Corning Incorporated

Welcome to the Corning Incorporated Quarter 1 2021 Earnings Call. To place yourself into the Q&A queue, please press star 1. It is my pleasure to introduce you to Ann Nicholson, Vice President of Investor Relations.

Thank you, and good morning, everybody, and welcome to our first quarter 2021 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 report contains important-looking statements and 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 relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. For the first quarter, the largest difference between our GAAP and core results stemmed from non-cash mark-to-market gains 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 those contracts will not be settled in the current quarter. For us, this increased GAAP earnings in Q1 by $308 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 contracts 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. 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, Ann, and good morning, everyone. Today, we reported a strong start to what we expect to be an outstanding year. For the first quarter, We grew sales 29% year over year to $3.3 billion. We grew EPS by 125% to 45 cents. Free cash flow of $372 million builds on the momentum we established in the second half of 2020. All five of our segments delivered double-digit sales and net income growth year over year, with sales growth rates ranging from 15% for display to 38% for environmental. But last year was an easy compare. So I think it's worth noting that total company sales are up 14% since the first quarter of 2019. No question, we're in a strong position. This morning, I want to take a closer look at how all our businesses are achieving key milestones and contributing to Corning's success. I'll frame my remarks around three points. First, invention is fundamental to our long-term strategy. Through our relentless commitment to R&D, we develop category-defining products that transform industries and enhance lives. Second, as we partner closely with our customers to move their industries forward, we unlock new ways to integrate more Corning content into their ecosystems. This is a powerful growth mechanism. And finally, we continue to build a stronger, more resilient company, one that is committed to rewarding shareholders while supporting our customers, our people, and our communities. Now, let me expand on my first point. We're living in a world that Corning anticipated exactly a decade ago in our video, A Day Made of Glass. It's a world where technology underpins every facet of human life, a world of communication and connection, where massive bandwidth facilitates real-time information and on-demand connections. And people stay connected through a virtual environment that is literally at their fingertips. Let's think about what it means as displays and touchscreen devices make their way to the very center of daily life. The demands we're putting on today's screens and the expectations we have for tomorrow's imply a very specific set of properties. The requirements for precision glass and ceramics become more and more exacting. We need a material that is strong, yet thin and lightweight, flexible and conformable, durable, damage-resistant, and impermeable, stable enough to withstand hostile weather, extreme temperatures, and cleaning agents. It needs to be touch-friendly, and look elegant. It must scale for very large applications and yet be useful in the palm of your hand or on your wrist. The material must also be operable with a world of technical capabilities that lie just below the surface, enabling complex electronic circuits and nanoscale structures. And it must be mindful of the environment. When it comes to the critical components that enable high technology systems in multiple markets that we serve, the bar just keeps getting higher. This leads to a world where precision glass and ceramics win. And we have been winning. When we examine the growth in all our business today, we see key trends converging around our capabilities at a very exciting pace. In short, we're vital to progress. We succeed through sustained investments in R&D and years of material science and process engineering knowledge. Everything begins with our cohesive portfolio. Corning is one of the world's most proficient innovators in material science. We combine our unparalleled expertise in glass science, ceramic science, and optical physics with our proprietary manufacturing and engineering platforms to develop category-defining products that transform industries and enhance lives. Today, our inventions clean the air we all breathe, connect people to information and each other, provide the window through which we access information and entertainment, and they help facilitate the discovery and delivery of new medicines. And we're building in each of these areas. We're helping our customers move toward a world with nearly infinite and ubiquitous bandwidth, with large lifelike displays, where cars are cleaner, autonomous, and connected, where medicines are individualized, effective, and safe, and where you can do more right from your mobile device, protected by cover materials that can withstand even greater abuse. That leads me to my second point. As we work closely with our customers to advance these visions, we find ways to solve their toughest technology challenges. Our probability of success increases as we apply more of our world-class capabilities, and our cost of innovation declines as we reapply talent and repurpose our existing assets. As we apply our focused portfolio, we invent solutions that add even more value to our customers' offerings. And this provides a powerful growth mechanism. We aren't exclusively relying on people just buying more stuff. We're putting more corning into the products that people are already buying. Now through that lens, let's look at our progress across our market access platforms. In mobile consumer electronics, we continue to help transform the way people interact with and use their devices. And we're capturing significant growth by increasing the value we offer on each of those devices. As we advance state-of-the-art recover materials, we drive sustained outperformance across up and down markets. We've grown specialty sales every year. from 2016 to today, despite smartphone unit sales being roughly flat or down each year. Over that five-year period, we've added more than $750 million in sales on a base of more than a billion dollars. Fast Company recently recognized our achievements in this space. noting both Ceramic Shield and Gorilla Glass Victus, the magazine name-corning the most innovative company in consumer electronics for 2021. We see a similar growth story playing out in automotive. Since 2017, the peak year for car sales, our auto sales are up more than 40%. while global car sales are down 20%. We're helping customers navigate an industry that is expected to change more in the next 10 years than it has in the past 50. And as we do, we're working to capture and expand $100 per car content opportunity across emissions, auto glass solutions, and other technical glass products, including our patented 3D cold form technology. We were thrilled to see the world premiere event for the all-electric EQS from Mercedes. Its hyperscreen features a gorilla glass cover almost five feet wide. We've also launched a new generation of GPS. They're helping vehicles, including hybrids, achieve even lower levels of fine particulate emissions. And they're helping us exceed a $500 million GPF business ahead of our original timeframe. In life sciences, we're delivering growth on two fronts. First, demand is growing based on COVID-19 vaccines and diagnostics. Second, we're becoming increasingly relevant as we help the industry move towards cell and gene-based therapies. And that shift translates into more of our content for Drunk Sold. Looking longer term, we're making significant strides toward building a Valor Glass franchise, addressing a multi-billion dollar content opportunity in pharmaceutical packaging markets. We doubled ValorVial production in quarter one versus quarter four. And to date, the company has shipped enough ValorVials for hundreds of millions of doses of COVID-19 vaccines. Corning also expanded its agreement with the U.S. government to boost capacity for vials to $261 million, a $57 million increase from our initial June 2020 agreement. Turning to display. We're leveraging our competitive advantages to deliver stable returns. I'm pleased to note that in quarter one, We experienced the most favorable first quarter pricing environment in more than a decade. And we announced a moderate increase to our display glass substrate prices for the second quarter. Stepping back, we're the lowest cost producer of display glass, which makes us significantly more profitable than our competitors. Our superior products, innovation capabilities, and deep customer relationships enable us to maintain our leadership position. And our flexible fusion manufacturing platform allows us to match operating capacity with demand. Meanwhile, the emergence of Gen 10.5 has given us a unique opportunity. Demand for large-sized TVs continues to grow. 75-inch sets were up more than 60% last year. These TVs are most efficiently made on the largest fabs, and Corning is well-positioned to drive more content into the market in 2021 with its Gen 10.5 plans in China. Finally, let's look at optical. I'm energized by the outlook for this business. We gauged the market by three indicators. First is network need, and we can all see that demand on the network is only increasing. Second is customer statements. Broadly, network operators are making encouraging announcements on capital investment for 5G and hyperscale data center deployments. And there's also good news on fiber to the home. AT&T CEO John Stanky recently said that fiber underpins the connectivity we deliver, serving both wired and wireless. His company announced plans to increase its fiber-to-the-home footprint by an additional 3 million customer locations across more than 90 metro areas in 2021. Verizon CFO Matt Ellis said that fiber serves as the critical backbone to our 5G deployment. Our commitments with our vendor partners such as Samsung, Nokia, Ericsson, and Corning represent key strategic agreements to drive innovation in 5G. And finally, the third indicator that we watch is our order book. We're seeing orders and sales increase. And we're also seeing multiple governments starting to shape policy that asserts broadband is a basic right. They're developing action plans to take optical solutions to many more homes. The White House is calling for more than $120 billion to bring high-speed Internet to every American. Just looking at the two biggest efforts, the Rural Opportunity Development Fund and the President's Infrastructure Plan, we see a multi-billion dollar opportunity for Corning. Additionally, the UK launched its five billion pound Project Gigabit. The plan is to bring next generation broadband to more than a million hard-to-reach homes and businesses. And the European Commission is is calling for 135 billion euros to support the rollout of rapid broadband services to all regions and households starting in 2021. In addition, we remain the unquestioned technology and market leader. We consistently create new products and extend our lead by delivering solutions that help our customers realize their network visions Faster, better, and cheaper. Simultaneously, we're driving productivity improvements to increase capacity and lower our cost. In total, we're feeling very good about optical. So, I've talked about how we invest to create and make innovations that solve tough challenges, deliver for our customers, and grow. Now, I want to end on my final point. As we effectively build our strength as a company, we will continue to reward our shareholders. The strength of our businesses results in significant cash generation. Our first priority is to invest for growth, and we are committed to return excess cash to shareholders in the form of dividends and opportunistic buybacks. In the first quarter, we announced a 9% increase to our dividend. And earlier this month, we seized a great opportunity to resume share buybacks. Through our recent transaction with Samsung Display, we repurchased 4% of our outstanding shares. This is is a great deal for our shareholders. And it's great news for Corning that Samsung retained a 9% long-term ownership stake in the company. We see their investment as validation of Corning's innovation roadmap and the value of our capabilities. As we look ahead, this only adds to our confidence. Shifting to a broader view of our stakeholder base, we're committed to sharing resources and leadership on a range of important issues. We continue to support vital human services and emergency relief in our communities around the world. Our Office of Racial Equality and Social Unity has made significant strides, In North Carolina, we've established a five-year partnership with NCA&T, the largest historically black university in the United States, to provide scholarships through 2026. The funding focuses on enhancing STEM education, helping students become community classroom teachers, and boosting the number of graduates in other fields critical. to the nation's workforce. In New York, we're providing hands-on support on police reform. We're also energized around our sustainability efforts. The US EPA has once again named Corning an Energy Star Partner of the Year. Recently, Verizon publicly recognized our sustainable practices. And I am pleased to announce that we'll publish our first sustainability report in the coming months. On all dimensions, Corning is operating exceptionally well. And our capabilities are vital to progress on multiple fronts. We're succeeding at building a stronger, more resilient company I want to thank our incredibly dedicated employees around the world for their commitment to our company, to the communities we serve, and to each other. And I look forward to updating you on our progress throughout the year. Now I'll turn the call over to Tony so he can give you some more insight on the quarter.