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Universal Display Corporation Announces Third Quarter 2019 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 third quarter ended September 30, 2019.

"We are pleased to report another quarter of solid results," said Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display. "During the quarter, OLED activity continued to gain strength on a global scale. As a result, we are raising our 2019 revenue guidance and believe that we are well on track to deliver record revenues and earnings for the year, and expect this strength to continue into 2020."

Rosenblatt continued, "We believe that the proliferation of OLEDs across the consumer electronics spectrum is fueling a tremendous multi-year capex cycle. As panel makers continue to shift more of their focus to OLEDs as the future of displays, we are seeing a corresponding increase in OLED investment momentum. Based on our current forecasts and industry data, we believe market growth will continue and estimate that the installed capacity base of OLEDs at the end of 2021, as measured in square meters, will increase by approximately 50% over the installed capacity base at the end of 2019."

Financial Highlights for the Third Quarter of 2019

Effective January 1, 2018, we adopted ASC Topic 606 using the "modified retrospective" approach, meaning the standard was applied only to the financial results commencing with 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. Material sales and cost of material sales referenced below relate solely to OLED activity and exclude activity from contract research services.

  • Total revenue in the third quarter of 2019 was $97.5 million as compared to $77.6 million in the third quarter of 2018. On the basis of ASC Topic 605 (the applicable accounting standard prior to the adoption of ASC Topic 606), total revenue in the third quarter of 2019 would have been $97.7 million, compared to $91.6 million in the third quarter of 2018. Under ASC Topic 606, license fee revenue is recognized on a per gram sales basis, whereas under ASC Topic 605, revenue was recognized for license payments upon receipt or on a straight-line basis over the term of the contract. As we disclosed in last quarter's earnings release, we believe that during the second quarter of 2019, certain of our customers located in China accelerated emitter purchases to mitigate the impact from potential U.S. and China trade-related issues. We estimated that these pre-purchases increased revenue by $15 million to $20 million in the second quarter, pulled in from the second half of 2019.
  • Revenue from material sales was $51.8 million in the third quarter of 2019 as compared to $51.2 million in the third quarter of 2018. On an ASC Topic 605 basis, revenue from material sales in the third quarter of 2019 would have been $58.3 million, compared to $51.7 million in the third quarter of 2018.
  • Revenue from royalty and license fees was $43.0 million in the third quarter of 2019 as compared to $23.3 million in the third quarter of 2018. On an ASC Topic 605 basis, revenue from royalty and license fees in the third quarter of 2019 would have been $36.7 million as compared to $37.0 million in the third quarter of 2018.
  • Cost of materials was $15.2 million in the third quarter of 2019, compared to $13.8 million in the third quarter of 2018.
  • Operating income was $40.8 million in the third quarter of 2019 compared to $26.0 million in the third quarter of 2018. On an ASC Topic 605 basis, operating income in the third quarter of 2019 would have been $41.0 million, compared to $40.1 million in the third quarter of 2018.
  • Net income was $37.0 million or $0.78 per diluted share in the third quarter of 2019 compared to $22.8 million or $0.48 per diluted share in the third quarter of 2018. On an ASC Topic 605 basis, net income in the third quarter of 2019 would have been $37.1 million or $0.78 per diluted share, compared to $34.2 million or $0.72 per diluted share in the third quarter of 2018.

Revenue Comparison

(in thousands)

 

Three Months Ended September 30,

 

 

2019

 

 

2018

Material sales

 

$

51,837

 

 

$

51,242

Royalty and license fees

 

 

43,015

 

 

 

23,325

Contract research services

 

 

2,663

 

 

 

2,983

Total revenue

 

$

97,515

 

 

$

77,550

Cost of Materials Comparison

(in thousands)

 

Three Months Ended September 30,

 

 

2019

 

 

2018

Material sales

 

$

51,837

 

 

$

51,242

Cost of material sales

 

 

15,245

 

 

 

13,808

Gross margin on material sales

 

 

36,592

 

 

 

37,434

Gross margin as a % of material sales

 

 

71%

 

 

 

73%

Topic 606 versus 605 Adjusted Results

For the three months ended September 30, 2019 (in thousands)

 

As reported

 

 

Adjustment

 

 

Balances without

adoption of Topic

606

Revenue

 

$

97,515

 

 

$

183

 

 

$

97,698

Gross margin

 

 

80,229

 

 

 

183

 

 

 

80,412

Operating income

 

 

40,830

 

 

 

183

 

 

 

41,013

Net income

 

 

36,962

 

 

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