Q2 2022 Luminar Technologies Inc Earnings Call
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Just in case, you joined a little bit late welcome to the call. We're taking a few minutes to give you a chance to watch our new pass a series production video installment.
Earl is right there on your screen take a look at the video will be back in a few minutes.
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No.
Well I hope everyone enjoys the video similar to last quarter and in the spirit of continuously improving our shareholder outreach will be addressing some of the top questions submitted online on the same platform at the end of our prepared remarks today, followed by analyst questions. Before we begin the prepared remarks and Q&A, let me remind everyone that during the call we may refer to GAAP.
And non-GAAP measures. Today's discussion also contains forward looking statements based on the environment as we currently see it 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 illumina, our founder and.
Austin Russell.
Alright.
You guys hear me okay.
Sounds good.
Perfect.
Cool thanks, Thanks, everyone.
We're actually here live from our Orlando So with the just give me just give me a moment and we'll get everything.
Ready to go.
Yeah.
Okay.
So well.
First off I, yet this well welcome everyone like I said, we're we're live from our headquarters here.
To and.
From a thank you Trey as well for giving some of the common hopefully that the video was helpful in giving a little bit of context in terms of what we've been doing in the latest from the past production, obviously, some some new exciting stuff, but jumping right in I think it can go into this with since our last update we remained intensely focused on execution, leading up to the series production launch by.
At year end, so I'm proud to say that remain on track to meet or beat each of our four key 2022 company level milestones, which Tom will be outlining a greater detail here next to me in a few minutes. So as we continue to successfully prove ourselves to the major automakers. Our traction is continuing to be able to accelerate that as they build further conviction and expand visit.
So as a result of the strong execution of increased customer demand, we are increasing our commercial and financial guidance for this year, including increasing the growth rate from 40% to 60% for both major commercial program wins as well as our forward looking order book metrics. So that's already actually a 50% increase in growth rate than what we were expecting which I think it was actually.
Pretty strong in the first place as well.
Oh, you know our performance may come as a surprise considering some of the broader macroeconomic headwinds this year with a market downturn impacting so many cutting edge technology companies. The most but with most of the autonomous vehicle industry centered around driverless robo taxis facing challenges I think the critical part is Illumina has had a different strategy in different market the whole.
Time addressing the existing multi trillion dollar consumer vehicle market and using autonomous capabilities, primarily for safety and improving the driving experience rather than just trying to replace the driver altogether for ridesharing process.
As many of you guys know so.
As a result of our business economics, and the overall market are well on track and accelerating and showing no signs of slowing down so in a world where there's been a lot of our over promises and under deliveries. We aim to be the one that we'll over deliver on our commitments.
So doing a little bit of a deeper dive on a few of the drivers of highlights this past quarter.
One is on execution on number two is scale and number three is technology leadership.
First execution, our progress execution on Iris central and commercial programs remained strong the biggest effort and focus right now is on industrialization of Iris and execution of the key customer programs, leading up to the launch of Iris in series production by year end in parallel. We're also successfully executing against our plan for developing Sentinel are soft.
We're solution for proactive safety and highway autonomy capabilities, we have a bigger update on this front next quarter as we approach our release the beta version of assessment.
On the OEM program. Our teams are focused intensely on program execution to support multiple OEM partners that we had to prepare for launches with over the course of the next 24 months in Q2, we successfully completed the first phase for series production program and associated milestones with the major Oems.
Our automakers continue to be encouraged by our progress and are counting on alumina to power the future of their technology roadmap, including next generation safety and ultimately autonomous capabilities.
Another market that is continuing to rapidly develop that has a lot of potential for us is China. So we're expanding our presence in China significantly and investing to win so we've been working closely with the largest automaker theyre SAIC in Shanghai and in Q2. We also partnered with <unk> mobility Tech company affiliated with the Gili group and associated brands.
Which will help accelerate our presence in China and even beyond.
So secondly is scale following the successful execution of product industrial end product industrialization scale is that next clinical base. So prepping for large scale manufacturing of a complex product takes a significant amount of lead time capital and some of the brightest minds to make it all come together and work.
So following the increased customer demand as you saw in the video, we're now expanding and exciting to build a dedicated high volume manufacturing facility to expand upon the existing facility with our contract manufacturing partners for the new facility. We're now building a highly automated manufacturing lines in partnership with Calgary robotics to enable the build.
A paucity of up to 250000 units per year with the initial launch.
The scale initiative adds to our existing capabilities and capacity, which includes the expanded pilot line, which are advanced manufacturing team. We have here in Orlando is working on in the series production facility in line, we already have in place that's less OCA in Monterrey, Mexico, we remain on track to be series production ready by the end of this year with the capacity to support our customer programs.
And bringing online the dedicated highly automated facility for high volume starting in the second half of 2023 to achieve exponential scale.
Of course Iris is a first of its kind automotive technology and we have to not only protect the product, but also the means of producing it at scale. It's a massive undertaking but we successfully assembled the right team and the right partners to make it happen.
Third.
We are also attracting.
Key industry in top industry talent and in Q2 alone we.
We ended up adding to our strong depth of talent, including industry leaders for much larger automotive and technology companies.
A couple of examples as we welcomed <unk> 10, or <unk> as EVP and GM, who previously guided in the U S automotive business and our new VP of software C. J Moore, who previously as a director of auto pilots at Tesla and director of autonomous systems that Apple.
Recruiting other industry leaders.
So.
They have already jumped right into advance the strategy alongside the brighter team and continue to drive the critical execution and just wanted to thank them for their continued dedication and focus along with the broader team.
<unk>.
In conclusion to sum it up before handing it off to Tom here and taking it through some of the business milestones of financials.
Now if we are really all in to deliver our long term vision of saving lives and powering the future of safety and autonomy as the 100 year vision that I had mentioned on the last call all consistent with that all rolls up to that.
Our.
Second is that our company is also largely unaffected by the broader macroeconomic market headwinds and a slowdown in cutting edge taxi and our execution is strong our balance sheet is strong and our market is accelerating.
And as I've said before that we believe the market to be set up for a winner take most or winner take all type scenario and I think this is more true now than ever and on the back side of this tough market only accelerate what I believe that with the leadership and broader market adoption.
And we have the customer programs the talent the technology and critically the cash runway needed to be able to continue to execute and win.
Now with that I will hand, it off to Tom to discuss our quarterly progress on the four key company level 2022 milestones, we outlined at the beginning of the year as well as our financials for the quarter.
Thank you Austin.
I'm going to start by reviewing our progress towards our four key 2022 milestones. Our first goal is to achieve series production readiness. This year and we are on track to achieve this goal. We are currently preparing for series production launch at select because existing facility in Monterrey, Mexico.
The existing production line may have.
Concurrently we are preparing a new dedicated facility, which selected <unk> will operate for us in Mexico to meet increased demand.
This new dedicated facility and automated line often discussed earlier are expected to come online in the second half of next year.
Second on the software front, we remain on track to achieve our goal of releasing the beta version of signal by the end of the year in.
In Q2, we conducted live drives at Tech Crunch mobility, demonstrating the higher confidence detection and collision avoidance capability of our proactive safety system compared to today's camera and radar based Adas system.
Our third milestone.
Is to grow our major commercial wind total by at least 40% this year.
We feel very confident about exceeding this goal and are raising this milestone the 60, 60% growth this year or at least five major commercial wins.
And finally, we are also raising our forward looking order book growth this year from 40% to 60% based on the strengthening in demand, we are seeing from new and existing customers.
Let me turn to review our financial results for Q2.
Revenue for the quarter was $9 9 million up 57% year over year and coming in ahead of expectations. Due to continued commercial momentum driving program revenue as well as increased sensor and component sales.
For the quarter, we reported a gross loss of $10 $9 million in Cogs of $28 million on a non-GAAP basis.
<unk> of our Cogs expense this quarter was from R&D expenses associated with program development revenue.
On fixed manufacturing overhead as.
As stated previously these factors inflator reported Cogs and gross loss at this stage and are not representative of production unit economics.
Our Q2 cash spend was approximately $56 $5 million.
Cash spend was up sequentially from Q1 due to working capital investments. We made during this quarter increased industrialization expenses and the Lumpiness of cash received from OEM contracts in the first quarter of this year.
Year to date, we also spent $81 million in cash on share repurchases and additional $6 million on M&A.
We ended the quarter with $605 million in cash and marketable securities.
<unk> liquidity position leaves luminaire with multiple years of runway at our current net cash spend range, which we expect to decline as revenue ramps with series production.
We are not pulling back on the investments we need to make to reach series production and achieve our strategic growth plan in this tough environment, but we will continue to be very disciplined in how we deploy our strong balance sheet.
I will now update our full year financial guidance, given the better than expected commercial momentum we are seeing for both this year and in the future.
We are raising our full year revenue guidance to a range of $40 million to $45 million.
Up from $40 million previously.
Given the lumpy nature of program revenue, we expect Q2 Q3 revenue to be in the $8 million to $10 million range.
We maintain our full year guidance that net cash spend will be moderately higher than last year's total of $155 million.
As well as our year end share count guidance to be in the mid $360 million range.
We maintain our guidance for our operating loss for the year to be higher than our cash spend.
Consistent with our comments from last quarter, we expect our non-GAAP EPS loss to continue to increase sequentially. This year and be in the low 20 range for both Q3 and Q4 as we continue to invest in our business to prepare for series production.
To conclude I would like to thank the broader alumina our team for another great quarter with that back to Trey for Q&A.
Thanks, Tom.
To start the Q&A with a few of the questions that we received on the <unk> platform and then we'll move to analyst questions Austin, Tom The first question.
It was really kind of a combination we've got several questions about commercial momentum in the same platform.
Ed I'll hit kind of these three but maybe you could talk to them in total any partnership with lucid Tesla in the roadmap as alumina are going to do business with Apple is the partnership with Mercedes Mercedes Benz still in place and if so what is the status.
Yes, so I think we can jump right in on that so.
I think <unk>.
You have to be careful about commenting on specific.
Customer or prospective customer programs here about what I can say is that in the case of.
Of those ones that were mentioned, we have publicly announced Mercedes as a major commercial win for us and not only is it is still in place.
<unk> to progress and.
Work with them along with other Oems as we bought broadly indicated has largely been.
Accelerating hence increased guidance other things on across multiple factors. So I would say for the OEM programs for the automakers that we've announced we are continuing full speed ahead, and that's what a lot of the execution work is all going into to successfully execute on these key customer programs.
So making good progress.
Back on industrialization has been good.
But I think it's also important to remember that when we do these kinds of announcements or anything here.
It's usually more of the Oems.
Thats driving as much as anything we have to do we do these jointly it's random we announce something on our on our own.
It's usually a sanctioned.
And pretty much effectively every instance, a sanctioned.
<unk> is part of this and that's a really important one for being able to establish credibility and usually at <unk>.
Reasonable program stage of where we see sufficient confidence that it will have the opportunity to be able to reach series production. So.
I think we took a more conservative approach and not in that domain, but I think it's an important one.
So and again, we already have a couple of major wins this year with Mercedes, including as well as a Nissan as well too for that matter. So we are continuing full speed that along with you.
No.
Nearly a dozen other types of programs but.
This is where we see the guidance increasing here and that tends to increase from 40% to 60% growth.
Great. Thanks, Austin Tom.
Tom I think the next question is probably for you and it's really when can shareholders expect to see alumina are profitable.
Good question Trey.
Zooming back that the environment that we've really seen in the equity markets, particularly for new technologies over the last two years reminds me a lot of the dot com bubble and the dotcom bursting that we saw 20 or so years ago during that period.
A lot of companies went public many of them that probably werent viable as public companies and then when you had that bubble burst.
It really separated the winners from losers and the many companies that went public towards that period ultimately ended up going away and those companies that survive had three things in common one is they had credible near term revenue opportunities two they had the right team in place to execute and <unk>.
Liberal in those revenue opportunities and three they had the balance sheet and the cash on hand to reach that revenue that would deliver them profitability.
When I look at <unk> today, we have that credible near term revenue opportunities from the series production awards that we have on hand, and reaching series production readiness at the end of the year, we have the team in place and we have the resources in place and a lot of that we talked about earlier on this call and then three most importantly, we have the cash on.
Hand, plus a healthy cushion to allow us allow us to reach profitability, which we expect to reach in the next few years. Unfortunately, a lot of these companies and this is my personal opinion that have gone public over the last couple of years I don't know if all of them are going to survive, but I know that illumina or we will not only we're going to survive, but we're going to do.
<unk> as well.
Great. Thanks, Tom I think also I think the next question is.
Targeted for you.
Whereas alumina are currently with their partnership with Volvo.
Yes, so I think it's important to know that we are successfully executing to the Volvo program partnership and milestones and on track for me to achieve the remaining program milestones leading up to a successful launch and ramp capacity associated with the program.
So just as a recap we started working with them.
Quite a while ago initially.
Cover in alumina, our before we came out of stealth mode back in 2016. They were really ahead of the game in terms of being able to plan this out.
That was that was where by the time upper upper a.
Second collaboration.
For over over a period of years.
Jointly announced in 2020, the partnership and the major commercial Windows.
Next generation XC 90 vehicle with the next Gen safety and highway pilot capabilities.
Then subsequently in 2021 this past year.
Bobo announced that they are.
<unk> really taking a much more aggressive position in the industry and kind of bucking the trend of having of introducing technologies as options and actually making it.
I think it came to a surprise many.
Standard on the next generation XC, 90 vehicles, which would be the flagship vehicle.
I believe best selling one so that's and then of course size as that progressed the intent to scale further so pretty pretty cool.
Did you see the progression there and thats.
We remain.
Competent that.
Relationship will continue to grow and they've been doing a great job of industry leadership.
Great and then the last question from the site platform and then we'll go to the analyst questions.
Yeah.
We will limit our benefit from the <unk>.
Current shipbuilders.
<unk> and <unk>.
Moving to presidential signature tomorrow, and if so how would limit our use that.
Yes.
So trey when when we read the Bill, which as you said is expected to be signed in mall Tomorrow, we do see some interesting potential opportunities for us.
Particularly with regards to some of the recent acquisitions, we've made to vertically integrate and so as that Bill is ultimately passed hopefully with the President's signature Tomorrow and then as the Commerce Department sets. The application rules, that's something that we're going to be.
Following closely.
To identify what the opportunities are for alumina and exploring them to see if they make sense for us.
This is not something that we need to execute upon our plan, but it is something that could allow us to accelerate some of the development plans that we're currently exploring.
Great.
I just want to say thanks to the over 500 people who participated in the Se platform. This quarter, it's great to see all the interest will continue to use this as a platform to increase shareholder engagement with all of you and with that let me trends I was actually even talking with right at some point it could even make sense. So we can even do a like a dedicated session because I saw.
There are like 100 questions that were asked there too or maybe it's some other point.
Time to go through that with an earnings call, but but I think it would be.
Cool to help answer more but good.
Questions all around that too.
Thanks, everybody.
Let's transition to our first analyst question and the first question is going to be from <unk> Mackay Elliot.
Yeah.
Great. Thanks, Hi, everybody can see everybody just two questions first I was hoping you could expand further on the.
The higher guidance for the forward looking order book to what extent is it coming from new customers new wins as opposed to existing customers increasing the forward take rate assumption that can even share. If there are any unannounced wins within that outlook and then just second on the new manufacturing plant, hoping we could dig a bit.
More into a couple of things first just capex requirements for that and the implications to gross margin as well as just the total capacity once that plant comes online for 'twenty 'twenty four 'twenty five.
It's all I had.
Great.
I'll take the order book and then do you want to take the new plant Okay.
Okay great.
So when we look at the order book growth rates. So we're increasing it from 40% to 60% and as a reminder, that's where we expect it to be at the end of this year. So we started the year at $2 1 billion and so we're expecting at least 60% of that growth there.
That's coming from.
I'd say, both new customers.
Both kind of ones that we've kind of talked about earlier this year.
As well as whatever other ones, which could happen by the end of the year, but.
But it's also coming from existing customers that were working with and giving us new volume that they want us to be prepared for it as well as new vehicle programs and so.
By the end of this year I'm sure. We can talk about that in more detail, but that growth is coming from both of those sources.
The Capex for this new plant.
A lot of that is baked into the guidance we have already.
I think most of the.
Sure.
The cost to build out that plan, putting cleaner and stuff like that as well as the automation equipment that that line is going to go into a lot of that is baked into our spend for this year and so that's baked into the guidance we've given.
And so I think maybe some of that spills into 2023, but I think a lot of it is going to be this year.
And I think it's fair to say that.
This is not a huge surprise totally out of nowhere.
The customers are going to want increased volume from this.
Then talking in theory about it for quite some time, but we're seeing more and more of that materialized at the table and that's why we're pulling the trigger to really accelerate this and get that dedicated facility with us. So unfortunately.
Unfortunately this is not.
This is not something that's like an automotive factory that require a car pathogen requires billions of dollars of investment, but it really a year's worth of work from our advanced manufacturing team that we started investing in Bakken.
Really 2017 was really when we started scaling that up all the work that they've done around automation cross asset all of this stuff and now actually seeing it materialize not just with the the primarily manual work that happens with our manufacturer partners now, but in a fully automated or mostly automated line, that's where we can really get.
Given the huge capacity on top and from there on out with the capacity to build capacity of up to 250 <unk> here. It is linearly scalable as well. So we can continue to install additional lines to support additional capacity.
In Mexico or beyond.
That's an important one.
Part of that whole side of the game.
As I said it is very very challenging to get to an industrialized product, but it's also in parallel challenging to scale and be able to prepare her scale in light of this stuff takes years.
Here's where the work that so it didn't.
It didn't totally come out of nowhere so to say, but the increased demand was the trigger to do that those additional investments.
Terrific. That's all very helpful. Thank you thanks Lisa.
The next question is going to come from Josh look alternative Cowen.
Hey, guys. Congrats on the results and thanks for taking my question. So first of all I wanted to ask about manufacturing facility as well.
Video you mentioned quarter nine units.
And.
Total capacity and that sort of how we should be thinking for when it comes online entering 2024 or is that a more ambitious target.
Then.
For my follow up.
I think you've given the $100 Bom cost per 1 million units.
Right now obviously, we have.
Pretty tough tough data points are im getting what your margins will be when you enter series production at the end of the year should we think of it as sort of a linear ramp or is it more catalyst driven to get to the borrowing cost from things like free integrated photonics onto your next generation Lidar and they're laser diode.
Okay.
I think the number one part of all of this is that kind of as Tom was talking about this right now theres a significant amount of.
R&D related expenses they get amortized.
The Cogs as well as.
Factory overhead that's effectively there what it is.
Not in series production that still has to be attributed to.
Two units up hence why it's not it's really impossible to kind of lead into it today.
So I think.
Tom can probably speak more about the bomb roadmap, but I think it's fair to say that we're on.
Well, we've publicly said $500 target for Iris and then ultimately for what's ahead and beyond and when you get to the 1 million plus unit like basically seven figure volumes for you or that's where the long term bond target remains at $100. So we're still tracking ultimately to be $500 and then over the longer term.
But it's a really high volumes towards that $100 as well. So theres a lot of work that still has to continue to get done but the key catalysts are obviously starts with the design of the basically.
Single agent single receiver based architecture of that because we don't have a huge array of components that are required at extremely expensive.
And Thats part of the driver and getting the core component cost down, which we've really focused on and then the commodities and the other parts of it really ultimately lowering cost is a function of volume.
That's the key to enabling so it's a combination of multiple multiple factors there to lease up to it but.
But it's not an easy one, but we've been tracking to it.
I don't know if you want to add any more color on what I'm talking about yes.
Josh.
Just add a little bit more color to what Austin said and then to answer your question. So we're not going to get.
Any specific volume guidance for 2024 at this time, but I think it's fair to say that we're building this plant and installing capacity.
Capacity, so that when we kind of reach that 2024 timeline timeframe that plant is at pretty healthy utilization rate.
The $500 bond target.
As we talked about on the call that dedicated facility, we were bringing that online in the second half of the year and so in the first full year production there that's going to be.
Critical to getting us to that $500 bond target. The team continues to make very good process.
Even in the challenging environment that we're facing to get that that target. There's still some work to do but I'm confident that that the team is ultimately going to get in that area for that period that we discussed the $100 target as you said that's kind of.
In the future.
Require that Super scale 1 million plus units that you referenced.
As well as introducing.
Some other things on the technology front that we'll talk about at some point on the future, but for those core components that we have particularly with the recent acquisitions. They have those help a lot to get us to that longer term target of $100 and the key is is the best that we make today.
These are the things that end up paying off.
Few years from now ultimately like so these are these are bolt on things like the.
Vertical integration on the components that get the cost down on to all the different touch.
Aspects from a technology standpoint, so but.
Well, yes, I think those wells that none of us know.
Very much appreciate all the detail and congrats on executing a tough backdrop.
Thanks, Jeff.
Alright. The next question comes from Mark Delaney Goldman Sachs.
Hi, good afternoon. Thank you for taking the questions first one on supply chain, hoping to better understand to what extent, it's having any impact on alumina or when you reiterated the view you are ready to be in serious production at the end of the year.
But when you think about the rate at which you can ramp in the magnitude of which you can ramp are there any impacts given some of the supply chain constraints that youre, saying, yes.
Great question, Mark and this is something that we monitor on a daily basis, not only for our supply this year, but as well as supply supply for next year as we reach series production.
As we've talked about before.
We have the supply base in place, we're ramping them up.
Right now, we don't foresee any significant challenges for either this year or next year, but.
It's not easy out there and Cheryl Xu who runs our supply chain does.
A very good job of finding the parts that we need and making sure that we don't run out of them.
Will.
This year, there are some expedition fees, we need to pay or or or some premium freight to make sure that we get the parts. There on time, but I wouldn't say that any of those charges now are are material to our financial.
Our financials then.
We're hoping that they won't be next year as we reach series production.
I think it's fair to say that.
For some of the hardest to achieve more specialized components there too I mean, we have those vertically integrated now at this stage. So that was that was some of the one of the key drivers as well behind.
We are blackboard and enduring operation freedom.
And are there other parts that are that are critical but yes. Its ultimately.
That.
That ramp was more would be more manufacturing capacity capacity limited in supply chain limited.
Hence the build out now of the dedicated facility. So that we can you can scale that up even further with the increased demand.
One more from me please if I could.
Tommy pointed out the strong balance sheet, the company had and youre not going to hold back on investment, but you did allude to try and being a little bit more prudent with your spending given the capital markets environment. We're at I don't know if you'd elaborate more on what sorts of things you may be trying to be a little bit more.
Constrained on in terms of spending or perhaps buybacks is something you've already done.
We should be expecting to cut back or anything else, we should be thinking of as you try and be thoughtful with your expenses given the current environment. Thank you, yes. So mark I think the words I used were continued to be disciplined.
We've been disciplined and try to maintain that startup mentality as I said when whenever we approve any major spend here at the company our largest 30% shareholders.
In the room, so we kind of have that mentality as we approached our spend.
So look we're not making any significant cutbacks I know other companies are here.
Going to continue to make the investments we make but also do it and maintain that that disciplined spending that we have.
The $81 million that we spend so far that's completed our share repurchase authorization.
And it's up to our board if that's something that they want to replenish here in the future, but the existing authorization, we did complete that during the quarter.
Yes.
It's tempting to just have a scenario where you could use on taxes, given the craziness of the.
Market dislocations just buyback bonds.
There's a balance on this I'd say, yes.
The reality is is that our plans and strategy and everything is effectively unchanged. When it but are we being are we continue to be disciplined or maybe even being more disciplined now.
Absolutely and I think that's just a prudent thing to do more generally.
But even particularly in this market so.
Because we have more than enough cash to be able to get to where we need to go and tough.
Are there enough runway and even ultimately.
And getting towards profitability with this but it's still important to us to take that discipline.
Thanks, a lot.
Next question is from David Kelley of Jefferies.
Good.
Hey, guys and thanks for taking my questions.
Maybe starting with the commercial pipeline you upped your outlook to essentially by major commercial wins for the year I believe you have the two.
Nissan Mercedes year to date, so maybe if you can update us on where we are in that process and maybe what's driving the increased conviction.
And to the step up into the back half of the year here.
Yes, David So we have two that we've already publicly announced for this year, which were Mercedes Nissan and when we kind of look at.
Existing pipeline that we have.
We're very confident that we're going to get at least another three that we can announce by the end of the year and so the conversations we're having with our customers both the.
New and existing are going very well from our perspective.
One important point as well on this too and I think this is this is a key distinction as to what ifs.
Effectively every OEM will do is that when they.
Okay.
When you talk about I mean people can talk about whatever they want ultimately we didn't know when something is announced but the reality is is that Oems will start with a single program usually with you as an option on this and then as you prove yourself out as you execute as you do your own anything there that was where we saw really for the first time us being standardized on for example, the global flagship via.
<unk>.
What I think is particularly interesting though is that.
There is still so much opportunity not even just for the new customers theres actually even with the existing customers like even with no new customers at all.
We can achieve already are.
<unk>.
Multibillion dollar.
Revenue and EBITDA targets.
By the end of the decade with just the existing customers by just equipping more programs on the on the vehicles lines. So that's part of the interesting part and Thats, where there is just a matter of focus of how can you get additional like go from one program that's kind of a key launch program to multiple programs in those wins can ask.
B, just as valuable if not EBIT more valuable than a new OEM because effectively a lot of time does it start on a lower volume and then it goes into higher haul it depends on the OEM was something but.
It's sort of the you start with the Gateway, obviously working with the OEM in the first place is very very odd.
Challenging, but as you prove yourself thats, an important one and that's one that we're going to continue to be focused on as well.
Okay got it. Thank you and then maybe just touching on the <unk>.
A few of the hires you've had in the last few weeks.
How should we think about potential go forward build out areas of opportunity for you and then maybe how we should think about the cost impact and modeling and active.
Digital additional hires.
So David when you when you look over the last 12 to 18 months.
Significantly increase the size of our workforce.
And that's not only been in quantity, but.
The quality of talent, we've been able to attract that luminaire.
<unk> has increased as well and I think you see that represented by some of the new hires that.
That we that we've made.
We're going to continue to hire and grow.
An increase not only the quantity, but probably focusing a little bit more on the quality, particularly in this environment, where a lot of other companies are going to be slowing back their hiring plans. We view this as an opportunity to go out and.
<unk> really tier high quality issues.
We're probably not going to double the size of the company over the next 12 to 18 months again, because I think we have a lot of the resources in place, but there are still areas of our business that we're going to be investing and growing.
But once again I think the focus is going to shift to making sure we bring in the quality as opposed to quantity at this point.
So both will increase.
Thanks, a lot David.
Thanks, Scott and I think it's fair to say that like once you reach a certain level. It starts to scale non linearly with program wins and other stuff there too when we talk about these major program wins its very.
You need a certain sufficient level to get there in the first place we talked before it takes on the order of we've had to invest up past $1 billion to get to like an industrialized products that can actually go into serious production, even with even following the technology of everything that it takes.
But beyond that it's very incremental in terms of what's what's required beyond that so that's where you see a huge scaling effect of this and where we can have the massive R&D leverage from what we've already put into the business in the company today.
Thanks.
Alright. The next question comes from Emmanuel Rosner of Deutsche Bank.
Thank you very much.
Firstly I was hoping just you.
If you could share a few more details what's a couple of the agreements and partnerships you've already announced.
First of all the partnership with Mercedes.
Anything you could share in terms of timing volume platform since were.
More than halfway through the year and then also anything in terms of the arrangement on your collaboration with <unk> in China. What can you share what can you share with us.
So I'll take the <unk> one first.
So for those that don't know what <unk>.
<unk> E.
<unk> is part of the broader <unk> family and we have room in our view them as really the technology supplier in the technology Gateway.
To the broader <unk> family of brands, particularly those that have more of a China centric focus as you know we're already working with certain brands that are a member of the broader <unk> family I E. Volvo as well as Pollstar, which are more of the more international focus brands.
When we look at our China business, not only did we have sake and Tony.
But we view the opportunity to work given our pre existing relationships with some of the brands within <unk>, but the broader Joey family in China and in order to.
I would say do that in the most optimal way.
Partnering with <unk> to take our technology integrated with E car access technology and deploy it to the broader family.
Broader Julie family of vehicles. So that's the purpose of our strategic partnership with <unk>.
In order to to kind of.
Take that strategic partnership and at an economic element to it.
Invest it.
$15 million or we will invest $15 million in them as part of their billing public process. We're planning to do that with our stock So think of it more as kind of like a.
A cross shareholder.
They cross.
Share holder ownership between the two companies to do so, but we're doing it because we think there's going to be a very productive strategic partnership from the two of us.
Working together.
Do you want to take the Mercedes Benz site.
Yeah, I think certainly say that.
I mentioned, a little bit about Mercedes before there too, but as we announced the partnership actually just earlier this year.
I don't.
I don't I don't think that.
There is anything fundamental that it can share other than.
It's continuing to progress and we have.
Great relationship with those guys I mean I think the key is is that this is for their next generation vehicle platform launch you guys made.
Maybe familiar with Mercedes to date, they have a their current platform that they are looking to achieve level three autonomy.
Just a little bit incrementally better safety with.
With the.
Valeo platform there with the light.
The vehicle this is where we really come in to provide the next generation beyond that so that you can be able to enable proactive safety and highly economy type capabilities, they're going beyond just kind of more basic traffic jam pilot type capabilities on the vehicle. So that's.
That's ultimately what we're enabling.
We're moving full speed ahead, working with folks like Mercedes they have the.
Highest standards.
A very.
Very intense and very strict capacity as part of it probably.
Anyone in the industry and the pinnacle of that so the collaboration is great and it's really helping.
On all sides to really drive.
Take.
Taken to the next level and also take luminaire to the next level for that matter as well.
Thanks, that's great color and actually a great segue for my next question, which is a little bit about capability.
The competitive environment. So I think in the quarter. We've also seen a fairly.
Major other European OEM allocate some pretty large sort of lidar business to another lidar player.
And I wanted to know if you could provide a bit of color around I guess why not lumina, one not that I would assume that you would be a monopoly, but is this where they're looking for different capabilities. What's at the price, but like any color you can give us in terms of where sort of where they're going and why or why not you could have been a good fit.
Yes, so I think that this is actually funnily enough. This is actually not too dissimilar from what <unk> was just describing there too where like in the Mercedes case, you have any initial vehicle program Board that's focused on traffic Jam pilot Thai baht scenarios for a vehicle.
Vehicle model and then take it from there on out so I will say this is that you actually don't need lumina, our level of capabilities to be on.
On a vehicle or on a model on anything that you'd be able to achieve.
Lower speed traffic jam pilot tight capability, whether that's on the vehicle.
Where we come into play is when you talk about next generation proactive safety highway autonomy.
And improving those capabilities on the vehicle kind of like what.
What.
Mercedes Volvo SAIC Pulsar Daimler trucks like those guys are doing.
But I think what's interesting here is that.
Sure even cases like that.
We're all for it it actually I think about it.
A data point that people are willing to have lidar on the vehicle.
Like like in that case, the 905 example.
We're on a model even for just the traffic Jam pilot type use case.
On that towards that kind of capability so that makes it.
Yes. It makes it makes it interesting obviously, we continue to be able to look forward to focusing on what we do best and I think what youll see is that.
Effectively all or nearly all of the kind of <unk>.
Scenario setups that we have our roofline integrated <unk>.
<unk>, enabling those capabilities effectively when you see.
Kinds of bumper type of integrations for these these different vehicle programs there too that's more suited towards the traffic Jam pilot type use cases, as well that will work for lower speed applications for that so that.
And then maybe that's a little bit of a little bit of color from.
For that side of it from what we see from us.
Market perspective, there too with its kind of that <unk>.
Next level deeper so the more <unk>.
More traffic jam pilots have out there.
That's great for value assigned a lidar more generally.
That's very helpful. Thank you. Thanks Emmanuel the next question comes from shrinking for jewelry SMB Nikko.
Hey, guys. Thanks for taking my questions and congratulations on a solid quarter and outlook first a clarification for Tom Tom on the domestic.
Personally that you talked about does this accelerate your cost downs in the next couple of years I guess and also once you get to that volume of 250000 units what sort of gross margin should we be thinking about.
So <unk> good question.
What I would say is as we kind of get into that second half of 2023 when that facility comes online and more importantly, 2020 for having that increased scale and having that automate automation line is going to help us on the cost side.
<unk> now and then not only do we need to launch production for.
The initial series production orders at select because existing facility. We also have to concurrently spend to build out that plan and so it's going to bring some some elevated costs until we really get that up and running there.
With the gross margin once that once that new dedicated facility is kind of up and running and we get into that first full year of series production, that's where we kind of get to some of the targets that we've talked about in the past that $500 bomb and then getting that contribution costs to that $100 range.
Combine that with that $1000.
That were.
It's going to be at initially for series production plus or minus that can kind of give you some elements of where we would be from the from the gross margin or at least contribution margin side.
Okay, great. Thank you and then Austin.
Just a follow up to your previous answer and Mercedes My broader question is about some.
Some of this new design wins that you have to what extent. These are hardware specific we're assessing the hardware and software, especially if we're just sending one solution. It's interesting to hear that you mentioned Mercedes and you've talked about potentially highway autonomy and there is a major chip supplier out there who also claims to have a design win with the revenue sharing agreement.
So it wasn't supposedly they are supplying the entire system to Mercedes So im just confused as to what new enrollees horses.
Their role is.
Clarify that that'd be very helpful.
Yes.
So just for sake of clarity there to that is that is correct in that case with the Nvidia example, we actually have a partnership with Nvidia as part of working on that stack that there then on the software side, providing it so when we talk about enabling certain times of capabilities. There is different levels of.
It takes a certain level of hardware capability to enable what you want to do and then there is the software on top of that but in terms of what we built the lidar for and the performance of the Lidar and everything for the very long range and capabilities. So that highway autonomy can be enabled.
That's kind of part of the fundamental distinction with the system in the first place there too is that very long range performance resolution that range like all these different things well also.
Being economical to go into a serious production vehicles. So that's the distinction there.
We like I said, we've actually no problem, saying this at all.
It is all public now.
We've been collaborating closely with Nvidia.
As part of their Hyperion platform in terms of gotten that design win.
Mercedes Mercedes gave the design win for building that part of this.
Software Sakhalin Island and video to use their chips, it's all actually pretty at pretty tightly integrated as part of it is not.
Easy to be able to do these things, but I think the cool part is is that.
In this case one other thing that you have to look out for is a very important one is that.
When you see these kinds of when people talking about Oems or supply chain partners other things.
Who is doing the hardware and who is doing the software because both of those ultimately have to succeed and I think the reality is is that the substantial majority of Oems do not like they don't have software or at least a credible software path or strategy. There. So that's where when it comes down to it.
Having the software capability is going to be key to ultimately, enabling the majority of the OEM landscape. So that it's not.
You can design either you can design, a lidar box into your car, but it doesn't do anything on its own as it has you actually have to have enabling capabilities and thats kind of what we see as part of the core capability now.
Part of our factor, though in terms of the kind of software that we developed we see.
Well similar to Nvidia.
They developed software. So you can be able to get more chips out in the world developed software to get more lighter was out in the world.
Obviously, our software that has more of the safety focus and more focus around proactive safety implementations as we see that's the opportunity to start standardizing across the board. So we're going to continue to do that heavily.
And.
But but yeah, we've been making investments on software from the.
For some number of years now and as I mentioned with <unk>.
C J as part of the leadership coming onboard coming from tough one Apple that we're really doubling down on that.
Okay, great and if I may squeeze in one more on the topic of China, you talked about at least one incremental design win there.
So can you talk about the longer term strategy here on one hand, I think the opportunity here is pretty significant given the volumes in the domestic market at the same time, it's a very competitive market with I think multiple domestic lidar players out there so.
I guess, how you differentiate in there how do you plan to compete there and then do you need to have a domestic production facility to be able to compete in the market yes. So.
When we think about China, and when you actually look at the Chinese market a little over half of the market is actually from <unk>.
Foreign brands right, so it's going to be the European and the Japanese American brands that sell in China, and typically for those types of programs they tend to be global programs, especially with cutting edge technology like ours, so call it half half.
After the market a little over half of the market in China, there will be a natural <unk> in China.
From the Western OEM relationships that we currently have then a little less than half, but growing is actually the local Chinese brands. One of the largest ones. There is Shanghai auto or site, which is one of our existing customers we want to be successful in both ends.
The segment we have.
Early success in both ends of the segments.
I think in terms of seeing competition from the local Chinese lidar companies, that's less likely going to be on the western side, because those are going to be global platform decisions, we're going to see it more when we go to compete on the local brands and our strategy for competing on the local brands.
Is to focus more on the higher end companies.
That are going to want to put.
No.
The best Tech out there and that was very helpful.
Securing the site.
And that we have.
The initial program that were going on with <unk> is going to be the vehicle that they are going out there to compete directly against Tesla in the China market and so they wanted to have the best technology on their vehicle to differentiate not only against Tesla, but some of the other upstart Chinese Oems.
<unk>.
In terms of.
China facility.
That is on our lidar.
For for at some point in the future, but we are going to want to make sure that there is going to be sufficient local demand there both from the western Oems that are producing vehicles in China for China as well as the local China Oems I think.
If and when we do open a facility in China, it's probably going to be made in China for China.
And I think if you take a look at it exactly like even the Oems that we have today. There are two huge portion of their volume is in China.
I mean, excluding the folks like SAIC, but.
The answer on the Lidar side also ties back in again.
Theres probably.
There are dozens of approaches of how you can build a nine to five nanometer wide. Our system. There is also a company for every single approach of what you can do and I think that in theory could be built to enable a traffic jam pilot like type capability.
Part of the discussion that we had for for.
For what for what was there before but the reality is is that the real question is how you can make in.
One is the performance for the higher level capabilities, but two is an industrialized auto grade products that someone like that a top brand is ultimately going to be able to stand behind standardize across the vehicles.
Are you able to have the capitals award that.
Similarly life.
As we've talked about is on the order of $5 billion of cash that you have to invest to be able to do that.
Yes.
Many years' worth of lead time to be able to get the technology to truly industrialized state.
Where you can.
Hi.
Following those investments to make that all work and coming up with that cash I think is actually.
Were difficult it was before it's <unk> more difficult I think in these market conditions, which are.
Interestingly enough actually should help us on the backend there too because we effectively have no. We've done a lot of those investments and we get to take the revenue from series production programs and apply that towards in addition to the amount for the remainder applied on towards future technology products as well so all of that.
Together.
I think creates.
Pretty good.
Scenario for us to be able to.
End up in a great place all around not just the internet not just outside of China, but even in China.
Okay. Thanks, guys. Thanks, so much thanks.
Thanks for everybody contributing in the call today, both on the <unk> platform and on the call and joining us to listen we look forward to talking to you next quarter, Kevin Let's go ahead and close out the call.
Alright, well thanks, everyone for joining us today that will conclude this business update and have a great day.
Thank you.