Luminar Technologies Inc (LAZR) 2022 Q1 法說會逐字稿

All right, everyone. I hope you enjoyed the video. One comment before we started in this spirit of continuously improving our shareholder outreach, this quarter, we implemented the (inaudible) platform where Verified shareholders can ask enough questions. The questions have been great, and we will be addressing some of the top questions at the end of our prepared remarks today, followed by analyst questions. We hope that our shareholders will find this a useful avenue to engage with us. 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.

That's going live. Hey, everybody is seen here.

Yes, absolutely.

All right. Awesome. Okay. We'll just jump right in. Well, thanks, Trey, and welcome, everyone, to our quarterly business update. Today, we're live from the office of our investor and Board member, [Alex Gord] with the (inaudible) Group in California. So jumping right in. The first quarter was an incredible start to the year for Luminar as we remain focused on intensive execution for our business and our milestones. And I'm proud to say that we remain on track to meet or beat each of our 4 key public 2022 milestones that we outlined at the beginning of the year, and the business is only accelerating as we take a look forward. So at the same time, we've continued to do our win street with Mercedes and Nissan so far this year and are planning on expanding our series production capacity as we look at increased series production program volume indications for our partners. At the same time, we've made significant advancements over the past few months with regards to industrialization and technology road map enhancement, with our optical manufacturing partner, Fabrinet, live and ramping, as you saw on the video as well as a new acquisition of Freedom Photonics.

So with that, I'll jump into more detail on some key areas of the business before handing it off to Tom to review how we've been tracking to our milestones and our financials. So taking a step back, it all starts with the vision statement and the vision of what we had and outlined at the beginning of the year at CES, and our 100-year vision is to have the opportunity to save 100 million lives and 100 trillion hours on the road over the next 100 years. And I'm proud to say that our new partner, Nissan, is aligned with that vision of saving lives and time and are making major moves towards that goal. So Nissan announced and is now demonstrating its integration of Luminar's technology into its new driver assistance system designed to dramatically reduce accidents and increased vehicle safety. Our performance enables us to dramatically improve the collision avoidance capabilities of the vehicles while advancing towards next-generation autonomy. We expect to be able to complete the development of the system and introduce it on initial vehicle models by mid-decade and deploy the technology on virtually every new vehicle model by 2030. To put that into perspective, Nissan produces around 4 million vehicles every year. This is the first major commercial win with a mass-market automaker as well as Luminar's foray into Japan, and we're excited for what's ahead.

So on our last call, we also talked about the landmark series production win with Mercedes Benz would supercharge our start to the year. And with these 2 major wins, we're now halfway to achieving our 2022 goal for growth for additional major commercial wins.

So given the increased volume indications, as I noted, from Mercedes production partners, we'll also now be increasing our series production capacity to ensure we can successfully scale to the levels needed to meet heightened demand from these OEM partners. So from a serious production readiness standpoint, that's probably the most significant effort that's currently underway at Luminar. It's all about industrialization and making sure that Iris a series production ready by the end of the year. So as you saw on today's video, the Fabrinet bring up and ramp has been an intensive undertaking for the Luminar team. And we're now beginning to see the fruits of our labor as we meet this milestone. So as a reminder, Fabrinet is 1 of our 2 key series production manufacturing partners alongside Telestica and is responsible for assembling the specialized optical and chip level technologies in our product. You can say that it's the engine, so to say, for the lidar. And week by week, our industrialization efforts are progressing as we make our big push forward. So from a software standpoint, while it's not the focus for this quarterly call, our software development efforts are also on track for our essential data release by year-end. Just last month, we delivered our latest software alongside Iris for independent testing that will benchmark Luminar's proactive safety versus today's best-in-class assisted driving systems out there. This really will have the opportunity to prove the step function improvement in safety that we're showing in our live more ad hoc demos, but in a more quantitative capacity, and looking forward to sharing all of those independent benchmark results in the not-too-distant future.

So from a technology standpoint and technology leadership, we're ensuring that while we execute in the near term, we're also able to strengthen and accelerate our product run. And after a multiyear partnership with Freedom Photonics, we've since acquired the company, bringing the in-house their high-performance diode laser chip technology as well as the capabilities associated with such. So component level innovation and integration is absolutely critical to enable this level of performance and economics, and Freedom was the last remaining pillar to achieving a full vertical integration across the 3 core Lidar components, with the receiver, the processor and the laser and which is now accelerating development, widening the competitive moat and substantially reducing cost to be able to further the ability to achieve the $100 long-term bill of materials target. And this is all aligned with what you guys were seeing in the video between Black force engineering, Operation and Freedom photonics.

So in conclusion, delivering on our long-term vision requires relentless execution and continuous innovation. And I'm incredibly proud of what the Luminar team has accomplished already this year, and we're just getting started.

So with that, I'd like to hand it over to Tom to discuss more details about the Q1 financials and provide an update on our 2022 business milestones and where we stand.

Thank you, Austin. Let's start by reviewing our progress towards our 4 key 2022 milestones that we've outlined at the beginning of the year. Our first goal is to achieve series production readiness this year. We remain on track to achieve this goal. As you saw on our video update, Fabrinet is ramping up the manufacturing of our most critical and complex subcomponent, the laser transceiver. This is a crucial step in our series production process. On the software front, we have now progressed our proactive safety system development to the point where it is ready for third-party testing and validation. This testing is being performed by reputable third-party experts to quantify the safety improvements of our system relative to today's ADAS systems. We remain on track for our goal of achieving the Sentinel beta release by year-end.

Our third milestone is to grow our cumulative major commercial wind total by at least 40%. So far this year, we have 2 major new wins, Mercedes-Benz and Nissan, putting us on track to meet or beat this milestone this year. And finally, we are on track to meet or beat our 40% growth target in our forward-looking order book. This growth will come from both new customer wins as well as higher requested volume from existing customers. As a reminder, we take a conservative view on the business we include in our order book and include only customers and programs where we have a major commercial win and oftentimes with a significant level of conservatism or haircut building. Let's review our financial highlights for Q1. Revenue was $6.9 million, up 29% year-over-year. program revenue as part of 1 series production deals comprised the majority of our Q1 revenue. As I stated on our last business update call, Program revenue can be nonlinear and lumpy from quarter-to-quarter, depending upon the type and level of work performed, new contracts rolling on and the completion of development work as we approach series production. In Q4 2021, we completed the revenue milestone in our first series production development contract. Because of this lumpy dynamic, Q1 2022 revenue was sequentially lower than Q4, but still up year-over-year. We expect revenue to be sequentially higher in Q2, in part due to this program revenue lumpiness.

For the quarter, we reported a non-GAAP loss of $8 million and non-GAAP COGS of $15 million. Of this $15 million, the substantial majority, approximately $14 million was from costs associated with preparation for scaled series production launch, fixed manufacturing overhead and R&D expenses associated with our program development revenue. These factors inflate our reported COGS and gross loss at this stage as we front-load cost for series production. In the near future, as we approach series production, we plan to provide more disclosure and analysis of our COGS and adjusted gross profit.

From a unit economic standpoint, we remain on track to meet our series production, build in material or BOM and conversion cost targets for our first full year of series production. Our Q1 cash spend was $38 million, excluding share repurchases. As I mentioned on the last update call, Q4 2021 cash spend was higher than run rate due to increases in working capital, including customer payments that occurred in January of this year instead of December last year. Since announcing the convert in December, we've repurchased approximately $275 million of shares. In the current authorization, we have approximately $37 million remaining for our buyback. We ended the quarter with $707 million in cash and marketable securities.

Let me now provide a little more color on our 2022 full year financial guidance. We are on track to achieve our 2022 revenue guidance of at least $40 million. In fact, our annual growth rate of 29% is somewhat higher than the 25% annual growth implied in our guidance. We maintain our full year guidance that net cash spend will be moderately higher than last year's total of $155 million. We maintain our guidance for our operating loss for the year to be higher than our cash spend. We expect our quarterly operating loss for the next few quarters to be somewhat higher than our Q1 operating loss as we continue to invest and prepare for series production. We maintain our 2022 year-end share count guidance to be in the mid $360 million range, including the shares we recently issued for our Freedom acquisition.

Before we hand it over to Trey for Q&A, I'd like to hand it over to Austin for some closing remarks.

Thanks, Tom. Well, good perspective on everything, and thanks for giving some insight there. So I have to say, we've never had greater conviction around the long-term business and financial trajectory of Luminar for everything that we had had. And I think one important point is to illustrate when there's times where you had to put your money where your mouth is, so to say. And for example, 1 thing that will come out in the proxy just as an example, is that when the Board is discussing compensation packages for a CEO, I want to be able to make sure that illustrated in that spirit and have waived any normal CEO compensation package, we would take in favor of actually not taking a single dollar of compensation as part of that until our stock price reaches $50 per share. So as well as a critical operation milestone for series production. But that said, I'm 100% all in to be able to make this amazing with the success, as we all know it can be and to do it as we accelerate towards our long-term successful business trajectory here.

So with that, let's give it back to Trey for Q&A.

Thanks, Austin. We're going to start the Q&A with a couple of questions that we received on the safe platform, and then we'll move to analyst questions. So -- the top 3 questions in terms of shares voted on the Safe Platform, we're all focused on a similar topic around software, both our offerings, our design wins, monetization, I'll give a little more -- let me read a little bit more detail, but all 3 of those questions were in that vein. So 1 question was what elements of software we're providing to Nissan and whether that involves any sentinel software development. The second 1 was on Sentinel in general. And if we can expand on any elements of Sentinel software deals where we've won with Sentinel. And then the third 1 is really around software pricing and how we think about monetizing the software stack. So I'll kick that back to you, Austin and let you kind of shape the answer around those 3.

Yes. So I'd say software is absolutely a critical part of the overall business. And this is really as we make the transition from a -- you can even say a component company, you're a systems and solutions company. It's a critical transition. And we've done that at different layers of the stack all the way up even from like the poor Lidar components to the Apto-Lidar system to anything else that goes on top. But I think what's absolutely important and critical to realize is that at the end of the day, you have to be able to have a software solution to be able to enable this for automakers to be able to make the most out of the Lidar. Lidar alone in a par won't do much of anything. In fact, won't do anything at all until the point of where you can actually be able to enable end functionality for the user and the consumer. And this is why we've been really all-in on this.

Obviously, there are certain key folks like the bowls to Mercedes and videos or Nissan of this world that have started off with some of the software development. But there are critical complementary aspects that are required that are needed to be able to make this happen and make this truly successful in terms of realizing the end functionality. So we're really all in on 2 key aspects of this. One is for proactive safety as we call it, which is dramatically improving the next-generation safety systems on vehicles. And the other part is highway autonomy functionality and capabilities.

So that's something that we're very proud of the progress that's there. We can say that for -- as it relates to these deals, there generally is a -- like some elements of software components with this -- in the case of Nissan, I don't think we've actually publicly discussed any of the specific details about the software plan for this. So I can't comment on that at this stage. But I will say that at some layer, you could probably expect nearly -- or the majority of deals that we move forward with to have some software component associated with it.

And the 1 thing I would add on Nissan is we've been doing work with them for -- a development work for them for about a year now. We have been collecting program revenue for that work we've been doing. And that program revenue has been associated with where we've been doing not only in the Lidar hardware side, but as well as the software side. And as Austin said, they really haven't shared the plan yet on what their plan is going to be for software and serious production, but the development work we've been doing so far has included software.

Great. One, we also got 2 similar questions around the topic of when folks will actually see Luminar lidar on the roads and production cars. One of the questions was when we're going to see this technology on vehicles, the other question, when can we see vehicles fully using Luminar lidar, not just for testing purposes but actually ready to go.

It will be exciting to actually be able to get this stuff out there. I think both -- there's 2 kind of lead partners that we have from a China standpoint, SAIC is our lead partner that will be able to have the opportunity to introduce this in the not-too-distant future. And as well as Volvo, which similarly is on a relative basis in the not-too-distant future. So very excited to be able to see these guys get a chance to be able to wrap up, but I think we've said as part of 1 of our key milestones that Iris will be serious production ready by the end of the year as part of this. But I think we've continued to be able to see acceleration and greater aggressiveness on the time lines of what people are excited to be able to deploy this. So I think the answer is it depends on the specific automaker. Stay in tune for when SAIC and Volvo announce the -- formally announce the launch of their vehicles. So that will be an exciting one. But that's in the OEM's hands to say. But I can certainly say incredibly excited to be able to see this come to fruition in the not-too-distant future here.

Thanks, Austin. And thanks to everybody who submitted questions on the safe platform. We're going to continue to use this as a platform to increase shareholder engagement with us. And with that, let's transition to the first analyst question on the call. And so [Kevin], the first analyst who's going to be on the call is (inaudible) from Northland.

Sorry. Thanks for letting me ask a question. Just real quickly, can you talk a little bit about the cadence of new series wins this year? Do you expect them proportionally throughout the year or are they later in the year?

Yes. Yes. So Gus, from a perspective, we're sitting here, we just completed April, we're early in May. We've already announced to puts us a little over halfway to our goal for the year. These are difficult to predict. We only make our announcements when our customers are ready both announcements we made this year. We did a fair amount of work with each of them last year as well. And so I think you're going to see them throughout the year, but it's difficult for us to predict the exact timing because as we talked about, we go only when our customers are ready to make an announcement.

And I think most importantly is that it's in almost all cases here, too. It's the customer really making the announcement as much as anything like in the case of Nissan recently. That was an Luminar announcement, but that was a Nissan announcement. Although sometimes it feels like they could be Luminar announcements given that they're trumpeting us, which is fantastic. But yes, that said, we already start seeing people putting out like SAIC in China over we chat and other stuff they're putting out ads for our tech out on vehicles for what's coming up ahead and people making the push. But I think we'll be -- like as Tom mentioned, we're on track to meet or beat the goal, which 40% growth would imply 4 additional ones. But as we noted, we are also seeing increased volume indications from existing OEMs, which would also mean that greater likelihood to introduce on accelerated time lines for new models as well. So that's -- which of course -- and again, it's really the important perspective for all of this is that it's not just about new wins like just putting in the Luminar perspective. Like just take the Nissan example alone, okay? We just said that, that was 4 million vehicles per year. There are ultimate be able to standardize this kind of capability and technology in the vehicles by the end of the decade. We modeled out when -- when we first went public, we modeled out the scenario of what the target market penetration was for 2030, and we modeled out 3% to 4%. So 3% to 4% gets you $5 billion revenue, $2.5 billion EBITDA with a $60 billion forward-looking order book at that rate.

So just that alone can be able to pick up that level of market penetration. Now obviously, we're not stopping there. And frankly, I would be very disappointed if we only have 3% to 4% market penetration with that. But it just goes to show just with the law of large numbers, just how meaningful this is. And you take a look at the other tech names and the examples like the videos and mobilize and other types of stuff that have gone along that trajectory with this and how it makes all the difference.

And then as a follow-up, your recent laser acquisition, you sort of alluded to a product road map, if you will. If you could talk a little bit about how it's going to help you out in terms of BOM and capabilities and sort of what exactly that road map looks like?

So there's a few different things there. It's 3 different aspects. One, yes, it accelerates tech and product road map to it widens competitive mode, 3, it reduces costs. I mean, all those 3 independently are probably very valid reasons to do something like this when you combine it all together, it's a no-brainer for us to be able to vertically integrate. And a lot of these guys, it's not like there's 10 different companies that can do these kinds of things. You have these very, very specialized niche technology developers that have largely been like government-funded for like specific like one-off projects at a time. It's just really interesting to see these developments here. So we partnered with some of them over the years, often exclusively with exclusive contracts to be able to actually do core development with them or at the component level with the Luminar design and Luminar architecture.

And leveraging these capabilities is absolutely critical to being able to continue to improve -- continue to improve performance, continue to improve costs, continue to improve everything. And those results are absolutely going to be realized. So when it comes to the laser, that was the last missing puzzle piece to this with the receiver and the ASIC to this, between now you have the leases see where they call the core lidar components that are there that are needed to be able to get towards that long-term $100 bond trajectory as part.

So we can see cost benefits already that can enable us to -- for road map acceleration. But I would say, in addition to cost, like I said, this is going to be critical for what's next after Iris as well. Obviously, we want to be careful about talking too far into the future with this. But there's more to come, but we're making sure also not take our heads off the ground with execution for Iris and everything that we have to have since it's incredibly important to get this locked in with the key major automakers that we have.

The next question comes from Dan Levy of Credit Suisse.

I want to start with the Nissan agreement. Maybe you can give us a little color about how this came about? And just on the agreement itself, I think we know Nissan is generally more of a mass market brand, and so the price points are lower, which means that the costs in the vehicle are lower. So what does that imply in terms of the types of ASPs that you would have, which are probably going to be different than what you'd have for, say, Mercedes or Volvo, which are more premium vehicles.

Yes. No, it's interesting. I think we're noticing a trend now of some of the OEMs going out and publicly saying what they want the price to be as like, I think actually Nissan went out and said, yes, it would be great if like Luminar charges $300 for the product. I mean, anybody you can ask for stuff. The reality is I have been publically said that, listen, it's going to start out more on the order of $1,000 type ASPs and progress towards $500 type ASPs over the longer term when you go truly mass market at that scale. Now obviously, that's like many years from now here. But I think that, that -- it makes a lot of sense. Now obviously, there's a significant software value that's contributed on top of that, too, that arguably, you could say the cumulative value that you're providing for this with all between hardware and software is into the thousands, even in a standardized case. And obviously, we're also leveraging other second order opportunities, not to get too deep into it, but things like the trajectories around insurance and other aspects to be able to capture significant value and essentially even as much or more value than what the lidar itself when it comes to these kinds of.

So it's really interesting to be able to see that. That said, I think that when it comes down to the product, there's no question that the idea behind this only being in certain specific luxury models as an option is going by the wayside and now actually having the opportunity to truly go mass market. And this is really the first public bold statement from someone to make that happen.

And Dan, we talked in the past about initially, our BOM is going to be a target of $500 in longer term, we want to take it closer to $100. There's 2 things that are needed to kind of take it from that $500 to the $100 million. The one is there are some, I would say, product development goals that we need to achieve. Freedom is critical in doing that. We know that [Abinheuse]. The other thing is you need substantial volume and economies of scale to bring the cost with the recent major commercial wins we have, including Nissan, you now see a path for us to do that.

And so this is really self-fulfilling. Getting the volume allows us to continue to innovate and bring our costs down. It gets us at economy means of scale. And so that's the road map that we have to kind of -- we're always going to be as per customers to bring the cost down. But you're right, in order to penetrate that mass market, you need to change the price of lighter than what you're initially charging in the luxury or premium segment.

Great. And then as a follow-up, Austin, you noted that your compensation plan is going to be updated or released in the proxy. And you said there are some operational milestones alongside the stock threshold. Could you just elaborate what those operational milestones are?

Yes. The key is launching with series production. I mean, that's the fundamental business value inflection point that's there. Now of course -- and that was something that the Board that we could put into place. But I think the most relevant and valuable -- obviously, the hardest to hit one, obviously, is going to be the $50 per share that's there since that's what we have ahead. But like I said, I couldn't have more conviction in terms of the long-term business value of everything that we have, and that's what I'm signing up for or as part of that wouldn't make a dollar.

Are there revenue or EBITDA thresholds attached to that?

No. But there is a time vesting schedule. It's like a 7-year period that's there. that have to be with the company up as part of this. So not that I was planning on not being here in 7 years, but it's -- that is another condition as part of it.

Next question comes from Aileen Smith of Bank of America.

So I want to ask the first question from, I think it's Slide 5 in the deck, specifically that you are accelerating capacity expansion in light of commercial momentum. Can you elaborate a little bit more on this? And specifically, what time frame this is for? I think now you're at something like 10-plus commercial wins. The outlook you gave when you went public was a model based on 4 wins. But I'm assuming that most of those commercial programs don't go into production until mid-decade. So is the capacity expansion something immediate for planned production in 2023 or the near term or rather further out in the business plan?

It's more in the immediate term, Aileen. And as we talked about in the past, we are launching with Celestica our contract manufacturing partner that's going to be doing the final assembly. Fabrinet is doing the most complicated and technically advanced subcomponent, which is a transceiver. They then send it over to Celestica who does the final assembly, and then from there, they ship it to our customer. We were initially planning to launch at a shared facility where Celestica make -- would make our lidar, but a bunch of other components that they make for their other customers. Our volume indications from our customers have now reached a point in the near term where the run rate where we're being asked to produce kind of exceeds the available capacity in that shared facility. And so we're going to be working with Celestica to build out more or less a dedicated facility, located right near that are planned in Monterrey that will be dedicated to Luminar and being able to handle the capacity that we need, not only in the near term, but in the medium term as well, given the better-than-expected volume guidance we've gone from our customers as well as from our better-than-expected commercial win momentum.

Okay. Great. And then I wanted to ask a question around the Nissan partnership and read-through to other automakers. Specifically, you're launching on select new models first around mid-2020. And then by 2030, possibly across all of their new vehicles. And that's a pretty big commitment and almost a preemptive announcement of standardization in a sense. In terms of the conversations with other automakers, how many would you say are structured in a similar capacity where you start off more on premium models with a plan to be rolled out across the entire product portfolio over time? Or rather do most automakers want to see the technology perform an initial models first before committing to rolling it out further?

Well, I think generally, the strategy of the industry is to try and introduce the cool new stuff in the high-end models and then ultimately have a trickle down over to the rest of it over the course of a decade or two. I think what people are realizing is that this isn't something that's just a cool widget that's on the vehicle as part of this. This is fundamental to the overall driving experience, the overall safety of the vehicle, the value of the vehicle, to the consumer impression and not to mention pressure from a regulatory standpoint. The insurance cost ethers so many different factors that come into play here. that really make an incredibly strong, almost no brain or business case to standardize this across the lineup. So I think it's -- there's no question that the conversation is certainly shifting from if to a matter of when at this stage and a more holistic capacity. And I think that's happening as well.

Now that's not to say that people won't start on this. You have to start somewhere. If you were to try and launch on millions of vehicles all at the same time with this, that would probably be a bad idea. But this is where, I mean, automakers when they introduce this. The key is that what is the trajectory of what the actual product road map they have and what is. And I think we're seeing, whereas historically, you would be like decade-plus long cycles by the time you introduce a new tech first vehicle model by the time of proliferate out the industry. I mean even with like seatbelts and airbags and everything. I mean it took decades for this to happen. Now we're talking years for this.

So it's really accelerated. And that's obviously in the tech world, that sounds slow. But in the automotive world, that's moving a blazing speed when it comes down to it. And this is just because it's such a significant commitment to be able to try and plan for these things and some huge investments in events. And also it's incredibly sticky on this stuff, too. So it makes a big difference over the long-term period.

I think, Aileen, it really comes down to. There's really 2 major systems that our technology enables that we've talked about. One is the highway autonomy, which fits very well with the luxury and the premium brands, particularly with what that trim package can cost the consumer and the additional profitability it brings to the OEM. The other is the proactive safety, and we've always viewed the proactive safety of what drives standardization. We've been very public recently initially showing demos last year, showing it live at CES, and this is really starting to resonate with the OEMs, particularly the mass market OEMs. We think proactive safety should be available to everyone, just not the people who drive high-end luxury vehicles. This technology will save a lot of lives. Nissan recognizes that they recognize the power of our lidar and what that can enable an additional safety functions. And so they wanted to design a system that, yes, they're probably going to start it on the high-end vehicles, but they want to put it on every vehicle because they see the impact that this can have on making our roads a lot safer.

The next question comes from Josh Buchalter of Cowen.

Congrats on all the commercial and operational progress, First one, a bit of a clarification. I believe on the order book target, the Mercedes wasn't included in the 40% growth because it's in the ['21] number. So I guess I wanted to ask, I assume that's not the case for Nissan. And is there any amount in the growth contributing to 40% growth in its latter half of the decade when the majority of the volumes will be?

Sure. So let me talk a little bit more about that. So -- the most recent order book that we have at $2.1 billion is as of December 1, 2021. We did a lot of work for Nissan last year, but it didn't progress to the point where we kind of declared that a major commercial win. As I talked about before, we're very conservative with what we put in there and it needs to read a certain threshold and a certain certainty where we felt comfortable on that. Nissan in the $2.1 billion in 2021 had 0 Nissan in there. There was some Mercedes in there because the Mercedes agreement kind of progressed to a point, and you can see in some of the public filings, some of the agreements we entered into last year with them, where we did include it. What I would say, though, is the numbers for both of those customers can go up this year and in the future if they give us more programs if they give us more volume. We're going to update our forward-looking order book at the end of the year. We declared Nissan a major commercial wind, which needs is eligible to be in there. But the amount we're going to include this year is going to be very, very conservative based upon where we are in that specific time at the end of the year with Nissan.

This is where you see the multiplier effects even from existing wins as there if it may have a start up, for example, like some specific model or something that's there, but then it expands to more vehicle lines and other things there, too, that's what makes -- obviously makes all the difference. And that's what we're also experiencing and seeing with greater volume indications across the board, not to name specific names, but that's a driver. And that's not a fundamental surprise, but something that was even more than expected from what we have.

All right. I appreciate all the color there. And then for my follow-up, you spent a good deal of time talking about vertical integration, both on the call and in the video. In particular, I wanted to ask about Freedom Photonics. I believe that allow -- are we allows you to go to a laser diode instead of a fiber laser. Can you walk me through some of the benefits from either performance, cost in form factor and why acquire versus sourcing.

Yes. So yes, I would say the fundamental laser chip design capabilities, being able to have that in-house is definitely something that can accelerate the road map when it comes down to it. And we obviously take the build by partner decisions very seriously when it comes down to it. And -- but I think this is 1 of those things that is just so fundamental that partner is great, but let's continue to be able to industrialize this stuff because 1 other aspect is you have to be able to make sure that you can actually have auto grade components for a series production product. And this is not something that frankly exists historically in this industry. So we have to really be able to focus to make sure that we have the full capacity occurred. We have industrialized to meet automotive-grade quality and standards. And we're at a stage of where it can scale accordingly. But obviously, what's the initial driver behind it is the tech.

And yes, there's -- you could probably do something by the notion that -- I mean, these guys have truly breakthrough capabilities when it comes to laser power and efficiency and everything out of a diode with that, which is able to be able to significantly reduce costs that are there versus the current systems that are had.

So without talking too much or give too much away on that front, there's no question that kind of the final pillar to what we needed to have to be able to ultimately meet our long-term cost road map from ones there. So that's why that was a really important part of that.

And obviously, it's a breakthrough new capability that we have in-house, leveraging the platform that they have today from the chip design capabilities for lasers. We truly are from the chip level up across all aspects of the lidar sign. And this is obviously a fundamental differentiator versus everyone that's historically used the same low performance off-the-shelf, components that are available readily from the existing component suppliers have been around for decades, which just doesn't get you anything close to the level of performance capability that you need or the economics needed to be able to really deliver this in serious production for what's needed.

Next question comes from Michael Filatov at Berenberg.

So first, I just want to nail something down. In your annual filing, you talked about if you don't achieve a major commercial win and with respect to a particular vehicle model, it may not have the opportunity to supply your products to that OEM for many years. And so I'm just wondering, a, how many of your commercial wins are for specific models or committed to specific models or platforms, right? Is Nissan commitment to supply specific models or platforms? And then I suppose, can a supplier, maybe a competitor theoretically supply Mercedes, even though you have sort of a commitment with Denver series production maybe in a future platform when they're launching, if you get what to say.

Yes. So Michael, typically, what happens, and it's different by each OEM. I would say most of the time, we typically start with a specific program. It doesn't jump to standardization across all vehicles, all makes, all models all programs on day 1. It's specifically starts with a specific program. And then the OEMs kind of designed the autonomous system around you and that gives you a design advantage as you go win more and more business. Let's take Mercedes, for example. What we see with a lot of these OEMs is -- some of them have started with specific lidar projects that enable a traffic jam, pilot assist or something. And for that, you don't need the robustness of our lidar. You probably arguably don't need a lidar at all in order to enable that. But if you want to take it to the next generation of safety like Nissan wants to do or the next generation of autonomy, which Mercedes wants to do, you tend to need to use our lidar. So for example, Mercedes is using another existing legacy lidar for that TJP and some of the lower-end systems, but for that next-generation stuff. They decided that, that technology doesn't work, and they really need to use the robustness of our lidar.

And so winning those initial programs, it tends to be a select few -- and then as that technology is proven and then they develop it, they roll it out to more programs over time. But going back to what we said before, those major commercial wins for a customer, what we include in that order book are only the programs that we've been delegated as wins.

I think it's fair to say that for nearly a dozen major commercial wins that nearly all of them either have identified the lead programs that we've been working with them on for some time or will are -- have certain -- or developing on a specific platform as part of something that they're still figuring out the details for what specific models and that they will launch and everything. Usually, OEMs actually get those age where they don't even -- they don't announce vehicles other stuff, I mean up until like right when things launch that are there. But I think people have been excited enough about the capabilities that we enabled. They want to be able to get out there with it. So a great example with the Nissan of showing off the vehicle capabilities that makes all the difference.

Got it. And just 1 more following up on Josh's question actually. So on your target $100 BOM, again, it seems like there's got to be an architecture change there going from a fiber laser to a [1550] laser diode. So if you were doing that, switching to a laser diode without fiber amplifiers, I mean I can see how they can certainly achieve significant cost reductions given the cost of fiber lasers. But could that impact performance, right, the range of the lidar sensor, given that you're taking away fiber amplifiers? And then when would you expect that transition and architecture to happen, right? Is this a couple of years away? Or is this 5, 10 years down the line?

I think it's fair to say that every version of what's after Iris and what's after that has significantly higher performance than not the other way around, whilst also driving that cost down. So there is some secret sauce behind it in a few different dimensions. But this is like we're the core driver behind it. It takes a combination of you have to have the most sensitive receiver in the world of its kind to be able to make all of this work, and it's effective. And that's what we've been able to do between Black force engineering and option of this as part of these 4 components combined with our overall system design. So as part of this, it's -- there's a few different factors that come into play with the overall architecture. But we've been able to pull it off without getting into too much detail on that.

Next question comes from David Kelley of Jefferies.

Maybe just starting with Fabrinet, hoping you could talk a bit more about some of those process improvements you've seen over the last quarter or so. And what are the next steps that you're looking to achieve there as you prep for automotive grade scale production?

Yes. So I think in terms of the kit of critical next steps for Fabrinet is really just about continuing to process rapid iteration of continuous improvement, being able to reduce cycle times being able to make sure that we can ramp up with the necessary capacity. I mean, there's capacity that we have to put in, as Tom was alluding to with Celestica, there's stuff that we have to do with Fabrinet, but it's great to be able to have these guys live and ramping with this as we go through the sample stage and leading up to series production. So that's a critical step.

I would say -- in terms of what's -- I wouldn't say there's anything -- this was kind of the major milestone there. There's still a lot of work left to do, but I would say it's relatively tactical when it comes to an execution standpoint for that, and they've got a great team out there that we're working closely with in Thailand. But I would say that the Fabrinet was really doing the the core transceivers, the lidar engine behind it, and then that can shift over to Celestica, who does the final assembly for everything that's there. So it's really a matter of just continuing the industrialization process improvement cycle times. It's kind of boring, but important, it's nevertheless to be able to make sure that we do it well, do it right and do it all throughout the course of the year.

Got it. Boring is not a bad thing. Thank you. I guess as a follow-up. So you're now vertically integrated receiver processor, laser, maybe to ask a question a little bit differently, but help me to talk about some of the competitive advantages. And specifically, we always think about global OEMs, they want leading technology, but also some assurance to scale production visibility from their suppliers. So I guess it's clear really early. You've just completed the third acquisition. But -- have you seen it? Or do you see being fully integrated, driving any aspect of differentiation as you think about the bidding process with customers going forward? .

Absolutely. And I think actually -- well, 1 interesting example that I had just some send over something of a screen shot from like, for example, the Nissan presentation that's there. And again, like this is in our slide. This is stuff that OEMs are presenting live. Like you take a look at an example. Can you guys see this? Yes. So it goes to show as you can see like for these next-generation lidar to the capabilities that are here, people are doing these extensive benchmarks throughout the industry in terms of the different tech capabilities that are there. And it's really Luminar that's ending up on top each time around as opposed to. And this is the fundamental underpinning about what can be enabled from a next-generation safety standpoint as well as a highway autonomous standpoint. So yes, you take a look and from both a ranging performance as well as the resolution at range across the entire field of view and the horizon where it matters most is very important, and that's where we really end up in that critical target performance box that they're at the cutting edge of what's to be had. That's not to say that there won't be more in the future as part of this, and there will be. But I would say when it come -- this is all enabled by the fundamentals of these core components from the companies that we've acquired from the design direction of everything that we had within Luminar from the 4 lidar engineering experts and the I mean we basically acquired the majority of the world's supply of relevant folks that actually work on all of these these things. And that's where you start to see like realizations of what actually can happen. Like, okay, what does all that mean? Well, and this may be answer some other questions that people had about the functionality of what you're trying to do. But like this is a good example of where you see like you can see the tire coming out on the road here too as an example of where they have to be able to model and simulation what's ahead to be able to avoid that. And this is exactly the kind of stuff that you can be able to prevent crazy scenarios and collisions and installed car out on the road. Same kind of deal. There's a longer like half hour, our long video that Nissan has as an example that goes into detail on some of these things. But it's just -- this is the kind of fundamental differentiation that now automakers are starting to put out. It's not us anymore. It's the actual automakers themselves that are literally doing -- I mean, -- that's why I'm saying it's almost like luminar marketing at some stage. But that's where I think -- I do think people are seeing it as a differentiator for their vehicles and next-generation technology clients and everything that's there, and that's why people were so shocked to see folks like -- and folks in the industry like Nissan as [Massmart] folks starting it adopts.

David, one unexpected benefit that we're starting to see and look at still early innings is now that we have the BFE optigration and Freedom teams all on the same side and wearing the same jersey in kind of our R&D work, just having all those right individuals sitting at the same table and brainstorming on where to take the next generation of the product, they're really unlocking some very interesting things. And so there are, what I would say, some R&D synergies, not by taking cost out by just having smart people collaborate by all sitting at the same table that we're starting to see in the early stages here.

Next question comes from Srini Pajjuri of SMBC.

Austin, a question on the software readiness. I know you said you expect Sentinel production ready or beta version by end of this year. I guess as you shift to Volvo and SAIC, I believe, end of this year, do you expect both hardware and software to be available at the launch? Or is this something that's going to be available down the road on OTA. And just as a follow-up to that, obviously, it's a great start, but you're selling a platform onto these models. Do you see any additional OTA upselling opportunities down the road on these initial design wins? .

Absolutely. And I think when it comes to this, from a software standpoint, the answer is that, yes, there already is expected to be a software content with these OEMs off the bat is there. Now the capability will continue to improve over time, and it will continue to get better and the performance will get better and the capabilities will get better. And this is -- it was a foreign concept just a handful of years ago, and now it's really coming into full life with OTA capabilities out pretty much every new vehicle that would be launching on. So that's an important part of that.

But yes, in terms of additional opportunities, I mean, absolutely, like it's the same kind of thing of when we were I mean when we were first talking to OEMs about dynamic pricing models and subscription pricing models and all of these other things there, people are now taking a page out of the book to be able to actually implement these things all the way down to the consumer level in some cases. So it's happening. And there's absolutely additional opportunities that are had there on both a onetime and a recurring basis. So I would be -- in fact, I would be surprised if that's not the dominant bottle by the end of the decade in terms of how all the rest of this evolves and plays out with to being able to have continuous recurring revenue streams from this.

It's still -- it's going to -- it's actually ultimately most advantageous. It's not just for us, it's for the OEM as well and the consumer for that matter with this. But it's a transition time, obviously, to be able to fully realize that.

That's helpful. And then my next question is for Tom. Tom, I'm looking at your annual guidance, greater than $40 million. If I just annualize your Q1 number, I think we get pretty close to that. And given your comment that both Volvo and SAIC are going to start ramping later this year, out of thought that number would be actually meaningfully higher. And I'm looking at my back of the unlock math here, I think the SAM opportunity at Volvo alone just for hardware is north of $100 million annually. So I'm just curious as to why you're not being more aggressive on the outlook for the year? .

Good question, Srini. Look, we're not -- we think the vast portion of our revenue this year is going to be from the program revenue as well as pre-production sensor sales. So we're being conservative in terms of what we're estimating for anything from series production revenue. And I think, quite frankly, you're not going to see a significant amount until next year. And then some of your high-level math that you just talked about for series production, doesn't sound too far off to me.

I think it's fair to say in a world of companies that overpromise and under deliver in this space, we want to be the company that under-promises and overdelivers. And that's something that's kind of core to the flash, everybody hears it from me consistently. So yes, if we end up doing better than expected on our goals, that would be my bet.

All right. We'll have 1 more analyst and then we'll close out the call. So the last question will be from Itay Michaeli of Citi.

Just want to go back to the comment around increasing capacity and your customers kind of increasing demand. First, I'm curious how much of that is reflected in the order book to date; and b, curious like what is happening there? Is it higher take rates on trims? Is it expanding into other vehicles? Sort of what's kind of driving some of that demand? And maybe if you can quantify to some extent.

Yes. So what I would say is, once again, at the $2.1 billion that we had at the end of 2021, that had some assumption in there for what the business would be not only in 2023, but in the future. The decision to kind of work with Celestica to build out this dedicated facility was only made recently this year. And so you can kind of back into there that there's probably some higher volume requests from our customers that weren't fully incorporated into our 2021 year-end target.

Perfect. Just to get a quick follow-up, but back to Nissan. What are the next milestones in the relationship? Like what should we be thinking or anything you might announce the next 6 to 12 months?

Yes. Look, right now, the teams are working real time together on developing this system. We've already invested a lot of time to kind of get this to the stage where Nissan kind of shared some of their live demos for those that didn't see it because it's in Japanese, but they do a good job with England -- English translation. It's up there on YouTube, and I think we have a link to it in some of the earnings material that we released. But we're working on developing this system, and then we'll work with Nissan to figure out what is the cadence that they want to deploy this out to each specific vehicle platform that they have. And so they have a framework for what they want to do. But right now, the teams are focusing on getting the system to work the right way.

The next steps at the end of the day is you got to execute, continue to deliver scale, do what it takes to make this happen and make it successful. So it's a pretty straightforward path, not an easy one, but it's clear.

And thanks, everybody, who joined our quarterly call. We'll end the call (inaudible).

Thank you, everyone.

All right. Thanks, everyone. Appreciate you joining, and we'll see you again soon.