Vuzix Corporation

Greetings and welcome to the VUZIX third quarter for the period ending September 30th, 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 VUZIX. Mr. McGregor, you may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the Vuzix third quarter 2024 ending September 30th financial results and business update conference call. With us today are Vuzix CEO Paul Travers and our 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 forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question and answer session. Therefore, the company claims the protection of the safe harbor for forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by any forward-looking statements as a result of certain factors including, but not limited to, general economic 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 estimates as of today, November 14th, 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 Q3 2024 financial results and followed its 10Q at 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 measures calculated and presented in accordance with GAAP can be found on the company's filings at sec.gov, which is also available at www.vesix.com. I will now turn the call over to Vuzic CEO, Paul Travers, who will give an overview of the company's operating results and business outlook. Paul will then turn over the call to Grant Russell, Vuzic's CFO, who will provide an overview of the company's third quarter financial results. Paul will return to make some closing comments, after which we will move on to the Q&A session. Paul?

Good afternoon, everyone, and welcome to Vuzic's Q3 earnings call. Thank you all for joining us today. The AR and AI landscape is evolving rapidly with industry driving attention to AI-enabled smart glasses. This increasing interest validates our vision of becoming the premier supplier of waveguide optics and advanced AR products for the global market. Today, I am pleased to share updates on how we are capitalizing on these trends, our strategic transition to OEM markets, and the opportunities ahead for Vuzix. all of which should drive sustainable and profitable future for the company and its shareholders. Our waveguide manufacturing capabilities, a cornerstone of our competitive advantage, continues to demonstrate to potential partners and customers our ability to produce in volume with industry-leading cost efficiency. With one of the lowest production costs globally and a scalable capacity to millions of units per year, we are well positioned to be a key supplier to major OEMs providing them with waveguides tailored to their AI-driven smart glasses products and system-level designs. As an example, one of the most impactful developments in Q3 is our strategic partnership with Quanta Computer. Quanta's $20 million multi-phase investment underscores our mutual commitment to revolutionizing the AR industry. The first $10 million tranche of this investment has been received And the remaining two $5 million tranches are tied to specific milestones that we are on track to achieve early in the first half of 2025. This collaboration will enable Vuzix to supply millions of cutting-edge waveguides for AR and AI-driven smart glasses to Qantas' extensive OEM client base. We've strengthened our presence in the defense and industrial sectors where our differentiated solutions are meeting demands for mission-critical applications. the latest example of this being our just-disclosed relationship with TALIS. These markets offer high-margin opportunities that align well with our growth strategy. We've also made significant strides in broadening the scope of the Vuzix Z100 smart glasses from a developer kit to a full-scale consumer and enterprise-ready product, which I'll elaborate on shortly. Last but not least, we have achieved a steady reduction in our quarterly cash operating expenses which declined 28% year-over-year this quarter to $4.8 million. These savings were driven by planned, targeted cost reduction initiatives, including workforce optimization and discretionary spending cuts. With these measures, we have extended our financial runway while ensuring resources are focused on scaling operations and advancing strategic initiatives. Before diving further into our operational and strategic updates, I'd like to provide some perspective on the AI smart glasses market and its potential size. According to recent industry research, the global smart glasses market is projected to grow substantially over the next several years. By comparison, there are over 300 million smart watches sold annually. As an accessory to the smartphone, smart glasses are expected to rival that. And as a smartphone replacement, the market is expected to expand significantly from there. For Vuzix, even a small portion of market penetration would represent hundreds of millions in revenues for the company. Several factors are contributing to this tremendous projected growth. Artificial intelligence is revolutionizing education, business, natural language processing, and ultimately how smart glasses are used. Features like real-time object recognition, language translation, context-aware notification, and voice-activated assistance are redefining user experiences. AI's ability to process and display information contextually and visually is a game changer, making AI-driven smart glasses indispensable in both consumer and enterprise settings. Importantly, ongoing technological advancements in optics, displays, Battery life and connectivity are making smart glasses more practical and user-friendly. Vuzix's WaveGuide technology is a prime example of innovation reducing costs while delivering high-performance displays that are flexible in design, lightweight, and ergonomic. The convergence of these factors underscores why the market is expected to grow so dramatically. At Vuzix, we are uniquely positioned to benefit from this growth due to our ability to supply scalable, low-cost, waveguide solutions to major OEMs. Along with these developments is the increasing interest and involvement of global fashion brands. Companies like Essilor Luxottica and their Ray-Bans, through their collaboration with Meta, and the growing anticipation around Apple's AR offerings are setting the stage for smart glasses to evolve beyond just technology product. They are becoming a lifestyle accessory. This shift is significant for Vuzix and the long-term health of the industry because it highlights the mainstreaming of smart glasses, which were previously viewed as niche technology. Fashion brands bring design, style, and marketability that appeal to a broader consumer audience. This trend aligns perfectly with our long-term vision and strategy in several ways. Regarding OEM and white label opportunities, our Waveguide technology platform is already being positioned for white label opportunities as fashion brands seek to differentiate their products with cutting edge technology. Vuzix is uniquely equipped to partner with them to deliver high performance, sleek AR solutions. In terms of market validation, the entrance of major fashion players further validates the potential of smart glasses market. Their ability to attract mainstream consumers helps drive awareness which benefits the entire industry, including Vuzix. As it relates to design leadership, while technology is our core strength, Vuzix has always emphasized ergonomics, lightweight, stylish designs. Now I know I'm not a fashion leader, so looking to partner with those that are is a key focus. This focus positions us as an ideal technology partner for fashion brands looking to integrate our waveguides and optical engines into their product lines without compromising aesthetics. Finally, regarding expanding consumer adoption, the integration of fashion and technology lowers the barriers to consumer adoption. Smart glasses that look like stylish eyewear will appeal to users who might not otherwise consider AR technology. This trend expands the addressable market with our core technology components and products. As part of a revolving strategy, as you can see, Vuzix is undergoing a significant shift in focus from primarily enterprise-facing markets to the highly anticipated consumer OEM sector. This transition reflects the broader opportunities we see in leveraging our proprietary technologies and manufacturing capabilities to partner with some of the world's leading brands and technology providers. The OEM market offers several advantages that align with our long-term growth goals. OEM partnerships enable us to deploy our waveguides and smart glasses technologies at scale. Additionally, the need for customized solutions supports our industry, leading design and manufacturing capabilities. By focusing on OEM customers, Vuzix can diversify its revenue streams across multiple industries, including consumer electronics, healthcare, defense, and now even fashion. These industries represent substantial growth opportunities that complement our existing enterprise presence. Our state-of-the-art waveguide manufacturing facility positions us as a key supplier for OEM partners, with industry-leading cost efficiency and high volume capacity. We are uniquely equipped to meet the growing demand for advanced waveguide-based optics and AR components. We look to collaborate with OEM customers with system-level product designs, which allows us to stay at the forefront of innovation. Through co-developing products tailored to the needs of our partners, we can refine our technologies and create new applications that further differentiate Vuzix in the AR ecosystem. We believe collaboration with OEM customers for co-developed products de-risks product development costs and shortens the time to market for new product offerings. We're optimistic about accelerating engagements with OEM customers, which we believe will lead to the announcement of co-developed products in the near term. The enterprise markets remain an important part of our business, but our strategic pivot towards OEM ensures that Vuzix is fully aligned with the largest growth opportunities in the industry. Our OEM strategy is already bearing fruit with partnerships like Quanta Computer, Garmin, and other as-yet unannounced partnerships along with ongoing discussions that could drive significant revenue in the years ahead. We're excited about this transition as it positions Vuzix to capture a larger share of the expanding smart glasses markets with scalable, repeatable, and high-margin revenue streams. Just yesterday, Thales, a French multinational company that specializes in aerospace, defense, security, and transportation technologies, shared on LinkedIn publicly for the first time that they have developed a next-generation binocular helmet-mounted display designed to support superior awareness in degraded visual environments. Its innovative HMD features, next-level optics that work with both day and night, restoring a pilot's entire field of vision in all flying conditions, Vuzix, who was specifically identified in their post, has worked with TALIS for quite some time on this design, one that is expected to be formally introduced early in the new year. This quarter, we've made continued progress with the Vuzix Z100 smart glasses. Originally introduced as a developer kit, the Z100 features advanced waveguide-based displays and is accessible to a broader audience now. By reducing the price to $499, we've made this innovative technology more attainable, allowing more users to experience its cutting-edge capabilities and opening the door to the broader markets and white-label pricing. The Z100's functionality continues to grow with applications that leverage its advanced optics, AI integration, and real-time processing capabilities. These include language translation, enabling seamless multilingual communications for business, travel, and education, hearing assistance, providing closed captioning for the hearing impaired, transforming accessibility in real-time conversations and events, and AI driven applications, enhancing productivity and efficiencies across industries with features like object recognition, guided workflows, and contextual information overlays. Beyond individual users, the Z100 is a flexible platform designed for OEM and white label opportunities. This flexibility is key as we expand partnerships with global enterprise and OEM customers who seek customized solutions tailored to their specific use cases. Momentum is building in the AR and AI smart glasses space, and partnerships remain a vital component of our growth strategy. Our collaboration with Quanta Computer is a standout example and one that is opening key doors while elevating our status with potential customers. Our waveguide technology and manufacturing capabilities gives us a distinct edge over competitors by offering high-quality waveguides at a fraction of the cost associated with alternative semiconductor-based solutions. This competitive cost efficiency is particularly valuable in the price sensitive consumer and AR enterprise markets. The development of next generation smart glasses hardware, software and ecosystems is well underway and Vuzix is deeply engaged in leveraging its scalable and cost effective technology. As we move into 2025, Starting with CES just a couple of months away, you can expect to see increasing evidence of our progress in positioning for long-term success. These milestones will clearly demonstrate Vuzic's strength and potential in shaping the future of smart glasses innovation. Grant will now take you through our numbers for the quarter. Grant?