Good day, ladies and gentlemen and welcome to Universal Display's Fourth Quarter and Full Year 2019 Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call. At this time, all participants are in a listen-only mode and a question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.I would now like to turn the conference over to Darice Liu, Director of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Universal Display's fourth 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, February 20, 2020.During this call, we may make forward-looking statements based on the 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 concerning 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 our fourth quarter and 2019 results. Our solid financial results reflect our and the OLED industry's strong growth momentum. 2019 revenues were $405 million. Operating income was $158 million and net income was $138 million or $2.92 per diluted share. Fourth quarter revenue were $102 million, operating income was $34 million, and net income was $26 million or $0.56 per diluted share.The continued proliferation of OLEDs in smartphones, TVs and wearables, as well early commercial headway into the IT and automotive markets is fueling OLED capacity investments and installs, which in turn helped us to achieve record results across the board in 2019. As we look to 2020, after a year of significant capacity additions, we expect to see some capacity digestion.In addition, there are evolving uncertainties related to the novel coronavirus. Based on current estimates we believe 2020 revenues will be in the range of $430 million to $470 million. Sid will provide further details shortly. As we look to 2021 and beyond, as new OLED capacity comes on line, new OLED products are launched, and progress continues with our customers' commercialization plans, we expect meaningful growth.Now looking back to 2019, we continue to build on our leadership position and foundation for growth. We announced new partnership agreements, constructed new state-of-the-art phosphorescent OLED application labs and offices in Korea and Hong Kong, established UDC Ventures, our corporate venture arm, and achieved a number of internal R&D milestones, including completing the installation of our three-chamber OVJP pilot system.In addition, the OLED industry grew more robust as new OLED capacity was installed, new OLED OEMs and products were introduced, and revolutionary form factor products like the Samsung Galaxy Fold, LG’s rollable TV and Lenovo’s foldable PC were…

Thank you, Steve and again thank you everyone for joining our call today. Let me review our 2019 results before commenting on our 2020 guidance. 2019 was a year of record results. Revenues were $405 million up 64% year-over-year, material sales were $243 million up 59% year-over-year, and royalty and license revenues were $150 million up 86% year-over-year.Under ASC 605, 2019 revenues would have been $428 million. 2019 operating expense excluding cost of materials was $171 million up 25% from $137 million in 2018. Operating income was $158 million compared to operating income of $57 million in 2018 up 179% year-over-year as a result of our strong operating leverage. Net income was $138 million or $2.92 per diluted share compared to net income of $59 million or $1.24 per diluted share in 2018 up 135% year-over-year.Under ASC 605, operating income would have been $181 million and net income would have been $156 million or $3.30 per diluted share. We ended the year with $646 million in cash, cash equivalents and short-term investments or $13.74 of cash per diluted share.Now, moving on to fourth quarter results, revenues for the fourth quarter of 2019 increased 45% year-over-year to $102 million from fourth quarter 2018 revenues of $70 million and up from last quarter's $97.5 million. Under ASC 605, fourth quarter revenues would have been $109 million. Our total material sales were $61 million in the fourth quarter up 52% from the comparable year-over-year's quarter of $40 million and up 17% sequentially from last quarter's $52 million.Green emitter sales, which include our yellow-green emitters, were $47.5 million up 18% sequentially from third quarter's $40.2 million and up 70% from the comparable year-over-year's quarter of $27.9 million. Red emitter sales were $13 million in the fourth quarter up 14% from the third quarter's $11.4…

Thanks Sid. The growing and dynamic OLED market is bright and as a key OLED innovations partner we believe we continue to be well positioned to participate in the many exciting opportunities that lie ahead. We are expanding our global team and broadening our core competencies to fuel our strategic initiatives and increase our first mover competitive edge.We are working closely with our customers as they map out their new product introductions for the coming years and are building on the breadth of our 25 years of experience in knowhow and continually innovating and developing enabling materials and technologies to support our partners and the industry.With the ongoing proliferation of OLED displays across our broad array of small, medium and large consumer products, and the move to advance OLEDs into the midrange market, we see an environment that offers extraordinary and expanding opportunities. This includes novel applications based on conformable, foldable, and rollable plastic form factors which are poised to transform the consumer electronics industry.In closing, 2019 was a year of growth for us and another year of strong investment and diversification in the infrastructure of the OLED industry's robust long-term growth path. We are creating and adding value for our customers and strengthening our leadership position in the industry through innovative products, services, and solutions.At the core of our company strength is a global team here at UDC. I would like to take this opportunity to thank each of our employees for their drive, desire, dedication, and heart, in elevating and shaping Universal Displays accomplishments and advancements.We are 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, Mr. Abramson. [Operator Instructions] Our first question is from Sidney Ho with Deutsche Bank. Please proceed with your question.

Great, thank you very much. My first question is, you talked about coronavirus outbreak could have a revenue impact of up to $40 million to $50 million this year. So is that correct that you take both the top-end and the bottom-end of your guidance down by that amount? That's my first part.But just to follow up on that, how would you characterize this impact? Is it more a supply issue, meaning you have problems shipping to the China or it is more about the supply chain or is it more demand driven, and if it is demand driven do you see that coming back later in the year or next year, or is it mostly gone and will not come back?

Thanks Sidney, that's a lot of questions. So, let me first regarding the coronavirus, our thoughts are with all the people that are being affected directly and indirectly by the coronavirus and we will be support and we are supporting our employees, partners, customers during this very difficult time. And we have been closely monitoring the situation including current potential delays in production, the supply chain and consumer purchases. In addition, we've had ongoing customer discussions, feedback from the field teams in Asia, and industry peers. And as of today, we estimate it could be potentially up to 10% impact of our business in 2020.

Great and just to repeat the second part of the question, is that more a supply issue or a demand issue and this demand issue, do you think that will come back later this year or maybe next year?

What we think Sidney is supply chain and demand. So it's all of those issues, and we're going to have to see how it works out. Ultimately, we think it's highly unlikely that demand will work its way back through the supply chain. But we can't predict the timing of that.

But we've had no issue shipping material to China Sydney.

Okay, great. My following question is looking at the 5G Smartphone ramp this year, there is a pretty good expectation that the 5G phones will ship somewhere around between 200 million and 300 million. Based on the customers you're working with so far, can you share with us what you've seen in terms of OLED adoption? I'm particularly interested in your comments whether that OLED adoption has accelerated in the mid-range segment as well? Thanks.

Thank you, that Sidney, that's a difficult question for us to answer since we really are not in the phone business, but we work with the panel makers, and we've worked closely with them to ensure that we can provide them with everything they need. So but I really, I don't have an answer for you. I think everybody anticipates 5G adoption at the premium price, but will also help the overall smart market this year. But I don't know whether any of these other issues are going to impact that.

Okay, great. Thank you.

Thank you.

Our next question is from C.J. Muse with Evercore ISI. Please proceed.

Yes, good afternoon. Thank you for taking the question. I guess just to follow up on the first question around the coronavirus. You talked about 10% impact, I am just curious how you derive that number? Is that bottoms up based on kind of discussing with customers and what you're seeing and projecting for utilization rates or is there something else that kind of sets into that estimate?

Well, CJ, as I said, we've been closely monitoring the situation and looking at potential delays from production and supply chain. We try to get as much information as we can from our field team and from our customers and from published information. So our estimates that we have today, the best we can estimate it, will have about a 10% impact on our business for the year.

Okay, thank you.

I'm sorry. Yes?

Great. And I guess as my second question, as you think about the 605, 606, I guess to two parts there, you know, one what does the guide suggest on a 605 basis for 2020 and then were there any major changes in your assumptions as part of forecasting to derive the forecasts that you've given us for 2020? Thank you.

There have been no major assumption changes. I mean, we've been actually constantly monitoring. But for 605 guidance, we no longer believe that's meaningful, the breakout 605. As you've seen in the past few quarters, the delta between 605 and 606 has minimized. And so based upon that, we think that just giving GAAP guidance makes the most sense.

Okay, thank you.

Thank you.

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

Hi, thanks good afternoon. Again, a question about the guidance. If I look at the delta that you're providing for 2020, it looks wider than we've seen in prior years going back to 2017. So I'm just wondering, is that wider range also reflecting some of the items you've already alluded to including the virus in China or are there some other factors that play in the wider range?

No, I think that there are so many uncertainties involving the virus, it's difficult to forecast the full potential impact of it's going to have on us in 2020. You know, based upon what we know today, we think that is the best forecast that we can come up with. And there is multiple factors that impact that.

Okay. And then if you could maybe walk us through the increase in SG&A, was there anything unusual there? Because I thought the expectations were for an increase of 10% or so in SG&A in Q4, and obviously a much bigger increase. I'm just wondering, what drove that?

Yes, in Q4, there were some higher than anticipated compensation accruals. However, if you just look - take a step back and look at 2018 and 2019, and you look at the average OpEx growth that is within our historical guide of 10% to 15%. But sometimes for R&D things get pushed back or things get pulled in. So it is in our range, but clearly Q4 was probably higher than anyone anticipated.

Okay, and again, looking out over into 2020, the increase is - I think you alluded to, is that true of SG&A that type of 10%, 15% increase?

Yes, we think it's 10% to 15%. We think that R&D will be the larger increase and it'll be weighted towards that. But yes, it should be in the range.

Okay, thanks a lot.

Thank you.

Our next question is from Mehdi Hosseini with Susquehanna. Please proceed.

Yes, thanks for taking my question. I want to go back to your comment about the $25 million revenue comment related to the trade concern. If the customer were to exercise is that $25 million already embedded in the 2020 revenue guide or without the additional?

Yes, regarding that $25 million that is at a customer that has a rate of return, that we would recognize up to $25 million, that 25 million is in our guidance for 2020.

Okay, all right. And you're assuming that the coronavirus will not have an impact. So if the customer were to exercise they will be consuming this material?

Well, it would be - we believe that this material is our assumption that it will be consumed during 2020.

Okay, and then just, I apologize for coming back to this. If they do not exercise the option,then are we supposed to take 25 million as of the year in guide?

If they exercise the option and return it, then we would reduce it, but we honestly believe that even if they returned it that during the year they would probably buy enough of it to make up for it during the year because we do believe that the customer will need this material for 2020.

Guys got it. Thanks for all the detail. And I have one follow up on the 50% capacity or installed capacity increase from 2019 to 2021. Can you please help us understand how that capacity growth is going to play out by geography like Korea versus China and how is that different than the 2017 through 2019 period?

The 2017 to 2019 period was actually in excess I believe of the 50%. And for this case, it is between Korea and China. And I mean, to some extent, I can't really break it down for you because we got information directly from customers that I can't disclose. But you look at published information and hope, you know, is that who is doing stuff, but we think it is primarily going to be driven by China and Korea, and it will be back-end loaded. It's probably mostly in next year versus this year.

Thank you so much.

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

Yes, hi, thanks for taking my question. I have two of them, Steve, last year, you had mentioned that because of the China trade war issues, one of your customers actually built up inventory. I'm kind of curious, now with the whole virus situation, do you think there could be a situation where many of your customers out of the supply chain tends to build up inventory because they have kind of gone through this lesson and did not want to go through it again? And then I have a follow up.

I think they are two separate issues. First, we're not seeing any buildup of inventory other than the $25 million that were had described, which is from the trade issues. I think right now people are focusing on the coronavirus and how to get back to normal at this point, but I don't think that's an inventory related build issue.

Got it, and then as a follow either for Steve you said, I think you guys have spoken about OLED adoption in the past and I think you have spoken about probably like 600 million units this year, smartphone units. I'm kind of curious, how is that progressing? Has that view changed for the overall smartphone market with the virus and given that a large part of it was going to come from one of your large China customer?

Yes, I mean, those numbers are from IHS, and I think a lot of these numbers going from 485, I think the 600 million for this year. I mean, it is - right now particularly with the dynamic environment that is going on, I am not so sure that those numbers will be met. And these numbers were put up before all of the issues that relate to coronavirus and production slowdowns in China. So, I think you've heard from a number of smartphone OEMs that they're seeing a soft first and second quarter.

All right. Thank you very much.

Thank you

[Operator Instructions] Our next question is from Brian Lee with Goldman Sachs. Please proceed.

Hey, guys, thanks for taking the questions. Sorry. I hopped in late, so I may be repeating some questions here, apologies in advance. But the $40 million give or take impact 10% that you're assuming for the virus, is that net of the 25 you're getting, which was, I guess a pull forward, if you will, from that customer who was concerned about the virus impact? So, said another way, if the virus situation wasn't something you had to navigate in your guidance, in setting guidance, would your guidance have been $40 million higher versus what you're reporting today or would it have been 40 net of the 25?

Yes, Brian there are two separate items obviously, and the $25 million is in our guidance for this year. This was a customer, as we stated, that wanted to buy safety stock for trade issues. And the coronavirus is where we think that - and then there is some digestion in capacity coming online, but that potential is up to $40 million to $50 million is our best estimate today of what the impact it will have, but they are two separate items.

Got you. Okay. Okay, fair enough. And then just on the quarter itself, if I look at the results, I'm not sure if you walk through this dynamic a little bit, but the materials revenue was up almost 20% sequentially in the quarter, but royalty and licensing was down sequentially about 10%. Can you, I know a lot of this has to do with customer mix, but can you kind of walk us through the dynamics there why those diverging trends?

Yes, I mean, as we talked about the licenses and royalties is anywhere from 1.5 to 2 depending on customer mix. So in this case, but I can't tell you – I can't give you a lot more information. But you are correct. It is based upon customer mix in the fourth quarter.

Okay. Fair enough. Thanks a lot guys.

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

Thank you very much for taking my question. I'm curious, what level of communication are you getting from your partners? Because I know I've talked to Apple and others and I'm like, there's a lot of questions out there as regards to what's going on over in China right now. So I'm just curious as to how often you speak with them. And then also, just I think you've addressed it, but I just want to clarify, going into the coronavirus situation net of the Chinese company that bought extra. Where do you think your partner inventory levels were at? Where they in sort of normalized levels or did anybody else have more than you would have anticipated at the end of the year? Thank you,

Shannon, so we were talking to our customers, our field team on a daily basis. So we're getting updates or communications on a daily basis. As you would imagine, it's a dynamic and evolving situation. But we're doing our best to try to get real time updates and see what's happening in the various aspects in China. Regarding the second questions, we believe that material volumes were within the norm in the fourth quarter.

Thank you very much.

Thank you.

And our final question is from Andrew Abramson [ph] with SCMR. Please proceed.

Hi, guys, thanks for taking the questions. First on the capacity digestion issue. I was wondering if you could give us a little focus on whether that's more TV oriented or small panel oriented? And also, if you could give an update on your progress with your host partners, has material been developed under that relationship and is it being sold by your partners currently?

Yes, we saw it across the board. We saw it both from small, medium and large OLED production, some capacity, which is going through a digestion period. So I don't think it's related one item specifically, though we've seen it across the board, that any time there's new capacity comes online new facilities, we know how that works. Regarding your second question with hosts, we have been working with a number of host companies. We are continuing to work with them. But as of this time, we have no design wins.

Okay, and just so I make sure I understand how that relationship works, there is no sales that will work through you, these are relationships with your host producers?

That is correct. We work with them, and they will actually make and sell it when they get a design win. We will not be part of that process.

Got you. Thanks very much.

Thank you.

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

Thank you everyone for joining the call today. Enjoy your evening Thank you.

Thank you. This concludes today's conference call. You may disconnect your lines