Universal Display Corporation (NASDAQ:OLED) announced third-quarter 2018 results on Thursday after the market closed, detailing an expected acceleration in demand for its proprietary OLED emitter materials. But growth hasn't materialized quite as quickly as the OLED technologist previously suggested, leading the company to reduce its full-year outlook in response.

With shares down more than 20% in after-hours trading as of this writing -- albeit after skyrocketing nearly 30% in the two days leading up to this report -- let's dig deeper to shed some light on what drove Universal Display's results over the past three months.

Contemporary lamp made of curved, flexible OLED panels with "UniversalPHOLED" and "Energy Efficient" on a banner in the background.

IMAGE SOURCE: UNIVERSAL DISPLAY.

Universal Display's results: The raw numbers

Metric Q3 2018 Q3 2017 Year-Over-Year Growth

GAAP revenue

$77.6 million

$61.7 million

25.8%

GAAP net income (loss)

$22.8 million

$13.5 million

68.9%

GAAP earnings per share

$0.48

$0.28

71.4%

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

What happened with Universal Display this quarter?

  • Recall Universal Display adopted new ASC 606 accounting standards at the start of this year that changed the way it recognizes license fee sales. Under the previous (ASC 605) standard, revenue would have been $91.6 million, and net income would have been $34.2 million, or $0.72 per share.
  • Though we don't usually pay close attention to Wall Street's models, note consensus estimates predicted higher earnings of $0.66 per share on revenue of $91.4 million. 
  • OLED material sales climbed 9% year over year to $51.2 million, driven by increasing OLED panel demand.
  • Royalty and license fee revenue grew 94% to $23.3 million, but would have been $36.9 million without the impact of ASC 606.
  • Contract research services revenue rose 13.5% to just under $3 million.
  • Announced a cash dividend of $0.06 per share, steady from last quarter.
  • Ended the quarter with cash, cash equivalents, and short-term investments of $493.6 million.

What management had to say

Universal Display CFO Sidney Rosenblatt explained:

During the quarter, we saw a pick-up in the smartphone market, driven by a number of new OLED display launches, including mobile products from Apple, Google, Huawei, LG, Samsung and others. We believe that these launches are indicative of the increasing demand and value of OLEDs in leading OEM product roadmaps, and reinforces the strong secular OLED growth story. However, the magnitude of the second-half pick-up in our material sales is not shaping up to the degree that we had earlier forecasted. As we look to 2019, we anticipate it to be a meaningful year of growth. With the continued proliferation of OLEDs across the consumer electronics market, the introduction of new form factors that will pave the way for new ideas and applications, and new production capacity that is expected to expand the panel maker landscape, coupled with billions of dollars committed to advancing the commercialization of OLEDs, we believe that OLEDs are poised to become the dominant display technology in the long-term.

Looking forward

As such, Universal Display now expects 2018 revenue to arrive at $240 million to $250 million, down from its previous range of $280 million to $310 million. Under the previous ASC 605 accounting standards, this range would have been closer to $315 million to $325 million. 

Between Universal Display's pre-earnings run-up -- which came on the back of positive OLED industry comments from Samsung, its largest customer -- and the relative disappointment it's serving to our impatient market today, it's no surprise to see shares pulling back hard in response. Even so, that doesn't change the viability of its technology, or the massive resources electronics giants around the world have poured into building their OLED manufacturing capacity.

In the end, it seems inevitable that the growth the market is searching for will arrive, leaving Universal Display -- and its patient shareholders -- uniquely poised to benefit.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Steve Symington owns shares of Universal Display. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Apple, and Universal Display. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.