"Another of our strategic growth initiatives to expand into commercially attractive markets has been to realign our sales and marketing resources to focus on high growth areas in the industrial, medical device and consumer sectors where our advanced optics and OLED microdisplay technologies are at the cutting edge of product development. We believe our new strategy is working as evidenced by some recent successes. During the first six months of 2016, we expanded our active customer count by 11% to 108 customers. And, in the second quarter, we were awarded an $825 thousand order with a major medical device company, the largest single order in this market in the Company's history."Finally, we are excited about our upcoming consumer product offerings. We have leveraged our microdisplay and optics technology, combined with our manufacturing capability, to develop affordable, high performance wearable and handheld products for the broader consumer market. We plan to release two products in the fourth quarter of 2016. In addition to the expected revenue growth from this new channel, the higher production volumes are expected to lower our unit costs and raise our overall product margins." Q2 Business and Product Highlights
- Received the first production order for a display upgrade to a United States Army training system that is expected to generate follow-on orders over three years.
- Received an $825 thousand order from an existing customer to upgrade displays in their medical device equipment; the largest single order from a medical device customer.
- Continued our growth in the international market with over $2.2 million in foreign military sales during the second quarter.
- Completed a review of current and potential new business and realigned sales and marketing personnel to expand the existing customer base and penetrate newly identified markets.
- Sold Design Reference Kits and displays to 22 customers to facilitate development and prototyping of new systems.
- Delivered sample displays for over twenty new projects including major military and commercial avionics applications.
Product revenues totaled $4.8 million, 12% less than second quarter last year, primarily due to lower volumes on government contracts and the previously mentioned manufacturing issues. R&D contract revenues totaled approximately $752 thousand, an increase of 7% sequentially from Q1 and a decrease of 53% from the second quarter last year. The reduced R&D contract revenue year-over-year was due to extensive contract work performed on a few large contracts in the 2015 second quarter.Overall gross margin for the second quarter was 24% on gross profit of $1.3 million compared to a gross margin of 37% on gross profit of $2.6 million in the same quarter last year. The lower gross margin was primarily due to lower revenue and the aforementioned equipment downtime. This downtime resulted in lower cost absorption and higher unit costs of sales. Operating expenses for the second quarter of 2016, including R&D expenses, increased to $3.5 million from $2.7 million in the second quarter of 2015. Q2 operating expenses reflect higher spending as we advanced our consumer products toward revenue this year and costs associated with the consolidation of the Company's finance and procurement functions. We remain focused on investment in the business which we believe will provide growth in the future. Operating loss for the second quarter increased to $2.2 million from a loss of $60 thousand in the second quarter last year. Net loss for Q2 2016 increased to $2.2 million, or $0.07 per basic and diluted share, from a loss of $66 thousand, or $0.00 per basic and diluted share, in Q2 2015. At June 30, 2016, the Company had approximately $6.1 million of cash and cash equivalents compared to $9.3 million of cash and cash equivalents at December 31, 2015. During the quarter we increased our R&D investment and began to build inventory in anticipation of our consumer product launch scheduled for later this year.
At June 30, 2016, the Company had no outstanding debt.Outlook "We remain encouraged by expanding end markets for Virtual Reality, Augmented Reality and military applications that can leverage our leading OLED technology. We believe eMagin is the only Company whose products can meet the brightness and resolution requirements for high-pixel density displays that these markets demand," continued Mr. Sculley. The Company is focused on the following objectives to drive shareholder value in 2016 and into 2017:
- Advancement of product development discussions with Tier One companies to incorporate OLED technology into their next generation products,
- Further penetration of high growth commercial/industrial markets, including medical devices and other vertical markets, where integration of our OLED microdisplays and optics technology advances product development and adoption,
- Expansion of our presence in existing and future major military programs and overall customer count in domestic and international military markets,
- Further progress on display sales under the commercial licensing agreement that we signed in December,
- Launch of new products focused on the consumer market which offer high performance and broad appeal at an attractive price,
- Advancement of discussions with high volume production partners to utilize our leading production and process technologies,
- Continued progress in manufacturing improvements including yield enhancement and production capacity expansion, and
- Consolidation of our finance and procurement functions from our Bellevue to our Hopewell Junction facilities.
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.
|eMAGIN CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share data)|
|June 30, 2016||December 31, 2015|
|Cash and cash equivalents||$||6,100||$||9,273|
|Accounts receivable, net||3,455||3,508|
|Unbilled accounts receivable||1,383||1,445|
|Prepaid expenses and other current assets||706||489|
|Total current assets||16,916||18,616|
|Equipment, furniture and leasehold improvements, net||8,806||9,131|
|Intangibles and other assets||309||336|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Other accrued expenses||1,044||1,193|
|Other current liabilities||546||602|
|Total current liabilities||4,515||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 June 30, 2016 and December 31, 2015||—||—|
|Common stock, $.001 par value: authorized 200,000,000 shares, issued 29,550,170 shares as of June 30, 2016 and December 31, 2015||30||30|
|Additional paid-in capital||235,074||234,814|
|Treasury stock, 162,066 shares as of June 30, 2016 and December 31, 2015||(500||)||(500||)|
|Total shareholders' equity||21,516||23,406|
|Total liabilities and shareholders' equity||$||26,031||$||28,083|
|eMAGIN CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (unaudited)|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Total revenues, net||5,533||7,034||12,534||13,023|
|Cost of revenues:|
|Total cost of revenues||4,198||4,426||7,864||8,055|
|Research and development||1,499||1,028||2,802||2,013|
|Selling, general and administrative||1,993||1,640||4,003||2,686|
|Total operating expenses||3,492||2,668||6,805||4,699|
|Income (loss) from operations||(2,157||)||(60||)||(2,135||)||269|
|Other income (expense):|
|Interest expense, net||(10||)||(11||)||(20||)||(21||)|
|Other income, net||3||5||5||6|
|Total other income (expense), net||(7||)||(6||)||(15||)||(15||)|
|Income (loss) before provision for income taxes||(2,164||)||(66||)||(2,150||)||254|
|Provision for income taxes||—||-||—||—|
|Net income (loss)||$||(2,164||)||$||(66||)||$||(2,150||)||$||254|
|Less net income allocated to participating securities||—||—||—||59|
|Net income (loss) allocated to common shares||$||(2,164||)||$||(66||)||$||(2,150||)||$||195|
|Income (loss) per share, basic||$||(0.07||)||$||—||$||(0.07||)||$||0.01|
|Income (loss) per share, diluted||$||(0.07||)||$||—||$||(0.07||)||$||0.01|
|Weighted average number of shares outstanding:|
|Three Months Ended||Six Months Ended|
|June 30,||June 30,|
|Net income (loss)||$||(2,164||)||(66||)||(2,150||)||254|
|Depreciation and amortization expense||399||377||814||703|
|Provision for income taxes||-||-|