Vuzix(VUZI) - 2023 Q3 - Quarterly Report

Part I – Financial Information Consolidated Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, highlighting the company's financial position, performance, and cash flows for the three and nine months ended September 30, 2023 Consolidated Balance Sheets As of September 30, 2023, total assets decreased to $101.0 million from $132.3 million at year-end 2022, primarily due to a reduction in cash and cash equivalents Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $38,049 | $72,564 | | Total Current Assets | $59,610 | $91,241 | | Total Assets | $100,988 | $132,313 | | Total Current Liabilities | $5,144 | $15,277 | | Total Liabilities | $5,312 | $15,583 | | Total Stockholders' Equity | $95,676 | $116,730 | Consolidated Statements of Operations Q3 2023 saw a 36% decrease in total sales to $2.2 million, resulting in a gross loss and a widened net loss of $11.0 million, while nine-month sales increased 24% to $11.1 million with a flat net loss Q3 2023 vs Q3 2022 Performance (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Total Sales | $2,180 | $3,427 | | Gross Profit (Loss) | ($238) | $868 | | Loss From Operations | ($11,433) | ($9,965) | | Net Loss | ($10,983) | ($9,477) | | Loss per Share | ($0.17) | ($0.15) | Nine Months 2023 vs 2022 Performance (in thousands, except per share data) | Metric | 9M 2023 | 9M 2022 | | :--- | :--- | :--- | | Total Sales | $11,062 | $8,938 | | Gross Profit | $1,611 | $1,609 | | Loss From Operations | ($31,887) | ($30,380) | | Net Loss | ($30,269) | ($30,005) | | Loss per Share | ($0.48) | ($0.47) | Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities increased to $20.1 million, with total cash and cash equivalents decreasing by $34.5 million to $38.0 million Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($20,134) | ($17,935) | | Net Cash Used in Investing Activities | ($13,932) | ($11,692) | | Net Cash Used in Financing Activities | ($450) | ($203) | | Net Decrease in Cash | ($34,515) | ($29,829) | Notes to the Unaudited Consolidated Financial Statements The notes detail accounting policies, significant customer concentrations, revenue recognition, remaining performance obligations, technology license commitments, and potential stock-based compensation under the LTIP - For Q3 2023, one customer accounted for 21% of product revenue, and three customers represented 54%, 18%, and 14% of engineering services revenue; as of September 30, 2023, two customers comprised 54% and 22% of accounts receivable[17][19] - As of September 30, 2023, the company had approximately $3.2 million in remaining performance obligations from four waveguide development projects, expected to be recognized as revenue through 2025[27] - The company has a remaining funding commitment of $2.0 million for technology licenses with Atomistic SAS, to be paid over the next three months[36] - Under the Long-Term Incentive Plan (LTIP), if all currently non-probable operational milestones are achieved, the company could recognize up to an additional $34.1 million in non-cash stock-based compensation expense[55] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the 36% Q3 2023 sales decrease and 24% nine-month sales increase, alongside mixed operating expense trends and a significant decline in liquidity due to operating losses and strategic investments Results of Operations - Comparison of Three Months Ended September 30, 2023 and 2022 Q3 2023 saw a 36% decline in total sales to $2.2 million, resulting in a gross loss and widened operating loss, despite decreases in R&D and G&A expenses, offset by a 43% surge in Selling & Marketing costs Q3 2023 vs Q3 2022 Sales Breakdown (in thousands) | Sales Type | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Sales of Products | $1,372 | $2,538 | (46)% | | Sales of Engineering Services | $808 | $889 | (9)% | | Total Sales | $2,180 | $3,427 | (36)% | - The gross margin turned negative to (11)% in Q3 2023 from a positive 25% in Q3 2022, primarily due to the sharp decline in product sales[76] - Selling and Marketing expenses increased by 43% ($0.85 million) YoY, driven by higher salary/benefits from increased headcount ($0.52 million) and increased advertising/tradeshow expenses ($0.24 million)[82] Results of Operations - Comparison of Nine Months Ended September 30, 2023 and 2022 For the nine months ended September 30, 2023, total sales increased 24% to $11.1 million, but gross profit remained flat, while operating expenses showed mixed trends, leading to a slightly increased operating loss Nine Months 2023 vs 2022 Sales Breakdown (in thousands) | Sales Type | 9M 2023 | 9M 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Sales of Products | $9,988 | $7,939 | 26% | | Sales of Engineering Services | $1,074 | $998 | 8% | | Total Sales | $11,062 | $8,938 | 24% | - Gross profit for the nine-month period was nearly unchanged at $1.6 million, with the gross margin decreasing from 18% to 15% YoY[91] - Selling and Marketing expenses increased by 34% ($2.0 million) YoY, primarily due to a $1.5 million increase in salary and benefits from headcount increases[97] Liquidity and Capital Resources The company's liquidity significantly decreased, with cash and cash equivalents falling by $34.5 million to $38.0 million due to cash used in operations, strategic investments, and financing activities - Cash and cash equivalents decreased by $34.5 million, from $72.6 million on December 31, 2022, to $38.0 million on September 30, 2023[103] - Net cash used in investing activities for the nine months was $13.9 million, which included $9.5 million in payments for the Atomistic technology license and $3.6 million for manufacturing equipment and leasehold improvements related to the waveguide expansion project[106] - The company has incurred a net loss of $30.3 million for the nine months ended September 30, 2023, and has an accumulated deficit of $274.1 million[109] Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations and foreign currency exchange rates in its international operations but does not currently use hedging instruments, deeming the impact immaterial - The company is exposed to interest rate risk on its investments and foreign currency exchange rate risk from business in Japan and Europe[116] - Vuzix does not currently hedge its foreign currency exchange rate risk and estimates that associated market risk is not material[116] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[117] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[118] Part II – Other Information Legal Proceedings The company is not currently involved in any material legal proceedings or litigation - The company reports no current involvement in any material actual or pending legal proceedings[120] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes have been made to the risk factors discussed in the 2022 Annual Report on Form 10-K[121] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales or purchases of equity securities during the period - There were no unregistered sales of equity securities or purchases of equity securities reported for the period[122] Exhibits The report includes various exhibits, such as CEO and CFO certifications and Inline XBRL documents - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL data (101, 104)[123]