Corning Incorporated

Welcome to the Corning Incorporated Quarter 4th, 2023 Earnings Call. To place yourself into the Q&A queue, please push star 1-1. It is my pleasure to introduce to you Ann Nicholson, Vice President of Investor Relations.

Thank you, Shannon, and good morning. Welcome to Corning's 4th Quarter 2023 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 relate 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 primarily reflected constant currency adjustments, realized gains, and unrealized non-cash mark-to-market losses on translated earnings contracts, and non-cash translation losses on Japanese yen-denominated debt, as well as restructuring and asset write-off charges. As a reminder, these 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. Good morning, everyone. Today, we reported fourth quarter and full year 2023 results. Sales for the fourth quarter were $3.3 billion, and EPS was 39 cents in line with expectations. Free cash flow was half a billion dollars. Gross margin was 37%. consistent with the third quarter despite lower sequential sales. As I shared with you last quarter, demand in most of our markets is temporarily depressed due to supply chain corrections and macroeconomic factors. Therefore, our sales are well below long-term trends. Nevertheless, the actions we took to improve our profitability and cash flow generation throughout 2023 are evident in our financial performance. And based on detailed assessments, we are confident that we have extended our leadership positions across our markets. While our current sales are below trend, we expect that to change in the mid-term as our markets begin to normalize. This creates an opportunity for us to increase our sales by more than $3 billion when that happens. As we capture that growth, we expect to deliver powerful incrementals because we already have the required production capacity and technical capabilities in place, and the cost is already reflected in our financials. The incremental profit in cashflow annuity created by increasing sales by $3 billion plus is a terrific opportunity for our shareholders. And we expect to start making progress towards realizing that opportunity in 2024. Now it's difficult to call the specific timing of a recovery. but we continue to see signs that it will occur in 2024. As a result, we expect the first quarter to be our low quarter of the year. So that's a summary of where we are and how we seek to create value in the medium term. I'd like to provide some additional facts and perspectives. At the start of 2023, we introduced plans to improve profitability and cash flow in this lower demand environment. Throughout the year, we took action to restore our productivity ratios to historical levels and to raise price to more appropriately share inflation with our customers. I'm happy to report we delivered on our plans. When you look at our fourth quarter results, on a year-over-year basis, the evidence of our progress is quite clear. We increased gross margin by 330 basis points and free cash flow by $110 million to half a billion dollars, despite sales being down by more than $350 million. Our profitability and productivity improvements led to significantly improved free cash flow conversion, and we expect to continue converting profit to cash at attractive rates going forward. Overall, our results in the quarter and throughout 2023 demonstrate that we continue to make solid progress advancing our market leadership, strengthening our profitability, and improving our cash flow generation even in the lower demand environment we're experiencing. As a result, we're entering this year operationally strong. Now, we intend to build on this strength. As I previously mentioned, we have an opportunity to increase our sales by more than $3 billion in the medium term. Let's take a deeper look as to why we believe this. I shared a bit of how we're thinking about optical communications on the last call. I'll start there again today because it's a significant part of our opportunity. We anticipate optical communications sales will spring back because we believe and our carrier customers have confirmed that they purchased excess inventory during the pandemic and that they have been utilizing this inventory to continue deploying their networks. We believe these carriers will soon deplete their inventory and execute on the increased broadband deployment plans they've communicated to us over the last several months. As a result, we expect them to return to their normal purchasing patterns to service their deployments. We also continue to expect bead funding for network builds in underserved areas to begin in the second half of 2024 and continue adding to our addressable market for several years. Additionally, we expect to grow hyperscale sales in support of the growing role of cloud computing and the need to build the second optical network necessary to directly connect the GPUs that drive artificial intelligence. Last quarter, I shared trend lines for fiber shipments, which showed that we are significantly below trend and outlined why we expect our sales to get back on trend. I'd now like to update you on progress during the fourth quarter. Here you see Corning's fiber shipments measured in fiber kilometers since the beginning of 2007. The trend line shows a 7.3% compound annual growth rate over the last decade. compared to a 6.6% CAGR for industry fiber shipments over the same period. As I explained during our third quarter call, our fiber shipments in quarter one of 2023 were basically in line with expected market trends, but started to drop below our trend line in quarter two and even more so in quarter three with our shipments more than 30% below trend line, primarily due to elevated carrier inventory levels. We now have another quarter of data to share. In the fourth quarter, we saw a small uptick in fiber shipments, but they remain more than 30% below trend. More importantly, our regular sit-downs with key customers indicate that they are deploying at a higher rate than they are purchasing as they continue to make progress on drawing down inventory. Additionally, they have plans to increase deployments in 2024. We look forward to updating you on takeaways from our next round of sit-downs. We're also seeing encouraging signs in hyperscale. Overall orders grew in the fourth quarter, and we're seeing the earliest edge of AI-related network builds in our order books. Returning to trend adds more than 40% to our revenue run rate for optical communications, and we are laser-focused on doing just that. Beyond that, we expect the strong underlying growth trend to continue far into the future and our sales to grow faster than the market through more Corning innovations. Optical fiber remains the ascendant technology with growing applications and wireless cloud computing, including AI and broadband efforts to connect the unconnected. As those applications grow, We have new product innovations in each that will increase our revenue per installed fiber. Government incentives to ensure everyone has Internet access also extend the long-term trend line. Display provides another example of how our sales will spring back. Retail sales during the fourth quarter selling season were softer than industry expectations. Panelmakers responded by reducing their fourth quarter utilization levels. Additionally, industry reports indicate that panelmakers plan to run at lower utilization levels in the first quarter as they continue to align panel supply to demand with FAB shutdowns planned during the Lunar New Year holidays in February. For the first quarter of 2024, we expect the glass market and our volume to be down by a mid single digit percentage sequentially. For the full year, of 2024, our expectations are in line with the industry. We anticipate relatively flat television unit volume, another year of TV screen size growth, and some recovery in PC demand. Combined, this adds mid single digit growth in glass volume at retail versus 2023. We expect panel maker utilization to increase after the first quarter to meet the expected retail demand. As a result, we expect our financial performance to significantly improve from our first quarter run rate. Longer term, we expect continued volume growth in retail to be mainly driven by television screen size growth, as it has the past several years, and for some improvement in units as consumer demand normalizes. Well, we expect to win in this market because we are the undisputed technology leader. Our successful development and capability in Gen 10.5 aligns with the continued move to larger size TVs produced on the lowest cost platforms for large displays. MySciences is another segment where market normalization contributes significantly to our expected growth. Customers in North America and in Europe are completing their inventory drawdowns. We are continuing our productivity and operations improvements, and we're refocusing our commercial and production efforts on drug discovery and production as the market returns. We also continue to evolve our products and business model for vials in our pharmaceutical technologies business. In addition to markets returning to normal, we continue to execute are more corning content opportunities across the company. In mobile consumer electronics and automotive, we see more corning as the primary growth mechanism. Let's look first at mobile consumer electronics. Since 2016, handhelds have declined 21%, while our sales of Gorilla Glass have increased 41%. Now we've done this by advancing the state of the art for cover materials. And this is just the classic Moore Corning play. We have a strong innovation portfolio in support of our close collaborations with leading OEMs. And we expect to continue delivering new products that increase our content per device. You saw a great example of this earlier in January. in our announcement with Samsung about Corning Gorilla Armor, which dramatically enhances sunlight readability and scratch resistance. Extreme ultraviolet lithography, or EUV, a market we serve with our advanced optics products, is another great, more Corning opportunity. We are the market leader for the photo masks, and mirror materials of choice for GPUs and other advanced semiconductors. In automotive, proposed U.S. EPA regulations would require adoption of gasoline particulate filters and provide an incremental driver of demand for our market-leading GPF offerings. In terms of more corning, GPF adds two to three times the content opportunity in ICE vehicles. This would mean significant growth in our environmental business, even in the face of global BEV adoption. Additionally, we're winning both interior and exterior auto glass business as customers increasingly view our solutions to be system enabling components. As I wrap up, here's what I'd like to leave you with. A majority of our markets are operating below trend. And as a result, our 2023 full year sales are down from the prior year. In this lower demand environment, we have successfully taken actions to improve our profitability and cash flow. And we believe we have extended our leadership positions across our businesses. We are confident that our markets will normalize. And as they do, we have an opportunity to increase our annual sales by more than $3 billion. As we capture that growth, we expect to deliver powerful incrementals since the required capacity and technical capabilities are already in place and the costs are already in our financials. This represents a terrific opportunity for our shareholders. We expect to make progress on this opportunity in 2024 and we believe the first quarter is our low quarter of the year. While it's difficult to call the specific timing of a recovery we will continue our regular engagements with our large optical customers to review their recent deployments in detail and better understand their plans for deployments in 2024 and beyond. Following the Lunar New Year, we'll have similar meetings with our display customers. And we look forward to updating you in the next few months at investor conferences on our learnings and our progress. As I conclude, I'd like to remind you that the essence of what we do here at Corning is invent, make, and sell. We drive durable multi-year growth by inventing category-defining products, developing scalable manufacturing platforms, and building strong trust-based relationships with our customers. who are the leaders in their industries. Now, I'll turn the call over to Ed so that he can get into the details of our results and our outlook.