Q1 2023 Corning Inc Earnings Call

Welcome to the Corning incorporated quarter, one 2023 earnings call took place yourself into the Q&A queue. Please press star one one and it's my pleasure to introduce to you Ann Nicholson Vice President of Investor Relations.

Yeah.

Thank you and good morning, everybody welcome to Corning's first quarter 2023 earnings call.

With me today are Wendell weeks, Chairman and Chief Executive Officer, That's Wessinger Executive Vice President and Chief Financial Officer, and 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 Act of 90 95.

These statements involve risks uncertainties and other factors that could cause actual results to differ materially.

Actors are detailed in the company's financial reports.

You should also note that we'll be discussing our consolidated results core performance measures unless we specifically indicate our comments relate to GAAP data.

Performance measures are non-GAAP measures used by management to analyze the business.

First quarter, the primary differences between GAAP and core EPS stems from restructuring charges and noncash mark to market adjustments associated with the company's currency hedging contracts and Japanese yen denominated debt.

In total these increased core earnings in Q1 by $97 million as a reminder, the mark to market accounting has no impact on our cash flow are.

A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at <unk> dot.

You May also access core results on our website with downloadable financials in the interactive Analyst Center supporting slides are being shown live on our webcast. We encourage you to follow along they're also available on our website for downloading.

And now I'll turn the call over to Wendell.

Thank you Anne and good morning, everyone.

Yeah.

Last quarter, we told you get markets constituting about half.

Of our sales, we're experiencing recession level demand.

But our first quarter sales would decline by greater than normal seasonality due to the pandemic related disruptions China.

That we would raise prices again.

Set additional inflation and also begin to restore our productivity ratios so pre pandemic levels.

And as a result, our margins would increase one to two percentage points.

Sequentially, despite lower sales.

And that is exactly how the first quarter played out.

First quarter sales were $3 $4 billion and EPS was 41 cents.

Our actions to raise prices and restore productivity ratios began delivering notable results.

Despite a 7% sequential sales decline gross margin expanded 160 basis points sequentially to 35, 2%.

And operating margin expanded 150 basis points from the prior quarter to 15, 5%.

Although conditions remain weak and multiple markets, we expect our results to improve in the second quarter.

We remain focused on profitability and cash flow and we will continue to align our cost structure to demand.

No I wanted to provide some context on the dynamics, we experienced in our key markets is that I'll discuss how we're continuing to build our long term growth opportunities across our business.

So let's dive in.

In display technologies sales declined 3% sequentially as both volume and glass price decline slightly.

In March panel maker utilization increased.

And we expect our volume in the second quarter increased significantly from the first quarter.

As conditions continue to improve.

<unk> optimistic the panel maker utilization is beginning to move beyond correction levels. It will return.

More normal levels.

In coming quarters.

Okay.

In optical communications sales declined 6% sequentially.

Our pricing actions, partially offset a greater than normal seasonal volume decline and connectivity solutions.

Which is associated with the pacing.

We're a large customer projects.

Our pricing and productivity actions resulted in net income improving 22% sequentially.

The lower sales.

Government commitments to connect the unconnected or contributing to robust cable and fiber demand and we continue to advance our leadership.

Last month, we officially opened the optical cable manufacturing campus in North Carolina to help provide U S network operators with the cable data to bring high speed optical connectivity underserved communities.

Particularly in Rural America.

Congress Secretary Janet remind us yet.

Yeah.

It is past time every American be connected with affordable Internet no matter, where they live.

We could not do it without the folks supporting it wouldn't have the fiber the innovation.

Or the cables.

Sure.

Finally, environmental technologies, we saw increased adoption of gasoline particulate filters in the quarter, which helped drive a 9% sequential improvement in sales.

Fight the languishing carmack.

Net income grew 19% in the segment based on our productivity actions and selling sales.

Just follow up the short term.

We're seeing improvement in some of our markets, but a series of challenges continues to ripple across the global economy.

Nevertheless, we expect to grow sequentially in the second quarter and to improve our key financial metrics.

For the back half of the year.

I'd be disappointed if we didn't grow from second quarter levels.

Longer term, we will continue to innovate and capture growth opportunities as they materialize, we're energized about <unk> future.

I'd like to review some of the reasons why.

It all starts with our focused and cohesive portfolio, we maintained clear leadership in three core technologies and four proprietary manufacturing and engineering platforms that are vital to solve a broad range of significant challenges and shape the industries.

We applaud new combinations of our assets and capabilities to advance important secular trends in tandem with our customers.

It might be applying and repurposing, our insights assets across multiple opportunities in markets, we increase our profitability.

In optical communications, we've been leading in the industry for more than 50 years.

But this business is the most fully evolved example, accordions focused portfolio.

Using all three of our core technologies and four of our manufacturing and engineering platforms and we will continue to apply these capabilities to help build a more connected world over the next 15 years.

In display by leveraging all three of our core technologies and evolving our fusion platform, we have achieved scale and broad capabilities that have advanced our leadership position as.

As our customers evolve, we're helping them create a world with richer and more lively.

And ubiquitous displays.

In mobile consumer electronics, we invented the cover glass category and redefined it by integrating class with ceramics and by combining fusion with vapor deposition.

We continue to advance the state of the art with our leading cover materials, which have been deployed on more than 8 billion devices to date.

And we've recently entered new product categories that provide opportunities for more of our content. For example, the camera lens covers on devices like the Samsung Galaxy, <unk> 22, and F. 'twenty three series.

These advancements.

We're also innovating in emerging technologies like augmented reality, bendable devices, which we expect to contribute to long term growth.

In automotive, we're helping build a world where the vehicles.

Tingly Green and where software and displays are enabling new vehicle experiences.

Our inventions are enabling industry leaders to meet stringent upcoming EU seven emissions regulations and achieve near zero emissions lens.

And we're collaborating with LG electronics, a global technology and vehicle component solutions generated to advance in car connectivity.

Overall, we're helping to solve more and more of our customers' challenges inside connectivity in it.

And at CES, we continued to generate strong industry excitement about our technical glass optics capabilities.

Jim expand the boundaries of what's.

Pos.

Finally in life Sciences, we're using corning's core glass and optical physics technologies, along with our expertise and vapor deposition precision forming and extrusion.

It helps support the discovery to delivery of new medicines, including biologic treatments that are personalized effective.

It's safe.

So as you can see.

Our investments in distinctive capabilities have placed us at the center.

And we believe we will continue to develop category defining cogs to transform industries and enhanced labs.

I'm also excited.

Opportunities in the renewable energy industry, where I believe we can make significant additional contributions to our sustainable U S based solar supply chain.

We're proud to make the world a little bit better wherever we can and that extends to all of our stakeholders, especially in these uncertain times.

We recently released <unk> sustainability report, which captured the great progress, we've made and underscore our commitment to <unk>.

And move the world.

So.

As I wrap up my remarks.

What I'd like to leave you with today.

Yeah.

Moving forward throughout 2023.

We will continue to focus on the operating each of our business as well and adjusting to meet the needs of the moment.

<unk> aligning our cost structure to the demand environment.

At the same time, we are advancing growth initiatives and capabilities that will drive long term success.

We remain well positioned.

Rich set of long term opportunities that we've built across our market access platforms.

I look forward to updating you on our progress.

Thank you Wendell.

Morning, everyone.

For the first quarter, we delivered results at the higher end of our expectations.

Sales were $3 4 billion and EPS was <unk> 41, SaaS gross margin was 35, 2% and operating margin was 15, 5% both meaningful improvements from the fourth quarter.

Our free cash flow for the quarter was negative $383 million.

This quarter free cash flow was also impacted by lower sales, reflecting the recession level demand, we saw several of our markets and overall weakness in China.

Looking forward, we expect positive free cash flow starting in the second quarter and for the remainder of 2023.

Overall, our team demonstrated operational rigor during the quarter, we continue to make progress on improving our profitability by raising prices to help offset inflation and by adjusting our productivity ratio is closer to historical levels.

And we will continue to align our cost structure to successfully weather the demand environment.

We remain confident in our relevance to long term secular trends and our marketing approach.

And we are well positioned to capture durable profitable growth.

The global economy improves now, let's turn to our first quarter segment results.

In optical communications sales were $1 1 billion down 6% sequentially as price increases, partially offset a greater than normal seasonal volume decline associated with the pacing of customer projects.

Despite the decline in sales net income grew 22% sequentially to $159 million, primarily driven by pricing and productivity actions taken in late 2022.

We continue to believe the industry's underlying growth drivers are intact long term demand for optical networks strongly supported by trends in computation.

By private and public infrastructure investments to help connect beyond connected and bring broadband to a much larger share of the population.

We're pursuing three significant secular trends broadband.

And the cloud.

Got major innovation programs underway for each category and our connectivity solutions offer economic advantages for a broader range of customers than ever before.

Display technology sales in the first quarter were $763 million down, 3% sequentially asphalt volume and glass price declines slightly Denny.

Net income was $160 million down 6% sequentially on lower sales.

On our last call I updated you on panel maker utilization dynamics.

At the beginning of Q4 utilization began to increase it's locally.

Leveled off in December due to pandemic related disruptions in China and in January the disruptions persist driving utilization back down.

And below retail demand.

March panel makers increased their utilization and the result, and as a result, our volume increase from January and February levels.

We're expecting panel makers to run at higher utilization levels in the second quarter than they did in the first quarter and therefore, we anticipate a sequential glass volume to increase significantly.

Favorable pricing is primarily driven by two factors.

First factor is the <unk>.

Improving glass supply and demand balance.

Last speakers have been taking additional tanks offline for maintenance and repairs.

As we've noted previously we are taking this opportunity to upgrade our fleet with our latest technology and we're actively managing the timing of tank restarts to align our supply to demand.

The second factor.

His glassmakers profitability.

In Q4, our two major competitors reported net losses reinforcing our view that it is challenging for Glassmakers, who have high costs to remain profitable at current pricing levels.

Yeah.

Moving to specialty materials demand for our long lead time semiconductor equipment products remains strong.

However, smartphone and end market demand remains weak first.

First quarter sales were $406 million down 20% sequentially consistent with typical seasonality.

Income was $39 million down sequentially due to the lower sales.

We expect the continued adoption of our latest glass innovations such as Gorilla glass phase two and the introduction of new glass formulations in the second half of 2023 to help offset continued softness in the smartphone and high teens.

Smartphone and Iot markets.

Additionally, we believe that new innovation opportunities and emerging technologies like augmented reality basketball devices will contribute to long term growth.

Environmental Technologies' first quarter sales were $431 million, we saw increased GPS adoption in the quarter, which helped drive a 9% sequential improvement in sales.

Net income increased 19% sequentially, driven by higher sales and improved productivity.

We are not projecting a recovery in the automotive market second quarter and our current view.

Year is that auto sales remained below pre pandemic levels.

But our content driven growth strategy continues to help us outperform the market.

Turning to life Sciences first quarter sales were $256 million down 13% sequentially, driven by lower demand for COVID-19 related products and the impact of customers drawing down inventory.

Net income was $9 million driven by lower sales in our actions to reduce production levels in the quarter.

Let me take a minute to describe the market dynamics impacting this business and what we expect for the.

In 2021, and the first half of 2022 growth was largely driven by pandemic related demand and customers over ordered can you just supply chain challenges.

Pandemic related demand began tapering in the second half of 2022.

The industry was left with elevated inventory levels.

We expect our sales and profitability to improve as the industry corrects and we restore productivity ratios back to pre pandemic levels.

Net income increased sequentially.

We are seeing strong continued strong demand for solar grade polysilicon to meet the need for a transparent sustainable and traceable. So much supply chain in the U S market and we continue to see strong growth automotive glass solutions and additional opportunities in pharmaceutical technologies.

Now, let's turn to our outlook.

For the second quarter, we expect total company sales to grow sequentially led by display as the industry continues to recover.

Turning to profitability, we expect to build on our progress from the first quarter and further improved profitability driven by our efforts to offset inflation and return productivity ratios to historical levels.

We expect sales in the range of $3 $4 billion to $3 6 billion EPS.

EPS in the range of 42 to 49.

But most likely case for the second half is that sales and earnings increase versus the second quarter.

Although it's too early to be definitive given continued global economic uncertainty and its impact on consumer demand and infrastructure spending.

Yes.

I'd also like to reiterate our capital allocation priorities.

We prioritize organic growth through research and development and capital expenditures the investment opportunities, we target generate a 20% ROIC or greater.

We expect 2023 full year capital expenditures to be slightly lower in 2022.

We are also prioritizing rewarding shareholders with our excess cash two ways first is dividends, which we've raised for 13 years in a row.

Second is share buybacks, we bought back about 5% of our outstanding shares in 2021 and will continue to be opportunistic.

Preserving the financial strength of the company is always a top priority, we maintain a strong balance sheet that provides appropriate durability and flexibility and I'm proud to say <unk> maintains one of the longest debt tenders and the S&P 500, our average maturity is about 25 years.

With no significant debt coming due.

Given.

Some of the actions, we are taking position us to come out of this period of uncertainty actually strong and well positioned for a return to growth.

Now I'd like to wrap up with a few key takeaways in the second quarter, we expect sales profitability and cash generation to improve driven by our profit improvement actions cost controls.

Continued recovery display technologies.

We're executing a highly disciplined approach to our investment decisions, while maintaining a strong balance sheet.

We're particularly focused on aligning our cost structure to the demand environment, while maintaining the flexibility to address changing market conditions.

Capture upside as it occurs.

Our long term growth drivers all remain intact, and we are well positioned to continue capturing growth tied to key secular trends such as those playing out in the optical communications and solar markets.

And with that I'll turn it back over to Ann for Q&A. Thank.

Thanks, Ed.

Operator, we are ready for our first question.

Thank you.

A reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Yes.

Our first question comes from the line of Matt Mcconnell with Deutsche Bank. Your line is now open.

Hey, guys. Thank you for taking the question congrats on the quarter.

Two if I could on optical.

If you can just talk about the latest you're hearing from your customers and maybe speak a little bit more in terms of expectations and whats embedded.

For the second quarter, and then secondly on optical I'm, just trying to figure out in terms of where youre seeing some of the pause or more near term softness is it broadly distributed or is it maybe more in the sort of subscale or smaller carriers, which may be facing.

Tougher maybe financial conditions, which are impacting some of the longer term investment plans. Thanks.

Thanks for the questions.

And congratulations I appreciate it.

Up till.

So here's the dynamics, we're seeing over here.

And how are you.

Yes.

So first fiber and cable demand.

<unk> quite tight.

And Thats really you can see that with.

Exhibited by the success of our recent.

Price increase actions in that space.

So for US it's really the connectivity sales so think.

Hardware.

Yes.

Engineered systems for fiber to the home.

And large scale hyper scale data centers.

We're running below.

Last year's levels.

Largely due.

Two customer project timing.

Now what we hear from customers is the underlying drivers remains very robust.

AI ml.

All right.

That connectivity.

So we're sort of facing this interesting dichotomy, which is all of the long term drivers remain in place.

And they're all.

Speaking apology.

Very robust deployment plans.

At the same time, we're just not seeing it yet.

The order book lower car are we seeing it.

<unk> looked at the slides civil works projects.

So we are we're taking a lot of these words with.

Little grain of salt.

AD.

We're just not reflecting.

In our forecast in our guide.

Any real robust recovery yet.

Until we see it.

And it's not.

We're seeing this in large players.

Not just small folks.

Some I think.

To conserve financial resources as they deal with their own uncertainty but.

But at the same time haven't given up on their long term strategic plans.

No. It doesn't mean that we won't see a strong bounce back to the run rate.

But you would expect to match with their words on deployment plans in the back half we could see it.

We're just not going to guide it until we have it in our heads does that make sense Matt.

That's great yeah very much appreciated.

And I'll hand, it over.

Others can get into Q&A. Thanks.

Thank you.

Our next question comes from the line of Shannon Cross with Credit Suisse. Your line is now open.

Thank you very much Wendell can you talk a bit more on the display rebound that you're seeing particularly what you saw in March and how you expect that to.

To trend through the year.

Key points are you are you tracking to make sure that we are seeing a bit of a rebound there. Thank you.

So as you heard in Ed's comments I thought were good as well.

Originally started to see the recovery in quarter four.

The pandemic shock sits in.

Sets in in China.

But if we go backwards and that we expected.

We would work our way through it and then start to see the recovery start to get.

In quarter, one and that's what we saw in March.

We saw utilization start to decline.

We're seeing a continued decline through this month.

So as we watch our what's actually happening with panel maker utilization.

How are we seeing the dynamics play out between set makers.

Hello bankers.

It's looking to us.

We're going to move beyond the recovery time.

Correct ship time in this market.

And recoveries underway and we'd expect to see that build in the coming quarters. That's the way it looks to assess the way it feels to us that's what the data is telling us, but it's still early.

Right.

So we're not coming out hard core I'd say that we are back to normal we're not there yet.

But we're seeing the trends all group in the right direction.

Thank you very much.

Thank you your next question.

Our next question comes from the line of Steven Fox with Fox Advisors LLC. Your line is now open.

Hi, good morning.

A bit of a difficult question since it involves not guiding to the second half, but Wendell you mentioned.

In your opening remarks that you thought you could grow in the second half where would you say that.

Based on what Youre seeing today that there is opportunities for typical seasonality, where maybe we should.

Couch or expectations for seasonal improvements because the companies typically.

Very backend loaded in terms of their earnings growth.

Half over half in the street is looking for about 25% quarter over quarter improvement in earnings in Q3.

Yeah.

Hey, Steve This is Ed I'll take that one so maybe I'll start with the second quarter and then I'll go to the second half. So as we think about the second quarter in our guide we're thinking about a significant improvement in display I think that's the primary driver we're not expecting.

Our significant sales growth.

Other businesses, specifically called out optical life Sciences, and specialty materials. When you think about the second half I think the first thing I'd start with is it specialty materials, we typically see customer product launches happen in the second half, it's a business where it usually our second half is higher than.

Our first half I think thats, a dynamic that could play out and in our thoughts about the most likely case being the second half greater than the first half or greater than the second quarter. That's a place that I would expect to see growth I think Additionally, Wendell described in optical communications situation very well and we could.

I think the what.

The really interesting question.

Is isn't so much when does.

Sort of realization.

But the broad economic outlook.

Sets and all the different industries is when does the reverse happened like when do we start to see those.

Our robust signals that shows really move it beyond that.

I just haven't seen those yet.

What I look at four.

And as soon as we see them.

Tiger bonds.

Yes, that's very helpful. Thank you.

Yes, I wanted to you had asked about display second quarter, what we bid.

Corporate in our second quarter guide versus the prior year. So just a couple of thoughts one remember last year.

They displayed played out as the first half was really strong we starting to see panel maker, it's dropped their utilization at the end of the second quarter right. So Q3, and Q4 are they ran at much lower rates Q1, and Q2, they ran at much higher rates right.

And if you think about the way we typically do archive, we always have a range of outcomes right. So if I think about the second quarter of this year.

<unk> display we think will run so now I'm going to go back to sequential for a second we think panel makers will run sequentially higher in the second quarter than they did in the first quarter and so it's possible they get to the same place as they did last year that certainly in the range of outcomes I don't know that thats necessarily in the hall.

Likely outcome.

That's super helpful. Thank you so much.

Yes very helpful. Thank you.

Thank you.

Our next question comes from the line of Joshua Spector with UBS. Your line is now open.

Hey, guys. This is James Cameron on for Josh.

I just wanted to touch on some of the dynamics with display pricing as you talked about some some supportive dynamics, but if I think about what played out in the first quarter. It seemed like you had.

You had demand trending.

In line with.

Weak January improving in March.

And I was just wondering if you could give some color on what happened with pricing that you had guided to being flat and came in down and how that plays into what we should what we should expect for the second quarter.

Yes, I think James price was slightly down in the quarter and I think.

We think about favorable pricing.

Any given quarter can be slightly up it can be flat slightly down. So I think it's generally in line with the way we're thinking about it.

Okay.

Alright, thank you.

Next question please.

Our next question comes from the line of <unk> merchant with Citi. Your line is now open.

Thank you very much for taking my question.

Looking into your free cash flow guidance I know you guys have kind of talked about capex being.

Slightly lower than 2002 levels, one 6 billion and strong sequential improvement in free cash flow should we expect free cash flow given that earnings should improve from here on.

That free cash flow to be higher than what you guys had in 'twenty. Two is that number just given capex coming lower and hopefully operating.

Earnings level, as well doing better than 2002.

Yes, osteo I'm going to build a little bit on the way Wendell described the way were thinking about sales.

What could happen in the second quarter in the second half right I think there is certainly.

In our high end case, yeah cash flow should follow our growth through the year and if we grow at the higher end of the second quarter and we continue to grow from there. Yes. There is certainly a case to be made that that would happen I think we're taking a little bit more.

Moderate view.

What might happen so.

Get capital slightly down and free cash flow improving as sales improves.

Just starting to more and more cycling of cash flow is stronger in the second at second quarter and in the second half.

Alright, I think you guided last time to see significant working capital improvement that shipboy free cash flow generation year.

So I guess I was just kind of circling back to those comments and then any update on <unk>.

Stock repurchases are you expecting to resume that at a level that was maybe consistent with what if we dial it back a couple of years.

No no update on stock repurchases will just continue to remain opportunistic there and maybe I'll make one other comment on your cash flow statement as I think about inventory, we talked about a lot of the dynamics that had terrific up through <unk>.

22, with respect to a very challenging supply chain environment and inflation and our goal is to continue to drive it down and I think in Q1.

<unk> relatively flat down a little bit, but remember sales were doing well. So we actually feel really good about that.

Okay. Thank you.

Thank you.

Our next question comes from the line of <unk> with J P. Morgan. Your line is now open.

Yes, hi, thanks for taking my questions.

And if I can just follow up on your comment about growth in specialty materials in the second half when I go back and look at it historically, it's been a wide range of Lewis fight boost and I think last year or two.

As high as 45%, so I'm, just trying to sort of get better.

Better color there in terms of what should we think about in terms of content growth with some of your customers into the second half what's the magnitude and what's also sort of from a macro perspective are you expecting to set off from the first half versus second half <unk> just to be able to write say sort of what that magnitude looks like in winter.

One for you in terms of have you been able to digest Bidens recent plans about pushing electric vehicle adoption to 50 booths and by bringing Cody how does that impact the overall.

Sort of growth outlook for environmental Thank you.

I speak.

I think youre certainly hitting on.

One of the areas that gives us a range of outcomes in.

The way, we're thinking about the back half that is in specialty obviously smartphone and PC demand remains relatively weak.

I think it's possible.

Above the low end of the range you articulated the sequential growth second half over first half, but I don't know that I would say, it's going to be at that at the high end of that range and we're not planning on.

<unk> levels at that growth at those levels.

Brendan let me talk on the electrification plants.

From the current covenants against.

And if by that.

I assume you mean sort of the reset of administration.

Adults Smith.

The EPA.

On.

What.

So the industrial policy that goes with it but at that EPA regulation that they just released for comment.

Is that.

The piece of it that we're most excited about is that they have now adopted the way to measure.

The approach that the Europeans.

Chinese hub, which will mean gas particulate filters will be required.

On all ice vehicles.

In the U S.

So that adds tremendously to our content.

Two to three times to our content level.

For the U S vehicles.

U S markets had a small market.

This enables us to do.

To keep our overall content.

Our environmental piece of our business, our emissions control piece of our business sort of more according plays out as the number of ice vehicles shrink. So we're quite excited by that.

Our.

Core long term answer.

<unk> two <unk>.

Is thats, where we are focused.

The bulk of our glass upticks in autonomy efforts at.

At this point in time really our highest value add vehicles.

Electric vehicles that has the most content.

Despite that using our emissions control because that tends to be where we're the most successful on both our interiors and exteriors and now alright autonomy products.

Did I get to your question.

No. That's interesting. Thank you thanks for the color there.

Thank you.

Our next question comes from the line of meta Marshall with Morgan Stanley . Your line is now open.

Great. Thanks.

Maybe a question on the gross margin improvement.

You saw in Q1 over Q4, clearly down volumes just how much more.

Fuel is there to some of these activities to improve gross margin throughout the year, maybe kind of with or without volume improvement I guess im just trying to see how some of the pricing actions our efficiency actions kind of fully reflected in what we see in Q1 or just how much of that can carry throughout the year.

And then improve margins, even if we don't see kind of meaningful improvement the volume. Thanks.

I said, yes.

So first thanks.

Thanks for the question and maybe I'll, just sort of reiterate how we described our margin improvement and what sort of played out in Q1, and then I'll get to sort of what happens from here. So yes, we increased price that's definitely a big driver of why margins went up we're also looking to improve our productivity race.

She goes back to the way we brand prior to the pandemic. We've made progress there that takes cost out and we're certainly taking fixed cost out as well. So those drove our margins up sequentially on lower sales, which is very unnatural I think there is definitely an opportunity for us to continue to do that.

We do expect sales to go up in the second quarter, but we do expect profitability to go up as well from there. So I think theres more room to run.

From where we are now and where we're going to continue to work on it it's clearly a priority for us.

Great. Thanks, and then just.

The opening of the North Carolina facility kind of impact optical profitability in the near term or can you guys still good efficiencies does that plant and even add more efficiencies that can help margins there. Thanks.

As always as we followed these plants up to get a little bit of a drag.

As we fill them.

But.

We've been able because of the way.

Because we prioritize protecting our people and our customers.

Bank.

We ran at very high staffing levels.

So we're been able.

With our improvements in those things took more than offsets that.

Drag we've seen from opening up some of our new capacity.

Various dude question, Yeah, we do always get a drag before we get these things all the way it filled up and all of our technology to play a bit.

Great. Thanks very good.

Getting productivity.

Thank you.

Okay.

Thank you. Our next question comes from the line of George Notter with Jefferies. Your line is now open.

Hi, guys, thanks very much.

I had a question about the optical business you were talking about fiber connectivity.

Impacts I think you talked about customer pacing of projects as being the issue there but.

As I look around the industry. It does seem like there's been some inventory correction out there I know lead times for fiber connectivity products at one point were quite long and now there are two significant degree a lot shorter is is the issue there really customer facing or is it more about excess inventory and you are going through an inventory correct.

Any thoughts would be great.

George what an outstanding question at what an interesting debate.

Great.

No.

Just thinking about inventory is.

How much they put in the ground.

Determinant to how fast they burn through their inventory and of course supply chain folks really across.

Since they couldnt get everything they need it for sure over ordered at all sorts of things right.

Supply chain time, sorry.

That is certainly part George no question and I could even.

Yeah.

Yes, I was less cynical right I could EBIT explain most of the change.

Being that.

But then I look on the other side.

And I am looking at the pace of.

The actual ground getting removed.

Actual data centers getting built.

And if that there is a little bit of a disconnect there for me too.

If I took my customers' statements about their deployment goals.

And integrated that.

With that I.

I'd say, yes, we have a very strong bounce back.

Started to Peel it pretty soon.

But.

We're still going to take a little bit more of a conservative view.

So.

I don't know if any of that was helpful to you I think you make an excellent point could be absolutely right.

Just going to play out a little bit more conservatively.

And not plan on sort of a big jump up.

In the back half driven by the fact that.

It came in line with deployment.

Got it and then just as a follow up on that.

When you think about that fiber connectivity business is more of the issue then around data center build or is it more about fiber to the prem type builds or other types of optical networks, what would you kind of pin it on.

It's probably more fiber to the plan.

Okay, though hyperscale is definitely slower right, but it's more a fiber to the premise those great big Civil works builds.

Got it.

Just moving.

Fast up enough yet.

For us to feel comfortable.

To call it.

A strong recovery in that business.

That being said.

That can happen quick.

That can happen quickly.

Because they haven't come off their stated goals yet.

But we're just not seeing it yet.

Got it thank you very much.

Thank you.

Our next question comes from the line of Tim Long with Barclays. Your line is now open.

Thank you.

Just wanted to go back to.

Display.

Two if I could first.

And could you talk a little bit about obviously you're good.

Covered coming in second quarter.

I know you guys took a lot of tanks offline and did some retrofitting. So can you talk about kind of how how much margin lift we're going to see not just from the volume but from some of the changes and then Wendell may I just wanted to go back to kind of visibility in this business. Obviously there was.

Some head fake last quarter on utilization going up and then going down.

So what level of visibility do you have into those utilization I'm, assuming you see well into this month, but how far out can you go with that thank you.

Thanks, Tim So just start with your first question you're right I think one of the key dynamics, we talk about all the time is glass supply demand balance being key.

<unk> pricing so yes, we do manage our tank fleet in that respect.

We'll continue to do that.

And make sure that we manage our supply to that process.

That does impact profitability that.

That helps us going forward I think a lot will have to do with how high volume is in the quarter.

How sort of all the dynamics play out.

And I think our visibility.

Helps improve as we get to the end of this month beginning of next is we have pretty good visibility, but our negotiations really are still going on and given the pretty sharp upward inflection.

We're seeing customers volume request, so that dynamic.

It is still sort of playing out but should get pretty clear over the next week or two.

Okay. Thank you.

I think we'll take one last question.

Our last question is from the line of Martin Yang with Oppenheimer. Your line is now open.

Good morning, and thank you for taking my question.

Referenced on the call all new formulations for Gorilla glass can you maybe comment on that is in line with.

Annual upgrade cycle, we have observed in the past or is that something a bit more significant similar to ceramic shielding.

Sorry could you repeat the question.

I lost you a little bit in the middle of that.

Sure so.

No.

The question is about the reference to Gorilla glass. This year, you Theres a comment on new formulation for Gorilla glass.

So is that.

<unk> new formulation.

Our upgrades in the past on the annual cycle or is that new formulation.

Something a little more significant similar to the ceramic shield product.

I got it now so it's not a jump up to glass ceramic is a pretty significant improvement at the glass level and we're seeing really wide adoption, but youre not seeing that fundamental very big jump in our value add.

Device that you see switching to a fundamentally new material sets.

With.

A very different manufacturing dynamics as well as drop dynamics.

Pretty significant improvement, but in the same glass materials set.

Does it have as much of a pop in terms of how much our sales revenue as per phone is something like this range.

Got it thank you.

Thanks, Wendell Thanks, Barton I, just want to thank everybody for joining us today before we close.

And for me that we will have started 2023 annual meeting of shareholders on April 27 on.

On may 23rd we're going to attend the Jpmorgan its first annual global technology.

This conference.

May 31, and June one we will be attending the Bernstein's 39 annual strategic decisions conference.

On June 22nd will be attending <unk> Fox advisors virtual transportation Technology Conference.

Finally, a web replay of today's call will be available on our site. Starting later this morning. Thanks.

Thanks for joining US operator, you may disconnect all lines.

This concludes today's conference call. Thank you for participating you may now disconnect.

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