Q2 2020 Vuzix Corp Earnings Call
Greetings and welcome to be music second quarter, 2020, <unk> financial results and doesn't update conference call.
Hi, all participants are in listen only mode.
A brief question answer session with all the well presentation, if anyone should oh.
Oh, sorry zero on your telephone keypad as a reminder, this conference is being recorded.
Now I'd like to try to go over to add Mcgregor director of Investor Relations.
You may be.
Thank you operator, and good afternoon, everyone.
Welcome to the music second quarter 2020 financial results of business update conference call.
With us today or music CEO, Paul Travers and CFO Grant Russell.
Before I turn the call over to Paul I like to remind you. The on the school management's prepared remarks may contain forward looking statements, which are subject to risks and uncertainties management may make additional forward looking statements during the question and answer session.
Therefore, the company claims the protection of the Safe Harbor forward looking statements that are contained in the private Securities Litigation Reform Act 1995.
Actual results could differ materially from those contemplated by any forward looking statements as a result, a certain factors, including but not limited to general economic and business conditions competitive factors changes a business strategy or development plans the ability to attract and retain qualified personnel as well as changes and legal and regulatory requirements.
In addition, any projections as to the company's future performance represent management's estimates as of today August 10th 2020.
Music's assumes no obligation to update these projections the future as market conditions change.
This afternoon, the company issued a press release announcing his financial results unfold as 10-Q with the FCC. So participants on this call may not already done so may wish to look at those documents as a company 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 measure calculated and presented in accordance with gap can be found on the company's form 10-Q filed at the FCC Dot Gov, which is also available at www Vuzix Dot com.
I'll now turn the call over to use CEO, Paul Travers, who will give an overview of the company's operating results and business outlook.
Paul will then turn the call over to grant Russell music CFO will provide an overview of the company's second quarter financial results.
Well then moved onto the Q when they session after which Paul will provide some closing remarks.
[music]. Thank you Ed.
Hello, everyone and welcome to the views executed 2020 conference call Q2 sales and gross profits were the highest we've achieved as an enterprise products supplier. We're pleased to see our products being used across our client base to assist customers and solving the complex issues associated with today's business environment I.
Our sequential revenue growth in Q2 for product sales was nearly double 98% to be exactly as compared to Q1, driven by a record $2.3 million worth of using smart glasses revenues in the quarter, representing a quarterly year over year increase of 183% compared to Q2 or 20.
19.
Our second quarter Smart glasses sales were driven by new customer acquisitions and follow on purchase orders from existing customers.
Cobot 19 has changed the way business is getting done by most organizations and as a result, we're seeing our business growth to become part of the new normal our third quarter is off to a strong start with revenues continuing to show further growth as a result, we believe we're in a position to deliver continued growth and this quarter and over the remainder of 2020.
We're now six months into the cobot pandemic and the business activities to support enterprise customers and business continuity continues to accelerate.
Precipitating for many a shift in terms of urgency and interest to deploy smart glasses. The global pandemic is currently showing no signs of letting up and all indications are that we have entered a new normal for business to operate regionally and globally.
This has and continues to accelerate adoption for most of our key business verticals, most notably field service Tele health and health care. There were also similar needs for customers operating a manufacturing warehousing and logistics and retail both online and in store pickup all of which were negatively impacted by Corona virus.
But are now trying to come back online in spite of cold.
Companies of all sizes are significantly restricting or even eliminating most travel altogether and conferences and trade shows around the world of all gone virtual the International Air Transport Association is forecasting that air travel may not returned to pre covert 19 traffic levels until 2024 at the earliest the.
T a common it further and their recent report that Videoconferences have made significant impacts as a substitute for in person meetings and have greatly reduced the need for corporate travel as a matter of fact music is using our own technology. In this regard as well as you can imagine music's needs to qualified vendors and supply sources.
From an around the world and as an example, just over the last few months, we have been bringing online a relatively expensive piece of new manufacturing equipment being custom built for us that is coming from China, and instead of flying someone halfway around the world in light of them sit in quarantine for 14 days, we sent the supplier apparel, but it was X.M. 400 smart.
Classes.
Our first call isn't the M. 400, we were able to test out the equipment and go through Q way remotely without having to send the person.
Begs the question for Us and probably every other farm out there why send a person when you can send a pair of using smart glasses, it's safer cheaper faster and then almost every way a better way of doing business. We have been saying this for sometime now the pandemic is forcing the point.
Internally views its continues to operate under direct it was put in place in March to minimize colgate risk, including avoiding face to face interaction between employees when at all possible practicing social distancing and requiring based coverings within the office and on the production floor and conducting regular cobot screening music.
As employees, we can work from home have continued to work from home and persons meetings at the office have been almost entirely replaced with virtual zoamix on the manufacturing front. Our on site production employees are as distance as possible, while assembling smart glasses on our production floor and other protections have been adopted to further limit coal bed risk.
Such as enhance facilities and equipment cleaning and staggered clock in clock out for shift workers.
Okay.
The music and 400 has clearly become the work horse for a steadily growing list of enterprise customers. The M. 400 was built to broadcast H.D. streaming video for field service workers. When it's 13 Mega pixel image stabilize camera the OLED display delivers Chris debit color to the technician and.
Advanced voice control now on the base unless it's become a completely hands free device for many applications. Our emmc 400, smart glasses as a scalable platform continues to mature further differentiating it versus other vendor solutions. During the first half of 2020, we added support for several popular video comp.
Switching platforms, such as zone, some for health care Skype for business and Cisco Webex teams. Most recently, we have added incremental improvements and features to these applications based on feedback received from the field to increase the ease of use and provide additional functionality such as one click joining of meetings.
Zoom in zoom out camera capabilities and hands free usage I can't emphasize enough. How these popular conferencing applications make it very easy for large enterprise companies to get started with the music and 400 and blade smart glasses for video conferencing.
For our customers that require advanced features not offered by the software applications Music's continues to be successful indirectly upselling solutions, such as music's remote assessed and you'll be Max front line or working through our partner reseller channels. In most cases. These upsells are generating new software revenue opportunity.
As for views X, but can recur on an annual basis.
In July we formalized a collaborative partnership with Provo, a leading supplier of small wearable barcode scanners to offer a combined product solution that addresses the growing need for greater efficiency and safety in industry spanning retail transportation logistics and manufacturing we expect this partner.
Yep has the potential to increase the customer reach for both firms in the warehouse and logistics market going forward with firms like BMW and others already starting to use our combined so we chip.
The three specific verticals within enterprise that continue to accelerate since the cobot 19 pandemic began in February remain the old service manufacturing in health care within each we continue to see an acceleration in adoption driven by business continuity plans and the urgent need to deliver remote expertise.
Without having to send engineering personnel onsite.
One of the hottest areas is health care, which includes remote patient care telemedicine training and education medical equipment servicing and surgery assistance, all driven by the top notch performance of our and 400 smart glasses, coupled with a variety of software applications being sold my views X and our partner channels.
A number of our key accounts that each could ultimately represent more than a million dollars of pipeline revenue within the next several quarters are now coming online, which is resulting in recurring monthly sales as these accounts begin to scale.
When Prime example, as a global medical device manufacturer that came to music's in March with initial units going to one site in Europe, but rapidly expanded to more than a dozen locations with deployments of hardware and software across the U.S. as well as Europe and Asia.
And we are not just seeing revenue growth coming from one or two of our largest accounts instead, it's across many customers that are expanding their use of smart glasses, which helps accelerate music's customer footprint and our revenue growth.
As a result, we continue to see an increasing customer order flow average order size and the number of customers, placing reorders. We're seeing these trends occur domestically as well as in Europe, and Asia Pacific region. The latter led by Japan with revenues rising significantly over the previous year.
As reported a few weeks back we now have regulatory approvals and the M. 400 has started shipping into China.
As China is a manufacturing center of the World, We expect to see considerable sales growth in the region as companies around the world a dress business continuity issues, well not easily being able to visit the country.
Everywhere, we look around the world, we see our glass is being put into service other new use cases and technological developments that we have announced recently include use for auditing and meet plants.
Knee replacement surgery and gastrointestinal surgery.
I want to spend some time to provide an update on our relationship with horizon.
The story around the Verizon Fiveg network and the connected workforce with using smart glasses across a variety of market verticals is gaining momentum internally at horizon with key business sponsors executives and the Verizon B to B sales team.
The ongoing effort inside of a rising to scale up their sales efforts is beginning to bear fruit and we expect a broader coordinated effort and marketing push from horizon integrating music solutions around their fiveg and mobile edge compute platform.
Organizations like Verizon often take time to get the ship moving but it's finally rolling now.
We're working with Verizon to address key market verticals, including retail most notably big box retailers distribution centers and logistics all of which can leverage Verizon is fiveg network alongside music smart glasses for order picking in a our vision to drive efficiencies and cost savings.
Yeah.
Another major focus is on health care Tele medicine, and first responders.
Last month, Verizon announced in a press release that Vuzix was selected as the a our smart glasses solution provider for the Verizon M.S. bundle.
The M.S. bundle will be co developed by horizon and views ex alongside some other exciting companies to put together a world class turnkey solution centered around fiveg by bringing situational awareness technology to public safety and first responders.
It's one thing for Vuzix to enter this market alone, but with the technical support ecosystem financial muscle and Fiveg network of arising in place. It should help bring this turnkey solution to the market very quickly.
Risings BMS solution will be marketed and sold nationwide the horizon, two public safety organizations across the United States.
Verizon is planning to launch gets Gms solution nationwide by early 2021.
Verizon is well positioned to become a significant smart glasses distributor for views over the next 12 months and we hope to share other exciting partnership developments involving horizon over the remainder of the year as they materialize.
The views X.M. 4000, as a very exciting sister product for the M. 400 built on the same XR one silicon we expect this offering to be very complimentary to the M. 400.
And provide a one two punch within enterprise the optically see through M. 4000 will give our customers not one but to enterprise work horse products to choose from.
Product development and tooling for our new optically see through M. 4000, smart glasses is complete.
Preproduction units of the M. 4000 have been shipped out to select partners over the last several weeks and we expect to ship production units during the current quarter.
The views explain upgraded version, which will include a new built in stereo auto feature as well as an improved autofocus camera.
I will start shipping in volume. This fall. We have also shipped early production units to select enterprise customers and their feedback thus far has been excellent.
We expect this new blade to gain additional traction across not only the enterprise space, but for Prosumers as well due to these added features.
Our OEM business portfolio continues to expand and move towards volume production programs. We now have four programs two of which we have discussed before and two more non defense programs that have yet to be announced.
The multi year revenue potential associated with volume production for these programs for music's in this space could be significant and of course grows with each additional agreements signed.
During the second quarter, we delivered a customized waveguide based optics engine to a major U.S. defense contractor for a project, we first announced back in March of this year.
This customer was pleased with the initial product delivered and we expect to see additional antares and subsequent phases of the program before an accepted final product design leads to potential volume production orders.
In early July we delivered a customized waveguide based head mounted display system to the global tier one partner, we first announced back in 2018.
We now completed four phases of this product development program, receiving cumulative and our ease of 1.3 million from this partner to date.
Importantly, this waveguide based head mounted display system has been qualified not only for commercial aviation use but for defense as well as a result, we're now negotiating a supply agreement, but this customer for volume production of this customize head mounted display waveguide and HD display engine product for both aviation and.
Defense usage with deliveries potentially commencing as early as this fall.
Beyond these efforts we have a growing list of other projects that continue to progress toward signed OEM programs of course, we look forward to announcing further details on all of these opportunities when we can.
Vuzix remained diligent regarding the development of our intellectual property focused on the smart glasses product solutions in technology.
Electrical property portfolio continues to grow and now consist of over 166 patents and patents pending up from 90 patents and patents pending just three years ago.
As a U.S. based company our leadership in depth knowledge of not only near eye displays, but designing developing and manufacturing a our smart glasses head mounted displays generally and optical systems from the ground up puts views ex any unique position to rapidly deliver a new optical components and systems as well as an innovator.
Give waveguide based smart products for our customers, both direct and users and Oems, including global defense companies.
As the graphic on slide 10 illustrates we haven't broad expertise and capabilities regarding the manufacturer of optical waveguides.
We can make them in volume and various shapes sizes and structures and we're one of the view if not the only company, making them here in the USA.
Critical factor for many of the OEM customers we have.
We also continue to make progress towards establishing views acts as the preeminent supplier of next generation optical solutions for use with and around micro LCD displays in the other advanced display engine technology.
Music's, we'll be sharing more about these exciting developments in due course, but let me say that these new solutions should facilitate some of the most advanced enterprise and consumer focus smart glasses for Vuzix and our OEM partners to help build stylish smart glasses for use across the board.
The smart glasses pictured on slide 10 are already in the prototype stage and unlike others preparing to entered this space in 2022 were 23, we expect to see products like these reaching the market in the much nearer term.
I'd like to now pass the call over to grant. So he can review some aspects of our second quarter financial results.
Grant.
Thank you Paul as Ed mentioned the 10-Q, we filed this afternoon with the FCC offers a detailed explanation of our quarterly financials. So I'm just going to provide you with a bit of color and some of the numbers.
Three month ended June Thirtyth 2020, total revenues increased.
Point 8 million to 3 million versus the same comparable period in 2019, the increase was driven by higher sales of our non OEM smart glass products, which rose 183% year over year sales of OEM products were known for the three month ended June Thirtyth 2020, as compared to just under 1 million in the 29.
Im period.
We do not currently contemplate further quarters of that OEM smart glasses model.
Engineering services revenues for the quarter was <unk> point Sevenmillion versus point Fourmillion in prior years period.
There was an overall gross profit of point 8 million for the three month ended June Thirtyth 2020, as compared to a gross profit of point 2 million for the same period in 2019.
Driven by improved product gross margin and stronger gross margins earned on our engineering service program.
Product gross margin before overheads and other items was 50% of for the three months ended June Thirtyth 2020, as compared to 24% in the prior years period.
With the improvement primarily the result of higher margin earned on the M. 400 versus the M 300 series in the prior years period.
When the in 400 with not yet available for sale.
Manufacturing overhead cost for the three months ended June Thirtyth 2020, as a percentage of total product sales decreased to 16% from 20% in the same period in 2019 with the majority of the decrease being attributable to higher levels the sales versus the previous years comparable corridor.
In addition to as normal reserve for obsolescent of provisions the company wrote down to net realizable value I'll, let us unique component parts related to our original blade in the amount of point Threemillion for which several items one end of life our manufacturing efforts.
I have had to shift to the production of our newer late upgraded version, which should ship by the followed this here.
For the three months ended June Thirtyth 2020, we reported a gross profit from a product sales of <unk> point 2 million or 9% of product sales as compared to gross loss of <unk> point 1 million in the same period in 2019.
Research and development expense was 1.8 million for three months ended June Thirtyth 2020, compared to 2 million for the comparable 2019 period, a reduction of approximately 10%. The decrease in R&D expense was primarily due to reduction in overall, new product research and development costs as well as reduced external consulting fees.
He is related to blades software development.
Selling and marketing expense were down 3% 2.8 million for the three months ended June thirtyth as compared to the 2019 period as lower travel costs and staff reductions implemented in Europe last spring of 2019 were offset by higher commissions paid to TDD pursuant to our amended noncompete agreement as a result of.
The increase revenues from our defense base customer engineering services programs.
General and administrative expense for the three months ended June Thirtyth 2020 was 1.8 million nearly unchanged from the prior years period has lowered travel expenses and legal fees were offset by increased stock based compensation.
And I are in shareholder related expenses.
Even with the recent increase in total sales our expense control efforts continue to show reductions with total operating expenses, excluding depreciation and amortization declining 4.8% to four point Fourmillion for the three month ended June Thirtyth 2020 versus the corresponding 2019 period, we expect continued compared.
Out of 2020 versus 2019 quarterly operating expense reductions going forward, especially with reduced travel and trade Joe cost contributing to our overall cost control efforts.
The net loss attributable to common stockholder before accrued preferred dividends for the three months ended June Thirtyth 2020, with 4.2 million as compared to 5.1 million for the same period in 2019.
The net loss.
After accrued dividends for Q2, 2020 was 13 cents per share versus a net loss of 20 cents per share for the same period in 2019.
Now for the balance sheet highlights our cash position as of June Thirtyth, 2020 were 13.2 million or networking capital.
Totaled 20.1 million cash used in operations, excluding changes in our working capital totaled 2.9 million for the second quarter of 2020 as compared to 4 million in the 29 team comparable quarter a decrease of 29%.
Cash used for investing activities during the quarter was point fourmillion as compared to point 9 million in the prior years period as a required investments in manufacturing new product tooling and other equipment purchases decreased substantially year over year Capex for the balance for 2020 is expected to remain well under 2019 levels in total.
The company has a 1.6 million dollar debt obligation as of June Thirtyth under a paycheck protection program loan that received in April 2020, the company intends to apply for forgiveness of the amounts received under this loan once rules are finalized and further guidance issued.
With the amount eligible forgiveness expected to equal the sum of payroll costs covered rent obligations and covered utility payments incurred by the company. During the 24 week period, beginning on April 21, 2020 calculated in accordance with the rules and other terms of the carriers that.
With that I would like to turn the call back over to Paul Paul.
Thanks Grant.
Our third quarter is off to a strong start in terms of smart glasses revenue through the first week of August and is currently outpacing our second quarter sales rate. This bolsters our belief that we are in a position to deliver continued growth in the third quarter and over the remainder of the 2020 year.
2020 is proving to be a transitional year for Vuzix and it is encouraging to see that the growth in our business today is broad based not dependent on any single project or customer. We're also seeing growth across multiple market sectors and with the world changing as a result of the pandemic, we see that growth continuing into the foreseeable future.
Again, why send the person when you can send the pair of glasses, there faster cheaper safer and more what music's delivers in relation to co bid is going to be part of the new normal when people find they get back to work at scale adoption of smart glasses and many other use cases after we have discussed in the power.
Past should expand our business even further.
Augmented reality and smart glasses in general are the computing platform in the future and music is positioned well to be a winner in this space.
With that said I'd like to now turn the call back over to the operator for Q1 day.
Thank you we will now be conducting a question and answer session.
The question Please press star one.
Hey confirmation telling your line is in the question Q.
If you'd like you have your question from the Q.
Do you think speaker equipment, maybe necessary to pick up your hands that before I think the starts.
One moment.
Your question.
Our first question comes from the line of Christian Schwab with Craig Hallum Capital Group. Please proceed with your question.
Great. Thank you congratulations on the other very strong quarter.
I was just looking for the growth commentary is that a common.
Regarding year over year growth is 19 to 20 or is that a comment.
Regarding sequential growth from the just finished June quarter.
Yes, the answer is yes to both of those Christian.
Okay perfect. Thank you.
It when the avionics opportunity that we've already been qualified in.
Can you give us any potential range of outcomes you know over the course of the next few years, you know between zero and obviously something else.
So we can kind of gauge the the opportunity there and in what would be a fair asap, if you're willing to share.
Plus or minus that we should be thinking about.
Oh Gee this is really difficult without.
Let me say this.
If you follow the defense space.
It comes to smart glasses, and things like the hollow lens being employed et cetera.
There's a lot of dig defense suppliers that aren't part of that holo lens effort and they are already delivering wearable technology today.
And if you take a look at what our friends were doing over and that's on the Allison.
It's a significant piece of potential business here I mean, there's a lot of defense.
Guys out there gals that need to have access to equipment like this and it's going to be in programs. We believe this what we're being told upgrades to stuff that's in the field and brand New program. So you'll see these things in a lot in different places.
Happy qualified to defense level performance and so it's not as an expensive is purchasing a the enterprise level solution just because it has to meet all these other sort of specifications. So.
You know you look at even a finished product that uses these sub components are probably going to be more expensive than that hard to give you a hard number on that again.
It's it's.
You know, it's greater than 1500 to $2000 kinds of numbers in the volume could be significant and.
We mentioned a couple of players in this regard.
You know the technology the futures all wearable and see through optics is a critical part of its and the cool thing is views looks manufactures these things the United States and if you pay attention at all to World politics, you know that that could be a very important hedge.
Great. Thank you Ed I'll, just ask one more quick question to get back into queue. If we have.
Vast expansion of opportunities that that we.
Talk through.
So lets you regurgitate that but.
What I was thinking about is a couple of the other opportunities that kind of you know stood out I thought which was.
The Verizon opportunity on a couple frauds.
As well as you know marching through Ediary engineering.
With that with a U.S. defense contractor would you expect or be disappointed if there wasn't so sort of potential material volume.
From both of these customers in 2021.
Oh.
Definitely should see significant contributions to revenues.
Not just there Christian.
Think about knee surgery is there is over 600000, new surgeries done a year.
North America.
I mean, there's there's a lot of places where the technology Vuzix makes should have nice contributions to the to the revenue side of things and.
In the rise in side, we have high expectations and in some other OEM programs, we have high expectations in 2021 will not be a bad years with them knock on wood.
Great no other questions. Thank you.
Thanks Christian.
Thanks next question comes from the line of Jim The Gallery with Bradley within company. Please proceed with your question.
Thank you good afternoon.
Paul You mentioned in your commentary to Nondefense engineering programs.
And.
To the extent that you can elaborate on that are those four see through optics as well and.
We haven't seen the we haven't seen the engineering part of that yet correct.
That's correct and if we happened when when is it a reasonable time to think that they would.
That was the reasonable time to think that you could start working on those projects.
Well.
We're we're in development on them now so I would anticipate you'll see some contribution to the.
So as a pile here from an engineering nonrecurring engineering OEM perspective, even in this quarter Q3.
On on some of them.
Jim and they're they're smart glasses.
And optically Ses related programs.
Optic we see through optics.
Okay.
I wish I could share more I'm hopeful, but I understand.
Shortly here, we'll have a.
A bit more color, we can put on those.
Everybody.
Okay. You also mentioned in your comments.
I would just understand some of it is related to next generation display systems that I think people will find pretty cool.
Okay.
In your commentary you also mentioned.
Increases in sales to international customers.
I was hoping you could give us some indication about.
How much of.
Sales was deployed and let's let's just go broadly Asia Europe North America.
Not necessarily where the sale was made it might be made to north American customer, who deploys it internationally, but that the the end deployment do you have a.
An indication about how that would divide up in those three geographies.
Grant do you want to try to take that one.
I think I called it up here.
Sure I mean, the us is still the prime market.
Europe number two and then but Asia, particularly Japan really grew in the last couple of quarters. So.
A bigger bigger percentage.
So I mean, historically, if you know.
Asia, Japan is being.
10, 12% note I think it probably of recent crested the 20% level. So.
It's coming on so so international sales there.
Rapidly going to become the.
Probably greater than domestic excluding the engineering services programs.
In 2020.
Okay.
Grant while I have you.
Look like cost of sales.
On the variable side is getting close to where you want it to be or Theres still a lot of is there still substantial growth for.
Improvement as a percent of sales well, we think there's still some room for improvement obviously, the the higher the volume the more we can spread some of our.
Close to more fixed.
Overhead costs I mean, you know we still.
Had.
A fairly large reserve for obsolescence regarding me.
The blade you know as we transition to the next generation of it so.
Those are always.
Pulled down so we.
We don't like to.
I have to take those provisions, but you know with that we're kind of first to the way everything worked out so.
But I think where we're getting there are no. Our goal is it'll still ultimately though.
Try to get through a growth profit number of 40% or greater.
Well.
You know provided we got the total revenues up top too.
Amortize those costs.
Understood Okay.
And then just finally on the on the blade.
I'm, assuming that your security customer is still.
I don't know how to characterize it so this might be.
Unfair, but let's call it behind schedule.
Is that what's happening or is there something else going on.
We should be aware.
The perspective.
Of Covidien. Unfortunately for those guys not a lot of people are going to increase its not a lot of people have gone to the baseball game.
On a lot of people are just think about.
A lot of what they were making.
What's to address markets that are in a pretty tough spot right now even baseball.
No people in the stands and organizations are coming up with 19 plus of the players. So they got us with Colgate, So they've got to close down so.
Fortunately for them much that's challenge they do have another product at the coming out with I guess, that's related to temperatures and those kinds of things, but it's their focus on the security side. Unfortunately has got a bit of a hiccup in the right now.
Okay is the is the upgraded blade, where the the new version of the blade with the autofocus.
And the stereo is that going to address a different customer set.
I'm, just trying to understand what happens with blade going forward.
It's across the board a much better solution, Jim I mean, if you think about the way. It was previously there was no audio boats and so if you're an enterprise customer what you had to do was put year, but in your ears and that made for safety issues extra cables extra things to take care of now you just put these guys on.
And you've got a full communication system, just like the and 400 does.
And with the autofocus another important part when you're doing remote support and those kinds of things. So this is going to be.
For those folks that need to have remote support kinds of things in the lights, but they can't have that sort of out there look over them 400, it's a great option and securities part of that market still.
Okay.
That said it doesn't have the performance of an end 400.
It just doesn't have the camera support it doesn't have the only runs in.
On the 2.4 gigahertz Wi Fi that there's lots of folks at like right now blades are picking up pace, we reduced the priced for 99.
And yes.
They're selling I think pretty well at the moment.
And we think that people will really like the upgraded blade here coming up.
And we'll be upgraded blade price at.
But for 99 or closer to the eight 802000 dollar. So you had previously.
Got enough margin.
When we made this price change the blade really.
And that kick into overdrive, a bit and there is enough margin then it especially on the direct sale basis, which we do a lot of we are considering a price less than the 999 number but im not sure grants in a position to where we'd like to share that just yet because we're still thinking it through.
And were and where settling down existing blade stock but.
Well it will pick it won't be more then.
The blade.
Was one way.
Reduced as price so and that was 79, so that'll be the high side.
I believe.
And I'll also all new blades are gonna have.
Safety glass lender, then before that used to be a premium option and now all played upgraded models are going to have that include itself.
Just a nice feature hopefully going to be more attractive to some enterprise customers.
Right and and I'm, sorry, but just one more if I might so Paul you talked about.
Q3, so far exceeding.
Got the word you used to pay circuit rate Q2.
Are you, saying that if you took the Q2 sales from divided it by the number of days when did the same thing with Q3 to date. The number in Q3 is bigger is that it another way to look at it.
Yeah, that's another way of looking at.
Average weekly sales for the Q2, you know were running at a faster pace so far in Q3.
Fantastic.
That's great to hear congratulations nice numbers and.
I will talk again later thanks.
Thanks, Jim.
Thank you. Our next question comes from the line.
With Maxim Group. Please proceed with your question.
Hey, guys. Congrats on the sold sold results this quarter.
And thanks for taking my questions.
So Paul.
I want to follow up on the I know some other analysts that I've asked about too, but I want to follow up on the announcement regarding the tier one aerospace customer that completed the phase for the program.
Just so I understand it has anything changed in terms of the status of this relationship or just progress or since July 16th announcement.
Not that yes.
Has anything changed it's just the program is just moving down the road I mean, well we are now negotiating a supply agreement product for volume production.
Just started during the.
Midway through phase four so.
They obviously seem to be.
Pleased with what we're doing and want to move on to.
The next.
Next stage, namely production.
But that's not signed at this stage.
Got it yet and it's no doubt a clear positive in my mind as well on I'm just trying to understand this kind of I guess is one of the major ones that finally made its way to the end now so I'm just trying to understand you know its.
Do you have a sense as to how long it would take could get to production or is this are we kind of just creating the rules as we go here.
So you guys.
Strike that negotiation.
That makes both sides happy.
Yeah.
What we delivered to them so far.
Practically speaking production, there's still a few minor adjustments, but do you know.
Thank you will see before this year is up a contribution to the production side of this.
So you should see you got it okay.
And then let let's say hypothetically.
You guys you reach an agreement volume production begins.
Just so I understand you know the reality or the potential reality.
What you expect say everything goes into volume production in Q3 Q4's revenue were just units in total.
Generate enough revenue that would say.
Exceed all of last year's product revenue or would it be a when you're ramping each quarter, how much revenue could possibly be January is like.
Best case scenario and would it would it ramp overtime or to be linear thing.
It's going to ramp over time.
And the volumes to start with.
Just takes time to fill a channel does get it worked into programs and those kinds of things. Just these these are components that should get used in multiple programs and then as those programs start to unfold for our customer.
Volumes will ramp up.
You know alongside it so it's not going to be.
Instantly boom, there's thousands of units a quarter being shipped.
But it should be a nice contribution in 2021 to our business.
I will say that if you look at sales in general.
It's broad based last year and.
2019 in our second quarter, we had one customer cake.
You know essence thousand plus smart glasses from us.
Not the characterization of what we're selling today, we have customers that are buying fiftys and hundreds kinds of numbers until it's it's spread out.
We at the same time with some of those customers are in the process of quoting.
Much larger volume production rollout so.
Yes, it's very true that this defense customers going to be an exciting 2021, but I think you're going to also see the standard smart glasses product lines views of SAP start to have some companies that buy in larger volumes.
Understood. Okay. That's helpful. The broad based stuff will be there I believe and its you heard how Q3's going already it looks like its nicely.
Picking up speed.
But we're very hopeful at the same time that you'll see some contributions from some of these folks were selling through that are bigger.
Got it Okay, and then and then if I, if I turn away from product revenue.
Looking at engineering revenues.
Just so I understand.
It's clearly you expect product revenue to be increasing each quarter, but what about the engineering services. I believe you mentioned you two new but maybe not formally announce OEM projects.
So we'll these contribute to engineering revenue lines during the second half a 20 would you expect it to decline given this this aerospace customers. It exited the phase four yeah, what would I expect for engineering services.
I think you're going to see the engineering.
Revenues can be lumpy up using still be some quarters, where there's a lot of stuff going on at the other quarters, where it's more at a low because we delivered on stuff and you're going through the next phase.
Two new programs, we discussed a little bit about.
And there is others in the queue. So maybe when all when they get more happening here using sort of be a little less lumpy, but when you have less numbers of programs like that there's times, where you'll busier with them and there's time under less so that when it's harder to peg Jack.
Okay fair enough and that makes sense that's reasonable.
And then I guess you know just just lastly have you seen many opportunities from that from you know there were historically announced that may have been put on hold their delayed.
No Siggi I think ride on comes to mind to me. For example are you seeing anything like that any of those arrangements or delayed.
Project side now coming back online.
It's amazing to me, how Q1 as the pandemic started to come.
So the for how many programs got put on hold.
You know as it happens our smart glasses are so good at this remote support problem in business continuity.
The cold and stuff from that perspective accelerated a bunch of areas and some new areas came in there's a lot of our business that slowed down in some of it the brakes or just on completely the security effort that Jim was talking about just a few minutes ago. That's one of those ones. That's on hold right now and.
I don't know you tell me when a cruise ships ever going to go out again or when we can go back to the ball game. So.
Yes, we got stuff, we've got stuff. That's the brakes are on some of that stuff is starting to free up though I.
I mean, if people are trying to go back to work, they're all trying to figure this out and it's messy.
But to the extent our products help opened the doors. So those are the areas, where we're starting to see things pick up again in those programs start to come back online.
Hey, I look at that as a nice.
The the work that we've been doing over the last four or five years.
I have to say a fair amount of it fits into that bucket.
Which is why we got that at times, there's been a journalist today.
For sure.
That's it for me again, congrats on the strong quarter. Thanks, guys.
Im sorry.
Your next question from Brian Kinstlinger with Alliance Partners. Please proceed with your question.
Hi, everyone. This is jake of on for Brian Thanks for taking your questions.
First you've had a number press releases regarding your smart glasses for remote medical responsible hospitals can you talk about the progression of these customers are they purchasing a few pairs in the beginning and then if it goes all purchasing more.
I mean, that's how it's kind of been moving there are in some spaces where.
It's accelerating.
After rather than less there are some areas where they are using our glass is 24 seven today.
Especially.
In Asia more so in the states that are using them, but I think there on and off in some cases.
So it's it's.
And then mixed causes challenges pluses and minuses even for the folks that are on the front lines along with that.
That said.
There are some areas in the medical side of our business that are.
Or buying reasonably significant numbers of units today.
Okay, and what's your total installed base for health care amount working right now.
Don't break it out that way.
[noise] Loren Buck I mean that from a competitive perspective I'm sure there's more than one person on this call that.
Competes with music.
We just don't feel a need to have to.
Tell everybody on the planet, where the most of the business is mostly a right now I'm not yet assumption.
Last quarter, you talked about enterprise delays given plant closures other coven challenges.
Sort of health care to comment on how the procurement process and sales cycles changed over the last four months.
We've had a few items that we've had some challenges with some some special blues and those kinds of things and.
I have to say for the most part we've not been into.
Significant effort issues on the manufacturing front the plant floors running well.
Got inventories when we've had some glitches we found alternative sources to stuff.
Does that sound right granted I Miss anything in that regard.
No no no does that sound sounds reasonable.
No, it's not really slowing us down I mean, it might have.
Two long somewhere to the new products.
We got coming out.
I have been delayed a little more than day to day production.
Yes, there's been some cases were stuff would get put delayed because the mandate has been to produce products related to personal protective equipment and those kinds of things. So we haven't some windows that we got delayed on those kinds of things because there's these release in windows that going back on our waveguides, but.
Weve found like I said alternative sources and stuff and so little glitches and delays, but for the most part it's been manageable.
Okay, and lastly, what was the average price per pair of smart glasses sold during the quarter.
Increase.
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There are many of the year.
Well.
Oh excuse me.
Retail.
It's 17, I mean I'm for like an M. 400, clearly we do offer volume discounts in the volumes increased.
Average number will.
Well dropped down I mean I would suggest.
Let me see here [noise].
Just a.
I mean are having 4000 that comes out.
Currently it's gonna have a maybe even higher.
Selling price but.
At Best I mean, I would say, we've we've averaged 25% discount off our retail would be the average selling price of the product.
Alright, Thanks, that's it for me.
Thank you.
One of our question and answer session I'd like to turn the call back over to Mr. travelers for any closing remarks.
I'd like to thank everyone for your interest in participating on today's call today look forward to speaking with you again and the November timeframe. When we report on our Q3 results stay healthy everybody and again, thanks for a stop and until listen to the call.
Thank you. This concludes today's conference you may disconnect your lines.
For your participation and have a wonderful.
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