Q2 2023 Luminar Technologies Inc Earnings Call
So officer as a quick reminder, this call is being recorded and you can find the earnings release and slides that accompany this call at investors Dot luminaire tax dotcom.
In a moment, you'll hear brief remarks from Austin and Tom followed by questions posed to the same platform and then live questions from the analyst community.
As with last quarter, we've extended the submission window for questions submitted via say through the end of our call should there be any that are up voted during our calls before.
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 luminaries founder and CEO Boston Russell.
Hey, everyone.
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.
Generally known as Princeton Lightwave decided to join us so.
As you probably know we already have some of the foremost global leaders and experts in specialized semiconductor designs for lasers receivers processing electronics with our new entity that.
We formed Illumina, our semiconductor Inc.
The team here is definitely excited to be able to partner with them to help advance and accelerate our chip roadmap holistically.
Jumping right in.
But it could be good too.
Sure some slides for an update so.
Exactly.
See here.
This is how we do it.
For real.
Alright.
So Bob.
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 the.
Broader challenging macroeconomic backdrop that we've been able to successfully execute and 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 I'll talk more about the financials.
First when it comes to industrialization completing industrialization and scaling for our high volume is the key to being able to unlock additional exponential growth in our business.
We remain on schedule to meet our automated crew 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 currently going through other optimization cycles in preparation for the big margin.
So we expect to be able to achieve the required capacity to build to support our global automakers for series production over the course of the next handful of months.
For the end of year, and Avnet successfully demonstrated with them.
So also in Q2, driven by rapidly growing demand for alumina or in Asia, Our TDK, an alumina or announce a partnership for with shipping cable creative even higher volumes a factory for Illumina, which will primarily support vehicles delivered in China and Asia Pacific region to Illumina has become one of the only western autonomous technology companies to be awarded.
Absent a business in China, both domestically and from global Oems and which just again another key attribution as to.
It's the promise of the technology and the impact that we can be able to have a global scale. So alongside this accelerating growth you know in Asia I'm happy to announce that as of last week. Our TDK has decided to make an additional 10 million cash investment into luminaire stocked with even greater conviction following their previous investment as they get to know the company EBIT.
So next on when it comes to a product and technology roadmap for some of that for that milestone in that side of the business, but we remain on track to be able to meet our milestone and the key element to that including the sea based drivers plus before year end.
And specifically Iris plus began to validation and testing offer which leaves need OEM customer in Q2.
Following the V sample deliveries like.
<unk>.
One of the ones that are tied to someone around here for a.
For testing that I'm sure.
We can all give a reference point, but we have a mom.
Actual unit Princeton, they're helping out with some of the validation process here, which is pretty cool.
When it comes to our point clouds, they're looking break you know we'd begun data collection, we are now.
Intest are already on.
On the OEM provided a vehicle platforms that the leads started production OEM for Iris pluses, given us and we've driven them now over 100000 kilometers so far in terms of testing with more to come and these initial results are very exciting and are critical for Kosmos software development program milestones and 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 <unk> remain on track and in Q2. We also reached a key software milestone for the Volvo program, becoming feature complete so to say for our software for them and while on the topic will slow when you wanted to make sure to also just get a chance to clear up some.
Confusion that seem to emerge with a few weeks ago regarding bolus via the launch timing and Illumina are which are timing is ultimately independent of the bogo vehicle launch timing. So nothing has changed since bobbles announcement back in May regarding the EXL IV launch timings.
For which we had at the mentioned at the time that we had already taken that into account.
Previously when that being able to provide guidance for our for our business growth and <unk> didn't have that embedded this year already so like I said, we were in a good place as far as something that was a surprise to us necessarily but.
Some seem to speculate and publish articles more recently the alumina or was the cause of this but both will actually issued a statement directly since then just to be able to clarify that and was basically saying that the adjusted time plans.
Is connected the initial time needed that they need for their software development not related to.
Luminar substances.
There's some work to do.
Ultimately because of when it comes to the production ramp we could we're more excited as ever and Volvo as much conviction as ever and us to be able to see that successfully scaling.
With E X 90, and beyond and I think they're seeing obviously, great success in terms of their preorders going far beyond the expectations of what they found.
Mobile is an incredible partner of ours theyre not the only partner of ours by any means we have now over a dozen major commercial wins and.
As you are saying you know we're continuing to move full speed ahead on as it relates to our timeline to be able to be statin S&P readiness for high volume facility by year end. So looking forward to a successful launch of ramp of that as we really begin to start next year converting this multibillion order book that we have into revenue and that 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, we expect to have that product type.
By year end and we believe that there are a few new breakthrough components to the technology that start with luminaire semiconductor and move their way all the way up through the stack.
And ultimately that's going to be the lidar that we see as 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 in June 8 billion EBITDA with as much as a 60 billion forward looking order book at that point, you know, which is a relatively small amount of market penetration.
But by the time, we're done with this next Gen. Lidar I think that there is ultimately a clear path to being able to take.
Take that to a 100% at the end of the day.
So with these new safety improvements that we are able to deliver on cars of all is 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 tailwind that we have that unfortunately in our favor later on.
So.
Combined with our other initiatives I think that's how you ultimately were able to achieve the goal of becoming one of the great technology companies of our generation, but of course, we're picking up one step at a time and a measure of capacity and executing the plan.
So lastly, when it comes to commercial success you know we're on track to grow our forward looking order book by at least 1 billion. This year, we're continuing to execute across our assigning a D yields across footwear software AI semiconductors.
This year as Oems and our customers only further their conviction analytic settled Samsung.
Just kind of have taken 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 lumina aren't equipped.
Yeah. This the polestar three I'm, so excited that they're now making this available.
To consumers and again, just showing further conviction in making that big step forward. So.
When it comes down to it the revenue ramp from these contractual costar vehicles ultimately begin over the next year and a half is that.
You know 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 luminaire as a key value proposition of the vehicle. The fact, it is equipped with Lumina and you really take a look at.
You know in these different.
Vehicle programs that configuration, and what theyre showing to consumers and.
There's really only two brands that become visible outside of the automaker brand you know and that's us and oftentimes like a high end audio system.
Our brand or manufacturer like Bowers <unk> Wilkins for example, so I think it's just really cool to see that.
For the first time that 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 them.
Other commodities and something that.
Has an opportune need to power the broader industry more generally is very tech forward and stashed capacity. So.
Point is luminaire to being positioned as a premium feature you know, we could span tens or hundreds of millions of dollars marketing our product to generate awareness, but we don't have to customers who are doing it for us best marketing comes from the customer and at the end of the day, that's priceless songs.
There we go.
And obviously like I said, youre, not really going to see that across the rest of the avian lidar landscape I think that's relatively unique.
To alumina in terms of how meaningful that is.
So we're going to go through each of these other three between mobile Ly, Nissan and plus into a second we have some.
Dedicated slides that so.
First Nissan.
They've since recently unveiled some additional driver assistance features as they have on their cars. So advanced intersection collision avoidance is the latest addition that they'd have to the development Sac with luminaire.
And they've publicly stated now.
They plan to be able to introduce this.
You know with our targeting would limit arms widen models by the mid 2000, Twenty's 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 <unk>.
Saving lives.
Obviously, a value for our business and their business. So they are 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 are.
Both the camera data of what it can show and then the alumina or lidar data in the background for what Theyre showing off of how they can already see the motorcycle approaching in the distance at high speed.
First scenarios like for example, running a red light.
That's very important for saving.
Okay.
Next up we have mobilized so.
Great to be able to see the progression that they've had and some recent major progress cells. This kind of goes back to 2020, when we were.
Really engaging with them full speed ahead with.
With Illumina or hydrus.
Back in the day on that and my wife's first generation of autonomous vehicle development.
So I think that was at their investor day they had.
And then in 2020 one are they started.
Moving to the.
Neo platform and then you know where who are public display of mobile idrive with Luminar. So that was I'm excited to be able to show that often testing.
Testing development platform.
So with all with women are and then showing the capabilities of what we can be able to do together with a very <unk>.
Credible progress an incredible company in terms of what they've been able to do more generally you know 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 are 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 labor start to be deployed with automakers.
One of which.
They actually now just Mr announced and as as an OEM.
Being able to adopt the mobile I drive system.
And of course that that something that is a.
Featuring our alumina out on the out of the car. So that's a very recent applying that theyre just doing in the U S.
This model is in Austin, Texas, So yep skips.
This gives us a reference point and I think this is where you see these incredible companies like mobile Ly and Nvidia that you know we have these.
You know 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 and data and collaborate with us in.
Some cases with our software as well.
When start to manifest itself across the rest of the landscape, where it's also not just us working with Oems, but them.
Collaborating with OEM to sort of pushing us into different some different products and solutions.
They own a huge part of the landscape.
Okay.
So also a recent Q2 development was up Illumina.
Illumina or <unk>, plus so you know we successfully partnered 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 our commercial trucking Oems. So this is something that.
As 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 you know 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 would you see a sort of a key emerging market preliminary <unk>.
We get to displace some of the other legacy Lidar systems and actually.
Get on the these kinds of trucks with exciting new technology platform. So.
Plus in alumina, we're also gonna be collaborating across the board Burps and.
And targeting for some of the other areas in the aluminum business.
Everything from like insurance HD mapping tools unit blade sensor integration.
It will be a it will be great and I think one thing that's meaningful with plus and.
You can look this up but there are one thing that attracted us to them.
You may have not heard of them before but there.
Even though there are 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.
It was really a what we saw as a key opportunity in channel to be able to get into the largest truck Oems.
Logistics company successfully with our technology and be able to scale accordingly, and it's because public like the Amazons of this world that are able test.
To make that happen without with plus some very exciting opportunity.
So when it comes to the regulatory side in 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 dead.
The challenges and hurdles that are put up for autonomous vehicles generally come down to when you start ripping out the steering wheel systems in braking systems, and other things and vehicles, where you have to be able to get.
Specialized.
Extensive permitting and registration is that there's really no regulatory framework should be able to allow that yet.
When it comes to getting better safety or even enabling you know 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 too.
Now regulators are starting to require these kinds of capabilities for better safety and this is where our big bet on practice 80 is really starting to pay off as automakers rapidly adopt it and then of course, you know you have the regulators that want to be able to also helps them save additional lives are out in the world and in the landscape for.
For a good cause that we stay on the floor. So that includes mandating and again. These are this is not something just to get a five star rating on a car. This is like literally mandated every corner must have this.
Automatic emergency braking at higher speeds and pedestrian automatic emergency braking at night to be able to detect it Paul also discouraging and <unk>.
Increasing the requirements around false positives, so that really helps push Oems to be able to adopt in alumina.
Our Lidar and then also you know and it's already started publishing draft regulation to be able to work at visa these higher speeds. So.
Yeah, I think you can get the gist of it and it's so funny headlines around.
Breaking bad.
Which is absolutely true AAV is absent when you need it most it couldn't be more relevant so we're doing plenty of our own research and studies around this and white benchmark studies that I think we'll have more to talk about it in the future.
Yeah.
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 alumina, our hardware, but by AI as well and this is where since 2017, we've been developing.
Well, we called the Illumina, our AI engine.
Where we sort of aggregated this all together now.
Between input you know, our AI engine output and across products for them for bracket safety and highway autonomy to mapping and localization to perception and detection and one highlight by the way just a shout out to the.
A mapping team for for the first.
Development.
No deal within OEM on on that front. So that's a that's an exciting one and really all of this comes back down to what we can do so and you don't need a hash through all the details here around around what we're doing but you know again. This is a huge investment led by.
C. J Moore Who's previously was a longtime director of autopilot over a Tesla and some direct or any 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 ones that have access to scale technology of all the liner companies as a result of that partnership and this is something that has proved a hugely beneficial and meaningful to us it they've consistently delivered on the key.
Action to deliverables for what we need to be able to further enhance our AI engine and be able to provide.
These products and capabilities towards various customers.
Yeah, that's all powered by the data in.
We're making it happen together with our customers some of them.
So I think style.
One other area that I think is a lesser known that he wanted to be able to take an opportunity to highlight.
When it comes to Illumina or semiconductor Inc. Again, another area that we made early batch 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 a.
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 a collaborator with for years to be able to make this happen and.
You know for example, with.
Black Forest engineering hours back in 2017 operation was a couple of years ago Freedom Photonics was last year, but we saw aggregate of this all into luminaire semiconductor.
We've successfully taped out.
You know new chips for each of the different core components. This to further enhance performance reduce cost and for both our current generation as well as future generations of Whitehorse. So we're continuing to upgrade things at the chip level like I said, some incredible breakthrough new results from the laser chips that we have you can actually see the taped out.
Or chip itself in terms of the.
Indium phosphide chip as well as the silicon laser driver.
That we've we've taped out for this successfully and see our our indium gallium arsenide photo detector for their receiver chips.
And this already again like you said it was like validate and integrated into Iris as well as the process ships, 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 ship has now developed and undergoing validation and testing so what's cool, though is that with this <unk>.
Model and as we have disposed of breakthrough.
Semiconductor technologies that serves as an important innovation engine preliminary we're actually able to get a lot of interest for these same chips and technologies from other industries as well.
Including for example in the Aerospace World, we actually.
Proceed.
What handful weeks back.
The NASA Chipping point award for development of our breakthrough laser technology, So very exciting one in Chile, we're privileged to be able to have won that alongside you know.
The other major companies like the Blue origins of Lockheed's of this world and aerospace industry.
We were recently awarded a contract for a multi year supply agreement for our alumina or photo detectors for a major leader in fiber optic solutions.
As well as receiving our first volume order.
For our luminaire laser technology on the Metro optical communications between.
And actually for AI GPU servers, so that's something that for AI data centers can actually be a massively impactful as the demand for that accelerates significantly. So this is becoming also a fantastic.
You know innovation and growth engine for <unk> for Illumina or 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.
Thank you everyone for taking a look at that and some of the difference major milestones that we met along the way, but in terms of the core company level business milestones, we want to have an opportunity for Tom to be able to take it through the.
The details of this.
And a little bit more about our financials for this quarter and guidance so with that.
I'll hand, it off to Tom here Alright, Thank you Austin.
Let's start by reviewing our progress towards our three key 2023 milestones and they know Austin has already talked about.
About these point 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 <unk>.
Creasing volume rates too.
To basically optimize our high volume series production process, we remain on track to complete these steps and achieve high volume S&P 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 C pace for Iris plus by the end of the year build our next generation lighter prototype and complete our software Delicto deliverables to support Volvo and Mercedes S O piece.
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 car.
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 alumina ours lighter.
On your next generation systems, our recent strategic partnership with clubs 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 and saw 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 six two Queen.
<unk>.
63% year over year and in line with analysts' expectations. Our autonomy solution segment was the biggest contributor to year, two or 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 .
<unk> during the quarter. We also reported GAAP EPS of negative 37 cents and negative 21 cents on a non-GAAP basis.
This marked a sequential improvement from Q1 and came in better than our guidance and analysts 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 launch related expenses such as Contra.
Manufacturer picked 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 CS launch costs to significantly decline in the second half as we successfully approach high volume S. O P readiness by the end of the year.
We remain on track to achieve positive gross margin on a 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.
Okay.
And 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%.
And 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 the $10 million investment from T. P. K reinforcing our recent partnership and keep PK 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.
Mahler strategic activity earlier this year in connection with our recent plus strategic collaboration we agreed to a 10 million dollar 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.
T J 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 T. PK exercising its option last week.
We are reaffirming our full year 2023 financial guidance, specifically, we expected row revenue of at least 100% this year.
<unk> positive quarterly non-GAAP gross margin by year end, and then the year with at least $300 million in cash liquidity and a share count and the $395 million to $400 million range for the quarter, we expect to be in the range of $18 million to $20 million $20 million of revenue and our EPS loss to be in the range of 80.
<unk> to 'twenty two sense, 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 and higher volume and we expect a couple new customer contracts to be executed that we're currently finalizing.
Our team continually evaluates opportunities to optimize our manufacturing cost in 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 sublets assemblies.
Components. Originally originally planned to be made in this new Mexico facility to other women our supplier partners. We expect this change to meaningfully reduce our per sensor manufacturing costs as well as the required manufacturing floor space requirements and automation equipment at our Mexico facility following.
Q2, our team finalizing committed to a plan to proceed with this cost savings opportunity.
As a result.
We're in the process of evaluating the exact financial and accounting impact of this action, but based upon our preliminary analysis, we expect to incur a noncash 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 base.
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.
And by 2025 year end. In addition, we expect our free cash flow spend rate to improve even further from the yearend levels. Once we reach Volvo S&P in 2024 two.
To conclude I would like to thank once again, the broader alumina our team for another solid quarter and the great operational progress with that we'll hand, it over to Aileen for Q&A.
Fantastic. Thanks, Tom we're going to start the Q&A with some of the questions that we received on say platform and then we're going to move on to the analyst questions.
Our first question is are there any specific patents that protect alumina and shareholders. Some copycat technologies. For example, what makes a large automaker like Volvo partner with Illumina or prevents another large RNA car from creating their own lidar technology.
Yes, so I would say when it comes to the IP you know this is one of them.
I'd say, both significantly deep IP companies, you know out there when it comes to advanced technologies, but Ah Theres nothing that people haven't tried people of course in large companies tier ones start ups. You know major Tech company is of course have all tried to develop you know these kinds of breakthrough systems and technology.
But part of the whole point of where illumina or differentiate itself and one out battle is by having a.
What you know a decade worth of working back and experienced by working from the chip level up to build these different kinds of technologies and having it all come together to SaaS really create a system level solution from a protection standpoint.
Hey, you know we have.
Think about a larger U S patent.
<unk> portfolio than any other company of our kind of course, but the reality is that there's a reason why you know theres no like knockoff sub like Nvidia or mobile I or like some of our other you know semiconductor partners for example, like in across the rest of the landscape in world just because theres a lot of fundamental differentiation of core technology that goes into it.
So I think we've sort of put ourselves in that category and counts and that's where you take a look at it like every major automaker they've they've had previously had wider development efforts I think effectively.
All of them I actually don't know of a single one is Romania, I think they were pretty much all shut down in favor of working with a company like limit ourselves 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 awesome that exactly what Vittorio landscape the start of it.
Our second question can you provide us with more insight into women, our software business and how it now more outpaced the company's hardware business in the future.
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 there execution progress, but theres also a commercial progress Austin 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 three D mapping company simple map. So we're starting to see some early bearing the fruit from that acquisition.
In addition, the latest funding because people are like Oh wait luminaries in Africa.
How are they going to do that.
The plus the strategic collaboration not only does that include an exclusive supply agreement on the Lidar side.
But also our partnership too.
Market.
And help industrialized plus the software package to to select our trucking customers and Theres a revenue sharing element to that.
In addition, there is also a collaboration to explore some of the other products, we have some such as mapping and insurance and so.
We've made good execution progress on the software side this year as well as commercial progress.
Great. Our next question will receive a couple of times when do you expect them in order to be profitable.
Nothing has changed from what we discussed at Luminaire day earlier this year by the end of this year, we expect to be gross margin positive by the end of next year are profitable in our core business and by the end of 'twenty five.
<unk> reached the company breakeven point.
Next question, how we are on track to be able to do all of this.
Consistent yeah.
Great next question, how is luminaire performing against competitors like <unk> did a recent commercial wins with BMW and Volkswagen concern you.
Yes, 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 at Lumen are in fact, I think what we're seeing in it.
In the RFP 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 a development phase.
But there also.
No.
If you're a lidar company and at this point you haven't successfully industrialize your product or have multiple.
Wins with with customers I think that that raises a lot of yellow and in some cases red flags with our Oems and so we're.
We're seeing the crowd that the OEM seriously consider significantly be reduced and our strategy.
This initial phase was to be very targeted.
In the OEM that we want to work with a lot of times the business. We win it's outside of an RFP 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.
<unk> need our lidar and so those are a few processes, we prioritize them and other liner companies ultimately be successful our longer term strategy is to really.
A win as many customers as we can in the industry and thats going to be through the upgrading of the lidar technology in the vehicle functionality.
And as I mentioned earlier in the call. We're starting to see early signs of customers upgrading later selections. They made in the past to our Lidar and the next generation vehicles. So look we always take our competition seriously. We gotta go out there improve 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 and.
And I'd say more generally there you know by the way I think sometimes people think of these competitive dynamics, there's like necessarily a bad thing I mean, obviously the restaurants as we have more and are continuing to get more major commercial wins and everyone else in the industry combine when it comes to like a V. A.
Denise from a partnership perspective, more holistically, but you know, we're not claiming to and if we tried to literally worked with every other every major company on our planet all at the same time like that would that would never work either so you've 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 us, but like it seems like it's Gregg.
Right. So you obviously you have to deliver on that and I think that's where obviously women architectures that stands out that you know.
We do what we say.
Alright, a final question before I move on to the analysts is there any discussion or possibility of department of defense applications Aluminized products.
Yeah, absolutely and I think that you can already see and I wouldn't say 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 that we've seen for contracts that we've already been awarded or working with you.
You know with different agencies like what was brought up with NASA for example.
It's very exciting to be able to see even further semiconductor level.
All the way up to the top itself.
Yeah.
One of them.
I think we're always going to be very thoughtful in how we approach the adjacent.
Markets, particularly.
With with military applications, but what I would say the vast majority.
Of the resources at Illumina or in the near term are going to be focused on the passenger vehicle and commercial trucking buckets. Yeah, yeah, just to be clear all of our products are always built for series production.
Consumer vehicles and trucking like to the extent that there is applications there.
Now from the breakthrough technologies that we create in house, but like that that's full steam ahead. That's the thing that's going to turn limit artist to the Trulia.
Trillion dollar company at the end of the day, so we're not losing our focus on that.
Alright, thanks, so much to everyone, who submitted questions by continuing to use that as a platform to increase shareholder engagement with that let's transition to our analyst questions. We ask that analysts limit their questions till 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 fleet.
Patterns at J P. Morgan.
Hi, Thanks for the question Guy This is Joe Cardoso on for Sonic strategy. 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 alumina ours Nextgen what are the key drivers of these competitive take outs do these take outs include both hardware and software and then maybe can you just touch on how material.
It took to volumes. These takeouts are and then I have a follow up.
Sure.
Yeah.
As I said in my prepared remarks.
There's been a couple of instances so far this year, where we brought in new customers.
At our specifically.
Upgrading their legacy lighter charter ladder for their for their next generation.
Boston is an example of that.
I would say so yes.
Mercedes what's kind of a another example in the past.
That that's a trend that we were expecting and we're actually starting to see accelerated not.
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 typically our lead our 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 are.
We really haven't been garnering naveed details about of what those volumes are going to look like we're confident that they are they're going to be material and grow over time as we continue to get in there and execute and get more business and sell more products and services, but it has had a positive on our impact on our order books. So.
Part of this year.
Thanks, Tom and then my second question more for units around cash burn how much of the cash burn reduction by <unk> will be driven from better gross profit outcomes as opposed to lower Opex and then thanks for the questions guys.
Yeah look I think you can kind of look at the.
There's there's a few different levels in there I think it's not only the Cogs improvements and then you can kind of see what are what are.
Gross loss was this quarter getting the profit.
Back into an improvement from there there are going to be some opex improvements, but the other.
The other levels are going to be.
The Capex and 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 and these new facilities you have to invest in those in that working capital too 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 improvement Opex improvements and then what I would say.
Capex and working capital Slash other improvements as you.
Get to this S&P readiness and work through some of these launch related costs and investments you need to make.
Our next question will come from Martin <unk> at Jefferies.
Mark you there.
Yeah Yeah.
Yeah, sorry about that.
The time Youre 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 just add is that going to be kind of like mostly in the fourth quarter.
Yeah look it's a.
It's a step function increase with each piece of new business you win it it doesn't kind of early earlier or gratulate through the year. It increases once we kind of have a new new.
Our new business win.
We calculated once a year.
Yes.
That's the pattern, we've gotten into it we don't want to get into the habit of disclosing like out of the order book increased by this amount for each new piece of business I think that there is a little sensitivity around the customers with each of that look we've had order book roads, so far it's been healthy.
I wanted to say, where we're at the $1 billion plus that we promise, but we remain confident 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 1 billion plus number by the end of the year.
And Todd.
Yeah.
Understood.
Paul if I may on the software side, how far how far do you like ultimately hope to go on the software side would you expect to it seems like some of the challenges are with software from your customers in new technology and getting it integrated I can completely understand.
The challenges associated with that so as Europe in your view do you have like a hard line, where we're going to stop here and then the customer picks up the ball here or do you ultimately say, we're going to do everything to make it make it just a completely plug and play for your customer.
And look it's I think ultimately it's going to vary in our interaction with each customer and.
A lot of things in like you've got a problem 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 our theme 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 ultimately the decision, making and path planning some Oems are doing it themselves.
Oems are relying on third party partners, whether it's like an Nvidia or mobile I R. Welcome all of who we're aligned with.
Look I think mark you've seen some of the news not only by our customers, but also what they are.
Okay.
Sure Peter.
That came out last week with the.
A delay in their <unk> system and the soft related upon this in the software here is always going to be challenging and we're going to work with our OEM partners in different ways too to.
To make sure that ultimately.
The software does what it needs to done to fully unlock the capabilities of our Lidar software usually ends up is harder than what you know people.
People are people thing, but I would say actually you know one interesting data point is that you guys see the majority of our.
Our customers and partners already using smell alumina, our core software stack and then that's where you know as we expand on that like our goal is to build more and more content value with our customers and Oems overtime as those different products mature. So just as we did with the Lidar and that's how you really like giusti.
Economics, while at the same time, you know, making better safer continuously improving Carsten and then one of the benefits we have mark and we're kind of railing. This real time is.
Each OEM is trying to solve on their own their own unique set of problems. We're working with several Oems now I think as Austin mentioned, we're kind of close to a dozen major commercial wins. So we're in there working with them sometimes the issues that are facing our unique but theres also a lot of overlap and so as we kind of get those.
<unk> in multiple reps.
That allows us to.
Learned a lot and share those learnings with our in our product development path to help our customers better.
Alright very helpful. Thanks, guys.
Our next question will come from Emmanuel Rosner of Deutsche Bank.
Alright. Thanks, guys. This is actually Winnie Dong encore.
Hum.
With both sides of the roof rule.
More specifically variety of obligation.
Omar.
Sure.
The robot.
We're engaging with customers or how youre doing.
Yes.
Awesome.
Yeah look I think China right now is a very dynamic market.
Look over the last year or two there was a 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 shall ponds.
Our tax the.
Reorders of the world trying to differentiate themselves with a very savvy Chinese consumer as technology leaders.
And then kind of had this price where earlier this year, which kind of I think brought a whole cost consciousness value conscious aspect of that.
And.
But I think youre starting to see is.
A couple of adoption in a couple of ways. One is some of these local.
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 is an incentive from the western brands to be more partnering so I think having those two way partnerships is.
It is.
It can be mutually beneficial and it's actually helpful to us not only because it gives us another avenue.
An entry point into that.
So we've made progress with some of the local brands.
We have strategic partners in the region like <unk>, which have been helpful.
But having some of the western brands partner with the 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.
Helpful to us to me. This is the point why Teekay is building. This next big factory for Us out there and they obviously see the opportunity just as additional investments in alumina. So that's that's really taking off as the global <unk>, especially in there and again like I said I think it's something really special with women are that our technology is meaningful enough, where we're really one of the only western.
That actually has made our way into it.
Generally like unfavorable environment for western companies in China, like we've been able to actually make a big impact different alright.
Thanks for that and then Alexandra will kind of elaborate.
A little bit more on that.
And our first development contract for the mapping software.
Sure.
What's the timeline.
Yes.
Thanks.
Look I think it's a very positive development and quite frankly.
The fruit bearing from the civil Mats acquisition is happening early 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 we can.
We hope to share at least more details at at some point in the future.
And I don't want to sound too head in the clouds, you know, they're with us, but part of the whole driver and the vision behind it was to be able to create what could be the most comprehensive.
Three D map all the environmental World in real time, when it comes to this level of wide are being deployed on hundreds of thousands of production vehicles to consumers constantly driving them around the amount of data.
Did you get from that and what that can do in terms of creating a real time <unk> map is.
It really wouldn't be comparable than anything that exists today. So that's where it's one of those things that can just be like them.
Ridiculous opportunity out on its own but.
I'm going to take it.
Step by step.
But this is an incredible first half was part of that process.
Thank you so much on croissant.
Our next question will come from Josh Burkhalter at TD Cowen.
Yes, Josh.
For taking my question.
Appreciate the color you gave in the prepared remarks about what's going on at volatile, but I wanted to but the software, but I wanted to follow up there it sounds like.
There were some milestones achieved in the second quarter are there still some to go.
They on the public call were saying that it took forever 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 have volatile and what's left to clear. Thank you.
Yes.
Is good and we're obviously in close touch when it comes to Volvo more generally as it relates to the holistic program in D&O 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 the Lidar system and software and everything were.
We're meeting the requirements and are driving that and 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 obviously a lot of different factors at play and that's why you know Volvo kind of issue that.
That corrective.
Statements thereafter, but more generally.
Like I said building software for new game changing.
This is hard.
And like I said, it's usually it takes more time than.
Than people 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 alongside Mercedes I think also I was one of the most advanced teams in Atlanta in 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 when and when it comes to holistic vehicle, but I think the important part is for US exit we have a dozen different you know a major commercial programs that we're working with so we're not slowing down by any means on any of it to be able to.
Make sure all of it is successful so that's so that's been getting into India.
An important point of clarification.
Got it. Thank you I appreciate the color there and then as my follow up do you have the $1 billion, our order book and in your sort of generating more revenue or orders and a bunch of different avenues like insurance software mapping, etc.
Is the order book growth still overwhelmingly over index to Lidar hardware sales anything you can help us on granularity about your expanding business engagements. Thank you.
Yes so.
Josh The order book at the end of the year was $3 $4 billion and the $1 billion as the growth. We expect this year look at it.
I would say it remains overwhelmingly weighted towards towards hardware today.
But I would say the percentage of it that software continues to grow and I think the important part is it's like the Lidar is the and you know with these customers and work continue to expand the value and that's where we havent heavily weighted or we've been I think very generally very conservative and counting these other areas at this point like we're not we're not counting parts of like <unk>.
Insurance are mapping around their stuff like you know when the in the order book I think you know when we start to see some like you know major large scale wins on those fronts.
And then we'll start.
Adding it in but we want to be.
Very conservative and that's why you know.
I see the most conservative with our order book by far in the industry as it stands and how we calculate that right now.
Is that accurate.
I know, we're at six o'clock, but why don't we go a few minutes over to get a few more questions.
Thanks.
Our next question.
Our next question will come from Kevin Garrigan at West Park capital.
Hey, Kevin.
No.
This is Kevin.
Hey, guys southern gallon.
Well Kevin yourself.
So thanks for letting me ask question and then congrats on the progress.
I just had one kind of a multipart question. So a few of your competitors have kind of noted that some.
Some rfps are in the final stages, and we could get a decision by the end of the year and I know you guys talked a little bit about the RFP process and being targeted in a previous question. So I'm just kind of wondering are you guys also in the final stages with some of these are accuser in 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 mobile and video where you're kind of leveraging your partnerships with them on a more to kind of give you an upper hand, when speaking with Oems.
Yeah. So.
I'll take the second part, yes like look.
One of the benefits of a.
Being the reference later in the mobile and in video platforms and BARDA Qualcomm system. It gives us another bite at the Apple REIT multiple avenues to go to 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.
R R.
Our system partners are talking to them and so.
We try to get to the customer any way that's possible.
I saw some of the commentary on the other calls around the <unk> process.
We're seeing a lot of the same things here I would say a lot of the commercial activity that we are having to it.
Is one off in.
What I would say outside of the RFP process.
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 you know over the last couple of months, we have seen an acceleration in some of the RF <unk> and RFP activity and some of the one off conversations that we're having with our customers.
Well I think maybe instead of one is more like one to one one or like the.
The majority of the wins that we have had in the major commercial wins have not got it's like not through some like you know like commodity procurement process here, it's basically all Oems come to us to be able to solve the problem and we're sort of that debt that default partner to work with because you know its one thing about it is it's another thing about in terms of the scope of capabilities like obviously.
It's sort.
Sort of an order of magnitude greater than what really people have seen in the industry and landscape. So.
But you know it wasn't it's not it's not stopping us from.
So I'm doing this but we always have to ask ourselves again as like what 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 you know such program is going to make it to fruition as you know as you know we've seen a lot of programs that you know.
<unk>, maybe had a good press release on it but didn't actually end up happening so.
We're in this for long haul we have to make the right bets and Thats. The most important thing and I think we've really done that so far.
Okay got it that makes sense awesome. Thanks, guys.
Thanks, Kevin Thank you.
Our final question comes from E town, the Kelly at full.
Great and hi, everybody.
Two quick ones for me first I know that the mid decade targets. The 1 million units by $26 seven 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, just hoping to get a bit of an update on the.
The insurance business and kind of how that's going.
So first yes. So if you remember what we said back in Luminaire day, I think if we had that million target 'twenty six 'twenty seven I think.
Exactly when we kind of hit that depends upon.
<unk> hits ESOP timetable that our customer has will be 26, if there's a little bit of a delay you'll kind of be in the 27, we had about 75% of that award it to get to that $1 billion that that number has gone up.
And.
I'm not in a position today to kind of update.
That number whether what percentage are booked or that million.
But I would say that the percentage awarded has increased from some of the success we've had so far.
In fact based upon the discussion for having increased further by year end from where we are today on insurance.
Look we kind of had a.
Great update on a lot of things on the Q2.
We'll talk more about the insurance point in and given an update there at some point in the future.
I think I think it's fair to say of the new initiatives that we've had or some of the things that people are skeptical of I can pull it off.
Why are you know we're crushing it when it comes to software AI, we're making it happen when it comes to mapping we're making it happen.
Great results when it comes to semiconductors.
Absolutely crushing it when it comes to.
Insurance, that's obviously, a newer program that we have and that we're already.
Making great progress with what it's really on that I'm sure.
Tom also be more excited to talk about for the future.
Sounds great. That's all very helpful. Thanks, Ron.
Thanks Peter.
Thank you.
Well that marks the end of our analysts can the questions I'd like to thank everybody for sticking around and participating in the call for analysts to ask questions and for the investors and other folks who've joined US we look forward to talking with you next quarter.
Thanks, Ron.
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