Universal Display Corporation (OLED +10.68%) may have ended the year strong on the sales front, but a combination of light earnings and a surprisingly wide -- and unique -- revenue guidance range left investors struggling to see the light.
The numbers
Shares of Universal Display fell 4% in Thursday's after-hours trading after it announced fourth-quarter revenue rose 13.5% year over year, to $56.2 million. That includes a 10.2% increase in material sales, to $28.1 million, and a 21.2% jump in royalty and license fees, to $28.0 million.
Regarding the former, Universal Display cited strong volume growth in both red and green emitter material sales. On the latter, the company recognized $25 million in licensing revenue as part of its long-term agreement with Samsung (NASDAQOTH: SSNLF) Display, up from $20 million this time last year.
Meanwhile, net income was $13.1 million, or $0.28 per diluted share, compared to adjusted net income of $16.5 million, or $0.35 per diluted share in the same year-ago period. Cost of materials for the quarter rose 57% year over year, to $12.1 million, reflecting an increase in the quantity of material shipped, changes in the product mix, and -- perhaps most notably -- an inventory writedown of $3.9 million. Excluding that writedown, earnings would have been closer to $0.37 per share.
Alas... analysts were expecting Universal Display to achieve higher reported net earnings of $0.32 per share on lower sales of $48.9 million.
On guidance, Samsung, and LG Display
"As we embark on 2015, we anticipate it to be an exciting year, a growth year and a bit of a transitional year," stated Universal Display CEO Sidney Rosenblatt. "During the year, our customers are scheduled to begin ramping new commercial OLED TV and flexible display panel production, while new mobile product introductions are expected to help drive OLED fab utilization rates after experiencing some headwinds in 2014."
However, Rosenblatt elaborated, "The specific timing of these events is not clear, and will impact our revenue growth for 2015." Much to the chagrin of our uncertainty-loathing market, that impact could be positive or negative. As a result, Universal Display is taking an interesting approach at guidance, saying its "current 2015 base revenue forecast" will be $200 million.
Given the variables in timing the expected ramp for OLED TV and flexible displays, Rosenblatt said they believe that base has a "downside range" of roughly 5%, and "upside potential" of 15%. In short, keeping in mind that $200 million base, this creates a wide possible 2015 revenue range of $190 million to $230 million. By contrast, the most recent analyst consensus going into today's report called for 2015 revenue of $211.4 million.
Universal Display says this forecast includes $60 million in license fees from Samsung Display -- an increase of $10 million over last year -- and a one-quarter lag in earned royalties from LG Display (LPL +0.82%). Remember, exactly one month ago today, Universal Display signed a new long-term agreement with LG Display that extends through the end of 2022. Unfortunately, while I had hoped for Universal Display to reveal more specific financial details, it looks like we'll need to wait at least another quarter to see how the LG Display agreement will flow through to Universal Display's top and bottom lines.
On Cupertino
We also weren't treated to any new information on whether Universal Display's flagship OLED technology will find its way into Apple's (AAPL +3.26%) portfolio of products. That said, today Apple announced it will hold a surprise press event on March 9, with messages on the invites reportedly saying "Spring Forward."
This has left some to speculate whether Apple is planning to move up its original planned April launch of the Apple Watch, which is widely anticipated to have an OLED screen supplied by LG Display. Again, such a device would only represent a small incremental boost to Universal Display's revenue, but could portend broader ambitions by Apple to use OLED in other products going forward.
Final thoughts
Where does that leave Universal Display investors today? Shares of Universal Display climbed 22% in the month preceding today's report, which makes the relatively muted after-hours pullback seem that much less significant.
What's more, I think Rosenblatt summed it up well: "The key takeaway is that we believe this transitional year of strategic capacity investment and product expansion in the OLED industry will set the framework for the next wave of market growth, which we anticipate to more fully materialize in 2016 and beyond."
All things considered, I'm not convinced Universal Display's results and guidance are as bad as the market is making them out to be. To the contrary, it looks like the company's long-term story remains firmly intact, so I personally plan on continuing to hold my shares for the foreseeable future.
