Rogers Corporation

Good afternoon. My name is Alicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to Rogers Corporation's second quarter 2024 earnings conference call. I will now like to 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 second quarter 2024 earnings conference call. The slides for today's call can be found on the investor section of our website, along with the press release that was issued earlier today. Please turn to slide two. Before we begin, I'd 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 the 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 made today. Please turn to slide three. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles. Reconciliations 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 are available on our Investor Relations website. Turning to slide four, with me today is Colin Gavea, President and CEO and Ram Mayampourth, Senior Vice President and CFO. I will now turn the call over to Colin.

Thanks, Steve. Good afternoon to everyone, and thank you for joining us today. I'll start by highlighting the key messages for the quarter on slide five. Our execution was solid in the second quarter, and results were in line with our expectations. Sales were near the midpoint, and gross margin performance exceeded the high end of our outlook. The strong improvement in gross margin drove adjusted earnings near the top end of our guidance range. Sales were stronger in some areas such as portable electronics and wireless infrastructure. Tempering this growth was elevated customer inventory levels of our Keramic products, which impacted the EVHEV industrial and renewable energy markets. As we manage through the current customer inventory challenges and the uneven demand environment, we continue to drive improved performance in the areas we can control. For example, in late Q1, as it became apparent our Keramic power substrate customers were reducing orders due to high inventory levels and slowing end consumer demand, we moved swiftly to reduce manufacturing costs. This action significantly boosted our Q2 gross margins, while still retaining flexibility to increase output should demand return more quickly than anticipated. In addition, as we announced in June, we are consolidating our high-frequency circuit material manufacturing operations. Upon completion of this effort in mid-2025, we anticipate improved factory utilization rates, lower expenses, and increased operating margins in the $7 million to $9 million range. The decision to consolidate was made in response to decreased customer demand for RFS products in Europe. In the coming quarters, we will transition customers to our existing RFS manufacturing facility in China. enabling us to provide even higher levels of support. We also remain focused on driving innovation to support the future growth of the company. As our CTO, Griffin Gappert, discussed last quarter, we have implemented several actions to accelerate our technology development process. A key recent action was the decision to exit our Northeastern University location near Boston, Massachusetts. This location was established in 2014 in partnership with Northeastern to develop breakout new platform technology to support Rogers' long-term growth. The intent was to co-locate select scientists with academia to develop new platform technologies, while our existing R&D teams focused on innovation programs specific to each business unit. Our commitment to innovation remains as strong as ever, but we now believe all long-term R&D is best conducted within the business unit R&D teams at our primary technology centers in the US, Europe, and China. This approach will allow more flexibility to build a balanced innovation portfolio that can most effectively address the needs of our global customer base over the near-term and longer-term horizons. For longer-term projects, we will continue to collaborate with relevant ecosystem partners, such as universities and other technical institutions with proven track records. Roger's future must be built on innovation, and innovation remains one of the four key pillars of our growth strategy. In terms of capacity expansion, we are making substantial progress with the construction of our new Keramic power substrate facility in China. Despite the slowdown this year, Keramic has been our fastest-growing product line for the past several years, and we have a strong conviction this technology will be an impactful growth driver for many years to come. Our power module customers have been clear about the need for Rogers to have a China footprint to support their local production. Our new facility will expand our capability to provide the high level of support required to meet the needs of both Western OEMs manufacturing in China and domestic Chinese OEMs, with whom we have secured significant design wins in recent quarters. We expect mass production to begin in mid-2025, but will continue to monitor demand conditions and adjust timing as needed. Turning to slide six, I'll next review the highlights of our second quarter results. Sales of $214 million were approximately flat to the prior quarter as stronger sales in portable electronics and wireless infrastructure were tempered primarily by lower ceramic power substrate sales in several end markets. Gross margin was 34.1%, a 210 basis point increase from the prior quarter while adjusted EPS improved to 69 cents. We are pleased with the improvement in Q2 gross margin and that our operational excellence efforts are delivering on initiatives targeted to improve yields, reduce scrap, balance supply with demand, and achieve procurement and supply chain savings. Returning to our top line results, I'll summarize our sales performance in key markets. Beginning with the EVHEV market, our sales were mixed in Q2. In the EMS business, we achieved a second consecutive quarter of record sales as demand for our EV and HEV battery solutions remained strong. Growth was strongest in our cell pad material used to address pressure management needs in both pouch and prismatic battery form factors. Sales of compression pads and environmental sealing solutions were also strong and were a key part of our results. As mentioned, sales of our Keramic Power substrates in the EV-HEV market were lower as customers worked through higher inventory levels amid softer-end consumer demand. As customers remain cautious about the current market conditions, we do not expect a recovery in 2024 for this product line. In our high-growth markets, the increase in portable electronics was in line with seasonal expectations and points towards a moderately stronger smartphone refresh cycle in 2024. ADAS sales were flat to the prior quarter, and after an excellent Q1, A&D sales declined slightly in Q2 related to program timing. In our core markets, we saw a strong improvement in wireless infrastructure sales due to higher demand in India. Based on order patterns, we expect wireless infrastructure sales to be stronger in Q3 before tapering off in Q4. We are working to secure design wins for the next generation of this project, which would ramp in 2025. Industrial market sales declined in the second quarter, primarily due to the impact of elevated customer inventory levels in our power substrate product line. EMS general industrial sales were nearly flat to Q1, and while we believe the customer destocking is complete across many of the industrial submarkets, we have not seen a meaningful increase in demand. This is consistent with U.S. and European PMI data, which continues to indicate that manufacturing activity levels remain subdued. I'll next discuss some of the recent wins that we have secured. Beginning with our AES business, a leading Asian EV manufacturer selected our advanced Keramic substrate technology to be used in their high-power silicon carbide inverter for its latest generation vehicle. This development is another indication of the progress we've made in securing wins in recent quarters with Asian power module manufacturers and OEMs. In the renewable energy space, our substrate technology was designed in by a major U.S. power module supplier. This customer's power module will utilize our technology to provide highly efficient solar power conversion for a key Asian inverter manufacturer. In EMS, Our leading poron polyurethane materials were selected by a leading European OEM for multiple applications in its HEV batteries. Our materials will be used as cell pads to solve pressure management challenges and compression pads to address vibration management and other needs. Next, on slide 7, I'll discuss the highlights from our recently published 2024 Environmental, Social, and Governance Report. At Rogers, our commitment to corporate social responsibility and sustainability is deeply rooted in our corporate culture, and we are proud that our work contributes to a cleaner, safer, and more connected world. Rogers materials feature prominently in markets such as electric vehicles, renewable energy, and ADAS, which help reduce carbon emissions, enable safer driving environments, and improve lives. Our 2024 ESG report highlights the substantial progress we have made towards our ESG initiatives this past year and our dedication to operate our business with a strong sense of responsibility to all our shareholders and stakeholders. For example, over the past two years, we have significantly reduced our greenhouse gas emissions, and we intend to go further with a commitment to achieve a 20% reduction in GHG emissions by 2030. The report also highlights how we prioritize employee safety and development and our ongoing commitment to conducting business in an honest and ethical manner. We invite you to read the report on our website. In closing, I'll recap today's key messages. First, we have solid execution in Q2 to deliver improved gross margin and earnings. Second, we are pushing forward with actions to further improve our cost structure as we focus on driving growth. we are prioritizing innovation and making the necessary changes to accelerate our development efforts while also prudently investing in capacity to grow our top line. Finally, we are highly focused on carefully managing costs, CapEx investments, and our strong balance sheet to maximize cash flow. Now I'll turn it over to Rob to discuss our Q2 financial performance and Q3 outlook.