Darice Liu - Director of Investor Relations Steve Abramson - President and Chief Executive Officer Sid Rosenblatt - Executive Vice President and Chief Financial Officer.

Rob Stone - Cowen and Company Jim Ricchiuti - Needham & Company Brian Lee - Goldman Sachs Osten Bernardez - Cross Research Jade Dorsheimer - Canaccord Hendi Susanto - Gabelli & Company Andrew Abrams - SCMR LLC.

Good day ladies and gentlemen, and welcome to Universal Display’s Fourth Quarter 2014 Earnings Conference Call. My name is Katherine, and I will be your operator today. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Darice Liu, Director of Investor Relations. Please proceed..

Thank you, Katherine and good afternoon everyone. Welcome to Universal Display’s fourth quarter earnings conference call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Sid Rosenblatt, Executive Vice President and Chief Financial Officer.

Before Steve begins, let me remind you that today’s call is the property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the expressed written consent of Universal Display is strictly prohibited.

Further, the call is being webcast live and will be made available for a period of time on Universal Display’s Web site. This call contains time sensitive information that is accurate only as of the date of the live webcast of this call, February 26, 2015.

All statements in this conference call that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as those relating to Universal Display Corporation’s technologies and potential applications of those technologies, the Company’s expected results, as well as growth of the OLED market, and the Company’s opportunities in that market.

These include, but are not limited to, statements regarding Universal Display’s beliefs, expectations, hopes or intentions regarding the future. It is important to note that these statements are subject to risks and uncertainties that could cause Universal Display’s actual results to differ from those projected.

These risks and uncertainties are discussed in the Company’s periodic reports filed 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 Darice. And welcome to everyone on today’s call. Overall 2014 was a solid year we continued to execute on a high level delivering growth and financial performance in an emerging and evolving industry. We achieved record revenues, record operating profit and record earnings.

Revenues grew 30% to $191 million, operating profit was up 53% to $58.6 million and earnings increased 29% to $41.9 million or $0.90 per diluted share year-over-year. We secured growth in a year when the overall OLED market declined about 5%.

In fact if you look back over the last three years while the OLED market had a compounded annual growth rate or CAGR of 38%, we saw a revenue growth rate of 46% and operating profit growth rate of a 118%, and earnings growth rate of a 134%.

2014 was also another year of company accomplishments including new customer agreements, the introduction of the new red and green commercial emitters and an impressive set of new granted patents. It was also an exciting year for the OLED industry pretty challenging at times.

With the introduction of new OLED wearable mid-end smartphones, tablets and TVs the expanding breadth of OLED products is captivating audiences and driving adoption by new OEMs and consumers. Since inception our innovation strategy has centered on building a robust foundation of best in class technology for superior growth.

Beyond our core competency of phosphorescent technology and material we have been investing in manufacturing and process initiatives including encapsulation of OVJP Organic Vapor Jet Printing, Light Out Coupling, Novel device and architecture structures, flexible panel, solid-state lighting and much more.

The increasingly exceptional value of OLED technology and phosphorescent material has resulted in the industry's growing consensus that UDC is a critical partner to the commercialization of OLEDs in the marketplace. Supporting this consensus is our growing list of partners.

In 2014 we announced a long-term license agreement with Kaneka Corporation for lighting, a commercial material supply agreement with Philips and an extended evaluation agreement with BOE Technology. And just two months into this year we have already signed three long-term license agreements with Sumitomo Chemical, OLEDWorks and LG Display.

LG's license agreement which runs until the end of 2022 is a key partnership milestone for us, but more importantly is the significant inflection point for the industry. We believe this agreement illustrates LG's long-term commitment to expand and accelerate the OLED product roadmap.

The LG license is a conventional royalty group where we've paid ongoing royalties with a quarter lag, Sid will go into more details about this.

On the material side as the OLED industry's sole provider of commercial phosphorescent emitter we will continue to be an integral R&D partner and supplier of our proprietary emission material to all of LG's life.

Switching gears for a moment to solid-state OLED lighting, also principally in the R&D stage more Gs and Rs activity in the OLED lighting pipeline continues to grow. In December Acuity Brands launched the first set of commercial OLED lighting fixtures into the mainstream market at Home Depot.

Last month we signed a long-term license agreement with Sumitomo Chemical for solution process OLED lighting. Last week it was reported that our customer LG Chem is planning to invest KRW200 billion or a $184 million to launch the Gen-5 production line in 2017. During the same week we announced a long-term license agreement with OLEDWorks.

All of this activity is adding up to increased confidence that the OLED lighting market is preparing to transition from development to commercial production in the coming years. Now let me spend a few minutes on where we're in the market, the dynamics driving our business and the company's outlook for 2015.

2015 is poised to be an exciting year and a bit of transitional year. As LGD scales up its TV production line, Samsung introduces new products and flexible display capacity ramps.

All of this is expected to drive the expansion of the OLED product portfolio and attract new OEM adopters which we believe will fuel new capacity plans and drive the OLED market's next wave of robust commercial growth. Capacity as many of you are aware is one of the primary factors to the directional growth of our business.

Earlier this month Samsung Display our top customer and long time close collaborator announced plans to invest KRW4 trillion or $3.6 billion from 2015 to 2017 in OLED production. Plans include a Gen-6 fab with the initial phase of flexible displays ramping in Q2.

Although there have been some minor bumps in the road for the OLED market Samsung is one of the top branded companies in the world and we believe their OLED business will continue to flourish as they broaden their roadmap to include products such as mid-end smartphones like the Galaxy A new series, expand their OEM customer base and launch the next generations of their flagship products including the S6 smartphone.

Shifting to our larger screen size the reviews are in and LG's OLED TV has been applauded as the greatest TV ever.

LG Display is reportedly investing between KRW1 trillion and KRW1.2 trillion or about $1 billion in 2015 to add TV capacity, with plan to sell 500,000 to 600,000 TV panels this year and 1.5 million TV panels next year, LG announced it would add 20,000 plates per of Gen-8 TV capacity in Q4.

Supporting these capacity plans is interest from various OEMs including Haier, [Kanga], [Peng Chong], Skyworth and Panasonic all of which showcase OLED TVs at CES.

Additionally LG has reported that Gen-4.5 flexible display line which is geared for wearable's such as smart watches, and plastic plates mobile phones has an installed capacity of 14,000 plates per month. Outside of Korea we're also seeing OLED activity in Taiwan, China and Japan pick up.

In Taiwan AUO announced it has started to produce OLED panels for smart watches and Foxconn Innolux are reportedly planning to start OLED production in 2016 or 2017. In China there is ongoing developmental activity that we believe will lead to commercial production growth beginning next year.

In Japan JOLED which counts Japan Display, Sony and Panasonic as shareholders was established last month and reprovingly setting up a test production line. Now to guidance. The drive by our customers to commercialized OLED technology is creating significant momentum for the industry and for us. We expect 2015 will be another year of growth.

We believe that the magnitude of that growth will be primarily depending on the timing of a few variables specifically with respect to Samsung how quickly their business grows, which products we use as green host and when do we obtain new host design wins.

With respect to LGD it will be mainly how quickly they ramp their OLED TV production line and flexible wearable businesses. As we have seen in the past a short-term shift in the industry's momentum in either direction can impact our financial results.

And in a transition year like this we're going to approach our guidance differently and provide a base line revenue forecast where we believe there is limited downside but a favorable amount of upside potential.

Taking into account these multiple variables as the industry goes for the next leg of commercialization; our current best estimate is that 2015 revenues will be around $200 million with a downside range of about 5% and upside potential of about 15%.

This includes Samsung's license fee which is $60 million this year as well as the quarter lag in LG royalties taking effect. Now let me turn the call over to Sid..

Thank you, Steve and again thank you everyone for joining our call today. We're pleased to report another record year of revenues, operating profit and net income. It demonstrates great execution by the UDC team in meeting customer needs and driving operational excellence in a highly dynamic emerging growth industry.

It also reflects our position to capture the industry's momentum. Revenues for the year were a $191 million a 30% increase from the $147 million generated in 2013. Material sales for 2014 were a $127 million a 32% increase from $96 million in 2013 of which total commercial material sales were a $115 million up 41% from $81 million in 2013.

The breakdown of commercial material sales by color for 2014 compared to 2013 is total red emitter sales were $18.5 million up 59% year-over-year from 2013 $11.6 million. Total green emitter sales for 2014 were $61.3 million up 54% year-over-year from 2013 $39.9 million.

Total green host sales in 2014 were $34.8 million up 17% year-over-year from 2013's $29.7 million. 2014 operating expenses excluding cost of materials were $91.1 million up 15% from $79.5 million in 2013 and in line with our outlook of a 10% to 15% year-over-year increase.

Operating income was $58.6 million for 2014 up 53% from $38.2 million in 2013 illustrating the strength of the operating leverage in our model. Net income was $41.9 million or $0.90 per share compared to adjusted net income of $32.6 million excluding a one-time net tax benefit or $0.70 per share for 2013.

Moving to the quarter, revenues for the fourth quarter of 2014 reached $56.2 million compared to fourth quarter 2013 revenues of $49.5 million. Royalty and license fees were $28 million which included Samsung's $25 million license fee. The Samsung license fee which was $50 million in 2014 is recognized in the second and fourth quarter of the year.

Total material sales were $28.1 million in the fourth quarter of which commercial was $26.6 million. Material cost for the fourth quarter were $12.1 million up year-over-year from the fourth quarter 2013, 7.7 million. The increase is primarily due to higher volumes product mix and in inventory write down of $3.9 million related to host material.

Absence of write down material gross margin percentage would have been on par with the prior quarter. Fourth quarter operating expenses excluding cost of materials were $27 million up from last quarter's $19.5 million and up year-over-year from the comparable quarters $22.3 million.

The increase is mainly attributable to PPG expenses, increased headcount and compensation accrual. Operating income was $17.1 million for the fourth quarter of 2014 compared to $19.4 for the fourth quarter of 2014. Net income for the fourth quarter was $13.1 million or $0.28 per share.

In the fourth quarter of 2013 there was a one-time net income tax benefit of $41.4 million. Excluding that benefit adjusted 2013 earnings were $16.5 million or $0.35 per share. Absentee inventory write-down operating net income would have been up year over year.

Shifting to the balance sheet, we ended the fourth quarter with $289 million in cash in short-term investments, up from $268 million at the end of the third quarter. The increase was driven primarily by $28 million of cash generated from operations during the quarter; this was partially offset by the repurchase of shares.

On June 2, 2014 the board approved a $50 million stock repurchase program over the course of 12 month. During the quarter we repurchased 242, 034 shares of common stock at a cost of $7 million.

Now looking to 2015, we expect our 2015 revenues to be around $200 million with a downside range of approximately 5% and an upside potential of approximately 15%. Our revenue guidance includes Samsung's license fees which is $60 million this year. Additionally it reflects the impact of the quarter lag and LG's royalty taking effect.

As Steve mentioned in his prepared remarks the LG license is a conventional royalty agreement similar to all our long-term lighting license agreement we are paid ongoing royalties which is based on a percentage of the module sale price.

Licensees January report shipment information 30 to 60 days after the end of the quarter so we recognized royalty revenues with a one quarter lag. For example the LG royalties earn with OLED product shift in the first quarter will be recognized in the second quarter.

This is in addition to upfront license fees which will be recognized throughout the term of the agreement. Overall gross margins are expected to remain unchanged. OpEx excluding cost of material is expected to increase approximately 10% to 15% year-over-year.

And we expect our effective tax rate to be in the range of 29% give or take a few basis points. This transitional year of strategic capacity investment and product expansion is setting the stage for meaningful growth in 2016 and beyond for the market and for us.

As our revenue mirrors are trajectory of the OLED market or even out performed it in the outgoing years, we also expect to expand our operating margins and increased profitability. With that let me turn the discussion back to Steve..

Thanks Sid. At Universal Display our direction and innovations are built around solving our customers' high value problem. As we embark on 2015 we're very excited of the operating from position of strength. We're energized by the great opportunities this year to accelerate our and the OLED industry's momentum.

We remain highly focused on execution building on our technology leadership, growing the company and creating value for our shareholders.

Even as we advance our existing business initiative we are diligently working to invent the future to materials research, technology development and other innovative activities designed to yield new and noble solutions to help enable the OLED markets group. None of this will be possible without the world class talent within Universal Display.

I would like to take a moment to thank our employees for their continued commitment to excellence and innovation. Our solid performance is due to the talent, dedication and hard work of the whole UDC team. In summary the OLED revolution is gaining momentum and so are we.

Our trajectory top line and bottom is poised to the exceptional and positive over the long-term. Our strategic initiatives and robust operating model have created a strategic competitive advantage that translates the strong market leadership revenue growth and profitability.

We're excited about the opportunities that lie ahead as the evolution of the OLED industry continues to gain traction and result in new capacity, new product and new adaptors. On that note operator please start the Q&A..

Thank you. [Operator Instructions] And we'll take our first question from Rob Stone with Cowen and Company..

I wanted to start with your new approach to the guidance sort of the over and under and see if you could provide a little more color on -- I know you won't break this down by a dollars exactly.

But what are the factors you are considering that gets to the potential downside versus upside and specifically if you can how much is in there for host? That’s my first question..

Specifically talking about host, let me get to that in a second. I mean the timing of events is really important, and when things occur while we expect 2015 a year of growth but these things are difficult for us to gauge.

And so we do think there is limited downside and we believe or in the upside there clearly is some things that can occur quicker that will help us. Specifically with host we expect our host sales frankly to be down this year from last year..

And with respect to operating expenses, I was a little surprised by the magnitude of the jump in the fourth quarter that wasn't what we took away from the trend year-to-date or your commentary. If we just analyzed the Q4 run rate then we come out in '15 at something like 19% above what you've spent last year.

So I am assuming that to get to 10% to 15% it will not be at this level throughout the year.

Can you give us any hint on the linearity of expenses through the year?.

It should not be at that fourth quarter level. The fourth quarter always has accruals that are catch-up accruals and so that we expect if you look at the full year's expenses compared to the prior year's and particularly when you looked at and we stated in Q3, Q3 was actually the lowest quarterly expense run rate.

So there were things that particularly with PPG Industries in this quarter that came in -- that effected Q4 compared to Q3. And year-end stock compensation and other accruals in Q4 always are catch-up on depending on what happens.

But on an annual rate we don't expect it to be at 19%, we do believe it will be it will at 10% to 15% run rate going forward..

Should be meaningfully lower in Q1?.

From Q4 I would suspect that would be the case..

Thank you. We'll go on to Jim Ricchiuti with Needham & Company..

I just wanted to again maybe tackle that question about the downside, upside.

Can you say whether that variability lies more with the portable display market or is it more or so towards larger displays?.

I think it is really, one is OLED TV when they really start to ramp I mean there is increased capacity from LG in Q1 but they have talked about increased in Q4, and the second piece has to be how quickly the mobile side recovers.

As we have stated or you can see from the first half of 2014 to the second half of 2014 things form the Samsung side went downhill, and it will take some time for that to recover and some of that would have to be how quickly that recovery occurs.

So I think that's really where the downside potential could be, because you can look at the first half of the year our revenues were 102 million first half of 2014 and the second half they were 89 million.

So you really need to see what the recovery in the second -- in the first half of 2015 looks like because we believe the end of the 2015 will be much better..

And Sid or Steve you both had talked about still pursuing the green host market.

Can you update us on where you stand with that, is that still a major focus for you or are you may be looking at some other opportunities where you might allocate some resources?.

Well host is still an important market for us we had inherent advantage because we designed the emitters and so we design our hosts to match those emitters for a high performing emission system, and we're also designing a host to be competitively priced.

So if we can deliver a good quality host at a good price we believe we're well positioned to participate in that business..

Is there any update on where you stand with some of the new material?.

There is no update at this point in time. The design cycles for the products are confidential..

Our next question comes from Brian Lee with Goldman Sachs..

On the outlook just had a question a follow on couple of the other ones here.

If I look at your Samsung materials revenue for 2014 it was up about 10% year-on-year or about $5 million given that this amount include a significant amount of green host and you're saying that’s going be down in 2015 wondering if your base case revenue outlook assumes that overall Samsung materials revenue can still grow year-on-year or if it will be flatter down?.

And specifically talking about the sales just to Samsung that our host has sold to NSCC.

So that goes to Japan, I think overall we expect some growth in the material from Samsung and again that depends on when A3 comes on line and what their utilization rates are in the remaining part of the factory, and the its stated specifically they're out looking to be more of a merchant of displays..

I am assuming as you do break out in your disclosure in [accusing] case that the material sold to you, and as you see our inventory purchased by Samsung.

So in that context is there anything you can provide in terms of color around what that total might look on a year-on-year basis?.

We clearly don’t break everything up and as we said we expect our host revenues to be down year-over-year..

And then question on Samsung again for 2014. Did they hit their minimum volume requirements on the materials and then can you remind us the catch up mechanism and timing if that wasn’t the case..

They have exceeded their minimum volumes..

Last one from me and then I'll jump back. Last one and then I'll pass it on. Is there any sense that you can give us given the new scope of the LG revenue that you're going to be generating between royalty and materials under the two new agreements heading into '15.

Just kind of what percent of royalty versus materials revenue you'll see from that customer?.

We'll have to wait to be honest we don’t break it out in our guidance. As the contract unfolds and as we report quarterly results, I think you can then make some projections. But the terms of the contract and the pieces are what we really don’t break out..

We’ll go on to Osten Bernardez with Cross Research..

I guess to start, I wasn’t sure if you mentioned this with respect to materials sales for the fourth quarter.

But to what extent new materials sales part of the growth drivers was in fourth quarter?.

These new materials were introduced I believe earlier than the fourth quarter..

And so how should be thinking about I guess the material margin trend throughout 2015?.

We believe that overall margins will not be impacted in 2015 they should be about the same as they were in 2014..

For fourth quarter it looked like your green host material actually green host material sales into quarter-over-quarter in spite from the challenges that you outlined in the quarter. How much of that was just was the function of sort of either inventory clearing or matter of shipments perhaps into mid tier phones.

Would you have any visibility into that?.

When the customer buys it we don’t specifically know which product is going to go into. We know it goes into whichever generation product are making. But we don’t know specifically what back plan goes into which product..

[Operator Instructions]. Jade Dorsheimer with Canaccord. Please go ahead. .

I guess there have been a lot of questions previously with respect to the upside down side and I just have one more. What I am basically hearing is that in the downside scenario most of the green host is basically been washed out.

And there is probably a little bit of expectations based in the TV in terms of the downside but most of the upside is really around the TV application, is that a fair assessment?.

I wouldn’t say all of our host has been washed out. We said it will be down year-over-year and we still believe in the host business and we still are going to work to move the host business forward.

But the second half of the year the capacity of LG putting their 20,000 substrates on in their Gen-8 facility, will have an impact obviously on the second half of the year. Samsung in their A3 line which is 15,000 substrate starts of Gen-6 size glass..

With respect to host, do you see a greater opportunity with I guess do you see a greater opportunity with non-Samsung or getting back into next-gen products with Samsung specifically on the green host?.

Jade as I mentioned, we believe we have a competitive advantage because we match our host to our emitter and we're marketing our host materials to all of our customers as well. So we believe we have a good opportunity on the host business..

Thank you. Our next question comes from Hendi Susanto with Gabelli & Company..

I would like to understand more about the inventory write-down, and then I also a see sequential increase in inventories in the fourth quarter.

For the higher inventory are you preparing for certain sales and with regards to the inventory write-down I believe that obsolescence is usually not an issue, so I am wondering whether you have an inside into that?.

Frankly we built a lot of inventory in anticipation of expected growth in the market. And looking back over the year we've realized that there was $2 million worth of inventory that required additional processing to make it salable. And we didn't think at this time it was financially prudent to complete that process for that $2 million.

In addition because of the pricing coming down, competitive pricing coming down faster than we anticipated we wrote down approximately $2 million, so that our remaining hosts can be sold profitably. So we did an assessment at the end of the year to take a look at it and we will assess it every quarter..

And do you have any expectation on how many materials you will be selling in to wearable's or flexible?.

Well for flexibles with the LG line we believe that they are using their existing line that is a mobile size line and we sell LG red material. And with Samsung their A3 line which is designated for wearables and flexibles, we sell Samsung red and green materials..

And not green host?.

We sell them green host, we continue to sell them green host, I don't specifically know what the recipe or which [fact] they are using for whatever they are putting into A3..

Thank you. We will continue on to Andrew Abrams with SCMR LLC..

First was there any pricing pressure that you guys saw ex the host business, just on the material business you had mentioned in the previous quarter there was some pricing pressure from Samsung or request for better pricing?.

In this industry there is continual pricing pressure. .

Other than your normal, maybe just something a little exception?.

There is nothing unusual about it other than the normal. And clearly Samsung had a really tough time in the second half of this year. .

So there was nothing unusual about or more unusual than it normally is.

And as far as the host material for LG, are you in the process or at supplying host material for yellow, green?.

I mean we do supply samples of hosts for all of our products and to everyone. But in their commercial products we have stated they're using yellow material..

And would it be -- I would assume it would be a backplane change that could change that or is something different than that?.

It would be that plus whatever they -- whenever they modify their recipe or do build different stacks or whatever but in the existing recipe that they have in backplane we sell them our greenish yellow material..

And lastly I know this is a little on the complex side but looking out a quarter or two when LG -- when you started to recognize the royalty from LG. How was the breakout between the material sales and royalty relative to what we are used to on a let's say a like dollar basis -- they buy a million dollars worth of emitter material.

How is it going to look relative to the way it looked last year?.

It's a very interesting question. It depends on a number of variables that we don't know the answer to yet, because it really depends on their utilization rates and their selling price of their end product. So we're going to have to see how that evolves over time..

And lastly I assume are there material minimums in their contract also their material side contract?.

Yes..

[Operator Instruction]. We'll go to Rob Stone with Cowen and Company..

Just a quick follow up on the inventory again. Should I interpret your comments that as you landed up with more inventories than you'd to like to have at the end of the year and we should see that level work back down? Or are you preparing for significantly bigger material demand here higher inventory run rate to be sustained..

A couple of things in the inventory at the end of the year there is raw materials in the inventory this year that were not in the prior year when you're looking to K you'll see that there is raw material in there, and on the host we build a lot of inventory.

We would like to work down obviously the host inventory but we still will be building inventory up in our materials to meet what we believe our customers' needs are and we are a self source of commercial thoughts press emitters to the industry and we always want to ensure that we have enough inventory on hand to meet any unexpected needs or increases.

And to be honest our cash position is very good and best use for our money is to ensure that we meet all of our customer needs..

So related to the commentary about pricing and continued price pressure as you get to higher volumes are you able to enjoy some offsetting benefits on your supply chain so that you can pass on the better prices to customer without changing your margin profile..

That is really our goal, and over the past few years you can see our margin profile overall has been pretty consistent and there are have been a number of pricing declines, we have pricing declines in the contract with Samsung.

So that’s how we've designed our business model so that when we see price breaks coming through when they pass someone to our customers because it's important that everybody benefits in the supply chain..

And our final question will come as a follow up from Hendi Susanto..

Would you provide the breakdown in commercial chemicals, I didn’t catch that..

Total commercial chemicals?.

The breakdown like host red emitter, green emitter in Q4?.

Total red emitter sales for Q4..

In the commercial category..

We provided by year Hendi..

I think yes we provided -- and if you want we can actually -- I think you have a follow up call scheduled; we can get you whatever details you need..

And with no additional questions in the queue, I'd like to go ahead and turn the conference back over to our speakers for any additional or closing remarks..

We just again like to thank everybody for your time today. We appreciate your interest and your support and all have a good night. Thank you..

Thank you. And again ladies and gentlemen that does conclude today’s conference. Thank you all again for your participation..