Vuzix’s tagline is “View The Future”. As a tagline it works very well, seeing as how AR is set to become a huge market. However, as an analyst looking at VUZI shares, my view of the future hasn’t been too clear recently. I know its a bright future, but I’m squinting in an effort to see exactly what’s coming towards me. I’m hopeful that this quarter will help to clarify where Vuzix is headed.
Despite winning numerous awards, despite having the best form factor in the AR space, and despite signing a deal with a major company like Toshiba, Vuzix has struggled to gain a firm spot in Wall Street’s view of the AR food chain and, as a result, has been a constant target of short sellers. There are two primary reasons for this; production/sales have been spotty at best, and a lack of operational experience in senior leadership. The former will hopefully get addressed this quarter, while the latter was addressed this week.
Operations Leadership Has Arrived
Let’s tackle the easy one first; with the hiring of Paul Boris, Vuzix has brought incredible operational expertise and respect to the senior leadership team. From the recent press release, I quote…
“Paul Boris joins Vuzix after spending the last two plus years at General Electric in a variety of executive leadership roles including CIO of Advanced Manufacturing Strategy, Site Leader of the Advanced Manufacturing and Software Technology Center and most recently as the Vice President of Manufacturing Industries of GE Digital. As CIO of Advanced Manufacturing Strategy for GE, he focused on driving GE’s innovative factory strategy to increase productivity and deliver the optimization of assets and operations…Mr. Boris’ breadth of manufacturing operations and technology-related capabilities and experiences enable him to bring significant value to Vuzix.”
This is a senior executive with excellent operational expertise. I would anticipate that, under his guidance, Vuzix will be able to achieve a smooth transition of their production to China and start hitting their manufacturing targets. Boris brings to Vuzix a high-level background at two major companies, GE and SAP; lack of operational expertise is no longer an issue here.
Sales…The Big Question Mark
This is where the rubber needs to hit the road for Vuzix. In the past, it has always been about the future. That’s what happens with nascent industries, like Augmented Reality. The future is so bright, you gotta wear them shades, right?
At some point, however, the future becomes the present. If your AR sales in 2016 disappointed, no one really cares as the industry had yet to arrive. Now, we’re in 2017 and AR is THE hottest game in town. Snap is wild about it…Facebook loves it..Microsoft and Google have their products. If you are going to be a player in this industry, you need to be making product for the market, and getting traction in the market with said product.
Which is why this is, in my mind, a very important quarter for Vuzix. They have guided to 1,000 units sold in Q1. For a company that saw sales of just over $2M for each of the last two years, 1,000 units in Q1 should mean north of $1M in revenue. That would be a great quarter for them and one that I hope is easily attainable based on the timing of the last call being near the end of the Q.
More importantly is building upon this run rate. Production issues are a thing of the past at Vuzix, in my opinion, as they have a strong manufacturing partner. So, what will they guide to for sales? They recently talked about a 1,500 units per month of production milestone occurring in the second quarter. This should mean they have the capacity to do easily several million in sales based on available production. Guidance towards anything close to that would be a very big positive and would certainly spark the shares.
The short sellers, who publish on Seeking Alpha, are all over Vuzix for a continual lack of sales growth. I don’t have an answer to them at this time. However, tomorrow’s conference call should provide the answers. We need to see execution on the company’s stated targets along with guidance for growth going forward. If we get this, game on…if not, expect more turbulence.
Keeping the Faith
At this time, Tailwinds is keeping its position in VUZI and they are a core piece of our Select Portfolio. I’m confident in their ability to deliver and think this stock will, in turn, deliver for shareholders. What gives me that confidence? It honestly starts with Paul Boris.
The fact that Boris left GE to join Vuzix is a big deal in my mind…which starts with the fact that he has been on the board of Vuzix for a while. His leaving a behemoth such as GE to join an upstart like Vuzix on a full time basis says quite a lot. Let me be very clear about this; as an expert in the AR space, and as a board member of Vuzix, Mr. Boris is privy to a lot of knowledge on both the broader industry and Vuzix in particular. His endorsement of the Company, its products, its competitive position, and the industry in general speaks volumes.
I’ll admit I was feeling cautious about Vuzix last week. Here were my thoughts: The Company is in a hot space, yet somehow seemed to be left out of a lot of industry conversations. They have what appears to be the best product, but sales haven’t been strong. And, their management lacked proven operational talent.
Today, I’m feeling much better. With Boris on board, management has been strengthened. His implicit endorsement makes me feel more positive about the Company’s products and the market. Now I’m just looking forward to tomorrow’s conference call to hopefully prove, once and for all, that my confidence (and dollars) are well placed.