Rogers Corporation (ROG) Q4 2020 Earnings Report, Transcript and Summary

Good day. My name is Erica and I will be your conference operator today. At this time, we would like to welcome everyone to the Rogers Corporation Q4 Year End 2020. [Operator Instructions] I will now like to turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Sir, you may begin your conference.

Thank you, Erica. Good afternoon, everyone and welcome to the Rogers Corporation fourth quarter 2020 earnings conference call. The slides for today’s call can be found on the Investors section of our website along with the news release that was issued today. Please turn to Slide 2. Before we begin, I would like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in Rogers’ operations and environment. These uncertainties include economic conditions, market demands and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement. Also, the discussions during this conference call may include certain financial measures that were not prepared in accordance with generally accepted accounting principles. 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. Turning to Slide 3, with me today is Bruce Hoechner, President and CEO; Mike Ludwig, Senior Vice President and CFO; and Bob Daigle, Senior Vice President and CTO. I will now turn the call over to Bruce.

Thanks, Steve. Good afternoon, everyone and thank you for joining us today. As recently announced the fire disrupted operations at our South Korea UTIS facility which produces our eSorba product line, most importantly all of our employees are safe and there were no injuries. UTIS represents less than 4% of Roger's annual sales and we are evaluating various recovery options. Our current expectation is that we will resume production in South Korea in the fourth quarter of this year. Turning now to slide 4, I'll cover the results for the quarter and 2020 highlights. Rogers ended 2020 with strong momentum achieving Q4 sales, gross margin and earnings that exceeded the top end of our guidance. The strong performance was driven by accelerating growth in advanced mobility markets and continued improvements in operational execution. For the quarter net sales increased to $211 million and gross margin improved to 38.3%. Earnings were $0.81 per share and adjusted earnings reached $1.58 per share. Despite headwinds from both trade tensions and the COVID-19 pandemic Rogers continued to build stronger and more sustainable business in 2020. The business environment was dynamic and challenging and I'm extremely proud of how the Rogers team responded. At the outset of the Coronavirus we began quickly mobilizing to protect health of our employees while simultaneously focusing on maintaining business continuity. We leveraged our global manufacturing footprint as well as multi-site customer qualifications where possible to avoid any significant disruptions to our customers or essential industries that rely on our advanced materials. This resilient response was possible thanks to the extraordinary capabilities and dedication of our employees. It's also important to recognize our suppliers and customers for their responsiveness and flexibility. In addition to our highly effective response to the pandemic we strengthened the company in several other important ways in 2020. First, we continued to build on our leading positions in advanced mobility and other diversified markets. In the EV/HEV market we saw stronger customer traction and design engagement activity that led to additional wins for both our advanced battery pad and power semiconductor substrate solutions. These wins added to our strong market position and help drive EV/ATV sales growth of 30% for the year. In ADAS we made good progress in 2020 by expanding our customer base with new design wins. Our advanced solution for next generation auto radar continued to receive positive acceptance from customers. We also strengthened our positions in some of our other diversified growth markets. In portable electronics our design wins in advanced feature 5G smartphones enabled us to outperform the market. Sales increased for the full year driven by strong growth in the second half of 2020. In the defense market design wins and new product introductions in 2020 were a catalyst for greater than 20% sales growth and added to our positive long-term outlook in this market. Second, we built a stronger Rogers in 2020 by delivering on our operational excellence initiatives. Substantial improvements to yields, productivity and material costs resulted in three consecutive quarters of gross margin improvement last year. Fourth quarter gross margins improved by 90 basis points sequentially and more than 500 basis points versus Q4, 2019. Most importantly these are sustainable improvements which are carrying forward into 2021. Third, we strengthened our financial position this past year with a focus on margin improvement and judicious management of our expenses and working capital. We generated more free cash than in 2019 and we increased our net cash position to over $165 million. Our strong balance sheet gives us tremendous flexibility as we execute on our growth strategies. Turning next to slide 5, I'll discuss market trends for both Q4 and 2020. In the fourth quarter strong traditional auto and EV/HEV demand was the primary catalyst for our sales growth as OEMs continue to ramp production and replenish inventories. Robust ADAS and EV/HEV sales were the largest contributor to the sequential increase in Q4 revenue. There were also encouraging signs in the general industrial market where sales increased modestly versus the prior quarter. Lastly, wireless infrastructure revenue was stable in Q4. For the full year as mentioned we had strong growth in EV and HEV and defense sales and higher portable electronic revenues. Renewable energy sales were also strong and increased at a mid-teen rate. The growth in these markets helped moderate the impacts of the Coronavirus outbreak on the general industrial, mass transit and traditional automotive markets. In addition, trade tensions resulted in substantially lower wireless infrastructure sales in 2020. Turning to slide 6, I'll next provide an update on the outlook for advanced mobility and other growth markets in our diversified portfolio. Beginning with advanced mobility, the transition to clean transportation further accelerated in 2020 as EVs and HEVs comprised over 13% of global auto production or nearly 10 million vehicles. Growth was especially strong in Europe led by sales of plug-in electric vehicles which reached an impressive 23% market share in December. This acceleration in demand is expected to continue over the next several years driven by the proliferation of new models, increasing consumer acceptance and favorable government policies. Third-party data continues to point to an expected compounded annual growth rate of more than 30% for EV/HEV production over the next five years. Supporting this outlook are the many substantial investments and commitments from established OEMs and startups. For ADAS, the outlook in 2021 is much stronger as global auto production is expected to rebound and grow at a mid-teens rate year-over-year. Increasingly ADAS features are becoming standard on new vehicle models propelled by consumer preference, regulations and commitments by automakers. This trend combined with the growth and demand for increasing levels of vehicle autonomy is expected to result in an average growth rate of 15% to 20% over the next five years. One key issue affecting the outlook for automotive production in 2021 is the limited supply of certain semiconductors. We are closely monitoring the situation but we don't anticipate that this will have a meaningful Q1 impact. In addition to the opportunities in advanced mobility we are also focused on growth in other markets in our diversified portfolio such as portable electronics, defense and renewable energy. In the portable electronics market 5G smartphone sales are forecast to nearly double in 2021 and drive mid-single-digit growth in global smartphone sales. 5G smartphone sales are expected to remain strong for the next several years which provides Rogers with a good growth opportunity. Our content in 5G handsets can increase by 10% to 15% at mid-range devices and by as much as 30% in certain premium units. The longer term outlook in the defense market remains promising as funding of technology programs such as missile defense and radar systems is expected to drive increasing demand for Rogers advanced circuit materials. Our high reliability solutions for demanding applications and differentiated engineering capabilities puts us in a strong position to continue our success in this market. Lastly, the renewable market is expected to grow at a 10% CAGR over the next five years and we expect the strong demand for our power semiconductor substrate applications to continue. Please turn to slide 7. As we've highlighted Rogers growth strategy is built on four pillars which include being a market-driven organization, delivering innovative leadership, utilizing synergistic M&A and driving operational excellence. Today I'll highlight some of our 2021 priorities intended to further accelerate our growth strategy. First, we are leveraging our leadership and engineering capabilities by creating a new strategic business unit, advanced electronics solutions which combines our ACS and PES groups. By combining these two complementary business units which have deep expertise in both high power and high frequency applications we will be able to further accelerate our ability to capitalize on high growth market opportunities such as EV/HEV, ADAS and others. Second, we are doubling our CapEx investments in 2021 to aggressively pursue the strong growth opportunities in the EV/HEV market I described earlier. We plan to invest between $70 million and $80 million of capital this year with more than half of that total targeted to additional capacity for our advanced battery compression pad and ceramic substrate technologies. These investments will position Rogers to capitalize on the significant growth momentum in this market where we intend to leverage our technology and capabilities to add to our strong market positions. Third, we will continue to drive our operational excellence initiatives in 2021 with gross margin improvements continuing to be at the top of the priority list. Business transformation initiatives will also be a key focus and we are investing $15 million of CapEx for the initial phase of an ERP implementation which will enable ongoing improvements to our operational efficiency and support organic and inorganic growth. Please turn to slide 8. At Rogers our commitment to corporate, social responsibility and sustainability is deeply rooted. We are dedicated to being responsible members of our communities through robust environmental, health and safety management practices. We are also extremely proud of the positive contributions that our advanced materials make to society as they improve lives and protect the environment. Our ESG efforts are based on many well-established programs and practices that Rogers has developed over the years in areas such as sustainable product development, regulatory and environmental compliance, resource conservation, employee development and much more. We will soon be issuing our inaugural ESG report to highlight and better communicate the important work we are doing in these areas. Turning to slide 9, I'll recap the key messages from today's call. In 2020, we continued to build a stronger and more sustainable business in the face of a challenging and dynamic environment. We advanced our positions in strategic markets and executed on our operational roadmap. The outlook for growth in advanced mobility in other markets in our diversified portfolio continues to be extremely strong and we are investing aggressively to capitalize on these tremendous opportunities. Finally, as announced in a press release earlier today Mike Ludwig intends to retire as Rogers CFO in 2021. It has truly been a pleasure to work with Mike and on behalf of our management team I'd like to thank him for his many contributions. He has been a trusted strategic partner helping to drive both growth and profitability improvements across the company. The process to identify our next CFO is underway. Mike has not provided a specific retirement date and will help facilitate a seamless transition to his successor. Now I'll turn it over to Mike to discuss our Q4 results in more detail. Mike?

Thanks Bruce and good afternoon everyone. As Bruce mentioned I intend to retire from Rogers in 2021. It has been a privilege to serve as CFO and work with so many outstanding and dedicated employees. Together we've been able to drive significant operational improvements and investments in growth that have benefited shareholders and position Rogers for a strong future. I would like to thank Bruce and the rest of the board of directors for the opportunity to serve in this capacity. In the slides ahead I'll review our fourth quarter 2020 results followed by our first quarter 2021 guidance. Turning to slide 11 as Bruce mentioned Rogers delivered excellent results in the fourth quarter. Revenues of $210.7 million were 4.3% higher than Q3 as revenues increased sequentially in all business units led by advanced mobility applications. In addition, we are encouraged by small sequential growth in certain of our industrial markets in Q4 which we anticipate extending into the first quarter of 2021. The gross margin improved by 90 basis points over Q3 to 38.3% as we continued our journey of operational excellence and we leveraged the incremental volumes in our factories. In Q4 we delivered GAAP EPS of $0.81 per fully diluted share and an increase of $0.44 per share compared to Q3. The improvement is attributable primarily to an increase in revenues and gross margin a $5.8 million decrease in restructuring and impairment charges recorded in Q4 significantly reduced interest expense and higher income from our copper hedging program. Higher income taxes partially offset these improvements. For the third and fourth quarter combined we recorded $13 million in restructuring and impairment cost mainly for footprint optimization activities involving certain Europe and Asia locations that we discussed in our third quarter call. The footprint optimization activities will provide increased efficiencies accelerating through 2021. Our Q4 adjusted EPS of $1.58 per fully diluted share increased by $0.13 per share sequentially principally due to the reasons just discussed excluding the restructuring and impairment charges which have been excluded from our adjusted results. Turning to slide 12, our Q4 revenues of $210.7 million increased by $8.8 million compared to the third quarter. ACS revenues grew 9 % to $69.5 million. PES revenues improved 5% to $50.1 million and EMS revenues increased slightly to $86.6 million. Currency exchange rates favorably impacted fourth quarter revenues by approximately 1.5% compared to the third quarter. ACS revenues grew sequentially primarily due to a 58% increase in our ADAS business during the quarter partially offset by an 18% decline in the aerospace and defense business. The ADAS business and the aerospace and defense business each comprised approximately 30% of the Q4 segment revenues. Wireless infrastructure revenues which comprised approximately 20% of the segment revenues were up 1% sequentially while declining 42% annually. The wireless infrastructure business remains an important part of the ACS portfolio although we expect the revenues from this application to be flat plus or minus for the foreseeable future. The meaningful sequential increase in the ADAS revenues was a continuation of the momentum we experienced in Q3 as the automotive market continues its recovery. Consistent with past years we expect ADAS demand to remain robust into Q1. As expected the aerospace and defense demand declined sequentially driven by the timing of orders for certain defense programs. This portion of the ACS business increased 22% in 2020 compared to 2019 and we remain bullish on our long-term prospects in this market due to the alignment of the advanced defense system requirements with the technical capabilities of our products. The higher PES revenues compared to Q3 were driven by an 8% increase in EV/HEV application revenues which account for approximately 30% of the segment revenues. The sequential improvement reflects the continued momentum in the market particularly in ceramic substrate applications and we expect this momentum to carry into the first quarter of 2021. Revenues for the EV/HEV applications grew 22% in 2020 compared to 2019. The industrial variable frequency drive business which accounts for close to 25% of the segment revenues declined 3% compared to Q3. For the year this business declined 18% versus 2019. As we enter Q1 we are starting to see signs of recovery in our variable frequency drive business. The sequential increase in Q4 EMS revenues resulted primarily from significantly higher EV/HEV battery pad application revenues which grew 21% sequentially. This application continues to gain momentum as evidenced by the 65% annual increase in revenues. We also experienced nice increases in automotive and consumer revenues in the quarter. Our industrial revenues which accounted for nearly 40% of the segment revenues grew slightly for the first time in several quarters providing a sign that a general recovery might be in the offing. Portable electronic revenues which account for close to 35% of the segment revenues in the quarter while still robust in the quarter were lower than third quarter revenues. 2020 portable electronic revenues were flat compared to 2019 but gained momentum in the second half of 2020 due to the introduction of 5G handsets with advanced features. Turning to slide 13, our gross margin for the fourth quarter was $80.7 million or 38.3% of revenues. The increase in gross margin percentage was primarily due to higher volume and improved manufacturing execution more than offsetting an unfavorable product mix and increased freight and commodity costs. ACS gross margin increased significantly in the quarter due primarily to higher volumes and increased yields which more than offset increased rate and commodity costs. EMS gross margin increased in the quarter due to greater manufacturing efficiencies and improved yields offsetting a less favorable product mix and higher freight costs. PES gross margin declined in the quarter primarily due to an unfavorable product mix and higher commodity cost, although these were partially offset by the increased volume and the continued improvement in manufacturing yield performance. We continue to be encouraged by the sustainable improvements in our manufacturing performance which has resulted in an improvement in our gross margin for three consecutive quarters and an annual improvement of 140 basis points over 2019. Also on slide 13, we detail the changes to adjusted net income for Q4 of $29.7 million compared to adjusted net income for Q3 of $27.1 million. The adjusted operating income for Q4 of $38.8 million and 18.4% of revenues was 110 basis points higher than Q3. Adjusted operating expenses for Q4 of $42 million or 19.9% of revenues were 20 basis points lower than Q3 expenses. Other income and expense was $4.5 million favorable in Q4 compared to Q3 due to lower interest expenses and higher income from our copper hedging program mitigating higher copper costs included in gross margin. Rogers's effective tax rate for the fourth quarter increased significantly compared to the prior quarter due to the decrease in foreign tax credits available to offset foreign source income. For 2020 the effective tax rate was 27.1% a significant increase over the 2019 effective rate. The increase in the effective rate was due to less positive discrete tax items in 2020, increased tax expense from routine audits and foreign tax jurisdictions and the decrease in foreign tax credits mentioned above. We expect our effective tax rate for 2021 will be approximately 22% to 23% Turning to slide 14, in the fourth quarter the company once again generated strong free cash flow of $40 million and ended the quarter with a cash position of $191.8 million. In the quarter we generated $51.4 million from operating activities including a $15.4 million reduction in working capital and repaid $35 million on our credit facility. We ended the fourth quarter with an outstanding balance on our credit facility of $25 million and a net cash position defined as cash and equivalents in excess of the amount owed under our credit facility of $166.8 million. 2020 was another year of strong free cash flow as we generated $125 million of free cash flow, $15 million higher than 2019. In Q4 the company spent $11.4 million on capital expenditures. We spent $40.4 million in 2020 at the low end of our communicated $40 million to $45 million range. As Bruce mentioned we expect to spend $70 million to $80 million on capital expenditures in 2021. This range does not include the capital expenditures necessary to restore the UTIS operations which may be reimbursed through insurance proceeds, although the timing of any insurance proceeds may trail the expenditures. Turning to our guidance on slide 15. We expect to see continued strength in many of our markets in the first quarter particularly EV/HEV driven by the continued marketplace momentum for both ceramic substrates and battery pad applications. We anticipate continued strength in traditional automotive markets with higher demand for our ADAS products. We have seen the beginning of a recovery in our general industrial markets which will benefit Q1 and we expect a pickup in the wireless infrastructure revenues towards the back end of the quarter consistent with past timing of ordering for 5G installations. We expect to see weaker portable electronic revenues in Q1 consistent with past seasonality. In addition, the fire at UTIS will negatively impact our revenues in Q1 by less than 2% with a similar impact on our EPS ranges. As a result Q1 revenues are estimated to be in the range of $215 million to $225 million. We expect the Q1 revenue mix to approximate our Q4 mix profile and we should benefit from increased volumes. Therefore, we guide gross margin in the range of 38.5% to 39.5%. We guide GAAP Q1 earnings in the range of $1.48 to $1.63 per fully diluted share and we guide fully diluted adjusted earnings in the range of $1.72 to $1.87 per share for the first quarter. I will now turn the call back over to the operator for questions.

[Operator Instructions] And your first question is from Daniel Moore with CJS Securities.

Good afternoon gentlemen. Thanks for taking questions.

Hi Dan.

Hi Dan.

Mike, so looks like you push gross margins up to the 40% range and dropped [the mic and walk by] [ph]. Congratulations by the way.

Well. Thank you.

Thank you. Thanks for your help.

Yes. We are obviously very excited about what we've been able to do on gross margins but it's been a great team effort honestly. It's been a lot a lot of people involved. So I haven't quite dropped the mic but it's loose in my hand.

Good to know. Good to know. So that is my first question guidance obviously continued strength at 39% gross margin at the midpoint. Is that a level that see is sustainable as we look out for the remainder of the year inclusive of any impact that UTIS might have?

Yes. I think Dan again one of the things that Bruce highlighted and I highlighted is the sustainability of the improvement that we've made on gross margin and I think you'll see that going forward and I think again I think the 39% certainly depending on mix and whatnot and if we see the continued recovery with increased volumes there is no reason why we shouldn't be able to maintain the 39% and continue to improve gross margin both from the position of continued focus on operational execution as well as the footprint optimization that we have and again I think that can add another 100 to 200 basis points even without the additional volume and then as we've talked about in the past additional volume can certainly add another we'll call it 100, close to 100 basis points for each incremental $10 million to $11 million assuming the same product mix. So we're excited about what we've been able to do but we're also excited about how we can continue to expand gross margin going forward.

Very helpful and Bruce you alluded to this one of the questions I had was on we heard a lot about semiconductor chip shortages. It sounds like we're good for Q1. What are you hearing and what are your expectations of any challenges as we look at Q2 and beyond?

Yes. Well, certainly it will be a challenge for the industry overall particularly what we're seeing and hearing is in the automotive side of things. Now one of the interesting observations that we have is that OEMs are focusing where they have materials on the higher priced and EV/HEV models which plays to our strengths and whether it's in ADAS or over in the EV/HEV side of the house with our substrates and our battery pad. So we're cautious and keeping track of what's going on. It will most likely overall have an effect on the total number of automobiles made. The question is which models and more of the premium models would be the ones that we'd like to see made.

Very helpful and any update on share and business wins across both battery pads and substrates in EV/HEV as we kind of get into to the first part of 2021 would be helpful if Bob has any sort of color or update on share and do business wins there?

I'll take that. This is Bruce, we continue to see strength in our design wins. Customers are impressed with the performance of our products, our engineering support and as we had talked about over the course of last year we've been very encouraged by the feedback and by the win. So that continues. No change in that and we're anticipating a another strong year in that front.

Okay and all the color on UTIS lastly was really helpful. Is it fair to say likely a slightly bigger impact in terms of percentage of revenue as we get out to Q2 based on your commentary that will likely be down and or down until closer to Q4 or is there is inventory in the supply chain that you've got that might offset some of that?

No, Well Dan as you know the timing of that was early mid February. So certainly we'll get a month and a half in the first quarter that we're not going to get in certainly the second and probably the third quarter as well and we had some inventory that was not destroyed in the fire. Therefore that will contribute to first quarter but I think Bruce's comments about the less than 4% would indicate that it's probably going to have a little bigger impact in Q2 and probably Q3 as well until we get up and running and it's hard to say what Q4 because again we're urgently and looking at how to get that business recovered.

All right. Well congrats on the momentum and execution and I will jump back with any follow-ups. Thank you.

Thanks Dan.

Your next question is from Craig Ellis with B. Riley Securities.

Yes. Thanks for taking the question and Bruce congratulations on the growth in the business and Mike to you on the great gross margin performance and thanks for your help and that which will continue until your riding off into the sunset. I'll just start with a follow-up to that last question from Dan. So with South Korea can you just help us understand the options that the company has to restore its output capability? Do you perceive that you would only produce the product that you had been producing in that facility in South Korea or is there potential to produce it in another Rogers facility that's doing elastomeric product and potentially bridge to an operational ramp back up in South Korea?

So that facility is the only one that produces the eSorba material, the polyurethane foam material. So what we're doing is looking at multiple approaches, looking at equipment that's available, looking at working on maybe some other lines that we have in other places to see if we can convert them quickly, and so I would say again it's still early days and we're working closely with customers as well to see if there is any alternatives that we can help them with but overall our assessment is probably a six-month recovery here so into the late Q3, Q4 time frame. But that's –

Again we are still we're very committed to again our business in South Korea.

Yes. Makes sense given some of the big customers there. So it sounds like you may miss the early part of what would be the golden week build season but you might be able to catch a decent chunk of what would be the tier 1 holiday build season if you can get things back in late 3Q. I'll move on to a comment you made Bruce on 5G content. It sounds like you may be seeing more substantial content gain than what I think I heard three months ago. I think I was hearing 10% to 15% or maybe mid-teens but you talked about 30% content gain and high-end systems. Can you talk a little bit more about 5G content and what's possible for Rogers this year?

Sure. I'm going to ask Bob to come in a little bit more detail on that.

Yes. Correct. In the more advanced phones yes, there is a lot of, there are some very sensitive components that really require some higher value impact protection. So the opportunity for high end phones is more like 30% higher in these full-featured phones. So I think it's as 5G continues to gain momentum for the handsets we're expecting very nice opportunity in that space even given the [indiscernible].

Yes. Got it. And then moving on to the general industrial business which we see in a couple of segments, Mike or Bruce can you just help put a finer point on the extent to which you're seeing demand come back depending on the companies that we speak to some of them have six sub-segments in their “industrial business” some as many as 20. What would be helpful would be to have some deeper understanding of the extent to which that business had started to turn up for the company here in the first quarter and then what's possible as we go beyond the first quarter through the year given that we still haven't hit that period where we've got synchronized global growth albeit with global ISM suggesting that's increasingly possible by mid-year?

So the way that we're seeing this we saw the positive indications particularly in the EMS side, the elastomeric side of the house which is an agglomeration of many different sub-segments but mostly focused on capital investment as the main driver and so we see strong order in Q1 for these areas and so we will continue to see we think as long as the economies begin that recovery on that side of the house we'll see that continue we believe. On the power industrial side of the house we saw a slight decline in Q4 on that front and we're not really yet seeing that heavy equipment recovery that would be equipment with horsepower more than 50 horse and so forth. So the heavy ordering for that CapEx hasn't quite materialized yet.

Got it. That makes sense Bruce. Thank you and then Mike a follow-up point on gross margin before I go back in the queue. So here we are with guidance at 39% at great level and the color you provided suggested another 100 to 200 basis points volume agnostic. A 100 basis points with every 10 million in revenue so it seems like we've got visibility into that 41% to 42% if we can see continued good and demand. I guess the question is there have been inbound client concerns about input costs. Does the business have the ability to continue to offset those in whatever way that you were able to do so in the fourth quarter with either hedging or other mechanisms? What are some of the risks we need to keep our eye on as we think about a business that can move up into the low 40s on gross margins?

Yes. I think your point on input cost is a good one it's one that we're concerned about and as we talked about we saw it in the fourth quarter but we're still with the efficiencies that we have from increased yields and just increased manufacturing efficiencies we're able to overcome that. In some of our business, we're able to pass those input costs along to customers but maybe not in all the businesses but again I think that with the continued focus on increased yields, increased efficiencies we may not be able to see the rise in gross margin as quickly as we would like but I think we're still pretty comfortable with the sustainability of the improvements we've made as well as committed to the future improvements which we think will more than offset the increased input costs.

Lastly, if I could sneak into housekeeping with the move to an advanced electronic solutions focus combining ACS and PES should we expect then when we get the calendar first quarter results that instead of three segments the company will be reporting on two segments. Is that how you'll treat things from a financial reporting standpoint?

Well, that that would be our intention to combine those into reporting but we are in the process of changing our internal reporting to support that position and so that's what our intent is. Certainly we have to review that but that's the thought process but even if we do that Craig we'll continue to provide commentary on the elements of the ceramic business and the profitability and gross margin of that business. So well that's the intent again we still have some internal housekeeping that we need to do to make that happen but that being said we are committed to providing continued visibility and transparency on what's happening in our ceramic business particularly around the EV/HEV portion of that business.

Great. Thank you Mike. Thank you Bruce.

Sure. Thanks Craig.

Your next question is from Patrick Ho with Stifel.

Thank you very much and first off I want to wish Mike well. We've gone through a few rides together and it's great to see the contribution that you've provided to Rogers. So I hope again best of luck to you and I'm sure we'll continue to talk. My first question given the building momentum you're starting to see in the automotive market both on EV/HEV and ADAS given that autonomous vehicles are also starting to re-emerge in the news once again and I know a lot of it is related to ADAS but from just the autonomous vehicle perspective what are some of the potential opportunities you see there with potential materials content for a lot of features that would go into those type of cars?

I'm going to ask Bob to comment on that.

Yes. So Patrick and I think we've talked about this in the past and basically what we're producing our materials for the radar sensors, it's pretty scalable. So as you go to higher levels of economy you typically will have more radar sensors on a vehicle from let's say 2.5 today to some of the vehicles that have been developed that are full autonomous that have had 9, 10, 11 radar sensors on board. So I think what we're expectation is you go to higher degrees of autonomy from level one, level two today to level four, level five and our content opportunities will scale pretty proportionally as because the number of radar sensors will continue to rise and we could see some of the test vehicles out there like I said could be three to three plus times the number of sensors that were custom today. So it's a very positive trend and I think as the average [indiscernible] autonomous that's going to be a very nice still win for us ADAS.

Great. That's helpful Bob and maybe as my follow-up question for Mike and I apologize because I missed the beginning of the call with the recent fire in South Korea and I guess some of the shifts in capacity and getting products out, are there any kind of near-term OpEx changes that we should expect in reaction to that situation? I'm assuming it's been factored into Q1 but is this something that we should, I guess measure into our OpEx as things move around?

We didn't have that. We didn't have very high OpEx expenses in that business. The answer to that is probably is no but again I think what we've talked about is less than 4% of the revenues for that business and we'll probably have, I would say a similar impact on EPS but again from an operating from a modeling perspective operating costs aren't really going to be impacted materially.

Great. Thank you very much.

And there are no further questions in the queue at this time. I'll turn the call back over to you for closing remark.

I'd first of all like to thank everyone for joining us today on the call and I also like to again acknowledge Mike's great contributions to the success of Rogers and we look forward to working with him until he walks out of the door and drops the mic whichever order that is. Again everyone have a good safe evening.

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.