UNIVERSAL DISPLAY CORP PA

Previous wording

In 2018, we entered into long-term, multi-year OLED patent license and material purchase agreements with Visionox Technology, Inc. (Visionox). Under the license agreement, we have granted certain of Visionox’s affiliates non-exclusive license rights under various patents owned or controlled by us to manufacture and sell OLED display products. The license agreement calls for license fees and running royalties on licensed products. Additionally, we supply phosphorescent OLED materials to Visionox for use in its licensed products. In 2021, we announced an extension of the Visionox agreement by entering into new five-year OLED material supply and license agreements with a new affiliate of Visionox, Visionox Hefei Technology Co. Ltd.

Current wording

In 2024, we entered into new long-term, multi-year agreements with Visionox Technology, Inc. (Visionox). Under these agreements, we have granted Visionox non-exclusive license rights under various patents owned or controlled by us to manufacture and sell OLED display products. Additionally, we supply phosphorescent OLED materials to Visionox for use in its licensed products.

Previous wording

In 2016, we acquired Adesis, Inc. (Adesis) which has operations in New Castle and Wilmington, Delaware. Adesis is a contract development and manufacturing organization (CDMO) that provides support services on a contractual basis to third-party customers in the OLED, pharma, biotech, catalysis and other industries. As of March 31, 2024, Adesis employed a team of 142 research scientists, chemists, engineers and laboratory technicians. Prior to our acquisition of Adesis, we utilized more than 50% of Adesis’ technology service and production output. We continue to utilize a significant portion of its technology research capacity for the benefit of our OLED technology development, and Adesis uses the remaining capacity to operate as a CDMO by providing contract research services for non-OLED applications to third-party customers in the above-mentioned industries. Contract research services revenue is earned by providing chemical materials synthesis research, development and commercialization for non-OLED applications on a contractual basis for those third-party customers.

Current wording

In 2016, we acquired Adesis, Inc. (Adesis) which has operations in New Castle and Wilmington, Delaware. Adesis is a contract development and manufacturing organization (CDMO) that provides support services on a contractual basis to third-party customers in the OLED, pharma, biotech, catalysis and other industries. As of June 30, 2024, Adesis employed a team of 137 research scientists, chemists, engineers and laboratory technicians. Prior to our acquisition of Adesis, we utilized more than 50% of Adesis’ technology service and production output. We continue to utilize a significant portion of its technology research capacity for the benefit of our OLED technology development, and Adesis uses the remaining capacity to operate as a CDMO by providing contract research services for non-OLED applications to third-party customers in the above-mentioned industries. Contract research services revenue is earned by providing chemical materials synthesis research, development and commercialization for non-OLED applications on a contractual basis for those third-party customers.

Previous wording

In June 2020, a wholly-owned subsidiary, OVJP Corporation (OVJP Corp), was formed as a Delaware corporation. Based in California, OVJP Corp was founded to advance the commercialization of our proprietary Organic Vapor Jet Printing (OVJP) technology. As of March 31, 2024, 2024, OVJP Corp employed a team of 27 research, mechanical, electrical and software engineers and laboratory technicians. As a direct printing technique, OVJP technology has the potential to offer high deposition rates for large-area OLEDs. In addition, OVJP technology reduces OLED material waste associated with use of a shadow mask (i.e., the waste of material that deposits on the shadow mask itself when fabricating an OLED). By comparison to inkjet printing, an OVJP process does not use liquid solvents and therefore the OLED materials utilized are not limited by their viscosity or solvent solubility. OVJP also avoids generation of solvent wastes and eliminates the additional step of removing residual solvent from the OLED device. We believe the successful implementation of the OVJP technology has the potential to increase the addressable market for large-size OLED panels while also serving another potential growth market for our proprietary PHOLED materials and technologies.

Current wording

In June 2020, a wholly-owned subsidiary, OVJP Corporation (OVJP Corp), was formed as a Delaware corporation. Based in California, OVJP Corp was founded to advance the commercialization of our proprietary Organic Vapor Jet Printing (OVJP) technology. As of June 30, 2024, 2024, OVJP Corp employed a team of 26 research, mechanical, electrical and software engineers and laboratory technicians. As a direct printing technique, OVJP technology has the potential to offer high deposition rates for large-area OLEDs. In addition, OVJP technology reduces OLED material waste associated with use of a shadow mask (i.e., the waste of material that deposits on the shadow mask itself when fabricating an OLED). By comparison to inkjet printing, an OVJP process does not use liquid solvents and therefore the OLED materials utilized are not limited by their viscosity or solvent solubility. OVJP also avoids generation of solvent wastes and eliminates the additional step of removing residual solvent from the OLED device. We believe the successful implementation of the OVJP technology has the potential to increase the addressable market for large-size OLED panels while also serving another potential growth market for our proprietary PHOLED materials and technologies.

Previous wording

Our total material sales were $93.3 million for the three months ended March 31, 2024, as compared to $70.2 million for the three months ended March 31, 2023, an increase of 33% with a commensurate increase in unit material volume of 37%. The increase in material sales was primarily due to strengthened demand for our emitter materials.

Current wording

Our total material sales were $95.4 million for the three months ended June 30, 2024, as compared to $77.1 million for the three months ended June 30, 2023, an increase of 24% with a commensurate increase in unit material volume of 23%. The increase in material sales was primarily due to strengthened demand for our emitter materials.

Previous wording

Green emitter sales for the three months ended March 31, 2024, which include our yellow-green emitters, were $70.8 million as compared to $53.7 million for the three months ended March 31, 2023, with unit material volumes increasing by 33%.

Current wording

Green emitter sales for the three months ended June 30, 2024, which include our yellow-green emitters, were $71.6 million as compared to $57.9 million for the three months ended June 30, 2023, with unit material volumes increasing by 22%.

Previous wording

Red emitter sales for the three months ended March 31, 2024 were $20.6 million as compared to $16.1 million for the three months ended March 31, 2023, with unit material volumes increasing by 48%.

Current wording

Red emitter sales for the three months ended June 30, 2024 were $22.5 million as compared to $16.7 million for the three months ended June 30, 2023, with unit material volumes increasing by 36%.

Previous wording

Contract research services revenue was $3.7 million for the three months ended March 31, 2024 as compared to $5.1 million for the three months ended March 31, 2023, a decrease of 27%. The decrease in contract research services revenue was primarily due to reduced demand from several customers of our subsidiary, Adesis, during the three months ended March 31, 2024. Revenue from contract research services consists of revenue earned by Adesis, which provides support services on a contractual basis to third-party customers in the pharma, biotech, catalysis and other industries.

Current wording

Contract research services revenue was $3.5 million for the three months ended June 30, 2024 as compared to $5.1 million for the three months ended June 30, 2023, a decrease of 31%. The decrease in contract research services revenue was primarily due to the timing of completion of several contract research projects by our subsidiary, Adesis, during the three months ended June 30, 2024. Revenue from contract research services consists of revenue earned by Adesis, which provides support services on a contractual basis to third-party customers in the pharma, biotech, catalysis and other industries.

Previous wording

Research and development expenses increased to $38.0 million for the three months ended March 31, 2024, as compared to $31.4 million for the three months ended March 31, 2023. The increase in research and development expenses was primarily due to higher operating costs, including increased employee-related expenses, PPG development activity and contract research costs.

Current wording

Research and development expenses increased to $36.8 million for the three months ended June 30, 2024, as compared to $32.3 million for the three months ended June 30, 2023. The increase in research and development expenses was primarily due to higher operating costs, including increased employee-related expenses, contract research costs and PPG development activity.

Previous wording

Amortization of acquired technology and other intangible assets was $4.6 million for the three months ended March 31, 2024, as compared to $2.9 million for the three months ended March 31, 2023. The increase was due to the commencement of amortization expense associated with the Merck KGaA patent acquisition that was completed on April 28, 2023.

Current wording

Amortization of acquired technology and other intangible assets was $4.5 million for the three months ended June 30, 2024, as compared to $4.0 million for the three months ended June 30, 2023. The increase was due to the commencement of amortization expense associated with the Merck KGaA patent acquisition that was completed on April 28, 2023.

Previous wording

Interest income, net was $9.6 million for the three months ended March 31, 2024, as compared to $7.0 million for the three months ended March 31, 2023. The increase in interest income, net was primarily due to an increase in bond yields on available-for-sale investments held during the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 as well as higher available-for-sale investment balances. Other loss, net primarily consisted of net exchange gains and losses on foreign currency transactions, net investment gains and losses, and rental income. We recorded other loss, net of $1.9 million for the three months ended March 31, 2024 as compared to $703,000 for the three months ended March 31, 2023.

Current wording

Interest income, net was $9.9 million for the three months ended June 30, 2024, as compared to $6.2 million for the three months ended June 30, 2023. The increase in interest income, net was primarily due to an increase in bond yields on available-for-sale investments held during the three months ended June 30, 2024 as compared to the three months ended June 30, 2023 as well as higher available-for-sale investment balances. Other loss, net primarily consisted of net exchange gains and losses on foreign currency transactions, net investment gains and losses, and rental income. We recorded other loss, net of $1.5 million for the three months ended June 30, 2024 as compared to $784,000 for the three months ended June 30, 2023.

Previous wording

We are subject to income taxes in the United States and foreign jurisdictions. The effective income tax rate was 19.4% and 22.8% for the three months ended March 31, 2024 and 2023, respectively, and we recorded income tax expense of $13.6 million and $11.8 million, respectively, for those periods. The effective income tax rate decreased due to a change in U.S. tax regulations associated with the ability to credit Chinese withholding taxes, as well as a change in the capitalization rules for research and development expenses.

Current wording

We are subject to income taxes in the United States and foreign jurisdictions. The effective income tax rate was 19.3% and 22.4% for the three months ended June 30, 2024 and 2023, respectively, and we recorded income tax expense of $12.6 million and $14.4 million, respectively, for those periods. The effective income tax rate decreased due to a change in U.S. tax regulations associated with the ability to credit Chinese withholding taxes, as well as a change in the capitalization rules for research and development expenses.

Previous wording

Revenue from royalty and license fees was $68.3 million for the three months ended March 31, 2024 as compared to $55.2 million for the three months ended March 31, 2023, an increase of 24%. The increase in royalty and license fees was primarily the result of higher unit material volume, partially offset by the change in the cumulative catch-up adjustment between periods as described below.

Current wording

Revenue from royalty and license fees was $127.8 million for the six months ended June 30, 2024 as compared to $119.6 million for the six months ended June 30, 2023, an increase of 7%. The increase in royalty and license fees was primarily the result of higher unit material volume, partially offset by changes in customer mix and the change in the cumulative catch-up adjustment between periods as described below.

Previous wording

The cumulative catch-up adjustment recorded to revenue arising from changes in estimates of transaction price, net was a reduction of $502,000 for three months ended March 31, 2024 as compared to an increase of $5.7 million for the three months ended March 31, 2023. For the three months ended March 31, 2023, the adjustment resulted from an increase in the average price per gram that was primarily due to the decrease in anticipated demand by several of our customers over the remaining lives of their contracts, resulting from changes in global macroeconomic factors.

Current wording

The cumulative catch-up adjustment recorded to revenue arising from changes in estimates of transaction price, net was an increase of $729,000 for the six months ended June 30, 2024 as compared to an increase of $6.6 million for the six months ended June 30, 2023. For the six months ended June 30, 2023, the adjustment resulted from an increase in the average price per gram that was primarily due to the decrease in anticipated demand by several of our customers over the remaining lives of their contracts, resulting from changes in global macroeconomic factors.

Previous wording

Cost of sales for the three months ended March 31, 2024 increased by $4.0 million as compared to the three months ended March 31, 2023, primarily due to an increase in the level of materials sales, partially offset by a $3.3 million decrease in inventory reserve expense. As a result of the increase in revenue from material sales and royalty and licenses fees, gross margin for the three months ended March 31, 2024 increased by $30.8 million as compared to the three months ended March 31, 2023, with gross margin as a percentage of revenue increasing to 78% from 75%.

Current wording

Cost of sales for the six months ended June 30, 2024 increased by $10.2 million as compared to the six months ended June 30, 2023, primarily due to an increase in the level of materials sales, partially offset by a $3.8 million decrease in inventory reserve expense. As a result of the increase in revenue from material sales and royalty and licenses fees, gross margin for the six months ended June 30, 2024 increased by $36.5 million as compared to the six months ended June 30, 2023, with gross margin as a percentage of revenue increasing to 77% from 76%.

Previous wording

Selling, general and administrative expenses increased to $19.3 million for the three months ended March 31, 2024, as compared to $15.4 million for the three months ended March 31, 2023. The increase in selling, general and administrative expenses was primarily due to an increase in employee-related expenses, including higher stock-based compensation and salaries expenses.

Current wording

Selling, general and administrative expenses increased to $39.1 million for the six months ended June 30, 2024, as compared to $32.5 million for the six months ended June 30, 2023. The increase in selling, general and administrative expenses was primarily due to an increase in employee-related expenses, including higher stock-based compensation and salaries expenses.

Previous wording

Patent costs decreased to $2.0 million for the three months ended March 31, 2024, as compared to $2.3 million for the three months ended March 31, 2023. The results in the current year reflected lower internal prosecution related costs.

Current wording

Patent costs decreased to $4.4 million for the six months ended June 30, 2024, as compared to $4.5 million for the six months ended June 30, 2023.

Previous wording

Royalty and license expense increased to $1.7 million for the three months ended March 31, 2024, as compared to $164,000 for the three months ended March 31, 2023. The increase was due to a one-time expense of $1.5 million in connection with an amendment to our existing amended license agreement, effective as of October 9, 1997, with Princeton University and the University of Southern California.

Current wording

Royalty and license expense increased to $1.8 million for the six months ended June 30, 2024, as compared to $333,000 for the six months ended June 30, 2023. The increase was due to a one-time expense of $1.5 million in connection with an amendment to our existing amended license agreement, effective as of October 9, 1997, with Princeton University and the University of Southern California.

Previous wording

Our principal sources of liquidity are our cash and cash equivalents and short-term investments. As of March 31, 2024, we had cash and cash equivalents of $74.0 million, short-term investments of $465.3 million, and long-term U.S. Government bonds investments of $298.9 million for a total of $838.2 million. This compares to cash and cash equivalents of $92.0 million, short-term investments of $422.1 million, and long-term U.S. Government bond investments of $285.5 million for a total of $799.6 million as of December 31, 2023.

Current wording

Our principal sources of liquidity are our cash and cash equivalents and short-term investments. As of June 30, 2024, we had cash and cash equivalents of $92.9 million, short-term investments of $437.7 million, and long-term U.S. Government bonds investments of $348.4 million for a total of $879.0 million. This compares to cash and cash equivalents of $92.0 million, short-term investments of $422.1 million, and long-term U.S. Government bond investments of $285.5 million for a total of $799.6 million as of December 31, 2023.

Previous wording

Cash provided by operating activities for the three months ended March 31, 2024 was $72.2 million resulting from $56.9 million of net income, $14.5 million from non-cash items including stock-based compensation, depreciation and amortization of intangibles, and $807,000 due to changes in our operating assets and liabilities. Changes in our operating assets and liabilities related to a a decrease in accounts receivable of $20.3 million, an increase in other liabilities of $12.1 million, a decrease in inventory of $2.9 million, and a decrease of other assets of $794,000, partially offset by a decrease in deferred revenue of $27.3 million and a decrease in accounts payable and accrued expenses of $8.0 million.

Current wording

Cash provided by operating activities for the six months ended June 30, 2024 was $139.2 million resulting from $109.2 million of net income and $30.0 million from non-cash items including stock-based compensation and depreciation. Operating assets and liabilities were unchanged from December 31, 2023 on a net basis, but reflected an increase in other assets of $38.9 million, a decrease in accounts receivable of $15.5 million, an increase in accounts payable and accrued expenses of $12.4 million, an increase in deferred revenue of $10.8 million, a decrease in inventory of $3.9 million, and a decrease in other liabilities of $3.7 million.

Previous wording

Cash provided by operating activities for the three months ended March 31, 2023 was $47.6 million resulting from $39.8 million of net income, $5.1 million from non-cash items including depreciation, stock-based compensation and deferred income taxes and $2.7 million due to changes in our operating assets and liabilities. Changes in our operating assets and liabilities related to a decrease in other assets of $14.1 million, an increase in other liabilities of $12.3 million and a decrease in inventory of $9.0 million, partially offset by a decrease in accounts payable and accrued expenses of $24.1 million, a decrease in deferred revenue of $8.6 million, and an increase in accounts receivable of $13,000.

Current wording

Cash provided by operating activities for the six months ended June 30, 2023 was $57.4 million resulting from $89.5 million of net income and $13.2 million from non-cash items including depreciation, stock-based compensation and deferred income taxes, partially offset by a $45.3 million reduction due to changes in our operating assets and liabilities. Changes in our operating assets and liabilities related to a decrease in other liabilities of $22.3 million, a decrease in accounts payable and accrued expenses of $17.7 million, an increase in accounts receivable of $16.7 million and a decrease in deferred revenue of $15.7 million, partially offset by a decrease in other assets of $19.7 million and a decrease in inventory of $7.4 million.

Previous wording

Cash used in investing activities was $64.2 million for the three months ended March 31, 2024, as compared to cash provided by investing activities of $40.7 million for the three months ended March 31, 2023. The increase was due to timing of maturities and purchases of investments resulting in net purchases of $57.0 million for the three months ended March 31, 2024, as compared to net sales and maturities of $49.8 million for the three months ended March 31, 2023, partially offset by a decrease in purchases of property and equipment and intangibles of $1.9 million.

Current wording

Cash used in investing activities was $93.5 million for the six months ended June 30, 2024, as compared to $17.5 million for the six months ended June 30, 2023. The increase was due to timing of maturities and purchases of investments resulting in net purchases of $77.1 million for the six months ended June 30, 2024, as compared to net sales and maturities of $75.9 million for the six months ended June 30, 2023, partially offset by a decrease in purchases of intangibles and property, plant and equipment of $77.0 million. The decrease in the purchases of intangibles and property, plant and equipment during the six months ended June 30, 2024 was primarily due to the Merck KGaA patent acquisition on April 28, 2023.

Previous wording

Cash used in financing activities was $25.9 million for the three months ended March 31, 2024, as compared to $23.4 million for the three months ended March 31, 2023. The increase was due to an increase in the cash payment of dividends in the current year of $2.8 million, partially offset by a decrease in the payment of withholding taxes related to stock-based compensation to employees of $123,000 and an increase in the proceeds from issuance of common stock of $121,000.

Current wording

Cash used in financing activities was $44.8 million for the six months ended June 30, 2024, as compared to $39.9 million for the six months ended June 30, 2023. The increase was due to an increase in the cash payment of dividends in the current year of $5.2 million, partially offset by an increase in the proceeds from the issuance of common stock of $216,000 and a decrease in the payment of withholding taxes related to stock-based compensation to employees of $100,000.

Previous wording

Working capital was $826.3 million as of March 31, 2024, as compared to $798.3 million as of December 31, 2023. The increase was primarily due to an increase in short-term investments and a decrease in deferred revenue, partially offset by a decrease in accounts receivable.

Current wording

Working capital was $807.5 million as of June 30, 2024, as compared to $798.3 million as of December 31, 2023. The increase was primarily due to increases in other current assets and short-term investments, partially offset by increases in deferred revenue and accounts payable and a decrease in accounts receivable.