Q3 2020 Vuzix Corp Earnings Call
Please standby your conference will begin momentarily we thank you for your patience and ask that you. Please stay on the line.
[music].
Greetings and welcome to the music quarter, Twentytwenty financial results and business update conference call at this.
Hi, all participants are in a listen only mode.
Great question answer session will follow the formal presentation.
If anyone should require operator assistance during the call. Please press. The one followed by this four on your telephone keypad. As a reminder, this call is being recorded now I would like to turn the call over to Ed Mcgregor Director of Investor Relations at these ex Mr. Mcgregor you may begin.
Good afternoon, everyone and welcome to the Vuzix third quarter 2020 financial results and business update conference call.
With us today are music CEO, Paul Travers and CFO Grant Russell.
Before I turn the call over to Paul I would like to remind you that on this call management's prepared remarks may contain forward looking statements, which are subject to risks and uncertainties and management may make additional forward looking statements during the question and answer session.
Therefore, the company claims the protection of the Safe Harbor for forward looking statements that are contained in the private Securities Litigation Reform Act of 1995.
Actual results could differ materially from those contemplated by any forward looking statements as a result of certain factors, including but not limited to general economic and business conditions competitive factors changes in business strategy or development plans the ability to attract and retain qualified personnel as well as changes in legal and regulatory requirement.
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In addition, any projections as to the Companys future performance represent managements estimates as of today November nine 2020.
Usix assumes no obligation to update these projections in the future as market conditions change.
This afternoon, the company issued a press release announcing its financial results unfold is 10-Q with the FCC. So participants in this call who may not have already done so may wish to look at those documents as the company will provide a summary of the results discussed on today's 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 GAAP.
To be found in the company's form 10-Q filing at SCC Dot Gov, which is also available at www abuse X. Dot com.
I will now turn the call over to music CEO, Paul Travers, who will give an overview of the companys operating results and business outlook hold.
Coal then turn the call over to grant Russell music CFO Wholl provide an overview of the company's third quarter financial results.
We will then move on to the QNX session after which Paul will provide some closing remarks.
Paul.
Thank you Ed.
Hello, everyone and welcome to the Music's Q3, 2020 conference call views.
Music is entering one of the strongest and most promising periods in our history in terms of smart glasses demand.
Product line strength Oh.
Oh Im developments in a significant advancements being made on our next generation technology. We are executing on many fronts and we have a healthy balance sheet to support our efforts.
The increase in smart glasses demand, which began in the spring strengthened further in Q3 as our smart glasses sales were the highest we've yet achieved as an enterprise wearable computer supplier exceeding our previous record set in Q2 of this year.
Our Q3 sales of smart glasses totaled 2.7 million up 15% sequentially and 156% on year over year comparable basis and these record sales were achieved in a quarter that included the summer months, which is often a slower period for many enterprise customers in the U.S. in Europe due to play.
Land vacations.
We are pleased to see our products being used across our expanding client base to assist customers in solving the complex issues associated with todays business environment demand.
Demand for our products has been and continues to be broad based across numerous market verticals and around the globe, most notably in health care field service manufacturing and logistics.
And the momentum behind our core enterprise smart glasses business has not slowed.
During the month of October Music's recognized a single month record for smart glasses revenue outpacing our previous record.
We're seeing replenishment orders from resellers follow on orders from direct customers and a continued stream of inbound sales from new customers as our core smart glasses business continues to accelerate across the globe.
As a result, we believe we should be in a position to deliver yet another record quarter of smart glasses product sales in our final quarter of this year.
At the same time, we continue to be successful in expanding the breadth and scope of our OEM and engineering service engagements, which currently total five with further opportunities visible on the horizon.
I'd like to spend a moment to drill down a little deeper on her smart glasses sales trends slide five depicts our quarterly smart glasses sales over the past four years breaking out notable single orders in three instances over the last four years, our smart glasses sales base business averaged approximately one point.
$2 million per quarter with.
With the majority of the sales coming from customer pilots.
Over the last few quarters, we have witnessed many customers both large and small moving faster between pilot evaluation and deployment into their operations.
To highlight this acceleration further vuzix is October smart glasses revenue alone was comparable to the 1.2 million, we used to do over an entire quarter.
While the revenue growth, we have experienced over the past several quarters had been broad based and not attributable to any one or two large accounts, we see the potential for significant orders from large accounts on our horizon, which of course, we remain focused on closing in announcing.
As you can see our customers are successfully deploying our products to become more competitive and adjust to the new normal. We're just getting started with broader smart glasses adoption by enterprise users and as such it begs the question for so many organizations are still trying to figure this out why send the person when you can send a pair of music smart glasses.
Deploying music smart glasses in enterprise is safer cheap.
Cheaper faster and in many respects a better way of doing business, we have been saying this for some time now and the pandemic has forced the point.
Music's now fields, what we believe to be the strongest lineup of smart glasses solutions in the market.
Not only in our own history, but more importantly across the competitive landscape.
Our three current leading solutions and 400.
The newly introduced and 4000 in the blade upgraded represent a range of competitive price points form factors and functionality.
It is safe to say that we see customer interest in demand for each continuing to build.
The views X.M. 400, which accounted for the majority of our smart glasses sales in Q3 has clearly become the workhorse for a steadily growing list of enterprise customers.
The M. 400 was built to capture and broadcast industry, leading for Kate 30 frames per second HD streaming video for field service workers with its image stabilized and autofocus and camera and the OLED display deliver superbly contrast, with Chris video to its users and.
And with further advanced voice controls now built into the base or less it has become a completely hands free device for many applications.
Our M 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 conferencing platforms, such as zoom and some for health care Skype for business and Cisco Webex teams.
And we have plans support for a number of other popular video conferencing platforms that are currently in the Q.
Most recently, we rolled out Android nine across our 404000 devices, which brings with it a series of improved features and functionality for enterprise customers, including improved Wi Fi and Bluetooth connectivity enhance security improved foreign language support to support a broader global customer base.
And increased video recording speeds of up to 60 frames per second obtain ATP video, resulting in additional stability in usability for our enterprise customers and is the highest level of Android currently running on any pair of smart glasses in the industry.
The music's M thousand it's a very exciting sister product for the M. 400 built on the same XR one eight core arm processor from Qualcomm and it is now in volume production and shipping to customers. The optically see through M. 4000 gives our customers not one, but two enterprise workhorse products to choose.
From there.
The 5000 that display of the M. 4000 makes it not only one of the brightest optical CD three devices on the market, but also extremely versatile both indoors and out.
The M. 4000 features an image size field of view that is nearly double that of the 400 and since it is see through offers a nonexclusive view for the were making it easier to see their work and surrounding safely. The M. 4000 is proven to be very complimentary and virtually fully compatible with the.
400 on top of its enhanced features.
And provide a one two punch within enterprise across health care field service manufacturing and logistics to meet different customers means.
The music's blade upgraded version includes a new built in stereo audio feature as well as and autofocus camera both popular requests from our existing customers and is now also in volume production and shipping as of the last week of Q3.
Feedback from our enterprise customers to date has been excellent and we have received indications that a number of our larger customers across several industry verticals are looking to roll out the new blade to support their operations in pharma field service manufacturing and logistics and as competitive as all these products currently are where we are.
Looking to push the envelope, even farther with our next generation smart glasses solutions that I will comment on a bit more shortly.
COVID-19 has forced changes in the way business is getting done across many organizations and as a result, we are seeing our business grow we expect much of this change to last beyond the pandemic and that our products will be more broadly adopted for the long run cold.
Goldman prompted new ways of doing business in many respects, which are becoming the future of how things will get done.
Using smart glasses is not just about solving the short term corporate safety problem, but also about how to do business more efficiently there can be cost and time efficiencies and they are much greener for the environment to use lower physical travel and now with the proof in the putting it seems broad continued adoption.
Is inevitable use.
Music smart glasses have been proven to be a successful tool for our customers to combat and conquer the operational challenges.
I've been exacerbated by the COVID-19 pandemic and we believe adoption will continue expanding as more organizations see the wide array of benefits they offer.
Sales forces CIO recently noted that the pandemic has opened people's minds to change and that his from seeing Ceos, becoming ambitious about putting together plans to not only ride out the storm, but actually merge from it stronger and more competitive.
At the same time global research and advisory firm Gartner Group recently stated that quote a R has reached maturity by several measurements and has become an industry proven technology that executives can safely invest into improve and innovate their business.
Most importantly, they also offered quote a are as no longer considered an emerging technology and is now ready to move from pilot to productivity.
We have views are witnessing this shift first hand, and the trend is gaining momentum three specific verticals within enterprise that continue to accelerate their adoption of smart glasses. Since the COVID-19 pandemic began in February and could build service manufacturing and healthcare within each of these market sectors. We continue.
To see growing acceleration and adoption driven by business continuity plans and the urgent need to deliver remote expertise without having to send personnel on site.
In manufacturing and field service you have companies like Clorox that have deployed the M 400, smart glasses across their operations to support manufacturing operations by connecting plant maintenance managers with operational staff on site.
Clorox is also sending vuzix smart glasses to facilities sites to assist Ernst and young and the performance of quarterly audits, resulting in dollar savings on travel and time.
Other deployments, we recently announced in this space include those made by respective industry leaders, such as Optus Shld group Baumann and others.
Look for more in this space from us in the upcoming months and quarters.
One of the hottest areas recently as health care, we have companies like Medtronic, using our smart glasses to support medical equipment and technicians during surgery health care usage elsewhere includes among other things remote patient care telemedicine training and.
Occasion medical equipment servicing and surgery assistance, all driven by the top notch performance. Our M 400, smart glasses, coupled with a variety of software applications being sold by Vuzix and our partners.
The M. 400, smart glasses are now also being used on the hospital floor to support virtual rounds.
I see use for patient monitoring.
And operating rooms to perform guided surgeries and for training purposes in surgeries, such as heart and gastrointestinal as well as clinical interaction with various medical professionals and patients our list of announced customers in this space continues to steadily grow.
In one example, Usix partners in Malaysia recently completed a successful clinical study showing that our M 400, smart glasses can be used as a successful tool to conduct rounds from neuro critical care patients during the COVID-19 pandemic.
And they are expanding across the Asia Pacific region with their product offering.
And another Oh handle one has deployed dozens of M 400, smart glasses and recently kicked off clinical studies at more than 15 hospitals worldwide to review mentor Minty surgical site training utilizing vuzix smart glasses.
We're excited to support will handle one to expand this program with the goal of over 1000 mentor Minty surgical pairs across the globe as they continue to scale our.
Our partner Pixie medical continues to expand their distribution channel and perform successful knee replacement operations using our M 400, smart glasses as the primary a our navigation tool across Europe.
While at the same time pursuing five 10-K device clearance for the us market beyond knee surgeries.
Which totaled 600000 operations annually in the us alone.
He has his eyes on enabling use of smart glasses and shoulder surgeries as well.
Just last week, we also announced that is temple University faculty of Dentistry is using them for hundreds to support remote student learning and that Newcastle University in the UK is using m. four hundreds to support its blood cell and co bit 19 research our customer adoption list in the health care vertical just keeps.
Growing and growing.
I'd like to give you a quick update on Verizon, which remains one of our strategically important partners. We're continuing to work with them to address key market verticals that can leverage their fiveg network alongside music smart glasses to drive increased efficiencies and capabilities.
The MMS product bundle, we first announced in July that is being co developed by Verizon to put together a world class turnkey solution centered around Fiveg continues to progress well this bundle of hardware and Fiveg services is designed to bring situational awareness technology to public safety.
And first responders. This SMS solution is currently being prepped for customers pilots and feedback ahead of a nationwide rollout in early 2021.
Verizon could well become a significant smart glasses distributor for views X within the next 12 months and we hope to share more on this as well as other exciting developments with them as they materialize on or we are able to share.
Using this also engaged with several other significant telecommunications providers domestically and internationally around the globe.
Working together with these carriers I'm producing revenue generating services around Fiveg focused on b to B b to C and the likes.
Our OEM and related engineering services business is also gaining momentum this year as our customer portfolio continues to expand their moves towards anticipated volume production programs.
For me you announced for engagements and have several others in the works the multi year revenue potential associated with volume production for these programs related to aerospace and defense health care I mean, the way, but I'd say generally into some of these companies are when we can but I thought in the interest of clarity I would try to add some additional color to what these programs.
Czar.
Slide nine lays out the timelines and progress points with these OEM engagements partner one is a global aerospace and defense contractor. We're currently in the process of finalizing a supply agreement with this partner after completing four phases of development.
Supply agreement being negotiated is related to volume production of a customized head mounted display waveguide and HD display engine for both commercial aviation and defense usage with initial deliveries expected to commence in the first half of 2021.
Partner too is a major U.S. defense contractor and in October we announced a base to follow on project to further develop customize waveguide based head worn a our display engine with most of this phase is work expected to be completed before the end of the year.
We anticipate the successful completion and delivery of phase two to either lead to further and our east for subsequent refinement or straight to an eventual production program.
Partner three is a major international defense contractor and in September we announced a phase one development agreement to build a customized waveguide solution.
Most of this work expected to be completed before the end of the year.
Additional development phases are currently being contemplated before an excepted vinyl product design would be expected to lead to a volume production order partner.
Partner for US based medical partner and we announced in October that we are developing a customized head mounted waveguide display based system for assisting cancer surgeries.
Phase one is expected to be completed by the end of 2020 with expected further nonrecurring engineering.
Revenues, if awarded by the customer and subsequent phases before an excepted vinyl product design and moved to volume production orders.
Please note that no engineering services revenues from these four programs were recorded in our third quarter results.
Partner five is a commercial farm with which we are engaged for a waveguide and projection engine development project related to next generation display technologies for both musics and potential third party OEM customer.
Beyond these efforts we have a growing list of other projects that continue to progress towards finalized statements of work for new programs of course, we look forward to announcing further details and developments on these upcoming as well as existing opportunities when we can.
We continue to grow our intellectual property portfolio, which now consists of over 179 patents and patents pending up from 90 patents and patents pending three years ago and up from 166 and just the previous quarter.
Our recently granted patent related to a near I display with selfie meeting micro LCD display engines is a good example of the progress we are making towards establishing vuzix as the preeminent supplier of next generation solutions for use with and around micro LCD displays and other it.
The answer to display engine technology.
In September we released a video about our next generation smart glasses, which we plan to bring to market within the next year.
Enterprise partners and customers are asking when they can have it.
Interested players and the way our consumer space are asking how did we do it.
Consumers are asking when can we buy it if you haven't had a chance to view this video which can be found under the technology tab on our web site I would encourage you to do so as it provides a true glimpse of the future are smart glasses, and our continued leadership position within the space.
Although I can't offer too much in terms of details due to competitive reasons I can say this next generation tech should be slated for market introduction during the second half of 2021.
We expect this will be the first time any company in the A.R. or wearable computer space has figured out how to fit as they say 10 pounds in a five pound sac when it comes to highly functional fashion forward smart glasses.
Similarly on the OEM side of our business, our broad expertise and capabilities regarding the manufacturer of optical waveguides and display engines, along with our status of being one of the few if only U.S. manufacturers of such technologies should continue to serve as a major differentiator for us.
This has been well evidenced by the growing engagements we have had in this space thus far this year.
I'd like to now pass the call over to grant. So he can review some aspects of our third 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 just going to provide you with a bit of color on some of the numbers.
Our third quarter revenue rose, 140% year over year to 2.8 million.
Largely due to increased sales of smart glasses.
Which increased 156% to 2.7 million in the quarter sales that were in 400 smart glasses accounted for the majority of this increase our product that was not yet in full volume production in the comparable 2019 period.
There was an overall gross profit of 8.3 million for the three months ended September Thirtyth 2020, as compared to a gross loss of <unk> point 2 million for the same period in 2019.
Detracting from our Q3 2020 gross profit figure what the point $2 million.
Inventory obsolescence reserve taken for unique Mark last component inventories that are no longer expected to be utilized.
On a product cost to sales basis only product direct cost.
Declined to 53% of sales in the 2020 period as compared to 64% in the prior year period. The change primarily the result of higher margin turned on the Mtwo hundred versus the M. 300 series in the prior year's period, which had began to be discounted, but the pending arrival of the newer mtwo hundred model.
Manufacturing overhead costs, while increasing in absolute dollars by 8% for the three months ended September Thirtyth 2024, with the 2019 Kerry decrease as a percent of total product sales grew 17% from 40% in the same period of 2019, clearly as we continue to see growth in our sales.
These costs as a percentage of product sales should decrease further.
R&D expense was 1.9 million for the three months ended September Thirtyth 2020, compared to 2.3 million for the 2019 period reduction of approximately 20%.
Decrease in R&D expense was primarily due to reduced external consulting fees related to the blade software development pullback.
Well them at a small reduction in overall, new product research and development costs selling.
Selling and marketing expenses for the three months ended September Thirtyth, 20, 21.9 million, an increase of 21% largely due to non cash stock based compensation expense.
This was a direct result of the cash salary reduction program, we implemented a may 2020, where well be hundred dollar decrease in cash wages. The employees received 150% of that amount as a stock award so handsome and increase in non cash stock compensation.
Our operating costs.
General and administrative expenses for the three months ended September Thirtyth 2020, with 1.6 million an increase of 6% over the 29 period, largely due to noncash stock based compensation related expenses.
Even with our increasing total sales versus a comparable 2019 period.
Since control efforts continue to be apparent in the quarter as total operating expenses, excluding depreciation amortization and patent impairment charges declined 5% to 4.4 million.
We expect continued comparative 2020 versus 2019.
Quarterly operating expense reductions going forward, especially with reduced travel events contributing to our overall cost control efforts.
Loss for the three months ended September.
20, 24.8 million versus a net loss of 5.5 million in the same period of 2019.
The per common share loss after accrued dividends were 13 cents versus the 18th that loss for the same period in 2019.
Now onto the balance sheet highlights our cash position as of September Thirtyth 2020 was 24.9 million when we had a net working capital position of 30.1 million.
For the three months ended September Thirtyth 2020, the net loss after adding back noncash operating expenses were 3 million versus 4.5 million in the same period of 2019.
Cash used for investing activities during the third quarter was point $5 million compared to point 2 million for the prior year period as our investments in manufacturing new product tooling and software licensing fees increased with the introduction of the M. 4000, and blade upgraded models at the end of Q3 2020 investing activities for Q4.
For 2014 should not exceed our Q3.
Levels with that I'd like to turn the call back over to Paul.
Thanks Grant.
Our fourth quarter is off to a strong start in terms of smart glasses revenue through October this momentum along with the recent introduction of our new products is expected to continue and to ramp further.
We're in a position to not only deliver yet another quarter of growth in our smart glasses revenue, but also set a new full year smart glasses sales record it.
It is encouraging to see that the growth of our business. In 2020 is broad based and has not been tied to any single large customer.
We like the trend we are seeing here across our customer base and the ROI is they are achieving and believe enterprise behaviors appear to be changing permanently and for the better as a result of the pandemic.
What we are finally witnessing first hand is the birth of a new industry sector within technology. One that music has pioneered from the beginning and invested heavily into build a valuable IP portfolio that positions views as to when big over the long haul music is and will continue to be a leader in a market that is.
Expected to grow into a multibillion dollar industry over the coming years.
With that said I'd like to now turn the call back to the operator for QNX.
Thank you if you would like to register a question. Please press the one followed by the four on your telephone you will hear a three tone probably to acknowledge your request. If your question has been answered and you would like to withdraw your registration. Please press the one followed by the Gray.
Moment for any questions.
And as a reminder to those on the phone line you can press one for to register a question and our first question is from the line of Christian Schwab with Craig Hallum Capital Group. Please proceed with your question.
Hey, Good afternoon, guys can you talk about the OEM in engineering services would you expect a recovery in that in Q4 or and do you have the visibility on when you would expect that to be more material again.
Yes.
Christian by the way.
The Q4 numbers, we won't we've already got a reasonable chunk of business, that's pretty similar to what it was in Q2 in the Hopper.
We expect the bulk of which delivered here in Q4.
Okay, Great and then just should just from a big picture I appreciate the slide and kind of walking through some of the bigger things that you guys have talked about as well as you know.
Talking about Verizon.
Should investors you know it.
You know bracket the opportunity you know.
From a revenue perspective, not you know next quarter or the quarter after that but in the next two to three years should you be modestly successful you know can you give us a range of potential outcomes and what it could mean to the top line.
Yes, first I you know how it might unfold I think you'll see.
Like eminently, even more and more coming out of our friends over at rising has this program starts to unfold for them they've got a lot of work done already that Fiveg network is already around.
And there's their efforts around what they are doing with music and I think six total companies in the coal hurtful cohort program, that's like really moving nicely it's right on track.
Thank you we'll see.
Okay and would fit unfolds as it looks good Q1 will be the beginnings of a real sort of rollout of these efforts and the numbers could be in the thousands to tens of thousands of pieces kinds of thing over the over that period of time you discussed.
Okay, Great and then and then thinking for the Verizon color. If we just kind of talked about you know the.
A couple of defense contract opportunities you know that you have you know I think there's three separate ones that you that you highlighted can you give us an idea is that you know thousands or tens of thousands over the same type of timeframe as well.
It should be in the tens of thousands over the next two to three years.
Two of them each kind of been the same bucket.
Fantastic Great I don't have any other questions. Thank you guys good quarter.
Thanks Christian.
And our next question comes from the line of Jack vendor Art with Maxim Group. Please proceed with your question.
Great. Thanks, guys.
Hi, Thanks for taking my question.
Paul You mentioned a record high revenue smart glass products sales in October.
You alluded to comparable to like a full quarter's worth of 1.2 million or so of revenue.
Gives me a good sense as to what you mean by the October level record.
And then I also noted that you mentioned and 400 represented the bulk of the third quarter product sales revenue.
What I'm wondering is can you provide any color around which smart glasses represent the bulk of this October product sales records specifically.
Well, we do have some 4000 in the mix and the blade and the mix Mack said.
Right now the M 400 is designed into so many programs.
You saw the.
Medical slide I mean, there's so many companies that are using that seem that there's some nice demand for it.
What we really like the 4000, but we're just getting started with it.
So I think if you will.
For competitive reasons, we don't like to share too much of how this mix works I mean, our next generation optical systems, we didn't give us a big advantage and I think you'll see over time the 4000.
It will start to become a significant contributor.
Actually be the blade in pharma and those kinds of places but.
In October it still right now the 400 is the lead dog in the race I guess this away.
Okay and that makes sense that's helpful.
And then if I could just maybe dig in a little bit for the remainder of 2020 here and then looking to 2021, given given all these 4000 and upgraded blade just began shipping at the very very end of September.
I guess, what would you expect for maybe like a normal seasonality now as you look I mean, theres no normal seasonality per se, but looking at it to the first half of 2021, even if I can get ahead of myself.
These new product introductions that have higher EPS piece.
It more applications with then you Bart also expanded your geographical reach.
Would you expect maybe.
A similar seasonal pattern or would you expect a stronger first half than than typical because these new products.
So we first of all the way the World is right now which is not really seeding the seasonal thing I mean, I don't know what to expect here for Christmas and there's always those holiday things didn't happen, but the fact is a matter is the world's trying to figure out how to go back to work in a moment.
Colgate is winning.
We're not seeing that.
Not in the seasonal this as much as how do I solve these problems and the optical see through systems that we have offers certain advantages in in some cases much lower error rates when you're using them because you see the real world.
And the virtual information at the same time that said those advanced capabilities kick a bit more time to implement on them.
I'm, sorry, pointing that lead guide right now has done it could double the field of view of the young who are on rent.
[music].
All that said we are designed in on all these programs on 400, I think what you'll see is the 4000 would be it'll continue to grow there is an interesting upfront demand for it already.
People are using it the feedback we're getting is awesome, but it is not necessarily looking to replace the 400 at this point just yet it has its own sort of places that it's.
Being successful and.
In the long run.
Optical see through systems are going to be the best way to do this and so as 2021 unfold you might start to see the 4000 coming more and more online and catching up a bit to the 400, but I think both of these products have a long ways to know this it's just getting started.
Sorry, I know, that's got to hand them out there, but yes.
No fair enough that's helpful. I understood and then just the last question is I'm wondering if you can we can maybe.
Further fine tune or be more measured as we talked with the engineering services revenue just because that can that can cause any quarter to be up or down relative to estimates or outlook. So I.
I think you have about $700000 of contracted revenue from these OEM engagements and you think the bulk of its going to hit the fourth quarter.
What does that mean, I mean lets say its 500000 or something in the fourth quarter.
What does that mean in terms of the.
The four quarters in 2021 is is there a replenishment, though is it just depend on as you reach a new phase of that the other contracts or is it actually 700000 is the entire contract for these five arrangements.
No. Some of these programs will evolve into significantly higher.
Engineering services revenues and some of them.
Should start to roll into actual production programs.
In 2021, some of these programs as they come through but we think they will.
You know were big could be.
In the millions potentially wards of engineering services efforts through the year.
Fantastic that's helpful. Thanks, That's all that's all my questions I'll I'll go back in the queue.
Sounds good thank you.
And our next question is from the line of Jim Mcilree with Bradley what please go ahead.
Yes, thanks, and good evening.
Grant.
It's.
It seems like engineering services are going to increase this quarter relative to Q3.
And if that's the case I'm, assuming that some of the research.
Overhead that you have gets allocated to those services. So you could have a decline in R&D. This quarter relative to Q3 is that scenario correct.
Yes, you're correct.
I mean, it won't be huge because you know the.
Projects, probably no more than.
Less than.
25, 30% is.
Internal labor in the you know the rest of the out of pocket costs.
Got it great.
And then.
Based on that.
Slide five from the deck.
It seems like the engineering services this quarter.
Could be as large as or close to what you did in Q2 is that it.
Right in the ballpark there.
Yes, you are Jim yes.
Yes.
Okay great.
Paul you indicated that the import thousand is in.
In part of the the October revenues and I'm, assuming it's small but.
Can you talk about.
Production.
Just remind us of where your bottlenecks might be and or what potential.
You know parts you have to have enough of that just can you just update us on the on the import thousand product.
Manufacturing scenario.
Hi, Jim.
We have some inventories is look I think we're in pretty good shape I will say that.
Things like waveguides, we make here, but our waveguide production, even though this is a brand new waveguide and it uses a brand new kind of grading structure within the wave guides.
They're coming out beautiful.
They are yielding nice so we're not having problems on waveguides.
It is true that a brand new product peaks, a little bit of time to come up the curve from a production perspective. So it gave me a little bit by our learning process is one and number two we are taking extra care on these first units that go out the door.
You know you don't get many first impressions so.
You know I will say when the numbers they are cranking up to 10.
10000 per quarter, and those kinds of things music's will have inventory issues that need to be you know getting into Q. Some of the stuff like Gpus cameras take more time to get them and others and those kinds of things, but at our current run rates and stuff uses in really good shape on production.
Yes, Jim 90% of the electronic components.
In the 4000 are common to the 400, so you know.
We can literally.
Swing back and forth with whatever we want to build and.
The.
The Cobra to display engine that Tim. The M. 4000 is you know how that hits home in the the blade. So you know, we're we're pretty good about the amount of new stuff.
That hasn't been tested is pretty minimal. So we're we're pretty confident that we can.
Managed production.
To meet demand.
That's great. Thank you and on the.
The 1.2 ish million in October smart glass sales.
I would love to multiply that times three to get to a quarterly number but.
We've got Thanksgiving and Christmas holidays, do those typically have a big impact on us.
Shipments or sales or activity.
There's no doubt that December slows things down a bit November does have a little bit also I will say that so far novembers not doing bad.
And you know, sometimes you yet you're in dollars that folks like to get in the queue.
Make sure they get it spent before year end Mark sold its really hard to say just yet Jim.
You know.
But I'd like to think now with you know with.
Two more months.
For a full quarter of M 4000, self in the blade upgraded.
But were in a big contribution in October that you know.
Maybe that's the numbers you are suggesting could be feasible.
Or better.
Yes.
Just to make sure you heard that they were they were not a big contributor.
In October yes, sorry, if I got that wrong, yes, definitely model, you've got a big country.
You Didnt.
Okay got that and then my last question was.
Is it that the prior question or the first question on horizon.
I know you're optimistic on it but isn't it reasonable to think that the rollout is going to be measured that is yes.
Verizon will find the customer the customer will try it they'll do it in small volumes and and then belt.
I'll roll forwards, so those big volumes, you're thinking of or.
Certainly possible, but more likely in the second half of next year. It again is that a reasonable way to look at it or am I being too pessimistic no you know that's not bad.
It's not that we think there will be more like pilots in the first quarter and you know.
Q do three to four and into the year after will be more substantial rollouts jump.
All right Pat.
Okay. Good sorry.
Nope.
All right well, thanks, a lot guys and good luck with everything.
Thank you Jim.
And we have no further questions in the queue at this time I will now turn it over to Paul Travers for final remarks.
Thank you very much everybody for joining the conference call.
Enjoy your holidays coming up and we look forward to sharing with everybody how the rest of the year goes in on first reporting next year.
And if it keeps going like it is it should be a very exciting you know end of the year.
Quarterly reviews, and full year frankly, one of the best ubiquitous you'd probably be quite some time. Thank you very much.
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Okay.
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