FINAL TRANSCRIPT 2024-05-02

Universal Display Corp (OLED US Equity)

Q1 2024 Earnings Call

Company Participants
Brian Millard, Vice President, Chief Financial Officer & Treasurer
Darice Liu, Director of Investor Relations
Steven V. Abramson, President, Chief Executive Officer & Director

Other Participants
Analyst
Brian Lee, Goldman Sachs & Co.
Chris Grenga, Needham & Company

Presentation

Operator
Good day, ladies and gentlemen, and Welcome to Universal Display Corporation's
First Quarter 2024 Earnings Conference Call. My name is Sherry, and I will be your
conference moderator for today's call. (Operator Instructions) As a reminder, this
conference is being recorded for replay purposes.

I would now like to turn the conference over to Darice Liu, Senior Director of Investor
Relations. Please proceed.

Darice Liu {BIO 5159470 <GO>}

Thank you, and good afternoon, everyone. Welcome to Universal Display's first
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 express 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, May 2, 2024.

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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 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.

Steven V. Abramson {BIO 14006346 <GO>}

Thanks, Darice, and welcome to everyone on today's call. We are pleased to report
strong results for our first quarter of 2024.

Revenue was $165 million, operating profit was $63 million, and net income was $57
million, or $1.19 per diluted share. With a strong start to the year and OLED
momentum continuing to build, we are raising the low end of our annual guidance
range. We now believe that our 2024 revenues will be in the range of $635 million to
$675 million.

As we look to the industry, OLEDs continue to play a more significant role in shaping
the future of displays. One nascent segment that is poised for significant growth is
the OLED IT market. Since the beginning of the year, several device makers
announced new OLED IT products, including Asus, HP, Acer, Dell, Razer Blade, and
MSI, and there are a number of expected new product introductions on the horizon.

According to Omdia market research, OLED tablets are expected to increase by

more than threefold year-over-year, growing from 3.7 million units in 2023 to 12.1
million units in 2024. The market researcher also forecasts that OLED notebook units
will grow 50% year-over-year, from 3.4 million units in '23 to 5.1 million units in 24.
This translates into total mobile OLED PC units growing from 7.1 million units in '23 to
17.2 million units in 2024, and is expected to reach 72.3 million units by 2028, which
represents just 14% of the total mobile PC display market.

Supporting this strong growth is new OLED capacity. In early March, Samsung
Display held a ceremony for the commencement of construction of the world's first
gen 8.6 OLED IT production line in Asia. According to reports, Samsung plans to
begin equipment installation this year and start mass production in 2026. The 15,000
plates per month OLED IT line is estimated to be capable of producing an
equivalent of 10 million laptop panels per year.

Also held in March was BOE's groundbreaking ceremony for its gen 8.6 OLED IT fab
in Chengdu. This greenfield fab is designed for 32,000 plates per month and is
expected to begin production in the fourth quarter of 2026.

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With reports that other panel makers are preparing for new investments as well, we
believe that this is just the beginning of a multi-year OLED CapEx growth cycle. The
many benefits of OLEDs continue to fuel the continued penetration in the
smartphone market.

DSCC market research expects OLED smartphone units to increase by 11% year-over-
year in '24, with flexible OLED increasing 9% year-over-year, and rigid OLEDs
increasing 17% year-over-year. The innovative designs, coupled with the versatility
and convenience of foldable smartphones and tablets, continue to garner significant
interest from OEMs, panel makers, and consumers. UBI research forecasts that
foldable OLED shipments will grow 25% year-over-year to 27.4 million units in 2024
and will almost double by 2028, reaching 52.7 million units.

The popularity of conformable, foldable, and rollable OLEDs was evident at Mobile
World Congress. At the show, fans of foldable technology could see how OLEDs are
enabling innovative devices, including displays that could be folded both in and out,
rollable panels that can wrap around your wrist as well as roll out from a smartphone
display into a tablet, and foldable and slidable IT products that extend the screen
size.

OLED TVs are also expected to grow this year. According to Omdia, OLED TV
shipments will increase by more than 30% year-over-year, from 5.3 million units in
2023 to 7.2 million units this year. Another segment of the OLED market that is
beginning to take off is aviation.

Last month, Panasonic Avionics announced that it shipped the first batch of its
Astrova 4K OLED inflight entertainment monitors. These monitors will be installed in
one of Icelandair's forthcoming Airbus aircraft beginning in the fourth quarter of this
year. Qantas, United Airlines, Egyptair, Saudi Arabian Airlines, and Qatar Airways are
also planning to adopt Panasonic's new 4K OLED screens.

According to Panasonic Avionics, the image quality of the 4K OLED is sharper,

clearer, and with infinite contrast ratio, it delivers a cinema-quality image and perfect
black. Panasonic also noted that it provides a better viewing experience than has
ever been available before on a commercial aircraft.

We are excited for the extraordinary opportunities in enabling the OLED products of
today and the future. As we look to our company, innovation has been the
cornerstone of our ethos. It is the engine that reinforces our leadership position,
expands our reach, and propels us forward.

Our commitment to innovation is steadfast. Our R&D teams are continuously

inventing, designing, developing, and commercializing next-generation reds, greens,
yellows, and hosts to meet the ever-changing and ever-evolving customer
specifications.

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Universal Display Corp (OLED US Equity)

Regarding blue, we continue to make excellent progress in our ongoing

development work for a commercial phosphorescent blue emissive system. We
continue to believe that we are on track to introduce a phosphorescent blue that
meets commercial specifications into the market in 2024.

We believe that the expansion of our phosphorescent portfolio that includes red,
green and blue phosphorescent emissive materials will unlock a vast array of
opportunities for higher energy efficiency and higher performance across a broad
range of OLED applications.

Regarding OVJP, we continue to make advancements with our organic vapor jet
printing manufacturing technology for direct printing OLED TVs without the need for
masks or solvents. The OVJP team continues to focus on scaling our novel
technology platform. This year's SID Display Week is less than two weeks away. To
learn more about UDC, please visit our booth in San Jose.

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

Brian Millard {BIO 21019614 <GO>}

Thank you, Steve. And again, thank you everyone for joining our call today. Our first
quarter results were strong across the board. Revenue was $165 million, up 27% year-
over-year from $130 million in the first quarter of 2023. Our total material sales were
$93 million in the first quarter, compared to material sales of $70 million in the first
quarter of 2023.

Green emitter sales, which include our yellow-green emitters, were $71 million. This
compares to $54 million in the first quarter of 2023. Red emitter sales were $21
million. This compares to $16 million in the prior year's quarter. As we have discussed
in the past, material buying patterns can vary quarter-to-quarter.

First quarter royalty and license fees were $68 million, compared to the prior year's
period of $55 million. Adesis' first quarter revenue was $3.7 million, compared to $5.1
million in the first quarter of 2023. First quarter cost of sales was $37 million,
translating into total gross margins of 78%. This compares to $33 million in total
gross margins of 75% in the first quarter of 2023. As you may recall, last year's first
quarter gross margins were negatively impacted by a $3.3 million inventory
provision. We did not increase our inventory reserve this quarter.

First quarter operating expenses, excluding cost of sales, were $65 million. In the first
quarter of 2023, it was $52 million. The year-over-year increase was due to increased
employee expenses, higher amortization costs, and a one-time royalty and license
expense. We continue to expect 2024 OpEx to increase 10% to 15% year-over-year,
as we continue to invest in our people, our global infrastructure, and our innovation
engine.

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Operating income was $63 million in the first quarter, translating into operating
margin of 38%. This compares to the prior year period of $45 million and operating
margin of 35%. The income tax rate was 19% in the first quarter of 2024. We expect
our effective tax rate for the year to be approximately 20%. First quarter 2024 net
income increased by more than 40% year-over-year to $57 million or $1.19 per
diluted share. This compares to $40 million or $0.83 per diluted share in the
comparable period in 2023.

We ended the quarter with approximately $838 Million in cash, cash equivalents, and
investments. Regarding guidance, as Steve shared, we now believe our 2024
revenues will be in the range of $635 million to $675 million. And lastly, our Board of
Directors approved a $0.40 quarterly dividend, which will be paid on June 28, 2024,
to stockholders of record as the close of business on June 14, 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.

Steven V. Abramson {BIO 14006346 <GO>}

Thanks, Brian. As we approach UDC's 30th anniversary next month, I am filled with
immense pride in what we have achieved together. Our incredible journey has been
marked by relentless innovation, exponential growth, and the materialization of
products that were once distant dreams.

We have developed and fostered a culture where creativity thrives and where every
challenge is seen as an opportunity. From the invention of phosphorescent OLED
technology to the continuous discovery, development, and delivery of next-
generation OLED materials and technologies, we remain at the forefront of driving
efficiency, enhancing performance, and enabling the OLED industry. As we cast our
gaze forward to the exciting horizon of possibilities that await us in the growing
OLED market, we will continue to be trailblazers, collaborative partners, and
committed to excellence.

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.

Questions And Answers

Operator
(Question And Answer)

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Thank you, Mr.Abramson. (Operator Instructions) Our first question is from Krish
Sankar with TD Cowen. Please proceed.

Q - Analyst
Hey, guys. This is Eddie for Krish. Congrats on strong results. I'd like to ask a high-
level question on blue. I think in the past you mentioned that blue content inside an
OLED phone can be as much as the green content. So, if I look at revenues you
made last year, like $245 million coming from green sales alone. So my first question
is, can blue be as big as green in terms of overall revenue opportunity? And if so,
how should we expect the ramp from 2024 going forward to be like? Is it like a
hockey stick kind of ramp where we may see blue generating a few million a quarter
and then it can go up, call it, like $40 million, $50 million? Or would it be more
gradual over the next two to three years? And I have a follow-up, please.

A - Brian Millard {BIO 21019614 <GO>}

Yes, thanks, Eddie. This is Brian here. So good questions. As you said, yes, we've
previously said and still is true that the quantity of green material in a display, a red,
green, and blue side-by-side display is similar to the quantity of Blue.

To answer your question in terms of the revenue potential, there's a couple things to
pull apart there. One is the green number that we disclose includes our yellow-green
emitters as well, as well as the fact that we don't currently have blue pricing set with
any of our customers. So we need to see how that evolves over time.

And in terms of the adoption curve, we know there's significant interest in our blue
across the customer base and in the market more broadly. So we think that there
certainly will be adoption over time. It's really up to our customers, though, to
determine exactly how that plays out and on what timeline.

Q - Analyst
Got it. Thank you. That's helpful. And I guess in terms of pricing, the pricing will
eventually be based on the value you guys add with the blue product. Can you talk
about what has been the customer feedback so far in terms of lowering power
consumption or whether it's something else when using the blue you guys have
been shipping so far?

A - Brian Millard {BIO 21019614 <GO>}

Yes. So the benefits of phosphorescent technology over fluorescent are also applied
to blue in addition to the red and green material that we have. So it is more energy
efficient. We've estimated that there's probably a roughly 25% increase in energy
efficiency of a display by adding blue material to it. And so we've been sampling
material to customers. We had $1.9 million of development sales in Q1. And so that
continues to move in a positive direction.

And we expect 2024 blue development sales to be up compared to the

development sales we had last year. So we continue to make the right progress that

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we need on the development, and as Steve said, continue to feel like we're on track
for on track for hitting commercial specs this year.

Q - Analyst
Got it. Thanks a lot, guys. Congrats again.

A - Brian Millard {BIO 21019614 <GO>}

Thank you. Thanks.

Operator
Our next question is from Brian Lee with Goldman Sachs. Please proceed.

Q - Brian Lee {BIO 17472882 <GO>}

Hey, guys, good afternoon. Thanks for taking the questions. I guess starting off
probably for Brian here. Can you give us a sense of seasonality this year? I know last
quarter you sort of alluded to it when you gave the full year guide. Obviously you're
starting off Q1 on a very strong note. Everyone knows the iPad launch being a first
half product cycle that you haven't historically been levered to is probably a big
tailwind here for 1Q. But does this fall off in 2Q sequentially? Because if we take Q1
and assume no growth for the rest of the year, you're basically already above the
midpoint of your annual guidance. So just trying to get a sense for what the Q1 result
here implies for the rest of your seasonality. And then I had a follow-up or two.

A - Brian Millard {BIO 21019614 <GO>}

Thanks, Brian. Typically we've had, as you know, more of a second half orientation to
revenues in prior years. And this year, based on what we know at this point, it seems
like it's going to be pretty balanced between the first and second half of the year. So
that's based on our current forecast and what we know at this time.

Q - Brian Lee {BIO 17472882 <GO>}

Okay. So typically the second half has some meaningful growth versus the first half
this year. You're base casing more of a second half being equal to the first half. Is
that the right conclusion from your comments?

A - Brian Millard {BIO 21019614 <GO>}

That's right. Yes.

Q - Brian Lee {BIO 17472882 <GO>}

Okay. That's helpful. And then just a question on your biggest customer here. They
were a higher revenue contribution. And the we've seen them in any given quarter in
over a year. And then this is also the most we've ever seen in a Q1 from them.

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Again, kind of in line with the abnormal seasonality here. How much of this, if you
can give us a sense, is coming from them having any new capacity? How much of
this is being helped by maybe yield issues that are driving more material demand for
you? And then can you remind us, is there a tandem structure effect here tailwind for
that customer in particular or is that only for your second Korean customer that that
applies? Thanks, guys.

A - Brian Millard {BIO 21019614 <GO>}

Yes. So in terms of -- we obviously can't comment on any customer production or in
that sense. Obviously, there were more material sales to that customer in Q1 and
that's what drove the increase and therefore the revenues. And some of the newer
products that are coming to market, especially on the IT side, do have tandem in
place. So that's about as much as we can comment on.

Q - Brian Lee {BIO 17472882 <GO>}

Okay. Fair enough. I'll pass it on. Thanks, guys.

A - Brian Millard {BIO 21019614 <GO>}

Thanks, Brian.

Operator
(Operator Instructions) Our next question is from Jim Ricchiuti with Needham &
Company. Please proceed.

Q - Chris Grenga
Hi. Good afternoon. This is Chris Grenga on for Jim. Thank you for taking the
question. Noticed that our R&D expense stepped up a bit on a sequential basis and
year-over-year. Just curious if you could provide any additional color on that.

A - Brian Millard {BIO 21019614 <GO>}

Sure. Hi, Chris. In Q1, we did see an increase. We're continuing to invest in inventing
new materials. So I think that had an increase. There were also some higher
employee costs affected in both R&D and SG&A compared to prior periods. So it's
really a combination of employee-related expenses as well as some higher
development expenses that we had with outside parties.

Q - Chris Grenga
Great. Thanks very much.

A - Brian Millard {BIO 21019614 <GO>}

Thank you.

Operator

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We have reached the end of our question-and-answer session. I would like to turn
the call back over to Brian Millard for any additional closing remarks.

A - Brian Millard {BIO 21019614 <GO>}

Thank you all for joining our call today. We appreciate your time and support.

Operator
This concludes our conference call today. You may now disconnect.

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