Universal Display Corp (OLED) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Universal Display fourth-quarter and full-year 2016 earnings conference call. My name is Shayla, and I will be your conference operator. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Darice Liu, Director of Investor Relations. Please go ahead.

Thank you, Shayla, and good afternoon, everyone. Welcome to Universal Display's fourth-quarter earnings conference call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer, and Sid Rosenblatt, Executive Vice President and Chief Financial Officer.

Before Steve begins, let me remind you 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. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, February 23, 2017.

All statements in this conference call that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as those relating to Universal Display Corporation's technologies, and potential application of those technologies, the Company's expected results, as well as the growth of the OLED market and the Company's opportunities in that market. These include, but are not limited to, statements regarding Universal Display's beliefs, expectations, hopes, or intentions regarding the future.

It is important to note that these statements are subject to risks and uncertainties that could cause Universal Display's actual results to differ from those projected. These risks and uncertainties are discussed in the Company's periodic reports filed with the SEC, and should be referenced by anyone considering making any investments in the Company's securities. Universal Display disclaims any obligation to update any of these statements. Now I would like to turn the call over to Steve Abramson.

Thanks, Darice, and welcome to everyone on today's call. We are pleased to report that 2016 finished on a strong note. Fourth-quarter revenues were $74.6 million, operating income was $34.8 million, and net income was $25.8 million or $0.55 per diluted share.

Highlights of the quarter include: total emitter sales increased 25% sequentially; the adoption of our next generation emitters commenced; and we embarked on our next expansion phase with PPG Industries to double our phosphorescent emitter production capacity, which is expected to be completed in the third quarter of 2017. We have seen tremendous customer product roadmap activity in the pipeline for new emitters, the highest level of activity we have seen in our 20-plus year history. We believe this momentum and strength will continue to grow in 2017, and will mark our return to double-digit revenue growth.

Before reviewing the OLED activity in the display and lighting landscape that is expected to drive our multi-year growth cycle, let's reflect back on the year 2016 for a moment. This past year was filled with a number of Company accomplishments and events that built and reinforced our strong leadership position in the OLED ecosystem, including: new agreements in China; the introduction and adoption of new red and green commercial emitters; the expansion of our IP portfolio with new inventions and patents from our R&D teams, as well as the purchase of BASF's OLED IP assets; the acquisition of a new wholly owned subsidiary, Adesis, Inc., an organic synthesis contract research organization that is bolstering the acceleration of our new and next-generation emission systems, while continuing to grow its CRO business across all of its end markets; hitting new milestones with our R&D programs, including significant progress with our organic vapor jet printing tool, a groundbreaking technology that utilizes the industry's gold standard small molecule emitters in a scalable, maskless printing process, as well as significant progress with our new and next-generation reds, greens, yellows, and blue [emission] systems; and with a great demand for our proprietary emitters, new capacity plans to double our phosphorescent emitter production capacity at PPG.

It was also an exciting year for the OLED consumer electronics industry with the proliferation of OLED's penetrating new applications, such as the introduction of the world's first OLED gaming laptop by Alienware, new hybrid OLED laptops by Lenovo and HP, and even the use of OLED touch applications for ancillary functionality in PCs like the OLED touch bar, all of which received rave reviews, to the increasing number of mainstream products including new OLED wearables such as the Apple Watch Series 2, new smartphones including new Samsung Galaxy A, C, J and S models, new virtual reality, augmented reality OLED headsets, and new OLED TVs including LG's Magnolia 4K OLED TVs.

The expanding breadth of bright, beautiful, thin OLED products is captivating the consumer market, and driving adoption by new OEMs for new products. At CES last month, everywhere we looked we saw OLED products. Several smartphone brands including Asus and Huawei showcased their latest OLED smartphones. A number of the leading brands demo'd OLED TVs, including [Sang Hong], KONKA, Panasonic, Skyworth, and the newest OEM jumping on the OLED TV bandwagon, Sony. LG Electronics, the leading OLED TV maker, unveiled a number of 65 inch and 77 inch OLED TVs with special design features such as crystal sound, dual view, cylinder wall, ultraslim, and transparent TVs.

The coolest OLED TV I saw at the show was the LG Wallpaper OLED TV, breathtakingly beautiful. And at just 2.57 millimeters thin, less than a quarter of an inch, the TV almost hangs flush to any wall with the help of magnets. Magnets. Can you believe it? OLED technology is simply brilliant.

In addition to the mainstream consumer market, we are also seeing growing interest from the automotive market, not just for OLED lighting applications like tail lights, interior lighting, and indicator lights, but also for displays. Just last month at CES, Chrysler showcased its portal concept car with two OLED displays for the dashboard and infotainment center, and Visteon showcased a new 12.3 inch plastic flexible OLED prototype that can be used for instrument cluster or infotainment displays. This bustling end-market activity is setting the stage for our return to double-digit growth in 2017.

Admitted by many in the OLED ecosystem, from equipment makers to panel makers to OEMs, the OLED design pipeline is significantly broadening, from new product roadmaps for new market applications, new end users, and new consumer adoptees. This is fueling the multi-year CapEx cycle that is just beginning, with new investments and new capacity expected to come online for the foreseeable future.

As a key enabler and partner of the OLED industry, new capacity means new revenue opportunities for us. As we look out, we expect multiple waves of technology and capacity spending from mobile, IT, TV, and lighting, in addition to markets such as automotive, VR, AR, and wearables, and the development and advancement of plastic OLED panels from conformable to flexible to foldable to fully rollable OLED products, all of which is expected to pave UDC's positive growth trajectory for years to come.

To meet the growing appetite for OLEDs, our customers are investing in and building new capacity. Samsung is reportedly starting to install and ramp A3, its gen-6 flexible OLED fab, which currently runs approximately 15,000 plates per month, to its full capacity of 120,000 plates per month by the end of 2018. Once fully equipped, A3 is expected to almost double Samsung's square meters of OLED capacity. Additionally, there have been reports that Samsung is already looking to build its fourth OLED fab by converting one of its existing LCD production lines for another gen-6 flexible OLED line.

LG Display announced CapEx plans of over $3 billion to expand OLED production across the board. On the OLED TV front, LGD is on track with expanding its gen-8 OLED TV line from 34,000 plates per month to 60,000 plates per month in the second half of 2017. This will help LGD meet its target of increasing its OLED TV shipments from last year's approximate 900,000 units to about 1.5 to 1.8 million units this year. And for 2018, LGD expects its OLED TV shipment output to grow to 2.8 million units, capturing almost half of the premium TV market.

On the small and medium front, LG Display reaffirmed plans to start operations of its E5 production line, its first gen-6 flexible OLED line in Gumi in the third quarter of this year. In Taiwan, AUO continues to focus on wearables, virtual reality, and premium smartphones, while Innolux continues to demonstrate new rigid and flexible AMOLED prototypes at tradeshows. In Japan, with its recent inflows of capital, both Japan Display and Sharp are in the midst of building OLED R&D pilot lines with forecasts of OLED production to begin in 2018/2019.

And in China, BOE Technology, who has been producing small quantities of OLED displays, is reportedly investing over $10 billion in OLED pilot and commercial lines from its gen-5.5 pilot lighted orders for small and medium displays, and its gen-8 pilot line (inaudible) for its OLED TV R&D program. BOE's also completed construction of its first greenfield gen-6 OLED fab in Chengdu with ramp-ups slated to begin in the second half of this year and mass production to commence in early 2018. Additionally, BOE announced it will build a second gen-6 flexible greenfield OLED fab in Miangyang to commence production around 2019. And Tianma, who is also shipping small quantities of OLED displays, is reportedly planning to invest in a gen-6 OLED line in Wuhan in 2018/2019.

On the solid-state lighting front, 2016 presented further advancements of OLED lighting in the automotive market. From Volkswagen unveiling a new all-electric concept car using OLED taillights, to Audi who previously introduced the TTRS coupe with optional OLED taillights announcing that the new A8 will feature OLED taillights and a OLED display for the infotainment system. Most recently, our customers, Konica Minolta and Pioneer, announced an OLED lighting joint venture. This new venture will focus on automotive lighting, such as taillights and interior lighting, and specialty lighting applications for the beauty and medical markets.

From a capacity standpoint, it has been reported that LG Display is on track to complete the building of the world's first gen-5 OLED lighting fab to commence production this year. The opening of the OLED lighting fab is a significant milestone for the industry, and we believe this will help propel OLED lighting from the R&D stage to broader commercial adoption.

The future of OLEDs is bright. The drive by our customers to build capacity for the next wave of high-volume OLED production, and also advance the R&D work to further commercialize OLED technology to broader markets and applications, is creating substantial, long-term growth for the OLED industry and for us. Now let me turn the call over to Sid.

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

Revenues for 2016 were $199 million, up 4% year over year. Our core business, consisting of royalty, licensing, and emitter sales, grew 9% year over year. Royalty and license fees were $96 million, up 24% from 2015's $78 million.

Total emitter sales were $98 million in 2016 compared to $101 million in 2015 due to product mix. Total emitter shipments were up year over year.

2016's operating expenses, excluding cost of materials, was $104 million, up 8% from $96 million in 2015. The increase was primarily due to an increase in amortization expense from the acquisition of BASF's OLED IP assets and Adesis, Inc.

Operating income was $68.4 million compared to non-GAAP operating income of $65.3 million in 2015, which excludes the 2015 inventory write-down of $33 million primarily related to host materials. Net income was $48.1 million or $1.02 per diluted share compared to non-GAAP net income of $44.8 million or $0.94 per diluted share in 2015. For the year, we generated $80.3 million of cash from operations, or $1.73 of cash per diluted share.

Moving on to our fourth-quarter results, we had a solid quarter. Revenue for the fourth quarter of 2016 increased 20% year over year to $74.6 million from fourth-quarter 2015 revenues of $62.3 million. The total material sales were $29.2 million in the fourth quarter, up 5% from the comparable year-over-year's quarter of $27.8 million.

Commercial emitter revenue was $22.3 million, essentially flat year over year from fourth-quarter 2015's $22.1 million. Commercial host sales were negligible in the fourth quarter of 2016 compared to $1.3 million in the fourth quarter of 2015. Green commercial emitter sales, which include our yellow-green emitters, were $16.8 million in the fourth quarter, up 19% sequentially from the third-quarter 2016's $14.1 million, and up from the comparable year-over-year's quarter $14.3 million. Red commercial emitter sales were $5.5 million in the fourth quarter, down 2% sequentially from the third quarter of 2016 $5.6 million, and down from the comparable year-over-year's quarter $7.8 million.

As we have discussed in the past, material buying patterns can vary quarter to quarter. Some of the contributing factors to this include material ordering patterns, customer production efficiency gains, product mix, and contractual pricing reductions.

Royalty and license fees were $43.6 million in the fourth quarter, up 27% year over year. The quarter includes Samsung's $37.5 million license fee. The license fee, which was $75 million in 2016, is recognized in the second and fourth quarter of the year.

Material costs for the fourth quarter were $9.1 million, up year over year from the fourth quarter 2015's $8.1 million. The increase is primarily due to costs associated with the start-up and the manufacturing scale-up of our new materials. Material gross margin percentage was 69% in the quarter. For the year, material gross margins were 74%.

Fourth-quarter operating expenses, excluding cost of materials, was $30.7 million, up from last quarter's $26.8 million and up year over year from the comparable year's quarter of $27.6 million. Operating income was $34.8 million in the fourth quarter of 2016, up 31% from $26.6 million in the fourth quarter of 2015. Net income for the fourth quarter was $25.8 million or $0.55 per diluted share, up from the comparable year-over-year's quarter $18.1 million or $0.39 per diluted share. Shifting to the balance sheet, in the fourth quarter we generated $40 million of cash from operations, and built our cash and investment position to $343 million, or over $7 of cash per share.

Now looking to 2017, and based upon our current forecast, we expect 2017 revenues to grow to be in the range of $230 million to $250 million. Our revenue guidance includes Samsung's license fee, which is $90 million this year, which will be recognized in two equal installments in the second and fourth quarter of the year. We would note, as we have in the past, in a shift in industry momentum in either direction can impact our financial results. While quarterly material gross margins can vary quarter to quarter, we expect our overall 2017 material gross margins to be in the 70% to 75% range, which is consistent with the last few years.

Operating expenses of SG&A, R&D, and patent costs are expected to increase, in the aggregate, in the range of 10% to 15% year over year primarily driven by R&D. We expect the effective tax rate to be approximately 30%, give or take a few basis points.

We're excited to announce that the Board of Directors has approved Universal Display's first cash dividend. Dividend payment of $0.03 per share will be paid on March 31 to stockholders of record as of the close of business on March 15, 2017. Today's announcement reflects the Board of Directors' confidence in Universal Display's robust future growth opportunities, expected continued positive cash flow generation, and commitment to return capital to our shareholders. And with that, let me turn the discussion back to Steve.

Thanks, Sid. Looking forward, we see extremely positive momentum in our Business. We believe that we are well positioned to capture the tremendous opportunities in front of us. With our bustling customer pipeline, we have broadened and further increased the depth of our R&D team to respond to the exciting challenges and opportunities in the marketplace for today and tomorrow.

Leveraging our scale and over two decades of know-how, our foundational long-term R&D in phosphorescent OLED technology has positioned us to be able to [encolor], increase efficiency, and extend lifetime to meet the ever-increasing and changing market requirements. This includes designing PHOLED material systems and device architectures to meet the advancing display product design specifications. Additionally, we are accelerating our R&D roadmap for a cutting-edge OVJP deposition system and planning out future commercialization paths. As the next generation of lighting emerges, we continue to ramp our progress in stolid state OLED lighting development.

All of this is possible due to the world-class talent within Universal Display. I would like to take a moment to thank our employees for their continued commitment to excellence and innovation. I would also like to recognize our customers, partners, and valued shareholders for your continued support.

The OLED revolution is gaining strong momentum, and so are we. Our strategic initiatives and robust operating model have created a significant competitive advantage that translates to strong market leadership, revenue growth, and profitability. In summary, UDC is a trailblazer in the growing OLED market. We have the innovation, commitment to operational excellence, agility, and flexibility to drive the invention and development of the best OLED technologies and phosphorescent materials for our customers and our partners worldwide. On that note, operator, please start the Q&A.

(Operator Instructions)

Jim Ricchiuti, Needham & Company.

Thank you. I was wondering if you could talk a little bit about how we might see the adoption of the new emitter that you alluded to. Is this something that is going to scale gradually you think through the year?

We are pleased that we are shipping new red emitters. There are various emitters that are going to be shipped during various times during the year.

And it is difficult to predict when and how much any customer will purchase at any given time. And we do believe that the mix -- we do believe that the mix moving forward that we will be selling old materials and new materials.

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

Jim, that's a great question because we believe that there are new phases of capacity being installed throughout the year and into next year. But exactly when those lines are fully installed, when they will ramp up, when each line will ramp up and to what degree of utilization, it's difficult for us to predict.

This is still a moving target for us. So there are a number of variables that can either accelerate or slow down pretty much out of our control.

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

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

Okay, thanks. Congrats on the quarter.

Thank you.

Brian Lee, Goldman Sachs.

Hey, guys, thanks for taking the questions. I had a couple of I can squeeze them in. Maybe just on the quarter itself first, Sid, how big an impact did the new material of adoption have on Q4?

If we look at the numbers in the case, Samsung bought their largest sales dollar volume of materials from you guys basically since the day it's been out there. And your margins, as you acknowledge, are also a smidge lower than the target range because of the new materials being so. I was wondering if you can comment on how meaningful an impact the new materials had on the quarter and then also if you have visibility and in this impact going over into Q1 as well?

These are initial shipments. The majority of the material sold in the quarter was our existing materials.

Moving forward, we expect to sell new materials, but we continue to expect to sell existing materials because there are a number of different products that are made. And it's really based upon the customer orders. We do expect them to grow, but this is red and green emitters, but it's difficult for us to say how much at any given time it will be particularly this early.

Okay. Fair enough. And then the same questions around the guidance. The cadence of revenue, is there any color you can provide there?

Just if we look at what happened in 2016, it looks like you guys finished on a strong note per both years and Steve's comments. Q4 was seasonally stronger than we typically see, and then I think there was a lot of data points out in the marketplace that there are some major product launches in the OLED technology arena that might be closer to the first half, middle part of the year than their typical back half cadences. So for you guys specifically, do you see a somewhat different cadence of revenue in 2017, first half for versus back half, given some of that visibility?

Our guidance is really based upon conversations with our customers and forecasts taking into account looking at our own top-down model and bottoms-up model. Looking at those, it looks like -- it's difficult -- they real issue is it is difficult to predict when tools will be turned on. Clearly, there will be capacity coming online all during the year.

And it's probably weighted somewhat towards the second half of the year because based upon reports from the equipment companies, their delivering equipment in the first half of this year and the second half of this year. So it accumulates. So if they build it -- if they deliver in the first half, that's the up and running. And then you add some more in the second half, though I think is it weighted more towards the second half? Somewhat.

Okay. I appreciate that color, and last one if I could just squeeze it in. Congratulations on announcing this.

I'm curious on the $0.03 dividend, first time dividend here, it seems like you would have some capacity to do more. Just curious how you decided on the $0.03 dividend, and if there is -- or if there was of there still in is any consideration for a larger one-time dividend or any other shareholder return strategies as we move through 2017. Thanks, guys.

Thanks, Brian. A, we are very excited to declare a dividend. This is our first dividend, and we intend to continue to pay regular dividends quarterly going forward, and the Board will look at all factors.

We believe this is a good place to start. As I told you in the past, the Board of Directors looks at all options at the Board of Directors meetings. And we think this was the appropriate time to start the dividend process.

Mehdi Hosseini, SIG.

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

Would that be the right conclusion for me that, yes, there is conservatism in your material -- or implied material guide? And I have a follow-up.

As I stated before, our guidance is based upon all of our conversations with our customers and our own tops down and bottoms up model. We do have a range of $230 million to $250 million, and you can read into that whatever your you would like. I mean, this is a new industry.

Things take time to get started. Everything doesn't start exactly when we think, so we believe today that this is probably our best estimate. And then as capacity starts maybe sooner than we anticipated, as the year goes by, we will look at it -- we do look at it every quarter.

And we give you an update every quarter. So right now, we are very confident in our numbers of $230 million to $250 million for the year.

Regarding China and owned activities going on there, I imagine it would take some time for them to include manufacturing yield. And in that context, could it be reasonable to assume that incremental revenue from China is more focused on technology development and support?

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

John Quealy, Canaccord Genuity.

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

Are you referring to the PPG investment?

Yes.

Okay. Thank you. Steve can talk to that.

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

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

Okay. Great. A then maybe just a follow-up. Adesis saw some pretty good growth, maybe some of the sales and development you're putting into that. Should we expect similar growth there, or is there any seasonality?

As we expected, it is not going to move the needle, but we do expect to see growth in 2017 over 2016.

Okay.

We saw [$1.8] million in the fourth quarter. We expect it to grow, but as I said, it is not going to move our needle very much.

(Operator Instructions)

Rob Stone, Cowen and Company

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

We are constantly developing new materials, and we are developing new materials and we provide new materials to customers on a regular basis. And once they adopt a new emitter, we then go through the scale up process. So it will be ongoing particularly this year because we will -- there's a lot of expansion in the industry.

We expect new products to come out, which would have new materials. I don't anticipate much of a drag over all, if you want to put it that way. It just costs money to scale up. Our margins for the past -- our material margins for the past two or three years have been between 70% and 75%, and we fully expect 2017 to be in the same range.

Thanks. My follow-up question is with respect to the tax rate. It looks like Q4 came in somewhat below what we were thinking at least, and then your guide for 2017 is up from that.

First part of the question is, what happened in the fourth quarter? And then your relation to the tax rate going forward, are you still expecting because of your long-term tax planning to march that rate down in the coming years? Thanks.

The GAAP tax rate -- and again, we are talking about GAAP because for tax purposes, we are still using NOLs. The accounting for GAAP taxes is you do an estimate for the year, and then every quarter based upon your results you chew it up. And as you are aware, we have an [IRA] subsidiary that handles our material sales, and we also have revenue that comes into the US.

It does fluctuate quarter to quarter based upon your results. Once the subsidiaries are in a profitable mode, you do get some benefits from it. So it does change, and at year-end when you know what your final results are, you literally do a true-up for the year.

So Q4's tax rate has historically been a number that is either above or below what the average has been for the year. This is just simple accounting for international subsidiaries and the way it works.

We do expect to see our long-term tax rate continue to go down. And so we do expect 2018, 2019, and 2020 to be lower than the 30%.

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

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

Great. Thank you.

Andrew Abrams, Supply Chain Market Research.

Thank you. Hi, guys. Congratulations on the quarter. And, Sid, I thought when you were going through the color breakdown that you said something about emitter shipment volume as opposed to emitter shipment revenue.

Can you repeat that? Because that's sort of a new metric.

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

Okay. I just wanted to make sure I heard it correctly. And I know we don't usually get additional metrics.

We usually lose metrics. That's nice to be able to at least get some reference point.

Andy, we put that in for you.

Thank you very much. The green, I know it's difficult where you don't break out color in the green category, but can you give us -- I hate to use the word color -- but can you give us some color on how the green worked? Was a lot of the incremental green that you saw in fourth quarter coming from the adoption of regular green emitter from one of your customers, or was it what we would have expected from the TV business increasing, meaning the yellow-green side?

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

Okay. I tried. Thank you.

I can't give you the specifics.

That's it. Thanks very much. I appreciate it.

Thank you Andy.

Hendi Susanto, Gabelli.

Steve and Sid, congrats on strong finish to the year. So it's a exciting time for [all new] companies and doing all the display production. What is your assessment in terms of whether or not the new players may encounter barriers of entry in the form of patents for commercial production?

Just so I understand your question, new entrants into the market, are you talking about panel makers or material [finishers]?

Panel makers. So let's say if I'm a new panel maker and I want to enter quality spray production, will I need a lot of IPs? Or if I buy equipment and I think a little bit and it develops some, say, I can do that without licensing some of the commercial production related IP?

Hendi, what we are seeing right now is a great acceleration in the growth of the OLED ecosystem. The new panel makers are coming online, and they seem to be moving strongly. We are not hearing any sense of what you're talking about.

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

We have introduced new red and new green emissive material in the end of 2016, and we will introduce new red and green emitters during the year. Whether they are adopted, it really depends on each of our customers.

And the applications could be all over. We will sell material. We don't specifically know what every application would be since the customer's recipes and formulas are their own proprietary information.

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

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

I meant do they have both red and green?

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

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

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

Thank you.

Thank you, Hendi.

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

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

Thank you.

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