Vuzix Corporation (VUZI) Q2 2017 Earnings Report, Transcript and Summary

Greetings and welcome to the Vuzix Second Quarter 2017 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 conference call is being recorded. I would now like to turn it over to Andrew Haag, Managing Partner at IRTH Communications. Mr. Haag, you may begin.

Thank you, Brenda. Good morning, everyone. I would like to welcome all of you to Vuzix's second quarter 2017 financial results and business update conference call. With us today are Vuzix's CEO, Paul Travers; CFO, Grant Russell; and the company's COO, Paul Boris. Before I turn the call over to Paul Travers, I would like to remind you on this call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and the 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 of these forward-looking statements as a result of certain factors not limited to general economic and business conditions, competitive factors, changes in the business strategy or development plans, the ability to attract and retain qualified personnel, as well as changes in the legal and regulatory requirements. In addition, any projection as to the company's future performance represents management's estimates as of today, August 9, 2017 and Vuzix assumes no obligation to update these projections in the future as market conditions change. This morning, the company issued a press release announcing its financial results and this evening the company plans on filing its 10-Q with the SEC. So, participants on this call who may not have already done, so, may wish to look at those documents as we provide a summary of those results discussed on today’s call. Today's call may include some non-GAAP financial measures. When required, reconciliations to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in the Quarterly Filings at sec.gov, which is also available at www.vuzix.com. I will now turn the call over to Vuzix's CEO, Paul Travers, who will give an overview of the company's business activities and developments during the first quarter of 2017. Paul will then turn the call over to Grant Russell, our CFO, who will provide an overview of the company's second quarter results. Following Grant, Paul Travers, Vuzix’s COO will provide an update on key strategic initiatives and business development activity. Paul Travers will then call Paul Boris, to talk more about the company’s outlook, technology, and the programs for growth. We will then open the call up for Q&A after management update. Paul?

Thank you, Andrew. I just want to ask quickly, is the audio still sounding bizarre? Because I don’t think anybody is going to be able to hear me if it’s as garbled as it was with you Andrew.

It is loud and clear sir.

Okay, thank you. Thank you everyone and Andrew. Hello everyone and thank you for all joining our call today to discuss the company’s second quarter 2017 financial results and business outlook for 2017. Although it has taken longer than all of us would have liked, we are truly at an inflection point at the company. To support the growth and maximize the opportunities at hand at Vuzix, I’m happy to report that last evening we entered into agreements relating to the sale of 1.5 million shares of our common stock at an offering price of $5.75. The gross proceeds from the offering will be $8.625 million before deducting commissions and estimated offering expenses. This transaction was completed in a matter of a few hours and was led by our largest shareholder AIGH. The book primarily consisted of existing and new institutions and was done at only 5.7% discount to our closing price on Tuesday. With these added dollars of Vuzix balance sheet is strong and provides the company with the flexibility to maximize our business opportunities and continue to aggressively bring our Blade 3000 product to market. While at the same time accelerating our near term business results in the second half of 2017 as we move towards positive cash flow. During the second quarter of 2017, I’m going to paraphrase just a few numbers here because I think its important points to make. Grant is going to give you the full details in a bit of course. During the second of 2017, we recorded our second consecutive $1 million plus revenue quarter for Vuzix. Q2 sales of $1.3 million are a record for Vuzix and overall first half 2017 sales of 2.5 million are encouraging compared to 0.9 million in the first half of 2016 and 2.1 million for the full year in 2016. Q2 year-over-year revenue growth came in at the 136% of 2016 and although not a typical comparison, the first half of 2017 results have already outpaced our 2016 full-year revenues by approximately 20%. It’s clear that business is accelerating at Vuzix and we're just getting started. With the recent addition of Paul Boris, as Chief Operating Officer the management team made a conscious decision to take a brief pause in our M300 product delivery efforts in Q2 until after the M300 OS 1.2 Firmware was complete. This decision resulted in the timing variants on the M300 product shipments in Q2. Q2 M300s sales were also impacted by the transition of our manufacturing operations from the USA to China, which was not completed until July, a few weeks later than our original target. To transition to high volume manufacturing this transition to a high volume manufacturing from the US facilities China also came with some additional one-time costs, related to manufacturing, which impacted our gross margins in the current quarter, but we will quickly dissipate in Q3 and beyond. Grant will provide additional commentary in the gross margins in the current quarter, as well as expected improvements we will see in Q3 and beyond. Going forward, we anticipate business results to grow significantly over the second half of 2017 and continue to accelerate into 2018. Second half 2017 growth will be driven by our steady appetite of the M300 sales, plus commercial volume sales to Toshiba beginning in the fourth quarter. We also expect initial sales of the Blade 3000 developer kits in the fourth quarter. As we begin the plan for 2018, we expect the full-year contribution of Toshiba sales or significant uptick of an M300 enterprise sales, plus meaningful contributions from the Blade 3000 beginning in the first quarter of 2018. Successful large-scale deployments hinge on producing quality hardware and the performance of the device with our customers. With our recent OS 1.2 Firmware update coupled with a manufacturing transition of the M300 from the US to China, the company expects continued growth with smaller volume customers and we expect to commence large-scale deployments, larger scale deployments with over the second half of 2017. In addition, we’re engaged with a significant grosser of other companies doing PLC programs, and smaller scale rollouts with our M300 Smart Glasses. ADR research recently polled 455 U.S. based companies and found that 75% of respondents express some level of plans to implement augmented reality technology. And I can say we see this with our own customers, with not only interesting deploying, but physical plans in place to implement our Smart Glasses. Again, our focus over the second half of 2017 will be to take advantage of this high-level interest and our leading position by converting our active and growing pipeline in the commercial deployments. I would like to share just a few examples. DHL last week announced the completion of its global augmented reality pilots and expansion of its vision picking solution in more warehouses around the globe, establishing a new standard in order picking for the industry. Trials have shown an improvement of productivity in productivity of 15% higher accuracy rates and a 50% reduction in on boarding and training times. For DHL, the technology has matured enough to become a standard replicable solution for their customers, aligned faster and easier implementation in their operations helping them to benefit from productivity gains with increased speed of operations and better picking accuracy. To support this effort, we expect a significant uptick in deliveries to DHL over the next 12 months. Vuzix also partnered with the UVmax to deliver the M300 Smart Glasses to John Deere for vision picking. Within just few weeks of deployment, John Deere workers reduced error rates to near zero. Improved picking speed and eliminating the need for hand scanner at their machine replant assembly line in Mannheim Germany. Vuzix also partnered with UVmax to deliver M300 Smart Glasses to WS Kunststoff-Service, a hands free Smart Glasses solution for manufacturing. Within a few months, two assembly lines were up and running, resulting in significant performance increases for the assembly line and training processes including eliminating the need for workers to leave the production line position to consult the ship leaders and instead use their M300 Smart Glasses to receive real time telepresence support to solve the issue. We are literally integrating the M300 across the manufacturing process. Not just in a single task. This is the future of Smart Glasses and enterprise, not just vertical integrations, but these systems will be integrated throughout the operations. Outside of traditional enterprise customers, Vuzix sees significant opportunities with some of our VIP partners that for example develop solutions to support the low vision community. There are currently over 10 million Americans that are blind or visually impaired and using the M300 with deep learning and AI users affectively have a two way that opens the world to them. We are looking forward to sharing more about these kinds of applications and the significant impact they will have on Vuzix business over the coming months. With much more to share here, as well as the recent developments of Vuzix, but first let me turn the call over to Grant for a review of the financials and then Paul Boris and I will provide more detailed update on the second quarter going forward. Grant?

Thanks Paul. Good morning everybody. Before I begin, I would like to point out that many of the numbers that we are reporting dollars, I will be referring to them in thousands. And I also encourage folks to look at our 10-Q when it is filed. I must apologize, we don't normally like to have our conference call before we've filed our 10-Q with the SEC, but due to the timing of certain events, we felt that it is important to have the call. They will be filed tonight. So, if anybody has any additional questions after the fact, you can contact us through one of the various RI or IR forms and we will try to answer it. As Paul said, revenues for the quarter ended June 30 were $1.325 million, as compared to $1.56 million, 136% increase over the prior year, you don't have the benefit of this detail as of yet, but 63% of our sales were sales of Smart Glasses, primarily driven by sales of our M300 and that is up 147% over the prior year. Sales of Video Eyewear were up somewhat, so we have cut the price, so there is continuing to sell. Sales of waveguides were 116 there and a 9% of revenue, and Paul will update you a little bit about that. And sales of engineering services reached the bulk of [indiscernible] contract with 32% of revenues or $420,000. Well as I said, overall the M300 sales and Toshiba program accrued billings are on were the big drivers have increased revenue. Overall, we reported a negative gross profit for the quarter. That was primarily as Paul mentioned, due to the result of cost related to the decommission and transition from a California-based contract manufacturer, the M300 over to China. Those are one-time and it is done with. Excluding those costs, we did achieve an overall 52% margin on gross product sales. Now that’s before overheads and anything else. And that should continue to improve now that we are firmly located offshore. R&D costs for the quarter were $1.199 million, as compared to $1.669 million for the prior year. That’s a reduction of 28%. The big thing there, reductions were caused through the result of decreased development work on the M300, which we were actively involved in last spring, and the reclassification of $178,000 in R&D wages to the cost related to the Toshiba contract, up in cost of sales. Sales and marketing costs for the three-months ended June 30 were $800,000, as compared to 652,000 for the prior year's quarter. The big variances there were activities and marketing around the M300, you know trying to get [indiscernible] accelerated. G&A for the quarter was $1.308 million, as compared to $1.2 million in the prior year. The increase was driven by new accounting and internal IR personnel, as well as companies new CEO, Paul Boris who joined us in early May and that was offsetting those increases where reductions in spending on SOX consultants, and they reduced our spending on investor relations activity year-over-year by $173,000 for the quarter. General and other expenses were $90,000 as compared to 274,000 in the prior year. The big reductions there were related to the biggest convertible debt and the amortization of the discount and issuance costs. That debt is now well retired and everything was converted as of June 30, so these are exclusive officially debt free. Overall, the company reported a net loss of $4 million and $70,000 versus a loss of $4.103 million for the prior year or $0.23 a share. Moving to the balance sheet as of June 30, we had cash and short-term marketable securities of $6.1 million on a pro forma basis after taking into account the stock offering that we announced. This morning our cash position on a pro forma basis could have been around $14 million as of June 30. From an operations cash consumed standpoint for the first quarter, we used 3.716 million to fund operations, compared to $3.833 [ph] million in Q1 of 2016. It is coming down not as quite as much as we had hoped, but we’re going to make significant progress in the next couple of quarters. We had a positive working capital to position a $7.8 million as of June 30 and with our recent financings that would be over $16 million. In conclusion, we believe our cash and cash equivalents along with the proceeds from our announced offering today and the success of our execution of management's operating plans should be more than sufficient to meet our capital needs for the next year. With that, I’d like to turn the call over to Paul Boris.

Thanks Paul, thanks Grant. So, as I wrap up the first 90 days here at Vuzix, I have to tell you, I am really more excited at where we're headed than ever and I will get into a few of the details as to why. In addition, I would like to talk about what we have been able to accomplish over the last quarter and KPIs we’re tracking that allow us to remain focused on advancing the business, as well as continually refine our processes. I will give you a few specific examples, but rest assured there are many, many more that we won’t be able to cover just in the interest of time and the confidential nature of the relationships just yet. First, let’s talk about where we’ve been. One of the best indicators of a successful organization bringing new tools and technology to the market is their ability to deliver a series of minimally viable products or MVPs into use, and then iterate on the findings rolling all that back into the solution with a series of rapid improvements. So Eric Ries describes this in his book, The Lean Startup. How today's entrepreneurs use continuous innovation to create radically successful businesses. So, I suggest if you’ve not read the book and you’re trying to make sense of emerging technologies like this and the company is driving it, I’d suggest you pick that one up. Companies like my former employer GE used the concept in their FastWorks program, lean manufacturing leaders like Toyota, Ford, John Deere, Parker Hannifin, they use it every day as part of a process called Kaizen. In short, this is what the Vuzix's team had been focused on for decades and the end result is a solution that is the most robust for the vast majority of industrial used cases. So, I would like to call the M300 the 100% solution for 80% of the used cases. In addition, it allows that learning to be applied to the innovation pipeline for solutions like the Blade 3000 and others. This is in fact the way industrial leaders find, deploy, continuously innovate on solutions that are transformational. Second, where we are? So prior to joining the team Vuzix had been focused on the innovation areas [ph] I just discussed, as well as building their routes to market for broad adoption of our solutions. With over 50 VIPs, our key partner program and a longer list of VARs, value-added resellers, Vuzix’s efforts have resulted in a number of published successes with many more in the pipeline. So, I might digress there’s a lot of interesting news coverage on the impact of an innovative technical solution like industrial wearables. By contrast, the bar is set very high when companies tell these success stories through their own official communications channels. Understanding this is important in separating the height from the real progress in the market. So, when we see DHL's recently released video on augmented reality and vision picking or John Deere's video on the success and complex manufacturing, and these are all featuring the Vuzix Solutions deployed by UVmax to enable industry for initiatives, where the reports in smaller organizations like Brady and lead company with a 4 to 20x ROI and a 40% increase in sales wins directly attributed to their use of the Vuzix solution. So just let that sink in for a moment, the technical services company has been able to increase sales win rate dramatically by 40%. So in this case with help from our partner XOI, it’s clear that the solutions enabled by our VIPs are having a big impact in moving the market. Finally let's talk about the last 90 days, and how we’re complementing this foundation. There are three key areas we focused on, but in essence you can imagine how these activities have impacted almost every part of the business. So, number one, the supply chain reliability and execution, moving production to a more reliable and scalable group within our manufacturing partner team in China was critical to improving supply chain reliability. In addition, we’ve been evaluating and revising our processes to improve the reliability of not just the supply chain, but the devices themselves. And that’s required us to make some difficult decisions, but those decisions allow us to move forward in a more focused way and take advantage of the building demand. Number two, simplifying the delivery of our solutions. So this means enabling the devices so that engineering, operations, field service teams, and the like can test the devices more quickly in their own environments, again, in the spirit of Kaizen and the lean startup. We will have more to share on those efforts as they come fully online over the next quarter. And then third, developing new and deeper relationships directly with key customers and new types of partners. So, we need to be careful here because I want to remind you the in bond interest is merely an indicator of the future opportunity, but it does tell us that if we are moving in the right direction and where we stand with the respect to the relevant competition in the space and this is critically important. So with that in mind, I will give you a few examples from a number of areas where we are establishing new partnerships exploiting existing ones to support the emerging opportunities. We have enterprise software solution providers who want to deliver Vuzix Solutions bundled in combination with their application. There are enterprise solution integrators. These are the delivery partners that are pursuing us to incorporate Vuzix Solutions as part of their thought leadership and their solution template [ph]. We have large industrial companies in the consumer space, Tier 1 automotive suppliers, heavy industrial providers for utility infrastructure, transportation healthcare, and others pursuing as the team is part of their next gen facilities. We have complex machine, equipment, and infrastructure providers who want to bundle Vuzix Solutions in their solutions deck as a way to deliver next gen services and value-added solution. This breadth of interest as important as it validates at our current devices, actually are the 100% solution for 80% of the used cases, as well as the innovation cycle we have been focused on has allowed us to bring the most usable device to the marketplace. Essentially the previous areas of focus, those capabilities built out over time, prior to my arrival has delivered critical infrastructure. As I begin a renewed focus on supplying chain execution, new partnerships, and solutions that support real used cased generating hard ROI, I will talk about 15% productivity improvements in facilities that have already been optimized 40% increase in the closed rate for field engineering services. All of that earlier work will put us in a position to execute on the new partnerships, while supporting and exploiting a wide array of existing partners to bring immediate scale. We’re essentially building a digitally scalable business in a market that’s poised to explore. That’s supported by real used cases in hard business benefits. Directly, in contrast to what we see from many others in the space, which are aspirationally used cases, and untested overly complex or incomplete solutions. So, we’ve been accelerating in just 90 days. The next 90 will be focused on prioritizing the new opportunities, and solidifying those partnerships to convert the opportunity in the throughput, and I define throughput as devices delivered to customers for productive use. I hope this gives you a glimpse as to where we have been focused and how the capability of breadth of Vuzix complements the rest of the team, 90 days has gone by pretty quickly, but there is still plenty to do and our focus and execution will allow us to capture big chunk of this emerging space. I’d like to now turn the call over to the other Paul, Paul Travers.

Thank you, Paul. Over the first half of 2017 we successfully transitioned our manufacturing to China. We continue to work looking closely with our VIP partners to improve the design software and performance of our M300 enterprise smart glasses. We also have a continuous improvement program in place and are putting out consistent software updates to improve the M300 experience. The bottom line, the M300 is moving to a full production/sales program at Vuzix. As a result, we're starting an active marketing and sales campaign and that includes some national TV advertising. We intend to have a series of stock that will grow to include some of our larger partners, solutions, and actions. These stocks will be a call to action, making the point that if you’re not moving forward already, you’re behind. From an OEM perspective, our project with Toshiba to develop Toshiba smart glasses powered by Vuzix is progressing well as we have finished the query for the device in the second quarter and a large portion of the software is now in hand. We have also built out the production line in China and are preparing to run the lines for the first time in this quarter. We’re in the final stages of negotiations with Toshiba on the supply agreement that remain on track to view the involvement production for Toshiba in the fourth quarter of this year. We’re very optimistic about the project roadmap here with Toshiba and the opportunity to generate a significant piece of business for the company. Our relationship and engagement with our Tier 1 consumer electronic partners continue also. We’re supporting the needs of our Tier 1 OEM customers as they build to consumers smart glass prototypes featuring Vuzix Waveguides and display engine [indiscernible] and are looking forward to the next steps with these folks. In addition to these active OEM engagements, Vuzix continue to yield new requests and as new discussions with the new interested parties of various sizes with representations across various industries. OEM engagements continue to be one of our areas of focus and we look forward to providing additional color as the year unfolds. Let’s more quickly to the Blade 3000. Our Blade 3000 smart glasses continue to move towards commercialization during the first quarter of 2018. We’re right on track with this effort and expect to be receiving in EVT units during the third quarter and DVT units beginning in the fourth quarter. You guys will recall we did that same process with the M300. The first production run of the Blade 3000 is expected to commence in Q1 of 2018. Finally, I would like to add that we received continual sales enquiries on a daily basis from interested third parties that can't wait to get their hands on the Blade 3000. I don't believe we have seen a product in our history with this level of the upfront interest. At the same time, the hardware is moving forward, the team of Vuzix is working to create an amazing software experience for our users with out-of-the-box applications in the core or less that will resonate well with business, [indiscernible] and the consumer. The Blade 3000 is not going to be another piece of hardware. It’s going to be an experience for our customers. On the Waveguide front, we continue to innovate in this area with multiple patents being filed in Q2 will innovate that effort. These innovations are driving today and what will be tomorrow's products at Vuzix. That said the Waveguides for both the M3000 and the Blade 3000 are complete and we are ready to crank up in production. In summation, 2017 is a pivotal year for Vuzix. The first two quarters of 2017 shows Vuzix is off to a good start and with the announced cash raised, we added approximately $8 million of net proceeds. We will add approximately 8 million of net proceeds to firm up our balance sheet and allow us to pivot our business into a rapid expansion phase beginning over the second half of 2017, and into 2018. We are one of the leaders of AR in the enterprise space, a market [indiscernible] in the tens of million dollars we’re just getting started and are looking forward to an exciting second half of 2017 as the Vuzix story unfolds. Now let me pass the meeting to Andrew to begin the Q&A session.

Thanks Paul. We would now like to open up the call for questions. [Operator Instructions] Our first question comes from the line of Brian Kinstlinger of Maxim Group. Please go ahead with your question.

Great thanks. I'm just curious with the average selling price, the smart glasses, where I thought you mentioned discounted pricing, so maybe given that demand has exceeded supply currently, if we should expect discounted pricing is going to continue and if I heard that correctly?

I mean our average selling price of the M300 is around $1,100. I mean, we - our biggest. That’s our average base. I mean, I don't - as far as how that my equate the end of sales and reported revenues and the other, I mean we still had a period where we were fulfilling preorders of M300 migration shipments. And there is different amounts of revenue recognition on that because there was a portioned recognized on our original M100 sales, so that momentarily or temporarily deflated some of the average numbers, it might have been recognized on a revenue standpoint. So, is that - hope you followed me there?

Yes. And then can you talk about where capacity is today with your announcements and then will you hope or expect to end the year with capacity?

About a 1000 units a month right now and we will be stepping that up north onward to 2000 before the year is over.

But that said capacity could be 50 times that, given adequate lead times to get components. Our manufacturing partner in tools could runway with way larger volumes. So, it’s a reasonable target for Q2 to be 2,500 given you’ve got excess demand, but you also have to ship the product in time for the quarter?

Like I said, you will see us in the third quarter in the 1000 plus kind of numbers.

I meant 3Q, sorry.

Yes, you will see us in the fourth quarter in the 2,000 to 2,500 timing volumes.

Okay. And then with the comment on DHL, can you kind of talk about what that means in terms of maybe pieces over the next 12 months, obviously that you’ve got a huge warehouse in logistics staff, so maybe talk about what that might mean for you?

So, let me, this is Paul Boris. So let me put it in perspective. I mean these companies have thousands, I mean GE has got estimated 120,000 people that touch, you know lay hands on product either picking or assembling or repairing. They really don't project those types of things. They roll these technologies out as quickly as they can consume them. Anybody who puts a firm stake in the ground with those is purely speculating because it’s really dependent on a lot of things that the company is driving. So regardless, if they see value and they have reported specific value, they reported in their own communication channels that’s part of the industry furrow, you will see that accelerate for sure.

Great. And then finally, can you highlight what the one-time cost were for decommissioning the California manufacturing or any other one-time cost that you had?

It was around $460,000 for the quarter.

Great, thanks so much.

Thank you, Brian.

Thank you. [Operator Instructions] Our next question comes from line of Rob Stone with Cowen & Company. Please go ahead with your questions.

Hi guys, I have a few. I wanted to follow-up first on the topic of gross margin, I know you would essentially mark the video headphones down to cost, could you say, how much that has contributed to sales in the quarter and obviously that would have had a zero gross margin or so, if that assumption is correct, and related to that how much inventory is left related to that product?

The Video Eyewear sales in Q2 were 5% of total revenues or $70,000. As far as inventory goes there is, probably got about another 100,000 [indiscernible]. And I got to say that the eyewear is the kind of product that from now to the end of the year is where it will meet most of this interest in the market. It’s a consumer oriented device, gets holiday, that sort of stuff.

So is that inventory still at the level of components and subassemblies though I’m trying to translate that to what might be left in potential units of that product?

About 80% is finished goods and the balance is work in process.

Okay.

Our last few thousand pieces and they are on their - is shortly going to be on their way from China.

Okay. So that’s a product I assume you don't expect to carry beyond the end of this year then?

There probably won’t be much left by the end of the year, if there is, I can’t say we would just kill it, but we were just going to sell it out and end it. That’s correct.

Okay. Alright. And then putting the big impact of one-time cost and the sequential increase in volume and starting to get the benefits of moving to China, I know you are not at this stage of giving precise guidance, but does all that math suggest that you should see a positive gross margin in the third quarter?

We would expect though. Certainly improved margins and ultimately we have our fixed components that are in cost of goods. So, if there were cost overruns and achiever project which we don't think they are, I mean we're recognizing around a percentage completion basis, but we’re continually updating our forecast on our cost in the project. So, we're not expecting, but I'm just telling you some of the potential risk. So, it should hopefully be positive.

On the subject of operating expenses, which declined sequentially and also year-over-year and you noted that some of that was reallocation of cost into cost for the Toshiba project, I assume that as you get finished with that development work and Gary just started manufacturing, we should see OpEx move back-up as the folks working on Toshiba go back to other projects, but what sort of a level of OpEx are you expecting in the second half, especially with respect to increased marketing and TV ads?

Well in the R&D side it was $180,000 of wages [indiscernible] for Q2. So, we are not anticipating or making any headcount changes when they are no longer working directly on the [indiscernible] as that would certainly pull back in. And another quarter where there is a rate classes, so from Q4, when the projects both began we will be back to the regular expenses as part of R&D. Sales and marketing costs, I mean there is, we are honestly are in the summer periods, it’s not a part of the prior quarter for any gig portions there is not a lot of trade shows, there is fewer trade shows in the second half of the year then traditionally is in the first year. So, I mean we have some promotions and smaller things we are participating in, but I wouldn't expect there to be a major uptick in the quarterly average when it comes to sales and marketing expense, at this pace.

Even with TV ads or…?

That is an awareness program with an 800 number to try to tell our story and say we’re there in effect of Google Glass to get all the television coverage. I mean, we [indiscernible] I believe a little less than $100,000 with this expense and we’re going to revaluate it. I don't think it’s going to become a monthly expenditure of $100,000 at one time on television ads for the M300.

Okay.

That is correct. It will judiciously be used when we have, like I said there is going to be some partners spots that we anticipate coming up in the future, so it is a selective spend.

I mean we are getting callbacks regarding 800 numbers. We have got people to follow-up with. So, like any other marketing investments you try to look at your ROI and at this stage go on experiment that we’re seeing some encouraging signs.

Great. A couple of product roadmap questions for Paul. One is, so Blade is you gave the schedule for EVT and DVT and your work is done on the waveguides for M3000 as well, I think you said, could you provide us a schedule update for M3000?

It’s going to be sometime in the latter part of the first half of next year.

So latter part of first half 2018?

Yes.

Okay. And then finally you had notable waveguide revenue in the quarter with your CE OEM partners, are you still expecting to go into production with those partners in the fourth quarter or will you see another quarter of sort of low-level volume as they do their development work just thinking about the slope of the ramp there for waveguide component?

I think that, well waveguide component for Vuzix is going to go up significantly as we go into the end of this quarter and into next year of course, but waveguide revenues from these guys is still going to be not significant until I would suggest in midway through 2018.

Okay. That's all I have. Thanks.

Thank you. We’ve reached the end of our question-and-answer session. I would like to turn the floor back to management for closing comments.

I would like to thank everybody for joining the conference call. We're looking forward to a fantastic 2017 and thank you guys for being shareholders and looking forward to a great fall. Thanks everybody.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. I thank you for your participation.