Universal Display Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2024

There are 7 speakers on the call.

Operator

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Q1 2024 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 I would now like to turn the conference over to Dary Slueh, Senior Director of Investor Relations. Please proceed.

Speaker 1

Thank you, and good afternoon, everyone. Welcome to Universal Display's Q1 earnings conference call. 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 that 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.

Speaker 1

Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time sensitive information that is accurate only as of the date of the live webcast of this call, May 2, 2024. 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.

Speaker 1

Universal Display disclaims any obligation to update any of these statements. Now, I would like to turn the call over to Steve Abramson.

Speaker 2

Thanks, Darice, and welcome to everyone on today's call. We are pleased to report strong results for our Q1 of 2024. Revenue was $165,000,000 operating profit was $63,000,000 and net income was $57,000,000 or $1.19 per diluted share. With a strong start to the year and OLED momentum continuing to build, we are raising the low end of our annual guidance range. We now believe that our 2024 revenues will be in the range of $635,000,000 to $675,000,000 As we look to the industry, OLEDs continue to play a more significant role in shaping the future of displays.

Speaker 2

1 nascent segment that is poised for significant growth is the OLED IT market. Since the beginning of the year, several device makers announced new OLED IT products, including ASUS, HP, Acer, Dell, Razer Blade and MSI, and there are a number of expected new product introductions on the horizon. According to OMDIA Market Research, OLED tablets are expected to increase by more than 3 fold year over year, growing from 3,700,000 units in 2023 to 12,100,000 units in 2024. The market researcher also forecasts that OLED notebook units will grow 50% year over year from 3,400,000 units in 2023 to 5,100,000 units in 20 24. This translates into total mobile OLED PC units growing from 7 point 1,000,000 units in 2023 to 17,200,000 units in 2024 and is expected to reach 72,300,000 units by 2028, which represents just 14% of the total mobile PC display market.

Speaker 2

Supporting this strong growth is new OLED capacity. In early March, Samsung Display held a ceremony for the commencement of construction of the world's first Gen 8.6 OLED IT production line in ASAN. According to reports, Samsung plans to begin equipment installation this year and start mass production in 2026. The 15,000 plates per month OLED IT line is estimated to be capable of producing an equivalent of 10,000,000 laptop panels per year. Also held in March was BOE's groundbreaking ceremony for its Gen 8.6 OLED IT fab in Chengdu.

Speaker 2

This greenfield fab is designed for 32,000 plates per month and is expected to begin production in the Q4 of 2026. With reports that other panel makers are preparing for new investments as well, we believe that this is just the beginning of a multiyear OLED CapEx growth cycle. The many benefits of OLEDs continue to fuel the continued penetration in the smartphone market. DSCC market research expects OLED smartphone units to increase by 11% year over year in 2024 with flexible OLED increasing 9% year over year and rigid OLEDs increasing 17% year over year. The innovative designs, coupled with the versatility and convenience of foldable smartphones and tablets, continue to garner significant interest from OEMs, panel makers and consumers.

Speaker 2

UBI Research forecasts that foldable OLED shipments will grow 25% year over year to 27,400,000 units in 2024 and will almost double by 2028, reaching 52,700,000 units. The popularity of conformable, foldable and rollable OLEDs was evident at Mobile World Congress. At the show, fans of foldable technology could see how OLEDs are enabling innovative devices, including displays that could be folded both in and out, rollable panels that can wrap around your wrist as well as roll out from a smartphone display into a tablet and foldable and slidable IT products that extend the screen size. OLED TVs are also expected to grow this year. According to OMDIA, OLED TV shipments will increase by more than 30% year over year from 5,300,000 units in 2023 to 7,200,000 units this year.

Speaker 2

Another segment of the OLED market that is beginning to take off is aviation. Last month, Panasonic Avionics announced that it shipped the 1st batch of its Astrova 4 ks OLED in flight entertainment monitors. These monitors will be installed in one of Icelandair's forthcoming Airbus aircraft beginning in Q4 of this year. Qantas, United Airlines, Egypt Air, Saudi Arabia Airlines and Qatar Airways are also planning to adopt Panasonic's new 4 ks OLED screens. According to Panasonic Avionics, the image quality of the 4 ks OLED is sharper, clearer and with infinite contrast ratio, it delivers a similar quality image and perfect black.

Speaker 2

Panasonic also noted that it provides a better viewing experience than has ever been available before on the commercial aircraft. We are excited for the extraordinary opportunities in enabling the OLED products of today and the future. As we look to our company, innovation has been the cornerstone of our ethos. It is the engine that reinforces our leadership position, expands our reach and propels us forward. Our commitment to innovation is steadfast.

Speaker 2

Our R and D teams are continuously inventing, designing, developing and commercializing next generation reds, greens, yellows and hosts to meet the ever changing and ever evolving customer specifications. Regarding Blue, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent Blue Emissus system. We continue to believe that we are on track to introduce a phosphorescent blue that meets commercial specifications into the market in 2024. We believe that the expansion of our phosphorescent portfolio that includes 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. Regarding OVJP, we continue to make advancements with our organic vapor jet printing manufacturing technology for direct printing OLED TVs without the need for masks or solvents.

Speaker 2

The OVJP team continues to focus on scaling our novel technology platform. This year's SID display week is less than 2 weeks away. To learn more about UDC, please visit our booth in San Jose. 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 Q1 results were strong across the board. Revenue was $165,000,000 up 27% year over year from $130,000,000 in the first quarter of 2023. Our total material sales were $93,000,000 in the Q1 compared to material sales of $70,000,000 in the Q1 of 2023.

Speaker 3

Green emitter sales, which include our yellow green emitters, were $71,000,000 This compares to $54,000,000 in the Q1 of 2023. Red emitter sales were $21,000,000 This compares to $16,000,000 in the prior year's quarter. As we have discussed in the past, material buying patterns can vary quarter to quarter. 1st quarter royalty and license fees were $68,000,000 compared to the prior year's period of $55,000,000 Adesis' 1st quarter revenue was $3,700,000 compared to $5,100,000 in the Q1 of 2023. 1st quarter cost of sales was $37,000,000 translating into total gross margins of 78%.

Speaker 3

This compares to $33,000,000 and total gross margins of 75% in the Q1 of 2023. As you may recall, last year's Q1 gross margins were negatively impacted by a $3,300,000 inventory provision. We did not increase our inventory reserve this quarter. 1st quarter operating expenses, excluding cost of sales, were $65,000,000 In the Q1 of 2023, it was $52,000,000 The year over year increase was due to increased employee expenses, higher amortization costs and a onetime royalty and license expense. We continue to expect 2024 OpEx to increase 10% to 15% year over year as we continue to invest in our people, our global infrastructure and our innovation engine.

Speaker 3

Operating income was $63,000,000 in the Q1, translating into operating margin of 38%. This compares to the prior year period of $45,000,000 an operating margin of 35%. The income tax rate was 19% in the Q1 of 2024. We expect our effective tax rate for the year to be approximately 20%. Q1 2024 net income increased by more than 40% year over year to $57,000,000 or $1.19 per diluted share.

Speaker 3

This compares to $40,000,000 or $0.83 per diluted share in the comparable period in 2020 3. We ended the quarter with approximately $838,000,000 in cash, cash equivalents and investments. Regarding guidance, as Steve shared, we now believe our 2024 revenues will be in the range of $635,000,000 to $675,000,000 And lastly, our Board of Directors approved a $0.40 quarterly dividend, which will be paid on June 28, 2024 to stockholders of record as of the close of business on June 14, 2024. 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. As we approach UGC's 30th anniversary next month, I am filled with immense pride in what we have achieved together. Our incredible journey has been marked by relentless innovation, exponential growth and the materialization of products that were once distant dreams. We have developed and fostered a culture where creativity thrives and where every challenge is seen as an opportunity. From the invention of phosphorescent OLED technology to the continuous discovery, development and delivery of next generation OLED materials and technologies, we remain at the forefront of driving efficiency, enhancing performance and enabling the OLED industry.

Speaker 2

As we cast our gaze forward to the exciting horizon of possibilities that await us in the growing OLED market, we will continue to be trailblazers, collaborative partners and committed to excellence. In closing, 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 you, Mr. Our first question is from Krish Sankar with TD Cowen. Please proceed.

Speaker 4

Hey, guys. This is Eddie for Krish. Congrats on strong results. I'd like to ask a high level question on blue. I think in the past you mentioned that blue content inside an OLED phone can be as much as the green content.

Speaker 4

So if I look at revenues you made last year like $245,000,000 coming from green sales alone. So my first question is, can Blue be as big as green in terms of overall revenue opportunity? And if so, how should we expect the ramp from 2024 going forward to be like? Is it like a hockey stick kind of ramp where we may see Blue generating a few million a quarter and then it can go up, call it like $40,000,000 $50,000,000 or would it be more gradual over the next 2 to 3 years? And I have a follow-up please.

Speaker 3

Yes. Thanks Eddie. This is Brian here. So good questions. As you said, yes, we've previously said and still is true that the quantity of green material in a display, a red, green and blue side by side display, is similar to the quantity of blue.

Speaker 3

To answer your question in terms of the revenue potential, there's a couple of things to pull apart there. One is the green number that we disclosed includes our yellow green emitters as well, as well as the fact that we don't currently have blue pricing set with any of our customers. So we need to see how that evolves over time. And in terms of the adoption curve, we know there's significant interest in our Blue across the customer base and in the market more broadly. So we think that there certainly will be adoption over time.

Speaker 3

It's really up to our customers though to determine exactly how that plays out and on what timeline.

Speaker 4

Got it. Thank you. That's helpful. And I guess in terms of pricing, the pricing will eventually be based on the value you guys add with the blue product. Can you talk about like what has been the customer feedback so far in terms of like lowering power consumption or whether it's something else when using the blue you guys have been shipping so far?

Speaker 4

Yes.

Speaker 3

So the benefits of phosphorescent technology over fluorescent are also applied to blue in addition to the red and green material that we have. So it is more energy efficient. We've estimated that there's probably a roughly 25% increase in energy efficiency of a display by adding blue material to it. And so we've been sampling material to customers. We had $1,900,000 of development sales in Q1.

Speaker 3

And so that continues to move in a positive direction and we expect 2024 Blue development sales to be up compared to the development sales we had last year. So we continue to make the right progress that we need on the development. And as Steve said, continue to feel like we're on track for hitting commercial specs this year.

Speaker 4

Got it. Thanks a lot, guys. Congrats again. Thank you. Thanks.

Operator

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

Speaker 5

Hey, guys. Good afternoon. Thanks for taking the questions. I guess, starting off probably for Brian here. Can you give us a sense of seasonality this year?

Speaker 5

I know last quarter you sort of alluded to it when you gave the full year guide. Obviously, you're starting off Q1 on a very strong note. Everyone knows the iPad launch being a first half product cycle that you haven't historically been levered to is probably a big tailwind here for 1Q. But does this fall off in 2Q sequentially? Because if we take Q1 and assume no growth for the rest of the year, you're basically already above the midpoint of your annual guidance.

Speaker 5

So just trying to get a sense for what the Q1 result here implies for rest of your seasonality? And then I had a follow-up or 2.

Speaker 3

Yes. Thanks, Brian. Yes. So typically we've had, as you know, more of a second half orientation to revenues in prior years. And this year, based on what we know at this point, it seems like it's going to be pretty balanced between the first and second half of the year.

Speaker 3

So based on our current forecast and what we know at this time.

Speaker 5

Okay. So typically the second half has a meaningful growth versus the first half this year, you're base casing more of a second half being equal to the first half. Is that the right conclusion from your comments?

Speaker 3

That's right. Yes.

Speaker 5

Okay. That's helpful. And then just a question on your biggest customer here. They were a higher revenue contribution and this is also the most we've ever seen in Q1 from them, again, kind of in line with the abnormal seasonality here. How much of this, if you can give us a sense, is coming from them having any new capacity?

Speaker 5

How much of this is being helped by maybe yield issues that are driving more material demand for you? And then can you remind us, is there a tandem structure effect here tailwind for that customer in particular? Or is that only for your second Korean customer that that applies? Thanks guys.

Speaker 3

Yes. So in terms of we obviously can't comment on any customer production or in that sense. Obviously, there were more material sales to that customer in Q1 and that's what drove the increase and therefore the revenues. And some of the newer products that are coming to market, especially on the IT side, do have Tandem in place. So that's about as much as we can comment on.

Speaker 5

Okay, fair enough. I'll pass it on. Thanks guys.

Speaker 3

Thanks, Brian.

Operator

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

Speaker 6

Hi, good afternoon. This is Chris Grange on for Jim. Thank you for taking the questions. I noticed that our R and D expense stepped up a bit on a sequential basis than year over year. Just curious if you could provide any additional color on that?

Speaker 3

Sure. Hi, Chris. In Q1, we did see an increase. We're continuing to invest in inventing new materials. So I think that had an increase.

Speaker 3

There were also some higher employee costs affected in both R and D and SG and A, compared to prior periods. So, it's really a combination of employee related expenses as well as some higher development expenses that we had with outside

Speaker 6

parties. Great. Thanks so much.

Speaker 3

Thank you.

Operator

We have reached the end of our question and answer session. I would like to turn the call back over to Brian Millard for any additional closing remarks.

Speaker 3

Thank you all for joining our call today. We appreciate your time and support.

Powered by Quartr
Earnings Conference Call
Universal Display Q1 2024
00:00 / 00:00