Universal Display Corporation (OLED) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's First Quarter 2025 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 call over to Darice Liu, Senior Director of Investor Relations. Please proceed.

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, Chief Financial Officer and Treasurer. Before Steve begins, let me remind you 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, May 1, 2025. 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 would like to turn the call over to Steve Abramson.

Thanks, Darice, and welcome to everyone on today's call. 2025 began on a solid note. First quarter 2025 revenue was $166 million. Operating profit was $70 million. And net income was $64 million or $1.35 per diluted share. Looking ahead, we continue to see tremendous growth opportunities in the OLED market. At the same time, we are operating in a global environment that is increasingly dynamic and complex. In April, we saw an uptick in orders, which we believe was largely in response to ongoing tariff developments. That said, we are taking a measured approach in assessing how this may evolve over coming quarters. Thus far, our business remains largely unaffected. Uncertainty is not new to us. We built this company to be resilient and have shown time and again that we can navigate through challenging times. Our innovation engine, strong balance sheet, robust supply chain and operational agility position us well to navigate through periods of volatility. In the past years, we have diversified our supply chain, expanded our global manufacturing footprint to now include Shannon, Ireland and optimize our inventory and production mix. This ensures our flexibility to respond, adapt and lead while staying ahead of the curve with a continued invention, development and delivery of state-of-the-art OLED technologies and materials for our customers and the industry. The long-term trajectory of the OLED market is positive and strong, driven by increasingly diverse product road maps, featuring an expanding range of OLED offerings with IT, automotive and foldable, alongside other applications slated to drive demand in the near term. As panel makers and OEMs prepare for new gen 8.6 OLED capacity to start coming online in 2026, recently published Omdia Market Research forecasts that 2025 OLED growth will be in the mid-single digits. Looking into 3 largest consumer electronic end markets, OLED smartphones are forecasted to grow by 6% year-over-year to 848 million units; OLED IT units, which encompasses tablets, laptops and monitors, are expected to increase by 16% year-over-year to 27 million units; and OLED TVs are expected to grow by 4.5% year-over-year to 7.1 million units. As consumers increase their use time and products continue to evolve with advanced features such as connectivity and artificial intelligence, the energy efficiency of our materials and technology are ever more essential. Our unyielding focus on advancing OLED technology and empowering our customers remains a cornerstone of our strong leadership position. We are innovators advancing our portfolio of highly efficient, high-performing phosphorescent reds, greens, yellows and forthcoming blues to support the market of today and tomorrow. Since 1998, our team of world-class scientists, engineers and technicians have been driving continuous breakthroughs across critical performance metrics, boosting efficiency, extending lifetime and enhancing color points. Over the years, we've achieved an impressive eightfold improvement in external quantum efficiency, significantly advancing OLED energy efficiency and overall device performance. At the same time, we delivered an extraordinary 60,000-fold increase in material lifetime, setting new industry benchmarks. Our expanding portfolio of OLED technologies and UniversalPHOLED materials enables customers to realize greater power savings, extend battery life, reduce device size and support next-generation features like 5G and AI across a range of consumer OLED products. Regarding blue, a journey has been challenging as all trailblazing breakthroughs are, and our teams continue to work tirelessly. We are excited about the strides we are making and I'm pleased by the news release this morning from LG Display announcing that they have successfully verified the commercialization-level performance of blue phosphorescent OLED panels. We believe that our phosphorescent blue will be a game changer for our customers, the industry, consumers and for us. And on that note, let me turn the call over to Brian.

Thank you, Steve. And again, thank you, everyone, for joining our call today. Revenue in the first quarter of 2025 was $166 million compared to $165 million in the first quarter of 2024 while we expect a certain level of ongoing uncertainty for us and our customers due to the factors mentioned by Steve, we continue to believe our revenues will be in the range of $640 million to $700 million. Our total material sales were $86 million in the first quarter compared to material sales of $93 million in the first quarter of 2024. Green emitter sales, which include our yellow-green emitters, were $64 million. This compares to $71 million in the first quarter of 2024. Red emitter sales were $21 million in the first quarter of 2025 and 2024. As we've discussed in the past, material buying patterns can vary quarter-to-quarter. First quarter royalty and license fees were $74 million compared to the prior year's period of $68 million. Adesis' first quarter revenue was $6.6 million compared to $3.7 million in the first quarter of 2024. First quarter cost of sales was $38 million, translating into total gross margins of 77%. This compares to $37 million and total gross margins of 78% in the first quarter of 2024. First quarter operating expenses, excluding cost of sales, were $58 million. In the first quarter of 2024, it was $65 million. The year-over-year decrease was primarily due to the reorganization of OVJP Corporation and reduced performance-based stock compensation. We continue to expect 2025 OpEx to be flat year-over-year. Operating income was $70 million in the first quarter, translating into operating margin of 42%. This compares to the prior year period of $63 million and operating margin of 38%. The income tax rate was 20% in the first quarter of 2025. We expect our effective tax rate for the year to be approximately 19%. First quarter 2025 net income increased by more than 13% year-over-year to $64 million or $1.35 per diluted share. This compares to $57 million or $1.19 per diluted share in the comparable period in 2024. We ended the quarter with approximately $918 million in cash, cash equivalents and investments. Our Board of Directors approved a $0.45 quarterly dividend, which will be paid on June 30, 2025, to stockholders of record as of the close of business on June 16, 2025. Additionally, we announced a $100 million share repurchase authorization. Our capital allocation program reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. And lastly, I want to mention that this year's SID Display Week kicks off in San Jose on May 11. To learn more about UDC, please visit us at booth #23. With that, I'll turn the call back to Steve.

Thanks, Brian. Our company is grounded in innovation, strategic execution and operational discipline. The journey to today was fueled by our relentless drive and refined through trials and challenges to shape more than success. It laid the foundation for the corporate culture we live and breathe today, one built in curiosity, creativity, commitment and collaboration. Our culture empowers our teams to solve complex problems, reimagine what's possible and lead with purpose. 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 Instructions] Our first question is from Brian Lee with Goldman Sachs.

This is Tyler Bisset on for Brian. On the blue update from LG Display, it sounds like your customer has reached commercialization, which was great to see. So how should we think about what that means for a time line for when blue could show up in a commercial device? And are there certain milestones here for reaching more firm pricing terms? And then is it fair to assume that this is for a mobile device and not TVs?

Yes. Thanks, Tyler. Thanks for the questions. Yes, on blue, we are certainly pleased to see the report today from LG Display, highlighting the success that they've had utilizing our phosphorescent blue. We previously commented that having a customer indicate success with our material would be a positive step forward. So we're pleased by the announcement. Any specific plans and time line of introducing into a product or really for our customers and their customers, the OEMs to speak to. And on pricing, we're in constant dialogue with our customers on various commercial matters, including blue pricing.

And then with that announcement from LG Display, how should we think about the impact on other customers developing blue? Does this sort of start an acceleration of stores or potential race towards blue?

Yes. Our customers and we have been working with multiple customers on blue for a few years now. So our customers each have their own development programs that they're working toward on blue.

Our next question is from James Ricchiuti with Needham & Company.

I guess we'll have to continue on the blue theme. The LG release talks about a hybrid solution. And I'm wondering if you can give us some sense as to where you are in terms of working with the industry to see commercial viability of a pure phosphorescent JV solution. How far along are we there? I mean, is that month the way you described, previously going back to your original commentary around blue?

Thanks, Jim. Our prior commentary on blue had really been focused on achieving commercial specs of our material. We hadn't specified which architecture or structure it would be in. I think the key thing is this is a positive step forward in the use of our material in a commercial application, and we're supporting all of our customers in their development efforts with blue.

Okay. One thing that I think caught -- it was out in the press release was when LG talked about the stability of blue fluorescence, the legacy material. And I'm wondering, can you help us like understand what that means as it relates to the stability of your materials and maybe what still needs to be achieved?

Sure. Blue fluorescence has been in market for decades now so it's an established product. So inherently, just based on the duration of the product being market, there's more stability as well as the wavelength of blue just creates a little bit of different characteristics, especially when developing phosphorescent material.

Is this -- and I'll jump back in the queue, but is it -- is your expectation that the advantages you have on the low-power side, low power consumption side with phosphorescence that this is the potentially, over the near term, going to be even more commercial solution that we see a combination of blue florescence and phosphorescence?

I think it's really going to depend on the approach that LG Display has taken that they've highlighted in their release today, and we're pleased to see the progress that they've had. But different customers may have different solutions for blue. I think the key thing is the energy efficiency of the phosphorescent material is critical compared to the fluorescent because replacing the fluorescent with phosphorescent were able to increase the energy efficiency as noted in their release today.

Our next question is from Mehdi Hosseini with SIG.

A couple of follow-ups for me, Brian. I think I understand the -- I understand the challenges in forecasting and market adoption. But I think it is also -- it will be helpful for shareholders of UBC to understand the market development. So if this is -- if LG's announcement is kind of the hyperfluorescent blue kind of a tandem junction, would it be fair to think of this as a bridge? It will be limited to high-end premium devices? And when the fluorescent blue is ready for commercialization as a stand-alone, then it would have a wider adoption? Could we think of this sequencing bridge and then a mass adoption? Is that a fair assessment? Then I have a follow-up.

Sure. So I think the key thing is this is a tandem structure that LG Display highlighted in their release today, so it's using a layer of fluorescent material and a layer of phosphorescent material from DC -- and from our perspective, this is a positive step in the use of our material in a commercial application. The ultimate product that LG or any of our other customers may choose to introduce our material into is up for them to speak to them in the OEMs and very difficult for us to predict at this time because it's really in their hands to carry it forward from here.

Sure. That's fair. And then regarding the material gross margin, should we think about a step-up in gross margin improvement to get the low 60% for the year? Or would this improvement be more material so that you would go back to the 60% to 65% range?

Yes. So our guidance for the year for total gross margin is 76% to 77%, and that remains unchanged from what we communicated back in February. The materials gross margin does vary based on customer mix as well as we have new contracts, we can also have different mixes of royalty and license to materials. So focusing on the total gross margin of 76% to 77%, we think, is the most useful way of assessing the profitability of our contracts.

Our next question is from Scott Searle with ROTH Capital Partners.

I apologize, I'm going to go back to blue again. I just want to clarify, the LG implementation in terms of universal displays materials, you have hit commercial specs. Is that correct in terms of their implementation are not using of fluorescent in effect to cover up the shortcomings of your commercial blue. And just in terms of materials then, that are used in a tandem architecture here. Is this in the ballpark of what you guys were expecting in terms of materials per device?

Yes, Scott. In terms of the specs, I mean, we've been previously talking about specs being achieved, and we previously said that a customer using our material in an application that was deemed commercial would be a positive step forward. So that release today from LG Display, we think demonstrates that our material is performing at commercial levels. And in terms of the ultimate material consumption per square inch in tandem versus single layer, that's really just dependent on each customer's recipe, and it's really something we can't comment on directly, the quantity of material at this point.

Okay. And just as a follow-up, looking at the geographic mix, your revenue in China was up a little bit seasonally in the first quarter, I think about $10 million or so. It sounds like you started to see what you, I think, are gaming pull-ins potentially ahead of tariffs. Are you continuing to see that as we've gotten through the month of April? How should we be expecting the, I guess, sequential progression as we're going into the second quarter here with the current tariff environment?

So in Q1, we did see heightened Chinese -- sales to Chinese customers, as you mentioned. We weren't hearing anything from our customers in the first quarter that indicated that was tariff related or preparatory for tariffs. In April, as Steve mentioned in his remarks, we did see a heightened level of orders in the first few weeks of April, which certainly were in response to tariffs. And -- as you noted, we do think that's pull-in from following months and the full year, we still have the same guidance of $640 million to $700 million.

[Operator Instructions] Our next question is from Nam Kim with Arete Research.

One more follow-up on blue. For this commercial OLED panel, from energy display used, do they use your blue host material or only local material? I know you guys have been preparing for blue hosted. So just curious on this. And then secondly, on this press release, it seems to relate on IT device, the most IT device today already use tandem structure. So in that sense, it's not being new However, how should I interpret their work considers that structure? Any color you can share with me would be great.

Thanks, Nam. So on the host, we've been selling blue host and emitter to various customers. We can't comment specifically on LG's recipe that they use for the panel they produced and announced it today. And on the products, our customers have been evaluating our material for tandem as well as single layer. So it's really just dependent on the various development projects that each of them have within their organizations.

- Our next question is from Eddy Orabi with TD Cowen.

This is Eddy for Chris. Just a clarification. I know this question was asked several times on this call, like just -- do you think like from a technical perspective, the blue materials can now be used in smartphones, for example. I guess I just want to understand like how important the LG announcement is to the mass adoption for blue phosphorus.

Sure. Eddy, release today from LG Display did reference used in smartphones as well as IT. But I think the key point being across all of our customers, we believe there's applicability for blue in all applications. certainly, smartphones and IT and TVs as well. So we believe, ultimately, there's interest in it because of the power and energy efficiency benefits that the phosphorescent material brings to the solution we believe and understand from our customers that there's interest in multiple applications.

Got it. And do you think you guys cleared most of the milestones for that mass adoption?

We're very pleased with the progress that we're making and are working closely with our customers to ensure their success and ours.

Got it. Just a follow-up. I think one of the major smartphone OEMs, they were like some news that they might use foldable phones. Would you remind us like what's the content difference between foldable phones and just regular smartphones? That's it for me.

Yes. So on the foldables, it's really the way of thinking about it is Square area. All things being equal, assuming it's a single stack like most smartphones are made today, you would really just take the square area of any application to market today and determine the square area of the foldable to determine the incremental material opportunity for us.

Our next question is from Martin Yang with Oppenheimer & Company.

The first question is regarding things to look forward to before we see product shipping with your blue. Can you point to any other milestones, either by you or by your customers before we see actual product shipping?

Thanks for the question, Martin. I think from this point forward, it's really going to be up to our customers to really communicate a lot of the progress that they're making as well as how they're interactions are going with OEMs to introduce it into a product. We continue on our side to do work to develop new materials, new blue materials that increase their performance characteristics. Just like we do on the red and green side of our business, where we're continually inventing new materials. But we're very pleased with the progress we've made to date. Happy to see the announcement today by LG Display. But much of the communication from this point forward is probably going to come from the customers as they make progress in their efforts.

And then can you confirm that with today's announcement and with LG's panel, there will be no other technical hurdles to clear for that LG product. to be in a commercial device?

So that's really a question more for LG than for us since it's their product to bring to market and bring to the OEMs.

Last question for me is on overall communication strategy regarding other potential announcement by your customers. So should we expect similar other where the customers will be the one leading the press release or announcing potential breakthroughs or innovation with your blue material?

Yes. So today's release was LG Display's release. If our other customers choose to release information, that's fine with us, but we're not the ones driving the strategy here on the communications front.

[Operator Instructions] Our next question is a follow-up from Jim Ricchiuti with Needham & Company.

Brian, did you quantify the level of orders that you saw that may have been related to tariffs? I'm just trying to get a sense of how impactful that might be in terms of potentially pulling for the back half of the year into the June quarter?

We did not quantify the amount of orders that we saw in April, but it certainly was a heightened level compared to what we typically see in any given month. We also need to see exactly how May, June plays out. But the full year, we still think is within that $640 million to $700 million range based on everything we're hearing at this point.

And then I don't recall, I may have missed it, did you say what the blue development revenue was in the quarter?

Yes, great question. The blue development revenues in Q1 were $1.1 million approximately, and that's both host and emitter sales to our customers.

And then one final question for me is just on OpEx. What are you anticipating OpEx relative to the last year for the full year?

We're still projecting OpEx is going to be -- yes, exactly. It's going to be flat compared to 2024. We did see a lower level in Q1 due to a number of factors, but the full year, we're still believing is relatively flat compared to last year.

And I guess that's where I maybe just getting a little confused. I thought initially you were anticipating to be up in '25, but you basically have been saying flat.

Yes. We've been expecting SG&A to be slightly up and R&D to be pretty flat, and in aggregate, it to be relatively flat as well. So based on what we know right now, we're expecting total OpEx to be flat for the year.

Our next question is from Scott Searle with ROTH Capital Partners.

Just a quick question on tandem. Given the announcement from LG today, we started to see some of the design activity from an Apple standpoint in terms of their tablets. Is there more of a shift from a market perspective towards tandem architectures? Or is it still just kind of one-offs here or there? I'm just trying to get my hands around if there's any sort of a bigger trend going on here.

Yes. Good question, Scott. Tandem has a number of benefits that it's been used in primarily IT applications to date. And the benefits being really that by having 2 layers of emissive material, you can have greater lifetime, and a number of the OEMs are after that for products that are on all day long, especially have a lot of white pixels that are on all day long. And so that's why Tandem has been used in a number of IT products. So there were a few last year that were announced that had tandem structures. But we think that even in the IT market, there's going to continue to be a mix of tandem and single layer based on what we know at this point. In smartphones, there's been very limited number of tandem smartphones, but the vast, vast majority of smartphones are single layer, and we expect that to continue to be the case.

This concludes our question-and-answer session. I would like to turn the call back over to Brian Millard for any additional or closing remarks.

Thank you for your time today. We appreciate your interest and support.

Thank you. This concludes today's conference call. You may now disconnect.