Luminar Technologies, Inc. (NASDAQ:LAZR) Q1 2023 Earnings Call Transcript May 9, 2023

Luminar Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.24 EPS, expectations were $-0.21.

Amy Smith: Welcome, everyone, to Luminar’s First Quarter of 2023 Business Update Call. My name is Amy Smith, and I am Luminar’s Head of Investor Relations. With me today are Austin Russell, Founder and Chief Executive Officer; and Tom Fenimore, Chief Financial Officer. As a quick reminder, this call is being recorded, and you can find the earnings release and the slides that accompany this call at investors.luminartech.com. In a moment, you’ll hear brief remarks from Austin and Tom followed by Q&A. Similar to prior quarters and in the spirit of continuously improving our shareholder outreach, we will be addressing some of the tough questions submitted online via the Safe platform at the end of our prepared remarks today, followed by analyst questions.

I would also note that, we have extended the submission window for questions via the SAFE platform through the end of our call. Should there be any better uploaded during that time. Before we begin the prepared remarks and Q&A, let me remind everyone that during the call, we may refer to GAAP and non-GAAP financial measures. Today’s discussion also contains forward-looking statements based on the environment as we currently hit and as such, does include risks and uncertainties. Please refer to our press release and business update presentation for more information on the specific risk factors that could cause actual results to differ materially. With that, I’d like to introduce Luminar’s Founder and CEO, Austin Russell

Austin Russell: All right. Well, thanks, everyone . And thank you, Amy. So awesome to have you on the team and yes, I’m sure maybe a familiar face to many albeit coming from NVIDIA. So thank you for that, and looking forward to jumping right in before handing off to Tom for some of the financials and then some Q&A afterwards. So going off. I mean we’re at a great start to the year. We’re certainly firing on all cylinders to be able to scale. And both on a manufacturing standpoint, commercial success standpoint, and working with the global automakers to advance our overall product road map. So I touched on use of these areas before handing it off to Tom. So first, from an industrialization standpoint, that really is the fundamental challenge to be able to scale successfully with these high-volume series production wins.

So our strong year-to-date progress definitely continues to show how we can continue to execute and our building the capacity necessary to be able to meet these growing automaker demands on volume. So what it can do is can screen share maybe some of the slides and whatnot that we have if you can take a look for a second. Do you guys see that, okay? Awesome, Awesome. Okay. And go into this. So first in Q1, we achieved a successful build out and bring up of our new highly automated high-volume manufacturing facility in Monterrey, Mexico. And this is with our partner, Celestica there. So we achieved this major milestone ahead of the Q2 guidance we gave at Luminar. And the first Luminar Iris centers out of this new dedicated facility are now already shipping to Volvo as we prepare for the start of series production first global scale vehicle launch with us.

So exciting stuff, and if you take a look actually some of the repo centers on the line. It’s a massive clean room build-out that we did successfully and all of the actual production lines or even in a clean room environment. So you can see that with all this leadership team from one of our automakers that’s there alongside folks on production. And from a construction standpoint, you can see how that’s come together very quickly is like an example of some of the calibration that you have to do along the way. So a lot of different moving parts, but all happening successfully. So that’s really what leads us up into our recent partnership with TPK, so this is a multibillion-dollar supplier to major combat tech and automotive companies around the world, including folks like Apple and Tesla where they built that for sort of multi-touch display for them, when it comes to the modern smartphone and the original iPhone when it came out.

So very familiar with working in advance new technologies and way to have them partner with us to be able to operate an additional even higher volume factory that’s driven by rapidly growing demand for Luminar in Asia. So at this time, the batteries will have the initial capacity of up to 60,000 Luminar sensors per year to be able to support the already awarded programs from automakers like, for example, Mercedes. So — and then that’s to be able to support volume primarily in Asia. So that which has been continuing to take off. So Factor VII is the ability to further expand the capacity as the demand ramps beyond those levels. But for context, we’re expecting Luminar to be equipped on a seven-figure number of vehicles throughout Asia at the end of this decade, just the current contracts alone.

So, that kind of brings it to the next topic there, too, when it comes to commercial momentum, which will go into. And this is sort of a signing ceremony and whatnot that we did with those guys when we’re out there plus commerce that we had, it’s a whole thing, but PK guys are all in. It’s very, very exciting. And Tom can talk a little bit more about what they’re doing from the investment standpoint. But when we were both at the Shanghai Auto Show recently, I think it was clearer than ever that China has incredibly strong demand for this kind of product to be able to enable the next-generation safety and autonomy and it’s about on the order of half of the 20 million vehicles sold per year in China are from global automakers, so many of which that we’re working with is limit our partners, so for context of the now more than 20 production vehicle models Luminar is designed into, the majority are also slated for the China market.

And you can see like the example of Polestar 3 with Luminar that’s out on stage on the Polestar good therapy train very prominently and very exciting to see that shown off for the first time live. So that’s a great example of what they’re able to do. So, you take a look also at what’s already happening today with — out there with the SAIC R7, got to actually take a live driven for the first time out in China with Obviously, Illumina integrated on the production vehicle, so an exciting experience to already season benefits that are happening from a safety and autonomous capability perspective there, too, when it gives a really long range detection capabilities and enhancing the ADAS systems that’s on there to the Thomas case there. And then when it comes to what’s next and what was also announced is Volvo had introduced the new Volvo X90 excellence.

So this is a new model, is a derivative of the X90 of course, is a 4-seater that’s really, I said, just all around, very impressive and initially slated for the China market. So cost to show how automakers are continuing to double down on us. Of course, we’ve announced some of the other expanded wins with other automakers, but this is sort of a new one for just the past couple of weeks. You take a look at what they had on stage and it’s pretty impressive, so all around with the EX excellence. And One of the recent interesting bits of news is that the vola CEO, Jim Rowan has just said on the recent earnings call that preorders for the Luminar X90 had surpassed even the company’s boldest and most ambitious internal projections in terms of what the sales were.

So they sold out for that initial run that they’ll do and then, obviously, you’re going to be scaling that up exponentially. So as part of the future of their brand, you can see even just on the press conference, there actually featured Luminar is like one of the key fundamental points for like why you would buy a Volvo, I guess and how we differentiate in that kind of market where it’s highly competitive. So of course, as I said, continuing to expand with Polestar that we covered. This was earlier in Q1, we announced that we’ll be now moving across their different models in their lineup. So this expanded partnership provides that foundation to be able to further collaborate on the LiDAR integration, including on the Polestar 5 that will be out after this.

Then, of course, after two years of close collaboration between our companies, Mercedes-Benz announced plans in Q1, this prior quarter too. Introduce our new Iris+ sensor and associated software across a broad range of their next-generation production vehicle lines by mid-decade. So it’s great to be up there with their leadership and really be able to help work with them to set the future roadmap for what’s possible when it comes to auto bond speed level capabilities as well as of course, improving the safety of vehicles for all. So they’re across the board, health by Southwest as well as their own investor event, which is great to be there with Jensen Huang, Nvidia CEO on stage alongside Markus. Those guys are awesome all around. So then their sample featuring Luminar point cloud and perception in the — in one of their cars.

Yeah. But, of course, we’re continuing to focus on product execution, development with not just industrialized and current products, but next-generation products. And one of them is this Iris+ product, so we announced this over Luminar Day and obviously able to say that the samples have already been successfully delivered through the lead surge production OEM for it. You can see an example of this is just to show a case like the — at least to our knowledge, like the largest lidar or 3D sensing ranging facility over 300 meters long and have a host of different crazy test that has to be able to go through to make it make it successful to beach Mercedes’ standards by being able to truly cover all the different edge cases and use cases. So great, huge milestone.

Obviously, we started working on it a little while ago, but I’m proud to say that it was actually less than a year for the product to kickoff all the way to the B sample customer delivery. So again, another important milestone along the way and showing that we’re firing on all cylinders with a strong ability to execute through the entire engineering and manufacturing process and core software form where all the things that have to make this successful. So yeah, and obviously, we’re — as part of this — we’re well on track to be able to achieve our goal of entering the Iris+ C-phase this year. So the question, what else are we doing? So part of what — we announced at Luminar Day as we talked about Seagate and the Lidar team whether joining on Luminar, accelerate our tech road map.

Happy to announce today that we are also welcoming the Argo lidar team as well as what was formerly [indiscernible] team out in India. So as part of accelerating our existing road map, again, in those pieces, what’s about the technology more about how do we continue to successfully resource with great minds on how to continue to accelerate our products. And in the case of the Argo, which is formally known as a Princeton Lightwave team, they’re partnering with and joining on to Luminar semiconductor to be able to advance our high-performance laser and photodetector road map rapidly. And then for the India case, that’s really starting, we’re establishing an engineering office out there just sort of a kick start on this. So this will be — that will be great to be able to do.

So continuing to expand at global scale. So last and not least, I want to highlight just some new echo system partners that we have in Q1 as well as — of course, we’ll be formed in Q1 for the Luminar semiconductor between Optogration, Black Forest and Freedom photonics, again, with the receiver, the ASICs for the processing electronics and the laser chips, respectively. So we combine those together to be able to have an internal semiconductor powerhouse in the US here to be able to make this very successful. And it’s really building specialized chips for LiDAR. And of course, can leverage those technologies to be able to scale across other industries, which we’ve already had successful contracts for expanding even beyond. But when it comes down to it, this is a key engine for technology development that’s very, very unique to Luminar.

And I think critical to being able to create such a high-performance product and being able to do so at cost effectively in the real world there, too, with the scale of product. So — but we’re not stopping there. In terms of — and this is what we’re talking about is like what are our exclusive ecosystem partners that — where we have even contractual exclusivity around it. We’ve added actually four of those, just alone in Q1. So TPK was one of them from what we talked about. So they’re signed up. They’re 100% all in on Luminar thing with Swiss Re. We’ve got exclusivity all in on Luminar, which this is the insurance partnership that we have that’s — they’re the Swiss Re CEO, came up with over video. I limit our date for the Swiss Re solutions to be able to speak to how they’re — we’re going to be able to use the data from Luminar to lower insurance costs from — by providing that to the insurance providers for Luminar coke vehicles as well as, ultimately, we have already had the ability to provide reduced cost of insurance ourselves in partnership with automakers that will help with the total cost of ownership significantly and take advantage of those things that I think a lot of you are worrying and thinking about today.

Scale is, again, a great close partner that we’re using for our Luminar AI engine, and they’re exclusive to Luminar know their LIDAR and then Seagate, of course, as part of that strategic deal that we did. So yes, it just goes to show what was possible and just great progress all around as we scale the business, build them out and continue to execute on all of our promises. So — with that, I’d love to be able to hand it off to Tom for some remarks when it comes to the financials and milestones.

Tom Fenimore: Great. All right. Well, thank you very much, Austin. I’m going to start off by reviewing our progress towards our 3 key 2023 milestones. The first is to successfully scale. Our target is to bring online our high-volume automated manufacturing facility and meet Baldos SOP requirements by the end of this year. As we announced a few weeks ago, the highly automated dedicated facility in Mexico is up and running ahead of schedule. The team is now focused on completing the remaining validation test to ramp up this facility to the necessary production levels by the end of this year. Our second milestone is to keep advancing our technology and product road map. Specifically, our targets for this year include entering the Iris+ C-phase, building a next-gen Lidar prototype and completing software support to Volvo and Mercedes SOPs. We remain on track to achieve this milestone.

Specifically, we delivered Iris+ B1 samples to our lead customer this quarter and achieved several software milestones necessary to support series production. Our third milestone is to grow our forward-looking order book. We have already been awarded new vehicle programs from existing customers this year, such as the Volvo EX90 Excellence that Austin mentioned. In addition, commercial momentum with potential new series production customers is accelerating. We remain on track to grow our forward-looking order book by at least $1 billion this year. Let’s now turn to financial highlights for Q1. Revenue for the quarter was $14.5 million, up 112% year-over-year and ahead of our guidance, primarily due to higher program revenue and sensor sales.

For the quarter, we reported gross loss of $14.6 million on a GAAP basis and $11.8 million on a non-GAAP basis. This was a significant sequential improvement, cutting our gross loss almost in half from Q4 levels. A few more details on our Q1 COGS and gross margin. During the quarter, we incurred approximately $11 million of launch-related COG expenses, which we expect to significantly decline as the year progresses and we achieve a successful launch. These expenses consist of items like inventory write-offs, primarily from obsolescence’s due to product advancements, expenses of launching our new dedicated Mexico facility and adjustments to NRE contract cost estimates. As these launch-related expenses wind down and our new facility winds up, our non-GAAP gross margin should turn positive on a quarterly basis by the end of this year.

We ended the quarter with $422 million in cash and equivalents. As I mentioned at Luminar Day, this liquidity position leaves us with sufficient capital plus a cushion to reach profitability. Our Q1 free cash flow was negative $76 million, which improved slightly from the last quarter. In addition to the launch related COG expenses I just discussed, there were significant other cash expenses during Q1 that we expect to improve during the second half of the year. Of the negative $76 million of free cash flow, approximately $22 million was launch-related expenses such as contractor payments, tooling expenses, CapEx and other items, and another $8 million was on other items like mark-to-market losses on our investments in security deposits on new leases.

As our business and new facility ramps up and the launch costs ramp down, we expect to demonstrate solid progress towards our profitability goals we discussed at Luminar Day. Specifically, we expect to improve our end of the year free cash flow run rate by approximately 50% compared to Q1 levels. During the first quarter, we executed several small strategic transactions, including the Seagate acquisition and the two acqui-hires highlighted by Austin earlier and financed this activity by drawing down $23 million from our existing strategic M&A equity program we put in place earlier this year. In the coming days, consistent with the plan we put in place last year, we will file a supplement to our existing registration shelf to provide Luminar stock to certain strategic vendors, who prefer it instead of cash and expect this to total about 1% of our current shares outstanding.

Finally, to reinforce our recent partnership, we have entered into a definitive agreement with TPK, whereby they will invest up to $20 million into Luminar. All these actions are consistent with our year-end guidance of $395 million to 400 million shares outstanding. Lastly, I want to affirm all of our full year 2023 financial guidance we discussed at Luminar day. Specifically, we expect to grow revenue at least 100% this year, achieved positive quarterly non-GAAP gross margin by year-end and end the year with at least $300 million in cash and liquidity and a share account in the $395 million to $400 million range. For the second quarter of this year, we expect revenue to be in the range of 15 to 17, that’s $15 million to $17 million and our EPS loss to be relatively similar to the Q1 loss of $0.24 on a non-GAAP basis.

To conclude, I would like to thank the broader Luminar team once again for another great quarter and the incredible operational progress that the team has made. With that, I will hand it over to Amy for Q&A.

A – Amy Smith: Great. Thank you, Tom. We’re going to start our Q&A with a few of the questions that we received on the SAFE platform, and then we’ll move over to the analyst questions. So our first question we received is, when will Luminar be profitable? And what are the plans to get profitable?

Operator: Our next question is going to come from Itay Michaeli at Citi.

Q&A Session

Operator: Our next question will come from Natalia Winkler on from Marcos [ph] at Jefferies.

Operator: Our next question is going to come from Mark Delaney at Goldman Sachs

Operator: Our next question is going to come from Samik Chatterjee at JPMorgan.

A – Tom Fenimore: Yes. Samik, the only thing I would add is our strategy is to be flexible. In the Volvo case, we’re working with their in-house software team, Zenseact, and we’re going to work with them hand-in-hand to reach a successful launch. We also partner with NVIDIA, Mobileye, Qualcomm, kind of like the leading technology systems integrator. So in the Mercedes-Benz case, they want us to work with hand-in-hand with NVIDIA, no problem we’re going to do it. We’re also developing some of our own software that — in case an OEM wanted to work directly with us, — we want to be flexible. This is, as Austin said, this is tough. And at the end of the day, we need the software to work. If the software doesn’t work, our ladder is just an expensive piece of equipment sitting on the car.

And so we need to work hand in hand with the software players to make that work. We think that this is going to continue to evolve, and it’s going to evolve OEM by OEM, region by region. And we’re going to be flexible and make sure that we can work with anybody that the OEM wants it to work with. Because at the end of the day, we need to solve work to better to fully deploy our LiDAR and its capabilities.

A – Austin Russell: And for that exact reason, that’s why we’ve already developed that base capability when it comes to software around the LiDAR and providing it to OEMs. And then the real question is now is that how much can you scale that content value on a – kind of what we’re talking about sort of seeding the idea of a Luminar Day as you sort of you have this core sort of engine around the luminar LiDAR, then you have sort of base software and some advanced software features that we enable with that and then AI capabilities. And you have the full stack systems for practice ASG highway assist, mapping or even insurance that we have — that are all additional vectors for growth of how we can exponentially scale that revenue per vehicle. And that’s where I think, hopefully, even what we presented at Luminar Day, should prove to be very conservative over the long term.

Operator: Our next question will come from Emmanuel Rosner at Deutsche Bank.

Operator: Our next question will come from Josh Buchalter with a follow-up from Cowen.

Operator: Our next follow-up will come from Natalia Winkler at Jefferies.

Operator: Our next follow-up will come from Mark Delaney at Goldman Sachs.

Amy Smith: All right. That marks the end of our analyst queue and the questions. I would like to thank everybody for participating in the call for the analysts that have questions and for the investors and other folks who have joined us. We look forward to talking with you next quarter.

Tom Fenimore: Thanks a lot everyone.

Austin Russell: I’ll say I know excited and awesome to have everyone on for the journey for this. We got as much conviction as ever in making all of this happen here too. And I’m 100% all in. I think never — not planning it, but as we sell like a single share and as soon as our legal list actually get some more than I hope that be able to [indiscernible] crazy market times. I appreciate it guys. And yes, let’s be in touch.