eMagin Corporation

Good morning and welcome to Imagine Corporation's third quarter 2021 earnings conference call. Please note this event is being recorded. After management's prepared remarks, there will be a question and answer session. I will now turn the conference over to Mark Koch, Imagine CFO. Please go ahead.

Thank you and good morning, everyone. Welcome to Imagine's third quarter 2021 earnings conference call. Before we begin, I would like to remind you that in the following prepared remarks and in our Q&A session, we will make statements about expected future results that may be forward-looking statements for the purpose of federal securities laws. These statements relate to our current expectations, estimates, and projections and are not guarantees of future performance. They involve risks, uncertainties, and assumptions that are difficult to predict and may not prove to be accurate, especially in light of the effects of the current pandemic. Actual results may vary materially from those expressed or implied by these forward-looking statements, and we undertake no obligation to update these disclosures. These forward-looking statements should be considered only in conjunction with the detailed information contained in our SEC filings including the risk factors described in our 2020 Annual Report on Form 10-K and our Form 10-Q to be filed later today. During this call, we will also refer to adjusted EBITDA, a non-GAAP financial measure, to provide additional information to investors. A reconciliation of adjusted EBITDA to net income, which is the most directly comparable GAAP financial measure, is provided in the press release that we issued this morning. Non-GAAP financial measures such as adjusted EBITDA are not meant to be considered in isolation or as a substitute for our GAAP financial measures and financial statements. With that, I will turn the call over to our CEO, Andrew Scully.

Thank you, Mark, and hello, everyone. Thank you for joining us today. We hope that you, your loved ones, and work colleagues are continuing to stay safe. On today's call, I'll provide some key takeaways from our quarterly results and provide color regarding our technological advances and equipment schedule. Mark will then discuss our consolidated results in greater detail. In the third quarter, we reached a number of important milestones and continued to set the standard for innovation and performance in the micro-display industry. In addition to our proof-of-concept display work for a Tier 1 AR VR customer, We developed the production capability to satisfy demand for our high brightness XLE displays and created prototypes of what we believe are the world's brightest full color OLED micro displays. These prototype micro displays use our patented direct patterning or DPD technology to fabricate industry leading combinations of luminance and resolution. On October 29th, We unveiled these displays to an audience of leading OLED industry analysts, showcasing their vivid, full-color, high-resolution performance with a maximum luminance of over 10,000 candela per meter squared. This was a historic moment not only for Imagine, but also for the industry, and it positions us as a true disruptor in the OLED micro-display space. Our proprietary DPD technology directly patterns primary RGB color OLED emitters on our silicon backplane, which creates ultra-high brightness light output at ultra-high resolutions with brilliant colors. This is in stark contrast to competing products that require color filters with white OLED, which sacrifice significant light output. The 10,000 candela per meter squared or NEDs, full color, brightness, High resolution and high contrast that we achieved is beyond the threshold requirements for fully immersive AR and VR devices. It will alleviate motion artifacts and help to overcome inefficient optics. According to our customers, even immersive VR headsets for which we have designed high resolution displays require over 10,000 candela per meter squared. This brightness will allow our military, consumer, and commercial customers to implement new and advanced features that to date have not been technically feasible. This achievement represents a 20-fold improvement over our typical white with color filter XL micro-displays and a brightness three to four times greater than our new XLE micro-displays by comparison to our DPD luminance A typical laptop monitor achieves a brightness of 250 candela per meter squared, while a high-end smartphone approaches only 1,000 candela per meter squared. Furthermore, our DPD displays contain more than 2,500 individually addressable pixels per inch, or PPI, which generate remarkable clarity and resolution compared with typical laptop screens of 330 PPI, and OLED smartphone screens of 600 PPI. As we continue to advance this technology, future DPD milestones will include the addition of tandem OLED structures and other enhancements that will take the performance of AR, VR headsets and heads-up displays to even greater heights. We believe our OLED DPD technology is ahead today and will remain ahead. Regarding our other technical achievements this quarter, In September, we completed the manufacturing qualification process for our high luminance and power efficient XLE displays and began to ramp up production to meet customer demand. Our current XLE displays are qualified at over 1,500 candela per meter squared and are already included in a major design with a military customer. These displays use our existing backplane and are compatible with designs used by many customers, and in that way provide an upgrade in luminance levels. We also completed a medical version of our white on color filter OLED display that uses an advanced color filter to render the level of color fidelity required during surgery and other medical procedures. Also in the third quarter, as previously announced, we completed the process of designing, specifying, and ordering equipment to be purchased under our $39 million Defense Production Title III and IBAS funded grants that we were awarded last year. As of the end of the quarter, we have taken delivery of four pieces of equipment and expended $12.2 million in progress payments. We also completed the design phase and placed an order with the vendor for an advanced production-capable DPD organic deposition tool. Once delivered and installed, this tool should help to improve our yield and throughput and result in qualified production of our full-color OLED high-brightness DPD technology. Overall, we remain on track and on budget with the requirements of these important government grants. Moreover, we're excited to have the support of U.S. Senate Majority Leader Charles Schumer, who recognizes the importance of our efforts in support of national security priorities and the continued growth of the Hudson Valley as a hub of technological innovation. In terms of revenue, our third quarter results were mixed, with continued display revenue growth in our EMVGB program and increased shipments to medical customers. Our year-over-year decrease in total revenue reflected the timing of certain military orders and $1.3 million in shipments that are delayed until the fourth quarter due to production issues and unexpected manufacturing tool downtime. To address manufacturing throughput and yield issues, we are working with an industrial engineering firm to improve our overall operating effectiveness. In addition, this firm is providing support in our effort to obtain the AS9100 quality certification during the first quarter of 2022. We expect these efforts to have a positive impact beginning in the fourth quarter and to be additive to the yield and throughput improvements anticipated from the new equipment provided under our Title III and IBAS programs. Overall, as of the end of the third quarter, our sales backlog grew to $14.9 million, up from $10.3 million at the end of the second quarter, reflecting continued strength in bookings for the military night vision and eye care markets. Additionally, we are experiencing raw material pricing pressures and are working to manage potential changes in allocation from vendors due to supply chain issues in the semiconductor industry. With that, I'll turn the call over to Mark, who will discuss our financials.