Q4 2020 Rogers Corp Earnings Call
Okay.
Good day my name is Erica.
Operator today.
At this time I would like to welcome everyone to the Rogers Corporation Q4 at year end 2020.
At this time all participants are in a listen only mode.
For the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.
You require any further assistance please press star zero.
I would now like to turn the call over to your host Mr. Steve Haymore Director of Investor Relations. Sir you May begin your conference.
Thank you Erika and good afternoon, everyone and welcome to the Rogers Corporation fourth quarter 2020 earnings conference call. The.
The slides for today's call can be found on the investors section of our website along with the news release that was issued today.
Please turn to slide two.
Before we begin I would like to note that statements in this conference call that are not strictly historical are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095 and should be considered as subject to the many uncertainties that exist in Rogers operations.
It 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 statements.
Also the discussions during this conference call May include certain financial measures that were not prepared in accordance with generally accepted accounting principles.
Reconciliation of those non-GAAP financial measures for the most directly comparable GAAP financial measures can be found in the slide deck for today's call, which is posted on the investors section of our website.
Turning to slide three with me today is Bruce <unk>, President and CEO.
Mike Ludwig Senior Vice President and CFO, and Bob Daigle, Senior Vice President and CTO I will now turn the call over to Bruce Thanks, Steve Good afternoon, everyone and thank you for joining us today.
As recently as recently announced the fire disrupted operations at our South Korea, Eunice facility, which produces our <unk> product line. Most importantly, all of our employees are safe and there were no injuries.
This represents less than 4% of Rogers annual sales and we are evaluating various recovery options. Our current expectation is that we will resume production in south Korea in the fourth quarter of this year.
Turning now to slide for I'll cover the results for the quarter and 2020 highlights.
Rogers ended 2020 with strong momentum achieving Q4 sales gross margin and earnings that exceeded the top end of our guidance. The strong performance was driven by accelerating growth in advanced mobility markets and continued improvements in operational execution.
For the quarter net sales increased to $211 million and gross margin improved to 38, 3%.
Earnings were <unk> 81 per share on adjusted earnings reached $1 58 per share.
Despite headwinds from both trade tensions and the COVID-19 pandemic Rogers continued to build stronger and more sustainable business in 2020, the business environment was dynamic and challenging and I am extremely proud of how the Rogers team responded.
At the outset of the Corona Corona virus.
We began quickly mobilizing to protect our health of our employees, while simultaneously focusing on maintaining business continuity, we leveraged our global manufacturing footprint as well as multi site customer qualifications, where possible to avoid any significant disruptions to our customers or essential.
Industries that rely on our advanced materials.
This resilient response was possible thanks to the extraordinary capabilities and dedication of our employees. It's also important to recognize our suppliers and customers for their responsiveness and flexibility.
In addition to our highly effective response to the pandemic, we strengthened the company and several other important ways in 2020.
First we continued to build on our leading positions in advanced mobility and other diversified markets.
On the EV HEV market, we saw a stronger customer traction and design engagement activity that led to additional wins for both our advanced battery pad and power semiconductor substrate solutions. These wins added to our strong market position and helped drive EV HEV sales growth.
Of 30% for the year.
In Acs, we made good progress in 2020 by expanding our customer base with new design wins.
Our advanced solution for next generation auto radar continue to receive positive acceptance from customers.
We also strengthened our positions in some of our other diversified growth markets and.
On portable electronics, our design wins in advanced feature five Jay smartphones enabled us to outperform the market.
Sales increased for the full year driven by strong growth in the second half of 2020.
In the defense market design wins, and new product introductions in 2020, we're a catalyst for greater than 20% sales growth and added to our positive long term outlook in this market.
Second we built a stronger Rogers in 2020 by delivering on our operational excellence initiatives substantial improvements to yield productivity and material costs resulted in three consecutive quarters of gross margin improvement last year.
Fourth quarter gross margins improved by 90 basis points sequentially and more than 500 basis points versus Q4 2019.
Most importantly, these are sustainable improvements, which are carrying forward into 2021.
Third we strengthened our financial position this past year with a focus on margin improvement and judicious management of our expenses and working capital we generated more free cash than in 2019, and we increased our net cash position to over $165 million.
Our strong balance sheet gives us tremendous flexibility as we execute on our growth strategies.
Turning next to slide five I'll discuss market trends for both Q4 and 2020.
In the fourth quarter strong traditional auto and EV HEV demand was the primary catalyst for our sales growth as Oems continue to ramp production and replenish inventories.
Robust Adas and EV HEV sales were the largest contributor to the sequential increase in Q4 revenue.
There were also encouraging signs in the general industrial market, where sales increased modestly versus the prior quarter.
Lastly, wireless infrastructure revenue was stable in Q4.
For the full year as mentioned, we had strong growth in EV, and HEV and defense sales and higher portable electronic revenues.
Renewable energy sales were also strong and increased at a mid teen rate.
The growth in these markets help moderate the impacts of the Corona virus outbreak on the general industrial mass transit and traditional automotive markets.
In addition trade tensions resulted in substantially lower wireless infrastructure sales in 2020.
Turning to slide six I'll next provide an update on the outlook for advanced mobility, and other growth markets and our diversified portfolio.
Beginning with advanced mobility, the transition to clean transportation further accelerated in 2020, as Evs and Hev's comprised over 13% of global auto production or nearly 10 million vehicles.
Growth was especially strong in Europe led by sales of plug in electric vehicles, which reached an impressive 23% market share in December.
This acceleration in demand is expected to continue over the next several years driven by the proliferation of new models, increasing consumer acceptance and favorable government policies.
Third party data continues to point to an expected compounded annual growth rate of more than 30% for EV HEV production over the next five years.
Supporting this outlook are the many substantial investments and commitments from established Oems and startups.
For a desk the outlook in 2021 is much stronger as global auto production is expected to rebound and grow at a mid teens rate year over year.
Increasingly Adas features are becoming standard on new vehicle models propelled by consumer preference regulations and commitments by automakers.
This trend combined with the growth in demand for increasing levels of vehicle autonomy is expected to result in an average growth rate of 15% to 20% over the next five years.
One key issue affecting the outlook for automotive production in 2021 is the limited supply of certain semiconductors.
We are closely monitoring the situation, but we don't anticipate that this will have a meaningful Q1 impact.
In addition to the opportunities in advanced mobility. We are also focused on growth in other markets and our diversified portfolio, such as portable electronics defense and renewable energy.
In the portable electronics market five G smartphone sales are forecast to nearly double in 2021 and drive mid single digit growth in global smartphone sales force.
<unk> smartphone sales are expected to remain strong for the next several years, which provides rogers with a good growth opportunity.
Our content and <unk> handsets can increase by 10% to 15% at mid range devices and by as much as 30% in certain premium units.
The longer term outlook in the defense market remains promising as funding of technology programs, such as missile defense and radar systems is expected to drive increasing demand for Rogers advanced circuit materials.
Our high reliability solutions for demanding applications and differentiated engineering capabilities puts us in a strong position to continue our success in this market.
Lastly, the renewable market is expected to grow at a 10% CAGR over the next five years and we expect a strong demand for our power semiconductor substrate applications to continue.
Please turn to slide seven.
As we've highlighted Rogers growth strategy is built on four pillars, which include being a market driven organization.
Delivering innovative leadership utilizing synergistic M&A.
And driving operational excellence.
Today I'll highlight some of our 2021 priorities intended to further accelerate our growth strategy.
First we are leveraging our leadership and engineering capabilities by creating a new strategic business unit advanced electronic solutions, which combines our Acs and pes groups if.
By combining these two complementary business units, which has deep expertise in both high power and high frequency applications, we will be able to further accelerate our ability to capitalize on high growth market opportunities such as EV HEV, a das and others.
Second we are doubling our capex investments in 2021 to aggressively pursue a strong growth opportunities in the EV HEV market I described earlier.
We plan to invest between 70 and $80 million of capital this year with more than half of that total targeted two additional capacity for our advanced battery compression pad and ceramic substrate technologies.
These investments will position Rogers to capitalize on the significant growth momentum in this market, where we intend to leverage our technology and capabilities to add to our strong market positions.
Third we will continue to drive our operational excellence initiatives in 2021.
With gross margin improvements continuing to be at the top of the priority list.
Business transformation initiatives will also be a key focus and we are investing $15 million of capex for the initial phase of an ERP implementation, which will enable ongoing improvements to our operational efficiency and support organic and inorganic growth.
Please turn to slide eight.
At Rogers, our commitment to corporate social responsibility and sustainability is deeply rooted.
We are dedicated to being responsible members of our communities through robust environmental health and safety management practices. We are also extremely proud of the positive contributions that our advanced materials make to society as they improve lives and protect the environment.
Our ESG efforts are based on many well established programs and practices that Rogers has developed over the years in areas such as sustainable product development regulatory and environmental compliance.
Resource conservation employee development and much more.
We will soon be issuing our inaugural ESG report to highlight and better communicate the important work we are doing in these areas.
Turning to slide nine I'll recap the key messages from today's call.
In 2020, we continued to build a stronger and more sustainable business in the face of a challenging and dynamic environment.
We advanced our positions in strategic markets and executed on our operational roadmap.
The outlook for growth in advanced mobility, and other markets and our diversified portfolio continues to be extremely strong and we are investing aggressively to capitalize on these tremendous opportunities.
Finally, as announced in our press release earlier today, Mike Ludwig intends to retire as Rogers CFO in 2021, it has truly been a pleasure to work with Mike and on behalf of our management team I'd like to thank him for his many contributions.
It has been a trusted strategic partner, helping to drive growth both growth and profitability improvements across the company the.
The process to identify our next CFO is underway.
Mike has not provided a specific retirement date and will help facilitate a seamless transition to his successor.
Now I'll turn it over to Mike to discuss our Q4 results in more detail Mike.
Thanks, Bruce and good afternoon, everyone as Bruce mentioned I intend to retire from Rogers in 2021. It has been a privilege to serve as CFO and work with so many outstanding and dedicated employees.
Together, we've been able to drive significant operational improvements and investments in growth that have benefited shareholders and position Rogers for a strong future.
I would like to thank Bruce and the rest of the board of directors for the opportunity to serve in this capacity.
In the slides ahead I'll review, our fourth quarter 2020 results followed by our first quarter 2021 guidance.
Turning to slide 11, as Bruce mentioned Rogers delivered excellent results in the fourth quarter.
Revenues of $210 7 million or four 3% higher than Q3 as revenues increased sequentially in all business units led by advanced mobility applications in.
In addition, we are encouraged by small sequential growth in certain of our industrial markets in Q4, which we anticipate extending into the first quarter of 2021.
The gross margin improved by 90 basis points over Q3 to 38, 3% as we continued our journey of operational excellence and we leverage the incremental volumes in our factories.
In Q4, we delivered GAAP EPS of <unk> 81 per fully diluted share an increase of 44 per share compared to Q3.
The improvement is attributable primarily to an increase in revenues and gross margin of $5 $8 million decrease in restructuring and impairment charges recorded in Q4.
Significantly reduced interest expense and higher income from our copper hedging program.
Higher income taxes, partially offset these improvements.
For the third and fourth quarter combined we recorded $13 million in restructuring and impairment costs, mainly for footprint optimization activities involving certain Europe and Asia locations that we discussed in our third quarter call.
The footprint optimization activities will provide increased efficiencies accelerating through 2021.
Our Q4, adjusted EPS of $1 58 per fully diluted share increased by 13 per share sequentially, principally due to the reasons just discussed excluding the restructuring and impairment charges, which have been excluded from our adjusted results.
Turning to slide 12, our Q4 revenues of $210 $7 million increased by $8 8 million.
Compared to the third quarter.
ACS revenues grew 9% to $69 5 million.
S revenues improved 5% to $50 1 million in.
In Ams revenues increased slightly to $86 $6 million.
Currency exchange rates favorably impacted fourth quarter revenues by approximately one 5% compared to the third quarter.
ACS revenues grew sequentially, primarily due to a 58% increase in our Adas business during the quarter.
Firstly offset by an 18% decline in the aerospace and defense business.
The Adas business in the aerospace and defense business each comprised approximately 30% of the Q4 segment revenues.
Wireless infrastructure revenues, which comprised approximately 20% of the segment revenues were up 1% sequentially, while declining 42% annually.
The wireless infrastructure business remains an important part of the Acs portfolio. Although we expect the revenues from this application to be flat plus or minus for the foreseeable future.
The meaningful sequential increase in the Adas revenues was a continuation of the momentum we experienced in Q3 as the automotive market continues its recovery.
Consistent with past years, we expect <unk> demand to remain robust into Q1.
As expected the aerospace and defense demand declined sequentially driven by the timing of orders for certain defense programs.
This portion of the Acs business increased 22% in 2020 compared to 2019.
And we remain bullish on our long term prospects in this market for the <unk>.
Linemen of the advanced defense system requirements with the technical capabilities of our products.
The higher <unk> revenues compared to Q3 were driven by an 8% increase in EV HEV application revenues, which account for approximately 30% of the segment revenues.
The sequential improvement reflects the continued momentum in the market, particularly in ceramic substrate applications and.
And we expect this momentum to carry into the first quarter of 2021.
Revenues for the EV HEV applications grew 22% in 2020 compared to 2019.
The industrial variable frequency drive business, which accounts for close to 25% of the segment revenues declined 3% compared to Q3 for.
For the year this business declined 18% versus 2019.
As we entered Q1, we're starting to see signs of recovery in our variable frequency drive business.
The sequential increase in Q4, EMS revenues resulted primarily from significantly higher EV HEV battery pad application revenues, which grew 21% sequentially.
This application continues to gain momentum as evidenced by the 65% annual increase in revenues.
We also experienced nice increases in automotive and consumer revenues in the quarter.
Our industrial revenues, which accounted for nearly 40% of the segment revenues grew slightly for the first time in several quarters, providing assigned it a general recovery might be in the offing.
Portable electronic revenues, which account for close to 35% of segment revenues in the quarter.
While still robust in the quarter were lower than third quarter revenues.
2020 portable electronic revenues were flat compared to 2019, but gained momentum in the second half of 2020 due to the introduction of <unk> handsets with advanced features.
Turning to slide 13, our gross margin for the fourth quarter was $80 7 million or 38, 3% of revenues.
The increase in gross margin percentage was primarily due to higher volume and improved manufacturing execution.
More than offsetting an unfavorable product mix and increased freight and commodity costs.
ACS gross margin increased significantly in the quarter due primarily to higher volumes and increased yields which more than offset increased freight and commodity costs.
EMS gross margin increased in the quarter due to greater manufacturing efficiencies and improved yields offsetting a less favorable product mix and higher freight costs.
<unk> gross margin declined in the quarter, primarily due to an unfavorable product mix and higher commodity costs. Although these were partially offset by the increased volume and the continued improvement in manufacturing yield performance.
We continue to be encouraged by the sustainable improvements in our manufacturing performance, which has resulted in an improvement in our gross margin for three consecutive quarters and an annual improvement of 140 basis points over 2019.
Also on slide 13, we detail the changes to adjusted net income for Q4 of $29 7 million compared.
Compared to adjusted net income for Q3 of $27 1 million.
The adjusted operating income for Q4 of $38 $8 million and 18, 4% of revenues was 110 basis points higher than Q3.
Adjusted operating expenses for Q4 of $42 million or 19, 9% of revenues were 20 basis points lower than Q3 expenses.
Other income and expense was $4 $5 million favorable in Q4 compared to Q3 due to lower interest expenses and higher income from our copper hedging program.
Mitigating higher copper cost included in gross margin.
Rogers effective tax rate for the fourth quarter increased significantly compared to the prior quarter due to the decrease in foreign tax credits available to offset foreign source income.
For 2020, the effective tax rate was 27, 1% a significant increase over the 2019 effective rate.
The increase in the effective rate was due to less positive discrete tax items in 2020.
Increased tax expense from routine audits in foreign tax jurisdictions and the decrease in foreign tax credits mentioned above.
We expect our effective tax rate for 2021 will be approximately 22% to 23%.
Turning to slide 14 in the fourth quarter. The company once again generated strong free cash flow of $40 million and ended the quarter with a cash position of $191 $8 million.
In the quarter, we generated 51 4 million from operating activities, including a $15 $4 million reduction in working capital.
On a repaid $35 million on our credit facility.
We ended the fourth quarter with an outstanding balance on our credit facility of $25 million and a net cash position defined as cash and equivalents in excess of the amount owed under our credit facility of $166 $8 million.
2020 was it was another year of strong free cash flow as we generated $125 million of free cash flow $15 million higher than 2019.
In Q for the company spent $11 4 million on capital expenditures.
We spent $44 million in 2020 at the low end of our communicated 40 million to $45 million range.
As Bruce mentioned, we expect to spend 70 million to $80 million on capital expenditures in 2021.
This range does not include the capital expenditures necessary to restore the unit operations, which may be reimbursed through insurance proceeds although the timing of any insurance proceeds may trail the expenditures.
Turning to our guidance on slide 15, we expect to see continued strength in many of our markets in the first quarter, particularly.
Particularly EV HEV driven by the continued marketplace momentum for both ceramic substrates and battery pad applications.
We anticipate continued strength in traditional automotive markets with higher demand for our <unk> products.
We have seen the beginning of a recovery in our general industrial markets, which will benefit Q1, and we expect to pick up in the wireless infrastructure revenue towards the back end of the quarter consistent with past timing of ordering for <unk> installations.
We expect to see weaker portable electronic revenues in Q1, consistent with past seasonality.
In addition, the fire units will negatively impact our revenues in Q1 by less than 2% with a similar impact on our EPS ranges.
As a result, Q1 revenues are estimated to be in the range of $215 million to $225 million.
We expect the Q1 revenue mix to approximate our Q4 mix profile and we should benefit from increased volumes. Therefore, we guide gross margin in the range of 38, 5% to 39, 5%.
We guide GAAP Q1 earnings in the range of $1 48.
For $1 63 per fully diluted share and we guide fully diluted adjusted earnings in the range of $1 72.
For $1 87 per share for the first quarter I.
I will now turn the call back over to the operator for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
On your first question is from Daniel Moore with CJS Securities.
Good afternoon, gentlemen, thanks for taking the questions.
Hey, Dan.
And Mike So it looks like you.
Gross margins up to the 40% range and dropped Mike and walked right.
Congratulation on the line.
Well. Thank you. Thank you.
Thanks for your help.
Yes, no. We're obviously very excited about what we've been able to do on gross margins, but it's been a great. It's been a great team effort honestly.
It's been a lot of a lot of people involved so I haven't quite drop the mic but.
It's lucid my hand.
Good for now.
So that is my first question guidance, obviously continued strength for 39% gross margin at the midpoint.
Is that a level that is sustainable.
Look out for the remainder of the year inclusive of any impact that you might have.
Yes, I think Dan again, one of the things that Bruce highlighted and I highlighted is the sustainability of the improvements debt that.
Debt, we've made on on gross margin and I think you'll you'll see that you'll see that going forward and I think.
Again.
I think the 39% certainly depending on mix and whatnot and if we see the continued recovery.
Increased volumes, there's no reason why we shouldnt be able to maintain the 39% and continue to improve gross margin. Both from the position of continued focus on operational execution as well as the footprint.
Optimization that we have and again I think that can add another 100 to 200 basis points.
Even without the additional volume and then as we've talked about in the past additional volume can certainly add another we'll call. It 100 close to 100 basis points for each incremental $10 million to $11 million, assuming the same the same product mix. So we're excited about what we've been able to do but we're also excited about how we can.
<unk> to expand gross margin going forward.
Very helpful.
Bruce you alluded to this one of the questions I had was on here.
Cared a lot about semiconductor chip shortages it sounds like we're good for Q1, what are you hearing and what are your.
Expectations of any challenges as we look out for Q2 and beyond.
Yeah, well certainly it will be a challenge for the industry overall, particularly what we're seeing and hearing is in the automotive side of things now one of the one of the interesting observations that we have is that Oems are focusing where they have materials on the higher <unk>.
Price and EV, HEV models, which plays to our strength and whether it's in a das.
Or over on the EV HEV side of the house with our substrates.
On our battery pads so.
We're cautious and keeping track of what's going on.
It will most likely over overall have an effect on the total number of automobiles made the question is which models and.
More of the premium models would be the ones that we'd like to see made.
Very helpful and any update on share and.
Business wins across.
Both battery pads and substrates in EV HEV as we kind of get into for the first part of 2021 would be would be helpful. If Bob has any sort of color or update on share and new business wins there.
I'll take that this is Bruce.
We continue to see strength in our design wins customers are impressed with the performance of our products, our engineering support and.
As we had talked about over the course of last year.
We've been very encouraged by the feedback and by the wins. So that continues no change on that.
<unk>.
We're anticipating that.
Another strong year on that front.
Okay and all the color on <unk> lastly, it was really helpful.
Fair to say.
Likely a slightly bigger impact in terms of percentage of revenue as we get out to Q2 based on your commentary that will likely be down in Dallas.
Down until closer to Q4.
Or does there is there inventory in the supply chain that you've got up that might offset some of that.
Well, Dan as you know right the timing of that was.
Early mid February so certainly we'll get a month on a month on a half from the first in the first quarter that were not going to get and certainly the second and probably the third quarter as well and we had some inventory that was not destroyed in the fire. Therefore that will contribute to first quarter, but I.
Thank Bruce his comments about the.
Less than 4%.
Would indicate that it's probably going to have a little bigger impact in Q2, and probably Q3 as well until we get until we get up and running and it's hard to say what Q4, because again, we're urgently and looking at how to get that business recover.
Alright, well congrats on the momentum and execution and I will jump back with any follow ups. Thank you.
Thanks, Dan.
Your next question is from Craig Ellis with B Riley Securities.
Yes, thanks for taking the question and Bruce Congratulations on the growth from the business and Mike to you on the great gross margin performance and thanks for your help.
And and that which will continue until your youre, writing off into the Sunset I will just start with a follow up to that last question from Dan. So so with South Korea can you just help us understand the.
On the options that the company has to restore its output capability do you foresee that you would only produce.
No.
The product that you had been producing in that facility in South Korea or is there potential to produce it in another Rogers facility, that's doing elastomer product and potentially bridge to a on operational ramp back up in South Korea.
So that debt facility is the only one that produces the E source materials on the polyurethane foam material.
So what we're doing is looking at multiple approaches looking at equipment that's available.
Looking at working on maybe some other lines that we have in other places to see if we can convert them quickly.
And so I would say again, it's still early days.
And we're working closely with customers as well to see if theres any alternatives that we can help them with.
But overall, our assessment is probably a six months.
Recovery here so into the late Q3 Q4 timeframe.
Yes.
Okay.
That's correct.
We are we are still we are very committed to.
Again, our business in South Korea.
Yes, it makes sense given some of the big customers there.
Sounds like you may have missed the early part of what would be the Golden week build season, but you might be able to catch a decent chunk of what would be the tier one holiday build season, if you can get things back and Mike <unk>.
I'll move on to a comment you made Bruce on <unk> content. It sounds like you may be seeing a more substantial content gains in what I think I heard three months ago, I think I was hearing 10% to 15% or maybe mid teens, but you talked about 30% content gain in high and systems can you talk a little bit more.
More about <unk> content in what's possible for Rogers for sure.
Sure I'm going to ask Bob to comment a little bit more detail on that yes, correct in the.
In the more advanced loans, yes.
There's a lot of.
There are some very sensitive components that really requires some higher value impact protection.
And the opportunity.
For like 30% higher.
These full feature phones, so I think.
<unk> continues to gain momentum for the handsets were expecting.
Very nice opportunity in that space, even even given the headwinds.
Right.
Yep got it and then moving on to the general industrial business, which we see on a couple of segments.
Mike or Bruce can you just help put a finer point on the extent to which youre seeing demand come back depending on the companies that we speak to some of them have six sub segments and again there are quote unquote industrial business some as many as 20.
What's.
What would be helpful would be to have some deeper understanding of the extent to which that business is starting to turn up for the company here in the first quarter and then what's possible as we go beyond the first quarter through.
Through the year, given that we still haven't hit that period, where we've got synchronized global growth, albeit with global ISN, suggesting that's increasingly possible by midyear.
So the way that we're seeing there. So we saw the positive indications, particularly in the E. Ms side.
Alaska America side of the house, which is a.
And Ah Glomeration of many different sub segments, but mostly focused on capital investment.
Is the main driver and so we see strong.
Order in Q orders in Q1.
For these these areas and so we will continue to see we think as long as the economies.
I'll begin that debt.
Recovery on that side of the house, we will see that continue we believe on the power industrial side of the house.
We saw a slight decline in Q4 on that front and we're not really yet seeing that heavy equipment recovery that would be.
Equipment with horsepower more than 50 horse.
And so forth so the heavy ordering for that capex hasn't quite materialized yet.
Got it that makes sense Bruce Thank you and then.
Mike a follow up point on gross margin before I go back from the Q. So here, we are with guidance at 39% debt level.
On the color you provided suggested another one to 200 basis points volume agnostic 100 basis points with every $10 million on revenue. So it seems like we've got visibility into that 41% to 42%. If we can see continued good.
And demand I guess the question is.
There have been inbound client concerns about input costs.
Dennis the business have the ability to continue to offset those in whatever way, but you were able to do so on the fourth quarter with either hedging or other mechanisms.
What what are some of the risk we need to keep our eye on this we think about a business that can move up into that low forty's on gross margins.
Yeah, I think your point on input cost is a good one it's one that we're concerned about it as we talked about we saw in the fourth quarter.
But we're still with the efficiencies that we have from increased yields and.
Just increased manufacturing efficiencies, we're able to overcome that and some of our in some of our business, we're able to pass those input costs along to customers, but maybe not in maybe not in all the businesses, but again I think that with the.
With the continued focus on increased yields increased efficiencies.
We may not be able to see.
The rise in gross margin as quickly as we would like but I think we're still pretty comfortable with the sustainability of the improvements we've made as well as committed to the future improvements, which we think will more than offset the the.
Increased input costs.
Lastly, if I could sneak in a housekeeping.
With the move to.
In advanced electronic solutions.
Focus combining Acs on Pts should we expect then when we get.
The calendar first quarter results, but instead of three segments. The company will be reporting on on two segments is that how you will treat things from a financial reporting standpoint.
That's all.
That would be our intention to combine those into reporting, but where we are in the process of changing our internal reporting to support that position and so thats what our intent is.
Certainly we have to review that but that's the thought process, but even if we do that Greg will continue to provide commentary on the elements of the ceramic business and the profitability and gross margin for that business. So while that's the that's the intent again, we still have some internal housekeeping that we need to do to make to <unk>.
That happened, but that being said we are committed to providing.
<unk> visibility and transparency on what's happening in our ceramic business, particularly around the EV HEV portion of that business.
Great. Thank you Mike Thank you Bruce.
Sure. Thanks, Craig.
Your next question is from Patrick Ho with Stifel.
Thank you very much and first off I want to wish Mike well, we've gone from a few rise together and it's great to see the contract mute Jay.
That you've provided to Rogers so.
I hope it again.
A lot for you and I'm sure we'll continue to talk.
My first question given the building momentum you're starting to see in the automotive market, both on EV HEV and <unk>.
Given that autonomous vehicles are also starting to re emerge in the news once again and I know a lot of it is related to Adas, but from just the autonomous vehicle perspective, what are some of the potential opportunities you see there.
With potential materials content for.
For a lot of features that would go into those type of cars.
I'm going to ask Bob to comment on that yes.
Hatrick.
We've talked about this.
On the past and basically what we are.
Producing our materials for the radar sensors.
It's pretty scalable so as you as you go to higher levels of autonomy you typically will have more for radar sensors on the vehicle from let's say two and a half a day too.
Some of the some of the.
Vehicles that have been developed that are autonomous.
Hum.
910, 11 radar sensors on board so.
I think what we're our expectation is you got a higher degrees of autonomy from from levels level, one level, two and good day to level four level five.
Our content opportunities will scale pretty proportionally.
Because of the number radar sensors for continued.
Right.
We could see.
Some of the test vehicles out there like I said.
Yeah.
Often times the number of sensors that we're accustomed to day. So that's a very positive trend and I think.
As the average.
We moved sports for autonomous.
With a very nice tailwind for us no debt.
Great that's helpful. Bob and maybe as my follow up question from Mike and I apologize because I missed the beginning of the call with the recent fire in South Korea.
And I guess some of the shifting capacity and getting products out are there any kind of near term opex changes that we should expect.
In reaction to that situation.
I'm, assuming it's been factored into Q1, but is this something that.
We should.
I guess measure into our Opex as things move around.
We didn't have that we didn't have very high opex expenses in that in that business. The answer to that is probably is no but again I think what we've talked about is.
Less than 4% of the revenues for that business. It will probably have I would say a similar impact on on on EPS, but again.
From an operating from a modeling perspective operating costs aren't really going to be impacted materially.
Okay.
Great. Thank you very much.
Okay.
Michael.
There are no further questions in queue at this time I will turn the call back over to you for closing remarks.
Okay.
First of all like to thank everyone for joining us today on the call and I also like to again acknowledge Mike great contributions to the success of Rogers and we look forward to working with him until he he walks out the door on drops to Mike whichever order that is again again, everyone have a good <unk>.
Safe evening.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yes.
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Yes.
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Bruce.
Bruce.
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Jay.
Thanks.
Yes.
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Moving on.
And then go on.
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