Vuzix Corporation — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This annual filing also reports fourth-quarter results. Vuzix designs, manufactures and sells augmented-reality smart glasses, waveguide optics, display engines and related services, primarily for enterprise, industrial and medical markets.
Financial performance and liquidity
| Metric | 2022 | 2021 |
|---|---|---|
| Revenue | $11.84 million | $13.16 million |
| Gross profit / margin | $1.48 million / 13% | $1.57 million / 12% |
| Operating loss | $42.23 million | $39.98 million |
| Net loss | $40.76 million | $40.38 million |
| Basic and diluted loss per share | $0.64 | $0.66 |
| Cash used in operating activities | $24.52 million | $26.98 million |
| Cash and cash equivalents at year-end | $72.56 million | $120.20 million |
- Product sales fell 18% to $10.51 million; engineering-services revenue rose 250% to $1.33 million. Total revenue declined 10%.
- Operating expenses were $43.72 million, up from $41.55 million, including R&D of $12.68 million and selling and marketing of $8.08 million. Net loss included $15.78 million of non-cash stock-based compensation.
- Investing activities used $21.17 million, including $16.5 million in payments toward Atomistic technology commitments, $2.3 million for the Moviynt acquisition and $1.72 million for equipment and tooling. Financing activities used $1.95 million, including $2.01 million for share repurchases.
- Year-end current assets were $91.24 million and current liabilities $15.28 million, yielding working capital of $75.96 million. Total liabilities were $15.58 million. The company reported no outstanding debt; it had $11.5 million of remaining Atomistic licensing-fee commitments, due within 12 months.
- Inventory was $11.27 million, net of a $1.42 million obsolescence reserve. No material off-balance-sheet arrangements were reported.
Material changes and unusual items
- Revenue declined despite higher engineering-services sales, as smart-glasses sales were affected by higher reseller discounts, unfavorable foreign-exchange comparisons and, to a lesser extent, lower unit sales. Gross margin improved to 13% from 12%.
- Vuzix entered revised Atomistic agreements in 2022 for micro-LED technology. The agreements provide for $30 million in cash commitments; $18.5 million was paid during 2022, with $11.5 million remaining. Additional Vuzix share issuances depend on deliverables and milestones. Atomistic was treated as an unconsolidated variable-interest entity because Vuzix determined it was not its primary beneficiary at year-end.
- Vuzix acquired Moviynt, an SAP-certified logistics software provider, for approximately $2.47 million in October 2022. The acquisition added $1.60 million of goodwill and $0.70 million of identifiable intangible assets.
- Other income included $1.40 million of investment income and a $467,000 employee-retention-credit refund. The refund claim was filed with the IRS in November 2022.
- In fourth-quarter 2022, revenue was $2.90 million, gross loss was $126,000 and net loss was $10.76 million. In fourth-quarter 2021, revenue was $3.31 million, gross loss was $12,000 and net loss was $11.49 million.
Outlook, commentary and risks
- The filing gives no numerical revenue, earnings or cash-flow guidance. Management expected commercial shipments of Shield in the first half of 2023 and Ultralite by the end of summer 2023; these are forward-looking expectations, not reported results.
- Management described continued investment in new products, waveguide capacity and micro-LED technology, and a strategy to expand OEM relationships and software and services revenue. The additional 12,000-square-foot waveguide facility was under construction, with planned completion in May or June 2023.
- Key risks include sustained losses and operating cash outflows; uncertain market adoption and intense competition; dependence on third-party component suppliers, including micro-display suppliers; production capacity and equipment concentration; unpredictable customer orders and demand forecasting; OEM qualification cycles; and possible dilution from equity compensation and Atomistic share commitments.
- Customer concentration warrants attention: one customer accounted for 14% of product revenue, while two customers represented 48% and 39% of engineering-services revenue. One customer represented 26% of year-end accounts receivable.
- The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor reported effective controls at year-end. The auditor identified inventory-reserve estimation and accounting for the Atomistic agreements as critical audit matters. Vuzix reported no material pending legal proceedings.
Important facts for investors to verify
- Whether product revenue, unit sales and gross margins recover, and whether engineering-services growth converts into recurring or OEM production revenue.
- Actual 2023 shipment timing and customer uptake for Shield and Ultralite, and progress in expanding waveguide manufacturing.
- Atomistic milestone achievement, remaining cash payments, accounting treatment and potential share dilution; also whether the project delivers the expected technology.
- Cash use and liquidity relative to ongoing losses, capital spending, licensing commitments and working-capital needs.
- Inventory quality and customer and supplier concentration, particularly given short-term or cancellable customer orders.
- Moviynt’s contribution to revenue and profitability following the acquisition.