Vuzix - Earnings Call - Q1 2019

Transcript

Speaker 0

Greetings, and welcome to the Vuzix First Quarter twenty nineteen 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 conference 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.

Speaker 1

Good morning, everyone. Welcome to the Vuzix first quarter twenty nineteen 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 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. The 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 track and retain certain qualified personnel as well as changes in legal and regulatory requirements. In addition, any projections as to the company's future performance represent management's estimates as of today, 05/09/2019. Muzix assumes no obligation to update these projections in the future as market conditions change. After the market closed this afternoon, the company issued a press release announcing its 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 non GAAP financial measures. When required, reconciliations to the most directly comparable financial measures calculated and presented in accordance with GAAP can be found in the company's Form 10 Q quarterly filing at sec.gov, which is also available at www.musix.com. I will now turn the call over to Vuzix's CEO, Paul Travers, who will give an overview of the company's first quarter twenty nineteen financial results and business outlook for 2019. Paul will then turn the call over to Grant Russell, Vuzix's CFO, who will provide an overview of the company's first quarter operating results.

Paul will then return to provide some closing remarks, after which we will open the call for Q and A. Paul? Thank you, Ed. Hello, everyone, and welcome to the Vuzix Q1 conference call. Over the last three years, Vuzix has made good progress in growing our business and expanding our foundation, with full year revenue growth almost quadrupling, rising from $2,100,000 in twenty sixteen to eight point one million dollars in 2018 as sales of our Enterprise AR Smart Glasses have steadily risen year over year.

Consistent with the indication we provided on our March conference call, our Q1 results were admittedly soft. And I'm pleased to report that this softness is now behind us as Q2 revenue bookings through the May are off to a solid start and already exceed the Q1 revenue total. It is taking more time than most expected, but we are witnessing firsthand an accelerating shift in the enterprise smart glasses market in terms of investment and commitment of resources. From chip suppliers like Qualcomm to supply partners like Verizon and Eaton to Fortune 500 global leaders across multiple industries that have trialed and are now starting to move to broader deployment of smart glasses. The inflection point for this industry is rapidly approaching.

The payback numbers are very compelling. Avoiding just one trip by connecting a remote worker instead of sending a skilled worker delivers an immediate ROI, not only from the cost and time associated with travel, but more importantly, the lost production value, which can be hundreds of thousands of dollars. Equipping remote workers with smart glasses and connected devices facilitates the retention and transfer of knowledge, supports faster onboarding, saves money, improves worker operations and safety, and drives efficiency. In the warehouse, picking can be 60% faster and more accurate at the same time. The list goes on and on.

It should come as no surprise that recent studies have indicated that 90% of enterprise companies plan on implementing AR smart glasses in their operations over the next three years. Virtually every forecaster agrees that the industry usage numbers will get substantially larger over the next few years, and that's just on the enterprise side alone. Expectations of millions of units and billions of dollars of sales will be up for grabs for the players with the broadest and most competitive set of solutions. We have worked long and hard to get Vuzix OptiMey positioned for this approaching tidal wave, and we intend to be the lead rider on it. As previously announced and also discussed on our last call, Vuzix has entered into a three year master reseller agreement with Verizon, whereby Verizon, their affiliates, and some resellers will now resell Vuzix's m 300 x l smart glasses and m series related accessories, the Vuzix Blade smart glasses, and Vuzix Remote Assist, our new remote support video application.

Since then, the wheels have been turning. We have spent time at Verizon's headquarters in Basking Ridge, New Jersey, going over the marketing strategy and gaining an understanding of Verizon's extensive sales team structure. We have also completed most of the necessary plumbing needed to hit the ground running with Verizon's enterprise sales team beginning here in the second quarter. This includes their customer ordering system, Verizon's mobile device management for Vuzix's smart glasses and preparation of various sales and marketing materials. Our sales and marketing team has concurrently had deep dive training sessions with the Verizon enterprise sales teams.

They will be selling to their 3,000 largest b to b enterprise customers during the initial phase of this program. I'm pleased to report that we've already had introductory meetings with and seen solid product interest from a number of their largest industrial customers. The second phase of the program will expand to cover all of Verizon's more than 10,000 B2B enterprise customers and includes small and medium sized businesses. Finally, as new Vuzix products become available in the market, we expect to update our contract with Verizon to accommodate additional products that can be sold by Verizon to their enterprise customers. Verizon will also be working with some of Vuzix software partners to add to their ecosystem and offer cookie cutter solutions to their customers.

A week ago, we announced a major joint development agreement with Eaton Krouse Hinds for a new line of ATEC certified Vuzix smart glasses that specifically work in harsh and hazardous environments. These co branded smart glasses will be sold directly by the Krauss Heinz sales and marketing team and its resellers as well as by the Vuzix sales and marketing team. It's important to note that the market opportunity for intrinsically safe smart glasses is quite significant. And today, one with price points much higher than conventional smart glasses. Although we just announced the joint development agreement effort in April, much of the work to bring this product to market has already been completed.

We expect volume production to commence in August and to begin selling harsh and hazardous intrinsically safe smart glasses based on our M Series smart glasses to customers in the September timeframe. Earlier this week, Vuzix and Eaton Krauss Heinz attended the fiftieth Annual Offshore Technology Conference in Houston, which presented an outstanding opportunity to introduce our co branded intrinsically safe smart glasses to a universe of players in the oil and gas space. The Eaton boot, which prominently featured our solution, was filled with excitement and customer interest. We are already seeing demand indications of need from some of the largest energy firms in the world. What is great about having a partner like Eaton Claushines is that most of the companies that visited the booth at this event were already industrial customers of Eaton.

Eaton is a trusted partner for these firms, and now there are thousands of salespeople have another product to sell that has been specifically designed for Eaton and harsh hazardous environments. Moreover, our customers and developers that have manufacturing or field service operations with exposure to harsh and hazardous environments is already expensive. These companies are well aware of Vuzix and now our two firms will be jointly delivering a co branded smart glasses solution to these existing customers. For Eaton, this relationship represents a move into wearables and an opportunity to provide a new cutting edge solution together with Vuzix for their global customer base. For Vuzix, this relationship represents an opportunity to partner with a Tier one leader in the space and deliver a new product across an entirely new segment of the market that was previously unaddressable by us.

The importance of our relationships with Verizon and Eaton can't be underestimated. There is going to be a significant increase in the number of sales personnel that will be marketing and selling Vuzix products. This increase comes at zero additional cost other than partner margins for Vuzix and substantially adds to the broad ecosystem already in place consisting of our numerous value added resellers and VIPs, Dynabook sales team and many other companies with whom we have struck partnerships. Beyond Eaton and Verizon, we are seeing broad enterprise demand for smart glasses continue to build and our VIP partners are continuing to win larger follow on orders as they remain bullish on the current business they see at hand in 2019 and beyond. We are also making significant progress with some of our largest enterprise customers with expectations for larger scale deployments as we move into the fall.

Similarly, with several pharmaceutical companies with whom our sales engineers have remained closely engaged with our internal early development efforts and they are planning for global deployment of our glasses throughout the next six to twelve months. These firms operate dozens of facilities around the world and represent unit demands in the thousands. We look forward to providing further updates about them on future calls and frankly, they just represent the tip of the iceberg. At the same time, we continue to forge additional relationships. Over the last thirty days, we have added two additional platform partners that have decided to expand their business focus beyond tablets and computers and into smart glasses.

Our new partners, VC Labs and SiteCall, collectively bring with them more than 1,200 customers across enterprise and telemedicine. VC Labs is a San Jose based video telehealth company that provides a HIPAA compliant video telehealth and telemedicine video conferencing solution that is used by more than 1,000 telemedicine companies operating all over the globe. Using the Vuzix M300 and Blade, VC can deliver telehealth smart glasses applications ranging from remote training on imaging technology to telesurgery to AR enhanced video visits. SightCall is a San Francisco based global leader in remote visual support with operations in The U. S, UK, France, Germany and Singapore, and more than 200 enterprise customers, including many Fortune 500 companies.

They will be introducing our m 300 XL glasses to their field service customer base. Our product represents a natural fit with their field service solution. And by leveraging their proprietary global cloud communication platform, SiteCall will bring a robust enterprise grade see what I see video solution to their customers. The blade continues to pick up steam. We have been continuing to improve production and yields.

And by the end of the first quarter, our production rates only allowed us to catch up with the immediate demand. As we touched upon during the last conference call, we have been focused on removing manufacturing bottlenecks and adding second generation production equipment into the mix to not only attain the highest quality waveguides, but also increase volumes. Our manufacturing capacity under our current production configuration has now reached the point where not only are the Vuzix Blade orders being shipped same or next day, but we are now able to respond to RFPs and RFQs for larger volume orders. Vuzix Blade software development continues to progress nicely as new functionality and features are being added to each Blade OS update and consumer friendly applications such as Google Assistant, sports, weather, news, and Yelp have been added to the Vuzix App Store. With these recent consumer friendly additions, Vuzix has begun focusing on getting further review units to media and social media influencers for review.

It's great to see the Blade ecosystem of features and applications continue to broaden. On the wireless carrier front alone, we are actively engaged with multiple telco giants across U. S, Europe and Korea and have shared our three year waveguide based smart glasses product roadmap with these carriers under NDAs. The coming wave of five gs support is going to change significantly what can be done over a wireless network. And the advantages this will give smart glasses and our plans to employ in our product roadmap is not lost on these carriers.

We're excited about these relationships as well as the speed at which they are developing. Elsewhere, many of our enterprise customers are asking to see the Blade come with a safety glasses certification, which would expand the demand case for this product everywhere from factory floors to usage in the field. We are just completing the testing of this and should have a formal announcement on it shortly. Having Z87.1 safety glasses certification for Blade should open up many more industrial application areas for the Blade. In March, Foxconn owned Dynabook, formerly Toshiba Client Solutions, placed a $1,000,000 follow on order for their Windows based AR smart glasses built and powered by Vuzix.

It's taken some time, but it's great to receive another purchase order from them, and we expect this program to continue to expand. Earlier this year, Dynabook upgraded its AR software to include voice command, enhanced camera capabilities, a video collaboration call log, and a customizable splash screen and more recently, announced availability of LumiMax frontline application suite for their AR Smart Glasses solution. Other OEM opportunities are steadily emerging after delivering a prototype commercial aviation waveguide based head mounted display system to a global Tier one aerospace firm in Q4. We have received a follow on order for a modified version of this prototype based on their feedback. We'll book some revenue for this in Q2 and expect to deliver this product in Q3 with the ultimate goal of being a multiyear production program with this company.

Elsewhere, we have been asked to bid on five other RFQs for customized waveguide based programs with companies that serve the defense, commercial aviation and automotive industries. These waveguide based engineering projects could generate significant engineering fees in the millions for Vuzix over the next twelve to eighteen months, with some starting very soon. Should full deployments of products follow, the revenue potential would be very substantial, ultimately dwarfing their engineering revenue potential. Separately, we have been making new inroads into police and first responder markets, some of which we hope to disclose in the upcoming couple of months. This is another market vertical that could bring substantial revenue for Vuzix.

I'd like to now pass the call over to Grant so he can walk through our first quarter financial results. Grant?

Speaker 2

Thank you, Paul. Before I begin, I would like to encourage interested listeners to review our 10 Q that we filed today with the SEC for a more detailed explanation on some of the quarterly year over year variances as I will be highlighting just a few. For the three months ended March 3139, Vuzix reported 1,400,000 in total revenues as compared to $1,500,000 for the same period in 2018. Our product sales rose slightly year over year, led by a 6% increase in smart glass sales. When the discontinued sales of our former Eyewear video headphones were excluded from our 2018 numbers.

We did not realize any engineering services revenue in our 2019 versus $200,000 in last year's first quarter, which resulted in the overall year over year decline in total revenues. Of note, we are pleased to report that we've already commenced work in Q2 on a new $275,000 engineering project. Our gross profit from sales in the 2019 was $40,000 versus the gross profit of $177,000 in the 2018 period. There were several reasons for the decrease. First, on a product cost of sales basis only, our product direct costs were 52% of sales in the 2019 period as compared to 46% in the prior year period.

We earned slightly lower margins on the Blade Smart Glasses. We experienced lower selling prices of the original M300 model after the M300XL was introduced in late twenty eighteen, and we had increased manufacturing overhead costs. Our research and development expense totaled $2,500,000 for the three months ended March 3139, compared to $2,100,000 in the prior year period. The increase in R and D expense was primarily the result of additional R and D headcount as compared to Q1 twenty eighteen, increased consulting fees for external software contractors related to the Vuzix Blade and development work on the M400. Selling and marketing expense was $1,400,000 for the three months ended March 3139, down slightly versus $1,500,000 for the comparable 2018 period, primarily due to a decrease in salary, commissions, benefits and stock compensation expenses.

I would like to point out that the first quarter of each year sees spikes in our trade show costs and therefore it is not indicative of our quarterly trade show run rate in this area. More

Speaker 1

on

Speaker 2

that later. General and administrative expense for the three months ended March 3139 was $1,900,000 versus $1,700,000 in the prior year period, an increase of approximately $200,000 The increase was a result of an IT security assessment consulting and increased legal fees that were partially offset by decrease in salaries, commissions, benefits and stock compensation expenses. The net loss after the provision for accrued preferred dividends was $6,800,000 or $0.25 per share in the quarter as compared to $5,800,000 or a loss of zero two two dollars per share for the first quarter of twenty eighteen. Now moving to some balance sheet highlights. Our cash position as of March 3139, was $10,100,000 and our net working capital position was $16,100,000 Cash used in operations, including changes in our working capital, totaled $5,900,000 for the 2019 as compared to $6,500,000 in the comparable 2018 period.

Our net cash operating loss in the quarter after adding back noncash charges was 5,300,000 In the first quarter of twenty nineteen, our inventory level rose by $460,000 over their December 31 levels, including manufacturing vendor prepayments. This reflects the completion of production commitments for certain smart glass products as we're ready to transition to new models in the second half of twenty nineteen. At these finished grid inventory levels, we are now well positioned to meet visible customer demand with our smart glass models. Cash for investing activities in the first quarter was $1,300,000 versus $400,000 in the prior year period. The quarter's totals include $700,000 primarily for the purchase of additional waveguide manufacturing equipment and leasehold improvements related to our planned expansion, which has increased our square footage by approximately onethree.

Also included in the 2019 figure was 500,000 to reacquire certain rights that were subject to the non compete agreement amended in October 2018. The final $250,000 installment related to that amendment was made in early April. We remain positive about the increased market availability of our products and services in the defense and first responder market. Capital spending for the balance of 2019 is expected to moderate in the second half. Regarding our cost reduction initiatives mentioned during our last conference call, many of our improvements didn't show obvious improvements in the first quarter results.

Without negatively impacting our near term innovation and growth prospects, we are still on track to meet our goal of a $4,000,000 annual overall reduction in 2019 operating costs as compared to 2018. As previously mentioned, these costs take time to implement and often include wind down costs. Many of these reductions have been implemented already despite the modest progress reflected in our first quarter expense numbers. CES in each January and Mobile World Congress in February are seasonal commitments that were made early back in 2018 and they could not be reduced. Together, they represent a cost of approximately $600,000 in Q1 twenty nineteen, costs that will not be repeated in the following quarters of 2019.

Of course, we've already scaled back our trade show budget for these events for 2020 to better reflect our needs while still maintaining a meaningful presence of these important events. Other areas of cost reduction implemented this March have included reduced spending on external software contractors and website consultants, whose work is now at a level that can now be assumed by our internal teams and should represent savings alone of over $200,000 per quarter for the balance of 2019. Further recent changes include the restructuring of parts of our sales team, including the closure of our Barcelona sales office. However, please note, we are maintaining our U. K.-based sales office and fulfillment center to cover the European markets without interruption.

In the R and D area, in Q1, we have continued to invest in our M400 product as it's now ready for production and commercial delivery this summer. Development cash spending related to the M400 exceeded $600,000 in Q1, and that amount should be reduced in the second quarter and decreased significantly thereafter in the following quarters. Additionally, some longer term research related projects have been scaled back and should reduce our annual cost here by over $300,000 as compared to 2018. Further expense adjustments will be made as needed during 2019 in response to our actual revenues as we continue to rightsize the company to properly reflect the timing of various market evolutions, both on the enterprise and consumer side. At this point, based on our full year visibility and expectations for revenue growth as well as the implementation of cost reduction controls and our growing business of paid NREs for OEM engagements, we expect our March 3139, ending total working capital position of 16,100,000.0 inclusive of a cash position of $10,100,000 should be enough to fund our planned operations for the balance of this year.

We will, of course, remain flexible in evaluating our cash needs as any responsible company and management team would. In this regard, and as one of several examples, we are now investigating ways to broaden certain strategic partnerships while simultaneously discussing new ones where we can have even closer ties and relationships with large entities. Such relationships could include various forms of investment, order prepayments, joint development funding, market access exclusives and related strategic commitments. With that, I would like to turn the call back over to Paul.

Speaker 1

The tailwinds and underlying momentum for Vuzix continues to grow and have never been stronger. Our enterprise sales pipeline continues to expand as our engagements with repeat customers broaden. Blade is just starting to emerge as a usable and volume available product for both prosumers and enterprise. We continue to see an influx of multiyear OEM Blade Guide based projects coming in from numerous market verticals, representing business opportunities for users that we expect will expand significantly in 2019 and finally should develop into high margin, high volume production programs into 2020 and beyond. Overall, '19 is going to represent another year of robust revenue growth for Vuzix, and we're going to do it with a leaner and leaner organization that is focused on servicing our customers, our partners, and converting as many opportunities as possible into wins.

We've been at this for a while, but I don't think I can stress enough that the opportunity in enterprise for smart glasses is right now, and the future for Vuzix and this industry as a whole is much greater than most can imagine. Finally, in May, Vuzix will be attending the Craig Hallum and Ladenburg Thalmann Investor Conferences and Augmented World Expo and Display Week. We look forward to seeing you at these upcoming events. I would like to now turn the call over to the moderator for question and answers.

Speaker 0

Thank you. Ladies and gentlemen, at this time, we will begin our question and answer session.

Speaker 3

Session.

Speaker 0

Our first question comes from Christian Schwab with Craig Hallum. Please state your question.

Speaker 3

Hi, this is Tyler on for Christian. Thanks for letting us ask a couple of questions. So with your M400 set to ship in the second half here, I guess, quickly or what will the mix be between the M300 and M400? Will it be a long tail of M300 continuing or the M400 largely replace that product? And then on that same line, do you think that it's possible some of customers are maybe delaying some of their orders in the first half of the year and waiting for the launch of the coming in the second half?

Speaker 1

I don't think they're delaying right now, Tyler. In fact, our expectations for revenue in the second quarter are, I think, in line with previous discussions that we might have had. So I think people are really excited about the m 400 without a doubt. But there's been a lot of work put in on the m 300 series. And, you know, these guys were approved devices and they're looking at moving into production with them.

So I think we're in good shape in that regard and at least at this juncture, the m 400 has not gotten in the way with the m 300 x the m 400 is not done in front of the m 300 x l just yet.

Speaker 2

They are at materially different price points. I mean, the m 400 is gonna retail for 2,000 and the 300 x l is at 15 and the 300 is at a thousand. So we think it, you know, it it will take them to the through to the 2019 to to probably sell out our m 300 models, but and thereafter, would all be m 400. But for so far, people are seeing useful deployments with each each of the m 300 series right now.

Speaker 1

You know, it does the job, and we responded to a fair number of tender offers for the m 300 x l, and that's what the documents and all of the efforts have been built around. So we're quite confident the m 300 x l is in a pretty good position. But again, there is a lot of anticipation around the m 400. It's it's a it's a hell of a piece of work, frankly. And for streaming video and a lot of the things that people like to do and including some of this XR related stuff, this processor is just beautiful.

Speaker 3

All right. That's great. And then maybe a larger kind of kind of summary question here. Can you comparably size your different opportunities or I guess your go to market avenues, your traditional VARs and distributors and now this agreement with Verizon and Eaton and then maybe the OEM and other opportunities. Can you size those maybe at a point somewhere in the future where Verizon and Eaton are at a fuller ramp?

Speaker 1

I mean, we we know what the business looks like that's directly part of Vuzix's value added reseller and VIP partner channel. We have a feel for what we think Verizon is going to do based upon our conversations with them and and the market that they're going after. The Eaton Crosshine's business, there's a pent up demand for this ATEC certified device from Vuelift. We've gotten a lot of inbound requests for it. But, you know, I I don't believe we have it scaled very much yet into what it would look like through the through the year.

Speaker 3

All right. That's perfect color. And then my last one, on the OEM, the potential different OEM agreements, it sounds like the focus here is now kind of on this aerospace defense and maybe it sounds like some automotive display opportunities. Is that is that kind of the right way to think about the opportunities for that or is there still other end markets that that you guys are looking at?

Speaker 1

Yeah. That's I would suggest that the consumer marketplace is still there. I would also suggest that the consumer marketplace is trying to figure out where it's going and what's the right next product. And, you know, there's been some challenging other products in the marketplace that aren't doing so well. And so there's nobody wants to have air on their face in that space.

These other spaces, their enterprise, there's clear value. And there's not very many companies that can deliver very bad solutions in them. And that is just right for the picking for Vuzix, I think. I mean, I I have to say, a lot of this was inbound to Vuzix. Requests from these companies saying, we really need to have this.

Your stuff is great. Would you please respond to this RFQ? So it's, I think, easier, lower hanging fruit because there's an obvious demand for it. It's it's really focused. There's dollars in r and d budgets for these efforts.

So, yeah, I think the more immediate opportunities you're gonna see will be in these kind of enterprise ish oriented kinds of things because you can flip the switch and go with it today.

Speaker 2

And we're also seeing some growing strong interest in the first responder market, particularly with some fleet sources around the world. And we can't take too much just yet, but there's we're seeing some good uptake there within our products.

Speaker 0

Thank you. Our next question comes from Brian Kissinger with Alliance Global Partners. Please state your question.

Speaker 4

Hi, good evening, guys. Thanks for taking my questions. You say the book of orders already exceed 1Q, by what magnitude or can you maybe even quantify those orders for the quarter to date? And then you also said the softness in revenues behind you, maybe it'd be helpful to provide some guidance when investor expectations can be set appropriately?

Speaker 1

So we don't give hard forward guidance. I think we've been there before. I will say, Brian, I think we're going to talk with you later tonight and maybe can fill you in on some of the details around what you're asking. I can tell you that the business here in the second quarter is robust in comparison to what we all predicted for the first quarter would be. We there's OEM business engineering fees in it that weren't in the first quarter.

The the the m 300 itself with with the programs that are, you know, now coming back saying, hey, let's go. Let's go. Let's go. What we anticipated. I mean, we we realized these guys are off a little bit, but they're coming.

So it's just going be it should be a pretty robust second quarter.

Speaker 4

Okay. And then you mentioned capacity has now reached demand. So maybe reconcile that with the inventory build? Then maybe can you talk about how much of that inventory is the M300 where discounting might happen and how that might impact the P and L in the next couple of quarters?

Speaker 2

Well, the M300 series, already in November, we decreased the price of the M300. So we've already made that adjustment. And we did say that our software gross margins came down a little as a result because it's just the product mix. I mean, we're still making the same margins on on the m 300 XL. The m 400 is going to be a a higher margin product.

The Blade will make a little less. We're not currently contemplating a lot of discounting is gonna be required to to, you know, for the the three hundred three hundred XL. We're looking at some bundling opportunities which can which can add value without affecting margins too negatively, so

Speaker 1

And some of the inventory is solid for the ATEX certified device. And on the ATEX certified device, it's a significantly more expensive device for

Speaker 2

a lot of reasons.

Speaker 1

But but the margins are still they're actually quite good on this device.

Speaker 2

And to be frank, I mean, the supply chain is still a little cost to pay the facility blade component inventory. I mean, you know, we've indicated previously it's taken us time to get the yields and production rates up, and and we're now in a position where we can deliver against orders. So, you know, we gotta rebalance a little better, but that shouldn't mean any discounting to achieve that.

Speaker 1

No. Right now to the contrary. There's nobody's getting discounts on blades at the moment. Right?

Speaker 4

No. I was talking more discounting the 300, but that's okay, the the older version. In terms of Verizon, my last question is you have they communicated or have you been able to estimate what the sales cycle is in sales cycle is and when you expect material benefits to your business from this relationship?

Speaker 1

We should see sales happening here in the second quarter.

Speaker 4

And will they be material by the second half of the year or will they be still pretty small early on?

Speaker 1

I think the intentions are they're gonna go pretty quick. I mean, these are cookie cutter solutions. They have customers that need the stuff that it does today. It it runs over their network. Their their sales teams are all motivated to be part of this and to make it happen.

So I think we should see some nice contribution from Verizon.

Speaker 4

Sorry. One follow-up from that. In your solid orders you had so far, have you had an order yet from Verizon?

Speaker 1

We have had some orders from Verizon. Thank

Speaker 2

you.

Speaker 0

Thank you. Our next question comes from Jim McElroy with Chardan Capital. Please state your question.

Speaker 2

Yes, thanks. Good evening, everyone.

Speaker 1

So to follow-up on Brian's question about the bookings, Paul, when you were talking about orders for Q2, were you talking about the entire product suite, so the Blade, the three hundreds, the XLs, engineering. You're talking about all orders or were you just referring to a specific product line? No. We kind of just throw the batch in.

Speaker 2

It's all the right news.

Speaker 1

Yep. And the phrasing that you used, I was a little bit confused. Were you saying that it was the orders received or the orders received that would be delivered in Q2? This is all stuff that would be delivered in Q2. Great.

That's helpful. Thank you. Also in your commentary, your remarks about the capacity, Enblade is now at a place where you can start responding to RFPs. And I'm just wondering if you can characterize size of those RFPs or the number of RFPs or maybe end markets. Just if you can characterize in any way those are easy to, you know, capable of responding to.

I can a little bit. I mean, Grant had mentioned this road police side of the business kind of a thing and just in some of their very early orders, they're in the north of fifty and hundred and fifty kinds of numbers. There's other folks that we're talking with that are putting together software and ecosystems to work in, you know, Asian kinds of markets that could represent many thousands of pieces. And these guys are when you sit down on top of people, well, how how soon can you deliver? What's the delivery rates?

How am I gonna be able to fit this into the the rollouts that we would do in the fall and into next year? And having production, so it's starting to crank up like it is, is making it a lot easier to have those discussions with people. And then my last one is, can you just update the manufacturing status for the M Series and what your strategy is, let's say, the next twelve months? Well, as you know, we work with Jabil today. And with Jabil, if you need to make 5,000 a month, you just gotta give them enough lead time to get the parts to do it, and they can do it for us.

The Blade is done locally here in The States, but for Vuzix to do two to 4,000 a month out of our current facility to full up production, we could do that. Vuzix could handle that kind of business. The m 400 is getting a lot of stuff done in China, but I will say, right now for the first round of final assembly, I think we're gonna do it here in Rochester, New York. In fact, I know we're doing it here in Rochester, New York. We've you know, that that transition from first units to full up production is flat with issues, and it's difficult to do it remotely.

And when you do it here, you can have it all in hand, get it all squared around, and then when the volumes pick up, we would, of course, move it appropriately to an off-site location. Maybe. I I would tell you that with automation equipment, you can make a lot of them, and we've got some great automation equipment here in Rochester now. When I saw certified shop now too, Jim. And, you know, there's it built in the ISO, our feedback systems and QA improvements and all of those things and they seem to be working quite well at these these days.

Ladies

Speaker 0

and gentlemen, this ends our Q and A session for today. I'll now turn the call back to Paul Travers for closing remarks.

Speaker 1

Well, I'd like to thank everyone for your interest and participation on today's call, and we look forward to speaking with you again in August when we report our second quarter twenty nineteen results. It's an exciting time at Vuzix. Looking forward to this fall. Thanks, everybody.

Speaker 4

This concludes today's

Speaker 0

conference. All parties may disconnect. Have a great day.