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Operator: Greetings, and welcome to Vuzix's Third Quarter ending September 30, 2025, Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now I would like to turn the call over to Ed McGregor, Director of Investor Relations at Vuzix. Mr. McGregor, you may begin.
Edward McGregor: Thank you, operator, and good afternoon, everyone. Welcome to the Vuzix Third Quarter 2025 ending September 30 Financial Results and Business Update Conference Call. With us today are Vuzix CEO, Paul Travers; and CFO, Grant Russell. Additionally, Chris Parkinson, President of Enterprise Solutions, will be joining for a portion of this call. Before I turn the call over to Paul, I would like to remind you that on this call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question-and-answer session. Therefore, the company claims the protection of the safe harbor for forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by any forward-looking statements as a result of certain factors, including, but not limited to, general economic and business conditions, competitive factors, changes in business strategy or development plans, the ability to attract and retain qualified personnel, as well as changes in legal and regulatory requirements. In addition, any projections as to the company's future performance represent management's estimates as of today, November 13, 2025. Vuzix assumes no obligation to update these projections in the future as market conditions change. This afternoon, the company issued a press release announcing its Q3 2025 financial results and filed its 10-Q with the SEC. So participants in this call who may not have already done so may wish to look at those documents as the company will only provide a summary of the results discussed on today's call. Today's call may include certain non-GAAP financial measures. When required, reconciliation to the most direct comparable financial measures calculated and presented in accordance with GAAP can be found in the company's filings at sec.gov, which is also available at ww.vuzix.com. I will now turn the call over to Vuzix' CEO, Paul Travers, who will give an overview of the company's operating results and business outlook. Paul will then turn the call over to Chris Parkinson, President of Enterprise Solutions, who will also briefly discuss developments in the enterprise smart glasses space. We will then hear from Grant Russell, Vuzix's CFO, who will provide an overview of the company's third-quarter results, after which we'll move on to the Q&A session. Paul?
Paul Travers: Thank you, Ed, and thank you to everyone else joining us today. The race to deliver production-ready waveguides and display engines for broad markets is fully underway, and Vuzix is in it with momentum. Inbound interest from leading ODMs and microdisplay suppliers has accelerated over the last 12 months, led by Quanta Computer, one of the world's largest ODMs. Just over a year ago, Quanta made an initial $10 million strategic investment to support a long-term waveguide design and supply partnership. We received a second $5 million tranche in June and completed the third $5 million tranche in September after meeting or exceeding the agreed-upon manufacturing milestones. This brings Quanta's total investment to $20 million. We are now into discussions with Quanta on how to ramp in a more significant way, capacity-wise, as the AI smart glasses industry begins to accelerate much further. Both of us want to be primed and ready to deliver. We also announced 2 new display ecosystem partnerships in Q3, one with TCL, China Star Optoelectronics Technology to develop an integrated AR optical solution that combines our high-transparency production-ready waveguides with their microLED display engines, initially a monochrome green module with a road map to full color in 2026, and another with Saphlux to co-develop next-generation AR display engines pairing their high brightness mono microLEDs with our waveguides, targeting a reference design and ultimately full color mass producible optical solutions. Beyond these public announcements, we've signed NDAs with multiple other ODMs, microdisplay makers, and consumer electronics brands seeking a capable, cost-effective waveguide supplier. Put simply, demand for high-quality color waveguides continues to rise, and Vuzix is making sure it is well-positioned to serve it. In parallel, our OEM and defense business continues to accelerate in active programs, engagements, and revenue, and our ties with prime contractors continues to deepen. We are now transitioning into production deliveries of the waveguides and display engines for a lightweight heads-up display for fielded military personnel, with revenue contribution beginning in Q4 this year. We also have secured, as previously announced, a 6-figure development order for a new program that was received and expected to be delivered in Q4. And finally, a third program is advancing, pending a display engine modification that Vuzix needs to make to support the high dynamic range required for that unique application. On the enterprise side, which currently accounts for the majority of revenue, AI-enabled smart glasses are driving a new wave of interest as customers bring us their specific operational challenges. We've seen a real shift from push to pull. Customers now are coming to Vuzix with specific workflows and ROI targets and asking us to help deliver for them. A good example of this is Amazon. As we disclosed in May of this year, Amazon is using Vuzix's Smart Glasses to support reliability and maintenance engineering teams with see what I see capabilities to reduce cost, speed repairs, and improve safety in large-scale logistics facilities. That program, which started in Europe, has now entered commercial rollout in the U.S. and Canada, with discussions underway to expand to additional regions, business units, and use cases. And as a result, we expect this business to grow materially with Vuzix delivering more and more custom M400 kits for them as they scale. Overall, business and revenue momentum is increasing in Q4 as quarter-to-date revenue and purchase order obligations have already exceeded Q3 levels, with both our OEM waveguide and products business performing well. Finally, our waveguide development efforts are not only focused on cost-effective high-volume manufacturing, but we are developing advanced high-index materials that are designed to deliver on the future performance requirements that this industry is going to demand as the industry matures. We will have more to share on this in 2026 as these new developments unfold, but you can imagine technology that revolves around all the way to silicon carbide waveguide solutions. In September, we welcomed Dr. Chris Parkinson, Co-Founder and former Chief Technology Officer and CEO of RealWear, as President of Vuzix's Enterprise Solutions business. Chris' mandate spans the entire enterprise stack, product portfolio, and road map, solutions architecture, sales, strategic partnerships, customer adoption, and global channels so we can capture the clear, measurable value smart glasses deliver in the enterprise, higher productivity, faster time to resolution, better safety, and more consistent quality. Chris's leadership of our enterprise business also frees me to double down on core waveguide and optical technology, the defense business, and strategic development funding opportunities, ensuring we solidify being the supplier of choice for brands and prime contractors with the Made in U.S.A. operations. Of course, we also have our eye on Asian operations for some of our high-volume broad market programs. His arrival coincides with the formal introduction of the LX1, our purpose-built warehouse-ready voice and vision smart glasses designed for full shift duty and fast time to productivity. Early customer feedback has been excellent, and Chris is already engaging with multiple key accounts that will shape this market. And with that, I'm delighted to introduce you all to Chris Parkinson. Chris?
Chris Parkinson: Thank you, Paul, and thank you, investors, for allowing me to share a little about myself and what I'm up here at Vuzix. I've been in the enterprise wearable space since 2007 and have been watching with increased interest the evolution of smart glasses over the last few years. We've seen an amazing improvement in displays and optics, a steady miniaturization of electronics, better batteries and power-efficient operating systems, and have seen an increased awareness and desire by the enterprise to want wearables. But one problem has continued to plague the industry: the user interface for hands-free systems, causing a barrier for wide-scale adoption. But about 2 years ago, AI burst into our space to solve this overnight. With AI comes the natural language interface, and almost immediately, those clumsy devices can become eminently usable at scale. Just talk to the device and it works. This huge convergence of technology over the last few years has left me eager to continue to be a part of the smart glasses revolution. but not as a customer to a waveguide company, but rather part of the company that owns the building blocks of that future. And that's the Vuzix opportunity for me. Plus, of course, the Vuzix made in America story is such a strong message that just makes sense in the enterprise sales area. As you know, I've only been on board at Vuzix for about 2 months, but I already feel I'm hitting the ground running. We are rebuilding the sales motion at Vuzix, building on the work performed by the teams today and adding procedure, accountability, and discipline to the way we go to market. That means working with trusted software partners to identify and assemble solutions, working with trusted resellers to educate, train, and help them scale their businesses, and to enhance the reputation and quality of Vuzix products in the field. This is by no means a small feat, but the end justifies the effort. Done well, we will have an army of people around the world eager, excited, and incentivized to sell Vuzix products and customers that are happy with the value that Vuzix brings. And by product, we are talking about the M400, maybe long in the tooth for some, but actually a really solid device. We are seeing sales pick up at the moment, and I believe this device, when positioned correctly, has strong legs through 2026. And of course, we have the LX1 coming out very soon, not to replace the M400, but to sit side by side as a portfolio of devices, choose your model, lightweight M400 or rugged LX1 with integrated all-day battery. They make a very strong pairing, giving customers a choice to own what they need. And what are the Ultralight Pro? This is one device I'm really excited about, but it was never designed to be an end product. It's a platform to seed an industry, which I'm looking forward to helping to deliver on. So I'd love to tell you more, but I feel I'm going to get in trouble if I do that. So needless to say, though, I'm actually very buzzed about these products, very buzzed about the story and the portfolio we're building. It's exactly why I'm here at Vuzix. With that said, I'll hand the microphone over to Grant for the financial overview.
Grant Russell: Thank you, Chris. As Ed mentioned, the 10-Q we filed this afternoon with the SEC offers a detailed explanation of our quarterly financials. So I'm just going to provide you with a bit of color on some of the quarterly numbers. Our third quarter 2025 revenue was $1.2 million, down 16% year-over-year due to decreased sales of our M400 smart glasses. Engineering services revenues recognized were $0.3 million for the 3 months ended September 30, 2025, versus $0.4 million in the prior year's period. The decrease was primarily due to the timing of work on a major project, and we have a strong pipeline for Q4 currently expected. There was an overall gross loss of $0.4 million for the 3 months ended September 30, 2025, as compared to a gross loss of $0.3 million for the same period in 2024. The larger gross loss was primarily the result of lower product sales to absorb our relatively fixed manufacturing overheads. Research and development expense was $2.9 million for the 3 months ended September 30, 2025, as compared to $2.3 million for the comparable 2024 period, an increase of approximately 26%, primarily due to $0.3 million increases in both external development costs for new products and depreciation expenses, a $0.2 million increase in cash compensation and salary expenses, all partially offset by a $0.4 million decrease in noncash stock-based compensation expense. Sales and marketing expense was $1.1 million for the 3 months ended September 30, 2025, as compared to $1.8 million for the comparable 2024 period, a decrease of approximately 35%. This reduction was largely due to a $0.3 million decrease in bad debt expense, a $0.2 million recovery of previously written off bad debt, and a $0.2 million decrease in noncash stock compensation expense. General and administrative expense for the 3 months ended September 30, 2025, was $2.6 million versus $4.3 million for the comparable 2024 period, a decrease of approximately 41%. The reduction in total G&A expenses was primarily due to a $1.8 million decrease in noncash stock-based compensation expense, which was driven by the cancellation of the company's original LTIP plan approved by the stockholders in June 2025. Total operating expenses for the 3 months ended September 30, 2025, declined $1.8 million or 20% to $7.1 million versus the prior year's period of $9 million, the lowest quarterly level achieved since 2020. The net loss for the 3 months ended September 30, 2025, was $7.4 million or $0.09 per share, versus a net loss of $9.2 million or $0.14 per share for the same period in 2024. Our cash and cash equivalents position as of September 30, 2025, was $22.6 million, up from $17.5 million as of June 30, 2025, and we had a positive working capital position of $24.3 million. As of September 30, 2025, the company continues to have no current or long-term debt obligations outstanding. For the third quarter of 2025, net cash flows used in operating activities was $5 million versus $5.3 million for the comparable 2024 period. For the 9 months ended September 30, 2025, net cash flows used in operating activities was $13.3 million versus $19.7 million for the same period in 2024, a decrease of $6.5 million in cash used for investing activities for the third quarter of 2025 was $0.5 million, versus $0.3 million in the prior year's quarterly period. During the third quarter of 2025, we received a total of $10.6 million from various financing activities, which primarily included the final tranche of $5 million from the sale of Series B preferred stock to Quanta Computer and $5.3 million in net proceeds from the sale of common stock under our ATM program. Total financing activities for the 9 months ending September 30, 2025, was $19.8 million. Let me close by reiterating that we believe our overall cash position, along with maintaining a disciplined cost structure, further conversions of our finished goods inventories into cash, and general business expansion, particularly on the ODM and OEM side, and potential future uses of our ATM program, gives us sufficient runway to execute on our current operating plan through 2026. With that, I would like to turn the call over to the operator for Q&A.
Operator: [Operator Instructions] Our first question is from Christian Schwab with Craig-Hallum Capital Group.
Christian Schwab: I just wanted to start with Quanta and potential -- your conversation about having conversations with them to ramp capacity even further. I think previously, you've said you had capacity for 1 million waveguides a year. I mean should we assume that when CES comes and some people introduce their products that there's high hopes for substantial volume? I'm just trying to understand that statement a little bit better.
Paul Travers: Yes, Christian, thanks for asking the question. It's a good one. There are multiple programs that we're working on with our friends from Quanta right now. There'll be 3, maybe 4 new glasses presented, I think, at the Consumer Electronics Show. The forward momentum in this space, Quanta has inbound all over the place, of which I don't know all of it, frankly. They don't share. They're a very conservative company when it comes to who their customers even are. But there is a big pressure on being able to ramp to much significant -- more significant volumes than what we can do, the 1 million per year out of our plant here in Rochester. And actually, the very initial input or communications between us and Quanta was how do we get to the point where we can make millions a year. If you think about the size of this business, right, ultimately, these glasses could replace the foam. And when that happens, it's 1 billion or 2 billion waveguides a year that will be needed. So yes, we are in discussions about the best way, where to do it, and how to get it done so that the volumes can ramp much more significantly than what we have here in Rochester. I will say that the Rochester plant is easily expanded. However, I also think there's supply chain issues that need to be addressed. There's issues associated with tariffs these days that need to get looked at, at least for North American versus rest of world markets. And so there's a whole lot of discussions about the best way to go from where we are today to where we need to be over the next year.
Christian Schwab: And following up on that, how long are these discussions in the early stages? Or do you think you're down the path to -- is that something that we're going to hear about in the next 1 to 2 quarters, how those discussions end? Or is it yet to be determined how long that may take?
Paul Travers: I think people got to hold their breath just a little bit. We're working through the process. I would suggest that it takes time to bring up new lines. So it's sooner rather than later. But I can't comment on -- well, in Q1, you should see this happen, and then in Q3, this should be happening. Sorry about that. I wish I could put a sharper schedule and plan in place for you. I believe that as the next few quarters unfold, this will get way obvious, though. We'll be able to share a whole lot more.
Christian Schwab: And then just another question regarding the defense industry. Can you guys -- I know we've talked about a 6-figure development order with a leading U.S. defense contractor in the past. But as these type of programs ramp, when do you think you'll be able to give greater clarity on volume ramping in a more measurable pace?
Paul Travers: So we're on the same page here, Christian. We have development programs here in Q4, and we are shipping production waveguides in Q4. So these programs are going into production. Looking forward to being able to announce exactly, but you will see in our Q4 revenue numbers that our OEM business is bigger certainly than it's been in a while. And a portion of that is related to production rollout, not a proof of concept, and not another development project. But there's also some of that in there, too. 2026, this one particular program that is obviously off to the races, we should know a whole lot more here early in the year as to how that's going to unfold through '26 and '27 and into the future. But it's real production now. We're not -- next week, they might get there. This is production.
Christian Schwab: And then as 2026 unfolds, how do you potentially see the defense contractor customer base expanding? And will we see other customers go into production in calendar '26 in your expectation?
Paul Travers: This development program that we have is going to happen really fast. It's with a partner we've already had some level of success with, and the project is just waiting for the new waveguide. So that one should happen fairly quickly. So we might have 2 programs rolling in production in '26. There's another one that needs to have a design change to an engine that Vuzix has to have done. And we're in the process of doing that. It's got to force a display to do something that it wasn't really designed for, but it can do it. We have zero doubt about that. It's just we got to get through the engineering on that. And that's going to been the one that's been to hang up for that particular program getting into production. And that's the tip of the spear. There's some programs -- other programs that we have that are contracted that we'll be able to share a whole lot more about here in Q1 and after this sequestration or with the continuing resolution happens and people actually go back to work at the U.S. government. Some of that's been holding some of these things up, including some of our ability to make announcements.
Operator: At this point, I would like to turn the call back over to Paul Travers.
Paul Travers: We did have a couple of other questions come in that I thought what might be germane to the conversation for everybody. And one of them does relate to the Amazon program. The Amazon program actually has been around for some time now. They've been perfecting on how they use our glasses. And I don't know if you noticed, but if you're paying attention, you can see that Amazon robots, human in the loop, the use of glasses to help solve problems around some of the things that they're doing is all over the place at Amazon. And our glasses are being used today in fulfillment and warehouses, not for the picking actually, but for the maintenance and keeping the equipment up, and where there's human-in-the-loop relations between robots and humans, kinds of stuff. And they're expanding that now that we started in Europe. They've expanded throughout North America, and it's now being moved. This is a brand-new component to their data centers to keep all those AI server farms and Amazon Web Services, and the likes up and operational. They're even looking at janitorial services for the glasses. And on top of that, Amazon Web Services has an AI component that they're doing that they're looking at potentially putting that with the glasses to enable even more all-day use case kinds of applications. So Amazon could be significant. It's off to a really good start, and it's finally rolling for Vuzix. The other question, I think, Christian, I kind of answered it about what happened follow-on with our expectations around our partners, Quanta. And then there was one other question about gross margins. I will say that it's a balancing thing. The new stuff that we're doing, like the LX1, its margin models are better just out of the gate. The stuff that we do in defense typically is much higher margin than what we would do on something on the enterprise product side of the house. So in general, the product mix in 2026, you should start to see higher margins in the product side of the house. So that's the questions today. I'd like to again thank everybody for coming to our call today. It's really starting to get to be exciting at Vuzix. We've said this before, but the train is leaving the station. We look forward to sharing a whole lot more here as all this stuff unfolds. Thanks again, everybody. Have a nice evening.
Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.