Universal Display Corporation (OLED) Earnings Call Transcript

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Third 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 call is being recorded for replay purposes. I would now like to turn the call over to Darice Liu, Senior Director of Investor Relations. Please go ahead.

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 the property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the express written consent of Universal Display is strictly prohibited. Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, October 28, 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'd like to turn the call over to Steve Abramson.

Thanks, Darice, and good afternoon, everyone. The OLED industry continues to build towards its next phase of growth. The past few months have highlighted both the expanding reach of OLED and the industry's continued investment in innovation and adoption. We saw continued momentum in foldables, new OLED capacity announcements, growing efforts to expand OLED TV share and important advancements in several key areas of our technology road map. We also introduced our groundbreaking OLEDX platform and reached a major commercialization milestone through the launch of NovaJet by Universal Vapor Jet Corporation, or UVJC. Together, these developments reinforce our confidence in OLED's long-term trajectory and UDC's leadership role in helping shape that future. Let me begin with foldables, where we are seeing meaningful innovation, investment and adoption across the industry. Foldables reached an important milestone with Apple's launch of the iPhone Duo, their first foldable smartphone. Initial production allocations sold out within minutes of preorders opening with delivery estimates now extending into 2027 due to strong demand and limited early supply. The foldables are not just an Apple story. The race to establish leadership in foldables is accelerating. Ahead of the iPhone Duo launch, Samsung released its Galaxy Z8 series, Xiaomi introduced its new 18 Fold and Huawei unveiled its third-generation tri-fold, the Mate XT 2. These launches, together with broader industry activity, underscore the growing importance of foldables as a strategic category for leading smartphone makers. Foldable smartphones are becoming one of the industry's most compelling growth stories. While the broader smartphone market continues to face macroeconomic uncertainty, premium devices have remained relatively resilient and foldables are emerging as one of the fastest-growing segments. Omdia forecasts foldable smartphone shipments will reach 45 million units by 2030, up approximately 150% from 18 million units in 2025. Foldables deliver big screen versatility in a pocket-sized device, combining the convenience and portability of a smartphone with the immersive experience and added functionality of a much larger display. With nearly 2 to 3x the square inches of a traditional smartphone, foldables showcase what OLED's do uniquely well, enabling thin, lightweight, flexible and power-efficient displays that conventional technologies simply cannot match. Another major area of expansion is IT, where OLED adoption is accelerating across notebooks, tablets and monitors. As new capacity comes online, Omdia expects OLED IT shipments to reach 89 million units in 2030, more than tripling from 27 million units in 2025. Industry investment continues to support that growth outlook. Display makers have collectively committed approximately $20 billion toward Gen 8.6 OLED capacity, including investments by Samsung Display, BOE, Visionox and TCL China Star. Most recently, Samsung Display announced plans to restart construction of a new greenfield OLED facility focused on foldables and IT applications, while LG Display is expanding Gen-6 capacity and evaluating future Gen-8 investments. We are also seeing encouraging developments in TVs. New OLED TV models from LG, Sony and Panasonic are using LG Display's lower-cost SE architecture, helping broaden OLED's addressable market while preserving its premium picture quality. Beyond consumer electronics, we continue to see attractive prospects in the automotive market. OLED's design flexibility, image quality and ability to support immersive digital interiors position the technology well for next-generation vehicle platforms. OLED's impact in automotive also extends beyond the cockpit. This month marks 10 years of OLED lighting in Audi production vehicles, highlighting how OLED technology continues to expand its role in automotive design, functionality and communication. Foldables, IT, TVs and automotive each address different markets. And together, they are expanding OLED's reach across a broader set of products, applications and customers. As OLED continues to evolve, so does the opportunity to push the boundaries of performance, efficiency and visual experience. That is where UDC's technology leadership matters. At IMID, a major Korean display conference in August, we introduced OLEDX, a proprietary technology platform designed to extract more light out of an OLED display and deliver it to the user. Our phosphorescent technologies revolutionize OLED efficiency by maximizing light generation. But currently, not all of that light reaches the user. OLEDX is designed to dramatically increase the amount of light that reaches the user. Put simply, phosphorescence creates the photons and OLEDX helps make every photon count. Together, these complementary technologies can unlock the next level of OLED performance, enabling higher efficiency, enhanced image fidelity and greater control over the viewing experience. Phosphorescent blue remains a central element of our innovation road map, and we continue to make advancements across key performance metrics, including efficiency, color, lifetime and manufacturability. We are also expanding our work into a broader range of materials and device architectures to accelerate commercialization. While commercialization timing remains depending on customer road maps, we believe phosphorescent blue represents a significant opportunity for both UDC and the OLED industry. Our materials portfolio is also expanding through next-generation red and green emitters designed to support broader color gamut and emerging architectures such as PSF or phosphor-sensitized fluorescent OLED's. To further accelerate progress, we are leveraging artificial intelligence, machine learning and advanced computational tools through our innovation pipeline. Our AI-enabled discovery platform has generated a virtual library of more than 1 billion molecular designs and evaluated approximately 50 million candidates using proprietary models, enabling us to explore a broader molecular design space more quickly and efficiently. From that effort, we have already identified hundreds of promising innovative molecular cores, synthesized new candidates and generated leads to advance our commercial blue program. These capabilities are accelerating progress of phosphorescent blue and enhancing our ability to discover and optimize next-generation OLED materials across our broader portfolio. Beyond our core business, our equipment subsidiary, UVJC, recently launched NovaJet, the first commercial system and a significant milestone for a technology platform UDC has spent years developing. With the potential applications spanning multiple large end markets, including semiconductors, photovoltaics, solid-state batteries, organic electronics and life sciences, we believe UVJC can create new long-term avenues for value creation. The industry continues to navigate macroeconomic uncertainty and elevated component costs, particularly memory pricing. Display makers and brands continue to invest in OLED capacity, technology and new products. We believe those investments reinforce the industry's long-term growth outlook. And with that, Brian, I'll turn the call over to you.

Thanks, Steve. Revenue for the third quarter of 2026 was $160 million compared to $140 million last year. We continue to expect full year revenue to track toward the lower end of our prior guidance range of $630 million to $670 million. Total material sales in the third quarter were $80 million compared to $83 million in the third quarter of 2025. The decrease in material sales primarily reflected customer mix and a $4.8 million unfavorable year-over-year change in cumulative catch-up adjustments related to estimated product mix, partially offset by higher unit material volume. Green emitter sales, which include our yellow green emitters, were $61 million compared to $65 million in the third quarter of last year. Red emitter sales were $19 million compared to $17 million in the third quarter of 2025. Revenue from royalty and license fees was $75 million in the third quarter compared to $53 million in the prior year period. The increase was primarily due to higher unit material volume, customer mix and the absence of the $9.5 million out-of-period adjustment that reduced royalty and license revenue in the third quarter of 2025. The ratio of material sales to royalty and license revenue was approximately 1.1:1 in both the third quarter and the first 9 months of this year, which is now our full year ratio expectation as a result of customer and product mix changes. Adesis, our contract development and manufacturing subsidiary, generated $5.2 million of revenue during the quarter compared to $3.7 million in the third quarter of 2025. Cost of sales was $43 million for the quarter. Total gross margin was 73% compared to 75% in the prior year period. We expect total gross margins for the full year to trend toward the lower end of the 74% to 76% guidance range due to product mix and customer mix. Operating expenses, excluding cost of sales, were $64 million compared to $61 million in the prior year period. Operating income was $54 million, representing an operating margin of 33% compared to $43 million and 31% in the prior year period. Other income was $37 million compared to $1 million in the prior year period, primarily reflecting a $29 million unrealized noncash gain on a UDC Ventures investment and a $7 million foreign exchange gain on our Korean won tax receivable. The effective tax rate for the quarter was approximately 20%. GAAP net income was $79 million or $1.72 per diluted share compared to net income of $44 million or $0.92 per diluted share in the third quarter of 2025. Excluding the UDC Ventures gain, net of tax, adjusted net income was approximately $56 million or $1.23 per diluted share. Because the gain was noncash and unrelated to our core business, we believe adjusted results better reflect operating performance. A reconciliation of GAAP to non-GAAP results is included in today's earnings materials. I would like to briefly highlight UDC Ventures, which we launched a few years ago to complement our long-standing commitment to innovation and technology leadership. Today, the portfolio includes about a dozen investments and approximately $80 million in assets under management. Our focus is on 3 areas: innovations across the display ecosystem that support our core technologies, AI and machine learning initiatives that advance materials discovery and disruptive technologies with the potential to create new markets and transform industries. We are already seeing strategic benefits from the companies technologies and relationships fostered through UDC Ventures, and we believe the platform will continue to strengthen our innovation ecosystem, expand our technology pipeline and create long-term value. Turning to capital allocation. During the third quarter, we repurchased approximately 963,000 shares for approximately $79 million. For the first 9 months of this year, we repurchased approximately 2.1 million shares for approximately $193 million. Over the last 12 months, we returned more than $340 million to shareholders through dividends and share repurchases and reduced our outstanding share count by more than 5%. And today, we announced that our Board of Directors declared a fourth quarter cash dividend of $0.50 per share. We ended the quarter with approximately $828 million in cash, cash equivalents and investments. Our strong balance sheet and cash generation provides substantial flexibility to invest in innovation, pursue growth opportunities and continue returning capital to shareholders. With that, I'll turn the call back to Steve.

Thanks, Brian. Foldables and IT are helping drive the next wave of OLED adoption, while OLEDX, phosphorescent blue and our broader innovation pipeline continues to push the boundaries of OLED performance. Through UVJC, UDC Ventures and Adesis, we are also extending our reach and creating additional avenues for long-term growth. As we look ahead, we are excited about the opportunities before us and our ability to create value across a growing range of technologies, markets and applications through innovation, technology leadership and disciplined execution. 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.

Maybe first one for you, Brian. On the gross margin on materials, it's 50% second straight quarter. Can you kind of just walk through the puts and takes, the path to recovery? I think you had talked about getting back to the historical normal of 60% or so by the second half of the year. Is that still on pace for 4Q here? Or is there kind of a different trajectory we should be expecting?

Brian, there has been a little bit of an evolution over the last few months in terms of the customer and product mix this year. So as you heard in my remarks, we are now expecting still to be within the range of our total gross margin guidance of 74% to 76%, but toward the lower end of that range. So that's really just a function of changes that we've seen in the mix of customers this year as well as the products that they're purchasing.

Okay. Fair enough. I mean do you anticipate there's normalization as you move into next year? Is there visibility on that? Or is this potentially the new normal?

Yes. I mean, looking to next year, we'll give formal guidance in February. But as you know, looking at the top line, there's certainly macro uncertainty that we do expect is going to continue into next year. So if you look at -- based on that, especially the memory environment expected to continue to be tight and challenging into 2027. So if you look at that, the third-party research firms seem to be indicating on the top line roughly mid-single-digit growth expecting next year in terms of square area of OLED devices. And on the gross margin side, there are a number of moving pieces as we look to next year. There are some higher input costs that we do expect to materialize next year. However, as we continue to grow, there are efficiencies and scale that we can generate through our manufacturing processes. We're also looking at some manufacturing process improvements for the plants that we do think will provide somewhat of an offset, but there are a number of pressures that we're facing on the gross margin side heading into '27.

Okay. Fair enough. Last question for me, I'll pass it on. Just bigger picture, two of the maybe medium- to longer-term opportunities for you guys, if you could update us on them. One, blue phosphorescent material commercialization, kind of where are you on that? And then two, on the NovaJet, congrats on the progress there. Kind of next milestones? Do you need an equipment partner? Kind of what should we be thinking in terms of how close you are to commercializing and seeing real orders on that technology?

Brian, so on blue, we're continuing to work with all our customers to align development efforts with future requirements. We're continuing to expand our team. And as we talked in the prepared remarks, we're integrating even more as AI grows, it's helping us invent new molecules and accelerate the growth of that area. So we're very excited about the future, and it's still a story to be told. On UVJC, this is pretty exciting because you may remember the old OVJP technology. Well, we pivoted on that, moved it to Singapore and are focusing on a number of other areas such as life sciences, semiconductor, semiconductor packaging, photovoltaics, even solid-state batteries. And this is -- the initial product is going to be a small footprint tool that will enable researchers and technologists to work with the technology because it's a really exciting technology of dry printing to see how it can apply in these myriad opportunities. So we're going to continue to evolve the UVJC platform, and we'll keep you posted from time to time.

Okay.

Our next question is from Mehdi Hosseini with SIG.