Luminar Technologies made moves to provide lidar maker with more capital to grow, and boost investor confidence.
Courtesy of Luminar
Lidar maker Luminar Technologies just entered into a set of unique financial transactions that will provide more capital to grow, and boost investor confidence in the stock.
On Tuesday, the company announced it would issue convertible debt, raising about $500 million and buy back roughly $250 million of stock. What’s more, Luminar (ticker: LAZR) also said executives, including CEO Austin Russell, would buy stock on the open market.
Taken together, the moves signal confidence in the company’s future and a belief that Luminar shares are too low. Coming into Tuesday, Luminar stock is down about 25% over the past month.
“We are doubling down on ourselves,” CEO Russell tells Barron’s. He is encouraged by Luminar’s business momentum, and the potential for lidar—a system of sensors and software—to enable self-driving features on all passenger vehicles in coming years.
Investors like what they hear, as Luminar stock is up 3% in Tuesday morning trading. The S&P 500 and Dow Jones Industrial Average are down 0.5% and up 0.2%, respectively.
One reason for the relatively restrained reaction might be that the transaction is a little complicated and unusual. Chief Financial Officer Tom Fennimore isn’t aware of other companies recently announcing a combo of debt issuance/stock buybacks/management stock purchases. He does understand why companies are issuing convertible bonds, however.
Issuing a convertible bond is ideal for companies when interest rates are low and stock volatility is high—which is today’s market setup. Low rates means the debt portion of a convertible bond is inexpensive for a company. That part is simple.
“There is embedded call option” in a convert, says Fennimore. That is the more-complicated part. Higher volatility means the option to covert the debt into stock some day is relatively valuable, which means that companies, including Luminar, can essentially monetize stock volatility at its peak.
Investors also have headwinds on their minds. The Nasdaq Composite Index, home to many richly valued growth stocks, is down about 5% from its late-November 52-week high. Covid concerns have reared their head again as Omicron variant cases spread.
Investors should keep the long-term outlook in view, though. It was just last week that Mercedes announced the first so-called Level 3 autonomous driving system, available for purchase in Germany in 2022. Level 3 means drivers don’t have to pay attention in certain situations, and that texting and driving while such a system is active is A-OK.
The Mercedes will use lidar sensors as part of its system—not from Luminar, but a win for lidar is a win for all companies in the industry at this point.
Write to Al Root at [email protected]
