eMagin Corporation, or the Company (NYSE MKT: 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 fourth quarter ended December 31, 2018.
During 2018, we experienced growing demand for our products, especially from U.S. military and aviation programs, and expanded our presence among medical and other commercial customers. We sold to over 80 customers this past year and supplied products for over 20 new programs. At December 31, 2018, we had a backlog of non-binding purchase orders of approximately $10.6 million in products ordered for delivery through December 31, 2019, an increase of approximately $800,000 from our backlog of $9.8 million at December 31, 2017, stated Andrew Sculley, Chief Executive Officer.
Development efforts to support the F-35 helmet accelerated during the year. Under contract from Collins Aerospace, we designed, manufactured and delivered the initial displays for this multi-service, multi-country program which are being installed in helmets for flight tests scheduled for this year. We will continue to deliver displays throughout 2019 while working closely with the Collins Aerospace team in preparation for limited rate initial production (LRIP) scheduled for 2020.
From a technology perspective, we continue to make significant advances with our high brightness, full-color microdisplays incorporating our color filter and patented Direct Patterning (dPd) technology which is critical to driving our growth in all the markets we serve. We have surpassed the 5,000 nits threshold requirements of Tier One companies for their enterprise and consumer AR/VR applications. Additionally, by making architectural improvements and using superior OLED materials, we have increased the efficiency and lifetime of our displays by more than 50%.
We continue to refine our production processes and are upgrading our existing dPd equipment. This should increase production throughput as well as significantly extend the lifetime of our displays. In 2018, we received U.S. Army funding of $830,000 to support these efforts and are pursuing additional awards to fund production improvements and capacity expansion.
While our full year revenues increased 19% on a year-on-year basis, we did experience a manufacturing equipment related issue in the fourth quarter. This resulted in lower yields and loss of production, affecting our fourth quarter and full-year performance. We addressed this issue and have made the necessary improvements to minimize the risk of future recurrences. It did not affect any of our U.S. military programs but did have an impact on production and deliveries early in the first quarter 2019.
Going forward, we believe that the equipment purchases we have made over the past few quarters will improve the reliability of our manufacturing processes. In addition, as the only manufacturer of OLED microdisplays in the U.S., we are working closely with the Department of Defense for substantial funding of further production enhancements that will improve our production reliability, expand our capacity and lower our unit costs. Overall, we are extremely well-positioned as the only company whose products can meet the low power, high brightness, high contrast and resolution requirements for high-pixel density displays being demanded both for next generation enterprise and consumer VR/AR HMDs, as well as todays military and commercial applications, concluded Mr. Sculley.
Business and Product Highlights
In addition to winning new U.S. military programs and expanding our presence in commercial/industrial and foreign military markets, we made significant improvements in technology and product design. Further optimization of our dPd process has led to brightness levels that we believe surpass the threshold requirements for AR/VR applications for consumer products and enterprise focused companies and satisfy the requirements of several pending military programs. We have demonstrated more than 15,000 nits brightness in monochrome and more than 7,000 nits brightness in full color, a milestone towards the application of eMagins microdisplays to AR/VR headsets. Our current year-end target of 10,000 nits in full color is part of our multi-year R&D roadmap to achieve over 25,000 nits and meeting our military customers future requirements. This brightness capability allows for greater power efficiency and longer lifetimes when operated at conventional luminance. It also gives us a significant advantage in consumer and commercial/industrial applications as it enables OEMs to utilize our displays with less efficient and less expensive optics.
Fiscal 2018 highlights in addition to those noted above include:
- We received approval of our design from a Tier 1 consumer electronics partner for prototype high resolution, 4k x 4k displays featuring very high brightness using our dPd technology, which will result in a headset with a wide field of view and no screen door effect. We worked with a foundry partner to manufacture the silicon wafers needed to develop our displays, the first of which were shipped to us in December 2018 for testing and evaluation. We anticipate completing these displays in the third quarter of 2019.
- We received an order totaling $560 thousand in support of the Javelin Missile program Command Launch Unit. We anticipate a follow-on order in the second quarter of 2019.
- We supported multiple prime contractors with display deliveries for pre-production units for the US Army Enhanced Night Vision Goggle “ Binocular program. This program is anticipated to commence production in 2020 with an overall acquisition objective by the US Army of 190,000 systems.
- Ground and flight tests were successfully completed in the fourth quarter of 2018 for a major U.S. Army helicopter helmet upgrade program to retrofit high brightness microdisplays into the current fielded helmet.
- We delivered the first 2K x 2K compact board interface to an aviation prime contractor for the development of a next generation helmet prototype in the second quarter and continued to provide samples to key potential customers throughout the year. The compact size, long interface cables, and DisplayPort compliant standard make this system ideally suited for head-wearable applications for both the military and consumer markets.
- We delivered high brightness 2K — 2K microdisplays to a major defense contractor for use in a prototype aviation helmet. This was in anticipation of a Request for Proposal which has now been issued by the U.S. Government to develop a next generation rotary wing helmet.
- We are currently developing a prism optic to pair with our displays and evaluating prototypes received from potential manufacturing partners. There is interest in this display and prism combination for both military and commercial applications.
Full Year Results
Revenues for 2018 were $26.2 million, up 19% from the $22.0 million in 2017. Product revenues totaled $23.3 million, representing a 25% increase from $18.7 million in 2017, due primarily to continued growth from new U.S. and foreign military programs as well as the ramp-up of existing programs. R&D contract revenues totaled approximately $2.9 million as compared to $3.3 million in 2017. The decrease in R&D contract revenue was mainly the result of the completion during late 2017 and early 2018 of several commercial and U.S. Government R&D contracts.
Gross margin for 2018 was 15%, down from 23% in 2017. The decline in gross margin for the year was due primarily to an impairment charge of $2.7 million related to the Consumer Night Vision Business and the fourth quarter production issues previously discussed. Excluding the impairment charge, the total gross margin was 25%, reflecting higher production volumes and improved yields during the year.
Operating expenses for 2018, including R&D expenses, were $15.7 million compared to $13.9 million in 2017. The majority of the increase was due to higher R&D expenses for company-funded work related to the Companys direct patterning technology product and process development, resources expended on improving manufacturing processes, and higher spending on professional services related to contract negotiations with prospective consumer electronics and manufacturing partners.
Operating loss for the full year 2018 was $11.7 million versus $8.7 million in 2017. Net loss for the full year 2018, including $2.2 million recorded income from the change in the fair value of the warrant liability, was $9.6 million, or $0.21 per diluted share. This compares to a net loss of $7.8 million, including a $1.1 million impact from the change in the fair value of the warrant liability and an income tax benefit of $0.2 million, or $0.23 per diluted share.
As of December 31, 2018, the Company had approximately $3.4 million of cash, cash equivalents and investments compared to $3.5 million as of December 31, 2017. There were no net borrowings outstanding under the Companys asset-based loan facility and there was unused borrowing availability of $4.1 million at December 31, 2018.
The Company received net proceeds of $11.9 million in January 2018 from a public offering of common stock and warrants. In a concurrent private placement which closed on February 18, 2018, certain directors and officers purchased common stock and warrants totaling $0.3 million.
Fourth Quarter Results
Revenues in the fourth quarter of 2018 were $5.4 million as compared to $6.4 million in the fourth quarter of 2017. Production yields and output were negatively impacted by manufacturing related issues which occurred late in the fourth quarter of 2018. The Company has implemented remedial measures and expects yields to improve and production capacity to increase during the first and second quarters of 2019.
Product revenues totaled $5.2 million in the fourth quarter of 2018 versus $5.6 million in the fourth quarter of 2017. The decline is a result of the manufacturing related issues mentioned previously. R&D contract revenues totaled approximately $240,000 in the fourth quarter of 2018 versus $787,000 in the fourth quarter or 2017 reflecting the completion of contracts during 2017 and 2018.
In the fourth quarter of 2018, the Company reported a gross loss of $471,000 compared to a gross profit of $1.8 million in the fourth quarter of 2017. The decrease in gross profit was primarily related to the previously mentioned manufacturing related issues and to the resultant lower production volumes.
Operating expenses for the fourth quarter of 2018, including R&D expenses, were $3.7 million compared to $3.4 million in the fourth quarter of 2017. The increase in operating expenses was due to higher company-funded R&D expenses related to work on the Companys dPd technology and associated process development as well as funding for improved manufacturing processes. SG&A expenses were flat at $2.0 million year-over-year for the period.
Operating loss for the fourth quarter of 2018 was $4.2 million compared to $1.6 million in the fourth quarter of 2017. Net loss for the fourth quarter of 2018 was $2.5 million, or $0.05 per diluted share, including the impact of $1.8 million related to the change in the fair value of the warrant liability. This compares to a net loss of $875,000, or $0.03 per diluted share, in the fourth quarter of 2017 including the impact of $616,000 related to the change in the fair value of the warrant liability and an income tax benefit of $212,000.
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 April 27, 2019. To access the live webcast or archive, please visit the Companys 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. eMagins 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.
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 Corporations 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 Companys most recent filings with the SEC. Although we believe that the expectations reflected in the forward-looking statements are reasonable, such statements should not be regarded as a representation by the Company, or any other person, that such forward-looking statements will be achieved. The business and operations of the Company are subject to substantial risks which increase the uncertainty inherent in forward-looking statements. We undertake no duty to update any of the forward-looking statements, whether as a result of new information, future events or otherwise. In light of the foregoing, readers are cautioned not to place undue reliance on such forward-looking statements.
Non-GAAP Financial Measures
To supplement the Companys 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 Companys management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Companys 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.
|CONSOLIDATED STATEMENTS OF OPERATIONS|
|(in thousands, except share and per share data)|
|Three Months Ended||Twelve Months Ended|
|December 31,||December 31,|
|Total revenues, net||5,435||6,422||26,235||22,031|
|Cost of revenues:|
Impairment of Consumer Night Vision inventory
|Total cost of revenues||5,906||4,643||22,241||16,907|
|Gross profit (loss)||(471)||1,779||3,994||5,124|
|Research and development||1,753||1,393||6,694||5,175|
|Selling, general and administrative||1,985||1,976||8,967||8,682|
|Total operating expenses||3,738||3,369||15,661||13,857|
|Loss from operations||(4,209)||(1,590)||(11,667)||(8,733)|
|Other income (expense):|
Change in fair value of common stock warrant liability
|Interest expense, net||(57)||(114)||(69)||(363)|
|Other income, net||1||12|
|Total other income||1,750||503||2,125||738|
|Loss before provision for income taxes||(2,459)||(1,087)||(9,542)||(7,995)|
|Income tax benefit||212||212|
|Loss per share, basic||$||(0.05)||$||(0.03)||$||(0.21)||$||(0.23)|
|Loss per share, diluted||$||(0.05)||$||(0.03)||$||(0.21)||$||(0.23)|
Weighted average number of shares outstanding:
|CONSOLIDATED BALANCE SHEETS|
|(in thousands, except share and per share data)|
|December 31,||December 31,|
|Cash and cash equivalents||$||3,359||$||3,526|
|Accounts receivable, net||3,186||4,528|
|Unbilled accounts receivable||224||406|
|Prepaid expenses and other current assets||875||1,328|
|Total current assets||16,226||18,428|
|Equipment, furniture and leasehold improvements, net||8,921||8,553|
|Intangibles and other assets||269||326|
|LIABILITIES AND SHAREHOLDERS EQUITY|
|Revolving credit facility, net||3,808|
|Common stock warrant liability||1,497||784|
|Other accrued expenses||1,827||719|
|Other current liabilities||427||469|
|Total current liabilities||7,447||9,816|
|Commitments and contingencies (Note 9)|
|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 December 31, 2018 and 2017
Common stock, $.001 par value: authorized 200,000,000 shares, issued 45,323,339 shares, outstanding 45,161,273 shares as of December 31, 2018 and issued 35,182,589 shares, outstanding 35,020,523 shares as of December 31, 2017
|Additional paid-in capital||254,736||244,726|
Treasury stock, 162,066 shares as of December 31, 2018 and December 31, 2017
|Total shareholders equity||17,969||17,491|
|Total liabilities and shareholders equity||$||25,416||$||27,307|
|Three Months Ended||Year Ended|
|December 31,||December 31,|
|Net income (loss)||$||(2,459)||$||(875)||$||(9,542)||$||(7,783)|
|Change in fair value of common stock warrant liability||(1,807)||(616)||(2,194)||(1,089)|
|Depreciation and intangibles amortization expense||486||460||1,906||1,836|
|Provision for income taxes||(212)||–||(212)|
Jeffrey Lucas, President and Chief Financial
Affinity Growth Advisors