Rogers Corporation (ROG) Q2 2026 Earnings Report, Transcript and Summary

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 Second 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 Second 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'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. 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.

Thank you, Steve, and thank you, everyone, for joining us today. I'll begin on Slide 4. We delivered another quarter of solid progress as our commercial and profitability initiatives continue to gain traction across all business units. Sales were at $216.8 million, up 6.9% from the prior year and above the midpoint of our guidance. The stronger top line reflects both improving demand and share gains. Adjusted EBITDA increased to $38 million or 17.3% of sales and adjusted EPS of $0.92 was significantly higher than the level we reported a year ago. The results mark another quarter of meaningful year-over-year improvement in growth and profitability. Over the last several quarters, we have focused on creating a more agile, customer-focused organization while improving our operating efficiency. We are making progress and continue to focus on driving actions that will translate into further improvements in our financial performance and position Rogers for sustainable value creation. While the overall results reflect improvements, adjusted EPS was below the midpoint of guidance, primarily due to supply chain headwinds and a onetime facility event. The outlook for the third quarter is strong with sales expected to increase 10% versus the prior year. We expect sales to grow in all end markets with particular strength in A&D, industrial and electronics and communication end markets. Adjusted EBITDA margins are projected to reach 20% and increase year-over-year by 250 basis points. On Slide 5. Industrial remained our largest end market at approximately 37% of year-to-date sales and delivered high single-digit growth compared to the second quarter of last year. Performance was driven by continued improvement in AMS general industrial demand in both the United States and Europe. This growth was led by our Silicon Solutions business, which is experiencing healthy demand and gaining market share. Mass transit was also strong, led by rail applications in the United States. The broad-based nature of this growth is encouraging and reflects both improving market conditions and the benefits of our intense commercial initiatives. Automotive represented approximately 25% of sales during the quarter. Revenue increased at a low single-digit rate year-over-year, supported by higher sales of ADAS and ICE vehicle applications. Sales into the EV market were flat versus the prior year as improved power substrate revenues were offset by lower orders of materials for EV batteries. On a sequential basis, EV and HEV battery sales improved. Helped by recent design wins, we expect stronger second half EV sales as the new programs continue to ramp up. Electronics and Communications accounted for approximately 18% of sales and was one of our strongest performing end markets during the quarter. Revenue increased at a double-digit rate year-over-year from higher sales into the wireless infrastructure and smartphone markets. Smartphone sales increased versus Q2 '25 from a favorable mix of higher-end devices and continued benefits from customer share gains. Lastly, aerospace and defense sales accounted for 15% of revenue and decreased slightly from last year. Defense sales were lower due to normal variability in customer ordering patterns and were partly offset by improved commercial aerospace sales in the AMS business. We expect defense sales to improve significantly, while commercial aerospace demand remains strong in the second half of the year. Overall, we are pleased with the progress across our portfolio. The 3 largest end markets delivered year-over-year growth during the quarter, and our third quarter outlook reflects growth across all end markets. Next, I will update the progress we are making on the new products in our R&D pipeline. First, testing and validation of our microchannel cooler technology for high-power AI and data center applications continue to advance with multiple customers. We are making substantial progress with our customers and feedback on the differentiated performance of our solutions remain highly encouraging. Customer evaluations continue to provide independent validation of our ability to address the demanding thermal management requirements of next-generation computing platforms. Second, we made significant progress during the quarter with our high-frequency circuit materials for data center applications. We are now actively sampling these materials with multiple prospective customers and initial feedback has been very positive. Interest continues with an expanding list of customers evaluating our materials. This growing engagement reflects the increasing need for advanced circuit materials capable of addressing the signal integrity challenges associated with next-generation AI server architectures. Alongside these programs, we continue to advance other high potential opportunities in other markets, including EV and industrial. Turning to Slide 6. We are pleased to announce that Rogers will host an Analyst and Investor Day on September 30, 2026, in New York City. This event will provide a comprehensive update on our strategy, growth opportunities and innovation initiatives. We will also outline our value creation framework, including capital allocation priorities and long-term financial planning. Additionally, we will provide greater detail on how Rogers is positioned to accelerate top line growth from opportunities tied to AI data centers, vehicle electrification and other attractive growth markets. I will now turn it over to Laura to discuss our Q2 financial performance and Q3 outlook.

Thank you, Ali, and good afternoon to everyone. As Ali mentioned, we are seeing solid momentum in our top line results for Q2 and our third quarter guidance. We are also encouraged by the meaningful year-over-year improvement in our results as we continue to execute our critical initiatives. Starting on Slide 7, I'll review our Q2 financial results. Second quarter sales were $216.8 million, increasing 6.9% from the prior year period and exceeding the midpoint of our guidance range. Approximately 2/3 of the sales increase was driven by stronger demand and mix, with the remaining attributed to foreign currency benefit. AES sales increased 7.8% year-over-year. By end market, electronics and communications sales increased as did automotive sales. The improvement in automotive sales resulted from higher ceramic power substrate sales for electric vehicles. EMS sales improved by 6% versus the prior year. By end market, sales increased in Industrial, Electronics and Communications and A&D segments. This was partially offset by lower automotive sales. Gross margin was 32.5%, up 90 basis points year-over-year. Adjusted EPS was $0.92, up 171% from the second quarter of 2025. Adjusted EBITDA was $37.6 million or 17.3% of sales, an increase of 550 basis points versus the prior year period. All 3 metrics were within our guidance range. Adjusted EPS was below the midpoint of the guidance range due to supply chain headwinds, a onetime facility event and higher operating expenses. The cumulative impact of these items was more than $0.10 of earnings per share. Turning to Slide 8. Second quarter adjusted EBITDA increased to $37.6 million from $23.9 million in the prior year quarter. The largest contributor to the 550 basis points year-over-year improvement resulted from higher sales and improved product mix. Similar to the prior quarter, reductions in manufacturing costs and operating expenses also contributed to the higher adjusted EBITDA. We had a $1 million headwind in EBITDA versus the prior year from the ramp of our new China factory. Continuing to Slide 9, I'll discuss cash utilization for the quarter. Cash and short-term investments at the end of Q2 exceeded $211 million and increased $15.6 million from the end of the first quarter. Cash provided by operations was $24.4 million compared to $5.8 million in Q1 '26. Free cash flow was $18.3 million. The improved cash flow was primarily driven by higher sales and adjusted EBITDA. Overall, working capital increased mainly as a result of higher sales, which drove an increase in accounts receivable and inventories. Capital expenditures in Q2 were $6.1 million. We expect the full year 2026 capital expenditure range between $30 million and $35 million. We repurchased $3 million of shares in the second quarter, which partially offset the dilutive effect of annual share issuances. We will continue to balance returning capital to shareholders with other priorities. We continue to have a strong balance sheet, which provides us with strategic flexibility. Consistent with historical patterns, we expect cash flow to improve further into the second half of the year. Next, on Slide 10, I'll discuss our guidance for the third quarter. Consistent with our Q2 results, we expect all Q3 financial metrics to improve versus the prior year. We are guiding Q3 revenues to be between $233 million and $243 million. The midpoint of the range is a 10% increase in sales year-over-year. The guidance includes an expectation for growth in all four of our major end markets with significant strength in aerospace and defense and general industrial. We are guiding gross margin in the range of 33.2% to 34.2%. The midpoint of the range is 20 basis points higher than the prior year. We are realizing improved margins due to higher volumes and our cost structure improvement actions. However, these are partially offset by the underutilization during the ramp of our Ceramic China factory and increased commodity costs. We expect Q3 adjusted operating expenses to remain approximately flat sequentially. Adjusted EPS is forecasted to range from $1.10 to $1.30. The $1.20 midpoint compares to adjusted EPS of $0.90 in Q3 of 2025. Adjusted EBITDA is anticipated to range from $44 million to $50 million. This equates to 19.7% EBITDA margin at the midpoint of the range, which would be a 250 basis point improvement versus the third quarter of 2025. Lastly, we project our non-GAAP full year tax rate to be approximately 32% I will now turn the call back over to Ali.

Thanks, Laura. In summary, we continue to make progress towards our growth and profitability initiatives in the second quarter. Revenue exceeded expectations, profitability improved substantially year-over-year, and our outlook points to continued momentum in the third quarter. I also want to thank our employees around the world for their commitment, agility and focus on serving our customers. Their efforts continue to make a meaningful difference in our performance and future opportunities. That concludes our prepared remarks. I will now turn the call back to the operator for questions.

And your first question comes from Daniel Moore with CJS Securities.

Maybe just a quick review and then we'll go forward. But can you just elaborate a little on the supply chain challenges as well as the onetime event that you called out during the quarter and whether those issues have been largely resolved at this point as we look into Q3?

Yes. Thanks, Dan. On the supply side, we still have some raw material -- experiencing some raw material shortages as well as, I would say, logistics or from a freight perspective, it's just taking longer due to the situation in the Middle East. So typically, from transit time from 4 to 6 weeks in the past, now it's taken somewhere between over 12 weeks in some instances. That's one of the issues. On the onetime event, we experienced a small fire in one of our plants that actually ended up suspending manufacturing for a few days. And so between that and some cleanup costs on the facility, that's been resolved and thankfully, no issues, safety issues. Our employees were safe. So but that's been resolved. Regarding the freight and the freight expenses as well as the lead time, that hasn't been resolved as you know, that's still an ongoing issue. On the raw material side, there is still -- from a silver and copper perspective, we still see some tightness in the market. However, we see it light at the end of the tunnel. Hope that answers your question. That gives great color.

And then kind of looking forward, the Q2 guide implies, as you called out, 10% top line growth at the midpoint, a very nice acceleration. Gross margin was improved significantly year-over-year, but the guidance implies relatively moderate improvement. So maybe talk about kind of or give more color on the impact of the underutilization in China as well as in the new facility as well as some of those input cost margin pressures and just trying to get at like what gross margin might look like as we roll a little bit forward with that type of revenue and volume once we get beyond those headwinds.

Don, it's Laura. Let me start and giving you some color and perspective of the guidance there. You're right, at the midpoint of the guidance, the margin expansion on a gross margin basis is somewhat modest 20 bps if you look further down the P&L, we continue to see substantial improvement in what we're committing from an EBITDA perspective and EPS expansion. So specifically on what's happening in the movements that we're managing in gross margin, that's really associated to the underutilization continuing that you called out in our ramping activities with our factory in China. We are starting to build a little bit of momentum, but it will take time to ramp there. And as a result of that, it's likely to close with about 85 bps of a headwind in the third quarter that was incorporated in the guide. In addition to that, Ali referenced the pressure of the commodity costs and supply had to our Q2 execution. And we anticipate some of that continuing into the third quarter, which will pressure our gross margins there. Now with that said, we continue to work globally with an organization and managing our supply contracts, the timing of what we're acquiring and looking also our copper program and evaluating that. So we'll continue to work the process. The other thing I should also mention is we also have some engineering initiatives in flight to reduce consumption. So all of that is crystallizing a short-term pressure, but what we'll continue to do is work to mitigate. Finally, I should round that out with saying we also -- in our customer agreements and our supply agreements, we do everything we can to mitigate the impact internally and through our actions and initiatives. But worst case, there are some scenarios where we will pass on some of the incremental costs, particularly for commodities. But naturally, there's a lag and a timing impact from when that crystallized in the P&L versus when we agree with our customers on the pricing changes. Precisely what I assumed and would have implied.

I'll stick to the 2 questions and jump back in queue, but certainly look forward to hearing more about the accelerating opportunities in AI and data centers in September.

Your next question comes from Craig Ellis with B. Riley Securities.

The first question, I'll just make it a high-level one. Ali, the business has done a very good job of showing accelerating growth over the last couple of quarters and into the third quarter, we've gone from 5% year-on-year to 7% year-on-year and now 10%. So we're seeing some nice acceleration in the business. Can you talk about from your vantage point, what are the biggest contributors to this increasing growth? And as we look at some of the drivers in the third quarter to the 10% with all end markets growing year-on-year, to what extent are the programs underneath that really longer live programs versus things that might be just much more seasonal or short term?

Well, thanks, Greg. I think the credit goes to the team here that the organization really has performed well. I think our performance is definitely helping us here gain some market share in existing markets. So that's improving our top line, obviously. In the meantime, also, we managed to win some new program, new businesses that will launch in Q3 and Q4 and into early 2027. So I think the momentum is going to continue, again, based on design wins, the performance of the organization regarding shortening lead time, the response to customer needs, quick design changes and quick new applications adoption by, again, the market and the response from our organization. So I think really, it's a broad-based growth. It's not limited to one industry. I don't consider that to be seasonal. I think the momentum will continue to be -- we continue to gain momentum here on the top line.

That's really helpful. And then going back to the comments on the data center opportunity, I believe you mentioned that the micro channel CR product and Cool Power Plus you're seeing very good engagement with customers. But I think you also said that there were some other opportunities that the company was engaging with beyond those 2. And I was hoping you could elaborate on that further and give us some insight as to what could happen.

Yes. Thanks again, Craig. I think we plan on -- as I mentioned on the Investor Day, we plan to share a lot more details with you guys and the investors here and a lot more details regarding all of those initiatives that we have in place. But we do have -- the ones I was referring to, we have a couple of other programs that are in process right now related to the EV market/auto market. And those are extremely high potential programs that the team identified in our strategic initiative. And right now, they are really in motion. And we think we're going to be feeling substantial interest here from potential customers.

Okay. We look forward to hearing more about that at the end of September.

Your next question comes from David Silver with Freedom Capital Markets.

I just want to maybe follow up on, I guess, Craig's comment about accelerating growth. But if I was looking at the Slide 5, where you do go sales by end market, you mentioned aerospace and defense was down a little bit due to timing, and you are looking for a bigger sequential bump from 2Q 3Q. So I was just wondering, is the nature of the timing of orders in aerospace and defense, which I guess I consider one of the strongest end markets in the current environment. I mean, is that a big part of the sequential acceleration in sales growth? And then secondly, I was just hoping you could level set. But on the cost-cutting program, $13 million that was supposed to be realized by the end of this year, I believe. Can you just set us up for that or level set us where are we along those lines? And what would be the pace of the remaining cost saves there?

I'll take the first half, and I'll turn it back to Laura to answer on the cost savings and the cost initiatives here. With regard to the A&D, again, the first half of the year has been soft. On the defense side, I will say, not the commercial piece of the business. The commercial side, if you look at the 2 major aircraft manufacturers, when you look at their growth and their build year-to-date and year-over-year, our sales to those organizations actually has been in relationship, I would say, within the same ratio, maybe even slightly higher than the ratio that they show in their numbers. On the defense side, yes, it is lower than what we expected it to be, but it is timing. So as we look into Q3, Q4, the orders that we see right now on our backlog, we see a significant growth compared to the first half of the year. The cost side, I'll turn it back to you.

Yes. So David, on the cost side, I think you're referring specifically to $13 million for the restructuring program in the Cami facility. That program restructuring is on track. It's on track to deliver the savings per the commitment that we made. And in fact, there's already some of those savings materializing in the P&L. But some of what we shared, you can see there's some pressures just in terms of volumes and utilization and what we've experienced in the timing of a ramp-up in our operation in China for that same product line.

Okay. Great. And my next question would probably be asking for some commentary about maybe your customers' behaviors. But you did mention raw material shortages. You did mention freight delays. And it speaks to kind of an uncertain environment that you're navigating here. But also just with the geopolitics, the macro issues, how would you characterize your customers' willingness to move forward on various programs? So in other words, comparing your customers' expectations or actions now compared to, let's say, January 1, have your customers become more cautious or likely to pause progress due to one or another of the issues that you mentioned there? Or would you say it's still kind of steady as she goes and moving forward on the programs as you expect?

No, I think everything today -- as we stand today, everything is really as expected. We have not seen any major shift or changes either in customer sentiment or in their interaction with us or the new programs that's expected that we're working on. I think as of now, everything remains on schedule and on plan as we've been communicating in the last 6 months or so. The only thing we've probably seen, which even could be a positive sign for us because of geopolitics and the uncertainty, we've seen some customers working with us to shift production from some geographical area to another or shift the product shipments from one region to another and being more local for local than it has been in the past. So I think that gives Rogers an advantage because we have manufacturing capabilities across the globe. So we could supply Europe from Europe, North America from North America and Asia from Asia. So I think that's an advantage for us actually. So we have not seen anything negative at all, and that's why our projections remain positive, and we're still emphasizing that we will see growth going forward.

And your next question comes from Daniel Moore with CJS Securities.

Two quick follow-ups. One, the guide for Q3, 10% growth at the midpoint. Could you maybe break that down at least directionally between end market growth, share gains and FX? Just trying to get a sense for how much of your new products and initiatives are gaining traction.

I think, Dan, I'll start. Just in terms of FX, we're seeing that there's still a slight benefit in the guidance that's there on a year-on-year basis. But relative to what we experienced in Q2 and Q3, we're going to see quite a bit of deceleration in the FX there's really more in the guidance there a function of the business growth around both the share gains that we've been articulating based on improved operational performance and continued focus on the innovation and being a partner of choice and some of what we're experiencing in our markets, given the broad exposure we have in numerous segments, some of which are materially up on a year-over-year basis.

Yes. I think we've mentioned that aerospace and defense, it is an area for us where we see significant growth, Q3, Q4 as well as we have a couple of design wins that I think we -- what I alluded to earlier to help us in the ceramic facility in China. So we have a couple of significant wins that will start to launch towards the end of Q3 and into Q4 and Q1 of '27. So I think given all these parameters, we see more design wins, new market share gain as well as the market growth itself.

Really helpful. And I realize I may be front running your Analyst Day a bit, but just trying to put some of these commentary together, the incremental opportunities around EV and auto, those comments very intriguing. So is it ceramic? Is it technologies that Rogers has been associated with for a long time, like battery protection, thermal management, power distribution or are these sort of newer technologies that we're alluding to beyond what we've maybe talked about so far?

I will say simply put all of the above, again. It's really a combination of all of the above. I think ceramic, I think the AMS business, it's really all of the above.

Your next question comes from Craig Ellis with B. Riley Securities.

It's really just a clarification. Laura, I think I heard you say that the combined impact of the supply chain issue and the facility issue in 2Q was about $0.10. What was the relative impact within the $0.10 of those 2 items?

Yes. Yes, you're right. It was $0.10 in total. I think I had another slight driver that I didn't mention in the call back here, but I did mention in my prepared remarks. So in actuality, there was also a little bit of an OpEx impact with some timing and investments there. And I would say, roughly speaking, the raw material and freight headwinds and the OpEx is probably about 70% to 80% of the impact to EPS and the residual is the onetime event that Ali referenced with the small flier.

And our next question comes from David Silver with Freedom Capital Markets.

Just a clarification. I can't read my own writing here. But Laura, I believe you talked about a 32% tax rate. And I was just wondering if you could specify, is that the third quarter only? Is that -- and I'm sorry, 32% non-GAAP tax rate. Is that third quarter only? Is that full year? I mean -- and then just again on the tax rate, but I believe this year's rate is running a bit above some historical years for the company. Should we expect -- or I know it's very early, but should we be penciling in a lower rate for 2027? I'll stop there.

Sure. Okay. So yes, so the 32% the full year outlook on a non-GAAP basis, you're correct in your observation that on a year-over-year basis, we're seeing some expansion there. And really, that's a function of just some of some valuation allowances in some of our jurisdictions based on the business performance. I think under Ali's leadership and where the company and the team are pushing towards is a significant improvement or a meaningful improvement in business results, which will assist us getting beyond some of those tax challenges we're experiencing. In addition, the team is already focused on what we can do and how we can evaluate improving our tax performance. So I think with all of the above, yes, you should absolutely assume that we'll be working towards an improvement in that.

Okay. And then last one for me. Again, Laura, I think you talked about use of cash and you used the term balance, which can cover a lot of ground, I guess. But just to my eyes, I mean, it is a very volatile publicly traded market. And my sense is that private owners of assets that might be interesting to your company might become available in a more volatile market for valuations. So just if you could just comment on the opportunity funnel that you're seeing here. And in your view, is the -- are there more likely to be some better opportunities here in the near term than, let's say, over the past couple of years?

Yes. I think, David, I mean, this is right about [inaudible], by the way, but we are continuing to evaluate. We've really been very active over the last few months. So yes, there are opportunities that, again, timing -- given the timing we're in, we're just not looking at the valuation based on current conditions. It has to be the strategic fit for the business. I think that's what will be more critical for us. But you're right, it may be the timing is going to give us more of an opportunity now than a year ago or so. So I think the work is ongoing, and we're hoping in the next quarter or so to be able to share something with you guys.

Ladies and gentlemen, and with that, we have no further questions at this time. So we will conclude today's conference. Thank you all for your participation. All parties may now disconnect.