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

Hello, everybody. This is Chris Snyder, Multi-industry Analyst here at UBS. First off, I just want to say thank you to everyone on the line for joining. Very excited for today's conversation with Luminar Technologies. Just a quick heads up to everyone on the line. If you have questions or topics that you want me to address during the Q&A, you can e-mail them to me at chris.snyder@ubs.com, and I'll ask them on your behalf. I'll be watching the e-mail. So with that, I want to introduce Trey Campbell, Luminar's VP of Investor Relations; and Matt Weed, the Senior Director of Product Development at Luminar. So thank you guys for joining.

And maybe just starting off kind of high level for those on the line or those that are listening in that are new to the company or the business. Can you just provide background on the company and yourself for everybody?

Yes, I can start with a quick background on me, and then we'll flip it over to Matt. And Matt's been at the company for a long time, so he can kind of give the journey that the company has been on. But I've been at Luminar about 1.5 years on the IR and Finance side. I was a couple of decades in the semiconductor space before that, and super excited about the opportunity we have in front of us at Luminar. So Matt, with that, I'll kind of kick it over to you.

Sure, hi everybody. As I mentioned, my name is Matt Weed. And I come from a technical background, PhD in Optics. But since being at Luminar, ridden a lot of different seats in the bus, as they say, and lead kind of a lot of our product strategy work now, kind of working in between the marketplace and our engineering groups to make sure our road map goes in the right direction, which is a pretty obviously important space to work at. That's kind of where we sit. Do you want me to kind of give a quick [indiscernible]?

Yes. Kind of maybe a little bit of the genesis and where we've moved to at Luminar.

Yes. So a number of years ago, kind of shortly after the big DARPA grand challenges when they were trying to figure out how to make the first self-driving vehicles and kind of failing miserably, to be honest, it's when 3D LiDAR started to kind of make its way into more consumer-facing applications like vehicles out of the defense world. LiDAR is actually really old. People that may not realize it, but LiDAR is like one day younger than lasers or something like that, right? And that's something like, 50 years. So LiDAR has been around for a very long time. And so the very early folks at Luminar were kind of sitting around, a bunch of laser nerds, seeing what was happening in self-driving and the fact that these vehicles just couldn't see very far. They didn't know what was going on around them. And LiDAR was starting to creep in, but technologies weren't really coming out fast enough to push that. So we decided to commit ourselves to sensing, to unlock vehicle capability. And as kind of you fast forward through the last few years today, that mission kind of carries through. So our real goal has always been and will always be to make vehicles of all types more capable through sensing, and therefore [indiscernible] and software that comes from it. So we've innovated a lot in 3D sensing, specifically technology called LiDAR, which uses lasers to understand exactly how far away everything is around the vehicle. So it gives you a 3-dimensional geometry including the road, the lanes, curbs, cars, people, trees, whatever around you, which gives the vehicle everything it needs to know how to interact with the road service. So what that means is not only can we think about things like autonomy, but we can also think about what is possible from a safety perspective. Because at the end of the day, as many companies have shown, making a car drive itself is kind of the easy part. Making it do it reliably and safely is the thing that nobody has done yet, and that's the part that's really hard. So that's what our sensing technology focus is on, and what the company focus is on in our core.

Thanks a lot for the overview, Matt. I really appreciate that overview. I guess if I could follow up quickly. Kind of as you're taking the LiDAR technology, like you said, it's been around, I think, a much longer time than people appreciate on the defense side. What's been -- I guess, what needs to happen to the technology? Like what's that development process or, the biggest hurdle in taking it from the defense application and bringing it on to the road with vehicle?

Yes. So a lot of it comes down to the pieces, as you can imagine. The architectures of LiDAR have been around for a while, but it's what are you making the devices out of. So the core component's innovation has been a big part of unlocking LiDAR in what we see today, with there being -- I can't even count anymore how many LiDAR companies have come and gone. Something on the order of many tens, if not 100 or so, different companies trying to LiDAR, and the core differentiation is the components. We're talking about the lasers, the detectors, any of the integrated circuits necessary to process the data, scanning technologies. All of these things are the key thing that's clearly enabled a lot of what's happening now. And in the photonics industry, which is the optical equivalent to electronics, photonics. We -- historically, it stands on the shoulders of the last giants. And the shoulders that we stand on today is the telecom boom in the early 2000s, in which Trey's old company, Intel and a lot of others really pushed the industry in integrated processing, integrated communications as well as the optical components. Now what Luminar has done, and this is what differentiated us early, is we realized that the components were what was necessary. That's what it needed to innovate to make the products possible and scalable and cost scalable. And so we've, again, fast forward to now over that period of time, acquired integrated circuit design capability. We've acquired detector growth. We're actually doing our own semiconductor growth and design. Same thing on the laser side of things, and so we've got a lot of the key components already in the innovation pipeline, which are now giving us the pipeline to be able to run the supply chain handbooks. And how do we take these businesses, leverage the supply chain gains they give us as well as the big kind of R&D bullpen to move these things along and leverage a lot of the stuff. It's been around for a while, it just needs to be designed towards this application, not the old ones.

No, I really appreciate that. And it sounds like relative to -- you called out a number of other LiDAR competitors that I'm sure haven't made it. I think if I'm understanding it right, a big difference between Luminar and them is the focus on component, I guess, even in the vertical integration of designing the component. So that's kind of the company's, I guess, advantage versus other LiDAR companies on why they had more commercial success. What about versus other kind of competing autonomous solutions? There's a camera-based approach, or other -- I think a lot of people -- I think coming from an industrial standpoint, I think people -- everyone kind of understands, okay, yes, the world is going to autonomous. Maybe there's a question around the time line, but I think there's other questions around, well, what's the right solution for it? So why Lidar versus all the others?

Yes. We do a whole day on this one. But at the end of the day, the way I think about it, and I urge others to think about it, is focus less on what might be possible and focus on what will the safest solution be? Because at the end of the day, might it be possible to make a vehicle drive itself with just cameras? Maybe, right? But will it always be safer with 3-dimensional sensing technology like LiDAR involved? Yes, I don't think anybody would argue against that. Even the biggest proponents of camera will probably still agree that it would sure it would be safer with LiDAR. And so the question really just becomes one of cost. Are you willing to pay a new -- the cost of an additional sensor into the vehicle platform to achieve those safety gains? Now if you agree with 99% of the world, you also need that sensing modality to actually achieve the vehicle functionality with enough confidence. And that confidence is the big difference of LiDAR. So any LiDAR, at least reasonably well architected LiDAR of any type, and there's many types, gives you this benefit of direct 3D understanding on environment. Now different LiDAR will give you different distances of understanding, a different resolution and stuff. But at end of the day, it gives you direct 3D information. And that is far more confidence that you're ever going to get from a camera or radar, which are effectively just 2D sensors. Even when you combine them, you still are kind of coupled in your knowledge about the environment. You have to infer. Now machine learning is a really good inferring technology, but it's difficult when it comes to safety criticality to depend on those inferences of the 3D environment. And that's what LiDAR gives you immediately. There is an object. I don't care what it is. But it's collision relevant, and it's in my lane 100 meters away. A camera and radar can't do that, and the LiDAR can, and that's the big difference. When we talk about making safety systems work at all speeds and making autonomy reliable enough to put your kids in.

No, I appreciate all of that. Can you.

Chris, I have one quick one. I have heard from some people outside that they're having a struggle hearing the audio on the public link. So site in the background, if you could check that. We can keep going, but.

Okay. Sorry about that to the people on the line. I'm trying to make sure my [indiscernible] is closer to my mouth. Matt or Trey, obviously, you kind of take it if you guys see it. Can you just kind of talk about where everyone is in the product development journey, kind of what's the time line for series production and just kind of go from there?

You want me to try this one, Trey?

Yes. Go for it, Matt.

So we're kind of -- we'll say we're in the first real wave right now over the next, let's say, 18 months of vehicles coming out that are going to be consumer purchasable with LiDAR technology. It's not just Luminar, but we have certainly a big share of this first wave. There was kind of a 0 wave, which didn't really deploy a lot. It kind of got released, maybe taken back, not fully realized in software. The tech wasn't really quite ready. But this is the Luminar source technology in this first wave, and there's a few others there's a couple of Chinese manufacturers and some other things like that coming to market in vehicles over the next 18 months. What we're in the middle of now is preparing for the second wave, which is 2025, 2026 time frame. Much larger deployments. Our existing customers, for example, Volvo, is moving their pipeline towards standardization. So we'll be rolling out some more vehicles as they kind of roll out their future vehicle milestones. Customers like Mercedes, from Luminar and some others who will be rolling out in the 2025, '26 time frame. So much larger deployments. And then what we see beyond that is probably something in line with the -- getting more towards the end of the decade. Don't know exactly when yet, it's when we expect that really to move towards broader standardization. We look at our Nissan, their Ambition 2030 seeks to deploy this technology in every vehicle they make by 2030. And so those are kind of the big 3 waves that we see ahead of us. The first wave now is all execution, right? We're really heads down, make sure our customers in the next year meet their deployments. Get out, get on the road, collect data, prove what we can do, prepare in our kind of engineering cycles for that second wave, and R&D is working for that broad deployment. How do we get LiDAR and every vehicle on the road to kind of roll out.

Yes. No, I appreciate that. So can you just maybe talk a little bit about how the company generates revenue? The company has been generating revenue. Is that more from selling prototypes or prototyping? And then as we kind of think more towards these the second wave and even the third wave down the line, is it like a revenue per vehicle produced? Can you just talk about that, like the revenue progression of the company or the drivers more so?

Yes, and let me shape that, Chris. And so yes. I mean, as Matt talked about, we're kind of -- we're on the verge of kind of the first launches for production. So that's when you start seeing the units on production cars that people can go out and buy. Up until now, a big driver of the revenue has been either selling the prototypes as we get ready for that production launch or it's the non-recurring engineering revenue that comes from getting those platforms ready, that can be hardware, that can be software. The customization that happens from our engineering teams to make sure that that's ready for the OEMs. And that's been a large driver of our revenue. With those first wave customers, and now we're -- as Matt hit, we're kind of starting on those non-recurring engineering programs for people who are going to be launching middle of the decade. The other thing that we have is we've got -- we do have some subsidiary businesses that we've acquired, and so they have revenue. They develop things for Luminar, but they also may have business outside of Luminar. And so we have 3 different subsidiaries, Black Forest Engineering, OptoGration and now, Freedom Photonics. And Matt hit that those are really developers of our mixed-signal ASIC, the photodetector and then a laser company, and various chips that go with that laser. And so, then as we transition and we start to see production, you'll see revenue ramp based on the production launch of the LiDAR. And in addition to that, we'll also have -- we have a software effort that's as big from a people perspective as our engineering teams working on the hardware. So we have -- we have software capabilities that we will provide and sell, and we're also elements of the services business as we start to kind of put an insurance program together. So there's kind of a -- but all of those things start to ramp more significantly, obviously, when the customers go to market and you can buy those things in the end market.

Okay. So I guess, unlike the hardware piece and when we start kind of seeing the more substantial wave, it will be like every time Volvo sells the car with Luminar technology or the LiDAR in it, that counts as revenue for you guys? And is there any like, aftermarket? Is there anything recurring?

Yes, not as much on that side. The thing I'll say it depends a little bit is the first thing you think about when you win one of these designs and Volvo is a good example. But when we first won Volvo, we won the next-generation XC90. It started as an option. And in that case, you'd say hey, how many cars did Volvo sell, then the take rate of who picked the safety and autonomy package as a part of that XC90. We've since that point, Volvo has made the decision to standardize the LiDAR technology. So in effect, every next-generation XC90 that goes out, goes out with our LiDAR. . There are other customers where it's an option, and then you have to kind of factor in a take rate of who takes that package like you see in other packages with OEMs today. And then on top of that, what elements of the software are they using? Are those going to be things that go with every car? Or are those going to be an option where somebody says, hey, I -- everybody is going to get the safety package as a part of getting the LiDAR, but who is going to purchase the highway autonomy upgrade, right? And so Volvo has done some discussions of talking about that where you would go in and say, yes, I'm going to take that. Volvo talked a little bit about how it's going to roll out first in California and then become more broadly available. So there are elements of this that are going to be standard. There are elements of this that are going to come with some type of a customer decision and a take rate.

I appreciate all that. Obviously, the company has had really nice success on the commercialization side. A lot of -- you called out Volvo, but there are so many others. The -- has there been -- has there been any pushback just in terms of this is still a new evolving technology that like, okay, hey, maybe we don't -- maybe not today, but maybe talk to us in 2 years once maybe till that tech curve starts going sideways. Is that any sort of barrier to adoption, or does that create any like friction in the OEMs wanting to put this on the vehicles?

Matt, do you want to talk -- I mean, Matt's had a lot of discussions with all our customer base, so.

Yes. It's a really [indiscernible] cycle question. So -- and there's both sides of it, I should say. The cycles that we see in automotive are long, but not as long as they kind of historically have been in some ways. It gets a really fat middle, because they need to get the hardware mature enough that they could go collect data and build software on it. But there's a lot more willingness to deploy and release software over time, and so they need to kind of derisk the data collection up front. And so in some ways, the timeline is compressing, in some ways, it's expanding. But as far as the technology ramp that we run, what's really interesting and more and more of this how Luminar is kind of thinking about this, is that we feel very confident that we can enable the full road map of software that our customers have with our existing product. What our technology road map, which is not sitting still and we plan 2x to 3x performance bumps every time we release new product at least in addition to driving the size weight cost power down aggressively. Those performance increases that we drive for unlock things that aren't quite on their road map yet, but immediately will be. For example, when we think about braking, how fast can I go and stop for a tire in the road, right? Those kind of small edge cases, it's really what drives a lot of the requirements. And whereas in our current product, you might have to do a pretty aggressive breaking maneuver. In our future products, everything becomes comfort break. And so the idea is we can achieve the functionality of trying to road map towards over the life of the vehicle. And as we move forward and insert with new technology into newer vehicles, those new vehicles will have a longer road map. And so we see that because we're able to do that, because the technology -- the product, I should say, has a lot of configurability control as kind of very software-defined kind of sensor, it can be squeezed in different ways to achieve the goals for their foreseeable future, and we give them different types of road maps in the future. So we've done a pretty good job of not throwing the baby out with the bath water with our road map, right, because we're talking road map with customers out to these out years of the 2020s. And with the full mindset that we don't want to undercut our today product sales. So we've done a pretty good job of that. Maintaining footprints in vehicles is key. Obviously, not all a lot of our companies can say this, but we are always making it smaller. So it will fit in the same space, if not a smaller space. So those kinds of cut-ins, trying to explore new models of tech insertion, statement literally into vehicles. It could be an upgrade pipeline for their vehicles into the future as well. So those kind of things are all part of the discussion that we used to remove the friction of the wait and see parts of the market.

Yes. I really appreciate that. And when you kind of are talking with the OEMs about that road map, it seems like, and correct me if this is wrong, the initial deployment will whether just maybe come standard on some more premium units, like the XC90 or could be a package that could be added on. What is needed for this to go for maybe something more on the premium end of the market towards that road map being, I think you called out Nissan or one of the OEMs kind of standardized. Is that just that the cost curve needs to come down as the technology scales? Or is it -- or maybe they'll find cost out elsewhere in the business to kind of fit this in? How does that all kind of shape?

Yes. So it pulls a lot of stuff in a kind of trajectory towards adoption. And so cost is important, but its -- the deeper you go into vehicles, the more -- let me [indiscernible] this. The deeper you go into lines, the higher volumes, less luxury, the more holistically, they think about the cost of the vehicle, which is kind of interesting. I think it's maybe a little bit less focused on incremental to the cost of the cars so much. So what we find is that focus and ecosystem that we've put together go well. So we've been investing lots of time in roof system suppliers, windshield suppliers, headlamp suppliers, all these different places in which you might integrate a sensor, and include them in our road map in a way that we can bring to the market solutions, right? So it's not just, hey, buy my camera, by my LiDAR. It's here's the solution. Here's all the things you need to do to adopt this in your vehicle so they have a good picture of the whole scope. And to know the performance that they'll get to be able to achieve their goals. And from what Trey mentioned, on the insurance side, that becomes really important. If we can save significant amount of insurance value or capture a significant amount of insurance value, then that makes a big impact over lifetime of ownership as well. And so we want to be able to maintain vehicle performance over our whole road map. We're not just going to throw away performance until we can get something that you can grow in every Honda Civic, but there's many, many of them around, because you also want to maintain the value. We don't want to go the old automotive route of, let's make a thing called LiDAR as cheap as possible and shove it in all the cars because you won't actually recoup the value that the technology gives you, right? You'll spend more, gain nothing, or you'll spend less but gain nothing. And so that's the kind of way we think about trying to drive the road map. But size, weight, cost and power, therefore, all matter, because those drive the total cost of integration and ownership down in the vehicle.