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spk05: Good day and welcome to the second quarter 2022 SEPTON, Inc. Business Update and Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Hal Hsu, Chief Financial Officer. Hal, please go ahead.
spk02: Thank you and welcome everyone to SEPTOM's second quarter 2022 earnings call and business update. With me today is Jun Pei, our co-founder and CEO, and Mitch Hortini, 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 now 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 forward-looking statements containing 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 slides that accompany this call, as well as the webcast replay of this call at investors.septon.com. Now I would like to turn the call over to June.
spk01: Thank you, Hall, and good afternoon, everyone. Thank you for joining SEPTOM'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 Hortini, 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 run D-sample shipments to COETO for final assembly, calibration, test, and delivery to multiple vehicle manufacturing plants across multiple states in the U.S. As a reminder, D-sample represents the final stage in hardware validation with production intent. In the second quarter, multiple SEPTON teams visited COETO's manufacturing facility in Japan in support of production readiness. Seeing the automated production line at Coetel in action was a truly significant milestone for us, as it represents our company's journey to LiDAR commercialization and how close we are to achieving our goal of making septon LiDARs available in everyday consumer vehicles. As we recently announced, we're expanding collaboration efforts with Coetel to extend beyond our current OEM 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 Japanese automotive OEMs. COETO has been a key partner in the commercialization and manufacturing of SEPTON'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 transform SEPTON's technological innovations into commercially viable and scalable products. We also recently announced the selection of FabriNet as a supplier of key submodules for our flagship OEM series production program. FabriNet will also be our supplier for full turnkey LiDAR solutions targeting the non-automotive end markets, as well as select automotive applications. Stepton launched the initial production of our Vista X90 LiDAR at FabriNet Thailand facility back in September 2021. And we are excited to see our partnership advance 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 market have continued to ask is, when will we see LIDAR on saleable 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 were extremely strong. Our unique ability to place septon LIDAR behind the windshield as a result of a LIDAR small form factor and low power consumption continues to be a point of differentiation separating Septon from its competitors. The early positive reception for these models and Septon's growing presence with OEMs creates a favorable outlook for our products. On the technology side, we achieved the ISO 26262 SOB certification on our first ASIC Our in-house ASIC development capabilities remain as an important piece of our technology roadmap as we take out our second ASIC 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 share more exciting news in the future quarters. As you can see, SEPTON 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 technology in everyday consumer cars. Now I'll turn it over to Mitch.
spk03: Thank you, Jun. On our automotive programs, we received our first firm production order from Coedo 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 Coedo's manufacturing line in preparation for this OEM series production. and completed the initial OEM site audit of Coedo's manufacturing facility. As June 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 ability to tailor performance to application specific needs are 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 that 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 timelines 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'll turn it back over to Hull.
spk02: 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 mixed 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 re-measurement of earn-out shares liability, stock-based compensation of $2.2 million and a $1.9 million gain on re-measurement 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 in cash and short-term investments, $15 million remaining on the Trinity Loan Facility and a commitment to purchase up to $100 million in equity from Lincoln Park Capital. Turning to four-year guidance, we are revising our revenue guidance for four-year 2022 to between $7 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 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.
spk05: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchstone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. In the interest of time, please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. And our first question will come from Joseph Spack with RBC Capital Markets. Please go ahead.
spk04: Thanks so much. A couple of questions here. First, I think previously, you know, you thought there was an expectation that you could be gross margin positive in the back half. Given some of the shifts you just talked about, what's sort of the current outlook here for the rest of the year?
spk02: For the year, we are still expecting a positive gross margin, although not hugely positive, but in the mid-single-digit range.
spk04: 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 would be helpful to have some sort of context there in terms of how many units maybe between each of those two end markets. And then you went on to say, you know, 23 auto more than, you know, 2X total 22. But I think having a, you know, some sort of base to help ground people would be helpful. Yeah.
spk02: Yeah, first question is on ASP. So we generally have slightly lower ASPs on automotive than smart infra. You can think of it as automotive, at least in the near term, being maybe two-thirds of ASP of smart infra. And the second question was automotive volume for next year. We're not providing, obviously, full year guidance for next year, but some color 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.
spk04: Right. Can you tell us how many total units you shipped in this quarter then?
spk09: Total units shipped in a quarter were about 400.
spk04: Okay. Maybe one last one, if I could. You mentioned a couple of talks with customers, and it sounds encouraging. could, you know, obviously, you know, the first GM Ultra Cruise vehicles was sort of a big win. Any progress on commercial talks with a sort of a second wave of Ultra Cruise and, you know, sort of confidence in being sole source for such a program?
spk03: Yeah, definitely, Joe. This is Mitch Hortini. I can take that one. Yeah, we're still very much engaged with GM as our lead OEM customer. You know, the discussions are all have a positive trend to them, you know, 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, you know, other OEMs are progressing just as we have expected, despite the macroeconomic environment. You know, we're 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.
spk04: Okay, thank you.
spk05: Our next question will come from Matthew Galinko with Maxim Group. Please go ahead.
spk08: Hi, good afternoon. 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, you know, differences between regions where you're seeing delays or is it pretty broad-based? And I guess what gives you confidence that you'll, you know, continue to have that business as it comes back?
spk03: Thanks, Matt. This is Mitch Hortini 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, you know, while our solution is favored, there's more time being spent in the POC phase and the actual deployment afterwards is taking a bit longer. Uh, similarly, another application is electronic tolling stations in different States here in the U S uh, starting out in the Midwest. Uh, but there's additional States coming online and, you know, anytime you're, you're dealing with, uh, you know, a government entity or, or a large infrastructure like airports, uh, the, these projects can take a bit longer. Um, but we do say, you know, the, the, the end demand remains the same, you know, we're still positive on the end demand.
spk08: um but but you know from poc to mass deployment is taking a bit longer than what we expected jonah thanks and i mean is there um is there visibility and i know you said it's pretty opaque i think but um you know Are there any factors or do you have any visibility at all as to when that might be? Is it a 2023 event or is it something that could get pushed out multiple years?
spk03: I don't think it's a multiple year push out. It was a bit difficult to predict the phases of the deployment. You know, we have good visibility in the application all the way down to what they're using our LIDAR for in the tolling stations, the airports, these applications. We know how many they're 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.
spk09: Got it. Thank you. I'll jump back in the queue. Our next question will come from Richard Shannon with Craig Hallib.
spk05: Please go ahead.
spk07: Hi, guys. Thanks for taking my questions. I also apologize. I've had a spotty cell reception here, so I've missed out on some blocks of comments here. But I guess the first question I had was regarding the guidance for the year, you know, down to the seven and nine million range here. If I understood correctly, a lot of it or most of it is coming from smart infrastructure. Was there an impact from automotive in that in any way?
spk02: Hey, Richard. Thanks for the question. Yes, you're right. Most of the decline is from smart infrastructure. We're not seeing any significant impact from automotive.
spk07: Okay. Unfortunately, I just went out on half of your answer there, so I didn't catch that. I don't know how to fix this, so I apologize. I'll ask another question and then probably get a line and read the transcript later here.
spk02: No worries. We just said there's no significant impact from automotive primarily from out in front.
spk07: Okay. I did catch all that. Thanks, Paul. My second question here is on the comment. I think it was part of one of the earlier questions regarding your comment about next year in automotive industry. of volumes doubling I'm assuming that means on a unit basis one if you can kind of characterize what you what you mean what you mean there I would I guess I would expect an early stage ramp here to be able to do well more than double so I wonder if you can give us any context or you know is there any upside any sort of limit that you could see next year like tripling or some way you could characterize that please
spk02: Sure, sure. So that comment is primarily based on the initial production order that we received from Coedal, 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, we have maybe around a couple of quarters, and automotive, we have a little bit longer.
spk07: Okay. Okay. Fair enough then. And then just in terms of cash burn here in the second half of the year, what should we expect here? I probably am not able to do the math real quick on your revenue and OPEX numbers for the second half. But if you can just give us a sense of what you're expecting there, please.
spk02: Sure. Our total OPEX for the year remains anywhere between $55 to $65 million for the year. And for gross profit over the years, essentially roughly zero. So there's not a lot of gross profit contribution to profitability. So we're done with half a year. So the second half is essentially half of OPEX.
spk07: Got it. Okay. All right. That's all for me then. Thank you.
spk05: Again, if you have a question, please press star then one. Our next question will come from Gus Richard with Northland. Please go ahead.
spk06: Yes, thanks for taking my question. You mentioned early in the call that you're 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.
spk03: Yeah, just to clarify, we said multiple OEM vehicle factories across multiple states. Yeah, so it's all the same OEM.
spk06: Okay, got it, got it. And then you also are moving some production over to Fabrinet and will service some of your markets. Is that mostly infrastructure? And you mentioned some vehicle types of applications. I was just wondering if you could provide any color into what's going on there.
spk03: Yeah, so FabriNet will supply a key submodule as part of our automotive OEM program, so supplying that to COETO. COETO remains the tier one 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.
spk02: And I'll just add that for those other applications, FabriNet will be doing the full turnkey units as opposed to supplying a submodule.
spk06: Okay. And the other automotive applications, I'm assuming those wouldn't be a mainstream type of program, but something more unique like a autonomous golf cart or something.
spk03: That's a safe assumption for today. Yeah.
spk06: Got it.
spk09: All right.
spk06: That's it for me. Thank you.
spk09: Thanks.
spk05: This concludes our question and answer session. I would like to turn the conference back over to June Pei for any closing remarks.
spk01: Okay. Thanks, everyone, for spending time with us today. As you have heard, you know, from ramping up DeSambos to production line readiness at Coetel, we're getting closer and closer to having LIDARs into everyday vehicles, and SEPTAL 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.
spk05: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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