Vuzix Corporation (VUZI) Earnings Call Transcript & Summary

Well, good morning, everyone. My name is Jason Bazinet. I'm Citi's Internet and media analyst. We're very pleased this morning to welcome Paul Travers, the CEO of Vuzix. Paul, welcome. Good morning.

Jason, it's a pleasure to be here. Thank you.

A couple of just process points. If you do want to ask a question of Paul and the Vuzix team, you can just e-mail it to me directly or you can just type it into the web interface that you're using. And it will get sent to me, and I'm happy to read those. I think what Paul is going to do is start off with a quick overview of the company with a PowerPoint presentation, and then we'll go into some Q&A that I'll moderate. And with that, I'll turn it over to you, Paul.

Yes. Thank you, Jason, and thanks, everybody, for joining our presentation here at Citi. What I'm going to do here is give a quick background. Some of you listening probably already know a lot about Vuzix. But for those that don't, I'll try to fill in the blanks for you to get started on what we're about. And then as Jason said, we can do some Q&A after that. So this should give you a pretty good background on the company. We are out of Rochester, New York. Rochester is an optics center of the world. A lot of people ask, why are we in Rochester? Does it make any sense? And Eastman Kodak, Xerox, there are so many companies that started in Rochester that were optics-based. And we make augmented reality, smart glasses solutions for the future of computing effectively. And the way these things work is interfaces to the human eye, and optics is a big piece of that. And so we've got a facility here in Rochester, New York that does all the design, development and production of the optical systems that go in the glasses that we build. But on top of that, Vuzix also manufactures the entire solution from software right on through to the hardware. And I'll give you guys a feel for what all that means here coming up. Again, we're public on the NASDAQ, which you guys probably all follow and all of that. So where we're going and why it's so important, the computer changes every 10 years plus or so, and it's been evolving over since the '60s, and earlier actually. Mainframes computers used to be the size of a room. Over time, of course, they shrunk. Everybody probably remembers the desktop days or the thing that sat beside your desktop. Big, heavy, but still, it was an amazing step forward that might have had a 10-megabyte hard drive in it. It's amazing what you can find today in laptops and in smartphones. They're literally gigabytes of memory in something the size of a fingernail. So the smartphone now is effectively the present computer. Yes, people still have laptops and the like, but tablets, it's all been evolving. And the smartphone now is about ready to evolve yet again. If you look at the software that's being developed in the smartphone today, there's a piece of software called ARCore and ARKit that run on the iPhone and the Google phones, respectively. And what this stuff allows you to do is point your camera down the street or at whatever it is you're trying to work on and have information come up on the display screen side that's a function of what the camera is looking at. They call that augmented reality, and people are learning how to do that. It's a new paradigm for computing, but it allows the digital world to connect to the real world. But I can tell you now, especially in enterprise, the smartphone is not going to be the device that it gets delivered on. This entire OS change, the entire way of people are computing is designed to run in glasses. You put the glasses on, you look at the real world and overlaid on top of it is information from the digital world that allows people to do things they've never done before. A simple example, maps. When's the last time anybody here listening has picked up a real paper map? Nobody does that anymore. What they do is they use their phone and they use the GPS, and the map shows up on their phone. Now you can take your phone, point it down the street and literally painted on the road can be the lines or directions and arrows to get to where you want to go. And again, all of that is being designed to actually just pop on your glasses, and that information is connected to the real world. Once that happens and you start using augmented reality in the world, people will not go back to a smartphone. So this is the evolution of computing. If you talk to Apple, Google, Facebook, there are so many companies that are trying to solve this problem. Vuzix has been at it since -- well, we've been public since 2009, but well before that. 1997 is when we started doing this. It's a really difficult problem to solve. We've got a lot of IP that revolves around the optics, the display systems and the platform itself that allows us to make glasses that are ultimately going to look like these glasses you see down in the bottom corner here, smart glasses that literally people will want to wear. Until then, we have a line of products, and they're focused on the enterprise space today. The M400 is our flagship, which is shipping now. And it's hard to tell how you might wear this. They're just sitting up here this way, but that's a 2.8 ounce computer that's designed to slide down the temple of a wearable, either a hat or glasses or there's a plethora of different ways you can wear these things. So the guy here, the M400 is our flagship. It's generating most of the business for us. The M4000 to the right is very, very similar, based on the same platform, but it uses what we call waveguides. You can see there's kind of a glass window that you put your eye up and look through. When you do, the imagery literally floats out in front of you and can be connected to the world that's out in front of you. Our Blade in the bottom left-hand corner. It just keeps growing in sales and finding more places. It's a Blade upgraded. It now has speakers, everything built in the audio. It's got advanced cameras now with auto focus built in, and this guy uses the same kind of waveguide technology that's in the M4000. And to the right of that, I'll share a little bit more here coming up is our next-generation glasses that are coming, and they should be available to our select partners here before the end of this year. So what is this doing for the company? Over the last 5 years, this whole concept of augmented reality and wearable hands-free computing in the mobile space has been trying to find its legs, quite frankly. And COVID, quite frankly, at first, was a train wreck for almost everybody, Vuzix included. But this whole idea of remote tele-everything, how do you fix a piece of equipment in the field? How do you do an operation and get the med tech to come in and help? There's just no way to do that during COVID because people couldn't travel. And so if you look at our revenues, ever since COVID hit, Vuzix's business has been climbing. And it's because it's forced the adoption of smart glasses, especially in the enterprise space. And we're not seeing that slowdown for Vuzix. It continues to grow, and we expect that it's going to really take off here going into 2022. The medical space, which I'll describe a bit, is exploding for Vuzix. In any given hour of the day, our glasses are on and being used in some operation around the world today in several different capacities, which I'll describe shortly. COVID slowed a bunch of stuff down for us, but it's all picking up now. So it's very exciting to see some of these new higher-volume applications in enterprise that are coming right around the corner. It's very exciting. The people are moving out of what we call proof of concepts and into full-blown executed programs that are going to be rolling out throughout their facilities, and I'll discuss a bit more about that. So why do people use these glasses? You might think about carbon footprint for one right now. You got to put a guy on an airplane. You've got the airplane that's flying. You've got the cost of the fuel. You've got the cost of the guy being gone. When he gets there, he can visit one place. While he's there, maybe a couple, but it's very limiting on how much you can get done during the day, and it costs a lot of energy to do that. But our glasses, the glasses are in the field, the tech wears them in the field, the expert logs in and can see what he's doing and can help them remotely do just about anything. So it increases productivity. It lowers carbon footprint. It eliminates travel costs, improves worker safety. If you think about uptime, if you have a production line, a bottling line, let's say, doing 100,000 bottles an hour, when that line goes down and it takes 2 days for the tech to come out and fix it, that's a huge impact on cost to the company. If you can have the on staff -- on-site staff put the glasses on and get the remote help and an hour later the equipment is running, that ROI is hundreds of thousands of dollars for companies. So it can pay for itself literally with one use. So we're seeing that happening in many different areas: warehousing, logistics, manufacturing. Those areas of the world had some challenges because of COVID and were kind of put on hold for Vuzix. That's all kicking into overdrive for us. Now people are going back even with COVID and the Delta variant. People are saying, "Look, I'm vaccinated. We're going back to work." People are trying to buy over the Internet, and servicing those orders are becoming a big deal to go faster. And so our warehousing, logistics and the manufacturing side of our business is really starting to pick up again. It's exciting to see. You might imagine though, field service tele almost everything, telemedicine, especially for Vuzix, these areas of our business is what's been driving the bottom line for us right now. And they just continue to grow, especially in the telemedicine space. Medicine takes forever. The health industry, medical industry takes forever to adopt a new piece of technology. COVID has forced this change to happen. When you have a med tech who needs to be on site to help a doctor with a particular installation of a stent or some piece of medical equipment device that comes from a medical device manufacturing company and you can't be there, the operation halts, and it doesn't move forward. They've been using our glasses now to be the eyes of the doctor so that the med tech can actually facilitate without even being at the hospital. And the number of medical device companies that are now using our products and that are mandating into next year, more and more time of the med tech is not spent on the road, but rather remotely is just amazing. It's revolutionizing the whole telemedicine and telehealth space. And the reason why our products are so successful in that kind of an environment is because of how the competitive solutions are -- what's available for the competitive solutions and how they don't really fit in the environment. You'll see in a few minutes what a person wears when they're actually in the middle of an operation. But here's the competitors today. You might imagine if we just look at Magic Leap for a moment here, the Magic Leap glasses, you can see that you can't see this gentlemen's eyes. When a doctor is in an operating environment, he's even got big flashlights on illuminating the scene in front of him so he can see better to do the operation. This would never work for a doctor. I think HoloLens has a similar problem. Those devices weigh 1.5 pounds. You've got an 8-hour operation. They only run for 1.5 hours on the batteries that they have. They just don't work well in that environment. Remote guys that are working with their hands, they got to put it in an 8-hour day. They need lightweight, and they need the ability to wear them on a lot of different kinds of devices or wearable mounting solutions, and Vuzix covers the gamut with them compared to what the competition does. Prescriptions, hard hats, safety glasses, head bands. There's just many, many ways and many customized ways and new mounting systems based upon whatever it is the enterprise user might need to have. And with that, we put it together with the software that's available now. 3 or 4 years ago, the software didn't even exist, but now there's a pile of off-the-shelf applications. This is sort of like what really made a computer start to work is when Excel spreadsheets were available on them, or word processing. This is the beginnings of all of that. Microsoft Teams, TeamViewer has frontline worker capabilities built in. Now you can do remote support, you can do work instructions, you can pick out of warehouses. These are just off-the-shelf applications now that plug and play with our glasses. These applications enable the end user, the customer itself, to just deploy. And with that, we have a growing list of blue-chip companies. I have to say it's from little tiny organizations to large ones, as you might imagine, that are deploying now with our glasses. And it's a growing and accelerating piece of business for us. And it's great to have the platform available and the applications that are running on it. And all of this has built an ecosystem now that's just accelerating our business, specifically around health care. Here's an example. You remember what the glasses look like for competitors. This is what these guys, when they dress up and they have to go and do an operation, the gentleman on the bottom right corner picture here, he's geared up to do open-heart surgery. You can see he's got these 2 magnifying lenses underneath his eyes in the center. There's a blue thing. That's a giant flashlight that illuminates the scene in front of him. How can any of our competitors be used with this kind of gear. It just doesn't work. Our glasses are IP67-rated. You can sanitize them with alcohol wipes. You can put them under water. They're designed to be dust storms right on through to rain, you can use them. So they work in this environment and can be cleaned and really are designed for it. They've got superior functionality. There's all kinds of connectors available to work with standard off-the-shelf applications like Zoom, Webex Teams, Microsoft Teams. It's all voice-controlled, HIPAA-compliant, and it's designed really to go to work in the medical space. So continuing just some of the applications. The one that I talked about mostly here is this whole idea of sort of a remote support where you have a doctor, he's doing an operation, and he wants the med tech that is responsible for this particular piece of medical device that's going to get installed in this person's shoulder, let's say, he wants his input, and this happens almost in every operation. So the med tech now, what he can do is, with special software that Vuzix supplies and has partners that supply, he can just log in from his house, see the heart rate, see the x-ray scans. It's effectively an overview of the entire operating theater. But at the same time, he gets the view of the 4K camera, which is broadcast-quality camera, streaming 30 frames a second at least, image stabilized. So he's effectively seeing through this doctor's eyes, plus one application. And there's 400,000 operating rooms around the world today. And any one of them, we expect, could be using our glasses in coming up. Ohana One, these are Doctors Without Borders. And what they do is they fly to Africa to help a doctor and teach them how to do a new kind of an operation. Well, they don't have to fly anymore. The glasses are there at the hospital in South Africa, wherever it might be. The expert doctor who maybe is in San Francisco can log in and help remotely teach this doctor how to do that operation. Pixee Medical, they use our glasses today to actually facilitate and be an integral part of knee surgery. The glasses look at the QR codes that are down on the attachments that are attached to the person's knee. They measure where they are in space. They adjust the attachment until they get it just right, and then they put the pins in the person's leg. There's 600,000 knee surgeries a year in the United States. Rods & Cones, these guys are experts at this whole remote operation, operating theater environment. They can bring any piece of equipment that's on the operating floor into a call so that a doctor that's remotely helping and/or a whole bunch of people are remotely watching to try to learn how to do an operation can effectively be in the operating theater without being there. Medacta, they're using our Blade also for knee replacement surgery, hip surgeries and the like as an integral part of the operation itself. So Vuzix's glasses in the medical space are expanding. It's probably the fastest-growing piece of our business, but it's a very common theme. These are all tools that are being put in place or have been put in place that have been able to happen faster, thanks to COVID, because the medical space usually takes years before it adopts new technology. In the wireless space, you might imagine, there's also a great opportunity. 5G-enabled solutions. We work with companies like Verizon, KDDI. KDDI supplies to a bunch of their customers our products, remote support and the likes. So this is a growing area for Vuzix also. The idea of you have a pair of glasses that need 2-way communications, voice and video, both ways for whatever the application might be, from an emergency truck to somebody who's just doing a remote eye. Most of the wireless companies that are out there today see this as a piece of their business in the enterprise space, and we're working with many of them. So how are we driving growth at Vuzix? Up until now, Vuzix has primarily been a hardware supplier of the glasses themselves. Because we make these really amazing optics, waveguide-based, our -- an OEM side of our business has started. We have companies that are coming to us that want to buy our engines, our waveguides and our display systems. So you're going to see Vuzix growing on this OEM side of our business. I think it's going to become really important as the broader markets start to come on board. Vuzix is focused on enterprise. And so I think you'll see some of the larger players in the mass market side of the business coming to Vuzix also to OEM some of our pieces and parts. Of course, our smart glasses hardware and the technology behind it, Vuzix is continuing to grow. And Vuzix now is getting more integrated offering, the entire software suite as part of the solution set in certain vertical markets. So it's the glasses, it's OEM partnerships, and it's the software itself with significant recurring revenues that are -- margins that are much higher than just what we would be getting on a pair of glasses. So to get there, we're investing in the core, our smart glasses technology, the hardware, the whole -- everything that makes a pair of smart glasses work from a technology perspective. We're pursuing both organic and inorganic enterprise software-as-a-service solutions. Lots of companies come to Vuzix and say, "I need to solve this problem. Can you help me do that?" And these are just opening doors for Vuzix to generate revenues that are nonrecurring, that happen the first time that you do the development, but then also follow through with a recurring revenue stream based upon the solutions that we're building. And then, of course, we're advancing our core technology, which is going to drive our OEM portion of our business. I'll just quickly go through the rest of this so we can get to some Q&A. We've got an amazing technology team at Vuzix. These guys are second to none. They know how to build our products, technology that goes in them. They're a group of folks that, really, it's not repeatable. There's not people around the planet that know what these guys know from a system level. And we're expanding in that side of our business. We have started an internal team, an integrated software business unit that their focus is resolving and helping our customers deploy our product, but at the same time, build the software solutions that are going to expand for Vuzix, that are going to be offered to many others in certain vertical markets. And we've also got an acquisition strategy in place on 2 fronts. One of them is companies that are in certain vertical markets today that we see as a growing portion of our business. And we're looking at acquisition in that area because the software component of that and being closer to the customer, we think is critically important for the growth of the company. And we're also looking, then, that same front on the technology front. Bringing all this together, that technology front set of our business is driving this OEM side of our business. We see a future where our -- we have our own series of products, of course, but where third parties come to Vuzix to OEM our pieces and parts. And on the defense side of our business, it's probably the largest. Without a doubt, it's the largest side of the OEM requests that are coming to Vuzix today. Many major Tier 1 companies that supply to the U.S. and other military forces are coming to Vuzix to OEM pieces and parts of what we make, primarily around waveguide. The reason why? You can't get waveguides out of China that could be sold into the U.S. military. As you might imagine, that's a problem. We're a U.S. manufacturer of these waveguides and the display engines that go on them, so it's a big plus for the defense guys as they're looking for partners. We're expanding our core technologies, as I said. We put out a video earlier this year regarding our next-generation smart glasses. These guys are on track for the end of this year still. It will be available for some of our select partners. Built into them are some of the smallest displays -- well, the smallest displays on the planet and display engines that have ever been built before. That display engine is about the size of a pencil eraser. The optics and the waveguides that go with it, you can see here under systems, there's the little display engine right there. And then there's a waveguide that's built around this black frame that, when you turn this engine on, you look inside that window, just like a pair of glasses, flowing out in front of you is the display information. And we have multiple products that we're building around this. But this technology, we also believe, and some next generations of this are going to be in most of the AR smart glasses we see in the future coming up. The optics and the waveguides, they're built here in Rochester, New York. The manufacturing is done here in Rochester, New York. The design is done here. The tools, everything in our Class 1000 cleanrooms. This display engine itself will certainly be available in a more broad sense. We've been -- a few folks have come to Vuzix and we've sampled them, but the more volume-oriented production solutions are coming towards the end of this year. And finally, that technology is getting built into the most advanced smart glasses the world has ever seen. These guys, by the end of this year, like I said, will be available to select partners. And going into next year, should be available on a broader -- much more broader basis. So our business is growing. It's accelerating on a lot of fronts. The medical side of our business is just through the roof. Like I said, in any given hour, our glasses are being used all over the world. And the other portions of our business that COVID put on slow burn are kicking into overdrive for Vuzix. So it's an exciting time to be in this space. It's going to be in the hundreds of millions of units on an annual basis sold, and Vuzix is one of the leaders. Jason?

That's great. Thank you for that overview, Paul. I just have a quick definitional question maybe before we go into the Q&A. You used the phrase AR/smart glasses. To you, are those the same thing? Or is there a functional difference between those 2 phrases?

There actually is a difference. And they're not really subtle. The whole concept of fully functioning, augmenting the real world through spatial computing, which is a word I didn't use at all in my presentation, this requires a pair of glasses with all kinds of sensors that look out at the real world, measure where everything is in space and then drop stuff in the real world as if it was actually sitting there in the living room or maybe the plant floor. That technology is big, it's bulky. It's not something that you can deploy today. There are companies that are building the products that provide that, but it's a very complex piece of technology to deploy. Most of the solutions today don't need that level. When the doctor's using our smart glasses that are AR-enabled, it's using the cameras. The cameras are tracking these markers in space, and it's augmenting the doctor's vision, basically giving him clairvoyant information about the angles that these things are sitting next to each other. So it's augmented reality. There's no way around that, but it's not the full-up spatial computing. So AR smart glasses, lightweight, provide a real solution today, solutions that can be deployed versus the augmented reality, head-mounted display systems that perform full spatial computing. And those products, the full spatial computing products, so far are impossible to deploy. They're big, they're bulky, they're uncomfortable. They don't really provide a solution. That said, in the end, in the long run, that whole spatial computing is what's going to happen. The sensors, the technology, the display systems, all of that stuff is being shrunk down. And Vuzix is really good at the displays and at the optics side of this and then putting them in solutions today that make sense for people.

Okay. That's super helpful. So what would you say have been the key milestones in the industry's evolution over the last 5 years? And what do you think will happen over the next 5?

Yes. So the CPUs, the processors, the computers that are used in these things, literally, over the last 5 years, have gone through multiple availabilities. The CPU was canceled, et cetera. And here we are today, Qualcomm and there are a few others, but Qualcomm in particular, they have a series of XR devices that they come out with. They're longevity devices. They're making them available so that you don't have to worry about them not being available 2 years from now so enterprise can't deploy because they can't trust that they're going to be there. So I think that the technology on the processor side has advanced a lot thanks to companies like Qualcomm. The platform itself has significantly improved. Our M400 is -- it's an amazing device, 8-core processor, 4K cameras, broadcast-quality transmission, mountable on all these different solutions and ways. And all of that came from 5 years actually, frankly, many, many years' worth of development to get it to where we are today. And then the ecosystem. 5 years ago, if you wanted to go pick parts out of a warehouse with a pair of glasses, you needed to spend $0.5 million just to get a piece of prototype software that would allow you to try to do it. Today, those things are off the shelf now. So the critical mass for the ecosystem, the glasses, the solutions for enterprise, it's all here now. And now companies are beginning to realize that, and they're looking in, saying, "Hey, the ROIs are here. I don't have to go invent the wheel. I'm not going to give this to my research team. This is being deployed now through corporate executives that are saying, 'We need this'. We've got 175,000 employees we're bringing on board. How do you train them all? How do we keep them trained? They forget 2 days later everything they learned at the training seminar." Smart glasses are the path to make that happen, and the software and the tool sets are available today, and they weren't 5 years ago.

Okay. Super helpful. What about -- you spent a lot of time talking about the medical industry, but what are the industry verticals and applications that you think will represent the biggest growth driver, let's say, over the next 5 years?

So most immediately, it's clearly medical for Vuzix, but it's gratifying, in fact, to think that around the clock, our glasses are being used to help save people's lives and better outcomes for patients. And we have doctors -- I mean these are professionals that they don't care about the tech. What they care about is a solution that's going to give them a better answer for their patients. And we're just being sucked up by that community right now because it's so helpful to get the work done. And it's a very big market opportunity, right? I mean if you think about the number of hospitals, operating theaters, mobile operating theaters right on down through to even the defense space in the medical side of things, smart glasses is going to be a big play. There's just no way around it. In the med tech world, the medical device company world, they are trying to figure out how to save money and be more efficient on how they support operations around their gear in the field. So the medical space by far is probably the fastest, quickest-growing opportunity. That said, this whole idea of logistics, moving product around the world, managing how that product gets moved is going to be another big space for Vuzix. The whole idea of how do you -- you're in a facility. There's a pile of trucks, 18-wheelers coming in. Each one is loaded with something. It's got to get redistributed, put on pallets, shipped out to all these other places. And how do you manage all that and do it right? And how do you repack? And how do you -- it's that kind of stuff that there's so many workers that it's going to impact so they can do a better job, but when it arrives on its final destination, it arrives safe and not all busted up. Even just picking out of warehouses, picking out of stores to fulfill customer orders, people want overnight service. And they don't want to be the guys shopping anyway. So that side of our business, I think, is going to be big to frontline workers everywhere. Enterprises, they talk about as many as 30 million smart glasses annually over the next 4 or 5 years. So there's a lot of places I think you'll see it expand. The ones for Vuzix that we're seeing happen the fastest right now are the 2 I just described though.

Okay. I saw in your presentation, in bold, it said made in the United States, right? Can you talk a little bit about sort of your current production capabilities for both smart glasses and waveguide production? And how much capacity do you have? And how do you think about outsourcing versus internally producing?

There will be a time, I think, with some of the markets that we supply to, where outside manufacturing might become important for certain select lines for Vuzix. What's nice about the volumes that we're talking about today, 20,000, 50,000, 100,000 pieces annually, our plant can manage that. But when the numbers get bigger, you reach a point where partnerships can be more effective than doing that manufacturing. Now the waveguides, on the other hand, we do that here in Rochester, New York. And it will most likely always be done by Vuzix. We have the ability. We're on a path to where we can do super high-volume kinds of manufacturing. I'm talking like millions of units on a quarterly basis. We're not doing that today. It's robot-assist manufacturing today. We do it on a per piece basis, but we can more than keep up with what we need for our own production today. But as these OEMs and the bigger business happens, high volume is going to be required. And that might be done in another facility, but it's going to be done on basically Vuzix's processes and equipment and owned and managed by Vuzix.

Okay. That's very helpful. What about can you just do a compare and contrast between sort of the enterprise use of this equipment versus consumer use? I mean I guess it makes sort of intuitive sense to me that enterprise was the first one to adopt given that they're -- we're still coming down sort of the cost curve, right, where it's sort of expensive today, but...

Yes. So for enterprise, think about it, look at the doctor in an operating theater. He doesn't have to wear Oakleys. In fact, he is loaded up with all kinds of technology, right? He's like, there is stuff hanging out everywhere. He just needs highly functional solutions. And so enterprise is easier because that's typically the case. Give me something that's lightweight, are they usable, rugged, so it doesn't get abused by the user itself and solve this particular problem. It's very pointed. So it's an easier problem to solve, frankly. There's harder parts of it from a perspective of ruggedization and deployment in the IT departments and getting through the mobile device management requirements. I mean there's a lot of boxes you have to check off in enterprise. The consumer space, on the other hand, I mean just look at competitors right now in the -- on the consumer space like the Facebooks and the Apples and the likes, right? I mean they're all trying to make smart glasses, but what are they doing? They're coming out with things that look like a regular pair of glasses and all it has is a camera. So they're camera glasses. They don't do the whole thing. They don't do the whole thing for a reason. Facebook knows that if they put everything in it that they needed, it would look like a train wreck, not something people would want to wear. It's not just a price point. There's a technology problem here. And Vuzix is on the path to solve those technology problems. But you saw our current display engines, the size of a pencil eraser. We have some other stuff that we're working on that is -- I can't get into the details, but let me just say that it is the game-changing pieces to make glasses that are full-color, HD, sexy, trim and slim, and not only solve the look-and-feel problem, but also the price point problems. And that's where this ultimately needs to go for the mass market for the broad user acceptance. And let's -- we've been trying to solve that problem all the way back in our early days when we were working with the U.S. military and the special forces guys asked us that we could make Oakley-style sunglasses. What's great about where Vuzix is at today, we're well capitalized. And we have the dollars to be able to execute on the rest of the plan that we've been working so hard to get to. So the next couple of years, there's going to be a lot of fun as some of that more advanced stuff starts to show up on people's radar.

You had a slide in your deck around the competition as you see it today, but can you dig a little bit deeper into that and talk about the major differences between your product versus competitors and your lineup versus competitors?

Yes, sure. Our glasses are designed to be worn in an entire shift, in an all-day environment. If you think about it, right, you've got a doctor who's doing an operation, 1.5 hours later, you can't run out of the batteries, by way of example. You can't have something that's so heavy that he's got headaches and his neck hurts before the operation is over. He also can't go through touch-in stuff and have all this setup stuff he's got to do. And the way our glasses work, it all can be automated. It's 2.8 ounces in weight, so it's super lightweight. It fits right in with the gear most people wear today, whether they're in a warehouse, on a construction site. I mean it's designed to have all these wearability options, right? So it's easy to deploy. We have cases where one of our competitors is being used currently. They get the M400, 10 of their employees, their top 10 that were using the competitor's product are using our glasses. And 10 out of 10 choose the M400 over competing solutions because it is so lightweight, the camera is so fast. The bar code scanning is second to none. So it has all these features and capabilities that offset it from the competition, and it's pointed at solving the solution. Some of the competitors are just a display. Some of the competitors are this full-up spatial computing, but they don't really point at solving a specific problem. It's a general-purpose spatial computing device side. I have to say that -- and again, I have a lot of respect for Microsoft and the HoloLens. It's an amazing piece of kit, but it's really hard to deploy in so many applications that are much, much easier if you just use an M400 with the right piece of software that's all ready to go today. So we're pointed at solutions. And I think some of our competitors are pointed at the technology more so. And I think that gives us an advantage. Well, it clearly gives us an advantage. When you have a solution and people buy more than one and then they start buying hundreds and then they're looking to buy thousands of systems, it's because it works for them and it solves a problem, and it's not something that's in a research lab that's part of a science project.

So in your presentation, you talked about moving from hardware to software to solutions provider. Is that something that's just driven by the higher margins and recurring nature of the revenue? Or is that something that's driven by what your customers are asking for that is a bit more integrated?

Yes.

Okay.

It's both. Look, you can be just a hardware provider and be on the treadmill and make the next one and the next one. And Vuzix is doing a good job at that. But we have so much inbound where XYZ company has to solve this problem and they don't have the expertise. And there isn't an off-the-shelf piece of software at the moment that could solve that problem. Maybe it's close, but it needs changing and the likes. And that is those -- some of those verticals represent many, many, many thousands of units. It's part of this whole ecosystem that's happening around enterprise. And those pieces have to be solved, and they can come with recurring revenue models that have 80-plus percent margin built in that recurs every single year because you're providing the service. The customer is happy because he's saving hand over fist on the other side of it, but it puts Vuzix closer to the customer, and it puts us in the higher end of the value chain. So we're doing it to drive our business, to drive our relationships with our customers. And quite frankly, to make more money, of course, I mean that's part of why we're in business today, right? But it all just fits together like pieces of a puzzle.

Sure. That's great. And my final question is, you touched on your IP portfolio. Can you talk a little bit about how investors should think about sort of your IP portfolio both being a barrier and how maybe they should think about valuing that portfolio?

Yes. So first of all, you got to ask yourself, what is really -- sorry about that -- what's needed to deploy at the end? I'm not talking about some of our competitors that use conventional optics in there. They might look reasonably okay, but they require all this outside stuff. What is it going to take for this industry to really kick into overdrive? What's the technology to make that happen? That's what's in our IP portfolio. We sold a lot of IP a while ago that was based upon some of that older optics technology and the like. So when you look at Vuzix, it's really hard to fathom because people haven't seen yet what these next-generation things are going to do and how they're going to work. They have no idea, especially the average investor, how did it solve the problem, let alone what the problem is to even get there. You need to make glasses people want to wear. Look at Facebook. They just came out with these new glasses with their partner. And those glasses, they look like regular glasses. That's the problem to solve for the mass market. And that's the kind of technology that's currently in our IP portfolio and what's coming. Some people say, "Well, aren't there people violating some of your IP today?" And in point of fact, there are, but we -- when it's such a small thing, sometimes it's not worth it. You have to pick and choose when you fight the fight, right? But in the long run, when you finally get to the point to where you're making sexy, beautiful glasses, Vuzix has a wonderful intellectual property portfolio to solve that problem, and it's growing. It's gone up a lot. Just in -- organically, rather, internally, but there's also some stuff coming that's another exciting jump that all points towards glasses that people want and will wear all day long every day.

That's great. Wonderful overview. Paul, thank you very much for the time today. That's great.

No problem, Jason. Thank you.

And good luck to you. Yes. Thank you.

Right back.

Be well.