Q3 2024 Vuzix Corp Earnings Call and Business Update
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Speaker Change: Ladies and gentlemen, thank you for your patience. Please continue to hold. The conference will begin momentarily. Ladies and gentlemen, thank you for your patience. Please continue to hold. The conference will begin momentarily. Thank you.
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Speaker Change: Greetings and welcome to the Vuzix second quarter for the period ending September 30th, 2024 financial results and business update call.
Speaker Change: Participants are in a listen-only mode. The question-and-answer session will follow the presentation.
Speaker Change: If anyone should require operator assistance during the call, please press star zero on your telephone keypad as a reminder This call is being recorded Now I would like to turn the call over to Ed McGregor, Director of Investor Relations at Vuzix. Mr. McGregor, you may begin
Ed McGregor: Thank you, Operator, and good afternoon, everyone. Welcome to the Vuzix Third Quarter 2024 ending September 30th Financial Results and Business Update Conference Call. With us today are Vuzix CEO Paul Travers and our CFO Grant Russell.
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.
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.
Ed McGregor: 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 business conditions, competitive factors, changes in business strategy or development plans,
Ed McGregor: the ability to attract and retain qualified personnel as well as changes in legal and regulatory requirements.
Ed McGregor: In addition, any projections as to the company's future performance represent management's estimates as of today, November 14, 2024. Usix assumes no obligation to update these projections in the future as market conditions change.
Ed McGregor: This afternoon the company issued a press release announcing its Q3 2024 financial results and followed as 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: 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.
Speaker Change: Paul will then turn over the call to Grant Russell, Vuzix CFO, who will provide an overview of the company's third quarter financial results.
Speaker Change: Paul will return to make some closing comments, after which we will move on to the Q&A session.
Speaker Change: Good afternoon everyone and welcome to Vuzix Q3 Earnings Call. Thank you all for joining us today.
Speaker Change: The AR and AI landscape is evolving rapidly with industry driving attention to AI enabled smart glasses.
Speaker Change: This increasing interest validates our vision of becoming the premier supplier of waveguide optics and advanced AR products for the global market.
Speaker Change: Today I am pleased to share updates on how we are capitalizing on these trends, our strategic transition to OEM markets, and the opportunities ahead for Vuzix, all of which should drive sustainable and profitable future for the company and its shareholders.
Speaker Change: Our waveguide manufacturing capabilities, a cornerstone of our competitive advantage, continues to demonstrate to potential partners and customers our ability to produce in volume with industry-leading cost efficiency.
Speaker Change: With one of the lowest production costs globally and a scalable capacity to millions of units per year We are well positioned to be a key supplier to major OEMs Providing them with waveguides tailored to their AI driven smart glasses products and system level designs
Speaker Change: As an example, one of the most impactful developments in Q3
Speaker Change: 20 million dollar multi-phase investment underscores our mutual commitment to revolutionizing the AR industry.
Speaker Change: The first $10 million tranche of this investment has been received, and the remaining two $5 million tranches are tied to specific milestones that we are on track to achieve early in the first half of 2025.
Speaker Change: This collaboration will enable Vuzix to supply millions of cutting-edge waveguides for AR and AI-driven smart glasses to Qantas' extensive OEM client base.
Speaker Change: We've strengthened our presence in the defense and industrial sectors where our differentiated solutions are meeting demands for mission-critical applications. The latest example of this being our just disclosed relationship with Thales.
Speaker Change: These markets offer high-margin opportunities that align well with our growth strategy.
Speaker Change: we've also made significant strides in broadening the scope of the Vuzix Z100 smart glasses from a developer kit to a full-scale consumer and enterprise ready product which I'll elaborate on shortly.
Speaker Change: Last but not least, we have achieved a steady reduction in our quarterly cash operating expenses, which declined 28% year-over-year this quarter to $4.8 million.
Speaker Change: These savings were driven by planned, targeted cost reduction initiatives, including workforce optimization and discretionary spending cuts. With these measures, we have extended our financial runway while ensuring resources are focused on scaling operations and advancing strategic initiatives.
Speaker Change: Before diving further into our operational and strategic updates, I'd like to provide some perspective on the AI smart glasses market and its potential size.
Speaker Change: According to recent industry research, the global smart glasses market is projected to grow substantially over the next several years.
Speaker Change: By comparison, there are over 300 million smartwatches sold annually. As an accessory to the smartphone, smartglasses are expected to rival that. And as a smartphone replacement, the market is expected to expand significantly from there.
Speaker Change: For Vuzix, even a small portion of market penetration would represent hundreds of millions in revenues for the company.
several factors are contributing to this tremendous projected growth.
Speaker Change: Artificial intelligence is revolutionizing education, business, natural language processing, and ultimately how smart glasses are used.
Speaker Change: Features like real-time object recognition, language translation, context-aware notification, and voice-activated assistance are redefining user experiences.
Speaker Change: AI's ability to process and display information contextually and visually is a game-changer, making AI-driven smart glasses indispensable in both consumer and enterprise settings.
Speaker Change: Importantly, ongoing technological advancements in optics, displays, battery life, and connectivity are making smart glasses more practical and user-friendly.
Speaker Change: Vuzix's WaveGuide technology is a prime example of innovation reducing costs while delivering high performance displays that are flexible in design, lightweight, and ergonomic.
Speaker Change: The convergence of these factors underscores why the market is expected to grow so dramatically. At Vuzix, we are uniquely positioned to benefit from this growth due to our ability to supply scalable, low-cost waveguide solutions to major OEMs.
Speaker Change: Along with these developments is the increasing interest and involvement of global fashion brands.
Speaker Change: companies like Essilor Luxottica and their Ray-Bans through their collaboration with Metta and the growing anticipation around Apple's AR offerings are setting the stage for smart glasses to evolve
Speaker Change: They are becoming a lifestyle accessory. This shift is significant for Vuzix and the long-term health of the industry because it highlights the mainstreaming of smart glasses, which were previously viewed as niche technology.
Speaker Change: Fashion brands bring design, style, and marketability that appeal to a broader consumer audience. This trend aligns perfectly with our long-term vision and strategy in several ways.
Speaker Change: Regarding OEM and white label opportunities, our waveguide technology platform is already being positioned for white label opportunities as fashion brands seek to differentiate their products with cutting-edge technology.
Speaker Change: Vuzix is uniquely equipped to partner with them to deliver high performance
sleek AR solutions.
Speaker Change: In terms of market validation, the entrance of major fashion players further validates the potential of the smart glasses market. Their ability to attract mainstream consumers helps drive awareness, which benefits the entire industry, including Musics.
Speaker Change: As it relates to design leadership, while technology is our core strength, Musics has always emphasized ergonomics, lightweight, stylish designs. Now I know I'm not a fashion leader, so looking to partner with those that are is a key focus.
Speaker Change: This focus positions us as an ideal technology partner for fashion brands looking to integrate our waveguides and optical engines into their product lines without compromising aesthetics.
Speaker Change: Finally, regarding expanding consumer adoption, the integration of fashion and technology lowers the barriers to consumer adoption. Smart glasses that look like stylish eyewear will appeal to users who might not otherwise consider AR technology.
Speaker Change: This trend expands the addressable market with our core technology, components, and products.
Speaker Change: This transition reflects the broader opportunities we see in leveraging our proprietary technologies and manufacturing capabilities to partner with some of the world's leading brands and technology providers.
Speaker Change: The OEM market offers several advantages that align with our long-term growth goals. OEM partnerships enable us to deploy our waveguides and smart glasses technologies at scale. Additionally, the need for customized solutions supports our industry-leading design and manufacturing capabilities.
Speaker Change: By focusing on OEM customers, Vuzix can diversify its revenue streams across multiple industries, including consumer electronics, healthcare, defense, and now even fashion. These industries represent substantial growth opportunities that complement our existing enterprise presence.
Speaker Change: Our state-of-the-art waveguide manufacturing facility positions us as a key supplier for OEM partners with industry-leading cost efficiency and high volume capacity. We are uniquely equipped to meet the growing demand for advanced waveguide-based optics and AR components.
Speaker Change: We look to collaborate with OEM customers with system-level product designs, which allows us to stay at the forefront of innovation. Through co-developing products tailored to the needs of our partners, we can refine our technologies and create new applications that further differentiate Vuzix in the AR ecosystem.
Speaker Change: We believe collaboration with OEM customers for co-developed products de-risks product development costs and shortens the time to market for new product offerings.
Speaker Change: We're optimistic about accelerating engagements with OEM customers, which we believe will lead to the announcement of co-developed products in the near term.
Speaker Change: The enterprise markets remain an important part of our business, but our strategic pivot towards that goal remains.
Speaker Change: fully aligned with the largest growth opportunities in the industry. Our OEM strategy is already bearing fruit with partnerships like Quanta Computer, Garmin, and other as yet unannounced partnerships, along with ongoing discussions that could drive significant revenue in the years ahead.
Speaker Change: We're excited about this transition as it positions Vuzix to capture a larger share of the expanding smart glasses markets with scalable, repeatable, and high margin revenue streams.
Speaker Change: Just yesterday, Thales, a French multinational company that specializes in aerospace, defense, security, and transportation technologies,
Speaker Change: shared on LinkedIn publicly for the first time that they have developed a next-generation binocular helmet mounted display designed to support superior awareness in degraded visual environments.
Speaker Change: It's innovative HMD features, next-level optics that work with both day and night, restoring a pilot's entire field of vision in offline conditions.
Speaker Change: Vuzix, who was specifically identified in their post, has worked with TALIS for quite some time on this design, one that is expected to be formally introduced early in the new year.
Speaker Change: This quarter, we've made continued progress with the Vuzix Z100 smart glasses. Originally introduced as a developer kit, the Z100 features advanced waveguide-based displays and is accessible to a broader audience now.
Speaker Change: By reducing the price to $499, we've made this innovative technology more attainable, allowing more users to experience its cutting-edge capabilities, and opening the door to the broader markets in white label pricing.
Speaker Change: The Z100's functionality continues to grow, with applications that leverage its advanced optics, AI integration, and real-time processing capabilities.
Speaker Change: These include language translation, enabling seamless multilingual communications for business, travel and education, hearing assistance, providing closed captioning for the hearing impaired, transforming accessibility in real-time conversations and events.
Speaker Change: and AI-driven applications enhancing productivity and efficiencies across industries with features like object recognition, guided workflows, and contextual information overlays.
Speaker Change: Beyond individual users, the Z100 is a flexible platform designed for OEM and white-label opportunities. This flexibility is key as we expand partnerships with global enterprise and OEM customers who seek customized solutions tailored to their specific use cases.
Speaker Change: Momentum is building in the AR and AI smart glasses space and partnerships remain a vital component of our growth strategy. Our collaboration with Quanta Computer is a standout example and one that is opening key doors while elevating our status with potential customers.
Speaker Change: Our waveguide technology and manufacturing capabilities gives us a distinct edge over competitors by offering high quality waveguides at a fraction of the cost associated with alternative semiconductor based solutions.
Speaker Change: This competitive cost efficiency is particularly valuable in the price-sensitive consumer and AR enterprise markets.
Speaker Change: The development of next-generation smart glasses hardware, software, and ecosystems is well underway, and Vuzix is deeply engaged in leveraging its scalable and cost-effective technology.
Speaker Change: As we move into 2025, starting with CES just a couple of months away, you can expect to see increasing evidence of our progress in positioning for long-term success.
Speaker Change: These milestones will clearly demonstrate Vuzix's strength and potential in shaping the future of smart glasses innovation.
Speaker Change: Grant will now take you through our numbers for the quarter. Grant?
and Ed McGregor. Thank you. Thank you.
Speaker Change: So I'm just going to provide you with a bit of color on some of the numbers now.
Speaker Change: For the three months ended September 30th, 2024, total revenues decreased by 36% to 1.4 million versus 2.2 million for the comparable period in 2023. The decrease was the result of a 28%.
Speaker Change: decrease in smart glass product sales and a 51% decrease in engineering services revenues as compared to the prior year's quarter.
Speaker Change: As of September 30, 2024, the company had $2.2 million of remaining performance obligations under a waveguide development project, including an initial production run.
Speaker Change: There was an overall gross loss of $0.26 million for the three months ended September 30, 2024, as compared to a gross loss of $0.24 million for the same period in 2023.
Speaker Change: As a result, manufacturing overhead costs as a percentage of total product sales increased to 40% of total sales from 15% for the same period in 2023.
Speaker Change: research and development expenses were 2.3 million for the three-month end of September 30th 2024 compared to 2.9 million for the comparable 2023 period a decrease of approximately 20 percent
Speaker Change: The reduction in R&D expense was largely due to a 0.4 million dollar decrease in external development costs and a 0.2 million drop in salary and benefits related expenses.
Speaker Change: Sales and marketing expense was $1.8 million for the three months ended September 30, 2024, as compared to $2.8 million in the same period in 2023.
a decrease of approximately 38 percent.
Speaker Change: The reduction in sales and marketing expense was largely due to a $.5 million decrease in advertising and trade show expenses, a $.2 million drop in travel-related expenses, and a .5 million drop in sales and marketing expenses.
Speaker Change: $6 million drop in consulting and wage costs from headcount reductions partially Offset by a point three million dollar increase in allowances for credit losses
Speaker Change: General and administrative expense for the three months ended September 30th 2024 was 4.3 million versus 4.5 million for the comparable 2023 period, a decrease of approximately 3%.
Speaker Change: The net loss for the three months ended September 30th, 2024 with $9.2 million or $0.14 per share versus a net loss of $11 million or $0.17 per share for the same period in 2023.
Speaker Change: Now for some balance sheet and cash flow highlights. Our cash and cash equivalents position as of September 30, 2024 was $14.3 million and our net working capital was $26.5 million.
Speaker Change: As of September 30, 2024, the company continues to have no current or long-term debt obligations outstanding.
for the third quarter of 2024 total cash operating expenses.
Speaker Change: A non-GAAP measure consisting of the sum of our total operating expenses and our statement of operations less non-cash stock-based compensation, depreciation, amortization, and impairment charges.
Speaker Change: was $4.8 million versus $6.7 million for the comparable 2023 period, a reduction of 28%.
near the end of the third quarter.
Speaker Change: Of 2024, we received $10 million in cash fee to previously announced Quanta Computer Investment in Vuzix Common Stocks.
There are two other further performance-based control.
Speaker Change: $10 million for which we expect to be achieved in 2025.
Speaker Change: The net cash flow used in operating activities was $5.3 million in the third quarter of 2024 as compared to a net use of $8 million for the third quarter of 2023.
Speaker Change: Cash used for investing activities for the third quarter of 2024 was $0.3 million versus $2.5 million in the prior year's period as we spent much less on fixed asset investments related to our waveguide production facility and for technology license investments.
Speaker Change: We will continue to look further at trimming our operating expenses as needed while still proceeding forward with our operating plan and our continued transition to an ORM supplier.
Speaker Change: Of course, we can improve our cash position through further potential strategic investments, government engineering service grants, and under the right circumstances, other equity-based liquidity options available to the company.
Speaker Change: I would now like to turn the call back to Paul for some closing remarks. Paul? Thanks Grant.
Paul Travers: As we look ahead, the opportunities in the AR and AI-driven smart glasses market are vast. Aforementioned industry leaders continue to bring AR wearables into the spotlight, driving awareness and adoption.
Paul Travers: This increased visibility directly benefits Vuzix as we continue to differentiate ourselves with advanced waveguide technology and high volume manufacturing capabilities for markets across the board.
Paul Travers: Our immediate priorities include scaling waveguide production to meet demand from defense and commercial OEM clients, securing additional partnerships with Fortune 500 companies, and expanding our product portfolio to include additional lightweight high-performance solutions as reference platforms to white label.
Paul Travers: The defense OEM markets represent a significant growth area for Vuzix as we continue to deliver solutions that align with the unique demands of military and government applications.
Paul Travers: These efforts will be supported by our competitive manufacturing capabilities and strong industry partnerships, positioning Vuzix to be a leader in this exciting market.
Paul Travers: In conclusion, Q3 has been a transformative quarter for Vuzix, marked by strategic advancements
Speaker Change: disciplined financial management and operational achievements. We are well positioned to capitalize on the upcoming growing demand for smart glasses and remain committed to delivering value to our customers and shareholders. With that I would like to turn the call over to the operator for Q&A.
Speaker Change: Thank you. And ladies and gentlemen, at this time we'll conduct our question and answer session.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue.
Speaker Change: You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.
Speaker Change: Once again, ask a question, press star 1 on your phone.
Speaker Change: Thank you and there are no telephone questions at this time. I'll hand it back to Mr. Paul Travers. Thank you.
Ed McGregor: previous to the call. So we thought maybe we'd go over a few of those. Ed?
Ed McGregor: Sure, we have several, Paul. First question, what are the next steps in your waveguide supply relationship with QANTA once you meet the milestones, and what are your ultimate options?
Ed McGregor: first of all the current goals are to reach a certain level of manufacturing capacity and let me explain that the most difficult part of that you just can already do with where we stand on the plant floor. There are some things that we have to do around prepping the finished parts to actually put them in devices that is taking a little bit of time but as we said that should happen in the first quarter or early in the year and that's to get to a million million plus waveguides on an annual basis.
if you think about the market for a minute, right?
Ed McGregor: 300 million smartwatches on an annual basis. That's the first stop for smart glasses. So stopping at, you know, one, one and a half million waveguides on an annual basis is just not the goal here.
Ed McGregor: Quanta and quite frankly other companies that we're involved with right now that need are going to need significantly higher volumes than that. So step one is the million plus. Step two is going to be a significant jump.
Speaker Change: Next question, can you size the market opportunity around your mention of the ballast head mounted display product?
Speaker Change: We've talked about the defense space in the past. These are devices that really push the envelope on the capabilities of what a waveguy can do as such.
Speaker Change: The price per waveguide system can be anywhere from $4,000 to $7,000 dollars a system, monocular, binocular, field of view, etc. based on that.
Speaker Change: We have partnerships with companies that range in the $2,000 per year that ultimately could become five-year kinds of programs that could jump into the $5,000, $10,000 piece quantity. So it's a significant piece of business and defense.
Natalis, I cannot speak directly to right now.
Speaker Change: I can't speak directly to TALIS right now. Obviously these are confidential kinds of relationships at this point in time. There'll be a lot more happening in the new year as the specific program gets, that specific program gets announced.
Speaker Change: Okay, we have one more. Are there other players trying to make waveguides and who do you think stands to be your biggest competitors in this space over the next year or two?
there's a handful of companies that make wave guides.
Speaker Change: Many of them, probably fall in three categories, at least it's an easy three category thing let me start with.
Speaker Change: Many of them are using semiconductor based process equipment which has a limited run rate capacity.
Speaker Change: You've got a 300mm wafer, you get 12 waveguides, and maybe it takes 2-4 hours to produce. You've got to make, like every 6 seconds, a waveguide just to do the million-a-year kinds of numbers.
Speaker Change: that's really not competitive and it's expensive. You know, you probably could spend a ton of money to parallel all that equipment, but this is equipment that's really expensive. And normally in the semiconductor industry...
Speaker Change: The reason why prices come down on silicon is because instead of needing a 1-inch...
Speaker Change: piece of surface area on the piece of silicon you shrink stuff down to like you know five millimeters by five millimeters so on a single 300 millimeter wafer you're getting 5,000 parts you just can't scale that.
Speaker Change: with waveguides. They're 50 millimeters by 50 millimeters, the size of a regular pair of glasses.
Speaker Change: You don't get that economies of shrinkage that you do with Moore's Law in the semiconductor space. There's a couple of other methods. One of them uses prisms and glass.
Speaker Change: If you look at practically every one of these other options, the cost per waveguide is very, very significant in a comparison to what users can do it. So there's not really a lot of competition. I will say there's probably some companies in China that are working on trying to race to this.
Speaker Change: to this business that's coming, they have their challenges also because many of those folks are doing it the same way with semiconductor process equipment.
Speaker Change: It's part of the reason why Quanta picked Musics, quite frankly. I mean, I can't get into all of the details around that, but they spent a fair amount of time on our plant floor. They looked at our processes, they looked at our capabilities, and they seem obviously quite convinced that Musics is going to be able to get the volumes that they're going to need for the higher and broader markets.
and most critically, at the price points.
Speaker Change: If it costs you $500 for a waveguide and you need two, or look at Orion's stuff from Meta, where it's like...
Speaker Change: $4,000 a wave guide and very, very poor yields, that just doesn't make a business. You've got to be able to produce these things like chiclets, and that's what Fusix's plant floor capabilities can do.
Speaker Change: And I think that's the questions for now. I'd like to just end really quickly to thank everybody for your interest and participation on today's call.
Speaker Change: Again, if you plan to attend CES this coming year, please stop by our booth to get an in-person look at the future of consumer smart glasses. It should be a very exciting show. Musics will have a lot to share this year. Thank you very much, everybody.
Speaker Change: Thank you and with that we conclude today's call. All pars may disconnect. Have a good day.