Business Overview and History
Cepton, Inc. (CPTN) is a Silicon Valley-based innovator and leader in high-performance lidar solutions, targeting the burgeoning automotive and smart infrastructure markets. Founded in 2016, the company has quickly established itself as a key player in the lidar industry, driven by its commitment to developing cutting-edge technology and fostering strategic partnerships that have positioned it for long-term success.
Cepton, Inc. was founded in 2016 as a Silicon Valley-based company focused on developing high-performance, cost-effective lidar solutions for the automotive and smart infrastructure markets. The company has an interesting history, as it was originally incorporated in Delaware in 2010 under the name PinstripesNYS, Inc., which later changed its name to Growth Capital Acquisition Corp. (GCAC) in 2020.
In February 2021, GCAC completed its initial public offering, and in February 2022, it consummated a business combination with Cepton Technologies, Inc. (Legacy Cepton), becoming Cepton, Inc. This transaction allowed Cepton to become a publicly-traded company, providing access to additional capital to support its growth initiatives.
Throughout its journey, Cepton has faced various challenges common to early-stage technology companies. In 2023, the company encountered a significant setback when its tier 1 partner, Koito, informed Cepton that its customer, GM, had decided to re-scope its ADAS product offerings, resulting in the cancellation of all outstanding purchase orders related to Cepton’s series production award. As is customary in such situations, Cepton submitted a project investment cost recovery claim related to the cancellation.
Despite this challenge, Cepton has remained committed to developing its lidar technology and building strategic partnerships. The company’s dedication to innovation and its focus on delivering high-performance, cost-effective lidar products have been central to its growth and development over the years.
Financial Performance and Ratios
Cepton’s financial performance has been mixed, reflecting the company’s focus on product development and market positioning rather than short-term profitability. In the fiscal year 2023, the company reported total revenue of $13.06 million, a significant increase from the $7.43 million reported in 2022. However, Cepton continued to generate net losses, with a net loss of $48.55 million in 2023, compared to a net income of $9.38 million in 2022. The company’s operating cash flow (OCF) for 2023 was -$35.52 million, with a free cash flow (FCF) of -$36.82 million.
The company’s gross profit margin in 2023 was 27.2%, down from 2.6% in 2022, as Cepton continued to invest in its manufacturing capabilities and product enhancements. Likewise, the company’s operating expenses remained high, with research and development costs of $29.88 million and selling, general, and administrative expenses of $24.37 million in 2023.
For the most recent quarter (Q3 2024), Cepton reported revenue of $547,000, a substantial decrease of 86% year-over-year. This decline was primarily due to a significant decrease in lidar sensor and prototype revenue as a result of the cancellation of the GM series production award. The net loss for Q3 2024 was $10.64 million, with an OCF and FCF of -$8.37 million each.
Cepton has two primary revenue segments: lidar sensor and prototype revenue, and development revenue. The lidar sensor and prototype revenue, which is derived from the sale of lidar components and licensing of technologies to tier 1 suppliers for ADAS applications in the automotive market, as well as direct sales of lidar sensors to customers in the smart infrastructure market, saw a significant decline in the first nine months of 2024. This segment decreased by 75% from $7.81 million to $1.98 million, driven by a $3.2 million decrease in sales of custom lidar products due to the GM series production award cancellation and a $3 million decrease in lidar sales volume, partially offset by a $0.4 million increase in the average sales price of lidar sensors.
On the other hand, development revenue, which represents arrangements with tier 1 suppliers for customizing Cepton’s proprietary lidar capabilities, increased substantially in the first nine months of 2024, growing from $0.29 million to $10.94 million. This growth was primarily driven by a new $10 million engineering services contract with Cepton’s partner Koito to support a major global OEM series production award.
Cepton’s overall gross profit increased from $0.85 million in the first nine months of 2023 to $6.70 million in the same period of 2024, as the increase in higher-margin development revenue more than offset the decline in lower-margin lidar sensor and prototype revenue. However, Cepton’s gross margins fluctuate based on product mix, with lidar sensor and prototype gross margins generally lower than development project gross margins.
In terms of geographic markets, Cepton’s sales were primarily to customers in Japan, which accounted for 92% of total revenue in the first 9 months of 2024, and the United States, which accounted for 8% of total revenue.
Liquidity
Cepton’s balance sheet reflects the company’s strong financial position, with $56.38 million in cash, cash equivalents, and short-term investments as of December 31, 2023. As of September 30, 2024, cash and cash equivalents stood at $47.65 million. The company’s current ratio, a measure of liquidity, stood at 5.52, with a quick ratio of 5.41, indicating a robust ability to meet its short-term obligations.
The company’s debt structure is also relatively straightforward, with $10.60 million in long-term lease obligations and no other significant debt. As of the most recent quarter, Cepton had no outstanding debt and no available credit lines. The debt-to-equity ratio was 0, highlighting the company’s conservative approach to financing, which has provided Cepton with the financial flexibility to continue investing in its technology and product development efforts.
Recent Developments and Outlook
In December 2023, Cepton received a non-binding indication of interest from its long-time partner, Koito, to acquire 100% of the company’s outstanding shares not already owned by Koito or certain other potential rollover participants. This proposed transaction, if completed, would provide Cepton with increased financial stability and scale, further enhancing the company’s ability to commercialize its lidar technology and support its automotive OEM customers.
On July 29, 2024, Cepton entered into an Agreement and Plan of Merger with Koito Manufacturing Co., Ltd. and Project Camaro Merger Sub, Inc., pursuant to which Merger Sub will be merged with and into Cepton, with Cepton continuing as the surviving corporation and an indirect subsidiary of Koito.
Additionally, in March 2024, Cepton and Koito were awarded a new series production contract by a global OEM for Cepton’s near-range lidar, underscoring the strong demand for the company’s solutions and the success of its collaborative approach with Koito. In May 2024, Cepton entered into an engineering services contract with Koito for approximately $10 million to support customer-specific product development and program execution efforts for this new OEM.
Looking ahead, Cepton remains focused on expanding its pipeline of automotive OEM partnerships and securing additional series production awards, which are expected to drive the company’s revenue growth in the coming years. The company is also continuing to invest in its software and perception capabilities, aiming to provide comprehensive lidar-based solutions that address the evolving needs of the automotive and smart infrastructure markets.
Risks and Challenges
While Cepton’s progress has been impressive, the company faces several risks and challenges that investors should be aware of. The highly competitive nature of the lidar industry, with established players and well-funded startups vying for market share, presents a constant threat to Cepton’s competitive positioning. Additionally, the company’s heavy reliance on a small number of large customers, such as Koito, exposes it to potential disruptions in these key relationships.
The automotive industry’s lengthy design cycles and stringent qualification processes also pose a risk, as Cepton must navigate these hurdles to secure and maintain OEM partnerships. Furthermore, the company’s continued profitability and cash flow generation will be crucial in sustaining its long-term growth and investment plans.
The recent cancellation of the GM series production award highlights the potential volatility in the automotive market and the impact it can have on Cepton’s financial performance. The company’s ability to diversify its customer base and revenue streams will be critical in mitigating such risks in the future.
Conclusion
Cepton, Inc. (CPTN) has emerged as a leading innovator in the lidar industry, leveraging its proprietary technology and strategic partnerships to position itself for long-term success in the automotive and smart infrastructure markets. The company’s focus on performance, reliability, and cost-effectiveness has resonated with its customers, as evidenced by its growing list of OEM partnerships and series production awards.
While Cepton’s financial performance has been mixed, with recent setbacks due to the cancellation of a major production award, the company’s strong balance sheet and conservative approach to financing provide a solid foundation for its continued investment in technology and product development. The proposed acquisition by Koito, if completed, would further strengthen Cepton’s market position and accelerate its commercialization efforts.
As Cepton continues to navigate the competitive landscape and execute on its growth strategy, investors should closely monitor the company’s progress in securing additional OEM partnerships, expanding its smart infrastructure footprint, and driving operational efficiency to achieve sustainable profitability. The recent shift towards higher-margin development revenue demonstrates the company’s ability to adapt to market changes and leverage its expertise in custom lidar solutions.
With its innovative lidar solutions, strategic focus, and strong partnership with Koito, Cepton appears well-positioned to capitalize on the burgeoning demand for advanced sensing technologies in the automotive and smart infrastructure sectors. However, the company must continue to diversify its revenue streams and customer base to mitigate risks associated with its current concentration in the Japanese market and reliance on key partnerships.
Disclaimer: This article is for informational purposes only. It does not constitute financial, legal, or other types of advice. While every effort has been made to ensure the accuracy of the information presented here, the author and the publisher do not make any guarantees about the completeness, reliability, and accuracy of this information.