eMagin announces fourth quarter and full-year 2020 results

eMagin, or the “Company”, a leader in the development, design and manufacture of Active Matrix OLED microdisplays for high-resolution, AR/VR and other near-eye imaging products, announced fourth-quarter and full-year results for 2020.

Fourth-quarter revenues were $7.7 million, compared with $7.3 million in the prior-year period. Contract revenues were $1.5 million, compared with $0.5 million a year ago, reflecting continued Direct Patterning Display (dPd™) development work for tier-one consumer companies. Fourth-quarter 2020 display sales totaled $6.2 million, compared with sales of $6.8 million a year ago, reflecting timing of certain orders with large military customers.

Full-year revenues increased to $29.4 million, compared with $26.7 million in the prior year, reflecting increases in both product and contract revenues. Higher contract revenues of $4.4 million in 2020 primarily reflectdevelopment work for a tier-one consumer company for an advanced display design and proof of concept for a consumer AR/VR device.

“In 2020, thanks to the courage and tireless efforts of our employees, we moved forward on several initiatives while increasing revenues, despite unfavorable conditions brought on by the pandemic,” said eMagin CEO Andrew G. Sculley. “Last year, we announced the award of more than $39 million in government funding for the purchase of factory equipment to protect and enhance our ability to manufacture in our Hopewell Junction facility and we are proud to be the only U.S. manufacturer of OLED microdisplays. We are on track with the program requirements and appreciate the support of the U.S. Military in helping to protect our vital U.S. production line and the manufacturing jobs we provide.”

“In December, we signed a long-term lease at our Hopewell Junction facility, and increased our manufacturing footprint by more than 25% to accommodate the new equipment and cleanroom funded by the U.S. Department of Defense. Furthermore, we are hiring additional engineers to continue to improve our technical capabilities and are increasing R&D investment in our dPd technology, which we believe will position us to drive additional contract revenues in the near term.”

“In the fourth quarter, we had strong bookings of $8.3 million, which led to a 22% increase in our backlog from the third quarter of 2020,” said Mark Koch, the Company’s acting CFO. “During the fourth quarter, we received significant orders from night vision, eye care and veterinary customers. As of December 31, 2020, our backlog of open orders was $12.2 million, including $10.9 million scheduled for delivery through December 31 of this year.”

“In addition to strong bookings under continuing programs, in the fourth quarter we received orders under 10 new programs, including thermal sights, thermal imaging glasses, and automotive manufacturing monitoring,” added Sculley. “We continued to supply sole-sourced displays under the Enhance Night Vision Goggle-Binocular (ENVG-B) program as it ramps to volume, as well as other key military programs worldwide.”

“Overall, we continue to see strong interest in our high-brightness dPd technology and believe it to be the best display solution for AR/VR applications. We are making steady progress in developing our dPd technology and are targeting an initial brightness of 10,000 cd/m2 for the high-resolution prototypes we are producing for tier-one consumer companies. We have developed and tested the color OLED device stacks consistent with this goal and these will be used in direct patterning of the prototype displays in the first half of 2021. Since dPd is a process technology that can be applied to any OLED microdisplay, future dPd roadmap milestones will include the addition of tandem, or double, OLED structures and other improvements that we believe will allow us to stay ahead of the competition in providing the highest brightness displays to the marketplace. Moreover, our OLED microdisplays will satisfy the brightness, contrast and resolution needed for AR and VR headsets. We expect our consumer contract revenues will continue in 2021 as we work with customers on continued development and scalability of our dPd technology to serve the consumer AR/VR markets.”

“In parallel with our dPd efforts, we continue to advance the state-of-the-art microdisplays that utilize white OLED with color filters. We significantly advanced development efforts on our XLE technology, which will give customers a sizeable boost in luminance and/or lifetime over their current eMagin displays, and shipped early samples to key customers. We expect to qualify initial products in the first half of 2021 with nominal luminance of 1,500 cd/m2 for full color displays, with a roadmap to even brighter color-filter based displays to follow. We feel confident that further improvements in this technology will be manufacturable in volume in the near term, with a bridge to dPd technology as that continues to mature.”

Fourth Quarter Results
Revenues for the fourth quarter of 2020 were $7.7 million, an increase of $0.4 million from $7.3 million in the prior-year period, and a sequential increase of $0.4 million from the third quarter of 2020.

Total revenue consists of both product revenues and contract revenues. Product revenues for the fourth quarter of 2020 were $6.2 million, a decrease of $0.6 million from product revenues of $6.8 million reported in the prior-year period, and a decrease of $0.8 million compared to the third quarter of 2020. The year-over-year quarterly decrease in product revenue was due primarily to the timing of certain orders from prime defense contractors.

Contract revenues were $1.5 million, compared with $0.5 million in the prior-year period, due to the display design work for tier-one consumer customers.

Total gross margin for the fourth quarter was 17% on gross profit of $1.3 million compared to a gross margin of 37% on gross profit of $2.7 million in the prior-year period. The decrease in gross margins was impacted by lower revenues and lower production and absorption of fixed cost into inventory, due to equipment issues and repair delays related to COVID-19 travel restrictions. The Company expects a recovery in yields in 2021 due to the arrival of a key vendor support person, repairs made to date, and the contributions of equipment purchased under the government awards.

Operating expenses for the fourth quarter of 2020, including R&D expenses, were $3.6 million, compared with $2.8 million in the prior-year period. Operating expenses as a percentage of sales were 47% in the fourth quarter of 2020, compared with 38% in the prior-year period. R&D expenses were higher in the fourth quarter, primarily reflecting additional headcount and internal costs incurred in the development of the Company’s high-brightness dPd and XLE displays. SG&A expenses were higher in the fourth quarter versus the year-ago period due primarily to increased legal costs related to the consumer contract work and arbitration of a dispute with a former contract manufacturer. The Company expects a reduction in these legal costs going forward.

Operating loss for the fourth quarter 2020 was $2.4 million, compared with $0.1 million in the prior-year period. The result was mainly due to a decrease in non-military revenues, production equipment issues that affected yields, higher legal fees related to an ongoing arbitration and consumer contract negotiations, plus increased investments in R&D efforts for the Company’s dPd and XLE processes.

Net loss for the fourth quarter 2020 was $3.7 million, or $0.05 per share, compared with a loss of $0.2 million, or $0.00 per share, in the same period of 2019. Excluding the impact of the non-cash change in the fair value of the warrant liability, net loss for the fourth quarter of 2020 was $0.04 per share, versus $0.00 per share in the year-ago fourth quarter.

Adjusted EBITDA for the fourth quarter was negative $1.7 million, compared with $0.4 million in the prior-year period.

Full-Year Results
Revenues for 2020 were $29.4 million, up 10% from $26.7 million in 2019. Product revenues totaled $25.0 million, representing a 2% increase from $24.6 million in 2019, due primarily to customer demand. R&D contract revenues totaled approximately $4.4 million, representing a 105% increase from $2.1 million in 2019.

Gross margin for 2020 was 22%, compared with 25% in 2019. Gross margin for 2020 was impacted by issues related to the COVID-19 pandemic, including employee absences, stricter cleaning requirements, and longer than normal repair times as a result of travel restrictions for vendor personnel.

Operating expenses for 2020, including R&D expenses, were $13.3 million, compared with $12.3 million in 2019. The majority of the increase was due to higher legal costs and investments in R&D expenses for Company-funded work related to eMagin’s high-brightness dPd product and XLE process development, along with resources expended on improving manufacturing processes.

Operating loss for 2020 was $6.9 million, versus $5.6 million in 2019. Net loss for 2020 was $11.4 million, or $0.19 per diluted share. This compares to a net loss of $4.3 million, or $0.09 per diluted share, in 2019. Excluding the impact of the non-cash change in the fair value of the warrant liability, net loss for full-year 2020 was $0.11 per share, versus a net loss of $0.12 per share in 2019.

Balance Sheet Highlights
eMagin’s financial position as of December 31, 2020 reflects a total of $8.3 million in unrestricted cash, an improvement of $4.8 million compared to year-end 2019. This is in addition to $2.1 million of cash restricted for purchases of equipment under Title III and IBAS government grants announced in June and July 2020. The Company had $1.9 million in borrowings and $2.1 million in credit availability under its revolving credit facility as of year-end 2020. This compares to borrowings of $2.9 million and borrowing availability of $1.2 million at year-end 2019.

In January 2021, the Company took delivery of an advanced wafer inspection tool valued at $1.1 million, which was the first equipment to be received under the combined $39.1 million in U.S. government funding awarded to eMagin to enhance its manufacturing capabilities as the only U.S. provider of OLED microdisplays.

In December2020, eMagin signed a 10-year lease with its current landlord to provide 25% of additional space to house the new equipment provided under the U.S. government grants, including equipment to be purchased for the Company’s patented high-brightness dPd production process. The approximately $12.7 million in discounted payments is reflected as a finance lease in the property, plant and equipment line.