Rogers Corporation (ROG) Earnings Call Transcript
October 27, 2026
Earnings Call Speaker Segments
Good afternoon. My name is Diego, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation Third Quarter 2026 Earnings Conference Call. I will now turn the call over to your host, Mr. Stephen Haymore, Senior Director of Investor Relations. Mr. Haymore, you may begin.
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 statements 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 $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 5 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 higher 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 [ laminin ] circuit materials for wireless infrastructure to offset lower smartphone sales. Aerospace & Defense represented 15% of 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 & Defense, our laminate material was designed into a drone detection system. Rogers' brand, proven reliability and localized support were deciding factors and the award decision. In automotive, our elastomer 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 our decisions. In data centers, RECONNECT a major end user selected our silicon materials to safeguard sensitive components within the server the materials combined high compressibility with speed noise and vibration isolation to help enable reliable performance. Also in both AS and EMS, we secured meaningful design win 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 included for our ceramic business. In high-growth adjacencies, the development and customer testing of our signal integrity and chip cooling solutions for data center allocation is continuing. We continue to see strong pace and focus from customers sampling our laminate circuit materials for high-speed digital applications. Customer feedback remains positive on the performance of our materials to address rapidly emerging signal integrity challenges. Our microchannel cooler solutions provide an improved cooling technology to address risen 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 sectors. We completed benchmark intestine for our thermal runaway protection solution and our 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 field drill technology. We have identified priority customers and applications and our development solutions tailored to their requirements with initial customers 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. EMS 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 market. Gross margin was 34.2% and 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 34% 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 jurisdics. Turning to Slide 8. Third quarter adjusted EBITDA 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 academic 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 condition. Overall, a 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'll 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 to $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 and 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 shareholder value creation. Next, on Slide 10, I'll discuss our guidance for the fourth quarter. From a top line perspective, we continue to be positive momentum with deals expected to increase 9% year-over-year at the midpoint of our data. 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 & defense and industrial end markets. We're guiding gross margin in the range of 32.5% to 33.5%. The midpoint of the range is 150 basis points higher than the prior year. We are realizing improved margins due to higher volumes and our cost structure improvement actions, although higher commodity costs will continue to be a headwind versus Q4 of 2025. We expect Q4 adjusted operating expenses to increase modestly year-over-year while improving by more than 100 basis points as a percent of sales. Adjusted EPS is forecasted to range from $0.90 to $1.10. The dollar midpoint compared to adjusted EPS of $0.89 in Q4 of 2025. The increase versus the prior year is a result of the expected increase in sales and gross margin, partially offset by higher tax. Adjusted EBITDA has anticipated to range from $37 million to $43 million. This creates a 16% increase versus the fourth quarter of 2025 at the midpoint of the range. Lastly, we project our non-GAAP full year tax rate to be approximately 31%. In summary, our fourth quarter outlook reflects continued year-over-year improvement in sales adjusted EPS and adjusted EBITDA margin as we execute our commercial and operating initiatives. I will now turn the call back over to Ali.
Thanks, Laura. In summary, we delivered strong year-over-year improvement in the third quarter with growth across all end markets, adjusted EBITDA margin above 20% and adjusted EPS region, a multiyear peak. We remain focused on sustaining this financial progress while accelerating growth. Our strategy is centered on leveraging Rogers' proven capabilities and deep customer relationships to grow in core markets and advance high potential adjacent opportunities. With disciplined execution and a healthy balance sheet, we believe we are well positioned to translate these opportunities into stronger earnings and shareholder returns. We conclude our prepared remarks, and I will now turn the call back to the operator for questions.
And at this time, we'll be conducting a question-and-answer session. [Operator Instructions] And your first question comes from Daniel Moore with CJS Securities.
Congrats on, obviously, a very solid quarter. Great to see top line growth, high single digits, [indiscernible] 10%. Still actually touched below the midpoint of the guidance. So wondering if there were areas where -- or pockets of sales that were maybe pushed out to some degree. Wondering if the quarter could have potentially come in even stronger. Maybe just talk to those areas that weren't quite as strong in terms of organic growth in the quarter?
This is Laura. I'll start and then we can pass to Ali if there's any additional comments. And so yes, you're right, there was a slight miss to the midpoint of the guide, a couple of million dollars there. As with every quarter, we work to balance our supply against the demand that we're seeing. And with everything, there are some constraints, generally speaking, in the market at the moment, which we view it probably many other vendors had fees. So why we suggest is, yes, there was some push out occurred in a couple of thesis. There are other areas where we do have supply with a strong demand that we have, we work to [indiscernible] and manage accordingly. What I would also point to is what you can see is in the guidance for the fourth quarter. we're seeing consistent strength in the demand in the order book. And you can see at the midpoint of the guidance there, that's also going to be up 9% on a year-per-year basis. So generally speaking, yes, there were pockets of supply limitations. We work to balance it, and we can find and to execute solid growth in the third quarter of what we posted and in our guidance at this point.
No, that's really helpful, Laura. The margin improvement even more impressive given those constraints. Maybe a follow-up for me, just to elaborate really good color on the new design wins in the quarter in terms -- can you -- is there anything you can say in terms of either size of the opportunities or timing of when you might expect some of those to start generating meaningful revenue and what a ramp looks like? Any color on those would be great.
Yes. Thanks, Dan. This is Ali. Both actually 2 of the opportunities that we've mentioned they are material. So they are sizable. And we expect revenue from both of these, I believe Q2 and Q3 of 2027, one of them actually started a slow ramp-up. It was started in Q4 of this year, and it will continue to ramp up what we expect to see full volumes by Q2 of next year.
And your next question comes from David Silver with Freedom Capital Markets.
Yes. I did want to ask a question about margins overall. And -- or margin progression overall. And looking at my quarterly -- the quarterly income statements for, let's say, the first 3 quarters now of 2026. I'm going to be a little vague here or a little imprecise, but your revenues have jumped up about 18% but your overall spending for SG&A and R&D together, looks pretty flat. In other words, you've grown your sales while your fixed costs more or less are flat. And as a result, change in sales over change EBITDA works out to again imprecise, but close to 50%. So is this kind of the standard model? Or are these assumptions kind of what you're looking at as we move forward into 2027 and beyond? Or was there 1 or 2 issues that might have made the data look unusually flat or the numbers fell in line like they did? In other words, should we just assume flat SG&A and R&D and maybe a 50% incremental type of EBITDA margin on incremental sales going forward?
David, let me start, and we can build on my response. So I think we are actually being very intentional in managing investments in our OpEx and in our factories in our fleet. Around servicing the demand and the potential opportunities that we have and manage in the basements accordingly. So the OpEx levels that we're currently posting are intentional. There isn't anything there that we are underinvested in relative to the opportunity. But what we indicated and guided when we presented an Investor Day last month is the fact that we will anticipate in absolute terms, some growth in those investments as we chase the significant opportunities that we believe we have exposure to both organically or primarily organically from the OpEx perspective. And so we will do that. And you started your question on the margins, please. What we'd say there, as you can see, as we're leveraging the factory footprint that we have in servicing our customers in region, you can see that we are benefiting from the scale and the utilization benefit through a fleet and the margin as we're balancing mix against that utilization. So generally speaking, yes, I would say you're going to see the fall through as we continue to execute our growth objectives and continue to modulate and manage our investments and our investment profile. And aligned with our levels of confidence and security around the top line expansion.
Okay. Great. Next question I had, maybe for Ali. And thank you very much for all the qualitative color around new business wins. I was hoping to maybe just drill down a little bit more. But is it your view that the level of new business wins is sufficient to kind of meet or exceed those targets that you laid out at your recent Investor Day? In other words, the gross trajectory up to, let's say, mid-2027 or so when some newer opportunities are supposed to go begin commercial sales. But just maybe a little bit of color on whether the pace of new business wins that you cited in your remarks are consistent with what we saw a few weeks ago.
Thanks, David. I think the simple answer would be yes. they are consistent. As a matter of fact, we are probably ahead of schedule in wins and securing more new business. And the growth that we're projecting right now is ahead of the average that we indicated. We indicated organic growth of about 5% per year during our Investor Day. And now we're about 9% in Q3, 9% in Q4, and we expect that growth to continue in 2027.
Your next question comes from Rebecca Zaski with B. Riley Securities.
Yes. This is Rebecca on for Craig Ellis. So at the Analyst Day a few weeks ago, the team identified 3 factors that contributed to gross margins, which I believe with volume and absorption differentiated pricing and continued cost and operational improvements. Could you update us on the progressing of those 3 like parts?
Yes, I'll start, Rebecca. So yes, you're right in terms of the 3 critical drivers of our gross margin expansion. So as Ali just said to the AID, we're seeing positive traction in our design activity and the volume, in fact, we're seeing on the design of a raise on and then volume production. So that has given us some favorable indications about the first lever of that margin expansion because it's going to be predicated on the volume that will allow us to improve our utilization through the factory. Secondly, you've heard us talk about structural cost improvements that we had undertaken over the last probably 24 months. And in size in the factories and ensuring that the factories were supplying our customers where the customer demand was. And we've concluded on those restructuring activities. So that's a $45 million you've heard a reference historically. And basically effectively largely done, absent $13 million of the $45 million isn't fully crystallizing in the 2026 results. But as we exit the year, it's all fully achieved. In addition to that, we continue to focus on operational excellence initiatives to ensure that we're optimizing our yield, minimizing our input costs and gating our maximum throughput and productivity over fact, which those initiatives are going well. Your [indiscernible] historically that we're not yet fully concluded. There's still room and opportunity there, but that remains a continued focus from our global operations teams on a week-to-week, day-to-day basis. And then thirdly, you mentioned the pricing. What we're talking about here is not pricing, but differentiated solutions with the new opportunities that we're chasing. So that's a key in a strategic initiative, and those programs are [indiscernible].
And your next comes from Daniel Moore with CGS Securities.
Maybe 1 on capital allocation and 1 on the longer term. But cash flow, obviously really strong. Cash continues to build despite increasing share repurchases. Do you expect to continue to be more aggressive in terms of buybacks at or near current levels and in a similar vein, maybe just talk to the M&A pipeline and whether you see opportunities that could come to together over the next 2, 3, 4 quarters?
So I'll start again. So yes, you saw 9 million of share repurchases last quarter. We'll be opportunistic there. We'll evaluate what's in the funnel and the current pricing and do what we deem appropriate for an value to our shareholders. As we shared in Investor Day in prior calls, we are much more active in our M&A funnel and our activity there leases. And I think Ali will probably book in evaluation.
Yes, we have a couple of opportunities there that we're looking at right now as we speak. We hopefully -- we anticipate some, at least one, maybe both of these opportunities are actionable within the next 2 quarters or so. So we're active. We're evaluating the things, again, based on the criteria that we established at Investor Day, and we continue to do that. And we expect, like I said, some actionable announcement probably within the next couple of quarters or so. Yes.
And consistent of what we said that would be something that was strategic as capability that we don't have and has a favorable financial contribution at least over the mid to long term. So the cost to appropriate diligence.
Excellent. Maybe just 1 more, and this is a bigger picture kind of longer term. But just hoping to dig into a little bit more on the long-term goals. Looking at the 3 major opportunities, growth opportunities, data centers, battery tech, EMI shielding collectively, we're looking, I think, at $100 million of revenue by 2028 growing to $450 million by 2030. Just talk to your expectations regarding the relative size of each of those and how we're thinking about sort of the relative cadence of ramp. I know it's fluid. But I'm wondering if you could maybe delineate at all between what sort of near term and what's larger in terms of magnitude of the opportunity over the time frame?
Yes. As you know, will be in vague about detailed opportunities. But clearly, data center is our largest of the 3. That's for sure. from a product standpoint of view, if you look at the 2, whether it's high-speed digital or cooling, these are the 2 that we are the largest of the data center opportunity. So data centers with industry is the largest, high-speed and cooling will be the largest opportunities within the data center itself. So without quantifying this and putting dollars, obviously, we do have detail internally here what our expectations are, and we're working toward those expectations. Our elastometic materials also will participate. As a matter of fact, one of the opportunities that we've mentioned that we already opened a design win, and we're currently launching that is for the data center. And it's one of the elastomer materials that were we supply today, it's one of our silicones here. So that's the expectation. Automotive probably would be the second in that within the 3 and then -- when it comes to EMI shielding, obviously, that goes across all product lines, including data centers, automotive and electronics. So from a timing standpoint of view, again, our expectations remain the same. Second half of next year towards Q3, Q4, where some of these products will launch. Again, we go through [indiscernible]. '28, still we're confident in the numbers that we presented at Investor Day that we will hit those numbers and 2030 in our objective internal is to beat those numbers. So that gives you probably an idea about our confidence level here.
And your next question comes from David Silver with Freedom Capital Markets.
Thank you very much, Dan touched on a couple of points in general that I was going to follow up on. I'd like to ask Ali about maybe the tone of the tone or the optimism of your customers? In other words, I think of your company as a solutions provider, but you're still relying on customers wanting to move forward on new investments and new platforms, et cetera. Just in the last few weeks, I mean, I would just say equity markets and some high growth sub sectors have been quite volatile and interest rates remain elevated compared to a couple of years ago. How would you say the engagement is with customers relative to when we last heard from you at the Investor Day? Has there been any dampening or caution -- incremental caution from your key customers? Or is there any change on the collaboration schedules or from your perspective, is it still pretty much business as usual? Despite, let's say, the financial market volatility that a lot of those companies operate in.
Yes. Actually, thanks for the question. Actually, it's the opposite in our case here. We see the momentum is picking up. More activities are ongoing, actually we see more intensity in those activities, and we'll provide them more samples, customers that build them more products with testing and evaluation. And as I mentioned on the prepared remarks, we're on third generation, second and third generation designs and upgrades and optimization of these products. So from an activity standpoint of view, no, it's actually increasing, which is expected as we get closer to winning those and design-in announcement, you anticipate expect that those factors will increase on intensifies. So that's what we're seeing now. And we're expanding actually to more customers. So we don't really see a slowdown. Again, because we -- exactly what you said, we are providing solutions to customer needs today. They need those type of solutions, and we're providing those solutions. So no, we don't see any impact from the macroeconomics that we see out there today. I think our forecast and our expectations remain the same.
Thank you, and thank you, everyone, for your questions. That concludes today's conference. You may disconnect your lines at this time. Thank you all for your participation.
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