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Vuzix Corporation (NASDAQ:VUZI) is a small tech company that designs smart glasses that can be applied to many practical situations for the purpose of improving customers’ outcomes.
Since peaking out at a share price of a little over $32.00 per share on May 5, 2021, it has since taken a beating, falling to a 52-week low of $3.88 per share on May 9, 2022, and since fought its way back slightly above $10.00 per share on August 8, 2022, before dropping once again to trade in the mid-$4s range.
The smart glass market has advanced slowly because of the need to expand its use cases, and in the case of Vuzix it’s starting to gain traction in several verticals that have promise for long-term growth.
In this article we’ll look at some of its recent earnings numbers, some of the projects it’s advancing along with their potential, and what part its acquisition of Moviynt may play in the company’s future.
Latest earnings
Third quarter revenue was $3.4 million, up $400k from the $3 million in revenue generated in the third quarter of 2021, an increase of 14 percent.
Gross profit in the reporting period was $0.9 million, up more than double from the $0.4 million in gross profit last year in the same quarter.
Net loss in the quarter was $9.5 million or $0.15 per share, an improvement from the net loss of $10.5 million or $0.17 per share year-over-year.
Selling and marketing expenses in the third quarter came in at $2 million, down from selling and marketing expenses of $1.7 million in the third quarter of 2021. The increase was attributed to an increase in employee count.
VUZI has a solid balance sheet with cash and cash equivalent position of $90.4 million at the end of the third quarter, with $100.8 million in net working capital.
The company has no existing or long-term debt outside of licensing fees and ongoing backplane work with Atomistic.
Near the end of the third quarter VUZI added Hongke Tech to support its global sales channel in order to support development in the Chinese market for its Smart Glasses business. It also worked on strengthening its support team in Europe by increasing the number of its employees there to support existing key accounts and boost sales growth in the EMEA region.
Waveguide manufacturing capabilities
For the purpose of expanding and upgrading its waveguide manufacturing capabilities, VUZI entered into a lease in October for new manufacturing space, which is conveniently located across from its existing facility. The lease includes an option to expand if and when needed.
The primary purpose of the plant will be to support the development of the advanced capabilities the company needs for its latest waveguide technology in order to meet the needs of its OEM customers and Vuzix.
As the company scales the facility will boost its unit capacity while cutting unit costs associated with manufacturing its waveguides.
Acquisition of Moviynt
Vuzix completed the acquisition of Moviynt in the quarter, which is a SaaS provider that supports SAP (SAP) within its important warehousing and logistics verticals. Moviynt will help Vuzix expand its strategy for customers and ISPs using SAP within the warehousing and logistics market.
An interesting feature of Moviynt architecture and workflow solution is it can be used without an online connection or middleware to be able to operate. Since it is ERP agnostic the company believes it’ll be embraced as an ERP back-end system for tech giants like Oracle (ORCL) and others.
It is currently being used in various locations in Europe and the U.S. and is looking at expansion into Canada.
While Moviynt’s solution is now supporting handheld scanner and smart phones, VUZI is looking at it as a means of transitioning them to Vuzix Smart Glasses. In other words, it’ll be marketed as an upgrade to customers. The benefit to the end user will be the ability to pick hands free in warehouse environments.
Another reason for the acquisition is management believes it can use the technology and architecture of Moviynt’s solution to package it into API’s that can then be used by Vuzix ISVs to bolster its existing software offerings, which should result in it expanding the markets it’s currently operating in while having the potential to open doors to new markets for its Smart Glasses within warehousing and logistics.
As for impact on its performance, expectations are Moviynt should generate revenue in the low six-figures in the fourth quarter of 2022, with revenue for 2023 expected to be in the seven figures. It should be able to do so without having much impact on operating costs, according to management. A key thing for investors to know is the warehousing and logistics is considered the most important in its growth plans at this time, so watching this vertical and what the company does with it, as well as performs in it, will be the key to determining the company’s performance as it stands today.
Further developments in OEM
Defense
With the introduction of its OEM platform, the company has accelerated communications with a growing number of companies, which stood at “well over a dozen” as of the third quarter earnings call. Management said it already has some projects underway with some of them. Since Vuzix is the only manufacturer of waveguides in the U.S., it has attracted interest from the U.S. military. The company believes it is strongly positioned to grow in that segment of the market.
With the outcomes of modern military conflicts determined largely by available and timely information, the company believes the most efficient way to deliver that information is via a wearable display.
To that end, VUZI entered into an agreement with defense contractor L3Harris Technologies (LHX) to develop “a new customized waveguide-based head mounted display engine for use within their existing L3Harris programs and new ones in the works.”
Based upon the numerous projects and use cases L3Harris Technologies is going after, it has the potential to generate significant revenue over a period of years for VUZI.
L3Harris isn’t the only defense firm coming to VUZI for talks, there are close to a dozen in communication with the company, and management expects there to be a lot more in the future.
Consumer electronics
Vuzix believes the strong demand for AR glasses on the consumer electronics side of the business represents a potentially huge market. It’s no secret a number of tech companies are letting the public know they are working on AR glasses that appeal to the masses.
Vuzix Corp. believes it is strongly positioned to provide waveguides in this market at scale, along with display engines and other reference designs. It feels it has a chance to make some noise in this vertical because many of the tech companies are discovering it’s very difficult “to design and build a pair of highly functional, cost-effective consumer AR Smart Glasses.”
Healthcare
Over the long-term the use of Vuzix for surgical solutions is going to grow. At this time there are a number of trials going on in the space concerning potential use cases.
Among the major ISVs increasing the availability of “Vuzix-powered surgical solutions” around the world are Medacta, Pixee Medical, and Rods & Cones.
According to the company, among the growing number of use cases for Vuzix Smart Glasses are “ambulance emergency medical care, Toppan for Order Picking of Homebound Seniors and Xpertinc for the Deaf and Hearing Impaired.”
The major challenge and opportunity for Vuzix is in regard to increasing the number of use cases for its products in order to meaningfully boost brand awareness and scale.
These aren’t the only verticals Vuzix is competing in, but it gives an idea of the potential demand for its products.
Conclusion
I like the measured, patient way VUZI is building its business. Many times, in the tech sector the strategy is to grow at all costs in order to grab significant market share before competitors do. While a few well-capitalized companies succeed with that strategy, most don’t.
In the near term, by which I mean through 2023, it looks like VUZI is going to grow at a modest pace and has more than enough capital to invest in what it needs to do to continue growth momentum.
Where the company stands today, I think it’s fairly priced in the mid-$4s, and as it moves some of its projects forward in its different segments, that should increase the value of the company incrementally, and probably push the price sustainably above the $5.00 per share mark.
Nonetheless, with P/S at a hefty 23.50 on a TTM basis, and P/S on a FWD basis of 22.68, the company’s going to have to improve those numbers to boost investor sentiment in the quarters ahead, considering the sector medium is TTM 0.48 and FWD 0.86.
The sector it competes in has extraordinary long-term potential, but there’s a lot of education to be done and use cases identified in order for the sector to take off to its full potential.
VUZI is positioning itself well for the inevitable widespread adoption of smart glasses and related products and services, and when the time comes, it appears it’s going to be a significant player in the sector.
One way to fully understand it is, think in terms of tech that is being used now by holding it in your hand, and then how freeing up a person’s hands by using AR smart glasses will improve efficiencies and the experience of the end user.
I think Vuzix is worth placing on watchlists. Under the current economic conditions and tech being out of favor, it could still have further to fall before if finds a bottom, but at this entry point and using a dollar-cost averaging strategy, investors could build a nice cost basis in anticipation of the company building off the solid foundation it has laid.
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