EMAN - Earnings call transcript Q4 2020

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Operator

Good morning and welcome to the eMagin Corporation’s Fourth Quarter and Full Year 2020 Earnings Conference Call. Please note this event is being recorded. [Operator Instructions] I will now turn the conference over to Mark Koch, eMagin’s Acting CFO. Please go ahead.

Mark Koch

Thank you and good morning everyone. quarter year fourth call. earnings eMagin’s to and XXXX full conference Welcome Act note we the defined Reform call, during Private XXXX. make Litigation Please today’s as may that forward-looking statements Securities of in based These are and a on forward-looking to statements the current and subject and expectations, risks of company’s number beliefs projections uncertainties. are its and contracts the include ability to company’s words agreements, references may future target, company’s statements plan, operations, liquidity the to projections of future etcetera. future statements believe, revenues, like and as up production, production, cost plans product benefits, Such capital expect, to containing for and well ability reduce product structure, development financing, ramp as resources

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

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

Andrew Sculley

continue end quarterly and we discuss our full markets, courage to hello will regarding while of key We detail. your will technological call, consolidated our today’s tireless ones stay today. and the In colleagues I and from the Mark results the hope provide you results safe. forward for provide you, loved greater and Thank our by and year everyone. you, color thanks efforts that increasing schedule. XXXX, on to work several On Mark Thank some joining pandemic. us unfavorable our employees, equipment advances brought in despite moved revenues conditions initiatives, on then and takeaways

or jobs provide. room In U.S. improve signed direct contract manufacturing which to increasing capabilities the and engineers factory funding last our our will of the Defense. R&D well manufacturer facility. additional Furthermore, accommodate by we purchase more the as to be footprint OLED Junction year, the XX% lease of we protect are As technical investment line, more in and equipment U.S. sole enhance ability our our funded than new our for revenue. support announced greatly dPd, to that you near equipment are award and the in Hopewell a more million we manufacture proud U.S. to government of Department in patterning, drive should increased vital the U.S. recall, hiring manufacturing and protect term, U.S. $XX And long-term appreciate of production military in We clean the the in to the helping we our by microdisplays. than of technology, December, we as to

OLED. filters proprietary with output white Our to that greatly relative products light require enhances dPd color technology competing

and manufacturing expect full XXx our the year. brightness brighter brightness displays government roadmap of for full brightness we is This target technological support current we XX,XXX customer Our funding brightness to equipment, of mid-XXXX, to intermediate by nits and approximately targets in color high than capabilities with XX,XXX secured edge this for excess our roadmap OLED microdisplays. color enhance an Combining needs. nits our our intermediate

this month, a inorganic that for announced granted we material. As method we patterning new the were earlier direct patent of apparatus relates in to

to leadership, patents displays continue full OLED extend and brilliant equipment. XX foundational processes applications portfolio our of utility OLED color and our We and patterning, technological dPd for with

quarter, customers. of backlog to from total of backlog strong end in we in of to significant of million, the orders We and million. XXXX, $XX.X third Turning orders increase bookings, the bookings quarter night $X.X eye XX% fourth care of XXXX. And had the led as received a veterinary our our open was which vision, from

program received imaging for high for as AR/VR to glasses under the continues the the thermal Goggle-Binocular with programs programs, key supplied Night solution applications. along manufacturing best and sole-sourced continue same strong it dPd the in Enhanced and we our time, brightness other volume in programs to fourth worldwide. interest we the bookings new believe continuing it military quarter, the orders including displays Vision monitoring. automotive strong to is XX addition thermal display ramp see under we In Overall, sites, technology, At

and are this XX,XXX the squared and consistent per steady displays We candela progress device dPd color developed meter our of year. patterning the prototype goal by mentioned used I QX OLED direct will with These stacks have making stacks in technology earlier. tested of be the with

headsets. highest and displays microdisplays of stay competition use the patterns in for resolution can to each structures for enable make OLED satisfy microdisplay. providing OLED of we contrast, Future along OLED or our color Moreover, other directly for technology the will double dPd will us dPd believe the Our and brightness that ahead marketplace. brightness, improvements speed the roadmaps, tandem color, milestones the AR stacks to with VR the needed

luminance related lifetime to consumer advanced AR/VR their over XLE scalability our which contract sizable with our customers of development work displays, eMagin to of shipped efforts serve current continue white color samples early on will in advance revenue dPd the quarter, development efforts, and boost continue that the state OLED microdisplays as we we customers the our with continued will dPd to and markets. expect utilize key with customers. XXXX, In give parallel We technology our fourth the filters. technology, we In to and/or in significantly art we a consumer

will We products in brighter first candelas to be filter-based the manufacturable expect luminance qualify in initial a even feel continues the as with further technology with XXXX, roadmap nominal in With to as improvements meter call turn X,XXX technology serve to this that, and follow. the will volume a to per over of half that displays to colored near-term that of to dPd bridge Mark. squared, confident We mature. I in

Mark Koch

Andrew. you, Thank

display and revenues X down on for prior in contract period Tier XXXX consumer like with revenues to compared million $X.X quarter development of advanced quarter year I’d company. to in cost Fourth our you margins, development revenues Drilling ago XX, the revenue. in the were reflecting lower consumer period. issues million on for certain revenues display product for absorption increases the Full totaled and design gross restrictions. year results XXXX for sales of gross margin I $X.X continued profit million reflecting XXXX, of compared million with in million reflected $X.X profit period. year a consumer with total work $X.X compared and AR/VR $XX.X fixed fourth large with Before XX% increased to sales military in primarily related of customers. decrease proof-of-concept reflecting an inventory million XXXX, orders million ending $XX.X of margin discuss was travel was December of million of a contract full quarter into a $X.X and $X.X and timing company lower compared work device. were gross gross the key $X.X X Contract COVID-XX delays equipment for repair due provide both takeaways. some of year XX% with year a to $X.X a Higher production Fourth ago, dPd $X.X revenues Tier margins million and a fourth to ago, result XXXX compared gross to for The year million the million with for quarter a

in government a your XXXX, vendor of key the new expect contributions thanks of arrival in we grants. However, technician equipment plus our through yields recovery to a purchased

XXXX, decrease related to was requirements pandemic, compared absences, issues result including stricter year I employee XX% margin full of was the cleaning XXXX. mentioned. a For delays The in with XX% and repair gross the

fourth in for fourth of higher the in arbitration the and due of dispute increased ago the of the were expenses dPd of to R&D the percentage former R&D attributed in $X.X manufacturer. XXXX, million Operating quarter quarter the development sales SG&A was increase ago year operating additional related expenses a expenses, were consumer year were period. and costs the $X.X XX% work to costs our expenses, contract the higher including to primarily a quarter related to XXXX with XX% also fourth including with in expenses with period. as to contract along the expenses, headcount XLE year of displays. Part our Turning versus to million compared legal a period compared internal ago of

reduction in to costs legal going expect these We see a forward.

million million was revenues, Operating quarter per The the plus share year compared year equipment of including increase X million period. in For XLE or loss result operating due the the expenses, decrease in was in fees with XXXX compared expenses, share the process. million production to R&D. legal XXXX, of R&D in million XXXX compared of planned a for our investment per along $X.X million of improvements in quarter the expenses loss issues, with fourth non-military Net year or with for $XX.X ago The higher $X.X mainly a due period. investment fourth ago was and and full majority manufacturing costs $X.X $X.XX was through development, legal in with to XXXX. dPd R&D $XX.X were $X.X increased for loss

share $X.X a $X.XX million Operating XXXX. per fourth for the the of loss $X.X net Net in in diluted net $X.X of or year compares Excluding impact fourth was of versus non-cash full change loss million the quarter our share diluted was for XXXX was loss XXXX million per versus ago for liability, per share the warrant million the per XXXX. for of value quarter. $X.XX $X.XX year $X.XX to XXXX this fair for $XX.X share loss or

for period. negative loss year warrant net the per the compared loss year Adjusted XXXX Excluding fair was for the in share quarter a $X.XX impact in of the with EBITDA share was million ago of change versus in XXXX per the million of full $X.XX of fourth $X.X value XXXX. liability, net the $X.X

XXXX, compared with million for full was EBITDA $X.X year adjusted XXXX. $X.X negative a For negative million

December $X.X $X.X million XXXX. XXXX, December of and equivalents balance XX, the with as Turning the XX, to compared cash at sheet, of cash had company million

while million, $X.X $XX.X As and our of of $X.X borrowings year end working the million company had were million, and facility availability XXXX, respectively. under capital ABL

quarter, for the During loan in applied PPP the we $X.X million program. funding forgiveness SBA under of

equipment, took manufacturing capabilities the million new equipment, microdisplays. the of under inspection funding we in eMagin U.S. million our enhance $X.X U.S. government our wafer its delivery of of first Regarding January, to to $XX.X which purchased provider awarded OLED early was as only in

December within and ahead. Lastly, XX please XX, a million call $XX.X months backlog was go December as of backlog shippable XXXX orders Operator, company’s the of questions. XXXX. we with will as of With the that, open of compared XX, $XX.X for million

Operator

Thank you. Kevin affiliation first your question. your live. and coming pose line the Kevin, question is your Please from announce is [Operator And Instructions] Dede.

Kevin Dede

a Hi, Andrew H.C. please call. production thanks Hi. Are on color real about that, let Could good shipping more Can they the bit for you Mark. a those little taking programs? more are guys little please? It’s Kevin you orders? programs, new, Wainwright. insight – my Dede, know development Are new? just with me on XX the us you new give brand morning,

Andrew Sculley

existing you. are the side. not development new display shipping it’s a for consumer into displays new those of thank for as Yes, we like XX a Yes, and integrating in programs are programs

Kevin Dede

Okay.

all DoD So they related? are

Andrew Sculley

Actually...

Mark Koch

No.

Andrew Sculley

I Kevin and – imaging is factory also another for automation the leakage industrial for Yes, think one for one building thermal heat is in of like a them field.

Mark Koch

manufacturing. automotive the mentioned We

Andrew Sculley

Yes.

Kevin Dede

Okay.

parts mean that just are does taking off of they stock So inventory?

Andrew Sculley

are regular they production Oh, parts. taking

Kevin Dede

to talk think you helmet should renovation F-XX to and going Andrew, I wondering little that this the year? that didn’t what for if wondering am consider shipping how. controversy still ship eMagin a to all am okay. is you project and production I around given there we where okay, is Yes, at who

Andrew Sculley

parts helmet Well, In for the we in one Navy been still And is you know, we F-XX shipping is as case, the that delayed. very this has are interested are the testing. doing. what

we it. so still And on are working

Kevin Dede

How a time? the you rivaling Could do XLE little Okay, dPd the okay. Fair over advantages development? you where talk your bit for customers you more Thanks. and and about see enough. that technology are

Andrew Sculley

Yes. The whereas can as is we production direct an the the do can patterning the equipment new because funding well. do display that comes we you effort is do in is we right now, that until very and now know that advantage today, as as easy any R&D production government in in

So, mention I in question, the away the will which you because at to it know, doesn’t that the the a XXX color I even the don’t light brightness bridge throws XLE of away life, case, need the really eliminates the nits, And XX% better, direct just throw run power the would and ask I light. be mean. And if XX% advantage that significantly dPd. filters, is you as of that will I patterning

place? the military driver. to weight power, and eMagin first power The have was did the to come other thing in a why is big Size, remember you

be important this is will when production equipment very dPd So, in.

Mark Koch

Kevin, just mentioned our one existing the thing XLE incompatible other is Yes. colleague with BD designs. is

considerably X,XXX it’s of So nits brightness higher higher. or

Andrew Sculley

nominal we’ve Yes, is X,XXX got. what

Mark Koch

So it devices upgrade designs of existing – nice existing makes our for customers. a

Andrew Sculley

words, stack different OLED the is What the saying the display same. in but is is, brighter, itself Mark is other and

just run So of anything plug today it and into displays you’re using you our it.

Kevin Dede

okay. Okay,

Andrew Sculley

Drop and replace.

Mark Koch

the Then great a to been shipping deal is customers. because selected brightness. of we of interest have There some

Andrew Sculley

Yes. is customer I’ll one samples. just very mention taking important

Kevin Dede

that customer points you status Okay. I Well, in exalted appreciate I customer figuring have Andrew, a is, asked you, but there And and that we standard many and – I’ve point these to AR/VR Then question things. I at through one list. you, I you’ve granted again? been I asked I’ve me out, that I or have it’s projects my your come are. track and know unfortunately, of know you lose more for where at as know could VR actually, list run

yes, wouldn’t that. if you reviewing – So mind

Andrew Sculley

Sure.

we So last year here. have talk to I’m – going two about efforts

are its display. XK As there have we the in be know, a through with put we produced and in moment, you interested they to. here, a owner direct interested will displays VR number in companies that, AR. brightness. that for also high-resolution we’ve many we patterning on resolution, a companies And talked high are but it displays And other actually, that and now, of showing high And

owner, another that that design And And allowed demonstrate company. allowed we display that off company – to to designed that’s display. very a display. So important that were other another demonstrate last we’ve display kicked to the by to a year. And

tell interested of And it So and back you be foundry. will designed QX. the the design scalability are work know, then can’t that’s and resolution. this – get to me. for is demonstrate us have It’s year. forgive paying foundry. you on, to And very we what to direct put high an another from It patterning use will the will steps of effort as device. last in the how is in proof-of-concept advanced with that a company company an high is, this will And for I consumer And mass in on, we a the also then our that going We there company or production together to as number partner. OLED the come it the that other a device.

Kevin Dede

going. in Thanks just the I’ll Okay. Otherwise, back keep I’ll hop queue. gentlemen.

Andrew Sculley

We a very when we you – company. did licensing they we production partner. dPd had one. and talked our other as one mention a the one – in again, agreement to did the mass interested know, with company past, Just has in that have effort are We’ve a an

I mentioned. So there three is

Kevin Dede

Three.

in three Got it. total. Okay,

Andrew Sculley

the then come as are who there specs other the mentioned, the things, that three and are companies and going we talk number of real us do us they and on what a have I to are now. And Those etcetera. it, things to can about need

Kevin Dede

contracts say going signed? that So you hands there and money things actually real when you three on, changing mean is

Andrew Sculley

a of licensing production that you a we owe there Xk. the no we obviously, will be the other a display. you demonstration agreement, look from Well, have the the there of can the money numbers, is one, at is And one And the which lot one. one see money. until our partner, That’s mass

Kevin Dede

again gentlemen. questions. thanks Thanks taking Appreciate color. okay. my Okay, the And for

Andrew Sculley

Kevin. Thanks, Thanks.

Operator

come had And did no is Thank Dede. were we Instructions] – you. a [Operator follow-up there have we in other line in, from Kevin a your question come left. Kevin,

Kevin Dede

Okay. I just I’d hand thought reins. over the

increase the taking effect we should that in to headcount. you quarter speak for year? thanks So OpEx think current I and the think, during you back. Mark, reported mentioned what little a bit, about of how it me you vis-à-vis this Can

Mark Koch

increase, two modest a or one There it’s Kevin. Well, was people.

a manager yield – the manage talk government million, improvement $XX to program people, also as employees some some we’re We And about. also funding, didn’t person at the we added looking well. a which which

– so modest it’s increase. we’re So a

be of funded III Some the headcount programs. will also by Title the

we’re next the So equipment again, maximize which is, as over real in quite return few that, bringing years, us. significant this on we’re a to just effort making the new for

done with So base a lot we’ve of a capital relatively say, equipment. small

value with million. the book And looking $X capital equipment. we’re now million at government, over is in Our $XX

to resources making have that quite put excited use. productive about that we’re we So the and right sure to

Kevin Dede

So, expanding in will facilities Mark that the Hopewell? include,

Mark Koch

yes. Yes,

get although we – some concessions did our XX%, the we about – good get expanded footprint, we’re a we landlord. So we from – did did

another modestly, So XX very rent that cleanroom X,XXX does foot our square out And went increase space. years. include of and will only we

to about, this kind. a very ample don’t have it’d space, of obviously, be we have So move worry business we and to difficult

have and house protection Title plenty the new our to equipment. room and So equipment we – IVAS for we’re III of

Andrew Sculley

OLED equipment of production direct produce the display plus patterning. production be we will producing that today, every real mention I May of – also capable

an outstanding addition. So that’s

Kevin Dede

separate OLED, you for side, now volume on How dPd will two that you for have help lines Will Andrew? the OLED?

Andrew Sculley

tools R&D will and R&D. two have tool. third be to one We can tool devoted be be because devoted the The today, to a this smaller – can

we’ll And yes, this way. This more the bigger tool – today. is capacity. of have one one – capacity have absolutely, it than has So more just think we

be efficient able and do quite be to to product So every produce we today.

Kevin Dede

on Do that? you have implementation a full for timeline

Andrew Sculley

We it but we than in will up think running we’re and it. earlier, idea. be sooner setting qualifying it the We here – But be like cautious. XXXX. be will will be That’s and to

Mark Koch

tools testing are dPd fully dozen and June a period. $X piece Kevin, that’s to and in for sort Other delivery, That will equipment, equipment. took like We had of automate tools. of equipment of failure reduce throughout improve of that’s that expected And million Yes. the with online process for some coming We particles. a nearest. the other prone qualified already our our yields, reduce pieces our key it, that be kind

we a and online. improvements plan again, a these So upgrade quite significant analyze expected and the have come yield as

Andrew Sculley

the And Again, in said, the only XXXX, throughput last idea new yield. is tent-pole this came and year, of one long is as Mark the in OLED equipment, the the greater these, comes greater And machine. – – year.

Kevin Dede

Okay.

during don’t I December the anything know, hindered in quarter there that, Was all? Okay. the runs regular production specific yield at

Andrew Sculley

couldn’t that’s have OLED now. person was And simply and Not here thing great because that worked – miles the – very very, that solved a of And that a COVID, we had direction we was well. that one the the to team one machine the the work tool. had needed we large issue who – then we to help we get due fix under particular we

So that for an was issue us.

we to build So ship didn’t enough we – little. very customers, this and we did inventory, our but

Kevin Dede

Okay.

on that shouldn’t board March? your you expect do guy now, – is So we through so Andrew, key

Andrew Sculley

March. guy different is a in Yes. country. – He The key from onboard is he

the of much came problem. going He and we’re better much, So March, that’s here in now. part

Kevin Dede

about Remember or there on that VR you a discussion, Okay. to with project display the speak a and Andrew, is? foundry can the working mass production partner progress where

Andrew Sculley

and Xk hard this are we Well, making, display out. important we display working as make they are sure works to do have we’re as the foundry a other foundry for very the partner partner and

So partner a... And is very a it’s good one.

Kevin Dede

Okay.

generate to consumer you might they’ll demand? So that be scale been to able satisfy has agreement that that the reached, you and believe need

Andrew Sculley

wafers They in have doing the consumer make demand. capability very for They interested this. to the are

Kevin Dede

they Would site? dPd also do on

Andrew Sculley

did what sorry, I’m you Kevin? say,

Kevin Dede

deposition? Yes. I be doing direct a apologize, also Andrew. pattern Would they

Andrew Sculley

would direct have more company. I’m I interested doing sorry. we’re production patterning. mass be a that they there And with in mentioned No, particular is working actually, we not partner. a making there Remember, sure

Kevin Dede

went Okay, list. second I through much. Thanks okay. gentlemen. my very Alright,

Andrew Sculley

electronics volumes other Let the me to partner – to much next company mass idea. consumer a get Kevin. to one thing, wants just It’s you production easier the with that’s and standing who a buy

We are together. that do to going

Kevin Dede

Okay, okay.

Andrew Sculley

going they comes sit to next concept are well, to right If out us.

Kevin Dede

Absolutely sense. Makes sense. right. Right, makes

thank Okay, you.

Andrew Sculley

Okay. Thanks you, Kevin.

Operator

queue you. no the are Thank And there at this questions in time. more

Andrew Sculley

a say me say then Mark things, things few can let just and as few Well, Okay. well. a

the all, of I of First on appreciate line. all you

of lot a have We people.

some follow-ups you. have We with

The offline. So program We’ve the the have with $XX yield well. COVID we’ll throughput nice a our production some in be answer done terms and advantage more on – government will to that and job very gotten is questions the side. U.S. going progress. enormous And this employees an great million, of

We are unusual. time budget, and and on schedule that’s on and on

we’re important about but one a performing government and using And from others very the are very Sometimes we the of very And – It’s programs are customer another for again, forward with it. well. these told XLE. U.S. number moving happy it. we’re DOD,

So with efforts at direct time. are very going the this filter this important us and for color well forward great will be us consumer and a patterning to step

Okay, thank you very much.

Mark Koch

Alright. Thank you.

Operator

This conclude you, today’s ladies does gentlemen. Thank conference call. and

phone have your for time this Thank disconnect lines at may participation. day. wonderful your You a and you

Mark Koch

you. Thank

Emagin (EMAN) 18 Mar 212020 Q4 Earnings call transcript