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eMagin Corporation Announces First Quarter 2019 Financial Results

- Continued Progress on Key Initiatives -

HOPEWELL JUNCTION, N.Y.--(BUSINESS WIRE)--May 9, 2019-- eMagin Corporation, or the “Company”, (NYSE American: EMAN), a leader in the development, design and manufacture of Active Matrix OLED microdisplays for high resolution imaging products, today announced financial results and corporate highlights for the first quarter ended March 31, 2019.

“We are seeing growing demand for our products, particularly with U.S. military and aviation programs and with new and existing international customers,” said Andrew Sculley, Chief Executive Officer. “During the first quarter of fiscal 2019, we made progress towards our goals of securing new U.S. military programs and broadening our presence in foreign military applications and in industrial and medical markets. We continue to participate in government discussions on microdisplay development for future defense aviation/mounted/dismounted programs and to position our displays as a key component of the future Soldier System 2030 technology suite for enhanced soldier performance and accelerated decision making. In the first quarter alone, we sold to over 70 customers and supplied products for over 20 new programs. Our backlog of products scheduled for delivery through March 31, 2020, continues to be solid at $10.7 million, an increase of approximately $100 thousand over the backlog of $10.6 million at December 31, 2018.

“We continue to work towards supplementing our display sales by providing our customers a more complete solution. We have developed a prism optic which we shipped during the quarter to a military customer for evaluation. We also developed a fiber optic taper that will enable our displays to be incorporated into products which are being retrofitted or otherwise designed for a different sized microdisplay. In addition, a new assembly process was developed and validated that allows additional optical elements to be attached to our microdisplays, providing for a broader range of applications by the customer with less up-front engineering design work.

“I am pleased with the progress we are making with our largest (4K x 4K) full color display which we are developing in collaboration with our Tier 1 consumer electronics customer to incorporate into a consumer headset. We are also working with a new medical device manufacturer on development of next generation diagnostic equipment. We believe the high resolution, high contrast, and brightness of our OLED displays have strong appeal across both defense and commercial industries, and we continue to pursue new opportunities.

“On the military side, we are continuing to win new programs and support existing ones. Many of these are long duration programs which we support for their entire lifetime. While we provide displays to the newer U.S. Army Enhanced Night Vision Goggle (ENVG) III and ENVG-B programs, we recently received a $627,000 order for displays under the ENVG II program that we have supported since 2013. In addition, ground and flight tests were successfully completed for a major U.S. Army helicopter helmet upgrade program which involves retrofitting our high brightness microdisplays into the current fielded helmet.

“Turning to our operations, we have resolved our production issues from the fourth quarter with special focus on addressing potential single point failures. As well, we are making progress on our multi-year yield improvement initiatives. We have increased our production resources, made some key technical hires, and installed and qualified new, advanced production equipment. These efforts should give us greater production reliability and flexibility while increasing production capacity, lowering unit costs and providing greater operating efficiencies.

“Finally, we are working to improve the efficiency and lifetime of our direct patterned (dPdTM) displays. We have made architectural improvements and incorporated superior performing OLED materials. We are also upgrading our existing dPd production equipment and expect it to be completed and ready for sampling in the third quarter. The redesigned equipment will have significant throughput improvement and will better demonstrate the technology’s capability for mass production,” concluded Mr. Sculley.

Business and Product Highlights

  • We successfully processed the initial 4K x 4K wafers that we designed for a Tier 1 consumer electronics partner which we received in December. This enabled us to validate the base functionality of the 4K x 4K display and confirmed our ability to develop a large area silicon microdisplay with no visible non-uniformities. These high brightness displays will be used to develop a headset with a wide field of view and no screen door effect. Validation at the individual display level is expected to be completed during the second quarter with full color prototype development using our dPd technology completed in the third quarter.
  • We delivered displays for the F-35 Lightning II helmet throughout the first quarter while continuing to work closely with the Collins Aerospace team to further improve the display in preparation for Low Rate Initial Production.
  • We increased our presence in the medical device market with an order from a new customer, an innovative developer and manufacturer of diagnostic and ophthalmic surgical equipment, for the development of their next generation diagnostic equipment.
  • In April, we received a follow-on order of $239,000 in support of the Javelin Missile program Command Launch Unit. This is in addition to $560,000 of orders that we received during 2018.
  • We continue to support full rate production for the US ARMY ENVG III program. Additionally, we are working with both prime contractors on pre-production units for the ENVG Binocular program. This program is anticipated to commence production in late 2019/early 2020 with an overall acquisition objective by the U.S. Army of approximately 190,000 systems.
  • In April, we received a $627,000 order for the ENVG II program which the Company has been supporting since 2013, evidencing the ongoing revenue opportunities from mature programs.
  • In the first quarter of 2019, we received $150,000 from the US Army for OLED display production and yield improvement projects in addition to the $830,000 we received in 2018. An additional $900 thousand of projects are under consideration with this successful program, of which $120 thousand has already been confirmed for 2019.
  • Our high brightness microdisplay that we delivered to a major defense contractor last year has been selected for a next generation U.S. rotary wing helmet program with procurement expected beginning in 2020.

Quarter Results

Revenues for the first quarter of 2019 were $6.1 million, a decrease of $0.8 million from revenues of $6.9 million reported a year ago, but up sequentially by $0.7 million from the fourth quarter of 2018.

Product revenues were $5.5 million as compared to $5.9 million in the first quarter of 2018. On a sequential basis, product revenues grew 13% from 4Q18. The year-over-year decrease in product revenue was due to display production related issues from the fourth quarter of 2018 which impacted the first quarter. Contract revenues totaled $0.6 million in the first quarter compared to $1.0 million in the same quarter of last year, reflecting the lower level of development work required at this phase of the consumer contract work to develop the 4K x 4K display. Government contract revenues during the quarter were largely unchanged from the prior year period.

Overall gross margin for the first quarter was 22% on gross profit of $1.3 million compared to a gross margin of 29% on gross profit of $2.0 million in the prior year period. The decrease in gross margin was primarily due to lower revenues in the quarter compared to the year ago period.

Operating expenses for the first quarter of 2019, including R&D expenses, were $3.5 million as compared to $4.5 million in the first quarter of 2018. Operating expenses as a percentage of sales were 58% in the first quarter compared to 66% a year ago. The decrease in operating expenses was primarily due to lower SG&A expenses this period versus the year ago period which included spending on professional services, legal, and travel expenses for negotiations with prospective partners, as well as $240 thousand for transaction fees associated with the January 2018 equity offering.

Operating loss for the first quarter was $2.2 million versus an operating loss of $2.6 million in the first quarter of last year. Net loss for the first quarter of 2019 was $1.4 million, or $0.03 per diluted share, compared to a net loss of $2.1 million, or $0.05 per diluted share, in the first quarter of 2018. The net loss included income related to the change in the fair value of the warrant liability of $0.8 million and $0.5 million, respectively, for the first quarters of 2019 and 2018.

As of March 31, 2019, the Company had cash and cash equivalents of $3.5 million, working capital of $7.3 million, and borrowing availability under the ABL facility of $0.8 million. Subsequent to the end of the quarter, the Company announced two separate registered direct offerings raising total proceeds to eMagin of $4.0 million before fees and other offering expenses.

Conference Call Information

A conference call and live webcast will begin today at 9:00 am ET. An archive of the webcast will be available one hour after the live call through June 9, 2019. To access the live webcast or archive, please visit the Company’s website at ir.emagin.com or www.earnings.com.

About eMagin Corporation

A leader in OLED microdisplay technology, OLED microdisplay manufacturing know-how and mobile display systems, eMagin manufactures high-resolution OLED microdisplays and integrates them with magnifying optics to deliver virtual images comparable to large-screen computer and television displays in portable, low-power, lightweight personal displays. eMagin’s microdisplays provide near-eye imagery in a variety of products from military, industrial, medical and consumer OEMs. More information about eMagin is available at www.emagin.com.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including those regarding eMagin Corporation’s expectations, intentions, strategies and beliefs pertaining to future events or future financial performance. Actual events or results may differ materially from those in the forward-looking statements as a result of various important factors, including those described in the Company’s most recent filings with the SEC. For a more complete description of the risks that could cause our actual results to differ from our current expectations, please see the section entitled “Risk Factors” in eMagin’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018.

Non-GAAP Financial Measures

To supplement the Company’s consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, namely earnings before interest, taxes, depreciation and amortization, and non-cash compensation expense (“Adjusted EBITDA”). The Company’s management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company’s historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financial statements. Management believes that these adjusted measures reflect the essential operating activities of the Company. A reconciliation of non-GAAP financial information appears below.

 

EMAGIN CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except share and per share data)

     
Three Months Ended
March 31,
2019   2018
Revenues:
 
Product $ 5,507 $ 5,863
Contract   605   1,004
Total revenues, net   6,112   6,867
 
Cost of revenues:
 
Product 4,426 4,359
Contract   350   528
Total cost of revenues   4,776   4,887
 
Gross profit   1,336   1,980
 
Operating expenses:
 
Research and development 1,597 1,631
Selling, general and administrative   1,939   2,912
Total operating expenses   3,536   4,543
 
Loss from operations (2,200) (2,563)
 
Other income (expense):
Change in fair value of common stock warrant liability 794 503
Interest expense, net (33) (42)
Other income, net     21
Total other income   761   482
Loss before provision for income taxes (1,439) (2,081)
(Provision) benefit for income taxes    
 
Net loss $ (1,439) $ (2,081)
 
Loss per share, basic $ (0.03) $ (0.05)
Loss per share, diluted $ (0.03) $ (0.05)
 
Weighted average number of shares outstanding:
 
Basic   45,161,273   42,255,189
 
Diluted   45,161,273   42,255,189
 
 

EMAGIN CORPORATION

CONSOLIDATED BALANCE SHEET

(in thousands, except share and per share data)

     
March 31, December 31,
2019 2018
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 3,457 $ 3,359
Accounts receivable, net 3,696 3,186
Unbilled accounts receivable 69 224
Inventories 8,827 8,582
Prepaid expenses and other current assets   795   875
Total current assets 16,844 16,226
Equipment, furniture and leasehold improvements, net 8,630 8,921
Operating lease - right of use asset 4,112
Intangibles and other assets   209   269
Total assets $ 29,795   $ 25,416
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,974 $ 2,024
Accrued compensation 1,502 1,634
Revolving credit facility, net 2,535
Common stock warrant liability 703 1,497
Other accrued expenses 1,703 1,827
Deferred revenue 95 38
Current portion of lease liability 675
Other current liabilities   323   427
Total current liabilities 9,510 7,447
Lease liability-long term   3,562  
Total liabilities $ 13,072 $ 7,447
 
 
Commitments and contingencies (Note 9)
 
Shareholders’ equity:
Preferred stock, $.001 par value: authorized 10,000,000 shares:
Series B Convertible Preferred stock, (liquidation preference of $5,659) stated value $1,000 per share, $.001 par value: 10,000 shares designated and 5,659 issued and outstanding as of March 31, 2019 and December 31, 2018
Common stock, $.001 par value: authorized 200,000,000 shares, issued 45,323,339 shares, outstanding 45,161,273 shares as of March 31, 2019 and December 31, 2018 45 45
Additional paid-in capital 254,929 254,736
Accumulated deficit (237,751) (236,312)
Treasury stock, 162,066 shares as of March 31, 2019 and December 31, 2018   (500)   (500)
Total shareholders’ equity   16,723   17,969
Total liabilities and shareholders’ equity $ 29,795 $ 25,416
 
       

Non-GAAP Information

 
Three Months Ended
March 31,
2019 2018
 
Net income (loss) $ (1,439) $ (2,081)
Non-cash compensation 193 205
Change in fair value of common stock warrant liability (703) (503)
Depreciation and intangibles amortization expense 488 468
Interest expense 33 42
Provision for income taxes - -
Adjusted EBITDA $ (1,428) $ (1,869)

Source: eMagin Corporation

eMagin Corporation
Jeffrey Lucas, President and Chief Financial Officer
845-838-7931
jlucas@emagin.com

Affinity Growth Advisors
Betsy Brod
212-661-2231
betsy.brod@affinitygrowth.com