Market Overview

Universal Display Corporation Announces Second Quarter 2018 Financial Results

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Universal
Display Corporation
(NASDAQ:OLED), enabling energy-efficient
displays and lighting with its UniversalPHOLED®
technology and materials, today reported financial results for the
second quarter ended June 30, 2018.

"In the second quarter, we saw material sales improving off what we
believed to be a first quarter ‘bottom' for material shipments," said
Sidney D. Rosenblatt, Executive Vice President and Chief Financial
Officer of Universal Display. "With anticipated new OLED product
launches from leading OEMs around the world, we continue to expect an
additional pick-up in orders and revenues in the second half of the
year. As we look to 2019, we continue to anticipate it to be a
meaningful year of growth."

Rosenblatt continued, "We believe that 2019 is poised to be a pivotal
year for the OLED industry. With the multi-year OLED capex growth cycle
of new production lines, the landscape of OLED capacity is expected to
significantly widen. This, we believe, will drive broader adoption of
OLEDs across the consumer electronics market, and fuel substantial
growth in the OLED industry. Additionally, we expect the long-awaited
introduction of the world's first foldable OLED product next year to
pave the cutting-edge and innovative form factor path. From conformable,
to foldable, to rollable, the disruptive and exciting force of OLEDs
promises to enlarge the industry with new applications and new markets
the imagination has yet to devise."

Financial Highlights for the Second Quarter of
2018

Effective January 1, 2018, we adopted ASC Topic 606 using the "modified
retrospective" approach, meaning the standard was applied only to the
financial results of the first quarter of 2018 with a cumulative
adjustment to retained earnings. Under this transition method, we
applied the standard only to contracts that were not complete at the
initial adoption date.

  • Total revenue decreased 45% to $56.1 million in the second quarter of
    2018, compared with $102.5 million in the second quarter of 2017.
    Total revenue for the second quarter of 2018 would have been $73.6
    million, or $17.5 million higher without the impact of ASC Topic 606.
    Under ASC Topic 606, license fee revenue is recognized on a per gram
    sales basis, whereas under the previous rules, revenue was recognized
    for license payments upon receipt or on a straight-line basis over the
    term of the contract. In the previous year, a $45.0 million
    semi-annual license fee payment was receipted from SDC in the second
    quarter of 2017 and included in the prior year's revenue.
  • Revenue from material sales decreased 21% to $36.8 million in the
    second quarter of 2018, compared with $46.8 million in the second
    quarter of 2017. The Company believes that the decline in material
    sales was due to weak OLED panel demand resulting from the softness in
    the premium smartphone market, and material inventory pre-purchases
    that occurred in 2017.
  • Revenue from royalty and license fees decreased 71% to $15.5 million
    in the second quarter of 2018, compared with $53.7 million in the
    second quarter of 2017. Revenue from royalty and license fees for the
    second quarter of 2018 would have been $33.9 million, or $18.4 million
    higher without the impact of ASC Topic 606.
  • Cost of materials decreased 6% to $9.3 million in the second quarter
    of 2018, compared with $9.9 million in the second quarter of 2017.
  • Operating income decreased by $49.6 million to $10.9 million in the
    second quarter of 2018, compared with $60.5 million in the second
    quarter of 2017.
  • Net income decreased by $36.4 million to $10.8 million or $0.23 per
    diluted share in the second quarter of 2018, compared with $47.2
    million or $0.99 per diluted share in the second quarter of 2017.
 

Revenue Comparison

 
($ in thousands)     Three Months Ended June 30,
2018     2017
Material sales $ 36,833 $ 46,828
Royalty and license fees 15,523 53,667
Contract research services   3,793   2,018
Total revenue $ 56,149 $ 102,513
 
 

Cost of Materials Comparison

 
($ thousands)     Three Months Ended June 30,
2018   2017
Material sales $ 36,833 $ 46,828
Cost of material sales   9,284   9,894
Gross margin on material sales 27,549 36,934
Gross margin as a % of material sales 75 % 79 %
 
 

Topic 606 versus 605 Adjusted Results

           

 

 

For the three months ended June 30, 2018 (in thousands)

As reported Adjustment

Balances without
adoption of Topic
606

Revenue $ 56,149 $ 17,470 $ 73,619
Gross margin 44,514 17,470 61,984
Operating income 10,911 17,470 28,381
Net income 10,814 14,290 25,104
Diluted earnings per share $ 0.23 $ 0.31 $ 0.54
 

Financial Highlights for the First Half of 2018

  • Total revenue decreased 37% to $99.7 million in the first half of
    2018, compared with $158.1 million in the first half of 2017. Total
    revenue would have been $141.8 million in the 2018 period, or $42.1
    million higher, without the impact of ASC Topic 606.
  • Revenue from material sales decreased 34% to $62.1 million in the
    first half of 2018, compared with $93.5 million in the first half of
    2017. The Company believes that the decline in material sales was due
    to weak OLED panel demand resulting from the softness in the premium
    smartphone market, and material inventory pre-purchases that occurred
    in 2017.
  • Revenue from royalty and license fees decreased 48% to $31.4 million
    in the first half of 2018, compared with $60.7 million in the first
    half of 2017. Revenue from royalty and license fees would have been
    $71.0 million in the 2018 period, or $39.6 million higher without the
    impact of ASC Topic 606.
  • Cost of materials decreased 32% to $15.0 million in the first half of
    2018, compared with $22.0 million in the first half of 2017.
  • Operating income decreased by $57.2 million to $15.4 million in the
    first half of 2018, compared with $72.6 million in the first half of
    2017.
  • Net income decreased by $40.8 million to $16.8 million or $0.35 per
    diluted share in the first half of 2018, compared with $57.6 million
    or $1.21 per diluted share in the first half of 2017.
 

Revenue Comparison

 
($ in thousands)     Six Months Ended June 30,
2018     2017
Material sales $ 62,083 $ 93,465
Royalty and license fees 31,434 60,692
Contract research services   6,204   3,922
Total revenue $ 99,721 $ 158,079
 
   

Cost of Materials Comparison

 
($ thousands) Six Months Ended June 30,
2018   2017
Material sales $ 62,083 $ 93,465
Cost of material sales   14,974   21,993
Gross margin on material sales 47,109 71,472
Gross margin as a % of material sales 76 % 76 %
 
 

Topic 606 versus 605 Adjusted Results

 

 

 

For the six months ended June 30, 2018 (in thousands)

    As reported     Adjustment    

Balances without
adoption of Topic
606

Revenue $ 99,721 $ 42,123 $ 141,844
Gross margin 80,628 42,123 122,751
Operating income 15,430 42,123 57,553
Net income 16,773 34,259 51,032
Diluted earnings per share $ 0.35 $ 0.74 $ 1.09
 

2018 Guidance

Although the OLED industry is still at an early state where many
variables can have a material impact on its growth, and the Company thus
caveats its financial guidance accordingly, the Company continues to
expect that its 2018 revenues will be in the range of $280 million to
$310 million. The guidance was prepared utilizing accounting standard
ASC Topic 606; under the prior accounting standard ASC Topic 605, the
Company estimates that its 2018 revenues would be approximately 10% to
15% higher than the revenue guidance range.

Dividend

The Company also announced a third quarter cash dividend of $0.06 per
share on the Company's common stock. The dividend is payable on
September 28, 2018 to all shareholders of record on September 15, 2018.

Conference Call Information

In conjunction with this release, Universal Display will host a
conference call on Thursday, August 9, 2018 at 5:00 p.m. Eastern Time.
The live webcast of the conference call can be accessed under the events
page of the Company's Investor Relations website at ir.oled.com.
Those wishing to participate in the live call should dial 1-877-524-8416
(toll-free) or 1-412-902-1028, and reference conference ID 13681536.
Please dial in 5-10 minutes prior to the scheduled conference call time.
An online archive of the webcast will be available within two hours of
the conclusion of the call.

About Universal Display Corporation

Universal Display Corporation (NASDAQ:OLED) is a leader in developing
and delivering state-of-the-art, organic light emitting diode (OLED)
technologies, materials and services to the display and lighting
industries. Founded in 1994, the Company currently owns or has
exclusive, co-exclusive or sole license rights with respect to more than
4,700 issued and pending patents worldwide. Universal Display licenses
its proprietary technologies, including its breakthrough high-efficiency
UniversalPHOLED® phosphorescent OLED technology that can enable the
development of low power and eco-friendly displays and solid-state
lighting. The Company also develops and offers high-quality,
state-of-the-art UniversalPHOLED materials that are recognized as key
ingredients in the fabrication of OLEDs with peak performance. In
addition, Universal Display delivers innovative and customized solutions
to its clients and partners through technology transfer, collaborative
technology development and on-site training.

Headquartered in Ewing, New Jersey, with international offices in China,
Hong Kong, Ireland, Japan, South Korea, and Taiwan, and wholly-owned
subsidiary Adesis, Inc. based in New Castle, Delaware, Universal Display
works and partners with a network of world-class organizations,
including Princeton University, the University of Southern California,
the University of Michigan, and PPG Industries, Inc. The Company has
also established relationships with companies such as AU Optronics
Corporation, BOE Technology, DuPont Displays, Inc., EverDisplay
Optronics (Shanghai) Limited, Govisionox Optoelectronics, Innolux
Corporation, Japan Display Inc., Kaneka Corporation, Konica Minolta
Technology Center, Inc., LG Display Co., Ltd., Lumiotec, Inc., OLEDWorks
LLC, OSRAM, Pioneer Corporation, Royole Corporation, Samsung Display
Co., Ltd., Sharp Corporation, Sumitomo Chemical Company, Ltd., Tianma
Micro-electronics, Tohoku Pioneer Corporation, and Visionox Technology.
To learn more about Universal Display Corporation, please visit https://oled.com/.

Universal Display Corporation and the Universal Display Corporation logo
are trademarks or registered trademarks of Universal Display
Corporation. All other company, brand or product names may be trademarks
or registered trademarks.

All statements in this document that are not historical, such as
those relating to Universal Display Corporation's technologies and
potential applications of those technologies, the Company's expected
results and future declaration of dividends, as well as the growth of
the OLED market and the Company's opportunities in that market, are
forward-looking financial statements within the meaning of the Private
Securities Litigation Reform Act of 1995. You are cautioned not to place
undue reliance on any forward-looking statements in this document, as
they reflect Universal Display Corporation's current views with respect
to future events and are subject to risks and uncertainties that could
cause actual results to differ materially from those contemplated. These
risks and uncertainties are discussed in greater detail in Universal
Display Corporation's periodic reports on Form 10-K and Form 10-Q filed
with the Securities and Exchange Commission, including, in particular,
the section entitled "Risk Factors" in Universal Display Corporation's
annual report on Form 10-K for the year ended December 31, 2017.
Universal Display Corporation disclaims any obligation to update any
forward-looking statement contained in this document.

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(OLED-C)

 
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands, except share and per share data)

 
    June 30, 2018     December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 103,777 $ 132,840
Short-term investments 353,651 287,446
Accounts receivable 35,583 52,355
Inventory 56,043 36,265
Other current assets   20,311   10,276
Total current assets 569,365 519,182

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $40,769
and $36,368

62,348 56,450
ACQUIRED TECHNOLOGY, net of accumulated amortization of $101,611 and
$91,312
121,230 131,529
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $2,687
and $2,000
14,153 14,840
GOODWILL 15,535 15,535
INVESTMENTS 14,794
DEFERRED INCOME TAXES 10,534 27,022
OTHER ASSETS   40,084   604
TOTAL ASSETS $ 833,249 $ 779,956
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 7,863 $ 13,774
Accrued expenses 24,405 35,019
Deferred revenue 69,247 14,981
Other current liabilities   25   50
Total current liabilities 101,540 63,824
DEFERRED REVENUE 28,344 23,902
RETIREMENT PLAN BENEFIT LIABILITY 34,350 33,176
OTHER LIABILITIES   18,334  
Total liabilities   182,568   120,902
SHAREHOLDERS' EQUITY:

Preferred Stock, par value $0.01 per share, 5,000,000 shares
authorized, 200,000 shares of Series A Nonconvertible Preferred
Stock issued and outstanding (liquidation value of $7.50 per share
or $1,500)

2 2

Common Stock, par value $0.01 per share, 200,000,000 shares
authorized, 48,650,696 and 48,476,034 shares issued, and
47,289,059 and 47,118,171 shares outstanding, at June 30, 2018 and
December 31, 2017, respectively

487 485
Additional paid-in capital 608,932 611,063
Retained earnings 92,346 99,126
Accumulated other comprehensive loss (10,451 ) (11,464 )

Treasury stock, at cost (1,361,637 and 1,357,863 shares at June
30, 2018 and December 31, 2017, respectively)

  (40,635 )   (40,158 )
Total shareholders' equity   650,681   659,054
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 833,249 $ 779,956
 
 
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(in thousands, except share and per share data)

 
    Three Months Ended June 30,     Six Months Ended June 30,
2018     2017 2018     2017
REVENUE $ 56,149 $ 102,513 $ 99,721 $ 158,079
COST OF SALES   11,635   11,310   19,093   24,297
Gross margin 44,514 91,203 80,628 133,782
OPERATING EXPENSES:
Research and development 12,949 10,685 25,306 22,503
Selling, general and administrative 11,562 9,839 22,353 19,916
Amortization of acquired technology and other intangible assets 5,495 5,495 10,986 10,987
Patent costs 2,029 1,674 3,754 3,221
Royalty and license expense   1,568   2,991   2,799   4,578
Total operating expenses   33,603   30,684   65,198   61,205
OPERATING INCOME 10,911 60,519 15,430 72,577
Interest income, net 1,766 796 3,037 1,467
Other (expense) income, net   (12 )   6   (59 )   (13 )
Interest and other (expense) income, net   1,754   802   2,978   1,454
INCOME BEFORE INCOME TAXES 12,665 61,321 18,408 74,031
INCOME TAX EXPENSE   (1,851 )   (14,134 )   (1,635 )   (16,479 )
NET INCOME $ 10,814 $ 47,187 $ 16,773 $ 57,552
NET INCOME PER COMMON SHARE:
BASIC $ 0.23 $ 0.99 $ 0.35 $ 1.21
DILUTED $ 0.23 $ 0.99 $ 0.35 $ 1.21
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME PER COMMON
SHARE:
BASIC 46,868,999 46,742,746 46,826,314 46,702,376
DILUTED 46,901,098 46,810,238 46,873,109 46,781,120
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.06 $ 0.03 $ 0.12 $ 0.06
 
 
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(in thousands)

 
    Six Months Ended June 30,
2018     2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 16,773 $ 57,552
Adjustments to reconcile net income to net cash provided by
operating activities:
Amortization of deferred revenue and recognition of unbilled
receivables
(29,266 ) (4,873 )
Depreciation 4,422 2,398
Amortization of intangibles 10,986 10,987
Amortization of premium and discount on investments, net (2,329 ) (1,260 )
Stock-based compensation to employees 6,163 5,404
Stock-based compensation to Board of Directors and Scientific
Advisory Board
2,003 1,328
Earnout liability recorded for Adesis acquisition 469
Deferred income tax expense 19,312 7,408
Retirement plan expense 2,252 2,088
Decrease (increase) in assets:
Accounts receivable 16,772 (14,708 )
Inventory (19,778 ) (7,123 )
Other current assets (9,058 ) (799 )
Other assets (37,909 ) (10 )
Increase (decrease) in liabilities:
Accounts payable and accrued expenses (13,123 ) (1,916 )
Other current liabilities (25 ) (821 )
Deferred revenue 64,423 505
Other liabilities   18,334  
Net cash provided by operating activities   49,952   56,629
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (13,420 ) (9,717 )
Purchases of investments (260,711 ) (255,224 )
Proceeds from sale of investments   211,847   189,335
Net cash used in investing activities   (62,284 )   (75,606 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 436 349
Repurchase of common stock (477 )
Proceeds from the exercise of common stock options 30

Payment of withholding taxes related to stock-based compensation
to employees

(11,031 ) (8,501 )
Cash dividends paid   (5,659 )   (2,828 )
Net cash used in financing activities   (16,731 )   (10,950 )
DECREASE IN CASH AND CASH EQUIVALENTS (29,063 ) (29,927 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   132,840   139,365
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 103,777 $ 109,438
The following non-cash activities occurred:
Unrealized gain on available-for-sale securities $ 219 $ 140

Common stock issued to Board of Directors and Scientific Advisory
Board that was earned and accrued for in a previous period

300 300
Common stock issued to employees that was earned and accrued for in
a previous period
174
Net change in accounts payable and accrued expenses related to
purchases of property and equipment
3,100 4,169
 

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