Darice Liu - Director of IR and Corporate Communications Steven Abramson - President, CEO and Director Sidney Rosenblatt - EVP, CFO, Treasurer and Secretary.

Brian Lee - Goldman Sachs Rob Stone - Cowen and Company Mehdi Hosseini - SIG Shannon Cross - Cross Research Hendi Susanto - Gabeli & Company Nam Kim - Arete Research Andrew Abrams - Supply Chain Market Research.

Operator:.

Thank you and good afternoon, everyone. Welcome to Universal Display's First Quarter Earnings Conference. 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 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. This call contains time sensitive information that is accurate only as of the date of the live webcast of this call, May 4, 2017.

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'd like to turn the call over to Steve Abramson..

Thanks, Darice, and welcome to everyone on today's call. We are pleased to report that revenues in the first quarter of 2017 were $55.6 million, operating profit was $12.1 million and net income was $10.4 million or $0.22 per share. Results were solid across the board, including record emitter sales of $46.2 million.

As we look to the year, we believe overall momentum in the OLED industry is accelerating, as a result we are raising our 2017 revenue guidance range to at least $260 million to $280 million, reflecting 30% to 40% year-over-year growth. Steve, will provide further detail shortly.

We continue to be encouraged by the growing customer discussions and pipeline activity that we are seeing in the OLED display and LED markets. Since our last earnings call, the OLED landscape continues to expand for new product launches, new advancements and robust amount of OEM design activity.

Samsung according to reports is ready to invest about $9 billion into new OLED facilities this year, on par with last year's robust capital expenditures. Investments include, expanding its Gen-6 OLED fab, converting an existing LCD line for additional Gen-6 flexible OLED capacity and build the OLED module assembly lines in Vietnam.

Additionally, at the end of March Samsung Electronics unveiled its new flagship smartphone, the Galaxy S8, to abundance of positive reviews. We're the most rave design features in the OLED display which display made word its highest grade ever, it's A plus.

And according to Samsung pre-orders, as well the initial sales of the Galaxy S8 phones were very strong. And last month's Sci-tech Japan expo LG display CTOs in his keynote address and 2020 OLED sales are expected to grow to more than 50% of LG displays revenue.

To meet the ever growing demand for OLED, LG displays investing in both Gen 6 flexible mobile capacity and Gen-8 OLED TV capacity. How much investment is expected to come online in the coming years? LG's CTO said that from 2016 to 2020 OLED TV production capacity will be six times larger and for plastic OLED it will be 14 times more.

The OE technology where it's importantly committed over $10 billion in OLED pilot and commercial lines, including two Gen-6 flexible Greenfield fabs, one of which is expected to commence mass production next year, announced a joint venture with OLED TEC to produce OLED micro displays for the consumer in VR and AR markets.

Last month the [indiscernible] began production at each new Gen-6 over light in Wuhan and plans to ramp production of rigid and flexible OLED displays. And leading Chinese OEM PCL announced plans to invest $5 billion in OLED facility through its subsidiary [indiscernible] Electronics Technology.

The new plant is expected to start mass production in 2020. Sharp is reportedly planning to spend about $900 million to build OLED displays, slightly higher than initial expectations. In this expanded plan, Sharp which is majority owned by Taiwan's Foxconn Technology hopes to make at least 30,000 plate per month starting next year.

And just a couple of weeks ago Foxconn affiliate Interlox announced it was working with Sharp to advance their OLED R&D activities. And AU Electronics continues to focus of the wearables market and forecasts that in the second half of the year, its quarterly shipment volumes of wearable OLED displays may reach more than 1 million units.

On the landing front, LG display got a great attention last month at Euro lighting exhibition show, partnering with one of the world's leading industrial designers, Ross create revolutionary OLED lighting artworks inspired by the courage and patterns seen in underwater marine life.

Also last month LG and world renowned designer Ken Yoshioka took the top prize at Milan designer world 2017 for the collaborative installation that RF would tap into the innovative properties of LGs OLED display and lighting technology.

And in terms of capacity LG displays way to start mass production of its Gen-5 OLED lighting fab in the second half of this year. The initial production phase is expected to be 15000 plates per month and LGD expects to ramp it to 90,000 plates per month of the future.

As the OLED industry continues to gain strong momentum, we remain focused on extending our innovation leadership and enabling our customer. We're also growing our business to capture the tremendous market opportunities before us.

This is the new materials to technology, new customer agreements and new OLED commercial products, all of which we believe will contribute to our growth in the coming years. Before I hand the call over to Sid, I want to reflect our new DC's history for a moment.

Founded back in 1994, a pioneering journey from an idea to a start-up, to a leading player in the global OLED ecosystem has been filled with breakthroughs, challenges, trials, unending persistence and vision, as well as over $400 million in R&D spending.

This quarter we reached another milestone, for the first time we are pleased to report that we are generally retained earnings to shareholders equity after history of accumulated deficit of the balance sheet. I guess it takes a few decades to become an overnight success. On that note let me turn the call over Sid..

Thank you, Steve. And again thank you everyone for joining our call today. Revenues for the first quarter of 2017 were $55.6 million compared to first quarter 2016 revenues of $29.7 million. Our total material sales were $46.6 million in the first quarter of which commercial was $35.8 million.

Commercial emitter revenues were up 61% in both year over year and quarter to quarter. Developmental revenues we're at $10.8 million in the first quarter of 2017, up 395% year over year and up 57% quarter over quarter. We attribute the increase in material revenues to new capacity coming online and product mix including new emitters.

Green commercial emitter sales which include our yellow green emitters were $24.5 million in the first quarter, up 46% sequentially from the fourth quarter 2016 $16.8 million and up 37% from the comparable year over year's quarter %17.9 million.

Red commercial committer emitter sales were $11.3 million in the first quarter, up 105% sequentially from the fourth quarter 2016, $5.5 million and up 163% from the comparable year over years quarter $4.3 million. As we have discussed in the past, material buying patterns can vary quarter to quarter.

Some of the contributing factors to this can include consumer product demand cycles, new capacity ramp schedules, production loading rates, product mix, material ordering patterns, customer production efficiency gains and contractual volume pricing reductions.

Since a number of these factors are moving variables for our customers, they are also moving variables for us. As a result, quarter to quarter forecasting remains difficult. We continue to be confident in our positive upward trajectory.

Moving to royalty and licensing, our first quarter 2017 royal and licensing fees were $7 million, up 32% from $5.3 million in the first quarter of 2016. Material cost for the first quarter of 2017 were $13 million, up year over year for the first quarter 2016 %5.1 million. The increase is due to emitter sales essentially doubling year over year.

Material gross margin percentage was 72% in the quarter compared to the first quarter 2016 material gross margin of 79%. For the year, we continue to expect our overall material gross margins to be in the 70% to 75% range.

First quarter operating expenses excluding cost of materials were $30.5 million, up year over year from the comparable quarter $22.1 million. But flat quarter over quarter from Q4s $30.7 million.

The primary contributing factors to the year over year increase include, incremental quarterly amortization expense of $2.7 million from the acquisition of BASF OLED IP assets and Adesis and incremental operating costs associated with Adesis and compensation expense.

For the year, we continue to expect OpEx to be up around 10% to 15% year over year principally from growth in R&D activities. Operating income was $12.1 million for the first quarter of 2017 compared to $2.5 million for the first quarter of 2016.

With the first quarter of 2017, we reported net income of $10.4 million or $0.22 per share compared to $1.9 million for $0.04 per share the same quarter in 2016. First quarter 2017 income tax expense was $2.3 million or a tax rate of approximately 19%.

During the first quarter, we adopted ASU 2016 0 9 which relates to the accounting for stock based compensation awards under U.S. GAAP. Now in any quarter where there are vesting equity grants, the difference between the price of the stock, the day it was granted compared to the price of the stock on the day of vesting will affect our tax rate.

We expect some volatility in our tax rates primarily in the first half of the year which is when the majority of employees shares vest. Without ASU201609 our first quarter 2017 tax rate would have been approximately 28%. For the year, absent the effect of ASU201609, we expect our tax rate to be approximately 28% plus or minus a few percentage points.

Shifting to the balance, we ended the March quarter with $340 million of cash, short term and long term investments for approximately $7.20 of cash per share. The company also announced today that the Board of Directors approved a cash dividend of $0.03 per share on the company's common stock.

The dividend is payable on June 30th to all shareholders of record as of the close of business on June 15th 2017. Moving along to guidance, based on customer discussions current operating levels, product mix, as well as other major variables, our expectations for 2017 have increased and we are raising our full year guidance.

While this quarter exceeded our expectations, it is still early in 2017 and we want to see how these trends progress throughout the year. We now expect our 2017 revenues to be at least in the range of $260 million to $280 million dollars. With that I'll turn the call back to Steve..

Thanks, Sid. Across the company, we are building momentum for continued profitable growth. We are expanding our customer collaborations, significantly stepping up our R&D efforts, increasing our technical field capabilities and fortifying our product development engine.

We continue to make great strides in broadening the breadth and depth of our phosphorous technology and materials portfolios, including the red, green, yellow and blue emitters and [indiscernible] We are also advancing our next generation manufacturing technologies, such as organic vapour jet printing.

We believe that these and other initiatives will strengthen and support our primary focus of enabling our customer successes and therefore our long term success. I would like to take a moment to thank our employees for their hard work and dedication to excellence getting us to where we are today.

In summary, we are proud of our first quarter results and believe we are well positioned to continue playing a key role enabling the growing OLED market. Our growth trajectory with top line and bottom are extraordinarily positive for the foreseeable future. It is indeed a fantastic time for the OLED industry and Universal Display.

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

Thank you. [Operator Instructions] And we'll take our first question from Brian Lee with Goldman Sachs. Please go ahead..

Hey, guys. Thanks for taking the questions and congrats on the great results. If I look at your revenue guidance Sid, versus what you did in the first quarter and then I normalize for that for the $90 dollar fixed Samsung licensing payment.

And then you do the same math for the past four years you're tracking to something like 30%, 31% of your full year number in Q1 and that's on your new higher number not the old numbers. So if I compare that to the past years it was more like 20%, 25%.

So it does seem like even with this higher revenue guidance range you're tracking well at a prior year.

So curious how you're thinking about potential upside drivers from here moving through the year or if he would temper that type of analysis with a view that maybe the cadence for this year first half versus second half will be very abnormal versus what you'd typically see?.

Thanks, Brian. And I clearly expected that question to be honest. It is a good one. We believe that it's still early in the OLED multi CapEx cycle and how that plays out quarter to quarter is not always predictable.

You know one of the key factors is consumer product demand cycles, product introductions and sell through rates are extremely dynamic and they can impact capacity schedules being pushed in - pulled in or pushed out.

Then you add a production loading rates and product mix, material ordering patterns and custom or production, efficiency gains and contractual pricing reductions, these variables are moving targets for our customers and to be honest are moving targets for us. While material volume uses trend is clearly up.

The revenue slope is really difficult for us to predict. And you know we believe that our 2017 revenue will be at least be in the range up to 60 to 80. Could it be higher possibly, could it be lower you know possibly, we'll revisit the guidance every quarter. So there are things that are just difficult because of the early stage of the industry..

Okay fair enough.

The second question I had was maybe around the same line of thought, but last quarter coming off of a really robust 4Q results you had mentioned that some of that momentum had carried over into Q1 and I know you don't give quarterly guidance but you had reported Q4 results pretty late into Q1 and then we're giving the full year guidance I suppose that's part of the color you wanted to provide.

When you look into the near-term here come in off again a quarter where you exceeded expectations.

What sort of momentum or trends are you seeing off of you know off of the results you just you just reported I guess that that concerned investors may have is that you've seen in past years periods where there is forward buying or inventory levels that might have gotten a little bit out of the range that you want them to be in but maybe you could comment around what you're seeing just trend wise that would be helpful?.

As you're aware we are just in time supplier and what we saw where our customer orders were coming in better than we had anticipated and continued through the first quarter. We are comfortable with our guidance to being at least 260 to 280, it is only one quarter into the year and to be honest historically we have seen things that go up and down.

We do believe that the trajectory is up this year. We really believe it's too early to say whether or not our revenues are going to exceed 30% to 40% growth, which we currently project. We will revisit the guidance again on our next call..

Okay. Last one for me and I'll pass it on. Just given the focus around new materials you know we found out in Q4 that they were adopted. You mentioned that they didn't have much of an impact in the Q4 results. It sounds like they had some amount of impact here in Q1 on top of the volume growth you saw.

So any kind of sense you can give us quantification if possible of how much impact you saw from the new emitter adoption and then what you might expect going through the next few quarters on that mix? Thank you..

You know, we saw good growth in the first quarter from new production capacity and the product mix which includes new emitters. But we - you know we have a number of new emitters in the pipeline and as our business continues to grow with new customers and new products, we expect to develop and introduce new emitters are.

And as you're aware that you know we do have cumulative volume discounts. So you will see pricing for some of the new emitters depending on the quantities that they buy trend down during the year..

Okay. Thank you..

Thanks, Brian..

And we'll take our next question from Rob Stone, Cowen and Company..

Hi, Sid. I wanted to drill down on the gross margin a little bit particularly for materials. It looks like you're not breaking out the cost of the contract research.

How does that affect the reporting margin this year versus last year?.

Adesis revenue was you know it's really not very large, I think is $1.9 million in this quarter. So you know even if their margins are above or below our overall margin is not going to really high - is not going to move the needle.

I mean the margin you know as we said early that we expect at the end of last year we expect the gross margins to be in the range of 70% to 75%. And it really has to do with product mix, new materials being introduced our cost. So it is still you know we're very comfortable with that range and it's a healthy gross margin..

Okay. Related to Adesis it looks like that, quarterly run rate is also trending up, is that tracking better than you were expecting a while ago.

And how should we think about the linearity of that business?.

It is in line with what we expected. And you know we expect that to be a growth business. But again, we don't really believe Adesis for the foreseeable future is really going to move the needle in our revenue stream..

Okay. Thank you..

Thanks, Rob..

And we'll take our next question from Mehdi Hosseini with SIG. Please go ahead..

Yes. Thanks for taking my question.

Looking at your development revenue which has seen very nice rebound in Q over Q and year-on-year, I imagine that has more to do with prospective customers like in China investing in technology and in the context what will be the realistic assumption for these developing work to turn into material or image emitter sale?.

These are Andy, I am sorry, Mehdi, these are material sales and the way that we categorize our emitter sales is when we introduce a new material. We go through a scale up and development process that we do here. So this is this categorization is a characterization that we make.

It is in our customer's categorization, but these emitters, mostly that development on it is our new emitters we go through, multiple scale ups until we are comfortable that we've got this process down and then we then just classify these as commercial materials, but these are all new materials and they are an emitters..

Okay. And then follow up. You recently a couple of months ago changed your contract manufacturing with PPG.

And given the traction you have seen so far in the year and what you would expect over the next 12 to 18 months, do you foresee going back to PPG and actually increasing the minimum capacity or modifying a given the stronger start to the year?.

We look at this constantly. We made this plan and the changes we essentially are paying for the equipment upfront, you pay for it either through a depreciation charge or you pay for it when you pay in advance you then don't have some carrying costs to get out. So to some extent it's a little efficiencies from our side.

But we're always looking at our capacity. We believe even with the increased - because we expected a significant increase this year, we have enough capacity in place today and then with this new capacity to meet our needs for the foreseeable future.

However, we are constantly looking at what we need, what the mix of the materials are because each of our materials have a different manufacturing process even those are all organic materials, the process and how you do it are different. So we're constantly looking at that and we are very happy with our relationship with PPG. They support us.

We are a just in time supplier and we always have enough inventory..

Got it. Thanks so much..

Thank you..

And next we'll hear from Shannon Cross with Cross Research. Please go ahead..

Thank you very much and it's nice to see. I remember coming to see you guys back in probably like 2004. So it's nice to see the OLED market taking off. It's been a while but it's working.

Okay, so my first question, can you just talk a little bit about cash flow and I was looking at your cash receivable, I assume it's you know, the growth in the material sales and timing of orders during the quarter.

But how should we sort of think about your working capital as you go through the year?.

Well, if you look at the cost flow statement, the cash generating this quarter was not significant compared to the increase in the revenue, but it really relates to about a $15 billion increase in AOR. We have we have very, very little bid, that our customers pretty much pay on our terms of either 30 or 60 days whatever their terms are.

And we very rarely do I believe you will see pretty much all of these receivables collected in the second quarter. Obviously we'll add receivables, but we don't believe that there's any issue at all with the receivables..

I was assuming it was sort of more timing of when the orders came through during the quarter. And then can you talk a little bit about where you are. You talked about you know obviously a focus on investing in development for new materials.

Where were you at right now with blue?.

We are - blue obviously has been a challenge, as you know we have said, we have made significant progress in blue. And we - you know it's difficult, and we believe that will have a commercial phosphorescent blue emitter for displays. But we are unable to really give you a timeframe.

Some of the BASF IP that we purchased, most of their work was being done in blue and we believe that the addition of BASF assets is really furthering our blue research efforts and what enable us to meet our customers demand in and all phosphorescent and emissive stock, timing is really difficult.

You know we've taken some steps already to integrate what they are doing, where it's appropriate and our current blue program is beginning to show us pathways that we think will lead us to a commercial blue phosphorus and emitter..

Okay, great. And then my last question is with regard to use of cash. You know, clearly that's in capacity, may a few acquisitions, you now have the dividend. But you know given the significant growth in receivable cash flow as well as obviously revenue that that is going to be happening over the next couple of years.

How are you thinking about where you want to deploy the cash? You know assuming that the market continues to improve and grow the way it appears to be?.

Well, we clearly want to keep our cash reserve for opportunities that may come up. And you never know. You know we spent a hundred and thirty million bucks on Adesis and BASF. We just initiated our dividend in the last quarter. So we are constantly looking at that.

The board reviews all of these on a regular basis and we think it's important that if - we do a return to shareholders of cash that we generate and capital is you know giving dividends we think right now is the appropriate way of doing it..

Do you have any issues with having leverage over time if that makes sense or maybe an acquisition perspective?.

I think that you know we are going to generate - you know we're starting to generate significant cash. We have a very strong balance sheet. I don't believe that that's going to be an issue. I think we will always have the ability, if large acquisition came up we would have the ability to get the cash to do it..

Great. Thank you so much..

Thanks, Shannon..

[Operator Instructions] We'll take our next question from Hendi Susanto with Gabeli & Company. Please go ahead..

Good evening, Sid and Steve..

Hi, Hendi..

First question, [indiscernible] sales has been running at less than half of the green and with the materials and with the materials are relatively new compared to red, and I don't mean to be pessimistic but there can be concerned that the green emitter you'll manage do you have a lot to catch up at the same time how the [indiscernible] may be different, how should we think of that?.

Green emitter sales have always been larger than red emitter sales and actually in this quarter the red emitter sales were up significantly from the last quarter. Our green emitters as you're aware also includes our yellowish greens which is used by customers for white OLED TVs. So it's not just specifically red and green side by - or TV side by side.

So these are within what we believe the appropriate tracking between the ratio of the two of them is..

And then Sid the new revenue guidance is $30 million higher.

How much incremental guidance as you did to the strong Q1 result and how much is for your stronger expectation for the remaining of the year?.

As I said earlier, there's a number of factors that impact our guidance and it's not one versus the other. You know our capacity, our revenue guidance is really fuelled by what we sell and that's based upon running capacity. You know we expect to see new capacity coming on in the second half and the first half of next year and the second half.

And it really depends how quickly these are then turned on actually producing products versus whether they're being seated and worked on to start production. And those things are really out of our control and that's you know that's some of the issue of you know pushing it in or pulling it out and how fast our revenues will grow.

But really is based upon new capacity that's coming online, that's actually making product..

And then one question for Steve probably, there have been talks about new micro LEDs, what is your view on that?.

This is - micro LEDs are just you know, we've looked at them, they are - they are new, they are early on and they are really just small service emitting LED chips and their un-packaged LEDs. We do believe it's an interesting research project. It is you know we've been working on OLED for 20 years.

We're gaining strong momentum in the marketplace and there's still a lot of unanswered questions about micro LEDs and we're just going to have to see how they progress and whether they can really be cost competitive.

OLED displays are self-image of materials and you know just when we talk about backlit you know the structure of LEDs, we have no backlights, whether it's micro LEDs or whether it is you know any other type of backlight. So you know our backlights are zero essentially..

Got it. Thank you, Sid..

Thanks, Hendi..

We'll take our next question from Nam Kim, Arete Research. Please go ahead..

Hello.

Can you hear me?.

Yes..

All right. So I know you explained the above material gross, but can you give us some more detail.

For example, is this because of your - use sell the more M8 related to the materials are higher than expected or about commercial and material volume went up more than expected or is this because of your number one customer purchasing more or giving more than expected TV material reaching a stand any color would be great?.

We really can talk about what our customers are actually doing with our materials and I mean to be honest once we sell it and they put it in whatever products and however their our ramp is schedule. So it's not that I can't give you a lot of information, it's really that the custom proprietary..

Okay. One quick follow up on LG Display, actually I have a question here. I understand they don't buy green emitter for mobile business today. The buy only yellow, green light OLED, in the future if they buy green emitter from you guys, are you going to really change or worth the wait is surely this done on margin revenue.

So you will have also the material but not really too late.

So can you clarify that one?.

Well we have an agreement with LG that has material pricing built into the contract. So whatever material they buy they know what the pricing will be for any of the materials that we offer them and it's been negotiated in advance. And so they have you know discounts as the years go by. So it is - there's no real barrier or no barrier to what they buy..

Okay.

So can you confirm, they don't buy green emitter double the digit today, right?.

They have been evaluating it and our green emitter's are being adopted by some additional customers. But to be honest the quantities are very small..

Okay, that's great. Okay, thank you..

[Operator Instructions] We'll take our next question from Andrew Abrams with Supply Chain Market Research..

Hi, guys, congratulations on a good quarter. And one quick question. You know I'm going to ask you about red, the mix between old and new red.

Was that a major contributor to the incremental revenue or were volumes up significantly in terms of overall red usage?.

We do not breakout emitters, whether they're old or new, we just we just really get to red and green. So we really don't give you that granularity, that's not, cannot to be honest..

And also there has been some talk that an OLED TV manufacturer is shifting from yellow, green and fluorescent blue to an RDB combination for OLED TV.

Have you guys seen anything that would indicate that is the case or you know have you had any discussions with any manufacturers that would indicate that that change is occurring either with that manufacturer or others in general?.

Andy I don't mean to be evasive but we cannot talk about our customers what they do and how they do it. To be honest I've seen the reports and talk about what they are doing, but you really have to talk to them. We can't say we can't speak for our customers..

Okay. Thanks..

All right..

Thank you everyone for your time today. We appreciate your interest and support. And with that thank you for calling in and good-bye, good night..

And once again, that does conclude today's presentation. We thank you all for your participation. And you may now disconnect..