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

Okay. And I think we are live. Welcome to Credit Suisse's 9th Annual Industrials Conference. We are -- this is our -- the last session of the autos track and very glad to have with us Luminar. We've had a number of new mobility players join us, and Luminar is one that most of you have probably heard of. Luminar focused on lidar, specifically on the automotive space. And we have with us today Austin Russell, the company's Founder and CEO; as well as Tom Fennimore, the company's CFO. I believe Trey Campbell, who leads Luminar's IR efforts, is here as well. So we're going to go through a series of questions, fireside-chat style. Anyone who has questions, please feel free to e-mail me, dan.levy, [email protected], and I'm glad to weave in your questions anonymously. But otherwise, Austin, Tom, thank you so much for joining. And I think, Austin, you have some brief opening remarks you wanted to make.

Happy to help give a quick overview with the company for those aren't familiar. But yes, thanks for having me and Tom as well, good to be part of it. You guys have got a good thing here. So -- but yes, the quick 30-second overview about Luminar, founded the company newly about -- well, approaching 10 years ago now. Vision to be able to make a new type of sensing system, primarily to part of the autonomous vehicle space and really enable it to go from test and development and actually make its way into production. So focused really deeply on the core requirements, what's needed to make this happen, built all these core components from the ground up just in the sense that it was -- there was no way to build the level of capability that was needed, much less at the economics, the scalability, using off-the-shelf parts. And there's a lot of different ways you can build a lidar system. But given that this is a fundamental foundation for autonomy, and there was no other way to achieve the level of capability. Went all in to create our own components, brought on hundreds of specialized engineers, required hundreds of millions worth of investment over the course of the first handful of years of the company to really be able to get to that technology to the first stage, where it was. What -- we came out of stealth mode in 2017, where we showed off to the world what was possible and the first time that somebody could meet that spec. In parallel, we've also worked on software developments to really power a full-stack autonomous solution and next-generation safety solution for the industry. Again, we've had a particular focus on the consumer vehicle market, in particular, for series production in addition to trucks. This is in contrast to most other autonomous vehicle companies that have had to focus on generally the robotaxi world in urban autonomy, which we think while very promising, is a much longer journey ahead to be able to get the technology to work, much less at any appreciable scale. So basically taking those for what you see between the Waymo, Cruises, Auroras, Argos, everything, you see these $100,000 roof [ retractable ] sensing system and a supercomputer in the trunk. And that's something that basically we've had to condensed to this auto-grade, series production, high-performance lidar sensing system that's compatible with the series production vehicle architecture and the scale that's needed to do that and the costs that are needed to do that, basically taking it to more in the order of $1,000 or less, and being able to work with some of the largest OEMs to make this happen. So we're now working with the -- and partnered with the majority of major automakers, so -- of which have already gone out to announce series production plants as well as another major technology players in the space. So everyone from the Volvos to Daimler Trucks to Polestar to SAIC to other leading automakers that are -- that we're working with, and ultimately, will go to series production. And then on the tech side, we're working with the top 2 now leading platform providers, including folks like Mobileye and NVIDIA, which is has been great. The NVIDIA one is recent among a number of other major ecosystem partners and players along the way. But that's the focus. We'll really be the first company to truly enable autonomous capabilities out on real roads and in series production. And we're proud to be leading the charge. Obviously, a lot left to do, a long ways to go, but we think we're off to the best start and best positioned to really make this industry happen.

Great. That's a helpful introduction. So why don't we just start, and maybe we could sort of go big picture. And I think you've laid out a number of milestones this year demonstrating your growth in commercial endeavors. So one thing we've been asking folks is you'll have your 4Q earnings call, you'll lay out your 2022 milestones. But maybe we could just get a sense for what are the things in the next 12 months, the type of progress we should expect that helps you to bridge to a state of full commercialization where you're ramping programs?

Yes. I think...

So big picture, what are the key targets points? Yes.

Yes, yes, yes, absolutely. I mean at the end of the day, that's really important to be able to understand how you measure success for somebody like us because obviously, it's not EBITDA on day 1. It's about the opportunities, about the market. It's about the technology more than anything in terms of how you're addressing this. And if you're successful, I mean, this is obviously what overall going for in this $1 trillion market opportunity. Then the question is that, how do you successfully realize that? And in what time frame can you make that happen, and obviously, ultimately, the margins that you have with that? But that said, we're 100% all in on focus as being the leading player to really make this space happen. And from a milestone perspective, that's why we found it very important to be able to lay out, like what are 5 key milestones. And this is what we laid out at the beginning of the year. If we were to look back at the end, I think that this was an awesomely successful year, and we had breakthroughs along the way. And that was everything from commercial and major commercial win milestones to product milestones and other financial milestones. We've since met or beaten all of them. In fact, we've actually either met or beaten even ones that we raised guidance on like commercial wins midyear. And I think that was a surprise to many, that it's like, "Wait a minute." Like I think the headline was "A de-SPAC-ed company raises guidance?" So that's -- there's something to be said about that. But we're only continuing to accelerate it and driving this forward at a pretty dramatic pace of growth. But that said, I think Tom would be someone to ask here, if maybe you have any more commentary about the specific milestones and how we're thinking about next year.

Sure. And Dan, I think as we're thinking about next year, the -- I would say the overarching philosophy that we have for creating longer-term value is, one, we have to execute and reach start of production. And so we've said publicly by the end of next year that we want to hit the SOP, not only for our hardware product and our software products. So that's going to be the most important goal that we have next year. The next one is going to be to continue to make commercial progress, winning new customers and new programs, and also growing our forward-looking order book. And then the other one is we want to continue to be disciplined in our cash spend. We're going to invest in our business, but we want to make sure that we're doing it in a disciplined way. The other thing that we're going to start doing is really ramping up our manufacturing capacity, not only making sure that we reach SOP in 2022, but making sure that we build out the capacity that is required for series production in 2023 as well as 2024. We've said publicly that the commercial activity that we're having is a lot better and a lot higher than we were expecting. Our pipeline of the programs we're working on continues to remain the highest it's been in Luminar's history. And what I would say here is the feedback we're getting from our OEM customers for the demand that we need to be prepared to deliver on in 2023 is a lot higher than what we were expecting several months ago. And so building out that capacity for 2023 is going to be another very important objective that we have here at Luminar, and I think we're going to be in a position to give better guidance on what exactly that's going to be during our year-end conference call early next year.

Great. That's a helpful update. Let's unpack some of the commercial opportunities, and let's just start bigger picture. You've grown but you're still a start-up. You have finite resources. You can't pursue every opportunity that's out there. So just help us understand the types of opportunities where you put the most focus, where you've really stressed the most. I assume it's primarily the automotive, specifically highway autopilot opportunities. Is that where you've really put the lion's share of your resources on commercial endeavors?

Yes. It's effectively you'd say that all things series production for anything relating to autonomy, which is generally focused for highway autonomous use cases, starting off the bat and then ultimately expanding their on out, but also just dramatically improving vehicle safety in general as well. And this was a driver that started to lead to standardization among automakers. Something that, for example, Volvo announced not too long ago, they're going to be making us standard on their platform, starting with the next-generation XC90 vehicle. So that's something that's definitely a key driver. But yes, I would say that when it comes to -- from a big picture commercial perspective, I mean, we've effectively been winning every major independently-sourced, lidar-based autonomy deal that's out there, and that's where we've really been taking the market by storm when it comes down to it. So it's been exciting to continue to drive that forward. And really now, part of the value for what we have with the ecosystem partnerships, like what we have as well in addition to directly working with the OEMs, what we have with the NVIDIAs, the Mobileyes and other types of tech companies in this world is that every time they win a platform, that means that we're a part of it as well and for the respective applications, the opportunities. And that's something that obviously we're excited about, such that -- you heard the analogy the other day of heads we win, tails we win, and I think that directly applies now.

And the only thing that I would add there is we're laser-focused on the passenger vehicle and the commercial trucking markets. And you can see that that's where the lion's share of our wins would be right now, at least in the near term, going on our own in some of the adjacent markets, whether that's aerospace or defense or off-highway. That's an area that is important to us over the longer term, but I wouldn't say it's a priority today given the opportunities we see in the first 2 segments. You saw with us earlier this year kind of announcing Airbus as a great partner for us on the aerospace side. And so I think as we look at some of the adjacent markets, that is less of a priority for us today. And maybe there's partnerships or partners that we can identify to help us be successful in that. But in terms of the resources at Luminar, we're focusing 120% of our efforts on that passenger vehicle and commercial trucking markets.

And for the sake of clarity, the fundamental differentiating aspect for us is an autonomous vehicle company versus every other autonomous vehicle company out there is that -- again, we're the only ones that could actually supply the systems into series production. We're not trying to create a fundamental new radical approach to eliminate the driver and have ride-hailing like vehicles pick a passenger up at point A and drop off at point B in the city, which, again, I think will happen. We work with some of those companies, which is great. But that's like 20 -- it's in the 2030s, realistically, by the time that really starts to ramp up from just a realistic perspective. We've been focused on directly addressing the existing $4 trillion-a-year passenger vehicle market and trucking market that has the huge volume opportunities and real opportunities to see this technology realized. And you can say it's a more conservative, but we think realistic view of the holistic space, and it's very important to take that view. But also, again, it means that we have to have legit production-ready technology and capabilities here today, and that's what these automakers are helping to validate with us and working with us to start deploying, just as Tom has mentioned, starting the end of next year.

So -- great. Let's dive a lot a little deeper there, and specifically on sort of the core automotive side. What's the tone and tenor of these discussions? First of all, it sounds like it's pretty favorable. As you're saying, it's the largest pipeline you've had. I mean what's the set of bids that are coming to market now? Any granularity or color you can give on the types of customers, on the regions, hardware versus software? And is it primarily the sort of highway autopilot? Or is it a mix between that versus the, call it, Level 2 Proactive Safety that you've been out with as well?

Yes. It's a good mix with everything, and I think between Highway Autonomy and Proactive Safety. And you would think -- you could say that the goal ultimately is to have this where the hardware is standard on every new vehicle produced, where the vehicle capabilities are really software-defined based on what the customer pays. And that's the ultimate vision. And I think it's great to see automotive -- major automotive companies and their CEOs get out there and start to announce that they plan to have this technology or type of technology standard on vehicles across the board. And it's great. We announced specifically a deal with Volvo, but you have a bunch of new automakers that are running to the charge with it like even -- I think I saw the -- Nissan's CEO now publicly went out to say that we're going to have lidar and this kind of software on every one of our vehicles this decade and already starting to enable the capabilities in just a few years. So it's pretty cool to see. And I think we're obviously doing everything we can to help accelerate the trend even further. But it actually doesn't take a massive market penetration rate to actually make a huge difference in the economics, which is -- and this is the really interesting part, is that it's just a lot of content value on the vehicle, but it's also high margin. And when it comes down to like even in our models, by 2030, our goal that we originally laid out was to get to 3% to 4% market penetration, which for the sake of clarity, I'd be very disappointed if we only had 3% to 4%, but just take it to be the case. I mean that still means a $5 billion revenue, $2.5 billion EBITDA business with a $60 billion forward-looking order book. So it's -- and I mean, heck, I'm talking about like the NVIDIAs of this world, I mean, that was their numbers just, what, a couple of years back or so, too, a few years back. So it's been awesome to see their success among others that have been taking the charge and the lead in the industry. But it goes to show just what's possible. Obviously, we're going for the 100%. But I think when it comes to content value, in addition to the hardware, there's a huge value of having the software. And the hardware has been the foundation. But at the end of the day, the hardware is just a box without the actual accompanying software to really be able to make the holistic system work. And that's something that we've been working with automakers on as well to really be able to actually make this happen. And also, why -- I mean a lot of people associate us purely with the lidar technology, which is true, that is the foundation and the kind of the claim to fame that we've had in the breakthroughs to enable that. But just as important is also having that focus and scope on the software side. We've really developed some very unique software that actually makes the most of this technology for adoption in the industry. And that's what's only accelerating the adoption for our partnerships and throughout the broader scope of the industry.

Great. let's -- another one on the passenger car side. One of your commercial agreements has been with SAIC. If you could just talk a bit more about that agreement because I think we know the dynamics for all things auto really in China are a bit different than what you see in the U.S. or Europe. So maybe you could just give us a sense of whatever parameters of that agreement you can disclose. And just broadly, how you see the lidar or your opportunity in China, versus other end markets? I know you also have an agreement with Pony as well, but let's focus on the pass car side.

Yes. Yes. So I'd say when it comes to SAIC, I mean that was really a clear partnership choice for us and them. When it comes down to it, they're the leading automaker -- or actually the largest automaker in China. And they're launching this new kind of forward-looking brand called R-TECH that is going to be the halo vehicle for what we see for them and really the broader industry there. So of course, there's obviously big, big pressure, as you mentioned, with the various dynamics in China to be able to try and leverage Chinese solutions for problems and everything. So -- that said, it actually takes a -- there has to be breakthrough fundamental technology and differentiation to be able to leverage a technology like ours coming from the outside. And this is something where we partner closely to be able to make that happen because our tech really does make that much of a fundamental difference in the driving experience and what can be done. And as a result, we really saw them as a great lead partner to be able to really get introduced in the China market with. And we're only going to be accelerating in the China market pretty significantly. We're starting to build out a presence there. We haven't been able to spend as much time there this year as we'd like because of the quarantine restrictions. But that said, it's -- we're already starting to build out our team and supporting key customers. And we've actually been pretty organically within these top and key players in China. But as the market continues to grow, that's only going to be expanding pretty significantly.

Good. Let's pivot to your recent NVIDIA agreement. You were selected as the only lidar supplier on their Hyperion autonomous driving platform. So maybe you can just help us appreciate the significance of this selection. What was it that was really technically compelling about your offering? Is this just hardware? Or is there any software involved here? Just any color, your views on this NVIDIA agreement.

Yes. Yes. Well, it does -- I'd say from a fundamental perspective, yes, any color on that. I mean, well, the first step, it helps to be the only one that actually meets the spec in the first place. So that's why they came to us. And importantly...

What was the -- can you tell us what the specs were?

Sure. I mean I think without commenting on NVIDIA specifically and any proprietary information there, I'd say more generically, from an OEM perspective and the drive that defines those requirements they would have or other people would have is being able to have -- is a few different aspects. So the first just starts out with the performance side of it from a lidar standpoint of being able to see very clearly out to 250 meters even for dark objects down to 10%, 5% reflectivity; and having enough point density at those distances to see any kind of object, even low-profile objects on the road, a tire, a kid that runs out in the street chasing after a ball, whatever these edge cases are, to be able to accurately detect it and with a very high degree of precision. Next up is all the other kind of second order requirements that come into play, everything from operating in rain, fog and snow; not interfering with other sensors; to having scalable manufacturing processes; to -- like all the different things that it takes to go into it and operate. And then the last part of it is actually having an auto-grade capable device and sensing system that meets the cost requirements. This is something that can't cost thousands or tens of thousands of dollars to be able to produce. At scale, this has to be in the hundreds of dollars to be able to successfully or at least economically be integrated into vehicles if you want to have that order $1,000-type ASP. And that's a really important point when it comes to a holistic system design. And so delivering that level of performance capability, having the design maturity with everything, of being ready for series production and really driving that forward. Not to mention, by the way, as you know well in the auto industry, it's one of those very high barrier-to-entry but equivalently very high barrier-to-exit spaces. And there's really a snowball effect that ends up happening. And this is the kind of thing that you see with Mobileye in their domain and NVIDIA in their domain in the industry, is that after you start winning on these deals and getting designed in, you start getting better and better planning, economies of scale, all the things that go into it. And you get to leverage these in a network effect capacity from both an economies-of-scale perspective but also from a data perspective, too, in terms of the value of what you get. And that's just from a hardware perspective. The other part of it is that we're really -- it depends on if you consider us more of a solutions provider, which I think we've more evolved into than, say, a lidar provider. But we're really the only ones that have that lidar technology that's built out that also has the software that's deeply integrated on top of it and into it. And this is something that we are providing to various -- in various capacities, let's say, to the majority of the customers that we work with. And that does include NVIDIA, for example, like in a couple of different capacities. But yes, so that's a quick story. But more than anything, it's just a validation of the technology and what we have and that -- it's not even really -- I mean, honestly, the big part of it, it's not even really about us, say, like being anointed versus, I don't know, some other random lidar or R&D effort. It's more about, this is a real technology that's -- the time is now and the difference that it can make is absolutely huge when it comes to the end vehicle and why people are taking it seriously to actually see that market penetration in the first place. So -- and that's the most important and most significant aspect of all of this.

Great. One more just on the commercial efforts side. Mobileye, you're collaborating with them. But we also know that they're developing their own lidar. So is it possible that when they have their eventual production vehicle -- and I think in your third quarter deck, you had a picture of the Mobileye vehicle highlighted at one of the recent auto shows. Is it possible that you could be the lidar provider on their eventual production vehicle as opposed to whatever it is that they may be developing in-house?

Right, right. Yes. Well, I think I don't know how -- I know it's public. I don't know how well publicized it is that Intel had laid off all the -- I think it was like 1,500 people that were working on lidar-related projects to it -- that as they try and focus on the core issues that they have to be able to solve for. But I think when it comes down to it, really, for our product and what we're able to deliver at this stage is the ultimate spec of what people have been trying to design their systems to. So there's no question there's been a lot of folks -- I would say maybe even just a handful of years ago, every major player, OEM, Tier 1, every -- any R&D lab that was doing anything related to a laser that can be used for lidar was trying to do some kind of lidar development effort, because they just saw it as a fundamental bottleneck for the industry to actually see the light of day, and there's so much value to be unlocked. We've since built -- we've built out the technology. We built out the product. People realized just that it was orders of magnitude more difficult than what they actually thought it was to build this kind of lidar system. And this is something that we've proven out today. So I would say I would be surprised if we ultimately weren't on all these major vehicle platforms and system-level providers, independent of any specific company, I should say, not just now but in the future as well. And the design -- basically, the design goals that people have been trying to do are what we already have today and what we've been able to solve for. And again, this wasn't the case previously in terms of -- there was more hesitancy to basically bet the entire company around any specific other company and approach and technology and other stuff. But now that we actually are proving it out and we're entering series production, we're getting to that stage and executing, that's where I think it makes all the difference. And obviously, people are paying attention to these things as we continue to execute, and they want to be able to see this as people make bet to company decisions like the Volvos of this world have with us. So it's going to be a continued important focus, obviously, and our job is we just need to make sure we deliver.

Great. I know we're running up on time here. So I want to ask just a couple more here on sort of industrialization and resources. Tom, maybe this is a good question for you. As we think about resources, and you can define resources broadly, whether it's financial resources or head count or vertical integration, does the organization have everything that it needs? And then just a follow-up. I think you mentioned on your last call, you're actually tracking a little better than anticipated on your spend targets. If you spend more, does that unlock extra capabilities? What does more spending do for you?

Look, I would say more spending doesn't necessarily unlock more capabilities. You have to invest in the right resources. It's easy to spend money. It's a lot more difficult to spend money on productive resources. And that's what we want to get right here at Luminar. We want to build an organization that is lean and mean and maintain those kind of entrepreneurial qualities that exist at Luminar today. I think it was Jack Well who said it best, which is you need to continue to fight the buildup of bureaucracies and fat in your system. And I think that that's something that's very important to us and...

And by the way, if you take a look at most of the other autonomous vehicle companies, the major ones out there, I mean, like the Waymos, the Cruises and other stuff, I mean they spend in aggregate, what, billions, now tens of billions of dollars on this. And still, the question is like when is the end of sight? When does this spend like -- when can you produce real business out of this and a business model and real revenues and other stuff? So I think that I couldn't agree more on the relevance, but go ahead, Tom.

Yes. And while we're a public company, we're also a -- we have a founder mentality as well. My CEO owns 30% of the company. So we're going to be very disciplined in having to spend our money. Having said all that, we've grown our head count substantially this year. We've grown our investment spend substantially this year. So we are investing in the business. We believe we have enough capital to deploy to get us to profitability and successfully launch our products. On the head count, look, we're going to continue to hire. And the quality of the individual that we're able to attract at Luminar today is a lot higher than what it was a couple of years ago. We have a great team, and it's continuing to get better. And when you look at the people that we've hired over the past year and who we hired them from, I think that, that really speaks to the level of talent. So we're going to continue to invest. We're going to continue to grow the team, but we're going to do it in a very disciplined way.

Great. Great. I'm going to ask you a couple just to wrap up on sort of the BOM and vertical integration. You highlighted on the last earnings call, you're on path to series production. Your BOM targets are on track. And you said, I think, $500 BOM sort of in early as series production scales. You also highlighted over time a $100 BOM target. So what do you need to get to $100? How far out is that?

It's actually more than anything, focused on a lot of the rest of the commodities that go into the system rather than the core technology. Our #1 focus was costing down the core tech that goes into it, the -- specifically, the receiver chip, the in-gas, the processing chip, the ASICs that we have, the laser and the scanning system. And that's where we're at scale when you successfully achieve -- go to that kind of 1 million unit annual volume-type scale, which would be 1% market penetration on that order for the auto industry. That's where -- we're already there. We have that road map. We have that clarity for the existing technology road map and capabilities and supply chain. So it's really about scale and volume and achieving the economies of scale for that. That's for the core components. There's other stuff that goes into the system as well and then maximizing labor efficiency and all of those things that add to that. But in truth, that core BOM, that's something that's -- why we can confidently say these things is because we already have that visibility today. And that's usually the really hard part about it. But that said, just for sake of clarity, I mean, I think from an ASP perspective, it's -- we'd still expect it. I mean we really don't expect dramatic -- just because our costs are lower, we don't expect to proportionately reduce ASPs either by any means. In fact, it's been -- it's actually been pretty solid. The key thing is, is that the value that we're providing, actually, if anything, even goes up more and more over time rather than the other way around as we provide more software capabilities, more over-the-air updates, more value to the consumers and what we can do. But the content value is real and orders of magnitude greater than -- or at least an order of magnitude greater than -- more than that, than the $100.

Great. Last one for you, a similar vein, vertical integration. You've taken a number of actions so far. Just give us an appreciation for what the vertical integration unlocks. And is there more opportunity to increase vertical integration? What else can you bring in-house?

Right...

Go ahead.

I was going to say, when you look at the 2 vertical integration moves that we've made in the last few years, we bought our ASIC chip designer, Black Forest Engineering. And then we bought the in-gas receiver company, OptoGration, later this year. So as we've said publicly, there have been certain critical components in our lidar, which we've designed from the ground up. This is -- I would say, we scoured the earth looking for these very unique technology companies, and then we really worked hand-in-hand with them to design these necessary components from our lidar. There's 3 real benefits to taking these in-house. One is while we have exclusive supply agreements with them, this bringing them in just continues to expand our competitive moat and make sure that this is technology that can only remain with Luminar. Two is, as we scale up, these tend to be smaller suppliers. And so buying them, bringing them in-house reduces the execution risk in terms of scaling the suppliers up in that strict automotive environment. And then the final thing, and I would say this is really something that we're starting to learn, particularly as we're bringing OptoGration in-house, is getting all these different geniuses at these companies that we acquire and starting to have them talk together. There's stuff that's being discovered that can really be beneficial to us from the technology side. Are we done with vertical integration? No. Does this mean we're going to go buy an aluminum casting company that does the housings of our lidar? Probably not. But there are still, I would say, a number of critical components that at the right time and at the right price and at the right conditions could make sense to bring under the Luminar umbrella.

Great. Okay. We'll leave it there. I know we're over time. Austin, Tom, thank you very much. Very insightful. Great to learn more about the narrative, and we look forward to hearing more. Thank you so much.

Thanks, Dan. Have a good weekend.

Thanks for having us.

OpenExchange, we can end the session.