Luminar Technologies, Inc. (NASDAQ:LAZR) Q2 2023 Earnings Call Transcript

Luminar Technologies, Inc. (NASDAQ:LAZR) Q2 2023 Earnings Call Transcript August 8, 2023

Luminar Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.21 EPS, expectations were $0.23.

Amy Smith: 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 posted to the say platform and then a lot of questions from the analyst community. As with last quarter, we’ve extended the submission window for questions that submitted VSA through the end of our call should there be any that are uploaded during our call? Before we get 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 see it. 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: Hey everyone and thanks Amy. So welcome everyone to our quarterly business update for the second quarter of 2023. So today, we are actually live from our new Princeton, New Jersey office. After boards Argo AI LIDAR team, formerly known as Princeton Lightwave decided to join us. So, as you probably know, we already have some of the foremost global leaders and experts and specialized semiconductor designs for lasers receivers, and processing electronics, with our new entities that, we formed them in our semiconductor Inc. and the team here is definitely excited to be able to partner with them to help advance and accelerate our chip roadmap holistically. So jumping right in, that it could be good to share some slides for an update.

So we’ll do exactly that. See here is how you know we do it for real. All right. So first and foremost, for the second quarter, we’re on track to be able to meet or beat all of our business and financial milestones for 2023. And that’s despite, broad or challenging macroeconomic backdrop, we’ve been able to successfully execute, advance our roadmap, and attract some of the best leadership talent in the world to be able to drive for company at full speed ahead. So, again, proud to be able to say the progress that we’ve made, but and I’ll touch on each of these different areas throughout the presentation before handing it off to Tom, to talk more about the financials. But first, when it comes to industrialization, completing industrialization and scaling for a high volume is the key to being able to unlock, additional exponential growth in our business.

So we remain on schedule to meet the automated requirements to achieve this high volume start of production by the end of the year and the new high volume facility in Monterrey, Mexico. So in Q2 specifically, went through rigorous validation for the facility, which is underway, and concurrently going through other optimization cycles in preparation for the big launch. So we expect to be able to achieve the required capacity to be able to support our global automakers for its series production over the course of the next handful of months before the end of the year, and have that successfully demonstrated with them. So also in Q2, driven by a rapidly growing demand for Luminar in Asia, TPK and Luminar announced a partnership for which TPK will create an even higher volume factory for Luminar, which will primarily support vehicles delivered in China in the Asia Pacific region.

So Luminar has become one of the only western autonomous technology companies to be awarded substantive business in China, both domestically and from global OEMs. And which just again, another key attribution is to prowess of the technology and the impact that we can be able to have at global scale. So alongside this accelerating growth in Asia, I’m happy to announce that as of last week, TPK has decided to make an additional 10 million cash investment into Luminar stock, with even greater conviction following their previous investment as they get to know the company even better. So next on when it comes to a product and technology roadmap for some of that for that milestone and that side of the business, we remain on track to be able to meet our milestone and the key elements of that including the C phase for Iris+ before year-end.

And in specifically Iris+ began validation and testing from its lead OEM customer in Q2, following the B sample deliveries. Like one of the ones I just saw one around here for testing that I’m sure we can all give a reference point, but we have them. Actually, even at Princeton, they’re helping out with some of the validation process here, which is pretty cool. When it comes to our point cloud, they’re looking great. We’ve begun data collection, and actually been tested already, on the OEM provided vehicle platforms that the lead search production OEM for Iris+ has given us. And we’ve driven them now over 100,000 kilometers so far, in terms of testing with more to come. And these initial results are very exciting and are critical for our customer software development program milestone, excited to have this multibillion dollar OEM program moving full speed ahead.

Our target to complete our 2023 software deliverables for both Volvo and Mercedes SOPs remain on track. And in Q2, we also reached a key software milestone for the Volvo program and becoming feature complete, so to say for our software for them. And while on the topic of Volvo, well, when you’re wanting to make sure to also just get a chance to clear up some confusion that seemed to emerge like a few weeks ago, regarding both the launch timing and Luminar, which are timing is ultimately independent of the Volvo vehicle launch timing. So nothing has changed since both of those announcement back in May, regarding the EX90, launch timing, for which ways will be hit had been mentioned of the time that we have already taken that into account. Previously, when being able to provide guidance, for our business growth, and didn’t have that embedded this year already.

So like I said, we were in a good place. It’s not something that was a surprise to us, necessarily, but some seem to speculate and publish articles more recently that Luminar was the cause of this. But Volvo actually issued a statement directly, since then, just to be able to clarify that. And it’s basically saying that the adjusted time plan is connected to the initial time needed that they need for their software development, not related to Luminar. So there’s some work to do. Ultimately, like the when it comes to the production ramp, we could we’re more excited as ever and Volvo has much conviction as ever in us to be able to see that successfully scaling with EX90 and beyond. And I think they’re seeing obviously great success in terms of their pre orders, going far beyond expectations of what they can have.

Volvo is an incredible partner of ours. They’re not the only partner of ours by any means. We have now over a dozen major commercial wins. And as you’re saying, we’re continuing to move full speed ahead and this relates to our timeline to be able to reach that SOP readiness to the high volume facility by year-end. So looking forward to a successful launch and ramp of that, as we really begin to start next year converting this multibillion order bucket that we have into revenue, it’s sort of begin that process from the beginning since seeing that accelerate throughout 2025. So when it comes to, next generation LiDAR, we also mentioned that was one of the goals that we expect to have that by year-end, and we believe that good a few new breakthrough components to the technology that start with Luminar semiconductor and move their way all the way up through the stack.

And ultimately, that’s going to be the LiDAR that we see is having the opportunity to be standardized across the broader industry on every new vehicle produced ultimately, obviously, you may recall, our target market penetration, by the end of the decade is only 3% to 4%. Because we think even with that, we’ll be able to achieve around 5 billion revenue and two and a half million EBITDA with as much as 60 billion forward looking order book at that point, even with just a relatively small amount of market penetration. But by the time we’re done with this next-gen LiDAR, I think that there’s ultimately a clear path to being able to, take that to 100% at the end of the day. So with these new safety improvements that we are able to deliver on cars, both the autonomous capabilities that makes all the difference to being able to make this successful.

And we’ll talk a little bit more about some of the regulatory tailwinds that we have that are fortunately in our favor later on. So, combined with our other initiatives, I think that’s how you ultimately are able to achieve the goal of becoming one of the great technology companies of our generation. But of course, we’re taking it one step at a time in a measured capacity and executing deployment. So lastly, when it comes to commercial success, we’re on track to grow our forward looking order book by at least 1 billion this year. We’re continuing to execute across assigning new deals across hardware or software AI semiconductors this year as OEMs and our customers only further their conviction and limit some exciting. So just kind of taking a step forward and sharing a few highlights about some of the significant commercial progress on that note.

First starting with Polestar, this is now what, like the third vehicle model that consumers can now order with Luminar equipped this the Polestar 3, so exciting that they’re now making this available to consumers and again just showing further conviction and making that big step forward so when it comes down to it, the revenue ramp from these contracting Polestar vehicles ultimately begin, over the next year and a half as that, converts into business and we start shipping at scale. And as you take a look, one thing that I think is unique is that OEMs are really actively marketing Luminar as a key value proposition of the vehicle, the fact that it is equipped with Luminar. And you really take a look at, you know, in these different vehicle programs and configurators and what they’re showing to consumers.

And there’s really only two brands that become visible outside of the automaker brand, and that’s us, and oftentimes, like a high end audio system, brand or manufacturer like Bowers and Wilkins, for example. So I think it’s just really cool to see that, for the first time, you have automakers that are proud to be able to have a breakthrough technology that’s out on the vehicle, because it is really something that’s fundamentally differentiated than other commodities. And something that has an opportunity to power the broader industry more generally, it’s very tech forward in stashed capacity. So, point is Luminar, being positioned as premium feature, we could spend 10s, or hundreds of millions of dollars marketing our product to generate awareness, but we don’t have to customers are doing it for us.

That’s marketing comes from the customer. And at the end of the day, that’s priceless. So there we go. And obviously, like I said, you’re not really going to see that across the rest of the EV and and LiDAR landscape, I think that’s relatively unique to Luminar in terms of how meaningful that is. So we’re going to go through each of these other three between Mobileye Nissan, and Plus, in just a second, we have some dedicated slides for that. So first, Nissan, they’ve recently unveiled some additional driver assistance features that they have on their cars. So advanced intersection collision avoidance is the latest addition that they have to the development stack, with Luminar. And they’ve publicly stated now, they plan to be able to introduce this, with a targeting with Luminar, selected models by the mid-2020s, and then ultimately, virtually every new vehicle model by 2030.

So we all know the size of Nissan and the impact that they can have on the industry when it comes to saving lives. And then obviously, value for our business and their business. So they’re very excited to be able to move full speed ahead. And like I said, it’s great to be able to see them actually already taking things to the next level in terms of these advanced capabilities, you can actually see on the graphic on the right, multi camera data of what it can show and then the Luminar LiDAR data in the background for what they’re showing off of how they can already see the motorcycle approaching the distance at high speed. For scenarios, like for example, running a red light, that’s very important for saving. Next up, we have Mobileye. So great to be able to see the progression that they’ve had, and some recent major progress.

So this kind of goes back to 2020, when we were really engaged with them full speed ahead with the Luminar, Hydros, kind of back in the day on that and mobilized first generation autonomous vehicle development. So I think that was that their investor day and they had, and then 2021, they started moving to the needle platform, and then, we’re on public display of Mobileye drive with Luminar. So that was excited to be able to show that off and testing development platform, so with Luminar, and then showing the capabilities of what we can be able to do together. It’s a very incredible progress and incredible company in terms of what they’ve been able to do more generally, obviously, they’re strong leaders when it comes to a, camera, vision, ADAS system more generally on cars.

So, that’s, that’s something to be said when they partner with someone like us, obviously, on the on the LiDAR side. But exciting opportunity. And now what we’ve seen is a lot of the fruits of the labor start to be deployed with automakers, one of which they actually now just announced, and as an OEM, being able to adopt the Mobileye drive system, and of course, that that’s something that is featuring Luminar, out on out of the car, so that’s a very recent deployment, they’re just doing in the U.S. And in this one was in Austin, Texas, so skips a reference point. And I think this is where you see these incredible companies like Mobileye and NVIDIA, that we have these, special partnerships with that, as we collaborate successfully with them, and develop our programs with them and they build their software on top of our LiDAR data and collaborate with us on some cases with our software.

As well those wins start to manifest itself across the rest of the landscape where it’s also not just us working with OEMs but them, collaborating with OEMs, and sort of pushing us into different products and solutions. So they own a huge part of the landscape. So also, recent Q2 development was Luminar and Plus. So we successfully partner with Plus, and became their exclusive provider of LiDAR for Plus drive, which is their battery installed assisted driving system for commercial trucks. So in addition to that, we are also collaborating on this AI assisted driving software for commercial trucking OEMs. So this is something that is an exciting opportunity for us together to be able to do from not just the hardware standpoint with them, but then also the software.

So, again, it’s kind of a scenario where we get to, as we sort of expand our horizons and really get into commercial trucking even more, which you see is sort of a key emerging market for Luminar, you get to display some of the other legacy LiDAR systems and actually get on the these kinds of trucks with exciting new technology platform. So Plus and Luminar also going to be collaborating across the board for and targeting for some of the other areas in Luminar’s business, include everything from auto insurance to AC mapping to you the blade sensor integration, it’ll be, it’ll be great. And I think one thing that’s meaningful with Plus, and you can look this up, but there one thing that attracted us to them, which you may have not heard of them before, but they’re, even though they’re on the smaller company, in terms of the size of the companies that are working with some of the largest logistics companies in the world.

And that was really a what we saw as a key opportunity and channel to be able to get into the largest truck OEMs and logistics companies successfully with our technology and be able to scale accordingly. And it’s because public, like the Amazons of this world, that are able to, to make that happen with Plus, so very exciting opportunity. So, when it comes to the regulatory side and landscape, there’s actually some really interesting stuff is that whereas a lot of the autonomous vehicle landscape is facing regulatory headwinds, we actually have a lot of regulatory tailwind in our favor. And really, what this means is that the challenges and hurdles that are put up for autonomous vehicles generally come down to when you start ripping out the steering wheel systems and braking systems and other things in vehicles where you have to be able to get, specialized, extensive permitting and registration.

And it’s not, there’s like really no regulatory framework to be able to allow that yet. When it comes to getting better safety, or even enabling, autonomy on existing production vehicles, or production vehicle programs, there’s a much, much better regulatory framework, and not only that, it’s gone from like, will regulators even allow it, for like full autonomous vehicles and Robo taxis and Robo trucks to now, regulators are starting to require these kinds of capabilities for better safety. And this is where our big bet on practice AP is really starting to pay off as automakers rapidly adopt it. And then, of course you have the regulators that want to be able to also help save additional lives out in the world, and the landscape for, for a good cause, that we stay on for.

So that includes mandating, and again, this is not something just to get a five star rating on a car, this is like literally mandated, like every car must have this, automatic emergency braking at higher speeds, and pedestrian automatic emergency braking at night to be able to detect it, while also discouraging and increasing the requirements around false positives. So that really, it helps push OEMs to be able to adopt Luminar LiDAR. And then also, and it’s already started publishing draft regulation to be able to work at these, these higher speeds. So yes, I think you’ll get the gist of it and some funny headlines around breaking bad, which is absolutely true. AB is absent when you need it most and couldn’t be more relevant. So we’re doing plenty of our own research and studies around this and like benchmark studies that I think we’ll have more to talk about in the future.

So ultimately, all of this work when it comes to more advanced safety and highway autonomy capabilities is powered in some way, shape or form, not just by the Luminar hardware, but by AI as well. And this is where since 2017, we’ve been developing what we call the Luminar AI Engine, where we sort of aggregated this all together now between input, our AI Engine output and across products room for bracket safety and highway autonomy to mapping localization to perception and detection. And one highlight, by the way, just a shout out to the, to the mapping team for, for the first development deal with an OEM on that front. So that’s, that’s an exciting one. And really all of this comes back down to what we can do. So you don’t need to hash through all the details here around what we’re doing.

But, again, this is a huge investment led by CJ Moore, who’s previously was a long time director of Autopilot over a Tesla, and directed many of the autonomous systems work at Apple. So it’s great, great stuff going on. And then we, as you may recall, we also partnered with Scale AI earlier this year exclusively. So we’re actually the only one that have access to scale technology of all the LiDAR companies, as a result of that partnership. And this is something that has proved hugely beneficial and meaningful to us it, they’ve consistently delivered on the key actions and deliverables for what we need to be able to further enhance our AI engine, and be able to provide these products and capabilities to our various customers. So yes, but it’s all powered by the data.

And, we’re, we’re making it happen together with our customers, somebody setting stuff. One other area that I think is lesser known that we wanted to be able to take an opportunity to highlight is when it comes to Luminar semiconductor Inc. again, another area that we made early bet-on, that’s really starting to pay off in full swing now. We have a host of different new chips and ASICs that we developed and are launching across Q2 and Q3. And again, this is something that we strategically vertically integrated in house, working in acquiring some of the best and most specialized companies in the world, when it comes to these different components. For the design, ones that we’ve historically worked with, and collaborated with for years, to be able to make this happen.

And for example, with Black Forest in hearing that was back in 2017, Optogration was a couple years ago, Freedom Photonics was last year. But we since aggregated this all into Luminar Semiconductor, we’ve successfully taped it out in the new chips for each of the different core components just to further enhance performance, reduce cost, and for both our current generation as well as future generations of LiDAR. So we’re continuing to upgrade things at the chip level, like this is an incredible breakthrough new results from the laser chips that we have, you can actually see the tapes out, please, or chip itself in terms of indium phosphide chip, as well as the silicon laser driver that we’ve, we’ve taped out for this successfully NCRR, indium gallium arsenide photo detector for the receiver chip.

And this is already again, like this definitely validated and integrated into IRS, as well as the processor chips, we have our fourth gen and fifth Gen signal processing chips that are already, the fourth is already validated, integrated Iris, the fifth generation signal processing chip is now developed in undergoing validation and testing. So, what’s cool though, is that with this model, and as we have this host of breakthrough, semiconductor technologies that serves as a core innovation engine for Luminar, we’re actually able to get a lot of interest for the same Chips and Technologies from other industries as well, including, for example, in the aerospace world, we actually just proceed with a handful of weeks back, the NASA tipping point award for development of our breakthrough laser technology.

So very exciting one, and we’re privileged to be able to have one that alongside, other major companies like, the blue origins and Lockheed to this world and the aerospace industry. We were recently awarded a contract for a multiyear supply agreement for Luminar photo detectors for a major leader in fiber optic solutions, as well as receiving the first volume order for Luminar’s laser technology on the actual optical communications between actually for AI, GPU servers. So that’s something that for AI data centers can actually be massively impactful as the demand for that accelerates significantly. So this is becoming also a fantastic innovation and growth engine for Luminar more generally, as we’re vertically integrated. So just taking an opportunity to highlight some of the recent developments here that as this accelerates rapidly.

So thank you, everyone, for taking a look at that and some of the different major milestones that we met along the way, But in terms of the core company level business milestones, we want to have opportunity for Tom to be able to be able to ticket through the details of this. And a little bit more about our financials for this quarter and guidance. So with that double ended off Tom here.

Tom Fenimore: All right. Thank you, Austin. I’m going to start by reviewing our progress towards our three key 2023 milestones. And I know Austin has already talked about these points earlier. The first one is to successfully scale. As we talked earlier, we brought our new high volume automated manufacturing facility in Mexico online in Q1 ahead of schedule. And we’re now working towards completing our production validation testing at increasing volume rates to basically optimize our high volume series production process. We remain on track to complete these steps and achieve high volume SOP readiness by the end of the year. Our second milestone is to continue to execute our product and technology roadmap. In particular, we’re going to enter the sea phase for Iris+ by the end of the year, build our next generation LiDAR prototype and complete our software deliverables to support Volvo and Mercedes SOPs. We remain on track to achieve all three elements of this milestone by the end of the year, and Austin highlighted some of the developments we achieved during the quarter towards this end.

Our third milestone is to grow our forward looking order book by at least $1 billion. We have already experienced growth in our order book this year from both new business awards from existing customers, as well as a couple of new customer wins from companies who have decided to upgrade their legacy LiDAR to Luminar’s LiDAR on their next generation systems. Our recent strategic partnership with Plus is a good example of this upgrade trend. We are also signing deals with our customers across all our major product lines, hardware, software, AI in semiconductors. We remain on track to achieve this milestone for the year. Now, let’s review some of our financial results for the quarter. Revenue for the quarter with $16.2 billion up 63% year-over-year and in line with analyst’s expectations.

Our autonomy solution segment was the biggest contributor to our year-over-year revenue growth more than doubling. For the quarter we reported a gross loss of $18.3 million on a GAAP basis and $16.2 million on a non-GAAP basis. During the quarter we also reported GAAP EPS of negative $0.37 and negative $0.21 on a non-GAAP basis. This marked this potential improvement from Q1 and came in better than our guidance and analyst expectations. A few more details on our second quarter COGS and gross margin. During the quarter we incurred approximately $24 million of launch related expenses. Approximately 25% of these charges were from contractor expenses to get our suppliers and contract manufacturer partners up and running. And the remaining 75% was from other laundry related expenses, such as contract manufacturer fix absorption charges as we ramp up volume, and inventory write-offs for product enhancements and production validation testing.

These launch related expenses were somewhat higher than Q1 as we continue to improve our manufacturing process and product quality at higher production rates. But as we communicate, we expect C’s [Ph] launch costs to significantly decline in the second half as we successfully approach high volume SOP readiness by the end of the year. We remain on track to achieve positive gross margin on the non-GAAP basis in Q4 as we anticipate these launch related expenses to significantly decline. Our Q2 free cash flow as measured by operating cash flow less CapEx was negative $78.5 million consistent with our commentary that Q2 would look similar to the Q1 free cash flow number of $76 million negative. A few more details on our Q2 free cash flow. In addition to the $24 million of launch related expenses I discussed earlier.

Our Q2 free cash flow also included a $13 million working capital investment during the quarter as we prepare for our high volume series production. Our business and new facility ramps up and launch costs ramped down. We expect a significant improvement in our free cash flow spend rate by the end of the year. While we still have some wood to chop to reach our free cash flow exit rate for the year. We remain confident in our ability to achieve this target of improving our free cash flow run rate by approximately 50% by year end relative to our Q1 and Q2 levels. We are seeing early signs of free cash flow improvement in Q3 so far. During Q2, we received a $10 million investment from TPK reinforcing our recent partnership, and TPK informed us last week that they plan to execute the additional $10 million option they have in the next few days.

During the quarter, we also raised $7 million from our strategic M&A equity program to backfill some smaller strategic activity earlier this year. In connection with our recent Plus strategic collaboration, we agreed to a $10 million mutual equity swap to reinforce the partnership. In the coming days we plan to file a registration statement to register the shares we expect to issue to Plus as part of this strategic equity swap. We ended the quarter with $366 million in cash and marketable securities, which makes us one of the best capitalized LiDAR companies. This quarter end cash balance includes the $10 million we expect to receive from TPK exercising its option last week. We are reaffirming our full year 2023 financial guidance. Specifically, we expect to grow revenue at least 100% this year, achieve positive quarterly non-GAAP gross margin by year end and end the year with at least $300 million in cash liquidity and a share count in the 395 to 400 million rank.

For the quarter, we expect to be in the range of $18 million to $21 million of revenue and our EPS loss to be in the range of $0.18 to $0.22. That’s what we expect for the third quarter this upcoming one. We expect revenue growth to accelerate in Q4 as our new high value manufacturing facility comes online in higher volume. And we expect a couple of new customer contracts to be executed that we’re currently finalizing. Our team continually evaluates opportunities to optimize our manufacturing costs and process. As we are bringing our manufacturing facility in Mexico online at higher volumes, our team has identified a meaningful cost improvement opportunity by outsourcing the production of certain sublists assemblies and components originally, originally planned to be made in this New Mexico facility to other Luminar supplier partners.

We expect this change to meaningfully reduce our per cent for manufacturing costs, as well as required manufacturing floor space requirements and automation appointments at our Mexico facility. Following Q2, our team finalized and committed to a plan to proceed with this cost savings opportunity. As a result, we are in the process of evaluating the exact financial and accounting impact of this action. But based upon our preliminary analysis, we expect or incur a non-cash charge in the range of $10 million to $20 million in the second half of this year. Before I hand it over to Aileen for Q&A, I wanted to reinforce one important point. Based upon our current year end guidance, we expect to end the year with approximately $300 million in cash and liquidity and an exit free cash flow spend rate roughly half of our Q1, Q2 level.

This year-end cash balance and improved exit free cash flow spend rate would imply two years of runway enough to get us to our target of breakeven by 2025 year end. In addition, we expect our free cash flow spend rate to improve even further from the year-end levels once we reach Volvo SOP in 2024. To conclude I would like to thank once again the broader Luminar team for another solid quarter and the great operational progress. With that we’ll hand it over to Amy for Q&A.

A – Amy Smith: Fantastic. Thanks, Tom. We’re going to start the Q&A with some of the questions that we received on SAFE platform, and then we’ll move over to the analyst questions. Our first question is are there any specific patents that protect Luminar and shareholders from Copycat [Ph] Technologies? For example, what makes a large automaker like Volvo partner with Luminar? Or prevents another large automaker from creating their own LiDAR technology?

Austin Russell: Yes, so I say when it comes to IP, this is one of the I’d say both significantly Deep IP companies out there when it comes to Advance Technologies. But this is not to say that people haven’t tried people, of course, in large companies, tier one start-ups, major tech companies, of course, have all tried to develop these kinds of breakthrough systems and technologies. But part of the whole point of where Luminar differentiate itself in one-off battle is by having what a decade worth of work and back end experience by working from the chip level up to build these different kinds of technologies and having it all come together to successfully create a system level solution. From a protection standpoint, I said we have a larger, U.S. patent portfolio than any other company.

And we’re kind, of course, but the reality is, is that there’s a reason why there’s no like knockoffs of like NVIDIA or Mobileye, or like some of our other semiconductor partners, for example, like in across the rest of the landscape and worlds, because there’s a lot of fundamental differentiation and core technology that goes into it. So I think we sort of put ourselves in that category in camp. And that’s where you take a look at like every major automaker, they’ve had previously had LiDAR development efforts, I think, effectively. All of them, I actually don’t know, if a single one is remaining, I think they’re pretty much all shut down and in favor of working with a company like Luminar. So again, we want to be like very collaborative partners to everybody.

And it certainly makes the most sense to be able to work with a partner like us. And that’s exactly what the majority of landscape is starting to.

Q&A Session

Amy Smith: Our second question, can you provide us with more insight into Luminar software business and how it may or may outpace the company’s hardware business in the future?

Austin Russell: Sure, we talked about during the prepared remarks, the progress that the software team has made in providing the software necessary to launch the initial business with our customers. But not only is their execution progress, but there’s also commercial progress. Often mentioned, during the call, we signed our first mapping development contract with a major OEM. As some of you may recall, last year, we acquired a 3D mapping company, Civil Maps so we’re starting to see some early bearing of fruit from that acquisition. In addition, the just funny because people are like, No way Luminar is out, we’re — go into, doing well, how are they going to do that? The Plus does strategic collaboration, not only does that include exclusive supply agreement on the LiDAR side, but also a partnership to market and help industrialize plus the software package to, to select trucking customers.

And there’s a revenue sharing element to that. And in addition, there’s also a collaboration to explore some of the other products we have set up, such as mapping and insurance. And so, we’ve made good execution progress on the software side this year, as well as commercial progress.

Amy Smith: Great. Our next question, which we’ve received a couple of times, when do you expect Luminar to be profitable?

Austin Russell: Nothing’s changed from what we discussed at Luminar day earlier this year. By the end of this year, we expect to be a gross margin positive by the end of next year profitable in our core business, and by the end of 25 reach the company breakeven point– on track to be able to do all of this consistently? Yes.

Amy Smith: Great. Next question, how is Luminar performing against competitors like Innoviz? Do their recent commercial wins of BMW and Volkswagen concern you?

Austin Russell: So, look we take all of our competition seriously, and we never underestimate anybody. But I wouldn’t say that we’re overly concerned about any competitor at Luminar. In fact, I think what we’re seeing in, in the RFQ process, is really a narrowing of the LIDAR companies that the OEMs are seriously considering. The industry is in a much different position than it was two to three years ago, I think OEMs are smarter about the balance sheet. And kind of excluding companies that don’t have enough cash to survive for the foreseeable future, and get through development phase. But they’re also, if you’re a lighter company, and at this point, you haven’t successfully industrialize your product, or have multiple wins with customers, I think that that raises a lot of yellow, and in some cases, red flags with our OEMs. And so we’re seeing the crowd that the OEM seriously consider significantly be reduced.

And look, our strategy at this initial phase was to be very targeted in the OEMs that we want to work with. A lot of times the business we win, it’s outside of an RFQ process and one off because there is certain vehicle functionality that only our LiDAR can enable. There are certain other vehicle functionality, whether it’s a modest improvement in ADAS systems or low speed functionality, where quite frankly, you don’t necessarily need our LiDAR. And so those are a few processes. We prioritize them and other LiDAR companies ultimately be successful. Our longer term strategy is to really, win as many customers as we can in the industry. And that’s going to be through the upgrading of the of the LiDAR technology in the vehicle kind of functionality.

And as I mentioned earlier in the call, we’re starting to see early signs of customers upgrading LiDAR selections they made in the past to our LiDAR in the next generation vehicle. So look, we always take our competition seriously, we got to go out there and prove ourselves on a daily basis. We got to continue to make our products, better, smaller, cheaper and address our customer needs. But we see, I would say the competitive dynamics continue to shift in our favor.

Tom Fenimore: And I’d say more generally there, by the way, I think sometimes people think of these, competitive dynamics was like necessarily a bad thing. I mean, obviously, the [Indiscernible] we have more and now continue to get more major commercial wins and everyone else in the industry combined when it comes to like EV and life of companies, from a partnership perspective more holistically. But we’re not claiming to and if we tried to live literally work with every other every major company on the planet all at the same time, like that would that would never work either. So you got to place your bets, I think it’s actually a good thing for the industry. Ultimately, like when people are successful, sometimes people are like, negative on this, but like, it’s like, it’s great. And now the question is, you obviously have to deliver on that, and I think that’s where obviously Luminar continues to stands out that, we, we do what we say.

Amy Smith: All right, final question. Before we move on to the analyst. Is there any discussion or possibility of department defense applications of Luminair’s products?

Austin Russell: Yes, absolutely. And I think that you can already see, and I wouldn’t, I wouldn’t even necessarily comment on anything, specific there. But when you look at these different adjacent market types of applications, like the stuff we’ve seen, for contracts that we’ve already been awarded, or are working with, with different agencies like what was brought up with NASA, for example, it’s very exciting to be able to use them for the semiconductor level, all the way up to the top.

Tom Fenimore: And look, I think we’re always going to be very thoughtful in how we approach the adjacent markets, particularly with military applications. But what I would say the vast majority of the resources as Luminar, in the near term are going to be focused on the passenger vehicle and commercial trucking markets.

Austin Russell: Just to be clear, all of our products are always built for series production, consumer vehicles and trucking, like to the extent that there’s applications there. There are now from the breakthrough technologies that we create fantastic, but like, that full steam ahead, that’s the thing that’s going to turn Luminar into the trillion dollar company at the end of the day, so we’re not losing an ounce of focus on that.

Amy Smith: All right. Thanks so much to everyone who submitted their questions. We’re continuing to use that as a platform to increase shareholder engagement. With that, let’s transition to our analyst questions we ask the analysts limit their questions to one initial one and one follow up before hopping back in the queue for additional follow ups. And with that, we’re going to start our analyst questions with Samik Chatterjee at JPMorgan.

Joseph Cardoso: Hi, thanks for the question guy. This is Joe Cardoso on for Samik Chatterjee. No, my first one is just can you elaborate on the comments in the slide deck around signing agreements with multiple new customers to upgrade legacy LiDAR solutions to Luminar’s next gen. What are the key drivers of these competitive takeouts? Do the take outs include both hardware and software? And then maybe can you just touch on how material relative to volumes the takeouts are? And then I have a follow up?

Tom Fenimore: Sure. I — as I said in my prepared remarks there’s been a couple of instances so far this year where we brought in new customers that are specifically upgrading their Legacy LiDAR or [Indiscernible] LiDAR for their for their next generation, we use kind of — as an example of that. I would say it is yes, Mercedes was kind of another example, in the past. I think that that’s a trend that we were expecting, and we’re actually starting to see it accelerate, not only with some of the recent wins, but some of the discussions that we’re having. It typically starts with the hardware. I would say the hardware is, is typically our lead entry into the customers. And then once we get in as you can imagine, we look to grow the products and services that we provide those customers over time.

Look, we, we really haven’t done any details of, of what those volumes are going to look like. We’re confident that they’re going to be material and grow over time as we continue to get in there and execute and get more business and, and sell more products and services. But it has had a positive on our impact on our order books so far this year.

Joseph Cardoso: Thanks, Tom. And then my second question more for you and it’s around cash burn. How much of the cash burn reduction by 4Q will be driven from better gross profit outcomes as opposed to lower OpEx? And then thanks for the questions guys.

Tom Fenimore: Yes, look, I think you can kind of look at the — there’s a few different levels in there. I think it’s not only the COGS improvements and then you can kind of what our gross loss was this quarter getting the profit back into an improvement from there, there, there are going to be some OpEx improvements. But the other, the other levels are going to be the CapEx in the working capital investments, right. So during Q2, we had $13 million of cash, additional cash needs relative to Q1, just because as you’re launching these new products in these new facilities, you have to invest in those in that working capital to get prepared for higher volume production. And so it’s going to be a combination of all three of those things, call it COGS, improvements, OpEx improvements, and then what I would say CapEx and working capital slash other improvements, as you get to this SOP readiness and work through some of these launch related costs and investments you need to make.

Operator: Our next question will come from Mark Lipacis at Jeffries.

Tom Fenimore: Mark you there? There you are.

Mark Lipacis: Yes, sorry about that. Tom, you’re talking about the order book on track? Can you give us a sense of where that is today? Should we think about that linearly through the year? Or does that? Is that going to be kind of like, mostly in the fourth quarter?

Tom Fenimore: Yes, look, it’s, it’s a step function increase with each piece of new business, you win and it doesn’t kind of grow linearly or gradually through the year. It increases, once we kind of have a new, a new business win. We calculated once a year, just that’s the pattern we’ve gotten into. We don’t want to get into the habit of disclosing like, oh, the order booked increased by this amount for each new piece of business. I think that there’s a little sensitivity around the customers with each of that. Look, we’ve had order book growth. So far, it’s been healthy. I wouldn’t say we’re, we’re at the billion dollar plus that we promised, but we remain competent by what we’ve won so far. And kind of what we expect to win based upon the active discussions that we have, that we’re going to be at that billion plus number by the end of the year.

Mark Lipacis: Understood, and followed by May, on the software side, how far how far do you like, ultimately, hope to go on, on the software side? Do you would you expect to, it seems like, some of the challenges are with software from your customers, it’s a new technology and getting it integrated. I can completely understand, the challenges associated with that. So it’s your, in your view, do you have like a, like a hard line where we’re going to stop here, and then a customer picks up the ball here? Or do you ultimately say we’re going to do everything and make it make it just a completely plug and play for your customer?

Tom Fenimore: And look at I think ultimately, it’s going to vary in our interaction with each customer. And like, a lot of things in life, you got to crawl before you can walk in. And before you can run. And so, there’s, there’s the perception software, which is going to be I would say something that we, expect to be a fair amount of interest in there. That’s something that aren’t they, but that I think our team continues to make great progress on. And then once you have the perception software, you have what we call the full stack, where you have to do the sensor fusion. And then also, ultimately, the decision making and path planning, some OEMs are doing it themselves, some OEMs are relying on third party partners, whether it’s like an NVIDIA or Mobileye or Qualcomm, all of whom were aligned with.

Look, I think, Mark, you’ve seen some of the news, not only by our customers, but also what’s we came out last week with, a delay in their LTE system and the software related opponents. And that the software here is always going to be challenging, and we’re going to work with our OEM partners in different ways to, to make sure that ultimately, the software does what it needs to do to fully unlock the capabilities of our LiDAR.

Austin Russell: Software usually ends up as harder than what, people, people think. But I’d say actually, one interesting data point is that, yes, it’s the majority of our customers and partners are already using some Luminar core software stack. And then that’s where, as we expand on that, like, our goal is to build more and more content value, with our customers and OEMs over time as those different products mature. So just to begin with the LiDAR, and that’s how you really like to choose the economics, while at the same time, making better safer continuously improving cars.

Tom Fenimore: And then one of the benefits we have Mark and we’re kind of really industrial time is, each OEM is trying to solve on their own a real unique set of problems. We’re working with several OEMs now. I think as Austin mentioned, we’re getting close to a dozen major commercial wins. So we’re in there working with them, sometimes the issues that we’re facing are unique, but there’s also a lot of overlap. And so as we kind of get those scales, and multiple reps, that allows us to, learn a lot and, share those learnings with our in our product development path to help our customers better.

Mark Lipacis: All right, all very helpful. Thanks, guys.

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

Unidentified Analyst: Hi, thanks guys, this is actually [Indiscernible] on for Emmanuel. With Volkswagen recently taking the state and — China and more specifically, providing validation on a ADAS platform. Does it change your reform the way that you’re engaging with customers? Or how you’re thinking about competition in that region just needed as well, to help them?

Tom Fenimore: Yes, look, I think China right now is a very dynamic market. If you look over the last year or two, there was a very fast and faster than the Western world adoption of LiDAR technology. And I think a lot of that my personal hypothesis is that it was driven by these new EV brands, the Neo, the [Indiscernible] autos of the world trying to differentiate themselves with a very savvy Chinese consumer, as technology leaders. You then kind of had this price war earlier this year, which kind of, I think, brought a whole cost consciousness, value conscious aspect of that. And what I think you’re starting to see is, the couple adoption in a couple of ways. One is, some of these local EV Partners realizing that in order to be more cost competitive, getting those partnerships with global leaders can help.

But I think at the same time, when you look at the market share trends in China, the local brands have been taking share from the Western brands. And so I also think that there’s an incentive from the Western brands to be more partnering. So I think having those two way partnerships is can be mutually beneficial. And it’s actually helpful to us, not only because it gives us another avenue, an entry point into that, and, and so we’ve made progress with some of the local brands, we have, strategic partners in the region, like — which have been helpful. But having some of the Western brands partner with local brands there, it gives us another entry point into the China market. We’re always going to be smart in terms of who we partner with, particularly in the near term, but I think that’s a trend that’s, helpful to us too.

Austin Russell: That’s the point why TPK is building this next big factory, for us out there and they obviously see the opportunity, just as additional investment in, in Luminar. So, that’s, that’s really taking off as the global OEMs push it in there. And again, like I said, I think it’s something really special with Luminar, that our technology is meaningful enough, where, we’re really one of the only western companies that actually made our way in a generally like, unfavorable environment for Western companies in China, like we’ve been able to actually make a big impact difference. All right.

Unidentified Analyst: Thanks for that. And then, I was wondering if you can elaborate a little bit more on that, first development contracts with a modeling software with a major OEM? What’s, what’s the timeline, and maybe like, a bit more on the scope of the contract things?

Tom Fenimore: Look, I think it’s a very positive development. And quite frankly, the fruit bearing from the Civil Maps acquisition is happening a little earlier than at least my, my personal expectations. But I also don’t want to get, go into too much detail at this time. But I think if things continue to head in the right direction, it’s something that I, we hope to share at least more details at some point in the future.

Austin Russell: And I don’t want to sound too head in the clouds, there with this, but part of the whole driver and the vision behind it was to be able to create, what could be the most comprehensive 3D map of the environment in the world in real time, when it comes to this level of LiDAR being deployed on, hundreds of 1000s of production vehicles, consumers constantly driving them around the amount of data that you get from that what that can do in terms of creating a real time 3D map is really wouldn’t be comparable to anything that exists to that. So that’s where it’s one of those things that can just be like, the ridiculous opportunity out on its own. But they, got to take it step by step. But this is an incredible first step as part of that process.

Unidentified Analyst: Thank you so much. I appreciate it.

Operator: Our next question will come from Joshua Buchalter at TD Cowen.

Joshua Buchalter: Hey guys. Josh Thanks for taking my question. I appreciate the call you gave in the prepared remarks about what’s going on at Volvo. But I wanted to with the software, but I wanted to follow up there, it sounds like there were some milestones achieved in the second quarter, there’s still some to go. They on the public call, were saying that it’s a — surrounding LiDAR integration. But that can very much mean it’s someone else’s issue that they’re dealing with just any more clarity you can give us on what’s going on with the software engagement at Volvo? And what’s left to clear, thank you.

Austin Russell: Yes, so it’s good. And we’re obviously in close touch when it comes to Volvo more generally, as relates to the holistic program. And for that reason, that’s why we didn’t have it built into our economics, for, for that timeframe. But when it comes down to it, I think we wanted to make sure to clarify that when it comes to our deliverables for you to the LiDAR system and software and everything, we’re, we’re meeting the requirements. And on top of that, that’s why when we’re saying that, for a software deliverables, we recently met a major milestone. I think, when it comes to there’s, there’s obviously a lot of different factors at play, and that’s why, Volvo kind of issue that that corrective statements thereafter.

But more generally, I think, like I said, building software for new game changing, EVs is hard. And, like I said, it’s, it usually takes more time than, then people think. I think, we obviously see other examples from, certain other companies that have taken like years longer than they would have expected to. I think Volvo actually has one of the most advanced teams in this respect of alongside Mercedes, I think, also, as one of the most advanced teams in the planet doing this kind of work. So, they actually should be pretty well off. But it’s, it’s a tough challenge. So that’s where we’re at when it comes to the holistic vehicle. But I think the important part is for us, like I said, we have a dozen different major commercial programs that we’re working with.

So we’re not slowing down by any means on any of that, to be able to make sure all of it is successful. So that’s, that’s been good. And yes, an important point of clarification.

Joshua Buchalter: Yes, no, got it. Thank you, appreciate the color there. And then there’s my follow up, you have the billion dollar order book, and you’re sort of generating revenue or orders in a bunch of different avenues like insurance, software mapping, etcetera. Is the order book growth still overwhelmingly over indexed to your blind, our hardware sales, anything, you can help us on granularity of your expanding business engagements. Thank you.

Austin Russell: Yes, so, Josh, the order book at the end of the year with $3.4 billion, and the billion is the growth we expect this year. Look at, I would say it’s, it remains overwhelmingly weighted towards hardware today. But I would say the percentage of it, that software continues to grow.

Tom Fenimore: And I think the important part is, is like, the LiDAR is the in, with these customers, and we’re continuing to expand the value, and that’s where we haven’t heavily weighted, or we’ve been, I think, very generally very conservative in counting these other areas, at this point, like, we’re not, we’re not counting parts of like insurance or mapping or other stuff yet, like, in the in the order book. I think, when we start to see some, like, major large scale, wins on those fronts, then we’ll start adding it in, but we want to be very conservative, and that’s why, I see the most conservative with our order book by far in the industry as it stands and how we calculate that right. Amy, I know we’re at six o’clock, but why don’t we go a few minutes over to get a few more questions, and thanks, guys.

Operator: Our next question will come from Kevin Garrigan at WestPark Capital.

Tom Fenimore: First, Kevin,

Kevin Garrigan: Hey, guys, how’s it going?

Tom Fenimore: Not too bad.

Kevin Garrigan: So thanks for letting me ask question. And congrats on the progress. I said one kind of multi part question. So a few of your competitors have kind of noted that some, some RFQs are in the final stages, and we can get a decision kind of by the end of the year. And I know you guys talked a little bit about the RFQ process and being targeted, and you’re in a previous question. So we’re just kind of wondering, are you guys also in the in the final stages with some of these RFQs? Or are you kind of not focused on these programs? And then, are you kind of taking a little bit of a different approach where, you talked about a little bit with Mobileye and video where you’re kind of leveraging your partnerships with them a little more, to kind of give you an upper hand when speaking with OEMs.

Tom Fenimore: Yes, so I’ll take the second part. Yes, like look, one of the benefits of being the reference ladder in the Mobileye and video platforms and part of the Qualcomm system, it gets us another bite at Apple, right? Multiple avenues to go the OEMs. What I would say though is that we are not dependent upon them to go to the OEMs. In fact, we’re talking to all the customers we want to do business with, we’re out there talking to them ourselves at the same time that our system partners are talking to them. And so, we try to get to the customer anyway that’s possible. Look, I saw some of the commentary on the other calls around the RFQ process. Look, we’re seeing a lot of the same things here. I would say a lot of the commercial activity that we’re having to, is one off, and what I would say outside of the RFQ process.

I’m not going to speculate on the timing of any of these decisions. The OEMs are going to make them at this point. But what I would say is over the last couple months we have seen an acceleration in some of the RFQ and RFI activity in some of the one-off conversations that we’re having with our customers.

Austin Russell: Well, I think maybe I said a one-off one. The majority of the wins that we have had and the major commercial wins have not got, it’s like not through some like commodity procurement process here. It’s basically OEMs come to us to be able to solve a problem and we’re sort of that default partner to work with. Because, it’s one thing about, it is, it’s another thing about in terms of the scope of capabilities, like obviously it’s, sort of an order of magnitude greater than what really people have seen in the industry and landscape. So, but it wasn’t a – it’s not stopping us from from doing this. But we always have to ask ourselves again, is like what is the end goal of what we want to achieve out of these different programs?

What is the actual opportunity that is realistic? And, of course, considering the factor of how likely is it that, such program is going to make it to fruition? Because, as you know, we’ve seen a lot of programs that, maybe had a good press release and it but didn’t actually end up happening. So, we’re in this for a long haul, we have to make the right bets and that’s the most important thing and I think we’ve really done that so far.

Kevin Garrigan: Okay. Got it, that makes sense. Awesome. Thank you, guys.

Austin Russell: Thanks Kevin.

Operator: Our final question comes from Itay Michaeli at Kelly at Citi.

Itay Michaeli: Great. Hi, everybody. Just two quick ones for me. First, I know that the mid-decade target, that the million units by 26, 27 was predicated on existing customers. So, given some of the traction you’re reporting today with new customers, do you see any potential upside now to kind of those mid-decade targets? And then secondly, I was hoping we get a bit of an update on the insurance business and kind of how that’s going.

Tom Fenimore: So first, yes. So, the — if you remember what we said back in Luminar Day, I think we had that million target 26, 27. I think exactly when we kind of hit that depends upon, everything hits the SOP timetable that our customer has will be 26, a little bit of a delay you’ll kind of be in the 27. We had about 75% of that awarded to get to that million. That number has gone up. And, I’m not in a position today to kind of update that number whether or what percentage are both or that million, but I would say that, the percentage awarded has increased from some of the success we’ve had so far. And in fact based upon the discussion for happening, increased further by your end from where we are today. On insurance, look, we kind of had a, a great update and a lot of things on the Q2. We’ll talk more about the insurance point and given it enough to take there at some point in the future.

Austin Russell: I think it’s fair to say of the new initiatives, that we’ve had or some of the things that people were skeptical of, like, came pulled off, being obviously a wide-art, we’re crushing it. But when it comes to, software AI, we’re making it happen. When it goes to mapping, we’re making it happen. And the great results, when it comes to semi-conductors, absolutely crushing it. When it comes to, insurance, that’s obviously a newer program that we have and we’ve already, they can create progress with it’s really on that. I’m sure, also be more excited to talk about the future.

Itay Michaeli: Sounds great. That’s all very helpful. Thanks, everyone.

Austin Russell: Thanks Itay.

Operator: Fantastic. Well, that works the end of our analysts queue and the questions. I’d like to thank everybody for sticking around and participating in the call for the analysts that ask the questions and for the investors and other folks who’ve joined us. We look forward to talking with you next quarter.

Austin Russell: Thanks everyone.

Operator: Good bye.