U.S. Markets open in 7 hrs 9 mins

Universal Display Corporation Announces Fourth Quarter and Full Year 2016 Financial Results

EWING, N.J.--(BUSINESS WIRE)--

Universal Display Corporation (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, 2016.

For the full year 2016, the Company reported revenue of $198.9 million, up from $191.0 million for 2015, primarily driven by higher royalty and license fees and contract research services revenue from our recently completed acquisition, partially offset by lower revenue from commercial material sales. The Company posted operating income of $68.4 million for the year and net income of $48.1 million. These results compare to operating income of $32.3 million and net income of $14.7 million for 2015. The 2015 net income figure includes a $33.0 million write-down of inventory in the second quarter, primarily of an existing host material and associated work-in-process, resulting from a customer’s faster-than-expected reduction in demand for this material. Excluding this item and its associated $2.8 million reduction in income tax expense, non-GAAP net income for 2015 was $44.8 million or $0.94 per diluted share (see “reconciliation of non-GAAP measures” for further discussion of the non-GAAP measures).

“We are pleased to report that 2016 finished on a strong note,” said Sidney D. Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display. “In the fourth quarter, total emitter sales increased 25% sequentially, the adoption of next-generation emitters commenced, and with the robust activity for new UniversalPHOLED materials in the pipeline, we embarked on our next expansion phase with PPG Industries to double our phosphorescent emitter production capacity.”

Rosenblatt continued, “Looking forward, we see extremely positive momentum in our business and believe that we are well positioned to capture the tremendous opportunities in front of us. With our bustling customer pipeline, we have broadened and further increased the depth of our R&D team to respond to the exciting challenges and opportunities in the marketplace for today and tomorrow. We have the innovation, commitment to operational excellence, agility and flexibility to drive the invention and development of the best OLED technologies and phosphorescent materials for our customers and partners worldwide.”

Financial Highlights for the Fourth Quarter of 2016

Total revenue was $74.6 million, up 20% from the fourth quarter of 2015, driven by material sales of $29.2 million, up 5% and royalty and license fees of $43.6 million, up 27%, on a year-to-year basis. Contract research services revenue generated from the wholly-owned subsidiary Adesis, Inc. was $1.8 million. The Company recognized $37.5 million in SDC licensing revenue, up from $30 million in the same quarter of 2015.

The Company reported operating income of $34.8 million for the fourth quarter of 2016, up 31% compared to $26.6 million for the fourth quarter of 2015. Cost of sales was $9.1 million, up from $8.1 million, and operating expenses were $30.7 million, up from $27.6 million.

Net income for the fourth quarter of 2016 was $25.8 million, or $0.55 per diluted share, compared to $18.1 million, or $0.39 per diluted share, for the fourth quarter of 2015.

Financial Highlights for the Full Year 2016

Revenue for the full year 2016 was $198.9 million, up 4% from $191.0 million for the prior year. Material sales were $99.3 million, down 12% from $113.1 million for the prior year, primarily due to a decline in host sales of $11.1 million. Royalty and license fees were $96.1 million, up $18.3 million from $77.8 million for the prior year, reflecting the $15.0 million increase SDC license revenue. Contract research services revenue was $3.5 million, compared to $0.2 million for the prior year due to customer sales from the recently acquired Adesis subsidiary.

The Company reported operating income of $68.4 million for the full year 2016, compared to $32.3 million for the prior year. Operating income in the prior year reflected a $33.0 million write-down of inventory, primarily of an existing host material and associated work-in-process. Excluding this item, adjusted operating income for the full year 2015 was $65.3 million (see "reconciliation of non-GAAP Measures" below for further discussion of the non-GAAP measures included in this release).

For the full year 2016, the Company reported net income of $48.1 million, or $1.02 per diluted share. Net income in the full year 2016 included an increase in amortization expense of $5.5 million associated with the purchase of the BASF OLED IP assets and the acquisition of Adesis, or a reduction of $0.08 per diluted share. These results compare to net income of $14.7 million, or $0.31 per diluted share, for the prior year. Excluding the inventory write-down, and the associated $2.8 million reduction of income tax expense, adjusted net income for the prior year was $44.8 million, or $0.94 per diluted share.

Operating cash flow for the full year 2016 was $80.3 million, compared to $113.6 million for the prior year. Operating cash flow for the full year 2015 included an upfront $42.0 million license and royalty payment.

The Company’s balance sheet remained strong, with cash and cash equivalents and investments of $343.0 million as of December 31, 2016. During the year, the Company added $96.0 million in intangible assets in the form of acquired license rights and know-how with the BASF patent acquisition, and the Adesis acquisition added $16.8 million in intangible assets in the form of customer relationships, internally developed IP and trade names as well as $15.5 million of goodwill.

2017 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 $230 million to $250 million for fiscal 2017.

Dividend

The Company also announced a cash dividend today of $0.03 per share on the Company’s common stock. The dividend is payable on March 31, 2017, to all shareholders of record as of the close of business on March 15, 2017.

Conference Call Information

In conjunction with this release, Universal Display will host a conference call on Thursday, February 23, 2017 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 1-888-525-6276 (toll-free) or 1-719-325-2425, and reference conference ID 1207105. 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.

Upcoming Investor Events

On March 15, 2017, Universal Display Corporation will present at the Goldman Sachs Third Annual Innovation Symposium to be held in New York City. The event will not be webcasted.

About Universal Display Corporation

Universal Display Corporation (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 4,200 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.

Based in Ewing, New Jersey, with international offices in China, Hong Kong, Ireland, Japan, South Korea, and Taiwan, 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., Innolux Corporation, Kaneka Corporation, Konica Minolta Technology Center, Inc., LG Display Co., Ltd., Lumiotec, Inc., OLEDWorks LLC, OSRAM, Pioneer Corporation, Samsung Display Co., Ltd., 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, 2016. Universal Display Corporation disclaims any obligation to update any forward-looking statement contained in this document.

Follow Universal Display Corporation

Twitter
Facebook
YouTube

(OLED-C)

 

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 
    December 31, 2016   December 31, 2015
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 139,365 $ 97,513
Short-term investments 188,644 297,981
Accounts receivable 24,994 24,729
Inventory 17,314 12,748
Deferred income taxes 8,661 12,326
Other current assets   6,392   2,387  
Total current assets 385,370 447,684

PROPERTY AND EQUIPMENT, net of accumulated depreciation of $32,167 and $27,897

27,203 22,407

ACQUIRED TECHNOLOGY, net of accumulated amortization of $70,714 and $54,837

152,127 72,015
OTHER INTANGIBLE ASSETS, net of accumulated amortization of $615 and none 16,225
GOODWILL 15,535
INVESTMENTS 14,960 2,187
DEFERRED INCOME TAXES 15,832 14,945
OTHER ASSETS   307   174  
TOTAL ASSETS $ 627,559 $ 559,412  
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,112 $ 6,849
Accrued expenses 19,845 17,387
Deferred revenue 10,282 10,107
Other current liabilities   1,967   167  
Total current liabilities 40,206 34,510
DEFERRED REVENUE 31,322 35,543
RETIREMENT PLAN BENEFIT LIABILITY   27,563   22,594  
Total liabilities   99,091   92,647  
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, 48,270,990 and 48,132,223 shares issued, and 46,913,127 and 46,774,360 shares outstanding at December 31, 2016 and December 31, 2015, respectively 483 482
Additional paid-in capital 604,364 589,885
Accumulated deficit (25,557 ) (73,627 )
Accumulated other comprehensive loss (10,666 ) (9,819 )
Treasury stock, at cost (1,357,863 shares at December 31, 2016 and December 31, 2015)   (40,158 )   (40,158 )
Total shareholders’ equity   528,468   466,765  
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY $ 627,559 $ 559,412  
 
 

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

(Unaudited)

 
    Three Months Ended December 31,
2016     2015
REVENUE:
Material sales $ 29,201 $ 27,796
Royalty and license fees 43,563 34,441
Contract research services   1,813     75  
Total revenue   74,577     62,312  
COST OF SALES   9,094     8,085  
GROSS MARGIN 65,483 54,227
OPERATING EXPENSES:
Research and development 11,182 12,643
Selling, general and administrative 10,148 8,902
Amortization of acquired technology and other intangible assets 5,453 2,750
Patent costs 1,774 1,505
Royalty and license fees   2,167     1,807  
Total operating expenses   30,724     27,607  
OPERATING INCOME 34,759 26,620
Interest income, net 569 222
Other (expense) income, net   54      
Interest and other (expense) income, net   623     222  
INCOME BEFORE INCOME TAXES 35,382 26,842
INCOME TAX EXPENSE   (9,563 )   (8,754 )
NET INCOME $ 25,819   $ 18,088  
 
Net income per common share:
Basic $ 0.55 $ 0.39
Diluted $ 0.55 $ 0.39

Weighted average shares used in computing net income per common share:

Basic 46,905,341 46,675,225
Diluted 47,038,323 46,864,535
 
 

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except share and per share data)

 
    Year Ended December 31,
2016     2015
REVENUE:
Material sales $ 99,285 $ 113,066
Royalty and license fees 96,132 77,773
Contract research services   3,469     207  
Total revenue   198,886     191,046  
COST OF SALES   26,288     62,997  
GROSS MARGIN 172,598 128,049
OPERATING EXPENSES:
Research and development 42,744 44,641
Selling, general and administrative 32,876 29,046
Amortization of acquired technology and other intangible assets 16,493 10,999
Patent costs 6,249 5,717
Royalty and license fees   5,823     5,370  
Total operating expenses   104,185     95,773  
OPERATING INCOME 68,413 32,276
Interest income, net 2,113 783
Other (expense) income, net   (1,928 )    
Interest and other (expense) income, net   185     783  
INCOME BEFORE INCOME TAXES 68,598 33,059
INCOME TAX EXPENSE   (20,528 )   (18,381 )
NET INCOME $ 48,070   $ 14,678  
 
Net income per common share:
Basic $ 1.02 $ 0.31
Diluted $ 1.02 $ 0.31

Weighted average shares used in computing net income per common share:

Basic 46,408,460 46,816,394
Diluted 46,535,980 47,494,188
 
 

UNIVERSAL DISPLAY CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 
    Year Ended December 31,
2016     2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 48,070 $ 14,678
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred revenue (7,406 ) (8,994 )
Depreciation 4,270 3,086
Amortization of intangibles 16,492 10,999
Inventory write-down 33,000
Amortization of premium and discount on investments, net (1,830 ) (697 )
Stock-based compensation to employees 11,374 9,173
Stock-based compensation to Board of Directors and Scientific Advisory Board 1,715 1,291
Deferred income tax benefit 3,094 7,137
Excess tax benefits from share-based payment arrangements (4,232 )
Retirement plan benefit expense 3,965 3,354
Decrease (increase) in assets, net of effect of acquisition:
Accounts receivable 1,205 (2,654 )
Inventory (4,460 ) (8,639 )
Other current assets (3,870 ) 1,969
Other assets (133 ) 251
Increase (decrease) in liabilities, net of effect of acquisition:
Accounts payable and accrued expenses 4,362 790
Other current liabilities 4,362 56
Deferred revenue   3,360     48,812  
Net cash provided by operating activities   80,338     113,612  
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (7,300 ) (5,103 )
Purchase of intangibles (95,989 )
Purchase of business, net of cash acquired (33,380 )
Purchases of investments (450,277 ) (691,876 )
Proceeds from sale of investments   548,474     638,411  
Net cash used in investing activities   (38,472 )   (58,568 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 439 354
Repurchase of common stock
Proceeds from the exercise of common stock options 185 2,034
Payment of withholding taxes on stock-based compensation to employees (4,870 ) (5,337 )
Excess tax benefits from share-based payment arrangements   4,232      
Net cash used in financing activities   (14 )   (2,949 )
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 41,852 52,095
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR   97,513     45,418  
CASH AND CASH EQUIVALENTS, END OF YEAR $ 139,365   $ 97,513  
The following non-cash activities occurred:
Unrealized loss on available-for-sale securities $ (207 ) $ (129 )

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 1,105 967
Net change in accruals for purchases of property and equipment (103 ) 467
Earnout liability recorded for Adesis acquisition 1,670
Excess tax benefits accrued in other current liabilities (4,232 )
Cash paid for income tax, net 12,870 10,364
 

Reconciliation of non-GAAP measures

 
The following table details our reconciliation of non-GAAP measures to the most directly comparable GAAP measures:
 
 
(in thousands, except per share data)     Three Months Ended December 31, 2016
2016     2015
Cost of commercial material sales reconciliation
Cost of commercial material sales $ 6,333 $ 8,085
Cost of commercial material sales adjustments:
Inventory write-down        
Adjusted cost of commercial material sales $ 6,333   $ 8,085  

Cost of commercial material sales as a % of commercial material sales

28 % 34 %

Adjusted cost of commercial material sales as a % of commercial material sales

28 % 34 %
 
Operating income reconciliation
Operating income $ 34,759 $ 26,620
Operating income adjustments:
Inventory write-down        
Adjusted operating income $ 34,759   $ 26,620  
Operating income as a % of total revenue 47 % 43 %
Adjusted operating income as a % of total revenue 47 % 43 %
 
Net income reconciliation
Net income $ 25,819 $ 18,088
Net income per share:
Basic $ 0.55 $ 0.39
Diluted $ 0.55 $ 0.39
Net income adjustments:
Inventory write-down
Income tax effect of inventory write-down
Deferred income tax expense
Release of income tax valuation write-down        
Adjusted net income* $ 25,819   $ 18,088  
Net income as a % of total revenue 35 % 29 %
Adjusted net income as a % of total revenue 35 % 29 %
Adjusted net income per share:
Basic ** $ 0.55 $ 0.39
Diluted *** $ 0.55 $ 0.39

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

Basic 46,905,341 46,675,225
Diluted 47,038,323 46,864,535
 
_______________
*   Adjusted net income per share, basic and diluted is derived from dividing adjusted net income by the number of weighted average shares used in computing basic and diluted net income per share.
 

Reconciliation of non-GAAP measures

 
The following table details our reconciliation of non-GAAP measures to the most directly comparable GAAP measures:
 
   
(in thousands, except per share data) Year Ended December 31, 2016
2016     2015
Cost of commercial material sales reconciliation
Cost of commercial material sales $ 18,609 $ 62,997
Cost of commercial material sales adjustments:
Inventory write-down       33,000  
Adjusted cost of commercial material sales $ 18,609   $ 29,997  

Cost of commercial material sales as a % of commercial material sales

22 % 62 %

Adjusted cost of commercial material sales as a % of commercial material sales

22 % 30 %
 
Operating income reconciliation
Operating income $ 68,413 $ 32,276
Operating income adjustments:
Inventory write-down       33,000  
Adjusted operating income $ 68,413   $ 65,276  
Operating income as a % of total revenue 34 % 17 %
Adjusted operating income as a % of total revenue 34 % 34 %
 
Net income reconciliation
Net income $ 48,070 $ 14,678
Net income per share:
Basic $ 1.02 $ 0.31
Diluted $ 1.02 $ 0.31
Net income adjustments:
Inventory write-down 33,000
Income tax effect of inventory write-down (2,836 )
Deferred income tax expense
Release of income tax valuation write-down        
Adjusted net income* $ 48,070   $ 44,842  
Net income as a % of total revenue 24 % 8 %
Adjusted net income as a % of total revenue 24 % 23 %
Adjusted net income per share:
Basic ** $ 1.02 $ 0.96
Diluted $ 1.02 $ 0.94

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

Basic 46,408,460 46,816,394
Diluted 46,535,980 47,494,188
 
_______________
*   Adjusted net income assumes an effective tax rate of 32% for the year ended December 31, 2015, based on excluding the impact of the inventory write down.
** Adjusted net income per common share, basic, is derived from dividing adjusted net income by the number of weighted average shares used in computing basic net income per common share.
 

Non-GAAP Measures

To supplement Universal Display Corporation’s 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 operating income, adjusted cost of material sales, 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 effect of the write-down of primarily existing host materials that were not included in its customer’s new products as well as excluding the effect of the release of income tax valuation allowances. Universal Display has provided these non-GAAP measures, which the Company believes more accurately reflect the operating performance of its ongoing business, to enhance investors’ overall understanding of its 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.

View source version on businesswire.com: http://www.businesswire.com/news/home/20170223006566/en/