Vuzix Corporation Stock

Thank you. order 2026 Financial Results Conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero. your telephone keypad. As a reminder, this call is being recorded. Now I'd like to turn the call over to Ed McGregor, Director of Investor Relations at VU6. Mr. McGregor, you may begin.

Thank you, Operator, and thank you everyone for joining us today. Welcome to the Vuzix Corporation's second quarter 2026 Financial Results Conference Call. For this today are our Vuzic CEO, Paul Travers, and our CFO, Grant Russell. Before I turn the call over to Paul, I'd like to remind you that 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. The company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995. could differ materially from those contemplated by any forward-looking statements due to factors including general, economic, and business conditions, competition, changes in business strategy or development plans, our ability to attract and retain qualified personnel, changes in legal and regulatory requirements, and other risks described in our SIP SIC filings. Any projections represent management's estimates as of today, August 13th, 2026. The user assumes no obligation to update them except as required by law.

This afternoon, the company issued a press release announcing its 2Q 2026 financial results and filed its 10Q with the SEC. Participants may wish to review those documents as we will provide a summary of the results on today's call. may include certain non-GAAP financial measures. When required, reconciliation to the most directly comparable GAAP measures can be found in the company's SEC filings. I'll 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 Grant Russell, Vuzic's CFO. He'll provide an overview of the company's financial answer results. After that, we will move on to the Q&A session.

Thank you, Ed, and thanks to everyone for joining us today. With the first half of 2026 behind us, Vuzix is focused around our three core growth pillars. Enterprise smart classes. OEM products and solutions, and wave guides. They're connected by the technology manufacturing capabilities, intellectual property, and customer relationships we have built over many years. The business opportunities in front of us look very different from a year ago. Across all three pillars, we are seeing expansion in both the number and quality of opportunities involving major enterprise customers, defense organizations, OEM partners, and technology companies. AI is a game-changing driver as enterprises look for practical ways to bring AI-powered intelligence to their frontline workforce. and into the physical workplace.

These are not early stage discussions. A growing number of programs have cleared development and validation and are heading toward commercialization. As that work converts into production volumes, it has the potential to change both the size and the mix of USIC's revenue. Two things in particular have changed to get us here. customer requirements have converged around optically see-through, self-contained glasses, and the software work required to deploy a solution is getting easier as AI takes on much of the integration. I will come back to both of these. Let me begin with enterprise smart glasses. AI is profoundly changing the relationship between people and computers, and that is game-changing for wearable smart glasses.

AI will automate many tasks, but skilled tradespeople, technicians, and frontline workers operating in the physical world are not going away. The opportunity is to dramatically augment those workers by connecting them directly to the intelligence and capabilities of AI. Put simply, AI does not eliminate the frontline worker. It makes connecting that worker to the digital world far more important and valuable. During COVID, remote support drove significant interest and sales in smart glasses, but it addressed a relatively narrow need created by temporary circumstances. AI enterprise smart glasses are fundamentally different from a basic remote support application, and we believe AI represents a lasting change in how people interact with computers and how work gets done. The opportunities we are seeing today are tied to ongoing productivity, efficiency and augmenting the frontline workforce, needs that will persist and grow as AI becomes more deeply embedded across the enterprise.

All-day wearable smart glasses are a natural interface for making that connection with AI that can see what workers sees. understand what they are asking, and access relevant enterprise knowledge, the glasses can understand the task and provide real-time information or guidance while leaving the workers hands-free. Unlike a phone, tablet, or laptop, they stay with the worker and task at hand throughout the day, turning smart glasses from primarily a communications tool into an always available AI-enabled productivity platform. It's worth a brief discussion on what customers are asking for. In nearly every new program we are engaged in today, the customer wants optically see-through smart glasses. sees the real world directly with information presented within their natural field of view rather than through a camera or on a screen off to the side and a growing number want that in a self-contained pair of glasses with no tethered compute unit that is a demanding combination the display has to be bright enough work environments, efficient enough to run a full shift on a battery, light enough to wear on your face, and yet small enough that the product still looks and feels like eye wear. Those are exactly the constraints waveguide optics exist to solve. And they are a large part of why our optical and wearable system are being pulled into so many customer conversations at once. There is one more change worth calling out.

For years, the practical barrier to enterprise smart glasses was not mainly the hardware. It was the software. Every deployment needed custom integration into a customer's existing systems, and that work was slow, expensive, and scarce. is changing that. A great deal of the integration work that used to require a dedicated development team can now be done with AI doing much of the coding. We use AI this way in our own development and we think it should meaningfully lower what it takes for an independent software vendor or even an end customer's own team to stand up a solution. That matters because the software effort has historically been one of the barriers sitting between customer interest and customer deployment. And as AI-enabled smart glasses can understand what the worker saw, said, and accomplished during the job, it can easily help automate much of the administrative work that follows. Documenting the work performed, preparing service reports, identifying and ordering replacement parts, scheduling follow-up physics, updating enterprise systems, and even identifying additional work that may be required.

For frontline workers, this is transformative and allows the worker to focus on the physical work while AI handles the digital work around it. Amazon is a good example of an innovation leader in this space. Its reliability and maintenance engineering teams have been using Vuzix M400 smart glasses to support robotics, conveyors, and automation equipment within fulfillment centers for several years now. More recently, Amazon expanded its usage of Vuzix smart glasses to our next-generation Ultralight Pro smart glasses. Amazon has developed their own AI-driven applications to support maintenance and other operational activities inside its AI data center infrastructure. We are seeing similar AI driven interests across logistics, warehousing, manufacturing, and other frontline environments from other Fortune 500 companies looking to use AI both to assist workers while they perform their jobs and to automate the digital workflows surrounding that work. Our second pillar is OEM products and solutions.

Muzix brings together optics, electronics, wearable product design, manufacturing experience, and real-world enterprise deployment knowledge. Our OEM products and solutions business is designed to take customers from product concept through design, engineering qualification, and ultimately production. One example is the WaveGuide based smart glasses platform we have been developing with a leading global automotive manufacturer. We've delivered the initial systems and worked through adjustments from there. Feedback has been very positive and discussions are proceeding around formal factory floor rollouts. These smart glasses were designed around a live manufacturing requirement, combining our enterprise wearable experience with our waveguide display technology. At the same time, development of Vuzix Next Generation Ultralight Pro smart glasses continues.

They were designed from the outset for enterprise and industrial users looking to bring AI into the hands-free workplace. It's lightweight, stand-alone, waveguide-based design combines with a wide field of view camera that can provide AI with visual context. The high-performance audio with noise-canceling microphones and integrated speakers provide for natural voice interaction. The all-day wearability, safety certification, prescription support, and enterprise-grade performance all combine for the ultimate AI user experience. We continue to work with a growing list of prospective customers and partners around validating the platform before we complete the tooling. Our approach to new products has also become more disciplined. Our development decisions are tied to identifiable customers, validated use cases, and commercial opportunities.

Customer-driven OEM programs can take longer than launching a Vuzix branded product ourselves, but they carry lower commercial risk because development is anchored to a defined customer requirement and real-world use case. This lets us invest behind demonstrated customer needs rather than anticipated demand while retaining the opportunity to turn successful programs into broader Vuzix platforms. Our objective is to move more of these OEM programs into production programs while maintaining discipline around the capital we commit. Defense and security agency activity spans all three growth pillars and continues to build, with more substantive engagements and clearer pathways from development towards production. Drones and unmanned systems have become core operational tools, while wearable displays and HUDs provide a natural interface for situational awareness, coordination, maintenance, medical information, and secure data delivery. U.S.-based design and manufacturing of critical optical technologies is also becoming more relevant to defense customers and primes. Collins Aerospace Program has moved from development into initial production for waveguide-based AR display systems supporting drone applications.

In parallel, we are putting the required systems in place for the launch of a U.S. government-funded next-generation waveguide development effort, including work aimed at larger fields of view and other performance improvements for future defense requirements. Additionally, we are engaged with the U.S. government securities agencies around custom wearable solutions. One of these customer opportunities has progressed through the proposal stage with the customer currently targeting a contracting decision later this year. Across these programs, customers care about manufacturability, supply chain security, and where critical technologies are produced. Vuzic's ability to design and manufacture advanced waveguides in the United States while also supporting complete wearable systems is an important differentiator. Our third pillar is waveguides, which we continue to believe represents one of Vuzic's largest long-term opportunities. In many respects, it is also the technology foundation underlying our other two pillars, enterprise smart classes and OEM products and solutions.

The rapid evolution of AI has created a new level of interest and investment in AI-enabled smart glasses. As AI has become more capable of seeing, understanding, and interacting with the world around us, the value of an all-day wearable interface has become much more compelling. This is driving new investments across the industry, including from companies that had previously set smart glasses aside and at the same time is increasing the need for high performance waveguide based displays. And as I mentioned a moment ago, customers are converging on optically see-through displays in self-contained eyewear. That requirement leads directly to waveguides because waveguide optics are the only practical approach. we know of that delivers a true see-through image within the size, weight, and power budget of all-day glasses. But optical performance alone is not enough. These waveguides must also be manufactured reliably, at scale, and at costs that make high-volume products possible.

During the first half of 2026, we continued investing in Vuzix Rochester, New York based manufacturing and R&D facility to support more waveguide programs simultaneously, reduce change over time, and increase throughput as programs move from development towards production. We invested approximately $1.2 million in fixed assets during the first six months, primarily for new wave guide manufacturing equipment. Most of this investment is intended to create a more flexible environment where one line can support development while another supports production or both can support production as volumes increase. On the materials side, our chemistry capabilities are focused on advanced high index materials and replication processes intended to improve optical performance while preserving the scalability and cost advantage of nano imprint manufacturing. As you all know, Quanta is an important partner of Vuzix. Quanta brings high volume and product manufacturing capability and access to a broad customer ecosystem, while Vuzix brings waveguide design, optical engineering, manufacturing know-how, and intellectual property. Together, Quanta and Vuzix are to become turnkey system solution providers for technology companies, eyewear brands, and platform providers of display-enabled AI smart glasses.

Ultimately, the waveguide market will not be won by the best laboratory hero samples. It will be won by companies that can combine optical performance with repeatability, yield, scale, and cost, while supporting very large volume customers. That is the position Vuzix has spent years building towards. This industry has taken longer to arrive than any of us expected. That said, the pieces needed for long-term sustainable growth are now falling into place. customers are converging on optically see-through, self-contained glasses, and that is what we build. We have the engine to manufacture the waveguides behind them, a base that takes years to stand up, and ours is running. And customers are now paying for OEM versions of what we have created in commercial programs as defense.

Very few companies have stayed with this long enough to have all three. Our confidence today is not based on hope about the market. It is based on what customers are asking us for now. What is new is the pace. AI has given enterprise smart glasses a much broader purpose. software barrier that used to slow deployment is now coming down. OEM programs are moving from validation into commercialization, defense programs are moving towards production, and our wave guideline is scaling to support both. This is happening across all three pillars at once, with programs involving some of the world's largest and most sophisticated organizations.

Waveguide design and manufacturing is clearly a cornerstone pillar of the Vuzix business and we're investing in it accordingly, expanding our imprint capacity, reconfiguring our plant floor, adding metrology and continuing to advance our materials and process capabilities. We believe that progression has the potential to change Vuzic's financial performance as these programs convert. not only through higher revenue, but through better utilization of the manufacturing and technology infrastructure we have already built. In other words, the opportunity is not simply to grow the top line, it is to begin demonstrating the operating leverage these three pillars are capable of delivering. our focus is straightforward, execute and convert these customer programs into production. At our annual meeting, we noted that our waveguide capabilities have potential applications beyond smart glasses. Today, we can be more specific that one of those areas is optical interconnect in AI data centers. We have received inbound interest in our Planar waveguides as a way to move data optically within AI systems with greater bandwidth and lower energy per bit. This inbound interest has come from multiple corners of the AI data center ecosystem, the underlying requirement is closely related to what we already do.

Moving light with precision through passive glass manufactured repeatably and at scale. We have been actively exploring this area and we are encouraged by the possibilities for Vuzix in this new space. With that, I'll turn the call over to Grant for the financial overview. Grant?.

Thank you, Paul. As Ed mentioned, the 10Q we filed this afternoon provides a detailed explanation of our quarterly and year-to-date financials. So we'll provide you with just some color on the key numbers for our second quarter ending June 30, 2026 only. Total revenues for the second quarter ending June 30, 2026 were $1.1 million versus $1.3 million in 2025, a decrease of 14%. Product sales were $0.9 million for Q2 2026 versus $1 million for Q2 2025, with the reduction primarily due to decreased unit sales of our M400 product and the lack of current period sales of smart glasses that were discontinued at the end of 2025. Engineering services and OEM product sales were 0.2 million versus 0.3 million, a decrease of 8%. The gross loss for Q2 2026 was 0.6 million as compared to a gross loss of 0.8 million in the prior year's quarter, an overall 15% improvement. R&D expense was 3.1 million for Q2 2026 versus 2.6 million in Q2 2025, up 20% primarily due to to higher external new product development costs and increased personnel costs.

Sales and marketing expense was $1.2 million versus $1.4 million in Q2 2025, a decrease of 11% primarily due to lower non-cash stock-based compensation. Total GNA expenses for the second quarter ending June 30th, 2026 were $2.7 million versus $2.8 million in Q2 2025, a decrease of 3%. The net loss attributable to common shareholders. For our second quarter of 2026 was 7.7 million or 9 cents per share as compared to 7.7 million or 10 cents per share for Q2 of 2025. Now for some balance sheet and cash flow highlights. As of June 30th, 2026, cash and cash equivalents were 17.3 million and our net working capital was approximately 18 million. The company continues to have no current or long-term debt obligations outstanding.

For the third time, With three months ending June 30th, 2026, net cash used in operating activities was 6.6 million as compared to 4.8 million in the prior year's period, an increase of 1.8 million year over year. three months ended June 30th, 2026. Cash used for investing activities on fixed assets and patents with $0.4 million versus $0.9 million in the comparable 2025 period. For the three months ending June 30, 2026, cash provided by financing activities with $4.1 million versus $7.9 million in the comparable 2025 period, driven by ATM net proceeds.

in both periods. With that, I would like to turn the call back over to the operator. Thank you. You'll now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we poll for questions.

Thank you. Our first question comes from the line of Christian Swab with Craig Hallam Group. Please proceed.

Hey guys, thanks for taking my question. It's Ben, I'm for Christian here. First question is on this expanded opportunity with optical interconnects. Can you give us a little bit more detail regarding the types of customers you guys have talked to? And also any initial thoughts on the size of the opportunity?.

Hey, Ben, thanks for the question. It's a really good one. I am just sorry. It's not difficult to take a look at who those players are these days. I can say a lot of it's been inbound to Vuzix. We've done some of our own outreach, but I really can't get into specifics on this call. What I can say is the interest is real. It's significantly engaged us on our part.

We're spending a fair amount of time with it, and we're going to have a whole lot more to update for you on shortly. Sorry, I just can't get further into it at this point.

No, no, that's, that's all right. I get it. Um, any, my second question here is, can you go, can you talk a little bit more about the relationship with quantum and any more updates you can share there? Yes.

Yes, actually. We had some inbound questions and that was actually one of the questions that was on the list of this will be great, two birds with one stone. As everybody knows, we have a great working relationship with Quanta. At this point in time, we're working on ... We built some early generation smart classes going on with them right now. We fully expect that at the CES show, which is where they do a lot of announcing and showing of some of their latest stuff, They'll be shown. These things are designed for the high volume marketplace, and they're focused on price points that the mass market and the broader markets could afford to play and pay on. So things are moving forward. The relationship is as strong as it's ever been, and we're looking forward to sharing and a whole lot more as these next generation systems come out.

Great. And then just my last question.

this will be on defense. You talked about, you know, Collins going into initial production. Um, can you help us kind of gauge that opportunity? Uh, over the next year and anything we should expect or any news kind of we should be looking for there.

We, in the second half here, were fully expecting more production orders. I can tell you we've also gotten a follow on development work which we'll share more on here also in the second quarter the the production side of the house These guys have built this product for a very large segment of the US defense space, and it's for drones and remote flying of drones and situational awareness at the same time because they're optically see-through. And so they share with us some very compelling numbers, but it's early in the game. 2027 should be a really good year for production as it rolls out with those guys. And you'll see more than one device coming from them. Sorry, I wish I had more granular and better, tighter answers for you on that, but quite probably wouldn't be happy if I was sharing some of the inside stuff they shared with us. No, I understand.

That's all I got. I'll go back in the queue. Thanks, guys. Yes, thanks, Ben. Thank you. That concludes today's Q&A session. I'd like to pass the call back over to Paul Travers for closing remarks.

We've actually gotten a few other inbound Q&A stuff. So I thought, Ed, if he could read the questions back, I can take a shot at giving some answers. Sure, Paul. We have a few.

The first question, why has enterprise revenue been flat and what changes that?.

Yes, so the enterprise demand for Vuzix these days is really splitting into kind of two paths. Where people need a glanceable monocular display, The right tool is the M400 and our newest LX1. They serve applications that are well defined today. We have an installed base that are working with those products. And we see people that were using M400s upgrading to LX1s. So we should see some nice momentum, knock on wood, with our LX1s. as acceptance rolls into the market, and with AI, we're seeing AI wrapped around the use, in particular around the LX1, for applications that are giving it really new markets and new opportunities that it's going to play in. So that's one of the paths.

At this point in time, those are our major products that we're offering into the marketplace. The other path, which I think I hope you guys have all heard, where applications need information in the worker's natural field of view. customers are waiting for and designing apps around optically see-through systems that Vuzix is making that are in the EVT side of the business right now. They need self-contained products with the processors built in, and those products are inherently AI driven. They are designed for the AI user. user and users that enterprise today is trying to give capabilities to make their jobs happen faster and easier. The Ultralight Pro addresses that, as will another device that we're developing for one of our key OEM customers. Both of these tracks are moving forward towards different products and different timelines. But with the momentum that's building around those, we expect that the flat nature of the transition that we're going through is going to start cranking up and shifting.

showing growth here over the coming quarters. Okay, Paul. The second question we have is, can you identify the automotive OEM you're working with and maybe discuss their rollout timeframe?.

We kind of included this question because we get it so often from folks, so we thought we'd try to address it. First, we cannot name who this customer is. I can tell you they are a Tier 1 automotive manufacturer. If you don't know who this company is, when you hear it, you've been living in a hole. It's very obvious. They're a leading global manufacturer. We have delivered initial systems. We have gone back and forth with those systems, working with people on their plant floors, working with people in the actual applications. These are live, real applications that they're testing them on their plant floors with, and the feedback has been really positive.

Discussions now have moved from, well, can you do this and can you change that, to how are we going to get these things deployed and how do we get them into production programs? factory floor seems to like the product at the same time, the users seem to like them. I cannot put a timeframe though on the customer's deployment discussions other than to say it's continuing to progress in a timely fashion, especially when you consider how large of a project this could be, but also the size of the company that we're working with. Sorry, that's, I know, a bit vague, but it should be getting clearer here later in the second half of this year. That's it folks. I would like to thank everybody again for following Vuzix and I really look forward here to the second half and going into next year with all of the great things that Vuzix has in the queue. and sharing with everybody the progress that we're making. Exciting times. Thank you very much, everybody.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Greetings, and welcome to the Vuzix Corporation First Quarter 2026 Financial Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to turn the call over to Ed McGregor, Director of Investor Relations at Vuzix. Mr. McGregor, please go ahead.

Thank you, operator, and thank you, everyone, for joining us today. Welcome to the Vuzix Corporation First Quarter 2026 Financial Results Conference Call. With us today are Vuzix CEO, Paul Travers; and our 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, May 14, 2026. 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 Q1 2026 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 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 directly comparable financial measure calculated and presented in accordance with GAAP can be found in the company's Form 10-K annual filing at sec.gov, which is also available at www.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 Grant Russell, Vuzix CFO, who will provide an overview of the company's first quarter financial results, after which we'll move on to the Q&A session. Paul?

Thank you, Ed, and thanks to everyone for joining us today. With our first quarter of 2026 behind us and as we have shared previously, Vuzix continues to drive forward with a clear strategy focused around two primary growth engines for the company, OEM products and waveguides. We believe these are areas where we can create the greatest long-term value for Vuzix. Importantly, many of these OEM and waveguide opportunities begin as customer-funded engineering and development programs. We believe this creates a more capital-efficient path towards long-term production opportunities while allowing Vuzix to leverage the technology, manufacturing and customer relationships we have spent years building.

This strategy is built directly on the core technologies, products and capabilities we have developed over the last several decades. Vuzix established its position through two closely connected strengths. Advanced waveguides and designing and selling enterprise smart glasses products. Together, those capabilities helped us develop deep technical know-how, real customer experience and market credibility while also opening doors with larger organizations seeking a partner that understands not just optics, but the full product deployment and support equation.

Since the beginning of 2026, our announcements have not been isolated updates. They show a progression of ecosystem validation, product readiness, customer expansion, defense and OEM momentum and broader waveguide partner engagement.

The first leg of our growth strategy is centered around the OEM products business across enterprise, defense, security and ultimately, broader consumer markets. We are particularly excited that we'll begin shipping initial EVT-based OEM orders in Q2 for the new Ultralight Pro platform-based smart glasses to Amazon to support the business outcomes and operational challenges presented by the rapid adoption of AI and data center expansion.

At the same time, Amazon's reliability and maintenance engineering teams use of the Vuzix M400 smart glasses continues to expand to support fulfillment center operations worldwide. Our custom M400 kit for Amazon ensures fulfillment center machinery, robotics, conveyors and automation equipment run safely and efficiently.

In addition to Amazon, we're also working with a leading auto manufacturer where Vuzix is developing a waveguide-based smart glasses solution for widespread use on their factory floor operations. We recently delivered initial units to this customer to support operational evaluation and workflow validation activities within active manufacturing environments and look forward to the next phase of the relationship. We expect derivative versions of this platform could ultimately support broader enterprise market opportunities under the Vuzix brand, and we are currently evaluating that option.

Within defense, we continue to see growing momentum as wearable displays, advanced optics, AI-assisted visualization and drone-related applications become increasingly important. Recently, we announced that we had received a 6-figure development order from a Tier 1 defense supplier supporting the design of a next-generation waveguide-based head-mounted display system intended for military applications and future production deployment.

In addition, a program with Collins Aerospace is moving into production as evidenced by a recently received 6-figure order for waveguide-based AR display systems to support drone-based applications. We currently expect order volumes associated with this program to continue to increase throughout the year. Another project slated to kick off shortly is a 7-figure program for U.S.-based next-generational waveguide design and manufacturer funded by the U.S. Department of Defense.

Overall, we believe our position within defense and government opportunities is substantially stronger today than it was even just 3 months ago. The broader engagement, including several active RFPs, clearer pathways towards production programs and increasing interest tied to secure U.S.-based manufacturing capabilities.

Geopolitics is changing how defense and security agencies think about wearable technology. Drones have rapidly become a critical operational tool as smart glasses and HUDs are becoming an important interface for real-time situational awareness, coordination, visualization and secure information delivery. More broadly, secure information access, situational awareness and AI delivered through wearable displays are becoming increasingly relevant across defense, homeland security and public safety use cases. We believe these trends will become an important driver of long-term demand for advanced wearable systems and waveguide-based display.

The second major leg of our strategy is capitalizing on our waveguide technology where scalable, cost-effective production of advanced waveguides position Vuzix to play a central role in the next generation of AI-enabled smart glasses. Over the past year, we have continued strengthening our position through our strategic relationship with Quanta Computer, which is building the infrastructure for what should be meaningful revenue-generating opportunities surrounding Vuzix waveguides as a strategic supplier to Quanta and their customer ecosystem.

The microdisplay industry is witnessing tremendous investment and innovation as the race to support the AI smart glasses ecosystem accelerates. For Vuzix, the opportunity is not to bet on a single display technology, but rather to support and enable multiple display technologies that we believe could become important over time. Including LCOS, laser-based displays and microLED technologies. These relationships matter because the more third-party display partners we can support, the more ways we have to embed our waveguides into wearable products.

As Vuzix is one of the few companies with both advanced waveguide design expertise and scalable manufacturing capabilities, we continue nurturing and expanding our relationship across the broader display ecosystem. These collaborations, which have resulted in as many as a dozen custom waveguide designs in the last 24 months currently include TCL, Saphlux, Himax, Avegant, RayPrus, Redoxlens, among others. This matters because the industry increasingly recognizes that success in AI glasses will require the right combination of waveguides, display performance, manufacturability and cost.

We believe the waveguide business represents the single largest long-term opportunity for Vuzix. As near-eye display-based smart glasses evolve towards becoming a true mass market computing platform over time, advanced waveguides will become one of the key enabling technologies supporting that transition. That is why scale matters. That is why manufacturability matters, and that is why Quanta matters as a world-leading contract manufacturer.

As part of preparing for that next phase of growth, we're continuing to expand and optimize our manufacturing and development infrastructure in Rochester, New York. During the quarter, we continued expanding our plant floor manufacturing capacity to better support the increasing number of OEM, defense and waveguide development programs now moving through the company. These ongoing upgrades are designed to improve throughput, reduce development cycle times, minimize manufacturing changeovers and allow Vuzix to manage multiple advanced programs simultaneously as a broader set of opportunities move towards production.

We are also in the process of expanding and consolidating additional advanced waveguide tooling and development capabilities into the Rochester facility. This includes the relocation of our advanced etching equipment that was acquired from a Silicon Valley-based entity last spring. Bringing these capabilities closer to our core optical science and engineering teams is expected to improve development speed, process integration and next-generation waveguide research activities.

In addition, during Q1, we completed the on-site construction of a new and more capable chemistry laboratory focused on advancing the materials used within our waveguide manufacturing process. This effort is being led by our newly added PhD-level chemistry team and is focused on improving polymer formulations, advanced in printing materials and better matching material properties to the next generation of high-performance waveguide substrates. These investments continue to strengthen our position as one of the few companies combining advanced waveguide design expertise with scalable manufacturing capabilities in the United States.

Ultimately, the waveguide manufacturing market will not be won by simply demonstrating a strong laboratory prototype or hero samples as known within our industry. It will be won by having technology that performs, can be produced reliably and can scale cost effectively to support the needs of the large volume customers. Vuzix has spent years building towards that exact position.

The broader consumer smart glasses market is now entering an important new phase. AI is making smart glasses more practical. Customers are becoming more specific about what they need with additional technology companies, platform providers and eyewear brands bringing products, software platforms and ecosystem support into the category and advanced waveguide manufacturing, scalable optics and protected enabling technologies are becoming increasingly central to success. That is why the emergence of platforms such as Google's Android XR and similar ecosystem initiatives are important. The market is increasingly evolving from a device story into a platform and ecosystem story.

Emerging technology markets often move through cycles of early enthusiasm, consolidation and infrastructure build-out before real commercial adoption begins to scale. We believe the smart glasses market has now entered that next phase. Vuzix has remained committed to this market through multiple technology cycles while continuing to invest in innovation, waveguide technology, manufacturing capabilities, customer relationships and intellectual property.

Today, with more than 500 patents and patents pending worldwide, we believe those investments position Vuzix well for the direction this industry is now moving. As AI-enabled smart glasses move from concept towards broader adoption, we believe the consistency of our execution and our long-term commitment to this market can become increasingly important drivers of shareholder value.

With that, I'll now turn the call over to Grant for the financial overview. Grant?

Thank you, Paul. 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 first quarter 2026 total revenues was $1.4 million, down 12% year-over-year versus $1.6 million in 2025. Product sales decreased primarily due to lower sales of our M400. Engineering services revenues were $0.35 million for the 3 months ended March 31, 2026, versus $0.26 million in the prior year's period, an increase of 36%. There was an overall gross loss of $0.4 million for the 3 months ended March 31, 2026, as compared to a gross loss of $0.3 million for the same period in 2025. The increased gross loss was primarily due to lower total sales versus the prior year's period that resulted in less absorption of our relatively fixed manufacturing costs.

Research and development expense was $3 million for the 3 months ended March 31, 2026, compared to $2.6 million for the comparable 2025 period, an increase of approximately 16%. The higher R&D expense was largely due to a $0.4 million increase in wage costs related to headcount increases and a $0.2 million increase in depreciation related to new waveguide manufacturing equipment currently being used primarily for R&D purposes, less a $0.2 million decrease in external development costs.

Sales and marketing expense was virtually flat for the 3 months ended March 31, 2026, as compared to the same period in 2025, an increase of approximately 1% to just over $1.55 million. General and administrative expenses for the 3 months ended March 31, 2026, was $2.1 million versus $4 million for the comparable 2025 period, a decrease of approximately 46%. The overall decline was primarily due to a $1.7 million decrease in noncash stock-based compensation expense related to the termination and cancellation of prior equity incentive plans.

Total operating expenses for the 3 months ended March 31, 2026, declined by 20% to $6.8 million versus the prior year period of $8.5 million. For the first quarter ended March 31, 2026, the net loss attributable to common shareholders was $7.1 million or $0.09 per share as compared to a net loss of $8.6 million or $0.11 per share for the first quarter of 2025.

Now for some balance sheet and cash flow highlights. Our cash and cash equivalents position as of March 31, 2026, was $20.2 million, and our net working capital position was $20.8 million. For the quarter ended March 31, 2026, the net cash flow used for operating activities was $5.6 million as compared to $3.5 million in the prior year's period. As of March 31, 2026, the company continues to have no current or long-term debt obligations outstanding. Cash flow used for investing activities for the first quarter of 2026 was $1.2 million versus $0.8 million in the prior year's period. Cash flows provided from our financing activities during the 3 months ended March 31, 2026, was $5.8 million versus $1.3 million in the first quarter of 2025, all primarily the result of net proceeds from sales of common stock under our ATM facility.

Let me close by again reiterating that we believe our overall cash position, along with maintaining disciplined cost structure, general business expansion, particularly on the ODM and OEM side and judicious use of our ATM facility will collectively give us sufficient runway to execute our current operating plan well into 2027.

With that, I'd like to turn the call over to the operator.

[Operator Instructions] There are no questions at this time. And I'd like to turn the call back to Paul Travers for closing remarks.

Again, everybody, thank you so much for joining us on the call today. Vuzix is continuing to position ourselves for the next major phase of the market for smart glasses and advanced optics. We're building the company around what we believe are the two most important long-term opportunities in the industry, smart glasses and advanced waveguide technologies. We believe the overall market environment is continuing to improve. We see our business accelerating on OEM program after OEM program, which is why we've made these upgrades to our plant floor. We're having entertaining and actually receiving 7-figure programs, which you'll hear more about here as the summer unfolds. Obviously, Amazon is becoming a great partner that continues to roll product into their operations.

While we still believe the industry remains in the relatively early stages, it is very exciting to be where we are today after all these years. The business is coming, and it's going to be an exciting follow of the year. We remain focused on disciplined execution, strategic growth opportunities and continue to build long-term shareholder value.

Just as a reminder, our Annual Shareholders Meeting is coming up on June 16. We look forward to all those that want to come. It should be a nice event. We'll have some great demos and some new stuff to show at folks. Thanks again, everybody, and have a nice evening.

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

Greetings, and welcome to the Vuzix Fourth Quarter and Full Year Ending December 31, 2025, Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this call is being recorded.

Now I'd like to turn the call over to Ed McGregor, Director of Investor Relations at Vuzix. Mr. McGregor, you may begin.

Thank you, operator, and good afternoon, everyone. Welcome to the Vuzix 2025 Fourth Quarter and Full Year Ending December 31 Financial Results and Business Update Conference Call. With us today are Vuzix 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, March 12, 2026. 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 final 2025 results and filed its 10-K 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 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 directly comparable financial measure calculated and presented in accordance with GAAP can be found in the company's Form 10-K annual filing at sec.gov, which is also available at vuzix.com.

I will now turn the call over to Vuzix's 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 Grant Russell, Vuzix CFO, who will provide an overview of the company's fourth quarter and full year financial results, after which we will move on to the Q&A session. Paul?

Thank you, Ed, and thanks to everyone for joining us today. 2025 was an important year for Vuzix as we strengthened our financial discipline, improved the balance sheet and sharpened the company's focus around our OEM and waveguide businesses.

As we enter 2026, Vuzix is moving forward with a clear strategy focused on the areas where we can create the greatest long-term value. Our strategy is built directly on the core technologies, products and capabilities we have developed over many years.

Vuzix established its position through two closely connected strengths, advanced waveguides and enterprise smart glasses products. Together, those capabilities helped us develop deep technical know-how, real customer experience and market credibility while also opening doors with larger organizations seeking a partner that understands not just optics, but the full product deployment and support equation. That foundation remains highly valuable, and we are now building on it in a more focused and strategic way.

Going forward, our branded enterprise smart glasses products business remains important and has room for lots of growth over the next 5 years. It gives us credibility. It gives us real-world customer insight. It helps validate use cases and open doors. But increasingly, we see it more as a strategic enabler for the larger opportunities ahead.

Our long-term growth strategy is centered around our engineering services, which has expanded into two growth engines for the company, OEM products and waveguides, including the engineering services needed to support them both.

The first leg of this strategy is growing our OEM products business across enterprise, defense and security agencies and over time, the broader consumer markets where Vuzix can deliver complete smart glasses solutions as well as key optical components. The second leg of this strategy is capitalizing on our waveguide technology where scalable, cost-effective production of advanced waveguides positions Vuzix to play a central role in the next generation of AI and AR-enabled smart glasses.

These two growth engines are closely linked. Our OEM business is built on our core waveguide design and manufacturing technology as well as the credibility we have earned over many years in enterprise smart glasses. Companies do not simply see Vuzix as an optics company with interesting IP. More and more, they see us as a partner that understands how these products need to work in the real operating environments, how customers use them and how they get deployed and what it takes to support them successfully once they are.

We believe that credibility is helping create pull for our OEM opportunities that develop around customized solutions for large-scale enterprises. And once we are in those discussions, we quickly see what differentiates Vuzix is our waveguide design know-how, high-volume manufacturing capabilities and of course, our decades of making smart glasses products that we have developed and offered.

This strategic shift also affects how we think about our own branded products. Historically, Vuzix has designed, built and sold branded enterprise smart glasses. Going forward, we expect to be more selective in how we invest in that business. Rather than broadly funding entirely new enterprise product lines based primarily on our own market assumptions, we expect a greater portion of future product activity to be driven and funded by OEM customer demand. This demand for specialized AI smart glasses solutions, in some cases, will result in Vuzix expanded offerings where appropriate.

We believe our OEM business will become significant and will result in a more efficient and higher probability path to growth as smart glasses technology continues to rapidly evolve. We expect our award-winning Ultralite platform, especially the Ultralite Pro to be an important driver of that effort. The enterprise, along with the defense and security agency segments are already taking shape with active customer programs underway and visible demand emerging.

In the enterprise OEM area, for instance, we are currently under contract with multiple large brands to develop custom smart glasses devices. One example is with a leading auto manufacturer to design a waveguide-based smart glasses solution for widespread use on their factory floors. We expect a derivative of this solution could carry the Vuzix brand to ultimately be sold into other enterprise market opportunities.

Another good example of our expanding enterprise OEM business is Amazon. What began around maintenance use cases in distribution centers using off-the-shelf smart glasses is expanding with a purpose-built pair of AI-driven smart glasses into additional areas that include server farms, warehousing and robotics-related applications. We believe this kind of expansion in use cases is important because it shows how a single customer deployment can broaden into multiple operational areas over time, creating a deeper and more strategic relationship.

On the defense and security agencies OEM side, we continue to see engagement growth, both in the number of active programs and in the maturity of those discussions. Importantly, this is no longer just early-stage outreach. We now have a mix of activity that includes active deliveries, contracted programs, proposal-stage opportunities and additional programs that should expand over time.

Collins Aerospace is a good example of that progress. We have started receiving production orders, giving us a solid proof point that our defense-related efforts with waveguides and projection engines are translating into real business. Beyond Collins, we are now actively engaged in opportunities with multiple government agencies, traditional defense contractors and emerging new defense players. Overall, we believe our position in defense and government is substantially stronger today than it was a year ago with a broader opportunity set and clearer paths to opportunities that should ultimately result in production programs.

We also believe geopolitics is beginning to change how defense and security agencies think about wearable technology. For example, the battlefield and the broader security environments are evolving quickly. Drones have rapidly become a critical operational tool, and smart glasses are becoming an increasingly useful interface for helping operators see, control, coordinate and respond in real time. More broadly, secure information access, situational awareness and AI delivered through wearable displays are becoming increasingly relevant across defense, homeland security and public safety use cases. We believe this shift in thinking will become an important driver of long-term demand for smart glasses and related head-worn systems.

And that brings me to waveguides. During 2025, we completed the second and third tranches of Quanta's investment, bringing their total strategic investment in Vuzix to $20 million. That was important not only because of capital for our growth, but because it provided meaningful third-party validation of our waveguide road map, manufacturing capabilities and our ability to support future smart glasses programs at scale.

It is very clear that the main reason Quanta invested in Vuzix is to gain access to our high-volume waveguide manufacturing and design capabilities. That said, Quanta is also interested in Vuzix's smart glasses industry expertise. That is another key strategic prize they gained access to with their investments.

We also continued to strengthen our display ecosystem relationships. These relationships matter because the more third-party display partners we can support, the more ways we have to embed our waveguides into wearable products. Our recent collaborations with TCL, CSOT, Saphlux, Himax, Avegant and others matter because the industry increasingly recognizes that success in AI glasses and AR glasses will require the right combination of waveguides, display performance, manufacturability and cost.

Those pieces have to work together. We believe Vuzix is one of the few companies that can not only supply waveguides that are not only uniquely optimized for a given display, but also help design, develop and build full smart glasses products and system solutions from the ground up.

We believe our waveguide business represents the largest long-term opportunity for Vuzix. As display-based smart glasses become a true mass market computing platform over time, advanced waveguides will become one of the key enabling technologies. In that scenario, the ultimate unit opportunity for waveguides could potentially be enormous. That is why scale matters, that is why manufacturability matters, and that is why Quanta matters.

The waveguide market will not be won by having a good lab prototype. It will be won by having technology that performs, can be produced reliably and can be cost-competitively priced now and more so in the future as volumes ramp. Vuzix has spent years building toward exactly that value proposition. We believe the broader consumer smart glasses market is now entering an important new phase. Much of the recent growth and attention has been driven by Meta, and that has been positive for the industry because it has helped to validate demand and increase awareness, but we're also starting to see the early signs of a broader market forming with additional technology and eyewear players intending to bring products, platforms and ecosystem support into the category.

On the Vuzix branded enterprise side, the enterprise markets are becoming more mature and more ROI-driven. Customers are increasingly focused on implementing beneficial solutions that improve workflow efficiency, enable AI-driven hands-free operation, enhance safety and produce measurable business value. Our enterprise products continue to demonstrate that Vuzix understands real workflows, real customers and their real deployment challenges in maintenance, logistics, warehousing, inspection and other industrial settings. We will continue to support and monetize the M400 platform and the recently introduced LX1 to the market.

To be clear, though, the maturity of the enterprise space is providing revenue, but more importantly, opening doors for Vuzix OEM solutions. Going forward, to support our business, we are allocating a majority of our planned resources and R&D spend toward waveguides, Quanta-related programs, DoD efforts and funded OEM programs. This is intentional. We are putting our time, money and talent behind the areas where we believe Vuzix has its strongest leverage and clearest strategic advantage.

I would like to remind everyone that Vuzix has stayed in this market and continued building when many others, including better-funded players have stepped back, stumbled or disappeared. Over that time, we have continued innovating, serving customers, advancing our waveguides and manufacturing capabilities and building what we believe is a very meaningful intellectual property position. With more than 500 patents and patents pending worldwide, that investment in innovation represents a significant asset for the company.

The smart glasses market is now moving in a direction that we believe increasingly values exactly those kinds of capabilities. AI is making smart glasses more practical. Customers are becoming more specific about what they need and waveguide manufacturability and protected, enabling technologies are becoming more central to success, not less. We believe that the perseverance Vuzix has shown over these many years has positioned the company to create meaningful long-term value for our shareholders.

With that, I'll turn the call over to Grant for the financial overview. Grant?

Thank you, Paul. As Ed mentioned, the 10-K we filed this afternoon with the SEC offers a detailed explanation of our annual financials. So I'm just going to provide you with a bit of color on some of the full year as well as quarterly numbers.

For the fourth quarter ended December 31, 2025, we reported $2.2 million in total revenues as compared to $1.3 million for the fourth quarter of 2024, an increase of 76%. The revenue increase was primarily due to higher unit sales of our M400 smart glasses as well as significantly higher engineering services sales.

For the full year ended December 31, 2025, Vuzix reported $6.3 million in total revenues as compared to $5.8 million for the prior year, an increase of 9%. Product sales increased by 4% year-over-year on greater unit sales of our M400 products. Sales of engineering services for the year ended December 31, 2025, were $1.6 million as compared to $1.3 million in 2024, an increase of 27%.

For the full year ended December 31, 2025, there was an overall gross loss of $1.1 million as compared to a loss of $5.6 million in 2024. The reduced gross loss for 2025 was primarily a function of significantly lower inventory obsolescence reserves that were included in cost of sales in 2024.

Research and development expenses for 2025 rose 31% to $12.6 million as compared to $9.6 million in 2024. The increase was primarily due to a $2.6 million increase in external development costs on our new LX1 smart glasses, which did not begin shipping until early 2026 and our waveguide products and a $0.7 million increase of depreciation expense related to underutilized new manufacturing equipment still being optimized before they are placed into full service, partially offset by a $0.9 million decline in noncash stock-based compensation expense due to the completion of the 2024 voluntary salary reduction program for equity.

For the fourth quarter ended December 31, 2025, research and development expenses were $4.5 million as compared to $2.2 million in the fourth quarter of 2024. The increase again was largely driven by higher new product development costs related to the completion of the LX1.

Sales and marketing costs for all of 2025 fell to $5.5 million from $8.2 million in 2024, a reduction of $2.7 million or 33%. The most significant factors for these expense reductions included a $1.2 million net decrease in bad debt expense, a $0.8 million decrease in cash salary and benefits-related expenses driven by head count decreases and a $0.5 million decrease in noncash stock-based compensation expense, primarily due to the completion of the 2024 voluntary salary reduction program for equity.

For the fourth quarter of December 31, 2025, sales and marketing expenses were $1.4 million as compared to $2 million in the fourth quarter of 2024. The decrease was primarily driven by a $0.4 million reduction in bad debt expense and a $0.2 million decrease in stock-based compensation expense.

General and administrative expenses for the full year of 2025 decreased 32% to $11.6 million as compared to $17.2 million in 2024. The bulk of this decrease was due to a $4.9 million decline in noncash stock-based compensation expense related to our 2024 cash salary reduction program in exchange for equity, which ended on April 30, 2025, and the termination of the company's original LTIP, which was canceled on June 16 after shareholder approval.

For the fourth quarter ended December 31, 2025, general and administrative expenses were $2.3 million as compared to $4.3 million in the 2024 fourth quarter. The decrease was primarily driven by a decline in noncash stock-based compensation expense.

For the fourth quarter ended December 31, 2025, the net loss attributable to common shareholders was $8.7 million or $0.12 per share as compared to a net loss of $13.7 million or $0.16 per share for the fourth quarter of 2024.

For the full year ended December 31, 2025, the net loss attributable to common shareholders was $32.3 million or $0.42 per share as compared to a net loss of $73.5 million or $1.08 per share for the full year of 2024. Decreased net loss was in large part attributable to a $30.1 million impairment loss that was recorded in 2024. Excluding this impairment write-off, the overall net loss for 2025 still improved by over $11 million versus the 2024 year.

We also ended the year with a stronger balance sheet. Our cash position as of December 31, 2025, was $21.2 million versus $18.2 million as of December 31, 2024. And we ended 2025 with a net working capital position of $22.3 million and no current or long-term debt outstanding.

Inventory levels improved with our net inventory declining to $2.2 million as of December 31, 2025, as compared to $4.8 million at the end of 2024. Net cash flows used in operating activities declined to $18.8 million for the year ended December 31, 2025, as compared to $23.7 million for the 2024 year, a decrease of $4.9 million.

For all of 2025, we raised $24.4 million from financing activities that consisted of a $10 million of additional investments by Quanta Computer and $14.3 million of net proceeds received from equity sales under our ATM program during the year. Cash used for investing activities in 2025 was $2.6 million, down modestly from $2.9 million in 2024.

Overall, we continue to control and reduce our operating expenses where possible. Following a 36% reduction in our cash expenses in '24, resulting primarily from head count reductions, we held our cash expense growth to just 4% in 2025 despite new product development spending and better positioning ourselves for general business growth in 2026.

We look forward and remain confident that management's plans, along with potential further equity sales under our ATM program. Of note, we raised an additional $6 million to date thus far in 2026, that the company has more than adequate resources to move forward with its operating plan well through into 2027.

With that, I would like to turn the call back over to the operator for Q&A.

[Operator Instructions] Our first question today is coming from Christian Schwab from Craig-Hallum.

Paul, can you just give us an idea of what you expect for 2026? I know we've got this movement in Amazon for purpose-built glasses. It sounds like numerous different opportunities within the defense industry and hopefully eventually Quanta bringing a more meaningful program to the business. Can you give us an idea of what the range of outcomes for '26 revenue would be and where you think the most significant portion of that revenue will come from?

I hate saying it this way, but I'll spitball a little bit here for you, Christian. You should see the OEM and in particular -- and alongside it, the waveguide business start to climb quarter after quarter throughout the year. And you should see it surpass the revenues on the enterprise, the pure Vuzix-branded enterprise side of our business before the year is up.

So it's an exciting piece of our business right now. It's pretty amazing how the rate of new programs that we're bidding on and that we're winning are coming in the front door. So from that side, exciting stuff. Amazon is multiple different areas, and it's a custom-built OEM-style device. This large car company, we expect should be rolling in through to production by the end of this year also. We -- you guys know we put press releases out about Collins, and they are in production with Vuzix right now. And there's more than a handful of others that are in the queue.

Some of these guys could represent some really significant business for Vuzix, well beyond what 2025's numbers were in the entire enterprise space. But it's going to grow through the year, we expect. Yes, you should see us stepping forward each and every quarter, but this -- it's bumpy, the business, as you guys all know. So it's hard for us to predict exactly other than to say that it's impossible to miss the fact that there's a wave of OEM business that's coming for Vuzix.

And following up upon that, when is -- when could we see additional orders, whether they start small in '26 and meaningfully expand in '27. Would you anticipate throughout the course of the year that we could have 3 to 6 announcements regarding orders and go to market with production in 2026? Or is that yet to be seen?

I think you would see something like that, Christian. And I think you'll also see some press releases announcing some great business partnerships that have developed that won't yet be product revenue generating, but will be the beginnings of it through the engineering services and work that needs to get done to get it to that point. So there's a lot. It should be an exciting year from a perspective of new business opening up for Vuzix.

We've actually reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.

Thank you very much, Kevin, and thank you, everyone, for joining us today. We believe that Vuzix is entering 2026 with a very clear path to value creation through our OEM programs, defense and government opportunities and advanced waveguide technologies, supported by the enterprise smart glasses foundation that we have built over many years. We strive to invest where our advantages are the strongest. We have strengthened strategic relationships. We have improved the structure of the business, and we believe the value we have built is becoming clearer both operationally and strategically. There's still work to do, clearly, but we are encouraged by where we stand and by the direction we're heading.

Thank you again for your continued support, and we look forward to updating you again next quarter and as 2026 unfolds.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

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.

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?

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?

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.

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 Instructions] Our first question is from Christian Schwab with Craig-Hallum Capital Group.

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.

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.

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?

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.

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?

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.

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?

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.

At this point, I would like to turn the call back over to 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.

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.