Universal Display Corporation

Good day, ladies, gentlemen, and welcome to Universal Display Corporation's fourth quarter and full year 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. 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 Daris Liu, Senior Director of Investor Relations. Please proceed.

Thank you. Good afternoon, everyone. Welcome to Universal Display's fourth 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 that 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, February 23, 2022. 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. The universal display disclaims any obligation to update any of these statements. Now, I would like to turn the call over to Steve Abramson.

Thanks, Darius, and welcome to everyone on today's call. We are pleased to report our fourth quarter and full year 2021 results. 2021 revenue was a record high of $554 million. Operating income was $228 million, and net income was $184 million, or $3.87 per diluted share. Fourth quarter revenue was $146 million. Operating income was $56 million, and net income was $46 million, or $0.96 per diluted share. For 2022, we expect the OLED industry to continue to grow with further adoption across a broadening range of consumer products, from micro displays for AR and VR, to smartwatches, smartphones, automotive, foldables, and notably IT, where we are seeing a significant increase in interest and product roadmap activity to bright, beautiful, brilliant TVs. Momentum in the OLED industry continues to grow, and we expect to grow with it. Based upon current estimates and expectations, we believe our 2022 revenues will be in the range of $625 to $650 million. Sid will provide further details shortly. Looking back on 2021, we continue to build on our strong partnerships, advance our innovation engine, enhance our corporate culture, and fortify our leadership position, all of which bolsters our first mover advantage in the OLED ecosystem and strengthens our runway of growth. On the customer partnership front, we extended our long-term agreements with LG Display, VisionOx Technology, and TMI Microelectronics. On the global manufacturing front, We announced, with our foundry partner of over 20 years, PPG, the establishment of a new manufacturing site in Shannon, Ireland, for the production of our highly efficient, high-performing universal full-lead materials. With the proliferation of OLEDs expected to grow for the foreseeable future, we are increasing our OLED emitter production capacity to meet our customers' increasing needs. This new site will also broaden and diversify our global, manufacturing footprint. 2021 was another year of continued recognition for the company. We were recognized by the Financial Times as one of the America's fastest growing companies. And just a few weeks ago, we were named the Forbes list of America's best midsize companies. For over two and a half decades, we have focused on cultivating and fostering a global culture that promotes inclusion, inventiveness, integrity, and imagination. We are committed to advancing our efforts around sustainability through innovation and continuous improvement. During the year, we were named by Newsweek as one of America's most responsible companies for the second year in a row, awarded a silver rating for corporate social responsibility from EcoVedas, a leading provider of business sustainability ratings, and recognized again by the Forum of Executive Women as a champion of board diversity. Additionally, We achieved ISO 45001 certification in 2021, an internationally recognized standard that emphasizes the continual improvement of an occupational health and safety management system. This certification, coupled with our other certifications of ISO 9001 and ISO 14001, reinforces our corporate commitment towards best international practice. On the research and development front, we remain at the forefront of energy-efficient OLED solutions and best-in-class enabling OLED technologies. Our team of scientists and engineers are continually imagining, inventing, and commercializing highly efficient and cost-effective OLED material solutions and technologies, including novel device architectures as well as advancing our groundbreaking OVJP manufacturing platform. On the OVJP front, we are making continued advancements with our trailblazing manufacturing platform. As the OVJP team steadily progresses with constructing the key subsystems of our alpha system design, our potential partnership discussions are evolving and progressing well. While the commercial system is still a few years away, we believe that OVJP will pave a path for high-value manufacturing large-area RGB OLED TV panels and develop into a multibillion-dollar market opportunity. On the materials front, our portfolio of leading-edge, energy-efficient, high-performing phosphorescent materials continues to broaden with next generation's reds, greens, yellows, and hosts. With respect to blue, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system. Given recent advancements, we believe that we are on track to meet preliminary target specs with our phosphorescent blue by year end, which should enable the introduction of our all-phosphorescent RGB stack into the commercial market in 2024. We believe that the commercial introduction of our full-color emissive stack will unlock a vast array of opportunities for higher energy efficiency and higher performance across a broad range of OLED applications. On the OLED consumer market front, from the introduction of its new Galaxy S22 smartphones and Tab S8 Plus and S8 Ultra tablets two weeks ago, to the success of its foldable Galaxy Z series, where sales more than quadrupled year over year in 2021, To the unveiling of its hybrid QD OLED TV last month at CES, Samsung's portfolio of OLED products continues to broaden, and 2022 is expected to be another year of OLED product expansion. LG Display continues to ramp up its OLED TV production. For 2022, LGD plans to increase its OLED TV shipments to almost 10 million units, up from slightly under 8 million units in 2021. Augmenting their growth will be the commercial introduction of its new 42-inch and 97-inch OLED TV panels. On the small and medium front, LGD announced that it was investing in new Gen 6 OLED capacity as the company looks to expand its share in the smartphone, automotive, and IT OLED market. Towards the end of 2021, BOE began mass production of Phase 1 in its third OLED fab in Chongqing, which has a design monthly output of 48,000 flexible Gen 6 panels. BOE has also been working closely with ASUS, and at CES, ASUS unveiled the world's first 17.3-inch foldable OLED laptop. OLED IT product with the form factor versatility of being used as a PC monitor, laptop, or tablet using BOE's flexible OLED panel. Last week, Tianma held a production commencement ceremony for its new Gen 6 flexible fab in Xiamen. The total investment of the project is approximately $7.6 billion, which reportedly makes it the largest single high-tech investment in Xiamen history. This OLED plant is also designed for 48,000 substrate starts per month. China Star is in the midst of ramping its Gen 6 flexible OLED capacity at its Wuhan plant. After installing Phase 2 and Phase 3 equipment last year, China Star's first OLED fab now has a monthly installed capacity of 45,000 substrate starts. And Visionox's new Gen 6 flexible OLED slab in Hefe has been fully ramped and is capable of manufacturing 30,000 plates per month. The proliferation of OLED is still at a young state. As OLED penetration in the smartphone market reaches 50% or approximately 675 million units we believe a significant new wave of capital investment plans for medium and large area OLED displays is beginning to form, where OLED penetration is only 2% in the IT market and only 3% in the TV market today. From an OLED capacity standpoint, year-end 2021 installed base of OLED square meter capacity increased by approximately 40% over year-end 2019. and a few installed timelines were shifted. The multi-year capex cycle of the last six years has led to a sizable increase in the number of OLED fabs, from less than a handful of manufacturing plants to approximately two dozen OLED fabs today, or an increase of over five-fold. As we look out, we are currently tracking about 10 expansion projects in Korea and China for the coming 24 months. We estimate that these new expansion phases will result in year-end 2023 installed OLED capacity as measured in square meters to increase by approximately 20 to 25 percent over year-end 2021. As panel makers continue to invest in OLED expansion capacity, a new wave of medium and large area OLED investments is beginning to take shape. Driven by an intensifying push from leading OEMs for OLED IT products and increasing strength in the OLED TV market, a significant new wave of Gen 6 and Gen 8.5 OLED capacity plans are reportedly in the works. Last week, DSCC announced that there are 11 different Gen 8.5, Gen 8.6 IT OLED lines under development. According to the market research firm, IT fab spending is expected to increase every year from 2021 to 2025 and lead OLED spending in 2024 and 2025. All of this, we believe, translates into the continuation and expansion of the OLED industry's multi-year capex cycle. On the lighting front, while we are still in the early commercialization stage, we are seeing advances in OLED lighting for the automotive market. Last month, OLEDworks showcased its next-generation high brightness and segmentation automotive OLED lighting at CES. According to OLEDworks, automotive designers can take advantage of the unique characteristics of OLED taillights, which include brightness and color uniformity, lightweight and ultra-thin form factor. On that note, let me turn the call over to CES.