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spk00: Welcome, everyone, to Luminars Business Update Call for the first quarter of 2024. My name is Aileen Smith, and I am Luminars Head of Investor Relations. With me today are Austin Russell, Founder and Chief Executive Officer, and Tom Fenimore, Chief Financial Officer. As a quick reminder, this call is being recorded, and you can find the shareholder letter that accompanies this call at investors.luminartech.com. At 4 p.m. Eastern time, we published our Q1 letter to shareholders, which hopefully many of you have reviewed. We're continuing with our format this quarter from prior quarters, which will primarily be an interactive Q&A session. I'm sure we have a lot of questions to get through. As a reminder, we will be addressing retail investor questions posted to the SAVE platform, institutional investor questions emailed to our investors inbox, and live questions from our analyst community. We'll be checking these platforms intermittently through the duration of the call to address any that come in real time. Before we begin the Q&A session, I wanted to remind everyone that during the call, we may refer to GAAP and non-GAAP financial measures. Today's discussion also contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our shareholder letter for more information on the specific risk factors that could cause actual results to differ materially. With that, we can get into some of the questions that have been on folks' minds since Luminar Day and some of the developments over the past few weeks. So we'll jump right in with question number one. When will you start mass production of your LiDAR sensors and what future plans do you have for growth?
spk02: All right. Hey, guys. Thanks. Hopefully you hear us okay.
spk00: All good.
spk02: Awesome. Awesome. Thanks, Eileen, for the intro. And excited to get a chance to jump straight in and answer some of the questions. And thanks for taking a look at the letter that was output or presentation with all the information. A lot of stuff going on. We thought it was going to be something more simple, given that we just had Luminar Day. But with the new regulations, everything in the meantime, it's been quite a quite a whirlwind. But yeah, in terms of the SOP question, that's, that's of course you know, one that we're, we're really excited about. We did officially hit our startup production milestone, you know, with Volvo. So that's something that what the past decade of Luminar has been leading up to. And you know, we're fortunate enough to get a lot of big congratulations notes from, you know, folks in the industry that have been waiting for this moment for quite some time. And of course with everyone from, you know, our other customers to other kinds of automakers to see this success is very meaningful all the way, even to our own supply base, you know, that, you know, with the vast majority of programs, not ultimately making it to production in the broader autonomous vehicle world. This is something that's, I think, a standalone shining beacon showing what is possible and people are very much taking notice.
spk00: All right, our second question, what are the implications of the new NHTSA ruling and what impact will this have on Luminar? Can you meet these standards and broader autonomy without LiDAR like Tesla believes?
spk02: Yeah, so we're not aware of any system that comes even close to meeting it without LIDAR. And what we've actually shown is that with our long range LIDAR across all the different testing protocols, including specifically the ones that Nita has outlined, that we are able to successfully meet and beat those different protocols. And this is all confirmed as well by the testing that Swiss Re has done independently. We showed that off at Luminar Day, where they're able to show a massive double-digit improvement in terms of the safety implications, as well as reduction of vehicle accidents and crashes, as well as when they do occur, still significantly a reduction in the speed at which the accident occurs, corresponding to improved mitigation power, so to call it from that perspective. And what that all means is that we believe that, you know, a long range LIDAR is required to be able to meet those kinds of new standards that NHTSA is mandating across the board and a massive tailwind overall for the adoption. You know, I have to say I was... I was pretty impressed by how far they went on these regulations. I mean, we know it's been coming for some time, you know, what, a decade in the making. And the U.S. is really stepping it up and I think will serve as the benchmark worldwide. You know, we saw similar trends, you know, what, decades ago with everything from seatbelts to airbags to even – the concept of AEB in the first place that camera or radar were able to solve for. But as we know, the majority of accidents that occur today still occur even despite some of these advancements in AEB technology, and it needs a fundamental step function improvement. And that's not to say that there isn't still room left to be able to do and improvements to be made with existing systems. Absolutely, that's the case, but we're talking a totally different world. In particular, There's a massive increase in the speed at which required to be able to do this, as well as a requirement for pedestrian testing and braking during daytime and nighttime. And You know, what we've seen is across the automaker landscape is, I think, also a lot of surprises that this is now pushing forward so quickly, kind of beyond expectations. In the letter we outlined that I think this is pretty clear in terms of, you know, driving standardization as much as a decade earlier than what I was otherwise thinking and, you know, 10Xing our opportunity for what we have ahead. And this is all happening, like I said, literally in automotive years, this is like right around the corner in 2029. So I think this is possibly one of the best things to happen to Luminar, maybe even the best thing to happen to Luminar in our entire history. So very excited for that.
spk00: Great. Next question is around the announcement from last Friday. Would it be accurate to say that the restructuring goal is to outsource much or most of the manufacturing process in order to reduce capital need and related risks, as well as to more rapidly ramp up production?
spk04: Sure, why don't I handle that question? So we, as Austin mentioned, we reached SOP a few weeks ago with Volvo. And that was a really intensive four year plus period to industrialize our first product, Iris. During the last few years, we've tripled the size of the company. We put in a lot of blood, sweat and tears to get there. And we learned a lot about ourselves as an organization. And upon reaching SOP and actually a little bit in advance, We really took a long, hard look at ourselves and tried to decide, well, what do we do better than anybody else out there? And a lot of that is related to our technology, our R&D, our semiconductor business, et cetera. And then what are some of the industrialization activities where quite frankly, some of our existing partners like TPK do just as well, if not better than us. And so the primary focus of the actions that we took last week was to put Luminar in a position where we can move more quickly and more efficiently and more cost effectively to develop and industrialize our future products. I want to say it wasn't primarily a cost issue. It was more of a efficiency and speed exercise. Unfortunately, that resulted in having us to make some tough decisions on a personal level. But it was something that we had to do. When you kind of look at the magnitude of those savings, they result in about $80 million of savings. You know, substantially all of them should be, you know, realized on a run rate basis by the end of the year. A little more than half of those are going to be cash savings and a little less than half is going to be stock savings in terms of stock we issue to our employees and some of our vendors. Not included in that 80 are going to be some of the benefits we get from being able to move faster on the industrialization as well as more efficiently. And let me try to quantify that. If I look at what it costs to put the capital in the ground, both to build out the building, the clean room and the automation equipment for our Mexico plant. That totals to about nearly $60 million. What we expect to be able to launch our second facility in China with TPK for is going to be about 20% of that amount. Not 20% less, but 20% of that amount. And that's for almost triple the capacity. The other thing, if you look over the last three years, and I would say if you look at some of the industrialization costs caused by inefficiencies from industrializing our product for the first time, over the last three years, between cost overruns on some of our NRE budgets, as well as inventory write downs and duplicative testings, and once again, all this stuff is normal when you industrialize it. for the for the first time we want to focus on getting more efficient the next time those those three things alone over the last three years total nearly 100 million dollars and we think we're going to be able to substantially reduce that amount uh going forward for our halo product uh from the lessons we've learned and doing it more efficiently and then finally uh we have our first halo win we'll talk about more of that in a bit i'm sure But our SOP now for Halo is going to be in 2026. And we wouldn't be able to move that fast without industrializing our first product and putting in place this new structure with Eltech. So yes, there are cost benefits of it. But more importantly, the reasons that we took the actions we did was to make us more efficient and leaner and meaner and to move quickly in our industrialization process.
spk02: Well said, and I think describes all of that. And, you know, it's been a whole journey for us, you know, over the past decade. And I think if you really zoom out overall, you know, what we've invested, you know, on the order of around $1.8 billion to be able to develop the technology platform, the IP platform, and the industrialization muscle, you know, to be able to enable this, to make this possible. And that's where now you look at, OK, what is the incremental cost, you know, to develop a new product? What is the incremental cost to be able to scale? And that that has come down radically, you know, from relative to the total investment amount that we had to do in the first place to get to this stage, to get to this leadership position that we've been. So now what sort of becomes what starts out as a headwind? Now we get to ride in terms of the respective tailwinds of that. And of course, TPK is one of the first steps of the evolution of the bits of transformation. And there's going to be more to come. This is something that. certainly we're looking forward to. And when you take a look at, you know, it's the same thing of like, you have a couple billion dollars, you know, what it takes to have the first kinds of technologies, products, you know, Iris family, you know, now what, you know, talking on the order of closer to like on the order of a hundred million now for, for Halo, because we already have this investment. We have the technology that now we're just iterating on each generation of chip on each generation of chip. subcomponent that makes that possible. So yeah, excited for what's ahead, doing so very efficiently. And of course, you guys, please look at the shareholder notes as well as Illuminar Day if you haven't seen it to see some of the breakthroughs that Halo is enabling and beyond.
spk00: Thanks, Austin. We're going to switch gears and take some questions from the analyst community. As a reminder for our analysts, we want to get as many questions in as possible, so we're going to allow an initial question and some follow-ups. Our first question is going to come from Kevin Garrigan at West Park Capital.
spk10: Hey, Kevin. Yeah, thanks, Eileen. Hey, Austin. Hey, Tom. Thanks for letting me ask the question. I'm wondering if you can expand on where in the process the two non-series production customers are that you note in the guide as in, you know, is this next phase kind of the final stage before announcing a series production win? And are these contracts kind of yours to lose or are you facing some competition with these two?
spk04: You know, one of them is an automotive customer, and I would say we're getting to the tail end of the development phase. You know, once again, I don't like to predict when our customers are going to make specific decisions that we want them to make because that timing is largely out of our control and it's been taking a little bit longer than we would hope for. But I think we're getting to the tail end of that process with them. The other is a non-automotive customer where we've been working with them for several quarters now. And we're kind of transitioning into the next stage of that and adjusting the size of the contract. So that one, it's exclusive. There's less competition. The first one, we've been working with them for a while. And while we're not too worried about the competition, it's not your business until you win it. Yeah, got it.
spk10: OK, perfect. And then just a quick, quick clarification. Your warrants with Volvo that you had noted that are going to cause contra revenue for Volvo. I didn't see any other specific warrants with customers in the order book in any.
spk04: No, this is something that dates back to 2020 when we assigned the initial framework agreement with Volvo. It was compensation for them to help us industrialize our product for the first time. You know, it's a little over $4 million warrants, you know, strike price of about $3. And for accounting reasons, once we reach series production, we need to amortize the value of those warrants, which was about $3 million at the time over the first 22,000 and change ladders that we make. And so that's going to put a little bit of headwinds on the revenue because, you know, for the contra revenue reasons, as well as to the margin that we achieve on those sensors as well. There's no other customers where we have, you know, warrants like that or a contra revenue issue. And the state backs to something, as I said, we did over four years ago at this point.
spk02: OK, awesome.
spk10: Thanks.
spk02: And that doesn't that doesn't affect the cash flow of what we get in, of course, or anything with, you know, with the customers and incremental.
spk10: OK, got it. That makes sense. OK, perfect. Thank you.
spk00: Our next question is going to come from Joshua Coulter at TD Cowan.
spk01: Hey, Josh. Hey, good afternoon. Thanks for taking my question. To start, I wanted to ask about your cost basis and any change that might be coming from the restructuring. So I know at the inaugural Luminar Day, you walked us through the $650 and then $350 milestones of your unit cost economics. Has anything changed regarding that trajectory as you've undertaken the restructuring efforts, moving more to outsourcing, and in particular, I mean, with Halo on the roadmap? Thank you.
spk04: Yeah. So all the actions we took, you know, most of those are all of them are unrelated to sensor costs and sensor economics. You know, one of the things we're doing now, our engineering team has almost been solely focused on getting to SOP because you got to get there. And now that they're there, they're freeing up and we're going to start aggressively attacking the sensor costs. There's still, you know, work that needs to be done there. But the actions we took in that $80 million, that's unrelated to the sensor costs. You know, the targets that we talked about last year at the inaugural Loomer Day, as you mentioned, those were always conditioned on us kind of having a first full year run rate of production. And so, you know, you need to get the economies of scale. You need to get, you know, the credibility and the contracts in place with your supply base. You need to work through the manufacturing kinks and, you know, you need to do, you know, some amount of kind of VABEs to get there. And so we're in the early innings of getting there. You know, we're not at those targets today. We're going to be, you know, much closer and we still have a path, you know, to get very close to that 650 level. Eltech and the industrialization, that's all going to be for Halo. And so, you know, there may be some, you know, resources that we put there on the cost downs for Iris and Iris Plus, but the vast majority of those resources, as well as the benefits we're going to see on that is going to be for the industrialization of Halo.
spk01: Thank you for all the color there. And then for my follow-up, I know it's been only a week or a few days since the automatic emergency braking regulations were announced, but I think it had been rumored for some time, and you guys had been talking about it potentially coming for a bit. I mean, do you expect or have you seen potential customers preparing for this? Does it change any expectations for when you would be able to bring things into your order book? And I guess big picture, to qualify for the new regulations and hit it, When would a potential customer need to sign a deal to hit that 2029 timeframe? Thank you.
spk02: Yeah. So I think it's a great question on all of that. And I think this definitely took a lot of the industry by surprise in terms of the level that it was at. I think there was a lot of anticipation that it was going to be heavily financed. watered down so to say in terms of the requirements um so you know for example in particular um the majority of the automakers um have been part of actually uh an alliance that's been lobbying uh to be able to significantly reduce the requirements there such that it would not um be mandated, so to say, to align with something that would have this kind of level of capability on every vehicle. Because remember, it's not just high-end vehicles. It's literally even the lowest-end possible vehicle, like every single vehicle that's sold. And they've said that it will take up to $4,000 in additional hardware and software costs per vehicle, which is obviously great from a content value standpoint. But the lobbying has been basically to try and reduce certain requirements, such as, for example, the sentiment was that you should be able to hit a pedestrian at up to 25 kilometers per hour instead of stop for pedestrians fully has been the big the big push, which, as you figure in negotiations with NHTSA, NHTSA says, no, it should be. Zero, they say 25, and they split the difference right in the middle at zero. So, you know, you're taking a hard line on this. And, you know, we kind of laugh about it, but it is very, very serious, you know, safety implications. And the reality is that vehicles today should not let you run over pedestrians. They should not let you run into things in front of you. And, you know, we're talking about the most simple, basic, you know, safety functionality on a vehicle. And the current kinds of camera and radar technologies cannot enable this across the board in these required scenarios for what's needed to prevent the vast majority of accidents. And we've shown what's possible. Swiss Re in particular at Luminar Day has shown what's possible. And, you know, we've also now starting to even see, hey, what are the insurance implications of this? If you actually, you know, And that was like one of the points of inspiration as well, you know, for NHTSA is that, hey, as this happens, you know, the insurance industry is going to be reformed to be able to, from a total cost of ownership perspective, you know, reduce the cost. So there's a lot of different factors at play. But I would say this is that I think from a timing standpoint to answer that question. specific part of the question. I think there's probably going to be a scramble over the next couple of years to really start getting plans into place. The beautiful thing with this is that this aligns perfectly with the timing for Halo, whereas this would have been very difficult to try and fulfill and accomplish with uh, Iris and Iris plus, which are more meant for higher end vehicles. Uh, Halo is designed to be able to be mainstream. So this couldn't have come in literally a more perfect time, uh, between, you know, the Swiss re, uh, report and the safety report for what they've put out on the insurance implications of that. And most importantly, a Halo product, uh, that's able to take advantage of this. So part of the whole concept is, um, uh, you know if they if there was a concern around cost hey for you know something not in the thousands of dollars but in the hundreds of dollars you know you're able to have a product uh that can fulfill all these requirements and not only that uh in terms of meeting and exceeding it as we've shown and we have those for example specific examples and the requirements in that letter um it's also able to enable via a software you know upgrade an additional software so the same hardware autonomous capabilities, you know, and start to advance those as well, which, by the way, we already know is already happening. The majority of automakers at this stage are now planning to have long range LIDAR, you know, or Luminar in their roadmaps already by the end of the decade. So this wasn't like a crazy thing. It's just that the crazy part is the sheer scope of what this is. And the fact that this is not, hey, you need to do this to get a five star safety rating on your car. It's you need to do this to literally even make a car.
spk01: Thank you, Austin. Appreciate the car.
spk02: Or sell a car. Oh, sorry. To sell a car. And yeah, I should say in the U.S. Obviously, U.S. is hopefully it takes a leadership position and kind of proliferates throughout.
spk00: Okay, we're going to transition back to a few questions from our investors. Next question, how has the delay in the Volvo launch from last year and the macroeconomic environment affected your capital situation? Will you have to raise an additional $1 billion in 2025, like certain estimates have stated? And what kind of dilution should your shareholders expect?
spk04: Yeah, I'm not, you know, look, I would say the billion dollars is nowhere near what we think we need, additional capital we need to get to profitability. Now that we're SOP, now that we've taken some of the restructuring actions that we've taken, you know, we're still, you know, finalizing our analysis on what the additional capital needs going to be. And we're looking at a variety of scenarios, you know, including downside scenarios. And even in our extreme downside scenario, we get nowhere around a billion dollars. You know, the number that we're sending around on is somewhere around a couple hundred million dollars of incremental capital, plus or minus. And, you know, when you kind of look at where our balance sheet is today, we have enough cash to get us to at least the end of 2025. So, you know, we don't have a gun to our head to do anything soon. And we still, we believe, have access to multiple forms of capital so we can go get that additional capital when the timing and the situation is right. And, you know, look, we also would rather address the two balance sheet issues that we have sooner rather than later, the first being the additional capital, which I just talked about. And then the second is when you kind of look at our convertible debt, that's trading at a deep discount. And as I mentioned before, we're kind of looking at, are there creative things that we can do given that dynamic? So, you know, now that we've reached SOP, now that we've taken the actions that we've done, You know, we're actively looking to fix those two balance sheet overhangs that we have, but we want to do it at the right time, minimize dilution, get the best terms that we can, but also address it sooner rather than later.
spk02: No, it makes total sense. And, you know, I'll say this is that, obviously, we're very sensitive around all these things. And particularly, you know, when you have a lower share price there, you know, you want to be really, really cautious for dilution. I'll say that over the what? eight years when we were private, I think an aggregate over all the financing. So we raised for, you know, hundreds of millions of dollars. We got it. We're diluted the company, you know, what on the order of like 50% over half a dozen different rounds and going through that. That's how, you know, we have large ownership. you know, positions in the, in the company more generally. So we take this super seriously really thoughtful. Our own board, you know, is also taking it very seriously in terms of that aspect of it. So but you know, we're in a strong position here. We, we know exactly what needs to be done. And most importantly, We want to show and continue to prove out the aspects of the business that show how significant this industry is and how much value we're able to really produce to get that realization. And we've been in a stronger position than ever with the fundamentals of our business from technology, product, commercialization, and scaling now with being the first company at a global scale to be able to go to SLP with us. So yeah, that's what we have ahead.
spk00: Great. Next question. Will you provide more detailed financial guidance for 2024 now that you've kicked off production for Volvo cars?
spk04: That's something we're going to do in the second half of the year. We're getting more visibility into the Volvo ramp up. We're getting more visibility into when we're going to start to realize some of the cost saving actions that we took both on the restructuring we did on Friday, as well as starting to aggressively attack the sensor cost. And so once we get into the second half of the year, we're going to provide more visibility on what our quarterly financial performance is going to be. The two things that we talked about during our last call that we reiterate, is we're going to get to a quarterly revenue run rate in the mid-30s by the end of the year, and that will end the year with $150 million plus of liquidity. Those are two things that we still remain confident in. I would say the path to getting from where we are today to those points by the end of the year, it's still going to have some bumps on the road during that journey.
spk02: And just for the context that the 35, you know, call per quarter, if you're amortizing that we're talking what, you know, 140 million, you know, run rate per year. So, you know, on an annualized basis. So, I mean, pretty, pretty significant growth compared to, you know, I mean, you guys all know last year's numbers and everything. It's the key is that that all kicks in in the second half of the year. So when we talk about SOP, for the revenue for, you know, this quarter, and you know, it'll be next quarter, it's, there's been no serious production revenues quarter small for for next quarter. But that's really where, you know, in the second half, when you start to see that kicking in, and that exponential growth, really taking off. And that's where, you know, what we highlighted is that We have $3.8 billion in our order book that's now kicking off that conversion into revenue. And that's what's going to be the main driver behind all this exponential growth. Whereas historically it's been development systems that we've been working with automakers on. Of course, Volvo is the first, but that's sort of kicking off a plethora of additional subsequent vehicle model launches. We've shown how we have 25 of them that expands across combustion engine vehicles, electric vehicles, hybrid vehicles, all those kinds, which is, you know, also unique to Luminar in terms of the diversity of what kinds of vehicles we're on. So, Excited to make that happen. And then, yeah, as Tom was saying there, that economies of scale and value is going to be huge. The other thing is, is that the most significant thing really with Volvo getting out there is also around data collection. You know, right now, there's been a very, I mean, we're talking very, very small fleets of vehicles, you know, on the order of hundreds, you know, usually that are going out collecting data. When you talk about something with Volvo, when it's tens of thousands of vehicles, you know, just even starting this year alone, scaling to hundreds of thousands of vehicles, and then, you know, ultimately millions. Like this is at a scale of data that no one in the industry has ever seen at a global level. And that allows the AI systems to really train on that data to be able to understand the world. I mean, we're talking about, you know, creating a more accurate understanding of the world that has ever been seen before by this precise 3D data, you know, more than what you have seen. the largest autonomous fleet out there today is what you know it's like way more like what uh less than a couple thousand vehicles some some of that effect so you know you take you take a look at that and the scope and scale of what we're talking about and the fact that you know every global driver is driving you know we don't pay them to drive they they drive themselves uh so it's uh it's it's going to be um pretty transformational as all of this happens
spk00: Okay, let's switch gears and go back to our sell-side analyst community. Our next question is going to come from Itay McKellie at Citibank.
spk03: Hey, Itay. Hi, great. Hi, everybody. Thanks for taking the question. I was hoping we could just remind us, the number one focus now is the Volvo ramp. How should we think about subsequent ramps of the 25-plus programs that you have? Maybe if you could talk about roughly how many launches you're expecting in 2025, that'd be helpful.
spk04: You know, the next big one that we have, which will be somewhere around the end of this year, is going to be the Polestar 3. You know, there may be one or two, you know, smaller programs next year between, you know, our current customers. And then I think the next big wave will uh, is, is really going to come around, uh, late 25, early 26, uh, with Mercedes. And, you know, there's, you know, multiple platforms that will probably then launch, uh, starting in 26 over, you know, the next two to three years. And so, you know, this is, you know, this is the big one, um, Polestar 3 is the next one, a couple other smaller ones, and then the, the wave of Mercedes, uh, you know, starting.
spk02: The only other thing I'd point out is that, um, You know, there are also variants in particular that launch at different times and locations. And so, for example, you know, this is the launch for the EX90 out of North America there. So, you know, we're shipping from, you know, Mexico, you know, into North America. Luminar has a unique uh globally diversified you know footprint here um which is which is special and you know so we're talking about the launch there um you know then you talk about launches in china you know we've there's already been um you know they announced the x90 excellence as well as the x90 china variant um you know there's uh more opportunity and upside you know beyond these things as well um of course you know we know we all know about the The Polestar 3, but there's also different model variants as well of some of these things that can help further drive the growth of this. So that's why you're going to see it's kind of like a flywheel effect, right, in terms of the compounding. So there's an exponential curve in terms of the ramp and the economies of scale for each one. And then when they sort of compound on top of each other, then you end up in this slide. very good pile up of, of all these things, but it's not so much. And this is where we've been smart about it. It's the same thing of like, I think if we tried to launch with like five different OEMs all at the same time, we would be drowned, you know? So, you know, it's, it's, it's good. It's like good methodical, you know, spacing between the different OEMs and launches and everything. But it is definitely action-packed. That's for sure. And the beautiful part is it is the same hardware setup that we have that's able to launch. Obviously, there's certain kind of specific integration modes and certain kinds of incremental customizations. By the large part, it's, you know, 95% the same thing.
spk03: Terrific. As my follow up, Austin, you mentioned data collection. I kind of want to go back to that a little bit here. How much data are you getting from the real world fleet of some of your customers and will you be getting data from the Volvo fleet as you ramp? And as you're getting this data back and iterating the software and AI, How much improvement are you seeing in safety and automated driving functionality such that when maybe the RFQs come in for NHTSA-related awards for later in the decade, how much better do you think your system could be by the time you get to that point?
spk02: Yeah. So, um, uh, a couple of things on that. Obviously the, the big step function from a product standpoint is with Halo. So that's, you know, that's what we're very excited about. Um, but I would just say from a data perspective, more generally, there's two aspects. So one is from a customer standpoint of where they need the data first and foremost, in terms of being able to build out the features, you know, optimize them and do all the safety checks on it. And then ultimately, you know, release the features. And that's where you're going to see, uh, you know, the LiDAR get more and more utilized, you know, over time for these additional, you know, starting with safety features and ultimately autonomous driving features and other kinds of things that it can be able to enable, you know, creating maps of the world, doing all those things. And, you know, so I'd say from a customer standpoint, they need this to build their and train their AI systems there. And then when it comes to our systems accordingly, is that, you know, Data is critical to, say, feed the beast of this. You know, we have our Luminar AI engine. You know, we have some of our own initial vehicles that have sort of gotten that started. And we're very excited to be able to have the opportunity to start getting in customer data. So, you know, for some of our customers, we actually specifically have data clauses, you know, that allows us to be able to get access to data. uh from customers so um that when that happens that would be uh very accretive um to the overall software efforts and scaling and we're gonna have uh more to talk about on the um you know software front over the coming uh couple of months perfect very helpful thank you our next question is going to come from john babcock from bank of america hey john hey hey uh how are you guys doing thanks uh for giving me the opportunity to ask a couple questions here um
spk07: I guess just right now, you did mention in passing that Tesla is using your products and buying sensors. I was just wondering if you could talk a bit more about the extent to which they're doing that. Are they just buying part of the sensors? Are they installing the full LiDAR? And also, are they growing business with you? And then if you could also just generally talk about how their relationship compares with that of other OEMs, that would be useful.
spk04: Yeah, so, you know, what I would say is I'm not going to, I don't think we're in the best position to talk about, you know, what they're doing with our LIDAR. You know, this isn't the first, you know, time that they've ordered LIDAR from us, but I would say it's been more lumpy than recurring. You know, the reason we're talking about this is because if they're greater than 10% and a quarter, we, you know, we disclose who those customers are. But, you know, look, they, you know, they're, buying the LIDARs for us and what exactly they're doing, then we can only speculate.
spk02: They made us sign an NDA.
spk07: I'm not surprised at all, but appreciate the color. And then just next on the cost savings program, I think you mentioned a bit more than half is going to be cash cost savings. Could you just confirm that? And then also, what are the total costs that it's ultimately going to take to get to that $80 million in annual run rate savings?
spk04: confirm the statement that you said. We kind of mentioned that in the letter. We, you know, we disclosed what the cash costs are going to be there. It's, you know, on the order magnitude of $68 million. So call it, you know, less than $10 million.
spk07: Gotcha. Okay, great. And then might you be able to detail the contractor reduction piece associated with that and then provide any additional color on the other category that's driving that?
spk04: Yeah, you know, I would say, you know, the vast majority of that $80 million is coming from a headcount, both our employees and then You know, also contractors ramping down as you ramp up and we industrialize our first product, Reach SOP. There's a lot of, I would say, non-recurring work that needs to get done, whether that's setting up the plant, working with our suppliers to ramp up, you know, doing, you know, testing of the products that is required to do, you know, to meet our requirements. you know, our automotive customer standards and what we try to do if the work is not recurring to fulfill those needs with, you know, contractors, if it's going to be over a finite period of time. And then as that work is done and as the, you know, SOP and industrialization process for that product draws to a close, you can start ramping down those contractors. And then as we, you know, rely more on TPK and LTAC, For our Halo, which is our next generation product, you don't need those resources to recur. And so that is what I would say, you know, driving, you know, the vast majority of the restructuring actions that we took last week.
spk02: And I'd say in particular, when it comes to the contracting partners, you know, we had, what, over 100 contracting partners, you know, in aggregate to help us, you know, in one way or another, the majority of which were assigned to help us reach SOP. Now that that's happened, you know, we're able to roll off the majority of those 100 contracting partners to be, which, you know, helps reduce costs, but it's something that... that we have planned anyway as part of this. And frankly, overall, the majority of the Luminar cost structure there is to be able to help advance, you know, the future of what we're doing. It's a relatively dynamic structure that we're able to have. So, of course, now post-SOP, that's where I think that dynamic changes and the needs change and, you know, models can evolve accordingly as well.
spk07: Okay, thank you. And then if you don't mind, just one quick question. There was a seeding supplier that recently commented about the EX90 being delayed due to software issues. Can you just talk about whether or not that's an incremental delay relative to what you've discussed or if that's something that had been announced previously?
spk04: I think that's old news, John, from a year or so ago.
spk02: Yeah, that's correct. And on top of that, I think there was some misinformation also that there was some delay that was caused. by Luminar as well, which was also not the case there either. So we're very excited for the X90 ahead, and that's going to be a huge driver of growth here for us over the course of the second half of the year that's going to take us to new heights.
spk07: All right. Thanks, Ben. Appreciate all the detail.
spk00: Our next question is going to come from Mark Delaney from Goldman Sachs.
spk05: Hey, Mark. Good afternoon, guys. Thank you very much for taking the question. One on gross margins, your gross margin came in better than expected in the first quarter, although in the letter you spoke about some production kinks and lower ASPs as potential headwinds over the next few quarters. I'm hoping you can help investors to better understand the magnitude of those headwinds and, perhaps more importantly, what might be needed to reach a positive gross profit.
spk04: Yeah. So, you know, Mark, you know, I'd seen the improvement we saw during Q1 that was largely driven by the industrialization costs, you know, coming out of, you know, it's starting to come out of the system in good jobs. We're hoping that happened in Q4. You know, it happened instead in Q1. You know, as I said, the ability to kind of predict when you kind of do what needs to be done to launch your first product, you know, there's some variability there. And so that kind of drove the process there. What's happening now is there is a, you know, once we start selling Volvo series production sensors instead of prototypes, there's a step function and immediate decline in the ASP. And, you know, we can't wave a magic wand anymore. and have our sensor costs decline at the same rate. You know, it's going to take us a few quarters to start, you know, witnessing the benefits of the actions, you know, we have taken and are going to accelerate taking now to get those costs lower. You know, we also need economies of scale. You know, things aren't going to go smoothly. And, you know, as you start increasingly ramping up, you know, we're expecting, you some unexpected surprises. And so, you know, I would expect, you know, the gross loss to get a little worse before it starts to get better. You know, I don't want to predict exactly, you know, what that curve is going to look like and when exactly we're going to get there, you know, but reiterating what I said earlier on the call, it's going to take us, you know, you know, a full year of series production to, you know, get close to some of the targets that we talked about a year ago for Iris.
spk02: I would say overall, when it comes to the cost structure here, you know, you have the industrialization costs, you know, sort of launch costs, you know, that you have there that's bucketed separately from the actual product costs, you know, in terms of what it costs to be able to deliver each thing. The thing that we've done well on is that we've now been really starting to aggressively roll off those industrialization costs. So, you know, that's what's driven that improvement. And, you know, actually we would have been positive this quarter, barring a couple of like things that are unrelated to the actual product itself. Yeah. But when it comes to, you know, that next wave, now the focus is going to be as that scales up to get realized those economies of scale. And the key thing here, you know, is that from a supply chain perspective and supply chain basis is being able to now that we have that clear visibility into a volume perspective. There's a very big difference between when you're ordering components in the, you know, thousands versus millions. hundreds of thousands. And that's the key distinction from a supply base that we see, we believe we'll be able to see those benefits of when you're not talking prototype pricing, when you're talking scaled series production pricing. So that's kind of that next wave that drives that. If you look at the overall direct costs, for example, even for this quarter, it was only around like 16 million, you know, off of the 21 million in revenue in aggregate. So, you know, there's there's there's some things there that, you know, have shown that we've seen those realizations. But now that we're doing that, we're not stopping. We're not resting on our laurels by any means. And now we're focused on this next wave that will drive that. And we're going to give some more insight as well into specific parts of our of our business in terms of the profitability aspects like, you know, our semiconductor business as a preview over the over the coming months.
spk05: That's all very helpful. Thanks. My other question was on the TPK agreement. You spoke around an expanded relationship there. I think in the blog post you put out last week, Austin, you called it an exclusive relationship. So I was hoping to better understand what exactly that might entail, how the partnership and work with TPK may differ compared to your current arrangement with I Believe Celestica, and then also when you think you may go into production with TPK. Thanks.
spk04: Yeah, so Celestica, the relationship we have with them, that's more of a pure contract manufacturer, which is as we make products in series production, Celestica is making them. They made some of our late stage prototypes just to make sure that their manufacturing system worked the way it should have. But they're basically a series production manufacturing partner with us. And TPK, the deal we announced with them last year was the equivalent of of what Celestica is for us at our Mexico plant in the China plant. This new relationship with TPK expands that to more of an industrialization, particularly related to Halo, our next generation product. So all the prototype manufacturing is going to be done by them. You know, I would say a lot of the, you know, design validation and production validation testing, you know, most of that which we did ourselves is, you know, we're expecting them to kind of do, you know, most of that going forward. You know, we're going to be sitting there verifying and doing some of the results. you know, a lot of the supply chain management, you know, a lot of kind of working out the manufacturing kinks, you know, a lot of that, the inventory management is going to be done by them as opposed to us. That's going to allow us to move faster, more efficiently. You know, I shared with you, you know, some of the inefficiency costs that we experienced industrializing Iris. I don't know how much savings we're going to have for our next generation product relative to Iris, but I'm expecting to be substantial. And none of that is in, you know, the $80 million number that we kind of talked about with, you know, the direct actions that we took last week.
spk02: Absolutely. And we'll also take a look at the Luminar Day speech that TPK gave, you know, their CEO was on stage. And I think, you know, they described it, you know, as the relationship of kind of everything, all the work that they did, you know, back with Apple on the iPhone for its introduction, you know, in 2007. They really see this moment that we've had with Volvo and part of the broader industry as a little bit of that. iPhone moment to kick off the broader autonomy world. And in particular, you asked the question on exclusivity, and I was going to leading up to that is that they have agreed and signed a deal to only work with with Luminar in the world of, you know, LiDAR and AV more broadly having the extreme amount of conviction that, you know, will be a winner or the winner.
spk00: Okay. We'll take another question from our shareholder community. Now that Luminar has introduced Halo to the market, what has been the response from your existing and prospective customers? Do you expect Halo to drive new customers like Nissan and other large OEMs to make decisions sooner as it will be available in 2026?
spk02: Yeah, I think it's been a great reception. Of course, as you figured, there's been some level of work behind the scenes, you know, with automakers on this, you know, leading up to this. We've been working on the Halo design for, oh man, like six years in terms of some of the technologies that have been going into this. I mean, this all goes back to this, you know, nearly $2 billion technology foundation and IT foundation that we've been able to develop to make this possible. That's how we get to ride all of those tailwinds and do so very, very efficiently this time. And, of course, this is really taking into account the things that automakers are most excited about. And that's what allowed us to move so quickly to a point of where we can announce today, you know, our first OEM win with Halo. So, you know, very excited about that. And that's a start. You know, there'll certainly be a lot more to come. And I would say for major automakers, I mean, the key thing is, is that, as you said before, people were really looking for, you know, two things. One was the validation that Luminar could successfully make it to series production in a world where the vast majority of programs do not successfully achieve that. The vast majority of companies aren't successfully able to make it. You know, Luminar has proven that it is very much possible and executing to that. The second part was, is the product to be able to enable mainstream adoption. And that's something that it's, it's clear there needs to be a step up, you know, from Iris to be able to do that at, uh, at the kind of scale that we're talking about. And, you know, uh, with, um, it's about a third of the size, you know, double the, uh, overall efficiency, you know, a fraction of the way less than half the cost, uh, you know, all the other benefits associated with, um, with Halo. And I think that is something that starts to get people, uh, really, really excited. So, um, the, the other thing is, is that, uh, we of course understood um some of these new regulatory requirements at a time where i think um i don't want to say folks were maybe asleep at the wheel on that but uh there's there's definitely like it came as a surprise to some and this is designed to be able to make sure that automakers can meet those new regulatory requirements as well um of course we exceed beyond those requirements um but uh but that said that is something that is meaningful and powerful to be able to do. And this is the kind of product that really can be standardized on mainstream vehicles. So it makes total sense. And the reception across the board couldn't be more positive.
spk00: All right. We've got a little less than 10 minutes. So we're going to get through as many analyst questions as we can. Our next question comes from Kevin Cassidy from Rosenblatt.
spk09: Hey, Kevin.
spk04: Hey.
spk09: Hey, thanks for taking my question. Yeah, you know, my question is, Halo seems like a real game changer. And, you know, as the industry has evolved, can you tell me about more what's happening in the bidding content for your competitors? We'll say, what's the competitive landscape? How has that changed? And also, what are the priorities that your customers are looking for now? Has that changed since when you first got into this bidding process?
spk02: Yeah, I mean, I would say that overall, one thing that I think is significant in the case of Luminar specifically is that for most of the kinds of deals that we strike, it's rarely so like a specific kind of bidding process, so to say, that the goal of what we like to do is that when we start working with someone, really go all in, you only have so much capacity and you have to have so much focus with different automakers. And what we'll do is we'll try and strike a more, call it a company-wide, you know, deal for something that covers all the different kinds of scopes of products and technology, other things that they're enabling, rather than maybe say for like one specific point in time for one specific vehicle model for, you know, some arbitrarily low volume or not. I think that... The way that you make this work is you have to have the big economies of scale. And of course, everyone can talk about opportunity all you want. But I think we've tried to set a really credible benchmark for the way that you define order book in terms of what's actually included in associated take rates and everything, not just saying, hey, magically, you're going to win everything from even a given automaker. So long story short, of course, there are, you know, plenty of RFQs and everything that we're all a part of and, you know, the finalists, so to say, for the processes that are there. But, you know, every automaker probably always has some kind of RFQ outstanding for something. The question is like, what's real, what's not real? And the reality is, is that I think historically what we've seen, every automaker, like the sorry, not everyone, the majority of, you know, the call the top 20 automakers have, as I mentioned, the long range lighter into the roadmap at some point, you know, throughout the decade, obviously those are different introduction points. I think the question and the dynamic that we're excited to see is how the autonomy roadmap evolves and also gets radically accelerated with these new regulations. And that was something that, you know, it's a 300 page report. Automakers are digesting it now. They're, they're really, um, it's probably over the next, next year are going to be putting their updated, uh, roadmaps together. And I think that's where, uh, when we're talking about the kind of volume opportunity, it's, it's, uh, whatever's there now is a, it's going to be a tiny, tiny fraction of, uh, what's going to be running in parallel. So that's what we're excited about. If people can take that same kind of model that Volvo has, you know, around showing that safety should be for everyone, not just as a standard product, not just as a optional feature like a seatbelt, then you really win the game. That's where we also showed that, and I think I mentioned this in the letter, even just a small fraction of market penetration, like, you know, we'd model three to 4%, you know, that's like a home run for this kind of business, because that means, you know, into the single digit billions, you know, and revenue growing rapidly, other stuff. If we can do that in LS10X, you know, I mean, that's where I think it kind of changes the game, as you pointed out, and we have the perfect product to do it.
spk09: Okay. I won't have a follow-up. I'll save time for other people. Thank you. Thanks.
spk04: Who do we have next, Aileen?
spk00: Sorry, folks. I was on mute. Our next question is going to come from Jesus Gonzalez Lopez from JP Morgan.
spk06: Hey, Jesus. Hey, guys. Thanks for taking my call. Just wanted to ask about the $15 million in run rate cost savings you guys called out. You know, how should we think about that split between OpEx and CapEx? And then what's kind of like the ramp up timeline for those things to come online?
spk04: Are you talking about the $80 million? Yeah. Yeah. Yeah. So the 80 million, I would say very little of that is COPEX. Most of that of that 80 million, a little over half of it is cash, a little less than half of it is saving in stocks. We issued to our employees and vendors, as I mentioned earlier. And I would say, you know, substantially all of that 80 million is stuff that's going to flow through the P&L either as COGS or OPEX. Gotcha.
spk06: And then so on the timeline, should we expect that to like start coming online in the back half of the year and then really ramp up in 25?
spk04: We should get on a run rate basis, you know, I would say very close, if not the full 80 by the end of the year. You'll start seeing it show up in Q2 and then really start to ramp up in Q3 and Q4.
spk06: Gotcha. Okay. And for my follow up, just kind of wanted to switch gears and talk about the order book. I know you guys just called out the first product wins Halo. But so should we think about some of those wins that you already have in the order book converting to the Halo system? Or, you know, what's kind of like the cadence of like the product mix that we should see over the coming years?
spk04: Yeah, the vast majority of our order book today as it stands is Iris and Iris Plus. We have had our first major win with Halo. And what I would say is, you know, we're in discussions real time with our customers to transition into Halo sooner rather than later. Now, look, you got to work through their production cycle, mid-cycle refreshes. making sure that you reduce as much as possible any additional software algorithm training or validation that they need to do. And so it isn't something that you can do overnight, but I think it's in the interest of both parties, both to them because it's going to be a cheaper product and to us where we expect it to be a better margin product to do it sooner rather than later. And so I would expect at some point in the future, the order book, to start converting and hopefully at a very brisk pace to Halo. Gotcha.
spk00: Okay. Tom and Austin, you want to take another question?
spk04: Yeah, let's do one more, Aileen.
spk00: Okay. Our final question is going to come from Richard Shannon from Craig Hallam.
spk08: Hey, Richard. Thanks. Hi, guys. Sorry, I got on the call late here, and I'm not really sure I have a question this time. Sorry, I didn't hit any buttons, so apologies for that. I'll follow up later when I've got a more full consumption of your entire call, so sorry about that. Richard, that's the easiest question you ever asked.
spk04: We'll talk to you soon, buddy. Thanks. Let's do one more if we have it.
spk00: All right. I think in that case, we'll take our final question from the SAVE platform, which is, what is the outlook for the next five years?
spk02: A lot of growth. Yes. World domination. No. But in all seriousness, I think next five years, we got a lot ahead of us here. I mean, literally five years from now is 2029 when the new regulations go into effect. So that's going to be quite the show. There's a lot that we have ahead to be able to do. Of course, like I said, we're realizing a massive amount of growth that's going to happen starting really in the second half of this year when the order book starts converting. We're going to realize those economies of scale. We're going to really start driving this like no tomorrow. And I mentioned in the letter and at the beginning that in terms of the strength of our business and fundamentals of what we're doing, could never be stronger. And the reality is that if we're able to achieve even a fraction of what we think we can over the next five years, that's a huge win and a home run. And the key is just being able to make sure that we can continue to differentiate ourselves. Obviously, there's skepticism for this world and type of company in a world of... you know, EV startups and other kinds of autonomous, fully autonomous vehicle companies and other things that haven't been able to deliver, you know, product or in the way that they wanted or LIDAR that wasn't able to make the technology work, et cetera, were in a a world of, you know, some companies that are challenged. And that's where I think being able to show how we can, you know, continue to succeed, how, you know, from where we've come from, from when we were first at, you know, IPO and developing a theoretical technology concept into industrialized product to being the first to launch in series production and, scale going from one to a dozen, you know, major commercial customers and wins to now, um, you know, having a clear path towards broader standardization, um, future couldn't be brighter for us. Um, key is we know what we have to do. And that's not to say that there aren't, there aren't headwinds. We know the macro, you know, headwinds that at a, in a broader scale that have, um, come into place, that's clear to everyone. And, um, you know, it's not, uh, not lost on us by, by any means. Um, and we're the, um, uh, tackling it head on. And I think that's where you guys saw, you know, some of the, uh, restructuring actions, you know, that we took place on, on Friday. It seems like it was a surprise to, um, to some probably shouldn't be a, uh, a huge surprise given we've kind of signaled that. And the reality is, is that as we're talking here today, over the course of the next five years, there's going to be other drivers of efficiency that we're taking. And, it's not even going to take that long. I mean, we're talking literally over the next 12 months. This is the first phase of what we're doing. There's a lot more opportunity that we have ahead and we're going to be fully capitalizing on that. So I'm very excited for what we have ahead for that timeframe. And thank you everyone for being on the journey with us as we make that happen. All right.
spk00: Okay. Thanks everyone. That marks the end of our question session. I'd like to thank everyone for sticking around and participating in the call. For the analysts that asked the questions and investors and other folks that joined us, we look forward to talking with you guys next quarter.
spk08: Thanks, everyone.
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