Cepton, Inc. (NASDAQ:CPTN) Q4 2022 Earnings Call Transcript

Cepton, Inc. (NASDAQ:CPTN) Q4 2022 Earnings Call Transcript March 14, 2023

Operator: Good day everyone and welcome to the Q4 2022 Cepton, Inc. Business Update and Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Hull Xu, the CFO. Please go ahead, sir.

Hull Xu: Thank you, and welcome to Cepton’s fourth quarter and full year 2022 earnings call and business update. With me today are 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 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 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 related to forward-looking statements contained in 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 risk, 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’re not undertaking any commitment to update those 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 released and slides that accompany this call, as well as the webcast replay of this call at investors.cepton.com.

Now, I would like to turn the call over to Jun.

Jun Pei : Thank you, Paul, and good afternoon, everyone. Thank you for joining Cepton’s fourth quarter and full year 2022 earnings call. We will provide a business update, review fourth quarter and full year 2022 financial results and provide our view for 2023. Starting with our business update, over the past year, we have shared with your quarterly updates on our progress towards series production. Rather than hearing from me this quarter, I will point towards — to our OEM customers’ announcement, notably General Motors’ announcement of its Ultra Cruise ADAS system on March 7th, last Tuesday. GM offered the most comprehensive look into the role of lidar in their sensor suite in the deployment of their next generation ADAS system designed to enable hands-free driving in 95% of all driving scenarios.

Highlighting our unique lidar integration behind the windshield, our lidar produced an accurate three-dimensional view of the scene, enabling more precise object detection, even in inclement weather conditions. Our lidar sensor is a key enabler to safely deploy GM’s next generation ADAS offering. At the end of last year, we began shipping preproduction units to our OEM customers. This year, we look to start off series production. We are excited to move yet another step closer to commercialization of our products. At CES this year, we unveiled our next generation lidar, the Vista X-120 Plus recognized by the CES Innovation Award Program, the X-120 Plus has a 30-degree wider field of view, and 20% reduction in size and 50% reduction in height compared to our X-90, which is our flagship lidar selected for the series production.

This new sensor builds on our core MMT technology for a superior resolution and offers additional vehicle integration options with its slim design. Many OEM customers, both existing and new are interested in testing and evaluating our new sensor for their next generation vehicle platforms. We have shipped the first samples to our global top 10 OEM for evaluation. And we expect the Vista X-120 Plus series of products to be a major contender for upcoming automotive for production programs. At the end of last year, we successfully taped out our next generation ASIC chip and expect the first two samples to be available starting early this year. This new image processing ASIC is complementary to our existing industry leading signal processing ASIC.

The combination of both will be featured in our new Vista X-120 Plus, working in unison to improve performance and significantly reduce cost. Our proprietary ASIC extends unique differentiation to our products, offering signal level compute, moving up to point level compute and eventually frame level compute capabilities. In the year ahead, we look forward to sharing with you our full ASIC chipset roadmap. With our leadership team, it is my pleasure to announce the appointment of Dr. Dongyi Liao as the Chief Technology Officer of Cepton. Dongyi previously served as our Senior Vice President of Applications since 2017 and is responsible for all software effort of the Company. We look forward to his contributions to expanding the value of software in the growing deployment of our lidar.

Mark McCord, our current CTO, will continue with the Company to serve as the Chair of Cepton’s newly created Technical Advisory Board and will remain in charge of our intellectual property portfolio. Please join me in congratulating both Dongyi and Mark in their new roles. 2023 will be a landmark year for Cepton as we look to transition into series production. Staying true to our principles that our sensors must achieve a balance of performance, cost and reliability is ever more important. As our sensors enter mainstream vehicles, we are hyper focused on delivering also grade quality at scale volume costs. Our Tier 1 partner, Koito, brings decades of volume manufacturing expertise to complement our technology. In the year end, our collaboration efforts will not only focus on series production execution, but the winning additional automotive OEM programs, which Mitch will share more details with you next.

Mitch Hourtienne: Thank you, Jun. Starting with our automotive programs, as Jun indicated, preproduction shipments started at the end of the previous year and have expanded to multiple vehicles in multiple vehicle manufacturing sites. We are in advanced discussions to expand our existing business award to additional vehicle models. GM kicked-off the announcement of the Celestiq late last year and followed up with a comprehensive announcement of the sensor suite in the Ultra Cruise system a week ago. We expect more announcements across additional models in the year ahead. Over the past year in the automotive industry, we have seen accelerated investments and focus on L2 plus ADAS offerings, as a result of Level 4 programs being pushed out.

Of course, I’m always speaking about our target customers, leading global top 10 automotive OEMs. We expect additional OEMs to take a similar approach to GM on L2 plus or L3 system deployments with announcements in the near future. We remain in a very good position for additional production awards with our target OEMs. We are in advanced discussions with several global top 10 OEMs at this stage. As we have seen across the lidar industry over the past year, the competitive landscape is a smaller list of lidar companies that have existing automotive production awards. We have gained trust across the industry, having gone through an extensive development process and launch efforts with General Motors. This entire process spans over three years in both, hardware and software development, establishing Cepton as one of a few auto grade lidar suppliers for automotive OEMs. In 2023, we will direct efforts in winning series production awards toward our newly launched Vista X-120 Plus product.

Our public launch in January has received a lot of interest among the OEMs, hoping to deploy lidar in the next gen vehicle platforms. Turning to smart infrastructure, we recently announced a multimillion dollar contract from a leading U.S. highway tolling systems operator. We believe our contract is the largest commercial deployment of lidar to date for this application, with the potential to scale across more highways in the U.S. and outside the U.S. for future deployments. Our strategy to partner and work with systems integrators in targeted applications helps us extend our reach across smaller end customers in a more fragmented market. We will continue to focus on executing our strategy in our target applications, including airports in the year ahead.

Finally, we have a new autonomous ground vehicle project with a top 10 automotive OEM to announce. Cepton is supporting the safe deployment of Level 4 autonomous ground vehicles with our Nova near range lidar. Details of this customer and application will be forthcoming soon. So, stay tuned. I’ll turn it back to Hull now.

Hull Xu: Thank you, Mitch. Starting with our fourth quarter results, total revenue for the quarter was $1.6 million, a 23% increased compared to the prior year period. Fourth quarter product revenue was $1 million, consistent with the prior year period. And in the fourth quarter, we had development revenue of $0.6 million based on timing of achieving milestones on those projects. Our gross profit margin improved in the fourth quarter to 35%, primarily driven by revenue mix shift between product and development revenues. Fourth quarter GAAP net loss was $15.3 million or $0.10 per share, basic and diluted. Fourth quarter non-GAAP net loss was $13.4 million or $0.09 per share basic and diluted. Fourth quarter non-GAAP adjusted EBITDA was negative $12.3 million.

We achieved full year revenue of $7.4 million, meeting our revenue guidance and represents a 65% increase compared to the prior year. While our development revenue was consistent year-over-year, our product revenue was $5.6 million, a 92% increase compared to the prior year, reflecting our ongoing commercialization efforts of our products. Full year gross profit margin was slightly positive at 2.6% and is consistent with the prior year. Our full year GAAP operating expenses were $61.6 million, meeting our operating expense guidance. Excluding transactional costs, one-time and non-cash items, our operating expenses for the year was $50.6 million, well under our OpEx guide. Full year GAAP net income was $9.6 million or $0.06 per share basic and diluted.

For years non-GAAP net loss was $53.2 million or $0.36 per share basic and diluted. Non-GAAP adjusted EBITDA for the year was negative $50.3 million. As of December 31, 2022, we had available liquidity of approximately $134 million. Total available liquidity consists of approximately $36 million in cash and short-term investments and a commitment to purchase up to $98 million in equity from Lincoln Park Capital. In January, we closed the $100 million preferred stock investment from Koito after obtaining shareholder approval for the transaction. As a reminder, the preferred stock will be convertible beginning one year after the issuance date at an initial conversion price of $2.585 and will carry a dividend rate of 4.25% if paid in kind or 3.25% if paid in cash.

At close, we’ll use the proceeds from the transaction to repay our outstanding term loan from Koito, increasing our cash and cash equivalent to approximately $89 million. Including the commitment to purchase up to $98 million in equity from Lincoln Park Capital, our available liquidity increases to approximately $187 million, which we believe provides sufficient cash and available liquidity to support the launch and ramp up of current series production award. Turning to 2023 guidance, we’re expecting full year revenue between $15 million and $20 million, weighted in the back half of the year as we launch series production and unit volume begins to ramp. We expect gross margin to be positive for the year. On the cost side, we expect full year operating expenses to be in line with that of 2022 or between $55 million and $65 million.

We have many notable achievements in our first year as a public company. With the closing of the Koito preferred stock transaction, we believe we have sufficient financial resources to fund our next stage of growth as we look to launch series production this year. We look forward to connecting with investors at our annual stockholders meeting to be held in May with details of the event to follow. Now, I’d like to open up the call for questions.

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Q&A Session

Operator: First question comes from Tom Narayan with RBC. Please go ahead.

Tom Narayan: First, congratulations on the GM press announcement. The first question has to do with the 2023 guidance. You have $7.2 million in revenue in ’22, increasing what it looks like to $15 million to $20 million in 2023. Could you help us maybe understand what is driving the incremental revenue, the guidance here? Maybe just a further breakout? Is this assuming new auto OEM wins beyond GM, or is it mostly GM, and maybe organic growth in smart infrastructure as well?

Hull Xu: Yes. Happy to do that. Tom, thanks for the question. Yes, let me provide a little bit more color on our guidance. So, the short of it is that it’s primarily driven by the GM program. So just to provide some numbers behind it. So for 2022, in terms of unit shipments, we shipped about 1,500 units. And that’s 45% to automotive and 55% to smart infrastructure. Right now, we have six months of visibility into the program. When you have series production programs, you do have a little bit more visibility. So, in our hands right now we have purchase orders of over 10,000 units. So, that’s going forward to six months. So, in relation to last year’s unit shipments, this is a significant increase in terms of units. So, that’s just automotive — actually that’s just the GM program in automotive.

And turning to smart infrastructure, we announced that we had won this multimillion dollar contract from an electronic tolling provider in the U.S. The bulk of that will occur this year. So, that also gives us a lot of confidence in our guidance. Did I answer your questions, Tom?

Tom Narayan: Yes, yes. And then, so it sounds like there is not — you are not assuming new OEM revenues beyond GM for the auto piece for ’23 in the guidance?

Hull Xu: We will have some, but not meaningful, as it compares to the GM program, right? So, when we win additional large programs with automotive OEMs, the real ramp isn’t going to be immediate. It’s going to take a couple of years to work through. So, the real ramp this year is going to be just GM and the next year will be even higher. But in the meantime, we are in late stages of discussion with other large global top 10 OEMs. And there will be some revenue toward those, maybe in the forms of NREs. But volume wise we will not be able to match the GM program.

Tom Narayan: Got it. And then my second one, if I could. There seems to be a handful of winners today in the lidar space. It seems like there — it’s kind of solidifying before us today, like who is kind of winning, and you guys are in there with GM. Just curious how you see the industry in let’s say five years from now? Do you see consolidation happening, maybe with a couple of dominant players, or do you see just many, many players with kind of equal market shares across OEMs? Yes, just how do you see this kind of playing out in your eyes?

Jun Pei: Yes. Thanks, Tom. Jun here. I’ll start the question, maybe follow that with some additional comments from Mitch. The consolidation is already happening, as can see it in this industry. But the plain fact is, the winners right now with a well defined automotive program will continue to be the winners because we go through all those sophisticated process of bringing automotive component into marketplace. So, yes indeed, it’s not a winner takes all position. But for sure, it will be concentrated into a small group of people that basically can be counted by one hand.

Mitch Hourtienne: Yes. Tom, this is Mitch. I’ll just add, once you see the vehicles on the road, which Hull just talked about, we have orders for over 10,000 units this year, so that puts them on the road, late this year, early next year. That’s really the final proof point, right, for these companies that have made claims of design wins and projections. So, that’s what we are working towards. Once you are integrated into the vehicle, especially like we are behind the windshield, it’s very hard for any competitor to get to that location or replace that socket. So, these design wins with OEMs are really on the order of 5 to 10 years, minimum.

Tom Narayan: Right. And so sorry, last one I have is, in an environment where, let’s say, lidar becomes required, right, for vehicles for safety kind of like how we have with airbags, rear-view mirrors, that sort of thing, do you view that as a positive or a negative and that could that create an incentive for tons of competitors to come into space, or perhaps it becomes more commoditized where pricing comes down? How do you see that world developing, or is it just great for you guys, because it’s not winner take all, but the better guys win out and you guys could be beneficiaries of that?

Jun Pei: Well, having — if it’s already a commonplace to have lidar in cars, if that’s what you’re referring to, and to the extent they could be even regulated into a car safety device, I think that’s always a good thing for us. We’re one of the front runners in the lidar business. And when you use the word commoditized, actually, in automotive business, like Mitch said, it’s really, really hard to get into a socket there, has to go through a very long process to get yourself established. So, having a foothold into this space, as long as the space is expanding, we’re going to enjoy that benefit.

Mitch Hourtienne: Yes. I think, I’d just add, it’ll follow a similar path as radar and camera. It took them 15 to 20 years to establish so called commoditized where OEMs had a handful of qualified suppliers to choose from. So, I think, we’re very far from that situation, I would say, at least 10 to 15 years. So, these winners that launch are going to be the winners for the next decade.

Hull Xu: Yes. And I’ll add on the ASP front. I think, Tom, that was part of your question also. We do expect ASP to come down as this becomes proliferated, right? And as a technology company in the valley, and that’s what we’re good at, which is, in doing our engineering work to bring the cost down. And I’ll point to the fact that we have already taped out our second ASIC, which will dramatically reduce some of the component costing in our current version and our next generation products.

Operator: The next question comes from Samik Chatterjee with JP Morgan. Please go ahead.

Samik Chatterjee: I guess, if I can start, I think you mentioned, Hull, you mentioned the visibility that you have in relation to production — the series production with about six months of visibility and 10,000 units as the order pipeline there. Just wondering if that stuff that we should read that as sort of the 10k unit volume in terms of series production over a six-month period? And does that give you a little more visibility about what the take rate on sort of the options that the OEM is planning for in relation to ADAS relative to their vehicles, does that give you any more stuff — details in terms of what the OEM is thinking about in relation to attach of that era solution on the platforms you’re on? And I have a quick follow-up as well. Thank you.

Mitch Hourtienne: I think, I can offer some color on that. So, the units that Hull is talking about, we have orders for that. That just covers the first couple of platforms at GM. And so, there will be a mix of take rates, whether it’s the high end luxury vehicle, could be up to 100% versus the mid-grade models, which don’t start until next year, where the take rate could be a little bit lower, but they’re higher volume platform. So yes, I think we’re getting more insight obviously as we get the firm orders, but I don’t think there’s anything surprising so far or different from our original assumptions from the nine vehicle platforms at GM.

Samik Chatterjee: Okay. So I mean, just to make that — clarify you’re implying that that 10,000 is a pretty high peak rate on the platforms, the platforms you’re launching on initially in 2023?

Mitch Hourtienne: Yes, on the first few vehicles. Yes.

Samik Chatterjee: And then just secondly, I think most of your peers who have reported this earning season have been setting milestones in terms of number of OEMs, number of wins, they expect to sort of get through in 2023. Wondering sort of — I know, you’ve talked about sort of expansion of the opportunity with GM being sort of for something you’re targeting for 2023. But any milestones in terms of new customer additions, et cetera that you’re targeting for 2023, that we should be sort of tracking you against, just any color on that front?

Mitch Hourtienne: Yes. So, once again, this is Mitch, I’ll answer that, and then you can add any comments. But, we always have the goal of adding additional OEMs. But more than that, this year, I’d say as Hull mentioned, we’re in the late stages at one or two OEMs right now in the top 10. And so, we do really expect them to make decisions within the next six months or so. Of course, no lidar company can dictate the timing from an OEM. And if you look at our target customers, there have been a lot of changes. GM has revealed more details on Ultra Cruise. So that’s a valid public validation. Ford may shut down Argo three, four months ago, but they also said they’re doubling down on ADAS, and so we expect next gen BlueCruise next.

Hony — or Honda announced a joint venture with Sony. So that’s a step in adopting new ADAS tech. And then Toyota just changed CEO. So, there’s a lot of movement at the OEMs that sometimes delays some of their sourcing decisions here. But we’re very much in the discussion, and I would even expand that to Korea and Europe, we’re in the discussion in all the major sourcing.

Operator: Next question comes from Richard Shannon with Craig Hallum. Please go ahead.

Richard Shannon: I think I’m going to follow up on the very first question asked here regarding the 2023 revenue profile here. Hull, I think you mentioned this being a backend loaded year. Maybe you can give more clarity to that, like, how much bigger will the second half be than the first half or some way just to kind of get a sense of what you’re expecting here?

Hull Xu: Yes. So, the ramp does take a little bit of nonlinear fashion. So, I’d say, the backend is probably twice as much as the first half.

Richard Shannon: And then, in terms of your lead OEM here, can you clarify or characterize how many models that you’re shipping into now, or at least are covered in that 10,000 units in your order book?

Mitch Hourtienne: Yes. The preproduction shipments right now are going into multiple vehicle models. It’s more than two. And the hard orders that we have, yes, they also cover the same number of models, so two or three models. But they’re all staged in timing, right? Like they don’t launch the same month.

Richard Shannon: Right. I figured they’d be staged throughout the year so. Okay. That’s helpful in understanding this dynamic here. Let’s see here. I think in the last earnings call, you had talked about a couple of RFIs that you’re hoping to go to RFQ. I didn’t hear you talk about language to that effect here. I think, Mitch, you just used some different language to maybe describe those situations. Then you also mentioned some relationship in the advanced engagement stage that appear to be without competition. So, I guess, on the first two RFIs, if those officially moved RFQs or not, and then any statements you can make on that advanced engagement that didn’t have any competition at that’d be great.

Mitch Hourtienne: Sure, sure. Yes, there has been some progress on both of those. So on the first point on RFIs, yes, we’ve advanced the RFQ phase with another major OEM recently. So, we are very much in the RFQ phase with them. The second point, this has evolved into the point that I made about advanced discussions about additional vehicle models and extended duration that that’s where we’re at with our lead OEM, General Motors.

Richard Shannon: Okay. And I know you mentioned — someone mentioned on the last earnings call about that, so there hasn’t been — there’s been discussions, but you haven’t extended beyond, I think you mentioned the past model year ’27? So it’s still in model year ’27?

Mitch Hourtienne: Yes. That’s right.

Richard Shannon: Okay. That is helpful. Maybe one or two other ones here. I guess just a question on the OpEx guide here, kind of keeping it in the similar range as last year. I guess in the context of thinking about where you are able to compete well, I know you have done pretty well in Asia at least with your Tier 1s there. But you also mentioned, Mitch, I think some engagements in your competitive in Korea and Europe as well, and announced I think a few months ago opening up your office in Munich. But with your OpEx here staying flat, how do you kind of manage being competitive across the world, especially with at least one of your lidar peers here in the public market spending at rates well above what you are? How are you able to do that with kind of keeping your OpEx flat this year?

Hull Xu: Yes. So I think one of the operative word is focused. So, we are very much focused on the Top 10 global OEMs, while maybe others could — say, they’ve got wins with other OEMs, but we are really just top 10. So, I think you know North America is our key geography. And Japan, because of relationship with Koito, we are very much plugged in there. Europe, we’ve had an office for a little while now, and we’ve actually gone quite a bit more activity in Europe in recent months. I think that’s owing to the success we’ve had with GM, maybe Mitch can talk about some of the European OEM tractions.

Mitch Hourtienne: Yes. I think, Richard, we can do a lot more with a lot less than the competition because of our relationship with Koito and General Motors. So, Koito is doing a lot more on the front end business development, especially in Japan and the Asia region. So, we can rely on them. And now, with General Motors divulging a lot more details about this system, especially where lidar is, other OEMs are viewing these public announcements and understand more about Cepton solution. So, you are right, we are doing more with less, but that’s because we have two big companies we are working on this with.

Richard Shannon: Okay. I think that’s all the questions for me. I’ll jump offline, guys. Thank you very much.

Operator: The next question comes from Growth Capital. Please go ahead.

Unidentified Analyst: Just a couple of questions for me. I just wanted to ask when you expect to see the first batch of GM’s cars using Cepton’s lidar at actual dealerships.

Mitch Hourtienne: Yes. I mean, GM revealed publicly the first Celestiq last July on stage. But you know that’s not at a dealership. So, the target is before the end of the year that these vehicles will be at dealerships. Of course, we’re relying on General Motors on hitting their own internal milestones. But I believe that’s already what they’ve revealed. This is a model year €˜24 vehicle.

Hull Xu: Yes. And I’ll just refer back to the numbers in the PO that we have in hand, over 10,000 units that we have in hand that we need to ship this year. Actually, the final number will be well over 10,000. So, if you put two together, they wouldn’t be ordering that many units if only a handful of Celestiqs are on the road.

Unidentified Analyst: Okay. Thanks. That gives a lot of color. The other thing I wanted to ask is regarding the latest share price pressure. Can you comment at all if this was related at all to the SVB situation or the Signature Bank situation? Can you comment at all?

Hull Xu: We can’t really comment on our own share price. But with regards to SVB, we could share some information. So, SVB has been the Company’s operating bank ever since we were a private company. And several years back, the company did have a small loan with SVB, which was paid back a long time ago. But that was in the filing when we went through the process. So, not sure if that’s really related or not. But, as of now, it shouldn’t be of a concern. SVB is probably the safest place to put our funds. But we already have other bank accounts open with national banks that can take over in terms of operating — operational needs and we’re doing that already.

Operator: The next question comes from Matthew Galinko with Maxim.

Matthew Galinko: Maybe if we could start with the — I guess the guidance, you talked about having about six-month visibility with your primary customer. So, how do you think about fourth quarter and sort of 2023 beyond the six-month window? How are you constructing or thinking about how that factors into the guidance provided?

Hull Xu: Sure. So what we have visibility into is until September, right, so, in terms of the POs that we have received. And we expect the second half to be — to have more volume than the first half. So we expect right now the last quarter will be higher volume than the previous quarters.

Mitch Hourtienne: Yes. That’s right. And one of the OEM checkpoints is demonstrating capacity for the capacity we’re putting in place is obviously much larger than the actual units shipments we’re making this year.

Matthew Galinko: And then, I think you mentioned the potential to expand within your current tolling system wins. What’s the timeline for potential expansion? I think you mentioned that most of the revenue in that deal or at least the initial phases in 2023. So, when and how would we see expansion within that win?

Mitch Hourtienne: Yes. That tolling win covers, I believe, three or four highway sections across a couple of different states. It’s roughly an 18-month long project, if you look at from first install to final install. But we already have the customer, right? So the next acquisition should be quicker. Those should be on the order to three to six months to win additional projects there.

Hull Xu: Yes. To add that this initial order probably covers 10% of the highways that this operator has. So, there’s quite a bit of potential once this launches and this follow on projects to do.

Matthew Galinko: And is there a sense that there’s a period of sort of performance that they’re going to want to — want to sort of see how it works at that scale before moving through more of that portfolio, or, I guess what’s stopping them from moving, more quickly through the next 10% or more?

Mitch Hourtienne: Yes. The performance is already proven, all the commercials are proven so that the value is obviously recognized by the three different states. But it’s really a state by state decision. The end customer, the Department of Transportation within each state. And as you know, some states are more aggressive adopting new tech, some lag. Some have expedited processes, some have slower processes. So, the main gating item is just additional states adopting the technology and the process of sourcing this.

Jun Pei: Yes, I think that final piece is probably the capital and that’s available to these operators. And, as the infrastructure bill, funding gets rolled out, that’ll probably help a bit as well.

Operator: The next question is a follow-up from Richard Shannon with Craig Hallum.

Richard Shannon: Maybe one or two questions here. Hull, I think you mentioned as your guidance for gross margin is something to be positive here. What do you think help us kind of think through this as we go throughout the year? Obviously, we know there’s a mix of auto and infrastructure and some product and some NRE type of stuff here. But as we gain some volumes here, how do we think about kind of the exit rate of your product gross margins? I don’t know if you want to quantify or qualify in some way, but I’d love to get a sense of kind of that exit velocity on that number?

Hull Xu: Yes. Thanks, Richard. Good question. Tough one to answer. As you mentioned, there is a mix of product revenue versus development revenue. So, development revenue, typically, right now, it’s running at around 50% or more, and in the future also depends on, is it more software development or something else. Product revenue, it really depends on the cost, BOM cost and also the ASP. ASP for automotive, we are launching in below 1,000. As it scales, we are targeting ASP to be somewhere near 500 or below. But that will take a couple of years before we reach that volume. And then, smart infrastructure ASP is quite a bit higher than automotive. For example, last year, our smart infrastructure ASP somewhere around 4,000 or 4,500.

And we do expect that to come down a little bit, but gradually, very gradually. We do expect smart infrastructure ASP this year to be still quite a bit higher than that of automotive. So, all of these play into the gross margin picture. And I think, what we guided to is, what we can — where we feel confidence in right now.

Richard Shannon: Okay. I think that would be my only question. Thank you much.

Hull Xu: Okay. Thanks.

Operator: The next question is from Gus Richard with Northland. Please go ahead.

Gus Richard: Yes. Thanks for taking my question. And just to follow on Richard’s question. Can you give us a rough idea of what the mix is going to be this year between NRE, auto and infrastructure?

Hull Xu: Yes. So, in our guidance, there’s not a lot of NRE, right now. So additional NRE will be upside. So, essentially, the majority of the guide is product revenue. And then, in terms of auto versus smart infra, I’d say, it’s maybe 3:1 kind of relationship, 3 for auto 1 for smart infra in terms of revenue.

Gus Richard: Got it. And then your OpEx expected to be flat and sort of I am assuming R&D will be flat, and I’m just wondering is that, because you had a tape-out last year, and you don’t have a major tape-out this year — or how do you kind of hold the R&D flat?

Jun Pei: Well, this has been always — Jun here, Gus. This has been always a very efficient operating place in terms of R&D budget. And we actually have continuous tape-outs for our new ASIC chips or new products, as you also call it tape-out. But again, it’s extremely efficient operation here. We actually do not expect any slowdown in our research and development. There is — as you heard from the CES, there is a new product that just came out with a lot of improvement, a lot of changes. Some of them even goes beyond our MMT technology. All of these came out of the existing budget. So, we are just going to charge forward as is. There is no reason to waste more money, if we can just make the best use of what we have now.

Mitch Hourtienne: This is Mitch. I’ll just to add, we are building upon something that we are already launching right. So our incremental investments on new products, like we launched at CES are only a fraction OpEx wise of the original product, because we can reuse ASICs and software from our GM development.

Gus Richard: And then last one for me. I think you mentioned you’re working on a Level 4 ground vehicle. Any color as to what kind of ground vehicle that is, is it — any color there?

Mitch Hourtienne: A little bit. Yes. I mean, it operates in remote sites outside. It’ll be — more details will be revealed. It’s at a trade show this week being demonstrated. So that’s why we couldn’t comment more details until it gets revealed this week. But yes, it’s a subsidiary of a top 10 auto company, a Level 4 autonomous ground vehicle that basically takes supplies and materials to remote construction sites.

Operator: As we have no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Jun Pei for any closing remarks.

Jun Pei: Okay. Just to wrap it up, it’s another quarter of good progress on our OEM program execution and certainly a very good past year for Cepton. As we move forward with higher speed and higher intensity, please pay attention to us as we strive to bring additional levels of safety to the automotive industry. Thank you.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.