Vuzix - Earnings Call - Q3 2019

Transcript

Speaker 0

Greetings, and welcome to the Vuzix Third 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 is being recorded. It is now my pleasure to introduce your host, Ed McGregor, Director of Investor Relations at Fuzix.

Mr. McGregor, you may begin.

Speaker 1

Good evening, everyone, and welcome to Vuzix Third 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'd like to remind you that on this call, management's prepared remarks may contain certain forward looking statements, which are subject to risks and uncertainties. Management may make additional forward looking statements during the question and answer session. Therefore, the company disclaims 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 legal and regulatory requirements. In addition, any projection as to the company's future performance represent management's estimates as of today, 11/07/2019. Vuzix 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 in the call who may not have already done so may wish to look at these documents as the company will provide a summary of the results discussed on today's call.

Today's call may also contain non GAAP financial measures. When required, reconciliation

Speaker 2

to

Speaker 1

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.vuzix.com. I'll now turn the call over to Vuzix CEO, Paul Travers, who will give an overview of the company's third quarter twenty nineteen financial results and business outlook. I will then turn the call over

Speaker 2

to Grant Russell, Vuzix's CFO, who will provide an overview of the company's third quarter operating results. Paul? Hello, everyone, and welcome to the Vuzix Q3 twenty nineteen conference call. The third quarter was an important one for Vuzix in terms of readying our manufacturing operations for larger scale production of the M400 in the Vuzix Blade. Specifically, with respect to our M Series smart glasses, we have recently begun the processes of onshoring all of our final assembly from China to The United States and also began initial volume production of the M400 in our West Henrietta, New York facility.

This relocation will lower the overall unit's cost compared to China based on our current production volumes. Clearly, China can be less expensive for very high volume production. Regarding waveguide manufacturing for the Blade, we implemented numerous process improvements and installed new equipment that have already demonstrated consistent yield improvements to better fulfill our current order backlog and anticipated new programs that we expect to go live in the coming months. We continue to make progress in the third quarter positioning Vuzix as a preeminent supplier of AR smart glasses and related technologies. Over just the last sixty days, Vuzix has realized significant product, relationship and business developments.

I will share those details shortly. Our efforts in the last quarter have been focused on several key areas. First, our highest priority has been to get our house in better order as it relates to production. During the quarter, we made significant changes to our entire production pipeline for both Blade and its waveguards. We have nearly completed our efforts to move all further production from our China contractors for our M Series products and bring up new production lines here in our West Henrietta, New York facilities.

This was a big task for Vuzix and should result in better quality, lower cost to manufacture, more control of our procurement and component flows processes and much more based on our current production needs. I have a lot more to share here, but let me offer that this transition was critically needed for Vuzix as volume needs for production begins to accelerate into 2020. With units of the M400 now in our customers' hands, the response has been tremendous, and we have many partners already planning deployments of it as well as for our M300XL. On the product development front, we received regulatory approval for our M400 Smart Glasses in North America, Japan, and The EU, ramped up production in our West Henriette facility in New York manufacturing line, and began shipping units to early adopter program customers and key partners. We also received final approval from testing agencies to certify the Vuzix Blade ANSI z 87.1 safety glasses version and began shipping them to customers also.

On the relationship development front, there is a lot that is happening every day here at Vuzix. Some highlights for the quarter include our collaboration with Sprint to leverage the Sprint IoT connectivity platform with the Inseego MiFi 8,000 mobile hotspot, the expansion and strengthening of our technology presence relationships with Verizon, and just this week, a collaboration with Ubimax, one of our TAR solutions partners, to support the rollout of their everything as a service offering on our m 400 smart buses. Last but not least, we have had some potentially significant developments in product commercialization. Our M300XL went live at several store locations in The United States and in Europe with one of our larger brick and mortar customers. Initial data captured from their in store picking use case with our integrated XL as compared to the incumbent technology was very positive.

Also, one of our security partners has finalized their selection of Vuzix Blade Smart Glasses and is moving forward with global rollouts in the new year. As we discussed before, our business currently consists of three key segments. Our M Series Smart Glasses segment includes both direct sales to enterprise by our internal sales team, our resellers as well as to OEM partners that sell smart glasses to enterprise customers. The Views Exploit segment consists of enterprise, security providers and first responders and, of course, the prosumer. The third segment is wide guide based OEM projects for commercial and defense opportunities.

I would like to try to characterize what we see happening in enterprise for Vuzix and the size of the business ahead of us. Over the last several years, we have gone from a large number of customers test driving our technology, which has resulted in a handful of modest volume deployments to date of approximately $1,000,000 or more. If you fast forward to today, we now have grown to dozens of enterprise accounts across various industries and use cases that each represent more than $1,000,000 of pipeline revenue and that have a good likelihood of being deployed over the next twelve months. We expect it will be an exciting time over the coming months as this business unfolds and we can share more. One of our most significant opportunities is with a Fortune 100 retailer that has a very extensive global retail store footprint.

Our M300XL smart glasses have been live at multiple stores with this customer, and the data suggests that the order picking using Vuzix's smart glasses is significantly more efficient than the incumbent technology. Given the competitive environment for online order fulfillment and improvement in picking times using smart glasses is not only a competitive advantage, but when scaled over thousands of stores, it's potentially worth hundreds of millions of dollars in savings at scale for this customer and others with similar operations. For Vuzix, this particular customer represents an opportunity to deploy numerous smart glasses per store, and indications are that this customer could begin an extensive rollout over the coming months. This one has been in the works for quite some time, and it's great to see the effort finally coming to fruition. As most of you know, the m 300 x l has been in various stages of deployment with a large number of customers, and this is one of many that want the m 300 x l as their deployment platform, even with the introduction of the new m 400.

The m 400 is truly best in class and opening up doors with both new and existing customers, including many that require a more current version of the Android OS for broad deployments as compared to our M300XL. The M400 Smart Glasses received regulatory approval in September for shipment into North America, The EU and Japan. Production of the M400 coming from our West Henrietta, New York manufacturing facility continues to scale well, and we are prepared from a manufacturing and software perspective to fulfill the expected volume unit M400 orders from our enterprise customers and partners. Customer feedback to date has also been very encouraging around the m 400. WiFi WiFi performance is outstanding.

The OLED display reminds them of a retina display on an iPhone. The m 400 OLED display is breathtaking. And when you couple its crispness with the incredible streaming video performance and barcode scanning capabilities, it's one hell of a leading device. And importantly, the M400's battery life continued to show nice improvements over our prior models. Customers get a device that sits at the top of the food chain in terms of performance when compared to any other competitive offering in the enterprise smart glasses space.

One important feature of the M400 that may go fairly unnoticed due to its size and weight of the device is its ruggedness. We are talking about surviving a two meter drop, being submerged in three feet of water for thirty minutes and being dust and water resistant, all of which comes with being IP67 rated. To complement the commercial release of our M400 and with backwards compatibility to the M300XL, Euzix has developed several new mounting options and an extended life wearable battery. These new wearable options including hats and visors allow our smart glasses to work all day for almost any worker. In addition to using the newer Android OS 8.1 required by many customers, the M400 enables AI and other powerful features afforded by the SXR1 chipset from Qualcomm.

Finally, the M400 also is able to coexist with the M300XL, both from a software and accessories standpoint, both of which are being used in several new sizable programs that are expected to be going live very soon. The everything as a service solution from UVMax will have a $200 monthly fee with no additional upfront cost, and the solution will include use case specific workflows for applications such as inspection, remote support, and order cooking. Both Vuzix and Uvimax will be offering this solution, and although it has just been announced, we already have inbound interests. At the same time, a few of our other software partners have asked if we could also offer a similar rental or subscription solution around their application. The cool thing here is this is a twenty four month commitment.

So for Vuzix, this would represent $1,200 a year revenue for two years, which is a big increase over just selling the unit outright. Regarding our intrinsically safe M Series and intrinsically safe smart glasses, we continue to work closely with our OEM partner, Eaton Krauss Heinz, on device certification to bring our co branded and co marketed intrinsically safe smart glasses to market as soon as possible. We had mentioned in our last call that this effort was being expanded to include our entire line of smart glasses. At this point, the teams at Eaton and Vuzix have migrated to developing an intrinsically safe version of our M400 smart glasses platform to take advantage of the latest advancements built into the device. Although the transition will extend the introduction of an ATEC certified device beyond the timeframe we previously have indicated, both companies remain focused on delivering the best intrinsically safe smart glasses solution to the market and the M400 platform just really needs to be the one we start with.

Within the security markets, the Vuzix Blade has many in the makings of becoming a disruptive and game changing product. We see significant business opportunities at hand that take advantage of Blade's form factor to assist law enforcement and security personnel in keeping people safe or identifying suspicious persons or those associated with crimes. Recently, one of our security partners, Sword, placed an order for $7,100,000 worth of use of Blade Smart Glasses in preparation for its global launch of the Sword Enterprise Edition in 2020. In addition to the deliveries under this purchase order, Vuzix also expects Sword to begin purchasing initial Blade volumes in early twenty twenty to support ongoing internal development, regulatory and client testing. The ability to deliver a video feed and alerts real time from the Sword solution to a blade wearer literally gives security personnel eyes on the back of their heads while allowing them to stay remotely connected and informed away from their station.

The SORD security product is currently being pre marketed by a number of their exclusive and non exclusive resellers and is expected to ship to customers located worldwide in the second half of twenty twenty. For enterprise users, we recently began offering an ANSI z 87.1 safety glasses rated version of the Vuzix Blade. This new version of the Blade is certified and now shipping. Production continues to ramp in this version of the Blade at $999 a $200 premium in the prosumer version is an ideal fit for enterprise customers that require safety eyewear such as automotive assembly and big pharma. For prosumers, we continue to expand the usability of the Blade through introduction of new apps, the most notable of late being the ZOE Meet language transcription app and the DJI drone app.

We currently offer 70 Blade apps on the music's app store and expect this total to expand significantly following the close of our Blade app developer contest this past Monday, for which we received a number of very impressive applications that really appear to take advantage of the Blade's unique capabilities. From AI slash AR work instruction training to real time closed captioning in a movie theater to an auditory vision system for the blind are just a few examples. I'd like to spend a few minutes now to provide an update on developments for us in the telecom sector. A vertical represents a significant opportunity for both our M Series and Blade Smart Glasses. First, our relationship with Verizon as your strategic business partner continues to strengthen.

Despite our limited revenues with them today, Vuzix was invited by the Verizon business executive team to attend Mobile World Congress Americas and showcase spatial computing in SLAM powered by Verizon's five g network on the Vuzix Blade, along with our joint software partner Thousand Realities as part of the Verizon's five g tilt right exhibit. If you had a chance to attend Mobile World Congress Americas in Los Angeles, you would have heard the CEO of Verizon Business stress the sense of urgency and benefits of leveraging smart glasses and augmented reality within the Verizon Business Group for internal use by Verizon and by Verizon's enterprise customers. Verizon internally has a fleet of 40 Verizon internally has a fleet of 48,000 trucks in operations to support their nationwide network, and we expect the team at Verizon to move past their trials and begin deploying smart glasses to support their internal technicians over the next several months. We believe the internal Verizon opportunity alone could represent thousands of smart glasses or Vuzix over the next year. From the Verizon enterprise b to b front, we've been developing the smart glasses hardware in a number of software applications as turnkey solutions ready for their customer adoption.

This internal Verizon this external Verizon B2B customers opportunity could be significant for Vuzix over the next year. We're also working closely with Verizon to capitalize on our successful music play demonstrations including real time language translation with cloud based SLAM spatial mapping in the Verizon g in the Verizon five g lab and Mobile World Congress America. That said, we expect to deploy these displays nationwide in the coming months across Verizon's executive briefing centers and five gs Labs in The US and also Europe. The executive briefing centers and five gs Labs are used by Verizon to bring enterprise executives from Fortune 1,000 companies through to showcase technologies that are ready today or getting ready to be deployed in enterprise. In addition to Verizon, Vuzix recently announced a relationship with Sprint to support our Vuzix smart glasses connectivity bundle alongside the Inseego MiFi 8,000 mobile hotspot.

Coupling the connectivity and versatility of the MiFi 8,000 on Sprint's network will enable a simple and seamless connectivity of the web for remote enterprise workers wearing basic smart glasses. This will be an important offering as part of our smart glasses connectivity bundle for enterprise workers as it will provide an out of the box, low friction solution for field service and remote maintenance applications, one of our biggest market use cases. Sprint, which also has a very large enterprise b to b focus, showcased Vuzix smart glasses as part of the Sprint look for business at their Mobile World Congress Americas booth. We are currently engaged with the leadership team across Sprint's b to b enterprise team and five gs technology and strategy group. Our relationship with Sprint came together very quickly over the last several months and we expect it to expand over the next several.

Beyond Verizon and Sprint, we're actively exploring several other business relationships with wireless carriers around the world to deliver new products, including M Series and Blade based around LTE and five gs and or services with ideally recurring revenue opportunities for Vuzix. Just in September, for instance, we participated in hackathons hosted both by Deutsche Telekom and T Mobile, respectively in Germany. Our vision remains the same for the telco space, and our path forward is to push the competitive envelope by delivering smaller and more attractive form factors that pack increasingly more punch in terms of functionality and performance and that take advantage of the five gs technologies they are rolling out. On the custom OEM waveguide based focus opportunity side of the house, Vuzix has a lot going on. We have several OEM relationships around waveguides that we are either under contract or responding to requests for proposals for and include such diverse areas as aviation, automotive, shipping and defense.

On the aviation side, our programs and relationship with our commercial aviation partner continue to progress well. This project ultimately could represent a significant business opportunity with our partner as the waveguide based HMD system that we are building for them will not only be qualified for commercial aircraft, but potentially for military aircraft also. This project is still on track to pave the way for sizable production programs for Vuzix with sales beginning as early as the second half of twenty twenty. Further on the waveguide based OEM front, Ride On Vision, an OEM partner that we mentioned during our Q2 conference call and June PR has been making great strides as it uses Blade based OEM for their SmartSKey helmets. We have been working closely with Rhinom to support their technical needs as they ready their product for volume production and commercial release to their customers this winter.

On the process and production development side of the business, again, one of our main focuses during the third quarter was preparing Vuzix to scale our business and manufacturing capabilities are on our M Series products led by the M400 and our optically see through products led by the Vuzix Blade. We now have two production lines up and running, one for the Blade and the second for the M400. It is wonderful to be able to say that Vuzix products are manufactured in The USA, but even better, by bringing M400 production up in West Henrietta, New York, our costs of goods for manufacturing the M400 compared to the M300XL is lower than it was from China for the same production volumes. And at the same time, Vuzix now has much more control over the process. During August and September, we not only prepped our M400PPT manufacturing production runs, but began scaling for full production at the October and are now producing approximately 50 units a day, a rate expected to match our current needs for this Q4.

It has been a challenging transition bringing up the M400 manufacturing line along with the addition of the third robot assist waveguide manufacturing cell. We doubled the Class 1,000 clean space for our waveguide production. That growth, along with the additional waveguide embossing and stacking equipment also coming online, caused some negative impacts on our production of waveguides and the blades as they go hand to glove. Waveguide production is a very sensitive process, and the overall environmental conditions changed significantly on the plant floor with all this equipment and staff coming online. I can't get into all of the details here, but as a result of this growth in our facility, there was a significant demand put on our power and environmental systems for the manufacturing floor.

It was frustrating for us that this negatively impacted the yields of waveguide production during Q3. The facility has now been upgraded, and we're able to run our equipment to within the plus or minus one degree C required to reliably make waveguides, and we are consistently yielding north of 85% again. This week, on a single shift is now at approximately 40 complete waveguides for the day. And with the new equipment we have installed and a few further process adjustments, we expect to soon achieve a doubling of that would allow to successfully produce up to 80 blades on a single shift. It's unfortunate to say that Vuzix shipped every single M400 and Blade we could build in our last quarter, and frankly, we have been on back order all summer.

That said, I believe we are now in a position to resolve this issue and finally start delivering to match our customers' demand and ramp production to fulfill anticipated customer orders. I'd like to now pass the call over to Grant so he can walk through our second quarter financial results. Grant?

Speaker 3

Thank you, Paul. Before I begin, I'd like to encourage interested listeners to review our 10 Q that we filed with the SEC today for a more detailed explanation on some of the quarterly year over year variances, as I will be highlighting just a few here. For the three months ended September 3039, Vuzix reported $1,200,000 in total revenues as compared to $1,900,000 for the same period in 2018. The overall reduction in sales of smart glass products was driven by a combination of factors, including the delivery of a large order to a single customer in the prior year's quarter compared to this year's third quarter, which had no such delivery price reductions of 30% on the Blade as part of our Dads and Grad summer promotion price reductions of 33% on the M300XL in the quarter, coincident with the launch of the M400 and a further 28% discount for those customers that took advantage of the special M400 early adopters program. Clearly, we also saw some customer order deferrals in advance of the M400 actual release, which we started shipping in late December, one month later than our original goal.

Music Play smart glasses sales continue to grow and represented 38% of our branded product sales in the 2019 despite their summer sale and product availability constraints. Engineering services revenues for the 2019 were $100,000 roughly flat versus last year's third quarter with no new programs officially commenced in the period. Our overall gross loss from sales in the 2019 was $200,000 versus a gross profit of $600,000 in the 2018 period, with the decrease caused by lower sales and a variety of other factors. On a product cost of sales basis only, our product direct costs were 64% of sales in the 2019 period as compared to 36% in the prior year's period, an increase resulting entirely from lower selling prices and resulting lower margins earned on our Blade and M300XL smart glasses is shipped in Q3, including special discounts on our new M400 under the M400 EAP program. The increase in product direct costs in Q3 will not be representative of our overall long term product gross margin profile.

This reduction should be short lived as the discounts sales discounts have been stopped in Q4, and direct product margin should recover back to over 50% due to the increases in the average selling price across our smart glasses portfolio. Other factors negatively impacting our overall gross loss was the rise of our manufacturing overheads, which rose to $400,000 in Q3 twenty nineteen versus $200,000 in the prior year period. This increase represents our planned expansion over the last several quarters and additional management and production staff required for a move of M Series production back from Asia and staff additions required for the M400 volume production launch. Overall, we feel this is a positive investment to be making as Paul has mentioned. Our research and development expenses totaled $2,300,000 for the three months ended September 3039, compared to $2,500,000 in the prior year's period.

The decrease in R and D expense was primarily due to lower external contractor fees related to the Vuzix Blade when it was still in active development in the 2018 period. Selling and marketing expense was $800,000 for the three months ended September 3039, versus $1,000,000 for the comparable 2018 period, but down 20%. The decline was primarily due to a decrease in our App Store and website development costs. G and A expense for the three months ended September 3039, was $1,500,000 versus $1,700,000 in prior year's period. The decline was primarily due to a decrease in salary benefits and stock compensation related to staff reductions and comparatively lower legal fees.

The net loss after provision for accrued stock dividends was $6,000,000 or $0.18 per share in the quarter as compared to $5,300,000 or a loss of $0.19 per share for the third quarter of twenty eighteen. The net cash operating loss after adding back noncash adjustments for the 2019 was $4,500,000 as compared to 3,600,000 for the third quarter of twenty eighteen. Now for some balance sheet highlights. Our cash and cash equivalents position as of September 3039, totaled $15,600,000 a level we deem sufficient to fund our planned operations for the next twelve months. As indicated on our last call, our inventory levels rose modestly in the 2019 to $8,800,000 Manufacturing vendor prepayments also increased as part of our M400 launch and the move of our M Series final assembly back from Asia to our New York plant.

We expect these levels to decrease going forward over the next several quarters as we manufacture and sell through our new and existing products. Cash used for investment activities in the third quarter was $200,000 versus $500,000 in the prior year period. And we are continuing our emphasis on expense management as demonstrated in Q3 with period over period decreases in all broad categories, including R and D, sales and marketing and G and A. I'd now like to turn the call back over to the operator for

Speaker 0

Our first question comes from the line of Tyler Furmeister from Craig Hallum Capital Group. Please proceed with your question. Hey, guys. Thanks for letting us ask questions. So first, as we think out to 2020 with what visibility you have with some of these larger customer contracts or larger pipeline customer opportunities, is there anything we should be thinking about as far as seasonality or growth trajectory through 2020?

Speaker 2

Hey, Tyler. This is Paul. First of all, I just wanna let everybody know that's listening in. You guys have tried something a little different here with this conference call. We have got a a slide deck that was also running if you went to the webcasting of it.

If you guys if anyone would like to see that slide, it just got some really good images. It shows the significant changes that are going on our planet floor. I mean, many of you have visited these before. I'm sure many of you have seen some of the plant floor. You look now, this thing is it's built up.

It's got all the quality systems that are needed there. You look at the people, the engineering staff. I mean, this thing is really ready to go, and we show some really good pictures of what that looks like. Unfortunately, we couldn't show some real close ups for some areas of the plant floor, but there's a method there for, I

Speaker 0

think, people to get a

Speaker 2

feel for it. So I recommend going to Vuzix's website and going to the IR section in our investor section and you'll find a link to it. Tyler, for your question, as we said in certain sections of the call, we have upwards of 30 key accounts, let's call them that, that are accounts that are what we would consider beyond just pilots. These are folks that have plans. It looks to roll out significant number of our products into programs similar to something like you saw with the sword, but in different areas from warehousing applications.

And from a seasonality perspective, I mean, it's always difficult from the perspective of going into the December time frame because that's holiday times for folks. But you should it's not not a lot of these guys depend upon, well, it's January, so it's some some soup time, so we're gonna, you know, buy lots of spinach. So we shouldn't see too much of that, frankly. It's it's really just dependent upon when these guys get ready to roll.

Speaker 0

All right. Understood. And then maybe for Grant on this one. You made a comment that once we make some of these improvements, you'd see a product gross margin above 50%. Could you help us understand at what revenue level we maybe see a total company gross margin upwards of 50%?

Speaker 3

Well, when I refer to 50%, that's, you know, at least on a product only basis. Overall, we expect, that if we can achieve 40% with all our overheads and other charges, warranty and freight and everything else that gets included in cost of goods, that would be a more mature level for us. To achieve that, we need revenues in the 5,000,000 to $7,000,000 a quarter.

Speaker 0

And then just walking off that, I guess, could you maybe update us on how you think about your breakeven level?

Speaker 3

It's still gonna be in the, you know, on an annual basis, it's gonna be in the mid twenties. I mean, we're we're continuing on our cost containment. So, I mean, we'd like to bring that down a little further. But, you know, it's it's in line with sort of what we've been seeing over the last twelve months. It's come down a little bit, you know, we're we still have to march forward with our our new technology and plans.

We're trying to, you know, bring that down.

Speaker 0

Alright. Perfect. Thanks for, nice update. That's all from you guys. Our next question comes from the line of Tim McGillery from Chardan Capital.

Paul,

Speaker 2

in your prepared remarks, you were talking about this Fortune 100 retailer. And I was hoping you could elaborate on how many stores you're in there and how long you've been at those stores. The effort with this particular firm has actually been many, many months in the making. I mean, you know, we we hinted for this customer and sub customers very similar to this customer over the last year and a half kind of a thing. It's only been in the last three months or so that they've been in positions where they've been to be ready and putting it in the stores.

They've been doing test runs earlier. You know, these are actual live, you know, picking the picking environment now. So they've gone from testing and, you know, previous offline kinds of things, etcetera, in the stores, but as test events literally probably for the last year. But it's been in a live situation now over the last sixty days or so, I would say. And as far as the and as I mentioned, it's it's they're they're only in their very first few stores.

Their states are in in Europe and it's all about testing to make sure that, you know, if they decided they could or children or wanted to do a global sort of launch, they could do it that way. So they're they're testing it in some of the key areas. And the product they're using is the x l is the

Speaker 0

300 x l.

Speaker 2

Correct? Correct. Have you it it seems like you've it seems like customers are delaying on purchases until the 400 is available. At least that's kind of what I'm reading between the lines on what you're saying. Is that is that a fair assessment?

Not all of them, Jim. I mean, this is a particular case in point. What's gonna happen here, the m 300 x l, it really has come a long way. And, unfortunately, the m 300 had plenty of issues. We've discussed some of those in previous conference calls.

The m 300 x l software has finally gotten to the point where it's functioning very, very well for people. And so what's happening is those people that have been able to make it work well like the price point. It will be less expensive than the m 400 is. So when you have somebody who's doing larger deployments, you know, we're finding some of them wanted to stick with the m 300 XL. And this is the case in point, and there's there's more than just one.

There's a bunch of them that like the XL. On the top side of the coin, the m 400 is it's amazing at how much better it performs in so many areas. And when you're just picking out of the warehouse and you need a nice enough display that the camera itself does a good job. When you're doing streaming video services and you're out in the trying to get remote support help, the quality of the camera, the quality of the streaming, the quality of the display even becomes a big issue. And that's where the M400XL shines.

I think in the long run, the M300XL will certainly not be in business' product mix because of end of life conditions and all sorts of things. But right now, M300XL plays well. You'll see it being deployed in a fair number of cases. I think you'll see many more deployments, though, on customer by customer basis around the M400 coming. And the decision to to develop the m 400 as the intrinsic intrinsically safe device with Eaton, was that a you decision, an Eaton decision, or a little bit of both, or somebody else entirely?

Well, it was a little bit of both, and it was a little technically oriented. The the m 400 has some capabilities that the m 300 x l doesn't. The m three the m 400 is designed to do higher performance HD video processing and the like at lower power profiles, believe it or not, than what you can get out of an M300XL even at, you know, a wide VGA sort of resolutions. And so when you look at all of the growth factors associated with, the issues associated with qualifying for APEC certification and the performance of the finished device when you get there, the m 400, again, it just leaps and downs with better product. And and to look at all of the effort that goes into doing this kind of a certification, it just made sense for us to immediately move.

When the m 400 came out, you know, wanted to get their hands on it and play with it. And we all went through this analysis. It was like, guys, we should just keep doing this on the 400 and get on with it. Okay. And as far as the manufacturing moves,

Speaker 0

are I think I heard you

Speaker 2

say that they're complete or mostly complete. Is that correct? The m 400 is up and running and being produced daily today between fifty, seventy five a ton of a day. So, we can make them and they're coming off the line really well at this point in time. It's a if you look at the slide deck, Jim, you'll see a lot of images of what the line looks like.

You'll see product coming off of it. We are producing M400s now. The same thing is true on the right back side of it. There's a lot of improvements that have been done there. You'll see that also in the slide decks.

Thank you, Jim. There are

Speaker 0

no other phone questions at this time. I'd like to hand the call over to Ed McGregor for pre submitted questions.

Speaker 2

Thank you, Doug. Paul and Matt, we have a number of questions here, so let's just get right to them. Considering your success in growing strategic partnerships with telcos like Verizon and Sprint, are there any plans to try to get any of them to offer and subsidize smart glasses similar to smartphones? So a lot of the efforts that we're doing with the telcos today really are on the business side, the B2B side of the business. And there's no doubt there's some stuff happening around the blade and the blade even in the consumer side of it, but it's not the mass market product yet.

So we haven't really gotten into those kind of conversations around blade series and the consumer side of what these guys do. I will say we've got some next generation products coming that these guys have seen that I think you know, they're looking at that could be right in line there. And, you know, it would make sense to have those discussions, but I can't comment further on that one. Very good. Next, can latex certify versions of blade we need?

Yes, it can. And as I mentioned earlier, our partners at Eaton are very interested in the line of products that NetVuzix makes to be certified in the long run. Very good. Next. Your main competitor, NeoAir and Google seems to be growing fast and comes to double or triple in your annual revenue.

Do just intend to keep up with their growth or potentially even grow its share faster? Let me first say, it's really hard to know what the growth rate these companies have. They are, in some ways, very lucky that they don't have to deal with quarterly reporting and sharing all of that kind of information. They can fly under the wire and set up press releases and whatever they do, it's it's within their company. There's no cross checks.

Nobody really knows how fast or which programs are unrolling, etcetera, with those companies. I don't know. I when I look at Google as a case in point, and if you look at many of our partners and bigger partners, we don't see them having the Google Glass Enterprise Edition three or two in many of their things even if it is. I have to say that Google Glass, I still think it has many challenges. It has not fixed.

That said, I can tell you that Vuzix does see significant growth coming. We'd like to see quarter after quarter growth as we move forward here and significant impact. If you just look at the modest number of deployments we've had so far versus what's in front of us, I think you should start to see some pretty significant ticking on that box. Next, any news on one of WaveEye based M400 could be available? And does this have a high quality internally?

Yeah. There's no doubt it does. You know, we've gotten feedback from the Blade from some of our customers that it is the only device they will use and the picking operations that they have and in some of the environments, one, for safety reasons. The display that covers some of your vision system can, in some cases, especially if it's a larger occluded display unlike the music, smaller one, have some safety concerns. The c two system allows a user to see the real world and have information in the real world and not have to go back and forth to look at another screen.

Even the included display on an m 300 or a 400, you look inside of it, you see what's going on, you make a decision, you try to remember and you go back to the real world to make decisions. And in many places, we're hearing from people that that disconnect makes the user try to remember or have to remember what this next function that he should be doing. Picking five out of box one or picking five out of box two is an example. And that when you're picking all day long and those numbers are going up and down, you often think that accounts wrong and it can be a big deal for people. So I can tell you that waveguides in enterprise are a big deal for users.

It's a big push for us and I can guarantee you that there is an M4000, actually is the part number for it. Anything with 1,000 typically at Vuzix represents a waveguide style device and that is well underway at Vuzix. I can't tell you when it's coming though. And we've been very cautious about how we introduce this from the time before. We think it will sell alongside the M400 and 300 just the same, but we do think it's got some significant advantages and we don't want people necessarily waiting.

Very good. Next, your recent company's blog regarding working on a global Tier one aerospace firm to build a customized commercial avionics waveguide based HMD system quite similar to the new TOPMAX product, Talos recently discussed. Please listen to these new products. Yeah. We really can't comment on the specific programs that this aviation customer is involved in.

I can't say they're really happy with what we've done so far. What we've delivered, they've been sharing with their customers already and their customers are just like, wow, this is just what we need for a lot of reasons. With our waveguide systems, you can replace the waveguide in the field. It's much easier on maintenance. The display system itself is beautiful, etcetera.

And I can say that what they're doing is pretty similar to the kinds of things that are in that blog, but I can't comment further. I hope sometime in the New Year we'll be able to share more in that regard though. Okay. And my final question, and I think we've covered a lot of this on the call with some of the companies that but are there any potential catalysts or additional catalysts that you could share with us that would help investors exercise their patience with investment in the business? Yes.

I think we made a nice announcement today with our partners at SORD. And we mentioned there's a whole bunch of companies now that are representatives of some significant rollouts that we see coming out. I think, you you ought to be able to look forward to a lot of that. There will be public announcements around those. And it's really hard to comment when and how fast they'll be coming.

But I can only say we're really excited about Vuzix, quite frankly, with the fact that our plant floor is able to deliver what we need, cost containment, etcetera, on the production side of it. And these companies now are coming saying, how can we get product? So you should see a lot of catalysts coming and with Vuzix being able to deliver against it, unlike our third quarter efforts associated with delayed in the upcoming weeks. And I guess that's it for the questions, everybody. Thank you very much for participating in the conference call and we look forward to sharing more with you as the coming quarters unfold.

Ladies

Speaker 0

and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.