eMagin Corporation Reports 2Q 2023 Results

eMagin Corporation announced results for its second quarter ended June 30, 2023.

As previously announced, the company has entered into a definitive merger agreement with Samsung Display Co., Ltd., a subsidiary of Samsung Electronics Co., Ltd. and manufacturer and distributor of display products.

Under the terms of the agreement, all outstanding shares of eMagin common stock on a fully diluted basis will be acquired for $2.08 per share in cash, in a transaction valued at approximately $218 million. The purchase price represents a premium of approximately 10% to eMagin’s closing stock price of $1.89 on May 16, 2023, and a premium of approximately 24% to eMagin’s six-month volume-weighted average price of $1.68.

“Our definitive merger agreement with Samsung Display represents a pivotal moment for the company and we believe it is in the best interests of our shareholders,” said Andrew G. Sculley, eMagin’s CEO. “Our decision to enter into the agreement was not taken lightly and was reached only after careful consideration by our Board of Directors, including a formal and thorough review of strategic alternatives to maximize shareholder value and the solicitation of competing offers among eight strategic counterparties.

“The Board’s final and unanimous decision rested on a number of critical factors, including an expectation that the company would need to raise significant capital within the next year, which would be dilutive for existing shareholders. At the same time, the company needs to move quickly in what is a very competitive and fast-changing market for next-generation AR/VR solutions. As a result, we face significant execution risks related to bringing new equipment online and developing new markets for our products. Furthermore, there is a very small number of potential partners available with the technical expertise and resources needed to scale our technology.

“In its extensive and prolonged negotiations with Samsung Display, the board noted that the proposed transaction price would provide certainty and immediate value to eMagin shareholders, and that it represents a premium relative to eMagin’s pre-announcement share price and historical market prices. In the unanimous opinion of the Board, and on a risk-adjusted and time-adjusted basis, this outcome is more favorable to our shareholders than any other alternative reasonably available to us, including the continued operation of eMagin as a standalone company.

“While I am tremendously proud of our accomplishments to date, appreciative of the support of our loyal shareholders, and thankful to everyone at eMagin for their hard work in meeting the challenges we have endured by operating without a manufacturing partnership, I recognize that we have reached a critical turning point in the Company’s history. Our proposed merger with Samsung Display represents the best available outcome for eMagin and our shareholders.”

The transaction is expected to close in the second half of 2023, subject to the approval by eMagin’s stockholders and other customary closing conditions and regulatory approvals.

A special meeting of stockholders will be held virtually on August 31, 2023 at 9:00 a.m., Eastern time. At the meeting, eMagin’s stockholders will be asked to consider and vote on the adoption of the merger agreement. Until the closing of the transaction, eMagin and Samsung Display remain separate and independent companies. Following the closing, eMagin will maintain its operations and facilities in Hopewell Junction, NY.

Second Quarter Results 2023

Total revenues for the second quarter of 2023 decreased 31% to $5 million, compared with $7.2 million reported in the prior-year period.

Total revenue consists of both product revenue and contract revenue. Product revenues for the second quarter of 2023 were $4.9 million, a decrease of $2.1 million from product revenues of $7 million reported in the prior-year period. The year-over-year decrease in product revenue was primarily due to $2 million in orders that were unable to be shipped in the second quarter due to unexpected production downtime and lower than expected production yields.

Contract revenues were $0.1 million, comparable with $0.1 million reported in the prior year and reflecting the timing of phases and milestones of these contracts.

Total gross margin for the second quarter decreased to a negative 10%, resulting in a gross profit of negative $0.5 million, compared with a gross margin of 22%, which resulted in a gross profit of $1.6 million in the prior-year period. The gross margin decline was primarily due to production downtime, which resulted in a lower volume of displays produced, lower shipments, lower yields and higher average product costs resulting from factory overhead costs being allocated across a reduced quantity of finished and work in process displays.

Operating expenses for the second quarter of 2023, including R&D expenses, were $10.7 million, compared with $3.4 million in the prior-year period. Operating expenses as a percentage of net revenue were 215% in the second quarter of 2023, compared with 47% in the prior-year period. Second quarter operating expenses reflect legal and investment banking costs related to the negotiation and signing of the merger agreement with Samsung Display.

Net loss for the second quarter of 2023 was $11.2 million, or $0.13 per share, compared with a loss of $1.4 million, or $0.02 per share, in the prior-year period.