Universal Display Corporation Announces Third Quarter 2018 Financial Results

Nov 1, 2018

EWING, N.J.--(BUSINESS WIRE)-- 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, 2018.

“During the quarter, we saw a pick-up in the smartphone market, driven by a number of new OLED display launches, including mobile products from Apple, Google, Huawei, LG, Samsung and others,” said Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display. “We believe that these launches are indicative of the increasing demand and value of OLEDs in leading OEM product roadmaps, and reinforces the strong secular OLED growth story. However, the magnitude of the second-half pick-up in our material sales is not shaping up to the degree that we had earlier forecasted.”

Rosenblatt continued, “As we look to 2019, we anticipate it to be a meaningful year of growth. With the continued proliferation of OLEDs across the consumer electronics market, the introduction of new form factors that will pave the way for new ideas and applications, and new production capacity that is expected to expand the panel maker landscape, coupled with billions of dollars committed to advancing the commercialization of OLEDs, we believe that OLEDs are poised to become the dominant display technology in the long-term.”

Financial Highlights for the Third 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 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.

  • Total revenue increased 26% to $77.6 million in the third quarter of 2018, compared with $61.7 million in the third quarter of 2017. Total revenue for the third quarter of 2018 would have been $91.6 million 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.
  • Revenue from material sales increased 9% to $51.2 million in the third quarter of 2018, compared with $47.0 million in the third quarter of 2017. The increase in material sales was due to increasing OLED panel demand.
  • Revenue from royalty and license fees increased 94% to $23.3 million in the third quarter of 2018, compared with $12.0 million in the third quarter of 2017. Revenue from royalty and license fees for the third quarter of 2018 would have been $36.9 million, or $13.6 million higher without the impact of ASC Topic 606.
  • Cost of materials increased 17% to $13.8 million in the third quarter of 2018, compared with $11.8 million in the third quarter of 2017.
  • Operating income increased by $10.2 million to $26.0 million in the third quarter of 2018, compared with $15.8 million in the third quarter of 2017.
  • Net income increased by $9.3 million to $22.8 million or $0.48 per diluted share in the third quarter of 2018, compared with $13.5 million or $0.28 per diluted share in the third quarter of 2017.
   

Revenue Comparison

 
($ in thousands) Three Months Ended September 30,
2018     2017
Material sales $ 51,242 $ 47,041
Royalty and license fees 23,325 12,013
Contract research services   2,983   2,629
Total revenue $ 77,550 $ 61,683
 
   

Cost of Materials Comparison

 
($ thousands) Three Months Ended September 30,
2018   2017
Material sales $ 51,242 $ 47,041
Cost of material sales   13,808   11,755
Gross margin on material sales 37,434 35,286
Gross margin as a % of material sales 73 % 75 %
 
           

Topic 606 versus 605 Adjusted Results

 

 

 

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

As reported Adjustment

Balances without
adoption of Topic
606

Revenue $ 77,550 $ 14,054 $ 91,604
Gross margin 61,427 14,054 75,481
Operating income 26,032 14,054 40,086
Net income 22,818 11,384 34,202
Diluted earnings per share $ 0.48 $ 0.24 $ 0.72
 

Financial Highlights for the First Nine Months of 2018

  • Total revenue decreased 19% to $177.3 million in the first nine months of 2018, compared with $219.8 million in the first nine months of 2017. Total revenue would have been $233.4 million in the 2018 period, or $56.1 million higher, without the impact of ASC Topic 606.
  • Revenue from material sales decreased 19% to $113.3 million in the first nine months of 2018, compared with $140.5 million in the first nine months of 2017. The Company believes that the decline in material sales was due to weaker OLED panel demand.
  • Revenue from royalty and license fees decreased 25% to $54.8 million in the first nine months of 2018, compared with $72.7 million in the first nine months of 2017. Revenue from royalty and license fees would have been $108.0 million in the 2018 period, or $53.2 million higher without the impact of ASC Topic 606.
  • Cost of materials decreased 15% to $28.8 million in the first nine months of 2018, compared with $33.7 million in the first nine months of 2017.
  • Operating income decreased by $46.9 million to $41.5 million in the first nine months of 2018, compared with $88.4 million in the first nine months of 2017.
  • Net income decreased by $31.5 million to $39.6 million or $0.83 per diluted share in the first nine months of 2018, compared with $71.1 million or $1.49 per diluted share in the first nine months of 2017.
 

Revenue Comparison

 
($ in thousands)     Nine Months Ended September 30,
2018     2017
Material sales $ 113,325 $ 140,506
Royalty and license fees 54,758 72,705
Contract research services   9,188   6,551
Total revenue $ 177,271 $ 219,762
 
 

Cost of Materials Comparison

 
($ thousands)     Nine Months Ended September 30,
2018   2017
Material sales $ 113,325 $ 140,506
Cost of material sales   28,782   33,748
Gross margin on material sales 84,543 106,758
Gross margin as a % of material sales 75 % 76 %
 
           

Topic 606 versus 605 Adjusted Results

 

 

 

For the nine months ended September 30, 2018 (in thousands)

As reported Adjustment

Balances without
adoption of Topic
606

Revenue $ 177,271 $ 56,177 $ 233,448
Gross margin 142,055 56,177 198,232
Operating income 41,462 56,177 97,639
Net income 39,591 45,643 85,234
Diluted earnings per share $ 0.83 $ 0.97 $ 1.80
 

2018 Revised 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 now believes that its 2018 revenue will be approximately in the range of $240 million to $250 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 $315 million to $325 million.

Dividend

The Company also announced a fourth quarter cash dividend of $0.06 per share on the Company’s common stock. The dividend is payable on December 28, 2018 to all shareholders of record on December 14, 2018.

Conference Call Information

In conjunction with this release, Universal Display will host a conference call on Thursday, November 1, 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. 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 4,800 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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UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

(in thousands, except share and per share data)

 
    September 30, 2018   December 31, 2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 101,638 $ 132,840
Short-term investments 391,972 287,446
Accounts receivable 43,207 52,355
Inventory 69,031 36,265
Other current assets   11,943   10,276
Total current assets 617,791 519,182

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $42,425 and $36,368

67,467 56,450

ACQUIRED TECHNOLOGY, net of accumulated amortization of $106,755 and $91,312

116,086 131,529
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $3,036 and $2,000 13,804 14,840
GOODWILL 15,535 15,535
INVESTMENTS 14,794
DEFERRED INCOME TAXES 13,910 27,022
OTHER ASSETS   39,151   604
TOTAL ASSETS $ 883,744 $ 779,956
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,330 $ 13,774
Accrued expenses 31,790 35,019
Deferred revenue 69,143 14,981
Other current liabilities   16   50
Total current liabilities 114,279 63,824
DEFERRED REVENUE 40,684 23,902
RETIREMENT PLAN BENEFIT LIABILITY 34,937 33,176
OTHER LIABILITIES   18,337  
Total liabilities   208,237   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, 48,672,538 and 48,476,034 shares issued, and 47,310,901 and 47,118,171 shares outstanding, at September 30, 2018 and December 31, 2017, respectively

487 485
Additional paid-in capital 613,310 611,063
Retained earnings 112,337 99,126
Accumulated other comprehensive loss (9,994 ) (11,464 )

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

  (40,635 )   (40,158 )
Total shareholders’ equity   675,507   659,054
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 883,744 $ 779,956
 

 
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(in thousands, except share and per share data)

 
   

Three Months Ended
September 30,

 

Nine Months Ended
September 30,

2018   2017 2018   2017
REVENUE $ 77,550 $ 61,683 $ 177,271 $ 219,762
COST OF SALES   16,123   13,465   35,216   37,762
Gross margin 61,427 48,218 142,055 182,000
OPERATING EXPENSES:
Research and development 13,616 11,596 38,922 34,099
Selling, general and administrative 12,120 11,695 34,473 31,611
Amortization of acquired technology and other intangible assets 5,493 5,498 16,479 16,485
Patent costs 1,937 1,875 5,691 5,096
Royalty and license expense   2,229   1,764   5,028   6,342
Total operating expenses   35,395   32,428   100,593   93,633
OPERATING INCOME 26,032 15,790 41,462 88,367
Interest income, net 2,118 861 5,155 2,328
Other (expense) income, net   (7 )   6   (66 )   (7 )
Interest and other (expense) income, net   2,111   867   5,089   2,321
INCOME BEFORE INCOME TAXES 28,143 16,657 46,551 90,688
INCOME TAX EXPENSE   (5,325 )   (3,137 )   (6,960 )   (19,616 )
NET INCOME $ 22,818 $ 13,520 $ 39,591 $ 71,072
NET INCOME PER COMMON SHARE:
BASIC $ 0.48 $ 0.28 $ 0.83 $ 1.50
DILUTED $ 0.48 $ 0.28 $ 0.83 $ 1.49
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE:
BASIC 46,869,998 46,801,051 46,841,036 46,716,726
DILUTED 46,914,553 46,871,720 46,893,768 46,793,429
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.06 $ 0.03 $ 0.18 $ 0.09
 
 
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(in thousands)

 
    Nine Months Ended September 30,
2018   2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 39,591 $ 71,072
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred revenue and recognition of unbilled receivables (52,325 ) (7,206 )
Depreciation 6,094 3,638
Amortization of intangibles 16,479 16,485
Inventory write-down 1,045
Amortization of premium and discount on investments, net (4,191 ) (2,055 )
Stock-based compensation to employees 9,697 8,467
Stock-based compensation to Board of Directors and Scientific Advisory Board 3,234 1,890
Earnout liability recorded for Adesis acquisition 509
Deferred income tax expense 15,820 6,804
Retirement plan expense 3,378 3,214
Decrease (increase) in assets:
Accounts receivable 9,148 (18,262 )
Inventory (33,811 ) (15,419 )
Other current assets (116 ) (2,835 )
Other assets (37,769 ) (40 )
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 439 3,904
Other current liabilities (34 ) (768 )
Deferred revenue 99,940 1,863
Other liabilities   18,337  
Net cash provided by operating activities   94,956   71,261
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (20,925 ) (23,221 )
Purchases of investments (500,985 ) (456,264 )
Proceeds from sale of investments   415,697   351,024
Net cash used in investing activities   (106,213 )   (128,461 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 616 529
Repurchase of common stock (477 )
Proceeds from the exercise of common stock options 29
Payment of withholding taxes related to stock-based compensation to employees (11,598 ) (9,330 )
Cash dividends paid   (8,486 )   (4,240 )
Net cash used in financing activities   (19,945 )   (13,012 )
DECREASE IN CASH AND CASH EQUIVALENTS (31,202 ) (70,212 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD   132,840   139,365
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 101,638 $ 69,153
The following non-cash activities occurred:
Unrealized gain (loss) on available-for-sale securities $ 274 $ (117 )

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 3,814 2,572
 

Universal Display Corporation
Darice Liu, +1 609-964-5123
investor@oled.com
media@oled.com

Source: Universal Display Corporation