Universal Display(OLED) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) This section presents the unaudited consolidated financial statements, including balance sheets, statements of income, comprehensive income, shareholders' equity, and cash flows, along with detailed notes explaining the company's business, significant accounting policies, and specific financial line items for the periods ended June 30, 2025, and December 31, 2024 Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and shareholders' equity as of June 30, 2025, and December 31, 2024 Consolidated Balance Sheet Highlights (in thousands): | Metric | June 30, 2025 | December 31, 2024 | Change | | :-------------------------- | :-------------- | :---------------- | :----- | | Total Assets | $1,931,698 | $1,832,333 | +$99,365 | | Total Liabilities | $217,086 | $215,808 | +$1,278 | | Total Shareholders' Equity | $1,714,612 | $1,616,525 | +$98,087 | | Current Assets | $1,010,802 | $899,831 | +$110,971 | | Current Liabilities | $125,555 | $125,410 | +$145 | | Cash and cash equivalents | $95,804 | $98,980 | -$3,176 | | Short-term investments | $429,404 | $393,690 | +$35,714 | | Accounts receivable | $147,043 | $113,648 | +$33,395 | | Inventory | $208,199 | $182,938 | +$25,261 | Consolidated Statements of Income This section presents the company's financial performance, including revenue, gross margin, operating income, and net income for the three and six months ended June 30, 2025, and 2024 Consolidated Statements of Income Highlights (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Total Revenue | $171,794 | $158,505 | +8.4% | | Material sales | $88,650 | $95,442 | -7.1% | | Royalty and license fees | $75,667 | $59,551 | +27.1% | | Contract research services | $7,477 | $3,512 | +112.9% | | Gross margin | $132,591 | $120,177 | +10.3% | | Operating income | $68,540 | $56,437 | +21.4% | | Net income | $67,264 | $52,337 | +28.5% | | Basic EPS | $1.41 | $1.10 | +28.2% | | Diluted EPS | $1.41 | $1.10 | +28.2% | | Cash Dividends Declared Per Common Share | $0.45 | $0.40 | +12.5% | Consolidated Statements of Income Highlights (in thousands): | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :----------------------------- | :----------------------------- | :----------- | | Total Revenue | $338,071 | $323,764 | +4.4% | | Material sales | $174,805 | $188,726 | -7.4% | | Royalty and license fees | $149,236 | $127,819 | +16.8% | | Contract research services | $14,030 | $7,219 | +94.3% | | Gross margin | $260,734 | $248,467 | +4.9% | | Operating income | $138,204 | $119,309 | +15.8% | | Net income | $131,708 | $109,190 | +20.6% | | Basic EPS | $2.77 | $2.29 | +20.9% | | Diluted EPS | $2.76 | $2.29 | +20.5% | | Cash Dividends Declared Per Common Share | $0.90 | $0.80 | +12.5% | Consolidated Statements of Comprehensive Income This section details the company's comprehensive income, including net income and other comprehensive income (loss) components for the three and six months ended June 30, 2025, and 2024 Consolidated Statements of Comprehensive Income Highlights (in thousands): | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------- | | Net Income | $67,264 | $52,337 | +28.5% | | Total Other Comprehensive (Loss) Income | $(141) | $(866) | +83.7% | | Comprehensive Income | $67,123 | $51,471 | +30.4% | Consolidated Statements of Comprehensive Income Highlights (in thousands): | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (YoY) | | :------------------------------------ | :----------------------------- | :----------------------------- | :----------- | | Net Income | $131,708 | $109,190 | +20.6% | | Total Other Comprehensive (Loss) Income | $1,208 | $(3,574) | N/A (swing from loss to gain) | | Comprehensive Income | $132,916 | $105,616 | +25.8% | - Unrealized gain on available-for-sale securities for the six months ended June 30, 2025, was $1,001k, a significant positive swing compared to a loss of $(2,976)k in the prior year[13] Consolidated Statements of Shareholders' Equity This section outlines changes in the company's shareholders' equity, reflecting net income, other comprehensive income, dividends, and stock-based compensation for the six months ended June 30, 2025 Shareholders' Equity Changes (in thousands): | Metric | Balance Dec 31, 2024 | Net Income (6M 2025) | Other Comprehensive Income (6M 2025) | Cash Dividends Declared (6M 2025) | Stock-based Compensation & ESPP (6M 2025) | Balance June 30, 2025 | | :-------------------------- | :------------------- | :------------------- | :--------------------------------- | :-------------------------------- | :----------------------------------------- | :-------------------- | | Total Shareholders' Equity | $1,616,525 | $131,708 | $1,208 | $(43,179) | $8,350 | $1,714,612 | Consolidated Statements of Cash Flows This section summarizes the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024 Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30, in thousands): | Metric | 2025 | 2024 | Change (YoY) | | :------------------------------------ | :--------- | :--------- | :----------- | | Net cash provided by operating activities | $82,498 | $139,169 | -40.8% | | Net cash used in investing activities | $(34,487) | $(93,471) | +63.1% (less cash used) | | Net cash used in financing activities | $(51,187) | $(44,827) | +14.2% | | (Decrease) Increase in cash and cash equivalents | $(3,176) | $871 | N/A (swing from increase to decrease) | | Cash and cash equivalents, end of period | $95,804 | $92,856 | +3.2% | - The decrease in operating cash flow was primarily due to increases in accounts receivable ($33.4 million), inventory ($25.3 million), and other assets ($28.0 million)[204] - The increase in cash used in financing activities was driven by higher cash dividends paid ($4.1 million increase) and increased payment of withholding taxes related to stock-based compensation ($2.1 million increase)[207] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, specific accounts, and other financial information Note 1. BUSINESS Universal Display Corporation is a leader in the research, development, and commercialization of organic light emitting diode (OLED) technologies and materials for display and solid-state lighting applications. The company's core strategy involves developing and selling proprietary OLED materials and licensing its extensive portfolio of over 6,500 patents - The company is a leader in OLED technologies and materials for display (mobile, TV, AR/VR, automotive) and solid-state lighting applications[23] - Primary business strategy: (1) develop and sell new OLED materials, and (2) license proprietary OLED material, device design, and manufacturing technologies[24] - The company owns, exclusively licenses, or has the sole right to sublicense more than 6,500 patents issued and pending worldwide[24] Note 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the company's key accounting principles, including interim financial reporting, consolidation, segment reporting, management estimates, inventory valuation, fair value measurements, minority equity investments, lease accounting, revenue recognition, cost of sales, R&D, restructuring, patent costs, amortization of intangibles, foreign currency translation, income taxes, share-based payments, and recent accounting pronouncements Interim Financial Information This section details the preparation of unaudited consolidated financial statements in accordance with SEC interim reporting requirements - Unaudited Consolidated Financial Statements are prepared in accordance with SEC requirements for interim reporting, including normal recurring adjustments[26] Principles of Consolidation This section explains that consolidated financial statements include Universal Display Corporation and its wholly-owned subsidiaries, with intercompany transactions eliminated - The Consolidated Financial Statements include Universal Display Corporation and its wholly-owned subsidiaries, with all intercompany transactions eliminated[27] Segment Information The company operates as one reportable business segment focused on OLED technologies and materials, including its Adesis subsidiary - The company has one reportable business segment: OLED technologies and materials. Adesis, a subsidiary providing contract development and manufacturing support, is included within this segment[28] Management's Use of Estimates Financial statements require management to make estimates and assumptions in areas such as revenue recognition, useful life of acquired intangibles, inventory, investments, and income taxes - Financial statements require management to make estimates and assumptions in areas such as revenue recognition, useful life of acquired intangibles, inventory, investments, and income taxes[30] Inventories Inventories are valued at the lower of cost (FIFO) or net realizable value, with regular assessments for obsolescence or excess usage - Inventories are stated at the lower of cost (FIFO) or net realizable value, with quarterly assessments for obsolescence or excess usage[31] Fair Value of Financial Instruments Carrying values of short-term financial instruments approximate fair value, with most cash equivalents and investments carried at fair value - Carrying values of short-term financial instruments approximate fair value; cash equivalents and most investments are carried at fair value[32] Minority Equity Investments Minority equity investments are accounted for at cost less impairments, adjusted for observable price changes, as fair values are not readily determinable - Minority equity investments are accounted for as equity securities without readily determinable fair values, based on original cost less impairments, adjusted for observable price changes[33] Leases The company recognizes right-of-use assets and lease liabilities for operating leases, measured at the present value of unpaid lease payments - The company recognizes right-of-use assets and lease liabilities for operating leases, measured at the present value of unpaid lease payments using an incremental borrowing rate[35] - As of June 30, 2025, the company had no leases that qualified as financing arrangements[35] Revenue Recognition and Deferred Revenue Revenue from material sales is recognized when title passes, while licenses and combined agreements are treated as single performance obligations, and contract research services are recognized as performed - Revenue from material sales is generally recognized when title passes. Licenses and materials sold under combined agreements are accounted for as a single performance obligation[37][39] - Contract research services revenue is earned by Adesis and recognized as services are performed[41] - The company has long-term commercial agreements with major OLED display manufacturers including Samsung Display, LG Display, BOE, CSOT, Visionox, and Tianma[43][45][46][47][48][49] Cost of Sales Cost of sales includes labor, material costs, depreciation of manufacturing equipment, overhead, and inventory adjustments - Cost of sales includes labor and material costs from production at PPG and internal facilities, depreciation of manufacturing equipment, overhead, and inventory adjustments[51] Research and Development Expenditures for research and development are expensed as incurred - Expenditures for research and development are charged to expense as incurred[52] Restructuring The company recorded $602,000 in restructuring costs during the six months ended June 30, 2025, related to facility closure and relocation - The company recorded $602,000 of restructuring costs during the six months ended June 30, 2025, related to the closure of the OVJP Corp facility in California and relocation of operations[54] Patent Costs Costs associated with patent applications, prosecution, defense, and maintenance are expensed as incurred, unless defense costs increase patent value - Costs associated with patent applications, prosecution, defense, and maintenance are expensed as incurred, unless defense costs increase patent value[55] Amortization of Acquired Technology Amortization costs primarily relate to technology acquired from Merck KGaA and BASF, amortized over 10 years, totaling $8.4 million for the six months ended June 30, 2025 - Amortization costs primarily relate to technology acquired from Merck KGaA and BASF, amortized over a period of 10 years[56] - Amortization expense related to acquired technology was $8.4 million for both six months ended June 30, 2025 and 2024[78] Amortization of Other Intangible Assets Other intangible assets from the Adesis acquisition are amortized over 10 to 15 years, with $708,000 expense for the six months ended June 30, 2025 - Other intangible assets from the Adesis acquisition are being amortized over a period of 10 to 15 years[57] - Amortization expense related to other intangible assets was $708,000 for the six months ended June 30, 2025[83] Translation of Foreign Currency Financial Statements and Foreign Currency Transactions The company's reporting currency is the U.S. dollar, with translation adjustments recorded in accumulated other comprehensive income (loss), and foreign currency effects generally insignificant - The company's reporting currency is the U.S. dollar; translation adjustments are recorded in accumulated other comprehensive income (loss)[58] - The overall effect of foreign currency translation has been insignificant, except for a Korean Won-denominated withholding tax receivable[58] Income Taxes Income taxes are accounted for under the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences, with ongoing evaluation of recent tax reform - Income taxes are accounted for under the asset and liability method, recognizing deferred tax assets and liabilities for temporary differences[59] - The company is evaluating the full effects of H.R. 1, a U.S. tax reform bill enacted July 4, 2025, on its estimated annual effective tax rate and cash tax position[60] Share-Based Payment Awards The grant-date fair value of equity-based awards (ESPP, restricted stock, performance units) is recognized as compensation expense over the service period, with performance units subject to specific vesting requirements - The grant-date fair value of equity-based awards (ESPP, restricted stock, performance units) is recognized as compensation expense over the service period[61][62] - Performance unit awards are subject to either performance-based or market-based vesting requirements[63] Recent Accounting Pronouncements The company adopted ASU No. 2024-01 with no financial statement impact and is evaluating ASU No. 2023-09 and ASU No. 2024-03 for future periods - Adopted ASU No. 2024-01 (Stock Compensation) on January 1, 2025, with no impact on financial statements[64] - Evaluating ASU No. 2023-09 (Income Tax Disclosures), effective for annual periods after December 15, 2024[65] - Evaluating ASU No. 2024-03 (Disaggregation of Income Statement Expenses), effective for annual periods after December 15, 2026[66] Note 3. CASH, CASH EQUIVALENTS AND INVESTMENTS This note details the company's portfolio of cash, cash equivalents, and investments, primarily consisting of U.S. Government bonds. Cash equivalents are highly liquid debt instruments with short maturities, while other debt securities are classified as available-for-sale. The company also holds minority equity investments in privately held early-stage companies - The company's portfolio of marketable fixed income securities consists of U.S. Government bonds[67] Cash and Cash Equivalents (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Cash accounts in banking institutions | $95,187 | $96,318 | | Money market accounts | $617 | $2,662 | | Total | $95,804 | $98,980 | Short-term Investments (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | U.S. Government bonds | $428,842 | $393,536 | | Marketable securities | $562 | $154 | | Total | $429,404 | $393,690 | - Minority equity investments in seven entities totaled $22.1 million as of June 30, 2025, up from six entities and $18.6 million at December 31, 2024[72] Note 4. FAIR VALUE MEASUREMENTS This note provides details on assets and liabilities carried at fair value, categorized into Level 1, Level 2, and Level 3 inputs. The company's U.S. Government bonds, cash equivalents, and marketable securities are primarily classified as Level 1, indicating active market quoted prices. No credit losses on debt investments were recorded for the periods presented - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[73] - Short-term and long-term U.S. Government bonds, cash equivalents, and short-term marketable securities are primarily classified as Level 1[73] - There were no credit losses on debt investments as of June 30, 2025, or December 31, 2024[74] Note 5. INVENTORY Inventory increased by $25.3 million during the six months ended June 30, 2025, primarily due to strategic raw material purchases. No increase in inventory reserves was recorded for the three months ended June 30, 2025 Inventory (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :---------------- | :-------------- | :---------------- | | Raw materials | $128,547 | $106,795 | | Work-in-process | $19,164 | $16,374 | | Finished goods | $60,488 | $59,769 | | Total Inventory | $208,199 | $182,938 | - The increase in inventory during the six months ended June 30, 2025, was primarily due to purchases of certain strategic raw materials[75] Note 6. PROPERTY AND EQUIPMENT Net property and equipment increased to $205.1 million as of June 30, 2025, from $195.2 million at December 31, 2024. This increase was mainly due to additions in building and improvements, and office and lab equipment. Depreciation expense for the six months ended June 30, 2025, was $13.4 million Property and Equipment, Net (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Land | $12,230 | $12,230 | | Building and improvements | $134,590 | $131,288 | | Office and lab equipment | $169,602 | $159,448 | | Construction-in-progress | $47,415 | $45,292 | | Less: Accumulated depreciation | $(174,863) | $(169,877) | | Property and equipment, net | $205,131 | $195,239 | - Depreciation expense was $13.4 million for the six months ended June 30, 2025, compared to $13.1 million for the same period in 2024[76] Note 7. GOODWILL AND INTANGIBLE ASSETS The company monitors goodwill recoverability annually. Purchased intangible assets, including acquired technology from Merck KGaA, BASF, and Fujifilm, and other intangibles from the Adesis acquisition, are amortized over their estimated useful lives. Acquired technology amortization expense was $8.4 million for the six months ended June 30, 2025 - Goodwill recoverability is monitored annually or whenever events indicate the carrying value may not be recoverable[77] Acquired Technology, Net (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Merck KGaA | $66,012 | $66,012 | | BASF | $95,989 | $95,989 | | Fujifilm | $109,462 | $109,462 | | Other | $5,712 | $5,712 | | Less: Accumulated amortization | $(212,007) | $(203,621) | | Acquired technology, net | $65,168 | $73,554 | - Amortization expense related to acquired technology was $8.4 million for both the six months ended June 30, 2025, and 2024[78] Other Intangible Assets, Net (in thousands): | Category | June 30, 2025 Gross Carrying Amount | June 30, 2025 Accumulated Amortization | June 30, 2025 Net Carrying Amount | | :-------------------------------- | :---------------------------------- | :------------------------------------- | :-------------------------------- | | Customer relationships | $10,520 | $(8,171) | $2,349 | | Developed IP, processes and recipes | $4,820 | $(2,868) | $1,952 | | Trade name/Trademarks | $1,500 | $(1,343) | $157 | | Other | $448 | $(168) | $280 | | Total identifiable other intangible assets | $17,288 | $(12,550) | $4,738 | Note 8. OTHER ASSETS Other assets increased to $115.0 million as of June 30, 2025, from $106.8 million at December 31, 2024. This increase was primarily driven by higher long-term taxes receivable and long-term unbilled receivables Other Assets (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Long-term taxes receivable | $57,419 | $52,899 | | Long-term unbilled receivables | $31,171 | $24,943 | | Right-of-use assets | $19,067 | $19,867 | | Long-term contract assets | $5,242 | $6,528 | | Other long-term assets | $2,148 | $2,578 | | Total Other Assets | $115,047 | $106,815 | Note 9. LEASES The company has operating leases for its manufacturing, research and development, and administrative activities. Operating lease cost for the six months ended June 30, 2025, was $1.86 million. As of June 30, 2025, the weighted average remaining lease term was 5.5 years with a weighted average discount rate of 3.7% - Operating lease cost was $1,858k for the six months ended June 30, 2025, compared to $2,192k for the same period in 2024[87] Operating Lease Assets and Liabilities (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Right-of-use assets | $19,067 | $19,867 | | Short-term lease liabilities | $4,049 | $3,848 | | Long-term lease liabilities | $17,789 | $19,135 | - As of June 30, 2025, the weighted average remaining lease term was 5.5 years, and the weighted average discount rate was 3.7%[87] Note 10. ACCRUED EXPENSES Accrued expenses decreased to $44.1 million as of June 30, 2025, from $46.0 million at December 31, 2024. This change was primarily due to a decrease in compensation accruals, partially offset by an increase in the PPG Industries, Inc. agreement accrual Accrued Expenses (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Compensation | $20,655 | $28,744 | | PPG Industries, Inc. agreement | $11,982 | $7,759 | | Other | $7,756 | $4,613 | | Total Accrued Expenses | $44,082 | $46,026 | Note 11. RESEARCH AND LICENSE AGREEMENTS WITH ACADEMIC PARTNERS The company maintains long-standing research and license agreements with academic institutions like Princeton University and the University of Southern California (USC). Royalty expense under the license agreement significantly decreased to $204,000 for the six months ended June 30, 2025, from $1.7 million in the prior year, while R&D expense for work performed under the USC research agreement was $832,000 - Royalty expense in connection with the license agreement with Princeton and USC was $204,000 for the six months ended June 30, 2025, a decrease from $1.7 million in the prior year[91] - Research and development expense for work performed under the USC agreement was $832,000 for the six months ended June 30, 2025[92] Note 12. OTHER LIABILITIES Other liabilities decreased slightly to $34.0 million as of June 30, 2025, from $35.4 million at December 31, 2024, primarily due to a decrease in long-term lease liabilities Other Liabilities (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :-------------- | :---------------- | | Long-term lease liabilities | $17,789 | $19,135 | | Long-term taxes payable | $15,749 | $15,749 | | Other long-term liabilities | $484 | $527 | | Total Other Liabilities | $34,022 | $35,411 | Note 13. EQUITY AND CASH COMPENSATION UNDER THE PPG AGREEMENT The company has an Amended and Restated OLED Materials Supply and Service Agreement with PPG, extended through December 31, 2025. PPG assists in developing and supplying OLED materials on a cost-plus basis, with compensation partly payable in cash or common stock (no shares issued to date). The company's manufacturing site in Shannon, Ireland, is operated by a PPG affiliate - The New OLED Materials Agreement with PPG, extended through December 31, 2025, involves PPG assisting in developing and supplying OLED materials[94] - Compensation to PPG is on a cost-plus basis, with up to 50% of certain services payable in cash or common stock; no shares have been issued since the contract's inception[95] - The company's manufacturing site in Shannon, Ireland, purchased in September 2023 and operational since June 2022, has PPG SCM Ireland Limited providing operation and maintenance services[97] - Research and development expense related to PPG was $8.7 million for the six months ended June 30, 2025[98] Note 14. SHAREHOLDERS' EQUITY The company has authorized preferred and common stock, with 200,000 Series A Preferred shares and 48,899,719 common shares issued as of June 30, 2025. A $100.0 million share repurchase program was approved in April 2025, though no shares were repurchased in the current quarter. Cash dividends of $0.45 per common share were declared for the quarter - As of June 30, 2025, 200,000 shares of Series A Nonconvertible Preferred Stock were outstanding[101] - As of June 30, 2025, 48,899,719 shares of common stock were issued, with 47,534,071 shares outstanding[102] - The Board approved a $100.0 million share repurchase program on April 29, 2025; no shares were repurchased during the three or six months ended June 30, 2025[103] - Cash dividends declared: $0.45 per common share ($21.6 million) for the three months ended June 30, 2025, and $0.90 per common share ($43.2 million) for the six months ended June 30, 2025[104] Note 15. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) shifted from a loss of $(1,055)k at December 31, 2024, to a gain of $153k at June 30, 2025. This positive change was primarily driven by a $1,001k other comprehensive gain on available-for-sale securities and a positive foreign currency translation adjustment Accumulated Other Comprehensive Income (Loss) (in thousands, net of tax): | Metric | Balance Dec 31, 2024 | Other Comprehensive Gain (6M 2025) | Reclassification to Net Income (6M 2025) | Change During Period | Balance June 30, 2025 | | :------------------------------------ | :------------------- | :--------------------------------- | :--------------------------------------- | :------------------- | :-------------------- | | Unrealized Gain (Loss) on Available-for-Sale Securities | $1,269 | $1,001 | — | $1,001 | $2,270 | | Net Unrealized (Loss) Gain on Retirement Plan | $(2,106) | — | $9 | $9 | $(2,097) | | Cumulative Foreign Currency Translation Adjustment | $(218) | $198 | — | $198 | $(20) | | Total | $(1,055) | $1,199 | $9 | $1,208 | $153 | Note 16. STOCK-BASED COMPENSATION The company grants equity-based awards under its 2023 Equity Compensation Plan, including restricted stock awards/units and performance unit awards, with compensation expense recognized over the service period. The Employee Stock Purchase Plan (ESPP) and Scientific Advisory Board Awards also contribute to stock-based compensation - The 2023 Equity Compensation Plan was approved, with 1,112,831 shares remaining available for grant as of June 30, 2025[108] - During the six months ended June 30, 2025, the company granted 102,313 restricted stock awards/units with a total fair value of $11.1 million[110] - During the six months ended June 30, 2025, the company granted 83,073 performance units with a grant date fair value of $9.0 million[115] Stock-Based Compensation Charges (in thousands): | Expense Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Restricted Stock Awards and Units (SGA) | $1,900 | $2,100 | $3,600 | $4,300 | | Restricted Stock Awards and Units (R&D) | $1,200 | $1,400 | $2,400 | $2,800 | | Restricted Stock Awards and Units (COS) | $432 | $406 | $841 | $842 | | Performance Unit Awards (SGA) | $3,200 | $2,900 | $5,000 | $5,500 | | Performance Unit Awards (R&D) | $1,200 | $1,200 | $1,900 | $2,400 | | Performance Unit Awards (COS) | $749 | $718 | $1,200 | $1,500 | | ESPP (SGA) | $33 | $35 | $70 | $72 | | ESPP (R&D) | $46 | $61 | $102 | $137 | | ESPP (COS) | $56 | $46 | $118 | $97 | | Scientific Advisory Board (R&D) | $60 | $60 | $118 | $122 | Note 17. RETIREMENT PLAN BENEFIT LIABILITY The company maintains an unfunded Supplemental Executive Retirement Plan (SERP) for certain key employees. Net periodic pension cost for the six months ended June 30, 2025, was $1.85 million, a slight decrease from $1.97 million in the prior year. Total SERP benefit payments for the six months ended June 30, 2025, were $1.0 million - The Supplemental Executive Retirement Plan (SERP) is an unfunded plan providing supplemental pension benefits to key employees[126] Components of Net Periodic Pension Cost (in thousands): | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :----------------------------- | :----------------------------- | | Service cost | $450 | $415 | | Interest cost | $1,393 | $1,221 | | Curtailment charge | — | $312 | | Amortization of prior service cost | $11 | $21 | | Total net periodic benefit cost | $1,854 | $1,969 | - Total SERP benefit payments for the six months ended June 30, 2025, were $1.0 million[126] Note 18. COMMITMENTS AND CONTINGENCIES The company has various commitments, including payments under research and license agreements with academic partners, executive termination benefits, and purchase commitments for inventory with PPG. Patent-related challenges and oppositions are considered ordinary course of business and are expected to increase with the growth of OLED technology and the company's patent portfolio - The company has purchase commitments for inventory of $40.1 million as of June 30, 2025, with PPG[131] - Patent-related challenges and oppositions are frequently commenced in the ordinary course of business and are expected to increase as OLED technology becomes more established and the patent portfolio grows[133] Note 19. CONCENTRATION OF RISK The company faces concentration risks from its customer base, with four major customers accounting for a significant portion of revenue and accounts receivable. Geographically, a substantial majority of revenue (96% for Q2 2025) is derived from outside North America, primarily South Korea and China. Additionally, chemical materials are substantially purchased from one supplier Revenue and Accounts Receivable Concentration (Three Months Ended June 30, 2025, in thousands): | Customer | % of Total Revenue | Accounts Receivable | | :------- | :----------------- | :------------------ | | A | 39% | $13,709 | | B | 19% | $38,205 | | C | 17% | $50,018 | | D | 10% | $12,883 | Revenue by Geographic Area (Three Months Ended June 30, in thousands): | Country | 2025 | 2024 | | :------------------ | :--------- | :--------- | | South Korea | $86,522 | $108,194 | | China | $75,920 | $45,236 | | Total non-U.S. locations | $164,677 | $154,959 | | United States | $7,117 | $3,546 | | Total revenue | $171,794 | $158,505 | - Substantially all chemical materials were purchased from one supplier (PPG Industries, Inc.)[135] Note 20. INCOME TAXES The effective income tax rate for the three and six months ended June 30, 2025, was approximately 19.8% and 19.7%, respectively, slightly higher than the prior year due to decreased R&D credits. The company has a long-term receivable of $57.4 million for a Korean withholding tax refund, currently under appeal, and a corresponding $15.7 million long-term payable for estimated U.S. federal tax - The effective income tax rate was 19.8% for the three months ended June 30, 2025 (vs. 19.3% in 2024), and 19.7% for the six months ended June 30, 2025 (vs. 19.3% in 2024)[136] - The increase in the effective income tax rate was primarily due to a decrease in research and development credits[136] - The company has recorded a long-term receivable of $57.4 million as of June 30, 2025, for an anticipated Korean withholding tax refund, which is currently under appeal[139] - A foreign exchange gain of $4.5 million was recorded for both the three and six months ended June 30, 2025, due to the fluctuation of the Korean Won to the U.S. Dollar and the remeasurement of the Won-denominated receivable[139] Note 21. REVENUE RECOGNITION The company recognizes revenue in accordance with ASC Topic 606. For the six months ended June 30, 2025, 96% of revenue was from OLED-related sales and 4% from Adesis services. A cumulative catch-up adjustment increased revenue by $2.6 million due to changes in estimated transaction price, primarily from decreased anticipated customer demand. The backlog for committed purchase orders is $29.9 million, expected to be fulfilled within 90 days - For the six months ended June 30, 2025, 96% of revenue was from OLED-related sales and 4% from Adesis services[143] - The cumulative catch-up adjustment to revenue increased by $2.6 million for the six months ended June 30, 2025, primarily due to a decrease in anticipated demand by several customers[146] - As of June 30, 2025, the company had $29.9 million of backlog associated with committed purchase orders for phosphorescent emitter material, anticipated to be fulfilled within the next 90 days[144] Note 22. NET INCOME PER COMMON SHARE Net income per common share is computed using the two-class method. Basic EPS for the three and six months ended June 30, 2025, was $1.41 and $2.77, respectively, while diluted EPS was $1.41 and $2.76. Certain unvested share-based payment awards were excluded from the diluted EPS calculation due to their antidilutive effect - Earnings per share (EPS) is calculated using the two-class method, allocating income between common shareholders and participating security holders[147] Net Income Per Common Share: | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | $1.41 | $1.10 | $2.77 | $2.29 | | Diluted | $1.41 | $1.10 | $2.76 | $2.29 | - The combined effects of unvested restricted stock awards, restricted stock units, and performance unit awards were excluded from diluted EPS calculation due to their antidilutive impact (99,171 shares for 3 months 2025; 93,479 shares for 6 months 2025)[150] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and results of operations, including an overview of its business, a detailed comparison of financial performance for the three and six months ended June 30, 2025 and 2024, and discussions on liquidity, capital resources, and critical accounting policies CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS This section contains forward-looking statements about future operations, business strategies, and customer relationships, which are subject to substantial risk and uncertainty - This discussion contains forward-looking statements concerning future results of operations, business strategies, and customer relationships, which are based on assumptions and involve substantial risk and uncertainty[154][155] - Readers should not place undue reliance on these statements, and the company does not undertake any duty to update them[155][156] OVERVIEW The company is a leader in OLED technologies and materials, generating revenue from material sales, IP licensing, technology development, and contract research services, with strategic manufacturing and relocation initiatives underway - The company is a leader in OLED technologies and materials, deriving revenue from material sales, intellectual property and technology licensing, technology development and support, and contract research services[157][161] - Key long-term agreements are in place with major display manufacturers including Samsung Display, LG Display, BOE, CSOT, Visionox, and Tianma[160][163][164][165][166][167][168] - OVJP operations are being relocated from California to Singapore and New Jersey, resulting in $602,000 of restructuring costs for the six months ended June 30, 2025[170] - A new manufacturing site in Shannon, Ireland, purchased in September 2023, commenced operations in June 2022 and is expected to double production capacity[171] RESULTS OF OPERATIONS This section analyzes the company's financial performance, comparing revenue, expenses, and net income for the three and six months ended June 30, 2025, and 2024 Comparison of the Three Months Ended June 30, 2025 and 2024 For the three months ended June 30, 2025, total revenue increased by 8.4% to $171.8 million, driven by significant growth in royalty and license fees (+27.1%) and contract research services (+112.9%), despite a 7.1% decrease in material sales. Net income rose by 28.5% to $67.3 million Revenue Performance (Three Months Ended June 30, in thousands): | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------- | :--------- | :--------- | :----------- | | Total Revenue | $171,794 | $158,505 | +8.4% | | Material sales | $88,650 | $95,442 | -7.1% | | Royalty and license fees | $75,667 | $59,551 | +27.1% | | Contract research services | $7,477 | $3,512 | +112.9% | - Net income increased by $14.9 million to $67.3 million[173] - The decrease in material sales was primarily due to changes in customer mix and a 2% decrease in unit material volume[174] - The increase in contract research services revenue was primarily due to increased specialty manufacturing customer demand at Adesis[179] - Other income, net, increased significantly due to a $4.5 million foreign exchange gain on a Korean Won-denominated withholding tax receivable[186] Comparison of the Six Months Ended June 30, 2025 and 2024 For the six months ended June 30, 2025, total revenue increased by 4.4% to $338.1 million, driven by a 16.8% increase in royalty and license fees and a 94.3% increase in contract research services, despite a 7.4% decrease in material sales. Net income rose by 20.6% to $131.7 million Revenue Performance (Six Months Ended June 30, in thousands): | Metric | 2025 | 2024 | Change (YoY) | | :-------------------------- | :--------- | :--------- | :----------- | | Total Revenue | $338,071 | $323,764 | +4.4% | | Material sales | $174,805 | $188,726 | -7.4% | | Royalty and license fees | $149,236 | $127,819 | +16.8% | | Contract research services | $14,030 | $7,219 | +94.3% | - Net income increased by $22.5 million to $131.7 million[188] - The decrease in material sales was primarily due to lower unit material volume (5% decrease) and changes in customer mix[189] - Royalty and license expense decreased due to a one-time $1.5 million expense in 2024 related to an amendment with Princeton University and USC[199] - Other income, net, increased significantly due to a $4.5 million foreign exchange gain on a Korean Won-denominated withholding tax receivable[200] Liquidity and Capital Resources The company's liquidity is primarily supported by cash, cash equivalents, and short-term investments totaling $931.9 million, with working capital increasing to $885.2 million, ensuring sufficient funds for the next twelve months - The company's principal sources of liquidity are cash, cash equivalents, and short-term investments, totaling $931.9 million as of June 30, 2025[203] Cash Flow Summary (Six Months Ended June 30, in thousands): | Metric | 2025 | 2024 | | :------------------------------------ | :--------- | :--------- | | Net cash provided by operating activities | $82,498 | $139,169 | | Net cash used in investing activities | $(34,487) | $(93,471) | | Net cash used in financing activities | $(51,187) | $(44,827) | - Working capital increased to $885.2 million as of June 30, 2025, from $774.4 million at December 31, 2024, primarily due to increases in short-term investments, accounts receivable, inventory, and other current assets[208] - The company anticipates having sufficient cash, cash equivalents, and short-term investments to meet its obligations for at least the next twelve months[209] Critical Accounting Policies and Estimates The company's financial statements rely on management's estimates and judgments, with critical accounting policies identified in revenue recognition, inventories, and income taxes - The company's financial statements require management to make estimates and judgments, with critical accounting policies identified as revenue recognition and deferred revenue, inventories, and income taxes[211][212] Contractual Obligations A detailed discussion of the company's contractual obligations is available in its Annual Report on Form 10-K for the year ended December 31, 2024 - A discussion of contractual obligations is available in the company's Annual Report on Form 10-K for the year ended December 31, 2024[215] Off-Balance Sheet Arrangements As of June 30, 2025, the company had no off-balance sheet arrangements, such as guarantee contracts or variable interests in unconsolidated entities - As of June 30, 2025, the company had no off-balance sheet arrangements, such as guarantee contracts or variable interests in unconsolidated entities[216] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The company does not use financial instruments for trading or hold derivatives that expose it to significant market risk, other than its investments. The primary market risk is interest rate changes affecting interest income, which is not expected to have a material negative effect. However, foreign exchange risk exists due to a Korean Won-denominated withholding tax receivable - The company does not utilize financial instruments for trading purposes and holds no derivative financial instruments that could expose it to significant market risk, other than its investments[217] - The primary market risk exposure is to changes in interest rates, which would impact interest income earned on investments, but is not expected to have a material negative effect[217] - The company bears foreign exchange risk from fluctuations in the Korean Won to U.S. dollar exchange rate due to a Korean Won-denominated withholding tax receivable[218] ITEM 4. CONTROLS AND PROCEDURES Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance for timely and accurate reporting. There were no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance for required disclosures[219] - There were no material changes in internal control over financial reporting during the quarter ended June 30, 2025[220] PART II – OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The company is subject to patent-related challenges and oppositions in various jurisdictions, which are considered ordinary course of business. These proceedings review patent claims but do not involve monetary damages. The company anticipates an increase in such proceedings as OLED technology and its patent portfolio continue to grow - The company is subject to patent-related challenges and oppositions in major jurisdictions, which are considered ordinary course of business[221][223] - These proceedings generally do not provide for claims of monetary damages or a review of specific claims of infringement[221] - The company believes that the number of these proceedings will increase as OLED technology becomes more established and its patent portfolio grows[223] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - No material changes to the risk factors previously discussed in the Annual Report on Form 10-K for the year ended December 31, 2024[224] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities or use of proceeds occurred during the reporting period - None[225] ITEM 3. DEFAULTS UPON SENIOR SECURITIES No defaults upon senior securities occurred during the reporting period - None[226] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Not applicable[227] ITEM 5. OTHER INFORMATION No directors or executive officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 - No directors or executive officers adopted or terminated a "Rule 10b5-1 trading arrangement" or "non-Rule 10b5-1 trading arrangement" during the quarter ended June 30, 2025[228] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the report, including certifications from the Chief Executive Officer and Chief Financial Officer, as well as Inline XBRL documents - Includes Certifications of Steven V. Abramson, Chief Executive Officer (31.1*, 32.1**)[231] - Includes Certifications of Brian Millard, Chief Financial Officer (31.2*, 32.2**)[231] - Includes Inline XBRL Instance Document (101.INS*) and Taxonomy Extension Schema (101.SCH*)[231]