Q4 2021 eMagin Corp Earnings Call
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Good morning, and welcome to Imagine Corporation fourth quarter 2021 earnings Conference call. Please note. This event is being recorded after management's prepared remarks, there will be a question and answer session. I will now turn the conference over to Mark Koch Imagine CFO . Please go ahead.
Thank you and good morning, everyone welcome to imagine its fourth quarter and full year 2021 earnings conference call.
Before we begin I would like to remind you that in the following prepared remarks and in our Q&A session. We will make statements about expected future results may be forward looking statements for purposes of federal Securities laws.
These statements relate to our current expectations estimates and projections and are not guarantees of future performance.
Involve risks uncertainties and assumptions that are difficult to predict and may.
Not to be accurate, especially in light of the effects of the current pandemic.
Actual results may vary materially from those expressed or implied by these forward looking statements.
We undertake no obligation to update these disclosures.
These forward looking statements should be considered only in conjunction with the detailed information contained in our SEC filings.
The risk factors described in our 2021 annual report on Form 10-K .
During this call. We will also refer to adjusted EBITDA, a non-GAAP financial measure to provide additional information to investors a reconciliation of adjusted EBITDA to net income which is the most directly comparable GAAP financial measure is provided in the press release that we issued this morning.
non-GAAP financial measures such as adjusted EBITDA.
That meant to be considered in isolation or as a substitute for our GAAP financial measures and financial statements.
With that I will turn the call over to our CEO Andrew Sculley.
Thank you Mark and Hello, everyone. Thank you for joining us today.
On today's call I'll provide some highlights from our quarterly and full year results and provide color regarding the development of our technology and our equipment schedule. Mark will then discuss our consolidated results in greater detail 20.
2021 wasn't here a great technical achievement for imagine thanks for skilled people and their commitment to producing the world's leading OLED micro displays.
Among our many operational highlights in 2021 E R&D milestones related to our direct patterning technology or D. P. D rank among the highest in addition to securing a number of new patents for this technology, we introduced a prototype for micro display with a resolution of 19.
'twenty by 1200 that achieved over 10000 candela per meter squared of maximum luminance with vivid color.
We believe it is the world's brightest high resolution full color OLED micro display.
In December as you May recall this micro display with showcase that a trade show in the binocular and binocular AR headsets have been imagine customer with this technology. We are continuing to build proof of concept displays for a R. V. Our applications was a tier one consumer electronics come.
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Yeah addition of advanced production machinery, which we expect to have online next year will allow us to produce our industry, leading D. P D displays and production quantities at our fab.
Tool qualification will begin in the first half of 2023, as we prepare to shift from R&D to production.
Impaired to white with color filter displays these displays have greater brightness and at the same brightness have much better power efficiency, which is a priority for our military customers.
We expect our D. P D technology will ultimately replace current full color OLED technologies.
Brightness of 10000 candela per meter squared is an important threshold for VR headset customers, including the tier one for whom we have designed a high resolution VR display.
'twenty one also saw the qualification of our newest type brightness checks I'll lead display.
Display has more than five times brighter than our standard color displays they use white with color filters.
It can provide our customers with higher brightness performance in the interim before production of our direct pattern displays begins next year.
We ended 2021 with strong shipments of displays used in E. N V. G. B program as we continue to work on this advanced Chicago to provide superior situational awareness mobility lethality and production on the bat protection on the battlefield.
E N V. G. B incorporates rapid target acquisition, which allows soldiers to fire around corners. It also employs a our technology to deliver real time video and targeted information through imagine displays.
The reception amongst soldiers in the field has been very positive, including praise for the ruggedness and reliability of the device.
Our core military business is benefiting from a ramp up in volume of our existing programs. We are actively pursuing several others as well as opportunities in the defense markets for thermal weapon sites. This.
This year, we expect to continue to ship displays under E. N V. G B program and to compete for other large U S. Military programs at the same time, we expect to capitalize on improved yields and capacity as we install new equipment purchased under our defense production Act title III.
And I burst funding grants.
We stabilized our manufacturing yield in the fourth quarter and expect improvements in 2022, our manufacturing equipment acquisitions and installations are on track and within the requirements of these funding grants.
In response to what our persistent and global supply chain constraints and pricing pressures, we continue to work closely with our wafer suppliers.
We created a back plane designed for an alternative foundry so that we can optimize our wafer allocations.
We also have implemented product price increases for 2022.
Overall as of the end of the fourth quarter, our sales backlog was up 26% to $13 $8 million compared with the end of 2020.
This reflects continued strength in our bookings for the military night vision and medical I care markets.
In 2022, we look forward to demonstrating our D. P D technology to more consumer oriented customers and continuing our business development efforts in the medical I cares surgical veterinary and hunting scope markets. Additionally, we expect to benefit from contributions of new.
Engineering talent that joined US late last year.
With that I'll turn the call over to Mark who will discuss our financials.
Thank you Andrew.
Starting with our Q4 numbers.
Total revenues for the fourth quarter of 2021 were $7 2 million a decrease of 0.5 million from seven 7 million in the prior year period, and a sequential increase of one 4 billion from the third quarter of 2021 total revenues consist of old product.
Revenues and contract revenues.
Product revenues for the fourth quarter of 2021 were seven 4 million an increase of 0.8 million from product revenues of $6 2 million reported in the prior year period.
And an increase of $1 7 million compared with the third quarter of 2021.
The year over year quarterly increase in product revenue was due primarily to the timing of certain orders from prime defense contractors and shipments on the <unk> program.
This was partially offset by approximately $1 1 million in fourth quarter shipments that were delayed into 2022 due to capacity constraints related to unexpected machine downtime.
Contract revenues were 0.2 million compared with $1 5 million in the prior year period due to the timing of activities under our development agreement with a tier one consumer customer that it's milestone base rather than uniformly distributed each month.
Total gross margin for the fourth quarter was 24% on a gross profit of $1 8 million compared with gross margin of 16% on gross profit of $1 3 million in the prior year period.
The increase in gross margin was due to higher product revenues increased production and absorption of fixed cost in the inventory as well as improved yields during the fourth quarter of 2021.
Operating expenses for the fourth quarter of 2021, including R&D expenses were $3 5 million compared with $3 6 million in the prior year period operating.
<unk> expenses as a percentage of sales were 49% in the fourth quarter of 2020 , one compared with 47% in the prior year period.
R&D expenses as a percentage of sales were higher in the fourth quarter of 2021 due to a lower cost allocated to contract cost of goods sold.
SG&A expenses were lower in the fourth quarter versus the prior year period, due primarily to a reduction in legal costs.
In the fourth quarter, our operating loss narrowed to $1 8 million compared with $2 4 million in the prior year period. Despite the operating loss net income allocated to common shares for the fourth quarter of 2021, with 0.9 million or <unk> 10 per share.
Due to $3 1 billion in income related to a noncash change in the fair value of the warrant liability during the fourth quarter.
Excluding the impact of the change in the warrant liability in both quarters net loss was $2 2 million four three per share on a fully diluted basis compared with a loss of $2 4 billion or four cents per share in the prior year period.
Adjusted EBITDA for the fourth quarter was negative 0.8 million compared with negative one 7 billion in the prior year period.
As Andrew mentioned as of the end of 2021 our backlog of open orders scheduled for delivery over the next year was $13 8 billion, which represents 26% increase from the end of year 2020.
Turning to our full year results.
Revenues for 2021 were $26 8 million down 12% from $29 4 million in 2020.
Product revenues totaled $24 2 million, representing a 3% decrease from $25 million in 2020.
Primarily due to unexpected downtime of our manufacturing equipment, and resulting capacity constraints.
This resulted in approximately $1 1 million in late orders that did not ship during 2021.
Contract revenues totaled approximately one 9 million, representing a 57% decrease from $4 4 million in 2020.
Contract revenues, primarily reflected development work for an advanced display design and proof of concept for consumer <unk> device.
This work is expected to continue through 2022.
Gross margin for 2021 was 18% compared with 22% in 2020 gross margin for 2021 was primarily impacted by decreases in contract revenue gross profit.
Two the timing of activities under the <unk>.
Freeman for development work with a tier one consumer company.
Operating expenses for 2021, including R&D expenses were $14 6 million compared with $13 3 billion in 2020.
The majority of the increase was due to materials and other overhead costs related to the development and qualification of the company's higher brightness X L. E. N D. P. D displays as well as a decrease of 0.8 million in costs allocated to contract cost of goods goods relative to 2020.
Due to lower contract revenues in 2021.
Operating loss for 2021 was $10 million versus $6 9 million in 2020.
Net loss for 2021 was $5 2 million or <unk> <unk> per share.
This compares to a net loss of 11 4 million or <unk> 19 per share in 2020.
Excluding the impact of the noncash change in the fair value of the warrant liability for both years net loss for 2021 was <unk> 12 per share versus a net loss of <unk> 11 per share in 2020.
Adjusted EBITDA for the year was a negative $4 1 million compared with a negative four 4 million in the prior year.
Turning to the balance sheet.
As of December 31, 2021, the company had a total of $5 7 million in unrestricted cash and cash equivalents, a decrease of $2 6 million compared to year end 2020.
This is in addition to 0.8 million of cash restricted for purchases of equipment under title III and Ipass government grants.
The company had 2.1 million in outstanding borrowings and $2 3 million in credit availability under its revolving credit facility.
Year end 2021.
This compares to outstanding borrowings of $1 9 million and borrowing availability of $2 1 billion at year end 2020.
In November of 2021, the company entered into an aftermarket or ATM facility with H C. Wainwright pursuant to which we may offer and sell shares of common stock, having an aggregate offering price of up to $10 million.
We anticipate that the ATM facility will provide additional liquidity during 2022.
With that we will open the call for questions. Operator. Please go ahead.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Sam by when we compile the Q&A roster.
Our first question comes from the line of Kevin Dede from H C. W. Your line is now open.
Good morning, gentlemen, thanks for taking my call good morning, Kevin.
Yes.
A new foundry can you elaborate on that is that really to deal with supply constraints or is that also a step two.
Nope I.
I guess increased or your ability.
We need to deliver volume.
No it <unk>.
The issue is we have some supply constraints with foundries and we have a new development on how to fix an issue we had with one foundry we've done the design of a new wafer for a particular product and that will free up some some.
Constraints on production at the other foundry, but it will also give us the.
The ability to fix a problem on.
One of the large foundries, we have so it's a very good thing and it will be good for new designs as we move forward.
Okay could you characterize.
Supply constraints that you're seeing now versus let's.
So, let's say last quarter or six months ago, or even a year earlier.
Actually I I feel like we've recently done a reasonable good job in terms of fixing them, we have a few things.
Things that we have to work through continue we do see price increases from not only foundries, but in other places and that's why we raised prices on our products.
So we feel reasonable now.
It's not okay. So.
I guess, maybe broad brush and say that the environment's improved.
Well our environments improve because of the actions we took.
Okay. Thank you.
Mark also mentioned continued work on consumer E. R V or could you just add a little more color to that.
Oh, well what are what we're talking about there is we have a design that we have designed already and we have the OLED do we put all that on a number of the wafers and were going through the next steps in the process. Because this is a different process for this particular design that we <unk>.
Recommended and they will be able to.
Improve the.
The end results significantly.
And also on cost.
Is it outside of your so D. P D development that <unk> been working on Oh, No. We continue to work on D. P. D. Obviously.
But the rest of the design is something different.
We have suggested I I don't want to tell everybody the world what it is so I apologize.
Okay, No I understand.
<unk> mentioned that the D. P. D is going well, we've as you know did the 10000, Nit display or candela per meter squared and actually the analyst measured it at.
At the meeting and they measured a 11300 and again I'll remind everyone that is the starting point at 10000 Nits is the starting point from all of the tier ones with whom we have spoken about a V or design. We're also speaking about AAR designs with us here.
One.
And the two tier ones, who kicked off designs. We have two of them one of four K that we showed in the other one is there's this new one.
They both need it to be above 10000, nits. So we have made it.
Well congratulations on that Andrew could you just maybe.
Maybe talk a little bit more about the field of view that youre seeing on those and one of them if I remember correctly stitched phage display to increase the display size.
Yeah, Here's the here's the story everybody I'm going to use just 100 degree field of view and if you look at all of the major players in this market and by that I mean, all of the major headsets in the market. They all want to above 100 degree field of view, but because of the arithmetic out simply use that.
Your eyes.
Are probably better than mine, but.
The range of pixels and every degree that you're I can see is anywhere 60 as the maximum but most people say somewhere between 30 and 60 is okay and we did a design of a headset a two K by two K with 80 degree field of view and that was 25 pixels.
And every degree to the eye and everybody.
What are the things that this is great. So the screen door effect wasn't there. So when you say 100 degree field of view and 40 pixels per degree you need 4000 pixels and that's why the display is designed that way now you mentioned stitch. We of course wanted to make the pixel.
Pitch the size of the pixel much smaller than what we did but the company who are we.
Wanted to the design said.
They all tell us around 10 microns now some of them are getting smaller now and that's good but the two that we've designed were around 10 microns.
Small you can get a smaller size so the <unk> display is.
Approximately two inches and diagonal and therefore, it has to be stitched, but again remember I said that we're going through other efforts. After the OLED is on the display for the current one where we've taken steps to ensure that a stitched display can be made.
Reasonably priced as well.
And again I can't I can't talk about how we did that.
Okay last question for me could you just give us a quick update on the machine purchase.
Your stand that you're hoping to get a new deposition machine.
I guess address larger volumes under the where the DVD technologies under the title III allotment can you just sort of give us an update on that sure. We are we did place the order.
And there are multiple companies involved in this because.
OLED machine, but also some of the other things that must go in it for direct patterning. So we place the orders for these we've.
Worked very hard on what the design should be to make it in mass production I'll put quotes around that because we're not a high volume company I don't want to mislead anyone but.
The machine has placed the order it will be here.
Near the end of this year, and then where will be qualifying the machine at the first part of next year.
We're very excited about this it will be a machine that can do all of our displays in not only direct patterning, but monochrome green white with color filter it can do them all.
On the other hand, when you think about it because of the energy efficiency in the future. You could argue that are all displays will be a full color displays will be direct pattern, because the energy efficiency will be much better and here what I'm talking about as you know is.
Two things one is colored filters throw away two thirds of the light by design, but they're not 100% efficient so they really throw away something like 80% of the light.
So if you do away with the need for colored filter should get much better also you could use a much.
More efficient materials for the Red and the Green and then you can adjust the blues so that.
It does well so that's.
That's what we have done and in the design of the machine and the machine will be able to do tandem et cetera. So direct pattern with tandem. The point is we're ahead today with direct patterning than anyone with white with color filter that we know off.
And we will.
Maintain that lead because we will do tandem as well.
The Red Green and Blue and it's easier to do tandem on individual colors than it is white.
And so what you mean is it.
We're really excited sorry.
Yes, no problem.
You mean in tandem you mean stacking.
The emitters correct, yeah, yeah, sorry about that.
That's the industry speak in other words, if you do a red cell.
Pixel instead of just doing one emitter stack you do too.
And Thats very good thing.
One electron gives you two two photons I'm being a little bit.
Simplified here.
That creates a much more light.
Thank you Andrew for walking me through all of that I really appreciate it youre welcome. Thanks for the question.
It's always good to talk to you Kevin.
Thanks, Andrew take care of box.
Thanks, Kevin take care.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.
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