Universal Display Corporation (NASDAQ:OLED) announced first-quarter 2018 results on Thursday after the market closed -- and at first glance, the OLED technology specialist's performance appeared to fall far short of expectations.

But after initially declining early Friday, Universal Display stock quickly recovered after it became evident that its growth story is still firmly intact, as its reported results were significantly impacted by the company's transition to a new accounting standard at the start of the year. When all was said and done, shares climbed more than 12% on the day.

Let's dig deeper, then, to shed light on how Universal Display kicked off 2018 and what investors should be watching in the coming quarters.

Colorful triangle-shaped OLED lights

IMAGE SOURCE: UNIVERSAL DISPLAY

Universal Display's results: The raw numbers

Metric

Q1 2018

Q1 2017

Year-Over-Year Growth

GAAP* revenue

$43.6 million

$55.6 million

(21.6%)

GAAP net income (loss)

$6.0 million

$10.4 million

(42.3%)

GAAP earnings per share

$0.13

$0.22

(40.9%)

DATA SOURCE: UNIVERSAL DISPLAY CORPORATION. *GAAP = GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

What happened with Universal Display this quarter?

  • Effective January 1, 2018, Universal Display adopted the ASC Topic 606 accounting standard. Under its previous (ASC Topic 605) accounting standard, total revenue would have increased 22.7% year over year, to $68.2 million, and net income would have arrived at $25.9 million, or $0.55 per diluted share.
  • As reported, OLED material sales declined 46%, to $25.3 million. OLED material revenue growth was held back by lower demand for OLED panels due to a combination of soft premium smartphone sales and -- as we saw last quarter -- material inventory pre-purchases that occurred in late 2017.
  • Royalty and license fees increased 126%, to $15.9 million. 
  • Contract research-services revenue grew 26.6%, to $2.4 million.
  • Universal Display ended the quarter with cash, cash equivalents, and short-term investments of $457.3 million, an increase of $37 million from last quarter.

What management had to say

Universal Display CFO Sidney Rosenblatt stated:

We believe that we are on the right path for long-term growth, long-term market leadership, and long-term profitability. Over the last decade, OLEDs have penetrated an estimated 10%-plus of the consumer electronics display market. This, we believe, is just the beginning of the technology's promising potential as panel makers further improve OLED mobile's competitiveness, OLED TVs continue to gain market share, and foldable development work accelerates.

Looking forward

Rosenblatt also reminded investors that the company remains in a "multi-year OLED capex [capital expenditures] growth cycle," with significant manufacturing capacity currently being built. As such, while the first half of 2018 is being hurt by softness in the premium smartphone space, Universal Display expects OLED panel demand to rebound in the second half. "As new OLED capacity ramps," Rosenblatt added, "we continue to expect 2019 to be a meaningful year of growth."

More specifically, Universal Display anticipates the installed capacity base will have increased by roughly 50%, as measured in square meters between the end of 2017 and the end of 2019. In the meantime, Universal Display now expects fiscal 2018 revenue to be the range of $280 million to $310 million, down from its previous range of $350 million to $380 million.

Here again, however, that outlook assumes revenue is being recognized under the new accounting standard. Under the previous accounting standard, Universal Display estimates its 2018 revenue would be roughly 10% to 15% higher.

All things considered, I'm glad the market quickly came to its senses after the initial decline this morning. With Universal Display shares trading at roughly half its 52-week high set in January, and with the company's longer-term growth story coming into focus, it's no surprise that investors are celebrating this strong start to the year.

Steve Symington owns shares of Universal Display. The Motley Fool owns shares of and recommends Universal Display. The Motley Fool has a disclosure policy.