Q4 2023 Corning Inc Earnings Call

Welcome to the Corning incorporated quarter, four 2023 earnings call.

It's a place yourself into the Q&A queue. Please push star one one.

And it's my pleasure to introduce to you Ann Nicholson, Vice President of Investor Relations.

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

With me today are Wendell weeks, Chairman and Chief Executive Officer.

Blessinger Executive Vice President and Chief Financial Officer, and Jeff <unk>, Executive Vice President and Chief strategy Officer.

Ann H. S. Nicholson: I'd like to remind you that today's remarks contain forward looking statements that fall within the meaning of the private Securities Litigation Reform Act of 1995. These statements involve risks uncertainties and other factors that could cause actual results to differ materially.

Ann H. S. Nicholson: These are detailed in the company's financial reports you should also note that we'll be discussing our consolidated results using core performance measures unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business.

The fourth quarter, the difference between GAAP and core EPS, primarily reflecting constant currency adjustments realized gains and unrealized noncash mark to market losses on translated earnings contracts.

Noncash translation losses on Japanese yen denominated debt as well as restructuring and asset write offs charges. As a reminder, these mark to market accounting has no impact on our cash flow.

A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website the accordion dot com.

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

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

Good morning, everyone.

Today, we reported fourth quarter and full year 2023 results.

Sales for the fourth quarter with $3.3 billion and EPS was 39 cents in line with expectations.

Free cash flow was half a billion dollars gross margin was 37% consistent with the third quarter, despite lower sequential sales.

As I shared with you last quarter demand in most of our markets is temporarily depressed due to supply chain corrections and macroeconomic factors.

Therefore, our sales are well below long term trends.

Nevertheless.

The actions, we took to improve our profitability and cash flow generation throughout 2023.

Evidence in our financial performance.

And based on detailed assessments, we are confident do we've extended our leadership positions across our markets.

Yeah.

While our current sales are below trend.

We expect that to change in the mid term as that market begins to normalize.

This creates an opportunity for us to increase our sales by more than $3 billion when that happens.

As we capture that growth, we expect to deliver powerful incrementals because we.

Already have the required production capacity and technical capabilities in place and the cost is already reflected in our financials.

The incremental profit and cash flow annuity created by increasing sales by $3 billion plus is a terrific opportunity for our shareholders and we expect to start making progress towards realizing that opportunity in 2024.

No it's difficult to call the specific timing of a rig.

Covering a.

But we continue to see signs that it will occur in 2024.

As a result, we expect the first quarter to be our low quarter of the year.

So that's a summary of where we are and how we seek to create value in the medium term.

I'd like to provide some additional facts and perspective.

At the start of 2023, we introduced plans to improve profitability and cash flow in this lower demand environment throughout the year, we took action to restore our productivity ratios to historical levels and to raise price to more appropriately share inflation with our customers.

I'm happy to report we delivered.

On our plans.

When you look at our fourth quarter results on a year over year basis. The evidence of our progress is quite clear.

We increased gross margin by 310, 30 basis points and free cash flow by $110 million to half a billion dollars, despite sales being down by more than $350 million.

Our profitability and productivity improvements led to significantly improved free cash flow conversion and we expect to continue converting profit to cash at attractive rates going forward.

Overall, our results in the quarter and throughout 2023 demonstrate that we continue to make solid progress advancing our market leadership strengthening our profitability and improving our cash flow generation even in.

The lower demand environment, we're experiencing.

As a result.

Entering this year operationally strong.

Now we intend to build on this strength.

As I previously mentioned, we have an opportunity to increase our sales by more than $3 billion in the medium term.

Let's take a deeper look.

As to why we believe this.

I shared a bit of how we're thinking about optical communications on the last call.

I'll start here again today, because it's a significant part of our opportunity.

We anticipate optical communications sales will spring back because we believe and our carrier customers have confirmed that they purchased excess inventory during the pandemic.

And that they have been utilizing this inventory to continue deploying their networks.

We believe these carriers will soon deplete their inventory and execute on the increased broadband deployment plans they've communicated to us over the last several months.

As a result.

We expect them to return to their normal purchasing patterns to service their deployments.

We also continue to expect bead funding for network builds in underserved areas to begin in the second half of 2024 and continue adding to our addressable market for several years.

Additionally.

We expect to grow Hyperscale sales in support of the growing role of cloud computing and the need to build the second optical network necessary to directly connect the Gpus that drive artificial intelligence.

Last quarter.

Sure trend lines for fiber shipments, which showed that we are significantly below trend and outlined why we expect our sales to get back on track.

I'd now like to update you on progress during the fourth quarter.

Here, you see corning's fiber shipments measured in fiber kilometers since the beginning of 2007.

The trend line shows a seven 3% compound annual growth rate over the last decade.

<unk>, 2% to 6.6% CAGR for industry fiber shipments over the same period.

As I explained during our third quarter call.

Our fiber shipments in quarter, one of 2023 were basically in line with expected market trends.

But started to drop below our trend line in quarter, two and even more so in quarter three with our shipments more than 30% below trend line.

Primarily due to elevated carrier inventory levels.

We now have another quarter of data to share.

In the fourth quarter, we saw a small uptick in fiber shipments.

But they remain more than 30% below trend.

They continue to make progress on drawing down inventory.

Additionally, they have plans to increase deployments in 2024.

We look forward to updating you on takeaways from our next round of shutdowns.

We're also seeing encouraging signs in Hyperscale overall orders grew in the fourth quarter and we're seeing the earliest edge of AI related network builds in our order books.

Returning to trend.

<unk> more than 40% to our revenue run rate for optical communications.

We are laser focused on doing just that.

Yeah.

Beyond that we expect the strong underlying growth trend to continue far into the future and our sales to grow faster than the market through more according innovations.

Optical fiber remains P ascendant technology with growing applications, and wireless cloud computing, including AI and broadband efforts to connect the unconnected.

Those applications go out we have new product innovations in each.

We'll increase our revenue per installed fiber.

Government incentives to ensure everyone has internet access.

Also extend the long term trend line.

[laughter] display provides another example.

How are sales will spring back.

Retail sales during the fourth quarter selling season were softer than industry expectations.

Ann H. S. Nicholson: Panel makers responded by reducing therefore quarter utilization levels.

Additionally, industry reports indicate the panel makers plan to run at lower utilization levels in the first quarter.

They continue to align panel supply to demand with fab shutdowns planned during the lunar new year holidays in February.

For the first quarter of.

2024, we expect the glass market and our volume to be down by mid single digit percentage sequentially.

For the full year of 2024, our expectations are in line with the industry, we anticipate relatively flat television unit volume another year of TV screen size growth and some recovery in PC demand.

This adds mid single digit growth in glass volume at retail versus 2023.

We expect panel maker utilization to increase after the first quarter to meet the expected retail demand.

As a result, we expect our financial performance to significantly improve from our first quarter run rate.

Yes.

Longer term, we expect continued volume growth in retail to be mainly driven by TV screen size growth as it has the past several years and.

For some improvement in units as consumer demand normalizes.

Well, we expect to win in this market because we are the undisputed technology leader, our successful development and capability in Gen 10, and a half aligns with the continued move to larger size Tvs produced on the lowest cost platforms for large displays.

Life Sciences is another segment, where market normalization contributes significantly to our expected growth.

Customers in North America, and in Europe are completing their inventory drawdowns.

We are continuing our productivity and operations improvements and we're refocusing our commercial and production efforts on drug discovery and production as the market returns.

<unk>.

In addition to markets returning to normal.

We continue to execute our more corning content opportunities across the company.

In mobile consumer electronics, and automotive, we see more Corning as the primary growth mechanism.

Yeah.

Let's look first at mobile consumer electronics.

2016, handhelds have declined 21%, while our sales of gorilla glass increased 41%.

Now we've done this by advancing the state of the art for cover materials and this is just a classic more according play.

Our strong innovation portfolio in support of our close collaborations with leading Oems and we expect to continue delivering new products that increase our content per device.

A great example of this earlier in January in our announcement with Samsung about Corning, Gorilla armor, which dramatically enhances sunlight readability and scratch resistance.

Extreme ultraviolet lithography or <unk> a market, we serve with our advanced optics products is another great more Corning opportunity. We are the market leader for the photo mask and mirror material of choice for Gpus and other.

Advanced semiconductors.

And automotive proposed U S. EPA regulations would require adoption of gasoline particulate filters.

And provide an incremental driver of demand for our market, leading GPS offerings.

In terms of more accordingly.

<unk> adds two to three times the content opportunity in ice vehicles.

Ann H. S. Nicholson: This would mean significant growth in our environmental business, even in the face of global <unk> adoption.

Additionally, we're winning both interior and exterior auto glass business as customers increasingly view our solutions.

To be system, enabling components.

As I wrap up.

Here's what I'd like to leave you with.

A majority of our markets are operating below trend.

And as a result, our 2023 full year sales are down from the prior year.

In this lower demand environment, we have successfully taken actions to improve our profitability and cash flow.

And we believe we have extended our leadership positions across our businesses.

We are confident that our markets will normalize.

And as they do we.

We have an opportunity to increase our annual sales by more than $3 billion.

As we capture that growth, we expect to deliver powerful incrementals.

The required capacity and technical capabilities are already in place and the costs are already in our financials.

This represents a terrific opportunity.

For our shareholders.

We expect to make progress on this opportunity in 2024, and we believe the first quarter.

Ann H. S. Nicholson: Is.

Our low quarter of the year.

How is that.

For Coke to call the specific timing of a recovery.

We will continue our regular engagements with our large optical customers to review their recent deployments in detail and better understand their plans for deployments in 2024 and beyond.

Following the lunar new year will have similar meetings with our display customers.

We look forward to updating you in the next few months at Investor conferences on our learnings.

And our progress.

As I conclude.

I'd like to remind you that the essence of what we do here at Corning is event.

Make and so.

We drive durable multiyear growth by inventing.

Category defining products developing.

Developing scalable manufacturing platforms.

And building strong trust based relationships with our customers.

Who are the leaders.

In their industries.

Now I'll turn the call over to Ed So that he can get into the details of our results and our outlook.

Thank you Wendell and good morning, everyone.

I will start by summarizing a few key takeaways and then I'll move to the fourth quarter results.

Our full year sales were $13 $6 billion down, 8%, reflecting our markets being well below long term trends. Despite the lower sales, we improved profitability and cash flow by restoring productivity ratios back to historical levels and offset.

Inflation by raising prices.

As a result in the fourth quarter of 2023, we expanded gross margin by 330 basis points versus the fourth quarter of 2022 despite.

Despite sales being down by more than $350 million.

And we grew free cash flow sequentially every quarter from first quarter levels.

As you heard from Wendel, we have an opportunity to increase our sales by more than $3 billion in the medium term as our markets normalize and we have in place the necessary production capacity and technical capabilities to service that growth.

Our operations and finance teams are collaborating closely on processes and tools to ensure that we capture the growth and operating leverage required to deliver significant incremental profit and cash flow.

We expect to make progress during 2024.

Moving to fourth quarter results.

Sales were $3 $3 billion gross margin was 37%.

P. S was 39 cents and free cash flow was $487 million.

Now let me provide some details on our segment results.

In optical communications sales for the fourth quarter were $903 million down, 2% sequentially, primarily reflecting temporarily lower demand from carrier customers as they continue to draw down inventory.

Net income for the quarter was $88 million down 3% sequentially on the lower volume.

Longer term, we remain confident that optical communications market will normalize.

We believe that the industry's underlying growth drivers are intact, specifically broadband five G cloud computing and advanced AI.

We will also benefit from public infrastructure investments to help connect the unconnected and bring broadband to a much larger share of the U S population.

And from an order rate perspective, we are beginning to see green shoots in the Hyperscale data center space.

Operator: Welcome to the Corning Incorporated Q4 2023 earnings call. To place yourself in the Q&A queue, please press star 1 1.

Moving to display technologies fourth quarter sales were $869 million down 11% sequentially.

Ann H. S. Nicholson: It is my pleasure to introduce to you Ann Nicholson, Vice President of Investment Relations. Thank you, Shannon, and good morning. Welcome to Corning's fourth quarter 2023 earnings call. With me today are Wendell Weeks, Chairman and Chief Executive Officer, Ed Schlesinger, Executive Vice President and Chief Financial Officer, and Jeff Evenson, 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 1995. These statements involve risks, uncertainties, and other factors that could cause actual results to differ materially.

The remainder of our second half price increases, partially offset a sequential volume decline that was consistent with the market.

Results retail results during the fourth quarter selling season were softer than industry expectations.

Panel makers responded by reducing their fourth quarter utilization levels. Additionally, industry reports indicate that panel makers plant to run at lower utilization levels in the first quarter as they continued to align panel supply to demand with fab shutdowns planned during the lunar new year holidays in February.

Ann H. S. Nicholson: The extracts are detailed in the company's financial report. We should also note that we will be discussing our consolidated results using core performance measures unless we specifically indicate our comments related to gap data. Our core performance measures are non-gap measures used by management to analyze data.

For the first quarter of 2024, we expect the glass market and our volume to be down by a mid single digit percentage sequentially.

Ann H. S. Nicholson: In the fourth quarter, the difference between GAAP and Core EPS primarily reflected constant currency adjustments, realized gains and unrealized non-cash market-to-market losses on translated earnings contracts and non-cash translation losses on Japanese Yen-denominated debt, as well as restructuring and asset write-off charges. As a reminder, these mark-to-market accounting have no impact on our cash flow. A reconciliation of core results to the comparable gap value can be found in the Investor Relations section of our website, Corning.com. You may also access core results on our website with downloadable financials in Interactive Analytics. Reporting slides are being shown live on our webcast, and we encourage you to follow along. They're also available on our website for download.

For the full year of 2024, our expectations are in line with the industry, we anticipate relatively flat television unit volume.

Ann H. S. Nicholson: Another year of TV screen size growth and some recovery in PC demand. This adds mid single digit growth in glass volume at retail versus 2023, we expect panel maker utilization to increase after the first quarter to meet the expected retail demand growth as a result, we expect our <unk>.

Financial performance to significantly improve from our first quarter run rate.

Moving to pricing, we successfully executed a double digit price increase and our customers in the second half of 2023, we expect the pricing environment to remain favorable with glass supply balanced to demand as display glassmakers reduced capacity.

Ann H. S. Nicholson: And now, I'll turn the call over to Ann. Good morning, everyone.

Ann H. S. Nicholson: Today we reported fourth quarter and full year 2023 results. Sales for the fourth quarter were $3.3 billion, and EPS was $0.39, in line with expectations. Free cash flow was half a billion dollars, and Gross Margin was 37%, consistent with the third quarter despite lower sequential sales. As I shared with you last quarter, demand in most of our markets is temporarily depressed due to supply chain corrections and macroeconomic factors. Therefore, our sales are well below long-term trends.

In 2023.

We expect our Q1 2020 for glass prices to be consistent with Q4 of 2023.

In specialty materials sales in the fourth quarter were $473 million down 16% sequentially. Following a strong third quarter sales of our smartphone cover materials in support of customer product launches.

Net income was $58 million down 19% sequentially, reflecting the lower volumes.

Yeah.

Environmental Technologies' fourth quarter sales were $429 million down 4% sequentially, reflecting normal seasonality.

Ann H. S. Nicholson: Nevertheless, the actions we took to improve our profitability and cash flow generation throughout 2023 are evident in our financial performance. And based on detailed assessments, we are confident that we have extended our leadership position across our market, while our current sales are below trend. We expect that to change in the midterm as our markets begin to normalize.

Net income was $98 million consistent sequentially.

For the full year sales increased 11% to $1 $8 billion outpacing the automotive market recovery.

Our content driven growth strategy and increased GPS adoption due to mid year implementation of China six be regulations led to our outperformance.

In life Sciences sales in the fourth quarter were $242 million up 5% sequentially customers in North America, and Europe are completing their inventory drawdowns.

Ann H. S. Nicholson: There is a great opportunity for us to increase our sales by more than $3 billion when that happens. As we capture that growth, we expect to deliver powerful incrementals because we already have the required production capacity and technical capabilities in place, and the cost is already reflected in our financials. The incremental profit in cash flow annuity created by increasing sales by $3 billion plus is a terrific opportunity for our shareholders, and we expect to start making progress toward realizing that opportunity in 2024. Now it's difficult to call the specific time of recovery.

Additionally, productivity improvements allowed us to improve service levels to better supply the market as it normalizes net.

Net income improved sequentially to $17 million up 31%, resulting from higher volume and productivity improvements.

Turning to hemlock and emerging growth businesses sales in the fourth quarter were $356 million up 9% sequentially, primarily reflecting higher semiconductor poly silicon volume.

Now, let's turn to our outlook.

We expect sales in the first quarter of approximately $3 $1 billion, we expect EPS in the range of 32 to 38 cents.

Ann H. S. Nicholson: But we continue to see signs that it will occur in 2024. As a result, we expect the first quarter to be our lowest quarter of the year. So that's a summary of where we are and how we seek to create value in the medium term. Now, I'd like to provide some additional facts and perspective.

The improvements we made in profitability and cash flow will continue to deliver benefits in 2024, we expect gross margin in the first quarter of 24 to be similar to the fourth quarter of 2023, despite lower sales.

And to improve first quarter free cash flow by $200 million to $300 million versus the first quarter of 2023.

Ann H. S. Nicholson: At the start of 2023, we introduced plans to improve profitability and cash flow in this lower-demand environment. Throughout the year, we took action to restore our productivity ratios to a historical level and to raise prices to more appropriately share inflation with our customers. I'm happy to report that we delivered on our plan. When you look at our fourth quarter results on a year-over-year basis, the evidence of our progress is quite clear.

We expect the first quarter to be our low quarter we.

We believe we are going to grow from these levels for the following reasons.

In optical communications, we expect carriers to complete inventory draw downs and increased deployments throughout the year.

We also see orders increasing from Hyperscale data center customers.

In display we expect panel maker utilization to increase from first quarter levels to meet expected full year retail demand.

Ann H. S. Nicholson: We increased growth margin by 330 basis points and free cash flow by $110 million to half a billion dollars despite sales being down by more than $350 million. Our profitability and productivity improvements led to significantly improved free cash flow conversion, and we expect to continue converting profit to cash at attractive rates going forward. Overall, our results in the quarter and throughout 2023 demonstrate that we continue to make solid progress advancing our market leadership, strengthening our profitability, and improving our cash flow generation even in the lower demand environment we're experiencing. As a result, we're entering this year operationally.

In life Sciences, we expect markets to continue normalizing.

And we plan to deliver more corning content opportunities in mobile consumer electronics and environmental technologies.

Now I'd like to take a minute to address currency exchange rates.

As a reminder, we have active we hedged our foreign currency exposure over the past decade.

This serves as an effective tool to reduce earnings volatility protect our cash flow enhance our ability to invest and protect shareholder returns.

We're very pleased with our hedging program and the economic certainty. It provides we've received more than $2 $5 billion in cash under our hedge contracts since their inception.

Our largest exposure is the Japanese yen as we've previously shared with investors. We have most of our 2024 yen exposure hedged we plan to keep our yen core rate at 107 through the end of 2024.

Ann H. S. Nicholson: Now we intend to build on this strength. As I previously mentioned, we have an opportunity to increase our sales by more than $3 billion in the medium term. Let's take a deeper look at why we believe that.

As we look ahead, we are actively working to improve our hedge coverage for 2025.

The yen forward curve works in our favor if you go out one year forward yen rate is about seven years stronger than today's spot rate our COO.

Ann H. S. Nicholson: I shared a bit of how we're thinking about optical communications on the last call, and I'll start there again today because it's a significant part of our opportunity. We anticipate optical communications sales will spring back because we believe, and our carrier customers have confirmed, that they purchased excess inventory during the pandemic and that they've been utilizing this inventory to continue deploying their network. We believe these carriers will soon deplete their inventory and execute on the increased broadband deployment plans they've communicated to us over the last several months. As a result, we expect them to return to their normal purchasing patterns to support their deployment.

Two years, it's about 12 yen stronger and so on.

Also the current yen spot rate is significantly weaker than the 30 year average of approximately 110 yen.

So we believe there will be an opportunity to place additional long term hedges at more attractive rates.

And in combination with hedging, we can institute and industrial solution like pricing increases for display glass.

The first step of which we took in 2023. So that's how we think about it.

It will either solve in the currency markets in a reasonable timeframe or will move to an industrial solution.

Now before I wrap up I want to spend a minute on our priorities to maintain a strong inefficient balance sheet and return excess cash to shareholders.

Ann H. S. Nicholson: We also continue to expect BEAD funding for network builds in underserved areas to begin in the second half of 2024 and continue adding to our addressable markets for several years. We expect to grow hyperscale sales in support of the growing demand for Cloud Computing and the need to build the second optical network necessary to directly connect the GPUs that drive artificial intelligence.

We ended the year with $1 $8 billion in cash.

We've created one of the longest debt tenders in the S&P 500, our current average debt maturity is 23 years with only one 4 billion in debt coming due in the next five years and no significant debt coming due in any given year and essentially all of our debt instruments are fixed rate.

Additionally, we prioritize returning excess cash to shareholders, we've consistently done this including throughout the pandemic.

And one of the ways, we do that is through dividends, we have grown our dividend, 40% since 2019, and our dividend yield is top quartile in the S&P 500.

Ann H. S. Nicholson: Last quarter, I shared trend lines for fiber shipments, which shows that we are significantly below trend and outlined why we expect our sales to get back on trend. I'd now like to update you on progress during the fourth quarter. Here you see Corning's Fibership, measured in fiber kilometers since the beginning of 2007.

We will we will propose that our board maintained a quarterly dividend of <unk> 28 in the first quarter and we will continue to be opportunistic on share repurchases.

Now here's what I want to leave you with today.

We are entering the year operationally and financially strong.

Ann H. S. Nicholson: The trendline shows a 7.3% compound annual growth rate over the last decade, compared to a 6.6% CAGR for industry fiber shipments over the same period. As I explained during our third quarter call... Our Friday shipments in quarter one of 2023 were basically in line with expected market trends but started to drop below our trend line in quarter two and even more so in quarter three, with our shipments more than 30% below our trend line, primarily due to elevated carrier inventory levels. We now have another quarter of data to share. In the fourth quarter, we saw a small uptick in fiber ship. But they remain more than 30% below the trend.

We expect the first quarter to be the low quarter of the year.

We have an opportunity to capture $3 billion plus in sales over the medium term as markets normalize and we capture more corning content opportunities.

As we do.

We are positioned to capture significant incremental profit and cash flow because we have the capacity and capabilities in place and the costs are already in our financials.

I look forward to updating you on our progress.

And now I will turn things back over to Dan.

Thanks, Ed Shannon, we're ready for our first question.

Thank you as 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.

Ann H. S. Nicholson: More importantly, a regular sit-down with key customers indicates that they are deploying at a higher rate than they are purchasing, as they continue to make progress on drawing down inventories. They have plans to increase deployments in 2024. We look forward to updating you on takeaways from our next round of fit. We're also seeing encouraging signs of hypertension.

Please standby, we propelled the Q&A roster.

Our first question comes from the line of Mehdi Hosseini with <unk>. Your line is now open.

Ann H. S. Nicholson: Yeah.

Yes, Thanks for taking my question Julien because late so I apologize if you already covered this in the prepared remarks.

Can you give us an update on.

Capex plans for this year.

Do you see your <unk>.

Cash flows are shaping up throughout the year and to what extent.

When should we expect the company to become more active in the buyback program and I have a follow up.

Ann H. S. Nicholson: Overall orders grew in the fourth quarter, and we're seeing the earliest edge of AI-related network builds in our order book. Returning to Train adds more than 40 percent to our revenue run rate for optical communication. We are, thank you so much, doing just that. Beyond that, we expect the strong underlying growth trend to continue far into the future, and our sales to grow faster than the market through more corning innovation. Optical fiber remains the ascendant technology, with thrilling applications in wireless, cloud computing, including AI, and broadband efforts to connect the internet.

Sure. Thanks, Matt for your question. So first of all we expect our Capex in.

Speaker Change: In 2024 to be about $1 billion to below our 2023 levels as we mentioned we have the capacity in place.

To deliver what we expect to be a significant sales opportunity. So we don't necessarily need to add a lot of capex.

With respect to cash flow what I shared was that we are guiding Q1 to be about 200 to 300 million better than the prior year better than Q1 of 2023, and we expect to continue to make progress on profitability and cash flow as our sales come back and then I think your last question.

<unk>.

It was around.

Buybacks, okay. Yeah. So of course, we always prioritize.

Ann H. S. Nicholson: As those applications grow, we have new product innovations in each that will increase our revenue per install. Government incentives to ensure everyone has internet access will also extend the long-term. The Sway provides another example of how our sales will spring back. Retail Sales During the fourth quarter, retail sales were softer than industry expectations.

Returning cash excess cash to shareholders and we will continue to look to do that through both our dividend and buybacks. They don't have anything specific to report.

Right now on buybacks.

Okay.

Sorry for multi part first question, but just if I may quickly squeeze the second question.

In the toilet.

Optical business.

Have you seen any change too.

Increasing broadband access.

Update on the Beach program, you can share with us.

<unk> contribution.

Ann H. S. Nicholson: Panel makers responded by reducing their fourth quarter utilization level. Additionally, industry reports indicate that panel makers plan to run at lower utilization levels in the first quarter as they continue to align panel supply to demand with fast shutdowns planned during the Lunar New Year holidays in February. For the first quarter of 2024, we expect the glass line and our volume to be down by a mid-single-digit percentage. For the full year of 2024, our expectations are in line with the industry. We anticipate relatively flat television unit volume, another year of TV screen size growth, and some recovery in PC demand. Combined, this adds mid-single-digit growth in glass volume at retail versus 2023. We expect panel maker utilization to increase after the first quarter to meet the expected retail demand. As a result, we expect our financial performance to significantly improve from our first quarter run rate. Margarita.

So we continue to expect to be funding.

Really to start.

To translate.

Demand beginning of it sort of late this year.

They are progressing with awarding.

The grants.

And.

It'll just take a bit for those to turn into real programs.

So we expect sort of late this year.

Got it thank you.

Thank you.

Our next question comes from the line of <unk> Mohan with Bank of America. Your line is now open.

Yes. Thank you I was wondering Wendell if you could characterize sort of mid term.

Think about the 3 billion opportunity that youre talking about incrementally and can you give us some sense of.

How you see that opportunity across your segments sounds like you are probably most of that is going to be optical given the magnitude of inventory correction, there, but would love any any color you can share on that.

Sure. Thanks Lindsay.

So.

As you would expect.

It will we expect the market to normalize.

At a different rate depending on the market.

And then we expect or more according pieces to come in in timing with the particular innovation.

Ann H. S. Nicholson: We expect continued volume growth in retail to be mainly driven by television screen size, as has been the case for the past several years, and for some improvement in units as consumer demand normalizes. We expect a win in this market because we are the undisputed technology leader. Our successful development and capability in Gen 10.5 aligns with the continued move to larger-size TVs produced on the lowest cost platforms for larger. Life Sciences is another segment where market normalization contributes significantly to our expected growth.

So.

Okay.

Those will have some markets that will begin this year.

And we'll have some.

Which will make even more progress as time goes on.

When we say mid term.

By and large we mean that within.

The next three years.

Later, we will see all of it right.

But it will start to see it beginning to happen sooner.

And different markets.

Does that makes sense once he is that responsive to your question.

Yeah, Yeah that's.

Helpful and Wendell just is there would you say that the off the $3 billion incremental <unk>.

Half of it is.

Optical more than that as optical how would you define sort of how do you can't break that out across your segments.

Ann H. S. Nicholson: Customers in North America and Europe are completing their inventory drawdown. We are continuing our productivity and operations improvements, and we're refocusing our commercial and production efforts on drug discovery and production as the market. We also continue to evolve our products and business models for vitals in our pharmaceutical technology. In addition to markets returning to normal, we continue to exe..., are more content opportunities across the company. In mobile consumer electronics and automotive, we see more convergence as the primary growth mechanism. Let's look first at mobile consumer electronics. Since 2016, handhelds have deformed.

So it's a little harder to answer that because the actual opportunity.

Between.

Our markets returning to normal.

<unk> are more Corning activities is larger than the three.

So and then we discount back.

Back to what we are talking to you about right and so therefore, when you do the relative shares.

It's not trivial to figure out, but I think one of your fundamental.

Grasp it.

The biggest individual mover will be that.

40% up opportunity in optical.

I think your own thought processes here are really solid.

Ann H. S. Nicholson: 21%, while our sales of Gorilla Glass have increased 41%. Now we've done this by advancing the state of the art for cover materials, and this is just a classic Moore Corning move. We have a strong intervention portfolio in support of our close collaborations with leading OEMs, and we expect to continue delivering new products that increase our content per device. You saw a great example of this earlier in January in our announcement with Samsung about Corning Gorilla Armor, which dramatically enhances sunlight readability in scratch.

Thanks, guys I'm, sorry, if I could just ask one clarifying question Sharon on your comment around price or ed's comment on price.

As a lever to offset.

Essentially the currency movement.

You've done a great job.

Using.

Contracts with some of your customers on display such that you'd be in a price taker and thats kind of eliminated a lot of the.

Price competition four four share reasons should we think that that regime is sort of and then an hour and a new regime, where.

You are willing to for surprising and not be a price taker anymore.

So.

I'm not positive I understand your question, but.

Ann H. S. Nicholson: Extreme ultraviolet lithography, or EUV, a market we serve with our advanced optics products, is another great, more corny, opportunity. We are the market leader for the photo mask and mirror materials of choice for GPUs, and farther advanced thermonics. In automotive, proposed U.S. EPA regulations would require adoption of gasoline particulate and provide an incremental driver of demand for our market-leading GQF offering. In terms of more coins,

Let me tell you how we tend to think about.

Pricing in display.

And really sort of ties back to ed's commentary.

Around the yen.

You've seen us do in.

Really across our whole platform that we have sought to share inflation more appropriately with our customers and that has led us to be a price increase there.

Across our company and that has helped us improve our profitability.

In display we have been doing that.

Perhaps more importantly, it's almost the reverse of that but it has happened with the yen.

Ann H. S. Nicholson: GPF adds two to three times. The Content Opportunity, and I speak. This would mean significant growth in our environmental business, even in the face of global B.E.B. Additionally, we're winning both interior and exterior auto glass business as customers increasingly view our solution, be system enabled. And that wraps up. God, it sure is fun to make a video.

Being so well below its sort of 130 year.

It's a 30 year average is.

That our customers are.

Get Hain.

Lower price real and yen.

While they sell in dollars and were fundamentally.

King to share that more appropriately with our customers and so what we say is like.

Either the yen.

We'll come back sometime here in the reasonable point of time right.

Ann H. S. Nicholson: A majority of our markets are operating below trend, and as a result, our 2023 full-year sales are down from the prior year. In this low-demand environment, we have successfully taken actions to improve our profitability and cash flow, and we believe we have extended our leadership positions across our vision. We are confident that our markets will normalize as they do.

Or we will raise price to provide an industrial solution.

To have us be in a position.

Where we can continue to earn the appropriate.

Return on invested capital and display that our shareholders.

Expect rightfully so.

As commentary there on pricing has to do with is really tying around the totality of that situation and how our customers.

Ann H. S. Nicholson: We have an opportunity to increase our annual sales by more than $3 billion. As we capture that growth, we expect to deliver powerful income. Since the required capacity and technical capabilities are already in place, and the costs are already in our financial hands, this represents a terrific opportunity for our show. We hope to make progress on this opportunity in 2024, and we believe the first quarter will be. Our low quarter of the year. Wow, difficult to predict a specific timing of a recovery.

Experienced their price since we price in.

Does that make sense to you Sir.

Yes, yes. It does thank you so much.

Alright next question.

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

Alright, Thank you for taking my question.

On optical if I may.

There was an order uptake or some.

I'm, sorry, if a demand uptick that you mentioned in <unk>, if you could.

<unk> down one more into that established from your service provider or cloud customers and then looking ahead into <unk>, what should we be expecting for optical here better.

And then seasonal trend.

And again, if you could drill down if you're seeing that from your service provider or cloud customers. Thank you.

Ann H. S. Nicholson: We will continue our regular engagements with our large optical customers to review their recent deployments in detail and better understand their plans for deployments in 2024 and beyond. Additionally, following the Lunar New Year, we'll have family meetings with our display customers. And we look forward to updating you in the next few months at investor conferences on our learnings and Ralph Hart. And I conclude. I'd like to remind you that the essence of what we do here at Corning is invent, make- We drive durable multi-year growth by inventing Category Defining Products.

Thanks.

Excellent question.

First.

Tick up you see right in our data.

[laughter] isn't.

Is it big enough yet.

Speaker Change: For us to go Oh, yeah.

It's happening the way, we expect right, it's it's encouraging but it's.

Too small for us to over conclude something analytically.

Ed.

Anecdotally the conversations with our customers.

And what we can see from their data.

Is that they are deploying at higher rates per carrier customers to get to your question of where is that they continue to deploy in those numbers at higher rates than their purchases.

Ed Schlesinger: Developing scalable manufacturing platforms and building strong, trust-based relationships with our customers, who are the leaders, and Mary. Now, I'll turn the call over to Ed so that he can get into the details of our results and our outline. Thank you, Wendell, and good morning, everyone.

So they continue to draw down numbers in that piece.

I think.

The other now moving beyond just that fiber shipment data right.

What else are we seeing.

We are beginning to see that tick up already.

Ed Schlesinger: I will start by summarizing a few key takeaways, and then I'll move to the fourth quarter results. Our full-year sales were $13.6 billion, down 8%, reflecting our markets being well below long-term trends. Despite the lower sales, we improved profitability and cash flow by restoring productivity ratios back to historical levels and offsetting inflation by raising prices. As a result, in the fourth quarter of 2023, we expanded gross margin by 330 basis points versus the fourth quarter of 2022. Despite sales being down by more than $350 million.

And Hyperscale in our order book.

Not yet and those shipments that you see in that data. So there is an area, where we're starting to get nice confirmatory to our anecdotal understanding of what will need to happen.

With.

These new generative AI networks.

And we're seeing sort of the cloud and beginning the leading edge of that second optical network that will need to get built to do these generative AI.

[noise] programming.

So that is what we're seeing in more detail.

It's just too early yet for us to over conclude and call timing.

Ed Schlesinger: And we grew free cash flow sequentially every quarter from the first quarter level. As you heard from Wendell, we have an opportunity to increase our sales by more than $3 billion in the medium term as our markets normalize. And we have in place the necessary production capacity and technical capabilities to service that growth; operations and finance are collaborating closely on processes and tools to ensure that we capture the growth and operating leverage required to deliver significant incremental profit and cash. We expect to make progress during. Moving to fourth quarter results Sales were $3.3 billion, and the gross margin was 37%. Yeah. 39 cents. Free cash flow with $487 million. Now, let me provide some details on our setting in Optical Communication. Sales for the fourth quarter were $903 million, down 2% sequentially, primarily reflecting temporarily lower demand from carrier customers as they continue to draw down demand. Net income for the quarter was $88 million, down 3% sequentially on the lower bond.

We will know more in the coming months and as Ed.

Jeff and Ed or.

Out there speaking with you all.

We'll make sure they share as we learn more.

Does that work for you.

Yeah, great and if I may on display as well I think.

Tests to call when the panel makers.

Back with their utilization levels. After the <unk> downtick that you guys had talked about and I think it is.

<unk> talked about it but if the retail volume happens to be let's say mid to high single digits from a glass perspective.

And youre already starting the year with healthy inventory levels.

Is it reasonable to assume like a sharp snapback in Q2 and three Q.

Any color there would be helpful. Thank you.

Yeah, I'll take that one and I won't give you a specific quarter I think that's hard to call, but if you think about the Q1 panel maker utilization levels and a mid single digit.

Glass market for the year, you would need to see a double digit increase from their current levels in Q1 to achieve that glass market and even if the glass market were lower than that but let's just say even flat you would still need to see a double digit increase from their Q1 levels.

So I think the answer to the sharp part of your question is yes. The timing is obviously harder to call.

Ed Schlesinger: Longer term, we remain confident that the optical communications market will normalize. We believe that the industry's underlying growth drivers are intact, namely broadband, 5G, cloud computing, and advanced AI.

Okay. Thank you.

Yes.

Question.

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

Great. Thanks.

Definitely down on that one question just around whether you have seen with the pricing increases on the display business any.

Ed Schlesinger: We will also benefit from public infrastructure investments to help connect the unconnected and bring broadband to a much larger share of the U.S. population. And from an order rate perspective, we are beginning to see green shoots in the hyperscale data center space. Moving to display technology, fourth-quarter sales were $869 million, down 11% sequentially.

Changes in share or has it largely played out as expected and then maybe the second question on the gross margin stability that you expected that Q1 is that from kind of efficiencies that you found in the business over the last year that are just starting to.

Play in or kind of the pricing increases on the display business or is that from a mix of the business just how to think about that stability in Q1 over Q4.

Ed Schlesinger: The remainder of our second half pricing partially offset a sequential volume that was consistent with the market. However, retail results during the fourth quarter selling were softer than industry expected. Panel Makers responded by reducing their fourth quarter utilization.

Yeah, Hi, I'm going to I'll start with your second question on gross margin. So I think if you think about what we've done throughout 2002, we improved our productivity across all of our factories significantly and back to historical levels best demonstrated levels. That's.

Ed Schlesinger: Additionally, industry reports indicate that panel makers plan to run at lower utilization levels in the first quarter as they continue to align panel supply to demand, with fast shutdowns planned during the winter New Year holidays in Feb. For the first quarter of 2024, we expect the glass market and hour volume to be down by a mid-single-digit percentage. For the full year of 2024, our expectations are in line with the, and we anticipate another year of relatively flat television unit growth and some recovery. This adds mid-single-digit growth in glass volume at retail versus. We expect panel maker utilization to increase after the first quarter to meet the expected retail demand. As a result, we expect our financial performance to significantly improve from our first quarter, Moving to price.

Improved our gross margin. We've also raised prices and we've we're now sort of right side up versus inflation. So that's improved gross margin and we've certainly taken out some costs as well so we're able to run at a much more efficient level, even at a lower volume lower volume environment. That's all.

Allow us to hold our R.

Our gross margin and we're also managing opex well, so that actually helps on the operating margin line and that's what's allowed us to increase gross margin through the year. Despite sales falling and that's why we feel confident around the gross margin or operating margin or both as we go into 2024.

Okay.

And I apologize can you repeat the first I understood that it was question did I think what.

Yes sure.

So the price increase.

And we see no significant change in our market position as a result of our pricing actions to share more appropriately where.

Ed Schlesinger: We successfully executed a double-digit price increase in the second half of 2023. We expect the pricing environment to remain favorable with glass supply balanced to demand as display glass makers https://www.youtube.com.uk, 3. We expect our Q1 2024 glass price, Thank you. Thank you. Thank you for watching. We'll see you next time. Specialty Materials' sales in the fourth quarter were $473 million, down 16% sequentially, following strong third quarter sales of our smartphone cover in support of customer product launches. Net income was $58 million, down 19% sequentially, reflecting the lower volume.

<unk> is at and where.

<unk>.

Great. Thank you.

Next question.

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

Alright. Good morning. Thank you for taking my question first question on display.

<unk> done analysis similar to that.

Chartered presented optical fiber.

Thinking of a.

A normal trend line.

Plenty of volume.

In relation to kind of weakness.

Retail, particularly in China, China has been weak for quite a few years now.

Are we significantly below the trend line, if there is such a more normal retail demand.

Ed Schlesinger: In environmental technology, fourth quarter sales were $429 million, down 4% sequentially reflected. Net Income with $98 Million Consist... For the full year, sales increased 11% to $1.8 billion. Outpacing the Automotive Market, Our Content-Driven Growth Strategy and Increased GPF Adoption. Mid-year implementation of China 6B regulations led to our outbreak in life science.

So excellent question. The answer is yes, we have done those.

And we'd be happy to share that we will put that on our list.

Two two at some point in time this year.

Little more responsive to the specifics of your question.

China.

Is just behaving a little differently.

And what you would normally expect.

On display demand.

Ed Schlesinger: Sales in the fourth quarter were $242 million, up 5% sequentially, because customers in North America and Europe are completing their inventory drawdown. Additionally, productivity improvements allowed us to improve the service level to better supply the market, as is normal. Net income improved sequentially to $17 million, up 31%, resulting from higher volume and productivity. Turning to Hemlock and Emerging Growth Business, sales in the fourth quarter were $356 million, up 9% to quarter- Primarily reflecting higher semiconductor polysilicon bonds.

As.

Our country goes through its development cycle and you are right it seems to be net underperforming.

We are not counting on it.

In the.

Dialogue that we've been having with you about.

$3 billion spring that we have we are not counting on.

On China.

Quote unquote sort of.

Reverting to a more traditional demand cycle.

We're continuing to expect that to be.

Relatively below trend.

Ed Schlesinger: Now, let's turn to our outlets. We expect sales in the first quarter of approximately $3.1 billion. We expect EPS in the range of 30% to 38 cents. The improvements we made in profitability and cash flow will continue to deliver benefits. We expect gross margin in the first quarter of, similar to the fourth quarter of 2023. Despite Lower South, and to improve first quarter free cash flow by $200 to $300 million versus the first quarter of 2020. We expect the first quarter to be our lowest quarter.

For the foreseeable future.

Does that makes sense to you Martin.

Yes definitely.

Okay. Thank you.

Another question.

Speaker Change: Specialty given that the semi exposure within specialty has.

That's been pretty strong is that changed the segment seasonality a little bit.

Where it was more exposed to the smartphone side.

Coal and now do you think that has.

Shifting a little bit.

I still think that the biggest thing that drives.

Seasonality or.

The different demand and different.

I didn't even know what to call it seasonality the different demand at different quarters is major product launches.

Ed Schlesinger: We believe we are going to grow from these levels for the following reasons: In optical communications, we expect carriers to complete inventory drawdowns and increase deployments throughout the year. We also see orders increasing from Hyperscale Data Center. In display, we expect panel makers' utilization to increase from first quarter levels, Expected 4-Year Retail. In life sciences, we expect markets to continue to normal. And we plan to deliver more content opportunities in mobile consumer electronics and environmental. Now, I'd like to take a minute to address currency exchange. As a reminder, we have actively hedged our foreign currency exposure over the past serves as an effective tool to reduce earnings volatility, protect our cash flow, enhance our ability to invest, and Protect Shareholder Retirement. We're very pleased with our hedging program and the economic certainty it provides.

And also a major product launches not only of our customers, but also.

Of us introducing a major new category.

Finding product than they had before.

Any sort of real analysis of this sort of points to it.

It's the product right.

So.

I don't know that we can overcome crude much beyond that yet mark.

Got it. Thank you that's all for me.

Okay. Thank you.

Next question.

Our next question comes from the line of <unk>.

Nick <unk> with Jpmorgan. Your line is now open.

Hi, Thanks for taking my questions and thanks for all the color today on the COO.

Maybe just the way I'm interpreting your comment about $3 billion opportunity that you have in front of you is let's say hypothetically the markets do recover by <unk> of this year your exit run rate on a quarterly revenue would be somewhere close to 4 billion.

Maybe just help us sort of been range bound some of the sort of the.

<unk> revenue opportunities here in terms of if you don't see your macro improvement by the end of the yield.

Ed Schlesinger: We have received more than $2.5 billion in cash under our hedge contract. Our largest exposure is the Japanese yen. As we've previously shared with investors, we have most of our 2024 yen exposure head. We plan to keep our yen core rate at 107.

What is sort of the exit run rate for the year. If you just have the seasonal improvement that you've talked about from <unk> onwards without material macro improvement.

It gives us some sense of what the potential outcomes here in terms of exiting the year and then a quick follow up I guess Wendell you mentioned bead.

A few times in the visibility here that it starts late in 2020 for one of the suppliers are reporting this morning, as well as pushing out some of that expectation to early 2025.

Ed Schlesinger: As we look ahead, we are actively working to improve our head coverage for 2025. The Yen Forward Curve works in our favor. If you go out one year, the forward yen rate is about 7 yen stronger than today's spot rate. Out two years, it's about 12 yen stronger, and so on. Also, the current yen spot rate is significantly higher than the previous year and the 30-year average of approximately 110

Saying things are looking a bit more delayed than usual just any more color on what's sort of driving the confidence that it's more 24, then trained 25. Thank you.

Thank you I think.

Perhaps.

My emphasis was a little wrong and talking about Pete. So we expect it to start is what I was trying to say.

Ed Schlesinger: So, we believe there will be an opportunity to place additional long-term hedges at more attractive rates. And in combination with hedging, we can institute an industrial solution, like pricing cleats increases for display glass, the first step of which we took. Strait.

It's not going to be a big mover.

In 2024, I think your understanding is correct it starts to become a much bigger mover in 2025.

So if I created any dissonance with that understanding that you had I didn't mean to I think you have a correct understanding of it.

Ed Schlesinger: So that's how we think. It will either resolve in the currency markets in a reasonable time frame or will move to an industrial, Now before I wrap up, I want to spend a minute on our priorities to maintain a strong and efficient balance sheet and return excess cash to shareholders. At the end of the year with $1.8 billion. Created one of the longest debt centers in the S&P 500, our current average debt maturity is 23, with only $1.4 billion in debt coming in the next five.

It's just that it actually it has been not there and now it's going to be there.

Beginning in 2024, but the bulk of it starts after that.

Okay great.

I'll take the first part of your question.

I'm going to start by just talking a little bit we did it in our prepared remarks and a little in Q&A on the drivers of why we grow and why we think our first quarter is the low quarter.

Think in optical as carriers continue to deplete their inventory that will come to an end even if they don't increase their deployment rates, which we think they will but even if they don't that is a good demand driver for us that will start at some point this year. Okay in display we talk.

Ed Schlesinger: No significant debt is coming due on any, and essentially all of our guests. Additionally, we prioritize returning excess cash to shareholders. We have consistently done this, including throughout the past year, and one of the ways we do that is through dividends. We have grown our dividend 40%, and our dividend yield is in the top quartile in the S&P 500. We will propose that our board name change. Quarterly Dividend, 28, Porter, and we will continue to be opportunistic on Sherry. Now, here's what I want to leave you with. We are entering a year operationally and financially strong. We expect the first quarter to be the weakest quarter of the year.

About panel maker utilization being really low in the first quarter and needing to sort of spurring up from that level quite significantly and then in life Sciences. We are seeing market normalization in North America, and Europe, and we actually started to see a little bit of that happening even in the fourth quarter right. So those drivers we have.

Expect to bring our run rate up significantly as we go through the year. The timing is really hard to call and so I think sitting here today I would not want to leave you with a specific guide for the fourth quarter or how we exited the year, but just that we believe Q1 is low and if we got to levels like us.

Spoke about okay that'd be awesome.

Would be well on our way to that $3 billion that Wendell talked about but even if we don't we still feel very confident in that window of time.

Ed Schlesinger: We have an opportunity to capture $3 billion plus in sales. We're the media. The market can normalize. We capture more Corning content. As we do, we are positioned to capture significant incremental profit and cash because we have the capacity. Thank you for your patience.

That Wendell shared earlier.

Speaker Change: Does that help.

Yes. Thank you thanks for the color.

Thanks for taking the questions.

Okay.

Thank you.

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

Ed Schlesinger: Thank you, and the costs are already in our pockets. I look forward to updating you on our progress. And now, I will turn things back over to you.

Yes, hi, good morning, two quick ones first just on the FX side of it understanding you're hedging at a lower spot rate today. When you look out to 'twenty five and you have some industrial options.

Operator: Thanks, Ed, and Shannon. We're ready for our first question. Thank you. As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by. Our first question comes from the line of Mehdi Hosseini with SIG.

Is that really a timing or milestone we should be looking at some point this year.

You would know what the impact might be in 2025, Youre doing some pricing actions you have hedging locked in and then you might communicate what that impact would be to us.

Yes.

You are not willing to share roughly what that timing would be.

Mehdi Hosseini: Your line is now open. Yes, thanks for taking my question. I joined the call late; I apologize if you already covered this at the pre-30 mark, but can you give us an update on CapEx terms for this year and how you see your cash flows shaping up throughout the year and, to what extent, when should we expect the company to become more active in the buyback program? And I have a follow-up.

I thought the straight for I thought you'd take yes.

I'll push a little further.

Yes, and no we're not going to share what timing we will.

Alright fair enough that it's too involved with our customers I'm not being nonresponsive, that's why I really do think that.

Yes, its about right. This is.

Ed Schlesinger: Sure. Thanks, Mehdi, for your question. So, first of all, we expect our CapEx in 2024 to be about a billion dollars two below our 2023 levels. As we mentioned, we have the capacity in place to deliver what we expect to be a significant sales opportunity, so we don't necessarily need to add a lot of CapEx. With respect to cash flow, what I shared was that we are guiding Q1 to be about $200 million to $300 million better than the prior year, better than Q1 of 2023, and we expect to continue to make progress on profitability and cash flow as our sales. And then I think your last question was around buybacks. Okay, yeah. We always prioritize returning cash, excess cash to shareholders, and we will continue to look to do that through both our dividend and buybacks. They don't have anything specific to report right now on buybacks.

This is super important with our customers and so we want to get that pretty well advanced.

And have a high confidence.

Where we're going to end up.

Before we share that.

With.

Our our shareholders right. So that we can make sure we're as accurate as possible.

So I'm not going to give ourselves an exact timeline, but this year.

You can expect us to do that.

Got it I appreciate that and just quickly on free cash flow.

Speaker Change: First quarter and your guidance of up a few hundred million.

It would seem that a pretty low bar given that there was about a half a billion of working capital use last year.

And your expectation on margins are relatively flat. So are there any offsets we should be considering in the first half of the year that maybe make that a.

A little bit less favorable we could see otherwise.

I don't think so.

I think we expect to have a nice year on free cash flow for the year nothing specific I would call out.

Mehdi Hosseini: Okay. Sorry for the multi-part first question. But just if I may quickly squeeze the second question. In the optical business, have you seen any change to increase broadband access? Is there any update on the BEACH program you can share with us?

Okay. Thank you.

Okay. We can do one more question.

Our last question comes from the line of Matt <unk> with Deutsche Bank. Your line is now open.

Hi, Thanks for squeezing me in.

Ed Schlesinger: for this contribution. So we continue to expect big funding, which starts to translate into demand, the beginning. They are progressing with awarding, and, Take a breath for those that turn into your program. Specks for the latest.

Keep it fairly brief on the $3 billion incremental sales opportunity.

Maybe for a question for Ed can you just walk us through the incremental gross and operating margin. This would come in at and is it safe to assume there is minimal incremental capex here, but just trying to understand if there's more opportunity to scale past existing opex or is there a gross margin accretion opportunity as well and then just maybe a more open ended question, but on the <unk>.

Macro relative to the last call three months ago, maybe for Wendell any material changes in customer demand your spending plans across key verticals I E. Whats really changed would you say if at all over the last three months in terms of cluster.

Operator: Thank you. Thank you. Thank you. Our next question comes from the line of Wamsi Mohan with Bank of America. Your line is now open.

Wamsi Mohan: Alright, yes, thank you. I was wondering, Wendell, if you could characterize sort of the mid-term, as you think about the $3 billion opportunity that you're talking about incrementally, and can you give us some sense of how you see that opportunity across your segments? Sounds like probably most of that is going to be optical, given the magnitude of inventory correction there, but would love any color you can share on that.

Yeah I'll go first Matt on your first question, so I'll start off with we.

Have the capital in place for the capacity in place to deliver the sales. So first from a cash flow perspective, typically we would add capex as we add sales. So that's a positive for free cash flow as we go forward. We also have the depreciation in our P&L for those assets and then we also have some fixed cam.

Cash costs that run through our P&L to support those assets. So generally speaking the fixed costs are already in our P&L. So you would expect our gross margin to accrete at a higher level than our current gross margin level. So that's one operating leverage point or leverage point, if you will.

Wendell P. Weeks: So, as you would expect, It will respect the markets to normalize at a different rate depending on the market, and then we expect our more corning pieces to come in in time with the particular innovation. So, those will have some markets that will begin this year, and we'll have some which will make even more progress this time. When we say return, by and large, we mean that within the next three years, we will see all of it, but we will start to see it beginning to happen sooner, in different ways. Does that make sense, Wamsi? Is that responsive to you, Clay?

And then I think on Opex, we can also grow without adding opex much from these levels and that creates a second.

Leverage point for us so that should accrete, both gross margin and operating margin from our current levels and you should start to see that as the volume comes back.

On your question of.

In our discussions with our customers.

Sort of what are the anecdotal.

And.

Okay.

Really good question because sometimes.

Highly quantitative analysis.

Yes.

And data.

One way.

Anecdotal.

Wamsi Mohan: Yeah, yeah, that's helpful. And Wendell, just, would you say that the $3 billion incremental is half of it is optical, more than that is optical? How would you define that, sort of, how do you break that out across your segment? So it's a little harder to answer that because the actual opportunity between our markets returning to normal and Laura Corning is larger than the three. So, and then we go back to what we're talking to you about, right? And so, therefore, when you do the relative shares, it becomes non-trivial to figure out.

Evidence.

It's the other right.

And in those situations.

It's telling you.

Theres dissonance there and.

How do we dive deeper to make sure we have the right data set.

And how do we create.

And understanding of those things that are pointing differently.

In this case.

What we're seeing is the anecdotal.

Our in support.

Of what we're seeing in our deeper analytics and our understanding of being well below our long term trend and a need.

For that too.

Bert back towards those underlying huge secular trends that drive our demand overtime, so basically reinforcing.

Wamsi Mohan: But I think, Wamsi, your fundamental grasp that the biggest individual mover will be that 40% up opportunity in the optical eye. I think your own thought processes here are really solid. Thanks.

The opinion of the data.

Speaker Change: And that is what we tried to reflect in what we discussed with you today.

Very helpful. Thank you both.

Wamsi Mohan: Sorry, if I could just ask one clarifying question on your comment around Price or Ed's comment on Price as a lever to offset potentially the currency movement. You've done a great job, using your contracts with some of your customers on display such that you've been a price taker, and it's kind of eliminated a lot of the price competition for share reasons. Should we think that that regime has sort of ended, and now we're in a new regime where you're willing to force prices and not be a price taker anymore? Thank you. So,

Thanks, Michael Thanks, Matt.

Thank you everybody for joining us today before we close I wanted to let you know that we'll be attending the Susquehanna Financial group 13th annual Technology Conference on March one and the Morgan Stanley Technology Media and Telecom conference on March 5th.

We will host management visits to investor offices in select cities. Finally, a replay of today's call will be available on our site. Starting later this morning. Once again, thank you and operator you can disconnect all lines.

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

Okay.

Wendell P. Weeks: I understand your question, but let me tell you how we tend to think about pricing and, and this really sort of ties back to Ed's commentary around me. You've seen us do in... across our whole planet, that we have sought to share inflation more appropriately with our customers. And that has led us to a price increase across our company, and that has helped us improve our profitability. In display, we've been doing, Perhaps more importantly, it's almost the reverse of that, but it happened with the yen being so well below, it's sort of 130. I mean, it's a 30-year average, here, that customers are getting a lower price reel in yen, right, while they sell in dollars, and we're fundamentally seeking to share that more appropriately with our customers. And so what we say is like this. Either the yen will come back sometime during the reasonable point of the year, Right?

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Wendell P. Weeks: or we will raise prices to provide an industrial solution, to have us be in a position where we can continue to earn the appropriate return on our invested capital in a way that our shareholders will see that it's fat, right? So, what Ed's commentary on pricing has to do with is really tying around the totality of that situation and how our customers... experience their places, we pray.

Wamsi Mohan: In the end, does that make sense to you, sir? Yeah, yeah, that's wonderful. Thank you so much.

Operator: All right, next question. Our next question comes from the line of Asiya Merchant with Citi. Your line is now open.

Asiya Merchant: Thank you for taking my question. On optical, if I may, you know, there seems like there was an order uptick or some sort of a demand uptick that you mentioned in 4.2. If you could, you know, drill down one more into that, if that was on your service provider or cloud customers, and then looking ahead into 1.Q, what should we be expecting for optical here? Better than seasonal trends?

Wendell P. Weeks: And again, if you could drill down, if you're seeing that from your service provider or cloud customers. Thank you, really excellent question. So first, that pickup you see, right, in our data. Isn't Bigger Not Yes?

Wendell P. Weeks: For us to go, oh yeah, it's happening the way we expect, right? It's encouraging, but it's... It's too small for us to over-conclude something analytic. Anecdotally, the conversations with our customers and what we can see from their day to day, is that they are deploying at higher rates. Carrier customers, to get to your question of where it is, continue to deploy in those numbers at higher rates than their purchase.

Wendell P. Weeks: So they continue to draw down numbers on that. I think, uh... Moving beyond just that fiber shipment data, right? What else are we seeing? We are beginning to see the kick-up already in hyperscale in our order book, not yet in those shipments that you see in that data. So there's an area where we're starting to get nice confirmatory to our anecdotal understanding of what will need to happen with new generative AI networks.

Wendell P. Weeks: And we're seeing sort of the cloud and the beginning, the leading edge of that second optical network that will need to get built to do these generative AI programs. So that is what we're seeing in more detail. It's just too early yet for us to conclude on call timing. We'll know more in the coming months. Jaffa Nanner, I hope they're speaking with you all. They'll make sure they share. Did that work for you?

Asiya Merchant: Yeah, great. And if I may on display as well, I think, you know, it's tough to call when these panel makers come back to their utilization levels of the ones you downtake that you guys have talked about, and I think the industry has talked about, but if in, but if the retail volume happens to be, let's say, mid to high single digits from a glass perspective, and you're already starting the year with healthy inventory levels, In any color there would be helpful.

Ed Schlesinger: Thank you. Yeah, Asiya, I'll take that one. And I won't give you a specific quarter.

Asiya Merchant: I think that's hard to call. But if you think about the Q1 panel maker utilization levels and the single-digit Glass Market for the Year, you would need to see a double-digit from their current levels in Q1 to achieve that glass market. And even if the glass market were lower than that, let's just say even flat, you would still. So, I think the answer to the sharp part of your question is yes, the timing is obviously harder to get.

Ed Schlesinger: Okay, thank you. Next question. Our next question comes from the line of Meta Marshall with Morgan Stanley. Your line is now open. Great, thanks.

Meta A. Marshall: Maybe doubling down on Wamsi's question, just around whether you've seen any changes in share, or has it largely played out as expected? And then maybe just a second question, on the growth margin stability that you were expecting in Q1, is that from kind of efficiencies that you found in the business over the last year that are just starting to... Layen, or kind of the pricing increases on the display business, or is that from a mix of the business? Just how to think about the stability in Q1 over Q4. Thanks. Yeah, hi Meta.

Meta A. Marshall: I'm gonna, I'll start with your second question on gross margin. So I think if you think about what we did throughout 2022. We improved our productivity across all of our factories significantly, back to historical levels, or best demonstrated levels.

Ed Schlesinger: That's improved our gross margin. We've also raised prices, and we're now sort of right-side up versus inflation for vast. We've certainly taken out some costs as well, so we're able to run at a much more efficient level, even at a lower volume, in a lower volume environment. That's allowed us to hold our gross margin, and we're also managing op-ex well, so that actually helps on the operating side. And that's what's allowed us to increase gross margin... despite sales falling, and that's why we feel confident around the gross margin, or operating margin, or both, as we go into... And I apologize, can you repeat the first part of the question? Did our increased increase lead to a disturbance of our market position? We see no significant change in our market position as a result of our pricing habits.

Ed Schlesinger: Thank you. Great, thank you. Next question. Our next question comes from the line of Martin Yang with Oppenheimer. Your line is now open. Hi, good morning.

Operator: Thank you for taking our questions. First question on displays: have you ever done an analysis similar to the chart you presented on optical fiber, thinking of a normal trend line for display volume in relation to current weakness in retail, particularly in China? China has been weak for quite a few years now.

Martin Yang: Are we significantly below the trend line if there is such a more normal retail demand? Excellent question; the answer is yes. We have done those, and we'd be happy to share them. We'll put that on our list from Twin Tides this year. You're a little more responsive. What are the specifics of your question? China is just behaving a little different than what you would normally expect to see display there. The country goes through its development.

Wendell P. Weeks: You are right. It seems to be that. We are not counting the dialogue that we've been having, and Colin Ring. We are not. For more information, visit www.fema.gov. Burdine, a more traditional, continuing to expect that. I'll look every below.

Martin Yang: Does that make sense to you? Yeah, definitely. Thank you. I have another question about specialty.

Martin Yang: Given that the semi-exposure within specialty has been pretty strong, has that changed that segment to reality a little bit, where it was more exposed to the smartphone cycle, and now do you think that has shifted a little bit? You know, I still think that the biggest thing that drives demand is seasonality or the different demand indifference. I don't know what to call it, seasonality.

Wendell P. Weeks: The different demand in different quarters is major product launches. And also, major product launches, not only of our customers but also, of us introducing a major new category, defining the product, and if any sort of real analysis of this sort points to it, it's the product. So, I don't know that we can conclude much beyond that yet. Arden.

Operator: Thank you, and God bless you. Next question. Our next question comes from the line of Samik Chatterjee with J.P. Morgan. Your line is now open.

Samik X. Chatterjee: Hi, thanks for taking my questions and thanks for all the color today on the call. Maybe just the way I'm interpreting your comment about the 3 billion opportunity that you have in front of you is, let's say hypothetically, if the markets do recover by the end of this year, your exit run rate on quarterly revenue will be somewhere close to 4 billion. And maybe just help us sort of range-bound some of the revenue opportunities here in terms of if you don't see a macro improvement by the end of the year, what is the sort of exit run rate for the year if you just have the seasonal improvements that you've talked about from 1Q onwards without a material macro improvement, which hopefully gives us some sense of where these potential outcomes are here in terms of exiting the year.

Samik X. Chatterjee: And then a quick follow-up, Wendell, you mentioned BEAD a few times in the visibility here that it starts late in 2024. One of the suppliers reporting this morning as well is pushing out some of that expectation to early 2025, saying things are looking a bit more delayed than usual. Just any more color on what's sort of driving the confidence that it's more 2024 than 2025.

Ed Schlesinger: Thank you. Thank you. I think I, perhaps, will.

Wendell P. Weeks: My emphasis was a little wrong in talking about B. So we expect it to start, what I was trying. It's not going to be a big movie.

Wendell P. Weeks: 2024. I think your understanding is correct. It starts to become a much bigger mover. So if I created any dissonance with that understanding that you had, I didn't need to. I think you have a correct understanding. It's just that it hasn't been there, and now it's going to be there, beginning in 2024.

Ed Schlesinger: But the bulk of it starts now. I'll take the first part of your question. I'm going to start by just talking a little bit, we did it in our prepared remarks and a little in Q&A, on the drivers of why we grow and why we think our first quarter is the lowest quarter. I think in optical, as carriers, here, that will come. Even if they don't increase their deployment rates, which we think they will, but even if they don't, that is a good demand driver for us, that will start at Display, and we talked about PowerMaker, sort of spring up from that level quite significantly. And then in life sciences, we're talking about Market Normalization, America, Europe, and we actually started to see a little bit of that happening even in the fourth quarter, right So those drivers we expect to bring our run rate up here, the timing is really hard. So, I think sitting here today, I would not want to...

Samik X. Chatterjee: I don't have a specific guide for, you know, the fourth quarter or how we will exit the year, but just that. Low, and you know if we got the levels like you spoke about, that'd be awesome, and we would be well on our way to that 3 billion that Wendell talked about, but even if we don't, we still feel very confident in that window of time that Wendell spoke about. Yeah, no, thank you. Thanks for the call. Thanks for taking the questions. Thank you. Our next question comes from the line of Josh Vector with UBS. Your line is still open. Yeah, hi, good morning.

Operator: Two quick ones. First, just on the FX side of it, understanding that you're hedging at a lower spot rate today, when you look out to 25, and you have some industrial options, is there really a timing or milestone we should be looking at at some point this year, where you would know what the impact might be in 2025, perhaps as you're doing some pricing actions, you have hedging locked in, and then you might communicate what that impact would be Yeah, You're not willing to share roughly what that timing would be. I thought you'd say yes. I'll take a little bit of yes and no; we're not going to share what timing. It's too involved with our customers. I'm not being non-responsive. That's why I really do think that.

Josh Vector: Yes, it's about right. This is... It's super important with our customers, and so we want to get that pretty well in there and have a high confidence level of where we're going to end up before we share that with Shaw. Right, so that we can make sure we're as accurate as possible. And that's why I'm not going to give us an exact timeline, but this year, you can expect us to do... Got it. I appreciate that. And just quickly on free cash flow, in the first quarter, you know, your guidance of up a few hundred million would seem like a pretty low bar, given that there was about a half a billion of working capital used last year and your expectation on margins is relatively flat. So are there any offsets we should be considering in the first half of the year that maybe make that a little bit less favorable from what we could see otherwise? I don't think so.

Ed Schlesinger: I think we expect to have a nice year on free cash flow for the year. Nothing specific I would call out. Okay, thank you. Okay, we can do one more question. Our last question comes from the line of Matt Nicknam with Deutsche Bank. Your line is now open. Alright, thanks for squeezing me in. I'll keep it fairly brief.

Operator: On the $3 billion incremental sales opportunity, maybe for, question for Ed, can we just walk us through the incremental gross and operating margin this would come in at, and is it safe to assume there's minimal incremental capex here? Just trying to understand, is this more an opportunity to scale past existing opex, or is there a gross margin accretion opportunity as well? And then, this may be a more open-ended question, but on the macro, relative to the last call three months ago, maybe for Wendell, any material changes in customer demand or spending plans across key verticals, i.e., what's really changed, would you say, if at all, over the last three months in terms of customer demand or customer conversations you're having?

Matt Nicknam: Thanks. Yeah, I'll go first, Matt, on your first question. So, I'll start off with... You know, we have the capital in place, or the capacity in place, to deliver the sales. So, first, from a cash flow perspective, typically, we would add capex if we add sales, so that's a positive for free cash flow as we go forward. We also have a depreciation in our P&L for those assets, and then we also have some fixed cash costs that run through our P&L to support those assets. So, generally speaking, the fixed costs are already in our P&L, so you would expect our gross margin to accrete at a higher level than our current gross margin level, so that's one operating leverage point, or leverage point, if you will.

Ed Schlesinger: And then I think on opex, we can also grow without adding much opex from these levels, and that creates a second leverage point for us, so that should increase both gross margin and operating margin from our current levels, and you should start to see that as the volume comes back. On your question, or in our discussions with our customers. So what are the anecdotals? That's a good question because sometimes highly quantitative analysis... Data. Points One Way, and Anna Gold.

Wendell P. Weeks: Right. Right. Right. And in those situations, you know, that's telling you there's dissonance there and, you know, how do we dive deeper to make sure we have the right data and how do we create understanding of those things, in this case? What we're seeing is the anecdotal evidence is in support of what we're seeing in a deeper analysis, in our understanding of being well below our long-term task and the need for that, underlying a huge secular sense of time. So basically reinforcing the opinion of the data, and that is what we tried to reflect in what we discussed.

Matt Nicknam: Very helpful. Thank you both. Thanks Matt.

Operator: Thank you everybody for joining us today. Before we close, I wanted to let you know that we'll be attending the Susquehanna Financial Group 13th Annual Technology Conference on March 1st and the Morgan Stanley Technology, Media, and Telecom Conference on March 5th. This week we will host management visits to investor offices and select, Finally, a replay of today's call will be available on our site starting later this afternoon. Once again, thank you, and Operator, you can disconnect everyone. This concludes today's conference call. Thank you for your participation. You may now disconnect.