Welcome to the Vuzix First Quarter for the Period Ending March 31, 2024, Financial Results and Business Update Conference Call. [Operator Instructions] 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.

Thank you, operator, and good afternoon, everyone. Welcome to the Vuzix first quarter 2024 ending March 31 financial results and business update 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 estimate as of today, May 9, 2024. 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 first quarter 2024 financial results and filed its 10-Q with the SEC. So, participants in this call who may not 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 directly comparable financial measure calculated and presented in accordance with GAAP can be found in the company's filings 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. Hello, everyone, and welcome to the Vuzix Q1 2024 conference call. Since we reported our Q4 and full-year 2024 results just a few weeks ago on April 15, my prepared remarks on this call will be relatively brief. In the same vein, we will dispense with our usual call presentation deck also. Our Q1 revenue improved sequentially over Q4 of 2023 with our product sales increasing again. That said, industry demand for our enterprise smart glasses has clearly remained lumpy as the industry is still in the early adopter stage relative to where we and most others see it ultimately heading. Nevertheless, we remain encouraged by our current business outlook and we do expect our top line revenue to grow over the remainder of this year. And with our ongoing aggressive cost reduction and control measures, including our recently commenced voluntary cash salary reduction for equity program, our net operating losses and net operating cash burn should be reduced at an even faster pace as compared to each prior period of 2023. I'd like to now discuss at a higher level, our key business areas in terms of where we've been recently and what to expect in terms of timing and catalyst going forward. As you know, we have been developing enterprise smart glasses solutions for the enterprise space for some time. We have continued to steadily improve the performance, functionality and wearability of these devices and we'll continue to do so, but now with a shifting and more tightened focus on waveguide-based designs. This is being done to both give us a stronger competitive position and deliver products closer to our customers' expectations and needs. As part of this shift, we are adopting a bifurcated smart glasses model approach that we think will appeal to a…

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 numbers. Our first quarter 2024 revenue was $2 million, down from the '23 comparable period due to decreased sales of smart glasses, particularly our M400. Engineering Services sales were $0.2 million for the 3 months ended March 31, 2024, versus none in the prior year's period. As of March 31, 2024, the company had $2.8 million of remaining performance obligations under 2 current waveguide development projects, of which approximately 60% we expect to realize in 2024 with the remainder in 2025. There was an overall gross loss of $0.1 million for the 3 months ended March 31, 2024, as compared to a gross profit of $0.9 million for the same period in 2023. The net loss was a result of lower revenues to absorb many of our relatively fixed manufacturing and plant overhead costs, which were actually 8% lower in dollar terms as compared to the 2023 period. Manufacturing overhead costs as a percentage of total product sales increased to 25% from 13% for the same period in 2023 as a result. Research and development expense was $2.7 million for the 3 months ended March 31, 2024, compared to $3.1 million for the comparable 2023 period, a decrease of approximately 11%. The reduction in R&D expense was largely due to a $0.3 million decrease in salary and benefits related expenses and driven by headcount reductions. Sales and marketing expense was $2.2 million for the 3 months ended March 31, 2024, as compared to $2.5 million in the same 2023 quarterly period. The $0.3 million reduction was primarily due to lower advertising…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question come from the line of Matt VanVliet with BTIG.

I guess first on some of the engineering services or the contracts in place, Grant, you mentioned the remaining performance obligation. But how much visibility do you have into the actual timing of each step of that project pushing forward and ultimately recognizing revenue? I appreciate you gave us an estimate for what might be recognized here this year, but how much visibility in the actual timing do you have at this point?

Well, I mean, it should be -- I think a little back-end loaded into the second half. Q2 to be larger. In Q1, there was actually no revenues related to that project realized. And maybe, Paul, the current schedule details the best. So, maybe you could add something there?

Another 14 months or so, the one program would be fully delivered on. So, a lot of it should show up here in the back half of this year for that one particular program. Some of the other programs, Matt, were highly anticipating production rollouts that will start this year. There's actually 3 of them right now, 1 in commercial and 2 of them in defense. The one in defense is right around the corner. Like I'd like to think we'll see some revenue starting in Q2. The commercial one is early deliveries might start in Q2, but then it will start to crank up in Q3 and going into Q4. And the other one, I'm just not sure yet.

And then you mentioned maybe embracing even more of the Waveguide production prior to kind of a fully fabricated at least smart glasses use cases. I mean, what gives you the confidence that you'll see -- I think you mentioned an accelerated uptake in that area. Do you have sort of preliminary interest of whether it's pilots or prototypes or anything of that nature that's given you the confidence to sort of lean into that aspect of the business even further?

Yes, we do have -- in a few cases, it's more than preliminary interest. We're actually working through some negotiations and stuff. So, we also have this wonderful relationship with one of the largest ODMs on the planet that are really embracing this with us. And coming to follow over this year/going into next year, we have pretty good expectations that there'll be some great success there, too.

And then just last one. On the cost reductions, Grant, I guess, from both the reduction in actual headcount and then some of the stock grants or restricted stock in lieu of cash payments. How should we think about that impacting the cost structure from a seasonal -- or I guess, a seasonality standpoint or a linearity standpoint here? Should it continue to decrease through the year with 1Q on those line items on the OpEx side being sort of a high watermark? Are there other elements that we should think about maybe partially offsetting the gradual reduction here?

Well, related to the salary deferral or salary for equity plan, I mean that's starting effectively the first week of May. So, there'll be 2/3 of a quarter. But the $1.6 million, you could extrapolate that evenly over the 12-month period. So that will be 2 months worth and then the balance will be each quarter, the pro rata all the way into, I guess, Q2 of 2025. The other costs, I mean, we are -- we did make some cuts earlier in the year. We're making some further ones. And unfortunately, there will be some further headcount reductions. And we're with potential severance accruals and the others, I mean, we will see the impact of that starting in Q3. I mean there'll be some in Q2, but the majority of that will be in Q3. And hopefully, we can achieve like target on a pure cash expense basis for OpEx of more than $4 million a quarter -- $4.5 million a quarter, which is 35% on a cash-only basis in -- from the comparable period in 2023. Does that...

Thank you. This does end the Q&A session. I would now like to hand the call back over to Paul Travers for closing remarks.

Thank you, Darryl. Thank you, everybody. I'd like to thank you for your interest and participation on today's call. We look forward to an exciting remainder of this year with hopefully a lot of great stimulus and sharing of the unfolding year with these opportunities that are happening for Vuzix. It should be great. Finally, we look forward to seeing you at our Annual Shareholders Meeting for those that want to come on January -- on June 13 here in Rochester, New York. Have a good evening, everybody.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.