Luminar Technologies Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 8 speakers on the call.

Operator

To Luminar's Q2 of 2023 business update call. My name is Aileen Smith, and I am Luminar's Head of Investor Relations. With me today are Austin Russell, Founder and Chief Executive Officer and Tom Fenimore, Chief Financial Officer. As a quick reminder, this call is being recorded, and you can find the earnings release and slides that accompany this call at investors. Luminartech.com.

Operator

In a moment, you'll hear brief remarks from Austin and Tom, followed by questions posed to the SAVE platform, and then live questions from the analyst community. As with last quarter, we've extended the submission window for questions submitted via say through the end of our call, should there be any that are upvoted during our call. Before we begin the prepared remarks and Q and A, let me remind everyone that during the call, we may refer to GAAP and non GAAP financial measures. Today's discussion also contains forward looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release and business update presentation for more information on the specific risk factors that could cause actual results to differ materially.

Operator

With that, I'd like to introduce Luminar's Founder and CEO, Austin Russell.

Speaker 1

Hey, everyone, and thanks, Aileen. So Welcome, everyone, to our quarterly business update for the Q2 of 2023. So today, we are actually live from our new Princeton, New Jersey office After Ford's Argo AI LiDAR team, formerly known as Princeton Lightwave, decided to join us. As you probably know, we already have some of the foremost global leaders and experts in specialized semiconductor designs for lasers, receivers and Processing Electronics with our new entity that we formed Luminar Semiconductor Inc. And the team here Definitely excited to be able to partner with them to help advance and accelerate our chip roadmap holistically.

Speaker 1

So jumping right in, thought it could be good to Share some slides for an update. So we'll do exactly that. Let's see here. This is how you know we do it live, for real. All right.

Speaker 1

So first and foremost, for the Q2, we're on track to be able to meet or beat All of our business and financial milestones for 2023. And that's despite a broader challenging macroeconomic backdrop, we've been able to We execute, advance our roadmap and attract some of the best leadership talent in the world to be able to drive the company at full speed ahead. So again, proud to be able to say the progress that And I'll touch on each of these different areas throughout the presentation before handing it off to Tom to talk more about the financials. But first, when it comes to industrialization, Completing industrialization and scaling for a high volume is the key to being able to unlock additional exponential growth in our business. So we remain on schedule to meet the automaker requirements to achieve this high volume starter production by the end of the year in the new High volume facility in Monterrey, Mexico.

Speaker 1

So in Q2 specifically, went through rigorous validation for the facility, which is underway and currently going through other optimization So we expect to be able to achieve their acquired capacity to be able to support our global Automakers for Series Production over the course of the next handful of months before the end of the year and have that successfully demonstrated with them. So also in Q2, driven by rapidly growing demand for Luminar in Asia, TPK and Luminar announced a partnership for which TPK will create an even higher volume factory for Luminar, which will primarily support vehicles delivered in China and Asia Pacific region. So Luminar has become one of the only Autonomous Technology Companies to be awarded substantive business in China, both domestically and from global OEMs, and which just again, another key attribution is To the promise of the technology and the impact that we can be able to have at global scale. So alongside this accelerating growth in Asia, I'm happy to announce that as of last week, TPK has decided to make an additional $10,000,000 cash investment into Luminar's With even greater conviction following their previous investment as they get to know the company even better.

Speaker 1

So Next on when it comes to a product and technology roadmap for some of that milestone and that side of the business, we remain on track to be able to meet our milestone and the Key elements of that, including the C phase for Iris Plus before year end. And specifically, Iris Plus began validation and testing From its lead OEM customer in Q2, following the B Sample deliveries, like one of the ones I just saw one around here For testing, I'm sure we can I'll give a reference point. But we have them actually, even at Princeton, they're helping When it comes to our point clouds, they're looking great. We've begun data collection And actually, I've tested already on the OEM provided vehicle platforms that the lead search production OEM for Iris Plus has given us. And we've driven them now over 100,000 kilometers so far in terms of testing with more to come.

Speaker 1

And these initial results are very exciting and are critical for Customer software development program milestones and excited to have this multi $1,000,000,000 OEM program moving full speed ahead. Our Our target to complete our 2023 software deliverables for both Volvo and Mercedes SOPs remain on track. And in Q2, we also reached a key Software milestone for the Volvo program becoming feature complete, so to say, for our software for them. And while on the topic Well, I wanted to make sure to also just get a chance to clear up some confusion that seemed to emerge like a few weeks ago regarding Volvo's vehicle launch timing in Luminar, Which our timing is ultimately independent of the Volvo vehicle launch timing. So nothing has changed since Volvo's announcement back in May regarding the EX90 launch timing For which, I guess, we had mentioned at the time that we had already taken that into account previously when being able Provide guidance for our business growth and didn't have that embedded this year already.

Speaker 1

So like I said, we were in a good place. It's not something that was a surprise to us Not necessarily, but some seem to speculate in published articles more recently that Luminar was the cause of this. But Volvo actually issued a statement Since then, just to be able to clarify that and was basically saying that the adjusted time plan is connected to the initial time needed that they need for their software development, not Related to Luminar. So there's some work to do. Ultimately, like I said, when it comes to the production ramp, We're more excited as ever and Volvo has as much conviction as ever and us to be able to see that successfully scaling with EX90 and beyond.

Speaker 1

And I think they're seeing obviously great In terms of their preorders, going far beyond expectations of what they can have. Bull is an incredible partner of ours. They're not the only partner of ours by any means. We have now over a dozen major commercial wins. And as we're saying, we're continuing to move full speed ahead as it relates to our timeline to be able to reach That SOP readiness for the high volume facility by year end.

Speaker 1

So looking forward to a successful launch and ramp of that as we really begin to start Next year, converting this multi $1,000,000,000 order book that we have into revenue, it sort of begin that process from the beginning since seeing that accelerate Throughout 2025. So when it comes to next generation LiDAR, We also mentioned that was one of the goals. We expect to have that product by year end and we believe that A few new breakthrough components to the technology that start with Luminar Semiconductor and move their way all the way up through the stack. And ultimately, that's going to be the LIDAR that we see as having the opportunity to be standardized across the broader industry on Every new vehicle produced ultimately. Obviously, you may recall our target market penetration by the end of the decade is only 3% to 4%, because we think even with that, we'll be able to achieve around $5,000,000,000 revenue and $2,500,000,000 EBITDA with as much as a $60,000,000,000 forward looking order Even with just a relatively small amount of market penetration.

Speaker 1

But by the time we're done with this next gen LiDAR, I think that there's ultimately a clear path in being able Take that to 100% at the end of the day. So with these new safety improvements that we are able to deliver on cars as well as the autonomous capabilities that makes All the difference to being able to make this successful. And we'll talk a little bit more about some of the regulatory tailwinds that we have that are fortunately in our favor later on. So combined with our other initiatives, I think that's how you ultimately are able to achieve the goal of becoming one of the great technology companies of our generation. But of course, we're taking it one step at a time in a measured capacity and executing the plan.

Speaker 1

So lastly, when it comes to commercial success, we're on track to grow our forward looking order book By at least $1,000,000,000 this year. We're continuing to execute across signing new deals across hardware, software, AI, semiconductors This year as OEMs and our customers only further their conviction in Luminar. So exciting stuff. Just kind of taking a step forward and sharing a few highlights about some of the significant commercial progress on that note. First, Starting with Polestar, this is now what like the 3rd vehicle model that consumers can now order With Luminar equipped, this is the Polestar 3.

Speaker 1

So exciting that they're now making this available to consumers and again, Just showing further conviction in making that big step forward. So when it comes down to it, the revenue ramp from these contracted Full start vehicles ultimately begin over the next year and a half as that converts into business and we start shipping at scale. And as you take a look, One thing that I think is unique is that OEMs are really actively marketing Luminar as a key value proposition of the vehicle, the fact that it is equipped with Luminar. And you really take a look in these different vehicle programs and configurators and what they're showing to consumers. And there's Really only 2 brands that become visible outside of the automaker brand, and that's us and oftentimes like a high end audio system Brand or manufacturer like Bowers and Wilkins, for example.

Speaker 1

So I think it's just really cool to see that for the first time, you have automakers that are Proud to be able to have a breakthrough technology that's out on the vehicle because it is really something that's fundamentally differentiated than other commodities and something that Has an opportunity to power the broader industry more generally. It's very tech forward in its fast capacity. So Point is Luminar is being positioned as a premium feature. We could spend tens or 100 of 1,000,000 of dollars marketing our product to generate awareness, but we don't have to. Customers are doing it for us.

Speaker 1

Best marketing comes from the customer and at the end of the day that's priceless. So there we go. And obviously, like I said, you're not really going to see that across the rest of the AV and LiDAR landscape. I think that's relatively unique to Luminar in terms of how meaningful that is. So we're going to go through each of these other 3 between Mobileye, Nissan and Plus in just a second.

Speaker 1

We have some dedicated slides for that. So First, Nissan, they've since recently unveiled some additional driver assistance features that they have on their cars. So Advanced Intersection Collision Avoidance is the latest addition that they have to the development stack with Luminar. And they've publicly stated now they plan to be able to introduce this with targeting with Luminar and selecting models by The mid-2020s and then ultimately virtually every new vehicle model by 2,030. So we all know the size of Nissan and the impact that they can have on the industry when Comes to saving lives and then obviously value for our business and their business.

Speaker 1

So they're very excited to be able to move full speed ahead. And like I said, it's great to be able to see them actually already taking things to the next level in terms of these advanced capabilities. You can actually see on the Graphic on the right, both the camera data of what it can show and then the Luminar LiDAR data in the background for what they're showing off of How they can already see the motorcycle approaching in the distance at high speed for scenarios like, for example, running a red light, that's very important for safety. Next up, we have Mobileye. So great to be able to see the progression that they've had and some recent Major progress.

Speaker 1

So this kind of goes back to 2020 when we were really engaging with them full speed ahead with the Luminar Hydros Coming back in the day on that and Mobileye's 1st generation autonomous vehicle development. So I think that was at their Investor Day that they had. And then 2021, they started moving to the Neo platform And then we're going public display of Mobile I Drive with Luminar. So that was excited to be able to show that off in testing and development platform. So with Luminar and then showing the capabilities of what we can be able to do together, it's a very incredible progress and incredible company in terms of what they've been able to do.

Speaker 1

More generally, obviously, they're strong leaders when it comes to a camera, Vision ADAS system more generally on cars. So that's something to be said when they partner with Someone like us, obviously, on the LiDAR side, but exciting opportunity. And now what we've seen is a lot of those fruits of the labor Start to be deployed with automakers, one of which they actually now just announced and as an OEM Being able to adopt the mobile iDrive system, and of course, that's something that is featuring Luminar So that's a very recent deployment they're just doing in the U. S. And I think this one was in Austin, Texas.

Speaker 1

So, yes, Gives a reference point. And I think this is where you see these incredible companies like Mobileye and NVIDIA that we Have these special partnerships with that as we collaborate successfully with them and develop our programs with them They build their software on top of our LiDAR and data and collaborate with us and in some cases with our software as well. Those wins start to manifest Across the rest of the landscape where it's also not just us working with OEMs, but them collaborating with OEMs and sort of pushing us into different products So they own a huge part of the landscape. So also recent Q2 development was Luminar and Plus. So we've successfully partnered with Plus And became their exclusive provider of LiDAR for Plus Drive, which is their factory installed assisted driving system for commercial trucks.

Speaker 1

So in addition to that, we are also collaborating on this AI assisted driving software for commercial trucking OEMs. So this is something that is an exciting opportunity for us together to be able to do from not just the hardware standpoint with them, but then also The software. So again, it's kind of a scenario where we get to as we sort of expand our horizons and really get into Commercial trucking even more, which you see as sort of a key emerging market for Luminar. You get to displace some of the other legacy LiDAR systems and actually Get on these kinds of trucks with exciting new technology platform. Plus and Luminar are also going to be collaborating across the board for And targeting for some of the other areas in Luminar's business, including everything from insurance to HD mapping to unit blade sensor integration.

Speaker 1

It will be great. And I think one thing that's meaningful with Plus and you can look this up, but one thing that attracted us to them, Which you may have not have heard of them before, but they're even though they're on the smaller company in terms of size of their companies, they're working with some of the largest And that was really what we saw as a key opportunity and channel to be able to get into the largest Truck OEMs and logistics companies successfully with our technology and be able to scale accordingly. And if It's public like the Amazons of this world that are able to make that happen with Plus. So very exciting opportunity. So when it comes to the regulatory side in landscape, there's actually some really interesting stuff is that whereas A lot of the autonomous vehicle landscape is facing regulatory headwinds.

Speaker 1

We actually have a lot of regulatory tailwinds in our favor. And Really what this means is that the challenges and hurdles that are put up for autonomous vehicles generally Come down to when you start ripping out the steering wheel systems and braking systems and other things in vehicles where you have to be able to get specialized Extensive permitting and registration. And it's not there's like really no regulatory framework to be able to allow that yet. When it comes to getting better safety or even enabling autonomy on existing production vehicles or production vehicle programs, there's a much, much better Regulatory framework. And not only that, it's gone from like will regulators even allow it for like full autonomous vehicles and robo taxis and robo trucks too.

Speaker 1

Now regulators are starting to require these kinds of capabilities for better safety. And this is where our big bet On proactive safety is really starting to pay off as automakers rapidly adopt it. And then, of course, you have the regulators that want to be able to also help Save additional lives out in the world and in the landscape for a good cause that we stand for. So that includes mandating. And again, this is not something just to get a 5 star rating on a car.

Speaker 1

This is like literally mandated, like every car must have this. Automatic emergency braking at higher speeds and pedestrian automatic emergency braking at night to be able to detect it, Well, also discouraging and increasing the requirements around false positives. So that really helps push OEMs to be able to adopt Luminar Lidar. And then also and it's already started publishing draft regulation to be able to work at these higher speeds. So Yes, I think you get the gist of it and some funny headlines around Breaking Bad, which is Absolutely true.

Speaker 1

AAV is absent when you need it most. It couldn't be more relevant. So we're doing plenty of our own research and studies around this and like benchmark Studies that I think we'll have more to talk about in the future. So Ultimately, all of this work when it comes to more advanced safety and highway autonomy capabilities is powered in some way, shape or form, Not just by the Luminar hardware, but by AI as well. And this is where since 2017, we've been developing What we call the Luminar AI engine, where we've sort of aggregated this all together now Between input, our AI engine output and across products from proactive safety and highway autonomy to mapping and localization to Perception and Detection.

Speaker 1

And one highlight, by the way, just a shout out to the mapping team for their first development Deal with an OEM on that front. So that's an exciting one. And really all of this comes back down to what we can do. So you don't need to hash Through all the details here around what we're doing. But again, this is a huge investment led by CJ Moore, who previously was a longtime Director of Autopilot over at Tesla and It's directed many of the autonomous systems work at Apple.

Speaker 1

So it's great stuff going on. And then we as you may recall, We also partnered with Scale AI earlier this year exclusively. So we're actually the only ones that have access to Technology of all the liner companies as a result of that partnership. And this is something that has proved hugely beneficial and meaningful to us. They've consistently delivered on the key actions and deliverables for what we need to be able to further enhance our AI engine And be able to provide these products and capabilities to our various customers.

Speaker 1

So, yes, it's all powered by the data, and we're We're making it happen together with our customers. One other area that's I think it's lesser known that we wanted to be able to take an opportunity to highlight when it comes to Luminar Semiconductor Inc. Again, another area that we made early bets on that's really starting to pay off in full swing now. We have a host of different new chips in ASICs that we Developed and are launching across Q2 and Q3. And again, this is something that we strategically vertically integrated in house, working and Acquiring some of the best and most specialized companies in the world when it comes to these different components For the design, ones that we've historically worked with and collaborated with for years to be able to make this happen.

Speaker 1

And For example, with Black Force Engineering that was back in 2017, Optiporation was a couple of years ago, Freedom Photonics was last But we since aggregated this all into Luminar Semiconductor. We've successfully taped out new chips For each of the different core components, this to further enhance performance, reduce cost and for both our current generation as well as future generations of YDARs. So we're continuing to upgrade things at the chip level. This is some incredible breakthrough new results from the laser chips that we have. You can actually see the taped out Laser chip itself in terms of the indium phosphide chip as well as the silicon laser driver That we've taped out for this successfully.

Speaker 1

And see our indium gallium arsenide photo detector for the receiver chip, And this is already, again, like this stuff is like validated and integrated into Iris, as well as the processor chips. We have our 4th gen and 5th gen signal processing chips That are already the 4th is already validated and integrated into Iris. The 5th generation single processing chip is now developed and undergoing validation and testing. So what's cool though is that with this model and as we have this host of breakthrough semiconductor technologies that Serves as a core innovation engine for Luminar. We're actually able to get a lot of interest for these same chips and technologies from other industries as well, Including, for example, in the Aerospace world, we actually just received, let him, a couple of weeks back, The NASA Tipping Point Award for development of our breakthrough laser technology.

Speaker 1

So, very exciting one, and we're privileged to be able to Have won that alongside other major companies like the Blue Origin of Lockheed of this world in the aerospace industry. We were recently awarded a contract for a multiyear supply agreement for Luminar photodetectors for a major leader in fiber optic solutions, As well as receiving our first volume order for Luminar's laser technology on the actual optical communications Between actually for AI GPU servers. So that's something that for AI data centers can actually be massively impactful as the demand for that accelerates significantly. So this is becoming also A fantastic innovation and growth engine for Luminar more generally as we're vertically integrated. So Just taking an opportunity to highlight some of the recent developments here that as this accelerates rapidly.

Speaker 1

So thank you, everyone, for taking a look at that and some of the different major milestones that we met along the way. But In terms of the core company level business milestones, we want to have an opportunity for Tom to be able to take you through The details of this, and a little bit more about our financials for this quarter and guidance. So with that, I will hand it off to Tom here.

Speaker 2

All

Speaker 3

right. Thank you, Austin. I want to start by reviewing our progress Towards our 3 key 2023 milestones. And I know Austin has already talked about these points earlier. The first one is to successfully scale.

Speaker 3

As we talked earlier, we brought our new high volume automated manufacturing facility In Mexico online in Q1, ahead of schedule. And we're now working towards completing our Production validation testing at increasing volume rates to basically optimize our high volume series production process. We remain on track to complete these steps and achieve high volume SOP readiness by the end of the year. Our second milestone is to continue to execute our Product and Technology Roadmap. In particular, we're going to enter the C phase for IRIS plus by the end of the year, Build our next generation LiDAR prototype and complete our software deliverables to support Volvo and Mercedes SOPs.

Speaker 3

We remain on track to achieve all three elements of this milestone by the end of the year. And Austin highlighted some of the developments we achieved during the Our third milestone is to grow our forward looking order book by at least $1,000,000,000 We have already experienced growth in our order book this year from both new business awards from existing customers as well as a couple new customer wins from Companies who have decided to upgrade their legacy LiDAR to Luminar's LiDAR on their next generation systems. Our recent strategic partnership with Plus is a good example of this upgrade trend. We are also signing deals with our customers across all our major Product lines, hardware, software AI and semiconductors. We remain on track to achieve this milestone for the year.

Speaker 3

Now let's review some of our financial results for the quarter. Revenue for the quarter was $16,200,000 up 63% year over year and in line with analysts' expectations. Our Autonomy Solutions segment was the biggest contributor to our year over year revenue growth more than doubling. For the quarter, we reported a gross loss $18,300,000 on a GAAP basis and $16,200,000 on a non GAAP basis. During the quarter, we also reported GAAP EPS of negative $0.37 and negative $0.21 on a non GAAP basis.

Speaker 3

This marked a sequential improvement from Q1 and came in better than our guidance and analyst expectations. A few more details on our 2nd quarter COGS And gross margin. During the quarter, we incurred approximately $24,000,000 of launch related expenses. Approximately 25% of these charges were from contractor expenses to get our suppliers and contract manufacturer partners up and running. And the remaining 75% was from other laundry related expenses such as contract manufacturer fixed absorption charges as we ramp up volume And inventory write offs for product enhancements and production validation testing.

Speaker 3

These launch related expenses were somewhat higher than Q1 as we Continue to improve our manufacturing process and product quality at higher production rates. But as we communicate, we expect these launch costs To significantly decline in the second half as we successfully approach high volume SOP readiness by the end of the year. We remain on track to achieve positive gross margin on a non GAAP basis in Q4 as we anticipate these launch related expenses to significantly decline. Our Q2 free cash flow, as measured by operating cash flow less CapEx, was negative $78,500,000 consistent with our commentary that Q2 would look similar to the Q1 free cash flow number of $76,000,000 negative. A few more details on our Q2 free cash In addition to the $24,000,000 of launch related expenses I discussed earlier, our Q2 free cash flow also included a $13,000,000 working capital investment during the quarter as we prepare for our high volume series production.

Speaker 3

And as our business and new facility ramps up and launch costs ramp down, we expect a significant improvement in our free cash flow spend rate by the end of the year. While we still have some wood to chop to reach our free cash flow exit rate for the year, we remain confident in our ability to achieve this target of improving our free cash flow run rate by approximately 50% by year end relative to our Q1 and Q2 levels. We are seeing early signs of free cash flow improvement in Q3 so far. During Q2, we received a $10,000,000 investment from TPK, reinforcing our recent partnership, and TPK informed us last week that they plan to execute the additional $10,000,000 option they have in the next few days. During the quarter, we also raised $7,000,000 from our strategic M and A equity program to backfill some smaller strategic activity Earlier this year, in connection with our recent Plus strategic collaboration, we agreed to a $10,000,000 mutual equity swap To reinforce the partnership, in the coming days, we plan to file a registration statement to register the shares we expect to issue to Plus as part of this strategic equity swap.

Speaker 3

We ended the quarter with $366,000,000 in cash and marketable securities, Which makes us one of the best capitalized LiDAR companies. This quarter end cash balance includes the $10,000,000 we expect to receive from TPK sizing its option last week. We are reaffirming our full year 2023 financial guidance. Specifically, we expect to grow revenue at least 100% this year, achieve positive quarterly non GAAP gross margin by year end And end the year with at least $300,000,000 in cash liquidity and a share count in the $395,000,000 to $400,000,000 range. For the quarter, we expect to be in the range of $18,000,000 to $21,000,000 of revenue and our EPS loss to be in the range of $0.18 to $0.22 That's what we expect for the Q3, this upcoming one.

Speaker 3

We expect revenue growth to accelerate in Q4 As our new high value manufacturing facility comes online in higher volume and we expect a couple new customer contracts to be executed that we're currently Our team continually evaluates opportunities to optimize our manufacturing cost and process. As we are bringing our manufacturing facility in Mexico online at higher volumes, our team has identified a meaningful Cost improvement opportunity by outsourcing the production of certain subassemblies and components Originally planned to be made in this New Mexico facility to other Luminar supplier partners. We expect this change to meaningfully reduce our per cost as well as the required manufacturing floor space requirements and automation equipment at our Mexico facility. Following Q2, our team finalized and committed to a plan to proceed with this cost savings opportunity. As a result, We are in the process of evaluating the exact financial and accounting impact of this action.

Speaker 3

But based upon our preliminary analysis, we Expect to incur a non cash charge in the range of $10,000,000 to $20,000,000 in the second half of this year. Before I hand it over to Aileen for Q and A, I wanted to reinforce one important point. Based upon our current year end guidance, we expect to end the year with approximately $300,000,000 in cash and liquidity And in exit free cash flow spend rate, roughly half of our Q1, Q2 level. This year end cash Balance and improved exit free cash flow spend rate would imply 2 years of runway, enough to get us to our target of breakeven by 2025 year end. In addition, we expect our free cash flow spend rate to improve even further from the year end levels once we reach Volvo SOP in 2024.

Speaker 3

To conclude, I would like to thank once again the broader Luminar team for another solid quarter And the great operational progress. With that, we'll hand it over to Aileen for Q and A.

Operator

Fantastic. Thanks, Tom. We're going to start the Q and A with some of the questions that we received on the SAVE platform, and then we're going to move on to the analyst questions. Our first question is, are there any specific patents that protect Luminar and shareholders from copycat technologies? For example, what makes a large automaker like Volvo partner with Luminar or prevents another large automaker from creating their own LiDAR technology?

Speaker 1

Yes. So I'd say when it comes to IP, this is one of the, I'd say, most significantly deep IP companies out there When it comes to advanced technologies. But this is not to say that people haven't tried. People, of course, in large companies, Tier 1 startups, major tech companies, of course, have all tried to develop these kinds of breakthrough systems and technologies. Part of the whole point of where Luminar differentiated itself and won out this battle is by having, what, a decade Worth of working back and experience by working from the chip level up to build these different kinds of technologies and having it all come together to successfully create a system level solution.

Speaker 1

A protection standpoint, I say we have a larger U. S. Patent portfolio than any other company of our kind, of course. But The reality is that there's a reason why there's no like knockoffs of like NVIDIA or Mobileye or like some of our other You know, semiconductor partners, for example, like in across the rest of the landscape and world just because there's a lot of fundamental differentiation and core technology that goes into So I think we sort of put ourselves in that category and camp. And that's where you take a look at like every major automaker they've had previously had LiDAR development efforts.

Speaker 1

I think effectively, All of them. I actually don't know if a single one is remaining. I think they're pretty much all shut down in favor of working with a company Luminar. So again, we want to be like very collaborative partners to everybody and it certainly makes the most sense to be able to work with a partner like That's exactly what majority of landscape is starting to do.

Operator

Our second question, Can you provide us with more insight into Luminar's software business and how it may outpace the company's hardware business in the future?

Speaker 3

Sure. We talked about during the prepared remarks the progress that the software team has made in providing the software necessary to launch the initial business with our customers. But not only is there execution progress, but there's also commercial progress. Austin mentioned during the call, we signed our first mapping development contract for the major OEM. As some of you may recall, last Here, we acquired a 3 d mapping company, Civil Maps.

Speaker 3

So we're starting to see some early bearing of fruit from that acquisition. In addition, the Which

Speaker 1

is funny because people are like, no way Luminar is ever going to win, how are they going to do that?

Speaker 3

The Plus strategic collaboration, not only does that include an exclusive supply agreement on the LiDAR side, But also a partnership to market and help industrialize Plus the software package to select trucking customers, and there's a revenue sharing element to that. And in addition, there's also a collaboration to explore some of the other products we have such as mapping and insurance. And We've made good execution progress on the software side this year as well as commercial progress.

Operator

Great. Our next question, which we received a couple of times, when do you expect Luminar to be profitable?

Speaker 3

Nothing's changed from what we discussed at Luminar Day earlier this year. By the end of this year, we expect to be gross margin positive by the end of next You're profitable in our core business and by the end of 'twenty five, reach the company breakeven point.

Operator

Next question.

Speaker 1

We're on track to be able to do all of this consistently, yeah.

Operator

Great. Next question. How is Luminar performing against competitors like Innovus? Do their recent commercial wins with BMW and Volkswagen concern you?

Speaker 3

Yes. So look, we take all of our competition seriously, and we never underestimate anybody. But I wouldn't say that we're overly concerned about any competitor at Luminar. In fact, I think what we're Seeing in the RFQ process is really a narrowing of the LiDAR companies that the OEMs are seriously considering. The industry is in a much different position than it was 2 to 3 years ago.

Speaker 3

I think OEMs are smarter about the balance sheet And kind of excluding companies that don't have enough cash to survive for the foreseeable future and get through a development phase. But they're also if you're a lighter company and at this point, you haven't successfully industrialized your product or have multiple Wins with customers, I think that that raises a lot of yellow and in some cases red flags with our OEMs. And so We're seeing the crowd that the OEM seriously consider significantly be reduced. And look, our strategy At this initial phase was to be very targeted in the OEMs that we want to work with. A lot of times the business we win, it's outside of an RFQ Process is a one off because there is certain vehicle functionality that only our LiDAR can enable.

Speaker 3

There are certain other vehicle functionality, Whether it's a modest improvement in ADAS systems or low speed functionality, we're quite frankly, you don't Certainly need our LiDAR. And so those are a few processes. We deprioritize them and other LiDAR companies ultimately be successful. Our longer term strategy is to really win as many customers as we can in the industry. And that's going to be through the upgrading Of the LiDAR technology and the vehicle functionality.

Speaker 3

And as I mentioned earlier in the call, we're starting to see early signs Of customers upgrading, LIDAR selections they made in the past to our LIDAR in the next generation vehicle. So look, we always take our competition seriously. We got to go out there and improve ourselves on a daily basis. We got to continue to make our products better, smaller, cheaper and address our customer needs. But we see, I would say, the competitive dynamics continue to shift in our favor.

Speaker 1

And I'd say more generally there, by the way, I think sometimes people think of these competitive dynamics as like necessarily a bad thing. I mean, obviously, so we're a strong since we have more and are continuing to get more major commercial wins than everyone else in the industry combined when it's like AV and live companies from a partnership perspective more holistically. But we're not claiming to. And if we tried to literally work with every major company on the planet all at the same time, like that would never work either. So you got to place your bets.

Speaker 1

I think it's actually a good thing for the industry. Ultimately, like when people are successful, sometimes people are like negative on this, but like It's great. Now the question, you obviously have to deliver on that. And I think that's where obviously Luminar continues to stands out that You know, we do what we say.

Operator

All right. Our final question before we move on to the analysts. Is there any discussion or possibility of department Defense Applications of Luminar's

Speaker 1

Products. Yes, absolutely. And I think that you can already see And I wouldn't say I wouldn't even necessarily comment on anything specific there. But when you look at these different adjacent market types of Applications like the stuff we've seen for contracts that we've already been awarded or working with different Agencies like what was brought up with NASA, for example, it's very exciting to be able to see even for the semiconductor level, all the way up To the top. So, yes, if you want to add.

Speaker 3

And look, I think we're always going to be very thoughtful in how we approach the adjacent Markets, particularly with military applications. But what I would say, the vast majority Of the resources at Luminar in the near term are going to be focused on the passenger vehicle and commercial trucking markets. Yes.

Speaker 1

Just to be clear, all of our products are always built for series production, consumer vehicles and trucking like to the extent that There's applications there. They're on now from the breakthrough technologies that we create fantastic, but like that's full steam ahead. That's the thing that's going to turn Luminar into the $1,000,000,000,000 company at the end of the day, so we're not losing an ounce of focus on that.

Operator

All right. Thanks so much to everyone who submitted say questions. We're continuing to use that as platform to increase shareholder engagement. With that, let's transition to our analyst questions. We ask that analysts limit their questions to one initial one and one follow-up before hopping back in the queue for additional follow ups.

Operator

And with that, we're going to start our analyst questions with Samik Chatterjee at JPMorgan.

Speaker 4

Hi. Thanks for the question, Kai. This is Joe Cardoso on for Sonic Chatterjee. My first one is just can you elaborate on the comments In the slide deck around signing agreements with multiple new customers, to upgrade legacy LiDAR solutions to Luminar's next gen, what are the key drivers Of these competitive takeouts, do these takeouts include both hardware and software? And then maybe can you just touch on how material relative to volumes these takeouts are?

Speaker 4

And then I have a follow-up.

Speaker 3

Sure. As I said in my prepared remarks, there's been a couple of So far this year where we brought in new customers that are specifically upgrading their legacy LiDAR to our LiDAR for their next Generation, and we use kind of Plus in as an example of that. I would say if Mercedes is like also. Yes, Mercedes was kind of another example in the past. I think that that's a trend that we were expecting and we're And we're actually starting to see it accelerate, not only with some of the recent wins, but some of the discussions that we're having.

Speaker 3

It typically starts with I would say the hardware is typically our lead entry into the customers. And then once we get in, as you can imagine, We look to grow the products and services that we provide those customers over time. Look, we really haven't gotten into any Details of what those volumes are going to look like. We're confident that they're going to be material and Grow over time as we continue to get in there and execute and get more business and sell more products and services. But it has had a positive on our Impact on our order book so far this

Speaker 4

year. Thanks, Tom. And then my second question is more for you and it's around cash burn. How much of the cash burn reduction by 4Q will be driven from better gross profit outcomes as opposed to lower OpEx? And then thanks for the questions, guys.

Speaker 3

Yes. Look, I think you can kind of look at the there's a few different levels in there. I think it's not only the COGS improvements, And then you can kind of see what our gross loss was this quarter getting the profit back into an improvement from there. There are going to be some OpEx improvements, but the other levels are going to be the CapEx and the working capital investments, right? So during Q2, We had $13,000,000 of cash, additional cash needs relative to Q1 just because As you're launching these new products and these new facilities, you have to invest in those in that working capital to get Prepared for higher volume production.

Speaker 3

And so it's going to be a combination of all three of those things, call it COGS improvements, OpEx improvements and then What I would say CapEx and working capitalother improvements as you get to this SOP readiness and work through some of these launch related

Operator

Our next question will come from Mark Lipacis at Jefferies.

Speaker 3

Mark, you there?

Speaker 1

There you are.

Speaker 5

Yes. Sorry about that. The Tommy, you're talking about the order book On track, can you give us a sense of where that is today? Should we think about that linearly through the year? Or does that is that going to be kind of like Mostly in the Q4.

Speaker 3

Yes. Look, it's a step function increase with each piece of new business you win. It doesn't Kind of earlier or gradually through the year, it increases once we kind of have a new business We calculate it once a year. Just that's the pattern we've gotten into. We don't want to get into the habit Disclosing like, oh, the order book increased by this amount for each new piece of business, I think that there's a little sensitivity around the customers with each of that.

Speaker 3

Look, we've had order book growth so far. It's been healthy. I wouldn't say we're at the $1,000,000,000 plus that we promised, But we remain confident by what we've won so far and kind of what we expect to win based upon the active Discussions that we have that we're going to be at that $1,000,000,000 plus number by the end of the year.

Speaker 1

Which was our target, yes.

Speaker 5

Understood. And a follow-up if I may. On the software side, how far do you like ultimately Hope to go on the software side. Do you would you expect to it seems like some of the challenges are with software from your customers, It's a new technology and getting it integrated. I can completely understand the challenges associated with that.

Speaker 5

So is your in your view, do you have Like a hard line, we're going to stop here and then a customer picks up the ball here? Or do you ultimately say we're going to do everything and Make it just completely plug and play for your customer.

Speaker 3

And look, I think ultimately it's going to vary in our interaction With each customer and like a lot of things in life, you got to crawl before you can walk in and before you can run. And so there's the perception software, Which is going to be, I would say, something that we expect to be a fair amount of interest in there. That's something That I think our team continues to make great progress on. And then once you have the perception software, you have what we call the full stack, where you have to do the sensor fusion And then ultimately the decision making and path planning, some OEMs are doing it themselves, some OEMs are relying on third party Whether it's like an NVIDIA or Mobileye or Qualcomm, all of who we're aligned with. Look, I think, Mark, you've seen some of the news not only by our customers, Also, what the that came out last week with A delay in their L2 system and the software related on this.

Speaker 3

The software here is always going to be challenging and we're going to work with our OEM partners In different ways to make sure that ultimately the software does what it needs to fully unlock the capabilities of our LiDAR.

Speaker 1

Software usually ends up as harder than what people think. But I would say actually one interesting data point is that, yes, the majority of our Customers and partners are already using some of Luminar core software stack. And then that's where as we expand on that, like our goal is to build more and more content value with our customers and OEMs over As those different products mature, so just what we do with the LiDAR. And that's how you really like to choose the economics while at the same time making better, Safer, continuously improving cars.

Speaker 3

And then one of the benefits we have, Mark, and we're kind of real in this real time is Each OEM is trying to solve on their own their real and unique set of problems. We're working with several OEMs Now, I think as Austin mentioned, we're kind of close to a dozen major commercial wins. So, we're in there working with them. Sometimes the issues they're facing are unique, but There's also a lot of overlap. And so as we kind of get those scales and multiple reps, that allows us You know, learn a lot and share those learnings with our in our product development path to help our customers better.

Operator

Our next question will come from Emmanuel Rosner at Deutsche Bank.

Speaker 2

Hi, thanks guys. This is actually Winnie Dong on for Emmanuel. With Volkswagen recently taking a And more specifically, providing validation on this ADAS platform. Does it change or reaffirm the way that you're Engage with customers or how you're thinking about competition in that region? Just any latest thought, that would be helpful.

Speaker 3

Yes. Look, I think China right now is a very dynamic market. If you look over the last year or 2, there was A very fast and faster than the Western world adoption of LiDAR technology. And I think a lot of that, my personal hypothesis, is that it was driven by these new EV brands, the Is that it was driven by these new EV brands, the NIO, the Xiaopengs, the Artax, the Li autos of the world trying to differentiate themselves with a very savvy Chinese consumer as technology leaders. You then kind of had this price war earlier this year, which kind of I think brought a whole cost consciousness, value conscious aspect of that.

Speaker 3

And what I think you're starting to see is the adoption in a couple of ways. One is Some of these local EV partners realizing that in order to be more cost competitive, getting those partnerships with global leaders can help. But I think at the same time, when you look at the market share trends in China, the local brands have been taking share from the Western brands. And so I also think that there's an incentive from the Western brands to be more partnering. So I think having those two way partnerships It is can be mutually beneficial.

Speaker 3

And it's actually helpful to us, not only because it gives us another avenue, An entry point into that. And so we've made progress with some of the local brands. We have strategic partners in the region like eCARx, But having some of the Western brands partner with the local brands there, it gives us another entry point into the China market. We're always going to be smart in terms of who we partner with, particularly in the near term, but I think that's a trend that's helpful to us.

Speaker 1

This is the point why TBK is building this next big factory for us out there. And they obviously see the opportunity just this additional investment In Luminar, so that's really taking off as the global OEMs push in there. And again, like I said, I think it's something really special with Luminar that Our technology is meaningful enough where we're really one of the only Western companies that actually made our way in and, a generally unfavorable environment for Western companies in China, like have been able to actually make a big impact and difference, all right.

Speaker 2

Thanks for that. And then I was wondering if you can elaborate a little bit more on that First development contracts for the mapping software with the major OEM. What's the timeline? And then maybe like a bit more on the scope of the contract. Thanks.

Speaker 3

Look, I think it's a very positive development. And quite frankly, The fruit bearing from the Civil Maps acquisition is happening a little earlier than at least my personal expectations. But I also don't want to get I go into too much detail at this time, but I think if things continue to head in the right direction, It's something that I we hope to share at least more details at some point

Speaker 1

in the future. And I don't want to sound too head in the clouds there with this, but part of the whole driver and the vision behind it was to be able to create what could be the most comprehensive 3 d map of the environment in the world in real time when it comes to this level of LIDAR being deployed on 100 of 1000 of production vehicles, Consumers constantly driving them around. The amount of data that you get from that, what that can do in terms of creating a real time three d map is Really wouldn't be comparable to anything that exists today. So that's where it's one of those things that can just be like a ridiculous opportunity out on its own. But Like I said, we've got to take it step by step, but this is an incredible first step as part of that process.

Speaker 2

Thank you so much. I appreciate it.

Operator

Our next question will come from Josh Pokalter at TD Cowen.

Speaker 6

Hey, guys. Thanks for taking my question. I appreciate the color you gave in the prepared remarks about what's going on at Volvo, but I wanted to with the software, but I wanted to follow-up there. It sounds like There were some milestones achieved in the Q2. There's still some to go.

Speaker 6

They on the public call were saying that it's a Surrounding LiDAR integration, but that can very much mean it's someone else's issue that they're dealing with. Just any more clarity you can give us on what's going on with these software Engagement at Volvo and what's left to clear? Thank you.

Speaker 1

Yes. So it's good. And we're obviously in close touch when it comes to We'll vote more generally as it relates to the holistic program. And for that reason, that's why we didn't have it built into our economics For that timeframe. But when it comes down to it, I think we wanted to make sure to clarify that when it comes to our deliverables for The LiDAR system and software and everything, we're meeting the requirements and on track with that.

Speaker 1

That's why when we're saying for software deliverables, we Recently met a major milestone. I think when it comes to there's obviously a lot of different factors at play, and that's why Volvo kind of issued that corrective statement thereafter. But more generally, I think, like I said, building software for new game changing EVs is hard. And like I said, It usually takes more time than people think. I think we obviously see other examples from certain other companies that have taken like years longer than They would have expected to.

Speaker 1

I think Volvo actually has one of the most advanced teams in this respect alongside Mercedes, I think also has one of the most advanced teams in the Doing this kind of work. So they actually should be pretty well off. But it's a tough challenge. So that's where when it comes to the holistic vehicle. But I think the important part is for us, like I said, we have a dozen different major commercial programs that we're working with.

Speaker 1

So we're not Slowing down by any means on any of it to be able to make sure all of it is successful. So that's been good. And yes, an important point of clarification.

Speaker 6

Yes. No, got it. Thank you. I appreciate the color there. And then as my follow-up, you have the $1,000,000,000 order book and you're sort of generating For revenue or orders in a bunch of different avenues like insurance, software, mapping, etcetera.

Speaker 6

Is the order book growth still overwhelmingly over indexed to your LiDAR hardware sales? Anything you can help us on granularity of your Expanding business engagements. Thank you.

Speaker 3

Yes. So, Josh, the order book at the end of the year was $3,400,000,000 and the $1,000,000,000 is Growth we expect this year. Look, I would say it remains overwhelmingly weighted Towards hardware today, but I would say the percentage of it that software continues to grow.

Speaker 1

And I think the important part is like The LiDAR is the in with these customers and we're continuing to expand the value. And that's where we haven't heavily weighted or we've been, I think, very Generally very conservative in counting these other areas at this point. Like we're not counting parts of like insurance or mapping or other stuff yet like in the Order book. I think when we start to see some like major large scale wins on those fronts, then we'll start Adding it in, but we want to be very conservative. And that's why or I see the most conservative with our order By far in the industry as it stands and how we calculate that right now.

Speaker 3

Hey, Aileen, I know we're at 6 o'clock, but why don't we go A few minutes over to get a few more questions in.

Speaker 6

Thanks, guys.

Operator

Sounds good. Our next question will come from Kevin Garrigan at Westpark Capital.

Speaker 1

There we go.

Speaker 7

Hey, guys. How's it going?

Speaker 3

Well, Kevin. Yourself?

Speaker 7

Not too bad. So thanks for letting me ask a question and congrats on the progress. I just had one kind of multipart question. So a few of your competitors have kind of noted that Some RFQs are in the final stages and we could get a decision kind of by the end of the year. And I know you guys talked a little bit about the RFQ process and being targeted in a previous question.

Speaker 7

So Just kind of wondering, are you guys also in the final stages with some of these RFQs or are you kind of not focused on these programs? And then are you kind of taking a little bit of a different approach where you talked about a little bit with Mobileye and NVIDIA where you're kind of leveraging your partnerships with them Lot more to kind of give you an upper hand when speaking with OEMs?

Speaker 3

Yes. So I'll take the second part. Yes. Look, One of the benefits of being the reference ladder in the Mobileye and NVIDIA platforms and part of the Qualcomm system, It gives us another bite at the apple, right, multiple avenues to go to the OEMs. What I would say though is that we are not dependent Upon them to go to the OEMs.

Speaker 3

In fact, we're talking to all the customers we want to do business with. We're out there talking to them ourselves at the same time that Our system partners are talking to them. And so we try to get to the customer any way that's possible. Look, I saw some of the commentary on other calls around the RFQ process, look, we're seeing a lot of the same things here. I would say a lot of the commercial activity that we're having too Is one off and what I would say outside of the RFQ process.

Speaker 3

I'm not going to speculate on the timing Of any of these decisions, the OEMs are going to make them at this point. But what I would say is, over the last couple of months, we have seen an acceleration In some of the RFQ and RFI activity and some of the one off conversations that we're having with our customers?

Speaker 1

Well, I think maybe you said It's more like 1 to 1. The majority of the wins that we have had in the major commercial wins have not gone. It's like not through some Like commodity procurement process here, it's basically OEMs come to us to be able to solve the problem and we're sort of that default Because it's one thing about it's another thing about in terms of the scope of capabilities, like obviously it's sort of an order of magnitude greater than what Really people have seen in the industry and landscape. So, but listen, it's not stopping us from doing this. But We always have to ask ourselves again is like, what is the end goal of what we want to achieve out of these different programs?

Speaker 1

What is the actual opportunity that is Realistic and of course considering the factor of how likely is it that such program is going to make it to fruition. Because as you know, we've seen a lot of programs that Maybe had a good press release in it, but didn't actually end up happening. So we're in this for the long haul. We have to make the right bets and that's the most important thing and I think we've really done that so far.

Speaker 7

Okay. Got it. That makes sense. Awesome. Thanks, guys.

Speaker 1

Thanks, Kevin. Thank you.

Operator

Our final question comes from Itay Michaeli at Citi.

Speaker 1

Great. Hi, everybody. Just two quick ones for me. First, I know that the mid decade target, the 1,000,000 units by 2026, 2027 was on existing customers. So given some of the traction you're reporting today with new customers, do you see any potential upside now to kind of those mid decade targets?

Speaker 1

And then secondly, I was hoping we could get a bit of an update on the insurance business and kind of how that's going.

Speaker 3

So first, yes. So the if you remember what we Back in Luminar Day, I think if we had that $1,000,000 target $26,000,000 $27,000,000 I think exactly when we kind of hit that depends upon if everything Hits the SOP timetable that our customer has, it will be 26. If there's a little bit of a delay, you'll kind of be in the 27. We had about 75% of that awarded to get to that $1,000,000 That number has gone up. And No, I'm not in a position today to kind of update that number whether what percentage are booked or that 1,000,000 But I would say that the percentage awarded has increased from some of the success we've had so far.

Speaker 3

And I'm in fact based upon the discussion for having increased further by year end from where we are today. On insurance, Look, we kind of had a great update on a lot of things on the Q2. We'll talk more about the insurance point and given an update there at some point in the future.

Speaker 1

I think it's fair to say of the new initiatives that we've had or some of the Things that people are skeptical of, but I can't pull it off. Obviously, the LiDAR, we're crushing it, but when it comes to software AI, we're making it happen. It comes to mapping, we're making it happen and great results. When it comes to semiconductors, absolutely crushing it. When it comes Insurance, that's obviously a newer program that we have.

Speaker 1

And as we're already making great progress with Swiss Re on that, that I'm sure Tom will also be more excited to talk about for the future. Sounds great. That's all very helpful. Thanks, everyone. Thanks, Itay.

Speaker 1

Thank you.

Operator

Fantastic. Well, that marks the end of our analyst queue and the questions. I'd like to thank everybody for sticking around and participating in the call. For the analysts that asked the questions and for the investors and other folks who've joined us, we look forward to talking with you next quarter.

Speaker 1

Thanks, everyone.

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Key Takeaways

  • Luminar remains on track to meet or beat all 2023 milestones, including high-volume starter production by year-end at its new Mexico facility and a partnership with TPK to build a high-volume factory in Asia, bolstered by an additional $10 million TPK investment.
  • The product roadmap is advancing as planned, with Iris Plus C-phase validation now underway on a lead OEM’s vehicles (100,000+ km tested), on-schedule software deliverables for Volvo and Mercedes, and a next-generation LiDAR prototype targeted by year-end.
  • Commercial momentum continues with over a dozen major OEM wins—Polestar 3, Nissan’s mid-2020s Advanced Intersection Collision Avoidance, Mobileye iDrive deployment and exclusive LiDAR supply for Plus autonomous trucks—driving an expected >$1 billion growth in the forward order book for 2023.
  • Through Luminar Semiconductor, the company has taped out custom ASICs for lasers, receivers and processors to improve performance, cut costs and support future generations of LiDAR, while also winning non-automotive contracts (NASA Tipping Point, fiber-optic and AI data center applications).
  • Q2 revenue was $16.2 million (up 63% YoY) with sequential non-GAAP EPS improvement and $366 million in cash, and the company reaffirmed full-year guidance for 100%+ revenue growth, positive Q4 non-GAAP gross margin, >$300 million year-end liquidity and a 50% reduction in free cash flow spend rate.
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Earnings Conference Call
Luminar Technologies Q2 2023
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