Q3 2021 Vuzix Corp Earnings Call
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[music].
Greetings and welcome to the Vuzix third quarter, ending September 32021, finance 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 conference is being recorded.
Now I would like to turn the call over to Ed Mcgregor Director of Investor Relations at Vuzix. Mr. Mcgregor you may begin.
Good afternoon, everyone and welcome to Vuzix third quarter 2021, ending September 30th 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 would like to remind you that on this call management's prepared remarks may contain forward looking statements, which are subject to risks and uncertainties.
We 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 1095.
Actual results could differ materially from those contemplated by any forward looking statements as a result of certain factors, including but not limited to general economic and business conditions competitive factors changes in business strategy or development plans the ability to attract and retain qualified personnel as well as changes in legal and regulatory requirements.
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In addition, any projections as to the Companys future performance represent managements estimates as of today November eight 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 call who may not have very 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 reconciliation to the most directly comparable financial measures calculated presented in accordance with GAAP can be found on the Companys Form 10-Q quarterly filing at SEC Gov, which is also available at www Vuzix Dot com.
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 third quarter financial results. We will then move on to the Q&A session are finally wrap up with a few closing remarks by Paul.
Hello.
Thank you Ed Hello, everyone and welcome to the Vuzix Q3, 2021 conference call.
We grew total revenue both sequentially and year over year for Q3 total Q3 sales was up 9% over the same period and up 34% for the nine months ended September 32021 versus the prior year. This increase was led by smart glasses sales growth of 12% and 51%.
Compared to the quarterly and year to date periods of 2020.
As we continued to see steady demand from some of our largest repeat customers, which continues to be a driving force of our base business on a quarterly basis.
Yeah.
While the quarter came in on the low end of our expectations for a variety of factors, including logistics shipping challenges internationally and the exact timing of some of our expected larger customer opportunities our competitive position has never been stronger.
And our growth prospects never brighter.
In addition to repeat customer orders. We also continued to expand our distribution channels across multiple regions, including the EMEA Latin America, and Canada to support industrial use cases applications and customers we.
We saw continued strength in our healthcare business segment, specifically in the operating room related to patient surgeries and we have made steady progress with our software partners towards what would be the largest deployment of smart glasses ever with some of the leading companies in the world to support their warehousing logistics and training for Onboarding new employees.
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We have already shipped initial orders against programs that are rolling out and we expect follow on orders to be significant as the deployments expand into 2022.
Additionally, our OEM prospects continue to grow as new engagements are being added with follow on energy programs commencing and with multiyear product supply agreements being negotiated that should generate important business in 2022 and beyond.
Lastly, we ended the third quarter with cash of roughly $129 million, which provide vuzix ample runway to grow our business drive ongoing product development and expand strategic initiatives.
As slide five illustrates our quarterly and annual smart glasses sales growth has been steadily trending upward for vuzix over the last five years.
Year to date, our smart glasses sales have grown approximately 51% almost equaling our total for 2020 and we expect our full year total for 2021 will show a solid year over year gain and as nice as these growth trends are the total topline revenues is modest just yet.
We expected our smart glasses industry's growth phase has only just begun.
We have clearly moved beyond the proof of concept stage with many scene.
Senior management at several major corporations and signed on with their support and we're now working through the logistical details for high volume Rollouts.
Industry forecasts for the smart glasses industry indicate that is expected to grow to millions of units on an annual basis over the next five years.
Gradual enterprise adoption is underway today across a variety of market verticals and we are confident that vuzix is winning over the competition. There has been a lot of buzz about the meta versus over the past few weeks. Following facebooks now met our platform's broad statements about building it out along with Microsoft announcements of their own meta versus initial.
Lives.
That said the meta versus is not a new thing at least as it relates to Vuzix long term vision and as we expect these announcements will bolster our position and direction.
These new industry initiatives should represent a significant positive for both vuzix and the AR smart glasses industry as a whole it's worth keeping in mind that the meta versus is not just about virtual worlds that users congregate socialized or play games in and it's basically been a cornerstone part of the AR VR and <unk>.
Glasses industry, all along especially for enterprise as <unk>.
Going to be an almost infinite number of enterprise use cases.
And here are just a few imagine accessing Iot sensors and systems simply as a function of where you were looking lie on the plant floor.
We're receiving changing work instructions on the fly through your AR smart glasses.
Or live remote guidance of a complex medical procedures and network digital equipment.
And then the world of logistics support for picking and pallet stacking with advanced AI, telling workers were to stack or what to pick all communicated while being hands free.
Bottom line is that Vuzix smart glasses, and the technology helped bring the meta versus in the real world together for the user and in doing so create cost savings and in some cases bring new capabilities.
In some distant future with the coming that averse, but now without a doubt. This is game changing technology and clearly the future of computing and Vuzix is out in front of this as a leader in the technology of connecting people to all of this met averse information.
We are seeing growth in all of our major geographic regions driven by customer success within the health care in the broader enterprise market segments with continued demand from our major customers and partners.
As we look to the remainder of 2021 and into 2022, we expect growth of smart glasses adoption to continue as the industry matures before Covid logistics was one of the largest and most active vertical for Vuzix smart glasses.
Activity in this vertical passed during the most challenging periods of this disease, but it is now heading back on track and accelerating as the need to gain supply chain efficiencies comes to the floor. We are seeing expanding engagements with many leading players in this market segment.
Our customer success team is in close communications with these customers and our software partners and in many cases, we've been onsite and regularly to support the business groups and multiple cases, we have moved beyond pilots and are in the functional rollout stages in select locations. These next steps should be network wide and or global.
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Over the last several weeks, we announced a few of the follow on orders that we have received to support the needs of some of these larger customers. These customers are among the most innovative companies on the planet.
And the overall feedback regarding Vuzix smart glasses, and our solutions running on them has been fantastic well beyond the initial Wow factor and focused on the operational benefits in several cases, we are up against companies that had been solving the logistics problems for our customers for years with older alternative technologies.
To replace these legacy solutions requires robust tested and proven solutions that bring better value, while integrating into existing architecture, and our smart glasses with vision picking brings just that our customers love the performance of our smart glasses products, especially the noise canceling microphones required.
The noisy environments the glasses are being used in.
They love our Crisp High contrast, OLED display critical for successful vision picking they love the on device scanning provided by our smart glasses, HD camera, allowing a one device solution for even barcode scanning they loved the lightweight and easy wear design of our solutions with their economic wearability options and more.
Importantly for them Vuzix smart glasses are multitasking and programmable device that can remove their need to use multiple devices throughout their operations, which means an investment in one area can get leveraged across others.
The volume potential associated with these opportunities represent many thousands of units and we believe this is a market vertical that vuzix can and will ultimately own and for more than a few of these customers that are now beyond testing and proof of concepts with vuzix. The planning stages for a broad rollout is underway.
That said at the moment health care is our largest growth sector.
According to research Nestor the global health care augmented reality market is expected to reach $27 billion by the year 2030, representing a 19 times increase in size and a compounded annual growth rate of over 33% from 2020 through 2030 Vuzix has made considerable inroads.
And to the healthcare market over the last 18 months and has quickly grabbed the attention of research analysts and has been recognized as one of the preeminent players in this sector Vuzix smart glasses routinely get called out in their report as the latest state of the art technology available.
Again health care continues to be one of our fastest growing market verticals and accounted for a significant portion of our total revenue in Q3 as our key health care solution providers in direct customers continue to scale the.
The upcoming customer slides show some of the progress that is being made with a few of these key accounts.
Within health care patient care medical training and education and surgery account for nearly 70% of the global health care market by application for smart glasses and are expected to grow by over 800% by 2030.
Patient care is one segment that Vuzix has gained early traction to support better outcomes for patients and their health care providers. The advantage for providers is it allows patients to stay at home, while home care nurses take their smart glasses with them to provide a communication link to the hospital to support regular checkups and therapy.
Medical training and education is another segment Vuzix is gaining commercial traction in.
We have discussed Ohio, one in the past our global surgical training nonprofit organization that is working with prestigious teaching universities, such as Johns Hopkins, Stanford, Oregon, Health and science and private practices to connect surgeons around the globe and to provide remote surgical training and education through Vuzix smart glasses.
<unk> goal is to have their program grow to 1000, plus mentors last 90 pairs using smart glasses, they're having great success. There are partners in support of doctors love the solution and they are off to a strong start on hitting this goal. So.
<unk> as a third segment that Vuzix is gaining commercial traction in and there's one segment that is emerging as one of the exciting market verticals for the company as a whole.
Over the last 18 months Vuzix has gone from zero to having its products used in well over 1000 operating rooms worldwide to support surgeons across a variety of specialties to provide better patient outcomes inside the operating room, while lowering the cost of care at the same time.
With actor, a Switzerland based international supplier of innovative orthopedic products and accompanying surgical techniques with annual sales of $400 million is the vuzix smart glasses based augmented reality surgical platform provider that continues to make waves in the surgical community with their next day our solution for knee.
<unk> and spine surgeries medaka continues to place recurring orders for the Vuzix blade as they gain traction within the surgical community.
They expand through Europe, most recently they announced the successful completion of their first shoulder surgeries in France.
Pixie medical based in France is another vuzix smart glasses based augmented reality surgical platform provider that is also gaining commercial traction during the quarter. The first medical report on the preliminary results of their surgical platform was published and confirm the accuracy and effectiveness of their knee plus solution <unk>.
Medical is now primarily focused on commercial traction and marketing efforts within the surgical community.
Pixie has hundreds of using smart glasses in the field and has completed a significant number of surgeries guided by Vuzix smart glasses in the operating room in fact, Pixies first knee plus total knee replacement surgery in the U S was recently performed by Brigham and Women's Hospital in Boston, which is a significant milestone as the U.
<unk> is the largest market for total knee replacement and represents 50% of the total market at over 800000 total knee replacement surgeries a year over.
Over the next 12 months, we expect demand from our surgical partners to increase significantly as they continue to support their current markets and for new market growth.
Rods and cones, a provider of a fully virtual surgical collaboration platform has placed hundreds of vuzix smart glasses into operating theaters with leading medical device companies and hospitals across the EMEA and is now expanding their commercial efforts beyond the EMEA and the United States, Latin America and Asia Pacific.
A recent example of a use case was the live streaming of our robotic esophageal surgery for an advanced medical training course.
I recommend you go to Linkedin to view their most recent video welcome to the world of rods and cones to get a firsthand feel for how seamless their solution is.
Medtronic the world's largest medical device company is another global user of Vuzix smart glasses and is hundreds of them four hundreds already deployed and being used in operating theaters around the world with over 100000 employees many of them service and.
In medical technicians, Medtronic represent a significant deployment opportunity for vuzix.
Similar to the growing demand from our surgical partners, we expect demand from Medtronic and rods and cones and others in this sector of healthcare to increase significantly over the next 12 months.
In summary, the health care industry is embracing our smart glasses and they are becoming part of the operational framework not in the future, but now most major organizations in the health care have mandates to grow their <unk> XR initiatives from the operating room to the ICU and as such <unk> is now a permanent part of this industry with all of this.
Momentum, we are confident we will see accelerating opportunities into the foreseeable future as slide 13 illustrates we currently generate the bulk of our revenues from the sale of smart glasses hardware, but as we've said on previous calls we are focused on the long term objective of creating a base of business that will be driven by three major indicated segue.
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<unk> smart glasses hardware smart glasses, SaaS software and OEM supply of products and technologies to the broader market Music's has a concerted effort to augment our business model beyond are focused primarily on smart glasses hardware by also moving upstream closer to the ultimate customer with a complete solutions in particular.
<unk> the ability to generate meaningful SaaS based revenue centered around our smart glasses with our software partners and ourselves will help provide us with a not only substantially larger revenue base, but one that is recurring and with much higher margins.
Vuzix continues to invest in our core business, including smart glasses software and customer service to help accelerate smart glasses sales and industry adoption.
We are continuing the development of our next generation smart glasses based on micro OLED displays and remain on track to deliver our first DVT or design validation test units before the end of this year.
We have also been working on enhancing our core M series solutions with new features and line extensions and we expect to introduce three new monocular smart glasses products in 2022.
Vuzix also continues to focus on building out our internal infrastructure with key hires in support of our customers and they're coming deployments.
And in product development as we prepare for our next phase of top line revenue expansion.
Our organization has grown over the last five years from 50 to over 100 employees I am very proud of the level of teamwork and employee satisfaction that exists within our organization.
And for Vuzix to be named one of Newsweek's Top 100, most love workplaces for 2021.
We are amongst some of the most recognized brands in the world.
Vuzix continues to make investments in our people and we have a great team in place that is focused on winning in enterprise with smart glasses based solutions and winning with our core technologies to grow our OEM customer base and supply to the broader augmented reality excuse me meta versus market.
In addition to the technology already under the Hood at Vuzix.
Vuzix maintains an active list of potential companies in our space from SaaS based solutions to the core technology itself that could significantly enhance portions of our business and generate high margin accretive SaaS based revenue.
And brain Vuzix, even closer to the customer.
We currently have multiple active irons in the fire and we're progressing well on our due diligence and selection process. Finally, this will be an ongoing activity for vuzix going into the future.
On the internal solutions development front, our Vuzix custom solutions group, formerly integrated solutions business unit <unk> is focused on the acceleration of enterprise centric solutions in both new and underserved market verticals the <unk>.
Group will support current and future partners by assisting in developing and implementing innovative SaaS based solutions around specific use cases in various industries.
Core team is streamlined and focused.
With a strong background in building such solutions. The group has already been engaging with a number of innovations to drive requirements around solving problems and implementation into complex enterprise environments, using vuzix existing smart glass hardware with the enhancement of custom software user.
Vuzix produces some of the leading smart glasses in the industry and our current and coming deployments are proving it.
We also believe our core technologies, which include optics displays and systems represent the keys to the kingdom for future AR smart glasses, the meta versus and related software solutions across the entire space and put vuzix as a front runner take our waveguide technology alone for example.
Transactions in the wave guide space from a few competing waveguide technology companies reflect valuations in the $500 million range for companies that only produce wave guides.
We not only have high volume waveguide production in hand at Vuzix were pushing the envelope with some of the thinnest wave guides made to date at less than five millimeters. We're quickly moving to support high refractive index designs with high volume manufacturing and we also are producing some of the highest efficiency solutions available with capabilities.
Providing very unique features for micro OLED displays that are just now starting to enter the market. In this area alone. We feel that Vuzix has built significant value proposition for wave guide and display projector solutions that will lead in the augmented reality space.
This is just one arrow in Vuzix technology quiver, we have hundreds of patents and patents pending and we are working on other critical areas that will ultimately be needed for the broad market to flourish.
Our patents and patent pending portfolio increased by another 23 in this last quarter alone one of our largest jumps and we have a lot more on our drawing boards as this industry achieves even larger scale the control and ownership of these key technologies that we believe are essential to deploying smart glasses optics and displays at scale.
It will significantly enhance shareholder value.
As I stated last quarter 2021 is a transformational year for Vuzix and frankly, it has been for the entire industry at large we are making solid progress against our key operating goals for 2021, and we look forward to 2022 unfolding I'd.
I'd like to now pass the call over to grant for his financial review.
Grant.
Okay.
Thank you Paul as Ed mentioned the 10-Q, we filed this afternoon with the SEC offers a detailed explanation of our quarterly financials.
So I'm just going to provide you with a bit of color on some of the numbers now.
Our third quarter.
Total revenues for the three months ended September 32021 rose, 9% over the prior year period to $3 million.
The increase.
Was the result of a 12% gain in smart glass sales led by continued growth in our M 400, and <unk> thousand Smart glasses, we had no engineering services revenues in the quarter versus <unk> 1 million in the prior year's period.
There was an overall gross profit of <unk> 6 million for the three months ended September 32021, as compared to a gross profit of <unk> 3 million for.
For the same period in 2020.
Overall net gross profit margin was 19% for Q3 2021 as compared to 13% for Q3 2020. The increase was related to an improvement in product direct margins and the fact that the prior year's period included.
$8 2 million.
Inventory reserve for obsolescence.
<unk> expense was $3 3 million for the three months ended September 32021, compared to $1 9 million for the comparable 2020 period, an increase of approximately 74% and consistent with the spending guidance. We provided on our last earnings call.
The higher R&D expense was primarily due to increases in external development expenses related to our next generation smart glasses higher salary benefits and noncash stock based compensation due to head count additions and increased product compliance testing.
For new markets and higher R&D consulting fees selling.
Selling and marketing expense for the three months ended September 32021, rose, 70% year over year to $1 6 million.
Due primarily to increases in salary benefits and noncash stock based compensation expense from head count additions more foreign sales consultants and higher advertising expenses.
General and administrative expense for the three months ended September 32021, with $3 1 million, an increase of 90% or $1 5 million largely due to head count additions, resulting in higher salary and stock based compensation related expenses, which drove $1 $1 million inclusive of a 0.4.
Million.
Noncash charge related to stock based compensation, mainly onto our new LTE plan, Inc.
Increased legal fees of <unk> 3 million and.
$1 million extra for insurance costs accounted for the balance of the overall increase.
The net loss attributable to common shareholders for the three months ended September 32021 was $7 9 million or <unk> 13 per share versus a net loss of $5 3 million or <unk> 13 per share for the same period in 2020.
Now for some balance sheet highlights our balance sheet remains strong with a cash and cash equivalents position of $128 7 million as of September 32021, and our net working capital position of $143 million cash.
Cash used in operations, excluding changes in working capital totaled $5 8 million for the third quarter of 2021 as compared to $3 million in 2020.
Cash used for investing activities for the third quarter 2021 was $4 3 million as compared to $1 2 million in the prior year's period as our investments in manufacturing equipment and truly increased along with an investment in a new display chip design project.
As of September 32021, the company does not have any current or long term debt obligations outstanding.
Forward to the balance of 2021, while we expect to see continued similar quarterly year over year increases in our main operating expense categories over the 2020 comparable period. The rate. However, a sequential operating expense growth per quarter in 2021 will slow.
Investing activities are also expected to increase in Q4 of 2021 as compared to the prior year as we continue our investments in new product tooling development and IP, but that I would like to turn the call back over to Paul. Thanks Grant Nice job lets now turn the call over to the operator for Q&A.
Thank you.
And ladies and gentlemen 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, a confirmation tone will indicate that your line is 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 for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Yeah.
Our first question comes from Tyler Burmeister with Craig Hallum. Please state your question.
Hey, guys. This is Tyler on for Christian Schwab. Thanks for letting me ask a question.
Paul first first question it seems like the health care end market you are clearly the most excited about now and into the future. So.
Framing comparatively to that maybe I was wondering.
The retail warehouse logistics as well as the OEM product development.
The other piece of your business.
Relative to health care, how should we think about those three those three kind of.
Businesses as we focus going forward.
No.
First of all let me say that healthcare pretty immediate.
Good thing about it is it has been in place it's been accelerating things COVID-19 hate, saying it that way, but it's changed a lot of things in the aerospace Colby.
That whole retail picking space is going to be very big Tyler.
I mean as big as the healthcare is there are.
<unk> of people and organizations that move boxes about logistics.
How do you get some from point a to point B, it's a massive industry.
Healthcare on the SaaS model perspective, which is some of the things that we're working that with our partners and stuff I think that there is a.
Lots of opportunity to grow and of course, we're going to sell lots of hardware at the same time, but I think youll, probably see I don't know if its an order of magnitude.
Picking side of the business is significant.
That will start to move and grow for Vuzix, especially into 2022.
It's nice to see these companies after all this time finally, making commitments.
On pilots and then other there how do we roll these things out kinds of things. So 2022, I think youll see a significant contribution and growth from that side of our business, which.
We always felt was going to be there, but it's nice to see it really coming around so healthcare.
Versus.
Versus the logistics side of the business health care is going to be bigger in the end, but right now, it's clearly healthcare logistics will be bigger in yet.
Right now, it's clearly healthcare on the OEM side of our business.
So it's interesting.
Earlier on in the game you would get larger dollar values from the engineering perspective to make custom solutions and those kinds of things. We have some standard stuff now that a lot of folks are able to use and so they're buying stuff from us. They are building it into their programs and we're expecting volume programs out of those things as we roll through the next year.
Or so.
It will grow its going to take longer.
I will say that it could also be a really significant piece of business, but it's going to take a lot longer perspective to be there at the broader market stake forever before they are in.
All of these defense guys you know what it's like until you finally get the program kicked off and when you do year end so.
Number one is the <unk>.
Enterprise logistics Onboarding training, it's going to be the biggest market by far I think at least to the it started number two the medical space and then number three the OEM today, but in the long run you will see where that goes.
Thanks, Paul that was perfect.
Then follow up question on this fortune 50 customer that you've announced a couple of hours with during this quarter.
To the degree that you can provide any more color on.
What business, what end market geography that customer ABN and then.
Do you expect future orders from them.
Or how far along on there.
Total deployment.
Suspect they are.
It's it's more than one fortune 50.
It's.
It's probably bigger than a handful.
And it's from Onboarding to logistics warehousing.
And some of it's in retail and some of it is the big distribution channels that have warehouses all over the United States in the world. So.
It's a continuing thing from them right now. They are these are follow on orders that were part of deployment orders not well, let's try a test plc here so.
We're working through our the logistics associated with doing the rollouts to those companies. So they can do.
Do them in a bigger way throughout their organizations.
We are up against companies that have been incumbents that for the last 75 years, they've been using their tools to pick out of the warehouse from voice picking tabarrok scanner picking the kinds of things and our smart glasses with vision picking brings a lot to the table, but it takes a bit of time to do the final.
Changes around the processes and procedures to implement those things and go lives that said they've been working on this for darn long time Covid put a hold on it for a while but these guys are back with a vengeance. It seems like with all these logistics problems going on in the World and has lit a fire under a lot of these companies and.
And like I said.
More than five kind of a thing that are in this boat.
That's great I appreciate it appreciate the color there and then last one and I'll, let the others others ask questions I don't think I really heard too much of an update on your M&A pipeline.
Any color there I think we were talking earlier about.
Some potential software.
Any opportunities over that were close.
Any update there would be great.
We actually have a list of folks Tyler and it's true there are a few of them that are.
I would like to thank very close.
Theres been lots of due diligence done.
Progress has been going down the road.
It feels great, but they are not done yet and we're not done until they're done.
That said, we have high expectations that these would be good relationships.
Opportunities for Vuzix as I said, there's more than a few though.
It will be as we move forward with those over time, we will be selectively sharing where it's appropriate I wish I could share more than that right now.
I can just say that.
Things are moving forward.
Yes completely understand that sounds great alright, that's all from US thanks, guys.
Yes, Thanks Tyler.
Yes.
Our next question comes from Rachel Freeman with BTG. Please state your question.
Hi, This is Rachel on for Matt Vanvliet. Thanks for taking my questions. Just firstly on the next Gen products that you're planning on introducing next year.
The visibility you have into sales for these products and when you expect that to start.
Flowing through to the model.
Just any color you could give on timing our projections would be great.
Okay.
Let me say that between now and.
The first quarter.
Due course, I think people will learn a lot more about.
When and how those products will be coming out.
I would suggest that.
Product will be available in the first quarter, we have no doubt about that.
These products are designed they look cool.
Look closest to.
We are in the consumer marketplace, but these are.
Close to the high fidelity glasses, but they really are designed for enterprise they've got more sensors on them than we've ever had in the past, but they look sleek and they're designed to go to work still their safety glasses form factors, but they have this really nice look and feel we have high expectations, but it <unk>.
Parts of the marketplace.
Instead, we wouldn't necessarily expect this to be used in.
A warehouse picking application, but because of the way. This thing is built in pharma. There's a lot of good applications for it and there is applications for testing QA could because the sensors that are built into these glasses that are designed to measure things in front of you and take data and record in real time and take the data that's not there.
Use the phrase everybody is using these days, but that information in the <unk> and connected nicely to the real world. So we see.
Some significant businesses in different areas.
Don't expect it to be competitive to our current products other than the blade.
To say right now the blade.
It is also coming into its own that there's lots of places that are starting to pick up pace and in fact in our third quarter here. We had some supply chain problems. We could have shipped a lot more blades and what we did because the demand has been growing at best for them.
Okay. That's great and then just on the internal solutions development unit.
Beyond what you mentioned in your.
In your prepared remarks, just on customer engagements can you provide any more details on the progress that this group has made before and maybe an update on what your expectations are for how quickly you can start to ramp just to meaningfully contribute to sales moving forward.
These guys are good at doing this.
Got multiple opportunities in irons in the fire. There are just getting started in fairness to these guys, but they.
They've got multiple proposals that they've put out its an interesting group part of what Theyre doing is providing a service for software solutions that solve problems with companies that there's nothing available today. So there is going to be some engineering fees I think youll see coming out of that group for a while and then out of that they are also building.
Our own solutions that will fit into certain verticals and I would suggest that in 2022 Youll see some revenues at some point during the year.
For that portion of it starts to come onboard so youll see recurring revenues and engineering revenues, rather and then Youll see the software development side of the house also kick in in 2022.
Thank you.
Youre welcome Rachel.
Thank you. Our next question comes from Jack Vander <unk> with Maxim Group. Please state your question.
I appreciate the update.
For taking my questions.
So so Paul I'm, hoping you can provide some additional color on your monetization strategies are just ideas you guys are maybe thinking about in terms of <unk>.
Rolling out our software maybe organically.
So regarding someone talked about acquisitions, but if you were to rollout an organic software offering just what are you guys kind of thinking about in terms of how you monetize that or the various.
Is there a wide range of possibilities youre thinking about is there a core software offering you are thinking about.
And how close are we to seeing that be rolled out.
So that kind of goes hand in glove, Jack with Rachel's question that last one.
The Vuzix solutions group is developing custom solutions. These are these are solutions that solve the problem.
We've got a bunch that we've identified there's a few that are really cornerstone that we think are important but it takes time to get that core software developed.
And between now and then there are also working with select companies. We get this all the time Jack companies come to US and this is what I would like to do and there is no way to do it today without having custom software built in so.
They are going after the market.
Pull strategy one of them being we're going to help these guys solve these problems, but in the process of doing that.
Going to be building out the core software that.
We need for our own solutions and so youll see over time there'll be engineering services coming in from these guys and then you'll also see us start to offer and generate revenues on a recurring fashion based upon some of the software that we've built around some of those engineering activities. What's nice about that is it helps fund the activities.
At the same time, it's nice to have practical customers that really want to solve problems you can test the software and make sure. It does what it's supposed to.
Okay. That's helpful. And then just maybe I'll touch on because this is a.
Theme are impacting every company and every industry and you kind of touched on it already but.
Are you able to quantify maybe it's a question for grant as well, but are you able to quantify in any sense.
What the global semi shortage, what the impact was on your revenue for the quarter or just how you are your momentum of sales.
Throughout the balance of this year is there any way to quantify that.
Hard to.
So no the future per say, but let me just say in the third quarter.
Our blade had silicon supply shortages and that was part of the reason why we didn't ship more and it's.
Hundreds several hundreds plus more that we could have shipped and on the other side of the coin. There is there is also tight shipping problems around the world today and sadly Vuzix had.
Yes.
Stock sitting in a warehouse that was unable to get out the door due to shipping problems in logistics associated with that to the tune of another.
Couple of 100, plus and four hundreds so it wasn't insignificant necessarily.
We're hoping that that's not going to be the case here in the fourth quarter.
I mean, we're good other than the one product family Paul referred to.
<unk>.
We are well positioned for Q4.
100 sales so that's.
The bulk of our revenues though.
Okay.
Understood.
And then.
Just in terms of the meta versus obviously quite the buzz lately.
It's it's quite polarizing.
Where do you guys, where would you see yourself fitting in.
Dr <unk> and gaming in general there's also the aspect of conference virtual conferences and kind of business use cases.
Do you think.
You guys have a natural.
Utility or placement in the <unk> when it when it does get rolled out or however.
Transpires, whereas your place in the meta versus how you see it or is it is it too difficult to pin it down.
The use cases are endless.
Any more thoughts you can provide would be helpful.
It's interesting you coined the phrase matters worse, and I think that our friends over at Facebook did that because they are into the VR side of it more so in the virtual worlds that you can step up inside of it but the reality of it is the matter versus it's about the entire.
World of the Internet.
Creating virtual worlds inside of it but also connecting all that virtual metadata into the real world and this is really the part of the meta versus the Vuzix plays in it because we have a cool video coming here in the next couple of days you should keep an eye out for.
The Bottomline is used.
All ready.
As a player in the meta versus you have heard of digital twins before you've heard of the Internet of things I mean these are all of these internet based devices is that literally are connected through the cloud.
Our glasses are designed to take that.
Internet information the med averse datasets and connected to the real World and this is where the metaverse gets excited when you look at apples paradigms and thought processes about it it's about changing the way people do things in the real world not necessarily stepping inside of a virtual space and Vuzix does that today, we do it so.
So many different ways now standardization around how the <unk> might work would be great.
And if you look at even Microsoft just in their last conference call. They reported about how theyre doing things to standardizing on the metallurgical work and how those digital systems can be connected into the real world and so I think its great that these bigger companies are building these standards and stuff because it will only make this stuff happen faster.
Got it all sounds exciting I appreciate the update I'll hop back in the queue. Thank you you bet Jack.
Thank you I will now turn the call back over to Paul Travers for closing comments.
I'd like to thank everyone for their interest and participation in today's call. We have a lot in the calendar over the coming months, including multiple investor conferences AWP. This week.
<unk> is coming I think there should be a very exciting show for Vuzix, where on the main hall were back at it again it should be interesting the world's finally coming back to work.
We look forward to our next call with you in March and again. Thank you very much everybody for joining the call 2022 here we come thanks again.
Thank you. This concludes today's conference all parties may disconnect have a good evening.