2023-05-22 21:18:10 ET
Luminar Technologies, Inc. (LAZR)
51st Annual J.P. Morgan Global Technology, Media and Communications Conference Call
May 22, 2023 03:50 PM ET
Company Participants
Tom Fennimore - Chief Financial Officer
Conference Call Participants
Samik Chatterjee - JPMorgan Chase & Co.
Presentation
Samik Chatterjee
Good afternoon. I'm Samik Chatterjee, I cover the hardware companies at JPMorgan, and we have the pleasure of hosting Luminar here for the next session. With us is Tom Fennimore, who is the CFO of the company. Tom, thanks for making it to the conference. Thanks for coming to the conference as well. I'll start with more short-term or near-term questions before we dive into the long-term a bit more.
One of that concerns we've heard from investors more recently is the resilience of volumes in the automotive industry, which is surprising given that automotive volumes have held up quite well in the first part of the year. But how are you sort of consistently assessing the validity of your near-term forecast against what's the dynamic sort of production and demand forecast even from third parties like IHS?
Tom Fennimore
Sure. And first, thank you, Samik for having us here at your conference today. And it's natural as talk of recession is in the air and automotive cycles tend to have a downturn when there's a recession, so not surprising that you're getting those type of questions. For us at Luminar, what we do is we update our near-term volume forecast on a weekly basis, and that's really out over the next few weeks. But every quarter, we kind of reassessed what our more medium and longer-term order books are. And what we tend to do is we use IHS, which I think is probably one of the more traditional industry sources for volumes. And so as they update their forecast, we do. But I would say we tend to adjust the IHS and probably more of a hair count to be overambitious depending upon that.
For us, though, what's really driving the growth here is Luminar and what we're focusing on is this upcoming Volvo launch. And for us, that's going to go from zero to a very large number. And so that is going to be a very big number for us whether there is a recession or not. People are going to buy a lot of the next-generation Volvo flagship SUVs. I think you've heard that their initial orders have sold out and gone were a lot better than that they were expecting. And so yes, if there is a recession next year, maybe they sell a little fewer than they would have if there wasn't. But from our perspective, we're going to sell a whole hell of a lot more of sensors on those vehicles than what we're selling this year.
Samik Chatterjee
Okay. And since you brought up Volvo, and I know I have discussed about this. But post your earnings call, you did have the update about no changes to sort of guidance even though there was a push out in the timing of the vehicle from the customer that was announced post your earnings call. Let me just go through sort of the dynamics of that? Why doesn't it change your financial guidance? I think it also speaks to sort of how closely you're engaged with the customer, right?
Tom Fennimore
Yes. Look, we're in there working with Volvo and all our customers on a weekly basis. And we kind of set our financial guidance on a conservative basis. And so I would say when we built up not only our guidance for 2023, but also some of the more medium and longer-term guidance that we shared at Luminar Day. We tried to build that up on a conservative basis. In the automotive industry, any launch production is always very difficult. And one of the things you may have noticed is we said we're going to get to that 1 million unit run rate in the 2026, 2027 time frame.
The reason why we gave a range there is it comes down to the exact precise time when each of those 20-or-plus vehicle lines we are working on are actually going to launch. And we can't control the timing of when that precisely is going to happen. We can control the timing of when we're ready to be. But we also wanted to leave a cushion in there because in our experience, sometimes SOPs tend to delay, building a new vehicle platform and launching it, it's a very complex thing. And so from our perspective, the financial guidance that we built upon had some conservative in there so that when Volvo did publicly announce their SOP, we didn't have to adjust our guidance accordingly.
Samik Chatterjee
Okay. One of the other things that you've highlighted recently is the facility in Mexico that's essentially ready ahead of what you had planned earlier. I think the expectations remain for revenues to ramp starting this year, but what's sort of the implication of the readiness of the facility in terms of your financial targets? Should we think about any changes in terms of margins, et cetera, in terms of overall – from the outcome of being ready ahead of time?
Tom Fennimore
No. Look, I would say we're still expecting, as our new facility ramped up towards the end of this year, that there's two things that's going to happen. One, our revenue is going to ramp. I would say the real ramp is going to be more tied to the Volvo start of production. When you're going to see that step function change improvement in it, but the new facility is going to bring some increased revenue. We kind of share that we're going to at least double our revenue this year, which would imply an $80 million plus revenue for the year. Our first quarter was in that $14 million range. So that would imply some ramp up towards the end of the year.
But the other thing that's going to happen is the cost should come down. And we're spending a fair amount of what I would call them launch-related costs to get that new facility up and running to get the CapEx finished out to get the new facility build out to help our suppliers ramp up, et cetera. And so I think the benefit is as that facility becomes ready, you're going to see a lot of those costs substantially widened down. And we shared some of that guidance on our most recent quarterly call as well, where we expect to cut our quarterly burn rate in half or at least in half or approximately in half between Q4 and Q1.
Samik Chatterjee
Okay. And that's an interesting point because I think one of the key sort of investor takeaways from the 1Q call was around the gross margin. And how do you get from the 1Q gross margin being negative to being breakeven by Q4? Maybe just flesh that out a bit more in terms of how much of that comes from the launch cost coming down versus the volume ramping?
Tom Fennimore
Yes. I'll give you – kind of quantify that a little bit. Our Q1 non-GAAP gross loss was a little less than $12 million, and our launch-related costs in COGS and other charges associated with that were about 11 and so if we get our launch costs, I would say, where they should be. As we successfully launch you can see almost getting to that gross margin breakeven point just from having those launch costs dissipate.
Samik Chatterjee
Okay. Got it. Your guidance for triple-digit revenue growth in 2023, how much is NRE revenue growth contributing to it versus series production-related revenue and how should we think about sustainability of the 100% plus growth rate in the coming years?
Tom Fennimore
Yes. So when you kind of look at our implied growth in some of the medium and longer-term financial products, I would say, that triple-digit or at least doubling our revenue, that's something that we expect for the next several years. I think a lot of that's going to come down to the precise timing of the launches, et cetera. But when you look at the backlog and what we have in the hopper, we feel very confident about that.
In terms of the specific growth this year, I would say a lot of that growth is coming from sensor revenue. We've had a healthy amount of NRE revenue over the last two to three years because we're actively working on Volvo, Mercedes and other contracts where our customers are paying their NREs, and NRE is still going to be a healthy contributor to our revenue this year, but what's driving the growth, it's going to be more on the sensor side as opposed to the NRE side.
Samik Chatterjee
Okay. Got it. On the Mercedes announcement, can you share more details there? What's the primary differentiation that drove that win? Is Mercedes sort of increasing your customer that's appearing to hedge its bets with multiple partnerships across the ecosystem because how do you think about competition from like existing partnerships like Mobileye et cetera? How are you looking at the competitive landscape, particularly with regards to that customer and whether the OEM is trying to hedge their bets on which technology platform to go with?
Tom Fennimore
So what really drove Mercedes here was them wanting to take their next-generation system to the next level. So they have an existing LiDAR partner, which is a 905 maker. The issue with 905 is there's physical limitations because of the eye-safety requirements of how much power you can put through the laser for us because we operate at a different wavelength, 1550, we're able to put out many more photons in the system because we have – we don't have those eye-safety constraints. And so as a result, we're able to see further than a 905 LiDAR.
That was very important to Mercedes. Their existing LiDAR maker could only enable autonomy to a certain speed. With us, it's actually able to go at much higher speeds. And the Germans, they like to drive very fast on the auto bonds, so that's very important to Mercedes. And so we've been working now with Mercedes for a few years. And initially, it was for a very small set of their vehicle lines. And then as we were in there working with them, continue to execute, they wanted to take this next-gen technology and really introduce it to more and more vehicle lines. And so the announcement we made with Mercedes earlier this year was really an expansion of that partnership to more vehicle lines and deploying that next-gen technology that we've been working on with them now for a number of years to more vehicle lines.
And so I think that, that's a trend you saw with Volvo. That's a trend you saw with Polestar. I think that's a trend you're seeing with Mercedes. It's really because our technology enables that autonomy at very high-level speeds, certain OEMs maybe working with more of a legacy LiDAR maker, but if you want to enable that next-gen technology, you do need to come to at 1550 and with us. And so that's a trend we saw with Mercedes, and we would expect to see with other OEMs as well.
Samik Chatterjee
Okay. Probably that sort of is a good segue to one of the questions. And particularly this topic came up after your earnings – recent earnings call is one of your key 905 competitors on their earnings call announced a win with on a light commercial vehicle and they talked about multiple wins where they've looked at or are being evaluated to displace 1550-nanometer both in relation to sort of performance as well as cost. How do you – I'm sure you track all your competitors, so it's not new news for you, but how are you looking at that competitive landscape? What's your reaction to being sort of your competitors announcing wins where they're saying we are able to displace Luminar because of performance and cost?
Tom Fennimore
We've gotten used to like a lot of FUD and noise out there from these other LiDAR companies. Some of that, I would say, is we see a big difference between what people are actually saying and what's really happening. We're unaware of any of that happening. We're unaware – we are aware, quite frankly, of talks the other way, right? We saw it with – the trend you're seeing is really the 905 going to the 1550.
We only make customer announcements when our customers are ready. And so there's a lot of stuff that we're working on behind the seats where quite frankly, we keep our mouth shut. Our other LiDAR competitors, they're going to say what they say, and we can't control what they say, but we're just focusing on continuing to execute and doing what we need to do and the facts are going to shift themselves out in the medium and longer term.
Samik Chatterjee
Yes. Okay. I'll ask one more and then sort of switch over to – I see a lot of questions coming in over here. You had the announcement of engagement with Nissan in the past. That's from my recollection at least, the highest volume automaker you've tied up with. How has progress been in relation to that engagement? How are things shaping up in relation to adoption of the product? And I think you've talked about them potentially going standard fit as well. Just update us on that relationship.
Tom Fennimore
Well, to be fair, they've actually talked about. I mean what they've said publicly is that they're developing this next-gen safety system. They wanted to use LiDAR. They did an extensive research and ultimately decided to develop that system around our LiDAR. And what they said publicly is they're going to start deploying that on vehicles, their vehicles starting middle part of this decade, and their goal is to have it on virtually every vehicle that they make by the end of the year.
That relationship that we have is continuing to progress. Nissan a month or so ago, just unveiled a commercial in the Japanese market, highlighting this next-generation safety system that they had in future our LiDAR on it, and so we're very pleased where that's heading. I think that that's an example of as we build our order book, our forward-looking order book where we're very conservative. So at the end of the year, despite all that progress we made with Nissan, we had zero of that in our order book. And the reason for that is we're still working with them to figure out what this is a system that we're developing. And then once it's developed, they're going to deploy it to the vehicle platforms.
We include the stuff in our order book when they make that conscious decision on the exact vehicle lines and entering into a specific agreement for specific introduction dates, pricing, et cetera. Once those decisions are made, that's when we include in order book, and we're still working with Nissan on a vehicle-by-vehicle deployment schedule.
Samik Chatterjee
Okay. I'll move to this question that came in related to this topic. The question is when will the Nissan deal be finalized?
Tom Fennimore
Well, it's going to be finalized on a vehicle-by-vehicle line, the development deal that we have with them and developing it together. That's already been finalized and been finalized now for a period of time, and we're working actively with them. It's just coming down to Nissan and when they make the internal decision on how they're going to deploy that on a vehicle-by-vehicle line.
Samik Chatterjee
Okay. Maybe let me ask it differently. When you take a 12-month horizon, is it timing that…
Tom Fennimore
Yes. I would expect the initial programs to be finalized if you think about over the next 12 months. If you want to start launching vehicles in the middle part of this decade, you need to start making those decisions over the next six to 12 months.
Samik Chatterjee
When will we see Luminar Mercedes on the road?
Tom Fennimore
I think you're going to start seeing Luminar Mercedes on the road that a consumer can buy middle part of this decade.
Samik Chatterjee
Okay. Have there been additional talks with Tesla?
Tom Fennimore
We're not going to discuss anything customer-related until our customers are ready to discuss it. We're not going to do any speculation on anything like that.
Samik Chatterjee
Okay. Moving to the next one. Last fall, you spoke of wins with both new and existing customers. Since then, Luminar has only announced expansion of deals with existing customers. Did Luminar sign contracts with new automotive OEMs whose names have not been disclosed?
Tom Fennimore
Yes, once again, we're going to make public announcements when our customers are ready to make public announcements not beforehand.
Samik Chatterjee
Okay. I guess then the next question is sort of on the same lines, but let me just ask you anyways. What are some of the upcoming partnerships for Luminar?
Tom Fennimore
Same answer.
Samik Chatterjee
Okay. So I got through that list pretty quickly. Let me go back to some of the questions I had. Update on some of the partnerships you announced at Luminar Day. The partnership with Swiss Re as well as, I think Pony.ai, like, just sort of in terms of where are those? I know it's been a few months.
Tom Fennimore
Yes. It's been a few months. We're continuing to move forward. And on that on the insurance side, we're continuing to build out the insurance partner – the insurance platform. We're working with Swiss Re to do testing and figure out the right way to price the insurance for building out the insurance team to support [ALEXT]. We're doing the appropriate state-by-state registrations to build out the legal framework for that. So that's progressing. I wouldn't say nothing, I would say, major to announce at this point. Pony, we're continuing to move forward with them on their next-generation platform and working with them to build it. And I think all the other stuff that we announced at Luminar Day, we're moving forward there and things are executing relatively well.
Samik Chatterjee
And I'll come back to – I have questions on the sort of expense or the investment side of that, but let's get through some of the announcements around Luminar Day. So Civil Maps and the mapping capabilities, obviously, I think now that we're seeing autonomous driving suppliers, everyone sort of looking at mapping being a critical functionality to have. It makes a lot more sense of why you would invest in Civil Maps. But how are you thinking about monetizing it, how you're thinking about when that comes to the market?
Tom Fennimore
Yes. So I would say we've already started to monetize it because we're collecting mapping data with some of our development vehicles that we have. And so there are avenues that we've had to start to monetize that. But I wouldn't say it's in a large scale, but it's putting some wins up the board there. I think what you mean by monetize, is when are you going to see an announcement with a large OEM to do this cooperatively? And look, I think that, that's something we're working towards. Just to remind everybody what we're doing here, most of the mapping data that exists today is more 2D maps, right? You're kind of – you think about the Google maps or the TomTom's of the world, that's what it is. There's a good mapping system based on that.
What we're trying to do, particularly with what our LiDAR enables is 3D mapping data. And then that's data that you kind of collect that's in 3D image, which has a lot of value to it. It has value to it for autonomous driving and when that's going to come here as well as for passenger vehicles, but also other applications as well. What we bought with Civil Map is really a 3D mapping engine, where you can take our LiDAR data and create 3D maps.
And our goal is to ultimately work with our OEM partners and potentially even some of the legacy mapping companies to really capture that data that our LiDAR collects and to construct those 3D maps. And so that's what we're working on real time. We're trying to figure out the right partnerships, both with the existing mapping legacy as well as the OEMs. And when we have something ready to announce, we'll make that announcement. But that's our strategy and that's what we're working on, and we're making progress there.
Samik Chatterjee
I mean just to follow-up on that front. Do you see the primary target there being the OEMs themselves or the mapping companies and…
Tom Fennimore
Yes, it's both. And if you actually think about it, that 3D mapping data that you're able to capture, it's very valuable and going to be very valuable relative to where the 2D maps are there today. I'd be surprised if we ultimately decide that we want to be the next Google Maps. I'm not too sure that's the right strategy for Luminar. I think in the near or medium-term, finding the right partners is going to be the right strategic path for us.
Samik Chatterjee
Okay. Got it. Let me just check – yes questions. Please go ahead.
Question-and-Answer Session
Q - Unidentified Analyst
Thank you. Let's fast forward three, four years or so. Do you think each OEM is likely to stick with one technology or they are likely to have multiple – they can have LiDAR or radar and other emerging technology? How do you foresee this play out?
Tom Fennimore
Yes. It's a good question. I think if you look over the medium term, what you're saying over the next three to five years, I think you're still going to be in the phase where the OEMs are going to be making multiple bets. I would say there are some OEMs like Tesla, which I think they can do a camera-only to build these autonomous systems. I think most OEMs would admit that they need a LiDAR in there to give them that 3D capabilities, which is ultimately going to be very important to assessing the environment.
OEMs, there's been one supplier in particular, more on the camera side that has 70%, 80% market share. The OEMs are going to do everything they can to prevent that from happening on the LiDAR side. So they're going to try to keep, I would say, multiple bets open. So there's going to be OEMs like Mercedes, where made an initial bet on one technology maybe in 905, which ultimately be in the transition to go into a 1550.
Over the longer-term, et cetera, to build these software systems and the full stack for autonomy, those are going to be very, very big investments. And I think ultimately, it's going to come down to can you plug and play a LiDAR. Once you develop those systems and put in place the time and the money necessary to develop, are you going to be able to swap out the LiDAR and have what we call point cloud equivalency. And if you're able to do that, then you can have multiple LiDAR suppliers. If you're unable to do that because each LiDAR is very different and the point cloud you're coming out is get very different. Then if you swap out a LiDAR and put in a new one, you may need to go back and do a fair amount of revalidation and redevelopment of your system, which is going to be very timely. It's going to be very expensive to the OEM.
What we're seeing as we're working on our next-gen product is that point cloud equivalency is very important to our OEM customers. And for us, we're kind of – it's not a de minimis task for our next-gen to make sure that that point cloud looks like the current one because they're building all their software systems around it. And so I think the ultimate longer-term answer, call it over 10 years, to your question, is going to come down to, can you create point cloud equivalency between the LiDARs to allow them to swap out.
And if you can, I think there's a chance that you can have multiple LiDAR suppliers if you can. And I think it's – that's a very difficult task to make work. Then you're going to have to have your autonomous system over who you develop that LiDAR supplier there, there's going to be a fair amount of stickiness.
Unidentified Analyst
And just lastly, how should we think about the cost decline of LiDAR over a three, four, five-year period of time?
Tom Fennimore
So our upfront costs, what we've said for our initial generation today is about $1,000, a little less in scale, a little more in lower scale. That's the cost there. So the question is, what value is that creating? What Volvo has said publicly is that just for the safety improvements alone that they can reduce the severe forward collisions by at least 20%. That's going to manifest itself in a fair amount of insurance savings. In addition, it enables highway autonomy, that trim package where you upsell the consumer. When you look at some of the take rates and the package prices and other, that can be a very valuable stream to them. And so that upfront cost can create a lot of value through the insurance savings, and it could create a lot of value through upselling the customer to higher-end trim packages for, call it, L3 and L4 systems.
Unidentified Analyst
When you kind of talk about the differences in efficacy between 905 and 1550, is that kind of particularly relevant in L2 and L3 cases? Or is that mainly in eyes off cases? And then as a bit of a follow-up, like it feels like a lot of the kind of regulatory or liability-based hurdle to getting to full autonomy is sort of the comfort that OEMs feel kind of bearing the liability of an accident if you kind of advertise a fully autonomous system. What's your sense of what has to change either from a regulatory perspective or a legal perspective before that barrier kind of clears a bit and you see more kind of acceleration there?
Tom Fennimore
So to answer your first question, it's less – stepping back and thinking of these definitions of L2 L2+, L2++ you can see some LL304. We kind of look at it differently. You're either helping the driver, right, assisting the driver, however you want to talk to it or the drivers completely in and out of the loop, right? It's those two things, right? There's different degradations of this, but the whole thing is the driver in control or is the system in control. And then it comes down to just pure domain.
And for us, we're focused – the reason why our application is highway autonomy is when you think about driving on the highway, I'm dramatically oversimplifying here, but the objective is you want to stay in your lane and don't hit anything in front of you, right? There's less things. It's more predictable on the highway than going out here on the city streets right? You shouldn't have children playing on the street of I-95, you shouldn't have like dogs running out in the middle of the road. It's relatively predictable. The issue is you need a sensor that can see 250 meters and see – basically see any object.
Why 250 meters? Well, if you're traveling at highway level speeds, that gives you seven seconds of reaction time, which is typically what you need in order to bring the vehicle to a full stop. Our LiDAR sees that far, which enables the highway autonomy. And so for us, it's that's what we do. The 905 because you can put less photons out there, it's much more difficult to see that. And so when you see for like vehicles like Mercedes, they're only enabling that, call it, autonomy at a much lower speed, which is somewhat useless if you're traveling at highway levels. You can't go 30, 40 miles an hour on the auto – you want to go real fast. And so that's really the difference in what we can enable with our technology relative to 905.
Now the second part of your question is you're right. Ultimately, in OEM, Western OEMs are not going to put any system like that on to the broad until they're absolutely confident that it's going to work because ultimately, they need to stand behind the system and there's certain liability that they need to incur as a result.
Yes, on the regulatory framework, there are certain jurisdictions where it's allowed, but not allowed. But once the technology gets there, yes, I think what you're going to see is more of the regulations open up. So I think the obstacle today is less of the regulation. There are in certain jurisdictions, but there's also certain jurisdictions where they allow it. It's less the sensor hardware, we're kind of ready to go today. It's more getting those software systems and the testing and validation to the point where the OEM is comfortable of deploying that technology and taking the associated liability.
Samik Chatterjee
Moving on, a few questions I've come in. So let me just quickly run through those. Has there been any communication with the government regarding LiDAR system from a military perspective, defense applications? Are you pursuing any defense applications?
Tom Fennimore
There is some defense applications that we have on our LSI business. There are some componentries that go into there. But the primary end-use markets that we're focusing on today and where we see the biggest application for us is the passenger vehicle in the commercial trucking side. That's where we put the vast majority of our resources on it.
Samik Chatterjee
Okay. The other question is 1,000 too expensive for a 50,000 car. So one can assuming is referring to 1,000, the price of the LiDAR too expensive for a $50,000 vehicle?
Tom Fennimore
I think that that's a good question. Certain OEMs have that point of use. Other OEMs like Nissan, have a different point of view. It all comes down to how important is safety to you. And look, ultimately, our plan over the medium term as well as the longer term is to bring that cost down, right? We're at that cost point today. And there's a reason why our business tends to be on those higher-end price point vehicles, and that's part of our strategy where it is. As we said, our next-gen product, we expect the cost to produce that roughly in half, which is going to give us more flexibility to lower price without sacrificing margin to accelerate the adoption.
Samik Chatterjee
Okay. Got it. The announcement of the facility in APAC with TPK, how do you envision that facility being different from the one you're building in Mexico? How should we think about difference in cost per unit as you ramp that facility up. And I have a follow-up, but let's go through that first.
Tom Fennimore
Okay. I'll answer the second one first. I don't think that there – okay, so the actual cost to produce a unit all in between the [indiscernible] and the conversion cost I don't think it's going to be a big difference between the two. I think the upfront cost and the capital we need to invest to get TPK up and running is going to be substantially. It's going to be a fraction of what we did in Mexico. A couple of reasons there. One is Mexico is actually a new dedicated facility that we're building from a brown shell.
And so we needed to put in a Level 5 clean room. We need develop the automation line. We needed to reinforce the floors to the automation equipment, putting on HVAC, all that. TPK has an existing facility with some available floor space. They have a clean room already in place. So a lot of those upfront costs, we don't need to replicate, and that's going to be substantial savings. In addition, look, we learned a lot doing this the first time, and we're going to apply those lessons to the second time, and it's going to be more efficient in terms of building out the automation line and the manufacturing process to build that.
And so I don't think all in, there's going to be a substantial cost difference between the two, but substantial savings in terms of the upfront capital investment we need to make to get it running. Going back to how they're different. So the plan right now is Mexico is going to be producing our Iris product, which is initially going to go to Volvo, SAIC, Polestar and those customers. The TPK facility is going to produce Iris Plus, which is going to be the initial customer there is going to be Mercedes Benz. That may evolve over time, but that's how we kind of see the difference between the two for now.
Samik Chatterjee
Okay. And how does the $20 million investment from the supplier fit into sort of overall your thinking about how do you scale manufacturing from here on? Is this part of a longer-term strategy to have bit more engagement?
Tom Fennimore
No, I would say that the two are unrelated. This is something where TPK wanted to be a strategic partner to us on the manufacturing side. And so then making an investment in Luminar was a way that they kind of wanted to symbolize that strategic relationship or to at least give a vote of confidence in terms of how they want to operate together going forward.
Samik Chatterjee
Okay. Last couple of questions. An update on the balance sheet, how you're managing the balance sheet. I think that is often a question on the LiDAR companies in general, but what's your cash outflow for quarter right now? How do you think about the cash needs for the company through to series production? And do you at all see a scenario in which your capital raise would be required?
Tom Fennimore
No. So right now, we continue to believe that we have enough cash plus a cushion to get to profitability. As we said during the most recent earnings call, our goal is to cut our quarterly cash burn in half between where it was in Q1 and Q4. And for us, a lot of that comes down to taking a lot of those launch and other one-time related costs out of the system. And so as a team, we have those costs identified on a line-by-line [indiscernible] basis. Look, we're not going to take those out too fast so that we put the launch at risk, right? Getting this launch right is the top priority. But there's also – once that launch is successful when you see that path to be it being successful, the next thing we're going to focus – well, the next priority becomes getting on that path to profitability. I'll give you an example.
Right now, we have about 300 contractors that we're working. They're helping Celestica get up and running, Fabrinet up and running, some of our critical suppliers up and running, helping out the engineering team to get all the last-minute validation done. That number is going to be substantially reduced by the end of the year.
Samik Chatterjee
Okay. Got it. Last one, acquisition strategy. I mean, you've been acting as a consolidator acquiring Velodyne's assets, Argo's assets and employees. Is that sort of what we should expect? I mean, I'm sure the market would consolidate more in the coming years. So how do you think about acquisition strategy and is consolidating exist some of the existing competitive landscape a part of it.
Tom Fennimore
I think the word consolidator maybe a little too strong for what we're doing. I think what we're seeing is an environment where a lot of our competitor, other LiDAR companies are struggling. And it's not only other LiDAR companies, but other software companies as well. And we want to be in a position to do smaller bite-size opportunistic activity.
So we talked about simple maps, right? That was an opportunity where they developed a good software mapping engine code. They were struggling to raise their next round. That was an opportunity for us to take them in-house at a very modest price. And we got a good team, good code there. We talked about Velodyne. We wanted to build out in India engineering footprint. That is a place where we're a heavy user of contractors. And so there, we – after Velodyne and Astra came together, they decided to free up some of their engineering resources on the ground in India. So that was a great opportunity for us to hire a team and start accelerating the reduction in some of the contractors that we've had. The other thing that we did recently was the Argo. I think we all know what happened there. They had a good laser team that was part of the business, and we kind of took them on, and it's helping some of our LSI efforts. And so those are all very small bite-sized opportunities, and I think that that's something that we're going to continue to be active in.
I wouldn't consider those consolidation just more opportunistic. Look, I don't want to rule out doing a big deal, but I would say that anything there is would need to be extremely compelling. We think we have the right technology to win here. And so we don't have the reason or the inclination to do anything big. I think if we were, it'd be more likely to be as a result of – on the software side, to build out some of our software capabilities and get a core business there, we're at the encouragement of one of our customers.
Samik Chatterjee
We are out of time. So I'll wrap it up there, and thank you for coming to the conference.
Tom Fennimore
Thank you.
Samik Chatterjee
Thank you, everyone.
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Luminar Technologies, Inc. (LAZR) 51st Annual J.P. Morgan Global Technology, Media and Communications Conference Call Transcript