Cepton, Inc.

Good day and welcome to the septum Inc. first quarter, 2024, 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 Chang interim chief financial officer Dennis. Please go ahead.

Thank you and welcome to septum first quarter 2024 earnings call and business update with me today. I dream pay co founder and chief executive officer and Mitch Hortini chief commercial officer. During the call, we may refer to our unaudited gap and non gap measures in our earnings relief. The non gap financial measures should not be considered as a substitute for or superior to the measures of financial performance prepared in accordance with us gap. Reconciliation for non gap measures are included in our earnings relief. 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 relief and the presentation slides that accompany this call. Actual results for future periods may differ materially from those expressed or implied by the 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 .septon.com. Now I would like to turn the call over to June.

Thank

you, Dennis,

and good afternoon, everyone. Thank you for joining SEPTOM's first quarter 2024 earnings call. We will provide a business update and review our first quarter financial results with you. First, an update on our latest long range lidar product, SEPTOM Ultra. As part of our ongoing efforts to advance automotive safety and efficiency through cutting edge technology, I'm pleased to provide an exciting update on our ultra lidar system. We have successfully advanced the ultra from its initial concept to the B sample stage much quicker than anticipated, and the performance of the ultra B samples has exceeded our expectations. This rapid progression is a testament to our robust R&D capabilities and deep technical expertise, and achieving this key development milestone underscores our commitment to innovation and market leadership. We have demonstrated the ultra's capabilities to OEMs across the three continents in Japan, the United States, and Europe. These live demonstrations not only validated our lidar system's performance under various conditions, but also showcased its versatility and robustness in real world environments. The feedback from these global showcases has been overwhelmingly positive, affirming the ultra's potential to transform automotive safety standards and its readiness for broader commercial deployment. Our ultra product features our proprietary imaging technology, Magnosteer, which allows for dynamic field of view, region of interest adjustment, and high resolution scanning. This technology has performed above expectations, offering enhanced adaptability and higher data fidelity in the B samples. The advancements in our ultra lidar system mark a pivotal step forward in our mission to drive widespread adoption of lidar technology in automotive applications. As we continue to push the boundaries of what's possible, we remain focused on delivering products that not only meet but also exceed the rigorous demands of the automotive industry. I've always stated that technology advancements do not create value without commercial traction. Today, I'm proud to announce that we have secured a series production project with a global OEM in collaboration with Coetel to supply our near range lidar sensors. This multi-year OEM project underscores our technology competitiveness and the trust that industry leaders place in our solutions. To jumpstart this project, SEPTA has entered into a significant engineering services contract with Coetel, which includes $10 million in fees for work to be performed in the second quarter of 2024. This contract is designed to support the execution of the new OEM program and accelerate product development, ensuring that we meet and exceed the specific needs of our automotive customers. We expect to have positive cash flow for the three months ended Q2 2024, a significant achievement not only for our company, but also within the lidar industry. With that, I'll turn it over to Mitch for more details on our efforts with customer programs.

Thank you, June. Today, I'm excited to share significant

developments in our business partnerships and new opportunities that highlight SEPTA's growing influence in the global automotive market. As June announced, our significant NRE contract with Coetel marks a huge milestone for SEPTA on multiple fronts. First, we expand our series production awards beyond the North American continent with this win. Second, we demonstrate product scalability with this near range lidar win. And last, but certainly not least, we expect to become cash flow positive this quarter for the first time in the company's history, and we believe this is also a first within the lidar industry. Large global OEMs are very selective in these early days of lidar adoption, and we're proud to gain the trust of another global OEM. And last, but certainly not least, we expect to expand our commercial market reach with this win. The commercials associated with this project are expected to be significant, starting with revenue this quarter. Beyond this win, we are actively expanding our market reach with submissions for RFQs from some of the world's largest automotive manufacturers. We've recently completed the final submission for an RFQ to a top 10 global automotive OEM for our long range lidar technology, and we expect a formal decision before our next earnings call. This is a pivotal step towards securing a broader adoption of our lidar solutions in the automotive sector. We've also made our first RFQ submission to a top three global automotive OEM for both long range and near range lidar. As OEMs expand their use of lidar and next generation ADAS offerings to include both long range and near range lidar, Cepton is in a very unique position offering both products, positioning us well for further market share gains. As our lidar hardware solutions are hardened for automotive deployment, our software ecosystem is also expanding. Last week, Cepton announced StudioViz, our lidar simulator aimed to accelerate OEM development and reduce data collection costs. Our solution stands out from the pack as we include manufacturing variances into the simulator, a key ingredient that stems from our long standing work with Coito manufacturing. StudioViz is just one pillar of our software ecosystem development kit, which will further expand in the coming months and years as we further understand OEM challenges and work to include more efficient solutions and value in Cepton products. We're excited to continue our global road show of our highly successful Ultra product and to execute our new OEM series production win. Stay tuned for more good news from Cepton in the coming quarters. Next, I'll turn it back to Dennis.

Thank you, Mitch. Starting with our first quarter results. Total revenue for the quarter was $1.9 million, consisting of $1.1 million in product revenue and $0.8 million in development revenue. Total revenue increased by 31% compared to $1.5 million in the prior year comparable period. First quarter gap net loss was $6.8 million or $0.43 loss per share, basic and diluted. Non-gap net loss was $8.3 million or $0.52 loss per share, basic and diluted. First quarter non-gap adjusted EBITDA was negative $8.9 million. In the first quarter, we recorded a $4.0 million gain from the GM project cancellation recoveries. This was the initial payments received from Coeto and the cost recovery process is ongoing. As of March 31, 2024, we had approximately $49.2 million in cash and cash equivalents. Our full year 2024 guidance for revenue is expected to be between $15 and $25 million. Our operating expenses are expected to be below $50 million. We look forward to seeing everyone at our annual shareholders meeting scheduled on June 17th. And with that, I'd like to open up the call for questions.

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 that your line is in the question queue. And you may press star 2 if you'd 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 pull for questions.

Thank

you. Our first question comes from the line of Matthew Galenko with Maxim Group. Please proceed with your question.

Hi. Thanks for taking my questions. Maybe firstly, just on the $4 million gain, I just wanted to, on the GM cost recovery, I just wanted to clarify, is that a, was that a cash payment or was cash received in the first

quarter?

Yes. The $4 million is a cash payment. It has been received in the first quarter.

Got it. Okay. Thank you. And then secondly, can you help us frame for the new production win and congratulations on that? When should we expect or when could we start to expect, you know, production revenue from that? Is that, you know, 2026 event or, you know, is there anything more you could say about that?

Hey, Matt. This is Mitch. Yeah, that's a good question. So we noted that we'll begin collecting development revenues this quarter and then sample product revenues are also starting this quarter. For the high volume production revenue, it's, you know, most of these programs are typically sourced two and a half to three years ahead of the start of production and that's the case for this project as well.

Thank you. And one last follow-up question on that would be, I guess, given the $10 million, you know, component of that, that sounds like it's hitting in the second quarter 2024, is there, do you expect there to be subsequent development revenue around that project in the balance of the year or is that going to be kind of a one-time thing that, you know, maybe we get other, you know, slabs of it in, you know, future periods prior to high volume production or, you know, help us frame if that's a, you know, one-time thing?

Yeah. Again, this is Mitch. It's not a one-time payment. The development and the milestones will continue up until that start of production, as I indicated, two and a half to three years from now. It will probably be a bit more lumpy compared to product sales, but you can see a pretty significant portion this quarter and then there will be follow-on development revenue as

part of this project. Great. Thank you.

Our next question comes from the line of Shadi Mudwali with Craig Hallam. Please proceed with your question.

Hey, this is Shadi Mudwali on for Richard Shannon. Thanks for taking my question. I want to start off with a clarification question. The new auto award mentioned in the PR and on the call, is this the same one

mentioned end of March? Yes. Yes, it is.

Great. Thanks for that. And then this $10 million fee, it sounds like most of it's going to be recognized in QQ and then, you know, the rest of it throughout fiscal 2024 or is it all going to be recognized in Q2?

Yeah, actually, it's going to be recognized in Q2. Actually, all of it is recognized within Q2 and then, you know, my answer to the previous question, there will be subsequent development revenues on top of the $10 million in the second half of the year.

Okay, that makes sense. And then with the guidance given of $15 to $25 million for the year, we already know about, you know, $12 million of that. To make up the rest of that $3 to $13 million in revenues, are you able to give some more color on, you know, whether this will be made up of primarily NRE or, you know, product sales?

Yeah, that's a good question, Shadi. It

will be a mix of both. As we indicated in the call, we're working on two or three other OEM projects. Both of those will have significant NRE contracts as well as early sample sales. The details are not signed yet by the customer or by SEPTON, and so that's why we have a bit of a range on the forecast as we finalize the timing and the category of those payments.

That makes sense. Thanks for taking my questions and call for me.

Our next question comes from the line of Kevin Garrigan with West Park Capital. Please proceed with your question.

Yeah, hey,

all. Thanks for letting me ask a few questions and congrats on all the progress. First, I know you guys have previously had one GM, but this automotive win in OEM seems a little more secure, if you will. But, you know, I'd love to just get your thoughts on how important it is to get that first design win or just to secure a design win. Does it kind of put you in a better position to win these other RFPs that you're fighting for?

Yeah, definitely. Good question, Kevin. Since I'm

kind of on the forefront of the customer side, I'll answer you first. This is Mitch. Yeah, there's a lot of lessons learned from the GM program that go into our product evolution. You see that showing up in our new Ultra products. So all of the design and manufacturing lessons learned are built into our Ultra product. You see it in our new software ecosystem product called StudioViz that we announced last week. Again, this is pretty unique in the industry in that it takes into account all the manufacturing variances of building a LIDAR. And then I think maybe one of the last, but not least, important lesson learned is the supply chain. We're carrying over some of the suppliers that worked really well on the GM project and finding new suppliers as their product has evolved. So yeah, it puts us in a very competitive position

for these new RFQs.

Yeah, maybe I can just add just a couple of sentences over that. We're the few LIDAR companies that had a D sample ready for automotive deployment. And in that, from hardware to software is a complete suite that can be ported over with minor modifications for future projects. This elevates us into a very different position in terms of future RFQs and design wins. So it is a big deal really, giving the history we've worked on. There's really no wasted work there.

Yeah, that

makes a ton of sense, and I appreciate all that color. Okay, perfect. And then my second question, looking at your StudioViz simulation platform, it seems like there's a couple other LIDAR companies that have also come out with some simulation platform. Was this something that OEMs were asking a lot of the LIDAR companies to provide to speed up

LIDAR development? Yeah, definitely. Some OEMs asked

for this, although I'll say many do not necessarily ask for these. It usually comes later on in the development after you win a program. It's a realization that this should have been available earlier or used earlier by the OEM. And so that's a big lesson learned from our first program. We did develop a customized simulator for the first OEM award. But rather than repeating that and doing a custom for each customer, we've come out with this product, which incorporates a lot of the lessons learned and can

be used across the customer base. Okay, got it, guys. That makes

sense. And then just last question, if I can. So we've heard a few of your competitors speak about the recent NHTSA ruling for automatic emergency braking systems. I'd love to hear your guys' thoughts on it and kind of what you think it means for the LIDAR industry.

Yeah, that's a good point. You know, we didn't talk about that today. I did see it was talked about quite a bit last week by our competitors. It's a huge hallmark for the industry to adopt new technologies like LIDAR. I mean, camera and radar, ultrasonic, these are all proliferated about as much as they can be across the automotive landscape to reduce accidents. So I think it's a key recognition by regulators that pedestrian deaths still aren't going down and that it won't be tolerated forever, right? There are new technologies like LIDAR becoming available. It's becoming cost-effective. It's becoming easier to integrate onto the vehicles. So this is just another tailwind

for our industry right now. Yep, got it, got it. Okay, perfect. I appreciate the color. Thanks, guys.

Thanks. And our next question comes from the line of Gus Richard with Northland Capital. Please proceed with your question.

Yes, good afternoon, all. Thanks for taking the question. Last fall, the OEM sort of hit the pause button on, you know, automation, if you will. And just wondering, you know, for a number of different reasons, could you kind of talk about, you know, the sense of urgency or, you know, the progress these guys are making on moving towards adopting LIDAR? You know, what has changed in the

last 180 days? I'll start with that one, Gus. Good question.

I think if, you know, first of all, there's still a strong appetite for LIDAR from the OEMs. You see that in our RFQ and RFI updates as well as, you know, broadly within the industry. I do think, and we just talked about the legislation, one of the emphasis points for the adoption of LIDAR is becoming more towards safety versus autonomy. And I think that's something that maybe has shifted a little bit the past six months to a year. As we talk about, you know, automatic emergency braking and systems like this that can reduce accidents and deaths, this is becoming a key focal point of the industry versus hands-free driving and some of the more convenient features that, you know, that these systems were aimed at,

you know, three, four years ago. Got it. And then,

you know, sort of any update on GM and, you know, after the re-scope, you know, are they going to move forward? What are their, you know, plans for using your LIDAR?

Yeah, that's a good question. You know, we can't go into too many details on what GM's strategy is. I know it's been a bit quiet on their front the past six months. I wouldn't really say it's because of their autonomy systems. I think they're still working on these systems, but they, you know, obviously the downturn in the EV cycle is probably impacting some of their priorities. We still are, you know, we're showing off the Ultra product to all of the OEMs that includes General Motors. All of the lessons learned from our last four years of working with them puts us in a very good position to once they announce, you know, their next consumer products that use LIDAR and we're confident they will, that we're really well positioned to support them again.

Got it.

And then I guess the last one for me, and I'm not sure you can provide much of an update, so I don't ask anyway, the Coedo offer to buy SEPTAN. You know, can you provide us with any update on where that stands and, you know, what's going on in that area?

Yeah, Gus, Jun here. Thanks for the question. Yeah, we, it's been a few months since we received the initial offer and there's not too much detail I can disclose but we're actually actively working on this process. It's a two big, you know, public company so it's a pretty complicated process that needs a little more time. But again, I assure you that we are working on it. Just there's no details we're ready to disclose publicly. For that, I'll just have to stay tuned for further news.

Got

it.

Thanks so much for that update. That's it for me.

Thank you. We have reached the end of our question and answer session and with that, I would like to turn the floor back over to CEO Junpei for any closing comments.

Yeah, thanks again, everyone, for attending our quarterly conference call. As you have witnessed, SEPTAN is working on the cutting edge technology and making continuous commercial progress. So we'll keep you updated as we have more exciting news coming our way. Thank you. Thank you very much.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.