Good day, ladies and gentlemen, and welcome to Universal Display's First Quarter 2021 Earnings Conference Call. My name is Sherry, 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. 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.
Thank you, and good afternoon, everyone. Welcome to Universal Display's 1st Quarter Earnings Conference Call. Joining me on the call today are Steve Evenson, President and Chief Executive Officer and Sid Rosenblatt, Executive Vice President and Chief Financial Officer. Before Steve begins, let me remind you today's call is the 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 6, 2021. Call. 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 Now 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. Release. Now, I would like to turn the call over to Steve Evenson.
Thanks, Darice, and welcome to everyone on today's call. We are pleased to report that revenue in the Q1 of 2021 was $134,000,000 Operating profit was $63,600,000 and net income was $51,700,000 or $1.08 per diluted share. Since our last earnings call, momentum in the OLED market continues to grow in small, medium and large consumer electronic applications. Results. We are seeing a growing proliferation of OLED smartphones ranging from premium to mid range to low end affordable that have launched and are slated to be launched this year.
OLED TV demand continues to rise. OMD market research recently reported that the average price of a 55 inches OLED panel declined 8.1% year over year in the Q1 of 2021, While LCD panel prices increased 73.9% in the same period. As a result, The price delta between OLED and LCD TVs has further narrowed to $3.10 from $4.40 15 and Dell XPS 139310 were unveiled. And in the gaming market, there are reports that for First time Nintendo has selected an OLED screen for the new Switch Pro due to OLED benefits of higher contrast and faster response results. The adoption of OLEDs continues to expand and is fueling the multiyear OLED CapEx growth cycle in which we are in.
In March, Samsung Display announced that it will aggressively expand its OLED presence in the gaming smartphone and laptop markets. Samsung noted that its OLED display is a valuable feature befitting premium gaming content such as fast response times, vibrant colors and deep blacks. Last week, Samsung held its Galaxy Unpacked event and unveiled its Samsung Galaxy Book Pro and Galaxy Book Pro 360 OLED Laptops. These are Samsung's first ever Windows PC with Super AMOLA displays. Swiss certification and testing company SGS awarded the Galaxy Book Pro and Book Pro 360 with eye care display certification for reducing the harmful effects of blue light emissions compared to standard LCDs.
And during its recent earnings call that also took place last week, Samsung commented on the growing adoption of OLED displays from flagship and mass market smartphones to entry level models growing year over year. The company also known the growing contribution of OLED tablets, PCs and wearables, while also highlighting that it was continuing to advance its first over meet and OLED displays. LG Display announced on its recent earnings call that its Q1 2021 OLED TV shipment level was on par with its seasonally strong 4th quarter 2020 shipments of 1,600,000 units and reiterated its target of 7000000 to 8000000 OLED TV units this year. In addition, it has been reported that LG Display will proceed with its investment for additional capacity at OLED TV plant in Guangzhou, China. LGD's 2nd OLED TV fab's current capacity is 60,000 plates per month of Gen 8.5 substrates.
The new phase will add 30,000 plates per month of capacity, bringing the Guangzhou facility to 90,000 plates per month. On the small and medium front, it has been reported that LGD is progressing with design wins in the smartphone and automotive markets. In late March, Mercedes, a reported partner of LG Displays, Unveiled the interior cabin of its new flagship electric car, the EQS. It has a unique 56 inches flexible OLED display that is made from 3 different OLEDs that spans almost the entire width of the car. BOE Technology recently announced that it shipped approximately 36,000,000 flexible AMOL panels in 2020.
As BOE looks to 2021, it is targeting to double its AMOLED panel shipments once again. On the capacity front, it has been reported that BOE's 3rd Gen 6 OLED fab in Chongqing will start production this year. This new fab, when fully ramped while the capacity output of 48,000 plates per month similar to BOE's 2 other Gen 6 fabs in Chengdu and Mianyang. In late March, Tianma held a ceremony to celebrate its new R and D center call the Hubei Yangtze River Novel Display Innovation. According to reports, one of the products that Tian Ma showcased at the event was COE or color filter on encapsulation technology, which Tian Mao calls CFOT or color filter on touch for foldable displays.
Last month, Visionox announced additional smartphone design wins with Honor. The panel maker is currently ramping its new Gen 6 flexible OLED fab in Hefe, which has a capacity start of 30,000 plates per month. Switching gears to OLED light, Audi unveiled a new concept electric car, the A6 E Tron at Auto Shanghai last month. As noted by Aldi, one new feature is a 3 dimensional OLED taillights. This architecture makes it possible to experience a dynamic OLED light show not only in 2 dimensions, but with an impressive 3 d spatial effect.
Ali also noted that the ultra bright and high contrast digital OLED combination tail lights can increase the level of safety on the roads. As OLED activity continues to flourish, we remain steadfast in our commitment to advancing our robust We continue to make excellent progress in our ongoing development work for our commercial phosphorescent blue emissive system. We also continue to advance our work at organic vapor jet printing, our novel manufacturing process for maskless, solvenless dry direct printing of large area OLED panels and expect to have an alpha system during 2022. It's been an exciting time in the OLED industry and for us. Since our last call with you, we announced that along with PPG, We are jointly establishing a new manufacturing site in Shannon, Ireland for the production of our highly efficient, high performing universal full end materials.
Market demand and evolving industry requirements. We also announced new extended OLED technology license and material purchase agreements with LG Display and Visionox. Both agreements run for 5 years until the end of 2025. And last month Universal Display Corporation was named to Financial Times the America's fastest growing company's 2021 list. Call.
On that note, let me turn the call over to Sid.
Thank you, Steve. And again, thank you everyone for joining our call today. Revenues for the Q1 of 2021 were $134,000,000 compared to Q4 2020's of $141,500,000 and Q1 2020 is $112,300,000 Our total material sales were $79,800,000 in the Q1 of 2021 compared to material sales of $62,500,000 in the Q4 of 2020 $66,600,000 in the Q1 of 2020. Green emitter sales in the Q1 of 2021, which include our yellow green emitters were $60,500,000 This compares to $48,200,000 in the Q4 of 2020 and $52,600,000 in the Q1 of 2020. Red emitter sales in the Q1 of 2021 were $19,100,000 This compares to $14,300,000 in the Q4 of 2020 and $13,900,000 in the Q1 of 2020.
As we have discussed in the past, Material buying patterns can vary quarter to quarter. Some of the contributing factors include COVID-nineteen issues as well as consumer product demand cycles, capacity ramp schedules, production loading rates, and customer production efficiency gains. Since a number of these factors are moving variables for our customers, they are also moving variables for us. 1st quarter 2021 royalty and license fees were $50,900,000 This compares to $75,000,000 in the Q4 of 2020 $43,100,000 in the Q1 of 2020. 1st quarter 2021 Adesis revenues were $3,300,000 This compares to $4,000,000 in the Q4 of $20,200,000 in the Q1 of 2020.
Cost of sales for the Q1 of 2021 were $23,300,000 This compares to $27,000,000 in the Q4 of 2020 and $22,500,000 in the Q1 of 2020. Cost of OLED material sales were $21,000,000 translating into material gross margins of 74%. This compares to 61% in the Q4 of 2020 and the comparable year over year's quarter material gross margins of 70%. As we have noted in the past, was $47,100,000 down from last quarter's $48,800,000 and up year over year from the comparable quarter's 40 of $5,300,000 Operating income was $63,600,000 for the Q1 of 2021 compared to last quarter $65,800,000 and the year over year comparable quarter's $44,500,000 1st quarter 2021 income tax rate was 18.9%. Net income for the 1st quarter of 2021 was $51,700,000 or 1.08 per diluted share.
This compares to last quarter's 50 $3,900,000 or $1.13 per diluted share and the comparable year over year's quarter of 38 $200,000 or $0.80 per diluted share. We ended the quarter with approximately $727,000,000 in cash and equivalents were $15.36 of cash per diluted share. Moving along to guidance. Our outlook for the year remains unchanged. As we noted in last quarter's conference call, we expect 2021 revenues to be in the range of $530,000,000 to $560,000,000 with a ratio of material royalty license revenues expected to be in the ballpark of 1.5:one.
And lastly, Our Board of Directors approved a $0.20 quarterly dividend, which will be paid on June 30, 2021 to stockholders of record as of the close of business on June on 15, 2021. The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. With that, I will turn the call back to Steve.
Thanks, Sid. Release. Last month, we celebrated our 25th year as a NASDAQ listed company by virtually ringing the opening bell. Is an incredible milestone that we share with our employees, customers, partners and all of our stakeholders. For 27 years, of which 25 years has been as a NASDAQ listed company, Universal Display Corporation has stood for vision, innovation and reality.
1994, our founder, Sherwin Selleckson, learned about a novel technology called organic light emitting diodes or OLEDs and foresaw its revolutionary path in the display and lighting landscape and so began Universal Display's story. In 1996, When bulky CRTs were still in everyone's homes, we took the company public with just a Princeton University research contract, New full time employees and one patent pending. It took us 17 years of breakthroughs, challenges and triumphs to achieve our first profit in 2011 and we have been profitable ever since. Since our inception in 1994, we have invested approximately $700,000,000 in research and development to advance our company from a startup to a leading player in the global OLED ecosystem. And we continue to invest heavily in a number of strategic OLED programs for our long term growth.
Our technologies and energy efficient Phosphorescent materials can be found in virtually every commercial OLED display and lighting product in the world. You can learn more about our phosphorescent technology as well as our strong corporate stewardship in our recently published 2020 Corporate Social Responsibility Report, which can be found on our website. And finally, I would like to take this opportunity to thank each of our employees for their drive, desire, dedication and heart 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. Release.
And with that, operator, let's start the Q and A.
Thank you, Mr. Avison. At this time, we'll be conducting a question and answer session. Before pressing the star keys. Our first question is from Brian Lee with Goldman Saks.
Please proceed.
Hey, everyone. Thanks for taking the questions. Kudos on the solid quarter here. I guess in terms of guidance, just trying to understand a little bit about the thought process and reiterating guidance. You just did $134,000,000 Q1 revenue.
So you're basically implying flat revenue for the next three quarters to get to the low end of guidance, maybe 140,000,000 A quarter to get to the high end and we've typically seen Q1 be on the low end of revenue seasonally for you outside of inventory build period. So I guess the question is, is the guidance embedding a lot of conservatism here? Is it due to supply chain risk? Or is there something about Q1 results that maybe aren't going to flow through into higher growth in the next few quarters like we typically see. So just trying to reconcile a bit here.
Call. Mr. Aberson, Mr. Roosevelt, do you have your lines muted?
This is Steve. My line is okay. Is Sid muted?
So Brian, in terms of I apologize for that. In terms of our guidance for the year, We do believe that the $560,000,000 to $560,000,000 is in the range that we expect for the year. I know that when you do the math, it doesn't quite look like there's as we said on the other call, we expect the second half to be better than the first half, but the ongoing pandemic has resulted in supply chain disruptions, including some semiconductors We think it's best right now to maintain our guidance, which we're currently comfortable with.
Okay, fair enough. But just to be clear, there's nothing unique about Q1 like pull forward or inventory builds like we've seen in certain periods over the past several years, you wouldn't there's nothing you called out. So I'm assuming it's there's nothing notable about the sort of demand patterns you saw in the quarter?
No, there's nothing in there. I mean, historically as you've seen, quarter by quarter, it can be lumpy by customer. And as you can see in this quarter with Chinese customers being higher versus last quarter.
Fair enough. And then last one for me also on the guidance and I'll pass it on. Gross margin, 74% on materials, I know it's going to be lumpy and bounce around. It's proven to be that way just if you look at Q4 to the Q1 progression. Question, but coming into the year, it sounded like you had a bit more muted view on what the gross margin result would be for materials in 2021 versus Oracle and then you come right out and you're back to the historical level.
So any thoughts or changes in thoughts around the gross margins that you could achieve on materials for the year?
Obviously, our gross margins are, as we stated, dependent upon our product mix. And this quarter's product mix really translated into above 70% gross margin range. We still think that for the year, it's going to be 65% to 70%. And as we talked about in the Q4, there were some things in the Q4 that really affected which are of developmental materials which were sold in the 4th quarter in a larger quantity than historically and that's lumpy also.
Pin is from Krish Sankar with Cowen and Company. Please proceed.
Yes, hi. Thanks for taking my question. I had 2 of them. First one, Really good sales from China and I understand your largest customers obviously expanding. I mean, China, I'm just wondering as they plan.
And as the efficiency yield improves, do you think there is a risk that the business from that customer might slow down given that they had the issues in the past, which might get It's all down the road. Then I had a follow-up.
It has historically with Chinese customers been lumpy. And so yes, it's difficult for us to predict. I mean, obviously we spend a lot of time talking to our customers And we've built in what we believe to be where we think we'll be for the year into our guidance. But it really there's a number of issues that will affect rest of the year, which there's COVID-nineteen issues and some of the semiconductor weakness issues. So we're comfortable where we are.
Got it. Got it. That's very helpful. And then as a quick follow-up, Sid, how should we think about OpEx growth for this year.
Is this
the same as you reiterated last quarter?
Yes. We gave guidance in the last quarter of OpEx growth, which We talked about it. We expect it to increase in the range of 20% to 25% year over year, R and D up about 25%, SG and A about 15% and which and increased spending on OVJP and developing that technology. And we expect our tax rate to be about 19%, give or take a few basis points. We do expect our 2021 operating margins to be approximately 40% to 45%.
Thank you very much. I'll go back in queue. Thank you.
Our next question is from call. Mide Hosseini with SIG. Please proceed.
Yes, thank you. And Steve, thanks so much for all the details, especially with the evolving end market penetration and landscape. I just want to reconcile something. When I look at Samsung and LG, it seems to me that over the past maybe 3 to 6 months and there is less offer OLED CapEx and especially with China doing really well with LCD, maybe the LCD CapEx has gone up. And I'm just trying to reconcile in the near term, if there is a downward pressure on OLED CapEx, how does that change your view on end market demand or a quarter inch of OLED shipment in 2022?
And I have a follow-up.
I think right now In terms of what the customers are saying and all of our customers have noted on recent calls, They're committed to OLEDs and I think that there has been there's obviously demand and market issues that may Cause some changes, but we believe that the proliferation of OLED is really in the very beginning. And it's a really young industry. We think that our customers are really wed to OLEDs and everything you hear about it, will there be some things that maybe get delayed a little bit here and there? Yes. But overall, we really are very bullish on where the market is going.
Got it. Thank you. And then And I'm just trying to better understand end market dynamics. I do think that OLED TVs offer something unique, Especially with Samsung trying to build out a market presence in the high end with their Quantum Dot OLED. But is there anything other than that like in terms of the quality of the display or 8 ks that you can offer us Better understand how OLED compares to emerging new technologies like mini LED?
Well, mini LED is an LCD technology. I mean OLED technology is has been is power efficient, it gives you the best picture quality, whether it's TVs or for mobile devices and It's not a back to the technology, it's less complicated. And as you see that for mobile devices, we're almost for a third of the smartphone market with OLEDs and we're moving into the low and mid range with OLED displays on mobile devices. So The benefits of OLED compared to LCDs, whether it's mini LEDs or other type of LCDs is the benefits of all OLED technology. It gives you a thin form factor.
I think that flexibility, bendable, rollable technology is something that no other technology can do. So when you look at all the benefits of OLED that we've talked about for all these years, That's really why it is in mobile devices first because of power efficiency and the TVs, it's the best picture quality.
All right.
Thank you. Thank you.
Our next question is from C. J. Muse with Evercore ISI. Please proceed.
Yes, good afternoon. Thank you for taking the question. I guess first question, Pretty surprised your deferred revenues actually increased Q on Q, and your LG revenues came in a little bit light at least versus our expectations. So curious, is that a result of your new agreement with LG? And I guess, could you expand on that?
Yes, the new extended 5 year greenblue with LG and Visionox were effective on January 1, 2021 And they end at the end of 2025. The impact is under ASC 606. We expect This to continue, but the fact that we did this, this is a new agreement essentially for LG. So you do see changes because we signed these agreements in deferred revenue.
So was there an expectation for greater revenues here in 2021 before signing that agreement? And what kind of change has that had on your outlook for calendar 2021 revenues?
We're comfortable with our guidance where we are. I didn't expect it to change our 20 21 revenue guidance by signing these agreements. I mean, when we gave our guidance, we kind of knew what was going on with these agreements. They just weren't Executed until then, but we knew what the results would be.
Great. As my follow-up, you had big numbers from Both BOE as well as Tianma. And I guess the question here is, is that supply chain risk mitigation in terms of building some inventory or is there concern in China around getting access to materials out of the U. S. Given rising U.
S. China purchase?
The revenues in China did increase obviously, but historically they have really been lumpy. There's nothing that we've called out specifically in this quarter as we have in the past when the customers told us that that's what they're doing. We just think that it's exceptional by customer and purchasing department by purchasing department. Thank you. Thanks, D.
J.
Our next question is from Shannon Cross with Cross Research. Please proceed.
Thank you very much. Just a couple of questions. You said you have about, I think this was right, 30% of the smartphone market at At this point, what percent of the market do you think is addressable to you given where pricing is maybe in the next couple of years? Just trying to think of what opportunity for upside there is, especially with some of the comments out of Samsung recently.
Yes, I think that the addressable market eventually we believe will be the entire smartphone market. Samsung is moving from the high end to the mid range and they now have some low end phones that I think entry level phones that are In the $2.40 range or something like that. So we do think that this will continue to grow. And
how are you thinking about China TVs from an OLED perspective, not Not necessarily the vendors, but the market in general. I know there was some pressure on China's TV market, I guess was last year? And are you expecting to see it kind of rebound when you look at the second half?
In terms of market perspective, Where it's difficult for us to talk about one area specifically or another. I mean, I think that OLED TVs are the best TVs ever. I think that some of the pressure that you saw was pretty much across the board on the demand side that there was weakness because of COVID-nineteen.
Okay. My final question is just with regard to inflationary pressures that people are seeing out there. Are you seeing any pressures on materials required by PPG? And do you feel bills required by PPG? And do you feel like you have the opportunity if you need to, I'm not sure you even would need to hear, but to push pricing through to some of your partners again on the material side?
There's 2 answers to that question. 1, as we've stated in the past, our contracts have pricing for the length of the contract. So pushing some things through would be difficult. One thing that we talked about is Iridium and Iridium has gone up. We have actually for a number of years been managing Iridium and we've been building inventory that you can see on our balance sheet of raw material going up Every quarter and that we want to make sure that, A, we have a constant supply and have a significant amount of inventory that we have And that has allowed us to manage our cost structure.
Okay. Thank you.
Thanks, Shannon.
Our next question is from Sidney Ho with Deutsche Bank. Please proceed.
Release. Thanks for taking my question. My first question is, in reiterating your full year revenue guidance, it sounds like you're being a little conservative because of the supply chain disruptions. Do you have an estimate how much that may impact your revenue guidance for this year? And if you can follow-up to that is where are you seeing the most impact of those supply chain disruptions?
I assume it's not from your own supply chain. And then I'll follow-up. Thanks.
Well, I mean to be honest, I mean given we obviously don't give quarterly guidance or give guidance in all the components that we are seeing. But one of the issues that I just talked about with Chenin was Iridium. Our materials have already been in it, but that's not the only component. So that there's a number of In that is a number of other materials, overhead and a lot of other things that's in So that is not going to impact every dollar doesn't go a dollar increases. So But in terms of what we're seeing, we are still comfortable with our guidance.
We were as we said on the last call, you got COVID-nineteen issues that still could impact what we're doing and the demand side, whether it completely recovers and how fast it does, Which is why we have a range of $530,000,000 to $560,000,000 So we are still comfortable with where we are at this time.
Okay. Maybe my follow-up question is on the IT side of things. I know there are a number of models that companies have announced. But Apple has officially announced the mini LED display. Does that change your feel about your opportunity for OLED display and specifically in the IT market?
I know you addressed the TV market a little earlier and that's a different question. Thanks.
Call? Well, I think that the industry is still young. You've heard there's a big push from Samsung on the IT market. I think talking about Apple and many LEDs, their tablets are LEDs or LCDs anyway. So But I think there is a big push for the benefits of OLED and we just continue we feel that that will continue to grow Because the IT market using OLED is really very, very small.
Okay, great. Thanks.
Thank you, Sid.
Question is from Krish Sankar with Cowen and Company. Please proceed.
Hi, thanks for taking my follow-up. I just So, Chip said or Steve, direction you can talk about obviously the display coming on and everyone has read about the Samsung abstract and the blue. Actually, you can talk about it, kind of curious your view on it. And along the same path, if and when Lou gets commercialized, is it going to be plug and play? Or do you need to Change some of the design like a heat sink or any such thing.
Let me try to put it into a smartphone.
Well, thank you. Obviously Display Week is coming up and there's a lot of chatter about what will happen. There's really nothing we can say until The papers are presented. So regarding that, there's nothing we can talk about what was coming up. We do obviously talk about a paper that is talking about blue that has the same author that had it in last this year.
In terms of Commercial Blue, we have stated that it's not plug and play. You would need to make modifications to your drivers in your backplane in order to adopt our technology for blue because Phosphorescent uses 75% less power. So it is a redesign. It isn't new CapEx. It is really just a redesign.
So as they introduce new products and new SKUs, they will design those that our technology into those. So as we stated a number of times in the past, Even if I had something that met all the commercial specs today, it would be 9 to 12 months that before you start seeing it in products. But we are continuing to make excellent progress. Thank you very much.
Thank you.
Thank you. This concludes the question and answer session. I would like to turn the program back to Sid Roosevelt for any additional or closing remarks.
Call. Again, thank you everyone for your time today. We appreciate your interest and your support and everybody have a good night. Thank you.