Vuzix Corp, Inc. (NASDAQ:VUZI) Q1 2022 Earnings Conference Call May 10, 2022 4:30 PM ET Company Participants Ed McGregor - Director, IR Paul Travers - Founder, Chairman, CEO & President Grant Russell - CFO, EVP, Treasurer & Director Conference Call Participants Tyler Burmeister - Craig-Hallum Matthew VanVliet - BTIG Jack Aarde - Maxim Group James McIlree - Dawson James Securities Operator Greetings, and welcome to the Vuzix First Quarter ending March 31, 2022 Financial Results and Business Update Conference ...

[Part I – Financial Information](index=4&type=section&id=Part%20I%20%E2%80%93%20Financial%20Information) This part details the company's unaudited financial performance, condition, and related disclosures for the period [Item 1. Consolidated Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements%20%28Unaudited%29) This section presents the company's unaudited consolidated financial statements, showing a decrease in assets and a widened net loss for the first quarter of 2022, with prior-year restatements Consolidated Balance Sheet Summary | Balance Sheet Data | Amount ($) as of March 31, 2022 | Amount ($) as of December 31, 2021 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $113,329,734 | $120,203,873 | | Total Current Assets | $129,497,433 | $137,150,154 | | Total Assets | $140,350,176 | $148,467,057 | | Total Current Liabilities | $2,940,281 | $4,156,255 | | Total Liabilities | $3,394,346 | $4,739,131 | | Total Stockholders' Equity | $136,955,830 | $143,727,926 | Consolidated Statement of Operations Summary (Three Months Ended March 31) | Income Statement Data | Amount ($) for 2022 | Amount ($) for 2021 (as Restated) | | :--- | :--- | :--- | | Total Sales | $2,503,051 | $3,915,389 | | Gross Profit | $639,354 | $1,079,591 | | Loss From Operations | $(10,413,892) | $(9,085,965) | | Net Loss | $(10,506,001) | $(9,151,370) | | Basic and Diluted Loss per Common Share | $(0.16) | $(0.17) | Consolidated Statement of Cash Flows Summary (Three Months Ended March 31) | Cash Flow Data | Amount ($) for 2022 | Amount ($) for 2021 (as Restated) | | :--- | :--- | :--- | | Net Cash Flows Used in Operating Activities | $(6,435,079) | $(5,921,629) | | Net Cash Flows Used in Investing Activities | $(217,227) | $(650,655) | | Net Cash Flows (Used in) Provided from Financing Activities | $(221,833) | $103,224,872 | | Net (Decrease) Increase in Cash and Cash Equivalents | $(6,874,139) | $96,652,588 | - The company restated its Q1 2021 financial results, which increased the previously reported **Net Loss by $2.5 million** and **Loss per Share by $0.05**, primarily due to adjustments in non-cash stock-based compensation expense[16](index=16&type=chunk)[17](index=17&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=17&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial performance, highlighting a significant sales decline and widened net loss in Q1 2022, while maintaining a strong liquidity position - The company is engaged in the design, manufacture, and sale of wearable computing devices like Smart Glasses and AR glasses, focusing on enterprise, industrial, commercial, medical, and security markets[61](index=61&type=chunk)[63](index=63&type=chunk) - On March 2, 2022, the Board of Directors approved a share buyback program to repurchase up to **$25 million of common stock** over one year, with **36,685 shares repurchased** at an average price of **$6.84** during Q1 2022[89](index=89&type=chunk) [Results of Operations](index=22&type=section&id=2.1%20Results%20of%20Operations) This section details the company's Q1 2022 operational results, showing a significant decline in sales and gross profit, alongside increased R&D and marketing expenses Sales Breakdown (Three Months Ended March 31) | Sales Component | Amount ($) for 2022 | Amount ($) for 2021 | % Change | | :--- | :--- | :--- | :--- | | Sales of Smart Glasses | $2,379,398 | $3,772,481 | (37)% | | Sales of Engineering Services | $0 | $110,219 | (100)% | | **Total Sales** | **$2,503,051** | **$3,915,389** | **(36)%** | - Gross profit margin for products remained stable at **26%** for both Q1 2022 and Q1 2021[70](index=70&type=chunk) - R&D expenses increased by **41% ($0.9 million)** year-over-year, largely due to a **$0.4 million** increase in external development expenses for the Next Generation Smart Glasses (Shield)[74](index=74&type=chunk) - Selling and marketing expenses rose **55% ($0.7 million)** year-over-year, driven by increased salary expenses and a **$0.3 million** increase in trade show expenses as COVID-19 lockdowns eased[76](index=76&type=chunk) - General and administrative expenses decreased **10% ($0.6 million)** year-over-year, mainly due to a **$0.6 million** decrease in non-cash stock-based compensation related to the LTIP, which had significant vesting in Q1 2021[78](index=78&type=chunk) [Liquidity and Capital Resources](index=27&type=section&id=2.2%20Liquidity%20and%20Capital%20Resources) This section assesses the company's financial position, highlighting strong liquidity with substantial cash reserves and no debt, supported by equity financing and a new share buyback program Key Liquidity Metrics | Metric | Amount ($) as of March 31, 2022 | Amount ($) as of December 31, 2021 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $113,329,734 | $120,203,873 | | Working Capital | $126,557,114 | $132,993,899 | - Net cash used in operating activities was **$6.4 million** in Q1 2022, compared to **$5.9 million** in Q1 2021[84](index=84&type=chunk) - The company has **no current or long-term debt obligations** outstanding as of March 31, 2022[87](index=87&type=chunk) - The company's operations are primarily financed through the net proceeds from the sale of its equity securities[90](index=90&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section outlines the company's exposure to market risks, primarily from interest rate fluctuations on cash investments and foreign currency exchange rates, without current hedging strategies - The company invests excess cash in high-quality short-term corporate debt, exposing it to minor interest rate risk[97](index=97&type=chunk) - Foreign currency exchange rate risk exists due to non-U.S. dollar denominated cash flows from operations in Japan and Europe, which the company does not currently hedge[97](index=97&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) This section reports that disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting related to LTIP stock option valuation, with remediation efforts underway - The CEO and CFO concluded that disclosure controls and procedures were **not effective** due to a material weakness in internal control over financial reporting[99](index=99&type=chunk) - The material weakness relates to the methodology used to calculate the fair market value of Long-Term Incentive Plan (LTIP) stock options issued in March 2021[100](index=100&type=chunk) - Remediation efforts are underway, including enhanced management reviews and processes for engaging technical accounting experts, with full remediation expected in 2022[101](index=101&type=chunk) [Part II – Other Information](index=33&type=section&id=Part%20II%20%E2%80%93%20Other%20Information) This part provides additional disclosures including legal matters, updated risk factors, equity transactions, and other relevant information [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) The company reports that it is not currently involved in any actual or pending legal proceedings or litigation - As of the report date, the company is **not involved in any legal proceedings**[103](index=103&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to previously disclosed risk factors, while highlighting ongoing supply chain challenges due to global events - No material changes have occurred from the risk factors previously disclosed in the 2021 Annual Report on Form 10-K[104](index=104&type=chunk) - The company notes that COVID-19 and geo-political actions are causing shortages of certain chips and longer component lead times, increasing supply chain risk and the need for higher inventory levels[105](index=105&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered equity sales and details the company's share buyback program, including shares repurchased and remaining authorization Purchase of Equity Securities (March 2022) | Period | Total Shares Purchased | Average Price Paid Per Share ($) | Maximum Dollar Value Remaining for Purchase ($) | | :--- | :--- | :--- | :--- | | March 1 - 31, 2022 | 36,685 | $6.84 | $24,748,906 | - The Board of Directors approved a repurchase program for up to **$25 million** of common stock, effective for one year starting March 2, 2022[106](index=106&type=chunk) [Item 3. Defaults Upon Senior Securities](index=35&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) None - The company reports **no defaults upon senior securities**[107](index=107&type=chunk) [Item 4. Mine Safety Disclosure](index=35&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) Not Applicable - This section is **not applicable** to the company[107](index=107&type=chunk) [Item 5. Other Information](index=35&type=section&id=Item%205.%20Other%20Information) None - The company reports **no other information**[107](index=107&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists all exhibits accompanying the filing, including required CEO and CFO certifications and Inline XBRL documents - The report includes required certifications from the CEO and CFO, as well as Inline XBRL data files as exhibits[108](index=108&type=chunk)

Company Overview - Vuzix Corporation was founded in 1997 and had its IPO in 2009[7] - The company's market capitalization is $550 million as of December 31, 2021[7] - Vuzix's cash position was $129 million as of September 30, 2021[7] - CEO and CFO together own approximately 7% of the company, while institutional ownership is around 37%[7] Market and Products - The smart glasses market is expected to grow significantly in the future[9] - Vuzix introduced Vuzix Shield™ at CES 2022, featuring microLED-powered binocular smart glasses[21] - Healthcare and telemedicine are among Vuzix's fastest-growing verticals[38] Growth and Strategy - The enterprise market (including warehousing and remote support) and healthcare are expected to drive significant industry demand growth[55] - Vuzix is employing a 3-prong approach: investing in the core smart glasses business, pursuing SaaS solution opportunities, and advancing core technologies[64] - The company is evaluating the acquisition of a disruptive nano electro optical technology[72] Financial Performance - Vuzix's smart glasses revenue continues to grow[56] - The company projects a 51% increase in quarterly revenue[57]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 001-35955 Vuzix Corporation ( Exact name of registrant as specified in its charter ) Delaware 04-3392453 (State of incorporation) (I.R.S. employer identification no.) ...

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Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-35955 VUZIX CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-3392453 State or other jurisdiction of incorporation or orga ...

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