Q2 2023 eMagin Corporation Earnings Call

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Good morning, and welcome to Imagine Corporation second quarter 2023 earnings Conference call. Please note. This event is being recorded I will now turn the conference over to Mark Koch Imagine CFO . Please go ahead.

Thank you and good morning, everyone. Welcome to imagine second quarter 2023 earnings conference call before we begin I would like to remind you that in the following prepared remarks, we will be making statements about expected future results that may be forward looking for the purpose.

Federal Securities Law.

Including section 27 day, a of the Securities Act of 1933 as amended.

And section 21.

Exchange Act of 1934.

Each forward looking statements are based on the company's current expectations estimates and projections about the expected date of closing of the <unk> protein.

The transaction and the potential benefits thereof.

Business and industry management's beliefs, and certain assumptions made by the company and Samsung display company limited all of which are subject to change. 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 2022.

Port.

Form 10-K , and the definitive proxy statement related to our proposed merger agreement with Samsung display.

During this call. We will also refer to adjusted EBITDA, a non-GAAP financial measure to provide additional information to investors.

Conciliation 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 with that I will turn the call over to our CEO Andrew Sculley. Thanks.

Thanks, Mark and good morning, everyone.

I'm sure you've seen by now imagine has entered into a definitive merger agreement with Samsung display company, which is a subsidiary of Samsung electronics, and a leading manufacturer and distributor of display products under the terms of the agreement all shares of imagine stock would be.

We acquired by Samsung for $2.08 per share.

All cash transaction.

We will all the virtual special meeting of shareholders on August 31 at which time imagines shareholders will be asked to vote on the adoption of the merger agreement.

This merger represents a significant moment for imagine and we believe it is in the best interest of our shareholders.

Our decision to enter into the agreement was reached only after careful consideration by our board of directors, including a formal and thorough review of strategic alternatives to maximize shareholder value.

That process included the solicitation of competing offers among eight strategic counterparties, but did not yield any actionable alternatives.

It's worth noting that a significant expenditure of several hundred million dollars would be required by such a strategic counterparty to build a D. P. D. OLED micro display line capable of serving the <unk> consumer market and.

In addition, such a line would take a number of years to design and build.

As such even if the strategic partner, we're available today and willing to make the required investment it would likely be several years before imagine.

Could begin to realize meaningful and sustainable revenues from licensing its DPP technology.

The board's unanimous decision was also based on a number of critical factors, including a recognition that imagine would need to raise significant capital in the near term and then such a capital raise would be dilutive for existing shareholders.

And what were extensive negotiations with Samsung our board sort of transaction price that would provide certainty and immediate value to imagine shareholders.

As detailed in our definitive proxy statement the proposed price represents a premium relative to imagined pre announce share price as well as to a range of historical market prices.

And the unanimous opinion of the board and on a risk adjusted and time adjusted basis. This merger is more favorable to our shareholders than any other alternative reasonably available to us.

That includes the continued operation of imagine as a Standalone company and the pursuit of other potential strategic or financial transactions.

Fact, we had explored the possibility of a commercial partnership with Samsung display prior to discussing a potential sales transaction.

The board has to consider imagines assets and cash position business prospects and competitive position projected financial performance and a number of operational factors, including the significant capital expenditures that will be needed to manufacture <unk> products at a large <unk>.

Scale.

Our final analysis, it became clear to both the board and the management team that our proposed merger with Samsung display represents the best available outcome for imagine and its shareholders.

I remain tremendously proud of imagines accomplishments to date and I appreciate the support of our loyal shareholders. I'm also grateful to everyone at the company for their hard work in meeting the challenges we have endured by operating independently for so long.

I would like to thank all of you for your support I will now turn the call over to Mark who will review our Q2 financials.

Thank you, Andrew and Hello, everyone.

Total revenues for the second quarter of 2023 decreased 31% to $5 1 million compared with seven 2 million reported in the prior year period.

Total revenue consists of both product revenue and contract revenue.

As of June 30, our sales backlog totaled $22 7 million compared with $16 7 billion at the end of Q4 2022.

Our Q2 product revenues of $4 9 million compared negatively to the 7 million realized in the year ago period.

The $2 $1 million decrease was driven by unexpected production downtime and lower than expected production yields contra.

Contract revenues were 0.1 million flat year over year.

I imagine continues to work under the U S Army program Executive office for simulation training and instrumentation or PEO stride contract as well as on our high brightness display design and proof of concept for a consumer company.

Contract revenues are based on accomplishing specific milestones that are not uniformly distributed through the project's duration.

Total gross margin for the second quarter decreased to negative 10%, resulting in a gross profit of <unk> 5 million compared with a gross margin of 22%, which resulted in a gross profit of $1 6 million in the prior year period.

Gross margin decline was primarily due to production downtime, which resulted in a lower volume of displays produced reduced shipments and lower yields.

At higher average product costs as fixed costs were spread over less finished in work in process displays.

Operating expenses for the second quarter of 2023, including R&D expenses were $10 7 million compared with $3 4 million in the prior year period.

Operating expenses as a percentage of sales were 215% in the second quarter of 2023.

<unk> was 47% in the second quarter of 2022.

Our operating expenses increased year over year, primarily due to legal and investment banking costs related to the negotiation and signing of the merger agreement with Samsung display.

Operating loss for the second quarter of 2023 was $11 2 million compared with an operating loss of $1 8 million in the prior year period.

Net loss for the second quarter of 2023 was $11 2 million or a loss of <unk> 13 per share.

Paired with a net loss of $1 4 million or a loss of <unk> <unk> per share in the prior year period.

Adjusted EBITDA for the second quarter of 2023, which excludes expenses related to the merger agreement.

Was negative $2 6 million. This compares with a negative <unk> 3 million in the prior year period, which did not include any merger related expenses.

As of June 30, the company had cash and cash equivalents of $3 3 million and working capital of $10 6 million.

During the second quarter the company did not repay any borrowings under its asset based lending facility.

As of June 30, there was zero point $8 million of Vera avail.

Available borrowings under the facility.

Q2, imagine borrowed $5 million from Samsung display under our loan and security agreement entered into concurrently with the may 17th signing of the merger agreement.

The merger is expected to close in the second half of 2023 subject to the approval by imagine stockholders and other customary closing conditions and regulatory approvals.

On July 3rd the required waiting period under the Hart, Scott Rodino Antitrust improvement Act expired.

On July 18.

Committee put foreign investment in the U S. Also known as Stephanie is acknowledged receipt of the joint Samsung display imagine filing.

Notified imagined that the initial review period would conclude no later than August 31.

<unk> may at its discretion commenced subsequent investigation, which would start on September one.

And end on October 16th.

As Andrew mentioned, our special meeting of them imagine stockholders will be held virtually on August 31.

Until the closing of the transaction imagine and Samsung display will remain separate and independent company.

With that I'll turn the call back over to Andrew for his closing remarks, Andrew Thank.

Thank you Mark given the timing of our special meeting of the shareholders. We will not take questions. At this time, if you have not already done. So I encourage you to review the definitive proxy statement related to the merger, which is available on our Investor Relations website, the proxy statement.

<unk> detailed information concerning the special meeting and the merger agreement, including the reasons for the proposed merger and the Board's recommendations. Please.

Please note that your vote is important whether or not you plan to attend the special meeting virtually please submit your proxy as soon as possible.

Whether over the internet by telephone or by returning your proxy card by now you may revoke your proxy or change your vote at any time before it is voted at the special meeting. Thank you again for your support of imagine.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

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