Lidar – Last Man Standing

The only thing that matters is cash.

• The weakening of EV demand and the failure of the industry to produce autonomy has slowed demand for automotive Lidar putting a lot of players in existential trouble with Luminar being the latest victim.
• When a company announces a large restructuring, strategy shift and headcount reduction a few days before its results, it is pretty clear that there is bad financial news in the pipeline.
• Luminar, alongside Innoviz and Ouster, is one of the remaining Lidar makers but the way things are going it looks to me like there will either be a hugely dilutive rights issue or the company will be taken over.
• Luminar has announced that it will now shift to a more asset-light business model which in plain English means that the company thinks that it will run out of money unless it takes drastic action.
• This is obvious just from glancing at the company’s financial statements.
  • First, gross margin: Luminar is still operating at negative gross margins.
  • This means that the company is losing money on its products before it has paid for R&D, sales and marketing, administrative expenses and interest on its debt.
  • This is an unsustainable state of affairs and has to be fixed if one wishes to avoid going bankrupt.
  • Luminar is very late in addressing this issue as this problem has been evident at least since 2021 and it worsened in 2022.
  • Hence, I suspect that the severity of this problem is at least partly due to management’s tardiness in taking remedial action.
  • Second, cash flow from operations: which in my opinion is the single most important figure that any company produces.
  • This is because it is one of the most difficult to disguise if the numbers are bad and tells the observer the most about the true state of the business.
  • In 2023 Luminar’s operations burned $247m, $208m in 2022 and $148m in 2021.
  • Third, cash and cash equivalents: which is also extremely important as it tells the observer how much is left in the bank before the company grinds to a halt.
  • Here, Luminar has $139m in cash and $151m in marketable securities giving it $290m of liquid resources.
  • This gives the company 12 months to execute a fix assuming the debt does not get in the way.
  • Fourth, debt: where Luminar has 615m in convertible debt which is what makes its situation even more difficult.
  • This is a key difference between Luminar and Innoviz and Ouster in that both of these have much lower or no debt at all (Innoviz).
• This explains why Luminar has been forced to take this action and it explains why the share price has been under so much pressure.
• To be fair to Luminar, its shares are down less than Ouster’s from when they listed, but the key difference is that Ouster has 22% gross margins meaning that it has a much clearer path to cash flow breakeven without having to raise any more money.
• Both Luminar and Innoviz are focused on the automotive lidar market while Ouster has always spread its net much wider and gets most of its revenue from industrial clients.
• This diversification is now playing in Ouster’s favour as it has been less affected by the EV slowdown and the failure to deliver autonomy.
• Furthermore, Ouster has always been asset-light and fixed its cash problem over a year ago when it acquired Velodyne which was in reality, a dilutive share issue.
• I think that Innoviz will also need to raise money at some point in the next 12 months meaning that Ouster is probably in the best position of any of the lidar makers.
• Using a 13% discount rate, I can get to $20 per share on a DCF basis meaning that the share should double again if the company continues its steady execution against its projections.
• This is why I continue to hold it even though it has been a very rough ride.
• I would not be tempted to touch Luminar until there is visibility on its financing which looks pretty precarious.