All right, well, good morning, everyone. I hope that you've been enjoying the sessions this morning. I have just had such a 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, yeah. Thanks, Brandice, for having us, and thanks, Nasdaq. Before I get started, just a quick Safe Harbor Statement. 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. UDC, 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 is what gives off the light. 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.
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. Also in smartphones, 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 two 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 the 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 improvements and advancements in new capacity for that market.
So right now, Samsung, BOE, Visionox, and China Star, which are four 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.
Yep.
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?
Yeah, so 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, 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 has been very significant, 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.
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. Compared to our 100% internal quantum efficiency, a fluorescent material is only about 25% energy efficient. 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. 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 your long-term?
Yeah, so long-term vision is really focused on continuing to fuel the growth of the OLED industry. So we're a key material supplier, 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 three markets we talked about today and the growth there, there's also emerging technology and other areas for OLEDs to go, such as in healthcare, there's 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 penetrable 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?
Yeah, 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 three sites that PPG manufactures at.
Two are in the U.S. and have been longstanding 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 whereas 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 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?
Yeah, so we have, as you said, we have two 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 five-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 on the licensing side, that's really focused on what our customers' OLED revenues are expected to be over that five-year term. And we've had great longstanding 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 material 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 would successful commercialization shape your long-term growth story? I know that was a lot.
Yeah, so phosphorescent blue, like I said earlier, we've been working for many years to invent material that performs at commercial levels. And I think the biggest proof point that we have 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, 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, it's 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 used a tandem structure.
So they had one layer of phosphorescent material for blue and one 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's 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?
Yeah, so we have very strong gross margins, so 76%-77% this year in our gross margins. We've maintained those gross margins for many years. 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 five-year terms of those agreements. 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 from a tariff avoidance perspective, making 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 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.
Thanks.
We haven't talked at all about strategic opportunities, so let's dive into that for a second. 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.
Yeah, 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 also continues to improve and bolster our position on the patent side.
That's a device architecture portfolio primarily where it looks at materials and ways of combining materials in a display to make OLED products. 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. Earlier this year, our board put in place a buyback authorization as well. 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 to an 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? You talked about that a little bit, but a little bit deeper.
Yeah, 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.
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 customers' 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 three, five, and beyond years from now? Both in terms of the existing portfolio as well as 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. And 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 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'd be a good place to end.
Yeah, 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 in 2026, 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 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 two layers of 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.
All right. Well, good morning, everyone. I hope that you've been enjoying the sessions this morning. I have just had such a 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. Yeah. So thanks, Brandice, 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 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.
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. Also in smartphones, 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 it has the opportunity to grow in the years ahead, especially given that the price gap between OLEDs and LCDs has continued to narrow between those two 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 the 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 improvements and advancements in new capacity for that market.
So right now, Samsung, BOE, Visionox, and China Star, which are four 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.
Yep.
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?
Yeah. So I'll talk about our red and green material, 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, 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.
Generation to generation, we've seen improvements in terms of the energy that our material consumes to emit the light that it needs to. That improvement has been very significant, about a 70% increase over the last 10 years in the energy efficiency of our red and green material. 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. We continue to improve that. Blue is the big opportunity. All of your smartphones today that have OLED displays have red and green phosphorescent emitter material.
Currently, the blue material is a fluorescent emitter, which is a much less energy-efficient material. Compared to our 100% internal quantum efficiency, a fluorescent material is only about 25% energy efficient. 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. We've been for many years developing phosphorescent blue material and working with our customers to bring that closer and closer to adoption.
That's so interesting. So we talked about the differentiators themselves. What about your long-term vision? So can you talk a little bit more about not just what's happening now, but your long-term?
Yeah. So long-term vision is really focused on continuing to fuel the growth of the OLED industry. So we're a key material supplier, 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 three markets we talked about today and the growth there, there's also emerging technology and other areas for OLEDs to go, such as in healthcare, there's 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 a 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 penetrable 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?
Yeah. 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 three sites that PPG manufactures at.
Two are in the U.S. and have been longstanding 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. Yeah.
Got it. Got it. So you mentioned models 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?
Yeah. So we have, as you said, we have two 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 five-year agreements with our customers for both licensing and material supply. There are volume price models on the material side, so greater volume, greater price per unit for our customers. And on the licensing side, that's really focused on what our customers' OLED revenues are expected to be over that five-year term. And we've had great longstanding 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 material 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 would successful commercialization shape your long-term growth story? I know that was a lot to unpack.
Yeah, so phosphorescent blue, like I said earlier, we've been working for many years to invent 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 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, it's 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 used a tandem structure.
They had one layer of phosphorescent material for blue and one layer of fluorescent material for blue. 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. 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's 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?
Yeah, so we have very strong gross margins, so 76%-77% this year in our gross margins. 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 five-year 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 from a tariff avoidance perspective, making 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 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.
Thanks.
We haven't talked at all about strategic opportunities. Let's dive into that for a second. 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?
Yeah. 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 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 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 to an 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? You talked about that a little bit, but a little bit deeper.
Yeah, 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.
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 customers' demands, which continue to increase as well. 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 three, five, and beyond years from now, both in terms of the existing portfolio as well as 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, and 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 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'd be a good place to end.
Yeah. 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 in 2026. 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 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 two layers of 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.