Good day, ladies and gentlemen and welcome to Universal Display's Second Quarter 2016 Earnings Conference Call. My name is Angela 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, Angela, and good afternoon everyone. Welcome to Universal Display's second 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. This call contains time sensitive information that is accurate only as of the date of the live webcast of this call, August 4, 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 thank you everyone for joining today's call. For the second quarter of 2016, we reported revenues of $64.4 million, operating profit of $34 million and net income of $21.8 million or $0.46 per share. In addition to our second quarter earnings release we announced today a new long term license and material supply agreement with leading Chinese panel maker Tianma Micro-electronics. The Tianma agreements and the closing of the BASF OLED IP portfolio and Adesis acquisitions are three significant and positive developments that further solidify our leadership position in the OLED ecosystem and buttress our long term growth plan. They also highlight the high level of activity in our customer and strategic initiatives pipeline. I’ll share more details on this shortly. Let first review our 2016 guidance. The underlying growth fundamentals of our long term outlook are robust. But near term we expect that our revenue growth will be delayed by about six months due to three principal factors. Product mix. We expected some of our higher ASP new emitters to be adopted this year. Now it looks like that has been delayed to next year. Royalties. We are revising our royalty forecast to reflect the current revenue trend. In addition to those two components, we believe that our customers are utilizing our materials more efficiently and are optimizing the recipes ahead of the expansion in manufacturing capacity. In this dynamic and evolving market one or two decisions by our customers about materials or production impact our guidance in either direction. At this point based on the most recent and best information we have on hand, we believe it's prudent to revise our 2016 revenue guidance to approximately $190 million to $200 million. Beyond 2016 the increasing number of capacity related announcements points to a significant multi-year…

Thank you, Steve, and again thank you everyone for joining our call today. Revenues for the second quarter of 2016 were $64.4 million compared to second quarter 2015 revenues of $58.1 million. Our total material sales were $22.3 million in the second quarter of which commercial was $20.7 million. Commercial emitter revenues were up year-over-year but down quarter-over-quarter. Commercial host sales were negligible in the second quarter of 2016, compared to $1.6 million in the second quarter of 2015. Green commercial emitter sales, which include our yellow-green emitters were $15 million in the second quarter, down 17% sequentially from the first quarter 2016's $17.9 million but up from the comparable year-over-year's quarter of $14 million. Red emitter sales were $5.8 million in the second quarter, up 33% sequentially from the first quarter 2016 $4.3 million but down from the comparable year-over-year quarter of $6 million. Material buying patterns can vary quarter-to-quarter. As we saw in Q4 of last year, red emitter sales were up and green was down. In Q1, red was down and green was up, this quarter red was up and green was down. Some of the contributing factors to this include material ordering patterns, efficiency gains, product mix and contractual pricing reductions. Our second quarter 2016 royalty and license fees were $42 million up from the comparable year-over-year quarter’s $33.7 million. This includes the Samsung license fee which was $37.5 million in the second quarter of 2016, up from the comparable year-over-year’s quarter $30 million. The Samsung license fee which is $75 million for 2016 is recognized in the second and first quarter of the year. Moving down the income statement, material cost for the second quarter of 2016 were $5.7 million. In the comparable 2015 quarter material cost were impacted by an inventory write-down of $33…

Thanks, Sid. With increasing investment announcements, expanding OEM product pipelines and an abundance of equipment bookings the OLED industry is gearing up for the next wave of high volume capacity growth. Market research firm IHS forecasted OLED capacity based on square meters of substrate will grow by approximately 300% from 2016 to 2020. IHS also estimates that OLEDs will make up more than one-third of all smartphones displays by 2020. As a key enabler in the OLED ecosystem, Universal Display, is well positioned to support this growth. We are expanding our team and broadening our core competencies to fuel our strategic initiatives and increase our competitive edge. Building on our vast experience and know how, we're continually innovating and creating state of the art OLED emissive systems while also expanding our global IP framework. And we believe the acquisitions of Adesis and BASF’s OLED IP portfolio will help advance and accelerate our efforts. We expect these initiatives along with new OLED capacity coupled with our pipeline of new materials, new technologies and new agreements to bolster our long term growth plan. In conclusion I’d like to thank our employees for their exceptional work and continued commitment to excellence and innovation. I would also like to recognize our customers, partners and valued shareholders for your ongoing support. And with that operator let's start the Q&A.

[OperatorInstructions] And we will take our first question from Brian Lee with Goldman Sachs.

Hey guys, thanks for taking the questions, I have a few so I might cheat a little bit on the one and a follow up. The first one is just on the Tianma agreement, can you give us some sense of how the structure and economics compare to the Samsung and LG deals?

Well, it's both – there is both a license/royalty component and a material supply component. But specific details are confidential but clearly we're getting paid from both sources.

Maybe just a quick clarification, so I guess the biggest delta between Samsung LG in the licensing contracts is Samsung has fixed payment structure and LG is more of a running royalty agreements so between the two which one –does Tianma resemble?

The Specific terms of the agreement are confidential and we really can't talk about each one what the components are at this time.

Okay, fair enough. I'll follow up offline. And in terms of the guidance change one of the things you mentioned Sid was the delay in new emitter adoption. Does that relate to Samsung only or would that include LG? I know they had only been doing one of your legacy red emitters, was the expectation that they would be doing a next Gen red and even a green at some point this year and that's pushed to next year, just any more clarity there would be helpful.

It’s primarily Samsung, but it is both.

Okay. And then in terms of the BASF deal, I’ll ask this one and then get back in the queue, anymore color you can provide around how you think it impacts your timeline for commercializing blue, and also you mentioned a blue emissive system I take it that means more than just the emitter so maybe some sense of what other parts of the OLED stack you could potentially address and how that compares to what you do in red and green.

Sure, Brian, at least focus on the introduction of blue, we focus on the emitter and the host in order to get the materials into the stack. If you recall going back a few years, the way we were able to get green emitters into the stack by providing emitters and hosts, because both materials are important for initial product introduction, so really that's the system that we are focusing on, the emitter and the host as a system. I can tell you that our scientists are very excited to get access to the BASF OLED IP portfolio and they are -- our study in depth provides some additional exciting paths to pursue.

Thanks guys.

And now we will go to Jim Ricchiuti with Needham & Company.

Thanks, good afternoon. Just with respect to the revision to the full year revenue forecast. You cite the three factors, and I wonder if -- can you give us a rough sense in terms of the waiting on these factors which was, one a bigger issue was the adoption delay, is that the biggest factor in this or is it more equally weighted? I wonder if you could just…

It’s kind of equally weighted but clearly having capacity being pushed out. The other ones do impact it, but having capacity pushed out really just literally – because it takes it away and recipe changes, you know that also just takes away material sales. So it's not -- it's not one -- it is not one versus the other, but also adopting new emitters which while we introduce new emitters as you're aware -- because of our pricing structure, we would have expected higher ASPs of materials to be sold when they adopted new emitters.

Okay Sid, with respect the pricing, can you talk about pricing with the existing emitters that you are selling? Was the -- can you give us a sense as to whether that impacted your materials revenue, was the pricing, are you seeing more pricing pressure?

I mean they have reached their threshold from a contractual standpoint down to the terminal value. So, you know for the year or so, that is something that as we said if you get new emitters adopted you go back to the beginning of pricing [ph] tables, so that does impact our revenues for the year.

Okay. R&D was a little bit lower than expected, how should we think about R&D and the other OPEX, expense items, SG&A going forward.

I think, as we said, we think that we -- still for the year, we will be up about 10% to 15%, and I do expect R&D to accelerate faster than SG&A.

Okay. Thank you.

Thanks Jim.

Well now go to Jed Dorsheimer from Canaccord.

Hi thanks you for taking my question. So the delay or push out really is I guess just to clarify is the function of the new emitters not being adopted in the current recipe -- commercial recipe, is that correct?

That’s one of the three factors, Jed. The other two factors are we are reducing the royalty revenue guidance and there are more -- Our customers are getting more efficient with our existing materials we believe in anticipation for the run up over the next few years.

And so, you have the capacity additions coming on from your largest or from I guess your two top commercial customers. Going into 2017 and 2018, how should we think about utilization increases though, because it seems as if red has hit the threshold but there seems -- it seems like we're now in that sweet spot for your customers, I guess, in terms of seeing the benefits of either the new materials producing more brightness in going to a thinner angstrom of the material or utilization increases, so could you help by providing any color on how we should think about that as we look out?

For our customers, if understood your question correctly, Jed, we have a wide variety of materials. We're constantly bringing new materials that provide more efficiency, more lifetime in our different color points. Those new materials will generally be at a higher ASP. The customers get to choose which material they will use in which set of products, so we now have a whole suite of materials. Does that answer your question?

I will follow up offline. I wanted to get into it a little bit more, but I've asked my two questions, so I will jump off. Thanks

Alright thank you.

We will now go to Rob Stone with Cowen and Company. Q – Rob Stone: Hi guys, I wanted to follow up on the guidance a bit more. It seems like this implies essentially no growth or very little growth in materials year-over-year, and you mentioned the change in price and increased efficiency. Is there sort of a break point in the second half, in other words things – changing significantly from what we've seen in half one or just the absence of the step up you were expecting? And then related to the -- you mentioned the price changes, how should we think about your expected materials gross margins in the second half of the year, they were down sequentially quite a bit, and then I have one other question, thanks.

Well, you are correct. We expect to have new emitters which have higher ASPs that would be introduced, though overall we're looking at our material business being flattish for the whole year. So, I think that answers first part of your question. We expect next year [indiscernible] to grow. I mean as capacity grows, we expect it to grow. We just think this is temporary, and from a pricing standpoint, they've been using the same materials for a number of years, so they've reached the terminal value.

And the impact on gross margins?

I think the gross margins were down, I think this quarter over last, I mean to be honest, the gross margins are, we always say they're between 70% and 80%. But it really depends on which material we sell. So if you sell more of a red or you sell more of one version of a red versus the other, they're all in the ballpark but specifically the mix of the material will make our margins go from 79% to 75% or 70.9% in Q4, so it will vary between 70% and 80%.

Are you expecting a further decline in margins in the second half or --?

No, we are not. We expect our margins to be between 70% and 80% for the second half.

Okay so you had a fairly significant FX impact in the second quarter, I guess that was related to BAFS deal. Is that a one-time thing, what's your -- what's your sense of FX exposure for the second half?

To be honest, it was a one-time arrangement. I mean Brexit literally happened from when we had to be prepared for the closing within a few days, and at the closing, it was a sign and transfer the money at the same time, so we literally had to buy the euros a day or two before Brexit to ensure that they were in the account ready to be transferred a day or two after Brexit, and because of Brexit we -- that's what happened. We don't expect that all of our -- all of our other businesses in dollars.

Okay, my final question is on the Tianma deal. I know you're not disclosing specific details, but in the past you’ve collected some cash upfront when you signed a new long-term license agreement, should we expect that in this case, not asking for the amount, just whether there would be some?

I think we can't disclose the terms, and we've not historically done that. In the next quarter, any of these will come up in deferred revenue.

Okay, thank you.

Thank you Rob.

We will not go to Andrew Abrams from Supply Chain Market Research.

Hi guys just one quick question on the efficiency side – or actually two questions, on the efficiency side, has there been anything on the process side, a big step up or a big change in process side that make you believe that there was a big step in efficiency changes and if that is the case, is that a function of new capacity coming on that starts at a higher efficiency level or is it none of the above?

They are constantly tweaking the recipes in orders to -- in a way to reduce costs, there is a number of things that occur that we're actually not privy to, so I think it's all part of the preparation for new production at higher volumes to ensure that they can maintain their margins and their profitability as they increase our capacity.

Got it. On the royalty side, is the change here going forward a function of the LGTV [ph] business being a bit slower than originally projected, not your projections but LG’s protections or are there other major factors enclosed in this?

This is just based upon where we are today and what we have seen based upon what we had built into our original plans which then gave you our original guidance. We’re just seeing it slower and smaller than we had anticipated.

Thank you.

[Operator Instructions] We will now move on to Osten Bernardez with Cross Research.

Good afternoon. Thanks for taking my questions. I was just wondering if you could highlight the rationale, and my call got cut off earlier on, but the rationale behind the customer not adopting some of your newer high ASP products and to what extent do you think that changes -- signals any change and then sort of the cadence with which they will adopt materials from you in the future.

I mean these are really customer decisions of when they change the recipes and when they adopt new [indiscernible] architecture for a new generation product. These are really up to our customer. It’s really out of our control when these things occur. We make the materials that they request. We design the materials to meet their needs, but when they actually adopt it is sometimes different than what we anticipate, and it really is up to them to make that decision.

Okay, so you were anticipating it, but obviously it did not happen.

Right now, we're anticipating that it would occur next year.

And then secondly, just with respect to the Tianma announcement, I just want to make sure I understand this correctly. Is this a relationship that you believe will be meaningful from a standpoint of -- I am just trying to identify why they would sign this now if they're not looking to produce until sometime in the second half of 2017 or is this more very – I guess, can you sort of -- how material this would be?

The 2017 is their second plan. They currently established a production line in Shanghai, the Gen 5.5 plant, and we suspect that there should be some small quantities this year.

Okay, thank you very much. I’ll get back in the queue.

We will now go on the Hendi Susanto with Gabelli & Company.

Good afternoon. Sid and Steve, may I know what gives you confidence that the delay in the revenue growth would not exceed 6 months. Considering that there can be various possible reasons including lumpiness in capacity, built out new capacity, and others.

I mean, based upon everything we know today and based upon everything we’re aware of and talking to our customers and where they are with new emitters, we're pretty confident at this time that this is just a six-month pushout of our revenue growth, I mean based upon all the orders, based upon all the equipment orders that are out there, and when the folks are supposed to deliver, and what the customers are saying their capacity will be. We think that this is really just a six-month push up.

And then considering that there's a lot of industry capacity build out happening between now and 2017, 2018. May we know how you plan to approach the capacity build out with regard to increasing your capacity?

Our capacity for the production of our materials, we have always looked a two-year window in advance ensuring that we have enough inventory and enough capacity in place to meet any of the needs that our customers could potentially have. We always are on the conservative side in terms of ensuring that we have more material that we probably will sell during that period. So we are a sole source. We understand that we’re a sole source, and we tell our customers that we will meet their needs and we ship within 24 hours and you know we've built Barberton facility a couple of years ago, and we're working on the next steps in that facility, and anything else we need to do to ensure we’re looking at you know from 2015 to 2017 a 50% increase in capacity, and then another step up through 2018 and 2019, and we are on top of that at this time.

Thank you.

Thanks.

So we will now go to Nam Kim with Arete Research.

Thank you for taking my question. A similar question to the previous one. I think you are referring Samsung’s delay on new material structure M8, and they continue to use introducing M7 structure this year. Is this due to other material issue like [hole] [ph] or common later HTL/ETL or any certain issue on your new red material, and also in M8 structure, do you also supply new green material or only red material changes, and then should we think new material will be also adopted potentially with the Samsung’s big customer next year?

Well, we can't talk about what the customer puts in any of the specific items you're talking about. M8, which some people may know what that is or may not, I mean we provide our customers with the material they need. As I said, we can't make the decisions on when they adopt [indiscernible, but we provide them with everything they need. There is nothing -- if you’re asking if there's a reason that they didn’t adopt it was because of us, we've given them everything they need timely.

But [indiscernible] already M8 way before they used. It sounds like you are supplying only new red material and then green material will be same with the current material on this M8 structure?

We never talk about what specific materials go to which customer. We really only talk about our red emitters and green emitters that go to customers, and I honestly can't discuss which materials are changing and which materials are not changing at this time.

Okay, thank you.

Thanks.

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

Thank you for your time today. We appreciate your interest and support and we look forward to speaking with you again next quarter. And thank you very much again and good night.

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