Good day. My name is Brandon, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2018 Second Quarter Conference Call. [Operator Instructions] I would now like to turn the call over to your host Mr. Jack Monti, Director of Investor Relations. Sir, you may begin your conference.

Thank you, Brandon, and thanks so much everyone for joining Rogers' Second Quarter 2018 Earnings Call. To follow along with the slide presentation, please see the Investors section of our website. Turning to Slide 2. We have a disclosure on forward-looking statements. During the call, we will be making certain forward-looking statements subject to a number of risks and uncertainties, which may cause actual results to differ materially versus today's outlook. In addition, some of the financial metrics discussed will be on a non-GAAP basis, which management believes better reflects the underlying core operating performance of the business. Turning to Slide 3. It's my pleasure to introduce Rogers’ management team. Bruce Hoechner, President and CEO, is joined by Ram Mayampurath, Vice President, Financial Planning and Analysis; and Bob Daigle, SVP and CTO. I will now turn the call over to Bruce.

Thanks, Jack. Good afternoon, everyone, and thank you for joining us on today's call. In Q2, Rogers delivered revenues of $215 million an increase of 7% including currency effect over Q2 2017 and at the midpoint of our previously announced guidance. Revenue performance was due to strong demand in e-Mobility applications and antenna applications for 4.5G and 5G wireless infrastructure. These results were partially offset by weaker demand for 4G LTE power amplifier applications, which is being impacted by the market's transition from 4G to 5G. Also during the quarter, we completed our diligence for our acquisition of Griswold LLC, which closed in early July. Q2 gross margin was 35.7%, adjusted EPS was $1.19. While we have made progress during the quarter in a number of areas, we are acutely aware of our shortfalls in Q2. Actions are in place to improve our results moving forward, and as we progress through the second half of the year we are confident in our ability to improve both the top line and margins. Our core operations ran well during the quarter and continued to improve inline with the actions I detailed in last quarter's call. Pricing programs to recover increased raw material costs had a positive impact in Q2 with the full pricing benefits to be realized in Q3. However, margins were below our expectations due to greater than anticipated near-term costs associated with our continued investments to support our growth strategy including multi-site product qualifications, manufacturing site consolidations and higher costs associated with maintaining underutilized capacity in anticipation of significantly increased demand in core markets. Ram will cover the details of our performance shortly. As we go through today's call you will hear about the strong demand that is projected in our key growth drivers of advanced connectivity and advanced mobility.…

Thank you, Bruce. Good afternoon everyone. In the slides ahead, I will review our second quarter results in more detail, followed by a third quarter guidance. Turning to Slide 13, Q2 2018 revenue as previously noted was $214.7 million, increasing $13.3 million versus the second quarter of 2017. This increase was primarily due to favorable FX, higher volumes and pricing programs. Q2 2018 revenue was at the midpoint of our guidance range. Adjusted operating margin was 14.8%, which decreased from 18.8% in Q2 2017. Adjusted operating income of $31.7 million decreased by $6.2 million compared to $37.9 million last year. The decline in adjusted operating margin and adjusted operating income was primarily the result of certain actions we have taken to improve our long-term efficiency and prepare for strong demand expectations. Net income of $17.3 million in the second quarter 2018 was down $3.6 million versus prior year, less than the decline in operating profit, largely due to lower interest expenses from the pay down of debt, lower tax expenses and higher JV income. Second quarter 2018 adjusted earnings per share of $1.19 decreased by $0.14 versus Q2 2017. I will cover all these points in more detail in the slides that follows. Please turn now to Slide 14 for a review of our quarterly revenue. Our revenue was up $13.3 million or 6.6% on a year-over-year basis. The second quarter exchange rate favorably impacted revenue by 4.2% or $8.4 million, primarily due to depreciation of euro and renminbi. Q2 2018 volume and other was up 2.4% or $4.9 million versus prior year. Rogers was favorably impacted by strong broad-based demands across our Power Electronics Solutions business, with particular strength in EV/HEV applications. We also saw growth in massive MIMO antenna applications. As we mentioned in our Q1 call, we…

Okay, thanks Ram. This concludes our prepared remarks. We'll now open the line for Q&A.

[Operator Instructions] And your first question comes from Craig Ellis from B. Riley FBR.

Yes, thank you for taking my question. And congratulations on the growth that we're seeing in the business and the Griswold deal. I’ll start there, Bruce. First, as we take a step back and look at Griswold along with DSP and DeWAL, what did those three acquisitions do for the business in aggregate? And specifically what did Griswold add that you had been seeking for the portfolio?

Sure. Thanks Craig. First, those three acquisitions, the DSP acquisition really bolstered our position in silicones and silicone sponge. And so we continue to utilize their capabilities because they had DSP, now part of Rogers had different machinery, different capabilities, different product line to broaden our silicone area. I'll end with Griswold so let met go to DeWAL. DeWAL really provided us a totally different polymer system in which to take to our customer base, a similar customer base, a similar route to market. And so we've been able to utilize our existing field sales, some of our technical folks and also utilize our overseas capabilities to grow the DeWAL product line. So that's given us a whole new window, a whole new opportunity in terms of PTFE polymers. And then finally with Griswold, Griswold has two main product areas. The elastomer expect, the specialty elastomer expect to have a variety of different applications and different application areas than the current EMS, urethanes and silicone areas. But utilize a similar route to market, same customer base in terms of distribution and preferred converters. So that system or that approach allows us to grow that business. We believe pretty well certainly in North America and again they’re 97%, Griswold’s 97% North American based. So a big opportunity for us in Europe and Asia, the other part of their business which is about a third of their business, utilizes polyurethane foam technology, very similar to Rogers’ PORON. And so some similar applications, some alternative applications, different mix of customers so it broadens our footprint in polyurethanes. It also provides to us some immediate capacity on their lines, which are capable with some adjustments running a Rogers product line. So those three acquisitions really continue to move us forward in what we like to call top of the pyramid areas.

Thanks for that. And then Ram, is it fair to say that there's probably $6 or so million of revenue in your third quarter guidance for that and would it be worth a penny or two in adjusted earnings on the bottom line or how should we think about the contribution in the guidance?

A little higher than your estimate, the revenue is more $7 million – $7 million to $7.5 million range.

Okay, helpful. Got it. Let me move on, Bruce, just from the sounds of the color that you provided around 5G. I sense that you picked up incremental disability in the last three months. And I was wondering if you could talk about some of the milestones that you see with the 5G ramp. And specifically as it relates to the way customers may be slowing their investments on 4Gs, they get ready for 5G. What's the net effect in the portfolio likely to be both in the near-term and intermediate term as we get that great higher content with 5G but as we see 4Gs slowdown?

Right. So very good pick up, so a couple of issues, a couple of things that we've seen in the marketplace that we're very pleased with in the 5G side. First, I mentioned in my prepared remarks around the 4.5G and 5G, massive MIMO antenna systems, phased array antennas. Those – that's a very good leading indicator of infrastructure moving into the 5G realm. And the reason I say that is that the 4.5G antennas that are going in these massive MIMO antennas can be altered very relatively easily using software to make them 5G compatible. So what we're seeing is that infrastructure, the tower infrastructure starting to be built out and fortunately for us, Rogers has developed some very interesting products that our customers are very excited about. And so we're seeing real uptick on that side and we saw that in the results in Q2 on antennas. The second thing that we're seeing and it's very consistent, I'd say across the industry. We're hearing from industry experts, we're hearing from OEMs and also through some published reports in China regarding 5G build out. And there's a consensus around about 100,000 5G base stations coming in the first part of 2019 with some folks saying, it could be double that. Now from our perspective, we don’t have exact timing on that. And so in early first quarter, late first quarter, second quarter – we, at this point, don't see – don't have that visibility but what we do know, we're starting to hear from OEMs that we need to get ramped up to make sure that we're ready for that. And the reason maybe 100,000 doesn't sound very high but we're talking two to four times the content per base station of Rogers’ material versus what we saw in 4G. So a very, very positive, from our perspective which ties back to some of the work that's going on that went on in Q2 continues in Q3 to build out our capacity. Our key objective here is to make sure that we've got capacity on-hand when demand comes because we think it could ramp relatively quickly. And certainly we don't want to be in a position to disappoint our customers.

Got it. And that relates to my third question. I'll move it back to Ram. Ram, from the guidance of 37% gross margin to the target models, 40% we’ve got about 300 basis points. So as you look at the drivers, you certainly clearly articulated the five things that are negatively impacting gross margin on a year-on-year basis. We're moving higher from that in a third quarter but as we look at the milestones to close that final 300 basis point gap. How would you been those out for us are there three or four things that contribute most to that gap or how do we break down the difference that exists between where we are on the target model? Thank you.

We typically guide gross margin for the next quarter but I also say that we are committed to our 40% target for 2020. To give you a bit more detail, it’s about one-third of that performance variance that we talked about in Q2 is related to that it turn up the top line of a 5G sales coming back. The remaining RSUs that will come through the next quarters and you’ll start seeing our gross margin improvement as we’ll start working through our operational excellence programs.

Just to add a little bit of color to Ram’s comment on that one-third, essentially its capacity held in abeyance for the surge that we are forecasting for 5G build out and ADAS as well.

Got it. Thanks guys.

Thanks Craig.

And your next question comes from Daniel Moore from CJS Securities.

Good afternoon. Thanks for taking the questions and the color. And starting off, Bruce, the level of optimism, I think I'm hearing maybe that's a little – even a little bit greater than the last couple of quarter. So can you give us a little sense for maybe revenue growth for the months of June and now into July? And beyond more optimism in terms of 5G, just tangibly what's driving your level of optimism around the revenue inflection. And then a similar question on the cost side, just either Bruce or Ram level of conviction that we have turn the corner as far as some of these one-time operating expenses et cetera. And then I’ve got a quick follow-up. Thanks.

Thanks Dan. So in terms of optimism on let's say 4G, 4.5G, 5G moving forward. We saw some nice strength in June because of the quarter, we also in terms and a lot – and part of that had to do certainly with the antenna side of the 4G, 4.5G business. What we're looking forward towards is in the second half of the year here, a pick up in NB-IoT that we've been hearing about for the first half of the year, we're hearing very clearly from some large OEMs in China that that is coming and will come to fruition in the second half. Now will it be as great as we first anticipated in January, probably not. But certainly what we're hearing very clearly is a pick up moving into Q2 or Q3 and into Q4 on the NB-IoT side of the house. So between the antennas that's getting built out the NB-IoT that we're seeing. And then what we're anticipating to be continued growth on the ADAS side. Always bodes well for the ACS business.

Got it. And then I think you give a decent amount of color on the cost side. But if – maybe just I guess if you can put it all together in terms of quantify what sort of non-recurring in the quarter and that would dissipate into Q3. And then if possible, how much have been impacted the lag between price increases and rising raw material costs have in Q2?

No, that’s a good question. So just to give you a bit more color there, if you think about what’s impacted our Q2 numbers, it’s clearly some of the assumptions we had on timing of some of these larger programs coming through. And impact a slower implementation on the result. That together with the one-time commercial issue that we had was the key variances to the forecast. Looking forward to our guidance, clearly that one-time issue is not going to repeat. Your question on pricing, we put in place pricing programs throughout the beginning of this quarter in many place – in many of our businesses and we expect a full quarter benefit to kick in in Q3. So that is going to improve between Q2 and Q3. And in addition to that, we have the impact of Griswold. That will also help our margins in Q3. So we're very confident of our 37% margin guidance we've given.

Got it. And I’ll shift gears to what has been certainly a bright spot on the top line, PES seeing strength across the board there. EBIT margins kind of still in the high single-digit range. Bruce, I think you alluded to a nice pick up. What type of ramp should we be looking for and longer term what type of EBIT margins are embedded in your 2020 guide of 20% plus overall. Thanks again for the color.

You're asking specifically EBIT margin for PES?

Correct, where would that shake out or level off once we get to the 20% overall in 2020 and beyond.

Yes, well, we don’t break it out by individual unit, but as I mentioned in my prepared remarks we're doing a lot of work in the PES business in terms of site consolidation moving to lower cost manufacturing environment. So sequentially, we see certainly the gross margin side of the business moving forward quite well. And, we're also putting in place, even in existing facilities automation to take out some of the labor costs that we've experienced particularly in places like Germany, where there's high labor cost. But overall, we've got a roadmap in place for the PES business, volume certainly helps but there's real actions and significant movement in place to drive down our overall costs and drive up our margin in that business. Will we get to the level of the corporate average? We're working towards that in terms of gross margins and so forth, but that's probably a couple years out, certainly a few years out.

[Operator Instructions] And your next question comes from Sean Hannan from Needham.

Yes, good evening. So, sorry to beat a dead horse here, want to see if I can drill into some of the factors around costs a little bit. I'm not sure, if I'm hearing all the answers that I might be seeking. So, let me try some questions from a little bit of a different angle. When I look at Slide 16 here, and you folks provide this bridge for your earnings, now at least versus where the street was right, we had an earning miss for the quarter as well as for the guide. But I think that there are some pretty understandable factors and we probably were too low in our estimation for what perhaps the inefficiency would be from that added capacity. Ram I think you'd spoken that a little bit earlier being and Bruce being maybe about a third of where we have this performance impact. So, presumably that would be $0.11 that would have been in this quarter. So, as I step back and I try to think about all of these puts and takes. When does this $0.33 part of the equation, when does that resolve. You know because it sounds like the 5G factors are probably more, slow increments and perhaps that goes way beginning of 2019. I think we presumably had the – or we previously had the assumption that some of the freight and other multi-site qual costs were something to be resolved this quarter. So, can we just get some better clarity around these pieces here.

Sure, Sean. So if you talk about the $9.3 million that translates to about $0.33 in the EPS and about $0.11 of that is related to fixed overheard commitment, about $3 million. That's the part that is directed directly towards the 5G and the top line changes that we are expecting and we're preparing for. The other $0.22 is $6 million that is related to some temporary ramp-up in freight and some cost duplication coming from site consolidation efforts and also qualification of multi-sites. That together with some of the raw material versus pricing timing, which we hope to get a better off in Q3 will start coming back into our resource as we go through these implementations of some of these bigger projects.

So the resolution of those basically, because I had the prior impression that would be concluded as a drag sometime during the course of this September quarter. Am I correct to interpret it that is now pushed out an additional quarter that's now lagging into the fourth quarter or is it even something longer than that. That's part of what I'm trying to get my arms around.

So just to maybe put a little bit finer point on it. Certainly the price increases that we've talked about are coming through in Q3 right? They were instituted towards the end of Q2, we had some benefit, they’re moving into Q3 and fully implemented by the end of Q3. The multi-site qualifications that we spoke about in the last call would – as I said would extend into Q3, they've extended a little bit into Q3 further than we had thought. We thought maybe July would be the end, it's probably August before we see our way clear. So, the assumption there would be it's going to be with us a little bit for Q3 by Q4 we'll be clear of that. The real point that I think Ram was making here was…

It parallels with that, correct Bruce? With the multi-site quals, Right? Freight parallels with that so that also would go away by 4Q.

Yes. The other point is the plant consolidations and so Europe, Belgium is consolidating two plants into one. And, so that will be completed by end of Q3. So, we should see some benefits moving forward in Q4. The move of DSP from California to Carol Stream, Illinois is taken a little bit longer and taking a little bit more cost than we first anticipated. And so, we still are targeting Q1, 2019 to complete that transition and we're working very hard to meet that timeline with that probably a little bit additional cost than first anticipated. So the other point, I was going to make had to do with fixed overhead and that one third or $0.11 that Ram referred to that doesn't really go away until we start seeing the ramp in 5G coming. And as we mentioned, we're looking at that in Q1 into Q2 of 2019.

Okay, but by the time we get to 4Q at least half of say this $0.33 headwind we have seen in the June quarter should be gone. And we should see and then the remainder of it some improvement. So it should arguably be a little bit better than half of what ought to have comes back into the model kind of on a run rate – from in concept kind of a run rate perspective.

I think that's a fair point. Yes that's, that's where we are in our estimation as well.

Okay, Alright, sorry I had to go through all of that so painfully. Yeah, I just think it's really crucial to call out that there is – while why we again we had a miss in quarter as well as the guide, but there's a big chunk here that's explainable and a lot of it gets resolved. Or is in a good path for getting resolved in a little bit more granularly. So, that addresses my concern.

Sean, I and I think you can sense from my position on this, in my optimism that we have this well in hand. We understand it, we've got plans in place, we're driving through it. And I think your conclusion is very similar to where we are in terms of when it goes away and the amount that goes away.

Great. All right, thanks so much that's the main topic I wanted to hit on.

Thanks Sean.

[Operator Instructions] Your next question comes from Christopher Hillary from Roubaix.

Hi, good afternoon.

Hello, how are you doing Chris.

Great thanks. I wanted to ask you about the ASP lift you're going to get from 5G. Are there other growth areas, where you have a similar dynamic that's going to come into play. And, I guess in both those cases how is that going to impact your growth in operating margins.

So, in terms of 5G, we think it's really around content, not average selling price that goes up. Right? So the content in a single base station is two to four times Rogers material than what was in a 4G. So, that's an uplift that's in terms of growth that would be revenue growth in line with the implementation of 5G. And more broadly in terms of growth opportunities for the Company, certainly ADAS the blind spot and adaptive cruise control sensors that continues to be a very strong area for us. As we look forward, we have both the 24-gig and 77-gig materials that are used there. 77 probably being the longer-term choice of the industry. And, so we're well versed there and again the industry numbers that we're hearing are 20% to 40% growth rates per year. And some of that will vary as time goes by and penetration happens, greater penetration into the market. But that's a big growth area for us, but the big story and the one that continues to be very consistent quarter after quarter is the PES EV/HEV X-by-Wire direct bonded copper chip mounting and silicon nitride materials that are used for the semiconductors under the hood for electric vehicles, for hybrid electric. And we've seen every quarter growth rates in the double digits for the last year or so. And we see no change in projections as a matter of fact, I referenced in my opening remarks that people are putting in capacity and coming to us and telling us we need to expand our capacity because this wave of EVs and HEVs is really getting off and really going to be there moving forward. So, we've got a number of really high nice growth areas for the Company between what we like to call advanced mobility, the HEV and advanced connectivity in the areas of 5G.

And do the newer products that you're looking for to selling more up are continuing to sell do they come in at higher structural margins or is it more just volume versus your existing production plant.

I would say it's similar. There are some depending on the specific product might be a little bit higher but, generally we're modeling similar profit margins moving forward.

Okay, thank you.

And, I will now turn the call over to Bruce for closing remarks.

All right, thank you Brandon. That concludes our call today. I want to thank everyone for joining us and have a very good evening. Thank you