Corning Incorporated

Ladies and gentlemen, thank you for standing by, and welcome to the Corning, Inc. Fourth Quarter 2020 Earnings Conference Call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you require any further assistance, please press star 0. I would now like to hand the conference to your speaker today, Ann Nicholson, Vice President of Investment Relations. Please go ahead, ma'am.

Thank you, and good morning, and welcome to Corning's Quarter 4 2020 Earnings Call. With me today are Wendell Weeks, 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'll 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-GAAP measures used by management to analyze the business. For the fourth quarter, the largest difference between our GAAP and core results stem from restructuring charges, which are primarily non-cash, as well as non-cash mark-to-market losses associated with the company's currency hedging contracts. With respect to mark-to-market adjustments, GAAP accounting requires earnings translation hedge contracts and foreign debt settling in future periods to be mark-to-market and recorded at current value at the end of each quarter, even though these contracts will not be settled in the current quarter. For us, this reduced GAAP earnings in Q4 by $63 million. To be clear, this mark-to-market accounting has no impact on our cash flow. Our currency hedges protect us economically from foreign exchange rate fluctuations and provide higher certainty for our earnings and cash flow, our ability to invest for growth, and our future shareholder distributions. Our non-GAAP or core results provide additional transparency into operations, by using a constant currency rate aligned with the economics of our underlying transactions. We're very pleased with our hedging program and the economic certainty it provides. We've received $1.7 billion in cash under our hedge contract since their inception more than five years ago. 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, and we encourage you to follow along, and you can download them from our website. And now I'll turn the call over to Wendell.

Thank you, Ann, and good morning, everyone. Today we reported an outstanding finish to the year. Each of our segments grew sales and profits year over year, and we continued to progress our strategic initiatives. For the fourth quarter, sales were $3.3 billion, up 11% sequentially and 17% year-over-year. Our operating margin expanded 500 basis points year-over-year to 19.4%. Operating income grew 18% sequentially and 58% year-over-year. EPS of 52 cents was up 21% sequentially and 13% year-over-year. We generated $464 million of free cash flow in the fourth quarter, $948 million for the full year, And we finished the year with $2.7 billion in cash on our balance sheet. Hit those without saying, 2020 was an incredibly difficult year. We joined the rest of the world to confront the pandemic, economic uncertainty, and social unrest. Throughout the year, we focused on our customers and executed on strategic priorities. while protecting our people. From more perspective on our performance, I'll share three observations. First, we demonstrated our ability to adapt rapidly and remain resilient in the face of uncertainty. Second, our more corny content strategy clearly contributed to our growth, and our performance against our end markets. And finally, throughout this difficult period, we're embracing the opportunity to make a difference, wherever we are, with what we have to contribute. Now I'll stand on my first observation. Our decisive actions and strong operational executions have resulted in continued leadership in the capabilities that make Corning distinctive. Like many companies, we focused on bolstering our financial strength, reducing production levels and operating costs, carefully managing inventory, reducing capital expenditures, and pausing share buybacks. However, it's not about what we cut, but what we kept. While we adjusted production, we didn't reduce capacity, keeping us positioned to meet increasing demand when the economy improved. We continued to make strategic investments and advance major innovations with our customers to capture the growth playing out across our market access platforms. And we developed multifaceted programs to protect our talent and preserve our capabilities. Our first half actions generated significant cost savings in the second half of the year. And as the economy started showing signs of green shoots, we effectively adjusted our operations, keeping pace as demand started to recover in many of the markets we serve. Our results tell the story. Sales were down 12% in the first half, as most economies were impacted by pandemic-related lockdowns. But in the second half, we improved sales 24% over the first, while growing operating income 122%, returning to year-over-year growth and generating very strong free cash flow. For the year, we generated almost a billion dollars of free cash flow, And our balance sheet remains very strong. We expect this strong momentum to continue heading into 2021. We will continue to adapt and focus on execution as we have proven that our approach is working. Turning to my second observation. In all the industries we serve, important market trends continue to offer new challenges that Corning is just uniquely qualified to address. And new opportunities to integrate more Corning content into our customers' products. In this difficult year, we have proven that this is an especially powerful value creation lever. We aren't relying exclusively on on people buying more stuff. We're putting more corning into the products that people are already buying. In the fourth quarter, this strategy paid off as we grew sales year over year in every one of our businesses. At the top were specialty materials with sales up 20% year over year and environmental technologies up 19% year over year. both significantly outperforming their end markets. Last quarter, I described our innovations in mobile consumer electronics, looking at how we're investing to create additional revenue streams and capture content opportunities. Today, I'll focus on our automotive market access platform. The auto industry is undergoing major disruptions. Automakers are designing cleaner and safer vehicles while featuring technology that provides immersive experiences. We're uniquely suited to address these trends. And for us, the opportunity is large. In the range of $100 per car in Corning content. We're collaborating with more OEMs and we're offering more solutions to help move the industry forward. Let's look at two of our biggest successes right now. Starting with our automotive glass solutions business. We're building strong momentum. Our advantage solutions are enabling the very rapid shift towards in-vehicle displays that are interactive, that are integrated and shaped. We're collaborating with industry leaders across the auto ecosystem, including Visteon, LGE, BOE, and VIA Optronics to accelerate the adoption of our patented 3D cold form technology, which enables lower cost shaped auto interiors. Our large scale facility in Hefei, China is now fully operational. and servicing our growing demand. And we continue to see strong adoption of our technology by auto OEMs. A recent proof point is the new Mercedes-Benz hyper-screen dashboard display, which features a gorilla glass cover nearly five feet wide. Similarly, in environmental technologies, In a year, when a global pandemic temporarily shut down OEM production, our proprietary gasoline particulate filter business still grew sales year over year. When we introduced GPS, we said our technology increased our content opportunity per car by three to four times. Like most of our innovations, it started with the customer challenges. Europe and China are addressing fine particulate pollution with new emissions regulations. We applied our expertise in ceramic science with our advanced manufacturing capabilities in extrusion to rapidly develop filters that efficiently track fine particulates. And today, we're effectively helping automakers reduce these harmful emissions, meet new regulations, and produce some of the cleanest gasoline vehicles you can buy. Demand for our GPS has grown quickly, and with our market-leading product, we continue to win the majority of platforms awarded to date. We're well on our way to building a half-a-billion-dollar business. We're actually ahead of schedule, and the content opportunity continues to dwell. We expect our GPF technology to migrate beyond Europe and China as other regions focus on improving air quality. And many new car models will soon be required to get even closer to near zero particulate emissions. In response, we recently introduced our next generation GPS featuring enhanced filtration capabilities. They're launching in upcoming models as automakers prepare for the next wave of regulations. Across our markets, we see a similar content story playing out as we respond to key industry challenges with more corning solutions. Let me share some other accomplishments across our market access platforms. In my sciences, Pandemic-related demand has highlighted our strength in the industry, and we achieved major milestones towards building a significant Valor Glass franchise in 2020. At the start of the year, we entered a long-term supply agreement to provide Valor Glass vials for a portion of the currently marketed Pfizer drug products. Soon after, we were awarded $204 million in funding from the U.S. government to substantially expand domestic manufacturing capacity for Valor vials. Today, we're supplying Valor glass to several leading COVID vaccine manufacturers. We've produced millions of Valor vials and shipped enough for more than 100 million doses, supporting multiple vaccine developers. In our life sciences segment, the global health fight is driving strong demand for our consumable products. We're supporting the development of treatments and vaccines, as well as math testing efforts. We received $15 million from the U.S. government to expand domestic capacity for robotic pipette tips, which are used for COVID diagnostic testing. BioNTech recently recognized our contribution to their successful COVID vaccine development. Turning to mobile consumer electronics, we launched the toughest gorilla glass yet, Victus. And it's already featured on six Samsung devices. Corning also invented the world's first transparent, color-free glass ceramic, which is featured on the front cover of the latest iPhone. Apple and Corning partnered to develop and scale manufacturing of Ceramic Shield. It offers unparalleled durability and toughness. I noted that specialty material sales were up 20% year-over-year in quarter four. they were up 18% for the full year in a smartphone market that declined 7%. In optical communications, we returned to growth, and we expect this growth to continue as customers increase spending to support growing bandwidth requirements. In 2020... We introduced new and innovative solutions that help speed the deployment of 5G. We launched our outdoor 5G-ready connectivity solutions, featuring compact, easy-to-install terminals that can be deployed in any conceivable architecture. Operators can actually save up to $500 per terminal location, dramatically lowering installation costs and speeding up deployment. We're also collaborating with Verizon to enable 5G millimeter wave indoor deployments for their enterprise customers. We're also working with Qualcomm Technologies to deliver indoor networks that are 5G ready, easy to install, and affordable. And we're collaborating with Enersys to simplify the delivery of fiber and electrical power to small cell wireless sites. Turning to display. Retail demand for TV and IT products remains strong. Demand for large-sized TVs continues to grow. 75-inch sets were up more than 60% for the full year. Large TVs are most efficiently made on Gen 10.5 fast. Corning. is well positioned to capture that growth with its Gen 10.5 plants in China, including the two newest Gen 10.5 facilities in Wuhan and Guangzhou, which are now expanding production to meet customer demand. Ramping these sites has been no small feat in the midst of a pandemic. We are very proud of our innovative and dedicated expert engineering teams that rose to a host of unprecedented challenges to start up tanks in both facilities. Looking ahead, Corning's long-term growth drivers and content opportunities are strong in each of our markets. And we believe some secular trends could accelerate as consumer lifestyles continue to change in the aftermath of the health crisis. And that leads to my third observation. We're living through the kind of moment that tends to bring true character to light. At Corning, our values are evident in our actions. We've unleashed our capabilities to help combat the virus. And we're proud to be creating life-changing technologies that contribute to keeping people safe and help society address the challenges of the pandemic. We also recognize that in these unprecedented times, that we have the opportunity to share resources and leadership on a range of important issues. We've launched racial and social equality programs, and our unity campaigns support vital human services and emergency relief in our communities around the world. In conclusion, On all fronts, Corning is executing well. We're delivering outstanding results and making important progress across our strategic priorities. I am confident that we are entering the year with solid momentum and we expect to grow in 2021. Our more Corning strategy will continue to drive outperformance across the diverse industries that we serve. We're not just counting on consumers buying more cars, TVs, or smartphones to grow. And I'm excited about how we're bringing our capabilities to bear in optical and life sciences as operators expand their networks and we continue to support vital drug and vaccine development. Now, I'll turn the call over to Tony so that he can provide additional insight on our results and expectations.