Universal Display Corporation Announces Second Quarter 2018 Financial Results

Published: Aug 09, 2018

Aug. 9, 2018 20:08 UTC

EWING, N.J.--(BUSINESS WIRE)-- 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, 2018.

“In the second quarter, we saw material sales improving off what we believed to be a first quarter ‘bottom’ for material shipments,” said Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display. “With anticipated new OLED product launches from leading OEMs around the world, we continue to expect an additional pick-up in orders and revenues in the second half of the year. As we look to 2019, we continue to anticipate it to be a meaningful year of growth.”

Rosenblatt continued, “We believe that 2019 is poised to be a pivotal year for the OLED industry. With the multi-year OLED capex growth cycle of new production lines, the landscape of OLED capacity is expected to significantly widen. This, we believe, will drive broader adoption of OLEDs across the consumer electronics market, and fuel substantial growth in the OLED industry. Additionally, we expect the long-awaited introduction of the world’s first foldable OLED product next year to pave the cutting-edge and innovative form factor path. From conformable, to foldable, to rollable, the disruptive and exciting force of OLEDs promises to enlarge the industry with new applications and new markets the imagination has yet to devise.”

Financial Highlights for the Second Quarter of 2018

Effective January 1, 2018, we adopted ASC Topic 606 using the “modified retrospective” approach, meaning the standard was applied only to the financial results of 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.

  • Total revenue decreased 45% to $56.1 million in the second quarter of 2018, compared with $102.5 million in the second quarter of 2017. Total revenue for the second quarter of 2018 would have been $73.6 million, or $17.5 million higher without the impact of ASC Topic 606. Under ASC Topic 606, license fee revenue is recognized on a per gram sales basis, whereas under the previous rules, revenue was recognized for license payments upon receipt or on a straight-line basis over the term of the contract. In the previous year, a $45.0 million semi-annual license fee payment was receipted from SDC in the second quarter of 2017 and included in the prior year’s revenue.
  • Revenue from material sales decreased 21% to $36.8 million in the second quarter of 2018, compared with $46.8 million in the second quarter of 2017. The Company believes that the decline in material sales was due to weak OLED panel demand resulting from the softness in the premium smartphone market, and material inventory pre-purchases that occurred in 2017.
  • Revenue from royalty and license fees decreased 71% to $15.5 million in the second quarter of 2018, compared with $53.7 million in the second quarter of 2017. Revenue from royalty and license fees for the second quarter of 2018 would have been $33.9 million, or $18.4 million higher without the impact of ASC Topic 606.
  • Cost of materials decreased 6% to $9.3 million in the second quarter of 2018, compared with $9.9 million in the second quarter of 2017.
  • Operating income decreased by $49.6 million to $10.9 million in the second quarter of 2018, compared with $60.5 million in the second quarter of 2017.
  • Net income decreased by $36.4 million to $10.8 million or $0.23 per diluted share in the second quarter of 2018, compared with $47.2 million or $0.99 per diluted share in the second quarter of 2017.
 

Revenue Comparison

 
($ in thousands)     Three Months Ended June 30,
      2018     2017
Material sales     $ 36,833     $ 46,828
Royalty and license fees       15,523       53,667
Contract research services       3,793       2,018
Total revenue     $ 56,149     $ 102,513
                 
 

Cost of Materials Comparison

 
($ thousands)     Three Months Ended June 30,  
      2018     2017  
Material sales     $ 36,833     $ 46,828  
Cost of material sales       9,284       9,894  
Gross margin on material sales       27,549       36,934  
Gross margin as a % of material sales       75 %     79 %
                   
 

Topic 606 versus 605 Adjusted Results

                   

 

 

For the three months ended June 30, 2018 (in thousands)

    As reported     Adjustment    

Balances without
adoption of Topic
606

Revenue     $ 56,149     $ 17,470     $ 73,619
Gross margin       44,514       17,470       61,984
Operating income       10,911       17,470       28,381
Net income       10,814       14,290       25,104
Diluted earnings per share     $ 0.23     $ 0.31     $ 0.54
                         

Financial Highlights for the First Half of 2018

  • Total revenue decreased 37% to $99.7 million in the first half of 2018, compared with $158.1 million in the first half of 2017. Total revenue would have been $141.8 million in the 2018 period, or $42.1 million higher, without the impact of ASC Topic 606.
  • Revenue from material sales decreased 34% to $62.1 million in the first half of 2018, compared with $93.5 million in the first half of 2017. The Company believes that the decline in material sales was due to weak OLED panel demand resulting from the softness in the premium smartphone market, and material inventory pre-purchases that occurred in 2017.
  • Revenue from royalty and license fees decreased 48% to $31.4 million in the first half of 2018, compared with $60.7 million in the first half of 2017. Revenue from royalty and license fees would have been $71.0 million in the 2018 period, or $39.6 million higher without the impact of ASC Topic 606.
  • Cost of materials decreased 32% to $15.0 million in the first half of 2018, compared with $22.0 million in the first half of 2017.
  • Operating income decreased by $57.2 million to $15.4 million in the first half of 2018, compared with $72.6 million in the first half of 2017.
  • Net income decreased by $40.8 million to $16.8 million or $0.35 per diluted share in the first half of 2018, compared with $57.6 million or $1.21 per diluted share in the first half of 2017.
 

Revenue Comparison

 
($ in thousands)     Six Months Ended June 30,
      2018     2017
Material sales     $ 62,083     $ 93,465
Royalty and license fees       31,434       60,692
Contract research services       6,204       3,922
Total revenue     $ 99,721     $ 158,079
                 
         

Cost of Materials Comparison

         
($ thousands)     Six Months Ended June 30,  
      2018     2017  
Material sales     $ 62,083     $ 93,465  
Cost of material sales       14,974       21,993  
Gross margin on material sales       47,109       71,472  
Gross margin as a % of material sales       76 %     76 %
                   
 

Topic 606 versus 605 Adjusted Results

 

 

 

For the six months ended June 30, 2018 (in thousands)

    As reported     Adjustment    

Balances without
adoption of Topic
606

Revenue     $ 99,721     $ 42,123     $ 141,844
Gross margin       80,628       42,123       122,751
Operating income       15,430       42,123       57,553
Net income       16,773       34,259       51,032
Diluted earnings per share     $ 0.35     $ 0.74     $ 1.09
                         

2018 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 continues to expect that its 2018 revenues will be in the range of $280 million to $310 million. The guidance was prepared utilizing accounting standard ASC Topic 606; under the prior accounting standard ASC Topic 605, the Company estimates that its 2018 revenues would be approximately 10% to 15% higher than the revenue guidance range.

Dividend

The Company also announced a third quarter cash dividend of $0.06 per share on the Company’s common stock. The dividend is payable on September 28, 2018 to all shareholders of record on September 15, 2018.

Conference Call Information

In conjunction with this release, Universal Display will host a conference call on Thursday, August 9, 2018 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, and reference conference ID 13681536. 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 developing and delivering state-of-the-art, organic light emitting diode (OLED) technologies, materials and services to the display and lighting industries. Founded in 1994, the Company currently owns or has exclusive, co-exclusive or sole license rights with respect to more than 4,700 issued and pending patents 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, including Princeton University, the University of Southern California, the University of Michigan, and PPG Industries, Inc. The Company has also established relationships with companies such as AU Optronics Corporation, BOE Technology, DuPont Displays, Inc., EverDisplay Optronics (Shanghai) Limited, Govisionox Optoelectronics, Innolux Corporation, Japan Display Inc., Kaneka Corporation, Konica Minolta Technology Center, Inc., LG Display Co., Ltd., Lumiotec, Inc., OLEDWorks LLC, OSRAM, Pioneer Corporation, Royole Corporation, Samsung Display Co., Ltd., Sharp Corporation, Sumitomo Chemical Company, Ltd., Tianma Micro-electronics, Tohoku Pioneer Corporation, and Visionox Technology. 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, 2017. 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, 2018       December 31, 2017  
ASSETS                    
CURRENT ASSETS:                    
Cash and cash equivalents     $ 103,777       $ 132,840  
Short-term investments       353,651         287,446  
Accounts receivable       35,583         52,355  
Inventory       56,043         36,265  
Other current assets       20,311         10,276  
Total current assets       569,365         519,182  

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $40,769 and $36,368

      62,348         56,450  
ACQUIRED TECHNOLOGY, net of accumulated amortization of $101,611 and $91,312       121,230         131,529  
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $2,687 and $2,000       14,153         14,840  
GOODWILL       15,535         15,535  
INVESTMENTS               14,794  
DEFERRED INCOME TAXES       10,534         27,022  
OTHER ASSETS       40,084         604  
TOTAL ASSETS     $ 833,249       $ 779,956  
LIABILITIES AND SHAREHOLDERS’ EQUITY                    
CURRENT LIABILITIES:                    
Accounts payable     $ 7,863       $ 13,774  
Accrued expenses       24,405         35,019  
Deferred revenue       69,247         14,981  
Other current liabilities       25         50  
Total current liabilities       101,540         63,824  
DEFERRED REVENUE       28,344         23,902  
RETIREMENT PLAN BENEFIT LIABILITY       34,350         33,176  
OTHER LIABILITIES       18,334          
Total liabilities       182,568         120,902  
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, 48,650,696 and 48,476,034 shares issued, and 47,289,059 and 47,118,171 shares outstanding, at June 30, 2018 and December 31, 2017, respectively

      487         485  
Additional paid-in capital       608,932         611,063  
Retained earnings       92,346         99,126  
Accumulated other comprehensive loss       (10,451 )       (11,464 )

Treasury stock, at cost (1,361,637 and 1,357,863 shares at June 30, 2018 and December 31, 2017, respectively)

      (40,635 )       (40,158 )
Total shareholders’ equity       650,681         659,054  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY     $ 833,249       $ 779,956  
                     
 
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,  
      2018       2017       2018       2017  
REVENUE     $ 56,149       $ 102,513       $ 99,721       $ 158,079  
COST OF SALES       11,635         11,310         19,093         24,297  
Gross margin       44,514         91,203         80,628         133,782  
OPERATING EXPENSES:                                        
Research and development       12,949         10,685         25,306         22,503  
Selling, general and administrative       11,562         9,839         22,353         19,916  
Amortization of acquired technology and other intangible assets       5,495         5,495         10,986         10,987  
Patent costs       2,029         1,674         3,754         3,221  
Royalty and license expense       1,568         2,991         2,799         4,578  
Total operating expenses       33,603         30,684         65,198         61,205  
OPERATING INCOME       10,911         60,519         15,430         72,577  
Interest income, net       1,766         796         3,037         1,467  
Other (expense) income, net       (12 )       6         (59 )       (13 )
Interest and other (expense) income, net       1,754         802         2,978         1,454  
INCOME BEFORE INCOME TAXES       12,665         61,321         18,408         74,031  
INCOME TAX EXPENSE       (1,851 )       (14,134 )       (1,635 )       (16,479 )
NET INCOME     $ 10,814       $ 47,187       $ 16,773       $ 57,552  
NET INCOME PER COMMON SHARE:                                        
BASIC     $ 0.23       $ 0.99       $ 0.35       $ 1.21  
DILUTED     $ 0.23       $ 0.99       $ 0.35       $ 1.21  
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE:                                        
BASIC       46,868,999         46,742,746         46,826,314         46,702,376  
DILUTED       46,901,098         46,810,238         46,873,109         46,781,120  
CASH DIVIDENDS DECLARED PER COMMON SHARE     $ 0.06       $ 0.03       $ 0.12       $ 0.06  
                                         
 
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

(in thousands)

 
      Six Months Ended June 30,  
      2018       2017  
CASH FLOWS FROM OPERATING ACTIVITIES:                    
Net income     $ 16,773       $ 57,552  
Adjustments to reconcile net income to net cash provided by operating activities:                    
Amortization of deferred revenue and recognition of unbilled receivables       (29,266 )       (4,873 )
Depreciation       4,422         2,398  
Amortization of intangibles       10,986         10,987  
Amortization of premium and discount on investments, net       (2,329 )       (1,260 )
Stock-based compensation to employees       6,163         5,404  
Stock-based compensation to Board of Directors and Scientific Advisory Board       2,003         1,328  
Earnout liability recorded for Adesis acquisition               469  
Deferred income tax expense       19,312         7,408  
Retirement plan expense       2,252         2,088  
Decrease (increase) in assets:                    
Accounts receivable       16,772         (14,708 )
Inventory       (19,778 )       (7,123 )
Other current assets       (9,058 )       (799 )
Other assets       (37,909 )       (10 )
Increase (decrease) in liabilities:                    
Accounts payable and accrued expenses       (13,123 )       (1,916 )
Other current liabilities       (25 )       (821 )
Deferred revenue       64,423         505  
Other liabilities       18,334          
Net cash provided by operating activities       49,952         56,629  
CASH FLOWS FROM INVESTING ACTIVITIES:                    
Purchases of property and equipment       (13,420 )       (9,717 )
Purchases of investments       (260,711 )       (255,224 )
Proceeds from sale of investments       211,847         189,335  
Net cash used in investing activities       (62,284 )       (75,606 )
CASH FLOWS FROM FINANCING ACTIVITIES:                    
Proceeds from issuance of common stock       436         349  
Repurchase of common stock       (477 )        
Proceeds from the exercise of common stock options               30  

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

      (11,031 )       (8,501 )
Cash dividends paid       (5,659 )       (2,828 )
Net cash used in financing activities       (16,731 )       (10,950 )
DECREASE IN CASH AND CASH EQUIVALENTS       (29,063 )       (29,927 )
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD       132,840         139,365  
CASH AND CASH EQUIVALENTS, END OF PERIOD     $ 103,777       $ 109,438  
The following non-cash activities occurred:                    
Unrealized gain on available-for-sale securities     $ 219       $ 140  

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

      300         300  
Common stock issued to employees that was earned and accrued for in a previous period               174  
Net change in accounts payable and accrued expenses related to purchases of property and equipment       3,100         4,169  
                     

 

Contacts

Universal Display Corporation
Darice Liu, 609-671-0980 x570
investor@oled.com
media@oled.com

 

 
 

Source: Universal Display Corporation

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