Vuzix Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is with Q1 2020. Vuzix designs, manufactures and sells smart glasses and augmented-reality wearable displays, and provides engineering services. Figures below are in U.S. dollars.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $3.92 million | $1.53 million | +156% |
| Product revenue | $3.81 million | $1.37 million | +177% |
| Engineering services revenue | $110,219 | $160,206 | -31% |
| Gross profit (before separately presented depreciation) | $1.08 million | $80,516 | Gross margin 28%, versus 5% |
| Operating expenses | $7.65 million | $5.42 million | +41% |
| Operating loss | $6.57 million | $5.34 million | Loss increased $1.23 million |
| Net loss | $6.64 million | $5.36 million | Loss increased $1.28 million |
| Basic and diluted loss per share | $(0.12) | $(0.18) | Weighted-average shares rose to 54.1 million from 33.1 million |
| Operating cash flow | $(5.92) million | $(4.20) million | Cash use increased |
| Investing cash flow | $(651,000) | $(265,000) | — |
| Cash and cash equivalents at quarter-end | $132.72 million | $6.14 million | Up from $36.07 million at year-end 2020 |
At March 31, 2021, current assets were $144.09 million and current liabilities $3.57 million, yielding working capital of $140.51 million. The company reported no current or long-term debt. Total liabilities were $4.52 million, primarily accounts payable, accruals and lease liabilities.
Material changes and notable items
- Smart glasses growth drove higher sales: M400 sales tripled year over year; M-Series revenue increased 175% to $3.08 million. Management attributed improved product margin to greater sales volume spreading fixed overhead and lower-than-expected M400 warranty returns.
- General and administrative expense rose 141% to $3.70 million. The increase included $1.60 million in noncash stock compensation tied to the new long-term incentive plan. Total stock-based compensation expense in the quarter was $2.11 million.
- Financing generated $103.22 million net cash: $79.60 million net proceeds from a common-stock offering and $34.57 million from warrant exercises, partly offset by a $10 million preferred-dividend settlement and employee tax-withholding payments. Shares outstanding increased from 45.65 million at December 31, 2020 to 62.14 million at March 31, 2021.
- Intel converted its 49,626 preferred shares into 4,962,600 common shares; the company paid $10 million to settle accrued preferred dividends of approximately $10.8 million.
- After quarter-end, underwriters exercised the offering over-allotment option. Vuzix received $12.75 million gross and $12.05 million net proceeds on April 1, 2021.
Outlook, risks and contingencies
- The filing provides no specific numerical revenue, earnings or margin guidance. Management said demand has grown in medical telemedicine and enterprise remote-support use cases and sees smart glasses as potentially useful for remote training and support.
- COVID-19 effects remain uncertain. Management reported longer component lead times and increased supply-chain risk from chip shortages, which could constrain production, delay product development or reduce revenue. The company also relies on third-party suppliers and has limited control over them.
- Other disclosed risks include rapid technological change and competition, customer concentration, order-flow and demand forecasting uncertainty, manufacturing capacity, product defects and warranties, foreign-exchange exposure, and the need to fund continuing operating losses. The company does not hedge foreign-currency risk.
- One customer represented 11% of Q1 product revenue; two customers represented all engineering-services revenue. At quarter-end, one customer represented 31% of accounts receivable and one customer represented all accrued project revenue.
- The quarter included $83,908 of fixed-asset disposal loss and $27,731 of patent and trademark impairment. Management reported no pending or actual litigation and no material changes to the risk factors in its 2020 Form 10-K. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether smart-glasses revenue growth, particularly M400 demand, continues and translates into sustained gross-margin improvement.
- Whether chip shortages, longer component lead times and supplier constraints affect manufacturing output, deliveries or customer demand.
- The sustainability of cash resources relative to quarterly operating cash use, ongoing losses and planned working-capital and capital expenditures.
- The effects of equity offerings, warrant and option exercises, and incentive-plan awards on share dilution and future stock-compensation expense.
- Customer and project concentration, including collection of significant receivables and completion of engineering projects.