Luminar Technologies, Inc. (NASDAQ:LAZR) Q1 2024 Earnings Call Transcript

Luminar Technologies, Inc. (NASDAQ:LAZR) Q1 2024 Earnings Call Transcript May 7, 2024

Luminar Technologies, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Aileen Smith: Welcome everyone to Luminar’s Business Update Call for the First Quarter of 2024. My name is Aileen 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 shareholder letter that accompanies this call at investors.luminartech.com. At 4 p.m. Eastern Time, we published our Q1 letter to shareholders, which hopefully many of you have reviewed. We’re continuing with our format this quarter from prior quarters, which will primarily be an interactive Q&A session. I’m sure we have a lot of questions to get through. As a reminder, we will be addressing retail investor questions posted to the SAFE platform, institutional investor questions emailed to our investors’ inbox, and live questions from our analyst community.

We’ll be checking these platforms intermittently through the duration of the call, to address any that come in real time. Before we begin the Q&A session, I wanted to 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 see it, and as such does include risks and uncertainties. Please refer to our shareholder letter for more information on the specific risk factors that could cause actual results to differ materially.

A – Aileen Smith: With that, we can get into some of the questions that have been on folks’ minds since Luminar Day, and some of the developments over the past few weeks. So we’ll jump right in with question number one, when will you start mass production of your LiDAR sensors and what future plans do you have for growth?

Austin Russell: All right. Hi, guys. Thanks. Hopefully you hear us okay.

Aileen Smith: All good.

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Q&A Session

Austin Russell: Awesome. Awesome. And yes, thanks, Aileen, for the intro, and excited to get a chance to jump straight in and answer some of the questions, and thanks for taking a look at the letter that was output, or really presentation with all the information. A lot of stuff going on. We thought it was going to be something more, simple given that we just had Luminar Day, but with the new regulations, everything in the meantime, it’s yes been quite a whirlwind. But yes, in terms of the SOP question, that’s, of course, one that we’re really excited about. We did officially hit or start of production milestone, with Volvo. So that’s something that, what, the past decade of Luminar has been leading up to, and we’re fortunate enough to get a lot of big congratulations and notes from, folks in the industry that have been waiting for this moment for quite some time.

And of course, with everyone from, our other customers to other kinds of automakers to see this success, it’s very meaningful all the way, even to our own supply base, that with the vast majority of programs not ultimately making it to production in the broader autonomous vehicle world, this is something that’s, I think, a standalone shining beacon in showing what is possible, and people are very much taking notice.

Aileen Smith: All right. Our second question, what are the implications of the new NHTSA ruling and what impact will this have on Luminar? Can you meet these standards and broader autonomy without LiDAR like Tesla believes?

Austin Russell: Yes, so we’re not aware of any system that comes even close to meeting it without LiDAR. And what we’ve actually shown is that with our long-range LiDAR across all the different testing protocols, including specifically the ones that NHTSA has outlined, that we are able to successfully meet and beat those different protocols. And this is all confirmed as well by the testing that Swiss Re has done independently. We showed that off at Luminar Day, where they’re able to show a massive double-digit improvement in terms of the safety implications, as well as when – in reduction of vehicle accidents and crashes, as well as when they do occur, still significantly a reduction in the speed at, which the accident occurs, corresponding to improved mitigation power, so to call it, from that.

And what that all means is that we believe that, long-range LiDAR is required to be able to meet those kinds of new standards that, NHTSA is mandating across the board, and a massive tailwind overall for the adoption. I have to say, I was – I was pretty impressed by how far they went on these regulations. I mean, we know it’s been coming for some time, what, a decade in the making, and the U.S. is really stepping it up. And I think will serve as the benchmark worldwide. We saw similar trends, what decades ago, with everything from seatbelts, to airbags to even – the concept of AEB in the first place that camera radar, were able to solve for. But as we know, the majority of accidents that occur today, still occur even despite some of these advancements in AEB technology.

And it needs a fundamental step function improvement. And that’s not to say that there isn’t still room left, to be able – to do improvements to be made with existing systems. Absolutely, that’s the case. But we’re talking a totally different world. In particular, there’s a massive increase in the speed at, which required to be able to do this, as well as a requirement for pedestrian testing, and braking during daytime and nighttime. And what we’ve seen is, across the automaker landscape, is I think also a lot of surprises that this is now pushing forward so quickly, beyond the expectations. In the letter we outlined that, I think this is pretty clear in terms of driving standardization as much as a decade earlier than, what it was otherwise thinking and 10xing our opportunity, for what we have ahead.

And this is all happening, like I said, literally in automotive years. This is like right around the corner in 2029. So I think this is possibly one of the best things to happen to Luminar, maybe even the best thing to happen to Luminar in our entire history. So very excited for that.

Aileen Smith: Great. And next question is around the announcement from last Friday. Would it be accurate to say that the restructuring goal, is to outsource much, or most of the manufacturing process in order to reduce capital need and related risks, as well as to more rapidly ramp up production?

Tom Fenimore: Sure. Why don’t I handle that question? So we, as Austin mentioned, we reached SOP a few weeks ago with Volvo. And that was a really intensive four year plus period to industrialize our first product, Iris. During the last few years, we tripled the size of the company. We put in a lot of blood, sweat and tears to get there. And we learned a lot about ourselves as an organization. And upon reaching SOP, and actually a little bit in advance, we really took a long hard look at ourselves, and tried to decide what do we do better than anybody else out there. And a lot of that is related to our technology, our R&D, our semiconductor business, et cetera. And then what are some of the industrialization activities where quite frankly, some of our existing partners like TPK do just as well, if not better than us.

And so, the primary focus of the actions that we took last week was to put Luminar in a position, where we can move more quickly and more efficiently and more cost effectively, to develop and industrialize our future products. I want to say, it wasn’t primarily a cost exercise. It was more of an efficiency and speed exercise. Unfortunately, that resulted in having us to make some tough decisions on a personal level. But it was something that we had to do. When you kind of look at the magnitude of those savings, they result in about $80 million of savings. Substantially, all of them should be realized on a run rate basis, by the end of the year. A little more than half of those, are going to be cash savings and a little less than half, is going to be stock savings in terms of stock we issued to our employees, and some of our vendors.

Not included in that $80 million, are going to be some of the benefits we get from being able to move faster on the industrialization, as well as more efficiently. And let me try to quantify that. If I look at what it cost, to put the capital in the ground vote to build out the building, the clean room and the automation equipment for our Mexico plant, that totals to about nearly $60 million. What we expect to be able to launch our second facility in China with TPK, for is going to be about 20% of that amount, not 20% less, but 20% of that amount. And that’s for almost triple the capacity. The other thing, if you look over the last three years, and I would say if you look at some of the industrialization cost caused by inefficiencies from industrializing our product for the first time, over the last three years between cost overruns on some of our re-budgets as well as inventory write-downs and duplicative testings.

And once again, all this stuff is normal when you industrialize it for the first time, we want to focus on getting more efficient the next time. Those three things alone, over the last three years total nearly $100 million. And we think, we’re going to be able to substantially reduce that amount, going forward for our Halo product from the lessons we’ve learned and doing it more efficiently. And then finally, we have our first Halo win. We’ll talk about more of that in a bit, I’m sure. But our SOP now for Halo is going to be in 2026. And we wouldn’t be able to move that fast without industrializing our first product, and putting in place this new structure with LTEC. So yes, there are cost benefits of it. But more importantly, the reasons that we took the actions we did, was to make us more efficient and leaner and meaner, and to move quickly in our industrialization process.

Austin Russell: Well said. And I think it describes all that. And it’s been a whole journey for us, over the past decade. And I think if you really zoom out overall, what we’ve invested on the order of around $1.8 billion, to be able to develop the technology platform, the IP platform, and the industrialization muscle, to be able to enable this, to make this possible. And that’s where you look at, okay, what is the incremental cost to develop a new product? What is the incremental cost to be able to scale? And that has come down radically from relative to the total investment amount that we had to do in the first place, to get to this stage, to get to this leadership position that we’ve been. So now what sort of become a – what starts out as a headwind, now we get to ride in terms of the respective tailwinds of that.

And of course, TPK is one of the first steps of the evolution of the bids of transformation, and there’s going to be more to come. This is something that certainly we’re looking forward to. And when you take a look at, it’s the same thing of like you have a couple billion dollars, what it takes to have the first kinds of technologies, products, Iris family. Now what? Talking on the order of closer to like on the order of a $100 million now for Halo, because we already have this investment. We have the technology that now, we’re just iterating on each generation of chip on each generation of subcomponent that makes that possible. So yes, excited for what’s ahead doing so very efficiently. And of course you guys, please look at the shareholder notes as well as Luminar Day, if you haven’t seen it, see some of the breakthroughs that Halo is enabling and beyond.

Aileen Smith: Thanks, Austin. We’re going to take some questions from the analyst community as a reminder for our analysts. We want to get as many questions in as possible. So we’re going to allow an initial question and some follow-ups. Our first question is going to come from Kevin Garrigan at Westpark Capital.

Austin Russell: Hi, Kevin.

Kevin Garrigan: Yes, thanks, Aileen. Hi, Austin. Hi, Tom. Thanks for letting me ask the question. I’m wondering if you can expand on where in the process the two non-series production customers are that you noted in the guide is in, is this next phase kind of the final stage for announcing a series production win? And are these contracts kind of yours to lose? Are you facing some competition with these two?

Austin Russell: One of them is an automotive customer, and I would say we’re getting to the tail end of the development phase. Once again, I don’t like to predict when our customers are going to make specific decisions that we want them to make, because that timing is largely out of our control and it’s been taking a little bit longer than we would hope for. But I think we’re getting to the tail end of that process with them. The other is a non-automotive customer, where we’ve been working with them for several quarters now, and we’re kind of transitioning into the next stage of that, and adjusting the size of the contract. So that one, it’s exclusive. There’s less competition. The first one, we’ve been working with them for a while, and while we’re not too worried about the competition, it’s not your business until you win it.

Kevin Garrigan: Yes, got it. Okay. Perfect. And then just a quick clarification, your warrants with Volvo that you had noted that are going to cause contract revenue for Volvo, I didn’t see any other specific warrants with customers in the order book in any…?

Austin Russell: Yes, this is something that dates back to 2020, when we assigned the initial framework agreement with Volvo. It was compensation for them to help us industrialize our product for the first time. It’s a little over four million warrants, so strike price of about $3. And for accounting reasons, once we reach a series production, we need to amortize the value of those warrants, which was about $3 million at the time over the first 22,000 and change LiDARs that we make. And so that’s going to put a little bit of headwinds on the revenue, for the contra revenue reasons, as well as to the margin that we achieve on those sensors as well. There’s no other customers where we have, warrants like that or a contra revenue issue. And this date backs to something, as I said, we did over four years ago at this point.

Kevin Garrigan: Okay. Awesome.

Tom Fenimore: Thanks, Kevin. And that doesn’t affect the cash flow of what we get in, of course, or anything with, you know, with the customers and incremental.

Kevin Garrigan: Okay. Yes, that makes sense. Okay. Perfect. Thank you.

Aileen Smith: Our next question is going to come from Josh Buchalter at TD Cowen.

Austin Russell: Hi, Josh.

Joshua Buchalter: Hi good afternoon, thanks for taking my question. To start I wanted to ask about your cost basis, and any change that might have might be coming from the restructuring. So I know at the inaugural Luminar Day, you walked us through the $650 and then $350 milestones of your unit cost economics. Has anything changed, regarding that trajectory as you’ve undertaken – the restructuring efforts, moving more to outsourcing and in particular I mean with Halo on the roadmap? Thank you.

Austin Russell: Yes, so all the actions we took – most of those are all of them are unrelated to sensor cost and sensor economics. One of the things, we’re doing now our engineering team has almost been solely focused on getting to SOP, because you got to get there and now that they’re there, they’re freeing up and we’re going to start aggressively attacking the sensor cost. There’s still you know work that needs to be done there. But the actions we took in that $80 million that’s unrelated to the sensor cost. The targets that we talked about last year at the inaugural Luminar Day as you talked, as you mentioned those were always conditioned on us, kind of having a first full year run rate of production. And so, you need to get the economies of scale.

You need to get the credibility and the contracts in place, with your supply base. You need to work through the manufacturing kinks and you need to do some amount of kind of VABE’s to get there. And so, we’re in the early innings of getting there. We’re not at those targets today. We’re going to be much closer and we still have a path to get very close to that $650 level. LTEC and the industrialization that’s all going to be for Halo and so there may be some resources that we put there on the cost downs for Iris and Iris+, but the vast majority of those resources as well as the benefits we’re going to see on that is going to be for the industrialization of Halo.