Universal Display Corporation

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. If anyone needs operator assistance, 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, 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 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, 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 followed 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, Daris, 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're 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 optimized our inventory and production mix. This ensures our flexibility to respond, adapt, and lead while staying ahead of the curve with the 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 roadmaps 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 Omnia market research forecasts that 2025 OLED growth will be in the mid-single digits. Looking into three 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 eight-fold improvement in external quantum efficiency, significantly advancing OLED energy efficiency and overall device performance. At the same time, we've delivered an extraordinary 60,000-fold increase in material lifetime, setting new industry benchmarks. Our expanding portfolio of OLED technologies and universal OLED 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, the 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 are 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 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. Adesys' 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 in 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 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 45-cent 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 11th. To learn more about UDC, please visit us at booth number 323. 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 a 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 on 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.

Thank you, Mr. Abramson. We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question is from Brian Lee with Goldman Sachs. Please proceed.

Hey, guys. This is Tyler Bissett on for Brian. Thanks for taking our questions. 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 timeline 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?

Yeah, thanks, Tyler. Thanks for the questions. Yeah, 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. You know, we previously commented that, you know, 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 timeline of introducing into a product are really for our customers and their customers, the OEMs, to speak to. And on pricing, you know, 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 sorts or a potential race towards blue?

Yeah, our customers, and we've 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.

All right, thank you very much.

Thanks.

Our next question is from James Rashudi with Needham & Company. Please proceed.

Hi, thanks. I guess we'll have to continue on the Blue theme. You know, 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 GV solution. How far along are we there? I mean, is that months 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 our, you know, 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 better 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 in 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 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 the more commercial solution that we see, a combination of blue fluorescence and phosphorescence?

I think it's really going to depend on the customer. I think this is an 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 by replacing the fluorescent with phosphorescent, you're able to increase the energy efficiency as noted in the release today.

Thanks. I'll jump back in the queue. Appreciate it.

Thanks, Jim.

Our next question is from Mehdi Hasini with SIG. Please proceed.

Yes. Thanks for taking my question. A couple of follow-ups from me, Brian. I think I understand the challenges in forecasting and market adoption, but I think also it will be helpful for shareholders of UDC understand the market development. So if LG's announcement is kind of a hyper fluorescent 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 standalone, then it would have a wider adoption. Could we think about this of the sequencing, a bridge, and then a mass adoption? Is that a fair assessment? And I have a follow-up.

Sure. Hi, Mehdi. 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 UDC. 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 and 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?

Yeah, 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.

Okay.

Thank you. Thanks.

Our next question is from Scott Serrell with Roth Capital Partners. Please proceed.

Hey, guys. Thanks for taking the questions. I apologize. I'm going to go back to blue again. I just want to clarify that, you know, the LG implementation, in terms of universal displays materials you have hit commercial specs is that correct in terms of their implementation and not using a 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

Yeah, Scott, so in terms of the specs, I mean, we've been, you know, previously talking about specs being achieved, and we previously said that, you know, a customer using our material in an application that was deemed commercial would be, you know, a positive step forward. So that release today from LG Display, we think, you know, demonstrates that our material, you know, is performing at commercial levels. And in terms of the, you know, ultimate material consumption, you know, 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've started to see what you, I think, are deeming 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? Thanks.

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 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 know, that we do think that's pull in from, you know, following months and the full year, we still have the same guidance of 640 to 700 million.

Great. Thank you.

Thanks, Scott.

As a reminder, just star one on your telephone keypad if you would like to ask a question. Our next question is from Nam Kim with Arita Research. Please proceed.

Thank you for taking my question. One more follow up on blue. For this commercial OLED panel from LG Display News, do they use your blue host material? or only dope material? I know you guys have been preparing for Bluehost as well. So just curious on this. And then, secondly, on this press release, it seems to relate to an IT device. Most IT devices today already use tandem structure. So in that sense, it's nothing new. However, how should I interpret their work on single stack structure, any color, you can share with anybody. Great. Thank you.

Thanks, Dan. So on the host, we've been selling Bluehost and Emitter to various customers. We can't comment specifically on LG's recipe that they used for the panel they produced and announced today. And on the product, 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.

Understand. Thank you.

Thanks.

Our next question is from Eddie Araby with TD Cowen. Please proceed.

Hey, guys. This is Eddie for Krish. Just a clarification. I know this question was asked several times on this call. 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 phosphorous.

Sure. So, Eddie, the release today from LG Display did reference use 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.

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

Yeah, so on the foldables, the way of thinking about it is square area. So 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 in 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 and Company. Please proceed.

Hi. Thank you for taking my question. The first question is regarding things to look forward to before we see product shipping with U of 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 their 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.

Thanks, Brian. 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, you know, their product to bring to market and bring to the OEMs.

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

Yeah, 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.

Got it. Thank you. That's it for me.

Thanks, Martin.

As a reminder, it is star 1 on your telephone keypad if you would like to ask a question. Our next question is a follow-up from Jim Rusciutti with Needham & Company. Please go ahead.

Brent, 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, you know, potentially pulling from 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. And we also need to see, you know, exactly how May, June plays out. But the full year we still think is, you know, within that 640 to 700 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?

Yeah, 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 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 may be just getting a little confused. I thought initially you were anticipating... OPEX to be up in 25, but you basically had been saying flat?

Yeah, we've been expecting SG&A to be, you know, slightly up and R&D to be pretty flat and in aggregate, you know, 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.

Okay, great.

Thank you. Thanks, Jim.

Our next question is from Scott Cero with Roth Capital Partners. Please proceed.

Just a quick question on Tandem. You know, given the announcement from LG today, you know, 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. Thanks.

Yeah, 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 two 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. 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 a 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. Great. Thank you. Thanks, Scott.

Thank you. 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.