Corning Incorporated

Welcome to the Corning Incorporated Quarter 2 2022 Earnings Call. To place yourself into the Q&A queue, please press star 1 1 on your telephone. It is my pleasure to introduce to you Ann Nicholson, Vice President of Investor Relations.

Thank you and good morning, everybody. Welcome to Corning's Q2 2022 Earnings Call. With me today are Wendell Weeks, Chairman and Chief Executive Officer, Ed Schlesinger, 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 report. 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 second quarter, the largest difference between GAAP and core results stemmed from non-market, non-cash mark-to-market gains associated with the company's currency hedging contracts. This increased GAAP earnings in Q2 by $203 million. To be clear, this mark-to-market accounting has no impact on our cash flow. 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. 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. Today we announced strong second quarter results. We captured additional content opportunities across our markets despite an extremely challenging external environment. And we delivered on growing demand in optical and solar. Sales were $3.8 billion, up 7% year over year. And EPS was 57 cents, up 8% year over year. Free cash flow was $440 million and total first half free cash flow was $611 million. Gross margin and operating margin expanded 90 basis points and 120 basis points respectively from the first quarter 2022 levels. Now, our improved profitability was primarily driven by the benefits of pricing actions that we took to more appropriately share the impact of inflation with our customers. In total, we delivered in line with our expectations, even though dynamics in three of our largest markets played out at the lower end of our assumptions. In the last month of the quarter, panel maker utilization rates declined to the lowest levels since the first quarter of 2009, when we were at the height of the financial crisis. Auto production continued significantly below normal, with virtually no cars sold in Shanghai in April due to COVID-19 restrictions. with European new car registrations for June at the lowest levels since 1996. In the second quarter, smartphone sales declined 11% year over year, primarily stemming from COVID lockdowns in China. In the face of these industry dynamics, we delivered outstanding results. in line with our guidance. We did what we said we were going to do, including continued growth and improved profitability. We view the resilience we've demonstrated as a strong proof point that our strategy is working. In the third quarter, We expect the challenges in these three markets to continue. At the same time, we expect an ongoing benefit from secular trends in optical and solar. Both factors are reflected in our guidance. We now expect third quarter sales to be roughly consistent sequentially and to grow year over year. We expect full year sales to slightly exceed $15 billion and to grow in a range of 6% to 8%. Now, Ed will elaborate more in just a moment. Now, with that in mind, I want to expand on our path to $15 billion and look at the dynamics playing out in four critical markets, display, optical communications, solar, and mobile consumer electronics. And I'll address what we're experiencing, how it is reflected in our financials, and how we're driving our performance. Let's start with display. We are executing well against our strategy. We have been updating you on the panel maker utilization correction for a year now. Panel makers accelerated reductions in the second quarter. The sharpest reduction was in June. And our volume declined in line with panel maker utilization and the market. We expect June's low production level to continue throughout the entire third quarter. and our volume to again decline in line with the market. Our guidance reflects our view of panel makers' second half production, and we expect our second half volume to be lower than the first half. At the same time, we have always said we expect to maintain price stability through this correction. That is exactly what happened in the second quarter. As expected, price was up sequentially. And we expect third quarter price to be consistent with the second quarter. As panel makers lower utilization, we are seeing glassmakers idle their tanks to perform maintenance and repairs and thereby lower capacity. We are managing our own tank repairs and restarts to align our supply to demand after running flat out for a very, very long time. As a result, we expect glass supply and demand to remain in balance. We feel good about our execution and strategy and display as we continue to operate from a position of strength. We are the industry leader with a global manufacturing footprint, cost advantages, distinctive capabilities, and leadership in Gen 10 and a half where we are well positioned to capture long-term growth. in large size TVs. Let's move to optical communications, which was the largest contributor to our second quarter growth. We believe the industry is at the beginning of a large multi-year wave of growth for passive optical networks, and we're well positioned to capture that growth. We're pursuing three significant secular trends, broadband, 5G, and the cloud. We've got major innovation programs underway for each category, and we're seeing robust traction with our customers. Momentum continues to build in this business. You can see this in our financials. Second quarter sales grew 10% sequentially, faster than we expected. and 22% year-over-year to reach $1.3 billion. And we expect to grow year-over-year again in the third quarter, and even faster than the market for the full year due to growing demand for our innovations. Take, for example, our Edge pre-engineered systems for cloud operators. Now, this product had its biggest quarter to date in the second quarter. These solutions, much like FlexNav for broadband, provide customers with a simpler, greener solution that minimizes the number of cables, cable trays, and hardware needed. The simple value prop is speed. We're helping get capacity installed much faster, eliminating labor bottlenecks in the industry. Our innovative manufacturing process, which completes splicing at a fraction of the cost and at much higher quality, dramatically reduces on-site labor. So we're accelerating our customers' ability to scale their networks and build cloud capacity all while driving more corning solutions into the market. visibility and confidence in the adoption of edge products is high because network planning decisions happen well ahead of deployment and we are winning now turning to solar the renewable energy industry is evolving rapidly and our ongoing growth suggests that that the market's behavior is more closely tied to a global imperative than simply current economic trends. We recently re-energized our participation in the solar market by turning on idle capacity and securing customer commitments through new long-term take-or-pay contracts for solar-grade polysilicon. In the quarter, sales grew significantly, which is reflected in our top-line growth. Looking ahead, we believe that Corning's broader technical and manufacturing capabilities, R3 and R4, will prove highly relevant in helping advance the industry. We expect year-over-year growth to continue in the second half, and we see excellent growth potential in this business. In mobile consumer electronics, smartphone and IT retail unit sales were down. However, we're outperforming in this market through our more corning approach, product leadership, and ongoing collaboration with true industry leaders. The benefits of our strategy are evident in our results. Specialty material sales were consistent with a strong second quarter of 2021 and net income grew 12% year over year. We expect to deliver growth in the back half in this down market as customers adopt our innovations for their product launches. Overall, Corneen is executing very well, commercially and technically. Despite all the temporary macro challenges, we delivered a solid quarter. We've added more than $700 million in sales in the first half, reflecting an increase of more than 10% year over year. And EPS has grown even faster, up 14% in the same time period, from $0.97 to $1.11. So you can see that strong secular growth in optical and solar and our more corning approach is offsetting weakness in the display, automotive, and mobile consumer electronics markets. We expect to continue performing well in a challenging environment to close out another strong year. Our cohesive and focused portfolio provides us with a strategic resilience that is playing out well in the current environment and will serve us well in the future. Tapping back. How we've been leading in the automotive and life science markets for 100 years, display for 80 years, telecommunications for 50, and mobile consumer electronics since the inception of smart devices. The basis of our ongoing successes are distinctive set of capabilities and long track record of life-changing and life-saving inventions. Now, this is particularly important in times like the present. We've made great progress building a more balanced and resilient company. We are structured to and focused on outperforming our markets consistently. Corning's deep relevance to secular trends, along with our ability to drive more content into our markets over time, will enable us to maintain our strength through this economic downturn and emerge stronger on the other side. As we look to both the immediate future and longer term, we're confident that our investments and our focused and cohesive portfolio, together with our financial discipline, will help us drive durable, profitable multi-year growth. In fact, our R&D engine has never been stronger. And a new generation of distinguished leaders has stepped up to drive us through our next exciting period of transformation. This quarter, we appointed Dr. Jamin Amin as our Chief Technology Officer. A 25-year Corning veteran, Jamin has worked with some of the company's most influential and innovative customers on groundbreaking advancements. including his work launching and commercializing Gorilla Glass. James' leadership, technical expertise, and experience with Corning's scientific capabilities will help take us to the next level of innovation. I'd also like to thank David Morse. I deeply appreciate his leadership and contributions over the years as one of our most accomplished technology leaders. He received his PhD from MIT when he was only 23 years old. And he retired last month after nearly 50 years with the company. David has created a strong foundation that Jamin will continue to build on, adding to my confidence that Corning's greatest contributions are yet to come. Now let me turn the call over to Ed. who will share more details on our results, financial priorities, and outlook.