Welcome to the Cepton, Inc. Q3 2022 business update and earnings call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. I'll now turn the call over to your host, Hull Xu, Chief Financial Officer. Hull, you may begin. Thank you, and welcome, everyone, to Cepton's third quarter 2022 earnings call and business update. With me today is Jun Pei, Co-Founder and Chief Executive Officer, and Mitch Hourtienne, 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 not be considered as a substitute 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 the future periods. These statements are based on the company's current expectations and are subject to the safe harbor statements. Actual results for future periods may differ materially from those expressed or implied by these forward-looking statements due to a number of factors. 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 slides that accompany this call, as well as a webcast replay of this call at investors.cepton.com. I'd like to turn the call over to Jun. Thank you, Hull, and good afternoon, everyone. Thank you for joining Cepton's third quarter earnings call. We will provide a business update and review third quarter 2022 financial results with you. I would like to start our business update with an exciting announcement. We recently entered into a binding agreement for a $100 million investment from our long-term automotive Tier 1 partner and current shareholder, Koito Manufacturing of Japan. This transaction marks Koito's third investment in Cepton and is a testament to Koito's continued commitment to our company and to the future of lidar. We're very appreciative of Koito's support, as this will solidify Cepton's financial positions and further strengthen our partnership on series production execution, as well as collaboration efforts towards winning automotive OEM programs, in addition to the General Motors design win we have already captured. We founded the company with a market focus on building lidar as a safety device in everyday vehicles, specifically targeting the ADAS market to help save lives. This thesis has been the guiding principle of our development efforts and commercial engagement over the past six years. We aim to create lidar sensors that achieve a balance of performance, cost, and reliability for mainstream vehicles. 2017 marked the beginning of a successful long-term relationship between Cepton and Koito. In the five years since, our teams have successfully collaborated to be selected as the lidar provider for General Motors Ultra Cruise system. This development journey with General Motors has taken three years. The length and extent of effort involved cannot be understated. Cepton found in Koito a partner who not only believed in the prospect of lidar, but also stood behind Cepton's innovative technology, as well as invest in Cepton for the future of automotive safety. Going forward, with this latest investment, Cepton and Koito teams are sharply focused on the commercialization and scale manufacturing of our lidar products. Cepton is proud to support GM's vision of zero crashes, zero emissions, and zero congestion with our intelligent lidar solutions being an integral part of the Ultra Cruise program. This quarter, we saw the first public review of Cepton lidar integrated behind the windshield in a production vehicle. This marks a tremendous achievement for the company. Cepton is proud to be enabling one of the first OEM deployments of in-vehicle lidar technology. Looking further ahead, our series production award is secured up to model year 2027, and we're in advanced discussions to extend this program further beyond. There are a number of other notable achievements for Cepton this quarter. Cepton's Nova lidar has been selected as the Automotive Sensor Hardware Solution of the Year in the third annual AutoTech Breakthrough Awards program. This shines a light on our emerging products that provide versatility for large-scale deployment in many different short-range lidar applications. In addition, Cepton announced multiple collaboration partnerships, including with NVIDIA on their DRIVE Sim platform and LidarSwiss for high-fidelity mapping. From industry experts to emerging technology companies, Cepton has been the lidar provider and collaboration partner of choice for a wide variety of automotive and non-automotive use cases. Looking further ahead, we remain on track to tape out our next generation ASIC. This new chip will be complementary with our current ASIC and will enable Cepton's next generation product line, targeting both automotive and non-automotive customers while featuring performance benefits and cost efficiencies. Further out in January 2023, we are expected to unveil our next generation product at CES. Please subscribe to Cepton's social media to watch a short teaser to be released in the coming weeks. On digital media, we launched our new branding video, and we invite you to our website to learn more about our company and our vision. Next, I'll turn it over to Mitch. Thank you, Jun. Starting with our automotive programs, Cepton's position to win additional automotive ADAS business has improved significantly since our last update. We completed the RFI process at two top 10 global OEMs and are in prime position to continue toward RFQ and eventual business awards. At both target OEMs, Koito maintains a leadership position on lighting products, and the recognition of Koito's value as a Tier 1 is gaining traction among top automotive companies in North America and Japan. Furthermore, we added one more major automotive program to our advanced engagement stage. This immediate program opportunity is another testament to the commercial validation of our lidar technology and solidifies our competitive position as the lidar winner in the industry. Unique to Cepton is the ability for our MMT-based lidar to enable and transcend all levels of autonomy from L2+ systems to L3 and beyond. In the automotive industry, we've seen OEMs allocate additional resources to accelerate development of ADAS versus full autonomy, which puts Cepton at an advantageous position to leverage our major program win at GM to capture additional large series production programs in the near future. With the added financial resources from the Koito investment, we expect very positive outcomes in both OEM sourcing and smart infrastructure deployments. The lidar landscape has really begun to crystallize over the past three months. As such, we're redoubling our efforts on major automotive lidar opportunities, and we'll keep an opportunistic approach towards smart infrastructure opportunities. Our lidar solutions have been designed into major airports across the United States, and we expect to see significant deployments of our products in the coming year. Tolling and smart airports are two use cases continuing to emerge as the most promising applications for lidar within this space. Next, I'll turn it back to Hull. Thank you, Mitch. Starting with our third quarter results. Total revenue for the quarter was $1.8 million, down 5% year-over-year and 30% sequentially, consists almost entirely of product revenue. Third quarter product revenue was $1.8 million, up 171% compared to the prior year period and 23% sequentially driven by increased product sales to customers. We had minimal development revenue this quarter due to timing of various planned milestones on outstanding projects. Our gross profit was slightly negative for the quarter as a result of revenues being solely from products and no development revenue. As compared to the prior quarter, our product revenue gross margin improved meaningfully, largely due to less elevated component costs as we work through supply chain constraints. GAAP net loss was $17.4 million or $0.11 per share basic and diluted. Non-GAAP net loss was $13.2 million or $0.08 per share basic and diluted. Weighted average shares outstanding for the third quarter was 155.7 million shares, both basic and diluted. Non-GAAP adjustments include stock-based compensation of $2.4 million, a $1.4 million loss on remeasurement of earn out shares liability, a $0.1 million loss on remeasurement of our warrant liabilities. Non-GAAP adjusted EBITDA for the quarter was negative $12.7 million. As of September 30th, 2022, we had available liquidity of approximately $120 million. Total available liquidity consists of approximately $21.6 million in cash and short-term investments, the remaining $98 million from Lincoln Park Capital on a $100 million equity purchase commitment. With the recently signed $100 million investment from Koito, our total available liquidity is expected to increase significantly at the close of the transaction in the first quarter of 2023. On the full year 2022, we are maintaining our prior revenue guidance of between $7 million and $9 million. On the cost side, we maintain our full-year operating expense guidance between $55 million and $65 million. Lastly, I'll summarize the key terms of the investment agreement with Koito. The investment is expected to close in the first quarter of 2023, subject to Cepton's shareholder approval. As part of the transaction, Cepton will sell 100,000 shares of Series A convertible preferred stock at $1,000 each share for a total purchase price of $100 million. The preferred stock will be convertible beginning one year after the issuance date at an approximate initial conversion price of $2.585 and will carry an annual dividend rate of 3.25% if paid in cash or 4.25% if paid in kind. The conversion price represented a one-day premium of 13.4%, 14.4% premium to a 30-day VWAP and 25.5% to a 90-day VWAP of Cepton's common stock. Concurrently, with execution of the investment agreement, Cepton entered into a secure term loan agreement for JPY 5.8 billion or approximately $39 million. The proceeds will be used to repay the Trinity loan for general corporate purposes. The term loan has a fixed annual interest rate of 1% and is to be paid back at the close of the convertible preferred stock transaction. We are very appreciative of Koito's support and looking forward to our continuous collaboration towards series production and additional OEM wins. Now I'd like to open up the call for questions. If you would like to ask a question, please press star one on your telephone keypad now. You'll be placed into the queue in the order received. Please be prepared to ask your question when prompted. Once again, to ask a question, please press star one on your phone now. Our first question comes from Samik Chatterjee from JPMorgan Chase. Please state your question. Hi. Yes, this is Joe Cardoso on for Samik Chatterjee. My first question is on the Koito investment of $100 million. Can you help us think about how you plan to leverage this funding? More specifically, is there anything different from this investment relative to prior investments? A second part to that is, as you discussed, this would mark the third investment from this partner. How should investors think about future funding materializing from them? Thank you. I have a follow-up. This is Hull. I'll take your question, Joe. How do we plan on using Koito's investment? Primarily, it's going to be for corporate purposes, as to extend our runway, extend our liquidity as we execute the series production award, also in terms of winning new awards. How is it different from their prior investments? In the prior investments, Koito essentially subscribed to common shares, they bought common shares. In this one it's CPS, convertible preferred shares. These will be preferred shares that's convertible into common, and they're eligible to convert one year from the issuance date. Does that answer your question? Yeah. I have another one as well, the last part of that was just, how should investors think about future funding from this partner? Future, right. Yeah, maybe Jun Pei here. I'll take that question. With this latest investment, we'll certainly have much higher levels of collaboration between Koito and Cepton. This will lead into a lot of things, including more synergy, operating efficiency, cost savings for our ultimate customers. All of the things will actually be converging. I do expect continuous support from Koito down the road. Yeah, this obviously extends our runway quite a bit. In addition to this pending transaction, we also have the Lincoln Park facility that's still available for us. In the near term, we don't expect additional investment funding from Koito. Got it. Just my second question. Two of your peers in the space announced a merger this morning. Just curious to hear your thoughts on that specific merger, maybe more broadly, how you're thinking about industry consolidation going forward, do you see a role for Cepton to be a consolidator? Maybe even touch on, do you think it's too early to see consolidation from both an industry and/or Cepton perspective? Thank you. Okay. A lot of questions packed in there. Maybe I'll miss a couple. You can continue to follow up with these questions. Jun here. I will answer your questions. The latest news, it appears to make sense for the non-auto market. Even though that market, the non-auto market, is rather fragmented and this consolidation, the effect of that is yet to be seen. For us, as for Cepton, we certainly believe the future scaling of our automotive lidar product will promote more reasonable prices that will lead into more adoption into the non-auto area. Specifically to this announcement, I think, like I said, the effect is yet to be seen. What's our role in terms of future consolidations and possibilities? We always have our eyes open, but for us, we're very focused on automotive end market, and we believe, and very naturally, this is the biggest market, the biggest opportunity in the coming decade. We remain very much optimistic about infrastructure as well. For us, our focus on automotive end market is really the key. We don't expect any competitive pressure from this announcement since our focus is rather different. You want to? Yeah. I think, Joe, your other question is it too early for consolidation, right? Our view, at least my view, is that outside of automotive end market focused lidar companies, we think it's not too early. There are a number of public lidar companies addressing the non-auto market. We know that market is very fragmented and we actually think consolidation helps in terms of driving adoption. No, thanks. Appreciate all the color in answering that very long question. Thanks, guys. Appreciate it. Thank you. Our next question comes from Joseph Spak from RBC Capital Markets. Please state your question. Hi. Good afternoon, everyone. A couple of questions. Well, maybe just to start to better understand the quarter. If we back out the developmental revenue in the second quarter, then revenue is up actually a little bit of quarter-over-quarter. I think last quarter you talked about maybe 400 units. Was it higher units in the third quarter sequentially? Or perhaps was there some movement in ASP, maybe you took some pricing for some of the inflationary pressure? Yeah, it's a little bit of both, Joe. In terms of units, we did ship more units than the second quarter. Also, ASP were higher in the third quarter than the second quarter. Second quarter we had, I think, one fairly significant infrastructure shipment that was slightly below our normal. Okay. That pricing, is that just a mix issue, or are you taking some pricing for some of the costs that you've seen in the world? It's primarily a mix issue. Okay. We maybe look at the guidance, which you reiterated, and we could get some implied fourth quarter numbers here. A couple of things. One, how much developmental revenue, if any, do you expect in the fourth quarter? You got the gross margins to effectively break even in the third quarter. I think in the past you talked about potentially positive in the fourth quarter. I was wondering if that's still on the table. Just remind me on guidance, that OpEx $55 million to $65 million, does that include SBC or exclude it? Yeah. That includes SBC. The fourth quarter, yes, we do expect some development revenue. We're planning for some of the milestones to be achieved. We can factor that into it. On gross margin, we do expect to have a slightly positive gross margin as we become more efficient and also work out some of the kinks in terms of on the operational side, right? This quarter's negative gross margin, if we were to take out some of the inventory discounts and all that, it would have been slightly positive. Okay. I guess I don't know exactly the split of SBC yet. I'm sure we'll get that. It seems like it was only modestly negative adjusting for some of those factors this quarter. Is that right? Yeah. It's very modestly negative. Yeah. Okay. I guess the last question is, Jun, I appreciate you talking about the opportunity from auto. It's obviously there's a lot more unit potential obviously there than on infrastructure or non-auto, as you mentioned. You have the GM award. Look, the Celestiq which is where the Ultra Cruise is starting, right? I think I could count on all my digits the number that are going to be made next year. I know you're not giving 2023 guidance now, but maybe at a high level, can you talk about how you expect the industry and your business to evolve going into next year? Because, without the auto units coming in, it's hard to see how you get higher from that $2 million a quarter ex developmental revenue run rate. Yeah. I guess everybody would have a very natural question. It's like, where are the numbers and when are they coming in? This is just the beginning of this lidar industry. We're at the cusp of breaking through, you actually saw pictures now with our lidar in the vehicles. It's actually more real, much more real than compared to even one year ago. Slowly and surely these numbers will actually start to get into a form that we can start to talk and disclose. As I have said in the past many times, for sure lidar will be happening. It will get into the vehicles. It's an evolutionary process for higher level of autonomy and safety. At this moment, it's just having things nailed down to the details is a little bit, we're not at liberty to disclose everything. Joe, this is Mitch Hourtienne. I'll just add to Jun's comments. Cepton and Koito are continuing to work on further vehicle platforms. It's up to GM which of those vehicles they begin to showcase at different times. Yes, this summer it was the Celestiq. Completely agree with you, that's a luxury class vehicle. Volume's going to be pretty low. We can't disclose ourselves unilaterally the exact number of additional vehicle platforms or the classes. This work continues, I can safely say that our overall expected contract value continues to increase, it did this past quarter, and we're continuing to work on that this quarter as well. Okay. That's good to hear. Yeah. Just on your second point about what does that mean for smart infrastructure? Yes, we've made inroads in the smart infrastructure market. However, if you look at that market, there's still some cost sensitivities, and we believe having the automotive production line in place with Koito will help us gain traction in the smart infra market by lowering our costs and improving the delivery situation. Okay. I guess maybe just to follow up on that point, I appreciate all the color and completely get that you have sensitivity as to sort of what you can announce with your partners. At least at a high level or at a Cepton-specific level, when do you think you're going to be in a little bit of a better position to educate the market as to sort of how the trajectory looks here over the next couple of years? Hey, Joe. I think at the beginning of next year when we go into our full-year summary and update, we'll be able to provide more color. For now, I think in terms of unit volume for automotive, you can think of next year, even the first quarter, we will be able to ship more units, probably twice as much units as we will have shipped this year. Does that help? Okay. For infrastructure. For automotive. What you're shipping for automotive isn't serial product. Can you help me understand that, right? SOP is next year, right? Start of production is 2023, next year. Yeah. We already have purchase orders from Koito, because we supply to Koito supplies to GM for the Ultra Cruise program. You're saying there's a lead time issue, of which is what, a quarter or so, or how should we think about that? I'd say couple of quarters. Couple quarters. Okay. Appreciate that. Thank you. Yep. Our next question comes from Gus Richard from Northland Securities. Please state your question. Yes, thanks for taking the question. I think you made a comment earlier in the call that OEMs are starting to focus more on ADAS than autonomy, and I was just wondering how that changes the specifications that they're looking for and your competitive position. Yeah, I think it's public what Ford announced about the wind down of Argo, then they said they're increasing their investments in ADAS specifically. That definitely plays into our market focus. We've spent three or four years working with General Motors. We've spent just as much time working with Ford, couple of the Japanese OEMs. It's a good thing for our product portfolio, our specs, our opportunities in the short term, definitely. Yeah, the AV space, they require longer range, 250, 300 meters in some cases. We have tech that can support L4, right now the shift to L2+ / L3 focus is a really good thing for our immediate opportunities. Yeah. Gus, Jun here. I want to just add on that for the ADAS field, having the design focus from the very beginning is a key in terms of getting the specifications. This specification is not only on the performance part that you get to see how far, you get to see with whatever resolution. You also have to consider this is a everyday vehicle automotive safety part, so you got to have the reliability. Also, not to mention, you absolutely have to hit the cost target. As we always have promoted ourselves and mentioned in the past, that this balance is where the key technology, MMT from Cepton, hit the sweet spot, and that's where we actually, one of the fundamentals, we capture the design win. Yeah. The spec for AVs versus ADAS are rather different. We actually are happy to work here on something that's going to be scaled to a large volume. I'll just add one anecdote, Gus Richard, to this industry trend. We've seen, as we address the RFIs and RFQs, we've seen OEM pulling in the timeline for deployment. I can't share which OEM that is, but it's a global top 10 OEM. Got it. That was actually leads me to the next question. You mentioned you had two OEMs that you moved from the RFI process to the RFQ. I'm just wondering, what exactly does that mean? What does it look like? What added activities are there with these two OEMs? These are two OEMs we've worked with for multiple years. It's really about solidifying the specification for the exact target vehicles that they have planned. Whereas, a few years ago it may have been more proof of concept data collection activities. Now it's more about vehicle integration, where does the part go on the car? Exact costs, commercials, nailing down the timing. That's all done in the RFI phase. RFQ, that's a rubber stamp on all of those elements, and a committed launch schedule and commercial. Got it. That's very helpful. The last one, I always like to ask the question somebody won't answer. Can you give us a sense of your overall contract value, where you think that stands at this point? Yes. We will answer that. For the GM Ultra Cruise program, based on our own estimates, which is fairly conservative at this point, it's well over a billion dollars with the current contract. With existing projects? With existing awarded vehicles. Got it. You know these two OEMs you're working with, any sense of how big those contracts could be? They will be the same. At least one of them will be the same or larger. Perfect. Got it. All right. Very good. Thank you so much. Yep, thanks. Our next question comes from Matthew Galinko from Maxim Group. Please state your question. Hey, Hull. Hey, Matt. Thanks for taking my questions and congrats on some of the inertia you're building in automotive. I guess maybe just another way of asking the funding question, does this investment on the preferred shares sort of allow you to expand a little bit more, and be more opportunistic on the non-automotive side or allow you to engage with more automotive OEMs, or just can you talk about, is there a fairly direct connection to activity you're seeing? Yeah, I would say both, right? We remain pretty opportunistic on the smart infrastructure side. We want to see that there's real programs and real valid deployments. We also want to see profitability on that side in the near term. For the automotive side of things, as you see, the recent focus on ADAS, and we actually do need to increase resources to have even more focus on automotive to meet the needs of the OEMs as they kind of accelerate timeline and everything. This does give us a lot more resources financially to do all of these things. Got it. Thank you. My follow-up is, I guess with respect to the comments on OEMs refocusing on ADAS, any changes to the competitive landscape, whether it's within lidar, automotive focus lidar, or non-lidar sensor option that OEMs might have at their disposal now. Is it a more competitive environment today than it was a couple of years ago when you were working towards the GM award, or does it feel Just what does the competitive dynamic seem like today? Sure, I can start that one, Matt. This is Mitch. I never want to say it's becoming less competitive. It's always competitive in automotive, but the number of competitors is, you can count on one hand now, versus even two years ago, it was still a couple dozen companies. When you talk about top 10 automotive companies, it's down to definitely one hand, maybe just a couple of companies. Yeah. I'd also say that OEMs want to see track record of execution, right? That track record, it can only get with time. Kind of echoing Mitch's statement of the number of lidar companies, the number of competitors becoming less. Part of it is because of only a handful has been able to execute on real OEM programs over time. You're already seeing basically the companies with automotive design wins will continue to have automotive design wins. Got it. Thank you. Our next question comes from Richard Shannon from Craig-Hallum Capital Group. Please state your question. Hi, guys. Thanks for taking my questions as well. I think I'm going to follow up on the topic of the two completed RFI processes that move on to RFQ. Do you know what they are, and can you talk about what, if any, competitors are still remaining in those processes? Yeah. Hey, Richard, this is Mitch. Just to clarify, what's your first question? You said, do we know what they are? What the competitors are. Yeah. Do you know how many competitors? Yeah, we know exactly the competitors at each of the three. One of the three, there is no competitor. The other two, there's two or three competitors. Okay. All right, great. That's helpful. The second question is the other bullet here from the press release you talked about is the new top 10 automotive win program added to advanced engagement stage. What does that mean? How do you fit that in the nomenclature RFI, RFQ? Where does that fit, and can you describe that a little bit more, please? Yeah. That one is a new opportunity that we discovered in Q3 or that came to us in Q3. That's actually the one where I mentioned that there really isn't a competitor. They sought out Cepton, very familiar with our part from past engagements. There is no RFI phase. It's just updated commercials and timing. Yeah. Richard, if you remember- Okay back when we shared our forecast, we have awarded, we have advanced engagement, and then the other less advanced categories, right? Advanced engagement just means very close to being awarded. Okay, perfect then. I think that's all from me then, guys. Thank you very much. Once again, if you would like to ask a question, please press star one on your phone now. At this time, we have no further questions. Okay. Thank you all for joining us at today's conference. We appreciate your time and questions. Certainly, it's an exciting landscape. A lot of things are happening, Cepton is continuing to execute well. We will continue to report on our progress in the focus to automotive industry. We'll talk again in a quarter. Thank you, Erica. This concludes today's conference call. Thank you for attending. The host has ended this call. Goodbye.