Good afternoon. My name is Alicia, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Rogers Corporation’s Second Quarter 2024 Earnings Conference Call. I will now like to turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Mr. Haymore, you may begin.

Good afternoon, everyone. And welcome to the Rogers Corporation second quarter 2024 earnings conference call. The slides for today’s call can be found on the Investor section of our website, along with the press release that was issued earlier today. Please turn to Slide 2. Before we begin, I’d like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, and should be considered as subject to the many uncertainties that exist in Rogers operations and environment. These uncertainties include economic conditions, market demands and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement made today. Please turn to Slide 3. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. Generally Accepted Accounting Principles. Reconciliations of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today’s call, which are available on our Investor Relations website. Turning to Slide 4, with me today is Colin Gouveia, President and CEO; and Ram Mayampurath, Senior Vice President and CFO. I will now turn the call over to Colin.

Thanks, Steve. Good afternoon to everyone, and thank you for joining us today. I will start by highlighting the key messages for the quarter on Slide 5. Our execution was solid in the second quarter and results were in line with our expectations. Sales were near the midpoint and gross margin performance exceeded the high end of our outlook. The strong improvement in gross margin drove adjusted earnings near the top end of our guidance range. Sales were stronger in some areas, such as Portable Electronics and Wireless Infrastructure. Tempering this growth was elevated customer inventory levels of our ceramic products, which impacted the EV/HEV, Industrial and Renewable Energy markets. As we manage through the current customer inventory challenges and the uneven demand environment, we continue to drive improved performance in the areas we can control. For example, in late Q1, as it became apparent, our ceramic power substrate customers were reducing orders due to high inventory levels and slowing end consumer demand, we moved swiftly to reduce manufacturing costs. This action significantly boosted our Q2 gross margins, while still retaining flexibility to increase output should demand return more quickly than anticipated. In addition, as we announced in June, we are consolidating our high-frequency circuit material manufacturing operations. Upon completion of this effort in mid-2025, we anticipate improved factory utilization rates, lower expenses and increased operating margins in the $7 million to $9 million range. The decision to consolidate was made in response to decreased customer demand for RFS products in Europe. In the coming quarters, we will transition customers to our existing RFS manufacturing facility in China, enabling us to provide even higher levels of support. We also remain focused on driving innovation to support the future growth of the company. As our CTO, Griffin Gappert, discussed last quarter,…

Thanks, Colin. I’ll begin on Slide 8 with the highlights of our results for Q2. Overall, we had good execution in Q2 and achieved the results consistent with the guidance we provided in our prior earnings call. Sales were near the midpoint of our guidance range, and as mentioned, were somewhat tempered by higher customer inventories in some markets. Even with these challenges, we achieved adjusted EPS results near the high end of our range because of the improvement in gross margin. On Slide 9, I’ll discuss Q2 sales results in more detail. Net sales of $214 million were nearly flat versus the prior quarter as slightly higher volume was mostly offset by unfavorable foreign currency fluctuations of approximately $700,000. On a reportable segment basis, AES revenue decreased from the prior quarter by 5.4% to $116 million. Higher sales in the Wireless Infrastructure market were more than offset by lower EV/HEV, Industrial, and Aerospace and Defense markets. The decline in our ceramic power substrate business has been substantial this year due to elevated customer inventory levels and softer end customer demand in the EV/HEV, Renewable Energy and Industrial Markets. Total ceramic sales were down by more than 30% compared to the first half of 2023 and we don’t expect to see a meaningful recovery this year. However, we are well positioned to navigate through these near-term challenges. We see great opportunity with our differentiated ceramic product technology and the broad commercial relationships we have with leading power module customers. We are also encouraged by the support we have received from our customers on our expansion plans in China. EMS revenue increased by 10.5% to $95 million. The increase resulted from higher EV/HEV, and Portable Electronic sales and was slightly offset by lower A&D demand. We are encouraged by the strong…

Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Thank you. Good afternoon, Collin. Good afternoon, Ram. Can we start with the ceramic? You mentioned down 30% year-to-date. And you -- do you expect H2 to look similar to H1 or do you see kind of even more aggressive inventory destock in the near-term? That’s one. And as a B part to that question, just in terms of market share and longer-term margin potential, anything changed at all or is it simply temporary market softness and missing inventory management with that key customer and in those end markets? Thanks.

Hi, Dan. Collin here. Thanks for the question. I’ll start by talking about, ceramic still remains one of our most important BUs and for the past several years it’s been our fastest growing organic growth business. And we’re fully committed to that product line and continuing to invest in our new facility in China. And then in terms of how we’re out there competing versus the market, we don’t see any major share loss to competition. In fact, our differentiated technology is still winning. Design-in wins with Western OEMs and Chinese OEMs. So we feel very good about the position we’re in in regards to our differentiated products and the future of the business. What we talked about at the last conference call is we had visibility in line of sight and the thinking was that the ceramic inventory issue and demand would recover the second half of the year. But over the past three months in paying close attention to the market and talking a lot to customers and also further down the value chain, the issues around inventory and demand will last throughout 2024. So it’s unclear when things will turn around. It’s a question we want to answer as soon as possible, and we’re closely monitoring the situation. We do have the ability to ramp up capacity very quickly when the market does turn around. But the change from our last conference call is that the ceramic business will continue to be down significantly year-over-year.

Understood and certainly consistent with what we’re seeing in the marketplace. Just in terms of Industrial, and Ram, you described this well, but last quarter you saw maybe some green shoots. Are there areas where you’re still seeing positive momentum and are there other areas that maybe have stalled or are a little bit weaker, given the outlook that’s maybe flattish for Q3? What’s changed in the last 60 days, 90 days, if you will?

Sure. Well, one thing that’s remained very consistent from the first quarter to the second quarter is the performance of our EMS business in the electric vehicle -- hybrid electric vehicle space. So we had a record first quarter and that continued in the second quarter with another record in terms of our technology going into pressure management, sealing and vibration dampening, and environmental seals for battery packs, and a few other places that can be found on EVs or hybrids. In terms of General Industrial, we need to break it probably into two different segments. So for power industrial and these would be industrial applications where ceramic would participate, such as large motors and factories, robotics, also in some cases appliances. We see that market down significantly year-over-year. We did at our last call as well and no change. And again, just repeating what I said earlier, that will continue, that slowness for the rest of the year. Ram will also comment on your margin question as soon as I finish the general market commentary. In terms of non-power industrial, these are the 15 or so end markets that are primarily served by our EMS business and they represent no more than 2% of total sales into an end segment, such as oil and gas or semiconductor. We did see a little bit of growth in Q1, those green shoots, and we anticipated more in Q2, but it seems there’s been a bit of a downturn in terms of the PMI manufacturing indices. Europe really hasn’t come back as it had started to and the U.S. also remains a bit flat in terms of demand. We believe in the non-power industrial segment that the inventory issues are behind us and that inventory has normalized, but now it’s just a really not recovering as we had anticipated. It hasn’t gone downwards, but it still hasn’t increased as much as we thought. And let me just turn it over to Ram to just briefly talk about gross margin percentage to make sure we answer your earlier question.

Yeah. Dan, I think, your question was the impact of margins and long-term impact of margins to ceramic. I think, Colin covered the slowdown. It’s clearly near-term. We have full confidence in the product line and that we are continuing with the expansion plans we have in China. One of the main reasons for the improvement in gross margin, about 100 basis points of improvement from Q1 to Q2 is because of the cost corrections we have made to match cost with demand. So we have taken down the number of shifts. We have cut back on our temporary labor, all in Germany planned and also made some deeper cuts where possible to correct our cost structure. So that give -- that improved our margins from Q1 to Q2 by about 100 basis points. As we said, we are still carrying some cost. It’s probably a little less than 100 basis points, probably 70 basis points to 100 basis points of cost we are carrying. Just for some critical work force talent skills that will be hard to replace in anticipation of a quick recovery, faster than expected recovery in the market, which could come up. So that’s the margin impact. Does that answer your question?

It does. I’ll sneak a last one in and jump back in queue. But very helpful and clearly you were very, let’s say, aggressive on the cost reduction front to be able to hold -- put the margin that you -- post the margins that you did in the quarter and still very solid guidance from a margin perspective for Q3 despite softer revenue. Previously, you mentioned 35% at $230 million. If and when we get back to that level, do you see a little bit of upside for that target? Not putting a time frame on it, but just given the cost reduction actions that you have taken? Thanks again for all the color.

Yes. We do. We are very confident with our operational excellence activities that are in progress and we’ll see a lot more drop to the bottomline when the topline comes back.

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

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

Hi, Craig. Colin here. Thanks for the question. And I’ll start because we actually spend a lot of time discussing that. The key reason I would say has a lot to do with customer mix. So when you think about ceramic, that technology goes to a small concentration of power module producers. And probably six or seven of those power module companies produce about 80% of the world’s power modules and then they go out to all the different end market segments for power modules, primarily Industrial, Renewable Energy and EV/HEV. And that’s led to ceramic growing so rapidly for such a long period of time. And really, that business hit a slowdown at the end of Q1, when pretty much the entire power module value chain came out and said, our inventory is too high and we’re seeing a slowdown. And when you look at the overall EV/HEV growth, last year, it was quite strong globally. Across all regions, it was just north of 30% CAGR. This year, when we look at some of the third-party market research, they’re projecting the market growth to be a bit less than that, maybe 14% to 17% for the entire year and so that’s kind of led to the ceramic and power module slowdown. With EMS, what we’ve been able to do is really win some major programs with some key customers that have really just begun to ramp, and these were programs that we had anticipated to ramp middle of last year, but they got pushed out for about six months because some of these key OEMs that we were specced [ph] into were changing at the last minute specifications, or in some cases, could not get raw materials to produce their battery pack. It wasn’t an issue from our perspective, but from some other suppliers. All that has come together now and these are major programs with large global OEMs that are just hitting at the right time for EMS with a customer mix, with the customer mix -- with customer mix being the issue that’s driving that growth. Does that answer your question?

Yeah. That’s really helpful, Colin. Thanks for going into that level of detail. The second clarification I had was on personal electronics. Three months ago, I think we were really excited because the company had won a couple new personal electronic programs with China OEMs. And so the question is this, is some of the upside that we saw in 2Q related to those new programs and is it timing related relative to what might have been expected previously in the second half or were other factors at play with the strength that we saw in calendar 2Q?

I would say that the Q2, the increase in Portable Electronics from Q1 to Q2 was impactful in driving our Q2 revenues higher. Of course, there was then the headwinds with ceramic and that’s what has brought us back to just a very slight increase Q1 over Q2. And then powering the growth that we’re going to have into Q3, the Portable Electronics end market segment is the biggest driver for that. Globally, I think the forecast from some independent third-party research organizations show that market growing about 4%. But we are excited because we do have significant program wins with OEMs in higher performing mobile phones and so we see that as a potential upside. I think what it will come down to in terms of further growth in those high end phones, I think what the market is waiting for, and this is what we’ve heard from our customers and also read from various publications is that, I think the consumers are still waiting to see if the AI phone leaders and there are several OEMs coming out with a performing AI phone, can they make a story around their AI strategy that’s clear and understandable, and then can these phone companies also demonstrate clearer use cases for AI in a mobile phone, and if that happens, that could really accelerate the growth rate of the premium phone segment. So we’re waiting to see how that develops. It all depends on consumer demand, but we’re designed in on these prints and we have the capacity that we’ve installed, so we can supply if there’s upside.

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

That’s right.

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

Sure, Craig. So the structural cost improvement was about 100 basis points, the cost reduction, if you may, mostly related to the ceramic plant in Germany. The operational excellence activities continue, so there’s not a big change between Q1 and Q2. We are seeing the same level of improvements. So about half of the 200 basis points improvement came from cost reductions and the other half came from mix, which is driven mostly by to your previous question, the European product line, both in Portable Electronics and Electric Vehicles, and also our RF Solutions, the Wireless wins we are getting. So those are the two that -- those are the three product mix impact that we got another 100 basis points from.

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

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

Okay. And that would be stronger just given new model launches and that kind of thing, Colin?

That’s right. The ADAS growth across -- all the light vehicle production is much higher than the 1% or 2% light vehicles grow, so it’s -- that’s what’s driving it.

Got it. Thanks, guys. I’ll hop back in the queue.

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

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

Yeah. That’s a good question, Dan. I think what we know about Q4 now is that the strength in EMS business that we saw and we are seeing now will continue. We expect, like I said, the second half of EMS to be stronger than first half, mostly driven by continued Portable Electronics that will spill into Q4 and Electric Vehicle battery pad order that we are seeing now that Colin said was delayed about six months. We continue to see that. So EMS, from an EMS point of view, we expect to have a strong Q4, but what we are watching is the AES product line closely or the business unit closely, particularly the ceramic recovery. From what we know today, we don’t expect a big bounce back in this year. We expect some of these trends to continue. The inventory build in the chain will take a little time to burn through. So that’s the product line that will hold us back, if you may, in Q4. So without giving specific numbers, I think that the EMS growth will, to a great extent, be offset by some of the challenges we are continuing to see in the ceramic market, which we expect will recover quickly, but may not be this year.

Understood. Completely understood, Ram. And lastly, obviously, making great strides in EV/HEV, winning new business across multiple platforms and products. Just maybe talk about the opportunity funnel a little bit thus far in 2024, any other emerging technologies or products that we could really move the needle looking beyond the next one years or two years? Thanks again.

Sure. I would say we’re very happy with our opportunity funnel, Dan, and there’s a lot of new technologies that are moving through the pipeline. I would say one thing that we are very excited about is our next generation radar technology. So currently, we participate quite strongly in ADAS, as you know, but some of the changes in technology around moving towards different type of radar technology, some people call it waveguide, will be the next gen. It’s not going to be something that happens overnight. It’ll be many years as this technology grows, but we’ve got what we feel is a very differentiated technology. We’ve got prototypes out to customers already, and they’re in, I would say, iterative testing with us and we feel like that will be something that really is exciting in terms of growth in the future. There’s also other examples in other businesses, but the general comment would be we really do feel good about our innovation portfolio and feel like it will be quite robust in the coming years.

All right. Again, thanks again. I appreciate it.

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

Yeah. Thanks for taking the follow-up. I just wanted to go back to the announcement that was made in 2Q about consolidating manufacturing for ceramic into the U.S. and China, and what I wanted to make sure I understood is just the timing of the economic benefit as you make that move. One, is it fair to say that the timing of that benefit financially is all still in front of us or are you actually realizing some of that with some tactical moves presently? And when you do start to realize the benefit of it, should we expect that all the benefit falls to the bottomline or does some of that reinvest in R&D and other things? I think the benefit was pegged at $7 million to $9 million a year, so if you can just clarify some of those things, it would be appreciated?

Sure, Craig. First, I’ll just say you had said ceramic, but I think it was the RFS piece you’re talking about in terms of us winding down our production in Belgium and then shifting.

Yeah.

Okay. Yeah. So just to recap a little bit and then Ram can talk about the financial benefits. Really, we’re just trying to stay ahead of what we see as the customer demand, and so while we would prefer to keep as many locations open as possible, you have to make the choices to support the customers where they’re migrating to and we’d seen significant migration of our RFS customers in Europe for a certain particular product line migrate to China. And so ultimately, because we see this as a long-going situation and not reversing itself, we made the difficult decision to wind down manufacturing in Belgium. That’ll help service our customers in the long-term by adding more capacity to our China facility, making it more efficient. It also shortens quite significantly logistics and supply chain. And overall, it’s a good decision for the company and our customers. And the benefit will be significant. It was $7 million to $9 million, that’s what we’re anticipating, and Ram will talk to you a little bit more about timing on when we can expect the full benefit.

Yeah. So, Craig, $7 million to $9 million, to your question, is net of any other cost that we need to make -- any investments we need to make in China or elsewhere to absorb this production, so that is net benefit and we expect it in the second half of next year, 2025, full benefit.

Got it. And so maybe we get half of that in 3Q and the other half in 4Q Ram, so that as we exit next year, we’ve got it all in the model?

That’s correct. Exactly right.

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

Got it. Thank you.

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

Thank you. I’d just like to say thanks everyone for joining and look forward to speaking with everyone next quarter. Thanks again.

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