Q2 2024 Rogers Corp Earnings Call

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and Daniel Moore. Thank you. I hope you enjoyed it. I'm Larry Schmid. I'll see you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.

Operator: Good afternoon. My name is Alicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to Rogers Corporation's second quarter 2024 earnings conference call. I will now like to turn the call over to your host, Mr. Steve Haymore, Director of Investor Relief. Mr. Haymore, you may begin.

Alicia: My name is Alicia, and I'll be your constant operator today. At this time, I would like to welcome everyone to Rogers Corporation's second quarter 2024 earnings conference call.

Alicia: Good afternoon. My name is Alicia and I'll be your conference operator today. At this time, I would like to welcome everyone to Rogers Corporation's second quarter 2024 earnings conference call.

Stephen Haymore: I will now like to turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Mr. Haymore, you may begin.

Speaker Change: I will now like to turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Mr. Haymore, you may begin.

Stephen Haymore: Good afternoon, everyone, and welcome to the Rogers Corporation's second quarter 2024 earnings conference call. The slides for today's call can be found on the investor section of our website, along with the press release that was issued earlier today. Please turn to slide two.

Stephen Haymore: Good afternoon, everyone, and welcome to the Rogers Corporation second quarter 2024 earnings conference call. The slides for today's call can be found on the investor section of our website, along with the press release that was issued earlier today. Please turn to slide two.

Stephen Haymore: Good afternoon, everyone, and welcome to the Rogers Corporation second quarter 2024 earnings conference call. The slides for today's call can be found on the investor section of our website, along with the press release that was issued earlier today.

Stephen Haymore: Before we begin, I'd like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in 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 made today.

Stephen Haymore: Before we begin, I'd like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in 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 made today. Please turn to slide three.

Please turn to slide 2.

Speaker Change: Before we begin, I'd like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

and should be considered as subject to the many uncertainties that exist in Rogers' operations and environment.

Stephen Haymore: These uncertainties include economic conditions, market demands, and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement made today.

Stephen Haymore: Please turn to slide three. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles. 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 available on our investor relations website.

Stephen Haymore: The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. Generally Accepted Accounting Principles. Reconciliations 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 available on our Investor Relations website. Turning to slide four, with me today is Colin Gouveia, President and CEO, and Ram Mayampurath, Senior Vice President and CFO. I will now turn the call over to Colin. Thanks, Steve. Good afternoon to everyone, and thank you for joining us today.

Stephen Haymore: Please turn to slide 3. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. Generally Accepted Accounting Principles.

Stephen Haymore: Reconciliations of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call, which are available on our Investor Relations website.

Stephen Haymore: Turning to slide four, with me today is Colin Gavea, President and CEO, and Ron Mayan Poruth, Senior Vice President and CFO.

Speaker Change: Turning to slide 4, with me today is Colin Gouveia, President and CEO , and Ram Mayampurath, Senior Vice President and CFO . I will now turn the call over to Colin.

Colin Gavea: I will now turn the call over to Colin.

Colin Gavea: Thanks, Steve. Good afternoon to everyone, and thank you for joining us today. I'll start by highlighting the key messages for the quarter on slide five. Our execution was solid in the second quarter, and results were in line with our expectations. Sales were near the midpoint, and gross margin performance exceeded the high end of our outlook. The strong improvement in gross margin drove adjusted earnings near the top end of our guidance range. Sale for stronger in some areas such as portable electronics and wireless infrastructure. Tempering this growth was elevated customer inventory levels of our ceramic products, which impacted the EVHV industrial and renewable energy markets.

Randall Colin Gouveia: I'll start by highlighting the key messages for the quarter on slide five. Our execution was solid in the second quarter, and results were in line with our expectations. Sales were near the midpoint, and gross margin performance exceeded the high end of our outlook. The strong improvement in gross margin drove adjusted earnings near the top end of our guidance range. However, tempering this growth was elevated customer inventory levels of our ceramic products, which impacted the EVHEV industrial and renewable energy markets.

Randall Colin Gouveia: Thanks Steve. Good afternoon to everyone and thank you for joining us today. I'll start by highlighting the key messages for the quarter on slide 5.

Speaker Change: Our execution was solid in the second quarter and results were in line with our expectations. Sales were near the midpoint and gross margin performance exceeded the high end of our outlook.

Speaker Change: The strong improvement in gross margin drove adjusted earnings near the top end of our guidance range.

Speaker Change: sales were stronger in some areas such as portable electronics and wireless infrastructure. Tempering this growth was elevated customer inventory levels of our ceramic products which impacted the EVHEV industrial and renewable energy markets.

Colin Gavea: As we manage through the current customer inventory challenges and the uneven demand environment, we continue to drive improved performance in the areas we can control. For example, in late Q1, as it became apparent our ceramic power substrate customers were reducing orders due to high inventory levels and slowing end consumer demand, we moved swiftly to reduce manufacturing costs. This action significantly boosted our Q2 gross margins while still retaining flexibility to increase output should demand return more quickly than anticipated. In addition, as we announced in June, we are consolidating our high-frequency circuit material manufacturing operations. Upon completion of this effort in mid-20025, we anticipate improved factory utilization rates, lower expenses, and increased operating margins in the $7-9 million range.

Randall Colin Gouveia: As we manage through the current customer inventory challenges and the uneven demand environment, we continue to drive improved performance in the areas we can control. For example, in late Q1, as it became apparent our keramic power substrate customers were reducing orders due to high inventory levels and slowing end consumer demand, we moved swiftly to reduce manufacturing costs.

Speaker Change: As we manage through the current customer inventory challenges and the uneven demand environment, we continue to drive improved performance in the areas we can control.

Speaker Change: For example, in late Q1, as it became apparent our keramic power substrate customers were reducing orders due to high inventory levels and slowing end consumer demand, we moved swiftly to reduce manufacturing costs.

Randall Colin Gouveia: This action significantly boosted our Q2 gross margins while still retaining flexibility to increase output should demand return more quickly than anticipated. In addition, as we announced in June, we are consolidating our high-frequency circuit material manufacturing operations. Upon completion of this effort in mid-2025, we anticipate improved factory utilization rates, lower expenses, and increased operating margins in the $7 million to $9 million range. The decision to consolidate was made in response to decreased customer demand for RFS products in Europe.

Speaker Change: This action significantly boosted our Q2 gross margins, while still retaining flexibility to increase output should demand return more quickly than anticipated.

Speaker Change: In addition, as we announced in June , we are consolidating our high-frequency circuit material manufacturing operations.

Speaker Change: Upon completion of this effort in mid-2025, we anticipate improved factory utilization rates, lower expenses, and increased operating margins in the $7 million to $9 million range.

Colin Gavea: The decision to consolidate was made in response to decrease customer demand for RFS products in Europe. In the coming quarters, we will transition customers to our existing RFS manufacturing facility in China, enabling us to provide even higher levels of support. We also remain focused on driving innovation to support the future growth of the company. As our CTO, Griffin Gapper, discussed last quarter, we have implemented several actions to accelerate our technology development process. A key recent action was the decision to exit our Northeastern University location near Boston, Massachusetts. This location was established in 2014 in partnership with Northeastern to develop breakout new platform technology to support Rogers' long-term growth.

Speaker Change: The decision to consolidate was made in response to decreased customer demand for RFS products in Europe . In the coming quarters, we will transition customers to our existing RFS manufacturing facility in China, enabling us to provide even higher levels of support.

Randall Colin Gouveia: In the coming quarters, we will transition customers to our existing RFS manufacturing facility in China, enabling us to provide even higher levels of support. We also remain focused on driving innovation to support the future growth of the company. As our CTO, Griffin Gappert, discussed last quarter, we have implemented several actions to accelerate our technology development process. A key recent action was the decision to exit our Northeastern University location near Boston, Massachusetts.

Speaker Change: We also remain focused on driving innovation to support the future growth of the company.

Griffin Gappert: As our CTO, Griffin Gappert, discussed last quarter, we have implemented several actions to accelerate our technology development process. A key recent action was the decision to exit our Northeastern University location near Boston, Massachusetts.

Randall Colin Gouveia: This location was established in 2014 in partnership with Northeastern to develop breakthrough new platform technology to support Rogers' long-term growth. The intent was to co-locate select scientists with academia to develop new platform technologies while our existing R&D teams focused on innovation programs specific to each business unit. Our commitment to innovation remains as strong as ever, but we now believe all long-term R&D is best conducted within the business unit R&D teams at our primary technology centers in the US, Europe, and China.

Griffin Gappert: This location was established in 2014 in partnership with Northeastern to develop breakout new platform technology to support Rogers' long-term growth.

Colin Gavea: The intent was to co-locate select scientists with academia to develop new platform technologies while our existing R&D teams focused on innovation programs specific to each business unit. Our commitment to innovation remains as strong as ever, but we now believe all long-term R&D is best conducted within the business unit R&D teams at our primary technology centers in the US, Europe, and China. This approach will allow more flexibility to build a balanced innovation portfolio that can most effectively address the needs of our global customer base over the near-term and longer-term horizons. For longer-term projects, we will continue to collaborate with relevant ecosystem partners such as universities and other technical institutions with proven track records.

Griffin Gappert: The intent was to co-locate select scientists with academia to develop new platform technologies while our existing R&D teams focused on innovation programs specific to each business unit.

Griffin Gappert: Our commitment to innovation remains as strong as ever, but we now believe all long-term R&D is best conducted within the business unit R&D teams at our primary technology centers in the U.S., Europe , and China.

Randall Colin Gouveia: This approach will allow more flexibility to build a balanced innovation portfolio that can most effectively address the needs of our global customer base over the near-term and longer-term horizon. For longer-term projects, we will continue to collaborate with relevant ecosystem partners such as universities and other technical institutions with proven track records.

Griffin Gappert: This approach will allow more flexibility to build a balanced innovation portfolio that can most effectively address the needs of our global customer base over the near-term and longer-term horizons.

Griffin Gappert: For longer-term projects, we will continue to collaborate with relevant ecosystem partners, such as universities and other technical institutions with proven track records.

Randall Colin Gouveia: Rogers' future must be built on innovation, and innovation remains one of the four key pillars of our growth strategy. In terms of capacity expansion, we are making substantial progress with the construction of our new ceramic power substrate facility in China. Despite the slowdown this year, Coremic has been our fastest growing product line for the past several years, and we have a strong conviction that this technology will be an impactful growth driver for many years to come.

Colin Gavea: Rogers' future must be built on innovation, and innovation remains one of the four key pillars of our growth strategy. In terms of capacity expansion, we are making substantial progress with the construction of our new ceramic power substrate facility in China. Despite the slowdown this year, ceramic has been our fastest growing product line for the past several years, and we have a strong conviction this technology will be an impactful growth driver for many years to come. Our power module customers have been clear about the need for Rogers to have a China footprint to support their local production.

Griffin Gappert: Rogers' future must be built on innovation, and innovation remains one of the four key pillars of our growth strategy.

Griffin Gappert: In terms of capacity expansion,

Griffin Gappert: We are making substantial progress with the construction of our new Keramic power substrate facility in China. Despite the slowdown this year, Keramic has been our fastest growing product line for the past several years, and we have a strong conviction this technology will be an impactful growth driver for many years to come.

Randall Colin Gouveia: Our Power Module customers have been clear about the need for Rogers to have a China footprint to support their local production. Our new facility will expand our capability to provide the high level of support required to meet the needs of both Western OEMs manufacturing in China and domestic Chinese OEMs, with whom we have secured significant design wins in recent quarters. We expect mass production to begin in mid-2025, but we'll continue to monitor demand conditions and adjust timing as needed.

Griffin Gappert: Our Power Module customers have been clear about the need for Rogers to have a China footprint to support their local production.

Colin Gavea: Our new facility will expand our capability to provide the high level of support required to meet the needs of both Western OEMs manufacturing in China and domestic Chinese OEMs with whom we have secured significant design wins in recent quarters. We expect mass production to begin in mid-2025, but will continue to monitor to mend conditions and adjust timing as needed.

Griffin Gappert: Our new facility will expand our capability to provide the high level of support required to meet the needs of both Western OEMs manufacturing in China and domestic Chinese OEMs, with whom we have secured significant design wins in recent quarters.

Griffin Gappert: We expect mass production to begin in mid-2025, but will continue to monitor demand conditions and adjust timing as needed.

Colin Gavea: Turning to slide six, I'll next review the highlights of our second quarter results. Sales of 214 million were approximately flat to the prior quarter as stronger sales in portable electronics and wireless infrastructure were tempered primarily by lower-cremac power substrate sales in several end markets. Rose Margin was 34.1%, a 210 basis point increase from the prior quarter, while adjusted EPS improved to 69 cents. We are pleased with the improvement in Q2 Rose Margin and that our operational excellence efforts are delivering on initiatives targeted to improve yields, reduce prep, balance supply with demand, and achieve procurement and supply chain savings.

Randall Colin Gouveia: Turning to slide six, I'll next review the highlights of our second quarter results. Sales of $214 million were approximately flat to the prior quarter as stronger sales in portable electronics and wireless infrastructure were tempered primarily by lower kermic power substrate sales in several end markets. Gross margin was 34.1 percent, a 210 basis point increase from the prior quarter, while adjusted EPS improved to 69 cents.

Speaker Change: Turning to slide 6, I'll next review the highlights of our second quarter results.

Speaker Change: Sales of $214 million were approximately flat to the prior quarter, as stronger sales in portable electronics and wireless infrastructure were tempered primarily by lower-chromic power substrate sales in several end markets.

Speaker Change: Gross margin was 34.1%, a 210 basis point increase from the prior quarter, while adjusted EPS improved to 69 cents.

Randall Colin Gouveia: We are pleased with the improvement in Q2 gross margin and that our operational excellence efforts are delivering on initiatives targeted to improve yields, reduce scrap, balance supply with demand, and achieve procurement and supply chain savings. Returning to our top line results, I'll summarize our sales performance in key markets. Beginning with the EV HEV market, our sales were mixed in Q2. In the EMS business, we achieved a second consecutive quarter of record sales as demand for our EV and HEV battery solutions remained strong. Growth was strongest in our cell pad material used to address pressure management needs in both pouch and prismatic battery form factors.

Speaker Change: We are pleased with the improvement in Q2 gross margin and that our operational excellence efforts are delivering on initiatives targeted to improve yields, reduce scrap, balance supply with demand, and achieve procurement and supply chain savings.

Colin Gavea: Returning to our top-line results, I'll summarize our sales performance in key markets. Beginning with the EVHV market, our sales were mixed in Q2. In the EMS business, we achieved a second consecutive quarter of record sales as demand for our EV and HEV battery solutions remained strong. Growth was strongest in our sell pad material used to address pressure management needs in both pouch and prismatic battery form factors. Sales of compression pads and environmental sealing solutions were also strong and were a key part of our results. As mentioned, sales of our ceramic power substrates in the EVHV market were lower as customers worked through higher inventory levels amid softer end consumer demand.

Randall Colin Gouveia: Sales of compression pads and environmental sealing solutions were also strong and were a key part of our results. However, as mentioned, sales of our Keramic Power substrates in the EV-HEV market were lower as customers worked through higher inventory levels amid softer end consumer demand. As customers remain cautious about the current market conditions, we do not expect a recovery in 2024 for this product line. In our high growth markets, the increase in portable electronics was in line with seasonal expectations and points to a moderately stronger smartphone refresh cycle in 2024. ADAS sales were flat compared to the prior quarter, and after an excellent Q1, A&E sales declined slightly in Q2 related to program timing.

Speaker Change: Returning to our top line results, I'll summarize our sales performance in key markets.

Speaker Change: Beginning with the EV HEV market, our sales were mixed in Q2.

Speaker Change: In the EMS business, we achieved a second consecutive quarter of record sales as demand for our EV and HEV battery solutions remained strong. Growth was strongest in our cell pad material used to address pressure management needs in both pouch and prismatic battery form factors.

Speaker Change: Sales of compression pads and environmental sealing solutions were also strong and were a key part of our results.

Speaker Change: As mentioned, sales of our ceramic power substrates in the EV-HEV market were lower, as customers worked through higher inventory levels amid softer end consumer demand.

Colin Gavea: As customers remained cautious about the current market conditions, we do not expect a recovery in 2024 for this product line. In our high growth markets, the increase in portable electronics was in line with seasonal expectations and points towards a moderately stronger smartphone refresh cycle in 2024. A-dot sales were flat to the prior quarter, and after an excellent Q1, AMD sales declined slightly in Q2 related to program timing. In our core markets, we saw a strong improvement in wireless infrastructure sales due to higher demand in India. Based on order patterns, we expect wireless infrastructure sales to be stronger in Q3 before tapering off in Q4.

Speaker Change: As customers remain cautious about the current market conditions, we do not expect a recovery in 2024 for this product line.

Speaker Change: In our high growth markets, the increase in portable electronics was in line with seasonal expectations and points towards a moderately stronger smartphone refresh cycle in 2024.

Speaker Change: ADAS sales were flat to the prior quarter and after an excellent Q1, A&E sales declined slightly in Q2 related to program timing.

Randall Colin Gouveia: In our core markets, we saw a strong improvement in wireless infrastructure sales due to higher demand in India. Based on order patterns, we expect wireless infrastructure sales to be stronger in Q3 before tapering off in Q4. We are working to secure design wins for the next generation of this project, which would ramp in 2025. Industrial market sales declined in the second quarter, primarily due to the impact of elevated customer inventory levels in our power substrate product line.

Speaker Change: In our core markets, we saw a strong improvement in wireless infrastructure sales due to higher demand in India.

Speaker Change: Based on order patterns, we expect wireless infrastructure sales to be stronger in Q3 before tapering off in Q4. We are working to secure design wins for the next generation of this project, which would ramp in 2025.

Colin Gavea: We are working to secure design wins for the next generation of this project, which would ramp in 2025. Industrial market sales declined in the second quarter, primarily due to the impact of elevated customer inventory levels in our power substrate product line. EMS general industrial sales were nearly flat to Q1, and while we believe the customer destocking is complete across many of the industrial submarkets, we have not seen a meaningful increase in demand. This is consistent with US and European PMI data, which continues to indicate that manufacturing activity levels remain subdued.

Speaker Change: Industrial market sales declined in the second quarter, primarily due to the impact of elevated customer inventory levels in our power substrate product line.

Randall Colin Gouveia: EMS general industrial sales were nearly flat in Q1, and while we believe the customer destocking is complete across many of the industrial submarkets, we have not seen a meaningful increase in demand. This is consistent with U.S. and European PMI data, which continue to indicate that manufacturing activity levels remain subdued.

Speaker Change: EMS general industrial sales were nearly flat to Q1 and while we believe the customer de-stocking is complete across many of the industrial submarkets

Speaker Change: we have not seen a meaningful increase in demand. This is consistent with U.S. and European PMI data, which continues to indicate that manufacturing activity levels remain subdued.

Colin Gavea: I'll next discuss some of the recent wins that we have secured. Beginning with our AES business, a leading Asian EV manufacturer selected our advanced ceramic substrate technology to be used in their high power silicon carbide inverter for its latest generation vehicle. This development is another indication of the progress we've made in securing wins in recent quarters with Asian power module manufacturers and OEMs. In the renewable energy space, our substrate technology was designed in by a major U.S. power module supplier. This customer's power module will utilize our technology to provide highly efficient solar power conversion for a key Asian inverter manufacturer.

Randall Colin Gouveia: I'll next discuss some of the recent wins that we have secured. Beginning with our AES business, a leading Asian EV manufacturer selected our advanced ceramic substrate technology to be used in their high-power silicon carbide inverter for their latest generation vehicle. This development is another indication of the progress we've made in securing wind in recent quarters with Asian Power Module manufacturers and OEMs. In the renewable energy space, our substrate technology was designed in by a major U.S. power module supplier.

Speaker Change: I'll next discuss some of the recent wins that we have secured.

Speaker Change: Beginning with our AES business, a leading Asian EV manufacturer selected our advanced ceramic substrate technology to be used in their high power silicon carbide inverter for its latest generation vehicle.

Speaker Change: This development is another indication of the progress we've made in securing winds in recent quarters with Asian Power Module manufacturers and OEMs.

Speaker Change: In the renewable energy space, our substrate technology was designed in by a major U.S. power module supplier. This customer's power module will utilize our technology to provide highly efficient solar power conversion for a key Asian inverter manufacturer.

Randall Colin Gouveia: This customer's power module will utilize our technology to provide highly efficient solar power conversion for a key Asian inverter manufacturer. In EMS, our leading poron polyurethane materials were selected by a leading European OEM for multiple applications in its HEV battery.

Colin Gavea: In EMS, our leading Pluron polyurethane materials were selected by a leading European OEM for multiple applications in its HEV batteries. Our materials will be used as cell pads to solve pressure management challenges and compression pads to address vibration management and other needs.

Speaker Change: In EMS, our leading poron polyurethane materials were selected by a leading European OEM for multiple applications in its HEV batteries.

Randall Colin Gouveia: Our materials will be used as cell pads to solve pressure management challenges and compression pads to address vibration management and other needs. Next, on slide seven, I'll discuss the highlights from a recently published 2024 Environmental, Social, and Governance Report. At Rogers, our commitment to corporate social responsibility and sustainability is deeply rooted in our corporate culture, and we are proud that our work contributes to a cleaner, safer, and more connected world. Rogers materials feature prominently in markets such as electric vehicles, renewable energy, and ADAS, which help reduce carbon emissions, enable safer driving environments, and improve lives.

Speaker Change: Our materials will be used as cell pads to solve pressure management challenges and compression pads to address vibration management and other needs.

Colin Gavea: Next on Slide 7, I'll discuss the highlights from our recently published, 2024 Environmental, Social, and Governance Report. At Rogers, our commitment to corporate social responsibility and sustainability is deeply rooted in our corporate culture, and we are proud that our work contributes to a cleaner, safer, and more connected world. Rogers' materials feature prominently in markets, such as electric vehicles, renewable energy, and ADAS, which help reduce carbon emissions, enable safer driving environments, and improve lives. Our 2024 ESG report highlights the substantial progress we have made towards our ESG initiatives this past year, and our dedication to operate our business with a strong sense of responsibility to all our shareholders and stakeholders.

Speaker Change: Next, on slide 7, I'll discuss the highlights from a recently published 2024 Environmental, Social, and Governance report.

Speaker Change: At Rogers, our commitment to corporate social responsibility and sustainability is deeply rooted in our corporate culture, and we are proud that our work contributes to a cleaner, safer, and more connected world.

Speaker Change: Rogers materials feature prominently in markets such as electric vehicles, renewable energy, and ADAS, which help reduce carbon emissions, enable safer driving environments, and improve lives.

Randall Colin Gouveia: Our 2024 ESG report highlights the substantial progress we've made on our ESG initiatives this past year and our dedication to operate our business with a strong sense of responsibility to all our shareholders and stakeholders. For example, over the past two years, we have significantly reduced our greenhouse gas emissions, and we intend to go further with an engagement to achieve a 20% reduction in GHG emissions by 2050. The report also highlights how we prioritize employee safety and development and our ongoing commitment to conducting business in an honest and ethical manner. We invite you to read the report on our website. In closing, I'll recap today's key messages.

Speaker Change: Our 2024 ESG report highlights the substantial progress we have made towards our ESG initiatives this past year and our dedication to operate our business with a strong sense of responsibility to all our shareholders and stakeholders.

Colin Gavea: For example, over the past two years, we have significantly reduced our greenhouse gas emissions, and we intend to go further with a commitment to achieve a 20% reduction in GHG emissions by 2030. The report also highlights how we prioritize employee safety and development, and our ongoing commitment to conducting business in an honest and ethical manner. We invite you to read the report on our website.

Speaker Change: For example, over the past two years, we have significantly reduced our greenhouse gas emissions and we intend to go further with a commitment to achieve a 20% reduction in GHG emissions by 2030.

Speaker Change: The report also highlights how we prioritize employee safety and development and our ongoing commitment to conducting business in an honest and ethical manner. We invite you to read the report on our website.

Colin Gavea: In closing, our recap today's key messages. First, we have solid execution in Q2 to deliver improved gross margin and earnings. Second, we are pushing forward with actions to further improve our cost structure as we focus on driving growth. Third, we are prioritizing innovation and making the necessary changes to accelerate our development efforts while also prudently investing in capacity to grow our top line. Finally, we are highly focused on carefully managing costs, capex investments, and our strong balance sheet to maximize cash flow.

Randall Colin Gouveia: First, we have solid execution in Q2 to deliver improved gross margin and earnings. Second, we are pushing forward with actions to further improve our cost structure as we focus on driving growth. Third, we are prioritizing innovation and making the necessary changes to accelerate our development efforts while also prudently investing in capacity to grow our top line. Finally, we are highly focused on carefully managing costs, CapEx investments, and our strong balance sheet to maximize cash flow. Now I'll turn it over to Rob to discuss our Q2 financial performance and Q3 outcome.

Speaker Change: In closing, I'll recap today's key messages.

Speaker Change: First, we have solid execution in Q2 to deliver improved gross margin and earnings.

Speaker Change: Second, we are pushing forward with actions to further improve our cost structure as we focus on driving growth. Third, we are prioritizing innovation and making the necessary changes to accelerate our development efforts while also prudently investing in capacity to grow our top line.

Speaker Change: Finally, we are highly focused on carefully managing costs, CapEx investments, and our strong balance sheet to maximize cash flow.

Ram Mayan Poruth: Now, I'll turn it over to Rob to discuss our Q2 financial performance and Q3 outlook.

Speaker Change: Now I'll turn it over to Ram to discuss our Q2 financial performance and Q3 outlook.

Ram Mayan Poruth: Thanks, Colin.

Ramakumar Mayampurath: I'll begin on slide 8 with the highlights of our results for Q2. Overall, we had good execution in Q2 and achieved results consistent with the guidance we provided in our prior earnings call. Sales were near the midpoint of our guidance range and, as mentioned, were somewhat tempered by higher customer inventories in some markets. However, even with these challenges, we achieved adjusted EPS results near the high end of our range because of the improvement in gross margins.

Ram Mayan Poruth: I'll begin on slide 8 with the highlights of our results for Q2. Overall, we had good execution in Q2 and achieved the results consistent with the guidance we provided in our prior earnings call. Sales were near the midpoint of our guidance range, and, as mentioned, were somewhat tempered by higher customer inventories in some markets. Even with these challenges, we achieved adjusted EPS results near the high end of all range because of the improvement in gross margin.

Rob: Thanks, Colin.

Rob: I'll begin on slide 8 with the highlights of our results for Q2. Overall, we had good execution in Q2 and achieved the results consistent with the guidance we provided in our prior earnings call.

Rob: Sales were near the midpoint of our guidance range, and as mentioned, were somewhat tempered by higher customer inventories in some markets. Even with these challenges, we achieved adjusted EPS results near the high end of our range because of the improvement in gross margin.

Ram Mayan Poruth: On slide 9, I'll discuss Q2 sales results in more detail. Net sales of 214 million were nearly flat versus the prior quarter, as slightly higher volume was mostly offset by unfavorable foreign currency fluctuations of approximately $700,000. On a reportable segment basis, AES revenue decreased from the prior quarter by 5.4% to 116 million. Higher sales in the wireless infrastructure market were more than offset by lower EVA, EV industrial, and aerospace and defense markets. The decline in our ceramic power substrate business has been substantial this year due to elevated customer inventory levels and softer end customer demand in the EVA, EV renewable energy, and industrial markets.

Ramakumar Mayampurath: On slide 9, I'll discuss Q2 sales results in more detail. Net sales of $214 million were nearly flat versus the prior quarter as slightly higher volume was mostly offset by unfavorable foreign currency fluctuations of approximately $700,000. On a reportable segment basis, AES revenue decreased from the prior quarter by 5.4% to $116 million. Higher sales in the wireless infrastructure market were more than offset by lower EV-HEV sales in the industrial and aerospace and defense

Rob: On slide 9, I'll discuss Q2 sales results in more detail.

Speaker Change: Net sales of $214 million were nearly flat versus the prior quarter as slightly higher volume was mostly offset by unfavorable foreign currency fluctuations of approximately $700,000.

Speaker Change: On a reportable segment basis, AES revenue decreased from the prior quarter by 5.4 percent to $116 million. Higher sales in the wireless infrastructure market were more than offset by lower EV, HEV, industrial, and aerospace and defense markets.

Ramakumar Mayampurath: The decline in our ceramic power substrate business has been substantial this year due to elevated customer inventory levels and softer end-customer demand in the EV-HEV renewable energy and industrial markets. Total ceramics sales were down by more than 30% compared to the first half of 2023, and we don't expect to see a meaningful recovery this year. However, we are well positioned to navigate these near-term challenges.

Speaker Change: The decline in our ceramic power substrate business has been substantial this year due to elevated customer inventory levels and softer end customer demand in the EV, HEV, renewable energy, and industrial markets.

Ram Mayan Poruth: Total ceramic sales were down by more than 30% compared to the first half of 2023, and we don't expect to see a meaningful recovery this year.

Speaker Change: Total ceramic sales were down by more than 30% compared to the first half of 2023, and we don't expect to see a meaningful recovery this year.

Ram Mayan Poruth: However, we are well positioned to navigate through these near-term challenges. We see great opportunity with our differentiated ceramic product technology and the broad commercial relationships we have with leading power module customers. We are also encouraged by the support we have received from our customers on our expansion plans in China. EMM's revenue increased by 10.5% to 95 million. The increase resulted from higher EVA, EV, and portable electronic sales and was likely offset by lower A&D demand.

Ramakumar Mayampurath: We see great opportunity with our differentiated ceramic product technology and the broad commercial relationships we have with leading power module customers. We are also encouraged by the support we have received from our customers for our expansion plans in China. EMS revenue increased by 10.5% to $95 million. The increase resulted from higher EV HEV and portable electronic sales, and was slightly offset by lower A&D demand. We are encouraged by the strong traction we are seeing in the EV battery space.

Speaker Change: However, we are well positioned to navigate through these near-term challenges.

Speaker Change: We see great opportunity with our differentiated ceramic product technology and the broad commercial relationships we have with leading power module customers.

Speaker Change: We are also encouraged by the support we have received from our customers on our expansion plans in China.

Speaker Change: EMS revenue increased by 10.5% to $95 million. The increase resulted from higher EV, HEV, and portable electronic sales.

Ram Mayan Poruth: We are encouraged by the strong traction we are seeing in the EV battery space.

Speaker Change: and was slightly offset by lower A&D demand. We are encouraged by the strong traction we are seeing in the EV battery space.

Ram Mayan Poruth: Turning to slide 10, Q2 gross margins were 34.1% and increased by 210 basis points from the first quarter. The improved margins was primarily due to favorable product mix and the actions taken in Q1 to match cost levels to demand in our ceramic power substrate product line. As we mentioned on last quarter's call, we took actions near the end of Q1 to address underabsorbed costs in parts of our operations. These actions were an important contributor to the higher gross margins we achieved in Q2. In the second quarter, we are still carrying a small amount of excess cost, primarily in our ceramic operations, to ensure that we have the ability to respond to power substrate demand should it return sooner than expected.

Ramakumar Mayampurath: Turning to slide 10, Q2 gross margins were 34.1% and increased by 210 basis points from the first quarter. The improved margins were primarily due to favorable product mix and the actions taken in Q1 to match cost levels to demand in our ceramic power substrate product line. As we mentioned on last quarter's call, we took actions near the end of Q1 to address under-absorbed costs in parts of our operations.

Speaker Change: Turning to slide 10.

Speaker Change: Q2 gross margins were 34.1% and increased by 210 basis points from the first quarter. The improved margins was primarily due to favorable product mix and the actions taken in Q1 to match cost levels to demand in our ceramic power substrate product line.

Speaker Change: As we mentioned on last quarter's call, we took actions near the end of Q1 to address under-absorbed costs in parts of our operations. These actions were an important contributor to the higher gross margins we achieved in Q2.

Ramakumar Mayampurath: These actions were an important contributor to the higher gross margins we achieved in Q2. For the second quarter, we are still carrying a small amount of excess cost, primarily in our ceramic operations, to ensure that we have the ability to respond to power substrate demand should it return sooner than expected. Adjusted net income increased from $11 million in the first quarter to $13 million in Q2. Q2 adjusted earnings per share was $0.69 compared to $0.58 in the prior quarter.

Speaker Change: In the second quarter, we are still carrying a small amount of excess cost, primarily in our ceramic operations, to ensure that we have the ability to respond to power substrate demand should it return sooner than expected.

Ram Mayan Poruth: Adjusted net income increased from 11 million in the first quarter to 13 million in Q2. Q2 adjusted earnings for share was 69 cents compared to 58 cents in the prior quarter. The higher Q2 adjusted net income was primarily a result of improved gross margins and lower interest expenses, partially offset by higher adjusted operating expenses.

Speaker Change: Adjusted net income increased from $11 million in the first quarter to $13 million in Q2. Q2 adjusted earnings per share was $0.69 compared to $0.58 in the prior quarter.

Ramakumar Mayampurath: The higher Q2 adjusted net income was primarily a result of improved gross margin and lower interest expenses, partially offset by higher adjusted operating expenses. The increase in op-ex was expected as the second quarter is typically the high point of our adjusted operating expenses due to the timing of certain variable compensation costs. Continuing to slide 11, cash at the end of June 30th was approximately $120 million, an increase of $3 million from the end of the prior quarter. We generated operating cash flow of $23 million in Q2. Capital expenditures were $14 million in the quarter and $24 million year-to-date.

Speaker Change: The higher Q2 adjusted net income was primarily a result of improved gross margin and lower interest expenses.

Ram Mayan Poruth: The increase in OPEX was expected as a second quarter is typically the high point of our adjusted operating expenses due to the timing of certain variable compensation costs. Continuing to slide 11, cash at the end of June 30 was approximately 120 million, an increase of 3 million from the end of the prior quarter. We generated operating cash flow of 23 million in Q2. Capital expenditures were 14 million in the quarter and 24 million year to date. We expect full year capex to be in the range of 55 to 65 million, slightly lower than our previous. Share repurchases have totaled just under 8 million in 2024; most of the repurchases happened in Q2.

Speaker Change: Partially offset by higher adjusted operating expenses. The increase in OPEX

Speaker Change: What was expected as a second quarter is typically the high point of our adjusted operating expenses due to the timing of certain variable compensation costs.

Speaker Change: Continuing to slide 11, cash at the end of June 30th was approximately $120 million, an increase of $3 million from the end of the prior quarter.

Speaker Change: We generated operating cash flow of $23 million in Q2. Capital expenditures were $14 million in the quarter and $24 million year-to-date. We expect full-year capex to be in the range of $55 to $65 million, slightly lower than our previous range.

Ramakumar Mayampurath: We expect full-year CAPEX to be in the range of $55 to $65 million, slightly lower than our previous range. Share repurchases totaled just under $8 million in 2024. Most of the repurchase happened in Q2. As we move forward through the year, we will focus on maximizing cash generation through margin improvement, cost reduction, and working capital management. We will continue to fund organic growth with cash generated from operations and maintain a strong balance sheet should the right M&A opportunity be actionable.

Speaker Change: Share repurchases have totaled just under $8 million in 2024. Most of the repurchase happened in Q2.

Ram Mayan Poruth: As we move forward through the year, we will focus on maximizing cash generation through margin improvement, cost reduction, and working capital management. We will continue to fund organic growth with cash generated from operations and maintain a strong balance should the right M&A opportunity be actionable. Returning capital to shareholders will remain a priority. In Q2, our board of directors authorized an additional 100 million to be used for share repurchases, bringing the total available at the end of the quarter to 116 million. As we have done in the past, we will evaluate share repurchases opportunistically and in accordance with our other capital allocation priorities.

Speaker Change: As we move forward through the year, we will focus on maximizing cash generation through margin improvement, cost reduction, and working capital management.

Speaker Change: We will continue to fund organic growth with cash generated from operations and maintain a strong balance sheet should the right M&A opportunity be actionable.

Ramakumar Mayampurath: Returning capital to shareholders will remain a priority. In Q2, our Board of Directors authorized an additional $100 million to be used for share repurchases, bringing the total available at the end of the quarter to $116 million. As we have done in the past, we will evaluate share repurchases opportunistically and in accordance with our other capital allocation priorities.

Speaker Change: Returning capital to shareholders will remain a priority.

Speaker Change: In Q2, our Board of Directors authorized an additional $100 million

Speaker Change: to be used for share repurchases, bringing the total available at the end of the quarter to $116 million.

Speaker Change: As we have done in the past, we will evaluate share repurchases opportunistically and in accordance with our other capital allocation priorities.

Ram Mayan Poruth: Next, on slide 12, I will discuss our guidance for the third quarter. Net sales are expected to range between 215 million and 225 million. The midpoint of this range is a 3% increase from Q2 due to expected increase in portable electronics and EVHV sales in our EMS business. General industrial sales are expected to be relatively flat in Q3. We will continue to watch this market closely for indications of improvement.

Ramakumar Mayampurath: Next, on slide 12, I'll discuss our guidance for the third quarter. Net sales are expected to range between $215 and $225 million. The midpoint of this range is a 3% increase from Q2 due to an expected increase in portable electronics and EV HEV sales in our EMS business. General industrial sales are expected to be relatively flat in Q3.

Speaker Change: Next, on slide 12, I'll discuss our guidance for the third quarter.

Speaker Change: Net sales are expected to range between 215 and 225 million. The midpoint of this range is a 3% increase from Q2 due to expected increase in portable electronics and EV-HEV sales in our EMS business.

Ramakumar Mayampurath: We will continue to watch this market closely for indications of improvement. We mentioned on last quarter's call that we expect total sales to be stronger in the second half of the year versus the first half. We expect that to hold true for our EMS business, but it is less clear for our AES business, given the uncertain timing of recovery in ceramic power substrate cells. We are guiding gross margin to be in the range of 34 to 35% for Q3. The improvement comes from the product mix and continuing operational excellence initiatives.

Speaker Change: General industrial sales are expected to be relatively flat in Q3. We will continue to watch this market closely for indications of improvement.

Ram Mayan Poruth: We mentioned on last quarter's call that we expect total sales would be stronger in the second half of the year versus the first half. We expect that to hold true for our EMS business, but it is less clear for our AES business given the uncertain timing of recovery in ceramic power substrate sales. We are guiding Rose margin to be in the range of 34% to 35% for Q3. The improvement coming from product mix and continuing operational excellence initiatives. As mentioned earlier, we will be carrying a small amount of excess cost in anticipation of stronger ceramic demand in the coming quarters.

Speaker Change: We mentioned on last quarter's call that we expect total sales would be stronger in the second half of the year versus the first half.

Speaker Change: We expect that to hold true for our EMS business, but it is less clear for our AES business.

Speaker Change: given the uncertain timing of recovery in ceramic power substrate cells.

Speaker Change: We are guiding gross margin to be in the range of 34 to 35 percent for Q3.

Ramakumar Mayampurath: As mentioned earlier, we'll be carrying a small amount of excess cost in anticipation of stronger ceramic demand in the coming quarters. Third quarter adjusted SG&A expenses are projected to be lower versus Q2. Start-up costs should remain similar to Q2, in the range of $1 to $2 million. However, depending on how demand levels evolve, these startup costs may be adjusted further. Earnings per share is expected to range from $0.32 to $0.52, and adjusted EPS from $0.75 to $0.95.

Speaker Change: The improvement coming from product mix and continuing operational excellence initiatives. As mentioned earlier, we will be carrying a small amount of excess cost in anticipation of stronger ceramic demand in the coming quarters.

Ram Mayan Poruth: Third quarter adjusted SDNA expenses are projected to be lower versus Q2. Start of cost should remain similar to Q2 in the range of 1 to 2 million. Depending on how demand levels evolve, these start of costs may be adjusted further. Earnings for share is expected to range from 32 cents to 52 cents, and adjusted EPS from 75 cents to 95 cents. Our Q3 EPS range includes 30 cents of restructuring-related expenses, with most of this associated with the wind down of our AES operations in Belgium.

Speaker Change: Third quarter adjusted SG&A expenses are projected to be lower versus Q2. Start-up costs should remain similar to Q2 in the range of $1-$2 million.

Speaker Change: Depending on how demand levels evolve, these startup costs may be adjusted further.

Speaker Change: Earnings per share is expected to range from $0.32 to $0.52 and adjusted EPS from $0.75 to $0.95.

Ramakumar Mayampurath: Our Q3 EPS range includes $0.30 of restructuring-related expenses, with most of this associated with the winding down of our AES operations in Belgium. Lastly, we project our full year tax rate to be around $26 to $27. With that, I will now turn the call back to the operator for questions. Thank you.

Speaker Change: Our Q3 EPS range includes 30 cents of restructuring-related expenses, with most of this associated with the wind-down of our AES operations in Belgium.

Ram Mayan Poruth: Lastly, we project our full year tax rate to be around 26 to 27 percent.

Speaker Change: Lastly, we project our full year tax rate to be around 26 to 27 percent.

Alicia: With that, I will now turn the call back to the operator for questions. Thank you.

Speaker Change: With that, I will now turn the call back to the operator for questions.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Alicia: We will now be conducting a question and answer session. If you would like to ask a question, please press bar 1 and your telephone key patch, a confirmation to what indicate your line is in the question queue. You may press bar 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start. So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions, you may recute, and time permitting, the questions will be addressed.

Speaker Change: Thank you. We will now be conducting a question and answer session.

Speaker Change: If you would like to ask a question, please press star 1 and your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Operator: So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions, you may recur, and, time permitting, those questions will be addressed. One moment, please, while we pull for questions. Thank you. Our first question comes from the line of Daniel Moore with CDF Securities. Please proceed with your question.

Speaker Change: So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions you may re-queue, and time permitting, those questions will be addressed.

Alicia: One moment, please, while we pull for questions.

Speaker Change: One moment, please, while we poll for questions.

Speaker Change: Thank you. Our first question comes from the line of Daniel Moore with CDF Securities. Please proceed with your question.

Dan: Thank you and good afternoon, Colin; good afternoon, Ram. Maybe we start with the ceramic. You mentioned down 30% near to date, and you expect H2 to look similar to H1 or BC, kind of even more aggressive inventory, destock and near term that's one and as a B part of that question. It's just in terms of market share, longer term market margin potential, anything changed at all or is it simply temporary market softness and inventory management, you know, with that key customer and in those markets, thanks.

Daniel Joseph Moore: Thank you. Good afternoon, Colin. Good afternoon, Ram. Can we start with Karamak?

Daniel Joseph Moore: Thank you. Good afternoon, Collin. Good afternoon, Ram. Maybe we start with Karamek. You mentioned down 30 percent year-to-date. Do you expect H2 to look similar to H1, or do you see kind of even more aggressive inventory destock in the near term? That's one.

Randall Colin Gouveia: You mentioned down 30% year-to-date. Do you expect H2 to look similar to H1, or do you see kind of even more aggressive inventory destocking in the near term? That's one, as a B part to that question. Just in terms of market share, longer-term margin potential, has anything changed at all, or is it simply temporary market softness and inventory management with that key customer and in those end markets? Thanks.

Speaker Change: as a B part to that question. It just in terms of market share, longer term margin potential, anything changed at all or is it simply temporary market softness in inventory management, you know, with that key customer and in those end markets? Thanks.

Colin Gavea: Hi Dan, Colin here. Thanks for the question. I'll start by talking about Kremick. It still remains one of our most important views, and for the past several years, it's been our fastest growing organic growth business. And we're fully committed to that product line and continuing to invest in our new facility in China. And then, in terms of how we're out there competing versus the market, we don't see any major share loss to the competition. In fact, our differentiated technology is still winning design and wins with Western OEMs and Chinese OEMs. So we feel very good about the position we're in in regards to our differentiated products and the future of the business.

Randall Colin Gouveia: Hi Dan, Colin here. Thanks for the question. I'll start by talking about CRAMIC. It still remains one of our most important VUs, and for the past several years, it's been our fastest growing organic growth business. And we're fully committed to that product line and continuing to invest in our new facility in China. And then, in terms of how we're out there competing versus the market. We don't see any major share loss to competition. In fact, our differentiated technology is still winning. Design-In wins with Western OEMs and Chinese OEMs.

Speaker Change: Hi Dan, Colin here. Thanks for the question.

Randall Colin Gouveia: I'll start by talking about CRAMIC still remains one of our most important BU's and for the past several years it's been our fastest growing organic growth business.

Randall Colin Gouveia: and we're fully committed to that product line and continuing to invest in our new facility in China. And then in terms of...

Randall Colin Gouveia: how we're out there competing versus the market.

Randall Colin Gouveia: We don't see any major share loss to competition. In fact, our differentiated technology is still winning design-in wins with Western OEMs and Chinese OEMs.

Randall Colin Gouveia: So we feel very good about the position we're in in regards to our differentiated products and the future of the business. What we talked about at the last conference call was that we had visibility in line of sight, and the thinking was that the karmic inventory issue and demand would recover in the second half of the year, but over the past three months, we have been paying close attention to the market and talking a lot to customers and also further down the value chain.

Randall Colin Gouveia: So we feel very good about the position we're in in regards to our differentiated products and the future of the business.

Colin Gavea: What we talked about at the last conference call is we have visibility in line of sight, and the thinking was that the Kremick inventory issue and demand would recover the second half of the year. But over the past three months, in paying close attention to the market and talking a lot to customers and also further down the value chain. The issues around inventory and demand will last throughout 2024. So it's unclear when things will turn around. It's a question we want to answer as soon as possible, and we're closely monitoring the situation. We do have the ability to ramp up capacity very quickly when the market does turn around, but the change from our last conference call is that the Kremick business will continue to be down significantly year over year.

Randall Colin Gouveia: What we talked about at the last conference call is we had visibility in line of sight and the thinking was that the keramic inventory issue and demand would recover the second half of the year, but over the past three months in paying close attention to that,

Randall Colin Gouveia: The issues around inventory and demand will last throughout 2024, so it's unclear when things will turn around. It's a question we want to answer as soon as possible, and we're closely monitoring the situation. We do have the ability to ramp up capacity very quickly when the market does turn around. But the change from our last conference call is that the ceramic business will continue to be down significantly year over year.

Randall Colin Gouveia: attention to the market and talking a lot to customers and also further down the value chain.

Randall Colin Gouveia: The issues around inventory and demand will last throughout 2024. So it's unclear.

Randall Colin Gouveia: when things will turn around.

Randall Colin Gouveia: It's a question we want to answer as soon as possible and we're closely monitoring the situation. We do have the ability to ramp up capacity very quickly when the market does turn around, but the change from our last conference call is that the ceramic business will continue to be down significantly year over year.

Dan: Understood and certainly consistent with what we're seeing in the marketplace. Just in terms of industrial, I'm wrong; you described as well, but last quarter, you know, maybe some green shoots. Are there, you know, areas where you're still seeing positive momentum, and are other areas that maybe have stalled or a little bit weaker. Given the outlook, that's maybe glad ish for Q3, you know, what's kind of change in the last, you know, 60, 90 days, if you will. Sure, well, one thing that's remained very consistent from the first quarter to the second quarter is the performance of our EMS business in the electric vehicle hybrid electric vehicle space.

Daniel Joseph Moore: understood and certainly consistent with what we're seeing in the marketplace. Just in terms of industrial, Ram, you described this well, but last quarter, you saw, you know, maybe some green shoots. Are there, you know, areas where you're still seeing positive momentum? And are there other areas that maybe have stalled or are a little bit weaker, given the outlook? That's maybe Gladish or Q3. You know, what's kind of changed in the last, you know, 60, 90 days, if you will?

Ramakumar Mayampurath: understood and certainly consistent with what we're seeing in the marketplace. Just in terms of industrial, Ram you described this well, but last quarter you saw maybe some green shoots.

Speaker Change: Are there, you know, areas where you're still seeing positive momentum and are there other areas that may be had stalled or a little bit weaker?

Speaker Change: given the outlook that's maybe flattish for Q3.

Speaker Change: You know, what's kind of changed in the last, you know, 60, 90 days, if you will.

Randall Colin Gouveia: Sure. Well, one thing that's remained very consistent from the first quarter to the second quarter is the performance of our EMS business in the electric vehicle and hybrid electric vehicle space. So we had a record first quarter, and that continued in this second quarter with another record in terms of our technology going into pressure management, sealing, and vibration dampening, and environmental seals for battery packs and a few other places that can be found on EVs or hybrid vehicles.

Speaker Change: Sure, well one thing that's remained very consistent from the first quarter to the second quarter is the performance of our EMS business.

Colin Gavea: So we had a record first quarter, and that continued in this second quarter with another record in terms of our technology going into pressure management, sealing and vibration dampening, and environmental seals for battery packs and a few other places that can be found on EVs or hybrids. In terms of general industrial, we need, we need to break it probably into two different segments. So for power industrial and these would be industrial applications where ceramic would participate, such as large motors and factories, robotics. Also, in some cases, appliances, we see that market down significantly year over year.

Speaker Change: in the electric vehicle, hybrid electric vehicle space. So we had a record first quarter, and that continued in the second quarter with another record in terms of our technology going into pressure management, sealing and vibration dampening, and environmental seals for battery packs, and a few other places.

Speaker Change: that can be found on EVs or hybrids.

Randall Colin Gouveia: In terms of general industrial, we need to break it probably into two different segments. So for power industrial, these would be industrial applications where ceramics would participate, such as large motors and factories, robotics, also, in some cases, appliances. We see that market down significantly year over year. We did at our last call as well, and there was no change. And again, just repeating what I said earlier, that will continue, that slowness, for the rest of the year.

Speaker Change: In terms of general industrial, we need to break it probably into two different segments. So, for power industrial, and these would be industrial applications where ceramic would participate, such as large motors in factories, robotics, also, in some cases, appliances.

Colin Gavea: We did at our last call as well, and no change, and again, just repeating what I said earlier, that will continue that slowness for the rest of the year. Rahm will also comment on your margin question as soon as I finish the general market commentary. In terms of non-power industrial, these are the 15 or so end markets that are primarily served by our EMS business, and they represent no more than 2% of total sales into an ex and segment. Such as oil and gas or semiconductor, we did see a little bit of growth in Q1; those green shoots, and we anticipated more in Q2.

Speaker Change: We see that market down significantly year over year. We did at our last call as well, and no change. And again, just repeating what I said earlier.

Randall Colin Gouveia: Ram will also comment on your margin question as soon as I finish the general market comment. In terms of non-power industrial, these are the 15 or so end markets that are primarily served by our EMS business, and they represent no more than 2% of total sales into an end segment, such as oil and gas or semiconductor. We did see a little bit of growth in Q1, those green shoots, and we anticipated more in Q2, but it seems there's been a bit of a downturn in terms of the PMI manufacturing indices.

Speaker Change: That will continue, that slowness, for the rest of the year. Ram will also comment on your margin question as soon as I finish the general market commentary.

Ramakumar Mayampurath: In terms of non-power industrial, these are the 15 or so end markets.

Ramakumar Mayampurath: that are primarily served by our EMS business, and they represent no more than 2% of total sales into an end segment, such as oil and gas or semiconductor.

Ramakumar Mayampurath: We did see a little bit of growth in Q1, those green shoots.

Colin Gavea: But it seems there's been a bit of a downturn in terms of the PMI manufacturing indices. Europe really hasn't come back as it had started to, and US also remains, you know, a bit flat in terms of demand. We believe in the non-power industrial segment that the inventory issues are behind us and that inventory has normalized, but now it's just a matter of demand really not recovering as we had anticipated. It hasn't gone downwards, but it still hasn't increased as much as we thought.

Ramakumar Mayampurath: And we anticipated more in Q2, but it seems there's been a bit of a downturn in terms of the PMI manufacturing indices.

Randall Colin Gouveia: Europe really hasn't come back as it had started to, and the U.S. also remains a bit flat in terms of demand. We believe in the non-power industrial segment that the inventory issues are behind us and that inventory has normalized, but now it's just a matter of demand really not recovering as we had anticipated. It hasn't gone down, but it still hasn't increased as much as we thought. And let me just turn it over to Ram to just briefly talk about gross margin percentage to make sure we answer your earlier question.

Ramakumar Mayampurath: Europe really hasn't come back as it had started to and the U.S. also remains, you know, a bit flat in terms of demand. We believe

Ramakumar Mayampurath: in the non-power industrial segment that the inventory issues are behind us and that inventory has normalized but now it's just a matter of demand really not recovering as we had anticipated. It hasn't gone downwards but it still hasn't increased as much as we thought.

Ram Mayan Poruth: And let me just turn it over to Rahm to just briefly talk about gross margin percentage to make sure we answer your earlier question. Yeah, Dan, I think your question was the impact of margins and long-term impact of margins with ceramic. I think Colin covered the slowdown. It's clearly near term. We have full confidence in the product line and that we are continuing with the expansion plans we have in China. One of the main reasons for the improvement in gross margin, about 100 basis points of improvement from Q1 to Q2, is because of the cost corrections we have made to match cost with demand.

Ramakumar Mayampurath: And let me just turn it over to Ram to just briefly talk about gross margin percentage to make sure we answer your earlier question.

Ramakumar Mayampurath: Yeah, Dan, I think your question was the impact of margins and the long-term impact of margins with Karamek. I think Colin covered the slowdown. It's clearly near-term.

Ramakumar Mayampurath: Yeah, Dan, I think your question was the impact of margins and long-term impact of margins with Coramec. I think Colin covered the slowdown, it's clearly near-term. We have full confidence in the product line and that we are...

Ramakumar Mayampurath: We have full confidence in the product line and that we are continuing with the expansion plans we have in China. One of the main reasons for the improvement in gross margin, about 100 basis points of improvement from Q1 to Q2, is because of the cost corrections we have made to match cost with demand. So we have taken down the number of shifts. We have cut back on our temporary labor, all in our Germany plant, and also made some deeper cuts where possible to correct our cost structure.

Speaker Change: Continuing with the expansion plans we have in China.

Speaker Change: One of the main reasons for the improvement in gross margin, about 100 basis points of improvement from Q1 to Q2, is because of the cost corrections we have made.

Ram Mayan Poruth: So we have taken down the number of shifts. We have cut back on our temporary labor, all in Germany planned, and also made some deeper cuts where possible to correct our cost structure. So that improved our margins from Q1 to Q2 by about 100 basis points. As we said, we are still carrying some cost as probably a little less than 100 basis points for all the 70 to 100 basis points of cost we are carrying. Just for some critical work for talent skills that will be hard to replace in anticipation of a quick recovery faster than expected recovery in the market, which could come up.

Speaker Change: to match cost with demand. So we have taken down the number of shifts.

Speaker Change: We have cut back on our temporary labor all in our Germany plant and also made some deeper cuts where possible to correct our cost structure. So that improved our margins from Q1 to Q2 by about 100 basis points.

Ramakumar Mayampurath: So that improved our margins from Q1 to Q2 by about 100 basis points. As we said, we are still carrying some cost, probably a little less than 100 basis points, probably 70 to 100 basis points of cost we are carrying, just for some critical work, force, talent, and skills that will be hard to replace in anticipation of a quick recovery, faster than expected recovery in the market, which could come up. So that's the margin impact. Does that answer your question?

Speaker Change: As we said, we are still carrying some cost. It's probably a little less than 100 basis points, probably 70 to 100 basis points of cost we are carrying.

Speaker Change: just for some critical workforce talent skills that will be hard to replace in anticipation of a quick recovery, faster than expected recovery in the market which could come up.

Dan: So that's the margin impact. Does that answer your question? It does. I'll sneak out last one in and jump back in Q, but it's very helpful and clearly you were very aggressive on the cost reduction front to be able to put the margins that you close the margins that you did in the quarter. And still very solid guide from a margin perspective for Q3, despite software revenue. Previously, you mentioned 35% at 230 million. If you win when we get back to that level, you see a little bit of upside. You know, so that target not putting a timeframe on it, but just given the cost reduction options that you have taken.

Daniel Joseph Moore: It does. I'll sneak a last one in and jump back in the queue. But very helpful. And clearly, you were, you know, very, let's say, aggressive, you know, on the cost reduction front to be able to hold it put margins that you close the margins that you did in the quarter. And still, you know, very solid guidance and from a margin perspective for Q3, despite softer revenue. Previously, you mentioned 35% at 230 million.

Speaker Change: So that's the margin impact. Does that answer your question?

Speaker Change: It does. I'll sneak a last one in and jump back in queue. But very helpful and clearly you were, you know, very, let's say, aggressive, you know, on the on the cost reduction front to be able to hold it put margins that you post the margins that you did in the quarter.

Speaker Change: and still, you know, very solid guide from a margin perspective for Q3 despite softer revenue.

Speaker Change: Previously, you mentioned, you know, 35% at 230 million. If and when we get back to that level, you see a little bit of upside, you know, for that target, not putting a timeframe on it, but just given the cost reduction actions that you have taken. Thanks again for all the color.

Colin Gavea: Thank you again for all the color. Yes, we do. We are very confident with our operational excellence activities that are in progress, and we will see a lot more drop to the bottom line when the top line comes back.

Ramakumar Mayampurath: Yes, we do. We are very confident with our operational excellence activities that are in progress. And we'll see a lot more drop to the bottom line when the top line comes back.

Daniel Joseph Moore: If and when we get back to that level, you see a little bit of upside, you know, for that target, not putting a timeframe on it, but just given the cost reduction actions that you have taken. Thanks again for all the color. Yes, we do. We are very confident with our

Speaker Change: Yes we do. We are very confident with our operational excellence activities that are in progress and we'll see a lot more drop to the bottom line when the top line comes back.

Speaker Change: https://www.youtube.com.au

Craig Ellis: Thank you. Our next question comes from the line of Craig Ellis to be Riley Securities. Please proceed with your questions. Yeah, thanks for taking the question. Congratulations on the margin execution. I wanted to start just by clarifying a few things that I spoke to in answering Down's questions.

Craig Andrew Ellis: Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

Craig Andrew Ellis: Yeah, thanks for taking the question. Congratulations on the margin execution.

Craig Andrew Ellis: I wanted to start just by clarifying a few things that you spoke to in answering Dan's question. So, first, can you just help us better understand the real significant dissonance between the way the two automotive businesses are performing? One, battery pads, successive quarters of records, and yet the ceramic business, which is also EV related, is seeing significantly in excess inventories. How do we reconcile what's going on with those two since they both serve the EV HEV market?

Craig Andrew Ellis: Yeah, thanks for taking the question. Congratulations on the margin execution. I wanted to start just by clarifying a few things that you spoke to in answering Dan's question.

Craig Ellis: So one, can you just help us better understand the real significant dissonance between the way the two automotive businesses are performing. One, battery pads, successive quarters of records, and yet the ceramic business, which is also EV related, is seeing significantly in excess inventories. How do we reconcile what's going on with those two cents? They both serve the EVHV market.

Craig Andrew Ellis: One, can you just help us better understand...

Speaker Change: the real significant dissonance between

Speaker Change: the way the two automotive businesses are performing. One, battery pads.

Speaker Change: successive quarters of records.

Speaker Change: and yeah.

Speaker Change: the Keramic business, which is also EV related.

Speaker Change: significantly in excess inventories. How do we reconcile what's going on with those two since they both serve the EVHEV market?

Colin Gavea: Hi, Craig Collin here. Thanks for the question. And I'll start because we actually spend a lot of time discussing that. The key reason I would say has a lot to do with customer mix. So when you think about ceramic, that technology goes to a small concentration of power module producers, and probably six or seven of those power module companies produce about 80% of the world's power modules. And then they go out to all the different end-market segments for power modules, primarily industrial, renewable energy, and the EVHV. And that's led to ceramic growing so rapidly for such a long period of time.

Randall Colin Gouveia: Thanks for the question, and I'll start because we actually spend a lot of time discussing that. The key reason, I would say... has a lot to do with customer mix. So, when you think about keramics... That technology goes to a small concentration of power module producers, and probably six or seven of those power module companies produce about 80% of the world's power modules. And then they go out to all the different end market segments for power modules, primarily industrial renewable energy and EV, and HEV.

Speaker Change: Hi Craig, Colin here. Thanks for the question and I'll start because we actually spend a lot of time discussing that.

Speaker Change: The key reason I would say...

Speaker Change: has a lot to do with customer mix.

Speaker Change: So, when you think about Keramik,

Speaker Change: That technology goes to a small concentration of power module producers.

Speaker Change: probably six or seven of those power module companies produce about 80% of the world's power modules and then they go out to all the different and market segments.

Speaker Change: for

Randall Colin Gouveia: And that's led to Kramic growing so rapidly for such a long period of time, and really, that business hit a slowdown at the end of Q1 when pretty much the entire power module value chain came out and said, our inventory is too high, and we're seeing a slowdown. And when you look at, you know, kind of the overall EV HEV growth last year, it was quite strong globally across all regions. It was just north of 30% COGR.

Speaker Change: power modules, primarily industrial renewable energy and EVHEV.

Speaker Change: And that's led to Kramic growing so rapidly for such a long period of time. And really...

Colin Gavea: And really, that business hit a slowdown at the end of Q1 when pretty much the entire power module value chain came out and said, "Are inventories too high?" and we're seeing a slowdown. And when you look kind of the overall EVHV growth, last year it was quite strong globally across all regions, it was just north of 30% Cogger. This year, when we look at some of the third-party market research, they're projecting the market growth to be a bit less than that, maybe 14 to 17% for the entire year. And so that's kind of led to the ceramic and power module slowdown.

Speaker Change: that business.

Speaker Change: hit a slowdown at the end of Q1 when pretty much the entire power module value chain came out and said our inventory is too high and we're seeing a slowdown.

Speaker Change: And when you look at, you know, kind of the overall EV-HEV growth, last year it was quite strong globally. Across all regions, it was just north of 30% CAGR.

Randall Colin Gouveia: This year, when we look at some of the third-party market research, they're projecting the market growth to be a bit less than that, maybe 14% to 17% for the entire year. And so that's kind of led to the ceramic and power module slowdown. With EMS, what we've been able to do is really win some major programs with some key customers that have really just begun to ramp, and these were programs that we had anticipated to ramp during the middle of last year.

Speaker Change: This year, when we look at some of the third-party market research, they're projecting the market growth to be a bit less than that, maybe 14 to 17 percent for the entire year. And so that's kind of led to the keramic and power module slowdown.

Colin Gavea: With EMS, what we were able to do is really win some major programs with some key customers that have really just begun to ramp. And these were programs that we had anticipated to ramp middle of last year, but they got pushed out for about six months because some of these key OEMs that we were expecting to were changing at the last minute specifications, or in some cases could not get raw materials to produce their battery pack. It wasn't an issue from our perspective, but from some other suppliers. All that has come together now, and these are major programs with large global OEMs that are just hitting at the right time for EMS, with a customer mix, with customer mix being the issue that's driving that growth.

Speaker Change: with EMS.

Speaker Change: What we've been able to do is really win some major programs.

Speaker Change: with some...

Speaker Change: key customers that have really just begun to ramp.

Randall Colin Gouveia: But they got pushed out for about six months because some of these key OEMs that we were specced into were changing specifications at the last minute or, in some cases, could not get raw materials to produce their battery pack. It wasn't an issue from our perspective, but from some other suppliers. All that has come together now, and these are major programs with large global OEMs that are just hitting at the right time for EMS with a customer mix, with customer mix being the issue that's driving that growth. Does that answer your question? Yeah,

Speaker Change: And these were programs that we had anticipated to ramp middle of last year.

Speaker Change: But they got pushed out for about six months because some of these key OEMs we were specked into were Changing at the last-minute specifications or in some cases could not get raw materials to produce their battery pack It wasn't an issue from our perspective, but from some other suppliers

Speaker Change: All that has come together now, and these are major programs with large global OEMs that are just hitting at the right time for EMS with a customer mix.

Craig Ellis: Does that answer your question? Yeah, that's really helpful, Colin. Thanks for going into that level of detail.

Speaker Change: with Customer Mix being the issue that's driving that growth.

Randall Colin Gouveia: Yeah, that's really helpful, Colin. Thanks for going into that level of detail. The second clarification I had was on personal electronics.

Speaker Change: Does that answer your question?

Colin Gavea: The second clarification I had was on personal electronics three months ago. I think we were really excited because the company had won a couple new personal electronic programs with China OEMs. And so the question is this: is some of the upside that we saw in 2Q related to those new programs, and is it timing related relative to what might have been expected previously in the second half, or were other factors that play with the strength that we saw in calendar 2Q? I would say that the Q2, the increase in portable electronics from Q1 to Q2 was impactful in driving our Q2 revenues higher.

Speaker Change: Yeah, that's really helpful Colin. Thanks for going into that level of detail. The second clarification I had was on personal electronics. Three months ago, I think we were really excited because the company had won

Craig Andrew Ellis: Three months ago, I think we were really excited because the company had won a couple new personal electronic programs with Chinese OEMs. And so the question is this, is some of the upside that we saw in 2Q related to those new programs? And is it timing-related relative to what might have been expected previously in the second half? Or were other factors at play with the strength that we saw in calendar 2Q?

Speaker Change: a couple new...

Speaker Change: personal electronic programs with China OEMs and

Speaker Change: And so the question is this.

Speaker Change: is some of the upside that we saw in 2Q.

Speaker Change: related to those.

Speaker Change: New programs, and is it timing related relative to what might have been expected previously in the second half, or were other factors at play with the strength that we saw in calendar 2Q?

Randall Colin Gouveia: I would say that the increase in portable electronics from Q1 to Q2 was impactful in driving our Q2 revenues higher. Of course, there were then the headwinds with Kramic, and that's what has brought us back to just a very slight increase in Q1, and then driving the growth that we're going to have into Q3.

Speaker Change: I would say that the Q2, the increase in portable electronics from Q1 to Q2 was impactful in driving our Q2 revenues higher. Of course there was then the headwinds with Kramic and that's what has brought us back to just a very slight increase Q1 over Q2.

Colin Gavea: Of course, there was then the headwinds with Kremick, and that's what has brought us back to just the very slight increase Q1 over Q2. And then powering the growth that we're going to have into Q3, the portable electronics and market segment is the biggest driver for that. Globally, I think the forecast from some independent third-party research organizations shows that the market is growing about 4%. But we are excited because we do have significant program wins with OEMs in higher performing mobile phones. And so we see that as a potential upside. I think what it will come down to in terms of further growth in those high-end phones.

Speaker Change: and then powering, you know, the growth that we're going to have into Q3.

Randall Colin Gouveia: Portable electronics and the market segment is the biggest driver for that. Globally, I think the forecast from some independent third-party research organizations shows that the market is growing about 4%. But we are excited because we do have significant program wins with OEMs in higher-performance mobile phones, and so we see that as a potential upside. I think what it will come down to in terms of further growth in those high-end phones, I think what the market is waiting for, and this is what we've heard from our customers and also read from various publications, is that I think consumers are still waiting to see if the AI phone leaders, and there are several OEMs coming out with a performing AI phone, can they make a story around their AI strategy that's clear and understandable?

Speaker Change: The portable electronics and market segment is the biggest driver for that. Globally, I think the forecast from some independent third-party research organizations show that market growing about 4%.

Speaker Change: But we are excited because we do have significant program wins with OEMs in higher performing mobile phones. And so we see that as a potential upside. I think what it will come down to in terms of

Colin Gavea: I think what the market is waiting for, and this is what we've heard from our customers and also read from various publications, is that I think the consumers are still waiting to see if the AI phone leaders, and there are several OEMs coming out with a performing AI phone. Can they make a story around their AI strategy that's clear and understandable, and then can these phone companies also demonstrate clear use cases for AI in a mobile phone? And if that happens, that could really accelerate the growth rate of the premium phone segment. So we're waiting to see how that develops; it'll all depend on consumer demand, but we're designed in on these prints, and we have the capacity that we've installed, so we can supply if there's upside.

Speaker Change: further growth in those high-end phones. I think what the market is waiting for, and this is what we've heard from our customers and also read from various publications, is that I think

Speaker Change: The consumers are still waiting to see if the AI phone leaders, and there are several OEMs coming out with a performing AI phone, can they make a story around their AI strategy that's

Randall Colin Gouveia: And then can these phone companies also demonstrate clearer use cases for AI in a mobile phone? And if that happens, that could really accelerate the growth rate of the premium phone segment. So we're waiting to see how that develops. It will all depend on consumer demand, but we're designed in on these prints, and we have the capacity that we've installed, so we can supply if there's upside.

Speaker Change: clear and understandable, and then can these phone companies also demonstrate clearer use cases for AI in a mobile phone? And if that happens,

Speaker Change: That could really accelerate the growth rate of the premium phone segment. So we're waiting to see how that develops. It will all depend on consumer demand.

Speaker Change: But we're designed in on these prints and we have the capacity that we've installed so we can supply if there's upside.

Randall Colin Gouveia: Okay, so just to make sure I understand what you're saying, Colin, it sounds like portable electronics is tracking basically in line with what you expected three months ago. It was a little bit better maybe in 2Q, but it wasn't a pull in on some of the new China OEM programs. We still expect strong growth in 3Q quarter-on-quarter, and that's led by your legacy customers plus the new China customers, is that right?

Colin Gavea: Okay, so just to make sure I understand what you're seeing, Colin, it sounds like portable electronics is tracking basically in line with what you expected three months ago. It was a little bit better maybe in 2Q, but it wasn't a pull-in on some of the new China OEM programs. Still expect strong growth in 3Q quarter on quarter, and that's led by your legacy customer plus the new China customers, is that right? That's right. Okay, got it.

Speaker Change: Okay, so just to make sure I understand what you're saying, Colin, it sounds like portable electronics is tracking basically in line with what you expected three months ago. It was a little bit better maybe in 2Q, but it wasn't a pull-in on some of the new China OEM programs you still expect strong.

Speaker Change: growth in 3Q quarter-on-quarter and that's led by your legacy customer plus the new China customers, is that right?

Craig Andrew Ellis: That's right. Okay. Got it. And then the next one is for Ram. Ram, just a great improvement in gross margins quarter-on-quarter, but can you break out the contribution in the 210 basis point increase that was due to mix versus that which was due to structural cost improvement?

Ram Mayan Poruth: And then the next one is for Ram, just a great improvement in gross margins quarter on quarter. But can you break out the contribution in the 210 basis point increase that was due to mix versus that which is due to structural cost improvement? Sure, great. So the structural cost improvement was about 100 basis points; the cost reduction, if you may, mostly relate it to the ceramic plant in Germany. The operational excellence activities continue, so there's no big change between Q1 and Q2. We are seeing the same level of improvements. So about half of the 200 basis points improvement came from cost reductions, and the other half came from mix, which is driven mostly by, to your previous question, the European product line both in portable electronics and electric vehicles, and also our solutions, the wireless wins we are getting.

Randall Colin Gouveia: That's right.

Speaker Change: Okay, got it. And then the next one is for Ram. Ram, just a great improvement in gross margins quarter on quarter, but can you break out the contribution in the 210 basis point increase that was due to mix?

Ramakumar Mayampurath: versus that which is due to structural cost improvement.

Ramakumar Mayampurath: You're correct. So the structural cost improvement was about 100 basis points; the cost reduction, if you may, mostly related to the ceramic plant in Germany; the operational excellence activities continue. So there's not a big change between Q1 and Q2. We are seeing the same level of improvement. So about half of the 200 basis points improvement came from cost reductions, and the other half came from mixed, which is driven mostly by, to your previous question, the urethane product line, both in portable electronics and electric vehicles, and also our RF solutions, the wireless WINS we are getting. So those are the three product mix impacts that we got another 100 basis points.

Ramakumar Mayampurath: Sure, Craig. So the structural cost improvement was about 100 basis points. The cost reduction, if you may, mostly related to...

Speaker Change: the Keramik plant in Germany. The operational excellence activities continue. So there's not a big change between Q1 and Q2. We are seeing the same level of improvements.

Speaker Change: So about half of the 200 basis points improvement came from cost reductions.

Speaker Change: and the other half came from mix.

Speaker Change: which is driven mostly by, to your previous question, the urethane product line both in portable electronics and electric vehicles, and also our RF solutions, the wireless WINS we are getting.

Ram Mayan Poruth: So those are the two that those are the three product mix impact that we got another 100 basis points from. Got it.

Speaker Change: So those are the three product mix impact that we got another 100 basis points from.

Craig Andrew Ellis: Got it. And if I could just sneak in one more. Our leading chipset supplier for auto radar solutions recently commented that they expect a very strong second half of 2024. Can you just talk about what you're seeing in the business on the ADAS side and if you're seeing potential for that business to re-accelerate as we go through the

Craig Ellis: And if I could just sneak in one more, more leading chipset supplier for auto radar solutions, recently commented that they expect a very strong second half of 2024. Can you just talk about what you're seeing in the business on the ADAS side, and if you're seeing potential for that business to reaccelerate as we go through the second half? So ADAS remains one of our significant growth businesses. Craig, and we see that business growing for us in the mid single digit, maybe slightly higher range on an annual basis. We certainly had an excellent year with ADAS last year.

Speaker Change: Got it. And if I could just sneak in one more.

Speaker Change: Auto Radar Solutions recently commented that they expect a very strong

Speaker Change: second half of 2024, can you just talk about what you're seeing in the business on the ADAS side and if you're seeing potential for that business to re-accelerate as we go through the second half?

Randall Colin Gouveia: So ADOS remains one of our significant growth businesses, Craig, and we see that business growing for us in the mid single-digit, maybe slightly higher range on an annual basis. We certainly had an excellent year with ADAS last year. We did see a little bit, just a slightly elevated number of customers saying inventories were a bit high in the first half of the year, but we're anticipating that business to perform as it usually does for us for the second half. Okay, and that

Speaker Change: So ADOS remains one of our significant growth businesses.

Speaker Change: Craig, and we see that business growing for us in the mid-single digit, maybe slightly higher range on an annual basis.

Colin Gavea: We did see a little bit just a slightly elevated number of customers saying inventories were a bit high at the first half of the year, but we're anticipating that business to perform as it usually does for us for the second half. of the year. Okay, and that would be stronger, just giving new model launches and that kind of thing calling. That's right. The ADoS growth, you know, across, you know, all the light vehicle production is much higher than the 1% or 2% light vehicles grow, so it's, that's what's driving it. Got it.

Craig: We certainly had an excellent year with ADOS.

Craig: last year. We did see a little bit, just a slightly elevated number of customers saying inventories were a bit high at the first half of the year, but we're anticipating that business to perform as it usually does for us for the second half of the year.

Randall Colin Gouveia: Okay, and that would be stronger just given new model launches and that kind of thing, Colin.

Craig: Okay and that would be stronger just given new model launches and that kind of thing Colin.

Randall Colin Gouveia: The ADAS growth across all light vehicle production is much higher than the 1 or 2% light vehicle growth rate. That's what's driving it. Got it. Thanks, guys.

Randall Colin Gouveia: That's right. The ADAS growth, you know, across, you know, all the light vehicle production is much higher than the one or two percent light vehicles grow, so it's...

Craig Andrew Ellis: Got it. Thanks, guys. I'll hop back in.

Craig Ellis: Thanks, guys. I'll hop back in the queue.

Randall Colin Gouveia: That's what's driving it.

Randall Colin Gouveia: Got it, thanks guys, I'll hop back in the queue.

Daniel Moore: Thank you. Our next question comes from the line of Daniel Moore with CDS Securities. Please proceed with your question. Thanks again. Just a quick follow-up. I know you don't guide beyond the current quarter, but typically Q4 seasonally a bit softer than Q3, and given, you know, slightly softer outlook and macro challenges, is there any reason to expect things would be different this year? Or that sort of typical cadence of Q3 being one of the strongest quarters of the year likely to hold on, less something else picked up beyond what you're seeing today in the macro.

Daniel Joseph Moore: Thank you. Our next question comes from the line of Daniel Moore with CGS Securities. Please proceed with your question.

Speaker Change: Thank you. Our next question comes from the line of Daniel Moore with CGS Securities. Please proceed with your question.

Daniel Joseph Moore: Thanks again. Just a quick follow-up. I know you don't guide beyond the current quarter, but typically, Q4 is seasonally a bit softer than Q3. And given, you know, a slightly softer outlook and, you know, macro challenges, is there any reason to expect things would be different this year? You know, or that sort of typical cadence of Q3 being one of the strongest quarters of the year likely to hold unless something else picked up beyond, you know, what you're seeing today in the macro? Thank you.

Daniel Joseph Moore: Thanks again. Just a quick follow-up.

Speaker Change: I know you don't guide beyond the current quarter, but typically Q4 seasonally a bit softer than Q3.

Daniel Joseph Moore: And given, you know, the slightly softer outlook and, you know, macro challenges, is there any reason to expect things would be different this year?

Speaker Change: you know, or that sort of typical cadence of...

Speaker Change: Q3 being one of the strongest quarters of the year likely to hold unless something else picked up beyond, you know, what you're seeing today in the macro. Thank you.

Daniel Moore: Thank you.

Ram Mayan Poruth: Yeah, that's a good question then. I am a business that we saw and we are seeing now will continue. We expect, like we said, the second half of EMS to be stronger than first step, mostly driven by continued poor electronics that was built into Q4 and electric vehicle battery pad order that we are seeing now that Colin said was delayed about six months. We continue to see that. So EMS, from an EMS point of view, we expect to have a strong Q4, but what we are watching is the AES product line closely, or the business unit closely, particularly the ceramic recovery.

Ramakumar Mayampurath: Yeah, that's a good question, Dan. I think what we know about Q4 now is that the strength in the EMS business that we saw and we are seeing now will continue. We expect, like I said, the second half of EMS to be stronger than the first half, mostly driven by continued portable electronics that will spill into Q4 and the electric vehicle battery pad order that we are seeing now that Colin said was delayed about six months. We continue to see that.

Dan: Yeah, that's a good question, Dan.

Speaker Change: I think what we know about Q4 now is that the strength in EMS business that we saw and we are seeing now will continue.

Speaker Change: We expect, like we said, the second half of EMS to be stronger than first half, mostly driven by continued portable electronics that will spill into Q4 and electric vehicle battery pad order that we are seeing now that Colin said was delayed about six months. We continue to see that.

Ramakumar Mayampurath: So EMS, from an EMS point of view, we expect to have a strong Q4. But what we are watching is the AES product line closely or the business unit closely, particularly the ceramic recovery. From what we know today, we don't expect a big bounce back this year. We expect some of these trends to continue. The inventory buildup in the chain will take a little time to burn through. So that's the product line that will hold us back, if you will, in Q4.

Speaker Change: So EMS, from an EMS point of view, we expect to have a strong Q4, but what we are watching is the AES product line closely, or the business unit closely, particularly the ceramic recovery.

Ram Mayan Poruth: From what we know today, we don't expect a big bounce back in this year. We expect some of these trends to continue. The inventory build in the chain will take a little time to burn through. So that's the product line that will hold us back if you may in Q4. So without giving specific numbers, I think that the EMS growth will, to a great extent, be offset by some of the challenges we're continuing to see in the ceramic market, which we expect will recover quickly, but may not be this year. I understood.

Randall Colin Gouveia: From what we know today, we don't expect...

Speaker Change: a big bounce back in this year. We expect some of these trends to continue. The inventory build in the chain will take a little time to burn through.

Ramakumar Mayampurath: So without giving specific numbers, I think that the EMS growth will, to a great extent, be offset by some of the challenges we're continuing to see in the ceramic market, which we expect will recover quickly but may not be this year.

Speaker Change: So, that's the product line that will hold us back, if you may, in Q4.

Speaker Change: So, without giving specific numbers, I think that...

Speaker Change: The EMS growth will, to a great extent,

Speaker Change: be offset by some of the challenges we are continuing to see in the ceramic market, which we expect will recover quickly, but may not be this year.

Daniel Joseph Moore: And lastly, obviously, making great strides, you know, in EVHEV, winning new business across multiple platforms and products. Just maybe talk about the opportunity funnel a little bit, you know, thus far in 24, any other emerging technologies or products that we could really move the needle looking beyond the next one or two years. Thanks again.

Colin Gavea: I understood Ram and lastly, obviously, making great strides in EVHV, waiting to business across multiple platforms and products. Just maybe just talk about the opportunity funnel a little bit thus far in 24. Any other emerging technologies or products that we could really move the needle looking beyond the next one or two years. Thanks again. Sure, I would say we're very happy with our opportunity funnel, Dan, and there's a lot of new technologies that are moving through the pipeline. I would say one thing that we are very excited about is our next generation radar technology. So currently, we participate quite strongly in ADAS, as you know, but some of the changes in technology around moving towards different type of radar technology.

Speaker Change: Understood. Completely understood, Ram. And lastly, obviously, making great strides, you know, in EVHEV, you know, winning new business.

Speaker Change: across multiple platforms and products. Just maybe talk about the opportunity funnel a little bit, you know, thus far in 24, any other emerging technologies or products that we could really move the needle looking beyond the next one or two years. Thanks again.

Randall Colin Gouveia: Sure, I would say we're very happy with our Opportunity Funnel, Dan, and there are a lot of new technologies that are moving through the pipeline. I would say one thing that we are very excited about is our next-generation radar technology. So currently, we participate quite strongly in ADOS, as you know, some of the changes in technology around moving towards different types of radar technology. Some people call it wave guide, you know, will be the next gen.

Speaker Change: Sure, I would say we're very happy with our opportunity funnel, Dan, and there's a lot of new technologies that are moving through the pipeline. I would say one thing that we are very excited about is our next generation radar technology. So currently, we participate quite strongly in ADOS, as you know.

Speaker Change: some of the

Speaker Change: changes in technology around moving towards

Colin Gavea: Some people call it waveguide; you know, will be the next gen. It's not going to be something that happens overnight. It'll be many years as this technology grows, but we've got what we feel is a very differentiated technology. We've got prototypes out to customers already. And they're in, I would say, iterative testing with us. And we feel like that will be something that really is exciting in terms of growth in the future. There's also other examples and other businesses, but the general comment would be, we really do feel good about our innovation portfolio and feel like it will be quite robust in the coming years.

Speaker Change: Different type of radar technology, some people call it waveguide, you know will be the next gen. It's not going to be something that happens overnight. It'll be many years as

Randall Colin Gouveia: It's not going to be something that happens overnight. It'll be many years before this technology grows, but we've got what we feel is a very differentiated technology. We've got prototypes out to customers already, and they're in, I would say, iterative testing with us. And we feel like that will be something that really is exciting in terms of growth in the future. There are also other examples in other businesses, but the general comment would be that we really do feel good about our innovation portfolio and feel like it will be quite robust in the coming years.

Speaker Change: This technology grows, but we've got what we feel is a very differentiated technology We've got prototypes out to customers already and they're in I would say iterative testing with us And we feel like that will be something that really is exciting in terms of growth in the future

Speaker Change: There's also other examples in other businesses, but the general comment would be We really do feel good about our innovation portfolio and and feel like it will be quite robust in the coming years

Daniel Moore: All right. Again, thanks, and Keller, for should.

Daniel Joseph Moore: All right. Again, thanks for the call. I appreciate it.

Speaker Change: All right, again, thanks for the call. I appreciate it.

Craig Ellis: Thank you. Our next question comes from the line of Craig Ellis, with the Riley Securities. Please proceed with your question. Yeah, thanks for taking the follow-up. I just wanted to go back to the announcement that was made into Q about consolidating manufacturing for ceramic into the US and China. And what I wanted to make sure I understood is just the timing of the economic benefit, as you make that move. One, is it fair to say that the timing of that benefit financially is all still in front of us? Or are you actually realizing some of that with some tactical moves presently?

Craig Andrew Ellis: Thank you. Our next question comes from the line of Craig Ellis with B Riley Security. Please proceed with your questions.

Speaker Change: Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

Craig Andrew Ellis: Yeah, thanks for taking the follow-up. I just wanted to go back to the announcement that was made in 2Q about consolidating manufacturing for ceramics into the U.S. and China. And what I wanted to make sure I understood was just the timing of the economic benefit as you make that move. One, is it fair to say that the timing of that benefit financially is all still in front of us, or are you actually realizing some of that with some tactical moves currently?

Craig Andrew Ellis: Yeah, thanks for taking the follow-up. I just wanted to go back to

Craig Andrew Ellis: the announcement that was made in 2Q about.

Craig Andrew Ellis: consolidating manufacturing for ceramic into the U.S. and China. And what I wanted to make sure I understood is just the timing of the economic benefit as you make that move.

Speaker Change: One, is it fair to say that the timing of that benefit financially is all still in front of us?

Speaker Change: are actually realizing some of that with some...

Craig Andrew Ellis: And when you do start to realize the benefit of it, should we expect that all the benefit falls to the bottom line? Or does some of that reinvest in R&D and other things? And I think the benefit was pegged at $7 to $9 million a year or so. If you can just clarify some of those things, it would be appreciated.

Craig Ellis: And when you do start to realize the benefit of it, should we expect that all the benefit falls to the bottom line? Or does some of that reinvest in R&D and other things? And I think, you know, the benefit was paid at $79 million a year. So if you can just clarify some of those things, it would be appreciated.

Speaker Change: some tactical moves presently, and when you do start to realize the benefit of it, should we expect that all the benefit falls to the bottom line, or does some of that reinvest in R&D and other things? And I think.

Speaker Change: The benefit was pegged at $7-9 million a year, so if you can just clarify some of those things, it would be appreciated.

Colin Gavea: Sure, Craig. First, I'll just say you had said ceramic, but I think it was the RFS piece you're talking about in terms of us winding down our production in Belgium. And then shifting the, okay. Yeah.

Randall Colin Gouveia: First, I'll just say, you said Karamek, winding down our production in Belgium and then shifting... Okay, yeah, so just to recap a little bit, and then Ram can talk about the financial benefits.

Speaker Change: Sure, Craig. First, I'll just say you had said Karamek, but I think it was the RFS piece you're talking about in terms of us...

Speaker Change: Winding down our production in Belgium and then shifting.

Colin Gavea: So just to recap a little bit, and then Ram can talk about the financial benefits. Really, we're just trying to stay ahead of what we see as the customer demand. And so, while we prefer to keep, you know, as many locations open as possible, you have to make the choices to support the customers where they're migrating to. And we'd seen significant migration of our RFS customers in Europe for a certain particular product line migrate to China. And so ultimately, because we see this as a long-going situation and not reversing itself, we made the difficult decision to wind down manufacturing in Belgium.

Speaker Change: Yeah, so just to recap a little bit and then Ram can talk about the financial benefits.

Randall Colin Gouveia: Really, we're just trying to stay ahead of what we see as customer demand. And so, while we would prefer to keep, you know, as many locations open as possible, you have to make the choices to support the customers where they're migrating to. And we'd seen significant migration of our RFS customers in Europe for a certain particular product line migrate to China. And so ultimately, because we see this as a long-going situation and not reversing itself, we made the difficult decision to wind down manufacturing.

Ramakumar Mayampurath: Really, we're just trying to stay ahead of what we see as the customer demand. And so while we would prefer to keep, you know, as many locations open as possible, you have to make the choices to support the customers where they're migrating to. And we'd seen significant migration.

Ramakumar Mayampurath: of our RFS customers in Europe for a certain particular product line migrate to China. And so ultimately, because we see this as a long-going situation and not reversing itself, we made the difficult decision to wind down manufacturing in Belgium.

Randall Colin Gouveia: That will help service our customers in the long term by adding more capacity to our China facility, making it more efficient. It also significantly shortens the logistics and supply chain. And overall, it's a good decision for the company and our customers, and the benefits will be significant. It was $7 to $9 million. That's what we're anticipating. And Ram will talk to you a little bit more about timing and what we can expect.

Ram Mayan Poruth: That'll help service our customers in the long term by adding more capacity to our China facility, making it more efficient. It also shortens quite significantly logistics and supply chain. And overall, it's a good decision for the company and our customers. And the benefit will be significant. It was seventh to nine million. That's where anticipating, and Ram will talk to you a little bit more about timing on when we can expect the full benefit. Yeah. So correct. Seven to nine million to your question is net of any other cost that we need to make any investments.

Speaker Change: That'll help service our customers in the long term by adding more capacity to our China facility, making it more efficient. It also shortens quite significantly logistics and supply chain.

Speaker Change: And overall, it's a good decision for the company and our customers. And the benefit will be significant. It was $7 to $9 million. That's what we're anticipating. And Ram will talk to you a little bit more about timing on when we can expect the full benefit.

Ramakumar Mayampurath: So, Craig, $79 million, to your question, is net of any other costs that we need to make, any investments we need to make, in China or elsewhere to absorb this production. So that is the net benefit, and we expect it in the second half of next year. 2025. Full benefit.

Ramakumar Mayampurath: Yeah, so Craig, $7 to $9 million, to your question, is net of any other costs that we need to make, any investments we need to make in China or elsewhere to absorb this production. So that is net benefit, and we expect it in the second half of next year.

Ram Mayan Poruth: We need to in China or elsewhere to absorb this production, so that is net benefit, and we expect it in the second half of next year, 2025, full benefit. Got it, and so maybe we get half of that in 3Q and the other half in 4Q ROM, so that as we exit next year, we've got it all in the model. That's correct, exactly right. And I might want to mention that we do want to move as quickly as possible, but there are certain restrictions in terms of where we're manufacturing in Europe, and then we need to make sure that our customers are completely re-qualified for the production coming out of China, so there's no miscus in terms of quality or performance.

Ramakumar Mayampurath: Got it. And so maybe we would get half of that in 3Q and the other half in 4Q-ROM so that as we exit next year, we've got it all in the model.

Ramakumar Mayampurath: It's 2025, full benefit.

Craig: Got it. And so maybe we get half of that in 3Q and the other half in 4Q-ROM so that as we exit next year we've got it all in the model.

Ramakumar Mayampurath: That's correct. Exactly right.

Randall Colin Gouveia: And I might want to mention that we do want to move as quickly as possible, but there are certain restrictions in terms of where we're manufacturing in Europe. And then we need to make sure that our customers are completely requalified for the production coming out of China. So there are no miscues in terms of quality or performance. We don't want to get that. We will make sure for certain that we get that right. Got it.

Speaker Change: That's correct. Exactly right.

Craig Andrew Ellis: Got it. Thank you.

Speaker Change: And I might want to mention that we do want to move as quickly as possible but there are certain restrictions in terms of where we're manufacturing in Europe and then we need to make sure that our customers are completely requalified.

Speaker Change: for the production coming out of China. So there's no miscues in terms of quality or performance. You know, we don't want to get that. We will make sure for certain we get that right.

Ram Mayan Poruth: We don't want to get that; we will make sure for certain we get that right. Got it, thank you. Thank you.

Speaker Change: Got it. Thank you.

Randall Colin Gouveia: Thank you. There are no further questions at this time. I'd like to turn the floor back over to Colin for closing comments.

Colin Gavea: There are no further questions at this time. I'd like to turn the floor back over to Colin for closing comments. Thank you. I'd just like to say thanks, everyone, for joining and look forward to speaking with everyone next quarter. Thanks again.

Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the floor back over to Colin for closing comments.

Randall Colin Gouveia: Thank you. I'd just like to say thanks, everyone, for joining us and look forward to speaking with everyone next quarter. Thanks again. This concludes today's teleconference.

Randall Colin Gouveia: Thank you. I'd just like to say thanks everyone for joining and look forward to speaking with everyone next quarter. Thanks again.

Alicia: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Speaker Change: and many more.

Speaker Change: and many others.

Speaker Change: Thanks for watching!

Speaker Change: [inaudible]

Speaker Change: [inaudible]

Alicia: David Silver, Craig Ellis, Daniel Moore, Ramakumar Mayampurath David Silver, Craig Ellis, Daniel Moore, Ramakumar Mayampurath David Silver, Craig Ellis, Daniel Moore, Ramakumar Mayampurath

Speaker Change: www.globalonenessproject.org www.globalonenessproject.org

Speaker Change: www.globalonenessproject.org www.globalonenessproject.org