eMagin Announces 3Q 2013 Financial Results

eMagin Corporation announced financial results for the third quarter ended Sept. 30, 2013.

“Demand during the third quarter remained strong, particularly from the military segment,” Andrew G. Sculley, president and CEO, stated. “In addition to completing deliveries of large numbers of displays for key programs, we strengthened our leadership position by advancing our technology development programs and making further investments in developing new processes that provide ultra-high brightness displays, a critically important attribute for a growing number of applications that are used in direct sunlight or daylight, such as wearable personal headsets.

“Fewer government R&D contracts due to the U.S. government sequestration and budget issues, increased labor requirements and additional time spent to install a fix on the new OLED deposition tool, prevented us from meeting our production and revenue targets for the third quarter,” Sculley continued. “In addition, while we solved a major design issue in August that resulted in improved performance of the tool, we experienced a part problem early in the fourth quarter and were forced to curtail production on the new tool for two weeks. This part has now been replaced but we believe our fourth quarter results will be impacted.

“With the design flaw solved, I am confident we will continue to see improvement in the new tool’s yield and output and we will address any further operational issues should they arise. In early October, Robert J. Kaizerman joined eMagin as vice president of manufacturing. His experience encompasses all aspects of operations, production, supply chain management, quality systems, manufacturing and engineering in entrepreneurial high tech environments. Robert has already made a number of valuable contributions to our operations and I’m confident he will continue to do so and help us drive the company’s growth.”

Revenues for the third quarter were $6.3 million versus $7.5 million for the third quarter of 2012. The decrease in revenues was the result of lower product and contract revenues. Although eMagin sold a similar number of displays in the third quarter of 2013 as compared to 2012, the different mix of products resulted in a decrease in product revenue for the quarter.

With respect to contract revenue, eMagin had two active contracts for the three and nine months ended Sept. 30, 2013, compared to 10 and 11 active contracts, respectively, for the three and nine months ended September 30, 2012. As noted above, the company believes that fewer R&D contracts are being awarded this year by U.S. government agencies, which are the main source of most of the company’s R&D contracts historically, due to the U.S. government sequestration and budget issues.

Gross margin for the third quarter was 35% on gross profit of $2.2 million compared to a gross margin of 49% in the same quarter last year and gross margin of 34% in the second quarter of 2013. The lower gross margin is due to a lower average price, higher material and labor costs, and also due to concurrently running both deposition tools this year compared to only the Satella deposition tool in the first nine months of 2012.

Pretax net loss for the third quarter of 2013 was $1,057,000 compared to pretax net income of $561,000 for the third quarter of 2012. Adjusted EBITDA for the third quarter was a loss of $247,000.

At Sept. 30, 2013, the company continued to have no debt and had approximately $13.1 million of cash, cash equivalents, and investments in certificates of deposit and corporate bonds, compared to $13.4 million at Dec. 31, 2012.

Due to ongoing constraints in U.S. government spending and certain manufacturing challenges, eMagin now expects its full year 2013 revenues to be similar to last year. However, based on current backlog, market conditions and anticipated improvements in production, the company expects to resume revenue growth in 2014. The Company’s backlog at Sept. 30, 2013 was approximately $14.3 million.