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Universal Display Preps for a Better Second Half

Steve Symington, The Motley Fool

Universal Display Corporation (NASDAQ: OLED) released impressive second-quarter 2018 results on Thursday after the market closed, detailing improved phosphorescent OLED material shipments ahead of an expected ramp in product launches from the world's biggest electronics manufacturers.

With shares up 10% in after-hours trading as of this writing, let's take a closer look at what Universal Display had to say.

Colorful triangle-shaped OLED lights

IMAGE SOURCE: UNIVERSAL DISPLAY

Universal Display's results: The raw numbers

Metric Q2 2018 Q2 2017 Year-Over-Year Growth

GAAP* revenue

$56.1 million

$102.5 million

(45.3%)

GAAP net income (loss)

$10.8 million

$47.2 million

(77.1%)

GAAP earnings per share

$0.23

$0.99

(76.7%)

DATA SOURCE: UNIVERSAL DISPLAY CORPORATION. *GAAP = GENERALLY ACCEPTED ACCOUNTING PRINCIPLES 

What happened with Universal Display this quarter?

  • Though we don't normally pay close attention to Wall Street's demands, these results handily exceeded consensus estimates for earnings of $0.15 per share on revenue of $49.6 million. 
  • Similar to last quarter's deceptively strong results, reported revenue and net income this quarter were negatively impacted by Universal Display's adoption of ASC 606 accounting standards at the start of 2018, which changed the way it recognizes license fee revenue.
  • On an adjusted basis -- and keeping in mind last year's second quarter included a $45 million semi-annual license fee payment from Samsung -- total revenue this quarter would have been $73.6 million under its previous (ASC 605) accounting standard, and net income was $25.1 million, or $0.54 per diluted share.
  • OLED material sales revenue declined 21% year over year to $36.8 million, driven by weak OLED panel demand from the premium smartphone market, as well as material inventory pre-purchases in the same year-ago period.
  • As reported, royalty and license fees dropped 71% to $15.5 million, but would have been $33.9 million adjusted for the ASC 606 accounting.
  • Contract research services revenue increased 88% to $3.8 million.
  • Announced a cash dividend of $0.06 per share.
  • Ended the quarter with cash, cash equivalents, and short-term investments of $457.4 million.

What management had to say

Universal Display CFO Sidney Rosenblatt stated that material sales improved from what the company saw as a "bottom" in shipments in the first quarter, adding that it continues to expect an acceleration in orders in the second half. Looking out to next year, he further teased:

We believe that 2019 is poised to be a pivotal year for the OLED industry. 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.

Looking forward

With the usual caveat that the OLED industry remains in "an early state where many variables can have a material impact on its growth," Universal Display reiterated its guidance for reported 2018 revenue to be in the range of $280 million to $310 million. Adjusted for the impact of ASC 606, that top-line outlook would be approximately 10% to 15% higher.

In the end, this was as strong a quarter as investors could have wanted given the current state of the OLED industry. With shares still trading more than 50% below their 52-week high set early this year, and with Universal Display's imminent ramp in growth further stoking the fire, it should be no surprise to see the stock rallying in response right now.

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Steve Symington owns shares of Universal Display. The Motley Fool owns shares of and recommends Universal Display. The Motley Fool has a disclosure policy.