Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Rogers Corp (ROG, Financial) exceeded earnings expectations with a gross margin of 35.2%, surpassing the high end of their forecast.
- The company generated $25 million in free cash flow during the quarter, highlighting strong cash management.
- Rogers Corp (ROG) is making strategic investments in new manufacturing facilities in China to support future growth, particularly in the EV/HEV market.
- The company secured significant design wins in the EV/HEV sector, including a new AMB power substrate technology for a leading Asian OEM.
- Rogers Corp (ROG) is focused on long-term growth opportunities in emerging markets such as AI data centers, battery energy storage systems, and medical devices.
Negative Points
- Revenues for Q3 were below expectations, primarily due to softer order patterns in the EV/HEV segment and a lower seasonal peak in portable electronics.
- The company is facing ongoing contraction in global manufacturing activity, impacting its industrial and automotive markets.
- Rogers Corp (ROG) anticipates a sequential decline in Q4 revenues due to lower wireless infrastructure demand and typical seasonal declines in portable electronics.
- The company is experiencing competitive pressures in the ADAS market, leading to a decline in sales.
- Operating expenses are expected to increase in Q4 due to higher start-up costs associated with new manufacturing facilities.
Q & A Highlights
Q: Can you explain the primary reasons for the sequential decline in revenue implied in the Q4 guidance?
A: The decline is mainly due to the conclusion of a wireless program in Q3 and the typical seasonal decline in portable electronics. Additionally, there is no expected recovery in the curamik power module space, and customers are likely to destock inventory by year-end to meet cash targets. - R. Colin Gouveia, President, CEO
Q: Are there still areas where inventory management might remain a headwind into the first half of next year?
A: While not providing specific guidance for next year, we anticipate potential improvement based on assumptions such as the return of growth in the curamik substrate market and continued ramping of EMS with EV battery producers. Industrial demand could also return post-election uncertainty. - R. Colin Gouveia, President, CEO
Q: What factors have contributed to the drop in EMS operating margins from last year?
A: The decline is due to a combination of factors, including allocation strategy and lower utilization levels. We are managing these through operational excellence and procurement savings, but improved utilization from top-line recovery will be key to margin improvement. - Laura Russell, Interim CFO
Q: How should we think about the revenue impact of the power substrate ramp in China through 2025?
A: The new facility in China is expected to reach full production by mid-2025. While we haven't disclosed specific revenue figures, the facility will enhance our ability to capture growth by reducing supply chain timing and improving response times for local production. - R. Colin Gouveia, President, CEO
Q: How are you approaching M&A given the current financial flexibility and market conditions?
A: M&A remains a key strategic pillar, and we are prepared to move quickly when the right target emerges. However, the deal space has been slow, with sponsors holding properties longer due to unmet expectations. We have several targets in mind and will act when the timing is right. - R. Colin Gouveia, President, CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
