Greetings, and welcome to the Vuzix Fourth Quarter and Full-Year Ending December 31 2021, Financial Results and Business Update Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [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.

Good afternoon, everyone, and welcome to Vuzix's fourth quarter and 2021 full-year ending December 31 financial results and business update conference call. With us today are Vuzix CEO, Paul Travers; CFO, Grant Russell and COO, Pete Jameson. 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 1, 2021. Vuzix assumes no obligation to update these projections in the future as market conditions change. 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'll now turn the call over to Vuzix' CEO, Paul Travers, who'll give an overview of the company's operating results and business outlook. We will then hear from Pete Jameson, our Chief Operating Officer, who will provide some operational comments. Pete will then turn the call over to Grant Russell, Vuzix' CFO, who'll provide an overview of the company's fourth quarter and full-year financial results, after which we will move onto the Q&A session. Paul?

Thank you, Ed. Hello, everyone, and welcome to the Vuzix Q4 and full-year 2021 conference call. On this call, we're going to review our results and recent developments and then give you some perspective on where we see things headed. You hear it everywhere. Augmented reality is the future of computing. The Metaverse is one of the most talked about tech topics in the world, and most major corporations are realigning their future strategies around all of this. Vuzix has been an augmented reality smart glasses pioneer from the beginning, we've been building Vuzix to a leader in this space, and the enterprise portion of the industry is finally reaching the inflection point where growth should accelerate. We're bullish on our outlook for 2022 and even more so thereafter. We believe we have the technological wherewithal and the financial resources to deliver on near-term and long-term initiatives that we expect to unlock significant shareholder value. For the full-year, smart glasses revenue increased 27% year-over-year to $12.8 million representing approximately 98% of our full-year revenue total of $13.2 million. The M400 remained our workhorse accounting for the Lion's share of our smart glasses sales. Turning to our fourth quarter results, total revenue of $3.2 million was largely driven by smart glasses sales and was incrementally higher than the preceding third quarter and consistent with the quarterly growth trend we have been seeing all the time. During the fourth quarter, we furthered our engagements with key customers and ISVs and expanded our global sales channel in Europe. We also made further progress on the OEM side after a period of inactivity due to COVID-19 delivering pre-production units for a waveguide based HMD system to a global Tier 1 aerospace firm and entered into a non-recurring engineering agreement with Verizon centered around the…

Thanks, Paul. Some of you may know me from my time in the early days of AR. And it's great to be back in an industry that is really starting to have our profound impact on the way we work, communicate, and interact with digital content. I've been a big fan of Vuzix's leadership team and technology for years. And as you might imagine, I'm super excited to be part of the company and to bring my background knowledge of AR imaging and business operations to the table. I joined the Vuzix's team a year ago to help contribute to the success of a company that has already established itself as a leader in the AR glasses space. My primary focus of Vuzix is on the execution and refinement of our business strategy and plan and in turn to drive continued growth of our business and success for our customers. In 2021, we embarked on a number of initiatives to expand our operations, our physical presence, and our capabilities, not only on the technology and manufacturing fronts, but also across core competencies and customer touch points. Let's take Europe as an example. A few weeks ago, we announced the opening of a third-party logistics operation at base logistics in the Netherlands. Brexit and COVID-19 had caused serious challenges to the supply chain. And the arrangement with base logistics not only significantly improves our level of service to current European customers and partners, but positions us to deliver on the increasing demand from the region. We also added to our European sales team in 2021 with an expanded physical presence in the region, which also helped fuel sales growth. In 2022, we will continue to expand this physical presence by adding additional key personnel to the European team and by opening…

Thank you Pete. The 10-K we are filing in with the SEC offers a detailed explanation of our annual financials. So I'm just going to provide you with a bit of color and some of the numbers. For the full-year ended December 31, 2021 Vuzix's reported $13.2 million in total revenues as compared to $11.6 million for the prior 2020 year, an increase of 14% year-over-year. Sales and products rose by 27% to $12.8 million in 2021 driven by increased sales of our M series Smart Glasses primarily the M400. Sales of engineering services primarily for defense contractors for the year ended 2021 decreased 75% to $0.4 million from $1.5 million in 2020. These customers would feel temporarily slowed their ongoing development projects due to COVID, and most have recently indicated they intend to take them back up in the near future. For the three months ended December 31, 2021 Vuzix reported $3.3 million in total revenues versus $4.2 million in the prior year's period. In total product sales for the quarter ended December 31, 2021 fell 15% as compared to the same period in 2020. Engineering services declined to $0.2 million in Q4 2021 versus $0.5 million in the prior year's period for the reasons discussed earlier. For the full-year ended December 31, 2021 there was an overall gross profit of $2.4 million net of a $0.5 million inventory obsolescence provision that was recorded in Q4 which was primarily related to end of life components for existing Blade 1.5 product line. The net gross margin for 2020 was $1.9 million net of inventory provisions up $1.3 million. On a product cost of sales basis only and before inventory obsolescence provisions and manufacturing overheads. Direct product costs were 49% of sales in 2021 as compared to 54% of product sales…

Thanks, Grant. And with that, we'll now turn the call over to the operator for Q&A.

Thank you. And ladies and gentlemen, at this time we will conduct our question-and-answer session. [Operator Instructions]. Our first question comes from Matt VanVliet with BTIG. Please state your question.

Hi guys, thanks for taking the question. Good afternoon. Maybe wanted to touch on CES and maybe just the general return, a lot of trade shows out there. As you make appearances there, and you're talking to the attendees, I guess how much of an actual business development and sales driver mechanism do you feel like has returned, maybe give us any kind of either qualitative or particularly quantitative results from CES in particular. And whether you feel like you're generating orders from customers that are ready and willing to buy in attendance?

CES was a very unique CES, Matt. In fact, it was sort of bizarre, I will say that the Vuzix booth was packed the whole time was very busy, like normal. I think you've probably heard the old guy kind of echo that sentiment. So business was good for Vuzix, when we were there, a lot we go to CES for two reasons. One is just definitely meet with select key customers and accounts. And we did that although to a lesser degree than normal, I would suggest, the bigger reason why we go though, is it's a launch point for people to share their new products for the year. It's like sort of like the big party of this is the thing coming the latest and greatest. And usually that's accompanied by a fair amount of press that comes to report on all of that. And this was a pretty disappointing component of CES, most of the press that we saw were smaller guys. They were, they have smaller followings. They were from Europe and the likes, the bigger press folks. And it's really sad math, because the Shield is an amazing new device, it blows people away when they put it on. And there were very few press people that had the opportunity to wear this guy at the show. So we're looking forward to giving the Shield in the hands of some of these folks as the year unfolds. So, I guess the bottom line was, it wasn't home for Vuzix, it was a good show. I think it could have been a lot better had the press showed up.

And then you spent a fair amount of time in the script, talking about the logistics and supply chain verticals and really starting to see some traction there. I guess maybe help us think a little bit more about the overall deal flow that you've been seeing, what kind of indications or sort of preliminary commentary are you getting from some of your customers so that you can be prepared for future orders and be able to fill those quickly? Maybe just help us think about what you're expecting for the year from that vertical in particular?

Yes, it's super exciting vertical for Vuzix and Matt it was probably the number one vertical. When we first started making smart glasses, frontline workers is one thing. But the whole idea of an industry that's been 50 years stuck with handheld barcode scanners in the likes, right? I would suggest that practically every major retailer today that has a brick and mortar and that does lots of distribution centers in the like, are using our glasses in some fashion. So the bulk of the Fortune 50 guys that are in that bucket are using our glasses here. What kind of comments that we're getting are, A we're using it on the floor now, it's two shifts, not around the clock, but dual shifts back to back. It's working great. We're in this center, we're moving into that center. And by the Fall of the year, we plan on deploying a bulk of these things. So it's fantastic. And it's other places that are we've been years working with them and they're finally rolling out. If you look at our history, all you got to do is take a look, you'll see press releases with some of these guys, I love name dropping, I like to be able to share these things we can in a lot of these cases, but we will be able to share that more as this year unfolds. It's impossible when these guys are rolling out in so many facilities that to keep it a secret. It's just going to be the way it is and it is. We talked about revenues for 2022 in the past, I would suggest that this is really fortifying for Vuzix going in 2022. Our baseline is great. This is going to add a lot to the baseline.

And then maybe one last one on the health care segment, I think that was a big winner through COVID. Are you still seeing the same level of adoption from new facilities, from new medical professionals trying to enable that not only advancement but maybe some distance between patients and doctors. I'm just curious in terms of the overall, I guess pace of adoption that you're seeing the last several quarters versus at the height of the pandemic. Thanks.

It just continues, Matt. I mean go look at companies like Rods & Cones. Every time you turn around, there's another facility, there's another hospital, there's another company that is using their stuff to aid in surgery. Another good one is Pixee, Pixee Medical with knee surgery, they keep doing more and more, they've expanded into the United States, their businesses is rocking right along Medacta similar boat, they just keep expanding and growing with the use of our product. Guys like Ohana One, it's a group of like maybe 1,000 deployments that they were thinking, they're significantly expanding how they're going to be deploying with our glasses and the networks that they're building and by adding into the Ohana One and remote support surgeries, for especially third world countries in places that really need the help. So we just see this thing as a continuing move of business and growth for the company. It's like many of these areas where finally they figured it out, smart glasses are becoming the device of the future. And the research analysts have talked about this for a long time. They talk about billions and revenues. And for Vuzix, it's really starting to unfold in the enterprise space. Medical is one example, again, the logistics and supply is another one.

All right, great. Thank you.

You bet.

Our next question comes from Christian Schwab with Craig-Hallum. Please state your question.

Hey, good afternoon, guys. Thanks for taking my questions. So I guess there's some pretty substantial revenue and margin EBITDA targets for the company, on the equity awards that you've kind of talked about. Can you give us an idea of when you would expect to see, I know percentage wise revenue has been growing here. But when we begin to see a much more substantial top-line driven by, we don't have to list relisted our every growth driver again, but and customer who's adopting the technology. But can you just give us a better clarity of how you expect, the kind of the hockey stick of revenue to look like over the next few years?

Yes, I mean, I think one of the charts that we showed, it did have growing top-line revenue in 2022. And not that we give our guidance on the year, but that arrow was the reason why it's there and the line is there. We should see a nice jump person this year over 2021, for sure. In fact, that practically in the bag with some of the stuff that's happening with our friends in the supply chain side of the business. So 2022 will be great. And we just see it continuing to grow from there. When you think about how big the supply chain industry is, the one account that we talk about that that is one use case. And they've got other use cases, which is probably an order of magnitude bigger. You've got companies that are barcode scanning companies that have been around forever, that do billions and revenues. And this income technology is sort of being slotted into that place, in a bunch of different areas with some of the clients that we're talking with. So I think you're just going to see it continue to grow. And I think 2022 will be a nice clip well over 2021.

Great, thank you for that. And then, as you kind of look at the ramp of the revenue on a go forward basis. Is there a plan as far as you're concerned when you return to, or at be in a situation to generate cash on a yearly basis from operations?

Well, it's for sure, Christian, that's on our mind. I mean, where we sit right now, our burn is maybe $20 million on an annual basis. We've got a cash and cash equivalents of $132 million in the bank right now. That's like five or six years' worth of runtime for the company. The top-line is important. The bottom-line is important. We're also in a race here. There's a lot of companies that want to play in this space, we're winning. And we're going to invest to make sure that Vuzix hits those long-term incentive plan bullet points. That's where we want to be. The company believes that that's not an unreasonable plan, and that we ought to be able to achieve those goals. And so I think you'll see us continue to grow top-line revenues. I think you're going to see us continue to invest. And I think people will start to finally ascribe the true value that Vuzix has, I mean, just look at some of these private waveguide companies. That's all they do is make a waveguide. They're worth a half a billion dollars today. The revenues are practically zero. Yet Vuzix's waveguide technology in many cases is superior. We're able to make them in high volume, especially with some of the things we're doing on the plant floor now. We're setting ourselves up to win big time in the entire AR Smart Glasses space.

Great. And then my last question, just a point of clarity. You guys are not announcing today a $25 million buyback of shares you're seeing. You guys have bit contemplating that. Is that -- did I hear that right? I'm sorry.

Yes, that's right. I mean, look, the board feels like management does. The company's significantly undervalued. If it takes a little bit of time to figure out exactly how you implement these things, yada, yada. But I will tell you it is an incredibly serious investigation at this point in time. The odds are quite high that this will end up moving forward sooner rather than later.

Great. And no other questions. Thanks, guys.

Yes.

Thank you. Our next question comes from Jim Mcilree with Dawson James. Please state your question.

Hi, thank you. I'm still a little bit confused about the jump in G&A for the quarter, I understand for the year. So there was just a significantly big jump in G&A this quarter versus, any of the prior three quarters? Is that the long-term incentive plan? Or is there something else that's accounted for the million dollar change?

Grant, you might taking that one?

I can tell you, Jim, that a significant portion of it is the LTIP program.

Yes, it's pretty much all related to the LTIP program. I mean, we did disclose it. We made a change in the way we estimated it, but we've reporting that as an error, but we booked the catch up adjustment in Q4, which was net-net was ended up increasing the quarter by about $5.5 million. And the other elements of the increase were related to law was related to legal, because we've been doing, using legal counsel to help us look at some possible transactions and they accumulate pretty quick and some of these entities were outside of North America. So it just we've took time and money, otherwise, there was no substantial changes otherwise, except for those two.

Thank you. That's helpful.

And again on that LTIP is non-cash, right, just to confirm on that again.

Absolutely.

Okay.

Thank you. And ladies and gentlemen, this does complete the Q&A session. I would now like to turn the call back over to Paul Travers for closing remarks. Thank you.

Yes, thanks very much everybody. Exciting times of Vizux was looking forward in the future and sharing more especially as 2022 on falls. Have a nice evening everybody.

Thank you. This concludes today's conference. All parties may disconnect. Have a great day. Thank you.