Q4 2020 Vuzix Corp Earnings Call
[music].
Greetings and welcome to the Vuzix fourth quarter and full year, ending December 31, 2020 financial results and business update conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the call. Please press star zero on your telephone keypad as a reminder, this call is being recorded net.
Now I would like to turn the call over to Ed Mcgregor.
Director of Investor Relations at Vuzix, Mr. Mcgregor, you may begin.
Yes.
Good afternoon, everyone and welcome to Vuzix fourth quarter, and 2020 full year ending December 31st financial results and business update conference call.
With us today or do you <unk> 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.
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 of business strategy of development plans and the ability to attract and retain qualified personnel as well as changes.
In legal and regulatory requirements.
In addition, any projections as to the Companys future performance represent managements estimates as of today March 15th of 2021.
<unk> assumes no obligation to update these projections in the future as market conditions change.
This.
<unk> the company issued a press release announcing its financial results and filed its 10-K with the SEC. So participants in the school, who may not 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 certain non-GAAP financial measures.
Required reconcile.
Good afternoon to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found on the company's form 10-K filing at the SEC Dot Gov, which is also available at www Vuzix Dot com.
I will now turn the call over to Vuzix CEO, Paul Travers, who will give an overview of the company's operating results and business outlook.
So the Asia.
All of the turn turn the call over to grant Russell Vuzix, CFO, who will provide an overview of the company's fourth quarter and full year financial results.
Paul will then return to make some closing remarks, after which we will move on to the Q&A session.
Paul Thank you.
Hello, everyone and welcome to the Vuzix Q4 and full.
Outlook for 2020 conference call our final quarter of 2020 was our strongest of the year and in fact, the best in the our history as a smart glasses supplier total Q4 revenue of $4 2 million represented a comparative year over year quarterly increase of 117%.
As.
Full year, both smart glasses, and engineering services more than doubled in the period demand for Vuzix smart glasses, which I will expand more on shortly was broad based both in terms of industry verticals and geographies and we're off to a good start in 2021 as our customer list continues to expand and average order volumes continue to increase.
Sales in size.
Despite 2020 being very challenging year for many due to the global COVID-19, pandemic Vuzix smart glasses continue to be called upon by our enterprise customers and health care providers to solve the operational challenges caused by COVID-19 across a variety of market verticals and use cases I.
Increase say, we are pleased to see our products being used in new and innovative ways across our expanding client base to assist customers in solving the complex issues associated with today's business environment.
For Vuzix, despite the disturbances caused by Covid, we delivered against multiple key operating objectives.
Half the outlined on our Q4 19 conference call one year ago.
I'd like to quickly review of few of them.
First we grew the sales and order size of existing M series Smart glasses, as our enterprise customer base for M for hundreds of expanded in size to over 1000, new customers.
And we witnessed a continual increase in our sales volume metrics as more and more companies place multiple follow on orders throughout the year. These factors drove a 106% gain in our smart glasses sales to $10 1 million for the year.
We commenced volume production and shipments of our M 4000 smart glasses.
<unk> as well as our blade upgraded smart glasses right around the beginning of the fourth quarter.
And while a little later than originally hoped the COVID-19 supply chain issues of getting them released it did not impact us by much more than a quarter we.
We expanded our OEM program engagements moving from just one active program at the start of 'twenty.
On the 20 to a total of five in 2020 and increase which drove a 123% gain in our engineering services sales to 1.5 million for the year, we of advanced and strengthened our IP and the development of our next generation Smart glasses technologies as we continued our push to develop thinner and higher performing waived.
Wave guides and we entered into a joint manufacturing and supply agreement with Jade bird display for micro OLED based display engines and waveguide products.
Achievement of these objectives has put us in a stronger position in terms of ongoing product diversity market competitiveness and technological development as.
As well as spurred broader investor awareness and interest in Vuzix, and which we feel has contributed to the substantial rise in our stock price since mid December 2020. This price appreciation in turn has resulted in cash warrant exercises of existing warrants that of totaled more than $48 $5 million since mid December.
<unk> to the date of this report these warrant exercise proceeds have allowed us to achieve another important objective of management, which was the strengthening of our balance sheet on a pro forma basis and excluding our 2021 year to date operational cash burn our cash and equivalents position presently stands at approximately 60.
$64 million.
Slide six depicts the quarterly revenue growth of our smart glasses on.
Our clue for smart glasses sales of $3 7 million equals what used to take roughly three quarters to produce not too long ago and was achieved without having any single large customer order in the period.
We have fields of customer seeds planted and a growing number are starting to yield orders ranging from doesn't to repeat orders in the hundreds of units finally with the world coming back to work. We're fielding inbounds from some customers that are looking to scale rollouts that are in the many thousands of units.
Our existing enterprise customer base.
Base has a broad global footprint and includes some of the largest companies in the world in their respective industries, ranging from logistics and distribution to medical technology, and biomedical retail manufacturing clean energy and mining slide seven depicts just a partial list of customers engagements since the start.
On the Q4 2020, we have so many we would like to share here, but many companies, particularly public U S firms are not ready to publicize their use of our smart glasses, just yet and while we believe the enterprise market still remains in its infancy on adoption, our total addressable market to support enterprise customers and telemedicine.
The <unk> with our smart glasses users could represent hundreds of thousands of possibly millions of units on an annual basis in due course for the entire enterprise AR smart glasses market.
Let me share a few customers and use cases and manufacturing we of companies like clorox that of deployed Vuzix M for hunters Mark.
Systems.
Cross their operations to remotely support manufacturing operations and perform quarterly on X, which is resulting in substantial dollar savings for clorox on both travel costs and personal travel times.
A theme that is critical dealing with COVID-19 and is proving broader and more important for cost savings.
Along with real positive greenhouse gas reductions.
In retail we are providing solutions that will help drive significant savings in human capital costs in December we announced an initial deployment order with one of the largest U S based general merchandising retailers in the world to assist with fulfillment training in this company.
<unk> has recently purchased additional glasses from Vuzix.
In addition to this customer we are working closely with multiple software partners to support the rollout of in store customer order picking both domestically and abroad with many customers some amongst the largest retailers in the world. We keep receiving indications that these customers will make cigna.
Significantly larger deployments that should occur starting this year Rio.
The Rio Tinto, one of the largest metal and mining companies in the World recently highlighted the introduction of Vuzix smart glasses in their 2020 annual report to conduct of visual inspections of tailing facilities.
And the equipment at their underground project in Mongolia.
Rio Tinto turn to Vuzix smart glasses to enable technical experts from all over the world to work with the local teams on the project site. This is one of several mining and construction opportunities we've announced over the past few months.
In warehousing and logistics, we are seeing the deployment of our glasses increase in frequency and size to assist.
With warehouse order picking some of our career of freight forwarding customers amongst the first early experimenters and supporters of smart glasses have been very happy with the Vuzix <unk> hundred and are expanding their orders for it with further revaluations of our waveguide based M. For thousands solutions also taking place. We have also made good progress recently with another one of the.
The largest third party logistic companies in the World, which now has dozens of our M for hundreds being used in their fulfillment centers in Europe to also assist with the order picking in 'twenty 'twenty, we witnessed the broader adoption of smart glasses due to COVID-19 operating restrictions throughout the health care industry, which has quickly become an important top line growth market.
We began last year with a minimal footprint within health care and ended the year with the global presence as many of our independent software vendors have turned to Vuzix M 400, smart glasses to bundle with their medical applications.
Within the medical device market one of the customers. We are working with is Medtronic, which is already using vuzix.
For via glasses to support technicians and surgeons.
To date. This account continues to steadily scale globally doing many use cases in particular numerous operations have been performed and share it publicly by Medtronic on the landscape.
Overall, there were hundreds of surgeries performed during 2020 and.
<unk>, my using our glasses, including but not limited to knee replacement surgeries with Pixie medical and <unk> gastrointestinal surgery heart surgery spine surgery, with Medtronic and reconstructive plastic surgery with organizations like Ohio on there.
There were thousands of remote calls made to provide.
And today virtual presence within the hospitals and senior care facilities that were video broadcast securely via Vuzix M 400 in them for thousand smart glasses to provide virtual training health care for patients in the ICU and operating room and to perform virtual patient rounds.
Vuzix smart glasses were incorporated into numerous.
Clinical studies that provided favorable clinical results with the unprecedented and virtual view that our smart glasses provide they have the potential to change the way many health care workers collaborate and operate that range from doctor patient interactions to procedures that were previously difficult to witness during conventional shadowing if.
If at all in.
In biomedical and enabling big pharma with AR smart glasses, we of a growing number of customer engagements with many of the largest players around the world and hundreds of devices already in the field and being used to support a variety of initiatives and solve problems that exist within their labs manufacturing sites and.
Debuted in centers.
I'd like to now provide a quick update on the developments in the wireless operator vertical and with Verizon in particular as the remain one of our strategically important partners yes.
Yes. It is taking more time than we would have liked due to COVID-19, but we are continuing to work with them to address key market verticals.
Articles that can leverage their five day network alongside Vuzix smart glasses to drive increased efficiencies and capabilities and these efforts are starting to bear fruit. The EMS bundled product that is being co developed by Verizon in the cohort partners.
To put together a world class turnkey solution centered around verizon's.
<unk> five day network continues to progress well due to COVID-19 project implementation has taken a bit longer to coordinate than planned, but we're very excited and now expect to bring the situational awareness technology to public safety and first responders towards the middle part of 2021 and February Verizon hosted a well attended virtual.
Dual presentation to the U S Department of defense as well as other governmental agencies to discuss how five G can help securely shape missions, along with defense focus use cases.
<unk> was prominently featured as an augmented reality workforce solution along with an accompanying video interview the governmental and first responder verticals.
<unk> could certainly represent a significant opportunity for vuzix smart glasses over time for.
Ryzen acquisition of Blue Jeans, a global remote collaboration platform is providing vuzix with an opportunity to work even more strategically with Verizon to leverage our best in class Vuzix M 404000, smart glasses alongside their.
Blue jeans offering for enterprise customers.
We expect a share of more here in the coming months turning to the far East we announced in January the Katie D. I, one of Asia's largest telecommunications providers partnered with Vuzix to have their numerous overseas subsidiaries supply of Vuzix smart glasses to their customers across the.
Loeb to support their COVID-19 business continuity planning efforts and increase overall productivity Katy. The eye has also begun to deploy vuzix smart glasses internally to support maintenance and their own telecom facilities beyond. These firms we continue to engage with numerous wireless carriers in North America and around the globe centered.
At around five G along with smart glasses for enterprise and consumers. All are excited about our next generation smart glasses solutions and the possibilities. They can provide ultimately five G network offerings with their low latency and powerful edge computing capabilities should allow us to offer our smart glasses that are truly comfortable and stylish.
I wish to wear in the coming future.
Vuzix currently offers what we and many of our partners and customers believed to be the strongest product lineup and the AAR smart glasses industry R. M 400, which accounted for the majority of our smart glasses sales in 2020 has clearly become the workhorse for our steadily growing list of enterprise customers.
The M 400, which can operate completely hands free with advanced voice controls with its image stabilized in auto focusing for K capable camera captures and broadcast industry, leading HD streaming video for field service workers. It's.
It's crystal clear OLED display enhanced optics deliver superb contrast, and precision.
Imagery with crisp vivid colors to its users and twenty-twenty, our ongoing product development efforts yielded two new Vuzix smart glasses products that were introduced in late September 2020 the M.
4000, and the Vuzix blade upgraded the optically see through Vuzix M 4000, smart glasses, which uses our proprietary optics.
As of sister product to the successful Vuzix M 400, smart glasses with enhanced display resolution and an increased field of view from 16 degrees to 28 is currently being qualified and adopted by a number of key customers being see-through M. 4000 allows our users to simultaneously view the real world with the.
<unk> content unobtrusively being overlaid on top of it for improve situational awareness more accurate workflows and of course, all hands free the M 4000, and the M 400 models provide our customers with two powerful enterprise workhorse products to choose from to meet different usage requirements whether for field service.
The virtual manufacturing and logistics or health care, the Vuzix blade upgraded which is of new and improved version of the original Vuzix blade with see through waveguide optics is now equipped with an improved auto focus camera built in stereo audio and full UV protection lenses with Z eighty-seven Dot one safety certifications.
Service the key functionality as requested by many enterprise users of the original Blake. We have recently received several commercial volume orders in the health care and field service verticals and expect the pace of deployments to increase as the blade upgraded gets qualified with additional customers.
[noise] broad platform support as depicted in the lower.
Three slide nine it makes our smart glasses, a valued productivity tool to a wide range of enterprise customers. During the first half of 2020, we out of our smart glasses connected support for several popular video conferencing platforms.
Including zoom and zoom for health care, Skype for business and Cisco Webex teams.
Half of which helped accelerate adoption of our smart glasses in enterprise earlier. This month, we added Microsoft teams to the list for our M 404000, smart glasses micros.
For Microsoft teams is a popular business communications platform, which was a much export platform to be supported by our customers.
Just last week, we held our first.
Virtual sales demo of the Microsoft teams App running on our smart glasses, and we had more than 500 attendees joined the event inbound interest has been phenomenal and deployments are already underway.
Finally, we will have support for verizon's blue jeans at which point, our smart glasses will support practically all of the major business.
The platforms on the market.
It is important to note that most of these connector applications currently generate recurring revenue for Vuzix. We also resell several of our partner applications, which again generate recurring revenues I would like to add Vuzix is starting to place a focus on vertical software applications around.
Our smart glasses in markets that are not currently being addressed.
These applications will be built on a SaaS based business model that should make our smart glasses, even more sticky for our customers and result in recurring revenue streams for Vuzix. We expect that for every hardware sale of that includes one of our vertical SaaS solutions.
We would see an even more significant recurring revenue stream from the application itself, we'll be sharing more as we bring the solutions to market OEM and related engineering services business gained further momentum in 2020 as we expanded in terms of the number of engage customers as well as their progression towards the eventual volume production programs with them.
On the multi year revenue potential associated with volume production for these programs related to aerospace and defense health care and waveguide based display engines remains a significant opportunity for vuzix.
Slide 10.
As out the timelines and progress points for our five announced the OEM engaged.
Engagements as you can clearly see we have successfully completed phase work for multiple customers over the past several months for these customers. We generally anticipate either further in <unk>.
For subsequent product refinements are of moved to an eventual volume production program.
In January of 2021 we announced that we had entered into a joint manufacturing.
During and supply agreement with Jay Bird display as per the agreement J bird display will provide micro OLED displays and Vuzix will provide newly developed proprietary wave guides and display and genoptix to work with these new types of micro displays the.
Of the complete solutions and components will be marketed and sold by both Vuzix and J Burke of display.
For the respective customers and regions further both parties have agreed to supply each other on the priority allocation basis subject to limitations to ensure vuzix is able to satisfy its own branded product requirements. This will be a key relationship for vuzix as we develop and rollout our next generation smart glasses.
We continue to grow our intellectual property portfolio, which now consists of 184 patents and patents pending up 34 from one year ago and more than double that of three years ago. The day.
Of element of our next generation micro OLED based smart glasses continues to progress well since first announcing this product last year, we have received in the ongoing.
Ongoing stream of inquiries from customers partners and investors to as you might imagine regarding its exact specs and timing, although I can't offer much more in terms of details just yet for proprietary reasons I can say that this next generation Tech remains slated for limited developer introductions and testing in late 2021.
The.
Use it currently has five new smart glasses products in the works along with several new R&D activities around optics and wave guides on the products front as I. Just mentioned we are progressing clearly on our previously announced next generation smart glasses.
Billed using micro OLED display technologies, both where C F 'twenty 'twenty.
The one award winners.
These revolutionary New smart glasses include powerful new microprocessors and features including optional LTE cellular capabilities. We are working with our micro Leds suppliers to move up the full HD color systems in 2022.
Additionally, we are proceeding well under development work on our next generation.
<unk> of M series glasses, and an extension to one of our existing models. These new models, which should hopefully be ready for introduction in less than a year will offer significantly improved display and optical performance. Both included as well as see-through monocular smart glasses.
Please note, we will be leveraging the solutions to share as much.
Of the same core electronics and software platforms as possible.
This will lower our total development costs as well as get these products out to market sooner.
We can hardly wait as they will broaden our AR smart glasses product portfolio and represent the feedback from improvements from our thousands of existing customers.
And on the optics.
At the X front, we're investing in ongoing research and development for further improvements on our wave guides performance physical structure chemistry coatings use of polymers for lightness and cost reductions as well as manufacturing process enhancements to better handle expected increased production requirements.
Vuzix now has the capital resource.
Resources to better execute especially on the R&D and products front, we intend to invest it wisely.
I'd like to now pass the call over to grant. So he can review some aspects of our fourth quarter and annual Twenty-twenty of financial results as well as some of our 2021 spending thank.
Thank you Paul.
As Ed mentioned the 10-K, we felt this afternoon with the SEC offers the detailed explanation.
Of our annual financials. So I'm just going to provide you with the bit of color on some of the full year as well of quarterly members.
For the full year ended December 31, 2020, Vuzix reported of 11 6 million in total revenues as compared to $6.
$7 million for the prior year, an increase of 74 per cent year over year.
The revenue increase was due to increased sales of our M series Smart glasses, primarily the M per hundred and the higher engineering services revenues.
For the full year total sales of our M series Smart glasses increased by 112 per cent well.
Well Blake.
<unk> revenue decreased by 14% in 2020 versus 2019, largely due to the lower average selling price of the blade upgrade of model introduced last September versus the prior year.
Sales of engineering services for the full year of increased 123 per cent to $1.5 million from point $7 million in 2000.
On 19.
We did not realize any revenue from premium products in 2020 versus 1 million realized in 2019.
For the three months ended December 31, 2020, Vuzix reported $4 2 million in total revenues versus $2 million in the prior year's fourth quarter.
Sales of our M series Smart glasses.
Rose by 155% of quarter over quarter and sales of our blade increased by 6% in Q4, 'twenty 'twenty versus 2019.
In total product sales for the quarter ending December 31, 2020 roofs of 113% as compared to the same period in 2019.
Engineering services.
Services, Thanks to new programs for the 'twenty 'twenty for quarter.
It was up 145 per cent.
Versus the comparative 2019 quarter.
For the full year ended December 31, 2020, there was on overall gross profit of $3 2 million before of 1.3 million of inventory obsolescence provisions.
They were recorded during the 2020 year.
The net gross margin for 2020 with 1.9 million as compared to a gross loss of $4 4 million for 2019, we concluded reserve provisions of $4 6 million.
On a product cost of sales basis, only and before inventory obsolescence.
<unk> direct product costs were 54% of sales in 2020 as compared to 64 per cent of product sales in 2019.
The improvement was primarily driven by higher margins earned on the M 402020 versus the M. 300 series in the same period in 2019 of period when the M for.
Prevent with not yet available for sale until the fourth quarter.
Product margins were also positively impacted by sales of some older M series products during 2020, but we're fully reserved for.
Obsolescence in prior periods and continued to sell at lower price points unlimited basis.
The manufacturing overhead costs.
Much of which is relatively fixed decreased to 16% of sales for the year ended December 31, 2020 as compared to 29% in 2019. The direct result of increased sales revenue to observe these costs.
Research and development expenses for.
401, eight declined 15% $7 6 million as compared to $8 9 million for the 2019 period the.
The reduction was largely driven by a decrease.
And external consulting fees related to our M 400, smart glasses development work in 2019, and blade software development, which were both completed in 2019.
Sales and marketing costs for all of 2020 decreased 4% to 4 million from $4 2 million in 2019.
With the decline primarily attributable to decreases in trade show expenses.
Sterno consulting fees paid to terminated for and sales staff in 2019 and reduced travel expenses due to 2020 COVID-19.
Current conditions.
General and administrative expenses for the 2020 year increased 5% to $6 9 million as compared to $6 6 million for the 2019 period.
The increase was primarily due to higher noncash stock based compensation expenses, resulting from the voluntary salary reduction program that the company implemented.
In May 2020, partially offset by a reduction in cash salaries paid and decreased legal fees.
Our overall expense control efforts in 2020 were fruitful even with our large revenue increases as we realize the collective year over year decline in 2020 of 5% and our total operating expenses.
That.
That makes two years in a row of our operating expenses expenses have successfully decrease since 2018.
For the full year ended December 31st 2020 of the net loss after the provision for accrued preferred dividends was $20 million or 53 cents per share as compared to.
$28 4 million.
Or a loss of 94 cents per share for the full year.
Of 2019.
Now for some balance sheet highlights our cash position as of December 31, 2020, with $36 1 million and we had a net working capital position of $42 1 million.
Cash position was bolstered by the.
Exercise of roughly $2 9 million warrants in the fourth quarter of 2020, which generated cash proceeds of approximately $14 1 million subs.
Subsequent to December 31st 2027 point to millions of additional warrants representing almost all of our remaining outstanding warrants for cash exercised bringing in additional pros.
Oh seeds of approximately 34 point for a million.
After providing for the $10 million of crude dividend settlement, we paid Intel. This January upon the conversion of the series a preferred stock into common shares we are effectively entering 2021 with 60 point for them.
On a pro forma cash before.
Before I expected Q1, 2021 cash operating losses today. Please.
Please note that the shares of series a preferred stock have been retired and cannot be reissued.
Cash used in operations, excluding changes in our working capital declined to $12 5 million for the year ended December 31, 2020 as compared to seven.
$17 9 million for 2019 cash.
Cash used for investing activities in 2020 was $1 5 million down from $3 2 million in the prior year the drop primarily due to our planned reduced spending on fixed assets because as compared to 2019, you're spending of $1 9 million for the purchase of manufacturing equipment primarily related.
<unk>, two <unk>, new waveguide manufacturing product mold tooling and computer equipment.
Investments in patents and trademarks rose the point $5 million in 2020 versus by two 5 million in 2019 looking forward. The 2021 we intend to at least double of our levels of investing activities.
For our 'twenty 'twenty.
The one fiscal year as compared to the actuals in 2020.
Primarily focused on new product development of IP as.
As well as increase the R&D spending by at least 50% over 2020 levels. Further we intend to incur additional spending on sales and marketing activities, particularly overseas, where we see many opportunities.
He is X now has the capital resources to smartly invest and grow with future business.
And with the expected plan revenue growth in 2020 one of them beyond we do not see substantial risk in investing more for such growth, while expanding our IP and competitive position.
Put simply we intend to judiciously.
Deploy on leverage.
Leverage on increased capital resources for the benefit of our stockholders customers and staff.
With that I would like to turn the call back over to Paul.
Thanks Grant.
In summary, COVID-19 is expected to become less of an interruption to business going forward for many market verticals that were put on hold over the last year.
<unk>.
This means that market verticals, including warehousing and logistics and store picking in certain areas of manufacturing are already coming back online in 2021 at the same time ongoing demand for our products across the enterprise remote support and telemedicine usage has not slowed down and.
And is here to stay as the many benefits of sending a pair of glasses instead of a person have been clearly demonstrated to a growing population around the world.
On the capital front due to the recent conversion of nearly 99% of our previously outstanding warrants gives the patent strongest balance sheet in the company's history to support operations and our efforts.
Average to accelerate revenue growth in R&D, including new product development.
Finally, vuzix is well positioned to achieve another year of solid year over year revenue growth on our first quarter and throughout 2021.
Like in the I'll turn the call back over to the operator for Q&A.
Operator.
Thank you.
At this time, we will be conducting the question and answer session.
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And by as we poll for questions. Thank you.
Okay.
My first.
Washington comes from Matt Vanvliet with B T I G. Please.
Okay.
Hey, guys.
Thanks for taking the question nice job on the quarter.
I guess from from a high level, maybe just walk us through kind of the the demand at the top of the funnel that you're seeing now as you walk into the end of 2021 a couple.
The state you're in here.
I guess, what what areas or verticals of the market do you continue to see the most strength in.
And then also between the the M 400, and the <unk> 4000, maybe just walk us through kind of why why demand for one product versus the other comes from some customers.
And maybe the best use cases for for each of those that you're seeing the most traction on right now.
Hey, Matt.
Sure.
The highest demand product that we have right now is the on 400 by far and the reason why is it's been out there on the longest and it's the one that.
Most of the software and most of the certifications and gone through the gauntlet as it were as companies.
And then finally start to deploy the product.
The whole medical space is just really not slowing down for Vuzix right now I mean from the knee surgeries that on.
So folks have heard about with the guys.
As you can see.
Our relationship with Medtronic.
Earlier.
Yeah.
It's an expanding piece of our business that I think still COVID-19.
But there's so many things that are happening now because these guys are just using it and it's all helpful for teaching training there's just.
Like pain of them, it's recurring business and it keeps growing which is nice.
On the field service front and remote support and remote training.
A lot of that was driven originally by Covid, but it continues for Vuzix. There are companies that are reordering and reordering now that are starting to expand they're doing it more for on boarding but.
It worked so well again.
We're not seeing it slow down so.
And 400, it's going to be the flagship for US here on the first call of unsure of that the.
<unk> 4000.
Each of its a new kind of device right I mean, you put it on the ear.
Even though the most of it is the same the.
<unk> system is really cool and that when.
When you opened both eyes, you are seeing the real world.
And then when you put virtual information up it gets put on top of the real world. So you might imagine when youre doing things like remote support instead of running the camera feed in the glasses into the video screen you don't have to do that anymore. You can just.
Optic plus up so you can know what you are targeting and people can see the on the alliance of that requires some changes in the way people do some of the.
The applications and stuff. So it's kind of takes a little bit of time for those kinds of upgrades and improvements to happen.
Also say one of the biggest places where the optical see true is important.
Put a little is in warehouse picking and the likes because youre now looking and have been and there is a number on top of the band and you just can't get it wrong and so the warehousing side of our business, we're expecting and for thousands of <unk>.
The take up a nice piece of business and that's all just starting to come back on for Vuzix, which is exciting to see quite frankly.
At this time last year almost every program we have that was related to warehouse picking but it was in store picking or.
Just guys trying to move.
Alex through overnight services and stuff all of the kind of went to its knees.
But with the world coming back I think there is concerns about Amazon went.
On the war against brick and mortars, we see that side of our business of picky.
Picking up definitely through this year.
Hum.
So I'll go ahead, Matt.
Oh, yes, sorry, it's helpful and then I guess on the OEM side.
The the development of the trade Bird is the you know I think on.
The good long term driver there, but curious of you have any updates on on the other.
For projects Youre working on have you reached any additional milestones.
And any help in terms of either magnitude or timing of when those might have additional impacts are on on 2021 results.
We expect follow on.
Like next generation efforts Nexgen is not the right choice of words, the phase II and III. If you look at the the Little Gantt chart. We put up you can see things are done on phases with these projects and we delivered on a on a lot of them here towards the end of last year and into.
Our first quarter.
And so I think what Youll see is a continuation of the engineering revenue side of it.
You know were hopeful here shortly for at least within this year, we'll start to see some stuff that points towards production programs, it's really hard to nail that stuff down on that because it's dependent.
Not just on what Vuzix does have other companies that.
In the Mexico their own engines and systems are building them into that I'll have to come off the ground too so.
Alright, great I'll hop back from the queue.
Our next question comes from Christian Schwab with cash.
<unk> Hallum Capital Group simple. Please go ahead with your question.
Yeah. Thank you grant can you elaborate on.
I think I must have missed it or maybe you didnt say it what's your planned.
Revenue growth for 'twenty, one was that was.
Part of the justification for the.
The increase.
Credit investment in research and development and marketing opportunities in Asia et cetera.
Can you give us an idea of what that plan revenue growth is.
Hi.
I didn't actually quote any numbers on you know historically, we don't.
<unk>.
Announce our revenue.
The plan I mean.
For continuing to grow we got if we got new products on which we didn't have last year.
We're seeing you know.
The customer Reorders on all of the seeds of Paul said, we planted or.
About the sprout, so I mean, we don't.
The business is still you know.
Revenue.
And its rapid growth stages, and it can still be a little.
Ralph by corner, so I'd prefer not to come up with any estimates, but clearly we plan on on growth.
No.
Okay I'm sorry.
Okay, I'm sorry, Paul.
Paul and Greg I assume.
And then there is operating leverage in the model. So your growth rate is better than the increase in your operating expenses.
Oh, absolutely absolutely.
Great and then and then and then for you Paul.
Just a further elaboration.
If I could on Matt's question earlier.
Assume that instead of looking at you know whether it's the M 400 of the M 4000.
Product line you know.
Of the type of strong growth rates that were just.
Talking about and referred to in the previous question can.
Can you give us the you know either.
Neither by customer.
Opportunity said you know what are the you know the top two or three things as it is it more backend loaded and perhaps something take it all with Verizon could it be some of the.
Previous you know defense contract OEM developments that we've talked about in the past that that come to fruition.
Or is it you know.
And the expansion of the of opportunities, but the 1000, new customers that we added the M 400, I guess it just isn't clear.
We should be monitoring.
Possibly keeping a close eye on but if you could help there that would be great.
It is for such an interesting thing about revenue.
And so the business right now is Christian it's it's really broad based and the cool thing is all of the stuff that we talked about going into Q1 last year that disappeared.
Much of it just seems to be coming back on board I think youre going to see some of the old stuff finally kick in I think.
As we see continued growth of the M 400 in these remote support and medical applications and I think you will see some select partners started deploying on a much bigger way as of the year goes if it goes through.
I can't say very much about Q1, I mean, we're already mentioned a little bit about the fact that it looks like it's going to be a nice quarter.
Youre going on I would tell you.
Typically one of the slowest quarters Vuzix ever has and that's not that all of the case for this year I know thats piss poor guidance I apologize for that.
[laughter] it's.
We'd like to get it right and that's the way I said things are lumpy.
It's just broad based.
But I believe you're going to see some of the larger partners start to buy in a bigger way.
Okay great.
That's very helpful. The other question. Thank you.
Our next question comes from Jim Mcelroy with Bradley Woods. Please state your question.
Yes. Thank you.
Guys.
Hey, Jim brand.
Grant in your commentary you talked about.
Doubling the level of investment activity on I'm, hoping you can clarify that.
Are you talking about R&D and capital spending or are you just talking about that was mainly on.
The spending.
2019, where like the little over 3 million last year, we went down a fair bit so.
We'd be looking at.
Clearly more than the double in the for 2021.
Trying to indicate that we're going to.
The increase our.
On cap of ending levels on that is related to all of the new products, We've got coming man.
Further investments in.
Manufacturing and R&D.
It's kind of more than double so it's.
Not going to be and we're not talking on 2040 $50 million. It's modest we're still talking single millions.
Of course.
And.
And the sales and marketing increase that Youre looking for is that.
Similar to the R&D increase of about 50% or is the is it the crisp I think it'll be a lot less of that I mean, we we see some market areas, particularly in Asia debt.
We think we can better address and you know even in the.
On the South America Latin America. So again, we want to go there we've got a pretty good team.
Japan, and we want to make some infill in Europe. So.
I would see a modest increase offsetting that I don't think theres going to be because many big trade shows still in 2021, So I think.
The increase will be under 50% year over year.
Right Okay.
On the.
Alright.
Sorry, John just on that trade show comment.
Italian man virtual our stuff is all about virtual and it is so much more efficient to sell all of our products through virtue.
Think meetings and virtual everything just works, so well compared to some of the trade shows that we go to where you ended up being the circus, where everybody just the all line up and they play with it but it doesn't necessarily always turn to the business. The virtual side of what we're doing is very very effective.
Yeah I agree.
Virtual dream it.
It seems that.
Covid is going to have a long term positive impact on your business in that.
On that your customers are going to change the way they do business.
I worried that in the short term as the pandemic recedes.
It might be of snap.
Back to prior business practices and I'm, just wondering if youre seeing that are concerned about it and.
And does that is that one of the reasons you you're talking about of referring to lumpy business.
No yes.
Yes, and no it's not really related to the Covid thing.
Nobody really knows 100%, what's going to happen I will just tell you, though I mean I'm looking at what we do for our baseline business now in our baseline and we can factor this in and I could feel really comfortable where I know that the bottom end.
Just the odds of us not hitting the numbers on impossible.
All of it meets our baseline has gone up by a factor of three to four over.
Over two years ago.
Baseline is pretty darn consistent it's happening across the board and it's starting to be repeat customers and it's and it's with guys that the.
They're not talking about okay COVID-19 is over on whats dismantle all.
It seems for us, it's a new way of people doing business.
Got it and so when when we look at the quarterly revenue progression. This year is it.
Reasonable to expect that Q1's better than Q for Q2 is better than Q1 et cetera throughout the year.
We anticipate that things should grow through the year.
I can't say that we wouldn't necessarily might have won that.
Because of the cause of the lumpy nature of on order that might come in or slip or getting the brought in earlier on shift things a little bit, but generally speaking you should see vuzix nicely growing through the year.
Got it thank you and just my last one.
If you can just comment on <unk>.
Anything youre hearing or any thoughts that you might have on on your position.
<unk> position in the industry versus whatever Facebook and Apple are rumored to have now or in the future.
[laughter] yeah.
You know, it's really hard to know exactly what those guys are doing I mean, I look at some of the things Facebooks working on right now.
I know they got a lot of money, they're throwing on it but.
The.
And I.
They're not close to what Vuzix is doing.
We are you know.
Over the years Jim.
We built the big heavy crazy stuff, and we know that that doesn't sell and it doesn't sell at least in enterprise in the markets that we're going after.
Thank guys like Facebook or trying to hit every average Joe on the planet and from what I can tell of the products that they're making or don't even have this laser them quite frankly.
And they look on his health and on <unk>.
They're trying to put all of this other technology in and at the same time as opposed to.
Quite frankly, they're failing out of it I mean, they don't even have hardly audio on the times of things.
The Vuzix has except for an approach to the problem, we're making systems and solutions that solve problems and.
These.
These micro.
The displays that we're working on it they are pretty game changing if you have of the waveguide optics of Vuzix has to put with them.
And so that's allowing us to make these little tiny engines, you might have seen the beautiful video that we put out that shows how small that little micro on with the engine is the size of the pencil eraser.
You put these two things together and then we can add to the tech that we've already got an easy step forward to make really cool looking glasses on.
When it comes to the Apple I mean, I really think their first products are not going to be augmented reality.
You know really cool looking pair of glasses, they're going to be more going after the V. R.
Slash of mixed reality marketplaces for gaming and stuff like that and they are probably going to be high and inexpensive to start with I mean in fact, that's most of what you hear so theyre a our glasses the pair that you'd see some of the real cool videos that everybody thinks of Apple's coming out with next week, that's not happened in the next week.
Those guys are out.
Total years.
I can tell before they'll come out with something that has the look and feel that you know you think the mass market would want and that could carry of the Apple brand.
So I think vuzix is in a good spot I will say for.
Focus is enterprise, we're going after markets that are worth billions of dollars solving problems where people.
From Black the work so we're not in a big race to be Apple to the market.
I think theres plenty of companies out of going to want to work with Vuzix. So that they can be in those markets and vuzix would supply to them. That's part of what our relationship with J Burke of display is about.
So I feel very comfortable and confident in our enterprise.
We'll go play I think were ahead of almost everybody in the enterprise space delivering the kinds of solutions that could be used for let's say for an eight hour operations or all day on the job site.
And I'm not concerned about the consumer side, because that's not our space.
Alright, very good thanks, a lot.
I appreciate all the answers and congratulations with all of the progress.
Thanks, Jim and good luck with everything going forward.
Yeah.
Our next question comes from Jack Vander Ark with Maxim Group. Please state your question.
Great Hey, guys, congrats on the quarter and all of the positive developments.
So just a few questions for me Paul Let me start of the question for you just as it relates to the OEM.
Engagements, yet five pretty solid engagements here the one I want to touch on is the one I touched on I think last quarter and that's the one that's made it through all four phases and negotiating the high volume.
And the pricing just wondering is there an update the specific update on that.
You're able to pin.
Pin down when do you think that might actually translate into revenue.
I wish I could do that for you.
The defense partner as everybody knows.
It just takes time for.
Per document to get through all of the gauntlet that they've gotta get through too.
We're hopeful that.
2021 starts to bring some for our momentum there that people will be able to see.
But.
Sorry, Jack I, just came off of more than that right now it's.
The sensitive negotiations.
That go on between the companies on these kinds of supply agreements and those phase gates and stuff that they're even going through inside their own organization. So.
I can only say of continues to move the ball forward.
Okay.
That's fair enough and then maybe could you just help then.
<unk> said from the illustrative kind of hypothetical perspective than just as it relates to all five of these engagements.
Yes.
Not a one by one and allocate what you think the revenue opportunity could be from each one but just in general maybe if you could paint a picture of the range of.
Revenue in a given year from each of these like what would be.
Average or is it just too early on the paper to tell.
And the range from when it finally got the rate you could see a range from.
Ill.
Two to 5000 pieces, all the way up to 60 to 100000 pieces.
Upon on what it is and some of them.
Our medical some of them are.
State of defense some of them on the aviation industry.
You know the kind of price points.
Some of them are like two to five Grand some of them are full of systems that are probably going to be $20000 of systems.
Yeah, Okay got you.
That's very helpful to understand and then okay.
And then maybe just.
Question for grant on <unk>.
Most margin.
Just can you help me understand the fourth quarter product margin I think it kind of ticked down to 7% from.
Doing this correctly, which would be down sequentially. Despite the increased product revenue, maybe it's noise, but just just trying to understand why that was.
Well.
Yes.
End of Q.
The year of corner, we also do deep deep scrubbing of our.
Inventory.
Obsolescence provisions.
And tighter considerations of what our plans are for 2021. So there are some additional adjustments it often sometimes hit our Q4 results regarding obsolescence provisions but.
Other than that I mean, it's.
Uh huh.
I don't.
Not really.
Dramatically changed I mean, our cash.
Quarterly numbers are not audited right. So if the annual total of it where we focus on on the.
The gross profit I mean for.
From a product standpoint with.
It was good through that period of its just there is some other.
Items the debt.
Washed out.
The gross margins grant on the products itself was upwards of 28% right.
Did I get that range.
They are even higher than that before overheads and other other adjustments.
You know we write off of minimum royalties, we have of warranty adjustment over the end of recorder.
There's all.
All the all the things that impacts the total.
Cost of goods for the gross profit, but when you strip it out and just look at you know.
Product gross margins.
Against what we sell them for there was no variance.
Negatively in Q4.
Right.
Okay. No. That's helpful. And then I guess just is there of certain magic revenue number you could product revenue number that you'd have to hit until we start seeing that product gross margin actually.
Reflect that actual 28 per cent or whatever the unit margin is I mean would that be.
Seven plus million of revenue per quarter of growth.
Right.
By products and I think it's around 46% currently.
We have to sell it off debt all of those other costs that are listed out you know would be you know.
What gets fully amortized and of course, you got a gross it up a little bit I mean, our long term goal.
You know the we continue to repeat each year is to get to a blended rate of 40% and that's kind of require you know.
Of doubling plus in sales to achieve that but you know then you got the impact of of the business grows there might be some increase in manufacturing overhead cost we might need a little more.
All of plant and other space you know in the additional equipment, we had for manufacturing the you know that increases.
Depreciation charges, but I mean, our goal still is to try to get as close as possible at the 40% long term.
And the product gross margins in the fourth quarter of actually were pretty good.
Got it I'm not sure.
Understood maybe regroup on the 7% because I'm not sure where that came from it it's a much bigger number than that.
Sure no no issues there.
Sounds good guys. That's it for me and I wish you the best.
Thanks Jack.
Our next question comes from Steve.
Please go ahead.
Hey, Paul Grant congrats on a on a good quarter and strong growth a couple of questions for you.
Back to the.
The customer side of the business in terms of you mentioned over 1000 customers just focusing on the larger customers.
Steve one of its possible for you stay on tops Baldwin.
What would you say is the.
Is the incidence of repeat business or larger ordering from the big enterprise customers as they've gotten their initial.
Shipment.
It's the for hundreds of.
So maybe on the products.
I can answer part of that and the grant might want to chime in too.
Uh huh.
It's a thousand new customers.
Around the M for Honeywell.
We actually have more more of than a thousand customers that vuzix total using our product suites, we even still sell apparel.
We're live on 300, <unk> quite frankly and the blade.
We mentioned it but the blade has been picking up here, we got some big pharma guys that like that look and feel and the comfort that it gives for a guy that might be in the lab working on all day long so.
And.
I can't give you I'd love to give you.
Current november's, Steve, but it's hard to do that without giving you now.
Inside the stuff that we don't share with everybody but.
We have multiple interested directionally what the.
What's the recurring and building business levels are when we wanted from key customers.
When we first got started.
Hard for 100, if you sold three to five of them for any given account that was pretty good and now we have certain accounts now that our line, 40% <unk> hundreds at a time kinds of things.
And the number of those just keeps increasing.
I mean for instance, Paul mentioned Medtronic.
With the NGO buying I mean, they are now deploying.
Our glass of glasses around the globe, it's still on the pilot basis and they keep saying you know that are there.
As you know theyre going to.
Expand that greater but you know each month, we get a cup of several new countries come on board and try it anyway.
There's some that are.
It really starting to rock and roll on and others that have come in a little a little slower so they're all learning the capabilities of what the product can do how to best use it and then it just kind of snowballs from there. So it's a.
Some people move faster than others.
But it's.
You're now seeing.
Yes.
Nice continue.
Upheld growth.
And the returns you might imagine if somebody didn't like it we have return policies that allow people to return on these things is practically nonexistent for the 400.
People get them kind of like them.
And they come.
For the buy more.
Got it and just a follow up question.
Again trying to triangulate to the two.
You would you typically don't give which is which was revenue guidance. If you looked at your business. I know you don't on a book to Bill basis would you say the trajectory on that.
Backfill basis is higher at this point in the year than it was in prior years at the same point for.
For about the same.
Or are the.
First of all the little higher of.
Oh, yes, we're on.
I would agree grant and in fact, I mean, I just look at our for.
Book to Bill.
Not the word.
Telling everybody how great for the first quarter is or isn't but the first quarter.
As an indicator for Vuzix and usually it's one of our slowest quarters.
We're not seeing that at all.
And Steve the demand indication, we're getting from cash.
First of course typically in the second half.
It's looking good we are making sure we can get the components extra components on the order I mean.
We you know we do source some of the Ics that are used on the mobile.
Electronics industry I mean, it's just the demand so we're.
Customer trying to.
React and plan and I mean, that's a you know it.
Its looking.
You know, it's looking positive and we're reacting so we're making sure we're.
We can handle the the build that we're expecting out of the book I mean.
That's not true circular in my conversation going on.
That's very helpful. Thank you very much.
Yes, I think just to add a little bit more of that only that our 2021 repeat business.
As already kicking up in the comparison to what the if you take any given account.
Oh that was buying them in small volumes there across the board.
I shouldn't say that because not everybody is going into overdrive, but most companies are coming back with.
With repeats and repeat orders.
Thank you and ladies and gentlemen, that's all the time, we have left for questions I'll turn it back over to Mr.
The travelers for final remarks.
Thanks, everybody very much for joining our conference call 2021, as we said I was looking pretty good for Vuzix, we look forward to.
<unk> the share with everybody of the good news is the company growth.
Have a nice afternoon, everybody. Thank you.
Paul. Thank you. This concludes today's conference all parties may disconnect have a good day.