Universal Display Corporation (OLED) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Universal Display Corporation's Second Quarter 2026 Earnings Conference Call. My name is Sherry, and I will be your conference moderator for today's call. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference call over to Darice Liu, Senior Director of Investor Relations. Please proceed.

Thank you, and good afternoon, everyone. Welcome to Universal Display's Second Quarter Earnings Conference Call. Joining me on the call today are Steve Abramson, President and Chief Executive Officer; and Brian Millard, Chief Financial Officer and Treasurer. Before Steve begins, let me remind you today's call is a property of Universal Display. Any redistribution, retransmission or rebroadcast of any portion of this call in any form without the express written consent of Universal Display is strictly prohibited. Further, this call is being webcast live and will be made available for a period of time on Universal Display's website. This call contains time-sensitive information that is accurate only as of the date of the live webcast of this call, July 30, 2026. During this call, we may make forward-looking statements based on current expectations. These statements are subject to a number of significant risks and uncertainties, and our actual results may differ materially. These risks and uncertainties are discussed in the company's periodic reports filed with the SEC and should be referenced by anyone considering making any investments in the company's securities. Universal Display disclaims any obligation to update any of these statements. Now I would like to turn the call over to Steve Abramson.

Thanks, Darice, and good afternoon, everyone. As we look across the OLED industry, we continue to see investment, innovation and expansion throughout the ecosystem. Display manufacturers are investing billions of dollars in new capacity, brands are broadening adoption across a growing range of products and applications and next-generation technologies continue to push the boundaries of performance and capability. These developments reflect the industry's long-term growth trajectory even as portions of the consumer electronics supply chain face a more challenging near-term environment. Rising memory costs and supply constraints continue to weigh on demand expectations, particularly within the smartphone market, where higher component costs are putting pressure on unit volumes, those near-term headwinds are reflected in our updated outlook, which Brian will discuss in more detail. We believe it is important to separate the current cycle from the longer-term direction of the industry. While demand expectations have softened in the near term, we believe the industry's fundamental growth drivers remain firmly intact. Industry forecasts call for OLED area growth to be relatively flat this year with positive growth expected to resume in 2027. And many of the investments that will support that next phase of growth are already underway today. After the years of planning and development, Gen 8.6 OLED manufacturing is becoming a commercial reality. Samsung Display and [ BOE ] recently commenced mass production at Gen 8.6 facilities while [ Visionox ] and TCL China Star continue advancing their greenfield projects. In addition, LG Display and Samsung Display have announced further Gen 6 investments. Most of these investments target end markets where adoption remains in its early stages. While OLED is already well established in smartphones with approximately 65% market penetration, IT, automotive and TVs remain at a much earlier stage with share still in the low single digits. In automotive, recent introductions such as the Genesis GV70, Volvo EX60 and [indiscernible] 9X demonstrate how OLEDs are driving sophisticated digital contents in premium and electric vehicle interiors. Beyond expanding into new applications, one of OLED its key advantages is its ability to enable entirely new form factors, foldable, trifold and rollable devices are demonstrating how OLED flexibility can unlock new product designs and user experiences. Last week, Samsung unveiled its Galaxy Fold 8 series featuring new flex titanium technology that significantly reduces crease visibility while improving durability. As additional brands enter the market and performance continues to improve, foldables are expected to evolve from a niche category into a more mainstream segment in the years ahead. Collectively, these industry developments highlight the significant runway that remains as OLED expands across new applications, larger display formats and emerging form factors. As adoption broadens, customers continue to demand higher brightness, lower power consumption, longer lifetime, broader color gamut and more advanced display architectures. Meeting these needs requires continued advances in materials and device technologies which is where our expertise and technology leadership matters most. We are continuing to play a central role in advancing the materials and technology that underpin and drive the industry. Our decades of invention, development and manufacturing know-how, a portfolio of more than 7,000 patents, strong customer relationships and a global support infrastructure position us well as the industry leader entering its next phase of growth. One of the most important opportunities on our road map continues to be phosphorescent blue and the meaningful energy efficiency benefit is expected to deliver. At SID Display Week in May, we presented additional technical results demonstrating continued progress towards a more robust [indiscernible] blue system, including advances in efficiency, color performance, operational lifetime and manufacturability. While commercialization timing continues to depend on customer road maps, we believe phosphorescent blue is a significant opportunity for both UDC and the broader industry. Beyond blue, we continue advancing and broadening our portfolio of next-generation OLED technologies including phosphorescent sensitized fluorescence or PSF [indiscernible] architectures and innovations designed to enhance light extraction, increase power efficiency and improve the visual appearance of the display. We look forward to sharing additional technical developments at Korea's [indiscernible] conference next month. We are also accelerating materials discovery and development through our internal advanced computational tools, artificial intelligence, machine learning and agentic AI as well as strategic collaborations, including our role as a founding member of Cusp AI's recently launched AI materials foundry. On the infrastructure front, we continue to invest alongside the OLED industry. Last month, we celebrated the grand opening of our new OLED technology and innovation center in Chengdu, China. As our third innovation tech center in Asia, following Korea and Hong Kong, it reinforces our commitment to providing on-the-ground local support and fostering collaboration with customers. As we look ahead, we remain confident in the OLED industry's growth trajectory. Continued investment in manufacturing capacity, expand the adoption across new applications and form factors and advances in materials and device architectures reinforce our belief that the next growth phase is taking shape. Through our investments in innovation and infrastructure, we're helping to build the foundation for that future. And with that, I'll turn the call over to Brian.

Thanks, Steve. Revenue for the second quarter of 2026 was $152 million compared to $172 million in the second quarter of 2025. As a reminder, the prior year period benefited from elevated customer purchases ahead of anticipated tariff increases. Turning to the broader environment. As Steve shared, we continue to see meaningful investment across the OLED ecosystem and encouraging progress in several long-term growth drivers. At the same time, visibility across portions of the consumer electronics supply chain has remained limited. Customer demand forecasts have become more cautious as higher component costs continue to pressure portions of the smartphone market. Given these dynamics, we now expect full year revenue to track toward the lower end of our previously communicated range of $630 million to $670 million, with second half revenue still expected to exceed first half revenue. Our total material sales in the second quarter were $66 million compared to material sales of $89 million in the second quarter of 2025. The decrease in material sales was primarily driven by lower material volumes, customer mix, and changes in cumulative catch-up adjustments. Green emitter sales, which include our yellow green emitters, were $51 million compared to $64 million in the second quarter of 2025. Red emitter sales were $15 million compared to $24 million in the second quarter of 2025. Revenue from royalty and license fees was $81 million in the second quarter compared to $76 million in the prior year period. The increase was primarily driven by cumulative catch-up adjustments. Across both royalty and license revenue and material sales, cumulative catch-up adjustments totaled approximately $10 million during the second quarter and the first 6 months of 2026, and had a net favorable impact of approximately $9 million compared to the second quarter of 2025. The ratio of material sales to royalty and license revenue during the second quarter was approximately 0.8:1. When you look at the first half of the year, the ratio was approximately 1.1:1. Based on our current outlook, we now expect the full year ratio to average approximately 1.2:1. Adesis generated $4.8 million of revenue during the quarter compared to $7.5 million in the second quarter of 2025. Cost of sales was $37 million for the quarter. Total gross margin was 76%, compared to 77% in the second quarter of 2025. Operating expenses, excluding cost of sales, were $62 million compared to $64 million in the prior year period. We continue to operate as a lean company, investing in key R&D and growth initiatives while maintaining a disciplined approach to spending. Based on our current outlook, we now expect full year operating expenses to increase by a low single-digit percentage compared to 2025. Operating income for the quarter was $54 million, representing an operating margin of 35%. This compares to the prior year period of $69 million and an operating margin of 40%. The effective tax rate for the quarter was approximately 19%. Net income was $49 million or $1.06 per diluted share compared to net income of $67 million or $1.41 per diluted share in the second quarter of 2025. Our business continues to generate strong cash flow and maintain significant financial flexibility. During the second quarter, we repurchased approximately 531,000 shares for approximately $48 million. Over the last 12 months, we returned more than $238 million to shareholders through dividends and share repurchases. Today, we announced that our Board of Directors declared a third quarter cash dividend of $0.50 per share. We ended the quarter with approximately $855 million in cash, cash equivalents and investments, providing substantial flexibility to invest in innovation, pursue growth opportunities and continue returning capital to shareholders. Our strong balance sheet and cash flow generation position us well to support both our near-term priorities and long-term growth initiatives. With that, I'll turn the call back to Steve.

Thanks, Brian. We are excited about the opportunities ahead. OLED continues to expand into new applications, new products and new form factors. The technology road map also continues to advance, creating new opportunities across the ecosystem. As an OLED pioneer, we have helped shape the industry through scientific leadership, intellectual property and close collaboration with our customers and partners. We believe those strengths, together with our robust R&D pipeline, global infrastructure and strong balance sheet position us well for the future. I would like to thank each of our employees for their drive, desire, dedication and heart in elevating and shaping Universal Display's accomplishments and advancements. We are committed to being a leader in the OLED ecosystem, achieving superior long-term growth and delivering cutting-edge technologies and materials for the industry, for our customers and for our shareholders. And with that, operator, let's start the Q&A.

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

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

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

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

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

Our next question is from Mehdi Hosseini with SIG.

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

Well, Manny, as you know, [indiscernible] blue is one of our most important opportunities. And we've made meaningful progress in the earlier developmental materials, achieved some key milestones. And work is continuing on those programs, and you saw the announcement about -- from LG on the iPad. But as the industry has evolved, we've seen multiple pathways emerging for [indiscernible] commercial blue OLED. And so we're expanding our efforts across a broader range of next-generation blue materials and architecture. So we're accelerating the development, increasing resources behind the program, including leveraging our AI and machine learning, expand the design space and accelerate material discovery and development. We remain confident in the long-term commercial opportunity for [indiscernible] blue. But again, I can't give you any specific time lines right now because that's really dependent on where our customers' commercial road maps are.

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

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

The more the emphasis is on power [indiscernible] the more important is our blue phosphorescence. But the next year comment, I'm going to hold on to it.

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