I want to give you a heads-up on one stock we are circling right now. I’ll write up a full-length report on Vuzix soon.
Recommended Reading:
Unity: Premium Analysis
Mobile Augmented Reality: Snap and Unity (and Apple)
Vuzix: AR/VR Pureplay
Founded in 1997 (yes, 24 years ago), Vuzix was the first company to release a AR/VR headset for the military and also the first to release a headset for consumer purposes. When we talk about being too early to a trend, we don’t typically mean 24 years too early, yet this is the case with Vuzix. Between now and then, the company has worked with Raytheon on digital night vision for weapons and has also contracted with DARPA to develop heads up display for military ground personnel.
Intel bought 30% ownership of the company in 2015 and the company partnered with BlackBerry in 2017 to deliver smart glasses for enterprise companies.
Fast forward, and Vuzix is becoming the smart glasses of choice for industries that are early adopters of the technology – primarily the medical field. This past month has been busy for the company. John Deere announced the company is using the Vuzix M400 smart glasses to provide remote support. The M400 and M4000 received clearance for medical training this past week and the company also received over $1.2 million in new orders from Rods and Cones for virtual surgical collaboration. There are many press releases in the medical industry that I will discuss in the full-length report, these are only the most recent.
The company is small in terms of revenue and market cap. Last quarter’s revenue was $3.9 million compared to $1.5 million in the year-ago quarter, or an increase of 156%. Smart glasses sales rose by 177% year-over-year to $2.4 million. The company was break even in terms of gross profit in the past yet posted $1 million in profit in the most recent quarter.
Regardless, gross margins are slim at 28% with product gross margins at 45%. As with many small cap companies, the bottom line is a bit ugly as the company has a net loss of $6.6 million. If the company continues to grow the top line, then some of this should resolve on its own as R&D is around $2 million per quarter and sales and marketing is $1.2 million.
The company closed a public offering of 4,768,293 shares on April 1st for $97.75 million. The shares were priced at $20.50 while the stock was trading at $24.85. The companies proforma cash is $145 million as of April 1st.
Here is how the company’s growth has looked over the past few quarters:
We began writing about this trend in Q3 2020 to discuss the start of this trend and that timing looks aligned with the graph above. Point being, I can’t imagine growth would be very impressive coming from any company in the AR/VR business until around Q3 2020 and so it seems like Vuzix’s growth is right on time.
The earnings call discussed there being “increased inbound interest in order flows related to the reopening of the economy” as industries such as logistics, warehousing, retail picking, e-commerce and third-party logistics are looking for “many 1000s of units.” The company explains that their technology increases worker productivity and can contribute to healthier margins. I find it interesting that AR/VR could be a covid rebound play. This is a bonus as the trend was set to take off around this time with or without covid.
The company also has a partnership with Verizon although this is not meaningfully adding to revenue at this point.
I’ll expand more on Vuzix soon as we are clearly focused on AR/VR as a fund. We were early to Unity and have discussed in detail our views on Snap – most recently in the LTBH webinar.
Knox likes the chart so he will probably enter soon.