EMAN - Earnings call transcript Q3 2019

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Operator

Good morning, and welcome to the eMagin Corporation's Third Quarter 2019 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Mark Koch, Vice President of Finance.

Mark Koch

Good morning, everyone. have earnings us conference to third for glad XXXX quarter call. very you today join our We're

During today's of may Such call, current to defined of statements in a we projections based include expectations, may make Private are risks and Litigation references forward-looking projections Securities number and to Reform are the of statements Act on XXXX. beliefs; forward-looking the These company's up production, revenues, and company's plan, statements ramp statements subject as future expect, future uncertainties. target, believe, for ability its capital reduce as and product agreements, and words as resources; operations, contracts company's the production, the et cost plans development benefits, financing, future cetera. to liquidity like containing well ability to and structure, product

the place Please or to forward-looking in You earnings to known other with or undue We could for they involve materially uncertainties these information control. differ unknown are to or Exchange release Securities factors forward-looking any and to the that quarter reliance our because refer on and beyond of statements risks, XXXX those Commission and events that third the our expressed company's results for cases actual should obligation update no by some from such cause undertake implied reflect concerning statements. future revise statements factors and circumstances. filings not

to isolation as financial measures EBITDA as GAAP EBITDA, is our investors. be Non-GAAP non-GAAP release comparable a a which financial provided adjusted refer financial to directly financial substitute this provide also net will of reconciliation is and A to such GAAP or we issued adjusted for in additional most meant not to press call, morning. information in this the EBITDA considered are statements. During adjusted that the we measure, income, measure, to financial measures

Sculley, to With turn call our would Andrew that, like to over the CEO. I

Andrew Sculley

call. earnings Mark. And to our quarter third Welcome you, Thank everyone. conference good morning,

which quarter, including results profitability. pleased We throughput and are our improved yield, fronts, on very this with several

supported by enhanced and XX% Our the was for runs, as output yield such quarter support initiatives the quarter, improvement projects. optimizing second production higher than maintenance

result, a same As million record versus loss $X.X were worth in $X.X $XXX,XXX an able of last and million loss operating ship year. of the a product quarter we to

for and was ago. by third further of ongoing results. for a Then cost Financial provide to quarter the over helped Our financial adjusted EBITDA Officer. our open operational positive After details highlights. some our turn year on I'll on about President Jeff? the and opportunities Lucas, eMagin Jeffrey programs, $XXX,XXX much these negative improvements and for us that new versus efforts period new will I products. the call will the progress will the talk approximately reduction then a discuss we'll Jeff call post $XXX,XXX Q&A. Chief have he improved that,

Jeffrey Lucas

Thank you, Andrew.

As and operating out, Andrew pointed we you have quarter. our this improved from can see significantly financial as results release and this reported morning

six second over of and the company's highest were $X.X the history. in revenues years in product level highest Our the at million

and year-end, we cash of third with EBITDA been have quarter achieved adjusted breakeven by $XXX,XXX. in targeting rate cash profitability We run the positive

drove gross teams, our engineering our who manufacturing working to improved research our improvements. the and and operators Operationally, combined efforts significantly of profit technicians with and due throughput yield

delivery lead order inventory quarter. quarter than improve able And times this shorten and times. we second the build XX% requirements, to meet higher customer output Our were was to

this end the at Our several quarter in on-time delivery highest the was XX%, years. of

will track further puts us second implementing back initiatives. a the our company. and as quarter; was the are well, up other at into quarter, continue the we and watermark level to targets for XXXX's yields substantially over to fourth the towards expect comparable recent And under year's we yield as improve yield anticipate third set on throughput. improvements our we we production Our long-term high quarter improvement actions This production that

due to yield to our performance expenses and throughput; from an structure, of the controls sequentially implementation from overall including preventive basis on-site and engineer engineers a the production our deposition a lowered as which our operating enhancement reductions practices; well on quarter. issues; daily our OLED work also collaboration resolve maintenance, including improve and and staffing in equipment round-the-clock year-over-year and improvement many cost engagement vendors reduce This and expense between factors, R&D was maintenance to rigorous of team and to with our one people maintenance operating SG&A second to identify R&D of tool manufacturing as both of

of result XXXX. ago XX% a operating to year percent were as of quarter. these Operating than a in XX% compared XX% year from declined of expenses third expenses the lower quarter ago to quarter efforts, sales XX% As the a second and the

lower reflected reduce more be will results. We these service taken structure current on fees by expenses have basis negotiating including to which our cost our October, in anticipate compensation $X providers, actions and changes senior will Overall, measures quarter's we over with management annualized that in an the million.

from third Turning XXXX. of Total an second revenue numbers. $X.X was $X million, million and quarter quarter increase over of $X.X million third increase of quarter to an the XXXX sequentially the our

military in XXXX, Contract from contract quarter lower a increase production third and meet to as the year-over-year million, customer totally yields. higher second Product increases compared in not and the revenues totaled quarter demand $XXX,XXX $X.X throughput volumes million contract of higher government-funded revenue revenues. the The commercial quarter was offset revenue from to $XXX,XXX the manufacturing in did an higher was in revenues third the million $X.X ability of of due and through increase product demand XXXX. year-over-year to and increase $X.X

higher lower costs XX% both product reflects $X.X a costs to volumes production R&D Overall lower the margin focus gross fixed well production costs allocation The production third production margin of margin The however, result the for gross gross profit to and of capacity XX% as year production of improvements improvements in revenues period. lower are compared engineering as profit which a a spending quarter over as on percentage, $X.X reflects during a profit and was of quarter the of yield gross the on gross improvements. on million prior on gross higher spread. million the dollars unit from higher

Operating were expenses for third compared the quarter including $X.X the $X.X as R&D XXXX. in million quarter XXXX, million expenses of to third

quarter previous and reflecting as As quarter, R&D in R&D production prior focus the XX% third percentage expenses comparison compared ago above, I XX% quarter expenses sales in we of to a internal operating third mentioned in the XXXX activity the the in lower to period. year were lower of were the on year quarter as improvements.

lower cost initiatives. were SG&A the quarter. quarter and October, spending other management of SG&A the the in lower our include to in the benefit in discretionary on which made are were expenses, versus due professional travel ago period further reductions all The lower a legal of services ongoing expenses and part third not part to including reduction in fourth results impact does reduction cost during compensation, that year expected

of the of of diluted In third third million $X.XX reported loss a Adjusted ago. company versus $X.X million third income inclusive warrant warrant the the liability the liability revaluation. negative for change XXXX, in quarter of of fair EBITDA was year $XXX,XXX. $XXX,XXX third $XX,XXX, net income of other for of quarter Net $XXX,XXX value versus net for related $X.X year. the loss an quarter The share. operating of in to loss or XXXX third was per of loss XXXX income quarter last included quarter the the of in the $XXX,XXX $XXX,XXX other was Operating

respectively As and of and $X.X September cash our XX, working $X.X XXXX, ABL and the $X.X borrowings under availability of capital million, facility working $X capital and company had million respectively. of and million million

turn the to With I back that, will Andrew. call

Andrew Sculley

continues for our microdisplays OLED be to strong. Demand Jeff. Thanks,

negotiating the it $X.X the Our approximate the ENVG-B fielding ENVG million sizable several supplying of backlog exceed will are backlog of and the number levels, where We million reflects of during cancellation to quarter near to the orders. government’s the III team in program is currently contractors as program. business return we large a orders on from displays term our fulfillment begins our $X.X prime large program, believe reduction the as or development recent two an the of

highlight of ophthalmic in to customers manufacturing our fourth from Germany and displays, programs. two begin medical shipments the respect third helicopter now initial business, in we and new a a in to our are new with quarter few With currently me quarter. under contract. Alcon’s program orders long-term supply won We the to a surgery Let received continued group

operating being alignment are technology for in SXGA used cataract high new this and A measure a image preoperative brightness each customized eye placement guided resolution displays to surgeon patient. the system. and ensure mark OLED can using for digitally high incisions, lens Our Alcon

are expected that high-volume also years. a number ongoing run have of military several programs We for to

the is As more XXX,XXX mentioned contractors expected to both above, supplying which prime we for program, encompass are than ENVG-B systems.

supplying F-XX program. OLED would appeared OLED new carrier the for helmet, the website, we very it. highlights Naval display News systems. microdisplays a implemented It read look our helmet-mounted we incorporates improved Aviation have summer. article that Additionally, from an the displays, that reported orders and generation-X that are In OLED it over F-XX On receiving was article, which posted our our interesting fully the be will is and and night you community. to qualifications naval the completed have how successfully I pilots entire F-XX encourage in take to using

few a highlight. product new perspective, a items From are to there

still on in reach noted of target we nits the XX,XXX color As are a XXXX. to the full release, we of by second quarter in brightness

U.S. XX,XXX is what goal by the has nits in this military. been brightness and color, of requested X-year is Our a full

qualified some As XLE, to for part the XXXX. receive display, product support government the and the our have quarter newest by effort, expect end engineering to planning Also, are we samples fourth through to of QX to fundings have we this of project. the

turn I employees their to our hard questions of call the to and for and the I over thank answers, operator personally collaboration. for all work Before want

to many have all are together and development this with people Operator? with excited accomplished we what table. the are bringing quarter that new pleased business opportunities are our very the We

Operator

Instructions]. [Operator

comes with Craig-Hallum. Our first from Malouf question Mike

Mike Malouf

rebound. done Well the so see. nice to dramatic, Great. on Pretty it's

Andrew Sculley

Thank you, Mike.

Mike Malouf

first talk of us but product. things, to is just update, there a all, can on I wanted couple if bit you little one about give maybe an off, the of a consumer at

Andrew Sculley

general consumer the we're Yes. update I'll you doing in on what a side. give

as well a in are manufacturing. design We on discussions as product the new and of of number companies a with both

fact, Tier week And design X In capability for come display. week. on with the because you both kicking give another last we to companies a feeling we And high-resolution to and some in that: had a reason have a calls have manufacturing, we design. We company California these weekly is to the on us X just next have meeting off very

to date, capability forward. X,XXX-resolution requires we to the a display all manufacturing who small simple And and direct do As a about high anyone have did and technology, brightness know, that. very also our seen of than one to companies display, patterning we this you with we skill more display. And why us this moving the this talk not that's else the can reasons duplicate have

that's there. So we are where

display. you XK on deliver something, own talking their The item first us in the because asking other the prior this the The And is one think display. generation OLED company about asked before working is were -- I about the to quarter. the displays they're

for on other The we location. to back to direct patterning down updates do taken want it's have we've that a vendor's more we so a is few our moment. thing the And actually it, equipment

can at start end year will we that that the be So of back up again. the so

Mike Malouf

to good a comment to then gross wondering. hear. side. close the of big kind profit. Okay, I'm That's just now product great. there, Obviously on running XX% improvement just And on a

the should quarters, look several where you over that trend next As out to?

Jeffrey Lucas

we So see. will

our of as improvements continue from mid-XXs make continued the in gross are as throughput and terms even seeing and in both grows, a And expect of but -- improvement our so then moving improvements anticipating our actually percentage. getting yield line long-term the part to yields continuation increase well. there to -- up we're been we plans. gross top and we Not have by or the to We as -- moving improvement margin the profit, only we

Mike Malouf

Particularly just R&D you over the the Okay. R&D some When one you to on you've two question. quarters. dramatically the the down keep cost seeing several It's do And next final quarters? had, about you're plan P&L. then that last where come of savings That's great. over side, the certainly that talk in

Jeffrey Lucas

Yes.

normalized is couple spending the our do of ended the folks So we because improve operators level it yields. the engineers return our and past their more technicians engineering down, quarter -- were lot to R&D of in has to just that working we've a out, We dedicating efforts as going over hand-in-hand pointed come the anticipate with and quarters. our the to that seen our production

Operator

Kevin Our Dede [Operator comes from H.C. Wainwright. next question Instructions] with

Kevin Dede

wondering So you I'm is Germany. Andrew, onion It a to about you just if product tell can now? and commercial you coming just the commercial back little bit. in little numbers talk side -- mix -- your peel mentioned more how bit I'm out that. for when the you this I'm wondering customer can revenue, seems the great kicking little side side bit if on you a wondering a up I And that have quarter. the mix military the us

Jeffrey Lucas

Well, just to know give context me let speaks, you let me -- as -- Andrew before that.

right. You're

two, commercial. our was business in And of the XX% take truly third year the you a was just military. was comparison, XX% was quarter whereas quarter About of that and roughly was of overall roughly military. truly predominantly a of the XX% for ended, sort at If of we XX% mix in military. XX% was XX% a last commercial; the two, where look about were mix

So mind, all again, put quarter this during of into context our we But sectors are in to large in there was you're were a here. that that just here, commercial. enjoying proportion bear that that revenues growth of our right,

are mix bit, fact the have of a well we commercial the at a despite and as the both military of in going still on side. as a may efforts little So lot happening here percentage that what’s getting lot support changed

Andrew Sculley

both commercial to both add hard we’re is military sure them and pushing And important very us, to and that make why wanted grow. that’s of just to I

Kevin Dede

next do to you years. the Okay. contract you’d expect that that the Andrew, three revenue? funding XX,XXX you see government little mentioned see a initiative How influencing on nit over

Andrew Sculley

as to revenue, off other Oh, but complete them. come an contracts contract be it will will obviously add we

A –Jeffrey Lucas

me of Kevin, overall, if add there, let may. color bit little just But a I

of addition of In seeing past start a just Andrew the up more year. in to going contract to I or had we’ve revenue little engineering than our said, what think revenue we’re ticking a actually

the both closer I engineering, yield should for years improvement think, And XX,XXX years that even funds, getting by to initiatives. ago. I X.X way; the two as to say getting engineering that or as the we some nits, and the our contract of increases, levels to saw the well ago support work

Kevin Dede

Okay.

to Jeff: speak or military? supporting thought, What all do And Just contracts is you see number? on that see it you other that can that you

Andrew Sculley

No.

another also We’re working we us. obviously on are that side the on It’s those working the we XK. side. design the complete very for and important important consumer us. of And did are to the Both design to kick consumer to off for

Kevin Dede

Okay.

to III obviously the but in Can about think pricing is you us stay. ENVG-B Now, is deal? the that here ENVG gone, display on help

Jeffrey Lucas

pricing. careful very always we share are about We what

at feel if obviously leave So it don’t good you it’s to I’m Because there. But them going it’s get to it. mind, and answering we that we’ll - pricing competitive pricing. question. doing have we’re

Kevin Dede

and competitive. Good

talked Okay. manage the fact to that of no I’m gone one equipment through if your Can your OpEx onboard we, the improvement and has costs, is help has having you if if there, you costs. benefited wondering that about that, process. I supplier engineers production longer know person person you’ve

A –Andrew Sculley

it’s one And know Oh, consultant’s, yes. a person, small. very it’s I

Kevin Dede

right. Okay. he onboard, we was Still through... though, Or All Andrew?

Andrew Sculley

an because us. isn’t outstanding Person here no. bringing today, help about was him thinking back but he we’re Well, to

Jeffrey Lucas

an great working we ongoing now him. are was relationship and the steps in with discussion when resource with He to to next comes actually we right And a us it have him. of

Kevin Dede

Okay.

refresh until it. not my guess, a Mike’s on being not kind or memory to particular for about you through Can a Now the Andrew, you I later in in onboard tool of year. familiar apologize that? having with response question, I talked production

Andrew Sculley

We Yeah, back It’s direct no a patterning problem. tool. had it here.

that the You’ll remember will put other improvements back path We start to we be later year that It patterning things back direct we few sent again. production. it show redesigned so mass numerous was had back a we it had we wanted it because redesigned it this had to into and that could can it. so here, it

Kevin Dede

color bright your right... -- what displays, for that's And

Andrew Sculley

Jeff way, color after to And that to path brightness to a and to a know We XX,XXX. we're XX,XXX high the displays. And path, really do we have number. do. is going to what get very exactly us all, government the XX,XXX nits it's XX,XXX. Yes, as reminded then the And get by

We have demonstrated that path microdisplays. this has anything in line down. And again, no close one to OLED

Kevin Dede

that So get you're X-year confident time you'll to you can XX,XXX within -- frame.

Andrew Sculley

on we're get are, to this. excited moving and we Yes,

that So back we is time for tool here. an This want outstanding us.

Kevin Dede

for clearly Could shipping production. the time When just you're but production line, I me. review mean I not line, question displays understand -- Last F-XX full time again? you it's now,

Jeffrey Lucas

can Yes, little I bit. talk to that sure. a

continuing operational are that going are to IOC, called what's provide capability those into initial early them stage, to continue next we So anticipating our for year. we're shipments and displays

production quite our ahead far, now some We readiness are actually working the pleased actually which about. are so primes for actually compression, of scheduled the that's And on and allowing plan. work development is progressing mode,

limited-rate production, around 'XX moving anticipate that's of first quarter the So ahead. initial the us beginning quarter of XXXX. We production, probably fourth into for

So that progressing that's quite progressing nicely. actually quite us for program is --

Kevin Dede

once you could And memory refresh LRIP? might that on beyond quantity our you Okay. you see go the just

Jeffrey Lucas

program X,XXX at it's that mean life We but the sizable. it of to disclosed approximately the in over discussions for that. have program. quantities project, Leave not already past, X,XXX we're I the initial this displays talking

Kevin Dede

Okay.

Jeffrey Lucas

I'm sorry. Go X,XXX correct. X,XXX way, to -- I'm the sorry, ahead. By yes, that's

Kevin Dede

Okay.

Operator

with [indiscernible]. next question Our [John from comes Pearson]

Unidentified Analyst

had can that, you to about an talk prototypes to to the your -- ask the want guess to And response? direct They were I that customer. they excellent prototypes delivered about I quarter. you you clarify. just like on delivered, that I'd pattern? Congratulations XK the

Andrew Sculley

backplane. we the things the few change a itself, display have to are there i.e., in Well,

back, by direct comes customer have after to put deliver we'll very the and They be display impressed the and for together them. got seen asked the that a chance we doing to that. us patterning be So

year would have remember that's -- it's Did you, be And small-volume effort a John? volume lose we next deliveries beginning. we here. because that So it's small

Unidentified Analyst

to I'll Yes, I lost but answer the re-listen your connection that, on later.

Jeffrey Lucas

Sorry, fine. John. That's

Unidentified Analyst

I you wait those before you to back don't you made until there, know mention your would did came happened what equipment but prototypes? anyways, have

Andrew Sculley

both to is would will put we few -- backplane of the and to would Well, to the have do customer back. the like we satisfy bit wait when things to a then design before like a we do the certainly And what come we directly that the change little the pattern, obviously we to pattern we those. and directly in display, for equipment other

The other foundry. to wafer have from implement the the to designs is thing we And for a on those have we're that. waiting do with we kickoff customer

Unidentified Analyst

Okay. mentioned, customer? a you customer, it design with or is same the And that this other different this is

Andrew Sculley

to different. of many again, it's -- this happen. show year, us No, at the display can customer thing it was and is the people And allowed XK why kickoff last design product next first And impressive. this the the to society information that

Unidentified Analyst

new have has must so this and guess different some seen -- this they -- they have they customer I XK, already -- need. the different requirements that

Andrew Sculley

everybody Oh, yes. learned I've that a different requirement. has

Unidentified Analyst

are about? about get And you something bit Could how little -- markets? shaping your Are up? excited talk they they a Okay. aviation non-military to

Andrew Sculley

now, are companies military In the but small future, focused that It's also that commercial. are are at looking certainly. there right

Jeffrey Lucas

expanding been there's involved in for on whom with they years, prime the efforts Right. commercial we're have in with actually their as matter large a one And working several of fact, a side particular, as well. and

a juncture, we at an potential of that it's forward. something this lot value has going area haven't but value that a realized it's of lot So

Andrew Sculley

thing high us displays us, the military outstanding displays, drives with brightness, it's our that the here too: again, contrast... high drives And same and our

Unidentified Analyst

Okay.

there? the Are I again. guys still connection think lost you I

Andrew Sculley

Yes, we're here.

Unidentified Analyst

little a Can this System are they they're with And I Did confused bit they different if kind all I XXXX you by different? I'm SVIT. you of Okay. a in ask about that? little the I swallowed Great. there's a Can sure not any the all am IVAS of Soldier talk as about Or technology part up the suite, bit have little guess, TAR, they bit IVAS, programs? information? get -- program? the more are that,

Jeffrey Lucas

XXXX an one You've or various of are the those prime the involved in acronyms another there in to many largely got including outfit We're parts programs, program. suit with contractors and capacity different for different. of various talking of which all with the

we this of at I’ll kind are. little I that We report the down that, have that’s may think future a more about that's but it leave in So where to juncture. largely

We’re folks programs. lot a in this discussions at working on point with and of those

Unidentified Analyst

the my Okay. question of I along guess funding. be last lines would

DPA III is have is an wondering a us the on a possibility situation. I’m that in give could mentioned just and that You IBAS update just you possibility. Title past if And

JeffLucas

Yeah.

there. we it’s we So are making progress

As visit a week just last of matter several various of intensifying. are from a discussions there. departments the fact, our We had

ahead. moving that's So

optimistic. We’re

Our we And but feeling and of the be frame government compressing of how time Its resolution. is question CR, a not going definitively challenges a works that little we the feel question the timing. the can’t And to a of speak with its sort if. further when. actually continuing bit, is with

So out out which a making have great is control, really with all we in elements those all at this can there. we getting progress terms we’re message say of that no point there

various when and still exact not we're time very that's just we're branches give evidence about lot happen. a going But departments, We’re to for frame of from an in optimistic but seeing to various the time support of or position a that.

Unidentified Analyst

of Or military? did that another displays do is you consumer possibly of -- kind to in you -- it Or that a be and Or dedicated your for location? guess, you Would would be dedicated as commercial would manufacturing? location that actually could and also happen, I funding at that be and would Do that, that part to York? expand coming foresee New have any location equipment you if foresee line?

Andrew Sculley

So equipment most where terms in that the the make the of would place here. is would sense right be

people. the have We

the There the in the our be have out, we manufacturing, the some related. equipment and due And dedicated that defense sure constrained to issue to here military as equipment it We fit we make are the the have so get And to of has course, we are would that, goes being lines, total. of throughput, needs customers it the really. to capacity the to improve other but yield, programs them into, be away. the increase

problem. So we a have don’t

JeffLucas

availability purpose this yes. the by interest secondary more costs the is the but where including military. opportunity yes, recognize commercial of have to for fact higher in having Because some lower given structure here of to or the the applications, have for primary price and lower military excess the capacity we usage. the units we’re the costs And that the cost applying produce, unit going and are, here that, the volumes. Look, Yeah, we going that’s everyone, our the for doing lower the

Unidentified Analyst

consumer going delaying trying to funding? plans? where Or So happen side possibly are to manufacturing that situation plans, see is with two what’s military only you’re your these separate

Andrew Sculley

to the No, an addition title be implement funding really here. The factory would separate. would three they’re

Unidentified Analyst

a right. lot. All Thanks

Operator

questions, turn further question-and-answer conference concludes any no over remarks. our would closing Sculley to have to for we back I As the like this session. Andrew

Andrew Sculley

very I want joining to excited that We're team with in. the for effort you has put thank the us. all

great, the well. of is from happy is, the creativity improvement the have and very spurned much And improvements as We future creativity. you for see in to team. And great make we're continue that gotten

Jeffrey Lucas

So, I add want just here. to

all be we markets. program. in a forward. us the see that's the critical And as engineers, worked we example military comments folks, get who we have And opportunities well the do them; OLED production echo our want works role the our production that going over this improve recognize a sort and we relationships here of about microdisplays. the in our fosters dedicated microdisplays. will and development that terrific folks ahead; in F-XX back want growth yields the about our R&D and who critical company. We engineers, the with deep play to that question in because, and had customers as are migrating helmets hand-in-hand Andrew's here, All has we the I puts keep to business to with closely the to And position F-XX only are just team underscore as everyone U.S. our And support That an commercial competitive place throughput role I meet humming. played: the manufacturable to that

So on note, much. that we very thank say you

Andrew Sculley

Thank you.

Operator

has now attending you Thank concluded. conference The for presentation. today's

disconnect. now may You

Emagin (EMAN) 9 Nov 192019 Q3 Earnings call transcript