Press release

Universal Display Corporation Announces Second Quarter 2019 Financial Results

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Universal Display Corporation (Nasdaq: OLED), enabling energy-efficient displays and lighting with its UniversalPHOLED® technology and materials, today reported financial results for the second quarter ended June 30, 2019.

“We are pleased to report strong second quarter results across the board,” said Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display. “As OLED demand continues to grow, revenues from our top customers were up quarter-over-quarter and year-over-year. Included in our second quarter results are approximately $15-$20 million of sales we estimate were pulled-in from the second half of the year. These sales were from our Chinese customers due to what we believe were trade-related issues. Looking forward, we continue to see robust OLED momentum and as a result, we are raising our 2019 revenue guidance.”

Rosenblatt continued, “As a key player in the OLED ecosystem, we are continuing to develop new OLED technologies and next-generation red, green, yellow and blue phosphorescent emissive materials to stay ahead of the curve, and to leverage our first-mover leadership position. At SID Display Week in May, for the first-time, we showcased printed panels from our OVJP (organic vapor jet printing) pilot system. You were able to view up-close our green PHOLED printed test coupon, with lifetimes of over 50,000 hours (LT95) at 1,000 nits. For such early data, we believe that this is extraordinarily encouraging. Also in May, we launched our corporate venture capital arm, UDC Ventures. We believe that these and our other strategic initiatives will strengthen and support our primary focus of enabling our customers’ success, and therefore, our success.”

Financial Highlights for the Second Quarter of 2019

Effective January 1, 2018, we adopted ASC Topic 606 using the “modified retrospective” approach, meaning the standard was applied only to the financial results commencing with the first quarter of 2018 with a cumulative adjustment to retained earnings. Under this transition method, we applied the standard only to contracts that were not complete at the initial adoption date. Material sales and cost of material sales referenced below relate solely to OLED activity and exclude activity from contract research services.

  • Total revenue in the second quarter of 2019 was $118.2 million as compared to $56.1 million in the second quarter of 2018. On the basis of ASC Topic 605 (the applicable accounting standard prior to the adoption of ASC Topic 606), total revenue in the second quarter of 2019 would have been $119.8 million, compared to $73.6 million in the second quarter of 2018. Under ASC Topic 606, license fee revenue is recognized on a per gram sales basis, whereas under ASC Topic 605, revenue was recognized for license payments upon receipt or on a straight-line basis over the term of the contract. During the second quarter of 2019, we believe that certain of our customers located in China accelerated emitter purchases to mitigate the impact from potential U.S. and China trade-related issues. We estimate that these pre-purchases increased revenue by $15 million to $20 million in the current quarter, pulled-in from the second half of 2019.
  • Revenue from material sales was $76.3 million in the second quarter of 2019 as compared to $36.8 million in the second quarter of 2018. On an ASC Topic 605 basis, revenue from material sales in the second quarter of 2019 would have been $78.3 million, compared to $35.9 million in the second quarter of 2018.
  • Revenue from royalty and license fees was $38.9 million in the second quarter of 2019 as compared to $15.5 million in the second quarter of 2018. On an ASC Topic 605 basis, revenue from royalty and license fees in the second quarter of 2019 would have been $38.6 million as compared to $33.9 million in the second quarter of 2018.
  • Cost of materials was $22.0 million in the second quarter of 2019, compared to $9.3 million in the second quarter of 2018. Included in the cost of materials was an inventory reserve charge of $3.9 million in the second quarter of 2019, compared to $0.2 million in the second quarter of 2018.
  • Operating income was $48.7 million in the second quarter of 2019 compared to $10.9 million in the second quarter of 2018. On an ASC Topic 605 basis, operating income in the second quarter of 2019 would have been $50.3 million, compared to $28.4 million in the second quarter of 2018.
  • Net income was $43.4 million or $0.92 per diluted share in the second quarter of 2019 compared to $10.8 million or $0.23 per diluted share in the second quarter of 2018. On an ASC Topic 605 basis, net income in the second quarter of 2019 would have been $44.8 million or $0.95 per diluted share, compared to $25.1 million or $0.54 per diluted share in the second quarter of 2018.

Revenue Comparison

($ in thousands)

 

Three Months Ended June 30,

 

 

2019

 

 

2018

Material sales

 

$

76,328

 

 

$

36,833

Royalty and license fees

 

 

38,938

 

 

 

15,523

Contract research services

 

 

2,902

 

 

 

3,793

Total revenue

 

$

118,168

 

 

$

56,149

 

Cost of Materials Comparison

($ thousands)

Three Months Ended June 30,

2019

2018

Material sales

$

76,328

$

36,833

Cost of material sales

21,981

9,284

Gross margin on material sales

54,347

27,549

Gross margin as a % of material sales

71

%

75

%

 

Topic 606 versus 605 Adjusted Results

For the three months ended June 30, 2019 (in thousands)

 

As reported

 

 

Adjustment

 

 

Balances without

adoption of Topic

606

Revenue

 

$

118,168

 

 

$

1,630

 

 

$

119,798

Gross margin

 

 

94,096

 

 

 

1,630

 

 

 

95,726

Operating income

 

 

48,664

 

 

 

1,630

 

 

 

50,294

Net income

 

 

43,440

 

 

 

1,315

 

 

 

44,755

Diluted earnings per share

 

$

0.92

 

 

$

0.03

 

 

$

0.95

 

Financial Highlights for the First Half of 2019

  • Total revenue in the first half of 2019 was $205.9 million as compared to $99.7 million in the first half of 2018. On the basis of ASC Topic 605 (the applicable accounting standard prior to the adoption of ASC Topic 606), total revenue in the first half of 2019 would have been $221.4 million, compared to $141.8 million in the first half of 2018. Under ASC Topic 606, license fee revenue is recognized on a per gram sales basis, whereas under ASC Topic 605, revenue was recognized for license payments upon receipt or on a straight-line basis over the term of the contract. During the second quarter of 2019, we believe that certain of our customers in China accelerated emitter purchases in preparation to mitigate the impact from potential U.S. and China trade-related issues. We estimate that these pre-purchases increased revenue by $15 million to $20 million in the current quarter, pulled-in from the second half of 2019.
  • Revenue from material sales was $130.8 million in the first half of 2019 as compared to $62.1 million in the first half of 2018. On an ASC Topic 605 basis, revenue from material sales in the first half of 2019 would have been $135.6 million, compared to $64.6 million in the first half of 2018. Revenue from royalty and license fees was $69.2 million in the first half of 2019 as compared to $31.4 million in the first half of 2018. On an ASC Topic 605 basis, revenue from royalty and license fees in the first half of 2019 would have been $79.9 million as compared to $71.0 million in the first half of 2018.
  • Cost of materials was $35.0 million in the first half of 2019, compared to $15.0 million in the first half of 2018. Included in the cost of materials was an inventory reserve charge of $4.2 million in the first half of 2019, compared to $183 thousand in the first half of 2018.
  • Operating income was $83.0 million in the first half of 2019 compared to $15.4 million in the first half of 2018. On an ASC Topic 605 basis, operating income in the first half of 2019 would have been $98.5 million, compared to $57.6 million in the first half of 2018.
  • Net income was $74.9 million or $1.58 per diluted share in the first half of 2019 compared to $16.8 million or $0.35 per diluted share in the first half of 2018. On an ASC Topic 605 basis, net income in the first half of 2019 would have been $87.4 million or $1.84 per diluted share, compared to $51.0 million or $1.09 per diluted share in the first half of 2018.

Revenue Comparison

($ in thousands)

 

Six Months Ended June 30,

 

 

2019

 

 

2018

Material sales

 

$

130,824

 

 

$

62,083

Royalty and license fees

 

 

69,207

 

 

 

31,434

Contract research services

 

 

5,902

 

 

 

6,204

Total revenue

 

$

205,933

 

 

$

99,721

 

Cost of Materials Comparison

($ thousands)

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Material sales

 

$

130,824

 

 

$

62,083

 

Cost of material sales

 

 

34,957

 

 

 

14,974

 

Gross margin on material sales

 

 

95,867

 

 

 

47,109

 

Gross margin as a % of material sales

 

73

%

 

 

76

%

 

Topic 606 versus 605 Adjusted Results

 

For the six months ended June 30, 2019 (in thousands)

 

As reported

 

 

Adjustment

 

 

Balances without

adoption of Topic

606

Revenue

 

$

205,933

 

 

$

15,445

 

 

$

221,378

Gross margin

 

 

166,047

 

 

 

15,445

 

 

 

181,492

Operating income

 

 

83,024

 

 

 

15,445

 

 

 

98,469

Net income

 

 

74,914

 

 

 

12,464

 

 

 

87,378

Diluted earnings per share

 

$

1.58

 

 

$

0.26

 

 

$

1.84

 

2019 Revised Guidance

Although the OLED industry is still at an early state where many variables can have a material impact on its growth, and the Company thus caveats its financial guidance accordingly, the Company now believes that its 2019 revenue will be approximately in the range of $370 million to $390 million. The guidance was prepared utilizing accounting standard ASC Topic 606; under the prior accounting standard ASC Topic 605, the Company estimates that its 2019 revenues would be approximately $425 million to $435 million.

Dividend

The Company also announced a third quarter cash dividend of $0.10 per share on the Company’s common stock. The dividend is payable on September 30, 2019 to all shareholders of record on September 16, 2019.

Conference Call Information

In conjunction with this release, Universal Display will host a conference call on Thursday, August 1, 2019 at 5:00 p.m. Eastern Time. The live webcast of the conference call can be accessed under the events page of the Company’s Investor Relations website at ir.oled.com. Those wishing to participate in the live call should dial 1-877-524-8416 (toll-free) or 1-412-902-1028. Please dial in 5-10 minutes prior to the scheduled conference call time. An online archive of the webcast will be available within two hours of the conclusion of the call.

About Universal Display Corporation

Universal Display Corporation (Nasdaq: OLED) is a leader in the research, development and commercialization of organic light emitting diode (OLED) technologies and materials for use in display and solid-state lighting applications. Founded in 1994, the Company currently owns, exclusively licenses or has the sole right to sublicense more than 5,000 patents issued and pending worldwide. Universal Display licenses its proprietary technologies, including its breakthrough high-efficiency UniversalPHOLED® phosphorescent OLED technology that can enable the development of low power and eco-friendly displays and solid-state lighting. The Company also develops and offers high-quality, state-of-the-art UniversalPHOLED materials that are recognized as key ingredients in the fabrication of OLEDs with peak performance. In addition, Universal Display delivers innovative and customized solutions to its clients and partners through technology transfer, collaborative technology development and on-site training.

Headquartered in Ewing, New Jersey, with international offices in China, Hong Kong, Ireland, Japan, South Korea and Taiwan, and wholly-owned subsidiary Adesis, Inc. based in New Castle, Delaware, Universal Display works and partners with a network of world-class organizations. To learn more about Universal Display Corporation, please visit https://oled.com/.

Universal Display Corporation and the Universal Display Corporation logo are trademarks or registered trademarks of Universal Display Corporation. All other company, brand or product names may be trademarks or registered trademarks.

All statements in this document that are not historical, such as those relating to Universal Display Corporation’s technologies and potential applications of those technologies, the Company’s expected results and future declaration of dividends, as well as the growth of the OLED market and the Company’s opportunities in that market, are forward-looking financial statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements in this document, as they reflect Universal Display Corporation’s current views with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. These risks and uncertainties are discussed in greater detail in Universal Display Corporation’s periodic reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, including, in particular, the section entitled “Risk Factors” in Universal Display Corporation’s Annual Report on Form 10-K for the year ended December 31, 2018. Universal Display Corporation disclaims any obligation to update any forward-looking statement contained in this document.

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UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

324,277

 

 

$

211,022

 

Short-term investments

 

 

228,434

 

 

 

304,323

 

Accounts receivable

 

 

66,952

 

 

 

43,129

 

Inventory

 

 

60,138

 

 

 

70,000

 

Other current assets

 

 

8,893

 

 

 

6,366

 

Total current assets

 

 

688,694

 

 

 

634,840

 

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $50,742 and $44,943

 

 

83,595

 

 

 

69,739

 

ACQUIRED TECHNOLOGY, net of accumulated amortization of $122,179 and $111,890

 

 

101,063

 

 

 

110,951

 

OTHER INTANGIBLE ASSETS, net of accumulated amortization of $4,071 and $3,384

 

 

12,769

 

 

 

13,456

 

GOODWILL

 

 

15,535

 

 

 

15,535

 

INVESTMENTS

 

 

5,000

 

 

 

 

DEFERRED INCOME TAXES

 

 

25,204

 

 

 

24,377

 

OTHER ASSETS

 

 

79,220

 

 

 

64,526

 

TOTAL ASSETS

 

$

1,011,080

 

 

$

933,424

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable

 

$

7,744

 

 

$

10,532

 

Accrued expenses

 

 

35,744

 

 

 

36,057

 

Deferred revenue

 

 

82,472

 

 

 

80,782

 

Other current liabilities

 

 

13,776

 

 

 

5,811

 

Total current liabilities

 

 

139,736

 

 

 

133,182

 

DEFERRED REVENUE

 

 

44,651

 

 

 

41,785

 

RETIREMENT PLAN BENEFIT LIABILITY

 

 

45,377

 

 

 

44,055

 

OTHER LIABILITIES

 

 

30,283

 

 

 

23,896

 

Total liabilities

 

 

260,047

 

 

 

242,918

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

 

Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized, 200,000 shares of Series A Nonconvertible Preferred Stock issued and outstanding (liquidation value of $7.50 per share or $1,500)

 

 

2

 

 

 

2

 

Common Stock, par value $0.01 per share, 200,000,000 shares authorized, 48,831,512 and 48,681,524 shares issued, and 47,465,864 and 47,319,887 shares outstanding, at June 30, 2019 and December 31, 2018, respectively

 

 

488

 

 

 

487

 

Additional paid-in capital

 

 

611,596

 

 

 

617,334

 

Retained earnings

 

 

195,036

 

 

 

129,552

 

Accumulated other comprehensive loss

 

 

(14,805)

 

 

 

(16,234)

 

Treasury stock, at cost (1,365,648 and 1,361,637 shares at June 30, 2019 and December 31, 2018, respectively)

 

 

(41,284)

 

 

 

(40,635)

 

Total shareholders’ equity

 

 

751,033

 

 

 

690,506

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

1,011,080

 

 

$

933,424

 

 

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(in thousands, except share and per share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

REVENUE

 

$

118,168

 

 

$

56,149

 

 

$

205,933

 

 

$

99,721

 

COST OF SALES

 

 

24,072

 

 

 

11,635

 

 

 

39,886

 

 

 

19,093

 

Gross margin

 

 

94,096

 

 

 

44,514

 

 

 

166,047

 

 

 

80,628

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

18,833

 

 

 

12,949

 

 

 

34,662

 

 

 

25,306

 

Selling, general and administrative

 

 

15,939

 

 

 

11,562

 

 

 

27,908

 

 

 

22,353

 

Amortization of acquired technology and other intangible assets

 

 

5,490

 

 

 

5,495

 

 

 

10,976

 

 

 

10,986

 

Patent costs

 

 

1,716

 

 

 

2,029

 

 

 

3,486

 

 

 

3,754

 

Royalty and license expense

 

 

3,454

 

 

 

1,568

 

 

 

5,991

 

 

 

2,799

 

Total operating expenses

 

 

45,432

 

 

 

33,603

 

 

 

83,023

 

 

 

65,198

 

OPERATING INCOME

 

 

48,664

 

 

 

10,911

 

 

 

83,024

 

 

 

15,430

 

Interest income, net

 

 

2,757

 

 

 

1,766

 

 

 

5,588

 

 

 

3,037

 

Other income (expense), net

 

 

405

 

 

 

(12)

 

 

 

687

 

 

 

(59)

 

Interest and other income, net

 

 

3,162

 

 

 

1,754

 

 

 

6,275

 

 

 

2,978

 

INCOME BEFORE INCOME TAXES

 

 

51,826

 

 

 

12,665

 

 

 

89,299

 

 

 

18,408

 

INCOME TAX EXPENSE

 

 

(8,386)

 

 

 

(1,851)

 

 

 

(14,385)

 

 

 

(1,635)

 

NET INCOME

 

$

43,440

 

 

$

10,814

 

 

$

74,914

 

 

$

16,773

 

NET INCOME PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

$

0.92

 

 

$

0.23

 

 

$

1.58

 

 

$

0.35

 

DILUTED

 

$

0.92

 

 

$

0.23

 

 

$

1.58

 

 

$

0.35

 

WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

 

46,967,005

 

 

 

46,868,999

 

 

 

46,930,165

 

 

 

46,826,314

 

DILUTED

 

 

46,996,702

 

 

 

46,901,098

 

 

 

46,966,172

 

 

 

46,873,109

 

CASH DIVIDENDS DECLARED PER COMMON SHARE

 

$

0.10

 

 

$

0.06

 

 

$

0.20

 

 

$

0.12

 

 

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income

 

$

74,914

 

 

$

16,773

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Amortization of deferred revenue and recognition of unbilled receivables

 

 

(63,942)

 

 

 

(29,266)

 

Depreciation

 

 

5,799

 

 

 

4,422

 

Amortization of intangibles

 

 

10,976

 

 

 

10,986

 

Change in excess inventory reserve

 

 

4,155

 

 

 

 

Amortization of premium and discount on investments, net

 

 

(3,150)

 

 

 

(2,329)

 

Stock-based compensation to employees

 

 

7,106

 

 

 

6,163

 

Stock-based compensation to Board of Directors and Scientific Advisory Board

 

 

884

 

 

 

2,003

 

Deferred income tax (benefit) expense

 

 

(1,218)

 

 

 

19,312

 

Retirement plan expense

 

 

2,940

 

 

 

2,252

 

Decrease (increase) in assets:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(23,823)

 

 

 

16,772

 

Inventory

 

 

5,707

 

 

 

(19,778)

 

Other current assets

 

 

(2,816)

 

 

 

(9,058)

 

Other assets

 

 

(5,846)

 

 

 

(37,909)

 

Increase (decrease) in liabilities:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

 

(2,099)

 

 

 

(13,123)

 

Other current liabilities

 

 

6,736

 

 

 

(25)

 

Deferred revenue

 

 

68,213

 

 

 

64,423

 

Other liabilities

 

 

(657)

 

 

 

18,334

 

Net cash provided by operating activities

 

 

83,879

 

 

 

49,952

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(20,322)

 

 

 

(13,420)

 

Purchases of intangibles

 

 

(401)

 

 

 

 

Purchases of investments

 

 

(363,595)

 

 

 

(260,711)

 

Proceeds from sale of investments

 

 

437,800

 

 

 

211,847

 

Net cash provided by (used in) investing activities

 

 

53,482

 

 

 

(62,284)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

445

 

 

 

436

 

Repurchase of common stock

 

 

(649)

 

 

 

(477)

 

Payment of withholding taxes related to stock-based compensation to employees

 

 

(14,472)

 

 

 

(11,031)

 

Cash dividends paid

 

 

(9,430)

 

 

 

(5,659)

 

Net cash used in financing activities

 

 

(24,106)

 

 

 

(16,731)

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

113,255

 

 

 

(29,063)

 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

 

211,022

 

 

 

132,840

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

324,277

 

 

$

103,777

 

The following non-cash activities occurred:

 

 

 

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

$

192

 

 

$

219

 

Common stock issued to Board of Directors and Scientific Advisory Board that was earned and accrued for in a previous period

 

 

300

 

 

 

300

 

Net change in accounts payable and accrued expenses related to purchases of property and equipment

 

 

667

 

 

 

3,100