Universal Display Corporation (OLED) Q1 2018 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to Universal Display's First Quarter 2018 Earnings Conference Call. My name is Rob 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 now like to turn the call over to Darice Liu, Director of Investor Relations. Please proceed.

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 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, May 3, 2018. All statements in this conference call that are not historical are forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995, such as those relating to Universal Display Corporation's technologies and potential applications 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 would like to turn the call over to Steve Abramson.

Thanks, Darice and welcome to everyone on today's call. Start, I would like to remind everyone that we adopted the new accounting standard for revenue recognition ASC606 effective January 1, 2018. Our first quarter 2018 revenue were $43.6 million; operating profit was $4.5 million and net income was $6 million or $0.13 per share. These first quarter financial results were below our expectations and we believe this is primarily due to three factors. First, the smartphone market, the short-term slowdown in the premium smartphone market, which we expect to last through the second quarter is impairing our customers, production plans, which in turn, we believe is impacting our materials business. During the quarter material sales demand for OLED panels declined faster and to a greater magnitude than we expected. The second factor was new accounting standard ASC606. Without the impact of the ASC606 our first quarter results would have been $68.2 million in revenue $29.2 million in operating profit and $25.9 million in net income, or $0.55 per share. And thirdly as we mentioned previously last quarter, the inventory pre-purchasing of materials we believe that occurred in the fourth quarter of 2017. We spent orders of revenues the pickup in the second half of the year. However, due to weakness in the first-half we are revising our 2018 revenue guidance range to between $280 million and $310 million. Sid will go into further detail shortly. So where do we expect things to go from here when and what will fuel the pickup and what is our view beyond this year. From materials sales standpoint, we believe Q1 represents the bottom for the year. The OLED panel market conditions are expected to remain weak in the second quarter due to the soft smartphone environment which is consistent with Samsung and LG's comments last week on their respective earnings call. And we expect the pickup in OLED panel demand in the second half of the year, looking out to next year, we expect significant growth to resume. Long-term OLED market fundamentals remain robust. We are encouraged by the ongoing OLED investment plans like current and new OLED manufacturers, OLED mobile panel makers are improving yields and costs which are expected to further increase OLED's competitiveness, OLED TVs are continuing to garner interest from a number of OEMs are gaining market share in the premium market and R&D activity, in foldable OLED products is accelerating. In the small and medium display market we expect top smartphone leaders to launch new flagship OLED mobile products in the second half of the year. Apple is expected to launch two new OLED smartphones in the third quarter, Samsung is also expected to launch its flagship Note 9 in the third quarter, on a broader scale OLED panel manufacturers are focused on driving the proliferation of OLED by working with OEMs on new designs to expand the adoption of OLEDs and to expend their own customer wins, increasing the competitiveness of OLED our reducing costs and improving yields and broadening product landscape applications like IT and automotive, and investing in differentiating attributes but new form factors. OLEDs are inherently conformable, foldable and rollable. With Samsung reiterating plans to launch a foldable OLED display product and panel makers recently showcasing advances in foldable OLED panels, foldable R&D activity is heating up. Mostly recently in China major players including BOE, Vision Ops, Tianma and EverDisplay all displayed [ph] foldable display prototypes at last month's China Information Technology Expo. Also last month it was reported that Huawei is planning to launch a foldable OLED handset later this year with additional plans to launch a foldable phone with 5G support in the second half of 2019. In the large area display market OLED TV has continued to gain global momentum. LG Display continues to add OEMs to their OLED TV customer list with the most recent being [Indiscernible] in China. OLED TVs are also gaining share in the premium market with an expanding OEM base and growing market share demand is outpacing supply. LG Display recently reported the current OLED TV demand exceeds supply by 30%. This is when LGD to start reviewing additional new OLED TV capacity plans. Also, during last week's earning call LG reaffirmed its plans to increase OLED TV shipments by approximately 50% year-over-year to 2.5 to 2.8 million units. Adding to all this OLED TV momentum is Samsung. Samsung has reportedly resumed its OLED TV research activity. With respect to the multiyear OLED CapEx growth cycle we are in while we are seeing some capacity digestion this year, we're also seeing a significant amount of capacity building, a number of panel manufacturers are building the framework for the next expansion wave of high volume OLED productions, which is expected to ramp next year. New capacity takes approximately 12 to 24 months to build. These new capacity builds primarily in China for mobile and OLED TVs are expected to begin to materialize into additional revenue opportunities for us next year. Looking out for 2019, we anticipate the significant growth in the OLED industry to resume, as we expect the installed capacity base as measured in square meters to increase by approximately 50% by the end of 2019, as compared to the end of 2017. Samsung noted on its recent conference call that it's actively responding to demands for flexible OLED products, increasing market share by expanding its consumer base and proven cost competitiveness by cutting edge technologies and products, reinforcing competencies in new applications and offering differentiated technologies outside of LCDs. LG Display reiterated its OLED CapEx plans to build new mobile and OLED TV capacity. LG's second OLED TV fab located in Guangzhou is on track to ramp production in the second half of 2019. And due to the strong and growing demand environment LGD is considering plans to build additional new OLED TV capacity possibly by converting some of its LCD TV capacity to OLED TV capacity. In Japan, Sharp announced earlier this year that it was sampling OLED panels from its Gen4 [Indiscernible] pilot line and will begin production for Sharp's own branded smartphones in the summer of 2018. It has been reported that this line is expected to ramp to 15,000 plates per month by year-end. And in China a region that is an increasing revenue contributor for us. BOE technology is currently ramping its first Gen6 flexible OLED plant in Chengdu. Construction of its second Gen6 OLED plant in Mianyang is reportedly progressing ahead of schedule with production slated to commence next year and on March 9th, BOE announced plans to construct its third OLED fab in [indiscernible] BOEs new fab will cost approximately $7.3 billion and is expected to commence production in the second half of 2020. China’s aggressive OLED stance is also evident with pilot and initial commercial production capacity plants from EverDisplay's Gen6 fab or [OLED] Gen5.5 line and Go Vision Ops Gen6 plant. In the automotive market in addition to the growing use of OLED is taillights: OLED display design activity is increasing. Samsung has previously highlighted some of OLED display's benefit for autos including high contrast, which means less eye fatigue, white color gamut which means natural saturated consistent colors, low temperature response time, which means the staggering extreme coldness that you experience with LCDs and flexible display design that means you cannot only create conformable displays, but also unbreakable displays that are made on plastic. Most recently it was reported that Mercedes-Benz has designed LG Display's OLED panels in some of its models starting in 2020, this is in addition to the reported reporting OLED design wins with Toyota, Volkswagen and General Motors. According to UBI Research, the automotive OLED display market is expected to grow from $4 million today to $5 billion in 2022. On the lighting front OLEDWorks recently introduced its next-generation OLED lighting panel the [Brace] which has higher efficacy and lifetime. In addition, OLEDWorks launched the Bendolet, its first flexible and conformable OLED lighting platform. According to OLEDWorks, Bendolet marries featherweight elegance with bold lighting functionality powering exceptional designs from architectural lighting to transportation. Only microns in thickness and grams in weight Bendolet delivers a superb light quality and excellent color rendering that is uniquely achievable with OLED. What is also paving our path for long-term growth is our continued innovative R&D work, our team of scientists and engineers are continually discovering and developing new emissive material systems and technologies, including next-generation red, green, yellow [indiscernible] to meet our customer's ever demanding and ever evolving performance needs for displays and lighting. With respect to blue, we believe we are making excellent headway in our ongoing development work for our commercial phosphorescent blue emissive [ph]. Additionally, we continue to make advancements with our novel organic vapor jet printing technology for maskless. Solventless dry direct printing of large area OLED panels. On that note let me turn the call over to Sid.

Thank you, Steve and again thank you everyone for joining our call today. I will review our first quarter 2018 results and then discuss our guidance. One thing I want to note is that our results for the first quarter and going forward will be under the new GAAP Accounting Standards ASC 606, all historical data is under the old accounting standard ASC 605. Revenues for the first quarter of 2018 were $43.6 million, down quarter over quarter from Q4's $115.9 million and year-over-year from Q1 2017's 55.6 million. The quarter's results were primarily impacted by three factors. The slowdown in the premium smartphone market, which caused weaker OLED panel demand and therefore weaker OLED material purchasing, ASC 606, which impacted revenues by $24.7 million without the impact of ASC 606, our first-quarter revenues would have been $68.2 million and an estimated $15 to $20 million in material inventory pre-purchases in the fourth quarter of 2017, which we discussed in February. With the adoption of ASC 606, our revenues are expected to be disconnected from billings. This disconnect is magnified when material shipments are significantly down. The reason is under 606 all our major revenue streams including royalty and licensing are correlated to material shipments. As a result, the decline in material shipments is magnified across the board. Likewise, a significant increase in material shipments will be magnified on the upside. Our total material sales were $25.3 million in the first quarter compared to material sales of $59.8 million in the fourth quarter 2017 and $46.6 million in the first quarter of 2017. Green emitter sales in the first quarter of 2018, which include our yellow-green emitters were $17 million. This compares to $40.9 million in the fourth quarter of 2017 and $33.3 million in the first quarter of 2017. Red emitter sales in the first quarter of 2018 were $8 million, this compares to $18.3 million in the fourth quarter of 2017 and $12.8 million in the first quarter 2017. As we discussed in the past material buying patterns can vary quarter-to-quarter. Some of the contributing factors to this can include consumer product demand cycles, capacity ramps schedules, production loading rates, product mix, material ordering patterns and customer production efficiency gains. Since a number of these factors are moving variables for our customers, they are also moving variables for us. Before we discuss Q1 royalty and licensing, I just want to remind you that ASC 606 impacts our royalty and licensing revenues, regardless of how much is billed or when it is billed. In prior years we received certain fixed license fees only in specific quarters, such as Q2 and Q4. Today under ASC 606 due respective of when billings occur we will recognize license revenues on a quarterly basis in proportion to the corresponding OLED material shipments. First quarter 2018 royalty and license fees were $15.9 million. This compares to $53.8 million in the fourth quarter of 2017 and $7 million in the first quarter of 2017. Cost of sales which includes a Adesis cost of sales from the first quarter of 2018 were $7.5 million, this compares to $16.9 million in the fourth quarter of 2017 and $13 in the first quarter of 2017. Cost of material sales which only relates to OLED material and does not include the Adesis cost of sales were $5.7 million translating into material gross margins of 77.5% compared to fourth quarter 2017 and a comparable year-over-year's quarter material gross margin of 74.1%. We expect our overall material gross margins for 2018 to be in the 70% to 75% range. First quarter operating expenses excluding cost of sales was $31.6 million, down from last quarter's $41.1 million, but up slightly year-over-year from the comparable quarter's $30.5 million, operating income was $4.5 million for the first quarter of 2018, down from last quarter's $57.9 million and down year-over-year from the comparable quarter's $12.1 million. Without the impact of ASC606 our operating income would have been $29.2 million. For the first quarter of 2018 our effective tax rate was a benefit of 3.8% or $200,000. Without the $1.3 million benefit of ASU 2016-09, our effective income tax rate for the quarter would have been 19% for a $1.1 million expense. Net income for the first quarter of 2018 was $6 million or $0.13 per diluted share, sequentially down from last quarter's $32.8 million or $0.69 per diluted share and down from the comparable year-over-year's quarter of $10.4 million or $0.22 per diluted share. Without the impact of ASC606 our first quarter net income would have been $25.9 million or $0.55 per diluted share. Now looking to 2018 based on our current forecast we expect 2018 revenues to be in the range of $280 million to $310 million. Our revenue guidance reflects continued softness in the second quarter of 2018, but a sequential increase in revenues. The second half of the year, we expect OLED panel demand to pick up. we would note, as we have in the past a shift in the industry's momentum in either direction can impact our financial results, 2018 revenues, as we noted earlier, is being impacted by the inventory pre-purchasing as well as ASC606. Without ASC606, we believe that our 2018 revenues would be approximately 10% to 15% higher. Moving along to gross margins, while quarterly material gross margins can vary quarter to quarter, we expect our overall 2018 material gross margins to be in the 70% to 75% range which is consistent with the last few years. Operating expenses of SG&A, R&D and patent costs are expected to increase in the aggregate in the range of 10% to 15% year-over-year driven primarily by R&D. We expect the effective tax rate to be approximately 20% give or take a few basis points. For 2019 we anticipate significant industry growth to resume. We expect the installed base of OLED square meter capacity to increase by approximately 50% over 2017 and the majority of capacity ramping in 2019. While the timing of capacity installs and ranks during the year are fluid we believe that this new capacity translates into additional revenue opportunities for us. And lastly, the Board of Directors approved a $0.06 quarterly dividend, which will be paid on June 29, 2018 to stockholders of record as of the close of business on June 15, 2018 the dividend reflects our expected continue positive cash flow general generation to commitment to return capital to our shareholders. With that, I will turn the call back to Steve.

Thanks Sid. We believe we are on the right path for long-term growth, long-term market leadership and long-term profitability. Over the last decade OLEDs have penetrated only a little more than 10% of the consumer electronics display market. This we believe is just the beginning of the technology's promising potential. Market research firm IHS recently issued their OLED forecast calling for OLED panel shipments by area to more than quadruple at 22.4 million square meters by 2024 from 5 million square meters in 2017. With our extensive experience unwavering focus on innovation and execution and expanding OLED product portfolio of new materials and technologies, we are and believe that we will continue to be well positioned to deliver the most energy efficient, high-performance and cost-effective emissive layer solutions to our customers and partners. As OLED proliferation continues in display and lighting markets, additional capacity is being built to serve those markets. We believe that universal display is poised to leverage these vast opportunities into top and bottom-line growth. I would like to thank our employees for their exceptional work and continued commitment to excellence and innovation. I would also like to recognize our customers, partners and valued shareholders for your ongoing support. And with that operator, let's start the Q&A.

[Operator Instructions] The first question today is from the line of Sidney Ho with Deutsche Bank.

I understand the first half weakness from premium smartphone market, but would you say your feasibility for the second half has improved the same as it were than what you think a quarter ago in other words, the 70 million reduction of your full-year guidance comes entirely from first half or second half guidance is different.

[Technical Difficulties]. Most of it is in the first half, it’s just as we stated that the climb was faster than expected. In addition -- and when that happens the 606 that is magnified which led us to revise it. However, first half is down obviously from a guidance and the pickup in the second half, we see significant, but absolutely does not pick up completely to where it was in when we gave the guidance two months ago.

Okay would you say in terms of dollar amounts it's roughly the same as what you thought before for the second half and then of course through 2019 as well.

It is a little bit lower in the second half than what we thought before, we just think that some of this is going to carry through from the first half into the second but the second half is close to what we anticipated, but it is lower.

Okay great, my second question is again back to full year guidance. How much of the change is coming from changes in the assumptions that you used for, I guess you have to look at the entire contract period under ASC 606, and whether that amount is -- that amount of emitter sales or ASP that you’re going to receive and in general, when you look at ASC606 how often do you change those assumptions?

Well to answer the first part -- the second part first, when you look at them every quarter but unless there is realistically something that we believe is significant change, you probably won't change it, but you do look at it every quarter. But everything is impacted because of the lower material sales in the first half and when material sales are lower than your licensees are royalties are lower since they are literally tied together. So, the multiple effect of having lower material sales, as you also see lower license fees and royalties when your material sales are down.

Our next question is coming from the line of CJ Muse with Evercore.

I guess first question I’m trying to understand the $70 million reduction in your outlook for the year, so you knew about the excess maturity in the channel existing 17, so I would imagine that's not in there and I imagine ASC606 was included in there so, can we read this and just say that it is purely a reduction in premium handsets that driving this mess and if I think about your business running it kind of two thirds material, one third royalties and assuming $0.25 plus or minus per handset, it sounds like you’re pulling out about a 150 million units, which sounds a little bit high, so we would love to hear your thoughts on that.

Our guidance is based upon clearly the smartphone decline faster than we expected. And this impacts our customer's material purchases and their ordering forecast which leads to for us lower demand and because of that the lower demand then impacts 606 impacts not -- the material sales are impacted directly by the orders coming down and expectations coming down but in addition to that the license and royalties come down because you're not selling as much material for the year and they are really tied together when material goes down, our, estimates go down. It also brings down your royalty and license fee estimates.

And I guess as my follow-up to maybe just align properly going ahead. Can you share with us how you think about first half versus second half revenue ramps will be fitting kind of 35% to 65% something in the ballpark?

It's hard for us to give quarterly guidance, what we do believe that the first quarter is the bottom and that we expect it to start to recover, but it is still soft, we still see it being soft in Q2, but then we see Q3 and Q4 going back close to where we thought it would have been when we gave our original guidance.

Our next question is from the line of Mehdi Hosseini with SIG.

Going back to your 50% supply growth '17 to '19 how is the mix between smartphone application and TV and in that context how does your revenue mix by these two different application changes as we move from '18 and looking to '19 and I have a follow-up.

Well the 50% as regards to installed square meters of glass from the end of '17 to the end of '19 and as Steve talked about, there is BOE and a number of the Chinese manufacturers so, what you will see in that number as we believe that a lot of that is smartphones, the only thing that is really TV related would be LG's new fab that’s in Guangzhou.

Okay so the TV mix could remain the same. Now let me ask this same question differently. If I want to look at your pro forma guide for 2018 and I appreciate for providing the color and were to add the material sales that got pulled in into December of last year 18 million to 20 million. Your revenue was showing 10% growth, again this is pro forma and we are also trying to normalize for the material sale that got pulled into the December quarter. So effectively are still doing 10% revenue growth in an environment where the smartphone demand, the premier smartphone demand was weak as you mentioned, there hasn't been much of a supply growth and supply growth kicks in '19, your revenue growth could actually accelerate and I want to get your thoughts on it and I'm not asking for guide on '19, but it is important for investors to better understand the growth nature of the company?

That’s a great question because we think that your math works, you are correct in your math when you do that, so we think for the year it's flattish or up a little bit so up possibly 10%. The new capacity really will drive our revenue and we see a significant increase going from '18 to '19 in our revenue because of the installed base going up. So, we do think that that is a great indication of our -- that's you are going to see growth in our revenue because of the installed base. And to be honest you saw it from '15 to '17 there was a 50% increase but from '15 to '16 our revenues were somewhat flat and then it went up in '17. So, it looks a lot like that.

Our next question is coming from the line of Jim Ricchiuti with Needham and Company.

You guys have said in the past this is a difficult business to forecast and especially on a quarterly basis, but I guess when you gave guidance back in late February for the year you clearly had a miss which, we understand why, it's going to downturn in the premium segment of the mobile phone market smartphone market, but now you’re giving guidance for a fairly significant ramp implied in the second half and so I’m just wondering what changes may have made in terms of going about the forecast, just in light of the reality and how challenging it is forecast this business gives us the confidence that you can get to the numbers.

We agree with you it is very difficult for us to forecast and you can see that historically we've had difficulty with it. We do work with each of our customers we get forecast from each of our customers. We listen to what the market says, we listen to what our customer says on our conference call. We do look at our internal forecasts and right now based upon everything we know pretty much as of today this is where we believe that our revenues for 2018 will be. And that is the range of 280 to 310 and we are confident, we are confident, as we ever are when we do this.

Okay, Sid can you give us any help us to how we should think about operating expense, how that might ramp as we go through the year just with the expected ramp in the business, is there any major changes going forward on OpEx.

Our OpEx is not going to change, we expect OpEx to grow 10% to 15% year-over-year and however it is it will be probably more highly weighted towards R&D. So that excludes amortization, but it is R&D type of cost and G&A.

Our next question is from the line of Hendi Susanto with Gabelli & Company.

Now that we have ASC606 in your numbers, we should able to share your methodology and assumption on like first on how you assume yield, second how do you spend out door license across material shipment, is it by unit and third how do you distinguish that among various players let's say year one, year two or Q1 and Q2.

There are a lot of question there, so I will try to walk through it. The way that 606 works is based upon our business, our material business really drives our business so that our royalties and license fees are tied to our material business. So, in the case where you have fixed fees you can take the fixed fee over the life of the agreement and you know what the fixed fee is, you then estimated over the life of the agreement, how much material you expect to sell to them and when you do that you then come up with a dollar amount per kilogram and then when you ship, you actually just multiply that times your kilogram to gram. That’s a little different than when you have royalties because on the royalty side, you don't have a fixed number you have to estimate the royalties and we use internal data and we use external data to estimate how much we’re going to receive on the from each of the customers and then we then estimate as we did under the other scenario how many grams or kilograms of material and then in any given -- and whenever you ship it you then record your material sales and your license fee or royalty per gram or per kilogram. And you do look at this every quarter and you make adjustments as you go along, so that in the end it actually all trues up.

And then if I may clarify so there is no -- it's all based on dollar per gram. There's no distinction about yield assumption or whether it's like year one or year two is that correct?

Yes. And to be honest the best way to model us is look at our material sales, you've done material sales estimates so since our royalty and license revenues correlate the material shipment we think a good shortcut in modeling is for us to assume that material revenues are roughly 60% of our revenue pie give or take a few percentage points and that royalty and licensing is roughly the remaining 35 to 40% and that's give or take a few points but that really should be the way we will be modeled, it actually smooths our revenue.

And then second question, if I look at the 15 million to 25 million of material inventory pre-purchases and then compare that to let's say what your major customers took in Q4. Can I make that comparison to make an estimate when that material inventory pre-purchases will be fully consumed so roughly it will be less than a quarter?

It's hard for us to estimate our customer's inventory but I do believe that the inventory based upon the ordering that we've seen today that the inventory was not all used up in Q1.

Our next question is from the line of Rob Stone with Cowen & Company.

I had a couple of balance sheet related questions. So, one, could you provide anymore color on the significant increased quarter-on-quarter in deferred revenue short-term deferred revenue?

Yes, the short-term revenue is based upon billings to our customers and that should become that is what we will recognize in the future. So, when deferred revenue goes up that means you receive more, you [refill] customer more licensees or royalties in that period than you actually report, if it goes the other way than you report more than you actually receive. So that's another that went up significantly and you could also see from our cash flow statement that our cash flow in this quarter went up by approximately -- it was up it was like 38 million.

So that's an example of the disconnect between revenue under ASC606 to actually going on in terms of your customers and billings. You had mentioned that this would be the case that we're seeing a good example of that?

That is exactly the case and that's why our 605-revenue number would have been I think $24 million higher.

In relation to the inventory also a pretty significant sequential lease, I know that it takes a while to make the various materials you produce and you can't let the customers be caught short because your full source. But would you expect your inventory balance to start trending down in the second quarter, how should we think about the buildup of inventory?

We try to run our material inventory building lines at optimal efficiency levels, so that we can leverage the scale and make sure that we keep our costs in line. During the first year we will maintain optimal production levels to build inventory for future demand that we expect to sell it but I do expect as our revenues go up in the second half that we will start to use some of this finished goods inventory.

Okay last question for me if I can squeeze in one more, you mentioned you expected second quarter to also be weak relative to original expectations but to improve some from Q1. I know a lot can happen even in the last week of the quarter, but in Q2 so far have you started to see some signs of improvement.

It's still soft and we believe that Q1 represents the bottom Q2 is a bit better than Q1.

[Operator Instructions] Our next question is from the line of Brian Lee with Goldman Sachs. Please proceed with your question.

I had one sort of straight forward one and then maybe more technical modeling one, just first for you Sid, last quarter you said 606 is going to have a negligible impact and then this quarter you appreciate the disclosure and the quantification but 40% impact to Q1 and 10% to 15% impact to the year guidance, so what changed the [impact two months one year you assessed] no impact before and now you’re quantifying pretty big impact.

The lower material sales have caused a larger discrepancy between 606 and 605 that’s why the first quarter is significantly different. With lower material sales, the decline in sales is magnifying because you don’t report essentially the life of the royalties. The impact we believe is about 10% to 15%, the impact one and we reduced the guidance and when our guidance was higher the higher that your revenues are than the closure you actually are to getting parity between 605 and 606, our difference was under 10% two months ago when we did it, the difference between 605 and 606 was under 10% to last time, which is why we said it was not significant.

Okay fair enough and then two kind modeling questions on the deferred revenues, 45 million up in the quarter, was that all related to your Samsung [fixed-licensing using].

We have multiple customers that increased our deferred revenue during the quarter.

Okay and last one from me, again on the 605 versus 606 Delta, you would have done $68 million under 605 and then you're saying your guide would have been 10% to 15% higher for the year under 605, then it implies Q1 would have been the high revenue quarter for the year under 605 and then presumably under 606 Q1 low as you said, to what's the reconciliation, why would it be high quarter under 605, when materials revenue under both 605 and 606 again, presumably are going to be up moving through the year and presumably up a lot in the second half versus the first half under both.

I'm not sure that will be the result. So, I mean the inventory pre-purchases effect Q1 in terms of the material sales and if it would have been at the same level as it was last year then clearly it would have been but I don’t think that the end result would be this would be the highest quarter.

So that's what the math would imply as you take the full-year guide of 10 to 15 up under hypothetical 605 and then you subtract the 68 you did under a hypothetical 605 for Q1 and then you expect to let out over the next three quarters 68 would be right at the high end of what that would apply for the rest of the year. I can take this offline but that's the math and I'm just backing it [Indiscernible] that would be the case?

If the purchase would have been in this quarter and you added the 15 million in there, if you multiply the 70 times 4 you get the 280 and if you think it would have been higher you get to the 310 to 320 range. I think if you take into account inventories from the customers I don’t believe they would have bought all of this in this quarter. I think that the pre-purchases probably were much larger than we anticipated.

Our next question comes from the line of Shannon Cross with Cross Research.

What I'm trying to figure out is when I think about all of the ramps you have coming towards the end of this year and that in terms of new production, can you talk a bit about sort of how yields work, what you've seen from your customers and I'm not sure Samsung there been doing it for so long but is it right now at one point I don’t remember which quarter but you had a little bit of weakness because people started getting their yields up, so I'm just thinking as you start ramping this big group perhaps there is going to be sort of excess material sales etcetera as they are trying to figure out exactly how to do it. So maybe if from a historical perspective if you can give us some idea.

Historically we do see raw materials being sold in the early parts of the customer ramp and the customers go through learning curves and they use how to -- learn how to use the materials more efficiently. So, we include that in our models moving forward.

Okay but most of that probably would be at 2019 correct just based upon the timing?

It will start in 2019.

And then because [Indiscernible] you said about the same commentary on blue, has there been any change just that improvement, just curious.

Well we are continuing to make good progress but we have nothing yet to announce on a commercial book.

Our next question comes from the line of Hendi Susanto with Gabelli & Company.

While OLED industry capacity and demand are taking a pause in the first half, would the board consider share purchase?

We look at how we are going to allocate our capital pretty much each board meeting and so we evaluate what we think the appropriate use of capital is, at the beginning of this year we raised our dividend and we understand that we but we will look at it, we look at options at every quarter. So, it is something that comes up every time.

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

Thank you all for your time today. We appreciate your interest and support and hope you will have a good night. Thank you.

This concludes today's conference call. You may now disconnect.