Corning Incorporated

Thank you for standing by and welcome to the Corning Incorporated first quarter 2025 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To place yourself into the Q&A queue, please press star 1-1 on your telephone. You will hear a message advising your hand is raised. To withdraw your question, simply press star 1-1 again. please be advised that today's conference is being recorded. It is my pleasure to introduce to you Ann Nicholson, Vice President of Investor Relations.

Thank you, Carmen, and good morning. Welcome to Corning's first quarter 2025 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 first quarter, the difference between GAAP and core EPS primarily reflected non-cash mark-to-market losses associated with the company's translated earnings contracts and Japanese yen-denominated debt, as well as constant currency adjustments. As a reminder, the mark-to-market accounting has no impact on our cash flow. A reconciliation of core results to comparable GAAP 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. Good morning, everyone. We delivered outstanding first quarter results that exceeded guidance. We grew sales 13% year over year. to $3.7 billion. We grew EPS more than three times the rate of sales to 54 cents. We expanded operating margin 250 basis points year over year to 18%. For quarter two, we're guiding continued strong year over year sales growth. We expect our Quarter 2 sales to be approximately $3.85 billion. Our Quarter 2 EPS guidance of 55 to 59 cents includes the financial impact of existing tariffs, which is 1 to 2 cents, and accelerated production ramp costs for our new products in optical communications and solar, of about three cents. Even including those items, we expect EPS to grow year over year about 21%, three times faster than sales. Ed will explain more about our guidance later. Overall, we're coming off a strong year one of our springboard plan, and our results and guidance show we're off to a great start in year two. We just held an investor event in March to upgrade our springboard plan. Normally, I would focus my remarks on our strong progress and upcoming milestones. However, many investors requested that we address two questions that are on their minds. What is the financial impact of tariffs on Corning? And can you deliver your springboard plan if there is a macroeconomic downturn during the plan timeframe? So I want to start by answering both of those questions. And then I'll go into more detail on each before turning things over to Ed to discuss our quarter one results and outlook. Let's start with the financial impact of tariffs on Corning. First, our long-standing philosophy to locate our manufacturing operations close to our customers serves as a natural hedge against tariffs and mitigates the financial impact. Second, the direct financial impact of existing tariff structures which are primarily between the U.S. and China is only one to two cents per quarter. We've included that in our second quarter guidance. Third, based on our significant U.S. advanced manufacturing footprint, we're seeing early signs of stronger demand for our U.S.-made innovations. Next, can we deliver our springboard plan in a macroeconomic downturn? The simple answer is yes. And today, we reiterate our confidence in our ability to deliver our recently upgraded high-confidence springboard plan to add more than $4 billion in annualized sales and to achieve operating margin of 20% by the end of 2026. Our growth is primarily driven by powerful secular trends and more corning content in our customers' offerings. And in order to provide you with a high confidence plan, we already applied a risk adjustment that accounts for multiple factors, including a potential macroeconomic slowdown. With that, let's dive into each answer, starting with tariffs. As I said a moment ago, our company has a long-standing philosophy to locate manufacturing operations close to our customers. We find the geographic proximity leads to better innovation and more delighted customers. This also has the benefit of serving as a natural hedge. against global trade tensions and tariff structures. We apply this philosophy globally. As a result, the direct impact of current tariffs for us is minimal. To illustrate the point, let's take a look at the impact of the tariffs between the US and China. In the US, we have a large advanced manufacturing footprint. This includes our optical communications business where we have the largest fiber factory in the world in North Carolina. We also manufacture products for our automotive, life sciences, mobile consumer electronics, and solar businesses in the US. Almost all the products we sell in the US originate from our 34 advanced manufacturing facilities in the US. In fact, nearly 90% of our US revenue comes from products of US origin. The majority of the remainder is generated from products that are fully compliant with USMCA rules. Only 1% of the products we sell in the US come from China. Now let's look at our approach for our customers in China. 80% of our sales in China we make in China or process in customs approved tax and duty free zones. 15% is made in region, for example, in Korea and Taiwan. Only about 5% of our China sales are imported from the U.S. and subject to China tariff structures. And we will mitigate the impact of that exposure primarily by optimizing our supply chain to minimize tariffs and adjusting price where necessary. In total, we expect a direct impact of approximately 10 to 15 million dollars or one to two cents for currently enacted tariffs in the second quarter. That is included in our guidance. Of course, we will seek to improve this through additional mitigation strategies. Ed will provide more detail on guidance. Bottom line, the direct impact of currently enacted tariffs is not significant for Corning. Interestingly, we are seeing early signs of stronger demand for our U.S.-made innovations from our large advanced manufacturing footprint in the U.S. Our customers in optical communications, in solar, in mobile consumer electronics, and in life sciences are seeking to leverage our U.S. manufacturing footprint. and we expect to close and potentially announce commercial agreements in the coming months. Next, can we deliver the springboard plan in a macroeconomic downturn? As I previously stated, the simple answer is yes. Today, we reiterate our confidence in our ability to deliver the recently upgraded springboard plan. Let's walk through why. Our internal springboard plan is to add $6 billion in annualized sales run rate by the end of 2026. We have a significant sales opportunity and our growth is fueled by powerful secular trends that I'll discuss in a moment. As a reminder, our springboard base is quarter four of 2023 when sales were $3.27 billion or $13.1 billion annualized. Adding $6 billion in incremental annualized sales brings us to a $19 billion sales run rate by the end of 2026. That is the sales level we would expect to achieve if we deliver our internal springboard plan. Our internal plan is the output of the strategic planning process we run with each of our market access platforms. These are our actual business plans. We set our objectives and compensation based upon those plans. When our businesses submit plans to corporate, they factor in a variety of probabilistic outcomes. They try to account for the known unknowns. The business plans aim for a 70% confidence interval, which means that based on their analysis, there is a 70% chance that they will deliver sales greater than or equal to that number. What we wanted to do with Springboard was to provide an even higher confidence plan for our investors. So we take that internal plan and translate the opportunity into an investable thesis for all of you. At the corporate level, we seek to probabilistically adjust for factors including macroeconomic slowdowns, changes in government policy, and timing of multiple secular trends in our related innovations. Our corporate level risk adjustment is $2 billion. This is how we get to our $4 billion high confidence plan. Annualized, that is a $17 billion sales run rate by the end of 2026. So let's unpack the macroeconomic component of that corporate level risk adjustment. We use third party forecasts of potential macroeconomic slowdown scenarios. And we apply that to our demand planning model that underpins our $19 billion internal springboard plan. That economic slowdown scenario would result in a sales run rate by the end of 2026 of a little less than $18 billion. Well within our $2 billion risk adjustment. We also run a shock case using the worst downturn over the last 25 years. That scenario results in an adjustment to our plan that is still within our $2 billion risk adjustment. In other words, when we constructed the High Confidence Plan, the impact of a potential economic slowdown was already built in. That being said, remember, we're innovators. We're not macroeconomists. We are not projecting a macroeconomic slowdown. We're simply providing this context for you to make your own decisions. I hope that's helpful. to understand our risk adjustment as it pertains to a potential economic downturn. And that's one of the reasons that today we reiterate our high confidence plan to add more than $4 billion to our annualized sales run rate by the end of 2026. We feel good about our innovations and the secular trends driving our growth. So now let's turn to those trends. We continue to see and hear reconfirming evidence that our secular trends are intact and remain relevant. We see it in our results, and we see it in our order books, and we hear it in our detailed dialogues with our customers. In optical communications, we are seeing remarkable customer response to both our products used inside GenAI data centers as well as our innovations to interconnect AI data centers across the country. We shared some of our new products with you at our March investor event. These products are driving positive customer response and rapid adoption. In our enterprise business, where we capture sales for inside the data center, adoption of our products drove a record $2 billion in sales last year. At our March IR event, we upgraded our four-year enterprise sales compound annual growth rate from 25% to 30% based on strong customer demand. In the first quarter, we continued to outperform with sales growth of 106% year-over-year. We've just completed detailed reviews with our major hyperscale customers that reconfirmed our growth expectations. And as you've also seen in recent public announcements from the top hyperscalers, they've reaffirmed their capital plan and they expect to continue to spend significant amount of capital in this space. Another way GenAI is fueling our growth is reflected in our carrier business. Last year, we introduced a set of innovations to interconnect AI data centers. We shared that we reached an agreement with Lumen Technologies to provide our new GenAI fiber and cable system that enables lumen to fit anywhere from two to four times the amount of fiber into their existing conduit. And the agreement reserved 10% of our global fiber capacity for 2025 and 2026. Last month, we announced that we have fully commercialized this product. We now have three industry-leading customers adopting the technology, and our production tripled every month. in the first quarter. So this innovation is now turning into a revenue stream to make a positive difference in our financials this year. We continue to feel strong, positive customer response to our innovations, and as a result, we're accelerating our ramp plans in the second quarter to meet growing demand. In our carrier business, as you've seen from recent telecom earnings calls, our key customers have stated they like the economics of fiber and they remain committed to their fiber deployment plans. We believe they have completed drawing down inventory they built during the pandemic and the conditions are now in place for our carrier business to spring back to growth later this year. We saw the beginning of that in the first quarter. Turning to solar. In March, we said we expect our new market access platform to grow from a billion dollar business in 2024 to a two and a half billion dollar business by 2028. Drivers include increased energy demand, favorable economics, and government policy focused on energy independence. We are commercializing our new Made in America ingot and wafer products this year. Our production will come online in the back half of this year. We said in March that for our entire platform, we had committed customers for 100% of our capacity available in 2025 and 80% of our capacity for the next five years. And recent trade actions are increasing new customer engagement. The goal of U.S. policy is to ensure domestic energy security. So our U.S. solar assets just became even more valuable. We're experiencing increasing demand for U.S. solar. As a result, we're accelerating our ramp of U.S. advanced manufacturing in our Midland Michigan wafer facility. We're increasing our workforce to 1500 manufacturing jobs from our previously announced 1100 person level. So recent events continue to validate our low risk, high return entry into the solar market. In display, we continue to expect TV screen size growth of about one inch a year. In March, we said that the price increases we implemented last year will help us deliver net income of $900 to $950 million in 2025 and to deliver net income margin of 25%. In the first quarter, the business marked net income of $243 million and net income margin 26.9%. In automotive, we expect almost triple sales in our automotive glass business by 2026. Our growth comes from more corning as automakers add more in-vehicle content. For example, larger, shaped, immersive, and high-resolution displays. Given the milestones we've achieved in our automotive glass business, We're graduating the business this quarter out of the emerging innovations group and into operations. It will be managed along with environmental technologies, forming a new segment called automotive. In mobile consumer electronics, our growth will be driven by demand for more Corning content as customers adopt our new higher value innovations. In the first quarter, our major innovation streams remain on tap and we remain optimistic about adoption of our new technologies. We expect those innovations to drive growth as we enter 2026. In total, our secular trends remain consistent with our recently upgraded springboard plan. In summary, our growth trends remain intact. the direct impact of current tariffs to Corning is not significant. And our $2 billion risk adjustment should provide a sufficient buffer against potential economic downturns. So now, I'll turn it over to Ed to get into more detail on our results and outlook.