Rogers Corporation reports Q3 results with mixed performance amidst challenges

Turning to our results for the third quarter, we faced some challenges but also saw some positive developments. Our revenue decreased by 2% to $210 million compared to the same period last year. We experienced a notable decline in the EV/HEV segment, which impacted our overall performance. However, we were pleased to see our gross margin exceed expectations at 35.2%, and our adjusted EPS rose to $0.98 from $0.69 in the second quarter. These results demonstrate the resilience of our business and the effectiveness of our cost management initiatives.

Looking ahead to the fourth quarter, we are cautiously optimistic. We anticipate sales to be between $185 million and $200 million, with lower guidance for gross margin and adjusted EPS. We are investing in a new curamik power substrate factory in China, and we aim to start shipping customer samples in the fourth quarter of 2024. We expect full production at the new facility by mid-2025, which will support our growth in the curamik substrate market and industrial demand by 2025.

Despite the challenges we face in certain segments, we remain committed to driving growth through strategic investments and a focus on innovation. We are prioritizing capital allocation for organic growth, potential M&A opportunities, and share repurchases. We believe that these initiatives will position us for long-term success and enable us to capitalize on future market opportunities.

In conclusion, while we acknowledge the challenges in the global market, we are confident in our ability to navigate through them and drive growth in the future. We remain committed to delivering value to our shareholders and stakeholders and are excited about the opportunities that lie ahead for Rogers Corporation.

With that, I would like to open the call for questions. Operator, please go ahead.

While we continue to face challenges in the EV/HEV market, we remain optimistic about the long-term growth potential in this segment. We are actively working to diversify our customer base, particularly with emerging Asian players, and are driving product innovation to stay competitive. One example of this innovation is our new copper-clad laminate technology that will be launched in Q4. In addition, we are developing next-generation advanced radar solutions beyond laminates to meet the evolving needs of the market.

In conclusion, while we faced headwinds in the third quarter, we are taking proactive steps to improve our top-line performance and position Rogers for long-term growth. We are focused on driving improvement in key markets such as industrial and EV/HEV, and are making measured investments in capacity and capabilities to capitalize on growth opportunities. Thank you for your continued support, and we look forward to updating you on our progress in the coming quarters. Our strong cash generation was driven by improved working capital management, which led to $25 million in free cash flow during the quarter. Our net debt position was approximately $169 million at the end of Q3, a decrease of $23 million from the prior quarter. This reduction was primarily due to the repayment of our term loan. Moving on to slide 14, I’ll discuss our outlook for Q4. We expect net sales to be in the range of $200 million to $220 million, with gross margin expected to be in the range of 34% to 36%. We anticipate adjusted EPS to be in the range of $0.85 to $1.05. Our Q4 guidance reflects the current softness in demand, particularly in the EV/HEV market, as well as ongoing challenges in the supply chain. Despite these headwinds, we remain focused on driving operational excellence, managing costs, and maximizing cash flow to position the company for long-term success. We believe our strategic initiatives, coupled with the anticipated recovery in the power substrate market and growth opportunities in EV/HEV, will drive improved performance in the coming quarters. Thank you for your attention, and now I will turn it back over to the operator for questions.” Colin Gouveia: Sure, go ahead.

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Daniel Moore: Regarding the increase in CapEx for the year, can you provide some color on where that additional spend is going and if there are any specific areas of focus that you’re targeting with that investment?

Colin Gouveia: Absolutely. The increase in CapEx for the year is primarily related to our new silicon manufacturing line that we mentioned earlier. This investment is critical for our future growth and will enable us to meet the increasing demand for our products. Additionally, we are investing in technology and equipment upgrades to enhance our production capabilities and efficiency. Overall, these investments are aligned with our strategic priorities and will position us for long-term success. Thank you for the question. Laura Russell: Yes, Craig, just to add to that, we do expect this power substrate ramp in China to have a significant impact on our revenues as we move into 2025. We are currently in the early stages of the ramp-up process, but as we get closer to full production in mid-2025, we expect to see a substantial increase in revenue from this facility. This is a key strategic initiative for us, and we are excited about the potential growth opportunities it presents for our business. And that’s where we come in with our advanced materials. So as the market evolves and as AI capabilities increase, we believe there will be opportunities for us to provide even more content in phones. We are constantly working with our customers to understand their needs and develop solutions that meet those needs. So while the content outlook appears stable now, we see potential for growth in the future as technology continues to advance.

And not only do we have our urethane-branded PORON phone, which is kind of the leader in this space, but we also have another urethane type of phone produced from our South Korean facility named [E-Zorba] and we see that beginning to get more traction in the portable electronic space also because of specific characteristics around ultra-thin products that we can deliver with that type of chemistry. So we feel like we’re strongly locked in with many of these high-performance phones sold by multiple types of OEMs but we still see we have an upside there in portable electronics as well.

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Craig Ellis: Got it. And then lastly for me Colin, the business has done a very strong job paying down debt through the first half of the year and as we go to the back half the year despite just really tough macro headwinds with tough global PMIs, you’re doing a really nice job building cash. So the question is how are you feeling about M &A both the targeting final development, potential targets, and the ability to execute, and any color on how you would be thinking about your patience or impatience in executing something on that front? Thank you.

Colin Gouveia: Yes, great. Good question about the patience piece. So how I would describe that is M&A remains a key pillar of our strategy, and Rogers has had a long history of really, I’d say, strategic synergistic bolt-on M&A, mostly in the EMS space, but building out our capabilities and also our product lines to better service our customers. That philosophy remains intact today, and we do have good cash buildup, and we’re very keen to move forward with the right acquisition and regain that cadence of M&A. But I think we’re also surprised, as are many, that deal space still has been quite slow this year, and that’s primarily related to the fact, we believe, that sponsors are just holding on to their properties a bit longer because results haven’t been what they had hoped for. So they really would like to see some of these results turn around to drive higher multiples. Nonetheless, I’m very pleased with the work our strategic marketing and BU leaders have put into our M&A roadmap along with our corp dev group. So we have three or four targets which are moving towards becoming available. It would be a really interesting fit for Rogers, and we can’t rush it, but when the right target emerges, we’re prepared to move quickly, not only on acquiring it, but with our integration approach. It’s going to be still an important piece of our strategy, but we won’t buy something just to buy it. It really has to be the right strategic fit for the company.

Operator: Our next question comes from the line of Daniel Moore with CJS Securities.

Daniel Moore: Sorry about that. Get off mute. Thank you again. And my last question dovetails with Craig’s last, which is, as Laura mentioned, your financial flexibility continues to increase, barring M&A over the next few quarters. Maybe just talk about your appetite for returning cash to shareholders and how you’re thinking about being opportunistic as it relates to buybacks versus somewhat more mechanistic. Thank you again.

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Laura Russell: Sure. Dan, so you’re right and so far, as I am opportunistic. As we’ve stated we’ve got a very clear capital allocation strategy and the first of that is ensuring that we’re strongly positioned to execute organic growth opportunities. And there’s many of those issues as we’ve discussed in slide with our investments and with our technology and pipeline expansion opportunities. And we’ll continue as we stated on their M&A objectives but thirdly, we will look at opportunistic share buyback and that’s going to be contingent on how all three of those are interplaying at any point in time in addition to the market conditions. So we’ll continue to evaluate it and execute based on our priorities as we see fit.

Daniel Moore: Very helpful and last is just trying to pull up that string from an earlier question about the sizing the opportunity of curamik for the new facility in China. Not necessarily just revenue tam but how much of that incremental volume do you expect to be truly incremental to your business versus maybe shifting from one locale to another, just trying to get a sense for what the, how much of the incremental volume that’ll come out is actually net benefit? Thank you, again.

Colin Gouveia: I think the way we’re looking at it then is there is a base load of business there already and of course there is because we’ve been selling it to China for years. We sell two types of technology that goes all over the world for power modules. Part of it would be our AMB which is our high-powered technology that goes into silicon carbide. We also have a large business in curamik of a different technology and the technologies are different because it’s really how you just stick onto curamik and that’s called DBC. So for the time being we’ll still provide our DBC technology into China from Eschenbach and there’s a smaller amount of volume at the moment on AMB because the silicon carbide power module business is just building. So there’s a small base load but we see a lot of that business coming from China as being additional to what we currently have.

Operator: There are no further questions at this time. I’d like to pass the call back over to Colin for closing remarks.

Colin Gouveia: Thank you and thanks all for joining. And we look forward to several of the follow-ups we have coming up over the next several days. But again thanks for taking time to join our quarterly call.

Operator: This concludes today’s teleconference. You may disconnect your lines.

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