Wednesday, August 19, 2015

AR Glasses Company CastAR Lands $15 Million Investment Led by Android Co-founder’s Firm

Edited Transcript of EMAN earnings conference call or presentation 13-Aug-15 8:45pm GMT

Andrew Sculley, eMagin Corporation - President and CEO [3]
Thanks, Paul, and thanks, everyone, for being on the call today. I'll begin with some corporate remarks, then turn it over to Paul for the financial results, and then I'll have some additional remarks before we open the call up to questions.
We've discussed augmented reality, or AR, and virtual reality, VR, displays with companies working in these spaces. We continue to get positive feedback on how our display technology will fit the requirements. We've given proposals to Tier 1 companies on displays that we believe will meet their future needs.
To give you a sense for the interest, one of the companies in the space introduced us to a potential foundry manufacturing partner. And we have -- of course are having public discussions. These companies have a common viewpoint on the growth they expect in these markets.
This viewpoint is discussed in many reports on AR or VR, a simple online search will give you a large number, large numbers of headsets, therefore displays over the next five years or so.
All this translates to a potentially very high [micro] display revenue market for us. One firm is quoted often, they say the AR and VR market will grow to $120 billion and $30 billion respectively, by 2020. Now displays are only a component of that, but a very important component.
Two other research firms say there will be about 40 million units of virtual reality headsets sold in 2018, and that would require a mixture of 40 million pairs of micro displays/cell phone displays. Note that the micro displays are the displays that have the pixel densities required by these applications, and I'll mention a little bit more about that.
Before we build our -- built our new wide field of view headset, we helped a Tier 1 company with a study on virtual reality headsets for gaming. We used two earlier headsets for eMagin, one cell phone display headset that's popular in the news today, and an entertainment headset for the study.
One eMagin HMD was built for U.S. Army medical training and the other one was built for simulation and training for the military, so they are not built for the gaming space. But they do give us or have given us a good comparison. The cell phone display HMD had a wide field of view, which was good for the gamers in the study. However the gamers could see the pixels and the spaces between them. This is the so-called screen door effect. And they complained that this was distracting.
I think you can imagine the gamers are used to playing games with the TV or PC monitor, and on those, unless you are sitting right up next to them with a magnifying glass, you can't see the pixels or the sub- pixels. The gamers' comments on the older eMagin HMDs that use our micro displays were that the displays were outstanding, they were one of VR headset needs.
However, the field of view is about 60 degrees or so, and that needs to be increased. So they like the cell phone headset for the field of view, and with these comments that's why we built the new virtual reality headset. It has both a wide field of view and uses our 2,000 x 2,000 displays, which means 4 million pixels. And that's four times greater than the cell phone display headsets.
We are on a path now towards full productization of the headset, we are reviewing the product specs, industrial design, the optics, the electronics, with a goal of ensuring its suitability for volume production. We are also enhancing the existing prototypes to make them ready for a potential appearance at the Consumer Electronics Show, and that's CES that will be in January 2016.
The HMD group continues -- this is our team -- continues to demonstrate the headset that conferences, press interviews and with potential partners, and this is receiving very positive reviews. Markets -- these markets are very exciting for us from both a display and a headset point of view. Now we've heard about cell phone companies working on higher density pixels, as I'm sure you are, you've heard, the current cell phone displays and the VR headsets have gaps between the sub-pixels that are 25 times bigger than the gaps in that, between our sub-pixels. And that's where the screen door effect is seen.
And that's why, when the display is magnified, the individual sub-pixels can be seen as well. So our displays are built to be magnified. And that's why the Tier 1 companies are talking to us about the next generation.
Now I've been working on OLED displays for the last 15 years. The first half of those years were for direct view displays, i.e., the ones that you use in the cell phone or a digital camera, or TV, etc. In my group we had a joint venture that installed two large OLED deposition machines, brought them up to manufacturing and manufactured displays for digital camera backs, camcorders at that time as well.
And so I know it's going to be very difficult to use one of those displays as they are manufactured today by those who are manufacturing, i.e., Samsung or LG, to reach the desired pixel pitches for augmented reality and virtual reality requirements. And the other thing to note is that for virtual reality, you also need small size. You can't use a big display.
And so that means micro-displays will absolutely be there. Now our micro-displays are designed for HMDs, they have the resolution, pixel density, the high-speed low-power consumption, high contrast and large dynamics range that's needed for these applications.
Power for AR is extremely important. You may recall the best-known AR glass product so far needed to be recharged after two hours of continuous use. And we know this because one of our guys wore it during a ski trip. That's too short.
Our HMD group knows both the AR and the VR markets very well, and we've hired some people who know those markets very well, and we believe our HMD and the displays will play a significant role here. We've discussed with Tier 1 companies what we need to do in these markets.
It's worth mentioning cost here. I know I said that before, but we've explored the changes we need to make the cost reduction. And the easy example is that our displays are built today for military purposes, and that means they have to go through minus 40 degrees Celsius, which is minus 40 degrees Fahrenheit to plus 70 degrees Celsuis, or 158 degrees Fahrenheit. And this is not necessary for both the industrial or consumer markets.
We've taken creative effort here to see what cost reduction ideas we can make by changing the displays so they don't fit these military requirements. And we are pleased with what we've come up with, filed IP on what we've come up with, and we talked to potential customers who are interested in these lower cost displays.
In addition, for potential customers we are working on plans which show how we can scale up to higher volume production for micro-displays in this consumer space. And we have their attention. And they of course have ours.
For the AR market the Tier 1 companies told us the brightness is important. Enhance our program on high brightness full-color displays will serve us well here. It's because the AR device may be used outdoors, which would require high brightness -- higher brightness than of VR HMD, and that's because you are fighting sunlight outside.
I should note here that the consumer AR market may not require the same brightness as what we are doing for military avionics, and in addition, many industrial uses will be indoors, a warehouse for example, and have many examples of that. And many of these requirements we can meet today with our displays that we have.
Higher full-color brightness can be reached with our direct patterning technology, so we have a path even for the very high brightness requirement.
The highest brightness requirements come from the military avionics uses, and I'll speak a minute on how we are progressing on this contract, is very important to us. We can reach the desired luminance for monochrome displays today for full-color ultrahigh brightness program to deliver the needed brightness. We continue to make significant progress in this program.
You may recall the goal is 10,000 nits, or candelas per meter squared, full-color micro-display. And as a comparison, as I mentioned before, we measured a popular cell phone, dialed it up to full brightness, and measured it at 450 nits.
And we will accomplish the 10,000 nits by two methods. One is direct patterning, the OLED layers in very small pixel sizes, and very small gaps between the pixels and we've demonstrated we can do that. Everyone's really happy with us who is funding us. Plus we have a program to enhance the OLED stack to make it more efficient.
For our first efforts at directly patterning full-color displays we reached 6,500 nits, that's enormous for us, and we are very happy with our results. And for the effort to improve the efficiency, we've done a significant improvement as well. So the combination we are not quite at 10,000, but we feel comfortable that we are going to get there.
We are also part of the program with the government is to improve the manufacturing readiness of the displays and we are working very diligently on that as well.
The final program for these funded efforts is for more efficient silicon backplane, and this will give us a balance of 30% reduction in power. Obviously very important for multiple display applications. These programs are multi-year, they sort of [date] with various -- depending upon which one, but they were all around the middle of 2014, some a little later. And the largest dollar value, the MedTech program, is scheduled to go over 30 months.
These are multi-year programs. So, they will be very good for our revenue as well.
Just in a summary statement the programs will give us full-color displays with about 10,000 nits brightness, and again that's more than 20 times brighter than your smart phone. Plus the silicon backplane that gives us 30% less power.
The power consumption displays will be significantly better than our current displays when we run at the same luminance even without the new backplane. And this is a very impressive improvement in our technology. The funding of the program of $6.8 million helps us move this more quickly.
So on the avionics market, just to talk for a minute about specific revenue for that market, we've designed a new display for a customer. And we have a second customer who wants us to modify a current display, we are actually pretty much done with both of those. And the customers funded those respective programs, now we are selling displays to them for their military HMD qualifications. So they're going through testing and once that passes we will have volume sales to them. And we do expect these customers to win the programs.
In many respects, this market is the most demanding one. It requires augmented reality and bright sunlight, and both augmented reality and night vision in lowlight, with very high contrast of our OLED displays are what brought these customers to us in the first place. The example here is the Navy pilots landing at night needed much higher contrast than what the [all costs] or LCDs can provide.
have a gentleman in our group, Doug Hughes, who has worked -- he's a former Navy ship captain who is an expert here on the items issues with jet landing at night. He let me see a video that you can actually find it on the web, of what this is like landing a jet at night on the back of a carrier. And I have to agree, they do need our OLED displays.
We've sold the displays for qualifications, they are very high brightness monochrome displays. That's what we are selling today. The green (technical difficulty) 20,000 nits or 40 times brighter than your smart phone.
And beyond military avionics, one company is working on using micro-displays for commercial helicopter fixed wing pilots. And this is a much bigger potential market for us.
We have discussed augmented reality and virtual reality displays with companies -- sorry about that. I think now I'll turn the call back over to Paul to take you through our second-quarter financial results, and then I'll follow up with a few other comments.
Paul Campbell, eMagin Corporation - CFO [4]
Okay, thanks, Andrew. We had a good quarter financially. So let's start with the income statement. The revenue on the second quarter was $7 million. That was up 17% from quarter one. Nice increase there. and it was equal with quarter two last year. So, quarter over quarter, we were $7 million each quarter.
And $7 million in total revenue equals our highest revenue quarter in the past eight quarters. So on both measures, it was a good quarter for total revenue.
Breaking it down, product revenue was $5.4 million, and that was down from Q2 last year. We did ship fewer displays, but we had a rather strong comparative of $7 million in product revenue last year. And that $7 million was the highest product revenue in the past eight quarters. So it was a tough comparison. Average price was nearly the same in both quarters.
Moving on to R&D contract revenue, that increased very strongly this quarter to $1.6 million from only $62,000 in Q2 last year. This increase is due primarily to the work completed so far on the multi-year R&D contract awards that Andrew just mentioned that we received in 2014.
As you probably know, most of our contract revenues are comprised of US government-related spending. We have reported previously how we believe the R&D funding from the government has been impacted by sequestration and budget issues over the last couple of years. And if you look back two years prior to 2013, our R&D contract revenue ranged from about 15% to as high as 22% of total revenue.
Past couple of years we recorded revenue -- R&D revenues of less than 1% of revenue for Q1 and Q2 last year, and then when we got the new awards midyear, Q3 grew to 9% of revenue and then Q4 was 16% of revenue. Q1 2015 was about 15% of revenue and now Q2 is a strong 23% of total revenue.
So this is a very positive dynamic for us to have this strong R&D revenue coming back to us, and it really helps cushion the ebb and flow up and down of the display revenue. So, we are very happy about that.
Gross margin for Q2 improved to 37% from 31% in Q2 last year. And the gross margin increase was due primarily to the large boost in gross profit from the R&D contract revenue and also to lower manufacturing costs.
The R&D gross profit contribution this quarter was $715,000 or 44% of R&D contract revenue. It's a pretty strong percentage on a fairly big number.
On the product side, the yield in Q2 improved from Q2 last year and labor costs were a better control than last year as well.
Looking at operating expenses, these are comprised of internal non-funded R&D expense, and selling, general and administrative expense or SG&A. R&D expense for the second quarter decreased about 28% from second quarter last year to about $929,000.
The decrease was due to more of our R&D expense going against the funded R&D contracts as cost of goods sold for those contracts. And this decreased our non-funding -- non-funded internal R&D expense. And this is one of the positive effects that we get from having a large amount of R&D contract revenue is we offset more of our expense and it helps profitability.
This dynamic we should see continue, going forward.
SG&A expenses for the second quarter were $1.7 million, down from $1.9 million in Q2 last year. We did reduce our allowance for doubtful accounts by about $96,000 as we made more progress with a slow-paying customer.
Salaries and benefits, rent and non-cash comp were all lower than last year. And these expense reductions are driven by having fewer people in the Company. Issuing fewer stock options. And we renegotiated lower rents on all three of our facilities since mid-2014.
So we had some very strong expense reductions, and these were offset somewhat by increases in expenses for headmounted display, depreciation and travel. But still, overall, we were down in SG&A expense by about $200,000.
Operating loss for Q2 was $60,000, and EBITDA cash flow was a positive $421,000. This EBITDA is quite a strong improvement of about $1 million over EBITDA in Q2 last year. The year over year up strongly in EBITDA.
Taking a look at the balance sheet, June 30 cash balance was about $5.4 million and it was $6.7 million in March 31. We did have the good positive EBITDA cash flow in Q2, but this was offset by some investment into equipment and an increase in our inventory.
We continue to have no debt, and we haven't done any equity raises since 2008, which you all know, which I say every quarter. But I think it's important to note that we haven't suffered any dilution due to these kind of equity transactions in the last 6.5 years.
And finally, regarding our guidance for 2015, based on current and forecasted market conditions, expected orders and current backlog, we affirm our previous guidance that we expect revenues will total between $26 million and $29 million for the year.
I'll turn it now back over to Andrew.
Andrew Sculley, eMagin Corporation - President and CEO [5]
Thanks, Paul, and I just have a few other summary points.
As you all know, the military is very important to us. Our display order books are very high this quarter from the military customers, and that includes a number of new international orders that we are very pleased with. Places that we haven't gotten orders before.
So this helps us out with the -- we have some old programs slowing down like the print soldier [modernization] program, we have lower orders in that in some of the US programs, but the higher order books feel good to us because we know that we are some new programs. So that suggests -- that says to us that the new ones are moving forwards. Moving us forward towards higher volume.
Our high brightness R&D work is progressing very well, we delivered direct pattern WUXGA displays in second quarter. And this is important because it delights the US military funding us here, and it moves us to be first in line when companies need avionic displays for evaluations.
That's why they come to us and that's why we built those -- that one modification display. We -- and right now we are still selling for monochrome high brightness, but when the color is good for nearing 10,000 nits we will also be selling to the military aviation for that.
One unique thing this quarter, we delivered a subsystem to DARPA for their computational weapon optic program. And actually participated in live fire DARPA demos for VIPs. This was reported in the press, it was in, so you can take a look at a very interesting new article. And our displays of course performed very well there.
The AR market is a high potential for us. Our HMD group believes the AR space is likely to get a good start in the industrial segment, we have some people who have done this before. And that will be a lower volume and higher prices, which is a good place for us to start. That looks more like our current business.
The VR market can be best satisfied with a pair of micro-displays, and I remind you that some of the Tier 1 companies were interested in working with us on our technology for these headsets. And we are putting a lot of effort in this and gaining some traction.
Work on our VR HMD is progressing and we are planning show it in CES in January. And we are on track to do that. So those are just some things to take away.
I'd like to use that to complete these formal remarks, and then I will open up the call for questions.

D--Request for Information- Games for Training (GFT) Next Generation Game (NGG)

This is the Program eMagin CEO Sculley joked he could not name without it costing him his life...

to be fielded en masse (that means a lot) as early as next year.

.@CERDEC researchers set their sights on super vision for #soldiers

— SIGNAL Magazine (@signalmag) August 19, 2015 ">

2 Shares Traded

maybe Wells Fargo is getting back in...

Gartner Hype Cycle (VR Mass Market 5 Years Out)

A Jaundiced View of Gartner's Latest Hype Cycle Report

eMagin Upgraded to Buy by Zacks (EMAN)

Monday, August 17, 2015

Maria Sharapova - Best grunting award winner

Another crazy Russian (professional grunter) in a giant Virtusphere, just turn the audio waaaaaay down

"Morning Brad, Morning Angelina"

Time to pivot from Oculus as a VR Headset to Oculus as a device that is able to quickly contract abdominal muscles in order to speedily expel stomach contents, call it OculusRX


per AS CC remarks. Skylens when pictured showed a pilot flying a small aircraft fixed or rotor, I believe, Elbit and eMagin are thinking much bigger than that, AS on the call mentioned the HUD would not be used while on auto-pilot or while the crew was eating a meal, that tells me they are aiming for long haul airlines and their ilk.

The Oculus Brain Trust is truly "The World's Foremost Authority"..Oculus Not Too Keen to Pursue Augmented Reality (Because your pursuit of Virtual Reality has been a bust thus far?)

"Any last requests, Dramamine? Barf Bag? Ginger Snap?"

Job Review Reduced: eMagin Corp. - Work is hard, so are floors

emagin ”

Former Employee - Anonymous Employee in Bellevue, WA
Neutral Outlook
No opinion of CEO
I worked at eMagin (Less than a year)
Very exciting work. New technology. If you like to work hard it is very rewarding. Miss the place.
Some very long hours. But that I what it takes to get ahead in the world. Lots of walking around on hard floors.
Advice to Management
Must keep employees in the loop as to what is happening in the industry and in the Fab.

How Snapdragon 820 will Bring Virtual Reality to Masses

Friday, August 14, 2015

I like Brendan's hypotheses of Oculus playing Matchmaker

THEY more than anyone have the most to lose if they do not get it right. Without being able to solve the simulator sickness problem, vergance, screen door etc Zuckerberg's $2 Billion investment could go poof. The other circumstantial bit that occurs is that from the first mention of Michael Schwandt's Focus Group with the Rift Oculus has been mentioned by name on a number of Conference Calls. I cannot remember any other device eMagin actively compared  themselves with, Display types,  LCOS, LCD,yes but not devices with a Brand Name.  Smoke/fire scenario.  And yes the EAR99 State Dept rationale of allowing eMagin's VGA displays exported to non-embargoed countries is because VGA displays are available elsewhere.

DARPA CWO - Computational Weapon Optic (eMagin Display Inside)

eMagin !0-Q

Sounds like this CC was broadcast from an Airplane Hangar

DARPA/eMagin Collaboration on "One Shot" or Computational Weapon Optic

knocks out any and all contenders for a similar Weapons Sight i.e. Kopin's PATS System.

eMagin Announces Second Quarter 2015 Financial Results Cash Flow Improves

Thursday, August 13, 2015

Good Luck to the Good Guys This PM

Have to go climb a mountain where there ain't no eMagin CC.  Send up some smoke signals.

Wednesday, August 12, 2015

Monday, August 10, 2015

Intelligent Decisions

HTC Vive headset to stage John Wick virtual reality game

John Wick House Shootout HD 1080p Action Scene

The promise and perils of using Fresnel lenses

Mark Skwarek (NYU Media Lab) - Augmented City of the Future at AWE 2015

It's efficacious! ..High efficacy seal for organic light emitting diode displays (eMagin-Ghosh/Vazan)

High efficacy seal for organic light emitting diode displays

A high efficacy multi-layer seal structure formed on an organic light emitting diode device and the process for depositing the same. A thin film seal is formed over the substrate having OLED layers, and includes a first metallic layer formed over the substrate, an inorganic layer formed over the first metallic layer, and a second metallic layer formed of the inorganic layer. The metallic layers comprise one or more oxide or nitride layers, each oxide or nitride comprising a metal. The inorganic layer comprises a metal oxide, a metal nitride or a metal oxynitride. The process for forming the multi-layer seal structure includes depositing the first metallic layer over the substrate using atomic layer deposition, depositing the inorganic layer over the first metallic layer using sputtering, and then depositing the second metallic layer over the inorganic layer using atomic layer deposition.

Will Virtual Reality Headsets Transition from Gaming Accessories to Cybernetic Devices?

Saturday, August 8, 2015

Kopin apologists attempt to pluck a Rose and get shredded by thorns, brutal (recent comments)

"Can we at least keep our Night Vision Goggles?" "No, hand em over."
Not Dorky

Debate Rages Over Whether Or Not TIME's Oculus Cover Has Killed VR...One article and Palmer Luckey consigns VR users to Glasshole status.

"His first Rodeo"

VIRTUAL REALITY IS ANYONE'S GAME...FOR NOW..."They are going in the Google Glass ‘glassholes’ direction and they are going to alienate people," Alexander told Fast Company. "Maybe [Luckey] didn’t deserve that cover, but I see the sentiment like, ‘Oh, those Silicon Valley guys buying up all of San Francisco now have a new toy. And it’s a little bit his fault, for not saying, ‘No, no, this is important’." "We have to quickly, quickly change the narrative."

Friday, August 7, 2015

bjr03001  5 hours ago 

This is why KOPN is down

If you remove the $3.8m one-time forecast revision payment and the gain on Recon sale then:
-revenue declined y/y and q/q
-operating loss was nearly $10m
-and gross profit went NEGATIVE

It was a terrible Q financially excluding one-time items. Terrible. It took pros a day or so to see that.

Fujijitsu was good news, yes, but you guys are caught up on revenue and profit items that WILL NOT RECUR next Q.

I own a bit of Kopin so I'm not bearish. But this was not a good Q once you break it apart into the recurring and non recurring pieces.

Reality is obscured by hyper promotional mgmt and hyper promotional seeking alpha authors. Less

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