Greetings, and welcome to the Vuzix Second Quarter ending June 30, 2025, Financial Results and Business Update Conference Call. [Operator Instructions] As a reminder, this conference 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 the Vuzix Second Quarter 2025 ending June 30 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 forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those contemplated by any forward-looking statements as a result of certain factors, including, but not limited to, general economic and business conditions, competitive factors, changes in business strategy or development plans, the ability to attract and retain qualified personnel as well as changes in legal and regulatory requirements. In addition, any projections as to the company's future performance represent management's estimates as of today, August 14, 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 2Q 2025 financial results and filed its 10-Q with the SEC. So participants on 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 measures 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 turn the call over to Grant Russell, Vuzix's CFO, who will provide an overview of the company's second quarter results, after which we will move on to the Q&A session. Paul?

Thank you, Ed, and thank you to everyone joining us today. I'd like to start with a few select Q2 highlights. As you know, and representing a great milestone and statement about Vuzix's ability to manufacture waveguides and volume, Vuzix has met all the manufacturing and performance gates tied to the second Quanta tranche and received a further $5 million in equity, bringing Quanta's investment thus far to $15 million of a planned $20 million total. I will share a bit more on this shortly. We have also commenced volume shipments of waveguides to our first OEM waveguide customer. And alongside that, we have formally engaged with multiple new Tier 1 OEM waveguide customers spanning enterprise to the broad markets. And just this week, we have announced the new LX1 enterprise smart glasses focused on warehousing and logistics with integrated voice and vision workflows. Initial customer sampling is underway, and the production rollout is scheduled for Q4 with strong initial demand and interest across our existing customer base. Why do these events matter? Our strategy is simple, and these proof points show its execution. We plan to monetize the enterprise market and scale OEM waveguide optics for AR and AI-driven smart glasses across the even broader consumer markets in parallel. And this strategy is driving multiple and sizable market verticals for Vuzix. We're enabling enterprise customers to rethink frontline workflows and accelerate the digital transformation that is at the forefront of the integration of AI and the future of work. We're engaged with multiple prime defense contractors to design and support the next generation of see-through wearables, and we're on the ground floor to participate in a global evolution from consumer smartphones to AI-driven smart glasses. This strategy is also leading towards a growing base of ODM and OEM customers,…

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 second quarter 2025 revenue was $1.3 million, up 19% year-over-year due to increased sales of smart glasses, particularly our M400. Engineering services sales were $0.3 million for the 3 months ended June 30, 2025, versus $0.5 million in the prior year's period. There was an overall gross loss of $0.8 million for the 3 months ended June 30, 2025, as compared to a gross loss of $0.3 million for the same period in 2024. The larger gross loss was a result of further reserves for inventory obsolescence, increased unapplied manufacturing overhead costs caused by lower production of smart glasses and a gross loss on engineering services due to additional costs being recognized that were not originally part of the overall engineering project budget. Research and development expense was $2.6 million for the 3 months ended June 30, 2025, as compared to $2.4 million for the comparable 2024 period, an increase of approximately 9%, largely due to increases in external development costs on new products. Sales and marketing expense was $1.4 million for the 3 months ended June 30, 2025, as compared to $2.2 million for the comparable 2024 period, a decrease of approximately 40%. The reduction in sales and marketing expense was largely due to a $0.5 million reduction in salary and benefits-related expenses driven by headcount decreases and the completion on April 30, 2025, of our 2024 cash salary reduction program in exchange for equity and a $0.3 million decrease in bad debt expense. General and administrative expense for the 3 months ended June 30, 2025, was…

Thanks, Grant. And with that, I would like to turn the call over to the operator for Q&A.

[Operator Instructions] Our first question is from Tyler Burmeister with Craig-Hallum.

Maybe first off, a point of clarification, I guess. The Tier 1 OEM that you began shipping to, is that with the Quanta partnership? Or is that outside of that? And then just maybe a little bit of an update on Quanta. I think you previously said you expect to have 2 programs shipping this year, I guess, still on track to get a second one later this year? And then what kind of time line should we be thinking about for a ramp of these programs?

The good questions, Tyler. First, the program that we actually announced maybe 3 months ago or so. I can't remember when it was. It is actually not with Quanta. It's another very large supplier or manufacturer like ODM partner, and it's for a company that is making industrial thermal vision systems. And we've already delivered first units to this customer. We expect that business to continue to ramp as we go through the rest of this year and into 2026. There's a lot of potential in that particular project. We got irons in the fire with Quanta still. We should see some stuff before the end of this year, but 2026, I think, is where you'll see the bulk of the ramp start to happen with Quanta. Did I get all of those questions?

Perfect. No, that was perfect. And then maybe outside of Quanta, then on the defense side, we've talked in the past before about the opportunities for OEM work with defense contractors. Maybe just an update there, how those are tracking, what we might expect from those opportunities going forward, too?

Yes, you're going to start to see first production orders here in the back half of this year. And we have multiple programs that are going on there. And more than one of them actually are at that point where they're starting to sample for production kinds of programs. It's not going to be really significant, but it also will be a heck of a stake in the ground when we start rolling here before the end of this year. And I think there'll be visibility into 2026 as those programs unfold.

That's great. And then maybe last one on the cash side of things. You guys have done a pretty good job here of working down your inventory, a little over $3 million in this quarter, down from north of $10 million a year ago. Just wondering how much more is there to go there? What kind of level of inventory would you consider normal operating inventory versus kind of excess inventory that you're still trying to work to monetize?

I can start to answer that. Grant might want to add a little bit to it. The LX1 is generating some really incredible interest. We have customers that are -- have used the LX1, got an opportunity to expand on it and can do some testing with it. And a bunch of those want to upgrade their M400 fleet of products to the LX1. But we do have other customers that are finally through qualifications that will start rolling out programs on the M400. And so as the LX1 comes out, you'll see the M400 continue. At some point in time, the M400 will end up being obsolete. But for now, we plan to sell both programs in a parallel path. Inventory levels and the likes, I'll let Grant pick up that one.

I mean, ideally, we'd like to get it down to $2 million, but that's based on sort of the current revenue product sales basis. I mean, as that rises, it's going to increase a little, plus we're making some changes in our supply chain, we're going to be getting the LX1 from Quanta. So we're not having to buy all the raw materials and handle the WIP. So we'll be buying finished goods. So we hope to better manage it and try to minimize the amount of inventory we've got to carry, but have as much product as possible to respond quickly to customer needs.

Yes. I mean we're trying to get our customers into a made-to-order basis. And I think that gets easier once they start to rollout and they see their own needs start to grow and they can project what that need is over time and get those orders into us in advance. So we're not building inventory for a warehouse. We're building for our warehouse. We're building them for their warehouses to go into productive programs. Thank you, Tyler. I believe that we have a couple of other questions that have come in over the last day or so. And Ed, do you want to...

We do, Paul. One is related to Quanta since we've achieved the hurdles, would you care to comment on when you think that $5 million might be coming in?

I mean, at this point in time, it's only a matter of time, paperwork and the likes. I would suggest before the end of this year, we certainly should see that $5 million in our balance sheet.

Okay. And then a little bit of follow-on, on the LX1 since it's purpose-built for warehousing and logistics, does that mean we're kind of walking away or giving up on the other market verticals that we've always targeted?

Again, I thought that was a great question when it came in. Look, the LX1 was built for warehousing, all day use. It has charger banks now that are designed to just plug them in, set it in the warehouse and rotate them through. So there's not cables everywhere. It's not a mess. It's designed to deploy much like the pick by voice systems are today. We basically mirrored what those things look like. So it's not difficult for those organizations to just put them in the warehouse and make them run. Often, people like to pair the smart glasses with a wrist-mounted barcode scanner. And there's NFC built into the glasses now. So literally, you just bump the handheld scanner -- excuse me, the wrist-mounted scanner against the Zebra-based scanners, by the way, are typically the ones that people use. You just bump it to the side of the glasses and boom, it's paired. You have to bring up screens. You don't have to type in numbers, et cetera, et cetera. I mean this thing was designed to put on and run a race in the warehouse. The all-day use case, it's 10 hours' worth of run time with this thing, nonstop, through an entire workday. It's designed to take off and throw it on the counter if you want to, just like the pick by voice systems. They need to be rugged and tough and make it through the day. We've learned a lot from the feedback that we've had from our customers on that side of the house. And we've built in what they want. And the feedback that we've gotten has been nothing, but positive. So there's been some trepidation on rolling out. It takes a lot more training with an M400 because it really comes…

Maybe as a last question, Paul. In terms of the rollout for the broad market of AI smart glasses, what do you think the biggest technological hurdles are right now to overcome in terms of this market taking off?

I mean the reality of it is weight is one of the biggest issues when it comes to the mass market adopting glasses. If you're sitting at home and you're watching movies or something sitting in your couch is one thing. But when you're out and about walking around, if these things weigh much more than 35, 40 grams, people won't wear it. And if they look a little bit odd even, just a little bit odd even, they won't wear it. They're fashion statements. And so the technology that goes into making that happen is probably the biggest hurdle to deployment of smart glasses with displays in them today. Case in point is Meta with their Ray-Ban offerings. Ray-Ban does not have a display in it for a reason yet, and it's because they don't have waveguides that are priced right and they don't have display engines that can fit in the same space to make them look fast forward enough, fashion forward enough. Vuzix has the bulk of the answers to solve those problems. And that's, again, part of the reason why Quanta and others are starting to come to us because they see we're on a path to be able to supply and solve those problems. I think that's the end of the questions now. I'd like to thank everybody for showing up here for the conference call. It's going to be an exciting rest of this year. Look forward to having everybody along for our next conference call. And thanks, and have a great evening and end summer, everybody.

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