First Quarter Revenue of $6.8 Million on Diversified Product Sales
Continuing to Supply ENVG-B Night Vision, Medical and International Programs
HOPEWELL JUNCTION, NY / ACCESSWIRE / May 13, 2021 / eMagin Corporation, or the "Company", (NYSE American:EMAN), a leader in the development, design and manufacture of Active Matrix OLED microdisplays for high-resolution, AR/VR and other near-eye imaging products, today announced results for its quarter ended March 31, 2021.
"Our first quarter of 2021 was marked by continued strength in our product sales, which offset decreases in certain government contract work," said eMagin CEO Andrew G. Sculley. "We saw recovery in sales across a number of markets that were impacted by the pandemic, as well as an overall increase in international sales.
"We continued to supply sole-sourced displays under the Enhanced Night Vision Goggle-Binocular (ENVG-B) program, as well as other key military programs worldwide. eMagin is a proud supplier of the microdisplays that provide critical information to our soldiers in the battlefield, and we are the only manufacturer of OLED microdisplays in the United States. In combat and in training, soldiers value the super-fast response times of our displays, their high brightness and contrast, power efficiency, and their thin and light form factor.
"Bookings in the first quarter saw significant diversity across market segments and geography. We experienced a strong uptick in order activity from our medical and veterinary customers, as well as thermal sights for hunting and military applications. We expect these areas will continue to grow as the pandemic subsides. Internationally, we saw strong orders across multiple product segments. In addition to the growth in existing programs, we saw new program activity in several military helmet-mounted display (HMD) programs, industrial security applications, and new hunting scopes. In all, as of March 31, our sales backlog was $10.7 million.
"Our ongoing work with NordicNeuroLab is representative of our capabilities across a broad range of industries. As we recently announced, we have a strong relationship with this maker of functional MRI brain imaging applications. They have integrated their binocular head-mounted display with our WUXGA display, which is designed for near-to-eye applications, to project high-resolution 2D and 3D images to patients undergoing fMRI scanning. Our proprietary, color OLED technology delivers high brightness, extended life and sharp contrast under all conditions and is ideal for mission-critical medical applications like these that require stringent specifications and exacting reliability.
"We continue to advance our Direct Patterning Display (dPd™) technology and remain on target for a peak luminance of 10,000 cd/m2 for the high-resolution prototypes we are fabricating for a tier-one consumer company this year. We are also advancing our higher brightness XLE technology, which will give customers a sizeable boost in luminance and/or lifetime over their current eMagin displays. We remain confident that further improvements in this technology will be manufacturable in volume in the near term.
"As a result of the long-term lease we signed last quarter, we have increased our manufacturing footprint by more than 25% and are underway in ordering and installing new equipment funded by the U.S. Department of Defense. As we noted last quarter, we are increasing our engineering headcount, and with our continued investments in R&D, we are enhancing our technical capabilities as we build for the future."
Total revenues for the first quarter of 2021 were $6.8 million, compared with $6.7 million reported in the prior year period.
Total revenues consist of both product revenue and contract revenue. Product revenues for the first quarter of 2021 were $6.1 million, an increase of $0.5 million from product revenues of $5.6 million reported in the prior year period. The increase in display revenues for the quarter resulted from higher sales to medical and veterinary customers compared with the same period in 2020. Contract revenues were $0.7 million compared with $1.1 million reported in the prior year, reflecting the completion of several government contracts during 2020.
Total gross margin for the first quarter was 25% on gross profit of $1.7 million, compared with a gross margin of 21% on gross profit of $1.4 million in the prior year period. The increase in gross margins reflects improvement in yields, higher product revenues and the impact of a change in overhead allocation, partially offset by lower contract revenues compared with the comparable 2020 period.
Operating expenses for the first quarter of 2021, including R&D expenses, were $3.7 million, compared with $2.8 million in the prior year period. Operating expenses as a percentage of sales were 54% in the first quarter of 2021, compared with 41% in the prior year period. The year-over-year increase in R&D advanced the Company's dPd technology and development of its XLE display.
Operating loss for the first quarter of 2021 was $2.0 million, compared with an operating loss of $1.3 million in the prior year period, reflecting increased investments in R&D in the current year. However, results for the current period also reflect a $2.0 million gain on the forgiveness of the Company's Paycheck Protection Program (PPP) loan.
Net loss for the current period also includes a $7.2 million non-cash loss, related to the change in fair value of a warrant liability.
Therefore, net loss for the first quarter of 2021 was $7.4 million, or $0.10 per share, compared with a loss of $1.4 million, or $0.03 per share, in the prior year period. Excluding the impact of the change in the fair value of the warrant liability, net loss for the first quarter of 2021 was $0.2 million, or $0.00 per share, versus a net loss of $1.3 million, or $0.03 per share, in the year-ago period.
Adjusted EBITDA increased in the first quarter of 2021 to $0.8 million, compared with negative $0.8 million in the prior year period. The Company's management believes 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. A reconciliation of non-GAAP financial information to GAAP results appears in the financial tables below.
Balance Sheet Highlights
As of March 31, 2021, the Company had cash and cash equivalents of $10.7 million and working capital of $8.3 million. During the first quarter, the Company repaid $1.7 million under its asset-based lending (ABL) facility and realized proceeds from the exercise of warrants of $5.1 million. Borrowings and availability under the ABL facility were $0.2 million and $2.5 million, respectively, as of March 31, 2021.
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. eMagin continues to place down payments with vendors that are building the equipment requested under the government funding awards, and the Company remains on track with the program's requirements.
Measurement of Inventory
In recognition of a shift in product demand toward larger, more complex displays yielding fewer die per wafer, the Company has concluded that measuring output by the number of displays produced per quarter is no longer an accurate measure of productive capacity. The Company determined that measuring output based on the number of wafers produced per quarter is a more appropriate measure of production volume. As the number of wafers produced per quarter has remained consistent for the past two years, the Company concluded it was no longer in a period of abnormal production that would require limiting the amount of overheads allocated to inventory. The Company also believes that fully allocating the overhead to work in process and finished goods inventories results in more accurate inventory valuation and computation of costs of goods sold, in addition to providing better information to management in making pricing decisions.
Under this change in estimate for allocating overhead, which was adopted in the first quarter of 2021, overhead is now fully allocated to products, resulting in an increase in standard costs and inventory values. In the first quarter of 2021, the impact of this change was an increase of approximately $0.9 million in the carrying value of the Company's work in process and finished goods inventory, with a corresponding decrease in product costs of goods sold.
Conference Call and Webcast Information
Management will host a conference call and simultaneous webcast at 9 a.m. ET on May 13 to discuss eMagin's quarterly results, business highlights and outlook. To join the live listen-only webcast, please visit the Company's website at www.emagin.com or use the following link: https://www.webcaster4.com/Webcast/Page/2471/41214. To join the conference call, dial 1-877-545-0320 in the United States, or 1-973-528-0016 internationally. The entry code is 717445. Participants are encouraged to join at least 15 minutes before the start of the call. An archive of the webcast will be available approximately one hour after the live call.
About eMagin Corporation
eMagin is the leader in OLED microdisplay technology for the next generation of computing and imaging devices, serving world-class customers in the military, consumer, medical and industrial markets. The Company invents, engineers and manufactures display technologies of the future and is the only manufacturer of OLED displays in the United States. eMagin's Direct Patterning Technology (dPd™) will transform the way the world consumes information. Since 2001, eMagin's microdisplays have been used in AR/VR, aircraft helmets, heads-up display systems, thermal scopes, night vision goggles, future weapon systems and a variety of other applications. For more information, please visit www.emagin.com
Important Cautionary Information Regarding 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 risk factors that could cause the Company's actual results to differ from current expectations, including impacts of the COVID-19 pandemic, please see the section entitled "Risk Factors" in eMagin's Annual Report on Form 10-K for the fiscal year ended December 31, 2020, and in any Form 10-Q filed or to be filed by eMagin, and in other documents the Company files with the SEC from time to time.
Mark A. Koch
Acting Chief Financial Officer
Sharon Merrill Associates, Inc.