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 the rogers corporation third quarter 2024 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 third quarter 2024 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 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. 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, which are available on our investor relations website. Turning to slide four, with me today is Colin Gavea, president and CEO, and Laura Russell, interim CFO. I will now turn the call over to Colin.

Thanks, Steve. Good afternoon to everyone, and thank you for joining us today. Before I discuss the results for the quarter, I want to welcome Laura Russell as our interim CFO. As we announced last August, Ramayana Parath Our prior CFO left the company to pursue another opportunity. Nevertheless, we are fortunate to have someone of Laura's caliber and skillset at Rogers. Laura brings more than 20 years of experience in the semiconductor space with more than a decade in senior financial roles with companies like NXP and Wolfspeed. She is already making a positive impact in her new role at the company. Our CFO succession planning is continuing, and we will provide an update on this process when we have made a final decision. Now, turning to slide five, I'll highlight the key messages for the quarter. Our results were mixed in the third quarter, with earnings exceeding our guidance forecast while revenues fell below the low end of our estimate. The improved earnings were a result of a 35.2% gross margin, which surpassed the high end of our expectations, and lower operating expenses, which we continued to carefully control. Revenues for Q3 were lower than expected due to softer order patterns in the EV-HEV segment and a lower seasonal peak in portable electronics. Overall, we are not yet seeing consistent indications of improved demand, particularly in our two largest markets, general industrial and EVHEV. Ongoing contraction in global manufacturing activity continues to weigh on industrial. Global automotive production has been slowing in recent months, and while EVHEV is growing, it is behind last year's pace. However, despite the current headwinds, we do continue to see good growth potential in these, and other market segments going forward. As such, we continue to make measured investments in capacity and capabilities to position Rogers for long-term growth. One capacity highlight is the recent ribbon-cutting ceremony for our new Keramic power substrate factory in China. I'll provide more details on this event later. Turning to slide six, I'll review our third quarter results. Revenues of $210 million declined 2 percent from the prior quarter, as lower EV, HEV, and ADAS sales more than offset higher portable electronics, industrial, and aerospace and defense growth. Highlighting our key markets, I'll begin with EV, HEV. In AES, we've not yet seen meaningful demand improvement from our Keramic Power Module customers. In the EMS business, after two consecutive quarters of record sales, we saw softness in Q3 due to customer inventory management. Portable electronic sales saw a strong increase from Q2 due to normal seasonal demand patterns. However, sales were below our outlook as build rates at one of our leading OEM customers were not as strong as anticipated. Aerospace and defense registered good growth in Q3, led by AES. Although quarterly sales do fluctuate on program timing, we expect AMD sales to grow in the mid-to-high single-digit rate for 2024. RFS ADAS sales declined in the quarter, reflecting both softer auto production and increased competition at different points in the value chain. In response to these competitive dynamics, we are continuing to drive product innovation, improving our cost structure, and diversifying our customer base, particularly with emerging Asian players. Our innovation includes new copper-clad laminate technology that will be launched in Q4 and development of next-generation advanced radar solutions beyond laminates. EMS saw a slight increase in industrial sales in Q3, led by the semiconductor segment. As I'll discuss more in a moment, overall industrial sales are still below the prior year due to the ongoing downturn in global manufacturing activity. Wireless infrastructure sales were again strong in Q3 and improved slightly from Q2. As mentioned last quarter, this strength is driven by a specific project in India, which concluded in the third quarter. We are closely engaged with this customer on the next phase of this wireless build-out which is currently in the design-in stage. There were clear positives in our Q3 results with improved operating margins, higher earnings, and good free cash flow generation. At the same time, we were disappointed with the Q3 sales results and the top-line Q4 outlook. The lower sales reflect persistent macro challenges and some customer-specific issues. We are intently focused on driving improvement in our top line, and in the next two slides, I'll expand on the improvement actions underway. Starting on slide seven, I'll cover the industrial end market where sales are roughly 10 to 15 million lower per quarter versus the first half of 2023. The decrease is primarily due to the broader macro environment which has impacted Rogers. In our AES business, we are experiencing lower demand in industrial markets for our power substrates due to lower levels of capital investment in factory automation and other equipment used in automotive and semiconductor manufacturing. The EMS industrial market is extremely diversified with roughly 15 submarkets. Demand in these markets correlates to global manufacturing activity levels, which in the U.S. and the Eurozone have contracted for most of the last two years. Despite the downturn, we are seeing growth opportunities in certain segments, such as medical devices, data centers, and battery energy storage systems, or BESS. The opportunity in BESS spans both business units. In AES, this includes ceramic power substrates and rollings bus bars to enable efficient conversion and distribution of power. In EMS, our urethane and silicone materials offer solutions to improve battery efficiency and life. In medical, our EMS materials seal and protect medical devices such as CPAP and dialysis machines and provide solutions to improve vaccine manufacturing and transport. Semiconductors is another of the faster growing opportunities in industrial. We have seen improved year-over-year sales in 2024, but demand has yet to return to 2022 levels. Growth in these markets won't come immediately, but we are seeing traction with a recent design win in data centers, where our silicone adhesive films will be used in a server power supply system. Our AES business also has opportunities targeted to AI data centers. These projects are still in the early stages, but are focused on leveraging our capabilities in thermal management and signal integrity. Turning to slide 8, I'll provide an update on the EV-HEV market, where our 2024 sales have been approximately $5 to $15 million lower per quarter compared to the first half of 2023. As we have discussed on prior calls, the main driver is the inventory correction Keramik customers have been managing since late Q1 of this year. The decline in AES sales has more than offset a greater than 50% growth in EMS EV-HEV sales year-to-date. In anticipation of a recovery in the power substrate market and the compelling future growth opportunities in EVHEV, we're making measured capacity investments in two new manufacturing facilities in China. These investments include the new Keramic power substrate facility and a new Bisco silicone production line. We also continue to work aggressively to secure new design wins. As we've highlighted in prior quarters, We have secured several significant wins in our AES business this year with both Western and Asian power module customers and EV OEMs. In Q3, we were awarded another design win for our AMB power substrate technology that will be used in a 800-volt silicon carbide inverter for a leading Asian OEM with deliveries beginning in Q1 of 2025. In our EMS business, we continue to have a healthy opportunity funnel and have also secured important design wins this year with several key OEMs that serve the U.S., Asian, and European markets. Turning to slide nine, I'll expand on the compelling long-term opportunity we see with Keramic and the EV-HEV market. Two weeks ago, I was in Suzhou, China, for the ribbon-cutting ceremony of our new Keramic power substrate factory. We welcomed local government officials and dozens of customers representing both Western and Chinese headquartered companies. This new factory will complement our existing manufacturing facility in Germany and, importantly, will support our regional capacity strategy, enabling us to better support our customers who are expanding in China. This new factory will manufacture A and B substrates. Third-party market research expects that the market for this latest substrate technology will grow at a 20% CAGR over the next several years, driven by the increasing adoption of silicon carbide power modules in the EVHEV, industrial, and renewable energy markets. We expect to begin shipping the first customer samples from our new factory in Q4, with mass production scheduled in late Q2 of 2025. Now, in closing, I'll recap today's key messages. first we had mixed q3 results with good earnings growth and a softer top line which was below our expectations this software ordering is carrying through into our lower q4 guidance and we are working aggressively to drive improvement we are intently focused on securing design and wins pursuing regional manufacturing strategies and prioritizing higher growth segments to drive improvement in the coming quarters we expect that these actions in combination with demand recovery and power modules Further ramping from our EVHEV battery customers and improvement in global manufacturing activity will provide the opportunity for meaningful growth in 2025. As we focus on the top-line growth, we will, as always, continue to manage costs and CapEx investments as we prioritize maximizing profitability and cash flow. Now, I'll turn it over to Laura to discuss our Q3 financial performance and our Q4 outlook.

Thank you, Colin. Let me first say that I'm excited about the opportunity to serve in the interim CFO capacity, and I look forward to the opportunity of working with Colin and the rest of the executive team to drive execution on our key strategic initiatives. I'll begin on slide 10 with the highlights of our results for Q3. As Colin shared, our performance in the third quarter was mixed. Our top-line sales of $210 million were below our outlook. However, gross margin of 35.2% and adjusted EPS of $0.98 both exceeded guidance expectations. The improved margins in our working capital management enabled us to generate $25 million in free cash flow during the quarter. On slide 11, I'll discuss our third quarter sales in greater detail. Net sales of $210 million declined by 2% from the prior quarter on approximately 4 million of lower volume, which was slightly offset by favourable foreign currency fluctuations of approximately 300,000. On a reportable segment basis, AES revenue decreased 3% versus the prior quarter to 112 million. Lower EV, HEV, ADAS and industrial sales were partially offset by higher AND and wireless infrastructure sales. Of the major product lines in AES, keramic sales have declined most significantly versus the prior year as a result of customer inventory correction and a lack of demand recovery that Colin discussed. Total keramic sales are down more than 35% compared to the first nine months of 2023. We do expect this market to recover in the coming quarters and with our new facility in China, we will be well positioned to grow with both Western and Chinese power module customers. EMS revenue decreased by less than 1% to approximately 94 million. This decrease resulted from mainly lower EVHEV sales. This decline was in part offset by seasonally higher portable electronic sales and improved industrial sales. Turning to slide 12, Q3 gross margin was 35.2%, an increase of 110 basis points from the second quarter. The sequential improvement in gross margin was primarily due to favourable product mix, which more than offset the lower volume and underabsorbed costs. We continue to drive operational excellence initiatives such as yield and throughput improvements, procurement savings and manufacturing footprint optimisation. The progress we've already made in these areas has been a key enabler of improved margins over the preceding quarters. Similar to Q2, we still carry a small amount of excess costs in the third quarter, primarily in our ceramic operation, to ensure that we have the ability to respond to power substrate demand when it returns. Adjusted net income increased to $18 million in the third quarter from $13 million in Q2. Q3 adjusted earnings per share was 98 cents compared to 69 in the prior quarter. The higher Q3 adjusted net income resulted mainly from the improved gross margin and lower adjusted operating expenses. These items were partially offset by an increase in other expense. The decrease in OPEX versus the second quarter was due to lower variable compensation costs and continued efforts to reduce professional services. Continuing on slide 13, cash on September 30 was approximately £146 million, an increase of nearly £27 million from the end of the prior quarter. As a result of improved gross margin, lower operating expenses and management of working capital, We have generated 93 million of operating cash flow so far this year, with 42 million of this in Q3. Capital expenditures were 41 million year-to-date and 17 million in the third quarter. We expect full-year capex to be in the range of 50 to 60 million, 5 million below our previous range. As we move forward through the year, we will continue to prioritise actions to maximise cash generation. With no debt and an increase in cash positions, we have increased agility to allocate capital to our allocation priorities consistent to our stated strategy of funding organic growth, pursuing synergistic M&A and returning capital to shareholders in the form of opportunistic share repurchases. We will continue to evaluate the best use of this capital based on the needs of the business and current circumstances. Next on slide 14, I will discuss our guidance for the fourth quarter. Net sales are expected to range between £185 and £200 million. The midpoint of this range is a decrease of about 8% from QC sales. The main drivers of the sequential decline are lower wireless infrastructure demand as shipments to a significant project in India have concluded, the typical seasonal decline in portable electronic sales, and deferred ordering as customers manage year-end inventory levels. At the midpoint of our guidance, EV-HEV sales are expected to increase slightly in Q4. General industrial sales are expected to be modestly lower. We are guiding gross margin to be in the range of 31.5% to 33% for Q4, with a decrease as a result of the lower volume and also lower product mix. Product mix is typically strongest in Q3 related to portable electronic sales. This guidance range also incorporates some headwind from the start of production of our new silicon manufacturing line, which will continue until we reach a more normalised utilisation rate. Fourth quarter adjusted operating expenses are projected to increase 2 million versus Q3, primarily related to incrementally higher startup costs. EPS is expected to range from a loss of 15 cents to 15 cents of earnings. The adjusted EPS range is 30 cents to 60 cents of earnings. Our Q4 EPS range includes 32 cents of restructuring-related expenses, with most of this associated to the wind down of our AES operations in Belgium. Lastly, we project our full year tax rate to be approximately 27%. With that, I will now turn the call back over to the operator for questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation to indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions, you may re-queue, and time permitting, those questions will be addressed. One moment, please, while we poll for questions. Thank you. Our first question comes from the line of Daniel Moore with CGS Securities. Please proceed with your question.

Good afternoon, Colin. Good afternoon, Laura. Thank you for taking the questions. I guess starting with the guide, it sounds like it's fair to say the sequential decline in revenue implied in the few

Q4 guide primarily due to kind of that lower wireless with that project running off and then portable electronics or there are other areas of incremental weakness that you're seeing hey Dan Colin I'll start with that yes you're right the number one reason would be that wireless program ending in Q3 and I would also say that normally the fourth quarter is typically our lowest quarter in the year for what you mentioned about portable electronics where Q3 is our highest quarter, and then things decrease a bit as we get towards the end of the year. We also don't really see a recovery in Keramic in the power module space. We're paying close attention to what our customers are saying, and they've not signaled an improvement coming at this moment. So that's also included in Q4. And then finally, we anticipate customers in general destocking for the end of the year as they try to hit inventory targets and deliver cash. So those would be the main factors impacting Q4.

That's helpful. And then looking beyond into the first half of next year, are there still pockets of your business where inventory management is likely to remain a headwind, or do you think once we get through the end of this year, revenue should be more one-for-one, if not seeing maybe some potential restocking at some point?

Yeah, what I would say on that is, and I'll start, is that even though we're not guiding ahead to next year, we do see potential for some meaningful improvement based on a couple key assumptions. The first is that would be the return of the growth in keramic substrate market. It's unclear when this exactly will happen based on what I said earlier about the customers not coming forward, but we think it's quite possible it will happen next year. We also have the new keramic factory in China to produce AMB technology. And that technology goes directly into SIC power modules. And we've got good design in WINS with both Western and local Chinese OEMs for power modules. And we see the CAGR for that business going in at about 20%. So we think that will also make an impact as we get into 2025. Also, we see the work we have with EMS. with EV battery producers continuing to ramp. That has been a good year for it. That has been very good for us this year. It's far ahead of last year's pace, and we'll see that continuing to ramp. And then, you know, the industrial demand could return. Right now, the macro is quite tough, the monetary policy and the election uncertainty. But by 2025, that election uncertainty will be passed. Everyone will know what's happening. So we anticipate a bit of an uptick in industrial demand. I just say overall we're focused on growing our business, growing the top line. We think we're well positioned for the medium and long term with the work we're doing in terms of self-help, capital expansion, and skilling up the team. And, you know, we would be ready when some of these things happen so we can begin growing.

Sneak one more in and jump back in queue, but on the margin side, if you look, obviously don't have segments this quarter yet, but if you look on the performance year to date, AES obviously remains low, but operating margins, EMS, have dropped the most from kind of 20% range last year into the single digits this year despite relatively modest revenue declines. And just trying to get a sense what's going on there. Was it mix, pricing pressure, incremental investments, all the above? What are kind of the key drivers and what gets us back to mid-teens margins or higher in that business? Thanks again for the call.

Sure, Dan. It's Laura here. So what I would say is, yes, your observations are correct. We are seeing some suppression on a year-on-year basis within EMS. Some of that, frankly, is a little bit on an allocation strategy. But all of our businesses are suffering a little bit in terms of our utilization levels. So we do have some headwinds there, which, as you've seen with the margins we're posting, We're managing to control what we can and execute our margin expansion opportunities by leveraging operations excellence and procurement savings. So we're certainly doing what we can there, but really we will see some, or the benefit, the accretion, is going to be realised when we start to see improved utilisation on our top line reports.

And, Dan, I might just add there's certainly fresh off the press here, but in the appendix to the slides, we do have the adjusted operating margin by segment. And you can see for the third quarter, EMS was 17, just over 17%. So there's some information you can reference there.

Some bounce back there. Okay. That's very helpful. Very good. I'll follow up. I'll circle back with any follow-ups. Thank you. Thanks, Dan.

Thank you.

Thank you. Our next question comes from the mind of Craig Ellis with B Reilly Securities. Please proceed with your question.

Yeah, thanks for taking the question. And Colin, I appreciate the additional detail on slide seven and eight on the industrial business and EV and HEVs. And I wanted to start my questions on the former. So can you just help us understand, as we think about your comments with the industrial business, Are you just on slide seven really characterizing the market, or are you trying to convey a message that there's a refocusing and a reprioritization of efforts, whether it's as you engage with customers, as you're looking at the types of design wins you'd be shooting for, and as it relates to the specific opportunities that you mentioned with battery energy storage systems, medical, semi, and data center. How should we think about the potential for those specific opportunities to make material contributions to revenues next year?

Sure. And so I'll start by saying that general industrial, as we highlighted in relation to Rogers, is a catch-all for a lot of end markets that are less than two or 3% of our total sales. But within that bucket, there's some really interesting end markets that we think we can grow and expand. And actually the intent is to move them out of general industrial. A good example is portable electronics where years ago it was a small percentage of sales, but then we really began to develop technology that worked well in the hand device market and other areas such as smart speakers and tablets. And now that's a big part of our business. So we have been working really hard on design and wins, pushing the teams, and they're very aggressive in going out and trying to fight against the headwinds of the slow macro. And what we've really come to grips with over the past six months is that we really like all the products and technology we have in the company that can go into data centers. And we'll talk more about this in the future, but we have products from all of our business units that can work in there. It's gasketing and sealing and vibration dampening from EMS. It's high speed digital from RFS and it's cooling from the ceramic business. So we feel like we really have some growth trajectory there. Same for battery energy storage systems. We've been able to leverage our technology and our expertise that we brought into the EV HEV battery space. And of course it translates into the BESS space. So we figured, We feel that's worth sharing because we also have high expectations for growth there. And finally, medical. We have had some good success in medical, but now we've really been able to pick up some additional design wins that will begin next year, and we feel like that's also worth mentioning. I would say that industrial is a big piece of our business, but within it, there are some exciting things that we wanted to tease out and share, and that is the message on today's call.

That's helpful. Thanks, Colin. The next question may be one that's both for you and Laura. Regarding the power substrate ramp through 2025 in China, can you just help us understand the magnitude of contribution that could make as we go from initial sample shipments to customers exiting this year to what I think the deck said was full production exiting to queue of next year. How should we be thinking about the revenue impact of that ramp in the business?

So I can start on that. First, I'll comment that we're very excited about that facility, and it's just a spectacular build. I was thrilled to see it up and running when I was in China a few weeks ago, and we had quite an interesting opening ceremony with a lot of folks in attendance from both the local government and customers. In terms of when we should be at full run rates, yes, that'll probably be mid 2025. And right now it's running and we're prototyping and qualifying this technology with customers. We haven't at this moment talked about the size and revenues that would be coming out of that factory. We haven't really shared even our total sales for Keramic, but I can say that roughly half of our business is in Western Europe and in Eastern Europe and the other half's in China. And this will allow us, I think, to link in more closely with our customers who produce in China with reduced supply chain timing, quicker response time, and local production. So I think it'll make a big difference in terms of us being able to capture the growth that we have planned. Got it.

And if I could just sneak in one more, there was a very significant change in operating expense quarter on quarter, and it looks like some of it might have been an accrual reversal. So is that the case, and therefore would operating expense absent that accrual reversal increase sequentially in 4Q, or did OPEX just set to a structurally lower level in 3Q that will perpetuate?

So let me take that. So you're correct in saying that there was some adjustment for variable compensation costs. And in addition to that, we continue to manage our OPEX in this environment of having challenges in the top line. So we did see some benefit quarter on quarter on professional service with third parties. One thing I would also comment on, you heard in the call that we do see some slight step up in our are all pegged into the fourth quarter. But that's in support of the qualifications that Colin spoke about in qualifying our customers to be ready to run from our new facilities. So it's a critical investment and one that we'll continue to undertake.

And Laura, for that particular item, does the expense assisted with that actually rise as we get closer to full production of the facility? Or how do we think about the magnitude of that impact between here and full output?

Yes. So I think it's fair to say just as a general statement that, yes, as we get closer to full qualification of our customers, there is an upward pressure on that investment because before we get to factory qualification, naturally that's a cost of capital and facilitating qualification of the facility and our equipment in it. But post that, as we're working with customers to qualify and ramp on our lines, then we do face upward pressure in OPEX for our growth investment.

Got it. Okay, I'll hop back in the queue. Thanks, Colin. Thanks for us.

You're welcome.

Thanks, Greg.

Thank you. If you have a question, please press star 1 at this time. Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

Great. So keep keeping it going with one or two more. Keep it going. We're ready. We're ready. Yeah, good. Yeah. On personal electronics, Colin, you mentioned that there was one program that sounded like it had a lower peak than you expected. I just wanted to confirm that. from three months ago, I think we were looking at multiple Android programs and an iOS program. Did, in fact, all of those programs ramp in the quarter? And then how do we think about the diversity of your customer base as we go forward from here? Would you expect those programs to be ones that come back in the various selling seasons, Android sometimes different than iOS? But how should we think about that? the stickiness of those engagements. Thank you.

Okay, yes. So here's how we're thinking about portable electronics. Key end segment for us, and we really feel confident in our differentiated technology for both high-end phones, high-performing phones, phones that have AI capability, and also foldables, which, although they're still a small part of the market, they require different technology to to work properly. So we feel like our suite of product offerings fit very well with this market. And we do have programs across the patch with all the different OEMs, Chinese, Western, and South Korean. As we look at the market, how it's developed to this point in time, it is up overall year over year. Last year was, of course, a 10-year low in handset sold. And we see the market up 4% to 5% this year. Where we see most of the growth coming, though, is from, I would say, baseline affordable models with mostly Android packages. And those seem to be growing the fastest. And where we participate more is in those high-end, high-performing phones at the top of the pyramid. And we're still waiting for, I think, the overall AI value proposition of these phones to really catch hold for those types of high-end phones to drive growth, and it's also related in some cases to rolling out software packages that work with these phones. So when we say, hey, when we were planning this three or four months ago, we had anticipated that ramp to come faster, but due to things like software packages, it's been delayed a bit, and that's why the peak is down a bit for us in Q3, and that has impacted our results versus our guide. Did that

Yeah, that's helpful, Colin.

Yeah, that's helpful. As you work with customers and do your technology planning and roadmapping, are there things that would onboard into phones as we get more AI capability and content that would bribe up Rogers content in phones, whether they be a traditional phone or a foldable, or does the content outlook appear fairly stable as you look ahead at what's coming.

In terms of where we participate, our content is strong and it's related to, I would say a lot of things. It's our product performance, but it's also our response, our quality and reliability. But I would say we're optimistic about where we go next in terms of phones, because as they pack more circuitry and performance in these phones, they need thinner and thinner foam technology. And not only do we have our urethane-branded Poron foam, which is kind of the leader in this space, but we also have another urethane type of foam produced from our South Korean facility named Isorba. 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 a bit of an upside there in portable electronics as well.

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 through the back half of 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, funnel development, potential targets and the ability to execute and any color on how you would be thinking about your patients or inpatients and executing something on that front. Thank you.

Yeah, great. Good question about the patient's 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 MS 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 tech, 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, you know, we can't rush it, but when the right target emerges, we're prepared to move quickly, not only on acquiring it, but, you know, 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.

Thanks for the candor on that point, Colin.

My pleasure.

Thank you. Our next question comes from the line of Daniel Moore with CGS Securities. Please proceed with your question.

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 buyback. versus somewhat more mechanistic. Thank you again.

Sure. Dan, so you're right insofar as opportunistic. You know, 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. There's many of those issues, as we've discussed, in flight with our investments and with our our technology and pipeline expansion opportunities. You know, we'll continue, as we've stated, on their M&E 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.

Very helpful. And last is just trying to pull at that string from an earlier question about the sizing the opportunity of Keramic 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 how much of the incremental volume that will come out is actually net benefit. Thank you again.

I think the way we're looking at it, Dan, 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 Keramic of a different technology. And the technologies are different because it's really how you just stick copper onto Keramic, 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 A and B because the silicon carbide power module business is just building. So there's a small baseload, but we see a lot of that business coming from China as being additional to what we currently have.

Very helpful. Thank you again.

My pleasure.

Thank you. There are no further questions at this time. I'd like to pass the call back over to Colin for closing remarks.

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.

This concludes today's teleconference. You may disconnect your lines.