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spk00: Greetings and welcome to the Q4 and full year 2023 Septon Business Update and Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dennis Chong, interim CFO. Thank you, Dennis. You may begin.
spk01: Thank you, and welcome to SEPTOM's fourth quarter and full year 2023 earnings call and business update. With me today are Jun Pei, co-founder and chief executive officer, and Mitch Cortini, 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 U.S. GAAP. Reconciliations 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 presentation 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 US Securities and Exchange Commission. We're 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 presentation slides that accompany this call, as well as the webcast replay of this call at www.investors.septown.com. Now I would like to turn the call over to Jun.
spk02: Thank you, Dennis, and good afternoon, everyone. Thank you for joining SEPTOWN's fourth quarter and full year 2023 earnings call. We will provide a business update and review our financial results with you. There's quite a bit of news within the industry these past few months, and specifically regarding Septon. First, I'd like to congratulate our team on exceeding our FY23 revenue guidance with a record $13.1 million in recorded revenue and preparing us for growth with the launch of our new LiDAR product, Septon Ultra at CES 2024. These are two major accomplishments that keeps us at the forefront of this industry. First, on our latest long-range LiDAR product, Septon Ultra, demonstrated at CES 2024. Septon Ultra, or Ultra, represents a pinnacle in LiDAR technology, boasting a remarkable long detection range of up to 300 meters at 10% reflectivity, ultra-high resolution, with software-definable regions of interest, and the distinction of being the world's slimmest adaptive long-range LiDAR. This design enables seamless integration into various vehicle locations, maintaining aesthetic appeal, and reducing aerodynamic impact. At its core, Stepton Ultra leverages our next-generation imaging technology, MagnoSteer. alongside with a proprietary chipset SOC to significantly enhance point cloud quality while minimizing cost, footprint, and power consumption. This strategic blend of advanced features is designed to deliver an optimal balance of performance, cost, and reliability making Ultra not just a technological marvel, but also a viable solution for mass market adoption across automotive, smart infrastructure, and various other applications. Moving on to a piece of industry news that creates significant opportunity and competitive edge for SEPTA. In a significant development that has considerable implications for the global LiDAR industry, A prominent Chinese LiDAR company on January 25, 2024, was added to the 1260H list of Chinese military companies by the U.S. government. This designation, which highlights entities believed to be affiliated with the Chinese military and defense sectors, has underscored the complexities and risks associated with American business engaging in partnerships or transactions with firms listed under such a category. This development has prompted many US corporations to reassess their supply chain strategies and partnerships, aiming to mitigate risks associated with compliance, geopolitical tensions, and national security concerns. We believe this event is a significant opportunity and a catalyst for growth for our company, as the stakeholders and partners in the industry seek alternatives to navigate away from the potential risks posed by sourcing from entities on the 1260H list, Cefton, as a U.S. company, has emerged as a viable and secure partner and a supplier for LIDARs. This shift not only highlights our commitment to adhering to international regulations and safeguarding our operations from geopolitical uncertainties, but also reinforces our position as a trusted leader in the LiDAR technology sector. Our competitive advantage to offer reliable LiDAR supply amidst these challenging times has further solidified our market presence and opened new avenues for growth and collaboration. Lastly, I want to briefly touch upon some recent news on the GM series production cancellation and a letter of indication from our Tier 1 partner and shareholder, Coito Manufacturing, which were both disclosed in more details in our Form 8 case. On December 11, 2023, Coito informed us that the original equipment manufacturer that awarded Coito the Series Production Award has decided to re-scope its ADAS product offerings, and as a result, All outstanding purchase orders from Coetel to the company that relate to the series production award have been canceled. As is customary, when an automotive program changes, Chef Tong initiated actions to secure project investment cost recovery related to any delay or cancellation of an existing program. On December 21, 2023, we announced that we have received a non-binding proposal from COETO to acquire 100% of the outstanding shares of SEPTON, not currently owned by COETO. SEPTON's Board of Directors, via a special committee, is currently evaluating the indication of interest among other strategic options with assistance from financial and legal advisors. No assurance can be given that a definitive transaction with respect to COETO's indication of interest or any other potential transaction will eventually be consummated. As we have discussed in prior quarters, we are continuing to build our business and delivered yet another record-setting quarter for revenue. Steptown remains steadfast in pursuing opportunities in automotive 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 Mish for details on our efforts with customer programs.
spk03: Thank you, June. Since our last earnings call, Septon has received a dramatic increase of attention from the automotive industry, in part due to the macro events against Chinese LIDAR companies mentioned previously, but more importantly, the launch and demonstration of our new Ultra product. Specifically, we have made significant strides with the top 10 global automotive OEM, previously mentioned as one of the industry's top open RFQs. Our recent demonstrations of the B samples of our Ultra product have been a game changer in advancing this particular automotive RFQ, as well as accelerating discussions with other top automotive OEMs. Furthermore, our in-depth collaboration with Coedo as an automotive supply titan has become one of the top driving factors for automotive OEMs to consider the Septon Coedo solution over other competing solutions. The go-to-market strategy of Septon, with Coedo as our Tier 1 partner, is starting to become an obvious and sustainable winning combination for customers as they solidify their first mass production launches using LIDAR technology. Of course, we have seen some false starts, delays, and re-scoping as car companies refine their adoption of this new technology, but it is clear that LIDAR is not going away. It's just a matter of time before several OEMs safely launch new ADAS systems, incorporating the tremendous advantages that LIDAR provides. Having a supplier which can sustain this launch learning curve is becoming paramount to OEM sourcing decisions. Next, Septon recently filed an 8K disclosing the notification of an OEM series production award. Today, we're not able to disclose any more details on this project outside of those disclosed in the 8K, but they will be forthcoming soon as we work together with the OEM and COETO on public announcements. In addition to our recent automotive developments, I'm pleased to highlight significant progress we made with a major autonomous industrial vehicles OEM using our near range LIDAR Nova in Q4 of 2023. During the quarter, Septon passed a significant gate review with this early adopter of our near-range LIDAR technology, and we've advanced to the final pre-production phase of this project in 2024, with expected mass production launch in 2025. With this milestone in hand, and in partnership with Coedo, we now have several other OEMs, including shuttle OEMs, heavy equipment manufacturers, and smart infrastructure customers with greater interest and higher demand for our near-range LIDAR product in 2024. 2024 will be a decisive year for continued LIDAR adoption across the automotive landscape. With our new product, Ultra, and our deepened partnership with Coedo, we are poised to capture market share in this key inflection point of adoption. Now I'll turn it back over to Dennis.
spk01: Thank you, Mitch. Starting with our fourth quarter, total revenue for the quarter was $5.0 million, an increase of 214% compared to the prior year period and up 29% compared to our previous quarter. The increase for the quarter was evenly contributed by product revenue and development revenue. Fourth quarter 2023 gap net loss was $8.3 million, or $0.52 loss per share, basic and diluted. Fourth quarter 2023 non-gap net loss was $6.4 million, or $0.41 loss per share. basic and diluted. Fourth quarter 2023 adjusted EBITDA was a negative $7.1 million. Now onto our full year 2023 results. Total revenue for 2023 was $13.1 million, an increase of 76% compared to the prior year and above the full year 2023 revenue guidance provided in our third quarter 2023 earnings release. We achieved full year growth margin of 27%. Our full year gap operating expenses were $54.3 million, excluding stock-based compensation expenses and non-recurring loss on impairment of property and equipment. Our non-GAAP operating expenses were well below the $50 million we communicated in our third quarter 2023 earnings release. Full year GAAP net loss was $48.5 million, or $3.08 loss per share, basic and diluted. Full year non-GAAP net loss was $38.9 million, or $2.47 loss per share, basic and diluted. And the full year adjusted EBITDA was a negative $41.2 million. As of December 31, 2023, we had approximately $56.4 million in cash cash equivalents, and short-term investments. Lastly, we're not offering 2024 guidance at this time. We expect to provide an update on the full-year guidance at our Q1 earnings call. And with that, I'd like to open up the call for questions.
spk00: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.
spk06: Thank you.
spk00: Our first question comes from the line of Shawty McWally with Craig Hallam. Please proceed with your question.
spk05: Hey, this is Shawty McWally on for Richard Shannon. Thanks for taking my question, guys. I have a question regarding the final round of sourcing with the top 10 OEM. Can you give any details whether this is an exclusive or competitive process?
spk03: Yeah, Shadi, this is Mitch Cortini, Chief Commercial Officer. Basically, you're asking, okay, is it exclusive or competitive? It's still a competitive process at this point for that particular opportunity.
spk05: Did that OEM give you guys any indication of how many other companies are left in that process?
spk03: No, no, they didn't give us any particular number.
spk05: All right, makes sense. And then just one more question. What's the timeline for the decision and shipment with the top three OEM? And then is this an OEM that has announced ladder suppliers in the past?
spk03: The timeline, we can't disclose the commercials of the RFQ we received. But just in general, a lot of the RFQs coming out in the automotive industry right now have the start of series production in the second half of the decade, in the 2026 to 2028 time frame. And then the second part of your question, have they already announced LIDAR suppliers? A lot of OEMs have had various projects with other LIDAR suppliers the past several years. Yes, this OEM was previously working with another LiDAR supplier.
spk06: Thanks for the color on that, and that's all for me.
spk00: Thank you. Our next question comes from the line of Kevin Garingan with West Park Capital. Please proceed with your question.
spk04: Yeah. Hey, guys. Thanks for letting me ask a few questions, and congrats on the progress. Just for the first one, just a quick clarification. The RFQs, the RFQ that you mentioned, and then the final sourcing, those are both for passenger vehicles, correct? Not any trucking?
spk03: That's correct.
spk04: Okay, perfect. And then has the IOI from COIDO caused any of your discussions with OEMs to kind of change at all? As in, you know, have some that they now be waiting on the sidelines until, you know, a final decision is made or some actually like the idea of a bigger tier one kind of player source in the LIDAR and have accelerated some discussions?
spk03: Yeah, definitely, Kevin. This is Mitch again. Yeah, it's an obvious topic that comes up, especially in deep final discussions with the OEMs. I think overall it's a positive. It's seen as a positive for Septon and for Coedo. You know, there are concerns in the industry about the longevity of LIDAR companies, and I think that's coming to the surface for many OEMs. And so this proposed letter that we received is definitely a positive in front of the customers.
spk06: Okay, perfect. Thanks, guys.
spk00: Thank you. Our next question comes from the line of Gus Richard with Northland Capital. Please proceed with your question.
spk08: Yes, thanks for letting me ask a couple questions. Just, you know, when the industry goes through a re-scope, can you talk about sort of what it means to you guys financially? You know, how do they size any, you know, remunerations? associated with that kind of thing, not specific numbers, just how does one think about that?
spk02: Are you asking about the GM re-scoping?
spk08: Yes, I am. So when there's a re-scope, usually the vendors get money back from money spent. And I'm just wondering, industry practices, What's the magnitude? What does it look like? Is it proportional to what you've spent on development, etc.?
spk02: Yeah, we're certainly trying to recover all the money we have spent, invested in the program. But there are a lot of intricacies in the process. Mitch, you want to add something? It's not something of a concrete number we can give out at this point, but it's certainly a non-trivial number.
spk03: Yeah, it's not public information, but I think you can think of it as some proportion of our OpEx the past three or four years since we announced that project. That was a pretty significant work stream for our company. There were significant investments, and that's what's being asked for.
spk08: Got it. And then in terms of the nomination for the trucking company, when would you expect that to go into production?
spk03: Yeah, I just refer back to my answer to the first question. Most of the RFQs and awards right now are starting production in the 26 to 28 timeframe. So it would fall somewhere in that timeframe.
spk02: Yeah, but again, I refer back to our 8K filing. You know, that's as much information as we can publish right now, and we'll follow up with more press releases as we're allowed to release more information.
spk08: Okay, fair enough. Last one for me. You know, this Chinese entity that is sort of on the entities list, if you will. You know, were you going up against this company at any of the, you know, top 10 companies, OEMs that you've been working with? You know, is this a significant reduction in, you know, the competitive environment? You know, were you seeing these folks?
spk02: Yeah, I'll start first, and Amish can add more. There are, as you can see in this LiDAR landscape, quite a number of LiDAR companies in competition for any program out there. So you can expect this Chinese LiDAR company, as well as us and many others, are always competing with each other in any of the LiDAR programs that's active. it is, you know, a fair assumption that we've been competing in a number of projects. And, yeah, you know, the current situation is they're put on this 1260H list, and, you know, there's one fewer in many of these combinations at many places. So, Mitch, you want to add some more?
spk03: I don't think I have anything to add.
spk02: Yeah, yeah.
spk06: Okay, very good. That's it for me. Thanks so much.
spk00: Thank you. Our next question comes from the line of Matthew Galenko with Maxim Group. Please proceed with your question.
spk07: Hey, thanks for taking my questions. I guess the first one is on the smart tolling project you've talked about. I think it's a pretty significant length over the last couple quarters. I didn't hear, I think, much about it today, but just hoping you can update us on where the rollout stands and potential for broadening the scope and expansion of the smart tolling practice in general for your business.
spk03: Yeah, thanks, Matt. This is Mitch. Good question. Yeah, you're right. We didn't necessarily highlight that today, but we did continue significant shipments in the Q4 that shows up in our product revenue numbers for the tolling application. and we continue to support those big tolling operators in the U.S. market as they expand both in the U.S. and also bid on some international opportunities. So that's very much an active market that we're supporting.
spk07: Got it. Thank you. And I know you're not specifically providing an outlook, particularly on revenue, but I was wondering if you could give us some sense of – you know, your thoughts around spending, at least over the next two quarters, or if not for the next year, just on, you know, directionally what we should be expecting on OPEX. I think you had, you know, kind of declines the last three quarters, at least on GAAP. So, you know, should we expect kind of the same trajectory given, you know, the risk coping at GM, or is it just subject to whether you, you know, sort of get to the final decision on any of these OEM selections.
spk01: Hi, it's Dennis Chang here. For the OPEX at this stage, we're not expecting any increase, so it's probably less than our 2023 numbers. I guess with our Q1 results, we'll be providing some update.
spk06: Okay, thank you.
spk00: Thank you. There are no further questions at this time. I'd like to turn the floor back over to Junpei for closing comments.
spk02: Thank you very much. It's been an exciting year, 2023. So we look forward to another even more productive year of 2024 with new products and new projects and new technology of course. Stay tuned for further updates from CEPTONG. Thank you very much.
spk00: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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