Universal Display Corp. 10-Q Summary
Business Context and Reporting Period
Company: Universal Display Corporation (UNIVERSAL DISPLAY CORP)
Reporting Period: Quarterly period ended September 30, 2007 (Nine months ended September 30, 2007)
Business Overview: The Company is engaged in the research, development, and commercialization of organic light emitting diode (OLED) technologies and materials for flat panel displays and solid-state lighting. Revenue is generated through contract research, sales of development and commercial chemicals, technology development, and intellectual property licensing.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2007 | Nine Months Ended Sep 30, 2007 |
|---|---|---|
| Total Revenue | $3,077,281 | $8,407,081 |
| Net Loss | $(2,960,565) | $(12,719,737) |
| Net Loss Per Share (Basic & Diluted) | $(0.08) | $(0.38) |
| Operating Loss | $(4,072,749) | $(15,240,014) |
| Interest Income | $1,114,769 | $2,523,467 |
| Cash and Cash Equivalents | $60,605,836 | $60,605,836 |
| Short-term Investments | $23,057,973 | $23,057,973 |
| Total Assets | $105,420,383 | $105,420,383 |
| Total Liabilities | $15,800,726 | $15,800,726 |
| Working Capital | $74,236,420 | $74,236,420 |
Cash Flow (Nine Months Ended Sep 30, 2007):
- Net cash used in operating activities: $(9,450,432)
- Net cash used in investing activities: $(5,463,572)
- Net cash provided by financing activities: $44,422,307
Material Changes vs. Prior Period
Revenue Trends:
- Contract Research: Increased significantly for the nine-month period ($3.65M vs $2.77M in 2006) due to new government programs, though slightly decreased for the quarter ($1.23M vs $1.33M).
- Commercial Chemicals: Increased substantially for the nine-month period ($2.73M vs $0.94M in 2006), driven primarily by sales to Samsung SDI. This offset a decline in sales to AU Optronics, which discontinued purchases in late 2006.
- Royalty and License: Decreased for the nine-month period ($0.47M vs $2.27M in 2006) due to the loss of AUO revenue and the timing of royalty recognition.
- Technology Development: Decreased for the nine-month period ($0.75M vs $1.94M in 2006) due to the completion of specific development agreements.
Expense Trends:
- Operating Expenses: Increased for both the quarter and nine-month periods. R&D expenses rose to $15.6M (nine months) due to personnel costs, facility expansion, and legal fees for patent defense. G&A expenses rose to $7.1M (nine months) due to personnel costs and board compensation timing.
Liquidity:
- Cash and investments increased by approximately $34.6M compared to December 31, 2006, primarily due to a public offering of 2.8 million shares in May 2007, which netted $38.0 million.
Guidance, Outlook, and Risks
Outlook: Management anticipates sufficient cash and investments to meet obligations through at least the end of 2008. The Company expects to continue incurring losses until OLED technologies are more widely incorporated into commercial products. Future revenue is expected to rely increasingly on licensing.
Legal Proceedings and Contingencies:
- Patent Interference (U.S. Patent No. 6,734,457): The Company successfully defended its technology against Semiconductor Energy Laboratory (SEL). The Board of Patent Appeals and Interferences ruled in favor of the Universities (Princeton/USC), canceling all claims of the SEL patent. The proceeding is terminated.
- European Patent Oppositions:
- EP '958 (Flexible OLED): Opposed by Cambridge Display Technology (CDT). Management believes there is a substantial likelihood the patent will be upheld.
- EP '238 (PHOLED): Opposed by Sumation, Merck, and BASF. Management believes there is a substantial likelihood the patent will be upheld. Responses are due January 6, 2008.
Risk Factors: The Company notes risks related to the timing of license fees, customer product launches, and the need for additional funding for R&D and patent enforcement. There is no assurance that additional funds will be available on commercially reasonable terms.
Key Facts for Investor Verification
- Customer Concentration: Two non-government customers accounted for 46% and 15% of consolidated revenue for the nine months ended September 30, 2007. Almost all commercial chemical revenue in the period came from Samsung SDI.
- Capital Raise: Verify the utilization of the $38.0 million net proceeds from the May 2007 public offering and the current investment portfolio composition.
- Patent Defense Costs: Monitor legal expenses associated with the ongoing European patent oppositions (EP '958 and EP '238), as the Company is required to pay all associated legal fees.
- Accumulated Deficit: The Company has an accumulated deficit of $158.1 million as of September 30, 2007, indicating a history of losses.
- Revenue Recognition Timing: Note that royalty revenue from Samsung SDI is recognized with a lag (reported in the quarter following the sale), which may cause volatility in quarterly results.