Corning Incorporated

for a second quarter 2025 earnings call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there will be a question and answer session. To place yourself into the queue, please press star 11 on your telephone. You will then hear a message advising your hand is raised. To withdraw your question, please press star 11 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. Please go ahead.

Thank you, and good morning, everybody. Welcome to Corning's second 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 second quarter, the difference between GAAP and core EPS primarily reflected non-cash mark-to-market activity associated with the company's translated earnings contracts, foreign-denominated debt, and constant currency adjustments. As a reminder, mark-to-market accounting has no impact on our cash flow. A reconciliation of core results to the 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 second quarter results. Our record sales and EPS both exceeded guidance. Year over year, sales grew 12% to $4 billion. Earnings per share grew more than double the rate of sales to $0.60. Operating margin expanded 160 basis points to 19%. Return on invested capital grew 210 basis points to 13.1%. And free cash flow grew 28%. $451 million. Overall, key secular trends and our more corny content strategy drove demand for our capabilities, and we continue to capture the powerful, profitable growth outlined in our recently upgraded springboard plan. As we look ahead, we expect our strong springboard performance to continue. We're seeing a remarkable customer response to both our new gen AI and US-made solar products. And we're driving more Corning content into our mobile consumer electronics, display, automotive, and optical communications platforms. We also expect an additional growth driver to emerge in the coming months as new and existing customers seek to leverage our large U.S. advanced manufacturing footprint. Overall, we are well positioned to deliver durable growth through 2026 and beyond. But before we talk about the future, I'd like to take a moment to put our second quarter results in the context of our springboard plans. We launched Springboard in quarter four, 2023, explaining our plan to dramatically improve our sales and enhance our return profile and to increase our operating margin by 400 basis points to 20% by the end of 2026. We're now at the halfway point of our original Springboard plan. When we compare our second quarter 2025 results to our launch We grew sales 24%, adding more than $3 billion to our annualized run rate. We expanded operating margin by 270 basis points to 19%, showing strong progress towards our target of 20%. We grew EPS 54%, more than twice the rate of sales. We expanded return on invested capital by 430 basis points and we generated strong free cash flow. Clearly, this progress is impressive, and we expect our strong performance to continue. So let's look at our journey so far. Our original internal springboard plan, which was the output of the strategic planning process we run with each of our market access platforms, was to add $5 billion in incremental annualized sales by the end of 2026. These were our actual business plans. We set our objectives and our 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. We then provided a higher confidence plan for our investors. At the corporate level, we probabilistically adjusted for factors including potential macroeconomic slowdowns, changes in government policy, and timing of multiple secular trends and related innovations our risk adjustment was two billion dollars this is how we got to our original three billion dollar high confidence plan remember we purposely do this as a wedge we weren't trying to guide every quarter for the next 12 quarters it wouldn't be a straight line that being said Our quarterly performance through 2024 demonstrates our powerful momentum. This chart illustrates that we are hitting or exceeding our critical milestones as sales tracked well above both our internal and high confidence plans through the first year. Our strategies are working and our customers are loving our innovations. Given our progress, in March of this year, we upgraded our internal and high-confidence plans by $1 billion. That's $6 billion and $4 billion, respectively. So now let's look at our most recent quarter. As you can see, we've added $3.1 billion of incremental annualized sales since the launch of Springboard. Looking ahead, we expect to add another $600 million to our annual live sales run rate in the third quarter. At the halfway point of springboard, we are on track and expect strong momentum going forward. Now let me share just a few examples of what is driving our growth. GenAI is clearly a positive force. First, in our enterprise business, where we report sales for inside the data center, we saw a record $2 billion in sales last year. In quarter two, we grew enterprise sales 81% year over year. The primary technical driver behind that growth is what the industry calls the scale out of the network. That basically means that hyperscale customers are scaling out the GPU clusters with more and more connected AI nodes of server racks, or simply put, larger neural networks. Because each AI node is connected to the others in the cluster by fiber, this creates more volume for Corning. we also have another significant upside opportunity inside the data center driven by what the industry calls the scale up of the network. Hyperscalers are creating more capable nodes that move from less than 100 GPUs per node today to hundreds of GPUs per node in the future. Historically, an AI node has been within a single server rack. As hyperscalers scale up, AI nodes are shifting to stretch across multiple server racks. This causes the distance to link these GPUs within the node to get longer. This will eventually cause the links to reach about 100 gigabit per second meter, what we call the electrical to optical frontier line. which roughly marks the point where fiber connections become more techno-economical than copper, creating a large potential opportunity for us. To help understand the size of this opportunity, a single Blackwell-like node has more than 70 GPUs with more than 1,200 links using more than two miles of copper. As that node scales up, Those two miles will eventually be replaced by fiber connections, and those miles will grow over time as more and more GPUs are included in the AI node. I'm sure you've seen announcements regarding co-packaged optics, or CPL. That is one of the technologies that helps activate this scale-up opportunity for us. If we succeed technically, the scale-up opportunity is two to three times the size of our existing $2 billion enterprise business. And we're working with key customers and partners as we speak on making that future a reality. Another opportunity for our growth tied to Gen AI is playing out in our carrier business. Now, we've been studying this space for some time, and we've been seeing that most long-haul routes were approaching their maximum data rate capacity, creating a need for many new high-bandwidth, low-latency links between cities and data center campuses. And this essentially requires a rebuild of the long-haul networks. Our customers consider the long-haul rebuilds As they think about that technically and economically, they see great potential economic benefit from fitting more fibers into a given conduit. This means they prefer denser fiber optic cables. To create a high density solution, we applied our core innovations from inside the data center to this outside plant challenge. We introduced this new technology package to connect data center campuses. In the industry, this is referred to as DCI, or data center interconnect. We shared last year that we'd 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. We've now fully commercialized this product set and we have three industry-leading customers adopting the technology. That being said, we are just in the very beginning of this new market. We expect this business to scale rapidly, reaching a billion-dollar opportunity for us by the end of the decade. Now I'll turn to our growth opportunity in solar. At our March IR event, we shared our low risk, high return strategy to reenter the solar market. We generated over $1 billion in cash from 2020 to 2024 in this platform. We funded the expansion of our manufacturing assets with the growing cash flow generated from the assets we acquired for less than 10 cents on the dollar, customer funding, and government support. all while generating positive cash flow every year. As a result, we have now built a strong foundation for rapidly accelerating growth. We made advancements to serve higher-end chip segment in semiconductors, and we are on track to double our semiconductor business by the end of the decade. we activated idle assets to serve the need for domestic solar polysilicon. And we added the capability to transform our polysilicon into higher value domestically made solar wafers, all integrated together on our campus in Michigan. We now have committed customers for 100% of our polysilicon and wafer capacity available in 2025 and 80% of our capacity for the next five years. Because we built this platform so quietly while growing our cash flow, our new solar map hasn't garnered much attention from investors relative to the significance of the opportunity. We expect to triple our sales run rate by 2027, adding $1.6 billion of new annualized revenue