Vuzix Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 12, 2025

There are 5 speakers on the call.

Operator

Greetings, and welcome to the Vuzix First Quarter Ending 03/31/2025 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.

Operator

Ms. McGregor, you may begin.

Speaker 1

Thank you, operator, and welcome to the Vuzix First Quarter '20 '20 '5 Ending March 31 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. 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,

Operator

as well

Speaker 1

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, 05/12/2025. Vuzix assumes no obligation to update these projections in the future as market conditions change. This afternoon, the company issued a press release announcing its Q1 twenty twenty five financial results and filed its 10 Q with the SEC. So participants in this call who may not 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 1

Today's call may include certain non GAAP financial measures. When required, reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the company's filings 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, who will provide an overview of the company's first quarter results, after which we'll move on to the Q and A session. Paul?

Speaker 2

Well, thank you, Ed, and thank you to everyone joining us today. It has just been a couple of short months since our last formal update, but a lot continues to be happening at Vuzix and the smart glasses markets overall. Vuzix and the entire industry are gaining further commercial momentum as it begins to enter a new phase driven by further OEM and enterprise smart glasses engagements. Our vision and investments are translating into further commercial traction and at the same time the broader tech industry is amplifying its focus on developing and delivering AI powered smart glasses signaling that the race to bring these products at scale to the larger markets is very much underway. In our OEM business, we are actively engaged with a growing number of partners spanning enterprise, defense and consumer oriented segments.

Speaker 2

Indeed 2025 has thus far been marked by important developments for Vuzix that span relationships, technologies and solutions, each of which I will touch upon. Collectively, we feel these developments and the large market opportunities they represent are putting the company on a path to significant and sustained revenue growth. From a broader industry perspective, we are witnessing announcements of large scale strategic investments being made by leading ODMs and semiconductor firms in our country, which underscore a concerted effort to deepen economic ties with The United States, enhance supply chain resilience and navigate the evolving global trade landscape. With Vuzix being a U. S.-based manufacturer, we believe this shift within the supply chain may provide strategic opportunities for Vuzix to further bolster and expand our brand and global presence within the waveguide and AI driven smart glasses market.

Speaker 2

On that note, our collaboration with Quanta continues to expand with ongoing development around previously announced smart glasses, ODM and OEM reference platforms along with several additional new programs that are also in motion. These joint efforts will combine Qantas world class manufacturing and global OEM reach with Vuzix advanced waveguides, display engines and smart glasses architecture. Together we are building a strong foundation to enable and participate with our waveguides in the mass production of AR enabled wearables at scale and at reasonable price points needed for mass adoption. Over the last eight months, the Vuzix team has been in lockstep with Quanta to drive strategic initiatives together and we are aligned towards unlocking opportunity to support the broader markets. Vuzis has made tremendous progress towards achieving the milestones required to receive the remaining two investment tranches from Quanta, which would provide a further $10,000,000 in growth capital.

Speaker 2

Not surprisingly, our smart glasses market presence, design experience and most importantly our proprietary low cost scalable waveguide manufacturing ability are being recognized by a growing number of leading ODMs. A major development late in Q1 was our acquisition of a state of the art waveguide R and D and tooling facility in Milpitas, California. Previously operated by one of the largest global tech firms, this facility will serve as a new hub for waveguide and tool development and rapid prototyping. It can also handle highly custom small batch manufacturing needs if required by our customers. This acquisition was highly strategic for its location, technological advancement and financial efficiency.

Speaker 2

The facility is already in operation which resulted in practically zero startup costs. The total cost of acquisition and expected incremental operational costs for the first year is in the low 7 figures, a remarkable value given the equipment and capabilities we acquired. The facility anchors our presence in Silicon Valley and strengthens our ability to support customers there that need rapid, secure, high quality waveguide solutions to bring their smart glasses offerings into commercial production. A recent collaboration with Fraunhofer IPMS on a high performance CMOS MicroLED backplane was engineered to meet the specialized needs of select Vuzix customers. Early working samples have confirmed the design's promise for next generation display applications.

Speaker 2

Supporting 1080p plus resolution, the backplane accommodates both monochrome and full color micron sized micro LED arrays. This effort has been co developed by Vuzix, Fraunhofer and a third party with specific use cases in mind. As a result this cutting edge backplane is tailored for high end enterprise and defense applications where performance, precision and customization are essential. It is also capable of driving our new large format waveguides which can be used for a variety of specialized see through display systems. Vuzix offers an expanding family of smart glasses reference designs including the Ultralight Pro and Ultralight Audio introduced at CES twenty twenty five.

Speaker 2

And also of course our industry leading Ultralight weighing less than 38 grams and having over two days of run time on a single charge. These new AI driven smart glass designs offer a range of features from the lightest weight lowest power smart glasses ever built to advanced functionality such as voice activated commands, real time photo and video capture and the immersive AR experiences. And at the core of each is Vuzix state of the art waveguide technology. And behind closed doors Vuzix remains methodical in our current spending and investment in the future with several new unannounced products slated for later release this year in 2025. Each designed to meet the evolving needs of select enterprise, defense and OEM customers.

Speaker 2

These new offerings build on our core strengths in waveguide optics and AI enhanced wearable computing while integrating customer feedback, performance breakthroughs and platform flexibility. We are seeing continuing OEM interest and engagement from waveguide supply to full white label solutions. Notably, we just announced a design win with a 6 figure initial order for waveguides related to smart thermal AR glasses being developed by a European OEM customer. This product merges visible and infrared light through a see through head up display offering transformative capabilities for firefighters inspection and search and rescue use cases. Vuzix is actively building our part of the deliverables and the customer expects volume production of their smart glasses to begin in the fall of twenty twenty five led by one of the world's largest contract ODM electronics manufacturers.

Speaker 2

To reiterate, we have been selling into this customer product for production. This is a design win for the company that is going into production. As a reminder on the DoD front, we have multiple major programs in the works with prime contractors. The waveguide based solutions we have developed have gone through multiple iterations beyond proof of concept and are being actively shown to the select final defense customers they were intended for. To reiterate, we fully expect at least a couple of these programs to start production rollouts in 2025.

Speaker 2

We received our largest reorder to date from Xander Glasses, a private label product for captioning the spoken word in real time to assist the hearing impaired. Unlike other such wearables, Xander glasses are 100% self contained, designed for ease of use, operate with a simple on and off function and do not require a smartphone or cloud connectivity. Our Z100 smart glasses platform is also actively supporting the hearing impaired space, Transcribe Glass who is reselling our Z100 smart glasses and been placing a monthly cadence of reorders with their transcription software and under their own brand name. Another white label partner Mentra Labs is supporting Seating Z100 to support developers and end users. Mentra's Augment OS smart glasses operating system brings a suite of critical smart glasses AI agents and apps to Vuzix's ultralight platform.

Speaker 2

Using Augment OS SDK developers can make apps like an AI tour guide. Super memory tools, Chessmaster helper, face recognition, name memory, Shazam, speech coach, live captioning, translation and much more easily come to life. These are all tangible examples of how Vuzix Smart Glasses are beginning to deliver life changing solution to smart glasses adopters on a daily basis. Solutions that are game changing because of their non invasive delivery of information and assistance through the use of Vuzix Smart Glasses, information that is practically impossible to deliver through most any other wearable or handheld device. Turning to the enterprise market.

Speaker 2

In Mexico, NADRO, One of the country's largest pharmaceutical distributors continues to scale and now has over 500 Vuzix M400 Smart Glasses deployed across 14 of its warehouses there. Through our partner Accura Flow and TeamViewer's frontline software, Nagro is realizing over 30% improvements in order picking efficiency and dramatic reductions in training time. These are real numbers that translate into bottom line savings and faster workflows. Our enterprise customers are increasingly seeking smart glasses solutions help and that's where Movient's Mobilium software platform comes in. Mobient has accelerated the expansion of our enterprise solutions beyond traditional logistics by enhancing its Mobilium software to deliver comprehensive workflow efficiencies.

Speaker 2

Initial implementations are already operational gains with productivity improvements of up to 250% in certain warehouse applications, highlighting our leadership position in AI enhanced enterprise solutions. One such movie and win recently announced was with Airbus Helicopters who has committed to a broad rollout of their platform along with the Vuzix M400 Smart Glasses across its North American operations after a successful pilot over the last two years using our devices hands free on the assembly line and in logistics. We are also progressing with other notable movie driven engagements, which we look forward to announcing in due course as well as working with software solution providers that can address specific customers' needs. Agamex, a one stop shop solutions provider for increasing productivity with smart glasses recently placed a follow on $500,000 reorder for M400. OGMEX bundles their robust software solutions with Vuzix smart glasses products for key supply chain customers in The United Kingdom and across Europe and expects its demand for our smart glasses to grow by an order of magnitude over the next several years.

Speaker 2

Indicative of our growing pipeline of opportunities, we expect our enterprise business will be more characterized by hardware and software solution bundles that are based on customer feedback and more tailored to meet specific cost, performance and functionality needs. To wrap up, our OEM waveguide business is scaling. Our enterprise deployments are delivering results. Our strategic footprint is expanding. Our strategic relationship with Quanta is in great shape and growing.

Speaker 2

The AR smart glasses industry is realigning around practical AI driven use cases. And as mentioned earlier, we have several new unannounced products slated for release later in 2025, each designed to meet the evolving needs of select enterprise defense and OEM customers. And with that, I'll turn the call over to Grant for the financial overview. Grant?

Speaker 3

Thank you, Paul. As Ed mentioned, the 10 Q we filed this afternoon with the SEC offers a detailed explanation of our quarterly financials. So I'm just going to provide you with a bit of color on some of the quarterly numbers. Our first quarter twenty twenty five total revenue was $1,600,000 down 21% year over year due to decreased sales of smart glasses particularly our M400, but up 24% sequentially from the prior quarter. Engineering services were $300,000 for the three months ended 03/31/2025 versus $200,000 in the prior year's period, an increase of 47%.

Speaker 3

And we are continuing to see increased interest and activity in our custom waveguide development capabilities. There was an overall gross loss of $300,000 for the three months ended 03/31/2025 as compared to a gross loss of $100,000 for the same period in 2024. While our direct product costs of sales only remained flat year over year, manufacturing overhead costs unapplied increased both as a percentage of total product sales and in absolute dollar terms. The increase in the net dollar amount of these unapplied overhead costs was primarily driven by a planned further decrease in actual production levels during the first quarter of twenty twenty five compared to the same period in 2024 as we feel we have sufficient finished goods on hand to meet currently expected demand. Of course, we anticipate we can successfully turn the bulk of our current finished goods inventory into cash before those new model introductions occur as well as supporting existing M400 deployment programs with our customers beyond that date.

Speaker 3

And while our gross margins are expected to improve incrementally as we work through the remaining inventory net of prior obsolescence provisions, continuing tariff policy changes may make that difficult in the short and long term as we adjust our supply and manufacturing chains. Research and development expense was $2,600,000 for the three months ended 03/31/2025 compared to $2,700,000 for the comparable 2024 period, a decrease of approximately 5%. Reduction in R and D expense was largely due to a $500,000 decrease in salary and benefits related expenses, partially offset by a $300,000 increase in external development costs on new products. Sales and marketing expense was $1,500,000 for the three months ended 03/31/2025, as compared to $2,200,000 in the same 2024 quarterly period, a decrease of approximately 31%. The reduction in sales and marketing expense was largely due to a $400,000 decrease in salary and benefits related expenses driven by headcount and cash salary decreases in exchange for equity compensation, a decrease of $200,000 in advertising and trade show expenses and a $100,000 decrease in external contractor expenses.

Speaker 3

General and administrative expenses for the three months ended 03/31/2025 was $4,000,000 versus $4,100,000 for the comparable period in 2024, a decrease of approximately 3%. The net loss for the three months ended 03/31/2025 was $8,600,000 or $0.11 per share versus a net loss of $10,000,000 or $0.16 per share for the same period in 2024. Now for some balance sheet and cash flow highlights. Our cash and cash equivalents position as of 03/31/2025 was $15,200,000 and our net working capital position was 19,500,000.0 the quarter ended 03/31/2025, the net cash flows used for operating activities was just $3,500,000 as compared to $8,800,000 in the prior year period. This is a material improvement post our many cost reductions implemented in 2024.

Speaker 3

Cash used for investing activities for the first quarter of twenty twenty five was 800,000 versus $1,200,000 in the prior year's period. This investing level will continue for the balance of 2025. As Paul mentioned, we believe we are also on track to meet the performance milestones required for the second and third Quanta investment tranches, which should bring in an additional $10,000,000 of capital. Once that funding is received by Vuzix, portion of those investment proceeds are expected to be allocated to further expanding our waveguide manufacturing capabilities to meet expected demand growth and as a result, overall investment activity rates would increase. As of 03/31/2025, the company continues to have no current or long term debt obligations outstanding.

Speaker 3

Let me close by reiterating that we believe our overall cash position along with maintaining a disciplined cost structure, further conversions of our finished goods into cash and general business expansion particularly on the ODM OEM side and the achievement of any expected funding by Quanta of tranches two and three gives us sufficient runway to execute on our current operating plan well into 2026. With that, I would like to turn the call over to the operator for Q and A.

Operator

Thank you. We will now be conducting a question and answer session. And our first question comes from Christian Schwab with Craig Hallum. Please proceed with your question.

Speaker 4

Great. Thanks for taking my question. I'm sorry, missed it. How much of the $9,000,000 M400 inventory do you still have on hand?

Speaker 3

Well, it's the bulk of our inventory at the end of the quarter, which was a little over $4,000,000 but we've written off, there's probably provisions against that of close to $5,000,000 So in actual fact, we got about $9,000,000 of product, 5,000,000 we fully provided for. So but right now we're selling our finished goods and that's down to $4,200,000 approximately at the March.

Speaker 4

Great. Thank you for that clarity. And then on the last conference call, talked quite a bit about optimism regarding multiple product design partnerships with Quanta that could begin to pick up in the second half of twenty twenty five and ship more materially in 2026 a couple of months ago. So is there any update on your comfort and enthusiasm regarding that?

Speaker 2

It's not less. It's every bit as enthusiastic, Christian. It has only been a couple of months. But if things are moving forward, great guns right now. The relationship with Quanta and Vuzix is very good, first of all, and it helps.

Speaker 2

And they have an amazing team of people over there. And there's like we said before, there's multiple programs, at least two of which should be rolling before the end of this year.

Speaker 4

Great. And then regarding the two tranches that are left with Quanta and certain performance milestones, is that something that you would expect both tranches by the end of this calendar year 2025? Or how do you see that playing out currently? Yes.

Speaker 2

It should not be until the end of twenty twenty five. We are ahead of schedule by all rights. In fact, friends were here even just this last week for multiple days crossing Ts and dotting Is around it. It feels really good Christian. We're in a good spot and we can hit yield rates and run rates right in the zone in fact better than what the requirements are.

Speaker 4

Great. No other questions. Thanks guys.

Speaker 2

You're welcome, Christian.

Operator

Thank you. And with that, I would like to turn the call back to Paul Travers for further remarks.

Speaker 2

We did get a few other questions And I thought a bunch of them actually were answered, I think, through the conference call today. But I thought a few of these would be good to elaborate on just a bit. And one of them was the competitiveness of our waveguides in the competitive environment. And yes, there's lots of people talking waveguides out there these days. So to answer that, 100% correct.

Speaker 2

There are a bunch of companies out there that make waveguides. Well, a handful. Most of them, in fact, all of them for the most part are incredibly expensive or and or if you ask for a 1,000 or 2,000 waveguides for your production runs next week, you wouldn't get them for months because they don't have processes yet that can run the volumes and that have scaled. Literally in the last week Vuzix has run thousands of waveguides through our plant floor and they're all yielding amazingly high. So today you can come to Vuzix and say I want 5,000 waveguides and in short order Vuzix could manufacture those waveguides for you, one.

Speaker 2

Number two, because of the way we scale and the processes that we developed, it's quite inexpensive for us to manufacture these waveguides. Now that doesn't mean we're giving them away. It means we can sell them for some decent margin. Competitors are companies that do things like they stack prisms together and it can be as much as 400 steps and maybe you can make that yield, but all those steps cost money and there is material loss along the way. And so in the end, besides being very difficult to change that waveguide design into an industrial design, it's very, very expensive to manufacture the parts.

Speaker 2

We're talking hundreds of dollars of cost. But you need two if you think about it for waveguide. So that's like $400 just for waveguides to go into a pair of smart glasses. It is cost prohibitive for the volume markets. There are other companies that use semiconductor process equipment to do this.

Speaker 2

And the way they do that is they start with a wafer just like a semiconductor excuse me, silicon wafer, 300 millimeter circle typically and you process this thing and you can get 12 waveguides out and it takes hours to get those 12 waveguides out. If you came to our plant floor, you'd see it's kind of like the chocolate factory where they're just we just pound them out. It's quite amazing. And that story goes on with a couple of other companies that manufacture and are trying to manufacture waveguides and or get partners to do it in volume. But let me add to that.

Speaker 2

We have feature capabilities in our glasses which stand apart from the competition. We enable this thing called incognito where there's very little if any forward light when you're wearing the glasses. One of the problems with glasses today, if you look at HoloLens, I recommend everybody go and do a search for HoloLens images on the web and you will see every single person you look at looks like a zombie because where you normally would see people's eyes, you see a glow coming out the front of the glasses. We can get rid of that glow. Another incredibly important feature for the capability of waveguides in order to be accepted in the mass market.

Speaker 2

If you walk into a nice evening having fun at the bar and you put your glasses on and you look like you're wearing these glasses that glow like you just stepped off the Starship Enterprise, you might not get out of there alive even let alone you'll get picked on quite a bit. So it's not socially acceptable. Features like that, features like integrated prescriptions, these are things that we offer along with fast term design. We are a one stop shop that can deliver some of the best waveguides at the best price on the planet today. So there's a lot of things that stand allow us to stand apart.

Speaker 2

It's why people at Quanta and other ODMs are starting to come to us. And so we do have a lot of advantages compared to many of the competitors today. Another question was regarding the facilities, the new facilities that we have. These facilities were designed to make state of the art nano features in quartz materials. And I'm sorry, it's going to sound all techy and everything, but in order to make decent waveguides, you need to make tools to produce those waveguides on.

Speaker 2

And the better you can make those tools, the sharper you can make the cuts in the quartz, the more controlled you can control the depths with etcetera, the better the tools perform and the more precise the feature sets can be. And this equipment is state of the art. It's brand new. It's probably been run for a grand total of six months. It took eighteen months just to get installed.

Speaker 2

The other cool thing is this stuff is installed and operational. It's not like Vuzix has to go and then move this equipment and somehow get it installed and run all these extra gases because these are etching tools that are reactive etching tools that require special gases and all that stuff is done. It's a beautiful facility. It's available for our customers around the world today including ODMs like Quanta that we work with and it will allow us to build some of the best performing tool sets to run on our custom manufacturing equipment here in Rochester, New York. So there's a lot of great big advantages that we're getting out of this and it was a very inexpensive acquisition as I had said earlier on the call.

Speaker 2

I think there was another question related to our products in general and how they compete and how AI is changing the game there. We did talk about Augment OS. That's one example. The reality of it is smart glasses when they first started people thought this is going to be a better way to have Excel spreadsheets and Word documents and we're going to put them up around their monitor and stuff. That's not what these glasses are about.

Speaker 2

They're about connecting digital information to the real world. And when you can enable AI to help you do that, it's contextual aware because of the intelligence of the vision systems and the glasses and what AI can see and connect you to. So you imagine you're a Boeing technician and you're putting doors on and you forgot to put the bolts on the doors. The glasses know that. The AI engine that's running and you'll see some press releases coming with some other companies that we're working with that show this.

Speaker 2

You have the glasses on. It watches every single thing that you're doing. It helps you write the reports just with the voice just a voice. Can you please start building the reports for the assemblies that we went through today? Oh, and by the way, can you record this so we can use it to train others in the process?

Speaker 2

All of that's AI driven and it makes the glasses absolutely game changing. There is no other way to do this. You can't hold up a phone and do it. This whole sorting in facilities 250% faster is because AI engines supporting the use of the glasses to make that all come together. It's taken a long time, but when you put all that stuff together, it starts to make applications that are so compelling, it's really hard to turn your back on them.

Speaker 2

That's why we feel so confident in our enterprise side of our business, but also in the core OEM side of our business because it's those applications and that kind of capability that's really going to drive the performance and the need for these glasses. With that, I want to thank everybody once again for joining us today. We look forward to speaking with you again in the August in August for our Q2 update. There should be a lot that we share between now and the end of this year. It's going to be an exciting 2025.

Speaker 2

And again, thank you very much for the continued support of Usys. Have a nice evening everybody.

Operator

Thank you. And with that, this does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Powered by Quartr
Earnings Conference Call
Vuzix Q1 2025
00:00 / 00:00