Vuzix Corporation (VUZI) on Q1 2021 Results - Earnings Call Transcript

Operator: Greetings and welcome to the Vuzix's First Quarter ending March 31, 2021 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. . 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: Good afternoon, everyone and welcome to the Vuzix's first quarter ending March 31st financial results and business update conference call. With us today are Vuzix CEO, Paul Travers and CFO, Grant Russell. Before I turn the call over to Paul, I'd like to remind you that on this call management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question-and-answer session. Paul Travers: Thank you, Ed. Hello everyone, and welcome to the Vuzix Q1 2021 conference call. Vuzix Smart Glasses continue to be called upon by our enterprise customer base to solve operational challenges across a variety of market verticals and use cases. Demand for Vuzix Smart Glasses continues to be broad based both in terms of industry verticals and geographies, and our customer base and average order volumes continue to increase. Looking back over the last five years, our first quarter has historically been one of the softest quarters of the year four Vuzix, a common occurrence for many technology hardware firms. Yet despite this seasonality pattern, we achieve record quarterly Smart Glasses sales of $3.8 million during the first quarter. Our total Q1 revenue was just over $3.9 million and represented a comparative year over year quarterly increase of 156% led by an increase in Smart Glasses sales of 177% in the period. Grant Russell: Thank you, Paul. As Ed mentioned, the 10-Q we follow this afternoon with the SEC offers a detailed explanation of our quarterly financials. So, I'm just going to provide you with a bit of color on some of the numbers now. Our first quarter total revenues for the three months ended March 31, 2021 rose to 156% over the prior year's period to $3.9 million. The increase was primarily a result of stronger M400 smart glasses sales that tripled in revenues as compared to the same period in 2020. Overall sales of Smart Glasses rose 179% to $3.8 million in the quarter, as compared to $1.4 million in the prior year's period. There was an overall gross profit of $1.1 million for the three months ended March 31, 2021 as compared to a gross profit of $0.1 million for the same period in 2020. Overall net gross profit margin was 28% for Q1 2021 as compared to just 5% for Q1 2020. The improvement was primarily the result of higher product sales level levels, which allowed us to more fully absorb our relatively fixed manufacturing overhead costs in to a lesser extent improved gross product margins as compared to our mix in the 2020 prior period. R&D expense was $2.1 million for the three months ended March 31, 2021 as compared to $2 million for the comparable 2020 period, an increase of approximately 3%. The increase in R&D expense was primarily due to higher salary, salary benefits stock-based compensation expense, mostly offset by a decrease in external consulting fees related to the M400 Smart Glasses development and maintenance. Selling and marketing expense for the three months ended March 31, 2021 rose 8% year over year to $1.2 million as a decrease in tradeshow costs were more than offset by increased salary and stock-based compensation, website and advertising expenses. General and administrative expense for the three months ended March 31, 2021 was $3.7 million, an increase of 141% or $2.2 million, largely due to salary and stock-based compensation related expenses, which rose $1.8 million inclusive of a $1.6 million non-cash charge related to vesting a milestone awards under our new long term incentive plan, or LTIP. The addition of a seasoned General Manager and agency recruiting fees. Excluding this non-cash LTIP charge, G&A expenses rose 37%. The other major net changes included a $0.3 million increase in legal and regulatory fees. The net loss for the three months ended March 31, 2021 was $6.6 million or $0.12 per share versus a net loss of $5.9 million or $0.18 per share for the same period in 2020. Now for some balance sheet highlights. As a result of ongoing war and exercises during the first quarter and our recent equity offering in March, our balance sheet is strengthened significantly since year end. Our cash position as of March 31, 2021 was $132.7 million. And we had a net working capital position of $140.6 million. Cash used in operations, excluding changes in our working capital totaled $3.8 million for the first quarter of 2021 as compared to $4.3 million in the first quarter of 2020, a decrease of 12%. Cash used for investing activities for the first quarter of 2021 was $0.7 million as compared $0.3 million in the prior year's period as our investments in CapEx, patents and licenses rose year over year. During the three months ended March 31, 2021 we received $103 million in net cash from financing activities, which included one, $80 million in net proceeds from our public offering that closed March 31, 2021 and two, $35 million in net proceeds from the cash exercise of warrants. These proceeds were partially offset by a $10 million payment to Intel for the settlement of our accrued, but previously undeclared Series A preferred stock dividends, which were converted into common shares in late January 2021. On April 1st, we received an additional $12 million pursuant to the full exercise by underwriters of their overallotment option for an additional net proceeds of $12 million, effectively bringing our proforma cash position to approximately $145 million as of that date April 1. For the three months ended March 31, 2020 we did not receive any proceeds from financing activities. And as of March 31, 2021 the company does not have any current or long-term debt obligations outstanding. Of note on our current asset balances as of March 31, 2021 we were required to increase our investment in manufacturing vendor prepayments from December 31, 2021 to $2.3 million or approximately $1.8 million. This vast investment is really different component inventories and was made to secure supply of certain electronics, which are in demand currently and have some probability of going end of life in the place of new items. As of the day, we do not see significant requirements to make further such investments. But we are monitoring our supply chain closely to ensure we have enough coverage on certain items into 2022. As a result, these investments could increase. Looking forward to the balance of 2021. We expect to continue to at least double our levels of investing activities for the 2021 fiscal years as compared to actuals and 2020, primarily focused on new product tooling, development and IP. We as well currently expect to increase R&D spending by at least 50% over 2020 comparable levels. Further, we intend to incur additional spending on sales and marketing activities, particularly overseas, where we see many opportunities for growth. Vuzix now has the capital resources to smartly invest and grow with future business. And with the expected planned revenue growth in 2021 and beyond, we see great value in investing more for such growth while expanding our IP in competitive position. But simply we intended to just use adjacency, deploy and leverage our increased capital resources for the benefit of our stockholders, customers and staff. With that, I'd like to turn the call back over to Paul. Paul Travers: Thanks grant. As the world comes back to work post COVID, Smart Glasses are shaping up to be a fundamental part of it. In so many ways, the promises of Smart Glasses and enterprise across the board are becoming a reality and Vuzix is positioned better than most any other firms to capitalize on, and lead in an industry touted to be in the multi billions of dollars in value. Vuzix also has its strongest balance sheet in the company's history to support operations and our efforts to accelerate revenue growth and R&D, including new product developments. As you might imagine, Vuzix is well positioned to achieve another year of solid year over year revenue growth. I'd like to now turn the call back over to the operator for Q&A. Operator: Thank you. And at this time, we'll be conducting a question-and-answer session. . Our first question comes from Christian Schwab with Craig-Hallum Capital Group. Please state your question. Christian Schwab: Hey, guys. Given the substantial balance sheet, is there any plans for M&A? Or how should we be thinking about which we'll be doing with that over the next two to three years? Operator: One moment, Sir. Let me mute you real quick, one moment. Go ahead. Paul Travers: Hey, Christian, good question. There's no doubt that Vuzix has some strategic acquisitions that we're looking at, that should provide significant growth for the company, especially on the software side of the business. There's a few components and pieces and parts on the technical side, but we're typically in pretty good shape there. And that's said, on the software side of our business, there are some organizations that are in our industry already, that are in a really good spot, that would generate significant we believe software revenues for the company going forward. And there are some companies that are actually not in the Smart Glasses space that should be. So, we can't go much more than that. But just to let you know that yes, ventures are going to be to put some of that capital to work, and acquisitions will be part of it. Christian Schwab: Great. And thank you for the update on Slide 11. On this Tier 1 aerospace and defense contractor that is moved into the production negotiation stage. I don't know if I missed it in the call. But did you quantify the revenue opportunity that potentially could happen there? Paul Travers: We have not shared that yet. Christian. Christian Schwab: Okay. Okay. If we look at the other, Paul Travers: I'm sorry, I can offer a little bit more color. We have talked about this before. These guys are in valuation, they're building stuff around, and I can't get into a lot of details. But these are going to be units that will be in the 1000s kinds of units and there's a 4000 to 7000 price point based upon configurations and stuff. I hate saying it, but we're all just going to have to wait. Sorry. Christian Schwab: No, no worries there. And then the other four opportunities at different stages between Phase 1 and Phase 2. Can you remind us how long it took to get from Phase 1 to product negotiation with the first highlighted customer? And is that kind of the expected typical timeframe that we should expect with the other major opportunities? Paul Travers: I think it's pretty good sounding pretty similar. I will say that there's one exception to that rule right now. And that is with our Jade Bird Display relationship. We should be sharing more about that coming up. But in fact, knock on wood, we should nice dress really here, revolving around Sydney even that we'll share a bit more in this regard. But we've made great progress with optical systems. We're going to be sharing them with the world soon. And that business, I think you'll start to see some forward momentum even before the rest of this year is out. Christian Schwab: Great. Fantastic. No other questions. Thanks, guys. Operator: Our next question comes from Matt VanVliet with BTIG. Please state your question. Rachel Freeman: Hi, this is Rachel Freeman on for Matt VanVliet. Thanks for taking my question. So you highlighted a broadening number of use cases. Can you provide a little more color on which of these use cases are gaining the most traction? And are there any in particular that you've seen emerge more prominently versus last quarter? Paul Travers: Yeah, Rachel, hi. The healthcare side of our business is just amazing to me. The fit is perfect, the glasses worked so well. And it's ranging in that space from integral operating environment tools, for instance, Pixee with their knee surgery is a fundamental part of doing knee surgery now. It's not just simply being used as a remote support tool, literally without the glasses you couldn't do the knee surgery. So that that portion of our business from the direct surgery support during and in the operating theatre. Now if you think about a firm like Medtronic, right they have medical technicians that normally are in the operating theatre while these operations are happening. And it's hard to do that today. And with all these back orders of people that need to get operations done, the demand on the doctors and the demand on these medical technicians is significant, and the glasses are just opening up so much better paths to get stuff done. So, the medical side of our business is really cranking and I don't see it slowing down. In fact, we have more and more companies that are jumping on the bandwagon there. On the remote support side, which is sort of the baseline that just continues that Vuzix, it's become a fundamental way for people to get remote activities done. And I think with the reopening, I don't think that's going to slow down either, because you can send a pair of glasses, you don't have to send the person. And then another area that's really starting to pick up is this whole in-store picking, and warehousing and logistics and delivery of materials and the like. So, the three PLs and the retail guys that are trying to do fulfillment, pallet stacking, there's just a bunch of applications on this side. And in those areas, literally we are responding to requests for 1000s of units kinds of deployments. So, it's kind of three areas, the remote support stuff, the medical stuff and then finally, logistics. Rachel Freeman: That's really helpful. Thank you. Operator: . Our next question comes from Jim McElroy with Dawson James. Please state your question. Jim McElroy: Thank you. Good evening. Grant after the contemplated investment and expense increases that you have for the year, what are cash operating expenses and GAAP operating expenses going to be for the year? Grant Russell: Well, again, we don't necessarily give full forecast for the year. So, I mean, we've kind of do… Jim McElroy: Let me put it this way then, you talked about sales and marketing going up? Grant Russell: Yes. Jim McElroy: Is it going up at the same pace that R&D is going up? Or is it just… Grant Russell: No, not as steep. R&D will be up 50%. So, if we did $10 million or the $8 million last year, we probably do a little over $12 million in 2021. Sales and Marketing will probably go up by a smaller sum. I mean, some of that is related to sales revenues, we do have planned increases, commission expense, advertising on the other. So, I mean, realistically, it's probably going to be also up for your 50%. But we're going to have a much bigger top line and hopefully gross margin and G&A, I mean, other than - recently we've had expense increases and things like insurance. Insurance, we just got to settle on our 2021 plan, our regular rates have tripled. And, just the nature of the markets, and we have some other unknown costs that could come but there'll be other major driver, there's just going to be memcached.com, so I wouldn't see a material, further increase as in the ones I just highlighted in G&A. Jim McElroy: Okay. And then the sales and marketing increase that you're contemplating. Is that primarily related to increased headcount? Or is there something else going on that I should be aware of? Grant Russell: Headcount would probably be 40% to 50% of it. We do see some good opportunities, particularly overseas. We're expanding our presence in Europe. We're going to set up - currently, we have plant in South America, lumped in with APAC. We're going to split those into regions. So, I mean, we're looking at potentially a couple of additional bodies for each region as well as a full-time sales engineer. So, that's going to increase our staff complement, and that's for two reasons. One, to getting pre sales and to better support to customers we expect from our plan growth of sales. So, there'll be hopefully be profitable ads. And if it goes slower than we plan, we won't necessarily incur all those costs as quick as we currently plan on. Jim McElroy: Okay. And also on sales and marketing as you continue to grow the top line do you think you need to change the way that you're approaching the market that is less value-added resellers, more value-added resellers, you need to have more bodies add? I'm just trying to understand not the dollars that are being spent, but the infrastructure or the organization that you believe that you're going to need to have as the top line scales. Paul Travers: I'll comment on that. Grant Russell: Okay, go ahead. Paul Travers: Yeah, I can offer a little bit there, Jim. The channel management of our sales channel is becoming the cornerstone for how we do this. We got great value-added resellers and the likes. But we also feel it's critically important to grow a relationship closer with our end customers. And the more we're doing that today, the bigger revenue streams are coming from that side of our business. An example would be Medtronic, they buy everything from Vuzix. They buy the software solution from Vuzix, they buy the hardware from Vuzix, and they have some support stuff that we do with them. And being able to manage that relationship closely, Medtronic is just a, it's a growing significantly growing piece of business for Vuzix, because we're able to manage that relationship so much tighter. So, we're doing more and more of that. Our relationship with our partners over at TeamViewer, which now is upskill. And it's UB Max at the same time. We are reselling their software applications at the same time also to try to keep that relationship closer with our customer. What that means is we're going to put some more smart engineering sales type people and the channel management guide to help manage those relationships. So, we keep the relationship with our customer, in more cases than not. So that takes a bit more work to make that happen internally. We still have very, very good relationships. I don't want to take our value-added reseller partners and make them feel like they're not bringing value because they certainly are, but we find we have much better success when we're closer and the customer. As our software models come online, and we start offering direct solutions, you'll see that side of our efforts pick up even more. Jim McElroy: Okay. And when you look out, let's say three years from now, do you think that the largest industries or segments or sectors that you're addressing are going to be healthcare and logistics and something else? Or is there a sleeper category out there that that we should be focusing on? Not that we would like to talk about? Paul Travers: Right now, there's no doubt that remote management of almost anything with our glasses, remote auditing, remote support, you put the glasses with a case tractor and now there's remote, I can get the tractor up and running without having to send an expert out into the field. You're going to see that all over the place. You're going to see healthcare in the most amazing solutions that are coming from the glasses. The more sensors you put in the glasses, the more the glasses can do in the healthcare environment. Also, it's actually a true statement across the board, frankly. And we've mentioned in the call earlier, there's all kinds of new tech that you'll see in some of our next generation stuff that allows us to do some of this really cool next gen more advanced stuff. Medical was a big space for it. Medical alone, Jim is going to be in the billions of dollars, if you think about being fundamental part of how operations get done and all kinds of other areas of the hospital. So, telehealth, telemedicine, medicine in general, I think you're going to see a lot of business from Vuzix. And then this whole idea of logistics, moving boxes around those three areas are all in my opinion going to be in the billions of dollars in value. And yes, there are other verticals that we are looking at that nobody is in right now. That Smart Glasses will completely change the game for, that we think have significant kinds of value. Jim McElroy: Okay, very good. Thanks a lot and good luck with everything. Paul Travers: Thanks, Jim. Operator: Our next question comes from Jack Vander Aarde with Maxim Group. Please state your question. Jack Vander Aarde: Hey, guys, thanks for taking my questions. Just a couple on the engineering and OEM side. Paul, in addition to those five OEM projects that are listed on Slide 11 in today's presentation, can you provide any color around maybe your expectations or the likelihood or perhaps a timeline of adding another OEM project or two to the list? Paul Travers: So, it's interesting Jack, we've actually turned several of them down over the last six months. You got to kind of pick and choose where your ROI in the best value is going to be. And so, I could say that we could go back and turn one of those on. We're trying to be involved with opportunities that have a reasonable manufacturing opportunity on the backside of that. We don't do these things to make 50 of something sort of a thing. We're in discussions in several different areas, and part of what this Jade Bird business be, is actually enabling a lot of opportunity in this regard. These micro display engines that Vuzix has built around the Jade Bird Displays are phenomenal. You'll - again, within a week, I hope you'll see more about, what this is all about. And in the announcements that we'll be talking about, you will see the kinds of applications. Interestingly enough, these little engines are going to be designed to not just be used in a pair of glasses. There's all kinds of things they can be used in. And so, you'll see that expand, I think in a lot of different areas. Jack Vander Aarde: Okay, cool. That's helpful. And then just a question on more of a housekeeping item, maybe. But just to get a sense, to see if I'm understanding this correctly. In the 10-Q it's - I think there's something related to Waveguide project that began in the third quarter of 2020, that's set to finish in the second quarter here of '21 with about $40,000 of revenue, engineering services revenue left on that. Are there any other projects that have been previously disclosed that are expected to contribute to engineering services revenue in the second quarter? Or is it just this last project here with $40,000 left on it? Paul Travers: I anticipate there is a good chance, there'll be some more engineering/it couldn't be booked this product? Actually, I have to talk with Grant about how I'm not being the finance guy in this regard. There is some stuff going on that you know we're delivering against. So, you'll see stuff. But I don't know if it's going to show up as an array or not. We could follow back up on that one later to, when I can get the details from Grant. Jack Vander Aarde: Sure, yeah, no, no problem. And just one last question. Maybe this is for Grant. Just looking at the product, gross margins they came up quite nicely this quarter from the prior quarter, just on a GAAP basis, at least. Is this in revenue and kind of ticked up like maybe $0.1 million on the product revenue for that to happen? Is this pretty normal, are you cuffing this is like a 44.4 for the rest of the quarters here to get I'm showing like, 25.9% is that? Is that I want your confidence in that kind of gross margin going forward? If not elevated? Paul Travers: I mean, I think if, you know, we, we keep the revenues per quarter in the $4 million plus range, and then hopefully, like greater. We should be able to achieve margins in the north of 26. I mean, hopefully, we can - our goal is still to get up to 40 that requires a bigger revenue base that better absorb some of our relatively fixed manufacturing overhead costs. I mean, we anticipate currently getting into the well into the mid-30s before the end of 2021. Jack Vander Aarde: On a gross margin base rate? Paul Travers: That products are doing well, their price well, we gotten rid of the old ones and most of the write down so I think it should be hopefully pretty clear sailing, going forward as we grow. Jack Vander Aarde: And as you know, Grant, there's some things that we're doing that shouldn't take some of the costs out, but they work out what we think they will? Grant Russell: Yes, absolutely. Jack Vander Aarde: Always nice to surprise so positively. Okay, well, guys, I appreciate the color. Thank you. Paul Travers: Thank you, Jack. Operator: Thank you, and at this point, I will turn call back to Paul Travers for closing remarks. Paul Travers: I don't know how to describe that everybody Vuzix's business is taking off. There's no doubt about it. Smart Glasses, they've been touted for a long time now to be in the billions in value and it is starting to unfold and post COVID, Vuzix is now really good spot. I'd like to thank everybody for your interest in participation on the call today. And I'd like to remind everybody that our Annual Shareholders Meeting is going to be done virtual this year. We look forward to quote unquote, seeing everybody there. Thank you again. And have a great evening, everybody. Operator: Thank you. This concludes today's conference; all participants may disconnect. Have a great day.
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Vuzix Corporation (NASDAQ: VUZI) Faces Financial Challenges Despite AI and AR Innovations

  • Vuzix Corporation's earnings per share (EPS) of -$0.16 missed the estimated EPS, reflecting financial challenges.
  • The company's revenue of $1.27 million fell short of expectations, indicating ongoing profitability issues.
  • Vuzix maintains a strong current ratio of 13.16, showcasing its ability to cover short-term liabilities despite financial hurdles.

Vuzix Corporation (NASDAQ: VUZI) is a key player in the AI-driven smart glasses and Augmented Reality (AR) technology sector. The company is known for its innovative products and strategic partnerships, such as the one with Quanta Computer, which involves a $20 million investment. Despite these advancements, Vuzix faces financial challenges, as reflected in its recent earnings report.

On March 13, 2025, Vuzix reported an earnings per share (EPS) of -$0.16, missing the estimated EPS of -$0.12. The company's revenue also fell short, coming in at $1.27 million against an expected $1.53 million. These figures highlight the financial hurdles Vuzix is currently facing, despite its efforts in product innovation and market expansion.

During the Q4 2024 earnings call, led by CEO Paul Travers and CFO Grant Russell, Vuzix discussed its financial results and business developments. The company emphasized its progress in AI and AR smart glasses, including a partnership with Quanta Computer and expanded production capacity for waveguides. However, the financial metrics indicate ongoing profitability challenges.

Vuzix's financial ratios further illustrate its current position. The negative price-to-earnings (P/E) ratio of -1.85 and negative earnings yield of -0.54% underscore the company's lack of profitability. Despite this, Vuzix maintains a low debt-to-equity ratio of 0.016, indicating minimal reliance on debt, and a strong current ratio of 13.16, reflecting its ability to cover short-term liabilities.

Investors seem willing to pay a premium for Vuzix's sales, as shown by the price-to-sales ratio of 28.92 and enterprise value to sales ratio of 26.46. However, the negative enterprise value to operating cash flow ratio of -5.68 suggests challenges in generating positive cash flow. These financial metrics highlight the complex landscape Vuzix navigates as it strives for growth and profitability.

Vuzix Corporation (NASDAQ:VUZI) Shows Promising Growth Potential

  • Vuzix Corporation (NASDAQ:VUZI) is trading at $4.24 with a target price of $6.42, indicating a growth potential of approximately 51.53%.
  • Universal Electronics Inc. (UEIC) is trading close to its intrinsic value with a slight price difference of -2.38%, despite a negative P/E ratio and EPS.
  • Sony Group Corporation (SONY) shows a stable financial position with a positive price difference of 3.57%, but Vuzix offers a more attractive growth outlook.

Vuzix Corporation (NASDAQ:VUZI) is a technology company specializing in the development of smart glasses and augmented reality (AR) solutions. The company is currently trading at $4.24, with a target price of $6.42, suggesting a growth potential of approximately 51.53%. This indicates a positive outlook for Vuzix, as the target price is significantly higher than the current market price.

When comparing Vuzix to its peers, Universal Electronics Inc. (UEIC) is trading at $10.51, with a discounted cash flow (DCF) value of $10.26. Despite a negative price-to-earnings (P/E) ratio of -1.23 and an earnings per share (EPS) of -2.05, UEIC's price difference is only -2.38%. This suggests that UEIC is trading close to its intrinsic value, unlike Vuzix, which has a higher growth potential.

Sonos, Inc. (SONO) has a current price of $14.78 and a DCF of $8.49, resulting in a significant price difference of -42.55%. With a negative EPS of -0.31 and a P/E ratio of -39.25, Sonos appears to be overvalued compared to its intrinsic value. In contrast, Vuzix's target price indicates a more favorable growth outlook.

Sony Group Corporation (SONY) stands out among Vuzix's peers with a positive price difference of 3.57%, as its current price of $21.14 is slightly below its DCF of $21.90. With a positive EPS of 1.16 and a P/E ratio of 16.63, Sony shows a stable financial position. However, Vuzix's potential growth remains more attractive due to its higher target price.

Apple Inc. (AAPL) and Panasonic Holdings Corporation (PCRFF) both show negative price differences of -43.94% and -34.52%, respectively. Despite Apple's high market cap of $3.90T and EPS of 6.07, its current price is significantly above its DCF. Similarly, Panasonic's current price exceeds its DCF, indicating potential overvaluation. Vuzix, with its promising target price, offers a more optimistic growth potential compared to these peers.