Universal Display Announces 2Q 2018 Financial Results

Universal Display reported financial results for the second quarter ended June 30, 2018.
 
“In the second quarter, we saw material sales improving off what we believed to be a first quarter ‘bottom’ for material shipments,” said Sidney D. Rosenblatt, EVP and CFO of Universal Display. “With anticipated new OLED product launches from leading OEMs around the world, we continue to expect an additional pick-up in orders and revenues in the second half of the year. As we look to 2019, we continue to anticipate it to be a meaningful year of growth.
 
“We believe that 2019 is poised to be a pivotal year for the OLED industry,” Rosenblatt added. “With the multi-year OLED capex growth cycle of new production lines, the landscape of OLED capacity is expected to significantly widen. This, we believe, will drive broader adoption of OLEDs across the consumer electronics market, and fuel substantial growth in the OLED industry. Additionally, we expect the long-awaited introduction of the world’s first foldable OLED product next year to pave the cutting-edge and innovative form factor path. From conformable, to foldable, to rollable, the disruptive and exciting force of OLEDs promises to enlarge the industry with new applications and new markets the imagination has yet to devise.”
 
Effective Jan. 1, 2018, Universal Display adopted ASC Topic 606 using the “modified retrospective” approach, meaning the standard was applied only to the financial results of the first quarter of 2018 with a cumulative adjustment to retained earnings. Under this transition method, the company applied the standard only to contracts that were not complete at the initial adoption date.
 
Total revenue decreased 45% to $56.1 million in the second quarter of 2018, compared with $102.5 million in the second quarter of 2017. Total revenue for the second quarter of 2018 would have been $73.6 million, or $17.5 million higher without the impact of ASC Topic 606. Under ASC Topic 606, license fee revenue is recognized on a per gram sales basis, whereas under the previous rules, revenue was recognized for license payments upon receipt or on a straight-line basis over the term of the contract. In the previous year, a $45.0 million semi-annual license fee payment was receipted from SDC in the second quarter of 2017 and included in the prior year’s revenue.
 
Revenue from material sales decreased 21% to $36.8 million in the second quarter of 2018, compared with $46.8 million in the second quarter of 2017. The company believes that the decline in material sales was due to weak OLED panel demand resulting from the softness in the premium smartphone market, and material inventory pre-purchases that occurred in 2017.
 
Revenue from royalty and license fees decreased 71% to $15.5 million in the second quarter of 2018, compared with $53.7 million in the second quarter of 2017. Revenue from royalty and license fees for the second quarter of 2018 would have been $33.9 million, or $18.4 million higher without the impact of ASC Topic 606.
 
Operating income decreased by $49.6 million to $10.9 million in the second quarter of 2018, compared with $60.5 million in the second quarter of 2017. Net income decreased by $36.4 million to $10.8 million or $0.23 per diluted share in the second quarter of 2018, compared with $47.2 million or $0.99 per diluted share in the second quarter of 2017.
 
Total revenue decreased 37% to $99.7 million in the first half of 2018, compared with $158.1 million in the first half of 2017. Total revenue would have been $141.8 million in the 2018 period, or $42.1 million higher, without the impact of ASC Topic 606.
 
Revenue from material sales decreased 34% to $62.1 million in the first half of 2018, compared with $93.5 million in the first half of 2017. The company believes that the decline in material sales was due to weak OLED panel demand resulting from the softness in the premium smartphone market, and material inventory pre-purchases that occurred in 2017.
 
Revenue from royalty and license fees decreased 48% to $31.4 million in the first half of 2018, compared with $60.7 million in the first half of 2017. Revenue from royalty and license fees would have been $71.0 million in the 2018 period, or $39.6 million higher without the impact of ASC Topic 606.
 
Operating income decreased by $57.2 million to $15.4 million in the first half of 2018, compared with $72.6 million in the first half of 2017.
Net income decreased by $40.8 million to $16.8 million or $0.35 per diluted share in the first half of 2018, compared with $57.6 million or $1.21 per diluted share in the first half of 2017.