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Universal Display Corporation Announces Fourth Quarter and Full Year 2017 Financial Results
[February 22, 2018]

Universal Display Corporation Announces Fourth Quarter and Full Year 2017 Financial Results


Universal Display Corporation (Nasdaq: OLED), enabling energy-efficient displays and lighting with its UniversalPHOLED® technology and materials, today reported financial results for the fourth quarter and year ended December 31, 2017.

"We are pleased to report stellar fourth quarter and full-year results," said Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display. "From record-high revenues, to a multitude of new agreements and new OLED consumer electronic products, to approximately doubling our production capabilities at PPG Industries, 2017 was filled with tremendous growth. The dynamic OLED market is growing, and as a key innovation partner to the world's leading OLED display and lighting manufacturers, we believe that we are well-positioned to participate in the vast opportunities ahead."

Rosenblatt continued, "We are excited and confident of our upward trajectory in this multi-year OLED capex growth cycle. After an extraordinary year-and-a-half of new capacity installs, we expect industry capacity growth to take a bit of a breather this year as panel makers build the framework for the next wave of high volume OLED production, which is expected to ramp next year. 2019 is poised to be a meaningful year of growth. Based on current production timelines, we estimate the installed capacity base, as measured in square meters, will increase by approximately 50% over the next two years."

Financial Highlights for the Fourth Quarter of 2017

  • Total revenue increased 55% to $115.9 million in the fourth quarter, compared with $74.6 million in the fourth quarter of 2016, driven by higher material sales as well as royalty and license fees.
  • Revenue from material sales increased 105% to $59.8 million in the fourth quarter, compared with $29.2 million in the fourth quarter of 2016.
  • Revenue from royalty and license fees increased 23% to $53.8 million in the fourth quarter, compared with $43.6 million in the fourth quarter of 2016.
  • Operating income increased by $23.1 million to $57.9 million in the fourth quarter, compared with $34.8 million in the fourth quarter of 2016.
  • Net income increased by $7.0 million to $32.8 million or $0.69 per diluted share in the fourth quarter, compared with $25.8 million or $0.55 per diluted share in the fourth quarter of 2016.
  • Excluding the effects of the Tax Cuts and Jobs Act income tax expense of $11.5 million, net income was $44.3 million or $0.93 per diluted share for the fourth quarter of 2017.

Financial Highlights for the Full Year of 2017

  • Total revenue increased 69% to $335.6 million in the full year, compared with $198.9 million in the full year of 2016, driven by higher material sales as well as royalty and license fees.
  • Revenue from material sales increased 102% to $200.3 million in the full year, compared with $99.3 million in the full year of 2016.
  • Revenue from royalty and license fees increased 32% to $126.5 million in the full year, compared with $96.1 million in the full year of 2016.
  • Operating income increased by $77.8 million to $146.2 million in the full year, compared with $68.4 million in the full year of 2016.
  • Net income increased by $55.8 million to $103.9 million or $2.18 per diluted share in the full year, compared with $48.1 million or $1.02 per diluted share in the full year of 2016.
  • Excluding the effects of the Tax Cuts and Jobs Act income tax expense of $11.5 million, net income was $115.4 million or $2.43 per diluted share for the full year of 2017.

2018 Guidance

Although the OLED industry is still at an early state where many variables can have a material impact on its growth, and the Company thus caveats its financial guidance accordingly, the Company believes that its revenues will be in the range of $350 million to $380 million for fiscal 2018.

Dividend

The Company also announced a first quarter cash dividend of $0.06 per share on the Company's common stock. The dividend is payable on March 30, 2018, to all shareholders of record as of the close of business on March 15, 2018.

Conference Call Information

In conjunction with this release, Universal Display will host a conference call on Thursday, February 22, 2018 at 5:00 p.m. Eastern Time. The live webcast of the conference call can be accessed under the events page of the Company's Investor Relations website at ir.oled.com. Those wishing to participate in the live call should dial 1-877-524-8416 (toll-free) or 1-412-902-1028. Please dial in 5-10 minutes prior to the scheduled conference call time. An online archive of the webcast will be available within two hours of the conclusion of the call.

About Universal Display Corporation

Universal Display Corporation (Nasdaq: OLED) is a leader in developing and delivering state-of-the-art, organic light emitting diode (OLED) technologies, materials and services to the display and lighting industries. Founded in 1994, the Company currently owns or has exclusive, co-exclusive or sole license rights with respect to more than 4,500 issued and pending patents worldwide. Universal Display licenses its proprietary technologies, including its breakthrough high-efficiency UniversalPHOLED® phosphorescent OLED technology that can enable the development of low power and eco-friendly displays and solid-state lighting. The Company also develops and offers high-quality, state-of-the-art UniversalPHOLED materials that are recognized as key ingredients in the fabrication of OLEDs with peak performance. In addition, Universal Display delivers innovative and customized solutions to its clients and partners through technology transfer, collaborative technology development and on-site training.

Headquartered in Ewing, New Jersey, with international offices in China, Hong Kong, Ireland, Japan, South Korea, and Taiwan, and wholly-owned subsidiary Adesis, Inc. based in New Castle, Delaware, Universal Display works and partners with a network of world-class organizations, including Princeton University, the University of Southern California, the University of Michigan, and PPG Industries, Inc. The Company has also established relationships with companies such as AU Optronics Corporation, BOE Technology, DuPont Displays, Inc., EverDisplay Optronics (Shanghai) Limited, Govisionox Optoelectronics, Innolux Corporation, Japan Display Inc., Kaneka Corporation, Konica Minolta Technology Center, Inc., LG Display Co., Ltd., Lumiotec, Inc., OLEDWorks LLC, OSRAM, Pioneer Corporation, Royole Corporation, Samsung Display Co., Ltd., Sharp Corporation, Sumitomo Chemical Company, Ltd., Tianma Micro-electronics and Tohoku Pioneer Corporation. To learn more about Universal Display Corporation, please visit http://www.oled.com.

Universal Display Corporation and the Universal Display Corporation logo are trademarks or registered trademarks of Universal Display Corporation. All other company, brand or product names may be trademarks or registered trademarks.

All statements in this document that are not historical, such as those relating to Universal Display Corporation's technologies and potential applications of those technologies, the Company's expected results and future declaration of dividends, as well as the growth of the OLED market and the Company's opportunities in that market, are forward-looking financial statements within the meaning of the Private Securities Litigation Reform Act of 1995. You are cautioned not to place undue reliance on any forward-looking statements in this document, as they reflect Universal Display Corporation's current views with respect to future events and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated. These risks and uncertainties are discussed in greater detail in Universal Display Corporation's periodic reports on Form 10-K and Form 10-Q filed with the Securities and Exchange Commission, including, in particular, the section entitled "Risk Factors" in Universal Display Corporation's annual report on Form 10-K for the year ended December 31, 2017. Universal Display Corporation disclaims any obligation to update any forward-looking statement contained in this document.

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UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 
December 31, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 132,840 $ 139,365
Short-term investments 287,446 188,644
Accounts receivable 52,355 24,994
Inventory 36,265 17,314
Deferred income taxes - 8,661
Other current assets   10,276   6,392
Total current assets 519,182 385,370

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $36,368 and $32,167

56,450 27,203
ACQUIRED TECHNOLOGY, net of accumulated amortization of $91,312 and $70,714 131,529 152,127
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $2,000 and $615 14,840 16,225
GOODWILL 15,535 15,535
INVESTMENTS 14,794 14,960
DEFERRED INCOME TAXES 27,022 15,832
OTHER ASSETS   604   307
TOTAL ASSETS $ 779,956 $ 627,559
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 13,774 $ 8,112
Accrued expenses 35,019 19,845
Deferred revenue 14,981 10,282
Other current liabilities   50   1,967
Total current liabilities 63,824 40,206
DEFERRED REVENUE 23,902 31,322
RETIREMENT PLAN BENEFIT LIABILITY   33,176   27,563
Total liabilities   120,902   99,091
SHAREHOLDERS' EQUITY:

Preferred Stock, par value $0.01 per share, 5,000,000 shares authorized, 200,000 shares of Series A Nonconvertible Preferred Stock issued and outstanding (liquidation value of $7.50 per share or $1,500)

2 2
Common Stock, par value $0.01 per share, 100,000,000 shares authorized, 48,476,034 and 48,270,990 shares issued, and 47,118,171 and 46,913,127 shares outstanding at December 31, 2017 and December 31, 2016, respectively 485 483
Additional paid-in capital 611,063 604,364
Retained earnings (accumulated deficit) 99,126 (25,557 )
Accumulated other comprehensive loss (11,464 ) (10,666 )
Treasury stock, at cost (1,357,863 shares at December 31, 2017 and December 31, 2016)   (40,158 )   (40,158 )
Total shareholders' equity   659,054   528,468
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 779,956 $ 627,559

     
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

 

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2017     2016 2017     2016
(Unaudited)
REVENUE:
Material sales $ 59,753 $ 29,201 $ 200,259 $ 99,285
Royalty and license fees 53,798 43,563 126,503 96,132
Contract research services   2,316     1,813     8,867     3,469  
Total revenue 115,867 74,577 335,629 198,886
COST OF SALES   16,936     9,094     54,698     26,288  
Gross margin 98,931 65,483 280,931 172,598
OPERATING EXPENSES:
Research and development 15,045 11,182 49,144 42,744
Selling, general and administrative 15,197 10,148 46,808 32,876
Amortization of acquired technology and other intangible assets 5,498 5,453 21,983 16,493
Patent costs 1,914 1,774 7,010 6,249
Royalty and license expense   3,397     2,167     9,739     5,823  
Total operating expenses   41,051     30,724     134,684     104,185  
OPERATING INCOME 57,880 34,759 146,247 68,413
Interest income, net 966 569 3,294 2,113
Other income (expense), net   3     54     (4 )   (1,928 )
Interest and other income, net   969     623     3,290     185  
INCOME BEFORE INCOME TAXES 58,849 35,382 149,537 68,598
INCOME TAX EXPENSE   (26,036 )   (9,563 )   (45,652 )   (20,528 )
NET INCOME $ 32,813   $ 25,819   $ 103,885   $ 48,070  
NET INCOME PER COMMON SHARE:
BASIC $ 0.70 $ 0.55 $ 2.19 $ 1.02
DILUTED $ 0.69 $ 0.55 $ 2.18 $ 1.02
WEIGHTED AVERAGE SHARES USED IN COMPUTING NET INCOME PER COMMON SHARE:
BASIC 46,750,711 46,905,341 46,725,289 46,408,460
DILUTED 46,826,412 47,038,323 46,805,194 46,535,980
CASH DIVIDENDS DECLARED PER COMMON SHARE $ 0.03 $ - $ 0.12 $ -
 
UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
Year Ended December 31,
2017   2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 103,885 $ 48,070
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred revenue (11,122 ) (7,406 )
Depreciation 4,919 4,270
Amortization of intangibles 21,983 16,492
Amortization of premium and discount on investments, net (2,871 ) (1,830 )
Stock-based compensation to employees 12,284 11,374
Stock-based compensation to Board of Directors and Scientific Advisory Board 2,609 1,715

Change in earnout liability recorded for Adesis acquisition

519 -
Deferred income tax expense 24,396 3,094
Excess tax benefits from share-based payment arrangements - (4,232 )
Retirement plan benefit expense 4,351 3,965
Decrease (increase) in assets, net of effect of acquisition:
Accounts receivable (27,361 ) 1,205
Inventory (18,951 ) (4,460 )
Other current assets (3,884 ) (3,870 )
Other assets (297 ) (133 )
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 16,420 4,362
Other current liabilities (1,917 ) 4,362
Deferred revenue   8,402     3,360  
Net cash provided by operating activities   133,365     80,338  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (29,803 ) (7,300 )
Purchase of intangibles - (95,989 )
Purchase of business, net of cash acquired - (33,380 )
Purchases of investments (594,283 ) (450,277 )
Proceeds from sale of investments   498,508     548,474  
Net cash used in investing activities   (125,578 )   (38,472 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 734 439
Proceeds from the exercise of common stock options 38 185
Payment of withholding taxes on stock-based compensation to employees (9,432 ) (4,870 )
Excess tax benefits from share-based payment arrangements - 4,232
Cash dividends paid   (5,652 )   -  
Net cash used in financing activities   (14,312 )   (14 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,525 ) 41,852
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   139,365     97,513  
CASH AND CASH EQUIVALENTS, END OF YEAR $ 132,840   $ 139,365  
The following non-cash activities occurred:
Unrealized loss on available-for-sale securities $ (19 ) $ (207 )
Common stock issued to the Board of Directors and Scientific Advisory

Board earned and accrued in a previous period

300 300
Common stock issued to employees earned and accrued in a previous period 174 1,105
Net change in accruals for purchases of property and equipment 4,363 (103 )
Earnout liability recorded for Adesis acquisition - 1,670
Excess tax benefits accrued in other current liabilities - (4,232 )
Cash paid for income tax 23,248 12,870

Reconciliation of non-GAAP measures

The following table details the reconciliation of non-GAAP measures to the most directly comparable GAAP measures:

     
(in thousands, except per share data) Three Months Ended

December 31,

Twelve Months Ended

December 31,

2017     2016 2017     2016
(Unaudited) (Unaudited)
Net income reconciliation
Net income $ 32,813 $ 25,819 $ 103,885 $ 48,070
Net income per share:
Basic $ 0.70 $ 0.55 $ 2.19 $ 1.02
Diluted $ 0.69 $ 0.55 $ 2.18 $ 1.02
Net income adjustments:
Tax Cuts and Jobs Act   11,514     -     11,514     -  
Adjusted net income $ 44,327   $ 25,819   $ 115,399   $ 48,070  
Net income as a % of total revenue 28 % 35 % 31 % 24 %
Adjusted net income as a % of total revenue 38 % 35 % 34 % 24 %
Adjusted net income per share:
Basic $ 0.93 $ 0.55 $ 2.43 $ 1.02
Diluted $ 0.93 $ 0.55 $ 2.43 $ 1.02

Weighted average shares used in computing net income per share and adjusted net income per share:

Basic 46,750,711 46,905,341 46,725,289 46,408,460
Diluted 46,826,412 47,038,323 46,805,194 46,535,980
 

Non-GAAP Measures

To supplement the selected financial data presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company uses certain non-GAAP measures. These non-GAAP measures include adjusted net income, adjusted net income per common share, basic and adjusted net income per common share, diluted.

Each of these non-GAAP measures excludes the effects of the Tax Cuts and Jobs Act income tax expense. The Company has provided these non-GAAP measures, which is believed to more accurately reflect the operating performance of our ongoing business, to enhance investors' overall understanding of the current financial performance and period-to-period comparisons. The presentation of non-GAAP measures is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP.


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