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

All right. So good afternoon, everybody, and thank you so much for joining us for this session with Luminar as part of Deutsche Bank's AutoTech Conference. My name is Emmanuel Rosner, and I'm the Senior U.S. Autos and Auto 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 multiple production contracts with delivery starting next year already with Volvo and SAIC. I'm very pleased to be joined today by Dr. Matt Weed, who is Senior Director of Product Development; as well as Trey Campbell, who is the Head of Investor Relations at Luminar. The format for this session will be a short introduction by Dr. Weed, followed immediately by a fireside chat around some of my questions, but also questions from all of you on the call. [Operator Instructions]. So with that, thank you so much for being with us and over to you.

Sure. Thanks. So I feel I've spoken to the whole conference already, but I'm sure there is more of you out there who didn't get to sync in small groups with. I'll give a quick overview of myself and Luminar. I've been with the company for quite a while now, basically shortly after founding of the company. And I've watched us grow from hardware, very early days, hardware development and sensing technologies, lidar specifically, all the way through our development of early software, middle software and eventually functions now as we're kind of delivering more and more of the final solutions into the marketplace for safety and autonomy. Our progress since we've become a public company over the last year, fueled by our product called Iris, which is the sensor technology that underpins all of our hardware and software offerings. It's been progressing through industrialization. It's not our first product rodeo. We've been deploying lidar technologies for years now, though this is our first auto qualified effort. We've been hitting our milestones over the last year, moving ourselves with our lead customers. As was mentioned, Volvo, SAIC as well as recently announced Polestar toward their series production of vehicles built around our lidar sensor moving into production end of next year, early '23. And so the other half of what's been really important over the last year as a business, let alone as a public company, is finding ecosystem multipliers. This has been a big topic of activity at Luminar over the last year and a common topic of a lot of the small groups. What I mean here is software multipliers like our partnership with Mobileye for the robo-taxi effort, with NVIDIA for their consumer vehicle driverless system, with Zenseact out of Volvo for their consumer driverless system as well as hardware ecosystem partners like Webasto and Inalfa who are helping us to make it easier to actually integrate our hardware into vehicles for the automakers. And so all of these things are really aligned with our long-term effort to make a step function change in vehicle safety and from that allow autonomy in a reliable way to emerge from these vehicle platforms. We see strong traction already well aligned with that mission to standardize our hardware and software into vehicle platforms. Our first success there is with Volvo. They announced that we will not only be an upgrade option but standard equipment in the vehicle platform that we've won so far and then likely follow on into future vehicle platforms there as that safety product. The goal there is to make the uncrashable car, ultimately, which has huge financial and societal impacts. And as part of that whole system as it comes together, we see a really good path to bring our technology to broad adoption, not just a luxury segment over time. That's probably the best I can do as a summary in under 5 minutes. So I'll leave you with that, and I'm sure you guys have a lot of questions. Trey, you want to do a quick hello?

Yes. I'll just say hello, and look forward -- great to be here at the conference. And look forward to the dialogue in the Q&A. Let's keep going Emmanuel.

Awesome. Yes, thank you so much for the overview. So I was hoping to hit 3 main topics with you guys. First of all, certainly, the technology differentiation and taking advantage of Dr. Weed's participation today. Some of your projections for market adoption and what you're seeing in the marketplace in your conversation with customers and then obviously, some of the business achievements and goals that we can expect over the next few years. But maybe starting with the technology since this is AutoTech conference after all. So you have focused on developing proprietary hardware from the ground up, which is a big difference from a lot of the other solutions out there in the marketplace. Can you go over the main parts of your sensor and how it's differentiated?

Sure. Yes. So I think the way -- pardon those for redundant information, but I think it's the best way to describe what we've basically done from a hardware perspective is move the world from the option of low-cost, low-performance lidar at short wavelengths to high-performance, high cost lidar at long wave lengths to them basically being the same cost by developing architecturally and through innovation as well as acquisition, the supply chain to be able to deliver long ways length operational technologies and all of the performance opportunity that they bring to bear with a low-cost road map. And so that's been probably the biggest differentiator technologically. That's led us in a whole bunch of details that we might need to spend a few decades in school learning physics to go much deeper. Of course, if there are specific questions, if we can file them into the Q&A, but that's probably the high-level question, the way I think about that question. We've acquired and vertically integrated some of the key components there, the integrated circuit design, which is traditional silicon CMOS digital and analog processing of our -- of the sensor data and the special wavelength specific indium gallium arsenide material through a design and foundry partner of that material. So those are 2 acquisitions, Black Forest Engineering and Optogration which contribute heavily to our cost and performance road map and also give us huge upside in the R&D side of things to open up what could become possible in future durations decades away.

Got it. And as you chose this 1,550-nanometer wavelength, which -- can you just talk about, again, some of the advantages you provide? And my understanding, obviously, is some of the challenge would be to basically do it in a scalable, affordable way. And how are you going about basically solving for this?

Yes. So 1550 is really a specific sounding number. And it is because this is what all of the data that we're communicating through fiberoptic telecom in the world uses 1550. We used the 1550 for that and a very unrelated reason of eye safety. So it's not quite a continuum, but you can think about it that way for ease that the closer the wavelength or color of light gets to human visible spectrums, the more sensitive your eye is to that light, the more efficient your eye is at focusing that light onto your retina. And therefore, the more dangerous high-energy radiation is at those wavelengths. Silicon, all by itself, is sensitive up to about 1,000 nanometers. Human vision stops at about 700 or so nanometers. So about 300 nanometers outside of human vision. Sometimes you can kind of see light up to even like 850 or something, barely. Luminar has 1550 nanometers, which is far enough away that there is significant safety margin and therefore, more energy we can send out in the world to range further away more densely. We can measure more point density, more resolution. And we can do that in a really power efficient way that allows the vehicle system to know exactly what's happening around it in a really productive way. How we did that in a cost-effective platform is largely what I mentioned of those acquisitions gave us really the seed to make the receiver, which is where all the data starts. That's the element that the text light to come back and starts to digitize and extract information about the environment. That device, we cut a few zeros out of the cost of that through both architecture and acquisition. And that performance benefit that we saw there in addition to the cost benefit has allowed us to take a lot of the pressure off of all the other components, the scanner, the laser, even the electronics because we're integrating processing. And so all of those things allow us to move towards simplified hardware architectures and leverage more and more of that digital infrastructure of the receiver to drive the cost profiles to what the market needs to validate their business models.

Got it. Very helpful. Can you talk a little bit about your software development and then your plans to monetize this? And in your customer discussions so far, how important has the software arena is if the take rate has been mostly on the hardware, has there been interest in the software?

Yes, good question. So all of our -- all of the consumer vehicles, wins that we've announced so far include at least perception outputs. And I'll let Trey after I make some more comments talk about the -- how we're thinking about the monetization of the software. But the clearest way I think about it is there's a few different layers of software. We're developing the whole pipeline for lidar internally. So from creating a point cloud similar to an image but in 3D, all the way through actuating a vehicle, hitting the brakes, steering the wheel, using only that lidar pipeline of data processing. We do that entirely internally. And we have customers a lot -- all of our customers at the sensor, some of our customers at perception. And currently, we're working with lots of folks to figure out how our decision-making and stuff could fit into solutions. On the ecosystem front, for example, our partnership with Zenseact, that is a camera radar lidar fused full vehicle platform solution that we are part of in hardware and in software that can go and be purchased by an automotive -- or automaker for integration and development and really get caught up. So maybe I'll stop there and let Trey talk a little bit about how we think to monetize it because we basically built all of the pieces because the auto space is very diverse. There's some people who have invested billions and want to do it and can probably do it all. And there's some who need to catch up and they need support. So we've kind of provided all those steps, and then Trey can comment on some of the financial side.

Yes. And it's constructed with what Matt said with the optionality where you can provide different building blocks where we can be paid for the perception. We've talked about this, I think, before, Emmanuel, but we offer proactive safety which is this really lidar-led step function improvement in the performance of the current camera ADAS systems. And so we've shown this, and there's videos on our website, we've shown it at IAA and Munich, and we're going to show even more when we're at CES in Las Vegas, but significant improvement and that's offered for about $1,000. Now the benefit that customers get and a great example is Volvo, who has chosen to standardize the technology. We have a secondary offering, which is highway autonomy and this is exit-to-exit domain-driven where you can be hands-off, eyes off and kind of a Level 4 functionality. And so the beautiful thing is if the lidar is standardized and you've offered that safety functionality, it gives the OEM the ability to sell up to highway autonomy. And so for us, that's about a $2,500 kind of ticket. Obviously, from an OEM, it would be marked up. And that's all kind of software revenue that drops straight down and improves all of our margin characteristics. And so -- and the other benefit really for the OEM is you're enabling a lot of value as you go do that. You're talking about a margin difference that's in the same ballpark as the margin on the entire car plus giving the potential for recurring revenue stream, subscription contact with the customer after it leaves a dealer. So there's a lot of synergy. Obviously, a lot of margin for us. We want to be very involved. The software ecosystems are very sticky, and it helps us as we get more of that software content, but it's a win-win for the OEM, too.

Got it. Perfect. So I guess, shifting gears, so we have time to address also the market adoption, some of your awards and then the business model. How do you see vehicle adoption of the technology playing out over the next few years? It seems like initially, you obviously have detailed some of the awards with some of the early adopters. When would you think that this becomes more mainstream, and we see some more mass market automakers adopt that technology?

Yes, I can start, Matt, and we can kind of ham and egg this one together. But no, I think we've seen a couple of real big catalysts as we've gone through the year. And I would point to the standardization decision that Volvo made. Typically, it takes long periods of time for features to move from option to standardization. And I think the driver for this is there's just such a difference that can be made with this product in terms of vehicle safety and really providing just a much safer environment for drivers. We still lose a shocking number of people every year and significant serious accidents every year. And this has the opportunity to really kind of blunt that. And so I think Volvo is making a huge decision, it's accelerated other automakers to think about how they adopt and then how they think about standardizing as well. And so I think that was -- that's a very big one. The other thing I'll bring up and we can talk a little bit more about that we think has a real opportunity to expand acceleration and democratize this capability beyond just premium cars into the mass market is the potential that insurance has. And so we're working on an insurance product and something that we would have backed by a reinsurer, but it has the potential. If the car is significantly safer, it's going to get into fewer wrecks, it's going to have fewer damage issues, that's going to be a tremendous amount of savings which is going to go right to the bottom line of auto insurers unless you kind of redefine how that model works. And so the benefit, we think, again, it provides another revenue stream both our customer and ourselves with the secondary piece of this being, if you're going to have a significant revenue stream that you can enable, you also get the ability to change the acceleration model and potentially even offer lidar at very low cost or free. So it is a different dynamic that we're bringing to market. Obviously, we're focused on the technology making sure it works hardware and software, but these are some things that we're working to ensure that we get rapid acceleration.

Understood. Now in terms of purpose of adoption by some of these auto makers, is it -- will they essentially move towards having your solution on only for like Level 3 and above type of application? Or are you seeing some demand also for lower levels of autonomy?

Yes. So I think this kind of dovetails kind of a specific question at one of the things that Trey mentioned in there. So what Luminar allows the automakers to do, and this is becoming more and more interesting as evidenced by Volvo committing the standardization without autonomy and autonomy is the upgrade, is that the not even Level 3, but Level 0 and Level 1 and 2 autonomy, basically the safety, lane center and lane keeping, automatic braking, basis steering, all these kinds of things that kind of exists today and work with mixed results. To make them work ultimately perfect is kind of the promise of what we're doing here, which is why there's this insurance benefit. And so we're not getting, how should I say this, we're not getting RFQs from automakers that ask for only that. They all want the upside, but it's of more and more interest. And it doesn't make sense to integrate this sensor for just your autonomy functions and allow your vehicle to be less safe. Some folks may do that but it's unlikely to be the long-term solution, that's for sure, just because as soon as the world sees what's possible with the safety systems that we're going to be able to deploy, I think it will be like the seatbelt, right, where it's like, oh, of course, we need this everywhere. Because I mean, the statistics are crazy, 1 million people die a year in the world because of auto accidents, auto-related or road-related issues, right? And it's like how could you not adopt the technology that can make a big difference. And so we're seeing a lot more traction. When we win a platform that is trying to be focused on autonomy, the first conversation is, okay, how can we move this toward safety standardization? And for all the reasons Trey suggested economically, there's a lot of motivators there.

Got it. So I guess focusing on some of your recent wins, both your order book and business wins are well on track to exceed your prior targets even set up at the beginning of the year. What exactly has been playing out better? Is it the win rate versus competing solutions? Is it the speed at which some of those opportunities have materialized or automakers moving towards lidar, is it higher volume as some of the existing contracts?

Do you have any thoughts? Add some thoughts.

Yes. I would say, I think definitely the first 2 that you brought up, I mean, we took what we thought was a strong goal into the beginning of the year saying we're going to have 3 major commercial wins and 40% growth in our forward-looking order book. We have seen some gravitational pull from customers because they've seen the technology. They've seen it work. And so I think we've definitely gotten pulled into a lot more activity. And I also think, as evidenced by the standardization and some of the other activities, the market is moving faster, right? So I think, if anything, we've seen elements of the market like the robo-taxi market extend in the duration of when they're going to realize. But I think people can now see this is tangibly going to be available in terms of a car that you can drive over the next year, 1.5 years. And that's before we even get into some of the trucking opportunities where there is a tremendous pull because there's a huge economic value in trucking which -- 50% of the TCO of the truck is an insurance and the driver, there's -- and it's challenging to find truck drivers. So there's a huge opportunity there, too. So I think one, it's having the technology and the software expertise to prove that it works right now and that we're in the process of industrializing and scaling it; and two, the market moving to us.

Okay. The one I'd add, and this is a kind of interesting one is what we didn't expect was that a lot of the automakers who had selected some other lidar have already begun to plan what comes after because they're realizing how little value what they've chosen will give them. And so I can probably count 5 different automakers who we're talking with who already have a pipeline to go to serious traction with a lower-performing lidar who already want to find a fast follower. And so that's something we didn't really expect. So there's a lot more intake, but more inbound from people who are still to make a decision, feeling a lot of the pressure because everybody else is moving and a lot of folks who have realized that they are going to get left behind unless they figure out their road map, which ultimately leads to us.

That's a great point, Matt.

Yes. So I want to drill a little bit more on this point of sort of some of the cheaper solutions. So it seems like there's a bunch of lidar-equipped vehicles coming to the market from some of the EV players, in particular, so a bunch in China, but also some in the U.S. which -- where the focus feels like -- the primary consideration seems to have been the cost rather than the performance. Like how do you view them, let's say, China as an opportunity for Luminar. And then, I guess, the -- are there any like sort of differences in the way various automakers think about the use for lidar? Some of them being just focused on cost and other nonperformance? Or I guess, how would you expect this competitive landscape to shape out over time?

Yes. So the first comment I'll make is actually correcting myself and tying back to one of my first comments. When I say low cost, the important thing to remember here is low cost now. So one of the big differences between what we've done in our architectural decisions is that we've had to invent some of the supply chain. And so while our cost road map is there, we are the ones driving it through the volume, which is why it's great. We've got such strong traction with a number of automakers with standardization and that kind of things. We'll be able to actually drive that road map. The reason most of the market didn't go with those architectural decisions because you could go buy off-the-shelf stuff now, put it together and make a lidar. Now it doesn't meet the demands and that's what they're realizing performance-wise or even robustness wise, but they're lower cost today. They're basically able to offer today what our road map will get to because the supply chain is already there. It's just not going to go much lower just because of part count and everything. But as far as China goes, I think there's 2 things that are really important. One is that a lot of the Chinese businesses have a desire to support other Chinese businesses. I mean, this is not just China. Everyone in the world wants to support their neighbor effectively and so because there's a lot of lidar activity in suppliers, and suppliers who could actually make product to their credit. I mean, there's a lot more lidar producers in China who are actually making product than there are in the U.S., I believe, not necessarily automotive product yet, but -- you think about a lot of the spinners, some of the kind of knockoff manufacturers in the U.S., it's basically like us, Velodyne and Allstar, I think are the only ones who are actually shipping product. Everybody else is concepts, right? In China, you've got a bunch, and they can support early low-speed driving functions in Chinese-owned automakers. So there's a nice synergy there. But I think the fact that we've found good partnership with SAIC who is a large leader even though our first vehicle is specifically an EV, which, of course, will grow, as we all know, that's with automotive industry these days. And our robo-taxi platform win at Pony.ai is a really important piece there as well. And so because we've got strong kind of beachhead in China and we're seeing a lot of those who've made early decisions looking back and saying, we know we need more, and they're coming to us. And so there is really strong opportunity. We're going to be growing our presence there. Our manufacturing can readily scale into that part of the world. Our -- one of our key suppliers is in Thailand. So we're already -- we already have manufacturing presence pretty globally to support a lot of different places around the world. So that's my comments. Why don't you give other comments, Trey.

No, I think you hit it. I mean, I think -- I mean, the piece of this is you do have 2 anchor kind of tenants that are leaders in their field. We've expanded our presence geographically and have an office there. And so -- now I -- there certainly is some buy local pressure. But at the end of the day, customers and drivers in China want performance in the safety solution and the autonomy solution just as much as drivers anywhere else.

Yes. So they don't care where the tech comes from as much. They may care where the car comes from, but not the bits and pieces and stuff.

Right. That's a fair point. And I think maybe earlier on in the public life company, I think you were talking -- you used to quantify some of the advanced development conversations that you were having with automakers. Like obviously, there's been a lot of wins and out since then. So maybe deemphasize that area of communication. But can you just tell us how some of these conversations are progressing? Is there still a number that you're quoting here in terms of number of conversations you're having and where those are in terms of stage of advancement?

Yes, I mean, I can start, and Matt can go in. But what we've talked to is we're working with 8 of the top 10 automakers. Some announced, some in a variety of stages of development. And obviously, we're working with a lot of people outside of the top 10. Most of the commercial trucking players we had a great announcement today with robotic research. I don't know how many people know about them, but they're a large maker of vehicles for the military, also for logistics moving into buses. And so it's another one that kind of follows on in terms of a key win that really values this technology. So we're working pretty holistically. Matt, I don't know if you have anything you'd add specifically on that?

Yes. I guess, it depends a little bit on what you -- how you -- which the bucket definition, right? Things that are pretty major commercial impact, but still undefined, right, not like a series production ramp. Yes, I mean, I think, certainly, the work with NVIDIA is a big example of that. That -- in this area, ecosystem multiplier, right? They're building a solution that's based on our lidar for carmakers, right? It's not just that their compute is compatible with our lidar, like it is with a whole bunch of other lidar, it's that they're actually building software on top of our data stream. And so that's a big multiplier that will certainly yield dividends, right, in the marketplace. The work with Mobileye is another example that's similar. They're building a platform specifically right now for robo-taxis, but we know Mobileye. Who knows what they're going to do with that platform, right? And those kinds of things are definitely making a lot of progress and we're seeing a lot of effort pushing them along, but not really overemphasizing them right now because they're known, and there's -- until it turns into money, it doesn't make sense to churn the media cycle, right?

Yes. Of course. I was actually going to ask you about the NVIDIA agreement, which was announced recently. How does -- how would you expect this to translate into future awards? Like so would NVIDIA be talking to automakers, then automakers sourcing them for a solution and then you would get additional awards through this? Like, I guess, what's the -- what would be the expectation out of this agreement?

Yes. So NVIDIA goes to an automaker and wins this business. Win would be the recommended lidar supplier assuming they don't have some random reason to hate us. We would then be sourced for that business. NVIDIA would provide the compute hardware and the software stack, the potential for Luminar to contribute to that software stack is still nondisclosed for now from either party still being sorted as it were. But that's basically how it works. It's kind of akin, although the business model is a little bit different. So what we would do with Zenseact and our Sentinel -- our co-branded Sentinel product, which is functionally similar. Of course, we have more control over exactly what that one's doing, proactive safety and all of the things we are dedicated to would be pillars there. NVIDIA controls how they use the technology to provide their subsystem, not saying it's worse or better, but it's their system. And so in that way, we're kind of, as Trey mentioned earlier, we're kind of frenemies in that, to be competing against them, but we both win in either case. And the market will kind of see what combination of these different groups will take whatever share of the pie in the future, but we're -- there will be pie.

Yes. And the one thing I was just going to add on, because I know, Emmanuel, you probably got a lot of questions following that announcement as I have. But I was going to just reinforce that we do have the long-range performance lidar in that platform. Despite a few other kind of press releases that went out at the same time, it's very different to be able to have NVIDIA drivers that support being able to run code on a GPU versus actually being in the reference design. So I did want to clear that up.

Yes. Perfect. And then maybe just last 2 or 3 minutes left, a few business or numbers questions, I guess. One that came in through the investor box. So I think the second quarter business update, I think you give us a benchmark on how the order book translates into annual data point. I think at that point, it was going to be 60% booked of the 630,000 units that were forecasted by 2025. After 6 commercial -- that was after 4 commercial wins. Now after 6 commercial wins with Polestar and NVIDIA, what is -- where do you track basically versus some of those either revenue or unit production by 2025?

Yes. I mean, we haven't updated kind of our units. I mean, the thing we have mentioned is we've upped our forward-looking order book quite a bit. With NVIDIA, it's a little bit different design win. It's a very big win, but the revenue is not going to come from NVIDIA. The revenue is going to come from those customers that we jointly win, right? And so we'll factor those into the forward-looking order book based as we get them. And Polestar was just at a point where it announced, but we've had that in our order book. So I mean it's been existent in the order book, but we have a very strong policy. We're not going to get out in front of our customers. And so we wait until our customers announce and then we announce.

Fair enough. And maybe just finally, on the bill of material, what can you tell us about the BoM currently? Where will it be by the time you actually start your first production contracts? And how does that support your margin goals?

Yes. We're fully on track. We've -- we think of us in the kind of maybe triple digits right now on track to our goal, which is $500 bill of materials in the first full year of production, which is 2023. And then with an eye towards scaling the main elements of that bill of materials down to $100 as we get into, think of 1 million unit kind of volumes, biggest driver being scale on that and some design for cost and architecture performance that Matt has in his head and in his road map, but we can't tell you about. So there's some great stuff coming.

Perfect. Well, there's great conversations, really appreciate the update and all the insights. I look forward to seeing you at CES, only seems like it's going to be one back in person, which would be great, but yes.

Yes. And we're --I was going to give a little promo. We're going to -- we'll be -- please come by the booth, and we're going to have some great demos. We've got quite a bit of space out in the parking lot to really -- there's one thing for Matt and I to talk about this proactive safety feature functionality, but seeing is believing. And you can see it versus some of the other top camera-based systems out there.

Yes, looking forward. So yes, thank you so much again to you both for your time and insight. Thanks, everyone, for joining us for this session, and this concludes our session with Luminar. Thank you.

See you, everyone.

Bye everybody.

Bye-Bye.