Welcome to the Corning Incorporated Quarter Three 2018 Earnings Call. It is my pleasure to turn the call over to Ann Nicholson, Division Vice President of Investor Relations.

Thank you, Haley, and good morning, everyone. And welcome to our third quarter 2018 earnings call. With me today are Wendell Weeks, Chairman and Chief Executive Officer; Tony Tripeny, Senior Vice President and Chief Financial Officer; and Jeff Evenson, Senior 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. Those statements involve risks, uncertainties and other factors that could cause actual results to differ materially. These factors are detailed in the Company’s financial reports. You should also note that we will be discussing our consolidated results using core performance measures, unless we specifically indicate our comments relate to GAAP data. Our core performance measures are non-GAAP measures used by management to analyze the business. A reconciliation of core results to the comparable GAAP value can be found in the Investor Relations section of our website at corning.com. You may also access core results on our website with downloadable financials in the interactive analyst center. Supporting slides are being shown live on our webcast, and we encourage you to follow along. They are also available on our website to download. Now, I’ll turn the call over to Wendell.

Thank you, Ann, and good morning, everyone. This morning, we reported excellent sales and earnings growth for the third quarter, and we’re increasing our full-year 2018 outlook. In total, for the quarter, sales were $3 billion, up 16% year-over-year; net income was $476 million, up 18 year-over-year; and EPS was $0.51, up 28% year-over-year. We also delivered on our goal to improve gross margin to 42%, a significant increase over last year and the first half of 2018. All businesses delivered year-over-year sales and NPAT growth. Highlights include Optical sales up 22% year-over-year; Environmental sales up 19% year-over-year; Specialty Materials sales up 23% year-over-year, better than expected, driven by strong pull for new innovations such as Gorilla Glass 6. In Display, as expected sales and net income grew year-over-year, and annual price decline continue to improve, reaching the important milestone of mid single digits. As we said we would, we grew sales and profitability significantly by leveraging our recent phase of intense operating and capital investments to capture substantial benefits. Third quarter results demonstrate a step change in our earnings power. Underpinning our success are climbing production and efficiency rates at several of the largest expansion projects, plus strong customer adoption of our innovations. Our annualized sales run rate now exceeds $12 billion. Growth is accelerating and our margins are expanding. Execution across the Company is outstanding. We expect to exceed $11.3 billion in full-year sales, up more than 10% year-over-year. And we expect to build on this strength as we address the rich set of opportunities ahead of us. So, we feel great about both the back half of 2018 and our future opportunities, as Tony will describe in just a few moments. Now, let’s turn to the strategy and capital allocation framework, which outlines our leadership priorities. Under…

Thank you, Wendell, and good morning. We had an outstanding quarter. Each one of our businesses delivered excellent results with year-over-year sales and profit growth across the board. We expect very strong performance again for the fourth quarter and full-year, and now expect to exceed $11.3 billion in sales for 2018. We have passed an inflection point. Our significant investments over the last few quarters are now delivering greater sales and profitability. We are gaining momentum and we plan to build on that going forward. Before I get into the details of our performance and results, I want to note that the primary difference between our GAAP and core results is again a non-cash mark-to-market adjustment for our currency hedge contracts. As we discussed before, GAAP accounting requires earning translation hedge contract settling in future periods to be mark-to-market and recorded at current value at the end of the each quarter, even though those contracts will not be settled in the current quarter. For us, this resulted in an after tax GAAP gain of a $151 million for the third quarter. To be clear, this mark-to-market accounting has no impact on our cash flow. Our currency hedges protect us economically from foreign exchange rate fluctuations and provide higher servicing for our earnings and cash flow, our ability to invest for growth and our future shareholder distributions. Our non-GAAP or core results provide additional transparency into operations by using a constant currency rate aligned with the economics of our underlying transactions. We are very pleased with our hedging program and the economic certainty it provides. We’ve received $1.6 billion in cash under our hedge contracts since our inception, slightly over five years ago. That brings me to our results and outlook. Third quarter sales increased 16% year-over-year; net income was up…

Haley, we’re ready for our first question.

Thank you. And that will come from Asiya Merchant with Citigroup. Please go ahead.

Great. Thank you, and congratulations on the strong quarter. If you can just humor me on China. I know it’s a very conservative guidance that you guys have baked already in. But, if you can just talk about how you’re thinking about the macro demand environment there? And not just as it relates to TV but as it relates to optical as well, I think that will diffuse a lot of investors who’ve been very nervous about China demand elasticity and how that plays out for Corning, not just for this year but also into next year?

So, as I said in my comments, I mean what we’ve tried to do -- or what we have done is to incorporate conservative guidance for the China end markets. For example, on TVs. The TV demand unit has actually been strong this year. Retail has been up about 9% on year-over-year basis year-to-date. But, we’re forecasting it to be up only 2% in the fourth quarter as a reflection of a slowdown in the end market. And very similar from a vehicle standpoint where the market has been up about 3% on a year-to-date basis and we’re expecting it to actually be down 3% year-over-year in the fourth quarter. From an optical standpoint, of course most of our biggest part of our business in optical is actually outside of China and in particularly in the North America market, and that market has been very strong, and you can see that in our optical results.

Thank you. Next, we’ll go to the line of Wamsi Mohan of Bank of America Merrill Lynch.

So, you’ve completed almost 11.5 out of your at least $12.5 billion in capital return. And I was wondering if you can give us some sense on how willing you might be to take on incremental debt to continue to return cash to shareholders at a time when it seems like a lot of economic indicators are pointing towards somewhat of a peak in the near term. And how should people think about gross margins, heading into next year? You’ve -- obviously exiting with a lot of momentum over here, 42%, as you had thought at the beginning of the year, you’re delivering on that. And it seems as though that with all the growth records you have heading into 2019 that gross margin should commensurately see a pretty decent step up. Am I thinking about that right?

I think from a gross margin standpoint, we’re obviously pleased that all the investments we made in the first -- in over the last couple of years, are paying off, we’re seeing the additional growth, and we’ve expanded our margins to 42%. And although we’re not giving gross margin guidance for next year, I would expect it to stay somewhere at this level. And that’s what we expect in Q4, and that’s roughly what I would expect in 2019. In terms of leveraging, what we said in the capital allocation framework that we would add $3 billion to $4 billion of debt. And we haven’t added that much upto now. And so, we would expect to continue to be able to lever, because we have such strong operating cash flow, and that certainly we’ll continue to look forward, doing over the next -- as we finish up the capital allocation framework.

Thank you. Next, we will go to the line of Joseph Wolf with Barclays.

Question on just optical and the carrier side of the equation. There’s been some enthusiasm about 5G and how that would be related to optical. Verizon seems to have slowed momentarily. I’m just wondering your sense of the 5G deployments and how that’s -- whether we’ve got momentum going into 2019, how you’re looking at optical outside of the data center.

I would characterize 5G as being in the beginning. We’re just really at the early stages of the deployments of infrastructure needed to have a 5G service level. And some of the first ones you see at different carriers are some of the easier ones. You’re really going to see the demand for our products get stronger and stronger as you have to support for mobility for 5G. That’s also going to take phones being upgraded to 5G. So, we’re just right in the beginning and long, long way to go get that much glass in the ground.

Thank you. And if could just ask a follow-up on Valor, and you gave a lot of details, which was helpful. Could you just help us understand how -- what these programs mean in terms of are you selling right now? None of this seems to be approved yet. So, what are the customers taking, are they buying? And have you targeted a specific volume of specific drug as you start these programming? I mean, will we see a first win which is pretty big if you get an FDA approval?

Great question. The way this works is you keep going through stages, even before you file with the FDA. And because change is taken so seriously inside of pharmaceutical production unit, so we go through numbers of trials and then collect stability data and analyze what happened, to be active pharmaceutical ingredient after those trials. So, that’s the stage that we have been in as we have sampled Valor across the industry. The phase we are entering into now will be that our customers will bring a full file with all the data that they’ve collected to the FDA and state their intent to use this package when they produce this drug. At that point, they will began to take Valor really across that entire drug that they have submitted because one of the things that Valor does is enable you to increase throughput as well as guarantee patient safety. And so, what the pharmaceutical companies will want to do is get both of those benefits, every time someone is injected with that particular active pharmaceutical ingredient. Does that answer your question, Joseph?

I guess, just from a selection perspective that’s at the customers, are they targeting small things to see how this works or are they targeting a large kind of active ingredient where you could see a very large win early on with the early approval?

You see different approaches from different pharmaceutical companies. Some people are aiming at their pipeline; other people are aiming at transferring all the current drugs. But, everyone is looking at doing it across their large scale of pharmaceutical product set, because the benefits are they want to accrue to their patients and their production facilities where they actually do volumes. So, very few are saying, let’s just try a little. They -- that’s part of the overall process but what they are really looking at is to take their mainline commercial production over to Valor.

We’ll go next to line of James Faucette with Morgan Stanley.

I wanted to just ask a quick follow-up to a question that has already been asked. Tony, you said that you’re taking a conservative view, particularly on Chinese demand. I’m wondering, as you’ve formulated your guidance and outlook for the December quarter, are the growth rates that you’re looking for now -- have you reduced those from what maybe you have been looking for earlier in the year? And, are you actually seeing any change in demand that is causing you to be conservative, or are you just being conservative, given the headlines? And I guess, a similar follow-up question is, as we come to the end of the capital allocation program, is there a timeframe that we should be looking at for update as to what comes after that? And what are the kind of the key elements that we should be thinking about us to -- that you’ll be weighing as you think about future capital allocation?

Sure, James. I think, first on the answer on China, we are being conservative based on headline that we see. And the demand has been strong in China, both in terms of our TV business and also the vehicle business upto now, but we see the headlines and that’s why we’re being conservative. And if that demand turns out to be better, there’s opportunity there for upside. In terms of the framework, I mean clearly, our focus remains on delivering the first four years of that framework. We have more than a year to go. And operationally, we like to deliver on what we say were going to do. And that’s really continues to be our focus. So, at some point next year, I’m sure we’ll talk about what’s beyond 2019. I think, the things to keep in mind is that our businesses, especially display are generating very strong operating cash flow, and we expect that to continue and we expect to continue to have multiple large opportunities for growth in all of our market access platforms. And any cash that’s in excess of that, we will continue with our practice of returning it to shareholders. But in terms of the specifics of that, that we’ll cover sometime in 2019.

Thank you. We will go next to line of Samik Chatterjee with JPMorgan.

I just want to ask on display glass pricing where things have been improving on the lines of how you talked about it or guided to it. Just thinking about the upside risk and the downside risk here. Are you now of the scenario in 2019 where prices could eventually be there like flat year-over-year or even kind of increase year-over-year, and what are kind of the developments that could drive faster progress on that front? And then similarly, on the downside, is capacity additions by your competitors, the things that we need to watch out for as we track or monitor kind of the progress on this front?

I think, in terms of the pricing, the important thing here is that we expect our 2019 price declines to further improve from 2018. Certainly, over a time period, we’d like to see them to continue to improve even more than that. But the important thing here is and I think the news and something that’s different than we said before is we do expect that to improve in 2019. In terms of the downside variables, and I explained why I don’t think there is much risk there, and that has to do with glass supply and demand being balanced, the competitors’ profitability challenges and the need to get returns on going investment. So, I think we feel pretty good about our pricing environment right now. It is the best environment in more than a decade.

Thank you. We will go next to line of Vijay Bhagavath with Deutsche Bank. Please go ahead.

Good morning, Wendell. Question for you, just bigger picture on the 3M asset, in my view, it’s a strategic asset for optical business. How is it going in terms of topline, synergies and also on OpEx? And I have a follow-on for Tony.

Thanks for the question. We’re delighted with the acquisition and done even better on revenue synergies than we originally thought. It’s still early on the operations integration. So, we’ve got a lot of work ahead of us on that piece. But, we’re really delighted with both the customer access and the product attributes that we’ve been able to bring in to our overall market access platform. So, still early days, but so far so good.

Thanks, Wendell. A quick follow-on for Tony on how should we think of gross margins, heading into next year? You have many manufacturing capacitates getting into the production lines. So, any products and how we should think of gross margins, very helpful.

I think that we’re very happy that we’ve reached the 42% gross margins in the back half of this year. And while we’re not giving 2019 guidance, to think about gross margins in that that range I think is appropriate.

Thank you. Next, we’ll go to the line of Steven Fox of Cross Research. Please go ahead.

Two questions for me. First, following up on that last question. Tony, can you just maybe give us a rough timeline of when some of these expansions sort hit optimal levels from of a utilization rate et cetera? It sounds like the fleet optimization is complete. But, what about the others? And then, secondly, Wendell, can you just talk about, maybe round up the fiber discussion and talk about the data center success a little bit more and maybe where your advancements are having the most impact with those customers?

I think in terms of the capacity ramps, I mean obviously, we’ve been ramping in the third and the fourth quarter, and we continue to expect that to ramp throughout next year. And the good news is that we have committed demand for those capacity ramps. So, we feel good about that.

And on data center, the places where we’re most excited at this moment tend to be as a more and more of the operators are adopting some very high fiber count systems. And then glass, much like the way you used to be thinking about it for the public networks is also breaking into the next layer of those data centers. So, to think about a little like when you went to the public networks, long-haul, to regional, to trail [ph] to home, following that line. We’re seeing that same thing being to happen in these great big mesh networks that are getting built inside these data centers. So, more and more of that architecture is flowing to glass. And the amount of glass required is also going up in terms of fiber account as people try to separate storage from the different processing techniques. And so, you end-up with these big meshes built. And that tends to be really good for glass demand. So, that’s what’s going on. To make that happen, we need a lot of innovations in our connectivity products and how do we manage all that glass. And that’s when we really excited about our product roadmap going forward.

And just to be clear, Wendell, that’s -- what you just described is sort of in the here and now happening into next year, you are benefiting from those trends?

Yes, we are. The roadmaps that still is part of that we’re going to have to develop to handle this on growing trend to make it even more cost efficient as optics gets closer and closer to those ASICs that are driving the processing, we’re going to have to activate something like our glass knowledge, our ability to handle the optical physics of that and the thermal challenges of that. That’s out in the future. What we’re dealing with right now is the main line of how do we connect that at the current levels that the architectures that are going to.

We’ll go next to line of Rod Hall of Goldman Sachs.

I’ve got couple of questions. I wanted to start with Specialty Materials. If I look at the second half of the year, the numbers are pretty much in line with what we were modeling, but the seasonality is a lot different than what we were modeling, a lot more weighted back into Q3 than Q4. So, I just wanted to see if you could comment on whether that seasonality is what you would expected back earlier in the year, is a little bit different? How that flowed versus what you’ve been expecting earlier in the year? If it’s just our model is not quite being on track with what actually was going to happen? And then, my second question is, on Chinese automotive glass plant, I know you said it will be operational in 2019. Do you have any idea, when and if you can give us an idea on whether that’s earlier, later in the year? And do you anticipate any tariff impact for the product coming out of that plan? Thanks.

So, in terms of the Specialty Materials, we’re very happy with the results in the third quarter. We said, for the full year, we were going to grow after a very strong 2017 where we were up 25%, and how much that growth was going to be dependent on the adoption of our innovations. And I think it’s very clear now that that adoption has been incredibly strong. The issue always is, is the timing of that adoptions is up to our customers. And it’s hard for us to know at the beginning of the year, how much those adoptions are going to have, and what quarter they are going to happen. So, from a full-year standpoint, we’re in line with what we expected at the beginning of the year. And from a quarterly standpoint, it just always depends on where the customer orders.

So much like you, we have a hard time getting the seasonality right as well. On the automotive interiors piece, that production is in the midst of getting built right now. That ramp is going -- we will start putting production through that in 2019. I don’t want to call exactly the timing at this point in time because it’s a pretty complicated project, and we also are managing as well as supply chain beyond the factory that we’re building. So, if you just give us a little more time and we start making that public of commercial production to that facility, we will be back to you. On tariffs, the products that we’re making and that our customers will incorporate, at this time are not on any tariff list. So, we don’t anticipate that being an issue, if the trade arrangements continue as we understand them at this time.

Thank you. We will go next to line of Tejas Venkatesh of UBS.

Given the panel oversupply, there is some concern out there that some of your customers could convert or perhaps shut down older plans. How should investors think about the impact of this penal supply on Corning?

I think at the end of the day, what really drives our demand is the market and how many people -- how many TVs are sold and what size those TVs are. And as we look at this year, we thought we would be up mid single digits, given both in terms of where the TV unit growth is but most importantly screen size growth. And as we look forward that screen size growth has continued for a number of years and we expect that to continue going forward. So, I think the way people should think about our demand is really driven by the TV market.

We’ve got time for one more question.

Thank you. And that will come from the line of Rob Cihra with Guggenheim Partners.

Thanks very much for squeezing me in. Just a question on CapEx model from here with this year trucking slightly more than $2 billion, that’s driven by a lot of unit capacity expansion, which is great, because it’s driven by demand. I mean, any -- I guess you probably don’t want to give an outlook for 2019 budget yet. But, I mean what are you thinking in terms of the puts and takes, and is that $2 billion kind of a new baseline or the demand dependent, just anything you can give us for 2019 as a model? Thanks.

You are right. We don’t want to give guidance for 2019. But recall that our strategy and capital allocation framework said that we would spend between 6 and $7 billion over the full-year period and we still expect to be in that range.

Thanks, Rob. And thank you all for joining us. Before we close today, I wanted to let everyone know that we will be at the Credit Suisse Technology Media and Telecom Conference on November 27th, and the Barclays Global Technology and Media and Telecommunications Conference on December 6th. We’ll be posting some virtual presentations and webcasts on business topics through the quarter. And finally, web replay of today’s call will be available on our site, starting later this morning. Once again, thank you all for joining us. Haley, that concludes the call. Please disconnect all lines.

Thank you. Ladies and gentlemen, you may now disconnect.