Darice Liu - Director of Investor Relations Steve Abramson - President and CEO Sid Rosenblatt - EVP, CFO, Treasurer, Secretary.

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

Good day, ladies and gentlemen and welcome to Universal Display's first quarter and 2016 earnings conference call. My name is Angela and I will be your conference operator for today's call. As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Ms. Darice Liu, Director of Investor Relations.

Please proceed..

Thank you Angela and good afternoon everyone. Welcome to Universal Display's first 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, this call is being webcast live and will be made available for a period of time on Universal Display's website. The call contains time sensitive information that is accurate only as of the date of the live webcast of this call, May 5, 2016.

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 application of those technologies, the company's expected results as well as the 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. For the first quarter of 2016, we reported revenues of $29.7 million, operating profit of $2.5 million and net income of $1.9 million or $0.04 per share. Since our last earnings call, the OLED landscape continues to expand.

New product launches, capacity announcements, equipment bookings, a robust pipeline of OEM design activities including much chatter about additional OEMs adopting OLED technology for the smartphone. The OLED ecosystem is bustling with excitement and activity.

Just last week, Samsung Electronics on its first quarter earnings call announced its OLED shipments grew quarter-over-quarter and OLED earnings improved. This was driven by the launch of new high-end OLED products, notably the Galaxy S7.

Speaking of which, Samsung's new flagship smartphones which launched to tremendous reviews, including being named by Consumer Reports as the best smartphone it has ever reviewed. The S7 Edge was named its second best.

At last month's FineTech, during his keynote speech, Samsung Display's CTO discussed OLED's infinite market potential showing applications such as mobile devices, TVs, virtual reality, augmented reality, automotive and public information displays.

Samsung added that OLED's potential may materialize through various form factor, including foldable, rollable, stretchable, mirror and transparent. With LG Display, flexible OLED and OLED TVs are all the buzz. With Flex, LG reaffirmed that E5, its first Gen 6 flexible mobile OLED line will commence operations in the second half of 2017.

Additionally LGD noted that megapad P10, a hybrid of flex and TV production, is on track for completion by the second quarter of 2018. And to boot, a day after its earnings call, LG Display announced an additional $270 million investment to boost its flexible OLED capacity.

On the TV front, LG Display reiterated investment plans to increase its OLED TV production by 75% from 34,000 Gen 8 plates per month to 60,000 plates per month by the second quarter of 2017. We are also seeing OLED TV market activity growing.

In addition to reaffirming its OLED TV shipment target of one million units this year, LG Display entered into a strategic technology partnership with Danish high-end consumer electronics designer, Bang & Olufsen. In conjunction with the partnership announcement, B&O stated its plan to launch its first OLED TV in 2017.

This expands the growing list of OLED TV OEMs, which includes LG Electronics, Panasonic, Philips, China's Skyworth, Changhong, Haeir and Konka. Outside of Korea, OLED display activity in Taiwan, Japan and China is progressing nicely. AU Optronics continues to focus on wearables and virtual reality products.

Foxconn purchased a controlling stake in Sharp and according to reports, Foxconn plans to invest approximately $1.8 billion in Sharp towards OLED displays. Sharp's OLED target is to ramp production capacity to approximately 10 million units of 5.5 inch panels per month by 2019.

In late February, BOE Technology signed a deal with the Chengdu government for the second phase of its new Gen 6 LTPS AMOLED fab. The total investment for this flexible OLED plant is approximately $3.7 billion or 48,000 monthly plates of capacity, which is expected to be installed in two phases. On the lighting front, activity continues to flourish.

In March, we announced our OLED lighting evaluation agreement with Osram. Later in the month, LG Display announced plans to build the world's first Gen 5 OLED lighting plant, which is expected to come online in 2017. The first phase is expected to be 15,000 substrates per month.

LG Display plans to initially focus on task lighting and decorative lighting in high-end retail stores and luxury hospitality and then expand into the general lighting market. LGD will also focus on automotive and convergence applications such as OLED light panels merged with furniture, architectural materials, electronic devices and more.

And debuting last week at the Beijing Motor Show, Audi rolled out its 2016 TT RS with optional OLED tail lights. According to Audi, OLEDs emit an extremely homogenous high contrast light. The light can be continuously dimmed. It does not cast any shadows nor does it require any reflectors.

Audi added that OLED's opened the design world from 2D to 3D, are efficient, lightweight and visually impressive. It's an amazing time for OLED as the level of commercial and developmental activity increases in both the display and lighting industries.

With the OLED industry continuing to gain traction with consumers and OEMs, the future of OLED and our company has never been brighter. Now let me turn the call over to Sid..

Thank you, Steve, and again thank you everyone for joining our call today. Revenues for the first quarter of 2016 were $29.7 million compared to first quarter of 2015 revenues of $31.2 million. Our total material sales were $24.3 million in the first quarter of which commercial was $22.1 million.

Commercial emitter revenues were up 8% year-over-year and flat quarter-over-quarter. Commercial host sales were negligible in the first quarter of 2016, compared to $4.4 million in the first quarter of 2015 and $1.3 million in the fourth quarter of 2015.

Green emitter sales, which includes our yellow-green emitters were $17.9 million for the first quarter, up 25% sequentially from the fourth quarter 2015's $14.3 million and up from the comparable year-over-year's quarter of $14.4 million.

Red emitter sales were $4.3 million in the first quarter, down 40% sequentially from the fourth quarter 2015's $7.7 million and down from the comparable year-over-year quarter's $6.3 million. Material buying patterns can vary quarter-to-quarter. As we saw in Q4, red emitter sales were up but green was down.

In this quarter, red was down and green was up. Some of the contributing factors to this include efficiency gains, contractual pricing reductions and material ordering patterns. Our first quarter 2016 royalty and license fees were $5.3 million compared to $4.4 million in the first quarter of 2015.

The quarter does not include any Samsung license fee which is $75 million for 2016, half of which is recognized in the second and fourth quarter of the year respectively. Moving along to material cost.

Material cost for the first quarter of 2016 was $5.1 million, down year-over-year from the first quarter 2015's $8.6 million due to negligible host sales. The minimum host sales and emitter product mix resulted in first quarter 2016 material gross margin of approximately 79% compared to first quarter 2015's material margin of approximately 68%.

First quarter operating expenses, excluding cost of materials, were $22.1 million, up year-over-year from the comparable quarter's $20.9 million. For the year, we continue to expect OpEx to be up 10% to 15% year-over-year, principally from growth in R&D activities.

Operating income was $2.5 million for the first quarter of 2016 compared to $1.8 million for the first quarter of 2015. During the quarter, we incurred an income tax expense of $900,000 or a tax rate of 32%, unchanged from the comparable quarter in 2015.

For the first quarter of 2016, we reported net income of $1.9 million or $0.04 per share compared to $1.3 million or $0.03 per share for the same quarter in 2015. Shifting to the balance sheet, we ended the March quarter with $396 million in cash, short-term and long-term investment of approximately $8.40 of cash per share. Moving along to guidance.

Our outlook for the year remains unchanged. As we noted in last quarter's conference call, we expect 2016 to be a year of building. We continue to expect our 2016 revenues to be up 15% year-over-year or around $220 million plus or minus 5%. With that, I will turn the call back to Steve..

Thanks Sid. Last month we celebrated our 20th year of listing on NASDAQ by ringing the opening bell. It was a wonderful milestone that we shared with our employees, customers, partners and shareholders. Looking back for a moment, Universal Display was founded on a vision. A vision of creating energy-efficient OLED technologies for displays and lighting.

Even before flat panel displays were mainstream and bulky CRTs were still in everyone's home. We took the company public in 1996 with the Princeton University research contract, no full-time employees and a pending patent.

Since our inception in 1994, we have invested over $370 million in research and development to advance our company from a startup to a leading player in the global OLED ecosystem.

We continue to heavily invest in a number of strategic OLED material programs for new and next-generation red, green, yellow and blue emitters and host, as well as expanding our core OLED technology competencies including phosphorescence, device architectures and manufacturing processes and equipment.

Since we went public in April 1996, our market cap has grown from $47 million to over $2.5 billion. Since we rang the NASDAQ bell on our 10th anniversary 10 years ago, our revenue has grown from $10 million to $191 million, a CAGR of 36% and this is just the beginning.

With OLED lighting transitioning from development stage to commercial, new applications like automotive emerging in both display and lighting industries and with the OLED display penetration at only about 10% of the total consumer electronic display market, we believe that our long term growth trajectory remains strong.

On that note, operator let's please start the Q&A..

[Operator Instructions]. And we will take our first question from Jim Ricchiuti with Needham & Company..

Hi. Thank you. Good afternoon. Sid, I heard your comments about operating expense being up, I think, about 10% to 15% for the year. But you are starting off the year, it seems to be at a lower level.

How do we think about OpEx in Q2? Should it be up? Can you give some sense sequentially how we might think about it?.

Yes. Well, I think for the year, we still expect it to be up 10% to 15%. I think it will be up in Q2 over Q1, specifically in R&D. So I think you can add some percentage, I don't specifically know, but it will. But we do expect it to be up. We expect to ramp up the R&D and we are ramping up the R&D efforts at this time..

Okay. And then for the year as a whole, the way you are characterizing the year, up, it sounds like you are still assuming more of a back-end loaded year? Or maybe if you could just help on that score? Your guidance is 15% and 5% plus or minus.

Actually how do we think about the linearity of the revenues over the course of the year?.

I think we should be seeing it to grow gradually over the year. It is more backend loaded..

Okay.

Last question from me, is there any way to tell within the revenues at this point, the level of activity that you might be seeing from players who are beginning to invest more heavily in the market, outside of your two core customers? Really, if you could just characterize the level of business that you are seeing from customers outside of the two Korean players you work with?.

We are seeing some additional activity. If you look at customer c, it is up actually to 6% and it is a new customer. It is not the same customer that was customer c in prior quarter. So we are starting to see small amounts of activity.

Really, once they get capacity on and they start early production and trying to shake out the equipment that you will see any real increases. And that's not until the end of the year and next year..

Okay. Thank you. That's helpful..

Thank you. Thanks Jim..

We will now go to Brian Lee with Goldman Sachs..

Hi guys. Thanks for taking the questions. I just had two. These are probably for Sid on the model.

If I look at the royalty and licensing revenues, I am just trying to better understand how the trajectory and cadence work since there is no Samsung impact here and if we fare it out what the Samsung impact was in Q4, I would have assumed that the royalty and licensing revenue number would have been much larger given if you look at your next biggest customer for that line is LG and their units sold in Q3 of last year went from 90,000 to over 200,000 units in the TVs in Q4 and that would be the number off of which you are recognizing for Q1.

So just trying to understand the interplay between their unit volumes and what you are recognizing in terms of a royalty revenue there?.

That is a good question. And LG Display, our customer's royalty are based upon the number of units sold and the price they get per unit. LG Display sells both mobile panels and OLED TVs and they also sell wearables. The reported sales that you are reporting are LG Electronics.

So when LG Display sells to LG Electronics may be different timing than when LG Electronics reports their sale..

Okay. No, that's helpful. Second question..

We do have some other customers that are in that line also..

Of course, yes. Fair enough. And then second question was just on the margins. I think there was a lot of consternation last quarter, if I recall, with your gross margins on materials coming down and then this quarter obviously it's bounced right back up into the high-70s.

So as you guys were mentioning during your prepared remarks, last quarter red was up, green was down, gross margins were down and in this quarter, red is down and green is up and now margins are back to the high-70s.

So just wondering if you can talk us through the interplay of mix and impact on margins?.

As with revenue, it's difficult for us to predict quarter-to-quarter based upon product mix. And whether we introduce new materials into a quarter or whether it is existing materials where you may have some pricing, contractual pricing declines that have kicked in. So it's not really related to color.

It's really is our emitters and we think that the emitter margins, as we said are, 70% to 80%. They are different per color, but we just blend them altogether. And not having any host in this quarter, even a small amount of host effected the margins in the prior quarter because the margin on the host were much lower.

So we still expect it to be between 70% and 80%. Will it be 78% or 79% next quarter? I would say more than likely it will come down a little bit..

Okay. Thanks guys..

Thanks Brian..

We will now go to Osten Bernardez with Cross Research..

Hi. Good afternoon. Thanks for taking my questions.

Just to begin with, would you be able comment or answer on whether you think or are assuming as you do long-term modeling for the company as a whole that, at least your two largest customers, LG Display and Samsung Display, will be able to start up their new production that's anticipated later this year and early 2017 more efficiently than they have historically, i.e.

do you assume that their knowledge base in terms of being able to start up production has increased to the point where there will be less waste when they start production or do you assume that that start up yields were always challenging regardless, at this point?.

I think they are manufacturers and they are getting more and more experience and I think start up efficiencies are probably better. But if you just want to look at our -- looking at the just the start up piece of it, I do believe that they are probably more efficient and better when they just add lines.

I think they know what they are doing and you are not wasting a lot of material when you do that. And there is a number of variables that impact our material consumption as you are well aware, which includes the recipes, whether you are using new colors or older colors, doping concentrations, manufacturing process, back composition, common layers.

It's all kinds of things that impact our material..

Got it. And then I just wanted to clarify a point too with respect to and earlier question on the timing of licensing fees received from LG Display. They will be, but in my understanding, for instance last quarter and the first quarter they shipped about, LG Displays noted that they themselves shipped almost about 200,000 units.

And so I presume that we see the benefit from a licensing standpoint for you to see some time within, if I am not correct in speaking, in the second quarter.

Is that correct? And if so, will we see that differential in non-Samsung related license fees increase on the like-to-like basis?.

Yes. There is a quarter lag. So in any given quarter, we won't report that until the subsequent quarter. And LG did not, when you are talking about, it is TVs, wearables and mobile..

So we should see that incremental to increase in that line item. Okay..

There is just one caveat. I don't know what the answer is, but it is pricing. So they may have shipped more units. But as their volumes go up and as they get more efficient and you are seeing pricing on the TVs coming down, there was pricing declines. So it is a formula based upon price times royalty rate..

And at this point, should we just assume no more host revenue going forward?.

I don't think you should assume much host revenue in 2016..

Thank you..

Thank you, Olsten..

We will now go to Hendi Susanto with Gabelli & Company.

Good evening Steve, Sid and Darice. You mentioned that LG OLED displays consists of wearables, TV and mobile displays.

If I look at the revenue figures in the 10-Q, can you help me understand the significant increase in revenue at LG? I would assume that the biggest driver at LG is OLED TV, but as far as I know there is no major OLED TV launched in Q1 or in Q2.

Would you please share some color on that?.

LG is customer A in this quarter. They are the largest customer in this quarter. And it is based upon TV production. I think it would be the largest amount that they purchased material for..

If I interpret this like, let's say there is major OLED TV launched in Q1 or Q2, can I assume that they may stock up your emitter materials in their inventories?.

That we don't really know. To be honest, I don't. We can only speculate on what their inventory management systems are. I don't know anything for sure..

Okay. And then there has been some speculation that one big major consumer electronics would put up OLED display in 2017.

Would you refresh our memory about your two PPG facilities? What the scale at this point? And is there any plan to increases it?.

We are constantly looking at our needs for the future. We added capacity at PPG and Barberton, Ohio and we are no place near at our max capacity at this time.

We are doing long-term planning because as Steve stated and we are well aware that there is a lot of additional capacity coming on in 2017 and we want to ensure that we are ahead of the curve and that we will add capacity in advance when we need it. So we are constantly assessing that..

I see. And one last question, Steve and Sid, you stated that R&D will be higher this year.

Any update on the progress of blue emitter materials?.

We continue to work very hard on the blue materials. It's a work in progress, but we have nothing to announce at this point in time..

Thank you..

[Operator Instructions]. We will now go to Jed Dorsheimer with Canaccord..

Hi. Thanks for taking my question. A couple here.

I guess just first, I don't mean to belabor the point since its been asked a few times, but just with respect to the LG recognition of the royalties in LG Display versus LG Electronics, why would it delay longer if it's LG Display versus what LG Electronics is reporting? Wouldn't it be the other way around that LG Display would be shipping the product and recognize that to LG Electronics before LG Electronics reported that?.

Yes. There is no doubt. If I led you, if I stated, that was not the case. They obviously have to ship them to LG Electronics, so that they can sell them..

So the question then is, if we look at the ramp from 90,000 to 200,000 with respect to the TVs, we should have seen that this quarter.

So just from a magnitude perspective, I guess that I think is the point that certainly I know our investors are going to be asking or clients will be asking tomorrow, could you help clarify that?.

Well, we are not taking in account the fact that it is a total revenue that we receive from them which is for TVs, wearables and mobile.

And whether there are pricing declines and I believe as they continues to grow, as you are seeing, pricing declines on the TV side as for the consumer, I suspect that there are pricing reductions from LG Display to LG Electronics and I think then the wearable market there is probably declines also.

So you have to take into account everything to get to an apples-to-apples analysis..

Got you.

So in the even that LG Display, for example, was taking a loss or reducing whatever their pricing scheme is, to LG Electronics, that's what it's based on not on what we see in terms of the end product in the market in terms of that pricing?.

That's correct. That is correct..

Okay. That helps. I guess just with respect to the red emitter materials, your largest customer every year changes its formula or recipe. This year, I think we are on M7 structure and it would seem that volumes pricing schemes of your business is somewhat tied to where we are in that phase.

When I look at the green materials versus the red materials, is that a greater function of simply timing or in order of red that either that didn't go into this quarter? Or is it a better indication of what that structure looks like? In other words, if I look at the difference as your customers changes the thickness, for example, of how much green versus how much red and how much blue, is that what we are really seeing here with respect to the red or green?.

Well, the one thing that I would just like to add that our green emitters include our yellow-greens which you know what it's used for. So the fact that it's just not apples-to-apples, it's not all just to one customer. And yes, they always are adjusting their recipes and looking for more efficiency. There is no doubt that they will continue to do that.

But in our green, it includes an increase, as w said, in our yellow-green emitters..

Okay. And I have two more questions, if I could fit it in.

So if I look at the way in which the contract with Samsung, the parts that or from what's available to the public was not the redacted out, it would appear, I guess my question is, whether or not I am looking at this correctly, but it appears to me that Samsung has not used anyone else's emitter materials if those infringe on your patents until 2018? And I ask this question because there are other platinum and iridium-based materials out on the markets.

They certainly don't have the same efficacy as your materials. But based on that contract, your largest customer could not use any competing materials to yours, at least until that expires.

Is that correct?.

They have agreed to purchase, we have guaranteed minimums of our materials that they have agreed to purchase. And they cannot buy materials that would infringe on our IP..

Okay.

And then I was wondering if you could help maybe just in order of importance, as you are looking at that, as we look at the landscape that's unfolding with respect to the purchase of Foxconn's Sharp business and other Chinese companies that are looking to get into OLEDs as well as Japan Display, there certainly seems to be a lot of potential licensees that are out there for you to sign.

But as we start to approach the expiration of Samsung at the end of 2017, it would seem like still your revenues are mainly tied to that one customer.

And so from a level of importance perspective, is there anything that you could, is Samsung just the primary focus right now in terms of making a longer term deal with them? Or any color or commentary, I think would be useful..

Jed, we are focusing on all of our customers and our potential customers because we think we are really only at the beginning of a long growth cycle of this OLED space.

So you not only have the two Korean companies, which are the bulk of our revenues today, but moving forward, we have the Chinese companies and the Japanese companies that you mentioned that have expressed a lot of interest in getting into this market over the next few years..

Okay. Thank you guys. I will jump back in queue..

We will now go to James Medvedeff with Cowen and Company.

Hi. Good afternoon and thanks for taking my questions. Most of mine have been answered. So on R&D, that looks like it's going to be a significant increase quarter-to-quarter through the year.

What are you spending that on? What is the focus of R&D this year?.

We are focusing principally on new material development, both on emitters and hosts..

Hosts as well as emitters. Okay. Also just looking at the numbers, there appears to be a couple of million dollars unidentified of material sales, $17.9 million is green, $4.3 million is red, something minimum for green host, that leaves about $2 million.

Are you able to say what that is?.

That is a developmental. We always just talk about commercial material sales but we still have developmental sales and we only breakout the breakdown between the commercial material sales. So we do still sell developmental materials in developmental quantities to customers..

Okay.

And just for clarity, developmental is not based on exactly you are developing them, it's based on the fact that the customer is using them for development of product? Is that correct?.

Yes..

Okay. Finally, Darice, I just noticed in the balance sheet a $14 million jump in other investment.

What's that about?.

That's actually from cash that's invested in long-term more than one year. There were some rates that were advantageous, so we put some cash in those. Some were slipping up, there are short-term investments and long-term. So in this quarter we just put some into some stuff that was more than 12 months..

Okay.

Finally, the license and royalty line that people have been asking about, are there any new customers in there this quarter?.

Yes. While there are customers we have been working with and we did report some from a new customer in this quarter..

Okay. All right. Thank you..

Thank you..

We will now go to Andrew Abrams with SCMR LLC..

Hi. Most of my question have been answered, but I just wanted to walk through red again. Red has been pretty steadily increasing on a quarter-to-quarter basis.

Is the function here more oriented toward an overbuy which is fairly typical in fourth quarter and then an underbuy in first quarter? Or are there other major factors involved other than what we normally would consider efficiency and mix and things like that?.

I think based upon, they being up in Q4 and then down in this quarter, I think it's more what you said. That's what I believe that they overbought in Q4..

And on the green side, I know you can't tell us directly, but the incremental difference between the run rate that you are going at in first and second and fourth quarter and this run rate, can you quantify that in terms of new green materials or yellow-green?.

As you know Andy, we don't break them down between yellow and green and new and old materials. We just put [indiscernible]..

I tried. Thank you..

Thank you Andy..

This now completes the question-and-answer session. I would now like to turn the call back to Mr. Sidney Rosenblatt for any additional or closing remarks..

Everyone, thank you for your time today. We appreciate your interest and support and we wish you all a good night. Thank you..

This concludes today's conference call. You may now disconnect..