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eMagin Corporation Announces Third Quarter 2017 Financial Results

-Significant Progress in Commercial Market and Military Momentum Increases-

HOPEWELL JUNCTION, N.Y.--(BUSINESS WIRE)--Nov. 9, 2017-- 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 third quarter ended September 30, 2017.

“We experienced a heightened level of activity in the third quarter, both in our commercial initiatives as well as our military programs,” said Andrew Sculley, President and Chief Executive Officer. “While this was not reflected in our financial results for the period, in part due to a manufacturing issue we have since resolved, our activities during the quarter enabled us to achieve major milestones towards the commercialization of our display technology in the consumer sector and positioned us for stronger performance in our military business in the quarters ahead. In particular, we believe our accomplishments with multiple consumer partners demonstrate the critical role eMagin’s display technology plays in driving the AR/VR market to the next level.

“It is widely acknowledged across the AR/VR ecosystem that display quality is a major obstacle to bringing AR/VR into the mainstream. We believe that the partner agreements that we have signed and the attention we are receiving from tier-one consumer companies, headset creators and volume manufacturers underscores the fact that our proprietary, patented direct patterning technology solves this problem and makes us the ‘go-to’ microdisplay company that will enable AR/VR.

“Our agreements with these tier-one consumer electronics companies, each following rigorous and extensive diligence on our direct patterning technology, are outstanding endorsements of eMagin’s direct patterning technology. These are major steps toward the commercialization of our technology and further evidence of our belief that our direct patterned display technology will enable the next generation of AR/VR for the consumer the market. Momentum is building as we continue to have discussions with other top tier consumer electronics companies and pursue additional agreements. At the same time, the agreements we have signed to date are fueling our ongoing discussions with prospective mass production partners to scale production for our technology to meet commercial demand.

“On the military side of our business, we saw increased booking activity for both our U.S. programs as well as with foreign military customers. We booked over 90 new orders totaling more than $6.5 million in the third quarter and are seeing the pace continue into the fourth quarter with several sizeable orders. In addition to over 60 follow-on orders from existing customers, we booked another 30 orders related to new projects from both new and existing customers which will provide us with a strong backlog entering 2018. This is consistent with our previously communicated expectation of a ramp up in our military business.

“Additionally, we have accelerated our activity in the aviation sector in several key programs, most notably in our work to upgrade the F-35 production helmet to OLED displays which will eliminate the ‘green glow’ effect of the current LCD displays. We believe that this is an area of tremendous opportunity for eMagin.

“Finally, we are continuing to advance our product technology as we have increased brightness beyond 5,000 nits while further reducing power consumption. We have also made enhancements to our manufacturing processes for displays and have ordered new equipment that we expect will help us improve yields and reduce cycle time,” continued Mr. Sculley. “We are developing a compact interface for our 2K X 2K microdisplay, which we believe has the highest brightness and sharpest resolution in the global marketplace today, for system integrators to quickly insert into optical systems. We expect to introduce this hardware to the marketplace in the second quarter of 2018. This compact interface will enable both consumer and military prospects to more easily integrate our 2K x 2K microdisplay into development systems and therefore speed time to prototype and to production. Overall, I believe that we have made significant progress in all areas of our business this year and are well-positioned entering 2018,” concluded Mr. Sculley.

Business and Product Highlights as of November 8, 2017

  • Furthered development of our Original Design Manufacturing (ODM) partner efforts to enable multiple partners to leverage a common microdisplay design for the consumer segment.
  • Awarded a follow-on contract worth over $3.7 million for the Army’s Enhanced Night Vision Goggle III (ENVGIII) and Family of Weapons Sight-Individual (FWS-I) programs with delivery expected over twelve months.
  • Received a multi-year $1.7 million order from a European military prime contractor to provide displays for a see-through, augmented reality HMD to support airborne and ground missions requirements.
  • Received a $1.5 million order to support the Light Weight Thermal Sight (LWTS) program with deliveries expected to begin in December 2017 and continuing through 2018
  • Received a $660,000 order for a new foreign military thermal weapons sight with deliveries commencing in the fourth quarter and expected to be completed by the third quarter 2018.
  • Received funding for the design and development of support hardware that will be integral to new system designs utilizing eMagin’s 2K x 2K microdisplays with the hardware anticipated to be available to defense and commercial integrators in mid-2018.
  • Completed the Critical Design Review (CDR) in October 2017 with a major aviation prime contractor for an OLED upgrade to a fixed wing production helmet that will eliminate the reported “green glow” problem.
  • Continued to support a major US Army helicopter helmet upgrade program to retrofit high brightness microdisplays into the current fielded helmet. The CDR was completed in August with additional OLED display, taper, and lens assemblies to be delivered for integration and testing in December 2017.
  • Received a production order from a foreign aviation prime contractor to supply high brightness microdisplays to upgrade an existing fixed wing helmet. It is expected that this will be a multi-year program with the initial order delivering displays through fourth quarter 2018.
  • Delivered high brightness 2K x 2K microdisplays to another major foreign contractor for use in a prototype aviation helmet.

Third Quarter Results

Revenues for the third quarter of 2017 were $4.3 million, flat with the third quarter of 2016.

Product revenues totaled $4.0 million versus $3.5 million in the third quarter last year. The year-on-year increase in product revenue was due to an increase in display revenues from the gradual ramp up of new U.S. military programs and increased demand by international customers, offset by the impact of production issues in the quarter that have since been resolved. Contract revenues totaled $266 thousand in the third quarter compared to $769 thousand in the same quarter of last year due to the greater volume of work performed in the prior year quarter on military contracts, including the Mantech program.

Overall gross margin for the third quarter was 7% on gross profit of $278 thousand compared to a gross margin of 30% on gross profit of $1.3 million in the prior year period, primarily due to lower volumes and higher unit costs associated with the production issues in the quarter.

Operating expenses for the third quarter of 2017, including R&D expenses, decreased to $3.2 million, from $3.7 million in the third quarter of 2016.

Third quarter R&D expenses decreased 24% over the prior year quarter due to the reduction in R&D spending on the night vision consumer products offset in part by the work performed on the Company’s direct patterning technology. SG&A expenses were essentially flat with the prior year third quarter at $2.0 million.

Operating loss for the third quarter was $3.0 million versus an operating loss of $2.4 million in the third quarter of last year. Net loss for the third quarter of 2017 was $3.0 million, or $0.09 per diluted share, compared to a net loss of $2.4 million, or $0.08 per diluted share, in the third quarter of 2016.

As of September 30, 2017, the Company had cash of $2.0 million, working capital of $10.6 million, and borrowing availability under the ABL facility of $3.7 million.

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 December 9, 2017. 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, 2016 and Current Report on Form 8-K filed with the SEC on May 19, 2017.

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
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 
 

September 30,
2017

December 31,
2016

(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,964 $ 5,241
Accounts receivable, net 3,428 2,834
Unbilled accounts receivable 475 1,401
Inventories 9,080 7,435
Prepaid expenses and other current assets   1,132     1,040  
Total current assets 16,079 17,951
Equipment, furniture and leasehold improvements, net 8,802 8,980
Intangibles and other assets   241     282  
Total assets $ 25,122   $ 27,213  
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 1,272 $ 1,432
Accrued compensation 1,285 1,528
Revolving credit facility, net 920 1,689
Other accrued expenses 492 1,069
Deferred revenue 988 445
Other current liabilities   566     590  
Total current liabilities   5,523     6,753  
 
Commitments and contingencies
 
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 September 30, 2017 and December 31, 2016

Common stock, $.001 par value: authorized 200,000,000 shares, issued 35,134,655 shares as

of September 30, 2017 and 31,788,582 shares as of December 31, 2016

35 32
Additional paid-in capital 246,312 239,915
Accumulated deficit (226,248 ) (218,987 )
Treasury stock, 162,066 shares as of September 30, 2017 and December 31, 2016     (500 )   (500 )
Total shareholders’ equity   19,599     20,460  
Total liabilities and shareholders’ equity $ 25,122   $ 27,213  
 
           
EMAGIN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)
 
 
Three Months Ended Nine Months Ended
September 30, September 30,
  2017     2016     2017     2016  
Revenues:
 
Product $ 4,014 $ 3,536 $ 13,050 $ 13,612
Contract 266 769 2,559 2,227
License               1,000  
Total revenues, net   4,280     4,305     15,609     16,839  
 
Cost of revenues:
 
Product 3,802 2,545 10,918 9,639
Contract 200 478 1,346 1,248
License                
Total cost of revenues   4,002     3,023     12,264     10,887  
 
Gross profit   278     1,282     3,345     5,952  
 
Operating expenses:
 
Research and development 1,271 1,666 3,782 4,468
Selling, general and administrative   1,970     2,041     6,586     6,044  
Total operating expenses   3,241     3,707     10,368     10,512  
 
Loss from operations (2,963 ) (2,425 ) (7,023 ) (4,560 )
 
Other income (expense):
Interest expense, net (27 ) (8 ) (249 ) (28 )
Other income, net   (2 )   4     11     8  
Total other income (expense)   (29 )   (4 )   (238 )   (20 )
Loss before provision for income taxes (2,992 ) (2,429 ) (7,261 ) (4,580 )
Provision for income taxes       (1 )       (1 )
 
Net loss $ (2,992 ) $ (2,430 ) $ (7,261 ) $ (4,581 )
 
Loss per share, basic $ (0.09 ) $ (0.08 ) $ (0.22 ) $ (0.15 )
Loss per share, diluted $ (0.09 ) $ (0.08 ) $ (0.22 ) $ (0.15 )
 
Weighted average number of shares outstanding:
 
Basic   34,972,589     30,292,166     33,214,262     29,689,458  
 
Diluted   34,972,589     30,292,166     33,214,262     29,689,458  
 
         

Non-GAAP Information

 
Three Months Ended Nine Months Ended
September 30, September 30,
2017   2016   2017   2016  
 
Net loss $ (2,992 ) $ (2,430 ) $ (7,261 ) $ (4,581 )
Non-cash compensation 190 398 520 658
Depreciation and intangibles amortization expense 406 400 1,376 1,214
Interest expense 27 8 249 28
Provision for income taxes -   1   -   1  
Adjusted EBITDA $ (2,367 ) $ (1,623 ) $ (5,116 ) $ (2,680 )

Source: eMagin Corporation

eMagin Corporation,
Jeffrey Lucas, 845-838-7931
Chief Financial Officer
jlucas@emagin.com
or
Affinity Growth Partners
Betsy Brod, 212-661-2231
Betsy.brod@affinitygrowth.com