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:
Additional notes from the earnings call:
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