eMagin Corporation Announces Third Quarter 2019 Financial Results

- Posted Product Revenues of $7.3 Million; Total Revenue of $7.9 Million

- Operational Improvements and Cost Reduction Efforts Yield Positive Results

HOPEWELL JUNCTION, N.Y.--(BUSINESS WIRE)--Nov. 7, 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 near-eye imaging products, today announced financial results and corporate highlights for the third quarter ended September 30, 2019.

“We successfully executed on our strategic priorities in the third quarter of 2019 which resulted in a significant improvement in our financial results,” stated Jeffrey Lucas, President and CFO. “For the quarter, we achieved over $7.3 million in product revenues, the highest level of product revenues in six years and the second highest in the Company’s history. Operating loss for the quarter was $394 thousand and down from an operating loss of $1.3 million in the prior year quarter. Adjusted EBITDA of $263 thousand was positive for the first time since the first quarter 2016 when the Company earned one million dollars from nonrecurring licensing revenue.

“During the third quarter, we demonstrated significant improvement in yield and throughput as production volumes increased over 50% from the second quarter. We believe these initiatives, including enhanced maintenance support and optimizing production runs, along with others we are implementing in the current quarter, provide us with additional opportunities for operating improvements in the future,” continued Mr. Lucas.

“In addition, during the third quarter we took actions to reduce our cost structure. Expense controls put into effect during the quarter contributed to a 21% decrease in operating expenses from the prior year period. Operating expenses as a percent of sales declined to 36% in the third quarter compared to 53% a year ago and 57% from this year’s second quarter. We initiated additional expense savings actions in October, including reductions in our senior management compensation structure, which we anticipate will benefit our fourth quarter results. Overall, we expect these initiatives to reduce our operating expenses, on an annualized basis, by over $2 million,” concluded Mr. Lucas.

“Demand for our OLED microdisplays continues to be strong. Our backlog of $6.3 million reflects the fulfillment of several sizeable orders during the quarter and an approximate $1.1 million reduction from the government’s cancelation of the ENVG-III program as it begins fielding the 108,000 system ENVG-B program where we are supplying displays to the two prime contractors on the program, ” stated Andrew G. Sculley, CEO. “We believe our backlog in the near term will return to or exceed recent levels as our business development team is currently negotiating a number of large orders. In addition, we are currently manufacturing displays for a new helicopter program with deliveries beginning in the current quarter.

“Orders for the F-35 program and other long-term programs continue to meet our expectations. Our displays for the F-35 program were recently highlighted in Naval Aviation News where it was reported that the improved Generation III helmet, incorporating our OLED displays, performed well in operational testing and will be fully implemented to the entire F-35 community.

“From a technology advancement perspective, we are on target to achieve 10,000 nits brightness by the second quarter of 2020 and are working to reach more than 25,000 nits within three years. This high level of brightness is being requested within the U.S. military and we are pursuing government funding as part of this effort.

“Finally, during the third quarter, we received 93 orders, of which 7 were from new customers, and supplied products for 23 new programs. I am especially pleased to report that we have orders from two new medical customers and continue to supply an existing medical customer under our long-term contract,” concluded Mr. Sculley.

Third Quarter Results

Revenues for the third quarter of 2019 were $7.9 million, an increase of approximately $1.0 million from revenues of $6.9 million reported a year ago, and an increase sequentially of $2.5 million from the second quarter of 2019.

Product revenues totaled $7.3 million as compared to $6.0 million in the third quarter of 2018. On a sequential basis, product revenues increased 49% from the second quarter of 2019. The year-over-year and sequential increases in product revenue were due primarily to growth in display revenues from customer demand coupled with higher production volumes as a result of increases in throughput and manufacturing yields. Contract revenues totaled $0.6 million as compared to $0.8 million in the third quarter of 2018 as higher military and government-funded contract revenues did not fully offset lower commercial contract revenues.

Overall gross margin for the third quarter was 31% on gross profit of $2.5 million compared to a gross margin of 35% on gross profit of $2.4 million in the prior year period. The higher gross profit is due largely to higher product revenues. The lower gross margin reflects greater spending on production improvements and the resultant lower allocation of production capacity costs to R&D.

Operating expenses for the third quarter of 2019, including R&D expenses, were $2.9 million as compared to $3.6 million in the third quarter of 2018. Operating expenses as a percentage of sales were 36% in the third quarter of 2019 compared to 53% in the year ago period. R&D expenses were lower in the third quarter, primarily reflecting lower internal R&D activity as we focused on production improvements. SG&A expenses were lower in the third quarter versus the year ago period due in part to lower spending on professional services, legal, and travel and other discretionary expenses

Operating loss for the third quarter of 2019 was $0.4 million versus an operating loss of $1.3 million in the third quarter of last year. Net loss for the third quarter of 2019 was $0.3 million, or $0.01 per diluted share. The net loss included income related to the change in fair value of warrant liability of $0.1 million. For the third quarter of 2018, the Company reported net income of $63 thousand inclusive of income of $1.3 million for the warrant liability revaluation.

Adjusted EBITDA for the third quarter was approximately $0.3 million versus a negative $0.6 million in the year ago period.

As of September 30, 2019, the Company had cash and working capital of $2.6 million and $8.5 million, respectively, and borrowings and availability under the ABL Facility of $2.0 million and $1.2 million, respectively.

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 7, 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 for military, industrial, medical and consumer applications. 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, and Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2019

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 STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:

Product	$	7,321		$	6,048		$	17,786		$	18,127
Contract		598			819			1,606			2,673
Total revenues, net		7,919			6,867			19,392			20,800

Cost of revenues:

Product		5,112			3,926			14,436			12,256
Contract		316			562			904			1,389
Total cost of revenues		5,428			4,488			15,340			16,335

Gross profit		2,491			2,379			4,052			4,465

Operating expenses:

Research and development		1,046			1,590			3,943			4,941
Selling, general and administrative		1,839			2,039			5,555			6,982
Total operating expenses		2,885			3,629			9,498			11,923

Loss from operations		(394	)		(1,250	)		(5,446	)		(7,458	)

Other income (expense):
Change in fair value of common stock warrant liability		120			1,311			1,450			387
Interest expense, net		(41	)		1			(96	)		(12	)
Other income, net		—			1			—			—
Total other income		79			1,313			1,354			375
(Loss) income before provision for income taxes		(315	)		63			(4,092	)		(7,083	)
(Provision) benefit for income taxes		—			—			—			—

Net (loss) income	$	(315	)	$	63		$	(4,092	)	$	(7,083	)
Less net income allocated to participating securities		—			9			—			—
Net (loss) income allocated to common shares	$	(315	)	$	54		$	(4,092	)	$	(7,083	)

Loss per share, basic	$	(0.01	)	$	—		$	(0.09	)	$	(0.16	)
Loss per share, diluted	$	(0.01	)	$	—		$	(0.09	)	$	(0.16	)

Weighted average number of shares outstanding:

Basic		49,173,773			45,149,717			47,718,965			44,182,379

Diluted		49,173,773			45,265,370			47,718,965			44,182,379

EMAGIN CORPORATION
CONSOLIDATED BALANCE SHEETS	September 30,			December 31,
(in thousands, except share and per share data)	2019			2018
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	2,563		$	3,359
Accounts receivable, net		3,956			3,186
Unbilled accounts receivable		279			224
Inventories		8,447			8,582
Prepaid expenses and other current assets		1,209			875
Total current assets		16,454			16,226
Equipment, furniture and leasehold improvements, net		8,346			8,921
Operating lease right- of- use assets		3,790			—
Intangibles and other assets		191			269
Total assets	$	28,781		$	25,416

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,208		$	2,024
Accrued compensation		1,602			1,634
Revolving credit facility, net		2,002			—
Finance lease liability - current portion		16			—
Common stock warrant liability		47			1,497
Other accrued expenses		1,603			1,827
Deferred revenue		328			38
Operating lease liability - current portion		704			—
Other current liabilities		398			427
Total current liabilities		7,908			7,447
Finance lease liability-long term		28			—
Operating lease liability-long term		3,202			—
Total liabilities	$	11,138		$	7,447

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, 2019 and December 31, 2018		—			—
Common stock, $.001 par value: authorized 200,000,000 shares, issued 49,335,839 shares, outstanding 49,173,773 shares as of September 30, 2019 and issued 45,323,339 shares, outstanding 45,161,273 shares as of December 31, 2018		49			45
Additional paid-in capital		258,498			254,736
Accumulated deficit		(240,404	)		(236,312	)
Treasury stock, 162,066 shares as of September 30, 2019 and December 31, 2018		(500	)		(500	)
Total shareholders’ equity		17,643			17,969
Total liabilities and shareholders’ equity	$	28,781		$	25,416

Non-GAAP Information

		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2019			2018			2019			2018

Net income (loss)	$	(315	)	$	63		$	(4,092	)	$	(7,083	)
Non-cash compensation		164			177			454			512
Change in fair value of common stock warrant liability		(120	)		(1,311	)		(1,450	)		(387	)
Depreciation and intangibles amortization expense		493			470			1,480			1,420
Interest expense		41			34			96			106
Provision for income taxes		—			—			—			—
Adjusted EBITDA	$	263		$	(567	)	$	(3,512	)	$	(5,432	)

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Source: eMagin Corporation

eMagin Corporation
Jeffrey Lucas, President and Chief Financial Officer
845-838-7931
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Affinity Growth Advisors
Betsy Brod
212-661-2231
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