emagin\'s (eman) ceo andrew sculley on q1 2016 results - earnings call transcript
by：LCD Mall
2020-08-20
Emmanuel Corporation (NYSEMKT:EMAN)
4: 45 p. m. on May 12, 2016, etexecuesjeffrey Lucas-2016 Earnings Call
Sculley-
Dennis in van in Cerf
Brahsos research Tom mouse
Good afternoon, everyone from the big soldier Valley Asset Management operators. Welcome to eMagin\'s 2016 earnings conference call in the first quarter.
All the participants will be listening-only mode. [
Operation instructions]
After today\'s speech, there will be an opportunity to ask questions. [
Operation instructions]
Please note that today\'s event is being recorded.
At this time, I want to hand over the meeting to Sir.
Jeffrey Lucas, chief financial officer
Sir, please proceed.
Thank you, Jeffrey Lucas.
Good afternoon, everyone.
We are pleased that you are attending our first quarter 2016 earnings call today.
As always, before we start, please note that we will refer to the numbers in quarterly Form 10
Q for the quarter ended March 31, 2016.
At today\'s conference call, we may
Outlook statement as defined in the Private Securities Litigation Reform Act of 1995. These forward-
Forward-looking statements are based on the company\'s current expectations, forecasts and beliefs and are affected by some risks and uncertainties.
These statements include forecasts of future revenue, product development and production plans, the company\'s ability to increase production, future contracts, product benefits, references to operations, liquidity and capital resources, and statements containing words such as belief, expectation, plan, goal, etc.
Our risk factors are included in Table 10 of the company-
K submitted 2015 to the Securities and Exchange Commission.
We have no obligation to publicly update or amend any forward unless required by the federal securities law-
Find reports for any reason.
With this, I want to transfer the call to Andrew Sculley, emakin\'s chief executive. Andrew?
Thanks, Jeff.
In the first quarter, we further advanced our business in several areas and remained enthusiastic about the broad market applicability of our leading OLED technology.
Our revenue grew 17% year on year this quarter. over-
Including confirmation of $1 million from our commercial licensing agreement signed in the fourth quarter.
We are still encouraged by the company\'s potential display sales.
We have also made progress in our production and throughput improvement plans.
The comparison between 2016 in the first quarter and 2015 in the fourth quarter of the previous quarter showed a significant improvement.
Therefore, we are now able to improve our inventory levels more effectively than expected customer needs.
We also believe that it is possible for us to reduce unit costs as production increases.
These initiatives include replacing some of the older devices and continuing to support our statistical process control and best practices initiatives, examples of which are complementary procedures to review our major OLED deposition tools with operators.
We came up with the idea of a big cut this time.
These changes are now part of our standard operating procedures.
In terms of business development, we have signed several notable, new and follow-up agreementsOrders in q1
We have two contracts for intensive nights.
Vision Goggle 3 is a weapon Vision Family individual or fws I for ENVG III and major general contractors, and we continue to support the qualification testing phase for both projects.
Each of these multi-year projects brings us millions of dollars in revenue, and as we move into the production phase of the project in 2017, we expect to start recognizing that.
We are working with a number of major contractors to provide suggested IPs and display solutions for our crew of weapons targeting family, FWS, CS and sniper or S differential services.
We also received a contract with the general contractor of the laser ranger finder system and we delivered the gun during the production phase.
We have three new R & D projects in q1, worth over $800,000.
The focus of the first project is on our direct mode, continuous improvement of ultra-high brightness technology.
The second focus is to develop a new display backplane with electronic features with low power consumption and high frame rate attributes, which has a lot of demand in both the military and consumer markets.
The new backplane will be used in the defense and consumer headphone market.
The focus of the final project is to build display samples that provide further display technology for consumer VR headsets.
In this new display technology, we are working with a virtual reality headset company.
We received production orders for two new projectsS.
Marine Corps applications and one other large Asian company used our WUXGA Full color display in the new product.
We shipped the new version of the WUXGA micro-display product to the customer and the qualification schedule will be completed by July 2016.
Our discussions with potential high volume manufacturing partners continue.
These are complex negotiations, and each one takes a lot of time.
So we will update you when we have something clearer.
During Q1, our R & D investment has enabled us to make steady progress in the development of very high brightness displays.
The final result of our work resulted in the display, which we recently completed over 4,000 candela per meter square or net measurements.
Recall that your smartphone may be less than 500 of the market segment, which is significantly higher than the minimum level we are told we need an important augmented reality prospect.
We are crossing the threshold of brightness to really introduce augmented reality technology into the mainstream business market.
The demand for OLED here is power and high contrast.
This landmark is also on the road needed for our next generation of Avionics Full color displays.
Here, the demand for OLED by helicopter or aircraft is in contrast.
In fact, the poor contrast of the LCD display is the reason why the Navy requires the development of a bright monochrome OLED display.
The step we are doing now is to highlight the color.
We completed the key product development of the WUXGA display in April.
This is the resolution of 1920/1200;
This work is to improve the operation and manufacturing of the display.
They are ideal for both augmented and virtual reality applications as well as avionics applications.
The 2k x 2k display enhancement program for developing full color displays for the consumer virtual reality market continues to make substantial progress.
We hope to provide prototype samples to our customers in the fourth quarter.
This is important for our vr hmd and anyone who wants a similar vr hmd with 4 million pixels per eye.
Recall that the current HMDs have about 1 million pixels per eye.
We also want to build a prototype display of 35 by 35mm, and we can design a display with a resolution of up to 4,000 by 4,000.
We are discussing this presentation with potential casting partners and we will make this recommendation to six possible customers looking for this type of presentation.
Our clients who have discussed this exhibition are very interested in our proposal.
This is a long term project because we are excited about it so we would like to give you an update today.
Before transferring the call to Jeff to discuss financial issues, I would like to give a brief comment on two key topics;
One of our military operations and two are moving into a whole new area of revenue.
The first is the military business, the overall temple of our military business is still the most risky, especially the development of new products.
During the quarter, we received additional positive reviews from ongoing eMagin oled military avionics testing.
Since the beginning of the second quarter, 2016 eMagin has delivered the display for installation in two other aircraft helmet prototypes.
We are working closely with the major contractors and integrators who provide the required support.
We continue to receive signs that our oled will be selected for production applications in 2016.
In terms of revenue, while military sales remained stable during the quarter, we believe that future growth will be greatly driven. When new projects that are currently being qualified enter the production of next-generation technologies, such as the new helmet prototype I just mentioned or the ENVG III and three weapon targeting project families.
We work closely with the United States on military contract research and development. S.
In designing the next generation of requirements and specifications, governments and international companies have placed us in a position of favor in obtaining these new production contract vehicles.
In general, we believe that the scope of eMagin\'s operations in the domestic and international military markets is still quite extensive.
In terms of expanding the terminal market, we have carried out product design and development in HMD group, using OLED technology in headset and mobile device format.
We are confident that our product development efforts will generate revenue for this new segment within the 2016 calendar.
As we progress throughout the year, we look forward to updating you with more detailed product release information.
With it, I will give it to Jeff.
Thank you, Andrew.
When it comes to the company\'s financial performance, I will start with the profit and loss statement for the first quarter.
Revenue for the first quarter was $7 million, up 17% from the same period last year, including $1 million in licensing revenue from the agreement signed in December.
$5 in product revenue.
3 million is up 4% from last year.
The increase in product sales reflects the increase in the average unit price, which is partially offset by the decline in sales.
The increase in unit prices is mainly due to the customer\'s purchase of more product portfolios of the company\'s technically advanced macro displays.
Contract revenue was about $700,000, down 20% from the same period last year.
The lower revenue for the quarter reflects the late submission of a key R & D contract, which will be executed in the second quarter rather than the first.
Turn to profit.
Gross margin for the first quarter was $3 and gross margin was 48%.
3 million, while gross profit was $ 39%.
4 million in the first quarter of last year.
Excluding the profit contribution of license income without associated revenue costs for this quarter, the gross profit margin for the first quarter will be 39% comparable to the previous year quarter.
Compared with 38% in the previous year, the gross profit margin of the product was 40%.
Our rate of return is slightly higher than the rate of return in 2015, significantly higher than the rate of return in the last two quarters of 2015.
The increase in production was offset by an increase in production costs this quarter, resulting in an annual declineover-
Annual profit margin comparison
The gross profit margin for contract revenue was 46%, compared to 35% in the previous quarter, reflecting projects that we performed in the quarter with lower distribution of R & D expenses with higher profitability.
In terms of expenditure, the total operating expenses for the first quarter increased to $3.
It was $3 million a year ago and now it is $2 million.
The proportion of R & D expenses increased by about $320,000, and SG & A accounted for the balance.
R & D costs increased by 32% in the quarter to $1.
3 million, $903,000 in 2015.
This is due to the high cost of materials and the lower cost of R & D expenses allocated to contracts
We invest in specific projects for HMD product development.
SG & A costs $2 million in the first quarter, compared to $1 million in the first quarter of last year.
The quarterly expenses of the previous year included a favourable adjustment of approximately $500,000 to reduce the allowance for suspicious accounts, as well as a reduction in employment leave accrual due to changes in policy at that time.
SG & A fees for the first quarter of this year reflect higher personnel costs including our HMD group, higher legal costs than last year\'s administrative transition costs.
Adjusted EBITDA in the first quarter, excluding non-
Compared to $606,000 in the previous year, cash stock compensation costs were $873,000.
Operating income in the first quarter fell to $22,000 from $329,000 in the first quarter of last year.
For the purposes of the comparison, please keep in mind that the adjusted EBITDA figures from last year include the benefits of the $500,000 discount adjustment, although these adjustments are non-cash items.
On the balance sheet, our cash and cash equivalents were $9 as of March 31, 2015.
1 million, $9.
End of 3 million.
Our inventory levels in March 31 were down by about $240,000 over the same period last year, but increased from December 31, reflecting higher gains from our selective construction --
Meet expected requirements and shorten customer response time.
We continue to have no outstanding debts.
Finally, with regard to our thoughts on 2016, we are confident in our position on the next generation of military contracts that we are currently reviewing.
As Andrew mentioned in the earnings release, we have set several key goals to further drive shareholder value, putting the potential implementation of our leading display and headset technologies into new business and consumer goods
We hope to make progress in these business development plans while achieving stable revenue performance in the short term.
We continue to thank you for your support.
We are pleased with the progress of 2016 and are excited to expand the market and increase our chances of leading OLED technology.
With this, I will hand it over to Andrew for final comment before we answer your question.
Thanks, Jeff.
Before we start the Q & A, I just want to reiterate that we are laying a solid foundation for our future growth.
Our technology is leading and continues.
We have a strategic roadmap for our R & D and believe in our OLED micro
Display technology and products have been ahead of the competition for many years.
I believe that 2016 of the market share will be a year when we are really starting to see the consumer market commercialized.
With this, I will transfer the phone to the operator and start the Q & A session. Question-and-
Thank you.
Let\'s start asking this question now. and-answer session. [
Operation instructions]
Our first question came from Dennis van zerfden, a Brazilian research firm.
Good afternoon, Andrew and Jeff.
Andrew Scully Dennis
Jeffrey Lucca Dennis
Dennis van selfden have you completed the installation of the press release and all the manufacturing and production-increasing machinery mentioned in the previous phone call?
Andrew SculleyNo, there are a lot of things, three of them are very important and take some time.
So what we are doing and have done a lot of smaller things, it takes a little time for the three more difficult things.
For example, we have a tool alignment order, which is a more expensive tool of about $1 million that will not end until later in the new year.
Dennis van Zell Clindamycin Phosphate for InjectionSo we can --
But even if the rate of return increases gradually in the future, we may still expect to continue?
Andrew SculleyYes, we\'re talking about two things.
One is the production on the equipment side, but the downtime is also a problem, one tool I just mentioned is about $1 million, there are two similar tools that can perform different processes, we can run both processes in another tool when one tool is down, but this takes time to implement.
During this time, it will cut your production by more than half, and the production will be damaged.
So this is the little things we are doing.
So throughput is also very important.
I may have mentioned other things about statistical process control and some other best practices, which in fact also brings some huge improvements that will continue.
Jeffrey Lucas by the way adds to Andrew\'s comments that we are constantly increasing production, and the plan we are implementing here will take at least 12 months to unfold.
So there\'s a lot going on over the next year, year and a half, and you\'ll see further improvements.
12 months later, Andrew Sculley also saw significant progress, which is our goal.
Dennis van Zell Clindamycin Phosphate for Injection nice.
OK, but you also mentioned the increase in production costs, is it people, does there be more engineers running these things, or is it just . . . . . .
One of them is the wafer problem we have encountered, so these wafers are not available to us.
On the other hand, we do have some chemicals that cost us a lot more, but in this case, no more people.
However, we are looking for some key positions to increase the production of improvements and throughput improvements faster.
Jeffrey lucaso, some of the higher production costs for this quarter are unique for the quarter that just happened and won\'t repeat, but adds Andrew\'s point of view, we did not make some additions in terms of engineers and technicians.
This will help our production and throughput, which will lead to an increase in the overall production cost, but the unit cost will decrease as the output increases.
Dennis van Zell Clindamycin Phosphate for Injection
The last question is that the amount of USD you recorded in R & D and SG & A this quarter is about what will happen to them in the future?
I understand Andrew Sculley.
We mentioned in the script that we are going to launch an important product and we expect some revenue this year, which actually creates some product development costs in R & D and SG & a.
The higher legal fees that Jeff mentioned, we have a lot of intellectual property fees in this regard.
As a result, some of them will not last, but some development costs will continue.
Jeffrey Lucas, as we mentioned there now, there is a non-
Recurring costs or their administrative transitional costs.
We have a very concentrated operation here.
Outside of Seattle, we\'ll take them--
Bring this function to the proper junction where we have manufacturing, production and business development and sales functions.
So there will be some non-
We will also see recurring costs in the next quarter or two.
Dennis van Zell Clindamycin Phosphate for InjectionThanks guys. Good luck.
Thank you, Andrew Sculley. Operator[
Operation instructions]
The next question comes from Tom Rat of soldier Valley Asset Management.
Tom Lacey, Andrew and Jeff.
Andrew Sculley, Tom.
Tom Latty, just a couple, first of all, I want to follow up on Dennis\'s previous questions about yield and gross margin.
So, from the whole discussion, it sounds like we should see a sustained slight increase in gross margin over the next few quarters, is that fair?
Yes, this is our plan. Tom RatOkay. Great.
Then the new revenue section you\'re talking about is related to the display.
Only income, or is this more relevant to your HMD?
Andrew SculleyIn\'s case. We mentioned it was from the HMD group.
So it does have Display and other components. Tom RatOkay. Great.
Then you make a statement about the update on your mass manufacturing partner efforts, and it sounds like you really don\'t want to talk about it, but I think it might indicate that you are getting closer and closer to me, is this fair?
Zinc Citrate Tablets Andrew Sculley, yes, the word here is that it takes time for a loan to do something like this.
I just need to review my background and it takes a long time when we set up a Kodak and Sanyo joint venture to produce a direct view display using OLED technology, but we did a good job.
Jeffrey lucsi thinks the point we want to make is that we don\'t want to set expectations because these things are very complicated and unrealistic.
There are a lot of moving processes for them, they may take time, and we don\'t necessarily always sit in the driver\'s seat as far as the time is set.
So given that we are working with other companies that are much larger than us, they may have their own administrative and bureaucratic issues that need to be addressed.
We just don\'t want people to expect something to happen in the near future and in the near future, because it may take longer. Tom RatOkay. Got you.
Then my last question is on the 2k x 2k full color direct pattern display and you said again today that you will take it out and sample it in six months.
Does it sound like there are any technical barriers?
Andrew SculleyNo, let me clarify one thing and we will do two things about it.
First, it will be launched at the end of the year.
No technical barriers.
I am sure we are designing new silicon but it is very similar to WUXGA silicon.
Higher resolution, smaller pixel spacing, but let me correct one thing.
This monitor has the ability to use color filters and we can pattern them directly in the future.
So, I don\'t want to associate it with the direct pattern. Tom RatOkay.
So this is, use the color filter now?
Andrew SculleyNo, the reason I\'m saying this is because it\'s designed for virtual reality applications that are included.
So, you don\'t need a very bright display.
Otherwise, you can\'t stand your eyes.
But what I would also like to mention is that it is possible for us to use a direct pattern for it, but as you can recall, the Mantech project did not start preparing for manufacturing until 2017.
I don\'t want to leave the impression on anyone on the phone that this won\'t be done until the direct pattern making is done. Tom RatGot it. Okay.
I gave it to you.
Thank you for your time. Thank you.
Andrew Sculley, Tom. Operator[
Operation instructions]
No further questions, this will end the problemand-answer session.
I want to postpone the meeting to the closing words of Andrew Sculley.
Andrew SculleyI just wanted to thank you all. First of all, these questions are very good and helpful for us to be with us.
It will be an exciting time for us to show the world and the headset group.
So, I think it\'s a good time for us--
You should look for the Mark to tell us in a year. -
Tell you we\'re performing.
So, I just want to thank you very much.
Please keep an eye on what is going to happen and I would also like to thank the management team for doing a fantastic job.
So, thanks to all of eMagin, thanks to the shareholders until the next time.
The meeting is now over.
Thank you for attending today\'s speech.
You can disconnect now.
4: 45 p. m. on May 12, 2016, etexecuesjeffrey Lucas-2016 Earnings Call
Sculley-
Dennis in van in Cerf
Brahsos research Tom mouse
Good afternoon, everyone from the big soldier Valley Asset Management operators. Welcome to eMagin\'s 2016 earnings conference call in the first quarter.
All the participants will be listening-only mode. [
Operation instructions]
After today\'s speech, there will be an opportunity to ask questions. [
Operation instructions]
Please note that today\'s event is being recorded.
At this time, I want to hand over the meeting to Sir.
Jeffrey Lucas, chief financial officer
Sir, please proceed.
Thank you, Jeffrey Lucas.
Good afternoon, everyone.
We are pleased that you are attending our first quarter 2016 earnings call today.
As always, before we start, please note that we will refer to the numbers in quarterly Form 10
Q for the quarter ended March 31, 2016.
At today\'s conference call, we may
Outlook statement as defined in the Private Securities Litigation Reform Act of 1995. These forward-
Forward-looking statements are based on the company\'s current expectations, forecasts and beliefs and are affected by some risks and uncertainties.
These statements include forecasts of future revenue, product development and production plans, the company\'s ability to increase production, future contracts, product benefits, references to operations, liquidity and capital resources, and statements containing words such as belief, expectation, plan, goal, etc.
Our risk factors are included in Table 10 of the company-
K submitted 2015 to the Securities and Exchange Commission.
We have no obligation to publicly update or amend any forward unless required by the federal securities law-
Find reports for any reason.
With this, I want to transfer the call to Andrew Sculley, emakin\'s chief executive. Andrew?
Thanks, Jeff.
In the first quarter, we further advanced our business in several areas and remained enthusiastic about the broad market applicability of our leading OLED technology.
Our revenue grew 17% year on year this quarter. over-
Including confirmation of $1 million from our commercial licensing agreement signed in the fourth quarter.
We are still encouraged by the company\'s potential display sales.
We have also made progress in our production and throughput improvement plans.
The comparison between 2016 in the first quarter and 2015 in the fourth quarter of the previous quarter showed a significant improvement.
Therefore, we are now able to improve our inventory levels more effectively than expected customer needs.
We also believe that it is possible for us to reduce unit costs as production increases.
These initiatives include replacing some of the older devices and continuing to support our statistical process control and best practices initiatives, examples of which are complementary procedures to review our major OLED deposition tools with operators.
We came up with the idea of a big cut this time.
These changes are now part of our standard operating procedures.
In terms of business development, we have signed several notable, new and follow-up agreementsOrders in q1
We have two contracts for intensive nights.
Vision Goggle 3 is a weapon Vision Family individual or fws I for ENVG III and major general contractors, and we continue to support the qualification testing phase for both projects.
Each of these multi-year projects brings us millions of dollars in revenue, and as we move into the production phase of the project in 2017, we expect to start recognizing that.
We are working with a number of major contractors to provide suggested IPs and display solutions for our crew of weapons targeting family, FWS, CS and sniper or S differential services.
We also received a contract with the general contractor of the laser ranger finder system and we delivered the gun during the production phase.
We have three new R & D projects in q1, worth over $800,000.
The focus of the first project is on our direct mode, continuous improvement of ultra-high brightness technology.
The second focus is to develop a new display backplane with electronic features with low power consumption and high frame rate attributes, which has a lot of demand in both the military and consumer markets.
The new backplane will be used in the defense and consumer headphone market.
The focus of the final project is to build display samples that provide further display technology for consumer VR headsets.
In this new display technology, we are working with a virtual reality headset company.
We received production orders for two new projectsS.
Marine Corps applications and one other large Asian company used our WUXGA Full color display in the new product.
We shipped the new version of the WUXGA micro-display product to the customer and the qualification schedule will be completed by July 2016.
Our discussions with potential high volume manufacturing partners continue.
These are complex negotiations, and each one takes a lot of time.
So we will update you when we have something clearer.
During Q1, our R & D investment has enabled us to make steady progress in the development of very high brightness displays.
The final result of our work resulted in the display, which we recently completed over 4,000 candela per meter square or net measurements.
Recall that your smartphone may be less than 500 of the market segment, which is significantly higher than the minimum level we are told we need an important augmented reality prospect.
We are crossing the threshold of brightness to really introduce augmented reality technology into the mainstream business market.
The demand for OLED here is power and high contrast.
This landmark is also on the road needed for our next generation of Avionics Full color displays.
Here, the demand for OLED by helicopter or aircraft is in contrast.
In fact, the poor contrast of the LCD display is the reason why the Navy requires the development of a bright monochrome OLED display.
The step we are doing now is to highlight the color.
We completed the key product development of the WUXGA display in April.
This is the resolution of 1920/1200;
This work is to improve the operation and manufacturing of the display.
They are ideal for both augmented and virtual reality applications as well as avionics applications.
The 2k x 2k display enhancement program for developing full color displays for the consumer virtual reality market continues to make substantial progress.
We hope to provide prototype samples to our customers in the fourth quarter.
This is important for our vr hmd and anyone who wants a similar vr hmd with 4 million pixels per eye.
Recall that the current HMDs have about 1 million pixels per eye.
We also want to build a prototype display of 35 by 35mm, and we can design a display with a resolution of up to 4,000 by 4,000.
We are discussing this presentation with potential casting partners and we will make this recommendation to six possible customers looking for this type of presentation.
Our clients who have discussed this exhibition are very interested in our proposal.
This is a long term project because we are excited about it so we would like to give you an update today.
Before transferring the call to Jeff to discuss financial issues, I would like to give a brief comment on two key topics;
One of our military operations and two are moving into a whole new area of revenue.
The first is the military business, the overall temple of our military business is still the most risky, especially the development of new products.
During the quarter, we received additional positive reviews from ongoing eMagin oled military avionics testing.
Since the beginning of the second quarter, 2016 eMagin has delivered the display for installation in two other aircraft helmet prototypes.
We are working closely with the major contractors and integrators who provide the required support.
We continue to receive signs that our oled will be selected for production applications in 2016.
In terms of revenue, while military sales remained stable during the quarter, we believe that future growth will be greatly driven. When new projects that are currently being qualified enter the production of next-generation technologies, such as the new helmet prototype I just mentioned or the ENVG III and three weapon targeting project families.
We work closely with the United States on military contract research and development. S.
In designing the next generation of requirements and specifications, governments and international companies have placed us in a position of favor in obtaining these new production contract vehicles.
In general, we believe that the scope of eMagin\'s operations in the domestic and international military markets is still quite extensive.
In terms of expanding the terminal market, we have carried out product design and development in HMD group, using OLED technology in headset and mobile device format.
We are confident that our product development efforts will generate revenue for this new segment within the 2016 calendar.
As we progress throughout the year, we look forward to updating you with more detailed product release information.
With it, I will give it to Jeff.
Thank you, Andrew.
When it comes to the company\'s financial performance, I will start with the profit and loss statement for the first quarter.
Revenue for the first quarter was $7 million, up 17% from the same period last year, including $1 million in licensing revenue from the agreement signed in December.
$5 in product revenue.
3 million is up 4% from last year.
The increase in product sales reflects the increase in the average unit price, which is partially offset by the decline in sales.
The increase in unit prices is mainly due to the customer\'s purchase of more product portfolios of the company\'s technically advanced macro displays.
Contract revenue was about $700,000, down 20% from the same period last year.
The lower revenue for the quarter reflects the late submission of a key R & D contract, which will be executed in the second quarter rather than the first.
Turn to profit.
Gross margin for the first quarter was $3 and gross margin was 48%.
3 million, while gross profit was $ 39%.
4 million in the first quarter of last year.
Excluding the profit contribution of license income without associated revenue costs for this quarter, the gross profit margin for the first quarter will be 39% comparable to the previous year quarter.
Compared with 38% in the previous year, the gross profit margin of the product was 40%.
Our rate of return is slightly higher than the rate of return in 2015, significantly higher than the rate of return in the last two quarters of 2015.
The increase in production was offset by an increase in production costs this quarter, resulting in an annual declineover-
Annual profit margin comparison
The gross profit margin for contract revenue was 46%, compared to 35% in the previous quarter, reflecting projects that we performed in the quarter with lower distribution of R & D expenses with higher profitability.
In terms of expenditure, the total operating expenses for the first quarter increased to $3.
It was $3 million a year ago and now it is $2 million.
The proportion of R & D expenses increased by about $320,000, and SG & A accounted for the balance.
R & D costs increased by 32% in the quarter to $1.
3 million, $903,000 in 2015.
This is due to the high cost of materials and the lower cost of R & D expenses allocated to contracts
We invest in specific projects for HMD product development.
SG & A costs $2 million in the first quarter, compared to $1 million in the first quarter of last year.
The quarterly expenses of the previous year included a favourable adjustment of approximately $500,000 to reduce the allowance for suspicious accounts, as well as a reduction in employment leave accrual due to changes in policy at that time.
SG & A fees for the first quarter of this year reflect higher personnel costs including our HMD group, higher legal costs than last year\'s administrative transition costs.
Adjusted EBITDA in the first quarter, excluding non-
Compared to $606,000 in the previous year, cash stock compensation costs were $873,000.
Operating income in the first quarter fell to $22,000 from $329,000 in the first quarter of last year.
For the purposes of the comparison, please keep in mind that the adjusted EBITDA figures from last year include the benefits of the $500,000 discount adjustment, although these adjustments are non-cash items.
On the balance sheet, our cash and cash equivalents were $9 as of March 31, 2015.
1 million, $9.
End of 3 million.
Our inventory levels in March 31 were down by about $240,000 over the same period last year, but increased from December 31, reflecting higher gains from our selective construction --
Meet expected requirements and shorten customer response time.
We continue to have no outstanding debts.
Finally, with regard to our thoughts on 2016, we are confident in our position on the next generation of military contracts that we are currently reviewing.
As Andrew mentioned in the earnings release, we have set several key goals to further drive shareholder value, putting the potential implementation of our leading display and headset technologies into new business and consumer goods
We hope to make progress in these business development plans while achieving stable revenue performance in the short term.
We continue to thank you for your support.
We are pleased with the progress of 2016 and are excited to expand the market and increase our chances of leading OLED technology.
With this, I will hand it over to Andrew for final comment before we answer your question.
Thanks, Jeff.
Before we start the Q & A, I just want to reiterate that we are laying a solid foundation for our future growth.
Our technology is leading and continues.
We have a strategic roadmap for our R & D and believe in our OLED micro
Display technology and products have been ahead of the competition for many years.
I believe that 2016 of the market share will be a year when we are really starting to see the consumer market commercialized.
With this, I will transfer the phone to the operator and start the Q & A session. Question-and-
Thank you.
Let\'s start asking this question now. and-answer session. [
Operation instructions]
Our first question came from Dennis van zerfden, a Brazilian research firm.
Good afternoon, Andrew and Jeff.
Andrew Scully Dennis
Jeffrey Lucca Dennis
Dennis van selfden have you completed the installation of the press release and all the manufacturing and production-increasing machinery mentioned in the previous phone call?
Andrew SculleyNo, there are a lot of things, three of them are very important and take some time.
So what we are doing and have done a lot of smaller things, it takes a little time for the three more difficult things.
For example, we have a tool alignment order, which is a more expensive tool of about $1 million that will not end until later in the new year.
Dennis van Zell Clindamycin Phosphate for InjectionSo we can --
But even if the rate of return increases gradually in the future, we may still expect to continue?
Andrew SculleyYes, we\'re talking about two things.
One is the production on the equipment side, but the downtime is also a problem, one tool I just mentioned is about $1 million, there are two similar tools that can perform different processes, we can run both processes in another tool when one tool is down, but this takes time to implement.
During this time, it will cut your production by more than half, and the production will be damaged.
So this is the little things we are doing.
So throughput is also very important.
I may have mentioned other things about statistical process control and some other best practices, which in fact also brings some huge improvements that will continue.
Jeffrey Lucas by the way adds to Andrew\'s comments that we are constantly increasing production, and the plan we are implementing here will take at least 12 months to unfold.
So there\'s a lot going on over the next year, year and a half, and you\'ll see further improvements.
12 months later, Andrew Sculley also saw significant progress, which is our goal.
Dennis van Zell Clindamycin Phosphate for Injection nice.
OK, but you also mentioned the increase in production costs, is it people, does there be more engineers running these things, or is it just . . . . . .
One of them is the wafer problem we have encountered, so these wafers are not available to us.
On the other hand, we do have some chemicals that cost us a lot more, but in this case, no more people.
However, we are looking for some key positions to increase the production of improvements and throughput improvements faster.
Jeffrey lucaso, some of the higher production costs for this quarter are unique for the quarter that just happened and won\'t repeat, but adds Andrew\'s point of view, we did not make some additions in terms of engineers and technicians.
This will help our production and throughput, which will lead to an increase in the overall production cost, but the unit cost will decrease as the output increases.
Dennis van Zell Clindamycin Phosphate for Injection
The last question is that the amount of USD you recorded in R & D and SG & A this quarter is about what will happen to them in the future?
I understand Andrew Sculley.
We mentioned in the script that we are going to launch an important product and we expect some revenue this year, which actually creates some product development costs in R & D and SG & a.
The higher legal fees that Jeff mentioned, we have a lot of intellectual property fees in this regard.
As a result, some of them will not last, but some development costs will continue.
Jeffrey Lucas, as we mentioned there now, there is a non-
Recurring costs or their administrative transitional costs.
We have a very concentrated operation here.
Outside of Seattle, we\'ll take them--
Bring this function to the proper junction where we have manufacturing, production and business development and sales functions.
So there will be some non-
We will also see recurring costs in the next quarter or two.
Dennis van Zell Clindamycin Phosphate for InjectionThanks guys. Good luck.
Thank you, Andrew Sculley. Operator[
Operation instructions]
The next question comes from Tom Rat of soldier Valley Asset Management.
Tom Lacey, Andrew and Jeff.
Andrew Sculley, Tom.
Tom Latty, just a couple, first of all, I want to follow up on Dennis\'s previous questions about yield and gross margin.
So, from the whole discussion, it sounds like we should see a sustained slight increase in gross margin over the next few quarters, is that fair?
Yes, this is our plan. Tom RatOkay. Great.
Then the new revenue section you\'re talking about is related to the display.
Only income, or is this more relevant to your HMD?
Andrew SculleyIn\'s case. We mentioned it was from the HMD group.
So it does have Display and other components. Tom RatOkay. Great.
Then you make a statement about the update on your mass manufacturing partner efforts, and it sounds like you really don\'t want to talk about it, but I think it might indicate that you are getting closer and closer to me, is this fair?
Zinc Citrate Tablets Andrew Sculley, yes, the word here is that it takes time for a loan to do something like this.
I just need to review my background and it takes a long time when we set up a Kodak and Sanyo joint venture to produce a direct view display using OLED technology, but we did a good job.
Jeffrey lucsi thinks the point we want to make is that we don\'t want to set expectations because these things are very complicated and unrealistic.
There are a lot of moving processes for them, they may take time, and we don\'t necessarily always sit in the driver\'s seat as far as the time is set.
So given that we are working with other companies that are much larger than us, they may have their own administrative and bureaucratic issues that need to be addressed.
We just don\'t want people to expect something to happen in the near future and in the near future, because it may take longer. Tom RatOkay. Got you.
Then my last question is on the 2k x 2k full color direct pattern display and you said again today that you will take it out and sample it in six months.
Does it sound like there are any technical barriers?
Andrew SculleyNo, let me clarify one thing and we will do two things about it.
First, it will be launched at the end of the year.
No technical barriers.
I am sure we are designing new silicon but it is very similar to WUXGA silicon.
Higher resolution, smaller pixel spacing, but let me correct one thing.
This monitor has the ability to use color filters and we can pattern them directly in the future.
So, I don\'t want to associate it with the direct pattern. Tom RatOkay.
So this is, use the color filter now?
Andrew SculleyNo, the reason I\'m saying this is because it\'s designed for virtual reality applications that are included.
So, you don\'t need a very bright display.
Otherwise, you can\'t stand your eyes.
But what I would also like to mention is that it is possible for us to use a direct pattern for it, but as you can recall, the Mantech project did not start preparing for manufacturing until 2017.
I don\'t want to leave the impression on anyone on the phone that this won\'t be done until the direct pattern making is done. Tom RatGot it. Okay.
I gave it to you.
Thank you for your time. Thank you.
Andrew Sculley, Tom. Operator[
Operation instructions]
No further questions, this will end the problemand-answer session.
I want to postpone the meeting to the closing words of Andrew Sculley.
Andrew SculleyI just wanted to thank you all. First of all, these questions are very good and helpful for us to be with us.
It will be an exciting time for us to show the world and the headset group.
So, I think it\'s a good time for us--
You should look for the Mark to tell us in a year. -
Tell you we\'re performing.
So, I just want to thank you very much.
Please keep an eye on what is going to happen and I would also like to thank the management team for doing a fantastic job.
So, thanks to all of eMagin, thanks to the shareholders until the next time.
The meeting is now over.
Thank you for attending today\'s speech.
You can disconnect now.
Custom message
