Universal Display (NASDAQ:OLED) Corporation (ticker: UDC), a leading player in the organic light-emitting diode (OLED) industry, has reported a solid financial performance in its third-quarter earnings call on October 30, 2024. CEO Steve Abramson and CFO Brian Millard announced Q3 revenues of $162 million and a net income of $67 million, equating to $1.40 per diluted share.
Despite a strong start to the year, UDC has adjusted its full-year revenue forecast to between $625 million and $645 million, citing reduced customer forecasts for Q4. The company remains optimistic about the OLED market's growth potential, particularly in IT, automotive, and consumer electronics sectors.
Key Takeaways
- UDC Q3 revenue stood at $162 million, with net income at $67 million.
- Earnings per diluted share were reported at $1.40.
- Year-to-date revenue increased by 16% to $485 million.
- 2024 revenue forecast adjusted to $625-$645 million.
- Gross margin for Q3 was 78%, with full-year expectations of 76%-77%.
- A quarterly dividend of $0.40 was declared, payable on December 31, 2024.
- Ongoing investments in new OLED production facilities, with approximately $20 billion allocated for Gen 8.6 OLED plants.
- Introduction of innovative OLED products in automotive and consumer electronics.
- Continued development of a commercial phosphorescent blue emissive system.
Company Outlook
- UDC has revised its 2024 revenue forecast due to lower customer forecasts for the fourth quarter.
- The company maintains a positive outlook on the OLED market's growth, especially in IT, automotive, and consumer electronics.
- Long-term growth prospects are strong, with a focus on innovation and strategic investments in the OLED ecosystem.
Bearish Highlights
- Customer order reductions observed toward the end of Q3, influenced by changing consumer sentiment and inventory reassessments.
Bullish Highlights
- UDC reported a 16% increase in year-to-date revenues compared to the previous year.
- The company is witnessing significant investments in the OLED sector, with new production facilities being established.
- Development of new OLED technologies, such as phosphorescent blue materials, is progressing with high customer interest.
Misses
- The company's revised forecast for 2024 reflects a cautious stance due to the lower-than-expected customer forecasts for the upcoming quarter.
Q&A Highlights
- The commercialization timeline for phosphorescent blue OLED technology remains uncertain, although progress is ongoing.
- Significant customer and OEM interest in the new blue material, with ongoing development efforts noted positively.
- UDC is working closely with partners like LG Display (NYSE:LPL), but adoption timelines for the new technology are not yet clear.
In summary, Universal Display Corporation remains confident in its strategic direction and long-term growth despite a cautious adjustment to its 2024 revenue forecast. The company continues to innovate and invest in the OLED market, with a keen focus on the development of advanced technologies like the commercial phosphorescent blue emissive system. With a strong foundation laid in the first three quarters of the year, UDC is poised to maintain its leadership in the OLED ecosystem.
InvestingPro Insights
Universal Display Corporation's (OLED) financial performance and market position are further illuminated by recent data from InvestingPro. The company's market capitalization stands at $9.67 billion, reflecting its significant presence in the OLED industry.
One of the key InvestingPro Tips highlights that OLED "holds more cash than debt on its balance sheet," which aligns with the company's strong financial position mentioned in the earnings report. This solid financial footing provides UDC with the flexibility to continue investing in research and development, particularly in areas like the phosphorescent blue emissive system.
Another relevant InvestingPro Tip notes that OLED has "raised its dividend for 7 consecutive years." This consistent dividend growth, coupled with the recently declared quarterly dividend of $0.40, underscores the company's commitment to shareholder returns despite market fluctuations.
The company's profitability is evident in its impressive gross profit margin of 74.82% for the last twelve months as of Q2 2024, according to InvestingPro Data. This high margin reflects UDC's strong pricing power and efficient operations, which are crucial for maintaining its leadership in the OLED ecosystem.
It's worth noting that OLED is currently trading at a P/E ratio of 43.84, which InvestingPro Tips characterizes as "trading at a high earnings multiple." This valuation suggests that investors have high expectations for the company's future growth, aligning with UDC's optimistic long-term outlook on the OLED market's potential.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for OLED, providing a deeper understanding of the company's financial health and market position.
Full transcript - Universal Display (OLED) Q3 2024:
Operator: Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Third Quarter Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call. All participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Darice Liu, Director of Investor Relations. Please proceed.
Darice Liu: Thank you, and good afternoon, everyone. Welcome to Universal Display's third quarter earnings conference call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Brian Millard, Vice President and Chief Financial Officer. 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 expressed written consent of Universal Display is strictly prohibited. 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, October 30, 2024. 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 periodical reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Universal Display disclaims any obligation to update any of these statements. Now, I'd like to turn the call over to Steve Abramson.
Steve Abramson: Thanks, Darice, and welcome to everyone on today's call. Our third quarter revenue was $162 million, operating profit and net income were $67 million, and earnings per diluted share was $1.40. 2024 is another year of growth. Growth that positions us for record revenues and record profits. The rate of growth though is expected to be more modest than previously projected. The first half of the year started off on a strong note, but as we approached the end of the third quarter, customers lowered their forecast for Q4. Given the downward trend of forecast revisions, we are revising our 2024 revenue forecast range to $625 million to $645 million. While lower-than-expected fourth quarter sales have tempered this year's pace of growth, we continue to believe in the tremendous trajectory of the OLED market as activity across the consumer electronics landscape expands with new OLED AR/VR devices, smartwatches, smartphones, IT, automotive, and TVs. Near term, we expect the IT market to be the primary driver of growth. Omdia forecasts that [global] (ph) OLED PCs are expected to grow to 69 million units in 2028, up more than 150% from an estimated 26 million units in 2024. This growth momentum is driving a new multiyear CapEx cycle geared for the medium-sized OLED market. During the quarter, Visionox broke ground on its new $7.7 billion Gen 8.6 OLED facility in Hefei. Similar to BOE's $9 billion greenfield Gen 8.6 OLED plant, Visionox's new fab will be designed with a monthly capacity of 32,000 plates per month. Add that to Samsung (KS:005930) Display's $3 billion 15,000 plate per month Gen 8.6 OLED IT facility, that brings the current total investments for new Gen 8.6 OLED facilities to approximately $20 billion, and we believe further investments are in the works. New OLED module factories are also on the rise. According to reports, Visionox completed the construction of its new $1.6 billion Gen 6 Flexible OLED module factory in August and Samsung Display recently decided to invest $1.8 billion to build a new OLED module production line in Vietnam, mostly to produce IT and automotive OLED modules. Speaking of OLEDs in automotive, during the quarter, myriad automotive makers, including Audi, Lotus, Zeekr, and [indiscernible] unveiled new car models with OLED screens, and some of those models were designed with both OLED displays and OLED taillights. From OLED's low-power consumption, enabled by our phosphorescent materials and technology, to OLEDs being lighter, thinner and inherently conformable, bendable and rollable, as well as numerous other benefits, OLEDs are enabling greater design flexibility and energy efficiency with brilliant picture quality and fast refresh in the automotive market. OLEDs continue to push the form factor boundaries of consumer electronics products. During the quarter, the world's first tri-fold, the Mate XT, was launched to much fanfare as the first device that transforms from a 6.4-inch smartphone sized screen into a full 10.2-inch tablet. Tri-foldables are not the only form factor broadening the definition of what a consumer product can be. According to reports, Samsung is progressing with its rollable OLED development project and plans to launch its first rollable smartphone next year. These reports note that Samsung's rollable phone when fully open will sport a large 12.4-inch display. UBI Research forecast that by 2028, foldable phones will make up almost 10% of total OLED smartphone shipments, up from 5% today. On the R&D front, we continue to collaborate closely with our customers and are developing new OLED materials and technologies to support their growing product roadmaps. We are continuously discovering, developing, and delivering next-generation reds, greens, yellows, and hosts to meet the ever-changing and ever-evolving specifications for color point, energy efficiency and lifetime. Regarding blue, we continue to make excellent progress on our ongoing development work for a commercial phosphorescent blue emissive system. We continue to believe that the additional time needed to introduce a commercial phosphorescent blue into the marketplace will be measured in months and not years. When our commercial phosphorescent blue is adopted in an OLED device, we believe that the benefits will be significant for the industry, for consumers, and for us. With OVJP, we continue to make progress. We believe that enabling red, green and blue side-by-side manufacturing of OLED TVs efficiently and with fast TAKT times can revolutionize the large area OLED landscape. On that note, let me turn the call over to Brian.
Brian Millard: Thank you, Steve, and again, thank you everyone for joining our call today. As Steve shared, we are on track for record revenue and record earnings this year. Our revenue through Q3 is $485 million, up 16% from the same period last year. And our net income for the first nine months reached $176 million, up 25% year-over-year from the first nine months of 2023. For the third quarter of 2024, revenue was $162 million compared to $141 million in the third quarter of 2023. Material sales were $83 million in the third quarter compared to material sales of $92 million in the third quarter of 2023. Green emitter sales, which include our yellow-green emitters were $62.6 million. This compares to $68.9 million in the third quarter of 2023. Red emitter sales were $20.1 million. This compares to $22.1 million in the third quarter of 2023. As it has been discussed in the past, material buying patterns can vary quarter-to-quarter. Third quarter royalty and license fees were $75 million compared to the prior-year period of $46 million. The year-over-year increase was due to customer mix and cumulative catch-up adjustment of $5 million. For the full year, we now expect the ratio of materials to royalty and license fees to be in the ballpark of 1.4 to 1. Adesis' third quarter revenue was $3.6 million compared to $2.7 million from the comparable period in 2023. Third quarter cost of sales was $36 million, translating into total gross margins of 78%. This compares to $34 million and total gross margins of 76% in the third quarter of 2023. We continue to believe our full year total gross margins will be in the range of 76% to 77%. Third quarter operating expenses, excluding cost of sales were $59 million. In the third quarter of 2023, it was $58 million. We expect our 2024 OpEx to be within our guidance range of a 10% to 15% year-over-year increase. Operating income was $67 million in the third quarter, translating to an operating margin of 41%. This compares to the prior year period of $48 million and 34% operating margin. We continue to believe our full year operating margins will be in the range of 35% to 40%. The income tax rate was 18% in the third quarter of 2024. We now expect our effective tax rate for the year to be approximately 19%. Third quarter 2024 net income was $67 million or $1.40 per diluted share. This compares to $52 million or $1.08 per diluted share in the comparable period in 2023. We ended the quarter with approximately $930 million in cash, cash equivalents and investments. Regarding guidance, as Steve discussed earlier, we now expect our 2024 revenues will be in the range of $625 million to $645 million. And lastly, our Board of Directors approved a $0.40 quarterly dividend, which will be paid on December 31, 2024 to stockholders of record as of the close of business on December 17, 2024. 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. As a pioneer and leader in the OLED ecosystem, we believe that innovation is the cornerstone of progress. Our significant investments in research and development are a testament to our belief in the power of science to transform lives and industries. Last month, we announced the Sherwin I. Seligsohn Innovation Award. In tribute to our late founder, this award was created to inspire and encourage innovation in organic electronics and to recognize groundbreaking advancements in that field. With the founding of this award, we are deepening our commitment to support and nurture the thriving community of scientists and researchers around the world. 2024 marks a significant milestone in the OLED industry as the beginning of a new OLED adoption cycle for medium-sized displays, namely IT and automotive. With leading tablet, notebook, monitor, as well as auto OEMs expected to broaden their product roadmap for OLEDs, significant investments in new OLED facilities are being deployed for these nascent market segments. We are here to enable and support this long runway of growth. Our world-class technology continues to set industry standards, our global partnerships continue to expand and deepen, and we continue to leverage our unparalleled expertise of 30 years. Our company's future is bright and we are excited for the path ahead. In closing, I would like to thank each of our employees for their drive, desire, dedication, and heart in elevating and shaping Universal Display'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.
Operator: Thank you, Mr Abramson. [Operator Instructions] Our first question is from Martin Yang with Oppenheimer & Company. Please proceed.
Martin Yang: Hi, thank you for taking the question. Can you give us more context for the order cuts? Is it from a single customer, a multiple customer? And what are the exposures or reasons for their cuts? Thank you.
Brian Millard: Yeah. Hi, Martin. Yeah, so as we mentioned in Steve's remarks, as we kind of approach the end of the third quarter, clearly, we had a very strong first half of the year and even Q3, but as we got toward the end of the third quarter, we did see customers lower their forecast for Q4 and it was really across the board, not any one particular customer. A number of things that could be driving that. One is, certainly, certain models and the sales of those potentially being different than prior expectations, as well as certain geographies in the world having some consumer sentiment and macroeconomic concerns. And then lastly, as we approach year-end, some of our customers also reevaluate their inventory levels and what they're carrying of our materials. So, it's a combination of things. We can't point to any one thing, but we did see across the customer base changes in forecasts as we ended Q3.
Martin Yang: Got it. Thank you. Can you also -- is there any more details you could share about the material gross margin in the quarter? It feels a little light compared to previous quarters. Any more context to share with us?
Brian Millard: Yeah, really just customer mix and product mix is really the primary drivers. And as we've talked about before, we also believe that total gross margin is a much more useful way of evaluating the profitability of the business because when we negotiate pricing with customers, we look at really the combined pricing between the license side as well as the materials. So, total gross margin continues to be within the range that we expect for the year, 76% to 77%.
Martin Yang: Got it. That's it from me. Thank you, Brian.
Brian Millard: Thanks, Martin.
Operator: Our next question is from Scott Searle with ROTH Capital Partners. Please proceed.
Scott Searle: Hey, good afternoon. Thanks for taking the questions. Brian, Steve, I know this is kind of hard to quantify, but with some of the customer slowdowns, I'm wondering how far out your visibility is as we start to think about early 2025 and seasonality into the March quarter. Do you have a good idea of what elevated inventory levels might look like across some of the customer base because it seems like it's a little contradictory to what we're seeing in some of the end markets today? You're starting to hear more about small panels starting to recover with smartphones that have gone through inventory corrections, maybe less so on the TV front, but that seems to be more incremental. So I'm wondering what the early thoughts are in terms of, I'll call it, seasonality and normalizing inventory.
Steve Abramson: Yeah. So, firstly, we don't believe that this adjustment that we're making to guidance is really indicative of any persistent trend. And as it relates to 2025, we're still going through our planning process right now for 2025, so we'll have more to share once we get to the February call, but we really think this is just kind of temporary adjustments as we close out the year as well as I mentioned earlier, some impact from certain OLED models.
Scott Searle: Okay. Fair enough. And if I could follow-up on blue, Steve, look, we're getting closer again the comment months, not years. But I'm wondering if you could calibrate the timing and what your expectations are once we get to the point of go where we've got all the commercial metrics for blue. How long is it into that process before we see some material sales? Does it take another nine to 12 months from a design standpoint for that to become material? And I guess looking out further on the horizon, what success two years out? Is it 20% of your customers adopting some form of blue? And is there a timeline that you're comfortable talking about when blue could possibly get to parity with green? Thanks.
Steve Abramson: Scott, all good questions. My answer is going to be that we're working closely with our customers to commercialize our phosphorescent blue and it is an iterative process. And as we get closer, I may be able to shed more color on your very important questions.
Brian Millard: Yeah. And I think, Scott, it's important to note, we're continuing to work on blue development projects with a number of customers and making good progress with that, as Steve mentioned in his remarks earlier. And once we do hit commercial specs and performance, that will then kick off a cycle of designing that in and ultimately getting to mass production and having it introduced into a device. And to your question on adoption rates, certainly, we believe there's significant interest in our blue material from our customers as well as the OEM community as well because of the benefits that it will bring to the device. But we're really focused at this point on getting to commercial specs and performance, and then that enables adoption from there. So it's really hard to predict the slope of an adoption curve as we sit here today.
Scott Searle: Got you. Fair enough. I'll get back in the queue. Thanks.
Brian Millard: Thanks, Scott.
Operator: [Operator Instructions] Our next question comes from Nam Kim.
Nam Kim: Hi, thanks for taking my question. According to a news article in August, I think a few months ago, Energy Display successfully developed OLED panel using blue phosphorescent material. I try to understand what it means here. Does it mean your blue material meets certain customers back and ready to ramp once they start mass production? I just try to understand what this article mean to Universal Display? Thank you.
Steve Abramson: Yeah. So, as you said, Nam, there was an article back in August alluding to LG Display using our material for some development. And we've been working with them as well as others in blue development projects. And I think it's just indicative of progress and we obviously can't comment on rumors and speculation that might be out there, but it shows that customers are using our material in a variety of different ways and applications and we view any use of our material as being a positive one and it was good to see that result that was published.
Nam Kim: Okay. Thank you.
Steve Abramson: Thanks, Kim.
Operator: Thank you. This will conclude our question-and-answer session. I would like to turn the program back to Brian Millard for any additional closing remarks.
Brian Millard: Thank you for your time today. We appreciate your interest and support.
Operator: Thank you. This concludes today's conference. You may now disconnect.
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