Vuzix Corporation

Greetings and welcome to the VU6 first quarter for the period ending March 31st, 2024 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. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this call is being recorded. Now, I would like to turn the call over to Ed McGregor, Director of Investor Relations at VU6. Mr. McGregor, you may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the VUSIC's first quarter 2024 ending March 31st financial results and business update conference call. With us today are VUSIC CEO Paul Travers and our CFO Grant Russell. Before I turn the call over to Paul, I would like to remind you that on this call, management's prepared remarks may contain forward-looking statements which are subject to risks and uncertainties and and management may make additional forward-looking statements during the question and answer session. Therefore, the company claims the protection of 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 projections as to the company's future performance represent management's estimate as of today, May 9th, 2024. USICS assumes no obligation to update these projections in the future as market conditions change. This afternoon, the company issued a press release announcing its first quarter 2024 financial results and filed its 10Q with the SEC. So participants in this call who may not have already done so may wish to look at those documents as the company will only provide a summary of the results discussed on today's call. Today's call may include certain non-GAAP financial measures. When required, reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found on the company's filings at sec.gov, which is also available at www.vuzix.com. And I'll turn the call over to Vuzix CEO, Paul Travers, who will give an overview of the company's operating results and business outlook. Paul will then turn the call over to Grant Russell, Vuzix CFO, who will provide an overview of the company's first quarter financial results, after which we'll move on to the Q&A session. Paul?

Thank you, Ed. Hello, everyone, and welcome to the Vuzix Q1 2024 conference call. Since we reported our Q4 and full year 2024 results just a few weeks ago on April 15th, my prepared remarks on this call will be relatively brief. In the same vein, we will dispense with our usual call presentation deck also. Our Q1 revenue improved sequentially over Q4 of 2023, with our product sales increasing again. That said, industry demand for our enterprise smart glasses has clearly remained lumpy. as the industry is still in the early adopter stage relative to where we and most others see it ultimately heading. Nevertheless, we remain encouraged by our current business outlook, and we do expect our top-line revenue to grow over the remainder of this year. And with our ongoing aggressive cost reduction and control measures, including our recently commenced voluntary cash salary reduction for equity program, Our net operating losses and net operating cash burns should be reduced at an even faster pace as compared to each prior period of 2023. I'd like to now discuss at a higher level our key business areas in terms of where we've been recently and what to expect in terms of timing and catalysts going forward. As you know, we have been developing enterprise smart glasses solutions for the enterprise space for some time. We have continued to steadily improve the performance, functionality, and wearability of these devices and will continue to do so, but now with a shifting and more tightened focus on waveguide-based designs. This is being done to both give us a stronger competitive position and deliver products closer to our customers' expectations and needs. As part of this shift, we are adopting a bifurcated smart glasses model approach that we think will appeal to a larger swath of our target markets. Firstly, offering high-powered, standalone, smart, wearable devices, which provide broad video and computing functionalities. And secondly, lightweight, less expensive, thin client-type devices that can either serve as wearable displays designed to connect wirelessly with other devices, like handheld scanners, smartphones, and other wearable computing devices, or as audio-enabled augmented reality, and artificial intelligence glasses with its intelligence and information display coming from the cloud. All these smart glasses models we believe are among the most competitive in the enterprise space, and we have growing independent software partnerships to support them. Additionally, our steadily expanding channel strategy is now in place to sell and distribute them. We believe we are well positioned to be a, if not the, vendor of choice for many customers in this space as the adoption cycle finally accelerates. The return on investment realized by the use of smart glasses speak for themselves with numerous proven proof point examples showing significantly improved efficiency in picking times combined with less errors, as well as sharply lower new worker onboarding and training times. It's worth repeating that, as per research published by Incisive earlier this year, 69% of executives surveyed see wearable augmented reality solutions supporting artificial intelligence and workflow optimization as being central to their future warehouse operations. Muzix smart glasses are clearly helping modernize warehouses and improve productivity, practically guaranteeing them a spot in the future of the frontline worker. That said, many of the larger specific deployment opportunities we have pursued, and in some cases long expected, have been challenging to fully consummate for a variety of reasons that include, among other things, back-end software selection, customization and optimization, system integration issues such as security, communications, and database management, organizational changes, multi-location training, and even union approvals. These are the common technology adoption and learning curves that we and our partners have continued to ascend. The bottom line for us here is that a growing list of current and potential enterprise customers see the value and the return on investment that our solutions can offer, and our demand pipeline in this space is, as we recently stated, growing. As we move into the latter half of this year, keeping in mind the issues related to deployment timing and predictability I just covered, we are optimistic that we will see more and more of these larger smart glasses deployment opportunities finally get announced and or commence in earnest. Owning the software stack, and by that I mean the application, has been part of the challenge for deployment, and hence the reason we originally purchased Moviance. Their business, although taking more time than expected to mature, continues to gain momentum within the larger corporate ERP-based market that we feel is very underserved by smart glasses currently. In early 2024, Moviant announced support for our smart glasses as part of their solution offering, and as a result, we have seen a growing number of potential customer engagements for pilots that have been quoted and or are in the process of being quoted for the hardware, software, and professional services in their targeted warehousing and logistics areas, as well as manufacturing and brick and mortar back-end operations. We have already won our first appointment and our expectation is that multiple more of these projects will convert to wins over the second half of 2024. The widespread consumer adoption of smart glasses faces a different set of challenges that fortunately the largest players in the industry are driving to fix. I think most would agree that if you can offer consumers a fashionable, lightweight, functional product at an affordable price, one that can largely replace smartphones, its use will quickly become ubiquitous and offer on-demand augmented reality and AI applications to the wearer. That said, the existence of applications and ecosystems are critical to the final missing piece. As we previously stated, AI will be the key enabler of a new level of functionality and productivity, and giants such as Meta and several others now have plans to make their AI and XR software stacks available to third parties. Apple is also expected to join the party this June as part of their annual developers conference. The publishing and licensing of these software stacks should enable ecosystems with content and experiences that will drive AR with AI smart glasses adoption and allow Vuzix our other major ODMs, and larger consumer electronics suppliers a path to products that consumers will want to embrace and buy. We have multiple roads of USICs to participate materially in this business. First, our ODMs. We are currently working with and deepening our relationship with Quanta, one of the world's largest ODMs, to supply them with waveguides, projectors, and related software. with the goal of having them resell products based on our components and supplying as many of the major commercial electronics customers as possible with AR finished products and solutions. Second, we continue to meet with numerous consumer product companies directly, all of which have embraced and publicly supported the future directions of consumer AR and AI driven wearables with their intentions to participate in this space. Finally, there is an internal effort underway of Vuzix around our ultralight platform and Z100 smart glasses to offer a Vuzix branded consumer version of our designs that we believe we can bring to market in volume at a competitive yet profitable price point. Over the balance of this year and into 2025, we anticipate each of these roads will become more publicly visible and increasingly add to our top line revenue. How much and how soon remains variable, but clearly the numbers here could ultimately dwarf our current run rate once things get going. Beyond consumer-related OEM engagements, we have several active defense and enterprise opportunities. As recently stated, we continue to expect at least one defense firm with which we have been working for several years to commence production of products incorporating our waveguides this year, and there is a good chance a second may follow on right behind us. On the enterprise side, we are currently working with multiple potential partners, at least one of which we expect will go into production in the back half of this year. Again, we hope to bring you news of these engagements during this year. The backbone of all this remains our technologies and processes, most specifically our waveguide and microLED projector development and capabilities. We covered a lot about waveguides in our recent presentations. April conference call, including incognito and integrated scripts. So I'll simply restate that we feel we can make high-quality waveguides cheaper, faster, and in higher volumes than anyone else on the planet today. Beyond Vuzix waveguide offerings, the expensive waveguides made by our competitors and their lack of scalability to cost-effective volume production represents an industry deployment impediment. The value of our waveguide process technologies and production facility and their future place in the wearables industry we feel is very substantial. And as our success in the OEM waveguide side of our business continues to expand, it will finally start to be realized in the enterprise value of the company. As for Atomistic, we again covered a bit more detail about their progress in our recent call, so I'll simply add that they continue to work on achievement of their remaining performance milestones. In summary, although we still have work to do, we believe we are making steady progress on most key aspects of our business. And at this point, we expect to achieve and we'll be sharing some exciting progress on multiple fronts over the rest of this year. Grant will now take you through our numbers, after which we will move on to Q&A. Grant?