Q3 2020 Rogers Corp Earnings Call
Good day my name is Holly and I'll be your conference operator today at this time, we would like to welcome you to the Rogers Corporation quarter, three 2020 earnings conference call. After the speakers remarks, there will be a question and answer session. If you would like to ask a question. Please press Star then one on your telephone keypad to withdraw.
Well your question. Please press the pound key I'll now turn the call over to your host Mr., Steve Haymore Director of Investor Relations. Sir you may begin the conference.
Thank you Holly good afternoon, everyone and welcome to the Rogers Corporation third quarter 2020, <unk> 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.
Our 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 Rogers 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 wrecked.
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 Hoechner, President and CEO, Mike Ludwig Senior Vice President and CFO, and Bob Daigle, Senior Vice President and CTO I'll now turn the call over to Bruce. Thanks.
Thanks, Steve Good afternoon, everyone and thank you for joining US today, please turn to slide four.
Rogers delivered solid third quarter results led by growth in key strategic markets and strong operational execution.
Q3, net sales were $202 million gross margin was 37.4% earnings were 37 cents per share and adjusted earnings were $1.45 per share.
Net sales gross margin and adjusted EPS, all improved sequentially and exceeded our previously announced guidance ranges.
Strong demand in the E V H T V Das portable electronics and defense markets drove the higher than expected sales even.
<unk> HPV sales grew double digits sequentially, driven by strong demand for battery powered and ceramic substrate applications are.
Yes sales experienced a sharp recovery in Q3, but the broader automotive market remains below pre pandemic levels.
The substantial growth in sales for the portable electronics market resulted from improved seasonal demand bolstered by a fast ramp in fiveg smartphones.
Defense market sales increased at a rapid pace in Q3, adding to the impressive year to date performance. We have a long history of success in this market and recent design wins and new product introductions are adding to our growth.
Sales in the wireless infrastructure market were lower in Q3, our supply chain challenges, resulting from trade restrictions slowed the fiveg rollout in China.
We have yet to see broad recovery in the general industrial and mass transit market visibility to the timing of a recovery in these markets remains less clear.
Roger is continued to achieve strong results with our operational excellence initiatives, which helped drive our improved gross margin performance the higher gross margin and effective management of expenditures and working capital resulted in strong free cash flow of 48 million.
Dollars.
We are pleased with our Q3 results and our year to date performance in the face of challenging market conditions. Our strong results highlight the benefits of both our diversified markets and operational excellence strategies.
Turning to slide five I'll now discuss the outlook for some of our key markets.
Beginning with advanced mobility Rogers differentiated materials technology is a key performance enabler for this market.
Led by Fiveg smartphone sales.
Third party estimates point to modest growth in the total smartphone market over the next five years with a CAGR of about 4%.
However, the fiveg portion of that market is expected to grow at a much faster 35% CAGR.
This is significant for Rogers as advanced features incorporated in Fiveg handsets have created a greater content opportunity.
The higher content ranges from 10% to 15% in mid range devices up to 30% more content for certain premium products.
With our high performing materials and reputation for reliability, we are well positioned to capitalize on this growth.
We are encouraged by the positive long term outlook for growth in advanced Defense systems defense spending is increasingly shifting to technology programs, such as missile defense and radar systems, which drive increasing demand for Rogers advanced circuit materials.
Our long history of providing high reliability solutions for demanding applications and our differentiated engineering capabilities puts us in a strong position to continue our success in this market.
We also continue to leverage our innovation centers to develop new technologies that support advanced communications radar and guidance systems. As mentioned, we are gaining traction with recent product introductions and we remain focused on developing future advanced materials solutions.
Please turn to slide six.
All three of our business units are focused on the significant growth opportunities. We see ahead in advanced mobility, which includes the HCV and HIV test markets.
Today I'll focus on our advanced mobility solutions specific to Avi HPV beginning with SMS.
He HCV battery performance reliability and safety of our of great importance to automakers and their customers leveraging our expertise in polyurethane materials. We have developed high performance solutions that enable improved battery reliability for full electric and hybrid.
Electric vehicles.
Battery compression pads for plug in HCV isn't MPS are the largest opportunity in this market where content can be greater than $30 per vehicle.
We have numerous design wins and a strong pipeline of additional opportunities with leading Oems and battery manufacturers.
Moving to PE assets, we have a strong market position in high performance ceramic substrates, which are used across the full spectrum of ease and hgvs as a reference point the contact opportunity for our substrates ranges from $5 and a 48 volt mild hybrid to around.
$40 in a full electric vehicle.
Increasingly easy and AG redesigns are incorporating wide bandgap semiconductors, which require high performance packaging.
This advanced technology provides substantial efficiency improvements, which results in increased vehicle range and lower cost batteries, while reducing the size of the inverters.
Rogers is well positioned to capitalize on this growing trend our new generation of silicon nitride substrates helps to maximize the performance of silicon carbide devices and demanding applications.
Power Interconnects provide an additional content opportunity in E V HCV and Mike our substrate solutions. The dollar content can range broadly.
The medic and measurable improvements, while delivering increased value to our customers.
Here are some examples of the results that we are seeing from applying this standardized system.
First we have seen substantial improvements and yields scrap rate and on time deliveries and all three of our business units compared to the prior year. This has benefited our financial performance and improved customer satisfaction.
Second our system has provided a structure to make decisions about optimizing our global factory footprint.
As announced we're making adjustments to certain manufacturing facilities in Europe and Asia. These actions will significantly benefit the company by better aligning capacity with and market demand improving factory utilization and increasing our cost competitiveness.
Third in addition to our manufacturing improvement efforts, we are engaged in an enterprise wide continuous improvement initiative focused on optimizing all business processes. This will drive further operating expense efficiency as we leverage our commercial and administrative infrastructure and.
<unk>, our manufacturing improvement efforts.
Recapping the key messages from today's call. We are pleased with the solid results for the quarter, resulting from our diversified market strength and the consistent execution of our operational improvement initiatives. We are encouraged by the strength and many of our key strategic markets.
Even as a recovery is not yet evident in other areas I, especially want to thank our employees for their dedication and contributions throughout this challenging year.
Now I'll turn the call over to Mike to discuss our queue three results in more detail.
Thank you Bruce and good afternoon, everyone and slides ahead I'll review, our third quarter results, followed by our fourth quarter guidance.
Turning to slide nine is Bruce mentioned Rogers delivered solid results in the third quarter that it seeded or guidance or revenues gross margin and adjusted EPS.
We delivered gap EPS of 37 per fully diluted share, which was above the mid point of our guidance range.
In the third quarter, we recorded restructuring an impairment charges of $9.4 million related to manufacturing footprint optimization plans involving certain Europe and Asia locations mentioned earlier.
Additional restructuring charges of between $2.5 million and $4.5 million are expected in the fourth quarter.
Many of the restructuring actions will not commence until late in Q4 and into the first half of 2021 at which point, we will have a comprehensive view of the annual benefits from the planned actions.
In addition, consistent with our communication last quarter, we incurred 11 $7 million of expense in Q3 from the acceleration of our amortization of intangible assets from the DSP acquisition.
Neither of the restructuring charges northey accelerated amortization will included in our adjusted fully diluted earnings per share for Q3 of $1.45 cents.
Turning to slide 10, R Q3 revenues of $201.9 million increased $10.7 million or 6% compared to the second quarter of 2020.
Yeah mass revenues increased 21% to $86.4 million.
P E S revenues increased 6% to 47 $9 million, while Acs revenues decreased 10% to 63 $7 million sequentially.
Currency exchange rates favorably impacted third quarter revenues by approximately 1% compared to the second quarter.
The sequential Emf's revenue increase resulted primarily from significantly higher portable electronic application revenues, which grew 72% sequentially and accounted for over 35% of the segment revenues.
The revenue increase was spread across many of the large Oems as the early momentum we witnessed at the end of the second quarter gained significant traction in Q3 bolstered by five G handsets and increased content in certain five phones.
In addition revenues from Evie HGV battery Pat applications grew 77% sequentially as the adoption of armor materials into new design wins with battery makers for significant Oems continue to demonstrate the application advantage of our poor on product.
We expect the demand for both portable electronics and Evie HGV applications to remain robust in queue for.
Revenues for general industrial applications, which comprise over 35% of the segment revenues declined 2% sequentially.
The rate of decline in Q3 lessons significantly from the second quarter sequential decline.
We are a bit cautious regarding queue for demand for general industrial applications as he increase in COVID-19 cases, such slow the momentum of the economic recovery.
The increase in the P. E S revenues compared to Q2 was driven by a 20% increase in EV HGV application revenues, which account for just under 30% of the segment revenues the.
The sequential increase reflects the continued momentum in the market.
In addition, traditional automotive revenues for X by wire applications grew 60% sequentially, resulting from the automotive recovery that commenced in queue too.
The industrial variable frequency drive business, which accounts for close to 25% of the segment revenues declined 6% compared to queue to an indication of the continued weakness in the general industrial market.
ACS revenues decreased sequentially, primarily due to a 42% decline in our wireless infrastructure revenues, which comprise approximately 23% of the segment revenues the.
The decline was felt of both <unk> and five G revenues as a supply chain challenges from trade restrictions felt by Huawei have negatively impacted the pace of the China <unk> installations.
We believe these challenges will continue to impact five G revenues into the fourth quarter.
And all space and defense revenues, which now account for over 40% of the segment total through 11% sequentially from existing and new programs in the defense market.
We expect these defense revenues to be flat to slightly down in the fourth quarter due to the timing of orders for certain programs. While we maintain are bullish outlook on our long term prospects in this market due to the alignment of the advanced defense system requirements with the technical capabilities of our products.
Eight as revenues grew 42% sequentially as your automotive market commenced the recovery in the second quarter and our customers work through their inventories early in the third quarter we.
We expect to see continued strength for a dos applications in the fourth quarter.
Turning to slide 11 are gross margin for the third quarter was $75.5 million or 37, 4% of revenues and increase of 80 basis points over the second quarter.
The increase in gross margin percentage was primarily due to increased volume a favorable product mix and improve manufacturing execution.
Gross margins increased significantly for <unk> in the third quarter due to increased volumes are favorable mix with higher portable electronic revenues and less expense for excess inventory reserves.
Acf's gross margin declined in the quarter due to lower volumes and not having the benefit of the tariff refund accrued in the second quarter.
The unfavourable impacts were partially offset by increased yields.
T E S gross margin declined in the quarter, primarily due to an unfavorable product mix the.
The impact of the unfavorable mix was partially offset by increased volume and the continued improvement in manufacturing performance.
We continue to be encouraged by the results generated from art [noise] excuse me increased focus on operational execution.
The gross margin for Q3, 2020 was 180 basis points higher than Q3 2019 [noise].
Gross margin of 35.6% on approximately $20 million less revenues.
At the same revenue level and the same product profile is Q3 2019 R. Q3, 2020 gross margin would have approximated 39%.
Yeah.
Also on slide 11, we detailed the changes to adjusted net income for Q3 of $27.1 million compared to adjusted net income for Q2 of $21.1 million.
The adjusted operating income for Q3, a $35 million and 17.3% of revenues was 190 basis points higher than Q choose adjusted operating income.
Adjusted operating expenses for Q3, $45 million or 21% of revenues, where approximately flat compared to Q choose expenses, demonstrating good spending discipline on increasing revenues.
We terminated our interest rate swap agreement late in the third quarter, which resulted in recording additional interest expense of $2.4 million in Q3.
Rogers effective tax rate for the third quarter decreased to 8.1% as a result of reducing evaluation allowance on R&D credits in the quarter.
We now expect our effective tax rate for 2020 will be approximately 23% to 24% with our long term right projected to be in the range of 20% to 22%.
Turning to slide 12 in the third quarter. The company generated strong free cash flow of 47 $9 million and ended the quarter with a cash position of $186 $1 million.
In the quarter, we generated 58 $7 million from operating activities, including a 22.2 million dollar reduction in working capital.
And repaid $163 million on our credit facility.
We ended the third quarter with an outstanding balance on a credit facility, a $60 million and a net cash position defined as cash and equivalents in excess of the amount owed under a credit facility of $126.1 million.
And Q3, the company spent $10.8 million on capital expenditures, we spent $28 $9 million year to date through September and for 2020 expect to be at the low end of our communicated 40 million to 45 million dollar range.
On October 16th the company entered into the fourth amended and restated credit agreement, which effectively extends the maturity of our revolving credit facility from February.
2022 to March 2024.
[laughter].
Turning to our fourth quarter guidance on slide 13, we expect to see strength and portable electronics driven by five G handsets.
Strengthen E V. A T V driven by the continued marketplace momentum and strength in traditional automotive market, resulting from the recovery in the end market.
We expect the timing of defense orders to weigh on revenues in Q4, and the supply chain challenges caused by trade restrictions to continue to negatively impact the wireless infrastructure market in queue for.
While we see some positive signs pointing towards the beginning of a recovery in general industrial markets. We're cautious in our forecast due to the influence of current developments of Covid, 19, containment and outbreaks and different geographies.
As a result Q for revenues are estimated to be in the range of $195 million to $210 million.
We expect the queue for volume and revenue mix profile to approximate R. Q3 profile. Therefore, we guide gross margin in the range of 37% to 38%.
We got gap queue for earnings in the range of 50 cents to 70 per fully diluted share.
On and adjusted basis, We guide fully diluted earnings in the range of one dollar and 30.
$1.50 per share for the fourth quarter.
I will now turn the call back over to the operator for questions.
Thank you as a reminder, if you would like to ask a question simply press Star then one on your telephone keypad. If you would like to withdraw your question press the pound key once again press star one to ask a question real pass for just a moment to compiled the roster.
Uh-huh.
And our first question is going to come from the line if Craig L. S would be Riley securities.
Thank you for taking my question and congratulations on the strong quarter and guidance and the continued robust marching execution does.
My ex whether I wanted to do just Oh, you're welcome, but I wanted to do to start cause just to drill down on the gross margin point so.
Some nice strength in the third quarter and I think you identified three factors that contributed to expansion. The question is I think going into the third quarter. The view was there was still 150 basis points of of P. E S related volume agnostic.
Marching expansion potential in the business was that part of the third quarters gross margin strength.
And if so or if not are we still looking at something like 150 basis points of volume agnostic help from here.
Yeah, So correct I would I would say that the 150 basis points, we probably generated somewhere between 25 and 50 basis points of incremental margin in at P. E. S from improvements in manufacturing performance, I'd say, primarily yield but all.
So with respect to lowering the cost of our raw materials, so a little bit there and I would say going forward both from P. E S and even from a company perspective, I would say, we still have in the ballpark of 100 plus basis points that would be I as you called it volume.
Ignostic going forward. So I think we still have we still have some room, there and as we talked about you know some of the factory footprint changes in and charges that we took on in the quarter I think those moves will help us going forward as well. So I I think some of those could be on top of that.
Great. That's helpful. Bruce I wanted to turn to a couple of your comments so real helpful to get some of the color around what's happening with the secular drivers I'll start with.
With the P S business and some of the near term strength, we're seeing with five G. Smart phones and the question is this if we look back at Samsung's commentary last night on the smartphone market for next year I think they believe it can be 400 to 500 million unit market. So.
Two to two and a half packs versus this year. So given that Rogers has that nice 15% to 30%.
Content edition, how do we think about the potential growth early and five G uptake when we're getting some of the explosive numbers that we're hearing from big suppliers like Samsung.
Yeah. So you know as you point out and and as we said in the prepared remarks, we see our content.
And almost all categories and five joost smartphones to be increasing and so depending on how fast the five G. Handsets I go in to get into the market and continue to grow I think it reflects it'll reflect very well for us moving forward and it through next year.
And so and so as long as we we've got.
Unit growth in the market and reasonable high and mid range of low rent growth. We would expect that business continue to continue to grow nicely.
The risk would be that at some point you might get much more dramatic low-end growth person is high end to find Mister early on so there might be some mixed dynamics, but but it seems like your set up for at least two to three years, a very strong growth in that subsegment a factor.
Yeah, we certainly look at next year as being a nice give us some nice tailwind in the portable electronics and we will see how it been kind of flows through into 2022, but certainly we are given the design wins that we have in our knowledge of where are materials are being used we feel very good about yeah.
Yeah.
That's helpful.
And then by a couple of hundred to turn back to some of your commentary on general Industrial I think for the most part are checks with the broader supply chain shows that it continues to be an area of weakness, it's hurt by things like energy extraction and 10 other sub segments of the market, but but we are seeing signs that that.
Orders are starting to improve in that market. We heard from one equipment company today that that was the case in their calendar fourthquarter.
If I use.
2009, as a guide where the broader industrial and market globally recovered two to three quarters behind the initial recovery for things like P. C's do you think that's a reasonable guideposts to use as we think about what can happen off of of Covid bottom in two two and three Q or for.
Some other reason would there be a more protected duration to recovery for the general industrial businesses.
Yeah. This is Bruce I you know our our view is this is going to be dependent on a couple of things first whether there's a resurgence of the virus and you know the effect that that has particularly on consumer market, which then leads back into capital investment capacity and so forth, which impacts are general.
<unk> opportunities. So it is not necessarily directly tracking back to 2009 as you saw sort of that recovery come not straight line, but it's pretty pretty well moving forward there could be setbacks here and that's what we're concerned with it.
Hard to project.
That's purpose topic there.
Uhm.
That's how I have guidance I'll hop back into the queue.
Thanks, Craig.
Thank you once again to ask a question Press Star then one our next question will come from the lineup Patrick how would Stifel.
Thank you very much and congrats on a nice corner I appreciate the slide you have in the in your quarterly.
Quarterly deck on the automobile opportunities for your different businesses, what I wanted to find out Bruce maybe from your end is can you talk a little bit about the stickiness of your products and what I'm getting by that is you know my coverage on the semiconductor side. They test every device because it's.
Safety protocols and the need to ensure that everything works you know within a car you know all the way down to the smallest and they'll see see I was just wondering from your end is that stickiness something that you also I guess experienced for your products.
And you know, especially has these markets grow that that allows less of the ability to quote displace your materials from others.
Yeah, So I'm gonna ask Bob to comment on this because I think it has a lot to do with our technology. Yeah. Yeah, I think Patrick the way you characterize that I think is valid really very.
Various segments of our business, we are working typically with.
Either the Oems are very directly with the chip packaging.
Semiconductor guidance and that should packaging area at our products are unique so when we get a design when.
We'd be on the print in that case and our experienced is usually then we're in for the lifecycle of those those platforms. That's the nice thing about automotive negative. It takes a lot of it designed in positive once your design and it's very sticky and our past experience.
Great. That's that's helpful. Maybe might just to follow up on some of the gross margin comments again, obviously, you performed very well well given the current environment and and the revenue levels, you're still that give you some of the manufacturing changes in the print that you talked about how much flexibility is there.
Now for you to have just you know from different products, you know different materials at different places I I know you reduce the footprint and not all materials are the same but how much flexibility do you have that can help marches potentially stabilize you know over the longer term.
You're you're able to move from place to place depending on demand.
Yeah. Good good good question, Patrick and and in fact.
Yeah, and thanks for the recognition on the on the gross margin right. The the team has done a fantastic job and I think I think I would say about that is the changes that we made are very very sustainable. So we're we're happy we're happy for that the question you asked so the answer would be or or you know certainly with.
And the different business units, we have areas in manufacturing sites, that's very fungible in terms of its ability to handle different product lines I'd say, that's more so within the the specific business units as opposed to across business units, but I think that that fungibility.
And ability to move products and to be flexible really has has helped us initially through some of the Covid challenge and we think will continue to be an asset for the company going forward.
Right and maybe final question for you might as well just <unk> on top of the the gross margin question. You know one thing that as revenue start to grow with the improvements you've made on the overall cost structure an expense lines cash generation is is likely to improve as well what are your thoughts as cash begins to.
Come in you know at 2021 happens to be you know in recovery year for for the industry. How do you look at cash that's going to be building up you know at higher revenue levels.
Sure, Yeah, and I I would say again happy with the the cash generation that we've had it you know to date in 2020, even with the with the lower revenues with the lower revenues, so, but yes, I think going forward again, I'm I'm encouraged by the amount of cash that weird that we're generating this.
Year unexpected it will continue to increase with.
Increasing revenues and increasing efficiency with our working capital. So yeah I do expect that so what do we think about capital allocation you know going forward I'd still say that the number one priority is to spend that on on growth. So and again, we think we have very good growth opportunities in E V. A.
E V a D as defense and so as as well as a portable electronic so from that perspective, we're going to make sure that we use that money for capital to allow us to build the capacity that we need to address these growing markets.
Secondly, and as as you saw we've continued to pay down debt and I think even going going forward, certainly I think more constructive conversation around potential share repurchases why we haven't committed to do that we're certainly getting there's getting it's getting more dialogue within within the within the company and certainly at certain price.
Points, we might be we might be more aggressive about that.
And and of course, the at the other area around growth that were continued to look at his M&A.
Great. Thank you again.
Thanks, Patrick.
Our next question will come from the line of Daniel more with C. J S Securities.
Good afternoon, gentlemen, thanks for taking the questions just wireless handsets just remind us of your typical content for device. So he can put arrange a dollar content on five G that you described earlier.
It's hi, Dan This is Bruce it's in the range of Uh Huh.
Per per unit I would say about seven.
10 cents, depending on on the application.
Some might be Lola high and high end would be at the higher end of that range.
Perfect and then Q for typically or at least historically says a little seasonally software and portable electronics, but you're seeing that has continued area of strength visit.
Specifically five G. As if the content that's keeping that up you know and give you the confidence in the queue for outlook yeah.
Yeah. It's it's interesting you write the history is Q3 is the build out for for the holidays. So we're seeing a continue into the quarter into the fourth quarter and it has to do we believe with the five G filling of the the supply chain.
Got it and it sounds like you're already baking in some if not incremental some potential for industrial softness into that guy this isn't a hearing that correctly.
Yeah I, it's it's we see it as remaining soft I mean, there's there's we have a wide variety of applications, writing industrial but generally we see it flat to maybe slightly down and we really haven't seen anything that that would indicate it's gonna recover and a quarter.
Okay, maybe one or two more covered a lot of ground wireless infrastructure down to 11% of total revenue, presumably less in Q3, and still gets kind of gardeners outsize tension.
Do you anticipate that piece returning to grow some 21 and I only ask because even if it's you know flatter down modestly it shouldn't really detract significantly from your growth potential given the other drivers.
Yeah, I you know our view again, we we've we've reoriented the company towards advanced mobility defense portable electronics, and we see those growth vectors really taking off our view on wireless infrastructure is that it's it'll be sideways flat to slightly down as we move forward into next.
Here and and we don't see that you know it certainly wireless is part of the portfolio of the company.
But certainly not the the growth vector that we had seen it probably a year and a half two years ago for us.
Got it and the last one for me a lot of color. Thanks, Mike on on the gross margin.
The prior 40% goal even at the new mix. It sounds like we can get back there you know with four already back there on 2019 demand levels are at 39%. It seems like that's insight any commentary there.
So I I think I think you're right you know when you talk about it and we we've said you know going forward that you know at at similar mix right. Every 10 $11 million could add up to 100 basis points of gross margin. So certainly I think we're within.
There within the ability to to do that here and I think with some of the additional opportunities. We have to continue on the manufacturing improvement front I I think I think there's a chance to maybe even cross that number but you know we'll see how the we'll see it's gonna be very much volume independent and we'll see how that how that.
Plays out.
Understood. Okay I appreciate the color once again.
Nightstand.
And our next question is a follow up from Craig unless with B Riley Securities.
Thanks for taking the question Bruce I wanted to follow up on the comments that you made around the defense related businesses, because it seems like there and for all the businesses moving to a higher level up growth and I think you commented that a lot of defense program, Sir tilting more towards.
Being radar intensive which papers you, but to what extent as you've been working with the business over the last 12 to 18 months. That's Roger she they're changed just approach with how it looks it existing or new customer opportunities different types of opportunities that might be part of a a radar based system and.
And done things in your own control to expand your stamina in various ways.
Yeah, very good question and and Ah exactly right about two years ago, we changed our sales approach and in the sense that we put more resources more tech support resources and intensified our discussions with are are the Oems and through.
Those efforts and they've been multiyear efforts, we've been able to to see more opportunities are engineers, our sales Oaks technologists in with with those defense contractors identifying ways to to use more broadly the Rogers technology and a lot of these defense areas and.
And as we mentioned in the prepared remarks, you see the technologies in defense moving towards radar systems guidance systems, and it really plays to our strength and and when you look at the growth really explosive growth that we've seen over the last 12 to 18 months in this market.
<unk>, we also see this moving forward knowing what the the the funnel looks like that we should continue to see some nice robust growth in defense.
That's helpful. The follow up it's really looking up further and I'm just going to clarify right up front I'm not looking for specific guidance. So I just want to understand what you may be saying it should look at backlog and and other things. So there was a question earlier about P. S's fourthquarter seasonality I'm really focus more on the first quarter I.
<unk> that would typically be period of softness for the supply chain generally, but we're coming up are pretty low base with five G adoption pretty.
Pretty big numbers for next year, and any thoughts Sky's on on how <unk>, how P. E S might perform relative to seasonality us we look at the first corner of next year.
Yeah, I I think it's really what we were talking about is E. M. S. On the on the handheld right that was what was driving yeah, sorry, Yep Yep Yep no problem. So we we we as we talked about earlier, we see continued strength moving forward on the five T handsets as we get into 2021.
Other areas in E. M. S that would have growth I mean twenty-five percent or so of that that business or more is is general industrial and how well that market recovers I think we will have an impact certainly we see continued strong growth on E V. A cheesy side with our <unk>.
Battery pads and ceiling solutions and that we think will continue and you know we're really thrilled with what we saw even during the pandemic here the strength of E V. H E V sales and as we project forward with any kind of recovery. We believe we will see some real strength in that in the E M S business and.
We have very unique solutions that we believe give us some stickiness to that application.
Interesting and and indeed, it's nice to see them come back. So quickly last one might for you just regarding opex, but team has done a great job.
Bringing opex down as we've gone through the crisis period issue look at we're operating expense is today.
How much are the gains that we've seen are really more structural and and more durable if we get rise and and sales more broadly and how much of it might be just more tactical when things that that might unwind a bit if we get a more normalised environment sometime next year.
Yeah. Good good good question correct. So you know so as as we talked about the operating expert expenses, including R&D, where just over 20 per cent of revenues.
This this quarter, if you'd look at sort of where we were a year ago with the higher revenue levels. It was more it was closer to 19% and and I would I would tell you that even at the 20% you know we probably have some certainly some benefit with respect to some of the operating expenses because there certainly have been less less true.
Travel type travel related expenses doo to doo to Covid, so probably a small a small piece there, but I I wouldn't say that is terribly significant but it has contributed so I I would say that the majority of what we've done is is structural and that you know if we start thinking about revenue levels.
That were again pre pandemic levels I still believe that we should be thinking about operating expenses below below the 20% of revenue and you know and that includes R&D, probably at three and a half or maybe slightly you know it could be 3.5% to 4%, which isn't terribly far off from from where it.
<unk> today, so I think a lot of what we've done is structural I expect it to to to be sustainable and and again I think you'll you'll see that as revenues continue to increase.
That's really helpful. Thanks for all your assistance team.
And our next question is a follow up from Daniel more of a C. J a security.
Yeah, just quickly and in E V. H T V. Can you talk about the number of platforms do you expect to be on in 2021 versus 2020, either number of Oems are a number of total platforms or just the the the level of increase trying to get a better sense of the kittens and trajectory of potential growth there.
I'm Gonna have Bob answer that one for us yeah.
Yeah, I think the answer it pretty broad in the case of Ah, Let me start with.
Yes, and the power semiconductor substrate has been that.
Or working with.
Much broad groups of module makers or.
Burgers or E V. A T V. So.
There's a high level of activity really across the full spectrum of all yeah.
You know various platforms that they're developing.
Find the launch over the next few years in the case of Vms, we tend to be more concentrated on the it's really the Oems that are working on the what are called the pulp sells battery.
The battery technology does referring to Mark that is really primarily tailored we can stomach charismatic.
And we're doing other applications and some of the broader battery technology, but I'd say the focus there is really with the with.
With the Oems that are hostile area and if you. If you look at what's happening particular your options to some degree destroy a lot of that technology a lot of you vehicles.
That are being in and out or.
South technology, So I think.
The way to think about it is kind of where our our momentum is really tied for the rest of the momentum you're seeing in the marketplace in terms of you know.
The number musical electrified vehicles alleviate plug in hybrids in particular that are being announced we're kind of our our our tailwind they're kind of along pretty well with that.
Got it that's helpful. Appreciate about thanks again.
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