Revenue exceeds guidance at $6.7 million, including over $1.0 million in Contract R&D
eMagin, or the “Company”, (NYSE American: EMAN), a player in the development, design and manufacture of Active Matrix OLED microdisplays used in Military and Commercial AR/VR devices, and other near-eye imaging products announced results for the first quarter 2020.
“As the only USA manufacturer of OLED microdisplays, we are deemed an essential business by the U.S. government and have continued to produce and ship products during the COVID-19 pandemic. We also have implemented additional employee health and safety measures per CDC guidelines and continue to supply products on a timely basis to our customers as well as maintain a healthy supply chain,” said CEO Andrew G. Sculley.
“Consumer, Medical and Military customers are increasingly turning to eMagin because of our technological leadership in display brightness, contrast, and resolution. This leadership in brightness is further demonstrated by our proprietary Direct Patterning Display (dPd™) capability. Unlike traditional OLEDs that produce colors by using a white source with filters that eliminate about 80% of the emitted light, with dPd™, we make full color displays by directly depositing each of the primary color materials (RGB) on respective sub-pixels. This allows us to use highly efficient phosphorescent materials, which increases the brightness further. With this advanced technology we have already achieved full color brightness over 7,500 cd/m2 , higher than any competitor, and we are on track to achieve 10,000 cd/m2 by Q4 2020, and expect to achieve a brightness level of over 28,000 cd/m2 ready for mass production of full color displays by 2023. We achieved the highest monochrome brightness levels in the market years ago and are continuing our leadership with color displays. Display brightness is critical for AR/VR devices because of optics inefficiency and the need to eliminate motion artifacts. This is especially important for Heads Up Displays (HUDs) used in bright, daylight environments.”
“First quarter revenue, consisting of $5.6 million product revenue from sales of displays, and $1.1 million from contract R&D work, was $0.6 million above our expectations for the quarter, primarily due to contract R&D work from designing a display for a Tier One customer in the consumer space. This customer is evaluating our dPd technology and we are also enabling new, differentiated features through our advanced backplane design, and expect that work on this project continue through 2020.”
“We also realized a slight increase in military R&D contracts as a part of an overall trend which involves the increasing use of digital visual systems that present data from multiple sensors to soldiers for at a glance viewability, often through the use of AR/VR. Examples include Head Mounted Displays (HMDs) connected to sensors mounted outside military aircraft giving pilots the ability to see beyond the airframe, as well as displaying targeting data, status of the aircraft systems, and visual and infrared views of the world outside the airplane. Similar HMD systems allow soldiers to see beyond the armor of their vehicles to navigate terrain, acquire targets, and fire weapons. Further examples include night vision binoculars and other systems that integrate our displays, enable individual warfighters to view AR battlefield information, rapidly acquire targets and fire weapons from covered positions through darkness, smoke, and other low visibility conditions.”
“During the quarter, we shipped a significant amount of product for the ENVG-B program. The improved design of the wafers for the next generation F-35 HMD systems was recently completed with first shipments planned for later in the year. In addition, we received awards for two-multiyear U.S. helicopter helmet programs, one of which is for a new program with deliveries starting in the second quarter and the other, an upgrade, which will begin shipping in the fourth quarter. Finally, we received an order from a European military customer for displays used in shoulder fired weapon systems. Our USA-based design and manufacturing, combined with in-house advanced backplane design, and the promise of our dPd technology continues to give us a competitive advantage more than ever before in these markets.”
“In the industrial and medical markets, we had steady sales during the quarter. We provided displays for thermal systems used in firefighting and law enforcement. For the medical market, we shipped our high performance displays to be used in veterinary ultrasound goggles, cataract operating systems, and functional magnetic resonance imaging (MRI) and LASIK operating systems. We continue to gain traction in these markets that are targeting to leverage AR/VR solutions to advance their capabilities. To increase awareness about eMagin in these emerging markets, we recently hired a highly skilled and widely respected marketing consultant,” continued Mr. Sculley.
“In terms of operations, the upgrade to our direct patterning equipment was delivered, and installation is complete. We are in the process of qualifying the equipment and validating the process. Progress has been very good despite vendor delays due to the coronavirus. We are expecting to fabricate full color displays in the second quarter. In addition, we are continually making improvements in production processes, continuing the turnaround that began in the third quarter of 2019. And we are pursuing some promising yield improvement projects that will continue to increase yields which will directly impact the bottom line.”
“As a USA based manufacturer, we are honored to support mission critical projects for our military and supply important devices for our medical customers used in surgery and diagnostic procedures. We are very proud of our employees and want to thank them for their courage, dedication and hard work during the current pandemic,” concluded Mr. Sculley.
First Quarter Results
Total revenues for the first quarter of 2020 were $6.7 million, an increase of $0.6 million from revenues of $6.1 million reported in the prior year period, and a slight decrease of $0.6 million from the fourth quarter of 2019.
Total revenue consists of both product revenue and contract revenue. Product revenues for the first quarter of 2020 were $5.6 million, an increase of $0.1 million from product revenues of $5.5 million reported in the prior year period. The slight increase in product revenue was achieved despite some minor disruptions resulting from the Covid-19 pandemic. Contract revenues were $1.1 million compared to $0.6 million reported in the prior year reflecting a contribution of contract R&D work from designing a display for a Tier One customer in the consumer space.
Gross margin for the first quarter was 21% on gross profit of $1.4 million compared to a gross margin of 22% on gross profit of $1.3 million in the prior year period. The lower gross margin in the 2020 first quarter is due to lower production volumes and some yield losses due to delayed response times from equipment maintenance providers related to Covid-19 travel restrictions.
Operating expenses for the first quarter of 2020, including R&D expenses, were $2.8 million as compared to $3.5 million reported in the prior year period. Operating expenses as a percentage of sales were 41% in the first quarter of 2020 compared to 58% reported in the prior year period. R&D expenses were lower in the first quarter, primarily reflecting R&D activity charged to contracts and a focus on production and yield improvement projects. SG&A expenses were lower in the first quarter versus the year ago period due to a reduction in non-cash stock compensation for the Board of Directors implemented in December 2019, lower salary expenses and lower travel and other discretionary expenses. Both SG&A and R&D expenses in the first quarter also were lower due to the impact of the October 2019 reduction in senior management compensation.
Operating loss for the first quarter of 2020 was $1.3 million compared to an operating loss of $2.2 million in the prior year period. Net loss for the first quarter of 2020 was $1.4 million or $0.03 per share compared to a loss of $1.4 million or $0.03 per share in the prior year period. Net loss for the prior year period reflects a $0.8 million non-cash gain related to the decrease in fair value of a warrant liability.
Adjusted EBITDA the first quarter was negative $0.8 million compared to a negative $1.5 million in the prior year period. Historically, the first quarter has typically been our lowest revenue quarter and is not indicative of results to be expected for the full year.
At March 31, 2020, the Company had cash and cash equivalents of $3.1 million and working capital of $9.2 million. Borrowings and availability under the ABL facility were $2.2 million and $0.9 million respectively at March 31, 2020. In December 2019, eMagin entered into an At the Market sales agreement with H.C. Wainwright & Co. for the sale of common stock. During the quarter, the Company raised $1.5 million under its ATM facility.
Outlook for second quarter
We had solid bookings of $6.0 million during the first quarter. At March 31, 2020, the Company’s backlog of open orders was $14.9 million, including $13.3 million shippable within twelve months. This compares to a backlog of orders shippable within twelve months of $11.7 million as of December 31, 2019. As deemed an essential business, the Company continues to ship and produce product and has not experienced any major material supply chain disruptions. Currently, we are expecting second quarter product revenue to be higher than that experienced in the first quarter of 2020.
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