Universal Display Corp (OLED) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Universal Display's fourth-quarter and full-year 2015 earnings conference call. My name is Farah and I will be your conference operator for today's call.

As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the call over to Darice Liu, Director of Investor Relations. Please go ahead.

Thank you, Farah, and good afternoon, everyone. Welcome to Universal Display's fourth-quarter earnings conference call.

Joining me on the call today are Steve Abramson, President and Chief Executive Officer, and Sid Rosenblatt, Executive Vice President and Chief Financial Officer. Before Steve begins, let remind you that today's call is the property of Universal Display. Any redistribution, retransmission, or rebroadcast of any portion of this call in any form without the 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. The call contains time sensitive information that is accurate only as of the date of the live webcast of this call, February 25, 2016.

All statements in this conference call that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as those relating to Universal Display's corporation 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 materially from those projected. These risks and uncertainties are discussed in the Company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the Company's securities. Universal Display disclaims any obligation to update any of these statements.

Now, I'd like to turn the call over to Steve Abramson.

Thanks, Darice, and welcome to everyone on today's call.

Let's begin with our fourth-quarter 2015 results. Revenues were less than anticipated, primarily due to year-end inventory management by our customers and product mix weighing more towards our lower-priced emitters. As we had noted in the past, while short-term forecasting in this emerging market environment is difficult, it is clear that OLEDs are a long-term growth market. We believe that in 2016, panel makers are in a capacity build mode.

As these capacity builds come online, we see substantial growth momentum for 2017 and beyond. We believe 2017 revenues can grow significantly based on new production capacity growth of at least 50% from 2015. As noted by a number of companies in the ecosystem, from equipment makers to OEMs, the OLED design pipeline is growing robustly and that is driving new capacity for 2017, 2018, and beyond.

As a key enabler and partner in the OLED industry, these additional capacity plans mean new revenue opportunities for us and overall, a positive growth trajectory for years to come. Reflecting on 2015, revenues were flat year-over-year at $191 million. Non-GAAP net income, excluding the impact of the second-quarter inventory write-down, was $44.9 million. Our commercial emitter business grew 16% and our royalty and licensing revenues increased by 23%.

We also generated $114 million of cash from operations. It was a year filled with significant growth milestones for Universal Display and for the OLED industry. We signed new agreements as activity in our customer pipeline grew. This included long-term license agreement with LG Display, OLEDWorks and Sumitomo Chemical. 2015 also marked a number of OLED industry firsts. It was the year that the first Gen-6 OLED fab, Samsung's A3 plant commenced operations.

It was also the year that LG Display began to ramp its first commercial volume OLED TV production line and announced plans for the first OLED mega fab. And it was the year that BOE broke ground on the first LTPS OLED greenfield plant in China. 2015 also ushered in a multitude of first-time OLED adopters, from the Apple Watch to leading smart phone makers Huawei, Meizu, OnePlus and a plethora of other OEMs adopting OLED for their smartphones to Panasonic and Skyworth introducing their first commercial OLED TV into the marketplace.

Looking ahead, 2016 is poised to be a meaningful year of building. Building significant capacity for the future of OLED adoption, building product road maps for new market applications and new OEMs, and new consumer adoptees. With new production capacity lead times usually in excess of 12 months, leading panel manufacturers are currently building the framework for the next phase of expansion in high volume OLED production to begin ramping in 2017.

LG Display has made a number of capacity announcements, including a Gen-6 line for flexible mobile displays with a CapEx of approximately $800 million for an initial phase of 7,500 plates per month, slated to begin mass production in the first half of 2017. LG also announced plans to invest approximately $700 million to increase its Gen-8 OLED TV capacity by over 40% to 60,000 plates per month in the first half of 2017. LG's biggest capacity announcement was made in late November for its $8.5 billion-plus mega fab dubbed P10.

Expected to cover an area of 14 football fields, construction of the plant alone is projected to cost $1.5 billion. This mega fab is expected to produce OLED TVs and flexible OLED panels beginning in the first half of 2018. Samsung forecasted in 2016 it will maintain a high rate of operations and profitability from its OLED business.

This will be driven by new product launches in automotive, transparent, mirror, and IT, as well as expanding its customer base. Speaking of product launches, earlier this week, at Mobile World Congress, Samsung electronics unveiled its new flagship smartphones, the sleek Galaxy S7 and S7 Edge.

Joining Samsung's event was Mark Zuckerberg. The Facebook CEO discussed the importance of OLEDs for virtual reality and stated: Virtual reality is the next platform where anyone can create and experience anything they want. For right now it's mostly used for gaming. That's quickly evolving. Samsung is the only company that can deliver at-scale the low persistence OLED screens to give a good, comfortable VR experience. And he concluded that that is because these OLED screens are the only screens that can update faster than your eye. No other screen and display or company can deliver this experience.

BOE's Gen-6 LTPS AM OLED fab, which has a design capacity of 45,000 plates per month and involves a total investment of approximately $3.4 billion is expected to commence operation in the first half of 2017. AUO continues to grow its OLED portfolio with a focus on virtual reality, automotive, and wearables, while Interlux continues R&D work on flexible OLED panels. And Japan Display announced last month that it will begin mass production of OLED panels in 2018.

What is driving all this activity? An ever-expanding OLED product road map that include smartphones, tablets, wearables, virtual reality, TV, and we can now add OLED laptops and OLED monitors to that commercial product list. Just last month at CES, we saw a number of notebook manufacturers, specifically Lenovo, Dell, Alienware, HP and Samsung, all of whom have magnificent looking, OLED-enabled premium notebooks on display.

Also at CES was LG's awesome 18-inch rollable OLED TV. Efforts in thinner and lighter flexible OLED are also ramping to create differentiated products from the rigid norm. Market research HIS noted that flexible AM OLED panels rose to 20% of the total AM OLED display market in 2015, reaching 57 million units, up from 2% of the market in 2014. On the OLED TV front, LG Electronics noted at Mobile World Congress that it believes it's OLED TV shipments could triple to 1 million units this year.

Adding to the OLED TV momentum is TP Vision, who is responsible for selling Philips TVs in Europe. Last week, they announced plans to launch their first OLED TV later this year. The consumer OLED landscape is expanding, and with OLED panel pricing becoming more competitive with LCDs, we expect the proliferation of OLEDs in the marketplace to accelerate. On the solid state lighting front, automotive OLED tail lights are slated to enter the commercial market for the first time this year.

Both the 2016 Audi TT RS Coupe and BMW's Concept M4 GTS are expected to have OLED tail lights. In addition to tail lights, automotive companies are looking to design OLED lighting panels in brake lights and turn signals. With all the benefits of OLED, we believe that this is just the beginning of the commercialization of the OLED lighting market. The future of OLEDs is bright.

The drive by our customers to build capacity for the next wave of high-volume OLED production, which is slated to begin ramping in 2017 and advancing R&D work to further commercialize OLED technology into broader markets and applications is creating substantial long-term momentum for the OLED industry and for us.

Now let me turn the call over to Sid.

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

Revenues for 2015 were $191 million, flat year-over-year. Royalty and license fees were $78 million, up 23% from 2014's $63 million. Material sales were $113 million, down 11% from $127 million in 2014. This mainly stems from commercial host sales declining by $26 million. Commercial emitter sales were up 16% to a new record level of $91 million from 2014's $78 million.

The breakdown of commercial material sales by color for 2015 compared to 2014 is red emitter sales in 2015 were $27.3 million, up 50% from 2014's $18.2 million. Green emitter sales, which include our yellow-green in 2015 were $64 million, up 6% from 2014's $60.3 million. Green host sales in 2015 for $8.8 million, down 75% from 2014's $34.6 million. 2015 operating expense, excluding cost of materials, was $96 million, up 5% from $91 million in 2014.

Operating income was $32.3 million. Excluding the inventory write-down of $33 million, non-GAAP operating income was $65.3 million for 2015, up 11% from $58.6 million in 2014. Net income was $14.7 million or $0.31 per share. Non-GAAP net income was $44.8 million or $0.94 per share compared to $41.9 million or $0.90 per share for 2014. For the year, we generated an impressive $114 million in cash from operations.

Moving to the quarter, revenues for the fourth quarter 2015 reached $62.3 million compared to fourth-quarter 2014 revenues of $56.2 million. Royalty and license fees were $34.4 million, which included Samsung's $30 million license fee. The Samsung license fee, which was $60 million in 2015, is recognized in the second and fourth quarter of the year.

Total material sales were $27.8 million in the fourth quarter, of which commercial was $23.6 million. Material costs for the fourth quarter were $8.1 million, down year-over-year from the fourth quarter 2014's $12.1 million. The decrease is primarily due to lower host sales. The material gross margin percentage was 71% for the quarter.

Fourth-quarter operating expense, excluding costs of materials, was $27.6 million, up from last quarter's $23.8 million, but flat year-over-year from the comparable quarter's $27 million. The sequential increase is mainly attributable to timing of R&D projects and compensation accruals. Operating income was $26.6 million for the fourth quarter of 2015 compared to $17.1 million for the fourth quarter of 2014.

Net income for the fourth quarter was $18.1 million, or $0.39 per share. Shifting to the balance sheet, in the fourth quarter, we generated $33 million of cash from operations and built our cash position to $396 million, or over $8.40 of cash per share.

Now looking to 2016. In 2016, we expect our licensing, royalty, and emitter revenues to grow. As Steve noted, we do not see a significant measure of new manufacturing lines commencing operations in 2016. As result, we expect our 2016 revenues to be up 15% year-over-year, or approximately $220 million plus or minus 5%. We expect most of the growth to occur in the second half of the year.

Our revenue guidance includes Samsung's license fee, which is $75 million this year, which will be recognized in two equal installments in the second and fourth quarter of the year. We would note now, as we have in the past, a shift in industry momentum in either direction can impact our financial results. Overall, 2016 gross margins are expected to be consistent with last year. OpEx, excluding costs of materials, is expected to increase 10% to 15% year-over-year, primarily driven by R&D.

We expect the effective tax rate to be approximately 34%, give or take a few basis points. 2016 is expected to be a year of significant OLED capacity expenditures and product road map builds. This groundwork is paving the foundation for the next generation, next expansion wave of our high-volume OLED production, set to commence ramping in 2017.

Our position in the OLED ecosystem is exceedingly strong. We are investing heavily in our research and development program to meet our customers' future needs with innovative and cost-effective solutions. We are continuing on the right path for long-term growth, long-term profitability, and long-term market leadership.

With that, let me turn the discussion back to Steve.

Thanks, Sid.

We're working closely with our customers as they map out their product offerings for the coming years. We are inventing new and next generation phosphorescent emitters and hosts to meet new product specks and expand our materials business. We are also developing new OLED technologies to enhance our IP licensing portfolio. These combined efforts are further strengthening our leadership position as a key partner in the OLED ecosystem.

All of this is possible due to the world-class talent within Universal Display. I'd like to take a moment to thank our employees for their continued commitment to excellence and innovation. I would also like to recognize our customers, partners, and valued shareholders for your continued support. In summary, the OLED industry is gaining extraordinary momentum and so are we.

We are excited about the substantial opportunities that lie ahead as widespread adoption of OLED continues to advance, from phones to TVs, laptops, tablets, monitors, smart watches, virtual-reality, to signs in automotive display and lighting applications, to products that the imagination has yet to create with flexible, rollable, and foldable displays. The world of OLEDs is limitless.

On that note, operator, let's start the Q&A.

Thank you, Mr. Abramson.

(Operator Instructions)

Jim Ricchiuti, Needham and Company.

Thank you. Good afternoon.

Hi, Jim.

I'm trying to reconcile the what looks like fairly strong growth in red emitter revenues in Q4 and a decline, it looks like, in green in Q4. I don't know if those numbers are right. I may have missed them, Sid, as you were going through it. But is that in the ballpark? That you saw pretty healthy growth in red for Q4 but a decline in green in Q4?

That's correct, Jim. There are a number of variables that impact material consumption and can impact each emitter differently. Factors include the recipes, whether they're using newer or older emitters, doping percentage, efficiencies in manufacturing and processing, the stack structure composition, including the corresponding common layers, whether it's full production or pilot production, production requirements, inventory management.

Changes can occur and they can be gradual, and sometimes, a step level change in either direction. So there are a lot of moving parts in determining why these things are not growing at the same rate.

With respect to your guidance for 2016, are there any volume price breaks we need to be aware of this year as it relates to your two large customers?

Well, as you are aware, we're dealing with two of the largest companies in the world and there is always pricing pressure. We don't provide information on price breaks and price discounts, but there clearly are going to be some. We're constantly in discussion with our customers, and we're working to get them the material they want and try to ensure that we can maintain our profitability. So we look for a win-win.

Okay. Thank you.

Brian Lee, Goldman Sachs.

Hello, guys. Thanks for taking the questions. I had a couple of them. Maybe as a follow-up to Jim's. Sid, did pricing discounts, whether at Samsung or at LG, play into the margins this quarter on the material side?

It's more the mix of products. It's a product mix issue in this quarter. In Q4.

Okay. Fair enough. I guess a follow-up to that then would be, if I look at the margins, they were down about 800 basis points sequentially. If we assume that host margins were flattish, I know you mentioned the mix, but can you give us a better sense for exactly what happened in terms of mix? I didn't realize there could be such a wide band of margins from one emitter type to the next.

Well, we introduced new higher performance emitters, as we scale them up, we actually charge more in the beginning for some and we scale them up, but we -- our intent to try to maintain our gross margins in 2016, similar to what we had in 2015.

Okay. Last one for me and I'll pass it on. The inventory adjustment at the customers that you mentioned as being one of the drivers for the shortfall and revenue expectations, was that more on the smartphone side or was it more on TVs? And then a follow-up to that would just be how much of that would you say was driven by an actual slowdown in end product demand versus customers maybe having deliberately forward bought materials in Q3?

We pretty much saw it across the board. It wasn't just one customer, and I'm not so sure that we can answer whether it was driven by product, end product demand, but it was pretty clear that at year-end, there was a lot of inventory management being done.

Okay. Thank you.

Thanks, Brian.

Jed Dorsheimer, Canaccord Genuity.

Hi. Thanks for taking my question. I've kind of got a few here. I guess first just to follow-up to the previous two analysts who were asking questions. Sid, one of your customers on the handset side of things has recently switched from their recipe, the M7 to the M8 structure. I'm curious with respect to mix, was it the greater function of the switch in recipe, or was it the same recipe and then just the work-down or end-of-life of those [materials]?

We really can't comment on exactly what it was. I mean, that's up to our customers. To be honest, it's not something that we get a lot of detail about.

So I guess the reason, and I respect that, but it seems as if it's somewhat important to just try and better understand the dynamics. If there were, hypothetically speaking, to be a product change in one of your customers, should we then expect at the beginning of the year that you will be introducing higher-end products, thus having higher margins and as the year continues, the margin structure would be similar to what we saw this year? Would this be sort of how we should see the next couple years from you?

Well, we can't determine -- we introduce new high-performance materials to our customers all the time. When they adopted is really up to them. What we feel and what we've stated is we expect the margin profile for 2016 to be similar to 2015. So we don't expect to see big changes in our margins.

Okay. And have your customers ever adopted new materials without changing the structure? In other words, the high-performance products are usually adopted when there is a structure change. At least that's been my understanding. Have you seen them adopt new materials without changing the recipe in midway through a run? I would think that would be disastrous from a yield perspective, but I'm just curious.

We really can't answer that. That's a question for them.

Okay. Thanks. Just moving over to the patent side of things, it looks like in the 10-K, the European patent, I guess the counterparty to the 828, it looks like while you are appealing that, the claims went against you or the ruling went against you in that. Any further comments on that situation and how we should read into that?

Well, Jed, in the fourth quarter, there was one opposition decision relating to one of our white phosphorescent OLED technologies. We did not win at the lower court, so we're going to appeal, as you know, the appellate court is a de novo decision and they reconsider it from the beginning, and the patent is deemed valid during the pendency of the appeal. This is just one of the white OLED patents.

Okay. That's it for me. I'll jump back in the queue. Thanks, guys.

Srini Sundararajan, Summit Research.

Hi, guys. Thanks for taking my call.

You're welcome.

Given that you have somewhat of a history of such revenue surprises, would you be putting some controls into place given the nature of your business and the fact that the customers frequently either under order or over order?

I'm not sure if we understood part of your question. I apologize.

All I'm asking is that, in terms of your guidance, when such shortfalls sometimes seem common, could we have a better history of smoothing those out?

Well, when we look at our guidance and we look forward, we do the best we can with the information that we have, and sometimes, things occur that are out of our control. It's difficult to predict this market and sometimes there are shortfalls. Quarter to quarter it's really difficult, based upon customer ordering patterns and what we ship in each quarter. I think for the year, we're pretty comfortable with where we are and customer shortfalls or customer inventory management should not have a big impact on us over a 12-month period.

Okay. And can you give me some color on the utilization to your customer fabs in Q3 and Q4 of last year, of 2015?

We really, I don't want to avoid your question, but we can't comment on what our customers do in their fabs. I mean, there are reported reports on at what capacity levels they are at, but with utilization levels are things that they don't report.

Okay. One last question. Given that oil prices were lower and eventually your [organic materials] must be coming from petrochemicals, would you have a lower cost basis going forward given the current volume prices?

Well, that would be good if it happened. Our costs are not principally derived from the petrochemical industry even though a number of organic materials do come from the petrochemical industry, that's not where some of the primary costs are.

And they would be from the metals?

Yes.

Okay. Thank you. That's all. Thank you very much.

Thank you.

James Medvedeff, Cowen and Company.

Good afternoon, folks.

Hi. How are you?

I'm great. I've got a couple questions. So thinking about the tax rate, the 34% tax rate you guided for next year, that seems a little higher than we had been thinking about. What's behind that and how many years would you expect that to persist?

Our tax rate is one that we do have a business in Ireland and it really, over the first three years when we set it up, it takes some time to see long-term tax benefits initially. We believe over the long-term, we will see significant tax benefits and going forward in 2017, 2018, and beyond, we should see lower tax rates than this. It really depends on where our sales grow, whether it's material or licensing fees.

Okay. So just to press that a little further, could we see them back into the mid- to high-20%s?

In the future?

In say two or three years?

Yes.

Okay. And then on the year-end inventory management at the customers, I know you don't have a lot of visibility into that, how that inventory is actually being managed, but is there a chance that they may have reduced inventory too much and you could get a snap back in Q1? What's the likelihood of something like that?

You know what, it's difficult for us to predict. We do know that there at year-end and quarter-end, everybody manages their inventory purchases to try to be as efficient as possible. I think it's more related that as demand increases, we'll see more sales.

And on gross margins, they do seem pretty light. I understand that it was a mix issue in terms of maybe older products versus newer ones on the emitter side. How is that trending so far this quarter, Q1 here?

For Q1?

Yes.

We really can't comment on Q1.

Was it unusually -- in a bigger picture kind of way, are these the new kind of margin rates or do you think the mix will shift back?

Emitter gross margins have historically been in the 70% to 80% range. We've stated that we expect the margin profile to be the same.

Okay. Great. Final question for me is on the non-Samsung licensee business, is there any -- that's ticking along at a fairly constant level, give or take. How should we think about that in the future? I mean we've got some other big customers that may come on board. Or do we?

Well, as we stated last year when we signed the royalty, the license agreement with LG, we were only going to, we did not report any fourth-quarter sales for 2014 in 2015. If you listen to what LG has said, almost half of their TV sales were going to be in Q4, and we will report that in our Q1 results.

All right. Thank you.

Thank you.

(Operator Instructions)

Osten Bernardez, Cross Research.

Good afternoon. Thanks for taking my questions.

You're welcome.

Just to start, could you perhaps provide some color in terms of how you're thinking about the volume if you plan on sustaining your margins, even if the mix of your sales sort of changes? Just wanted to think about how -- you highlighted mix of the fourth quarter. You can go ahead and answer for that.

One of the things I was thinking about is we'll see if you have certain customers, for instance Samsung, selling more displays into lower-end devices going forward. I would assume that as increases the volumes, but as (technical difficulty) come down as well. But on the longer-term perspective, how can you sustain your margins given the shift in your mix?

As volumes grow, we see efficiencies in our manufacturing process. We also are constantly working to get our costs down and, to be honest, pass some of them through to our customers. We have been able to maintain our margin profile over the past four years. And we slowly expect to continue to maintain these by manufacturing efficiencies, us coming up with manufacturing methods that reduce our costs, and as we introduce new and higher performing materials, we will then see different pricing as we work through the same process so that we can pass on efficiencies to our customers but still maintain our margins.

And then in that same vein, can you remind us how prepared your facility per say for this next wave that is due on the mass production [possible] in 2017? What would it take (technical difficulty)?

We stated as of last year that at PPG Industries, we built a second facility in Barberton, Ohio. That was built with us anticipating significant growth over the next, we look out two to five years, and so we believe that we are poised to meet all the needs that we see over the foreseeable future and, as Steve stated in his call, in his comments, that we do expect to see significant growth in 2017 and significant capacity. And we will be ready, willing, and able to deliver the materials.

So would that require any sort of larger than normal start up costs at the end of getting into 2016, early 2017?

We constantly are looking at our capacity. We are constantly looking at adding new capacity. As you've seen historically, though, our CapEx for working with PPG is not a number that is a huge number. Because PPG is our exclusive supplier, we buy the materials, we don't have to spend all the money on the facilities.

Got it. Thank you very much.

Thank you.

Hendi Susanto, Gabelli & Company.

Good evening, Steve, Sid, and Darice. Steve and Sid, as we anticipate new capacity built in 2016 and 2017, should we anticipate new capacity to adopt one emitter material initially, or they may jump into both red and green emitter material right away?

Hendi, it depends on the customer. It depends on the product. Sometimes it may adopt red and green, sometimes it may just be red initially.

And in terms of the capacity configuration, do you foresee them to make it easy to add the second color right away or the configuration may require them to spend some time if they want to increase?

I would think in general our customers realize that in order to compete you need to have phosphorescent and the more phosphorescent colors, the better.

Okay.

So I think as they build capacity, they have that in mind.

I see. I saw the development material sales show some increase both sequentially and year-over-year. Can you share some insight on that?

Well, development materials are ones that are early scale up materials. We send a lot of materials to our customers that they evaluate. We work directly with our customers. They give us some new specifications, or they tell us they'd like the materials to do this or to do that, and we are constantly developing new materials. Which ones get fully commercialized really depends upon if our customer wants them or not, but we really do customize what we do to meet our customer needs.

Okay. And then, Sid, with regards to the lower priced materials, are their gross margin comparable higher or lower?

We've been able to maintain our gross margins on emitters over the past, as I said, four years, and they've been within the 70% to 80% range. As materials go down -- as volumes go up and material pricing goes down, we do see efficiencies. So we believe we will be able to maintain margin profile for 2016 as we had in 2015. When you stated that margin profiles should be comparable in 2016, what is your assumption on host material sales in 2016 because the sales can move the needle one way versus another? We have very little host materials in our 2016 forecast.

Okay. Thank you.

Thank you.

Jim Ricchiuti.

It looks like looking at the last two years, the revenue concentration in the second half of the year has been creeping up, and it sounds like you're suggesting, again, more of a backend weighted year and toward the second half. What I'm curious about is if you look at your large licensee in the TV market, you see those revenues in Q1. Why would we continue to see this scale up in the second half of the year?

Well, it historically has occurred and I think from the TV side, they do build inventory for holidays, and that's where the big push comes. So I think that's part of it. And then what you'll see is them actually getting your manufacturing process up and running and build into some efficiencies so that they can make more and more product on those lines.

So if we think about since 2016, I guess in 2015, it was to 53% or so of your revenues came in the back half, and I'm not trying to pin you down to giving out guidance on the first half, second half, but I'm just trying to get a sense of is it going, to anticipate a significant shift in that profile in 2016?

I don't see a significant shift. We could probably pretty much see a gradual growth over the year.

Okay. Thank you.

Thank you.

Jed Dorsheimer.

Thanks. If I look at the Samsung licensing fee for 2016, it looks like it's moving up $15 million versus previously $10 million per year. Should we think of that in the same way for 2017, that it would be again likely $15 million increase or how should we think about that?

We only disclose one year at a time, Jed, so I obviously can't answer that question.

Okay. Thank you.

Thank you.

Nam Kim, Arete Research.

Hi, guys.

Hi, Nam.

I have one question on guidance. You guided to 15% growth, so about $220 million this year. Subtracting increments of $15 million from Samsung and then I assume $10 million at least from LG (technical difficulty) income. Now you are expecting only $5 million, but to your sales growth, it seems too conservative to me. LG just guided that they are more than doubling their OLED TV panel production. I'm curious on how you build your gross assumption. Any color would be appreciated.

Well, the one thing that you have to look at is, in 2015, we had $12.5 million of host material sales. And as we stated, we do not really expect to see much host material sales. Essentially, you really should be starting from a base of $180 million, not $191 million, because we don't have any host sales, or a small amount in our guidance. So there is going to be growth on the emitters and growth in the royalties and in the license fee.

Okay. Noted. Thank you.

Thank you.

Andrew Abrams, Supply Chain Market Research.

Hi, guys. Just one question specific to red. The function of new capacity would be pretty typically adding red and your red incremented a fair amount in fourth quarter. Was that a function of new capacity being added or was it a function of new red material replacing older red material?

Well, I think there's a little bit of new materials replacing older materials, but as we stated, there's a number of different efficiencies that can be made, and they have been using our green material in 2014 and recipe changes, product mix, and all of those other variables do affect it. But you're right. There was a significant increase in red this year compared to green.

Got it. Also, the work down of the LG pre-payments, are you still on schedule for where you thought you would be at that point?

Yes. The deferred revenue number -- that's really a good question. A deferred revenue number represents only a portion of the amount of the royalties that we will earn. While some of it's been drawn down, we do look at this every quarter. So the $10 million in the current deferred revenue only represents a small portion of the royalties that we expect over the next 12 months.

Got it. Thank you.

Thank you. And this will conclude our question-and-answer session. I would like to turn the program back to Sid Rosenblatt for any additional or closing remarks.

Thank you for your time today. We appreciate your interest and support, and we look forward to speaking to you all again next quarter. Good night, everyone.

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