Universal Display (NASDAQ:OLED) announced fourth-quarter 2018 results on Thursday after the market closed, including a milder-than-expected decline in revenue given new accounting standards, new license agreement terms, and customer inventory pre-purchases a year ago.

But just as management suggested would be the case last quarter, Universal Display also anticipates a dramatic return to growth this year as its flagship OLED technology continues to expand its reach. 

With shares up around 7% in after-hours trading as of this writing, let's shed some light on exactly how Universal Display ended 2018 and what shareholders can expect in the coming year.

Three jars containing OLED materials from Universal Display

IMAGE SOURCE: UNIVERSAL DISPLAY

Universal Display's results: The raw numbers

Metric Q4 2018 Q4 2017 Year-Over-Year Growth

GAAP revenue

$70.1 million

$115.9 million

(39.5%)

GAAP net income (loss)

$19.2 million

$32.8 million

(41.5%)

GAAP earnings per share

$0.40

$0.69

(42%)

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

What happened with Universal Display this quarter?

  • Universal Display adopted new ASC 606 accounting standards at the beginning of 2018 that changed the way it recognizes license fee revenue. Under the old ASC 605 standard, revenue would have been $92.9 million, and net income would have increased to $45.2 million, or $0.95 per share. 
  • This brought full-year 2018 reported revenue to $247.4 million (or $326.3 million adjusted for ASC 606), which compares favorably to Universal Display's guidance for reported revenue of $240 million to $250 million and adjusted revenue $315 million to $325 million.
  • Full-year net income arrived at $58.8 million, or $1.24 per share (or $130.5 million and $2.77 per share, respectively, adjusted for ASC 606), well above the $1.15 per share most investors were expecting.
  • OLED material sales were $39.9 million (or $49.9 million adjusted for ASC 606), down from $59.8 million in last year's fourth quarter, with the decline driven by a combination of new accounting standards and the timing of customers' material inventory pre-purchases in the same year-ago period.
  • Royalty and license fee revenue was $25.9 million ($38.6 million on an adjusted basis), down from $53.8 million a year ago, partly due to the timing of payments under Samsung Display's new long-term license and material supply agreement with UDC signed just over a year ago. Recall that last year's fourth quarter included a $45 million license payment from Samsung per the terms of their previous agreement.
  • Contract research services revenue climbed by roughly $2 million to $4.4 million. 
  • Its quarterly dividend was boosted by 67% to $0.10 per share. 
  • Universal Display ended the quarter with cash, cash equivalents, and short-term investments of $515.3 million.

What management had to say

Universal Display CFO Sidney Rosenblatt stated:

New OLED capacity announcements, a diversifying list of panel manufacturers entering commercial OLED production, and a broadening landscape of consumer OLED end products in 2018 has positioned the OLED industry for what we anticipate will be its next wave of growth. Additionally, with new customer agreements, advancement in our R&D programs, new infrastructure plans, and an increase in our critical mass, we made significant progress last year with the Company's growth roadmap. We expect these efforts to further solidify our leadership position in the OLED ecosystem and buttress our long-term strategy to continue enabling this growing industry.

Looking forward

Rosenblatt added that, in 2019, the company expects "meaningful growth to resume [...] as new OLED capacity comes online, new OLED products are launched, and progress continues with our customers' OLED commercialization plans."

More specifically -- and with the usual caveat that the OLED industry is still in its early stages, "where many variables can have a material impact on its growth," according to the company -- Universal Display expects 2019 revenue in the range of $325 million to $350 million, good for year-over-year growth of 36.4% at the midpoint. This would be equivalent to a range of $395 million to $420 million under Universal Display's previous ASC 605 accounting standards.

From Universal Display's better-than-expected end to 2018, its freshly boosted dividend, and confirmation of a meaningful acceleration in growth in the coming year, this report was exactly what Universal Display shareholders were hoping to see. And Universal Display stock is unsurprisingly soaring in response.