Corning Incorporated

To the Corning Incorporated Second Quarter 2026 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 then hear a message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. It is my pleasure to introduce to you Chris Keenan, Director of Investor Relations.

Thank you, Carmen. Good morning and welcome to Corning's second quarter 2026 earnings call. With me today are Wendell Weeks, Chairman, Chief Executive Officer and President, 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 will 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, differences between GAAP and core EPS principally reflects adjustments for hedged exposures, along with largely non-cash discrete tax items and restructuring and impairment charges. 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 and we encourage you to follow along. They are also available on our website for downloading. And now I'll turn the call over to Wendell.

Thank you Chris and good morning everyone. Today we announced outstanding second quarter results that demonstrated progress on our newly upgraded springboard plan. Now for those of you who have been on the Springboard journey with us, you'll recall that we launched Springboard from quarter four 2023 with an annualized sales run rate of $13 billion. Over the past two and a half years, we have significantly increased our sales and we have successfully transformed the financial profile of the company. Our plan is to now grow our annualized sales run rate to $20 billion by the end of 2026, $30 billion by the end of 2028, and $40 billion by the end of 2030. We're entering a new phase of accelerating growth. We expect to deliver a sales CAGR of 19% from Quarter 4, 2026 to Quarter 4, 2030, while growing earnings faster than sales with significantly higher returns on invested capital and substantially more free cash flow. With that context, let me get into the second quarter results. Year over year, in the quarter, sales grew 17% to $4.74 billion. EPS grew 30% to 78 cents. Gross margin expanded 120 basis points to 39.6%. Operating margin expanded 190 basis points to 20.9%. ROIC expanded 180 basis points to 14.9% and we grew free cash flow to $1.42 billion. Our results were led by optical communications where we grew sales 32% year over year to over $2 billion and net income grew 77% to $438 million. We continue to see strong demand for our Gen AI products and enterprise networks, and our orders are accelerating. From the beginning of springboard, we have more than tripled enterprise sales. In quarter two, we grew sales 65% year over year, to $1.27 billion. And our Gen AI product sales nearly doubled. Keep in mind, this is all just scale out. We're not yet seeing scale up or photonics in our results. Altogether, we're pursuing a significant opportunity in optical communications. and I will go into more detail in just a moment. Turning to solar, our sales grew 90% year over year and we completed an extended maintenance shutdown and equipment upgrade at our solar wafer facility. We expect our sales and profitability to improve in the third quarter. Also in the quarter, We continued the drumbeat of major customers choosing to adopt our latest innovations and support the expansion of our manufacturing platforms to accelerate both their and our growth plans. To recap our progress, last year Apple expanded our long-standing relationship, committing to produce 100% of iPhone and Apple Watch cover glass at our Kentucky facility. In quarter one, Corning and Meta announced a multi-year up to $6 billion agreement to support Meta's apps, technologies, and AI ambitions using our newest innovations in optical fiber, cable, and connectivity solutions. Then in May, NVIDIA announced a multi-year commercial and technology partnership with Corning to dramatically expand US-based manufacturing of the advanced optical connectivity solutions needed to power next generation AI infrastructure. In June, Amazon announced a multi-billion dollar agreement with Corning under which we'll supply the optical fiber, cable, and connectivity solutions that power Amazon's expanding data center infrastructure across the United States. These deep customer partnerships support extraordinary growth that has been outlined in our upgraded springboard plan. that we shared at our May investor event. Now, as most of you know, we provided a whole lot of exciting news and detail at that event, and I encourage you to check out the presentations on our website if you were not able to attend. This morning, I'll share just a very quick recap of the key takeaways. Our internal springboard plan is to grow our annualized sales run rate to $20 billion by the end of 2026, $30 billion by the end of 2028, and $40 billion by the end of 2030. To keep it simple, we're thinking of this as our springboard 2030-40 plan. As a reminder, our internal plans are 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. We then translate our internal plan into a corporate level risk adjusted high confidence plan for investors, which, Ed, We'll recap in just a few minutes. I'll share some of the key assumptions in our internal plan. For 2027 to 2030, we incorporated a forward rate of 150 yen per U.S. dollar to account for a weaker yen. We plan for flat TV, IT, and smartphone and markets. and the impact of higher memory price. We planned for a declining ice demand offset by increasing corning auto content. We also plan to capture a larger solar opportunity with an upgraded sales outlook. We included new innovations and form factors in Gorilla Glass. And we see accelerating growth in fiber to the home, and Data Center Interconnect and Carrier. With that context, let's look at our growth across the company. To start, I'll lift the chart to show you our total revenue base. We are entering a phase of accelerating growth. For the first phase of Springboard, ending in quarter four of 2026, we expect to deliver an attractive sales CAGR of 15%, along with a dramatically enhanced financial profile. Looking at quarter two, 2026 versus the start of springboard, we doubled EPS and expanded operating margin 460 basis points and ROIC 610 basis points. So overall, we have an excellent launch point for highly profitable future growth. From that launch point, as we enter 2027, we expect our growth rate to accelerate to a CAGR of 19%, a 400 basis point increase. We expect consumer electronics, solar, carrier, auto, and life sciences all to grow. In aggregate, we are planning for a mid-single-digit CAGR in those maps. We plan to introduce our springboard approach of frequent updates for investors with deeper dives into individual maps as they hit significant milestones. At our May event, we had just reached such milestones in enterprise and photonics and so that was the focus of our presentations. We're working in a fast moving space and there are a variety of perspectives on future AI network architectures. Our fundamental views haven't changed since we presented in May. So I want to reiterate the key takeaways. Starting an enterprise. We have the opportunity to grow faster than the rate of GPU growth driven by the technical drivers that increase optical in the data center. At the most basic level, assuming no changes to the network, we would grow as GPUs grow. Now you all will have your own opinion on what the rate of growth of GPUs will be. The insight that we'd like to reiterate today is some of the potential network changes that offer us the opportunity to grow faster than GPUs in our enterprise map. And we will cover the technical drivers, the logic, and the impact of each. The first driver is cluster size growth. The logic is that Cluster sizes greater than 130,000 GPUs will require a third optical layer. As clusters grow, that is good for our content opportunity. As shown here, once cluster sizes get above 130,000 GPUs, we exceed the network scale capability that can be achieved with a 512 Radix switch with two layers. This requires adding a third layer. Basically, three layers divided by two layers yields 50% more content per GPU for very large clusters. These large clusters are a fast-growing segment of AI factories. Therefore, cluster size growth is a positive for Corning relative to GPU growth. So let's turn to the second driver. The second driver is bandwidth growth. Historically, GPU and ASIC bandwidth doubles about every two years. We link them through a combination of lane rate and number of lanes. Typically, this is a neutral to positive impact depending on CERTAS cycles. We increase bandwidth either by increasing lane rate or CERTAS, which would have a neutral impact on fiber content, or by increasing the quantity of lanes, which can have a positive impact on fiber content. You can see that when we move from Hopper to Blackwell, the CERTIs stayed the same at 100 G. But the bandwidth needed to double, thus requiring that we increase the fibers from 8 to 16, doubling the amount of content. As we're moving into the Rubin era of GPU architectures, we see a jump in CERTIs to 200G. Thus, we're able to keep the lane quantity consistent, resulting in a neutral impact on fiber content. Feynman likely won't be the primary system until the 2029-2030 timeframe. There is still a lot we don't know about it. But if it follows past patterns and stays at 200G, the number of lanes would double bandwidth doubles, and that would double fiber again. Or, if 400G CERTIs is available, the fiber content would be neutral or no change. Likewise, there are other optical schemes which can be used to increase fiber efficiency, such as BiDi and WDM, which can also reduce the need to increase the number of fibers per GPU. This has yet to be adjudicated. Now, we'll know more in a year or so, but the main takeaway is bandwidth is neutral or positive for us. In our 2030-40 springboard plan, we assumed the impact of bandwidth on fiber count per GPU to be neutral. The third driver is scale up. Today, this is 100% copper. But optical is beginning to penetrate the scale up network. This adds an entirely new optical network. And while the timing of adoption and penetration are very difficult to predict, the size of the opportunity for an increase in optical content is quite large. First, let's consider what has been announced regarding optical scale-up. Recently, NVIDIA announced a Vera Rubin Ultra configuration, which will scale up to 576 GPUs in eight separate racks. Each rack will have 72 Rubin Ultra GPUs, which are interconnected with copper and then extended This is a transition step to optical that is effectively a hybrid system approach to scale up. Optical is now playing a role. The percent of optical ports has not yet been announced publicly. What has been announced is the scale-out bandwidth of 1.6 terabits per second. and the scale-up bandwidth for the individual GPU, which will be 14.4 terabits per second. So let's bracket the opportunity. At the lowest end, we can assume 100% of the scale-up network will be done as it is today, and that's copper. What this translates to is the same opportunity that we have today. which is no fiber in the scale up and 16 fibers per GPU in scale out. Now let's compare that to a fully optical scale up system. We take the 14.4 terabits per second bandwidth per scale up and the 1.6 terabits per second bandwidth per scale out and divide them by the 200 G30s. This will translate into 72 lanes and eight lanes respectively, each requiring two fibers. This results in 144 fibers needed to support the scale-up bandwidth and 16 fibers to support the scale-out bandwidth. When we combine these demands, we get a total fiber content of 160 fibers per GPU, which is 10 times the amount of fibers of the current scale-out network. What we know for sure is neither of those cases will be the hybrid system that was just announced. It will be somewhere in between. To be exact on the opportunity, we would need to both know the percent of optical ports in the offering and to know what extent these new hybrid optical scale-up nodes penetrate AI factories. Regretfully, I can't share the first because it's confidential. And no one knows for sure what the answer is to the second question, which is just how successful