Welcome to the Corning Incorporated Quarter One 2020 Earnings Call. It is my pleasure to turn the call over to Ann Nicholson, Vice President of Investor Relations.

Thank you, Tania, and good morning, everybody. Welcome to our first quarter 2020 earnings call. With me today are Wendell Weeks, Chairman and Chief Executive Officer; Tony Tripeny, Executive Vice President and Chief Financial Officer; and Jeff Evenson, Executive Vice President and Chief Strategy Officer. I would 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 are related to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. 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, Ann, and good morning, everyone. This morning, we reported first quarter 2020 results. Sales were $2.5 billion, net income was $177 million, and EPS was $0.20. We accomplished much of what we set out to do in the quarter, despite the evolving health crisis and its impact on the global economy. That said, the situation is creating uncertainty in our sales. As a result, we are adjusting our operating plan to reduce cost and capital spending. We are committed to preserving the financial strength of the company. We have essentially no debt coming due over the next two years, and we expect to maintain a strong cash balance and generate positive free cash flow for the year. We also plan to maintain our dividend. Because of the heightened uncertainty, we will not be providing our normal guidance at this time. We are all confronting profound challenges as a result of COVID-19. Our thoughts are with those directly affected by the pandemic and the many people fighting it on the front lines. Our company has been facing this human health crisis head on since day one. The first cases of the disease to draw attention from medical officials and the media occurred in Wuhan, where Corning is opening a display plant. Responding to these early cases in Wuhan and Greater China put us to the test, and we rose to the challenge. Our core teams in our factories gave their all. They kept our people safe and delivered on customer commitments. Our experience at the start of the outbreak informed the blueprint deployed in all our facilities as the virus spread across the globe. All Corning sites maintain comprehensive preparedness plans and are operating under our best practices playbook. From China to South Korea, Italy, India, the U.S., the…

Thank you, Wendell, and good morning. As Wendell said, our results for the first quarter were solid, given the significant changes in market conditions in most of the industries we serve. Because we are in a period of uncertainty, our sales are hard to predict. Therefore, we are withdrawing our full-year 2020 guidance. My remarks today will give you a sense of what we're seeing in each of our businesses and a summary of the actions we're taking to address the situation. Now, before I get into the details of our performance and results, I want to note that the largest difference between our GAAP and core results is associated with non-cash charges related to capacity realignment and cash severance payments. Other differences between our GAAP and core results come from a non-cash mark-to-market adjustment for our currency hedge contracts. With respect to mark-to-market adjustments, GAAP accounting requires earning translation hedge contracts and foreign debt settling in future periods to be mark-to-market and recorded at current value at the end of each quarter, even though those contracts will not be settled in the current quarter. For us, this resulted in a $50 million GAAP earnings gain in the quarter. To be clear, this mark-to-market accounting has no impact on our cash flow. Our currency hedges protect us economically from foreign exchange rate fluctuations, and provide higher certainty for our earnings and cash flows, our ability to invest for growth, and our future shareholder distributions. Our non-GAAP or core results provide additional transparency into operations by using a constant currency rate aligned with the economics of our underlying transactions. We're very pleased with our hedging program and the economic certainty it provides. We've received $1.7 billion in cash under our hedge contracts since their inception more than five years ago. Now,…

Thank you, Tony. Okay, we are ready to take questions.

[Operator Instructions] Our first question comes from the line of Rod Hall with Goldman Sachs. Please go ahead, Rod.

Yes, hi guys. Thanks for the question. And let me just say, our thoughts are with you guys. It's difficult to run a business in an environment like this. So, let me start off, I guess, with one for Wendell, and then I'll jump on to one for Tony or Wendell, whoever wants to answer it. Wendell, there is an increased amount of discussion of onshoring. And I know there's been some movement toward potentially producing displays in the US. I just wonder if you could talk a little bit about your thoughts on where that debate is right now and how Corning's costs look in an onshoring environment? Would you need additional capital? I guess you might look to the governor for that etc. Just whatever color you can give in terms of your thinking there. And then, my second question relates to inventory and what you guys think is going on with both display and smartphone component inventory. Are people - we've heard that there is some inventory build out in the channel. Maybe if people worry that production would be affected on through the year by this and so on. So just curious what's going on with inventory levels out there? Thanks.

Okay. Well, first, Rod, thank you for your thoughts. With regards to onshoring, sort of - I think the priority set with policymakers is going to start with life science products. What they're trying to address is that a huge number of the active pharmaceutical ingredients that we use to preserve human health are manufactured overseas, often starting in China and India; so one of their top priorities is that as we seek to confront this particular health crisis that we build that infrastructure in the US. That is what you heard me talk about in my opening and it's where Valor begins to play a very large role, more to come on that topic. Next, in order would be the other critical parts of infrastructure. Of course, you have defense, which often - which already has significant onshoring implications to it, as does aerospace. But telecom is now increasingly becoming an issue. We already are built because of our value set to support all of our different customers regionally. I think display and consumer electronics will tend to fall relatively low on our societies around the world's priority list for critical infrastructure that governments want to control in their country or in to a particular trading block. So that's my current point of view on it. Of course, it's political. So, that is always subject to change as opposed to necessarily logic. Does that make sense, Rod?

Yes, that's great, Wendell. Thank you.

On the inventory question, whenever you have situations where different elements of the supply chain can be shut down at different times, it makes calculation of value chain inventory quite challenging. So, what we do instead is, we're looking directly to the end market, Rod. And then, we're trying to use that to guide our internal operational thoughts around what we expect revenue will be in total for the year. And then, so to just work out the math that's in between. I'll be interested when you publish on your own thoughts around smartphone demand. You've been relatively accurate in the past.

Great. Okay, thanks. And do you think, Wendell, there's anything to this idea that maybe people have built up more inventory in the channel, just thinking that they can't count on supply necessarily? Or do you think that's probably not such a big issue?

Well, for sure, they're doing the behavior that you’re noticing. You see it in our numbers, Rod. You see the very strong revenue growth in our Gorilla business, right? And throughout this time period, we've been having very strong requests from our customers. But what you would have heard from us is that we'd say we wouldn't take a look directly at our revenues as being the most accurate view of what's going to happen in the end market. So I think without doubt that's happening. How big a deal it is totally depends on what happens as people emerge from shelter-in-place. For that, what we're looking to is what's happening in China. Because they are now earliest to sort of return. There's other countries like that throughout Asia where we're going to look at what's happening in those markets and use that to inform what it is we think will happen as other regions open up. So, without doubt, you're noticing something that is a true thing. How much of a problem is really the key thing to solve is what happens to demand?

Great. Okay, thank you, Wendell.

Thank you. Our next question comes from the line of Tim Long with Barclays. Please go ahead.

Thank you. I just wanted to touch the display business a little bit. You mentioned the move from Korea to China and some potential disruptions as that happens in the 10.5 G plants' ramp. Can you talk a little bit about kind of the magnitude and the time frame for that period of this - maybe second related to that, once we're kind of much more China based in this part of the market, what do you think kind of the pricing or margin implications of this move will be and market share longer term as the supply chain moves more into the China business? Thank you.

I'll take the start of it and then Tony can add. So, with the shift from the Korean peninsula to China, as you heard from Tony, this was something we were anticipating. It's just happening faster than what we originally anticipated. So, what the interaction with our revenues will be is how fast the Korean peninsula turns down versus how rapidly the Gen 10.5 plants come up and in what order. Our current point of view is that it will play itself out so that we'll feel the pain this year as Korea will tune down a little faster given COVID-19 than our Gen 10.5 plants will come up. But then, we'll have a strong gain next year. In total, what will drive this thing is what happens to television demand, of course, right? But given that that plays out how we would expect, I think that will be the pattern of how it will play out in our numbers; a little bit of pain this year and a strong gain next year.

And the only thing I would add to that is that essentially, you saw some of that happen in Q1 where the market sequentially grew a little bit and we were down a little bit, and that's really the explanation there. Not a surprise, it's as we guided. But it's a good example of what Wendell is - it's a good example of seeing what - playing out what Wendell just described.

Did that address your question, Tim? Or did you have an additional one?

Yes, that's it. And just maybe if you can just - kind of the overall ASP dynamic will be once we're more China-based than Korea-based?

I think from an ASP standpoint, we are very confident in our strategy that we have talked about in the past in terms of our price declines being moderate. This is already a global pricing market, and we've - for the three reasons that I mentioned and that really are - we still feel confident. And we don't think there's really a change relative to this shift.

And if you're asking a more subtle question about generational mix pricing, I think that's a very astute question. And we like Gen 10.5, but I wouldn't let it overwhelm my analysis at this point. What I would really focus on is, what's going to happen with television demand in this economic and health cycle. If we get that right, then I think the business is going to continue to age gracefully and we'll continue to like it from a profitability and cash generation standpoint.

Great. Thank you very much.

Thank you. Your next question comes from the line of Wamsi Mohan with Bank of America. Please go ahead.

Yes, thank you. Wendell, when you did the SCP transaction back in 2013, there was a long-term supply agreement that was struck between Corning and Samsung. What is the impact of the long-term supply agreement that you have with Samsung as Samsung winds down its LCD operations? And Tony, maybe any update on Samsung's intent on handling the convertible stock? Thank you.

Why don't you start, and then I'll do the next on the convert? Or do you want me to do both?

Go ahead.

So, we have no new information on the convert. In my previous discussions with people who run Samsung, right from the very beginning, what they believed in was they have a deep understanding of our technology road map and they believe that in that road map and they want to be a long-term holder. We have had nothing that would change that. It didn't drive their investment, and it originally was display technology. It was the totality of the technology portfolio. And what they thought even was coming next for displays. Now, to the purchase, first on the long-term supply agreement, of course, it changes the - who do we sell our glass to, if they shut down their LCD plants in - or LCD panel making plants in Korea. And you'll see some of that in our financials. I think we had a write-off of about $100 million something.

Yes, that's right. If you look at our reconciliation from GAAP to core, there was about $105 million and that was - asset that was set up when we first did the transaction that was being amortized over the length of the contract. And so, that was written off in the quarter.

If we take a look at the deal overall, sort of depending on how you would address what the original purchase price was and some of the original balance sheet moves, basically our acquisition of SCP, the entity now known as Corning Precision Materials, has already paid itself back two times or three times. So we feel really good about that transaction. I think where we're now - I think the key thing to focus on what Samsung is doing, because we've seen some reports that people don't totally understand what Samsung's plans are in the display area, so perhaps I can take a moment and discuss those. Basically, what they're exiting is just the manufacturing of LCD panels. They remain very dedicated to LCD TV. The problem they faced was simple, and it was accentuated by COVID-19 and the challenges that provides to the economy, which is, they have a lack of competitive cost position versus the Chinese Gen 10.5 plants, built with Chinese subsidized capital. So basically, it became - it's cheaper for them to source those panels rather than make them in Korea. It's not much more complicated than that. Instead, what they're going to turn their Korean resources towards is next-generation television and display technologies. You saw some of those recently be introduced at last Consumer Electronics, a Zero Bezel LCD TV that actually uses three pieces of glass; a quantum OLED TV, which combines quantum dot and OLED technology, which is a two-piece glass technology; micro LED technology, once again with some of our advanced glass technologies will be used; and continued emphasis on the polyimide OLED built on our glass substrates. So, our deep relationship with Samsung on display technology continues, in some ways accelerates. And we just have to follow their panel sourcing as it works its way around the globe. Was that helpful, sir?

Yes, it is, Wendell. And just to follow up on Tony's comment on the $105 million in the quarter, you view that as a one-time or is there going to be additional impact in the subsequent quarters on that particular element? Thank you.

No, that's just one time.

Great, thank you.

Thank you. Your next question comes from the line of Steven Fox with Fox Advisors. Please go ahead.

Thanks very much. Good morning, everyone. I have two questions. First of all, Wendell, you’ve mentioned a couple of times antimicrobial coatings that are now being used. It sounds like more so, given some of the health crisis issues. Can you just give us a little more of a tutorial on the opportunities for that to be used as a surface coating in hospitals and other places? I think you've talked about that in the past. And then you mentioned sprays as well, and I'm not quite sure I understood that part. And then, I have a quick follow-up.

Okay. What we call our Guardiant technology, which I think is what you're talking about, Steve, is we developed a number of years ago because we saw folks going into hospitals and basically getting sicker than what they came in with because of infections arising from viruses, bacterias, and spores. So what Guardiant is, is our answer to that. It is a copper-based solution where we capture a particular ionic state of copper in glass ceramic that we then turn into very small particles that can be used in paints, coatings, potentially fabrics, right, and plastics. So, what we are seeking to do with that is do two things at once. One, provide good antimicrobial and antiviral surfaces, but also because of the particular way in which this ionic form of copper kills, prevent the development of any form of superbugs. Now, as you would imagine, the introduction of such a technology needs to go through a number of regulatory barriers. We are approved for use under the EPA as an antifungal right now, but we're going to have to work our way through various regulatory agencies to be able to effectively make the claim that we can kill these coronaviruses. We are quite confident we can. Now, for countries who felt that very pressing health need like China in the Wuhan area, they leapt on the opportunity for us to be able to provide this to help in those new hospitals that they built. And we're just going to work our way through all the various regulatory agencies accordingly. Also in China, they had a sudden need for sprays, antiviral sprays. Now, things that they use in these sprays, they want to be - they tend to be a chemical production. We have a particularly modular, small, super safe way to produce those type products called advanced flow reactors that we manufacture in China. And so, that was the example that we talked about there. In general, as we look at what are the pressing needs for us all as a society to get a handle on this and potentially future pandemics, vaccinations are important, therefore pharmaceutical packaging. We believe smart surfaces make a lot of sense, and we're continuing to use our core technology to solve that problem. And then as well, there'll be all sorts of treatments and/or protective spray. When that happens, that could use some of our production capabilities that we have built for life sciences and also for small molecule chemistry, sir.

That's really helpful. And then, just as a quick follow-up, Tony, you guys are withdrawing guidance, which obviously makes sense here. But you sounded confident about generating positive free cash flows for the year. Can you just sort of give us some sense for how we get to positive free cash flows given Q1 cash flows were negative? Thanks.

Sure. I mean, we're really focused on four areas of improvement; both in terms of from a cost standpoint and a lowering capital spending standpoint. And you know, that includes our cost at our manufacturing operations, but it also includes our operating expenses. And then, in addition to that, we're re-looking at our working capital, in particular, our inventory plans, and we're planning to also reduce that. So, when you add those four things together, that gives me pretty good confidence that we will be able to generate positive free cash flow for the year.

Thank you very much.

Thank you. And our next question comes from the line of Asiya Merchant with Citigroup. Please, go ahead.

Great, thank you. And thank you for the opportunity. Just a quick question, the near-term spending by carriers and enterprises is obviously cloudy. But as we come out of the pandemic, do you see any structural changes in demand for 5G spend from the carriers relative to where it was pre the pandemic; where a lot of carriers seemed to be burdened with debts and certain capital allocation plans, etcetera? So, as we come out of that, are there any structural changes in demand that you're seeing for 5G spend from the carriers? And then, I just have another quick follow-up on free cash flow for Tony. Thank you.

So Asiya, the way I would - A) it's early, okay. And you're seeing a number of things come up in the data, but it's too early to make any sort of conclusive statements. That being said, in general, what we're seeing - and then I'll get specific on 5G - in general, what we're seeing is, the way telecommunications companies work is because it's capital good, they build ahead of perceived demand. Depending on the company, they use different algorithms for how they figure it out but in general, they try to be about 18 months ahead of where they think demand will be. And that's the reason that the telecom network has held up pretty well as we face this surge in traffic, is - they basically went through that excess that they carry to prepare for the next 18 months. So, in general, what we're hearing from our customers is, assuming the human health crisis comes under management, that they believe they will continue to invest pretty strongly in infrastructure so that they can make sure that they re-establish that safety net. The real question is; what's baseline? Are we on a new baseline? If we're on a new baseline, then everybody's plans aren't aggressive enough. So, then it's more than just the catch-up of the period you went through, it's too early to tell that. On 5G, that will just be part of the overall mosaic of network solutions that gets played. If someone's primarily technological thrust was 5G, witness the major carriers that you can name, they will press on the accelerator for that. Now, I think one of the most interesting things that I've seen in terms of innovation because we were working super closely with them during this time, is their ability to do even things like fiber-to-the-home installations without going inside people's homes; it's been a tremendous amount of innovation around being able to do that, and I've been quite impressed with their installation teams and what they've done. So, I'm looking at this overall as reinforcing to us all how important telecommunications infrastructure is, but I don't know and I don't think it will trump various financial constraints that some carriers feel. But without doubt, it's made people believe that they need to have infrastructure.

Great. Thank you. And then, Tony, on the cash flow, I think you mentioned obviously positive free cash flow. And if I heard you correct, no new or no material debt raise to support your dividends. I just wanted to clarify that, given your dividend and sort of positive free cash flow generation expectations for the year that we wouldn't be raising any debt to support these dividends for the remainder of the year. Thank you.

Yes, that's correct. I'm always interested in opportunities to take advantage of different markets that we participate in, like in China. And as you - when you see the cash flow statement, you'll see we raised a little bit of debt in China, which is great because it's a natural hedge for all of our businesses in China. And if I could raise more money in Japan, I would at least take a look at that. But we don't really - that - we don't - we are not counting on that on a going-forward basis in the projections that I gave.

Okay, thank you.

Thank you. And our next question comes from the line of Meta Marshall with Morgan Stanley. Please, go ahead.

Great, thanks. On Optical, you noted the installation challenges with the telco customers. But just, what have you seen from kind of your cloud or hyperscale customers as far as order continuity and was there any upside there? And then, maybe second question, just - I would expect most of your facilities are being the central businesses, but just given the adaptations to production, are there any areas of the business where you're concerned about production continuity or supply constraints? That's it. Thanks.

Hi, Meta. So, on cloud, they're in a little bit different situation, in some ways similar, in some ways different than the telecom carriers. And different ones are playing different ways. Like telecom carriers, they try to be able to hold enough capacity to handle peak demands. So - and there has been an enormous surge of cloud usage here, and that is being absorbed up. At the same time, those are enclosed facilities, and some of the cloud carriers have decided to basically go on lockdown and not allow new materials to come in or installation crews to come in. So, that has provided some downward momentum, just like it's done in some of the carriers giving installation pieces. I think in general, we would anticipate as - around the globe, and we're seeing it - as those rules relax, as the human health crisis feels like it's under more management, then we'll see some of that return to normal order patterns. I think in telecom, the area where it is most difficult to figure out how it will play out will be the impact on small and medium businesses and their particular LAN networks and what demand they need for that. I think all that's ahead of us. But for base cloud and telecom, they're seeing the reinforcement of their business model, and everyone that I talked to, at least, continues to believe that we need for long-term investment. So far, we've been able to maintain our business community - our business continuity at an outstanding level and have managed to do that and delight our customers. It will continue to be something that we - that garners a lot of our attention because as they do things like restart automotive plants, we're experiencing worlds where - situations that there's not a lot of experience in. I mean, restarting economies and whole plants and knowing what the safe return to work, this is going to continue to challenge supply chains. So, so far so good, but historical performance does not necessarily guarantee future performance here.

Great, thank you.

Thank you. Our next question comes from the line of Samik Chatterjee with JP Morgan. Please, go ahead.

Thank you for the question, guys. This is Joe Cardoso on for Samik Chatterjee. Just one question for me. As for your operating plans, you highlighted reducing capital expenditures. Could you remind me of your maintenance CapEx level and whether you guys think this type of macro backdrop calls for Corning to operate close to those levels?

Well, from a maintenance CapEx standpoint, somewhere in the $800 million to $1 billion range, I think as we look at our capital for the rest of the year, in Q1, we were finishing up a number of projects and that's why the capital was at the level it was. It will be a little bit less - somewhat less in Q2, and then in the back half of the year, will be less than that. So, we're seeing the trajectory from a capital spending standpoint to go down as we go through the year. And it is one of the four things that we're focused on in terms of making sure that we have positive operating cash flow this year.

And if I could, just one follow-up. Relative to Samsung exiting the LCD manufacturing business, or panel business, do you guys have any indication relative to the cadence of the de-ramp by Samsung as we go through the year?

Yes, we do. But it wouldn't be appropriate for me to share that.

Okay, no problem. Can't blame you [ph]. Thanks guys.

Thank you. Our next question…

I think there is time for one. Yes, go ahead. I think this is the last one.

Okay, great. Thank you. And the last question comes from the line of Shannon Cross with Cross Research. Please, go ahead.

Thank you very much for taking my question. Wendell, I wanted to ask about the organizational changes you made. Maybe you could talk a bit more about what drove that, any changes that are being made in decision-making or customer relationships. Just provide a little bit more color on those shifts. Thank you.

Thank you, Shannon. Three things drove it. First, our portfolio work has been successful, serving our customer base with products and inventions from many of our different divisions. And it has been successful enough now that rather than just count on sort of the soft systems we've used to do something like auto, where we did our environmental products, now we're seeing adoption of our different glass products and potentially some of our advanced sensor products and some of our advanced display products. We have used that primarily in our soft systems to be - those customers know us well and to be able to bring together our capabilities; it's been successful enough now but instead we're going to start to put in hard systems in May, market access platform leaders [ph], which we fund, to be able to run that customer interface and our strategies to serve those platforms going forward. The second thing we sought to do was improve our operational excellence across an increasingly complicated global set of operations, and that's why we have named Eric as our COO. The third and final reason is, we have very talented next generation of leaders that we're able to push in more senior spots and get more experience, show their great leadership skills as they will be the ones that will carry us into the next 169 years.

Great. Thank you very much.

Thanks, Shannon. Thank you, Wendell, and thank you all for joining us today. Before we close, I just wanted to let you know that we're going to attend the JP Morgan Global Technology, Media and Communications Conference on May 13, and Bank of America Global Technologies Conference on June 2. Both will be virtual conferences. Once again, thank you all for joining us. Operator, that concludes our call. Please, disconnect our lines.

Thank you, ladies and gentlemen. Thank you for your participation. You may now disconnect.