Rogers Corporation

Good afternoon, everyone, and welcome to the Rogers Corporation fourth 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 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 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, Senior Vice President and CFO. I will now turn the call over to Colin.

Thanks, Steve. Good afternoon, everyone, and thank you for joining us today. Before I discuss the results for the quarter, let me first mention that since our last earnings call, Laura Russell was appointed our chief financial officer. Through our search process, Laura emerged as the clear choice to serve in this position. Since joining the company in 2023, and especially during her recent service as interim CFO, Laura has been an invaluable addition to the Rogers executive team. She brings significant business and financial expertise developed during her multi-decades experience with other leading global companies, predominantly in the semiconductor segment. I look forward to partnering with her as we execute our strategic objectives. Now, turning to slide five, I'll start with the key messages for today's call. Fourth quarter results were in line with our expectations as sales, gross margin, and adjusted earnings were all near the midpoint of our guidance ranges. As anticipated, Q4 sales were lower sequentially due to challenging market conditions, normal seasonality, and successful completion in Q3 of our large wireless India design win. However, our Q4 results benefited from a continuing focus on managing operational costs and expenses. We experienced significant market headwinds in most of 2024, particularly in industrial and EVHEV markets. The challenges in industrial markets resulted from continued weakness in global manufacturing activity, while global growth rates in the EVHEV market fell to half the level of the prior year. The rapid deceleration in EVHEV production, particularly in Europe, triggered a major inventory destocking among our customers. As a result, our Keramic Power substrate sales dropped significantly and were the largest reason for our lower 2024 sales. While our customers expect to see a gradual recovery in EVHEV and the power industrial markets in the second half of 2025, these inventory challenges, as well as uncertainty related to trade policy, are persisting into Q1. Customers are ordering cautiously in this current environment and therefore we expect a relatively flat sales outlook for the first quarter. Laura will provide more details on the Q1 guidance later. In 2024, we further position Rogers for market recovery with solid progress on commercial innovation and operational excellence initiatives. This included securing new design wins in many of our key end markets, launching new products, and advancing our local-for-local manufacturing footprint strategy. Operational excellence initiatives resulted in robust free cash flow conversion in 2024. With a pristine balance sheet, Rogers is in a strong position to continue advancing both our organic and inorganic growth objectives, even as we navigate this dynamic market environment. Turning to slide six and our fourth quarter and full year 2024 results. Fourth quarter revenues of $192 million declined 9% from the prior quarter, and we're in line with our guidance midpoints. Gross margin of 32.1% was about 300 basis points lower versus Q3 due to volume. Full-year sales declined 9%, primarily due to two markets, industrial and EVHEV. 2024 gross margin was 33.4%, 40 basis points lower versus the prior year. The impact of the lower volume was largely offset by significant improvements in operational excellence, including a notable reduction in our operations spending and procurement costs. Looking at our sales by market, the increase in Q4 EV HEV sales was modest, as we have not yet seen a meaningful demand improvement from our Keramic Power Module customers. Elastomeric material solutions, or EMS, sales into the EV HEV market were again solid, albeit flat, to Q3. As discussed earlier, EV HEV full-year sales for Keramic were significantly lower versus 2023. EMS had record revenue in 2024 into EVHEV, driven by ramping production rates for key programs with critical customers. ADAS sales improved sequentially due to improved automotive volumes and stronger order patterns from some key customers. Aerospace and defense delivered solid growth for a second consecutive quarter in Q4 from higher commercial aerospace demand. For the full year, our A&D sales grew at double-digit rates led by the radio frequency solutions or RFS business, which saw stronger demand for military radar applications. Portable electronics sales were sequentially lower in the fourth quarter due to normal seasonality and in line with expectations. Full year sales grew only slightly compared to the previous year as we saw less aggressive refresh cycle for smartphones in late 2024, despite having strong content in high-end AI functional devices. As expected, industrial sales were sequentially lower in the fourth quarter due to customers managing year-end inventory levels. Although inventory levels have stabilized across most of the submarkets that comprise our industrial sales, demand has not yet improved. This is consistent with U.S. and European PMI data, which has been in contraction for most of the last two years. Wireless infrastructure sales saw the largest decline of all our market segments quarter to quarter as shipments to our Indian program were completed. However, for the full year, we delivered strong wireless growth primarily due to the Indian-based fixed wireless access project. With strong proven technology targeted to this market, we continue to pursue opportunities in our sales funnel, including the next phase of this project in India. Next, on slide seven, I'd like to spend a few minutes highlighting some of the key accomplishments across our commercial and R&D teams from 2024. We remain confident in the underlying strength and growth opportunities in the markets we serve, despite last year's challenges. We secured a number of significant wins across our portfolio in 2024, and while some of these wins delivered sales in the year, many are wins that are expected to contribute to revenues in the coming quarters and beyond. The most recent of these wins is in the ADAS space. In the fourth quarter, a leading Asian automotive radar supplier selected Rogers Materials for a new 77 gigahertz forward radar unit application. We rewarded this business based on the strong performance and reliability of our laminate materials, where we remain the technology leader in mission-critical applications. Other significant design wins from earlier in 2024 were in key markets such as EVHEV, portable electronics, renewable energy, and data centers. Design wins in the EVHEV space have the largest future revenue potential and included multiple wins in both Western and Asian customers. These wins were in both business segments. In AES, our Keramic power substrates were designed in by multiple power module manufacturers and OEMs in China. This provides us increased access to the fastest growing EVHEV region in the world and underpins our capacity expansion plans. We also continue to develop strong relationships with our U.S. and European customers and have good exposure to each of these geographies through our customer base. In addition, our EMS business has secured important design wins for our battery cell pad technology with leading global OEMs and their battery suppliers. Our Poron polyurethane products continue to be a leading material of choice for pressure and vibration management solutions that improve EV battery efficiency and reliability. Additionally, we strengthened our M&A pipeline in 2024 as we identified additional strategic bolt-on acquisition targets. To ensure we maintain our position in high-performing engineered materials, we made advancements across our innovation pipeline in 2024. Starting with our AES business, we launched a new advanced thermoset laminate in Q4 2024 designed for corner radar applications in the ADAS market. For years, our copper-clad laminate technologies have helped to enable accurate and timely detection of objects to improve automotive safety. This new product builds on these strengths while reducing manufacturing costs for our customers. Our R&D team continues to innovate in this space with the next generation of this product scheduled to launch later this year. We also launched multiple successful products in our EMS business. This includes our poron polyurethane materials where we introduced new technology targeted to the semiconductor market. In our Keramic business, work continues to develop next-generation power substrate solutions that improve thermal dissipation to enable improved system performance and lower costs for our customers. In EMS, we had multiple engagements with key OEMs and battery manufacturers related to emerging EV battery technologies, where our polyurethane and silicone materials solve pressure management challenges and other critical needs. In AI, early stage work on solutions for data centers also continued last year. In both AES and EMS, we are targeting opportunities in the areas of thermal and vibration management and signal integrity. In 2025, we will build on these achievements as we continue to secure new design wins and accelerate our pace of innovation. Turning to slide eight, we've made good progress executing our local for local manufacturing strategy. with the addition of a new ceramic power substrate facility and a Bisco silicone line, both in China. Building our geographically diversified manufacturing footprint is key to achieving our near and long-term growth objectives. In recent years, we have focused on selectively adding manufacturing capabilities to position Rogers to grow with existing customers as they expand in new regions, as well as capture business with new customers by accessing these markets competitively. This effort has also improved our operations flexibility with multi-site product and supply chain qualifications. This strategy helps de-risk sole supply and mitigates the impact of current and potential future tariffs. Specific to our 2024 investments, the new Keramic power substrate factory better supports Western customers who are expanding their silicon carbide power module production in China. We have secured design wins with new customers headquartered in China with more design and activity ongoing. This facility is scheduled to start full-scale production in mid-2025. These investments provide us with scale and capacity to address this growth market. Our capacity footprint additions are now essentially complete. As we did in 2024, we will continue to drive manufacturing cost improvements and operational excellence throughout this year. This includes reductions in manufacturing and procurement costs, as well as additional yield and throughput improvements. It also includes ongoing consolidation of our RFS footprint, which we first announced last year. These actions are expected to improve operating profit between $7 to $9 million annually, with a portion of that benefit realized in the second half of this year once the wind-down of our Belgian facility is complete. This self-help will remain our focus for operations in 2025. One final point. on additional actions we've taken to support Rogers' growth, and that is the implementation of our SAP S4 HANA ERP system. We are currently in the early stages of this implementation, which we expect will lead to more efficient internal processes and improved customer experience and a more flexible and scalable business. The rollout is on track and is expected to continue over the next two years. Now, I'll turn it over to Laura to discuss our Q4 financial performance and Q1 2025 outlook.

Thank you, Colin. I'll begin on slide 9 with the highlights of our results for Q4. Our overall results for the fourth quarter were in line with our expectations. Sales of $192 million, gross margin of 32.1%, and adjusted EPS of $0.46 were all near the midpoint of our previously announced guidance. For the full year, sales of 830 million were 9% lower than the prior year. However, with our focused efforts to reduce manufacturing costs and increase efficiencies, gross margin declined by only 40 basis points. Adjusted earnings for the full year were $2.72 versus $3.78 in 2023. As a result of our efforts to reduce costs, control expenses, and manage working capital, We generated free cash flow of 71 million in 2024, similar to prior year levels. On slide 10, I'll discuss our fourth quarter sales results in greater detail. Net sales of 192 million declined by approximately 9% versus the third quarter, primarily due to lower volume, which was slightly offset by favorable foreign currency fluctuations. On a reportable segment basis, AES revenue decreased 9% versus the prior quarter to 102 million. Lower wireless infrastructure sales were partially offset by higher ADAS revenue. As noted on last quarter's call, lower wireless infrastructure sales were expected as we completed shipments to a project in India in Q3. EMS revenue decreased by approximately 8% to 86 million due to lower industrial sales, as customers managed year-end inventory levels, and from the normal seasonal decline in portable electronics sales. Aerospace and defence sales improved sequentially. Turning to slide 11, Q4 gross margin was 32.1%, a decrease of 310 basis points from the third quarter. The reduction in gross margin was primarily due to lower volume and unfavourable product mix. We achieved further operations and procurement savings in Q4, but these were more than offset by under-absorbed fixed costs. Over the course of 2024, we achieved significant cost reductions from our ongoing operational excellence initiatives, which are focused on reducing manufacturing costs. We executed these savings by driving operations and procurement cost savings, optimising yield and enabling throughput improvements. These actions led to a 6% decrease in manufacturing spend in 2024. Even with these reductions, we did continue to carry some excess costs in the fourth quarter in anticipation of a rebound in demand. We will continue to monitor these costs closely as we work to balance margins and the ability to quickly respond to future recovery and demand. Adjusted net income decreased to $9 million in the fourth quarter from 18 million in Q3. Q4 adjusted earnings per share was 46 cents compared to 98 cents in the prior quarter. The lower Q4 adjusted net income was primarily due to the lower gross margin already discussed and higher operating expenses. The increase in adjusted operating expense was primarily due to additional start-up costs. These items were partially offset by a decrease in other expense and lower income tax. On a GAAP basis, operating expense increased to $67 million in Q4, $7 million higher sequentially. The primary drivers of the increase were higher severance costs related to a global workforce reduction and incremental factory startup expenses. In Q4, we also incurred an $8 million impairment related to our ERP system, which is in development. This was largely offset by a gain of nearly $8 million in connection with an agreement to separate from our existing joint venture relationship. As Colin referenced, we continue to make progress on our ERP deployment plan and expect to achieve significant synergies when the implementation is complete. Continuing to slide 12, I'll next discuss some of the highlights from our capital allocation priorities in 2024. Cash at the end of 24 was 160 million. For the full year, we generated solid operating cash flow of 127 million and free cash flow of 71 million. We allocated 56 million to capital expenditures to fund organic growth initiatives which included new manufacturing and business process improvement activities. In the first quarter of the year, we repaid the remaining $30 million balance on our revolving credit facility and continued to carry no debt. Share repurchases in 2024 totaled $20 million, with $12 million repurchased in the fourth quarter. As we move forward through the year, we will continue to prioritise actions to maximise cash generation. With our favourable cash position and a clean balance sheet, we continue to be in a good position to allocate capital consistent with our priorities of funding organic growth, pursuing synergistic M&A and returning capital to shareholders in the form of opportunistic share repurchases. In 2025, capital expenditures will begin to decrease as we complete the current power substrate expansion in China. For this reason, we expect full-year capex to be in the range of 40 to 50 million. Next, on slide 13, I will discuss our guidance for the first quarter. Before discussing the specific ranges for the quarter, I'll provide some context to our current expectations for 2025. First, as Colin touched on, customers remain very cautious and there is a heightened level of uncertainty related to trade policies and timing of a market recovery. Customers, particularly of our ceramic business, are signalling that a recovery will be gradual and second-half weighted. For that reason, and due to the normal seasonality in our portable electronics business, we expect the second half of the year to be stronger than the first half, and with Q1 likely the low point for the year. As sales improve, the higher volumes will naturally bring up gross margins to levels more in the range of what we achieved in 2024. Now turning to the ranges for the first quarter, we expect Q1 sales to be between 180 and 195 million. The midpoint of this range is a decrease of about 2% from Q4 sales. The decline is due to an expected unfavourable foreign currency impact of 1-2% and lower portable electronic sales due to normal seasonality. We are guiding gross margin to be in the range of 29-30.5% for Q1, with a decrease as a result of both lower volume and unfavourable product mix. This guidance range also incorporates a small impact from our new silicon manufacturing line, which will continue until we reach a more normalised utilisation rate. As noted earlier, we will continue to carefully monitor demand levels and will pursue further actions to flex our cost structure should we not see meaningful top line improvements in the coming quarters. First quarter adjusted operating expenses are projected to be slightly lower versus Q4. EPS is expected to range from a loss of 26 cents to 4 cents of earning. The adjusted EPS range is 10 cents to 40 cents of earning. Our Q1 EPS range includes 25 cents of restructuring-related expenses, with most of this associated with the wind-down of our AES operations in Belgium. Lastly, we project our full-year tax rate to be approximately 27%. I will now turn the call back over to Colin.