Q1 2022 Universal Display Corp Earnings Call
Tablets notebooks and monitors.
Research firm TICC forecast significant OLED <unk> growth in the coming years, and 45% CAGR for OLED tablet units, 51% CAGR for OLED notebook units and 104% CAGR for OLED monitor units from 2021% to 2026.
With the move to OLED.
There are reports at leading panel makers are planning to adapt the tandem structure.
New structures are expected to increase brightness lifetime and efficiency as well as lower power consumption of OLED panels.
The world of OLED Tvs remains bright and addition to Samsung electronics, garnering great reviews for its first hybrid QD OLED TV LG display reaffirmed its plans to increase OLED TV shipments in 2022 to almost 10 million units up from slightly under eight.
Million units in 2021.
As we look to the OLED market, we believe that panel makers and Oems are preparing for an extensive new wave of medium and large area capacity investment.
Driven by escalating push from leading Oems for OLED products and meaningful strength in the OLED TV market. There are reports at leading panel makers, including Samsung LG display and Bofa are planning to invest in Gen 8586 capacity for OLED.
And for the OLED TV market. There are reportedly ongoing investment discussions to expand gen eight capacity even further.
During last weeks conference call, Samsung announced that it expects its display sales to increase as the portfolio of Foldable products expands and from accelerated adoption of OLED in new application areas, such as IP where demand.
<unk> increased in the pandemic gaming.
Gaming as portable gaming device Oems are moving to higher picture quality displays and automotive where there is increasing demand for premium displays in markets like electric vehicles.
In addition, Samsung announced yields for its recently launched hybrid QD OLED displays have improved faster than projected and reach 75% and then the plans to grow and expand its QD OLED display lineup.
LG display shared on its recent earnings call the company's positive OLED outlook for the second half of the year for OLED Tvs LG display intends to expand its customer base and product portfolio.
In small and medium OLED LG display expect profitability to improve in the second half as new smartphone models with Lg's OLED displays are introduced.
Another growth area that the company highlighted was automotive and then OLED make up approximately 30% of Lg's premium OLED display orders today and that would expect that percentage to continue to increase.
BOE technology recently announced that it has shipped approximately 60 million OLED units in 2021.
It looks for 2022 is planned to ship more than $100 million of blood units or an increase of more than 60% year over year on.
On the capacity front.
Recently opened up the first phase of its third Gen. Six OLED fab in Chongqing and his focus on bringing online phases, two and three this year.
Each phase as the capacity output of 16000 plates per months, adding up to 48000 substrate starts per month when the plant is fully ramped.
Similar to.
Two other gen six fab in Chengdu Mianyang.
At the end of March <unk> announced its new Gen. Six flexible fab in Sherman has started trial production and that is expected to enter mass production by the end of the year.
This OLED flat when fully ramped will have an installed capacity of 48000 substrate starts per month.
Also in March China Star reaffirmed plans to ramp its gen six flexible OLED capacity more than planned churn.
Sorry, its first OLED fab is a monthly install capacity of 45000 substrate starts.
On the lighting front, while we are still in the early commercialization stage, we believe that the benefits of OLED lighting, which includes high power efficiency novel and innovative form factors beautiful natural colors and cool operating temperatures are all quite compelling.
There's a lot of activity continues to flourish, we remained steadfast in our commitment to advancing our robust OLED materials and technology leadership.
On the forward front with our deep and broad experience and Knowhow of more than 25 years of pioneering research we are innovating inventing and introducing new OLED phosphorescent emissive materials, including New Reds Greens yellows and hosts 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 we are on track to meet preliminary targets.
With our phosphorescent blue by year end, which should enable the introduction of our all phosphorescent RGB stack into the commercial market in 2024.
We believe that the commercial introduction of our full color emissive stack will unlock a vast array of opportunities for higher energy efficiency and higher performance across a broad range of OLED applications.
We also continue to make considerable progress with constructing the key sub systems for our Ob JP Alpha system design. The completion of these sub systems is a critical step in our commercialization roadmap, while the commercial launch of our VIP is still a few years away, we believe that <unk> <unk>.
<unk> represents a groundbreaking platform towards low cost high performance high throughput highly efficient RGB side by side OLED TV manufacturing.
That note, let me turn the call over to Seth.
Thank you, Steve and again, thank you everyone for joining our call today.
Revenues for the first quarter of 2022 were $155 million compared to fourth quarter, 2020, $146 $2 million and first quarter 2020 $134 million.
Our total material sales were $86 $7 million in the first quarter of 2022 compared to material sales of $85 $8 million in the fourth quarter.
2021.
$79 $8 million in the first quarter of 2021.
Green emitter sales in the first quarter of 2022, which include our yellow Green emitters were $66 $4 million.
This compares to $66 $7 million in the fourth quarter of 2021 and.
$65 million in the first quarter of 2021.
Red emitter sales in the first quarter of 2022 or $20 2 million. This compares to $18 $9 million in the fourth quarter of 2021, and $19 1 million in the first quarter of 2021.
As we have discussed in the past material.
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.
Duction loading rates.
Ice recipes product mix material ordering patterns customer inventory levels and customer production efficiency gains.
Since a number of these factors are moving variables for our customers.
They are also moving variables for us.
First quarter 2022 royalty and license fees were $59 $8 million. This.
This compares to $56 million in the fourth quarter of 2021 and $59 million in the first quarter of 2021.
First quarter 2022, a thesis revenues were $4 million.
This compares to $4 $5 million in the fourth quarter of 2021 and $3 $3 million in the first quarter of 2021.
Cost of sales for the first quarter of 2022 were $33 $2 million translating into overall gross margins of 78%.
This compares to $32 2 million and gross margins of 78% in the fourth quarter of 2021 and $23 3 million.
And gross margins of 83% in the first quarter of 2021.
Cost of OLED materials in the first quarter of 2022 or $29 9 million.
Translating into material gross margins of 65%.
This compares to 66% in the fourth quarter of 2021, and the comparable year over years quarter material gross margins of 74%.
As we have noted in the past material gross margins can vary quarter to quarter.
First quarter 2022 operating expense, excluding cost of sales was $55 $1 million.
This compares to $57 $5 million in the fourth quarter of 2021, and $47 1 million in the first quarter of 2021.
Operating income was $62 3 million.
What would a chair.
Moving along the guidance our outlook for the year remains unchanged. We expect 20 twenty-two revenues to be in the range of $625 million to $650 million with the ratio of materials to royalty licensing revenues expect it to be in the ballpark of one four to one.
One.
And lastly, our board of directors approved a 30 quarterly dividend, which will be paid on June 30th 2022, two stockholders of record as of the close of business on June 16th 2022.
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 is.
The trajectories of the oil market and have universal display continue to be very brave.
Some knucklehead was may continue in the near term at the same time Oems paddle makers and the ecosystem are setting the stage for a significant new wave of older capital investments and OLED market proliferation.
As a key innovations partner, we continue to be well positioned to participate in the myriad of exciting opportunities that lie ahead.
There is a fast moving forward thinking company, we continue to target new opportunities for growth. We are broadening our core competencies bolstering a worldwide footprint in expanding our global team to fuel our strategic initiatives and increase our first mover competitive edge. We are working closely with our customers as a map out the <unk>.
Roadmaps for the coming years.
Building on the breath of our more than two and a half decades of experience and Noel are continually innovating and developing enabling materials and technologies to support our partners in the oil industry for the near term mid term and long term.
There anything in their path forward is our strong corporate culture, and stewardship, which you can learn more about and a recently published 2021 corporate social responsibility report.
Or CSR report can be found on our website under corporate responsibility.
And finally.
I would like to take this opportunity to thank each of our employees for their drive desire dedication and heart and elevating and shaping universal displays accomplishment and advancements we are committed to being leader in the ol ecosystem, achieving superior longterm growth and delivery cutting edge.
Technologies, the materials for the industry for our customers and for our shareholders.
And with that <unk>.
Let's start the Q&A.
Thank you Mister <unk>.
I think I would like to ask a question. Please press star one on your telephone keypad.
Somebody should tell him indicate your line of <unk>.
Press start <unk> as soon as I could dream of your question friendly care.
And for a participant choosing speaker equipment, it may be necessary to pick up your handset before pressing the 30th.
Our first question is from Chris Sankara with Cowen and company. Please proceed.
Hi, This is Steve calling on behalf of Christian. Thank you so much for taking my questions today.
If I could start.
Ask a question regarding some of the.
You made regarding a customer at your customer.
Plans for increasing the only protection in the coming year.
I wanted to ask about the implications for material and usage.
Given some of these Catholic six expansion plan to your customers.
Do you have any thoughts on whether the overall image of materials intensity will say about flat going forward on average or just giving you a unusual at Yale ramp curves and maybe potential process you have to be changing.
Missing.
Yeah, good material musicians actually gone up or down overcoming.
<unk>, Okay gotcha.
Thank you for your question.
With Steve talking about some of the issues that new capacity come log online and are there are a number of.
10, 8.5 10 8.6.
Capacity coming online really aimed towards the.
T market, which is only about 2% penetration and today. So it is something that we see as one of the big areas for growth over the next few years for us in terms of material utilization.
I think you talk just a couple of things I think you're asking one is having to do with different structures that we've heard about and that you've read about tandem structures.
And that is something you know it's really in the early days of development for that.
But you know, we think there's probably more material per square inch.
Of ours that will go into the product. However, we can't really say just because it's called Tan or is that is two times, but we do think it will be but as you're well aware all of this new capacity for US is all new revenue opportunities for our materials.
Mmk, Thank you for that.
Then the second question I appreciate it.
In terms of gross margins and specifically materials with margins.
The last few quarters.
<unk> been in the low to mid sixties range.
And just kind of curious now compared to the more historic roughly 70 per cent materials preferably level.
What what kind of that drivers.
Levers.
To see happening in the coming quarters.
For those amateur gross margin to get back to that 70 per cent level.
Mix or is.
Potentially air transport fees that he said moderate experience for that to happen.
Yep. Thank you 65, 70% material gross margins as our target for 2022.
Higher development materials, increasing complexity of our next gen materials.
As well as higher raw material pricing.
Chaz Iridium cost that we've talked about I have added to our <unk>. We are really working diligently on cost reduction programs to maintain our gross margin profile.
[noise] Okay. Thank you.
Thank you.
Our next question is from C. Jamie's with Evercore ISI. Please proceed.
Yeah. Good afternoon. Thanks for taking my question I guess first wanted to ask.
Regarding the weakness that we're seeing globally around consumer electronic demand.
Particularly in the lower and how that's impacting your business. So.
What what kind of impact that you're seeing in the supply chain in terms of willingness to hold inventory your inventory.
And then from a mixed perspective, how you're seeing.
Customers kind of decide between <unk> for for boats smartphones and Tvs.
Yeah.
There have been ongoing headwinds Andrew pandemic component shortages economic uncertainties, I mean, the consumer electronics industry is a very dynamic industry.
It is something that we look at.
Pretty much consistently right now we have not seen anything.
From our customers that would change what's going on I mean, our orders are coming in now as expected and that's mainly it into one of your next questions, which is that's why we have essentially kept our guidance. The same for this year of 625 to 650.
Because we are pretty much on track.
Okay very good I guess the longer term question as you prepare for the launch of Blue and commercialization in 2024, how should we think about the implications to your financial model.
Twenty-three, perhaps them or into 24.
Should we be thinking about whether it's from from an investment perspective or.
Opex perspective.
Well right now CJ, we're really focusing on on the technical progress to get to the commercial.
It targets the end of this year and get the commercial blue in 2024.
The we believe it's got to be a significant new revenue opportunity you.
You may see some self of 2023, but we think it's really going to be a 2024 event.
We think it's going to be significant.
Thank you.
Thanks, <unk> you're welcome.
Our next question, it's Travis Sydney with the recent bank. Please proceed.
Thanks for taking my question I wanted to follow up on the buoy their site now that you know.
Signing up.
<unk>.
The last the last few months.
Anthony additional color, but you can provide in terms of customer development timing of brand do you get a sense from customers how they plan to adopt a blue in the product line up and did they tend to ramp up all the skews at the same time or just facing it out or any kind of comparisons with the red.
Red and Green and <unk> in the past that will be helpful. Thanks.
Sydney those are all really good questions and there is very strong interest in the industry.
For our Blue fast for US is the questions. You ask Unfortunately are really questions for our customers and our conversations with them are confidential. So we really can't.
Answer those questions specifically, the we believe that the significant value of an all phosphorescent stock is going to unlock a vast array of opportunities across a broad range of all it applications from from small to medium to large consumer products.
Okay. That's helpful. Maybe my follow up question that the other technology to L. B J P site I know, it's still a few years away from being ready and there's a lot of progress being made I think when I think they've only J P. I think of it as a technology, mostly associated with lost displacing specifically to like a television how long.
Do you think it'll be J P is it is it an enabler.
Market as well does that make sense from cost perspective performance standpoint, and if so does that accelerated deployment update technology. Thanks.
Sure, we're really focusing on on.
Tv's large area Tvs Forte.
Types.
Our current focus is on a large area Tvs.
It may the market opportunities may go beyond OLED Tvs, but that seems to be seems to be that is the initial target market that we're focusing on.
Okay. Thank you.
You're welcome.
As a reminder to star one on your telephone keypad, if he would like to ask a question.
Next question is from at Monique with City. Please proceed.
Hi, Thank you for taking my question and my My first question is.
And are you seeing or did you see any impact from.
The lockdowns in in China.
Any of your customers <unk>.
You know buying because of the the Lockdowns in China.
So far.
Not seeing.
Any impact on us from the Chinese Lockdowns.
But this is one of the headwind this it was.
Yeah I was gonna say this is one of the headwinds that we haven't been keeping an eye on so we'll see what happens.
Great and my next question is.
What's being called the fourth generation of materials.
Materials <unk>.
Materials, there is a porch startup company that's talking about.
Technology being superior to phosphorus and materials because it does not require any heavy metal.
Elements. So just curious on your comment on at this next generation of OLED materials and are you working on something similar in house.
We are focused on fast for us as we believe that that is the best technology.
Been in the.
And products for almost 20 years, and frankly is the leader in this industry, we understand where the benchmarks for a number of R&D companies in their laboratory our research experiments.
But.
Our technology has been commercial for for a long time, and we believe that it will be the gold standard for the foreseeable future.
Great. Thank you.
Okay.
Our next question is Friday, the <unk> with C. A S. A G. Please proceed.
Yes. Thanks, Thanks for taking my question most of my.
Questions have been answered refer to follow up <unk>.
<unk> thinking about.
<unk> excuse me more than $14 cash.
And your ability to generate a lot more cash.
Currently.
[noise] aggressively kept a return or invested in other areas any inside would be great. Given your free cash flow margin of what you already have on the balance sheet.
Right.
At this moment, we believe that quarterly cash dividend is the best way to return <unk>.
Cash to our shareholders and it is something this allocation is something that we look at every quarter.
And we also looking for opportunities, whether it's acquisitions or acquiring IP or companies is something that we are always looking at and trying to do.
Do something that will help move the technology and the company and always forward.
Sure would it be fair to assume that your core technology, an eyepiece can be.
Theoretically applied to other application other than display.
They they were you know we were looking at lighting, we're looking at other opportunities for organic electronics and solar cell technology life Sciences. There are a number of different areas that thin film technology, particularly are phosphoresce. It always may have opera.
Eternity is as the industry and we become more mature.
Got it thank you.
Our next question is from Brian Lee with Goldman Sachs. Please proceed.
Hey, guys. Good afternoon, thanks for taking the questions and I I had to hop on a little bit late so I apologize if some of this is redundant.
Maybe starting off with the.
Your number one customer Samsung I know the the contract seems to be getting more attention just given the time timeline around it.
So any high level thoughts you can share would be helpful. Just around the renewal agreement or.
Would you anticipate now that you continue to expect Blue specks to get achieve later this year that you start working on a new agreement for a portfolio license just given the.
The historical precedent for how long it's taken for you to get deals signed with this customer in the past.
O'brien is you know we've had a long and strong partnership with Samsung for about 20 years.
We saw multiple agreements with them and we plan to continue to work working with them.
For the foreseeable future, but of course until anything is finalized we can't comment on the status.
Alright fair enough I appreciate that.
That color, Steve Uhm on the I guess staying on the topic the blue fast for us and again I'm sure a lot of this has been asked already but on the specs reiterating.
Iterating the view that you'll achieve them by the end of this year and you're announced this obviously last quarter. It seemed like it was a bit of a surprise just given the the.
The amount of sort of finite timeline you put around it so it'd be curious what the customer feedback has been since since the announcement last quarter and anything kind of.
Klein quantifiable, maybe if you're seeing more sampling activity or you are seeing any discussions around preliminary pricing here for the for.
For the for the Blue Phosphorescence.
Well.
Too fast for US has been something the industry has been waiting for for a long time and they are very excited.
To be working with us on blue fast for us and working.
Working towards the commercialization efforts so all of our customers are interested it for for various various products.
But would.
Would you say, there's any sort of change in the discussion is just given your update to the market and to the industry three months ago.
I think that.
I would say is there has been more interest as we continue to move forward as we continue to make progress continue to talk to our customers. There is there is additional.
Additional levels of enhanced interest.
Is it because you know as we've talked about previously we have ongoing R&D progress with multiple customers.
Okay. That's great and then just last one on the motto here.
The the deceased margins I noticed a little bit lower sub 20% here.
They had been kind of tracking pretty consistently in the 30 per cent plus range for the past couple of years anything to read into that is there something mixed related or something in the quarter that that.
That might have taken those margins down and is this.
One time anomaly or should we expect this level of margins going forward for this part of the business.
Yeah. It thesis margins they can fluctuate in a sense based upon com contracts and timing of some of the expenses. We anticipate that a thesis revenues will grow this year and we don't see anything really different historical amount.
And uhm.
While I have you could you remind us what is the Ah deesis.
Relationship or.
Sort of can you contextualize, where they fit into the Grand scheme of things when it comes to.
You're blue.
Commercialization and ramp up efforts.
Well.
Most of the <unk>.
Technical people are working on phosphorescent materials and there are integral part of our chemistry team, which includes what we're doing on blue.
Yeah, the revenue and expenses that we report or the C. R row part of the business, which is a contract research organization all the other stuff just falls into underneath UDC.
Okay fair enough. Thank you.
Thank you.
Thank you. This concludes our question and answer session I would like to turn the program back over to sit in front of my for any additional or closing remarks.
Thank you all for your interest in time Tonight, and I wish you all a good night. Thank you.
This concludes today's conference you may now disconnect.
[noise] [music].