Good day, ladies and gentlemen, and welcome to Universal Display Third Quarter 2021 Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call. . 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, and good afternoon, everyone. Welcome to Universal Display's third 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 a property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the express written of 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, November 4, 2021. During this call, we may make forward-looking statements based on current expectations.

These statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. 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. We're pleased to report that revenue in the third quarter of 2021 was $143.6 million. Operating profit was $57.7 million and net income was $46.1 million or $0.97 per diluted share. Sid, will go with further details on our financials.

But first let me provide an update on our outlook on the OLED industry and the company. As we move to the OLED market, we believe that panel makers and OEMs are preparing for a new wave of investment and product proliferation in the coming years. For display makers.

There are three large consumer electronic and market opportunities, smartphones, IT which includes tablets, laptops, and monitors, and TVs. In addition, there are other budding consumer opportunities, including augmented and virtual reality, smartwatch, gaming, automotive, lighting and signage markets.

So where are we today? As we enter 2021, about one-third of the smartphone market was penetrated by OLED. And by year-end, based on market research forecast, OLED penetration is expected to widen to approximately 45% of the smartphone market.

This has been largely driven by OLED adoption broadening beyond the premium segment and into the mid-range, as well as even some low end smartphones. But more panel makers participating in the smartphone OLED market and panel pricing expected to decline. We believe that penetration is poised to expand further.

Why do the panel makers investing its smartphone OLED capacity is BOE. BOE has to two Gen 6 OLED panel production lines in operation. And according to reports, BOE is currently setting up its third Gen 6 OLED fab in Chongqing, with mass production of the first phase to begin in the second half of 2022.

When fully ramped, BOEs three OLED fabs will have a combined total capacity of 144,000 Gen 6 substrate starts per month. In addition, BOE has planned to build a fourth OLED panel production line in southeastern in China. Augmenting the growth of the OLED smartphone market is the exciting and burgeoning foldable phone market.

Foldable smartphones are widely expected to become the fastest growing phone category. With market research forecasts calling for foldable OLED panel shipments to increase from 10 million units in 2021 to about 67 million units by 2025.

Looking forward, what are the additional applications expected to significantly drive growth in the OLED market? Let's start with TVs. OLED's continue to gain strong traction in the TV market. LG display know on its earning call last week that expects to ship approximately 8 million OLED TVs in 2021 are from last year's 4.5 million units.

And for 2022, LGD believes 10 million OLED TV units is an achievable target, as it ramps up an additional 30,000 plates per month of Gen 8.5 OLED capacity in Guangzhou, China. From a market penetration standpoint, OLED TVs are expected to make up about 3% of the addressable TV market at the end of 2021.

While 3% is a low single-digit number, it also shines a tremendous light on the incredibly large adoption curve potential for OLED TVs. Just to give you some context on what the TV market potential is from a display area perspective.

Approximately 5% OLED penetration of the TV market is greater than 50% OLED penetration of the smartphone market from a square inch standpoint that has a lot of substrate area for material players like us. Moving along to the emerging OLED IT market.

This market opportunity of laptops, tablets and monitors has begun to be a focus for OLED manufacturers. The Samsung Display champions the OLED IT adoption charge, we are beginning to see the nascent stages of proliferation and IT applications materialize.

As many of you are aware OLED displays offer more immersive colors, higher contrast ratios, faster response times and wider viewing angles and LCD panels. Samsung is making good progress in the OLED laptop market, where it is supplying OLED panels to global manufacturers, including Asus, Lenovo, Dell, HP and Samsung Electronics.

So how big of an opportunity is the OLED IT market. Based on market research estimates OLED's are expected to account for a mere 2% in the IT market by year-end. That means it is an enormous opportunity. And it's an opportunity that an increasing number of OLED panel makers are broadening into.

We believe that OLED's are still in the early innings of a long-term secular growth market. As display makers expand their focus from small to medium and large area.

Reports are emerging about potential new Gen 6, Gen 8.5 and even Gen 10 OLED capacity plans, new OLED device architectures, and new consumer product roadmaps that include an expanding portfolio of OLED applications. With this next wave of adoption taking shape. We are fortifying our position as an OLED leader and innovator on multiple fronts.

We are leveraging our 25 plus years of pioneering research, knowhow and experience into new materials and new technologies. We're also expanding our footprint, building our infrastructure that is designed to drive an effective cost structure and targeting new opportunities.

These initiatives will further enable us to provide continued value to our customers, while keeping UDC at the forefront of the growing OLED industry.

On the folate front, the discovery design, development and delivery of new and next generation phosphorescent emissive materials, including new reds, greens, yellows and hosts is at the core of our R&D programs.

With respect to blue, we continue to make excellent progress in our ongoing development where for commercial phosphorescent and blue emissive system. We believe that a commercial phosphorescent blue is a question of when and not if.

We plan to deliver an all phosphorescent RGB stack, which will further enable higher energy efficiency and high performance for OLED applications across the consumer landscape. With the largest phosphorescent OLED team in the world, we are driving innovation at the molecular level through new materials and new device architectures.

Our approach to our broadening full of materials portfolio is both extensive and cohesive. This includes our computational, synthetic, mechanistic and process chemistry expertise, coupled with our physicists, engineers and technicians.

Our development teams work closely with customers as we invent and commercialize next generation materials to meet panel makers ever changing and ever evolving specifications for color point, efficiency and lifetime.

And our full application centers located in Korea and Hong Kong, provide a localized UDC engineering team to work directly with our customers in developing full performance data to support the rapid new product cycle times. The consistent and successful execution of meeting multiple product cycles every year is part of UDCs core strength.

It is why we are the key OLED material supplier of choice to the industry. And while we have long-term relationships with all the leading OLED panel makers. We take our customers ambitious targets, fulfill their objectives, and deliver industry leading materials that drive the ultimate performance of our customers growing OLED product portfolio.

Our long-term partnership with PPG is a principle factor in our ability to accelerate a developmental material to a high volume commercial material. Through our two decades of cooperation and collaboration, we have cultivated and bolstered our best-in-class manufacturing, know-how and expertise.

This partnership has enabled us to continuously introduce state of the art phosphorescent emitters to our global customers. Speaking of customers, I would like to share that we have extended our long-term commercial material and license agreements with Tianma Microelectronics,.

We are pleased to continue our strong partnership with this leading Chinese panel maker, as they continue to advance or OLED presence and expand their OLED portfolio plants. Now, moving along to the OLED technology front, one of the primary R&D programs we are working on is plasma unfolded, our fundamental groundbreaking device architecture.

While still in research, we believe that the potential benefits to customers in the industry are significant. We estimate that plasma unfolded has the potential to increase device lifetime by up to 10 times and double the efficiency, which we believe will pave the path for new OLED applications.

On the OLED production front, we are in the midst of retrofitting the first phase of a multiyear project at our new manufacturing site and Shannon, Ireland with our partner of over 20 years PPG for the production of our highly efficient, high performing universal filed materials.

This new facility will diversify the manufacturing base for our phosphorescent emitters to meet growing OLED market demand and evolving industry requirements. It will be designed to serve all of our customers for red, green, yellow, and in the future blue emitter production.

The site is expected to double our production capacity within the next five years.

On the OLED manufacturing front, we have been working on OVJP or organic vapor jet printing, a novel manufacturing printing process that allows manufacturers to use a gas vapor stream to dry print red, green and blue small molecule materials directly onto a substrate without the need of a mask set or solids.

In addition to patterning without a mask, OVJP represents a next generation process platform to enable high performance device designs with gray and mixed layers. We believe OVJP represents a low cost high performance, high throughput, highly efficient, large area pattern OLED manufacturing process platform.

Our OVJP team, which consists of approximately 50 people are continuing the development path for OVJP equipment and advanced process platform. The OVJP technology development team in Ewing, New Jersey is working hand in hand with the OVJP equipment team in Silicon Valley to advance our commercialization roadmap.

The teams are currently working on the key subsystems to prove the viability of OVJP for large area manufacturing. Achieving this milestone is a critical element in the building blocks for alpha system design. While the commercial launch of OVJP is still a few years away.

Estimated multibillion dollar revenue opportunity is part of our multi-dimensional approach to long term growth. For over 25 years, innovation has been and continues to be a primary driving force at UDC.

We believe that these near term, mid-term and long-term strategic initiatives will further advance our robust old materials and technology leadership and strengthen and support our primary focus of enabling our customer success and therefore our success. On that note, let me turn the call over to Sid..

Thank you, Steve. And again, thank you everyone for joining our call today. Revenue for the third quarter of 2021 was a record $143.6 million compared to second quarter 2021 is $129.7 million and third quarter 2020 is $117.1 million.

Our total material sales were $75.6 million in the third quarter of 2021, compared to material sales of $77.4 million in the second quarter of 2021 and $68.7 million in the third quarter of 2020.

Green emitter sales in the third quarter of 2021, which include our yellow green emitters were $57.8 million, which is sequentially flat from the second quarter of 2021, and compared to $52.9 million in the third quarter of 2020. Red emitter sales in the third quarter of 2021 were $17.7 million.

This compares to $19.5 million in the second quarter of 2021 and $15.2 million in the third quarter of 2020. As we have discussed in the past, material buying patterns can vary quarter-to-quarter.

Some of the contributing factors include COVID-19, and supply chain issues, as well as consumer product demand cycles, capacity, ramp schedules, production loading rates, device recipes, product mix, material ordering patterns, customer inventory levels, and customer production efficiency gains.

Since a number of these factors are moving variables for our customers, they're also moving variables for us. Third quarter 2021 royalty and license fees were $63.9 million. This compares to $48.2 million in the second quarter of 2021 and $44.6 million in the third quarter of 2020. Third quarter 2021 Adesis revenues were $4.1 million.

This compares to $4 million in the second quarter of 2021 and $3.8 million in the third quarter of 2020. Cost of sales for the third quarter of 2021 were $31.5 million, translating into an overall gross margins of 78%.

This compares to $28 million in gross margins of 78% in the second quarter of 2021 and $23.4 million and gross margins of 80% in the third quarter of 2020. Cost of OLED material sales were $28.9 million, translating into material gross margins of 62%.

This compares to 67% in the second quarter of 2021 and a comparable year-over-year quarter material gross margin of 70%. For the first nine months of the year, our material gross margin was 68% and our overall gross margin was 80%. As we have noted in the past, gross margins can vary quarter-to-quarter.

We expect our overall gross margins to be approximately 80% for the year. Third quarter 2021 operating expense, excluding cost of sales was $54.4 million, compared to last quarter's $51.8 million and the year-over-year's comparable quarter of $45.3 million.

We are investing in our research and development, including OVJP Corporation, our infrastructure including our new Shannon site, and in our people to fortify our growth opportunities in the organic electronics landscape.

Operating income was $57.7 million in the third quarter of 2021 compared to last quarter's $49.9 million and year-over-year's comparable quarters operating income of $48.4 million. Operating margin was 40% in the third quarter of 2021 compared to 38% in the second quarter of 2021 and 41% in the third quarter of 2020.

And for the first nine months of the year, operating margin was 42%. We believe that we are on track for our operating margin to be in the range of 40% to 45% for the year. Third quarter 2021 income tax rate was 20%. We estimated our full-year tax rate will be approximately 19% give or take a few basis points.

Net income for the third quarter of 2021 was $46.1 million, or $0.97 per diluted share. In comparison, net income for both the second quarter of 2021 and the third quarter of 2020 was $40.5 million or $0.85 per diluted share. We ended the quarter with approximately $789 million in cash and equivalents, or $16.66 of cash per diluted share.

Moving along to guidance. While we're seeing impacts to the consumer electronics ecosystem from the pandemic, and component shortages, we continue to expect our 2021 revenues to be in the range of $530 million to $560 million, with a ratio of material to royalty licensing revenues expected to be in the ballpark of 1.5 to 1.

And lastly, our board of directors approved a $0.20 quarterly dividend, which will be paid on December 30 2021 to stockholders of record as of the close of business on December 16, 2021. The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders.

With that, I will turn the call back to Steve..

Thanks, Sid. As we knew the end of 2021, we take a moment to reflect on how the pandemic continues to be of profound global disruption, but also how it has tapped into one's resourcefulness, resiliency and resolve.

As a corporation of approximately 400 employees spread across 14 locations around the world and participating in a young dynamic market, this pandemic has been an ongoing journey of adapting to constraints and overcoming obstacles.

But deep in every trove of challenges are the seeds of opportunity and at UDC, we have seized on those opportunities to continue to build up and bolster our leadership position in the OLED ecosystem, and to emerge even stronger, to further enable our customers and the OLED industry.

At the heart of the company, our employees, and our steadfast commitment to cultivating and nurturing a global culture that celebrates innovation, collaboration, diversity and inclusion.

Since our founding, we have taken decisive steps to build a culture that empowers our employees, and fosters an environment where they can thrive with inventiveness, ingenuity and problem solving.

I am proud of the progress and hard work of UDC to advance our path forward and building a sustainable and successful future for our company, our customers, our colleagues, and our communities.

We like to take this opportunity to thank each of our employees for their drive, desire, dedication, and heart in elevating and shaping, Universal Display's accomplishments and advancements.

We're committed to being a leader in the OLED ecosystem, achieving superior long-term growth and delivering cutting edge technologies and materials for the industry, for our customers and for our shareholders. And with that, operator, let's start the Q&A..

Thank you. Our first question is from C.J. Muse with Evercore ISI. Please proceed..

Hi, good afternoon. Thank you for taking the question. I guess wanted to first off against here, what you're seeing from your third largest customer? It look like the sales there were roughly half of what at least we expected.

So curious, is there inventory digesting there? When will that start to recover? And was that an impact to the material gross margins or per your 10-Q you highlighted an intro of new red and green emitter.

So would love to hear color there please?.

Thanks, C.J. In terms of your question on BOE, which is our third largest customer. Customer ordering patterns can be lumpy for various reasons. In the first quarter of 2021 customer they purchase a significant amount of inventory.

And even though their sales are sequentially lower, they had a substantial order in Q1 and pretty much for the year, they're in line with our expectations. And we don't really believe that there's anything different except for the normal, lumpy, inventory purchasing from them..

Okay, that's helpful. And then I guess I wanted to, as my follow-up go back to the unbilled receivables. Now they came down in the last three months, but, you disclose sort of changes in contractual amendment with clients.

So I was hoping you could walk through, what exactly is going on there, and how we should think about cascading those revenues, I guess, on a positive side in 2022, and whether there could be any changes that would be headwind to revenues in '22? Thank you..

Yes, you're welcome. Particularly on unbilled receivables, that is a balance sheet item. It is essentially something that has really no impact on our revenues. We have deferred revenues when we get paid by customers, but that is having to do with the billing when we entered into a new agreement with our customer. So it really is a billing question.

It is not a headwind, it is neither a positive or negative in terms of our revenue recognition. Because under 606, this has nothing to do with it..

Thank you..

Thank you, C.J..

Our next question is from Sidney Ho with Deutsche Bank. Please proceed..

Great. Thanks for taking my question. My first question is on the third quarter that will make the ratio of material sales to licensing revenue close to 1.2. Just trying to understand why is it so much lower than the 1.5 we expect for the full-year? And how should we think about that ratio going forward in Q4? Thanks. And then I have a follow-up..

Thank you. For the material, the material royalty license ratio can vary quarter-to-quarter, because it really depends upon customer mix. And we for the year, we still expect the material royalty licensing revenues to be in the 1.5 to 1 range..

Is there anything particular this quarter that drops it to 1.2?.

No, it really is its customer mix to be perfectly honest..

Okay, maybe a follow-up question as the IT market starts adopting OLED display. Can you talk about what the revenue opportunity per panel or per area? Whatever metrics you can use? Are they more like smartphones or TVs on the revenue per area basis? Thanks..

Yes, well, I think obviously for us it is the increase in square inches of plates that are processed and the more square inches of glasses processed, the more materials we sell. And these are made similar to what smartphones are made. So it is RGB side-by-side. And the recipes may be a little different for IT than they are for smartphones.

But for us any increase in factory utilization, and any new capacity that comes on is a plus for us..

Great. Thank you..

Thank you..

Our next question is from Krish Sankar with Cowen and Company. Please proceed..

Yes, hi, thanks for taking my question. I told them Sid in the past, you said that the component titles do not impact you directly. But you know, LG display last week, so the area shipments declined in September due to components supply issues. From this I want to figure out are you seeing any deliveries impact or maybe to ask a long winded question.

Your full-year guidance range of $530 million to $560 million.

Do you think you're going to be in the upper end or lower end based on tightness? Because that could imply December quarter, it could be sequentially up or down in revenue? So just want to figure out where to think about that?.

Well, thank you for the question. And in terms of the guidance for the year, we have stated that, there are -- in recent weeks as there are number of companies in the similar electronics ecosystem that have discussed pandemic and component shortages that impacted Q3 and changed their outlook for Q4. I mean, when we put our guidance together.

In the beginning of the year, we tried to let think about all the possible headwinds. And when we did it, in February and based upon everything and based upon everything that was occurred, I mean, we're still comfortable with $530 million to $560 million as a revenue range for the year..

Can you give any color on sequential growth in December, or how to think about revenues?.

Well, if you look at the fourth quarter, and we've reiterated the guidance. As I said, we talked about first half and second half, and we thought second half would be up. If you look at the low end of $530 million, it would be up slightly from the first half.

And if you look at the upper end of our guidance of $560 million, then the second half would be up about 12% over the first half..

Got it.

And then just a quick follow-up, the increase in inventory in the quarter is that all primarily due to the purchase of iridium or something of going on?.

If you look at our 10-Q, you will see that raw materials has grown, it's really in the raw materials area.

And as we have talked about in the past, we've clearly tried to manage iridium so that A, we never have an uninterrupted supply and B, trying to average the price that we have, that we pay for it, because during the pandemic, there were real issues in getting it, but we had none..

Thanks Sid..

Thank you..

Our next question is from Jim Ricchiuti with Needham and Company. Please proceed..

Thank you and good afternoon. Just question on the way that the revenues are tracking among your customers, you mentioned that your third biggest customer, despite the variability quarter-to-quarter it's kind of essentially in line with your expectations.

Is that true of your other customers, whether they are too large customers in Korea, and in general, we're seeing quite a bit of variability from your other customers in China.

So I'm trying to get a sense as to how much of that is in line with the way you had been thinking about the business earlier in the year? Or has we've seen things change a bit as the market dynamics have changed?.

Thanks, Jim. I think when we look at it, the fact that we -- our guidance's exactly what it was in February. I think overall, things are in line with what we thought they would be. And to quarter-to-quarter things do change, just like we said the one customer in China, in the first quarter bought a lot more, which the percentage went up.

But overall for the year, I think we pretty much are in the ballpark with all the customers..

And there's been some reports, as it relates to some of the component constraints that there's been some chips that have moved out of tablets and gone into phones.

I know you guys are removed from that, but are you seeing any signs of that with any of your customers in terms of changes in some of the applications for the screens or are you too far removed from in the food chain?.

And to be honest, we're pretty far removed from it. We do know that, as lots of companies and our customers have reported all of them are having issues with chip. But to answer your questions specifically, I don't really know..

Okay, and anything in terms of last question, just with respect to your operating expense, looking at a Q4, is there going to be any change in terms of how either the makeup of the expenses? It sounds like you're continuing to invest fairly heavily in R&D as it relates to some of the newer projects you're working on.

But how should we think about R&D expense in Q4?.

Yes, for the year, we talked about R&D expenses being up by 25%. We expect that all of our expenses to be at 20% to 25% for the year when we gave our guidance. I think we're in that ballpark for the year. So there is nothing as Steve mentioned, we are focusing on OVJP and blue and the R&D expenses are going to go up as we stated.

So I don't think there is going to be things different in Q4 than you've seen in Q3..

Okay, thank you..

Steven Abramson:.

.:.

. Our next question is from Shannon Cross with Cross Research. Please proceed..

Thank you very much. I was just wondering about inflationary pressures on materials. And just in general, what you're seeing how you're able to offset it, perhaps what you're doing from an inventory standpoint to try to stay ahead or at least in line with what's going on? Thank you..

Yes, thanks, Shannon. I think I mean, we always are looking at ways of looking at our supply chain and trying to ensure that we have an uninterrupted supply, but obviously, we care about costs. And so we've always looked at having multiple sources for the components that go into it.

And obviously, we talked about Iridium, because that's commodity and the prices are out there. And you can see what they have done. So we started buying Iridium years ago. So we have some inventory, that's a very low price. And we bought it during the whole time, so we have inventory, that's a higher price.

But I think we really have tried and are doing a pretty good job of managing it. I don't think I can say that I expect inflation to really impact our COGS in the future, because everything is going up. Like, I don't believe that to be the case..

Okay, thank you. And then, I guess, and I apologize if this has been somehow discussed. I had another earnings call tonight. But I'm just curious, we're starting to see some pretty aggressive pricing moves for OLED TVs, and frankly, TVs in general, especially with the higher sizes.

Can you just remind us of in the past, when prices have come down, or you've seen what we're hoping to be growth in the market, and sort of how long it takes or when we start to see the benefit in your numbers versus the market especially given some of the changes you've had in terms of accounting?.

Yeah, thank you. Well, LG noted on their call that there is strong demand for OLED TVs, and talk about 8 million TVs. This year, there is two fabs and they initially guided from $7 million to $8 million, they're talking about being at the high-end.

For us, when the panels get made, it's probably I don't know, whether it's three months or six months or two months exactly when our material goes in. But clearly, we are in the panel itself, which then if it said, you know gets shipped to either LG or a lot of their 18 other customers.

So there is no new capacity, but their factory utilization has gone up. So that's where you would see with us, and then they're supposed to add 30,000 substrate starts, so that they can be at 10 million units next year..

Great, thank you..

Thanks, Shannon..

Our next question comes from with Berenberg. Please proceed..

Hi, good evening. Thank you for taking my question. I was just wondering, what are the most popular enhancements capabilities that customers have asked for? And can you develop those organically or would you need to pursue M&A for that? Thank you..

Thank you for the question. Our R&D teams work closely with our customers and what they ask for our -- what our performance for our material they want to -- they're always looking for lifetime or efficiency or color. So our teams works closely with all of our customers. So, we do that here. We are the ones that develop the materials.

We are the -- follow that leader for 25 years, and we will continue to lead the market, but we do all of the full lead development work in our facility..

Great, thank you. I appreciate that..

Thank you..

Our final question is from Martin Yang with Oppenheimer. Please proceed..

Hi, thank you for taking my question.

So I thought accounting question regarding your VC investments recently, which we saw that the digitalize has raised a new round, probably at a higher valuation, how does that impact your financials? Can you maybe give us some more details?.

Sure, one of our investments. It's a small investment. And when we look at the investments on our balance sheet value of digit lenses. Our total investments are under $10 million in the company. So right now that's not going to move the needle to be perfectly honest..

Got it. I have another question and also my final question. China this quarter -- when we isolate, maybe LG and BOE was really strong.

What was driving that year-over-year growth?.

I'm sorry, I didn't hear the last part of your question..

What was driving the year-over-year growth in China? What do you think about customers that are on LG?.

I'm sorry, I apologize for not hearing it first. I think, well clearly, if you look at China, it is BOE and you've got LG sat there. So as we talked about TVs, they're talking about 8 million units, which is the high-end. So you're going to see LG facility in China, that is growing and BOE is ramping up its two facilities.

And we also have other customers in China, which includes Tianma and Visionox. So there is a lot of activity there, and we've talked about it over the last couple of years that we will continue to see growth coming out of China..

Thank you so much..

Thank you very much Martin..

We do have one more question. This is from Nam-Hyung Kim with Arete Research. Please proceed..

All right, thank you for taking my question. There are a lot of news on Mini LED, I guess in IT space, especially one of the big OEM pushing aggressively Mini LED on their product. So do you see Mini LED can be compatible to OLED or Mini LED just a middle step before OEM out after all that later.

So any thoughts or opinion your end would be great, thank you..

Thank you, Nam. I think customers are working on their recipes and whether or not the same materials or what we will get our customers asking us to design materials that specifically meet their specifications.

I think it is I think it is something that we're working closely with our customers to make sure that we design new materials to meet their needs or if we have something that meets our needs, make sure they have it..

So you think that at yes at the end, so you think the Mini LED is kind of a middle step between traditional LCD and OLED.

So at the end, OEM probably adopt OLED instead of a Mini LED, is that what you mean?.

I do think that Mini LEDs are as you're well aware, they're just another backlight technology. And as LG's CTO noted recently on their earnings call talked about Mini LEDs and Mini LEDs in this quarter Mini LEDs are nothing more than an LCD with slightly improved backlight.

As such, they have the same imitations as -- limitations as LCD such as light leakage and flickering. Therefore, OLED are superior to Mini LEDs and OLED displays are the technologies that can realize high quality and affordable prices. So, obviously, just like LG, we're very bullish on OLED..

Okay, thank you..

Thank you, Nam..

Our next question comes from Brian Lee with Goldman Sachs. please proceed. Brian, your line is live, if you would like to ask a question. Please check if you have your new feature? Okay, we will come back to you in a moment. Our next question is from Andrew Abrams with SCMR. Please proceed..

Can I get a little color on your ability to pass on increased cost meaning Iridium prices? How flexible are your customers in terms of a base price, not a different material, a new enhanced material, but on basically the same material that they were buying six months ago.

And second, if you could talk a little bit about the base price for OLED panels that your royalty is based on? Can you give a little color on any changes that you've seen on a gross average coming out of particularly LG display and how that might affect your royalties one direction or the other?.

Thanks, Andy. As we've stated and I think you're aware, we have said that all of our long-term contracts have pricing built into those contracts. So customers would one prices that go down, but we have a built in versus and we've made one in the go up.

But we can't do either one because we have contracts building materials, that when we started the contract that we were selling our built in whether it's reds and greens, so that's not an issue.

And as we talked about customers, when they ordered, new variations of them, they started at different pricing level and work their way down and get cumulative volume discounts. And so that's something that we do not have the ability to pass on.

Regarding the second part, I can't really talk about details of what is in our royalties, when we do talk about royalties, we talk about a percentage of the ASP of the panel. So if panel pricing goes down, you're going to see less because your percentage is going to be based upon a lower number.

But normally when panel pricing goes down because the volumes go up..

Got it, okay. Thank you. I appreciate it..

Thank you.

We were having technical difficulties, we once again have Brian Lee with Goldman Sachs. Please proceed..

Hey, team, good afternoon. Thanks for squeezing me in here. I apologize as some of these have been asked already. But I guess the first one I had was just on the sales mix this quarter, you had a much higher mix of royalty and licensing versus materials versus the past couple of quarters.

I know a lot of times you talk to the mix of customers as being the reason you see some quarter-to-quarter variation in that but your top two customers were basically the same percent of sales mix this quarter versus last but that royalty versus material mix did shift anything you can speak to there, just to give us a sense for what might have driven that?.

I mean, I think that you are correct. That's what we have stayed in that does have the biggest impact on it and customer A and customer B were up and customer C was down in the quarter. .

Okay, fair enough. That's a fair point. And then on the materials revenue, and I promise this is my last one, I'll pass it on. There hasn't been real seasonality this year, I know this is an interesting environment in many regards, across different industries.

But for you guys, you're almost always accustomed to seeing a decent amount of seasonality in your materials revenue. This year, there's been almost no seasonality, if you look at kind of $75 million to high $70 million revenue run rate you've seen every quarter this year.

Is there anything unique, has anything structurally changed, would you say in terms of your customers and your customer buying patterns? And then does this translate to Q4 as well or what sort of seasonality would you be thinking about here on the materials side specifically, as we head into year-end? Thanks..

Yes, thank you, and we apologize for the problems you're having. But it's a difficult question, because seasonality is something that isn't exactly we're not in a consumer business that is going to have big lumpy, one big hump as you get towards the holidays.

But I've heard from other companies in the consumer electronics ecosystem, the pandemic and component shortages have impacted output and therefore, it's going to affect everybody in the food chain, including us.

So, in addition to the normal quarter-to-quarter variations in sales, which can be lumpy, as we've talked about, we were going to I think we're going to continue to see lumpiness..

Our next question is a follow-up question from Krish Sankar. Please proceed..

Yes, thanks for taking the follow-up. Steven, I just wanted to ask, someone asked a Mini LED question, just want to ask the same question. But your views not on Mini LED, but Micro LED and QD OLED. I'm kind of curious how you think of it recently OLED opportunity. Thank you..

Yes, Micro LEDs as you're well aware are their cell phone. This is their very early stage. And right now, there's something that you'll see like we've talked about, I think Samsung has 110 inch Micro LED TV that reportedly has a price tag of $156,000.

So there's still a number of unanswered questions and when they actually will get into the market and what market they will address. It's pretty much stuff that we hear is it will have opportunities if and when it gets into the market for very small and very large displays..

Thank you. This does conclude the question-and-answer session. I would like to turn the program back to Sid Rosenblatt for any additional or closing remarks..

We just want to thank you all for your time tonight and if you have any follow-ups, please you all know that you can contact us. So everyone have a good night. Thank you..

Thank you. This does conclude today's program. You may disconnect your lines at this time..