Q1 2021 Vuzix Corp Earnings Call
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Ladies and gentlemen, thank you for standing by this meeting will begin shortly ladies and gentlemen, please.
Thank you for standing by this meeting will begin shortly.
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Greetings and welcome to the Vuzix first quarter, ending March 31, 2021 financial results and business update conference call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this call is being recorded now I would like to turn the call over to Ed Mcgregor Director of Investor Relations at Vuzix Misread Mcgregor you may begin.
Good afternoon, everyone and welcome to the Vuzix first quarter, ending March 31st financial results and business update conference call.
With us today are Vuzix, CEO, Paul Travers and CFO Grant Russell.
Before I turn the call over to Paul I'd like to remind you that on this call management's prepared remarks may contain forward looking statements, which are subject to risks and uncertainties.
Management may make additional forward looking statements during the question and answer session.
Therefore, the company claims the protection of the Safe Harbor 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 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 May 10 2021.
<unk> 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 and filed its 10-Q with the SEC. So participants in this COVID-19 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 certain non-GAAP financial measures.
When required reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found on the Companys form 10-Q filing in S. E C Dot Gov.
Which is also available at Www Vuzix dotcom.
I'll now turn the call over to Vuzix CEO, Paul Travers, who will give an overview of the company's operating results and business outlook.
Paul will then turn the call over to grant Russell Vuzix, CFO, who will provide an overview of the company's first quarter financial results.
Paul will then return to make some closing remarks, after which we will move to the Q&A session.
Paul.
Thank you Ed.
Hello, everyone and welcome to the Vuzix Q1, 2021 conference call Vuzix.
Vuzix smart glasses continue to be called upon by our enterprise customer base to solve operational challenges across a variety of market verticals and use cases.
Demand from Vuzix Smart glasses continues to be broad based both in terms of industry verticals and geographies and our customer base and average order volumes continued to increase.
Looking back over the last five years, our first quarter has historically been one of the softest quarters of the year for Vuzix, a common occurrence for many technology hardware firms get despite the seasonality pattern, we achieved record quarterly smart glasses sales of $3 8 million during the first quarter.
Our total Q1 revenue was just over $3 9 million and represented a comparative year over year quarterly increase of 156%.
Led by an increase in smart glasses sales of 177% in the period.
During the quarter, we significantly strengthened our balance sheet following ongoing cash warrant exercises and $80 million quarter end capital raise further on April 1st we received the proceeds of the full exercise by the underwriters of their over allotment option, bringing further net proceeds of $12 million.
These actions brought our pro forma cash position to approximately $145 million as of April 1st.
This cash position provides vuzix with the capital resources to pursue a number of strategic opportunities that should have a meaningful impact on our business results and ultimately shareholder value.
Moreover, our vastly improved balance sheet has yielded uniformly positive feedback from most of our larger enterprise and OEM customers.
And once again I'm pleased to report that our second quarter is off to a good start in terms of smart glasses demand.
Our customer order pipeline continues to strengthen and we look forward to bringing you more customer order news through the balance of the year.
Taking a quick look at our quarterly sales trend for smart glasses, you can see that there continues to be a clear pattern of steady demand growth. It's a very exciting time for vuzix as this industry has started to gain meaningful traction.
And shouldn't be on its way to becoming a multibillion dollar industry over the next several years.
I would like to share with you a few of our key operating goals for 2021, some of which we discussed on our conference call in March they are to continue growing sales and the deployment on order size of our M series and blade smart glasses on.
Share more on this shortly.
Increase recurring SaaS revenue from internally developed software strategic initiatives with partnerships and potential acquisitions continued.
The development of our next generation micro OLED based smart glasses for introduction to key customers and strategic partners.
Broadened the depth of our OEM program engagements, resulting in follow on on a re programs and or commencement of volume production.
And strengthen and expand Vuzix IP portfolio around next generation smart glasses, including micro OLED based display engine technology and waveguide optics.
COVID-19 continues to impact economic conditions around the world.
Segments of our E Commerce logistics and warehousing businesses were taken to their knees in 2020 by COVID-19 more specifically planned pilot in volume implementations of smart glasses technologies were put on indefinite hold.
Despite the continuing COVID-19 challenges companies are clearly looking to the future and as such we are now seeing increased inbound interest and order flows related to the reopening of the economy from many businesses that were previously offline due to COVID-19.
As a result, we're now responding to requests from new and existing customers within logistics warehousing retail picking E Commerce and third party logistics that are looking to scale rollout ranging from hundreds to many thousands of units.
Many of these companies are dealing with increasing numbers of online transactions and package volumes on top of the climbing cost of human capital related to minimum wage increases and frankly in some cases, the lack of a work force to support the growth.
These factors are all adding additional margin pressure to operations and as a result, driving smart glasses demand to increase worker productivity.
Vuzix smart glasses improved pick times.
<unk> errors generally reduce cost of operations across these industries Vuzix smart glasses are being deployed by companies to support a variety of use cases. Notable examples of late include a $400000 on 400 Smart glasses order, we announced near the end of the first quarter to support one of our insurance customers.
<unk> 100 company, which falls into the category of remote support.
In this case, we're providing our customers agents with eyes and ears on the ground to guide and assist with claims associated with storm damage and the likes.
Around the same time, we also announced that Coopervision a unit of the Cooper companies and.
And one of the world's leading manufacturers of soft contact lenses successfully deployed our M 400, smart glasses equipped with logistic views vision plus augmented reality warehouse software to provide hands free picking guidance at 275000 square foot West Henrietta New York distribution site.
Healthcare, which emerged during COVID-19 is one of the fastest growing market verticals from Vuzix continues to accelerate in 2021 accounting for approximately 25% of our smart glasses revenue during the first quarter.
Up from almost nil in the first quarter of 2020.
We are seeing our health care footprint expand globally, and our smart glasses are quickly becoming an industry standard.
Using smart glasses are now being used in health care for surgeries as a fundamental tool for performing certain operations.
They're also providing a virtual presence within hospitals for clinical training and senior care facilities to support telehealth solutions for patient care in the ICU and in the operating room or remote guidance by medical device technicians.
The surgical space is particularly exciting.
One med Tech company that Vuzix has a good commercial success with is Medtronic, a global leader in medical Technology services and solutions Medtronic is a great example of a company that has embraced and is championing the use of smart glasses in the operating room to take advantage of the benefits offered by smart glasses, including.
Reducing prep time, limiting the need for travel and providing critical support virtually in the operating room.
Another is medaka, one of the world's largest providers of innovative orthopedic products, focusing on health care sustainability for which our smart glasses to support their next a surgical platform mid actor is using vuzix hardware for smart glasses based total knee replacement surgery and their technology is now.
Driving new applications to leverage augmented reality and shoulder hip and spine surgery.
We're also working closely with rapidly emerging players such as Pixie medical and rods and cones.
Pixie just received U S. Five 10-K clearance for its knee plus total replacement surgery solution. They had been placing regular follow on orders and recently placed an order for Vuzix and 400 smart glasses that will more than double the total amount of their systems deployed to date to ambulatory surgical centers.
Rods and cones is another Prime example, they're using our M series Smart glasses as a video sharing device to support optimize remote interactions between surgeons and medical equipment technical experts. They have also been placing further orders as their demand continues to grow.
Around the world there is pent up demand for surgeries that are being delayed due to COVID-19 and there are not enough surgeons and medical device technicians available to handle the current demand.
Using smart glasses are changing the game on the operating room by helping to solve this problem by increasing access to trained surgeons and med technicians through remote access into the or this capability is expanding the number of operations possible on a daily basis by enabling this virtual access.
As you can see health care in general has been growing for Vuzix and we are engaging with and are beginning to supply smart glasses to many other major industry players.
This alone is a massive multibillion dollar market opportunity for which our solutions are uniquely suited we intend to own as much of this space as possible going forward.
Summarizing the overall demand for our smart glasses, we continue to see an increasing number of qualified programs that are now scaling, placing larger and more frequent orders across our core vertical markets, including healthcare remote support logistics and manufacturing around both our M series products and the Vuzix blade upgraded smart glasses.
Yes.
On the wireless front, we are seeing further interest from leading carriers across North America, EMEA and Asia Pacific Senate around solutions for internal use and supporting wireless customers.
Relationship with major regional players like Katie I in Asia continues to expand with growing sales through custom applications using remote support facial recognition language translation and more.
Our revenue generating business with Verizon to date has been modest but continues to look promising as programs are brought to market with them.
We recently announced with Verizon Smart glasses support for Bluejeans by Verizon.
Global remote collaboration platform with AR Smart glasses interface that was developed by Verizon for Verizon's internal and external customer sales programs.
We continue to work closely with Verizon's XR team to optimize the platform and overall enterprise user experience for the Vuzix <unk> hundred and 4000 smart glasses.
Music has participated in several public facing webinars and podcast with Verizon to support the EMS bundle for public safety first responders and the department of defense, which continues to make progress towards deployment, despite COVID-19 challenges keeping.
Keep an eye out for those upcoming events and other nationwide marketing efforts as they unfold to learn more about <unk>, the mobile workforce and AR smart glasses.
On the OEM front over the last six months, we have delivered a number of waveguide and display engine assets to our OEM partners that are being evaluated the feedback from these customers has been positive and the customers are engaged and working through details on next steps, which in some cases, we expect additional energy efforts for and in other cases.
We expect to move to production orders.
To reiterate in January 2021, we announced that we had entered into a joint manufacturing and supply agreement with Jade bird display.
As per the multiyear agreement Jay Bird display will provide micro OLED displays and Vuzix will provide newly developed proprietary wave guides and projection display engines to work with these new types of micro displays.
Further the two firms have agreed to engage and cooperate in joint sales and marketing activities, especially in the Asian marketplace towards potential OEM customers with complete solutions ranging from micro OLED display engines and soon all the way up to our smart glasses reference designs for third parties.
We will presenting at the society for information and display show next week and expect to be sharing much more at that event, we have been making great progress on this technology front and it is the beginnings of a significant industry change to smart glasses form factors and capabilities.
We continue to grow our intellectual property portfolio, which now consists of 192 patents and patents pending up 35 versus one year ago and more than double that of three years ago.
The development of our next generation micro OLED based smart glasses continues to progress well, 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 key customer and strategic partner introductions and testing in late 2021 and.
In addition to micro OLED products. We are also working on new versions of our existing products, which further improve their performance and features helping to ensure vuzix products day leaders wherever possible. These improvements will include higher available display resolutions expanded fields of view enhanced ergonomics.
New accessories improve voice control navigation, both for existing and new products, new sensors and upgraded OS platforms. In core features we should have an exciting expanded product lineup for 2022 and beyond with much of it leveraged from our strong current base.
Vuzix now has the capital resources to better execute on the R&D and product fronts, and we intend to invest wisely, we will be investing in the core smart glasses technology, including optics displays time of flight and other sensor technology and user interface technology.
We will also have a focus on the development of vertical software applications around our smart glasses in markets that are not currently being addressed including providing enhanced implementation support services.
These SaaS based applications should make smart glasses, even more sticky for our customers and result in recurring revenue streams from Vuzix, we expect that in the future for every hardware sales that includes one of our vertical SaaS solutions, we would see an even more significant recurring revenue stream from the application itself.
I'd like to now pass the call over to grant. So he can review some aspects of our first quarter 2021 financial results.
Thank you Paul as Ed mentioned, the 10-Q, we filed this afternoon with the SEC.
A detailed explanation of our quarterly financials. So I'm just going to provide you with a bit of color on some of the numbers now.
Our first quarter total revenues for the three months ended March 31, 2021 rose to 156% over the prior year's period to $3 9 million.
The increase was primarily a result of stronger in 400, smart glasses sales, which tripled in revenues as compared to the same period in 2020.
Overall sales of smart glasses rose, 179% to $3 8 million in the quarter as compared to $1 4 million in the prior year's period.
There was an overall gross profit of $1 1 million for the three months ended March 31, 2021, as compared to a gross profit of <unk> 1 million for the same period in 2020.
Overall net gross profit margin was 28 per cent for Q1, 2021 as compared to just five per cent for Q1 2020.
The improvement was primarily the result of higher product sales levels levels, which allowed us to more fully absorb our relatively fixed manufacturing overhead costs and to a lesser extent improve growth product margins as compared to our mix in the 2020 prior period R&D expense was $2 1 million for the three.
<unk> ended March 31, 2021, as compared to 2 million for the comparable 2020 period.
An increase of approximately 3% the increase in R&D expense was primarily due to higher salary salary benefits and stock based compensation expense.
Mostly offset by a decrease in external consulting fees related to volume 400, smart glasses development and maintenance.
Selling and marketing expense for the three months ended March 31, 2021 rose, 8% year over year to $1 2 million a decrease in trade show costs were more than offset by increased salary and stock based compensation website and advertising expenses.
General and administrative expense for the three months ended March 31, 2021, with $3 7 million.
An increase of 141% or $2 2 million largely due to <unk>.
Salary and stock based compensation related expenses, which rose $1 8 million inclusive of a $1 6 million or a noncash charge related to divesting of milestone awards under our new long term incentive plan or LTE IP.
The addition of a seasoned general manager and agency recruiting fees.
Moving this noncash LTE IP charge.
G&A expenses rose, 37% the other major net changes included $8.3 million increase in legal and regulatory fees.
The net loss for the three months ended March 31, 2021 was $6 6 million or 12 cents per share versus a net loss of $5 9 million or <unk> 18 per share for the same period in 2020.
Now for some balance sheet highlights.
As a result of ongoing warrant exercises during the first quarter and our recent equity offering in March our balance sheet has strengthened significantly since year end, our cash position as of March 31, 2021 was $132 7 million and we had a net working capital position of $146 million.
Cash used in operations, excluding changes in our working capital totaled $3 8 million for the first quarter of 2021 as compared to $4 3 million in the first quarter of 2020, a decrease of 12 per cent.
Cash used for investing activities for the first quarter of 2021 was <unk> 7 million as compared to <unk> 3 million in the prior year's period as our investments in Capex.
And licenses rose year over year during the three months ended March 31, 2021 we received $103 million of net cash from financing activities, which included.
$180 million on net proceeds from a public offering that closed March 31, 2021 and $235 million in net proceeds from the cash exercise of warrants. These.
These proceeds were partially offset by a $10 million payment to Intel for the settlement of our accrued but previously on declared series a preferred stock dividends, which were converted into common shares in late January 2021.
On April 1st we received an additional $12 million pursuant to the full exercise by underwriters of their over allotment option.
For an additional net proceeds of $12 million effectively bringing our pro forma cash position to approximately $145 million as of that day April 1st for the three months ended March 31, 2020, we did not receive any proceeds from financing activities.
And as of March 31, 2021, the company does not have any current or long term debt obligations outstanding.
Of note on our current asset balances as of March 31, 'twenty 'twenty. One we were required to increase our investment in manufacturing vendor prepayments from December 31st 2021% to $2 3 million or approximately $1 8 million.
This vast investment is really just for component inventories and was made to secure a supply of certain electronics.
Which are in demand currently and have some probability of going end of life in the place of new items.
As of the day, we do not see significant requirements to make further such investments, but we are monitoring our supply chain closely to ensure we have enough coverage on certain items into 2022 as a result, these investments could increase.
Looking forward to the balance of 2021 we expect to continue.
So at least double our levels of investing activities for the 2021 fiscal years as compared to actuals in 'twenty 'twenty permanently focused on new product tooling development and IP.
We as well currently expect to increase R&D spending by at least 50% over 2020 comparable levels further we intend to incur additional spending on sales and marketing activities, particularly overseas.
Where we see many opportunities for growth.
Vuzix now has the capital resources to smartly invest and grow with future business and with the expected planned revenue growth in 2021 and beyond we see great value in investing more for such growth, while expanding our IP and competitive position.
Put simply we intend to judiciously deploy and leverage our increased capital resources for the benefit of our stockholders customers and staff.
With that I'd like to turn the call back over to Paul.
Thanks Grant.
As the World comes back to work post COVID-19 smart glasses are shaping up to be a fundamental part of it.
In so many ways the promises of smart glasses in enterprise across the board are becoming a reality and vuzix is positioned better than most any other firm to capitalize on and lead in an industry touted to be in the multi billions of dollars in value Vuzix.
Music is also has its strongest balance sheet in the company's history to support operations and our efforts to accelerate revenue growth and R&D, including new product developments as you might imagine music is well positioned to achieve another year of solid year over year revenue growth.
I'd like to now turn the call back over to the operator for Q&A.
Thank you.
And at this time, we will be conducting a question and answer session.
If you would like to ask a question. Please press star one on your telephone keypad copper.
A confirmation tone will indicate your line is on the question queue.
You May press the Star key followed by the number two if you would like to remove your question from the queue from.
From participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Once again to ask a question press star one on your telephone keypad will pause for a moment, while we poll for questions.
Our first question comes from Christian Schwab with Craig Hallum Capital Group. Please state your question.
Given the substantial balance sheet.
Is there any plan before.
M&A or how should we be thinking about.
What would you be doing with debt over the next two to three years.
Oh, one moment, Sir let me ask me on mute.
A real quick one moment go ahead.
Hey, Christian.
Good question.
No doubt that Vuzix.
From strategic acquisitions that we're looking at debt should.
Provide significant growth for the company, especially on the software side of the business.
So few components and pieces and parts on the technical side, but we're typically on pretty good shape there.
On the software side of our business there are some.
Organizations that are in our industry already debt.
And a really good spot that would generate significant we believe software revenues for the company going forward and there are some companies that are actually not in the smart glasses space that should be so we.
We can't go much more than that but just to let you know that yet.
We're going to be to put some of that capital to work in acquisitions will be part of it.
Great.
Thank you for the update on slide 11 on the.
Tier one aerospace and defense contractor that has moved into the production negotiation stage.
I don't know if I missed it in the call, but did you quantify.
Revenue opportunity potentially.
Could happen there.
We have not shared that yet Christian.
Okay.
Okay.
If you look at the other.
We are operate about this.
I'm sorry.
Can't offer a little bit more color, we have talked about this before.
These guys are.
And the valuation they are building stopped around it I can't get into a lot of detail. These are gonna be units that will be in the in the thousands.
Signs of units in there.
Four to 7000 price point based upon configuration and stuff.
Okay.
I hate, saying it but we're all.
Just going to have to wait sorry.
No no worries there and then the other four opportunities at different stages between phase one and phase two can you remind us how long it took.
To get from phase one to product negotiation.
With.
With the first highlighted customer and does that kind of the expected typical timeframe that we should expect with the other major opportunities.
I think it's pretty.
Pretty similar I will say that there is one.
Exception to that rule right now and that is with our Jay bird display relationship.
It should be sharing more about that coming up but.
And in fact.
Knock on wood, we should have nice press really.
Revolving around Sydney, even that will share a bit more on this regard well we've made great progress.
With operating health systems, we're going to be sharing them with the world zone.
And that business I think youll start to see some forward momentum.
Even before the rest of this year is out.
Great no other questions. Thanks, guys.
Our next question comes from Matt Vanvliet with BTG. Please state your question.
Hi, This is Rachel frame it on for Matt Van Vliet, Thanks for taking my question.
Broadening number of use cases can you provide on a little more color on which of these use cases are gaining the most traction and are there any in particular that you've seen emerge more prominently versus last quarter.
Yes, Rachel Hi.
On the healthcare side of our business is just amazing to me that the fit is perfect. The glasses work so well.
On the it and it's ranging in that space from integral operating environment tools for instance, pixie with their knee surgery is a fundamental part of doing knee surgery now, it's not just simply being used as a remote support tool literally without the glasses you couldnt do the knee.
So that that portion of our business from the direct surgery support during <unk>.
And in the operating theatre, and if you think about a firm like on Medtronic right. They have medical technicians that normally are in the operating theatre, while these operations are happening.
And it's hard to do that today and with all these back orders of people that need to get operations done the demand on the doctors and the demand on these medical technicians is significant and the glasses are just opening up so much better paths to get stuff done so the medical side of our business is really cranking.
I don't see it slowing down in fact, we have more and more companies that are that are jumping on the bandwagon there on the remote support side, which is sort of the baseline debt just continues at vuzix.
No.
It's become a fundamental way for people to get remote activities done on I think with the reopening.
That's going to slow down either because you can send a pair of glasses you don't satisfy on the person and then another area, that's really starting to pick up.
Is this whole in store picking and warehousing and logistics and delivery of materials and and the like so the three pls.
The retail guidance.
Guys that are trying to do fulfillment.
The pallet stacking, there's just a bunch of applications on their side and in those areas.
Currently we are responding to requests per.
<unk> of units kinds of deployments.
So it's kind of three areas the remote support stuff the medical stuff and then finally logistics.
All three of those all come true.
Yes.
Thank you and just a reminder to ask a question press Star One. Our next question comes from Jim Mcelroy with Dawson James Please state your question.
Thank you good evening.
Grant after the contemplated.
Contemplated.
Investment and expense increases that you have for the year.
What our cash operating expenses and GAAP operating expenses going to be for the year.
Well again, we don't necessarily give.
Forecast for the year or so.
Yes, we can.
Look this way then.
You talked about sales and marketing going up.
<unk> is is it going up at the same pace that R&D is going up or is it. It's just not as not as steep R&D will be up 50%. So if we did 10 million from the $8 million last year.
We'll probably do a little over $12 million in 2021.
Sales and marketing.
Probably go up by a smaller some I mean, some of that is related to <unk>.
Sales revenue as seen on we do have planned increases in commission expense advertising on the other so.
I mean realistically, it's probably going to be also up 40, or 50%, but we're going to have a much bigger topic.
Top line and hopefully gross margin and G&A.
Other than.
Yes.
Recently, we've.
Expense increases in things like insurance D&O insurance, we just got or settle on our 2021 plan on rig rates have tripled.
And just the nature of the markets.
We have some other.
Unknown.
Cost.
Could come but then on the other major driver there is just going to be.
Noncash stock comp, so I wouldn't see a material.
Further increase that's on the ones I just highlighted on G&A.
Okay.
And then the sales and marketing increase that you're contemplating is that.
Primarily related to increased head count or is there something else going on that I should be aware of.
Head count would probably be.
40% to 50% of it we do see some good opportunities.
Particularly overseas, we're expanding our presence in Europe, we're going to.
Setup.
Currently we have.
Latin.
South America lumped in with APAC, we're going to split those into regions. So we're looking at essentially a couple of.
Additional bodies for each region as well as Oh.
Full time sales engineer yourself, that's going to increase our.
Our staff complement on that for two reasons, one to get increased sales and to better support the customers, we expect and.
From our.
Planned growth of sales.
Okay. So it will be hopefully be profitable ads.
And if it goes slower than we plan.
No we won't.
So ankur all those costs as quick as we currently plan on.
Okay.
And.
Also on sales and marketing as you.
Continue to grow the.
Topline.
Do you think you need to change the way that you're approaching the market that is less.
<unk> added resellers more value added resellers, you need to have more bodies at it I'm just trying to understand.
Not the dollars that are being spent but the infrastructure of the organization that you believe that you're going to need to have as the top line scales.
Come on.
Okay go ahead.
Yes.
After a little bit there Jim.
The channel management of our sales channel is becoming the cornerstone for how we do this we got great value added resellers and the likes.
But but we also feel it's critically important to grow our relationship closer with our end customers and the more we're doing that today the bigger revenue streams are coming from that side of our business on.
An example would be medtronic, they buy everything from Vuzix they.
They buy the software so listen from Vuzix, they buy the hardware from Vuzix and they have some support stuff that we do with them and being able to manage that relationship closely.
Medtronic is just it's a growing significantly growing piece of business for Vuzix, because we're able to manage that relationship. So much tighter. So we are doing more and more of that our relationship with our partners over at <unk>, which now is upskill and.
And it's.
UV Max at the same time, we are reselling their software applications at the same time also to try to keep that relationship closer with our customers. What that means is we're going to put some more smart engineering sales type people.
On the channel management guide to help manage those relationships. So we keep the relationship with our customer in more cases than not so that takes a bit more work to make that happen internally. We still have very very good relationships I don't want to I don't want to take our value added reseller partners and make them feel like they are not bringing value because they certainly are but we find.
We have much better success, when we're closer on the customer.
As our software models come online and we start offering direct solutions youll see that side of our efforts pick up even more.
Okay.
And when you look out let's say three years from now.
Do you think that the largest.
The largest industries or segments or sectors that you are addressing are going to be health care and logistics and something else or.
Is there a sleeper category out there that that we should be focusing on.
Not that we would like to talk about [laughter] right.
Right now there's no doubt debt.
Remote management of almost anything with our glasses remote auditing remote support you put the glasses with the case tractor and now theres remote I can get the tract are up and running without having to send that expert out into the field, where youre going to see that all over the place.
See healthcare.
And the most amazing solutions.
Solutions that are coming from the glasses. The more sensors you put in the glasses. The more of the glasses can do in the health care environment also it's actually a true statement across the board frankly, and as grant and we mentioned in the call earlier. There is all kinds of new tapped that youll see on some of our next generation stuff that allows us to do some of this.
Cool Nextgen more advanced stuff medical was a big space for medical alone Tim is it's going to be on the billions of dollars. If you think about DN fundamentals are part of our operations get done.
And all kinds of other areas of the hospital so.
Telehealth telemedicine medicine in general I think youre going to see a lot of business from Vuzix and then this whole idea of logistics moving boxes around those three areas are all in my opinion going to be on one billions of dollars on value.
Okay.
And yes, there are others.
There are other verticals that we are looking at that nobody in them right now that smart glasses will completely change the game for debt, we think have significant kinds of value.
Okay very good thanks.
Thanks, a lot and good luck with everything.
Thanks, Jim Thanks.
Our next question comes from Jack Vander <unk> with Maxim Group. Please state your question.
Hey, guys. Thanks for taking my questions.
Just a couple on the engineering and OEM side.
Paul.
In addition to those five OEM projects that are listed on slide 11 of today's presentation.
Can you provide any color around maybe your expectations or the likelihood or perhaps a timeline of adding another OEM project or two to the list.
So it's interesting Jack we've actually turned several of them down over the last six months.
You got to kind of pick and choose where youre on.
ROI on the best value is going to be and so.
I could say that we could go back and turn one of those on it.
We're trying to be involved with on opportunities that have a reasonable.
Manufacturing opportunity on the back side of it we don't do these things to make 50 off something sort of a thing.
We're in discussions with several different areas and part of what this Jade bird business is actually enabling a lot of opportunity in this regard. These these micro display engines that vuzix has built around the J per displays are phenomenal.
Again within a week I hope you'll see more about what this is all about.
And.
In the.
The announcements that we'll be talking about you will see the kinds of applications interestingly enough. These little engines are going to be designed to not just be used in a pair of glasses. There's all kinds of things they can be used debt.
And so youll see that expand I think in a lot of different areas.
Yeah.
Okay Cool that's helpful.
And then just a question on more of a housekeeping item maybe but.
Just to get a sense see from.
Im understanding this correctly and the 10-Q, it's I think it's there's something related to wave guide project that began in the third quarter of 2020, that's set to finish in the second quarter here at <unk> 21 with about 40000.
$1 of revenue Engineering services revenue left on that are there any other projects that.
<unk> improved its fully disclosed that are expected to contribute to engineering services revenue in the second quarter or is it just this.
Last project here with $40000 slept on it.
I anticipate there is a good chance there'll be some more.
Engineering slash it couldn't be book this product actually I'd have to talk with grant about how.
I am not be not be in the finance Guy in this regard there is some stuff going on.
That you were delivering against so youll see stuff, but I don't know if its going to show up as an <unk> or not.
We can follow back up on that one later when I can get the details from grant.
Sure Yeah, no no problem.
And then just one last question maybe this is for grant.
Just looking at the at the product gross margins.
They came up quite nicely this quarter from <unk>.
From the prior quarter.
Just on the GAAP basis at least.
Is this.
And revenue on kind of ticked up like maybe maybe $1 million on the product revenue for that to happen is this a pretty normal.
Are you confident and this is like a four going forward for the rest of the quarters here.
I'm showing like 25, 9% is that.
Is that what's your confidence in that kind of gross margin going forward if not elevated.
I think if you know.
We keep the revenues.
Per quarter.
And the 4 million plus range on and hopefully a lot greater.
You know, we should be able to achieve margins in.
And the.
North of 20, 26% I mean, hopefully we can you know our goal is still to get up to 40 that requires.
A bigger revenue based on better absorb some of our you know.
Relatively fixed manufacturing overhead costs, but I mean, we anticipate.
Currently getting into the you know.
Well into the mid Thirty's.
Before the end of 2021.
On a gross margin basis great.
Yeah.
Yeah.
The products are doing well the price well, we got rid of the old ones and most of the write down so I think it should be.
Hopefully pretty clear sailing.
Going forward as we grow and as you can.
And as you know Brad there was some things that we're doing that should take some of the cost out.
Work out like we think they will.
Yes, absolutely.
It's always nice to surprise positively.
Yeah.
Okay, well guys I appreciate the color. Thank you.
Thank you Jack.
Thank you and at this point I will turn the call back to Paul Travers for closing remarks.
Yes.
I don't know how to describe that everybody Vuzix. This business is taking off there's no doubt about it smart glasses, they've been having for a long time now to be in the billions in value and it is starting to unfold and post COVID-19 Vuzix is on a really good spot I would like to thank everybody for your interest in participating.
On the call today, and I'd like to remind everybody that our annual shareholders meeting is going to be done virtual this year. We look forward to quote unquote seeing everybody. There. Thank you again and have agreed evening everybody.
Thank you this.
Concludes today's conference on parties may disconnect have a great day.