Corning Incorporated

Welcome to the Corning Incorporated Quarter 2 2024 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 and good morning, everybody. Welcome to Corning's second quarter 2024 earnings call. With me today are Wendell Weeks, Chairman and Chief Executive Officer, and Ed Schlesinger, Executive Vice President and Chief Financial 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 second quarter, the difference between GAAP and core EPS primarily reflected constant currency adjustments, translated earnings contract gains, and translation gains on Japanese yen denominated debt, as well as restructuring and primarily non-cash asset write-off charges. As a reminder, GAAP 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. 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 announced strong second quarter 2024 results. We returned to year-over-year growth and we exceeded the sales and EPS guidance we shared going into the quarter in April. The outperformance was driven primarily by the strong adoption of our new optical connectivity products for generative AI. So why don't we start today with a quick explanation of why this application provides a great growth opportunity for our shareholders. Traditional data centers contain a network of interconnected switches and CPUs. GenAI requires a second network within data centers to connect every GPU to every other GPU in the cluster, creating a neural network. Now because GPUs have more processing capacity than CPUs, they need higher bandwidth links connecting them. The result is about 10 times the number of fiber connections in this new network versus a traditional data center. Now this not only provides volume, which is great, but also the opportunity to innovate with the major players in this space. So, over the past four years, we've helped key customers design the optical links needed for this second network in their next generation AI data centers. We invented new to the world fibers, cables, connectors, and custom integrated solutions. These new products dramatically reduce installation time and on-site labor, save space, and lower embodied carbon, all while reducing installed cost and increasing the overall reliability of the network. As I noted, Strong adoption of these Gen AI products primarily drove our outperformance in the second quarter. In fact, it drove record sales in the enterprise portion of our optical business, which grew more than 40% year over year. I've been talking about the Gen AI opportunity inside the data center. Gen AI also increases bandwidth requirements between data centers. We've reached an agreement with Lumen Technologies that reserves 10% of our global fiber capacity for each of the next two years to facilitate Lumen's build of a new network to interconnect AI-enabled data centers. will be the first outside plant deployment of Corning's new GenAI fiber and cable system that will enable lumen to fit anywhere from two to four times the amount of fiber into their existing conduit. Now, GenAI is just one of the many growth opportunities we've included in the plan we call Springboard. which adds more than $3 billion in annualized sales with strong incremental profit and cash flow within the next three years. We've been sharing some of the key points on Springboard for the last few quarters, but today I want to outline our plan in a more comprehensive way. We built a tremendous opportunity for our shareholders, and we want to help you understand how we think about Springboard. Let's start with the core components. First, we previously shared with you that the first quarter would be the low quarter for the year, and as our results show, we've begun our march up. Sales grew 11% sequentially to $3.6 billion in the second quarter. and we returned to year-over-year growth. And the third quarter guidance we provided in our release this morning shows that we expect to continue growing in the third quarter with sales of approximately $3.7 billion. Second, we expect to add more than $3 billion in annualized sales within the next three years as cyclical factors and secular trends converge and drive demand for our capabilities. Our market positions are strong and we're seeing encouraging signs of markets improving. And we continue to innovate new product sets tied to secular trends to drive growth above market levels. Third, as we capture this growth, we expect to deliver powerful incremental profit and cash flow. we have the required capacity and technical capabilities in place to service that $3 billion in the three-year window. And the cost and capital are already reflected in our financials. Our second quarter results and third quarter guidance serve as a strong proof point of our powerful incrementals. We grew EPS 24% sequentially, more than double our sales growth rate. And as you can see in our guidance, we expect EPS to grow about three times faster than sales in the third quarter. Gross margin improves sequentially in year over year by 110 and 170 basis points respectively. operating margin expanded 190 basis points versus quarter one. We also generated strong free cash flow. And with the success of Springboard, we expect to be able to accelerate the return of cash to shareholders. In fact, due to our growing confidence in the plan, we began buying back shares in the second quarter and will do so in the third quarter. So I just walked through the core components of Springboard. Now I want to provide more context on our sales opportunity because this is an extraordinary time for the company. I've had the chance to talk with many of you recently and you've probably heard me say material science is really slow until it gets wicked fast. you hit these moments of inflection. For example, I just noted our new product suite for GenAI. To do all that, we had a dedicated team that I've been part of for the last four years, capitalizing on our deep insight and customer relationships to develop these products long before they become a seemingly overnight success. Some strategies take even longer to come to fruition. Meaningful innovation takes time. And then you hit these critical milestones and everything starts happening in quick succession. We are at one of these moments. Over the next several quarters, we expect to share a number of customer announcements. You'll see more commercialized innovations and a steady march up in our quarterly performance. So I want to give you a structure to help you put those coming milestones into the context of our total springboard plan as they happen. I'm going to use this chart to explain our incremental sales opportunity. We introduced Springboard in quarter three last year using our quarter four projected sales of $3.25 billion as the starting point, which put us at a $13 billion annualized run rate. The y-axis represents incremental sales above our quarter four 2023 run rate. And the x-axis simply represents time for the following five years. Now let's fill in some numbers. Here is our internal non-risk adjusted plan. Now there's a lot to take away from this slide. The first is we have a significant sales opportunity. We're looking at potential growth of $8 billion in annualized sales run rate by the end of 2028, with $5 billion by the end of 2026. We expect growth across all our market access platforms, driven by a combination of upward cyclical and secular trends, and will provide insight behind the springs or drivers of that growth. Now, this is our internal plan. When we say it's not risk adjusted, what we mean is that the projections are based on a number of assumptions, including markets recovering back to historical trend lines with continued growth thereafter, successful adoption of new innovations across a number of markets and platforms, and successful execution of all our operational milestones for productivity and for price. That said, we've taken this opportunity and translated it into a high confidence plan to help inform investors. To do that, first, we focused on the next three years. Second, we probabilistically adjusted for different potential outcomes in each of our market access platforms, including market dynamics, timing of secular trends, successful adoption of our innovations, as well as volume, pricing, and market share across all our businesses, and the potential that some of our markets may go through down cycles. And this is how we come to the high confidence springboard plan for our shareholders to help inform their investment decisions. It's also important to note that we purposely drew this as a wedge. We weren't trying to guide every quarter for the next 12 quarters. It obviously won't be a straight line. We are also not dealing with a hockey stick. When we built the plan, we expected to see strong growth this year. So how are we doing so far? We are off to a terrific start. Let me explain the $1.3 billion dot point you see on the chart here. Our quarter two 2024 sales were $3.6 billion. our quarter four 2023 sales were $3.27 billion. The difference is $330 million. And when you annualize that, you get to $1.3 billion. And that trend continues into quarter three. The additional sequential growth increases our run rate in the third quarter by $1.7 billion. As you can see, we are running well ahead of our springboard plan run rate. That being said, please remember, we're only two quarters into a 12-quarter plan. Springboard is a milestone-based plan evolving over the next three years. We have plenty of opportunity ahead of us, a lot of springs yet to activate. We'll update you as we hit significant milestones. Clearly, we're off to a very strong start, well above the run rates we need to deliver. So as I wrap up this morning, I think you can see why We're energized about Springboard. And we're pleased with our early progress, including, of course, the encouraging response to our Gen AI products. We expect to have a lot more news over the next few months as milestones start to hit. And we're scheduling around those. We're planning another investor event in September. as well as a full investor day in early 2025. Also, it is important to note that as we proceed forward with springboard, we'll continue to seek the guidance of our board of directors. To that end, we will be refreshing our board composition to more closely align the skill set profiles of the board with our springboard plan. Now let me turn it over to Ed for some more detail and perspective on the quarter and on springboard.