Rogers Corporation 2026 Q3 Earnings Call

Good afternoon, and welcome to the Rogers Corporation third quarter 2026 earnings conference call. The slides for today's call can be found in the Investors section of our website, along with the news release that was issued earlier 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 subject to the many uncertainties that exist 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 any forward-looking statement made today. Please turn to Slide 3. The discussion during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles.

A reconciliation of those non-GAAP measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call. With me today are Ali El-Haj, President and CEO, and Laura Russell, Senior Vice President and CFO. I will now turn the call over to Ali.

Thanks, Steve, and thank you everyone for joining us today. I will begin on Slide 4. We delivered another quarter of meaningful year-over-year improvement in our financial performance with higher sales across all end markets and stronger profitability and cash flow generation. Sales were at $236 million, up 9% from the prior year. Adjusted EPS increased 54% to $1.39, the highest quarterly earnings since 2022. Adjusted EBITDA increased by 28% to $48 million, or greater than 20% of sales. This result is the highest EBITDA margin achieved in the last five years. Over the past several quarters, we have intensified our focus on deepening customer relationships, improving the speed of execution, and implementing a more efficient operating structure. These results highlight the progress we are making. We also continue to advance our growth strategy.

In our core markets, we secured new design wins during the quarter and the growth outlook remains positive. Across our high-growth opportunities, we made progress in several key areas. Customer engagement and technical validation activities for our data center solutions continued, while our thermal runaway protection and EMI shielding programs achieved important internal milestones. Looking to the fourth quarter, we expect continued meaningful year-over-year improvement. This includes approximately 9% revenue growth, 12% Adjusted EPS growth, and a 16% increase in Adjusted EBITDA. Turning to Slide 5. At 34% of third quarter sales, industrial is our largest end market. Revenue improved slightly compared to the prior year, with higher sales into renewable energy and other applications. Sales increased modestly in all regions. Automotive represented 24% of Q3 sales and increased at a high single-digit rate year-over-year.

Growth was driven by improved demand for ADAS applications and stronger sales into both ICE and electric vehicle platforms. Electronics and communications accounted for 20% of sales in the quarter and continued to deliver strong growth. Performance was driven by higher sales of laminate circuit materials for wireless infrastructure, which offset lower smartphone sales. Aerospace and defense represented 15% of the Q3 sales and grew at mid-single digit rate. The increase reflected higher sales into both defense and commercial aerospace applications. Overall, the breadth of the quarter's performance is encouraging. Sales increased across all end markets, reflecting a combination of improved demand, new program activities, and continued execution against our commercial priorities. Turning to Slide 6. We remain focused on accelerating growth by strengthening our position in core markets and applying our proven capabilities to high-growth adjacent opportunities.

Within our core markets, we secured a number of new design awards in Q3. I will highlight a few. In aerospace and defense, our laminate material was designed into a drone detection system. Rogers' brand, proven reliability, and localized support were deciding factors in the award decision. In automotive, our elastomeric materials were designed into a battery pack application with a leading EV manufacturer. In addition, our ceramic AMB substrates were selected to be used in multiple electric vehicle models with a global auto OEM. The combination of our technology and technical service capabilities were key factors in the award decisions. In data centers, a major end user selected our silicone materials to safeguard sensitive components within the server tray. The materials combined high compressibility with superior noise and vibration isolation to help enable reliable performance.

Also, in both AES and EMS, we secured meaningful design wins for energy storage system applications. These wins reinforce the value of our differentiated solutions and deep customer relationships. They also support our objective of achieving sustainable growth across the core portfolio. This growth will naturally lead to expected improvements in factory utilization levels, including for our ceramic business. In high growth adjacencies, the development and customer testing of our signal integrity and chip cooling solutions for data center application is continuing. We continue to see strong pace and focus from customers sampling our laminate circuit materials for high-speed digital applications. Customer feedback remained positive on the performance of our materials to address rapidly emerging signal integrity challenges. Our micro channel cooler solutions provide an improved cooling technology to address rising AI chip power density.

Working with our lead customers, we have developed and tested multiple generations of prototypes, with the results continuing to validate the differentiated performance of our solutions. These programs leverage capabilities where Rogers has established technical expertise and are designed to address increasingly demand requirements in AI data centers. We completed benchmarking testing for our thermal runaway protection solution and are beginning customer sampling. This milestone moves us closer to commercializing a differentiated battery safety solution that combines our material expertise with deep application knowledge. We are also advancing our EMI shielding technology. We have identified priority customers and applications, and are developing solutions tailored to their requirements with initial customer sampling targeted for early 2027. Across these opportunities, our approach remains disciplined. We are prioritizing applications where our capabilities provide a clear customer benefit, and we are working closely with customers to advance qualification and commercialization.

I will now turn it to Laura to discuss our third quarter's financial performance and current quarter outlook.

Thank you, Ali, and good afternoon, everyone. As Ali mentioned, we delivered strong year-over-year improvement in the third quarter with higher sales across all major end markets and meaningful expansion and profitability. We also generated strong cash flow, further strengthening our balance sheet and increasing our strategic flexibility. Beginning on slide 7, I will review our third quarter financial results. Third quarter sales were $236.1 million, increasing 9% from the prior year period, and including a $2.4 million benefit from foreign currency translation. AES sales increased 13.5% year over year, with improvement across all end markets and particular strength in electronics and communication. EMS sales increased 4.3% versus the prior year, driven by higher sales in the automotive and aerospace and defense end markets. Gross margin was 34.2%, up 70 basis points year over year.

The improvement was the result of higher volume and mix, partially offset by increases in commodity costs. Adjusted EPS was $1.39 and exceeded the high end of our guidance range. The 54% year-over-year increase in Adjusted EPS resulted from strong sales, improved margins, and favorability in the tax rate as we continue to improve business performance across all jurisdictions. Turning to slide 8, third quarter Adjusted EBIT increased by 28% to $47.7 million from $37.2 million in the prior year quarter. Adjusted EBITDA margin of 20.2% of sales expanded 300 basis points to its highest level since 2021. The largest contributor to the increase was higher sales and improved product mix, which added approximately $11 million versus the prior year. Lower adjusted operating expenses also contributed to the improvement. These benefits were partially offset by higher year-over-year costs associated with the new ceramic China facility.

We achieved meaningful operational improvement savings compared to the prior year, although these were offset by higher commodity costs. We continue to evaluate pricing adjustments depending on market conditions. Overall, the significant improvement in the quarter resulted from higher volume and favorable mix, together with continued discipline across our cost structure. Continuing to slide 9, I will discuss cash utilization for the quarter. Cash and short-term investments at September 30 were $236.4 million, increasing $25 million from the end of the second quarter. Cash provided by operating activities was $41.4 million, compared with $24.4 million in the second quarter, and free cash flow was $35.4 million. The increase in cash was driven primarily by Adjusted EBITDA of $47.7 million, partially offset by $6 million in capital expenditures, a $3.6 million increase in working capital, and $4.6 million of cash taxes paid. We repurchased $9.3 million of shares during the quarter.

We will continue to balance returning capital to shareholders with investments in organic growth and other strategic priorities. Our strong cash position and balance sheet provide us with increased strategic flexibility as we evaluate opportunities to support long-term growth and value for shareholders. Next, on slide 10, I will discuss our guidance for the fourth quarter. From a top-line perspective, we continue to see positive momentum, with sales expected to increase 9% year-over-year at the midpoint of our guidance. Consistent with normal seasonality and customers' end-of-year operating patterns, sales are forecasted to decline sequentially. We are guiding Q4 revenues to be between $215 million and $225 million. The guidance includes an expectation for year-over-year growth in aerospace and defense and industrial end markets. We are guiding gross margin in the range of 32.5%-33.5%. The midpoint of the range is 150 basis points higher than the prior year.