Q2 2025 Universal Display Corp Earnings Call

Good day, ladies and gentlemen, and welcome to Universal Display Corporation. Second quarter 2025 earnings conference. Call, my name is Sheri 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 follow the formal presentation. If anyone requires operator assistance, please push star zero on your telephone keypad. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Daryl Lou, Senior Director of Investor Relations. Please proceed.

Thank you and good afternoon everyone. Welcome to Universal Display second quarter earnings conference. Call joining me on the call today are Steve Abramson president and chief executive officer and Brian malard Chief Financial Officer and treasurer.

Before Steve begins, let me remind you that today's call is a property of Universal Display. Any redistribution we transmission or Repro of any portion of this call and any form without the express, written consent of universal displays strictly prohibited

Further this call is being webcast live and will be made available for a period of time. On universal displays website. This call contains time-sensitive information. That is accurate only as of the date of the live webcast of this, call July 31st, 2025

During this call, we may make forward-looking statements based on 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 in the company's periodic reports filed with the FCC and should be referenced by anyone. Considering making any investments in the company's Securities, Universal Display, disclaimed, any obligation to update any of these statements.

Now, I would like to turn the call over to see if Everson.

Thanks deris, and welcome to everyone on today's call.

We are pleased to deliver record performance in the second quarter with revenue of $172 million and net income of $67 million, or $0.41 per diluted share.

As we look to the full year, we are raising the low end of our 2025 Revenue guidance range to 650 million to 700 million.

To demonstrate a robust, long-term growth trajectory fueled by expanding product, portfolios and increasing adoption across consumer electronics, and Automotive markets.

While macro uncertainties may continue to persist, we believe that the OLED industry is entering a dynamic new phase of expansion.

Primarily fueled by growing OLED demand in tablets laptops and monitors where oleds are estimated to be less than 5% of the current it Market.

According to Omdia market research, IT units are forecasted to more than double to 48.6 million units in 2027, up from 23 million units in 2024.

Smartphones and TVs are also projected to maintain their upward trajectory with anticipated growth rates of 11% and 10%, respectively, over the same period.

Beginning next year, the first jet 8.6 OLED assads from Samsung display and Boe are expected to come online marketing, a pivotal shift in medium-sized, OLED manufacturing capacity and capability. In addition, it was recently reported that Vision. Ox's Jen 8.6 OLED Sabin. He designed with a production capacity of 32,000 plates per month is progressing ahead of schedule.

LG display approved, almost 1 billion dollars to boost its OLED technology capabilities and capacity as paju Korea, plant and Vietnam, module facility.

And TCL China. Star is evaluating plans for New Gen 8.6. OLED plant.

Another driver of medium-sized, OLED demand is Automotive displays which were highlighted Sid display week in May.

On the trade show floor in San Jose, concept vehicle showcase the vision for the future of in vehicle display technology, featuring Innovations, such as transparent sunroof and windows display. Panels slidable rear seat monitors and expansive pillar tapar dashboards.

Panel makers, offered a glimpse of how all those are poised to redefine. The on-road experience for design, functionality and immersive visual performance.

According to omdia, all the adoption in the automotive sector continues to expand particularly low among luxury Brands and new energy vehicles.

The market research firm projects that automotive OLED display shipments will grow by more than 300%.

2.8 million units in 2024 to 9.1 million units in 2029.

All the technology continues to reshape design possibilities for Consumer Electronics. Also a display week panel maker showcases, an array of foldable rollable, stretchable, and even polygonal displays these Innovations. I like the flexibility of oleds and its ability to enhance how users engage with devices across various categories.

Ubi research reports that with more oems anticipating to enter the foldable device market and existing Brands plan to expand their foldable product. Lines foldable shipments are expected to more than double by 2029 compared to last year.

On the R&D front, our Decades of deep expertise and proprietary knowledge. Continued to fuel, bold ideas and scalable Solutions.

From early stage research to commercial volume production where advancing the frontier of phosphorus and OLED materials and Technologies.

Central to this effort is our proprietary AIML platform. With strengthens our Discovery and development process.

Established more than a decade ago. Our internal computational team models molecular interactions at the atomic level accelerating lead optimization and enhancing development pathways

This enables us to efficiently. Broaden our portfolio of Next Generation, Reds greens, yellows blues and hosts to meet the evolving needs of our customers and the broader display and consumer electronics Market.

Our end-to-end Innovation, expands our leadership position and delivers technologies that support the OLED industry's growth trajectory

Regarding Blue as we noted, in our May earnings, call the verification of commercialization level performance of blue phosphorus at OLED, panels on a mass production line by 1 of our customers marked a major milestone in our development Journey.

While the specific timing for the debut of our foliage, blue and Commercial products will be guided by the OLED Market. This achievement represents a critical step forward in our roadmap and underscores the significant progress we've made.

For our customers to the broader OLED industry, but also for consumers and for us as a company.

As we look across the broader Market, consumer devices are becoming increasingly intelligent and interconnected driven by AI 5G and always on connectivity.

This evolution is fueling unprecedented, demand for energy efficient Technologies.

Our Universal full and materials are at the heart of this transformation.

Our broadening portfolio of power, saving oil and materials and Technologies. Helps extend battery, life, reduce thermal load and enable next generation of features and smartphones wearables. It devices Automotive displays and more

And with our phosphorus and blue, we're poised to unlock up to an additional 25% Improvement in OLED display, Energy Efficiency, ushering in a new era of sustainable performance.

On that note, let me turn the call over to Brian.

Thank you, Steve. And again, thank you everyone for joining our call today.

Revenue in the second quarter was 172 million compared to 159 million in the second quarter of 2024.

For the year, as Steve shared, we believe revenues will be in the range of $650 million to $700 million.

Amid ongoing, macroeconomic uncertainty, this guidance, reflects our best current assessment.

We now estimate that our 2025 ratio of materials to royalty and licensing revenues will be in the ballpark of 1.3 to 1.

Our total material sales were $89 million in the second quarter, compared to material sales of $95 million in the second quarter of 2024.

Green emitter sales, which include our yellow-green emitters, were $64 million. This compares to $72 million in the second quarter of 2024.

Red emitter sales were 24 million. This compares to 23 million in the second quarter of 2024.

As we've discussed in the past material, buying patterns can vary quarter to quarter.

Second quarter royalty and license fees were $76 million compared to the prior year's $60 million.

A decisive second quarter, Revenue was 7 and a half million dollars compared to 3 and a half million dollars in the second quarter of 2024.

The second quarter cost of sales was $39 million, translating to a total gross margin of 77%.

This compares to 38 million in total gross, margins of 76% in the second quarter of 2024.

We continue to believe that total gross margins for the full year will be in the range of 76% to 77%.

Operating expenses, excluding cost of sales were 64 million in the second quarter of 2025 and 2024.

We now expect 2025 Opex to decrease year-over-year by a low single digit percentage.

Operating income was 69 million in the second quarter translating an operating margin of 40%. This compares to the prior year period of 56 million and operating margin of 36%

We now expect our 2025 operating margins to be at the upper end of our 35, to 40% guidance range.

The income tax rate was 20% in the second quarter of 2025. We expect our effective tax rate for the year to be approximately 19%.

Second quarter 2025, net income was 67 million or a $141 per diluted share.

This compares to 52 million or a dollar 10 per diluted share in the comparable period in 2024.

We ended the quarter with approximately 932 million in cash cash equivalents and Investments.

Our board of directors approved a 45 Cent quarterly dividend, which will be paid on September 30th 2025 to shareholders of record as of the close of business on September 16th 2025.

Our Capital allocation program, 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.

Thanks Brian.

Since Aaron Inception. UDC has been driven by a bold vision and the resilience to transform challenges into opportunities for growth.

Through discipline execution and a focused strategic approach, we built a company that is agile, resilient and forward thinking.

Over the years.

Remaining committed to our growth framework, anchored by a robust and expanded Global infrastructure of flexible and adaptive supply chain. Deepening customer relationships, and as steadfast dedication to Innovation and product leadership.

I would like to thank each of our employees for their drive, desire, dedication, and heart in elevating and shaping Universal's accomplishments and advancements. 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.

Thank you, Mr. Aen, 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. You may press star 2. If you would like to remove your question from the queue, and for a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star Keys 1 moment, while we pull for questions.

Our first question is from Brian Lee with Goldman Sachs, please proceed.

Actually, we lost Ryan. I said, we'll move on to our next question, which is a gem rushy with neam and Company. Please proceed.

Hi thanks. Yeah, good afternoon. Um, you know maybe I'll start with a question on um, on some of the the discussion around the new form factors potentially for smartphones since I think you alluded to it Steve in your introductory remarks.

How much? Um,

Benefit. Uh, do you see, does the company see, um, from a foldable phone, you know, assuming we're going to see more of these hit the market, um, versus traditional smartphones? I assume there's more content, but I wonder if you can give us some additional color on that.

Yeah, hi Jim. It's Brian. Um, so we we certainly do see incremental Revenue just based on the surface area and the square area those displays, um, you know, depending on, you know, the type of foldable there can be, you know, up to up to kind of, you know, close to 38 2, to 3x in that range. The, uh, the material compared to, you know, a traditional, uh, single layer phone. So it's certainly a really exciting market and a growing market. So we know that our customers are very focused on the foldable Market. Um, you know, many in the OEM Community are either have launched or are planning to launch foldable phones uh in the coming years. So it's a great market and 1 that we're monitoring very closely and and supporting our customers in their development and Jim, I've been using the foldable phone since they first came out a while ago and they're just great because I can use the phone with the main screen uh, for normal conversations and what I want to write a book or, or or review a PowerPoint or whatever I can just fold it out. So it's really the only phone I need to carry with me when I try to

That'll be interesting to see how uh how this Market develops. Um quick question on Blue. Uh usually you guys give some uh uh Revenue numbers for the blue development uh uh emitter Revenue. What was it in a quarter? Can you say?

Yeah, we've recorded uh 1.1 million, a blue revenues in the quarter. So that's 2.2 million uh, through the 6 months.

Okay, thank you. I'll jump back in the queue.

Thanks Jim.

Our next question.

To Martin Yang with Oppenheimer and Company, please proceed.

Thank you for taking my question. Uh, first question on contract research service Revenue. This quarter is a little higher than normal. Can you talk about why?

Yeah, thanks Martin. The contract research revenue is, uh, the revenue generated by our adsys business. So that's a business, we acquired, you know, a number of years ago, contractor research organization as well as a contract manufacturer. So, um, they've, you know, had a number of, you know, recent successes with some customers that have resulted in increased revenues. Um, so very pleased with their business, uh, you know, year to date and we expect good things going forward as well from a thesis.

So that's, um, a factor of their own customers doing better, which is not related to your core business. Is that right?

Correct entirely unrelated to our OLED business. Um, they serve, you know, a number of companies in the Life Sciences industry, um, primarily. Um, and it's due to, you know, some of the manufacturing and cro contracts that they have, in that side of the business.

Got it, uh, a second question. Um,

Helped you to Advanced material research and benefit your customers. Thanks.

Well the oleds is a very complicated device. It has a lot of different physical and chemical and other scientific properties by using a IML with the appropriate algorithm or algorithms. It can speed up the determination of what the most likely, um, Pathways for Success would be. And we've built up a very large OLED database, um, for for AIML and machine learning is pretty dependent on the size and the quality of the databases.

Thanks, Steve. That's it for me.

Thanks Martin.

As a reminder to Star 1 on your telephone keypad, if you would like to ask a question. How our next question is from Brian Lee? With Goldman Sachs, please proceed.

Hey everyone, good afternoon, thanks for uh, taking the questions. Um, I I jumped on a little bit late, so apologies in advance, if some of this has been covered, but um, the, the revenue guidance for the year, I mean, you you've had a really strong first half, so if you kind of back into the midpoint, it's implying kind of a flattish.

Revenue line for the second half. Um, at the midpoint, I know last year you had a pretty abnormal seasonal pattern of Revenue, given the product cycle in the first half of the year, that was new this year. Could you maybe kind of walk us through, what you're seeing out there in the marketplace, as to why seasonality? Uh again is is less pronounced, you know less second half uh um Improvement than what you've historically seen. Or or if there's any kind of conservatism being based in here, just trying to understand what uh what the seasonality is looking like.

Yeah, thanks. Thanks. Brian, ugh, good question. So we um you know as you said certainly the first half of the year has come in quite strong and you know a little bit stronger than we had originally planned for the year. Um and I think if we look at the rest of the year you know we're we're hearing that the full year should be, you know, pretty close to what we had originally planned. Um, and as we look at, you know, kind of upside and downside scenarios. We just felt like as we were preparing for this call. And, and this release that there wasn't really, you know, a likely scenario where we were going to be in that, that bottom end. So it felt appropriate to raise, uh, raise guidance by 10 million on, on the low side. Um, and, you know, I think we're hearing from our customers that they're expecting, you know, the rest of the year to continue to be, you know, as planned. So. Um, nothing's appearing off course, as we mentioned back on, the May call, we did have, you know, some tariff related buying that went on in April. So that was mostly pulling really from May and

June. So all within Q2 maybe a little bit of pulling from Q3 but not a significant amount. Um but the full year you know, still is is very much on track.

Yeah, no that's uh that's super helpful, Brian. Um I guess that was going to be my second question. I mean China seasonally for, you know, multiple years in a row is always kind of been down for you in Q2 versus q1. And, you know, China was outstanding, um, uh, in terms of, you know, Revenue contribution for Q2, I I presume, they're the ones that were, uh, the bulk, if not all of the, the pull in, in April. Um, but even if you think about the pull in, um, you know, coming from from May and June, uh,

it's just a lot of, you know, abnormal seasonality for that region. So what what are your thoughts on like, inventory? Do you have visibility into the channel there? Could they have pulled forward from, you know, you said maybe a little bit of Q3 but just given the volume of Revenue that they contributed in Q2. Just wondering if you have any thoughts on kind of inventory, as well as maybe, um, you know, it being, uh, more pulled forward than than you anticipated at the time when you, you gave that color.

Yes. So we do get, you know, I'd say pretty limited information on inventory from our customers. I mean, some anecdotal information here and there. Um, I think an important thing to notice is that our Chinese customers have always had, you know, pretty variable ordering patterns. So there's not really been, um, a consistent pattern over, you know, a long period of time to look to point to. Um, but.

You know, based on what we know right now, we, we think, as I said there is, you know, some tariff related buying in Q2, um, we think it was mostly intra quarter. Um, but you know, we'll, we'll see how the rest of the year plays out. But we're hearing consistent feedback from the customers on, you know what, the the rest of the year looks like and their forecasts.

Okay, fair enough. I'll pass it on. Thanks, everyone.

Thanks.

Our next question is from Scott Cerro with Roth, Capital Partners, please proceed.

Standpoint and what end markets? You're seeing the most interest in activity and second, uh, in terms of overall capacity. I'm wondering if you could give us some updated thoughts in terms of where current industry utilization is at, and then in terms of some of the new capacity coming online in 2026, we've got 8.6. Gen Fabs from both Boe and Samsung coming on board. I'm wondering what that does to your overall industry capacity model and what other big projects are coming behind that in 27. Thanks.

Thanks Scott. So, starting on the tandem question. Um, the tandem architecture is primarily used to date in the it and Automotive segments of the business. So um, it as you know, is, you know, quite low from a penetration perspective and 1 of the key growth drivers that we see in the industry sees in the next few years. So right now only, you know, approximately 4 or 5% thereabouts of the OLED displays that are or sorry of the displays that are, that are produced for the, it segments are OLED. So we have a lot of growth opportunity and the Gen 8.6. Fabs that you mentioned coming online next year. Um, you know, we'll be key to adding more capacity to meet that demand in the it segment. Um, that additional capacity, you know, is, is we had estimated earlier this year, that some of the additional capacity from, um, you know, end of 23 to end of 25. The install capacity would increase by 10 to 15%. So that's kind of, you know, roughly part of that, that increase, um, would relate to the Gen 8.6, Fabs coming online.

Line. Um, and then on the industry utilization, I think, you know, our customers, you know, continue to do quite. Well, they're all growing their OLED businesses. And, um, you know, we believe in this industry utilization is is quite strong at this point.

Don't have a specific percentage for you but um you know we're hearing you know positive feedback from our customers on um on their Endust their utilization. And I think the the key thing for um the next few years is these gen 8.66 favs that we've been talking about from Samsung Billy and vision. Oh, those are the 3 that have been announced and and are moving forward. Um, they all are you know, kind of kicking off a multi-year capex cycle that we expect in the next few years. You in large part to meet the demand for the it segment.

Hey, Brian. If I could follow up quickly on the tandem architecture front, are most customers and most OLED designs employing a tandem architecture? Thanks.

I, I think it's going to be continued to be a little bit of a mix. Um, you know, tandem is certainly a more complex and more costly, uh, display to manufacture. Um, you know, it really I Tandem and it really only started in the last, you know, 12 to 18 months. So it's relatively new and there's been single layer, OLED products in the it market for, you know, a number of years now. So going forward, you know, it's possible that maybe the tandem structure is used in more, you know, premium offerings. Um, but we think we'll continue to see, you know, a mix going forward about Tandem and single

Great. Thanks. Looking back in the queue.

Thanks Scott.

Thank you. This concludes our question and answer session, I would like to turn the program back over to Brian Miller for any additional closing remarks.

Thank you for your time today. We appreciate your interest and support.

Thank you. This concludes today's conference call. You may now disconnect