- Won contracts worth several million dollars each for the U.S. military's Enhanced Night Vision Goggle III (ENVG III) and Family of Weapon Sights - Individual (FWS-I) programs. We are supporting the qualification testing for both programs and anticipate entering the production phase in 2017.
- Won a contract with a prime contractor valued at approximately $800,000 for a laser range finder system and have begun delivering microdisplays in the production phase of the contract.
- Booked new R&D projects worth over $800,000. One project is for continuing improvements in our direct patterned ultra-high brightness technology. The second is for the development of a new display backplane that offers lower power consumption and a higher frame rate demanded by military and consumer markets. And the third project is focused on building display samples for a customer developing a new consumer virtual reality headset.
- Received production orders for two new projects, one for a U.S. Marine Corps application and the other with a large Asian company using our WUXGA full color display in a new product.
- Shipped a new version of our WUXGA microdisplay product with qualification scheduled to be completed by July 2016.
- Delivered sample displays for over twenty new projects including military and commercial avionics applications.
Product revenues (primarily display sales) totaled $5.3 million, 4% more than first quarter last year. The higher product revenues were primarily due to product mix as customers purchased more of the Company's higher priced advanced microdisplays. R&D contract revenues totaled approximately $706 thousand, a decrease of 20% from the first quarter last year. The lower revenues in the quarter reflect the late award of a key R&D contract which will be performed in Q2 instead of Q1.Gross margin for the first quarter was 48 percent on gross profit of $3.3 million compared to a gross margin of 39 percent on a gross profit of $2.4 million in the same quarter last year. Excluding the profit contribution from the license revenues, on which there were no cost of revenues during the quarter, the gross margin for the first quarter would have been 39%, comparable to the prior year quarter. Operating expenses for the first quarter of 2016, including R&D expenses, increased to $3.3 million from $2.0 million in the first quarter of 2015. Last year's quarter included approximately $500 thousand in favorable effects from a reduction in the allowance for bad debts and the reversal of the Company's vacation accrual. This year's first quarter reflected higher spending in our HMD effort, higher legal expenses and costs associated with the consolidation of the Company's finance and procurement functions. Operating income for the first quarter decreased to $22,000 from $329,000 in the first quarter last year. Net income for Q1 2016 was $14,000, or break-even, as compared to $320,000, or $0.01 per diluted share in Q1 2015. At March 31, 2016, the Company had approximately $9.1 million of cash and cash equivalents compared to $9.3 million of cash and cash equivalents at December 31, 2015. At March 31, 2016, the Company had no outstanding debt.
Outlook"Looking into 2016, we are encouraged by what we believe to be expanding end markets for Virtual Reality, Augmented Reality and Night Vision applications leveraging our leading OLED technology. We believe our technology approach in these markets remains superior to the competition," continued Mr. Sculley. "While military product sales held steady in the quarter, we believe that future growth in this segment will be largely driven by newer contracts and programs that are currently under review to receive funding for next generation technology. "Our military contract R&D efforts, where we work closely with the U.S. government and with international companies on designing next generation requirements and specifications, position us well to capture these new production contract vehicles when awarded. Overall we feel eMagin's presence in both domestic and international military markets remains quite strong. "For 2016, we are focusing on the following objectives:
- Expansion of our presence in major military programs and overall customer count,
- Further progress on display sales under the commercial licensing agreement that we signed in December,
- Advancement of discussions with high volume production partners to incorporate our technology into displays and other products,
- Continued progress in manufacturing improvements,
- Consolidation of our finance and procurement functions from our Bellevue to Hopewell Junction facilities,
- Potential new product introductions in the commercial sector to leverage our leading display and headset technologies. These new products have the potential to provide revenue this year.
Non-GAAP Financial MeasuresTo supplement the Company's consolidated financial statements presented on a GAAP basis, the Company has provided non-GAAP financial information, namely earnings before interest, taxes, depreciation and amortization, and non-cash compensation expense ("Adjusted EBITDA"). The Company's management believes that this non-GAAP measure provides investors with a better understanding of how the results relate to the Company's historical performance. The additional adjusted information is not meant to be considered in isolation or as a substitute for GAAP financial statements. Management believes that these adjusted measures reflect the essential operating activities of the Company. A reconciliation of non-GAAP financial information appears below.
|CONDENSED CONSOLIDATED BALANCE SHEETS|
|(In thousands, except share and per share data)|
|March 31,||December 31,|
|Cash and cash equivalents||$||9,050||$||9,273|
|Accounts receivable, net||3,602||3,508|
|Unbilled accounts receivable||1,306||1,445|
|Prepaid expenses and other current assets||745||489|
|Total current assets||19,261||18,616|
|Equipment, furniture and leasehold improvements, net||8,838||9,131|
|Intangibles and other assets||323||336|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Other accrued expenses||1,056||1,193|
|Other current liabilities||565||602|
|Total current liabilities||4,835||4,677|
|Commitments and contingencies|
|Preferred stock, $.001 par value: authorized 10,000,000 shares:|
|Series B Convertible Preferred stock, (liquidation preference of $5,659,000) stated value $1,000 per share, $.001 par value: 10,000 shares designated and 5,659 issued and outstanding as of March 31, 2016 and December 31, 2015||—||—|
|Common stock, $.001 par value: authorized 200,000,000 shares, issued, 29,550,170 shares as of March 31, 2016 and December 31, 2015||30||30|
|Additional paid-in capital||234,981||234,814|
|Treasury stock, 162,066 shares as of March 31, 2016 and December 31, 2015||(500||)||(500||)|
|Total shareholders' equity||23,587||23,406|
|Total liabilities and shareholders' equity||$||28,422||$||28,083|
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|(In thousands, except share and per share data)|
|Three Months Ended|
|Total revenues, net||7,001||5,989|
|Cost of revenues:|
|Total cost of revenues||3,666||3,629|
|Research and development||1,303||985|
|Selling, general and administrative||2,010||1,046|
|Total operating expenses||3,313||2,031|
|Income from operations||22||329|
|Other income (expense):|
|Interest expense, net||(10||)||(10||)|
|Other income, net||2||1|
|Total other income (expense), net||(8||)||(9||)|
|Income before provision for income taxes||14||320|
|Provision for income taxes||—||-|
|Less net income allocated to participating securities||3||74|
|Net income allocated to common shares||$||11||$||246|
|Income per share, basic||$||—||$||0.01|
|Income per share, diluted||$||—||$||0.01|
|Weighted average number of shares outstanding:|
|Three Months Ended|
|Depreciation and amortization expense||415||326|