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

Going to jump on to Luminar now. So as some of you may be aware, Luminar is a leader in next-generation LiDAR sensors and well positioned to benefit from the increasing use of ADAS and autonomous driving technology. It is also one of the few LiDAR companies that offers 1550-nanometer LiDAR, which has meaningfully better range than competing 905-nanometer LiDAR. And ultimately, this is -- this leaves it well positioned to benefit, especially as autonomous vehicle progresses to some of the higher levels.

So with that, I was just wondering if you could just quickly give the pitch that you're sharing with OEMs when you're trying to sell your LiDAR?

Sure. I would say, overall, our LiDAR, it all comes down to the functionality that our technology enables into the vehicle. And I would summarize it in 2 big buckets. One, we make the car much safer. LiDAR at the end of the day is a 3D technology. So you can do real-time 3D scanning of the environment in front of you. You know where every object is, how far away it is and you can track velocity. And it gives you a much clearer and accurate representation of the environment in front of you. Last year, we commissioned Swiss Re, one of the largest reinsurers in the world to do a study about how much safer our technology can make the vehicle. They published a study, which is up on their website on the blog. And basically, this technology relative to the safest car on the road today can enable up to 30% less accidents. And then when you get into an accident, up to 40% less severity because for the accidents you can't avoid, you're hitting 10 miles an hour instead of 30 miles an hour, which is a lower speed, which also contributes to more safety. So that kind of quantifies the safety benefits. The other things that we're able to do is enable autonomy, particularly highway level autonomy for consumer vehicles. That's at all speeds up the highway level speeds. And one of the differentiators in our technologies, which is 1550 instead of some of the other products out there is we operate at a width of light where we don't do damage to the human eye. So we're able to put through on average, 15x more power through our laser, allows us to put more photons into the environment and see further. That enables highway level autonomy or L3, L4 at not only low-level speeds, but high-level speeds. And so that same LiDAR does both things at the same time, you need the software and some of the other support on the vehicle, but it makes the vehicle much more safer and enables autonomy at both speeds. That's our pitch to the automakers in terms of the functionality that we bring.

Now out of curiosity though, I mean, what are the big questions you're getting from OEMs? I mean, especially because you're seeing companies like Tesla operate without LiDAR in their vehicles. It sure it provides that extra layer of safety. But what else do you need to do to convince OEMs to make that -- to bridge that gap, especially knowing that this will also have an added element to the design of the car that maybe they don't have to deal with right now?

Yes. And look, LiDARs, they're costly, right? They're several hundred dollars depending upon which one you want to use. And it all comes down to is the cost worth the benefit. Look, Tesla is trying to do this camera-only. What I always like to -- and like, look, I don't want to get into an intellectual debate with Tesla and Elon, but what I always like to point to is Mobileye. Mobileye, if there's any company that should have the capability as well as the motivation to make a camera-only autonomous system work, it's them. And they've said publicly, they can do up to L2+ with camera-only. But if you want to do autonomy, which is L3 or higher, they deploy a LiDAR into their systems. The reality of the situation is if you want to build a good safety system or a good L2+ system, you don't need LiDAR today. LiDAR brings that step function increase in the safety, which I talked about the Swiss Re study. And then in our mind, it enables truly safe and L3 autonomy that is there. And so I would say with most automakers, they get that. For us, and I think particularly with our technology, it comes down to 2 things. One is the cost, right? Our current generation product, Iris, it has a certain cost structure that makes it applicable to the higher-end vehicles. Our next-generation product, which is Halo, they're -- that's going to be introduced at a price point where it makes it, I would say, more applicable and the value proposition better for the mass market. And so I think that, that's a very important thing. The other thing is the software systems to fully deploy our technology, we kind of see with most of the automakers we're working with. This is taking longer than expected to kind of get there. And so if you don't have the software ready to kind of fully unlock the potential of our LiDAR, then it kind of help -- it changes the value proposition and the value algorithm, whether or not that makes sense. If you do have the software ready there, we do believe and fully unlock the safety benefits and highway autonomy that the value proposition becomes compelling. It's just kind of taking longer for everyone to get there. And we're seeing that with the customers we're working with.

Maybe just a question on that debate of camera-only versus multi-sensor systems. The idea that you would have a system without redundancy at least, right? It seems like it's kind of a scary way to.

At least initially...

Yes, or at least potentially for a while, I mean, just given the different conditions. I mean, are you seeing anybody else other than Tesla think about a single sensor system that...

Not for autonomy, right? I mean I would say that Tesla is pretty much going in that direction. I would say pretty much every other automaker would say that once we get to L3 or higher for autonomy, you need LiDAR. Now whether you need it for L2+ and below, there is a debate there. You can build a good enough system. If you want to meet some of the new NHTSA standards that are coming out with the safety and everything, we think you need LiDAR. But I would say, not everybody in the industry has kind of concluded that yet.

And when you're defining highway speeds, I mean, John probably does this as well is, I mean, what is the definition of highway speed? Is it 60 miles an hour? Is it miles 80 miles an hour?

I think the industry standard is more kilometers per an hour, but it translates into roughly 70, 75 miles an hour. We're working on helicopter applications. Typically to be able to respond that at 75 miles an hour and bringing the vehicle to full stop, you need to see all objects like not in all conditions, 250 meters plus. We're on certain applications like on helicopters where LiDAR is kind of seeing out to almost a kilometer.

So it has potentially much further -- speed go up.

Yes. We -- in some of our firmware algorithms, we like purposely kind of cut it off there because if you get too much data, it can overwhelm the system. But yes, we've seen applications like in helicopters, we need to see further where it's like up to a kilometer.

Got it. Okay. And how -- for Halo, the new LiDAR that you're going to be bringing out at some point here, how has the initial reception been when you've been having those conversations with OEMs? And what are they asking for maybe that if there's any hesitation.

Yes. So it's interesting. So I think we've done a good job of moving all of our customers to Halo. And that's been a combination of things taking longer in the industry, particularly in the software development and us being able to move forward on the HALO development time schedule, which we expect to be ready to go in '26 to be on vehicles starting in 2027. And so right there, I would say a lot of the automakers are conversations now, it's when can we get to Halo. We're in the middle of the HALO development. We've done a good job of kind of converting the customers to there. We learned a lot doing Iris the first time, and it's a lot easier the second time around, and we're on track for that time line that we've had before. And so we're making it smaller, easier to get together. But from a technology perspective, what we're hearing from our customers, it's not necessarily to make the technology better. It's kind of taking what Iris does today, making it smaller, easier to integrate in the vehicle and cheaper. So those are easier engineering challenges to solve than saying like, jeez, how do we kind of get more range or more resolution of our LiDAR. That's not the problem we're solving.

So LiDAR is already not an easy thing to produce, especially at scale. How much more difficult or maybe easier is Halo. And then also, if you think about it, I mean, I think, funny I was mentioning earlier that they're starting to see some LiDAR, albeit 905 nanometer LiDAR being produced at like $200 to $300. We'll be selling at $200 to $300 a unit. So longer term, I mean, do you think you can get there? What are they doing? Or what could you learn from their manufacturing process maybe there...

Yes. So I, look, we're -- we constantly look at our competitors and look and see what we can borrow and integrate into our products and make them more efficient as well as more cost effective. When it comes specifically to Halo, I'd say there's a couple of things that I would highlight. One is a lot of our products, particularly the components like the laser, the receiver, the ASIC, we custom made those we kind of build up our supply chain from scratch. And we can piggyback on that for Halo. So once again, it's kind of -- we built that out initially for Iris. There's a lot of pain and time and money associated with that. We can piggyback on a lot of that for Halo, which makes the development process easy as well as allows us to bring cost down. The other thing I would say is we also kind of figured out how to manufacture it because as you said, it's difficult to scale these things up. And kind of going through it, there were a lot of lessons we learned. One of my favorite ones is like we had 100 fasteners on Iris, and we're going to have like 20 on Halo. There's a lot fewer components, a lot fewer manufacturing steps. One of the favorite buzzwords in Luminar now is DFM design for manufacturability that we just kind of learned doing this the second time to the first and lessons that we can do. It's -- we hear stories that our competition is going to be at that $200 to $300 price point. Halo is going to be pretty close to that, maybe not exactly at that. But with our premium technology, we're going to compete on the value of our technology, not necessarily a race to the bottom on the price.

Got you. And now -- and initially, I mean, so you're currently on the LiDAR and the EX90. It's going to be on the ES90 at some point in time here. I know you've talked about other OEMs, Mercedes, Nissan as well, potentially including the Luminar LiDAR in their vehicles. Just broadly, what's the biggest factor that's holding back OEMs right now from using the LiDAR?

I think it's just -- I think we talked about software before, right? It's now getting Halo ready to go, and they want to see us kind of get to those Halo development lines and the more mature samples that we have of Halo doing what we all expect them to do. But outside of software, I think a lot of it is just the macro distractions in the automotive industry, everything from EV slowdowns to now tariffs. It's having them kind of make the definitive decisions on their product planning schedule and have the confidence that the software is going to be ready to go. One of the most encouraging data points I've seen within the last months, I would say, over the last 12, 24 months, we've seen in our conversations with automakers time lines pushing out. We had a conversation with an automaker within the last 30 days where they actually want us to bring in our time line by 6 months. And luckily, that aligns with our product development schedule for Halo. So we're starting to see some green shoots about the industry wanting to maybe move forward some of the adoption of this technology. It's a data point. I wouldn't call it a trend yet, but it's an encouraging sign.

Now in some industries, ultimately, you may need like the consumer to kind of pull the technology forward. Sometimes it's the actual light company that's pushing the technology on the consumers. In this case, I mean, do you think there's a consumer pull that's needed necessarily to get the demand for LiDAR to be there? Or how are you thinking about that?

Yes. I think there's going to be a consumer demand, right, safety cells, highway autonomy, that like there's a fullness factor to it. people are going to start to be able to see the benefits with the Volvo EX90 and ES90 here at some point in the near future. There is the potential, we think, for regulatory pull as well, right? Once again, safe cars at a manageable cost, like that's a story that regulators can get their arms around. I think in the Western world, you need to see more vehicles in the world, more real-life data to prove out those data points. We're confident that, that will happen, and that will create both the consumer pull and a regulatory pull.

Got it. And can you just remind us like what are the next vehicles that are going to have Luminar?

Well, we got like the EX90s out there today, the ES90 is coming shortly. You got the Polestar 3. There's a couple of other vehicle lines we're working with Polestar on. And then once HALO is ready to go in that 2027 time frame, I think you're going to kind of see Mercedes, Nissan and hopefully others shortly thereafter.

Okay. And if you could also just talk about the time line in terms of like when you expect to get profitability? I know this is probably...

We're going to need to kind of have Halo out there and probably Halo out there for a few quarters and to kind of get to the unit economics and the scale where we can get breakeven. In the meantime, we're trying to do what we can to bring our fixed cost down, continue to manage our balance sheet to give us the time, the runway to kind of get there and to bring our fixed costs down so that there's a breakeven point based upon the unit economics for Halo where we can get there.

And have you talked about your fixed variable cost structure before?

Like look, I think the good thing about particularly once we kind of get to Halo, it's going to be more of a -- our fixed cost is primarily going to be our OpEx. Our gross profit, we're hoping is going to be more of the variable side as well.

Got you. Okay. And longer term, I mean, as you look at peers out there, do you have a sense for where the gross margin could get to ultimately for the business let's start with?

Yes. Look, I think, look, our targets for Halo that we said publicly is to kind of have the unit economic scale and cost in the mid- to high 300s. And we're hoping that we can have pretty good margins on that in line with like the rest of the industry, if not better.

And then obviously, kind of like the big topic of the week is really tariffs. Who knows how this is going to pan out?

A lot of great questions. I don't think anybody except the President of the United States has answers to any part of this or -- did anybody have any good answers because we're kind of like looking for.

But I mean, certainly, I don't know if you could talk about any exposure you have. Also China bans on certain rare earth minerals. So I don't know if you have any exposure.

Yes. The rare earth minerals, that's something that we monitor. We don't think we have any exposure as well, somewhere deep down in our value change. Some of the gas material that goes to our lasers has rare earth minerals in there, but there's -- that specific one, there's enough supply outside of China and given our current production levels, not anything we worry about. Tariffs, like, look, it depends on the week. Right now, our manufacturing for Iris comes out of Mexico. So anything going across the border today, my understanding, I haven't read the latest tweets is Mexico to the U.S. has a 25% tariff on it. We also have manufacturing presence over in Thailand. Thailand a week ago was at 36%. I think today, it's at 10%. And so we're constantly looking at that. And once things kind of settle down, we'll kind of look at our overall supply chain and manufacturing chain and adapt to the overall cost of the products with tariffs included.

Okay. So is it too early to say then what -- because obviously, you have components that go within the LiDAR production. So is it too early to say if that -- those components are being impacted by and what's the...

No, the biggest impact we have from a tariff is more on the finished good. As soon as it goes from Mexico to the U.S., that's subject to a 25% tariff. We're in discussions with our customers today. Some were able to pass that on. Some were kind of having real-time discussions with customers on. But the biggest impact for us is kind of like that 25% on the finished good LiDAR coming over the border.

Okay. And then just back to the OEMs, Mercedes and Nissan that I talked about earlier. What's the latest in terms of time frame and kind of like when those might come out? Maybe it's a couple of years, maybe it's longer than that, maybe shorter than that.

I think that the launch with them, if we execute to the development time line that we expect for Halo, which should be consistent with Halo being ready to go in '27. Now clearly, we're in the development stage with them. We've been in the development stage for the last few years. As I mentioned earlier, kind of like these -- developing these software systems, it took Volvo longer than they were expecting. We're kind of seeing them with almost all the customers we're working with. And so it's still subject to when those systems are going to be ready to go. But we're hoping within the next 2 years, plus or minus, you're going to see more vehicles of Volvo and Polestar having our technology on the road.

Okay. And is there a reason Geely, I mean, so because Polestar is a Geely business, Volvo is a Geely business. And was there a reason like they were kind of the first to adopt it? I mean, is it just because China is kind of moving faster on the technology?

No. This had nothing to do with Geely. This is a product that makes the vehicle a lot safer. If I was to ask you which car brand is the most synonymous with safety, most people would say Volvo. That's what drove it, not because Geely had any special affiliation for us. It helps being part of that ecosystem. The reason why it's Volvo and Polestar is the EX90 kind of shares a vehicle platform with the Polestar 3. So that helped us get in the door there. And from there, we're hoping to grow.

Got you. If you think about the competitive environment, Hesai, I don't know if you would consider as a direct competitor, but theoretically, competitor...

No. Competitor...

They're Chinese-based, right? So they're Chinese technology. I think sort of the counter to, okay, tariffs might make your costs go up, but they also -- sort of the way the trade is going right now are probably going to be blocked from potentially being in the United States, and we'll see what happens in Europe. I mean what kind of air cover does that potentially cover you on the good guy side of everything that's going on right now?

Yes. So like, look, on the one hand, it's good for us because it helps keep them out of the U.S. and maybe Europe in certain areas of the world. On the other hand, for us, it keeps us out of China, right? Even though there hasn't been a, I would say, formal ban in China of U.S. LiDAR or there's been a de facto China ban. And not only does that hurt us with Chinese OEMs, but a lot of our global customers like a Volvo, Mercedes, et cetera, they have big China business and prevent some headwinds there. And so like, look, I can argue a de facto ban is good for us. You can argue it's bad for us. We're pretty confident that if we can compete on the quality of our technology, we're going to win more than we lose in a level playing field. But we're also living in a rapidly changing geopolitical world and monitor this, and we'll adapt our business model as things continue to adapt.

Okay. On that point, I just want to kind of talk about the production footprint a little bit now. I mean, I guess, first of all, with the volumes where they are, are you incurring any costs associated with that production because it's third-party production conflict so...

Like look, we kind of built out our Mexican plant to operate at a production capacity. We kind of sized that for production capacity a little north of 200,000 units. The guidance we gave this year was closer to low 30,000 units. So there is a fair amount of fixed cost burden that we absorb as part of that. Our unit economic costs for Iris are higher because of that as well. And so on the one hand, with volumes being lower, there is a fixed cost absorption throughout the supply chain that we needed to -- that we're incurring because we kind of planned out for levels based upon the guidance we got from our customers much higher than that. We also kind of look globally at this, right, a big one of the biggest components, we have the transceiver that's actually made in Thailand with Fabrinet, right? And so we do have a manufacturing presence in Thailand with that. We have a second contract manufacturing partner relationship. Celestica does our finished assembly now in Mexico. We have another one with TPK, which is based in Taiwan. Their largest manufacturing facility is in China, but they also have other manufacturing facilities throughout the world, including in Southeast Asia. So we constantly look at our global manufacturing footprint. And because we have multiple partners in multiple regions, it does give us our flexibility to kind of continuously adapt to where the most efficient cost production for us can be, including tariffs once they settle down.

Yes. Now I mean, assuming they don't, I mean, I guess let's see right. But I hope, I mean, does it make sense to produce them in the U.S.? Are they [indiscernible] to produce...

I think it's -- if we're going to be making primarily Halos, hopefully sometime in 2027 for Iris, it's probably not worth it. But as we kind of think about what the manufacturing footprint for Halo looks like today, right, that's something that's probably on the table today that we weren't talking too much about 90 minutes ago. But remember, we don't actually own our manufacturing or do it ourselves. We rely on our contract manufacturing partners, so that's Celestica, Fabrinet, TPK, all people who we're doing business with today, I think it's pretty safe to assume with how the world has changed over the last 30, 60 days with tariffs, so a lot of the big contract manufacturing partners out there are revisiting whether it makes sense to expand or start a manufacturing footprint in the U.S. And if they -- some of our existing partners do, then that's clearly something we need to think about with Halo.

Okay. And have customers communicated any changes in production plans to you at this point? Or is it too early? I mean, recognizing that.

Yes, like I would say Yes. Look, I would say -- when we set our guidance for the beginning of the year, we kind of set it, assuming we make about low 30,000 -- 30,000 to 33,000 something in that vicinity sensors. If you looked at what IHS was predicting at the beginning of the year for the EX90 and the ES90, like it was closer to like 65,000. So we took almost a 50% haircut because we wanted to be conservative. And so yes, I think it's fair to say that over the last few weeks, things have started to come down as opposed to go up, but I think we have a pretty big cushion in terms of like what we built our internal forecast on versus kind of where the rest of the world was.

Okay. And from all the conversations because I assume you've now met with a couple of investors or always talk to a number of investors since the tariffs were announced. Are there aspects of the tariffs that maybe aren't fully understood by the investment community?

Yes. So, yes. So one of the things that I think I've learned is like LiDAR is not kind of classified as an automotive part under tariffs. It's kind of more classified as a sensor. So some of the benefits that other automotive parts have, we aren't necessarily enjoying today. We're looking to kind of educate the system to explain this LiDAR is going on a vehicle, like it's an automotive part, it's going on in automotive. But it's one of those things where it's probably going to take time to kind of change that out. But yes, for one of the pieces of tariff trivias, like LiDAR isn't classified as an automotive part.

So you can easily get it potentially through the system without it being classified as an auto part?

Well, no, I think actually where things are today being classified as an automotive part is somewhat of a positive because there are some exemptions. But unfortunately, we don't qualify for those today. But I think that, that's one of those things from a tariff perspective, we're continuing to do what we can to minimize the impact on that. Even where it is today at that 25%, I don't think it's going to have a significant impact on our results this year. It will have a modest and meaningful impact. And like we're working with our customers, suppliers and others to minimize that.

Okay. And I wanted to touch on capital allocation, next, but I wasn't sure if there are any questions.

Maybe just ask a quick question on that on the classification. LiDAR wasn't on Annex 1, right, for the USMCA. So I mean if it's not on Annex 1, we don't we're not qualified -- we don't fit the criteria for USMCA today, and one of those -- one of the reasons is that again we'll be beneficial beyond on Annex 1 from your standpoint?

Yes, because there are some benefits now for USMCA, which my understanding are being currently reviewed and whether or not those benefits exist today or not or it will still be TBD.

Got it.

Any questions in the audience at this point or not from -- I guess, just if you want to kind of talk about capital allocation, capital needs over the next 6, 12 months, that would be helpful.

Yes. So we're focused on our balance sheet, right? We have more debt than we probably should, and we have about -- a little over $180 million of debt, which is coming due at the end of the next year. We've been -- the good news is we've been reducing that debt that matures at the end of the year. We did a big transaction in August. We did a smaller transaction a couple of weeks ago. We're focused on, I would say, in the near term, both reducing our debt as well as reducing the debt that matures in 2026. Some of the debt that is maturing in 2030 is actually trading at levels where maybe it may make sense to kind of start looking at that. But right now, in the balance sheet management, it's extending our runway, and that's both reducing debt, extending maturities as well as making sure that we have the necessary capital to get us to breakeven.

Got you. And then also under the equity financing program, I did see a prospectus. I can't remember if it was last week. I think last week, probably that indicated Luminar might raise up to $209 million, whereas I think during the last quarter, I think you guys talked about more like $120 million under the equity.

Yes. So I would say that's $200 million, we've been doing on average $30 million a quarter, some quarters a little more, some a little average. That $200 million that is filed that we kind of -- I would say that was upsized a bit, but that is what we use to kind of issue the quarterly issuance under our ATM.

Okay. So it doesn't necessarily mean any change that $120 million number for the year.

No, it's $30 million -- it should cover what we need to do this year as well as well into next year as well.

Okay. And then also just in terms of investments, what are the key investments that you're going to be making over '25 and into '26?

It's getting Halo in the market, right? We have some, I would say, remaining Iris engineering work to be done. But I would say the vast majority and the lion's share of that has already been complete. What we're focused on and the thing that is most mission-critical to us is getting Halo to market on the time line that our customers want us to get it to.

Okay. And then just really 2 of my last questions. Just if you could talk about how we should think about kind of the cadence of SG&A and R&D spending over the next couple of quarters, that would be helpful, especially just in light of the cost reduction programs that you've already announced.

Yes. So our OpEx for Q4 came in around $50 million. We kind of guided that by the end of the year, we'll be in the mid- to high 30s. And so I think you'll start to see that come down over the course of this year.

Okay. And then just lastly, what's your plan with the convertibles? Do you plan to refinance those? What's kind of how you...

So we have 2 convertible -- Yes. So we have 2 converts. We have the '26 with the unsecureds, which come due in '26. Those are the ones that we've been chipping away and we'll continue to chip away at them. We then have some converts which come due in 2030. There's about a $230 million balance on that. $37.5 million of them have already converted. So that's already been done there. Those are trading at levels where we're starting to look at them and figuring out if there's something we should be doing with them as well.

Okay. Sounds good. Any other questions? I think we'll end it there. Thanks so much for coming.

Thanks a lot, John.