Universal Display Corporation (NASDAQ:PANL)
2013 Annual Meeting of Shareholders Conference Call
June 20, 2013 4:15 pm ET
What we have here are color changing light sources. These are things that we’ve done with Acuity. Acuity is basically the largest distributor of lighting here in the U.S. and one of the largest distributors of lighting worldwide, and we’ll be able to work with them. This is a video, these are actual light sources. We make RGB; red, green, blue stripes and through the driving mechanism, we’re able to get them to change color to basically be whatever color you’d like. Come back here afterwards, you can see how all these things change color.
And if you want to play with yourself, do it yourself. We have a little color here and you can just move it around and when you move it, it will go to the color that you move it to, except you have to use the pointer, here we go. And that is why we have very smart people who work here because they can do all this.
Thank you, Cindy. Speaking of Cindy, what we have over here are two posters that are the next-generation, so we don’t have anything demonstrated here this year maybe we’ll have something next year. One of these is high-performance for lighting. What we’ve been able to do is stack diodes, OLEDs on top of each other. Some of you who have been with us for a long time maybe recall an acronym SOLED. SOLED didn’t really work for display that well, but it turns out they may work for lighting because it can give you really high efficiency, really long lifetime and higher brightness. So this is one of the ways we’re working on that.
Another way we’re doing to improve efficiency of lighting products in the entire device is something called outcoupling. So our phosphorescent materials are essential to improve or the key to internal what we call the internal quantum efficiency of the device, converting 100% of the energy available in the electron into light, not heat. But that doesn’t get all of the light out of the device because it’s what’s called a Lambertian emitter, it emits light in 360 degrees. So what we do is create some things called wave guiding to enable more light to get out of the front of the device, and these are some posters relating to that.
From our design phase, we have here a transparent OLED, which we call the moon window. One of the things OLEDs enables designers to do is really cool stuff. And this is one of those really cool things. It’s a moon window. We’ve had a number of offers to buy this or commission these, it’s not for sale.
What we have here is a bezel-free lighting device on plastic with a universal barrier encapsulation, so this one best in show at the Society for Information Display two months ago. It’s on plastic, using our universal encapsulation and there is no bezel. Now think about, whenever you have a display, your cell phone, your TV, what have you, it has a bezel, has something around it because that’s where you put the end of the electronics and things of that nature. One of the pressing needs of the lighting and the display industry is a bezel-less display and we’ve been able to develop that with our universal barrier technology.
This is (inaudible) and it has some of our smart people, a neat stuff in it. Here is another one of our design in lighting panels that too is not for sale, but it’s really cool. This is just another example of the color changeable display. These are the different colors that we have. You may remember R-G-B1-B2 still a very important way of getting an all phosphorescent system into the display, into display industry is a various incarnations of white lighting devices, some of them are transparent. They had different bus line features. You can come up afterwards and if these guys will let you, you can touch them, they’ll be running all afternoon and there is still cool to the touch, imagine doing that with a light bulb.
This is our UniversalPHOLED white house, different – we’re an international company and different region seemed to like different colors of white. If you ever redecorate your house, you know there is more colors of white than you ever expected. So it turns out. In Asia, they really like cool white, which is a more bluish white. In Europe and North America, they like a more warm white, which is a more reddish white. So we’re actually able to tune our lighting devices to different qualities of white.
And last, but certainly not least, introducing in North America for the first time, 55 inch OLED TV. This OLED TV was manufactured by our partner LG Display. I believe it is the first one in North America you guys get to see it; you don’t get to touch it. But as you really can see, it’s cool from here as you can from anywhere else. This is in 2D mode; it’s in 3D mode as well. And if you stand where I am standing and you see how thin it is. You’ll just be absolutely amazed. So I recommend after my presentation, go up and see all these cool things that we’re doing and talk to some of the people that are doing them, because they’re really smart people, they’re really passionate about what they’re doing.
Now I’ll appear from behind the curtain and I’m going to start the slideshow. I know that those of you would rather just watch the OLED TV than listen to me, but you don’t get that choice, sorry. We have a great innovative business. We’ve been working in the OLED area for over 17 years. We’ve invested almost a $0.25 billion in R&D for OLED technologies. And we’re monetizing those technologies in two distinct ways in our business model through the sale of – the licensing of intangible property and the sale of tangible property.
So we have over 3,000 OLED patents issued and pending worldwide, which we licensed to the major manufacturers and we also sell our materials, which are produced by our partner PPG Industries into that industry as well. We’re doing that today. We’ve been doing this for a decade and we’ll continue to do it to create a sustainable future for our company and for the growth of the OLED industry.
When we started, Sid and I actually rented an office about a mile away from here. We’ve been having the annual meeting in same building ever since because we’re consistent, loyal and don’t want to get lost. But then we’ve moved up to an office above liquor store in Princeton, and we move to our current facilities in Ewing, New Jersey. And we started doing business internationally from New Jersey, but we realized that the business was not only in the United States, but in the rest of the world as well. So we established a subsidiary in Japan, subsidiary in Korea, subsidiary in Ireland, a lab in Hong Kong, and offices in Taiwan. And so now what we have is, we’re an international company headquartered in Ewing, New Jersey.
And as we transition from New Jersey Corporation doing business internationally to an international company headquartered in New Jersey, we’re growing our employee count as well. So as you can see, we grow about 20% over the past year, but these 118 people we have in UDC are not the only people directly involved in our program. We have about more than 10 university research projects going, employing more than 50 university researchers and we also have about another 50 people directly working on our project at PPG. So this project starting from very small base employees supporting directly well over 200 families.
And this market is growing. I mean the market just really started in 2010. But this market grew 90% last year that projecting it to grow about 70% this year. This is all smartphone growth, and it’s sustainable growth. We're seeing smartphones in the forthcoming years, you’ll likely to see tablets and TVs, OLEDs as a technology has legged in a number of different products, and this is just relating to the AMOLED display market growth. So the market last year was about $6.9 billion and the market this year is projecting to be about $11.8 billion.
What is an OLED and why am I talking about it? It’s a simple, ingenious way to emit light. We start with substrate the glass, plastic or metal foil, which plastic you put on your thin-film encapsulation, you then put on your anode, you deposit your HIL and HTL, and then comes the magic. Then comes what we're focused on. Then comes the emissive layer; the emitter and the host; it’s a two part process. It’s what emits the light. We initially focused on the emitter. That was our core business, but we realized it was a tremendous business opportunity in the host materials as well. The best way to envision an emitter host combination is chocolate milk. The emitter is like the chocolate sauce, the host is like the milk.
And you vacuum-deposited, what does vacuum-deposited mean, you have a big vacuum chamber, you put the dry powder in a crucible, you’ve heated up, it sublimes on to a substrate and then condenses into a thin-film, which grows the OLED. You then put ETL in, the other electrode, you seal it up and you have an OLED. Now this may look like a big thing, but in fact, its not joined to scale, because the area between the electrodes is thinner than 1/1000 the thickness of a human hair. I can’t say it, but that's really thin. So these things are as thin as a substrate you can make it on.
The key enabling technology, the one that enable OLEDs to compete with LCDs is phosphorescent technology. Our team invented it and we have patents covering it. You can see from this chart that phosphorescent enables energy efficiency. By doing so, it increases the lifetime and reduces requirements for various heat dissipation compounds and therefore lowers product cost. And what we – right now we have, additionally, we have red PHOLEDs, but it was the competition being LED-backlit LCDs got better. So now we have red and green PHOLEDs in the marketplace. As you can see, once we get the ultimate RGB, we can have a 61% aggregate power reduction from competing AMLCDs.
And this is just a picture that’s taken from one of our customers at the recent SID trade show. If you can see it, longer battery life through power efficiency, new EL material, that’s our material, 25% power savings. We’re working with basically all the major consumer electronics companies in the space in both the display and lighting field. Our biggest customer is Samsung. And we are very, very proud to be working with them.
We work with our customers in two ways really. One is a technology license and a material supply agreement and that’s what we have with Samsung. And you can see a number of lighting companies that we have Konica Minolta, Lumiotec, Showa Denko, Panasonic, Idemitsu. The other is what we call a license material supply agreement, where we basically build in the value of the royalty into the material and sell the materials at a higher price.
And we do that in part because what we want to do is work with the industry to grow the industry, to grow the pie because then everybody is going to make a lot more money. That’s our business strategy, that’s how we try to do it. So with AUO, LG Display, Pioneer, Sony, just as examples, this is what we are doing in the display industry with LG Chem, NEC, we’re doing that in the lighting industry
Big growth market is Samsung. Three years ago in 2010, the world was different for us, because Samsung had not yet launched their first Galaxy phone. So let me just wondering, how many people have a Samsung Galaxy phone? Just raise your hand. Probably about half the room and by the way expect the other half of the room next year to be raising their hands, because of the AMOLEDs, critical aspect of that is our phosphorescent technology because of its power efficiency. And you can see this market is huge. The mobile smartphone market is projected to grow 65% to 70% this year. As you can see Samsung is on the Galaxy S4. They’ve overtaken Apple as the leading smartphone manufacturer and they were the only display manufacturer to make money last year and they made a lot of money. So, OLEDs look better and they can cost less.
And you know what our company is making money now too. Our revenues have been growing every year. You can see from 2010, the first launch of the Galaxy phone, about $30 million, sorry, getting ahead of myself. 2011, $61 million; last year, $83 million, and we’ve gone from a $20 million loss to almost $10 million profit over the course of those three years.
So I was talking about our different businesses, so how is the revenue breakdown into our different businesses. Material sales is in the blue right now, that’s a little over 50% of our business in 2012. Our technology licensing was almost 40% of our business. And about 10% of our business was technology development and support revenue. I’m going to talk a lot about technology development and support, but for example, the Department of Energy is very supportive of OLED technology, because they are really driving to increase energy efficiency in lighting in the United States and we’re working very closely with them. We also work closely with a number of our commercial partners to help them get product in the marketplace as quick as possible.
We have a strong capital structure. We have about $220 million of cash in the bank with total assets of about $267 million. A lot of those assets, we converted about $110 million of cash into additional patents when we purchased last year Fujifilm’s OLED patent portfolio, about 1,200 issued and pending patents worldwide. And now I’m going to talk a little bit about our patents. We have the strongest R&D patent portfolio in the world, in the OLED space. And what I’ll try to do this year to explain our patent portfolio is to divide them into three groups; PHOLED materials, PHOLED devices and other OLEDs. I guess, the first thing you can see is that we more than doubled our patent portfolio from 2011 to 2012.
Second, when you look at the three different categories, PHOLED materials are the patents that protect our materials business. So this is the patents, the materials that we sell are protected by these types of independent patents. PHOLED device, PHOLED by the way is phosphorescent OLED. PHOLED device is for our patent licensing business. That gives the manufacturers to whom we license our technology the right to use our device architectures and device structures to make displays using phosphorescent emission. And then other OLED contains a number of really interesting technologies that are good now and into the future. For example, there is a patent in that group that covers a OLED on plastic, because we were the first guys to be able to demonstrate a small molecule OLED on plastic. There is number of patents in the equipment manufacturing. The encapsulation that I showed you is in that area. There is the stack SOLED, there’s top-emission, a number of other patents.
And we’re not only diverse in the types of OLED patents we have, but our business is international and therefore, we have filed patent in all the major jurisdictions. As you can see from this chart, China, Japan, Korea, India, Taiwan, Europe and United States, we have hundreds of patents in patents or patents pending in each of those areas. First chart showing the slide a couple of years ago because some of our fundamental phosphorescent patents we basically have three sets of them were on the subject of challenges in Japan, Korea and Europe.
I’m pleased to announce that over the past year, last 12 months of those challenges, of them, two in Japan we won relating to some of our fundamental phosphorescent devices and materials. We won one in Korea relating to our OVJP, Organic Vapor Jet Printing technology. And we won one in Europe relating to a fundamental phosphorescent technology. The only blemish on that record is that the Supreme Court of Japan refused to hear an appeal from an earlier decision that had happened. So we no longer hear that there are no phosphorescent because it’s been validated in all of those jurisdictions.
The other issue we hear about on our patents is your fundamental patents expire in 2017. Well, it’s not really true on a number of levels. First, we have three sets of fundamental patents. The first set expires in 2017, and then the next two expire in 2019 in the U.S., a year later in the foreign jurisdiction. Second, we’ve really known that a patent has a limited life. It has a 20-year life. So the initial discovery of phosphorescent was patented in 1997, so will end in 2017, but we knew that. And so we have designed a sustainable business. And so we’ve been constantly inventing new technologies, new phosphorescent technologies, new device structures to create a sustainable patent licensing business. As you can see, we now have over 3,000 patents. These are the patent expiration dates of our current patents. You can see most of the events are expiring till the middle of the next decade and if we continue to file patents just at the current rate, which is about 150 patents a year plus organic growth, you can see, we’re going to continue to build our patent portfolio and we’re continuing to create a sustainable licensing business the same way the company such as QUALCOMM and ARM have done that.
That’s our patent licensing business discussion. Let me talk to you a little bit about our material revenues business. I took a cut on this and wanted to talk about material revenues by customers. I only tell you who the rate customer is, but I’ll tell you that’s Samsung. But we are working with the number of other customers, as you can see, LG, AUO amongst them. And in fact we’re working with over 20 customers, including in lighting about 5% of our material sales go to lighting customers. And one of the things that we’re trying to do with these 20 customers is we want each of them to grow bigger and bigger. So we have specific people who are signed to help each of these customers grow bigger so then we can grow our business bigger.
If you want to look at our product mix, a couple of years ago, basically all we were selling was emitters. In the first quarter of 2013 about 60% of our material revenues came from emitters, commercial emitters. About 27% came from commercial hosts and about 12% were development materials.
Our material manufacturing partner, PPG industry, we’re working with them since 2000, very strong partnership. The current production is done in Monroeville, Pennsylvania, which is about four hours west of here. We are outgrowing that facility. So they’re moving production into an additional facility while we continue with Monroeville, about four hours west of Monroeville into Barberton, Ohio and we expect that to come on line in late 2013 or early 2014.
So talking about our commercial material sales growth. Our first material, red material was actually sold in a passive matrix device in 2003. We’re still selling that material to that customer. Our second red material start being sold commercially around 2008, we’re still selling that material as well and now with basically our commercial material revenues until the first quarter of this year.
In the first quarter of this year, we added four new commercial materials; new green emitter, new green host, new yellow emitter, commercial yellow host. This is an additional way we’re going to be able to grow our business by selling more materials to more customers. So if you see here the E is emitter, the H is host, if you can see the key. So it’s RE1, RE02. We have a lot of runway in our material business. The OLED industry has only just begun. So when we talk about future growth of commercial material sales, we’re talking about next-generation of red emitters, next-generation of red hosts, next-generation of green emitters, next-generation of green hosts, same with yellow emitters and yellow hosts. Then we have blue, light blue emitters, light blue hosts, blue emitters and blue hosts. We have a lot of runway, a lot of potential as this OLED industry really begins to take off in the middle years of this decade.
Everybody always wants to know about blue. Now that green is commercial, people are starting to ask about blue again. So when you look at this chart, we put it into context, we have red, we have orange, we have yellow, we have green, we are selling light blue on a development basis. We don’t have blue yet. It’s a higher frequency, requires higher energy, it’s a lower wavelength, it’s the most difficult problem in OLED material.
I believe we are going to get there and we are focusing on two major approaches to do that. One is evolutionary improvements based upon our 15-year phosphorescent experience. And the other is revolutionary inventions based on unconventional outside of the box thinking.
So all that we were talking about thus far has been vacuum-deposited materials, I was talking to you about that. People are talking about printing OLED devices. Basically if you print an OLED device, think about an industrial size version of your inkjet printer, you take a small amount of the powder that we use and you mix it with a large amount of solvent, you then print it into, basically, into wells on a display. And you drive a solvent and you have the display. People have been talking about it for a couple of decades. What we want to make sure from our business is that if that’s commercialized, they use our technology, our materials in that business.
Now we’ve looked at inkjet printing, that’s kind of difficult because it’s a solvent. But what if you could print without a solvent? And so our researchers invented Organic Vapor Jet Printing, basically, substituting in layman's terms, a carrier gas for a solvent. And by doing so, you are able to build up the display. We’ve proven that out in the lab and we are now continuing to work to develop that process because that could have a lot of potential for the high resolution large area displays in the future.
I talked to you about patent, I talked to you about our materials, talked to you some about technology, let me talk about the future growth for the markets lighting. You saw some of the lighting. OLED lighting is really cool in all centers of the world. It’s thinner, it’s energy efficient, it’s diffuse, pleasing light source and it’s environmentally friendly. There’s no mercury or obnoxious gases to it.
So it’s generally accepted in our industry, not in the world yet, that incandescent bulbs and fluorescent bulbs have a limited useful life and the future of lighting is going to be solid-state lighting, organic and inorganic LEDs and we see them being complementary. So one is our OLED hours are organic emissive, LEDs are inorganic emissive. The light qualities are different. From OLED, as you can see over there, it’s a pleasing diffuse glow and LED is more of a bright point source. I loved it when I was at the Rolling Stones Concert the other night, because I could see Mick Jagger just like he was there. I love it when I’m out get in traffic, for traffic signals, because they are really bright. But when you try to put them internally, it’s a little harsh, and you have to put diffusers and other pieces of equipment in order to cut out the light. OLED has a diffuse glow naturally. From an operating temperature, OLEDs are cool, LEDs are hot. So you need heat sinking and other additional costs in order to commercialize them, which by the way, LEDs has done extraordinary well. I think they’ve done a great job in commercializing their technology. we do believe they’re complementary.
form factors; LEDs is a chip, we’ve been able to make it into a bulb and if you wanted to make it into a panel, it would be rigid and thick. OLEDs, on the other hand, as you can see, are paper-thin, light weight, flexible and transparent. Flexible; so you can call it flexible for a long time, it’s a great catchy phrase, but the first products are probably not going to be flexible. I think people want plastic OLEDs because it’s unbreakable.
For example, let’s say you just bought a new Galaxy S4, and you’re out fixing your fence in your backyard and you have the pliers with you and to fix the fence, you put the Galaxy S4 in your back pocket, you put the pliers in your back pocket, and you’re kind of an old man and it’s hot day, so you want to go inside for a beer. you go inside for a beer, you sit down and crack, you hear that display, Sid, anybody know [what happened] to him. Sid personally has bought two Galaxy S4s in the first month.
Unbreakability is really important, but they’re also thinner, they’re lighter and they create new form factors. So the Universal Communication Device, which we’ve talked about for a long time, today people have their smartphone, you have your iPads, you have your laptops, at this point, they are all the same computing power, the difference is the size of the screen. So therefore you carry a number of different devices around where you have really young eyes. So once you have a flexible rollout screen, you can have one device for everything.
Now the problem with plastic is it’s porous, unlike glass, oxygen and moisture can get through plastic. and so oxygen and moisture can kill an OLED. so you need to create a barrier on the plastic to keep the oxygen and moisture out. The conventional wisdom, traditional way of doing this is with a multilayer barrier. You basically put a layer of organic, inorganic, organic, inorganic, they are called dyads, have enough of these so the oxygen and moisture of a tortuous path to get through.
What we’ve invented is a single layer barrier, which works really well, gets the same performance and takes a lot less time. And as our duck is saying, time is money. so the industry is very interested in this technology we are working to commercialize this technology.
OLED TVs, you guys seen it, there’s nothing more I can say. Samsung and LG are both working very hard on it. It seems like you’ll probably see mass production in 2015, this year and next year as when they’ll be scaling up going through the pilot line and the like. once you see them, you’re going to want one and the manufacturers know it and they’re working really hard to commercialize these.
So those are some of the markets that we’re looking for, for the future for our growth company. So our company is one of the best company growth stories of the 21st century. Everybody is looking for growth, growth is kind of hard to come by and it’s here in this room and you guys have all been a part of it for a long time.
We’ve been researching, developing, commercializing OLEDs, building the company from the ground up, and today, we’re a panel. And then reason our stock ticker is PANL is because when Sherwin took us public in the mid-1990s, the first thing we had to do was explain to people what a flat panel display was, because there wasn’t a whole lot of them around. and then we could explain and we have the next-generation of technology; that was not an easy sell.
But now the next-generation technology is here today. And tomorrow is OLED. We are OLED. The OLED industry is just starting to grow and our company will grow, prosper along with it, creating value and shareholder value. And we also have the unique opportunity as we grow to do good while we do well. Because of our energy efficient technology, we can make the world a little better place for ourselves and for our children.
And we want the world to identify UDC with OLED. So as of next Monday, our new website address is udcoled.com and our new stock symbol is OLED. Thank you very much.
Ladies and gentlemen that does conclude today’s conference. Thank you for joining.
[No Q&A session for this event]
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