Q2 2024 Universal Display Corp Earnings Call
Good day, ladies and gentlemen, and welcome to Universal Display Corporation's second quarter 2024 earnings conference call. My name is Sherri, and I will be your conference moderator for today's call. If anybody should need operator assistance, please press star zero on your telephone keypad.
Speaker Change: Thank you and good afternoon everyone. Welcome to Universal Display's second quarter earnings conference call.
Speaker Change: Joining me on the call today are Steve Abramson, President and Chief Executive Officer, and Brian Millard, Vice President and Chief Financial Officer.
Speaker Change: Before Steve begins, let me remind you that today's call is a 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.
Speaker Change: Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, August 1, 2024.
Speaker Change: During this call, we may make forward-looking statements based on current expectations.
Speaker Change: 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 in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities.
unknown: Universal Display disclaims any obligation to update any of these statements.
Steve Abramson: Universal Display disclaims any obligation to update any of these statements. Now I would like to turn the call over to Steve Abramson.
Steve Abramson: Thanks, Darice, and welcome to everyone on today's call.
Steve: The second quarter results were solid. Revenue was $159 million. Operating profit was $56 million, and net income was $52 million, or $1.10 per diluted share. The growth trajectory of OLEDs continues to be robust. With a strengthening growth trajectory, we are raising the low end of our annual guideline.
Steve Abramson: Our second quarter results were solid. Revenue was $159 million, operating profit was $56 million, and net income was $52 million, or $1.10 per diluted share.
Speaker Change: The trajectory of OLEDs continues to be robust, fueled by broadening adoption across the consumer landscape. With this strengthening growth trajectory, we are raising the low end of our annual guidance range.
Steve: We now believe that our 2024 revenues will be in the range of $645 million to $675 million. During the second quarter, the OLED IT market picked up speed as leading OEMs embarked on their OLED IT journey with the introduction of their first OLED technology. And by 2028, OLED mobile PC shipments are forecasted to jump by approximately 600% to 48.6 million units. For OLED monitors, gaming continues to drive their popularity. According to Omdia, top-tier monitor brands such as Dell, HP, Lenovo, Samsung, LG Electronics, AOC Philips, Asus, Acer, MSI, and Gigabyte are incorporating more and more OLED displays into their product lineups for 2024. In late May, Visionox announced plans to invest approximately $7.6 billion to build a new Gen 8.6 plant.
Speaker Change: We now believe that our 2024 revenues will be in the range of $645 million to $675 million.
Steve Abramson: During the second quarter, the OLED IT market picked up speed as leading OEMs embarked on their OLED IT journey with the introduction of their first OLED tablets.
Speaker Change: This includes Apple with the May launch of its iPad Pro series and Microsoft with its new Surface Pro.
Speaker Change: Other global OEMs also recently launched new OLED PC products including Samsung's Galaxy Book 4 Edge laptop, Dell's first Tandem laptop, the XPS 13, Honor's MagicPad 2 tablet and MagicBook laptop, and Wacom's Moving tablet.
Speaker Change: According to Omdia, OLED tablet panel shipments are expected to triple year-over-year to 14.8 million units, and OLED notebook panel shipments are expected to almost double year-over-year to 8 million units in 2024.
Speaker Change: The SEC market research forecasts that OLED monitors will increase 80% year-over-year and longer-term, Omnia forecasts that units will more than triple by 2028 to 3.6 million.
Speaker Change: This new Greenfield facility is slated for OLED IT and automotive production with a capacity input of 32,000 plates per month.
Speaker Change: We continue to believe that this is just the start of new OLED Fab and capacity expansion investments and expect more announcements in the future.
Speaker Change: At SID Display Week, the broadening form factor landscape was on full display with a plethora of new foldables, including tri-folding displays, as well as slidable and rollable prototypes and products in our customers' booths.
Speaker Change: According to DSCC, just in the first quarter of this year, there were panels procured for 24 different foldable smartphone models. TrendForce forecasts that by 2026, foldable phone penetration will climb to 4.8 percent of the smartphone market.
Steve: According to DSCC, just in the first quarter of this year, panels were procured for 24 different foldable smartphone models. TrendForce forecasts that by 2026, foldable phone penetration will climb to 4.8% of the smartphone market. Speaking of smartphones, according to Omdia, OLED smartphone shipments surpassed LCD shipments for the first time in the first quarter of 2024 by capturing 51% of the market. Omdyr's short-term forecast indicates that OLED will account for 53% of smartphone display shipments in the second quarter and expand to 56% in the third quarter, and expects OLED to lead the smartphone display market in shipments from 2024 onward.
Speaker Change: According to the market research firm, OLED smartphone display shipments increased to 182 million units in the first quarter of 2024, up 39% year-over-year, while LCD shipments decreased to 172 million units, down 10% year-over-year.
Steve: In large form factors, OLED TVs continue to win accolades and rave reviews in multiple countries for their bright, beautiful, brilliant picture quality with 180-degree viewing angles, high contrast ratio, and fast refresh rate. OLED TV sales growth is expected to gain traction and reach nearly 10 million units by 2030. We believe the additional time needed will be measured in months and not years. Even though our timeline is changing, our confidence in delivering a commercial phosphorescent blue to the market and the tremendous promise it holds for the OLED industry has not wavered.
Speaker Change: One of our trailblazing solutions is OBJP. At May's SID Display Week, we showcased another major milestone with a printed red, green, and blue full LED device with 160 pixels per inch, which is equivalent to 8K resolution for a 55-inch TV.
Speaker Change: We continue to believe that OVJP will enable high-volume, cost-effective manufacturing of side-by-side RGB OLED TV panels.
Speaker Change: Since the beginning of 2022, we've achieved significant advances in our phosphorescent blue development work and we believe that we are nearing commercial entry specifications.
Speaker Change: However, we believe we need more time to further refine our phosphorus and blue emissive materials and that work is expected to extend beyond this year.
Steve: Interest in our phosphorescent blue continues to increase, and we believe that the forthcoming expansion of our phosphorescent portfolio will unlock a vast array of opportunities for higher efficiency and higher performance across a broad range of OLED applications. The bottom line is that Phosphorescent Blue is coming. We just need some more time before commercial introduction. On that note, let me turn the call over to Brian.
Speaker Change: Interest in our phosphorescent blue continues to increase, and we believe that the forthcoming expansion of our phosphorescent portfolio will unlock a vast array of opportunities for higher efficiency and higher performance across a broad range of OLED applications.
Speaker Change: When it is adopted in an OLA device, we believe that the benefits will be significant for the industry, for consumers, and for us. On that note, let me turn the call over to Brian .
Brian Millard: Our total material sales were $95 million in the second quarter, compared to material sales of $77 million in the second quarter of 2023.
Brian Millard: Green emitter sales, which include our yellow-green emitters, were $71.6 million. This compares to $57.9 million in the second quarter of 2023.
Brian Millard: Red emitter sales were $22.5 million. This compares to $16.7 million in the prior year's quarter. As we've discussed in the past, material buying patterns can vary quarter to quarter.
Speaker Change: Second quarter royalty and license fees were $60 million, compared to the prior year's period of $64 million. Adisa's second quarter revenue was $3.5 million, compared to $5.1 million in the second quarter of 2023.
Brian: The second quarter cost of sales was $38 million, translating into total gross margins of 76 percent. This compares to $32 million in total gross margins of 78 percent in the second quarter of 2023. Regarding guidance, as Steve shared, we now believe our 2024 revenues will be in the range of $645 million to $675 million. The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. With that, I'll turn the call back to Steve.
Speaker Change: Second quarter cost of sales was $38 million, translating into total gross margins of 76 percent. This compares to $32 million in total gross margins of 78 percent in the second quarter of 2023.
Speaker Change: We continue to believe our full year total gross margins will be in the range of 76 to 77 percent.
Speaker Change: Second quarter operating expenses, excluding cost of sales, were $64 million. In the second quarter of 2023, it was $56 million. The year-over-year increase was primarily due to higher stock-based compensation and continued investments in our people, infrastructure, and innovation engine.
Speaker Change: We now expect our 2024 OPEX to be at the high end of our guidance range of a 10-15% year-over-year increase as we continue to invest for future growth.
Speaker Change: We continue to believe our full year operating margins will be in the range of 35 to 40 percent.
Speaker Change: Second quarter 2024 net income was $52 million, or $1.10 per diluted share.
Speaker Change: This compares to $50 million, or $1.04 per diluted share in the comparable period in 2023. We ended the quarter with approximately $879 million in cash, cash equivalents, and investments.
Speaker Change: Lastly, our Board of Directors approved a $0.40 quarterly dividend, which will be paid on September 30, 2024, to stockholders of record as of the close of business on September 16, 2024.
Speaker Change: The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. With that, I'll turn the call back to Steve.
Steve Abramson: Thanks, Brian . On June 17th, we celebrated the 30th anniversary of Universal Display Corporation.
unknown: Our company started with the vision of our late founder, Sherwin Sellickson, who observed a green organic dot light up for just a few seconds. From that, Sherwin envisioned the future of OLEDs, and he founded Universal Display in 1994. We've evolved from a pioneering R&D startup to a global leader. Our commitment to research and development has led to groundbreaking inventions and advancements that have enabled the OLED.
unknown: Our first question is from Krish Sankar with TD Callen. Please proceed.
Steve Abramson: Our company started with the vision of our late founder, Sherwin Sellickson, who observed a green organic dot light up for just a few seconds. From that, Sherwin envisioned the future of OLEDs and he founded Universal Display in 1994.
Speaker Change: As we commemorate 30 years of vision, innovation, and reality, we are reminded of our extraordinary journey including 17 years of perseverance before we turned profitable, our relentless spirit of innovation, and continuously pushing the boundaries of what's possible.
Steve Abramson: as well as the strong and long-term partnerships forged along the way.
Steve Abramson: We are committed to being a leader in the OLED ecosystem, 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.
Speaker Change: Thank you, Mr. Abramson.
Speaker Change: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Steve Abramson: Our first question is from Krish Sankar with TD Callen. Please proceed.
Steve Abramson: Hey guys, this is Eddie for Krish, congrats on strong results again
Speaker Change: You guys talked about refining blue phosphorus, and that requires more time.
Speaker Change: Correct me if I'm wrong, but this feels a little bit less optimistic tone versus prior quarter when you expected to introduce a qualification-ready product this year.
Speaker Change: I wonder if this update on Blue has been expected and part of the roadmap, or is it an unexpected development? Also, if you can share revenues from Blue development during the quarter, that would be great. Thank you.
unknown: Sure. Hi Eddie.
unknown: So on Blue, yeah, as you heard Steve mention, we do believe that we're going to need some more time beyond this year to hit entry commercial specs. Previously, we had expected this year to have that achieved, but we think it's going to be, you know, months, not years, beyond this year for us to achieve those commercial entry specs. But we still feel very confident in the work that we've done. We've seen a lot of improvement in the performance of our materials over the last few years, and that work continues.
Speaker Change: previously we had expected this year to have that achieved but we think it's going to be you know months not years beyond this year for us to achieve those commercial entry specs but still feel very confident in the work that we've done we've seen a lot of improvement in the performance of our material over the last few years and that work continues
unknown: We will need a little bit more time beyond this year, so it is a bit of a change compared to our prior expectations. And on revenues for the quarter, we had $1.3 million in sales in Q2 of Blue emitter and host.
Speaker Change: but we will need a little bit more time beyond this year so it is a bit of a change compared to our prior expectations. And on the revenues for the quarter we had 1.3 million of sales in Q2 of blue emitter and host.
Speaker Change: Got it. That's super helpful. Thank you. And maybe just a quick question on
Speaker Change: competition from China. There has been a lot of noise about that taking place within semis in general. I understand it's a different industry you guys are in, but I wonder if you can remind investors about competitive dynamics in China and whether you think there are some...
Speaker Change: local Chinese competitors emerging or being more competitive. Just any color on how you feel about...
unknown: You're welcome. Sure. Well, we don't believe that there are any
Speaker Change: What we've learned is that our customers want our full suite of current and next-generation OLED technologies and material solutions, which is why we believe all the major panel makers are working with us and have signed long-term agreements.
Speaker Change: We work closely with our customers to understand all the specification requirements that they have today and into the future.
Speaker Change: Perfect. Thank you.
Speaker Change: Thanks Eddie. Our next question is from Mehdi Hossani with CID. Please proceed. I'm sorry, SID. Please proceed.
Ben El-Sami: Thank you, it's Ben El-Sami from SIG. A couple of follow-ups for me. First, can you help me understand what drove the updated guide, especially you raising the low end of the calendar year guide?
Speaker Change: I think it's you know across the board I mean I think we're you know we roll up our forecast based on what we hear from our customers and what our expectations are of their needs in the coming months and as we went through that process you know we landed where we did for for this quarter on guidance.
unknown: Is there any way that we could practice systematically rather than trying to triangulate your progress by reading your body language through earning conference calls?
Speaker Change: Gotcha. Okay. And then on the blue...
Speaker Change: Is there any way that we could practice systematically rather than trying to triangulate your progress by reading your body language through earning conference calls?
unknown: Yeah, I mean, we would love if there were a more, you know, an easier way. I think obviously we need to be mindful of the information we're sharing about our own development efforts and certainly can't share anything about what our customers are doing. So it's a difficult thing, but, you know, we're very confident with the progress we've made and where we expect to go and see ourselves going in the future, future periods here. And, you know, we believe this is not a matter of if but when phosphorescent blue is commercialized.
Speaker Change: I guess what I was trying to understand is would the actual products with your blue enter be available in the market like second half of 25 or is it still to be determined?
unknown: Yeah, it's really a question for our customers in terms of, you know, when there's a product in market with our phosphorescent blue, we're focused on hitting those entry commercial specs, which then enables our customers to determine how they use the material in a commercial product.
unknown: Our next question is from Jim Ricchuti with Needham and Company. Please proceed.
Speaker Change: Thank you, I'll go back to the queue.
unknown: Thanks.
Speaker Change: Our next question is from Jim Raschutte with Needham and Company. Please proceed.
Chris Grenga: Hi, good afternoon. This is Chris Grenga on behalf of Jim.
unknown: Hi Chris. Yeah, so there's not necessarily a pricing difference in terms of the use of our emitter. So, you know, we don't necessarily price differently based on the use of the emitter.
Speaker Change: Hi Chris, yeah so there's you know not necessarily a pricing difference in terms of the use of our emitter so you know we don't you know necessarily price differently based on the the use of the emitter.
Speaker Change: Got it. And...
Speaker Change: How should we think about the level of R&D as, you know,
Speaker Change: You don't necessarily expect the R&D level to change that much, or how are you thinking about that?
unknown: Got it. And you mentioned that the milestone with respect to OBJP in the past, you've talked about potentially pursuing partnerships. I'm just curious if there's any incremental development with respect to discussions that you've been having with partners on that front. Yeah, we continue to talk.
unknown: Thanks.
Speaker Change: As a reminder, it is star 1 on your telephone keypad if you would like to ask a question. Our next question is from Martin Yang with Oppenheimer & Company. Please proceed.
Speaker Change: Thanks. My second question is around the different performance or sales growth.
unknown: between Korean and Chinese customers.
Speaker Change: Korean customers growing really strongly in first quarter and first half. Chinese not as much. Is there any, you know, details you could give us that can help explain that different growth between the two regions?
unknown: Yeah, it's a good question. I mean, I think if you look over the last few years, you've seen that our ordering patterns and revenues for our Chinese customers have been quite variable and lumpy quarter to quarter. So I think that's, you know, a lot of what we've seen in recent periods as well. So no real themes to point to other than just the variable buying patterns of our Chinese customers.
unknown: Yeah, it's a good question. I mean, I think if you look over the last few years, you've seen that our ordering patterns and revenues from our Chinese customers have been quite variable and lumpy quarter to quarter. So, I think that's a lot of what we've seen in recent periods as well. So, no real themes to point to other than just the variable buying patterns of our Chinese customers.
unknown: Thanks.
unknown: Our next question is from Brian Lee with Goldman Sachs. Please proceed.
Speaker Change: Hey guys, good afternoon. Thanks for taking the questions. Sorry, I jumped on late, so I apologize if you already answered some of this. You're kind of pretty precise on the blue update here, several months into 2025, based on what I'm hearing. Can you give us a sense, what are the puts and takes? How could this several months delay update not become another year or two, just trying to get a sense of what your visibility is there?
unknown: Yeah, so I think the comment that Steve made was months, not years of, you know, of delay beyond 2024.
unknown: Okay. Fair enough. And then I guess from a practical standpoint, can you give us, it sounds like you wanted to update the financial community on this call, but I'm sure you've been engaging with customers throughout this year. What's the feedback from that community, and I guess what does it mean for your commercial efforts to sign a new contract with Samsung, for example, or also just setting pricing terms for this new molecule once it's ready?
unknown: Okay, fair enough. And then, I guess, from a practical implications standpoint, can you give us, it sounds like you wanted to update the financial community on this call, but I'm sure you've been engaging with customers throughout this year. What's the feedback from that community? And I guess, what does it mean for your commercial efforts to sign a new contract with Samsung, for example, or also just setting pricing terms for this new molecule once it's ready?
unknown: Yeah, I mean, interest in the project and interest in phosphorescent blue continues to grow. We have strong customer engagement across the board for phosphorescent blue. On the contracting, you know, we're not really, you know, super focused on that at this point; we're focused on getting to the commercial, you know, entry specifications, and we're confident that the contracts will fall in place when they need to be.
unknown: Yeah, I mean, interest in the project and interest in Phosphorescent Blue continues to grow. We have strong customer engagement across the board on Phosphorescent Blue. On the contracting, we're not really super focused on that at this point. We're focused on getting to the commercial entry specs, and we're confident that the contracts will fall in place when they need to be there.
Speaker Change: Alright, fair enough. Last one for me, just numbers related. Sorry if you did cover this, but the big jump in deferred revenue, the current balance,
Speaker Change: Was there some sort of contractual update or something that drove that? I hadn't seen that in a few quarters in terms of deviations on the trend line in different revenues. Just wondering what that might be related to. Thank you, guys.
Brian: Yeah, thanks, Brian. So that really was due to a certain billing milestone that was achieved on a contract in the quarter. So, as you know, the deferred revenue balance either goes up or down based on the timing of cash collection relative to revenue recognition. And in this quarter, there were a few billing milestones that drove an uptick in the balance.
Brian: Yeah, thanks Brian. So that really was due to a certain billing milestone that was achieved on a contract in the quarter. So as you know the deferred revenue balance, you know, either goes up or down based on timing of cash collection relative to revenue recognition and in this quarter, you know, there are a few billing milestones that drove an uptick in the balance.
Speaker Change: Thank you for your time today. We appreciate your interest and support.
unknown: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.
unknown: Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.