaluation criteria at the OEM. But it is true that we will have at least three top-10 OEMs evaluating our automotive perception product this year.

Yeah, this is Winston. Let me just also remind everyone that we have not baked in a big contribution from software to our financials. So this is really laying the groundwork for the future in 2025-2026 revenue.

Okay. Thanks for the perspective. That's all the questions for me. Thanks, guys.

(Operator Instructions) Samik Chatterjee, JPMorgan.

Yes, thank you. And congrats, guys, on the first quarter here. I guess, maybe if I start with the Nova product, Jun, if you can talk about, how do you think about the design cycle with an automaker related to some of the longer-range products?

I understand maybe some of the opportunities more longer term. But how does the design -- how will the design cycle look? And is there an acceleration once the automakers start going to multiple lidars per vehicle. Is there just an acceleration just given the design cycle might be shorter?

And then the other question that I had for you -- I know in your prepared remarks, Jun, you mentioned that being -- having that tie-up with Koito as a Tier 1 is helping you in terms of wins. I mean, we do have a lot of peers that you -- or competitors that you're running up against that -- some of them don't have Tier 1 tie-ups at this point.

So how do you really see sort of -- see that market playing out? Is that that the automakers are more dependent on having a Tier 1 relationship when it comes to ADAS, and when they are working on longer- term projects, they are more flexible on the Tier 1 relationship? Just wanted to understand because we do see some of your competitors without Tier 1 relationships also winning awards.

Thank you so much for those two questions. I'll answer the Nova question first.

Well, first of all, Cepton's Nova sensor is built on the exact same technical principle, the MMT technology. So in fact, it will, for sure, carry a shorter development cycle, whether it's the lidar itself or actually integrating into the vehicles.

So just -- I keep on drawing this parallel between lidar and cameras in the past. The first camera got into cars -- took a very long time. And later on, it just get accelerated. More and more cameras are showing up in many, many cars. So indeed, I can pretty much assure you that the Nova and near-range [side] -- our development will be a shorter cycle.

Well, the second question is about Tier 1. There has been a lot of debates on whether a Tier 1 is needed. Cepton is actually -- we're the believer that Tier 1 and this well-established automotive supply chain from the OEM to Tier 1 to Tier 2 -- we actually believe in that model. In fact, the top-10 global OEMs currently demand Tier 1 partner for all these advanced sensors or advanced technology.

Yeah, you probably do hear onesie, twosie direct relationships, but it's rare. And I actually don't know how that will actually unfold. We're the solid believer that, just from the product liability perspective, you need a Tier 1 to stand -- to vouch for your technology first and stand behind the product. So that's our position.

And if I can quickly slip one in for Winston here. Winston, I think if I am looking at the fourth-quarter numbers here, you are slightly negative in terms of gross margins. You mentioned that the revenue will be back-half weighted for 2022. How are you thinking about the gross margin trajectory, particularly in terms of getting to maybe closer to breakeven in gross margin in the back half of this year?

You know, the supply chain issues, as we talked about, continue to bring down the margins a bit and -- so we are confident we'll be definitely positive in gross margin in the back half of this year.

And one of the things -- one of the questions earlier from that is regarding our investment pace. I mean, the reason we are putting a more linear investment pace quarter by quarter this year is to also lower the cost, not just through supply chain management, but also through engineering and just being smarter in integration.

Great. Thank you. Thanks for taking my questions.

That concludes our question-and-answer session. Now, I'd like to turn the call back over to Mr. Jun Pei for closing remarks. Please go ahead.

Okay. If that's all the questions, I would like to close with many thanks to all of you who participated today. If anyone would like to reach out to us for further discussion, please contact us, and we will for sure set something up.

Cepton will be riding on the momentum of the largest lidar design win with General Motors and continue charging forward. Please pay attention to us. Meanwhile, thank you and thank you again. Good day.

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