Vuzix Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Vuzix designs, manufactures and sells smart glasses and augmented-reality display products, principally for enterprise, industrial, medical, first-responder and defense markets. Results are unaudited.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $1.532 million | $1.373 million; up 12% |
| Gross profit, excluding depreciation shown separately | $80,516; 5% margin | $39,890; 3% margin |
| Operating loss | $5.339 million | $6.350 million |
| Net loss | $5.362 million | $6.360 million |
| Loss attributable to common stockholders | $5.861 million; $0.18 per share | $6.826 million; $0.25 per share |
| Cash used in operating activities | $4.199 million | $5.874 million per cash flow statement |
| Cash and cash equivalents | $6.143 million at March 31 | $10.606 million at December 31, 2019 |
| Working capital | $11.808 million | $16.439 million at December 31, 2019 |
| Total liabilities | $3.939 million, including lease liabilities; no debt obligations reported | $4.206 million at December 31, 2019 |
Product sales generated a gross loss of $54,529, compared with $39,890 gross profit a year earlier. Engineering services generated $135,045 gross profit on $160,206 revenue. The filing’s overall gross-profit presentation excludes depreciation shown separately; operating expenses included $648,541 of depreciation and amortization and a $57,532 patent and trademark impairment.
Changes versus prior year
- Smart glasses revenue rose 8% to $1.354 million. M-Series revenue increased 43%, with M400 products contributing 75% of M-Series revenue; Blade revenue fell 55%.
- Engineering-services revenue was $160,206, from two new waveguide and display-engine development projects. Waveguide and display-engine product sales were nil, versus $95,000 in Q1 2019.
- Research and development fell 20%, selling and marketing fell 19%, and general and administrative expense fell 19%. Lower expenses helped reduce the operating and net losses.
- Cash declined $4.463 million during the quarter. Investing activities used $264,682; financing activities provided no cash.
Outlook, commentary and risks
- Going concern: The company reported continuing losses and an accumulated deficit of $150.104 million. Management said growth or additional equity and/or debt capital would be needed to become profitable and self-funding, but concluded that substantial doubt about continuing as a going concern had been alleviated, citing cash on hand, capital-raising history and ability to manage costs. No specific revenue or earnings guidance was provided.
- COVID-19: Delayed customer orders and deployments, supplier shortages and delays, slower manufacturing output, delayed product launches and longer regulatory testing were reported. Management also described increased demand opportunities in remote support, telemedicine and related uses. The future impact remained uncertain.
- Products and cost actions: Management cited customer interest in the M400, expected Smart Swim volume manufacturing and sales in Q2 2020, and planned introduction of the M4000 in the second half of 2020. These are expectations, not assured outcomes. The company also described cost controls, reduced discretionary spending and lower R&D spending.
- Subsequent events: On April 21, 2020, Vuzix received a $1.556 million PPP loan at 1% interest, with a two-year term and potential forgiveness subject to program requirements. On May 4, it implemented salary reductions for certain employees, expected to save $1.2 million in cash through year-end, in exchange for stock awards; 1,178,590 awards were issued.
- Other risks: A patent-infringement complaint was voluntarily dismissed without prejudice on March 6, 2020; the company denied liability and said it would defend any related future suit. Both patents identified in the complaint had expired in January 2020. Engineering-services revenue was concentrated in two confidential defense customers, which represented all such revenue.
Important facts for investors to verify
- Cash runway and financing needs, considering the quarterly operating cash use, continued losses and the subsequent PPP loan’s forgiveness and repayment terms.
- The cash-flow comparison contains an internal discrepancy: the cash flow statement reports Q1 2019 operating cash use of $5.874 million, while MD&A states $5.584 million. Confirm the correct comparative figure.
- Whether M400 growth, Smart Swim and M4000 launches, engineering-project completions and expected remaining project revenue of $695,000 materialize on schedule.
- Product economics and inventory recoverability: product sales ran at a gross loss, and net inventory of $5.668 million included a $4.588 million obsolescence reserve.
- Potential dilution: the filing reports 12.859 million potentially issuable common-share equivalents, plus accumulated unpaid Series A preferred dividends of $9.101 million as of March 31, 2020.