Rogers Corporation

Good day. My name is Todd and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation second quarter 2021 earnings call. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you were using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. During the Q&A, we request that you limit yourself to one question and one related follow-up question. I will now turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations, so you may begin your conference.

Thank you, Todd. Good afternoon, everyone, and welcome to the Rogers Corporation second quarter 2021 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. On slide two, note that before we begin, there are statements in this conference call that are not strictly historical, but 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 could 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, Ram Mayampurath, 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. Please turn to slide four. In Q2, Rogers delivered revenues of $235 million, an increase of 2.5% versus the prior quarter and at the midpoint of our guidance. Demand was strong across much of our business and especially in the EVHEV market where sales grew rapidly. Rogers was not immune to the global supply chain challenges experienced by many manufacturing companies in the second quarter. These conditions were more significant than anticipated and tempered our top-line growth and resulted in margins and EPS that were below our guidance. The specific issues we faced included supply constraints, labor shortages, and raw material cost increases, which we're proactively managing through commercial and operational actions. Our operational excellence and capacity expansion programs are on track And as supply conditions improve, we expect to achieve our 40% gross margin target. Turning to a review of our markets, in the second quarter, growth was strong in several of our strategic focus areas. Sales in the EVHEV market continued to grow at a rapid pace with Q2 revenues increasing at a mid-teens rate compared to the prior quarter. Led by a rebound in solar and wind demand, clean energy sales grew at a double digit rate sequentially. Defense market sales were again strong and revenue improved at a high single digit rate. Industrial market sales were relatively flat following a sharp rebound in the first quarter. ADAS sales declined relative to the prior quarter due to inventory adjustments after three strong quarters of growth. We believe this is a temporary situation as the ADAS market outlook is robust, which I will detail in a moment. And our leading market position remains extremely strong in ADAS. Our sales in the portable electronics market decreased slightly in Q2 over Q1 due to the manufacturing disruption at our UTIS facility. Excluding UTIS sales, portable electronics revenue increased 5% quarter-over-quarter, reflecting the ongoing strength of the portable electronics market. Overall, we are very encouraged by the healthy demand across much of our portfolio, and especially in the EV-HEV market. Our competitive positions continue to be strong, and we are seeing the benefits of our strategy to leverage our innovative and high-performance solutions in markets with long-term secular tailwinds, such as advanced mobility. Turning to slide five, I'll provide an update on the longer-term growth outlook for advanced mobility. I'll begin first with ADAS before discussing the EV-HEV outlook. In ADAS, we continue to expect a mid-teens growth opportunity in auto radar units over the next five years, driven by further market penetration and increasing levels of vehicle autonomy. Next-generation radar technologies are essential to the future of autonomous vehicles, and Rogers is helping to drive innovation in this space. We continue to strengthen our leading position in this market with design wins in both current and next-generation programs. Moving next to the EVHEV market, the long-term outlook continues to be very robust with an expected annual growth rate of more than 30%. over the next five years. Recent trends continue to support this strong outlook. For example, year-to-date sales of plug-in EVs and HEVs in Europe accounted for 15% of the market. In China, electric vehicle sales reached a new milestone in the second quarter, exceeding 10% of the market. Third-party analysis also points to an acceleration in EV-HEV adoption driven by growing consumer preference for non-ICE vehicles and supportive policy changes. A recent E&Y report highlighted that combined plug-in EV and HEV sales in the U.S., China, and Europe are now expected to surpass sales of all other powertrains five years earlier than previously anticipated. In addition, growth expectations for full electric vehicles also continue to accelerate. For instance, the latest projections from IHS estimate that full electric vehicle production will reach close to 40 million units globally over the next four years. This is an increase of 25% or about 8 million vehicles compared to their forecasts from only two years ago. Reflected in these estimates are the growing number of automakers who have announced plans to transition their entire fleet to full EVs within the next decade. To take advantage of the strong growth outlook in advanced mobility, we are investing aggressively in new capacity and capabilities. We plan to double our capital spending this year in order to invest in new capacity to support growth in the EVHEV market. I'll next highlight Roger's strong portfolio of products for this market and how we are positioned to benefit from both the acceleration of the market and the trend towards rising degrees of electrification. Please turn to slide six. Both our AES and EMS business units are focused on the significant growth opportunities in advanced mobility. For EV HEV manufacturers, reliability, safety, and performance are critical design elements, and Rogers Solutions address these needs. In the AES business, we have content opportunities with both our ceramic substrate and power interconnect products. Increasingly, EV and HEV designs are incorporating wide bandgap semiconductors to improve vehicle efficiency and range. These semiconductors require high performance packaging that our ceramic substrates provide. Our substrate content increases with higher degrees of electrification, and is more than five times higher in a full EV as compared to a mild hybrid. We are encouraged by our success in this market and recent design wins are adding to our growth. Power interconnects provide an additional content opportunity in EV HEV. They are critical components that distribute power and are essential to the performance and reliability of the vehicle. We have secured design wins with several leading entrants to the EV market. This opportunity is expected to grow as these customers ramp up volumes in the coming year. In our EMS business, we have leveraged our expertise in polyurethane and silicone materials to develop innovative solutions that improve the performance and reliability of EV batteries. Our content opportunities include battery compression pads for plug-in HEVs and EVs, and other solutions such as vibration dampening pads and battery pack sealing systems, which can be used across all battery types and sizes. Battery compression pads have a larger content opportunity, which increases with battery size. Sales of our other EV battery solutions have increased significantly this year, driven by a number of important design wins. In addition to the opportunities in advanced mobility, there are also compelling growth opportunities in other areas of our market portfolio, such as clean energy, portable electronics, and defense. These markets comprise approximately 30% of Rogers' total sales, and we expect these markets to grow at a high single-digit rate over time. In clean energy, we have exposure to both solar and wind energy markets with our ceramic substrates and power interconnects. Year-to-date growth has been strong, and the combined solar and wind market is expected to grow at a 10% CAGR over the next five years. In the portable electronics market, sales of 5G smartphones are expected to nearly double this year as the overall market grows at mid-single digit rate. The higher performance and advanced features of 5G smartphones means that our content can range from 10% to 30% higher versus the previous generation of phones. Our near-term portable electronic sales are tempered by lower UDIS capacity but we expect 5G demand to remain robust for the next several years, which provides Rogers with a good growth opportunity, especially as we rebuild our UDIS capacity. The longer-term outlook in the defense market continues to be promising as funding of technology programs such as missile defense and radar systems is expected to drive increasing demand for Rogers advanced circuit materials. Turning to slide seven, I'll recap the key messages from today's call. We are encouraged by the strong market demand that we continue to see across much of our business. This includes faster growing markets such as EVHEV, but also in other attractive market opportunities like clean energy and defense. Near term, we are not isolated from the current global supply chain challenges. but we are making progress managing these issues and our operational excellence programs remain on track. We continue to add to our strong competitive positions with new design wins and we are seeing the results of our strategic focus on growth opportunities in our market portfolio and especially in advanced mobility. We are moving forward rapidly with our investments in new capacity and related capabilities to help ensure our leadership in the EVHEV market and to take advantage of the significant growth ahead. Now, I'll turn it over to Ram to discuss our Q2 results in more detail.