Corning Incorporated

Welcome to the Corning Incorporated Quarter 3 2019 Earnings Call. It is my pleasure to turn the call over to Ann Nicholson, Vice President of Investor Relations.

Thank you, Sean, and good morning, everyone, and welcome to Corning's third quarter 2019 earnings call. With me today are Wendell Weeks, Chairman and Chief Executive Officer, Tony Trippity, Executive Vice President and Chief Financial Officer, and Jeff Evenson, Executive Vice President and Chief Strategy Officer. I'd like to remind you that today's remarks contain forward-looking statements that fall within the meaning of the Private Securities Litigation Reform Act of 1995. Those statements involve risks, uncertainties, and other factors that could cause actual results to differ materially. These factors are detailed in the company's financial reports. You should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-gap measures used by management to analyze the business. A reconciliation of core results to the comparable gap value can be found in the investor relations section of our website at Corning.com. You may also access core results on our website with downloadable financials in the Interactive Analyst Center. Supporting slides are being shown live on our webcast. We encourage you to follow along. They're also available on our website for downloading. Now I'll turn the call over to Wendell.

Thank you, Ann, and good morning, everyone. This morning we reported results in line with the early update we released in September. Sales were $3 billion, net income was $397 million, and EPS was 44 cents. While challenges unfolded throughout the quarter, our results and expectations are consistent with our September update. We are not immune to the types of challenges facing us and many other companies this earnings season. But I think we are more resilient than at any other time in our history. And we are taking actions on the things within our control. We're adjusting our cost and capacity while at the same time maintaining focus on key growth initiatives. We continue to invest in technology and innovate with industry leaders across our markets as we pursue the rich set of opportunities outlined in our 2020 to 2023 strategy and growth framework. I'd like to share a few other important notes on the quarter. The favorable pricing environment in the display market continued. as third quarter glass prices and display technologies were consistent with the second quarter. Environmental technologies grew sales 20% year over year as the company's gasoline particulate filter solution propelled sales well above the underlying auto industry growth rate. specialty materials and life sciences also grew faster than their underlying markets as adoption of Corning's new technology continued. Of course, we're living in uncertain times. We see it in the headlines about trade disputes, political unrest, and China's economy. Amid this uncertainty, you may be wondering why we continue to be confident that we will grow over the next four years. Part of our confidence stems from the relevance of our technology leadership and the tangible customer commitments that support our build projects. We're also confident because we're not just counting on everybody buying more stuff. Instead, we're putting more corning into the products that people already buy. This provides a mechanism for us to grow even when spending in the end market category is down. There's no clearer example than in automotive. In the third quarter, we grew sales and environmental 20%. in a market that is expected to be down 3% this year. Our growth is driven by increasing sales of our proprietary gasoline particulate filters, which trap fine particulates and help reduce harmful engine emissions. From a financial perspective, GPS increased Corning's opportunity per car by $30. These types of content plays create a path for growth even when underlying unit demand is flat or declining, as our environmental results are demonstrating. We expect to double our sales to the auto industry by 2023. By adding auto-grade interior glass solutions to GPS, we increase our opportunity per car by another $25 to about $70 in total. That's up almost a factor of five versus just two years ago. And additional products will further increase our opportunity. So we're not counting on more cars being sold, we're driving more Corning into each car. In short, a big part of Corning's story over the next four years is a content story. We see it playing out in mobile consumer electronics, display, optical communications, and life science vessels, as well as automotive. Because we're capturing significant technology substitutions, we have sales drivers beyond just end market growth. Let's look at how we advanced our strategy in each market access platform in the third quarter. In optical communications, we continue to be impacted by capital spending reductions in both the carrier and enterprise markets. Despite this near-term weakness, we are confident in our ability to outperform the passive optical market over time. As you've seen with fiber to the home and corporate data centers, Corning is the unquestioned technology and market leader. We delivered on those opportunities, and we are well positioned for the next waves of growth as 5G, and hyperscale data centers drive the optical signal closer to the edge. Our near-term goals in optical communications are to align cost with demand and to continue advancing our product portfolio through co-innovation. We made progress in both areas during the quarter. Verizon and Corning are co-innovating at our manufacturing and technology center in Hickory, North Carolina. Engineers from both companies are using Verizon's 5G ultra-wideband service and Corning's optical fiber and cable innovations to explore the capabilities of 5G in a manufacturing environment. Our work will demonstrate 5G's ability to revolutionize the way goods and services are produced as the technology enhances capabilities like machine learning, augmented reality, and virtual reality. Corning is also co-innovating on 5G with Intel. We're making future 5G in building networks scalable and easy to install. Our innovations will allow for faster adoption of 5G features as they are standardized. Shifting to hyperscale. Corning and Facebook are demonstrating how to meet ever-increasing bandwidth demand through space division multiplexing, or SDM. Internet content providers like Google and Facebook are making SDM their primary strategy for increasing capacity between their data centers across the globe. In short, this technology boosts the number of fibers in a submarine cable and multiplies Corning's opportunity per cable by up to four times. In mobile consumer electronics, we're well on our way to doubling sales despite a maturing smartphone market. Apple announced that it is awarding $250 million from its advanced manufacturing fund to Corning. This builds on the $200 million we received from Apple's fund in 2017. Both investments, support corning state-of-the-art glass processes, equipment, and materials integral to the delivery of next-generation consumer devices. In the third quarter, we continued to lead the industry as our innovations were adopted on more and more devices. Apple announced phones with the toughest glass ever used on a smart phone. And we saw the launch of multiple laptops, convertibles, and tablets with Gorilla Glass. Corning continues to win in new device categories with nine wearable launches in quarter three, four featuring Gorilla Glass DX and DX Plus. Gorilla Glass DX delivers improved optics, while DX Plus also provides scratch resistance approaching the finest watches. Both maintain the superior drop performance of Gorilla Glass. Moving to the automotive market, as I already noted, our goal is to double sales by 2023. In the third quarter, We continued ramping production capacity in Hefei, China to meet committed demand for both our auto glass solutions and our gasoline particulate filter products. We're making great progress building a $500 million plus GPF business, and we expect over $200 million in 2019 sales. our auto glass solutions business continues to build its order book. At next month's Guangzhou Auto Show, the industry's first shaped dual display module with a single cover glass part will be on display in the GAC Ion LX, an electric vehicle. The module's cover glass is produced using Corning's 3D cold form technology. In life science vessels, we have some very exciting news. The FDA has approved Corning ValorGlass for use as a primary packaging for an already marketed drug produced by a leading pharmaceutical company. This approval makes ValorGlass the first and only fundamentally new glass composition to be approved by the FDA since the advent of borosilicate glass more than 100 years ago. This approval also marks a major milestone in our strategy to build a long-term, multibillion-dollar franchise. And the success provides another step on our journey to create a new, higher standard in pharmaceutical glass packaging. Overall, we continue making good progress with our development partners, and interest and engagement with other major pharmaceutical manufacturers continues to grow as well. In display, our goal is to stabilize returns. In the near term, retail demand continues to track to our expectations, with TV viewing area growing year-to-date through August. Set makers are purchasing panels more conservatively, apparently due to macro uncertainty, which drove panel maker utilization reductions in the third quarter. This caused the panel makers to purchase less glass in the third quarter. We expect this supply chain adjustment to be temporary and for panel maker utilization to increase in the first half of 2020. We remain confident in our long-term strategy because our growth driver is large-size TVs. which are most efficiently produced by our customers on Gen 10.5 fabs. Our leadership in Gen 10.5 glass supports medium and longer-term volume growth despite temporary supply chain adjustments. And we have great news about pricing. We now expect full year glass price declines of a low single digit percentage compared with our previous guidance of a low to mid single digit percentage. You can see that across our markets, our strategic investments are well aligned with major trends. and our relationships with industry-leading customers are creating new opportunities. Of course, we understand our current environment and will continue to navigate thoughtfully through any headwinds that may arise. Now let me turn the call over to Tony for more details.