Rogers Corporation

My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation Q4 Year-End 2020. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Sir, you may begin your conference.

Thank you, Erica. Good afternoon, everyone, and welcome to the Rogers Corporation fourth quarter 2020 earnings conference call. The slides for today's call can be found on the investor section of our website, along with the news release that was issued today. Please turn to slide two. Before we begin, I would like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to many uncertainties that exist in Roger's operations and environment. These uncertainties include economic conditions, market demands, and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement. Also, the discussions during this conference call may include certain financial measures that were not prepared in accordance with generally accepted accounting principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call, which is posted on the investor section of our website. Turning to slide three, with me today is Bruce Hochner, President and CEO, Mike Ludwig, Senior Vice President and CFO, and Bob Daigle, Senior Vice President and CTO. I will now turn the call over to Bruce.

Thanks, Steve. Good afternoon, everyone, and thank you for joining us today. As recently announced, a fire disrupted operations at our South Korea UDIS facility, which produces our eSorba product line. Most importantly, all of our employees are safe and there were no injuries. UDIS represents less than 4% of Rogers' annual sales and we are evaluating various recovery options. Our current expectation is that we will resume production in South Korea in the fourth quarter of this year. Turning now to slide four, I'll cover the results for the quarter and 2020 highlights. Rogers ended 2020 with strong momentum, achieving Q4 sales, gross margin, and earnings that exceeded the top end of our guidance. The strong performance was driven by accelerating growth in advanced mobility markets and continued improvements in operational execution. For the quarter, net sales increased to $211 million and gross margin improved to 38.3%. Earnings were 81 cents per share, and adjusted earnings reached $1.58 per share. Despite headwinds from both trade tensions and the COVID-19 pandemic, Rogers continued to build stronger and more sustainable business in 2020. The business environment was dynamic and challenging, and I'm extremely proud of how the Rogers team responded. At the outset of the coronavirus, we began quickly mobilizing to protect our health of our employees while simultaneously focusing on maintaining business continuity. We leveraged our global manufacturing footprint as well as multi-site customer qualifications where possible to avoid any significant disruptions to our customers or essential industries that rely on our advanced materials. This resilient response was possible thanks to the extraordinary capabilities and dedication of our employees. It's also important to recognize our suppliers and customers for their responsiveness and flexibility. In addition to our highly effective response to the pandemic, we strengthened the company in several other important ways in 2020. First, we continued to build on our leading positions in advanced mobility and other diversified markets. In the EV HEV market, we saw stronger customer traction and design engagement activity that led to additional wins for both our advanced battery pad and power semiconductor substrate solutions. These wins added to our strong market position and helped drive EV HEV sales growth of 30% for the year. In ADAS, we made good progress in 2020 by expanding our customer base with new design wins. Our advanced solution for next generation auto radar continued to receive positive acceptance from customers. We also strengthened our positions in some of our other diversified growth markets. In portable electronics, our design wins in advanced feature 5G smartphones enabled us to outperform the market. Sales increased for the full year driven by strong growth in the second half of 2020. In the defense market, design wins and new product introductions in 2020 were a catalyst for greater than 20% sales growth and added to our positive long-term outlook in this market. Second, we built a stronger Rogers in 2020 by delivering on our operational excellence initiatives. Substantial improvements to yields, productivity, and material costs resulted in three consecutive quarters of gross margin improvement last year. Fourth quarter gross margins improved by 90 basis points sequentially and more than 500 basis points versus Q4 2019. Most importantly, these are sustainable improvements which are carrying forward into 2021. We strengthened our financial position this past year with a focus on margin improvement and judicious management of our expenses and working capital. We generated more free cash than in 2019 and we increased our net cash position to over $165 million. Our strong balance sheet gives us tremendous flexibility as we execute on our growth strategies. Turning next to slide five, I'll discuss market trends for both Q4 and 2020. In the fourth quarter, strong traditional auto and EVHEV demand was the primary catalyst for our sales growth as OEMs continue to ramp production and replenish inventories. Robust ADAS and EVHEV sales were the largest contributor to the sequential increase in Q4 revenue. There were also encouraging signs in the general industrial market where sales increased modestly versus the prior quarter. Lastly, wireless infrastructure revenue was stable in Q4. For the full year, as mentioned, we had strong growth in EV and HEV and defense sales and higher portable electronic revenues. Renewable energy sales were also strong and increased at a mid-teen rate. The growth in these markets help moderate the impacts of the coronavirus outbreak on the general industrial, mass transit, and traditional automotive markets. In addition, trade tensions resulted in substantially lower wireless infrastructure sales in 2020. Turning to slide six, I'll next provide an update on the outlook for advanced mobility and other growth markets in our diversified portfolio. Beginning with advanced mobility, the transition to clean transportation further accelerated in 2020 as EVs and HEVs comprised over 13% of global auto production or nearly 10 million vehicles. Growth was especially strong in Europe, led by sales of plug-in electric vehicles, which reached an impressive 23% market share in December. This acceleration in demand is expected to continue over the next several years, driven by the proliferation of new models, increasing consumer acceptance, and favorable government policies. Third-party data continues to point to an expected compounded annual growth rate of more than 30% for EVHEV production over the next five years. Supporting this outlook are the many substantial investments and commitments from established OEMs and startups. For ADAS, the outlook in 2021 is much stronger as global auto production is expected to rebound and grow at a mid-teens rate year over year. Increasingly, ADAS features are becoming standard on new vehicle models propelled by consumer preference, regulations, and commitments by automakers. This trend, combined with the growth in demand for increasing levels of vehicle autonomy, is expected to result in an average growth rate of 15 to 20 percent over the next five years. One key issue affecting the outlook for automotive production in 2021 is the limited supply of certain semiconductors. We are closely monitoring the situation, but we don't anticipate that this will have a meaningful Q1 impact. In addition to the opportunities in advanced mobility, we are also focused on growth in other markets in our diversified portfolio, such as portable electronics, defense, and renewable energy. In the portable electronics market, 5G smartphone sales are forecast to nearly double in 2021 and drive mid-single-digit growth in global smartphone sales. 5G smartphone sales are expected to remain strong for the next several years, which provides Rogers with a good growth opportunity. Our content in 5G handsets can increase by 10% to 15% in mid-range devices and by as much as 30% in certain premium units. The longer-term outlook in the defense market remains promising, as funding of technology programs such as missile defense and radar systems is expected to drive increasing demand for Rogers advanced circuit materials. Our high reliability solutions for demanding applications and differentiated engineering capabilities puts us in a strong position to continue our success in this market. Lastly, the renewable market is expected to grow at a 10% CAGR over the next five years and we expect the strong demand for our power semiconductor substrate applications to continue. Please turn to slide seven. As we've highlighted, Rogers' growth strategy is built on four pillars, which include being a market-driven organization, delivering innovative leadership, utilizing synergistic M&A, and driving operational excellence. Today, I'll highlight some of our 2021 priorities intended to further accelerate our growth strategy. First, We are leveraging our leadership and engineering capabilities by creating a new strategic business unit, Advanced Electronics Solutions, which combines our ACS and PES groups. By combining these two complementary business units, which have deep expertise in both high power and high frequency applications, we will be able to further accelerate our ability to capitalize on high growth market opportunities such as EVHEV, ADAS, and others. Second, we are doubling our CapEx investments in 2021 to aggressively pursue the strong growth opportunities in the EVHEV market I described earlier. We plan to invest between $70 and $80 million of capital this year. with more than half of that total targeted to additional capacity for our advanced battery compression pad and ceramic substrate technologies. These investments will position Rogers to capitalize on the significant growth momentum in this market, where we intend to leverage our technology and capabilities to add to our strong market positions. Third, we will continue to drive our operational excellence initiatives in 2021, with gross margin improvements continuing to be at the top of the priority list. Business transformation initiatives will also be a key focus, and we are investing $15 million of CapEx for the initial phase of an ERP implementation, which will enable ongoing improvements to our operational efficiency and support organic and inorganic growth. Please turn to slide eight. At Rogers, our commitment to corporate social responsibility and sustainability is deeply rooted. We are dedicated to being responsible members of our communities through robust environmental, health, and safety management practices. We are also extremely proud of the positive contributions that our advanced materials make to society as they improve lives and protect the environment. Our ESG efforts are based on many well-established programs and practices that Rogers has developed over the years in areas such as sustainable product development, regulatory and environmental compliance, resource conservation, employee development and much more. We will soon be issuing our inaugural ESG report to highlight and better communicate the important work we are doing in these areas. Turning to slide nine, I'll recap the key messages from today's call. In 2020, we continued to build a stronger and more sustainable business in the face of a challenging and dynamic environment. We advanced our positions in strategic markets and executed on our operational roadmap. The outlook for growth in advanced mobility and other markets in our diversified portfolio continues to be extremely strong, and we are investing aggressively to capitalize on these tremendous opportunities. Finally, as announced in a press release earlier today, Mike Ludwig intends to retire as Rogers CFO in 2021. It has truly been a pleasure to work with Mike, and on behalf of our management team, I'd like to thank him for his many contributions. He has been a trusted strategic partner, helping to drive both growth and profitability improvements across the company. The process to identify our next CFO is underway. Mike has not provided a specific retirement date and will help facilitate a seamless transition to his successor. Now, I'll turn it over to Mike to discuss our Q4 results in more detail. Mike?