Q1 2021 Universal Display Corp Earnings Call
Good day, ladies and gentlemen, and welcome to Universal displays first quarter 2021 and earnings conference call. My name is Sherry and I will be your conference moderator for today's call. At this time all participants are in a listen only mode. A question and answer session will.
Following the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
Yeah.
As a reminder of 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.
Thank you and good afternoon, everyone welcome to Universal displays first quarter earnings Conference call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer, and Sid Rosenblatt Executive Vice President and Chief Financial Officer before Steve begins let me remind you today's call at the 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.
Further this call is being webcast live and will be made available for a period of time and universal displays website.
Call contains time sensitive information that is accurate only as of the date of the live webcast of this call may six 2021.
During this call we may make forward looking statements based and 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 and the company's periodic reports.
And with the SEC and should be referenced by anyone considering making any investments and the companys securities and the nerve.
First of all display disclaims any obligation to update any of these statements.
Now I would like to turn the call over to Steven Abramson.
Thanks, Doris and.
Welcome to everyone on today's call.
We are pleased to report that revenue and the first quarter of 2021 was $134 million operating profit was $63 $6 million and net income was $51 $7 million or dollar a per diluted share.
Since our last earnings call momentum and the OLED market continues to grow and small medium and large consumer electronic applications. We're seeing of growing proliferation of OLED smartphones, ranging from premium and mid range. The low end and Foldable and have launched and are slated to be launched this year.
OLED TV demand continues to rise.
The of market research recently reported that the average price of the 55 inch OLED panel declined eight 1% year over year and the first quarter of 2021, while LCD panel prices increased 73, 9% and in the same period as the result, the price delta between OLED and <unk>.
<unk> Tvs as further narrowed to $310 from $440.
The market is burgeoning with the launch of new products, just last month, new OLED laptops, including the Xiaomi Mi laptop Pro 15, and Dell Xps 13, 90, 310 were unveiled and.
And in the gaming market. There are reports out for the first time, Nintendo has selected and OLED screen for the new switch pro due to OLED benefits of higher contrast of faster response times.
The adoption of OLED continues to expand and is fueling the multiyear OLED capex growth cycle, and which we are in.
And March Samsung display announced that it will aggressively expand its web presence and the gaming smartphone and laptop markets. Samsung noted that its OLED displays of valuable feature befitting premium gaming content, such as fast response times vibrant colors of deep blacks last week Samsung.
And held its galaxy unpacked event and on the.
The other at Samsung Galaxy book Pro and Galaxy book Pro through 60, OLED laptops. These are Samsung first ever of Windows PC with Super Am OLED displays.
Swiss certification and testing company SGS, where the Galaxy book Pro and book grew 360 with eye care of display certification for reducing the harmful effects of blue light of admissions compared to standard LCD.
And during its recent earnings call that also took place last week Samsung comment on the growing adoption of OLED displays from flagship and mass mortgage smartphones to entry level more models growing year over year.
The company also known the growing contribution of OLED tablets, Pcs and Wearables, while also highlighting that it was continuing to advance its first mover lead and OLED displays.
LG display announced one of its recent earnings call. This first quarter 2021 OLED TV shipment level was on par with its seasonally strong fourth quarter 2020 shipments of $1 6 million units and reiterated its target of seven to 8 million OLED TV units this year and.
In addition, there has been reported that LG display will proceed with its investment for additional capacity and its OLED TV plant in Guangzhou China.
Lgd's second OLED TV subs current capacity of 60000 plates per month of Gen. Eight five substrates and the new phase will add 30000 plates per month of capacity, bringing the Guangzhou facility to 90000 plates per month on the small and medium front and it's been reported the LGD.
Is progressing with design wins, and the smartphone and automotive markets.
The late March Mercedes and reported partner of LG displays unveiled the interior cabin of its new flagship electric car. Each U S and is a unique 56 inch flexible OLED display. The is made from three different OLED that spans almost the entire width of the car.
The OE technology recently announced it had shipped approximately 36 million and flexible AMOLED panels in 2020.
And as Bo it looks to 2021 is targeting to double its AMOLED panel shipments once again.
On the capacity of front has been reported the Boe's third Gen six OLED fab and Chongqing will start production this year.
This new fab when fully ramped will have the capacity output of 48000 plates per months similar to Boe's two other gen six fab in Chengdu Mianyang.
And late March PMI held the ceremony to celebrate each new R&D center called the Hubei Yangtze River and novel display innovation the according to reports.
Reports one of the products of TMR showcase of the event with Coa or color filter oil encapsulation technology, which TMR calls CFO T for color filter on touch for Foldable displays.
And last month vision Ox announced additional smartphone design wins with honor the panel makers currently ramping as do Gen. Six flexible OLED fab and Hefei, which has the capacity of start of 30000 plates per month.
Switching gears to OLED lighting.
All of the unveiled the new concept of electric car, the <unk> E Tron and all of our Shanghai last month.
As noted by Audi one new feature is the three dimensional OLED Taillights. This architecture makes it possible to experience the dynamic OLED light show not only in two dimensions, both with and an impressive three of these special effect.
The also noted that the ultra bright homogenous and high contrast, digital OLED combination <unk> can increase the level of safety on the roads.
As all of the activity continues to flourish, we remained steadfast and our commitment to advancing our robust OLED materials and technology leadership.
On the materials front, we are investing innovating and commercializing new emissive materials and technologies, including the Reds Greens yellows and hosts with respect to Blue we continue to make excellent progress and our ongoing development work for a commercial phosphorescent Blue Emissive system.
We also continue to advance of work and organic vapor jet printing our novel manufacturing process for mask cliffs solvent was dry direct printing of large area of OLED panels and expect of an alpha system during 2020 two.
Is the exciting time, and the OLED industry and for US since our last call with you, we announced and along with TPG. We are jointly establishing a new manufacturing site and Shannon Ireland for the production of our highly efficient high performing universal forward materials.
The new facility will be designed to double the production capacity and diversified the manufacturing base for our phosphorescent emitters to meet the growing of wind market demand and evolving industry requirements.
Core sales and the first quarter of 2021 were $19 $1 million.
This compares to $14 $3 million in the fourth quarter of 2020 and $13 $9 million in the first quarter of 2020.
As we have discussed in the past material buying patterns can vary quarter to quarter.
Some of the contributing factors include COVID-19 issues as well as consumer product demand cycles.
Capacity ramp schedules production loading rates device recipes product mix material ordering patterns customer inventory levels and.
And customer production efficiency gains.
Since the number of these factors are moving variables for our customers.
They are also moving variables for us.
First quarter 2021 royalty and license fees were $50 $9 million. This compares to $75 million and the fourth quarter of 2020, and $43 $1 million and the first quarter of 2020.
First quarter 2021 of Dcs revenues were $3 3 million. This compares to $4 million in the fourth quarter of 2020, and $2 $6 million and the first quarter of 2020.
Cost of sales for the first quarter of 2021 were $23 3 million. This compares to $27 million and the fourth quarter of 2020, and $22 $5 million and the first quarter of 2020.
Cost of OLED material sales were $21 million translating into material gross margins of 74%.
This compares to 61% and in the fourth quarter of 2020, and the comparable year over year's quarter material gross margins of 70%.
As we have noted in the past material gross margins can vary quarter to quarter.
First quarter 'twenty, one operating expense excluding cost of sales was $47 1 million down from last quarter of $48 $8 million.
And up year over year from the comparable quarter of $45 $3 million.
Operating income was $63 $6 million for the first quarter of 2021 compared to last quarter $65 $8 million and the year over year comparable quarter's $44 5 million.
First quarter 2021 income tax rate was 18, 9%.
Net income for the first quarter of 2021 was $51 $7 million or dollar rate per diluted share.
This compares to last quarter's $53 $9 million or of $1 13 per diluted share and the comparable year over year's quarter of $38 2 million or <unk> 80 per diluted share.
We ended the quarter with approximately $727 million and cash and equivalents were $15.36 of cash per diluted share.
Moving along the guidance our outlook for the year remains unchanged as we noted in last quarter's conference call. We expect 2021 revenues to be in the range of $530 million to $560 million.
With the ratio of material royalty license revenue is expected to be in the ballpark of one five to one.
And lastly, our board of directors approved a 20 <unk> quarterly dividend, which will be paid on June 32021 to stockholders of record as of the close of business on June 15 2021.
The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders.
With that I will turn the call back to Steve.
Thanks, Ed.
Last month, we celebrated our 25th year as the NASDAQ listed company by virtually ringing the opening bell at.
It was an incredible milestone that we share with our employees customers partners and all of our stakeholders.
For 27 years of which 25 years has been at the NASDAQ listed company Universal display Corporation has stood for vision and innovation and reality.
1990 for our founder assurance, Alex and learned about the novel technology called organic light emitting diodes of OLED and for solids revolutionary path and the display and lighting landscape and sort of began universal display story.
1996, when bulky crts were still and everyone's homes, we took the company public with just the Princeton University research contract, New full time employees and one patent.
And so the 17 years of breakthroughs challenges and triumphs to achieve our first profit and 2011, and we have been profitable ever since.
Since our inception and 1990 for we have invested approximately $700 million re.
Research and development to advance our company from a startup to a leading player and the global OLED ecosystem, and we continue to invest heavily and a number of strategic OLED programs for our long term growth.
Our technologies and energy efficient phosphorescent materials can be found in virtually every commercial OLED display and lighting product in the world.
You can learn more about our phosphorescent technology and as well as our strong corporate stewardship and our recently published 2020 corporate social responsibility report, which can be found on our website.
And finally, I would like to take this opportunity to thank each of our employees for their drive desire dedication and heart and L.
<unk> and shape of universal displays of accomplishments and advancements we are committed to be a leader and the OLED ecosystem and 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.
Thank you Mr Abramson.
At this time well be conducting a question and answer session and people.
I'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question and kill you May Press Star two and he would like to aim of your question from the queue and.
And for participants using speaker equipment and made the necessary to pick up of your handset before pressing the star keys.
Our first question is from Brian Lee with Goldman Sachs. Please proceed.
Hey, everyone. Thanks for taking the questions.
Kudos on the the solid quarter here.
And I guess in terms of guidance and I'm, just trying to understand a little bit about the thought process and reiterating guidance you just did $134 million and Q1 revenue. So you're basically implying flat revenue for the next three quarters to get to the low end of guidance maybe of 140 million a quarter.
To get to the high end and we've typically seen in Q1 and beyond the low end of revenue seasonally for you outside of the inventory build period. So I guess the question is the is the guidance embedding a lot of conservatism here and is it due to supply chain risk or is there something about Q1 results that may be aren't going to flow through into higher growth and the next few quarters like we typically see so.
Trying to reconcile a bit here.
Chamberlain and the throes of idea of your line is muted.
Good.
This is Steve my lines, Okay, Sid mirrors.
And I'm, sorry is that better.
Yep.
Hum.
So.
Brian in terms of I apologize for that and then in terms of our guidance for the year. We do believe that the $5 60, the three to $5 30 to $5 60.
Is in the range that we expect for the year.
And I know that and when you do the math it doesn't quite look like there's as.
And as we said on the other call. We expect the second half of it would be better than the first half, but the ongoing pandemic has resulted and supply chain disruptions, including some semiconductors and.
And we think it's best right now to maintain our guidance, which were currently comfortable with.
Okay fair enough just to be clear.
There's nothing unique about Q. Unlike pull forward of inventory builds like we've seen and certain periods over the past several years you wouldn't there's nothing you called out so I'm, assuming it's a if there is nothing notable about the.
The sort of demand patterns you saw in the quarter.
No nothing.
Nothing in there I mean, as you know historically as you've seen.
By quarter, it can be lumpy by customer and.
And you know and.
As you can see and this quarter with Chinese customers being higher versus last quarter.
Fair enough and then last one from me also on the guidance and I'll I'll pass it on the Hill.
Gross margin, 74% of materials, I know, it's going to be lumpy and and bounce around its.
We have proven to be that way just if you look at Q4 of the key one progression, but coming into the year. It sounded like you had a bit more muted view on what the gross margin result would be for materials and 2021 versus historical and then.
And you come right out and you're back to the historical level, so any thoughts or changes and thoughts around the gross margins that you could achieve on materials for the year.
No.
And obviously, our gross margins are as these state of the dependent upon our product mix and this brought this quarter's product mix really translated into about the 70% gross margin range, we still think that for the year.
It's going to be 65% to 70% and you know as we talked about and the fourth quarter. There were some things and the fourth quarter that really effective which are of developmental materials, which were sold and the fourth quarter and the larger quantity than historically and that's lumpy also.
Oh.
Alright, Thanks, guys I'll pass it on alright.
Alright, Thank you Brian.
Our next question is from Krishna Shankar with Cowen and company. Please proceed.
Yeah, Hi, Thanks for taking my question I have two of them close one.
And a really good thing from China and understand the largest customers obviously expanding.
And China I'm, just wondering as they expand and as the efficiency and improve do you think of the risk.
That the business from that customer and like slowdown and given that they had debt of initiatives and the path, which might get us all down the road and out of a follow up.
Well it is.
As it has historically with Chinese customers been lumpy and.
And so yes and.
It's difficult for us to predict I mean, obviously, we spend a lot of time talking to our customers and we've built and what we believe to be the.
Where we think will be for the air and to our guidance, but it really there is the number of issues that will affect the rest of the year, which you know theres COVID-19 issues and some of the.
Semiconductor weakness issue, so you know where we're comfortable.
<unk>, where we are.
Got it and go and if the helpful and then as a quick follow up.
And how should we think about the opex growth for the size of the theme that you reiterated last quarter.
Yeah, and we gave guidance and the last quarter of Opex growth, which where he talked about it.
And we expect it to increase from the range of quantity of 25% year over year of.
R&D of about 25% SG&A about 15, you know and which and the and increased spending on Ob J P.
And that developed and developing that technology, and we expect our tax rates of about 19% give or take a few basis points. We do expect our 2021 operating margins to be approximately 40 to 45 per cent.
Thank you very much all of them back in the queue. Thank.
Thank you.
Our next question is from.
Midi per Sahni with S. E T. Please proceed.
Yes, thank you and and.
Steve Thanks, so much for all of the details and especially with the evolving and market them.
The penetration and landscape I just.
Wanted to reconcile something and.
When I look at Samsung and LG and it seems to me that and.
And over the past, maybe three to six months and there is less of the OLED, capex, and especially with China and doing really well, we'll see the maybe the LCD Capex has gone up and I'm, just trying to reconcile and the near term. If there is a downward pressure and OLED capex, how does that change your view on it and market demand.
Or a square inch of the OLED the shipment in 2020, two and I have a follow up.
Well I think right now in terms of.
Yeah.
What the customers are saying and all of our customers have noted on our recent calls they're committed to OLED and I think that there has been you know theres, obviously demand and market issues that may.
Cause some changes, but we believe that the proliferative proliferation of Oleds is really and the very beginning and it's it's a really young industry. We think that our customers are really wed to OLS and everything that you hear about it will there be some things that maybe he gets it.
Wait a little bit here and there, yes, but overall, we really are very bullish on where the market is going.
Got it thank you and then.
And I'm, just trying to better understand and market dynamics and I do think that OLED.
For like Tvs offer something unique, especially with Samsung and a true.
And to build out and and market presence and the high and with the quantum dot OLED, but is there anything other than that and like in terms of the quality of the display or or an 8-K that you can offer us to better understand how all of that.
Compares to emerging new technologies like and many L D.
Well the mini Leds is and LCD technology, I mean OLED technology.
As you know.
Has been is power efficient. It gives you the best picture quality, whether it's Tvs or for mobile devices and.
And you know, it's not a back of the technology is less complicated.
And as you see debt that for mobile devices, where almost the third of the smartphone market with <unk> and we're moving into the low and mid range with OLED displays when mobile devices. So the benefits of and OLED compared the L. C DS whether its mini Leds or other.
A L. C. D's is the benefits of OLED technology. It gives you a thin form factor I think that flexibility bendable role of both technology is something that no. Other technology can do so when you look at all of the benefits of all of that we've talked about for all of these years, that's really why it is.
As in the mobile devices first because of the power efficiency and.
And for Tvs, and it's the best picture quality.
Alright, thank you.
Thank you.
Our next question as from the C J Muse with Evercore ISI. Please proceed.
Yes, good afternoon, and thank you for taking the question I guess first question.
Pretty surprised your deferred revenues actually increased Q on Q.
And your LG revenues came in a little bit light at least versus our expectations. So curious is that a result of of your new agreement with LG and <unk> and I guess could you expand on that.
Yeah, the new extended five year agreement with LG and vision Docs were effective on January one 2021 and.
And you know they and at the end of 2025 the impact as you know under ASC 606, we expect this.
And just to continue but the fact that we did this this is this is the new agreement essentially for LG. So you do see changes because we signed these agreements and deferred revenue.
So was there and expectation for greater revenues here and in 2020, one before signing that agreement and and and what kind of changes and has that had on your outlook for calendar 'twenty one revenues.
And we were we're comfortable with our guidance.
Where we are of I didn't expect it to change our 2021 revenue guidance by signing these agreements I mean, when we gave our guidance we kind of knew what was going on with these agreements. They just weren't executed until then but we knew what the results would be.
Great.
Follow up yeah big numbers from <unk>.
Well as Jim and.
And I guess the question here is.
Is that supply chain risk mitigation in terms of building some inventory or is there concern and in China around getting access to materials out of the U S. Given rising U S China tensions.
And the revenues from China did increase obviously, but as you know.
Historically, they have really been lumpy.
There's nothing that we've called out specifically and this quarter as we have and the past when the customers told us that that's what they're doing we just think that the.
It's customer by customer and purchasing department by purchasing Department.
Thank you.
Thanks P J.
Our next question is from Shannon Cross with Cross Research. Please proceed.
Thank you very much just a couple of questions.
You said you have about I think that's what's right 30 per cent of the smartphone market at this 0.1 per cent of the market do you think is addressable to you given where pricing is maybe and the next couple of years, just trying to think of what what opportunity for upside there is especially with some of the comments out of Samsung recently.
Yeah, I think that you know the addressable market. Eventually we believe will be the entire smartphone market. Samsung is moving from the high end to the mid range and they now have some low end phones that I think entry level phones that are and the $240 range or something like that so.
We do think that this will continue to grow.
And and how are you thinking about.
China, Tvs and for them and OLED perspective, not necessarily the vendors, but the market in general.
I know there was some pressure on our.
Trying to see the market I guess it was last year and are you expecting to see it kind of rebound when you look at the second half.
And in terms of market the perspective.
And where it's difficult for us and talk about one area, specifically and another I mean, I think that OLED.
OLED Tvs are the best T V's ever.
Think that some of the pressure that you saw was pretty much across the board and on the demand side the.
There was weakness because of COVID-19.
Okay.
And my final question is just with regard to inflationary pressures that people are saying out there are you seeing any pressures on material and as required by U P. T. G. And you know do you feel like you'll have the opportunity if you need to and I'm not sure you even when he came here, but two line pushed pricing you know through to some of the.
Partners again on the material side.
Well the there's two answers to that question one as we've stated in the past our contracts have pricing for the length of the contract.
And so pushing some things for would be difficult there. The the one thing that we've talked about as iridium and Iridium has gone up with we have actually for a number of years been managing iridium and we've been building of inventory that you can see on our balance sheet of raw materials going up every quarter and that we wanted to make.
Sure that a we have a constant supply of heavy.
The significant amount of inventory that we have and that has allowed us to manage our cost structure.
Okay. Thank you.
Thanks Shannon.
Our next question is from Sydney.
And with Deutsche Bank. Please go ahead.
Yeah.
Thanks for taking my question. My first question is the and reiterating your full year revenue guidance. It sounds like you are being a little conservative.
For the supply chain disruptions do you have an estimate of how much that may impact your revenue guidance for this year and.
And if he can the follow up to that is where are you seeing the most impact of the supply chain disruptions I assume that's not from your supply chain and.
And then I'll follow up ex.
Well I mean to be honest, I mean and given.
And we obviously don't give quarterly guidance or give guidance and all of the components of that we're seeing are but.
One of the issues that are just talked about with Shannon was iridium, but right now our materials have iridium and it but that's not the only component. So that you know there's a number of you.
And in the in that is the number of other materials overhead and a lot of other things. That's in it. So that that is knock on impact of every dollar doesn't go of dollar increases.
So but in terms of what we're seeing with we're still comfortable with our guidance. We were as we said on the last call you got COVID-19 issues that still could impact what we're doing and the demand side, whether it completely recovers and how fast it does which is why we have a range.
Of $5 30 to $5 60. So we are we are still comfortable with where we are at this time.
Yeah.
Yeah.
Okay, maybe and I follow up question is on the I T side of things I know there and number of models that the companies have the mouse, but Apple has officially announced the many LCD display does that change the feel about the opportunity.
For all of that display and it's specifically and the I T market and I know you addressed the TD market and then really getting at the different question. Thanks.
Well I you know I think that the industry is still young you've heard theres, a big push from Samsung and the I T market I think you know talking about Apple and mini Leds.
You know or their tablets or Leds and our LCD is anyway. So.
But I think there was a big push for the benefits of all of US and we we just continue we feel that that will continue to grow because the I T market using OLED is really very very small.
Okay, great. Thanks.
You said.
As a reminder of the star one on your telephone keypad, if he would like to ask the question. Our next question is from Chris <unk> with Cowen and company. Please proceed.
Hi, Thanks for taking my follow up I, just wanted to check for those things to the extent of you can talk about other she does the display the coming on and.
And everyone knows it and about the Thompson upsides and the Blue Directionally can talk about it kind of curious your view on it and the longer term.
And if and when look at the commercialized isn't going to be plug and play or do you need to change some of the design like of he couldn't get any such thing and.
And when he tried to put it into the smartphone.
Well. Thank you obviously the display week is coming up and there's a lot of chatter about what will happen. There's really nothing we can say until the papers are presented.
So regarding that Theres nothing we can talk about about what was coming up we do and obviously you talked about of the paper that he was talking about blue that has the same author that had it and last year in terms of commercial Blue. We have stated that it's not plug and play.
You would need to make modifications to your drivers and your back plane in order to adopt our technology.
And for Blue because phosphorescent uses 75% less power. So it is of redesign it isn't new capex. It is really just the redesign so as they introduce new products and new Skus. They will design and those that are technology into those so.
As we stated.
Number of times and the past, even if I had something that met all of the commercial specs today.
It would be nine to 12 months that before you start seeing it and products, but we are continuing to make excellent progress.
Thank you very much of it.
Thank you.
Thank you. This concludes the question and answer session I would like to turn the program back to Sid Rosenblatt for any additional or closing remarks.
Again, thank you everyone for your time today, we appreciate your interest and your support and everybody have a good night. Thank you.
This concludes today's conference call you may now disconnect.
Okay.
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