Good morning. My name is Chris and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation 2016 Second Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions]. Thank you. Bill Tryon, Director of Investor and Public Relations, you may begin your conference.

Thank you, Chris. Good morning, everyone, and welcome to the Rogers Corporation 2016 second quarter earnings call. The slides for today's call can be found on the Investor section of our website along with the news release that was issued yesterday. Please turn to Slide 2. With me today is Bruce Hoechner, President and CEO; Janice Stipp, Vice President, Finance and CFO; and Bob Daigle, Senior Vice President and CTO. Turning to Slide 3. Before we begin, I would like to advice 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 exists in Rogers' operations and environment. These uncertainties include economic conditions, market demand, and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement. Also the discussions during this conference call may include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call, which is posted on the Investors section of our website. I will now turn the call over to Bruce.

Thanks Bill. Good morning, everyone, and thank you for joining us for today's call. Before we talk about the quarter, I would like to comment on the other announcement we made yesterday which is the relocation of our corporate headquarters to Phoenix, Arizona. This move aligns well with our growth strategy providing us with better access to emerging business and technology centers on the West Coast as well as to operations in Asia. Our ACS business segment has been in the area for 50 years employing nearly 400 people so the benefits of the greater Phoenix market are well known to us. Please turn to Slide 4. In Q2 2016 Rogers achieved net sales of $157.5 million in line with our stated guidance. ACS showed modest growth while sales in our EMS and PES business segments decreased slightly in Q2 due to volume and currency fluctuations. Net sales declined 3.4% from the comparison period, net of the $4.8 million revenue impact from the 2015 divestiture of non-core assets; overall revenues for Q2 were essentially flat. Adjusted operating margin decreased 110 basis points to 13.5% as a result of higher SG&A related costs related to strategic business investments. These investments include establishing the framework to efficiently repatriate foreign earnings as well as key market analyses to support our growth. Janice will discuss this in greater detail later in the call. Second quarter gross margin which is not reflected on the slide was 38.2% an increase of 100 basis points over Q2 2015 demonstrating our continued focus on implementing operational improvements. Q2 adjusted EPS per diluted share was $0.88 within our guidance range and adjusted EBITDA was $29 million or 18.4% for the quarter. We experienced slower than expected growth in certain key markets in Q2. We believe that ongoing global economic…

Thank you, Bruce, and good morning everyone. Overall, second quarter 2016 financial results were within our guidance range, despite continuing global economic uncertainties. Adjusted earnings per share of $0.88, was above our mid-point guidance. A $157.5 million in revenue was within guidance level, although was down compared to Q2 2016 of $163.1 million, primarily, as a result of $4.8 million in reduced revenue attributable to the Q4 2015 non-core asset divestiture. Improved gross margin of 38.2% compared with Q1 2016 of 37.7% and Q2 2015 of 37.2%, which is a result of our operational excellence program, cost containment initiatives, and an improved margin profile associated with a non-core asset divestiture just noted. Continued strong cash generation ended the quarter with cash of $247.4 million on the balance sheet or approximately 87% adjusted EBITDA operational cash flow conversion for Q2 2016. Net income at $5.4 million, was lower than Q2 2015. However, this was impacted by increased tax expense associated with repatriation of foreign earnings which we'll discuss in more detail shortly. Now, if you turn to Slide 11, I'll review our second quarter results in more detail followed by our third quarter guidance forecast. Q2 2016 revenue, as previously noted, was a $157.5 million, which was within guidance, but down from Q2 2015 primarily a result of sales attributable to the 2015 non-core asset divestiture. Adjusted operating margin was down 110 basis points from 14.6% in Q2 2015 to 13.5% in Q2 2016 mainly resulting from higher SG&A, due to timing and strategic business investment to establish the framework to efficiently repatriate foreign earnings, as well as key market analyses to support strategic growth initiative. Adjusted EBITDA of $29 million was down $0.5 million compared to the second quarter of 2015, however improved as a percent of revenue at 18.4%…

Thank you, Janice and this concludes our prepared remarks. I will now open the line for Q&A. Chris?

[Operator Instructions]. The first question is from Daniel Moore with CJS Securities. Your line is open.

Bruce obviously you touched on little bit of a slowdown in 4G, I think couple of months back you had expressed confidence at 4G related expense starting to build again. What happened to sort of cause that momentum to stall may be when did you start to see it and your expectations for the remainder of the year and confidence that we are going to pick up in 2017 as you alluded to in prepared remarks?

Great. So what happened it was interesting during the quarter, we saw softness show up probably halfway through the quarter in 4G/LTE primarily driven by the push-out in India and China into 2017 of the build-out both antenna primarily antenna, but also base station was pushed out. So as we look forward into 2017 and beyond, we still see some very good opportunities on base station and antennas. Particularly, on the antenna side, we think we'll see some good growth there. But what I'd like to do is have Bob comment on some of the technology advancements that we see coming in 2017 and beyond that really will also energize this business.

Yes. So Dan, its Bob Daigle. So I think a couple of things which we're spending a lot of time and energy obviously, because if you're reading more and more about pulling in the next-generation, which at first everyone was talking about 5G being the next way, but we're hearing more and more of plans right now around 4.5G which is a very similar if you remember back in 3G days and 3, 4G LTE that there was this interim step, and a lot of that interim step between 3. -- which was called 3.5G was really around software. The good news here is it looks -- yes, what we're seeing, what we're hearing because of what they're trying to do with MIMO for 4.5G, so basically a lot of carrier aggregation and what's being called Massive MIMO in order to increase capacity. That in combination with a new bands that are being allocated, really creates a situation where they need new infrastructure. So it's not just software for 4.5G, but you start getting into new hardware requirement. In the base stations themselves and to Bruce's point especially, when you start getting into MIMO, that's new antenna. You start going out what they call higher order MIMO, you will be replacing the antennas on power top. So we're obviously spending a lot of time and effort in where we have the right products for 4.5G. Our expectation and what our team is driving for is to end up with the same share 90-plus-percent in base station area for 4.5G. Now, if you look a little bit further than that and what's happening and kind of what's the approach that the equipment providers are using to get to 5G to meet 5G standards, which is about 10 times the data rates, were accustomed to with 4G, that's playing out about as well as we could have ever hoped frankly because it's a combination of more frequency band, which is always very positive for us because that means again more hardware. In combination with MIMO which is very positive for us, again especially, on the antenna side. And then the third element, which is -- we were hopeful it would play this way, which is the allocation of higher frequency, so starting to get up may be even as high as 60 gigahertz in some of the bands being looked at. As you move up in frequency that generally has benefited us. So you're starting to see -- and again we're -- our teams are very focused, keep the same share. But also potentially there is some opportunities for more content and that's where we're putting a lot of energy in terms maintaining share and trying to drive more content as the next-generation technology get deployed.

Thanks Bob. I'll add one more comment. For the ACS business, the automotive radar side of things remains strong, right. We see that moving forward, strong growth rates in various published accounts or market studies globally close to 30% when you improved the China growth as well as rest of the world. So that also is very positive for us moving forward.

Very helpful color. I guess I'm still just trying to drill into; is it the interim step or as things have started to crystallize in terms of getting to next-generation, is that's what causing the delay this year in spend in India and China, may be to the best of your ability just help me understand that bridge a little bit better?

Yes. I think the delay is really around just infrastructure spending in both India and China and the push-out into 2017. We're -- we don't have very good visibility. And if you -- if we look at what's been published by other suppliers into that marketplace, I think they pretty much echo the same point of view that it's a bit hazy. We believe that the demand is there, it's just a question of timing of the build-out and that's why we remain cautious in our guidance in Q3.

Okay. And may be switch gears and then I'll jump back in queue, industrial. Remind us what percentage of ACS the -- you classify as industrial as well as what percentage of Rogers overall? And just talk about geographies, verticals where you're seeing kind of most headwinds here?

So really the industrial applications are primarily in the EMS business and the PES business. And for EMS, it's approximately 40% general industrial is about 40% of the EMS business. And if we consider in the PES business that the variable frequency drives comprise a significant amount of industrial that would be also about 40% of the PES business. So what we're seeing -- and let me speak specifically about the EMS business. Taking a closer look at general industrial, in the first two quarters of the year in EMS, we saw essentially that the growth rate there was flat and that's pretty consistent with what we believe is the industrial growth in the United States at this point. The good news is that we saw very good industrial growth in Europe, double-digit growth for the EMS business. We believe there that that is really penetration in that marketplace for us. We concentrated on growing the European market, a lot of it is for us general industrial and EMS. And over the last -- both of the last two years, we've had double-digit growth for ourselves in that business. So going forward, just general industrial in North America, we think that it will be relatively soft and it's very dependent on the industrial growth in the U.S. On the other side, in PES -- and again, variable frequency drives are the big industrial part of PES. On the -- we see that relatively strong, but part of that and you heard this in my comments earlier is related to a -- very strong customer -- very good customer of ours whose had very good position in that marketplace we think probably taking share from some others. So we've had some nice growth in variable frequency drives, because of that we believe that should continue as that customer continues to expand.

The next question is from Joan Tong with Sidoti & Co. Your line is open.

Good morning guys. So I guess you mentioned a couple of times that mining and energy in particular vertical market is affecting the business across segment and across different application. Can you just quantify for us, if you can how much of your business is exposed to that particular vertical market? And obviously, doesn't look like in the near-term that that area is going to improve. And what's really your strategy going forward? And we sort of like looking this would -- looking at this particular area would be soft going forward, anything you can do to improve on that? And then I do have a follow-up.

So really a lot of the mining and so forth is -- and transportation is related to the rollings business. And we see that affected by what we talked about earlier around the downturn in energy and mining. But also affected by the consolidation that I believe we mentioned last quarter of some of the Chinese rail to the Chinese rail organizations combining and not really coming back into the market in a big way for locomotives. We believe that some -- at some point -- and it's hard to predict on that end, they will return to the marketplace. On the mining side of things and energy side of things, we believe that will began, but we do see growth as I mentioned earlier in areas like variable frequency drives, removable energy, HEVs, which will take up some of that slack. And so we're working very carefully on design wins, and activities in those other areas to help us recover on the mining and energy sectors.

Okay. All right. And then, Bruce, I think you mentioned that the new product development and the patent filed, it's at its highest. So obviously, in light of the tough macro capital spending environment, when are we going to see some of those new like products going to like start having a little bit more impact on your revenue growth? Thank you.

Yes. So these are specific areas, mostly ACS, some in PES. And I'm going to ask Bob to expand a little bit more on some of those technologies and the timelines that we see.

Yes. So I think, Joan I think a lot of -- there is some of the new products, which are aimed at the defense antenna area and the incubation period for those things tend to be three to five years. Some of those things we're working on in the wireless area again would be aimed towards things like the MIMO opportunities, which at the higher order MIMOs, which are really around 5G. So again and I think realistically, we should be thinking at the innovation center related activities are usually out around three years before you see meaningful revenue. It doesn't mean we won't get revenues sooner, but in terms of things that really move the needle for us. So a lot of the pipeline that really drives the growth in the next few years are things that are closer in the business units, I think you're aware that we introduced new antenna materials that are really -- I think that going to be very helpful to our customers in terms of developing multilayered antenna constructions, things like integrating antennas with the power amplifiers and the digital circuitry. So I think those are the types of things, which can have more impact sooner than a innovation center project.

The other thing that we're pretty excited about in the EMS business is you may have caught it in my comments. But portable electronics is in the growth mode again, and this is directly related to work done by our R&D organization to understand the needs of the back pads and the performance of the back pads in the personal electronic space and this is primarily in some handheld devices. And we put on a very good product family of products there. We're seeing very, very nice growth. We were up 29% in portable electronics in the past quarter. So you are seeing some of the shorter-term R&D and innovation work that is paying off. And I think for those of us who've been around the EMS business now for a few years have seen the personal electronic side struggle, we think we're back on a good -- in a good position. And we see this moving forward these back pads as a nice growth opportunity for us.

Yes, thank you for highlighting the portable electronic side of that business. Finally, you saw some growth there after a couple of quarters, almost like two years in decline. So definitely, it's a positive. And then I guess, really my last question for Janice. For next quarter guidance, what type of SG&A assumptions and tax rate you embedded for the third quarter guidance, are those expenses that you call out going to be a continuous situation into third quarter? And also what's the tax rate as you're looking for, for third quarter?

Right. For the full year, we're at the 42% approximate tax rate. The third quarter will be down to the normalized level in the 30%. I mean, this was all the taxes paid for the repatriation that actually came in July, happened to be paid in June. We've seen a disconnect between payment of taxes and the cash moving all the way to the United States. So that should be coming back to normalized levels. So we shouldn't have an issue on that.

And then on the SG&A --

The SG&A should be approximately the same amount but it's normalized. If you net, all the expenses a lot of it came through in this quarter, especially for the tax repatriation, while we do have a few other initiatives for us that's going to be hitting third quarter, well we have some initiatives to offset those.

The next question is from Julie Li with Drexel Hamilton. Your line is open.

Thank you, good morning team.

Hi, Julie.

Hi my first question is on ACS as far the operating margins in second quarter had 210 basis points decline compared to 2Q 2015. I'm wondering what's the cause behind this. Was this due to may be lower volumes or different pricing compared to second quarter 2015? Thank you.

Yes. ACS really – some of that is actually our allocation of our corporate headquarters. As you know, we allocate our corporate headquarters to the business units. And because Ireland, a lot of assets went to Ireland, they get a higher percentage of the corporate allocations to them. So a good portion or part of that really just is an adjustment for year-over-year. They had some -- a little bit of pricings or some volumes containment, which was offset by performance.

And to follow-up on the headquarter move, what should we include in our motto going forward, and how to allocate the expense and schedules of the headquarter move?

Right. For the headquarter moves, really I mean, we look at it, it's really a strategic, it's not a financial. We're looking it for a strategic position of the company and the corporation out in Arizona, as Bruce articulated earlier that we're going to have some cost growth. We're obviously looking at it and see if its non-GAAP type adjustment. So we won't see it as a one-time hit and then we'll move forward. So you shouldn't see that really affecting us. And as we talked about earlier, we had some -- a lot of SG&A initiatives. So we're hoping to offset all these costs really by SG&A initiatives and also from some tax incentives by the state and the local government.

So I'm assuming that headquarter moves won't have a material impact in Q2 operation efficiency, operation side of the business, am I correct?

Yes, yes, you are correct.

And my next question is on EMS. I think Bruce mentioned earlier on the new construction category end market. Is this new opportunity for EMS recovery or growth initiatives into the future? And was this business more focused in Europe or domestic North America market, can you share more color on that?

I think the question related to the portable electronics, which we highlighted or is it another sector that you were referring to?

It's -- I think it's a construction related end market within EMS?

So really, may be, more related to consumer market. And we did in the quarter have a slower quarter related primarily to work shoes and protective clothing and so forth around the -- more around energy and mining sectors that affected that business. Really what we're looking at is in terms of the growth opportunities for this business are geographic growth both in Europe and in Asia overall. And also specifically, the portable electronics return to growth. Other areas such as automotive and so forth, we are seeing some growth there as well. And we continue to get design wins and that continues to expand our presence there. We were up substantially in automotive and EMS in Q2, although that is a smaller portion about 7% or so of total sales in U.S. So really the growth that we're seeing is automotive, portable electronics, and geographic growth, generally driven by general industrial in Europe and some in Asia.

Thank you. And my last question is on ACS, satellite TV end market. I remember before the management is thinking about a GDP [ph] type of growth in that small part of business and you also mentioned in this quarter, there was a decline in growth in that business. I'm wondering can you share more color on that looking forward.

Yes. We think this is a relatively stable market for us. What we see though is the variability quarter-to-quarter. And the comparison quarter was a very strong quarter in 2015 due to some supply constraints from Q1 into that sector. So I think the comparison quarter was difficult. But overall, it's a relatively steady business for us, has some variability quarter-to-quarter, and this is generally the second quarter for us. When you look back more than two or three years, these are lower quarter for the satellite dish business, as I mentioned with the exception of Q2 2015, where there was some pent-up demand that came through in that quarter.

Thank you, Bruce. I would jump back in the queue.

Okay. Thanks.

The next question is from Juan Molta with B. Riley. Your line is open.

Hi guys. Good morning, thanks for the questions. First one regarding pricing pressure. Are there any areas where you're seeing particular emphasis in pricing pressure?

And I think we talked about it in the past. It's basically specific customers. It's not a sector, and it's very much volume related. So we sit down and work closely with essentially two customers in two different areas and work on attractive pricing for higher volumes and that's how we've been dealing with it. But let me just reinforce that across almost all of the rest of our business, pricing is not an issue. We've been able to have stable pricing across many, many of the markets and segments. And the issue is mostly related or significantly related to this issue of volumes and price at two major accounts.

Okay, thanks. That's helpful. On the guidance, you have the drivers behind the Q3 guidance, is it continued trends on the all the topics you talked about that you saw in Q2? Are you seeing any material changes there, perhaps softening in an area or any changes there as we go into Q3?

No. And I think -- I think exactly as you stated, this is sort of a continuation of what we've seen towards the end here of Q2 with the push-out of demand on the 4G LTE, both antenna and base stations into 2017, and the continued industrial side of the business in EMS relatively flat in North America. So that's how we're viewing Q3. There's a lot of uncertainty, I would say, invisibility moving forward, just on the world scale of the economics. And so we're being cautious, as we look forward into Q3, based on those uncertainties.

Very good. Do you have on hand what actual wireless growth in ACS was for the quarter that number? Either year-over-year or sequentially?

Yes, it was 4% quarter-on-quarter, 2015 versus 2016.

4% year-over-year in wireless or sequentially?

No, year-over-year.

Year-over-year 4%. Okay, very good and any update you can provide on acquisitions and the efforts there, because you're building cash continuously?

As you know, this is a strategic area for us. We continue to evaluate opportunities. Our capital allocation approach, our priority is synergistic M&A. And so we look, we continue to be active in that area. I think as Janice referred to, we've brought back cash that was trapped in other regions as part of our strategic focus and our capital allocation approach.

Okay. And then one final and I'll back in the queue as well. Regarding automotive with the news out there of potential slowing in volumes of auto sales that should not affect any of your automotive initiatives, because there's more penetration technology, correct?

That is correct. That's a very good point to make particularly in ADAS side of things that is continues to expand. Even if there is slowdown, it is a really penetration approach. And similar in a sense over in EMS, it's a much smaller part of that business, but these are design wins where there are needs in the marketplace that we're displacing other technologies or other materials that are using gasketing and so forth. So it is while certainly total numbers of units will be affected, we're still penetrating with our technology in those cases.

The next question is from Daniel Moore with CJS Securities. Your line is open.

Thank you again for the questions. The -- in terms of SG&A, can you quantify the spending for framework around repatriating cash number one, and number two, for the market analysis in Q2?

Yes, yes. Because, I mean, we use experts obviously to bring that cash and we brought back in July, over $100 million from over offshore, and the effective tax rate was quite low. The total consulting was just under $1 million I believe approximately.

And in terms of the market analysis that you touched on or called out?

Yes it is approximately about $1 million.

Each of those are discreetly about $1 million?

Correct.

So when you talk about Q3 being normal, if we adjust for both of those, is it the best way to think about Q3 relative to Q2 in terms of G&A?

Correct, yes.

Okay. That's helpful. And then that answers the next question on repatriating. How much cash is still left offshore?

Already we paid to the deck we had about half of our cash was still offshore. But we anticipated bringing that back also in the future as needed. And we have the effective structure now to be able to move the cash.

Got it. So you moved over -- well over half of the cash that was offshore back onshore in this quarter?

Yes, we moved over -- we moved just over $100 million of cash back to the U.S. from offshore.

Got it. Okay. And I think lastly would be given very strong cash generation in the quarter, you're up to four bucks a share, almost in net cash. You got $66 million left on the authorization. When are you actually available to start to repurchase shares, and how should we think about capital allocation going forward?

Well we can repurchase. We had up to $100 million of that we spent $44 million and quarantine actually acquired back 797,000 shares already. And we're always active in looking at it, and it depends on the capital structure and as we talked about the M&A in the priority. So we are available to acquire up to the $100 million that was authorized by our board.

The next question is from Dana Walker with Kalmar Investments. Your line is open.

Hi, good morning. Could you talk about how much of the handheld device market is applicable to the back pad solution?

Well, as we look at this market, it's a growing market. Because the issue of ripple in a number of these handheld devices is there. I mean our estimates are in the range of probably $50 million of market opportunity over the -- on an annual basis, as we look forward. So it's hard to quantify, because it's very specific to specific designs. The other opportunity that we see moving forward is the OLED opportunity. As we see designs change on the smartphones to include OLED displays, there's is a specific need there for impact protection even greater than what is needed today. So we see that adding to the market opportunity. So $50 million is a good round number on an annual basis of the market opportunity. I would also caution though that we don't have the $50 million, as Rogers's obviously competitors out there in different technologies and different designs that handheld manufacturers used to alleviate the problems. But we're sure on OLED; we see that as an emerging opportunity over the next year or two.

How far are you into the back pad penetration and how many different OEs are utilizing that solution?

It's -- numbers are different, ranging from the majors to smaller handheld device manufacturers in China. So the penetration is very hard to know at this point but we continue to see our design wins accelerating in that area.

Janice, I believe you said in the prior call that there was going to be more stock comp in the Q2 number. Can you itemize that, because until we see the queue, it's somewhat hard to fair it out?

Yes, give me one second. Yes, I'm just checking.

And while she is looking for that, Bruce perhaps or Bob, you mentioned that HEV accounts are about 7% of EMS, how much of the PCS business does HEV demand account for?

That Dana, that's about 15% for the PES business.

And may be this number was disclosed. There was an avalanche of statistics, but your HEV-related business grew at what pace in Q2 and year-to-date?

Q2 in PES, year-to-date was flat essentially. And I would reference back to some of my comments in the prepared remarks around slowness with one major EV/HEV manufacturer in Q2 that we think will recover in Q3 and Q4.

Thank you. And your question on the stock comps, it's just under $4 million that is in Q2 which was approximately about $2 million higher than normal quarters.

So it was $4 million in Q2. It was $2 million than normal. So you would expect how much stock comp for the full year?

It's partly $10 million.

The final question is from Juan Molta with B. Riley. Your line is open.

Hey guys. Just a couple more. Thank you for taking them. First one is, as we look at your revenue guidance and we adjust out the divestiture impact and the foreign exchange impact, you're accounting for, you're actually guiding for volumes up since it seems like the pricing pressure is very, very selective across the company, correct?

Yes.

Yes.

Okay. So things look pretty good. And then my second question is regarding the industrial growth in Europe, can you talk about what key products you are gaining share in one applications, just general penetration on that and in Europe?

Yes. This is in the EMS business and specifically in similar types of applications that we would have in North America. So enclosures for electrical equipment, appliances, and also, lighting, industrial lighting, outdoor lighting. And it's a mixture of both silicons and the urethane phones as well.

And we have no further question at this time. We'll turn the call back to the presenters.

Thank you, Chris. And thank you, everyone for joining us on today's call. Have a good day.