Welcome everyone to Luminar's Third Quarter of 2023 Business Update Call. My name is Aileen Smith and I am Luminar's Head of Investor Relations. With me today are Austin Russell, Founder and Chief Executive Officer; and Tom Fennimore, Chief Financial Officer.

As a quick reminder, this call is being recorded and you can find the earnings release and shareholder letter that accompany this call at investors.luminartech.com. We ran into some hiccups with Business Wire and getting our press release out on time.

But hopefully, most of you folks were able to have a chance to review our inaugural letter to shareholders and our press release that were issued via an 8-K as well as uploaded to our IR website. As we've communicated, we are piloting a new format for our call this earnings.

The shareholder letter was meant to replace our historical earnings deck and prepared remarks, so that we can dedicate more time to addressing questions from our investor community, including retail investor questions posted SAFE platform, institutional investor questions emailed to our investors inbox and live questions from our analyst community.

We will be checking each of these platforms intermittently throughout the duration of our call to address any that come in real time. Before we begin the 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 shareholder letter for more information on the specific risk factors that could cause actual results to differ materially.

We plan to alternate questions asked on our SAFE platform or by e-mail with questions asked from our live research analyst community. With that said, let's jump right into Q&A and start with some of the tough questions from our safe platform..

Austin, the first question is for you. So recently, the successful run at rate test with Volvo was a major milestone accomplishment for Luminar.

What else is left to do with Celestica and Volvo before the green light is given to start production? And when do we expect series production orders?.

Yes, so it's been great collaborating with Volvo and leading up to this huge culmination and milestone that we have as it relates to run at rate. So this was sort of the key and fundamental milestone when it comes to testing the capacity and quality for product leading up to start a production.

So that's something that obviously we're proud to have passed and an incredible effort and thank you to the team and as well as Volvo's team in helping push that across the line with the Mexico factory with Celestica. So that's -- that's been great.

There's obviously still work to do from a finalization of industrialization standpoint in conjunction with Volvo leading up to the start of production next year and getting everything queued up for what they have launched. But that was really the big major push in terms of demonstrating the capacity.

So that really starts and shows that you can scale well into the tens of thousands and then setting the stage up for hundreds of thousands thereafter. And I think we said that, the Mexico facility would support up to 250,000 centers or corresponding vehicles per year. So it's been a great starting point with that.

And then, we'll have ultimately a similar test with TPK and Mercedes and everything down the line as that all plays out accordingly. So yes, we're excited for the future. And it's really all systems go with Volvo. It's going to be a huge game changer as they launch and scale this EX90 next year..

Great. Our second question from the retail shareholders.

Can you add some color to your relationships with Mobileye and NVIDIA? How does Luminar benefit from the relationship? What kind of future revenues do you expect from them as they launch various products with your LiDAR? In particular, Mobileye's Chauffeur program and Polestar?.

Yes, yes, absolutely.

So when it comes to NVIDIA and Mobileye, they're incredible technology partners that we have that we've been collaborating with, well, I guess each now for years, so that they really selected us as their respective partner when it comes to LiDAR systems and associated technologies and even some components of software as well that we've been collaborating with them with OEMs.

So that's something that we really see as a clear integrated partnership and springboard as well to be able to address the respective OEM opportunities that are out there. We know Mobileye's been an incredible leader when it comes to assisted driving systems and that's continuing to extend into further advanced capabilities.

And NVIDIA has really been establishing themselves in the industry as well. And like I said, just incredible success that we've seen. So to be a part of that and be selected to be their partners with respect to these next-generation automotive technologies as automakers really strive to be able to adopt this is very, very meaningful to us.

And like I said, we couldn't ask for better partnerships in the industry to be able to help successfully realize that. So we're all in. They're all in. And we're -- I think, really now starting to see the fruits of the labor of the collaboration that we've had for years.

So that's, I think, probably yet another inflection point that we're at where you can start seeing that transition from, development work that we've been doing with these guys, into the automotive industry and production vehicles.

And, you take a look at like the Mercedes program, for example, in the collaboration that we have with them on that, with NVIDIA, that's something that's obviously been public. And again, it goes to show what you can do when you combine the respective leading technology companies together to create an incredible solution..

All right.

Our next question is going to be for Tom and that is, is Luminar in danger of bankruptcy?.

Aileen, the short answer is no. I understand why some shareholders would ask that question, given the recent stock price performance.

But when you actually look at our most recent results for Q3, We cut our non-GAAP gross loss almost in half which puts us on trajectory to get it to positive by the end of the year as those launch-related costs continue to wind down as we successfully industrialize Iris.

We cut our free cash spend by nearly $20 million during the quarter which puts us on track to kind of get it into that $35 million to $40 million dollar range for Q4. We had over $320 million of cash and liquidity as a quarter end we're on track to have over $300 million of cash and liquidity at the end of the year.

So when you kind of look at where we our targets for ending the year we're going to have over 2 years of runway we believe that that's going to be enough to get us to profitability. We have the book to business in place that will drive strong revenue growth once we reach that high volume SOP next year.

So that gives us a credible way to start growing our revenues and profits to help our reduce our cash spend even more. And so, once again, I understand the source of the question but that's clearly not the case.

We have the most cash and liquidity of any publicly traded LiDAR company and God forbid, if we find ourselves in a scenario where we need more, I have plan A, B, C, D, E, F and many more ways ready to go, you know, always have contingency plans built to put those in place way before you need them.

And, you know, we're doing that if, you know, God forbid we end up need to do something on that end..

Great. All right, we are going to transition to some questions from our retail, or sorry, research analysts. Because we are trying to offer more time for Q&A, we would ask that our research analysts ask one question and we will allow for another 2, 3 follow-ups. Our first question is going to come from Joshua Buchalter at TD Cowen..

Hey guys, thanks for taking my question and thanks for letting me go after the bankruptcy question. It's a nice way to warm-up the room. I want to follow-up on the Mobileye commented earlier, it's been hard. We've observed that Luminar has been the lighter of choice on Mobileye's chauffeur platform while they work on their internally developed product.

There have been some recently announced design wins for chauffeur.

I mean, can you guess, is it safe to assume that Luminar has a very decent shot on goal? Can you maybe expand on that relationship and what chauffeur wins mean for your business?.

And you want me to take that or you want to take it? Yes, no, I mean, I think it's fair to say.

It's hard to comment, specifically further at this time as it relates to, the ongoing work and collaboration but I could say it's been as successful as we could have hoped for and again everything that we set out when we originally announced partnership with uh Mobileye that we wanted to ultimately achieve we've been pushing that full speed ahead and that's been absolutely fantastic since what in -- it was nearly I think it was like 3 years ago when, yes, I think probably to the month, 3 years ago when we were out there with it.

And at the same time, same with NVIDIA in terms of, what we can hope to achieve. So I think we wish all of the best possible success to these respective companies.

And I think it's in any scenario, a key component of it, we don't make the compute systems and modules, right? You know, so that's something that I think will be an important part of that collaboration.

Now, obviously, the internal effort, I think, was unique to Mobileye rather than NVIDIA, specifically but there obviously hasn't been any change as it relates to realizing and using us when it comes to that from a platform standpoint. So, building LiDAR's and creating new breakthrough technologies is really, really hard.

And as we know, it takes a lot of time, effort, a decade and a lot of capital along the way to be able to make that happen, assuming you have the right technology path and roadmap in the first place.

But that's why we spent all these years building it from the chip level up to have these level capabilities, performance, economies of scale and at the same time doing what's needed to be able to achieve these automaker requirements and getting out there. So that's been, that's been good.

And I think they are -- ultimately will also help drive the, the long-term aspects, of our order book and contracts as well, respectively with automakers there.

And, we said by the end of the decade, ultimately the target would be to get towards, $60 billion, contracts, for the order book which is in terms of the respective opportunity that we have ahead of ourselves by you know capturing what that was like 3% or 4% market penetration.

So that that's something that you know those companies are going to be very helpful to us to be able to help hopefully achieve beyond that..

And for my follow-up, in the shareholder letter, I think you mentioned you're on track to achieve a $1 billion of order book growth this year but some of the contracts might slip into next year. Maybe you could elaborate on how much has already been won.

I guess how much of that is new versus existing customers and what's driving, $1 billion was roughly, I believe, what you added last year which, what's driving, I guess, the bit of a slowdown in the amount of business that you're signing this year versus last year?.

As Josh, look we're -- as we said, in the letter, we're still on track $1 billion, we do formal tally at end of the year, we kind of don't it along the way but we already have a few wins in there, some from existing customers, some from new customers. We'll talk about stuff once our -- once our customers are ready to talk about them.

So we remain confident that we're going to get to that billion, we're sitting here on November 8th, so we have a lot of things already in the year -- there's a few things that we're hoping to wrap-up here in the few weeks left in the year. Whenever you get to that, there's always a risk that some things slip, into Q1.

But, there's also a little bit of a cushion in there. So we remain confident in it. Look, these things that, the longer term opportunity continues to remain and exist. I would say, almost every major automaker is now having serious conversations about implementing, LiDAR technology on their vehicles. It's a question of when, not if.

And the timing of them kind of making these formal awards can be a little lumpy. And so, I wouldn't read anything in particular to kind of, I would say, an overall, industry slowdown. But I would say, we still remain satisfied with the pace of our commercial activity and discussions, both with new and existing customers..

Okay. I'll hop back in the queue. Sorry, Austin, please..

Yes, I was just going to say one other thing, just as -- I'm sure, as you know, Josh but just as a general reminder, the way that we calculate our order is also generally substantially more concerns standard than some of what we've seen out there in the broader industry, it’s probably like that, would be multiple of this – significant multiple of this, if we did that.

But we want to do it right and we want to show really what what's actually there in the bag and what we can have that clear one-to-one conversion with in revenue over the -- relative near term here in terms of opportunity that we have that will obviously start soon -- starting to realize with these mobile watches here soon..

Next up in our queue from the analyst will be Winnie Dong at Deutsche Bank..

I was wondering if you can provide a current update on the TPK facility ramp in China, where that might stand? And then can you just remind us on the target volume and timeline?.

Sure. So, I was actually over in China last week spending some time with the TPK team as well as some other customers over there. I would say that things are proceeding very well so far with TPK. You know, we're starting, right now for Iris +.

We're making those B samples internally at our Orlando manufacturing facility in some time next year we'll actually transfer production of the C samples to them. And so, we're starting to ramp that up, buying the necessary equipment, putting in place the necessary clean rooms. And the TPK team is doing a very good job on that.

We've been pleased so far with the with the TPK relationship. And, I wouldn't be surprised if that's something that continues to expand over time. With regards to timeline they are planning as I said, start C sample production for us in the first part of next year.

And then the plan is to have that facility ready for start production by the end of 2025. The initial capacity that we're planning that out for is about 600,000 units or LiDARs. And, we also have the ability to grow that as we continue to win more business over there..

Thank you for the very detailed response. And then I was wondering, if you can elaborate a little bit more on the gross margin improvement headwind that was stated in the shareholder letter, obviously still targeting, gross margin positive in Q4.

But I was wondering if you can just elaborate a little bit on, the costs and efforts associated with Iris+ and how that might impact the improvement there?.

Yes, sure. And, as a reminder, we're kind of, launching 2 -- 2 major projects at one. One is Iris, where our lead customer is Volvo. That's what we're building out our new facility down in Mexico to produce. That's what we're, preparing for high volume SOP next year.

And I would say, we're kind of in the tail end of that initial industrialization of that product. And so as we kind of reach that SOP, there's going to be a fair amount of launch and other related costs that start to come out of the system. We're doing that.

For Iris+ we're in that B sample phase, right? So we're making those LiDARs at our advanced manufacturing facility down in Orlando. And what you're doing during the B phase is you're kind of, building those LIDARs and then you do a fair amount of testing on them.

And then you kind of have to modify the design as you do that testing and, identify issues. That's very typical during the B and C sample phase. The issues you encounter, it's difficult to predict until you actually get them in place. And so, they were a little higher than we were expecting.

I think the good news is, is that the team has done a good job of identifying, the necessary modifications we need to make to -- to fix them. And so I think we've kind of made those. But the cost for that was a little bit higher than we were forecasting. That flows through our COGS line.

And so while the Iris industrialization costs are starting to come down, the Iris+ industrialization costs continue to remain high. And we'll do so until we reach that the SOP for that a little bit behind the Irish for the initial Iris launch.

And so, as you're kind of industrializing a product, the issues you encounter and the cost to kind of fix those are a little bit unpredictable. And that's what we found on Iris+ once again, nothing significant there. The team has identified and made the necessary design changes.

We need to go through the necessary testing and validation to prove it out. But that's what kind of happened on the Iris+ side during Q3..

Basically, what you see is that, because you have sort of a cost variance, there of call it, it's very it's very hard to predict the exact like what it is to be exact like plus or minus 10%, when it comes to that.

But because the way that this happens, with the contracts that we have with automakers and like the revenue recognition pre-production percentage of completion as well as relative costs so that when things go up or down by, 5% here or there plus 5% there and adjust the timing of the revenue recognition. And then that's kind of as we go through it.

Obviously, we have the same kind of questions. It's like, well, why does this -- why does this input affect this or whatever it may be? But from a business management standpoint, we're on track to our milestones and what we've laid out, including, to the important part for startup production.

And that lines up with both -- with both Iris and ultimately Iris+ as well. That comes thereafter for the respective additional programs for SOP..

It's going to come from John Babcock from Bank of America..

I guess just my question, the performance that, you've seen this quarter and then what you're expecting through the rest of the year.

Is there anything we should take from that and how that impacts your longer term outlook? I know you guys reiterated it but just want to see if this poses any risk or if there are any other factors that we should keep in mind as we're thinking about that?.

The answer to that question is, John, we don't -- we don't see anything, while these are our bumps on the road and the revenue came in a little bit lighter than expected. And we talked about some of the gross margin headwinds as you kind of industrialize your product and kind of go from the B to C sample phase.

You freeze the design and actually reach serious production. And lot of these, launch related costs wind down. And so as you successfully industrialize, those kind of bumps on the road costs that were higher costs that we're seeing in COGS, those should dissipate.

We're seeing it on Iris where -- we're -- a year plus or minus ahead in terms of development line there. You know, Iris+ is just a little bit behind that. And, as you're going through that industrialization process, the cost can be a little bit unpredictable. On the revenue side, once again..

Yes, plus or minus like 5% or 10%, like we're not talking, I mean, because then basically that again feeds into the respective revenue line. That's, okay, plus or minus 5% or 10% or whatever it is.

So if anything that then gets offset respectively to like it's not like lost, it's just based on the economy that it gets offset to respectively the next year. So it doesn't actually affect, the long term outlook of what we got..

So, John, it doesn't change the size of the order bump. We're still on track for the SOP target dates that our customers want to be on. And so you just need to make it to there and then, start converting the order book into real annual revenue. And so these bumps on the roads that we're hitting there don't impact that.

And some of the revenue lightness we experienced in Q3 is related to, I would say, a couple of things, particularly with these issues. One, we had to move some of our LSI engineers off revenue for external projects. To help you know implement some of these design changes.

And so, that's revenue where, didn't come in during this quarter when those engineers free up and we're going to get that in the future.

And then, the way that we account for the revenue we receive for the development work it's based upon percentage completion and so we're still going to recognize the same amount of revenue, you just because of percentage completion methods, have to recognize less in this specific quarter.

As your cost goes up, your percentage of completion goes down..

Okay.

And then just one quick follow-up here as it you know pertains to the next-generation LiDAR, how much of that investment has already been made versus how much does still have to be done and then also how where have you made OEMs of this product of capabilities et cetera, has this flowed through into your order book at this point?.

Yes.

So I think we're really just starting to successfully get that off the ground of where we've -- we spent years’ worth of work on the back end from a technology development standpoint, creating the fundamentals of what's there, so I would say the -- I mean the majority of the time and investment for what's required to create the fundamentals of the technology for the next gen LiDAR is already done, the real question at this point is being able to progress throughout this coming year to get to a stage of where we can really set this up to be a LiDAR system that can fundamentally be on every vehicle produced and that's really the goal is that we talk about standardizing and democratizing safety and economy and I think we -- we recognize that as fantastic as the products are today, that it's meant for millions of sensor scale, not tens of millions of sensors in terms of respective scale that we can be able to get out there with and this is exactly what this is designed for so we can really capture the larger automotive industry and also not just the initial vehicle launches that some of these automakers have.

But also when you start going towards even very mainstream vehicle models as well this will be particularly helpful, so that's really what -- what we're seeing.

And then when it comes to that investment standpoint, I mean, you take a look at like most of the investment is actually goes into the infrastructure that's required for both development as well as the call of the manufacturing infrastructure and getting that setup right to be able to successfully produce this.

And that's really what we've been doing in partnership, of course, with Celestica and TPK respectively. So setting that groundwork is very, very helpful. The level of like efficiency, I'd say just from a development cost perspective is, dramatically higher for each iterative product thereafter.

And that's something that's also particularly helpful when we have the economies of scale and the supply chain to be able to support it.

If you didn't have that with like $1 billion of business and shipping being able to have a million unit supply chain along the way, then that's a very different scenario and outcome than if we did and that's what we're able to leverage successfully.

So with that said, there's more work to do obviously on this but we're very excited to have an opportunity to unveil details respectively next year about the next generation product..

And then John, while we haven't been talking a lot publicly about the details of our next generation product, we have been talking about it with some of our customers and with your question about order book. There was nothing for our next generation product in the order book.

At the end of last year, I'm pretty confident some of the positive growth you'll see in the order book this year will include, some portion of it from our next-generation product. And as Austin said, we'll talk about that in the future and hopefully near future here..

Our next question is going to come from Natalia Winkler at Jefferies..

So the one I just wanted to clarify, Tom, on those 2 contracts that you highlighted in the -- in the letter that have been pushed up, could you explain a little bit more how do these work and also may be part of that, like how should we think about that sequential growth that you guys are seeing in the revenues in the fourth quarter?.

Yes, so Natalia, there were 2 contracts in particular that were supposed to get done in Q3. One of them is actually done it got done in October instead of September. The other one is going to be get done here, I would say, in the coming days. And so once again, that's just revenue that will that will start to recognize in Q4 as opposed to Q3.

When you kind of look at where we ended up in Q3 from a revenue perspective and then you look at kind of what the implied Q4 revenue is, it's about 10 million of additional revenue. Of that $10 million of additional revenue, about 70% of that is, I would say, coming from contracts that we've already executed.

And so, we feel pretty good about that strong sequential growth from Q3 to Q4 and most of that revenue we've kind of already have locked and loaded in contracts that we've executed..

That would be like what I mean over 50% growth from Q3 to Q4..

Yes, I would say 10% over 17%, I think is somewhere around 60% but you know don't have my calculator with me..

That's very helpful And then the second question I had was kind of a little bit longer term strategic just wondering, if you guys can provide some more color on the China market, right? Like, what kind of competition are you seeing there? And how do you think, how do you consider those dynamics of Chinese OEMs maybe getting incrementally more successful in Southeast Asia and Europe? Does that basically kind of change your view, your opportunity your view on the opportunity going forward?.

Yes, look, we are -- the China market, I would say is moving very fast, both in terms of the automakers there adopting LiDAR technology, particularly some of these new EV companies, I would say as well as the pace at which Chinese companies move.

And so from a Luminar perspective, one of the things that's very important to us is to kind of be able to move at that China speed to make sure that we can continue to win in that market. We've so far been really the only Western LiDAR company that's had success in China. And we think that that success is going to continue.

But we need to make sure that, we operate in China in the right way, to make sure that we can appropriately serve the local Chinese customers, both in China but as they start to expand globally. That's why the second manufacturing plant we opened up is in China with TPK.

And I think you're going to continue to see us increase our business in China as well as our presence in China..

And if I may, we're just one follow-up on this.

How do you guy's think about ASPs longer term, for China market and outside of China market? And also, like, how should we think about the ASPs that you guys are considering for the order, for the order book, the $1 billion?.

Whatever's in the order book is already have, pricing agreed to with our customers. And so that's kind of already contractually put in place. Look, we're always going to get pressure from our -- from our customers and automakers, whether they're in China or globally, to lower our prices.

But the one thing that we continue to impress upon with our customers is you got look at the value that our LiDAR provides. And that's both in terms of the unique technology to enable this next generation ADAS system, as well as highway autonomy.

We'll continue to be able to bring our costs down with our next generation LiDAR but really the value we create in the ecosystem is where we like to focus the conversations on. We tend not to compete on business where it's who can provide the cheapest costs LiDAR.

We like to compete on business where who can provide the best value to the system that our customers are trying to build in..

And I think it's also very important to note that and again, this is where obviously the foundation of the business has been a lot but we've really been focused on how we continue to monetize the ecosystem around this through our software and AI developments that we've had and seen some success with through, for example, these mapping products that we've now been able to be out the way through all the different parts of the entire supply chain, even all the way down to the semiconductor level, the LiDAR and how we've been able to successfully sell those products even just outside of what we do with the core business.

So I think that's important as part of this, ultimately insurance will play a significant role and I think supporting very significant long-term ASPs associated with safety improvements or the safety improvements will ultimately be king, when it comes to the kinds of value proposition that you can be able to provide.

And this is where we are also -- and are successfully launching a new test protocol and system. This is actually Swiss Re is going through an independent third-party test.

They're exclusive insurance partner here to be able to quantify the benefits and safety improvements what the LiDAR can have to be able to basically correlate that into respective insurance savings and costs.

And I've said, multiple occasions before that the respective savings and value that's being provided from that alone, from a safety savings standpoint, it's expected to be significantly more than even just the entire cost of the LiDAR in and of itself. So I think this will be certainly on premium vehicles and even mainstream vehicles.

So accidents are expensive. Vehicle collisions are expensive. And even if you average over time and probability weighted, it's extremely expensive. So preventing that makes a huge difference.

And that's why I think it's very clear that over the long-term, from a value proposition ASP standpoint, it all comes down to the technology, the product in terms of what can be supported.

And that's why we're obviously proud to be the leading technology company in that respect and have the performance capabilities for why we're seeing all this leading adoption from the top automakers out there..

Thanks, Natalie [ph]. We're going to transition back to some questions from our investors. The next one is going to be for Austin. Going by 3-year design cycles, 2024 RFQs will be for the 2027 model year.

Will these RFQs be pitched with the next-gen LiDAR?.

Yes. So I would say that, when we're talking about the second half of the decade here, absolutely that will incorporate our next-generation LiDAR as well. We have Iris and we have Iris+ that are continuing to scale accordingly with automakers as well, so that's not stopping.

But when it comes to the next-generation systems and models, that will ultimately streamline into the respective roadmaps of the customers. For both existing customers and new customers, we're also making sure that the sensors are, so to say, backwards compatible.

As it relates to the respective automakers as well, to make sure that, ultimately, as they launch new models and whatnot, they can have an easy and straightforward transition with both the hardware and software, respectively, to the new sensor technologies that we have. So that's -- yes, will be great to be able to see that realized.

And I would just say as well, there's obviously, RFQ processes and whatever it may be that's there but I think what's -- RFQs are cheap, to be able to send out.

What's important is that the automakers that are investing billions of dollars with us to be able to develop these kinds of new holistic systems and deployments that can go out onto their production vehicles and sort of show what's possible, when it comes to the implementation of this technology.

And that's really what we're seeing and going to continue to emphasize on. So it should be a smooth transition, ultimately, as people scale. And that will unlock, as I was alluding to before, even wider spread adoption of these kinds of capabilities..

And a follow-up question for Tom from one that was asked earlier, what specific risks are present given Luminar's participation in the China market and the U.S.

crackdown on sensitive technology?.

Yes. So I already talked about how important China is to us as a market as well as some of the success we've had over there. And we acknowledge that the world is becoming a more dynamic and complicated place from a geopolitical tensions and relationships perspective.

And so as we continue to build and expand globally, we need to keep that in mind, as we grow. Having said all that, for our core LiDAR business, in our core automotive market, there are no limitations on us to operate anywhere in the world. And we don't see that changing anytime in the near future.

There are, I would say, obstacles, more on the software data collection mapping side, depending upon on the specific region and where we do face those limitations in a certain geography, we look to partner with the right people. But on our core LiDAR business and our core automotive market, our goal is to be a major automotive player.

And in order to achieve our goal of saving 100 million lives over the next 100 years, we need to be in every major region with our LiDAR technology..

I think the risk is actually more the other way around in terms of not -- it would be less so the U.S. not allowing technologies into China or China not allowing U.S. technologies into China. It would be the U.S. not allowing Chinese technologies into the Western market.

I think that's -- those are some of the dynamics that we're actually -- that I think those are the questions that are being posed that I'm sure everybody has seen. So that's the relevant factors, I think, at play right now..

Next one from retail shareholders. Before we switch back to the sell-side analysts, LiDAR technology is evolving to a place where competitors are making similar products for cheaper.

Based on your current assets, what's the long-term plan to deal with saturation in the LiDAR market? And are there plans to broaden R&D into other related technologies?.

Yes, so -- I mean and so you're saying is that what about the saturation for the LiDAR market?.

I think there's like a lot of LiDAR companies, a lot of them are raising to the bottom like, here's what I would say, when it comes to getting our LiDAR price -- getting our LiDAR to a price point where it accelerates mass market adoption, that's a core tenant of our next generation LiDAR and making sure that it is at a cost point where it can penetrate the mass market at a rate.

So in terms of keeping the same technology at that not better at a lower price point, we achieve that strategy with our next generation. We are confident that we are going to be a winner, if not the winner in the LiDAR landscape.

What we're investing in outside of our LiDAR business is not to create a hedge, in case we're not successful, it's actually to build those tools to monetize the value that we create. That's why we're getting into software. That's already getting into mapping. That's why we're getting into insurance.

And that's why we're selling the components that we make in our LSI business for a LiDAR into the non-automotive markets. And so we're confident that our next generation LiDAR is going to have the price point to accelerate the mass adoption.

And we're confident we're going to be a winner and we're confident that the tools that we're investing in are going to allow ourselves and our customers to monetize the value of the ecosystem that we create..

And I think the important part here is like, when we say saturation for everything, like the relevant factor here and again, we have to take a step back, although like the numbers in this auto -- like in automotive industry and there's the sheer scale is absolutely massive that's why as we talked about, it's like okay, just 3% to 4% market penetration can be game-changing in terms of like increasing the value and business value by like orders of magnitude.

Because like the point is that right now it's not like 75% of cars are shipped with this like new technology on it and it's a trillion dollar industry right now.

It's something that, well, less than like a -- only a fraction of 1% of cars and even like what the number -- the percentage of the market of cars the LiDAR is officially being actively integrated into in terms of the vehicle models right now is still, what, like a couple of percent. So -- and most of it probably captured by us.

So I think the thing is that when you take a look at the overall market opportunity, it's not a matter of over-saturation at this point.

There is an over-saturation of R&D efforts that in terms of people trying to create different systems and technologies to be able to get into the market of which obviously the substantial and vast majority of which all have not been successful in that which is maybe no surprise and consistent with the message that we've given for years that in terms of the challenges and difficulties associated with this, much less meeting the performance requirements and specifications and safety requirements and being able to scale a business accordingly to do this.

But when it comes down to it, I think, it's less about the slice the pie, at this point about how big can we make this pie and how much adoption can we get as an industry how quickly. And I think that's the most important metric. Now, when it comes down to it, the other relevant factor is you have to survive to see this through.

And that's where, because it's like obviously if you don't survive then there's no market penetration on anything. But this is where I think that consolidation factor obviously serves as an advantage to us in that respect in terms of the long-term outlook for what we can do. But we're building Luminar to last for decades.

And hopefully, well over that 100-year -- I mean, there's a reason why we have a 100-year goal well over to the goal is to have it be a long-term company that outlives ultimately all of us and towards realizing that life-saving objective and being on all of these vehicles for decades or centuries to come so.

I think that's really what we're doing and in the immediate term, the focus is to continue to meet those respective goals, business milestones, survive it through. And that's exactly what we've been set up for success and deliver on what we promised that we would do from the beginning..

Next question comes from Jaime Perez at R.F. Lafferty..

How's everything going? I know you've spoken a lot about Volvo and Mercedes. How about what are the other customers Polestar? I think a couple months it was announced that the Polestar is going to be equipped with LiDAR, Luminar LiDAR. But I mean Polestar has a pretty aggressive series of models coming out from the Polestar 5 -- 4, 5 and 6 coming out.

So could you tell me -- give a little bit of color on the relationship between you guys and Polestar and the outlook for that relationship?.

Yes. The Polestar is great and they're like a fantastic company. They've been producing some very real product and starting to really scale that up successfully.

And first with 10s of 1,000s deliveries now going into 100s of 1,000s of deliveries, very impressive as a company in terms of what they're able to do in that quote, a more new world EV company. Obviously, there's like the Lucid and the Rivians and everything out there. We got to sort of pick one up to be able to start out with.

Again in terms of just focusing on resources, I think Polestar was the best partner to be able to do that and gives us the biggest kind of revenue and order book opportunity associated with the business and contracts there.

So I think it should be public out there what we're following the announcement that we had with the Polestar 3 and the Polestar 5 in terms of what they're planning with us. And again, just incredible partner, incredible team on this I would suggest and everyone here should tune in for Polestar Day as well.

They actually -- they have it out, what's going on tomorrow. So it will be great..

Our next question is going to come from Mark Delaney from Goldman Sachs..

I'm hoping you can give some more color on the path to being gross margin positive next quarter.

Maybe Tom, you can help us better understand how much of the COGS in 3Q were launch related costs and where those launch costs may go to in the fourth quarter? And then what the other factors are sequentially to bridge to being at positive gross margin in 4Q?.

We had about a $9 million gross loss during Q3. Of that, about $17 million was launch-related cost. That was down from about $24 million in Q2. And so the path there is to really continue to bring those launch related costs down so that we reach a gross margin positive in Q4..

My second question was just trying to better understand is any work Luminar still needs to do in order to help Volvo get ready for the launch of the EX90? Or is everything you guys need to do now ready after having successfully done the run at rate test? And then maybe just more broadly, operationally, what does Luminar need to do in order to be flexible, depending on when that vehicle may launch, just in light of some of the delays Volvo encountered on their side but hopefully will be resolved soon..

Yes. So, I mean, we're working with them, obviously, hand-in-hand to be able to ensure a successful launch. I'm not, I'm sure, probably maybe more appropriate to ask them in terms of the details there. But we're supporting with everything that we had.

We also -- there's the hardware side, that we have for the run at rate that we successfully did with them. And then there's also the software side which I think we also said that we completed the successful integration of the software with the Zenseact system and middleware associated on the vehicle.

And then on top of that, we actually now successfully implemented everything that it takes to be able to actually, when you have the sensor, then on the vehicle, on the production line, in this case, it started out in Charleston, South Carolina, the end of the full end of line calibration and all the intrinsic and extrinsic metrics and auto calibration associated with that specific factory in line that will -- then scale from there on out.

So we're in a great position to be able to support, as they successfully launched, obviously Iris as a product is independent of just Volvo alone. Like Volvo is the first kind of global large-scale launch that we have with this, that we think is that very clear inflection point.

And this run-at-rate was really that fundamental milestone of what's needed to support. So, we're excited for this.

Obviously, we've already -- we have, dozens of customers that use Iris but this is where it starts to get into big leagues when you can have a hundred of -- a hundred, thousands of Luminar-equipped cars driving around and then ultimately, scaling to millions and beyond, with Mercedes and everything they're out..

All right. We'll transition back to a few from our investors.

The next one is, how does Luminar think about accountability in terms of recent business performance and financial losses? Are there any review processes for unsatisfactory performance?.

I assume these are all the say questions for the retail platform..

Yes..

Great. Yes. So, I would say from an accountability standpoint, we have a high performance culture and, management within that culture. I think that's something that, we've structured Luminar very much as a meritocracy on this.

And I think it's a sink or swim type of approach as people come in and certainly can attest to it in terms of what needs to be done or what you can do to be able to make that happen.

But when it comes to the overall goal, like when talking about accountability and the overall goals and everything, I mean, I think we've -- in terms of the business goals for what we set out in terms of the key corporate company level milestones that we've had for 2020, 2021, 2022 and 2023, I mean, we've effectively achieved all of those respective milestones that we've laid out, plus or minus.

We actually beat many of them along the way in terms of, what we laid out from the beginning and overall, have set up as a business to put us on a great trajectory there. So like, obviously, overall from a performance standpoint, that's been fantastic.

We all know the frustrations with respect to the capital markets on that and reflecting that execution and success. But when it comes to the actual core business performance there, we have the relevant KPIs, that for each respective leader and OKRs that we have and that cascades down throughout the entire company that rolls up.

And like I said, we largely met those along the way. So I think nevertheless, again, I have a saying internally, it's going to never stop at good enough. And that's something where we always keep pushing the bar and keep pushing the boundary of what's possible and what's achievable in this company.

And we'll continue to do so with everything that we got into the first quarter..

All right. And our next question from one of our investors. There's been some rumors and some talk about some management turnover within the company, including Taner Ozcelik and Jason Eichenholz.

Can you provide some color or comment?.

Yes. The Jason Eichenholz, that's fake news. Jason, he's been a key part of Luminar as our Co-Founder since the beginning. He has been-- is and in my mind always will be a critical part of our team. Jason, I don't know where that rumor came from. He's at Luminar. He's chairing the crowd..

I think it's probably because people like this, they wear different hats in the business along the way in terms of the business cycle and journey and all this. So we recently appointed him as the Chairman of the Luminar. So he's basically overseeing that side of it.

When it comes to the operational aspects of the business, you guys may be aware, we recently hired Kevin Hinge, who's been taking charge of the respective operations and scaling of some of the core aspects of the business. And he's been already off to the races off of that too for an incredible start. So that's been fantastic.

We actually have as well, I think at the same time that we announced him, we also announced Emily who's here, who's came from leading our marketing and was doing so and leading the respective marketing at SpaceX before. But as it relates to Tanner, yes, he's no longer with the company.

So that's where we're thankful to have Kevin to be able to come on and take the reins in some of those responsibilities..

Our next question we are going to take from Kevin Cassidy at Rosenblatt..

Okay, thanks.

Maybe if you could remind us or maybe tell us what the strategy is for expanding your footprint in other models that your current customers say at Volvo and Mercedes and Nissan, how do you get into more models and what would be the timeline for that?.

Kevin, we've already started to do it at Volvo. We did it at Mercedes. We've done it at Polestar. We initially had the 3 and then we went to the 5 earlier this year. And so as you get in with that initial win with the customer and continue to execute, it kind of happens naturally.

Now, look, they're always going to make sure that you're being honest and competitive on pricing. And so they'll run RFQs to kind of test the market and keep you honest.

But as you execute, as you deliver, as you build the relationship, as they kind of design their software and autonomous systems around you, you execute, you have a real good shot at the next business. That business comes as they renew certain vehicle lines or renew the platforms.

And so the timing of that is more driven by kind of their product launch cycle. But I think you're going to see us, we've done it already and I think you're going to continue to see us expand our business with our existing customers.

And I think the timeline on that's going to vary depending upon the customer and what their internal timelines are for each of their different products..

Like the perfect example of that is like Mercedes, right? Where we start off with 1 vehicle line and 1 vehicle model, like an S-Class. Okay, this is a high-end thing. It's real volume but it's only so much.

And you see an expansion by like 20x in terms of the respective volume and across the vehicle models and lineup and everything as they continue to see our successful technology execution and the details around that to be able to make that decision 6 months ago to be able to really expand it across there.

And once you're in, you're in to be able to make that happen. Now, obviously, these vehicles do ultimately have some kind of respective lifetime, as Tom pointed out but these are like 5 to 10-year cycles on the platforms there.

So that's really why also we have such confidence around the respective order book and contracts that we can scale the company with..

Okay, great. Yes, that was my next question was around the competition. And even if they change their domain controller, you're in with all the different domain controllers, so it wouldn't matter much to you..

Yes. Look, we try to plant as many seeds in the market as we can, whether it's directly with the automakers or some of the large tech system companies, whether that's NVIDIA, Mobileye, what have you. And we think that that's going to maximize the ad vats and ultimately the wins we get in the industry..

I think with that, we are through most of our research analyst questions. Before we get to our final question from the investor community, we do want to make a note that we received many great questions through all of our platforms this quarter.

So considering we could not get to all of them within the 60 minutes that we had, we will look to provide answers and commentary through other mediums in the future. But with that, our most popular question coming through the same platform, that was pretty repetitive. The stock has been moving in one direction for much of the last 2 years.

While it's not unusual for a startup, there still seems to be little information on what Luminar is doing, development, partnerships or other news.

What is management's strategy to raise confidence in the future?.

No, I think it's a great question around all of this and the broader capital markets. This, of course, what's in our control and what we've really been focused on is execution to the key milestones and what we laid out from those past couple of years. We've largely executed to. We are going to continue to be able to execute along the way with this.

When it comes to sharing updates, news, everything, we're always welcome to feedback in terms of like frequency level and what we can do in terms of further insight into the business.

These are also -- as we kind of think about some of these things, this is like one of the drivers, for example, why, Swiss Re started to help commission this independent study of the efficacy of the technology in terms of, how you quantify the respective safety benefits associated with this versus, say the like, just how much substantially better is it than the existing assisted driving systems? How much better is it? How do you sort of force the hands of automakers as well to be able to ensure that their cars aren't unnecessarily taking lives out there? So I think this is where it's really important to be able to, obviously, continue to share different aspects of it.

Well, again, we're always open to feedback. When it comes to the overall business and the key thing to be able to have confidence in is that, we have this long firm view and outlook that I think is as strong as ever.

In terms of this, nothing, for example, even just -- and I think Tom noted this in the shareholder letter, there's obviously been an insane amount of volatility. I think it was like a 50% difference in the like the market trading of where it was this quarter versus literally what it was 3 months ago.

Like nothing has fundamentally changed in our business but like, there's like arbitrarily different value implied valuations there that are irrational and gotten to a point of where there's just a complete market dislocation in implied value relative to fundamental value of what we've had, what we've delivered.

I think the point is that at some point, as you continue to execute on this and really prove this out, there's a reversion to rationality and reversion to the mean on that in terms of what we can do.

And obviously, like I said, it's impossible to predict every hedge fund short, so and market dynamic and order flow and everything that goes along the way.

But what is absolutely relevant and what we have the very clear commitment and promise to be able to is to be able to execute, to be able to meet these longer-term targets, as well as our nearer term targets too, for that matter, to support that. And that's what we're really all in to be able to make successfully happen.

So, I think, there's really no 2 questions about this, that we can build this, into hopefully one of the most valuable businesses or technology companies of our generation in the industry as we do this and do this right. And I don't think that's a doubt in anyone's mind.

Obviously, the key consideration here is having greater credibility around these different aspects and key metrics. For example, I think one thing that we'll take a look at is that how we can get greater confidence in terms of people's view and ability around, like, say, for example, the order book metric.

I think, as it stands right now, take, for example, from a capital markets perspective, we're probably getting little to no credit, respectively for an order book if we're valued at even just a fraction of that order book alone, at this point in terms of implied value. So which is kind of a joke.

So then the question is, is that how can you instill for the common, okay, we don't use that one-to-one conversion in terms of what happens in the order book to what ultimately makes its way into the company's revenue? What does that path look like as you continue to execute? How do you continue to scale all these different aspects of the business? And not just the LiDAR but beyond the LiDAR itself.

And try and leave little nuggets along the way, like, for example, this great partnership that we have, with Kodiak, that we have that, I don't know if anybody asked a question on that but that's something that's in the shareholder letter that we have in there, delivering -- we'll be now delivering our product to great customers like the Walmarts and Kroger's and everything in the world for the next generation vehicles.

So, I mean, we're doing stuff, the intermediate steps along the way but when it comes to the long-term outlook, that's where we're going to continue to emphasize and really just be all in to help support. We're doing everything to be able to make this as big of a success as we all know it can be and will be..

All right. With that, I think we are at the top of the hour. We would like to thank everyone for their participation on the call and the great questions submitted. We look forward to seeing everyone at our next quarterly business update. And we thank you for your continued interest in Luminar..