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Vuzix (VUZI) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribing – Nov 8, 2021 at 11:30PM

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VUZI earnings call for the period ending September 30, 2021.

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Vuzix (VUZI -1.03%)
Q3 2021 Earnings Call
Nov 08, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to the Vuzix third quarter ending September 30th, 2021, 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.

Ed McGregor -- Director of Investor Relations

Good afternoon, everyone, and welcome to Vuzix's third quarter 2021 ending September 30th financial results and business update conference call. With us today are Vuzix CEO, Paul Travers; and CFO, Grant Russell. Before I turn the call over to Paul, I would like to remind you that on this call, management's prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements during the question-and-answer session. Therefore, the company claims the protection of the safe harbor for forward-looking statements that are contained in the Private Securities Litigation Reform Act of 1995.

Actual results could differ materially from those contemplated by any forward-looking statements as a result of certain factors, including, but not limited to, general economic and business conditions, competitive factors, changes in business strategy or development plans, the ability to attract, and retain qualified personnel as well as changes in legal and regulatory requirements. In addition, any projections as to the company's future performance represent management's estimates as of today, November 8, 2021. 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 financial results and filed its 10-Q with the SEC.

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So participants in this call who may not have very done so may wish to look at those documents as the company will provide a summary of the results discussed on today's call. Today's call may include certain non-GAAP financial measures. Required reconciliation to the most directly comparable financial measure calculated and presented in accordance with GAAP can be found in the company's Form 10-Q quarterly filings at sec.gov, which is also available at www.vuzix.com. I'll now turn the call over to Vuzix' CEO, Paul Travers, who'll give an overview of the company's operating results and business outlook.

Paul will then turn the call over to Grant Russell, Vuzix' CFO, who'll provide an overview of the company's third quarter financial results. We will then move on to the Q&A session and finally wrap up with a few closing remarks by Paul. Paul?

Paul Travers -- Chief Executive Officer

Thank you, Ed. Hello, everyone, and welcome to the Vuzix Q3 2021 conference call. We grew total revenue both sequentially and year over year for Q3. Total Q3 sales was up 9% over the same period and up 34% for the nine months ended September 30th, 2021 versus the prior year.

This increase was led by smart glasses sales growth of 12% and 51% as compared to the quarterly and year-to-date periods of 2020. As we continue to see steady demand from some of our largest repeat customers, which continues to be a driving force of our base business on a quarterly basis. While the quarter came in on the low end of our expectations for a variety of factors, including logistics shipping challenges internationally and the exact timing of some of our expected larger customer opportunities, our competitive position has never been stronger and our growth prospects never brighter. In addition, to repeat customer orders, we also continue to expand our distribution channels across multiple regions, including the EMEA, Latin America, and Canada to support industrial use cases, applications, and customers.

We saw continued strength in our Healthcare business segment, specifically in the operating room related to patient surgeries, and we have made steady progress with our software partners toward what would be the largest deployment of smart glasses ever with some of the leading companies in the world to support their warehousing, logistics, and training for onboarding new employees. We have already shipped initial orders against programs that are rolling out, and we expect follow-on orders to be significant as the deployments expand into 2022. Additionally, our OEM prospects continue to grow as new engagements are being added with follow-on NRE programs commencing and with multi-year product supply agreements being negotiated that should generate important business in 2022 and beyond. Lastly, we ended the third quarter with cash of roughly $129 million, which provides Vuzix ample runway to grow our business, drive ongoing product development and expand strategic initiatives.

As Slide 5 illustrates our quarterly and annual Smart Glasses sales growth has been steadily trending upward for Vuzix over the last five years. Year to date, our Smart Glasses sales have grown approximately 51%, almost equaling our total for 2020, and we expect our full-year total for 2021 will show a solid year-over-year gain. And as nice as these growth trends are, the total top-line revenues is modest just yet as the expected AR Smart Glasses industry's growth phase has only just begun. We have clearly moved beyond the proof-of-concept stage with many senior management at several major corporations and saved on with their support, and we're now working through the logistical details for high-volume rollouts.

Industry forecast for the Smart Glasses industry indicate that it is expected to grow to millions of units on an annual basis over the next five years. Gradual enterprise adoption is underway today across a variety of market verticals and we are confident that Vuzix is winning over the competition. There has been a lot of buzz about the Metaverse over the past few weeks following Facebook's, now Meta, platform's broad statements about building it out along with Microsoft announcements of their own Metaverse initiatives. That said, the Metaverse is not a new thing, at least as it relates to Vuzix' long-term vision.

And as we expect, these announcements will bolster our position in direction. These new industry initiatives should represent a significant positive for both Vuzix in the AR Smart Glasses industry as a whole. It's worth keeping in mind that the metaverse is not just about virtual worlds that users congregate, socialize, or play games in. And it's basically been a cornerstone part of the AR, VR, and Smart Glasses industry all along, especially for enterprise.

There's going to be an almost infinite number of enterprise use cases and here are just a few. Imagine accessing IoT sensors and systems simply as a function of where you are looking live on the plant floor or receiving changing work instructions on the fly through your AR Smart Glasses or live remote guidance of a complex medical procedures and network digital equipment. And in the world of logistics, support for picking and pallet stacking with advanced AI, telling workers where to stack or what to pick, all communicated while being hands-free. The bottom line is that Vuzix' AR Smart Glasses and the technology help bring the Metaverse in the real world together for the user.

And in doing so, create cost savings and, in some cases, bring new capabilities. Not in some distant future with the coming metaverse, but now. Without a doubt, this is game-changing technology and clearly the future of computing. And Vuzix is out in front of this as a leader in the technology of connecting people to all of this metaverse information.

We are seeing growth in all of our major geographic regions, driven by customer success within healthcare in the broader enterprise market segments with continued demand from our major customers and partners. As we look to the remainder of 2021 and into 2022, we expect growth of Smart Glasses adoption to continue as the industry matures. Before COVID, logistics was one of the largest and most active verticals for Vuzix Smart Glasses. Activity in this vertical paused during the most challenging periods of this disease, but it is now heading back on track and accelerating as the need to gain supply chain efficiencies comes to the floor.

We are seeing expanding engagements with many leading players in this market segment. Our customer success team is in close communication with these customers and our software partners. And in many cases, we have been on-site regularly to support the business groups. In multiple cases, we have moved beyond pilots and are in the functional rollout stages in select locations.

These next steps should be networkwide and/or global deployments. Over the last several weeks, we announced a few of the follow-on orders that we have received to support the needs of some of these larger customers. These customers are among the most innovative companies on the planet, and the overall feedback regarding Vuzix Smart Glasses and the solutions running on them has been fantastic, well beyond the initial WOW factor, and focused on the operational benefits. In several cases, we are up against companies that have been solving the logistics problems for our customers for years with older alternative technologies.

To replace these legacy solutions requires robust, tested, and proven solutions that bring better value while integrating into existing IT architecture, and our smart glasses with vision picking brings just that. Our customers love the performance of our smart glasses products, especially the noise-canceling microphones required in the noisy environments the glasses are being used in. They love our crisp high-contrast OLED display, critical for successful vision picking. They love the on-device scanning provided by our smart glasses HD camera, allowing an on-device solution for even barcode scanning.

They love the lightweight and easy-wear design of our solutions with their ergonomic wearability options. And most importantly for them, Vuzix smart glasses are a multitasking and programmable device that can remove their need to use multiple devices throughout their operations, which means an investment in one area can get leveraged across others. The volume potential associated with these opportunities represent many thousands of units, and we believe this is a market vertical that Vuzix can and will ultimately own. And for more than a few of these customers that are now beyond testing and proof of concepts with Vuzix, the planning stages for broad rollout is underway.

That said, at the moment, healthcare is our largest growth sector. According to research Nester, the global healthcare augmented reality market is expected to reach $27 billion by the year 2030, representing a 19 times increase in size in a compounded annual growth rate of over 33% from 2020 through 2030. Vuzix has made considerable inroads into the healthcare market over the last 18 months and has quickly grabbed the attention of research analysts and has been recognized as one of the preeminent players in this sector. Vuzix smart glasses routinely get called out in their report as the latest state-of-the-art technology available.

Again, healthcare continues to be one of our fastest-growing market verticals and accounted for a significant portion of our total revenue in Q3 as our key healthcare solution providers and direct customers continue to scale. The upcoming customer slides show some of the progress that is being made with a few of these key accounts. Within healthcare, patient care, medical training and education, and surgery account for nearly 70% of the global healthcare market by application for smart glasses and are expected to grow by over 1,800% by 2030. Patient Care is one segment that Vuzix has gained early traction to support better outcomes for patients and their healthcare providers.

The advantage for providers is it allows patients to stay at home while home care nurses take their smart glasses with them to provide a communication link to the hospital to support regular checkups and therapy. Medical training and education is another segment Vuzix is gaining commercial traction in. We have discussed Ohana One in the past a global surgical training, nonprofit organization that is working with prestigious teaching universities such as Johns Hopkins, Stanford, Oregon Health and Science, and private practices to connect surgeons around the globe and to provide remote surgical training and education through Vuzix smart glasses. Ohana One's goal is to have their program grow to 1,000-plus mentor/mentee pairs using smart glasses.

They're having great success. Their partners and supported doctors love the solution, and they are off to a strong start on hitting this goal. Surgery is a third segment that Vuzix is gaining commercial traction in and is one segment that is emerging as one of the exciting market verticals for the company as a whole. Over the last 18 months, Vuzix has gone from zero to having its products used in well over 1,000 operating rooms worldwide to support surgeons across a variety of specialties to provide better patient outcomes inside the operating room, while lowering the cost of care at the same time.

Medacta, a Switzerland-based international supplier of innovative orthopedic products and accompanying surgical techniques with annual sales of 400 million, is of Vuzix Smart Glasses-based augmented reality surgical platform provider that continues to make waves in the surgical community with their next AR solution for knee, shoulder, and spine surgeries. Medacta continues to place recurring orders for the Vuzix played as they gain traction within the surgical community. As they expand through Europe, most recently, they announced the successful completion of their first shoulder surgeries in France. Pixee Medical based in France is another Vuzix smart glasses-based augmented reality surgical platform provider that is also gaining commercial traction.

During the quarter, the first medical report on the preliminary results of their AR surgical platform was published and confirmed the accuracy and effectiveness of their Knees+ solution. Pixee Medical is now primarily focused on commercial traction and marketing efforts within the surgical community. Pixee has hundreds of Vuzix smart glasses in the field and has completed a significant number of surgeries guided by Vuzix smart glasses in the operating room. In fact, Pixee's first Knee+, total knee replacement surgery in the U.S.

was recently performed by Brigham & Women's Hospital in Boston, which is a significant milestone as the U.S.A. is the largest market for total knee replacement and represents 50% of the total market at over 800,000 total knee replacement surgeries a year. Over the next 12 months, we expect demand from our AR surgical partners to increase significantly as they continue to support their current markets and for new market growth. Rod & Cones, a provider of a fully virtual surgical collaboration platform has placed hundreds of Vuzix smart glasses into operating theaters with leading medical device companies and hospitals across the EMEA and is now expanding their commercial efforts beyond the EMEA into the United States, Latin America, and Asia Pacific.

A recent example of a use case was the live streaming of a robotic esophageal surgery for an advanced medical training course. I recommend you go to LinkedIn to view their most recent video. "Welcome to the World of Rods & Cones" to get a first-hand feel for how seamless their solution is. Medtronic, the world's largest medical device company is another global user of Vuzix Smart Glasses and has hundreds of M400s already deployed and being used in operating theaters around the world.

with over 100,000 employees, many of them service and medical technicians, Medtronic represents a significant deployment opportunity for Vuzix. Similar to the growing demand from our AR surgical partners, we expect demand from Medtronic and Rod & Cones, and others in this sector of healthcare to increase significantly over the next 12 months. In summary, the healthcare industry is embracing AR smart glasses, and they are becoming part of the operational framework, not in the future, but now. Most major organizations in healthcare have mandates to grow their AR XR initiatives from the operating room to the ICU.

And as such, AR is now a permanent part of this industry. With all this momentum, we are confident we will see accelerating opportunities into the foreseeable future. As Slide 13 illustrates, we currently generate the bulk of our revenues from the sale of Smart Glasses hardware. But as we have said on previous calls, we are focused on the long-term objective of creating a base of business that will be driven by three major indicated segments of Smart Glasses hardware, Smart Glasses SaaS software, and OEM supply of products and technologies to the broader market.

Vuzix has a concerted effort to augment our business model beyond a focus primarily on Smart Glasses hardware by also moving upstream closer to the ultimate customer with a complete solution. In particular, the ability to generate meaningful SaaS-based revenues centered around our smart glasses with our software partners and ourselves will help provide us with a not only substantially larger revenue base, but one that is recurring and with much higher margins. Vuzix continues to invest in our core business, including Smart Glasses software and customer service to help accelerate Smart Glasses sales and industry adoption. We are continuing the development of our next-generation smart glasses based on micro-LED displays and remain on track to deliver our first DVT, or design validation test units, before the end of this year.

We have also been working on enhancing our core M-series solutions with new features and line extensions. And we expect to introduce three new monocular Smart Glasses products in 2022. Vuzix also continues to focus on building out our internal infrastructure with key hires in support of our customers in their coming deployments and in product development as we prepare for our next phase of top-line revenue expansion. Our organization has grown over the last five years from 50 to over 100 employees.

I'm very proud of the level of teamwork and employee satisfaction that exists within our organization and for Vuzix to be named one of Newsweek's top 100, most loved workplaces for 2021. We are among some of the most recognized brands in the world. Vuzix continues to make investments in our people, and we have a great team in place that is focused on winning an enterprise with smart glasses-based solutions and winning with our core technologies to grow our OEM customer base and supply to the broader augmented reality -- excuse me, metaverse markets. In addition to the technology already under the hood at Vuzix, Vuzix maintains an active list of potential companies in our space from SaaS-based solutions to the core technology itself that could significantly enhance portions of our business and generate high-margin accretive SaaS-based revenue and bring Vuzix even closer to the customer.

We currently have multiple active irons in the fire, and we're progressing well in our due diligence and selection process. Finally, this will be an ongoing activity for Vuzix going into the future. On the internal solutions development front, our Vuzix Custom Solutions Group, formerly Integrated Solutions Business Unit, ISBU is focused on the acceleration of enterprise-centric solutions in both new and underserved market verticals. The group will support current and future partners by assisting and developing and implementing innovative SaaS-based solutions around specific use cases in various industries.

The core team is streamlined and focused with a strong background in building such solutions. The group has already been engaging with a number of innovations to drive requirements around solving problems and implementation into complex enterprise environments using Vuzix' existing smart glass hard work with the enhancement of custom software. Vuzix produces some of the leading smart glasses in the industry, and our current incoming deployments are proving it. We also believe our core technologies, which include optics, displays, and systems represent the keys to the kingdom for future AR smart glasses.

The metaverse and related software solutions across the entire space and put Vuzix as a frontrunner. Take our waveguide technology alone, for example, Recent transactions in the waveguide space from a few competing waveguide technology companies reflect valuations in the $500 million range for companies that only produce waveguides. We not only have high-volume waveguide production in hand at Vuzix, we are pushing the envelope with some of the thinnest waveguides made to date at less than 0.5 millimeters. We're quickly moving to support high refractive index designs with high-volume manufacturing.

And we also are producing some of the highest efficiency solutions available with capabilities providing very unique features for micro-LED displays, that are just now starting to enter the market. In this area alone, we feel that Vuzix has built significant value proposition for waveguide and display projector solutions that will lead in the augmented reality space. This is just one arrow in Vuzix technology quiver. We have hundreds of patents and patents pending, and we are working on other critical areas that will ultimately be needed for the broad AR markets to flourish.

Our patents and patent-pending portfolio increased by another 23 in this last quarter alone, one of our largest jumps, and we have a lot more on our drawing boards. As this industry achieves even larger scale, the control and ownership of these key technologies that we believe are essential to deploying smart glasses optics and displays at scale will significantly enhance shareholder value. As I stated last quarter, 2021 is a transformational year for Vuzix. And frankly, it has been for the entire AR industry at large.

We are making solid progress against our key operating goals for 2021, and we look forward to 2022 unfolding. I'd like to now pass the call over to Grant for his financial review. Grant?

Grant Russell -- Chief Financial Officer

Thank you, Paul. As Ed mentioned, the 10-Q we filed this afternoon with the SEC offers a detailed explanation of our quarterly financials. So I'm just going to provide you with a bit of color on some of the numbers now. Our third quarter total revenues for the three months ended September 30th, 2021, rose 9% over the prior year's period to $3 million.

The increase was a result of the 12% gain in Smart Glass sales, led by continued growth in our M400 and M4000 smart glasses. We had no engineering services revenues in the quarter versus $0.1 million in the prior year's period. There was an overall gross profit of $0.6 million for the three months ended September 30th, 2021, as compared to a gross profit of $0.3 million for the same period in 2020. Overall, net gross profit margin was 19% for Q3 2021 as compared to 13% for Q3 2020.

The increase was related to an improvement in product direct margins and the fact that the prior-year period included a $0.2 million inventory reserve for obsolescence. R&D expense was 3.3 million for the three months ended September 30th, 2021, compared to 1.9 million for the comparable 2020 period, an increase of approximately 74% and consistent with the spending guidance we provided on our last earnings call. The higher R&D expense was primarily due to increases in external development expenses related to our next-generation smart glasses, higher salary, benefits, and non-cash stock-based compensation due to headcount additions and increased product compliance testing for new markets and higher R&D consulting fees. Selling and marketing expense for the three months ended September 30th, 2021, rose 70% year over year to 1.6 million due primarily to increases in salary, benefits, and non-cash stock-based compensation expense from headcount additions, more foreign sales consultants, and higher advertising expenses.

General and administrative expense for the three months ended September 30, 2021, was 3.1 million, an increase of 90% or 1.5 million largely due to headcount additions resulting in higher salary and stock-based compensation-related expenses, which drove 1.1 million, inclusive of a $0.4 million non-cash charge related to stock-based compensation, mainly under our new LTIP plan. increased legal fees of $0.3 million and $0.1 million extra for insurance costs accounted for the balance of the overall increase. The net loss attributable to common shareholders for the three months ended September 30th, 2021, was 7.9 million or $0.13 per share versus a net loss of 5.3 million or $0.13 per share for the same period in 2020. Now for some balance sheet highlights.

Our balance sheet remains strong with the cash and cash equivalents position of 128.7 million as of September 30th, 2021, and a networking capital position of 140.3 million. Cash used in operations, excluding changes in our working capital, totaled 5.8 million for the third quarter of 2021, as compared to 3 million in 2020. Cash used for investing activities for the third quarter of 2021 was 4.3 million, as compared to 1.2 million in the prior year's period as our investments in manufacturing equipment and tooling increased along with an investment in a new display chip design project. As of September 30th, 2021, the company does not have any current or long-term debt obligations outstanding.

Looking forward to the balance of 2021, while we expect to see continued similar quarterly year-over-year increases in our main operating expense categories over the 2020 comparable period, the rate, however, of sequential operating expense growth per quarter in 2021 was low. Investing activities are also expected to increase in Q4 of 2021 as compared to the prior year as we continue our investments in new product tooling, development, and IP. With that, I would like to turn the call back over to Paul.

Paul Travers -- Chief Executive Officer

Thanks, Grant. Nice job. Let's now turn the call over to the operator for Q&A.

Questions & Answers:


Operator

Thank you. [Operator instructions] Our first question comes from Tyler Burmeister with Craig-Hallum. Please state your question.

Tyler Burmeister -- Craig-Hallum Capital Group -- Analyst

Hey, guys. This is Tyler on for Christian Schwab. Paul, first question, it seems like the healthcare end market, you're clearly the most excited about now and into the future. So framing comparatively to that, maybe I was wondering the retail warehouse logistics as well as the OEM product development is kind of two other pieces of your business.

Relative to healthcare, how should we think about those three kind of businesses as we focus going forward?

Paul Travers -- Chief Executive Officer

First of all, let me say that healthcare is pretty immediate. It's -- a good thing about it is it's been in place. It's been accelerating, thanks to COVID. I mean I hate saying it that way, but it's changed a lot of things in the AR space COVID.

That whole retail picking space is going to be very big, Tyler. I mean, as big as the healthcare is, there are thousands of people and organizations that move boxes around. Logistics. How you get something from point A to point B, it's a massive industry.

Healthcare on a SaaS model perspective, which is some of the things that we're working on with our partners and stuff. I think that there's a lots of opportunity to grow. And of course, we're going to sell lots of hardware at the same time. But I think you'll probably see -- I don't know if it's an order of magnitude, but the picking side of the business is significant.

That will start to move and grow for Vuzix, especially into 2022. It's nice to see these companies after all this time finally making commitments. They're beyond pilots now. They're -- how do we roll these things out kinds of things.

So 2022, I think you'll see a significant contribution and growth to that side of our business, which we always felt it was going to be there, but it's nice to see it really coming around. So healthcare versus the logistics side of the business, healthcare is going to be bigger in the end. But right now, it's clearly healthcare. Logistics will be bigger in the end.

And right now, it's clearly healthcare. On the OEM side of our business, so it's interesting earlier on in the game, we would get larger dollar values from the engineering perspective to make custom solutions and those kinds of things. We have some standard stuff now that a lot of folks are able to use and so they're buying stuff from us. they're building it into their programs, and we're expecting volume programs out of those things as we roll through the next year or so.

So it will grow. It's going to take longer. I will say that it could also be a really significant piece of business, but it's going to take a lot longer perspective to be there. The broader market take forever before they're there.

And these -- all these depends, guys, you know what it's like until you plan to get the program kicked off. And when you do, you're in. So number one is the enterprise, logistics, onboarding, training, it's going to be the biggest market by far, I think, at least to get started; number two, the medical space; and then number three, the OEM today, but in the long run, we'll see where that goes.

Tyler Burmeister -- Craig-Hallum Capital Group -- Analyst

Thanks, Paul. That was perfect. Then a follow-up question on this Fortune 50 customer that you've announced a couple of orders during this quarter to the degree that you can provide any more color on what business, what end market, geography that customer might be in? And then do you expect future orders from them imminently? Or how far along on their total deployment, what do you suspect there?

Paul Travers -- Chief Executive Officer

It's more than one Fortune 50, Tyler. In fact, it's probably bigger than a handful. And it's from onboarding to logistics, warehousing and some of it's in retail and some of it's in the big distribution channels that have warehouses all over the United States and world. So it's a continuing thing from them right now.

There are -- these are follow-on orders that are part of deployment orders, not -- well, let's try a test PLC here. So -- and what we're working through are the logistics associated with doing the rollouts to those companies, so they can do them in a bigger way throughout their organizations. We're up against companies that have been incumbents that for the last 75 years, they've been using their tools to pick out of the warehouse. From voice picking to bar -- scanner picking kinds of things.

And our smart glasses with vision picking brings a lot to the table, but it takes a bit of time to do the final changes around the processes and procedures to implement those things and go live. That said, they've been working on this for a darn long time. COVID put a hole in it for a while, but these guys are back in the engine. It seems like with all these logistics problems going on in the world that has a lot of fire under a lot of these companies.

And like I said, there's more than five kind of a thing that are in this boat.

Tyler Burmeister -- Craig-Hallum Capital Group -- Analyst

That's great. Appreciate the color there. And last one, and I'll let others ask questions. I don't think I really heard too much of an update on your M&A pipeline.

Any color there, I think we were talking earlier about some potential software M&A opportunities that were close? Any update there would be great.

Paul Travers -- Chief Executive Officer

We actually -- we have a list of folks, Tyler, and it's true. There are a few of them that are I would like to think very close. There's been lots of due diligence done. The progress has been going down the road.

It feels great, but they're not done yet, and they're not done until they're done, right? That said, we have high expectations that these would be good relationships and opportunities for Vuzix. As I said, there's more than a few though. And will be -- as we move forward with those over time, we'll be selectively sharing where it's appropriate. I wish I could share more than that right now.

I can just say the things are moving forward.

Tyler Burmeister -- Craig-Hallum Capital Group -- Analyst

Yep. Completely understand. That sounds great. That's all from us.

Thanks, guys.

Paul Travers -- Chief Executive Officer

Thanks, Tyler.

Operator

Thank you. Our next question comes from Rachel Freeman with BTIG. Please state your question.

Rachel Freeman -- BTIG -- Analyst

Hi. This is Rachel. I'm on for Matt Van. Just firstly, on the next-gen products that you're planning on introducing next year, what sort of visibility do you have into sales for these products? And when do you expect that to start flowing through to the model? Just any color you could give on timing or projections would be great.

Paul Travers -- Chief Executive Officer

Let me say that between now and the first quarter in the due course. I think people will learn a lot more about when and how those products will be coming out. I would suggest that product will be available in the first quarter. We have no doubt about that.

These products are designed. They look cool. I mean they look closest to -- not that we're in the consumer marketplace, but these are close to high-fidelity glasses. But they really are designed for enterprise.

They got more sensors on them than we've ever had in the past, but they look sleek and they're designed to go to work still their safety glass's form factors, but they have this really nice look and feel. We have high expectations, but it's in different parts of the marketplace. For instance, we wouldn't necessarily expect this to be used in a warehouse picking application. But because of the way this thing is built in pharma, there's a lot of good applications for it.

And there's applications for test in QA because of the sensors that are built into these glasses. They're designed to measure things in front of you and take data and record in real time and take the data that's not use the phrase everybody is using these days. But the information in the metaverse and connected nicely to the real world. So we see -- some significant business is in different areas, though we don't expect it to be competitive to our current products.

Other than the blade, but I have to say right now, the blade is also coming into its own that there's lots of places that are starting to pick up pace. And in fact, in our third quarter here, we had some supply chain problems and we could have shipped a lot more blades than what we did because the demand has been growing a bit for it.

Rachel Freeman -- BTIG -- Analyst

OK. That's great. And then just on the internal solutions development unit, just beyond what you mentioned in your prepared remarks just on customer engagement. Can you provide any more details on the progress that this group has made before? And maybe an update on what your expectations are for just how quickly it can start to ramp just to meaningfully contribute to sales moving forward?

Paul Travers -- Chief Executive Officer

Yes, these guys are good at doing this. They've got multiple opportunities in irons in the fire. They are just getting started in fairness to these guys. But they've got multiple proposals that they've put out.

It's an interesting group. Part of what they're doing is providing a service for software solutions that solve problems with companies that there's nothing available today. So there's going to be some engineering fees, I think you'll see coming out of that group for a while. And then out of, that they're also building our own solutions that will fit into certain verticals.

And I would suggest that in 2022, you'll see some revenues at some point during the year where that portion of it starts to come on board too. So you'll see recurring revenues and engineering revenues rather. And then you'll see the software development side of the house also kick in, in 2022.

Rachel Freeman -- BTIG -- Analyst

Thank you.

Paul Travers -- Chief Executive Officer

Thank you, Rachel.

Operator

Thank you. Your next question comes from Jack Vander Aarde with Maxim Group. Please state your question.

Jack Vander Aarde -- Maxim Group -- Analyst

Appreciate the update and thanks for taking my question. So, Paul, I'm hoping you can provide some additional color on your monetization strategies or just ideas you guys are maybe thinking about in terms of rolling out of software, maybe organically, so regard -- someone talked about acquisitions, but if you were to roll out an organic software offering, just what are you guys kind of thinking about in terms of how you monetize that? Are there various. Are there -- is there a wide range of possibilities you're thinking about? Is there a core software offering you're thinking about? And how close are we to seeing that be rolled out?

Paul Travers -- Chief Executive Officer

So that kind of goes hand to glove, Jack, with Rachel's question, that last one. The Vuzix' Solutions group is developing custom solutions. These are solutions that solve a problem. And we've got a bunch that we've identified.

There's a few that are really cornerstone that we think are important. But it takes time to get that core software developed. In between now and then, they're also working with select companies we get this all the time, Jack companies come to us, and this is what I'd like to do. And there's no way to do it today without having custom software build.

And so they're going after the market in a true pole strategy, one of them being we're going to help these guys solve these problems. But in the process of doing that, that's going to be building out the core software that we need for our own solutions. And so you'll see over time, there will be engineering services coming in from these guys. And then you'll also see us start to offer and generate revenues on a recurring fashion based upon some of the software that we build around some of those engineering activities.

What's nice about that is it helps fund the activities. At the same time, it's nice to have practical customers that really want to solve problems. So you can test the software and make sure it does what it's posted.

Jack Vander Aarde -- Maxim Group -- Analyst

OK. That's helpful. And then just maybe I'll touch on because this is a theme that's impacting every company in every industry. And you kind of touched on it already, but -- are you able to quantify -- maybe it's a question for Grant as well, but are you able to quantify in any sense what the global semi shortage -- what the impact was on your revenue for the quarter or just how you're your momentum of sales both the balance of this year? Is there any way to quantify that?

Paul Travers -- Chief Executive Officer

It's hard to know the future per se. But let me just say, in the third quarter, our blade had silicon supply shortages, and that was part of the reason why we didn't ship more. And it's hundreds -- several hundred plus more that we could have shipped. And on the other side of the coin, there's also tight shipping problems around the world today.

And sadly, Vuzix had stock sitting in a warehouse that was unable to get out the door due to shipping problems and logistics associated with that to the tune of another couple of hundred plus M400s. So it wasn't insignificant necessarily. We're hoping that that's not going to be the case here in the fourth quarter.

Grant Russell -- Chief Financial Officer

I mean we're good other than the one product family follower referred to. So we are well-positioned for M400 sales, so -- and that's our -- the bulk of our revenue. So we're good.

Jack Vander Aarde -- Maxim Group -- Analyst

OK. Understood. And then -- Just in terms of the metaverse, obviously, it's quite the buzz lately. It's quite polarizing.

Where do you guys -- where would you see yourself fitting in beyond VR and AR and gaming, in general, is also the aspect of conference -- virtual conferences and kind of business use cases. Do you think you guys have a natural utility or placement in the metaverse when it does get rolled out? Or however, that transpires. Where is your place in the metaverse and how you see it? Or is it too difficult to pin it down or the use cases are endless? Just any more thoughts you could provide would be helpful.

Paul Travers -- Chief Executive Officer

It's interesting. You coined the phrase metaverse. And I think that our friends over at Facebook did that because they're into the VR side of it more, so in the virtual world that you can step up inside of. But the reality of it is the metaverse, it's about the entire world of the Internet creating virtual worlds inside of it, but also connecting all that virtual metadata into the real world.

And this is really the part of the metaverse that Vuzix plays in. If we have a cool video coming here in the next couple of days, you should keep an eye out for. But the bottom line is Vuzix already is a player in the Metaverse. You've heard of digital twins before.

You've heard of the Internet of Things. I mean these are all these Internet-based devices that literally are connected through the cloud, our glasses are designed to take that Internet information, the metaverse data sets, and connect it to the real world. And this is where the metaverse gets exciting when you look at Apple paradigms and thought processes about it. It's about changing the way people do things in the real world, not necessarily stepping inside to a virtual space.

And Vuzix does that today. We do it in so many different ways. Now standardization around how the metaverse might work would be great. And if you look at even Microsoft just in their last conference call, they reported about how they're doing things, to standardize how the metaverse will work and how those digital systems can be connected into the real world.

And so I think it's great that these bigger companies are building these standards and stuff because it will only make this stuff happen faster.

Jack Vander Aarde -- Maxim Group -- Analyst

Got it. That sounds exciting. I appreciate the update. I'll hop back in the queue.

Thank you.

Paul Travers -- Chief Executive Officer

You bet, Jack.

Operator

Thank you. I will now turn the call back over to Paul Travers for closing comments.

Paul Travers -- Chief Executive Officer

I'd like to thank everyone for their interest and participation in today's call. We have a lot in the calendar over the coming months, including multiple investor conferences, AWE this week. CES is coming. I think that should be a very exciting show for Vuzix.

We're on the main hall. We're back at it again. It should be interesting. The world is finally coming back to work.

We look forward to our next call with you in March. And again, thank you very much, everybody, for joining the call. 2022, here we come. Thanks again.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Ed McGregor -- Director of Investor Relations

Paul Travers -- Chief Executive Officer

Grant Russell -- Chief Financial Officer

Tyler Burmeister -- Craig-Hallum Capital Group -- Analyst

Rachel Freeman -- BTIG -- Analyst

Jack Vander Aarde -- Maxim Group -- Analyst

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