Luminar Technologies, Inc. (LAZR) TD Cowen 51st Annual Technology, Media & Telecom Conference (Transcript)

Luminar Technologies, Inc. (NASDAQ:LAZR) TD Cowen 51st Annual Technology, Media & Telecom Conference Call June 1, 2023 8:30 AM ET

Company Participants

Tom Fenimore - Chief Financial Officer

Conference Call Participants

Josh Buchalter - TD Cowen

Josh Buchalter

Hey, good morning, everyone. Welcome to Day 2 of our 51st Annual TMT Conference. I’m Josh Buchalter, semiconductor analyst at TD Cowen. Very pleased to be joined by Tom Fenimore of Luminar. Thank you for joining us.

Tom Fenimore

Thank you for having us, Josh.

Josh Buchalter

I guess to start the conversation, maybe you could spend a few minutes introducing yourself and introducing Luminar story for those who may not be as familiar with it.

Tom Fenimore

Sure. So let me talk a little bit about Luminar. We were founded little over 10 years ago by Austin Russell, our CEO and Co-Founder. Austin is your traditional Silicon Valley story where he founded this as a teenager, really building this LiDAR from scratch. And what a LiDAR is, for those of you that aren’t familiar of it, I will oversimplify it a little bit, but you basically shoot a laser out, you have some type of scanning mechanism to scatter the light around the environment that you want to measure, the light bounces back. And you have a receiver chip in there that processes it. And what it allows you to do is really understand the environment in front of you in three dimensions, because of light, traditional sensing systems that are on vehicles today like a camera, it’s taking pictures. So that’s two dimensional. Lasers have some similarities with radar, instead of putting out sound waves or putting out light, but it’s able to measure the environment around you with much more precision and in three dimensions. So we make these lidars. Our products are on vehicles today that you can buy over in China. Volvo is going to be putting us on standard on each of their next generation SUVs, which they are going to start to produce in early next year. And so we also have several other customers including Mercedes-Benz, Nissan, Polestar, Daimler Trucks, we work with many of the system integrators like NVIDIA, Mobileye, Qualcomm, etcetera. And so that is what we make. Our goal and our mission is to save lives and enable safe autonomy. And Austin laid out his 100-year plan, where he wants to save over 100 million lives over the next 100 years, and then through the eventual enabling of autonomy, save about 100 trillion hours of productivity. So that’s what we do here at Luminar.

Question-and-Answer Session

Q - Josh Buchalter

Thanks for that. I think, it’s a start Volvo SAIC, Polestar ramping near term. The pushback on LiDAR has always been it’s too expensive. But what are some of the ways that your OEMs are marketing, additional features for LiDAR? And what – how are they trying to monetize what is objectively added cost on their end?

Tom Fenimore

Yes, it all comes down to the value you get for the incremental cost that you are putting on your vehicle. We have said publicly that for our first generation LiDAR, which we are selling now, that our price in scale for that LiDAR is about $1,000 plus or minus. You get two primary benefits that our system enables. One is a really step level function increase in the safety of the vehicle. Volvo’s CEO has said publicly that they expect to reduce severe collisions by 20%. We think that that is a conservative number. But that will manifest itself in significantly improved safety of the vehicle. The other function that will be enabled by our LiDAR is our LiDAR is really the best long range LiDAR in the industry. We are able to see 250 meters. Our field of view is 250 meters in front of you 120-degree horizontal field of view and then approximately 30 degrees of vertical field of view. So it’s almost like facing the forward part of the vehicle. The reason that that 250 meters is important is if you are traveling at highway level speeds, call it 70, 75 miles an hour, it gives you 7 seconds of reaction time. And so that is what is needed to bring a vehicle to a safe stop or to do other maneuvers to avoid obstacles in front of you. Because our LiDAR is able to see that far, we are able to enable highway autonomy. And what Volvo ultimately wants to do with our LiDAR and part of the reason that they want to make it standard is to enable this highway autonomy, hands off, eyes off. And so when you think about some of the complexities and challenges that the robo-taxi markets are facing, we believe that full level 5 hands off, eyes off everywhere is a very difficult software problem to solve. And we are probably end of this decade at the earliest to have that be really prevalent in society, but highway autonomy, it’s in constructing into that domain. It’s a little bit of an easier problem to solve or less complicated because – and I am oversimplifying here. When you are on the highway, the rules are stay in your lane, don’t hit anything in front of you. You are not going to have children playing on 995 or dogs running out there, drive down here in the New York City streets, right, there is a lot of unpredictability, right. There is going to be a lot of stuff coming at you and you have to have the software programs ready to go. The challenge with highway autonomy is having that sensor that can give you that 250 meter visibility in front of you. That’s what we enable. That’s what we are able to do. And that’s what ultimately is going to allow that hands freeze, eyes off. So, going back to your cost question, yes, $1,000, not the cheapest thing to put on the vehicle. But what it enables is that very significant safety improvement and then it enables the ability to up-sell that consumer to that highway autonomy with eyes off, hands off. And so while it’s costly, we think that it delivers very high value to the OEM customers.

Josh Buchalter

And from what you can see are your OEM customers, is the goal ultimately to generate recurring subscription revenues for these types of services, market the vehicles as safer? How are they positioning LiDAR, it’s a new technology that needs to be added to cars, you need to convince consumers to buy it, unless you standardize it like Volvo did?

Tom Fenimore

So when you look at how psyche with the R7 over in China, when you look at how Volvo how they are marketing it and you can go and look at some of the marketing videos that Volvo is doing for their new VX90. They are really marketing the powers of the LiDAR and the ability to see that 3D image, bringing the significantly better safety to the vehicle and then ultimately doing enabling that highway autonomy. And so they are really putting this on there to differentiate themselves from a technology perspective. If you look at what’s going on in the automotive industry now, there is a big pivot to electric vehicles. And as the OEMs are pivoting to electric vehicles, the consumer who buys those tend to be very tech savvy. They want the latest tech on the vehicle and putting our LiDAR on it, which can enable that functionality and better safety it’s a great marketing message for the OEMs. And so our initial customers are really using our LiDAR, front and center to market their vehicles and to differentiate themselves in the crowded consumer and EV space.

Josh Buchalter

And within the ADAS space, can you talk about your relationships with the compute players? So you are engaged in a number of platforms that are based on NVIDIA systems, you have a relationship with Mobileye. Qualcomm is coming in here? How does your how important is buying from the compute players and versus the OEMs? And can you talk about your relationships through the value chain with the compute players as well?

Tom Fenimore

Yes. And so just stepping back and why the compute players are important in this is some OEMs like Volvo have their in-house software arms and they are going to develop the software system themselves. And in that scenario, we are working directly with Volvo. We are working with our in-house software teams, NSAT. And we are really deploying the system together on the vehicle. Other OEMs like Mercedes-Benz are really using NVIDIA to take the lead in developing certain parts of the software. Each OEM is going to take a different approach. And our strategy is to be flexible. If the OEM wants to do it themselves, we are going to work with them. If the OEM wants to use Mobileye or NVIDIA or Qualcomm we will work with them. There is pre-existing relationships. Our LiDAR is already kind of – and the output of it is designed to kind of work with those chips. One of the things is like take for example, NVIDIA we are on their reference platform for Hyperion. Now, does that necessarily guarantee is that when an OEM customer uses Hyperion, they are going use our LiDAR, not necessarily, because each OEM is going to make their own decision to which LiDAR that are used. But being designed into that reference platform and having the software algorithms designed around your LiDAR, there is a lot of advantage to that, there is a lot of stickiness and it kind of makes it yours to lose as they win new business.

Josh Buchalter

You have made more of a push than many of your LiDAR peers into the software domain, with investments in capabilities like yourself doing proactive safety and highway autonomy. Is this to win new business? Is it to monetize those assets separately? Can you talk about the business model for your software investments and how you see the ROI from that long-term?

Tom Fenimore

Yes. And so what we are trying to do is there is a big ecosystem that our LiDAR can create and enable. We have talked a little bit about it with the safety. We have talked a little bit about it with highway autonomy. You know there is also the opportunity one of the things you didn’t mention is 3D mapping. A lot of the maps that are out on the road today are 2D maps, once again, camera based. But as you have more vehicles driving around there with LiDAR and capturing that data, there is the ability to help build 3D maps there. But what we ultimately want to do, and while we’re in the software, we are big believers that in the medium and longer-term there is going to be big software opportunities from us. And that can be anything from doing what is called the perception software. And so the output of our LiDAR is effectively a point cloud. And just so think about it as a bunch of 3D set of dots, right, you then have to take those dots and say, that’s a person, 90 meters out there, that’s a tire on the road 150 meters over there. Then on top of that, you need to do object tracking, you want to know, because, we typically measure multiple times a second, the environment. And so you do object identification, object tracking, that’s the output of the perception software.

So that’s an area that our team has focused on. From that you want to take the output of that LiDAR, and you can do either what we call proactive safety. And so we you can see some of the videos there. But what we’ve done is we’ve kind of built this product share with our OEM customers to show what the art of the possible is. Remember, a lot of the software teams that OEMs today, they’re very good at taking, camera based output systems and building the algorithm around that question is, once you start putting a LiDAR on there, you’re dealing with a different sensor modality, how do you kind of integrate that into the system. And so our team is developing the right way to do that and working with the OEMs. And so ultimately, perception software is what we’re focusing on today and then ultimately building out those proactive safety in the highway autonomy functionality layering on to that the 3D mapping, that’s kind of our medium and longer-term vision on software.

Josh Buchalter

So if I were to summarize it, perception software, that’s something that differentiates you competitively allows you to win sockets for hardware, but proactive safety, highway autonomy and mapping are sort of the assets you think you can monetize longer-term, in conjunction with the compute players as a separate revenue stream. Is that sort of…

Tom Fenimore

Correct. That is our strategy.

Josh Buchalter

Got it.

Tom Fenimore

And ultimately, I think it’s demonstrating what a LiDAR can do when you put it on the vehicle and the value it can bring.

Josh Buchalter

Understood. And then at the recent Analyst Day, you mentioned an initial foray into the insurance market, which was admittedly surprising coming from a LiDAR company. Can you talk about what the goal – what’s the status of this business venture? What’s the goal of it long-term and how we should be thinking about it? It’s not in my near-term model admittedly.

Tom Fenimore

So once again, it goes back to how do you monetize the value that our LiDAR brings to the vehicle, we talked about the safety improvements, that we are confident it’s going to bring the 20% improvement that the Volvo CEO mentioned, that safety improvement is going to manifest itself in insurance savings, if cars crash less the cost to insure the vehicles should go down? We one of the things that we explored is how do you potentially monetize that, in order to subsidize the cost of this technology? One way is to go and work with the traditional insurance companies and try to give them to discount packages to consumers that purchase these vehicles. The issue that we faced is as we started to have those conversations, the legacy insurance companies wanted to see years of real-life data on the road before they would adjust their pricing. And we wanted to move faster than that. A lot of our OEM partners are now looking to get into the insurance business I think Tesla is probably the leader in that. In terms of building out their own insurance product to insure Tesla vehicles because they didn’t believe that the legacy insurance companies were pricing that risk appropriately. And so what we’re doing is the person who built out Tesla’s insurance business, we hired him. And he’s taking the lead in building out an insurance product that will be scalable to our OEM partners. And so the point is, you want to build this asset light, it’s not a big of investment as you think and then potentially go and partner with your OEMs. And ultimately, this is where we want to put our money where our mouth is, in terms of the safety improvement that our technology brings. And then basically underwriting that and delivering cost savings to the consumer to encourage the adoption of our LiDAR. And so it’s, when you step back and look at this, do we want to be an insurance company? No, but what we want to do is really create a mechanism that can capture the safety improvements. Demonstrate the value to the OEM and then use those potential cost savings as a subsidy for the new technology and to encourage standardization.

Josh Buchalter

I mean, that would be, you’d be essentially breaking the mold of a very established insurance industry. Can you talk about you have a partnership with Swiss Re?

Tom Fenimore

Correct.

Josh Buchalter

How does that work? And I guess how much OEM buy-in is required to make this happen?

Tom Fenimore

Yes. So, look, we’re technology guys, we’re not insurance people. And so while we’re big believers in our tech, there’s a lot of things in the insurance space that, quite frankly, isn’t our area of expertise. Partnering with Swiss Re, as the person who’s responsible for financial risk at the company, make sure that we’re partnering with somebody who understands the legacy insurance business, and then, we understand the technology side, and by working together, we – our goal is to appropriately underwrite the risk in terms of that. So that is the Swiss Re collaboration that we have, which is that we’re working together doing with Swiss, what’s, what’s interesting here is our goal is to go through our OEM partners to do this together, we think that’s the right avenue, a lot of them are looking to get into insurance, you have a natural touch point, with the consumer at the point that he or she buys the vehicle. But the other thing that’s interesting is, and we’ve kind of seen this play out, at least in one of our OEM conversations is a lot of OEMs, as I mentioned earlier, looking to build out their own insurance business. And so ultimately, as we have these discussion, it naturally leads into that talking to their insurance thing, and as you kind of sit down and have those conversations with them, and explain to them the potential economic opportunity that our technology enables. It’s not surprising than to say, well, look, this is great, we see it, there’s an opportunity here to make a lot of money. But do we necessarily need you on the insurance side? And the answer is, not necessarily, you guys can do it on your own. But you need our LiDAR in order to capture that. So if you want to go do this on your own, and you’re a big believer in the economic opportunity, let’s talk about how we put our LiDAR on more of the vehicles.

Josh Buchalter

By the way, this is meant to be interactive, as much as I love hearing myself talk, please do raise your hand or throw something at me if you want to get question as John, please.

Unidentified Analyst

Wondering where we stand in terms of navigating bad weather in terms of facilitating self-driving, so Google [indiscernible], where – what is – how is that – how are those problems being addressed?

Tom Fenimore

So there is bad weather can mean anything from fog to blizzard to rain, etcetera. And so there is a few challenges that have to take – be taken into account. So one of the things on our LiDAR, and if you will allow me to geek out a little bit on the physics for a second, we operate at a wavelength called 1550. A lot of other LiDAR companies operate at a wavelength of 905. Why is that important to, a 905 laser if you put too much power through a 905 laser and put it up to your eye, it can do eye damage, and potentially even blind you, you don’t really have that issue at 1550. And so one of the things we’re able to do is put more power through our laser. So for example, if we’re in fog or blizzard, or what have you, you’re able to put more power through the laser to effectively power through the weather and try to get more. Did you get similar functionality? No, look, are there going to be limitations? Yes. But through that type of weather, you can do it.

The other challenge is, how do you keep the sensor clean, right? Because if you’re like in Wisconsin, and it’s snowing, and you get all that duct up in your car, right? We all know how dirty our windshield can get sometimes in that snow weather, how do you keep it clean? Our initial integration with our customers is up in the roof. And so with that we’re able to build in those cleaning functions. Sometimes each OEM does it differently. Sometimes it’s compressed air, sometimes it’s kind of having the windshield wiper fluid, for lack of a better word go up there. But keeping it up there, as opposed to down in the bumper helps keep that center clean in the bad weather so that you can still get that functionality. Like the human driver today it is going to impact you but our center is designed to kind of adapt to that put more power through the laser to see through so that you’re not as limited as much as you would think.

Josh Buchalter

It’s following up on that. It LiDAR is a very objectively competitive industry. There’s a lot of companies that are putting their hands in the pot. How should we be looking at competition on the outside – from the outside and how many LiDAR makers can realistically be supported by the auto industry in your view? And I guess even bigger picture there is companies like Imaging Radar that think that they – that make the argument they can push out LiDAR adoption I’d be curious to hear how you just think broadly about competition and positioning Luminar?

Tom Fenimore

So, there is a few of better than questions in there. One is, I don’t know how many LiDAR companies there is going to be, 10 years from now. I am confident in saying that, there is going to be a lot less than there are today, just there is I don’t think enough business out there. I think you have already seen some failures. I think you are going to see some more over the next 12 months to 18 months. We manage – we monitor at least the publicly traded ones, how much cash they have, what’s the runway. And unless the markets recover, and they are able to raise new capital, we think they are – there is going to be a day of reckoning probably for a number of other ones there over the next 12 months to 18 months. So, going back, when I am confident in 10 years from now, there is going to be fewer LiDAR players in there are today and Luminar is going to be one of the surviving ones. How many are there that are going to be left out, we will see. Two is, it all comes down to what you want the LiDAR on the card to do. As we talked about, it’s not the cheapest thing to put on the vehicle, $1,000 for us today. We have plans to kind of bring that down, etcetera. But what we are able to do with seeing that 250 meters, and having that much better visibility, we talked about the value we are bringing to the vehicle with the safety improvements, as well as enabling with the highway autonomy. And so it has that value proposition. But if you are just focused on building an ADAS system that is competitive with what’s out there today, not significant improvements, not enabling, anything above maybe like L2, or L2+, or how many pluses you want to put in front of it. I am not too sure that buying a light or just to not have that significant safety improvement is necessarily worth it. And so can 3D radar do in those circumstances, yes, probably, you can probably get modest improvements in ADAS. But it all comes down to the to the functionality. If you want to take that next step with your safety system, if you want to take that next step with the autonomy, if you want to take that next step in terms of being a technology leader. That is why the OEM customers are choosing our technology today. But if you are going to be buying a LiDAR just to get modest improvements to an ADAS system, it’s a good question if it’s worth or not.

Josh Buchalter

Alright. So, you are – I want to switch gears a little bit you as CFO and ask a couple of finance related questions, if that’s, okay?

Tom Fenimore

Sure.

Josh Buchalter

Near-term, you have given guidance to double revenue this year, and I guess in the next several years. You issued that guidance before one of your lead customers pushed out their platform launch. How can you walk through what were the assumptions there and how you are able to maintain the doubling of revenue this year, despite that push up?

Tom Fenimore

Sure. So, I would say we – while we prepared our guidance before they publicly announced that pushing out, I would say, we built our guidance in a conservative way. And so we built that, we were like where I would say we weren’t assuming a big amount of revenue from that initial launch this year. And so that doesn’t impact our guidance. And when we created our guidance, I would say we were kind of preparing for the worst, as opposed to necessarily hoping for the best. Look, we are despite that, our – what’s doubling this year is it’s across the board, it’s higher sensor sales. We have our new factory up and running. There are other programs that we have, other customers that aren’t necessarily in the automotive space that we are seeing higher sensor sales for. We still have healthy NRE revenue. Our components business or what we call LSI, we are seeing healthy sales there. And so it’s really across the board. And in terms of what we are seeing in terms of expanding our revenue, even though, I would say that major launches, the benefit you are going to see from that is going to be more next year as opposed to this year.

Josh Buchalter

And can you talk through some of the customer assumptions that are in the guidance for revenue to double through 2025 or 2026? You have had some high profile announcements with Mercedes and Nissan, are those baked into the forecast at all?

Tom Fenimore

Yes, I would say for some of them. So, the way that we have built our forecast and kind of going back to what I said at Luminar Day. So, call it in the next 12 plus or minus months, we are going to have Volvo, Polestar continued upside and some other whatever I would say kind of customers that build up into that, that’s kind of like Phase 1 of the launches. Phase 2 will then be Mercedes and Nissan, which will be in the middle part of the decade. And so the plan would be in terms of sensor production rate to be at the six figure rate sometime next year, primarily driven by the Volvo launch. And then we think we are going to be at that million unit plus or minus mark in that ‘26-‘27 timeframe. Now, why am I be giving a range on the timing is, there are multiple vehicle lines that we are launching between now and that timeframe, if all of them launch perfectly and on time, it’s going to be in that 2026. In the auto industry, sometimes timing slips. We saw it with Volvo. And so we are kind of building in that cushion there with a little bit of that time range there. Of that million unit mark, over 75% of that is booked today, in terms of getting there, in terms of vehicle programs that we have won, the remainder is just with existing customers and kind of additional vehicle lines that we are in there talking to them every day about and we feel pretty good.

Josh Buchalter

So, this is an – I recognize a nitpicky annoying question, but it’s one that we get asked all the time. You said booked, today, what does that mean, what is this, something is there, because there is…?

Tom Fenimore

Sure. Yes. So, for those of you that are in the automotive industry, so booked means, I will give you an example. I will use Volvo for it. For Volvo, we are on the X90, where we are a standard. They have officially awarded that there is an agreement, there is a negotiation that’s in place. We know that we are going to have 100% take rate. It’s not an option, it’s there. That is booked. That is awarded. The risk is how many SUVs is Volvo going to sell next year. At the end of the day, nobody knows. But I can look at factors like IHS, I can look at what they have done historically, you come up with a pretty good sense of what it is. So, when I say booked, I mean we are officially awarded the vehicle program. We have an agreement in place with the customers, I can point to that specific vehicle line. I have a rough sense of timing of when started production is going to be on a line-by-line basis. The ultimate risk is how many vehicles are actually going to be sold of that particular vehicle line. And what we do is we look at IHS, which is a company that does industry forecasting, we look at those volumes. Sometimes we hear Kedah and then that’s what I mean by booked. That doesn’t mean if for Volvo, for example, even though they have said publicly that they want to put us on every vehicle line that they make. Right now, it’s only the EX90 and the excellence in those vehicle programs where we have officially been awarded, everything else, that’s not booked, that’s not part of that 75%.

Josh Buchalter

Got it. Thank you. And you have given some margin targets, I think breakeven, gross margin positive by exiting this year and 35% in 2025. What are these and the longer term, I think you have talked about 65% hardware gross margin, can you walk through some of these? Did I get that right, first of all? And secondly, did we want to…

Tom Fenimore

I am trying to do the math in my head, because I don’t think we kind of gave like ASP guidance and sensor contribution costs. It sounds like, so I am assuming the math is correct. Okay. Yes.

Josh Buchalter

So, can you walk me through some of the assumptions underlying the accurate version of the statement I just gave?

Tom Fenimore

Sure. So, we said publicly that our ASP in the near-term for initial product is going to be in that $1,000 plus or minus range. What we think it’s going to cost us to produce a sensor between the bill of material or the material cost that goes in it. And we don’t do the manufacturing our self, but we will use third-party partners like Pavlin and Celestica, to do it. And so for us to produce a sensor, there is the BOM, there is the conversion costs, and there might be some other dribs and drabs, like freight, warranty, etcetera. Put that all in there, the cost of producer center, we think is going to be in that $650 plus or minus range, once we kind of get the scale in that call it late 2024-2025 timeframe. So, I think that’s how you are getting to the 35%. Longer term, the cost of our next generation product, which will be ready in the second half of this decade, we think we are going to cut that $650, nearly in half to $350, both by bringing down the BOM, as well as bringing down the cost to manufacture that. And so I think that’s how you are getting to the longer term margin assumptions that you mentioned.

Josh Buchalter

And I think we have 30 seconds left. Can you walk through some of the assumptions you have given? You have said you have enough capital to reach a cash flow breakeven. You did a shelf earlier this year, what’s baked into that assumption that you have got enough of a runway?

Tom Fenimore

Yes. So the shelf that we put up is in this current environment, we are getting a lot of calls on M&A, particularly what I would call opportunistic M&A. A lot of companies are struggling. Startups are unable to raise the next round. Big companies like Seagate that wanted to get into the LiDAR and autonomous business are looking to get out in the current environment as folks look to cut cost. And so what we want to be is in a position to move nimbly on M&A. This year we kind of bought Seagate’s LiDAR business. We did an aqua hire of a small team out of Argo in Princeton, great laser experts. And then when Aleister and Velodyne came together, they shutdown their India engineering office. And that was an area where we were looking to build a footprint to add engineering talent. And so last year, one of the things we did is we bought a company called Civil Maps, which got us into that mapping space. All of these are very small deals. All of them, we are using our equity. But one of the things we wanted to do was to be in a position that if an acquirer like Seagate wanted cash, we could use the cash up our balance sheet and then backfill it by effectively issuing the stock in the market. So, the facility that we set up is only used for M&A and strategic purposes and allows us to act nimbly. But we have enough cash on the balance sheet plus a cushion to get to profitability. And you are going to start to see our cash burn come down meaningfully towards the end of the year, as these launch costs start to dissipate, building a new plant, adding new equipment, doing all that, it costs money, but a lot of it is more one-time in nature.

Josh Buchalter

Well, big red clock and all of our new friends just entered the room tell me that we are over time. So, Tom, thank you.

Tom Fenimore

Thanks for having us, Josh.

Josh Buchalter

Enjoyed the conversation.

Tom Fenimore

Thank you.