Luminar Technologies Inc (LAZR) 2021 Q4 法說會逐字稿

Well, I hope you enjoyed the video. Before we begin the prepared remarks and Q&A, let me remind everyone that during the call, we may refer to GAAP and non-GAAP measures. Today's discussion also contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties. Please refer to our press release and business update presentation for more information on the specific risk factors that could cause actual results to differ materially.

With that, I'd like to introduce Luminar Founder and CEO, Austin Russell.

You guys hear me okay?

Looks good, Austin.

All right. Good stuff. Okay. So let's get to it. Well thanks, Trey, for the intro. Hopefully, you all enjoyed a chance to be able to look at the video there and first part of The Path to Production Series. There's a lot that goes into it. But we thought it would be great to be able to just jump right in, we're live here from Orlando, and I would love to be able to welcome all of you guys to our quarterly business update.

So with that, jumping right in, the fourth quarter was certainly an incredibly strong finish to our first year as a public company and definitely most successful in our history. We met or beat all the 5 key company level milestones that we've laid out towards the beginning of the year, which were pretty aggressive as we've seen by many, but we successfully met even the targets that we raised guidance on midyear, like for example, the number of major commercial wins.

So we continue to pioneer this industry with Landmark first from products partnership to securing this past industry's first standardization deal with Volvo. And of course, adding to our roster of major commercial wins, including leaders like NVIDIA, Polestar, Daimler Truck, Pony.ai, Airbus, Mobileye, SAIC and of course, most recently, the major win with Mercedes-Benz.

So we've continued to focus on intensive execution on both a hardware and software standpoint in preparation for series production. It starts with the team, where we've effectively doubled the size of our workforce and had the best in the industry functional leaders joined the team, as you may have seen over the year to drive our company forward. So additionally, throughout the year, we partnered with key supply chain manufacturing and vehicle integration partners like Celestica, Fabrinet, Webasto and Alpha, to help derisk the holistic execution and scaling for Iris into series production.

On the software side, we've also successfully developed and executed our Sentinel solution with an alpha version culminating in the demonstration of our proactive safety and highway autonomy capabilities live at CES just as prior month.

So people are taking notice, and it's beginning to shift the direction of conversation of what's possible with this technology and how it can ultimately be standardized to achieve the vision of the uncrashable car. So from a financial standpoint, we also couldn't be in a better place as we continue to exceed our targets. We've more than doubled our revenue year-over-year, largely from the new series production contracts, the development work associated with that as well as increasing our forward-looking order book by 61%, the original target we had is 40% and then increased to 60%, and we exceeded that. Of course, we have a very strong war chest of capital liquidity with $792 million in cash, following $254 million of stock repurchases as well.

But it's a still an incredibly strong position, and we're bullish on ourselves over the long term. We've more conviction than ever and as well as in our long-term unit economic targets. And excited to say that we've now also completed all of the core development milestones in our first series production contract, which is a huge step forward on the path to series production. So that's a new update there.

So with that, I would like to take a moment. We can talk through a few of the key progress updates last quarterly update, and then I'll hand it over to Tom to review some of the specifics on the milestones, financials and 2022 business outlook before we're jumping into Q&A.

So first, a little bit more detail on execution, going through a little hardware and software. So over Iris lidar, we had a really strong finish in Q4 with a kickoff of a significant phase in The Path to Series Production. So we're now in the C-phase with Iris. We built the initial units at the end of the year for this latest phase. And over the course of the past couple of months, we've been intensely focused on industrializing product and process. We're now working with over 100 key automotive grade suppliers for the production in tech design and the supply chain, which was a massive undertaking. It's a huge switch over given this is a relatively nascent industry, and we have to be able to help work to mature the supply chain. So this is something that's been a big focus.

We continue to target being series production ready for both hardware and a core software standpoint by the end of this year and we know how much our partners are depending on us to deliver and deliver at the scale that's needed to enable the next generation of safety and autonomy for the industry.

So when it comes to Sentinel, I'm proud to say that we've conducted live on track demonstrations, as I previously mentioned, for Sentinel Alpha solution at CES, including the proactive safety and highway autonomy capabilities. So we actually -- Luminar equipped car versus some of the modern vehicles, the latest camera-based ADAS technologies that are out there. And the clear result is the high-confidence Luminar detection is the avoidance of these kinds of collisions, whereas the low confidence detection form today's systems are just not able to reliably come to a safe stop. So even avoid basic safety case scenarios much less particularly complex scenarios or at higher speeds or even at night. And by the way, the majority of accidents happen at night.

So components of Sentinel are already used by our customers today by many of them, and it's only getting better and better every day. So we're targeting a beta release of Sentinel before year-end. So ultimately, it's the combination of the sensor and the software that will help accelerate the ushering of the next generation of vehicle safety and autonomy for passenger cars and trucks.

So I think some of you may have questions around a recent win with Mercedes-Benz. So we can go in a little bit more color on that and some of the other events that happened this past quarter from a commercial standpoint. So obviously, the significant one, Mercedes, which was announced towards the beginning of this year. We're hot off the heels of this Landmark series production win having -- with them having partnered with Luminar to enable enhanced safety and autonomy for the next-generation production vehicle platform.

So Mercedes really represents the pinnacle of the automotive industry as the leading luxury vehicle OEM. And it represents a big validation of both our technology as really the first and only system that can meet all these key performance requirements to enable these capabilities and, of course, validation reinforcement at the company level as we work directly with them to deliver the solution which, by the way, is a unique aspect from a business and relationship standpoint of having worked directly with them rather than the traditional model of being required to license your technology to a traditional automotive legacy supplier to be able to provide in the solution which optimizes -- in our case, the product economics, et cetera.

But anyway, I think the only other example of this probably in recent history, that's relevant is NVIDIA. But as you guys know, we're working closely with NVIDIA as well.

So 1 special aspect of this deal also relates to data, which we will be able to access the data from both the development vehicles as well as the production vehicles for continuous improvement and updates such that our technology will only get better and better over time. And that's hugely significant and all contributes to the economies of scale from a hardware and software standpoint, but product and technology, which is ultimately required to be able to make this viable to the industry. It's not just tens of hundreds of vehicles that you need, you need tens of hundreds of thousands to get out on the road to achieve unit economics at scale that's really necessary and this only further enhances that.

So our mission from the start has been to democratize safety by integrating Iris into consumer vehicles. And this deal with Mercedes is really just another example of us continuing to execute on that strategy.

One last thing as well that you guys may or may not have seen as at CES, we actually launched Blade for trucks, which was just -- for the first time, a conversion of what we had showed off as a long-term vision at Studio Day earlier this past year about what the future of autonomous trucking could look like. So it's a pretty sleek integration. You can see some photos of it in the deck that was also provided as part of the quarterly update. Made it real, made it happen. It's not just a vision anymore. It's a product.

So with that in conclusion, before I hand it off to Tom, I want to underscore our purpose as a company. I mean we know where technology is going to have a profound impact on transportation and society as we know it, and we're in this for the long haul. And to that extent, at CES, it presented a 100-year vision for the company, which our ambition is to be able to have the opportunity to save 100 million lives and 100 trillion hours of people's time over the next 100 years.

And this is possible if we see through the successful standardization of this technology and the eradication of accidents out on roads. Solvable problem, we just need to make it happen. So obviously, change the world and it starts and ends with relentless execution, and we're well on our way towards this vision of delivering the uncrashable car by making Luminar's lifesaving capability available, both on the consumer side and some of the biggest automakers on the planet already starting to adopt it into series production, of course.

So with that, I'll hand it over to Tom to discuss how the execution for the year tracked to our 2021 business milestones that we laid out previously as well as our outlook for 2022.

Good. Thank you, Austin. Let's start by reviewing our 2021 milestones and financial performance. I'm pleased to say that we achieved all 5 of our 2021 milestones. Our first milestone was to enter the C sample phase, which we did in Q4 by producing initial C sample sensors. During the first few weeks of 2022, we went through extensive testing and review of these initial sensors as well as our manufacturing process.

As we said in the past, manufacturing complicated optoelectronic devices in series production scale and at auto grade quality is not an easy task and it's never been done before to this extent. Our team has been working around the clock to make the necessary industrialization advances, including working with over 100 suppliers to ensure automotive qualification and scalability.

One key financial metric that illustrates the progress we made is that we completed all the core development milestones under our first awarded series production contract in Q4. This allowed us to fully recognize the remaining program revenue within this contract during the quarter.

Our second milestone was to deliver an alpha release of our Sentinel software product. We successfully achieved this and publicly showcased our proactive safety and highway autonomy capabilities at CES. The third milestone was to achieve 6 major commercial wins, a target we doubled the middle of last year. This milestone was achieved with our NVIDIA and Polestar announcements in Q4. This tally excludes other important customer wins during the year, including Embark, Kodiak, Zenseact and Robotic Research.

Our fourth milestone was to grow our forward-looking order book by at least 60%, an increase from our original 40% target. We ended 2021 with an order book size of $2.1 billion, up 61% for the year. Our final milestone was to end 2021 with a greater cash balance than where we started, which was $486 million. We ended the year with $792 million in cash, and adjusting for the convertible notes we issued in December, our year-end cash balance would have been approximately $500 million.

On to our 2021 financial highlights. Revenue for Q4 was $12.3 million, up over 400% year-on-year and 55% sequentially. The increase was driven by higher program revenue as we perform development work for our customers to prepare for series production. Program development revenue comprised over 2/3 of our 2021 revenue. Because of our industrialization progress, we incurred a $1 million contra revenue charge during Q4 related to previously issued customer warrants. With the inclusion of this contra revenue charge, our 2021 revenue of $32 million was at the top end of our guidance.

Our non-GAAP gross loss for Q4 was $3.9 million. Our contribution margins continue to remain healthy. Of the approximately $16 million in non-GAAP COGS in Q4, approximately $14 million was nonrecurring engineering expenses and fixed manufacturing costs. We remain on track to achieve our medium and longer-term series production BOM targets, which are critical to meet our longer-term goals.

Our Q4 cash spend was $56 million, increasing to support our faster-than-expected commercial win rate. Our Q4 cash spend was higher than the current run rate due to an increase in working capital to both support the C sample ramp-up as well as approximately $10 million customer payments, which incurred in January instead of December. In December, we raised $625 million in convertible notes and concurrently announced a $312 million share repurchase program. We also purchased a call spread overylay with the intention to negate any dilution from the convert assuming our stock price reaches $30 per share in the next 5 years. The net result of this transaction has provided us with additional capital to accelerate our growth at very attractive terms. To date, we have repurchased $254 million of our stock.

Turning now to our 2022 milestones and financial guidance. Our first milestone for 2022 was to achieve series production readiness for our Iris lidar and core software by the end of the year. We also expect to build up the series production manufacturing line and automation equipment necessary to meet our 2023 OEM-provided production targets.

Our second milestone has delivered the beta release of our full stack Sentinel software solution by year-end. Our third milestone is to grow our cumulative major commercial win total by at least 40% from our 2021 year-end total of 9. We expect these new wins to come from both new customers as well as new programs with existing customers. We already publicly announced 1 major commercial win in 2022 with our recent Mercedes-Benz announcement.

Our final milestone is 40% growth in our forward-looking order book from our 2021 year-end total of $2.1 billion. With regards to 2022 financial guidance, we expect revenue this year to be at least $40 million. We expect our net cash spend for the year to be moderately higher than 2021's total of $155 million. We also expect our operating loss for the year to be higher than our net cash spend.

We expect our net -- we expect our share count to end the year in the mid 360 million share range. One final note on 2022 revenue. Program revenue is expected once again to be a significant contributor. This program revenue can be nonlinear from quarter-to-quarter depending upon the level of work performed new development contracts rolling on and the completion of development work as we approach series production. As mentioned earlier, we recently completed the revenue milestones in our first series production development contract. Because of this lumpy dynamic, we expect Q1 2022 revenue to be incrementally higher than our Q1 2021 revenue $5 million, but lower than our Q4 2021 revenue.

In closing, I'd like to thank the entire Luminar team for a great 2021 and a strong start to 2022. Trey, let's move on to Q&A.

(Operator Instructions) So with that, let's start with Josh Buchalter from Cowen.

Yeah. Thanks Trey. And congrats to the team on hitting all those milestones. I guess first question, anything you can share about the composition of the 40% order book growth in particular, Mercedes was announced after the year started. So are you able to share how much is from Mercedes versus expected ones for future announcements?

Yes. So to be clear, Josh, the $2.1 billion that we had at the end of 2020 comprises the business that was one, whether it was publicly announced or not publicly announced at that time. So in that $2.1 billion is Mercedes, we're not breaking out how much of the order book is each customer. So we haven't gone into that level of detail nor do we plan to.

Got it. Okay. So Mercedes was in the $2.1 billion. That's helpful. And then in the video, I noticed you demoed a feature called Highway comfort. Is that new? Is that a subset of highway autonomy? And then bigger picture, you have wins for software, but you're also progressing from output of beta. So just wondering how baked is the software solution as you're bringing into customers versus how much is being jointly developed?

It's good. I think when it comes to the software side is definitely going to be a critical aspect of the future and what we deliver. The Highway comfort, so to say, you can say it's the German term for highway autonomy from when it comes down to it. It really starts as a highway assist type system and then it evolves ultimately to be able to be hands-off, eyes off holistic system as it relates to when it's fully integrated with the OEM.

You get the proactive safety capabilities really from day 1, though, when it comes to ADAS feature standpoint and rollout in terms of what's had. And this is where the objective is to be able to see these engagements with OEMs continue to expand and also be able to help enhance and accelerate the road maps with our software offerings to accelerate their own. So that's going to be an important part. And I think that what we showed at CES shows this isn't just a pie in the sky thing. This is something we're showing off the things that everyone has been talking about. So that's an important thing. And if we're going to want to make this industry happen with all the different OEMs to ultimately realize their system and technology.

The next question comes from Aileen Smith at Bank of America.

So first question, I wanted to check in and clarify that your definition of achieving series production readiness on Iris hardware and software. Is the same is actually going into series production in 2022? And I know it may be splitting hairs a bit in semantics. But obviously, the investment community has been very much anticipating you going into production and commercializing in 2022. And just given supply chain and logistics constraints, I want to make sure that the definition of itself remains intact.

Yes. I think that's the full intent in terms of what we're talking about here. I think the only caveat is that, obviously, we can't speak on behalf of the customers. So there is a distinction between us going into series production and ultimately the customer actually integrating them onto their vehicle in consumers' hands on roads, which isn't 100% controlled by us. It's above what -- I mean there's nothing that's out of the ordinary in terms of the expectation there, obviously, that's -- but when it comes down to it, we're talking about milestones for Luminar that are in our control for this, and that's probably not the best wording, but that's the full intent of what we're talking about.

Yes. And Aileen, just to clarify on that, our goal is we are going to be prepared by the end of this year to make parts that are going to be capable to put on vehicles to be sold to consumer for series production. And I would say we have multiple customers that are kind of on that target to be in a position for SOP sometime around the end of this year. So it's not like we're just relying on 1 party. There's actually multiple customers that are on that time line, plus or minus.

Okay. Got it. That's very helpful commentary. And then I wanted to follow up on the commercial wins and going to the prior question around the composition. Do you think there's a greater likelihood that the commercial wins you're anticipating for 2022 come from entirely new customers or rather that you transition over and lockdown some major contracts from some of the customers that you've cited that have not major commercial wins, but some of those important wins like Embark or Kodiak or others?

Yes, I think it's going to be, I would say, a mix of new customers, and I think you see that with the one we have already this year with Mercedes-Benz as well as growing business with existing customers where we already have major commercial wins. And you saw that last year with Volvo, where we went from an option to standardization. So I think it's going to be a mix of those 2 things. It's going to be new brand name customers like Mercedes-Benz and growing business with one of our existing customers where we have a major commercial win.

Exactly. And by the way, one side note as well with the Embark and Kodiak examples and everything. They -- we're going to continue to win those, but they didn't -- we didn't qualify them at the threshold of a major commercial win. So in terms of the major commercial wins, it's going to be significant. But ultimately, the way that we see it is that there is a bit of a transition between it's really not just about winning and winning and winning and winning anymore. I mean, the way that we see this industry playing out just for the commentary, is that it's kind of like a 90-10 rule of like the top 10% of programs are probably going to be delivering 90-plus percent of the value, at least for the immediate or foreseeable future.

And as a result, the focus is really all in on Gelsinger's successful execution of those and seeing those -- like the opportunity is just as much to realize the expanded value of the existing programs that are one rather than just winning new programs. So that's part of the significance also of what we're seeing. I mean, obviously, we're not going to stop winning here, but I think that's also an important point just in terms of just the level of focus that we want to continue to have and because there are at the end of the day, things are not infinite. We have to pick winners as much as anyone else, too.

The next question comes from David Kelley at Jefferies.

A couple from my end, and congrats on solid into the year here. The 6 major commercial wins, can you just talk a bit about what that's meant with conversations and kind of bidding and getting into the door with other potential major OEM customers, how that's changed if you've had other announcements?

It's impacted a lot in a very positive direction, David. When you start to see not only the quantity of wins that we have, but when you start to see folks like Volvo, Polestar, Shanghai Auto, Mercedes-Benz and others, putting their technology are putting our technology on their vehicles starting around the end of the year. There's a real sense of FOMO developing in the other OEMs to make sure that they don't start trailing behind. And I think there's 1 other important factor, David, which has been very impactful once again in a positive way in getting the attention of our customers. And I would really say accelerating the talks. And that was the proactive safety demo that we've been doing. I know we've released a lot of videos on there and for the automakers that did make it to CES as well as those that we were able to have one-on-one demonstrations with thereafter.

When they actually see real hand getting behind a car that has proactive safety in it and a part that doesn't and driving it at the test dummies, I mean it just -- it's a wow moment for our customers. And when we kind of walk them through that this is technology that we developed internally at Luminar, not only the hardware and the software and we have this ready-to-go around the end of this year, they're like, we got to get this on the vehicles very soon.

And so, your point about the accelerating commercial wins as having a major impact, but I think actually going from having good PowerPoint slides about our technology, to actually having real-life demos that work with fully integrated capabilities, that's just as impactful.

Okay. Got it. And then maybe 1 more. You hinted at kind of the software opportunity, but just curious what you're hearing from potential customers. It's early days. And everyone's fighting for software within the autonomous stack and some OEMs are looking to do some of it themselves. So what are you hearing from your current customers or your potential customers as it relates to the software opportunity?

So yes, so I think there's the fundamental aspect of it, if there's a layer of software when it comes to some of the different aspects of reception, all the way to like horizon control systems, to simulation, to the kind of things you need to do to make it a viable system just on top of the core lidar itself. And that's the kind of stuff that we're going to have series production ready by the end of this year and capable to go into production vehicles.

But when it comes to other layers on top of that, that's really why we made this big bet with Sentinel to be able to build out the rest of the software stack. And the way that we see it is that -- like I said, there's obviously some folks that are trying to do certain in-house developments. But the reality is most of the software developments are still focused on robotaxi systems or other types of alternative software approaches that don't directly relate to the kind of systems that we're developing here.

So it's not really competitive in that sense. The objective is actually to accelerate the adoption of this kind of technology to be able to add more value to it and to be able to really realize this holistically throughout the industry. This is going to be the accelerant to standardization. So I think that's kind of how we're thinking about it in that context. And I think OEMs are seeing it in many ways. The extent of people are already adopting some of the components of Sentinel that will be going into series production and then it will just build on itself more over time as the software that we have matures.

Next question comes from Itay Michaeli at Citi.

Just a question, Tom. I think back on the Q2 call, if I remember correctly, you noted that I think 60% of the original 2025 revenue had already been booked. I was curious if you could update that based on your order book today and maybe where you think you might be if you hit your 2022 objectives on it?

Yes. So it's a good question, Itay, and we're planning later in 2022 to have an investor and analyst forum where I think we're going to be updating our longer-term plan because it's been a couple of years since we actually done that. What I would say is, I think the number I mentioned over Q2 was that we were over half the way there to some of our 2025 volumes. And I think that, that is still a consistent number. It's too early for me to kind of forecast where I expect that to be in 2022. But the one 1 thing I would say is the level of optimism we have in the business as well as where we are today is significantly better than where it was in 2020.

And I think you kind of saw in 2021 as part of our SPAC process, we were forecasting revenue of $26 million, we came in at $32 million. For 2022, I think we were forecasting from memory $35 million. We're now guiding to $40 million. And I think that, that really exemplifies that we are kind of meeting or beating the initial plan that we sent out.

Great. Terrific. And then just a follow-up. You also mentioned most accidents occur at night. I think there's a recent IIHS report testing a bunch of the different ADAS pedestrian detection systems at night. I think they all kind of fell short. I'm curious kind of how quickly the industry is moving on that front from a safety perspective. And to that I hope you can share maybe a bit more feedback from the OEM customers from your CES demos and just kind of what you're seeing along those lines.

It's amazing, actually. Honestly, I think people are blown away by just 2 things: One, how effective the system that we have is; and two, just how ineffective systems are today. I think there's a little bit of -- how do we say, self-denial. Sometimes it happens where it's like, "Oh, my car doesn't do that," for whatever CEO of ex OEM, and they hop in the car like, "Oh, we actually have one of them here, you can try it out." And of course, the results are no different. There's plus or minus little differences, but it's not fundamentally different. And that's a thing that's just completely resetting the paradigm behind this.

I think there's just been so much -- of course, people have come with a term like a ton of washing, the things of brainwashing behind those around what the real capabilities are behind this. And the reality is that it's just not even remotely close to where it needs to be today, much less with just basic camera uplink system. It's not a big surprise at the end of the day, to those deep in the industry or knit sort of other things.

It's just that the safety bar has been so incredibly low people have just gotten used to it, like passing the tests that are required for 5 safety stars is not difficult when it comes to these kinds of assisted driving systems for the actual collision avoidance prevention and in some cases, if you fail on that, but if you pass on enough other things that you can still get these significant rates.

So I think that's where there has to be a fundamental reset. It will be a fundamental reset from both an OEM perspective, a consumer perspective and a regulatory perspective over the next few years that will accelerate the standardization of this technology. And that's where you see the breakthrough.

And again, as it relates to our model, I mean, we only modeled in about 3% to 4% market penetration by the end of the decade for a $5 billion revenue, $2.5 billion EBITDA business with a $60 billion forward-looking order book. So to the extent we do better than that, which we think we can, I mean that's how you create the breakthrough value.

Next question comes from Richard Shannon at Craig-Hallum.

Richard, are you there?

Are you on Richard?

Richard if you are talking, you're on mute.

We'll come back to Richard. We'll go to Mark Delaney at Goldman.

Mark, are you there?

We are going to go for...

He is there.

Just hoping you can talk a little bit more on how important it is to Luminar for your customers to actually certify that the systems are Level 3, maybe it's more just in terms of leading to follow on business if these early deployments go well, they get positive data, and they certify them as all 3 then that would just create these future follow-on orders. But is there any difference to you guys in terms of whether or not these systems are certified as Level 3 capable for consumer use in the early phases?

Well, I think there's 2 factors there. One, for what it's worth, everyone has a different definition of L3 and there's a lot of, how do we say, level inflation that's continued to happen in the industry. But the reality is, it relates to us no, it doesn't really make any material difference on how people talk about these things. That's why we kind of generally avoid trying to talk about the levels altogether. It's funny, the proactive safety capabilities from what we're doing is actually -- I mean, this is where people get really confused, but it's technically a Level 0 capability.

The reality is it just level 0 was never actually fully solved for. People still get into accidents all the time. It doesn't -- there's no such thing that's ground truth detections today that can actually prevent collisions and accidents are happening. And that's where honestly, a lot of the fundamental value that we're talking about here is provided, maybe even the majority of it actually maybe definitely the majority of it right off the bat. I mean, that's part of the objective.

And of course, autonomous capabilities are only going to continue to advance over the course of the next handful of years and over the decade. And Volvo recently announced their rollout plans with that of starting in California and then expanding their on out for the autonomous features and capabilities. So that's going to be -- that's not slowing down at all. And solving for the constrained highway problem, I think it's obviously gotten a lot more of a focus. We see a lot of companies trying to pivot towards working on exactly what we've been working on and these OEMs have been working on for years.

People going into -- pivoting into trucking and other stuff, for example, as well for -- that has that same kind of highway problem, obviously, not the series production scale of cars. We're working on trucking as well. But that said, that's the perspective that we have on that.

Okay. In any sense, I realize this is up to your customers, but do you have a better sense at this point as to how long customers may want to have these systems on roads before they're willing to certify hands-off, eyes off on highways and in a way of the use cases?

It's a fair question. It really just depends on the safety case with each OEM and the specific road and the specific highway. I think the objective is going to -- it's going to start on like divided interstates and it's going to go to undivided highways and then it's ultimately going to go to like surface streets like strobes, type things that eventually will work its way over the course of the decade in urban environment.

So it'll. It will take the time, but I think -- I mean, this is not like a thing that's like 5 or 10 years now. This is a matter of you're probably talking like a year maybe 2 years' worth of validation out on roads, depending on how conservative you are. So that's -- but it's also not overnight either. It doesn't just instantly flick a switch. You actually have to get the data at scale. And no one's ever done that, by the way before. No one's ever had tens or hundreds of thousands of these kind of cars driving around collecting this level of data. So obviously, that feeds back to us like in the case of the Mercedes deal that we're talking about, so that's -- that becomes pretty valuable or extremely valuable.

Next question comes from Tristan Gerra at Baird.

This is Tyler on for Tristan. Our automotive's OEMs choosing the NVIDIA Drive platform bound to use Luminar if they decide to use lidar given that Luminar is part of that reference design? And what is the recently announced NVIDIA Jaguar, Land Rover Partnership imply for Luminar?

It's a good question. Unfortunately, I can't comment on programs from OEMs or tech partners of ours for whatever it may be. But we are partnered with NVIDIA as noted. But I can't comment on anything specific there. But I will say that working with key partners and platform providers has been a key part of our strategy holistically to be able to further accelerate market adoption.

Great. And then for my follow-up, with series production readiness expected by the end of the year, can you talk about the expected revenue ramp of that? I know you're not going to provide guidance, but maybe can you comment on the linearity of that production ramp?

I think it's fair to say that as we get to SOP around the end of this year that we would expect 2023 revenue to be significantly higher than this year. And we are not going to give any specific guidance for 2023 at this time, but we'll give some later this year.

Next question comes from Gus Richard at Northland. Are you on Gus? You maybe muted.

His hand is raised.

Could you talk a little bit more about your relationship with NVIDIA? And are they opening up doors for you when being in the reference design? Is it -- is that helping your market penetration?

Yes, I'd say there's no question that platform providers NVIDIA included our accelerating or helping to accelerate market penetration. That's really the core objective is building the right ecosystem of key partners at reference designs and other stuff in terms of -- it's an incredible amount of work. It's not just a walk in the park where a couple of companies say they work together and then just walk away. It's a lot of deep integration and intensive amount of work that has to happen on a day-to-day basis for all the -- like literally day-to-day and week-to-week manage. But yes, there's no question that's part of the objective. And by the way, I think ultimately these things work both ways as well for both us and -- or our partners generally.

Got it. And then just by the end of 2022, can you give a sense of how many production models will be shipping to your customers? Is it 1 model, 5? Any color there?

I don't think we can give specific commentary for OEM vehicle lines yet until they...

Gus, is your question are OEM vehicle models like our customer vehicle models or your question is, how many different variations of Iris?

No. The question is you've got, say, a Volvo win and...

Yeah. Okay. Okay. So that was the one that Austin answered. I covered it the other one.

But there's going to be a lot ahead on that. It's got -- there's some exciting lineups for sure. By the way, one of them -- parts in the background, totally coincident -- no -- is the new Mercedes EQS, that's there too, an incredibly beautiful car that's there. And it goes to show like for the next-gen EE lineups of these different brands that's there. It's impressive stuff. So I think it'll be -- it's not going to disappoint with different OEMs for that matter. But the other ones that we're working with, for sure.

Next question comes from Michael Filatov at Berenberg.

So two questions. The first one, I mean, you kind of just referenced it is in relation to the Mercedes win, right? I'm curious if you could just clarify just whether or not that is a concrete supply agreement, right? That's in contracts, for specific models and a specific start of production time frame? And if so, how many models that could potentially encompass? And were you involved in an RFQ process for that win? Just how that relationship evolved?

Yes. So Michael, the answer to that is, without going into too much detail, but I think it's fair to say that Mercedes did a very extensive study, not only of our technology, but the other ones out there. They made a conscious decision to work with us. We have a lot of detail which I'm not going to go into in an agreement that we have with Mercedes-Benz that's executed. You'll see in our 10-K tomorrow that we have 2 customers that comprise north of 10% of our revenue in 2021. One of them was Volvo. The other one is Mercedes-Benz. And so we are working extensively with Mercedes-Benz to develop our technology to the point where they're going to deploy on production vehicles.

We have a list of production vehicles and timing. We're not going to talk about it because Mercedes-Benz hasn't talked about it, but that list does exist. And they would not be paying us as much revenue to work with us if this was just a science project as opposed to something serious with the goal of putting this on vehicles that they're going to sell to the consumer.

So straight to the point answers, yes, yes, yes.

Understood. Fair enough. All right. And then one other quick one. I just -- I was looking back at your original pack presentation, it showed expectations for D sample production in Q1 of this year and then series production by Q3 of this year. It seems like I don't know if it was something to do with you guys and your customers, but maybe the time line got pushed back a bit because I took that to mean series production isn't going into vehicles in the back half of this year.

And then it seems like you're currently at C sample. I mean, is the expectation to get to D sample middle of this quarter? I mean, we're nearly there, but has anything pushed that time line back in terms of the product development and then the C actual series production launch.

No, it's effectively tracking to it. I mean the objective is to be able to get to series production by the end of the year here. That's the big launch that I think. I think It's been public with our first series production OEM in terms of what they talked about for that time line. So we're deeply aligned as it relates to -- with them and others to be able to ensure the successful launch by the end of this year.

So that's that -- I would say that there's probably plus or minus a few months in terms of how people -- customers will qualify different stages differently of their respective programs. For example, a lot of our customers don't actually use the same kind of sample terminology and other stuff. There's like they have custom different -- they have different sense of milestones that go in through the validation. But effectively, the way to think about it is that this year is all about refinement and validation of the industrialization process. That's what it's all about in preparation for the series production.

So we're all in on that as it relates to the core technology to design everything for the product that's done. And that's where we still have -- there's still optimization to be done in terms of what we need to do, get cycle time down, you get all that other stuff. But that's all on track in terms of what we need to do for series production.

Next question comes from Dan Levy at Crédit Suisse.

First, I just wanted to start with a question on comment in your deck about the cash use in '22. So you're guiding for cash spend to be slightly higher year-over-year. Usually, in autos, when a company is approaching commercialization for a new product, the cash spend accelerates more significantly, and you're taking on new customers as well. So why is it that it's only a moderate increase as opposed to what might be more significant? Or is it just something about you've already incurred that spend? Or there's just efficiency...

It's a great question, Dan, and you are correct. And my reply to you would be, if you look at our 2021 cash spend relative to 2020, it doubled. And so we're not going to double it again this year. We're going to grow it modestly from here. And so I would argue, if you actually look at the spend relative to 2020, you see that significant increase in investment that you would typically see in the automotive industry. And so we've been working on our industrialization plan now for going on 2 years and the growth in our investment has reflected that.

Well, I'd also say that -- I do think that this is important is that this is not -- this is also not by -- it's double run, it's like super easy to be able to spend twice as much, 3x as much -- 4x -- 10x as much money, I mean we see other companies that have been trying to do this and that are actually even far earlier along that curve. And the answer is you have to like we are extremely intense about driving extreme efficiency with everyone from when it comes to a financial standpoint across the board here, too.

This is not a -- that said, there are still significant investments that need to be made. It is incrementally higher. But I think to the point is that we've effectively gone from what, 3 major commercial wins to now we're at 10 but our spend is only increasing moderately. So you might -- it would be like, well, that's crazy, how is it even possible.

And there's one simple answer, which is standardization of the product. This is very different than pretty much almost all the types of companies in the automotive supply chain because we have standardization of this kind of technology, everyone's going for the same technology that we have. It's the same product. It's the same core system that's there.

Obviously, it's worth to have done integrating into different vehicles, different systems there, but there's an incredible amount of unification. And even for a couple of stragglers that we had that had deviations that would end up with significantly greater expenses for this coming year, actually, just over the past quarter, we actually -- it's entirely unified under the exact same product track and road map that we were doing. So that probably avoided hundreds of millions of dollars worth of expenses there.

So there's -- it didn't just fall into our lab and have been a very intentional, incredibly intensive exercise to get it to this level of efficiency, but it's something that we're also incredibly proud.

Great. And then the second question is just unpacking the order book. So I think you're essentially guiding to -- you ended the year at just over $2 billion, and you're guiding to be just under $3 billion. So a couple of points on this or a couple of questions. Should we expect an additional inflection of the order book as you start commercialization? I mean, is that just going to continue to bring in more programs? Or is that just going to track what commercial programs you have?

And then the second, maybe you can just give us some sense of what that order book comprises of now in terms of hardware versus software split because I think you were talking about -- and I noticed that you'll give us a 2025 update later in the year, but how you're tracking to being, call it, half-half software hardware?

Well, yes, I -- from memory, I don't have the numbers here in front of me, but I think it was a little less than half for the software. We haven't disclosed nor did we plan to what the breakout is the order book between hardware and software. But what I would say is that software element and the software percentage continues to increase, and we expect it to continue to increase over time. Remind me your first question again?

Just how should we expect the order book to trend as commercialization begins? Is it just as you have more programs, it's going to linearly increase or...

Yes. So here's what I would say. When you actually kind of look at the dynamic and what really moves it. Clearly, there's some correlation between major commercial win growth and order book growth. What I would say though, the dynamic is the initial programs that we win with a customer the first time, tends to be more on the small side and the big side. And what do I mean by that? The trend, and I think you see this play out with Volvo is, our initial win with Volvo was as an option on the XC90 successor. Then it moved into standardization on that.

And then from there, we expect to win more and more programs from Volvo over time. And so the first win with the customer, that counts to the major commercial win total, but it's not, I would say, not going to have a huge impact on the order book initially. What drives that really -- what drives the exponential growth in the order book is standardization and really winning more and more business and an existing customer and not only rolling out standardization among a specific vehicle program, but rolling it out of standardization on every vehicle that OEM produces.

So there's really 3 ways that your order book increases: One is new major commercial wins, new customers, altogether; two, is additional programs in existing customer; three, is increase in volume for the programs that have already won. By the way, #3 is not to be underestimated on this is that this is where -- I think we even mentioned at one point last year that part of the driver behind a higher order book was actually people increasing the volumes on the existing programs that are there.

And I think that that's a general trend. I don't think we've actually seen anyone decrease the kinds of target volumes in terms of what they're planning for the models. And actually, it's really been a general trend of increasing and as people have realized the significance of this. And by the way, everybody is competing with each other. They all want to be one upping each other, too. So that certainly doesn't hurt as Tom mentioned earlier.

But for a good reason. I mean, like people can't afford to just be static anymore. They have to be able to move and move quickly. This can't be a traditional automotive adoption cycle that's like 7 years long, that's why it's accelerated so quickly.

And sorry, just to clarify on what's already in the order book and what you're guiding to. It sounds like that that's only reflecting very slight benefit from standardization, meaning you're not seeing any of the benefits yet from standardization in the current order book or the guidance, correct?

So let me give you an example, which I think answers your question. At the end of 2020, in our order book was only us being an option on the Volvo XC90.

One model.

On the one model. At the end of 2021, it was the standardization on that one model. The XC60 and all the other vehicle models that Volvo makes, other than the XC90 are not in our order book. We're very confident as a management team that we're ultimately going to win that business. Volvo has made public comments that that's our intention too. None of that is in our order book yet because we haven't officially been awarded that.

Only stuff where we have been written agreement, an agreement with our customer...

There's a contract. And by way, that is a distinction versus what many others have provided in some of the EV space or rider space or whatever it is for order books, where it's just like assuming standardization on some thing without any intent or agreement or whatever it may be.

There's a lot of business out there for us to go get from Volvo and other OEMs in our existing business, which isn't in our order book yet.

Yes. Exactly.

And thanks to everyone for joining our Q4 business update. We look forward to talking to you again at the end of Q1. And with that, Kevin, if you can please close our call up.