Q3 2024 Rogers Corp Earnings 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 be Rogers Corporation, third quarter, 2024, Ernene's conference call.
Speaker Change: I will now turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Mr. Haymore, you may begin.
Steve Haymore: Good afternoon everyone and welcome to the Rogers Corporation 3rd Quarter, 2024 earnings conference call. The slide for today's call can be found on the Investor section of our website, along with the news release that was issued earlier today.
Speaker Change: Please turn the flight to.
Steve 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.
Steve Haymore: and she should be considered as subject to many uncertainties, that exist in Rogers Operations and Environment. These uncertainties include economic conditions, market demands, and competitive factors.
Steve Haymore: Such factors could cause actual results to differ materially from those in any forward-looking statement made today.
Steve 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 US generally accepted accounting principles.
Steve Haymore: A 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 are available on our Investor Relations website.
Steve Haymore: Turning to slide four, with me today is Colin Gouveia, President and CEO, and Laura Russell, Interim CFO. I will now turn the call over to Colin.
Colin Gouveia: Thanks Steve. Good afternoon to everyone and thank you for joining us today. Before I discuss the results for the quarter, I want to welcome Laura Russell as our interim CFO. As we announced last August, Ram Mayampurath, our prior CFO, left the company to pursue another opportunity.
Colin Gouveia: Nevertheless, we are fortunate to have someone of Laura's caliber and skill set at Rogers.
Colin Gouveia: Laura brings more than 20 years of experience in the semiconductor space with more than a decade in senior financial roles with companies like NXP and Wolfspeed. She is already making a positive impact in her new role at the company. Our CFO succession planning is continuing and we will provide an update on this process when we have made a final decision.
Colin Gouveia: Now, turning to slide 5, I'll highlight the key messages for the quarter.
Colin Gouveia: Our results were mixed in the third quarter, with earnings exceeding our guidance forecast, while revenues fell below the low end of our estimate. The improved earnings were a result of a 35.2% gross margin, which surpassed the high end of our expectations, and lower operating expenses, which we continued to carefully control.
Colin Gouveia: Revenues for Q3 were lower than expected due to softer order patterns in the EV-HEV segment and a lower seasonal peak in portable electronics. Overall, we are not yet seeing consistent indications of improved demand, particularly in our two largest markets, general industrial and EV-HEV.
Colin Gouveia: Ongoing contraction in global manufacturing activity continues to weigh on industrial. Global automotive production has been slowing in recent months and while EV HEV is growing it is behind last year's pace.
Colin Gouveia: However, despite the current headwinds, we do continue to see good growth potential in these and other market segments going forward. As such, we continue to make measured investments in capacity and capabilities to position Rogers for long-term growth.
Colin Gouveia: One capacity highlight is the recent ribbon-cutting ceremony for our new ceramic power substrate factory in China. I'll provide more details on this event later.
Colin Gouveia: Turning to slide 6, I'll review our third quarter results. Revenues of 210 million declined 2% from the prior quarter as lower EV, HEV, and ADAS sales more than offset higher portable electronics, industrial, and aerospace and defense growth.
Colin Gouveia: Highlighting our key markets, I'll begin with EV HEV. In AES, we've not yet seen meaningful demand improvement from our Keramic power module customers. In the EMS business, after two consecutive quarters of record sales, we saw softness in Q3 due to customer inventory management.
Colin Gouveia: Portable electronic sales saw a strong increase from Q2 due to normal seasonal demand patterns. However, sales were below our outlook as build rates at one of our leading OEM customers were not as strong as anticipated.
Colin Gouveia: Aerospace and Defense registered good growth in Q3, led by AES. Although quarterly sales do fluctuate on program timing, we expect AMD sales to grow in the mid to high single-digit rate for 2024.
Colin Gouveia: RFS ADAS sales declined in the quarter reflecting both softer auto production and increased competition at different points in the value chain.
Colin Gouveia: In response to these competitive dynamics, we are continuing to drive product innovation, improving our cost structure, and diversifying our customer base, particularly with emerging Asian players.
Colin Gouveia: Our innovation includes new copper clad laminate technology that will be launched in Q4 and development of next generation advanced radar solutions beyond laminates.
Colin Gouveia: EMS saw a slight increase in industrial sales in Q3, led by the semiconductor segment. As I'll discuss more in a moment, overall industrial sales are still below the prior year due to the ongoing downturn in global manufacturing activity.
Colin Gouveia: Wireless infrastructure sales were again strong in Q3 and improved slightly from Q2. As mentioned last quarter, this strength is driven by a specific project in India, which concluded in the third quarter. We are closely engaged with this customer on the next phase of this wireless build-out, which is currently in the design-in stage.
Colin Gouveia: There were clear positives in our Q3 results with improved operating margins, higher earnings, and good free cash flow generation. At the same time, we are disappointed with the Q3 sales results and the top-line Q4 outlook.
Colin Gouveia: The lower sales reflect persistent macro challenges and some customer-specific issues. We are intently focused on driving improvement in our top line, and in the next two slides I'll expand on the improvement actions underway.
Colin Gouveia: Starting on slide 7, I'll cover the industrial end market where sales are roughly 10 to 15 million lower per quarter versus the first half of 2023.
Colin Gouveia: The decrease is primarily due to the broader macroenvironment which has impacted Rogers.
Colin Gouveia: In our AES business, we are experiencing lower demand in industrial markets for our power substrates due to lower levels of capital investment in factory automation and other equipment used in automotive and semiconductor manufacturing.
Colin Gouveia: The EMS industrial market is extremely diversified with roughly 15 sub-markets. Demand in these markets correlates to global manufacturing activity levels, which in the U.S. and the Eurozone have contracted for most of the last two years.
Colin Gouveia: Despite the downturn, we are seeing growth opportunities in certain segments, such as medical devices, data centers, and battery energy storage systems, or BESS. The opportunity in BESS spans both business units.
Colin Gouveia: In AES, this includes ceramic power substrates and Rolling's busbars to enable efficient conversion and distribution of power. In EMS, our urethane and silicone materials offer solutions to improve battery efficiency and life.
Colin Gouveia: and medical are EMS materials seal and protect medical devices such as CPAP and dialysis machines.
Colin Gouveia: We've seen increased use of artificial intelligence and provide solutions to improve vaccine manufacturing and transport. Semiconductors is another of the faster growing opportunities in industrial. We have seen improved year-over-year sales in 2024, but demand has yet to return to 2022 levels.
Colin Gouveia: Growth in these markets won't come immediately, but we are seeing traction with a recent design win in data centers, where our silicone adhesive films will be used in a server power supply system.
Colin Gouveia: Our AES business also has opportunities targeted to AI data centers. These projects are still in the early stages, but are focused on leveraging our capabilities in thermal management and signal integrity.
Colin Gouveia: Turning to slide 8, I'll provide an update on the EV-HEV market where our 2024 sales have been approximately 5 to 15 million lower per quarter compared to the first half of 2023.
Colin Gouveia: As we have discussed on prior calls, the main driver is the inventory correction Karamek customers have been managing since late Q1 of this year. The decline in AES sales has more than offset a greater than 50% growth in EMS EV HEV sales year to date.
Colin Gouveia: In anticipation of a recovery in the power substrate market and the compelling future growth opportunities in EVHEV, we are making measured capacity investments in two new manufacturing facilities in China.
Colin Gouveia: These investments include the new Keramic Power Substrate Facility and a new Bisco Silicone Production Line.
Colin Gouveia: We also continue to work aggressively to secure new design wins, as we have highlighted in prior quarters.
Colin Gouveia: We have secured several significant wins in our AES business this year with both Western and Asian Power Module customers and EV OEMs. In Q3, we were awarded another design win for our AMV Power Substrate technology that will be used in a 800-volt,
Colin Gouveia: Silicon Carbide Inverter for a leading Asian OEM with deliveries beginning in Q1 of 2025.
Colin Gouveia: In our EMS business, we continue to have a healthy opportunity funnel, and have also secured important design wins this year with several key OEMs that serve the U.S., Asian, and European markets.
Colin Gouveia: Turning to slide 9, I'll expand on the compelling long-term opportunity we see with Keramik and the EV HEV market.
Colin Gouveia: Two weeks ago, I was in Suzhou, China, for the ribbon-cutting ceremony of our new ceramic power substrate factory. We welcomed local government officials and dozens of customers representing both Western and Chinese headquartered companies.
Colin Gouveia: This new factory will complement our existing manufacturing facility in Germany and, importantly, will support our regional capacity strategy, enabling us to better support our customers who are expanding in China.
Colin Gouveia: This new factory will manufacture AMV substrates. Third-party market research expects that the market for this latest substrate technology will grow at a 20% cogger over the next several years, driven by the increasing adoption of silicon carbide power modules in the EVHEV, industrial, and renewable energy markets.
Colin Gouveia: We expect to begin shipping the first customer samples from our new factory in Q4, with mass production scheduled in late Q2 of 2025.
Speaker Change: Now, in closing, I'll recap today's key messages.
Speaker Change: First, we had mixed Q3 results, with good earnings growth and a softer top line which was below our expectations.
Speaker Change: This software ordering is carrying through into our lower Q4 guidance, and we are working aggressively to drive improvement. We are intently focused on securing design and wins, pursuing regional manufacturing strategies, and prioritizing higher growth segments to drive improvement in the coming quarters.
Speaker Change: We expect that these actions, in combination with demand recovery and power modules, further ramping from our EVHEV battery customers, and improvement in global manufacturing activity, will provide the opportunity for meaningful growth in 2025.
Speaker Change: As we focus on the top-line growth, we will, as always, continue to manage costs and CapEx investments as we prioritize maximizing profitability and cash flow. Now, I'll turn it over to Laura to discuss our Q3 financial performance and our Q4 outlook.
Laura Russell: Thank you Colin. Let me first say that I'm excited about the opportunity to serve in the interim CFO capacity and I look forward to the opportunity of working with Colin and the rest of the executive team to drive execution on our key strategic initiatives.
Laura Russell: Thank you very much, it was a pleasure.
Laura Russell: I'll begin on slide 10 with the highlights of our results for Q3.
Laura Russell: As Colin shared, our performance in the third quarter was mixed. Our top-line sales of $210 million were below our outlook. However, gross margin of 35.2% and adjusted EPS of $0.98 both exceeded guidance expectations.
Laura Russell: The improved margins in our work in capital management enabled us to generate $25 million in free cash flow during the quarter.
Laura Russell: On slide 11, I'll discuss their third quarter sales in greater detail.
Laura Russell: Net sales of $210 million declined by 2% from the prior quarter on approximately $4 million of lower volume, which was slightly offset by favourable foreign currency fluctuations of approximately $300,000.
Laura Russell: On a reportable segment basis, AES revenue decreased 3% versus the prior quarter to $112 million.
Laura Russell: Moore EV HEV, ADAS and industrial fields were partially offset by higher A&D and wireless infrastructure sales.
Laura Russell: Of the major product lines in AES, ceramic sales have declined most significantly versus the prior year as a result of customer inventory correction and a lack of demand recovery that Colin discussed.
Laura Russell: Total ceramic sales are down more than 35% compared to the first nine months of 2023.
Laura Russell: We do expect this market to recover in the coming quarters and with our new facility in China, we will be well positioned to grow with both Western and Chinese power module customers.
Laura Russell: Thank you for your time.
Laura Russell: EMS revenue decreased by less than 1% to approximately $94 million.
Laura Russell: This decrease resulted from mainly lower EVHEV sales. This decline was in part offset by seasonally higher portable electronics sales and improved industrial sales.
Speaker Change: Turning to slide 12, Q3 growth margin was 35.2%, an increase of 110 basis points from the second quarter.
Speaker Change: The sequential improvement in growth margin was primarily due to favourable product mix, which more than offset the lower volume and under-absorbed costs.
Speaker Change: We continue to drive operational excellence initiatives such as yield and throughput improvements, procurement savings and manufacturing footprint optimization.
Speaker Change: The progress we have already made in these areas has been a key enabler of improved margins over the preceding quarters.
Speaker Change: Adjusted net income increased to $18 million in the third quarter from $13 million in Q2.
Speaker Change: Q3 adjusted earnings per share was $0.98 compared to $0.69 in the prior quarter.
Speaker Change: These items were partially offset by an increase in other expense.
Speaker Change: The decrease in OPEX versus the second quarter was due to lower variable compensation costs and continued efforts to reduce professional services.
Speaker Change: Continuing on slide 13, cash on September the 30th was approximately $146 million, an increase of nearly $27 million from the end of the prior quarter.
Speaker Change: As a result of improved growth margin, lower operating expenses and management of working capital, we have generated $93 million of operating cash flow so far this year, with $42 million of this in Q3.
Speaker Change: Capital expenditures were $41 million year-to-date and $17 million in the third quarter.
Speaker Change: We expect full-year CAPEX to be in the range of $50-$60 million, $5 million below our previous range.
Speaker Change: As we move forward through the year, we will continue to prioritize actions to maximize cash generation.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: With no debt and an increase in cash positions, we have increased agility to allocate capital to our allocation priorities consistent to our stated strategy.
Speaker Change: Thank you.
Speaker Change: of Funding Organic Growth, Pursuing Synergistic M&A and Returning Capital to Shareholders in the Form of Opportunistic Share Repurchases.
Speaker Change: We will continue to evaluate the best use of this capital based on the needs of the business and current circumstances.
Speaker Change: Next on slide 14 I will discuss our guidance for the fourth quarter.
Speaker Change: The midpoint of this range is a decrease of about 8% from Q3 sales.
Speaker Change: The main drivers of the sequential decline are lower wireless infrastructure demand as shipments to a significant project in India have concluded, the typical seasonal decline in portable electronics sales, and deferred ordering as customers manage sharing and inventory levels.
Speaker Change: At the midpoint of our guidance, EV and HEV sales are expected to increase slightly in Q4. General industrial sales are expected to be modestly lower.
Speaker Change: We are guiding growth margin to be in the range of 31.5% to 33% for Q4 with a decrease as a result of the lower volume and also lower product mix.
Speaker Change: Product mix is typically strongest in Q3 related to portable electronics sales.
Speaker Change: This guidance range also incorporates some headwind from the start of production of our new silicon manufacturing line, which will continue until we reach a more normalized utilization rate.
Speaker Change: Fourth quarter adjusted operating expenses are projected to increase $2 million versus Q3, primarily related to incrementally higher start-up costs.
Speaker Change: EPS is expected to range from a loss of $0.15 to $0.15 of earnings. The adjusted EPS range is $0.30 to $0.60 of earnings.
Speaker Change: Our Q4 EPS range includes $0.32 of restructuring-related expenses, with most of this associated to the wind-down of our AES operations in Belgium.
Speaker Change: Lastly, we project her full year tax rate to be approximately 27%.
Speaker Change: With that I will now turn the call back over to the operator for questions.
Speaker Change: 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.
Speaker Change: 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.
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 requeue, and time permitting, those questions will be addressed. One moment, please, while we poll for questions.
Speaker Change: Thank you. Our first question comes from the line of Daniel Moore with CGS Securities. Please proceed with your question.
Daniel Moore: Good afternoon, Colin. Good afternoon, Laura. Thank you for taking the questions. I guess starting with the guide, it sounds like it's fair to say the sequential decline in revenue implied in the Q4 guide, primarily due to kind of that lower wireless with that project running off and portable electronics, or are there other areas of incremental weakness that you're seeing?
Speaker Change: Hey Dan, Colin, I'll start with that. Yes, you're right. The number one reason would be that wireless program ending in Q3.
Speaker Change: And I would also say that normally the fourth quarter is typically our lowest quarter in the year for what you mentioned about portable electronics where
Speaker Change: Q3 is our highest quarter, and then things decrease a bit as we get towards the end of the year.
Speaker Change: We also don't really see a recovery in Karamek.
Speaker Change: In the power module space, we're paying close attention to what our customers are saying and they've not signaled an improvement coming.
Speaker Change: at this moment, so that's also included.
Speaker Change: in Q4.
Speaker Change: And then finally, we anticipate customers in general destocking for the end of the year as they try to hit inventory targets and deliver cash. So those would be the main factors impacting Q4.
Speaker Change: That's helpful. And then, looking beyond, you know, into, you know, first half of next year, are there still pockets of your business where inventory management, you know, is likely to remain a headwind, or do you feel, once we get through the end of this year,
Speaker Change: Thank you for joining us. Have a great day.
Speaker Change: Yeah, what I would say on that is, and I'll start...
Speaker Change: is that even though we're not, you know, guiding ahead to next year, we do see potential for some meaningful improvement based on a couple key assumptions.
Speaker Change: The first is that would be the return of the growth in the ceramic substrate market. It's unclear when this exactly will happen, based on what I said earlier about the customers not coming forward, but we think it's quite possible it will happen next year.
Speaker Change: We also have the new Keramik factory in China.
Speaker Change: to produce A and B technology.
Speaker Change: And that technology goes directly into SIC power modules, and we've got good design and wins with both Western and local Chinese OEMs for power modules, and we see the CAGR for that business going in at about 20%. So we think that will also make an impact as we get into 2020.
Speaker Change: and 25. Also we see the work we have with EMS.
Speaker Change: with EV battery producers continuing to ramp. That has been a good year for it. That has been very good for us this year. It's far ahead of last year's pace, and we'll see that continuing to ramp. And then, you know, the industrial
Speaker Change: demand could return. Right now the macro is quite tough.
Speaker Change: the monetary policy, and the election uncertainty. But by 2025, that election uncertainty will be passed. Everyone will know what's happening. So we anticipate a bit of an uptick in industrial demand.
Speaker Change: I just say overall, we're focused on growing our business, growing the top line. We think we're well positioned for the medium and long term with the work we're doing in terms of self-help, capital expansion, and skilling up the team, and we would be ready when some of these things happen so we can begin growing.
Speaker Change: sneak one more in and jump back in queue but on the margin side if you look
Speaker Change: obviously don't have segments this quarter yet, but if you look on the performance year-to-date
Speaker Change: AES obviously remains low, but operating margins meet EMS.
Speaker Change: have dropped the most from kind of 20% range last year into the single digits this year, despite relatively modest revenue declines. And just trying to get a sense what's going on there. Was it mix, pricing pressure?
Speaker Change: incremental investments, all the above, you know, what are kind of the key drivers and what gets us back to mid-teens margins or higher in that business. Thanks again for the color.
Laura Russell: Sure Dan, it's Laura here. So what I would say is yes, your observations are correct. We are seeing some suppression on a year-on-year basis within EMS.
Laura Russell: and some of that frankly is a little bit on an allocation strategy but all of our businesses are suffering a little bit in terms of our utilization level.
Laura Russell: So we do have some headwinds there, which as you've seen with the margins we're posting, we're managing to control what we can and execute our margin expansion opportunities.
Laura Russell: are totally in the country.
Laura Russell: and Dan I might just add there's certainly fresh off the press here but in the appendix to the slides we do have the adjusted operating margin by segment and you can see for the third quarter EMS was with 17 just over 17 percent so there's some
Daniel Moore: information you can reference there and bounce back there and that's very helpful
Daniel Moore: Very good. I'll follow up. I'll circle back with any follow-ups. Thank you.
Speaker Change: Thanks, Dan. Thank you.
Speaker Change: Thank you. Our next question comes from the mind of Craig Ellis with B Riley Securities. Please proceed with your question.
Craig Ellis: Yeah, thanks for taking the question and Colin, I appreciate the additional detail on slide seven and eight on the industrial business and EV and ATVs and I wanted to start my questions
Craig Ellis: on the former.
Craig Ellis: Can you just help us understand, as we think about your comments with the industrial business, are you just, on slide 7, really characterizing the market, or are you trying to convey a message that there's a refocusing and a reprioritization of efforts, whether it's
Craig Ellis: Battery Energy Storage Systems, Medical, SEMI, and Data Center. How should we think about the potential for those specific opportunities to make material contributions to revenues next year?
Speaker Change: Sure, and so I'll start by saying that General Industrial
Speaker Change: as we highlighted in relation to Rogers.
Speaker Change: is
Speaker Change: a catch-all for a lot of end markets that are less than 2% or 3% of our total sales. But within that...
Speaker Change: Fuck it.
Speaker Change: There's some really interesting end markets that we think we can grow.
Speaker Change: and expand, and actually the intent is to move them out of general industrial. A good example is portable electronics, where years ago it was a small percentage of sales.
Speaker Change: But then we really began to develop technology that worked well in the hand device market and other areas such as smart speakers and tablets, and now that's a big part of our business.
Speaker Change: So, we have been working really hard on design and wins, pushing the teams, and they're very aggressive in going out and trying to fight against the headwinds of the slow macro. And what we've really...
Speaker Change: come to grips with over the past six months is that we really like all the products and technology we have in the company that can go into data centers.
Speaker Change: and we'll talk more about this in the future but we have products from all of our business units that can work in there. It's gasketing and sealing and vibration dampening from EMS.
Speaker Change: It's high-speed digital from RFS and it's cooling from the ceramic business. So we feel like we really have some growth trajectory there. Same for battery energy storage systems. We've been able to leverage our technology and our expertise
Speaker Change: that we brought into the EV-HEV battery space, and of course it translates into the BESS space. So we figured we feel that's worth sharing because we also have high expectations for growth there. And finally medical, we.
Speaker Change: We have had some good success in medical, but now we've really been able to pick up some additional design wins that will begin next year and we feel like that's also worth mentioning. I would say that
Speaker Change: Industrial is a big piece of our business but within it there's some exciting things that we wanted to tease out and share and that is the message on today's call.
Speaker Change: That's helpful. Thanks, Colin.
Speaker Change: The next question...
Speaker Change: may be one that's both for you and Laura.
Speaker Change: regarding the power substrate ramp through 2025 in China. Can you just help us understand the magnitude of contribution that could make as we go from initial sample shipments to customers exiting this year to what I think the deck said was full production exiting 2Q of next year. How should we be thinking about the revenue impact of that ramp in the business?
Speaker Change: David SIlver, David SIlver,
Speaker Change: So I can start on that. First, I'll comment that we're very excited about that facility and it's just a spectacular build. I was thrilled to see it up and running when I was in China a few weeks ago and we had quite an interesting opening ceremony with a lot of folks in attendance from both the local government and customers. In terms of when we should be at full run rates, yes, that'll probably be mid-2025.
Speaker Change: and right now it's running and we're prototyping and qualifying this technology with customers.
Speaker Change: We haven't at this moment talked about the size and revenues that would be coming out of that factory. We haven't really shared even our total sales for Karamek.
Speaker Change: timing, quicker response time, and local production. So I think it'll make a big difference in terms of us being able to capture the growth that we have planned.
Speaker Change: Got it. And if I could just sneak in one more. There was the very significant change in operating expense quarter on quarter and it looks like some of it might have been
Speaker Change: and a cruel reversal.
Speaker Change: Is that the case, and therefore would operating expense absent that approval reversal increase sequentially in 4Q, or did OPEX just set to a structurally lower level in 3Q that will perpetuate?
Speaker Change: So let me take that. So you're correct in saying that there was some adjustment for variable compensation costs and in addition to that we continue to, you know, manage our OPEX in this environment of having challenges in the top line. So we did see some benefit quarter-on-quarter on professional service.
Speaker Change: and with third parties. One thing I would also comment on, you heard in the call that we do see some slight step-up in our OPEX into the fourth quarter, but that's in support of the qualifications that Colin spoke about and qualifying their customers to be ready to run from our new facilities.
Speaker Change: So it's a critical embasement and one that we'll continue to undertake.
Speaker Change: And Laura, for that particular item, does the expense associated with that actually rise?
Laura Russell: that as we get closer to full production of the facility or how do we think about the magnitude of that impact between here and and full output?
Laura Russell: a cost of capital and facilitating qualification of the facility and our equipment in it. But post that, as we're working with customers to qualify and ramp on our lines, then we do face upward pressure in OPEX for our growth investment.
Speaker Change: Got it. Okay, I'll hop back in the queue. Thanks, Colin. Thanks a lot.
Colin Gouveia: You're welcome. Thanks, Craig.
Speaker Change: Thank you. If you have a question, please press star 1 at this time.
Speaker Change: Thank you. Our next question comes from line of Craig Ellis with B Riley Securities. Please proceed with your question.
Craig Ellis: Great so keep keeping it going with one or two more. On personal electronics, Colin, you mentioned that
Craig Ellis: that there was one program that
Craig Ellis: sounded like it had a lower peak than you expected. I just wanted to confirm that from 3 months ago I think we were looking at multiple Android programs and an iOS program. Did in fact all of those programs ramp in the quarter? And then how do we think about the diversity of your customer base as we go forward from here? Would you expect those programs to be ones that come back in the various selling seasons, Android sometimes different than iOS?
Craig Ellis: How should we think about the stickiness of those engagements? Thank you.
Speaker Change: Okay, yes, so here's how we're thinking about portable electronics.
Speaker Change: Key end segment for us and we really feel confident in our differentiated technology for both high-end phones
Speaker Change: high-performing phones, phones that have AI capability, and also foldables, which although they're still a small part of the market, they require different technology to work properly. So, we feel like our suite of product offerings
Speaker Change: fit very well with this market, and we do have programs across the patch with all the different OEMs Chinese, Western, and South Korean
Speaker Change: As we look at the market, how it's developed to this point in time, it is up overall year over year. Last year was, of course, a 10-year low in handsets sold, and we see the market up 4-5% this year.
Speaker Change: Where we see most of the growth coming, though, is from, I would say, baseline affordable.
Speaker Change: models with mostly Android packages.
Speaker Change: And those seem to be growing the fastest. And where we participate more is in those high-end, high-performing phones at the top of the pyramid. And we're still waiting for, I think, the overall...
Speaker Change: AI value proposition of these phones to really catch hold for those types of high-end phones to drive growth and it's also related in some cases to rolling out software packages that work with these phones.
Speaker Change: So, when we say, hey, we were planning this three or four months ago, we had anticipated that ramp to come faster, but due to things like software packages, it's been delayed a bit, and that's why the peak is down a bit for us in Q3.
Speaker Change: and, you know, that has impacted our results versus our guide.
Speaker Change: Did that answer the question? Yes, that's helpful Colin.
Colin Gouveia: Yeah, that's helpful. As you work with customers and do your technology planning and roadmapping,
Speaker Change: Are there things that would...
Speaker Change: on board into phones as we get more AI capability and content that would drive up Rogers content in phones, whether they be a traditional phone or a foldable, or does the content outlook appear fairly stable as you look ahead at what's coming.
Speaker Change: In terms of where we participate, our content is strong.
Speaker Change: And it's related to, I would say, a lot of things. It's our product performance, but it's also our response, our quality, and reliability. But I would say we're optimistic about where we go next in terms of phones.
Speaker Change: As they pack more circuitry and performance in these phones, they need thinner and thinner foam technology. And not only do we have our urethane-branded Poron foam, which is kind of the leader in this space,
Speaker Change: But we also have another urethane type of foam produced from our South Korean facility named EZORBA. And we see that beginning to get more traction in the portable electronic space also because of specific characteristics around ultra-thin materials.
Speaker Change: products that we can deliver with that type of chemistry. So we feel like we're...
Speaker Change: strongly
Speaker Change: locked in with many of these high-performance phones sold by multiple types of OEMs, but we still see a bit of an upside there in portable electronics as well.
Speaker Change: Got it. And then lastly for me, Colin, the business has done a very strong job paying down debt.
Speaker Change: through the first half of the year and as we go to the back half of the year, despite
Speaker Change: just really tough macro headwinds with tough global PMIs. You're doing a really nice job building cash. So the question is how are you feeling about
Speaker Change: M&A, both the targeting, funnel development, potential targets, and the ability to execute, and any color on how you would be thinking about your patients or inpatients and executing something on that front. Thank you.
Speaker Change: Yeah, great. Good question about the patience piece. So how I would describe that is M&A remains a key pillar of our strategy and Rogers has had a long history.
Speaker Change: of
Speaker Change: really, I'd say, strategic synergistic bolt-on M&A, mostly in the MS space, but building out our capabilities and also our product lines to better service our customers.
Speaker Change: That philosophy remains intact today, and we do have good cash buildup, and we're very keen to...
Speaker Change: move forward with the right acquisition and regain that cadence of M&A.
Speaker Change: But I think we're also surprised, as are many, that deal space still has been quite slow this year.
Speaker Change: and that's primarily related to the fact we believe that sponsors are just holding on to their properties a bit longer because results haven't been what they had hoped for. So they really would like to see some of these results turn around to drive higher multiples.
Speaker Change: Nonetheless, I'm very pleased with the work our strategic marketing and BU leaders have
Speaker Change: our M&A roadmap, along with our Corp Dev Group.
Speaker Change: becoming available, it would be a really interesting fit for Rogers.
Speaker Change: And, you know, we can't rush it, but...
Speaker Change: When the right target emerges, we're prepared to move quickly, not only on acquiring it, but with our integration approach. It's going to be still an important piece of our strategy, but we won't buy something just to buy it. It really has to be the right strategic fit for the company.
Speaker Change: Thanks for the candor on that point, Colin.
Colin Gouveia: My pleasure.
Speaker Change: Thank you. Thank you.
Speaker Change: David SIlver, Craig Ellis, Daniel Moore,
Speaker Change: Thank you. Our next question comes from Lionel Daniel Moore with CGS Securities. Please proceed with your question.
Daniel Moore: Sorry about that. Get off mute. Thank you again. And my last question dovetails with Craig's last, which is, as Laura mentioned, your financial flexibility continues to increase.
Daniel Moore: opportunistic as it relates to buybacks versus somewhat more, you know,
Daniel Moore: mechanistic. Thank you again.
Daniel Moore: Thank you.
Speaker Change: There's many of those issues as we've discussed in flight with our investments and with our technology and pipeline expansion opportunities.
Speaker Change: to you.
Speaker Change: You know, we'll continue, as we have stated, on their M&E objectives, but thirdly, we will look at opportunistic shared buyback.
Speaker Change: and that's going to be contingent on how all three of those are interplaying at any point in time in addition to the market conditions.
Speaker Change: So we'll continue to evaluate it and execute based on our priorities as we see fit.
Speaker Change: very helpful and last is
Speaker Change: Just, you know, trying to pull up that string from an earlier question about the sizing, the opportunity of Keramik.
Speaker Change: for the new facility in China, not necessarily just revenue town, but how much of that do you think
Speaker Change: incremental volume do you expect to be truly incremental to your business?
Speaker Change: versus maybe shifting you know from one locale to to another just trying to get a sense for what the
Speaker Change: How much of the incremental volume that will come out is actually net benefit. Thank you again.
Speaker Change: Thank you. Bye.
Speaker Change: I think the way we're looking at it, Dan, is there is a base load of business there already.
Speaker Change: And of course there is, because we've been selling it to China for years.
Speaker Change: We sell two types of technology that goes all over the world for power modules. Part of it would be our AMB, which is our high-powered technology that goes into silicon carbide. We also have a large business in Karamek of a different technology.
Speaker Change: And the technologies are different because it's really how you just stick copper onto ceramic and that's called DBC so for the time being we'll still provide, you know, our our DBC technology into China from Eschenbach and There's a smaller amount of volume at the moment on A and B because the silicon carbide
Speaker Change: power module business is just building. So there's a small baseload but you know we see a lot of that business coming from China as being additional to what we currently have.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Very helpful. Thank you again.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: My pleasure.
Speaker Change: Thank you. There are no further questions at this time. I'd like to pass the call back over to Colin for closing remarks.
Colin Gouveia: Thank you and thanks all for joining and we look forward to several of the follow-ups we have coming up over the next several days. But again, thanks for taking time to join our quarterly call.
Speaker Change: David SIlver, Craig Ellis, Daniel Moore, Ramakumar David SIlver, Craig Ellis, Daniel Moore, Ramakumar Mayampurath,