Q4 2023 Vuzix Corp Earnings Call
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Speaker Change: Greetings and welcome to the Vuzix fourth quarter and full year ending December 31st 2023 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 be.
Speaker Change: Acquire operator assistance during the conference Please press Star Zero.
Speaker Change: 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 I E. Six Mr. Mcgregor you may begin.
Ed McGregor: Please hold your.
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Thank you for standing by.
Speaker Change: Good afternoon, everyone and welcome to the Vuzix fourth quarter and 2023 full year ending December 31st financial results and business update conference call.
Speaker Change: With us today are Vuzix, CEO, Paul Travers and our CFO Grant Russell.
Speaker Change: 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.
Speaker Change: And make additional forward looking statements during the question and answer session.
Speaker Change: 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.
Paul J. Travers: 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 change in business strategy or development plans the ability to attract and retain qualified personnel.
Paul J. Travers: Hello, as well as changes in legal and regulatory requirements.
Paul J. Travers: In addition, any projections as to the Companys future performance represent managements estimates as of today April 15th 2020 for.
Paul J. Travers: Using assumes no obligation to update these projections in the future as market conditions change.
Paul J. Travers: This afternoon, the company issued a press release announcing its final 2023 financial results and filed its 10-K with the SEC. So participants in this call that 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.
Paul J. Travers: Today's call May include certain non-GAAP financial measures.
Paul J. Travers: When required reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the company's Form 10-K annual filing in S. E. T Dot Gov, which is also available at Www Vuzix dotcom.
Paul J. Travers: 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.
I'll, then 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 J. Travers: Paul will then return to make some closing remarks, after which we will move on to the Q&A session.
Paul J. Travers: Paul.
Paul J. Travers: Thank you and Hello, everyone and welcome to the Vuzix Q4, and full year 2023 conference call as disclosed in our January 17th press release, Vuzix instituted cost cutting initiatives across our operations designed to streamline our operations and organizational structure to remove redundancy.
Paul J. Travers: Without sacrificing revenue generation, our overall customer support these measured reductions across sales marketing and product development will extend our financial runway improve our margins and allow the company to refocus resources aligned with the highest growth opportunities over the short to medium term.
Paul J. Travers: Let me now get into a bit more about the state of the industry and the growth areas that vuzix is positioned to benefit from.
Although the augmented reality smart glasses market has developed slower than most expected over the past five years. There are increasing signs that adoption is finally, starting to grow some of the largest players in the technology.
Paul J. Travers: Products and eyewear markets are just now entering this space with first generation virtual reality and mixed reality and smart glasses products and continue their investments in this category.
Paul J. Travers: Meta in Luxottica have seen a growing positive reception of their second product that now includes some audio only AI driven capabilities with their smart glasses carrying the Ray ban brand industry reports estimate over 300000 units were sold in the first 12 months and they don't even have displays and them yet a key feature that.
Paul J. Travers: Many could argue questions the validity of the reference to even call them smart glasses.
Paul J. Travers: Apple also recently launched the Apple vision pro and sold out in even larger numbers at a much higher price point and although our enterprise based product revenue line has not shown it just yet our inbound new business pipeline is expanding nicely on many fronts and should result in us achieving that growth very soon.
Paul J. Travers: Vuzix has invested significant capital.
Paul J. Travers: And other resources to create a foundation of key intellectual property that positions the company as one of the global leaders in the wearable computing and augmented reality smart glasses space, we have a lead much of the industry with the core technology developed needed right through to addressing the enterprise market in general.
Paul J. Travers: Our growing focus on offering OEM and ODM solutions of optics and display engine components for the enterprise defense and broader consumer markets is readying us for the rapid growth, we see coming with much of the investment in costs already realized we are positioning to deliver to our customers and <unk>.
In short order the advancement of our core technologies is becoming more evident every day in our products wave guides and micro display components solutions.
Paul J. Travers: Our Z 100, which we introduced at CES. This January 'twenty 'twenty four is an innovative and unique a our smart glasses solution within the industry. It demonstrates the art of the possible with actual displays and small fashionable form factors, one that others have yet to replicate and.
Paul J. Travers: Liver today to either enterprise users or the broader consumer markets.
Paul J. Travers: Our new wave guide Mega factory, which was completed and became operational in late 2023 is a facility focused on high volume manufacturing and the advancement of our waveguide technology.
Paul J. Travers: Again, the Wall Street Journal recently reported that roughly 300000 Ray ban glasses were sold in 2023, our plant floor could meet that volume demand today. If by way of example, medicine elected Vuzix to provide their wave guide needs for a similar product to their new meta array bands and wanted to offer.
Paul J. Travers: For a more premium AI product with actual displays.
Paul J. Travers: Vuzix and our partner atomistic from whom we have exclusively licensed micro LCD technologies and invested in on a good path that should result in achieving what we feel will be state of the art breakthroughs related to micro OLED solutions Adama.
Paul J. Travers: Atomistic six micro Leds have the potential to optimally deliver on the performance size and cost required for augmented and.
Paul J. Travers: And mixed reality products that we feel we'll be able to ultimately achieve substantial success in the mass markets that.
Paul J. Travers: That demand could be well beyond the potential of the Manta Ray bans, which today are simply audio enabled sunglasses with a built in camera. Many believed they could ultimately match or exceed the number of smartphones used around the globe.
Paul J. Travers: Supporting these solutions from Vuzix is a comprehensive patent portfolio of more than 375 patents and patents pending including a significant collection of fundamental wave guide design patents and applications as well as extensive trade secrets regarding nano imprinting processes equipment and materials.
Paul J. Travers: Like polymers adhesion promoters and release agents that are critical to how we can produce in volume and at low cost to support the broader markets.
Paul J. Travers: Lastly, Moveon software, which has finally been successfully ported over to the Vuzix Smart glasses is now leveraging artificial intelligence for items scanning and picking and continues to gain traction in the back end operations of warehouses and large manufacturing plants.
Paul J. Travers: According to PURA site, a leading technology workforce development company by 2025, the top three transformative technologies for the global economy are going to be the ubiquitous internet.
Paul J. Travers: Art official intelligence and augmented reality.
Paul J. Travers: The stage is set for AI enabled a our smart glasses and this is why almost every major tech firm has development programs happening in all three areas.
Paul J. Travers: The investments we have made in our core technologies and applications ecosystems. We feel are critical to preparing the company for the next phase of growth coming from the augmented reality smart glasses industry.
Paul J. Travers: The Z 100, running 48 hours on a single charge packs industry defining heads up waveguide technology and a custom micro OLED display engine into a sleek fashionable form factor that weighs in at just 38 grams, the weight of our standard pair of eyeglasses.
Paul J. Travers: For enterprise users they represent the first attractive.
Paul J. Travers: <unk> channel bridge between AI platform tools, and the users external world, where situational guidance can streamline workflows for human workers, who can reap the benefits of a truly connected workplace. In addition to our lightweight AI interface versus 100 glasses can augment the data feed from wirelessly connect.
Paul J. Travers: <unk> fingers scanners sensors controllers, and other equipment with minimal native user interfaces, making that data available in a new and highly accessible format.
Paul J. Travers: For the broader market there is a transferable customer base that needs a better solution. There are 1.6 billion smartphones and 300 million smartwatch is sold annually and the biggest use cases are notifications social media and soon mobile AI connected to the world around you.
Paul J. Travers: Alex like the Z 100 have the potential to provide heads up hands free access to notifications alerts and other location aware information from language translation to close captioning to directions to health and workout status to messaging and much more and also to integrate the latest local and cloud based AI engines.
Coming from several of the larger known brands in the social media and streaming space. The Bottomline is the Z 100 has enthusiastically being received and will be successful in advancing the industry and opening up new doors for Vuzix, OEM and ODM opportunities with our reference designs and integration opportunities with <unk>.
Paul J. Travers: Some consumer centric software companies and we are planning to continue this theme with the broader market into the fall of the year.
Paul J. Travers: The new Vuzix waveguide factory is a state of the art manufacturing plant that accomplishes several specific max market requirements, including increasing our wave guide build capacity and lowering our manufacturing costs. It is also allowing us to utilize the more advanced processes needed for our latest waveguide designs our production.
Paul J. Travers: Capacity can now be quickly ramped to deliver up to a million units annually with very little further investment. The new facility also allows vuzix to focus on the advancement of wave guides utilizing higher indexed materials advanced glass substrates and unique wave guide configurations recently Vuzix introduced.
Paul J. Travers: Incognito enabled wave guide, which we believe is the first wave guide based technology in the world to virtually eliminate forward eyeglass when the displays are active eliminating.
Paul J. Travers: Eliminating I glow is deemed by most to be a critical requirement for the broader consumer markets to accept smart glasses.
Paul J. Travers: We have demonstrated vuzix incognito privately in dark rooms, with the light out to leading consumer brands and defense contractors much to their amazement and well done statements and of course, how the heck.
Paul J. Travers: Musics incognito technology managers internal light reflections and forward late leakage within a wave guide, which besides the obvious of removing the annoying forward light.
Paul J. Travers: Results in improved contrast, a virtual images and the AAR glasses.
Paul J. Travers: Incognito has been accomplished with no increase in our manufacturing cost per wave guide.
Paul J. Travers: And we will be targeted for introduction into certain of the company's defense enterprise and of course, ultimately broader consumer applications for both vuzix products and our OEM offerings.
Paul J. Travers: So.
Paul J. Travers: We all know that when it comes to smart glasses.
Paul J. Travers: One has to also address the fact that more than 60% of the population, whereas prescription glasses in solving the challenges associated with delivering wave guides with integrated prescriptions is no small task.
<unk> is currently in the process of establishing the infrastructure to support the production of prescription based wave guides with a roadmap for scaled production thereafter.
Paul J. Travers: Multiple patents and patents pending are already in place related to the system processes and prescription integrations.
Paul J. Travers: The prescription lens layer needs to be finished trimmed and integrated with the smart glasses wave guides all of which must be conducted in controlled environments and with our approach can utilize most of the existing industry infrastructure for high volume prescription glasses, we expect our integrated solutions can support the vast majority of prescriptions.
Paul J. Travers: Needed, including Bifocals and astigmatism.
Paul J. Travers: Our recently announced ophthalmic Advisory board is providing strategic input guidance and recommendations regarding vision correction issues and had a better build products and services to meet customer vision requirements. Their efforts and contributions are helping vuzix successfully do this.
Paul J. Travers: Again, these are all industry, leading developments and the wave guides, resulting from them in terms of cost scalability and features we feel are unmatched in the industry.
Paul J. Travers: They've guides.
Paul J. Travers: With all these features mentioned above represent in a central component needed for widespread adoption of lightweight.
Paul J. Travers: <unk> enabled smart glasses and other wearables.
Paul J. Travers: The other is central component for AI enabled AR smart glasses is micro Leds.
Paul J. Travers: As we've discussed in the past micro Leds has the potential to be a driving force in providing the performance size and cost needed for a R. M R and smart glasses to achieve success in the mass market.
Paul J. Travers: Micro Leds have the potential to be much more efficient lower power to drive high brightness levels outdoors in the real world with a resolution and form factor to enable a family of next generation small lightweight fashion forward smart glasses.
Paul J. Travers: Over the past 24, plus months Vuzix has invested approximately $30 million in developing advanced micro OLED display technologies, leveraging extensive atomistic S. A S intellectual properties for which we have the option to continue to own the exclusive license outright and acquire the company.
Paul J. Travers: The current AAR display device technology approach to micro Leds by others today, primarily consist of using gallium nitride.
Gallium arsenide material systems. It has had ongoing challenges related to higher build cost complicated manufacturing scalability less power efficiency and spectral performance when scaled to the micron sizes needed for smart glasses and other uses.
Paul J. Travers: Atomistic in contrast continues to make steady progress in the development of their unique micro OLED materials approach.
Paul J. Travers: This includes delivering against a number of pre established development milestones and our exclusive license agreement.
Paul J. Travers: Six out of 10, thus far these milestones are related to the development and production of a singularly unique multi chamber epitaxy machine used for both red Green and blue or RGB micro Leds.
Paul J. Travers: Atomic level design and ultimately into production.
Paul J. Travers: Development of unique doping materials and processes expanded development and patent related documentation of multiple materials stack approaches to optimize the atomic pixel structure for increased efficiencies for all three primary colors and work on multiple unique methods of pixel control. We expect this progress to axa.
Operator: Greetings and welcome to the Vuzix fourth quarter and full year ending December 31, 2023 Financial Results and Business Update conference call. At this time, all participants are in a listen-only mode.
Operator: A 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. Mr. McGregor, you may begin.
Paul J. Travers: Right over the coming months with increased production of test samples and refinement of initial designs.
Paul J. Travers: As we are making this progress the ability to share more with third parties is now starting to crystallize and we have been able to start engaging with select potential customers investing partners and organizations that have a vested interest to see micro OLED technology, finally, commercialized, including U S and international differ.
Hence organizations, numerous well known brands and multinational commercialization and supply companies.
Paul J. Travers: The early feedback has been very positive thus far with nearly all parties intently interested in seeing and potentially supporting a practical solution for high brightness and high efficiency with an approach that is clearly scalable at a competitive cost.
Paul J. Travers: These early conversations regarding atomistic unique technical and production approach reconfirm, the pathway, Iran and the potential high return on our investment.
Paul J. Travers: Our current enterprise smart glasses products are now being used around the clock and many warehouses to drive cost savings and efficiencies in health care Vuzix glasses are being used around the globe to teach and perform surgeries vuzix smart glasses are also being used.
During equipment repairs and remote maintenance service calls the list of use cases keeps growing as the enterprise industry matures and as we have expressed in the past we continue to see much larger deployment opportunities on the horizon. This has not changed.
Paul J. Travers: We've entered 2024 with a solid pipeline of smart glasses, and OEM sales opportunities. We feel this way because it is not concentrated across only a few customers, but instead it is becoming more broad based across industries geographic regions and use cases the.
Paul J. Travers: The Vuzix team is looking forward to executing and delivering on what we feel should be a significant number of growth catalysts throughout the remainder of 2024.
Paul J. Travers: One area of broad focus for the entire industry and of course, where Vuzix is artificial intelligence for many applications, including as a personal assistant for work or life management and entertainment. We have multiple third party Isps in the enterprise space and Vuzix own molding team plans.
Ed McGregor: Please hold. We are experiencing technical difficulties. [inaudible] Thank you for standing by. Good afternoon, everyone, and welcome to the Vuzix fourth quarter and 2023 full year ending December 31st financial results and business update conference. With us today are Vuzix CEO Paul Travers and our CFO Grant Russell. Before I turn the call over to Paul, I would like to remind you that on this call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management will make additional forward-looking statements during the question and answer session.
Paul J. Travers: To enable their AI enabled offerings ultimately through the use of smart glasses to leverage artificial intelligence for augmenting humans for picking prevented maintenance education security and language processing.
Paul J. Travers: We believe artificial intelligence equipped smart glasses will also have a meaningful impact in defense and of course with consumers.
According to the survey, we're revolutionizing fulfillment operations with workforce augmentation created by incisive one of the leading insights firms where digital transformation leaders, 94% of businesses report a commitment to evolving the role of human labor in areas like automated warehouses and lab.
Paul J. Travers: Last mile delivery in this context, there is a growing focus on technology that enhance rather than replace human capabilities.
Paul J. Travers: Reflecting this sentiment a strong 69% of those surveyed agreed that wearable AAR solutions that broadened the capabilities of their workers with AI optimizations improve accuracy and data rich inputs will be central to warehouse operations in the coming years.
Ed McGregor: 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. However, 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 plan.
Again, our core wave guide and micro display projector technology in optics continue to gain traction in these markets both as products.
Paul J. Travers: As well related to potential ODM and OEM reference designs for consumers Mark glasses and in the trenches with our defense customers.
Ed McGregor: The ability to attract and retain qualified personnel, as well as changes in legal and regulatory requirements. In addition, any projections as to the company's future performance represent management's estimates as of today, April 15, 2024, and assumes no obligation to update these projections in the future as market conditions change. This afternoon, the company issued a press release announcing its final 2023 financial results and filed its 10-K with the SEC. So participants in this call who may not have already done so may wish to look at those documents as the company will provide a summary of the results discussed on today's call. Today's call may include certain non-GAAP financial measures.
Ed McGregor: When required, reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the company's Form 10-K Annual Filing at sec.gov, which is also available at www.vuzix.gov. 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. We'll then turn the call over to Grant Russell, Vuzix's 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?
Paul J. Travers: We remain in ongoing discussions with multiple industry leaders to ideally provide them components subsystems and even full white label designs for their upcoming a our products. We believe our success with many of these firms. It's just a matter of time.
Paul J. Travers: In November of last year, Vuzix also signed an agreement with Quanta one of the world's largest ODM suppliers on the planet with over $40 billion in annual revenues to jointly supply the same components and with a goal to enable as many commercial customers as possible with a our finished goods solutions. This is an exciting new relationship.
Paul J. Travers: For Vuzix and one that continues to evolve with initial glasses already being shown from quanta using vuzix waveguides and software to select key accounts.
Paul J. Travers: On the defense side and I know, we have been expressing this for quite some time, we expect at least one of our customers, which to date has invested millions of dollars and prior and our ease with vuzix to be rolling into production. This year and we feel there is a second customer right behind them at the same time, our specialized wave guide R&D efforts are.
Paul J. Travers: Thank you, Ed. Hello, everyone, and welcome to the Vuzix Q4 and full year 2023 conference call. As disclosed in our January 17 press release, Vuzix instituted cost-cutting initiatives across its operations designed to streamline its operations and organizational structure to remove redundancy without sacrificing revenue generation or overall customer support. These measured reductions across sales, marketing, and product development will extend our financial runway, improve our margins, and allow the company to refocus resources aligned with the highest growth opportunities over the short to medium term.
Paul J. Travers: Airing new fruit and opening up new addressable markets and defense areas related to hubs for armored vehicles aircrafts and ultimately even ground forces.
Paul J. Travers: We believe the competitiveness of our products and technologies is opening other accretive opportunities also vuzix is now actively working with select U S agencies to secure development grants to support their needs to have vuzix as a strategic U S supplier of advanced technologies focused on our wave guides and Mike.
Paul J. Travers: Let me now get into a bit more about the state of the industry and the growth areas that Vuzix is positioned to benefit from. Although the augmented reality smart glasses market has developed slower than most expected over the past five years, there are increasing signs that adoption is finally starting to grow. Some of the largest players in the technology, products, and eyewear markets are just now entering this space with first-generation virtual reality and mixed reality and smart glasses products and will continue their investments in this category.
Leds.
Paul J. Travers: Concurrently we have growing relationships with leading industry players that not only are interested in working with vuzix around our key technologies, but are potentially interested in investing to better secure their access to it grant will now take you through our numbers as well as provide some additional color regarding further organizational efficiencies and other matters.
Paul J. Travers: Meta and Luxottica have seen a growing positive reception of their second product that now includes some audio-only AI-driven capabilities with their smart glasses carrying the Ray-Ban brand. Industry reports estimate over 300,000 units were sold in the first 12 months, and they don't even have displays in them yet, a key feature that many could argue questions the validity of their reference to even call them smart glasses. Apple also recently launched the Apple Vision Pro and sold out in even larger numbers at a much higher price point.
Paul J. Travers: Grant.
Grant Neil Russell: Thank you Paul.
Grant Neil Russell: As Ed mentioned the 10-K, we filed this afternoon with the SEC offers a detailed explanation of our annual financials.
Grant Neil Russell: So I'm just going to provide you a bit of color on some of the full year as well as quarterly numbers.
Grant Neil Russell: For the year ended December 31, 2023, Vuzix reported $12 1 million in total revenues as compared to 11.8 for the prior year.
Grant Neil Russell: Product sales increased by 2% year over year, driven by increased smart glasses revenues sales.
Grant Neil Russell: Sales of engineering services for the year increased 3% to $1 4 million from $1 3 million.
Grant Neil Russell: Please note as disclosed in our 10-K, we have a $2 $9 million worth of remaining performance obligations.
Grant Neil Russell: Over the revenues already recognized.
Under our current waveguide development project for the three months ended December 31, 2023, Vuzix reported $1 1 million in total revenues versus $2 9 million in the prior year's fourth quarter.
The revenue decline was primarily due to reduced unit sales of our M 400 smart glasses.
Grant Neil Russell: Please note the Q4 2023 revenue total.
Grant Neil Russell: Achieved was below the initially indicated.
Grant Neil Russell: Mount in early January.
Grant Neil Russell: Pursuant to our cost reduction press release update as one significant customer order had to remove from money that originally shipped in December 2023 into the 'twenty 'twenty four revenue year due to shipment and delivery issues discovered later during formal closing procedures for the full year ended December 30 <unk>.
Paul J. Travers: And although our enterprise-based product revenue line has not shown it just yet, our inbound new business pipeline is expanding nicely on many fronts and should result in us achieving that growth very soon. Vuzix has invested significant capital and other resources to create a foundation of key intellectual property that positions the company as one of the global leaders in the wearable computing and augmented reality smart glasses space. We have led much of the industry with the core technology development needed right through to addressing the enterprise markets in general.
Grant Neil Russell: <unk> 2023, there was an overall gross loss of $2 6 million as compared to a $1.5 million gross profit for 2022.
Grant Neil Russell: Included in 2020 Three's cost of sales was a $4.4 million inventory obsolescence reserve.
Grant Neil Russell: Well above the point $3 million.
Grant Neil Russell: Obsolescence reserves accrued in our 2022 fiscal year. The large additional inventory reserve amount was related to expected surplus component parts and obsolescence in excess of currently planned existing future build product builds in 2024 and in early 2025.
Paul J. Travers: Our growing focus on offering OEM and ODM solutions of optics and display engine components for the enterprise, defense, and broader consumer markets is readying us for the rapid growth we see coming with much of the investment and costs already realized. We are positioning to deliver to our customers and market in short order.
Grant Neil Russell: And all part of our planned transition to expected new smart glass models in 2025.
No finished goods have been included in this reserve.
Grant Neil Russell: And as a disposal value of these excess components that will not likely be used in future product models is unknown, 100% obsolescence provision was accrued.
Paul J. Travers: The advancement of our core technologies is becoming more evident every day in our products, wave guides, and micro display component solutions. Our Z100, which we introduced at CES this January 2024, is an innovative and unique AR smart glasses solution within the industry. It demonstrates the art of the possible with actual displays in small, fashionable form factors, one that others have yet to replicate and deliver today to either enterprise users or the broader consumer market.
Grant Neil Russell: Research and development expenses for 2023 fell 3% to $12 3 million as compared to $12 7 million for the 2022 period.
Grant Neil Russell: The decrease was largely due to a point $9 million reduction in external development and consulting expenses.
Grant Neil Russell: Partially offset by an increase in salary and benefits related expenses.
Grant Neil Russell: And at a point $4 million a.
Paul J. Travers: Our new waveguide megafactory, which was completed and became operational in late 2023, is a facility focused on high-volume manufacturing and the advancement of our waveguide technology. Again, the Wall Street Journal recently reported that roughly 300,000 Ray-Ban glasses were sold in 2023. Our plant floor could meet that volume demand today if, by way of example, Meta selected Vuzix to provide their waveguide needs for a similar product to their new Meta Ray-Bans and wanted to offer a more premium AI product with actual displays. And our partner Atomistic, from whom we have exclusively licensed microLED technologies and invested in, are on a good path that should result in achieving what we feel will be state-of-the-art breakthroughs Atomistics micro-LEDs have the potential to optimally deliver on the performance, size, and cost required for augmented and mixed reality products that we feel will be able to achieve substantial success in the mass market.
Grant Neil Russell: Accrual for severance related costs for staff reductions with took place in early January 2024.
Grant Neil Russell: Sales and marketing costs for all of 2023 rose, 57% to $12 7 million from $8 1 million in 2022 with the most significant factor has been.
Grant Neil Russell: A $2.1 million increase in salaries commissions and benefits related expenses driven by head count increases.
Grant Neil Russell: Point $4 million provision for staff reductions in this area, which took place in early January 2024, and an increased bad debt reserve allowance at $1.6 million and a point $6 million increase in advertising and trade show expenses.
Grant Neil Russell: General and administrative expenses for 2023 decreased 12% to $18 6 million as compared to $21 million for the 2022 period.
The decrease was largely due to a $2 $5 million decrease.
Grant Neil Russell: In noncash stock based compensation, primarily related to the company's 2021 long term incentive plan.
Grant Neil Russell: For the full year ended December 31, 2023, the net loss was $50 1 million or 79 cents per share as compared to a loss of $40 8 million or <unk> 64 cents per share for the full year of 2022.
Paul J. Travers: That demand could be well beyond the potential of the Meta Ray Bands, which today are simply audio-enabled sunglasses with a built-in camera. However, many believe they could ultimately match or exceed the number of smartphones used around the globe. Supporting these solutions from Vuzix is a comprehensive patent portfolio of more than 375 patents and patents pending, including a significant collection of fundamental waveguide design patents and applications, as well as extensive trade secrets regarding nanoimprinting, processes, equipment, and materials like polymers, adhesion promoters, and release agents that are critical to how we can produce in volume and at low cost to support the broader market.
Grant Neil Russell: Now for some balance sheet highlights our cash position as of December 31, 2023 was $26 6 million and we had a net working capital position of $36 3 million net.
Grant Neil Russell: Net cash flows used in operating activities was $26 3 million for the year ended December 31, 2023, as compared to $24 5 million for the 2022 year, an increase of $1.8 million.
Grant Neil Russell: Cash used for investing activities in 2023 was $19 3 million down from $21 2 million in 2022. Both of these amounts are well above our historical average for investments. The most significant components of this total investment.
Paul J. Travers: Lastly, Movient Software, which has finally been successfully ported over to the Vuzix Smart Glasses, is now leveraging artificial intelligence for item scanning and picking, and continues to gain traction in the back-end operations of warehouses and large manufacturing plants. According to Pluralsight, a leading technology workforce development company, by 2025, the top three transformative technologies for the global economy are going to be the ubiquitous internet, artificial intelligence, and augmented
Grant Neil Russell: Were $10 5 million in cash payments on further technology development payments pursuant to our exclusive micro OLED technology license agreement with atomistic and a $2.5 million investment in the preferred shares of atomistic purchase from its shown founders.
Grant Neil Russell: And $5 3 million for purchase of manufacturing equipment, and leasehold improvements expenditures primarily related to our wave guide plant.
Paul J. Travers: The stage is set for AI-enabled AR smart glasses, and this is why almost every major tech firm has development programs happening in all three areas. The investments we have made in our core technologies and application ecosystems, we feel are critical to preparing the company for the next phase of growth coming from the augmented reality smart glasses industry. The Z100, running 48 hours on a single charge, packs industry-defining, heads-up waveguide technology and a custom micro-LED display engine into a sleek, fashionable form factor that weighs in at just 38 grams, the weight of a standard pair of eyeglasses.
Expansion project.
Grant Neil Russell: We are presently envisioning spending significantly less on investments in 2024, as our new and expanded waveguide manufacturing facility was completed in late 2023.
Grant Neil Russell: Looking forward to the balance of 'twenty 'twenty four we are addressing certain operational challenges highlighted as follows reducing our operating costs by further operating cost reductions in head count braces to better rightsize, our cost in relation to our planned revenues delay or a curtailed discretionary and nonessential capital.
Grant Neil Russell: <unk> not related to near term new products in R&D as mentioned in our 10-K filing the probable implementation of a voluntary cash salary reduction program in exchange for equity instruments are offered to all salaried employees and management.
Paul J. Travers: For enterprise users, they represent the first attractive, functional bridge between AI platform tools and the user's external world, where situational guidance can streamline workflows for human workers who can reap the benefits of a truly connected workplace. In addition to a lightweight AI interface, the Z100 glasses can augment the data feed from wirelessly connected finger scanners, sensors, controllers, and other equipment, making that data available in a new and highly accessible format. For the broader market, there is a transferable customer base that needs a better solution.
Grant Neil Russell: We are also actively pursuing licensing and strategic opportunities around waveguide technologies with potential Oems.
Grant Neil Russell: Which include the receipt of upfront licensing fees.
Grant Neil Russell: And ongoing supply agreements as Paul mentioned, some potential strategic investments.
Grant Neil Russell: As most of you are aware we are in the process of going effective with our new S. Three shelf registration statement with the SEC as Vuzix has found it prudent to have one in place over the past many years.
Paul J. Travers: There are 1.6 billion smartphones and 300 million smartwatches sold annually, and the biggest use cases are notifications, social media, and soon mobile AI connected to the world around you. Products like the Z100 have the potential to provide heads-up, hands-free access to notifications, alerts, and other location-aware information, from language translation to closed captioning, to directions, to health and workout status, to messaging, and much more.
Grant Neil Russell: The new S. Three includes a provision for an ATM or at the market offering with an investment banking firm to raise capital on the best terms if favorable market conditions develop.
Grant Neil Russell: And as pointed out in our recent 10-K Theres a cautionary going concern note to our financial statements that projecting our cash needs out over the next 12 months.
Grant Neil Russell: There is possible financial uncertainty related to the full alleviation of all our current going concern risks.
Paul J. Travers: And also to integrate the latest local and cloud-based AI engines coming from several of the larger known brands in social media and streaming. The bottom line is that Z100 has been enthusiastically received and will be successful in advancing the industry and opening up new doors for Vuzix OEM and ODM opportunities with our reference designs and integration opportunities with some consumer-centric software companies, and we are planning to continue this theme with the broader markets into the fall of the year.
Grant Neil Russell: Management is confident based on its plan and history of managing its operations and successful capital raises over the past two decades that it can fully alive alleviate the financial risks over the next 12 months.
Grant Neil Russell: As a result, our financial statements have been prepared on a going concern basis. This presentation assumes that the company will continue normal business operations into the future.
Grant Neil Russell: However, as noted in our 10-K, the company's external auditors do not share the opinion that such financial risks are yet fully alleviated and and have included a cautionary note in that regard in their audit report. This is an opinion that management does not agree with.
Paul J. Travers: The new Vuzix waveguide factory is a state-of-the-art manufacturing plant that accomplishes several specific max market requirements, including increasing our waveguide build capacity and lowering our manufacturing costs. It is also allowing us to utilize the more advanced processes needed for our latest waveguide designs. Our production capacity can now be quickly ramped to deliver up to a million units annually with very little further investment.
Grant Neil Russell: And before concluding we would like to apologize to our stockholders for having to take advantage of the 15 day Grace period for the filing of our 10.
Grant Neil Russell: K for 2023 with the SEC.
Paul J. Travers: The new facility also allows Vuzix to focus on the advancement of waveguides utilizing higher index materials, advanced glass substrates, and unique waveguide configurations. Recently, Vuzix introduced incognito-enabled waveguides, which we believe is the first waveguide-based technology in the world to virtually eliminate forward eye glow when the displays are active. Eliminating eye glow is deemed by most to be a critical requirement for the broader consumer markets to accept smart glasses. We have demonstrated Vuzix Incognito privately in dark rooms with the lights out to leading consumer brands and defense contractors, much to their amazement and well-done statements.
As it should be evident to most there were a variety of issues assumptions and extra efforts required to properly prepare our financial statements and complete our external audit to the satisfaction of all relevant parties. We expect this delay will not be repeated again in the near future.
With that I would like to turn the call call back over to Paul.
Thank you grant.
Paul J. Travers: With that I would like to now turn the call back over to the operator for Q&A.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Paul J. Travers: A confirmation tone will indicate your line is in the question queue. You May Press Star 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.
Paul J. Travers: And of course, how the heck... Vuzix incognito technology manages internal light reflections and forward light leakage within a waveguide, which, besides the obvious of removing the annoying forward light, results in improved contrast of virtual images in the AR glass.
Paul J. Travers: One moment, please while we poll for questions.
Paul J. Travers: Incognito has been accomplished with no increase in our manufacturing cost per waveguide and will be targeted for introduction and differentiation of the company's defense and enterprise business, and of course, ultimately broader consumer applications for both Vuzix products and our OEM offerings. So, we all know that when it comes to smart glasses... One has to also address the fact that more than 60 percent of the population wears prescription glasses, and solving the challenges associated with delivering waveguides with integrated prescriptions is no small task.
Paul J. Travers: Okay.
Speaker Change: Thank you.
Speaker Change: Now be conducting a question and answer.
Speaker Change: If you would like.
Speaker Change: Thank you. Our first question comes from the line of Christian Schwab with Craig Hallum Capital.
Christian David Schwab: Please proceed with your question.
Christian David Schwab: Uh huh.
Christian David Schwab: Hey, guys. This is Tyler burmeister on behalf of Christian Thanks, So let us ask a few questions here.
Tyler Leroy Burmeister: Okay. So I guess you know first I guess, maybe just to kind of get to it.
Paul J. Travers: Vuzix is currently in the process of establishing the infrastructure to support the production of prescription-based waveguides, with a roadmap for scaled production thereafter. Multiple patents and patent spending are already in place related to the system processes and prescription integration. The prescription lens layer needs to be finished, trimmed, and integrated with the smart glasses waveguides, all of which must be conducted in controlled environments and, with our approach, can utilize most of the existing industry infrastructure for high-volume prescription glasses. We expect our integrated solutions can support the vast majority of prescriptions needed, including bifocals and astigmatism.
Tyler Leroy Burmeister: We're into April now you know Q1 its closed just a couple of weeks ago I'm sure books aren't finalized, but any color you can give us so far and you know kind of how Q1 shaped out maybe directionally what revenue.
Tyler Leroy Burmeister: It looks like as well as our cash balance.
Tyler Leroy Burmeister: Early view for Q1.
Speaker Change: I don't know if those grants wants to get into cash balances and stuff I can tell you that it will be an uptick from our Q4 numbers we believe.
Speaker Change:
And on the cash side, if it would generally sort of follow the last couple of quarters. So as far as net changes in our cash balances minus the the funds that were flowing out to atomistic for the license.
Paul J. Travers: Our recently announced Ophthalmic Advisory Board is providing strategic input, guidance, and recommendations regarding vision correction issues and how to better build products and services to meet customer vision requirements. Their efforts and contributions are helping Vuzix successfully do this. Again, these are all industry-leading developments, and the waveguides resulting from them, in terms of cost, scalability, and features, we feel are unmatched in the industry. Wave guys!
Speaker Change: Support.
So it's down a little but ill.
Speaker Change: Oh.
Speaker Change: Yeah.
Speaker Change: Bye bye and shouldnt be not be an unexpected amount.
Speaker Change: We don't burn.
Speaker Change: Yeah.
Sorry, Yeah, no fair enough.
Speaker Change: And then I guess you know maybe another one for grant could you help maybe just level set us these cost cutting efforts that you're making you know maybe you call it $8 million on an annual level Youre looking to reduce previously maybe how far along are you you into that or or what's the what's the baseline level, you know youre thinking that that eight months.
Paul J. Travers: All these features mentioned above represent an essential component needed for the widespread adoption of lightweight, AI-enabled smart glasses and other wearables. The other essential component for AI-enabled AR smart glasses is micro-LEDs. As we've discussed in the past, micro LEDs have the potential to be a driving force in providing the performance, size, and costs needed for AR, MR, and smart glasses to achieve success in the mass market. Micro LEDs have the potential to be much more efficient, requiring lower power to drive high brightness levels outdoors in the real world, with the resolution and form factor to enable a family of next-generation small, lightweight, fashion-forward smart glasses.
Speaker Change: Come off of just given some of these you know more.
Speaker Change: More onetime in nature expenses to you.
You know a couple of moving pieces that would maybe help level set everyone.
Speaker Change: I mean.
Speaker Change: We still standby the 8 million.
Speaker Change: Right annualized target I mean, I'm, not saying Q1.
Speaker Change: Some of the costs came in a little.
Speaker Change: Higher than than we'd hope to go to get all their it takes time to see.
Speaker Change: Slow down.
Speaker Change: The tanker, but you know, we're we're honestly looking at markets and we.
Speaker Change: We feel we can get our operating expenses.
Speaker Change: Under $20 million on an annual basis, and we'd love to get it closer to 15. So we're looking at potentially another 30% of.
Paul J. Travers: Over the past 24 plus months, Vuzix has invested approximately $30 million in developing advanced micro-LED display technologies, leveraging extensive atomistic SAS intellectual property, for which we have the option to continue to own the exclusive license outright and acquire the company. The current AR display device technology approach to micro-LEDs by others today primarily consists of using gallium nitride and gallium arsenide material systems. However, it has had ongoing challenges related to higher build costs, complicated manufacturing scalability, less power efficiency, and spectral performance when scaled to the micro sizes needed for smart glasses and other uses. Atomistic, in contrast, continues to make steady progress in the development of its unique micro-LED materials approach.
Speaker Change: Of cuts to operating expenses, you know, we'd like to try to implement in the next quarter.
Speaker Change: Well, while we wait for our business to accelerate as fast as we're all expecting.
Speaker Change: Okay, that's very helpful.
Speaker Change: I guess, maybe last one here Paul you know you said at least one potentially two or another one closely behind air defense.
Paul J. Travers: You know firms for their OEM opportunities they've been working for a while that you expect to ramp this year.
Paul J. Travers: Any any framework you can give us for what.
Paul J. Travers: Prudential financial terms that might look like or you know.
Paul J. Travers: What numbers might look like around that at all would be helpful.
Speaker Change: Yes, I can help you there there's actually.
Speaker Change: Four plus programs right now that are really active.
Paul J. Travers: This includes delivering against a number of pre-established development milestones in our exclusive license agreement. 6 out of 10 thus far. These milestones are related to the development and production of a singularly unique multi-chamber epitaxy machine used for both red, green, and blue, or RGB micro-LEDs, atomic level design, and ultimately into production. Development of Unique Doping Materials and Processes, expanded development and patent-related documentation of multiple material stack approaches to optimize the atomic pixel structure for increased efficiency for all three primary colors, and work on multiple unique methods of pixel
Speaker Change: There are two of them that are literally we're on the front end of delivering their very first production.
Speaker Change: Aces the kinds of use.
Speaker Change: Unit.
Speaker Change: Prices in the anywhere from 2500 to 5000 Bucks a system.
Speaker Change: And the kinds of volumes that we're talking about are similar 20 502.
Speaker Change: Upwards of 10000 pieces, they won't albeit once of course.
Speaker Change: But.
Speaker Change: We should.
Speaker Change: Knock on wood see one if not two of those programs start to roll this year.
Speaker Change: It's to the point, where they're out showing customers and the like we're getting very positive feedback. So it's right on the cusp of.
Paul J. Travers: We expect this progress to accelerate over the coming months with increased production of test samples and refinement of the initial design. As we make this progress, the ability to share more with third parties is now starting to crystallize, and we have been able to start engaging with select potential customers, investing partners, and organizations that have a vested interest in seeing microLED technology finally commercialized, including U.S. and international defense organizations, numerous well-known brands, and multinational commercialization and supply companies.
Speaker Change: Kicking off.
Speaker Change: Alright that sounds great.
Speaker Change: That's all for me guys I appreciate it.
Speaker Change: Thank you.
Our next question comes from the line of Aaron Martin with AIG investment Partners. Please proceed with your question.
Okay.
Aaron Martin: I apologize the start on the stressed earlier in the call when we had the technical difficulties but.
Paul J. Travers: Early feedback has been very positive thus far, with nearly all parties intently interested in seeing and potentially supporting a practical solution for high brightness and high efficiency with an approach that is clearly scalable at a competitive cost.
Aaron Martin: Can you guys talk a little more on the waveguide.
Aaron Martin: The facility in terms of.
What level does it have to be talked about being able to produce hundreds of thousands.
Aaron Martin: At what level does it have to get to to be at scale from a cost perspective.
Paul J. Travers: These early conversations regarding Atomistic's unique technical and production approach reconfirm the path we are on and the potential high return on our investment. Our current Enterprise Smart Glasses products are now being used around the clock in many warehouses to drive cost savings and efficiency. In healthcare, Vuzix glasses are being used around the globe to teach and perform surgeries. Vuzix smart glasses are also being used during equipment repairs and remote maintenance service calls. The list of use cases keeps growing as the enterprise industry matures, and, as we have expressed in the past, we continue to see much larger deployment opportunities on the horizon. This has not changed.
Well, let me, let me say Aaron that the facility right now is at the hundreds of thousands of level for production and theirs.
Aaron Martin: Very little new investments that we need to make.
Aaron Martin: Graduate that up to a million plus units annually.
Aaron Martin: I would also suggest that to get beyond that its not a big investment and we don't need to expand the facility and the process to do it we could probably out of the facility that we're in right now run three times those kinds of numbers. So we've said we're in a good spot to crank up production.
Aaron Martin: And in the investments, we think were well worth it.
Aaron Martin: We've talked about this facility getting you know the way it goes out at a cost point.
Paul J. Travers: We've entered 2024 with a solid pipeline of smart glasses and OEM sales opportunities. We feel this way because it is not concentrated across only a few customers, but instead, it is becoming more broad-based across industries, geographic regions, and use cases. The Vuzix team is looking forward to executing and delivering on what we feel should be a significant number of growth catalysts throughout the remainder of 2024. One area of broad focus for the entire industry, and, of course, for Vuzix, is artificial intelligence for many applications, including as a personal assistant for work or life management and entertainment.
Aaron Martin: My question is at what level of <unk>.
Aaron Martin: Of.
Aaron Martin: Do you have to be out with your existing capacity to get the cost the the per wave guide production costs down too.
The target levels.
Speaker Change: So first of all let me say that.
Speaker Change: I don't care who's out there trying to produce these right now if theyre, making them.
Speaker Change: 10000, geese quantities and prices are not going to be better than vuzix, if theyre, making them at a 100000, and we're making them out of 100000, they're not going to be better than vuzix. So wherever we are on the scale path that we're on.
Speaker Change: These other folks for the most part are so expensive.
Speaker Change: Honestly I don't even know how products are going to be able to go into the marketplace.
Paul J. Travers: We have multiple third-party ISVs in the enterprise space and Vuzix's own Moviant team planning to enable their AI-enabled offerings, ultimately through the use of smart glasses to leverage artificial intelligence for augmenting humans for picking, preventive maintenance, education, security, and language processing. We believe AI-equipped smart glasses will also have a meaningful impact in defense and, of course, with consumers.
Speaker Change: 200 to $500 kind of price points on where you guys.
Speaker Change: So even now when we're only making small unit volumes.
Speaker Change: We're highly competitive.
Speaker Change: That said.
Speaker Change: Even making 20000 pieces, we can be in the really nicely scaled kinds of volume places we don't give.
Speaker Change: Be careful how I say that because we're not sharing with everybody what those numbers are and how that all adds up because of course our.
Paul J. Travers: According to the survey, Revolutionizing Fulfillment Operations with Workforce Augmentation, created by Incisive, one of the leading insights firms for digital transformation leaders, 94 percent of businesses report a commitment to evolving the role of human labor in areas like automated warehouses and last mile delivery. In this context, there is a growing focus on technology that enhances, rather than replaces human capabilities. Reflecting this sentiment, a strong 69% of those surveyed agreed that wearable AR solutions that broaden the capabilities of their workers with AI optimizations, improved accuracy, and data-rich inputs will be central to warehouse operations in the coming years.
Speaker Change: Our margins on.
Speaker Change: A lot of People's business.
Speaker Change: But.
Speaker Change: It scales pretty easily.
Speaker Change: And to get a good price points.
Speaker Change: Okay, and then on the cost cutting measures you've talked about getting the operating expenses down to the $20 million.
Speaker Change: Is there a timeframe for that.
Russ.
Russ: Oh Wow.
Russ: David.
Russ: To accomplish that next round of cuts in the next quarter and I should stress that.
Russ: These are on a cash basis.
Russ: We do carry a pretty good burden.
Russ: Non stock non cash stock compensation related to the delta, but I mean.
Paul J. Travers: Again, our core waveguide and micro display projector technology in optics continues to gain traction in these markets, both as products and as well related to potential OEM and OEM reference designs for consumer smart glasses and in the trenches with our defense customers. We remain in ongoing discussions with multiple industry leaders to ideally provide them components, subsystems, and even full white label designs for their upcoming AR products. We believe our success with many of these firms is just a matter of time.
Russ: But on an annual basis I think by July 1st will be there and got it.
Russ: The team's going to.
Russ: Work hard to make some difficult decisions to do that without sacrificing our future.
Russ: In doing so.
Speaker Change: Okay, great. Thank you so much.
Speaker Change: Yeah.
Speaker Change: Thank you Eric.
Thank you there are no further questions at this time I'd like to turn the floor back over to Paul for closing comments.
Paul J. Travers: Thank you operator, I would like to thank everyone for your interest and participation on today's call. We will look forward to speaking with you again in May when we report our Q1 2024 quarterly results again have a nice evening everybody.
Paul J. Travers: In November of last year, Vuzix also signed an agreement with Quanta, one of the world's largest ODM suppliers on the planet with over $40 billion in annual revenues, to jointly supply these same components, with the goal to enable as many commercial customers as possible with AR finished goods solutions. This is an exciting new relationship for Vuzix and one that continues to evolve with initial glasses already being shown from Quanta using Vuzix waveguides and software to select key accounts.
Paul J. Travers: Okay.
Paul J. Travers: Yeah.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time.
Speaker Change: You for your participation.
Speaker Change: Yeah.
Speaker Change: Hum.
Paul J. Travers: On the defense side, and I know we have been expressing this for quite some time, we expect at least one of our customers, which to date has invested millions of dollars in prior NREs with Vuzix, to be rolling into production this year. And we feel there is a second customer right behind them. At the same time, our specialized waveguide R&D efforts are bearing new fruit and opening up new addressable markets in defense areas related to HUDs for armored vehicles, aircraft, and ultimately even ground forces.
Speaker Change:
Speaker Change:
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Paul J. Travers: We believe the competitiveness of our products and technologies is opening other accretive opportunities also. Vuzix is now actively working with select U.S. agencies to secure development grants to support their needs to have Vuzix as a strategic U.S. supplier of advanced technologies focused on our waveguides and microLEDs.
Speaker Change: Hum.
Speaker Change:
Speaker Change: [music].
Speaker Change: Hum.
Speaker Change: Hum.
Grant Neil Russell: Concurrently, we have growing relationships with leading industry players that are not only interested in working with Vuzix around our key technologies but are potentially interested in investing to better secure their access to them. Grant will now take you through our numbers, as well as provide some additional color regarding further organizational efficiencies and other matters. Thank you, Paul.
Speaker Change: [music].
Speaker Change: <unk>.
Speaker Change:
Speaker Change: [music].
Speaker Change:
Speaker Change: Hum.
Speaker Change: Hum.
Grant Neil Russell: As Ed mentioned, the 10K we filed this afternoon with the SEC offers a detailed explanation of our annual financials, so I'm just going to provide you with a bit of color on some of the full year as well as the quarterly numbers. For the year ended December 31, 2023, Vuzix reported $12.1 million in total revenues as compared to $11.8 million for the prior year. Product sales increased by 2% year-over-year, driven by increased smart glasses revenue.
Speaker Change:
[music].
Grant Neil Russell: Sales of engineering services for the year increased 3% to $1.4 million from $1.3 million. Please note, as disclosed in our 10-K, we have $2.9 million worth of remaining performance obligations over the revenue that is already recognized under a current waveguide development project. For the three-month end of December 31, 2023, Vuzix reported $1.1 million in total revenues versus $2.9 million in the prior year's fourth quarter. The revenue decline was primarily due to reduced unit sales of our M400 smart glasses.
Grant Neil Russell: Please note the Q4 2023 revenue total achieved was below the initially indicated amount in early January, pursuant to our cost reduction press release update as one significant customer order had to be moved from when it originally shipped in December 2023 into the 2024 revenue year due to shipment and delivery issues discovered later during formal closing procedures. For the full year ended December 31, 2023, there was an overall gross loss of $2.6 million as compared to a $1.5 million gross profit for 2022.
Grant Neil Russell: Included in 2023's cost of sales was a $4.4 million inventory obsolescent reserve, well above the $0.3 million in obsolescent reserves accrued in our 2022 fiscal year. The large additional inventory reserve amount was related to expected surplus component parts and obsolescence in excess of currently planned existing future build product builds in 2024 and in early 2025, and all part of our planned transition to expected new smart glass models in 2025. No finished goods have been included in this reserve.
Grant Neil Russell: And as the disposal value of these excess components that will not likely be used in future product models is unknown, a hundred percent obsolescent provision was made. Research and development expenses for 2023 fell 3% to $12.3 million as compared to $12.7 million for the 2022 period, largely due to a 0.9 million dollar reduction in external development and consulting expenses, partially offset by an increase in salary and benefits-related expenses, and a point four million dollars, accrual for severance-related costs for staff reductions which took place in early January 2024.
Grant Neil Russell: Sales and marketing costs for all of 2023 rose 57% to $12.7 million from $8.1 million in 2022, the most significant factors being a 2.1 million dollar increase in salary, commissions, and benefits-related expenses driven by headcount increases. $0.4 million provision for staff reductions in this area, which took place in early January 2024, and an increased bad debt reserve allowance of $1.6 million, and a $0.6 million increase in advertising and trade Joe expenses. General and administrative expenses for 2023 decreased 12% to $18.6 million as compared to $21 million for the 2022 period.
Grant Neil Russell: The decrease was largely due to a 2.5 million dollar decrease in non-cash stock-based compensation, primarily related to the company's 2021 long-term incentive. For the full year ended December 31st, 2023, the net loss was $50.1 million or $0.79 per share as compared to a loss of $40.8 million or $0.64 per share for the full year of 2022. Now for some balance sheet highlights. Our cash position as of December 31, 2023 was $26.6 million, and we had a net working capital position of $36.3 million.
Grant Neil Russell: Net cash flows used in operating activities was $26.3 million for the year end of December 31, 2023 as compared to $24.5 million for the 2022 year, an increase of $1.8 million. Cash used for investing activities in 2023 was $19.3 million, down from $21.2 million in 2022.
Grant Neil Russell: Both these amounts are well above our historical average for investments. The most significant components of this total investment were $10.5 million in cash payments on further technology development payments pursuant to our exclusive micro-LED technology license agreement with Atomistic and a $2.5 million investment in the preferred shares of Atomistic purchased from its founders, and $5.3 million for purchases of manufacturing equipment and leasehold improvements expenditures primarily related to our waveguide plant expansion projects.
Grant Neil Russell: We are presently envisioning spending significantly less on investments in 2024 as our new and expanded waveguide manufacturing facility is completed in late 2023. Looking forward to the balance of 2024, we are addressing certain operational challenges highlighted as follows. Reducing our operating costs by further operating cost reductions and headcount reductions to better right-size our costs in relation to our planned revenues. Delay or curtail discretionary and non-essential capital expenditures not related to near-term new products and R&D.
Grant Neil Russell: As mentioned in our 10-K filing, the probable implementation of a voluntary cash salary reduction program in exchange for equity instruments offered to all salaried employees and management. We are also actively pursuing licensing and strategic opportunities around waveguide technologies with potential OAMs, which include the receipt of upfront licensing fees, and ongoing supply agreements. As Paul mentioned, some potential strategic investments. As most of you are aware, we are in the process of going effective with our new S3 shelf registration statement with the SEC, as Vuzix has found it prudent to have one in place over the past many years. The new SRE includes a provision for an ATM or at-the-market offering with an investment banking firm to raise capital on the best terms if favorable market conditions develop.
Grant Neil Russell: And as pointed out in our recent 10K, there's a cautionary going concern note to our financial statements projecting our cash needs out over the next 12 months. Although there is possible financial uncertainty related to the full alleviation of all our current going concern risks, management is confident, based on its plan and history of managing its operations and successful capital raises over the past two decades, that it can fully alleviate those financial risks over the next 12 months.
Grant Neil Russell: As a result, our financial statements have been prepared on a going concern basis. This presentation assumes that the company will continue normal business operations into the future. However, as noted in our 10-K, the company's external auditors do not share the opinion that such financial risks are yet fully alleviated and have included a cautionary note in that regard in their audit report. This is an opinion that management does not agree with.
Grant Neil Russell: And before concluding, we would like to apologize to our stockholders for having to take advantage of the 15 day grace period for the filing of Form 10K for 2023 with the SEC. As it should be evident to most, there were a variety of issues, assumptions, and extra efforts required to properly prepare our financial statements and complete our external audit to the satisfaction of all relevant parties.
Paul J. Travers: We expect this delay will not be repeated again in the near future. With that, I would like to turn the call back over to Paul. Thank you, Grant. With that, I would now turn the call back over to the operator for Q&A. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is busy. You may press star 2 if you would like to remove your question from the queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Christian Schwab with Craig Hallam. Please proceed with your questions. Hey guys, this is Tyler Burmeister on behalf of Christian.
Operator: Thanks for letting us ask a few questions here. So, I guess, you know, first, I guess maybe just to kind of get to it, you know, we're into April now, you know, Q1 it's, you know, closed just a couple weeks ago. I'm sure books aren't, you know, finalized.
Tyler Leroy Burmeister: But, you know, any color you can give us so far and, you know, kind of how Q1 shakes out, maybe directionally, what revenue looks like as well as a cash balance, you know, an early view for Q1. I don't know if Grant wants to get into cash balances and stuff. I can tell you that it will be an uptick from our Q4 numbers, we believe. And on the cash side, it would generally sort of follow the last couple of quarters as far as net changes in cash balances are concerned, minus the funds that were flowing out to Atomistic for the license support. So it's down a little, but, you know, you'll... and should not be an unexpected amount. All right, we're done. Fair enough.
Paul J. Travers: Could you help level set us these cost-cutting efforts that you're making, maybe you call it $8 million on an annual level you're looking to reduce previously, maybe how far along are you into that or what's a baseline level you're thinking that that $8 million has come off of, just given some of these more one-time in nature expenses, a couple of moving pieces, I mean... We still stand by the $8 million sort of annualized target. I mean, I'm not saying Q1, some of the costs came, you know, in a little.., harder than we'd hoped, because it takes time to slow down the tanker, but we're honestly looking at more cuts, and we feel we can get our operating expenses under $20 million on an annual basis, and we'd love to get it closer to $15 million, so we're looking at potentially another 30% of.., of cuts to operating expenses, you know, we'd like to try to implement in the next quarter, while we wait for our business to accelerate as fast as we're all expecting.
Paul J. Travers: Okay, that's very helpful. I guess maybe the last one here, Paul, you said at least one potentially, you know, two or another one closely behind air defense, you know, firms for their OEM opportunities they've been working on for a while that you expect to ramp up this year. Any, you know, framework you can give us for what, you know, potential financial terms that might look like, or, you know, what numbers might look like around that at all would be helpful.
Paul J. Travers: Yes, I can help you there. [inaudible] It's anywhere from $2,500 to $5,000 a system, and the kinds of volumes that we're talking about are somewhere $2,500 to $5,000, upwards of 10,000 pieces. They won't all be at once, of course. But we should, knock on wood, see one if not two of those programs start to roll this year.
Tyler Leroy Burmeister: It's to the point where they're out showing customers and the likes, and they're getting very positive feedback, so it's right on the cusp of kicking off. Alright, that sounds great. That's all from me, guys. Appreciate it.
Operator: Our next question comes from the line of Aaron Marden with AIGH Investment Park. Please proceed with your question. I apologize, the start button was pressed earlier in the call when we had the technical difficulty, but um... Can you guys talk a little more about the waveguide, you know, the big facility in terms of at what level does it have to, you talked about being able to produce hundreds of thousands, at what level does it have to get to to be at scale from a cost perspective?
Operator: Let me say, Aaron, that the facility right now is at the hundreds of thousands level for production, and there's very little new investment that we need to make to graduate that up to a million-plus units annually. I would also suggest that to get beyond that, it's not a big investment, and we don't need to expand the facility in the process to do it. We could probably run three times those kinds of numbers out of the facility that we're in right now.
Operator: We're set. We're in a good spot to crank up production. And the investments, we think, were well worth it. You know, we talked about this facility getting the waveguides out at a cost point that's dramatically lower than anyone else. My question is, at what level of build do you have to be out with your existing capacity to get the cost, the, the per waveguide production cost down to, you know, the target levels?
Aaron Marden: Yes, so first of all, let me say that. I don't care who's out there trying to produce these right now; if they're making them in 10,000 piece quantities, their prices are not going to be better than Vuzix. If they're making them at 100,000, and we're making them at 100,000, they won't be better than Vuzix.
Paul J. Travers: So wherever we are on the scale path that we're on, these other folks, for the most part, are so expensive that, honestly, I don't even know how products are going to be able to compete. So even now, when we're only making small unit volumes, we're highly competitive. Like I said, you know, even making 20,000 pieces, we can be in the really nicely scaled kinds of volume prices. We don't give... I want to be careful how I say that because we're not sharing with everybody what those numbers are and how that all adds up, because, of course... Our margins aren't a lot of people's business. It scales pretty easily and gets to good price points.
Aaron Marden: Okay, and then on the cost-cutting measures, you talked about getting the operating expenses down to, you know, let's say $20 million. Is there a time frame for that? Ruff, Our goal, well, would be to accomplish the next round of cuts in the next quarter. And I should stress that these are on a cash basis, so, you know, we do carry a pretty good burden of non-stock, non-cash stock compensation related to the LTIP. But I mean, on an annual basis, I think by July 1st, we'll be there.
Grant Neil Russell: And, you know, the team's going to work hard to make some difficult decisions to do that without sacrificing our future in doing so. Okay, great. Thank you so much. Thank you, Aaron. Thank you. There are no further questions at this time. I'd like to turn the floor back over to Paul for closing comments.
Paul J. Travers: Thank you, operator. I would like to thank everyone for their interest and participation on today's call. We will look forward to speaking with you again in May when we report our Q1 2024 quarterly results. Again, have a nice evening, everybody. Bye. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.