Corning Incorporated

Welcome to the Corning Incorporated Quarter 1 2020 Earnings Call. It is my pleasure to turn the call over to Ann Nicholson, Vice President of Investor Relations.

Thank you, Tony, and good morning, everybody. Welcome to our first quarter 2020 earnings call. With me today are Wendell Wheat, Chairman and Chief Executive Officer, Tony Trippany, 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. These 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 are related 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. And now I'll turn the call over to Wendell.

Thank you, Anne, and good morning, everyone. This morning, we reported first quarter 2020 results. Sales were $2.5 billion, net income was $177 million, and EPS was 20 cents. We accomplished much of what we set out to do in the quarter, despite the evolving health crisis and its impact on the global economy. That said, The situation is creating uncertainty in our sales. As a result, we are adjusting our operating plan to reduce cost and capital spending. We are committed to preserving the financial strength of the company. We have essentially no debt coming due over the next two years, and we expect to maintain a strong cash balance and generate positive free cash flow for the year. We also plan to maintain our dividends. Because of the heightened uncertainty, we will not be providing our normal guidance at this time. We are all confronting profound challenges as a result of COVID-19. Our thoughts are with those directly affected by the pandemic and the many people fighting it on the front lines. Our company has been facing this human health crisis head on since day one. The first cases of the disease to draw attention from medical officials and the media occurred in Wuhan, where Corning is opening a display plant. Responding to these early cases in Wuhan in greater China put us to the test, and we rose to the challenge. Our core teams and our factories gave their all. They kept our people safe and delivered on customer commitments. Our experience at the start of the outbreak informed the blueprint deployed in all our facilities as the virus spread across the globe. All Corning sites maintain comprehensive preparedness plans and are operating under our best practices playbook. From China to South Korea, Italy, India, the U.S., the challenges are unique in each location, but our actions have been compassionate, systematic, and based on facts and experience. So what does this response tell you about Corning? Even in periods of uncertainty, we are certain that we'll protect and support our employees and our communities, we'll deliver for our customers, and we'll preserve our financial strength to sustain excellent stewardship on behalf of all of our stakeholders. Beginning with SARS, Corning has designed procedures to keep our employees safe during pandemics. From the start of the outbreak, we've been ahead of the curve, safeguarding our people and workplaces according to the very highest standards. And we support our communities. We're launching unity campaigns in partnership with local business owners, medical professionals, food banks, and other human services organizations in all of the communities where we operate. Together, we're supplying basic needs, aiding vulnerable populations and easing burdens caused by the crisis. From upstate New York to India, Corning is supporting hunger relief and helping secure essential food supplies for people undergoing lockdowns and other disruptions. We donated 150,000 surgical masks to regional hospitals in New York, North Carolina, New Jersey, and Virginia. We've stepped forward with pharmaceutical glass packaging to meet surge capacity, and we've accelerated the commercialization of Valor to assist in developing vaccines and other treatments. In Italy, we coordinated the donation of laboratory supplies to mitigate the impact of medical supply networks. And in China, We supported production of antiviral sprays with our advanced flow reactors. We also donated, according to Guardian, antimicrobial particles for an antiviral paint, which was specially produced and deployed for frontline hospital use in the Wuhan area. We are now working with regulatory agencies to seek approval for other applications and other geographies. Corning is in this critical human health fight. We're doing our best to make a difference wherever we are with what we have to contribute. The same resolve applies to our customer commitments. We've maintained our operational excellence throughout the crisis, and we continue to meet or exceed customer expectations in this difficult operating environment. To share a recent example, Customers in China needed to produce antimicrobial sprays to combat the spread of the virus. They urgently needed use of our advanced flow reactor product. We knew our technology and the global supply chain system could make a difference. So our teams executed within days on a project that normally would take weeks to design, make, ship, and deploy production scale systems. We're rising to the call in similar ways around the world. We're also committed to preserving the financial strength of the company. To that end, we are adjusting our operating plans to reduce cost and capital spending, all while meeting our customer commitments. We have essentially no debt due over the next two years. We ended the first quarter with $2 billion of cash. We expect to maintain a strong cash balance and generate positive free cash flow for the year. We plan to maintain our current dividend. I want to take a moment to talk about our strong balance sheet. In addition to $2 billion of cash, we have a debt structure that is conservative by design and relatively unique. it is built for times like these. We deliberately issue debt with 30, 50, and even 60-year maturities so that there is very little debt due in any given year, and the total maturity is spread out over a very long time. Today, our average debt maturity is about 25 years, the longest in the S&P 500. Over the next two years, we have under $70 million of debt coming due. Less than half of our total debt is due within the next 20 years. And during this time, there is no single year with debt repayments over $500 million. Investors often evaluate credit and financial health based on total debt to EBITDA. For the S&P 500, the average company has a weighted average debt maturity of roughly 10 years, and more than 80% of debt is due within 20 years. Consequently, when investors calculate debt to EBITDA, they are implicitly focusing mostly on debt due in the next 20 years. Corning's 20-year debt to EBITDA is 1.1, consistent with an A credit rating and illustrative of the conservatism of our balance sheet. In sum, We have a very strong balance sheet and we have the financial resources needed for the duration of the economic slowdown. We don't know how deep it will be or how long it will last, but we are financially strong coming into it and we're going to come out of it even stronger and ready to return to growth. Let's turn to our long-term growth drivers, which remain intact. In fact, some of the secular trends could accelerate as consumer lifestyles continue to adapt to the drastic circumstances being experienced across the globe. A world of physical distancing and remote work requires expanded network capacity and sophisticated communication solutions. Reduced fine particulate pollution appears to be helpful for reducing infection rates. Drug discovery and safe, widespread delivery of vaccines are among society's top priorities. All these needs fall directly within our mission of improving lives through innovation, and Corning is ideally positioned to contribute. Many of the lifestyle changes we're adjusting to today will not be temporary, and our products and technologies across our market access platforms are more important than ever. Of course, The data continues to come in, and we're busy on all fronts assessing and collecting information on what exactly the new normal will be. Looking at optical communications, bandwidth demand is surging. Let's start with usage reports published over the last two months. At one major carrier, Wi-Fi calling has increased almost 90 percent. Collaboration tool usage is up almost 90 percent at another. And one cable TV company reported that voice over IP and video conferencing traffic increased 228% since March 1st. A major social media company said live streams were up 50% and group video calls were up 70%. A popular cloud video conference service reported that they spiked from 10 million users in December to 300 million in April. For a long time now, our personal technology has been intrinsic to our day-to-day experience. We take it wherever we go. With social distancing, that technology has become where we go to work, learn, and connect. All this points to the need for continuously scaling network capacity and making investments in technologies like 5G, fiber to the home, and cloud computing. And our physical distancing and remote living is being mediated through displays on TVs, laptops, and mobile consumer electronics. Corning's industry-leading glasses are essential for displays and touch interfaces. Turning to our automotive market, our clean air technologies have captured or neutralized billions of tons of pollutants over the past four decades and helped billions of people breathe easier. Today's health crisis is heightening the importance of this corning technology. A study by the Harvard School of Public Health connects fine particulate air pollution with higher death rates from COVID-19 in the U.S. The researchers stated that their study results underscore the importance of continuing to enforce air pollution regulations to protect human health both during and after the COVID-19 crisis. Many countries around the world have regulations to address fine particulate emissions from mobile sources, and Corning's technology is an essential part of the solution. Corning's diesel particulate filters have been used for many years to remove particles from diesel exhaust. More recently, Corning introduced gasoline particulate filters, GPFs, to cut down on particulates from gasoline exhausts while enabling the most efficient use of fuel and horsepower. As the Harvard study reinforces, a body of research ties dirty air to illness, including the most severe COVID-19 outcomes, and makes our solutions more relevant than ever. There are also multiple ways we've mobilized our innovation capabilities to combat the pandemic more directly. Consider our Valor glass. There is a worldwide shortage of pharmaceutical glass packaging and vaccine fill finish capacity is limited. We need successful COVID vaccines and we need next generation pharmaceutical packaging and processes to produce and protect them. We believe corning ValorGlass is the answer. In addition to offering a safer package, we believe that the faster filling line speeds enabled by our Valor technology are particularly critical for a pandemic response when every hour counts and every extra dose delivered makes a difference. ValorGlass vials are being used for COVID-19 vaccine clinical trials right now. We're also supporting several other leading companies developing treatments for the disease. Our support includes Valor, other Corning Life Science products, and technical support to accelerate solutions and ensure availability across the globe. We're supplying our traditional lab products for both RNA and antibody testing to combat the spread of the coronavirus. And we're exploring applying our technology in other ways. For example, using our advanced flow reactors to scale production of small molecule antivirals to treat the virus. GPF substrates for fixed systems that remove fine particles from outdoor air to reduce disease transmission. And Guardian to create smart surfaces that kill coronavirus before it infects people. Overall, we're confident we can make significant contributions as the world addresses and recovers from these challenges. And as we've recently announced, we're taking the next organizational steps to tap the full power of our potential. We're centering operations around our market access platforms, positioning Corning to become even more relevant in our markets. We're working to capture more customer insight. further leverage our distribution channels, and open up new opportunities for innovation with industry leaders who already trust us deeply and appreciate our unique set of capabilities. The new organization comes with a new generation of leaders moving as steadily forward as we pursue our next 169 years of life-changing innovation. We've also established a new leadership position that will drive operational excellence and appointed Eric Musser, President and Chief Operating Officer. Eric's a coining veteran with a strong track record for leadership and execution. He will enhance process consistency and ensure we hit our targets across the company. Before turning it over to Tony, I'll close with a final thought. Corning is no stranger to difficult times. Across three centuries, we've tackled some of our customers' toughest problems by creating some of the most consequential material inventions in history. We've navigated to world wars, natural disasters, and economic catastrophes. Our job, as always, is to rise to the challenge of today and lead. We're keeping our company strong. We're innovating on some of the most pressing problems of the moment, and we're built to last, regardless of the duration of the current crisis. Our people are dedicated. Our resolve is total. Our capabilities are more relevant than ever. Now let me turn the call over to Tony for more details.