Universal Display Corporation Aktie

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.

Good morning, everyone. Welcome to our virtual fireside chat with Universal Display at Oppenheimer's 28th Annual Technology, Internet and Communications Conference. Today, we have the pleasure to host the Chief Financial Officer of Universal Display, Brian Millard. Thank you, Brian, for being here.

Yes. Great to be here. Thanks for having us, Martin. Just before we get started, I do want to give a quick safe harbor statement. So I may make some forward-looking remarks as part of my comments today. And our results may differ from those forward-looking statements. So we would encourage everyone to look at our SEC filings before making any investments in the company.

Thanks, Brian. I would like to start with your view on the IT market. Beyond quantitative market forecast for OLED penetration in IT, what qualitative shifts in user behavior or product designs are you seeing in the IT market that excite you the most about the long-term material sales opportunity for Universal Display?

Yes. I think the IT market is certainly one that we see a lot of growth opportunity for in the next few years. We're coming off of very low penetration rates. So right now, approximately 5% or approaching 5% of the IT units globally have OLED displays in them. So very low penetration and one that we know there's a lot of OEM interest in the coming years in adopting OLED displays into a variety of IT products.

So the form factor, I think there's -- whether it's tablets, laptops, monitors. There's a lot of use cases for OLEDs in the IT market. Gaming monitors are actually one that's getting a lot of momentum recently. The fast refresh rate of OLEDs is a key driver of interest in the OLEDs for the gaming monitor market. Even recently in the last few weeks, there's been some comments about some of our customers introducing new gaming monitors with even faster refresh rates. So we see that as being a key opportunity for growth in the IT segment.

As well as there are some comments in the next few years, some OEMs may consider foldable IT products, which should bring an even more interesting form factor to the display. So there's a lot of interest in IT across our customer base. We see that because 3 of our major customers have already announced new CapEx plans for the IT market, Samsung, BOE and Visionox all have plans underway for capacity to meet that growing demand.

And we would expect that other customers in the coming quarters may announce new capacity investments as well. So it's a key growth driver for our industry and one that we're actively working with our customers to support. We've also probably talked with you previously about the tandem structures that are used in many of the IT products, which is also a key driver of our business because there's more material needed for those displays.

And for those not familiar, the tandem structure is where there's 2 emissive layers used in the display. So there's probably somewhere between 1.5 to 2x the material consumption of UDC's materials compared to a single layer structure, which is certainly a benefit to us because that's more of our red, green and future blue material that will be needed for those displays.

And so it's one that we're working very closely with our customers to support them and are very excited about the path forward for IT and think that as these new fabs come online and as OEMs look at their product road maps for IT -- their IT products in the coming years, there's going to be more and more interest in the various form factors and options that OLEDs provide.

Got it. So maybe on the topic of large IT-oriented Gen 8 fabs coming online. What does those fab CapEx mean for you before they enter a mass production? Do you generate any meaningful sales as they ramp-up production and into commercial production?

Yes. So we certainly do. So as the equipment is installed and they're going through the process of qualifying those lines and readying them for commercial mass production, there is material needed from UDC to go through those test runs and those qualification processes. So we typically do see some revenues before those come online.

And as it relates to the pieces, the materials that are going to be needed this year for the qualification at Samsung and BOE, those are already incorporated in our forecast and guidance for this year. But there is some material that's needed in advance of actual commercial mass production.

Got it. And then for -- regarding the tandem structure, we all know LG showcased a hybrid tandem panel with your phosphorescent blue and fluorescent blue. How do you think about the market potential for the hybrid solution versus a pure phosphorescent blue. Are most customers okay with this hybrid tandem structure? Or are they waiting until the pure blue is ready?

Yes. So LG's announcement back in May was really a key exciting development for us and for the industry. So as you noted, their display that they produced using our phosphorescent material for the blue color had 1 layer of fluorescent and one layer of phosphorescence.

And they showcased that -- those displays a few weeks later at SID Display Week in California in mid-May. And they were IT size displays, so kind of the size of a tablet that they showed. And they showed a side-by-side comparison of a conventional tablet and a tablet that was produced using the higher efficiency blue material from us using that hybrid structure. They have power meters on both that you could see there was a 15% reduction in energy consumption using the high-efficiency blue from UDC.

We know that, that 15% is really compelling. I mean energy efficiency is what our customers and the OEMs, their customers are all after as they're designing new and next-gen displays. And so, we don't think that there's -- we know there's a lot of interest in high efficiency and getting that to market. So we believe that even if it is a hybrid tandem structure, there should be a place for that in the market.

And from our perspective, getting our phosphorescent blue material into market, whether it's in a hybrid tandem structure or another structure that LG or any of our other customers may bring to market, that's a really interesting opportunity for us and one that we're very excited. We also think it's a foot in the door because ultimately, getting to an all phosphorescent approach is our goal. But having our product in market initially will give us opportunities as we continue to invent new materials that continue to improve their performance, that then unlocks more opportunities for our customers in the years ahead.

And then in the LG implementation, how does the material consumption for UDC compared to a more regular tandem panel?

Yes. It's very hard to say at this point because we don't know the exact recipe that LG used to produce that display. So typically, in a tandem structure, there's 1.5 to 2x the material consumption in total compared to a single layer. But exactly the thickness of each of those layers for blue is a little unclear to us at this point.

But certainly represents an entirely new revenue stream for us because we don't have any blue in market today. And so, if they're successful in commercializing that and having an OEM design that into a product, that's an entirely new revenue stream for us and one that we're really excited about.

And then for overall tandem adoption in the market, we've seen some smartphone using tandem in China, and then we are seeing a wider adoption of tandem in tablet products. Going forward, where do you think -- aside from IT, do you still see smartphone as a high potential market for tandem?

We think that smartphones, as you noted, to date, it's been a little bit niche using tandem in the smartphone market. There's been some -- even in the last few weeks, there's been some rumors of tandem's being considered for various smartphone models. We think that, especially if it can enable phosphorescent blue getting into market, we think that, that's a great opportunity. And even regardless of phosphorescent blue, we think that certainly on the red and green side, our tandem structure would be incremental revenue for us, if they do use tandem on the red and green side.

It's -- the tandem displays are brighter. So brightness tends to be one of the key factors that are marketed when introducing tandem displays. And actually, when the iPad Pro, Apple's iPad Pro launched in 2024, Apple specifically marketed it as a tandem OLED and also noted the brightness is one being one of the key features of it.

So in the smartphone market, we think it does have an opportunity to take hold, but we'll have to see exactly how those OEMs in the next few years decide to consider tandem in the smartphone market.

And then for Apple's iPad Pro, for example, that display is one of the brightest and the highest performance display in the market alongside other IT products. So do you think this -- how would you characterize the commercial success of this tandem panel? And do you think going forward, this will make tandem a mainstay along the IT product for Apple's product lines?

Yes. So I think that tandem, whether it's really any OEM who's evaluating tandem has to consider what exactly does it add to their product that they're bringing to market and could they introduce a single layer and get the same features. As you said, the brightness, and we talked about the brightness is a key factor and also the lifetime because if you have white pixels on all day long on the display, after a number of years, there can be some concern of lifetime, if you don't have a tandem display and tandem does help with the lifetime concern there.

We believe that in the IT market, there's going to continue to be a blend of single layer and tandem structures, whether any OEM is going to have probably their premium models that would have the tandem structure. And then there may be other models that are single layer. There's models that have been in market for many, many years that are single-layer OLED IT products, and they do quite well.

They don't have the same brightness that you would have with tandem. And after many, many, many years, possibly there's a lifetime concern, but we've not really seen that be a significant issue. So there's going to be sweet space, I think, for both. And really, it comes down to the cost because tandem is a more costly display for the OEM to procure from the display maker. There's more manufacturing complexity. As it relates to our material, we're still a relatively small part of the overall bill of materials for a display, even a tandem display.

So it's not necessarily UDC's material pricing that's a hindrance to tandem being adopted, but more some of the other manufacturing complexity that goes in the process that causes them to be a little bit more expensive for the OEM to purchase.

Got it. And I want to touch on blue because this will be quite an integrated topic with tandem structure going forward. Maybe first taking a more retrospective view on blue. When you look at the blue development, what were the most unexpected breakthroughs or challenges you're running to that contributed to the delay in 2024?

Yes. So a little bit of background there. As many of you may know, in 2022, we first set a time line to blue, and we said that in 2024, we expected to have commercial performance of our material. And just this May, so 5 months after 2024, one of our major customers, LG came out and said that they had commercial performance using our material.

So over the last few years, our team has been working very closely with our customers and internally to develop new materials that have continued to increase their performance and therefore, given our customers more opportunities as they design and develop material products using our high-efficiency blue.

I'd say the challenges and breakthroughs have been that our material is one component of an overall system. And so that is a little bit challenging for us and our customers because it's a matter of how does UDC's material perform with various other materials that are used in producing a display. I think getting to that right combination has been part of the puzzle that everyone has been trying to solve as well as specifically, there's 3 things that we assess when we're developing new materials, whether it's red, green or blue materials, which is what's the lifetime of the material, what's the color point, so how deep is the blue or light is the blue and what's the energy efficiency.

And so of those 3, lifetime has been kind of the most challenging to move up the curve. And that's part of the reason why you saw LG in their announcement back in May, they noted that they got the energy efficiency benefits of the phosphorescence from UDC, and they were able to get more of the stability or lifetime benefits of the fluorescent using that hybrid approach that they did.

Continuing to improve the lifetime characteristics of our material is certainly a priority and what our team is working on. But it's not a linear path, right? There's kind of twists and turns as we go through the development process that just caused it to take a little bit longer than that 2024 time line that we had originally set out for a few years ago.

One of the key things that we've been using across our development of red, green and blue materials is our proprietary AI/ML platform. So we set up a computational chemistry team at UDC about 10 years ago and that team is working continuously with our new team in the lab to come up with new material sets that can improve performance characteristics.

So that's been a key capability of ours that's helped us certainly on the positive side move forward faster than we would have otherwise been able to. And -- but there's always in science, there's things around the corner that you can anticipate, and we've successfully navigated those and are really happy with the place that we're in today.

Talk about 1 of the challenges is developing a material in a very complex system. Does that make you think about maybe getting involved in more of the material development in the entire stack or forming a closer relationship with our customers or any other way to maybe remove some of the challenges in this complex system design?

Yes, it's a great question. So the material that's most -- has the closest relationship to the emitter that we produce are the host materials. And we do -- on the blue side, we have manufactured blue host and been selling blue host in development quantity to our customers. So that's been a way that we've been partnering internally with ourselves to continue to make sure that we're introducing a system to our customers that has the best possible likelihood of success.

We also have host collaboration agreements on red and green specifically with other companies, where we do collaborate periodically with other partners in the OLED ecosystem on material development for both -- for their developing host. We have development emitter and we do have collaboration agreements to kind of make sure that we're able to introduce collectively the best possible systems to our customers. So it's something that we certainly do focus on, specifically on the host materials.

And do those host collaboration agreements resulting in any financial upside to you? And is that something you also have revenue recognized from those development agreements?

It's not any material revenue, but we do occasionally have some small amounts of revenue that come out of those collaboration agreements.

I see. And for blue specifically, do you still see the host material for blue as a potential revenue stream once the materials ready and passed all the commercial thresholds?

We do see an opportunity for blue revenues or blue host revenue specifically. And I think it's -- we are mindful, though, that the host market is a little bit more commoditized than the emitter market. And so as we approach our customers and approach that commercial opportunity, we fully think we have host that performed very, very well.

We know there's interest in them because our customers have been purchasing them for development use. But we're also being mindful not to go build a bunch of capacity and infrastructure around the host business until we have a really clear sense of the commercial opportunity there. But we are fully going all at that opportunity and making sure that we're really competing in that space.

Got it. I want to talk about foldable smartphones because that's -- we see a very steady increase of foldable smartphones both in shipment and market share over the years. And for you, are you developing foldable-specific material stack given that the display has more durability or power efficiency concerns, anything special in the recipe?

Yes. So it's the foldable opportunity, as you said, is really seems to be taking off in the smartphone market. There's many Chinese brands as well as Samsung and others, who have had quite good commercial success with introducing foldables. So and we would expect in the next few years, there's going to be other leading OEMs that will introduce foldables in the smartphone side as well.

We specifically don't -- our material sets are fairly common, whether it's foldable or single layer. So there can be slight tweaks, but it's not like it's an entirely new thing that we're not familiar with. Many of the materials that we develop that are used for single-layer devices can also be used for foldable.

And so it's a market that's really growing and our customers are all very interested in it. And the opportunity for our business is also very great because there's probably 2 to 3x the quantity of our red and green materials and future blue materials that will be needed to produce those foldable displays just based on the square area of those foldables compared to a conventional smartphone. So it's a great opportunity for us. But on the material side, it's fairly common to what we're used to in the traditional smartphone devices.

I see. And considering the -- so I want to move on to your exposure to Chinese market. Considering the China order patterns are just getting more bulky due to geographic political factors, how do you proactively manage our inventory levels across the U.S. and Ireland?

Yes. So we -- as you said, we manufacture our products in 2 locations in the U.S. and Ireland. Right now, we manufacture about 50% of our needs in each location. So it's a challenging situation to balance what we manufacture, if we're introducing a new product tomorrow do we manufacture that only in the U.S., only in Ireland? Do we manufacture it in both locations.

So we have the ability to supply customers from both with the U.S.-China trade situation, having the Irish plant in our network has been a key capability for us. We've been able to supply our customers in China directly from Ireland in many cases. There are some materials that we make that are only made in the U.S. And so those have been subject to some tariffs, and that's why we saw a lot of our customers in China purchased significant quantity of material in the first few weeks of April. Before some of those Chinese tariffs went into effect.

So it's a constant balancing act of how we balance our supply between the 2 plants. And 1 that we having Ireland always as part of our manufacture network has been really critical in this time because it's key that we have alternative sources and be able to continue to be a U.S. manufacturer, but have the options of manufacturing elsewhere if we can as well. So we're continuing to, on a case-by-case basis, work with our customers to figure out exactly, where the optimal location is for those manufacturing activities.

And would you say the capabilities in the U.S. and Ireland, they are similar? Is there any materials that can only be produced in the U.S. or Ireland?

No, we have the ability to make them in both. So the equipment sets are really identical between the 2. So we have the ability to do all the wet process chemistry as well as all the finishing processes in our manufacturing in both locations. So -- and we have packaging labs in both locations as well. So really soup to nuts we can do the full process into your location, the same.

So is it right that the only difference between the U.S. and Ireland would be total capacity where you have a bit more capacity in Ireland?

Yes. So ultimately, Ireland is a larger facility. If it at full -- if we build out all the phases of CapEx, it's a multiyear CapEx plan that we have for that location. It's a 16-acre campus, so it's quite large, and we're only using about half roughly of the physical plant that's there. There is some incremental CapEx needed in the coming years to fully get to 100% capacity there.

But as of today, based on the capacity we have in Ireland, and the capacity we have in the U.S., we're balancing about 50% of our production needs between both sites.

Got it. And when it comes to capacity, there's also this question on utilization. What's the current effective utilization rate across your manufacturing facilities. Is there something -- some optimization you currently needs to do that impact margins?

Yes. So we have a high degree of capacity utilization, so we don't have a lot of underutilization at this point. That said, we certainly have some excess in our -- in our process if we need to scale up for additional volume to meet customer needs. It's also important to note, back to kind of the earlier part of your question, with the lumpiness of customer ordering patterns, we stock many months and sometimes quarters of material in finished goods for our customers, so that if they do place a significant order tomorrow, we have the ability to meet that demand because we've already produced it and have it on the shelf waiting for them.

So that allowed us in April when we got all these significant orders from our customers in China, we were able to rapidly respond and meet their needs within a few days because of the fact that we had already produced everything. So it's a concept, act of figuring out exactly how much to produce. But we have a high degree of utilization, but not 100%, right? There's always some capacity. And we do a forward-looking plan, multiyear plan looking forward of where we think industry volumes are going to go. Over the coming years, and that informs our CapEx plans and how we need to bring new reactors and other capacity online.

Got it. And do you need to bring reactors online in relation to the Gen 8 fabs?

We have sufficient capacity today, we believe, to meet that demand because we've been planning for that and know that, that was going to happen, that the IT market was going to have an inflection point in the coming years and that we were going to need to scale up manufacturing to meet that demand. So we feel comfortable with the capacity we have either in place or under construction in the current state that we'll be able to meet those volumes.

Got it. So how would you describe your overall visibility in terms of customer demand? You talked about having ample stock in finished goods for inventory, would you say your visibility with clients are pretty reasonable for you to prepare ahead?

We get visibility. Some customers give us kind of rolling 12-month forecasts. Our larger customers tend to give us longer-range forecast. And -- then as the -- the smaller customers, we tend to get 3 months or sometimes 6 months of visibility. So it really just depends on the customer how much visibility we get, and then we have our own team internally that meets typically every 2 weeks to kind of look at what the forward-looking volumes are expected to be over the next 12 months.

And then we do an internal kind of rolling 12 months even for the customers that we don't get. 12 months before we do our own extrapolation and estimates for that 12-month period. And then we do a longer-range 3-year model on an ongoing basis based on mostly internal data leveraging some third-party analyst and market research firms, but as it relates to kind of the near-term visibility. We do get 3 to 6 typically and sometimes even more than that from our customers.

And what's given us the confidence this year to raise our guidance that we raised just 2 weeks ago on our earnings call, we brought up the bottom end of the guidance range by $10 million. And that's really because we have good visibility now to kind of certainly what through July and into August look like. And we're continuing to get consistent feedback from our customers about what the rest of the year also is expected to be. And so that's why we felt confident in bringing up the bottom end of the guidance range by $10 million.

Got it. I wanted to maybe touch on emerging sectors for OLED display. Beyond the expected growth from IT and your potential blue adoption, what are the underexplored or emerging applications for OLED that you see as having significant longer-term consumption potential?

Yes. I think automotive is a really interesting market. It's one that over the last few years, I think we've been increasingly bullish about the automotive opportunity as our customers continue to focus on it even more and more. We have automotive development projects underway with many of our major customers at this stage. And especially in the EV market, automotive, the OLED -- OLEDs and automotive have a lot of compelling factors for energy consumption, the ability to have good temperature specs that OLEDs can perform at as well as some tandem structures are also being assessed for the automotive market, which is certainly an incremental opportunity for us based on that material volume per square inch being greater.

And the automotive market is one where not only for the cockpit and the dashboard and those driver-facing and front passenger-facing features, but even the rear entertainment displays for passengers in the rear of the car. And we have some customers, who are active in the tail light market as well for automotive.

Audi has been the OEM who's been most active in the OLED tail light market and they've adopted them in many of their models and have plans to do even more in the coming years. So I think automotive of the key markets is one that we're most interested in. Certainly, wearables continue to be an area of focus, whether that's smart watches and other types of wearables. It's a smaller revenue opportunity for us just because the size of those displays is smaller than a smartphone or a tablet or those types of devices.

But -- those are really the key markets that we're evaluating going forward. And then there's certainly things that fall beyond those 2, like medical devices and other things that might use OLEDs, but the predominant things that we're focused on beyond the top ones are really automotive and wearables.

And given there was a higher performance requirements for auto in terms of various conditions, maybe reason is the temperature and brightness, would you say overall, there's a potential of higher adoption of tandem structuring auto?

Yes. To date, many of the -- most of the automotive use has been tandem. There have been a few brands, especially some of the Chinese EV brands that our understanding is they have used a single layer OLED in some of those models. But especially many of the flagship brands in the West seem to be using a tandem structure for their displays.

Got it. And do you foresee in the future where auto start to become more material? Is there an inflection point or milestone you expecting for auto to become more material to your business?

Yes. So I think it's important to have the context of the broader -- the TAM of the auto market. So there's around 85 million new vehicles sold annually in the world. Right now, about 1% of those -- so a couple of less than 1 million units of those have OLED products in them. So there's clearly a lot of opportunity for growth off of where we are now, since we're just at such low adoption in the current state.

And I think if you look at some of the new -- the next-gen prototype models that are coming out, they have more and more displays in them. I think that's really the key opportunity for us is proliferation of displays even more in automotive. And as that happens, we think OLEDs will continue to have strong foothold. So I think that there's no 1 particular thing to point on other than we think that the penetration rate is very low today, has a lot of opportunity to grow as well as the size and quantity of displays in vehicles is continuing to grow on an annual basis.

And so that provides an even greater opportunity for our business as that continues to occur in the years ahead.

Got it. So both the penetration rate and then the content per vehicle will rise over, right?

Yes.

Got it. I want to touch on IT. And how do you plan to evolve your IT strategy to keep protecting your leadership position against other challenges, especially as the majority of the OLED industry is based in East Asia?

Yes. We are a continuous innovation company. So we're continually on a daily, weekly basis, inventing new technologies, materials, device architectures, various types of IT that we are patenting. And so we are filing that on an ongoing basis and continuing to get new patents granted. So we have more than 6,500 patents today, that cover not just our materials, but a broad array of technologies in the OLED and display space.

And we believe that the global coverage of that portfolio as well as the quantity and breadth and depth of the portfolio provides us with a lot of protection against competitive concerns. And so we believe it would be very hard for someone to compete with us in a meaningful way, especially on a global scale based on the types of IP and the nature of our IP.

But -- it's -- we're not sitting here living on patents of the past. We're continuing to move forward and invent new and improved materials and technologies that provide us with a lot of protection for our business going forward.

Got it. So I want to touch on the topic of capital allocation. So you have announced a buyback this year and in UDC's history, it's a very rare occurrence. Can you maybe speak to the context of buyback right now? And overall, what's your capital allocation strategy and where buybacks sits.

Yes. So as you noted, we historically have returned capital to shareholders through our dividend program. We've not been active on the buyback side. Our Board did put $100 million authorization in place back in late April. And that authorization was put in place really to give another tool to management as we move forward that, if there is price dislocation or a reason why we think our stock is trading at a particular value relative to what we believe is a market we can get in there and buy some shares.

We're not going to be -- so we're going to be opportunistic in the way that we deploy that. As opposed to having an ongoing program each quarter where we're buying a certain quantity of shares. And our capital allocation program is really focused firstly on investment, and that's investment either in R&D and continuing to expand our position in the industry.

M&A, whether that's acquiring patent portfolios or businesses. And then returning capital to shareholders, as I said, is important to us and has been through our dividend program historically and now through the authorization that we have in place for the buyback. And we'll see when and if we deploy the buyback going forward. But -- it at least gives us the opportunity that, as I said, if we see that dislocation, we can get in there and take action as we need to.

Got it. And in terms of other priorities in capital allocation, how would you rank them, respectively?

Yes. I think organic investment in organic R&D, right, and continuing to find new research areas, whether that's in OLED displays or other types of electronic materials or things that are kind of within our wheelhouse and what we know how to do is important.

We're also continuing to look at our AI/ML and computational chemistry area, which I mentioned earlier, and how can we continue to leverage that as a vehicle for our growth in the years ahead to maintain and grow our position in OLEDs as well as other research areas that, that might be applicable to.

And then we've acquired patent portfolios historically over the last few years. We most recently acquired the Merck patent portfolio 2 years ago. And we'll continue to look at opportunities in the years ahead of -- if there's IP, we find interesting that we think is additive to our position, we'll have the capital in the business to be able to pursue those very quickly.

We've not had a significant history and track record of doing M&A at the business acquisitions. But it's something that we preserve the flexibility to do through the capital we retain in the business and our financial position that we have.

I would like to address a few questions coming from the audience. The first regarding Summer Sprout and then your IP protection. The question is -- the company has been shipping red and green materials and their reports that those materials are being used in global smartphone models. How should investors take your lack of legal response to this development?

Yes. I think the key thing is we have a position with our customers. We have a strong partnership with our customers. We expect to continue to be the leader in the industry. There has been an increased competitive environment over the last few years, particularly in China. A lot of that is driven by a desire for localization.

And we believe that our IP position which we just talked about over the last few minutes as well as the partnerships we have with our customers, the quality of our materials. We'll continue to preserve our position on a long-term basis. But continuing to protect our IP and our know-how and trade secrets is about most importance and what we'll continue to take going forward.

Another question from the audience regarding Blue development. So do you have a new time line to share when do you expect to hit the commercial specification for a stand-alone blue, I mean in blue are in all phosphorescent RGB architecture?

Yes. So we don't -- I think the key thing is LG's announcement of using our material in a hybrid structure with phosphorescence and fluorescence we view as a major win for us and being able to get a foothold in the market, which will enable us to move forward and continue to iterate off of that strong position.

Like I said, getting to an all phosphorescent approach is certainly a priority. I don't have a specific time line to provide in that regard other than to say, our team continues to work. Our work isn't done in continuing to invent new materials that continue to improve their performance characteristics and that then giving our customers more options as they invent new products going forward.

And I want to maybe take the last few minutes to talk about your outlook for next year. Aside from quantitative guidance. What are the things you're excited about going into next year?

Yes. I think certainly, if you look at the key markets of our business being smartphones, TV and IT, of those 3, IT, we expect has the strongest rate of growth over the next few years and in 2026 as well. Based on the new capacity coming online, the OEM product road maps that we understand today to adopt OLEDs into more and more products on the IT side over the coming years.

And there's a lot of momentum at our customers on the IT side. Smartphones, we also have the opportunity to grow that market. We're more than 50% penetrated today in the smartphone space, and there's room for that to continue to grow as more and more mid-end mid models and low-end phones continue to adopt OLEDs. And TVs. We also expect there's going to be continued growth in the TV market over the coming years. So we're excited about a lot of things going into next year.

And on blue, we're continuing to work with our customers very closely on their development prospects. And we believe that we'll be very successful in having blue in market. It's just a matter of continuing to support our customers as they develop displays using our blue and as they continue to move that forward into the commercial marketplace. Got it.

Now I see no further questions from the audience, is there any closing remarks we would like to make?

No, I really thank you, Martin for -- and Oppenheimer for hosting us today. It's been a great conversation and conference. And look forward to talking with many of you in the coming quarters as well.

Thank you, Brian. Thanks, everyone, for attending. That's a wrap.

Thanks. Take care.

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Second Quarter 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 now like to turn the call over to Darice Lu, 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 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, July 31, 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 would like to turn the call over to Steven Abramson.

Thanks, Darice, and welcome to everyone on today's call. We are pleased to deliver record performance in the second quarter with revenue of $172 million and net income of $67 million or $1.41 per diluted share. As we look to the full year, we are raising the low end of our 2025 revenue guidance range to $650 million to $700 million. The OLED market continues to demonstrate a robust long-term growth trajectory fueled by expanding product portfolios and increasing adoption across consumer electronics and automotive markets. While macro uncertainties may continue to persist, we believe that the OLED industry is entering a dynamic new phase of expansion, primarily fueled by growing OLED demand in tablets, laptops and monitors where OLEDs are estimated to be less than 5% of the current IT market.

According to Omdia market research, OLED IT units are forecasted to more than double to 48.6 million units in 2027 from 23 million units in 2024. Smartphones and TVs are also projected to maintain their upward trajectory with anticipated growth rates of 11% and 10%, respectively, over the same period. Beginning next year, the first Gen 8.6 OLED fabs from Samsung Display and BOE are expected to come online, marking a pivotal shift in medium-sized OLED manufacturing capacity and capability. In addition, it was recently reported that Visionox Gen 8.6 OLED fab in Hefei designed with a production capacity of 32,000 plates per month is progressing ahead of schedule. LG Display approved almost $1 billion to boost its OLED technology capabilities and capacity at its Paju, Korea plant and Vietnam module facility. And TCL China Star is evaluating plans for a new Gen 8.6 OLED plant.

Another driver of medium-sized OLED demand is automotive displays, which were highlighted at SID display week in May. On the trade show floor in San Jose, concept vehicles showcased the vision for the future of in-vehicle display technology, featuring innovations such as transparent sun roof and window display panels, slidable rear seat monitors and expansive pillar-to-pillar dashboards. Panel makers offered a glimpse of how OLEDs are poised to redefine the on-road experience for design, functionality and immersive visual performance. According to Omdia, OLED adoption in the automotive sector continues to expand, particularly among luxury brands and new energy vehicles. A market research firm projects automotive OLED display shipments will grow by more than 300% from 2.8 million units in 2024 to 9.1 million units in 2029. OLED technology continues to reshape design possibilities for consumer electronics.

Also at Display Week, panel makers showcased array of foldable, rollable, stretchable and even polygonal displays. These innovations highlight the flexibility of OLEDs and its ability to enhance how users engage with devices across various categories. UBI research reports that with more OEMs anticipating to enter the foldable device market and existing brands planning to expand their foldable product lines foldable shipments are expected to more than double by 2029 compared to last year.

On the R&D front, our decades of deep expertise and proprietary knowledge continue to fuel bold ideas and scalable solutions. From early-stage research to commercial volume production, we're advancing the frontier of phosphorescent OLED materials and technologies. Central to this effort is our proprietary AI/ML platform, which strengthens our discovery and development process. Established more than a decade ago, our internal computational team models molecular interactions at the atomic level, accelerating lead optimization and enhancing development pathways.

This enables us to efficiently broaden our portfolio of next-generation reds, greens, yellows, blues and hosts to meet the evolving needs of our customers and the broader display in consumer electronics market. Our end-to-end innovation expands our leadership position and delivers technologies that support the OLED industry's growth trajectory. Regarding blue, as we noted in our May earnings call, the verification of commercialization level performance of blue phosphorescent OLED panels on a mass production line, by one of our customers marked a major milestone in our development journey. While the specific timing for the debut of our OLED Blue in commercial products will be guided by the OLED market, this achievement represents a critical step forward in our road map and underscores the significant progress we've made. We believe our phosphorescent blue is a game changer, not only for our customers in the broader OLED industry, but also for consumers and for us as a company.

As we look across the broader market, consumer devices are becoming increasingly intelligent and interconnected driven by AI, 5G and always-on connectivity. This evolution is fueling unprecedented demand for energy-efficient technologies. Our universal OLED materials are at the heart of this transformation. Our broadening portfolio of power saving OLED materials and technologies helps extend battery life, reduce thermal load and enable next-generation features in smartphones, wearables, IT devices, automotive displays and more. And with our phosphorescent blue, we're poised to unlock up to an additional 25% improvement in OLED display energy efficiency, ushering in a new era of sustainable performance.

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 second quarter was $172 million, compared to $159 million in the second quarter of 2024. For the year, as Steve shared, we believe revenues will be in the range of $650 million to $700 million. Amid ongoing macroeconomic uncertainty, this guidance reflects our best current assessment. We now estimate that our 2025 ratio of materials to royalty and licensing revenues will be in the ballpark of 1.3:1. Our total material sales were $89 million in the second quarter compared to material sales of $95 million in the second quarter of 2024. Green emitter sales, which include our yellow green emitters, were $64 million. This compares to $72 million in the second quarter of 2024. Red emitter sales were $24 million. This compares to $23 million in the second quarter of 2024. As we've discussed in the past, material buying patterns can vary quarter-to-quarter.

Second quarter royalty and license fees were $76 million compared to the prior year's $60 million. Adesis' second quarter revenue was $7.5 million compared to $3.5 million in the second quarter of 2024. Second quarter cost of sales was $39 million, translating into total gross margins of 77%. This compares to $38 million and total gross margins of 76% in the second 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 $64 million in the second quarter of 2025 and 2024. We now expect 2025 OpEx to decrease year-over-year by a low single-digit percentage. Operating income was $69 million in the second quarter, translating into operating margin of 40%. This compares to the prior year period of $56 million and operating margin of 36%. We now expect our 2025 operating margins to be at the upper end of our 35% to 40% guidance range. The income tax rate was 20% in the second quarter of 2025. We expect our effective tax rate for the year to be approximately 19%.

Second quarter 2025 net income was $67 million or $1.41 per diluted share. This compares to $52 million or $1.10 per diluted share in the comparable period in 2024. We ended the quarter with approximately $932 million in cash, cash equivalents and investments. Our Board of Directors approved a $0.45 quarterly dividend, which will be paid on September 30, 2025, to shareholders of record as of the close of business on September 16, 2025. Our capital allocation program reflects our expected continued positive cash flow generation and commitment to return capital to our shareholders.

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

Thanks, Brian. Since our inception, UDC has been driven by a bold vision and the resilience to transform challenges into opportunities for growth. Through disciplined execution and a focused strategic approach, we've built a company that is agile, resilient and forward thinking. Over the years, we've remained committed to our growth framework. Anchored by a robust and expanded global infrastructure, a flexible and adaptive supply chain, deepening customer relationships and a steadfast dedication to innovation and product leadership.

The strategic foundation empowers us to respond swiftly to change, anticipate industry shifts and continue delivering breakthrough OLED technologies and materials that are shaping the future of displays and lighting. 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.

We lost Brian, so we'll move on to our next question, which is Jim Ricchiuti with Needham & Company.

Maybe I'll start with a question on some of the discussion around the new form factors potentially for smartphones since I think you alluded to it, Steve, in your introductory remarks. How much benefit do you see, does the company see from a foldable phone, assuming we're going to see more of these hit the market versus traditional smartphones. I assume there's more content, but I wonder if you can give us some additional color on that.

Jim, it's Brian. So we certainly do see incremental revenue; just based on the surface area and the square area of those displays. Depending on the type of foldable, there can be up to kind of close to 2 to 3x in that range, the material compared to a traditional single layer phone. So it's certainly a really exciting market and a growing market. So we know that our customers are very focused on the foldable market. Many in the OEM community are -- either have launched or are planning to launch foldable phones in the coming years. So it's a great market and one that we're monitoring very closely and supporting our customers in their development.

And Jim, I've been using the foldable phone since they first came out a while ago. And they're just great because I can use the phone with the main screen for normal conversations and I want to write a book or review a PowerPoint or whatever, I can just fold it out. So it's really the only phone I need to carry with me when I travel.

It will be interesting to see how this market develops. Quick question on blue. Usually, you guys give some revenue numbers for the blue development emitter revenue. What was it in the quarter, can you say?

Yes. We recorded $1.1 million of blue revenues in the quarter, so that's $2.2 million through the 6 months.

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

First question on contract research services revenue. This quarter is a little higher than normal. Can you talk about why?

Yes. Thanks, Martin. The contract research revenue is the revenue generated by our Adesis business. So that's a business we acquired a number of years ago, contract research organization as well as a contract manufacturer. So -- they've had a number of recent successes with some customers that have resulted in increased revenues. So very pleased with their business year-to-date, and we expect good things going forward as well from Adesis.

So that's a factor of their own customers doing better, which is not related to your core business. Is that right?

Correct, entirely unrelated to our OLED business. They serve a number of companies in the life sciences industry primarily. And it's due to some of the manufacturing and CRO contracts that they have in that side of the business.

Got it. A second question on the topic of AI and ML, you highlighted your long history of using those tools and techniques. Maybe can you give us a more concrete example of how using AI/ML have helped you to advance material research and benefit your customers?

Well, the OLED is a very complicated device. It has a lot of different physical and chemical and other scientific properties. By using AI/ML with the appropriate algorithms or algorithms, it can speed up the determination of what the most likely pathway for success would be. And we built up a very large OLED database for AI/ML and machine learning is pretty dependent on the size and the quality of the databases.

[Operator Instructions] Our next question is from Brian Lee with Goldman Sachs.

I jumped on a little bit late, so apologies in advance if some of this has been covered, but the revenue guidance for the year. I mean you've had a really strong first half. So if you kind of back into the midpoint, it's implying kind of a flattish revenue line for the second half at the midpoint. I know last year, you had a pretty abnormal seasonal pattern of revenue given the product cycle in the first half of the year that was new. This year could you maybe kind of walk us through what you're seeing out there in the marketplace as to why seasonality, again, is less pronounced, less second half improvement than what you've historically seen? Or if there's any kind of conservatism being baked into just trying to understand what the seasonality is looking like.

Yes. Thanks, Brian. Good question. So we -- as you said, certainly, the first half of the year has come in quite strong and a little bit stronger than we had originally planned for the year. And I think as we look at the rest of the year, we're hearing that the full year should be pretty close to what we had originally planned. And as we look at kind of upside and downside scenarios, we just felt like as we were preparing for this call in this release that there wasn't really a likely scenario where we're going to be in that bottom end. So it felt appropriate to raise guidance by $10 million on the low side.

And I think we're hearing from our customers that they're expecting the rest of the year to continue to be as planned. So nothing is appearing of course. As we mentioned back on the May call, we did have some tariff-related buying that went on in April. So that was mostly pulling really from May and June, so all within Q2. Maybe a little bit of pull-in from Q3 but not a significant amount. But the full year still is very much on track.

Yes. No, that's super helpful, Brian. I guess that was going to be my second question. I mean China, seasonally for multiple years in a row has always kind of been down for you in Q2 versus Q1. And China was outstanding in terms of revenue contribution for Q2. I presume they're the ones that were the bulk, if not all, of the pull-in in April. But even if you think about the pull in coming from May and June, it's just a lot of abnormal seasonality for that region. So what are your thoughts on like inventory? Do you have visibility into the channel there?

Could they have pulled forward from -- you said maybe a little bit of Q3, but just given the volume of revenue that they contributed in Q2? Just wondering if you have any thoughts on kind of inventory as well as maybe it being more pull forward than you anticipated at the time when you gave that color.

Yes. So we do get, I'd say, pretty limited information on inventory from our customers. I mean some anecdotal information here and there. I think an important thing to note is that our Chinese customers have always had pretty variable ordering patterns. So there's not really been a consistent pattern over a long period of time to look to point to. But based on what we know right now, we think, as I said, there was some tariff related buying in Q2. We think it was mostly intra-quarter, but we'll see how the rest of the year plays out, but we're hearing consistent feedback from the customers on what the rest of the year looks like in their forecast.

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

First, just wondering what you're seeing in design activity from a tandem architecture standpoint and what end markets you're seeing the most interest in activity? And second, in terms of overall capacity, I'm wondering if you could give us some updated thoughts in terms of where current industry utilization is at and then in terms of some of the new capacity coming online in 2026, we've got 8.6 Gen fabs from both BOE and Samsung coming on board. I'm wondering what that does to your overall industry capacity model? And what other big projects are coming behind that in '27?

Thanks, Scott. So starting on the tandem question, the tandem architecture is primarily used to date in the IT and automotive segments of the business. So IT, as you know, is quite low from a penetration perspective and one of the key growth drivers that we see and the industry sees in the next few years. So right now, only approximately 4% to 5% thereabouts of the OLED displays that are -- sorry, of the displays that are produced for the IT segment are OLED. So we have a lot of growth opportunity and the Gen 8.6 fabs that you mentioned coming online next year will be key to adding more capacity to meet that demand in the IT segment. That additional capacity is -- we had estimated earlier this year that some of the additional capacity from end of '23 to end of '25, the installed capacity would increase by 10% to 15%. So that's kind of roughly part of that increase would relate to the Gen 8.6 fabs coming online.

And then on the industry utilization, our customers continue to do quite well. They're all growing their OLED businesses. And we believe industry utilization is quite strong at this point. We don't have a specific percentage for you, but we're hearing positive feedback from our customers on their utilization. And I think the key thing for the next few years is the Gen 8.6 fab that we've been talking about from Samsung, BOE and Visionox, those are the 3 that have been announced and are moving forward. They all are kind of kicking off a multiyear CapEx cycle that we expect in the next few years in large part to meet the demand for the IT segment.

Brian, if I could follow up quickly on the tandem architecture front in IT. Are most customers and most OLED designs implying a tandem architecture?

I think it's going to be -- continue to be a little bit of a mix. Tandem is certainly a more complex and more costly display to manufacture. It really -- Tandem and IT really only started in the last 12 to 18 months, so it's relatively new. And there's been single layer OLED products in the IT market for a number of years now. So going forward, it's possible that maybe the tandem structure is used in more premium offerings, but we think we'll continue to see a mix going forward on both Tandem and single.

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

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

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

I'm going to moderate this session with Darice Liu, IR Head of Universal Display Corp., one of the most important OLED supply chain companies. Again, we're going to have mainly the Q&A session. Okay. Over to you, Darice. Yes.

Well, thank you, Simon, and thank you, Bank of America, for inviting us to your conference. You may have noticed, I am not Brian Millard. Our CFO, unfortunately, due to unforeseen circumstances, was unable to attend. He does send his regrets, but I am happy to answer all questions.

Before I make my remarks, I should just give a quick safe harbor statement. I may make forward-looking statements. Actual results may differ. So we ask everybody to review SEC documents before making any investments.

Great, Darice. Before we get started, just in case, would you introduce yourself? When did you start at UDC? And what you are currently doing?

Okay. So I started with Universal Display Corporation about 12 years ago, actually. I head up communications, including investor relations. It has been a journey. I started at the company when our green phosphorescent emitter was just adopted by Samsung for the very first time. Back then, the top 3 OEMs for display -- OLED displays were Samsung Electronics, Nokia and BlackBerry. So things have changed a little bit since then.

Wow, BlackBerry.

BlackBerry was the early adopters of OLED displays.

That's great. So that's the history. But we should look at the long-term trend first. So people are talking about AI data center. Of course, some people are talking about display technology. So what could be the long-term growth catalyst for UDC?

I think the overall picture for displays and AI really is the added functionality and performance to consumer electronic products and what that then necessitates, which is energy efficiency. When you add more performance, more functionality, whether it's 5G, where it's AI, you need more efficiency because those added benefits consumes more power. And so you need efficiency elsewhere. And one of the things we've been doing for now 30 years is continuously inventing and developing new materials that are much more energy efficient. And so an energy-efficient display is key for more functionality and more performance if you want your battery life to last as long as your older products.

Okay. Then the -- these days, a lot of data is getting more trained, and then the chip maker is focusing on the inferencing. Then we need a lot of content to be seen through the display. But we still see a lot of the LCD panels. So how come the OLED can replace LCD and why OLED can be more energy efficient?

So when you look at the display market, there are 3 large consumer electronic segments that display makers, whether it's LCD or OLED makers, all target. It is smartphones, IT and TVs. Within the smartphone market, we are at 51% penetration rate at the end of 2024. We're at 4% within IT and about 4% within TVs. Display makers, just like you saw within the LCD cycle, have a tendency to focus on a certain size initially and then move on to the next size. In the LCD crystal cycle, you saw them go from small to medium to large. We are essentially following those steps.

At 51% penetration of smartphones, the next stage and where you're seeing a new multi-year CapEx cycle really begin to form is for the medium-sized market for IT, and to some degree, automotive. And so from there, you're starting to see more panel makers. For folks who attended COMPUTEX or Mobile World Congress, you saw more and more OLED displays being showcased. I was at SID Display Week 2.5 weeks ago. It was more and more IT displays and actually the most automotive OLED displays I've seen in my 12 plus years of going to Display Week.

So the medium-sized market clearly is a focus for panel makers. And with the new fabs that are starting to come online slated beginning next year, with Samsung's Gen 8.6 that's slated to come online in Q2 of 2026, BOE slated for Q4 2026. Visionox has not yet announced a time line, but based on their groundbreaking that started in August of 2024, most are estimating probably end of 2027, early 2028. All of that new capacity, which totals about $20 billion in investment, is all for the medium-sized market. And we believe that those plans are being formed because of what the OEM road maps are entailing for OLED adoption.

Yes, that's a great point. A lot of the tablets and laptops are still based on LCD. But the panel makers, they are investing a lot for the 8.6G for new OLED capacity. That capacity will be used for the larger volume of the OLED panel production from 2026.

You'll start seeing -- Samsung will open up the very first Gen 8.6 OLED IT facility Q2 2026, followed by BOE in Q4 of 2026. Visionox will follow after that. There is a lot of chatter that the other panel makers are also looking into plans for IT CapEx.

Okay. That's a great point. So here we go. So maybe we can say it's 3 different revenue sources for the UDC, Universal Display, regarding the panel makers' new capacity. So number one, any quick recap or color on the license agreement, IP royalty revenue generation and then the material sales regarding the new plan?

So when we -- we have long-term agreements with our top customers, Samsung, LG Display, BOE, Tianma, Visionox and China Star. Those long-term agreements are actually 2 agreements. It is a materials agreement or commercial materials agreement as well as a license agreement. So those agreements, a number of them, we have publicly announced are around 5 years long. So those agreements, for the materials agreement, it is -- we provide, for right now, red and green pricing through the term of the agreement. No one currently has blue pricing, which I'm sure is one of the questions you have later on.

The license side for the right to use our IP in one's OLED device, we negotiate each agreement differently because each customer is at a different stage with their plans for OLED capacity. Either they pay us fixed license fees, royalties or a hybrid of the 2. The hybrid of the 2 is probably the most popular. And so that is how we generate our main revenue lines. For this year, we've guided for the material to royalty licensing ratio to be 1.4:1. So material revenues will continue to be the dominant revenue stream, especially when blue comes into play because blue, we believe, will be a significant new material revenue opportunity.

Yes. But the management has been talking about the blue opportunities for over the past 2 years, but still caught on revenue...

More like 10 years but yes.

Okay. So when do you expect the blue can be the great contributor to the growth or revenue enhancement?

It's a good question. So I think we -- blue has clearly been a question, especially since LG Display's announcement. So the questions have increased since then. For folks who don't know, on May 1, the morning of our earnings call, LG Display announced that they were showcasing at SID Display Week a blue phosphorescent panel and that they were the first ones to verify commercial performance level of a blue phosphorescent panel in a mass production line.

And so I was actually at SID Display Week 2.5 weeks ago. And what they showcased was a 13-inch tablet size OLED panel, which is your typical tandem OLED next to a hybrid tandem phosphorescent blue panel. And the images were great, same images so you can compare and contrast. The big difference was they had an instrument next to each one showing the energy efficiency difference. And you saw that the phosphorescent blue hybrid panel was more efficient than the typical panel. LG Display has noted they expect to see a 15% increase in energy efficiency with their hybrid tandem phosphorescent blue panel.

That's a great -- very great footprint to see the blue commercialization.

It was great for LG Display to announce that they've been able to verify the commercial performance level. Now it's really up to them and the OEMs. I think it's a little bit hard for us to say when the commercialization would happen. Unlike semiconductor companies who work directly with the OEMs, we're one-stepper move. We work with the panel makers who then work with the OEMs. So right now, it is with the panel makers and the OEMs on their discussions on where, for what product, with who and et cetera.

Yes. Maybe we can continue the blue theme discussion. How about the competitive landscape? Because some Korean panel makers can try internal blue color development, material development. Why not Japanese fluorescent material guys also can do some of their own phosphorescent blue? So what's your view? You don't see any meaningful competition in the blue color area, very UDC-specific area?

We think all roads to high-efficiency blue go through us. There are companies out there who are working on phosphorescent emitters. For phosphorus -- for blue, we believe all roads to high-efficiency blue go through us. And so whether it is a hybrid tandem approach, a PSF approach, a single-stock approach, we believe the road to phosphorescent blue goes through us.

What could be the technology barrier for the existing phosphorescent blue material suppliers, why they cannot upgrade their current production capacity or technology for the phosphorescent from the fluorescent?

So I would just want to make sure we're on the same page. So adopting phosphorescent blue doesn't mean any significant new CapEx. The tool set is still the same, vacuum thermal evaporation, because you're still using small molecule materials. Whether it's a fluorescent small molecule material or a phosphorescent small molecule material, you don't have to purchase a whole new equipment set for it. Just like when our phosphorescent green was adopted in 2013, replacing the fluorescent green, there is -- you still use a vacuum thermal evaporation tool or VTE tool. So there is no significant -- you're going to have to tweak it, obviously. You have new recipes, new mass sets that come into play, but the adoption of phosphorescent blue is not a significant CapEx factor.

Yes, yes. Maybe a little different angle regarding the blue. Some Asian material companies, they are working on the blue but may be different like host area or [ HTTR ] versus your [ top part ]. Would you recap why the materials or functions for blue differ maybe versus some other supply chain companies?

Okay. So an OLED stack is multiple layers. You're talking at least 11 to 13 plus different layers within the OLED stack. The heart of the OLED stack is the emissive layer. That's where the color is coming from, red, green and blue. So within the emissive stack -- and we can go into the other stacks in just a second. Within the heart of the stack, within the emissive stack, you have what you call emitters or dopants and host.

The analogy that we like to use to describe how you can describe both of them is how do you make a glass of chocolate milk. You have a glass of white milk. That's a high-volume commodity portion of the equation. And then you have the chocolate syrup. You only need a couple of drops of it, but it's a key ingredient to making your end product. That's equivalent to the dopant or the emitter.

So we provide emitters. That is our main material business of providing red emitters, green emitters. And then for blue, we plan to present the option of purchasing both the emitter and the host because whenever we invent emitters, we always invent corresponding host to create an emissive system to spec out our emitter. So -- but there are other players. Again, it is more commodity oriented, the host. So there are players out there who are our partners, who work with us that are developing blue host. And the other layers, whether it's transport layers, injection layers and things of that sort, those are the other layers that surround the emissive layer. We do not play in those layers, but there are other players within the market.

Yes, yes. Great. Obviously, people are talking about some China, U.S. tension, tariff for U.S. export control to China. So number one, would you recap your material product, the green and the red, how to manage the global supply chain from Europe, the U.S. and Asia?

So just a quick backdrop. So we are a fabless company. Our manufacturing partner for 25 years is PPG. Actually, we celebrate 25 years this year with them. We invent and develop everything in-house. PPG manufacturers for us. They manufacture both in the U.S. and now in Shannon, Ireland. We announced back in 2021 that we were opening up a third manufacturing site in Shannon, Ireland. The first 2 are in the U.S. That started mass production in July of 2022. And we've been making and shipping materials from Shannon, Ireland to all of our customers in Korea and China.

Now not all of the materials are made in Shannon, Ireland. Right now, if you look at the overall business, probably it's 50-50. 50% are made and shipped from the U.S. 50% are made and shipped from Shannon, Ireland. But we do have a lot of room to grow within Shannon, Ireland. So if there's a need for us to expand our facility there, we can do so and actually are doing so.

Great. So at least the investors don't need to worry about any China -- heavy reliance on the local China materials or metals or rare earths?

Rare earths, that doesn't come into play for us. We're a global company. We're a global infrastructure. We're able to make and ship within the U.S. as well as outside the U.S. and Europe.

Yes. And then the -- obviously, people usually ask the U.S. tariff impact on the technology product. So any direct interrupting impact of the U.S. tariff?

So there's some direct impact. We get raw materials from all over the world. Some of it does come from China. It's not the dominant source of our raw materials, but we are a global company, so we have a global supply chain. It's not very significant, at least not this year. And with tariffs being reset, so far, things are okay. In terms of the indirect impact, as we noted on our May 1 conference call, we did see some stockpiling occur in the first week of April.

As you may recall, there was -- with the tariffs being implemented and retaliatory tariffs being stated by China, our customers basically ordered quite a bit of materials in the first week of April before the retaliatory tariffs came into effect. And so as a result, we did see a surge in orders because of that. But since then, ordering patterns have come back to the normal pace. And also, we've seen the tariff situation reset a little bit. So things are -- as we noted on our conference call, we see the year in line with what we expected, which is why we reaffirmed our guidance.

Yes. That's the point. The second quarter, usually the low season for the smartphone supply chain. And then even other IT product, usually second quarter, not strong. So how do you assess your second quarter business still in line with the seasonal weakening trend or a little bit above the seasonal trend?

So I think it's a little bit different for us, right? Because our customers are the panel makers, they -- it's not a one-to-one meaning they're going to make a product that's going to come into the market tomorrow, right? So it really depends on their fab operational plans. Their utilization rates remain high, then they're continuing to buy at the same pace. If they decrease or they increase, that then impacts their purchasing from us. So it isn't quite one-to-one with the end markets. Overall, for the year, we're still looking at $640 million to $700 million. And we will say, as we noted on the call, that Q2 in April, we did have a very strong month. But for the quarter, it's pretty much coming in line, maybe a little bit better than expected.

Okay. Yes. Some investors really expect foldable phones, particularly for the U.S. phone makers. So do you believe that can be the great catalyst for UDC? So foldable phone, people will get excited?

I think there is a lot of chatter with foldables, especially as it's rumored that certain OEMs will be adopting foldables for the first time. Foldables from a direct standpoint for us is great because it's more square inches. So more screens means more materials. And from a personal standpoint, foldables are great, right? Two-in-one products, foldable products. And it's something that you start to see a few -- not just Samsung, but you've seen Oppo, Vivo, Xiaomi and others introducing foldable products. At SID Display Week, we saw trifold. We saw rollables. We saw scrollables. So I think form factor will be an ongoing trend within consumer electronics. And as more OEMs adopt it, I think demand will also increase.

Yes. Looking at the -- another product category like tablet area because last year, Street expectations are very high, but toward the end of 2024, sentiment is a little bit muted. So what's your view on the very high end of tablet, which will be based on more and more OLED rather than LCD? Do you still believe the OLED demand for the tablet will be -- continue to be strong or so-so?

I think OLED adoption within the IT landscape, including for tablets, laptops and monitors will continue to grow. I think that's also part of the reason why these Gen 8.6 facilities are being constructed, is to meet the growing demand for IT. It will take some time, just like it did with smartphones, but there are definitely a number of OEMs looking to expand their portfolio of OLED within their IT product line.

Yes. Obviously, here in San Francisco, Waymo, getting popular. Have you tried? I already tried yesterday. It was very exciting. No driver, but Waymo really works right here. But I saw the very large screen, obviously, OLED panel. So what do you see in the overall OLED demand from the auto industry?

The automotive industry is very interesting. We talked about, within consumer electronics, the 3 largest end markets that display makers target are smartphones, IT and TVs because of the size of number of units. Automotive is interesting because there's about 90 million cars sold a year, but the number of displays within it is a multiple of that, right? When you talk about -- if you look at the full dashboard, for example, Mercedes flagship EV product to EQS, the market that as a 55, 56-inch hyperscreen. That's actually 3 different OLED displays. You have opportunities within side view mirrors, rearview mirrors, passenger seats. And so the number of display opportunities within a car is actually multiple.

You're seeing -- I mentioned to you the Gen 8.6 for medium size. IT is definitely a primary target, but automotive is also an area that folks are looking at, especially EV makers. There's -- for 2 reasons. It's interesting for EV makers. One, an overall statement in terms of our car is not a box. If you can make a display on plastic and curve it to the design of a car, that is much more preferable. The second factor is energy and efficiency and EVs go hand in hand, and OLED is a key part of that. And so you've seen a number of makers, whether it's Mercedes EQS, the Mini Cooper EV product or some of the Chinese EV makers from BYD subsidiary to Zeekr adopting OLED for EV. It is something that is growing in interest.

That's a great area. One more application area, guess what, TV. Sometimes I do see very large size of the LCD TV, very cheap, and also even the micro LED TV. So how do the OEMs can promote to the OLED TV, beating the LCD or micro LED TV?

I think with it -- so TVs, when you look at OLED TV, everybody says it's a great TV. And so it is -- OLED, without a doubt, from consumer electronics, is noted as the best TV for multiple years in a row. Right now, TV penetration for OLED is probably about 4%. It's really more for the premium segment. Market research firms do have that segment growing but at a slower rate, I think, because panel makers are right now focused on the medium size. I think eventually they're going to move on to the large size. But I think right now, the focus is medium size.

Yes, yes. All right. We discussed all the details for the industry. So how about if we discuss more company-specific things? So number one, when we look at the panel makers, their margin is very low, except one company, Samsung, showing very good margin. But your company margins is even better than the semiconductor sector average, I guess. So what's the magic thing or great thing? And how long it can -- a company can sustain such a high margin profile?

So our guidance for this year for gross margins is 76% to 77% with operating margin guidance of 35% to 40%. We have strong margins. We continue to expect to have strong margins going forward. Part of it has to do with the licensing business. But also part of it has to do that we continue to deliver various state-of-the-art materials to our customers. This isn't just a catalog business where I have one red and one green. We're continuously working with our customers hand-in-hand to invent and develop new materials for them, next-gen materials for them.

And so that is part of the working relationship we have with them. And at the end of the day, even though our margin profile is high, we are a small portion of the bill of materials. Most analysts estimate that our total red and green emitter content per smartphone is about $0.10 to $0.20. And so we add a lot of value for what we are within the bill of materials.

Again, you don't worry about any cheaper materials coming from Asia or China. When you look at the, for example, EV batteries, some even display panel, lots of the product available in China at very low price. But your materials cannot be replaced by Chinese materials.

So I will say that there are always -- as the OLED industry grows -- as I mentioned, when I started, the industry was very small. We're now at over $50 billion in the OLED market. You're going to have more players wanting to get into the market. For us, our -- we expect to continue to be a leader in the industry. We're continuing to develop new materials and next-generation materials as well as next-generation technologies. And so our focus is to continue to be the leader. And with that leadership and maintaining our strong relationships with our customers, that has been what we've been doing for 30 years, and we plan to continue to do that.

Yes. Great track record. So a high margin and the time line growth with the OLED industry growth, obviously, you will have lots of free cash flow. So would you recap your maybe net cash position and then how you're going to return the lots of cash to the shareholders?

So we do believe in returning cash to shareholders. We instituted a dividend program back in 2017. We have grown that dividend every year since we instituted the program. We plan to continue growing that dividend as we grow. And then on our May 1 conference call, we also announced a $100 million buyback program. So that buyback program will be used as an opportunistic tool from the management company. And it is something that if the opportunity arises, the company will purchase stock back.

Yes. How about the -- almost the last question. If you still own a lot of cash -- and here in the U.S., we do see many startup companies who are some AI related. So maybe 2 follow-up questions regarding the M&A. To enhance your business opportunity in the OLED area, maybe how about inorganic growth or M&A activities? And then based on your great know-how, resources and partnership with Samsung, LG or Chinese companies, how about the other areas, some AI-related M&A, non-display related? Any consideration?

So we -- a couple of -- a few years ago, we formed UDC Ventures, which is our corporate venture arm. We have made multiple investments. Some of them are display oriented. Some of them are non-display oriented. We haven't publicly announced all the different investments, but we are looking at different opportunities where we can grow both organically and inorganically. The inorganic side is something that UDC Ventures looks at in terms of opportunities for us. But obviously, the focus is also organically through next-gen materials as well as with blue and new technologies.

Excellent. So everything sounds so great. Thank you very much, Darice. And hopefully, Brian can recover quickly. Thank you so much. We end this session. Thank you, guys. Thank you. Thank you very much. Yes, we covered everything. Thank you so much.