VUZI - Earnings call transcript Q1 2018

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Operator

Greetings, and welcome to the Vuzix First Quarter 2018 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.

Now, I'd like to turn the call over to Andrew Haag, Managing Partner at IRTH Communications. Mr. begin. may you Haag,

Andrew Haag

Welcome business Vuzix's us update Paul Grant Vuzix's everyone. financial today quarter results CEO, Russell. CFO, and and conference Travers; to morning, first the XXXX are Good call. With

claims over Private call contained on during may economic changes statements protection Securities a attract make Reform and of forward-looking that business as changes factors, management's and as the not strategy result which the turn subject contemplated call the question-and-answer those I could to I'd personnel, well session. risks XXXX. remind Actual that as this factors contain like Litigation may statements conditions, and remarks materially requirements. Safe development statements to in management competitive to the additional legal from the Harbor differ Paul, ability Therefore, prepared statements are business plans, the Act the forward-looking any you in and to of general forward-looking forward-looking or company of uncertainties, qualified regulatory to by retain Before in certain and for are results limited

and no today, addition, performance represents of a release, After change. company's today, any its company the XXXX. close projections with the filed May results the update XX-K to announcing future issued XX, press market projections Vuzix as estimates In conditions may these management's as the its assumes SEC. in obligation as to future the financial market

include discussed summary financial not as results on company wish look documents to who the So the call call. participants Today's measures. may on a provide at this have may today's already so, may non-GAAP done call will those of

then the Travers, will measure, presented turn www.vuzix.com. most also of Form CEO, will Generally XXXX closing Paul when quarter Company's financial we over available is who call the results directly open the provide Q&A and accordance after give the in company's at to XX-K, who over business then will will can managements and Russell, Principles and Paul company's up comparable CFO, to Paul? overview the overview first with So results. outlook Grant XXXX. be at Russell Mr. an remarks, filings follow the call of which first provide calculated will call found to up turn the Paul reconciliations www.sec.gov, quarter and financial Accepted Accounting is I in operating will an for required, update Vuzix's completed. now for

Paul Travers

quarter to tremendously. and for Vuzix's Hello enterprise industry thank in all company's the everyone, first financial sector consumer you, technology discuss call has Thank grown and XXXX business you results Glass AR Smart today awareness Andrew. joining the outlook leading of for our and The XXXX.

for ability new opened opportunities portfolio. to innovate differentiated and Glasses has strategic Our across truly product many our Smart and wearable create Vuzix

continues In programs MXXX comprised positioned XXXX video XXXX, the base, OEM revenue glasses MXXX lot several existing for as to also including Toshiba software development contributions Glasses Blade agreement but the further demand customer place ramp significant customers related expect Smart glasses, we and our we smart as to multiple sources last see from with well basics new Vuzix company all is online increasing to are the exciting development MXXX to confident there nicely the With of these to that the year revenue coming revenue this expand, technologies. growth In follow-on quarter at on in optics Toshiba. substantial deliver and we waveguide XXXX. new are stream in customers or revenue In short, Our only enterprise orders. going Vuzix. our accelerating over a primarily with developments of of our an day continue not expect was smart sales the

in views Vuzix of the a World will users. with I of of in February. further bit later. companies discussing where the the share the I in overall has like experience generated our details, at brands tremendous with can frankly the Show high in some introduction Vuzix world. Blade for to at development gear. that and Blade Congress technology Consumer up Blade lies the hands-on efforts media, valuable their Smart numerous are most the technology and The Blade each. successful Mobile new power mentions Glasses a We These started year internal I'd underlying the very try unveiling with mostly opened time demonstrations. quite the in the of So it the secretive and some relationships Electronics Blade proprietary to kicking these and into At but interviews offers events Showcasing and a waveguide to true technology is in The favorable Vuzix from actual January

completed have and final the week the submit to within CD paper next We on track FDC testing or so. for and Blade are the work

commence being go expect Henrietta, is already to FCC, by process has week Blade New to supply its Volume come the the committed scheduled facility first in Blade West we CE reviewed Vuzix as Vuzix the the to at and to Europe chain much certification smoothly. XX,XXX of XXXX. our As in coming York Blades Manufacturing shortly in build the the the work that. after has for will paper very

deliver to quarter against and We produce orders. existing a first pieces expect X,XXX bulk XXX in to this the our

ship shape in partners, for at has facility enterprise been rolling team Blade community, out eight as orders bit customers soon The and diligently start to Our Vuzix as working months developer have and been last product. over chomping great Vuzix to the possible. Blade them is the asking their the and months at

seasoned we'll have developer manufacturing rollout. in chain supply quarter. this manage bolstered QA program preparation folks in that Edge several the the here for shipping our to our and manufacturing second is beginning team with help Vuzix thrilled also to We Blade us begin

strategic and deliveries developers focus initial our early and enterprise is to to to Our partners. develop these of consumer our enterprise community, app customers

to official at launch year. to and barriers have is The to theme industry currently the that sense years the latter surrounding through first Vuzix the last other which Blade has of the people is with already the something breaking will general wearable excitement, Vuzix also no to-date. public Smart of commencing bring be partners that have XX Blade optical company are exposure lot is the truly here the that with We half The the select for fashion pair for buzz of accomplished channel already of slated engagements embarrassed achieved challenged some Glasses not wear. and a

to the from in the followed no been have the the of has not largest broken you year see can beginning press other achieve, that market. the even If companies easily the display has that able Blade ground since you wearable

Toshiba we business in at them and million excited second end XXX over order. shipping We first [ph]. much very powered see Glasses. the units to million to success average enterprise delivering Based Vuzix's Smart months. Smart quarter in this business continue can appears revenue products of on worth of expect the against XX space and here to Toshiba by above accelerate quarter beginning the also Towards purchase the the Vuzix Glasses Toshiba of be growing the opportunities expand and with product this next their $X.X front for we in co-branded of with anticipated began to approximately $X began initial the AR and

existing follow-on increases the quarter place important come customer customers basics to in many partners, and along and from sales sales back is direct in increased of Vuzix's of It On by the orders. year-over-year on driven MXXX video. note continue first that XXX% orders wins, follow VIP customers with enterprise to our front

just In fact dozens partners totals to their of of first more totals months with customers have during VIP already surpassed XXXX and surpass the XXXX order order entry many four June XXXX. XXXX by expected

service. we have stages expected multiple of geographic large to improve deployments including across aerospace, areas and pharma, into and visibility negotiation proposals final currently enterprise manufacturing Our complex industries various continues large in and

new addition last MXXX to half over hundreds the these, to new to including these and landed expected Vuzix Eastern In with Asia. America the XXXX. expand broaden over agency of deployments regulatory Many of also new second of Vuzix in quarters. sales regions, South customers additional continues global has footprint their certifications our the are Europe, geographic two customers

an and and for show force of tracks numerous sales in Germany, resellers Southeast than dozen in geographic visitors in Vuzix XXX,XXX event trade as Asia. X.X as is value-added Europe, the to and partners Hannover to attended addition that a Messe including well Most external new the recently In networks VIP continues our size expansion expand Industry Logistics to Vuzix X.X. leading nearly more with Middle our world's industrial the East technology

Analytics The our and voice Last Smart with Cloud in Web the integrate Smart platforms cloud-based the month Although At skills Vuzix the the Services, Vuzix two many were Glasses Amazon Glasses XX leverage Alexa Ubimax, MXXX Vuzix Smart now Vuzix the event worked Smart enterprise months of the on were Glasses the the Amazon booths Oracle clearly Glasses more. and to by Vuzix of publicly Cloud and users. at not IOT their were Glasses. Up analytics team Hannover the general time partners also including MXXX Analytics. launch ModernCX At Glasses for selected Service announced real the platforms in platform from their partner. over IOT world, platform provide Service MXXX an information partner. Vuzix AWS by selected as Oracle Vuzix Skill, MXXX Amazon have availability and few booth largest Vuzix cloud based MXXX the Messe more Amazon showcasing that and than Analytics Smart did The as last showcased extensively Vuzix Oracle in AWS hardware from to Web can was at to a the Services, analytics there Oracle has

connected or or floor analytics with can free. to access field adjustments the hands the start work operating XXth making means in they and go to and data troubleshooting operator the real-time completely For on while on this equipment

collected could platform chose the engine, showcase of to a immediately Service also cetera important Smart MXXX Yamaha any Smart to performance fuel, or and Glasses view real-time pair analytics to diagnose et any An Glasses, the to Through Yamaha AWS motorcycle. with would with offer to the Cloud a MXXX the as allow We here, Vuzix's. [indiscernible] such Smart selected have IoT demo sensor needed takeaway IoT Oracle began partnered users they the which but allow of data their that on data users to receive Oracle them maintenance. able from were Glasses

where we a terrific relationship pair look with a shows consulting provides customers forward we those been full have like see Amazon Oracle day Glasses. The need solution feedback from the and Vuzix workers the companies. wearable Just our wearable and at broadening MXXX light and Smart weight within enterprise, to and their of

and manufacture you fashion establishing As Waveguide a market know, most the technology of reality for Optics around and design for of critical developed in Glasses, augmented invested opinion. Vuzix the Smart significant our position based mass and has

in resembles manufacturing waveguide is art fab and of facility state a closely some regards. Our the semiconductor

Our to waveguide provide a over enabler customized billion products for the believe our These of done technology, and biggest efforts to factoring advantage believe are opportunity. automated And Glasses. technology and challenges manifests this we helps be process market Smart know-how we the are primarily feel equipment, forecasted one optics world-class. metrology $XXX for said, own mass That key they AR Vuzix's plus will were us significant we competition. designing a

mobile your over As such a at you provide already are the Vuzix are leisure about few walking a that a and it. out searching the first pointed watch Think XXX is there and many a the market over in augmented There to real great for through support around. minutes. [ph]. about position million companies in up million. phone, are the you AR It's imagine phones world screen world can Hold XXX the today, for while cool it solution

going Waveguide and be or multibillion mobile the and already believe not it. begun major market, in technology, need long AR away the to all augmented IT, be shift the today. adapt is view. to phones and the that is and We know-how that from Smart to ripe and run gain this also a certain going the has consumer To sooner Glasses to Optics the has a companies a partners a happen. that Vuzix shift with it's replaced to seamlessly pair The Although this is and user's or later select efforts many at least the has dollar this are world be enable phone created unique OEMs to with brands a Vuzix work know of how a believe and naturally commercialization glasses in and present We smart augmented position leader strategy to already help around towards end, impacted momentum. make in by continues technology

largest year, our own Blade of made these from on several last Vuzix for new early has optics solutions. I looking the the great engagements In progress the ultimate companies introduction OEM the period position challenges organizations already in very well short of this consumer during planet. our engineering As had negotiating solve this value increased manufacture in company seek It's numerous call, to mentioned Blade the some volume. brands has with towards the Many are units participating the to as they of our leadership some Vuzix quarter. developer Blade clear waveguides on as and Vuzix optics these first and Vuzix's the have program received their ability

some our IP expertise from some we shed Let past light me on related moment a Vuzix to learned have the over in months relationships optics technology. new and what four take of to

discussion our validated partners industry has leading. potential is our with that these technology First, optics

result is is unique to position that elsewhere. not in solution Vuzix offer a available a a As

select and Vuzix of to that cost within units even Vuzix technology it apply volume the in high integrated use market of manufacturing form The believe in it's quality, capability in and proof in proprietary the point factor, Rochester be sense expensive have has Second, reasons, so millions these view do have develop the partners glasses by and become automation a of through now for our performance equipment the be manufacturing to very more highly custom new very been custom from of optics annually other partners. makes We can that consumer scalability. is automated manufacturing price. a including truly the sell And pudding. Vuzix here through AR has from to they economic small number differentiated Waveguide is our processes can of operations competitively. in apparent to price favorable new say is such a Waveguide developed Waveguide's our pair but offering as

glasses of these truly leading advanced in phone technology the glasses, is keeping creative content specifically, platform technology smart a the combine if allow discussions synergistic augmented More wearable combination can glasses, the AR experience way technology designed, inside and or software mass lot opportunities firms which pair are smart through content of should Finally users. be with a with optics leading of provide that to reality was that you a right to market the package a pair smart consumer pocket. the your it your Vuzix

we invest However the team we to R&D. at compared short where Vuzix time. and same is far from at will done as a next In display the resolution we continue run by in the of increase to size and three generation the factor to on strength today that two working are optics are the engines

Kinsman franchise, great consumption Yes, getting [ph] view. the required are those significantly towards We we of power the making fields lowering and of goal also stride the lofty goal, The in are it. that a movie but to like a looks we to expect raise have glasses Ultimately that's

that I'd in space in opportunities space Grant. but front see can call only as to the now consumer also the in like has to pass great over enterprise not well. You it, Vuzix

Grant Russell

Thank you, Paul.

I I will to filed evening encourage just listeners quarterly be on a the explanation the year-over-year Before review some that differences, a like begin, to our detailed I'd SEC, few. more interested as with of was for XX-Q highlighting this

XX, over quarterly up as of the the year-over-year. period XXXX, our are XXXX, $X.X months of primarily which an sales MXXX reported in customers three XXX%. by Vuzix original XX% offset than most comparable of newer increased of for opting total the the March the the meaning MXXX as million XXXX in sales quarter, revenues For to million compared were by ended smart improved for model. our decline more MXXX XXX% revenues, Overall now glass result sales, same Eyewear $X.X increase rose

XXXX. We sell out are remainder of this to track on successfully the product during to

focused the efficiencies. and staff products. expenses that marketing total million were first for to Vuzix the major absorbs growing result comparable ended in were activities period to for $X.X our spending million software months as with costs. the manufacturing was hiring XX, our and primarily freight product period engineers the General positive period. store of $X.X from $X our margins XXXX on XXXX, team, gross XXXX. and app a and million expenses $X.X million the as with last for XXXX of the due XXXX, of QX the The a the profit increased million and $X.XX first million to was to new was net for X% various higher XXXX as quarter the website The increase of for the throughout versus additions period. for $X.X the period. is and $X.X to quarter dividends XXXX on enhancements of million for to gross the research three compared for direct increase XXXX MXXX XXXX of administrative was accrued fully $X.X due compared after in of March for Overall rose quarter of sales XXXX provision improvement the year. XXXX for the million staff and revenues more period, of up primarily million increase per of to The impact compared hiring as XXXX versus loss to The loss first realized to $X.X R&D preferred share $X.XX were Selling and which additions XXXX $X.X the development million manufacturing product higher result overheads profit the first existing The we expenses was increase as for our Our to the new primarily sales for primarily versus quarter $X.X in period.

position as million. XX, our March XXXX $XX Now for was cash balance some of sheet highlights,

comparable throughout of debt to sheet. the from operations over $X.X XXXX as statement existing loss kind and XXXX positioned long-term support period. conclude, the for beyond. back income million adding compared that months we back growing March adjustments To we XXXX turn ended XX, after Paul demand, our Travers. to call on in I financially million to any the products no have are The was well the the and new balance for non-cash $X.X We like With net feel three would to

Paul Travers

planet. other Vuzix Grant. future and smart Thanks than been any longer the has the AR developing of on company glasses

MXXX. investments, and We investments In have Blade our the growth as Vuzix in pay-off invested streams XXXX, by will including for revenue commercial heavily a XXXX, to this driven of number space growing our challenges expect shareholders. MXXX soon of product we significantly result product, continue and solve the Vuzix the these technical of to multiple toughest some engagements. OEM our was In a single Vuzix's will and will basics add a of all video, expand, revenue Toshiba, primarily

expect create after streams this second shareholders we beginning quarter that annual York including significant reminder I'd sequential here the office in revenue quarter. will meeting the XX. West many a through Vuzix growths record resulting of New our these the Henrietta All corporate Vuzix June end with here new in sales like quarterly in of friendly out revenue would quarters of on to portion for call year XXXX be at held the

pass corporate hear We are welcome some And session. to tour shareholders to forward about let our begin Andrew latest seeing the the of to meeting look the to portions you facility of and visit developments. latest of our to All the Andrew? me Q&A see products, here.

Andrew Haag

how you get remind for Thanks to ahead up the queue. can open go if the Paul. and questions in participants call and Operator, please

Operator

Sure.

and comes [Operator conducting go will question with first a Schwab answer Please Our from be ahead. Christian now session. We question Craig-Hallum. Instructions]

Christian Schwab

guys. Great start the year, to

anticipate of XX,XXX you can you that walk As that of little on out? you all know just can us bit going through how of playing how what Blade see you the clarity kind would look June throughout is you us shipments at how the you at be a course the year, the shipments more I said would but that? for December give anticipate to you

Paul Travers

folks going you might on out golf do deploying through then focused our The It's want that of are Christian our the of an developer enterprise door that a consumer serious showcase that There's to about really of build the guys community kind space. developer imagine going these getting AR there's of year, the as of the searching to bunch like two balls, is thing. consists are things And that's sorts. community. apps dead in

half that the enterprise it of sure year So phone, that's up time we're to really will for they that in the know sing, this market the front guys is aloud a can going we're end. will that make but happen fact sing When about that to $X,XXX get and just There's significant then them. that runs and We software takes some the mass said, happen you to of quick consumer that the together Blade of unit. it getting are following But what will subset the not makes the at talking have be appeal. also space opening get it how the at rest numbers the phone a year deploy so just finalized, the to that's channel. more the this sort you of in between

of new a a - not [indiscernible] it. consumer consumers lot of but there's want it's that So part

the know we'll I phone. get them building year We're grow through out door and don't significant get year it number. see into not you'll So the accelerate the we'll but the it this a if XX,XXX,

Christian Schwab

revenue has Okay, and any that opportunity? beyond those something greater measurable needs. XXXX with any with you do X to XXXX talked of large that give in or and recognizing last we consumer we from who of is electronic might be on an then in optics fabulous and Can XX us more the question update waveguide where sit big potential engagements that any and last evaluating quarter Tier potential about my some were so than

Paul Travers

synergistic engaged kinds form - the the will there fees Vuzix. Vuzix. three already of you industry having with we from three XXXX that revenues talked is a more that with things list and is that say in that be see of come folks not engineering There will those and are NREs of are and It in now will were engage bit tell number fair so all them. I will these we use. being of on them for think of option We're you so that, this But and staffing, little team that a potential selective see Vuzix goes guys pretty volume. and are XX it you will won't there's year to be in very folks everybody I engineering engaged I about a primarily then past will it. thing up it

Christian Schwab

Okay perfect no thank questions fabulous, other you.

Operator

Our Jim Capital. Please with next ahead. Chardan question from McIlree comes go

Jim McIlree

thanks, in began shipments the complete million in Yeah, The and of did Toshiba those QX? QX end afternoon. extend that shipments good that or at on are QX the order they $X.X

Paul Travers

We see shipment started. already that's in QX, that

Jim McIlree

And they orders back come QX whey for they do is wait any on to you is in that and or this or going in would to reasonable have reorder. expect something how they where delivery feeling it's or it going see

Paul Travers

awfully all of excited right I seem Jim. first So,

You just Tube on fact of that a evening a promotional works this In how little thing. they video sort put wonderful and

take have We they honestly agreement exclusive don't product the rate have to think they their they following at keep product. if that and certain with - want to an I a have them

just the But third So orders sort exactly go of what, we roll all take build are to that that Vuzix and to tends you guarantee should quarters expecting it fourth through plant yeah and will rolling. the continue in consecutive keeping and I stuff. see to enroll. quarter, will of effectively can't placing that quarter, on time

Jim McIlree

Okay, that's helpful.

get the maybe let's year some size get kind of a a this that the for kind deployment and NRV second fair pace of of get the of and bit another half, be year? Toshiba, little like of Is - so call enough it are how Blade we this cumulative. characterization lumpy the Toshiba that can then or looks either of in that get we you the we get quarter we MXXX and small And on the depending QX, we large or is thinking

Paul Travers

bit. a there little missed You

- are me to MXXX, we And regard continue Let MXXX to right. expecting accelerate.

one So be last this kind orders could saw working for of year, of in cake is so a of MXXX, icing you any bunch stamp lot you can are folks a on that. significant on there on the year

have those product. the off product, Blade as This engineering coming a We Blade, quarterly kind is are - line got a million number. the on we the the in we it's have but the like which, basis, And got Toshiba as cookies. targeting of not

going continue a by so of contributor it to MXXX a VPs is then programs. it look cases. market in engineering be roll should to in will that's latter market that And vast [ph] open year. revenue the our but OEM will again like some and different to selling into But half the the And there for

literally you Vuzix streams So revenues coming there four that new year. of should reasonable is see into over the

Jim McIlree

Blade. Right, right, excuse me, not Excuse when Edge, I said in already Blade I meant me. the

developers at an introductory the or Blade a kind price initial the that those are those guys. for out full price going are those so to at of And

Paul Travers

It's it's full, full price.

Jim McIlree

different to Okay, that the there rest any than saw for in expenses appreciably they great Grant, of the believe is the reason QX. and year, we what are

Grant Russell

could some as see creep continue we R&D really, rate. some I mean accelerate reflects current to in the certainly work No, run I that our there.

somewhat a things to it and And some are do sales we and we costs step bit the see we assist acceleration. that we do more variable, like the our are success little of of out money in because do more marketing and commissions more advertise have and having

materially but So not different.

Jim McIlree

is order accomplish the going that goals to. you R&D of is so increase or like kind variable to in there in forward have, more you referred that just component have revenue that in built SG&A see you no so significant what Right, and that to we're going

Grant Russell

Yes. much. Pretty

Jim McIlree

guys for it that's think I with And Okay. everything. thanks me, and lot good a luck

Paul Travers

Jim. thanks Yeah,

Operator

comes Our Kinstlinger Global question go next Alliance Brian Please Partners. ahead. from with

Brian Kinstlinger

blended the so in quarter, the XX% talk are ramp gross we the as throughout know you it, Can in profit? the that view XX% about difference thanks of on exit quarter to Hi your this mix I much. a versus point talking your as think I you are talking Great, your margin on drove statement what's in fourth it guys. the then income about we reasonable gross year although please. see And higher

Grant Russell

across our so than traditionally have on Well, in sales. half, shipments past had make course lower of our revenues. being end than still excess we are on XX%. product total of margins The half QX XX% of the is costs MXXX margin have it. said of a and Toshiba of sold products margin The with the don't to sales eye that and In about I but gross almost on we first the less Toshiba, go the marketing an are on effectively alongside that that's MXXX we ware only

forward the mix as should Blade we to adequate sufficient Going XX%. year absorb we there and revenues with would our clearly of suggest end but as margins far manufacturing start. can by XX% getting margin need I of up to of right overheads Blades in the get we'll north the the gross MXXXs be and

goals the long but business probably… goal for XX% I'm Our term the just to but is get

Brian Kinstlinger

XX% don't think? quite your pieces-ish So to wouldn't XX,XXX you you get

Grant Russell

matter chain through. XX,XXX as and out we sign for up Well that's supply of then sell Paul but indicated yes ship the it's a

Brian Kinstlinger

Yeah okay.

Grant Russell

But but… an number that's not impossible

Brian Kinstlinger

you past the guys. I is initiative longer. in has It no an think been for And clearly clearly then capital

investments put I think sounded to there you statement. we've income you had the that if going the we're Paul Grant see through significant would discussions aren't in that had drive foot comments going on to like the incremental capital but to be it is the in flow made pedal your growth

your then top maybe talk So two statements? priorities first reconcile and about those

Paul Travers

out stuff that. year the putting been in one pedal been to have know this in through to right only product the spent big can is just it think places. have XXXX been we cetera now in we've pretty we head spending gotten why business streams there four roll metal to the we production from said et time answer revenue lines coming R&D we're That's how you don't We But this that a jump and these four year. the of revenues and capital. got I jump, and is which discuss to pace year. so that jump XXXX. to out takes see in products dollars how a to a So at things last good fast the here kind the and grease significant stream but

coming rolls sure and really that accelerate needed dollars out It's to inventories also out imagine you thing Brian there company. this in can I'm so the too. more As build

also. money put and the operations et cetera we So supply chain into into

So the…

Brian Kinstlinger

That leads go to as my we next question we in this actually inventory? accelerated see was increase year throughout should

Paul Travers

take we to it at. like pace sell build the we're need We which at going to to to

best you have when they inventories will you but that them are trying also sometimes But to volumes, be out of to the regardless. yeah make the will smaller door. can as going in you So making grow we're balance commitments

Brian Kinstlinger

the inventories of of And flows to way? so you see maybe and the see margins, is increase cash know with revenue then a talk Grant If quarter how sell. that you sure increased that cash internal I you guys terms - usage about gross do goals pieces heavy increase maybe maybe do little out but in and rest playing have this about how stronger going plays I'm the year forward that and out bit talk

Grant Russell

mean be I in the think to there'll increases. don't going growth clearly some it's and items think level as capital I working inventory be math, I significant. for business of on Well, receivables

credit We I per up I million honestly inventory. much we or also be do a side than might million more good receivables suppliers. payable get that because to our from that in and get the some end wouldn't $X.X mean quarter, But expect

to uses other operating a on an mean that's from have results. averaged As basis cash rate $X.X expect and burn far per we as I QX month, million costs in actual

We down XXXX picks up. the as that go during to business expect

Paul Travers

I some capacity our there facilities, so then the…. production and side, dollars titrated will invested the are that, manufacturing of increasing will on the the waveguide be R&D in that we add side, on both

Grant Russell

The nothing internal CapEx the be mean advantage if what line for we short sense term on That should some There we horizon is today. in doesn't spent might in XXXX. of us. take opportunities make they significant with

Brian Kinstlinger

was you have lot talked going adopt your a glasses. customer, Okay, the a couple of past. to last DHL widely about just news in that was There question have, months ago, one I

I its and for think it picking. was internationally logistics warehouse

its So going Is a year, it take specific on initiative customer going forward it. they major where about something this but that are that, there be is is since know lot much quickly? I to press ramp moving so time? of a to that is was

Paul Travers

ready are X just point the so time this to they they They [ph] to they boat, the of knowledge one folks at last this are But large where but same point in rolling activities number still like XX quite a that we or edge in time, to they are kick that guys.. point has hole when our [indiscernible] at Yes, getting got are forward said are of of they which they believe time. facilities right DHL I to looking the have will. right many believe in I on are like are in frankly. in really forward in We that one-off beyond moving with now they are where they

Brian Kinstlinger

so thanks Great, much guys.

Paul Travers

Yeah.

Operator

Choksi with Nehal from comes Group. question next go ahead. Please Maxim Our

Nehal Choksi

you. thank Yes,

that the million you So if off cogs I associated Of percent was Waveguide. manufacture the what is expansion cost with of that share could wondering first be cogs, the of see positive in $X.XX to of there. you willing sales. had to

Grant Russell

Waveguide No. piece in technology that it position very [indiscernible]. of a I a mean unique is the is and not house,

kinds there to what their they of with and so won't - were just you it's those just If is same and the things numbers entail Waveguide. just many way our share have

Nehal Choksi

volume, or positive did Sure products. due right. to percent end Was of though revenue decrease yield that understood. is mix It as your of a which

Paul Travers

understand rephrase you I want I I could sure am question. the to sorry, that? make

Nehal Choksi

product cost XX%. to your of XX% year-over-year a sales Yes, revenue of decreased as percent product from

products? And end that? the of that mix Right. volume increased is So increased the Was driver what of the positive. question was your yield, or that's

Paul Travers

come mean building to three, and than perfectly clearly have our costs more MXXXs, be down. we used frank. All are to I we now

We have a has gross more the lower than efficiencies and year better which yields. MXXX. the margin had we mix, The product MXXX last

result. So it's improving a I been generally just mean as

Nehal Choksi

willing production. Waveguide Okay, with yields you your share, current can to you you all better as get think right. Are

Grant Russell

anybody really with what can don't them. making working share good We at I well. say the are current It's yields we frankly. really are

Nehal Choksi

a And Is then that from or gave way the Okay, all have right temporary X% you shift? product to your think actually but X% increased product the of permanent reserve reasoning driver. that to that seems like sales warranty of right. was is sales that

Paul Travers

the batch had with the some the that feel side the still aren't We field from to that standard all tables should get done washed up we of we materials we scrapped pull to Yes, the got was have of temporary quarter that allowance field. and we system, those quite that be any bigger the be cover the some are and backs a on and two. we within and some safe through clarifications, or cables

Nehal Choksi

is Waveguide Waveguide or great. in And on none. then have in to just which sales of Two more sales, that's quarter questions this past? have there year amount you that. particular a And sales small that the then did is OEM? Okay was those you One, was this relative one second quarter, the had OEMs

Grant Russell

a Waveguide at kits include Yes, protector Waveguide of some the as in classify engine these which include past, this sales we developer actual mean Waveguides we and stage. sales I have what

are again some early very and the prices We the currently things don't Paul that steep. very limited OEM because primarily the cheaply programs so… by still talked in it's quantities of about. So the And production sell ramp the development

Paul Travers

run and buying very are and Tier to $X cost a the like. put they X is sci-fi of McLaren for That's stuff some easy what They like They advanced it's that together specifically things more players. are Yeah, related a a of million these the piece. designed are car. partners some

Nehal Choksi

you're that? the do market to Yes absolutely. the OpEx you right have sounds timeframe work then a All you on gen through very that what on next and can attractive go doing for time

Grant Russell

many When selling on beside good. There when people why, never really not products are you is your the not We're sharing known this call. real phone it's is thing. world, is are that reasons next one telling who in so kind coming of

So could going really it's on though to we you tell a that and and that we other treadmill just don't - guys. we're the important I know beat It's we're piece.

Nehal Choksi

and that great very later. leave I'll then for just Thank much. Okay, you

Operator

Thank you.

go up question have McIlree Chardan We Jim with ahead. follow Please with a Capital.

Jim McIlree

something hang that that open our well you've in Yeah, thanks on share this I I up if as to about behind talking issue hats or just could I maybe us know was is the about out about technology behind manufacturing completely scale Paul, to that but give calls wondering prior Waveguide a sensitive you the want again. manufacturing on the you and the to been think call don't and could it's it technology Hey unique and something relative what capability? so Waveguide,

Paul Travers

Jim great Sure question. a that's actually

build are and this the The that equipment designed waveguides in step you procedures windows look it. build you and Vuzix, get at our our our our facility the costs polymers, visited of we actually that you associated things you process. dollar numbers own have million rooms lucky view and just through XXXX that the these manufacturing is that nano-particle is got, two the of which in is we in has can the four, been to of custom see developed the that class were of processes, Vuzix the with If whole that equipments tools, all in where a they see first trapping into Vuzix. there's specifically and nano-replication the go millions those plant And the make we've tools, procedures, walk in then that bit you make happens that back, to for the materials developed high-index here just enough get on. also people mixes clean that kinds at use, dollars to out That tools

just on see limited in come So anywhere share you folks this their and today. drops to we that jaw do the don't planet that when because

able these not factors another heretofore waveguides hand out they to look off. spit they pull are been in fill form robots of a product, that beautiful. finished the You has and And tray and to company designed waveguides

front out sauce all puts put around them in in the a of and this like There's many don't intellectual Vuzix and pending, secrets and only all to on keep this put patents that. It York. Rochester, that far exists you New So specifically of patents the today. stuff in competition really together we all patents of property XXX secret of plus

this costs are of waveguides stack to ton one car. cost can do produce the have We of make glue their glass something together, end yields a money but I'm up, are terrible. and literally. effectively, of got We they it making sports to that stamp have all high these very sound competitors things simple them but we that it making chunks that's quality

particular a I as gamer So wear as chip. don't Vuzix it's down that's believe product in I'm except some valuations private industry massive at sure at company it many I got came ,Florida value very people one out of for guard. finally Vuzix. a think know in anybody their the and all very you There's it, proposition unique and understand not they companies with

optics, the engines for are systems of Our and drive technology. the that us that forward that of from just waveguides, we it revolves, designed the around display people revolves a competition just would Roll it apart little again here build it all much setting not bit, what it's them too. wear, those

regard lens stuff look said which shrink advanced that the in really trying to have also some something. temples, we we that lens, done to get a that too do here custom look got you We have stuff in at as allows to we're imagine and Vuzix down might some and to You and kings designs we at feel. got this man

question, good narrative. many a it's sets so ways. hard it in answer it's Jim in really But apart to just yes, So

Jim McIlree

just helpful, That's that. follow-on thank to And to you.

relatively that you of or expensive it that have factor de different your is the is form a in capable simple as the or your factor, form and but or assuming and is different that's than a task. either this a accommodating ask it I have How what's big the time either minimis minor significant flexible customers form with bit thing in factor. a move let's form different anything changes consuming lot customer forward of am little Blade at business, part some changes will So next equipment a will bit a in call factor to

Paul Travers

different fix technology able designed in we back that flexibility the can be be as to form support designed of are And happens it them our the of the First to Waveguides has factors. to so that. in

aside local front, side head across and they can If competing they the look through and of XD literary watching your products you burns a are are them. flat some the the of glasses the the XD display you you shutter because in just engines, see like

are designed the Our tip so is can tilt that Waveguides put at your which nose to of we from ears. angel an your

the to. and can as kind can where you off mould face. form looking adjusted display things as we fashionable of put They bottoms. the square them engines them in degrees these can at So opposed to tilt also want take XX and We the

that of is stuff All flexible.

process and you you will yes I completely technology the future redesign believe that's all of to Now kinds our itself, supports wayguide the see feel, customize that to that. have through and have redesign sorts it go so the you but devices tool to with of branded and things look in like

Jim McIlree

Appreciate much. answer. you thank excellent, very Okay, the

Paul Travers

Jim. really you Appreciate Those questions. Thank were two you good asked.

Operator

like over comments. closing Paul I to would you. turn for call to the now Thank

Paul Travers

I'd financial like first of shareholders of the and everybody. support call all concludes XXXX again on quarter to for the Vuzix's today's Thanks you participation company. thank conference their call. This

Operator

you participation. your Thank for

this may You your time. disconnect at lines

Vuzix (VUZI) 12 May 182018 Q1 Earnings call transcript