Luminar Technologies, Inc. (LAZRQ) Earnings Call Transcript & Summary

Good afternoon, everybody, and thank you so much for joining us for this session with Luminar as part of Deutsche Bank's Global Automotive Conference. My name is Emmanuel Rosner, and I'm the senior U.S. autos and technology analyst at Deutsche Bank. Luminar is a lidar technology company founded in 2012 that has partnerships with many of the top global OEMs and around 7 production contracts with delivery starting next year with Volvo and SAIC. I'm very pleased to be joined today by Tom Fennimore, the company's CFO, for a fireside chat. So the format for this session will be exactly that Q&A with questions that I prepared but also questions from all of you on the call. [Operator Instructions] So with that, very happy -- thanks for being with us. Very happy to have you here.

And maybe as a place to start, earlier this week, you hosted the Luminar Studio Day in New York, where you demoed your system in action and also shared the latest about your progress towards autonomous vehicle. What is the main message or main messages investors should take away from it?

Sure. And Emmanuel, thank you for having us here today. And as you mentioned, we had our first-ever Studio Day yesterday. And the catalyst for that was really 2 things. First, now that the world is starting to reopen post-COVID and now that we actually have our Iris unit ready to go, as we mentioned during our earnings call back in May, we started producing our Iris down at Celestica, our contract manufacturing partner. So we've done B-samples so far in Orlando. We're now getting our Celestica, our contract manufacturer partner, up and running. And by the end of this year, we're going to be producing C-samples at Celestica for our initial contracts that were expected to reach SOP by the end of this year. But what we've been able to do is we integrated our Iris unit seamlessly into an existing vehicle. And we started last week down in D.C. in Baltimore. We're in New York now. We're heading up to Boston later today. We'll see you for lunch on Friday. And what we're really doing is giving our customers and our investors an opportunity to really see how the Iris unit seamlessly integrates into existing passenger vehicles as well as ride them around real time to show the quality and the real robustness of our system and the data that collects. And it's been a great reception so far. In Studio Day, we thought it was a great opportunity to be the platform for us kind of being back in the real world again and doing kind of like the old-fashioned physical non-deal roadshows as opposed to relying on those video chats that we've all been accustomed to over the last year. The second thing is as we step back and as we think about what is important for autonomy and particularly, autonomy for series production. And we spent a lot of time talking about, since we becoming a public company, the first 2 of the 3 things you need to do well. And that's really getting the technology right. And we've talked about how you really need to do about 15 things all at once. You can't just do 1 thing in optimal conditions. You need to do 15 things all at the same time in all conditions. And so I think we've done a good job talking about technology, and we have the series production in major commercial wins from very credible customers that really credentialize our technology. The second is, not only do you have to do the technology at the right -- in the right way, you have to do it at the right price point, and you have to do it in series production scale. And we've been able to get our price down to a point where our customers are willing to have a very credible business case to put it on their vehicles and get the consumer, the end consumer, to buy this. We've already talked about getting the series production in scale, and we're well on the way to an industrialization plan. The third area is one that we really haven't spent a lot of time talking about just yet. It's very important in the conversations with our customers, and that's really the design aspect of it. And people today, including our customers, have this vision of autonomous vehicles that almost looked like -- I had 1 person called these LEGO cars. And if you think about the autonomous vehicles that you see riding down the street, they have these large brackets on the roof. They have multiple sensors up there. And frankly, it doesn't look like anything that a reasonable car buyer would want to buy. And we initially worked with Volvo that integrated lidar seamlessly into our group. And then we've really worked with a design firm to help show what the art of the possible is not only for the passenger vehicle market where you have 1 lidar facing forward, but also in the commercial truck market, and we'll talk a little bit more about that in a second, as well as robo-taxi market in terms of you can actually have a rather sleek-looking design that make these vehicles a lot more visually appealing. And we started working with this design firm last year. And the catalyst for this was we were talking to 1 of the chief engineers at 1 of the leading global automotive OEMs. And they said, "We really love your technology. I really appreciate what lidar can do. But every time I approach the idea of putting a lidar on the vehicle with my chief design engineer, I get thrown out of his office." And so what we did is we said, "Look, let us take your flagship vehicle. Let us work with what we think the art of the possible could be to integrate this in a visually appealing and actually, we think a very pleasing visual design." And so we did that. We had the markup of the drawings that we all get used to seeing for initial vehicle launches. And we shared it with the chief engineer who shared with the chief design engineer who said, "You know what, this looks pretty good if you can do it that way." And so that's an aspect of it. As you talk about commercializing this technology that I don't think we've -- we or really any company has really talked about in the public realm. And so what we wanted to do was start educating the investors as well as our customers of how to be thinking about the right design opportunity as well. The other thing I kind of wanted to talk about here a little bit more with Blade and really how that fits in there is really the opportunity on the commercial truck side. And what Blade does is it allows the Iris units for commercial trucks. And for passenger vehicles, right now, we're talking about 1 center per vehicle configuration. For the robo-taxi and the commercial truck, it's more 3 to 5 because you have a much bigger geometry, and our sensor looks 120 degrees, and really, to get the full surround sound or surround vision, you need 3 or 4 to do that. And so what we've done there is really come up with what we call this Blade product for -- particularly for commercial trucks, which fit right above the roofline, doesn't impact the aerodynamics of the vehicle. It's, we believe, an adaptable product to add on into the aftermarket. And particularly for the commercial trucks where our technology can significantly improve the safety of the vehicle, we're seeing interest from the commercial truck fleet owners as an add-on, where they can bolt it on to existing vehicles. So not only are we working with truck OEMs to put it on new trucks being built like Daimler Truck, we think that there is a good aftermarket opportunity there for the fleet side where we can improve the vehicle safety, driver productivity. And so it's something, quite frankly, that we're excited about. And this is something where we can leverage our Iris design, leverage the manufacturing system that we're putting in place for our initial launches with Volvo, SAIC, Mobileye, et cetera. And then we can take that integrated into this Blade feature and start selling really an aftermarket product in the commercial trucking opportunity. And so it's something that we're excited about. And quite frankly, showing out there with a real physical car how this looks and then combining it with what we talked about at Studio Day here, really trying to change how people perceive autonomous vehicles. They don't need to be ugly LEGO-looking cars. They can be sleek and rather enjoyable to look at.

All right. That's exciting. Thank you so much for the -- thank you much for the overview. So I guess, taking some of these things in sequence, where are you tracking on the path to mass production and commercialization?

Sure. And so the ultimate end goal is for SOP for series production by the end of next year. That's the time line on -- that we're on with several of our customers. We kind of laid out our industrialization plan that we talked about earlier this year. We're ramping up Celestica. We're ramping up Fabrinet. We're finalizing the very specific design that's going to be going into our initial launches. And that's going to culminate on the hardware side with C-samples being produced at Celestica by the end of the year. Concurrently, on the software side, we're trying to get an alpha release of our Sentinel software product suite by the end of the year as well. We recently received our license to start testing our cars on the public roads over in Germany. And so we're working hand-in-hand with Zenseact, which is Volvo's autonomous software arm, which is based in Sweden. And so last year, we actually hired the autonomous software. We did an acquihire of the autonomous software team out of Samsung. We're building a sizable software presence over in Germany, which is going to support really the joint development we're doing with Zenseact on the software side there. And so the 2 big items that we need to achieve this year is on the hardware side, C-samples at Celestica by the end of the year, and then Sentinel getting the alpha release by the end of the year. We do that. We're going to be on track to meet our SOP by the end of next year. On the commercialization front, we're making great progress there. As we talked about on our recent quarter release call, we were expecting 3 major wins this year. We were expecting about a 40% increase in our forward-looking order book. We've had much better commercial momentum than we were expecting at the beginning of the year. And so we told everybody that we're going to be updating that guidance of 3 major wins and 40% growth during our next quarterly earnings call in August. And what I would say is the business momentum continues to remain very strong, if not even stronger than what we talked about in May.

All right. That's great to hear. And I'll definitely come back to that as well. And then just going back to the Sentinel. So I guess, can you just go back and explain the merits of this partnership? And just so I understand better, the -- by the time you start production late next year of some of your commercial contracts, does -- is Sentinel going to be part of that? Or this would be for different contracts?

Yes. So Sentinel is going to be part of the initial Volvo launch as well as there's a couple of other customers that are going to be using our software package as well. And if you step back and you think about the software that is needed to enable the functionality that our lidar is enabling on production vehicles, it's really the Proactive Safety and the Highway Autonomy. And so the first level of software that you need is the perception software. And that is really taking the output of our lidar, which is the point cloud, and then translating that into effectively object identification and object tracking. So it's basically this cluster of lights is a passenger vehicle, 130 meters out. This cluster of light is a pedestrian standing on the side of the road, 200 meters out. This cluster of light is a tire on the road, 250 meters out. And so we call that our perception software. That's something that we're -- we've been developing in-house by ourselves for the last few years. And that's something where we expect to see a fair amount of demand from almost all of our customers because when we sell them a lidar hardware, we can also sell them the perception software, so that the OEMs don't need to go out and develop it themselves. And as we get more and more data and as we get more and more lidars on our vehicles, that perception software is going to continue to refine itself over time. The next level there is then taking basically the output of the perception software and then integrating it and infusing it with the output from the other sensors on the vehicle, whether that's camera, rate or what have you, and then actually doing the decision-making and path planning where you actually tell the vehicle what to do. So in the Proactive Safety, that's kind of like the traditional ADAS systems but on steroids, just given the much richer data of our lidar. And then for the Highway Autonomy, it's actually having the car drive itself autonomously and determining there what precisely the vehicle can do. And so that is an area where we're working with Zenseact. So Zenseact, as I mentioned earlier, is Volvo's autonomous software team. They have several hundred people based primarily in suiting that is developing that. We're supporting that development. And then basically, that full stack software system that will be going on the initial launches of -- for the Volvo vehicles, we then have the right to license that from Zenseact and sell that to other automakers. And we would expect and we're seeing early signs of demand of that, particularly from the small- and medium-sized OEMs because this is where you need a few hundred people software team. You're going to need a several hundred million dollars, if not billion dollar-plus, investment, and you're going to need several years to develop this software full-stack system. And if you're a small- and midsized OEM that hasn't built out those big software teams yet, that haven't invested heavily in autonomy yet and you don't want to start losing market share to Volvo and the other customers that are really going to launch in that 2023, 2024 time frame and you want to get to the market quickly, your really only choice is to use this software package. Volvo's comfortable with us doing it because, once again, it's a way to make for them -- they're not giving us that license for free. There's a revenue-sharing agreement. But it's a way for them to kind of monetize their existing development. But their really OEMs are going to be much more comfortable buying from us as part of an integrated lidar perception and full-stack software capabilities. And then, look, each OEM is going to want to custom tailor that to their own individual needs. But you're going to have a good foundation there, which our software team are going to be able to build upon. Going back to what you asked, there is going to be a version of Sentinel ready to go when these first Volvo cars start rolling off the line around the end of 2022. But there's going to be the full capabilities of Sentinel. They're going to continue to grow over time. And so there will be -- in 2023, there will be limited functionality. These cars need to be on the road for a period of time collecting data, continue to refine itself. And then much like what Tesla does, you unlock that functionality over time with OTA updates. So both perception and Sentinel are going to be constantly evolving software suites. They're going to be constantly evolving with new functionality that we add. And it's going to be constantly evolving because as these production vehicles are on the road, driving themselves, collecting data, we're going to continually refine the software and evolve the software as we learn more from those real-life experiences.

Okay. That's very clear. Let's pivot maybe just to your order book. And so you already announced 3 new business wins this year, which was your initial target for the year. And then you said that you plan to raise your year-end order book target beyond the initial outlook at the next earnings call. What exactly has been playing out better in the first part of the year? Is it the win rate versus competitors? Is it the speed at which some of the contracts have materialized? Is it the size of the volume -- the productive volume on some of these contracts? I guess what's playing out faster or better?

All of the above. So the first piece of business you win in this space is the hardest. The first customer, in our case, Volvo, that you need to convince that your technology works and you should put it on your production vehicles and design your autonomous systems around there. You -- Volvo really did a lot of due diligence on us, really analyzed our technology, really tested it before they got comfortable. The second one, a little easier, not much easier, right? It helps when Volvo says they're comfortable using you. But the second and third ones are almost just as onerous of a process as it was with Volvo. Once you start getting -- now that we're kind of like a 4, 5, 6 and 7, and if you actually look at where Luminar is today versus where we were a year ago, so a year ago, we were still in the startup phase, I would say, in terms of how customers perceive us. We were still a private company. I guess technically, a year ago, we just announced Volvo, but I would say that was still a relatively new event, and it was only 1 win. And we were still in a fundraising cycle typical of private companies where you would raise money 12 to 18 months in advance. And then if you hit your business plan, you rate -- you do your series C, D, whatever round you were on. And for OEMs where not only does it take them at least initially up to a few years to vet your technology, once they then select you, it takes 2 to 3 years to actually design the car. Then it's in series productions for 5 to 10 years. And then you have to have several years after that for aftermarket support. And so when an OEM selects a supplier, it's really a decade-plus commitment. And OEMs, I think, have a very negative bias against working directly with startups, and they're only really willing to do so if their technology is very compelling. If you fast forward to where we are today, well, we now have 7 major wins, a lot of momentum. We've established a reputation, I think, as the technology leader, and we have folks like Volvo, Mobileye, Shanghai Auto, Daimler Truck that have kind of selected us and adds a lot to the validation. We have -- we ended the quarter with a little over $600 million of cash on the balance sheet, which is enough to execute on our plan with a cushion. And we now have a multibillion-dollar market cap. And in our minds, we're now, I would say, you have to talk to us if you're launching an autonomous program, just given the roster wins that we have so far. We have the resources to execute on our plan, and we have the liquidity where we're going to be around for a very long time. And so it's a much easier conversation for us to have with our customers. And I would say that quoting period before they're willing to work with us has declined as a result. We've also seen, I would say, faster-than-expected interest in China. We're cite in Pony.ai, quite frankly. Those were opportunities that weren't in our business plan when we went public back in August. China is moving extremely quickly. Those are 2 opportunities that materialize a lot better than we expected. And then here's what I would say is our initial wins with customers tend to be options on their high-end platforms. But as they invest more and more resources into developing autonomous systems around our lidar, it becomes much easier for them to deploy those systems across more and more vehicle programs in the platforms. So you combine those 3 things together, and that is resulting in a lot better commercial momentum than we were expecting at the beginning of this year.

Okay. One -- a couple of follow-ups from investors. The -- so the 7 wins that Luminar has announced so far, are they all for Level 2+ systems? Is it highway only?

Sure. So most of our wins so far are for the Highway Autonomy. At Luminar, we think that the industry provides too much reliance on L01, L2, 3, 4, 5. We now even have these L2+, and now I've even heard L2++. We kind of look at the world as 1 of 2 ways. You're either autonomous, i.e., the vehicle is driving itself, eyes off, hands off, driver completely out of the loop; or it's more assisted driving. The technology is helping the consumer drive the vehicle and the driver is engaged. So we kind of look at it as first-level autonomous or assisted driving or ADAS. The second level is what is the operating domain? Is it highway? Is it suburban? Is it urban? Is it everywhere like the robo-taxis? And so then we look at like where is the technology being deployed. And then the third is what is the type of vehicle? Is it passenger vehicle, commercial truck or robo-taxi? And so I would say the interest that we're really seeing from our customers and what our lidar enables that no other lidar can is this Highway Autonomy. And it's really Level 4 on the highway. This isn't like some of the existing systems where you got to keep your hands on the steering wheel or keep engaged. This allows the driver to be completely out of the loop. Concurrently -- so that drives us getting in the door and having their customers develop their autonomous systems around them. Concurrently, what's going to drive what we call standardization and us being on every vehicle that our customer produces, whether that's over a specific platform or vehicle program or over every vehicle they produce, whatsoever, is going to be what we call our Proactive Safety. And this is really taking the existing ADAS systems today, adding a lidar, and it's an order of magnitude improvement into the safety of the vehicle. This will result in significant safety improvements, which will result in significant insurance savings. And those 2 things are driving what we're seeing as the demand for the Proactive Safety. The same lidar that we sell enables both the Proactive Safety as well as the Highway Autonomy, so you don't need to change the hardware in the vehicle to do either. All it is, is software-enabled functionality. And so you can start off as Proactive Safety and then upgrade to Highway Autonomy being over-the-air update or selecting that trim package when the consumer initially buys a vehicle.

So I guess, going back to it, so the 7 wins, these are all -- I mean, in some cases, would start as assisted driving and then essentially are meant to be able to improve functionality to the equivalent of Level 4?

What I would say is all 7 of these wins have a lidar going on them, which can enable either the Highway Autonomy or the Proactive Safety, depending upon what the customer wants to do with the software functionality in there and what the consumer ultimately decides to buy as part of the trim package, if it's not standard.

And when you were talking about Level 4, that would mean nobody in the seat. Is that really what we're talking about?

I thought -- once again, this kind of goes back to -- I see one of the questions here in the commentary going to everybody has a different definition of Level 4. This is one where the driver is completely out of the loop, hands off, eyes off the road. Driver doesn't need to be engaged. System is driving itself. If the driver wants to take a nap, they can. If they want to be watching a movie, they can. This happens on the highway. So here, the driver drives him or herself on the local roads to the highway. And then if you want to get on I-95 to go from New York to Boston, the car effectively drives itself. And then there's a predetermined hand-off when it's time to get off the exit to go to your local routes.

Okay. And then for the -- I think you also mentioned 14 programs you're in advanced negotiations with. I guess what is the time line for those to get sourced?

It's going to vary by the individual one. I'd say 2 things on the 14. So one, it's very important for us, Emmanuel, to successfully launch these initial contracts that we've won, and they're really going to be at that end of 2022 to end of 2024 time frame. We have to be careful to not bite off more than we can chew because we can't stumble on these initial launches. And the customers that kind in to make a bet on us in the early stages, we kind of owe it to them to make sure that we deliver on the right amount of resources to launch these successfully. And so we're purposely not growing that 14 number just because we don't want to distract ourselves with chasing too much new business at the expense of executing on the business that we've won. And so the way that we see this is each of these 14, we see as opportunities to convert to additional wins over the next 2 years. It's difficult for us to predict how that is going to progress on a quarterly schedule because it's dependent upon our customers. So this isn't like, hey, we know for a fact that Ford is going to be launching a refresh of its F-150 pickup truck on whatever quarter. This is -- we're testing the systems for autonomy. We're incorporating your lidar in there. We're doing our tests. And when we get comfortable to launch this, that's when they'll make the decision to convert that into a series production program.

When do you see the automotive market inflecting in terms of lidar penetration? When can we start seeing contract wins for mass market vehicles or brand and large-volume platforms?

Sure. So 2022 to 2024, we think it's going to be more the initial launches. And as I mentioned earlier, what we're seeing is they tend to be options on the high-end products. And it's more being led by what I would call the luxury market and the high-end EV market. Our products can work on both the traditional gas engines as well as electric vehicles. But in our conversations with our customers, as I'm sure you're aware, there's a lot of capital being deployed to launch new EV programs. And as part of that, kind of putting the cutting-edge technology in there to drive consumer demand is important. And so if a customer of ours is investing a lot of money to launch a new EV program, adding that incremental cost to put the cutting-edge AV programs on it is going to be important. That's one of the reasons that kind of site came to us with their new EV platform. They wanted to launch something that could compete against Tesla and Nio in the -- particularly in the local China market, and adding Luminar technology to them was very helpful in terms of branding them as a technology leader. What I would say is in terms of like the price point right now that we're seeing on the EV and the luxury kind of support that initial ASP that we have for our lidar in the $1,000 plus or minus range. We're hoping by the middle part of this decade, if you go back and kind of look at the projections that we included when we went public last year, by the end of 2025, we expect to have almost 1 million vehicles with our technology on the road. That is going to give us significant economies of scale. There's kind of a next-generation lidar that we're working on that is going to bring our BOM down, but you can find those 2 things from that $500 range to that -- we're targeting $100 range. At that price point, you can then start putting this on mass market vehicles, particularly if the safety improvements that we expect start to become intangible and regulators start to notice. And so I think we're starting to see some interest from, I would say, outside of the luxury and the -- some of these high-end EVs. We're starting to see, as we mentioned earlier, interest from standardization. And I think once we start getting to the middle part of this decade, this technology is going to prove itself out to the point, and we think we're going to get the cost down to the point where we're going to start to see mass market producers start putting us on some of their vehicles shortly after the middle part of this decade.

All right. So then maybe just one final one because I think we're running out of time. Let me ask you some question on Tesla, if I may. Tesla appears to be doubling down on the pure vision approach, even eliminating the use of radar altogether. Then at the same time, obviously, there's like these -- all these -- I mean, I guess, these Tesla vehicles have been spotted using your lidar. So first of all, why do you think Elon believes so much into the vision only? And then what exactly are they doing with your hardware?

Yes. Look, what I would say there is I think that that's -- it's a great question. I'm happy to answer any questions on Luminar. I really don't have anything that I can share on what Tesla's strategy is or what they're up to. I've seen all the public comments that Elon has raised around lidar, et cetera. Look, we think the data of what our vehicle is able to produce in terms of what it's able to collect, the sensors, we think it speaks for itself. And so if anybody wants -- if any customer wants to come to us in a series about testing and utilizing our sensors to eventually put on a serious production vehicle, we're always happy to work with our customers as long as there's a credible opportunity to convert those onesies or twosies center sales for testing and development in the series production wins. Right now, just given what we have in front of us, the wins we've had so far and the resources we have, we're focused only on selling to customers that fit 2 criteria. One, they're major industry players, right? Second is, it has a serious incredible opportunity to lead to a series production win or another major commercial opportunity for a company like bubble. And so great question. I don't know if Tesla is presenting at your conference, but I would suggest you ask them, and I'd be very curious to hear any answer you were able to get from them.

All right. We will bring that back to you, that answer.

Okay.

Thank you. Thank you so much, Tom, for all the time and insight. Very much looking forward to check out the car and the technology on Friday in Boston. But really appreciate your participation. And thanks, everybody, for joining this call and for submitting your questions. Take care.

Thanks, Emmanuel. See you on Friday. Take care.

Thank you.