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Luminar Technologies, Inc./DE - Quarter Report: 2022 September (Form 10-Q)

Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-38791
LUMINAR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware83-1804317
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2603 Discovery DriveSuite 100OrlandoFlorida32826
(Address of Principal Executive Offices)(Zip Code)
(407) 900-5259
Registrant's telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbol(s)Name of each exchange on which registered
Class A common stock, par value of $0.0001 per shareLAZRThe Nasdaq Stock Market LLC
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.   Yes ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes ☐    No ☒

As of October 28, 2022, the registrant had 265,669,181 shares of Class A common stock and 97,088,670 shares of Class B common stock, par value $0.0001 per share, outstanding.

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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Page

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CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which involve substantial risks and uncertainties. These statements reflect the current views of management with respect to future events and our financial performance. In some cases, you can identify these statements by forward-looking words such as “outlook,” “believes,” “expects,” “future,” “potential,” “continues,” “may,” “will,” “should,” “could,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of these words or other comparable words or phrases, but the absence of these words does not mean that a statement is not forward-looking. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies, product plans, future growth, market opportunities, strategic initiatives, industry positioning, customer acquisition and retention, revenue growth and anticipated trends in our business.
These statements are only predictions based on our current expectations and projections about future events. These statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including our history of losses and our expectation that we will continue to incur significant expenses, including substantial R&D costs, and continuing losses for the foreseeable future as well as our limited operating history which makes it difficult to evaluate our future prospects and the risks and challenges we may encounter; our strategic initiatives which may prove more costly than we currently anticipate and potential failure to increase our revenue to offset these initiatives; whether our lidar products are selected for inclusion in autonomous driving or ADAS systems by automotive original equipment manufacturers (“OEMs”) or their suppliers, and whether we will be de-selected by any customers; the lengthy period of time from a major commercial win to implementation and the risks of cancellation or postponement of the contract or unsuccessful implementation; potential inaccuracies in our forward looking estimates of certain metrics and our future cost of goods sold and bill of materials and total addressable market; the discontinuation, lack of success of our customers in developing and commercializing products using our solutions or loss of business with respect to a particular vehicle model or technology package and whether end automotive consumers will demand and be willing to pay for such features; our inability to reduce and control the cost of the inputs on which we rely, which could negatively impact the adoption of our products and our profitability; the effect of continued pricing pressures, competition from other lidar manufacturers, automotive OEMs cost reduction initiatives and the ability of automotive OEMs to re-source or cancel vehicle or technology programs which may result in lower than anticipated margins, or losses, which may adversely affect our business; general economic uncertainty and the effect of general economic conditions generally, including inflation, recession risks and rising interest rates, and on our industry in particular, including the level of demand and financial performance of the autonomous vehicle industry and market adoption of lidar as well as developments in alternative technology and the increasingly competitive environment in which we operate; our ability to manage our growth and expand our business operations effectively, including into international markets, such as China, which exposes us to operational, financial and regulatory risks; adverse impacts due to limited availability and quality of materials, supplies, and capital equipment, or dependency on third-party service providers; whether we will be able to successfully transition our engineering designs into high volume manufacturing, including our ability to transition to an outsourced manufacturing business model and whether we and our outsourcing partners and suppliers can successfully operate complex machinery; whether we can successfully select, execute or integrate our acquisitions; whether the complexity of our products results in undetected defects and reliability issues which could reduce market adoption of our new products, limit our ability to manufacture, damage our reputation and expose us to product liability, warranty and other claims; our ability to maintain and adequately manage our inventory; our ability to remediate the material weakness in our internal controls over financial reporting; our ability to protect and enforce our intellectual property rights; changes in personnel and availability of qualified personnel and dependence on Austin Russell, our Founder, President and Chief Executive Officer; the amount and timing of future sales and whether the average selling prices of our products could decrease rapidly over the life of the product as well as our dependence on a few key customers, who are often large corporations with substantial negotiating power; the effects of the ongoing coronavirus (COVID-19) pandemic or other infectious diseases, health epidemics, pandemics and natural disasters on Luminar’s business; interruption or failure of our information technology and communications systems and cybersecurity risks to our operational systems, security systems, infrastructure, integrated software in our lidar solutions; and those other factors discussed in Part 1, Item 1A, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (our “2021 Annual Report”) under the heading “Risk Factors” and in subsequent reports filed with the SEC which we encourage you to carefully read. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. We undertake no obligation to update any forward-looking statements made in this Form 10-Q to reflect events or circumstances after the date of this Form 10-Q or to reflect new information or the occurrence of unanticipated events, except as required by law.
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In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and investors are cautioned not to unduly rely upon these statements.
WEBSITE AND SOCIAL MEDIA DISCLOSURE
We use our website (https://www.luminartech.com/) and various social media channels as a means of disclosing information about the Company and its products to its customers, investors and the public (e.g., @luminartech on Twitter, Luminartech on YouTube, and Luminar Technologies on LinkedIn). The information on our website (or any webpages referenced in this Quarterly Report on Form 10-Q) or posted on social media channels is not part of this or any other report that the Company files with, or furnishes to, the Securities and Exchange Commission (the “SEC”). The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
September 30, 2022December 31, 2021
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents$56,069 $329,977 
Restricted cash1,234 725 
Marketable securities (including $1 and $12,200 with a related party as of September 30, 2022 and December 31, 2021, respectively, see Note 16)
496,983 462,141 
Accounts receivable9,936 13,013 
Inventory9,153 10,342 
Prepaid expenses and other current assets40,096 29,195 
Total current assets613,471 845,393 
Property and equipment, net21,646 11,009 
Operating lease right-of-use assets22,812 9,145 
Intangible assets, net22,768 2,424 
Goodwill18,830 3,110 
Other non-current assets42,981 12,455 
Total assets$742,508 $883,536 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$24,216 $14,419 
Accrued and other current liabilities31,832 19,844 
Operating lease liabilities6,139 4,735 
Total current liabilities62,187 38,998 
Warrant liabilities5,582 31,230 
Convertible senior notes611,384 608,957 
Operating lease liabilities, non-current18,057 5,768 
Other non-current liabilities2,338 598 
Total liabilities699,548 685,551 
Commitments and contingencies (Note 14)
Stockholders’ equity:
Class A common stock29 27 
Class B common stock10 10 
Additional paid-in capital1,484,996 1,257,214 
Accumulated other comprehensive loss(5,989)(908)
Treasury stock(312,477)(235,871)
Accumulated deficit(1,123,609)(822,487)
Total stockholders’ equity42,960 197,985 
Total liabilities and stockholders’ equity$742,508 $883,536 
See accompanying notes to the unaudited condensed consolidated financial statements.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited, in thousands, except share and per share data)
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue:
Products$6,796 $1,040 $10,135 $5,950 
Services5,989 6,938 19,437 13,650 
Total revenue12,785 7,978 29,572 19,600 
Cost of sales:
Products18,364 4,664 47,169 13,693 
Services10,147 6,098 26,088 12,561 
Total cost of sales28,511 10,762 73,257 26,254 
Gross loss(15,726)(2,784)(43,685)(6,654)
Operating expenses:
Research and development46,308 25,890 120,358 59,813 
Sales and marketing10,111 5,868 26,698 12,010 
General and administrative42,809 35,603 110,984 65,113 
Total operating expenses99,228 67,361 258,040 136,936 
Loss from operations(114,954)(70,145)(301,725)(143,590)
Other income (expense), net:
Change in fair value of warrant liabilities(1,231)17,072 6,645 (22,649)
Interest expense and other(2,660)(374)(9,088)(860)
Interest income and other1,470 843 3,612 1,744 
Total other income (expense), net(2,421)17,541 1,169 (21,765)
Loss before provision for (benefit from) income taxes(117,375)(52,604)(300,556)(165,355)
Provision for (benefit from) income taxes175 (1,264)566 (1,262)
Net loss$(117,550)$(51,340)$(301,122)$(164,093)
Net loss per share:
Basic and diluted$(0.33)$(0.15)$(0.85)$(0.48)
Shares used in computing net loss per share:
Basic and diluted359,753,254 352,122,485 353,537,754 341,858,435 
Comprehensive Loss:
Net loss$(117,550)$(51,340)$(301,122)$(164,093)
Net unrealized gain (loss) on available-for-sale debt securities16 93 (5,081)66 
Comprehensive loss$(117,534)$(51,247)$(306,203)$(164,027)
See accompanying notes to the unaudited condensed consolidated financial statements.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share data)
Class A
Common Stock		Class B
Common Stock		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Accumulated
Deficit		Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance as of June 30, 2021236,483,687 $24 105,118,203 $11 $1,244,228 $7 $— $(697,254)$547,016 
Issuance of Class A common stock upon exercise of stock options and vesting of restricted stock units1,920,137 — — — 1,547 — — — 1,547 
Vendor payments under the stock-in-lieu of cash program291,940 — — — 4,848 — — — 4,848 
Acquisition of Optogration, Inc.370,034 — — — 6,527 — — — 6,527 
Issuance of earn-out shares10,242,703 1 6,970,467 — (2)— — — (1)
Conversion of Class B common stock into Class A common stock10,500,000 1 (10,500,000)(1)— — — — — 
Share-based compensation— — — — 30,410 — — — 30,410 
Other comprehensive income— — — — — 93 — — 93 
Net loss— — — — — — — (51,340)(51,340)
Balance as of September 30, 2021259,808,501 $26 101,588,670 $10 $1,287,558 $100 $— $(748,594)$539,100 
Balance as of June 30, 2022282,211,182 $28 97,088,670 $10 $1,413,064 $(6,005)$(312,477)$(1,006,059)$88,561 
Issuance of Class A common stock upon exercise of stock options and vesting of restricted stock units2,735,219 1 — — 1,101 — — — 1,102 
Retirement of unvested restricted common stock(4,648)— — — — — — — — 
Vendor payments under the stock-in-lieu of cash program537,720 — — — 16,920 — — — 16,920 
Optogration milestone awards1,632,056 — — — 11,751 — — — 11,751 
Share-based compensation— — — — 43,209 — — — 43,209 
Payments of employee taxes related to stock-based awards— — — — (1,049)— — — (1,049)
Other comprehensive income— — — — — 16 — — 16 
Net loss— — — — — — — (117,550)(117,550)
Balance as of September 30, 2022287,111,529 $29 97,088,670 $10 $1,484,996 $(5,989)$(312,477)$(1,123,609)$42,960 
See accompanying notes to the unaudited condensed consolidated financial statements.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited, in thousands, except share data)
Class A
Common Stock		Class B
Common Stock		Additional
Paid-in
Capital		Accumulated
Other
Comprehensive
Income (Loss)		Treasury
Stock		Accumulated
Deficit		Total
Stockholders’
Equity
SharesAmountSharesAmount
Balance as of December 31, 2020218,818,037 $22 105,118,203 $11 $733,175 $34 $— $(584,501)$148,741 
Issuance of Class A common stock upon exercise of Public and Private Warrants15,574,037 2 — — 492,219 — — — 492,221 
Issuance of Class A common stock upon exercise of stock options and vesting of restricted stock units4,011,750 — — — 4,753 — — — 4,753 
Vendor payments under the stock-in-lieu of cash program291,940 — — — 4,848 — — — 4,848 
Acquisition of Optogration, Inc.370,034 — — — 6,527 — — — 6,527 
Issuance of earn-out shares10,242,703 1 6,970,467 — (2)— — — (1)
Conversion of Class B common stock into Class A common stock10,500,000 1 (10,500,000)(1)— — — — — 
Share-based compensation— — — — 46,168 — — — 46,168 
Payments of employee taxes related to vested restricted stock units— — — — (140)— — — (140)
Cash received from Gores on settlement of recapitalization of escrow— — — — 10 — — — 10 
Other comprehensive income— — — — — 66 — — 66 
Net loss— — — — — — — (164,093)(164,093)
Balance as of September 30, 2021259,808,501 $26 101,588,670 $10 $1,287,558 $100 $— $(748,594)$539,100 
Balance as of December 31, 2021266,076,525 $27 97,088,670 $10 $1,257,214 $(908)$(235,871)$(822,487)$197,985 
Shares repurchased— — — — — — (76,606)— (76,606)
Issuance of Class A common stock upon exercise of Private Warrants405,752 — — — 19,003 — — — 19,003 
Issuance of Class A common stock upon exercise of stock options and vesting of restricted stock units6,920,617 1 — — 2,845 — — — 2,846 
Retirement of unvested restricted common stock(48,204)— — — — — — — — 
Vendor payments under the stock-in-lieu of cash program9,574,385 1 — — 60,677 — — — 60,678 
Optogration milestone awards1,632,056 — — — 11,751 — — — 11,751 
Acquisition of Freedom Photonics LLC2,176,205 — — — 30,510 — — — 30,510 
Acquisition of Solfice Research, Inc. assets374,193 — — — 3,361 — — — 3,361 
Share-based compensation— — — — 102,408 — — — 102,408 
Payments of employee taxes related to stock-based awards— — — — (2,773)— — — (2,773)
Other comprehensive loss— — — — — (5,081)— — (5,081)
Net loss— — — — — — — (301,122)(301,122)
Balance as of September 30, 2022287,111,529 $29 97,088,670 $10 $1,484,996 $(5,989)$(312,477)$(1,123,609)$42,960 
See accompanying notes to the unaudited condensed consolidated financial statements.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
Nine Months Ended September 30,
20222021
Cash flows from operating activities:
Net loss$(301,122)$(164,093)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization4,374 2,240 
Amortization of operating lease right-of-use assets3,531 2,682 
Amortization of premium on marketable securities1,111 979 
Change in fair value of warrants(6,645)22,649 
Vendor stock-in-lieu of cash program32,487 2,744 
Amortization of debt discount and issuance costs2,427 — 
Impairment of inventories8,750 1,601 
Share-based compensation117,874 49,887 
Deferred taxes— (1,264)
Product warranty and other(623)1,143 
Changes in operating assets and liabilities:
Accounts receivable6,457 5,748 
Inventories(6,648)(6,658)
Prepaid expenses and other current assets(4,685)(16,971)
Other non-current assets(1,371)(88)
Accounts payable8,379 3,330 
Accrued and other current liabilities5,716 5,910 
Other non-current liabilities(3,571)(4,095)
Net cash used in operating activities(133,559)(94,256)
Cash flows from investing activities:
Acquisition of Freedom Photonics LLC(2,759)— 
Acquisition of certain assets from Solfice Research, Inc.
(2,001)— 
Cash received from acquisition of Optogration, Inc.— 358 
Purchases of marketable securities(363,906)(530,179)
Proceeds from maturities of marketable securities254,068 306,907 
Proceeds from sales of marketable securities68,804 83,493 
Purchases of property and equipment(11,277)(4,155)
Advances for capital projects and equipment(2,009)— 
Net cash used in investing activities(59,080)(143,576)
Cash flows from financing activities:
Proceeds from exercise of warrants— 153,927 
Proceeds from exercise of stock options2,891 4,738 
Payments of employee taxes related to stock-based awards(2,773)(140)
Repurchase of common stock and redemption of warrants(80,878)(2)
Other financing activities— (362)
Net cash provided by (used in) financing activities(80,760)158,161 
Net decrease in cash, cash equivalents and restricted cash(273,399)(79,671)
Beginning cash, cash equivalents and restricted cash330,702 209,719 
Ending cash, cash equivalents and restricted cash$57,303 $130,048 
Supplemental disclosures of cash flow information:
Cash paid for interest$3,863 $53 
Supplemental disclosures of noncash investing and financing activities:
Issuance of Class A common stock upon exercise of warrants$19,003 $338,293 
Operating lease right-of-use assets obtained in exchange for lease obligations upon adoption of ASC 842— 10,849 
Operating lease right-of-use assets obtained in exchange for lease obligations16,749 2,876 
Purchases of property and equipment recorded in accounts payable and accrued liabilities1,663 543 
Vendor stock-in-lieu of cash program—advances for capital projects and equipment21,024 — 
See accompanying notes to the unaudited condensed consolidated financial statements.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)

Note 1. Organization and Description of Business
Luminar Technologies, Inc. and its wholly-owned subsidiaries (the “Company” or “Luminar”) was originally incorporated in Delaware on August 28, 2018 under the name Gores Metropoulos, Inc. (“Gores”). The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. As part of Gores’ initial public offering on February 5, 2019 (the “IPO”), Gores issued to third party investors 40.0 million units, consisting of one share of Class A common stock of Gores and one-third of one warrant, at a price of $10.00 per unit. Each whole warrant entitled the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share (the “Public Warrants”). Simultaneously with the closing of the IPO, Gores completed the private sale of 6.667 million warrants to Gore’s sponsor at a purchase price of $1.50 per warrant (the “Private Warrants”). Each Private Warrant allows the sponsor to purchase one share of Class A common stock at $11.50 per share. On December 2, 2020, the Company (at such time named Gores Metropoulos, Inc.) consummated the business combination (the “Business Combination”) pursuant to the Agreement and Plan of Merger, dated August 24, 2020 with the pre-Business Combination Luminar Technologies, Inc. (“Legacy Luminar”). Legacy Luminar was incorporated in Delaware on March 31, 2015. In connection with the consummation of the Business Combination, the Company changed its name from Gores Metropoulos, Inc. to Luminar Technologies, Inc. The Company’s common stock is listed on the NASDAQ under the symbol “LAZR.” The Company’s public warrants to purchase shares of Class A common stock were listed on the NASDAQ under the symbol “LAZRW,” until they were delisted on March 5, 2021 upon exercise and redemption.
Unless the context otherwise requires, the “Company” refers to the combined company and its subsidiaries following the Business Combination, “Gores” refers to the Company prior to the Business Combination and “Legacy Luminar” refers to Luminar Technologies, Inc. prior to the Business Combination. Refer to Reverse Merger with Gores in Note 3 to the financial statements of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 for additional information relating to the Business Combination.
The Company is a developer of advanced sensor technologies and software for the autonomous vehicle industry, encompassing Laser Imaging, Detection and Ranging (lidar) technology. The Company manufactures and distributes commercial lidar sensors and certain components for the autonomous vehicle industry. The Company is headquartered in Orlando, Florida and has personnel that conducts the Company’s operations from various locations in the United States and internationally including Germany, Sweden, Mexico, China and India.
Note 2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation and Consolidation
The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and applicable rules and regulations of the Securities and Exchange Commission (the “SEC”) regarding interim financial reporting. Certain information and note disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. Therefore, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, which are normal and recurring in nature, necessary for fair financial statement presentation. All intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make judgments, estimates and assumptions that affect the reported amounts of assets, liabilities, equity, revenues and expenses, and related disclosures. The significant estimates made by management include inventory reserves, valuation allowance for deferred tax assets, valuation of warrants, forecasted costs associated with non-recurring engineering (“NRE”) services, product warranty reserves, stock-based compensation expense and other loss contingencies. Management periodically evaluates such estimates and they are adjusted prospectively based upon such periodic evaluation. Actual results could differ from those estimates.
Segment Information
The Company has determined its operating segments using the same indicators which are used to evaluate its performance internally. The Company’s business activities are organized in two operating segments:
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
(i) “Autonomy Solutions” for automotive applications, which includes manufacturing and distribution of lidar sensors that measure distance using laser light to generate a 3D map, non-recurring engineering services related to the Company’s lidar products, development of software products that enable autonomy capabilities, and licensing of the Company’s intellectual property (“IP”). In June 2022, the Company acquired assets from Solfice Research, Inc. (“Solfice”), which have been included in the Autonomy Solutions segment.
(ii) “Advanced Technologies and Services (“ATS”)” which includes development of application-specific integrated circuits, pixel-based sensors, advanced lasers, as well as designing, testing and providing consulting services for non-standard integrated circuits. In the second quarter of 2022, the Components segment was renamed as ATS. In August 2021 and in April 2022, the Company acquired Optogration, Inc. (“Optogration”) and Freedom Photonics LLC (“Freedom Photonics”), respectively, which have been included in the ATS segment.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, marketable investments and accounts receivable. A significant portion of the Company’s cash and cash equivalents is held at high-quality domestic financial institutions. Deposits held with the financial institutions may, at times, exceed the amount of insurance provided on such deposits. Cash held by the Company in foreign entities as of September 30, 2022 and December 31, 2021 was not material.
The Company’s revenue is derived from customers located in the United States and international markets. Two customers accounted for 40% and 19% of the Company’s accounts receivable at September 30, 2022. Two customers accounted for 39% and 31% of the Company’s accounts receivable at December 31, 2021.
Significant Accounting Policies
The Company’s significant accounting policies are disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021. There has been no material change to the Company’s significant accounting policies during the nine months ended September 30, 2022, except as noted below related to revenue recognition from long-term contracts as part of the Freedom Photonics acquisition.
The Company generates revenue from sale of hardware, components, NRE services and licensing of certain information. The Company enters into term-based licenses that provide customers the right to use certain information available with the Company. Revenue from these licenses is recognized at the point in time at which the customer is able to use and benefit from the licensed information, which is generally upon delivery of the information to the customer or upon commencement of the renewal term.
Consistent with the revenue recognition for NRE services, for Freedom Photonics long-term contracts, the Company recognizes revenue over time using an input method based on contract cost incurred to date compared to total estimated contracts (cost-to-cost). Contract costs are incurred over a period of time, which can be several years, and the estimation of these costs requires management’s judgment. The Company reviews the estimate at completion on significant contracts on a periodic basis and for others, no less than annually or when a change in circumstances warrants a modification to a previous estimate. Due to the nature of the work required to be performed on many of the Company’s performance obligations, the estimation of total revenue and cost at completion is complex, subject to many variables and requires significant judgment by management on a contract by contract basis. Changes in estimates of transaction price, revenue, cost of sales and the related impact to operating profit are recognized on a cumulative catch-up basis, which recognizes the cumulative effect of the profit changes on current and prior periods in the current period.
Recently Adopted Accounting Pronouncements
In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. No. 2021-08 (“ASU 2021-08”), Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. ASU 2021-08 requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606. At the acquisition date, it requires an acquirer to account for the related revenue contracts in accordance with Topic 606 as if it had originated the contracts, which should generally result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. The Company elected to early adopt ASU 2021-08 as of January 1, 2022. The adoption of ASU 2021-08 did not have a material impact on the Company’s consolidated financial position, operating results or cash flows.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 3. Business Combination
Freedom Photonics Acquisition
On April 13, 2022 (the “Acquisition Date”), the Company completed its acquisition of Freedom Photonics, a designer and manufacturer of high-performance lasers and related photonic products. The Freedom Photonics acquisition is expected to help the Company secure intellectual property and the supply of a key enabling component as part of the Company’s vertical integration strategy.
Pursuant to the terms of the Merger Agreement between the Company and Freedom Photonics, the Company acquired all of the issued and outstanding units of capital of Freedom Photonics for an aggregate purchase price of approximately $34.6 million payable primarily in Class A common stock of the Company, an increase of $0.4 million as a result of adjustments to the preliminary estimates of working capital. In conjunction with the acquisition, the Company issued share-based compensation awards to certain employees and selling equity holders of Freedom Photonics, which may result in future stock-based compensation expense, subject to achievement of certain service and performance conditions. The results of operations related to Freedom Photonics are included in the Company’s consolidated statements of operations beginning from the Acquisition Date. As part of the transaction, the Company incurred $1.4 million of acquisition-related costs, which were expensed and included in general and administrative expenses in the periods in which the costs were incurred.
Recording of Assets Acquired and Liabilities Assumed
Preliminary estimates of fair values included in the consolidated financial statements are expected to be finalized within a year following the Acquisition Date. These are related to certain working capital adjustments and finalization of the estimates relating to deferred tax balances which will occur after the filing of the current tax returns. After the measurement period, any subsequent adjustments will be reflected in the consolidated statements of operations.
The following table summarizes the preliminary purchase price allocation to assets acquired and liabilities assumed, including identification of measurement period adjustments (in thousands):
Preliminary Recorded Value
Cash and cash equivalents$1,063 
Accounts receivable3,311 
Contract asset1,913 
Inventories, net127 
Prepaid expenses and other current assets70 
Property and equipment1,353 
Operating lease right-of-use assets449 
Other non-current assets22 
Intangible assets (1)15,600 
Goodwill (2)15,885 
     Total assets acquired39,793 
Current and non-current liabilities(5,158)
     Total liabilities assumed(5,158)
      Net assets acquired$34,635 
(1) Tradename was measured using the relief-from-royalty method. The remaining identifiable intangible assets were measured using the income approach. Significant inputs used as part of the valuation of intangible assets include revenue forecasts, present value factors, expected product margins and costs to complete the IPR&D.
(2) Goodwill is the excess of the consideration transferred over the net assets recognized and represents the expected future economic benefits as a result of other assets acquired that could not be individually identified and separately recognized. Goodwill is not amortized. The factors that made up the goodwill recognized included assembled workforce and component cost savings. The entire amount of goodwill is expected to be deductible for tax purposes and is allocated to the ATS segment, which is also deemed the reporting unit.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Identifiable intangible assets recognized (in thousands):
Useful LifePreliminary Recorded Value
Customer backlog
≤ 2 years
$650 
Customer relationships4 years2,950 
Developed technology8 years4,000 
In-process research and development (IPR&D) (1)7,500 
Tradename4 years500 
Total intangible assets$15,600 
(1) IPR&D intangibles are treated as indefinite-lived until the completion or abandonment of the associated R&D
project, at which time the appropriate useful lives will be determined.
Supplemental Unaudited Pro Forma Information
The following unaudited pro forma financial information summarizes the combined results of operations for the Company and Freedom Photonics as if the companies were combined as of the beginning of fiscal year 2021. The unaudited pro forma information includes adjustments to amortization and depreciation for intangible assets and property and equipment acquired, the purchase accounting effect on transaction costs, and stock-based compensation expense.
The table below reflects the impact of adjustments to the unaudited pro forma results for the three and nine months ended September 30, 2022 and 2021 that are directly attributable to the acquisition (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Unaudited)
(Decrease) / increase to expenses as a result of transaction costs$— $— $(2,582)$2,795 
(Decrease) / increase to expenses as a result of stock-based compensation expense— 4,251 4,119 15,488 
Nonrecurring pro forma adjustments include:
•Transaction costs of $2.8 million are assumed to have occurred on January 1, 2021, and are recognized as if incurred in the first quarter of 2021;
•Employee compensation in connection with the retention awards, incentive plan awards, sign-on bonuses, and deferred shares are assumed to have started on January 1, 2021, and recognized as incurred based on their respective periods.
The unaudited pro forma information presented below is for informational purposes only and is not necessarily indicative of our consolidated results of operations of the combined business had the acquisition actually occurred at the beginning of fiscal year 2021 or the results of our future operations of the combined businesses (in thousands).
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
(Unaudited)
Revenue$12,785 $11,994 $35,296 $33,529 
Net loss(117,550)(56,133)(302,919)(182,724)
Solfice Assets Acquisition
On June 15, 2022, the Company completed its acquisition from Solfice of certain assets that are expected to advance Luminar’s software development capabilities. The transaction was determined to be an asset acquisition under ASC 805, Business Combinations, with substantially all of the fair value attributable to acquired technology.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 4. Revenue
The Company’s revenue is comprised of sales of lidar sensors hardware, components, NRE services and licensing of certain information available with the Company.
Disaggregation of Revenues
The Company disaggregates its revenue from contracts with customers by (1) geographic region based on customer’s billed to location, and (2) type of good or service and timing of transfer of goods or services to customers (point-in-time or over time), as it believes it best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors. Total revenue based on the disaggregation criteria described above, as well as revenue by segment, are as follows (in thousands):
Three Months Ended September 30,
20222021
Revenue% of RevenueRevenue% of Revenue
Revenue by primary geographical market:
North America$12,440 97 %$5,713 72 %
Asia Pacific168 1 %— — %
Europe and Middle East177 2 %2,265 28 %
Total$12,785 100 %$7,978 100 %
Revenue by timing of recognition:
Recognized at a point in time$6,728 53 %$873 11 %
Recognized over time6,057 47 %7,105 89 %
Total$12,785 100 %$7,978 100 %
Revenue by segment:
Autonomy Solutions$6,777 53 %$7,550 95 %
ATS6,008 47 %428 5 %
Total$12,785 100 %$7,978 100 %
Nine Months Ended September 30,
20222021
Revenue% of RevenueRevenue% of Revenue
Revenue by primary geographical market:
North America$26,124 88 %$12,313 63 %
Asia Pacific2,960 10 %475 2 %
Europe and Middle East488 2 %6,812 35 %
Total$29,572 100 %$19,600 100 %
Revenue by timing of recognition:
Recognized at a point in time$10,067 34 %$4,914 25 %
Recognized over time19,505 66 %14,686 75 %
Total$29,572 100 %$19,600 100 %
Revenue by segment:
Autonomy Solutions$16,854 57 %$17,708 90 %
ATS12,718 43 %1,892 10 %
Total$29,572 100 %$19,600 100 %
Volvo Stock Purchase Warrant
In March 2020, the Company issued a stock purchase warrant (“Volvo Warrants”) to Volvo Car Technology Fund AB (“VCTF”) in connection with an engineering services contract. The Volvo Warrants entitle VCTF to purchase up to 4,089,280 shares of Class A common stock, at a price of $3.1769 per share from the Company and were determined to be an equity classified award to VCTF. The Volvo Warrants vest and become exercisable in two tranches based on satisfaction of certain commercial milestones, upon reaching commercial production and delivering of production units. The grant date fair value of
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Notes to Condensed Consolidated Financial Statements (Unaudited)
the Volvo warrants, aggregating $2.9 million, represents consideration payable to VCTF and is being recognized as reduction in revenue consistent with the revenue recognition pattern when these warrants become probable of vesting. The Company’s management determined that the vesting of the first of the two tranches of the Volvo Warrants was probable as of December 31, 2021. As such, the Company had recognized a reduction in revenue in the amount of $1.0 million related to the said first tranche of the Volvo Warrants in the year ended December 31, 2021. The second tranche of the Volvo warrants will be recorded as reduction in revenue upon achievement of sales of a certain number of the Company’s sensors to Volvo for use in their commercial vehicles. This threshold had not been achieved as of the end of the third quarter of 2022.
Contract assets and liabilities
Contract assets primarily represent revenues recognized for performance obligations that have been satisfied but for which amounts have not been billed. The Company’s contract assets as of September 30, 2022 and December 31, 2021 were $19.8 million and $9.9 million, respectively. Contract liabilities consist of deferred revenue and customer advanced payments. Deferred revenue includes billings in excess of revenue recognized related to product sales and other services revenue and is recognized as revenue when the Company performs under the contract. Customer advanced payments represent required customer payments in advance of product shipments according to the customer’s payment term. Customer advance payments are recognized in revenue as or when control of the performance obligation is transferred to the customer. The Company’s contract liabilities were $3.6 million and $0.9 million as of September 30, 2022 and December 31, 2021, respectively, and were included in accrued and other current and non-current liabilities in the condensed consolidated balance sheets.
The opening and closing balances of contract assets were as follows (in thousands):
 September 30, 2022December 31, 2021
Contract assets, current$18,402 $9,907 
Contract assets, non-current1,427 — 
Ending balance$19,829 $9,907 

The significant changes in contract assets balances consisted of the following (in thousands): 
 September 30, 2022December 31, 2021
Beginning balance$9,907 $— 
Amounts billed that were included in the contract assets beginning balance(1,602)
Revenue recognized for performance obligations that have been satisfied but for which amounts have not been billed11,524 9,907 
Ending balance$19,829 $9,907 
The opening and closing balances of contract liabilities were as follows (in thousands):
 September 30, 2022December 31, 2021
Contract liabilities, current$3,463 $898 
Contract liabilities, non-current134 — 
Ending balance$3,597 $898 
The significant changes in contract liabilities balances consisted of the following (in thousands): 
 September 30, 2022December 31, 2021
Beginning balance$898 $2,284 
Revenue recognized that was included in the contract liabilities beginning balance(489)(1,792)
Net increase due to cash received and not recognized as revenue and billings in excess of revenue recognized during the period3,188 406 
Ending balance$3,597 $898 
Remaining Performance Obligations
Revenue allocated to remaining performance obligations for the information licensing agreements was $27.5 million as of September 30, 2022. The Company expects to recognize approximately 64% of this revenue over the next 12 months and the remainder thereafter. Other revenue streams do not have material remaining performance obligations.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 5. Investments
Debt Securities
The Company’s investments in debt securities consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022
 CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
U.S. treasury securities$210,786 $— $(3,684)$207,102 
U.S. agency and government sponsored securities4,998 — (117)4,881 
Commercial paper123,984 — (306)123,678 
Corporate bonds125,521 — (1,676)123,845 
Asset-backed securities21,093 — (206)20,887 
Total debt securities$486,382 $— $(5,989)$480,393 
Included in cash and cash equivalents$9,996 $— $(1)$9,995 
Included in marketable securities476,386 — (5,988)470,398 
December 31, 2021
 CostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
U.S. treasury securities$161,938 $1 $(474)$161,465 
U.S. agency and government sponsored securities4,995 — (25)4,970 
Commercial paper40,788 — (4)40,784 
Corporate bonds165,522 13 (345)165,190 
Asset-backed securities46,540 — (74)46,466 
Total debt securities$419,783 $14 $(922)$418,875 
Included in cash and cash equivalents$950 $— $— $950 
Included in marketable securities418,833 14 (922)417,925 
The following table presents the gross unrealized losses and the fair value for those debt securities that were in an unrealized loss position for less than 12 months as of September 30, 2022 and December 31, 2021 (in thousands):
September 30, 2022December 31, 2021
Gross
Unrealized
Losses		Fair ValueGross
Unrealized
Losses		Fair Value
U.S. treasury securities$(3,684)$207,102 $(474)$146,454 
U.S. agency and government sponsored securities(117)4,881 (25)4,970 
Commercial paper(306)123,678 (4)30,285 
Corporate bonds(1,676)123,845 (345)145,522 
Asset-backed securities(206)20,887 (74)45,251 
Total$(5,989)$480,393 $(922)$372,482 
As of September 30, 2022, the total amortized cost basis of the Company’s available-for-sale securities exceeded its fair value by $6.0 million, which was primarily attributable to widening credit spreads and rising interest rates since purchase. The Company reviewed its available-for-sale securities and concluded that the decline in fair value was not related to credit losses and that it is more likely than not that the entire amortized cost of each security will be recoverable before the Company is required to sell them or when the security matures. Accordingly, during the three and nine months ended September 30, 2022, no allowance for credit losses was recorded and instead the unrealized losses are reported as a component of accumulated other comprehensive income (loss).
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Notes to Condensed Consolidated Financial Statements (Unaudited)
Equity Investments
The Company’s equity investments consisted of the following as of September 30, 2022 and December 31, 2021 (in thousands):
Condensed Consolidated Balance Sheets LocationSeptember 30, 2022December 31, 2021
Money market funds(1)
Cash and cash equivalents$23,118 $25,654 
Marketable equity investments(1)
Marketable securities26,585 $44,216 
Non-marketable equity investment measured using the measurement alternative(2)
Other non-current assets$10,002 $10,002 
Total$59,705 $79,872 
(1)    Investments with readily determinable fair values.
(2)    Investment in privately held company without readily determinable fair value.
In December 2021, the Company made an investment in 1,495 Class A Preferred Units of Robotic Research OpCo, LLC (“Robotic Research”) for consideration of $10.0 million, which was settled by issuing 618,924 shares of Class A common stock of the Company. The Company’s investment in Robotic Research represents less than 5% of Robotic Research’s capitalization. The Company neither has a significant influence over Robotic Research nor does its investment amount to a controlling financial interest in Robotic Research. As such, the Company measured the investment in Robotic Research at cost as provided under the guidance for measurement of equity investment using the measurement alternative.
Total realized and unrealized gains and losses associated with the Company’s marketable equity investments were not material in the three and nine months ended September 30, 2022 and 2021.
Note 6. Financial Statement Components
Cash and Cash Equivalents
Cash and cash equivalents consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Cash$22,956 $303,373 
Money market funds23,118 25,654 
Commercial paper9,995 950 
Total cash and cash equivalents$56,069 $329,977 
Inventories, net
Inventories consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Raw materials$3,066 $5,866 
Work-in-process4,081 1,171 
Finished goods2,006 3,305 
Total inventories, net$9,153 $10,342 
The Company’s inventory write-down (primarily due to obsolescence, lower of cost or market assessment, and other adjustments) was $4.0 million and $8.8 million for the three and nine months ended September 30, 2022, respectively and $0.1 million and $1.6 million for the three and nine months ended September 30, 2021, respectively.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Prepaid expenses$11,223 $14,651 
Contract assets18,402 9,907 
Advance payments to vendors6,343 1,810 
Other receivables4,128 2,827 
Total prepaid expenses and other current assets$40,096 $29,195 
Property and Equipment
Property and equipment consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Machinery and equipment$11,315 $7,694 
Computer hardware and software5,317 2,854 
Leasehold improvements885 869 
Vehicles, including demonstration fleet2,618 2,421 
Furniture and fixtures850 272 
Construction in progress9,699 3,677 
Total property and equipment30,684 17,787 
Accumulated depreciation and amortization(9,038)(6,778)
Total property and equipment, net$21,646 $11,009 
Property and equipment capitalized under finance lease (capital lease prior to adoption of ASC 842) were not material. Construction in progress increased due to increased capital expenditure related to tooling and other capital projects to enable us to achieve series production readiness.
Depreciation and amortization expense associated with property and equipment was $1.1 million and $2.8 million for the three and nine months ended September 30, 2022, respectively, and $0.7 million and $2.1 million for the three and nine months ended September 30, 2021, respectively.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Intangible Assets
The following table summarizes the activity in the Company’s intangible assets (in thousands):
September 30, 2022December 31, 2021
Beginning of the period$2,424 $— 
Additions21,890 2,650 
Amortization(1,546)(226)
End of the period$22,768 $2,424 
The components of intangible assets were as follows (in thousands):
September 30, 2022December 31, 2021
Gross
Carrying
 Amount		Accumulated
Amortization		Net
Carrying
Amount		Weighted Average
Remaining Period
(Years)		Gross
Carrying
 Amount		Accumulated
Amortization		Net
Carrying
Amount		Weighted
Average
Remaining
Period
(Years)
Customer relationships$3,730 $(460)$3,270 4.6$780 $(33)$747 9.6
Customer backlog650 (195)455 1.2— — — — 
Tradename620 (182)438 3.5120 (120)— — 
Assembled workforce130 (130)— — — — — — 
Developed technology11,910 (805)11,105 7.81,750 (73)1,677 9.6
IPR&D7,500 — 7,500 — — — — — 
Total intangible assets$24,540 $(1,772)$22,768 6.8$2,650 $(226)$2,424 9.6
Amortization expense related to intangible assets was $0.7 million and $1.5 million for the three and nine months ended September 30, 2022, respectively. Amortization expense related to intangible assets was $0.2 million and $0.2 million for the three and nine months ended September 30, 2021, respectively.
As of September 30, 2022, the expected future amortization expense for intangible assets was as follows (in thousands):
PeriodExpected Future
Amortization Expense
2022 (remaining three months)$691 
20232,730 
20242,373 
20252,373 
20261,726 
Thereafter5,375 
IPR&D7,500 
Total$22,768 
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Goodwill
The following table outlines changes to the carrying amount of goodwill by the Company’s reportable segments (in thousands):
 Autonomy SolutionsATSTotal
Balance as of December 31, 2021$687 $2,423 $3,110 
Adjustment to goodwill related to Optogration acquisition in 2021— (165)(165)
Acquired goodwill related to Freedom Photonics in 2022— 15,885 15,885 
Balance as of September 30, 2022$687 $18,143 $18,830 
Other Non-Current Assets
Other non-current assets consisted of the following (in thousands):
 September 30, 2022December 31, 2021
Security deposits$1,136 $1,187 
Non-marketable equity investment10,002 10,002 
Advance payment for capital projects27,526 — 
Contract assets1,427 — 
Other non-current assets2,890 1,266 
Total other non-current assets$42,981 $12,455 
Accrued and Other Current Liabilities
Accrued and other current liabilities consisted of the following (in thousands): 
 September 30, 2022December 31, 2021
Accrued compensation and benefits$14,876 $9,899 
Accrued expenses6,040 6,727 
Warranty reserves316 1,798 
Contract liabilities3,463 898 
Accrued interest payable2,297 316 
Contract losses4,250 115 
Other590 91 
Total accrued and other current liabilities$31,832 $19,844 
Note 7. Convertible Senior Notes and Capped Call Transactions
In December 2021, the Company issued $625.0 million aggregate principal amount of 1.25% Convertible Senior Notes due 2026 in a private placement, which included $75.0 million aggregate principal amount of such notes pursuant to the exercise in full of the option granted to the initial purchasers to purchase additional notes (collectively, the “Convertible Senior Notes”). The interest on the Convertible Senior Notes is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on June 15, 2022. The Convertible Senior Notes will mature on December 15, 2026, unless earlier repurchased or redeemed by the Company or converted pursuant to their terms.
The total net proceeds from the debt offering, after deducting fees paid to the initial purchasers paid by the Company, was approximately $609.4 million.
Each $1,000 principal amount of the Convertible Senior Notes is initially convertible into 50.0475 shares of the Company’s Class A common stock, par value $0.0001, which is equivalent to an initial conversion price of approximately $19.98 per share. The conversion rate is subject to adjustment upon the occurrence of certain specified events prior to the maturity date but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date or if the Company delivers a notice of redemption in respect of some or all of the Convertible Senior Notes, the Company will, under certain circumstances, increase the conversion rate of the Convertible Senior Notes for a holder who elects to convert its Convertible Senior Notes in connection with such a corporate event or convert its Convertible Senior Notes called for redemption during the related redemption period, as the case may be. The Convertible Senior Notes are
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Notes to Condensed Consolidated Financial Statements (Unaudited)
redeemable, in whole or in part (subject to certain limitations), at the Company’s option at any time, and from time to time, on or after December 20, 2024, and on or before the 40th scheduled trading day immediately before the maturity date, at a cash redemption price equal to the principal amount of the Convertible Senior Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, but only if certain liquidity conditions are satisfied and the last reported sale price per share of the Class A common stock exceeds 130% of the conversion price on (1) each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related redemption notice, and (2) the trading day immediately before the date the Company sends such notice. If the Company undergoes a fundamental change (as defined in the indenture governing the Convertible Senior Notes) prior to the maturity date, holders may require the Company to repurchase for cash all or any portion of their Convertible Senior Notes in principal amounts of $1,000 or a multiple thereof at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Senior Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
Holders of the Convertible Senior Notes may convert their Convertible Senior Notes at their option at any time prior to the close of business on the business day immediately preceding December 15, 2026, in multiples of $1,000 principal amount, only under the following circumstances: (1) during any calendar quarter (and only during such calendar quarter) commencing after the calendar quarter ending on March 31, 2022, if the last reported sale price per share of the Class A common stock exceeds 130% of the conversion price for each of at least 20 trading days, whether or not consecutive, during the 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter; (2) during the five consecutive business days immediately after any 10 consecutive trading day period (such 10 consecutive trading day period, the “measurement period”) in which the trading price per $1,000 principal amount of Convertible Senior Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price per share of the Class A common stock on such trading day and the conversion rate on such trading day; (3) upon the occurrence of specified corporate events or distributions on the Class A common stock; and (4) if the Convertible Senior Notes are called for redemption. On or after June 15, 2026, holders may convert all or any portion of their Convertible Senior Notes at any time prior to the close of business on the second scheduled trading day immediately preceding the maturity date, regardless of the foregoing circumstances. Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of its Class A common stock or a combination of cash and shares of its Class A common stock, at the Company’s election. As of September 30, 2022, the conditions allowing holders of the Convertible Senior Notes to convert were not met.
It is the Company’s current intent to settle the principal amount of its outstanding Convertible Senior Notes in cash and any excess in shares of the Company’s Class A common stock.
The Convertible Senior Notes are senior unsecured obligations and will rank equal in right of payment with the Company’s future senior unsecured indebtedness; senior in right of payment to the Company’s future indebtedness that is expressly subordinated to the Convertible Senior Notes; effectively subordinated to the Company’s existing and future secured indebtedness, to the extent of the value of the collateral securing that indebtedness; and structurally subordinated to all existing and future indebtedness and other liabilities, including trade payables, and (to the extent the Company is not a holder thereof) preferred equity, if any, of the Company’s subsidiaries.
The Company has classified the Convertible Senior Notes as a non-current liability under the guidance in ASC 470-20, as amended by ASU 2020-06. Debt discount and issuance costs aggregating approximately $16.2 million were initially recorded as a reduction to the principal amount of the Convertible Senior Notes and is being amortized as interest expense on a straight line basis over the contractual terms of the notes. The Company estimates that the difference between amortizing the debt discounts and the issuance costs using the straight line method as compared to using effective interest rate method is immaterial.
The net carrying amount of the Convertible Senior Notes was as follows (in thousands):
September 30, 2022December 31, 2021
Principal$625,000 $625,000 
Unamortized debt discount and issuance costs(13,616)(16,043)
Net carrying amount$611,384 $608,957 
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table sets forth the interest expense recognized related to the Convertible Senior Notes (in thousands):
Three Months Ended September 30, 2022Nine Months Ended September 30, 2022
Contractual interest expense$1,969 $5,843 
Amortization of debt discount and issuance costs809 2,427 
Total interest expense$2,778 $8,270 
The remaining term over which the debt discount and issuance costs will be amortized is 4.21 years. Interest expense of $2.0 million and $5.8 million is reflected as a component of interest (expense) income, net in the accompanying condensed consolidated statement of operations for the three and nine months ended September 30, 2022.
In connection with the offering of the Convertible Senior Notes, the Company entered into privately negotiated capped call option transactions with certain counterparties (the “Capped Calls”). The Capped Calls each have an initial strike price of approximately $19.98 per share, subject to certain adjustments, which corresponds to the initial conversion price of the Convertible Senior Notes. The Capped Calls have initial cap prices of $30.16 per share, subject to certain adjustment events. The Capped Calls are generally intended to reduce the potential dilution to the Class A common stock upon any conversion of the Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of converted Convertible Senior Notes, as the case may be, with such reduction and/or offset subject to a cap based on the cap price. The Capped Calls expire on April 6, 2027, subject to earlier exercise. The Capped Calls are subject to either adjustment or termination upon the occurrence of specified extraordinary events affecting the Company, including a merger event, a tender offer, and a nationalization, insolvency or delisting involving the Company. In addition, the Capped Calls are subject to certain specified additional disruption events that may give rise to a termination of the Capped Calls, including changes in law, failure to deliver, and hedging disruptions. The Capped Calls are recorded in stockholders’ equity and are not accounted for as derivatives. The net cost of $73.4 million incurred to purchase the Capped Calls was recorded as a reduction to additional paid-in capital in the accompanying consolidated balance sheet.
Note 8. Fair Value Measurements
As of September 30, 2022, the Company carried cash equivalents, marketable investments and Private Warrants. The Company had previously carried Public Warrants which were exercised and redeemed in March 2021.
Fair value is based on the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
Level 1 — Observable inputs, which include unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 — Observable inputs other than Level 1 inputs, such as quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 — Unobservable inputs that are supported by little or no market activity and that are based on management’s assumptions, including fair value measurements determined by using pricing models, discounted cash flow methodologies or similar techniques.
The Company determined the fair value of its Level 1 financial instruments, which are traded in active markets, using quoted market prices for identical instruments.
Marketable investments classified within Level 2 of the fair value hierarchy are valued based on other observable inputs, including broker or dealer quotations, alternative pricing sources or U.S. Government Treasury yield of appropriate term. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, historical pricing trends of a security as relative to its peers. To validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. The Company performs routine procedures such as comparing prices obtained from independent source to ensure that appropriate fair values are recorded.
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Given that the transfer of Private Warrants to anyone outside of a small group of individuals constituting the sponsors of Gores Metropoulos, Inc. would result in the Private Warrants having substantially the same terms as the Public Warrants, management determined that the fair value of each Private Warrant is the same as that of a Public Warrant, with an insignificant adjustment for short-term marketability restrictions, as of December 31, 2021. As of September 30, 2022, management determined the fair value of the Private Warrants using observable inputs in the Black-Scholes valuation model, which used the remaining term of warrants of 3.18 years, volatility of 82.0% and a risk-free rate of 4.23%. Accordingly, the Private Warrants are classified as Level 3 financial instruments.
The following table presents changes in Level 3 liabilities relating to Private Warrants measured at fair value (in thousands):
Private Warrants
Balance as of December 31, 2021$31,230 
Change in fair value prior to exercises4,713 
Reduction in liability due to exercises(19,003)
Change in fair value of outstanding warrants(11,358)
Balance as of September 30, 2022$5,582 
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company’s financial assets and liabilities subject to fair value measurements on a recurring basis and the level of inputs used for such measurements were as follows (in thousands):
Fair Value (in thousands) Measured as of
September 30, 2022 Using:
Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$23,118 $— $— $23,118 
Commercial paper— 9,995 — 9,995 
Total cash equivalents$23,118 $9,995 $— $33,113 
Marketable investments:
U.S. treasury securities$207,102 $— $— $207,102 
U.S. agency and government sponsored securities— 4,881 — 4,881 
Commercial paper— 113,683 — 113,683 
Corporate bonds— 123,845 — 123,845 
Asset-backed securities— 20,887 — 20,887 
Marketable equity investments26,585 — — 26,585 
Total marketable investments$233,687 $263,296 $— $496,983 
Liabilities:
Private Warrants$— $— $5,582 $5,582 
Total warrant liabilities$— $— $5,582 $5,582 
Fair Value (in thousands) Measured as of
December 31, 2021 Using:
Level 1Level 2Level 3Total
Assets:
Cash equivalents:
Money market funds$25,654 $— $— $25,654 
Commercial paper— 950 — 950 
Total cash equivalents$25,654 $950 $— $26,604 
Marketable investments:
U.S. treasury securities$161,465 $— $— $161,465 
U.S. agency and government sponsored securities— 4,970 — 4,970 
Commercial paper— 39,834 — 39,834 
Corporate bonds— 165,190 — 165,190 
Asset-backed securities— 46,466 — 46,466 
Marketable equity investments44,216 — — 44,216 
Total marketable investments$205,681 $256,460 $— $462,141 
Liabilities:
Private Warrants— — 31,230 31,230 
Total warrant liabilities$— $— $31,230 $31,230 
As of September 30, 2022 and December 31, 2021, the estimated fair value of the Company’s outstanding Convertible Senior Notes was $400.6 million and $669.4 million, respectively. The fair value was determined based on the quoted price of the Convertible Senior Notes in an inactive market on the last trading day of the reporting period and have been classified as Level 2 in the fair value hierarchy. See Note 7 for further information on the Company’s Convertible Senior Notes.
The Company’s other financial instruments’ fair value, including accounts receivable, accounts payable and other current liabilities, approximate its carrying value due to the relatively short maturity of those instruments. The carrying amounts of the Company’s finance leases approximate their fair value, which is the present value of expected future cash payments based on assumptions about current interest rates and the creditworthiness of the Company.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
Note 9. Earnings (Loss) Per Share
Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares of common stock during the period plus common stock equivalents, as calculated under the treasury stock method, outstanding during the period. If the Company reports a net loss, the computation of diluted loss per share excludes the effect of dilutive common stock equivalents, as their effect would be antidilutive. The Company computes earnings (loss) per share using the two-class method for its Class A and Class B common stock. Earnings (loss) per share is same for both Class A and Class B common stock since they are entitled to the same liquidation and dividend rights.
The following table sets forth the computation of basic and diluted loss per share for the three and nine months ended September 30, 2022 and 2021 (in thousands, except for share and per share amounts):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Numerator:
Net loss$(117,550)$(51,340)$(301,122)$(164,093)
Denominator:
Weighted average common shares outstanding—Basic359,753,254 352,122,485 353,537,754 341,858,435 
Weighted average common shares outstanding—Diluted359,753,254 352,122,485 353,537,754 341,858,435 
Net loss per share attributable to common shareholders—Basic and Diluted$(0.33)$(0.15)$(0.85)$(0.48)
The following table presents the potential shares of common stock outstanding that were excluded from the computation of diluted net loss per share of common stock as of the periods presented because including them would have been antidilutive or related contingencies on issuance of shares had not been met as of September 30, 2022:
September 30, 2022
Warrants5,757,549 
Stock-based awards—Equity classified46,720,506 
Stock-based awards—Liability classified9,267,669 
Vendor stock-in-lieu of cash program1,211,474 
Convertible Senior Notes31,279,716 
Earn-out shares8,606,717 
Total102,843,631 
The Company uses the if converted method for calculating the dilutive effect of the Convertible Senior Notes using the initial conversion price of $19.981 per share. The closing price of Class A common stock as of September 30, 2022 was less than the initial conversion price.
Note 10. Stockholders’ Equity
Class A and Class B Common Stock
The Company’s board of directors (the “Board”) has authorized two classes of common stock, Class A and Class B. As of September 30, 2022, the Company had authorized 715,000,000 shares of Class A common stock and 121,000,000 shares of Class B common stock with a par value of $0.0001 per share for each class. As of September 30, 2022, the Company had 287,111,529 shares issued and 265,248,079 shares outstanding of Class A common stock, and 97,088,670 shares issued and outstanding of Class B common stock. Holders of Class A and Class B common stock have identical rights, except that holders of the Class A common stock are entitled to one vote per share and the holder of the Class B common stock is entitled to ten votes per share.
Public and Private Warrants
As of December 31, 2021, the Company had no Public Warrants and 3,077,021 Private Warrants outstanding.
In January 2022 and April 2022, 1,389,529 and 19,223 Private Warrants, respectively, were exercised on a cashless basis and the Company issued 401,365 and 4,387 shares of Class A common stock, respectively, pursuant to the exercises. The
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Company had 1,668,269 Private Warrants outstanding as of September 30, 2022. These Private Warrants are set to expire on December 2, 2025. Each Private Warrant allows the holder to purchase one share of Class A common stock at $11.50 per share.
Stock-in-lieu of Cash Program
The Company has entered into arrangements with certain vendors and other third parties wherein the Company at its discretion may elect to compensate the respective vendors / third parties for services provided in either cash or by issuing shares of the Company’s Class A common stock (“Stock-in-lieu of Cash Program”). During the three and nine months ended September 30, 2022, the Company issued 537,720 and 8,824,385 shares of Class A common stock as part of the Stock-in-lieu of Cash Program. The Company considers the shares issuable under the Stock-in-lieu of Cash Program as liability classified awards when the arrangement with the vendors requires the Company to issue a variable number of shares to settle amounts owed. As of September 30, 2022, the Company had a total of $33.1 million in prepaid expenses and other current and non-current assets related to its Stock-in-lieu of Cash Program.
In November 2021, the Company entered into an agreement with Daimler North America Corporation (“Daimler”) wherein Daimler will be providing certain data and other services to the Company. To compensate Daimler for these services, the Company agreed to issue 1.5 million shares of Class A common stock to Daimler. These shares vest over a period of two years. The Company recorded costs related to these shares as research and development expense of $2.0 million and $5.9 million during the three and nine months ended September 30, 2022, respectively. During the nine months ended September 30, 2022, the Company issued 750,000 shares of Class A common stock related to this arrangement. The unamortized cost relating to the shares issued to Daimler under this agreement was recorded as $5.2 million in prepaid expenses and other current assets as of September 30, 2022.
The Company’s vendor Stock-in-lieu of Cash Program activity for the nine months ended September 30, 2022 was as follows:
SharesWeighted Average
Grant Date Fair Value
per Share
Unvested shares as of December 31, 2021
1,500,000 $15.72 
Granted8,824,385 9.93 
Vested(6,698,986)10.67 
Unvested shares as of September 30, 2022
3,625,399 10.72 
Note 11. Stock-based Compensation
Prior to becoming a publicly traded entity, the Company issued incentive stock options, non-qualified stock options, and restricted stock to employees and non-employee consultants under its 2015 Stock Plan (the “2015 Plan”). Since the closing of the Business Combination, the Company has not issued any new stock-based awards under the 2015 Plan.
In December 2020, the Board adopted and the Company’s stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”). The 2020 Plan became effective upon the closing of the Business Combination. Under the 2020 Plan, the Company was originally authorized to issue a maximum number of 36,588,278 shares of Class A common stock.
In June 2022, the Company’s stockholders approved an amendment and restatement of the Company’s 2020 Plan (the “Amended 2020 Plan”) to increase the number of shares of Class A common stock authorized for issuance by 36,000,000 additional shares and added an evergreen provision under which the number of shares of Class A common stock available for issuance under the Amended 2020 Plan will be increased on the first day of each fiscal year of the Company beginning with the 2023 fiscal year and ending on (and including) the first day of the 2030 fiscal year, in an amount equal to the lesser of (i) 5% of the outstanding shares of common stock on the last day of the immediately preceding fiscal year, (ii) 40,000,000 shares or (iii) such number of shares determined by the Board.
Stock Options
Under the terms of the 2015 Plan, incentive stock options had an exercise price at or above the fair market value of the stock on the date of the grant, while non-qualified stock options were permitted to be granted below fair market value of the stock on the date of grant. Stock options granted have service-based vesting conditions only. The service-based vesting conditions vary, though typically, stock options vest over four years with 25% of stock options vesting on the first anniversary of the grant and the remaining 75% vesting monthly over the remaining 36 months. Option holders have a 10-year period to exercise their options before they expire. Forfeitures are recognized in the period of occurrence.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
A summary of the Company’s stock option activity for the nine months ended September 30, 2022 was as follows:
Number of
Common
Stock Options		Weighted-
Average
Exercise
Price		Weighted-
Average
Remaining
Contractual
Life (Years)		Aggregate
Intrinsic Value
(In Thousands)
Outstanding as of December 31, 202111,507,643 $1.72 
Exercised(1,713,280)1.67 
Cancelled/Forfeited(905,181)1.67 
Outstanding as of September 30, 20228,889,182 1.73 7.00$50,117 
The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2022 was $16.6 million. The intrinsic value is calculated as the difference between the exercise price and the fair value of the common stock on the exercise date. The total grant-date fair value of the options vested was $2.2 million during the nine months ended September 30, 2022.
Restricted Stock Awards
Prior to June 30, 2019, the Company granted restricted stock awards to employees. Recipients purchased the restricted stock on the grant date and the Company has the right to repurchase the restricted shares at the same price recipients paid to obtain those shares. The restrictions lapse solely based on continued service, and generally lapse over 4 years —25% on the first anniversary of the date of issuance, and the remaining 75% monthly over the remaining 36 months. At the grant date of the award, recipients of restricted stock are granted voting rights and receive dividends on unvested shares. No restricted stock awards have been granted after June 30, 2019.
Restricted stock awards activity for the nine months ended September 30, 2022 was as follows:
SharesWeighted Average
Grant Date Fair Value
per Share
Outstanding as of December 31, 2021666,298 $1.21 
Forfeited(18,382)1.23 
Vested(496,343)1.18 
Outstanding as of September 30, 2022151,573 1.28 
Restricted Stock units
The Company has been granting restricted stock units (“RSUs”) under the Amended 2020 Plan (and prior to its amendment and restatement, under the 2020 Plan). Each RSU granted represents a right to receive one share of the Company’s Class A common stock when the RSU vests. RSUs generally vest over a period up to six years. The fair value of RSU is equal to the fair value of the Company’s common stock on the date of grant.
A summary of the Company’s restricted stock units activity for the nine months ended September 30, 2022 was as follows:
SharesWeighted Average
Grant Date Fair
Value per Share
Outstanding as of December 31, 202111,983,032 $19.56 
Granted18,026,768 11.14 
Forfeited(1,211,044)16.39 
Vested(5,509,721)15.88 
Outstanding as of September 30, 202223,289,035 14.07 
Fixed Value Equity Awards
The Company issues fixed value equity awards to certain employees as a part of their compensation package. These awards are issued as RSUs out of the Amended 2020 Plan (and prior to its amendment and restatement, under the 2020 Plan) and are accounted for as liability classified awards under ASC 718 — Stock Compensation. Fixed value equity awards granted have service-based conditions only and vest quarterly over a period of up to four years. These awards represent a fixed dollar
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
amount settled in a variable number of shares determined at each vesting period. Stock-based compensation expense related to these awards was $1.9 million and $5.4 million for the three and nine months ended September 30, 2022, respectively, and $1.2 million and $1.8 million for the three and nine months ended September 30, 2021, respectively.
Employee Stock Purchase Plan
In December 2020, the Board and the Company’s stockholders adopted the 2020 Employee Stock Purchase Plan (“2020 ESPP”) under which 7,317,655 shares were authorized for issuance. The 2020 ESPP became effective on February 26, 2021.
The 2020 ESPP permits eligible employees to purchase the Company’s Class A common stock through payroll deduction with up to 15% of their pre-tax earnings subject to certain Internal Revenue Code limitations. The purchase price of shares is 85% of the lower of the fair market value of the Company’s common stock on the first day of a six-month offering period, or the relevant purchase date. In addition, no participant may purchase more than 5,000 shares of common stock in each purchase period.
Optogration Milestone Awards
As part of the Optogration acquisition in August 2021, the Company owed up to $22.0 million of post combination compensation related to certain service and performance conditions (“Optogration Milestone Awards”). In August 2022, the Company issued 1,632,056 shares of Class A common stock for $11.0 million of the Optogration Milestone Awards due to achievement of the service and performance conditions. As of September 30, 2022, it is probable that the service and performance conditions for the remaining $11.0 million obligation will be met. The Company recorded $14.4 million in stock-based compensation expense from inception to September 30, 2022 for Optogration Milestone Awards.
Freedom Photonics Awards
As part of the Freedom Photonics acquisition in April 2022, the Company owes up to $28.3 million of post combination compensation related to certain service and performance conditions. As of September 30, 2022, it is probable that the conditions will be met, and as a result, the Company recorded $6.0 million in stock-based compensation expense through September 30, 2022.
Solfice Awards
The Company owes up to $0.7 million of compensation related to certain service and performance conditions. As of September 30, 2022, it is probable that the conditions will be met, and as a result, the Company recorded $0.2 million in stock-based compensation expense through September 30, 2022.
Executive Officer Awards
On May 2, 2022, the Board granted an award of 10.8 million RSUs to Austin Russell, the Company’s Chief Executive Officer. The grant date fair value per share was $8.70 per share. This award represents Mr. Russell’s total compensation from the Company. On August 19, 2022, the Board granted 500,000 RSUs to each of Thomas Fennimore, the Company’s Chief Financial Officer and Alan Prescott, the Company’s Chief Legal Officer. The grant date fair value per share was $6.12 per share.
The Company measured compensation cost for the above executive officer awards using a Monte Carlo simulation model and recorded $5.5 million and $9.0 million in stock-based compensation expense related to these awards in the three and nine months ended September 30, 2022, respectively. These awards to the executive officers are subject to all of the following vesting conditions:
•Public Market condition: Achievement of three stock price milestones: $50 or more, $60 or more, and $70 or more. The stock price will be measured based on the volume-weighted average price per share for 90 consecutive trading days;
•Service condition: Approximately 7-years of vesting; and
•Performance condition: Start of production for at least one series production program.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
Compensation expense
Stock-based compensation expense by function was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Cost of sales$5,430 $1,619 $14,205 $2,829 
Research and development11,326 6,318 27,142 12,743 
Sales and marketing3,821 1,859 9,430 2,979 
General and administrative31,974 23,724 67,097 31,336 
Total$52,551 $33,520 $117,874 $49,887 
Stock-based compensation expense by type of award was as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Equity Classified Awards:
Stock options$714 $1,097 $1,984 $2,495 
RSAs162 (469)183 1,455 
RSUs39,452 28,697 93,501 41,123 
ESPP293 — 450 — 
Liability Classified Awards:
Equity settled fixed value1,894 1,542 5,013 2,161 
Optogration5,312 2,159 8,759 2,159 
Freedom Photonics3,155 494 5,955 494 
Solfice176 — 234 — 
Other1,393 — 1,795 — 
Total$52,551 $33,520 $117,874 $49,887 
Note 12. Income Taxes
Provision for income taxes for the three and nine months ended September 30, 2022 was $0.2 million and $0.6 million, respectively. The Company had benefit from income taxes of $1.3 million and $1.3 million, respectively, for the three and nine months ended September 30, 2021. The effective tax rate was 0.2% and 0.0% for the nine months ended September 30, 2022 and 2021, respectively. The effective tax rates differ significantly from the statutory tax rate of 21%, primarily due to the Company’s valuation allowance movement in each period presented.
Note 13. Leases
The Company leases office and manufacturing facilities under non-cancelable operating leases expiring at various dates through September 2028. In October 2021, the Company entered into a lease agreement commencing on April 1, 2022 for a term of 65 months through August 31, 2027. In September 2022, the Company entered into a lease agreement for a term of 66 months through February 2028. Some of the Company’s leases include one or more options to renew, with renewal terms that if exercised by the Company, extend the lease term from one to six years. The exercise of these renewal options is at the Company’s discretion. The Company’s lease agreements do not contain any material terms and conditions of residual value guarantees or material restrictive covenants. The Company’s short-term leases and sublease income were not material.
The components of lease expenses for were as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Operating lease cost$1,722 $1,202 $4,435 $3,560 
Variable lease cost546 420 1,616 1,324 
Total operating lease cost$2,268 $1,622 $6,051 $4,884 
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Notes to Condensed Consolidated Financial Statements (Unaudited)
Supplemental cash flow information related to leases was as follows (in thousands):
Nine Months Ended September 30,
20222021
Cash paid for amounts included in the measurement of lease liabilities:
Cash paid for operating leases included in operating activities$(4,430)$(3,723)
Right of use assets obtained in exchange for lease obligations:
Operating leases16,749 2,876 
Supplemental balance sheet information related to leases was as follows (in thousands):
September 30, 2022December 31, 2021
Operating leases:
Operating lease right-of-use assets$22,812 $9,145 
Operating lease liabilities:
Operating lease liabilities, current$6,139 $4,735 
Operating lease liabilities, non-current18,057 5,768 
Total operating lease liabilities$24,196 $10,503 
Weighted average remaining terms were as follows (in years):
September 30, 2022December 31, 2021
Weighted average remaining lease term
Operating leases4.562.95
Weighted average discount rates were as follows:
September 30, 2022December 31, 2021
Weighted average discount rate
Operating leases5.35 %2.80 %
Maturities of lease liabilities were as follows (in thousands):
Operating Leases
Year Ending December 31,
2022 (remaining three months)$1,641 
20236,190 
20245,123 
20255,193 
20264,732 
20273,927 
Thereafter1,149 
Total lease payments27,955 
Less: imputed interest(3,759)
Total leases liabilities$24,196 
Note 14. Commitments and Contingencies
Purchase and Other Obligations
The Company purchases goods and services from a variety of suppliers in the ordinary course of business. Purchase obligations are defined as agreements that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum, or variable price provisions, and the approximate timing of the transaction. The Company had purchase obligations primarily for purchases of inventory, R&D, and general and administrative activities totaling $111.6 million as of September 30, 2022.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
In June 2021, the Company entered into an agreement with P3 USA, Inc. (“P3”) to provide engineering, and general and administrative services. Under the said agreement, the Company issued 291,940 shares of Class A common stock to P3 in the third quarter of 2021. In September 2021, the Company entered into an amendment to modify the existing agreement with P3 and among other things, extended the term of the agreement until December 2025. The Company has committed a spend of $30.0 million with P3 over the contracted term.
In May 2022, the Company entered into a strategic investment agreement with ECARX Holdings Inc. (“ECARX”) to purchase 1.5 million shares of class A ordinary shares of ECARX, at a purchase price of $10.00 per share with an aggregate amount of $15.0 million, contingent upon the closing of ECARX’s merger with a special purpose acquisition company, COVA Acquisition Corp., of which Jun Hong Heng is the Chairman and Chief Executive Officer, and a principal shareholder. Mr. Heng is also a director of Luminar. The purchase of such shares can be made with cash or Luminar’s shares of Class A common stock, at the Company’s discretion.
Legal Matters
From time to time, the Company is involved in actions, claims, suits and other proceedings in the ordinary course of business, including assertions by third parties relating to intellectual property infringement, breaches of contract or warranties or employment-related matters. When it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated, the Company records a liability for such loss contingencies. The Company’s estimates regarding potential losses and materiality are based on the Company’s judgment and assessment of the claims utilizing currently available information. Although the Company will continue to reassess its reserves and estimates based on future developments, the Company’s objective assessment of the legal merits of such claims may not always be predictive of the outcome and actual results may vary from the Company’s current estimates. The Company’s current legal accrual is not deemed to be significant to the financial statements.
Note 15. Segment and Customer Concentration Information
Reportable segments are (i) Autonomy Solutions and (ii) ATS. These segments reflect the way the chief operating decision maker (“CODM”) evaluates the Company’s business performance and manages its operations. Each segment has distinct product offerings, customers, and market penetration. The Chief Executive Officer is the CODM of the Company.
Autonomy Solutions
This segment manufactures and distributes commercial lidar sensors that measure distance using laser light to generate a highly accurate 3D map for automotive mobility applications. This segment is impacted by trends in and the strength of the autonomous vehicles and associated infrastructure/technology sector.
ATS
This segment is in the business of development of ultra-sensitive pixel-based sensors. This segment also designs, tests and provides consulting services for non-standard integrated circuits that are essential for systems to meet the requirement of customers. This segment is impacted by trends in and the strength of the automobile and aeronautics sector as well as government spending in military and defense activities.
The accounting policies of the operating segments are the same as those described in Note 2. Segment operating results and reconciliations to the Company’s consolidated balances are as follows (in thousands):
Three Months Ended September 30, 2022
Autonomy
Solutions		ATSTotal
reportable
segments		Eliminations (1)Total
Consolidated
Revenue:
Revenues from external customers$6,777 $6,008 $12,785 $— $12,785 
Revenues from internal customer3,862 5,558 9,420 (9,420)— 
Total revenue$10,639 $11,566 $22,205 $(9,420)$12,785 
Depreciation and amortization$1,176 $654 $1,830 $— $1,830 
Operating income (loss)(116,601)1,868 (114,733)(221)(114,954)
Other significant items:
Segment assets765,241 53,000 818,241 (75,733)742,508 
Inventories, net8,838 536 9,374 (221)9,153 
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LUMINAR TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements (Unaudited)
Three Months Ended September 30, 2021
Autonomy
Solutions		ATSTotal
reportable
segments		Eliminations (1)Total
Consolidated
Revenue:
Revenues from external customers$7,550 $428 $7,978 $— $7,978 
Revenues from internal customer2,379 1,516 3,895 (3,895)— 
Total revenue$9,929 $1,944 $11,873 $(3,895)$7,978 
Depreciation and amortization$673 $235 $908 $— $908 
Operating income (loss)(69,614)(787)(70,401)256 (70,145)
Other significant items:
Segment assets606,431 11,064 617,495 (9,689)607,806 
Inventories, net7,531 340 7,871 — 7,871 
Nine Months Ended September 30, 2022
Autonomy
Solutions		ATSTotal
reportable
segments		Eliminations (1)Total
Consolidated
Revenue:
Revenues from external customers$16,854 $12,718 $29,572 $— $29,572 
Revenues from internal customer11,658 8,218 19,876 (19,876)— 
Total revenue$28,512 $20,936 $49,448 $(19,876)$29,572 
Depreciation and amortization$2,696 $1,678 $4,374 $— $4,374 
Operating income (loss)(304,370)2,866 (301,504)(221)(301,725)
Other significant items:
Segment assets765,241 53,000 818,241 (75,733)742,508 
Inventories, net8,838 536 9,374 (221)9,153 
Nine Months Ended September 30, 2021
Autonomy
Solutions		ATSTotal
reportable
segments		Eliminations (1)Total
Consolidated
Revenue:
Revenues from external customers$17,708 $1,892 $19,600 $— $19,600 
Revenues from internal customer5,500 3,865 9,365 (9,365)— 
Total revenue$23,208 $5,757 $28,965 $(9,365)$19,600 
Depreciation and amortization$1,963 $278 $2,241 $(1)$2,240 
Operating income (loss)(142,651)(1,100)(143,751)161 (143,590)
Other significant items:
Segment assets606,431 11,064 617,495 (9,689)607,806 
Inventories, net7,531 340 7,871 — 7,871 
(1) Represents the eliminations of all intercompany balances and transactions during the period presented.
Two customers accounted for 30% and 12% of the Company’s revenue for the three months ended September 30, 2022. Two customers accounted for 25% and 13% of the Company’s revenue for the nine months ended September 30, 2022. Two customers accounted for 63% and 24% of the Company’s revenue for the three months ended September 30, 2021. Three customers accounted for 38%, 31% and 11% of the Company’s revenue for the nine months ended September 30, 2021.
Note 16. Related Party Transactions
Equity Investments
In February 2021, the Company invested $15.0 million in a special purpose acquisition company, of which Mr. Jun Hong Heng is the Chairman and Chief Executive Officer, and a principal shareholder. Mr. Heng became a director of the Company in
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Notes to Condensed Consolidated Financial Statements (Unaudited)
June 2021. The terms of such investment were no less favorable to the Company than to other third party investors. During 2021, the Company sold $2.9 million of this investment and had a remaining balance of $12.1 million as of December 31, 2021. The fair value of this investment as of December 31, 2021 was $12.2 million, which was included in marketable securities in the balance sheet. The Company sold this investment in its entirety in the second quarter of 2022.
In June 2022, the Company invested in a special purpose acquisition company through open market purchases, of which Mr. Alec Gores was the Chairman and Chief Executive Officer, and a principal shareholder. The special purpose acquisition company merged with Polestar Automotive Holdings UK PLC on June 24, 2022 and Mr. Gores continues to be a director of the merged company. Mr. Gores is a director of Luminar as well. The balance of this investment as of September 30, 2022 was not material.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion in conjunction with the condensed consolidated financial statements and notes thereto included elsewhere in this Form 10-Q and our 2021 Annual Report filed with the SEC on March 1, 2022. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those discussed under the caption “Risk Factors” in our 2021 Annual Report, and in Part II, Item 1A - “Risk Factors” and elsewhere in this Form 10-Q. See also “Cautionary Note Regarding Forward-Looking Statements” at the beginning of this Form 10-Q.
Overview
Luminar is a global automotive technology company ushering in a new era of vehicle safety and autonomy. We are enabling solutions for series production passenger cars and commercial trucks as well as other targeted markets.
Founded in 2012 by President and Chief Executive Officer Austin Russell, Luminar built a new type of lidar from the chip-level up, with technological breakthroughs across all core components. As a result, we have created what we believe is the lidar sensor that meets the demanding performance, safety, and cost requirements for Level 3 through Level 5 autonomous vehicles in production, bypassing the traditional limitations of legacy lidar technology, while also enabling Level 0 through Level 3 (Advanced Driving Assistance Systems (“ADAS”) and/or Luminar Proactive SafetyTM) with our Proactive SafetyTM solution. Integrating this advanced hardware with our custom developed software stack enables a turn-key autonomous solution to accelerate widespread adoption across automakers at series production scale.
Our lidar hardware and software products help set the standard for safety in the industry and are designed to enable accurate and reliable detections of some of the most challenging “edge cases” autonomous vehicles can encounter on a regular basis. This is achieved by advancing existing lidar range and resolution to new levels, ensuring hard-to-see objects like a tire on the road ahead or a child that runs into the street are not missed, as well as by developing our software to interpret the data needed to inform autonomous and assisted driving decisions.
Our presently under development full-stack hardware and software autonomy solution for cars and trucks as well as our standalone lidar technology offerings are expected to make us one of the leading technology partners for the world’s top OEMs.
COVID-19 Impact
The coronavirus (COVID-19) pandemic has adversely affected our and some of our customers’ business operations and has affected, to some extent, product development and industrialization initiatives, timing of shipment of products and provision of services to customers, supply chain, and may impact our financial position and results of operations. We are unable to predict at this time the full extent of the potential adverse impact. For more information on our operations and risks related to health epidemics, including the COVID-19 pandemic, see Item 1A. Risk Factors in our 2021 Annual Report.
Industrialization Update
We achieved start of Iris series production with SAIC’s Rising Auto R7 for launch in China. Additionally, we continue to make progress on our industrialization plan. We completed the build phase of our automated assembly line. A separate high volume production facility is on track to be production-ready by second half of 2023. On the software front, we are in the process of developing the key software functions of automatic emergency braking, highway lane keeping and object detection.
Customer Updates
In October 2022, Polestar unveiled the Polestar 3 electric performance SUV, and announced that Luminar lidar will be available to order from the second quarter of 2023.
We identify major commercial wins only when we have entered into a collaboration or partnership agreement and have reason to believe that such engagement is expected to result in future series production. Given the customary business practices in the automotive industry, there remains potential risk that our major commercial wins may not ultimately generate any significant revenue. See the discussion under the heading “The period of time from a major commercial win to implementation is long and we are subject to the risks of cancellation or postponement of the contract or unsuccessful implementation” in “Risk Factors” in Item IA of Part I in our 2021 Annual Report filed with the SEC on March 1, 2022.
Basis of Presentation
We currently conduct our business through two operating segments: (i) Autonomy Solutions and (ii) ATS.
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Components of Results of Operations
Revenue
Our revenue producing activities are organized in two operating segments: (i) Autonomy Solutions and (ii) ATS.
The Autonomy Solutions segment is engaged in design, manufacturing, and sale of lidar sensors catering mainly to the OEMs in the automobile, commercial vehicle, robo-taxi and adjacent industries. The Autonomy Solutions segment revenue also includes fees earned from non-recurring engineering services provided to customers in connection with customization of our sensor and software products, as well as revenue generated from licensing of certain information.
The ATS segment provides advanced semiconductors and related components as well as design, test and consulting services to the Autonomy Solutions segment as well as various third-party customers, including government agencies and defense contractors, in markets generally unrelated to autonomous vehicles.
Revenue is recognized when control of the promised goods or services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those goods or services. Fixed fee arrangements are satisfied over time and utilize the input method based on costs incurred. Accordingly, revenue for fixed fee arrangements is recognized on a percentage of completion basis. Certain customer contracts are also structured as time and materials and billed at cost of time incurred plus a markup. Such time and material contracts are recognized over time.
Two customers accounted for 30% and 12% of the Company’s revenue for the three months ended September 30, 2022. Two customers accounted for 25% and 13% of the Company’s revenue for the nine months ended September 30, 2022. Two customers accounted for 63% and 24%, of the Company’s revenue for the three months ended September 30, 2021. Three customers accounted for 38%, 31% and 11% of the Company’s revenue for the nine months ended September 30, 2021.
Cost of sales and gross profit (loss)
Cost of sales includes the fixed and variable manufacturing cost of our lidar sensors, which primarily consists of personnel-related costs including certain engineering personnel and stock-based compensation and material purchases from third-party contract manufacturers and suppliers which are directly associated with our manufacturing process. Cost of sales includes cost of providing services to customers, depreciation and amortization for manufacturing fixed assets or equipment, cost of components, product testing and launch-related costs, an allocated portion of overhead, facility and information technology (“IT”) costs, write downs for excess and obsolete inventory and shipping costs.
The ATS segment provides certain services and components to the Autonomy Solutions segment which are recorded as cost of goods sold or research and development costs depending on the nature and use of such services and components by the Autonomy Solutions segment. These inter-segment transactions are eliminated in the consolidated results.
Gross profit (loss) equals revenue less cost of sales.
Operating Expenses
Research and Development (R&D)
R&D costs are expensed as incurred.
Our R&D efforts are focused on enhancing and developing additional functionality for our existing products and on new product development, including new releases and upgrades to our lidar sensors and integrated software solutions. R&D expenses consist primarily of:
•Personnel-related expenses, including salaries, benefits, and stock-based compensation expense, for personnel in our research and engineering functions;
•Expenses related to materials, software licenses, supplies and third-party services;
•Prototype expenses; and
•An allocated portion of facility and IT costs and depreciation.
The ATS segment provides certain services and components to the Autonomy Solutions segment which are recorded as cost of goods sold or research and development costs depending on the nature and use of such services and components by the Autonomy Solutions segment. These inter-segment transactions are eliminated in our consolidated results. We expect our R&D costs to increase for the foreseeable future as we continue to invest in research and development activities to achieve our product roadmap.
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Sales and Marketing Expenses
Sales and marketing expenses consist of personnel and personnel-related expenses, including stock-based compensation of our business development team as well as advertising and marketing expenses. These include the cost of marketing programs, trade shows, promotional materials, demonstration equipment, an allocated portion of facility and IT costs and depreciation.
We expect to increase our sales and marketing activities, mainly in order to continue to build out our geographic presence to be closer to our partners and better serve them. We also expect that our sales and marketing expenses will increase over time as we continue to hire additional personnel to scale our business.
General and Administrative Expenses
General and administrative expenses consist of personnel and personnel-related expenses, including stock-based compensation of our executive, finance, human resources, information systems and legal departments as well as legal and accounting fees for professional and contract services.
We expect our general and administrative expenses to increase for the foreseeable future as we scale headcount with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities, and other administrative and professional services.
Change in Fair Value of Warrants
The warrant liabilities are classified as marked-to-market liabilities and the corresponding increase or decrease in value is reflected in change in fair value of warrants.
Interest Income and Other, and Interest Expense and Other
Interest income and other consists primarily of income earned on our cash equivalents and marketable securities. These amounts will vary based on our cash, cash equivalents and marketable securities balances, and also with market rates. It also includes realized gains and losses related to the marketable securities, as well as impact of gains and losses related to foreign exchange transactions. Interest expense and other consisted primarily of interest on convertible senior notes issued in December 2021, finance leases and interest on our senior secured term loan facility, which was repaid upon consummation of the Business Combination.
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Results of Operations for the Three and Nine Months Ended September 30, 2022 and 2021
The results of operations presented below should be reviewed in conjunction with the condensed consolidated financial statements and notes included elsewhere in this Form 10-Q. The following table sets forth our consolidated results of operations data for the periods presented (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222021$ Change% Change20222021$ Change% Change
Revenue$12,785 $7,978 $4,807 60 %$29,572 $19,600 $9,972 51 %
Cost of sales28,511 10,762 17,749 165 %73,257 26,254 47,003 179 %
Gross loss(15,726)(2,784)(12,942)465 %(43,685)(6,654)(37,031)557 %
Operating Expenses:
Research and development46,308 25,890 20,418 79 %120,358 59,813 60,545 101 %
Sales and marketing10,111 5,868 4,243 72 %26,698 12,010 14,688 122 %
General and administrative42,809 35,603 7,206 20 %110,984 65,113 45,871 70 %
Total operating expenses99,228 67,361 31,867 47 %258,040 136,936 121,104 88 %
Loss from operations(114,954)(70,145)(44,809)64 %(301,725)(143,590)(158,135)110 %
Other income (expense), net:
Change in fair value of warrants(1,231)17,072 (18,303)(107)%6,645 (22,649)29,294 (129)%
Interest expense and other(2,660)(374)(2,286)611 %(9,088)(860)(8,228)957 %
Interest income and other1,470 843 627 74 %3,612 1,744 1,868 107 %
Total other income (expense), net(2,421)17,541 (19,962)(114)%1,169 (21,765)22,934 (105)%
Loss before provision for (benefit from) income taxes(117,375)(52,604)(64,771)123 %(300,556)(165,355)(135,201)82 %
Provision for (benefit from) income taxes175 (1,264)1,439 nm566 (1,262)1,828 nm
Net loss$(117,550)$(51,340)$(66,210)129 %$(301,122)$(164,093)$(137,029)84 %
Revenue
The following table sets forth a breakdown of our revenue by these segments for the periods presented (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Revenue from sales to external customers:
Autonomy Solutions
$6,777 $7,550 $16,854 $17,708 
ATS6,008 428 12,718 1,892 
Total$12,785 $7,978 $29,572 $19,600 
The increase in revenue of our ATS segment in the three and nine months ended September 30, 2022 compared to the same periods in 2021 was primarily driven by an increase in revenue from the Optogration, Inc. and Freedom Photonics LLC (“Freedom Photonics”) acquisitions. The change in revenue of our Autonomy Solutions segment in the three and nine months ended September 30, 2022 compared to the same periods in 2021 was due to a decrease in revenue from customization/ non-recurring engineering services as certain projects were completed or are approached completion, offset by an increase in sales of sensors and licensing of certain of our information.
Cost of Sales
The $17.7 million and $47.0 million increases in the cost of sales in the three and nine months ended September 30, 2022, compared to the same periods in 2021, were primarily due to costs related to start of commercial production, increase in sales of sensors and increases in customization / NRE services and tooling costs, as well as impairment of inventory and costs associated with industrialization of Iris as we approach closer to series production readiness.
Operating Expenses
Research and Development
The $20.4 million and $60.5 million increases in research and development expenses in the three and nine months ended September 30, 2022 compared to the same periods in 2021 were primarily due to:
•a $8.9 million and $25.4 million increase in personnel-related costs driven mainly by increased headcount and an increase in stock-based compensation expense; and
•a $9.0 million and $29.6 million increase in contractor fees and external spend in relation to continued development and testing of our sensor and software products, as well as development activities related to advanced manufacturing.
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Sales and Marketing
The $4.2 million and $14.7 million increases in sales and marketing expenses for the three and nine months ended September 30, 2022 compared to the same periods in 2021 were primarily due to:
•a $2.8 million and $8.7 million increase in personnel related costs including stock-based compensation costs due to increased headcount; and
•a $1.1 million and $4.5 million increase in marketing expenses related to trade shows and presentations in auto industry conventions as well as increased outside consultants costs related to business development activities.
General and Administrative
The $7.2 million increase in general and administrative expenses for the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to a $10.3 million increase in personnel costs including stock-based compensation costs, offset by a $1.6 million decrease in travel cost and a $0.9 million decrease in legal and other costs.
The $45.9 million increase in general and administrative expenses for the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to a $41.1 million increase in personnel costs including stock-based compensation costs, driven mainly by increased headcount; a $3.7 million increase in costs associated with being a public company, including audit fees and tax advisory fees; and a $3.6 million increase in legal and other costs associated with our acquisition of Freedom Photonics and certain assets of Solfice Research, Inc. (“Solfice”).
Change in Fair Value of Warrant Liabilities
The change in fair value of warrant liabilities is a non-cash benefit or charge due to the corresponding decrease or increase in the estimated fair value of warrants.
In January 2022 and April 2022, 1,389,529 and 19,223 Private Warrants were exercised. The non-cash charge related to Private Warrants was $1.2 million for the three months ended September 30, 2022. The non-cash gain related to Private Warrants was $6.6 million for the nine months ended September 30, 2022.
Segment Operating Income or Loss
Segment income or loss is defined as income or loss before taxes. Our segment income or loss breakdown is as follows (in thousands):
Three Months Ended September 30,Nine Months Ended September 30,
20222021$ Change% Change20222021$ Change% Change
Segment operating income (loss)
Autonomy Solutions$(116,601)$(69,614)$(46,987)67 %$(304,370)$(142,651)$(161,719)113 %
ATS1,868 (787)2,655 337 %2,866 (1,100)3,966 361 %
Liquidity and Capital Resources
Sources of Liquidity
Our capital requirements will depend on many factors, including lidar and software sales volume, the timing and extent of spending to support R&D efforts, investments in information technology systems, the expansion of sales and marketing activities, and market adoption of new and enhanced products and features. Until we can generate sufficient revenue from sale of products and services to cover our operating expenses, working capital, and capital expenditures, we expect our cash, cash equivalents and marketable securities, and proceeds from debt and/or equity financings to fund our cash needs. If we are required to raise additional funds by issuing equity securities, dilution to stockholders would result. Any equity securities issued may also provide for rights, preferences or privileges senior to those of holders of our common stock. If we raise funds by issuing debt securities, these debt securities may have rights, preferences and privileges senior to those of holders of our common stock. The terms of debt securities or borrowings could impose significant restrictions on our operations. The credit market and financial services industries have in the past, and may in the future, experience periods of uncertainty that could impact the availability and cost of equity and debt financing.
We expect to continue to invest in our product and software development as well as incur efforts to build customer relations and markets. Further, we expect to invest in developing advanced manufacturing capabilities, both internally as well as with our contract manufacturing partners. For example, in January 2022, we executed an arrangement with Celestica committing approximately $26.9 million for purchase of capital equipment as well as engineering efforts related to
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manufacturing process. We expect to fund these product and business development initiatives and capital expenditures either through our cash, cash equivalents and marketable securities or through our Stock-in-lieu of Cash Program.
As of September 30, 2022, we had cash and cash equivalents totaling $56.1 million and marketable securities of $497.0 million, totaling $553.1 million of total liquidity. To date, our principal sources of liquidity have been proceeds received from issuances of debt and equity. Market and economic conditions, such as increase in interest rates by federal agencies, may materially impact relative cost and mix of these sources of liquidity.
To date, we have not generated positive cash flows from operating activities and have incurred significant losses from operations in the past as reflected in our accumulated deficit of $1.1 billion as of September 30, 2022. We expect to continue to incur operating losses for at least the foreseeable future due to continued R&D and other infrastructure investments that we have made and intend to continue to make in our business and, as a result, we may require additional capital resources to grow our business. We believe that current cash, cash equivalents, and marketable securities will be sufficient to continue to execute our business strategy in the next 12 months and until we expect to begin series production.
Cash Flow Summary
The following table summarizes our cash flows for the periods presented:
Nine months ended September 30,
20222021
Net cash provided by (used in):
Operating activities$(133,559)$(94,256)
Investing activities$(59,080)$(143,576)
Financing activities$(80,760)$158,161 
Operating Activities
Net cash used in operating activities was $133.6 million during the nine months ended September 30, 2022. Net cash used in operating activities was due to our net loss of $301.1 million adjusted for non-cash items of $163.3 million, primarily consisting of $117.9 million of stock-based compensation, $32.5 million of vendor payments in stock in lieu of cash and $6.6 million of change in fair value of warrant liabilities, offset by use of cash for operating assets and liabilities of $4.3 million due to the timing of cash payments to vendors and cash receipts from customers.
Investing Activities
Net cash used in investing activities of $59.1 million in the nine months ended September 30, 2022 comprised of $363.9 million related to purchases of marketable securities, $11.3 million in capital expenditures, $4.8 million net cash paid for acquisitions of Freedom Photonics and assets from Solfice, and $2.0 million in advances for capital projects and equipment, offset by $68.8 million and $254.1 million, respectively, of cash proceeds from sales and maturities of marketable securities.
Financing Activities
Net cash used in financing activities of $80.8 million in the nine months ended September 30, 2022 was comprised primarily of $80.9 million cash paid for repurchases of shares of Class A common stock and $2.8 million cash paid for employee taxes related to stock-based awards, offset by $2.9 million cash received from exercises of stock options.
Critical Accounting Policies and Estimates
Our condensed consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe our critical accounting policies involve the greatest degree of judgment and complexity and have the greatest potential impact on our condensed consolidated financial statements.
During the three and nine months ended September 30, 2022, there were no significant changes to our critical accounting policies and estimates. For a more detailed discussion of our critical accounting policies and estimates, please refer to our 2021 Annual Report and Note 2 of the notes to condensed consolidated financial statements included in this Form 10-Q.
Recent Accounting Pronouncements
See Note 2 of the notes to condensed consolidated financial statements included in this Form 10-Q.
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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
We are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. Our market risk exposure is primarily a result of fluctuations in interest rates and foreign currency exchange rates. We do not hold or issue financial instruments for trading purposes. For a discussion of market risk, see “Quantitative and Qualitative Disclosure about Market Risk” in Item 7A of our 2021 Annual Report. Our exposure to market risk has not changed materially since December 31, 2021.
We had cash and cash equivalents, and marketable securities totaling $553.1 million as of September 30, 2022. Cash equivalents and marketable securities were invested primarily in U.S. treasury securities, commercial paper, corporate bonds, U.S. agency and government sponsored securities, equity investments and asset-backed securities. Our investment policy is focused on the preservation of capital and supporting our liquidity needs. Under the policy, we invest in highly rated securities, while limiting the amount of credit exposure to any one issuer other than the U.S. government. We do not invest in financial instruments for trading or speculative purposes, nor do we use leveraged financial instruments. We utilize external investment managers who adhere to the guidelines of our investment policy. A hypothetical 100 basis point change in interest rates would not have a material impact on the value of our cash and cash equivalents or marketable investments.
As of September 30, 2022, the principal amount outstanding of our Convertible Senior Notes was $625.0 million. The fair value of the Convertible Senior Notes is subject to interest rate risk, market risk and other factors due to their conversion features. The fair value of the Convertible Senior Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines. The interest and market value changes affect the fair value of the Convertible Senior Notes but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations. We carry the Convertible Senior Notes at face value less unamortized discount on our consolidated balance sheets.
Our Convertible Senior Notes bear fixed interest rate, and therefore, are not subject to interest rate risk. We have not utilized derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion, except for the privately negotiated capped call transactions entered into in December 2021 related to the issuance of our Convertible Senior Notes.
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates. Currently, all of our revenue is generated in U.S. dollars. Our expenses are generally denominated in the currencies of the jurisdictions in which we conduct our operations, which are primarily in the U.S. and in Europe. Luminar’s results of operations and cash flows in the future may be adversely affected due to an expansion of non-U.S. dollar denominated contracts, growth of its international entities, and changes in foreign exchange rates. The effect of a hypothetical 10% change in foreign currency exchange rates applicable to our business would not have a material impact on our historical or current consolidated financial statements. To date, we have not engaged in any hedging strategies. As our international operations grow, we will continue to reassess our approach to manage the risk relating to fluctuations in currency rates.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
In designing and evaluating our disclosure controls and procedures, management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal quarter ended September 30, 2022. Based on this evaluation and for the reasons set forth below, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of September 30, 2022 due to the material weaknesses in internal control over financial reporting disclosed in Part II, Item 9A of our 2021 Annual Report.
Previously identified material weaknesses
As discussed in Part II, Item 9A in our 2021 Annual Report, we identified deficiencies in the control environment, control activities, information & communication, and monitoring components of the Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO framework”) that constitute material weaknesses, either individually or in the aggregate. The material weaknesses in these components of the COSO framework resulted from a lack of sufficient number of qualified personnel within our accounting and internal audit
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functions who possessed an appropriate level of expertise to effectively perform certain functions and activities and led to additional material weaknesses, as discussed in Part II, Item 9A in our 2021 Annual Report.
Notwithstanding the conclusion by our CEO and CFO that our disclosure controls and procedures as of September 30, 2022 were not effective, and notwithstanding the identified material weaknesses, management, including our CEO and CFO, believes the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.
Remediation Plan and Status
Management is committed to remediating the material weaknesses identified as promptly as possible. As part of our remediation plan described in Part II, Item 9A in our 2021 Annual Report, we are continuing to test the ongoing operating effectiveness of new and existing controls. The material weaknesses cannot be considered completely remediated until the applicable controls have operated for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We cannot assure you that the measures we have taken to date, and are continuing to implement, will be sufficient to remediate the material weaknesses we have identified or avoid potential future material weaknesses.
During the nine months ended September 30, 2022, we continued to initiate and will continue to implement measures designed to improve our internal control over financial reporting to remediate this material weakness, including the following:
•During 2021, we initiated formalizing our internal controls environment and had performed a risk assessment and scoping of key systems and business processes, including a risk assessment at the financial statement assertion level to ensure that the level of precision of relevant controls is adequate to address the identified risks. We are continuing to revise our risk assessment and scoping to rectify the deficiencies noted, enhance design and implement new controls, expand education and training, update documentation and strengthen supervisory reviews by our management. We continue to remediate the design effectiveness of certain specific controls and test the operating effectiveness of the remediated controls in 2022.
•We have added and we continue to be in the process of adding sufficient number of qualified personnel within our accounting function. In the fourth quarter of 2021, we hired our new Chief Accounting Officer, and in the first nine -months of 2022, we hired our new Corporate Controller, Assistant Corporate Controller, Vice President of Internal Audit, Head of Accounting Operations as well as various other personnel. We will further invest in building an in-house internal audit function and hire further personnel with accounting, financial reporting, and compliance experience as necessary.
•We are in the process of strengthening access and segregation of duties related Information Technology General Controls related to financial accounting and reporting systems. We are increasing standardization and automation within accounting processes to improve the reliability of information used by existing accounting personnel. We are revising our information technology general controls in the context of the systems and applications used in the key processes to address access changes segregation of duties related deficiencies.
•We continue to provide training, implement technology tools, and enhance oversight over the execution and review of manual journal entry controls.
Changes in Internal Control Over Financial Reporting
Other than the above-mentioned remediation efforts, there were no changes in our internal control over financial reporting during the quarter ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings.
Information with respect to this Item may be found under the heading “Legal Matters” in Note 14 to the condensed consolidated financial statements in this Form 10-Q, which information is incorporated herein by reference.
ITEM 1A. Risk Factors.
There have been no material changes from the Risk Factors previously disclosed in Part 1, Item 1A, of our 2021 Annual Report. You should carefully consider the Risk Factors discussed in our 2021 Annual Report as they could materially affect our business, financial condition and future results of operation.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
On September 28, 2022, we issued 353,403 shares of Class A Common Stock in lieu of cash to GVA Mena DWC-LLC for services rendered to us pursuant to a private placement in reliance on Section 4(a)(2) of the Securities Act of 1933.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Mine Safety Disclosures.
Not applicable.
ITEM 5. Other Information.
None.
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ITEM 6. Exhibits.
Incorporation by Reference
Exhibit NumberDescriptionFormFile NumberExhibit/Appendix ReferenceFiling DateFiled Herewith
3.18-K/A001-387913.112/8/20
3.28-K/A001-387913.212/8/20
31.1X
31.2X
32.1Furnished
herewith
101.INSXBRL Instance DocumentX
101.SCHXBRL Taxonomy Extension Schema DocumentX
101.CALXBRL Taxonomy Extension Calculation Linkbase DocumentX
101.DEFXBRL Taxonomy Extension Definition Linkbase DocumentX
101.LABXBRL Taxonomy Extension Label Linkbase DocumentX
101.PREXBRL Taxonomy Extension Presentation Linkbase DocumentX
104Cover Page Interactive Data File (formatted as Inline XBRL).X

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SIGNATURES.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Luminar Technologies, Inc.
Date: November 4, 2022
By:/s/ Austin Russell
Austin Russell
President, Chief Executive Officer and Chairman of the Board of Directors
(Principal Executive Officer)
/s/ Thomas J. Fennimore
Thomas J. Fennimore
Chief Financial Officer
(Principal Financial Officer)

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