Q3 2021 Universal Display Corp Earnings Call
What was it.
Further this policy will cast light and will be made available for a period of time on your first of all just place website. This call contains time sensitive information that is accurate only as of the date of the live webcast of this call November 4th 2021.
During the call we may be forward looking statements based on current expectations. These statements are subject to a number of significant risks and uncertainties in our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments and the company security.
He's universal display disclaimed any obligation to update any of these statements.
Now I'd like to turn the call over to Steve Abramson.
Hi, and welcome to everyone on today is cool.
We were pleased to report that revenue in the third quarter of 2021 was $143.6 million operating profit was $57.7 million and net income was $46.1 million or 97 cents per diluted share.
She will go into further details with our financials, but first let me provide an update when our outlook on the old industry and the company.
Cause we moved to the old market, we believe a panel makers with Oems are preparing for a new wave of investment and product proliferation in the coming years for display makers through our three large consumer electronics and market opportunities smartphones.
I T, which includes tablets laptops and monitors and Tvs. In addition, there are other budding consumer opportunities, including augmented and virtual reality smartwatch gaming automotive lighting and signage markets.
So where are we today.
As we entered 2021 about one third of the smartphone market was penetrated by all those.
And by year end based on market research forecast will will penetration is expected to widen to approximately 45% of the smartphone market.
This has been largely driven by old adoption broadening beyond the premium segment and into the mid range as well as even some low end smartphones with more panel makers participating in the smartphone Ola market and panel pricing expected to decline. We believe the penetration is poised to expand further.
What are the panel makers investigate smartphone Oh, let capacity is B O E b.
It also shines a tremendous late when the incredibly large adoption curve potential for OLED Tvs.
Just to give you some context on what the TV market potential is from a display area perspective.
Approximately 5% OLED penetration of the TV market is greater than 50% OLED penetration of the smartphone market from a square inch standpoint.
There's a lot of substrate area for material players like us.
Moving along to the emerging OLED market.
This market opportunity of laptops tablets and monitors has begun to be a focus for OLED manufacturers Samsung display champions. The OLED adoption charge, we are beginning to see the nascent stages of proliferation and applications materialize.
As many of you are aware OLED displays offer more immersive colors higher contrast ratios faster response times and wider viewing angles in LCD panels.
Samsung is making good progress in the OLED laptop market, where it is supplying OLED panels to global manufacturers, including Aces, Lenovo, Dell HP and Samsung electronics.
So how big of an opportunity as the overall it market.
Just on market research estimates OLED are expected to account for a mere 2% in the market by year end that.
That means it is an enormous opportunity and it's an opportunity that an increasing number of OLED panel makers are broadening into.
We believe that OLED or still in the early innings of a long term secular growth market.
Display makers expand their focus from small to medium and large area reports of our emerging about potential new Gen. Six Gen. Eight five and even Gen 10, OLED capacity plans, new OLED device architectures, and new consumer product Roadmaps that include an expanding portfolio of OLED.
Applications.
With this next wave of adoption, taking shape, we are fortifying our position as an OLED leader and innovator on multiple fronts.
We are leveraging our 25 plus years of pioneering research knowhow and experience into new materials and new technologies. We are also expanding our footprint building our infrastructure that is designed to drive an effective cost structure and targeting new opportunities.
These initiatives will further enable us to provide continued value to our customers, while keeping UDC at the forefront of the growing OLED industry.
On a forward front, the discovery design development and delivery of new and next generation phosphorescent emissive materials, including New Reds Greens yellows and hosts is at the core of our R&D programs.
With respect to Blue we continue to make excellent progress in our ongoing development work for a commercial phosphorescent Blue Emissive system.
We believe that a commercial phosphorescent blue is a question of when and not if we.
We plan to deliver an all phosphorescent RGB stack, which will further enable higher energy efficiency and high performance for all of the applications across the consumer landscape.
With the largest phosphorescent OLED team in the World, we are driving innovation at the molecular level through new materials and new device architectures.
Speaking of customers I would like to share that with extended their long term commercial material and license agreements with TMO Microelectronics. We are pleased to continue our strong partnership with this leading Chinese panel maker as they continue to advance our OLED presence and expand their OLED portfolio plants.
Now moving along to the OLED technology front, one of the primary R&D programs. We are working on is plasma unfolded, our fundamental groundbreaking device architecture.
While still in research, we believe that the potential benefits to customers in the industry are significant.
We estimate that plasma forward has the potential to increase device lifetime by up to 10 times and double the efficiency, which we believe will pave the path for new OLED applications.
Okay.
On the OLED production front, we are in the midst of retrofitting. The first phase of a multi year project and our new manufacturing site in Shannon, Ireland with our partner of over 20 years PPG for the production of our highly efficient high performing universal for OLED materials.
This new facility will diversify the manufacturing base for our phosphorescent emitters to meet growing OLED market demand and evolving industry requirements. It.
New Jersey is working hand in hand, with the O V. J P equipment team in Silicon Valley to this or commercialization roadmap.
It seems are currently working on the key subsystems to prove the viability of O V. J P for large area manufacturing.
Achieving this milestone is a critical element and the building blocks for Alpha system design.
Well the commercial launch of O B J P is still a few years away.
Estimated multibillion dollar revenue opportunity is part of our multi dimensional approach to longterm growth.
For over 25 years innovation has been and continues to be a primary driving force. It UDC. We believe that these near term mid term and long term strategic initiatives will further advanced a robust old materials and technology leadership and strengthen and support our primary focus.
Of enabling our customer success and therefore our success.
On that note, let me turn the call over to sit.
Thank you, Steve and again, thank you everyone for joining our call today.
Revenue for the third quarter of 2021 was a record $143.6 million compared to second quarter, 2021 is $129.7 million and third quarter 2020th of $117.1 million.
Our total material sales were $75.6 million in the third quarter of 2021 compared to material sales of $77.4 million in the second quarter of 2021 and $68.7 million in the third quarter of 2020.
Green emitter sales in the third quarter of 2021, which include our yellow green emitters, where $57.8 million, which is sequentially flat from the second quarter of 2021 and compared to $52.9 million in the third quarter of 2020.
Read your meter sales in the third quarter of 2021, where $17.7 million. This compares to $19.5 million in the second quarter of 2021 and $15.2 million in the third quarter of 2020.
80%.
As we have noted in the past gross margins can vary quarter to quarter, we expect our overall gross margins to be approximately 80% for the year.
Third quarter 2021 operating expense, excluding cost of sales was $54 $4 million compared to last quarter was $51 8 million in the year over year comparables quarter of $45 $3 million.
We are investing in our research and development, including <unk> J P Corporation.
Our infrastructure, including our new Shannon site and in our people to fortify our growth opportunities in New York Ganic electronics landscape.
Yeah.
Operating income was $57 $7 million in the third quarter of 2021 compared to last quarter's $49 $9 million and a year over year's comparable quarters operating income of $48 4 million.
Operating margin was 40% in the third quarter of 2021 compared to 38% in the second quarter of 2021 and 41% in the third quarter of 2020.
And for the first nine months of the year operating margin was 42%.
It would be in the range of $530 million to $560 million with a ratio of material to royalty licensing revenues expected to be in the ballpark of 1.5 to one.
And lastly, our board of directors approved a 20th send quarterly dividend, which will be paid on December 30th 2021 to stockholders a record has of the close of business on December 16th 2021.
The dividend reflects are expected continued positive cash flow generation and commitment to return capital to our shareholders.
With that I will turn to call back to Steve.
Thanks says.
Because we knew the end of 2021, we take a moment to reflect on how the pandemic continues to be a profound global disruption.
But also how old is tapped into one's resourcefulness resiliency and resolve.
There's a corporation of approximately 400 employees spread across 14 locations around the world and participating in a young dynamic market. This pandemic has been an ongoing journey of adapting to constraints and overcoming obstacles.
Is their inventory Douglas team there when will that start to recover and was that an impact to the material gross margins or per your your your 10-Q, you highlighted an intro of new Red and Green and better. So we would love to hear color there. Please.
Thanks T. J in terms of your question on B O a Fisher said third largest customer.
It costs are ordering patterns, you know it can be not be for various reasons and the first quarter of 2021 customer you know they purchases significant amount of inventory.
And you know even though their sales are sequentially lower they had a substantial order in Q1 S.
And pretty much for the year they are in line with our expectations.
And we don't really believe that there's anything different except for the normal lumpy.
Inventory purchasing from them.
Okay. That's helpful and then I I guess I wanted to.
Question S. T. I T market starts adopting go light displays can you talk about what the revenue opportunity per panel or per area whatever metrics. Because you can use are they more like smartphones or T. V's on the revenue per area basis. Thanks.
Yeah, well <unk>, obviously for for US it is.
Increase and square inches of planes that are process, then the more squirrel grinches of glasses process. The more <unk> the materials Roussel and these are these are made similar to what smartphones are made so it is you know it is RGB side by side and the.
Recipes may be a little different for I T than they are for smartphones, but for us any increase in factory utilization and any new capacity that comes on as a plus for us.
Great. Thank you.
Thank you.
Our next question is from Creche send car with Cowen and company. Please proceed.
Yeah, Hi, Thanks for taking my question I told him said you know in the past you said that the component tightness do not impact you directly.
L D display last week said, the Ada shipments declined in September due to component supply issues. So I'm just trying to figure out using any designated but Oh, you know maybe to ask you know a long winded question.
Yeah.
Thank you.
Yeah.
Our next question is from Jim Ricchiuti with Needham <unk> Company. Please proceed.
Hi, Thank you good afternoon, just a question on.
<unk>.
The way that the revenues are tracking among your customers you mentioned that your third biggest customer.
Despite the variability quarter to quarter, it's kind of it essentially in line with the with your expectations.
Is that true of your other customers whether the your two large customers in Korea and in general we're seeing quite a bit of variability from your other customers in China. So I'm trying to get a sense as to how much of that is in line with the way you had been thinking about the business earlier.
In the year or has we've seen things change a bit.
Market dynamics have changed.
Thanks, Jim I think that when we look at it the fact that we our guidance is exactly what it was in February.
Overall things are in line with what we thought they would be in quarter over quarter things do change just like we said the one customer in China in the first quarter, but a lot more of which the percentage went up but overall for the year I think we pretty much.
Or in the ballpark with all the customers.
And.
There have been some reports.
As it relates to some of the component constraints that there has been.
Some.
Yeah, I think for the year, we talked about R&D expenses being up by 25%.
We expect that all of our expenses to be up 20% to 25% for the year when we gave our guidance.
I think we're in that ballpark for the year.
So theres nothing.
As Steve mentioned, we are focusing on over to JP and blue in the R&D expenses are going to go up as we stated so I don't think there's going to be different in Q4 than you've seen in Q3.
Okay. Thanks.
Thank you Jim.
As a reminder, this star one on your telephone keypad. If you would like to ask a question. Our next question is from Shannon Cross with Cross Research. Please proceed.
Thank you very much I was just wondering about inflationary pressures on materials and just in general what Youre seeing how you were able to offset it perhaps what youre doing from an inventory standpoint to try to stay ahead or at least are in line with what's going on thank you.
Yeah. Thanks, Shannon I think I mean, we always are looking at ways of looking at our supply chain and trying to ensure that a we have a uninterrupted supply, but obviously, we care about cost and so we've always looked at having multiple sources for the components that go in.
Two it and obviously, we've talked about iridium because that's you know commodity prices are out there and you can see what they have done so.
We started buying iridium years ago. So we still have some inventory that's a very low price and we bought it you know during the whole time. So they have inventories at a higher price, but I think we really have tried have tried and are doing a pretty good job of managing it.
I don't think I can say that I expect inflation too.
<unk> really impact our Cogs and.
In the future because everything is going up.
I don't believe that to be the case.
Okay. Thank you and then I guess and I apologize. If this has been somehow discussed at another earnings call Tonight, but I'm just curious we're starting to see some pretty aggressive pricing moves for OLED Tvs and frankly Tvs Tvs in general, especially with the higher sizes can you just remind us of you know in the past when prices have come due.
Down or or you've seen you know what we were hoping to be a growth in the market and sort of how long. It takes our when we start to see the benefit in in your numbers versus.
Capabilities that customers have asked for and can you develop those organically or would you need to pursue emanate for that.
Well. Thank you work work or <unk>. Thank you for the question or RMT creams work closely with our customers and what you know what what day is for our you know our what our performance for our material. They wanted they're always looking for a lifetime.
Efficient C for color and you know so our teams works works closely with all of our customers. So we do that here.
Thank you Cindy.
Thank you very much Martin.
Oh well.
We do have one more question. This is from Don Kim with <unk> Research. Please proceed.
Alright. Thank you for taking my question are there a lot of news on many LCD I guess, the I T space, especially one of the big Oems pushing Oh aggressively media Lydia on their product. So do you see me nearly D can be comparable to all that.
Or do you just didn't neither step before OEM out up to all that later, so any thought or opinion on your end that would be great. Thank you.
Thank you name I think the customers are working on their recipes and whether or not the same materials or what we will get our customers asking us to design materials that specifically meet their specifications I think it is I think it is something that we're working.
Okay, we will come back to you in a moment.
Our next question.
It is from Andrew Abrams with S. C. M. R. A please proceed.
Hum.
Can I get a little color on your ability to pass on increased cost, meaning iridium prices. How flexible are your customers in terms of a base price not a different material.
Our new enhanced material, but on basically the same material that they were buying six months ago and second if you could talk a little bit about.
The base price for OLED panels that your royalty is based on.
Ken can you give a little color on any changes that you've seen.
On a gross average coming out of particularly LG.
LG display and.
And how that might affect your royalties one direction or the other.
Alright, Thanks, Andy.
As we've stated and I think you are aware, we have said that all of our long term contracts.
Pricing built into those contracts.
So you know we.
Customers.
With a mix of customers.
As being the reason you see some quarter to quarter variation in that but you talked to customers were basically the same percent of sales mix this quarter versus last but that.
That royalty versus material mix did shift anything you can speak to their just to give us a sense for.
For what might have driven that.
I mean, I think that you know you are correct cause when we have stayed in that does have the biggest impact on it and customer a customer b world.
Customers he was down in the corner.
Okay Fair enough. That's that's a fair point and then on on the materials revenue and I promise. This is my last one I'll pass it on the.
It hasn't been real seasonality. This year I know this is a you know an interesting environment in many regards across different industries, but like for you guys, you're almost always accustomed to seeing a decent amount of seasonality in your materials revenue.
This year, there's been almost no seasonality if you look at the kind of 75.
Hi, $70 million revenue run right you've seen every quarter this year.
Is there anything unique is anything structurally changed would you say in terms of your customers and your customer buying patterns and then Ah does this translate to Q4 as well or it looks sort of seasonality would you be thinking about here on the materials side, specifically as we head into ear and thanks [noise].
Yep. Thank you.
Elegize for the.
Property of your habits, but.
It it's difficult question because seasonality is something that isn't exactly we're not in a consumer business that you know it was going to have big won't be one big Hum as you get towards the holidays, but you know I've heard from other companies into consuming I'm trying to decode system, you know the pandemic and component shortages of impacted.
Airport, and therefore near where it's going to affect everybody in the food chain, including US. So you know in addition to the normal quarter to quarter variations in sales, which can be lumpy as we've talked about you know.
We're gonna I think we're going to continue to see lumpiness.
Our next question is a follow up question from Kristiansand car. Please proceed.
Uh-huh, including the follow up so I just wanted to ask someone asked immediately D. Question. You just want to have the same question would you have used modern many L. A D, but micro L. A D and cutie older children curious how you think of it this would be all that opportunity. Thank you.
Yeah Micro Leds you know as.
As you're well aware or their cell phone, there's no they're very early stage and right. Now. This is something that you will see you know like we've talked about I think Samsung has 110 inch Microaire L. A D. T V that reportedly has a price tag of $156000. So.
There's still a number of unanswered questions and when they actually will get into the market and one market. They will address is pretty much stuff that we here is it will have opportunities if and when it gets into the market for very small and very large this place.
Thank you this.
I ask you the question and answer session I would like to turn the program back to said Rosenblatt for any additional are closing remarks.
We just want to thank you all for your time Tonight, and if you have any follow ups. Please.
No that you can contact us so everyone have a good night. Thank you.
Thank you. This does conclude today's program you may disconnect your lines at this time.
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