Universal Display Corporation

Good day, ladies and gentlemen, and welcome to Universal Display Third Quarter 2021 Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Darius Liu, Director of Investor Relations. Please proceed.

Thank you and good afternoon, everyone. Welcome to Universal Display's third quarter earnings conference call. Joining me on the call today are Steve Abramson, 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 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, November 4th, 2021. 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.

Thanks, Darius, and welcome to everyone on today's call. We are pleased to report that revenue in the third quarter of 2021 was $143.6 million, Operating profit was $57.7 million, and net income was $46.1 million, or $0.97 per diluted share. See, we'll go into further details on our financials, but first let me provide an update on our outlook on the OLED industry and the company. As we look to the OLED market, we believe that panel makers and OEMs are preparing for a new wave of investment and product proliferation in the coming years. For display makers, there are three large consumer electronic in-market opportunities, smartphones, IT, which includes tablets, laptops, and monitors, and TVs. In addition, there are other budding consumer opportunities, including augmented and virtual reality, smartwatch, gaming, automotive, lighting, and signage markets. So where are we today? As we enter 2021, about one-third of the smartphone market was penetrated by OLEDs. And by year-end, based on market research forecasts, OLED penetration is expected to widen to approximately 45% of the smartphone market. This has been largely driven by OLED adoption broadening beyond the premium segment and into the mid-range, as well as even some low-end smartphones. With more panel makers participating in the smartphone OLED market and panel pricing expected to decline, we believe that penetration is poised to expand further. One of the panel makers investing in smartphone OLED capacity is BOE. BOE has two Gen 6 OLED panel production lines in operation, and according to reports, BOE is currently setting up its third Gen 6 OLED fab in Chongqing, with mass production of the first phase to begin in the second half of 2022. When fully ramped, BOE's three OLED fabs will have a combined total capacity of 144,000 Gen 6 substrate starts per month. In addition, BOE has plans to build a fourth OLED panel production line in southeastern China. Augmenting the growth of the OLED smartphone market is the exciting and burgeoning foldable phone market. Foldable smartphones are widely expected to become the fastest growing phone category, with market research forecasts calling for foldable OLED panel shipments to increase from 10 million units in 2021 to about 67 million units by 2025. Looking forward, what are the additional applications expected to significantly drive growth in the OLED market? Let's start with TVs. OLEDs continue to gain strong traction in the TV market. LG Display noted on its earning call last week that it expects to ship approximately 8 million OLED TVs in 2021, up from last year's 4.5 million units. And for 2022, LGD believes 10 million OLED TV units is an achievable target as it ramps up an additional 30,000 plates per month of Gen 8.5 OLED capacity in Guangzhou, China. From a market penetration standpoint, OLED TVs are expected to make up about 3% of the addressable TV market at the end of 2021. While 3% is a low single-digit number, it also shines a tremendous light on the incredibly large adoption curve potential for OLED TVs. Just to give you some context on what the TV market potential is from a display area perspective, approximately 5% OLED penetration of the TV market is greater than 50% OLED penetration of the smartphone market from a square inch standpoint. That is a lot of substrate area for material players like us. Moving along to the emerging OLED IT market. This market opportunity of laptops, tablets, and monitors has begun to be a focus for OLED manufacturers. As Samsung Display champions the OLED IT adoption charge, we are beginning to see the nascent stages of proliferation in IT applications materialize. As many of you are aware, OLED displays offer more immersive colors, higher contrast ratios, faster response times, and wider viewing angles in LCD panels. Samsung is making good progress in the OLED laptop market, where it is supplying OLED panels to global manufacturers, including Asus, Lenovo, Dell, HP, and Samsung Electronics. So how big of an opportunity is the OLED IT market? Based on market research estimates, OLEDs are expected to account for a mere 2% in the IT market by year end. That means it is an enormous opportunity. and it's an opportunity that an increasing number of OLED panel makers are broadening into. We believe that OLEDs are still in the early innings of a long-term secular growth market. As display makers expand their focus from small to medium and large area, reports are emerging about potential new Gen 6, Gen 8.5, and even Gen 10 OLED capacity plans, new OLED device architectures, and new consumer product roadmaps. that include an expanding portfolio of OLED applications. With this next wave of adoption taking shape, we are fortifying our position as an OLED leader and innovator on multiple fronts. We are leveraging our 25-plus years of pioneering research, know-how, and experience into new materials and new technologies. We are also expanding our footprint building our infrastructure that is designed to drive an effective cost structure and targeting new opportunities. These initiatives will further enable us to provide continued value to our customers while keeping UDC at the forefront of the growing OLED industry. On the full-LED front, the discovery, design, development, and delivery of new and next-generation phosphorescent emissive materials, including new reds, greens, yellows, and hosts, is at the core of our R&D programs. With respect to blue, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system. We believe that a commercial phosphorescent blue is a question of when and not if. We plan to deliver an all-phosphorescent RGB stack, which will further enable higher energy efficiency and high performance for all applications across the consumer landscape. With the largest phosphorescent OLED team in the world, we are driving innovation at the molecular level through new materials and new device architectures. Our approach to our broadening full-led materials portfolio is both extensive and cohesive. This includes our computational, synthetic, mechanistic, and process chemistry expertise, coupled with our physicists, engineers, and technicians. Our development teams work closely with customers as we invent and commercialize next-generation materials to meet panel makers' ever-changing and ever-evolving specifications for color point, efficiency, and lifetime. And our full-on application centers, located in Korea and Hong Kong, provide a localized UDC engineering team to work directly with our customers in developing full-on performance data to support their rapid new product cycle time. The consistent and successful execution of meeting multiple product cycles every year is part of UDC's core strength. It is why we are the key OLED material supplier of choice to the industry and why we have long-term relationships with all the leading OLED panel makers. We take our customers' ambitious targets, fulfill their objectives, and deliver industry-leading materials that drive the ultimate performance of our customers' growing OLED product portfolio. Our long-term partnership with PPG is a principal factor in our ability to accelerate a developmental material to a high-volume commercial material. Through our two decades of cooperation and collaboration, we have cultivated and bolstered our best-in-class manufacturing know-how and expertise. This partnership has enabled us to continuously introduce state-of-the-art phosphorescent emitters to our global customers. Speaking of customers, I would like to share that we've extended our long-term commercial material and license agreements with Tiamat Microelectronics. We are pleased to continue our strong partnership with this leading Chinese panel maker as they continue to advance their OLED presence and expand their OLED portfolio plans. Now, moving along to the OLED technology front. One of the primary R&D programs we are working on is Plasmon FoLED. our fundamental groundbreaking device architecture. While still in research, we believe that the potential benefits to customers in the industry are significant. We estimate that Plasmon OLED has the potential to increase device lifetime by up to 10 times and double the efficiency, which we believe will pave the path for new OLED applications. On the OLED production front, we are in the midst of retrofitting the first phase of a multi-year project at our new manufacturing site in Shannon, Ireland, with our partner of over 20 years, PPG, for the production of our highly efficient, high-performing universal full-lead materials. This new facility will diversify the manufacturing base for our phosphorescent emitters to meet growing OLED market demand and evolving industry requirements. It will be designed to serve all of our customers for red, green, yellow, and in the future, blue emitter production. The site is expected to double our production capacity within the next five years. On the oil and manufacturing front, we have been working on OVJP, or organic vapor jet printing, a novel manufacturing printing process that allows manufacturers to use a gas vapor stream to dry print red, green, and blue small molecule materials directly onto a substrate without the need of a mask set or solvents. In addition to patterning without a mask, OVJP represents a next-generation process platform to enable high-performance device designs with graded and mixed layers. We believe OVJP represents a low-cost, high-performance, high-throughput, highly efficient, large-area pattern OLED manufacturing process platform. Our OVJP team, which consists of approximately 50 people, are continuing the development path for OVJP equipment and an advanced process platform. The OVJP technology development team in Ewing, New Jersey, is working hand-in-hand with the OVJP equipment team in Silicon Valley to advance our commercialization roadmap. The teams are currently working on the key subsystems to prove the viability of OVJP for large area manufacturing. Achieving this milestone is a critical element in the building blocks for our alpha system design. While the commercial launch of OVJP is still a few years away, the estimated multi-billion dollar revenue opportunity is part of our multidimensional approach to long-term growth. For over 25 years, innovation has been and continues to be a primary driving force at UDC. We believe that these near-term, mid-term, and long-term strategic initiatives will further advance our robust OLEM materials and technology leadership and strengthen and support our primary focus of enabling our customer success and therefore our success. On that note, let me turn the call over to Sid.