eMagin Reports 4Q, Full Year 2012 Financial Results

eMagin Corporation, the leader in the development, design and manufacture of active matrix OLED microdisplays for high resolution imaging products, announced fourth quarter and full year 2012 financial results.

“Our leadership position in active matrix OLED microdisplays and manufacturing was further strengthened in 2012 with the introduction of innovative new products and technologies that are opening up new markets and driving the replacement market for existing LCD-based products. This is due to our displays’ superior performance characteristics, our extensive, broad line of microdisplay products and our ability to meet even the most demanding specifications,” said Andrew Sculley, president and CEO.

“We have continued to experience some delays caused by the repairs and modifications to our new OLED deposition tool,” Sculley continued. “Demand for our products remains strong. We expect to ship over $2 million of orders this quarter that were scheduled to ship in the fourth quarter, which will augment first quarter results. We have recently completed repairs on the new OLED deposition tool, and it is now operating at a higher pace than the company’s existing OLED deposition machine. We will continue to optimize the new tool up to its full potential and we remain confident that the greater capacity and production efficiencies to be gained from the new machine will enable us to better address our key markets, which involve a range of military, commercial, industrial, medical and consumer applications.”

Revenues for the fourth quarter were $8.3 million versus $8.0 million for the comparable period in 2011. Gross margin for the fourth quarter was 49% of revenue on gross profit of $4.1 million, compared to a gross margin of 49% the prior quarter and for the full year 2012. Gross margin for fourth quarter 2011 was 65% of revenue. The year-over-year decrease in gross margin was mainly attributable to higher costs for production, depreciation and labor as well as a lower average selling price.

Research and development expenses for the fourth quarter of 2012 were 14% of revenue compared to 12% for the prior year period, due primarily to the development of the new digital SVGA microdisplay. Operating income for the fourth quarter of 2012 was $0.9 million compared to $1.5 million for the same period of 2011.

Net income for the fourth quarter of 2012 was $1.8 million or $0.04 per diluted share compared to net income of $1.2 million or $0.04 per diluted share in the prior-year period. Adjusted EBITDA was $1.6 million in the fourth quarter of 2012, compared to $2.6 million in the fourth quarter of 2011.

For the year ended Dec. 31, 2012, eMagin generated revenues of $30.6 million versus $29.2 million for 2011. Display sales increased 11%, offset by a 22% decrease in contract revenue. Gross profit for the year ended Dec. 31, 2012, totaled $15.0 million versus $15.5 million for 2011. Gross margin for 2012 was 49% versus 53% for 2011 due to lower average selling price and higher production, labor and material costs.

Research and development expenses increased to 16% of revenue from 11% in 2011 primarily due to development of the new XGA and digital SVGA microdisplays and to having an in-house design group for a full year compared to 9 months in 2011.

Operating income for 2012 totaled $1.6 million as compared to $3.3 million for 2011. Net income for 2012 was $2.3 million or $0.06 per diluted share including a full year net tax benefit of $0.6 million. Adjusted net income was $2.3 million for 2011. Adjusted EBITDA for 2012 was $4.5 million versus $6.3 million in 2011.

During 2012, eMagin continued to fund its activities and the expansion of its business in military, industrial and consumer markets exclusively through cash generated by operations. At Dec. 31, 2012, the company had approximately $13.4 million of cash, cash equivalents and investments in certificates of deposit and corporate bonds, compared to $14.3 million at Dec. 31, 2011. During 2012, the company purchased $2.5 million of equipment and repurchased 125,000 shares of its common stock in the open market under its share repurchase program at a cost of approximately $368,000. In addition, during 2012 eMagin paid a one-time special cash dividend totaling $3.1 million, or $0.10 per share.

Recent Corporate Highlights:
• eMagin continues to see a significant increase in demand from both military and commercial customers for the VGA OLED-XL, which was released in early 2011. eMagin is in the final stages of completing an agreement with a new customer for a significant amount of revenue for a military program. Shipments are scheduled to begin in Q1 2013.
• Signed a contract extension with Sagem (Safran Group), Paris, France, for the exclusive supply of OLED microdisplays for the FELIN program. To date, eMagin has delivered more than 17,000 active matrix OLED microdisplays for FELIN, with an approximate 15,000 additional microdisplays to be delivered during the extended contract period.
• Secured a new consumer customer, Tracking Point, Inc., who markets a precision guided firearm, integrating hardware, digital optics and tracking technology to provide a higher quality sport shooting experience. Deliveries scheduled to begin in Q1 2013.
• Completed both phases of the WUXGA microdisplay program for the U.S. SOCOM on time during the fourth quarter of 2012.
• Continued deliveries to BAE Systems Oasys Technology for the U.S. Army Thermal Weapon Sight Remote Viewer. Approximately 12,000 displays were delivered for this program in 2012.
• Completed and finalized Phase I of the Navair program and initiated work on Phase II to complete a 2,000 by 2,000 pixel, very high brightness microdisplay for the US Navy.
• Successfully delivered on both contracts for the ENVG II program, which will continue through mid-2013. The program is expected continue in the second half of 2013 through 2014.
• Continuing to move toward release of the Digital SVGA (DSVGA) OLED microdisplay, which takes advantage of the improvements embodied in the company’s SXGA and WUXGA OLED microdisplays while adding a digital interface for improved contrast and pixel-to-pixel uniformity. Early samples have been sent to key customers.
• In 2012, the company developed two new microdisplay products, an XGA specifically for the camera viewfinder market and a digital SVGA which is an upgrade of our existing analog SVGA microdisplay. The XGA will allow us to enter the camera market with an effective, efficient display that meets requirements yet is more economical to produce due to its smaller size.
• eMagin is installing Eyelit’s MES system software platform to enable product traceability and precise manufacturing controls for the company’s complex processes that combine semiconductor and display technologies for its microdisplay business.
• Continuing work on direct patterning which when complete will result in displays with no color filters that are 4 to 5 times more efficient and can be much brighter than microdisplays using our current color filter technology. This will enable the company to better meet the needs of customers with very high brightness requirements.
• Continue working on the viewfinder application of our new XGA product with a large camera manufacturer. Good progress has been made in meeting the color gamut requirement and expected completion next month. First shipments could be as early as August 2013.

“We continue to see strong interest in our OLED microdisplays from a variety of existing and prospective customers. Our backlog of business remains solid. We are optimistic about our prospects for 2013 and expect improved performance as our new SNU machine becomes fully optimized,” concluded Sculley.

Based on current market conditions and scheduled shipments and deliveries under existing and expected contracts and purchase orders, the company expects 2013 revenue to fall within the range of $34 million to $39 million. First quarter revenue is expected to increase approximately 39% over first quarter last year to approximately $8.5 million.