Good day, ladies and gentlemen, and welcome to Universal Display's Fourth Quarter and Full Year 2016 Earnings Conference Call. My name is Shaira and I will be your conference Operator. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Darice Liu, Director of Investor Relations. Please go ahead.

Thank you, Shaira, and good afternoon everyone. Welcome to Universal Display's fourth 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 today's call is the property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the expressed 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, February 23, 2017. All statements in this conference call that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as those relating to Universal Display Corporation's technologies and potential application of those technologies, the company's expected results, as well as the growth of the OLED market and the company's opportunities in that market. These include, but are not limited to, statements regarding Universal Display's beliefs, expectations, hopes or intentions regarding the future. It is important to note that these statements are subject to risks and uncertainties that could cause Universal Display's actual results to differ from those projected. 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'd like to turn the call over to Steve Abramson.

Thanks, Darice, and welcome to everyone on today's call. We are pleased to report that 2016 finished on a strong note. Fourth quarter revenues were $74.6 million, operating income was $34.8 million and net income was $25.8 million or $0.55 per diluted share. Highlights for the quarter include, total emitter sales increased 25% sequentially, the adoption of our next-generation emitters commenced and we embarked on our next expansion phase with PPG Industries to double our phosphorescent emitter production capacity, which is expected to be completed in the third quarter of 2017. We have tremendous customer product roadmap activity in the pipeline for new emitters, the highest level of activity we have seen in our 20 plus year history. And we believe this momentum and strength will continue to grow in 2017 and will mark our return to double-digit revenue growth. Before reviewing the OLED activity in the display and lighting landscape that is expected to drive our multiyear growth cycle, let’s reflect back on the year 2016 for a moment. This past year was filled with a number of company accomplishments and events that build and reinforced our strong leadership position in the OLED ecosystem, including new agreements in China, the introduction and adoption of new red and green commercial emitters, the expansion of our IP portfolio with new inventions and patents from our R&D team, as well as a purchase of BASF OLED IP asset, the acquisition of the new wholly owned subsidiary Adesis, Inc. and Organic Synthesis Contract Research organization that is bolstering the acceleration of our new and next generation emitter systems, while continuing to grow its CRO business across all of its end markets. Hitting new milestones with our R&D programs including significant progress with our Organic Vapor Jet Printing tool, a ground breaking technology that…

Thank you, Steve and again thank you everyone for joining our call today. Revenues for the 2016 were $199 million, up 4% year-over-year. Our core business consisting of royalty, licensing and emitter sales grew 9% year-over-year. Royalty and license fees were $96 million or 24% from 2015 $78 million. Total emitter sales were $98 million in 2016 compared to $101 million in 2015 due to product mix. Total emitter shipments were up year-over-year. 2016 operating expenses excluding cost of materials was $104 million, up 8% from $96 million in 2015. The increase was primarily due to an increase in amortization expense from the acquisition of BASF's OLED IP assets and Adesis, Inc. Operating income were $68.4 million compared to non-GAAP operating income of $65.3 million in 2015, which excludes the 2015 inventory-write down of $33 million primarily related to host materials. Net income was $48.1 million or $1.02 per diluted share compared to non-GAAP net income of $44.8 million or $0.94 per diluted share in 2015. For the year we generated $80.3 million of cash from operations or $1.73 of cash per diluted share. Moving on to our fourth quarter results we had a solid quarter, revenue for the fourth quarter of 2016 increased 20% year-over-year to $74.6 million from fourth quarter 2015 revenues of $62.3 million. The total material sales were $29.2 million in the fourth quarter, up 5% from the comparable year-over-year’s quarter up $27.8 million. Commercial emitter revenue was $22.3 million essentially flat year-over-year from fourth quarter 2015 to $22.1 million. Commercial host sales were negligible in the fourth quarter of 2016, compared to $1.3 million in the fourth quarter of 2015. Green commercial emitter sales, which include our yellow-green emitters were $16.8 million in the fourth quarter, up 19% sequentially from the third quarter 2016 to…

Thanks, Sid. Looking forward we see extremely positive momentum in our business and we believe that we are well positioned to capture the tremendous opportunities in front of us. With our bustling customer pipeline we have broadened and further increased the depth of our R&D team to respond to the exciting challenges and opportunities in the marketplace for today and tomorrow. Leveraging our scale and over two decades of knowhow our foundational long-term R&D in phosphorous OLED technology has positioned us to be able to color, increase efficiency and extend life time to meet the ever increasing and changing market requirements. This includes designing PHOLED material systems and device architectures to meet the advancing display product design specifications. Additionally we are accelerating our R&D roadmap for our cutting edge OVJP deposition system and planning out future commercialization paths. And as the next generation of lighting emerges we continue to ramp our progress in solid state OLED lighting development. All of this is possible due to the world class talent within Universal Display. I would like to take a moment to thank our employees for their continued commitment to excellence and innovation. I would also like to recognize our customers, partners and valued shareholders for your continued support. The OLED revolution is gaining strong momentum and so are we our strategic initializes and robust operating model have created a significant competitive advantage that translates to strong market leadership, revenue growth and profitability. In summary UDC is a trailblazer in the growing OLED market. We have the innovation, commitment to operational excellence, agility and flexibility to drive the invention and development of the best OLED technologies and phosphorescent materials for our customers and our partners worldwide. And on that note operator, please start the Q&A.

Certainly Mr. Abramson. [Operator Instructions] We will take our first question from Jim Ricchiuti of Needham and Company. Your line is open.

Good afternoon. So wondering if you could talk a little bit about how we might see the adoption of the new emitter that you alluded to. Is this something that’s going to scale gradually do you think through the year?

We are pleased that we are shipping new red emitters, there are various emitters that are going to ship during various times during the year and it’s difficult to predict when and how much any customer will purchase at any given time and we do believe that the mix moving forward that we’ll be selling old material and new material.

Okay. And Sid and then my follow-up is just wide range in terms of the revenue guidance, I think we can understand perhaps. But I wondered if you could maybe give us a sense what the biggest variables are in that range of the low end and the high end?

Jim that’s a great question, because we believe that there are new phases of capacity being installed throughout the year and into next year, but exactly when those lines are fully installed when they will ramp up, when these line will ramp up and to what degree of utilization it’s difficult for us to predict, this is still a moving part target for us. So there are a number of variables that can either accelerate or slowdown pretty much out of our control.

But the biggest variable for you is capacity and when that’s turned on, fair to say.

The biggest variable when things are turned on, not installed but turned on because once state turn the tools on is when we start selling material.

Okay, thanks, congrats on the quarter.

Thank you.

We will take our next question from Brian Lee of Goldman Sachs. Your line is open.

Hey guys thanks for taking the questions. I had a couple if I can squeeze them in. Maybe just on the quarter itself first. Sid how big an impact did the new materials adoption have on Q4? If we look at the numbers in the K, Samsung brought their largest sales dollar volume of materials from you guys, basically since the data has been out there and your margins as you acknowledge was also substantially lower than the target range because of the new materials ramping. So just wondering if you can comment on how meaningful an impact the new materials had on the quarter and then also if you have visibility into this impact spilling over into Q1 as well?

These are initial shipments and the majority of the material sold in the quarter was our existing materials. Moving forward we expect to sell new materials, but we continue to expect to sell the existing material across this number of different products that are made. And it’s really based upon the customer orders. So we do expect them to grow, this is red and green emitters, but it’s difficult for us to say how much in any given time it will be particularly this early.

Okay, fair enough. And then second question is around the guidance. The cadence of revenue is there any color you can provide there just as if we look at what happened in ‘16, it looks like you guys finished on a strong note for both yours and Steve’s comments Q4 was seasonally stronger than we typically see and then I think there is a lot of data points out in the marketplace that there are some major product launches in the OLED technology arena that might be closer to the first half middle part of the year than their typical back half cadences. So for you guys specifically do you see somewhat different cadence of revenue in 2017 first half versus back half given some of that visibility?

Our guidance is really based upon conversations with our customers and forecast taking into account, looking at our own tops down model and bottoms up model and looking at those, it looks like from it’s difficult to -- the real issue is it’s difficult to predict when tools will be turned on. Clearly there will be capacity coming online all during the year and it’s probably weighted somewhat towards the second half of the year because based upon reports from the equipment companies they are delivering equipment in the first half of this year and the second half of this year. And so it just gets -- it accumulate so if they build it -- if they deliver it in the first half that's should up and running and then you add some more in the second half. So I think is it weighted more towards the second half, somewhat.

Okay. Great, now I appreciate that color. And last one if I could just squeeze it in and congratulations on announcing this, but be curious on the $0.03 dividend, first time dividend here, it seems like you would has some capacity to do more. So, just curious how you decided on the $0.03 divided and then if there is or if there was or there still is any consideration for larger one time dividend or any other shareholder return strategies as we move through 2017? Thanks guys.

Thanks, Brian. It is; A, we are very excited to declare the dividend, this is our first dividend and we intend to continue to pay regular dividends quarterly going forward. And the Board will look at all factors and we believe this is good place to start. So, as I’ve told you in the past the Board of Directors looks at all options at Board of Directors meetings and we think this was the appropriate time to start the dividend process.

We will take our next question from Mehdi Hosseini of SFG. Your line is open.

Thanks so much for taking my call. I have two follow-ups, if I were to took away the Samsung licensing and royalty revenue, it seems to me that there is some level of conservatism built into your material revenue expectation or what is implied in the revenue guide, especially given the fact that some of your existing customers are seeing customer diversification, would that be the right conclusion thinking that yes there is conservatism in your material or in the implied material guide. And I have follow-up.

As I stated before, our guidance is based upon all of our conversations with our customers and our own tops down and bottoms up model and we do have a range of $230 million to $250 million and you can read into that whatever you would like. I mean this is a new industry things take time to get started everything doesn’t start exactly when we think. So, we believe today that this is probably our best estimate and then as capacity maybe start sooner than we anticipated as the year goes by we will look at it, we do look at it every quarter and we give you an update every quarter. So we are -- right now we are very confident in our numbers of $230 million to $250 million for the year.

Okay. And then regarding China and owned activities going on there I imagine it will take some time for them to improve their manufacturing yield and in that context could it be reasonable to assume that incremental revenue from China is more focused on technology development and support?

Well, based upon as Steve mentioned in his prepared remarks, BOE has two pilot lines, one for TV, one for mobile sizes and their first production facility for mobile isn’t anticipated to really get completed until the end of 2017 probably not producing product until 2018 on a commercial basis, and Tianma shipping small quantities of material. So we don’t expect significant growth from either one of those in China, but we will see we will see growth.

We will take our next question from John Quealy of Canaccord Genuity. Your line is open.

Hey guys thanks this is Jason Rosenfeld on for John. First maybe on capacity expansion, was this only in anticipation of the inflection or were you already brushing up against the limits? And then given your market growth expectations how long before you might to need to make another investment?

Are you referring to the PPG investment?

Yes.

Okay, thank you. Steve can talk to that.

We do long-term planning for our production plant, because we have to get out well ahead of the curve. So we've been working on that this planning for quite some time and we think it will add incremental product when we needed. And of course we continue to look out for when we might need to grow an additional plant.

Yeah and we historically have been ahead of the curve we increased our capacity a few years ago and that was in anticipation and to be honest we're starting to see that inflection point now. And as Steve said we will always build excess capacity because the industry is growing and we are the leader in this industry and we want to ensure that our existing customers and that any of our customers we can always supply them with everything they need.

Okay, great. And then maybe as a follow-up Adesis saw some pretty good growth maybe some of the sales and development you're putting in onto that should we expect similar growth there, is there any seasonality?

We expect that it's not going to move the needle, but we do expect to see growth in 2017 over 2016. It was $1.8 million in the fourth quarter. So we expect it to grow, but as I said it's not going to move our needle very much.

[Operator Instructions] We will take our next question from Rob Stone of Cowen and company. Your line is open.

Hi guys. My first question is on materials gross margin you've said that the fourth quarter was affected by maybe some startup cost for new materials, but you're targeting 70 to 75 on the year. How long does that drag from new materials persist? And if the contribution by new materials was relatively small in Q4 is that going to be a bigger drag in Q1?

No we're constantly developing new materials and we're developing new materials and we provide new materials to customers on a regular basis. And then once they adapted to new emitter we then go through the scale up process. So it will be ongoing particularly this year, because there is a lot of expansion in the industry. We expect new products to come out, which would have new materials. I don't anticipate much of a drag overall, if we want to put it that way it just cost money to scale up. Our margins for the past -- our material margins for the past two or three years have been between 70% and 75%. And we fully expect 2017 to be in the same range.

Great. My follow-up question is with respect to the tax rate, looks like Q4 came in somewhat below what we were thinking at least and then your guide for 2017 is up from that. First part of the question is what happened in the fourth quarter? And then in relation to the tax rate going forward are you still expecting because of your long-term tax planning to march that rate down in the coming years. Thanks.

The GAAP tax rate and again we're talking about GAAP because for cash purposes. We're still using NOLs. And the accounting for GAAP, for taxes as you do an estimates for the year. And then every quarter based upon your results you true it up. And as you are aware we have an Irish [ph] subsidiary that handles our material sales and then we also have revenue that comes into the U.S. It does fluctuate quarter-to-quarter based upon your results, once the subsidiaries are in a profitable mode you do get some benefits from it. So it does change and at year end when you know what’s your final results are you literally do a true up for the year. So Q4 tax rate is historically been a number that is either above or below what the average has been for the year. This is just simple accounting for international subsidiaries and the way that it works. We do expect to see our long-term tax rate continue to go down. And so we do expect ‘18, ‘19 and ‘20 to be lower than the 30%.

If I could squeeze in one more follow-up. You talked about accelerating the roadmap for the OVJP, any sense of timeline to commercialization? Thanks.

Well, Rob we have been accelerating the R&D right now, we’re starting to talk to various people about how we might commercialize it’s going to be probably over the next few years.

Great. Thank you.

Thank you, Rob.

We will take our next question from Andrew Abrams with Supply Chain Market Research. Your line is open.

Thank you. Hi, guys congratulations on the quarter. And Sid I thought when you were going through the color breakdown that you said something about emitter shipment volume as oppose to emitter shipment revenue? Did -- okay can you repeat that because that’s sort of a new metric.

What I stated is we talked about emitter volumes in 2016 to be about $101 million -- I am sorry $98 million compared to $101 million but that the total emitter shipments were up year-over-year so what you do see is pricing taking in 2016 accounting for the differences.

Okay, I just want to make sure I heard it correctly. And I know we don’t usually get additional metrics we usually loose metrics. So that’s nice to be able to at least get some reference point. Also on…

Andy we’ve put that in for you.

Thank you very much. The green, I know it’s difficult where you break out color in the green category, but can you give us some I hate to use the word color, but can you give us some color on how the green worked was a lot of the incremental green that you saw in fourth quarter coming from the adoption of regular green emitter from one of your customers or was it what we would if expected from the TV business increasing meaning the yellow, green side?

The green commercial emitter sales were $16.8 million in the quarter it was up almost 20% from the third quarter and it was up year-over-year. We really do not breakout colors whether it’s red, green, whether it’s red-green or yellow green or new green, mainly because we really don’t -- we can’t disclose what each customer gets and that would then disclose customers.

Okay, I tried. Thank you.

But I can’t give you the specifics.

Got you. No, that’s it, thanks very much, I appreciate it.

Thank you, Andy.

And we will take our next question from Hendi Susanto of Gabeli & Company. Your line is open.

Steve and Sid congrats on a strong finish to the year.

Thank you very much.

Thanks, Hendi.

So it’s excited time for OLED there are many new companies entering OLED display production. What is you assessment in terms of whether or not the new players may encounter barriers of entry in the form of patterns for commercial production?

So I understand your question. New entrance into the market, are you talking about panel makers, or are you talking about equipment or material companies.

Panel makers, so let say if I am a new panel maker and I want to enter OLED display production like will I need a lot of IPs or like if I buy the equipment and I think a little bit and develop some let’s say like trade secret I can do that without licensing some of the commercial production related IP?

Andy, what we are seeing right now is great acceleration in the growth of the OLED ecosystem. So the new panel makers are coming online and seems to be moving strongly and we are not hearing any sense of what you are talking about.

Got it. And then can you specify the form factors of the new materials, do you have new emitter materials in all categories? In addition to that have you seen adoption of green emitter materials in wearables in late 2016? If not do you assume green emitter materials in wearables in 2017?

We have introduced new red and new green emissive material in the end of 2016 and we will introduce new red and green emitters during the year whether they are adopted it really depends on each of our customers. And the applications could be all over, I mean we saw material we don’t specifically know what every application would be since the customer’s recipes and formulas are their own proprietary information.

And then do you know whether green emitter materials have been adopted in wearables or not as of today?

The wearables today have our phosphorescent emitters in them. I can’t specifically say which materials are in which wearable product, but all of the OLED wearable products in the marketplace today have our technology and material in them.

I mean do they have both red and green?

Again that’s customer specific and I really can’t answer that question.

Got it. And then one last question, how much additional CapEx is needed for doubling your PPG capacity in 2017 and what CapEx will look like in 2017?

We restated in our press release that the total cost of the expansion is about $15 million that's going to be our PPG. Our Internal CapEx is probably in the $5 million range, we always buy new equipment and our upgrading the equipment, but it isn’t anything that's a significant number.

Thank you.

Thank you, Andy.

Thank you, Andy.

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

Thank you for your time today. We appreciate your interest and support and we look forward to speaking with you again next year. Everyone have a good night. Thank you.

That concludes today's conference call. Thank you for your participation. You may now disconnect.