Vuzix Corporation (NASDAQ:VUZI), a leading manufacturer of smart glasses, reported lower-than-expected Q3 2023 sales due to timing issues with larger channel partner deals during its recent earnings call. Despite the decrease in revenues compared to the same period in 2022, the company remains optimistic about its growth prospects, citing a robust pipeline of smart glasses sales opportunities and a strong balance sheet with cash and cash equivalents of $38 million.
Key takeaways from the call include:
Vuzix highlighted delays in larger orders due to vetting and negotiations with channel partners and supply chain companies, but expects these orders to be fulfilled in Q4 2023 and possibly Q1 2024.
Despite the soft Q3 revenue, the company has its largest pipeline of smart glasses sales opportunities and expects continued growth over the next 12 months.
The company is implementing changes to lower operating costs by up to 20% annually and improve operational efficiency.
Vuzix has a strong intellectual property position, with a patent portfolio of 346 patents and patents pending, focusing on waveguides and micro LED display technology.
The company’s partnership with Atomistic aims to develop new micro LED technology that addresses market requirements.
Vuzix sees significant potential in the AR smart glasses market and believes it is positioned to become a leading supplier of OEM components.
Despite macroeconomic conditions negatively impacting its OEM business, Vuzix expects this to represent a timing shift and anticipates closing these transactions in the upcoming quarters. The company’s waveguide mega factory is now operational, allowing for increased waveguide production capacity and lower manufacturing costs.
Vuzix’s incognito technology, which eliminates eye glow in smart glasses, is seen as a critical feature for broader market acceptance. The company also discussed its partnership with Atomistic, a firm that has been operating in stealth mode for the past 24 months, to develop new micro LED technology. This collaboration is expected to have a profound impact on the AR micro display market.
Vuzix is confident in its infrastructure and production capacities to deliver on its opportunities. The company expects exciting developments and news in the coming months, particularly regarding their OEM business and select partners.
InvestingPro Insights
According to InvestingPro’s real-time data, Vuzix Corporation (NASDAQ:VUZI) has a market cap of $197.56M and holds a negative P/E ratio of -5.01, indicating that the company is not currently profitable. Despite this, revenue growth has been accelerating, with a 28.4% increase over the last twelve months as of Q2 2023, and a significant quarterly growth of 55.96% in Q2 2023. InvestingPro Tips suggest that while Vuzix’s stock has taken a hit over the last week, the company holds more cash than debt on its balance sheet, and analysts anticipate sales growth in the current year. This aligns with the company’s own optimistic outlook for growth despite the recent sales dip. Yet, it’s worth noting that the company operates with a poor return on assets and yields a low return on invested capital. For those interested in a more comprehensive analysis, InvestingPro offers an additional 14 tips related to Vuzix’s performance and potential. This detailed information can be particularly valuable for investors seeking to make informed decisions in the context of Vuzix’s growth prospects and the broader AR smart glasses market.
Full transcript – VUZI Q3 2023:
Operator: Greetings and welcome to the Vuzix Third Quarter Ending September 30th, 2023 Financial Results and Business Update Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this call is being recorded. I would now 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’s second quarter and 2023 ending September 30th financial results and business update conference call. With us today are Vuzix’s 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 as well as changes in the legal and regulatory requirements. In addition, any projections as to the company’s future performance represent management’s estimates as of today, November 9th, 2023. 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 Q3 2023 financial results and filed its 10-Q with the SEC. So participants on this call who may not have already done so may wish to look at those documents as the company will provide a summary of the results discussed on today’s call. Today’s call may include certain non-GAAP financial measures. When required, reconciliation to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the company’s Form 10-K annual filing at sec.gov, which is also available at www.vuzix.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 third quarter financial results. Paul will then return to make some closing remarks, after which we’ll move on to the Q&A session.
Paul?
Paul Travers: Thank you, Ed. Hello, everyone, and welcome to the Vuzix Q3 2023 conference call. On this call, we’re going to review our operating results and recent developments and then give you some perspective on where we see things headed in the fourth quarter and into the first half of 2024. Grant will cover our financials in detail a bit later in the call, but I want to start by providing some additional color regarding our third quarter financial results. During the quarter, we saw lower than planned smart glasses sales, primarily due to the order placement timing associated with several larger channel partner deals. Most of them, we fully expect, will close in the coming months. As previously stated, we are focused on the growth and expansion of our strategic channel partner program at Vuzix. This program allows us to expand the size of the qualified expert sales team that Vuzix has in the market without the cost and efforts of having to grow an internal sales team. We now believe this longer-term strategy is the most cost-efficient path while allowing Vuzix to best address the growth we are confident is coming in the overall smart glasses enterprise space. Expected third quarter revenue related to our OEM business was also negatively impacted by macroeconomic business conditions, specifically with a few large corporations having delayed their investments in new technology in favor of maximizing their current earnings and cash flows. Again, we believe this represents a shift in their timing, and we fully expect over the next several quarters that we will close on the bulk of these transactions. Despite the soft third quarter revenue, I am pleased to report that we have our largest pipeline of smart glasses sales opportunities in the company’s history. Therefore, the outlook over the next 12 plus months we believe is for continued growth. Our OEM business continues gaining momentum. Our OEM group ended Q3 with the largest OEM backlog in our history, largely driven by continuing defense and aviation-related engagements. That said, interest for a growing list of broader market customer engagements is being pursued. Most of this OEM pipeline of customers’ projects are all focused ultimately on volume production programs. During Q3 we also made significant advancements in what is at the heart of the Vuzix value proposition to the entire AR wearable industry, our waveguides and micro LED display technology. This industry is expected to represent many billions of dollars in value for just the required display and optical components and technology that Vuzix can deliver today, and as such, I’ll spend a little more time discussing this shortly. Lastly, and as mentioned in our third quarter’s earnings release, our company has reached a point to where we have both the ability and need to realign certain parts of the organization to take advantage of scale and realign our operations to better serve our customers. As a result, we are making changes that are expected to lower operating costs by as much as 20% annually once fully implemented. The process is underway and will continue into 2024. It impacts everything from operations to product development as well as marketing and sales. We expect these adjustments will not only better support our growing customer base in all parts of our business, but also extend our operational runway and improve enterprise product margins. We have a bullish stance on the future, and we’re focused on realigning our company to become more efficient, lower our cost operating burn, and put ourselves on a faster and more visible path to profitability. The Vuzix patent portfolio continues to expand and currently includes 346 patents and patents pending, an impressive 50% increase over the last 24 months. Our portfolio covers a broad range of technologies and includes a significant collection of fundamental waveguide, utility patents and applications as well as trade secrets regarding nano-imprinting, process equipment and materials like polymers, adhesion promoters, and release agents that are critical to how we can produce in volume and at low cost. Bottom line, we feel Vuzix has a strong intellectual property position which will be able to create a significant value for us across solutions including waveguides, micro display engines, full systems, white label products, and of course enterprise AR smart glasses. As slide six shows the projected total market opportunity for the products and key technologies that Vuzix is and can ultimately deliver on using its intellectual property we believe is massive. Vuzix fields a family of competitive solutions within the enterprise smart glasses space and expects to win and maintain a meaningful share of this market as it ramps and ultimately grows our annual revenues to the hundreds of millions and potentially up to in excess of $1 billion annually. As exciting as our enterprise business is, it is dwarfed by the potential represented by the much larger broader market opportunities for AR smart glasses. And producing components and technology for this broader consumer market is where the lion’s share of our development efforts in IP is ultimately focused. Such expected demand is a strong part of the reason why some of our competitors, waveguide and display makers have commanded purchase prices of $0.5 billion to a $1 billion in recent years. Key suppliers of these technologies to third parties should be able to realize billions of dollars in annual sales in due course. And we are positioned to be one of the leading suppliers of the critical OEM components and a highly profitable one at that. I’d like your takeaway from this slide to simply be that Vuzix’s value should not be determined solely by how many AR product units we currently sell and ship in any given quarter. Maturing markets are historically choppy in terms of demand and implementation schedules. We believe our enterprise has a long-term incredible value and IP and that we are in the throes of leveraging it to become the leading supplier in a market that is touted to equal or exceed the mobile phone market. That market alone currently exceeds $1 trillion in hardware revenue annually. Vuzix waveguide mega factory is now operational and dedicated to the production of waveguides. This state-of-the-art manufacturing…