Vuzix Corporation — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Vuzix designs, manufactures and sells smart glasses and augmented-reality wearable display products, and provides engineering services. Financial statements are unaudited.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $2.92 million | $3.04 million | $6.83 million | $4.57 million |
| Gross profit / margin | $0.58 million / 20% | $0.80 million / 26% | $1.66 million / 24% | $0.88 million / 19% |
| Operating loss | $8.74 million | $4.24 million | $15.32 million | $9.58 million |
| Net loss | $8.78 million | $4.24 million | $15.42 million | $9.60 million |
| Basic and diluted loss per share | $0.14 | $0.13 | $0.26 | $0.31 |
At June 30, 2021, cash and cash equivalents were $137.60 million, total current assets were $151.03 million, current liabilities were $3.13 million, and working capital was $147.91 million. The company reported no current or long-term debt; operating lease liabilities totaled approximately $1.39 million. Stockholders’ equity was $155.74 million, and accumulated deficit was $178.11 million.
For the first half, operating cash outflow was $13.11 million and investing cash outflow was $1.24 million. Financing provided $115.88 million, principally from equity offerings and warrant exercises. Cash increased by $101.53 million from year-end 2020.
Material changes versus comparable periods
- Q2 revenue declined 4% year over year: product sales grew 21%, but engineering-services revenue fell 88% as a development project concluded. For the first half, revenue increased 50%, with smart-glasses sales up 79% and engineering-services revenue down 78%.
- Q2 gross margin declined to 20% from 26%, while first-half margin improved to 24% from 19%. Management attributed the first-half improvement in product margins partly to higher sales absorbing relatively fixed overhead and lower-than-expected warranty returns.
- Operating expenses rose substantially: Q2 by 85% to $9.32 million and first-half by 62% to $16.97 million. General and administrative expense was a major driver, including non-cash compensation under a new long-term incentive plan (LTIP). First-half stock-based compensation was $5.68 million, compared with $0.94 million in 2020.
- Common shares outstanding increased to 63.28 million from 45.65 million at December 31, 2020. First-half financing included approximately $91.65 million net proceeds from public offerings and $34.71 million from warrant exercises. The company also settled Intel’s accrued preferred-stock dividends for $10 million; Intel converted its preferred shares into 4.96 million common shares.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management said COVID-19 effects remain uncertain and reported longer component lead times, supply-chain risk, and a need to hold more component inventory and commit to purchases earlier.
- Management identified risks including competition and rapid technological change, customer demand and order timing, supplier and manufacturing dependence, product development and acceptance, foreign-exchange exposure, and the ability to manage inventory. The company does not hedge foreign-currency risk.
- The LTIP included 5.784 million options with a $19 exercise price, subject to market-capitalization, revenue and EBITDA milestones. The company recorded $4.21 million of LTIP compensation expense in the first half; up to a further $32.9 million of non-cash expense could be recognized if currently non-probable operational milestones become probable or are achieved.
- Management stated disclosure controls were effective at June 30, 2021; no material changes to internal control over financial reporting were reported. The filing reports no pending legal proceedings and no material changes to the risk factors from the 2020 Form 10-K.
Important facts for investors to verify
- Whether smart-glasses growth can continue and offset the decline in engineering-services revenue.
- How operating costs, especially stock-based compensation and G&A, evolve relative to revenue; review LTIP milestone conditions and potential expense acceleration.
- Cash use, component availability, inventory and vendor-prepayment levels, and management’s ability to meet demand without supply disruption.
- The effects of equity issuance and warrant exercises on share count and dilution, including subsequent share awards disclosed after quarter-end.
- Revenue and customer concentration: engineering-services revenue was concentrated in a small number of customers, and one customer accounted for all Q2 engineering-services revenue.