Q2 2024 Vuzix Corp Earnings Call

Speaker Change: [inaudible] 🎼🎼🎼 🎼🎼🎼

Speaker Change: Release of the State of Missouri Release of the state of Missouri $2 trillion in public money The End

Operator: music plays music plays music plays music plays music plays music plays Greetings and welcome to the Vuzix second quarter for the period ending June 30th, 2024 financial results and business update conference call. At this time, all participants are in a listen only mode.

Speaker Change: Greetings and welcome to the music second quarter for the period ending June 30th 2024 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.

Operator: A brief question and answer session will follow the formal presence. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this call is being recorded. And now I will turn the call over to Ed McGregor, Director of Investor Relations at Vuzix. Thank you, Mr. McGregor.

Speaker Change: If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this call is being recorded. And now I will turn the call over to Ed McGregor, Director of Investor Relations at Vuzix.

Ed McGregor: You may begin. Thank you, operator, and good afternoon, everyone. Welcome to the Vuzix second quarter 2024 ending June 30th financial results and business update conference call. 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 may make additional forward-looking statements during the question and answer session.

Ed McGregor: Thank you, Mr. McGregor. You may begin.

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. 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.

Speaker Change: Thank you, Operator, and good afternoon, everyone. Welcome to the Vuzix Second Quarter 2024 ending June 30th Financial Results and Business Update Conference Call. With us today are Vuzix CEO Paul Travers and our CFO Grant Russell.

Ed McGregor: In addition, any projections as to the company's future performance represent management's estimates as of today, August 14th, 2024, assumes no obligation to update these projections in the future as market conditions change. This afternoon the company issued a press release announcing its QQ 2024 financial results and filed its 10Q 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 only provide a summary of the results discussed on today's call.

Ed McGregor: Today's call may include certain non-GAAP financial measures. When required, reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in the company's filing at sec.gov, which is also available at www.vuzix.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. We'll provide an overview of the company's second quarter financial results, after which we will move on to the Q&A session. Thank you, Ed.

Paul Travers: Hello, everyone, and welcome to the Vuzix Q2 2024 conference call, a high-performance waveguide that can be produced in the millions at optimal price points is a critical enabling component for the next generation of smart glasses for the consumer and enterprise market. We believe there is not a company on the planet better positioned in this regard than Vuzix. Our unique competitive core competencies of extensive waveguide design capability and production scalability, competitive cost, and volume manufacturing have been forged from well over a decade of product evolution and technology investment and development in this space.

Paul Travers: Our conviction, which is stronger than it's ever been, is that Vuzix will play a key role in the supply chain plans of many global product suppliers that intend to compete in the smart glasses industry. We believe our ability to offer and support custom optical and mechanical designs for OEMs and ODMs, and then ultimately produce millions of waveguides to support the broad consumer and enterprise markets, is game changing. It's important for investors to realize that we have built a world-class capability around the core technologies and manufacturing facilities needed for design through high-volume production waveguides, a very difficult component in the supply chain for the coming AI-driven smart glasses market.

Ed McGregor: Before I turn the call over to Paul, I would like to remind you that on this call, management's prepared remarks may contain forward-looking statements which are subject to risks and uncertainties and management may make additional forward-looking statements during the question and answer session.

Paul Travers: Without solutions like those that Vuzix can offer, the broader smart glasses market, especially for consumer, will be significantly challenged. We believe there is currently nobody else in the market that can deliver the needed waveguides at the rates and at the same time hit the quality and costing models required to meet consumer expectations. We fully understand our cast position and concerns that some of you may have in this regard.

Paul Travers: I want you to know we are actively working to close, with strategic partners, a deal that will provide manufacturing assets and value for our partner, and provide Vuzix with cash and market access. They understand the challenges to high-volume smart glasses manufacturing and believe Vuzix can play a key role in supporting their plans for product development and manufacturing in the smart glasses industry. This sort of commitment to Vuzix would be substantial and part of a multi-year supply strategy that will be game changing for us and the broader industry. We're hopeful we can share more about this relationship in the very near future.

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.

Speaker Change: Actual results can differ materially from those contemplated by any forelooking statements as a result of certain factors including but not limited to general economic and business conditions, competitive factors, changes of business strategy or development plans.

Speaker Change: The ability to attract and retain qualified personnel, as well as changes in legal and regulatory requirements.

Speaker Change: In addition, any projections as to the company's future performance represent management's estimates as of today, August 14, 2024.

Speaker Change: Vuzix assumes no obligation to update these projections in the future as market conditions change.

Speaker Change: This afternoon the company issued a press release announcing its Q Q2 024 financial results and filed its 10-Q at 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 only provide a summary of the results discussed on today's call.

Speaker Change: Today's call may include certain non-GAAP financial measures. When required, reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in the company's filing at sec.gov, which is also available at www.vuzix.com.

Paul Travers: 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 second quarter financial results, after which we will move on to the Q&A session.

Paul Travers: Back with an IP portfolio approaching 400 patents and patents pending, almost double the level of just three years ago, we are on a continual path of innovation. The innovation that is required for the market to evolve with previously stated optical capabilities for see-through waveguides like incognito. Integrated Vision Correction.

Paul Travers: Paul Travers.

Paul Travers: Thank you, Ed. Hello, everyone, and welcome to the Vuzix Q2 2024 conference call.

Paul Travers: Low-index, high-performance materials, and a second-to-none production facility with unique Vuzix-developed process capabilities and trade secrets. The MicroTouch production process improvement just announced this week will further distance our production speeds, yields, and volume capabilities relative to other would-be industry competitors. The consumer smart glasses era is just about to commence, and we clearly believe our WaveGuide technology is a cornerstone component to enabling mass adoption. Meta's CEO predicted a future where hundreds of millions of people are regularly wearing AI-powered smart glasses. What Vuzix has here is unique.

Speaker Change: A high-performance waveguide that can be produced in the millions at optimal price points is a critical enabling component for the next generation of smart glasses for the consumer and enterprise markets. We believe there is not a company on the planet better positioned in this regard than Vuzix.

Paul Travers: The ability to produce waveguides in volume at a fraction of the cost of our competitors is again a game changer. And unlike that of most others, our waveguide technology is flexible and can support a large array of optical capabilities and industrial designs for smart glasses products. Our current facility has the capability to drive capacity to as much as a million units annually and is scalable beyond this level with minimal investment and operating costs.

Speaker Change: Our unique competitive core competencies of extensive waveguide design capability and production scalability, competitive cost and volume manufacturing have been forged from well over a decade of product evolution and technology investment and development in this space.

Paul Travers: These are just some of the reasons why third parties are interested in investing in Vuzix and why we are excited about these potential partnerships to help make this happen. The micro display to drive the image into the waveguide is the second most critical component for smart glasses.

Paul Travers: Today there are multiple companies working on new, very compact, Elkos-based display projection engines. They will be a great option until either efficient full-color micro-LEDs or other display technologies arrive on the scene, which practically could be several more years. Knowing that the fashion-forward smart glasses opportunity is right around the corner, there are a couple of handfuls of companies investing in these Elkos solutions, and it is interesting to note that many of them, like our recent announcement with Abagant, are now working with Vuzix for a viable source of supply for cost-effective waveguides that can be delivered in volume and perform to end customer expectations.

Speaker Change: Our conviction, which is stronger than it's ever been, is that Vuzix will play a key role in the supply chain plans of many global product suppliers that intend to compete in the smart glasses industry.

Paul Travers: Our OEM business opportunities remain robust. We have a backlog of business to deliver against, and we expect at least one of our defense contractors and one of our commercial enterprise customers to move into production later this year. Our partnership with Garmin, with whom we are developing waveguide-based optical systems with full custom projection engines, is another milestone relationship. These products will power solutions for Garmin that will help them to offer significant cost, form factor, and space savings versus current deployed technology.

Paul Travers: On the waveguide manufacturing front, we will continue to implement process improvements as we prepare to ramp production capabilities to support underlying demand from partners and the broader market. As the industry increasingly views Vuzix as a waveguide supplier of choice, more and more projection engine partners are lining up discussions and programs to partner with us. And again, we recently announced a collaboration with Avigant to develop optimized waveguide optical modules for use in future AI-enabled smart glasses, and we have a handful of other unannounced relationships currently underway.

Speaker Change: We believe our ability to offer and support custom optical and mechanical designs for OEMs and ODMs and then ultimately produce millions of waveguides to support the broad consumer and enterprise markets is game changing.

Paul Travers: All of these firms realize that their display projectors can't stand alone. They must be paired with the best waveguide solutions available to optimize the end-wearer's viewing experience, most importantly, ones that can allow finished products to be produced in high volumes at affordable prices. Our uniqueness in this space cannot be underestimated.

Speaker Change: It's important for investors to realize that we have built a world-class capability around the core technologies and manufacturing facilities needed for design through high-volume production waveguides, a very difficult component in the supply chain for the coming AI-driven smart glasses market.

Paul Travers: Cognizant of our cost competitiveness and cash needs, our strategy will be to utilize third-party manufacturers for select Vuzix-branded and OEM products based on projected volumes and costs. Of course, this will not include our defense products, nor our waveguide manufacturing, which is planned for production right here in Rochester, New York. The enterprise market continues to be challenged just yet, as the market slowly matures. Deploying whole product smart glasses solutions in an industrial environment has proven to be a journey involving pilots, software, IT integration, and ROI determination, among other things.

Paul Travers: That said, we have a nice pipeline of business opportunities and we have a number of enterprise accounts that are on a path to volume deployment of our smart glasses and solution within their operations to deliver improved productivity, lower onboarding times, and fewer errors. Although we are refocusing ourselves, as I said, to waveguides and OEMs, we also remain committed to our network of ISVs and resellers and to our end customers. These use case ecosystems continue to evolve with emerging applications, such as artificial intelligence, transcription, and language transcription.

Paul Travers: Moreover, as was the case with cell phones and tablets, we believe advancements and volume penetration in the broader markets will also help attract and accelerate wider enterprise adoption in due course. At the same time, we absolutely recognize the importance of liquidity and cash management. And as a result, Vuzix has made significant reductions across the board to right size our organization to deliver top line revenue without losing sight of our core technology expirations on the R&D side of the house.

Speaker Change: Without solutions like those that Vuzix can offer, the broader smart glasses market, especially for consumer, will be significantly challenged.

Speaker Change: We believe there is currently nobody else in the market that can deliver the needed waveguides at the rates and at the same time hit the quality and costing models required to meet consumer expectations.

Speaker Change: We fully understand our cast position and concerns that some of you may have in this regard. I want you to know we are actively working to close, with strategic partners, a deal that will provide manufacturing assets and value for our partner and provide Vuzix with cash and market access.

Paul Travers: And as I mentioned previously, we are working to close with strategic partners a deal that would provide manufacturing access and value for our partner and provide Vuzix with cash and market access. Grant will now take you through our numbers, after which we will move on to Q&A. Grant. Thank you, Paul.

Grant Russell: As Ed mentioned, the 10Q 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. Our second quarter 2024 revenues was $1.1 million down substantially year over year due to decreased sales of smart glasses, particularly our M400, which have benefited in the prior year's period from a very large order from an Asian distributor in our second quarter of 2023.

Speaker Change: They understand the challenges to high-volume smart glasses manufacturing and believe Vuzix can play a key role in supporting their plans for product development and manufacturing in the smart glasses industry.

Speaker Change: This sort of commitment to Vuzix would be substantial and part of a multi-year supply strategy that will be game-changing for us and the broader industry.

Speaker Change: We're hopeful we can share more about this relationship in the very near future.

Speaker Change: Back with an IP portfolio approaching 400 patents and patents pending, almost double the level of just three years ago, we are on a continual path of innovation.

Speaker Change: The innovation that is required for the market to evolve with previously stated optical capabilities

Speaker Change: Integrated Vision Correction, Low Index, High Performance Materials, and a second-to-none production facility with unique, Vuzix-developed process capabilities and trade secrets.

Speaker Change: The MicroTouch production process improvement just announced this week will further distance our production speeds, yields, and volume capabilities relative to other would-be industry competitors.

Speaker Change: The consumer smart glasses era is just about to commence and we clearly believe our waveguide technology is a cornerstone component to enabling mass adoption.

Medicine: Meta's CEO predicted a future where hundreds of millions of people are regularly wearing AI-powered smart glasses.

Speaker Change: What Vuzix has here is unique.

Speaker Change: The ability to produce waveguides in volume at a fraction of the cost of our competitors is, again, a game-changer. And unlike that of most others, our waveguide technology is flexible and can support a large array of optical capabilities and industrial designs for smart glasses products.

Speaker Change: Our current facility has the capability to drive capacity to as much as a million units annually and is scalable beyond this level with minimal investment and operating costs.

Speaker Change: These are just some of the reasons why third parties are interested in investing in Vuzix and why we are excited about these potential partnerships to help make this happen.

Speaker Change: The micro display to drive the image into the waveguide is the second most critical component for smart glasses.

Speaker Change: Today, there are multiple companies working on new, very compact, L-cost based display projection engines.

Speaker Change: They will be a great option until either efficient full-color micro-LEDs or other display technologies arrive on the scene, which practically could be several more years.

Speaker Change: Knowing that the fashion-forward smart glasses opportunity is right around the corner.

Speaker Change: There are a couple of handfuls of companies investing in these LCOST solutions.

Speaker Change: And it is interesting to note that many of them

Speaker Change: like our recent announcement with Abigant, are now working with Vuzix for a viable source of supply for cost-effective waveguides that can be delivered in volume and performed to end customer expectations.

Speaker Change: Our OEM business opportunities remain robust. We have a backlog of business to deliver against, and we expect at least one of our defense contractors and one of our commercial enterprise customers to move into production later this year.

Speaker Change: Our partnership with Garmin, with whom we are developing waveguide-based optical systems with full custom projection engines, is another milestone relationship.

Speaker Change: These products will power solutions for Garmin that will help them to offer significant cost, form factor, and space savings versus current deployed technologies.

Speaker Change: On the waveguide manufacturing front, we will continue to implement process improvements as we prepare to ramp production capabilities to support underlying demand from partners and the broader markets.

Speaker Change: As the industry increasingly views Vuzix as a waveguide supplier of choice, more and more projection engine partners are lining up discussions and programs to partner with us.

Speaker Change: And again, we recently announced a collaboration with Avigant to develop optimized waveguide optical modules for use in future AI-enabled smart glasses, and we have a handful of other unannounced relationships currently underway.

Speaker Change: All of these firms realize that their display projectors can't stand alone. They must be paired with the best waveguide solutions available to optimize the end wearer's viewing experience.

Speaker Change: Most importantly, ones that can allow finished products to be produced in high volumes at affordable prices. Our uniqueness in this space cannot be underestimated.

Speaker Change: Cognizant of our cost competitiveness and cash needs, our strategy will be to utilize third-party manufacturers for select Vuzix-branded and OEM products based on projected volumes and costs.

Speaker Change: Of course, this will not include our defense products nor our wave guide manufacturing which is planned for production right here in Rochester, New York.

Speaker Change: The enterprise market continues to be challenged just yet, as the market slowly matures. Deploying whole product smart glasses solutions in an industrial environment has proven to be a journey involving pilots, software, IT integration, and ROI determination, among other things.

Speaker Change: That said, we have a nice pipeline of business opportunities, and we have a number of enterprise accounts that are on a path to volume deployment of our smart glasses and solution within their operations to deliver improved productivity, lower onboarding times, and fewer errors.

Speaker Change: Although we are refocusing ourselves, as I said, to waveguides and OEMs, we also remain committed to our network of ISVs and resellers and to our end customers.

Speaker Change: These use case ecosystems continue to evolve with emerging applications such as artificial intelligence,

Speaker Change: Transcription and Language Transcription. Moreover, as was the case with cell phones and tablets, we believe advancements and volume penetration in the broader markets will also help attract and accelerate wider enterprise adoption in due course.

Vusics: At the same time, we absolutely recognize the importance of liquidity and cash management. And as a result, Vuzix has made significant reductions across the board to right-size our organization to deliver top-line revenue without losing sight of our core technology aspirations on the R&D side of the house.

Vusics: And as I mentioned previously, we are working to close with strategic partners a deal that would provide manufacturing access and value for our partner and provide music with cash and market access.

Vusics: Grant will now take you through our numbers after which we will move on to Q&A

Vusics: Grant?

Grant: Thank you, Paul. As Ed mentioned, the 10Q 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.

Grant: Our second quarter 2024 revenues was $1.1 million, down substantially year over year due to decreased sales of smart glasses, particularly our M400, which had benefited in the prior year's period from a very large order from an Asian distributor in our second quarter of 2023.

Grant Russell: Engineering Service Sales were $0.5 million for the three months ended June 30th, 2024, versus 0.3 million in the prior year's period. As of June 30, 2024, the company had 2.4 million remaining performance obligations under a waveguide development project, of which approximately 18% we expect to realize in 2024, with the remainder being completed in 2025. There was an overall gross loss of $0.3 million for the three months ended June 30th, 2024, as compared to a gross profit of $1 million for the same period in 2023. The gross loss was the result of lower revenues to absorb many of our relatively fixed manufacturing and plant overhead costs.

Grant: Engineering service sales were 0.5 million for the three months ended June 30th 2024.

Grant: versus 0.3 million in the prior year's period. As of June 30, 2024, the company had 2.4 million of remaining performance obligations under a waveguide development project, of which approximately 18 percent we expect to realize in 2024, with the remainder being completed in 2025.

Grant: There was an overall growth loss of $0.3 million for the three-month end of June 30, 2024, as compared to a gross profit of $1 million for the same period in 2023. The gross loss was the result of lower revenues to absorb many of our relatively fixed manufacturing and planned overhead costs.

Grant Russell: These manufacturing overhead costs as a percent of total product sales increased to 42% from 8% for the same period, in 2023 as a result. Research and development expense was $2.4 million for the three month end of June 30th, 2024, compared to $2.8 million for the comparable 2023 period, a decrease of approximately 17%. The reduction in R&D expense was largely due to a $0.3 million decrease in external development costs and a $0.2 million drop in salary and benefit related expenses after FERS or severance costs implemented at the end of June.

Grant: These manufacturing overhead costs as a percent of total product sales increased to 42% from 8% for the same period.

Grant: in 2023 as a result.

Grant: Research and development expense was $2.4 million for the three months into June 30, 2024, compared to $2.8 million for the comparable 2023 period, a decrease of approximately 17%.

Grant: The reduction in R&D expense was largely due to a $0.3 million decrease in external development costs and a $0.2 million drop in salary and benefit-related expenses after further severance costs implemented at the end of June .

Grant Russell: Sales and marketing expense was $2.2 million for the three months ended June 30th, 2024, as compared to $2.5 million in the same period, of 2023, a decrease of approximately 11%. The reduction was primarily due to lower advertising and trade show spending and reduced salary and benefits expense, partially offset by an increase in allowance for credit losses and further separate costs implemented at the end of June.

Grant: Sales and marketing expense was $2.2 million for the three months end of June 30, 2024, as compared to $2.5 million in the same period.

Grant: of 2023, a decrease of approximately 11 percent. The reduction was primarily due to lower advertising and trade show spending and reduced salary and benefits expense, partially offset by an increase in allowance for credit losses and further severance costs implemented at the end of June.

Grant Russell: General and administrative expenses for the three months into June 30th, 2024 were $4.5 million versus $4.3 million for the comparable 2023 period, an increase of approximately 5%. The rise was primarily due to a $0.3 million increase in accounting and audit fees related to finalizing our 2023 audit and increased legal costs related to our S3 filing. Included in our operating expenses for the three months ended June 30th, 2024 with an uncashed charge of $30.1 million related to the impairment of intangible assets and our equity investment anatomistic.

Grant: General and Administrative Expenses for the three months into June 30th, 2024 was $4.5 million versus $4.3 million for the comparable 2023 period, an increase of approximately 5%.

Speaker Change: The rise was primarily due to a $.3 million increase in accounting and audit fees related to finalizing our 2023 audit and increased legal costs related to our S3 filing.

Speaker Change: Included in our operating expenses for the three months ended June 30th, 2024, was an uncast charge of $30.1 million related to the impairment of intangible assets and our equity investment anatomistic.

Grant Russell: Adamistic exercised on, July 1st, 2024 is optioned to terminate its previously granted license related to certain micro LED technologies it was developing and as a result of the termination of the granted license which was effective June 30th, 2024. The company determined that the technology license asset having a net book value of 24.3 million had been fully impaired as a company no longer had exclusive licensing rights to the technology for its use.

Speaker Change: Adam Mystic, Exercised on [inaudible]

Speaker Change: July 1st, 2024 is option to terminate its previously granted license related to certain micro LED technologies it was developing. And as a result of the termination of the granted license,

Speaker Change: which was effective June 30, 2024. The company determined that the technology license asset, having a net book value of $24.3 million, had been fully impaired as the company no longer had exclusive licensing rights to the technology for its use.

Grant Russell: The company had a related equity interest in Adamistic, a private French company, and determined that at this point in time, the company is unable to reasonably estimate its future value and therefore recorded a full impairment of its investment in Adamistic Preferred Shares, resulting in a write-down charge of $5.7 million for the period ended June 30, 2024. Notwithstanding our impairment of these assets, we continue to support the development path of Adamistic, that it is on and we have previously indicated, is entitled to 49% of distributed assets in the event Atomistic is liquidated, as well as certain license royalties.

Speaker Change: The company had a related equity interest in Adamistic, a private French company, and determined that at this point in time the company is unable to reasonably estimate its future value and therefore recorded a full impairment of its investment in Adamistic preferred shares.

Speaker Change: Resulting in write-down charge of $5.7 million for the period ending June 30th, 2024.

Speaker Change: Notwithstanding our impairment of these assets, we continue to support the development path of Adamistic.

Speaker Change: that it is on and we have previously indicated.

Speaker Change: Fusex is entitled to 49% of distributed assets in the event Adamistic is liquidated, as well as certain license royalties.

Grant Russell: Overall, the net loss for the three month end of June 30th, 2024 was 40.6 million or 62 cents per share versus a net loss of 9 million or 14 cents, for share for the same period in 2023.

Speaker Change: Overall, the net loss for the three-month end of June 30, 2024 was $40.6 million or $0.62 per share versus a net loss of $9 million or $0.14.

Grant Russell: Now for some balance sheets and cash flow highlights. Our cash and cash equivalents position as of June 30, 2024 was $9.9 million and our networking capital was $22.1 million, and EdCastFlows. Youth, in operating activities with 5.6 million in the second quarter of 2024 as compared to a net use of 7.9 million for the second quarter of 2023. Cash used for investing activities for the second quarter of 2024 was $1 million as compared to $6.7 million in the prior year's period, with the current period's investment being all in fixed asset purchases and none for license fee payments.

Speaker Change: for share for the same period in 2023. Now for some balance sheet and cash flow highlights.

Speaker Change: Our cash and cash equivalence position as of June 30, 2024 was 9.9 million and our networking capital was 22.1 million. And that cash flows.

Speaker Change: Used

Speaker Change: in operating activities with $5.6 million in the second quarter of 2024, as compared to a net use of $7.9 million for the second quarter of 2023.

Speaker Change: Cash used for investing activities for the second quarter of 2024 was $1 million, as compared to $6.7 million in the prior year's period, with the current period's investment being all in fixed asset purchases and none for license fee payments.

Grant Russell: During the second quarter of 2024, the company implement a voluntary company-wide payroll reduction plan for all individuals, with optional salary reductions of 10 to 50% depending upon their respective base salary level for the period running May 1st, 2024 to April 30th, 2025. The expected savings achieved will be approximately $2.1 million and will result in the issuance of stock awards and stock options for the net cash wage reduction.

Speaker Change: During the second quarter of 2024, the company implemented a voluntary, company-wide payroll reduction plan for all individuals.

Speaker Change: with optional salary reductions of 10 to 50% depending upon their respective base salary level for the period running May 1st, 2024 to April 30th, 2025.

Speaker Change: The expected savings achieved will be approximately $2.1 million and will result in the issuance of stock awards and stock options for the net cash wage reductions.

Grant Russell: After the impact of the payroll reduction program for equity and two major rounds of staff reductions in January 24 and June 2024, the company's current weekly gross salary cost decreased 38.4%, or $5.3 million on an annual basis. And while we we have greatly reduced CapEx plans for the balance for 2024 and into 2025, we intend to reduce our large current investment in smart glass inventory. As a result, we plan for existing products to reduce their selling prices and offer a higher volume discount levels. We turn as much of our inventory of finished goods and assemblies into cash.

Speaker Change: After the impact of the payroll reduction program for equity and two major rounds of staff reductions in January 24 and June 2024, the company's current weekly gross salary cost decreased 38.4 percent.

Speaker Change: or $5.3 million on an annual basis.

Speaker Change: And while we have greatly reduced CapEx plans for the balance for 2024 and into 2025, we intend to reduce our large current investment in smart glass inventories.

Speaker Change: As a result, we plan for existing products to reduce their selling prices and offer higher volume discount levels to turn as much of our inventory of finished goods and assemblies into cash.

Grant Russell: We have over nine million dollars in Finnish goods and semi-finished products and we intend to turn that into cash as we move forward with future models and technology. Furthermore, we have paused further M400 smart glasses production in Rochester, and we are actively pursuing the use of external manufacturers for most of the non-waveguide production needs of Vuzix. Currently, we are seeing some good opportunities to reduce our manufacturing costs going forward, especially if we are able to achieve higher production volumes.

Speaker Change: We have over $9 million in finished goods and semi-finished products, and we intend to turn that into cash as we move forward with future models and technologies.

Speaker Change: Furthermore, we have paused further M400 smart glasses production in Rochester, and we are actively pursuing the use of external manufacturers.

Speaker Change: for most of the non-Waveguide production needs of Vuzix. Currently, we are seeing some good opportunities to reduce our manufacturing costs going forward, especially if we are able to achieve higher production volumes.

Operator: Greetings and welcome to the music second quarter for the period ending June 30th, 2024 financial results and business update conference call. At this time, all participants aren't a listen only mode. A brief question and answer session will follow the formal presentation.

Grant Russell: We are also actively continuing with the pursuit of licensing and strategic opportunities around our waveguide technologies with potential OEMs, which would include the receipt of upfront licensing fees and ongoing volume supply agreements. And as most of you are aware, the company went effective with a new registration statement on form S-3 in May 2024, which included a sales agreement with an investment banking firm for the issuance and sale of up to $50 million of our common stock that may be issued and sold from time to time in an at the market or ATM offering. Management monitored the capital markets on an ongoing basis and may consider raising capital via the ATM if favorable market conditions develop.

Speaker Change: We are also actively continuing with the pursuit of licensing and strategic opportunities around our waveguide technologies with potential OEMs, which would include the receipt of upfront licensing fees and ongoing volume supply agreements.

Operator: If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. As a reminder, this call is being recorded.

Speaker Change: and as most of you are aware, the company went effective with a new registration statement on form S3 in May 2024, which included a sales agreement with an investment banking firm for the issuance and sale of up to $50 million over common stock that may be issued and sold from time to time in an at-the-market or ATM offering.

Ed McGregor: And now I will turn the call over to Ed McGregor, director of investor relations at Vuzix. Thank you Mr. McGregor. You may begin. Thank you operator and good afternoon everyone.

Ed McGregor: Welcome to the Vuzix second quarter 2024 ending June 30th financial results and business update conference call. 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 manage and make additional forward-looking statements during the question and answer session.

Speaker Change: Management monitored the capital markets on an ongoing basis and may consider raising capital via the ATM if favorable market conditions develop.

Grant Russell: And finally, as of June 30th. 2024. The company continued to have no current or long term debt obligations outstanding.

Speaker Change: And finally, as of June 30th.

Speaker Change: 2024 the company continued to have no current or long-term debt obligations outstanding

Operator: With that, I would like to turn the call over to the operator for Q&A. Thank you, sir. At this time, we will be conducting the question and answer session. If you would like to ask a question, please press the star key followed by one on your telephone key. Confirmation Tone will indicate that your line is in the queue. You may press star 2 to remove a question from the queue.

Speaker Change: With that, I would like to turn the call over to the operator for Q&A.

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. Actual results can differ materially from those contemplated by any forward-looking statements as a result of certain factors including but not limited to general economic and business conditions, competitive factors, changes of business strategy or development plans. 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, August 14th, 2024. Vuzix assumes no obligation to update these projections in the future as market conditions change.

Speaker Change: Thank you, sir. At this time, we will be conducting the question and answer session. If you would like to ask a question, please press the star key followed by 1 on your telephone keypad.

Speaker Change: A confirmation tone will indicate that your line is in the queue. You may press star 2 to remove a question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions. And the first question comes from the line of Matt VanVliet with BTIJ. Please proceed with your question. Yeah, good afternoon.

Speaker Change: One moment please, Oli Boe for questions.

Speaker Change: Christian Schwab, Matthew VanVliet, Tyler Burmeister, Paul Travers, Grant Russell,

Speaker Change: And the first question comes from the line of Matt VanVleet with BTIJ. Please proceed with your question.

Paul Travers: Thanks for taking the questions. I guess first, you mentioned a couple opportunities on the engineering services side that should go into production later this year. Can you give us a sense of what level of revenue you expect could be recognized from either one or both of those potentially going in and then anything else in the pipeline that you have that you feel fairly confident will go into production at some point in the future? So. Let's qualify those first two.

Matt VanVleet: Yeah, good afternoon. Thanks for taking the questions.

Ed McGregor: This afternoon the company issued a press release announcing its QQ 2024 financial results and filed its 10Q with the SEC. So, participants in this call will remain not very done, so may wish to look at those documents as the company will only provide a summary of the results discussed on today's call. Today's call may include certain non-gap financial measures. When required, reconciliation to the most directly comparable financial measure calculated and present in accordance with Gap can be found in the company's filing at sec.gov, which is also available at www.vuzix.com.

Matt VanVleet: I guess first, you mentioned a couple of opportunities on the engineering services side that should go into production later this year. Can you give us a sense of what level of revenue you expect?

Speaker Change: could be recognized from either one or both of those potentially going in and then anything else in the pipeline that you have that you feel fairly confident will go into production at some point in the future.

Paul Travers: One of them is on the defense side, and one of them is a commercial opportunity. Defense side. It's, probably going to be the five to seven thousand bucks per asset that we sell into that, piece of business, and the, First sort of salvo or opportunity that it's going to be filling is upwards of 2,000. So they do the math. It's pretty easy.

Speaker Change: So...

Speaker Change: Let's just qualify those first two. One of them is on the defense side and one of them is a commercial opportunity.

Ed McGregor: 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 then turn the call over to Grant Russell, Vuzix CFO. We'll provide an overview of the company's second quarter financial results, after which we will move on to the Q&A session. Paul? Thank you, Ed.

Speaker Change: Defense side, it's...

Speaker Change: probably going to be five to seven thousand bucks per asset that we sell into that.

Speaker Change: piece of business and the first sort of salamoe or opportunity that it's going to be going as upwards of 2000 pieces.

Paul Travers: It's $10 to $14 million worth of business, I think, for, and this guy. The solution that we built can go in to multiple different places and this is just one spot that it was initially designed for. So that's a pretty significant revenues for just one project. And then the other one is an imaging system for, temperature-related. Inside of enterprise operations, or it's like maybe places where there's hot equipment around motors that might get hot. You put the glasses on and they can they can help you determine whether or not there's maintenance or safety issues or whatever.

Speaker Change: So, they do the math, it's pretty easy, it's 10 to 14 million dollars worth of business, I think, for the, and that, the solution that we've built can go in to multiple different places, and this is just one spot that it was initially designed for.

Paul Travers: Hello, everyone, and welcome to the Vuzix Q2 2024 conference call. A high-performance waveguide that can be produced in the millions at optimal price points is a critical enabling component for the next generation of smart glasses for the consumer and enterprise markets. We believe there is not a company on the planet better positioned in this regard than Vuzix. Our unique competitive core competencies of extensive waveguide design capability and production scalability, competitive cost and volume manufacturing have been forged from well over a decade of product evolution and technology investment and development in this space.

Speaker Change: So that's pretty significant revenues for just one project. And then the other one is an imaging system for temperature-related...

Paul Travers: And that's an enterprise product that, could have significant volumes associated with it, upwards of 20,000 to 30,000 pieces. I'm not sure when that's going to roll out and that kind of volumes play, frankly. We're hoping that it starts to move by the end of this year. Okay, and I think going back a couple quarters you had four or five projects in the works and it sounds like these two are maybe further along, but do you still have the other ones with long-term viability there or any update on those? Yes, we definitely do.

Speaker Change: inside of enterprise operations or it's like maybe places where there's hot equipment around, motors that might get hot, you put the glasses on and they can they can help you determine whether or not there's maintenance or safety issues or whatever and that's an enterprise product that

Paul Travers: Our conviction, which is stronger than it's ever been, is that Vuzix will play a key role in the supply chain plans of many global product suppliers that intend to compete in the smart glasses industry. We believe our ability to offer and support custom optical and mechanical designs for OEMs and OEMs, and then ultimately produce millions of waveguides to support the broad consumer in enterprise markets is game changing. It's important for investors to realize that we have built a world class capability around the core technologies and manufacturing facilities needed for design through high volume production waveguides, a very difficult component in the supply chain for the coming AI driven smart glasses market.

Speaker Change: could have significant volumes associated with it, upwards of 20,000 to 30,000 pieces. I'm not sure when that's going to roll out and that kind of volumes play, frankly. We're hoping that it starts to move by the end of this year.

Speaker Change: Okay and I think going back a couple quarters you had four or five projects in the works and it sounds like these two are maybe further along but do you still have the the other ones with long-term viability there or any update on those?

Paul Travers: I mean, one of them is Garmin, which we mentioned earlier in the call. And, yeah, that project's moving along nicely, and there's.., more than a handful of other companies that are working with Vuzix, to develop their next generation product. Okay, helpful. And then lastly, in talking about potential strategic partners, Could you potentially give a little bit more detail in terms of what kind of arrangements might be in place? Would it be kind of a pre-order of waveguides or certain blocks of performance for investment into Vuzix? Or what kind of, I guess, overall arrangement are you looking at?

Speaker Change: Yes, we definitely do. I mean, one of them is Garmin, which we mentioned earlier in the call. And yeah, that that project's moving along nicely. And there's.

Paul Travers: Without solutions like those that Vuzix can offer, the broader smart glasses market especially for consumer will be significantly challenged. We believe there is currently nobody else in the market that can deliver the needed waveguides at the rates and at the same time hit the quality and costing models required to meet consumer expectations. We fully understand our cast position and concerns that some of you may have in this regard. I want you to know we are actively working to close with strategic partners a deal that will provide manufacturing access and value for our partner and provide Vuzix with cash and market access.

Speaker Change: More than a handful of other companies that are working with Vuzix.

Speaker Change: to develop their next generation products.

Speaker Change: Okay, helpful. And then lastly, in talking about potential strategic partners,

Speaker Change: Could you potentially give a little bit more detail in terms of what kind of arrangements might be in place? Would it be kind of a pre-order of waveguides or certain blocks of performance for investment into Vuzix? Or what kind of, I guess, overall arrangement are you looking at?

Paul Travers: Yeah, I can't share a whole lot other than to say that, for these guys volume products in this key. This business is right around the corner. Amazing potential. The problem is making waveguides at a price point that works for the market. It's almost impossible.

Speaker Change: Yeah, Matt, I can't share a whole lot other than to say that...

Paul Travers: They understand the challenges to high volume smart glasses manufacturing and believe Vuzix can play a key role in supporting their plans for product development and manufacturing in the smart glasses industry. This sort of commitment to Vuzix would be substantial in part of a multi-year supply strategy that will be game changing for us and the broader industry. We're hopeful we can share more about this relationship in the very near future. Back with an IP portfolio approaching 400 patents and patents pending almost double the level of just three years ago we are in a continual path of innovation.

Speaker Change: For these guys, volume production is key.

Speaker Change: you know the this business is right around the corner there's

Speaker Change: amazing potential. The problem is making wave guides at a price point that works for the market is almost impossible.

Paul Travers: Competitive solutions today take literally hours to make a waveguide, and you can only do just so many at a time, so the price per waveguide is super expensive. And with those higher prices, it'll never enable the mass market. Vuzix can literally make them, well, our current facility, when it's fully turned on, every six seconds, it ought to be able to pump out a waveguide, and that's what these guys are interested in.

Speaker Change: Competitive solutions today take literally hours to make a waveguide and you can only do just so many at a time so the price per waveguide is super expensive and with those higher prices it'll never enable the mass market.

Speaker Change: Vuzix can literally make them.

Speaker Change: Well, our current facility, when it's fully turned on, every six seconds it ought to be able to pump out a waveguide. And that's what these guys are interested in. There's actually more than one that are interested in that.

Paul Travers: The innovation that is required for the market to evolve with previously stated optical capabilities for see-through waveguides like incognito, integrated vision correction, low index high performance materials and a second to none production facility with unique Vuzix developed process capabilities and trade secrets. The microtouch production process improvement just announced this week will further distance our production speeds yields and volume capabilities relative to other would be industry competitors. The consumer smart glasses era is just about to commence and we clearly believe our waveguide technology is a cornerstone component to enabling mastered option.

Paul Travers: There's actually more than one that are interested in that, and it's all revolving around, well, you hear things like Mark Zuckerberg talk about hundreds of millions of users of smart glasses, and it's all revolving around that kind of business and those markets. So you might imagine that there's some investments that will probably be part of it and there'll be some supply, components to it. Okay, thank you. And the last question comes from the line of Christian Schwab with Craig Howland Capital Group. Please proceed with your question. Thanks guys, this is Tyler on behalf of Christian.

Speaker Change: and it's all revolving around, well you hear things like Mark Zuckerberg talk about hundreds of millions of users of smart glasses and it's all revolving around that kind of business and those markets.

Speaker Change: So you might imagine that there's some investments that'll probably be part of it and there'll be some supply.

Speaker Change: components to it.

Speaker Change: Okay, thank you.

Speaker Change: Be better.

Speaker Change: And the last question comes from the line of Christian Schwab with Craig Howland Capital Group. Please proceed with your question.

Paul Travers: Metas CEO predicted a future where hundreds of millions of people are regularly wearing AI powered smart glasses. What Vuzix has here is unique the ability to produce waveguides in volume at a fraction of the cost of our competitors is again a game changer and unlike that of most others our waveguide technology is flexible and can support a large ray of optical capabilities and industrial designs for smart glasses products. Our current facility has the capability to drive capacity to as much as a million units annually and is scalable beyond this level with minimal investment in operating costs.

Speaker Change: Thanks, guys. This is Tyler on behalf of Christian. Thanks for letting us ask a couple questions.

Paul Travers: Thanks for letting us ask a couple questions. May 1st, just kind of following up on that last question, last line of commentary there, you know, talk about your waveguide production being the market leader there, you know, I guess competitively, or, you know, if someone wasn't going to come to you to use their waveguides, you know, competitively, what would, what would they do otherwise, you know, just, you know, produce themselves have to make that investment and ultimately. Produce them less efficiently more expensively or you know competitively what what would someone do if they, weren't going to use you for their waveguide.

Tyler: Maybe first just kind of following up on that last question, the last line of commentary there, you know, talk about your waveguide production being the market leader there, you know, I guess competitively or, you know, if someone wasn't going to come to you to use their waveguides, you know, competitively, what would?

Tyler: What would they do otherwise, you know, just, you know, produce themselves, have to make that investment and ultimately, you know,

Speaker Change: you know, produce them less efficiently, more expensively, or, you know, competitively, what would someone do if they, you know, weren't going to use you for their waveguides?

Paul Travers: So, Tyler, this is a great question. It's more than even manufacturing. You got to know how to do a design. You got to know how to, do the production for it when it's finally there, and you have to know how to, in that design, integrate it with the rest of the components that make these optical systems work. And when you come to a company like Vuzix, we offer all of the services associated with that. So it's hooked to nuts.

Speaker Change: So, Tyler, this is a great question.

Paul Travers: These are just some of the reasons why third parties are interested in investing in Vuzix and why we are excited about these potential partnerships to help make this happen. Martin. The micro-display to drive the image into the waveguide is the second most critical components for smart classes. Today there are multiple companies working on new, very compact, L-cost-based display projection engines. They will be a great option until either efficient, full-color micro-LEDs or other display technologies arrive on the scene, which practically could be several more years.

Speaker Change: It's more than even manufacturing.

Tyler: You've got to know how to do a design.

Tyler: You've got to know how to do the production for it when it's finally there, and you have to know how to, in that design, integrate it with the rest of the components that make these optical systems work. And when you come to a company like Vuzix, we offer all of the services associated with that. So it's hooked to nuts.

Paul Travers: There are other companies that are out there, trying to make a wave guide and you're stuck with the one size fits all, you can't get it easily customized for what you want to have. And then the problem comes down to just literally, how do you get a waveguide every six seconds? And then some of these people we're working with, they want 20 times that kind of volume. If you think about it on an annual basis.

Speaker Change: There are other companies that are out there.

Speaker Change: Trying to make a waveguide and you're stuck with the one size fits all. You can't get it easily customized for what you want to have.

Speaker Change: And then the problem comes down to just literally, how do you get a waveguide every six seconds? And then some of these people we're working with, they want 20 times that kind of volume. If you think about it on an annual basis.

Paul Travers: Knowing that the fashion forward smart classes opportunities right around the corner, there are a couple of handfuls of companies investing in these L-cost solutions. And it is interesting to note that many of them, like our recent announcement with Abigant, are now working with Vuzix for a viable source of supply for cost-effective waveguides that can be delivered in volume and performed to end customer expectations. Our OEM business opportunities remain robust. We have a backlog of business to deliver against, and we expect at least one of our defense contractors and one of our commercial enterprise customers to move into production later this year.

Paul Travers: It could be a hundred to three hundred million smart glasses that get sold. That is one pile of waveguides. And you go to a third party to have them produced and they would be expensive. Or you might buy somebody's property so that you could produce them.

Speaker Change: It could be 100 to 300 million smart glasses that get sold. That is one pile of waveguides.

Speaker Change: and you'd go to a third party to have them produced and they would be expensive. Or you might buy somebody's property so that you could produce them, but the competitors that might be able to set you up like that today, it's four or five hundred steps to make a waveguard.

Paul Travers: But the competitors that might be able to set you up like that today, it's four or five hundred steps to make a waveguide. And so the price, the quality, the yield, it's really, really difficult to see how any of that stuff could ultimately get there. We are in a very unique circumstance, our ability to produce in volume the way we can and to offer the services associated with actually making it work in the glass.

Speaker Change: And so the price, the quality, the yield, it's really, really difficult to see how any of that stuff could ultimately get there. We are in a very unique circumstance, our ability to produce in volume the way we can, and to offer the services associated with actually making it work in the glasses.

Paul Travers: Our partnership with Garmin, with whom we are developing waveguide-based optical systems with full-custom projection engines, is another milestone relationship. These products will power solutions for Garmin that will help them to offer significant cost, form factor and space savings versus current deployed technologies. On the waveguide manufacturing front, we will continue to implement process improvements as we prepare to ramp production capabilities to support underlying demand from partners in the broader markets. As the industry increasingly views Vuzix as a waveguide supplier of choice, more and more projection engine partners are lining up discussions and programs to partner with us.

Paul Travers: All right, that's perfect. That's very helpful. And then, you know, maybe Grant, you know, with all these these cost saving efforts you guys are putting in place, maybe just a, you know, a summary update, you know, what kind of revenue level are we are we looking at now to kind of get to a break even type, Well, it's a lot less and, you know, we're still making, you know, refinements, but I mean... You're not there.

Grant Russell: All right, that's perfect. That's very helpful. And then, you know, maybe Grant, you know, with all these cost-saving efforts you guys are putting in place, maybe just a, you know, a summary update, you know, what kind of revenue level are we looking at now to kind of get to a break-even type point?

Grant Russell: Well, it's a lot less and, you know, we're still making, you know, refinements, but I mean...

Paul Travers: You know, we're going to we effectively, You know, it's going to need about $20 million of margin to achieve breakeven, so, because I think our goal is, you know, get between. Potentially down to $4 million per quarter in operating costs, so we're going to need the margin on the top line of $16 to $20 million.

Paul Travers: And again, we recently announced a collaboration with Avigant to develop optimized waveguide optical modules for use and future AI-enabled smart glasses, and we have a handful of other unannounced relationships currently underway. All of these firms realize that their display projectors can't stand alone. They must be paired with the best waveguides solutions available to optimize the end-wareers viewing experience. Most importantly, ones that can allow finished products to be produced in high volumes at affordable prices.

Speaker Change: You're not there.

Speaker Change: We effectively are going to need about $20 million dollars in margin to achieve break-even. I think our goal is to get between...

Speaker Change: Potentially down to $4 million per quarter in operating costs, so we're going to need the margin on the top line of $16 to $20 million.

Grant Russell: Understood. All right. Thanks, guys. That's all for us.

Speaker Change: Alright, thanks guys, that's all for us.

Paul Travers: Thank you and at this time we have reached the end of the question and answer session and I would like to turn the call back over to Paul Travers for any closing comments. Everybody, thank you for listening. And look, I know it's been a rough ride. The smart glasses industry is a challenge, but this business is coming.

Paul Travers: Our uniqueness in this space cannot be underestimated. Cognizant of our cost competitiveness and cash needs, our strategy will be to utilize third-party manufacturers for select Vuzix branded and OEM products based on projected volumes and costs. Of course, this will not include our defense products nor our waveguide manufacturing, which is planned for production right here in Rochester, New York. The enterprise market continues to be challenged just yet, as the market slowly matures.

Speaker Change: Thank you, and at this time we have reached the end of the question and answer session, and I would like to turn the call back over to Paul Travers for any closing comments.

Speaker Change: Everybody, thank you for listening. And look, I know it's been a rough ride. The smart glasses industry is a challenge.

Paul Travers: It's never been more exciting for us. And I know I happen to be an enthusiastic person, but it is right around the corner and it should be a fantastic fall for Vuzix. So we really appreciate you hanging in there. To the tough times, the better parts are coming. Thanks again, everybody. Look forward to the next call and to share with you as the fall unfolds. And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time.

Paul Travers: But this business is coming. It's never been more exciting for us, and I know I happen to be an enthusiastic person.

Paul Travers: But it is right around the corner and it should be a fantastic fall for music. So we really appreciate you hanging in there. To the tough times, the better parts are coming. Thanks again everybody. Look forward to the next call and to share with you as the fall unfolds.

Paul Travers: Deploying whole products, smart glasses solutions in an industrial environment has proven to be a journey involving pilots, software, IT integration, and ROI determination, among other things. That said, we have a nice pipeline of business opportunities, and we have a number of enterprise accounts that are on a path to volume deployment of our smart glasses in solution within their operations to deliver improved productivity, lower onboarding times, and fewer errors. Although we are refocusing ourselves, as I said, to waveguides and OEMs, we also remain committed to our network of ISVs and resellers and to our end customers.

Operator: Thank you for your participation. Amen. God bless.

Speaker Change: And ladies and gentlemen, that does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Paul Travers: These use case ecosystems continue to evolve with the emerging applications such as artificial intelligence, transcription and language transcription. Moreover, as was the case with cell phones in tablets, we believe advancements and volume penetration in the broader markets will also help attract and accelerate wider enterprise adoption and due course. At the same time, we absolutely recognize the importance of liquidity and cash management. And as a result, Vuzix has made significant reductions across the board to write size our organization to deliver top-line revenue without losing sight of our core technology aspirations on the R&D side of the house. And as I mentioned previously, we are working to close with strategic partners, a deal that would provide manufacturing access and value for our partner and provide Vuzix with cash and market access.

Grant Russell: Grant will now take you through our numbers, after which we will move on to Q&A. Grant. Thank you, Paul. As Ed mentioned, the 10Q 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 in some of the numbers. Our second quarter, 2024 revenues with 1.1 million down substantially year-over-year due to decreased sales of smart glasses, particular M400, which had benefited in the prior years period from a very large order from an Asian distributor in our second quarter of 2023.

Grant Russell: Engineering service sales were 0.5 million for the three months ended June 30th, 2024, versus 0.3 million in the prior years period. As of June 30th, 2024, the company had 2.4 million of remaining performance obligations under a way back development project, which are probably 18% we expect to realize in 2024, but the remainder being completed in 2025. There was an overall gross loss of 0.3 million for the three months ended June 30th, 2024, as compared to a gross profit of 1 million for the same period in 2023.

Grant Russell: The gross loss was the result of lower revenues to absorb many of our relatively fixed manufacturing and plan overhead costs. These manufacturing overhead costs as a percent of total product sales increased to 42% from 8% for the same period in 2023 as a result. Research and development expense was 2.4 million for the three months ended June 30th, 2024, compared to 2.8 million for the comparable 2023 period, a decrease of approximately 17%.

Grant Russell: The reduction in R&D expense was largely due to a 0.3 million decrease in external development costs and a 0.2 million drop in salary and benefit related expenses after furs or severance costs implemented at the end of June. Sales and marketing expense was 2.2 million for the three months ended June 30th, 2024, as compared to 2.5 million in the same period of 2023, a decrease of approximately 11%. The reduction was primarily due to lower advertising and trade show spending and reduced salary and benefit expense, partially offset by an increase in allowance for credit losses and further severance costs implemented at the end of June.

Grant Russell: 13. General and administrative expenses for the three months into June 30th, 2024 was 4.5 million versus 4.3 million for the comparable 2023 period, an increase of approximately 5%. The rise with primarily due to a 0.3 million dollar increase in accounting and auto fees related to finalizing or 2023 audit and increased legal costs related to RS3 filing. Included in our operating expenses for the three months ended June 30th, 2024 was a non-cast charge of 30.1 million related to the impairment of intangible assets and our equity investment in Adamistik.

Grant Russell: Adamistik exercised on July 1st, 2024 is optioned to terminate its previously granted license related to certain micro LED technologies it was developing and as a result of the termination of the granted license which was effective June 30th, 2024. The company determined that the technology license asset having an net book value of 24.3 million had been fully impaired as the company no longer had exclusive license and rights to the technology for its use.

Grant Russell: The company had a related equity interest in Adamistik, a private French company and determined that at this point in time the company is unable to reasonably estimate its future value and therefore recorded a full impairment of its investment Adamistik preferred shares resulting in right down charge of 5.7 million for the period ended June 30th, 2024. Not by standing our impairment of these assets we continue to support the development path of Adamistik that it is on and we have previously indicated the use is entitled to 49% of distributed assets in the event Adamistik is liquidated as well as certain license royalties.

Grant Russell: Overall the net loss for the three months ended June 30th, 2024 was 40.6 million or 62 cents per share versus the net loss of 9 million or 14 cents per share for the same period in 2023. Now for some balance sheet and cash flow highlights. Our cash and cash equivalence position as of June 30th, 2024 was 9.9 million and our networking capital was 22.1 million. The net cash flows used in operating activities with 5.6 million in the second quarter of 2024 as compared to a net use of 7.9 million for the second quarter of 2023.

Grant Russell: Cash used for investing activities for the second quarter of 2024 was 1 million as compared to 6.7 million in the prior years period with the current periods investment being all in fixed asset purchases and none for license fee payments. During the second quarter of 2024 the company implemented voluntary, company-wide, payroll reduction plan for all individuals with optional salary reductions of 10 to 50% depending upon their respective base salary level for the period running May 1st, 2024 to April 30th, 2025.

Grant Russell: The expected savings achieves will be approximately 2.1 million and will result in the issuance of stock awards and stock options for the net cash After the impact of the payroll reduction program for equity and two major rounds of staff reductions in January 24 and June 2024, the company's current weekly growth salary cost decreased 38.4% or 5.3 million on an annual basis. And while we have greatly reduced cap ex plans for the balance of 2024 and into 2025, we intend to reduce our large current investment in smart-class inventories.

Grant Russell: As a result, we plan for existing products to reduce our selling prices and offer a higher volume discount levels to turn as much of our inventory finish goods and assemblies into cash. We have over nine million dollars in finish goods and semi-finished products and we intend to turn that into cash as we move forward with future models and technologies. Furthermore, we have paused further M-400 smart-classive production in Rochester and we are actively pursuing the use of external manufacturers for most of the non-wave value production needs of Vuzix.

Grant Russell: Currently, we are seeing some good opportunities to reduce our manufacturing costs going forward, especially if we are able to achieve higher production volumes. We are also actively continuing with the pursuit of licensing and strategic opportunities around our wave-type technologies with potential OEMs, which would include the receipt of upfront licensing fees and ongoing volume supply agreements. And as most of you are aware, the company went effective with a new registration statement on form S3 in May 2024, which included a sales agreement with an investment banking firm for the issuance and sale of up to $50 million of our common stock that may be issued and sold from time to time in an at-the-market or ATM offering.

Grant Russell: Management monitors the capital markets on an ongoing basis and may consider raising capital VDATM if favorable market conditions develop. And finally, as of June 30th, 2024, the company continues to have no current or long-term debt obligations outstanding.

Grant Russell: With that, I would like to turn the call over to the operator for Q&A. Thank you, sir.

Operator: At this time, we will be conducting the question and answer session. If you would like to ask a question, please press the start key followed by one on your telephone keypad. The confirmation tunnel indicates that your line is in the queue. You may press start to turn and move a question from the queue. For participants using speaker equipment, it may be necessary to pick up your hands up before pressing the start keys. One moment please, or we go for questions.

Matthew VanVliet: And the first question comes from the line of Matt Van Vleet with BTIJ. Please proceed with your question. Yeah, good afternoon. Thanks for taking the questions. I guess first you mentioned a couple of opportunities on the engineering services side that should go into production later this year. Can you give us a sense of what level of revenue you expect could be recognized from either one or both of those potentially going in. And then anything else in the pipeline that you have that you feel fairly confident will go into production at some point in the future.

Paul Travers: Peter. So let's just qualify those first two. One of them is on the defense side and one of them is a commercial opportunity. On the defense side, it's probably going to be the five to seven thousand bucks per asset that we sell into that piece of business. And the first sort of salamoe or opportunity that it's going to be filling is upwards of two thousand pieces. So they do the math. It's pretty easy.

Paul Travers: It's 10 to 14 million dollars worth of business, I think, for the, and that the solution that we built can go enough to a multiple different places. And this is just one spot that was initially designed for. So that's a pretty significant revenue for just one project. And then the other one is an imaging system for temperature related inside of enterprise operations, or it's like maybe places where there's high equipment around, motors that might get hot.

Paul Travers: You put the glasses on and they can, they can help you determine whether or not there's maintenance or safety issues or whatever. And that's an enterprise product that could have significant volumes associated with it upwards of, you know, 20 to 30 thousand pieces. I'm not sure when that's going to roll out and that kind of volumes play frankly. We're hoping that it starts to move by the end of this year.

Paul Travers: Okay. And I think going back a couple quarters you had four or five projects in the works and it sounds like these two are maybe further along, but you still have the other ones with long term viability there or any update on those. Yes. We definitely do. I mean, one of them is Garmin, which we mentioned earlier in the call. And yeah, that project is moving along nicely. And there's more than a handful of other companies that are working with music to develop their next generation products.

Matthew VanVliet: Okay. Helpful.

Paul Travers: And then lastly, you're talking about potential strategic partners potentially give a little bit more detail in terms of what kind of arrangements might be in place. Would it be kind of a pre-order of waveguides or certain blocks of performance for investment in the music or what kind of, I guess, overall arrangement are you looking at? Yeah. I can't share a whole lot other than to say that for these guys volume production is key.

Paul Travers: The business is right around the corner. There's amazing potential. The problem is making waveguides at a price point that works for the market is almost impossible. Competitive to make a waveguide. And you can only do just so many at a time. So the price per waveguide is super expensive. And with those higher prices, it'll never enable the mass market. Music can literally make them well, our current facility when it's fully turned on every six seconds.

Paul Travers: It ought to be able to pump out a waveguide. And that's what these guys are interested in. There's actually more than one that are interested in that. And you hear things like Mark Zuckerberg talk about hundreds of millions of users of smart glasses. And it's all revolving around that kind of business in those markets.

Paul Travers: Lucas. So you might imagine that there are some investments that will probably be part of it and there will be some supply components to it.

Matthew VanVliet: Okay, thank you. Thank you.

Christian Schwab: And the last question comes in the line of Christian Schwab with Craig Hall and Capital Group. Please proceed with your question. Thanks, guys. Tyler, on behalf of Christian, thanks for letting us ask a couple questions. Maybe first just kind of falling up on that last question, the last line of commentary there. Talk about your waveguar production being market leader there. I guess competitively, if someone wasn't going to come to you to use your waveguards competitively, what would they do otherwise? You know, just produce themselves, have to make that investment and ultimately, you know, produce them less efficiently, more expensively or competitively, what would someone do if they weren't going to use you for their waveguards?

Paul Travers: So Tyler, this is a great question. It's more than even manufacturing. You got to know how to do a design. You got to know how to do the production for it when it's finally there. And you have to know how to, in that design, integrate it with the rest of the components that make these optical systems work. And when you come to a company like Music, we offer all of the services associated with that.

Paul Travers: So it's to nuts. There are other companies that are out there trying to make a waveguide and you're stuck with the one size fits all. You can't get it easily customized for what you want to have. And then the problem comes down to just literally, how do you get a waveguide every six seconds? And then some of these people were working with. They want 20 times that kind of volume. If you think about on an annual basis, it could be a hundred to 300 million smart glasses that get sold.

Paul Travers: That is one pile of waveguides. And you go to a third party to have them produce and they would be expensive or you might buy somebody's property so that you could produce them. But the competitors that might be able to set you up like that today, it's four or 500 steps to make a waveguide. And so the price, the quality, the yield, it's really, really difficult to see how any of that stuff that ultimately get there. We are in a very unique circumstance, our ability to produce and volume the way we can. And to offer the services associated with actually making it work in the glasses.

Christian Schwab: All right, that's perfect. That's very helpful.

Grant Russell: And then maybe Grant, with all these cost saving efforts, you guys are putting in place. Maybe just a summary update. What kind of revenue level are we looking at now to kind of get to a break even type point? Well, it's a lot less and we're still making refinements. We're effectively going to need about 20 million dollars a margin to achieve break even. So I think our goal is to get between potentially down to $4 million per quarter in operating costs. So we're going to need the margin on the top line of 16 to 20 million. So I think that's all for us.

Grant Russell: Thank you.

Paul Travers: And at this time we have reached the end of the questioning and intercession and I would like to turn the call back over to Paul Travers for any closing comments. Everybody, thank you for listening Anna. Look, I know it's been a rough ride. The smart classes industry is a challenge, but this business is coming. It's never been more exciting for us. And I know I happen to be an enthusiastic person, but it is right around the corner and it should be a fantastic fall for music. So we really appreciate you hanging in there to the tough times, the better parts are coming. Thanks again everybody. Look forward to the next call and to share with you as the following polls.

Operator: And ladies and gentlemen, that those concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.