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Edited Transcript of OLED earnings conference call or presentation 7-May-20 9:00pm GMT

Q1 2020 Universal Display Corp Earnings Call

Ewing May 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Universal Display Corp earnings conference call or presentation Thursday, May 7, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Darice Liu

Universal Display Corporation - Director of IR & Corporate Communications

* Sidney D. Rosenblatt

Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director

* Steven V. Abramson

Universal Display Corporation - President, CEO & Director

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Conference Call Participants

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* Andrew Abrams

* Andrew Lodovico DeGasperi

Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst

* Atif Malik

Citigroup Inc, Research Division - VP and Semiconductor Capital Equipment & Specialty Semiconductor Analyst

* Brian K. Lee

Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst

* Christopher James Muse

Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst

* James Andrew Ricchiuti

Needham & Company, LLC, Research Division - Senior Analyst

* Krish Sankar

Cowen and Company, LLC, Research Division - MD & Senior Research Analyst

* Nam Hyung Kim

Arete Research Services LLP - Senior Analyst

* Shannon Siemsen Cross

Cross Research LLC - Co-Founder, Principal & Analyst

* Shek Ming Ho

Deutsche Bank AG, Research Division - Director & Senior Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to Universal Display's First Quarter 2020 Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would like to now turn the conference over to Darice Liu, Director of Investor Relations. Please proceed.

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Darice Liu, Universal Display Corporation - Director of IR & Corporate Communications [2]

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Thank you, and good afternoon, everyone. Welcome to Universal Display's First Quarter Earnings Conference Call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Sid Rosenblatt, Executive Vice President and Chief Financial Officer.

Before Steve begins, let me remind you that today's call is a property of Universal Display. Any redistribution, retransmission or rebroadcast any portion of this call in any form without the express written consent of Universal Display is strictly prohibited.

Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, May 7, 2020.

During this call, we may make forward-looking statements based on the current expectations. These statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Universal Display disclaims any obligation to update any of these statements.

Now I would like to turn the call over to Steve Abramson.

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Steven V. Abramson, Universal Display Corporation - President, CEO & Director [3]

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Thanks, Darice, and welcome to everyone on today's call. We hope that you and your family are staying healthy and safe during these difficult times. In these extraordinarily challenging times due to the COVID-19 pandemic, we have been able to keep our employees safe, maintain our business operations and continue our strategic growth programs. Our primary focus remains on the safety and well-being of our employees, customers, partners and communities.

During the quarter, our crisis management and business continuity plans were activated. Under our crisis management plans, we implemented measures to safeguard our employees, which includes modified work arrangements. And in our facilities, we are adhering to the recommendations from local and global health authorities to maintain a healthy and safe work environment. Our business continuity plans are mobilized to ensure our ability to continue our R&D programs and manufacture and ship to customers are energy-efficient, high-performing, UniversalPHOLED materials.

Our team is analyzing and preparing for various scenarios and fortifying our ability to adapt quickly to evolving and fluid situations. We are communicating and collaborating closely with our customers, partners and suppliers and are positioning the company for continued execution in these times of high uncertainty.

Towards the end of the first quarter, as concerns about the pandemic increased and the environment deteriorated faster than anticipated, we worked with our suppliers to strategically build additional inventory of our proprietary materials and engaged with our customers about advancing some material purchases. Through the extraordinary efforts of our global team, which includes our Ewing headquarters; our international teams in Asia and Ireland; our subsidiary, Adesis; and our foundry partner PPG, we have been able to safeguard the continuation of our business operations as a key enabler in the OLED ecosystem.

In this rapidly changing environment, it is challenging to make forecasts about future results. While our global supply chain remains solid and we have had no issue shipping materials to our customers and our customers continue to manufacture OLED panels, there are concerns about constraints in the consumer electronics supply chain due to the pandemic. From a market standpoint, near-term demand visibility is unclear due to the tremendous uncertainties surrounding the consumer environment and the macroeconomic environment.

In light of all of this, we believe it's prudent to withdraw our 2020 guidance. When visibility improves, we expect to resume providing annual guidance.

As we look ahead, we believe that the long-term growth path of OLED is unchanged and remains strong, through timing and adoption may shift due to the macro economy. Samsung and LG display have both announced that they are planning to exit LCD TV panel manufacturing as they shift more of their business to OLEDs. It has been reported that some Chinese panel manufacturers will no longer invest in new LCD manufacturing fabs and are also shifting more of their focus to OLEDs for their future. In the consumer space, OEM interest in OLEDs continues to grow. New adoptees and new OLED products are materializing in the IT and TV segments. And in the smartphone market, we are seeing a bigger push to move OLEDs beyond the premium segment.

During this time, we will continue to invest in our leadership position in the OLED ecosystem and expect to emerge even stronger to further enable our customers and the industry. With a robust balance sheet of approximately $640 million of cash, a lean operating model and no debt, we are continuing our R&D initiatives to help drive innovation and to capitalize on the opportunities in the market. We are also strategically increasing our head count around the world to meet the growing long-term needs of the company and our customers.

As we shared last year, we expanded our footprint in Asia with new offices and PHOLED Application Centers in Hong Kong and Korea. Hong Kong has been open for several months now, while the labs in Korea are currently in their initial phase of qualification. Our R&D teams continue to discover, develop and design new emissive materials and technologies, including new reds, greens, yellows and hosts. On the blue front, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system. We also continue to advance our work in organic vapor jet printing, our novel manufacturing process for OLED TVs.

As we and our customers continue to invest in the future of OLEDs, we are also seeing the proliferation of OLEDs continue in the consumer electronics landscape. In the smartphone market, we believe 5G will help spur a replacement cycle in the premium smartphone market, a segment where OLED displays dominate.

Moving beyond the premium market, recent OLED smartphone launches such as the Honor 30 for $425 and the Samsung Galaxy M21 for under $200 is indicative, in our opinion, of the move of OLEDs to the mid-range and even the low end of the smartphone market. As more OLED capacity is built and ramped, we believe the proliferation of OLEDs into the mid-range and low end will accelerate.

In TVs, Huawei, we recently launched its first OLED TV. Last year, there were about 15 OLED TV makers in the world using LG display panels. This year, an additional 4 new OEMs, Huawei, Xiaomi, Vizio and Sharp, will launch OLED TV models, further broadening the landscape of OLED TV players and products.

From a capacity standpoint, new OLED investments continue. It's been recently reported that China Star will invest in a second flexible OLED fab, T5, which is expected to be larger than its first OLED fab, T4. Its first OLED fab is currently an expansion mode as expected to produce 45,000 Gen-6 panels per month when fully ramped.

Regarding China Star, we are pleased to announce that we signed long-term agreements with Wuhan China Star Optoelectronics, a subsidiary of TCL. Similar to our other long-term customer agreements, these are multiyear agreements that include a commercial material supply agreement and a license agreement. I would like to thank the outstanding teams of both companies that worked diligently on these agreements while managing the challenges presented by current events.

With respect to OLED lighting, we continue to believe that its benefits, including energy efficiency, novel and innovative form factors, beautiful natural light that best replicates sunlight, no glare and cool operating temperatures, are all quite compelling for the commercial, residential and niche markets, including automotive.

On that note, let me turn the call over to Sid.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [4]

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Thank you, Steve, and again, thank you, everyone, for joining our call today. Revenues for the first quarter of 2020 were $112.3 million, sequentially up from fourth quarter 2019 $101.7 million and Q1 2019 $87.8 million.

Included in this quarter's revenues were the recognition of $24 million from a Chinese customer who purchased safety stock in Q4 due to trade-related concerns, of which we estimate a portion was used during the March quarter. As we discussed on last quarter's conference call, this safety stock had a return window that closed in March. Since our customers did not return any material, we recognized the full $24 million in the quarter. Note that the difference from the $25 million we discussed last quarter is due to revenue recognition rules under ASC 606.

Also in the quarter is an estimated $20 million of revenue that were customer advanced purchases due to COVID-19 uncertainty. As Steve mentioned earlier, we discussed with our customer potential safeguard measures and suggested that some inventory building may be prudent. Our total material sales were $66.6 million in the first quarter compared to material sales of $60.8 million in the fourth quarter of 2019 and $54.5 million in the first quarter of 2019.

Green emitter sales in the first quarter of 2020, which include our yellow-green emitters, were $52.6 million. This compares to $47.5 million in the fourth quarter of 2019 and $41.6 million in the first quarter of 2019. Red emitter sales in the first quarter of 2020 were $13.9 million. This compares to $13 million in the fourth quarter of 2019 and $12.8 million in the first quarter of 2019.

As we have discussed in the past, material buying patterns can vary quarter-to-quarter. Some of the contributing factors include the COVID-19 issues that we've been discussing as well as consumer product demand cycles, capacity ramp schedules, production loading rates, device recipes, product mix, material ordering patterns, customer inventory levels and customer production efficiency gains. Since a number of these factors are moving variables for our customers, they are also moving variables for us.

First quarter 2020 royalty and license fees were $43.1 million. This compares to $37.8 million in the fourth quarter of 2019 and $30.3 million in the first quarter of 2019. First quarter 2020 Adesis revenues were $2.6 million. This compares to $3.2 million in the fourth quarter of 2019 and $3 million in the first quarter of 2019.

Cost of sales for the first quarter of 2020 were $22.5 million. This compares to $18.2 million in the fourth quarter of 2019 and $15.8 million in the first quarter of 2017. Cost of OLED material sales were $20.2 million, translating into material gross margins of 69.6%. This compares to 73.2% in the fourth quarter of 2019 and the comparable year-over-year quarter's material gross margin of 76.2%.

As we have noted in the past, material gross margins can vary quarter-to-quarter.

First quarter 2020 operating expense, excluding cost of sales, was $45.3 million, down from last quarter's $49 million and up year-over-year from the comparable quarter's $37.6 million.

Operating income was $44.5 million for the first quarter of 2020 compared to last quarter's $34.5 million and the year-over-year comparable quarter of $34.4 million.

First quarter 2020 income tax rate was 18.6%. Without ASU 2016-09, our first quarter 2020 tax rate would have been approximately 19.5%.

Net income for the first quarter of 2020 was $38.2 million or $0.80 per diluted share. This compares to last quarter's $26.4 million or $0.56 per diluted share and the comparable year-over-year's quarter of $31.5 million or $0.66 per diluted share. We ended the quarter with approximately $640 million in cash and equivalents or over $13.50 of cash per diluted share.

As Steve mentioned, due to the highly uncertain times related to the pandemic, we believe it is prudent to withdraw our 2020 annual guidance. As visibility clears, we expect to resume providing annual guidance.

And lastly, regarding our dividend program, with a robust balance sheet and strong positioning in the long-term OLED growth market, we intend to continue returning capital to our shareholders through our dividend program. Our Board of Directors approved a $0.15 quarterly dividend, which will be paid on June 30, 2020, to stockholders of record as of the close of business on June 15, 2020. The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders.

With that, I will turn the call back to Steve.

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Steven V. Abramson, Universal Display Corporation - President, CEO & Director [5]

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Thanks, Sid. While these are difficult times, UDC has established a business culture that demonstrates our ability to overcome challenges. Our journey from an R&D start-up with less than a handful of people to a leading growth company has been filled with obstacles, breakthroughs, challenges and unending persistence and vision. Fast forward almost 25 years, and that drive and ability to adapt to changing environments and dedication to hard work has evolved Universal Display into a successful international growth company that continues to broaden its technological and commercial horizons.

Notwithstanding the short-term uncertainties caused by this unprecedented pandemic, we remain confident in the long-term growth path of OLEDs. We are working closely with our customers as they map out their new product introductions for the coming years, and we are developing new OLED architectures and materials to support them. With our extensive strengths in innovation, collaboration and achievement, we are well positioned to continue to play a critical role in the OLED revolution.

I would like to take this opportunity to thank each of our employees for their drive, desire, dedication and heart in elevating and shaping Universal Display's accomplishments and advancements. We are committed to being a leader in the OLED ecosystem, achieving superior long-term growth and delivering cutting-edge technologies and materials for the industry, for our customers and for our shareholders.

Let me close with this. The human spirit is resilient. We have been inspired by the strength, resolve and compassion that has materialized in the communities around the world. United, we will forge to these difficult times and emerge stronger to a bright future.

And with that, operator, let's start the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from Krish Sankar with Cowen and Company.

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Krish Sankar, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [2]

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I had 2 of them. First one, as Steve said, I understand you're not giving guidance. Can you give some qualitative statements on how you're seeing the demand profile in your customer base, especially in China and South Korea?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [3]

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Thank you, Krish. Before I answer your question, let me reiterate Steve's introductions in hoping that everyone is staying safe and healthy during these unprecedented times.

I also want to mention that Steve, Darice and I are also social distancing on this earnings call from our respective homes. So pardon many of our technical glitches that may occur.

So now in these uncertain times, we know it's difficult for all of you to try to forecast our near-term financials. We are all monitoring and assessing the various issues, including how long this pandemic will last, how much of an impact it will have on consumer demand and/or macroeconomic environment -- the macroeconomic environment and how long the recovery process will be and the shape that the recovery will be.

However, looking beyond the near-term impact of this global health crisis, we believe that the underlying long-term fundamentals of OLED industry remain robust. Panel makers are looking to the future of display technology and are investing in OLED. From our perspective, we will continue to execute on all fronts, operational, R&D and commercial, during this period. And we expect to emerge stronger to further enable our customers and the OLED industry.

And regarding the specific questions, I mean we are -- the utilization in the factories that we're seeing is obviously coming down. And we think that the consumer demand impact on our business and on the OLED industry itself, it's really difficult to forecast the magnitude and how long it's going to last. But it is going to impact us. And to be perfectly honest, the reason that we withdrew guidance is due to the uncertainties.

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Krish Sankar, Cowen and Company, LLC, Research Division - MD & Senior Research Analyst [4]

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Got it. Got it. That's helpful. And then as a follow-up, with the Commerce Department rule that come out -- came out last week, I would be interested to hear your thoughts on how do you think it impacts your business. And would it have any impact on your non-China customers, i.e., it would be a positive for them? Any kind of color on that would be helpful. I understand it's a fluid situation. And also, glad to know that you and everyone in the OLED family is safe and happy.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [5]

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Thank you very much. And the thing -- the Commerce Department issues that were issued last week, we do not think it will have any impact on us. At this time, we have seen no impact.

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Operator [6]

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Our next question is from Atif Malik with Citibank.

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Atif Malik, Citigroup Inc, Research Division - VP and Semiconductor Capital Equipment & Specialty Semiconductor Analyst [7]

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And good job in a tough environment in the March quarter. Sid, you talked about 2 components for the inventory building that's been happening in the supply chain starting last year with the safety stock, which was towards the trade tensions, and then advanced purchases in the March quarter because of the COVID-19 disruption. Are you still seeing these 2 components or advanced purchases in the current quarter?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [8]

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Yes. The question is, obviously, the 2 issues. One is the safety stock was purchased in Q4. And the advanced purchases that we actually talk to our customers. So right now, the safety stock that was purchased last quarter, we believe that a portion of it was used during the quarter. It's probably less than half was used during the quarter. In addition, the -- what we believe of approximately $20 million that was advanced purchases by other customers that are stockpiling, it's -- we think that it's prudent for them to do it. And if you look at what it really was in terms of -- if you look back at last year, we sold about -- our revenues were about $400 million. And this represents about 5% or maybe 3 weeks' worth of material that was sold in the quarter. I think that our customers would -- are very prudent in -- because no one knows what could possibly happen. So we were -- we contacted them, and we did -- we had some advance purchases. So we're very comfortable where we are today.

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Atif Malik, Citigroup Inc, Research Division - VP and Semiconductor Capital Equipment & Specialty Semiconductor Analyst [9]

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Very helpful. As my follow-up, in your press release, you called for the company anticipates material disruption to industries that utilize OLED as part of your reason to withdraw the full year guidance. I'm just trying to understand if this is like a risk statement. Or -- and what do you exactly mean by material disruption?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [10]

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I'm sorry. The question is material...

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Atif Malik, Citigroup Inc, Research Division - VP and Semiconductor Capital Equipment & Specialty Semiconductor Analyst [11]

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Yes, if you can -- yes, you called for a material disruption to industries that utilize OLED this year in the press release.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [12]

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Okay. Yes. Well, we're -- I think you're -- we're talking about just COVID-19 and what impact it will have on the macroeconomic environment and impacting the demand side and then impacting our customers and, in turn, impacting us. So I think you're talking about this general risk factor.

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Operator [13]

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And our next question is from C.J. Muse with Evercore ISI.

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Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [14]

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And I'm glad to hear all 3 of you are well. I guess, first question, as your visibility improves to 5G builds and you talked about not only high-end but moving to mid-level smartphones, curious if you're seeing any interesting changes in OLED material recipes. And as part of that, how are you thinking about the impact that might have on long-term pricing assumptions within your contracts for material pricing?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [15]

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Material pricing is something that we build into our contracts and we have over the life of the agreement. And in terms of what we're seeing, we -- each of the products may have different recipes that go into them. But I think it is something that we're always on top of because we're always providing new materials to our customers, and there's always new recipes.

But Steve may want to just add a little bit to just talking about what new products and where they fit into our future with our...

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Steven V. Abramson, Universal Display Corporation - President, CEO & Director [16]

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Well, we work very closely with our customers on their new product introductions. And obviously, we can't talk specifically about any one customer. But we have multiple projects working with the customers, and they have various recipes for each model that they use. So it's continuing to move in that direction. We're continuing to see more products out there, and therefore, you end up with more and different recipes.

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Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [17]

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Okay. And I guess as my follow-up question, OpEx came in a little higher than I would have thought. Curious if there's any onetime items related to COVID? And as part of that, how should we think about OpEx trajectory through the rest of the calendar year?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [18]

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Thank you, C.J. Yes, it is a little higher. However, as a leader in the OLED ecosystem, we will continue to invest in the long-term growth of OLEDs and in our position as a key enabler to our customers and the industry. Our OpEx guidance, excluding amortization, is 10% to 15% year-over-year. There are no layoffs, and we are strategically increasing our global headcount to meet any of the needs. We really believe that quarter-to-quarter, sometimes these numbers go up and down. But overall, we're still comfortable with our estimate for the year of 10% to 15%.

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Operator [19]

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And our next question is from Brian Lee with Goldman Sachs.

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Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [20]

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I hope you're all doing well and staying safe. I had a couple here. I guess, just on the China Star contract, is that a portfolio license? And is it similar to the other agreements you have in China? Or would you say it's more like your fixed agreement with Samsung and then, in terms of duration, kind of a similar 5-, 6-year time frame as the other contracts you've announced in the past?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [21]

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Well, we're very excited to further our relationship with China Star, who, as you know, is a subsidiary of TCL, and they are the second-largest LCD manufacturer. The structure of all of our -- these long-term agreements are similar in -- as our other agreements. This is a multiyear agreement which includes a commercial supply agreement and a license agreement, and the financial terms, we don't disclose.

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Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [22]

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Okay. Fair enough. And then just on the advanced purchases here, you guys experienced this last year. So it's probably becoming a -- you're sort of old had at it now. Is this all from China? Is it a pull-forward from the second half like it was last year? I know the $20 million, it seems like it's smaller. So would you consider that to be more of a quarter versus last year? I think it was spread out over a couple of quarters.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [23]

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Yes. I think this advanced purchase of $20 million is a little different than in the past. I think this $20 million is from multiple customers, and we believe this is COVID-19 related. We actually are in contact with our customers and -- just to ensure, just in case there were some disruptions in the supply chain, that everybody had what they needed. The $20 million, as I said a little bit earlier, based upon last year's revenue, is only about 3 weeks' worth of material. So -- and this is different than the $25 million of BOE purchases, which were fourth quarter of last year.

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Brian K. Lee, Goldman Sachs Group Inc., Research Division - VP & Senior Clean Energy Analyst [24]

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Okay. Okay, great. And then just maybe last one for me. I'll pass it on. With respect to Samsung and EVs, I think there's been a growing optimism around them getting back into OLEDs. It seems like there's been some recent chatter about Samsung debating between quantum nanodot technology and QD-OLED for its future TV road map. So I was just wondering if you had any thoughts or feedback just bigger picture and longer-term thinking in terms of what you're expecting out there and then what the implications of QNED versus QD-OLED would be for you if Samsung decided to go one route versus another.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [25]

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Yes. Obviously, we can't speak for our customers. But to the extent that they use OLED technology, we think it's good for us and good for the overall OLED industry.

And we've been working with Samsung for 20 years. So we're very pleased that they're getting back into the TV market.

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Operator [26]

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Our next question is from Shannon Cross with Cross Research.

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Shannon Siemsen Cross, Cross Research LLC - Co-Founder, Principal & Analyst [27]

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I'm just curious, given social distancing and the fact that you guys are so research intensive, I'm just kind of curious as to how -- if there's been any impact to your R&D efforts or how you've been able to work around that. And then I have a follow-up.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [28]

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We have -- UDC and our subsidiary, Adesis, and PPG are considered essential businesses. So we are staffed and operational. And some of our employees are working on site. Some of our employees are working from home. Our top priority is safety and health of our employees. We have implemented a number of safety protocols for everyone in our facilities, included disinfecting and cleaning protocol as well as strict social distancing, which does limit the overall number of people who can be in the lab at any given time.

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Shannon Siemsen Cross, Cross Research LLC - Co-Founder, Principal & Analyst [29]

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Okay. Great...

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [30]

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Under our -- I'm so sorry. Under our business continuity plan that we put in place, we are continuing to run our R&D programs and ship customers or phosphorescent materials.

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Shannon Siemsen Cross, Cross Research LLC - Co-Founder, Principal & Analyst [31]

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Okay. Great. And then I was just trying to attempt to come up with like a base level revenue to think about for first quarter. And Sid, is it fair to say that, you had $112 million, if you took that $20 million out that was pulled ahead and then maybe about half of what was used by the customer that reported -- that had pulled ahead in fourth quarter, that maybe $80 million is sort of a base level revenue to think about and then look forward? Or am I just off on how I'm thinking about it?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [32]

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Well, I mean, you are correct in terms of thinking about it. If you take whatever portion of the $25 million to $24 million from BOE and look at taking away the $20 million, pushing it out -- it's difficult to predict what's going to happen. We know month-to-month demand really varies significantly from month-to-month. And with the initial activities that have occurred with all the uncertainties, it's hard to predict. We do note that April was really weak. And the full -- how the full quarter will shape is really uncertain at this time.

So it's -- I wish I could help you to try to figure out what the year is going to look like, but that's the real reason that we withdrew guidance, because of all the uncertainties around how quickly things will turn around. We just don't know.

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Shannon Siemsen Cross, Cross Research LLC - Co-Founder, Principal & Analyst [33]

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Yes. No, it's fair to given -- I mean you're clearly not alone. Just one last question. When I think about how quickly -- given supply chain challenges or logistics and shipping, I don't know, fewer planes in the sky, how -- if you had a demand coming from China or one of your other partners, is that something you think you could address fairly quickly if it did seem like, hopefully, we come out of this fairly soon and the world goes back to some semblance of normal?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [34]

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Our supply chain and our global supply chain is solid, and we are strategically building inventory to ensure that we can continue to meet all of our customer needs. And really, we are being prepared for whatever demand spikes may occur. We hope that they go up and soon.

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Operator [35]

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Our next question is from Sidney Ho with Deutsche Bank.

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Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [36]

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I got a couple. The first one is, fully understanding that shutdown and the logistics were issues in China back in February and March, but can you talk about how business run rate have improved since China went back to work over the past few weeks? I think you just talked about April being very weak. Is that a comment China or elsewhere? And to follow up on that, with the withdrawal of the full year guidance, is it fair to assume that's mostly demand-driven and supply logistics is not really a big factor here?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [37]

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Well, I think you are correct. It is demand-driven. So when you look at why we withdrew our guidance, we just don't know in terms of how quickly things will return. And it clearly is weighing obviously much heavier on the demand side versus the production side. And it's across the board. It's not one customer. It's not one location. I think everything is very weak.

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Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [38]

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Okay. That's helpful. Maybe a follow-up question is, looking at the -- in the past, you look at -- you talked about OLED capacity growth between 2019 and 2021 could grow 50%. It -- I mean, just based on the headlines, it seems like there are a few projects being delayed. Are you guys still thinking that 50% is doable? And if you can add some color around the geography or whatnot, that would be helpful.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [39]

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Yes. Well, our OLED capacity model still calls for year-end 2021 installed capacity to increase by approximately 50% from the installed capacity at the end of 2019 as measured in square meters. While this forecast is unchanged, I think in this environment of high uncertainty, timing really could be affected. It's really -- it's a very fluid situation. At the same time, we remain confident that long-term growth capacity of OLEDs is strong, with customers shifting more of their focus to OLEDs, including new capacity, investment plans. And we continue to believe that we are in a multiyear growth CapEx cycle.

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Shek Ming Ho, Deutsche Bank AG, Research Division - Director & Senior Analyst [40]

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Great. If I can squeeze in one more. Last quarter, you talked about inventory digestion period kind of across the board. Can you give us an update there? I assume it's gotten worse with the demand falling off. But what areas do you see the most work that needs -- still needs to be done? And maybe by panel size, by geography, whatever metrics you can use would be great.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [41]

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I mean demand is clearly an issue with everything. With consumers, people aren't going out and buying phones and you're seeing -- you're hearing folks like LG say that demand for TVs is being impacted. So I mean it's across the board, though, and therefore, I think utilization rates are being impacted. And I can't say one area versus another because I do think it is across the board.

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Operator [42]

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(Operator Instructions) Our next question is from Jim Ricchiuti with Needham & Company.

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [43]

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Wondering if you could say when during the quarter these advanced purchases were made or whether it was over the course of several weeks from customers. I think it was more than 2.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [44]

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Yes, it was across the board. And it was clearly -- as the COVID-19 issues became obviously more and more in the news, and on our February conference call, we talked about what we thought the impact would be in Q1 and Q2, which would be about 10% of our revenues. Subsequent to that, things obviously got much worse, and we -- so that we were then contacting customers. So I think these purchases were more in the March time frame. Because right after the call, things really went to hell in a handbasket, to be honest.

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [45]

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Yes. So as we these happening. It was also more a reflection of this spreading into the U.S. and all the uncertainty around that.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [46]

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Yes. Yes, it was can you ship that stuff and making sure that they had everything that they needed. So we were in constant contact with our customers and trying to make sure that we can do everything we can do from our side to make sure that we met their needs.

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [47]

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In the past, I think you guys have talked about the fact that you have folks at kind of the sites talking to customers fairly regularly. Given what's happened, what's transpired in China and Korea, is that becoming more challenging, to get in front of the customers? Or is it just not that critical because you can (inaudible)

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [48]

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It's...

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [49]

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Trying to understand.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [50]

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Yes. I'm sorry. Go ahead

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [51]

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No, go ahead, Sid.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [52]

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We're all...

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [53]

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Yes, what I what going to say is -- go ahead, please.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [54]

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No, you finish, please, Jim.

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [55]

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I -- what I was going to say is, does it make it harder to sometimes understand inventory levels at customers if you may not have as direct contact? Or maybe I'm misinterpreting it. Maybe you have the same level of contact that you're having with all of these customers to understand where inventory levels are, where utilization rates are. Sorry, go ahead.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [56]

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Yes. We're all connected via technology. So communicating with our customers, partners and suppliers has really not been disrupted during this pandemic. Both headquarters and our local teams are engaged with customers on a continuous basis. And with the recently opened new offices, the state-of-the-art PHOLED Application Center in Hong Kong and Korea, we have -- also have a broader breadth of services and solutions available locally for our customers.

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [57]

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Got it. And my last question is just trying to reconcile some of the commentary that you're making about utilization rates and weakness. We are hearing, I think anecdotally, activity picking up in China in March in the semiconductor and parts of the industrial market and some of that strength continuing in April. So I'm wondering, is -- what may be different than what you're seeing? Is this potentially more a reflection of some of the larger drivers to the OLED market in the mobile space?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [58]

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I think that China -- in China, there were a number of the fabs that were running, and there were lots of logistical issues because of travel restrictions that were placed in China. And I think that impacted their ability and their utilization rates. I think now that that's lifted, things will turn around. But it's -- we were hearing things getting better, as you said, anecdotally, but having more manpower and the ability for folks to go to work is really what's needed, and that's what's happening now. But we have not seen it in the past.

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James Andrew Ricchiuti, Needham & Company, LLC, Research Division - Senior Analyst [59]

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Okay. And can I ask one quick question? How are you doing with blue?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [60]

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How are we doing with blue?

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Steven V. Abramson, Universal Display Corporation - President, CEO & Director [61]

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We're making excellent progress.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [62]

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Thank you, Steve.

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Steven V. Abramson, Universal Display Corporation - President, CEO & Director [63]

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As you know, we're really encouraged by our continued progress. But until we meet initial commercial specs, though, we really don't intend to provide specific detail.

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Operator [64]

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Our next caller is from Andrew Gasperi (sic) [Andrew DeGasperi] with Berenberg Capital Markets.

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Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [65]

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I just sort of have a quick question. I know the situation is a bit unprecedented. But I was just wondering, when we look at your royalty and licensing revenue, I know that historically you said in the past you were expecting that 1.5 to 2:1 ratio versus material sales. Given what's happening on the material sales side, should we see that ratio continue to be that linear or should diverge from that?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [66]

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Well, the material-to-royalty ratio is really dependent on our customer mix. And because of global uncertainties, it's difficult to forecast. However, based upon our history, the ratio has typically oscillated between 1.5 and 2:1. So I think it's in that ballpark.

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Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [67]

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And just a follow-up. I mean, with the new agreement, that should still be the case, right, with China Star?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [68]

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Without talking about it, these agreements that we have are pretty much all material supply agreements and license agreements so that this agreement is similar to the other agreements that we have in place.

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Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [69]

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Got it. And sort of an accounting question, but has there been any change in terms of the collections you received from your customers? Or has that sort of relatively -- been relatively steady as usual?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [70]

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I'm sorry, it broke up a little bit. I didn't hear. What was it from our customers...

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Andrew Lodovico DeGasperi, Joh. Berenberg, Gossler & Co. KG, Research Division - Analyst [71]

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Was there really like -- accounts receivables, collections, is that sort of -- are you seeing any extension of those terms or any delays? Or has that been relatively unchanged?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [72]

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No. They were up, obviously, because of, a, the BOE revenue that we took in Q1 that was shipped in Q4. And I think everybody is a little slower in paying, but I don't think that there are any issues that we see. To be honest, AR in April was down a little bit from March.

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Operator [73]

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Our next question is from Nam Hyung Kim with Acrete Research (sic) [Arete Research].

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Nam Hyung Kim, Arete Research Services LLP - Senior Analyst [74]

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I'm sure you have some project going on in IT panel side, means notebook and monitors. I just wanted to get your thought on mid- to long-term growth picture here. What portion of your revenue would be IT panel related by the end of next year or even in 3 years?

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Steven V. Abramson, Universal Display Corporation - President, CEO & Director [75]

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Nam, we -- this is Steve. We think that IT penetration is very low right now. It's about 1% of that total market. So we do think that there's significant room for growth. So if you look at the smartphone business being about 1/3 of the smartphone phone market is OLED, so we think that there's a really nice opportunity for growth in this segment.

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Operator [76]

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And our next question is from Andrew Abrams with SCMR.

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Andrew Abrams, [77]

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Just a question about PPG. Have you seen any issues with PPG, meaning PPG having difficulties getting basic materials or some of the rare earth materials that you use? And has that been an issue at all for you over the last quarter or so?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [78]

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Well, PPG is considered essential as we are. So the production is moving forward. And we -- there are no issues in terms of having materials or sourcing materials either from China or from India or from anywhere else. We've been -- we have kept a supply chain that has multiple sources. And in addition, we have inventory of raw materials built up. So we don't believe that there will -- there has not been, and we see no issues at all for the foreseeable future in the rare earth materials.

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Operator [79]

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And we do have a follow-up question from C.J. Muse with Evercore.

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Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [80]

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Just a follow-up question on the 1.5 to 2.0 relationship. Does that change at all? You talked about really customer mix driving it, but does that change at all if a customer is building inventory? The treatment of how you book materials and, therefore, royalties, does that change at all?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [81]

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It does not. Based upon 606, you figure out the life -- over the life of the agreement how much you expect to sell. And whenever you sell a gram of material, you report that and you report the corresponding license fee or royalty with that. So it doesn't matter how it -- what the purpose of the purchase is. It's a formula that you use for every gram that you ship.

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Christopher James Muse, Evercore ISI Institutional Equities, Research Division - Senior MD, Head of Global Semiconductor Research & Senior Equity Research Analyst [82]

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Okay. And just one last follow-up there. You in the prior years talked about 605 versus 606, but now we're just not going in that direction. Should we assume that we'll be just talking under the new accounting treatment and not going over the historical from here?

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [83]

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Yes. I think that at this point that it's not meaningful to break it out over the last few quarters. You've seen that the 2 are pretty much close to each other. And most companies aren't doing it. And most companies actually -- SEC requires you to do it for 1 year. We did it for 2 years just because our business model, and we -- but we don't think it's meaningful at this point. So we do not intend to give 605 results.

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Operator [84]

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This concludes the question-and-answer session. I would like to turn the program back over to Sid Rosenblatt for any additional or closing remarks.

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Sidney D. Rosenblatt, Universal Display Corporation - Executive VP, CFO, Treasurer, Secretary & Director [85]

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I'd like to thank you all for joining the call today, and we appreciate your interest, as always, and we want all of you to stay healthy and safe. Thank you.

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Operator [86]

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This concludes today's call. You may now disconnect, and have a great night.