Corning Incorporated

Welcome to the Corning Incorporated Quarter 2 2021 Earnings Call. To place yourself in 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, Catherine, and good morning. Welcome to Corning's Quarter 2 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 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. In the second quarter, GAAP net income was $449 million. However, GAAP EPS was a loss of 42 cents due to the GAAP accounting treatment required for the transaction entered into with Samsung Display. Let me take you through why this was the case. As a reminder, on April 5th, 2021, Corning entered into a share repurchase agreement with Samsung Display. As part of the agreement, Samsung converted preferred stock into common stock, and Corning immediately repurchased 35 million shares of that common stock from Samsung. The common shares were traded on the open exchange, so GAAP requires a special accounting treatment of the repurchase as an extinguishment of the original preferred shares. The accounting treatment for an extinguishment of preferred shares is to record the difference between the repurchase price and the original book value in retained earnings. This adjustment to retained earnings is also removed from net income available to common shareholders when calculating GAAP earnings per share. Excluding this, US GAAP EPS would have been 52 cents. Differences between our GAAP and core results can also stem from non-cash mark-to-market gains or losses associated with hedging contracts. They were de minimis this quarter. Our reconciliation of core results to the comparable gap values 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, and they're also available on our website for downloading. And now, I'll turn the call over to Wendell.

Thank you, and good morning, everyone. Today we reported outstanding second quarter results, and we're on track for a strong year. Versus second quarter 2020, sales grew 35% to $3.5 billion. EPS grew 112%. to 53 cents on the higher sales and expanding margins. Free cash flow grew 65% to $471 million, with first half cash generation of $843 million. No question, we're in great shape. And we see a clear growth story playing out across our businesses, Each of our five segments grew sales by a double-digit percentage year over year, ranging from 16 percent for specialty materials to 80 percent for environmental technologies. Now, of course, 2020 was an easy compare, so I think it's worth noting that even versus second quarter of 2019, We grew total company sales and EPS 17% and 18% respectively. Since the second quarter of 2019, we've added more than half a billion dollars in quarterly sales. About $200 million is from Hemlock, and more than $300 million is organic growth. with about 70% of that coming from success of our more corning content strategy and outperforming the competition. The other 30% of organic growth is from rising with the market. In each of our market access platforms, we're addressing significant and transformational trends. We seek to drive content and expand our total addressable market by combining capabilities from our focused portfolio and prioritizing opportunities for more Corning. Our long-term strategy is built on a complementary set of three core technologies, four proprietary manufacturing and engineering platforms, and five market access platforms. We are leaders in each. And the synergies among them allow us to create distinctive benefits for our customers, improve the return on our investments in R&D, and reduce our capital intensity. We create breakthrough products and processes by leveraging the synergies among our core capabilities. capitalizing on insights we gain through close collaboration with our customers, and taking advantage of our existing plants and pilot facilities for early-stage production. For example, over the past few years, we have created new-to-the-world products, including Ceramic Shield, Tupper Gorilla Glasses, AutoGrade Glass, Valor Drug Packaging, Gen 10 1⁄2 display glass, and innovative passive optical solutions that are dramatically increasing the ease and cost efficiency of network deployments. But we're not just creators. We're also builders. We do the manufacturing ourselves using processes that we invent. and proprietary equipment that we design and build. When growth opportunities arise and demand exceeds our existing capacity, we build state-of-the-art plants to manufacture products at scale, and we locate these plants in close proximity to our customers, a strategy that is likely to continue to pay off in a post-pandemic world. We de-risk these investments by requiring meaningful commitments from customers, often including funding, before beginning construction. We last detailed our build investments with you in 2019 when we described our focus, create, build, extend value creation cycle. We pointed out how our built projects were directly responding to customer needs and commitments. We knew that carriers like AT&T and Verizon would need more fiber to densify their networks for 5G. We knew that BOE would need glass for its Gen 10.5 panels. That car companies would need gasoline particulate filters to meet new regulations. That biotech companies would need high-density cell culture to support gene therapy. And that smartphone OEMs would need increasingly durable, scratch-resistant cover glass as they design thinner phones and bigger cameras. We told you these build projects would increase our capacity to meet committed demand and that as we delivered on that demand, they would increase our revenue and generate excellent returns. We are delivering. Today, the build projects we undertook from 2016 to 2019 are collectively delivering return on invested capital above 20%. They've helped us increase our sales run rate from $10 billion in 2015 and 2016 to our current run rate of $14 billion. And they've helped us improve total company ROIC by three percentage points. Importantly, each time we build, we increase our scale and we enhance the opportunity to extend our leadership and create new innovations. And because we're constantly improving our productivity and capabilities, we can often manufacture these innovations and drive revenue growth without building new facilities. We actually spend most of our time in this extend part of the cycle. It's where we are today. In this phase, we keep creating and extending until we're so successful that demand exceeds our capacity. As we reapply our insights and repurpose our assets, our best-in-the-world capabilities just keep getting better. Every time we pursue an adjacent opportunity, we explore new combinations of capabilities. We push the boundaries in areas where we already lead, and we cross train our people in deep and important ways. In other words, we've created a positive feedback loop that expands our knowledge, increases the relevance of our capabilities, and enhances our value to customers. And this directly fuels our content strategy. We aren't exclusively relying on people buying more stuff. We're putting more corning into the products that people are already buying. With that in mind, Let's look at some of the initiatives we're advancing across our market access platforms. In mobile consumer electronics, we continue to help transform the way people interact with and use their devices. We capture growth by increasing the value we offer on each of those devices in the quarter. Consistent with our strategy to obtain customer commitments in support of build initiatives, Apple awarded Corning an additional $45 million from its advanced manufacturing fund to help expand our manufacturing capacity in the United States and to support our R&D. To date, we've received $495 million in total from Apple's fund. We've also launched another chapter in our More According strategy with an important application of our capabilities to enhance the optics of smartphone cameras, which is a new category for us. The social media experience is centered around photos. Device designers are adding cameras and increasing lens sizes. They're also integrating more advanced capabilities such as telephoto, wide-angle lenses, and infrared sensors. These features naturally increase the prominence of the lens surface area, which in turn increases the likelihood of scratches and damage. Enter Corning. Just last week, we announced Gorilla Glass with DX and DX Plus for mobile phone cameras. Our DX family increases image quality and camera durability by providing a composite glass material that combines low reflection with scratch resistance approaching sapphire. Samsung is the first adopter. Turn it to automotive. ODMs are designing cleaner and safer vehicles with technology that enhances the driving experience. We're uniquely suited to address these trends. We're pursuing $100 per car content opportunity across emissions, precision glass products, and auto glass solutions. And we recently entered a new product category in automotive, curved mirror solutions. Our solutions are enabling the augmented reality head-up display in Hyundai's new electric crossover, the IONIQ 5. The system essentially turns the windshield into a display screen, letting drivers keep their eyes on the road, while assessing navigation and speed information directly in their line of sight. Additionally, a new generation of gasoline particulate filters is helping us on our way to surpassing $500 million in annual GPF sales well ahead of our original timeframe. Turning to life sciences. We're delivering growth on multiple fronts. We're seeing ongoing demand in support of the global pandemic response. Our inventions are helping advance the transition to cell and gene therapies. And we're making significant strides toward building a Valor glass franchise, addressing a multi-billion dollar content opportunity in the pharmaceutical packaging market. In the second quarter, we further increased valid production capacity and secured additional customer wins. We worked with Thermo Fisher and Optima Pharma to demonstrate solutions that increase vial filling speed by nearly 70%. thereby alleviating a critical bottleneck in the medical supply chain. Our collaboration features a combination of Corning's ValorVials and Optima's ultra-high-speed fill-and-finish solutions. Thermo Fisher called the results, quote, a game-changer in their ability to serve patients, end quote. turning to display. We're experienced the most favorable pricing environment in more than a decade. And we announced a second moderate increase to our display glass substrate prices. 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 enhance our leadership position. Meanwhile, the emergence of Gen 10.5 has given us a unique opportunity. The market for large-sized TVs is expected and projected to grow at a double-digit CAGR through 2024. and Gen 10.5 glass provides the most economical approach for larger sets. We recently hosted the official opening ceremony for our Gen 10.5 facility in the city of Wuhan. This site is co-located with a large BOE plant, allowing Corning to deliver Gen 10.5 glass substrates more efficiently to our customer for its production in of large-sized display panels. Gen 10.5 provides strong economics for our shareholders while creating options to use earlier generation fusion tanks for new applications, such as automotive and cover glass. To illustrate, remember that we launched our Gorilla Glass business back in 2007 by repurposing some of our existing Fusion assets. Over time, repurposing has resulted in us avoiding more than a billion dollars in capital spending. Finally, let's look at optical communications. We're energized by the momentum that is building in this business. we see that momentum confirmed by multiple sources. First is network need. Demand on the network has only been increasing. Broadband usage for June was up 33% versus pre-pandemic levels, and up 10% versus June 2020, which was a peak quarantine period. Global 5G subscriptions have grown to almost 300 million, and they're on track to double that by the end of 2021, according to industry projections. The second confirmation is customer commitments. And many of our customers are actually being quite public about their plans. we believe we're in the early innings of a large capital deployment cycle across 5G, fiber to the home, and hyperscale data centers. On AT&T's earnings call last week, their CEO said that by year end, they expect to have expanded their fiber footprint by 3 million locations, including both business, and consumer customers. Deutsche Telekom's managing director recently shared that by 2024, they're planning to have about 10 million homes passed and 97% 5G coverage. He said, quote, the expansion of high-performance networks is our top priority, whether with 5G and mobile communications or or fiber optic broadband expansion. To achieve this, we are massively increasing the investments in our network, end quote. And Microsoft's CEO recently shared his perspective on expanding data center capacity to meet cloud demand. He said, quote, digital adoption curves aren't slowing down. In fact, they're accelerating growth. and it's just the beginning, end quote. Of course, the third confirmation is our order book, which is perhaps the most important indicator of growth over the next few quarters. Here, we're seeing year over year growth in double digit percentages in both carrier and enterprise networks. During the quarter, We extended our technology and market leadership in optical communications by introducing new solutions that speed network deployment. We launched Corning SM28 contour fiber, which offers an industry-first combination of superior bendability, compatibility with other fibers, and low signal loss. We also launched EDGE rapid connect solutions that increase fiber density and reduce customer installation time by up to 70%. Across our markets, you can see that our value creation model is driving growth and that key trends are converging around our capabilities. 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 from your mobile device, protected by cover materials that are more and more capable. Now I'll wrap up my remarks today with one final point. I've always said that how we do things is as important as what we accomplish. So I'd like to take a moment to emphasize that we're committed to making a difference wherever we can. We're building on more than a century of honest, respectful, and fair behavior. And such behavior must continuously characterize all our actions, including progress toward improving our environmental, social, and governance programs. To share insight into our approach, We recently issued our annual report on diversity, equity, and inclusion, and we published our first sustainability report. On all dimensions, Corning is operating exceptionally well, focused on providing value for all our stakeholders. I want to thank are incredibly dedicated employees around the world for their continued hard work. And I look forward to updating you on our progress as we build on our momentum in the second half of the year. Now I'll turn the call over to Tony so he can give you some more insight on the quarter.