Universal Display - Earnings Call - Q1 2020
May 7, 2020
Transcript
Operator (participant)
Good day, ladies and gentlemen, and welcome to Universal Display's first quarter 2020 earnings conference call. My name is Sherry, and I will be your conference moderator for today's call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded for replay purposes. I would like to now turn the conference over to Darice Liu, Director of Investor Relations. Please proceed.
Darice Liu (Director of Investor Relations)
Thank you, and good afternoon, everyone. Welcome to Universal Display's first quarter earnings conference call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer, and Sid Rosenblatt, Executive Vice President and Chief Financial Officer. Before Steve begins, let me remind you that today's call is a property of Universal Display.
Any redistribution, retransmission, or rebroadcast of any portion of this call in any form without the 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 7th, 2020. During this call, we may make forward-looking statements based on the current expectations.
These statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic report, 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.
Steve Abramson (President, CEO, and Director)
Thanks, Darice, and welcome to everyone on today's call. We hope that you and your family are staying healthy and safe during these difficult times. In these extraordinarily challenging times due to the COVID-19 pandemic, we have been able to keep our employees safe, maintain our business operations, and continue our strategic growth programs. Our primary focus remains on the safety and well-being of our employees, customers, partners, and community. During the quarter, our crisis management and business continuity plans were activated.
Under our crisis management plans, we implemented measures to safeguard our employees, which includes modified work arrangements. And in our facilities, we are adhering to the recommendations from local and global health authorities to maintain a healthy and safe work environment. Our business continuity plans are mobilized to ensure our ability to continue our R&D programs and manufacture and ship to customers our energy-efficient, high-performing Universal PHOLED materials.
Our team is analyzing and preparing for various scenarios and fortifying our ability to adapt quickly to evolving and fluid situations. We are communicating and collaborating closely with our customers, partners, and suppliers, and are positioning the company for continued execution in these times of high uncertainty. Towards the end of the first quarter, as concerns about the pandemic increased and the environment deteriorated faster than anticipated, we worked with our suppliers to strategically build additional inventory of our proprietary materials and engage with our customers about advancing some material purchases.
Through the extraordinary efforts of our global team, which includes our Ewing headquarters, our international teams in Asia and Ireland, our subsidiary Adesis, and our foundry partner PPG, we have been able to safeguard the continuation of our business operations as a key enabler in the OLED ecosystem.
In this rapidly changing environment, it is challenging to make forecasts about future results. While our global supply chain remains solid and we have had no issues shipping materials to our customers, and our customers continue to manufacture OLED panels, there are concerns about constraints in the consumer electronics supply chain due to the pandemic. From a market standpoint, near-term demand visibility is unclear due to the tremendous uncertainties surrounding the consumer environment and the macroeconomic environment.
In light of all of this, we believe it's prudent to withdraw our 2020 guidance. When visibility improves, we expect to resume providing annual guidance. As we look ahead, we believe that the long-term growth path of OLEDs is unchanged and remains strong. Their timing and adoption may shift due to the macroeconomy.
Samsung and LG Display have both announced that they are planning to exit LCD TV panel manufacturing as they shift more of their business to OLEDs. It has been reported that some Chinese panel manufacturers will no longer invest in new LCD manufacturing fabs and are also shifting more of their focus to OLEDs for their future. In the consumer space, OEM interest in OLEDs continues to grow.
New adopters and new OLED products are materializing in the IT and TV segments, and in the smartphone market, we are seeing a bigger push to move OLEDs beyond the premium segment. During this time, we will continue to invest in our leadership position in the OLED ecosystem and expect to emerge even stronger to further enable our customers and the industry.
With a robust balance sheet of approximately $640 million in cash, a lean operating model, and no debt, we are continuing our R&D initiatives to help drive innovation and to capitalize on the opportunities in the market. We are also strategically increasing our headcount around the world to meet the growing long-term needs of the company and our customers. As we shared last year, we expanded our footprint in Asia with new offices and full application centers in Hong Kong and Korea.
Hong Kong has been open for several months now, while the labs in Korea are currently in their initial phase of qualification. Our R&D teams continue to discover, develop, and design new emissive materials and technologies, including new reds, greens, yellows, and hosts. On the blue front, we continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system.
We also continue to advance our work in organic vapor jet printing, our novel manufacturing process for OLED TVs. As we and our customers continue to invest in the future of OLEDs, we are also seeing the proliferation of OLEDs continue in the consumer electronics landscape. In the smartphone market, we believe 5G will help spur a replacement cycle in the premium smartphone market, a segment where OLED displays dominate.
Moving beyond the premium market, recent OLED smartphone launches such as the Honor 30 for $425 and the Samsung Galaxy M21 for under $200 is indicative, in our opinion, of the move of OLEDs to the mid-range and even the low end of the smartphone market. As more OLED capacity is built and ramped, we believe the proliferation of OLEDs into the mid-range and low end will accelerate. In TVs, Huawei recently launched its first OLED TV.
Last year, there were about 15 OLED TV makers in the world using LG Display panels. This year, an additional four new OEMs (Huawei, Xiaomi, Vizio, and Sharp) will launch OLED TV models, further broadening the landscape of OLED TV players and products. From a capacity standpoint, new OLED investments continue. It's been recently reported that China Star will invest in a second flexible OLED fab, T5, which is expected to be larger than its first OLED fab, T4. Its first OLED fab is currently in expansion mode and is expected to produce 45,000 Gen 6 panels per month when fully ramped.
Regarding China Star, we are pleased to announce that we signed long-term agreements with Wuhan China Star Optoelectronics, a subsidiary of TCL. Similar to our other long-term customer agreements, these are multi-year agreements that include a commercial material supply agreement and a license agreement.
I would like to thank the outstanding teams of both companies that worked diligently on these agreements while managing the challenges presented by current events. With respect to OLED lighting, we continue to believe that its benefits, including energy efficiency, novel and innovative form factors, beautiful natural light that best replicates sunlight, no glare, and cool operating temperatures, are all quite compelling for the commercial, residential, and niche markets, including automotive. On that note, let me turn the call over to Sid.
Sid Rosenblatt (EVP and CFO)
Thank you, Steve, and again, thank you everyone for joining our call today. Revenues for the first quarter of 2020 were $112.3 million, sequentially up from fourth quarter 2019, $101.7 million, and Q1 2019, $87.8 million. Included in this quarter's revenues were the recognition of $24 million from a Chinese customer who purchased safety stock in Q4 due to trade-related concerns, of which we estimate a portion was used during the March quarter.
As we discussed on last quarter's conference call, this safety stock had a return window that closed in March. Since our customers did not return any material, we recognized the full $24 million in the quarter. Note that the difference from the $25 million we discussed last quarter is due to revenue recognition rules under ASC 606. Also in the quarter is an estimated $20 million of revenue that were customer advance purchases due to COVID-19 uncertainty.
As Steve mentioned earlier, we discussed with our customer potential safeguard measures and suggested that some inventory building may be prudent. Our total material sales were $66.6 million in the first quarter compared to material sales of $60.8 million in the fourth quarter of 2019 and $54.5 million in the first quarter of 2019. Green emitter sales in the first quarter of 2020, which include our yellow-green emitters, were $52.6 million.
This compares to $47.5 million in the fourth quarter of 2019 and $41.6 million in the first quarter of 2019. Red emitter sales in the first quarter of 2020 were $13.9 million. This compares to $13 million in the fourth quarter of 2019 and $12.8 million in the first quarter of 2019. As we have discussed in the past, material buying patterns can vary quarter to quarter.
Some of the contributing factors include the COVID-19 issues that we've been discussing, as well as consumer product demand cycles, capacity ramp schedules, production loading rates, device recipes, product mix, material ordering pattern, customer inventory levels, and customer production efficiency gains. Since a number of these factors are moving variables for our customers, they are also moving variables for us.
First quarter 2020 royalty and licenses were $43.1 million. This compares to $37.8 million in the fourth quarter of 2019 and $30.3 million in the first quarter of 2019. First quarter 2020 Adesis revenues were $2.6 million. This compares to $3.2 million in the fourth quarter of 2019 and $3 million in the first quarter of 2019. Cost of sales for the first quarter of 2020 were $22.5 million. This compares to $18.2 million in the fourth quarter of 2019 and $15.8 million in the first quarter of 2019.
Cost of OLED material sales were $20.2 million, translating into material gross margins of 69.6%. This compares to 73.2% in the fourth quarter of 2019 and the comparable year-over-year quarter's material gross margin of 76.2%. As we have noted in the past, material gross margins can vary quarter to quarter. First quarter 2020 operating expense, excluding cost of sales, was $45.3 million, down from last quarter's $49 million and up year-over-year from the comparable quarter's $37.6 million.
Operating income was $44.5 million for the first quarter of 2020 compared to last quarter's $34.5 million, and year-over-year comparables quarter's $34.4 million. First quarter 2020 income tax rate was 18.6%. Without ASU 2016-09, our first quarter 2020 tax rate would have been approximately 19.5%. Net income for the first quarter of 2020 was $38.2 million, or $0.80 per diluted share.
This compares to last quarter's $26.4 million, or $0.56 per diluted share, and the comparable year-over-year quarter of $31.5 million, or $0.66 per diluted share. We ended the quarter with approximately $640 million in cash and equivalent, or over $13.50 of cash per diluted share. As Steve mentioned, due to the highly uncertain times related to the pandemic, we believe it is prudent to withdraw our 2020 annual guidance. As visibility clears, we expect to resume providing annual guidance.
And lastly, regarding our dividend program, with a robust balance sheet and strong positioning in the long-term OLED growth market, we intend to continue returning capital to our shareholders through our dividend program. Our board of directors approved a $0.15 quarterly dividend, which will be paid on June 30, 2020, to stockholders of record as of the close of business on June 15, 2020. The dividend reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders. With that, I will turn the call back to Steve.
Steve Abramson (President, CEO, and Director)
Thanks, Sid. While these are difficult times, UDC has established a business culture that demonstrates our ability to overcome challenges. Our journey from an R&D startup with less than a handful of people to a leading growth company has been filled with obstacles, breakthroughs, challenges, and unending persistence and vision. Fast forward almost 25 years, and that drive and ability to adapt to changing environments and dedication to hard work has evolved Universal Display into a successful international growth company that continues to broaden its technological and commercial horizons.
Notwithstanding the short-term uncertainties caused by this unprecedented pandemic, we remain confident in the long-term growth path of OLEDs. We are working closely with our customers as they map out their new product introductions for the coming years, and we are developing new OLED architectures and materials to support them.
With our extensive strengths in innovation, collaboration, and achievement, we are well-positioned to continue to play a critical role in the OLED revolution. I would like to take this opportunity to thank each of our employees for their drive, desire, dedication, and heart in elevating and shaping Universal Display's accomplishments and advancements. We are committed to being a leader in the OLED ecosystem, achieving superior long-term growth and delivering cutting-edge technologies and materials for the industry, for our customers, and for our shareholders.
Let me close with this: the human spirit is resilient. We have been inspired by the strength, resolve, and compassion that has materialized in the communities around the world. United, we will forge through these difficult times and emerge stronger to a bright future. And with that, operator, let's start the Q&A.
Operator (participant)
Thank you. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question is from Krish Sankar with Cowen and Company. Please proceed.
Krish Sankar (Managing Director and Senior Research Analyst)
Yeah, hi. Thanks for taking the question. I had two of them. First one, as Steve said, I understand you're not giving guidance. Can you give some qualitative statements on how you're seeing the demand profile in your customer base, especially in China and South Korea?
Sid Rosenblatt (EVP and CFO)
Thank you, Krish. Before I answer your question, let me reiterate Steve's introduction and hoping that everyone is staying safe and healthy during these unprecedented times. I also want to mention that Steve, Darice, and I are also social distancing on this earnings call from our respective homes, so pardon any of our technical glitches that may occur.
Now, in these uncertain times, we know it's difficult for all of you to try to forecast our near-term financials. We are all monitoring and assessing the various issues, including how long this pandemic will last, how much of an impact it will have on consumer demand and on the macroeconomic environment, and how long the recovery process will be and the shape that the recovery will be.
However, looking beyond the near-term impact of this global health crisis, we believe that the underlying long-term fundamentals of the OLED industry remain robust. Panel makers are looking to the future of display technology and are investing in OLEDs. From our perspective, we will continue to execute on all fronts: operational, R&D, and commercial during this period, and we expect to emerge stronger to further enable our customers and the OLED industry, and regarding the specific questions.
I mean, the utilization in the factories that we're seeing is obviously coming down, and we think that the consumer demand impact on our business and on the OLED industry itself. It's really difficult to forecast the magnitude and how long it's going to last, but it is going to impact us, and to be perfectly honest, the reason that we withdrew guidance is due to the uncertainties.
Krish Sankar (Managing Director and Senior Research Analyst)
Got it. Got it. That's helpful. And then as a follow-up, with these Commerce Department rules that came out last week, we'd be interested to hear your thoughts on how do you think it impacts your business, and would it have any impact on your non-China customers, i.e., would it be a positive for them? Any kind of color on that would be helpful. I understand it's a fluid situation. And also, glad to know that you and everyone in the OLED family is safe and happy.
Sid Rosenblatt (EVP and CFO)
Thank you very much. The things, the Commerce Department issues that were issued last week, we do not think it will have any impact on us at this time. We have seen no impact.
Krish Sankar (Managing Director and Senior Research Analyst)
Thank you.
Sid Rosenblatt (EVP and CFO)
Thank you.
Operator (participant)
Our next question is from Atif Malik with Citibank. Please proceed.
Atif Malik (Managing Director and Senior Technology Equity Research Analyst)
Hi. Thanks for taking my questions and good job in the tough environment in the March quarter. Sid, you talked about two components for the inventory building that's been happening in the supply chain starting last year with the safety stock, which was towards the trade tensions and then advanced purchases in the March quarter because of the COVID-19 disruption. Are you still seeing these two components or advanced purchases in the current quarter?
Sid Rosenblatt (EVP and CFO)
Yeah. The question is obviously the two issues. One is the safety stock was purchased in Q4 and the advanced purchases that we actually talked to our customers. So right now, the safety stock that was purchased last quarter, we believe that a portion of it was used during the quarter. It's probably less than half was used during the quarter.
In addition, what we believe of approximately $20 million that was advanced purchases by other customers or stockpiling, we think that it's prudent for them to do it. And if you look at what it really was in terms of if you look back at last year, we sold about our revenues about $400 million, and this represents about 5% or maybe three weeks' worth of material that was sold in the quarter. I think that our customers are very prudent in because no one knows what could possibly happen. So we contacted them, and we had some advanced purchases. So we're very comfortable where we are today.
Atif Malik (Managing Director and Senior Technology Equity Research Analyst)
Very helpful. As my follow-up, in your press release, you called for the company anticipates material disruption to industries that utilize OLEDs as part of your reason to withdraw the full-year guidance. I'm just trying to understand if this is like a risk statement or what do you exactly mean by material disruption?
Sid Rosenblatt (EVP and CFO)
I'm sorry. The question is material.
Atif Malik (Managing Director and Senior Technology Equity Research Analyst)
Yeah. You called for material disruption to industries that utilize OLEDs this year in the press release.
Sid Rosenblatt (EVP and CFO)
Oh, okay. Yeah. Well, I think we're talking about just COVID-19 and what impact it will have on the macroeconomic environment and impacting the demand side and then impacting our customers and in turn impacting us. So I think you're talking about this general risk factor.
Atif Malik (Managing Director and Senior Technology Equity Research Analyst)
Got it. Thank you.
Sid Rosenblatt (EVP and CFO)
Thank you.
Operator (participant)
Our next question is from C.J. Muse with Evercore ISI. Please proceed.
C.J. Muse (Senior Managing Director and Senior Equity Research Analyst)
Yeah. Good afternoon, and glad to hear all three of you are well. I guess first question, as your visibility improves to 5G builds, and you talked about not only high-end but moving to mid-level smartphones, curious if you're seeing any interesting changes in OLED material recipes? And as part of that, how are you thinking about the impact that might have on long-term pricing assumptions within your contracts for material pricing?
Sid Rosenblatt (EVP and CFO)
Material pricing is something that we build into our contracts, and we have all over the life of the agreement, and in terms of what we're seeing, each of the products may have different recipes that go into them, but I think it is something that we're always on top of because we're always providing new materials to our customers, and there's always new recipes, but Steve may want to just add a little bit to just talking about what new products and where they fit into our future are.
Steve Abramson (President, CEO, and Director)
We work very closely with our customers on the new product introductions. And obviously, we can't talk specifically about any one customer, but we have multiple projects working with the customers, and they have various recipes for each model that they use. So it's continuing to move in that direction. We're continuing to see more products out there, and therefore, you end up with more and different recipes.
C.J. Muse (Senior Managing Director and Senior Equity Research Analyst)
Okay. Thank you. I guess as my follow-up question, OpEx came in a little higher than I would have thought. I'm curious if there's any one-time items related to COVID, and as part of that, how should we think about OpEx trajectory through the rest of the calendar year? Thank you.
Sid Rosenblatt (EVP and CFO)
Thank you, C.J. Yeah, it is a little higher. However, as a leader in the OLED ecosystem, we will continue to invest in the long-term growth of OLEDs and in our position as a key enabler to our customers and the industry. Our OpEx guidance, excluding amortization, is 10%-15% year over year. There are no layoffs, and we are strategically increasing our global headcount to meet any of the needs. We really believe that quarter to quarter, sometimes these numbers go up and down, but overall, we're still comfortable with our estimate for the year of 10%-15%.
C.J. Muse (Senior Managing Director and Senior Equity Research Analyst)
Thank you.
Operator (participant)
Our next question is from Brian Lee with Goldman Sachs. Please proceed.
Brian Lee (Chief Risk Officer)
Hey, everyone. Thanks for taking the questions. Hope you're all doing well and staying safe. I had a couple here, I guess, just on the China Star contract. Is that a portfolio license, and is it similar to the other agreements you have in China, or would you say it's more like your fixed agreement with Samsung? And then in terms of duration, kind of a similar five, six-year timeframe as the other contracts you've announced in the past?
Sid Rosenblatt (EVP and CFO)
We're very excited to further our relationship with China Star, who you know is a subsidiary of TCL, and they are the second largest LCD manufacturer. The structure of all of these long-term agreements are similar as our other agreements. This is a multi-year agreement, which includes a commercial supply agreement and a license agreement. The financial terms, we don't disclose.
Brian Lee (Chief Risk Officer)
Okay. Fair enough. And then just on the advanced purchases here, you guys experienced this last year, so it's probably becoming, you're sort of old hat at it now. Is this all from China? Is it a pull forward from the second half like it was last year? I know the $20 million, it seems like it's smaller, so would you consider that to be more of a quarter versus last year? I think it was spread out over a couple of quarters.
Sid Rosenblatt (EVP and CFO)
Yeah. I think this advanced purchase of $20 million is a little different than in the past. I think this $20 million is from multiple customers, and we believe this is COVID-19 related. We actually are in contact with our customers just to ensure, just in case there were some disruptions in the supply chain, that everybody had what they needed. The $20 million, as I said a little bit earlier, based upon last year's revenue, is only about three weeks' worth of material. And this is different than the $25 million of BOE purchases, which were fourth quarter of last year.
Brian Lee (Chief Risk Officer)
Okay. Okay. Great. And then just maybe last one for me, I'll pass it on. With respect to Samsung and TVs, I think there's been a growing optimism around them getting back into OLEDs. Seems like there's been some recent chatter about Samsung debating between Quantum Nanodot technology and QD-OLED for its future TV roadmap. So just wondering if you had any thoughts or feedback, just bigger picture and longer-term thinking in terms of what you're expecting out there and then what the implications of QNED versus QD-OLED would be for you if Samsung decided to go one route versus another.
Sid Rosenblatt (EVP and CFO)
Yeah. Obviously, we can't speak for our customers, but to the extent that they use OLED technology, we think it's good for us and good for the overall OLED industry. And we've been working with Samsung for 20 years, so we're very pleased that they're getting back into the TV market.
Brian Lee (Chief Risk Officer)
Okay. Fair enough. Thanks, guys.
Sid Rosenblatt (EVP and CFO)
Thank you.
Operator (participant)
Our next question is from Shannon Cross with Cross Research. Please proceed.
Shannon Cross (Co-Founder, Principal, and Equity Research Analyst)
Hi. Yes. Thank you for taking my question. I'm just curious, given social distancing and the fact that you guys are so research-intensive, I'm just kind of curious as to how if there's been any impact to your R&D efforts or how you've been able to work around that. And then I have a follow-up. Thank you.
Sid Rosenblatt (EVP and CFO)
Thank you. UDC and our subsidiary, Adesis, and PPG are considered essential businesses. So we are staffed and operational, and some of our employees are working on-site, and some of our employees are working from home. Our top priority is safety and health of our employees. We have implemented a number of safety protocols for everyone in our facilities, including disinfecting and cleaning protocols, as well as strict social distancing, which does limit the overall number of people who can be in the lab at any given time.
Shannon Cross (Co-Founder, Principal, and Equity Research Analyst)
Okay. Great.
Sid Rosenblatt (EVP and CFO)
I'm so sorry. Under our business continuity plan that we put in place, we are continuing to run our R&D programs and ship customers our phosphorescent materials.
Shannon Cross (Co-Founder, Principal, and Equity Research Analyst)
Okay. Great. And then I was just trying to attempt to come up with a base-level revenue to think about for first quarter. And, Sid, is it fair to say that you had 112, you've just had 20 out that was pulled ahead, and then maybe about half of what was used by the customer that reported that had pulled ahead in fourth quarter, that maybe 80 is sort of a base-level revenue to think about and then look forward, or am I just off on how I'm thinking about it?
Sid Rosenblatt (EVP and CFO)
I mean, you are correct in terms of thinking about it. If you take whatever portion of the $25 or $24 from BOE and look at taking away the $20 million, pushing it out, it's difficult to predict what's going to happen. We know month-to-month demand really varies significantly from month to month. And with the initial activities that have occurred with all the uncertainties, it's hard to predict.
We do know that April was really weak, and how the full quarter will shape is really uncertain at this time. So I wish I could help you to try to figure out what the year is going to look like, but that's the real reason that we withdrew guidance because of all the uncertainties around how quickly things will turn around. We just don't know.
Shannon Cross (Co-Founder, Principal, and Equity Research Analyst)
Yeah. No, it's fair given everything. I mean, you're clearly not alone. Just one last question. When I think about how quickly, given supply chain challenges or logistics and shipping, I don't know, to our planes in the sky, if you had a demand coming from China or one of your other partners, is that something you think you could address fairly quickly if it did seem like, hopefully, we come out of this fairly soon and the world goes back to some semblance of normal?
Sid Rosenblatt (EVP and CFO)
Our supply chain, our global supply chain, is solid, and we are strategically building inventory to ensure that we can continue to meet all of our customer needs, and really, we are being prepared for whatever demand spikes may occur. We hope that they go up and soon.
Shannon Cross (Co-Founder, Principal, and Equity Research Analyst)
Us too. Thank you so much. Appreciate it.
Sid Rosenblatt (EVP and CFO)
Thank you.
Operator (participant)
Our next question is from Sidney Ho with Deutsche Bank. Please proceed.
Sidney Ho (Equity Research Analyst)
Great. Thank you for taking my questions. I got a couple. The first one is fully understanding the shutdown and the logistics were issues in China back in February and March. But can you talk about how business run rate have improved since China went back to work over the past few weeks? I think you just talked about April being very weak. Is that a comment on China or elsewhere? And to follow up on that with the withdrawal of the four-year guidance, is it fair to assume that's mostly demand-driven and supply logistics is not really a big factor here?
Sid Rosenblatt (EVP and CFO)
I think you are correct. It is demand-driven. So when you look at why we withdrew our guidance, we just don't know in terms of how quickly things will return. And it clearly is weighing, obviously, much heavier on the demand side versus the production side. And it's across the board. It's not one customer. It's not one location. I think everything is very weak.
Sidney Ho (Equity Research Analyst)
Okay. That's helpful. Maybe my follow-up question is, looking back in the past, you talked about OLED capacity growth between 2019 and 2021 could grow 50%. I mean, just based on the headlines, it seems like there are a few projects being delayed. Are you guys still thinking that 50% is doable? And if you can add some color around the geography or whatnot, that would be helpful. Thanks.
Sid Rosenblatt (EVP and CFO)
Yeah. Well, our OLED capacity model still calls for year-end 2021 installed capacity to increase by approximately 50% from the installed capacity at the end of 2019 as measured in square meters. While this forecast is unchanged, I think in this environment of high uncertainty, timing really could be affected. It's a very fluid situation. At the same time, we remain confident that long-term growth base of OLEDs is strong, with customers shifting more of their focus to OLEDs, including new capacity investment plans. And we continue to believe that we are in a multi-year growth CapEx cycle.
Sidney Ho (Equity Research Analyst)
Great. If I can squeeze in one more, last quarter, you talked about inventory digestion period kind of across the board. Can you give us an update there? I assume it's gotten worse with the demand falling off, but what areas do you see the most work that still needs to be done? And maybe by panel size, by geography, whatever metrics you can use would be great. Thank you.
Sid Rosenblatt (EVP and CFO)
I mean, demand is clearly an issue with everything. With consumers, people aren't going out and buying phones, and you're hearing folks like LG say that demand for TVs is being impacted. So I mean, it's across the board, and therefore, I think utilization rates are being impacted. And I can't say one area versus another because I do think it is across the board.
Operator (participant)
As a reminder, star one on your telephone keypad if you would like to ask a question. Our next question is from Jim Ricchiuti with Needham & Company. Please proceed.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Thank you. Good afternoon. Wondering if you could say when during the quarter these advanced purchases were made or whether it was over the course of several weeks from customers. It was more than two.
Sid Rosenblatt (EVP and CFO)
Yeah. It was across the board. And it was clearly as the COVID-19 issues became obviously more and more in the news. And on our February conference call, we talked about what we thought the impact would be in Q1 and Q2, which would be about 10% of our revenues. Subsequent to that, things obviously got much worse. And so that we were then contacting customers. So I think these purchases were more in the March timeframe. But right after the call, things really went to hell in the handbasket, to be honest.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Yeah. So Sid, it sounds like it was also a reflection of this spreading into the U.S. and all the uncertainty around that.
Sid Rosenblatt (EVP and CFO)
Yep.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Okay.
Sid Rosenblatt (EVP and CFO)
Yeah. It was, "Can you ship that stuff?" and making sure that they had everything that they needed. So we were in constant contact with our customers and trying to make sure that we can do everything we can do from our side to make sure that we met their needs.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
In the past, I think you guys have talked about the fact that you have folks at customer sites talking to customers fairly regularly. Given what's happened, what's transpired in China and Korea, is that becoming more challenging to get in front of customers, or is it just not that critical because you can?
Sid Rosenblatt (EVP and CFO)
Yeah. It's trying to understand. Yep. I'm sorry. Go ahead.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
I was going to say go ahead, please.
Sid Rosenblatt (EVP and CFO)
No, you finish. Please, Jim.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
What I was going to say is, does it make it harder to sometimes understand inventory levels at customers if you may not have as direct contact? Or maybe I'm misinterpreting it. Maybe you have the same level of contact that you're having with all of these customers to understand where inventory levels are, where utilization rates are. Sorry. Go ahead, please.
Sid Rosenblatt (EVP and CFO)
Yeah. We're all connected via technology. So communicating with our customers, partners, and suppliers has really not been disrupted during this pandemic. Both headquarters and our local teams are engaged with customers on a continuous basis. And with the recently opened new offices, the State of New York Application Center in Hong Kong and Korea, we also have a broader breadth of services and solutions available locally for our customers.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Got it. And my last question is just trying to reconcile some of the commentary that you're making about utilization rates and weakness. We are hearing, I think, anecdotally, about activity picking up in China in March and the semiconductor and parts of the industrial market and some of that strength continuing in April. So I'm wondering, what may be different than what you're seeing? Is this potentially more a reflection of some of the larger drivers to the OLED market in the mobile space?
Sid Rosenblatt (EVP and CFO)
I think that in China, there were a number of the fabs that were running, and there were lots of logistical issues because of travel restrictions that were placed in China. And I think that impacted their ability and their utilization rates. I think now that that's lifted, things will turn around. But we were hearing things getting better, as you said, anecdotally, but having more manpower and the ability for folks to go to work is really what's needed. And that's what's happening now, but we have not seen it in the past.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Okay. Can I ask one quick question?
Sid Rosenblatt (EVP and CFO)
Sure.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
How are we doing with Blue?
Steve Abramson (President, CEO, and Director)
We're making excellent progress.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Thank you, Steve.
Steve Abramson (President, CEO, and Director)
As you know, we're really encouraged by continued progress, but until we meet initial commercial specs, though, we really don't intend to provide specific details.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Okay. Thank you.
Steve Abramson (President, CEO, and Director)
Sure.
Jim Ricchiuti (Managing Director and Senior Equity Research Analyst)
Thank you.
Operator (participant)
Our next caller is from Andrew DeGasperi with Berenberg Capital Markets. Please proceed.
Andrew DeGasperi (Equity Research Analyst)
Thanks. I just had a quick question. I know the situation is a bit unprecedented, but I was just wondering, when we look at your royalty and licensing revenue, I know historically you said in the past you were expecting that one and a half to two to one ratio versus material sales. Given what's happening on the material sales side, should we see that ratio continue to be that linear, or should it diverge from that?
Sid Rosenblatt (EVP and CFO)
The material to royalty ratio is really dependent on our customer mix. Because of global uncertainties, it's difficult to forecast. However, based upon our history, the ratio is typically oscillated between 1.5-to-1 and 2-to-1. So I think it's in that ballpark.
Andrew DeGasperi (Equity Research Analyst)
Just to follow up, I mean, with the new agreement, that should still be the case, right, with China Star?
Sid Rosenblatt (EVP and CFO)
Without talking about it, these agreements that we have are pretty much all material supply agreements and license agreements. So this agreement is similar to the other agreements that we have in place.
Andrew DeGasperi (Equity Research Analyst)
Got it. And sort of an accounting question, but has there been any change in terms of the collections you receive from your customers, or has that sort of been relatively steady as usual?
Sid Rosenblatt (EVP and CFO)
I'm sorry. It broke up a little bit. I didn't hear. What was it from our customers?
Andrew DeGasperi (Equity Research Analyst)
Generally, accounts receivable, collections, are you seeing any extension of those terms or any delays, or has that been relatively unchanged?
Sid Rosenblatt (EVP and CFO)
No, they were up, obviously, because of the BOE revenue that we took in Q1 that was shipped in Q4. And I think everybody's a little slower in paying, but I don't think that there are any issues that we see. To be honest, AR in April was down a little bit from March.
Andrew DeGasperi (Equity Research Analyst)
Great. Thank you so much.
Sid Rosenblatt (EVP and CFO)
Thank you.
Operator (participant)
And our next question is from Nam-Hyung Kim with Arete Research. Please proceed.
Nam-Hyung Kim (Senior Analyst)
Hi. Thank you for taking my question. I'm sure you have some project going on in IT panel side, meaning notebooks and monitors. Just wanted to get your thoughts and view of the long-term growth picture here. What portion of your revenue would be IT panel related by the end of next year or even in three years?
Steve Abramson (President, CEO, and Director)
Nam, this is Steve. We think that TV penetration is very low right now. It's about 1% of that total market. So we do think that there's significant room for growth. If you look at the smartphone business, being about a third of the smartphone market is OLED. So we think that there's a really nice opportunity for growth in this segment.
Nam-Hyung Kim (Senior Analyst)
Okay. Thank you.
Sid Rosenblatt (EVP and CFO)
Thank you, Nam.
Operator (participant)
Our next question is from Andrew Abrams with SCMR. Please proceed.
Andrew Abrams (Research Analyst)
Hi guys. Just a question about PPG. Have you seen any issues with PPG, meaning PPG having difficulties getting basic materials or some of the rare earth materials that you use? and has that been an issue at all for you over the last quarter or so?
Sid Rosenblatt (EVP and CFO)
PPG is considered essential as we are. The production is moving forward. There are no issues in terms of having materials or sourcing materials either from China or from India or from anywhere else. We have kept a supply chain that has multiple sources. In addition, we have inventory of raw materials built up. We don't believe that there has not been, and we see no issues at all for the foreseeable future in the rare earth materials. How's your health?
Andrew Abrams (Research Analyst)
Much better. Thank you. I appreciate it. Thanks a lot.
Sid Rosenblatt (EVP and CFO)
You're welcome. All right.
Operator (participant)
And we do have a follow-up question from C.J. Muse with Evercore ISI. Please proceed. C.J., please check and see if your line is muted. C.J., we're unable to hear you.
C.J. Muse (Senior Managing Director and Senior Equity Research Analyst)
Hey, I'm sorry about that.
Steve Abramson (President, CEO, and Director)
There you go.
C.J. Muse (Senior Managing Director and Senior Equity Research Analyst)
Just a follow-up question on the 1.5-2.0 relationship. Does that change at all? You talked about really customer mix driving it, but does that change at all if a customer is building inventory? The treatment of how you book materials and therefore royalties, does that change at all?
Sid Rosenblatt (EVP and CFO)
It does not. Based upon 606, you figure out over the life of the agreement how much you expect to sell. And whenever you sell a gram of material, you report that, and you report the corresponding license fee or royalty with that. So it doesn't matter what the purpose of the purchase is. It's a formula that you use for every gram that you ship.
C.J. Muse (Senior Managing Director and Senior Equity Research Analyst)
Okay. And just one last follow-up there. In the prior years, talked about ASC 605 versus ASC 606, but now we're just not going in that direction. Should we assume that we'll be just talking under the new accounting treatment and not going over the historical from here?
Sid Rosenblatt (EVP and CFO)
Yeah. I think that at this point, it's not meaningful to break it out. Over the last few quarters, you've seen that the two are pretty much close to each other. And most companies aren't doing it. And most companies, actually, SEC requires you to do it for one year. We did it for two years just because of our business model. But we don't think it's meaningful at this point. So we do not intend to give 605 results.
C.J. Muse (Senior Managing Director and Senior Equity Research Analyst)
Okay. Thank you.
Sid Rosenblatt (EVP and CFO)
Thank you, C.J.
Operator (participant)
Thank you. This concludes the question and answer session. I would like to turn the program back over to Sid Rosenblatt for any additional or closing remarks.
Sid Rosenblatt (EVP and CFO)
I'd like to thank you all for joining the call today. And we appreciate your interest as always. And we want all of you to stay healthy and safe. Thank you.
Operator (participant)
This concludes today's call. You may now disconnect and have a great night.