Q2 2021 Rogers Corp Earnings Call

Mhm.

Hum.

Hum.

Hmm.

Got it.

[music].

Yeah.

[music].

Good day my name is.

And I will be your conference operator today.

At this time I would like to welcome everyone to the Rogers Corporation second quarter 2021 earnings call.

If you would like to ask a question. Please signal by pressing star 1 on your telephone keypad.

If you were using a speaker phone. Please make sure your mute function is turned off to allow your.

As Colin to reach our equipment.

Again press Star 1 to ask a question.

During the Q&A, we request that you limit yourself to 1 question and 1 related follow up question.

I will now turn the call over to your host Mr. Steve Haymore Director of Investor Relations. Sir you May begin your conference.

Thank you Todd good afternoon, everyone and welcome to the Rogers Corporation second quarter 2021 earnings Conference call.

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.

On slide 2 note that before we begin.

The statements in this conference call that are not strictly historical but 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.

Could include economic conditions market demands and competitive factors such.

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.

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 investors section of our website.

Turning to slide 3 with me today is Bruce <unk>, President and CEO.

Rob <unk> 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. Please.

Please turn to slide 4 in Q2 Rogers delivered revenues of 200.

$35 million, an increase of 2.5% versus the prior quarter and at the midpoint of our guidance.

Demand was strong across much of our business and especially in the EV HEV market, where sales grew rapidly.

Rogers was not immune to the global supply chain challenges experienced by many.

Manufacturing companies in the second quarter. These conditions were more significant than anticipated and tempered our top line growth and resulted in margin and EPS that were below our guidance.

Specific issues, we faced included supply constraints labor shortages and raw material costs.

<unk> increases, which we are proactively managing through commercial and operational actions, our operational excellence and capacity expansion programs are on track and as supply conditions improve we expect to achieve our 40% gross margin target.

Turning to a review.

<unk>, Inc. Our markets in the second quarter growth was strong in several of our strategic focus areas.

Sales in the EV HEV market continued to grow at a rapid pace with Q2 revenues increasing at a mid teens rate compared to the prior quarter.

Led by a rebound in solar and wind.

<unk> clean energy sales grew at a double digit rates sequentially.

Fence market sales were again strong and revenue improved at a high single digit rate.

Industrial market sales were relatively flat flat following a sharp rebound in the first quarter.

A debt.

<unk> sales declined relative to the prior quarter due to inventory adjustments after 3 strong quarters of growth.

We believe this is a temporary situation as the Adas market outlook is robust, which I will detail in more in a moment.

And our leading market position remains extreme.

Extremely strong in Adas.

Our sales in the portable electronics market decreased slightly in Q2 over Q1 due to the manufacturing disruption at our <unk> facility.

Excluding <unk> sales portable electronics revenue increased 5% quarter over quarter, reflecting the ongoing strength of the portable electronic.

It's market.

Overall, we are very encouraged by the healthy demand across much of our portfolio and especially in the EV HEV market.

Our competitive positions continue to be strong and we are seeing the benefits of our strategy to leverage our innovative and high performance solutions.

Elektron in markets with long term secular tailwind such as advanced mobility.

Turning to slide 5 I'll provide an update on the longer term growth outlook for advanced mobility.

I'll begin first with Adas before discussing the EV HEV outlook.

And as we.

<unk> continue to expect a mid teens growth opportunity in auto radar units over the next 5 years, driven by further market penetration and increasing levels of vehicle autonomy next.

Next generation radar technologies are essential to the future of autonomous vehicles, and Rogers is helping to drive innovation.

We continue to face.

We continue to strengthen our leading position in this market with design wins in both current and next generation programs.

Moving next to the EV HEV market for long term outlook continues to be very robust with an expected annual growth rate of more than 30.

In <unk> over the next 5 years.

Recent trends continue to support the strong outlook for example year to date sales of plug in Evs in Atvs and Europe accounted for 15% of the market in China Electric vehicle sales reached a new milestone in the second quarter.

Order exceeding 10% of the market.

Third party analysis also points to an acceleration in EV HEV adoption, driven by growing consumer preference for non ice vehicles and supportive policy changes.

Our recent Eni Ian why report highlighted that combined plug in.

<unk> and <unk> sales in the U S. China and Europe are now expected to surpass sales of all other powertrains 5 years earlier than previously anticipated.

In addition growth expectations for full electric vehicles also continued to accelerate for.

For instance, the latest.

<unk> injections from IHS estimate that full electric vehicle production will reach close to 40 million units globally over the next 4 years. This is an increase of 25% or about 8 million vehicles compared to their forecasts from only 2 years ago.

Reflected in.

In these estimates are the growing number of automakers, who have announced plans to transition their entire fleet to full evs within the next decade.

To take advantage of the strong growth outlook and advanced mobility, we are investing aggressively in new capacity and capabilities.

<unk> per day plan to double our capital spending this year in order to invest in new capacity to support growth in the EV HEV market.

Our next highlight Rogers strong portfolio of products for this market and how we are positioned to benefit from both the acceleration of the market and the trend towards rising.

For ease of electrification.

Please turn to slide 6.

Both our Aes and EMS business units are focused on the significant growth opportunities in advanced mobility.

For EV HEV manufacturers reliability safety and performance are critical design.

<unk> degree elements and Rogers solutions address these needs.

In the Aes business, we have content opportunities with both our ceramic substrates and power interconnect products.

Increasingly EV and HEV designs are incorporating wideband gap semiconductors.

To improve vehicle efficiency and range. These semiconductors require high performance packaging that our ceramic substrates provide.

Our substrate content increases with higher degrees of electrification and has more than 5 times higher than a full EV as compared to a mild.

Design, we are encouraged by our success in this market and design and recent design wins are adding to our growth.

Power Interconnects provide an additional content opportunity in EV HEV. They are critical components that distribute power and are essential to the performance and reliability.

Hybrid vehicle.

We have secured design wins with several leading entrance to the EV market.

This opportunity is expected to grow as these customers ramp up volumes in the coming year.

In our <unk> business, we have leveraged our expertise in polyurethane and silicone materials.

We have developed innovative solutions that improve the performance and reliability of EV batteries.

Our content opportunities include battery compression pads for plugging hev's in Evs and other solutions, such as vibration dampening pads and battery pack sealing systems, which can be.

To the cross all battery types and sizes.

Battery compression pads have a larger content opportunity, which increases with battery size.

Sales of our other EV battery solutions have increased significantly this year driven by a number of important design wins.

He used in addition to the opportunities in advanced mobility there are.

So compelling growth opportunities in other areas of our market portfolio, such as clean energy portable electronics and defense.

These markets comprise approximately 30% of Rogers total.

Sales and we expect these markets to grow at a high single digit rate over time.

In clean energy, we have exposure to both solar and wind energy markets with our ceramic substrates and power Interconnects.

Year to date growth has been strong and the combined solar and wind market is.

<unk> zero at a 10% CAGR over the next 5 years.

In the portable electronics market sales of <unk> smartphones are expected to nearly double this year as the overall market growth at mid single digit rate.

For higher performance and advanced features of <unk> smartphones.

It means that our content can range from 10% to 30% higher versus the previous generation of phones.

Our near term portable electronics sales are tempered by lower unit capacity.

We expect <unk> demand to remain robust for the next several years, which provides rogers with a.

Good growth opportunity, especially as we rebuild our unit capacity.

The longer term outlook in the defense market continues to be promising as funding of technology programs, such as missile defense and radar systems is expected to drive increasing demand for Rogers advanced circuit materials.

Turning to slide 7 I'll recap the key messages from today's call.

We are encouraged by the strong market demand that we continue to see across much of our business. This includes faster growing markets such as EV HEV.

But also in other attractive market opportunities like clean energy.

In defense.

Near term, we are not isolated from the current global supply chain challenges, but we are making progress managing these issues and our operational excellence programs remain on track.

We continue to add to our strong competitive positions with new design wins and we are seeing the result.

<unk> of our strategic focus on growth opportunities in our market portfolio and especially in advanced mobility.

We are moving forward rapidly with our investments in new capacity and related capabilities to help ensure our leadership in the EV HEV market and to take advantage of the significant growth.

Now I'll turn it over to Rob to discuss our Q2 results in more detail.

Thank you Bruce and good afternoon, everyone I will begin on slide 9.

As Bruce mentioned in his overview, we continue to grow our top line Q2 revenue improved 2.5% sequentially to 2.

<unk> $34.9 million, which was at the midpoint of our guidance range gross margin of 38, 2% and adjusted EPS of $1.72 were below our guidance range, primarily due to the impact of raw material shortages and cost increases in the quarter.

In the slides ahead I'll review our.

Our second quarter 2021 results in detail followed by our third quarter guidance.

Turning to slide 10, Rogers delivered Q2 revenues of $234.9 million $2, 5% higher than Q1 volume increased 2.8% and was slightly offset by unfavorable.

Currency rates of approximately 3%.

Due to sales growth was tempered by the raw material supply constraints and disruptions to our Utah facility.

EES revenue income increased 6.5% to $140.4 million.

Strong demand in power semiconductor substrates and RF solutions.

A T V applications revenues accounted for 15% of the segment revenues and increased 34% sequentially.

Ceramic substrates used in power semiconductor devices at a very strong quarter and revenues for the business.

Drew over 40% sequentially.

Clean energy sales accounted for 17% of Es revenues and grew 11% sequentially.

We believe the renewable energy demand will have a meaningful long term momentum.

Within other solutions, the aerospace and defense business was 19.

17% of the business segment revenues and grew 8% versus Q1.

Wireless infrastructure revenues grew mid single digits sequentially and accounted for 16% of the segment revenues.

<unk> was 15% of EES revenues declined modestly versus prior quarter due to customers adjusting inventory levels.

The EMS business finished the quarter with revenues of $89.3 million, 3% lower than the first quarter.

Market demand continues to be very strong, but sales for the quarter were impacted by the raw material shortages and lower unit revenue.

EV HEV sales, which represents.

EMS revenues were relatively flat compared to Q1 due to order timing.

Due to general industrial sales, which made up 46 per cent of the segment revenue were also relatedly unchanged versus prior quarter.

Lower production resulted in a 7% decrease in Florida.

11 Tektronix revenue.

Our plan is to restart production of certain newness products by the end of 2021 with full capacity ramp up from the first half of next year.

Turning to slide 11, our gross margin for the second quarter was $89.8 million.

Portable or 38, 2% of revenues.

Basis points lower than both Q1, and the midpoint of our guidance range for the quarter.

Our operational excellence programs are on track and we benefited from the higher volume in the quarter.

However, higher than forecasted supply chain constraints.

Resulted in the lower Q2 margins.

Gross margin for the quarter was negatively impacted by 130 basis points due to raw material shortages in EMS.

Additionally, raw material cost increases in both Es and E. M S unfavorably impacted margin by 70 basis points.

Although the raw material supply situation has since improved do you expect some challenges to continue into the third quarter.

As mentioned previously we have taken commercial actions to mitigate increasing commodity and other raw material costs. These actions will have a positive impact on our Q3 results.

Also on slide 11, we detailed the changes to adjusted net income of $32.5 million in Q2 compared to adjusted net income for Q1 of $36 million.

The adjusted operating income for Q2 of $48 million or 17, 4 percentage of revenues.

160 basis points lower than Q1.

Adjusted operating expenses for Q2 of $49.1 million or 29% of revenues were 80 basis points higher than Q1 expenses.

The higher adjusted operating expenses were mainly due to increase in.

Performance based compensation costs based on a stronger outlook timing of certain expenses as well as reinvestments in the business.

Other income expenses was $1.8 million unfavorable compared to Q1.

Although the comprehensive portfolio of games for a positive in Q2 due to this meeting.

Meaningfully lower than Q1 due to steep decline of copper prices the back end of the quarter.

The higher adjusted operating expenses and lower other income just described for the primary reasons for the decline of net income and EPS versus prior quarter.

In presenting for slide 12, the company generated free cash flow of $11.9 million in the second quarter and $44.8 million June year to date.

We ended the quarter with a cash position of $203.9 million.

In the quarter, we generated $29.7 million from operating.

Activities net of an increase of $13.9 million and working capital.

You repaid $4 million of our credit facility and ended the quarter with no outstanding debt.

In Q2, the company spent $17.8 million on capital expenditure.

We continue to guide our cash.

Total expenditure of $70 million to $80 million for the full year 2021.

The company continues to have a very strong balance sheet and generate robust free cash flows that provides us the flexibility to accelerate the investments necessary to support organic and inorganic.

At the growth opportunities.

Turning now to third quarter guidance on Slide 13, you see continued sales growth across most of our portfolio in the second half of the year led by E V. A T V. However.

However, this will be tempered for the lack of availability.

Oregon certain raw materials.

And these factors we are guiding our third quarter revenues to be in the range of 235 million to $245 million.

We expect Q3 gross margin to improve sequentially driven by higher volume continued operational excellence initiatives and ongoing commercial actions.

These items will offset the impact of certain supply chain challenges that will continue into Q3.

For these reasons the guide third quarter growth third quarter gross margin to be in the range of 38, 5 to 39, 5% for the midpoint of 39%.

Q3 operating expenses are forecasted to increase sequentially, mainly due to a $3 million onetime costs to support strategic growth initiatives.

We are guiding GAAP Q3 earnings in the range of $1.52.65 per fully diluted share guide fully diluted adjusted.

Earnings in the range of $1.72.85.

Per share for the third quarter.

The effective tax rate for the full year is guided to 24 for 25 per cent.

I will now turn the call back for the operator for questions.

Thank you.

During the Q&A we requested.

If you limit yourself to 1 question and 1 related follow up question.

Again to ask a question. Please signal by pressing star 1 on your telephone keypad. If you were using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Again, Thats star 1 to ask a question.

The first question comes from Daniel Moore of <unk> Securities.

Afternoon, Bruce from thanks for taking the questions.

Again.

Let's start with <unk>.

Beyond the 4.6 million impact on gross margin that you called out do you have any guesstimate.

Our first how much higher revenue would've been were it not for general global supply chain challenges in semiconductor shortages, just trying to get a sense. If you know if that was a meaningful impact and is there any continued impact embedded in the Q3 guide.

Hi, Dan.

Or we would've exceeded the top end up for our guidance range with our without revenue drove about supply chain constraints.

Probably would have gotten more than $6 million to $7 million at least for the topline.

Yeah, sorry, yeah.

Yep.

No no and just to add to that I think as.

Before.

We're a bit constrained in the Q3 outlook.

Outlook as well and we're taking that into account, but as I opened the call today, the demand remains extremely strong and our in our markets.

We're working through the supply chain side of this.

No.

And maybe just a little bit more color on the $3 million in 1 time costs do you expect to incur in Q3.

To support growth.

And.

And I'll leave it at that.

Yeah. So so this is really an investment in analyzing growth opportunities.

These for the Corporation.

And making sure that we're taking full advantage of the opportunities that are out there, making sure that we are applying our resources appropriately.

Perfect and maybe 1 more I'll sneak in really quick just industrial.

He knows it gets a little less attention.

Doubt it'll 20 per cent of your business.

And out in the quarter does that largely on supply chains, what's your sense for just for general underlying growth vendor.

Direction for recovery there. Thanks again.

Yeah, we saw a good recovery in the first quarter of the year in industrial and I think there are.

Supply constraints.

That are impacting the general industrial business overall, and we expect that to return to growth as we move through.

The global industries move through the.

The supply chain issues, so as we're moving to second half of the year here.

Alright.

But you should call I'll jump back for any follow ups. Thanks.

Thanks, Dan.

Thank you. Our next question comes from Jay Deutsche Hymer with Canaccord Genuity.

Hi, Thanks for taking my question.

I guess Sai.

Maybe if you could just help.

In terms.

Terms of how you're looking you're spread out over multiple different segments and I am curious how youre looking at the business from a return on invested capital versus lifecycle.

Of each 1 of the.

Segments and the reason I'm asking this in perhaps is a bit of the segue to the follow up is you.

Alright, I have such a great opportunity and in some of the businesses that you call out, particularly in advanced mobility.

But the Capex for that you are putting the money that you are putting towards that.

I'm, just wondering why it's not more and whether or not.

It's being spread too thin.

So I'll take the first part of that and Rommel comment maybe a little bit more on the ROI side.

We continue to.

To make those investments and monitor where we see these markets going and I think specifically in the EV HEV side and both businesses both the debt.

And accept Straits.

As well as the battery pads, we are making significant investments.

In plants.

Around the world to ensure that we've got the right capacity in place.

And of course, that's done against the backdrop of the profitability and the return on investment debt. We think is extremely compelling.

So at this point around me, Mike fair to add to that if you'd like yeah, So hi, hi, good.

Hey.

Capex.

Just to give you a scale here Doug.

Doubled our capex.

In 2020, 1 forecast compared to 20, and we will continue to invest our plan is to.

<unk> had to invest at these levels.

As we prepare for the demand ahead.

And if you.

The majority more than 50 per cent of foreign investment is going towards supporting advanced mobility.

Product lines across both our business units.

<unk> I'll, just say 1 more thing.

The investments in the business will be on Capex.

We are also actively investing in areas, where we need to invest to improve capabilities across the business.

And the 40% target we have put out there for gross margin for us to achieve.

Takes into account those investments.

So.

You know I don't have any capex, but we are preparing for overall capabilities and innovation across the P&L.

I'm, making up those gaps.

Got it maybe just as a follow up.

You don't mind.

There is.

2 of the advanced mobility.

Segment.

It's not there's some.

It's a negative.

Issues in terms of.

At least.

Some embarrassing publicity with in auto OEM that uses pouch.

With recalls.

Then on sort of just the volume.

<unk> side of things, there's obviously the chip shortage, which is affecting total volumes I'm just wondering how much of those 2 types of situations arc are affecting the potential of that business is it kind of cascades back to back to Rogers.

<unk>.

I'll take the chip 1 first and we're seeing on vehicle electrification, which is the electrification of ice ice engines, and we think that theres been some impact there because of chips.

And of course, we heard from some of the auto manufacturers.

For the EV auto manufacturer.

We all know, saying that there is some impact there could be some impact on chip.

Chips on their volume.

Volumes are still very robust right. So.

We think that while there is.

Maybe some effect.

Not really going to dampen down.

The growth that we're seeing it might not be as great as we had anticipated but still very high.

And I'll ask Bob to talk about the battery.

Question for the question around batteries said in I think around the long term reliability that's that actually.

When you think about what we do.

<unk> and.

Because of our product.

Peru reliability and lifetime.

Sure.

I think it should help us I don't see any disruption I think the technology is sound with pulp sales I think they're working through issues, but in general the kind of challenges the industry is facing other type of challenges.

In term of where we.

We solve those problems.

<unk> view.

All in I would view that net net positive for us as a company and that we solve those kinds of problems with our products.

Great. Thank you.

Thanks, Jay. Thank you. Thank you we will take our next question from.

Craig Ellis of B Riley Securities.

Yeah. Thanks for taking the question I wanted to just start with a 2 parter just on 8 as the first part of it is more in the near term and it's what's your sense on where we are in.

Digestion.

Cycle, that's going on and how broad based is.

As for digestion, that's occurring in the more longer term part of that question. This 1 might be for either Bruce or Bob.

As we look at other opportunities beyond radar imaging I think a lot of people are looking at lidar.

To what extent could investors look at that type of tech.

Technology and think that Rogers has an opportunity to have the same kind of share considering lidar that they would have been Ken radar what would be the big plus.

Pluses and minuses for doing equally well again.

That tool, but it looks like it's been.

A necessary component for level, 4 and level 5 longer term.

I'll take the Adas inventory adjustment.

As we move through Q3, we think there is still an adjustment going on in Q3 here, but as we move into Q4.

We think things should be relatively in balance there was a lot of early buying in the first part of the year by some of the.

Some of it.

Some of the makers of the radars.

And I think probably of the mindset same as chips trying to to make sure that they had supply. So they are working through that and like I said.

Fourth quarter, we will see it getting imbalance.

I can talk about lidar.

Yes, Justin.

I guess I'll frame it has.

<unk>.

The industry has basically come to the conclusion youre going to have.

You're going to have multiple technologies that contribute to autonomous vehicles.

Typically.

Platforms that we've seen evaluated it would have.

<unk> 211 radar.

General answers basically creating debt envelope around the vehicle in addition to lidar and cameras.

I'd say as we move toward full autonomous I think radar content.

We can use to drive I think the wildcard which would be a <unk>.

Strong.

Salary.

Radars here for US is really all the work that's going on in 2 high definition radar. These days, we've got a lot of active youre talking about <unk> or whats classify or characterize this for this year basically.

Basically.

Yes, creating creating basically a radar image with the advantage frankly over a lidar being it's not it's.

Non stop the volt.

Weather conditions radar penetrates Fox now.

Versus lidar for for a true level 5 autonomous vehicles.

There is a belief in parts of the industry that.

High definition radar basically radar imaging will play a pretty significant role here.

Salary and I'd say, that's the bigger opportunity for US long term is in the high debt radar.

Yes that makes sense, given given where you've got Mike with greater than the second question is on 1 of the points that you referred to and and characterizing the current market dynamics.

It's great to see that Theres that 30% CAGR for EV and HEV, but I think that's unchanged from the growth rates that were out there.

At least 6 if not 9 months ago and subsequently we've had all of the electrification pull ins from seemingly.

Bruce Shaw automaker after automaker and so the question is is your sense that all of those Poland really mean that that growth rate is really more durable beyond 2025, and maybe into the 2027 to 2030 timeframe or does it.

Maybe mean that.

While we've got it.

<unk> CAGR, we've just got a lot more visible momentum underneath that CAGR is it something else that you would point to.

So so we think it's solidifies that growth rate I mean, it's very believable. These days I think it's 2 years ago people would be totally wrong about those kinds of growth.

30 pill would be a challenge to imagine that I don't think anybody's imagining it anymore I think what we will see though with the with the announcements of the various Oems going to full evs over the course of the next 10 years or so an extension of that growth rate is going to continue so your point about a 30% growth.

Raytheon 26, 27, 28 is not unreasonable given the acceleration that's going to happen as these new models come out in the consumers.

Really get tuned into it and of course, the networks get built out for the Chargers, which is.

Certainly something that we're looking at as well as opportunity.

And how big would the incremental opportunity in the Charger network B to what we see in the automobile snap for Rogers.

We're assessing that right now because.

Theres various folks who are out there certainly the large west coast.

OEM has there.

Our system out there and it's.

It's of interest to us.

And beyond that as the other Oems come in and other third party players. There's a lot of work going on in that space right now.

Okay. So part of the answers and the point about the $3 million Opex bump up in the quarter maybe.

That's a good assumption.

Alright.

Very good thanks, so much.

This is chip.

Go ahead.

Yeah, Craig I think this is an important point.

We are looking at opportunities that in Adjacencies, and so forth to build on our strong market position today and Thats really the why.

Taking those kinds of investments to understand and execute against it.

It really is remarkable to see how you know you guys have done a lot of hard work to get the business positioned to where it is but the market really is coming to your now so.

So we have an opportunity to seize thanks, so much guys.

Thanks, Craig.

Thank you we'll take our.

Why we missed him from Patrick Ho of Stifel.

Yes.

Hi, there. Good afternoon. This is actually Brian on for Patrick Thanks for letting us ask a few questions.

Maybe you.

I think the supply constraints.

In terms of the revenue outlook and what you saw in <unk>.

Perhaps the what's happening in Korea.

Ex quite lingering into next year, but you know through some strategic buffering or perhaps other remediation activities. Do you think you might be these constraints might be behind you as we get into <unk>.

So.

The team has been working through this and certainly.

This is an industry wide situation.

Particularly this is in the E. Ms side of the house and the resins and those materials and.

So it's not just 1 supplier, but we're working.

Across the board looking at alternatives as well.

But the real issue is upstream from even though suppliers.

Gulf Coast issues.

That might have had an impact and I think as we work through Q3, we will see this starting to improve and certainly we're seeing it already and when we get into Q4, we anticipate a bit smoother sailing there and by the end of the year things should be in good shape, I will say that but there are always issues.

Is that pop up floods.

Disasters for freezing and so forth and we're working to make sure that we have robust supply chain capabilities as backups as well.

Okay, Yeah, that's fair I won't have you're calling a black swan events.

Forecast.

Right right.

For industrial.

So in terms of that impact in Q2 did you call out any particular markets that were maybe more effected within industrial.

No it was.

We saw pretty much.

A number of Submarkets they were all relatively quiet in the quarter not a lot of.

Demand and as we said earlier I think some of that had to do with some other supply chain.

Constraints that our customers had.

In terms of.

And the pull on our materials.

Got it okay. So you didn't sort of up and down the.

Food chain kind of everyone's sort of doing.

Wrapping with the same things.

And maybe lastly.

I heard the commentary around sort of a das strong growth of late maybe a near term plateau. It doesn't last for too long here, but I'm. Just curious is that when you kind of go by geography.

Do you find that was concentrated maybe any particular geographies.

In terms of the dynamic or is it pretty uniform.

I think it's.

Pretty uniform, we didn't see any specific geography that was lagging or ahead. So we think there was within the supply chain the board shops, and so forth some over.

Over buying or some.

Holding of extra materials and they are just working through that.

Okay, Okay, great I appreciate the color. Thank you.

Sure.

Thank you Brian.

Thank you we'll take our next question from Josh Silverstein with Wolfe Research.

Thanks. Good afternoon, guys you talked about strong demand for your for your products I know that you are facing some logistics issues, but.

Other than the conversations on price have you been able to push through any sort of increases because of the challenge in this environment I am just kind of curious on that.

Yeah, Hi.

This is rob.

Yes, we all are pushing through passing through our.

Commodity and raw material cost increases.

We started back in Q2, we will see much more of that impact.

Favorable impact coming through in Q3, and some of those actions will continue into Q.

Hi, Josh majority will you will see in our Q.

Clean numbers.

Is that the.

We'll just kind of taking the $5 million uptick in terms of revenue sequentially is that mostly related to pricing.

Uh huh.

No thats probably.

For.

40% of that and pricing.

Okay.

For for Florida increases.

Okay got you.

Got it and then maybe just then the other finance question as well you know you guys continuing to run with.

1 of the best and cleanest balance sheets out there and in a net cash position.

What is it that you guys are looking for.

To deploy the balance sheet strength.

Or like can you take advantage of it in this environment build up some working capital trying to get through some of the hurdles.

About now are.

Are there other companies that are in the same position as you that are kind of struggling that you guys can look to pick off.

And I'm curious what you guys are looking for waiting for.

To deploy this because its clearly.

Our strength for you guys relative to what I imagine other companies out there that use leverage.

Yeah sure Josh.

Right. This is this has been a core part of our strategy.

As we all know that.

Year of Covid didn't didn't really help on the M&A side, but as we move into into 2021 here, there's a lot of activity and our focus is in.

In our core businesses looking at opportunities.

These are in both EMS and Aes.

For bolt ons and so forth.

Other technologies that would fit into our portfolio and align with our market focuses as well. So we've got targets. We're working through that we're also looking at geographically.

To position ourselves.

Josh from a.

Our market position in geographies around the world from an M&A perspective, so there's multiple things going on and we believe that.

There is opportunities it's just a question of.

Getting them to execute but they are there.

Go ahead, Mike So so just to add to that.

In addition to the balance sheet you have seen the cash generation is for all right. Our fleet growth free cash flow generation is pretty robust and it has been for for some time now.

So.

If you look at the organic investment opportunities.

Ahead of US we have been financing all of that from our free cash flow and ask those needs increase we will certainly look at balance sheet options due to look at that funding. So like Bruce said, it inorganic and organic investments are our primary options and they look at everything else on the table.

To return cash to shareholders SP.

Global business.

Great. Thanks, guys.

Thank you.

Once again to ask a question. Please press star 1 we'll take our next question from Daniel Moore of CJS Securities.

Thanks, again for the balance sheet and.

Capital allocation.

<unk> update discussion was just covered so just on you. This is the expectation.

Bruce to be up and running by the year end debt any change to that timetable.

From prior expectations and you know your confidence around that any thoughts there.

So we certainly.

We are confident in <unk>.

Starting to produce at towards the end of the year.

Some of the <unk> products.

What we've seen is a bit of a push out to fully get back capacity into the first quarter of next year.

But we will be producing this year, but full capacity.

Early next year.

Got it and then 1 more on the margin front.

Given that the pricing or commercial actions that you've taken as well as copper prices starting to come back your way a little bit towards the end of the quarter. If they did continue to come over or is there a.

Not.

Rollover, but move more favorably as there you see an upside opportunity within the guidance range that you gave for Q3.

You know I guess, what sort of raw material price movements from here are embedded in that guide. Thanks again.

So.

For the upside to Q3 will come more from the supply constraints.

If we.

Could get the raw material, we we needed we could pull.

Robley growth sales for another 3% to 4% and gross margin by 50 to 100 basis points.

So the upside in Q3 will come more from any.

Additional availability of raw materials then from.

Cost increases with price price.

That's perfect color. Thanks, again I appreciate the follow up.

Thanks, Dan.

Thank you at this time, we have no.

For questions I would like to turn the call back to Bruce for closing remarks.

I'd like to thank everyone for joining us today and have a safe and enjoyable evening. Thanks, everyone.

This concludes today's call. Thank you for your participation you may now disconnect.

[music].