• Luminar’s Q3 2024 results were mixed, with an 8.6% revenue decline. This drop is attributed to a re-negotiated non-automotive contract, not affecting future growth reliant on LiDAR system adoption.
• Sensor sales increased quarter over quarter, boosted by Volvo’s EX 90 production, a key catalyst for Luminar’s sustained revenue growth.
• Despite current challenges, Luminar’s long-term prospects remain promising, with Volvo ramping up EX 90 deliveries in late 2024 and early 2025.
• I believe that Luminar’s and Volvo’s partnership has the potential to continue expanding until all or most of Volvo’s models come equipped with LiDAR.

I have written about Luminar (NASDAQ:LAZR) in the past few weeks, and it hasn’t exactly worked out. The company’s stock has taken a beating since my last few articles, going so far as doing a reverse stock split. But despite the

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in LAZR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Luminar Technologies’ stock has fallen nearly 98% from its 2020 peak due to missed revenue targets, large losses, and significant cash burn.
• Q3 revenues were $15.5 million, missing estimates by over $3.5 million, and this marked the fifth consecutive quarter of revenue shortfalls.
• Despite cost-cutting efforts, LAZR’s cash burn remains high, with ongoing dilution coming from stock-based compensation and equity sales.

Over the last couple of years, one of the worst-performing stocks in the market has been automotive technology company Luminar Technologies, Inc. (NASDAQ:LAZR). The LIDAR firm has seen its shares drop nearly 98% from its late 2020 peak as it has constantly missed revenue growth targets while also reporting large losses and cash burn. Luminar recently reported its Q3 results, and the numbers continue to show significant troubles.

Previous coverage of the name

It was back in August that I most recently covered the name, at which point investors had received another revenue disappointment. Despite dramatically reduced analyst estimates, management couldn’t give an optimistic revenue forecast, and the balance sheet was continuing to weaken. While a capital infusion and debt swap was going to help, it was rather costly, and the company’s share count has been soaring over time.

Luminar shares have risen two cents since my prior article, and that’s after setting a new multi-year low in recent months. The small gain here has lagged the S&P 500’s more than 13% gain by a significant margin, as US markets have recently rallied to new highs. Since I went to a sell rating on the name, the stock price has been cut nearly in half, while the S&P 500 has recorded a gain of more than 17%.

Looking at Q3 results

For the quarter, revenues came in at $15.5 million, down almost 9% over the prior year period, and badly missing street estimates by more than $3.5 million. This was the fifth straight quarter where the top line has missed expectations, despite the street constantly cutting its estimates. Four of those misses have been at least $2.6 million each, which is rather large on a percentage basis when you consider the reported numbers here.

Management has called for Q4 revenues to grow “moderately” over Q3 levels, but the street was looking for over $23 million going into the latest report. While dramatic growth is expected to come in 2025, prior revenue goals have been abandoned. As the table below shows, street revenue estimates have recently hit new low points, with another $414 million plus in cuts for this cumulative three-year period just over the past five months alone.

Financial struggles ongoing

Management’s cost-cutting plans are ongoing, but this is still a company that’s deep in the red. The company lost around $105 million in Q3 when excluding impairments and restructuring costs. That’s a more than $15 million sequential improvement, but it’s still several times the amount of revenue that is coming in here. Losses should improve throughout 2025, but Luminar really needs to get its top line going to make the income statement look much better.

Perhaps the biggest issue currently remains cash burn. The company burned over $58 million in Q3, and while that was better than Q2, the share count is surging due to stock-based compensation, an ongoing equity sales program, and paying vendors with stock. Management expects to sell more stock in Q4, and finish the year with $230 million to $240 million of cash. That’s down from its previous $240 million end of year forecast.

Total liquidity at the end of September was over $430 million, but that figure included both a $50 million line of credit as well as $182 million remaining on the equity sales program. With a market cap of just $570 million as of Tuesday’s close, the share count could soar a lot more if that sales plan is fully tapped. Management also stated on the conference call that a reverse split could be coming soon, as the stock trading under $1 for an extended period of time could risk its exchange listing.

The current valuation picture

As of Tuesday’s close, shares were trading at about 4.7 times their expected 2025 revenue, although the actual valuation is a bit higher when you include more potential dilution coming. A comparable name like advanced driver assistance system company, Mobileye Global Inc. (MBLY), goes for a little less than 6.8 times its projected 2025 revenues. Mobileye doesn’t offer the same projected amount of revenue growth (on a percentage basis), but it does have a very strong balance sheet and decent free cash flow.

Going into Tuesday, the average analyst price target on Luminar was $2.04, implying tremendous upside from current levels, but that number has been more than halved since my previous article. The street is banking on the company actually converting its large order book into sales, which could eventually make this company worth a few billion dollars if all goes right. The average target though was just under $30 about three years ago, showing how continued problems with execution have resulted in the bear camp taking over.

Final thoughts and recommendation

Luminar’s revenue struggles continued in Q3, with the company missing street estimates for the fifth straight quarter. While management can continue to talk about better days ahead, revenue estimates continue to be slashed. Cost-cutting efforts are starting to bear some fruit, but are nowhere near where they need to be, and cash burn remains a major problem.

Until this company gets its act together, I am going to continue to rate the stock as a sell. Dilution is piling up by the quarter, and many of the names I’ve covered on this site don’t do well when they have to reverse split their shares. Perhaps if the growth story plays out in 2025 I can look at my rating again, but there are just too many negatives here at the moment for my liking.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

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• Luminar Technologies, Inc. is making progress with new deals, but financials remain weak, requiring patience for long-term gains.
• Volvo’s EX90 production ramp and a second model with Iris LiDAR promise future revenue growth, despite current low sales.
• Luminar’s insurance program could offer significant savings, potentially making LiDAR cost-effective for consumers.
• Despite frustrating financials, Luminar’s strategic cost savings and production ramp-up suggest better financials by 2026.

The autonomous driving sector continues to heat up, but Luminar Technologies, Inc. (NASDAQ:LAZR) continues to take steps backwards. The LiDAR sensor company has a ton of potential, but the stock appears stuck until the promises start showing up in the financials. My investment thesis remains ultra-Bullish on the stock over the long term, but patience could be required.

New Deals

The big focus of the business are the automotive deals. Luminar announced two new deals today with Volvo (OTCPK:VOLAF) and likely Nissan Motor Co. (OTCPK:NSANY) in Japan, but neither offers immediate sales.

Volvo is just now finally ramping up EX90 production with the Iris LiDAR included. Luminar shipped 3x the LiDAR sensors in Q3 ’24 as the last 3 quarters combined, and management suggested the EX90 has topped a four-figure number of vehicles produced and reaching to five figures.

For a business hoping to be approaching millions of LiDAR units being sold annually, Luminar is discussing a vehicle that should reach 10,000 units soon. The goal is to deliver 10x to 100x more LiDAR sensors in the years ahead.

More importantly, Volvo is moving forward with a second model, including the Iris LiDAR as standard equipment. On the Q3 ’24 earnings call, CEO Austin Russell made this statement regarding the 2nd vehicle model from Volvo (emphasis added):

It’s going to be smaller than the EX90 and we’re hoping that it is going to launch here over the next several quarters.

Understandably, Luminar didn’t provide many details. The key here is that the model will cost significantly less than the $80K+ premium SUV already in production, and the vehicle is set to launch in a couple of quarters.

Absent any setback, Luminar would likely see LiDAR sensor shipment volumes grow exponentially in 2025. The company has already promised quarterly revenues would reach ~$35 million once the EX90 ramps up, and additional models should only grow revenues.

Luminar continues to work an interesting angle on car insurance. The large increase in insurance rates since COVID-19 could lead to an interesting benefit from LiDAR to pay for itself.

On the Q3 ’24 earnings call, CFO Tom Fennimore had this to say about the initial savings via the insurance program:

…on the insurance side, We’re planning to register in the Top 10 states in the US, which comprise about half the vehicle sales in the US. We’re targeting, I would say, annual insurance savings for the EX90 and other vehicles with our ladder of about 20%. Given the safety improvements, we believe that that’s a meaningful discount to give to the consumer to hopefully attract adoption, while at the same time, making sure that we still get decent profitability on the insurance side.

The CFO suggests annual savings of a couple of hundred dollars on insurance premiums, but a 20% savings on a new premium EV could be a lot more than $200 a year. Either way, annual savings of $200 on an EV would hit $1,000 in 5 years of operation and pay for the LiDAR itself, not to mention the additional safety on the vehicle.

Frustrating Numbers

Luminar continued a path of announcing promising deals and contracts while reporting dismal quarterly numbers. The company only reported Q3 ’24 revenue of $15.5 million, far below the consensus estimates at $19.0 million.

As with the prior quarter, Luminar had a viable excuse for the miss related to a non-series production deal re-negotiation. In reality, the LiDAR sensor company would be better off breaking out the different metrics, so investors can focus solely on the revenues related to sensor sales.

The company guided to Q4 revenues of only $16.5 million, a meager revenue target. The Volvo EX90 deal is going from thousands to tens of thousands of units, but Luminar isn’t showing any financial benefits.

The company last provided an estimate for quarterly revenues reaching $30+ million in 2025. The Volvo ramp with a second model should lead to an even higher quarterly sales estimate, and the LiDAR integration into the second model should go far smoother the second time around.

Meanwhile, management made the wise move to target up to $145 million in annual run rate cost savings once fully implemented by the end of next year. Luminar has already seen a $20 million reduction in the free cash flow loss on a quarterly basis.

The company is still burning over $50 million of cash a quarter, but Luminar has the liquidity options to survive until late 2026. With Volvo having 2 models in production next year plus the Polestar Automotive Holding UK PLC (PSNY) vehicle and up to 20 additional models under contracts, Luminar will probably have far better financials by 2026 to secure more capital if needed.

Either way, Luminar is now full speed ahead with series production and the stock still trades near the all-time lows. The actual reported financials are frustrating, but the company continues making progress towards the ultimate goal of selling millions of LiDAR units on an annual basis.

Takeaway

The key investor takeaway is that Luminar Technologies, Inc. still has a very long and difficult path towards a profitable business. The company has already solved the difficult part of proving the LiDAR sensors work and ramping up manufacturing units in volumes, now Luminar just has to manage the business to ensure the company can thrive when demand ultimately soars.

Investors should use the recent rally as a signal Luminar has possibly turned the corner. If the stock doesn’t hold the recent support around $0.75, an investor should probably cash out due to the signal that Luminar isn’t making the expected progress and capital risks are arising.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in LAZR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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• Luminar Technologies, Inc.’s Q3 results were mixed, with product revenue growth but a significant decline in services revenue, leading to a hold rating.
• Luminar has strong partnerships with top auto manufacturers, but demand for its LiDAR technology is still in its infancy.
• Financially, LAZR has substantial cash reserves but also significant debt, and share dilution remains a concern for future capital needs.
• I remain cautious and will monitor the company’s progress in cost-cutting and demand growth before considering a buy rating.

Introduction

Luminar Technologies, Inc. (NASDAQ:LAZR) recently reported Q3 results, which came in mixed, in my opinion, with slight improvements from a year ago. I wanted to take a look at the numbers in more detail and give some comments on where I stand in terms of the company’s prospects. If the company manages to survive and be the leader in this technology by partnering with more auto OEMs, I can see the company turning itself around and making decent profits eventually. However, I don’t think we are going to see this happening very soon. I am initiating a hold rating.

Q3 Results

The company’s sales came in at $15.49m, -8.7% y/y, and missed analysts’ estimates by $3.57m. Non-GAAP loss per share came in at -$0.16, which was in line with analysts’ estimates.

Looking a little deeper into the numbers, revenues from products came in at $12.6m, up 18% from the same period last year, while the Services segment is the one dragging down the company’s performance with $2.8m vs. $6.2m last year, a 55% decline.

Looking at the company’s efficiency and profitability, gross loss came in at -90% vs -107% last year, so costs have come down slightly from a year ago, however, sequentially, it is slightly worse as gross loss came in at around -83% in Q2. The company’s net income came in at $0.06 due to a gain on extinguishment of debt of $147.3m.

Regarding the company’s financial position, LAZR currently has around $200m in cash, equivalents, and marketable securities against $539m in convertible and senior notes, which has been coming down slowly over time. Interest expense on that debt was around 9m for the quarter, however, is it worrisome? On paper, it looks like it cannot pay its debt obligations, but the company has plenty of cash to keep chugging along until, eventually, costs come down significantly, and if it continues to pay down the debt, it’s a bonus. Net loss has narrowed significantly since last year, so it means the company is progressing in the right direction.

Overall, the results weren’t bad or very good. The headline sales number isn’t as bad as it looks because product revenues have grown, but not as much as I would have liked. For services, there isn’t much room for further declines after this significant drop, so my only worry is the product service reverse course. Although the company’s debt pile isn’t particularly worrisome currently, if operations do not improve considerably, it is difficult to tell what is going to happen, especially if the company runs out of cash. On the announcement, the company’s share price skyrocketed by around 13%; however, people got time to digest the results, and now the company’s share price is up around 4% after-market. The company already had a good day before the market closed as its share price went up 16% for the day.

Comments on the Outlook

If everything goes well, and the company manages to turn a decent profit finally, I could see the company’s value increasing substantially. LAZR already has top auto manufacturers that use the company’s LiDAR technology, like Polestar Automotive Holding UK PLC (PSNY), Mercedes-Benz Group AG (OTCPK:MBGAF), Nissan Motor Co., Ltd. (OTCPK:NSANY), and AB Volvo (publ) (OTCPK:VOLAF), which means the opportunity for performance is there. It is all about the demand for such technology, which we can see is in its infancy.

So, it looks to me like the company has a demand issue. With time, this should change as more and more cars are being built with new technologies in mind, like LiDAR, to help us drive safer all around.

The demand for this technology is indeed increasing, as in the latest earnings call, the company announced that Volvo’s EX90 fully electric SUV features LAZR’s LiDAR technology and expects to meet all key deliverables for the global EX90 production ramp. Furthermore, a major Japanese automaker expanded its advanced development contract with the company. It is just a matter of time before the company sees some boost to its top-line growth.

Speaking of the top line, the company expects Q4 revenues to grow moderately compared to Q3 ’24, so there is nothing too exciting there yet. However, the demand for technology improvements in the future will most likely help the company stay afloat and even thrive if what it offers is indeed quality.

Looking at the next quarter’s efficiency and profitability, the company expects to see gross loss improve significantly, meaning we will see a continual decline in losses, which is good news for the long-term holders. The company’s cost-cutting actions are bearing fruit already, and we could see the company become GAAP profitable in a matter of a few quarters.

Additionally, the company will benefit from a range of different vehicles that are being sold worldwide. It is not locked into only the EV market, for example, which has seen some weakness recently. To offset this sluggish demand for EVs, hybrid vehicles, as well as ICEs, continue to perform rather well.

The company does face some stiff competition in this space, however. Velodyne Lidar is one of the pioneers in LiDAR technology, which offers a wide range of sensors for various applications, not limited to automotive, merged with Ouster, Inc. (OUST) and Innoviz Technologies Ltd. (INVZ), which also develops high-performance LiDAR sensors. Ouster, for example, already got its costs down enough to have a positive gross margin, and it also has a decent amount of cash on hand and about the same amount of debt. It is difficult to tell if all of these companies will be able to survive over the long run. Or if one will be far superior to the other, which will naturally win because no one will want to put an inferior product into their vehicle.

Share dilution is serious for a company like LAZR. To keep itself afloat with so little revenue, the company needs to come up with ways to get more capital. One way it has been down is to offer more shares to the public. It also seems to be accelerating in recent quarters, which is not ideal, however, if costs come down substantially, I could see this slowing down, too.

Investor Takeaway

The company’s share price is quite attractive right now if the widespread adoption of LiDAR technology takes place and the company begins to see an acceleration in revenues. I am not going to assign it a buy rating for now because I would like to see what kind of cost savings we are going to see in the next quarter. I would like to see the company’s demand for the sensor pick up significantly to the point where the costs are dwarfed by the sales.

As the world continues to advance car safety, we will see partial automation, or Level 2, and conditional automation, level 3, becoming a lot more popular. If Luminar Technologies, Inc.’s LiDAR product manages to compete and gain more partnerships with major auto OEMs, the future is bright for LAZR. However, I don’t think it is going to happen any time soon, which means I am going to remain on the sidelines for now. I will continue to monitor the progress and tune into the following quarters to see how well the company is doing in its restructuring plan.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Luminar’s solid-state LiDAR technology offers high-resolution, long-range capabilities, but faces significant competition from other LiDAR vendors and alternative sensors like cameras and imaging radar.
• The company expects revenue to ramp over the next few years as LiDARs are deployed into consumer vehicles.
• While Luminar should see significant growth, the company’s losses are large, and it has a relatively weak balance sheet.
• My primary concern is the long-term importance of LiDAR as the capabilities of alternative technologies continues to improve.

Luminar (NASDAQ:LAZR) is a LiDAR vendor that has developed solid-state LiDAR technology, enabling long-range and high-resolution systems for the automotive industry. While Luminar’s losses are large and its balance sheet is weak, the company expects production to ramp in the near future.

Economies of scale should help to drive down costs, facilitating broader adoption of LiDAR both as a safety feature and as an enabler of self-driving vehicles. While the opportunity could be large, competition is likely to be fierce, both from LiDAR peers and alternative sensors (cameras and imaging radar).

An argument could be made that Luminar’s stock will perform well over the next few years as its revenue begins to ramp, but I question the ability of LiDAR vendors to capture value longer term. It seems likely that LiDAR technology will become commoditized in coming years, with the value of self-driving technology more likely to accrue at the software layer. In addition, the importance of LiDAR is likely to decline over time as imaging radar and perception from cameras improve.

Market

Lidar systems are used in the automotive industry to detect objects, both for collision avoidance and to help guide self-driving vehicles. While there is potentially a large opportunity in autonomous vehicles longer term, the near-term opportunity is being driven by driver assist and safety systems.

There are roughly 1.2 million annual fatalities from vehicle collisions globally, and the annual cost of motor vehicle crashes in the US is $1.4 trillion. Swiss Re analysis suggests that vehicles equipped with Luminar systems will be involved in 27% less accidents, with accident severity reduced by up to 40%. Vehicles equipped with current camera/radar systems experienced collisions in 70% of pedestrian Autonomous Emergency Braking scenarios. These tests assess the ability of an AEB system to detect and avoid pedestrians in a range of scenarios. While data demonstrates AEB systems are effective, reducing pedestrian crashes by 27%, they tend to perform better during the day than at night. Lidar should be able to improve the performance of AEB systems, particularly at night.

There is also a regulatory push at the moment that will likely lead to greater adoption of LiDAR, starting in 2029. For example, a new Federal Motor Vehicle Safety Standard requires automatic emergency braking systems on light vehicles. AEB systems can use a range of sensor technologies to detect when a crash is imminent and automatically apply the vehicle’s brakes. While the use of LiDAR hasn’t been stipulated, companies are pushing for nighttime testing to increase the likelihood of LiDAR being adopted.

Lidar provides an accurate distance measurement using the time-of-flight of laser pulses. It is this direct measurement that enables LiDAR to accurately and rapidly provide a point-cloud of distance measurements. In comparison, camera-based technologies must try and infer distance by extrapolating from 2D images. Lidar’s performance is also independent of external light, enabling superior performance at night and in inclement weather conditions compared to camera-based systems. As a result of these advantages, there is a consensus that most, if not all, Level 3 vehicles will be equipped with LiDAR.

Radar provides an alternative distance measurement, and a direct measurement of velocity using the Doppler effect. Lidar generally uses lasers with wavelengths in the 900-1550 nanometer range, which is approximately 2,000 times shorter than radar wavelengths (>3mm). This provides greater resolution, although it can make LiDAR susceptible to interference. Radar is usable in nearly all weather and environmental conditions (except for heavy snow) and works at all times of the day. Traditional radars provide poor resolution, though, particularly vertically.

Luminar estimates that the ADAS and autonomous driving technology TAM will grow from less than $5 billion currently to $150 billion or more in 2030. More than 100 million new passenger vehicles are expected to be manufactured annually through 2030 and beyond, and Luminar anticipates roughly a 4% vehicle penetration rate across the industry.

There are also potential opportunities in adjacent markets, although it is unclear if Luminar will pursue these. Adjacent markets include delivery bots, mapping, smart cities, aerospace and defense. Some of these markets are highly competitive, though, with entrenched incumbents and low-cost production from China.

While there is a large opportunity, and Luminar has a solid solution, there are competitors developing advanced LiDARs. This includes companies like Argo, Aurora Innovation (AUR), Ouster (OUST), Innoviz (INVZ) and Aeva Technologies (AEVA). There are also Chinese competitors, like Livox, RoboSense and Hesai (HSAI).

Lidar vendors compete across a range of capabilities, including:

• Range > 200m
• Resolution > 200 pt / sq deg
• Frame Rate – 1-30 Hz speed correlated
• Field of View > 100 degrees
• Limited Interference
• Doppler – velocity measurement

Luminar believes that its systems offer a favorable combination of performance (high-resolution / long-range) and low-cost. ADAS Lidar must be low cost, with most LiDAR companies target a price below $250 per unit.

Luminar’s LiDARs utilize 1,550 nm light, compared to 905 nm for most LiDARs. This provides long range and less weather interference. Velodyne, Aeva and Innoviz are all beginning to leverage 1,550nm lasers though. Luminar also uses low-mass, encoded mirror scanning (scanning of an isolated field of view, low noise and rejection of uncontrolled light).

Outside of LiDAR, Luminar will also face competition from more advanced camera perception systems and imaging radar. Imaging LiDAR provides higher resolution, dynamic range, and accuracy than conventional analog radar, helping to close some of the performance gaps with LiDAR. Mobileye (MBLY) recently suggested that improvements in areas like computer vision perception and imaging LiDAR were behind its decision to stop developing a FMCW LiDAR. Cruise and Waymo have both developed their own imaging radar solutions.

Tesla (TSLA) is probably the most prominent example of a company abandoning LiDAR and pursuing a camera only perception system. Mobileye is also working on a camera only system, although doesn’t appear to have plans to eliminate LiDAR in the short-term.

Luminar

Luminar is a LiDAR technology company that was founded in 2012 to capitalize on the opportunity that self-driving vehicles are creating. Its LiDAR has been designed from the chip-level up and features a number of technological breakthroughs. As a result, Luminar’s LiDAR provides long range, high point density, and dynamic scanning capability that is well suited to higher speed driving. The company has also developed perception and decision-making software.

Luminar offers:

• A LiDAR hardware-only solution
• An integrated LiDAR hardware and software solution for proactive safety systems
• An integrated hardware and software solution for highway autonomy systems

Luminar’s system operates at 1,550nm, compared to the 905nm wavelength lasers typically used in competing systems. 905nm systems utilize wavelengths near the visible spectrum, which can cause eye damage, whereas 1,550nm systems have no eye safety limitation, enabling them to operate at higher power. The 1,550nm wavelength is also less affected by solar and weather conditions. As a result, Luminar has suggested that its maximum range can be extended to as much as 600 meters. Many other LiDARs can only reliably see objects up to 100 meters away.

While 1,550nm lasers may provide superior performance, the technology involved is far more complex. For example, indium gallium arsenide materials are required for the photo receivers, compared to a normal silicon photo receiver for 905nm lasers. This is a specialized niche, with Luminar vertically integrating through acquisitions to gain the necessary expertise:

• Black Forest Engineering (2017) – central processing ASIC
• OptoGration (2021) – indium gallium arsenide receiver chip
• Freedom Photonics (2022) – laser chip
• EM4 (2024) – optoelectronic components and laser modules

These acquisitions formed the basis of Luminar Semiconductor, which supplies components like the laser, ASIC and receiver. LSI now has over 100 unique customers and is reportedly breakeven. While LSI’s focus is on supplying Luminar so that it can capitalize on the automotive opportunity, it is also expanding into aerospace and defense.

Luminar’s LiDAR range includes:

• Model G Series – built for proof of concept
• Hydra – built for test and development
• Iris Family – built for series production
• Luminar Halo – built for scale and mass adoption

Luminar’s Hydra LiDAR sensors are dual-axis scan sensors that detect objects up to 500 meters away over a horizontal field of view of 120 degrees and a software configurable vertical field of view of up to 30 degrees. Hydra is designed for highway scenarios, with road tracking out to 80 meters, lanes to 150 meters, and objects to 250 meters.

Luminar’s Iris LiDAR sensors leverage the same core technology components as Hydra, but Iris is optimized across parameters like size, weight, cost and power to meet the requirements of series production. Iris provides camera-like resolution of more than 300 points per square degree and high data fidelity

Halo represents an improvement in performance, size and cost and is expected to be the product that enables adoption at scale. The new sensor is expected to enable a 4x improvement in performance, a 3x reduction in size, a 2x improvement in thermal efficiency, and more than 2x improvement in cost. Design-wise, it is expected to be under 1 inch in height, under 1 kilogram in weight, and consume approximately 10 watts of power. A Halo proof of concept has been demonstrated and sample builds are expected to begin in the second half of 2024, with delivery to select automakers by the end of the year.

In addition to LiDARs, Luminar offers compute units and software that potentially will allow the company to capture for value and improve its competitive positioning. Luminar’s electronic compute unit is designed to accelerate the development of perception systems. Raw point-cloud data from up to four LiDAR sensors is sent through a pipeline of processing layers to provide the outputs required for fusion and path planning.

Luminar also offers a range of software. This includes core sensor software, perception software and high-level vehicle function software (highway autonomy, proactive safety). Luminar recently launched its Sentinel software suite, with initial shipments to customers expected prior to the end of the year.

Luminar’s software is targeted at automakers that lack the in-house capabilities to develop their own software. Lidar is just one of several perception technologies though, and as a result, I question whether customers will see value in LiDAR software versus a more comprehensive solution.

Luminar has also partnered with Applied Intuition to develop a joint hardware and software solution that helps automakers to virtually test-driving perception systems. This is an area of unmet need given that existing 3D engines struggle to accurately model behavior from a sensor input perspective. Competition in this area is likely to be stiff though, with many companies developing similar solutions, including Nvidia (NVDA).

Luminar has around 50 commercial partners, which together represent approximately 75% of the target passenger vehicle, trucking and robotaxi ecosystem. The company’s near-term focus is on introducing LiDAR systems that enhance the performance of drivers as a standard feature on production vehicles.

Luminar’s primary commercial relationship is with Volvo (including Polestar) and this relationship should be a growth driver in coming years. Luminar entered into a series production contract with Volvo in March 2020. This contract was for Luminar to embed its products into Volvo’s next-gen vehicle platform (SPA2).

The EX90 is expected to be the first global production consumer vehicle with LiDAR. In April, Luminar achieved EX90 SOP for Volvo, with the company subsequently ramping production, beginning in June. Series production is expected to continue increasing in coming quarters. As a result, Luminar expects to ship more sensors in the second half of the year than all of its prior years as a public company combined. Volvo recently suggested that the ramp will be slower than initially expected though.

Luminar’s partnership with Polestar is also progressing, with Polestar on track to launch the Polestar 3 next year. Polestar also have additional vehicles in which they plan to incorporate Luminar’s technology. For example, the Polestar 4 will feature Mobileye’s Chauffeur and Luminar’s LiDAR technology. It appears that the vehicle will feature cameras, a front-facing LiDAR and Mobileye’s imaging radar.

Kodiak Robotics is also leveraging Luminar’s LiDARs in its self-driving trucks. Luminar’s sensor suite includes four ZF radars, two Hesai 360-degree scanning LiDARs, two Luminar Iris LiDARs and 8 cameras. Given Luminar’s capabilities, autonomous trucks should be a target end market. Not all self-driving truck companies believe that existing solutions are sufficient though, with Aurora Innovation deciding to develop its own FMCW LiDARs.

Luminar’s relationship with Mercedes-Benz also continues to progress. This partnership began in 2022 and is now reportedly worth several billion dollars, with Mercedes-Benz expected to add Luminar’s LiDARs to a broad range of vehicles by the middle of the decade.

Luminar also has a technical collaboration with Nissan and the companies are working out the scope of the next phase of their relationship. There is potential for LiDAR to be standardized across all Nissan’s vehicles, although meaningful revenue from this relationship is probably several years away. Nissan has been developing systems for autonomous driving and safety for a number of years.

Luminar has also suggested that it is anticipating an additional SOP in China before the end of the year which should help to drive future product sales.

Tesla is also a Luminar customer, although it is not clear that this relationship is important given Tesla’s attitude towards LiDAR. In the first quarter of 2024 Tesla was Luminar’s largest customer, accounting for more than 10% of the company’s $21 million revenue.

Luminar is far from having a monopoly in the market though. In fact, it is not even really clear that Luminar is the market leader. For example, Innoviz has a $4 billion deal with Volkswagen, one of the world’s largest auto manufacturers. This involves providing LiDAR sensors and perception software for self-driving vehicles and advanced driver-assistance systems. Innoviz’s order book is reportedly worth around $6.6 billion.

Aeva also has a $1 billion sensor supply deal with Daimler Truck. There has been no specification of deal length or number of sensors per vehicle though. Production is expected to start in 2026, with self-diving trucks expected on the road in 2027.

Luminar also plans on launching its own insurance business, to help drive adoption of LiDAR and capture some of the value created by LiDAR’s improved safety. Luminar has partnered with Swiss Re in support of this initiative. The first step in the partnership was quantifying the real-world safety impact of LiDAR, which will now be used to support lower insurance costs for consumers. Luminar plans on starting to write insurance policies by the end of 2024.

Financial Analysis

Luminar generated $16.5 million revenue in the second quarter of 2024, up 2% YoY. The $4 million QoQ decline in revenue was primarily due to the accounting treatment of a change in scope and increased engineering costs related to Iris+. There was a modest ramp of series production sensor sales at a lower ASP in the quarter though.

Luminar now doesn’t expect to reach a mid-$30 million quarterly run-rate until FY25. This is due to the slower than expected production ramp of Volvo EX90 and the renegotiation of a non-series production customer contract. Revenue is expected to be modestly higher sequentially in the third quarter with series production growth being partially offset by the renegotiation of non-series production customer contracts. Series production revenue is expected to increase through the second half of 2024 and into 2025

The company’s forward looking order book at the end of 2023 was $3.8 billion.

Luminar’s non-GAAP gross loss was $11.7 million in the second. There was a $10 million contract loss that negatively impacted Luminar’s gross margin in the quarter though. Gains were driven by reduced inventory reserves, write-downs and scrap due to process improvements. There were also fewer contract manufacturer charges and claim settlements.

Luminar is outsourcing future industrialization efforts, including TPK. The company also announced cost-cutting measures in May, including a 20% workforce reduction. In addition, Luminar has streamlined its Iris product family to reduce scope and improve cost and efficiency. Luminar believes that these efforts will reduce costs by around $80 million annually and expects to achieve this target by the end of the year. Luminar has largely completed its headcount reduction plans and continues to work on other initiatives, like contractor reductions and facility subleasing.

Luminar wants to reduce Iris material costs to below $500, with a long-term target of below $100, driven primarily by scale (higher yields, lower supply chain costs, improved overhead absorption). If the $500 target is achieved, Luminar anticipates having positive operating cash flow and operating income by 2024. The core cost of semiconductor components (laser chip, the photodetector, and the processing ASIC) is under $100. Luminar still needs to reduce of other more commodity components though.

Luminar’s gross loss is expected to increase over the next few quarters due to unfavorable sensor economics though. Positive sensor economics and gross margins are expected sometime next year, after Luminar ramps series production.

Luminar’s operating losses are currently large, which is both a function of poor gross margins, and the company’s current lack of scale. With revenue set to ramp significantly over the next few years, Luminar’s losses should narrow, but a large amount of cash will likely be consumed in the process.

Given the number of moving parts, it is difficult to estimate how Luminar’s losses will decline in coming years. I think the company will likely consume something like $300 million before achieving breakeven though. Analyst projections probably put this figure at closer to $150-200 million.

Luminar has roughly $211 million in cash and liquidity, including a $50 million line of credit that remains undrawn. This excludes proposed capital structure actions, including $100 million of new capital raised with convertible bond exchange. $18.7 million was also raised under the company’s equity financing program in the second quarter, and there is $132 million remaining on Luminar’s equity financing program. Luminar previously suggested that it would need around $200 million of additional capital to reach breakeven, or $100 million after the most recent raise. This is heavily dependent on how quickly Luminar’s revenue ramps going forward and the ability of the company to reduce COGS as it scales.

Luminar has been working to reduce and restructure its debt and push out maturities. While Luminar is making progress, it still has a large amount of debt and large losses. Over the next two years, the company will continue to try and reduce the remaining $200 million of convertible debt that is maturing in 2026.

Conclusion

Luminar’s results have been disappointing relative to guidance in recent quarters, with analyst expectations revised sharply lower as a result. This seems more likely a timing issue than a permanent impairment of the company’s prospects though.

With the introduction of Halo and the incorporation of LiDAR in mass market vehicles, Luminar’s revenue could ramp sharply in coming years. While Luminar’s share price could be expected to move higher as a result, competition will be critical. There are several LiDAR companies with broadly similar offerings, and there is a risk that imaging radar and improved camera and computer vision capabilities will reduce the importance of LiDAR over time.

Luminar believes that the complexity of the technology and the process of becoming a qualified supplier mean that barriers to entry are high and that its products will be sticky once embedded into the designs of OEMs. There is likely some truth to this, but I do not believe it will be sufficient to support high margins over a long period of time. While there is an enormous opportunity that is likely to come to fruition over the next few years, companies with more vertical integration and/or greater exposure to the software layer should be better positioned.

In addition, Luminar’s financial position could leave the company vulnerable if things do not go to plan. Luminar believes that it still needs to raise another $100 million so that it has sufficient liquidity to reach breakeven. This estimate does not seem unreasonable, but is dependent on how quickly production costs decline and how rapidly Luminar’s revenue increases.

Luminar’s revenue multiple appears high, but this is meaningless in some ways, as the company could be considered pre-revenue. Analyst projections have Luminar’s revenue in excess of $3 billion by the end of the decade. If Luminar can achieve this type of outcome, the returns should be strong. I think this projection is overly optimistic though. Alternative sensing technologies will likely limit the importance of LiDAR and competition is likely to ensure the LiDAR market is fragmented.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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• Luminar’s Q2 results show the delayed path to mass production with Volvo, reducing revenue forecast from $250M to $74M in 12 months.
• The company’s financial situation remains dire, with negative margin, reliance on equity sales, and high cash spending.
• Debt renegotiation provides temporary relief, but the future holds significant dilution for equity investors and a continued need for equity sales.

Luminar Technologies (NASDAQ:LAZR) has reported its Q2 results, and the path that was going to enable Luminar via its primary customer, AB Volvo (OTCPK:VOLAF), to bring mass production and billions in revenue was again delayed. The company pushed the timeline to produce $35M per quarter into 2025 instead of the second half of 2024. The revenue forecast for 2024 has gone from $250M to $74M in the last 12 months, illustrating that Luminar’s demand, despite a so-called order book measured in billions, proved unsupported, hinting that the future forecast will continue to be altered. Luminar, along with its other competitors, focused primarily on consumer auto ADAS, has become a casualty of shifting market trends and OEM delays caused by technological and budgetary constraints.

Financially, the quarterly revenue of $16.5M with a negative margin of 64% has no positive effect on the company’s conditions. Luminar cannot currently service its debt from the income statement, as it obtains its cash from the sale of equity and has spent the cash from the 2026 convertible note of $625M.

In 2023, the company sold over $80M worth of equity; in the first part of 2024, the total was $39M. As my article will illustrate, the sale of equity will only intensify based on unchanging income statement conditions and changes in the financial structure of Luminar’s debt.

Luminar is the largest spender of cash among the LIDAR group; in the first half of 2024, the company spent $158M, with an annualized run rate for the operating cash flow of $316M. By the end of Q2, Luminar had only $161M in cash and access to $50M in line of credit, giving it $211M. Not enough to secure its business for the rest of the year. While the company started a new ATM program of $150M in March of 2024, and at the end of Q2, it still had $138M available for sale, the cash situation for Luminar places the company at risk of running out of money, especially with the 2026 maturity of its debt.

Therefore, the news that the company managed to renegotiate its debt was undoubtedly the most exciting part of the second quarter announcements. The company achieved an exchange of $422M of the convertible debt at 1.25% out of the mentioned $625M into two-tier, second-lien loans totaling $274M, receiving a discount of $148M. However, with 9% interest on the $82M portion and 11.5% on the $192M portion, the maintenance of this amount will require $29.5M annually for the next 5.3 years, or $156M for the life of the loan. If the amount remained as an original convertible, the interest payable would have been $12M. Hence, the interest payable on new convertible loans compensates for the discount given by the debt investors. The benefit of the delay achieved by Luminar will be paid with interest, which will be paid with equity at the cost of dilution to the current shareholders. The transaction details are below, as filed with the SEC on August 6th.

In addition, the company received the first lien loan of $100M at 14.31%, which matures in 2028 and has an annual interest payment of $14.3M. The new capital raised was $94.5M after the original issue discount and fees. This debt is not convertible.

The transaction gave Luminar $94.5M in cash, reduced the debt from $625M to $577M, and pushed the maturity of $274M into 2030. The company added $100M in debt maturing in 2028. The price paid was $213M in interest, versus $17M in interest for the 2026 convertible. The interest will be paid with cash from the sale of equity until gross profit is available to cover it, and the first year of 2025 and part of 2024 will be covered with a $50M in equity sold based on filing from August 8th as an extension of the current ATM.

Pragmatically speaking, Luminar has bought time for a large chunk of its debt, but for equity investors, the future holds a lot of dilution with the sale of equity at a low price. For example, with the current price below $1, the $50M extension will likely be sold below it, and the remaining ATM, which needs to support operating cash flow, will have a similar price. I can see that in 2024, that will likely add 150M shares to the existing 369M class A and 97M class B shares outstanding as per the 10-Q filing on August 6th to arrive at the $240M targeted by the company at the end of this year.

Further, the shareholders’ expectation now must include an equity cost center to service $41.5M in interest payments yearly beyond 2025 until the company can produce a gross profit from revenues. However, no revenues will come to the rescue until perhaps 2026. In addition, the $203M of the 2026 convertible remains with an annual interest payment of $2.5M, and solving its coming conversion will have a much more significant dilution than the original $20 per share.

My 2025 revenue forecast is only $140M, compared to analysts pooled by SA, whose average is estimated at $170M. Even if I improve the gross margin from negative 64% to 0% in 2024, it will not produce enough cash. In 2026, today’s forecast sees Luminar at $654M in revenue, making a $327M profit at a 50% gross margin, which would like to turn the operating cash flow positive but leave no money for interest payments. With the changing forecasts and unresolved $203M 2026 convertible debt, Luminar equity issuance, in my opinion, will intensify in the next two years.

According to the CFO, Tom Fennimore, the company has a $240M end-of-the-year cash target for 2024. The slide below illustrates the inclusion of $94.5M and $50M of LOC. To summarize, $161M in Q2 plus $144.5M would total $306M. Then, there is an already mentioned extension of $50M for the interest payments. While not in the slide, the existing ATM program now has $131M left; the company must have sold an additional $7M of equity since June. To fund the run rate for the second part of the year, using what was spent in the first half, would require another $100M of equity to be sold unless, of course, operating cash flow would have been dramatically reduced, but as the slide notes, the losses are to increase in Q3 2024. In the coming quarters, I suspect the operating cash flow consumption will continue at the current rate.

Every company’s future hinges on its products and its ability to generate revenue. While Luminar’s financial exchange extends its loan obligations for most of its debt, the price paid in equity is becoming more significant now. The company’s revenue cycle has not improved; in fact, this year’s revenue is only $5M greater in the expectation than what has been achieved in 2023. The 2025 revenue forecast does not produce the necessary relief. The company expects gross margin to be positive in 2025. It seems to indicate profitability in 2026, but in my perspective, those are toll targets, and their achievement comes with more significant doubt based on experience in delivery to date.

The market observed the impact of the debt transition and sold the stock by a 37% drop in price the day after the announcements. While hopes for revenue to finally stop the cash hemorrhaging can be had, the reality does not produce a clear path, compounding the risk of the changing forecast in the revenue volume and the ability to achieve the necessary gross margin.

When the stock drops below $1, a reverse split (RS) is a clear possibility. Based on exchange requirements, it takes almost a year for it to happen, but RS as a risk can lower the stock price and make dilution even more dramatic.

I suspect Luminar will drop to the 50-cent level and eventually execute a reverse split, adding further selling pressure. After the reverse split, the company may sell equity to support operations in 2026 and possibly convert $203M of debt. Will 2026 revenues offset the $300M annual cash burn? Yes, there is a possibility that a 50% margin can create enough gross profit to neutralize the negative operating cash flow. There is an opportunity for cash flow to improve while the company reduces costs and curtails its high spending. However, the additional equity and future need for its issuance will continue until that point, which cannot stop the share depreciation. It is also very likely that the value depreciation only intensifies after a reverse split. Therefore, further equity sales will likely be needed beyond the additional $100M, which was already explained as still required even after recent changes, quoting CFO:

“During last quarter’s call, we estimated we would need approximately $200 million of additional capital to reach profitability. Half of this additional capital has been raised as part of this transaction. We have multiple alternatives to raise remaining $100 million, and we will do so in a thoughtful way that minimizes the ultimate dilution and economic impact to our company. In the meantime, we expect the additional capital raised in connection with this transaction to extend our liquidity runway from the end of 2025 to at least the end of 2026.”

With the evident depreciation spiral in place, I now rate Luminar as a strong sell, a downgrade from my sell recommendation published in May. I recommend monitoring the stock until the company reaches a point where the gross profit can begin to offset the need for equity sales. That will require a positive gross margin and a much larger revenue stream. In addition, a significant improvement in the consumption of operating cash flow reduction will be required.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OUST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Luminar’s Revenue Delays, Debt Renegotiations, And Looming Equity Dilution appeared first on Up2info.com.

• Luminar Technologies, Inc. continues to face delays in revenue growth due to production issues with Volvo, falling short of quarterly revenue targets.
• Despite struggles, the Luminar Semiconductor unit shows promise with over 100 customers and $100+ million in external lifetime orders.
• The company raised $100 million in capital and extended debt maturities, but faces challenges with high interest rates and the need for additional funding to reach profitability.
• Luminar Technologies stock has fallen to a fraction of the nearly $4 billion order boo.

Following acknowledgement of a general customers push-out of Lidar demand by 1 to 2 years, Luminar Technologies, Inc. (NASDAQ:LAZR) has plunged to new lows. The company remains full speed ahead on Lidar development and in production mode now despite the stock weakness. My investment thesis remains ultra-Bullish on the stock despite the disappointing scenario playing out right now.

Struggling To Launch

Luminar reported the following disappointing Q2 ’24 results, with revenue growth failing to materialize as forecast:

The launch of the Volvo EX90 vehicle with Lidar installed was supposed to push Luminar towards $35 million in quarterly revenues in the 2H of the year. Volvo initially delayed the launch until Q2, and now the company has reported a slower ramp up in production than expected.

Luminar still expects big business from Volvo with the South Carolina factory built with a capacity of 150,000 vehicles per year in combination with the S60 sedan, but the company won’t hit the $35 million quarterly revenue target until next year. Management did provide some interesting views on the rest of the business, including the Luminar Semiconductor unit.

On the Q2 ’24 earnings call, CEO Austin Russell seemed to make multiple indications of a stronger business than on the surface, as follows (emphasis added):

Luminar Semiconductor Inc., which what it was calling LSI, now has over 100 unique customers, including top technology companies, defense contractors, aerospace businesses, among others, with our chip technologies live everywhere from satellites to GPUs right now. As a result of this success, we’ve now achieved an estimated external lifetime commercial program value in the nine figures from our internal forecast and breakeven status on the business.

The CEO appears to suggest the Luminar Semiconductor unit has over 100 customers with $100+ million in external lifetime orders for a business not really factored into the stock valuation. Heck, Luminar has listed nearly $4 billion in order backlog and that hasn’t helped the stock either.

Luminar only reported Q2 revenue of $16.5 million and guided to Q3 revenues in the similar range. While this is far above zero, the Lidar company still isn’t at the hundreds of millions in annual revenues expected by now.

Regardless, Luminar is still working with Mercedes-Benz Group AG (OTCPK:MBGAF), Polestar Automotive Holding UK PLC (PNSY) and Nissan Motor Co. (OTCPK:NSANY) to advance various levels of full self-driving (“FSD”) technologies along with a software and insurance business. The main issue is the market’s lack of confidence in the Lidar companies due to the sales struggles and Tesla (TSLA) constantly suggesting full self-driving can occur without Lidar sensors.

The investment story hasn’t changed, with the CEO continuing to highlight the opportunity as follows:

And you see the pipeline not only with our close to $4 billion order book, but the 20 vehicle lines that we’re launching over the next few years.

The Volvo SOP was supposed to give the market more confidence in the business. Volvo is still set to ramp up US production by year-end and start China production as well. Luminar gets ~$1,000 per vehicle, so a production ramp will dramatically boost revenues rapidly and some indication existed for the ramp to occur by Q4.

Crucial Capital Update

Luminar made a big deal to address the outstanding convertible debt and raise additional capital. The stock plunged despite the company extending existing debt to 2030 and raising an additional $100 million in capital with senior notes and taking a $148 million discount off ~$422 million of the 2026 convertible debt.

The Lidar company has a target for ~$240 million in capital at year-end now, up from a prior estimates of $150 million, to push the company through 2026 where the business will be much stronger. The biggest issue is some possible requirements to raise an additional $100 million in capital to reach profitability and the additional interest expenses going forward.

Of course, the debt conversion came at a cost of much higher interest rates. The 2026 Convert had an interest rate of 1.25% and the 2030 Converts have interest rates of 9.0% and 11.5% while the new Senior Notes have a whopping effective interest rate of 14.3%.

The new capital gives Luminar some more time to right the ship and get other vehicle models into production, along with the Volvo EX90 reaching volume ramps towards year-end. The Lidar company will hopefully be able to raise additional capital in the future at more attractive rates.

The stock is now under $1, so the biggest risk to the story is the capital crunch while the stock price is beaten up. The Lidar company has to materially improve revenues before the market will regain confidence in the large order book and additional business opportunities.

Takeaway

The key investor takeaway is that Luminar Technologies, Inc. is an appealing stock, trading at a fraction of the massive order book. The market no longer has confidence in the business providing the opportunity when the view is the darkest. Naturally, risk exists the Lidar company will constantly struggle to turn the order book into revenues and the stock will only sink lower on the higher interest expenses hangover.

Editor’s Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in LAZR over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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• Luminar Technologies’ Q2 results showed a 22% sequential revenue decline, along with more large losses and cash burn.
• The company’s share count continues to surge due to a variety of items, and the balance sheet needs further help.
• A new debt deal was announced to help push back some maturities, but it is very costly in the near term.

Investing in new technology companies can be very frustrating. A lot of times, there seems to be a great future ahead, but things don’t always work out on time. A good example of this is automotive technology company Luminar Technologies, Inc. (NASDAQ:LAZR). The LIDAR firm has continually missed growth targets for its large revenue ramp, sending shares crashing in recent years. After the bell on Tuesday, the company announced the latest delay in its plans, along with weak Q2 results, and provided a major financing update.

Previous coverage on the name:

A few months ago, I discussed how pressure was rising for Luminar, especially after Q1 revenues were not good. The company’s large losses and resulting cash burn were putting a strain on its balance sheet, which I said needed to be addressed in a major way. Investors were also being diluted heavily over time, through a combination of stock payments to employees and management, an equity sales program, and Luminar using shares to pay its vendors.

Luminar shares have risen two cents since my prior article, which actually is better than the couple of percent decline we’ve seen in the S&P 500. Of course, this is just a small recovery that puts the name still down almost 37% since I went to a sell rating. After soaring into the low $40s back in late 2020, Luminar shares closed Tuesday at just $1.41 per share.

The Q2 report:

Tuesday afternoon, Lumen reported second quarter results after the market closed. For the fourth straight quarter, the company missed analyst revenue estimates, coming in at just $16.45 million, nearly $4 million below the street. Management stated in the press release that the Q2 result was “consistent with guidance for revenue to potentially be lower QoQ”, but a 22% sequential decline seems a lot weaker than that.

The biggest problem currently is that Luminar continues to lose giant sums of money. The cost of sales was nearly $2 for every dollar of revenue, and GAAP operating losses of $127 million (including $6.26 million of restructuring expenses) were several times the company’s revenue figure. The company burned through another $78 million of cash in the period, yet management said most of its key milestones are on track to be met or beat in 2024.

Unfortunately, due to the revenue result for Q2 and a slower than expected vehicle series production ramp, management updated its yearly guidance as seen below. As a point of reference, the company finished the second quarter with $211.3 million in cash and marketable securities, along with a $50 million line of credit executed in Q1’24 that has not been drawn upon.

• Revenue: With a slower anticipated series production ramp, Luminar is shifting its outlook for a revenue run-rate in the mid-$30 million range from 2H’24 to now in FY’25.

• Cash & Liquidity: Due to the announced capital structure actions, Luminar is increasing its guidance for YE’24 Cash & Liquidity from >$150 million to >$240 million, which still includes the $50 million line of credit obtained in Q1’24 that remains undrawn.

• Q3’24 Revenue: Luminar expects Q3’24 revenue to be in line with to modestly higher versus Q2’24, as a QoQ increase in series production volume is offset by a QoQ decrease in revenue from a non-series production customer for a contract expected to be renegotiated.

Going into Tuesday, analysts were expecting almost $30 million in Q3 revenue, so this latest guidance seemingly falls well short of that. Back in late 2022, analysts were expecting about $769 million in revenue from the company in 2025, and that number stood at just $222 million as of Tuesday. With this latest mid $30 million run-rate timeline being pushed back, the street is going to cut future revenue estimates even more.

Some needed, but costly, new funds:

With continued cash burn putting pressure on the balance sheet, Luminar was likely to need funds sooner rather than later. An announcement on that came on Tuesday, with the company exchanging some of its 2026 notes for new debt maturing in 2030, along with a new series of notes due by 2028 at the latest. In the graphic below, you can see the key details.

The good news here is that Luminar cut the face value of its total debt by nearly $50 million, along with pushing out the maturity of a few hundred million by a number of years. It also brought in some fresh capital that will help it get through the next couple of quarters. The bad news is that the debts here are extremely costly, with the company’s annual coupon interest expense going from less than $8 million to more than $43 million based on the current SOFR.

One of the key problems for investors over time has been the significant dilution I referred to above. While we don’t have an updated share count just yet, the company issued another $4.4 million in stock to vendors in Q2 and raised over $18 million through its equity sales program. The share count used for the loss calculation in Q2 was up by almost 30 million to 454 million as compared to Q1.

A look at the valuation here:

As of Tuesday’s close, shares were trading at about 2.7 times their expected 2025 revenue, although the actual valuation is a bit higher when you include more potential dilution coming. A comparable name like advanced driver assistance system company, Mobileye Global Inc. (MBLY), goes for a little less than 5.5 times its projected 2025 revenues. Mobileye doesn’t offer the same projected amount of revenue growth (on a percentage basis), but it does have a very strong balance sheet and decent free cash flow.

Going into Tuesday, the average analyst price target on Luminar was $4.61, implying tremendous upside from current levels, but that was down another 4 cents from my previous article. The street is banking on the company actually converting its large order book into sales, which could eventually make this company worth a few billion dollars if all goes right. The average target though was just under $30 about three years ago, showing how continued problems with execution have resulted in the bear camp taking over.

Final thoughts / recommendation:

Luminar’s debt transaction on Tuesday may have helped the company’s long-term future, but the Q2 results showed more troubles in the short term. Another sizable revenue miss was reported, and the company pushed back its revenue growth plan. Large losses and cash burn are continuing, and while things could improve eventually, there will be more struggles first.

Until this company gets its act together, I am going to continue to rate the stock as a sell. While analyst revenue estimates have been slashed over the last 2 years, they now are set to go another leg lower. The debt deal helps out in the long run, but it is very expensive, and the balance sheet still could use more help. With significant dilution already occurring over time, I can’t get on board here until things really start to improve.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Luminar Delays Growth Plan Again appeared first on Up2info.com.

• Luminar Technologies has seen shares drop almost 79% in the past year due to revenue misses, large losses, and cash burn.
• Q1 results showed decent revenue growth but missed top line estimates for the third quarter in a row.
• Despite potential, Luminar has not executed to date and may need more capital to fund their growth plan.

Over the last year, one of the worst-performing stocks in the market has been automotive technology company Luminar Technologies, Inc. (NASDAQ:LAZR). The LIDAR firm has seen its shares drop almost 79% in the past twelve months as it has continued to miss revenue growth targets while recording large losses and cash burn. While the company continues to detail a potentially promising future, pressure is rising for this management team to finally execute its ambitious growth plan.

Why I was bearish earlier this year:

I turned negative on Luminar back in March after the company announced a large revenue miss for its fiscal Q4 period. A $22 million sales quarter missed street estimates by more than $5 million, and guidance for later this year implied that full year numbers wouldn’t be as strong as hoped. The initial production ramp of the Volvo EX90 had been delayed, pushing back Luminar’s sensor sales revenue surge. I also continued to worry about major ongoing dilution that was piling up quarter after quarter.

Between falling revenue estimates and increasing stress on the balance sheet, shares have dropped more than 35% since I last covered the name. This is despite the fact that a lot of tech names, especially those focusing on artificial intelligence, have been soaring to new highs. Luminar sees itself as a potential key there in the auto sector, not only trying to make vehicles safer, but providing a potentially necessary backbone for truly autonomous vehicles in the future.

Q1 results have not turned the tide:

Back in early May, Luminar reported its fiscal Q1 results, and they did little to spark enthusiasm for the stock. While revenues jumped more than 44% over the prior year period, they slightly missed street estimates, the third quarterly miss in a row. Management reiterated its revenue forecast for a mid $30 million run rate in the second half of the year, but analysts seem a little skeptical. In the table below, you can see how revenue estimates for this year and the next three continue to come down significantly.

With such a small revenue base, Luminar has actually been reporting negative gross margin dollars. While things are improving and expenses are coming down, the operating loss in Q1 of more than $125 million was roughly six times the amount of revenue generated. Losses should come down as revenues ramp and cost savings efforts pay off, but this is a scary income statement to look at currently.

The reason why investors have so much hope for Luminar in the future is its potential revenue backlog. The company in its Q1 shareholder letter mentioned a $3.8 billion order book, of which only 2% is expected to be converted to sales this year. That percentage is forecast to accelerate next year, as Luminar stated there are more than 25 commercial programs to follow after the EX90 launch. Management stated that it expects to ship five times more LIDARs in the second half of this year than in its prior 10 years combined. Timing of course remains a main issue, especially on the electric vehicle side, as we’ve seen a number of automakers face numerous delays in their production plans and cut back on EV investments in the near term.

Balance sheet needs some help:

Luminar finished last year with about $290 million in cash and investments on the balance sheet. The company also has $625 million of principal debt, but it doesn’t mature until late 2026. This debt could eventually be converted to equity, but the initial conversion price on the deal was almost $20 a share, more than 13 times what shares trade at currently.

This year, the company expects to burn another large amount of cash. As detailed in the above shareholder letter, total cash and liquidity are expected to finish 2024 above $150 million, but that includes the $50 million credit line that was obtained earlier this year. This cash burn pace would likely lead to some financial troubles sometime next year if some decent improvement is not shown rather soon.

I stated previously that an equity raise here would certainly help, although it becomes more painful as shares continue to decline. The market cap here as of Tuesday’s close was less than $650 million, so a raise of even $100 million would be a large chunk of dilution to swallow. This is on top of the ongoing dilution from stock-based compensation and vendor payments already being seen. As the chart below shows, the Class A share count has already risen by more than 33% in about 18 months.

Valuation hasn’t really improved:

When I last covered Luminar, shares were trading at about three times their expected 2025 revenue. The actual valuation is a bit higher when you include more potential dilution coming, and that’s not even counting an equity raise. A comparable name like advanced driver assistance system company Mobileye Global Inc. (MBLY), went for a little less than 8.3 times its projected 2025 revenues. Mobileye doesn’t offer the same amount of revenue growth (on a percentage basis), but it does have a very strong balance sheet and decent free cash flow. Because I previously had a hold rating on Luminar below two times sales, I downgraded shares to a sell at nearly three times back in March.

Even with Luminar shares dropping considerably since my previous article, the name still goes for almost 2.9 times the expected 2025 sales. Mobileye has also seen its valuation come down by about a tenth of a point on price to sales since then. However, Luminar has seen its 2025 revenue estimate average come down by more than 30% over the past three months, while Mobileye’s sales estimate average is down just 2.6% over that time.

Going into Thursday, the average analyst price target on Luminar was $4.65, implying tremendous upside from current levels. The street is banking on the company actually converting that large order book into sales, which could eventually make this company worth a few billion dollars if all goes right. The average target though was just under $30 three years ago, showing how continued problems with execution have resulted in the bear camp taking over.

Final thoughts/recommendation:

As the Luminar revenue growth story has taken longer to play out than expected, shares have cratered over the past year. While the start of production for the Volvo EX90 will help sensor sales in the back half of this year, revenue estimates for Luminar continue to come down. The company is also reporting large losses, which is leading to a significant cash burn that needs to be addressed in the coming quarters.

Until there is some significant progress made here, I have to continue my sell recommendation. An equity offering could result in meaningful dilution, and a reverse split could be another negative catalyst if shares were to fall below a dollar. Should we finally start to see revenue estimates level off and the company makes a move to bolster its balance sheet, we can then talk about a new rating for this stock.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investors are always reminded that before making any investment, you should do your own proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from a broker or financial adviser before making any investment decisions. Any material in this article should be considered general information, and not relied on as a formal investment recommendation.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Luminar: Pressure Is Rising appeared first on Up2info.com.

• Luminar reports significant cash outflow of $81M in Q1, generating $21M in revenue with a negative 50% gross margin.
• Revenue projection influenced by LiDAR sensor production for Volvo, expecting a quarterly run rate of $35M by the end of the year.
• Luminar’s balance sheet shows a cash balance of $218.3M, but additional equity issuance and cost-cutting measures are needed to reach cash objectives.

Luminar (NASDAQ:LAZR) was one of the first LiDAR companies to report their first-quarter results. Once again, the company had a surprisingly significant cash outflow of $81M in net cash used in operating activities, not estimated previously. Meeting the given estimate, it generated $21M in revenue, broken down into $15M for product sales and $5.6M for services. However, the gross margin remained a concern, although it improved, standing at a negative 50%.

The initiation of LiDAR sensor production for AB Volvo (OTCPK:VOLAF) has influenced Luminar’s revenue projection. While I do not anticipate seeing it a lot in Q2, perhaps $6M as part of my estimate at about $14M, a quarterly run rate of $35M is expected for the latter part of the year. This could lead to $105M in revenue for 2024, notably lower than my initial estimate in the Q4 review.

Luminar’s balance sheet revealed a cash balance of $218.3M. As discussed, the company has secured a $50M line of credit backed by shares, effectively extending its cash position to $268M. Luminar spent $81M on operating activities but selling $17.2M in equity helped to limit the reduction of the cash on hand to $71M.

Based on the assumption that quarterly operating cash flow (OCF) consumption will be $45M for the next three quarters and gross loss will be around $42M for the rest of the year, Luminar would spend $175M, leaving it with $91M at the year’s end. To reach the $150M cash objective, Luminar would need to add $59M.

On May 3rd, Luminar released a shelf offering, extending the at-the-market offering of $75M issued in February 2023. The 2023 program had $24M available at Q4’s end but was depleted by the sale of the mentioned $17.2M in Q1 and the last $7M in April. The ATM extension is now for $150M.

Concurrently with the shelf release, Luminar filed an 8K. The company announced a significant 20% reduction in headcount, the subleasing of production floors, and a transition to TPK, a partner and third-party manufacturer in China, to manufacture its Iris LiDAR sensor for a lower cost. These actions are expected to result in substantial savings of $400M over five years; however, it’s important to note that cash savings are much less, as quoted by CFO Tom Fennimore:

“As a first step, we announced last week a restructuring plan and other cost-cutting initiatives, which in aggregate is expected to total $80M in annual run-rate savings. A little over half of these savings are expected in cash and the remainder in stock issued to employees and vendors.”

Following up on the statement, I assume savings will yield $41M of cash annually. The costs associated with these transitions amount to $13M, with $8M allocated for headcount reductions and $5M for subleases. For 2024, the action will likely generate $20M in savings.

If savings of $20M were achieved this year, $39M of the new ATM would need to be sold in 2024. Then, in 2025, a remaining equity program would have to be sold to give Luminar $111M of cash left by the end of 2025 if $150M of OCF spent would become a norm. Without a significant contribution from gross profit and more information about additional costs, another ATM would have to be triggered in 2025. The CEO has stated that the company has enough cash by the end of 2025, including the shelf from May 3^rd. The table illustrates the financial situation I have described. The 2024 is not adjusted for $20M in savings.

Investing in Luminar must include acceptance that the company needs to issue more equity, possibly for years, until the gross margin turns positive. Given the significant dilution, the share price will remain unbalanced. This condition is heightened by the convertible bond that will mature by the end of 2026, currently trading at 28 cents on the dollar, reflecting Luminar’s poor financial state.

Moving the focus away from the dilution, in the document published by Luminar, the CFO mentioned sensor sales to Tesla (TSLA), noting it as the largest customer, accounting for 10% of sales or $2M in Q1. A name synonymous with innovation and success may have been used to help inspire investors and instill a sense of reassurance about the future. It indeed moved the share price the following day.

Similarly, a significant portion of Investor Day in April was dedicated to a partner, TPK, where CEO Li Chien Hsieh described the relationship between the two companies as an “iPhone moment,” likening it to Apple (AAPL) outsourcing production of its device to Foxconn (OTCPK:FXCOF). It helped the share price recover at the end of April.

Outsourcing manufacturing has been standard. Granted, the decision to locate production in China is unusual, especially given the current tensions over LiDAR, including the connected car issue being reviewed by the Department of Commerce and several members of Congress/Senate. Considering these concerns, I expect TPK to produce for the Chinese market and Mexico for North America. Additionally, the reception of Luminar’s LiDAR technology in China remains to be determined, especially as Chinese LiDAR faces a potential ban in the US. Elon Musk famously visited China to lobby for the approval of Tesla’s Full Self-Driving (FSD) technology. That visit raises the question of whether Austin Russell, the CEO, must do the same for Iris. Lastly, while the names of Apple or Tesla may carry weight, the flash effect will matter little to the business of the company at hand when it has weak financial fundamentals and an unproductive business model.

During the Investor Day (ID), the company discussed its $4B order book and the commencement of production (SOP) with Volvo but did not disclose revenue details from this customer. The Q1 presentation revealed a $3.8B order book, with 2%, or $76M, expected to be drawn in 2024 and a significantly higher figure scheduled for 2025. It remains to be seen how many sensors Volvo ordered or at what price, but I hope Luminar will provide this information to help estimate future revenues.

During the Investor Day, Luminar introduced a new Halo sensor, boasting several improvements over its predecessor. However, its capabilities were described as “multiples” without a clear benchmark for comparison. Remarkably, during the Q1 conference call, the CFO announced an order for $100M for sensors that will not be available until 2026.

Despite the name-dropping getting much attention, Luminar remains in a financial crisis. The stock is unattractive because of ongoing spending, high dilution level, around 25%, and the comfort Luminar sells ATMs. I anticipate that headlines featuring Tesla will fade, and the company’s financial condition will influence the share price, likely resuming a downward spiral in anticipation of future cash requirements. I continue to rate Luminar as a “sell.”

Analyst’s Disclosure: I/we have a beneficial long position in the shares of OUST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

The post Luminar’s Q1 Results: Financial Struggles And Strategic Moves appeared first on Up2info.com.