Q4 2022 Rogers Corp Earnings Call

Speaker 1: I jo.

Speaker 1: So So I I.

Speaker 2: Good afternoon. My name is Diego and I will be your conference operator today.

Speaker 2: At this time, I would like to welcome everyone to the Rogers Corporation, Q4 2022 year end earnings conference call. I will now turn the call over to your host, Mr. Steve Heymore, Director of Investor Relations. Mr. Heymore, you may begin.

Speaker 3: Good afternoon, everyone, and welcome to the Rogers Corporation fourth quarter and full year 2022 earnings conference call.

Speaker 3: 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.

Speaker 3: Please turn to slide 2. Before we begin, I would like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties, considered equally relevant Chase with the Library of Congress and counsel

Speaker 3: 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. A reconciliation of those non-GAAP financial measures.

Speaker 3: to the most directly comparable GAAP financial measures can be found in the slide deck for today's call. Turning to slide three, with me today is Colin Gavea, President and CEO , and Ron Mayemporis, Senior Vice President and CFO .

Speaker 3: call as the president and CEO of Rogers.

Speaker 3: Rogers is a special company and there are several things that make me excited to serve as CEO . First, we have incredible people with a deep bench of talent throughout the organization. This team impresses me daily with their dedication to our business, our customers, and to their teams.

Speaker 3: Second, we have an effective strategy in place that will enable us to expand and grow our market leading positions by focusing on high growth end segments and leveraging our strong track record of innovation.

Speaker 3: And lastly, we are intently focused on improving our financial and operational performance, with a clear plan to deliver long-term value for our shareholders, employees, customers, and other stakeholders. Before I touch on the quarterly results, I'd like to walk through some of our near-term key priorities on slide 5. Number one is improving our profitability and driving operational excellence across the organization.

Speaker 3: We started by taking a hard look at our performance to ensure that our operations were optimized to reflect current business priorities and market conditions.

Speaker 3: In December , we shared publicly our ongoing targeted programs to improve operations, and two weeks ago announced additional significant actions to improve our cost structure, streamline our portfolio, and drive operating margin improvement.

Speaker 3: These necessary changes to improve profitability are currently underway, and I'll discuss these efforts in more detail shortly. Additionally, we are focused on bolstering our team with strategic operators and individuals who will bring deep industry knowledge and experience to help us grow the business.

Speaker 3: This includes the appointment of Larry Schmid as our Senior Vice President of Global Operations, who will be instrumental in implementing our ongoing Operational Excellence Initiative. Larry brings more than 30 years of senior leadership experience in global operations and supply chain management at companies such as Dow and Roman Haas. We have put significant effort into improving our processes and investing in better tools We haveDid3

Speaker 3: to support our customers when the market recovers.

Speaker 3: Lastly, related to Monday's press release with Starboard value, we are pleased that we could reach a constructive agreement. I look forward to working with our Board to continue executing against our strategic plan to capture the exciting opportunities ahead of us. According to slide 6, I'll review in more detail the specific actions we're taking to improve profitability.

Speaker 3: First, we conducted a detailed review of our corporate, direct, and indirect manufacturing organizations and implemented actions which have resulted in a reduction of 7% of Rogers' global workforce.

Speaker 3: Reducing our headcount is not something we take lightly, and we did our best to treat all our people with the respect and dignity they deserve. However, adjusting our organization to align to the current environment is a necessity, and required us to make some difficult choices. Second, we have undertaken a series of actions to improve our product portfolio and drive operational...

Speaker 3: rates and productivity at factories in both our AES and EMS business units.

Speaker 3: Third, we are further optimizing our laminate circuit materials manufacturing footprint in AES. This includes exiting our Price Road facility in Arizona and taking other actions to reduce the global cost structure. On an annualized basis, we are increasing our

Speaker 3: total manufacturing cost savings are expected to be roughly $25 million net of inflation. As these actions begin to take hold in the coming quarters, we are targeting to achieve a gross margin of 34% in the second quarter of 2023, with an additional improvement to approximately 35% as we enter the second half of the year. We will not stop at 35% as reaching historical levels of profitability is a

Speaker 3: These actions will largely offset the impact of inflation on 2023 operating expenses.

Speaker 3: Now turning to our quarterly performance on slide 7. As expected, the macro environment remained challenging in Q4, which adversely impacted our top-line results.

Speaker 3: While our sales fell more than 9% compared to the prior quarter, we saw continued growth in certain key markets. Our EV sales increased at a double-digit rate versus the prior quarter, and full-year EV sales increased 35% versus 2021. ADOS sales rebounded from the market disruptions in the third quarter and grew at a double-digit pace sequentially.

Speaker 3: Our position in these important end markets remains strong and continues to grow as we leverage our technical expertise to meet customer needs and solve critical challenges. We also had good growth in clean energy sales led by our power interconnect business.

Speaker 3: Turning to our other markets, the key headwind in Q4 was a significant decline in portable electronic sales, as our customers experienced major production shutdowns due to COVID-related impacts in China.

Speaker 3: As restrictions have recently lifted, the disruptions to our customers have ceased.

Speaker 3: However, in this segment, Q1 is typically the weakest quarter from a seasonality standpoint. We are closely watching demand signals from our OEM customers and are well positioned to supply when end market consumer demand returns.

Speaker 3: In other segments, we experienced softening demand in our EMS industrial business due to the current macroeconomic environment. Although the quarter was challenging, we are focused on managing what is within our control. We are executing on our cost reduction initiatives and we expect to see the benefits in the coming quarters as previously outlined.

Speaker 3: An important pillar of Roger's strategy is aligning our organization with key market trends and we have a long history of successfully implementing this strategy. From the early stages of many end markets, we have leveraged our deep customer relationships to solve unmet needs with our application's expertise and innovative solutions. These capabilities are part of our DNA.

Speaker 3: and are critical to support our growth. On slide 8, I'll highlight some of the exciting opportunities across our portfolio and how we think about their growth potential. The electric vehicle market represents the strongest growth opportunity for our business and now comprises more than 20% of sales. We continue to see strong traction for our products, including our ceramic substrates, and our electric vehicles.

Speaker 3: battery compression pads, and power interconnects, which are critical to boosting vehicle performance and reliability. One example of our progress is a recent design win where our ceramic substrate technology was selected to be utilized in an inverter design for a major automotive OEM.

Speaker 3: This multi-year award will begin generating revenue in 2023. While we continue to be excited about the EV potential, we have other strong growth opportunities including ADAS, Aerospace and Defense, 5G smartphones and renewable energy.

Speaker 3: Together, these markets comprise more than 25% of our portfolio, and we expect that these segments will have similar growth profiles to each other. In the ADAS market, demand for advanced safety features continues to increase and with our history of innovation and reputation for reliability, we are able to

Speaker 3: we are positioned to capture the growth in this market. We expect aerospace and defense to remain a continued growth opportunity due to our high reliability, high performance, limited circuit solutions that are essential to critical radar and missile systems. One example that highlights our technology and applications expertise is a design win with a leading prime contractor where our solutions were selected to help enable broad

Speaker 3: In renewable energy, our power substrate and power interconnect solutions help improve energy conversion efficiently in solar and wind power.

Speaker 3: Our traction continues in this market as our ceramic substrate technology was recently selected by a global OEM to be used in power modules for renewable energy applications over a multi-year horizon.

Speaker 3: Our core markets comprise primarily of sales into our industrial segment are the third component of our market portfolio. These markets provide solid growth, high margins, and cash generation.

Speaker 3: We look forward to sharing more about the longer-term opportunity across our markets at our investor day at the end of March. I want to close by reiterating my excitement about Rogers.

Speaker 3: and with taking on the CEO role at this moment in our history. While the environment remains dynamic, we are focused on the elements of the business that we can control, which includes making strong progress on our strategy, having clear priorities in place to improve our operations, and sharpening our execution to support our customers.

Speaker 3: These actions, together with the optimistic projections in our key markets, give us great confidence in our ability to deliver future growth and long-term value for our shareholders. With that, I'll turn it over to Ron, who will discuss more about our financial performance.

Speaker 4: Thank you Colin and good afternoon everyone. Let me start by reiterating our commitment to drive margin and profitability improvements. We are watching our costs carefully and we are implementing actions to improve our overall cost structure. These actions will result in meaningful improvements so far.

Speaker 4: margins in the coming quarters and position as well to further advance our profitability as markets recover.

Speaker 4: I will start by reviewing our full year and fourth quarter 2022 performance before discussing the outlook for the first quarter of 2023. Turning to slide 10, net sales for 2022 increased by 4% to 971 million led by a strong 35% year-over-year growth in the EV market.

Speaker 4: good growth in industrial market sales and the Silicon Engineering acquisition. However, continued global disruptions and macroeconomic challenges impacted growth in 2022. In addition to that, sales for the year was also impacted by unfavorable foreign currency impacts of 37 million.

Speaker 4: Gross margin of 33.1% declined 430 basis points from the prior year due to a combination of market challenges and operational issues that we detailed in our December investor call.

Speaker 4: As Colin discussed, we have outlined a number of actions to improve gross margin with a path to 35% in the second half of this year, assuming sales continue at expected Q1 2023 levels.

Speaker 4: Our efforts to improve margins and profitability will not stop there and we will outline more about our path to historical levels of profitability at our upcoming investor day.

Speaker 4: In 2022, we achieved EPS of $6.15, which included a one-time benefit from the receipt of the termination fee, partially offset by non-cash impairment charges from additional actions taken to exit, price road, and divestiture of our Griswold rubber product line.

Speaker 4: At just the earnings per share were $4.91. Next, I will discuss the results for the fourth quarter beginning on slide 11. Q4 revenue declined due to persistent macroeconomic headwinds and the COVID situation in China.

Speaker 4: 24 sales of 224 million decreased 9.5% from the prior quarter from lower volumes of 19 million and foreign currency impact more than 4 million.

Speaker 4: EV, ADAS, and clean energy sales all grew at a double-digit rate in Q4, but were more than offset by declines in other markets. Much of the decline occurred in our EMS business unit, where sales were 15.6% lower quarter as anticipated demand for our portable electronics products.

Speaker 4: or much lower due to the impacts of COVID-related disruptions in China.

Speaker 4: In addition, industrial sales declined as demand was softer due to challenging macroeconomic environment.

Speaker 4: AES sales declined by 4%. Contributing to the decline was unfavorable FX of 2% and lower volume in aerospace defense and mass transit. This was partially offset by higher EV and ADAS demand. Turning to slide 12, Q4 margins percentage of 31.8% was approximately flat versus Q3.

Speaker 4: lower volume and mix was partially offset by lower manufacturing spent yield improvements and lower logistics costs.

Speaker 4: As communicated in our December call, we have initiated several cost reduction and productivity improvement actions in Q4. The benefit from these actions will be fully realized in the first half of 2023.

Speaker 4: On slide 13, I'll next discuss changes in operating income versus the prior quarter. In total, Q4 operating profit increased $64 million versus prior quarter. On slide 14, I'll next discuss changes in operating income versus prior quarter.

Speaker 4: This was primarily due to the receipt of $142 million termination fee net of expenses, which was recorded in other operating income. Partially offsetting this increase was $65 million of restructuring and impairment charges primarily related to the sale of the Griswold Natural Rubber Business and the exit of the Price Road facility.

Speaker 4: The remaining changes in operating profit resulted from lower gross profit, an increase in severance cost, and professional services fees. On an adjusted basis, operating income decreased approximately $6 million to $20.7 million. adjusted operating expenses were $1 million, lower versus prior quarter, and the overall

Speaker 4: which was more than offset by the decline in gross profit as explained previously. Continuing to slide 14.

Speaker 4: Ending cash at December 31 was approximately $236 million, a slight increase from the $232.3 million at the end of 2021. Ending cash includes the receipt of the termination fee in the fourth quarter, which, as mentioned, was approximately $142 million net of transaction-related fees.

Speaker 4: We paid down $75 million of our revolving credit facility in Q4 and the net borrowings for the full year were $25 million. Capital expenditures were $30 million in the fourth quarter and $117 million year-to-date with investments mostly targeted at building new capacity and capability for the future.

Speaker 4: Cash taxes paid were $41 million in Q4, $61 million for the full year. This includes taxes paid related to the termination fee received.

Speaker 4: Lastly, as we mentioned in our December call, we repurchased $25 million of stock in the fourth quarter.

Speaker 4: Next, on slide 15, before discussing the details around the guidance for Q1, 2023, I would like to once again highlight three points. Number one, continuing macroeconomic uncertainty.

Speaker 4: We are closely watching headwind from the economic situation and inflationary conditions around the globe and the impact of recent changes to COVID policies in China. Number two, as Colin indicated in his remarks, we are committed to driving productivity and cost improvements to increase profitability in 2023.

Speaker 4: And number three, we will continue to make the investments necessary to support our long-term growth strategy, including the right capital allocation decisions. We will focus on maximizing throughput of existing production lines before investing in new capacity.

Speaker 4: With that context in mind, let me discuss the specific guidance ranges. First, net sales are expected to be in the range of $230 to $240 million with gross margin between 31.5 and 32.5%.

Speaker 4: Earnings per share is expected to be in the range of a loss of 10 cents to positive 10 cents and our adjusted EPS range is between 65 and 85 cents. We expect approximately 15 million of discrete items in Q1 compressed out.

Speaker 4: Severance related to recent actions announced, certain non-recurring advisory fees and other one-time items. For the full year 2023, we expect capital expenditure to range between $65 and $75 million. Approximately 50% of our investments.

Speaker 4: will continue to be for capacity expansion. We expect our full year tax rate to be around 23%.

Speaker 4: We remain fully committed to our proven strategy, our strong technology, and leading solutions that address the needs of our customers. As we execute our recovery plan and growth strategy, we are focused on achieving 34% of the growth margin in Q2 and making additional improvements to the second half of the year.

Speaker 4: I will now turn the call back to the operator for questions. Thank you.

Speaker 2: I will now turn the call back to the operator for questions. Thank you. And ladies and gentlemen, at this time we will be conducting a question and...

Speaker 2: and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. You may press star two if you would like to remove your question from the queue.

Speaker 2: For participants using speaker equipment, it may be necessary to pick up your handset before a press of the sparkies. One moment please while we pull for questions. Our first question comes from Daniel Moore with CJA Securities. Please state your question. Thanks Colin, thanks for all of them, thanks for the color and take the questions.

Speaker 2: Let's start with a modeling question or two. Just revenue is expected to improve sequentially a little bit in Q1. Gross margin relatively flat yet EPS guide is lower on an adjusted basis. Just talk about the primary delta is there. It's mostly GNA. I may have got significant cost reduction actions in place.

Speaker 4: but on an adjusted basis what's sort of the bridge from Q4 to Q1? Hi, Dan, this is Ram. So on the top line we do see an increase from Q4 to Q1, Q4 was abnormally low compared to the first three quarters of 2022. Although we see an increase in top line it's not the right mix.

Speaker 4: In addition to that, most of the cost reduction actions we have taken well.

Speaker 4: give us benefit more in the Q2 timeframe. That's why we are committing to a 240 basis points improvement back in December , like we said, from.

Speaker 4: where we were in Q3 and Q4, where we think will be in Q2. So most of that benefit from the cost reduction, we expect to show up in Q2.

Speaker 4: And the biggest swing in the EPS was related to our tax rate. We are back to more of a normal tax structure of about 23 cents. 23 cents, sorry. We were down to a much lower rate in Q4 due to some one-time activities you've been chasing, which finally came through.

Speaker 3: So the tax rate in Q4 was much lower than our normal rates, which caused a big swing in the EPS. Makes perfect sense. Push that through, thank you. Talk more from a macro perspective. You mentioned lower portable electronics as well as industrial demand.

Speaker 2: Obviously, the portable electronics impacted by COVID disruptions. How much was the COVID disruptions and typical seasonality and supply chain, and are you seeing continued weakness into kind of Q1? Any indication of anyaccaicity of essential musters.

Speaker 3: light at the end of the tunnel on portable electronics and what's kind of near-term outlook on industrial. Hey Dan, it's Colin. I'll take that question. So for portable electronics, typically the way it works is the third and fourth quarter are much stronger than the first and second quarter driven by the holiday season in Chinese New Year. And that's how it's typically been.

Speaker 3: So we didn't have that type of production available in China the second half of the year because many of the factories were shut down to COVID. And so that again led to our decline. We're watching carefully what's happening now and we're ready to produce and the supply chain woes that plagued us.

Speaker 3: and the prior year have cleared up, both for us and our customers, and we're really just paying attention to end market demand, and if it returns, we can supply. Looking ahead, we do see portable electronics stabilizing and returning a bit to normal in the second half of the year. When you looked overall at the handsets sold, it was actually a significant decline, 2021 to 2022, more than 10%. So we see that rebounding a bit.

Speaker 3: and we're in great position to supply, not just for overall handsets, but especially for 5G models, which use higher content, and we have a greater share there than the regular models. So we are looking for a rebound second half of the year in portable electronics. Very helpful. Historically, your visibility to supply is very high.

Speaker 2: supply chains and inventory levels has been somewhat challenging. Maybe just looking across EV, ADAS, some of the other higher growth markets, what's your sense for where we are in terms of customer inventories right now? Is there continued de-stocking or when production rates start to kick higher?

Speaker 3: do you expect to see that your demand accelerate, you know, in lockstep? So maybe I'll start and Ram might add a comment. So in terms of inventories, we did have challenges, which we have mentioned around the ADOTS inventory at the end of last year.

Speaker 3: There was slowdowns in production due to shortages of key raw materials to make automobiles. ADAS inventory built up a bit, but we think we've worked through that. And so we see the ADAS market returning more to its normal growth pattern for this year going forward. In terms of overall supply chain, yes, there were a lot of challenges for everybody, Rogers included, but we've made some great strides in terms of stabilizing things.

Speaker 3: We've made some really good improvements in terms of supply planning and demand planning processes and In terms of the internal way we do things the addition of our new obsolete or Larry Smith is already making a big difference so that We believe those issues will be in the rearview mirror I don't know if anything else to say in terms of inventories

Speaker 3: in terms of supply planning and demand planning processes, and in terms of the internal way we do things. The addition of our new ops leader, Larry Schmidt, is already making a big difference so that we believe those issues will be in the rearview mirror. Aram, I don't know if you have anything else to say in terms of inventories. No, I think you covered it.

Speaker 2: That's great. I'll throw one more because it's been a while. And then go back and talk with you. Yeah, within EV, obviously you have great deal of exposure. As you mentioned across Silicon Nite Tried substrates, battery compression pads, power interconnects. You mentioned the new customer win or design win in Silicon Nite Tried. Where were you getting the most headway in terms of new customer growth among those? And where do you expect to see the fastest acceleration as EV adoption accelerates and supply chain these?

Speaker 3: over the next 12 to 36 months? I would say at this point, we're having quite good success across the board. We feel like within the Rogers portfolio, pretty much every one of our business units has really differentiated technology that goes into different parts of HEV vehicles.

Speaker 3: and we're also well positioned from a global perspective. We have manufacturing in the major three regions, North America, Europe , and Asia, and a really strong sales engineering team calling directly on OEMs and their engineering counterparts there, and solid and very supportive TS&D folks scheduled in the same areas. So I would say that when we look across that portfolio.

Speaker 3: We grew very well last year. The market grew in the roughly 30% range, and we were higher than that for all of the year. So we're not really guiding that we can grow faster than the market, but that's our aspiration. And I think because of our manufacturing footprint and the technical and sales engineers' teams we have in place, we can be successful in all regions with many different types of We feel like we're really in a good position here.

Speaker 2: All right, I'll jump back with any follow-ups and look forward to hearing more at the analyst day later next month. We're looking forward to seeing you there. Thanks, just a reminder to queue up for a question, press star one on your phone. Our next question comes from Craig Ellis with B. Riley Securities, please state your question.

Speaker 3: Yeah, thanks for taking the question and nice to have you back guys. I'll start with just a couple of clarifications off of some of the prior. So I just wanted to be clear with EMS where revenues were down 18 million quarter on quarter.

Speaker 3: That was primarily the China impact and personal electronics and there was a little bit of industrial anyway to break out the relative contribution of those two guys. That's correct Craig. The majority of that was related to mobile electronics.

Speaker 3: was primarily the China impact and personal electronics and there was a little bit of industrial anyway to break out the relative contribution of those two guys. That's correct, Craig. Majority of that was related to global electronics. Yes, so maybe 75 to 80 percent run.

Speaker 3: 75% closer to 75% yes. Yeah, yeah. Okay. All right. And then it sounds like Colin, your sense from your partners is that personal electronic supply chain has cleaned up. Is that what you meant to convey? We're hearing that from some of.

Speaker 3: semiconductor companies, you know, it's been in a tough position for the last almost 18 months but we're getting the sense that it's bottoming out and that's what you're hearing with your materials for 5G? We're seeing that exactly and it's two things.

Speaker 3: more upstream components being made available, but primarily driven by the change in COVID policy in China. So because of the zero COVID policy, that led to a lot of factories being shut down in Q3 and Q4 last year for long periods of time. So even though the backlogs were strong, the downstream customers are downstream customers.

Speaker 3: ODMs could not produce because of the policy. That policy was changed completely, pretty much there's no more COVID policy in China, everything's open, and so we see things returning to normal now, and don't see that as a headwind going forward for the rest of this year. Right, and one of the things that we were hearing is that there had just been a build-up of finished product inventory in the China smartphone supply chain, so your sense is that that finished inventory.

Speaker 3: this cleared out. In terms of the end market, there's pockets in our opinion that still probably need to be de-stocked a bit and so probably that needs to happen over, you know, what I would say the first half of the year. But as we think about things and the second half progresses, we assume things will stabilize with inventories and there'll be a normalization of those inventory levels and return to, you know, there'll be demand for the new generation of products and we see growth as compared to what happened last year. Got it.

Speaker 3: And then the next clarification is just on the gross margin guide to ROM. It sounds like what you're saying is we're going to have materially better volume and back near fourth quarter or third quarter levels in the fourth quarter. We've got the start of cost and efficiency, but it sounds like for COGS that really benefits 2Q rather than 1Q. And then we've got some mix that isn't really advantageous. And so while we've got a significantly higher revenue number quarter on quarter, it's just not the right mix to get gross margins up significantly, even though it is making nice progress against the target chillate out in December . Is that right?

Speaker 3: That is correct. We are guiding 230 to 240 to finish closer to 250, I think 248 and Q3, but you captured it well. It's got to do with the mix and the timing of the cost reduction actions hitting our P&L. And from December we expected that the path to 34% gross margins was 160 basis points.

Speaker 4: capacity management and 80 basis points for manufacturing yields. Is that still how we get to the 34% or are you seeing things play out a little bit differently than that? If so, wow. It's very similar. It is very similar. So the 160 basis points is related to mostly cost corrections and the 80 basis points improvement is mostly related to productivity improvements if you may efficiency in improving yield and operational efficiencies.

Speaker 4: that has not changed a whole lot. We're still targeting a net improvement of 240 basis points after we account for inflation and some investments we need to make in the business.

Speaker 3: Got it. And then I wanted to follow up on the point on CapEx from the press release, because 70 million this year is a very substantial decrease from 2021. You're down about 47 million year on year. Colin, you had talked about trying to be more efficient and optimizing facilities. Is that really what we're seeing there?

Speaker 3: a significant move in that direction or how do we interpret the year on your decrease in Exactly.

Speaker 4: I think that's the main reason. So we've been working on productivity improvements.

Speaker 4: I think that's the main reason. So we've been working on productivity improvements since probably...

Speaker 3: middle of last year, at least nine months, and we're starting to see some real dividends in terms of unlocking free capacity and getting much better throughput in some of our key plants that have been, I would say, at capacity. So this work has really led to the bottlenecking in several different areas, which lets us be more prudent in terms of how we deploy capital, and we can push CapEx out a bit longer and into the next year or so because of the work we've done from a productivity standpoint. Got it. And then, just tying that into some bigger picture items that were announced within the last couple weeks.

Speaker 3: there to really comb through the portfolio and call out some things that may not be at that high margin level that you want to drive the business back to.

Speaker 3: Sure, I would say that we're always taking a hard look at our portfolio and what fits strategically and what doesn't. So, rubber was one example of, you know, acquiring that Griswold business was actually quite good for us because it was two pieces. It came with a polyurethane line which gave us really needed capacity at the time.

Speaker 3: also entree into a few different end markets with slightly different urethane foam technology. So that piece of the acquisition was very beneficial to the company. The rubber line we realized is more of a slow growth, lower margin, not quite a Rogers business and so we made the decision to exit that.

Speaker 3: We're looking elsewhere, but at this moment we feel very comfortable with our portfolio and very satisfied with how we're set to grow in the future. And then we did make some tough decisions in terms of taking out costs in certain areas just to get aligned with the current macro environment. Of course, we also have kept an eye on growth. In some cases, we've actually added headcount to where we needed it to support our strong backlogs into certain end markets. Like for example, Fl engineering familiar holds integrate the make- possession framework at Stripe. So on the cross central level this isness is pretty much like, for example, for P high is ya login say

Speaker 3: EVHV. So we're trying to balance this cost out with the fact that we are a growth company with good innovation and I think a really good long-term future. But you do have to sort of manage things for the short term and the long term. So what I would say is there's always some options we can look at. Greg, if things develop further, we're a nimble company, we're very flat in structures. We can make quick decisions. I think at this moment we've done what's appropriate for a current situation, but of course...

Speaker 4: You know, we're always paying attention in terms of what we should do next. That's real helpful. Thanks for that, guys. I'll hop back in the queue. Thanks. A final reminder, to ask a question at this time, press star 1. Thank you. There appears to be no additional requests for questions at this time. One moment. We do have one just popped in from Daniel Moore, CGS Securities.

Speaker 2: Thanks again. Maybe just talk, obviously talked about CapEx, but additional capital allocation priorities near term given, you know, the obviously very strong balance sheet enhanced by the breakup fee. You know, buybacks, holding firepower for M&A. How are you thinking about?

Speaker 2: redeploying capital and continued cash flow as we move forward. Yeah, hi Dan. So the capital planning, capital structure has not really changed for us. The the allocation strategy remains the same. We will fund organic growth or capex now is probably

Speaker 5: 7 to 8% of our revenue. That'll be our primary focus. We do want to continue to repay debt and keep our balance sheet as flexible as possible for any kind of inorganic opportunities. Our balance sheet remains very strong, but we will repay, continue to repay the debt that we have and then look at opportunities.

Speaker 2: share buyback at the right time. That continues to be our priorities. No change there. Got it. And just housekeeping, the divestments from Griswold, about $18 million of run rate revenue. The other streamlining actions, any additional revenue impact we should be thinking about as we model 2023.

Speaker 4: No, nothing for 23 yet. Nothing yet to be all understood. Okay. Very good. Next question comes from Craig Ellis. Would be Riley Securities. Please go ahead. Thank you.

Speaker 3: Yeah, thank you. I just wanted to follow up on a couple of the product groups. So first, just starting off with aerospace and defense, can you just provide a little bit more color in terms of what you're seeing there in that market and any sense for whether as you navigated through 2022, where I think we had a couple quarters where

Speaker 4: flying. We've seen quite a strong bounce back since then, and we also see a bigger increase in international flights. And what that does is that drives our business around maintenance, repair and overhaul, and that has come along quite nicely this past year, and we see that being strong again for the coming year.

Speaker 4: probably will continue strong, but it was not good. Half a several years ago, due to the COVID slowdown. And then on the defense side, that is a key and segment for us. And really we participate with a lot of different products, but in particular, our RF solutions business, our laminates in terms of radar and other high-frequency circuits used in satellites and defense are still the go-to product.

Speaker 4: because of our toughness, and durability, and reliability, and that business has been going quite well for us. Defense spending continues to increase, and so those are growth markets for us. We consider them a high growth area for us, and we'll give you more details on that, more context later in the year or actually in March at our investor day.

Speaker 3: We've got some good content. That's good. Yeah, that, no, it's real nice to get the split up between the commercial portion and the defense portion. I appreciate that calling. One other question related to the end markets. It's less of a focus than it was years ago, but anything notable on the infrastructure side of 5G? Are there just...

Speaker 4: sequentially with demand or any programs that you see out there that could be meaningful as we look ahead to 2023. Yeah, the wireless infrastructure for us is, as we've said, about 6%. And, you know, we view that as a maintained market. The build-outs in terms of base stations, looking at the forward projections from some external agencies who publish these indices looks relatively modest, flat more or less. And so, we have good relationships with some of the key OEMs and it should remain in that.

Speaker 4: Single-digit range for us. It's a flat, I would say, business force going forward. Try it. No surprises there. There are no further questions at this time. I'll have the floor back to management for closing remarks. Just want to say thanks everyone for joining. We're beginning our journey in terms of the rolling restart to get us to our targets of 40, 20 and 20. I really look forward to seeing everyone at investor day at the end of the month in March in New York City. Thanks for joining everyone.

Speaker 6: Thank you. This concludes today's conference on Pardemic Disconnect. Have a good day.