Q1 2020 Earnings Call
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Welcome to the Cording incorporated quarter 120, 20 earnings call.
It is my pleasure to turn the call over to an Nicholson Vice President of Investor Relations.
Thank you taught Ain't good morning, everybody welcome to our first quarter 2020 earnings call with me today, or Wendell week, Chairman and Chief Executive Officer, 20, <unk> Executive Vice President and Chief Financial Officer, and drug even executive Vice President and Chief strategy 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 active 1995.
These statements involve risks uncertainties and other factors that could cause actual results to defer materially. These factors are detail than the company's financial reports.
You should also note that we will be discussing our consolidated results using court performance measures unless we specifically indicate or comments are related to get data.
Hard core performance measures or non get measures used by management to analyze the business.
Reconciliation of poor results to the comparable gap value can be found an investor relations section of our website. According dot com.
You May also access core results on our website with downloadable financials in the interactive analysts center.
Supporting slides are being shown live on our web cast we encourage you to follow along there are also available on her website for downloading.
No altering the call over to one.
Thank you and and good morning, everyone.
This morning, we reported first quarter Twentytwenty results.
Sales way too and a half billion dollars net income was $177 million any P.S. was 20 cents.
We accomplish much of what we set out to do in the corridor. Despite the evolving health crisis and its impact on the global economy.
That said the situation is creating uncertainty and 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 do 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 planned to maintain a dividend <unk>.
Because of the heightened uncertainty we will not be providing on a normal guidance at this time.
We're all confining profound challenges as a result of coded 19.
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 had done since day one.
The first cases of the disease to draw attention for medical officials in the media occurred in Wu on well. According is opening a display plan.
Responding to these early cases in Rwanda in grade or China put us to the test.
And we rose to the challenge.
Oh I acquired teams that are factories gave their all they kept up people safe and delivered on customer commitments.
Oh experience at the start of the outbreak informed the blueprint deployed in all our facilities has the virus spread across the globe.
Oh Corning sites maintained comprehensive preparedness plans, you know operating under our best practices playbook.
From China to South Korea, Italy, India. The U.S. the challenges are unique in east location, but our actions had been compassionate.
Systematic and based on facts an experience.
So what does this response tell you about Corning.
Even in periods of uncertainty we are certain that will protect in support our employees and our communities will deliver for our customers will preserve our financial strikes to sustain excellent stewardship on behalf of all of our stakeholders.
Beginning with Sars. According has design procedures to keep our employees safe during pandemics.
From the start of the outbreak we'd been ahead of the curve safeguarding our people in workplaces. According to the Barry highest standards.
And we support our communities, we're launching unity campaigns in partnership with local business owners medical professionals food banks and other human services organizations in all of the communities where we operate.
Together, we're supplying basic needs aiding vulnerable populations and easing burdens caused by the crisis.
From Upstate New York, India, Courting is supporting hunger relief and helping secure essential food supplies for people undergoing lockdowns and others disruptions.
We donated 150000 surgical masks to regional hospitals in New York, North Carolina, New Jersey in Virginia.
We stepped forward the pharmaceutical glass packaging to meet surge capacity and we've accelerated the commercialization of valor to assist in developing vaccines and other treatments.
In Italy, we coordinated the donation of laboratory supplies to mitigate the impact a medical supply networks and then China. We supported production of anti viral sprays with our advanced blow reactors. We also donated chording Guardian AD time microbial particles for an antibiotic.
<unk> Pate, which was specially produced undeployed for frontline hospital to use in the one area.
We are now working with regulatory agencies to seek approval for other applications and other geography is.
Coding is in this critical human health fight, we're doing our best to make a difference where ever we are with what we have to contribute.
The same result applies to our customer commitments, we've maintained our operational axles throughout the crisis, and we continue to meet or exceed customer expectations in this difficult operating environment.
To share a recent example customers in China needed to produce anti microbial sprays to combat the spread of the virus. They urgently needed used to buy the ads flow react to a product.
We knew our technology and the global supply chain system could make a difference. So I teams executed within days on a project that normally would take weeks to design make ship and deploy a production scale systems.
Were rising to the call in similar ways around the world.
We're also committed to preserving the financial strength to the company to that and we are adjusting our operating plans to reduce cost in capital spending all while meeting our customer commitments.
We have essentially no debt do over the next two years, we ended the first quarter with $2 billion of cash we expect to maintain a strong cash balance and generate positive free cash flow for the year.
We plan to maintain our current dividend.
I want to take a moment to talk about our strong balance sheet. In addition to $2 billion of cash we haven't dad structure that is conservative by design in relatively unique.
It is built for times like these.
We deliberately issue debt with 30, 50, and even 60 year maturities. So that there is very little debt do in any given year and the total maturity is spread out over a very long time.
Today are average debt maturities is about 25 years.
The longest in the S. and P. 500.
Over the next two years, we have under $70 million <unk> coming due.
Less than half of our total debt is due within the next 20 years.
And during this time, there is no single year with debt repayments over $500 million.
Investors, often evaluate credit in financial Hell based on total debt to E., but.
For the S.N.P. 500.
Average company has a weighted average debt maturity of roughly 10 years.
And more than 80% of debt is due within 20 years.
Consequently, when investors calculate debt to eat a bit they are implicitly focusing mostly on debt do in the next 20 years.
Cornings 20 year debt to eat but is 1.1 <unk>.
Consistent with an eight credit rating and illustrative of the conservatism of our balance sheet.
In some we have a very strong balance sheet and we have this plane you answer resources needed for the duration of the economic slowdown.
We don't know how deep it will be or how long it will last but we are financially strong coming into it and we're going to come out of it even stronger and ready to return to growth.
Let's turn to our long term growth drivers, which remain intact.
In fact, some of the secular trends could accelerate as consumer lifestyles continue to adapt to the drastic circumstances being experienced across the globe.
Well world the physical distancing a remote work requires expanded network capacity and sophisticated communication solutions.
Reduced fine particulate pollution appears to be helpful for reducing infection rates.
Drug discovery and safe widespread delivery of vaccines are amongst societies top priorities.
All these needs fall directly within our mission of improving lives through innovation.
<unk> is ideally positioned to contribute.
Many of the lifestyle changes were adjusting to today will not be temporary and our products and technologies across our market access platforms I'm more important than ever.
Of course, the data continues to come in it and we're busy on all fronts assessing collecting information on what exactly the new normal will be.
Looking at article communications bandwidth demand surging.
Let's start with usage reports published over the last two months at one major carrier why five calling has increased almost 90%.
Collaboration tool usage is up almost 90% at another in one cable T.V. company reported that voice over I.P. and video conferencing traffic increase 228% since March 1st.
A major social media company said lives streams of 50% and group video calls were up 70%.
A popular cloud video conference service reported that they spite for 10 million users in December to 300 million in April.
For a long time now our personal technology has been intrinsic to our day to day experience, we take it wherever we go with social distancing that technology has become where we go to work learn and connect.
All this points to the need for continuously scaling network capacity and making investments in technologies like five g. fiber to the whole in cloud computing.
And our physical distances and remote living is being mediated through displays on T.V.'s laptops in mobile consumer electronics.
<unk> industry, leading glasses are essential for displays in touch interfaces.
Turning to our automotive market are clean air technologies have captured or neutralize billions of tons of pollutants over the past for decades and help billions of people breed easier.
Today's health crisis is heightening the importance of this Corning technology.
A study by the Harvard School of public Health connects Fine particulate air pollution with higher death rates from covert 19 in the U.S.
Researchers stated that their study results underscore the importance of continuing to enforce air pollution regulations to protect human health blog during and after the Cobin 19 crisis.
Many countries around the world have regulations to address fine particulate emissions for mobile sources Cornings technology is an essential part of the solution.
<unk> diesel particulate filters have been used for many years to remove particles from diesel exhaust more recently coding introduce gasoline particulate filters G.P.S. to cut down on particulates from gasoline exhaust while enabling the most efficient use of fuel and horse power.
As the harbored study reinforces a body of research ties Dirty air to illness, including the most severe Kobe 19 outcomes and makes our solutions more relevant than ever.
There are also multiple ways, we mobilized are innovation capabilities to combat the pandemic more directly.
Consider our Ballard glass there is a worldwide shortage of pharmaceutical glass packaging and vaccine fills finished capacity is limited.
We need successful coded vaccines, and we need next generation pharmaceutical packaging and processes to produce and protect them.
We believe pointing bother glass is the answer.
In addition to offering a safer package, we believe that the pastor filling wind speeds enabled by our dollar technology are particularly critical for a pandemic response when every hour counts. It every extra dose delivered makes a difference.
Valor glass bottles are being used for Kobe 19 vaccine clinical trials right now.
We're also supporting several other leading companies developing treatments for the disease or support includes valor other according life science products and technical support to accelerate solutions and ensure availability across the globe.
We're supplying our traditional lab products for both our L.A.N.N.I. body testing to combat the spread of the Corona virus and works, scoring applying our technology in other ways. For example, using our advance flow reactors to scale production of small molecule anti virus.
To treat the virus G.P.S. substrates for fix systems that remove fine particles from outdoor air to reduce disease transmission.
And guardians to create smart surpluses that kill to own a virus before it infects people.
Overall, we're confident we can make significant contributions as the world addresses and recovers from these challenges.
It is we've recently announced we're taking the next organizational steps to tap the full power of our potential.
We're centering operations around our market access platforms positioning corning to become even more relevant to our markets were working to capture more customer insights further elaborate drag distribution channels and open up new opportunities for innovation with industry leaders, who already trust as deeply.
At appreciate our unique set of capabilities.
The new organization comes with a new generation of leaders moving a steadily forward as we pursue our next 269 years of life changing innovation.
We've also established a new leadership position that will drive operational excellence and appointed Eric Massa, President and Chief operating officer.
Eric's According battery and with a strong track record for leadership and execution.
He will enhance process consistency and ensure we hit our targets across the company.
Before turning it over to Tony how close with the final boss.
Corning is no stranger too difficult times across three centuries, we've tackled some of our customers top is problems by creating some of the most consequential material inventions in history.
We've navigated two world wars that you'll disasters in economic catastrophes.
Our job as always is to rise to the challenge of today and lead.
We're keeping our company's straw.
<unk> innovating on some of the most pressing problems of the moment.
And were built to last regardless of the duration of the current crisis or people are dedicated our resolve is total.
Capabilities or more relevant than ever.
Now, let me turn call over to Tony for more details.
Thank you Wendell and good morning.
As well no said our results for the first quarter War solid given the significant changes in market conditions in most of the industry's we served 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, we'll give you a sense of what we're seeing in each of our businesses and a summary of the actions were taking to address the situation.
How before I get into the details of our performance and results I want to note that the largest difference between our gap and core results is associated with non cash charges related to capacity realignment and cash severance payments.
Oh, there are differences between our gap inquire results come from a non cash mark the market adjustment for currency heads contracts.
With respect to Mark to market adjustments gap accounting requires earning translation hedge contracts and foreign debt settling in future periods to be mark to market and recorded a 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 dollar gap earnings gain in the quarter to be clear this mark to market accounting has no impact on our cash flow.
Our current V. hedges protect us economically from foreign exchange rate fluctuations and provides higher certainty for earnings in cash flows our ability to invest for growth and our future shareholder distributions.
Are non gap or core results provide additional transparency into operations by using a concert 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 underhedge contracts censor inception more than five years ago.
Shifting to results first quarter sales were two and a half billion dollars net income was $177 million and E.P.S. was 20 cents.
In display technologies first quarter sales were 751 million and net income was 152 million.
Display glass market first quarter volume grew by a low single digit percentage sequentially and Cornings volume was down a low single digit percentage both as expected.
Sequential price declines were moderate.
Also as expected.
Yeah.
Stay at home policies in multiple economies, starting in China impacted in market demand for televisions in Q1.
As a result preliminary Q1 worldwide T.V. Sellthrough units are reported to be down low single digits year over year.
Oh for Q. too early data indicate T.V. sellthrough units could decline more than in Q1.
We TV demand will likely be partially offset by pockets of strength for some I.T. products.
Now based on our experience in prior economic events, we expect T.V. demand to recover too it's long term growth trajectory as the economy recovers.
In addition, we expect increasing screen size to drive continued growth in glass demand.
How the full year plays out for glass demand and retail will depend on the duration of stay at home policies and the health of global economies throughout the year.
At China is the first major economy to experience the shut down and reopen cycle and we'll be watching it's T.V. retail demand recovery closely in the upcoming months.
Although the man declined year over year in the first quarter. It is encouraging to note that China T.V. sell through in March increased by over 50 per cent versus February.
We are adjusting our production levels to a lower level of demand.
As you May have seen reported in the news recently Samsung display is accelerating their accent plans for L.C.D. panel manufacturing.
Oh this is happening faster than we originally expected the fundamental shift from Korea to China is not a surprise to us.
We have been working closely with Samsung as we move through this transition.
And we are well prepared.
As panel maker shift from Korea, or three Chinese Gen 10, and a half plants position us Wow.
Ultimate weight end market demand drives glass demand and with retail area growth, primarily driven by large T.V.'s.
It's your most efficiently manufactured I'm, Jen 10, and a half Babs, we will capture the majority of that growth.
We expect temporary impact on our volume relative to the market driven by specific timing of Samsung displays x. It.
Versus the ramp of our Gen 10, and a half plans.
Are Korea operation is a low cost manufacturing organization that we will use the Serb our global customer base.
Finally, we continue to expect display pricing to declined by a mid single digit percentage in 2020.
We believe that three factors continue to drive the favorable glass pricing environment, we've been experience.
First we expect glass applied to continue to be balanced to demand.
For Corning, we are lining our capacity with demand. We are also pacing our agenda 10, and a half capital projects to align with panel makers schedules.
Second our competitors continue to face profitability challenges at current pricing levels.
And third display glass manufacturing requires periodic investments in existing capacity to maintain operations.
The last prices must support the acceptable returns on those investments.
In optical communications first quarter sales were $791 million.
As Wendell Sad long term growth drivers are intact.
We are seeing positive statement from telecom operators regarding network constraints increase demand for bandwidth and continued investment in five g. and data centers.
But we we're also seeing negative impact is carriers and enterprise customers pay site access health and safety concerns supply chain interruptions and cash constraints.
The business continues to adjust its cost structure and align capacity to match near term sales.
Environmental technologies first quarter sales for $320 million and that income was $35 million.
Sales were down 12% your every year and below our expectations about mid single digits as car and truck manufacturers implemented shut downs in key markets.
Profitability was impacted by the lower volume.
We believe the economic impact on the auto industry, well be significant especially over the next two to three quarters.
Auto Assembly plants are beginning to resume operations.
China's starting to run you are beginning to open backup in North America expected to reopen soon.
How the recovery will play out for our business well ultimately depend on global car sales.
In these all we anticipated a cyclical decline in North America heavy duty truck market from its P. in 2018 and 2019, we now anticipate that the client will be even faster and steeper.
Global demand was down 25% and Q1.
Now despite the impact we are experiencing we expect our for your sales to be less significant way impacted then the overall market and we remain confident in our content drubbing grow strategies.
Oh, we m.'s continue to adopt gasoline particulate filters in Europe in China, and emerging market heavy duty regulations are driving adoption or more advanced products.
As markets recover and improve.
We expect to resume our growth trajectory.
Specially material sales for $352 million up 14 per cent year over year versus our expectations about mid single digit increase.
Net income or $51 million was also a euro per year.
We exceeded expectations do the strong sales of premium glasses.
Other guerrilla glass innovations and advanced topics products.
We expect the global economic slowdown to reduce smartphones sales.
In the first quarter units were down 19% as store closures and stay at home restrictions, particularly in China impacted phone sales.
Social distancing policies are now underway in many countries. So we expect these lower in market demand levels to continue in the second quarter.
As countries begin to move emerge from Lockdowns, we expect to see increasing in market demand.
Looking ahead, we expect our outperformance relative to the 2028 mobile consumer electronic market the come from further advancement and adoption of our premium glasses.
And our other innovations.
In life Sciences first quarter sales were up 6% Yorba year $258 million net income was $38 million.
Wife Sciences is being impacted by the prolong closure of non essential laboratories.
However, this is somewhat offset by increased demand for consume mobiles used in covert 19 testing applications.
As one of those said we are confident in the opportunities ahead for life Sciences and valor.
Especially as we prepare for upcoming vaccine demand.
So that is what we are seeing in Egypt bar businesses.
Clearly the world and our outlooks have changed significantly.
Anticipating lower sales, we are aggressively adjusting our operating plan and taking actions that will maintain our financial strain and result in positive free cash flow for the four year.
We initiated actions in Q1, and we will continue in Q. to.
These actions fall into several broad categories.
Reducing production levels across all of our businesses.
Adjusting operating expenses with the majority of the savings realized in the second half.
Modifying inventory plans.
And reducing capital expenditures.
Our actions impacted gross margins into one and we expect additional impacting Choo choo.
Gross margin in the first quarter was 33.4% and below our expectations driven by a lower than expected volume and environmental and the impact of lowering production across several businesses.
In fact more than half of our manufacturing cost her fixed and a significant portion of that is non cash depreciation.
This results in very high operating leverage.
However in times when volumes are dropping are fixed cost do not change and the impact on our margins is significant.
The impact is more dramatic when we are lowering inventory.
Each you two we will be further ramping down production and bringing down inventory.
Therefore, we expect the q. too gross margin percentage to be lower than what you want.
So our factory Utilizations are low today.
Let's move to the balance sheet and our commitment the strong financial stewardship.
We have under $70 million in debt do over the next two years.
And no year with more than $500 million do over the next 20 years.
Are 20 year dead he bit ratio is 1.1 time and that's outstanding we expect to maintain a strong cash position and to maintain our dividend.
As I previously mentioned, we expect to generate positive free cash flow for the year.
We have pause share buybacks and do not expect to add material that in 2020.
To wrap up we expect that continued economic uncertainty and related in market weakness well affect most of our businesses.
The current situation poses many unknowns for people for families for companies and for governments.
What we know what Corning is that our underlying market drivers are intact and that we fully expected to return to resume grow.
And when the expected growth resumes most of the capital is already in place.
We're operating on the strong financial Foundation, we built under the strategy in capital allocation framework and we're adjusting our operating plan in taking actions to position ourselves to come out of this slowdown even stronger.
We certainly looked forward to the end of this health crisis and the related hardships being experienced by so many people around the world.
And tell ban our priorities focus on cornings stakeholders as we maintain displaced disciplines stewardship that will steer us back the growing sales and profitability.
Well that let's move the Cuban A.N.
Thank you Tony Okay, Tony we're ready to take question.
Thanks.
If you wish to ask a question. Please press one then.
On your Touchtone phone.
Yeah.
Thank you once again for questions at one zero at this time.
Our first question comes from the line of Rod home with Goldman Sachs. Please go ahead.
Yeah.
Yeah, I got I think for the question and you know me to just their thoughts are with you guys. You know it's difficult to run a business and environment like that.
So let me start off I guess with one for window and then all jump onto one for Tony your window whoever wants to answer it.
Wendell I there, there's an increase the amount of discussion of onshoring and I know, there's been some movement toward potentially producing displays in the U.S.
Just wonder if you could talk a little bit about your your thoughts on were that debate is right now and how cornings costs work in in an onshoring environment.
Would you need additional capital I guess, you might look to the gum or for that et cetera, just whatever color you can get in terms of your thinking there and then my my second question relates to inventory and what you guys think is going on with both display and and a smartphone component inventory are people we've heard that.
There's some inventory build out in the channel maybe if people worry that you know production would be affected on through the year by the S. 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 the onshoring sort of I think the priorities set with policymakers is going to start with wife slides products.
What they're trying to address.
Is that a huge number of the active pharmaceutical ingredients that we used to preserve human health are manufactured overseas often starting in China.
India.
So one of their top priorities is that as we shake to confront this particular health crisis that we build that infrastructure in the U.S.
That is what you heard me talk about it.
In my opening and it's where valor begins to play a very large role.
More dot com on that topic.
Next in order would be the other critical parts of infrastructure.
Of course, you had the fence, 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 values set to support all of our different customers region.
I think display consumer electronics will tend to fall relatively low our societies around the world's priority list for critical infrastructure, the government's what to control in their country or in a particular trading block.
So that's my correct a point of view on it of course, it's political so that is always subject to change as opposed to necessarily logic.
So that makes sense raw.
Yeah, it's great Wendell thank you.
On the inventory question.
Whenever you have a situations where.
Different elements of the supply chain can be shut down at different times. It makes calculation the value chain inventory quite challenging.
So what we'd do instead is we're looking directly to the AD market.
And then we're trying to use that to guide our internal operational thoughts around what we expect to grab the new will be a toll for the year and then so to just work out the methods that inbetween.
I'll be interested when you publish on your own thoughts are on smart phone.
To me and you've been relatively accurate in the past.
Great. Okay. Thank you think Wendell there's anything to this idea that maybe people have built up more.
Inventory in the in the channel just thinking that they can't count on supply necessarily or or.
You know do you think that's probably not such a big issue.
Well for sure they're doing the behavior that shouldn't notice.
You see it in our numbers Rod you see the very strong revenue growth.
Gorilla business right.
L.C. throughout this time period, Oh, we've been having very strong requests from our customers, but which 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 gonna happen in the end market. So I.
Without doubt that it's happening how big a deal it is totally depends on what happened as people emerge from sheltered place.
That we're looking to is what's happening in China.
Because they are now earliest to sort of returned as 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 your noticing something that is that is a truth.
Ooh, how much of a problem is really the key thing to solve here's what happens to demand Sir.
Right, Okay make your window.
That's why you already.
The next question comes from the line.
Along with Barclays. Please.
Thank you.
<unk>.
The display business a little bit.
You mentioned the you know the moved from Korea to China. Some potential disruptions is is that happens in the big 1.5, G. plants ramp you talk a little bit about the magnitude and and the time frame for that period of this.
Maybe second related to that once were kinda much more trying to base in in this part of the market.
What do you think the you know kind of the pricing or margin implications of this move will be and market share longer term as as it's quite fancy moves more in into the China business. Thank you.
Well I'll take the start of it and then just totally can add so with the shift from the Korean Peninsula to China is you heard from a totally this was something we we're anticipating it's just happening.
Faster than what we originally anticipated.
So hmm hmm, what the interaction with our revenues will be is how fast the the Korean peninsula turns down versus how rapidly the Jan head and a half plants come up and in what order.
Our current point of view.
Is that it will play itself out so that will feel the pain. This year as Korea will tune down a little faster given cove it di di.
Jan tended to have plants will come up but then we'll have a strong game 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 will play out.
You know a numbers.
A little bit of pain, this year and a strong gains next year.
Yeah. The only thing I would add to that is that essentially you saw some of that happening Q1, where the market.
Actually you know grow a little bit and we.
Down a little bit and that's really the explanation, they're not a surprise. It says we guiding why they think it's a good example of what went on is.
It's a good example seen what place playing out the window just described.
The data gesture requesting Tamra did you have an additional one yeah.
Yeah, that's <unk>, maybe if you can just.
It's kind of the overall A.S.P. dynamic will be once were more trying to base than than Korea base.
I think from an A.S.P. standpoint, I mean, we are very.
Competent in our strategy that we you know how they did that we've talked about in the past in terms of our price declines being moderate mean this is a already in global pricing market on and you know we for the for reasons that I mentioned in in died early or you know we still feel confident.
We don't think has really changed relative to this this yet.
If you're asking him more soul question about generational mix pricing.
I think that's good.
That's a very stupid question.
It'll be like Jan tended to have but I wouldn't let it overwhelmed by analysis at this point Oh, what I would really focus on his his what's gonna happen with television to bad in this economic.
Health cycle, if we get that right then I think the business is going to continue the age gracefully and will continue to like it from a profitability in cash generation standpoint.
Oh, Okay. Thank you very much.
Thank you are next question comes from the line.
With Bank of America. Please go ahead.
Yes. Thank you.
Well I knew that the S.C.P.U. transaction back in 2013, there was a long term supply agreement and local struck between Corning and scam song what what does the impact of for a long term supplied really mad, but you have let Samsung attempts on winds down, let's L.C.D. operations and telling.
He may be any updates on samsung's intent on handling the convertibles stock. Thank you.
Why don't you start and then I'll do the next on the convert to on me to do both go ahead, Oh. So we have no new information on the converse in my previous discussions.
With people who run Samsung.
Right from the very beginning what they believed in was as 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 that nothing that would change that it didn't drive their investment N.S. Originally was display technology. It was the totality of the technology portfolio in what they thought even was coming next for displays.
Now to the purchase a first on the long term supply agreement of course it changes.
The.
<unk>, who do we sell our glass too as if they shut down there L.C.D. plants in L.C.D. panel, making plants in Korea, and you'll see some of that in our financials I think we add right up about 100 million something yeah. That's right. If you look at our reconciliation from gap the corners.
About $105 million met with any asset that were set up when we first is the transaction that was being advertised over the length of the contract and so that was written off in the corner.
Take a look at the deal overall sort of depending on how you would address what the original purchase price was in some of the original balance sheet moves.
Basically our acquisition of Sep into the entity not doing this according precision of materials has already paid itself back two or three times. So we feel really good about that transaction.
I think where where now I think the keeping the focus on on what Sam song is doing.
Is 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.
Discuss those.
Basically what they're X. city is just the manufacturing of L.C.D. panels right. They remain very dedicated to L.C.D.T.V.
The problems they face with simple and it was.
Accentuated.
By Cold in 19 in the challenges that provides a 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 gonna turn their career resources towards.
Is next generation television and display technologies.
You saw some of those recently be introduced it last consumer electronics zero Basil L.C.D.T.D. of that actually uses three pieces of glass.
A quantum all led T.V., which combines quantum dot in old technology, which is a two piece of glass technology.
Micro L.D.D. technology once again with some of our advanced class technologies will be used add continue to have emphasis on the poly Imid Oh led built on hard glass substrates. So are a deep relationship with Sam song on display technology.
<unk>.
Can use in some ways accelerates add we just have to follow their panel sourcing as it works its way around the cool.
Was that helpful. Sir.
Yes. It is one though and just to follow up on on Tony's comment on the hundred and 5 million the quarter you view that as a one time or is there going to be additional impact and the subsequent quarters on that particular element. Thank you know that's just one time.
Well thank you.
Thank you were next question comes from the line of Stephen Fox, What Fox advisor.
Thanks, very much good morning, everyone.
I had two questions first of all window you you mention a couple of times anti microbial coatings that are now being used it sounds like more so given some of the health crisis issues.
Just give us a little more of a tutorial on you know that the opportunities for that for use as a certain as a surface coding 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 had a quick follow.
Okay, what we call our Guardian technology with 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 viruses bacteria is spores.
So what Guardian is is our answer to that.
It is a copper based solution.
Where are we capture a particular ionic state of copper in a glass ceramic.
We then turn into very small particles that can be used in paints codings potentially fabrics right and plastics.
So what we're seeking to do with that.
His.
Do two things at once one provide good as time microbial and anti viral services, but also because of the particular way in which this ionic form of copper kills prevent the development of any form of Super Bucks.
Now as you would imagine the introduction of such a technology needs to go through a number of regulatory barriers Oh, we are approved for use.
Under the pay is an airline fungal right now right, but we're gonna have to work our way through various regulatory agencies to be able to effectively make that claim.
That we can kill.
He's corona viruses, Oh were quite confident we can.
Now for countries, who felt that very pressing health need like China in the womb on area. They left 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.
The agency's accordingly.
Also in China, They had a sudden need for sprays anti viral sprays right.
Things that they use in these sprays.
Want to be able to their tend to be chemical production, we ever, particularly modular small super safe way to produce those type products called advance 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 for pharmaceutical packaging, we believe smart surpluses make a lot of sense yeah.
We're continuing to use our core technology to solve that problem.
Then as well there'll be all sorts of treatments and or.
Protective spray 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 make 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 some positive free cash flows given Q1 castles or negative. Thanks.
Sure I mean, you know, we're really focused on four areas of improvement on both in terms of from a cost standpoint and from a lower in capital spending standpoint.
And you know that includes you know our cost at our manufacturing operations, but it also includes are operating expenses.
In.
And then in addition to that were re looking at are working capital in particular are inventory plans and we're planning to also reduce that so when you add those four things together.
That gives me pretty good conference that we will be able to generate positive free cash for for the year.
Thank you very much.
Thank you in our next question comes from the line of see a merchant what city group. Please go ahead.
Great. Thank you and thank you for the opportunity just a quick question the near Karen.
Spending quite <unk> enterprises, it's obviously claps, but I think come out of the pandemic.
See any structural changes and demand for five g.'s fan from the carriers relative to where it was freed the pandemic, where a lot of carrier seem to be burdened with debts and.
Second capital allocation plans et cetera says we come out of that are there any structural changes in demand that you're seeing for five Gees bend from the carriers and then I just have another quick follow up on free cash flow for Tony. Thank you.
So I'll see the way I would.
Hey, it's early okay.
Yeah.
Your c.
A number of things come up in the data, but it's too early to make any sort of conclusive state.
That being said in general what we're seeing and then we'll get specific on five g.
General what we're seeing is the way telecommunications companies work is because it's capital good they build a head of proceed to Matt.
Depending on the company they use different algorithms for holiday 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 is held up pretty well as we face the surgeon traffic is they basically went through that access that they carry to prepare for the next 18 months. So in general what we're hearing from our customers is.
Suing the human health crisis comes under management.
That they believe they will continue to.
To invest pretty strongly and infrastructure so that they can make sure that they re established that safety net.
The real question is what's baseline or are we on a new baseline.
If we're on a new baseline.
Then everybody's plans order too aggressive enough.
So that it's more than just to catch up over the period you went through it's too early to tell that.
On five G. that will just be part of the overall was eight.
Club Network solutions that gets played if someone's primarily technological thrust was five g.
Witness a major carriers that you can they they will press on the accelerator for that.
No I think what are the most interesting things that I've seen in terms of innovation, because we were working super closely with them. During this time.
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 been quite impressed with the installation teams at what they've done so I I'm looking at this overall is reinforcing to us all how important telecommunications infrastructure is.
But I don't know at 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.
Cash flow I think you mentioned, obviously positive free cash flow and if I heard you correct no knew Oh, no material Jack tree to support your dividends.
I just wanted to clarify that given your give it didn't and you know sort of positive free cash flow generation expectations for the year that you wouldn't be reading any debt to support you give it in for the remainder of thier. Thank you. Yeah. That's correct I mean, you know 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 at that in China, which is great. Because it's a natural heads 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 didn't we're not counting on that on a going forward basis.
In the projections in that game.
Okay. Thank you.
Thank you in our next question comes from the line for me to Marshall with Morgan Stanley. Please go ahead.
Great. Thanks on optical U. you notice the end license challenges with the telco customers, but just what have you seen from kind of your cloud or hyperscale customers as far as quarter continuity. Yet you know what there was there any outside there and then maybe second question. Just you know I would expect most therapists. All these are being the central businesses.
But given it adaptation to production are there any areas doesn't does nights, where you're concerned about production continuity or supply considering.
Okay.
It made so on cloud.
They're in a little bit different situation in some way 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.
Pass city to handle peak demands.
So yeah, there's been an enormous surge.
Clouds 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 is provided.
Some downward momentum just like it's done it at some of the carriers given installation pieces.
I think in general we would anticipate as around the globe that we're seeing it as those rules relaxes the human health crisis feels like it's under more management.
Then we'll see some of that returned to normal order patterns.
I think in telecom the area, where it is most difficult to figure out how what will play out will be the impact on small and medium businesses.
Their particular.
Land that works and what the man they need for that I think all that's ahead of us but for base cloud and telecom.
They're seeing a reinforcement of their business model and <unk> and everyone that I talked to at least a continues to believe that need for long term investment.
Oh, so far we've been able to maintain our business community our business continuity at an outstanding level.
Managed to do that a delayed our customers.
It will continue to be something that that God has a lot of our attention because as they do things like restarted automotive plans were experiencing worlds, where you know situations that there's not a lot of experiencing.
I mean restarting economies.
Whole plans and knowing what a safe return to work. This is going to continue to challenge supply chains. So so far so good.
The historical performance does not necessarily guaranteed future performance here.
Great. Thank you.
Mmm.
Right next question comes from the line semi shattered she what J.P. Morgan.
The question Nice this is Joe Carter, so unfair Sonic chatterji.
Just one question for me as for your operating plans you highlighted reducing capital expenditures could you remind me of your maintenance cap x. level and whether you guys think this type of macher backtracked calls for pointing top right close to those levels.
Well from a maintenance <unk> a cap x. standpoint.
I'm wearing the 802 billion dollar range.
You know I think is we look at our capital for the rest of the year. I mean Q1, we were you're finishing up a number of projects and that's why the capital was at the level at wise there'll be a little bit laughing you someone when I think you two and then in the back half of the year will be less than that so we were seeing the trajectory from capital space.
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 L.C.D. manufacturing business.
Or panel business do you guys have any indication relative to the cadence of the drams licensing as we go through the year.
Yes, we do but it wouldn't be appropriate for me to share that.
Okay, no problem techniques dry thanks, guys.
Mm.
Yeah.
Yeah, well Yeah go ahead, I think isn't the last one.
Okay. Great. Thank you are in the last question comes from the line of Shannon Cross with Cross research.
Oh, Thank you very much.
Question when I wanted to ask about the organizational changes you've made maybe if you talk a bit more about you know what drove that any changes that are being made the decision, making or customer relationship provide a little bit more color on on their chefs. Thank you.
Thank you should.
Three things drove it.
First our portfolio work has been successful.
Serving.
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 abused.
To do something like auto where.
We get our environmental products.
Now, we're seeing adoption of our different class products and potentially subdivide bad sensor products add some of our advance display products.
We had used that primarily in our saw systems to be those customers know as well.
And to be able to bring together our capabilities. It's been successful enough now that instead, we're going to start to put in hard systems and name market access platform leaders, which we've done to be able to run that customer interface and our strategies to serve those platforms.
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 need Eric as our C. O Whoa.
The third and final reason is we have this very talented next generation of leaders that were able to push in more senior spots and get more experience shoulder great leadership skills as they will be the ones that will carry us into the next hundred and 60.
Nine years.
Great. Thank you very much.
Okay. Thank you <unk> 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 J.P. Morgan Global Technology media. Okay. Some conference on May 13th.
Bank of America Global Technology Conference on June 2nd both well the virtual conferences.
So once again, thank you all for joining us operator that concludes our call police the disconnect online.
Oh, Thank you ladies and gentlemen.
Thank you for your participation.
You may know disconnect.
[laughter].