Universal Display Corporation Aktie

Everyone, welcome to Day 2 of Citi Global TMT Conference. My name is Atif Malik. I cover U.S. semiconductors and semiconductor equipment stocks at Citi. It's my pleasure to welcome Brian Millard, Chief Financial Officer and Treasurer; and Darice Liu, our friendly neighborhood IR, Senior Director, Corporate Communications at Universal Display.

I'll kick it off with my fireside chat questions first, if you have a question, you can raise your hand towards the end. We'll have the mic come to you and you can ask your question. Welcome, Brian.

Thanks. Great to be here.

Brian, on the last earnings call, you said that the next growth phase is beginning to take shape while also pointing to some near-term consumer electronic challenges in the market, which are very well understood, given the inflation and in the smartphone, the PC market. What gives you the confidence that the industry is approaching a new growth phase?

Yes. So before I go too far, just a quick safe harbor. So I may make some forward-looking statements today as part of my remarks, and our actual results may differ from those. So we would encourage everyone to look at our SEC filings before making any investments in the company.

So the comment I made on the next phase of growth that's kicking off, we very much believe that. I think there's a number of proof points to that. As you noted this year and the current environment with the memory situation is creating some near-term headwinds, specifically in the smartphone market where it seems to be most impacting our business. But if you look to the next few years, there's a lot of capacity plans that our customers have.

Specifically, about 2, 3 years ago, multiple customers of ours announced new capacity investments they are making in what we call Gen 8.6 capacity, which is high capacity output specifically geared toward the IT market for tablets, laptops, and monitors. And we've already seen this year 2 of those 4 capacity investments come online with Samsung and BOE, both turning on their fabs this summer for mass production for the first time. And Visionox and China Star both being underway with their construction plans for their Gen 8.6 facilities, which will be coming online in the next year or 2.

So there's a lot of investment, not just in the IT market, but even recently, Samsung and LG have also highlighted investments that they're making in Gen 6 capacity for the smartphone market. LG has also talked recently about some new manufacturing process technology they're investing in for OLED IT. So specifically in the IT market, tablets, laptops, monitors, where we have only 5% penetration today of OLED. There's a lot of upside opportunity that the industry is preparing for with all these new capacity investments coming online.

And in terms of -- from a demand perspective, so you talked about seeing green shoots on the supply side from Samsung. In terms of the demand perspective, there's quite a bit of buzz around foldable phones from large phone makers. We'll see what comes out today. But from a demand perspective, what are the key demand drivers for the growth to accelerate in '27?

Yes. Certainly, on the smartphone side, we do expect foldables as a growing form factor to be a really exciting trend, not just in '27, but in the coming years. There's very much a belief that -- we've seen the foldable penetration increase nicely over the last few years. But as more and more OEMs, you alluded to 1 possibly launching soon. And we think that very much in the coming years, that will become an increasingly popular form factor for consumers.

And the reason why that's beneficial for us is even on a unit for unit basis, if 1 is a foldable, that's an incremental opportunity for our business because of the size of those displays in a foldable product compared to a conventional nonfoldable typically being 2 to 2.5x the quantity of surface area in those foldable products and therefore, more material of ours that's needed to produce those displays.

In the IT segment, I think that's really where we see the most promise in the coming years, specifically off of the low 5% penetration rate that we have today and the capacity investments that I mentioned earlier. And those capacity investments, just those 4 Gen 8.6 fabs I mentioned, that's $20 billion of capital investment that our customers are putting into those 4 facilities. They're making those investments because they know their OEM customers need that capacity to realize their product road maps in the coming years.

So there's very strong conviction on the IT side. Additionally, automotive is a growing segment as well. Right now, only about 1% penetrated with OLED. So a nice low penetration currently in both IT and automotive, and a lot of focus from our customers and the OEM community on continuing to adopt OLED products into more and more IT and automotive offerings.

Brian, I got a 1% automotive, 5% across IT. Smartphones, are we around 70% adoption right now, or...

Approaching 70%, yes. So we're at 65% thereabouts today. And that's been nicely growing over the last few years. Certainly, all the premium models today have OLED displays in them and more and more of the mid- and low-end models are introducing OLED products as well. So -- the price gap between OLED and LCD in the smartphone market has really narrowed, such that, that's enabled the penetration rate of OLED to grow as well as it has in the last few years.

And just in terms of -- I definitely see the adoption rate inching higher across these end markets. And -- but in terms of the economics of OLED, particularly for IT and TV markets, where do we stand in terms of a wider adoption of OLED across larger screen form factors?

Yes. The price gap -- I'll speak first to TV. The price gap in TV has been 1 of the reasons why the penetration rate in TV has been pretty flat at 3% the last few years. Certainly, LG Display is our largest customer that's focused on the TV market and increasing that, the number of units that they're selling is certainly a top priority for them and we would benefit as well from that.

They've recently, this year, launched an OLED SE model, which is a lower-cost OLED TV display that they're marketing to their OEM customers. The challenge in the TV market has been that the premium LCDs are good. The OLEDs are much better, but the price gap has been pretty wide between those 2 such that price conscious consumers have more tended toward the premium LCD versus the OLED. But we are very hopeful that with more volume and more scale, that gap can narrow, and it has narrowed over the last few years, but it can further narrow and therefore, drive greater units, which we'll benefit from.

In the IT market, these new -- high-capacity fabs, these Gen 8.6 fabs are much more efficient in terms of their production abilities, the efficiency of the -- that our customers can do of the mother glass to produce those displays. And so we're hopeful that, that can also make the economics between OLED and LCD more competitive. OLED is a premium product. It will continue to be that way. But it's also a premium offering because of the benefits it brings in true blacks and contrast ratios and refresh rates, which premium LCD just can't quite compete in the way that OLED can.

All right. So incrementally, as we look into '27, '28, will smartphones be the biggest driver incrementally and then IT, and then TV, is that the rank order you guys are thinking about?

I think from a square area perspective, we think IT is #1. And that's really industry consensus also just based on the new capacity coming online at multiple customers as well as OEM product road maps to introduce more and more OLED products in the IT space.

So I think rank ordering them, I think it's IT, automotive is a faster rate of growth but off of a very small base today, and smartphones and TVs, that's kind of the rank ordering we put based on what we hear and see as well as what folks that track the industry more broadly are expecting.

Okay. And then just ranking order in terms of unit growth, adoption rate that the area as well as new and increasing material, like how should we rank those factors for future growth?

Yes. I think certainly, units and adoption rate kind of go hand in hand. So I think on the smartphone side, I think units are expected to be flattish next year, maybe just modest growth but hopefully more of that growth is coming from foldable which would be a benefit for our business.

And in the IT space, more -- off of a very low 5% penetration today, more and more units continuing to convert in this -- as more and more capacity comes online and OEMs continue to move that way. So I think it's really units driving penetration. The overall market, I think, in smartphone and IT is fairly static but more and more of it is converting to OLED, which is driving growth for our business.

Brian, when we look at modeling your business, it's a complex function of utilization rates of existing fabs as well as new Gen 8.6 capacity additions. You talked about Samsung and BOE, and -- so when we think about the timing of these new fabs as well as existing utilization rates of the existing fabs, at what rate will the revenues and at what point in time you will start to see the revenue acceleration from both these 2 factors?

Yes. So on the new capacity side, we've already started to see, both at Samsung and BOE, since they've turned on those fabs for mass production. We have some orders already from those fabs. However, they're not fully utilized this year. And certainly, our customers want to continue to boost those utilization rates heading into '27 and beyond. And we very much believe they will based on what the OEM product road maps would indicate and the utilization of those fabs needing to support those product road maps.

In terms of the existing capacity, I think right now, what we're seeing is our customers who are more exposed to the mid- and low-end segments of the market, specifically the smartphone market, are feeling the impacts of the memory environment more hardly this year. And our customers who are more playing in the premium space are not being as impacted. So that's -- that's nice that our capacity already embedded in our customers such that when the demand shows up, we don't need to wait for a new factory to be built and new tools to be fabricated. The capacity is already there in the -- to support the demand when it comes back from -- as the memory environment continues to evolve.

And can you provide us an update on competing technologies like mini LED, micro LED and other display technologies advancement, where does Universal Display retain its strongest competitive advantage?

Yes. So mini LED is really a form of LCD, you kind of bucket that within the LCD category. It's been out there and OLED has continue to take more and more share from mini LED in a variety of different form factors, specifically TV and IT. And micro LED is an emerging technology that many companies, including some very large OEMs have made significant investments in micro LED over the last decade plus.

There's -- over the last few years, been, I'd say, a little bit of air taken out of the balloon of micro LED as some folks have shifted and deprioritized their investment in that space, further solidifying OLED as really the display technology of today and into the future. The cost effectiveness of OLED display manufacturing is one of the key benefits especially compared to micro LED, which is a very complex manufacturing process to create those displays, especially at the sizes where we play the most -- the small and midsized like smartphone and IT products.

So we believe some of the advanced -- some of the news announcements over the last few years really solidified that OLED has a strong foothold in the display industry, and that's going to continue to be the case. Now don't get me wrong, there are a lot of micro LED companies that are investing heavily in micro LED, but we believe that the places that they'll be successful are not really our core business with the small, mid and large.

All right. Let's talk about the blue adoption versus a year ago, where has phosphorescent blue made the most progress? Is it in efficiency, lifetime, manufacturability, and where do we stand on customer qualification?

Yes. So for those of you who may not be familiar with our core business, we sell red and green phosphorescent emitters today, which emit the light in OLED displays. We've been working for many, many years on phosphorescent blue to bring that to market. And the benefit of our material is really energy efficiency. So you put an electrical current to our material; 100% of that electricity is converted into light. So there's no wasted heat in the process of converting energy into our product.

Phosphorescent blue is a very challenging material to develop because of the wavelength being very narrow, but having some physical properties that can cause its lifetime to be challenging. And lifetime is really the key factor that we and the industry have been continuing to try and boost is the lifetime of our phosphorescent material. We've made great strides over the last few years, including over the last year. We recently, this May, at a technical conference in California, one of our researchers, who is really leading our efforts on blue, presented a paper there and talked about the benefits that we've realized over the last few years, and they are a 13x increase in the lifetime of our material over the last few years, and a 3x increase in the energy efficiency.

So we've been able to make a lot of great improvements, which have enabled our customers to improve their development efforts of products using our phosphorescent blue. Specifically, LG Display, a little more than a year ago, they first showcased a product at a conference that was produced using our phosphorescent blue material. And they highlighted that there was a 15% increase in the energy efficiency of that product compared to one that still had the fluorescent incumbent material in it.

They've reshowed that at a number of different trade shows since that date. They also had noted they fabricated that on a mass production line that they use for commercial products, and it was performing at commercial levels. So all that is to say, we believe that we've proven the feasibility of our material in a commercial system, and we have customer proof points to back that up. However, it's not yet in a device for consumers in the market. And that's what we're continuing to work to support our customers in their development so that can enable an OEM to incorporate it into a product for the market.

So we are very happy and confident on the path that we're on. We're just not moving down that path as fast as we had expected but continue to be very confident that it will be commercialized. It's just a matter of timing.

All right. Brian, I'm just curious in this environment where, because of the component cost inflation, the unit forecasts are getting pressured. Are your customers kind of accelerating the adoption and the qualification of phosphorescent blue? Or does it push out the timing because of the market demand?

Yes. I think our customers are technology innovators and leaders. And so they very much take the long-term view toward their road maps and their R&D. So we haven't really seen anything significantly change as a result of the memory environment. I think everybody continues to want to produce the best possible products whether that's going to be commercialized in the next 6 months or however many years, there's a lot of belief that continuing to innovate is critical for their businesses.

And is your view, this is going to be widely adopted across smartphones and IT and everywhere or will foldable be something -- tablets will be the first form factor.

It has applicability across all form factors. So phosphorescent blue, any OLED display currently has fluorescent blue by substituting that fluorescent with our phosphorescent you can increase the energy up to 25%. That will be kind of the rough max that we would expect, and that's very compelling as more and more devices have advanced computing and AI and a lot of power-consuming features added to them. being able to make the display more energy efficient is a key feature that the industry is going after. So it has applicability across all. I think the initial use case is probably in some battery-powered device, whether that's a smartphone, a tablet or a wearable product or the like. So we need to wait and see, but our customers are evaluating it across multiple applications.

And then can you remind us about the dollar content opportunity on the phosphorescent blue as it layers on top of the red and green?

Yes. So we have been very consistent in our view as we've had conversations over the last few years with customers on pricing of our blue material that it is a premium price compared to our red and green pricing today. I think that's well understood by our customers in the industry. That said, we are certainly not going to price it at a level where it's going to hinder adoption. It's a reasonable premium. But one that we think will reward us appropriately for the investment that we've made over many years in this development.

All right. Since transitioning OVJP into the broader UVJP platform in Singapore, what progress have you made? And what milestones should investors watch for commercialization?

Yes. So a little bit of background for those not familiar with what UVJP is. So we first started this technology and brought it into the company about 20 years ago. And the initial focus was really on how do you make large area TV size OLED displays using a dry printing process, which would make it more efficient manufacturing and could, therefore, help unit growth in the OLED TV market.

We had a team in California that was focusing on the R&D efforts for the TV application. They made a lot of great progress. And about 2 years ago, it became clear to us that there was a whole other market for this technology that we really hadn't pursued which was -- which is using it in potential semiconductor packaging context, some battery manufacturing, some life sciences and drug delivery applications. So we set up a team in Singapore. They've been up and running for more than a year now. And they're really looking at these other non-display opportunities for the technology. We continue to very much believe that the TV opportunity for UVJP is very real.

But right now, our customers are really geared toward investment in the IT market just given the legs that, that has for them in the coming years. But we're pursuing these alternative markets. We've had some good early engagement with potential customers and are having -- seeing some good early signs of progress on the R&D front out of the team in Singapore.

Great. And then you announced OLEDX at IMID '26 as a new architecture designed to redirect light that is normally trapped inside an OLED. In plain words, what is OLEDX and how does it work? And what are the benefits?

Yes. So OLEDX, we announced, as you said, last month at a Korean Display conference. And what it is, is I mentioned earlier that 100% of the electrical current that's put to our material converts to light. However, not all that light can get out of the display in your current smartphone or a tablet that you may be using that's OLED.

So what OLEDX is working to is how do you extract more of that light out of the display, and with the way that we -- OLEDX does that is by applying a film on top of the display with nanoparticles that would extract more of that light out of the display. And we've -- as I said, we announced it last month, we've had a really good engagement from customers and also the OEM community and interest in the technology.

It is a platform, an architectural platform that continues to further bolster the value of our licensing portfolio. And we -- there's also a number of different ways which OLEDX can be leveraged. One is in the IT space, specifically, they're trying to go for off angle viewing. So if I'm looking at your laptop and I'm looking at it at an angle, how do I see the same image that you're seeing looking at it straight on. And what OLEDX can do by enabling that light extraction is enable the off-angle viewing to be very consistent with the straight on view.

That's 1 potential use of OLEDX. The other is, by arranging the nanoparticles in a different configuration, you can also enable greater light extraction just for straight on viewing like in a smartphone application where the user is looking at it straight on and that can significantly boost the energy efficiency of the display up to 2x. So there's a number of different ways which our customers and the OEM community would be able to leverage this technology for the benefit of their displays and products.

It sounds nifty, but I don't know if I want anyone to be looking at my laptop.

There's a way that our customers can solve that, too. There's recently been some -- actually at some displays conferences this summer, there were customers showing specifically in automotive, where you don't maybe want the passenger seeing everything the driver is seeing or vice versa. If the passenger is watching a TV show, the driver shouldn't be able to see that, and our customers have been able to produce some displays that enable the off angle to not happen as well. So just depends on what you're going for, how our customers can design it.

Great. I understand it's early, what is the likely path and time line from lab results to customer evaluation, qualification, commercialization?

Yes. It's still early days. We're a month into having -- less than a month into having announced this. So we're having good engagement with customers and starting to do technical discussions and getting into the details of R&D with them. But -- based on the level of interest that we've seen, we're very happy with where things are headed.

And now it's a matter of working with our customers to sort out the details of how do we take the R&D down the path to commercialization. So little early to give -- answer all those questions. They are very important questions. We just don't yet have all the details figured out on the exact path to commercialization. But it's still a few years off at this point just based on the fact that it's early days in the R&D effort.

Great. And then a question on kind of competition. What trends are you seeing in China in terms of OLED adoption? And then are you seeing any domestic material suppliers to trying to scale OLED?

Yes. I think certainly, we've seen over the last few years a heightened competitive environment in China, the Chinese government, and there's local pressures there that are trying to localize elements in the supply chain. That's not unique to our industry, that's really across the market there.

We continue to be the leader, and we will continue to have the dominant position of that market. We supply all of our customers with our technology. We also have a vast portfolio of more than 7,000 patents that are global in nature that are critical to commercializing OLED technology on a global scale. We've also made a lot of investments in the Chinese market. We've recently opened a new applications lab, Tech and Innovation Center in Chengdu that is located very close to BOE's R&D center, to support the development of our customers in the Chinese market.

We've added additional people to our team there. We brought on a new GM of our Chinese operations last year as well. So China is a critical market for us. We very much believe we'll continue to have the commanding share of that market, and it's 1 that we're continuing to compete in and believe we'll have the upper hand.

Let's talk about the model. You expect the material margins to return closer to recent historical norms, what gives you the confidence in that normalization?

Yes. So material gross margins, and we guide really to total gross margins as a company, we guided to 74% to 76% total gross margins this year. And for the first 6 months, we were a little north of 75%. So tracking very much in line with our original guidance that we had set for the year.

On the material side, we did have a little few anomalies in the second quarter and the first half, that resulted in a lower material gross margin in the first half. We do believe that will increase in the second half due to product mix and customer mix factors, which will be different in the second half of the year. So I very much believe that looking at total gross margins is a much more useful way of assessing our profitability really because when we sit down to negotiate our customer contracts, we're negotiating the whole thing, both the licensing and the materials on a combined basis. And looking at the total pie is really the best way of looking at our profitability.

Good. Brian, on the capital allocation, how is your strategy evolving from dividend over time to share repurchase?

Yes. So we historically have returned capital, well, stepping back from returning capital to shareholders on capital allocation overall, certainly investing in the business is first and foremost, whether that's organic investment in R&D or inorganic opportunities that we see, whether that's patent portfolio acquisitions, which we've historically done, or other opportunities that may come about that might make strategic sense for us to pursue.

On the capital return side, we've historically returned capital through our dividend program. We've had it in place for approaching 10 years now. So we've long had a capital allocation and return program. We've also -- we've increased it annually. Recently in the last year or so, we've also started buying back stock. We believe it's a good use of the company's capital to be doing so. And we also have the flexibility with more than $800 million in cash on our balance sheet to be doing both of those things and have the right balance approach to both.

And then any update on your manufacturing footprint in, Ireland? And what is the plan?

Yes. So we have manufacturing and we've had manufacturing in the U.S., long-standing manufacturing in Ohio and Pennsylvania at PPG facilities. PPG has been our manufacturing partner for more than 25 years now. We, a few years ago, set up manufacturing in Ireland as well. The site in Ireland, we actually own ourselves, but PPG operates that plant on our behalf.

And I'd say, currently, we're roughly 50-50, maybe it's 45-55 between the 2 plants, in terms of our output in manufacturing. We're leveraging, Shannon, to -- our Irish facility to a greater degree, especially to serve our Chinese customers. And it continues to be a key asset for us to have as part of our network. So both sites will remain critical parts of our operation going forward. And we always look when we're introducing a new product to which customers is going to go to and therefore, where is the optimum place for us to manufacture both from a logistics perspective as well as costs and other factors.

Great. Let me see if there's a question in the audience. Question? All right. We'll move on. Brian, we talked about gross margins. On the operating margin side, is there kind of a number in terms of operating leverage that you guys are working towards? Any kind of pointers you can give on how to think about operating margins to the top line?

Yes. So our guidance this year was 34% to 37% for operating margins. And we've been north of that the last few years. I think it's important to kind of -- if you step down the P&L and kind of take each of the items individually, specifically on the R&D side, when we sit down to do our planning process each year, we're really looking at R&D at what do we need to be doing for -- that's going to benefit us 3, 5 years from now.

And it's hard, especially in a year like 2026, where you have the memory environment that's hitting a smartphone market, therefore, impacting us. It will be very shortsighted of us to be cutting R&D or not investing there because that's really how do we continue to maintain the strong position that we have for years to come. So where we are continuing to focus on is cost optimization, on the COGS side of things and how do we continue to source our materials in the most cost-effective way. We've also, over the last few years, been very opportunistic in taking advantage of bulk purchases for some raw materials that we know we're going to need for many years.

We don't have a specific target on the operating margin side, but I'd just say we manage every single line on the P&L to a very tight degree to make sure that we're optimizing the business while also making the investments where we need to benefit in the long run.

And then on the smartphone demand, I cover Qualcomm and they're talking about their smartphone demand recovering in the December quarter. And they're using like QTL sales across Chinese customers as a kind of lead indicator and I was just curious like when you guys do your work in terms of understanding the drivers of the smartphone market, are you generally just kind of defaulting to IDC, Gartner third-party expectations? Or you're watching the inventory at your customers as some sort of a lead indicator in terms of when it becomes too lean and then you'll see a snapback.

Yes. We have teams that are local to our customers that meet regularly with our customers to talk about forecasting and expectations for the coming 3, 6, 12 months to understand what we should expect from a forecast perspective. So our first line of forecasting is really that. And what are we hearing from our customers? How does that compare with what we're hearing from other suppliers in the supply chain of what their intelligence is and what they're expecting and kind of calibrating all that, which rolls up to the corporate level, and we also look at across the customers, is there a consistency or inconsistency? And if -- and does that make sense based on what we know to be the case for each of them.

We then look at third-party industry data, what do the various folks that track the display industry expect. There's 3 or 4 of them that we really monitor on a close basis on an ongoing monthly weekly basis. and making sure that there's consistency or if there's inconsistency digging in to understand why and then rolling all that up to the corporate level. So we rely on a combination of customer intelligence, our teams in the field and what they're hearing on the ground and then calibrating that against industry data.

Okay. And any change on your thinking of providing a full year outlook? I know you guys do in January. And it's helpful as -- but given the market dynamics these days with the cost inflation having an impact on units? Like are you guys thinking differently about providing the full year guide?

I don't think so. I mean we've provided annual guidance for key metric -- revenue and other key metrics for many, many years now. I don't see us certainly not pulling back on that. The challenge in our business is a lot of people would love quarterly guidance or more -- and that's just very challenging based on the fluctuations that we see, especially when you have 6 major customers, you can have small changes here and there that can -- at the beginning or end of a quarter, change things one direction or another. So it's harder to predict on a quarterly basis. But on an annual basis, we continue to believe it's important to give annual guidance.

Great. We'll wrap it up here. Thank you, Brian, for coming to the Citi conference.

Thank you. Appreciate you having us.

Good morning, everyone. Welcome to the 29th Oppenheimer Annual Technology, Internet and Communications Conference. Our next session is going to be a fireside chat with the President and CEO of Universal Display Corp., Steve Abramson. Thanks for being with us today. Welcome.

Thank you, Martin. Before I start, before we start, I'm supposed to say this. I may make some forward-looking statements in my remarks today. Our actual results may differ from those forward-looking statements, and we encourage anyone investing in the company to review our filings with the SEC. We pay our lawyers a lot of money to make sure I say that. So I've said that and I checked that box.

Back to you, Martin.

Thanks, Steve. I'd like to begin the question on a more general industry one. So the industry is sending 2 very different signals right now. The panel makers are committing billions to new capacity, while the smartphone demand forecast softens on rising component costs. When you see capacity investments accelerating into a weaker consumer backdrop, what does that tell you about how your customers view the next few years?

That's a good question. And I think part of it is we could hold 2 almost contradictory thoughts in our heads at the same time, short term and long term. I think it reinforces the difference between what's happening today. And because as an industry, we need to plan for the future where the industry sees opportunities in the coming years. And smartphone demand has clearly become more cautious, driven in part by higher component costs. But the investments that we're seeing now are multibillion, multiyear commitments to grow the OLED industry. And those decisions aren't based on a couple of quarters of demand.

What it tells us is that our customers continue to believe OLED adoption has a long runway ahead. I mean it's only been 15 years. Look back 15 years, OLED had virtually no presence in smartphones. It is with a $1 billion industry, you're being a little heavy on that one. Today, OLED penetration of smartphones is around 65%. The industry is over $50 billion industry, and this shows how significantly adoption can evolve over time. And frankly, from an OLED industry, we believe we're still in the early innings in several other markets, smartphone being the first one, but OLED penetration in IT remains relatively low, about 5%. There's still significant opportunity across notebooks, laptops and monitors as well as automotive, which is roughly 1% of the market today. We have smart watches, we have TVs. And the new Gen 8.6 capacity is being built because panel makers believe OLED presence in those markets, particularly, I think, in IT will be meaningfully larger in the future than it is today.

So while the smartphone market is having some softness right now for a number of reasons, the capacity investments, we believe, are really a vote of confidence in the long-term growth of OLEDs.

Next question is also on the display supply chain. When we see memory prices putting pressure on everyone, are you seeing mainly bill of material pressure alter the panel specification or remaining on the unit forecast at the mid- to lower end?

So the memory price issue is also one of the near-term softness. And on pricing pressures, you've known us for a while, this industry is always dealing with various forms of pricing pressure. It's always give me more for less. That's not unusual. But we haven't seen anything from our perspective out of the ordinary from a pricing standpoint. Our royalty and licensing structure, together with our long-term agreements helps provide our company a degree of stability even if the broader environment will fluctuate.

But what we have seen is primarily an impact on unit demand, particularly in the mid-range and entry-level smartphone segments where pricing pressures are more sensitive. And higher memory and component costs can also affect affordability and purchasing decisions. And that seems to be -- in these early terms, that seems to be where we've seen the most noticeable impact. And as you know, beyond that, we generally don't comment on specific customer product decisions or road maps.

In your most recent earnings, you have framed the second half of '26 as stronger than the first half, supported by product cycles. When you stress test that view, what gives you the most conviction? And what is the bear case for the recovery slipping into 2027?

Well, I'll start and hope that the recovery doesn't slip, but we'll get to that in a minute. Historically, in our industry, the second half of the year has tended to be stronger than the first half. And we entered this year expecting that pattern to hold. You have a major OEM product launches, new smartphone introductions, expanding OLED IT deployments and also the benefit of holiday-related consumer electronic spending in the second half of the year. So that's traditionally a seasonality approach.

What gives us confidence is that, as I mentioned, a number of those product and adoption cycles are naturally weighted towards the second half of the year. It looks like there may be some exciting products coming out. And we also expect revenue growth across customer segments compared to the first half. The bear case, well, it doesn't happen. Product launches may not happen or perform as expected. They may get delayed. Consumer demand may get softer for longer or the macro uncertainty could weigh on spending.

On the other side, the bull case would be those things don't happen, but product launches are better than expected. Demand improves, the macro is better, the upside could be greater than the amount we're currently forecasting. It's -- let us -- in some respects, the industry mantra is hope for the best, plan for the worst and see how it plays out. It's uncertain times right now.

Yes, that's right. So we're seeing AI driving good demand across large portion of the semiconductor ecosystem. What impact, if any, do you think AI ultimately has on the OLED demand and innovation?

AI affects us in a number of areas. One is you need -- AI requires more energy. OLEDs are power efficient. UDC OLEDs phosphorescence are energy efficient. So that's a really good thing for us. And so AI is creating many opportunities across many parts of the technology ecosystem. I mean we're visual people. We deal with our eyes. That's how we absorb information and displays are continuing to be a part of that story. Its AI is accelerating that story and users are going to interface more through their screens, be them smartphones, tablets, monitors and the like.

The power efficiency, we see all these issues about building big data centers for the macro AI stuff. Well, when it's at the edge in your hand, power efficiency is also really important, and that aligns really well with our technology road map for the last 3 decades, we are the power efficiency company. We're also leveraging AI internally. Now everybody is using it to try to get your facilities more efficient. That's not what I'm talking about right now. We've always been trying to use new technology tools to develop our materials faster, better and smarter.

So about a decade ago, we started investing a little bit in the quantitative aspects, AI, machine learning. We now have a strong team internally working on using AI/ML techniques together with our experimental team to invent new materials quicker. And we've been able to do this over a decade. So this isn't something that we've just started doing and getting the computer scientists to talk to the experimentalists and make sure you have a virtuous cycle of invention is really important. And we've been able to do that. And this is potentially to accelerate innovation across our technology pipeline, both in OLEDs and we are the OLED company right now. We are focused on OLED, but this is such a powerful engine. We're starting to look at and plant some seeds in other aspects of organic electronics to see how this model may be able to apply.

Got it. I want to switch topic to capacity and overall the broader secular growth for IT. So newer fabs typically create a surge of qualification, initial material loading before ramping into a full production as we see the new Gen 8 lines ramps up through 2027. What utilization or design win signals would tell you that IT adoption curve is tracking ahead of or behind smartphones?

That's a good question. Let me take a couple of pieces of that. The -- back when we started in the smartphone world, there was really one manufacturer in a small ecosystem. So you did -- and not that much experience. So you did see that initial material loading qualification, then you actually saw a little drop before you started the production ramp. I think the industry has evolved from that a little bit.

So I think that today is a much broader and a much mature ecosystem, multiple panel makers investing in OLEDs, multiple OEMs launching products. The cycle of the products are going to be different and evolve over time. There's established supply chains and also a wide range of successful OLED products that didn't really exist. So when you're looking at it, Samsung and BOE recently began mass production at their Gen 8.6 facilities, Visionox and China Star, CSOT, however you want to describe them, are continuing to advance their greenfield labs. LG Display and Samsung are also expanding their Gen 6 capacity. So the industry has committed more than $20 billion towards expanding OLED capacity.

What are we going to look for? More products sooner. I mean, as a short-form version. We expect to see broader OLED adoption because you now have the capacity in place across notebooks, tablets and monitors, along with the OEMs expanding OLEDs across product portfolios. And we've been working with our customers on some of the technology designs for these new products. So it's not -- we're doing it in concert or tandem with the building of the fabs. And also nowadays, consumers are using these devices more. They're using bigger models to use for streaming video to watch a content and also using their notebooks or tablets as well as their phones for business as well as for pleasure.

But people want the bigger screens, whether it's a foldable screen or an IT screen or a tablet, the bigger screens are better, enables you to get your content better. I mean, I want to talk about my grandchildren, but my grandchildren like looking at the cartoons on the tablet better than on the smartphone. But you like the bigger screen. So I think that's an important and it can provide a premium media experience because OLEDs are well positioned. It delivers exceptional image quality, fast response time, deep blacks, power efficiency, wide viewing angles and as manufacturing economics improve, the combination of performance, user experience and economics, we believe, will help drive broader OLED adoption across all of IT. So we're looking forward to seeing these new products ramping into the future.

You talked about industry's evolution has opened up multiple pathways to commercialize phosphorescent blue. And what are you -- and that Universal Display are broadening their program in response. So what's changed here? Is it in customers' architecture, material science or maybe both to move blue from a single development track to several parallel ones?

It's a good question, Martin. And I think in some respects, it's all of the above. As part of the industry maturity, we've mentioned it's grown to a $50 billion industry with multiple manufacturers, multiple products. And in the early days, you provide a new material with better efficiency, acceptable lifetime and that worked into the market. But as the industry is evolving, the issues of color point, lifetime is becoming more important. Cost effectiveness is also more important. So the opportunity is more multidimensional than it was a few years ago. Because there's more products, because there's more applications, the display architectures and performance requirements have had to evolve.

So for example, watches, smartphones, IT, automotive, TVs, other applications each place different demands on efficiency, lifetime, color performance and manufacturability. Now some of them can combine, some of them can't and the different OEMs can have different ideas. We are really well positioned in this because of our relationships with our customers, we can understand what their road maps are looking like and how we need to develop our technologies to respond to those road maps with the different performance characteristics, which provide more -- a broader range of materials and device architectures to get the phosphorescent blue into the market. Because of all the things we've been talking about, the IT space growing, AI growing, the need for power efficiency, all of these are drivers towards the implementation of phosphorescent blue or blue into the marketplace, whether it's a phosphorescent blue combined with the fluorescent blue in different ways because people are looking at how to combine them to get the best possible results.

If we have phosphorescent blue that are all the performance specs you would want today, which product category do you believe will adopt it first?

That's -- well, I have my own ideas, this is really up to our customers. So what I will say is that all roads to phosphorescent blue and all roads to high-efficiency blue, we believe, go through us. But which product category, it's really up to our customers. Power efficiency is key, as we know, the ability to reduce power consumption maintaining performance is value across virtually every display category. How our customers are going to utilize that is up to them. And frankly, it is their role to describe to you what they want to use for. I don't want to get out ahead -- I don't want to get ahead of our customers.

I will say we see interest across virtually every display category because efficiency matters everywhere, whether it's improving battery life in mobile products or reducing power consumption in larger displays, the benefits are broadly applicable. So we really view this as the opportunity to span the OLED ecosystem, which is why the complications of what specific technologies to use are taking some time.

I think you answered my follow-up question. Just to confirm, do you still think the power efficiency is still the top consideration when customers move to phosphorescent blue?

I think power efficiency is the top consideration. But what we're seeing in the industry as well -- is it used to be -- you may remember, we had power efficiency, color point and lifetime. And power efficiency was supreme über alles. We're now seeing in certain applications, color point is important. You've heard BT2020 and things of that nature. So combining the phosphorescent energy efficiency with the color point that fluorescence can give you is a benefit. We still sell our phosphorescent materials, that works very well. And their focus are on that with, for example, green. With blue, people are talking about combining fluorescent materials with phosphorescent materials in various ways for the lifetime issue.

So that you still need the power efficiency. It's still the key, but adding additional materials into the mix is going to be helpful to get the products into the market quicker and broader products, which again is one of the reasons why it's taking a little bit more time because it's adding complexity to the device design.

Got it. We're seeing increasing discussions and real commercial use cases of phosphorescent-sensitized fluorescence, so PSF. Do you view PSF as a bridge to pull the phosphorescent adoption forward while full blue becomes ready or as a durable architecture in its own right?

Well, that's an interesting predictive question. And we are working on both of those options and any others that may come about. Our goal is to make sure that our phosphorescent materials and technology are in all of the products that are using OLEDs. And the broader the product applications can be, the better off it is for us. So we're working with PSF because we can see that has certain advantages now. We also know that if we can get pure blue phosphorescence into the scheme that it can be dropped into the devices, that, too, has a lot of value.

So we are following both of those paths. And if other paths come up, we will probably follow those as well. But the combination of phosphorescence and fluorescence does seem to have certain advantages in the near term. And that does seem to have legs. On the other hand, to simplify the stack, it also would have legs. So we're following on with both of those paths.

Moving on to the competitor dynamic. A competitor in China called Summer Sprout. The company presents itself as the second global supplier to mass produce phosphorescent materials independently developed IP and named Universal Display as its principal competitor. What does your visibility into the customer qualification tell you about where the Chinese supplier actually stand? How do you think about defending your share as they scale?

Well, competition is not new for us. I mean it may appear as though it is because we're sitting here 3 decades later, and we're kind of like the sole survivor and basically supplying the market with phosphorescent materials. But if you go back into our history, we've had competition all along the way, including some big companies such as Kodak, DuPont, BASF, Merck and others. And we have built a really strong competitive moat. And this differentiates us because we've always been building our competitive moat for the long term. We have more than 3 decades in the OLED industry, deep scientific expertise, largest technology development group in the area, manufacturing know-how.

We have 2 big manufacturing plants, one in America, one in Ireland, broad intellectual property, strong customer relationships and continuous innovation. We're continuing to invest in our technology pipeline. We still have the best-in-class. We'll continue to have best-in-class materials across the board remain focused on advancing and protecting our intellectual property. So we believe these strengths will position us to maintain our commanding market position for the foreseeable future. We're also focused -- our customers are principally in Korea -- principally are in Korea and China. And so we're continuing to expand our global and local infrastructure.

In China, for example, we opened up our Chengdu Technology Innovation Center to further strengthen customer collaboration. And I was out there in early June when we did the grand opening, and it was a very cool Chinese type opening. They did -- this means they do lion dance, and I gave the lion money and drum beating to come up and the speeches. And the facility is a really nice facility. That's our third facility.

Our first technology innovation facility was in Korea, which we've expanded a few times. Then we set one up in Hong Kong, and now we have one in Chengdu. So we are really trying to get closer to our customers to ensure that we can provide the local support that they need as well as the broad support for their international export markets and the like. And so when our customers look at us because we've been working with a number of these customers for decades -- I don't think we've ever lost a customer -- they're evaluating not only today's materials, but also tomorrow's technology road map. They look at us and they see somebody who's not only providing best-in-class materials today, but also working on providing best-in-class materials for the future, whether it's blue, PSF, other next-generation OLED innovations. And we believe that's a virtuous combination of innovation, support, reliability and long-term partnership that will continue to differentiate us in the market, and we will be able to continue to grow our franchise.

Your earlier answer regarding application of AI, you referenced developing other organic materials. Can you maybe give us a sneak peek of what you're thinking? Are you expanding beyond phosphorescent materials?

So I want to start by saying the vast majority of our company is focused on the OLED business and growing the OLED business, and we intend to continue to grow that. However, we are planting some seeds for future growth because we're seeing the opportunities of combining machine learning and experimental science. And as I mentioned earlier, we think that's a pretty strong model. And so if we go into other -- we're looking at other areas of organic electronics, such as, for example, organic solar cells. So it's one of my favorites. I've always been interested in organic solar cells.

But organic solar cells in some respects, is an inside-out OLED. It's something that maybe some of your listeners don't know when Ching Tang at Kodak invented the first OLED in the 1980s. The story is that it actually was an organic solar cell that he was doing, but he mixed the leads. So he created OLED and off went the industry. And thank you again, Ching, if you're listening because you did an amazing job in doing that. But we're looking I believe -- we believe AI machine learning has the potential to change material science, really has the potential to make new materials. Now what we are at our core is a new materials, material science company. And we've been really successful in OLEDs and phosphorescent OLEDs, and we'll continue to do that.

But if we can take that model and move that a little bit into some adjacencies, that may open up planting seeds for new businesses in the future. We are -- I want to caution, we're at the seed planting level here. This is not like, oh, you're going to come up with something next year, but we have a lot of patience in UDC, and we grow for the long term, while now we grow for the short term because we want to grow our short term, but we also make sure we plant the seeds for the long term so that they will come in as well. And we think that, that's an opportunity in that area.

Makes sense. The company generates a significant amount of cash flow and maintains a very strong balance sheet. How are you thinking about capital allocation today between investment in technology, strategic opportunities and returning capital to shareholders?

So we do have a, I think, a strong cash flow, and we have a significant capital allocation philosophy that really hasn't changed much over time because it's grounded in our confidence of the long-term growth opportunities ahead of us as well as continuing to generate significant cash flow.

So we apply our cash flow across 3 priorities. First, investing in organic growth and innovation in phosphorescence, I talked to you a little bit about some of the seeds that we're planting, but phosphorescent blue and other next-generation OLED technologies is our primary focus. We continue to look at and pursue any high-return strategic opportunities that may align with our long-term growth strategy. It's -- we've not been an acquisitive company, but we look. And third, returning capital to shareholders through dividends and more recently, share repurchases. So we've been -- we initiated our dividend in 2017. And we've continually increased our dividend every year.

And on the share repurchase side, we announced $100 million authorization in April 2025, which was fully utilized through the first quarter of this year. And then in April of this year, 2026, we announced a -- new $400 million authorization. And we believe this authorization reflects our confidence in the long-term growth trajectory of OLED, the strength of our business and our ability to continue creating shareholder value and generating cash flow. The strength of our balance sheet and cash generation will give us the flexibility to both invest for future growth while also returning meaningful capital to shareholders.

We are getting one question from the audience. Summer Sprout has been shipping a green phosphorescent emitter in China for a few years. How does your ex-China IP differ from your IP within China? And would you defend your monopoly in phosphorescent emitters outside of China?

We believe that it's very important to defend our IP. China -- the person is asking the question, that within-China market is a little bit different than the outside of China market. So defending our IP across the board is very important. Defending the IP outside of China is a very important thing for us to be doing.

And the final question, if we sit down at the conference a year from now, what do you expect will matter most? And what is the biggest misperception about Universal Display you would like to clear?

Fair enough. I think the biggest factor is whether and when the industry transitions from today's cautious demand environment into the next phase of OLED adoption. I think the infrastructure is there, the ability is there. It's really, are consumers -- are the products going to be out there? Are consumers going to buy it? And right now, consumers are pretty cautious. So will that transition into the next phase of OLED adoption.

Now the macroeconomic factors are not something that we can influence very much, but what we can do is we can control continuing to invest in innovation, make sure we continue to meet our customers' needs, meet and exceed our customers' needs and requirements and position ourselves for long-term growth. The biggest misperception is right now, I think you just asked the capital allocation question. We're a very strong company. We have generated a lot of cash. We have an extremely strong position in the OLED ecosystem. We're going to have that position for the foreseeable future. I think people are a little focused on when is blue coming. It's like, okay, when blue comes, and it will come, then our company will grow faster. But we're still continuing to grow. We grow a little bit less than the industry growth rates. When blue comes or maybe tandem, we can grow in excess of the company growth rates. But I think the overemphasis on blue, I don't think blinded, but people didn't realize how strong a company we are. And part of the capital allocation questions, I think, go to that issue.

Got it. With that, it concludes today's presentation. Thanks again, Steve, for your time and insight today. Thanks, everyone, for attending.

Thanks, Martin. It was my pleasure.

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Second Quarter 2026 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 conference call over to Darice Liu, Senior Director of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Universal Display's Second Quarter Earnings Conference Call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Brian Millard, Chief Financial Officer and Treasurer.

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, July 30, 2026.

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.

Thanks, Darice, and good afternoon, everyone. As we look across the OLED industry, we continue to see investment, innovation and expansion throughout the ecosystem. Display manufacturers are investing billions of dollars in new capacity, brands are broadening adoption across a growing range of products and applications and next-generation technologies continue to push the boundaries of performance and capability.

These developments reflect the industry's long-term growth trajectory, even as portions of the consumer electronics supply chain face a more challenging near-term environment. Rising memory costs and supply constraints continue to weigh on demand expectations, particularly within the smartphone market, where higher component costs are putting pressure on unit volumes. Those near-term headwinds are reflected in our updated outlook, which Brian will discuss in more detail.

We believe it is important to separate the current cycle from the longer-term direction of the industry. While demand expectations have softened in the near term, we believe the industry's fundamental growth drivers remain firmly intact. Industry forecasts call for OLED area growth to be relatively flat this year with positive growth expected to resume in 2027. And many of the investments that will support that next phase of growth are already underway today.

After years of planning and development, Gen 8.6 OLED manufacturing is becoming a commercial reality. Samsung Display and BOE recently commenced mass production at the Gen 8.6 facilities, while Visionox and TCL China Star continue advancing their greenfield projects. In addition, LG Display and Samsung Display have announced further Gen 6 investments.

Most of these investments target end markets where adoption remains in its early stages. While OLED is already well established in smartphones with approximately 65% market penetration, IT, automotive and TVs remain at a much earlier stage with share still in the low single digits. In automotive, recent introductions such as the Genesis GV70, Volvo EX60 and Zeekr 9X demonstrate how OLEDs are driving sophisticated digital cockpits in premium and electric vehicle interiors.

Beyond expanding into new applications, one of OLED's key advantages is its ability to enable entirely new form factors. Foldable, trifold and rollable devices are demonstrating how OLED flexibility can unlock new product designs and user experiences. Last week, Samsung unveiled its Galaxy Fold 8 series featuring new Flex Titanium technology that significantly reduces crease visibility while improving durability. As additional brands enter the market and performance continues to improve, foldables are expected to evolve from a niche category into a more mainstream segment in the years ahead.

Collectively, these industry developments highlight the significant runway that remains as OLED expands across new applications, larger display formats and emerging form factors. As adoption broadens, customers continue to demand higher brightness, lower power consumption, longer lifetime, broader color gamut and more advanced display architectures. Meeting these needs requires continued advances in materials and device technologies, which is where our expertise and technology leadership matters most.

We are continuing to play a central role in advancing the materials and technology that underpin and drive the industry. Our decades of invention, development and manufacturing know-how, a portfolio of more than 7,000 patents, strong customer relationships and a global support infrastructure position us well as the industry leader entering its next phase of growth.

One of the most important opportunities on our road map continues to be phosphorescent blue and the meaningful energy efficiency benefits it is expected to deliver. At SID Display Week in May, we presented additional technical results demonstrating continued progress towards a more robust phosphorescent blue system, including advances in efficiency, color performance, operational lifetime and manufacturability. While commercialization timing continues to depend on customer road maps, we believe phosphorescent blue is a significant opportunity for both UDC and the broader industry.

Beyond blue, we continue advancing and broadening our portfolio of next-generation OLED technologies, including phosphorescent sensitized fluorescence or PSF, tandem architectures and innovations designed to enhance light extraction, increase power efficiency and improve the visual appearance of the display. We look forward to sharing additional technical developments at Korea's IMID conference next month.

We are also accelerating materials discovery and development through our internal advanced computational tools, artificial intelligence, machine learning and agentic AI as well as strategic collaborations, including our role as a founding member of CuspAI's recently launched AI Materials Foundry.

On the infrastructure front, we continue to invest alongside the OLED industry. Last month, we celebrated the grand opening of our new OLED Technology and Innovation Center in Chengdu, China. As our third innovation tech center in Asia following Korea and Hong Kong, it reinforces our commitment to providing on-the-ground local support and fostering collaboration with customers.

As we look ahead, we remain confident in the OLED industry's growth trajectory. Continued investment in manufacturing capacity, expanding adoption across new applications and form factors and advances in materials and device architectures reinforce our belief that the next growth phase is taking shape. Through our investments in innovation and infrastructure, we're helping to build the foundation for that future.

And with that, I'll turn the call over to Brian.

Thanks, Steve. Revenue for the second quarter of 2026 was $152 million compared to $172 million in the second quarter of 2025. As a reminder, the prior-year period benefited from elevated customer purchases ahead of anticipated tariff increases.

Turning to the broader environment. As Steve shared, we continue to see meaningful investment across the OLED ecosystem and encouraging progress in several long-term growth drivers. At the same time, visibility across portions of the consumer electronics supply chain has remained limited. Customer demand forecasts have become more cautious as higher component costs continue to pressure portions of the smartphone market. Given these dynamics, we now expect full year revenue to track toward the lower end of our previously communicated range of $630 million to $670 million, with second half revenue still expected to exceed first half revenue.

Our total material sales in the second quarter were $66 million compared to material sales of $89 million in the second quarter of 2025. The decrease in material sales was primarily driven by lower material volumes, customer mix and changes in cumulative catch-up adjustments. Green emitter sales, which include our yellow-green emitters, were $51 million compared to $64 million in the second quarter of 2025. Red emitter sales were $15 million compared to $24 million in the second quarter of 2025.

Revenue from royalty and license fees was $81 million in the second quarter compared to $76 million in the prior-year period. The increase was primarily driven by cumulative catch-up adjustments. Across both royalty and license revenue and material sales, cumulative catch-up adjustments totaled approximately $10 million during the second quarter and the first 6 months of 2026 and had a net favorable impact of approximately $9 million compared to the second quarter of 2025.

The ratio of material sales to royalty and license revenue during the second quarter was approximately 0.8:1. When you look at the first half of the year, the ratio was approximately 1.1:1. Based on our current outlook, we now expect the full year ratio to average approximately 1.2:1.

Adesis generated $4.8 million of revenue during the quarter compared to $7.5 million in the second quarter of 2025. Cost of sales was $37 million for the quarter. Total gross margin was 76%, compared to 77% in the second quarter of 2025.

Operating expenses, excluding cost of sales, were $62 million compared to $64 million in the prior-year period. We continue to operate as a lean company, investing in key R&D and growth initiatives while maintaining a disciplined approach to spending. Based on our current outlook, we now expect full year operating expenses to increase by a low single-digit percentage compared to 2025.

Operating income for the quarter was $54 million, representing an operating margin of 35%. This compares to the prior-year period of $69 million and an operating margin of 40%. The effective tax rate for the quarter was approximately 19%. Net income was $49 million or $1.06 per diluted share compared to net income of $67 million or $1.41 per diluted share in the second quarter of 2025.

Our business continues to generate strong cash flow and maintain significant financial flexibility. During the second quarter, we repurchased approximately 531,000 shares for approximately $48 million. Over the last 12 months, we returned more than $238 million to shareholders through dividends and share repurchases. Today, we announced that our Board of Directors declared a third quarter cash dividend of $0.50 per share.

We ended the quarter with approximately $855 million in cash, cash equivalents and investments, providing substantial flexibility to invest in innovation, pursue growth opportunities and continue returning capital to shareholders. Our strong balance sheet and cash flow generation position us well to support both our near-term priorities and long-term growth initiatives.

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

Thanks, Brian. We are excited about the opportunities ahead. OLED continues to expand into new applications, new products and new form factors. The technology road map also continues to advance, creating new opportunities across the ecosystem. As an OLED pioneer, we have helped shape the industry through scientific leadership, intellectual property and close collaboration with our customers and partners. We believe those strengths, together with our robust R&D pipeline, global infrastructure and strong balance sheet position us well for the future.

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 Instructions] Our first question comes from Jim Ricchiuti with Needham & Company.

I know there's probably some noise in those materials margins that were in the second quarter. Brian, I'm wondering, should we anticipate a return to more normalized material margins in the second half?

Jim, yes, as you noted, there was a little bit of anomaly in the second quarter. We did -- as we went through our reforecasting process, we did -- we do now assume that there's going to be a change in -- a bit in some of the materials mix and the product mix. And so as a result of that, there was roughly a $7 million reduction recorded compared to where we were in Q2 of last year. So it was a negative item hitting the materials line in the second quarter. And we do expect in the remainder of the year, our materials gross margins to return more towards their historical levels, which have been approximately 60%.

Got it. And are you able to say if your revenues -- if you expect your revenues to benefit in any meaningful way from the new capacity that you alluded to in the press release and your introductory comments in the second half? Or is this -- realistically, is this more likely to be a catalyst for you next year?

There certainly is some benefit we are seeing in 2026 in the second half and even in the first half as those fabs were getting ready for mass production. And that's already encompassed in our guidance for this year. Next year, we certainly -- in '27 and beyond, see even more benefit as those fabs are fully operational at mass production scale for a full 12 months each year as well as more heavily utilized in the coming years. So '26 is really setting up the opportunity for growth in the next few years.

Our next question is from Mehdi Hosseini with SIG.

I want to go back to Steven. This is obviously a recurring question every quarter, and I'm still going to ask you, is there any more detail as to how you're progressing with commercialization of the blue? Are we -- has the reliability and the yield and the lifetime improved to the point that we're just waiting for commercial adoption at a larger scale? Or is there still some milestones that you need to meet before commercialization of an end market product?

Well, Mehdi, as you know, phosphorescent blue is one of our most important opportunities. And we made meaningful progress and the earlier developmental materials achieved some key milestones. And work is continuing on those programs, and you saw the announcement about -- from LG on the iPad.

But as the industry has evolved, we've seen multiple pathways emerging for phosphorescent commercial blue OLEDs. And so we're expanding our efforts across a broader range of next-generation blue materials and architecture. So we're accelerating the development, increasing resources behind the program, including leveraging our AI and machine learning to expand the design space and accelerate material discovery and development. We remain confident in the long-term commercial opportunity for PHOLED blue. But again, I can't give you any specific time lines right now because that's really dependent on our customers' commercial road maps.

Yes. And Mehdi, as you're aware, in 2025, LG at SID Display Week showcased a tablet-size product that had incorporated phosphorescent blue in a hybrid tandem structure. So it was a tablet-size product, and they did reshowcase at this year's SID Display Week, a similar prototype that they developed. So we're very encouraged by the progress that we see LG making and talking about very publicly as well as progress that other customers have made as well that have now gotten to a point of being prototypes that they're able to showcase with others in the industry.

Got it. If I may just have a follow-up here. Could there be a scenario where increased emphasis on power consumption or reduction in power consumption make the blue a more viable solution for the next generation of gaming laptop or even to that extent, a more sophisticated AI-related notebooks that would come into the market next year?

Go ahead.

The more the emphasis is on power efficiency, the more important is our blue phosphorescent. But the next year comment, I'm going to hold on to.

Our next question is from Scott Searle with ROTH Capital Partners.

Steve and Brian, maybe to dive in, in terms of the guidance for the year, even at the lower end of the range, it still implies a meaningful uptick into the second half of this year, I think an average of $168 million-ish in revenue per quarter. I'm wondering where you're seeing the strength, what level of confidence is in that? Certainly, it sounds like you've got some early production that's going on with some of the new fabs. But I'm wondering if you could update us in terms of where you think channel inventories are and kind of what's driving that comfort and outlook into the second half?

Yes. Scott, so in the second half, as you're aware, there's a number of products that launch in Q3 as well as early [ Q1 ] that we typically see a stronger second half in most years in our business, and we expect that trend this year as well. So based on the visibility we have right now to product cycles and the details that we're receiving from customers in terms of their forecast, we do expect the second half to be stronger than the first half, which has really been our expectation all along this year. We've, since the beginning of the year, expected that the second half was going to be stronger, and that continues to be the case today.

Got you. Very helpful. And if I could, just to follow up specifically on some of the geographic mix. I think China took a nice tick-up in the second quarter. Are we getting back to a more normalized level of China revenues? Or is this some more prebuying ahead of a second round of tariffs or just new production coming online for [ BOE? ] Any color on that front would be helpful.

And just to clarify on the gross margins, Brian, I want to make sure I heard correctly, materials gross margins recovering back to the 60% level in the second half after some of the anomalies that we saw in the second quarter?

Yes. That's right on the materials gross margins. We do expect the second half to be more normal, near our historical trends, which have been around 60% in recent quarters. There were some anomalies in Q2 that drove the materials gross margin being lower.

As it relates to China, our China sales have always been very lumpy historically, and that continues to be the case. But we are projecting growth in Chinese customer revenues in the second half. And I'd say, overall, we are seeing customers who are more exposed to the mid- and low-end segments of the smartphone market. There's just a little more pressure on those customers this year, but we are projecting growth in the second half.

[Operator Instructions] Our next question is from Nam Kim with Arete Research.

I think the guidance adjustment, I guess, mainly due to a bit slower material sales growth trend. Is this driven by lower unit volume or ASP pressure or a combination of both? I mean, IT OLED demand, especially gaming monitor seems very strong, but smartphone demand is weak. So could you help me understand overall unit impact across your end market? And also, given the rising BOM cost across the industry, are you seeing any price pressure on your OLED material? Or has your material pricing remained relatively stable?

Nam, the change in the guidance, now expecting us to be toward the low end of the prior range, that's really driven by a change in volume expectation. As you're aware, we have long-term, typically 5-year deals with our customers. So we have very consistent ASPs over those periods, and we haven't seen anything out of the ordinary on the pricing side. And so that -- it's really driven by a lower expectation of volume this year.

Our next question is from Martin Yang with Oppenheimer & Company.

A follow-up on the previous topic on growth in the second half. Do you expect growth in the second half across all of your customers?

Martin, yes, we are projecting growth across our customers in the second half. So there's product cycles that we expect we'll benefit from in the second half as well as we are projecting really across the board growth in the customer base on a broad basis in the second half.

Got it. Second question on gross margin. Looking to maybe a more medium-term perspective, do you think we will see incremental gross margin headwind in '27 based on raw material costs? And do you have any potential offset to those potential headwinds?

Yes. So on gross margins, I think it's important to focus on total gross margins, which is the much more useful way in our view of assessing our profitability. And our guidance this year for total gross margins is 74% to 76%. And on a year-to-date basis, we're tracking right in line with that at just north of 75%. And in terms of 2027, too early to give a guide or expectation there. We do have certain input costs into our manufacturing process, one of the key ones being iridium, which is a key component of many of our products. That has fluctuated in price recently.

On the other side, we can put more volume through the fixed components of our manufacturing plants, we're able to achieve greater operating leverage there. So we'll give more color in February about what that means for next year, but we're certainly very focused on the sourcing side of things, making sure that we're sourcing our raw materials and inputs in the most efficient and cost-effective way and working with PPG as well to make sure that the manufacturing processes are optimized to the greatest extent.

Got it. And last question on the sales of maybe blue sample materials has stayed at a very low level in the past 2 quarters. Can you maybe comment on what should we interpret the lower level of sample sales versus the past few quarters or the same time last year? And what we should expect for the rest of this year?

Yes. So I think that the blue development sales have been low, as you noted, in the last couple of quarters, but the progress with our customers continues to move positively in the right direction. In R&D stage and development cycle that they're in, a little bit of material can go a long way. And we are also, as Steve noted, continuing to focus our resources on inventing new materials and providing those to customers to open even more doors for them in blue development. So the number is -- the revenue number is certainly an interesting anecdote, but it's not necessarily the best way of measuring the progress that we're making in moving closer to commercialization of blue.

This concludes the question-and-answer session. I would like to turn the program back over to Brian Millard for any additional or closing remarks.

Thanks for joining us today. We are confident in the underlying growth drivers for UDC and the OLED industry. We appreciate your continued interest and look forward to speaking with you again next quarter.

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

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's First Quarter 2026 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.

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 Brian Millard, Chief Financial Officer and Treasurer.

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 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, April 30, 2026.

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.

Thanks, Darice, and good afternoon, everyone. Thank you for joining us today and for your continued interest in Universal Display. Let me begin with how we are thinking about the business, both in the context of today's environment and the longer-term opportunity we continue to see ahead. While the near-term backdrop has become more challenging, our long-term view remains unchanged. Our leadership in OLED built on sustained innovation and deep customer integration positions us well to navigate the near-term macro uncertainty while continuing to capture the industry's long-term growth opportunities. We operate a high-margin business model with strong free cash flow generation, long-standing partnerships across the OLED ecosystem and a balance sheet that provides meaningful strategic and financial flexibility.

At the same time, visibility across the consumer electronics value chain has become more limited in recent months. A more cautious demand environment, higher component costs and supply constraints are adding complexity to demand forecasting. These dynamics are consistent with what we are hearing broadly across the industry and reflected in newly published conservative outlooks from third-party market research firms. Against this backdrop of increased uncertainty, we believe it is prudent to moderate our near-term revenue expectations. Brian will provide additional details shortly.

Despite these near-term dynamics, our profitability, cash flow generation and lean operating model remains strong. We ended the quarter with approximately $911 million in cash and investments, supporting a measured and balanced capital allocation approach centered on investing in innovation, pursuing strategic opportunities and returning capital to shareholders. Over the last 12 months, we returned more than $187 million to shareholders through dividends and share repurchases. We announced today the authorization of a new $400 million share repurchase program following the full utilization of our prior $100 million authorization. While we remain disciplined in our approach, this authorization underscores our confidence in the long-term trajectory of the business and the strength of our cash generation model.

Looking beyond the near term, the growth runway for OLEDs remains as compelling as ever. Adoption is expanding across IT, automotive, televisions and foldables and emerging architectures such as tandem. At the same time, performance expectations continue to rise across key dimensions, including brightness, power efficiency, lifetime and color performance. As these requirements increase, materials and technology innovation becomes even more critical, reinforcing the value of our capabilities and our role in enabling progress across the OLED ecosystem.

Phosphorescent blue continues to be a significant opportunity for the industry and a key area of focus for us. As specifications advance and new architectures emerge, expectations for blue are becoming more demanding and more varied across applications. In turn, we are aligning our blue development program to meet these increasingly complex specifications. While this evolution is extending the development path, our conviction in the commercialization of phosphorescent blue has not wavered. The value proposition is clear. When adopted, we believe phosphorescent blue has the potential to deliver up to an initial 25% improvement in OLED panel energy efficiency, a meaningful advance at a time when devices are being asked to do more, run longer and perform better. That is a compelling proposition for the industry and the market interest reflects it.

We look forward to sharing additional technical detail next week during our invited paper presentation at SID Display Week. Supporting this work is an increasingly powerful in-house R&D engine. We are applying AI and machine learning at greater scale to enhance material discovery, evaluate candidates more effectively and prioritize development pathways. For example, these tools allow us to predict thermal processing stability up to 10,000x faster than traditional density functional theory while achieving near comparable accuracy.

By combining AI-driven modeling with more than 20 years of proprietary data, deep device expertise and decades of OLED know-how, we are accelerating progress in phosphorescent blue while also advancing innovation across our next-generation red, green and yellow emissive materials. More broadly, earlier this month at ICDT, China's largest display technical symposium, we highlighted a meaningful shift underway in the industry. As performance requirements continue to broaden, progress increasingly depends on advancing materials, device architecture and display design together with a greater emphasis on energy efficiency. This system-level approach is supporting the development of advanced OLED architectures such as tandem and hybrid structures, advanced pixel layouts and PSF, helping address the evolving performance demands across applications.

This direction aligns well with our long-standing development philosophy and reinforces our role in enabling innovative OLED solutions as the industry evolves and grows. One example we shared in the invited paper was the incorporation of our phosphorescent material into the industry's first commercial green PSF product targeting BT2020 specifications introduced by Visionox. This milestone highlights the growing role of our phosphorescent materials in enabling next-generation OLED architectures and reinforces our position at the forefront of OLED innovation. The same depth of collaboration extends across our broader customer base.

During the first quarter, we announced new long-term agreements with Tianma and LG Display. These agreements underscore the value we deliver and the trust we have built over multiple technology cycles. At the industry level, we believe OLED is entering the early stages of a multiyear capacity expansion cycle. Significant new Gen 8.6 investments are progressing in Korea and China to support growing adoption across IT and automotive applications. Samsung Display's $3.1 billion facility is reportedly nearing commercial shipments and BOE's $9 billion fab has entered customer sample validation and is targeting mass production in the second half of this year.

Visionox has begun equipment move-in at its $7.6 billion facility and TCL China Star continues construction on its $4.1 billion greenfield plant. We view this year as the beginning of a longer ramp with output increasing over time as facilities move through qualification, yield ramp and production scaling. Taken together, these developments across technology road maps, customer engagement and manufacturing capacity reinforce our conviction in OLED's long-term growth trajectory and in the increasingly important role we play in enabling next-generation architectures that advance performance. With our materials leadership, deep customer partnerships, strong financial foundation and disciplined capital allocation, we believe we are uniquely positioned to drive sustainable long-term value creation.

And with that, I'll turn the call over to Brian.

Thank you, Steve. Revenue for the first quarter of 2026 was $142 million compared to $166 million in the first quarter of 2025. While material volumes decreased by approximately 4% year-over-year, total revenue decreased by 14%. This year-over-year decrease was primarily driven by customer mix as well as tariff-related purchasing activity by Chinese customers in the prior year period and the softer macro environment between periods. The ratio of materials to royalty and licensing revenue during the first quarter was approximately 1.5:1. For the full year, we continue to expect this ratio to average closer to 1.3:1 as customer mix normalizes.

As Steve discussed, the operating environment has become more challenging over the past few months. Near-term visibility has declined as macro pressures weigh on consumer demand assumptions, while higher memory pricing and supply constraints continue to temper end market expectations. Based on current forecast, we expect second quarter revenue to be sequentially higher than the first quarter, and we continue to expect the second half of the year to be stronger than the first half. At the same time, given reduced near-term visibility and the evolving macro backdrop, we believe it is prudent to revise our full year revenue guidance range to $630 million to $670 million from our prior guidance range of $650 million to $700 million.

Turning to materials. Total material sales were $84 million in the first quarter compared to $86 million in the first quarter of 2025. Green emitter sales, which include our yellow-green emitters, were $64 million in both periods. Red emitter sales were $20 million in the first quarter of 2026 compared to $21 million in the first quarter of 2025. As we've discussed in the past, material buying patterns can vary quarter-to-quarter. First quarter royalty and licensing fees were $54 million compared to $74 million in the prior year period, primarily reflecting changes in customer mix.

Adesis revenue in the first quarter was $4.3 million compared to $6.6 million in the first quarter of 2025. First quarter cost of sales was $36 million, resulting in a total gross margin of 75%, which is consistent with our full year gross margin guidance range of 74% to 76%. This compares to cost of sales of $38 million and total gross margin of 77% in the first quarter of 2025. Operating expenses, excluding cost of sales, were $63 million in the first quarter compared to $58 million in the prior year period. Operating income for the quarter was $43 million, representing an operating margin of approximately 30% compared to operating income of $70 million and an operating margin of approximately 42% in the first quarter of 2025.

The year-over-year decline reflects lower volumes, customer and product mix and higher input costs. Nonoperating expense for the quarter was $6.2 million, primarily reflecting foreign exchange and investment-related items. This included a $3 million foreign exchange loss related to movements in the Korean won associated with the tax receivable as well as a $2.7 million investment loss on our marketable equity securities. The income tax rate was 21% in the first quarter of 2026. For the full year, we now expect our effective tax rate to be approximately 20%.

Net income for the first quarter was $36 million or $0.76 per diluted share compared to $64 million or $1.35 per diluted share in the first quarter of 2025. We generated $109 million of operating cash flow in the first quarter and ended March with approximately $911 million in cash and investments. During the first quarter, we repurchased approximately 633,000 shares of common stock for $66 million and completed our previously authorized $100 million share repurchase program, having repurchased a total of approximately 924,000 shares under that authorization.

Building on this, the Board authorized a new $400 million share repurchase program and declared a cash dividend of $0.50 per share for the second quarter. These actions reflect our continued commitment to a disciplined and balanced capital allocation framework underpinned by strong free cash flow generation. We remain thoughtful but opportunistic in our approach to share repurchases while maintaining the flexibility to invest and support future growth.

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

Thanks, Brian. 2.5 weeks ago, we rang the Nasdaq closing bell to mark 30 years as a publicly listed company. We started with a little more than a bold idea to help revolutionize the display industry. At a time when CRT television dominated living rooms. Our journey required tenacity, resilience and a long-term vision. Over these 3 decades, OLED has evolved from a laboratory concept into a global display platform powering billions of devices and supporting an industry estimated at approximately $50 billion this year. We're proud of how far we've come and even more energized by how far we will go in the years ahead. The best of Universal Display is still to come.

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 Instructions]

Our first question is from Brian Lee with Goldman Sachs.

I guess starting with the guidance revision here. I know starting off the year, you guys have kind of talked about how you're always tied to the square meter surface area growth, and you had alluded to sort of mid-single digit, maybe 6% specifically as sort of the guiding principle for your revenue outlook for 2026. Clearly, the year has been weaker, smartphone cuts have accelerated.

But are you seeing that in capacity growth, too? And if so, can you quantify? And then as it relates to the smartphone pressures, can you speak to kind of the high end and midrange? Those are the areas that you obviously have the most exposure to given OLED is well represented there. But what's your view on kind of what the high-end, mid-range parts of the market are going to do this year if overall smartphones are now expected to be down, call it, 15%, 20% depending on who you talk to.

Yes. Thanks, Brian. Firstly, on the guidance, there has been an overall change in growth expectations this year, both in terms of area as well as units over the last -- even the last 2 months since February. And on the area, now there's a projection of roughly a 2% growth in square area this year. And as you know, some -- we occasionally do grow below that overall area industry growth because of customer efficiencies and other factors that come into place.

As it relates to the capacity, the capacity plans that we've talked about and that Steve reiterated today in his prepared remarks continue to be moving forward at full force. Samsung and BOEs coming online this year and Visionox and China Star thereafter. So that is all really no changes as it relates to that. And to your last point on smartphones this year, certainly, the more premium models are expected to be more insulated from some of the memory concerns. But with OLEDs now having 65-plus percent penetration, we are in the mid and even some of the low-end models as well. So there is exposure that OLED has to the mid and low end that would be subject to some of the memory concerns out there, and that has evolved even over the last 2.5 months here.

Great. That's helpful. And then maybe a couple more here. Just on the China revenue contribution in Q1. That was particularly soft, especially in the context of your Korean customers still spending quite a bit. Can you speak to the trends you're seeing in China? Is there inventory? Is there just end market demand, share issues? Just what's happening with the China backdrop? Because it does seem like your 2 Korean customers spent a pretty good amount here in Q1.

Well, Brian, as you know, the China revenues are much lumpier over the course of the year than the Korean revenues. We still have a very strong position, obviously, in China. We're working closely with all of our Chinese customers, and we believe that, that's going to pick up throughout the year.

Okay. Fair enough. And then last one for me. Maybe this one for you as well, Steve. I think you made a comment during your prepared remarks about different architectures and one caught my attention. You mentioned hybrid architectures, and I think you mentioned Tianma by name. But is there any notable progress or developments that UDC is seeing with TADF hybrid recipes? And maybe bigger picture question, why are customers looking at hybrid to begin with instead of just a full phosphorescent system?

So hybrid means a bunch of different things. And I think it was separate than the Tianma issue. Hybrid in this context means you combine a layer of phosphorescent technology with a layer of fluorescent technology. And what that does is it enables you to get the best of both technologies. So you can get the efficiency from phosphorescence and the color points and lifetimes from fluorescence. And that type of technology can expand the market. And that's, I think, what our customers are looking for.

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

I was just wondering, given the softer environment, and you may have given this, Brian, but I'm just wondering how we should be thinking about OpEx as we look out over the balance of the year.

Yes. So we had guided back in February mid- to high single-digit growth in OpEx. This year, I think it's trending more toward mid at this point. And as we've always been -- we've always had a very lean OpEx organization, continuing to fund R&D and all the investment opportunities we need to make there, but maintaining a lean SG&A organization. And that continues to be the case, and we're being very cautious on spend this year just based on the overall environment.

Makes sense. With respect to the separate release you made regarding a new presentation, new paper at the upcoming SID show on blue. When last did you guys deliver a paper on blue at that conference? Can you remind me?

It's been a few years. We have -- some of our customers have presented papers on blue in recent years, but it's been a while since we have. And we're excited to share some of the progress that we've made over the last few years in our blue development efforts. And this is really our first blue paper in quite some time. So we're excited to get that out there and share those details next week.

And then one final question, if I may, and this relates to the question Brian just asked about China. If we think about what happened regarding tariffs last year, when did you see the biggest stockpiling of materials as it related to some of the tariff concerns that some of the Chinese display manufacturers had? I'm trying to get a sense as to how much that played a role in the decline in China this quarter.

Yes. It was the largest in April, but there certainly was some toward the end of Q1. And at the time -- as time went on, it became clear to us that a lot of the strength that we had in the Chinese market in Q1 of '25 was tariff related. But the largest bit of it was in April following the U.S. tariff announcement and customers placing significant orders thereafter. But it was in both Q1 and Q2 last year.

Our next question is from Scott Searle with ROTH Capital Partners.

Maybe to follow up on the China front a little bit. I was hoping to get a little more granularity in terms of some of the linearity that you're seeing and historic buying patterns ahead of new fab capacity launch, if you could remind us what that's looked like in the past. And also wondering just your latest thoughts in terms of China and exposure more on the smartphone front relative to IT or TVs. Qualcomm last night, I think, was referencing they thought things start to loosen up as we get into the September quarter. So I'm wondering if you're starting to see some of that, I'll call it, optimism or order patterns from your customers in China? And then I have a follow-up.

Sure. So on your point about fab ramps and volumes associated with fab ramps, historically, especially many years ago, there was a good bit of yield issues and challenges as our customers turned on new fabs. They've gotten much more efficient in their use of materials. And -- but we do have a component of our guidance this year is reflective of materials that will be needed to bring on new capacity coming online this year. As it relates to the year and what we're expecting, we do continue to expect mid- to high 40% of revenues to be in the first half and the balance in the second half, which does imply a continued ramp over -- heading into the second half.

Brian, just to follow up on that. Do you have visibility at this point in time to China specifically in that recovery?

We have -- we always get ongoing forecast from customers and have routine conversations with them about what their forecasts are expected. As you know, our China market, as Steve just said a few minutes ago, it's been very lumpy historically, and that continues to be the case. But we have visibility right now to what we expect for the rest of the year, and we feel that our guidance range properly balances the outcomes that we can see ahead of us. And we do expect China revenues to grow in the coming quarters, as Steve mentioned earlier.

Great. And Steve, to maybe follow up on the hybrid architecture. As I understand it, it sounds like that's been complicated the process and time line for the adoption of blue. I'm wondering if you could give us some thoughts in terms of how you're seeing customers looking to implement blue, whether it's in a hybrid architecture or otherwise, if that is part of the -- basically the hesitation or kind of extended the time line for adoption.

Well, I think you've hit an important point. The customers -- I mean customers are looking at a number of different ways to implement blue using phosphorescence and fluorescence. And because you're using multiple materials, the matching in those materials becomes even more complicated. So it does delay -- it delays the time line. It also, as we are continuing our development efforts, we're working on specific implementations to meet our customers' needs.

Got you. And Steve, just to follow up on that, and then I'll get back in the queue. But from an economic standpoint and performance standpoint for the customer, do the hybrid architectures meet what the customers need that these are commercially deployable products and we just kind of, I'll call it, had an extended time line related to the complexity of the new architectures?

Well, I'll answer multiple ways. You have to talk to our customers on the product introduction in terms of the timing. But having said that, it's a question of -- clearly a question of when, not if. And we're working really hard with our customers to make sure that blue gets introduced as quickly as possible.

And Scott, just adding on to Steve's comments, when LG Display, May of last year, they went out at SID Display Week last year and showcased a hybrid tandem tablet using our material. That was using 1 layer of fluorescent, 1 layer of phosphorescent. And they noted at that time, both at the show as well as in their press release that it was a commercially performing display that they had validated using commercial equipment. So that, we believe, evidenced the use of our material in the commercial system.

[Operator Instructions]

Our next question is from Martin Yang with Oppenheimer & Company.

My question first is on the guidance. Can you maybe talk about the guidance range when it comes to your expectations broken down by capacity-related ups and downs, product release timing and then underlying market?

Yes. So Martin, it's -- our guidance range really reflects -- specifically, we already knew -- know what capacity is going to be online this year. That was -- is unchanged since February. What has changed is the overall macro environment with certainly the -- what's going on in the Middle East and oil prices being where they are and therefore, gas prices for consumers, all that is new. And we've seen people that we talk to in the industry as well as the market research firms that track the industry, all lowering their estimates over the last 2 months for the year just based on what's out there.

As it relates to specific models and end markets, certainly, the midrange smartphones mid -- and to the extent that OLEDs are in the low end, which we are in a few models of low end as well. Those are the areas where I think we're seeing the most pressure. And certainly, the expectations for OLED smartphone growth this year have come down since February as well.

A follow-up on your capacity input guidance because we are getting new Gen 8 fabs online. Do you feel confident that you have a good sense of how those new fabs will consume materials for the year?

Yes. We've not heard that there is any shift in the plans that our customers have to bring that capacity online. And there is an expectation of the equipment -- Samsung is expected in the middle of this year to have their equipment for mass production and BOE shortly thereafter. That has been the case and was expected back in February as well when we issued guidance. And so things from -- in terms of the new capacity coming online, that's really not changed since February, and we do believe that they will come online and our customers are actively working to make sure that capacity is utilized.

Got it. Last question for me on IP. Can you maybe remind us your approach to IP protection? We're starting to see more phosphorescent OLED developers outside of China, mainly in Korea. Can you maybe remind us your IP position as well as your approach to protect your IP?

Well, we firmly believe that when you have inventions, you need to protect them and we protect them with our IP worldwide. We have over 7,000 patents worldwide. And we utilize our IP as part of our product development because we have strong IP protection as well as the best materials on the market. And we believe that, that is a winning combination and has been for quite some time.

This will conclude our question-and-answer session. I would like to turn the program back to Brian Millard for any additional closing remarks.

Thank you for your questions. We remain confident in the long-term opportunities ahead for Universal Display and the OLED industry, and we appreciate your continued interest. We look forward to speaking with you again next quarter.

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

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Fourth Quarter and Full Year 2025 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 like to turn the call over to Darice Liu, Senior Director of Investor Relations. Please proceed.

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, Chief Financial Officer and Treasurer. 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 express written consent of Universal Display 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 19, 2026. 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..

Thanks, Darice, and welcome to everyone on today's call. We are pleased to report record 2025 revenue of $651 million. Operating income was $249 million and net income was $242 million or $5.08 per diluted share. These results reflect strong execution across the business and the continued expansion of OLED adoption throughout the industry. Brian will share additional financial details shortly. In 2025, we continue to drive value as OLEDs proliferated across the consumer electronics landscape, including wearables, smartphones, tablets, laptops, monitors and TVs. At the same time, we remain focused on the long term. We expanded our R&D efforts, strengthened our intellectual property framework, broadened our global infrastructure and deepen engagement with customers across the OLED ecosystem.

These investments are designed to support the next phase of growth for both the OLED industry and for us. As we look to 2026 and beyond, it's worth reflecting on how the OLED industry has evolved and how Universal Display has helped shape that evolution. For decades, the industry was largely centered around a single dominant architecture, single-stack OLEDs. Universal Display has played a defining role in this technology's advancement. Our phosphorescent materials unlock higher efficiency, longer lifetime and better performance, helping to enable OLEDs to scale into mass market products and transform display technology worldwide. Today, the OLED industry is entering a new phase marked by broader applications, higher performance expectations and a more diverse set of device architectures. We remain at the forefront of this evolution.

Our materials and technologies continue to play a central role in OLED innovation, supporting scale and helping define the performance benchmarks that will shape the industry's next chapter. While single-stack OLED is the dominant commercial architecture today, the road map is becoming increasingly multidimensional. Performance targets continue to rise and energy efficiency matters more than ever. New applications from foldable devices to automotive and IT displays introduced new requirements. As a result, multiple device architectures are now being explored and deployed across the industry, including tandem OLED structures, phosphor sensitized forces or PSF based approaches and other emerging hybrid architectures. Across all these architectures, one element is foundational, the phosphorescent materials. In PSF and other hybrid architectures, our phosphorescent materials are designed to work alongside forested emitters within the OLED stack. It's designed to help balance efficiency, lifetime and color performance while giving manufacturers greater flexibility in meeting application-specific requirements.

As all structures grow more complex and efficiency demands intensify, are full-in materials along with our long-term technology leadership and deep know-how become increasingly central to enabling performance, scalability and the next wave of OLED innovation. That leadership is grounded in decades of deep materials and device level expertise as well as a long history of exploring architectural concepts at the leading edge of technology. Early research included Solid, our stacked OLED concept as well as PSF-based architectures, which expanded our technical foundation. More recently, we completed the acquisition of intellectual property assets for Merck KGaA that included PSF and related OLED technologies.

Collectively, these efforts broaden our technology platform and expand the architectural design space within our portfolio as OLED design continues to evolve. At the core of our company is an R&D platform that has been built, refined and scaled over decades. And today, that platform is more active and more critical than ever. Across red, green and blue and missile layer materials, our pipeline is exceptionally robust, reflecting the expanding OLED industry road map as applications proliferate and architecture diversify, the performance envelope continues to be pushed forward. different form factors, different lifetime and efficiency targets all require continuous materials and device innovation.

One of the most important evolutions in our R&D platforms is our increased investment in our in-house materials discovery, device modeling and characterization capabilities anchored by a deeply experienced R&D team. This hands-on foundation remains the engine of our innovation, whether advancing next-generation reds and greens are moving blue on the path to commercialization. In concert, AI and machine learning tools are emerging as powerful accelerators for our research engine. By combining AI-driven insights with our proprietary data, device expertise and decades of OLED know-how we can explore broader design spaces more efficiently, shorten development cycles and make better, faster, smarter decisions about where to focus our efforts.

Together, these capabilities strengthen our platform to support multiple architectures, customer road maps and end markets while continuing to push the boundaries of performance. One area where this platform approach is gaining particular traction is blue. With strong growing interest in our phosphorescent blue, we are deeply engaged with multiple customers and collaborating across the industry to support multiple architectural and strategic paths. Our confidence in blue remains unwavering. Breakthroughs of this magnitude are rarely linear. Once adopted, we believe our phosphate in blue can enable up to a 25% improvement in OLED panel energy efficiency, delivering a meaningful step change benefit for customers, consumers and the industry.

Looking ahead to 2026 and beyond, the opportunities for OLED continue to broaden. The market is evolving from being primarily mobile and TV centric to more diversified landscape with IT applications emerging as one of the strongest drivers of near and midterm growth. According to Omdia Market Research, global OLED shipments are projected to surpass 1.4 billion units by 2030, driven in part by accelerating adoption across tablets, notebooks and monitors. OLED smartphone shipments are expected to grow from 810 million units in 2025 to 967 million by 2030, while IT shipments are forecasted to more than triple from 27 million to 92 million units over that same period.

In automotive, OLED is emerging as a strategic enabler of both design freedom and brand positioning. Adopters gaining momentum along luxury OEMs and Chinese new energy vehicle manufacturers that displays play a growing role in shaping the in-vehicle experience. Omdia projects automotive OLED shipments will increase from $3 million in 2025 to 14 million units by 2030. At the same time, foldables are poised for renewed momentum as leading OEMs prepare to introduce a new wave of products.

OLED-enabled form factor innovation is becoming a powerful catalyst for differentiation, expanding user experience and driving architectural advancements across multiple product categories. Market forecasts indicate that 2026 marks the beginning of a broader inflection point with foldable OLED unit volumes expected to increase more than 250% from 19 million units in 2025 to 71 million units by 2030.

From a manufacturing perspective, the OLED industry has entered into a new multiyear phase of capacity expansion between year-end 2023 and year-end 2025, installed OLED capacity measured in square meters increased by approximately 10%. Looking ahead, we expect an additional 10% increase in installed capacity between the end of 2025 and the end of 2027, driven primarily by the introduction of Gen 8.6 capacity to support expanding IT and automotive OLED adoption. Importantly, 2026 marks a significant industry milestone with the world's first Gen 8.6 OLED facilities, Samsung Display in Korea and BOE in China entering mass production. As utilization tightens and new application scale, we anticipate additional OLED fab investment announcements further expanding industry capacity and reinforcing the long-term growth trajectory of OLED. On that note, let me turn the call over to Brian.

Thank you, Steve. 2025 ended on a strong note with record fourth quarter and annual revenues that were in line with our expectations from November. For the year, our revenue was $651 million. oral sales were $353 million. Royalty and license revenues were $275 million, and Adesis revenues were $23 million. Our 2025 revenues included a cumulative pent-up adjustment of $14 million compared to $11 million in 2024. Total gross margin for 2025 was 76% compared to 77% in 2024. Operating expenses for 2025 were $248 million compared to $260 million in 2024. Operating income for 2025 was $249 million, translating to an operating margin of 38%.

This compares to $239 million or a 37% operating margin in 2024. Net income for 2025 was $242 million or $5.08 per diluted share compared to $222 million or $4.65 per diluted share in 2024. We ended the year with $955 million in cash, cash equivalents and investments. Turning now to our fourth quarter results. Revenue for the fourth quarter of 2025 was $173 million, up 7% from $162 million in the fourth quarter of 2024. Fourth quarter 2025 results included a cumulative catch-up adjustment of $10 million compared to $5 million in the fourth quarter of 2024.

Material sales were $96 million compared to $93 million in the fourth quarter of 2024. Green emitter sales, which include our yellow green emitters, were $74 million, compared to $67 million in the fourth quarter of 2024. Red admitters sales were $21 million compared to $25 million in the fourth quarter of 2024. As we've discussed in the past, material buying patterns can vary quarter-to-quarter. Royalty and license fees in the fourth quarter were $73 million compared to $64 million in the prior year period. Adesis revenue for the fourth quarter of 2025 was $4.8 million compared to $4.6 million in the same period in 2024. Cost of sales in the fourth quarter was $41 million, resulting in a gross margin of 76%. This compares to $37 million and a gross margin of 77% in the fourth quarter of 2024.

Operating expenses, excluding cost of sales, were $64 million in the fourth quarter compared to $72 million in the fourth quarter of 2024. Operating income for the fourth quarter of 2025 was $67 million, translating to an operating margin of 39%. This compares to the prior year period of $52 million and an operating margin of 32%. The fourth quarter 2025 income tax rate was 13.5%. Net income for the fourth quarter was $66 million or $1.39 per diluted share. This compares to fourth quarter of 2024 $46 million or $0.96 per diluted share.

Now turning to our 2026 outlook. We expect our 2026 revenues will be in the range of $650 million to $700 million. We estimate that our ratio of materials to royalty and licensing revenues will be in the ballpark of 1.3:1. Total gross margins are expected to be approximately in the range of 74% to 76% as a result of higher raw material pricing. R&D and SG&A expenses are both expected to grow in the mid- to high single-digit percentage year-over-year as we continue to invest in our technology and R&D engine. 2026 operating margins are expected to be in the range of 34% to 37%. We expect the effective tax rate for 2026 to be approximately 19%. And lastly, we continue to prioritize returning capital to our shareholders.

During the fourth quarter and thus far in Q1, we repurchased approximately 454,000 shares of common stock for $53 million. When combined with our dividends, this represents a total capital return to shareholders of approximately $139 million over the last 12 months. Additionally, our Board of Directors has approved an increase to our quarterly cash dividend. A dividend payment of $0.50 per share will be paid on March 31, 2026, to shareholders of record as of the close of business on March 17, 2026. The dividend increase reflects the confidence in our robust future growth opportunities. Expect continued positive cash flow generation and commitment to return capital to our shareholders.

As we enter the new year, we are highly profitable, operationally agile and well positioned for continued growth. supported by a strong balance sheet that enables ongoing investment in our people, infrastructure and innovation. With that, I'll turn the call back to Steve.

Thanks, Brian. What lies ahead for OLED is both expensive and compelling. Product road maps are broadening, new capacity is coming online and adoption continues to extend well across the consumer electronics landscape. With decades of leadership in phosphorescent materials and OLED innovation, we are supporting our customers as they bring to market the next generation of OLED products and reinforcing the industry's long-term growth trajectory.

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.

Thank you, Mr. Abramson. [Operator Instructions] Our first question is from Brian Lee with Goldman Sachs.

I guess just bigger picture, this is the outlook quarter. You're giving us the view here for 26. I know you're still quite constructive on the outlook for Blue without quantifying it. But can you kind of give us a sense at the start of the year, where the bottlenecks to blue are and then kind of the visibility to updates on progress there moving to 2026?

Sure. Brian, on Blue, as Steve said in his remarks, I mean, we continue to feel like we're very much on the right path. We've been working with multiple customers now for a while on their development efforts in terms of getting our phosphorus and blue material into a commercial product for consumers. We continue to feel like we're on the right path there. Steve also mentioned the various architectural approaches that our customers are pursuing for Blue, which I think it's even greater evidence of the fact that this material is very beneficial for them and for the industry and getting it designed in in various approaches is very critical for them.

And so in terms of the path forward, we continue to support them. But it's really -- much of the progress here forward is in the customers' hands in terms of getting it into a commercial device for the market. Our work continues in terms of developing and inventing new materials that help open more doors for them as they go through that process of commercializing products with blue. So the work continues, but the path that we're on and the enthusiasm we have for, the product continues to be very strong.

Fair enough. And then I guess just a follow-up on blue. I mean, it sounds like visibility is still somewhat limited, even though there's activity across multiple customers. But if we just look at kind of the development of revenues, since you started first breaking them out in 2023. They're kind of down, right? They've just been hanging around $4 million to $5 million a year, and it was actually down in '25 versus '24. I think at 1 point in time, you kind of directionally and said you expect the revenue to grow.

Is there any I guess, visibility this year as to kind of blue from a sampling and activity perspective where you would expect that number to grow and maybe be a bit of a leading indicator to kind of what might be the commercialization pathway over the next few years?

Yes. I think certainly, the blue revenue figure that's reported, it was, as you said, $800,000 for Q4 and $4.3 million for the full year of 25%. It's an interesting data point, but I think that there's evidence we can clearly see that a little bit of material can go a very long way in the development efforts. And so I don't think it's necessarily the only or the primary way that progress can be measured. And in terms of what we expect this year for Blue revenues, it's still going to be developmental in nature. So I think modeling kind of around the zone that we've been for the last few years is a reasonable place to go.

Okay. Great. Maybe just a couple of modeling ones and I'll pass it on. Just big picture thoughts on inventory trends across key geos, especially China and maybe seasonality expectations for this year given you had a little bit of lumpiness last year. And then just from a modeling perspective, it did seem like you had the big increase in cumulative catch-up payments in Q4, which you outlined, it was up year-on-year.

Is there anything to read into that? I mean it's like the second straight year where you've had double-digit millions of revenue catch up at the end of the year and the reasoning being out your forecast are being taken down. Maybe just what the implications are of demand kind of coming in and how we should expect that to trend going forward?

Yes. So on your first point on inventory in China specifically, I mean, I think we've -- at this point, we kind of feel like most of that tariff buying has kind of worked its way through as we exit '25. And on seasonality for this year, we are expecting more of a return to our historical pattern, which is the second half being stronger than the first half. As you know, last year, '25 was a bit of an anomaly with the tariff-related buying that happened in the first half by our Chinese customers.

And in terms of the forecast and the cumulative catch-up revenue, we rely on third-party data from market research firms that track the display industry for those out-year estimates that we use in our revenue process. And recently, over the last quarter or so, there have been some revisions to those forecasts, and that's what drove the cumulative catch-up in the fourth quarter. So we go through that process on a quarterly basis. Sometimes, it's very minimal, sometimes it swings the other direction. But as we closed out '25, there was a cumulative catch-up that did result in additional revenue.

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

Sorry about that. I wanted to ask about the capacity as, particularly the new 8.6 Gen one. What I'm wondering is how soon would you anticipate seeing benefits from the start -- and maybe looking at tax as we think about the second half being -- or weighted. I assume that also has something to do with some of the new product launches. But I wonder if you could just comment on the capacity situation.

Thanks, Jim. On the capacity adds, certainly, these new fabs from both Samsung and BOE coming online this year are adding significant new capacity for the IT market. And Samsung's fab is not expected to come online until sometime in Q2 and BOE is shortly thereafter. So we really aren't going to get a full year of operations from -- out of those 2 fabs, but they are incorporated in our overall guidance for the year. And to some degree, are waiting -- weighing on that second half range. But there's also, as you know, a heavy product cycle orientation in the second half that also drives the reason for the revenue being more second half weighted.

Okay. What are also the competitive environment in China from local players? And just looking at some of the revenue concentration with your large customers, it looks like revenues -- players -- maybe from a longer-term perspective.

Yes, there certainly has been an increased competitive environment over the last few years, especially in China. China remains a critical market and a growing market for us and for the industry. industry, and we're continuing to support our customers in China and work with them on all their development needs. Also as a company, we are making additional investment in the Chinese market. We've added additional folks to our team there. We're in the process of putting a new lab in China as well. So making sure that all the local support that we have on the ground is -- with more than 7,000 patents that are very global in nature. We continue to believe that we'll have the dominant position in the OLED materials market going forward.

Maybe one final quick one. Is there any update that you can provide on the contract talks with LG.

Yes. So we've been working with LG, as you know, for more than 2 decades at this point. Continue to have a very strong relationship with them and their contract did expire at the end of last year. We're working through the details of a new contract with them. So nothing to announce today, but things are progressing as we'd expect there, and we have no concerns about getting a new deal put in place.

Our next question is from Mehdi Hosseini with SFG.

Yes. Just want to go back to your calendar 26 revenue guide, the midpoint implying 4% year-over-year growth I want to better understand the underlying assumption. Are you looking at the smartphone units, notebook and TV and rolling up? Or are you looking at the Gen 8 and just the panel production. And the reason I bring this up is, we're always struggling to figure out how higher cost of component is adversely impacting end market demand. And essentially, I want to know if there is some conservatism from that variable dialed into your guide? And I have a follow-up.

Mehdi, the guidance at the midpoint and overall really is in line with the industry growth that's projected in terms of area. So that mid-single digit, roughly the midpoint of our guidance in the mid-single-digit growth aligns very closely with the Square area growth that's projected for the OLED market this year based on the firms that publish estimates for that. And to your point, this year -- and to your question on what we're taking into account for taking count everything across smartphones on the potential down side, as you said, there are concerns about memory pricing and availability this year that are factoring in on the downside. There's also on the upside, the opportunity for stronger IT demand as well as foldable demand that's coming out this year. So that's -- those are the various factors that we weighed in coming up with the $650 million to $700 million range. But the midpoint is very closely aligned with the area growth that's projected for the industry this year.

Okay. And then the follow-up has to do with royalty. And how should we model this for 26 as you renegotiate your contract with LG, should we just make some assumption from the past couple of years and use the ratio or would there be a greater variability the impact in the royalties from that particular customer.

[Operator Instructions] Our next question is from Martin Yang with Oppenheimer & Company.

I have a follow-up to catch up cumulative catch figure in 4Q. Is there any more context you can give us on where the adjustment is happening either relating to certain product categories or certain customers. Thank you.

And it's not market -- end market specific, it's more of a total number because the way that we recognize revenue is based on our total business with each of our customers. And we are recognizing an average ASP over those contract terms. So it wasn't specific to any espoused.

And some are down. So it's not directionally in the same direction?

Yes, to a varying degree, yes, each quarter, we typically see some going 1 way and some going the other as we have to go through that re-estimation process. And the combination of for the next 12 months, we use our own internal forecasting processes.

And then for the later periods, we do rely on that third-party data. So Typically, each quarter, the number we report, which is a net number. Within that, there's certain customers that are moving 1 direction and certain to another. According to third-party research and the midpoint, do you also incorporate your own view regarding how end market such as smartphone shipments would trend this year? Or is this the aero growth as the sole anchor for the midpoint of the guidance.

Yes. So the foundation of our guidance is also really our customer forecast, right? So meeting with our customers, understanding what they are hearing from the OEMs in terms of demand for the year across all the various end markets that they supply. And when we -- so we certainly are within our range in terms of the customer forecast and where that rolls up. The midpoint of our guidance also happens to align closely with the data that many of the industry firms are publishing for what they project this year. And then looking beyond into the next few years, we do expect the growth rate to increase significantly off of what's projected this year, but does have more mid-single-digit growth associated with it based on what we're hearing from our customers as well as what those market research firms are projecting.

Our next question is a follow-up from Jim Ricchiuti with Needham & Company.

Brian, I just wanted to go back to the comment you made about gross margins. I think you talked about higher enrollment material costs. And I was wondering if you could elaborate on what you're seeing specifically what materials.

Yes. So we have certain raw materials, Iridium then as well as other raw materials as our materials continue to get more complex and increase their performance characteristics -- there's also a different quantity of raw materials required as well as type of raw materials that also can drive an increase in cost. So that's having some impact on us that caused us to revise the gross margins to be 74% to 76% as the guide for this year.

If you were to just quantify that versus what maybe what we saw this past year, how much of a headwind is it -- I'm not sure if it's entirely the increase that you're seeing in some of these -- the material costs or if there's something else.

Yes. On the pricing side, we really aren't expecting any significant adjustments in pricing in 2016, it really is coming down to raw materials being a key driver of the decrease -- slight decrease of where we were in '25.

Our next question is from Lujan Ho with Bloomberg Intelligence.

Just another follow-up on the gross margin. Look, if you're able to pass through some of the good development work that you've done to at least stabilize gross margins going forward from here?

Yes. So part of what's caused gross margin over the last year to decrease modestly is volume pricing. So as the industry has grown and matured, our volumes have increased significantly over the last number of years. And therefore, there has been a slight decrease in ASP just as volume and scale has increased in the industry and therefore, in our business as well. In terms of costs and conversations about those with customers, certainly, when we sit down with our customers to talk about new long-term agreements, our cost structure and changes in it since we last negotiated a deal are certainly front and center as part of those conversations and factor into the ultimate outcome that we reach with our customers.

We have reached the end of our question-and-answer session. I would like to turn the call back over to Brian Millard for any additional closing remarks.

Thanks very much for your time today. We appreciate your interest and support.

Thank you. This does conclude today's conference call. You may now disconnect.

Good morning. Welcome to the 28th Annual Needham Growth Conference. Our next presentation this morning is going to be fireside with the CFO of Universal Display Corp., Brian Millard. Also here with us today from the company in the front row, Darice Liu, who many of you know, Senior Director of Investor Relations and Corporate Communications. So both of you, thanks for coming. Welcome.

Thank for having us.

So my name is James Ricchiuti, by the way, senior analyst in the Equity Research Department at Needham covering companies in the advanced industrial technology space. So let's start. Folks know the story, but Brian, maybe just for the audience, give us a picture, kind of a current picture of the OLED market in terms of where we are with penetration rates at the moment in some of the key markets.

Sure. Yes. So before I get too far, I just wanted to do a quick safe harbor statement, so I may make some forward-looking statements today as part of my remarks. Our actual results may differ materially from those forward-looking statements. So we would encourage everyone to look at our SEC filings performing and the investments in the company.

So in terms of the key end markets, there's really 3 primary markets and then many others behind that. But in terms of the 3 key markets being smartphones, TVs and the IT market, smartphones today, we are more than 60% penetrated. So there's been nice continual growth in the penetration rate in the smartphone market over the last few years. Certainly, all the premium smartphones today have all the displays as well as the mid-tier models.

And we're even seeing many of the low-end smartphone models convert to OLED as OEMs continue to look for ways to upgrade their products and introducing an OLED display being a great way of doing that. The smartphone market, a couple of things that we're really excited about this year in terms of the foldables being a new form factor that's going to drive more momentum for the smartphone market hopefully, we expect a refresh cycle as part of that. And for our business, it's very compelling because we sell materials that are used to make the displays and there's more surface area in a foldable product compared to a single layer conventional smartphone products.

So lot of exciting things, many OEMs continuing to introduce more and more foldable models and that being very exciting for our business. The smartphone growth, we do project continued growth off of the 60% penetrated that we are today. So room for that to continue to grow as even more mid-tier and low-end models continue to convert to OLED.

The TV market is also a major market for us. OLED TVs are roughly 3% of the overall TV market at this point. So also quite low in terms of penetration. Our customer who participates in the largest way in this space is LG Display with their OLED TV product. And they continue to project growth in that business over the coming years. And -- and that's a great opportunity for us because the size of those displays is quite large compared to a single unit of a smartphone. So as more and more TV penetration and adoption continues to increase, that's a significant benefit to us.

The IT market, which encompasses tablets and laptops and monitors is the third key market for our business. That is one that has the most significant momentum at this point behind it in terms of growth in the coming years off of very low penetration, only about 5% penetrated today in the IT market.

And our customers are putting a lot of investment in that space in the coming years or currently coming online actually starting this year, some of the fabs that I'm sure we'll cover and that being a significant growth driver. So many OEMs are planning to introduce OLED displays into their IT products, and we've seen that over the last few years with the iPad Pro going OLED, many different -- whether it's HP or Dell or others who have introduced OLED products into their portfolios and that expected to gain even more momentum as this new capacity comes online.

Yes. And segues into the next couple of questions. You touched on capacity. Before we get to that, though, it's probably topical week removed from CES. And we did see a handful of OLED-related announcements from some of the leading companies in the market. I'm wondering, the announcements that you're seeing, is that -- is that really supportive of what you're also hearing from some of the third-party forecast that you guys -- those forecasts that you look at, particularly on the IT side.

Yes. No, it is. I think as you mentioned at CES last week, there were a significant number of new IT products, laptops predominantly, but also tablets that were showcased with OLED displays in them. And that's evidence of what we expect in not just '26, but the coming years as all this new capacity comes online. Our customers are making this significant investment in new capacity because they know there's a market opportunity there with their OEM customers.

And I think last week at CES, that was certainly evidence of what we've been hearing from the broader industry for some time now. And we've been talking about the IT CapEx cycle and IT growth for a number of years. We've seen it increase off of 2% penetration a few years ago, now to 5% today, and the expectation that continues to grow significantly in the next few years.

Anything on the TV front that's notable that was at the show either OLED related or just in general in the premium end of the market? Or just curious what you guys heard out of CES on that score?

Yes. So there's -- there were some new TVs announced by a number of OEMs. Yes. So LG has the announcements of a new TV architecture. There's also other types of models that are out there. I think the TV market is challenging from a consumer perspective because you go into buying a TV, there's a lot of different products out there. They all sound kind of similar in terms of the way they're marketed.

So kind of sorting through what that is to what you need to purchase is challenging. The OLED TVs continue to win the best awards from whether it's consumer reports or CNET or others who rate TV performance, it is a premium offering in OLED TVs. And so I think the challenge has been historically, the price gap between premium LCD TV and an OLED TV.

And that price gap has narrowed significantly over the last 5 or more years. And there's room for that, we believe, to continue to narrow such that, that will fuel more penetration and therefore benefit our business as our materials are included in those products.

I think we also heard or saw an announcement from Samsung on the crease-free foldable phone OLED panel. Talk to us about the significance of that, if we could, for a moment. You touched on the opportunity for foldables, but just curious about that announcement.

Yes. So a common issue or some people that issue that consumers have observed with foldables over many years is that if you repetitively fold a foldable smartphone multiple times over years, there's going to be -- there has been creases that form that can impact the visual aspects of that display. And so solving that crease and getting to that crease issue and getting to a place where it's either diminished or gone entirely has been something that all of our customers have been focused on.

And Samsung announced last week, as you said, at CES, a crease-less approach and we believe that's great for fueling more one OEM confidence in introducing foldable products because of the crease issue being either mitigated or gone altogether as well as consumer adoption because consumers will have to worry less or not at all about there being an issue with increases in their products. So -- it's something that we know Samsung and others have been working on for many, many years, and it sounds like they've made a significant step forward with what they announced last week by having a crease-less technology as they called it.

Okay. So let's turn to capacity because that really, I think, is central to the story over the next 1 to 2 years. And we're talking about 8.6-Gen capacity investments that are being made in Korea as well as significant in China. And it's -- I can't gear toward the IT market. There have been some reports, BOE, their new 8.6 line is now expected to come on, I think, 8.6 line. I guess Samsung's line begins production. I'm not quite clear on the timing. It could be Q2, Q3. So it would seem that given these lines coming on that, that would represent an incremental tailwind for you guys. Talk to us, help us understand the impact of these lines. Just -- and maybe in the context of what you've seen historically, investments like this?

Yes. So as you said, Samsung and BOE, both announced more than 2 years ago, these new capacity investments for the IT market. They've been constructed and the tools have been installed for some time now. There's the expectation that Samsung's comes online in Q2 of this year seems to be with all the reporting is indicating. And BOE, as you said, there's been some acceleration in their time line where they're continuing to try and get their line up and running and ready for mass production and used as early as they possibly can.

And all of this is pointing to these companies spending, the 2 of them are spending about $12 billion collectively on those investments. And -- when you put on other -- it's more than $20 billion across the industry that's been come online. There's a couple of things that happened. One, it's new productive capacity. That's certainly a benefit and tailwind to our business.

We also have seen historically that occasionally, when new fabs come online, there can be inefficiencies, yield challenges as the tools get calibrated and the customers get used -- accustomed to using the equipment at scale. We'll have to see how much of that materializes with these 2 customers in 2026. But more importantly, over a multiyear period, this new capacity is new productive capacity for the industry and for our business where many OEMs need this capacity to be able to introduce OLEDs into their IT portfolios at scale. Our customers acknowledge that multiple years ago and made these investments for this new capacity, and it's just going to start to bear fruit this year for our business.

As far as it impacting you, does it hit you -- could it hit you as early as Q2, some of this? Or is it more in the Q3, Q4 time frame with the scale-up plans?

Yes. I mean, certainly the second half, when they -- assuming that all the commercial mass production occurs that's there, we'll have to see how much of the inefficiency materializes. Certainly, we hope our customers are very successful in bringing their tools online. To the extent there's challenges that can occasionally benefit us. But we assume there's going to be success on the customer's part and that they're going to be getting their tools up and running as best as possible.

Okay. The -- we are a couple of other -- you alluded to that the all-in number, a couple of other players in the market in China making investments. Maybe remind us of who those are in the 8.6 Gen area? And what's the time line on those? I think those are pushed out a little further, right?

Yes. So Visionox and China Star are the other 2. Visionox announced their investment more than a year ago and China Star last year, China Star broke ground in October of last year. And Visionox a month -- about -- actually a few quarters before that. So there's -- those 2 customers are also spending significant investment collectively across all 4 of those customers, Samsung, BOE, Visionox and China Star more than $20 billion of capital has been allocated to this new capacity. And so Visionox and China Star is expected in the '27, '28 time line that those come online.

I think they still have a little bit of the equipment ordering to finalize for some of those fabs, but the momentum is already there in terms of the groundbreaking having occurred on the brick-and-mortar piece of the facilities. And then the equipment coming thereafter.

But is it -- there is some potential revenue opportunity for you guys in the back half of '27?

In '26, it's Samsung and BOE, '27 and '28, I think we need to see exactly what the time lines look like -- but I think it's probably more toward the end of '27 some of the recent reporting that we've heard out of what's expected for the Visionox time line.

Yes. And all of this is really geared towards what's the transition in tablets, which you alluded to as well as laptops but also monitors where you can see in some announcements in that area. And of course, one of the things that I get questions on, you guys have talked a little bit about it. But in this IT market, I wanted to spend a few moments just on the tandem architecture and how this plays into this particular segment of the OLED market, the IT market. So if you could maybe help the audience with that a little bit.

Sure. Yes. So tandem, if you look at smartphone to it's a single-layer approach where there's one emissive layer in that display. Tandem is a technical approach that's been used to date predominantly in certain IT products such as the iPad Pro is a tandem product as well as many automotive products that are out there. And the reason for tandem is, well, what a tandem is as 2 emissive layers in the display.

So for our business, that's about 1.5 to 2x the quantity of our material per inch compared to a single layer product. And the rationale and the reason for the OEMs wanted tandem and our using tandem is -- it can allow for either greater brightness or longer lifetime of that display. And if you think about a, let's say, a laptop where you have Microsoft products open all day, you're using outlook and excel, you've got a bunch of white pixels on.

One, you want them to be bright enough. And two, you want that product to last long enough, the appropriate number of years for the life cycle of that product. And if you have those white pixels on over many, many years, there can be a concern about lifetime in a single-layer product. So -- that's the reason why tandem products are needed. And similarly in automotive, where you have a vehicle that's going to last many, many years. You also want the displays in that car to last a suitable lifetime.

And that's why tandem has been approach that's been used initially predominantly in auto and now recently more so in the IT market. There's going to be a mix in the IT market of tandem and single-layer products, and we've seen that where the iPad Pro has a tandem. It's expected that there are other products, laptops in market.

Dell, I believe, sells both tandem and non-tandem products within their product portfolio. So we're going to continue to see a mix. And I think you'll see the premium offerings have the tandem display and more of the mid-range offerings likely have the single layer and there'll be a home for both of those products in the market.

Is there a point -- is there some -- at some point, would we potentially see this tandem display incorporated in a smartphone? Do you guys see that?

It's possible. There's been very, very limited releases to date of tandem smartphones. I think well less than like point-something percent of the smartphone market has a tandem product today. It's a technology that's certainly can be used technically in smartphone. There's no issue with that.

It's really just, is it a cost-effective approach for the OEM because it is a more complex display to manufacturer and therefore, more costly for them to source from the display makers. But there's been a few models that have been out there, and I think we'll have to see how that evolves.

Okay. And let's spend a few moments on the smartphone market and obviously, a lot of interest right now in foldables, products that have been out in the market and also potentially a new one, a new OEM joining the fray. Do you guys have a sense as to as you look at the foldable segment of the market, other than just maybe relying on some of the third-party research. Are you able to ascertain from your customers? How much of that is impacting your revenue? Or is it just a little too hard because you're too far removed?

It's difficult because the same type -- the same material from UDC can be used in a foldable and nonfoldable product. So it's a little difficult for us to determine when we ship to Samsung or LG or anybody else exactly the end use of that in which smartphones is it going into. And what's the form factor of those smartphones and so it's difficult.

We do tend to lean -- we certainly have get information through our ongoing conversations with our customers on their road maps, how they're working with their OEM customers and what they're able to share with us. But we do tend to rely also on third-party data as well.

Okay. And just hypothetically, you see an announcement of a new foldable from a major supplier to the market coming out and in the second half of '26. When would you anticipate that beginning to work its way through the supply chain as it relates to you? Would it be as early as Q2? Would you see some potential incremental from that?

Yes. So our customers, typically, let's just say hypothetically, there's a September release of something. We typically see production, call it, our customers producing 2 to 3 months in advance of that and ordering from us, call it, a month or ahead of their production needs. So we would see some of that likely in Q2 if the -- for September hypothetical launches.

So we're all talking about what's potentially a more robust refresh in handsets. At the same time, there's been a lot of reports about a higher component prices, particularly DRAM. And I'm wondering, internally, do you guys monitor that? And to what extent does that potentially change? Could it change the overall outlook for demand based on what you're hearing?

Yes. It's certainly something we monitor closely as we do all factors that could affect consumer demand and pricing are monitored by us and factor into our forecasting process. So I'd say it's part of the equation, but we're not laser focused just on that in isolation, but we're looking at the total mix of information across the industry and particularly what we're hearing from our customers.

And we are projecting growth across our customers next year based on all the information that we have at this point. So -- it's -- but it's certainly a factor, but I would say we're still looking at growth next year in 2026. We're already in 2026. So yes, growth this year.

It seems to be more choices in the TV market as it relates to the types of display technologies. And some people will look at all this and say, great product, great picture, I love it, but it's still more of a niche product. And the question is what takes it to the next level? Even though the reviews have been terrific for the most part. It's -- I'm sure you can say price, but just any other -- as you -- as the company thinks about the way the market is developed, it hasn't been quite as robust as some of us thought it might be.

Yes. No, very -- all very fair comments. I mean, I think that, as you said, it is a premium offering, a very high-quality display. It has been priced as a premium. And like we were talking about earlier, if a consumer is going to Best Buy or local consumer electronic store and they're in the market for a TV it can be difficult to discern exactly where they should go. And from a price perspective, that gap between premium LCD and OLED is still there.

So we do think that there's not capacity -- it's not a capacity issue. I mean our customers have especially LG Display has additional capacity for TV units. So if additional orders showed up, they have the ability to meet those is our understanding. And it's really a factor of pricing, right, and scale and being able to get the economics to a place both for the display maker as well as the where that is the approach -- the pricing strategy can be modified such that it will fuel additional demand.

And we're a very small portion of the bill of materials for our customers' products. So -- we certainly try to do what we can to -- on pricing to be reasonable people, but we're not going to be able to necessarily fuel that additional demand based on our pricing strategies.

So we've come to this part of the program where we're going to ask the requisite questions on blue. So we saw an announcement May last year from LG talk to us about that announcement from LG and the impact that it potentially could have.

Yes. So the benefit of phosphorescent blue, I'll start there is energy efficiency as it is with our red and green materials. So by introducing phosphorescent blue and replacing fluorescent blue, which is used today for the blue color in OLED products. That can increase the energy efficiency of that product up to 25% of that display.

So that's a significant benefit to the industry and not just our customers, but the OEM customers and ultimately consumers. LG display, as you said, back in May at one of the industry conferences, they did showcase an approach using a tandem structure and in one of the layers of the tandem product, they introduced phosphorescent blue using our material. And they noted that it was a 15% increase in energy efficiency and that they had qualified it on a mass production line and that it was commercially performing.

What they didn't say is and we have an OEM customer who wants to introduce it in this quarter in this product. So we certainly know that there's a lot of interest from the broader market in using phosphorescent blue and higher-efficiency blue. We've been working with multiple customers for many years now on developing blue. We continue to do that.

While the announcement by LG was great last year, we still have -- we're still continuing to develop new materials on our side that improve performance characteristics and therefore, unlock even more opportunities for our customers as they continue the path of introducing blue into products. So the promise of the technology is still as great as it's always been.

The road has been a lot more windy than we expected it to be. If you rewind a couple of years ago. It's just taken longer to get to this point. But the path that we're on, we still believe is very much one that will yield success for us and introduction of our material.

Yes. And I mean the LG news was encouraging. But the pushback, I think that some we get from investors is Wall Street on the sell side, maybe get too optimistic about time lines for blue. And that's -- it's probably a fair question. But yes, you guys yourselves have been talking about this, expecting to hit commercial specs well prior to the LG announcement?

Yes, we had expected to achieve commercial specs in '24 and May of '25 was when LG came out with their announcement of a commercially performing display. So it was a delay. And admittedly, it's just taken longer for us. The -- it's been more challenging. I mean, as new technology introduction can be, there's been things that have come up that were unexpected that we've had to navigate.

But like I said, we continue to feel like the path is the right one. And might there be another curve that we can't anticipate ahead? Possibly. But I think we have such know-how and expertise in OLED material development commercialization that we are confident that ultimately, we'll be able to get to the introduction of blue.

Okay. how disappointed would you be if we're sitting here next year? Still talking -- and I'm still asking the same question.

Yes. And I would have said a year ago that I was -- would be disappointed now. I mean I think that -- the interest level is there, right? So none of our customers have said, "We don't want that because of A B and C." Everyone is very much engaged in wanting to partner with UDC on high-efficiency blue and work with us. So that interest level is still very much there. And because there's that level of commitment and interest, we're confident we'll be successful.

We've seen historically how we put time lines out there and have not been successful in fully achieving those. We're also -- we're in control of certainly the emitter -- the phosphorus in emitter is a key component of high-efficiency blue. There are other things -- factors that go into it in terms of other materials that are used in the display and other things that we partner with our customers to help in the best way possible. But -- there are also certain portions of it that are out of our control in terms of ultimately getting it into a product.

Okay. So last week, you announced another new long-term OLED material supply agreement with Tianma, which has been a long time player in the market, nice to see. Talk to us about where we are with some of the other contract negotiations. I'm thinking of LG was up for renewal at the end of '25. Remind me again, if you ...

Okay. Yes. So our contract with LG display, as you said, Tianma, we announced a new long-term agreement with them last week. So that's great. We've had a long-term agreement in partnership with them, which will continue and LG Display, our contract with them was up at the end of December. These contracts can often take longer than we'd like to get to the finish line. But we continue to supply LG today and as we work with them on finalizing the new deal.

Okay. And on Tianma, is there a provision of blue in that? Is that true of most of your agreements?

We're really looking at these as red and green new agreements because that's -- the thing that's right in front of us is negotiating the expiration of a red and green agreement. So focusing on that and then having separate conversations at the appropriate times on blue agreements is the way that we've been approaching the conversations with customers.

And that's clearly the case with Samsung, right?

Yes, Samsung, our contract with them isn't up till the end of '27. And so once we get into conversations with them next year, we'll have to see how we approach that.

Okay. I want to talk about the competitive environment for a moment. It's questions that come up. There have been more reports of local emitter suppliers in China. And I guess, the way it's sometimes described as a China for China application. But how widespread is this competition and is there a risk that it potentially can move beyond China?

Yes. So we have seen in the last few years, there'd be an increased competitive environment in the Chinese market. I think a lot of that is driven by local government desire to have local suppliers across not just display or OLED, but across the broader Chinese market, there's been a pressure for that.

We -- the Tianma announcement last week, I think, is evidence of the fact that UDC continues to be the key partner for OLED display companies in the Chinese market. And there has been slight market share shift that we've seen. It hasn't had a significant impact on us, but we continue to focus on -- well, firstly, we have to continue to have the best materials and be partnering with our customers, and we're continuing to look at our support model in China.

We're opening a new lab in Chengdu in the coming months to support our customers in the Chinese market more locally and also have the ability to hold inventory in China and supply them there. So we're looking at ways that we can continue to make sure that we're meeting our customers' needs and expectations in the Chinese market while acknowledging that there are competitors. And we believe because of our IP position on a global scale, having 7,000-plus patents that cover not just our materials, but a lot of technology that's critical to the commercialization of OLED displays.

All of our customers in China also want to be our global players in the display market. And so having the right level of collaboration and partnership with UDC is important for their business as well. So we continue to focus on meeting customer expectations and exceeding them as well as continuing to maintain our technical advantage that we have.

Okay. We've talked about third-party research. And I think right now, you may have a better update for us, but the overall OLED market. I think the suggestion is that it could grow 6% or so in dollars, maybe in similar in panel demand in 2026 with the expectation of a stronger '27, which would align with the capacity increases that we've seen. But we've tried to go back and look at that data versus your revenues over the years, and it doesn't always sync up. And so I'm just wondering, directionally, is that a good way for investors to think about near-term growth to look at that data?

Yes. I think certainly looking at the area growth, right, because that's really what affects our business. The revenue -- industry revenue growth is less relevant, the ASP at the customer side. can affect that. But looking at area growth is certainly a good way of thinking about our growth opportunity.

But there are things, as you said, that can cause us to grow more -- greater than the industry growth -- area growth and also some that can be slight headwinds to that. So -- on the tailwind side, tandem structures, as those become more predominant, that also is an opportunity for us because on the same per square inch, there's more UDC material needed for those products.

So that's one of the key factors. And then on the headwind side, there can be just general efficiencies that our customers are able to realize occasionally in terms of whether it's how they operate their tools at their manufacturing line, the thickness of some of the layers to different customer recipes can change. And that routinely does fluctuate sometimes favorably, sometimes unfavorably, just depending on the period.

And then we talked earlier about yield at the customer side, whether it's new fab turn on or otherwise that can be beneficial in some periods to us. So we'll share in a few weeks here when we do our year-end report exactly how we think that's standing up for 2026.

And we will wind it down, which is a question on capital allocation, balance sheet is extremely strong. You did a small acquisition of some patents, similar to what you did a few years ago. How are you thinking about the cash on the balance sheet and thoughts around capital allocation?

Yes, we do have a significant cash position, so around really $1 billion as of September and as you said, we acquired the Merck patent portfolio. We've acquired now 2 portfolios of IP from Merck. This portfolio is very much focused on device architectures and is one that as our teams are developing new materials and technology, having access to this IP just opens up more doors for us in the development cycle.

In terms of capital allocation and more broadly, business, whether it's investing in IP as we have with Merck and others or looking at acquisitions that may potentially be complementary to our business. And then we have also prioritized returning capital to shareholders. We've had a dividend program that we've routinely been increasing and also a buyback authorization that our Board put in place last year. So multiple methods to continue to return capital as well as look for growth opportunities in the business.

Okay. With that, I think we'll end it there. Brian, thank you.

Thanks, Jim.

All right. Well, good morning, everyone. I hope that you've been enjoying the sessions this morning. I have just had such the pleasure of spending the last couple of minutes with Brian and getting to know him a little bit better, and I'm sure that you're going to enjoy getting to know him and Universal Display better as well. So we're going to go ahead and kick things off with Universal Display and their CFO, Brian Millard, CFO and Treasurer.

So first question, for those new to UDC, Brian, can you share a quick snapshot of who you are and what makes your story unique?

Sure. Yes. So thanks, Brenda, for having us, and thanks, NASDAQ. Before I get started, just a quick safe harbor statement. So I may make some forward-looking statements today as part of my remarks. Our actual results may differ materially from those. So we'd encourage everyone to look at our filings to understand the risks and uncertainties associated with the business.

So UDC. So we have been in business for more than 30 years. We are a key OLED material supplier. Our materials today are really focused on -- and throughout our history have been focused on phosphorescent emitter material, which in an OLED display is really the way to think about it is what gives off the light. So in a display, you have red, green and blue colors that are used primarily to create displays. We today have commercialized our red and green material and have been in market for many years, and I'll talk a little bit about the various applications and end markets for our products. We've also been working over many years to commercialize our blue phosphorescent material as well and continue to believe we're moving closer and closer to commercial introduction of that material.

So in terms of the end markets today, smartphones, TVs and IT are really kind of the main key markets for our products. Smartphones today, we have roughly 60% penetration. So that's grown very nicely over the last decade or so as more and more smartphones, especially the premium models, which today we have nearly 100% penetration in the premium smartphone market and more mid-tier and low-end models also continue to convert and adopt more and more OLED displays. And that's because of the energy efficiency benefits of OLEDs as well as for our material, the phosphorescent emitters, they are more energy efficient than the alternative, which is a fluorescent type of emitter.

And also in smartphones and a compelling opportunity for us, we believe, in the next few years is as foldables continue to gain more and more momentum, more OEMs are adopting foldables. We also know that consumers are increasingly interested in foldables as a form factor. And so as that continues to gain more momentum, that's very compelling for our business because there's more square area per device as well as there's hopefully, the expectation that spurs a replacement cycle and more consumers will upgrade and get new devices.

On the TV market, that's a very compelling market for us because of the size of those displays. Currently, we're about 3% penetration in the TV market. We believe that has the opportunity to grow in the years ahead, especially given that OLEDs and LCDs, the price gap has continued to narrow between those 2 technologies. And OLEDs have the clear advantage in terms of technical performance and consumers continue to prefer OLEDs because of all the various performance characteristics of those TVs.

The last market that I'll mention, which is in terms of key markets today is one that we have the most opportunity for growth in the next few years, which is the IT market. And that is tablets and laptops and monitors, where currently only about 5% of those products have OLED displays today. So very low penetration, huge market and the opportunity for our business to continue to penetrate there off of our customers making significant investment -- improvements and advancements in new capacity for that market. So right now, Samsung, BOE, Visionox and China Star, which are 4 of our largest customers, they've all announced new capacity investments that they're making for the IT market as more and more OEMs want to adopt OLED products into IT products, whether it be tablets, laptops or monitors.

Then there's other markets that we also monitor like automotive and wearables, where OLEDs are also gaining more momentum off of very low penetration rates today. So a lot of opportunity really across a variety of different end markets and our phosphorescent material being critical to the performance of OLED displays and continuing to increase the adoption from here.

Very thorough. I love the foldables, right? Flip phones are back again. It's all cyclical. So Universal Display has been a pioneer in OLED for decades. So what are the core differentiators that keep you at the top of the game year after year?

Yes. So we've -- I'll talk about our red and green material and then talk about the opportunity for what blue can provide for a device because I think that's also really important to touch on. So in our red and green material, we are continually inventing new technologies generation to generation that improve their performance characteristics and those are in a couple of different areas. One is specifically as the color requirements continue to change for our customers, various points on the color spectrum that they want to be as they continue to invent new technology and displays. We -- our teams continue to invent new materials that meet those color specifications.

The biggest area of improvement also that we've had is our material has 100% internal quantum efficiency. But even off of that 100%, we've been able to continue to increase and make more and more efficient our material over years. So gen to gen, we've seen improvements in terms of the energy that our material consumes to emit the light that it needs to. And so that improvement is -- has been very significant. It brought about a 70% increase over the last 10 years in the energy efficiency of our red and green material. And so that enables -- when you think about getting a new phone and having the battery last longer or more energy-consuming features being able to be put into those devices, having more energy-efficient OLED material that we provide is one of the ways that the industry has been able to improve the performance of those devices, and we continue to improve that.

Blue is the big opportunity. So all of your smartphones today that have OLED displays have red and green phosphorescent emitter material. And currently, the blue material is a fluorescent emitter, which is a much less energy-efficient material. So compared to our 100% internal quantum efficiency, a fluorescent material is only about 25% energy efficient. So as we continue to move closer to introducing phosphorescent blue into the market, that's the opportunity for the energy efficiency of the display to increase significantly, about a 25% increase in energy efficiency if you were to just replace the fluorescent with the phosphorescent. And we've been, for many years, developing phosphorescent blue material and working with our customers to bring that closer and closer to adoption.

So that's so interesting. So we talked about the differentiators themselves. So what about your long-term vision? So can you talk a little bit more about not just what's happening now, but the long-term?

Yes. So long-term vision is really focused on continuing to fuel the growth of the OLED industry. So we're a key material supplier, a key enabler to our customers' growth and to the industry's growth and to the adoption that we know OEMs want to have across more and more applications. So if you think about the 3 markets we talked about today and the growth there, there's also emerging technology and other areas for OLEDs to go such as in health care, there are some areas for OLEDs to be used in red light therapy. And as display technology is used in a variety of different applications, we believe OLEDs will continue to be a major growth driver. Automotive is a market also, especially for EVs. We've seen OLEDs gain good share in EVs. We think that has the opportunity to grow, not just in EVs, but across the entire auto market in the years ahead as well.

So lots of untapped growth that you guys -- lots of penetratable market. So let's talk a little bit about partnership. You're known for your energy-efficient materials and cutting-edge technologies, which we've already discussed a little bit this morning, but you don't manufacture any of the materials yourselves. So can you talk about your partnership with PPG and how that collaboration helps you deliver reliability and at scale?

Yes. So we've had a 25-year manufacturing partnership with PPG. So we invent and have key capabilities on R&D and innovation. We also have a significant patent portfolio, 7,000 patents that are formed off of our innovations that are in-house. And then as we scale and our customers ultimately select product for commercial use, that is when we transfer our materials to PPG and they scale up that production for mass quantity. So it's been a very strong partnership and working relationship with them. We are able to tap into their resources and network and also continue to be the lean machine that we are on the R&D and innovation side of the house. And we expect the relationship to continue to be quite strong for the years ahead.

We currently have 3 sites that PPG manufacturers at. Two are in the U.S. and have been long-standing locations that they've been working on our account with and recently, in the last few years, we set up manufacturing in Ireland as well. And the plant in Ireland, we actually wholly own that site and PPG operates it for us. And that's been a very good model for us. And we also -- as we look forward to the growth that we expect in the next few years, we have great capacity abilities also in our Irish site where as the industry grows and we need to expand our volume, we have room to grow there in the Ireland location.

Got it. Got it. So you mentioned models. And for a second there, we're going to dive a little bit into financials. So your business model combines royalties and licensing with material sales. Can you walk us through the key revenue drivers for that model?

Yes. So we have -- as you said, we have 2 revenue streams, material sales and licensing and all of our customers have both agreements with us. So they're licensing our portfolio of 7,000-plus patents, and they're also purchasing their phosphorescent emitter needs from us. On the material side, we have price tables in all of our agreements, and we have typically 5-year agreements with our customers for both licensing and material supply. They are volume price models on the material side, so greater volume, greater price per unit for our customers. And then on the licensing side, that's really focused on what the revenue -- our customers' OLED revenues are expected to be over that 5-year term. And we've had great long-standing relationships with all the major OLED display manufacturers in the world.

Great. Great. And I know we touched on red, green and blue a little bit, but let's dive a little bit more into the materials side. So you currently supply red and green emitters, which you told us earlier. But what's the latest on blue? What benefits would phosphorescent blue bring to the OLED market from both a technology and financial perspective? And then how was successful commercialization shape your long-term growth story? I know that was a lot, impact.

Yes. So phosphorescent blue, like I said earlier, we've been working for many years to invent a material that performs at commercial levels. And I think the biggest proof point that we have that we're continuing -- that we are at that point is our customer LG display came out earlier this year and mentioned that they had produced a commercially performing panel using our material. They had validated that production on a commercial line at their facility. And they showcased that panel also at an industry conference back in May of this year. So that certainly was a key milestone in our development toward moving our product into the commercial market. We've also been working with other customers on multiple customers on phosphorescent blue development for the last few years and continue to believe we're moving closer to that commercial entry point.

So the key benefit, like we were talking about earlier, is that energy efficiency boost that you get off of replacing the fluorescent material with more energy-efficient phosphorescent material. And this has applicability really across all devices. Certainly, battery-powered devices is very compelling for. But even for TVs, there's certainly a value proposition for having a higher efficiency blue material in those products as well. So we're moving closer and closer. Now we're at a point where our customers really need to work with their OEM customers to determine how this gets incorporated into a product for the market. We believe that there is use for it across all OLED products. And we're continuing to invent material that has better and better performance characteristics to make that possible for our customers to introduce.

The approach that LG noted back in May was they use a tandem structure. So they had 1 layer of phosphorescent material for blue and 1 layer of fluorescent material for blue. And so by using that combined approach, they were able to get the energy efficiency benefits of our product while also getting the lifetime benefits of the fluorescent material, which is a more mature product. And we ultimately are continuing to develop, like I said, new material that will enable in the future, we believe, an all phosphorescent approach to be possible. That said, we're very happy if LG or any of our other customers can introduce a product even if it means there is some combined material set that's used with an alternative material.

Interesting. That dual use is very interesting. Thank you for sharing that. So let's dive a little bit away from the product itself and talk just a little bit more about your CFO approach as a leader. So can you talk about what principles guide your approach to margins, operating discipline and free cash flow?

Yes. So we have very strong gross margins. So 76% to 77% this year in our gross margins. So -- and we've maintained those gross margins for many years. So we've been in the high 70s for a number of years now. Because we have long-term agreements with our customers, that also gives us good stability in terms of ASP over those 5-year length in terms of those agreements. And we have a number of things on the COGS side that we're actively managing in terms of sourcing of materials, making sure that we're doing everything we can to, from a tariff avoidance perspective, make sure we've been very strategic in purchases to make sure that we're maintaining the best possible margin profile in terms of the sourcing of those materials. We also have the ability as we can put more volume through our manufacturing in the next few years to have operating leverage in the model.

And so we're actively managing both on the ASP side through those new customer agreements as they come for renewal as well as on our sourcing, production, yield improvements, all of those factors to keep gross margins at the highest possible level. And as the industry scales, I think that's just the only pressure, right? As you have greater and greater volume, you do have customers expecting a better price per unit, which is a reasonable expectation. But we've been able to have very strong gross margins for a very long time at the company.

Those are fantastic margins. So congratulations on that. So we haven't talked at all about strategic opportunities. So let's dive into that for a second. So as you balance returning capital through dividends and buybacks and maintaining flexibility to invest in innovation. Talk a little bit about strategic opportunities and how you're thinking about all of that.

Yes. So we have a number of things. So first of all, in terms of continuing to maintain and bolster our position in the OLED space, we've made investments in -- not only our own team's R&D, and we continue to identify opportunities for continued investment in R&D within the company. Our AI/ML team, we have a team that's about 10 years old in terms of computational chemistry. That's helped us significantly on red, green and blue to develop new use those technologies to invent new materials. So continuing to invest in that capability in the years ahead is a priority for the management team.

And we recently announced the acquisition of a patent portfolio from Merck, the German OLED materials company, which has -- also continues to improve and bolster our position on the patent side. And that's a device architecture portfolio primarily where it looks at materials and ways of combining materials in a display to make OLED products.

And in terms of capital return, we have had a dividend program for many years in place. We've annually increased that dividend. We expect to continue to increase that going forward. And we've -- earlier this year, our board put in place a buyback authorization as well. So we balance maintaining capital in the business for investment, which has been a long priority of the Board and the management team to have capital available to rapidly pursue investments and not need to raise capital for those as they come about as well as returning capital through both the dividend and the buyback program.

Fantastic. That's great to hear. And we talked a little bit about AI. So when it comes -- and R&D that you're doing involving AI. So when it comes to R&D, how do you think about the right level of investment to keep innovation strong while maintaining financial discipline? We just -- you talked about that a little bit, but a little bit deeper?

Yes. So we really take a longer-term view because the seeds that we plant in R&D today aren't necessarily going to pay off for years to come. So we really do take a longer-term view. And when we sit down each year to go through our planning process with our R&D leadership team, we focus on what do they think they can do and accomplish with the team and the resources that they have and what could they do if we gave them more. So it's more of a qualitative view than a quantitative view really in terms of how we look at R&D investment.

We also have to make sure that we're meeting all of our customers' needs and expectations. And certainly, as the industry continues to mature and grow, we've seen over the last few years, we've needed to increase our R&D investment to make sure that we're meeting all of our customer's demands, which continue to increase as well. So it's more of a qualitative view as opposed to setting a specific percentage of revenue or the like that we're looking at. It's more what are we going to do now that's going to benefit us 3, 5 and beyond years from now, both in terms of the existing portfolio as well as like -- and maintaining our position there and building upon it, but also how do we plant seeds for new growth in other areas as well.

Got it. Got it. I know we only have a few more minutes left. And I think we're about through with all the questions I had for you. But just if we can -- if you leave us with just some insights on 2026 and what you're thinking about, what's top of mind for you, I think that would be a good place to end.

Yes. So we're still wrapping up the planning process, and we'll share in the new year where we're looking for guidance next year. But I think there's a couple of key growth areas for us next year. One is on the smartphone side, foldables continuing to gain more and more momentum and that being a growth driver for our business. On the TV side, continuing to see additional unit growth there that's projected -- our customers are expecting it in '26. And lastly, IT being the biggest one where there's new capacity from Samsung and BOE coming online toward the middle of next year. And more OEMs are looking at adopting OLED products into their IT portfolio in the coming years.

That's compelling for us on a unit basis. It's also even more compelling for UDC because many of those IT products also have a tandem structure where there's 2 layers of a emissive material that's used. And so that's even more material per square inch from us that's needed for those products. So lots of exciting opportunity with all the new capacity and plans that our customers have, and we look forward to meeting the industry's needs going forward.

Excellent. Well, we've been so lucky to have you here in London with us. We hope you come back for many, many more years. I hope you all enjoy the session, and we'll be back with the next panelist soon. Thank you.

Thanks.

Good day, ladies and gentlemen. Welcome to Universal Display Corporation's Third Quarter 2025 Earnings Conference Call. My name is Sherry, and I will be your operator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Darice Liu, Senior Director of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Universal Display's Third Quarter Earnings Conference Call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Brian Millard, Chief Financial Officer and Treasurer.

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 November 6, 2025.

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'd like to turn the call over to Steve Abramson.

Thanks, Darice, and welcome to everyone on today's call. Third quarter revenue was $140 million, with operating profit of $43 million and net income of $44 million or $0.92 per diluted share. These results reflect timing dynamics as customer pull-ins in the first half of the year were more significant than previously thought.

Based on current forecasts, we now expect full year revenues to be around the lower end of our guidance range of $650 million to $700 million. Our company was built on innovation and leadership, and that remains unwavering. From foundational research to high-volume commercialization, we continue to push the boundaries [ of all ] the technologies and materials.

Today, our innovation engine is stronger than ever. Over the past decade, we've built a powerful artificial intelligence and machine learning platform that is transforming how we discover and develop new materials. By harnessing [ AIML ] to accelerate material discovery, we're identifying breakthrough compositions faster, reducing development cycles and expanding the frontiers of phosphorescent OLED. This capability is opening new horizons for our materials pipeline, enabling us to efficiently broaden our portfolio of next-generation reds, greens, yellows, blues and hosts to meet evolving customer needs.

We are also strengthening our foundation with strategic moves. Today, we announced a definitive agreement to acquire OLED patent assets from Merck KGaA, Darmstadt, Germany. This acquisition bolsters the building blocks for next-generation OLED performance. By integrating these assets into our R&D framework, we are accelerating our road map for high-efficiency devices.

This transaction valued at $50 million and expected to close in January 2026, underscores our commitment to lead the OLED industry into its next era of growth and transformation. Blue continues to be a cornerstone of our innovation journey. The timing for the debut of OLED blue and commercial products will be guided by the OLED market. When adopted, we believe our phosphorescent blue will be a game changer delivering breakthrough efficiency and performance for our customers, driving progress across the OLED industry, enhancing experiences for consumers and fueling growth for our company.

Looking ahead, we expect rising OLED adoption and new oil capacity coming online to drive growth in the OLED market. While macro uncertainties may persist, we believe that the OLED industry is entering a dynamic phase of expansion, primarily fueled by increasing demand for OLED and IT applications where penetration today is only about 5% of the market.

According to Omdia market research, OLED units from 2024 to 2028 are projected to grow across the consumer landscape. [ All IT ] units which encompasses tablets, laptops and monitors are expected to increase by 170%. OLED smartphones are forecasted to grow by 14%. OLED TVs are expected to grow by 11%, and the foldable OLED and emerging automotive markets are both expected to nearly triple by 2028.

Next year also marks a pivotal growth stage in medium-sized OLED manufacturing capacity with the world's first Gen 8.6 OLED fabs in Korea and China slated to come online. We believe this is the beginning of a multiyear OLED CapEx growth cycle as leading OEMs expand their adoption across their portfolio of IT products.

Samsung's 15,000 plates per month Gen 8.6 OLED IT line is expected to start mass production in the second quarter of 2026. BOE's 32,000 plates per month Gen 8.6 fab is expected to begin production in the fourth quarter of 2026. The Visionox is 32,000 plates per month Gen 8.6 OLED production fab, and Hefei is progressing well with initial equipment POs currently being placed. And just 3 weeks ago, TCL [ China Star ] broke ground on its first Gen 8.6 OLED plant in Guangzhou, China with a CapEx of approximately $4 billion and will have a design monthly capacity of 22,500 sheets.

The digital world is accelerating towards intelligence and interconnectivity powered by AI, ultrafast networks and seamless experiences. This transformation demands displays that are not only brilliant, but highly efficient due to higher power consumption needs, that's where Universal Display leads.

Our universal FOLED technology and materials are raising the bar for energy performance and next-generation devices. By delivering superior power savings, we enable longer battery life, cooler operation and advanced functionality across smartphones and wearables to automotive and IT displays.

And the horizon is even more exciting our breakthrough phosphorus in blue is poised to unlock up to an additional 25% of energy efficiency, paving the way for greater sustainability with performance in displays.

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

Thank you, Steve. And again, thank you, everyone, for joining our call today. Revenue in the third quarter was $140 million compared to $162 million in the third quarter of 2024. Revenue for the first 9 months of the year was $478 million compared to $485 million in the first 9 months of 2024.

For the full year, as Steve mentioned, we expect revenues to come in around the lower end of the guidance range of $650 million to $700 million. Amid ongoing macroeconomic uncertainty, this guidance reflects our best current assessment. We continue to estimate that our 2025 ratio of materials to royalty and licensing revenues will be in the ballpark of 1.3:1.

Total material sales were $83 million in the third quarter of 2025, consistent with the prior year. Green emitter sales, which include our yellow green emitters, were $65 million. This compares to $63 million in the third quarter of 2024. Red emitter sales were $17 million, this compares to $20 million in the third quarter of 2024. As we have discussed in the past, material buying patterns can vary quarter-to-quarter.

Third quarter royalty and licensing fees were $53 million, compared to $75 million in the prior year. This quarter included an out-of-period adjustment of $9.5 million, which reduced royalty and license fee revenues.

[ Adesis' ] third quarter revenue was $3.7 million compared to $3.6 million in the third quarter of 2024. Third quarter cost of sales was $35 million, translating into total gross margins of 75%. This compares to $36 million and total gross margins of 78% in the third quarter of 2024.

We continue to believe that total gross margins for the full year will be in the range of 76% to 77%. Operating expenses, excluding cost of sales, were $61 million in the third quarter of 2025 compared to $59 million in the third quarter of 2024. We continue to expect our 2025 OpEx to decline by a low single-digit percentage year-over-year.

Operating income was $43 million in the third quarter, translating into operating margin of 31%. This compares to the prior year period of $67 million and operating margin of 41%. Operating income in the first 9 months of the year was $181 million compared to $186 million in the first 9 months of 2024. We now expect our full year operating margins to be in the range of 35% to 40%.

The income tax rate was 19% in the third quarter of 2025. We expect the full year effective tax rate to remain around 19%. Third quarter 2025 net income was $44 million or $0.92 per diluted share. This compares to $67 million or $1.40 per diluted share in the comparable period of 2024.

For the first 9 months of the year, net income was $176 million or $3.68 per diluted share. Consistent with the first 9 months of 2024 is $176 million or $3.69 per diluted share. We ended the quarter with approximately $1 billion in cash, cash equivalents and investments. Our Board of Directors approved a $0.45 quarterly dividend, which will be paid on December 31, 2025, to shareholders of record as of the close of business on December 17, 2025. Our capital allocation program reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders.

While third quarter results reflect timing shifts, including customer pull-ins earlier in the year and an out-of-period adjustment, we anticipate renewed momentum and growth in the fourth quarter. Driven by our technology leadership, strong business model and deep customer relationships, we are well positioned to deliver long-term value in this growing market. As we look forward, we are focused on accelerating innovation, broadening our solutions and services and supporting OLED adoption across an ever-widening range of applications.

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

Thanks, Brian. Looking ahead, we are committed to shaping the future through leadership, innovation and growth. Universal Display was founded on the belief that science and imagination can transform industries and that spirit continues to guide us today.

Last month, we announced the inaugural winner of the Sherwin I. Seligsohn Innovation Award, established to honor our late founder's visionary leadership. The winning submission explores using organic materials to emulate the human brain's ability to sense, learn and adapt. Sherwin believe then pushing beyond limits and this award celebrates that legacy by recognizing bold thinkers who are redefining what's possible.

The same spirit of exploration extends us beyond OLED. Last week, our subsidiary, Universal Vapor Jet Corporation, UVJC, celebrated the grand opening of its new global headquarters and R&D center in Singapore. UVJC represents an additional chapter for our maskless, solventless, dry printing technology, UVJP, which is being developed for new frontiers, including semiconductors, pharmaceutical, batteries and photovoltaics while also positioning us for future opportunities in OLED TVs.

This evolution reflects our ability to leverage core expertise into emerging markets that will help shape tomorrow's technologies. Innovation also thrives through collaboration, this year marks 25 years of partnership with PPG, a relationship that has been instrumental in scaling our phosphorescent OLED materials and enabling remarkable industry growth. From our early days as a pioneering start-up to our global operations today. This partnership exemplifies how shared vision and complementary strengths can create lasting impact, and we're excited what the next 25 years will bring.

As we celebrate these milestones, we remain focused on the road ahead, advancing OLED technology, accelerating material discovery and expanding into new frontiers. The digital world is evolving rapidly, and we are committed to leading that evolution with innovation that is bold partnerships that are enduring and a future that is bright.

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 Instructions] Our first question is from Brian Lee.

I had a couple here. I guess, first off, understandably the pull forward from Q3 into Q2 that's showing up in kind of the results from a top line perspective. Then when I look at full year guide, even at the low point of the guidance range for revenue, as you mentioned, Q4 is going to -- looks like it's going to be a quarterly record for you in terms of revenue.

So just curious kind of what -- is there anything that slipped out from Q3 into Q4 timing-wise? And then if not, where is sort of the visibility around Q4 for that revenue kind of strength into year-end? Is that just product cycle-driven? Or are you seeing any new capacity being added in '26 starting to mobilize already in terms of material purchases here at year-end? Just trying to understand the Q4 strength.

Yes. Thanks, Brian. In terms of the Q4 guide, yes, your math is right that if we hit the low end of the guidance range, that will be a record. I think we posted $172 million of revenues in the second quarter of this year. So it'd be slightly north of that to hit the $650 million.

And we continue to get forecasts from our customers on an ongoing basis. those are indicating that we're going to have growth in a strong Q4. So it's that information that's really giving us the confidence to put out the guide that we have.

Okay. Fair enough. And then again, at the low point of guidance, $650 million revenue or so you're basically flat year-on-year. And I know it sounds like Steve was saying at the beginning of the call, you're entering into a pretty encouraging backdrop of growth across all these new product categories and unit growth assumptions as well as capacity expansion.

So how should we be thinking about sort of the growth trajectory off of the past 2 years where you've been kind of flattish into '26, what are some of the puts and takes? And as some of the, I guess, year-end weakness here in '25, is that potentially slipping into '26 here?

So there's -- as Steve mentioned in his prepared remarks, there's a number of things in terms of new capacity coming on in line next year that give us a lot of optimism about growth, not just next year but in the coming years across a variety of our customers, we've seen steady set of announcements over the last few years for new Gen 8.6 capacity with China Star as being the most recent.

And in terms of the '24, '25 growth, there was a few onetime items in '24 that also made it a little bit of a challenging comp. And looking into next year, we certainly are projecting continued growth.

Okay. Great. Fair enough. Last 1 for me, and I'll pass it on. The LG display contract, I believe, that is up for renewal at end of the year. Any thoughts you can share around how those contract negotiations are faring? And then are there any potential implications for the blue commercialization time line from those contract negotiations?

So we're certainly in a dialogue with LG Display about a new contract. We fully expect there will be one we've been working with them for more than 15 years now. they're a long-term partner of ours. So we're in the process of finishing up those details in terms of the new contract.

Our next question is from Mehdi Hosseini with Susquehanna International Group.

This is [ Manish mava ] on for Mehdi Hosseini. I just have 2 quick questions. First, so we just wanted to know like how much is Universal Display today as a percentage of the BOM cost for [ Tandem ] display?

And then in regards to phosphorus and blue when it does reach commercialization and gets adopted in volume, could you walk us through the impact it could have on your content per phone or your overall dollar content opportunity?

So on the first point in terms of our cost of the bill of materials, we are a very small portion of the bill of materials for displays, even single-layer displays and even tandem structures where there's somewhere between likely 1.5 to 2x the quantity of material in a tandem structure compared to a single layer. Even if you were to add a 1.5 or so factor on top of that single layer cost were still a very small portion of the overall cost structure of displays, regardless of whether it's smartphone or TV or [ what have you ].

On Blue, we certainly believe that phosphorescent blue has a premium price associated with it. We've been very consistent in that view. There's a significant investment we've made over many years of R&D resources and effort to bring it closer to commercialization. So we believe that it will be a premium to our ready green pricing, but still priced very reasonably such that it won't be a hindrance to adoption.

[Operator Instructions] Our next question is from Martin Yang with Oppenheimer & Company.

I want to maybe dig into the end markets a bit more. with regards to your guidance, is there any incremental changes by end markets, for example, smartphones, ITs and TVs that gave you a different outlook for the year?

Martin, I think as it relates to this year, nothing noteworthy that's come up in terms of the specific end markets. Certainly, as we've previously discussed and as Steve mentioned on the call today, the IT market is where we see significant growth in the coming years with the new capacity coming online from our customers as well as OEM product road maps and their plans over the next few years to adopt more and more OLED displays across their product portfolio.

We also, on the smartphone side, see foldables as a big opportunity for our business. certainly, the Square area being larger is compelling. This year, I wouldn't say there's anything abnormal that's come up on the foldable side, other than you continue to hear quarter after quarter more and more OEMs announcing increasing foldable models. And even if you're going the trifold route and previewing some of those tri-fold models.

So as we head into the next few years, that's where we really see a lot of the opportunity for our business is the increasing surface areas and new form factors in smartphones as well as generally the IT market having greater adoption.

Next question on new capacity that are coming online in the next 2 years. What will be the helpful metrics to help us understand the capacity or the startup cost, the start of as how the material demand can impact your sales before they enter full commercial production?

So I think that there's always a seeding process that goes into turning on a new fab and getting it ready for mass production. We do see that routinely when new capacity comes online. In terms of data points to look for metrics, I mean it will certainly come through in our results when those orders come through.

I think also our customers are getting obviously more efficient on an ongoing basis at how much material they need to use in each of those seating processes. But we would certainly expect to see some level of seating once those fabs are in preparation for mass production.

This concludes the question-and-answer session. I would like to turn the program back over to Brian Millard for any additional or closing remarks.

Thank you all for your time today. We appreciate your interest and support. We're excited about the opportunities ahead and look forward to speaking to you next quarter.

Thank you. This concludes today's call. You may now disconnect.

[Audio Gap] U.S. semiconductors, semiconductor equipment and networking equipment stocks here at Citi. It's my pleasure to welcome Brian Millard, CFO and Treasurer of Universal Display. We also have friendly neighborhood IR, Darice in the audience as well. Thank you, guys, for coming to Citi conference.

Thanks, Atif.

I'll kick it off with my questions first. If you have a question, you can raise your hand any time, and we'll do more Q&A. Brian, just as a starting point, kind of state of the union on the OLED market, when you entered this year versus where we are right now, there have been tariffs and pull forward in some of the consumer end markets. So just kind of walk us through how this year has played out so far? And then the state of the OLED market?

Sure. Yes. So before I get started, I just want to give a quick safe harbor. So I may make some forward-looking statements today as part of my remarks. Our actual results may differ materially from those. So we'd encourage everyone to look at our SEC filings before investing in the company.

So to your question on the markets, I think it's -- there's really 3 key segments that we track, smartphones, TVs and the IT market, which the IT market encompasses tablets, laptops and monitors. And this year, I think what we've seen -- we started out the year with a guidance of $640 million to $700 million. And I think through our -- through this period in time are usually playing out very much in line with expectations. There was a bit of a pull acceleration in the sense that April was a really big month for us with the tariff-related purchasing that some of our customers did -- after the U.S. announced its tariffs in early days in April, we saw accelerated buying from our customers in the following days. And we did see the first half of the year come in quite strong compared to our expectations.

The full year, we do still think is going to be quite strong. And the midpoint of our guidance is $675 million at this point. So that kind of contemplates a flat first half, second half orientation. And as it relates to the markets, the IT market is the one where we think there's a lot of growth in the coming years as many OEMs introduce more and more OLED products into their IT portfolios.

The TV market and the smartphone market are also growing. But the rates of growth in those are just slightly below what we expect for IT just based on the very low penetration rates today in IT and the expectation that many models are going to convert over the coming years. But as it relates to 2025, feeling good about where we are a little more than halfway through the year.

Great. When we talk to [indiscernible] and equipment makers, they have started to see an improvement in the spending for display. And so the question is on Gen 8.6 OLED fabs. There are activities going on? When do you expect what you're seeing in the market will translate to revenue opportunities for you to see.

Yes. So there's been a lot of announcements over the last few years of investments in these Gen 8.6 fab. So 3 of our major customers, Samsung, BOE and Visionox, all 3 have announced significant investments that they're making in this Gen 8.6 capacity, specifically for the IT market to meet the demand that I mentioned earlier. The Samsung fab is expected to come online, I think, around Q2 next year is the current expectation and the BOE fab in the second half of next year, followed by Visionox likely sometime late in 2027, I think, is the current estimates of that.

So collectively, those 3 companies are spending $20 billion of investment in this new capacity because they know the industry needs it to meet the rising demand for IT products. So it's a really exciting new opportunity for us. And we think that this is really just the first of many announcements in the next few years. More capacity for -- largely for the IT market. So it's a great opportunity. We're really excited about the growth in capacity. And it's also important to note, many of these IT products that have been launched and that are expected to be launched are tandem structures. So that means they have 2 emissive layers in the display. And that's an incremental material sales opportunity for us because that's somewhere between 1.5 to 2x the material per square inch compared to a single layer, so -- and these fabs that are being constructed at the Gen 8.6 scale, all will have the ability to manufacture tandem displays through a single manufacturing process. So a lot of opportunity both in terms of just the general Square area as well as the tandem effect above and beyond that for the IT market.

Great. Let's start with the mobility market. It is the most kind of traded in terms of OLED adoption, but there's some exciting form factors like foldable phones that are being talked about next year. So when we look at the mobility market and the foldable phones. First of all, we would be curious where you think is the penetration rate for OLEDs in the mobility market. And then for something like a foldable phone with increase in area, how big of a driver that could be to add incremental demand?

Yes. So foldables are a really exciting opportunity for the smartphone market. We think that in the coming years, there's many OEMs that are going to continue to increase their quantity of foldable models. The smartphone market in the general sense is roughly 60% or approaching 60% penetrated with OLED today. So as you said, very strong penetration already at this point in time. .

And foldables is an opportunity in 2 ways, we believe. One is just the square area and square inches of display in a foldable is somewhere between can be up to 2.5x the number of the quantity of square inches compared to a single layer. And so that's compelling for our business because there's more surface area for our material to cover as well as, we believe, as these foldables come to market, that should spur replacement cycles to a greater degree as more and more consumers are going to want to upgrade to these foldable -- foldable devices.

So there's a few different angles through which we think it's really compelling. The smartphone market in the general sense, today, that 60% penetration is really 100% penetration in the premium smartphone market. Solid penetration, very strong penetration in the midrange. And even some low-end models that we've seen over the last few years that have adopted OLED displays as the price of those displays has come down and as OEMs look to continue to refresh their products on an ongoing basis.

All right. I waited to a question before to talk about blue. so let's talk about blue. I mean I think you guys shared some excitement earlier this year. You're starting to see more activity. There was announcement by LG. And -- so first of all, for the audience, I think it will be important to know why does blue matter? Why do we need phosphorescent blue in our phones? Where will it get the consumers? And then what's the latest progress on it?

Yes. So our core business today is really -- is phosphorescent red and green emitters. So red, green and blue being the colors needed to produce a display. And the benefit of phosphorescence is that it has 100% internal quantum efficiency. So it really uses 100% of the electrical current is converted into light. Whereas fluorescent, which is the alternative technology and the technology that's used today for blue is very energy-inefficient. Only about 25% of that current is converted to light in a fluorescent approach. So you have a lot of wasted heat emission and inherent inefficiency.

So we've been working for many years to develop phosphorescent blue material. And the benefit of that would be when you include a phosphorescent blue into an all phosphorescent device, you would have about a 25% increase in energy efficiency of that display. So it's very compelling for our customers and the OEMs and consumers to have a more energy-efficient display that allows either smaller batteries to be used or the same battery with longer lifetime of the device as well as when you look at AI and some of these more power-consuming features that are being added to more and more devices, the ability to leverage more energy efficiency in the display to offset the power consumption needs of those new enhancements. So that's really the key benefit of not just blue, but our company's materials in general, is the energy efficiency that we provide.

As you mentioned earlier this year, in May, LG Display, who's one of our major customers, they announced that they had produced a commercial performing device using our material and that they had validated that device or the production of that on a commercial production line at LG. So that was a really key milestone in our blue journey and ultimately getting our phosphorescent blue into market.

The technology approach that they took was to use a tandem structure. So they used kind of a tablet size display that was a tandem. And for the blue color, they replaced one of the layers with phosphorescence and retained one of the fluorescent layers. So it's not an all phosphorescent approach, but it is an approach that they took to incorporate our material into a commercial device. And we're very, very pleased with how that's -- that they were -- they came out, they said that.

And we're working with not just LG, but other customers as well on their development efforts. And ultimately, we'll see -- it's up to our customers at this point really to determine exactly how this product gets incorporated into a device with an OEM and ultimately serve to consumers. But this is a key milestone, and we continue to do work on our side to introduce new materials that continue to improve their performance that will unlock even more opportunities for our customers as they continue their development journey there.

Brian, just on the point that one layer is fluorescent and one is phosphorescent. Is that -- is cost a reason for it? Or is it performance? Or is it manufacturing flow? What is the reason why they're using one layer, not the other?

Yes. So LG noted in their release that they were able to get the energy efficiency benefits of the phosphorescent material from UDC and they were able to get the stability benefits of fluorescent. And stability is kind of code for a lifetime. There's 3 things that we assess when we develop new materials, which is what is the color? So how deep is the blue or how light is the blue and having that right commercial spec, which we've had for a while now, the color point at a good level. The energy efficiency of the material as well as the lifetime of the material. Lifetime has been the most challenging for phosphorescent blue. But we've seen that our customers, LG in this case, was able to incorporate the stability of fluorescence and the energy efficiency of phosphorescence and get a commercially performing device and be able to make that on a commercial mass production line, which is a great step.

All right. So it moved from lab to a pilot fab. And so what's the next step in terms of kind of volume adoption when we read about the next-generation iPhone, whether it's thinner, it's going to have lower battery life. So you definitely need tools like phosphorescent to extend the battery life if the form factors will become thinner. So what's the kind of the next kind of milestone that you guys are kind of watching for?

Yes. So we're continuing to support our customers, and they are determining at what point they're comfortable having conversations with OEMs and having more technical conversations about product road maps, which we're not privy to, and that's really for our customers to be leading those with the OEMs. But the thing that we're doing is continuing to support them, continuing to improve our material performance, continuing to have joint engineering experiments with them on our material. And we're doing this -- there is interest across our full customer base in phosphorescent blue. I mean it's a very compelling value proposition for them to be able to include this higher-performing material in their devices.

We know there's interest in the OEMs as well as the kind of the broader OLED ecosystem and display ecosystem in this material. So -- it's never fast enough, but we're pleased with the progress that we're making and continuing to help our customers enable getting this into the market.

All right. And I missed out the SID Display conference this year. Was there any update by any other customers like Samsung or others on blue?

There weren't any specific phosphorescent blue announcements other than LG at their booth. They did have at their public booth at the conference back in May, they had a conventional tablet size display and one that they had produced using phosphorescent blue. And they had power meters on both, and you could see that the energy efficiency improvement was about 15-plus percent using the phosphorescent material from us.

Right. So when it gets volume adopted, can you walk us through the impact it could have on your content per phone or your overall dollar content opportunity?

So we haven't fully -- we haven't nailed down pricing with any of our customers on blue. We have had various conversations over the last number of years on pricing. We believe that the pricing is a premium compared to our red and green material pricing. But we haven't fully secured those contracts. So it's very hard to nail down that piece of the equation.

The -- and then on volume, it really depends on, is it an all phosphorescent approach? Is it a hybrid tandem like the approach that LG was public with? Is it something else? So it's really hard to put an exact point on it other than to say we -- even our red and green materials today are not a significant component of the bill of materials. So even with a premium price for blue per unit, we are not going to be a hindrance to adoption in terms of the way that we price the material.

Alright. And is it being evaluated across all your ABCD customers? Or is it 1 or 2 at this point?

We have projects underway with multiple customers, all of our major customers we work with on blue.

All right. And then on the licensing and royalty side, will this be incremental to the existing agreements that you have with these major customers?

So the materials is certainly incremental. On the license and royalty side, we have -- most of our customers are under portfolio license agreements, which incorporates access to all of our IP, inclusive of blue. Samsung's contract is the one that currently does exclude blue from it. And we're confident that when we need to reach a deal on how to layer that into their contract that we'll be able to make that happen.

All right. Let's switch to the auto market. it may not match the scale of smartphones and TVs, but OLED adoption in autos is gaining momentum. How do you view the long-term opportunity and adoption in that market?

Yes. Automotive is one that's interesting because it's really gaining a lot of momentum with our customers. Our customers, most of them have development projects and many have commercial projects already underway within the automotive sector. It's particularly compelling for EVs where energy efficiency is very important and OLEDs are a great way to take more energy efficiency out of that vehicle. The total auto market is roughly 85 million units globally each year. Today, less than 1 million of those have OLED products in them, but we're seeing more and more interest, not at in OLED products, not only in EVs, but also in traditional ICE models as more displays are incorporated in models, we're seeing more interest in high-performing displays like OLEDs.

Okay. And then on the whole geopolitical tensions, can you talk about you and your partner, PPG, how are you managing the supply chain? You have manufacturing in the U.S. and Ireland. What's the current production split and just kind of overall impact to the margin structure?

Yes. So we -- PPG has been our long-term manufacturing partner. It's been a 25-year relationship that we've had with them. So they manufacture our product at 2 sites in the U.S. that they own and operate and then site in Ireland that we own that site, but they operate it on our behalf. And the Ireland side has been really critical over the course of the last year or so. As we've been navigating some of the trade issues. It also added additional volume to our manufacturing network, which is important for the next few years as we see the volumes increasing across the industry.

And we've been able to manufacture a product that's in Ireland and ship directly to China as well as supply our customers from the U.S. as well. And we're just having an increasing conversation as we introduce new materials of where is the best place to manufacture. It used to be a little more clear cut. And now it's a multifactor equation that we have to go into in terms of which customers are using it, how do we balance production? Do we make it in both facilities? Do we make it only in Ireland?

And -- but we've been able to really successfully navigate the tariff situation thus far. Our customers' agreements are also generally structured that the tariff importing into their country is something that they're responsible for paying for. But nonetheless, we want to keep the friction of doing business with us as low as possible and make sure that we're helping be good partners and balance our production as best as we can.

Okay. Let me pause here and see if there are any questions in the audience.

On the LG phone or implementation, how much cost was added for them to have the dual phosphorescent and fluorescent elements in their device?

Well, the material they purchased to use that was under a development pricing scheme, which is quite different than the commercial pricing contracts that we'll enter into with them at the right point in time. So -- and we can't speak to the exact quantity. So it's a little hard for us to answer at this point just because we don't know the exact quantity of phosphorescence that they use in that layer that they had.

And then on your blue, when do you get back to a point where the lifetime of that is long enough to get into an automotive or any of these larger displays that have more than a 1.5-year life cycle?

Yes. So that's something our team, that's what we're working on every day is how we continue to invent new materials that have greater lifetime. If you look over the last few years, we've seen good improvement. There's very strong improvement in lifetime, which is why LG was able to do what they announced back in May is because of the improvements that we've had in lifetime in part due to the improvements we've had in lifetime, but.

Where does it stand now versus red and green?

We haven't disclosed that. But it was suitable enough to perform commercially in that device that they produced and announced back in May.

Can you talk about what is the application for the LG's tandem structure? Is it for tablets or is it for smartphones or monitors?

Yes. So typically, the first use in a major way of tandem structures was in automotive context. That was kind of the original use of tandem. And then recently, the iPad Pro that launched last year had a tandem structure. That's clearly an IT tablet product. There's been very limited -- very, very, very limited number of smartphones that have been made so far using tandem structures. But there have been some recent things that we've read about in the press where they're potentially being considered for use in some smartphones. So it tends to be primarily an IT and automotive application, the tandem architecture, but it's certainly possible to be used in smartphones if an OEM desires that.

And when blue goes commercial, is it going to be start with IT and tablets too?

Yes. Great question. That's really up for our customers to determine and working with their OEM customers to figure out exactly what is the first application. To your point, is it a smartphone? Is it a tablet? Is it some other OLED product? We know that there's interest in using phosphorescent blue across all OLED applications. But exactly what the first use is something that's really for our customers and their customers to determine.

Is there anything you could share with your other customers other than LG in terms of where they are in the development of blue phosphorescent?

Unfortunately, not. Obviously, we need to be sensitive to each customer's proprietary information. So we can't share anything about their progress other than to say we're working with multiple customers on development, and we're continuing to support their efforts.

Brian, on China, can you talk about the risk from domestic material suppliers in China? And how do you maintain your pricing power?

Yes. So there has been, over the last few years, a heightened competitive environment in the Chinese market. And some of that's driven by China, a desire for localization and government-driven focus in that regard in the Chinese market. We continue to believe that with the breadth of our IP portfolio on a global scale as well as the products that we have in R&D and continued strength of the relationships and desire for our customers to maintain strong ties with UDC that we're not very concerned about the competitive threat. We do monitor it. And it's something that we very much focus on making sure that we continue to stay close to our customers.

And we're also looking at how we support our customers in China and Korea, but China, specifically given some of the competitive threats that we're having more labs locally. We're setting up a new facility in Chengdu, which is very close to our customers that we'll be able to do experimentation with. We'll also be able to house inventory there. So we're looking at our support model across our customer base just to make sure we're continuing to serve our customers in the highest way possible.

Okay. And then beyond the blue and auto being a big opportunity, are there lesson known or emerging OLED applications that are exciting for you guys?

Yes. I think certainly, we've talked about automotive. There's many use -- the wearable market, AR, VR. There's even been some recent reports of some robotics that are using OLEDs for -- whether it's the skin or the facial elements of the robot. So there's a lot of applications that our customers are evaluating across the full landscape of display. And I think beyond the core 3 of smartphone, TV and IT, automotive is one that just with the quantity of displays increasing, whether it's cockpit displays or entertainment displays in the rear or tail lights, there's just many, many uses in autos to cover OLEDs in a lot of different places. And that's one that clearly our customers are honed in on based on the development efforts and projects that they have underway.

Okay. And then on the model side, if you can walk us through the gross margin and what are the normalized gross margin for the company and the operating margins? And how do you balance kind of the growth with the spending?

Yes. So we have very strong margin profile. We have roughly 76% to 77% is the guide of gross margin, total gross margin for this year. And we've been roughly in the 77% range for the last few years. And at the gross margin level, I mean, there's a couple of factors there. One is certainly ASP and the contracts that we negotiate with our customers and making sure that we're maximizing the value that we can through those agreements.

And on the COGS side, we are continually looking at efficiencies in our manufacturing process. Also as we have more volume in the coming years, there's the ability to absorb our fixed costs over a greater number of units and have leverage there as well as have yield improvements and continued efficiencies because the more we make of a product, the better we get at it, and we can continue to find opportunity for cost improvement there.

From a headwind perspective, we do have certain raw materials that we use in our manufacturing process that have fluctuated in price over the last few years. Iridium is one that is a key raw material for some of our products, and that's had a variety of different price points over the last 5 years or so. And maximizing our supply chain and how we source materials is also an area that we can try to find value.

In terms of R&D and SG&A and at the OpEx level, we are an innovation company, so investing in R&D is critical to maintaining our technological edge and advantage. And so we'll continue to find ways that we can appropriately put dollars to more and more projects. One area that we're -- we've had success in is using our computational chemistry team. We've had a machine learning organization for the last 10 years or so, and they've been helping fuel our innovation on the OLED discovery side. And so that's an area that in the coming years, we'll likely be putting even more investment to make sure that we're leveraging all the technology available to us to keep ahead on the materials discovery side.

And SG&A, we've had a very lean SG&A organization. We'll continue to. And we've made some really great investments recently that I think are proving good value on that side as well.

Great. And then the capital allocation front, UDC has historically made target moves acquiring OLED related patent portfolios, even a contract research organization. Has your appetite for M&A changed?

Yes. So we -- like you said, we do routinely look at portfolios that various companies may have that might be additive to our suite of 6,500-plus patents that we have today. We've done a number of those over the years. The most recent was 2 years ago when we acquired Merck's -- one of Merck's patent portfolios. And we'll continue to look at those opportunities as they come to us.

In terms of true business acquisitions, we don't have a significant history of those. It's something that we do talk about. And if there were the right strategic fit with the business, we would certainly consider that and evaluate it. We're also able to play and participate in kind of the broader technology ecosystem through UDC Ventures, which is our internal VC that we have, and we have a number of investments in that portfolio that we're able to -- both display and nondisplay companies in that portfolio that we're able to have our toe in a number of different areas. And if we were to see something in that regard that might be interesting, that's another opportunity for potential M&A at some point.

Okay. And then dividend remains the primary mode of cash return to shareholders? Or you guys did some share buyback this year, too?

We do have an authorization for a buyback authorization that our Board put in place for $100 million back in April. And we're going to be opportunistic in how we look to deploy that. And we do think the dividend is our primary method of returning capital. So we've had a dividend program in place for many years now and have annually increased that dividend. And the plan would be to strive to continue to do that going forward.

And you didn't talk about the Vapor phase JV that you have. Any update on that side?

Yes. So OVJP is -- which we've kind of rebranded as UVJP, Universal Vapor Jet Printing. And that is a technology that is focused -- was originally focused on large area TV sized displays. And it was focused on how do you print red, green and blue pixels side by side just the same way you do a smartphone today. How do you have a TV size display that has that same fundamental RGB architecture that you have for a smartphone. And we made a lot of great improvements over the last few years. We had a team in California that did a lot of work to advance the scale and size of that operation.

And what we identified last year was the TV opportunity and the desire for investment in TV CapEx right now just isn't there because our customers are really focused on the IT market. And that $20 billion that we mentioned earlier, they're investing and others that they'll invest beyond that in the IT opportunity. And we also identified there's a lot of areas and opportunity for UVJP in nondisplay context. So whether that's drug delivery systems, semi packaging systems, battery manufacturing. And so we set up a team in Singapore now that's approaching roughly 10 people, and they're going to be in the lab kind of proving out and doing proof of concepts on some of these other use cases.

So we feel really confident in the leadership we have in that Singapore team. We hired an equipment industry veteran to lead that team. And now what they're focused on is having conversations with people -- potential customers in the other areas as well as doing proofs of concept on these other potential opportunities for the technology.

Great. We're almost out of time. Brian, thank you for coming to the Citi conference.

Thanks, Atif. Appreciate it.