Corning Incorporated

welcome to the corning incorporated fourth quarter 2022 earnings call to place yourself into the q a q 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 crystal and good morning everybody welcome to corning's fourth quarter 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 reports. You should also note that we'll 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-GAAP measures used by management to analyze the business. For the fourth quarter, the difference between GAAP and core EPS stemmed primarily from restructuring charges as well as non-cash mark-to-market adjustments associated with the company's currency hedging contracts and foreign debts. In total, these increased core earnings in the fourth quarter by $256 million. As a reminder, the 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, and 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. Today, we reported fourth quarter and full year 2022 financial results. Throughout the year, a series of pandemic driven effects continued to ripple across the global economy. Nevertheless, we executed well to grow sales and advance strategic initiatives while addressing the implications that the current environment poses for margins and cash generation. For the fourth quarter, sales of $3.6 billion and EPS of 47 cents were both at the high end of our guided range. And for the full year, building on our strong 2021, we grew sales by 5% to $14.8 billion, and EPS by 1% to $2.09. Gross margin was 36%. Free cash flow was $1.24 billion. I'm pleased with the sales growth we continue to deliver despite confronting what is essentially Recession level demand in markets that constitute about half of our sales, cars, televisions, smartphones, laptops, and tablets are all well below what we estimate as the normal range. Now we've offset this week consumer demand with the strength of our positions in the growing optical communications and solar markets. as well as ongoing outperformance by our businesses versus our end markets. That said, profitability and free cash flow are not where we need them to be. So I'd like to deviate from our usual format for these calls, in which I focus on our progress across our market access platforms. Today, I want to give you some insight and perspective on the external dynamics driving our financial results. And I'll discuss what we're doing to address those dynamics. Since 2020, the external environment has been characterized by the sweeping impact of the pandemic, including supply chain disruptions, depressed productivity, large swings in consumer spending, and inflation. When the pandemic hit, our core priorities were protecting our people and delivering for our customers. So throughout 2022, we operated with elevated staffing and higher than normal inventory levels. In addition, persistent and sometimes quite unpredictable inflation added to the cost of raw materials we purchased, the cost to produce and ship our products, and the inventory we maintained. As a result, our growth in profitability and cash flow have lagged our sales growth. While we took action to improve profitability and cash generation throughout 2022, and made good progress during the first half of the year, it became clear that more was needed. So we took additional and significant actions in the fourth quarter, including raising prices again in optical communications and life sciences to more appropriately share the inflationary cost with our customers. Adjusting our productivity ratios to get closer to historical metrics without impacting our ability to supply and capture future growth. And normalizing inventory. Because our productivity and supply chains have improved, in the near term, we expect to maintain reliable supply for our customers at current inventory levels or below. all of these actions will improve our margins and cash flow throughout 2023. Now, as you may have already inferred from our press release this morning, we expect both first quarter sales and profitability to be anomalous from an historical perspective. Typically, Our first quarter sales declined about 5% sequentially, and margins declined about 1 to 2 points. This year, we expect first quarter sales to decline by more than normal seasonality. In contrast, we expect our margins to increase sequentially due to the benefits of our recent actions. What's driving our below seasonal outlook for the first quarter sales is the situation unfolding in China, where consumer sentiment was already low. In December, China shifted its approach to the pandemic and a significant wave of COVID outbreaks ensued. This resulted in lower consumer spending and workforce shortages. which have in turn impacted the demand for our products as well, particularly in display, environmental, and specialty materials. We expect China to overcome these issues and demand to improve, but it's too early to call the specific timing of improvements in consumer sentiment and demand. We'll keep you posted as we learn more. In the interim, we continue to be well-positioned to capture growth and drive innovation. And as our sales grow, we expect to benefit from operating leverage and our profitability to improve further. Given that it's too early to call the rebound in China, it's difficult to be definitive on our full year results. Here's what I can say. First, our quarter one sales are not an indication of our 2023 run rate. Second, I'd be disappointed if sales didn't grow sequentially in the second quarter and we didn't see year-over-year growth in the second half. Finally, the benefits of our fourth quarter profit and cash flow actions will be significant throughout 2023. As we see consumer demand return and our revenues increase, we expect to see our profitability increase. Now, having shared our near-term perspective, I want to underscore how great we feel about our focused portfolio and long-term prospects. As we evaluate our trajectory, given the uncertainties, and there are a lot of them, one thing that is certain is the relevance of our leadership capabilities to secular trends. Across each of our markets, We are capturing a compelling set of long-term growth opportunities with more to come. In optical communications, we're building on a record $5 billion 2022. And we believe we are still in the early phases of a multi-year build cycle driven by broadband, 5G densification, and cloud computing. Cable and fiber demand remains especially robust. If we could make more, we could sell more. In solar, we continue to capture significant upside tied to growth in the renewable energy industry. And we see excellent growth potential as we contribute to a sustainable US-based solar supply chain and benefit from the inflation reduction end. In display, we maintain stable price and a very strong market position throughout the ongoing industry correction. We expect to emerge from the correction with strengthened customer relationships, a refreshed manufacturing fleet, and increasing sales and profit. In mobile consumer electronics, we anticipate ongoing strong adoption of our innovations, and we expect to continue outperforming the markets we serve through our product leadership, our more corning approach, and our ongoing collaboration with industry leaders. Moving to automotive. We've been outperforming the market throughout a period of industry constraint. We remain focused on building our $100 per car content opportunity and we're pleased by our progress as evidenced by our strong growth in automotive glass solutions in 2022. And we'll be ready to capture even more growth as adoption of our technology continues and car sales return. Finally, in life sciences, we're focused on delivering differentiated tools to support the discovery and delivery of cell-based medicines and modern drugs. Our operations are improving as the industry completes its correction from the unprecedented demand shifts caused by COVID. So now I've gone through the macro uncertainty that characterizes the near-term And I've told you what we're doing to deal with those uncertainties. I've also outlined the rich set of growth opportunities we're capturing over the long term. And I believe our progress so far is a testament to what we can achieve going forward. Let's take a look back at the 2020 to 2023 strategy and growth framework that we introduced in 2019. shortly before the onset of the pandemic. Our goals included sales growth at a compound annual growth rate of 6% to 8%. From 2019 through 2022, we grew at greater than 8% CAGR, even in the face of the ongoing and universally experienced external challenges. Over the past four years, we've advanced significant strategic initiatives. We delivered key fiber-to-the-home and data center solutions to meet surging demand and facilitate a period of strong growth in optical communications. We delivered on our gasoline particulate filter content opportunity in automotive, and we introduced Ceramic Shield with Apple. both of which have driven strong outperformance versus depressed end markets. We ran our Gen 10.5 plans to extend our leadership in the glass for large televisions. And we made major progress on our emerging innovations. We gained significant traction in our automotive glass solutions business, and our pharmaceutical packaging portfolio leaped forward to play a central role in the global health fight over the past three years. Our vials and tubing have supported the delivery now of more than 8 billion COVID-19 doses in more than 50 countries. In sum, We've delivered multi-year sales growth in a challenging environment. We've extended our leadership positions across our markets, and we have paved the way for future growth. I think these are outstanding achievements. Now, as I wrap up my remarks, here's what I'd like to leave you with today. Since the start of the pandemic, We've protected our people and, as evidence in our sales growth, delivered for our customers. We've now completed significant additional actions to improve our profitability and cash generation. The unfolding situation in China certainly impacts our sales in the short term. But despite this, we expect to see the benefits of these recent pricing, Productivity actions take hold in the first quarter. Overall, we will continue to focus on operating each of our businesses well and adjusting to meet the needs of the moment while simultaneously advancing growth initiatives and capabilities that will drive success as the global economy stabilizes. Our focused and cohesive portfolio provides strategic resilience that is evident in our results, even in the current environment. And we remain confident in our ability to deliver durable multi-year growth with improved margins and cash generation. Now, I'll turn the call over to Ed so he can get into the details of our financial priorities alone. with our results and outlook.