Vuzix Corp (VUZI) 2018 Q2 法說會逐字稿

Greetings, and welcome to the Vuzix Second Quarter 2018 Financial Results and Business Update Conference Call. (Operator Instructions) As a reminder, this call is being recorded.

Now I would like to turn the conference over to Andrew Haag, Managing Partner at IRTH Communications. Mr. Haag, you may begin.

Thank you, operator. Good afternoon, everyone. Welcome again to the Vuzix Second Quarter 2018 Financial Results and Business Update Conference Call. With us today are Vuzix's CEO, Paul Travers; and CFO, Grant Russell.

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, August 9, 2018. Vuzix assumes no obligation to update these projections in the future as market conditions change.

The company has issued a press release announcing its financial results and filed its 10-Q with the SEC, so participants in this call who have not already done so may wish to look at those documents, as the company will provide a summary of the results disclosed there on today's call.

Today's call may also include non-GAAP financial measures. When required, reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in the company's Form 10-Q quarterly filings at sec.gov, which is also available at vuzix.com.

I will now turn the call over to Paul Travers, who will give an overview of the company's second quarter 2018 financial results and a business outlook for 2018. Paul Travers will then turn the call over to Grant Russell, Vuzix's CFO, who will provide a more detailed overview of the company's second quarter operating results. Paul Travers will follow Mr. Russell, and we will then open the call for Q&A after management's updates.

Paul?

Thank you, Andrew. Hello, everyone, and thank you all for joining our call today to discuss the company's second quarter 2018 financial results and business outlook for 2018. It is a very exciting time at Vuzix, as we're on the forefront of the multi-billion-dollar augmented reality revolution being talked about in almost every business sector.

For Vuzix, customer adoption and large-scale conversions are gaining further momentum, and we expect this trend to continue to accelerate. At the same time, we're well-positioned for the generally expected widespread consumer adoption of augmented reality and, more specifically, augmented reality smart glasses that is also right around the corner.

Introducing an entirely new category of devices, like AR smart glasses for deployment within enterprise, requires developing entirely new ecosystems that takes coordination between software developers, hardware manufacturers, finance, IT and HR departments, the end user and right up through to entire supply chains.

It's been years in the making, but Vuzix is successfully navigating this maze, and it is showing by many measures, including growing revenues from a few million annually to now, with more revenue in its second quarter of 2018 than in all of 2016. Yes, it is still modest just yet, but we have built the technology, infrastructure and ecosystem to deliver so much more in the coming months and years.

Now that the groundwork has been laid, capitalizing on the effort is becoming much easier, especially with the end results being driven by ROIs and positive customer feedback. As a result, we are seeing that the shift towards smart glasses becoming a standard in enterprise is well on its way.

Today, analyst after analyst is forecasting that the enterprise AR smart glasses market will represent millions of unit sales annually within the next few years, which translates into a total addressable market of billions of dollars in enterprise smart glasses sales alone. And in a recent study, our OEM partner, Toshiba, found that 83% of industrial enterprise customers were interested in deploying smart glasses within their operations over the next 3 years versus just the 2% currently. If you look across just a select group of key enterprise market verticals, such as field service, manufacturing, inspection and logistics, Vuzix has customers and exposure to all of them.

One of the most exciting market verticals today for Vuzix customer deployments is field service. Field service typically involves a see-what-I-see application that can deliver expert knowledge from the office remotely to a technician in the field. When see-what-I-see applications are delivered through to a hands-free pair of smart glasses, technicians in the field are almost instantly more productive because they can work with both hands and simultaneously have access to the information and expertise they need to solve their problems efficiently.

In this type of application, a single use of smart glasses in the field can save tens of thousands of dollars for our customers, especially if the key equipment failures can be remedied faster or avoided altogether. And we have seen some workers view themselves as supercharged or enhanced within their industry, as these workers can now leverage this access to expert knowledge that was previously unavailable to them from the work site. Knowledge where and when you need it is a powerful tool.

On the consumer side, Google and Apple are bringing AR experiences to the masses through their ARKit and ARCore OS extensions. And as a result, consumers are being "trained" to accept and use AR in their daily lives. This change is happening at an astounding rate, with an estimated 800 million smartphones being enabled to support AR by the end of 2018.

That said, consumption of AR through a smartphone is, frankly, unnatural and can be physically hazardous as well. We have all heard the stories of Pokémon Go users walking off cliffs or into traffic while staring at their phones pointed down the street. The industry is rightfully concluding that the ideal form factor to consume AR is through a pair of smart glasses that people would actually want to wear. Doing so is one of the biggest challenges to bringing AR to the masses today. This is where Vuzix is going to shine, and I will have more on that in a bit.

The enterprise space is where the first wave of adoption is occurring for augmented reality smart glasses and is the first place where Vuzix is driving sales. Our enterprise business continues to expand, as seen by M300 revenue growth in the second quarter increasing over 300% year-over-year.

The other great news here is that these expanding sales are being driven by repeat customer orders, with customers from 2017 accounting for more than 60% of our 2018 M300 smart glasses sales through June. New enterprise smart glasses business continues to expand also, as our last 12-month pilot program customer count now exceeds 850.

As a reminder, our pilot program count is for direct Vuzix customers and that there are also a large number of Vuzix integration partners and value-added resellers that are growing their own installed base of pilots. So we believe the total actual number of pilots is significantly greater, as some of our resellers have dozens or, in some cases, hundreds of active pilot programs of their own.

The inflection point in enterprise adoption we feel is finally at hand, as can be seen by our growing revenues, new pilot programs and conversions of pilots to productive rollouts. Last month, we announced our largest M300 order to date to one of our European VIPs. This roughly $1 million follow-on order for M300 smart glasses will fulfill a number of this customer's conversions from pilot to productive rollouts. This account is a great example of a typical Vuzix VIP/value-added reseller customer that has hundreds of active enterprise pilot programs that they're overseeing as part of their own growth.

During the second quarter, we also expanded production and shipments to Toshiba of the co-branded Toshiba AR100 powered by Vuzix smart glasses. As I mentioned earlier, Toshiba is just getting started and are already excited at the opportunities in front of them together with Vuzix.

Toshiba has also teamed up with Microsoft, and now the Vuzix AR100, alongside Toshiba's dynaEdge computer, is Microsoft Azure IoT certified to deliver cognitive services and machine-learning capabilities. The AR100 and dynaEdge is also off to a great start with multiple industry awards, including Editor's Choice from @ukreseller and more. We expect to continue to see meaningful revenue growth from Toshiba moving forward.

The story over the first half of 2018 from a revenue perspective has really been about our enterprise business, driven by our workhorse M300 as well as initial contributions from our Toshiba co-branded AR100 being sold into the marketplace by Toshiba. For the second half of 2018, our business will continue to grow with these offerings and expand further as we begin to pick up the marketing and sales activities around Vuzix Blade.

We are seeing growing demand for the Blade from our developer community, which includes B2C-facing applications, strategic partners, and general application developers, and is by far the largest we have seen for any Vuzix product in recent memory. We have a fairly significant backlog of orders, and efforts around the Vuzix Blade volume production and commercial launch are just starting to ramp.

We have completed FCC and EU certifications towards the end of the second quarter, and we have successfully launched the Blade Developer Center and released the Blade Edge software for developers. The Blade Developer Center is by far the most advanced toolset Vuzix has put in place prior to an actual product launch to support the developer community. The Developer Center allows our Blade developers to start developing their applications immediately, even without a physical unit in hand.

In addition to the Developer Center, over the last quarter, Vuzix has put in place a Tier 2 developer support structure that better allows our developers and key partners to access Vuzix engineers for complex technical support.

Although we had good overall second quarter revenue results, we did not get as many Blades out the factory door this quarter as we had hoped for on our first quarter conference call. This was primarily due to supply issues with an offshore battery supplier and the time required for a more solid software release. We feel that since the Blade is such a significant product for both us and the industry, that it shouldn't be fully released until it is ready. Today, new products often don't get a second chance, so we want this right.

It is interesting to understand the many use cases people are considering for the Blade. Although I am sure that gaming will be fun, watching whales jump out of the floor is not the focus for the Blade. Developers that place Blade Edge orders are focused on a wide variety of applications, ranging from the more traditional enterprise use cases to B2C applications and to an array of consumer applications.

There is a long list, but to give you an idea, some interesting areas include low-vision assist, hearing-impaired support, equipment monitoring, facial recognition, drone control, insurance adjustors, inspections, sports and fitness, social media, and much, much more. The amazing point here is that developers are not seeing the Blade as a toy, but more so as a tool. But you can bet it will be fun to play with too.

It's really quite amazing the level of interest and creative ideas the Blade and its user-friendly form factor is garnering. The full Blade commercial launch is right around the corner, so you will see building marketing activities starting shortly. Our team of software engineers are working diligently to complete the integration of the Blade mobile phone companion app for Android and IOS.

This, as well as the built-in applications, sensors, cameras, wireless and AI concierge services, Alexa and more, social media and entertainment apps, all which we expect to be available in parallel with the Blade's commercial release, will enable and pair your Android or IOS smartphone to the Blade.

The Blade companion app is the centerpoint for managing the interface and connectivity from the Blade to the user's phone. As such, the companion app provides a simple and easy gateway to control the relay of information and the sharing of data between a user's Blade smart glasses and their smartphone.

Some of you on this call may have had an opportunity to try the Blade on, view the optics, explore the widgets, and, in some cases, take a picture or record some video. And so all of you realize the amazing performance the Blade has in such a fashion-forward form factor. For those who haven't, all the positive press the Blade has gotten since CES and Mobile World Congress should help you to understand why Vuzix and our developer partners are so excited about our waveguide-based Blade smart glasses, which is a great segue to discuss the waveguide activities at Vuzix.

As you all know, there is ongoing significant interest from a number of Tier 1 companies regarding Vuzix waveguides. We are presently moving forward with a number of them that have placed Blade Edge developer unit orders in addition to having purchased and received stacks of standard waveguides and display engines from Vuzix for their internal testing and validation.

And in some cases, Vuzix is working on full custom solutions that fulfill the needs of their finished products. To date, we have received very positive feedback from these customers as they continue their development efforts with Vuzix. Vuzix expects to continue to demonstrate that we are leaders in the wearable display space with solutions that are cracking the code to true usability and, at the same time, wearability.

Q2 has been a quarter of refocusing some of our operations, with the express goal of realigning our efforts to better support our VIPs and value-added resellers to more efficiently accelerate conversions of their enterprise pilots into deployments and to better focus on manufacturing and supply chain operations.

From a customer-centered perspective, the company is investing in additional sales engineers and brought on a third-party front-line technical support provider to better support our developers, resellers and customers across North America and Europe. Our sales organization is also now not only leaner, but more highly focused on our existing customers' needs as we continue to leverage more than 250 value-added resellers and over 80 VIP partners that are in front of customers, selling their applications alongside Vuzix smart glasses.

We are also having, myself and others in management, reengage with select customers and VIPs regarding their challenges, with the goal of focusing on ways that Vuzix can help grow their enterprise businesses.

From an internal operations perspective, Zach Stone was promoted to Vice President of Operations in early June. On the engineering side, Shane Porzio was promoted to Vice President of Engineering, as our engineering department has been growing and has numerous active programs. R&D also now has a larger responsibility of supporting sales via sales engineers and supporting partners with Tier 2 technical support that is comprised of a team of experienced and talented hardware and software engineers. Both individuals are extremely talented and well-qualified for these expanded roles.

These efforts are all contributing to improving our ability to consistently deliver volume production of our products and are helping our customers convert from pilots to productive rollouts. Our underlying business at Vuzix continues to evolve, grow and mature. Even more important, Vuzix is more diversified with our product portfolio today than at any time in our company's history.

I'd now like to pass the call over to Grant so he can walk through our second quarter financial results. Grant?

Thank you, Paul. Before I begin, I would like to encourage interested listeners to review our 10-Q that we filed this evening with the SEC for a more detailed explanation on some of the quarterly periods' year-over-year differences, as I will be highlighting just a few here.

For the 3 months ended June 30, 2018, Vuzix reported $2.6 million in total revenues, as compared to $1.3 million for the same period in 2017, a double year-over-year. The overall increase in total revenues was primarily the result of stronger smart glasses sales in the second quarter of 2018 as compared to the same period in 2017.

Sales of smart glasses, primarily our M300, were $1.8 million in the second quarter of 2018, as compared to $0.7 million in the same period in 2017, a 154% increase. Sales of OEM smart glasses to Toshiba were $652,000, as compared to nil in the prior year's period, when the product was still under development.

For the quarter ended June 30, 2018, we reported an overall gross profit from product sales of $670,000, as compared to a gross loss of $429,000 in the prior year's period. The biggest driver for this improvement was our higher overall revenues, from which we absorbed our relatively fixed manufacturing overhead and other related costs.

Average gross margins earned on product sales, before overhead and other costs that are included in our overall cost of sales, was 48% of product sales for the quarter, a significant improvement over the prior year's period. This improvement is net of the impact of our contemplated lower margins earned on Toshiba OEM and eyewear sales in the mix.

Overall research and development expenses for the second quarter of 2018 increased to $2.6 million, as compared to $1.2 million for the 2017 period. The increase was primarily due to additional R&D staff versus the prior year's period and increased development cost spending related to the Blade smart glasses, further production trials, external contractors working on the Blade software, and ongoing new product and technology research.

Sales and marketing costs for the second quarter of 2018 increased to $1.5 million, from $0.8 million in the second quarter of 2017, due to increased headcount and salary costs year-over-year as well as accrued separation payments. Other variances were related to increased advertising, trade shows and travel costs, along with increased Vuzix app store and website costs.

General and administrative expenses for the second quarter of 2018 were $2.3 million, as compared to $1.3 million for the 2017 period, with the increases primarily due to increased headcount and related salary and stock compensation costs for the second quarter of 2018 as compared to the prior year's, as well as accrued separation costs related to the company's former CEO.

The second quarter net loss for 2018, after the revision for accrued preferred stock dividends, was $6.6 million, or a loss of $0.24 per share as compared to $4.5 million or a loss of $0.22 per share for the 2017 period. If one were to exclude the accrued onetime officer separation costs of approximately $700,000, the 2018 second quarter loss per share would have been $0.22 per share.

Now for some balance sheet highlights. Our cash position as of June 30, 2018, was $29.2 million. With a net working capital position of $33 million at that same date, we believe the company has more than enough capital to operate and execute on its current business plans for the next 12 months.

The net operating loss, after adding back noncash adjustments, for the 3 months ended June 30, 2018, was approximately $5 million as compared to $4.5 million in the 2017 comparable period.

Inventory levels rose further during the second quarter in anticipation of the Blade's expected mass production commencement in Q2, but we expect inventory growth to slow when the Blade production actually ramps up along with volume shipments commencing.

Cash for investing activities for the quarter was approximately $630,000 versus $550,000 in the comparable 2017 period.

With that, I would like to turn the call over to Paul Travers.

Thanks, Grant. In summation, the progress Vuzix has made over the past 4 to 6 quarters has been stellar. Again, in 2017, our sales were largely tied to 1 product, the M300, and our pilot programs count by year-end had reached 350. In 2018, we more than doubled this count to 800-plus, with pilot programs now starting to move into productive rollouts.

Over the course of 2018, we expect to see continued acceleration of our M300 smart glasses business and significant revenue contributions from multiple new sources, including the Vuzix Blade smart glasses; Toshiba's AR100 smart glasses; OEM sales, including the Vuzix Blade smart glasses, Toshiba AR100 smart glasses OEM sales, Vuzix Basics Video and several new OEM development programs related to our waveguide optics technology that are expected in the second half.

Specifically for the Blade, we will start to meaningfully ramp production in the third quarter, and as we move into the fourth quarter, we expect Blade sales to jump significantly, bolstered by follow-on orders from our developer community and enterprise partners, as well as the commercial Blade product launch through our select channel partners. Our production plans for Blade remains consistent at 10,000 pieces for our first production series and the current build pipeline.

With all of these new revenue streams increasing or coming online this year, we remain confident that the company is positioned well to deliver breakout revenue growth over the remainder of 2018 and into 2019.

With all of this said, Vuzix is just getting started, and we are well into developments for 2019 and beyond with several unannounced upcoming new products and technologies in active development. It is becoming more and more clear that our enterprise business is poised for significant growth. Add to this the expected expanding sales of Blade, along with OEM sales of smart glasses and the start of high-volume production of waveguides and the growing list of Tier 1 customers, and you'll have all the makings to establish Vuzix as an industry leader in the rapidly growing augmented reality space.

Now let me pass the meeting to Andrew to begin the Q&A session. Andrew?

(Operator Instructions) Our first question comes from the line of Christian Schwab with Craig-Hallum.

This is Tyler on for Christian. So first, your pipeline of pilot programs was 350 exiting sales in '17, 700 a quarter going, now it's exceeding 850. Is this a good metric for investors to think about as we kind of try to track your progress?

I think that's part of the reason why we call it out. I think it's the beginnings of a good measure. These are inbound new opportunities that have an opportunity to roll out into real production runs. The next measure right behind that is conversion of those into real rolled out programs. And so yes, I think it's like the 1-2 thing. You need pilots before -- almost everybody today deploys a pilot first before rolling it into their production processes and stuff. So the pilots are the step 1 in the process.

All right. Perfect. And then on the Blades, so we had a manufacturing delay this quarter, but it was encouraging to hear you still expect to manufacture at 10,000 units this year. So I guess for the second half, help me understand, maybe. Those 10,000 units, what would that mean for shipments?

Well, the production queue, the inventories, et cetera, especially long leads, et cetera, are all in place for this 10,000-unit build. I can't guarantee you that we are going to build and ship all 10,000 units in this last half of this year. In fact, we probably won't do that. We will significantly ship numbers here. I just don't know are they going to be 8,000, 10,000, 9,000. We're not really projecting and telling people what we think the numbers will be for the latter half of the year, but it'll be reasonable.

Okay. Perfect. And then last one here. On your M300, you did $5.5 million in sales in 2017, which a majority I believe was M300s, and you expect that to grow off of that. Can you help give us some color maybe on what a magnitude of growth would look like for that?

Well, if you consider the baseline being a continuation of what it was for last year, although you can see the pilots are increasing faster, you can kind of build in your own baseline from that. And then all of these pilots, there's just many -- a large number of companies that we're talking with it about that are talking about major deployments. Major could be 50 to thousands of them. And really, Tyler, this is one of the interesting things about where this industry is right now. It's happening. It's just getting off the ground. It kind of feels a bit like a viral thing, where 1 deployment happens and others start looking and saying, hey, we need to get on the ride here. I just -- Vuzix can't predict exactly when and how fast that's going to unfold, other than to say, without doubt, it seems to be growing and accelerating for Vuzix.

All right. Perfect. And then, I guess, actually, one more, if I can sneak it in. On the waveguide optics opportunities, we're engaging 3 more Tier 1 potential customers, you said. Could you help us maybe or help me frame what a potential logical time line might look for with this, next year, a couple years out? How should we think about a potential time line for any partnerships?

It's interesting. These folks are in a -- they're in an array of different market sectors, quite frankly. Some of them can get up and running faster because of what it is they're doing, and others take longer. When you're building a brand new product that you've never offered before and it's in a marketplace where if you don't get it right, you get punished for it, it takes longer. And I don't know how to describe that. In other places, you've just got to do the engineering and it's in the solution that people are ready to consume. So anywhere from a year to potentially 2, in some cases.

Our next question comes from the line of Jim McIlree with Chardan Capital.

Grant, did you say that you did $1.5 million in M300 this quarter? And if you didn't, could you tell me what you did say? And can you compare that to Q1's M300 sales?

The answer to the first question is yes. It's certainly up. I don't have that right in front of me, but it's probably up near 100% unit-wise and dollar -- revenue-wise.

Okay. Great. I was going to move on, but what else did you have on that 300?

That's something I have to see.

Okay. So I'm trying to understand the Blade rollout because it seems like we've got -- well, we have at least 2 rollouts, and I'm thinking it's more like 3. So you have the rollout to the developer, you have the rollout to the consumers, and then you have the rollout -- let's call it general rollout, where everybody is taking it. And if I understand it correctly, the backlog that you're referring to is the backlog to developers, and that's going to start shipping in Q3, I think is what you're saying, and then the consumer is Q4, and then we get like a -- I don't know to describe it. Let's call it a full-blown rollout sometime next year. Is that a reasonable way to look at it?

I think it's a little simpler -- a little more simple. Sorry. There's the developer program, which is where we're at today, and we actually did ship a very modest number of units in the second quarter, but it'll be -- in fact, now it's starting to ramp up now at Vuzix here in the third quarter to the developer side of the house. Right behind that developer program is going to be the commercial release, Jim, and the commercial release -- some of these developers that we've gotten early products to, we're in negotiations with some of these guys for in the 500 kinds of unit quantities sort of thing, so you might consider that a commercial -- regular commercial customer, enterprise-ish, but then here shortly, Vuzix will be releasing this thing as a consumer-ready product. The companion app will be released with it. There's some really cool content that's coming out right alongside it. So before -- sometime in the second half, and I'm just going to leave it at that -- it's hard to peg these dates exactly, but sometime here in the second half, Vuzix will be shipping to the general consumer and commercial marketplaces. So it's really 2. It's developers and then the world.

And I know that there were some...

Jim, it's Grant here. Just going back to your first question, I've got it looked up. The increase was 80% Q1 to Q2 on the M300 sales.

And that was in dollars or units or about both?

Primarily dollars. Some of the bigger volumes go to slightly greater discounts.

And then sticking with you, Grant, I know that there were some special issues with operating expenses this quarter, so can you help me understand what a normalized operating expense going forward is and if you have some more things to kind of flush through the income statement over the next couple of quarters?

I think they're going to come down Q2 versus what we just recorded due to some onetime costs, closely in line with Q1. The area where we're not expecting any decreases would be in R&D because we're continuing to make continued strong investments there. We just got some good opportunities we're investing in, and we're determined to get our next-generation products out in 2019. But G&A should come back down a fair bit, and sales and marketing should also at this stage.

And a last one, if I could. So the waveguide sales, at least according to the 10-Q, are around about $125,000 for the first 6 months. Is that a reasonable amount for the second half as well, or are we going to start -- and we see the ramp-up next year, or is there a possibility that you get a ramp in the waveguide sales in the second half of this year?

Do we separate those out?

We do, yes.

So there are NRE engineering dollars that are associated with waveguides and then some waveguides that roll inside of that, Jim, and I'm not exactly sure how Grant put that together. I'm not sure Vuzix wants to break that out all that much. I can tell you that the engineering programs around waveguides and the waveguides that typically go along with it should be -- they should be increasing.

Our next question comes from the line of Brian Kinstlinger with Alliance Global Partners.

One of the questions I wanted to ask was about Toshiba. If I do the math, 20% of revenue, they've done about $1 million revenue for the year, which is a little bit behind the annual commitment, so maybe talk about how you expect the ramp to play out the rest of the year and the exclusivity you're providing them.

Well, they have -- as we mentioned many times in the past and in press releases, over a 12-month period of time, Toshiba, in order to keep their exclusive, has a commitment of ex of $5 million worth of product, Grant, I think is what it was, right? Yes. And we're not seeing them miss on those commitments. They have a 12-month period of time to do that. Their customer base is growing. You've heard some of the things -- I mentioned just a few things. It's really hard for us to talk about the details of what happens inside of Toshiba because we're not at liberty, and in some cases, we just don't know everything that's going on around this program, but I will say they're very positive right now, and we expect it to continue, and you will, I believe, see more orders and announcements around those orders as the second half unfolds.

Great. And then my other question is related to pricing. How should we think about pricing in the Blade versus the M300?

Well, the Blade retails for $1,500 -- no, the M300, sorry, and the Blade retails for $1,000. On average, we recommend about a 25% average discount when you consider direct sales and retailer sales, so you're looking at $750 net selling price, on average, expected for the Blade.

(Operator Instructions) Our next question comes from the line of Nehal Chokshi with Maxim Group.

Congrats on a strong run there. That's very good. A good sign there. I believe that you guys are reiterating your guidance that for -- you should expect at least a doubling of revenue for calendar '17. I just want to double-check that, that is indeed the case. Correct?

Yes, that's correct. By the way, thank you very much, Nehal. It's been a lot of hard work to get here, but it is gratifying and great to see the company performing.

Great. I don't believe that you've put any guardrails on the high end of that. Could you provide some color around guardrails on the high end on what you would expect?

We really can't, sorry. I mean, there's so much potential upside, but there's also -- who knows when it's actually going to be there. We're at that point in the game where you're damned if you give guidance and you don't hit it. And so at this point in time, we're reserving that kind of input. I can only say that it's exciting and it's growing.

Great. Understood. Shifting over to the R&D, you mentioned that you have some exciting products, as you do every year, actually, by the way, but I'm -- you filed what I view was a really critical patent that was issued on June 26, where it talks about the development of a -- replacing the turn grading with a array of reflectors, and I'm wondering if we can expect that technology to show up within the next year? Or is that more of a 2- to 3-year out development there?

So Vuzix actually has filed a significant number of patent applications in just the last year or so. Matt, do you remember how that -- the increase there?

26 during the quarter.

26 patents filed during the quarter?

Yes.

And so these are patents that are pending. Some of them, as you just pointed out, have issues. We're deploying these things alongside some of the new products that we introduce. We, in the last quarter, mentioned the relationship with our friends over at Qualcomm, another relationship with a company called Plessey. These are all revolving around next-generation products that give us slimmer and trimmer and sexier kinds of devices, and this patent portfolio is a big piece of how that all works.

There are 2 critical R&D developments I'm looking forward to. One is the increase in the field of view, and then the second one is enabling 3D object projection and ultimately manipulation. Could you share with you where you think the priorities of those 2 particular R&D developments sit relative to each other?

The binocular side of stuff is definitely on Vuzix's roadmap. In fact, you'll probably see some beyond demonstrations. I mean, Vuzix already shows and has stuff where you can reach out, pick up the little robots and play with them like they're really there. I mean, we have systems that do that today. Productizing that in a form factor -- Vuzix is not going to come out with a form factor that you need a Mack truck to carry it around with you to make it work. We think its critical wearability is first. It's just like the reason why smartphones are where they're at today. It's not because they look like a brick anymore. These things, to be successful, have to look cool, and so that's our first sort of data point. There is a huge amount of business, even with modest fields of view, that are real business-oriented applications for these kinds of heads-up displays. We see the very large fields of view being more in the gaming space, and we're excited about gaming at some point in time, but that's not really where Vuzix's thrust is. That said, we have optic systems that we're working on that have fields of view that should be in the 90-plus degree fields of view and with curved waveguides. So that's in our queue. It's out there a bit, though. Did I answer the bulk of that?

You did.

Ladies and gentlemen, we have reached the end of the question-and-answer session, and I would like to turn the call back to Paul Travers for closing remarks.

Thank you, everybody, for joining our conference call. Again, it's exciting times at Vuzix. We look forward to the future with everybody, and thanks for being a great shareholder. Bye.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.