Vuzix Corporation — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. The company designs, manufactures, markets and sells wearable computing and augmented-reality display products, and provides engineering services.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3.02 million | $2.78 million | $9.85 million | $7.35 million |
| Gross profit and margin | $0.58 million; 19% | $0.35 million; 13% | $2.24 million; 23% | $1.22 million; 17% |
| Operating loss | $7.83 million | $4.75 million | $23.15 million | $14.33 million |
| Net loss | $7.95 million | $4.76 million | $23.36 million | $14.36 million |
| Basic and diluted loss per share | $0.13 | $0.13 | $0.39 | $0.44 |
Reported gross profit is stated before depreciation shown separately. Product sales drove revenue: smart glasses revenue increased 12% in Q3 and 51% year over year for the nine-month period. Engineering-services revenue was zero in Q3 and fell 80% for the nine months, reflecting completion of a development project.
- Cash and liquidity: Cash and equivalents were $128.75 million at September 30, up from $36.07 million at December 31, 2020. Working capital was $140.34 million. Management identified cash as the principal source of liquidity.
- Cash flow: Nine-month operating cash use was $18.91 million, compared with $11.26 million in 2020; investing cash use was $4.34 million, compared with $1.16 million. Financing provided $115.93 million.
- Debt and liabilities: The company reported no current or long-term debt obligations. Total liabilities were $4.34 million, including operating lease liabilities.
- Balance-sheet changes: Inventory increased to $9.88 million from $6.10 million; manufacturing vendor prepayments rose to $1.90 million from $0.49 million.
Material changes and unusual items
Operating expenses rose substantially year over year, including research and development up 74% in Q3 and general and administrative expense up 90%. Nine-month stock-based compensation was $7.31 million, including $4.70 million for the management long-term incentive plan. The company reported that up to a further $32.9 million of non-cash compensation could be recognized if currently not-probable operational milestones become probable or are achieved.
Financing included $91.65 million of net proceeds from a March/April 2021 public stock offering and $34.71 million from warrant exercises. The company issued 17.99 million more common shares than at December 31, 2020, including shares from the offering, warrant exercises and preferred-stock conversion. It also paid Intel $10 million to settle accrued preferred dividends and converted Intel’s preferred shares into 4.96 million common shares.
Outlook, commentary and risks
- No specific revenue, earnings or margin guidance is provided. Management identifies the sufficiency of cash to meet working-capital and capital-expenditure needs for at least the next 12 months as a forward-looking matter, not a guarantee.
- Management attributed product growth to the M400 and new M4000 smart glasses. It reported component shortages affecting Blade production and longer component lead times, which increase supply-chain risk and require larger inventories and earlier purchase commitments.
- Other cited risks include reliance on suppliers and manufacturing capacity, competition and rapid technological change, demand uncertainty, customer concentration, foreign-exchange exposure and the ongoing potential effects of COVID-19. The company does not hedge foreign-currency risk.
- Two customers represented 12% and 10% of Q3 product revenue; three customers accounted for 58% of accounts receivable at quarter-end. Management reported no material changes to previously disclosed risk factors, no pending legal proceedings, and effective disclosure controls.
Investor verification points
- Track whether M400/M4000 sales growth and improved reported gross margins continue, and whether component shortages constrain shipments.
- Compare operating cash use and investment needs with the large cash balance; assess how long the balance supports ongoing losses and planned spending.
- Review dilution from equity financing, warrant exercises, stock awards and potential LTIP vesting, including possible additional compensation expense.
- Monitor inventory and vendor prepayments, customer concentration and the conversion of engineering-project revenue into recurring product sales.