Universal Display Q3 2024 Earnings Report

Universal Display EPS Results

• Actual EPS: $1.40
• Consensus EPS: $1.19
• Beat/Miss: Beat by +$0.21
• One Year Ago EPS: $1.08

Universal Display Revenue Results

• Actual Revenue: $161.63 million
• Expected Revenue: $165.28 million
• Beat/Miss: Missed by -$3.65 million
• YoY Revenue Growth: +14.60%

Universal Display Announcement Details

• Quarter: Q3 2024
• Date: 10/30/2024
• Time: After Market Closes
• Conference Call Date: Wednesday, October 30, 2024
• Conference Call Time: 5:00PM ET

Universal Display (NASDAQ:OLED) (NASDAQ: OLED) is a technology company specializing in organic light-emitting diode (OLED) solutions. The company develops and commercializes materials, technologies and software used in the creation of OLED displays and lighting. Its offerings include proprietary phosphorescent OLED (PHOLED) materials, display driver integrated circuits and process technologies that enable higher efficiency, longer lifetimes and improved color performance for a range of display and lighting applications.

Universal Display’s core business is licensing its extensive OLED patent portfolio to display manufacturers and providing them with the key organic materials needed for device fabrication. The company’s PHOLED materials are widely used by leading global display producers to manufacture OLED screens for smartphones, televisions, wearable devices and virtual-reality headsets. Universal Display also collaborates with equipment suppliers and research institutions to advance OLED process development and scale production platforms.

Founded in 1994 as a spin-off from the University of Michigan, Universal Display is headquartered in Ewing, New Jersey, with research, development and sales operations across North America, Asia and Europe. It became publicly traded in 2000 and has since established partnerships with major electronics companies in South Korea, Japan, China and the United States. These collaborations support the commercialization of next-generation OLED technologies for both consumer electronics and solid-state lighting markets.

As of the latest available information, Stephen V. Abramson serves as President and Chief Executive Officer, leading the company’s strategic efforts to expand OLED adoption worldwide. Under his leadership, Universal Display continues to invest in research and development, strengthen its patent position and explore new applications for its materials and technologies in emerging display and lighting segments.

Universal Display Q3 2024 Earnings Call Transcript

Key Takeaways

• The company revised its 2024 revenue forecast down to $625 M–$645 M after customers across the board lowered Q4 purchase forecasts, indicating a more modest growth pace.
• Q3 results beat year-ago levels with $162 M in revenue (up 15% YoY), operating income of $67 M (41% margin) and EPS of $1.40, keeping the company on track for record annual profits.
• Major OLED investments now exceed $20 B in new Gen 8.6 display fabs (Visionox, BOE, Samsung) and module lines, kickstarting a multiyear CapEx cycle in IT, automotive and consumer electronics.
• R&D progress continues on a commercial phosphorescent blue emissive system, expected to launch within months and potentially boost OLED performance and adoption.
• Board approved a $0.40 quarterly dividend (payable Dec 31), underscoring strong cash flow generation and commitment to shareholder returns.

Presentation

[Operator]

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's third-quarter earnings conference call. My name is Sherry, and I will be your conference moderator for today's call. All participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anybody needs operator instructions, assistance, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Darice Liu, Director of Investor Relations. Please proceed.

[Darice Liu, Director of Investor Relations at Universal Display Corporation]

Thank you, and good afternoon, everyone. Welcome to Universal Display's third-quarter 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

[Darice Liu, Director of Investor Relations at Universal Display Corporation]

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 remain 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, October 30th, 2024. During this call, we may make forward-looking statements based on current expectations.

[Darice Liu, Director of Investor Relations at Universal Display Corporation]

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 pre-audit 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. Now, I would like to turn the call over to Steve Abramson.

[Steve Abramson, CEO at Universal Display Corporation]

Thanks, Darice, and welcome to everyone on today's call. Our third-quarter revenue was $162 million. Operating profit and net income were $67 million, and earnings per diluted share was $1.40. 2024 is another year of growth. Growth has positioned us for record revenues and record profits. The rate of growth, though, is expected to be more modest than previously projected. The first half of the year started off on a strong note, but as we approached the end of the third quarter, customers lowered their forecasts for Q4. Given the downward trend in forecast revisions, we are revising our 2024 revenue forecast range to $625 million-$645 million.

[Steve Abramson, CEO at Universal Display Corporation]

While lower-than-expected fourth-quarter sales have tempered this year's pace of growth, we continue to believe in the tremendous trajectory of the OLED market as activity across the consumer electronics landscape expands with new OLED AR/VR devices, smartwatches, smartphones, IT, automotive, and TVs. Near-term, we expect the IT market to be the primary driver of growth. Omdia forecasts that mobile OLED PCs are expected to grow to 69 million units in 2028, up more than 150% from an estimated 26

[Steve Abramson, CEO at Universal Display Corporation]

million units in 2024. This growth momentum is driving a new multi-year CapEx cycle here for the medium-sized OLED market. During the quarter, Visionox broke ground on its new $7.7 billion Gen 8.6 OLED facility in Hefei. Similar to BOE's $9 billion Greenfield Gen 8.6 OLED plant, Visionox's new fab will be designed with a monthly capacity of 32,000 plates per month.

[Steve Abramson, CEO at Universal Display Corporation]

Add that to Samsung Display's $3 billion 15,000-plate-per-month Gen 8.6 OLED IT facility. That brings the current total investments for new Gen 8.6 OLED facilities to approximately $20 billion, and we believe further investments are in the works. New OLED module factories are also on the rise. According to reports, Visionox completed the construction of its new $1.6 billion Gen 6 flexible OLED module

[Steve Abramson, CEO at Universal Display Corporation]

factory in August, and Samsung Display recently decided to invest $1.8 billion to build a new OLED module production line in Vietnam, mostly to produce IT and automotive OLED modules. Speaking of OLEDs and automotive, during the quarter, myriad automotive makers, including Audi, Lotus, Zeekr, and Hongqi, unveiled new car models with OLED screens, and some of those models were designed with both OLED displays and OLED taillights.

[Steve Abramson, CEO at Universal Display Corporation]

From OLEDs' low power consumption, enabled by our phosphorescent materials and technology, to OLEDs being lighter, thinner, and inherently conformable, bendable, and rollable, as well as numerous other benefits, OLEDs are enabling greater design flexibility and energy efficiency with brilliant picture quality and fast refresh in the automotive market. OLEDs continue to push the form factor boundaries of consumer electronics products. During the quarter, the world's first trifold, the Mate XT, was launched to

[Steve Abramson, CEO at Universal Display Corporation]

much fanfare as the first device that transforms from a 6.4-inch smartphone-sized screen into a full 10.2-inch tablet. Trifoldables are not the only form factor broadening the definition of what a consumer product can be. According to reports, Samsung is progressing with its rollable OLED development project and plans to launch its first rollable smartphone next year. These reports note that Samsung's rollable phone, when fully opened, will sport a large 12.4-inch display.

[Steve Abramson, CEO at Universal Display Corporation]

UBI Research forecasts that by 2028, foldable phones will make up almost 10% of total OLED smartphone shipments, up from 5% today. On the R&D front, we continue to collaborate closely with our customers and are developing new OLED materials and technologies to support their growing product roadmaps. We are continuously discovering, developing, and delivering next-generation reds, greens, yellows, and hosts to meet the ever-changing and ever-evolving specifications for color point, energy

[Steve Abramson, CEO at Universal Display Corporation]

efficiency, and lifetime. Regarding blue, we continue to make excellent progress on our ongoing development work for a commercial phosphorescent blue emissive system. We continue to believe that the additional time needed to introduce a commercial phosphorescent blue into the marketplace will be measured in months and not years. When our commercial phosphorescent blue is adopted in an OLED device, we believe that the benefits will be significant for the industry, for consumers, and for us.

[Steve Abramson, CEO at Universal Display Corporation]

With OVJP we continue to make progress. We believe that enabling red, green, and blue side-by-side manufacturing of OLED TVs efficiently and with fast tack time can revolutionize the large area OLED landscape. On that note, let me turn the call over to Brian.

[Brian Millard, CFO at Universal Display Corporation]

Thank you, Steve, and again, thank you, everyone, for joining our call today. As Steve shared, we are on track for record revenue and record earnings this year. Our revenue through Q3 is $485 million, up 16% from the same period last year, and our net income for the first nine months reached $176 million, up 25% year-over-year from the first nine months of 2023. For the third quarter of 2024, revenue was $162

[Brian Millard, CFO at Universal Display Corporation]

million, compared to $141 million in the third quarter of 2023. Material sales were $83 million in the third quarter, compared to material sales of $92 million in the third quarter of 2023. Green emitter sales, which include our yellow-green emitters, were $62.6 million. This compares to $68.9 million in the third quarter of 2023. Red emitter sales were $20.1 million. This compares to $22.1 million in the third quarter of 2023.

[Brian Millard, CFO at Universal Display Corporation]

As it has been discussed in the past, material buying patterns can vary quarter to quarter. Third-quarter royalty and license fees were $75 million, compared to the prior year period of $46 million. The year-over-year increase was due to customer mix and cumulative catch-up adjustment of $5 million. For the full year, we now expect the ratio of materials to royalty and license fees to be in the ballpark of 1.4 to 1.

[Brian Millard, CFO at Universal Display Corporation]

Adesis's third-quarter revenue was $3.6 million, compared to $2.7 million from the comparable period in 2023. Third-quarter cost of sales was $36 million, translating into total gross margins of 78%. This compares to $34 million and total gross margins of 76% in the third quarter of 2023. We continue to believe our full-year total gross margins will be in the range of 76%-77%. Third-quarter operating expenses, excluding cost of sales, were $59 million.

[Brian Millard, CFO at Universal Display Corporation]

In the third quarter of 2023, it was $58 million. We expect our 2024 OPEX to be within our guidance range of a 10%-15% year-over-year increase. Operating income was $67 million in the third quarter, translating to an operating margin of 41%. This compares to the prior year period of $48 million and 34% operating margin. We continue to believe our full-year operating margins will be in the range of

[Brian Millard, CFO at Universal Display Corporation]

35%-40%. The income tax rate was 18% in the third quarter of 2024. We now expect our effective tax rate for the year to be approximately 19%. Third-quarter 2024 net income was $67 million, or $1.40 per diluted share. This compares to $52 million, or $1.08 per diluted share in the comparable period in 2023. We ended the quarter with approximately $930 million in cash, cash equivalents, and investments.

[Brian Millard, CFO at Universal Display Corporation]

Regarding guidance, as Steve discussed earlier, we now expect our 2024 revenues will be in the range of $625 million-$645 million. Lastly, our board of directors approved a $0.40 quarterly dividend, which will be paid on December 31st, 2024, to stockholders of record as of the close of business on December 17th, 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.

[Steve Abramson, CEO at Universal Display Corporation]

Thanks, Brian. As a pioneer and leader in the OLED ecosystem, we believe that innovation is the cornerstone of progress. Our significant investments in research and development are a testament to our belief in the power of science to transform lives and industries. Last month, we announced the Sherwin I. Seligson Innovation Award. In tribute to our late founder, this award was created to inspire and

[Steve Abramson, CEO at Universal Display Corporation]

encourage innovation in organic electronics and to recognize groundbreaking advancements in that field. With the founding of this award, we are deepening our commitment to support and nurture the thriving community of scientists and researchers around the world. 2024 marks a significant milestone in the OLED industry as the beginning of a new OLED adoption cycle for medium-sized displays, namely IT and automotive.

[Steve Abramson, CEO at Universal Display Corporation]

With leading tablet, notebook, monitor, as well as auto OEMs expected to broaden their product roadmap for OLEDs, significant investments in new OLED facilities are being deployed for these nascent market segments. We are here to enable and support this long runway of growth. Our world-class technology continues to set industry standards. Our global partnerships continue to expand and

[Steve Abramson, CEO at Universal Display Corporation]

deepen, and we continue to leverage our unparalleled expertise of 30 years. Our company's future is bright, and we are excited for the path ahead. 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&A.

[Operator]

Thank you, Mr. Abramson. If you would like to ask a question, please press Star 1 on your telephone keypad. A confirmation tone indicates your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the Star keys. One moment while we poll for questions. Our first question is from Martin Yang with Oppenheimer & Company. Please proceed.

[Martin Yang, Executive Director and Senior Analyst at Oppenheimer & Company]

Hi, thank you for taking the question. Now, can you give us more context for the order cuts? Is it from a single customer, a multiple customer, and what are the exposures or reasons for their cuts? Thank you.

[Brian Millard, CFO at Universal Display Corporation]

Yeah. Hi, Martin. Yeah, so as we mentioned in Steve's remarks, as we kind of approached the end of the third quarter, clearly we had a very strong first half of the year and even Q3. But as we got toward the end of the third quarter, we did see customers lower their forecast for Q4, and it was really across the board, not any one particular customer. A number of things that could be driving that. One is certainly

[Brian Millard, CFO at Universal Display Corporation]

certain models and the sales of those potentially being different than prior expectations, as well as certain geographies in the world having some consumer sentiment and macroeconomic concerns. And then lastly, as we approach year-end, some of our customers also reevaluate their inventory levels and what they're carrying of our materials. So it's a combination of things. We can't point to any one thing, but we did see across the customer base changes in forecasts as we ended Q3.

[Martin Yang, Executive Director and Senior Analyst at Oppenheimer & Company]

Got it. Thank you. Can you also, is there any more details you could share about the material gross margin in the quarter? It feels a little light compared to previous quarters. Any more context to share with us?

[Brian Millard, CFO at Universal Display Corporation]

Yeah, really just customer mix and product mix is really the primary drivers. And as we've talked about before, we also believe that total gross margin is a much more useful way of evaluating the profitability of the business because when we negotiate pricing with customers, we look at really the combined pricing between the license side as well as the materials. So total gross margin continues to be within the range that we expect for the year, 76%-77%.

[Martin Yang, Executive Director and Senior Analyst at Oppenheimer & Company]

Got it. That's it for me. Thank you, Brian.

[Brian Millard, CFO at Universal Display Corporation]

Thanks, Martin.

[Operator]

Our next question is from Scott Searle with Roth Capital Partners. Please proceed.

[Scott Searle, Managing Director and Senior Research Analyst at Roth Capital Partner]

Hey, good afternoon, and thanks for taking the questions. Brian, Steve, I know this is kind of hard to quantify, but with some of the customer slowdowns, I'm wondering how far out your visibility is as we start to think about early 2025 and seasonality into the March quarter. Do you have a good idea of what elevated inventory levels might look like across some of the customer base? Because it seems like it's a

[Scott Searle, Managing Director and Senior Research Analyst at Roth Capital Partner]

little contradictory to what we're seeing in some of the end markets today. You're starting to hear more about small panels starting to recover with smartphones that have gone through inventory corrections, maybe less so on the TV front, but that seems to be more incremental. So I'm wondering what the early thoughts are in terms of, I'll call it, seasonality and normalizing inventory.

[Brian Millard, CFO at Universal Display Corporation]

Yeah, so firstly, we don't believe that this adjustment that we're making to guidance is really indicative of any persistent trend. And as it relates to 2025, we're still going through our planning process right now for 2025, so we'll have more to share once we get to the February call. But we really think this is just kind of temporary adjustments as we close out the year, as well as, as I mentioned earlier, some impact from certain OLED models.

[Scott Searle, Managing Director and Senior Research Analyst at Roth Capital Partner]

Okay. Fair enough. And if I could follow up on blue, Steve. Look, we're getting closer again, the comment, months, not years. But I'm wondering if you could calibrate the timing and what your expectations are once we get to the point of go, where we've got all the commercial metrics for blue. How long is it into that process before we see some material sales? Does it take another 9-12 months from a design standpoint for that to become material? And I guess looking out further on the horizon, what success two years out? Is it 20% of your customers adopting some form of blue? And is there a timeline that you're comfortable talking about when blue could possibly get to parity with green? Thanks.

[Steve Abramson, CEO at Universal Display Corporation]

Scott, all good questions. My answer is going to be that we're working closely with our customers to commercialize our phosphorescent blue, and it is an iterative process. And as we get closer, I may be able to shed more color on your very important questions.

[Brian Millard, CFO at Universal Display Corporation]

Yeah. And I think, Scott, it's important to note we're continuing to work on blue development projects with a number of customers and making good progress with that, as Steve mentioned in his remarks earlier. And once we do hit commercial specs and performance, that will then kick off a cycle of designing that in and ultimately getting to mass production and having it introduced into a device. And to your question on adoption rates, certainly we believe there's significant interest in our blue material

[Brian Millard, CFO at Universal Display Corporation]

from our customers as well as the OEM community as well because of the benefits that it'll bring to the device. But we're really focused at this point on getting to commercial specs and performance, and then that enables adoption from there. So it's really hard to predict the slope of an adoption curve as we sit here today.

[Scott Searle, Managing Director and Senior Research Analyst at Roth Capital Partner]

Gotcha. Fair enough. I'll get back in the queue. Thanks.

[Brian Millard, CFO at Universal Display Corporation]

Thanks, Scott.

[Operator]

As a reminder, this is Star 1 on your telephone keypad if you would like to ask a question. Our next question comes from Nam Kim.

Hi. Thanks for taking my question. According to news article in August, I think a few months ago, LG Display successfully developed OLED panel using blue phosphorescent material. I tried to understand what it means here. Does it mean your blue material meets certain customer spec and are ready to ramp once they start mass production? I just tried to understand what this article means to Universal Display. Thank you.

[Brian Millard, CFO at Universal Display Corporation]

Yeah. So as you said, Nam, there was an article back in August alluding to LG Display using our material for some development. We've been working with them as well as others in blue development projects. And I think it's just indicative of progress. And we obviously can't comment on rumors and speculation that might be out there, but it shows that customers are using our material in a variety of different ways and applications. And we view any use of our material as being a positive one. And it was good to see that result that was published.

Okay. Thank you.

[Brian Millard, CFO at Universal Display Corporation]

Thanks, Nam.

[Operator]

Thank you. This will conclude our question-and-answer session. I would like to turn the program back to Brian Millard for any additional closing remarks.

[Brian Millard, CFO at Universal Display Corporation]

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

[Operator]

Thank you. This concludes today's conference. You may now disconnect.

Participants

Executives

• Brian Millard, CFO
• Darice Liu, Director of Investor Relations
• Steve Abramson, CEO

Analysts

• Martin Yang, Executive Director and Senior Analyst at Oppenheimer & Company
• Scott Searle, Managing Director and Senior Research Analyst at Roth Capital Partner