Universal Display Q2 2023 Earnings Call Transcript

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August 3, 2023

There are 7 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Second Quarter 2023 Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over To Darice Liu, Senior Director of Investor Relations, please proceed.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to Universal Display's Joining me on the call today are Steve Abramson, President and Chief Executive Officer and Brian Millard, Vice President and Chief Financial Officer. Before Steve begins, let me remind you today's call is a property of Universal Display. Any redistribution, retransmission or rebroadcast Of any portion of this call in any form without the express written consent of Universal Display is strictly prohibited. Further, this Call is being webcast live and will be made available for a period of time on Universal Display's website.

Speaker 1

This call contains time sensitive information that is accurate only as of date of the live webcast of this call, August 3, 2023. During this call, we may make forward looking statements based on current expectations. These statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Universal Display disclaims any obligation to update any of these statements.

Speaker 1

Now, I'd like to turn the call over to Steve Abramson.

Speaker 2

Thanks, Darice, and welcome to everyone on today's call. For the Q2 of 2023, We reported revenue of $147,000,000 operating profit of $59,000,000 and net income was $50,000,000 or $1.04 per diluted share. As we move into the second half of the year, we expect the solid momentum to continue. For the year, we are narrowing our revenue guidance range to $560,000,000 to $600,000,000 The OLED industry continues to lay the groundwork for promising growth in 2024 and beyond as a significant new OLED adoption cycle for the IT market is poised to commence. Market research firm, Amdia, recently forecasted OLED tablet and laptop panel demand On an area basis, can grow at 34% CAGR by 2,030.

Speaker 2

As a key enabler in the ecosystem, We are continuing to support the OLED market's growth by leveraging our nearly 3 decades of pioneering discoveries and know how, investing in our infrastructure, innovation, engine and people and delivering increasing value to our customers. On the infrastructure front, we celebrated the opening of our Shannon, Ireland facility in the Q2 along with our long standing partner of more than 2 decades PPG. This new site, which is designed to produce red, green and blue phosphorescent materials, represents a major infrastructure investment for the future of the OLED industry and demonstrates our commitment to supporting our customers' needs. As a pioneering leader in the OLED ecosystem, we push boundaries to redefine what is possible and forge paths that drive us forward. Our innovation engine is a collaborative symphony of inventiveness, ingenuity and imagination that bridges the gap between vision and reality.

Speaker 2

Our steadfast focus on R and D has led to breakthrough technologies and cutting edge advancements, including our high performing Our brilliant team of scientists, engineers and technicians are working together to invent, Develop and commercialize new and next generation reds, greens, yellows and hosts. With respect to blue, We continue to make excellent progress in our ongoing development work for commercial phosphorescent blue emissive system. We continue to believe that we are on track to introduce our all phosphorescent RGB stack into the commercial market in 2024. We believe that the introduction of our full suite of red, green and blue phosphorescent emissive materials will unlock a vast array of opportunities for higher energy efficiency and higher performance across a broad range of OLED applications. At SID Display Week in late May, we exhibited our latest advancement in red, green and blue folas with groundbreaking narrow emission spectral line shape.

Speaker 2

The narrow spectral mission is important to achieving next generation energy efficiency and color gamut product roadmaps, including BT 2020. Regarding OVJP, our novel maskless dry printing platform, We continue to make meaningful progress. We are pleased to announce today another OVJP milestone with the world's first ever fully printed High resolution RGB side by side full head stack with comparable performance to vacuum thermal evaporation. This significant achievement positions OVJP to be a complete deposition solution for OLED TVs, Printing all the layers with OVJP, meaning the red, green and blue folas, prime and common layers, paves the way for a faster throughput, smaller footprint and cost effective manufacturing platform for OLED TVs. One of UDC's primary missions is to enable and support our customers.

Speaker 2

We are continuously engaging with our partners, listening to their needs, anticipating their challenges and working tirelessly to deliver solutions to meet their ever changing and ever evolving requirements. Most recently, UDC received BOE's highest supplier award, the Diamond Award, and also received TCL China Star's and enhance strategic partner award. These prestigious recognitions are wonderful testaments to our relentless innovation, Commitment to excellence and collaborative spirit is also a reflection of the unwavering dedication and hard work of our outstanding global team. Coming off the heels of last week's Samsung unpacking event, foldables are another segment of increasing consumer interest. In recent years, the consumer electronics industry has witnessed a revolutionary paradigm shift with the introduction of foldable devices.

Speaker 2

Capturing the interest and imagination of many, Foldable's offer is seamless blend of portability and functionality. Olin's are enabling this revolutionary form factor. According to Counterpoint Research, shipment of foldable smartphones are forecasted to quadruple to approximately 55,000,000 units by 2025. As someone who bought the first Galaxy Fold And now as a full 3, I have never looked back. On that note, let me turn the call over to Brian.

Speaker 3

Thank you, Steve. And again, thank you everyone for joining our call today. Our second quarter revenue was $147,000,000 compared to $137,000,000 in the Q2 of 2022. Material sales were $77,000,000 in the 2nd quarter compared to material sales of $72,000,000 in the Q2 of last year. Green emitter sales, which include our yellow green emitters, were $58,000,000 This compares to $54,000,000 in the Q2 of 2022.

Speaker 3

Red emitter sales were $17,000,000 in both the Q2 of 2023 2022. As it has been discussed in the past, material buying patterns can vary quarter to quarter. 2nd quarter royalty and license fees were $64,000,000 compared to the prior year period of $60,000,000 Adisa's 2nd quarter revenue was $5,100,000 compared to $4,400,000 from the comparable period in 2022. 2nd quarter cost of sales in 2023 was $32,000,000 compared to $27,000,000 in the Q2 of 2022. This translates into total gross margins of 78% in the Q2 of 2023 compared to 80% in the Q2 of 2022.

Speaker 3

Cost of OLED material sales in the Q2 of 2023 were $29,000,000 translating into material gross margins of 63%. This compares to $25,000,000 and material gross margins of 65% in the Q2 of 2022. 2nd quarter operating expense in 20232022 excluding cost of sales was $56,000,000 For the full year of 2023, we now expect the year over year OpEx increase to be at the low end of our 5% to 10% forecast range. Operating income was $59,000,000 in the 2nd quarter, translating into operating margin of 40%. This compares to the prior year period of $53,000,000 operating margin of 39%.

Speaker 3

The income tax rate was 22% in the Q2 of 2023. 2nd quarter 2023 net income was $50,000,000 or $1.04 per diluted share. This compares to $42,000,000 or $0.87 per diluted share in the comparable period in 2022. We ended the quarter with approximately $756,000,000 in cash, cash equivalents and investments. Regarding our 2023 guidance, As Steve mentioned, we are revising our revenue forecast by narrowing the range to $560,000,000 to $600,000,000 And lastly, our Board of Directors approved a $0.35 quarterly dividend, which will be paid on September 29, 2023 to stockholders of record as of the close of business on September 15, 2023.

Speaker 3

The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. With that, I'll turn the call back to Steve.

Speaker 2

Thanks, Brian. For nearly 30 years, we have demonstrated adaptability and resilience. We fostered a culture of creativity and collaboration, and we consistently invested in world class employees, infrastructure and ideas that advance our robust first mover leadership position in the OLED ecosystem. As we look to the future, we continue to believe that 2024 will be a pivotal year for the OLED industry and for us. We believe that panel manufacturers and OEMs are preparing to advance the OLED adoption curve to medium and large area displays with OLED IT being a key near term focus.

Speaker 2

As the future of OLED continues to shine with boundless brilliance, We'll forge ahead with an unwavering determination to take our company to new heights. And lastly, I would like to thank each of our employees for their drive, desire, dedication and heart in elevating and shaping Universal Display's accomplishments and advancements. We are committed to being a leader in the OLED ecosystem, achieving superior long term growth and delivering cutting edge technologies and materials for the industry, for our customers and for our shareholders. And with that, operator, let's start the Q and A.

Operator

Thank Our first question is from Brian Lee with Goldman Sachs. Please proceed.

Speaker 4

Hey, everyone. Good afternoon. Thanks for taking the questions. Kudos, Sona, the nice execution here in the quarter. I guess for you, Brian, to start off, just a housekeeping question.

Speaker 4

I think last quarter you had broken out A blue revenue number, is there a similar one you can provide for 2Q? And then also just Any thoughts in general in terms of the progress and maybe what you've achieved since the last time you updated us on the blue commercialization path?

Speaker 5

Sure. Thanks, Brian. Yes, so on Blue revenues, we did have approximately $2,400,000 of sales In Q2, that was a combination of both emitter and host, predominantly emitter. And then as it relates to the progress, we We continue to make really strong progress as Steve mentioned in his comments. And feel like we're on track for having commercial material available in 2024.

Speaker 5

I mean, it's going to be also one of the things you note, I mean, I think it's going to the Blue development revenues are going to vary quarter to quarter. While 2.4% is certainly a positive step forward in Q2, it's going to be a little bit variable between here and commercialization.

Speaker 4

Fair enough. So not we shouldn't necessarily expect that to be linear. That's fair. I guess a couple more things here just on the model itself. You reiterated A few of the guidance metrics for the year.

Speaker 4

I know you're tightening the revenue, but on gross margin, is the guidance still for 65 Plus or minus, it does imply a pretty significant pickup in the second half even though you did better in the second quarter versus the Q1. Can you kind of speak to some of the drivers and confidence around getting gross margins up to that mid to higher 60% level in the back half of the year to reach the full year target?

Speaker 5

Yes. So I think at the total gross margin level, the guidance we've given, continues to be true at 77% to 78% for the year. And for material gross margins, in ballpark 65% is a reasonable assumption. There's obviously as we increase volumes and revenues, there's some operating leverage that we get out of that generally that we'd expect in the second half. So those guidance figures are still relevant at this point.

Speaker 4

Okay, fair enough. And then last one for me and I'll pass it on. It looks like there was a fairly meaningfully sized customer see this quarter. It was larger than your customer in China. That's historically been your biggest One, presumably this customer is also from China.

Speaker 4

Can you give us some sense of their ramp? Is this a one off? Or Are they building new capacity? Just, they haven't always showed up as one of your top three customers. So, wondering if you can share any color there.

Speaker 4

Thank you. Yes.

Speaker 5

So you're right. We did have a new customer see this quarter. And I think we tend to have a little bit of variability in purchases from our Chinese So hard to say at this point if that remains the case going forward, but it is an additional customer that kind of showed up in the top 4 this go around.

Speaker 4

Okay, fair enough. I will pass it on. Thanks a lot. Thanks.

Operator

Call. Our next question is from Jim Ricchiuti with Needham and Company. Please proceed.

Speaker 6

Hi, good afternoon. Thank you very much for taking the question. This is actually Chris Gringa on for Jim. With respect to the comment you made about the solid momentum continuing 2H, Could you talk a bit or elaborate a bit more about the nature of the conversations you're having and what's underpinning the confidence in what you're seeing there? Thank you.

Speaker 5

Yes. Thanks, Chris. So we have regular From our customers in terms of what they're seeing and what their expected volumes are from us, we get solid rolling forecasts from each of them. And Those demand signals that we've been seeing from our customers remain pretty consistent over the course of this year. So that's informing a lot of the confidence that we have in terms of what the rest of the year is

Speaker 6

And with the Shannon facility costs, I believe those came in at $3,900,000 this quarter. What do you expect the cadence of that to be for the rest of the year now that the facility has been opened?

Speaker 5

Yes. So I think that run rate of Slightly more than $1,000,000 a month is what we've been that's what we updated back in May when we had the Q1 earnings. I think that's slightly more than $1,000,000 a month is the right number in terms of underutilization for this year. We did, as you mentioned, just have kind of the ceremonial grand opening The site which was an important step forward and now it's a matter of how do we continue to put more volume of production activities into that site and therefore have greater utilization and therefore less underutilization that's hitting the P and L directly.

Speaker 6

Great. Thank you. And maybe just one more for me, if I may. With the contribution of the Merck IP portfolio, are you pleased with how that's been the integration of that has been going? And was there any contribution worth mentioning to revenues in the quarter?

Speaker 2

We're in the process of integrating the Merck portfolio Into our 6,000 patent portfolio in this field, I can't focus on any particular revenue gain In this quarter, it's more part of the whole group of patents and technologies that we're able to implement to serve our customers.

Speaker 6

Got it. Thanks very much. Appreciate the color.

Speaker 4

Thank you.

Operator

Thank you. This does conclude the question and answer session. I would like to turn the I'll hand back over to Brian Miller for any additional or closing remarks.

Speaker 5

Thank you for your time today. We appreciate your interest and support.

Operator

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

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Earnings Conference Call
Universal Display Q2 2023
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