Earnings Call Transcript - ROG Q1 2026

Operator, Operator

Good afternoon. My name is Kevin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Rogers Corporation First Quarter 2026 Earnings Conference Call. I will now turn the call over to your host, Mr. Steve Haymore, Senior Director of Investor Relations. Mr. Haymore, you may begin.

Steve Haymore, Senior Director of Investor Relations

Good afternoon, and welcome to the Rogers Corporation First 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 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. A 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. With me today are Ali El-Haj, Interim President and CEO; and Laura Russell, Senior Vice President and CFO. I will now turn the call over to Ali.

Ali El-Haj, Interim President and CEO

Thanks, Steve, and thank you, everyone, for joining us today. I will begin on Slide 4. In the first quarter, we delivered solid results with all financial metrics meeting or exceeding the midpoint of our guidance for the third consecutive quarter. Q1 sales were $201 million, a 5% increase year-over-year from foreign currency benefits and higher industrial demand in the U.S. If not for adverse weather conditions and multiple supplier disruptions, which impacted operations at some of our U.S. plants, Q1 sales would have approached the high end of guidance. We achieved a significant year-over-year improvement in profitability. Adjusted EPS more than doubled to $0.75 per share and adjusted EBITDA margins expanded 580 basis points to 16%. For the second quarter, we are forecasting sales to increase 6% at the midpoint of our guidance. We expect Q2 growth in automotive, industrial and electronics end markets. Adjusted EBITDA margins are projected to increase year-over-year by nearly 600 basis points. The improved Q1 results and stronger Q2 outlook demonstrate the progress we are making on our commercial and profitability initiatives. We are maintaining an intense focus on improving Rogers' multiyear growth outlook. The past quarter, we secured important design wins and continued to gain customer traction through our R&D pipeline. Turning to Slide 5. Beginning this quarter, we streamlined our reporting into four primary end markets. At 37% of sales, the industrial market remains our largest segment and now includes renewable energy and mass transit markets. Q1 industrial sales increased at a double-digit rate compared to the first quarter of 2025. Growth was driven by increased demand aligned with improved manufacturing PMI activity in the U.S. and Europe as well as additional market share wins with Rogers' traditional customers. The automotive market segment, which represented 24% of revenue in Q1, includes EV, HEV, ADAS and all other ICE vehicle applications. Sales declined year-over-year at a high single-digit rate due to lower global light vehicle production and weakness in the U.S. EV market. However, we are seeing positive design win momentum in automotive, which we expect to translate to robust sales growth in the coming quarters. The electronic and communications market segment includes sales in consumer electronics, semiconductors, wired and wireless infrastructure. Accounting for 18% of sales in the first quarter, this segment increased at a double-digit rate, driven by higher smartphone and wireless infrastructure sales. The improved smartphone sales resulted from higher volume, a favorable mix of higher-end devices and an increased share with existing customers. Lastly, aerospace and defense sales comprised 15% of revenues and improved slightly from last year. The growth was led by commercial aerospace sales in our AMS business. We expect aerospace and defense to remain a growth area for Rogers. Next, on Slide 6, I will outline our progress toward 2026 priorities. Our objective to grow the top line in 2026 and in the coming years remains our highest priority. We secured several design wins during Q1 in support of that goal. First, in the AES business, our high-frequency circuit materials were designed into a new automotive radar application with a leading Asian OEM. Sales are planned to begin in the second quarter. In the AMS business, we were awarded several design wins for EV battery applications with leading OEMs in the United States and Asia. These solutions will be used across different platforms. We are further encouraged by the progress we continue to make across products in our R&D pipeline. We continue to test and validate our microchannel cooler technology for data centers with multiple customers. Feedback from our customers has been encouraging, and we believe our technology possesses unique capabilities for cooling high-power chips in data centers and AI applications. Development of high-frequency circuit material for data centers is also ongoing. Recent internal testing showed promising results, and we expect customer sampling and testing to begin within the next two quarters. While these projects move forward, we are also actively advancing other high potential opportunities. We continue to make progress with our 2026 profitability improvement initiatives. Across most of our manufacturing operations, we have seen measurable improvement in cost structure and overall operating performance resulting from the focused efforts of our dedicated team. The restructuring initiatives at our German facility remain underway with $13 million of annualized savings still expected by Q4 of this year. We also continue to efficiently manage operating expenses with strong control measures in place. Our capital allocation priorities support both organic and inorganic growth. Accordingly, we have increased our focus on evaluating potential M&A, and we continue to assess opportunities that align with our strategic and financial objectives. Our organic growth will largely be supported with existing capacity, but we are prepared to allocate capital for CapEx to support opportunities in our R&D pipeline as needed. I will now turn it over to Laura to discuss our Q1 financial performance and Q2 outlook.

Laura Russell, Senior Vice President and CFO

Thank you, Ali. Starting on Slide 7, I'll summarize our first quarter results. Sales, gross margin, adjusted EPS and adjusted EBITDA all met or exceeded the midpoint of our guidance for the first quarter. First quarter sales increased 5% or $10 million, inclusive of foreign currency benefits of $7.9 million. As Ali mentioned, there were weather and supply disruptions specific to several of our U.S. manufacturing locations, which tempered our Q1 sales. AES Q1 revenues increased by 3.4% versus Q1 of 2025. By end market, sales increased in the Electronics and Communications segment and the Industrial segment. EMS sales improved by 7% year-over-year. By end market, sales increased in the Industrial, Electronics and Communications and A&D segments. This was partially offset by lower automotive sales. Adjusted earnings per share were $0.75 in Q1 and increased 178% from the prior year period, resulting from higher gross margin and significant improvements in operating expenses. Foreign currency fluctuations had only a small effect on adjusted EPS as our global operations act as a natural hedge. Turning to Slide 8. Q1 adjusted EBITDA was $32 million and increased 580 basis points year-over-year to 16% of sales. The improvement in adjusted EBITDA was primarily a result of higher sales and improved product mix. Reductions in manufacturing costs, start-up and general and administrative expenses also contributed to the higher adjusted EBITDA. We continue to ramp our new factory capacity, which resulted in a $1.4 million headwind to EBITDA versus the prior year. However, new factory performance costs decreased versus Q4 of 2025. Continuing to Slide 9, I'll discuss cash utilization for the quarter. Cash at the end of Q1 was $196 million and changed only slightly from the end of the fourth quarter. Cash provided by operations was $5.8 million compared to $46.9 million in Q4 of 2025. Inventory reductions were a key driver of the much higher operating cash flow in the prior quarter, and this was not expected to repeat in Q1 of 2026. Consistent with typical patterns, accounts receivable increased in Q1 following a large reduction in Q4 of 2025. Higher accounts payable partially offset the Q1 increase in AR. Capital expenditures in Q1 were $4.7 million. Our expectation for full year 2026 capital expenditures of $30 million to $40 million is unchanged. We did not repurchase shares in the first quarter, and we'll continue to balance returning capital to shareholders with other capital needs. Next, on Slide 10, I'll review our guidance for the second quarter. On a year-over-year basis, we again anticipate improvement in Q2 sales, margin and profitability. We are guiding Q2 revenues to be between $210 million and $220 million. The midpoint of the range is a 6% increase in sales year-over-year. The guidance includes our expectation for higher automotive sales from the start of new program wins and continuation of existing programs. In addition, smartphone sales should increase from normal seasonal factors with some growth in industrial end markets continuing. We're guiding gross margin in the range of 32.5% to 33.5%. The midpoint of the range is 140 basis points higher than the prior year due to higher volumes and cost structure improvements. We expect Q2 adjusted operating expenses to remain approximately flat to the first quarter. Adjusted EPS is forecast to range from $0.90 to $1.10. The $1 midpoint compares to adjusted EPS of $0.34 in Q2 of 2025. Adjusted EBITDA is anticipated to range from $35 million to $41 million. This equates to a 17.7% EBITDA margin at the midpoint of the range, which would be a 590 basis points improvement versus the second quarter of 2025. Excluded from adjusted EPS are restructuring costs related to the Curamik actions in Germany. In Q1, we recognized $4.4 million of associated restructuring charges, bringing total restructuring for this program to date to $9.8 million total. This is relative to our total estimated range of $12 million to $13 million. The remaining restructuring costs associated with this action will largely be incurred from Q2 to Q3 of 2026. The program is still anticipated to deliver $13 million of annual run rate savings. Lastly, we project our non-GAAP full year tax rate to be approximately 30%. I will now turn the call back over to Ali.

Ali El-Haj, Interim President and CEO

Thanks, Laura. In summary, we had another quarter of solid execution and delivered improved Q1 results. Our second quarter outlook also reflects solid year-over-year improvements and highlights the momentum behind our commercial and profitability initiatives. We remain focused on execution and driving greater value creation. That concludes our prepared remarks. I will now turn the call back to the operator for questions.

Operator, Operator

The operator provided instructions. Our first question today is coming from Craig Ellis from B. Riley Securities.

Craig Ellis, Analyst, B. Riley Securities

Congratulations on the real strong execution, team. Ali, I wanted to start just following up by one of the points you made about calendar 2026's focus areas, and you indicated that growth is the highest priority. Can you talk a little bit more about the design wins that were achieved in EV and ADAS and when those wins would convert to revenue? And as the second part of that question, go into a little more detail in terms of what you're seeing with the data center opportunity? How material are the engagements that you have now? And how significant are the things that sound like they're more in the development or pipeline stage?

Ali El-Haj, Interim President and CEO

As mentioned, regarding the design wins, as we've indicated in the prepared remarks, we had several in the AMS side, mostly related to EV batteries and other applications. And on the AES side, we have, as I mentioned, one for radar applications with an Asian OEM. The majority of these wins will be in production between Q2 and Q4 of this year. So we will start seeing revenue out of these wins in Q2, Q3 and Q4 this year. As it relates to the data center, the opportunities are there, as we've been indicating for the past two quarters. For 2026, however, revenue will not be significant. It will be mostly sampling or prototype-type revenue. So it's not as significant as we would like it to be. I have indicated that this is probably a Q3, Q4 of 2027 opportunity depending on how fast our customer accelerates their development, qualification and readiness for the product. But we see opportunities for data centers in all of our product areas, with the highest volume or dollar impact expected from our microchannels with the Curamik activities and the high-speed digital product lines.

Craig Ellis, Analyst, B. Riley Securities

That's really helpful. And then I'll ask the follow-up question to you, Laura. Loved the trajectory of gross margin as we start the year. Can you talk a little bit about what's driving the sequential strength? Is it all really volume? Or are there some things happening on the COGS management side that are coming in a little bit better than we might have expected three months ago?

Laura Russell, Senior Vice President and CFO

Sure. With regards to the margin, it's really a function of all of the above. We've spoken in the past about our initiatives and objectives in managing our operations to minimize yield loss, optimize on input costs and be effective in what we're running through our factories. Those initiatives continue and have a favorable impact, which you see in our EBITDA bridge and some of the transitions we call out on a quarter-over-quarter basis. With that said, there are also structural changes that we've undertaken that are benefiting margins. There are puts and takes related to segment transitions and where we're realizing revenue growth and gains. Overall, we're making the right progress and are keen to continue to make additional inroads and incremental improvements, which are some of the key initiatives that will assist us as we continue to focus on growing the business and the top line.

Operator, Operator

Next question is coming from Daniel Moore from CJS Securities.

Dan Moore, Analyst, CJS Securities

I want to start with industrial. It gets a little less attention, that's still a significant portion of your business. It sounds like gradual improvement. Can you maybe just talk about particular end markets within that bucket where things are improving or becoming — are there any that are becoming more challenging in the current environment?

Ali El-Haj, Interim President and CEO

Overall, the industrial segment is growing. We see impact and stronger trends in semiconductor-related demand, so we realized some increase in revenue in that area. General economic improvement reflected in higher PMI in the United States and Europe is helping as well. In addition, we're recapturing market share with some of our existing customers for both existing and newer applications. So the growth comes from three areas: general economic improvement, semiconductor growth, and recapturing market share with existing customers.

Dan Moore, Analyst, CJS Securities

Helpful. And maybe as a follow-up, just piggybacking on Craig's question on the data center opportunity. You talked in detail on the last call about the specific applications. Maybe just take the opportunity to talk again about whether you would be replacing any existing thermal management technologies or completely complementary? And when might you be in a position to talk a little bit more about TAM and kind of what revenue might look like two, three, five years from now?

Ali El-Haj, Interim President and CEO

With regard to revenue and discussing potential, we will likely provide more detail later this year as we get a better idea of target potential. Some of this is customer-specific, so we need to be cautious about what we communicate. Regarding the opportunity itself, it's a mix. The technology we're providing addresses specific, difficult issues that exist today, so it is complementary in some cases but also takes market share from existing solutions by solving problems current technologies can't handle effectively. We believe our solutions are more specific, more efficient and can be more cost effective to the end user.

Dan Moore, Analyst, CJS Securities

I know I'm out of questions, but last, if I could sneak it in, Laura. Can you quantify the revenue that slipped from Q1 due to weather and supply disruptions? And how much of that is in your guide for Q2?

Laura Russell, Senior Vice President and CFO

We did have some disruptions that we alluded to in our prepared remarks. Had we not encountered those disruptions, we probably would have been trending more towards the high end of the guidance range that we had set for Q1. We did not provide a specific dollar-for-dollar quantification on the call, but the commentary reflects that the impact restrained us from reaching the high end of guidance and that Q2 guidance assumes recovery and improved execution.

Operator, Operator

Next question is coming from David Silver from Freedom Capital Markets.

David Silver, Analyst, Freedom Capital Markets

I did just want to level set one or two things, and then I have a couple of business questions. But I just want to make sure I'm not missing anything regarding your cost saving targets. So as of December 31, I believe you said you had achieved the run rate of $32 million. And in your remarks here, you've discussed the opportunity in Germany to capture an incremental $13 million by year-end. Is that how I should think about the total efforts that you've created? Or might there be another program or two that maybe I'm missing?

Laura Russell, Senior Vice President and CFO

Let me take that for you. You referenced $25 million in 2025; that was the savings we realized in calendar 2025. When you annualize that, there's an additional $7 million still to be realized through the P&L. Then when you add the incremental $13 million on an annualized basis once we're through the restructuring of the Curamik facility in Germany, that brings us to a cumulative savings total of $45 million. That should allow you to fully triangulate the savings and where we are today and fully realizing them through the financials.

David Silver, Analyst, Freedom Capital Markets

That was the issue, the $25 million versus $32 million, and you read my mind very well there. Ali, I would just say the first quarter results reflect terrific work on the controllable factors. Your sales growth, I think, was modest, excluding the currency benefit. You've cited maybe auto as a softer spot right here, but due to improve. I mean, overall, what are you hearing from your major OEM customers? Are they cautious because of the geopolitical environment? Or what might be holding them back from moving more like this is kind of a more meaningful recovery in broad-based demand for your key end markets?

Ali El-Haj, Interim President and CEO

Specifically referring to the automotive industry, it is not just geopolitical issues. Regulatory changes, especially in the U.S., have impacted the EV market in North America and, to a lesser extent, Europe. However, Europe is recovering, and we saw that start toward the fourth quarter of 2025 and continue into 2026. China was very soft in the first quarter as some EV incentives were pulled back, and we think some of those incentives will be reinstated; we expect that market to turn positive within the next one to two quarters. We are not severely impacted by the EV market because we're addressing the whole automotive market—EV, hybrid and ICE applications. We're engaged with many OEMs directly and indirectly and anticipate continued growth. We had several design wins in Q4 and Q1 and expect that to continue through 2026. In electronics and portable electronics, we see growth as well. The mix toward higher-end smartphones in Q1 led to higher content per device, which helped our revenue. We expect that mix advantage to continue. Overall, we see growth across our areas and are targeting every segment of our business for growth for the balance of this year.

David Silver, Analyst, Freedom Capital Markets

Maybe going at it from a slightly different angle: you highlighted the capital expenditure budget, maybe the midpoint at $35 million. I don't think of your company as kind of a capital-intensive one normally. But within that proposed $35 million plus or minus budget, is there growth or targeted growth investments included in there? And maybe if you wouldn't mind just what areas of your company are you directing some discretionary or growth-oriented CapEx towards?

Laura Russell, Senior Vice President and CFO

At the midpoint of $35 million, capital intensity has declined versus prior years. In 2025, we were around 4% and in 2024 around 7%. That reflects that we are largely through investments in facilities to expand capacity made over the last three to five years. Current investments are focused on maintaining those facilities and automating as appropriate to improve operational effectiveness. We're also investing in auxiliary systems and processes to make them more effective and efficient. We continue to evaluate opportunities and will make decisions month-to-month or quarter-to-quarter based on potential return on any investments. If attractive growth opportunities arise, we will allocate capital appropriately.

Operator, Operator

Next question is a follow-up from Daniel Moore from CJS Securities.

Dan Moore, Analyst, CJS Securities

I apologize. I missed a minute or two of the call. But on the defense side of aerospace and defense, has your outlook or growth expectations changed at all since the start of the war in Iran, maybe not necessarily for this year, but looking out further just in terms of maybe a restock, et cetera?

Ali El-Haj, Interim President and CEO

No, it has not changed. We expect to continue to grow. In Q1, we were more impacted by timing in commercial aerospace projects rather than defense, which was softer. These are project-driven activities, and with restocking expected, we anticipate growth in Q2, Q3 and beyond. That's our current expectation.

Operator, Operator

Our next question is a follow-up from Craig Ellis from B. Riley Securities.

Craig Ellis, Analyst, B. Riley Securities

I wanted to use Laura's comments on capacity and the investment that has been made so that you do have sufficient capacity and just use that as a jumping-off point with something that I see broadly in a lot of the end markets where Rogers materials wind up, and that is we're seeing increasingly tight supply conditions. In other sectors, we've seen customer order patterns change either with longer-term pipelining and visibility or other things. So as we've seemingly gotten into more of a capacity-constrained environment across the broader supply chain, how do you feel about your capacity? And are you seeing any changes in your customers' order behavior?

Ali El-Haj, Interim President and CEO

We don't have a material issue or constraint on capacity for current business demand. What we're seeing is shifting geographic demand and the importance of our local-for-local strategy. Overall Rogers' capacity is sufficient for our forecasts for the next six to eight quarters without concerns, except for additional new R&D projects and new business discussed earlier. For current demand, we have sufficient capacity, but we may need to rebalance capacity between regions to serve local geographical needs. So it's more about rebalancing than adding capacity.

Craig Ellis, Analyst, B. Riley Securities

Does that present an opportunity for you to do things with pricing in an environment that just seems to be structurally tighter that can benefit what you bring home on the top line and gross margin? And then the next question is related to the tighter segment summary that you presented with auto and industrial, aerospace and defense, et cetera. What catalyzed the more consolidated look at end markets? And what does it do internally for you in terms of how you're running the business?

Ali El-Haj, Interim President and CEO

Regarding pricing, it's market-driven. We'll continue to evaluate and study market tolerance for pricing and act accordingly. Our preference is to mitigate cost increases internally first through efficiencies and cost reduction activities, and only as a last resort pursue price increases with customers. On the consolidated look at end markets, it doesn't fundamentally change how we run the business. It reflects how we're managing our go-to-market and reporting to better align with customer and end-market dynamics. The ongoing work will include rebalancing capacity by region as needed to serve local demand, but we will continue the operational path we've been on for the past several quarters.

Operator, Operator

Thank you. We reached the end of our question-and-answer session. Ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.