Q1 2020 Earnings Call
[music].
Please continue to standby for today's Music's conference call. Once again, please continue to standby.
[music].
Greetings and welcome to music Corp.'s first quarter Twentytwenty Conference call.
At this time, all participants are no listen only mode.
Question answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host add Mcgregor director of Investor Relations.
Good morning, everyone and welcome to the music first quarter 2020 financial results business update conference call.
With us today or music CEO, Paul Travers CFO Grant Russell.
We're trying to call over to Paul I would like to remind you that on the school management's prepared remarks may contain forward looking statements, which are subject to risks and uncertainties.
Additional forward looking statements during the question and answer session.
Therefore, the company claims the protection of the Safe Harbor statements in the private Securities Litigation Reform Act.
[noise] actual results could differ materially most contemplated by any forward looking statements.
Certain factors, including but not limited to.
No economic and business conditions.
Factors genius business strategy or development plans.
The ability to attract and retain qualified personnel as those changes and legal and regulatory requirements.
In addition, any projections as to the company's future performance represent management's estimates as of today.
11 2020.
He's assumes no obligation to update these projections of future as market conditions change.
This morning, the company issued a press release announcing its financial results involved it's 10-Q with the FCC. So participants on this call remain Alberta done so may wish to look at those documents.
He will provide a summary of the results discussed on todays call.
Today's call May include non-GAAP financial measures when required reconciliation to the most directly comparable financial measures calculated and presented in accordance with gap.
On the company's form 10-Q filed that as he backup which is also available at W.W.W. Music's dotcom.
Well now turn call over to music CEO, Paul Travers will give an overview of the company's operating results and business outlook.
Then turn the call over to grant Russell music CFO provide an overview of the company's first quarter financial results.
I will then provide a few closing remarks, after which we'll move on to do you want it.
Well.
Thank you Ed.
Hello, everyone and welcome to the Music's Q1, 2020 conference call. Let me start by saying that all of US here feel deeply for those who have watched loved ones are whose health and wellbeing has been impacted by this viral outbreaks and the disturbances. It has created to all of our lives. We were security and helped for all of you as we collectively facelift.
Precedented challenge and there's only been about eight weeks since our last conference call, but I think it has been the most world changing eight weeks, we have all seen for a long time if ever for Vuzix. We feel this has put us out in front of one of the largest technological transformations to occur in the world since the onset of mobile communications.
I'm talking about the remote worker Revolution, and it's been sponsored by the travel restrictions in social dispensing practices being implemented across the world in response to this novel Corona virus and music. This has driven us to refine and adapt our sales strategy, we've been able to empower and service our customers and partners through informational marketing event.
Webinars demonstrating the solutions provided by our smart glasses and related applications, which is evidenced by the growing up tick in sales we are starting to experience.
We cannot be sure how long this current uptick will last or how large it will become but at the onset. It does feel like a paradigm shift and the way many firms must do business.
That's though we are out in front of a rather huge wave.
Let's just starting to build before we get into some of the specific deals and aspects of the past quarter and because you can I'll review the financials and our recent press releases over the last eight weeks at your own convenient I would like to share a little color with regard to what is going on right now abuse X.
Cobot 19 is on everyone's mind and it has had a dramatic in immediate impact on the day to day operations of many domestic and foreign businesses, including the use X.
Back in March we instituted immediate actions in order to minimize face to face interactions between employees and to provide effective social dispensing practices within the office and on the production floor.
Six employees, who can work from home have been working from home and in person management engineering and development and customer meetings in the office have been replaced by daily Virtualizing meetings.
Employees working at the office are falling best practices, including social distancing regularly sanitizing, keeping all doors open to avoid touching handles and of course wearing masks while inside the building.
Also our HR finance and legal teams are continually monitoring the latest legislation and guidance to ensure that we're operating within the constantly changing mandates and recommendations protecting our employees and their families and understanding and applying for available support from the state and federal governments being offered to employers during these trying time.
Yes.
On the manufacturing front, we continue to have our production employees onsite assembling smart glasses.
When the pandemic hit we split them into two shifts to minimize the number of employees at the office I think given time and to reduce density on our production for they have done a great job under stressful conditions, which has allowed us to continue to meet ongoing customer demand for both our M series and music blade products.
In terms of component and product supply the Corona virus impacted China at a difficult time with many local companies just coming back from Chinese new year.
If we have not moved most of our M series Smart glasses production out of China last year, we could have been more negatively impacted by Im pleased to report that the impacted date for Vuzix has been generally limited, mostly just resulting in some delays.
Business customers in Europe in the United States began going down during the first quarter and took several weeks to determine what aspect of their operations and manufacturing facilities would remain active in which divisions would be shuttered for a period of time.
Business continuity plan are still being constantly tweak those companies monitor the latest situational news related to the called 19.
Business continuity plans are still being constantly tweak this company's monitor the latest situational news related to covert 90, but one common trend that has emerged is that most firms have implemented strict travel restrictions on domestic and international travel between sites and locations as well as work from home programs to reduce in office.
Exposure risk another consistent trend is that hospitals and other health organizations have implemented measures to limit interactions between patients and health professionals and are seeking new innovative and state ways to perform training mentoring and patient care, while the Corona virus outbreak has slowed the progress of certain anticipated customer development.
And our pipeline both on the enterprise as well as on the engineering services and OEM side. It has at the same time led to an acceleration of new interest from others for smart glasses usage that broadly includes remote support business continuity education and in particular, Tele medicine, which is rapidly becoming a critical tool in the front line.
Efforts and the fight against the Corona virus. Most importantly, since mid March and through April in early May we have seen inbound interest converting directly into increases in our enterprise and medical sales in the second quarter.
The month of April was one of our strongest thus far in terms of smart glasses sales driven by broad demand from new customers existing customers and views Ics resellers, we're experiencing increases and customer order flow average order size and the number of customers, placing reorders. We're also seeing this growth domestically in the U.S. as well as a cross.
The pond in Europe, and in the Asia Pacific Region led by Japan. In fact, I'm pleased to report that total revenue realized thus far in our second quarter together with engineering sales. We are contracted to receive have already surpassed the first quarter figure. We just reported for the three months ended March 30, Onest 2020.
We're only about halfway through our second quarter and we obviously have the rest of the year in front of us, but we like what we're seeing right now and have a lot of new and exciting opportunities and our pipeline that we look forward to closing and announcing as the year progresses.
There are currently three specific segments within enterprises that are seeing an accelerated interest level and growth from customers since the kobin pandemic field service, including remote support and training manufacturing, including work instruction step confirmation and quality assurance and tele medicine, including procedure assistance and remote video and.
Recording.
Within field service and manufacturing, we had seen an acceleration in adoption driven by business continuity plans in the urgent need to deliver remote expertise without having to send engineering resources onsite.
In particular, you haven't seen increases in order flows from multiple large pharmaceutical companies in need of remote expertise and their labs and manufacturing facilities and to support their equipment deployed in hospitals around the globe.
Use excess business across health care, including telemedicine training and technical support for medical equipment has also accelerated since the pandemic. Our first quarter 10-Q reference several of our larger volume healthcare related customers and we have a growing number of unannounced partners that are just starting their business relationship with music all being driven by the cobot 90.
Pandemic there are five recent examples I would like to share.
One minute an exclusive reseller of music smart glasses has seen tremendous interest in Europe as well as the you asked for their health care and Tele Medicine solutions. They place volume orders for music and four hundreds in January March and April as they continue to grow their business.
The University of Louisville School of Medicine, which is currently testing the M. 400 across six different facilities has plans to deploy our glasses across their network and expand the program in the educational training in addition to patient care.
Jim Vision of uses reseller that has seen growth in health care and telemedicine demand recently placed a replenishment order for EMCOR hundreds to support their efforts to me covert 19 remote healthcare needs in the Netherlands, and Thailand Music's blade Smart glasses are now being used for cobot 19 patient care via our partner Tele Threesixty ambulance third.
Hi at one of the country's main hospital sites used for quarantine Colgate 19 patients and last but not least we just announced at Johns Hopkins Hospital, which is affiliated with Johns Hopkins Medicine, one of the leading healthcare systems in the U.S. has become yet another customer that is quickly embraced the views X.M. 400, amidst a global pandemic and their case.
To help with Peyton intubation and to host virtual patient rounds, using our smart glasses of course, the time frames for some expected enterprise business development are getting a bit stretched out versus our pre covert expectations. For example reductions in operating hours and the implementation of new shopping Routson rules for consumers have certainly disrupted the.
Good day operations and development plans of retailers across the US that said we remain in constant discussion with one of the larger U.S. based retailers and we still believe this account represents a great multiyear revenue opportunity for Vuzix. Beginning later in 2020 as they start to deploy our smart glasses and different areas within their operations.
We also previously mentioned we have numerous enterprise accounts across various industries and use cases that each could represent more than a million of pipeline revenue.
We still feel confident that these opportunities have a reasonable likelihood of being deployed over the next 12 months even in light of the current disruptions caused by cobot 19.
Music's and 400 has clearly become the work horse that many enterprise customers have been waiting for and it has made the customer sales cycle for Vuzix smart glasses in enterprise a bit easier with a quicker commercial conversion timeline. The M. 400 was built to broadcast Ace de streaming video for field service workers, whether it's 13 Mega pixel.
Rich stabilized camera, the OLED display delivers crest vivid color to the technicians and with advanced voice control coming to the base. So yes, it will become a completely hands free device for many applications.
Our Emmc 400, smart glasses as a scalable platform continues to mature further differentiating versus other vendor solutions. During the first quarter. We added support for several popular video conferencing platforms, such as zone and Skype for business more recently, we announced support for Cisco Webex teams and zoom for health care.
These popular applications each come with some specific advantages, which have made it very easy for large enterprise companies to get started with the views X.M. 400, and blade smart glasses for video conferencing.
But these applications generally lack advanced features such as camera control and voice control from the remote expert side as well as real time illustration and advanced document sharing this is actually a positive reviews exposed because we have typically found that one size does not fit all when it comes to hardware and software solutions for.
Customers that require advanced features Vuzix has been successful indirectly upselling solutions, such as Vuzix remote assessed and you'll be Max front line or working through our partner channels with established companies like bit NAMIC Bros. Asia help lightning Libra stream PTC site call team viewer and others.
In most cases these upsells are helping to generate new revenue opportunities for views ex that Ken recur on an annual basis.
As it relates to public safety and Cobot pandemic. We're also working with a number of partners to deliver solutions that incorporate our smart glasses to assist with screening crowds of people with elevated temperatures one such from as LIBOR stream with whom we also partnered along with horizon to support health care and first responders.
We recently announced a hands free thermal imaging solution with LIBOR stream focused around RMB 400, smart glasses. This combined solution enables first responders along with security in medical professionals to scan individuals within a crowd at from a safe distance to rapidly measure human body temperatures for screening purposes by comparing those temperatures too.
He said reference points.
The FDA recently published guidelines for using tell a thermal graphics systems for human temperature monitoring. This solution follows. These guidelines fever is a common symptom of covert 19, typically appearing to to 14 days after exposure.
Tell us demographics systems are able to determine surface skin temperature when used correctly. The advantage of using these systems for initial temperature assessment for trios use is significant and high throughput areas such as airports businesses concert halls sports venues warehouses in factories and also in settings, where other temperature assessment products maybe.
In short supply.
As the world starts going back to work, we anticipate there will be a growing need for this solution to help with screening.
We have also just announced a partnership with Pixie medical the world's first orthopedic navigation system using a our smart glasses.
Pixie just received CE, marking certification for need plus it's unique patented technology that combines proprietary computer vision and deep learning algorithms along with the use of our him 400 glasses to precisely track instruments and implant starring surgeries Pixie is pursuing and expecting to receive FDA approval for need.
Plus later this year and plans to next develop a shoulder implant navigation system, which will display hologram and the surgeons glasses to precisely guide them through the skin during an operation.
With over 600000 knee and shoulder operations performed every year in the U.S. along at a cost of well over $10000 per surgery. This is a very exciting technological development to say the least and we're proud to play such a key rolling it competing solutions, our bulky inexpensive and we believe this system can bring a new level of price performance the operating theatre.
Given the accelerating customer interest levels, we've been seeing and with the world being closed down for travel we have been conducting a series of live webinars and product demos with numerous resellers and software partners, including one minute, but NAMIC Bros. Asia help lightning LIBOR stream Uli Max's rent as well.
Several topical ones using zoom.
They have been a good way to share the value proposition of our smart glasses with partner software solutions virtually to both existing and target customers the level of engagement and feedback has been tremendous thus far and the video assets that we created have proved to be meaningful sales reference tools.
For our customers frankly speaking these webinars appear to be even more productive and much less expensive than many other conferences, we used to attend.
Most if not all conference is being cancels for this year. This is becoming a new way of doing business. It's a perfect fit for our products and what they are designed to deliver it's not unusual to get several hundred people attending a given webinars and the downloads afterwards had been significant recordings of our solution webinars can be accessed via a new webinars page.
On our website I highly recommend everybody take a look.
In addition to the Webinars. We also released a series of downloadable white papers to help educate customers across specific market verticals, including telemedicine remote support and field service manufacturing and worker training and warehousing and logistics to provide further education on the usage benefits and implemented.
One of our smart glasses products, it's not unusual to get as many as 100 downloads a week for these white papers in the numbers are growing with interest in how smart glasses can help with remote operations and business continuity seems that are resonating with people.
Increasing frequency.
Product development and tooling for new and 4000 Smart glasses continues and we still expect to ship production units later in the third quarter. The M. 4000 is based mainly on around 400 design, which means you can take software from the M. 400, and just drop it on the and 4000 and it will work what's different here, though is the M. 4000 is using.
Hey, waveguide based display engine, that's optically see through.
The beautiful thing about that is you can do features with more advanced they are in the likes.
All told because these things are based on the same platform. It has been significantly reduced our cost to get this thing into production, it's going to be exciting when we finally roll it out.
It's a product refresh being introduced later this quarter, we expect the blade to gain additional traction across enterprise do it's built in stereo audio feature being added to the glasses as well as an improved autofocus camera, replacing the current fixed focus versions.
Its introduction along with a new Vuzix custom built lithium ion battery that one wears on their collar will deliver up to 10 hours of streaming video to remote experts in the field on a single charge.
Blade continues to hold its own within the security business as we have a number of solutions and process. Some of which we have discussed previously that are a great fit for its form factor and capabilities the ability to use AI for facial database detection and deliver information hands free to a security guard or first responder based on that remains.
Extremely valuable.
In March we announced our second OEM project. This one with a new major U.S. defense contractor to build a customized waveguide based optics engine. The first phase of this program is expected to generate initial nonrecurring engineering revenues for us over the next quarter with subsequent and our E. Bay's is expected thereafter before and accepted final price.
Out of design lead to volume production order.
In April we receive yet another follow on development order from a global tier one aerospace partner. This one is for the fourth stage of this program. We expect to see this move to a production opportunity for US later this calendar year.
Since our inception music's has invested heavily to develop our intellectual property focused on nearby displays our intellectual property portfolio now consist of over 157 patents and patents pending.
Our leadership and the Indepth knowledge of not only in IRI displays, but designing developing a manufacturing a our smart glasses from the ground up points of users in a unique position to rapidly deliver new optical components and systems as well as innovative waveguide based smart products for our customers both direct and you.
Users and Oems, we also continue to make tremendous progress towards establishing music as a preeminent supplier of next generation optical solutions for use with micro LCD displays.
These new solutions should allow the creation of consumer focus smart glasses reviews, and other Oems to help eventually build kingsman styled smart glasses for the mass market.
We're looking forward to unveiling more here with our new partners in the upcoming months as we believe what we are working on as well ahead of the competition.
Notwithstanding a challenging business environment, we have made tremendous progress thus far this year in terms of meeting our operating goals for 2020.
We're currently seeing growing overall sales demand and an increase in the average order size for existing M series Smart glasses.
We're currently on track to commence shipments of our M. 4000, smart glasses and volume during the later part of this year.
We have continued to improve our waveguide manufacturing yields and capacity and with the introduction of our upgraded blade. We're preparing to further ramp production to support expected sales and the rollout of programs in security and the enterprise markets.
We expanded the number of contracted engineering services program engagements and are actively pursuing additional new ones as well as OEM programs.
We're making great strides to develop our next generation waveguide optics, and creating very small, but high performing display technologies around micro ltds finally.
Using and much of it staff at a personal level have worked hard to trim the cost of operations and we'll continue to be prudent in our spending while focusing on revenue generating initiatives.
Meeting or furthering each of these objectives will serve to increase the using that cash flow from operations and while we are encouraged by all of these development. We still have more work to do our ultimate goal is to own the smart glasses for enterprise industry, which would result in substantially increasing our top and bottom line and by extension our shareholder value.
I'd now like to pass the call over to grant. So he can review some aspects of our first quarter financial results Grant.
Thanks, Paul as Ed mentioned the 10-Q, we filed this morning with the FCC offers a detailed explanation of our quarterly financials. So I'm just going to provide you with a bit of color on some of the numbers.
Our first quarter revenues rose, 12% year over year to 1.5 million largely due to increased engineering services revenues and secondly, due to strong sales of Rmbfour hundred smart glasses.
Drove a 35 present increase in overall him series glasses revenues sales revenues.
Blade smart glasses decrease by nearly point threemillion or 55%.
I'm really driven by a 20% decrease in their average selling price and lower unit sales as Paul mentioned, the pandemic did slow the progress of certain cost Herbert development in the period.
While we began the quarter with somewhat.
Somewhat higher sales expectations versus the one we achieved.
We were generally pleased with our results of operation given global pandemic situation.
There was an overall gross profit of $81000 for the three months ended March Thirtyth 2020, as compared to the gross profit of 40000 tons for the same period and 29 team.
On a product cost of sales base is only product direct cost for 54% of sales in the 2020 period as compared to 52% in the prior year period. The change primarily the result of lower selling prices for the mm 300, XL in the first quarter of 2020 versus the same period in 2019.
And that was before the Embraer hundred with introduce.
Manufacturing overhead cost for three months ended March 31st 2020, as a percentage of total product sales increased to 37 present from 30 presented in the same period 2019 with the majority of this increase representing an additional personnel year over year all to support the movement of M series Smart glasses production back from China to Rochester.
Our operating expense control efforts continue to be fruitful as we realized an overall decrease I've just under a million dollars or 15% during the first quarter of 2020 as compared to same period and 29 team.
R&D expense with 2 million to ours for three months ended March 30, Onest 2020, as compared to 2.5 million for the comparable 2019 period.
Reduction of approximately 20% the decrease in R&D expense was primarily due to reduced external consulting fees related to blades software developer.
Selling and marketing expense was 1.2 million for the three months ended March 30, Onest 2020, compared to one point fourmillion for the comparable 2019 period, a reduction of approximately 19%. The decline was largely due to the decrease.
In advertising and trade show Gosse salaries and stock based compensation as well as external consulting fees.
General and administrative expense for three months ended March 30, Onest 2020 was 1.5 million versus 1.9 million in prior years period, a reduction of approximately 19%. The decline was largely due to decreases in legal fees and I T and security consulting fees.
We expect continued comparable.
2020 versus 2019 quarterly operating expense reductions going forward.
Especially with reduced traveling of Etcoff augmenting our overall cost control efforts.
Throughout the year, the net loss attributable to common shareholders.
After accrued preferred dividends for the three months ended March 31st 2020 was 5.9 million or 18 cents per share versus a net loss of 6.8 million or 25 cents per share for the same period and 29 team.
During the first week in May we adopted a compensation adjustment plan that is expected to save the company an additional 1.2 million of cash between mid may and year end virtually all employees receiving more than a base salary of $60000 well be taking cash pay reductions ranging from 15% to 25% well senior executives the board.
Members will take a cash 50%.
Compensation reduction.
To help keep overall compensation at an appropriate level and also to incentivize and retain employees through the adjustment period affected employees are receiving vuzix restricted stock awards under the company's 2014 incentive plan at a rate of 150% of the net cash reductions these shares will fully vast arnie.
And your a 15 2021 and cannot be resolved by the employee or officer until July 15th 2021.
We consider this action to be prefer one.
Versus abroad head count adjustment as we feel we currently have a very solid team in place speaking on behalf of our employees I can say that we are all remain.
United in our belief a great success in our company's future and we'll continue to deliver world class.
And changing solutions for our customers and shareholders.
Now for the balance sheet highlights our cash position as of March 31st 2020 was 6.1 million Internet working capital position totaled 11.8 million.
Cash used in operations, excluding changes in working capital.
Totaled 4.4 million in the first quarter of 2020 as compared to 5.3 million in 2019.
Decrease of 19%.
In April.
He is it properly filed for and received total proceeds of 1.56 million into the Paycheck protection program administered by the U.S. small business administration.
Cash used for investing activities during the first quarter of 20 21.2 million as compared to 1.3 million in the prior years period as our investments in manufacturing new product tooling and other equipment purchase the decrease substantially year over year Capex for the balance of 2020 is expected to Meanwell under 29.
He levels in total.
In addition to our compensation adjustment of plan, we will remain of course focused on minimizing our cash burn through the numerous previously discussed measures, including selling our existing mm 300, XL finished goods and blade component inventory disposing of as many of our written down products installments as possible.
The increase in our efforts to further promote or engineering services programs, continuing to pursue licensing and strategic opportunities around our waveguide technologies with potential Oems decreasing trade show unrelated travel expenditures and delaying or could tailing discretionary not essential capital expenditures not related to near term new products.
Reducing the rate of new product introductions, and leveraging existing platforms as much as possible reduce new product development.
And engineering costs.
As well as further reducing the radar.
Research and development spending on new technologies, particularly the use of external contractor with that I would like to turn the call back over to Paul Paul.
Thanks Grant.
In summation as you can see from the orders we have been receiving the partnerships. We have been striking the use cases, we have been creating and the overall breadth of customer interest. We have been seeing music is emerging to become a critical go to supplier of smart glasses. During a period when the world is turning to them as needed solution.
While many other suppliers in our space continue to struggle some increasingly so our solutions in market positions continue to get stronger and stronger we're more excited than ever about what the future holds for our industry and more importantly, our place in it and we intend to keep pushing the envelope in terms of our industry, leading products and technology, where a team here of.
Using and this has been a team effort to get us to where we currently are so I'd like to thank all of our employees that might be listening and for all of your time and effort, particularly during these most challenging of times.
Expected revenue growth in combination with the expense management measures discussed will reduce our cash burn as we grow and execute upon these opportunities that need said there is presently much uncertainty in both the financial markets and the global business environment as many companies continue to reduce scale or shut down.
Operations and unemployment source to record levels.
Given this volatile and unpredictable scenario, we have decided to strengthen our balance sheet.
Just announced we have entered into a stock sale agreement, whereby we will be selling 5 million common shares of use its at a price of $2.
And 25 cents per share this sale expected to close this Wednesday may 13th as a common stock offering only with no warrants attached and the stock will be distributed among six existing or previous institutional shareholders. Musics. This is a de risking move that better positions music's for greater growth and provides.
Additional financial security in uncertain times, our business is currently accelerating and we want to be able to expand and deliberate to it to meet expected customer demand management and the board fields that this move will be supported by a vast majority of all stakeholders as well as by our employees and customers and will provide us the baby grow innovate and deliver.
World Class solutions throughout 2020 in Wallander 2021.
I'd like to now I'll turn the call over to the operator for Q1 day.
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One moment, please while we pull for questions.
Our first question today comes from Brian Kinstlinger of Alliance Global Partners. Please proceed with your question.
Great. Thanks, so much for taking my questions.
And.
If your number a press release it discussing demand for the Tele medicine.
Industry for smart glasses, and you've talked about it a bit here can you quantify.
Roughly how many smart glasses had been sold the tenant for Tele medicine purposes. In Twoq you are we talking several hundred are we talking.
And just you can give us a magnitude of demand you're seeing.
It's many on goods and if you think about it Brian there was a new norm will come in here and even could go back to work in hospitals today hospitals don't want anybody in their facilities that might be carrying the virus and so the big medical firms that make medical products that have there.
Equipment sitting in the hospital, they all need maintenance they all need.
On a daily basis almost in it used to be the only way to do that was defend that person from that from into the hospital and what's happening now is literally they are they're sending a pair of glasses. The tech that already is qualified to be in the hospital is doing the remote support from some of these bigger companies. So that the kinds of volumes were talk.
I'm not here, it's not like one or two per store per for hospital kind of I think it could be a significant number ultimately an all of these hospitals going forward hospitals are is only one example.
It's going to be the same thing and industry people don't want to send their employees. In fact, you can't get an employee on a plane to China today and back and forth without working days of warranty money land. So this is becoming a new thing and quite frankly for smart glasses, we've been saying this for a long time, but people were dumb fat.
Happy spending a ton of money putting people on airplanes.
And you know wearing out there and staff when they could have simply just you smart glasses. All along this is forcing that change and I think we're going to see a big move towards this direction in the future.
Great and then.
I think grant you maybe as much eight weeks ago.
You had thought revenue would build sequentially every quarter and there were only three quarters lacked sorry, three weeks left in the quarter. So what was the biggest inhibitor to growth.
You know that sequential growth for those three weeks.
You're talking about last quarter.
Yes.
Okay that grant said in his prepared remarks, I think in the last conference call. You said you'd expect sequential growth first quarter compared to second quarter nearly three weeks left so in those three weeks. What happened was are massive some large orders that got delayed that you thought would be back end loaded im just trying to understand.
So so the first quarter was about a million in happened revenues and then the second quarter almost just all in April.
It's about a million I have been revenues also maybe a little bit more it's bigger than what the first quarter was so we are seeing.
Rental growth here Q1 to Q2.
And Brian all kinds of businesses being deferred by companies that are just trying to figure out how they're going to adapt them, what they're going to do next decision makers are.
Just now getting together and initiatives are being being suspended we got you know not the name any automotive companies, but I mean, they haven't been building cars. So they're not interested in deploying smart glasses and parts of our operation et cetera, I mean, it's.
Yes, we had positive demand coming from you know hospitals.
Hello, fingers homes et cetera, but.
The majority of everybody else of is you know frozen trying to figure out what to do so that that was.
The shock and I don't think anybody fully contemplated it.
Okay, and then how can you speak to the supply chain last quarter. You said there was a few parks procured from China, it's not having a significant impact has anything changed.
From a supply.
Right now no I mean, you know to be Frank I mean, there we did say it slowed down some of our new product introductions. There was a period in the last couple of months when.
All new mold based the steel basis in China.
Had to be allocated to building mass and pp. So you know we had to wait hard turned to get that pushed out our new product introduction about three weeks, it's not the end of the world and it's on track and we're getting samples now, but I mean, there's been a little glitches like this in that in the chain.
As well as.
It takes longer to clear product through customs going into Europe, you know stuff, we've got to sit you know and quarantine.
Trialed, so everything is taking a little longer along the supply chain.
Okay last question in terms of liquidity I know this morning's announcement on the race I'm curious how much cash you had as as it.
Today, I mean by my math, where you ended and you're done before it went down significantly and figuring 3 million plus the federal loan puts you at about four in change is that where you or maybe a little bit lower.
Well above that.
And we don't we don't assume a monthly cash balances to anybody.
Okay.
We are above that.
A fair bit.
Thank you.
The next question comes from a gym at Macquarie of broadly Woods. Please proceed with your question.
Thank you good morning.
It it sounds like.
The increase in sales that you've seen in April has been concentrated with the M series has there been.
An increase with the blade as well.
We don't break it down that way Jim sorry.
[music].
I think you know.
Don't break it down that way from AMD series products is being stronger sure there the the bigger the biggest portion of that.
No thats where were seeing demand.
Related to Tele medicine in Monroe video video conferencing, the blade participates in that but to a lesser extent.
The blade doesn't have autofocus camera, so that has a bit of up.
That kills heal and a comparison and it will certainly have autofocus camels, that's what this new upgrades all about.
The and 400 has got a broadcast quality Cameron it's amazing how good it you can record for Kate video with it and so on your streaming HD. It just it's just so easy to see unresolved issues because you can read the text on the page the fine print et cetera.
And.
When you refresh the blade.
All you said it was this quarter is that.
Is that with the same price or is there a price change as well.
We haven't fully finalized Jim I, I think you're going to see it start at least a thousand.
Okay.
So that that would be a small increase will be back to where the blade originally started and I mean I right.
Got it.
I think in the thing in the press release and in your commentary you talked about engineering services.
Improving in Q2, and that's part of the and that's part of the Bullishness you have on the quarter.
Can you indicate what you think engineering services revenue would be this quarter, either a range or.
A percentage increase or.
I think we say in the queue, we got about little over 600.
Thousand in.
In previously booked.
Engineering services is expected in Q2, you put in our last Q I mean, we're expecting.
The award of one and perhaps two new programs before quarter end I mean, how much we work will get done and by the end, but I mean if.
What are we put in here.
I think it was a little over 600 Graham We said we had to complete just trying to find it printer.
I'll dig it out you don't need it.
We do make a statement.
Yeah, Okay I'll look for that thank you.
And then I'm, just I'd I'd like to understand a little bit better the.
The price Delta that you're contemplating the and 400 versus the core.
Thousand as well as.
What different applications or end markets.
That you are intending to address with the 4000 that you've dealt with the 400, I mean, I'm really trying to get at.
That.
But the product transition or the.
Yes.
How those two products are going to let together when the 4000 gets introduced.
So the M. the M. 4000, which is the one with the optical you through will carry us. It's about a 24 99 price point, we haven't finalized that other but that's what we're thinking right now so it's a significant raising price.
He will do.
A lot of what the M 400 can do however.
With the optical see through display sometimes it's not as handy to do remote support in fact, it's not it's probably not as good because of included display as better there but.
There is other applications, where you're looking at stuff in the real World and you want the digital world to be overlaid on top of it and seeing it so that you're you're not having to think about picture in picture kinds of things. So if you think about looking into included display or even at a laptop right you look over at the laptop and then you decide.
And what you're Gonna do based what you've seen there then you go back to the real well and you've got to try to remember it.
Even though your eyes are just moving a little ways. That's what happens on an 400 today Gamble 1000, you'll look out in the real world and the information will be floating out in front of you want to real will hope and so it makes it so that the odds of getting something wrong go down a fair bit but it takes time to write software to do that kind of feature set that a our kinds of advanced.
It yourself.
So out of the gates the M 4000, and the M. 400 weekend, you're going to coexist very very well together, there's going to be people that want to pay for that ability to get higher performance and more accuracy and there'll be people that absolutely love. The fact that what they're getting on an and 400 witness Super Brite beautiful display this accretive.
Datalogic elite it well.
For a remote support kinds of applications, there would be more than happy with that so they will coexist there'll be a reasonably large difference in price between the two and people will pick based on their needs we think.
And it's going to be through the same distribution partners the same.
Software partners, Sir you have to come up with a whole new set of.
The partnerships in order to get the product out.
Out of the gates many of the same software works right. So there'll be plenty of just slightly than in go with it. However, some of those advanced features I was talking about.
Some of our partners want them and will enable them in the glasses, but it'll take them a little bit the time to get that software written for but in the meantime, their current software will just work with it does something they'll be able to upgrade to overtime.
Got it John it and just.
Just finally I'm.
Like I understand a little bit better about the.
Improvement you've seen in demand and since at least in some segments due to to the cobot locked down.
I'm, assuming that that these are with customers who have already gone through the testing and evaluation and now it's the.
It's the lock down that has.
Push them off the that decision point.
It's a little so one could you just say if that's my assumption there sure not and then secondly.
Is what about the new customers. The new testing is that just all put on hold for now or is there is that what's happening with that portion of the of the selling and marketing process.
There's a portion of our business that is on hold right now and it's all the stuff that you might imagine is not so critical to deal with when your plants or shutdown has grant said in the car industry right now since the plant floors on even operating nobody cares so much about trying to increase efficiency there.
The the there was a group of folks that use its has been working with all along that had been wanting to do remote support and in those cases, often it just caused them to move into overdrive in the medical space. They were very few people that were using our products in that space that that space.
Moves like molasses to make a change there you normally have to go through sometimes years of testing.
But virus has completely changed people's mindset on on how they need to operate.
And so they're doing things expeditiously now and so in that space. It's been it's been a.
Like an avalanche of new business and a lot of its coming really fast.
When it comes to the.
Medical supply side of it.
The larger companies that make medical equipment that they have to keep running in these hospitals, they're trying to solve some big problems here I mean, you know nobody wants to be in a hospital today, because its ground zero for the virus.
This equipment release like going back to work right. We're going to go start doing operations again, we're going to you know you know do do this stuff that's been put on hold.
In the hospitals are running under extreme circumstances to try to make that work. They don't want anybody in the buildings. So they're all trying now.
To solve problems they've never had before and it's happening very very quickly in that side of it Jim. So those are people companies that we haven't worked with before that plainly. They have no choice they have to figure out to make this stuff work in using some stuff works well for.
So there is a part of our business that actually is on hold.
The even some of the in store picking kinds of things and stuff.
That's on hold because those employees that work in that side of the business there at home stuck and so you can't deploy something in a store when the people who would normally be doing that can't even go to work yet that stuff. The brakes came on all this other stuff about trying to bring the world back to life. Those are the things that are starting to kick into overdrive and new car.
That was coming out of the woodwork for the users.
Got it.
Okay, when the world I think slot.
Thank you Jim when the World shuts down.
It's around the world its extreme and only amazing how the impact and what people try to do to be creative to to get back to normalcy.
Hey, Jim one last thing we have 695000 remaining in the existing engineering services programs, which we were you know the customers in a Russian we're going to try to get done.
In this current quarter plus we we know we're gonna get one more.
Your job before the end of quarter so.
Hi, past, that's great alright, Thanks, a lot guys. Good luck with everything.
Yes.
The next question is from a jacket Thunder arc of Maxim. Please proceed with your question.
Hey, good morning, guys.
Thanks for taking my questions.
I was wondering if you can I know there's been a lot of questions on kind of revenue ramp.
I wanted just follow up on the engineering services revenue I, just check the 10-Q as well.
So the revenue from Engineering services was was the result of just two waveguide display engine development projects and.
That began in one Q twice. So one is that is that correct just related to these two projects and then.
How much correct.
That's correct okay.
And then and then I think you said 695000 or shows remaining on these two contracts. So that would imply that you noted the revenue produce from these contracts in Q1 it is.
Absolutely below what you expect for Q2 at least relate to the absolutely I mean, they didn't really kick off till a in March. So I mean, there's you know we recognize revenue on a on the basis of completion so.
You know, we got to ramp up and gear up so.
That's all we book as revenue in Q1.
Got it okay. That's helpful.
Yes, I want to references specific customer example is described in the in the January presentation can you share additional color on volume blade shipments as it relates to ride on.
I believe you're expected to expand that in Q1 2020 to fulfill their seasonal resale or so you know given kogan 19, everything has that played out accordingly, and if not.
Where is that if you could give me as gas of dangers of where you expect revenues to come from that particular English.
That's sort of like the March madness.
Basketball and all the other sports industries that have shrunk down.
You can't you can't go swimming pools to the to swim either so you can imagine what happens to anybody who make swimming products I mean, unfortunately for right on this has impacted them.
You know, we sold them somebody and honestly, we don't break out by a channel.
You know who sold how much we've sold to that said they had some challenges because of this.
Okay and that's understandable.
And then just lastly.
Last quarter, you guys provided an update on waveguide manufacturing capabilities in production yields.
They definitely improved significantly at least last quarter around I think exceeded 85% pretty consistently can you maybe talk about where that's trended over the last few weeks and then kind of what your outlook is for that for that up production yield throughout the remainder of 2020.
Yeah, it's going great on the plant flow for waveguides and in fact, one of the reason why we're getting a lot of this OEM businesses that's related to the fact that we manufacture own wave guides, we can do than cost effectively and we do them here in United States of America.
That's a big Clos, especially on these defense related activities.
Our competitors that make these kinds of things are locked out of China for the most part in fact almost exclusively now and that's very problematic if you're a U.S. defense.
Flyer.
As you might imagine knowing the climate between us and China. These days. So the plants floor is going great. We've now got three replication pieces of gear on the plant floor and our yields I have never been better.
Okay, Fantastic and actually if I can sneak one more question in here as it relates to gross margins.
Product gross margin.
I think it's negative here by models correct.
Engineering gross margin was was strong and an example, very very small them out right now of course, but.
Maybe can you talk about like what your expectation is for for gross margin, which came in around 5% this quarter.
You know, what they're going to pay for that or how how large can that ramp be how quickly can an app and were where gross margin is you'll get some lift tier due to a higher volume shipments Navy.
And is that 84% or so engineering gross margin.
Indicative of what you would expect at.
Even higher revenue skills from engineering services that's it.
I mean, it did the 84%, it's it's not going to be that that high on a on a long term base is just the way they the work and the progress billing did I mean.
That's primarily internal work and we didnt have external Casa and contractors, which you know we can make a lot less money on but we do get to.
To reclassify over engineering wages, you know and added up there the cost to sales, but yes product gross margins are left I mean manufacturing overheads are you know there over 30% of our sales and it's all volume related I mean, we built this infrastructure.
We have an ISO 9000 factory.
We need the infrastructure and it's all a matter volume himself. Our long term goal is still to get north of a net 40% and not with any.
Not with expected unusual a.
Big increases in a in engineering gross margin I'm. We do you know we do to try to do our best there, but I mean, it's strictly volume self.
Until we can get or our sales way up than that.
Fixed cost that's listed in our.
Got to good table, we you know we got a we've got to amortize those fixed overheads.
Understood. Thank you guys.
There are no additional questions at this time I like to turn the call back to Paul Travers for closing remarks.
I'd like to thank everyone for your interest and participation in today's call. We'll look forward to speaking with you again at our annual shareholders meeting June 22nd this year because of the virus.
Yet again, the world changes, we will be having a virtual meeting and there are more details available on our website. So again, we'll talk with everybody then thank you everybody.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.
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