Universal Display Corporation (OLED) Q1 2026 Earnings Report, Transcript and Summary

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.