Universal Display Corp (OLED) 2012 Q1 法說會逐字稿

Good day everyone, and welcome to the Universal Display Corporation first quarter 2012 earnings conference call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. Joe Hassett from Investor Relations. Please go ahead, sir.

Thank you and good afternoon, everyone. With us today are Steve Abramson, President and Chief Executive Officer and Sid Rosenblatt, Executive Vice President and Chief Financial Officer of Universal Display Corporation.

Let me begin today by reminding you that this call is the property of Universal Display. Any redistribution, retransmission or rebroadcast of this call in any form without the express 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 9, 2012.

All statements in this conference that is not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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. Universal Display disclaims any obligation to update any of these statements.

Now I would like to turn the call over to Steve Abramson, President and CEO of Universal Display. Steve.

Thank you, Joe, and welcome everyone listening today. It seems like there's been a news article or product announcement in the OLED industry almost every day. Most recent is Samsung's announcement last week of their new Galaxy S3 smartphone featuring an amazing 4.8 inch AMOLED screen with 1280 by 720 pixel resolution. The market continues to grow and we continue to grow with this exciting new market.

Results in the quarter continue to reflect the growing demand for our proprietary materials and technology. Our material sales more than doubled from a year ago consistent with industry growth. Sidney will describe the overall results in greater detail.

As we discuss our results, please remember that our first quarter result does not include any of the license fees we are scheduled to receive this year under our new Samsung license agreement. As Sid will explain, we're scheduled to be paid and will recognize the SMD license fees in the second and fourth quarter.

The use of our materials and technology in both the display and lighting markets around the world are accelerating. This is a natural progression of the many OLED seeds that have been planted in a wide variety of markets over the past decade that are now either taking firm root or have already blossomed.

According to a report published by OLED-info.com,Display Search expects the global OLED market to grow to 242 million units in 2012, up 128% compared to 2011. Revenue will reach $5.93 billion this year, up $102% from last year. Display Search sees sales of OLED smartphone displays rising from 81.3 millionunits in 2010 to 176.5 million units in 2012 and 261 million units in 2013. According to their research Samsung has a 97% share of the OLED market, and since the market expected to double again this year Samsung continues to expand their OLED capacity to meet those projections.

Consequently it came as no surprise when Samsung reported they had shipped 45.5 million smartphones in first three months of 2012 to become the world's biggest seller of smartphones. Results were led by the surging sales of their Galaxy line which features stunning OLED displays of which the Galaxy S3 is only the most recent.

The Galaxy Note has met with similarly outstanding consumer acceptance with his 5.3 inch AMOLED screen. Samsung is also producing 7.7 inchsuper AMOLED plus displays for the Galaxy Tab 7.7 which are also reported to be the display on Toshiba's upcoming Excite 7.7 tablet computer.

Samsung is taking OLED technology well beyond the smartphone market. According the OLED Association, Samsung plans to introduce products that use their flexible display in the fourth quarter of 2012 with mass production beginning as early as this month and reportedly branded YOUM.

This is a very exciting new opportunity for OLED. A plastic display is virtually unbreakable and can engender new products such as displays with curved surfaces, products that LCDs simply can't produce. This continues to be a major area of focus for us. We have a very strong IP position and are also expanding our research efforts in the area of flexible displays and lighting. Consequently, we view these initial flexible products as very positive for the growth of the OLED industry and UDC.

Rumors abound about OLED TVs, but Samsung and LG exhibited gorgeous 55 inch OLED TVs at [CES]. There's a lot of speculation about pricing and market introduction of the TV. David Hsieh, VP at Display Search expects 108,000 AMOLED TVs to be sold in 2012 with 55-inch sets selling for between $7,000 and $8,000. By 2014 he expects that to increase to 3 million units or approximately 1% of the total global TV shipment.

It's still anybody's guess as to when we'll see the first OLED TV on showroom floors, but there have been reports that both companies will introduce them before the London Olympics. Others say the LG will introduce an OLED TV at the Cannes Film Festival. Others believe Samsung will introduce an OLED TV at the IFA show in Berlin at the end of the summer. The most recent news from MK Business News in Korea this morning is that Samsung electronic has disclosed they'll be unveiling the latest 55 inch commercial OLED TV during the Samsung premium TV showcase at its [SATU] headquarters in Seoul this Thursday.

OLED TVs are beautiful. Once you see one, you will want one. We're working very closely with both Samsung and LG to help bring OLED TV into your living room as quickly as possible.

Now that the versatility and performance of OLED technology has proven a commercial success, additional companies are accelerating their product introduction plans. AU Optronics which has announced plans to mass produce AMOLED panels for mobile phones reportedly has its Gen 3.5 line in Taichung up and running at the rate of 8,000 substrates per month, and it's 4.5 OLED line in Singapore can produce 15,000 substrates per month and is expected to come online at the end of this month. AUO has also set up a Gen 6 R&D OLED line with plans to roll out 32 inch and larger OLED [CB] panel samples by year end.

Chimei Innolux of Taiwan is also working hard on developing OLEDs for portable products on their Gen 3.5 line.

In their recent earnings conference call, LG noted that their Gen 8 pilot line for OLED TVs has a design capacity of 8,000 sheet per month which is translated to 48,000 55 inch TVs per month. They also said they would launch 55 inch AMOLED TVs in the second half of 2012. LG Display also said it plans to enter into the mobile side's flexible AMOLED market.

We're also seeing continued progress in the white OLED lighting market. We have been very successful licensing our technology to industry leaders around the world. On the heels of our recent license agreement with Linear Tech in Japan, we just announced a new two-year agreement to supply phosphorescent OLED materials to the Fraunhofer Institute in Europe who will use them to make efficient white OLED lighting panels.

There are a number of companies displaying OLED lighting prototypes at the Light and Building 2012 Exposition in Frankfurt last month. In addition, at Light Fair International 2012 in Las Vegas this month, Acuity Brands is showcasing two new OLED luminaire designs utilizing efficient and high performance OLED panels with efficacy of 60 lumens per watt. The Canvis Twist luminaire can dynamically change shape by interacting with building occupants through gestural controls while the Trilia luminaires are modular units that allows designers to shape single luminaries into unique organic networks to deliver comfortable and uniform light distribution.

We've been working with about a dozen OLED lighting companies and we are seeing increased activity on their front. While small compared with our display business, we're engaging with as many OLED lighting manufacturers as we plan for continued growth in this still nascent market.

I think our growth opportunities are relatively clear starting with our cornerstone Samsung agreement. Many of the companies mentioned this afternoon as well as many others that are similarly committed to the success of the OLED market are licensees or companies with whom we have a working relationship. They range from LG and AUO who are on the precipice of meaningful participation in the OLED display market to others deep in development.

While our near-term financial results are being driven by the proven ability of our technology and materials in the handheld market, the accelerating rate of OLED technology adoption in new markets offers tremendous long-term opportunity. That opportunity will be driven by the rate at which capacity ramps. Especially large format OLED televisions where the quantity of the material sold for display will significantly eclipse that of handhelds.

Compounding our opportunity, new markets and new products represent new opportunities to utilize both our red and green commercial materials. We are well positioned to participate and take advantage in this growth. Our strong IP position and world class technologies are instrumental in enabling our partners to create viable commercial product solutions and implement these new technologies in the next generation manufacturing lines.

Based on the accelerating pace at which the market seems to be developing, and the many fronts on which various manufacturers are pursuing the application of OLED technology, you can understand why we believe color is Universal. With that, I will turn the call over to Sid.

Thank you, Steve. And again, thank you everyone for joining our call today.

Revenues for the first quarter of 2012 were $12.6 million, up 31% compared to first quarter 2011 revenues of $9.6 million. Results in the first quarter do not include the recognition of any licensed revenue under a license agreement with Samsung mobile displays under which Samsung is obligated to make payments to the Company of $15 million in each of the second and fourth quarters of this year.

Accordingly, had the Company recognized these payments on a pro rata quarterly basis over the year, it would have resulted in an additional $7.5 million in royalty and license fees in the first quarter.

The Company will incur a license fee of 3% payable to its University partners and 16.5% withholding tax payable to South Korea in connection with the SMD license revenue.

In the first quarter of 2012, revenues from material sales were up more than 130% to $10.6 million compared to $4.5 million for the first quarter of 2011. The increase is in line with the growth of the OLED industry. Material sales include the sale of red, green, yellow and light blue phosphorescent emitters as well as green and yellow host materials.

The number of customers purchasing OLED materials in the first quarter increased by approximately 50% from the first quarter of 2011. Sales of emitter materials comprised 81% of total material sales for the three months ended March 31, 2012 compared to 94% for the three months ended March 31, 2011.

Red phosphorescent emitter sales for our largest customer under a commercial agreement increased by over 150% in the quarter ended March 31, 2012 compared to March 31, 2011. Green phosphorescent emitter and green host material sales flowed in the quarter ending March 31 compared to the second half of last year. We believe the slow down is temporary and we expect sales of green phosphorescent emitters and host materials to increase.

Gross margin on material sales in the quarter were approximately 90% and only marginally lower than a quarter a year ago.

Revenues from outside North America represented 90% of our total revenue for the first quarter of which 65% was from South Korea and 23% from Japan. Whereas revenues from outside North America represented 79% of our first quarter 2011 revenues of which 81% was from South Korea and 15% from Japan.

Total operating expenses for the quarter were $14.2 million, up 15% from a year ago in line with our general expectations. The increase represents increase in employee expenses, commercial activities, professional fees and stock-based compensation expense.

For the first quarter we reported a net loss of $1.2 million or $0.03 per share. A significant improvement from a loss of $11.9 million or $0.31 per share in the first quarter of 2011. The year ago quarter included an $8.9 million loss on stock warrant liabilities.

Our balance sheet remained strong with cash, cash equivalents and short-term investments of approximately $339 million as of March 31. For the first quarter, cash used in operating activities was approximately $2 million compared to cash provided by operating activities of $1.6 million for the same period in 2011. The increase was primarily a timing issue as we used our cash this quarter to reduce accounts payable and accrued expenses and to purchase inventory and other current assets.

As the industry grows, and now that our arrangement with Samsung is in place, we have a little more visibility into our potential future financial performance. Of course the OLED industry is still at a stage where many variables could have a material effect on growth in our future financial performance.

We would like to provide some revenue guidance in an effort to increase our transparency. With these qualifications, we continue to see our revenues for 2012 as being in the range of $90 million to $100 million (sic - see press release). Quarterly results will vary, particularly in light of the timing of payments under our new agreement with Samsung.

With that, I would be happy to take your questions. Operator, could you please provide instructions for the questions-and-answers portion of our call?

Thank you, sir. (Operator Instructions). We will take your first question from Jim Ricchiuti with Needham & Company.

Hi. Good afternoon. I wonder if you could talk a little bit more about the slower phosphorescent and host materials revenue that you saw, the green in particular, just versus the second half. Can you elaborate on that? You talk about it in terms of it being temporary. Was it an inventory issue do you think, Sid?

Well, the second half of the year and the third quarter was higher than our expectations. It does take time to get technology adopted into a new line and new products. And we still think that the second half of this year is going to be where this technology goes. It is part of new technology being introduced.

Got it, okay. You also showed very strong growth year-over-year in red. I was wondering can you say whether Samsung met or exceeded their minimum in terms of materials revenue in the quarter?

The minimums that Samsung has are an annual dollar amount.

We'll take our next question, from Andrew Abrams from Avian Securities.

Hi, guys. Just a quick question on the license fee. Just so we're all in agreement here. It's $15 million twice a year and the withholding is only going to show in the second and fourth quarters also?

That is correct. When we get to payments.

Right. So we see no withholding this quarter regardless?

That's correct.

Got you. And the additional license fee that you're going to get from other customers is going to be continued to show as individual quarters, there's no change in any of that. Is that correct?

That is also correct, Andy.

And in terms of how you look at the host material business, obviously Samsung is ramping up capacity relatively quickly. Would you expect that to be a determining factor in how the host business goes that they might adopt that in the new facility as opposed to on individual lines that they're running currently?

We believe that they will, but we really can't answer questions for Samsung. We expect our green host and our green emitter materials both to grow in the second half of this year. And at capacity we expect to be part of that capacity [add].

(Operator Instructions). We'll move next to Carter Shoop with KeyBanc.

Hi. Thanks for the increased commentary there on the red, green emitter and host. I appreciate that. First question has to do with a follow-up on the green emitter and host business in the second half of the year. Obviously it sounds like you guys are expecting that business. What's your level of confidence that will actually ramp here? Are we at a point now where it's a foregone conclusion, Or is there still several variables at play that are out of your control that could impact the sales to SMD in the second half of year for the green side?

Well, there clearly are variables that are out of our control. We're not the manufacturer. We do work closely with them, and as we said, we do expect them to grow in the second half of this year. But there are things that are in Samsung's hands, not in ours.

Okay. And then in regards to your level of confidence that will proceed as planned, is that something that you feel very comfortable with, or is that something that you're think it's a 50-50 shot? And then my follow-up question is, when you think about your full-year guidance which you guys are reaffirming for the second time now, can you maybe discuss some of the items that have gone better than what you expected when you originally provided that guidance and some of the disappointments?

Well, I mean we've looked at the full year in terms of our guidance. And there's really not a whole bunch that is different for the first four months of this year than what we expected in our guidance. It really, as Steve said, TV adoption accelerating could obviously help us in the second half of this year, but right now what we're looking at is the full year and we're still comfortable with $90 million to $110 million.

To answer your other question in terms of percentages on the second half of the year with green, I mean we are comfortable that we will see increased sales. I can't give you a percentage. It is really out of our hands in terms of how quickly and how many different lines get adopted and that's really our customer's business.

(Operator Instructions). John Bright from Avondale Partners has your next question.

Thank you. Good afternoon, Steve, Sid. I'm going to follow the same line of questioning. One, why was green slower versus red? And if you annualized the material sales relating to Samsung from the first quarter, would you be at minimum, below, above?

Well, John, it take as while to adopt the materials into the product lines. And we work as hard as we can but we don't control the actual adoption and sometimes these things just will take some time before they get adopted. So we look at it on a long-term basis.

In terms of annualizing, I mean it is still OLED. We've only announced one quarter, and as we have said, we expect green material sales to grow in the second half of this year with them. So for us to predict whether or not they meet their annual minimum is really difficult for us to do at this time.

Okay. My second question is what is your thought on providing profitability guidance or your hesitation in not providing it for your annual guidance? As a part of that, what percentage of your revenue guidance is demand driven versus contractual and do you have TVs included in that guidance?

To answer your first question, we really because of the early stage of the industry, we are just getting comfortable with annual guidance. And as you can tell from a lot of the questions, it is still difficult for us to pin down specifics.

And for us, for us to then start giving earnings or EPS guidance, it's going to be the same range and we do say that we expect expenses to grow at the 10% to 15% range. So to be honest, you guys could calculate it just as well as we can based upon those. We don't expect expenses to grow significantly.

And in terms of the components of our guidance, we really did this customer-by-customer and we built it up from the bottom based upon what our expectations are from those customers, and based upon what the customers have told us and based upon historical knowledge that we have of when things occur and when they don't occur. And we're very comfortable with the guidance based upon that. We really have not discussed specific components of it. And because of the stage of development of the industry, we really can't do that at this time.

We'll move on to Brian Lee from Goldman Sachs.

Hi, guys. Thanks for taking the question. I have a couple. I am also trying to understand what drove the sequential down tick in the materials. Were there any developmental customers that reduced volumes on green emitters specifically, or it was all Samsung? And when you say you're expecting a recovery, is that just up to Q4 2011 levels, or are we thinking above that? And then I have a follow-up.

Well, in this quarter we sold significantly more commercial materials. As we said, the commercial materials to Samsung went up significantly. And as we also talked about, green emissive materials were down in this quarter. That's really where the differences are.

And then the question on the recovery?

I'm sorry. Repeat that.

You mentioned you're expecting a recovery on the green materials in the back half of the year. Are we thinking this back to where you guys were at the end of last year? Are we materially above that? And I do have a follow-up.

It's difficult for us to answer that question because it is still an unknown as to the timing of when it will grow. We do expect it to grow. As we've said, quarter to quarter is very difficult for us to try to predict.

But we are looking for widespread adoption of green.

Okay. Fair enough. Quick question on the guidance and then I'll let you guys go.

Just doing the math, if I take the Samsung license revenue for 2012, $30 million that's already been given. If we assume there material purchases double year-over-year in line with their growth, which it seems like we were on that trajectory in Q1, and then we take the last piece of non-Samsung revenue from last year, which was again, around $30 million and you assume no growth, that alone gets you to $90 million in your guidance.

Just a couple questions just on that. First, does that math make sense? And if so, in what scenario could sales outside of Samsung be flat in your view? I guess what I'm trying to ask is why the revenue outlook doesn't inch up [at least slow end] when you look at it from that perspective?

I think your math makes some sense. I really haven't -- pulling it apart, there are some parts of our revenue stream such as government contracts and technology development which is flat and will continue to be flat, as we've said. So $10 million of last year's revenue is revenue that we expect to be $10 million this year. And we do expect other customers to buy more materials and for things to grow.

I don't disagree with your math. It is still too early for us to predict. As Steve said in his remarks, there's quite a bit of activity from other customers. We expect them to grow.

However, historically we know that things either occur faster or slower than we have anticipated and our guidance when we have put it together and when we looked at it, still we're comfortable with the $90 million to $110 million at this time.

We'll move on to Srinivasan Sundararajan from Oppenheimer.

Hi, guys. I have one question and one follow-up. My first question is, how easy it is to go from a LCD plant to an OLED plant or OLED fab? The reason I'm asking this is you could potentially look at the CapEx levels of Samsung and gain some conclusions as to what might be possible in a limited time frame.

At this point, people are generally looking to green field a lot of the OLED fabs, and that's dependent on the TFT backplane issue. The OLED piece is, some of it is the same as LCDs. The OLED piece itself is a little bit different.

The question really is going to be with the possible new generation of TFTs such as oxide TFTs. Will you be able to retrofit an existing LCD fab that uses amorphous silicate and convert it to an oxide TFT fab that would be acceptable to OLEDs. That's something a lot of people are looking at right now.

Okay. And my follow-up is, what are you currently doing in China, specifically?

We are studying that market.

We currently have no customers in China.

Moving on to Rob Stone from Cowen and Company.

Hi, guys.

Hi, Rob.

Hi, Rob.

I wanted to ask about license revenue from customers other than Samsung. I think it was if I've got the figures correct, higher in the third quarter last year and then declined. It's running less than $0.5 million now. How many customers can you say were paying licenses in Q1?

License revenue includes amortization of up-front fees over the life of the license. And secondly, it includes a part of the material sales for customers that we have material license agreements where we build a license fee into the material itself. So there are a number of components to that.

And if the material sales to a customer were down in this quarter, then the variable portion of that would change. The fixed portion of it pretty much is fixed in each quarter.

So are you able to say how many customers are actively paying licenses other than Samsung?

We really don't disclose which customers did.

I'm not asking you which customer, just a number.

I can get back to you, Rob. I don't have that information right in front of me.

Okay, sure.

There are a number of different customers there and are license fees that we have signed with a number of customers that we're amortizing over the life of the licenses. We have a number of lighting customers that we signed license agreements with that had an up-front component that we amortized over the life of the license.

Is the license attached to material sales typically the form that it takes before somebody goes into a long-term commercial deal?

Yes. That is normally the way we start out is by building a license fee into the material. We sign a material supply agreement, and then we'll continue that for some period of time, and then eventually we'll sign a royalty variance or license agreement that has material pricing that is different because they're either paying a license fee or a royalty.

We'll move next to Hendi Susanto with Gabelli.

Hi, Sid. Hi, Steve. Thank you for taking my questions. My first, in the past you indicated that adoption of green emitter materials into the production line may take months. How many customers have adopted and how many are adopting green [cars] into production line at this point?

Well, it's being evaluated widespread by most of our customers.

And could you share, like, how many have put green materials in their production line at this point?

I mean the only one that we know that had it in commercial products which is the largest supplier is Samsung. Because they're the only one that have any commercial products in the market.

Okay. And my follow-up, considering the launch of Galaxy S3 smartphone and LG's plan to launch OLED TV in May, is it fair to think that directionally we should see sequential growth of material sales in the second quarter of 2012?

It's hard for us to predict but if the volume grows and the number of products continue to grow, we would expect to grow with the markets.

Jed Dorsheimer from Canaccord has your next question.

Thanks for taking my question. Just curious if on the Samsung we should read into -- this level is the way in which to look at the rest of the industry? Any comments on that in terms of your discussions? I now you can be specific in terms of your discussions with other customers, but is this the type of yield that you would like to see from the rest of the industry? Thanks.

Yes, I think Samsung is unique.

Okay. So do you view -- I mean how would you view the conversations? Maybe if you could elaborate because I think investors really want to try and get a grasp or understand how the rest of the industry will adopt in terms of your positioning in license versus royalty. It would be helpful here.

Sure, Jed. Samsung is unique because they're really the largest player in this market. The rest of our commercial agreements with a number of other companies are all royalty-based and we sell them materials. That's the same types of agreement that we are looking forward to with the rest of the industry.

Do you see your additional agreements higher or lower than the Samsung?

That we really can't talk about.

Okay.

We'll move next to Jagadish Iyer from Piper Jaffray.

Thanks for taking my questions. Two questions, Sid. First question there was a recent presentation by Dow Chemicals in terms of a number of materials bought on the phosphorescent side that they're offering. I was wondering, do you have any relationship with Dow Chemicals? And then I have a follow-up.

No, we do not have a relationship with Dow chemical.

Okay. Second thing, I was wondering, Steve called out the number of smartphones increasing from quarter over quarter from December to first quarter. I was wondering, can you break out how much OLED phones grew from fourth quarter to the first quarter?

We don't have those numbers handy, but let us get them and we will get back to you.

We'll now take a follow-up from Jim Ricchiuti with Needham & Company.

Yes, I just wanted to look at some of the operating expense items. How would you see your R&D expense going forward either in absolute dollars or as a percent of revenues for this year?

In absolute dollars, we do expect to see probably over the year, 10% to 15% growth which we saw from last year to this year. I mean we do have some folks that have going to be higher and we're going to expand some of our efforts. I don't see it tracking a percentage of revenue. I expect in absolute dollars the number to grow by the end of the year by, as I said, maybe 10% to 15%.

Okay. And I realize there's a lot of sensitivity with some of the customers -- potential customers you're speaking with. But I'm wondering if you could characterize the discussions with some of the other players outside of your main customer. Given the sensitivity -- I mean, where do you see -- what kind of -- if you look at what's happening in Taiwan and elsewhere with LG in Korea, do you get the sense you're going to have a commercial agreement in place with other parties and potentially by the second half of this year, just given the fact that they are scaling up?

We clearly are working with all of them, and we would like to get long-term relationships in place. Can we say for sure we'll have it in place by the end of this year? I don't think I could say that, but I think it is our goal to get some of them in place by the end of this year.

We certainly would expect to have commercial relationships with people before they launch commercial products. The length of time and the other terms are items that we're discussing. We have long-term relationships with all of these customers, both on a technical and business side. We expect to continue to be doing that as the industry grows.

Okay, thank you.

We'll go to another follow-up from Rob Stone from Cowen and Company.

Hi, Sid. Just a point of clarification on the way you characterized expenses. I think in the press release, the commentary refers to total operating expenses, which actually includes costs to goods sold. Not usually thought of as an OpEx category when Wall Street is talking about that. So when you say 10% to 15% growth, are you talking about R&D, SG&A, patent costs, royalties, that stuff that's below the gross profit line? Or are you also including gross in cost to sales?

I'm not including cost of sales. I'm talking about specific line items. The way our financial statements are reported, so it would be on the R&D, G&A, patent costs. Those are the ones I would have. The cost of sales number is a percentage of the sales of our commercially manufactured products.

Okay. And can you comment with respect to patent-related expenses what the trend has been lately? Are you investing significantly more in filing patents, defending patents? How should we think about that piece of expense growth this year?

We do expect it to grow some this year. There are -- obviously there's some patent opposition matters, and those costs tend to be lumpy, as you either have a filing that is due or there is a hearing that is coming up. So those costs on the defense side tend to be a little lumpy.

On the patent, just a normal patenting costs, we are filing more patents, so that will grow. We're at 1,400 patents, compared to I guess about 1,100 this time last year, so you will see growth in the cost of filing and the cost of maintaining patents. But I think we talked about it, maybe at the end of last year, that we expect a number for this year to be probably around $10 million.

Carter Shoop from KeyBanc has your next follow-up.

Great, thanks, and I apologize if this question was already asked. I got disconnected for a second. When you have a guidance of $90 million to $110 million, it sounds like the TV launches happening this summer might be a little bit faster than what you're originally expecting. I also have in my notes that green host wasn't included in your 2012 guidance. That said, if we do see the green host return, if would do see TVs sell reasonably well, say in line with what the Display Search is forecasting, would we expect to see upside to that guidance? Or have there been a few items that have maybe pulled down some of that upside potential since you guys initiated the guidance?

Well, I think if some of these occur faster that be we would have anticipated, there's probably up side. But specifics based upon per customer, as I said, when we put our guidance together, we based it upon what customers gave us as specific amounts that they expect to buy over the period, whether it's three months, six months or nine months, the guidance.

If the customers had that built into their expectations that they provided us to, then it's built in. We don't get specifics from customers that's going into a TV or that it's going into different products. What we get is material purchases and material requirements. But if the industry grows faster than we would have anticipated, we should see some -- we should participate in that growth.

Okay. And see up side to that guidance.

Yes.

Okay. And then second follow-up, is there any reason to believe that there will be a lag between commercial OLED shipments from any of your potentially larger customers and when you'll recognize chemicals and royalty revenue from them? Excluding, SMD. So thinking LG, AUO any of those customers ramp. Is there any reason there would be any lag or would you anticipate to see the revenues hit before they actually commercially ship those products?

Of all the customers that have material supply arrangement with, we record the revenue when we ship the material. So if it is under a material supply agreement where their license fee is built in, it will then be recorded when they buy the material.

If and when we sign royalty-bearing license agreements, the royalty payments, timing of those may be off depending on when we get reports. But that's something that we have not done as of yet with those customers.

With Samsung, the earlier license agreement that we had where we got royalties, we had a one quarter lag on reporting royalties because they didn't provide us with a royalty report until 60 days after the quarter ended.

Jagadish Iyer from Piper Jaffray is in the queue for a follow-up as well.

One quick question, Sid just to clarify. You commented in your prepared remarks about blue phosphorescent material. Can you elaborate on that because I think this is the first time you are mentioning. Can you elaborate on that please?Was it the same customer that you shipped, or was it a new qualification? Any color. That would be great. Thank you.

We have been shipping light blue phosphorescent materials to a number of lighting customers, and that continues to be the case. We still do not have yet a deep blue phosphorescent molecule, but we're working very hard on commercializing that.

Andrew Abrams from Avian Securities. Your line is open.

Thank you. Just one quick follow-up on the material side. I know you don't classify developmental and commercial anymore, but could you classify development and commercial in terms of materials sales?

Andy, we don't do that any longer mainly because the way that we record our cost of sales is based upon materials that we have commercially produced. So we don't really track it in that regard. Because we do record the materials based upon our production and whether these are commercially produced materials.

I don't have specifics for you, but I do believe that a significant portion of this quarter's revenue was on the commercial side as opposed to the developmental side. But we don't break it down that way anymore.

And just if you don't break it down specifically, yellow was yellow developmental, it sounds like yellow was developmental, or was yellow on the commercial side?

Yellow I believe was on the developmental side.

Got it. Thanks very much.

And gentlemen, your final question tonight will come from Hendi Susanto from Gabelli.

Hi, one follow-up questions. If I look at the host material sales historically, you had exceptionally strong green host materials sales in Q3 2011 which is $7.1 million which look way higher than what you had in fourth quarter and Q1 2012. Could you give insight on what contributed to the strong sales in Q3, or the gap within those numbers? I'm wondering whether the strong number in Q3 2011 was attributed to the early adoption process at your customers?

We believe it was. I mean that was clearly the largest quarter for host materials by far. I mean it was $7.8 million of host materials in that quarter and in any other quarter it's not been above $2 million.

So that was quite a bit that we sold and customers put it into product, and it also may be that customers bought quite a bit and there was still some inventory. So that clearly was a quarter where our material sales were higher than our anticipated sales would be.

Thank you, Sid.

Thank you.

And Mr. Abramson, I would like to turn the conference back over to you.

We would like to thank you all very much for being on the call. Did you have any additional questions, please either call or send me or Sid an email and we would be happy to help. Again, thank you very much for joining us this afternoon.

And that does conclude today's teleconference. We thank you all for your participation.