Universal Display announced its financial results for Q2 2016. Revenues reached $64.4 million (an increase of $10.8 over Q2 2015) and net income was $21.8 million. This quarter includes a $33.7 million license payment from Samsung Display. UDC results disappointed investors which expected higher revenue and earnings.

Operating cash flow in the quarter was $36.2 million and the company's cash and equivalents at the end of the quarter were $332 million (down from $395 million in the end of Q1 2016, following the $96 million BASF IP acquisition and the $36 million Adesis acquisition).

Recently there were some very encouraging signs about the OLED industry, including large capacity investment plans from OLED makers. UDC will only be effected when these new fabs start to produce displays, and the company now says that the expected revenue growth "will be delayed by about six months" compared to earlier expectations.

No delays have been announced by any display makers, but UDC explains this delay in revenue increase by three factors: it expected its new emitter materials to be adopted this year by SDC, which seems to have been delayed to next year. It also revised its royalty forecast downwards (LG is selling less OLED TVs than expected?) and finally UDC sees producers being more efficient with its materials which mean less materials needed.



UDC downgraded its 2016 revenue guidance to the range between $190 million to $200 million. The original guidance was $209 million to $230 million.

Disclosure: the author of this post holds some shares in Universal Display

In 2015, UDC generated $191 million in revenues - exactly the same as in 2014. Material sales were $113.1 million and the net income was $14.7 million (down from $41.9 million in 2014, because of a large inventory write-down earlier in 2015). In 2015, UDC generated $113.6 in cash - more than double 2014's operating cash flow of $47.3 million. The company has $395.5 million in cash and equivalents.

Fourth quarter results were lower than anticipated - and the company believes this is primarily due to year-end inventory management by Samsung and LG. The company lost virtually all of its green host business in 2015, and does not expect any host sales in 2016. In fact the company gave a soft guidance for 2016 - an increase of 15% in revenues from 2015, plus or minus 5%.

UDC expects 2016 to be a year in which the OLED industry builds meaningful new capacity - but the effect on material sales (and panel production) will only start in 2017 and 2018. Production will increase in 2016, but because the company will not generate revenues from host materials, its overall sales will not increase much from 2015.

Disclosure: the author of this post holds some shares in Universal Display

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