Universal Display Corp

NASDAQ:OLED

Earnings Call Analysis

OLED Tech Firm Projects Growth Amid Challenges

In 2023, the company reported revenue of $576 million, with a net income of $203 million, translating to $4.24 per diluted share. Soft consumer spending affected the figures, but the company strengthened its partnerships and expanded its material production. Although the fourth quarter saw a dip in emitter sales and a decrease in gross margins from 82% to 77%, they remain optimistic. With new agreements, such as with BOE Technology Group and a significant $9 billion investment underway for new production facilities, the company expects to ride an 'exciting new multiyear CapEx cycle.' Market analyses predict OLED growth across various industries, supporting a positive outlook for the company. For 2024, they project revenues between $625 million and $675 million, total gross margins around 76%-77%, with operating expenses increasing by 10%-15%.

Revenue and Net Income Decline Amid Market Softness

Despite a backdrop of soft consumer spending in the smartphone and premium TV markets, the company closed the year with $576 million in revenue, $217 million in operating income, and net income of $203 million, which equated to $4.24 per diluted share, all figures representing a decrease from the previous year. Nonetheless, the company strengthened its strategic position through new multiyear agreements with BOE Technology Group and by opening a new manufacturing site in Shannon, Ireland.

Investing in Future Growth through Acquisitions and Innovation

The company bolstered its intellectual property and production capabilities with the acquisition of Merck KGaA's phosphorescent emitter portfolio, adding more than 550 patents and 172 patent families, all while being recognized for its commitment to board diversity and leading the charge towards energy-efficient OLED solutions. A commercial phosphorescent blue, expected by 2024, could further cement the company's market leadership.

Market Expansion Projections for OLED

The industry growth outlook is optimistic, with smartphone OLED panel shipments forecasted to reach 855 million units by 2030 reflecting a compound annual growth rate (CAGR) of 5%. This is alongside projected growth in the OLED tablet and monitor markets, with foldable smartphones anticipated to capture about 5% of the smartphone market by 2027. The company's installed OLED capacity grew by 11% in 2023, with a 10% increase expected by 2025.

Financial Performance in Detail

In a more granular analysis of the financial results, 2023 material sales comprised $322 million of the year's total revenue, with royalty and license revenues at $238 million and Adesis revenues at $16 million. Gross margins contracted slightly from 79% in 2022 to 77% in 2023 due to factors including a reduction in cumulative catch-up adjustment and changes in customer mix. Operating expenses saw a modest increase, while operating income dipped, leading to overall operating margins of 38%.

Q4 2023: A Reflective Microcosm

In the fourth quarter of 2023, revenue decreased by 6% year-over-year to $158 million, and net income saw a slight drop to $62 million or $1.29 per diluted share. The quarter's financial dynamics echoed the full-year trend with reduced gross margins influenced by catch-up adjustments and a decline in operating margins from prior year levels.

Looking Ahead to 2024: Growth Expectations

For 2024, revenue is expected to be in the range of $625 to $675 million with the ratio of materials to royalty and licensing revenues estimated at 1.5:1. Total gross margins are anticipated to remain consistent at approximately 76% to 77%. Operating expenses will likely increase by 10% to 15% year-over-year, and operating margins are projected between 35% and 40%. An increased dividend payment of $0.40 per share signals confidence in the company's growth trajectory and commitment to shareholder returns.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Fourth Quarter and Full Year 2023 Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call.

[Operator Instructions]

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Darice Liu, senior Director of Investor Relations. Please proceed.

[Darice Liu, executive]

Thank you, 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 Brian Millard, Vice President and Chief Financial Officer.

Before Steve begins, let me remind you 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 expressed 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 22, 2024.

During this call, we may make forward-looking statements based on 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 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.

[Steven V. Abramson, executive]

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

We'll begin with a recap of 2023 and then provide insights into the vast array of opportunities that are fueling our and the OLED market's strong trajectory. Our 2023 revenue was $576 million, operating income was $217 million, and net income was $203 million or $4.24 per diluted share. Fourth quarter revenue was $158 million, operating income was $65 million and net income was $62 million or $1.29 per diluted share.

While soft consumer spending in the smartphone and premium TV markets tempered our 2023 financial results, we continue to foster our strong partnerships, advance our strategic and operational initiatives, enhance our corporate culture and fortify our leadership position in the OLED ecosystem. During the year, we announced new long-term multiyear agreements with BOE Technology Group. We celebrated the grand opening of our new manufacturing site in Shannon, Ireland. This [indiscernible] broadens our global footprint that is designed to produce red, green and blue phosphorescent emissive materials. We further enhanced our global IP framework with the acquisition of Merck KGaA's phosphorescent emitter portfolio of more than 550 patents and 172 patent families.

2023 was also another year of continued recognition for our company. We were named to The Wall Street Journal's list of Best Managed Companies recognized by Newsweek as one of America's greenest companies, awarded a silver rating for corporate social responsibility from EcoVadis and recognized again by the form of executive women as a champion of Board diversity. As a pioneering leader, we are at the forefront of energy-efficient OLED material solutions and best-in-class enabling OLED technologies. We continue to make excellent progress in our ongoing development work for a commercial phosphorescent blue emissive system.

We continue to believe that we are on track to introduce a phosphorescent blue that meets commercial specifications into the market in 2024. We believe the expansion of our phosphorescent portfolio that includes red, green and blue phosphorescent emissive materials will unlock a vast array of opportunities for higher energy efficiency and higher performance across a broad range of OLED applications.

We also achieved multiple OVJP milestones during the year, including the printing of the world's first-ever high-resolution RGB side-by-side full ad stack with comparable performance to vacuum thermal evaporation. Looking ahead to 2024 and beyond, we anticipate growth as we capitalize on the investments we're making and the extensive range of opportunities that lie before us, including the commencement of an OLED IT adoption cycle, further penetration in the smartphone market, including the rise of foldables, OLED TV growth, the burgeoning OLED automotive market as well as AR/VR wearables, gaming and [indiscernible]. We are well positioned to enable the continued proliferation of OLED's across the consumer landscape and to drive value for our customers.

Market research firm Omdia foresees OLED growth in multiple consumer electronic markets in the coming years and forecast that. Smartphone OLED panel shipments will increase to 855 million units in 2030 with a CAGR of 5% from 2023 as more mid-range phone OEMs design in OLED as a preferred display of choice. We estimate that OLED penetration in the smartphone market will increase from today's approximately 50% to 65% in 2030. For foldable smartphones, TrendForce forecasted shipments will increase from 18.3 million units in 2023 to approximately 70 million units in 2027, capturing about 5% of the smartphone market.

According to Omdia, OLED tablet shipments are expected to reach 32 million units in 2030 for a CAGR of 37%. OLED notebooks are expected to increase to 58 million units in 2030 for a CAGR of 51%. We have already seen brands like Samsung, Lenovo, HP, Dell, ASUS and Xiaomi adopt OLED into their PC product portfolio, and we expect the trend to continue. OLEDs make up an estimated 2% of today's global PC and tablet market, but by 2030, that penetration rate is expected to increase to approximately 20%. We Note that this does not include OLED monitors, which are currently less than 1% of the PC monitor market. Omdia forecast that OLED monitor units will grow from less than 1 million units in 2023 to close to 5 million units in 2030. OEMs increasing interest in OLED monitors where it's evident at last month's CES where there was a strong showing of new OLED monitors, including a number of models geared for gaming.

In the OLED TV market, Omdia is forecasting 12 million units in 2030 for a CAGR of 11% or approaching an estimated 6% penetration of the TV market. The automotive OLED end market is a nascent opportunity where momentum is beginning to build. Continental automotive notes that in addition to being aesthetically pleasing to users because of the brilliant deep black background for contrast, impressive wide color space, a 180-degree viewing angle and slim design, OLED displays are also highly sustainable and energy saving. Omdia forecast that OLED shipments for the automotive market will increase to 13 million units in 2030 for a CAGR of 42%. OLEDs are also being designed as car taillights. During CES, OLED works showcased its latest OLED lighting technology for the automotive industry. From an OLED capacity standpoint, the proliferation of OLEDs in these diverse market verticals is expected to drive utilization rates up and prompt new OLED capacity to be built. We estimate that 2023 installed base of OLED square meter capacity increased by approximately 11% over year-end 2021 as a soft macro weigh on install plans. Market research from DSCC estimates that OLED utilization rates were on average 57% in 2023.

As we look out, we estimate that year-end 2025 installed OLED capacity is measured in square meters, will increase by approximately 10% over year-end 2023. This forecast includes Samsung's $3 billion investment and the first phase of BOE's $9 billion investment for the respective new Gen 8.6 IT fabs. These new plants are slated to begin production in [ 2026 ]. We believe that we are embarking on an exciting new multiyear CapEx cycle and anticipate additional new OLED fab investment announcements.

And on that note, let me turn the call over to Brian.

[Brian Millard, executive]

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

Let me review our 2023 results before commenting on our guidance for 2024. 2023 revenue was $576 million, a decrease of 7% year-over-year. Material sales were $322 million. Royalty and license revenues were $238 million, and Adesis revenues were $16 million. Our 2023 revenues included a cumulative catch-up adjustment of $11 million compared to $30 million in 2022. 2023 gross margins were 77% for the year compared to 79% in 2022. 2023 operating expenses were $224 million compared to $222 million in 2022. During the year, we continued to invest in a number of operational and strategic programs including our phosphorescent emissive materials and OLED technologies, our groundbreaking OVJP manufacturing platform, growing our global team and expanding our infrastructure, including the purchase of our Shannon manufacturing site as well as investments in our Asia footprint and R&D innovation center.

Our 2023 operating income was $217 million, which translates into operating margins of 38%. 2023 net income was $203 million or $4.24 per diluted share. We ended the year with $800 million in cash, cash equivalents and investments.

Now moving on to our fourth quarter results. Revenue for the fourth quarter of 2023 was $158 million, down 6% from $169 million in the fourth quarter of 2022. Fourth quarter 2023 revenue includes a cumulative catch-up adjustment of $5 million compared to $13 million in Q4 of 2022. Material sales were $82 million in the quarter compared to $88 million in the fourth quarter of 2022.

Green emitter sales, which include our yellow-green emitters, were $63 million in the fourth quarter of 2023, which compares to $67 million in the fourth quarter of 2022. Red emitter sales were $18 million, which compares to $22 million in the fourth quarter of 2022. As we have discussed in the past, material buying patterns can vary quarter-to-quarter. Fourth quarter royalty and license fees were $73 million, which compared to the prior year period of $76 million.

Adesis revenue for the fourth quarter of 2023 was $3.2 million compared to $5.1 million in the fourth quarter of 2022. Fourth quarter cost of sales was $36 million, translating into total gross margins of 77%. This compares to $30 million and total gross margins of 82% in the fourth quarter of 2022. Fourth quarter gross margins decreased primarily due to the change in cumulative catch-up adjustments between periods and customer mix.

Fourth quarter operating expenses, excluding cost of sales, were $58 million. This compares to $56 million in the fourth quarter of 2022. Operating income was $65 million in the fourth quarter of 2023, translating into operating margin of 41%. This compares to the prior year period of $83 million and operating margin of 49%. The fourth quarter 2023 income tax rate was 18%. Net income for the fourth quarter was $62 million or $1.29 per diluted share. This compares to the fourth quarter of 2022 $65 million or $1.36 per diluted share.

Now turning to our outlook. Looking to 2024, as Steve mentioned, there are a number of key growth drivers for the OLED industry and for us. We expect our 2024 revenues to be in the range of $625 million to $675 million. We estimate that our 2024 ratio of materials to royalty and licensing revenues will be in the ballpark of 1.5:1. Total gross margins are expected to be approximately in the range of 76% to 77%. Operating expenses are expected to increase by 10% to 15% year-over-year with R&D and SG&A both expected to be up by 10% to 15%.

2024 operating margins are expected to be in the range of 35% to 40%. We expect the effective tax rate for 2024 to be approximately 20%. And lastly, we are pleased to announce that the Board of Directors has approved an increase to our quarterly cash dividend. A dividend payment of $0.40 per share will be paid on March 29, 2024, and to stockholders of record as of the close of business on March 15, 2024. The dividend increase reflects the confidence in our robust future growth opportunities, expected continued positive cash flow generation and commitment to return capital to our shareholders.

With that, I'll turn the call back to Steve.

[Steven V. Abramson, executive]

Thanks, Brian. We believe that we are well positioned for long-term market leadership and long-term profitability in the growing OLED market. With our extensive experience and unwavering focus on innovation and execution, we are pushing the boundaries of what's possible, driving forward breakthroughs and advancements in our phosphorescent material and OLED technology road maps, fostering a corporate culture of inventiveness, integrity, inclusion and collaboration and are building on our robust first [ mover ] position in the OLED ecosystem. As we approach the 30th anniversary of UDC's founding, we are excited to reach even greater heights in the future and continue to make a lasting impact in the industry.

I would like 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.

And with that, operator, let's start the Q&A.

[Operator]

[Operator Instructions]

Our first question is from Brian Lee with Goldman Sachs.

[Brian Lee, analyst]

I had a question, I guess, just on the blue commercialization trajectory, that sounds like it's on track with your targets for some time this year. Can you kind of give us a sense of '24, it seems like a pretty critical year in terms of the blue becoming a bigger part of our business model going forward. What are some of the milestones targets you'd like to achieve this year beyond just hitting commercial specs. So would that include like a contract with the customer, would that include getting pricing sheets out? Like what are other milestones that could be achievable or that you're targeting beyond just getting to the commercialization specs.

[Brian Millard, executive]

[indiscernible] performance of our blue material. We've seen over the course of last year, continued performance, each generation of material that we've introduced to our customers. So we're on the right path. We feel very confident with the progress that we've made to date and where we see ourselves going over the course of this year. But I think it's really continuing to improve upon those performance specifications. There's -- as you said, there's contracting details and pricing details, but we're confident that at the time those need to be sorted out, they will.

[Brian Lee, analyst]

Okay. Fair enough. And then just embedded in your guidance, I know it's still a wide range, $625 million to $675 million. Presumably, you're not embedding a lot of blue revenue in that guidance range. Is that fair? And I mean are you even assuming any growth of the kind of high single-digit millions of revenue you did in blue for 2023, any growth at all in your guidance embedded for blue for '24?

[Brian Millard, executive]

There is growth assumed in blue development. We had $5.6 million in revenues in 2023. And we do expect growth off of that number in 2024. But as you said, it's not a significant component of our guidance overall.

[Brian Lee, analyst]

Okay. Great. And then last one for me, I'll pass it on. I might have missed it, but the -- two questions on gross margin. I guess, Brian, can you kind of walk us through the mechanics of how the $5 million catch-up revenue in the quarter impacts the gross margin reported by as much as it did? And then secondly, presumably it wouldn't continue to repeat unless you have catch-up revenue later in this year. So what's sort of the targeted range of gross margin for materials we should expect in 2024?

[Brian Millard, executive]

Yes. Good question. Our 2024 guidance that we just stated in our prepared remarks was 76% to 77% for total gross margin. So that assumes essentially 0 cumulative catch-up revenue. And so there was a period-over-period flip in cumulative catch-up revenue between 2022 and 2023. And as you said, in Q4 of '23, we did have $5 million of cumulative catch-up revenue. And so those are the pieces to think about.

[Operator]

Our next question is from Krish Sankar with TD Cowen.

[Sreekrishnan Sankarnarayanan, analyst]

I have a couple of them, Brian, I'm just kind of curious on your gross margin guidance. If I look at over the last few years, your gross margin has been higher like, I would say, has been coming down. Is this a function of some of your Chinese customers yields getting better? Or is there something else going on? Why is gross margin kind of more in the mid- to high 70s versus historically being well above that?

[Brian Millard, executive]

Yes. Krish, so on gross margin, there's a couple of factors at play. One is, from a top line perspective, as we sell more units of material to our customers, there's volume pricing dynamics incorporated in each of our customer contracts. So some of it is just the fact that as the industry grows, we're selling more volume. The per unit price does come down just based on those volume pricing dynamics as well as some of our materials are more -- becoming more complex in nature. So some of the cost structure elements are also changing. So that's, I think, some of what you've seen over the last few periods is really as the industry scales and we scale with it, there has been a slight pressure on gross margin. But it's something we spend a lot of time as a management team focusing on both the top line aspects as well as the cost structure and making sure that we're being as disciplined as we possibly can.

[Sreekrishnan Sankarnarayanan, analyst]

Got it. Got it, right. And then one other question, I just wanted to follow up. I understand the visibility is limited, but your spread in your FY '24 revenue guidance growth of 8% to 17%. Is it [indiscernible] to help us understand the puts and takes like what is baked into the lower end versus what is baked in the upper end in the $50 million, what could surprise us?

[Brian Millard, executive]

Yes. I mean, I think we obviously have a base case that assumes growth across a number of segments. We certainly expect the IT segment to grow in '24 based on some of the factors that play there as well as TV, mobile and automotive and others. So it's kind of across the board growth that we're projecting. And I think the high side and the low side of that are really just based on potential other factors that might cause things to vary.

[Operator]

Our next question is from Atif Malik with Citi.

[Atif Malik, analyst]

I have a question on the full year guide. If I look at your high end of the guidance, is it still below the high teens OLED materials growth that some third parties like [ DCCR ] is projecting. So I'm wondering if you can pull the curtain a little bit on what goes into your guide and why is it below the industry growth for OLED materials? And are you just being conservative?

[Brian Millard, executive]

Yes. So I wouldn't say there's necessarily conservatism baked into our forecast. We think it's a balanced guidance range and balanced forecast that we have. So it's really based on the feedback that we get from our customers in terms of what their expected demand is going to be as well as we look at the similar industry reports as you in terms of where the industry is going and also layer that intelligence on top of what we're hearing from our customers and our teams in the field. So when we kind of rolled all that up this year, we got to the range that we published in terms of our guidance for '24. We certainly hope you're right, and it's higher. But at this point, this is what we're seeing as we roll up our forecast from our field teams.

[Atif Malik, analyst]

Great. And as my follow-up, we've been hearing noise around some of your Chinese customers working with domestic private companies like Summer Scout Technology and Shanxi. And I understand you guys have long-term agreements with your Chinese customers. So can you just talk about the competitive dynamics in China? And is there a risk of some of these domestic suppliers are getting qualified?

[Steven V. Abramson, executive]

Well, we are seeing some localization coming from the Chinese government, they are trying to get some localization in the OLED industry. But what we -- what we're seeing is that customers want our full suite of current and next-generation OLED materials and technology solutions, which is one of the reasons why all these major panel makers are working with us and have signed long-term agreements because we work closely with our customers to understand all the specification requirements that they have today and into the future.

[Operator]

Our next question is from Nam Kim with Arete Research.

[Nam Hyung Kim, analyst]

A couple of questions on blue. Can you also explain rough timing of your commercial production this year? And also, do you expect customer qualification to kick off this year or next year? And then I also wonder, do you expect your blue [indiscernible] tire to adapted in IT first or across the segment at the same time?

[Brian Millard, executive]

Thanks, Nam. So in terms of the commercialization timeline, I think our team is focused right now on making sure that we continue to increase the performance of our material and get closer to those commercial specifications. We're, again, as I said earlier, very pleased with the progress that we've made to date, continue to feel like we're moving in the right direction. In terms of when our customers may introduce that into their product portfolios, that's really up for them to determine. But we continue to feel like we're moving much closer toward the market that our material would be considered commercial performance. So I think that's kind of as much as I can say at this point based on where things sit.

[Nam Hyung Kim, analyst]

Okay. And then I see some momentum picking up in China because Chinese OLED supplier is increasing their production for local smartphone vendor. Can you share your view on Chinese business? How much growth do you expect from Chinese customer this year versus last year?

[Brian Millard, executive]

Yes. So we're certainly projecting growth. We -- as Steve just mentioned, we have long-standing partnerships with our customers in China. We provide best-in-class materials to our customers. Also with the next-gen platforms as well as access to our current materials. We think that there's a strong partnership between us and our Chinese customers, and we expect to be long standing.

[Operator]

[Operator Instructions]

Our next question is from Jim Ricchiuti with Needham & Company.

[Chris Grenga, analyst]

This is Chris Grenga on for Jim. Did you -- I'm sorry, I cut out earlier. But did you mention any progress updates with respect to discussions you're having around OVJP with potential partners?

[Brian Millard, executive]

We did not. But as we've talked about previously, we're certainly open to partnerships with OVJP that could help us advance the project forward. We continue to believe that OVJP is the solution for large area television, large area displays, TV sized. And so we're open to various discussions and have had and continue to have various discussions with potential partners.

[Chris Grenga, analyst]

Got it. And SG&A stepped down sequentially and year-over-year, could you provide any color on that?

[Brian Millard, executive]

Sure. The biggest factor there is for the first half of 2022 before we operationalized our Shannon site, we were recording the cost of that site to SG&A for the first half of 2022, and that was around $5 million. And then so from mid-'22 onward, those costs are classified in cost of sales. The other factor is we had some reduced stock compensation expenses year-over-year that are flowing through SG&A. Those are the two largest factors that are contributing to the decrease.

[Chris Grenga, analyst]

Got it. And maybe just one more sort of bigger picture with -- with the recent launch of Apple's device, the Apple Vision and the proliferation of some use case videos showing screens plastered an augmented reality across all the surfaces in the household, it would strike me as potentially -- a potential to displace maybe TV and even leapfrog some of the IT use cases for OLED. I'm curious -- I mean it's early days, of course, but I'm just curious if you had any exposure to these devices or similar devices and if there's any concern that it would -- any concern whatsoever that it would pose risk to some of the growth rates that were cited earlier?

[Steven V. Abramson, executive]

We're watching the AR/VR market. We find it very interesting. We don't think it's going to take market share away from any of the other panel makers. We think there's many, many displays, many, many people and everybody wants displays in various ways for various use cases. And they all seem to want to use OLED. So we see the market growing. AR/VR is yet again an additional market that's going to grow and expand the market opportunities. We don't really think it's going to take any market share away from anybody else.

[Operator]

Our next question is from Mehdi Hosseini with SIG.

[Mehdi Hosseini, analyst]

I apologize if I'm going to be repeating questions already asked, I joined the call late. One follow-up for Steven, one for Brian. Steve, how should I think about the dynamics of your conversation with key customers, especially as blue becomes commercially viable. I understand that there needs to be additional contracts to be signed. So what are the key catalysts or milestones that would trigger or help you with giving customers commitment by signing that contract for the blue supply? And I have a follow-up.

[Brian Millard, executive]

Sure. Thanks, Mehdi. So on blue and supply of blue, we, as you said, don't have commercial pricing schemes in place with any of our customers at this point for blue. And we -- at the point that we need those in place to be supplying them in commercial quantities, we're confident that we'll be able to get there. And we've had varying levels of discussion with certain customers on that at this stage. And so I think that that's really the key thing is that once we get to the point where we need to have commercial pricing in place, it will be in place, but we're just not there yet since we don't yet have the commercial specification performance.

[Mehdi Hosseini, analyst]

Okay. And Brian, did you discuss how much of the R&D blue was recognized? Was there any revenue recognized in the quarter?

[Brian Millard, executive]

Yes. So there was $1.3 million in Q4 and $5.6 million for full year 2023 of blue developmental sales.

[Mehdi Hosseini, analyst]

Got it. And then -- and just a quick follow-up for you. How should I model the OpEx in '24 relative to '23 OpEx growth?

[Brian Millard, executive]

Yes. In my prepared remarks, I referenced a 10% to 15% increase in OpEx year-over-year. So that's the best modeling assumption for now.

[Operator]

Our next question is from Martin Yang Oppenheimer & Company.

[Martin Yang, analyst]

If we adjust for the catch-up payments on revenues, did material revenues still declined year-over-year in '23. If so, what are the key factors that contributed to that year-over-year decline?

[Brian Millard, executive]

Martin, so the majority of the cumulative catch-up adjustments actually flow through our royalty and license line, not our material sales line. So that wouldn't necessarily be the way to adjust for it.

[Martin Yang, analyst]

Got it. What are the key drivers for the year-over-year decline in material sales in '23?

[Brian Millard, executive]

Well, we had relatively flat volumes. Our volumes were down less than 1% period-over-period, so you can call that flat. We had then the remainder would be some certain price differences, customer mix also coming into play as and then that'll be offset by blue development sales, which were increased relative to 2022.

[Martin Yang, analyst]

And did any top customers hit volume pricing milestones in 4Q?

[Brian Millard, executive]

So the way we do price -- the way that we have to estimate pricing based on our revenue accounting model is we have to estimate over the full 5-year term, what the pricing is going to be on an average basis based on volumes and revenues. So there were -- every quarter, there are changes in our assumptions related to that. But in Q4, there were normal course changes. And those changes in assumptions resulted in that $5 million cumulative catch-up that I referenced.

[Martin Yang, analyst]

Got it. Last question is, is there any 10% customers in 4Q '23 other than customer A, B and C?

[Brian Millard, executive]

No, just those three.

[Operator]

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Brian for closing comments.

[Brian Millard, executive]

Thank you all for your time today. We appreciate your interest and support.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.