Rogers Corporation

Good afternoon. My name is Diego, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation Q4 2022 year-end earnings conference call. I will now turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Mr. Haymore, you may begin.

Good afternoon, everyone, and welcome to the Rogers Corporation fourth quarter and full year 2022 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. A 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. Turning to slide three, with me today is Colin Gavea, President and CEO, and Ram Mayampourat, Senior Vice President and CFO. I will now turn the call over to Colin.

Thanks, Steve, and good afternoon, everyone. Thank you for joining us. I'm pleased to be here today on my first earnings call as the president and CEO of Rogers. Rogers is a special company, and there are several things that make me excited to serve as CEO. First, we have incredible people with a deep bench of talent throughout the organization. This team impresses me daily with their dedication to our business, our customers, and to their teams. Second, we have an effective strategy in place that will enable us to expand and grow our market-leading positions by focusing on high growth and segments and leveraging our strong track record of innovation. And lastly, we are intently focused on improving our financial and operational performance with a clear plan to deliver long-term value for our shareholders, employees, customers, and other stakeholders. Before I touch on the quarterly results, I'd like to walk through some of our near-term key priorities on slide five. Number one is improving our profitability and driving operational excellence across the organization. We started by taking a hard look at our performance to ensure that our operations were optimized to reflect current business priorities and market conditions. In December, we shared publicly our ongoing targeted programs to improve operations and two weeks ago announced additional significant actions to improve our cost structure, streamline our portfolio, and drive operating margin improvement. These necessary changes to improve profitability are currently underway, and I'll discuss these efforts in more detail shortly. Additionally, we are focused on bolstering our team with strategic operators and individuals who will bring deep industry knowledge and experience to help us grow the business. This includes the appointment of Larry Smid, as our Senior Vice President of Global Operations, who will be instrumental in implementing our ongoing Operational Excellence Initiative. Larry brings more than 30 years of senior leadership experience in global operations and supply chain management at companies such as Dow and Roman Haas. We have put significant effort into improving our processes and investing in better tools to support rapid decision making. Larry will help drive this work forward and ensure we have the right people to execute these initiatives. While improving profitability is our top priority, I want to be clear that we are taking a balanced approach with our investments to enable us to capitalize on the exciting opportunities we have ahead and to be well-positioned to support our customers when the market recovers. Lastly, related to Monday's press release with Starboard Value, we are pleased that we could reach a constructive agreement. I look forward to working with our board to continue executing against our strategic plan to capture the exciting opportunities ahead of us. Turning to slide six, I'll review in more detail the specific actions we're taking to improve profitability. First, we conducted a detailed review of our corporate, direct, and indirect manufacturing organizations and implemented actions which have resulted in a reduction of 7% of Rogers' global workforce. Reducing our headcount is not something we take lightly, and we did our best to treat all our people with the respect and dignity they deserve. However, adjusting our organization to align to the current environment is a necessity. and required us to make some difficult choices. Second, we have undertaken a series of actions to improve our product portfolio and drive operational improvements across our manufacturing facilities. This includes divesting the non-core, low margin Griswold natural rubber product line in the EMS business, which will improve our gross margin mix. In addition, We have implemented process changes to improve manufacturing yields, scrap rates, and productivity at factories in both our AES and EMS business units. Third, we are further optimizing our laminate circuit materials manufacturing footprint in AES. This includes exiting our price road facility in Arizona and taking other actions to reduce the global cost structure. On an annualized basis, total manufacturing cost savings are expected to be roughly $25 million net of inflation. As these actions begin to take hold in the coming quarters, we are targeting to achieve a gross margin of 34% in the second quarter of 2023, with an additional improvement to approximately 35% as we enter the second half of the year. We will not stop at 35%, as reaching historical levels of profitability is our clear goal. We will outline more about the timing and plans for our gross margin progression to reach 40% at our investor day in March. In addition to the improvements in gross margin, we are also managing operating expenses. On top of the reduction in corporate headcount, we are also decreasing professional service fees and discretionary spending. These actions will largely offset the impact of inflation on 2023 operating expenses. Now turning to our quarterly performance on slide seven. As expected, the macro environment remained challenging in Q4, which adversely impacted our top line results. While our sales fell more than 9% compared to the prior quarter, we saw continued growth in certain key markets. Our EV sales increased at a double-digit rate versus the prior quarter and full-year EV sales increased 35% versus 2021. ADAS sales rebounded from the market disruptions in the third quarter and grew at a double-digit pace sequentially. Our position in these important end markets remains strong and continues to grow as we leverage our technical expertise to meet customer needs and solve critical challenges. We also had good growth in clean energy sales led by our power interconnect business. Turning to our other markets, the key headwind in Q4 was a significant decline in portable electronic sales as our customers experienced major production shutdowns due to COVID-related impacts in China. As restrictions have recently lifted, the disruptions to our customers have ceased. However, in this segment, Q1 is typically the weakest quarter from a seasonality standpoint. We are closely watching demand signals from our OEM customers and are well positioned to supply when end market consumer demand returns. In other segments, we experienced softening demand in our EMS industrial business due to the current macroeconomic environment. Although the quarter was challenging, we are focused on managing what is within our control. We are executing on our cost reduction initiatives, and we expect to see the benefits in the coming quarters as previously outlined. An important pillar of Roger's strategy is aligning our organization with key market trends, and we have a long history of successfully implementing this strategy. From the early stages of many end markets, we have leveraged our deep customer relationships to solve unmet needs with our applications expertise and innovative solutions. These capabilities are part of our DNA and are critical to support our growth. On slide 8, I'll highlight some of the exciting opportunities across our portfolio and how we think about their growth potential. The electric vehicle market represents the strongest growth opportunity for our business and now comprises more than 20% of sales. We continue to see strong traction for our products, including our ceramic substrates, battery compression pads, and power interconnects. which are critical to boosting vehicle performance and reliability. One example of our progress is a recent design win where our ceramic substrate technology was selected to be utilized in an inverter design for a major automotive OEM. This multi-year award will begin generating revenue in 2023. While we continue to be excited about the EV potential, we have other strong growth opportunities including ADAS, aerospace and defense, 5G smartphones, and renewable energy. Together, these markets comprise more than 25% of our portfolio, and we expect that these segments will have similar growth profiles to each other. In the ADAS market, demand for advanced safety features continues to increase, and with our history of innovation and reputation for reliability, we are positioned to capture the growth in this market. We expect aerospace and defense to remain a continued growth opportunity due to our high reliability, high performance laminate circuit solutions that are essential to critical radar and missile systems. One example that highlights our technology and applications expertise is a design win with a leading prime contractor where our solutions were selected to help enable broadband communications in a next generation satellite system. In advanced 5G smartphones, despite the recent production and demand disruptions, we remain well positioned with higher content per phone versus past generations due to our high performance elastomeric materials. Finally, in renewable energy, our power substrate and power interconnect solutions help improve energy conversion efficiently in solar and wind power. Our traction continues in this market as our ceramic substrate technology was recently selected by a global OEM to be used in power modules for renewable energy applications over a multi-year horizon. Our core markets, comprised primarily of sales into our industrial segment, are the third component of our market portfolio. These markets provide solid growth, high margins, and cash generation. We look forward to sharing more about the longer-term opportunity across our markets at our Investor Day at the end of March. I want to close by reiterating my excitement about Rogers and with taking on the CEO role at this moment in our history. While the environment remains dynamic, we are focused on the elements of the business that we can control, which includes making strong progress on our strategy, having clear priorities in place to improve our operations, and sharpening our execution to support our customers. These actions, together with the optimistic projections in our key markets, give us great confidence in our ability to deliver future growth and long-term value for our shareholders. With that, I'll turn it over to Rob, who will discuss more about our financial performance.