Q3 2022 eMagin Corp Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Thank you for standing by and welcome to the Magic corporations third quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star one on your telephone as a reminder, today's program is being recorded.
And now I'd like to introduce your host for today's program Mr.
Mark <unk> Chief Financial Officer. Please go ahead Sir.
Thank you and good morning, everyone welcome to imagine <unk> third quarter 2022 earnings conference call.
Before we begin I would like to remind you that the following prepared remarks, and our Q&A session. We will make statements about expected future results that may be forward looking statements for the purposes of federal Securities laws.
These statements relate to our current expectations estimates and projections and are not guarantees of future performance.
They involve risks uncertainties and assumptions that are difficult to predict and may prove to be accurate, especially in light of the effects of the ongoing pandemic.
Actual results may vary materially from those expressed or implied by these forward looking statements and 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, including 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 are not meant to be considered in isolation or as a substitute for our GAAP financial measures and financial statements.
That I will turn the call over to our CEO Andrew Sculley.
Thank you Mark and Hello, everyone. Thanks for joining us today, our third quarter was highlighted by a 31% year over year revenue increase leading to improved gross margins and positive EBITDA, along with new business wins and continued growth in our backlog of open orders are.
Our total revenue rose to $7 6 million.
Compared with $5 8 million a year ago, while our gross margin improved to 37% from 10% a year ago and our EBITDA for the third quarter of 2022 was a positive.
$7 million. This is the fourth consecutive quarter in which we realized year over year increases in throughput and product revenues of more than $7 million.
This was the result of the new titles, three and Ipass funded equipment in our production facility along with improvements in our manufacturing operations.
Our display sales grew during the third quarter, reflecting strong military shipments and increased medical segment revenues.
As of the end of Q3 ongoing demand for our displays for use in thermal weapon sights military night vision goggles and medical applications drove the increase in our total backlog to $16.6 million from $14 $3 million at the end of Q2.
<unk>, 93% of the total third quarter backlog is deliverable within the next 12 months.
As we discussed last quarter. The U S Army program Executive office for simulation training and instrumentation awarded US a $2 5 million two year development contract to secure U S source for high performance micro displays that provide high brightness and visual acuity.
Even in bright daylight conditions and.
In the third quarter, we recognized.
$6 million of revenue under the initial phase of this contract which was related to the design of our back plane that will allow for significantly higher luminance of our displays.
In December we will take delivery of the upgraded R&D TBD deposition chamber, which will mark the start of a new era in OLED micro display technology.
We will use this chamber to make the displays.
By the last phase of our proof of concept work with a tier one <unk> customer.
This upgraded R&D chamber will be used to fabricate sample quantities of disruptive high brightness <unk> displays for both military and commercial markets.
The design process for this R&D Chamber has played a key role in defining the specifications for the large production capable DVD organic deposition tool purchased under title III funding that is nearing completion.
In September as previously announced we received our S 9100, Rev. D certification, along with our ISO 9001 2015 certification.
The S 9100 D is an internationally recognized.
Quality management standard that is specific to the aerospace aviation and defense industries. These.
These certification strengthen <unk> competitive position and standardize our quality reliability and safety processes.
Furthermore, we believe that our certified quality management systems combined with the highly differentiated <unk> manufacturing equipment and processes will continue to make imagine the supplier of choice for the high brightness and high resolution OLED micro display solutions of the future.
Regarding our title III Eni best funded programs as of the end of Q3, we had added and qualified for new pieces of equipment to our production line and had received three additional pieces of equipment that are currently installed and are in the process of being qualified.
As I mentioned earlier this equipment has contributed to the improvements in our production process and we have seven more major pieces of equipment on order, including the production capable PPD organic deposition tool, which should improve device performance yield and throughput of this innovative technology.
<unk>.
Overall, we remain on track with the requirements of these important government grants and are beginning to realize the yield reliability and throughput improvements that we expected.
That I will turn the call over to Mark for a discussion of our financial results.
Thank you, Andrew and Hello, everyone.
Total revenues for the third quarter of 2022 increased 31% to seven 6 million compared with $5 $8 million reported in the prior year period.
Total revenue consists of both product revenue and contract revenue.
<unk> revenues for the third quarter of 2022 were 7.8 million an increase of one 7 billion from product revenues of $5 3 million reported in the prior year period.
The year over year increase in display revenue was due to strength in military markets.
<unk> shipments of displays used for the <unk> program.
And higher revenue contributions from our medical customers.
Contract revenues were zero point $6 million compared with zero point $5 million reported in the prior year.
Electing an increase due to development associated with our high brightness display designs for the department of defense and a proof of concept displayed for a tier one consumer company.
Total gross margin for the third quarter increased to 37%, resulting in a gross profit of $2 9 million compared with a gross margin of 10%, which resulted in a gross profit of <unk> 6 million in the prior year period.
The gross margin improvement resulted from several factors, including higher yields increased volumes, a more favorable product mix.
And the successful qualification and sale of a product that had been previously written off.
The initial quality issue that was ultimately resolved.
This resulted in a savings of approximately <unk> 6 million in third quarter materials costs.
As compared to the expected cost of producing these since play.
Excluding this positive impact third quarter 2022, gross margin would have been 30% gross profit of $2 3 million.
Operating expenses for the third quarter of 2022, including R&D expenses were $3 8 million compared with $3 9 million in the prior year period.
Operating expenses as a percentage of sales were 39% in the third quarter of 2022, compared with 67% in the prior year period.
Prior year R&D expense is reflected significant investments and high brightness Leds and <unk> processes.
Operating loss for the third quarter of 2020 to narrow to $0 1 million compared with an operating loss of $3 3 million in the prior year period, primarily reflecting the higher gross profit.
Net loss for the third quarter of 2022 zero point $3 million or zero per share.
Compared with income of $1 3 million or <unk> <unk> per share in the prior year period.
After adjusting for the net income allocated to participating securities and <unk> 3 million and a $4 7 million in change in the fair value of the warrant liability for the prior year period.
Net loss for the third quarter of 2021.
Was a loss of $3 4 million or <unk> <unk> per share on a fully diluted basis.
Adjusted EBITDA for the third quarter of 2022 improved to positive 0.7 million compared with negative $2 1 billion in the prior year period.
Turning to the balance sheet as of September 32022, the company had cash and cash equivalents of $3 9 million and working capital of $13 9 million.
During the third quarter the company repaid 0.6 million under its asset based lending facility.
Borrowings and availability under the facility.
0.7 billion and $1 1 billion, respectively as of September 32022.
During the quarter the company realized <unk> 5 million in net proceeds from sales of common shares under our ATM program.
With that we will open the call for questions. Operator. Please go ahead.
Ladies and gentlemen, if you have a question at this time. Please press star one on your telephone one moment for our first question.
And our first question comes from the line of Kevin Dede from H C. Wainwright Your question. Please.
Hello, Good morning, Thank you for accepting.
My question. This is Michael Donovan, calling in for Kevin Didi first of all congratulations on a great quarter.
First question Ted now.
Advanced PPD chamber that Youre discussing that's supposed to arrive in December is just a lot that you've referenced in Q2 that was supposed to arrive in September as let's say a different piece of equipment.
No. It's the same piece of equipment.
So, it's just a supply chain issues or.
Yes, hi, there.
No there is no issue with it except for.
The work involved and getting it ready and there are some supply chain items and that of course.
Understandable and now how does this affect the timeline of qualifying.
DVD chamber for all of your products that are currently being produced.
Well.
Remember this chamber is going to be a small R&D chamber. So it's only going to produce small samples and help US continue our R&D effort for example, the.
It will help US also with the PEO stride that's the.
$2 $5 million project that we mentioned it will help with that doing some work on that and.
Les and getting the chamber in is going to affect things like that as well, but first remember, it's not going to delay the $2 $5 million program because the first thing we have to do is is to wafers themselves and that work we're working on.
By that I mean, the design of the wafers.
Okay that makes sense.
Now speaking to the competitive landscape.
It's Eric 10000, plus nits.
Capability that will put you.
When you go to your own.
Yes, it does because the.
If you go back to May of this year and that's when the display week 2022 from the society of information displays so thats a major display industry.
Conference.
Best.
<unk>, we saw besides ours was 7000 candela per meter squared or nits and that was we.
We could see the display it wasn't running them right.
LG display.
And we.
We are of course showed our display and when somebody came by the booths and want to see that 10000, plus net suite cranked it up for them.
That's great that's great.
Design of the back plane that you're referring to does this allow you to.
Go beyond 10000 that thank you.
Q2 call you.
Recently mentioned capability of getting closer to 20000 does that help with the bright necessary. This back.
No we need the bank plans to help with the brightness there are other things that we put in it to make it.
Better every time, we designed it back plane, we improve it. So also those designs will be portable to the next generation of displays that we do.
10000 is what we said before.
That's what we're looking at.
Excellent excellent.
Military grants.
Phenomenal I know you cannot name specific names, but I'm looking at the composition of <unk>.
Customers and potential customers.
Hi.
Brief.
Estimate the military versus medical applications versus consumer applications.
You're saying.
Okay. If I, if I can step back and just talk about display revenue for the moment.
Our.
Our estimated military now.
We have to be a little careful because we cant say exactly what the military is because we have some customers that.
Supply multiple markets.
The military we usually say is somewhere between 65% to 70% of our total revenue, but I want everyone to be careful whenever we say that because I'm not talking about U S military and I'm afraid that the audience always thinks that whole year U S. Military is 70%.
That's not true.
Because half of our display sales on an average it depends on what quarter are outside the U S. So when.
<unk> seen military we're talking about a much broader market than U S military.
Okay.
Great.
All my questions ill jump back in the queue.
Okay.
Thank you Sean.
Okay. That's good.
And as a reminder, ladies and gentlemen, if you have a question at this time. Please press star one one on your telephone one moment for our next question.
Next question comes from the line of Mike <unk> from he's a private investor Your question. Please.
Good morning, Andrew and Mark.
Good morning, Michael models here too Mark.
Good morning, Michael Hi.
I wanted to start with a question on the chipset.
I think back in September I noticed the Commerce Department had released some guidance on that.
And one of the key takeaways that I saw there was was for large companies to look to form <unk>.
Relationships with smaller businesses.
Themselves in the best position to receive funding.
I was interested if.
If anyone has reached out to you as part of that application process looking to include your guide.
Could try to get that funding.
Well in times like this so let me say it differently, we always reach out to other companies, where we do talk with.
Foundries and talked about wafer supply and and also combining with them for the chips that we've talked to a number of companies about that.
Okay do you think that's the way it happens or is imagine also looking to apply directly for this funding.
Yes, remember, it's 50% funded by the government, 50% by <unk>.
The companies.
Okay.
Okay.
Roughly it could be different okay.
Right Okay.
My next question.
But on the.
Potential manufacturing partner.
But I was wondering if you could maybe share a little bit more.
The depth of.
Where those discussions have gone.
I guess, specifically I was interested.
If any or all of these potential partners have valued your technology to the point where.
Where they might be kind of put out today and in making the big type of investment in tools and that kind of thing that would be needed.
To make this all happen.
Well, we can't really say that because obviously, we're under NDA with anyone with whom we're talking but we have talked with a number of companies.
Okay.
And was there anything related just one other thing we have displayed the technology.
That display week 2022, we've taken a number of companies both consumer electronics as well as.
Others into a CR for K display for example, and that's directly patterned also and the one that we had in the booth.
Showed that to anybody who came by and we did win the People's Choice Award for the best New technology, and I should mention that when I say People's choice I don't mean, just the people on this phone call.
The display industry that actually voted on this and told US that we had the best New technology. So it is getting a lot of attention.
Okay.
And not sure not sure how much youll be able to say here, but.
What do you think the timing looks like for <unk>.
We're getting a licensing deal done with one of these guys is that does that.
Something that you could see in the near term or is that still kind of.
Hopefully a ways out well, obviously, we're working hard on that and we're working hard in both directions. One is the.
Consumer electronics side people interested in this technology always helps so we're working both sides of that but we can't give you.
Timeline on that because we haven't said anything to the outside world and we always felt that effect.
I always respect the confidentiality of all of our discussions.
Uh huh.
Okay.
I think my my last question.
Has to do with just kind of your strategic vision for the company I think.
The way that I look at it right now you guys have such a tremendous opportunity on the consumer side in Europe .
Just looking at where the where the market is as.
Valuing the company I don't really see a lot of.
The recognition there.
I was just interested in your thoughts.
And how you think that your best.
Monetize.
No that value for shareholders.
The monetization of that is.
Obviously with success.
As we continue with the technology and talking to consumer electronics companies as well as potential partners.
We can see that success is on the horizon.
And I didn't say anything about the timing of that.
Consumer electronics companies are very interested in <unk>.
Okay.
Okay.
And I guess I was interested if you.
You and the board would consider.
Although startup start of strategic alternatives that might tend to pull that.
<unk> forward a little bit later.
It sounds like maybe these revenues that that opportunity is still below a couple years out.
And I guess, what I was getting that as maybe some of these companies that youre working to have.
More appreciation for the value of the company than the market does right now.
Is that something that you guys think about at all.
Well, obviously, we look at any opportunity that makes sense to us at the port.
And we want to move this technology forward and that's what we're working on right now and I agree the stock price has two things one is the market was very bad and therefore it was also reflected in us and it's important that the base business does as well is it.
Has done now because the base businesses.
<unk> is doing much better as you can see with the <unk>.
<unk> of the new equipment.
Given that then.
We see the upside.
Okay, so likely likely.
The manufacturing partner.
If and when it comes to be that would that would really be an import.
<unk> catalyst, probably moving that that stock price up right.
Of course here, we want to be the leader in in this technology and I Shouldnt say it that way I should say we are the leader in that technology for example, the.
The display industry has said that with the display week 2022 award for the best New technology.
And we are the only company that we have seen with 10000 candela per meter squared or Nit display.
Operation.
And we've demonstrated that and sold those displays to companies for their own.
One is valuation.
So there is interest in this technology clearly.
Right.
Alright, well. Thank you very much again for taking my questions and congratulations on all the progress.
Thank you Michael Thank you.
Thank you and as a reminder, ladies and gentlemen, if you have a question. Please press star 111 moment for our next question.
And our next question is a follow up from the line of Kevin Dede from H C. Wainwright Your question. Please.
Oh, Thank you so much because as my follow up question.
I was wondering if you could speak more towards yields and.
How much of a catalyst higher yields or for gross margin improvement and and if these margins are sustainable.
Also.
The really big machine that youll be receiving that can increase capacity where are you guys.
That front end.
Yes.
You can unpack that that'd be great.
So I'm going to start with the end of your question. The Big machine is still on target for.
Sure.
Installation in the first half of next year and the startup in the second half there wasn't a goal that's still in on that target.
There are few things that we have.
Just to let you know we have three different vendors working for us on this so it's not as easy as one person does the machine and Thats in it we'll do our direct patterning technology in production and we will also do in production the capability of as we mentioned with that too.
$5 million project to get to 20000 candela per meter squared or nits. This tool will be able to do that in production. So we're very excited about it. Obviously can also do any other display we make white with color filter monochrome wider green et cetera. So it will be a great benefit for us.
And the yield improvement.
Spec to continue that as we install the equipment under the title III and IV <unk> funding, we've already seen that throughput improvement.
Part of that is yields of course, and the new machine will be even better.
Very good.
I know you briefly discussed.
Consumer segments in consumer opportunities are able to give us a number of how many are consumer facing brands that we're serving right now.
I don't think we should give you a number but there we talked to a number of companies.
There is interest in the technology step up from what it now.
It's very important for us to continue.
Now I always say it's above.
Headlights that are may be speculating, if you're surveying.
The likes of.
Val matter.
I don't want to say that you are right that did not want to allude to that but at what point and the relationship with your consumer facing brands would you be able to market yourself as surfing.
Such tier one consumer facing brand.
Well whomever have spoken to and obviously a lot of companies not only in the U S but the.
The company themselves we've respect.
What their desire is if they want us to keep silent which they do and.
And we keep silent.
We want to serve our customers.
That makes sense.
All my questions, but.
I appreciate your time.
Uh huh.
Turn it over to the next.
You very much.
You.
Thank you and once again, if you have a question. Please press star one one.
And I'm not showing any further questions in the queue at this time I'd like to hand, the program back to management for any further remarks.
Thank you Jonathan.
This concludes today's earnings call.
You everyone for your interest and I imagine and have a great day.
Thank you, ladies and gentlemen for your participation in today's conference. This does conclude the program you may now disconnect good day.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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