Another Great Quarter for Universal Display

Published November 4, 2019

Universal Display Corporation (UDC) released their Q3 financial report Thursday and, following a strong first half, reported another quarter of revenue and profit Y/Y, and again increased their revenue guidance for the full year 2019. After the announcement, the company’s stock price jumped at the news, finishing the week up 11% at $198.39. The stock price had declined during Q3, but with the increase this week it has again reached triple-digit appreciation year-to-date, now up 118%.UDC reported second quarter revenues of $97.5 million, an increase of 26% from the third quarter of 2018. Net income came in at $37.0 million, consistent with the analyst expectations, and up 62% from a year ago.

During a challenging 2018, UDC suffered from year-over-year comparisons, and these were aggravated by a change in accounting policy regarding licensing revenues. Through 2017, UDC followed ASC 605, whereby licensing revenues are recorded when they are received, but starting in 2018 UDC was required to follow ASC 606, whereby licensing revenues are recorded at the time of the material sales. It appears that UDC’s licensing deal with Samsung, its largest such deal, is a multi-year deal with a particularly large impact on the difference between ASC 605 and 606, because UDC continues to pile up cash received and incur a balance sheet liability of deferred revenue, which reached a level of $142 million as of September 30th, 2019, up $14 million in the 3rd quarter.

UDC had warned in the Q2 earnings call that its Chinese customers had purchased materials in excess of demand, citing concerns about the US-China trade war, in the amount of $15-20 million. As a result, material sales to China dropped off in Q3 from $55 million to $23 million, but an increase in revenue from UDC’s biggest customers in Korea pulled revenue up, and Korea represented 72% of UDC revenues in the quarter, as shown in the chart here. UDC recognizes sales for LGD’s OLED TV plant in Guangzhou as sales to China.

UDC Revenue by Country, 2017-3Q 2019

Source: UDC Financial Statements, DSCC Analysis

Based on the strong Q2, UDC once again increased their 2019 full year revenue guidance. UDC’s guidance for 2019 revenues:

  • As of January, was $325 – 350 million
  • In April, was increased to $345 – 365 million
  • In July, was raised to $370 – 390 million
  • In the October earnings call, was again increased to $400-$410 million.

With the increase, UDC’s revenue guidance implies 4th quarter revenues of $96 - $106 million, flat or slightly up Q/Q but an increase of 37-51% over Q4 2018.
Additional notes from the earnings call:

  • UDC used the same language as in prior quarters in describing their blue emitter material development: “we continue to make excellent progress in commercialization of a blue emitter system”. UDC said that they cannot predict the timing of such commercialization.
  • UDC announced for the first time that it estimates that year-end capacity for OLED in 2021 will be 50% higher than 2019, as they have similarly said for 2019 over 2017.
  • UDC discussed its cooperation agreements with other material suppliers in response to a question about LG Chem. UDC does not plan to commercialize host materials, it expects that its partners would provide the hosts.
  • UDC has set up technical centers in Korea and Hong Kong. The Hong Kong site is now operational and the Korea site will be completed in the coming months.
  • UDC said that they expect the $15-20 million of excess inventory at Chinese customers from pulled-in material sales in Q2 will be depleted by the end of the year. They declined to give an estimate of how much was depleted in the 3rd quarter.
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Written by

Ross Young