- Strong Military Sales Help Compensate for Lower Commercial Sales and Delayed Contract Revenues
- Continuing to Supply the ENVG-B Night Vision and F-35 Helmet Mounted Display Programs
eMagin, or the “Company”, a leader 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 third quarter 2020.
“The Company is reporting that third-quarter revenues were $7.3 million as compared to revenue of $7.9 million a year ago. Military display sales increased as eMagin supplied sole-sourced products to support the ENVG-B program as it ramps to volume, as well as other key military programs worldwide. However, we were impacted by the economic disruption of COVID-19 in certain non-military applications as customers delayed purchases for elective surgery systems as well as high-end sportsman’s rifle scopes. We increased R&D investment in dPd™ technology which in the near term should drive more contract revenue, and next quarter we expect to start receiving equipment under our $39.1 million Department of Defense (“DoD”) awards for OLED technology, which we announced in June and July,” commented CEO Andrew G. Sculley.
“We experienced continued strength in our military display business, which at $5.5 million for the quarter, increased 19% year-over-year. Our U.S. military business was strong in the quarter as we accelerated our support of the ENVG-B program for close combat soldiers, and produced displays for the F-35 head mounted display helmet program. We are the sole supplier for the multi-year ENVG-B program, and have supported the build-out of initial units delivered to the U.S. Army. We will continue to supply the program through its low rate initial production phase in 2021 and beyond. In international markets, we recorded increased shipments across Asian, Middle Eastern and European markets and supplied an initial order to one of the top five European military electronics manufacturers, a new relationship for eMagin.”
“Non-military display revenue declined, attributed to the economic disruption of the COVID-19 pandemic. Specifically, sales for elective eye surgery equipment and sportsman’s rifle scope were lower compared to the same quarter last year. We have already begun to see recovery in the eye care market and recently booked over $1 million in orders for delivery beginning in April 2021. Our third-quarter contract revenue declined $0.3 million due to timing of various projects.”
“We continue to see strong interest in our high brightness direct patterned (“dPdTM“) technology and believe it to be the best solution for AR/VR. We are making steady progress on the development efforts of our dPd technology and our high brightness product roadmap, and have demonstrated an increase in throughput on our new dPd tool by a factor of three. Our total R&D work has brought us close to achieving our brightness milestone of 10,000cd/m2 for a full-color display using a single stack architecture. These improvements will be combined with new tooling on the next version of dPd. Future roadmap milestones will make use of tandem, or double 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,” continued Mr. Sculley.
“We are excited about the completion of wafer design for one of our Tier One consumer customers at the end of the second quarter. The foundry is now working on the fabrication of the wafers, which will be returned to us for dPd processing. We expect our contract revenue to increase in the fourth quarter as we continue to work on these innovative technologies.”
“From an operating perspective, our quarterly operating loss increased by $1.5 million to $1.9 million from the prior year mainly related to the decrease in non-military revenues and the increased investments in our R&D efforts for our dPd and XLE processes to maintain our technological edge and our innovative product mix.”
“During the quarter, we placed orders for the new equipment provided for under the first phase of our DoD awards and are in the design/order phase for additional equipment to be provided under this $39.1 million program. The machinery included in these programs will be used to enhance manufacturing reliability, increase yield and throughput, and provide a production tool for our high brightness dPd process. In December, the first new piece of equipment to arrive will be an advanced testing and diagnostic tool for use in our clean room. We expect that this new machine will help us enhance yield and anticipate seeing the improvement beginning in the first quarter of 2021. Additional early phase equipment is due to arrive in the second quarter of 2021 and will undergo testing and qualification.”
“At the end of the quarter, we had $10.3 million in cash and cash equivalents, and borrowings outstanding and borrowings available under our ABL facility of $0.5 million and $2.3 million, respectively. Included in this amount is $1.96 million from a PPP loan, which the Company has used to maintain full employment and which we expect to be forgiven. Our backlog remains strong at $10.0 million of which $9.4 million is shippable within the next twelve months.”
“Our product lines of market, domestically produced microdisplays have been designed into a broad range of applications and have been recognized for their reliability, resolution and high brightness for over twenty years. We are pleased to be at the forefront of the military’s effort to incorporate AR/VR into their advanced weapons systems and look forward to providing our customers the benefit of the increased manufacturing capability made possible by the government awards,” concluded Mr. Sculley.
Third Quarter Results
Total revenues for the third quarter of 2020 were $7.3 million, a decrease of 0.6 million from revenues of $7.9 million reported in the prior-year period, and a decrease of $0.4 million from the second quarter of 2020.
Total revenue consists of both product revenue and contract revenue. Product revenues for the third quarter of 2020 were $7.0 million, a decrease of $0.3 million from product revenues of $7.3 million reported in the prior-year period. The decrease in display revenue for the quarter resulted from lower sales to commercial and medical customers due to the economic impact of COVID-19. Contract revenues were $0.3 million compared to $0.6 million reported in the prior year reflecting an increased contribution from military and consumer NRE work in the prior year.
Total gross margin for the third quarter was 23% on gross profit of $1.7 million compared to a gross margin of 31% on gross profit of $2.5 million in the prior-year period. The decrease in gross margins was impacted by the lower shipment of displays and revenues as compared to the comparable 2019 period.
Operating expenses for the third quarter of 2020, including R&D expenses, were $3.6 million as compared to $2.9 million reported in the prior-year period. Operating expenses as a percentage of sales were 49% in the third quarter of 2020 compared to 36% reported in the prior-year period. R&D expenses were higher in the third quarter, primarily reflecting increased investments in R&D projects related to dPd technology and our XLE display development.
Operating loss for the third quarter of 2020 was $1.9 million compared to an operating loss of $0.4 million in the prior-year period. Net loss for the third quarter of 2020 was $3.5 million or $0.06 per share compared to a loss of $0.3 million or $0.01 per share in the prior-year period. Net loss for the current and prior year periods reflects a $1.8 million non-cash loss and $0.1 million non-cash gain related to the change in fair value of a warrant liability, respectively. Excluding the impact of the change in the fair value of the warrant liability, net loss for the third quarter of 2020 was $0.03 per share versus a net loss of $0.01 per share in the year-ago quarter.
Adjusted EBITDA the third quarter was negative $1.1 million compared to a positive $0.3 million in the prior-year period.
At September 30, 2020, the Company had cash and cash equivalents of $10.3 million and working capital of $14.5 million. During the third quarter, the Company used the remaining amount available under an At the Market equity facility to raise $6.5 million. Borrowings and availability under the ABL facility were $0.5 million and $2.3 million respectively.