Rogers Corp. Stock

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.

[Operator Instructions] 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.

[Operator Instructions] 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.

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.

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.

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 a 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 4 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 remain our highest priority. We secured several design wins during Q1 in support of that goal. First, in the AES business, our high-frequency circuit material 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 2 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.

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 '25. 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 '25.

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 '25. 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 '26. Consistent with typical patterns, accounts receivable increased in Q1 following a large reduction in Q4 of '25. Higher accounts payable partially offset the Q1 increase in AR.

Capital expenditures in Q1 were $4.7 million. Our expectation for full year '26 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 '26. 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.

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 Instructions] Our first question today is coming from Craig Ellis from 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 '26'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?

Okay. 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. Both of these or actually, 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 now the past 2 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've always been indicating that this is probably a Q3, Q4 of 2027 and depending really on how fast our customer will accelerate their development and their qualification and the readiness for the product. But we see opportunities, as I indicated for data centers in all of our product areas, but mainly the highest volume or dollar impact will be out of our microchannels with the Curamik activities and the high-speed digital product lines.

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 3 months ago?

Sure. No problem, Craig. I'll take that. And with regards to the margin, what I would have to say is really a function of all of the above what you mentioned. We've spoke in the past in prior calls about our initiatives and our objectives in managing our operations to ensure that we are doing what we can to minimize yield loss and optimize on our input costs and really be effective in what we're running through our factories. Those initiatives continue and are in flight, and they have some favorable impact, which you see in our EBITDA bridge and some of the transitions that we call out on a quarter-over-quarter basis.

Now with that said, the other thing that's favorable there that we're also discussing is some of the structural changes that we undertook that are in the margins. That's all to say. There's some other puts and takes that go the other way in terms of some transitions in terms of the segments and where we're realizing some of the revenue growth and gains. So there's always some puts and takes across the margin. In general, I would agree with you, Craig, we're making the right progress. We're 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.

Next question is coming from Daniel Moore from 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?

No, I think really, overall, the whole industrial segment for the business is really growing. Where we see maybe more impact is the semi. So semiconductor industry, as you know, it is growing. So we realized some increase in our revenue in that area. The rest of the economy and that just the manufacturing index here, PMI in the United States and Europe is higher. So we're tracking with that.

In addition to some recapturing some market share with some of our existing customers. So kind of if you separate all the growth come from these 3 areas. One is general economy; one, semiconductor growth, and the third element is recapturing some market share with our existing customers for existing applications or newer applications.

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 sort of 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 2, 3, 5 years from now?

Yes, I'll take it backwards. So with regard to revenue and discussing revenue and potential, probably later this year, as we get -- we have a pretty good idea of the target and the potential. But some of this, as you know, is customer-specific. So we need to be extremely cautious here of what we communicate.

With regard to the opportunity itself, it's really a mix. One is we look at the technology that we're providing for a specific solution of difficult issues that exist today. So more of a complementary but really solving serious issues that remains with the current systems today. So we would be -- it's a combination. We'll be taking some market share of the existing applications as well as solving some difficult issues with existing technologies regarding the thermal management today. So we believe the technology that we're introducing here is more specific, more efficient and will be more cost effective to the end user.

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?

Yes, no problem. So Dan, yes, we did have some disruptions, which we alluded to in our prepared remarks. I would indicate that had we not encountered those disruptions, we probably have been trending more towards the high end of the guidance range that we had set.

Our next question is coming from David Silver from Freedom Capital Markets.

I did just want to level set 1 or 2 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 2 that maybe I'm missing?

David, it's Laura. Let me take that for you. So you're right insofar as what you said about $25 million in '25. However, what I would tell you is that was the savings we realized in calendar '25. But when you annualize that, there's an additional $7 million still to be realized through the P&L. Then when you add to that, the savings that we'll realize, which will be an incremental $13 million on an annualized basis once we're through the restructuring of Curamik facility in Germany, that will bring us to a cumulative savings total of $45 million. So that just will give you the information that allows you to fully triangulate the savings and where we are today and fully realizing them through the financials.

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, I guess, the currency tailwind. 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, I guess, in broad-based demand for your key end markets?

Okay, specifically referring to the automotive industry. Obviously, it's not just geopolitical issues. We've got regulations issues and regulatory changes, especially in the U.S., as you know. So that's really impacted the EV market, especially in North America, specifically the United States. and to a similar extent in Europe. However, Europe is recovering, and we see growth in that market in Europe. It started towards the fourth quarter of 2025, and it continues. So we see a pickup there.

China first quarter was very soft. And again, some of the incentives for the EV market in China was taken away or pulled back, and we think some of that will be reinstated. So that market will turn positive even in China within the next quarter to 2 quarters. So we think EV market is coming back. It's not an issue. We are not severely impacted by the EV market. We're trying to address the whole automotive market and just not just for EV, but whether it's hybrid, whether it's EV, whether it's ICE type applications, we're in.

So we're targeting that market very heavily. We're engaged with a lot of the OEMs directly and indirectly as we speak. So we anticipate really continued growth. As I said, we had several design wins in the fourth quarter of last year, first quarter of this year, and we anticipate that will continue into the balance of 2026.

With regard to the other industries, whether it's electronics and portable electronics specifically, we see growth in there for us. The mix of the high end, especially in the first quarter of this year, the mix of -- or the sale of the higher-end mobile phones and cell phones, what that did for us, it provided us higher revenue. We have higher content on those devices than just the standard lower-cost version phones. So that did help our growth, and we expect that also to continue. So we're capturing more market share, more applications within that market segment. And the mix is helping us also significantly. So we see growth really in all of our areas, and we're targeting every segment of our business for growth for the balance of this year.

And maybe just to follow up on your targeting of growth for the balance of the year, maybe going at it from a slightly different angle. But maybe for Laura, but you did highlight 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, call it, $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 kind of some discretionary or growth-oriented CapEx towards?

Okay. So let me start there, David, and then if needs be Ali can add some additional color. So what I would say in terms of capital intensity, actually at the midpoint at $35 million, the intensity has declined versus where it was in prior year. So in '25, we were at 4%. I think in '24, we were at 7%. And what that's indicative of is as you talked about the capital intensity, we're largely through the investments in our facilities to expand capacity that we've made in the last 3 to 5 years, those investment decisions.

So now what we're investing in is, number one, maintaining those facilities and automating as appropriate to improve our operational effectiveness. And then secondly, looking at the other auxiliary systems and processes that we have and how we can make them more effective and efficient in the business. So that's where we're currently largely investing.

But the one thing that I did want to call out is that we also talk repeatedly to you all about the potential and the opportunity for the business. And we continue to evaluate that month-to-month, quarter-to-quarter, and we'll make the appropriate decisions as we keep that based on potential return on any potential investments.

[Operator Instructions] Our next question is a follow-up from Daniel Moore from CJS Securities.

Yes. I apologize. I missed a minute or 2 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?

No, it has not changed. I think we expect to continue to grow. I think the Q1, we were heavily impacted by actually the commercial aerospace industry, not the defense that was softer. And again, that's just really timing of projects, Dan, as you know, these are projects-driven type activities. Because of the restocking issue that's expected, we expect growth in Q2, Q3 and going forward. That's our expectations right now.

Our next question is a follow-up from Craig Ellis from 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. And in other sectors, we've seen customer order patterns change either with longer-term pipelining and visibility or other things. And so the question to you, Ali, is 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?

No, we don't really have an issue or constraint on capacity. I think what we see in our business is shifting, let's say, geographical demand and needs, where if you remember, we discussed the local-for-local strategy that Rogers has in place. So we've seen this is now playing more of a role in the business today and going forward than our capacity overall. So Rogers capacity overall is sufficient for what we forecast for the next probably 6 to 8 quarters without any concerns with the exception of the additional new R&D projects, new business that we discussed earlier.

But for current business demand, we think we have sufficient capacity However, shift within regions or between regions, something we're looking at. So we may have to rebalance that available capacity in different regions. So it would be more of a rebalancing rather than investing more.

And the follow-up to that and the next question is one as a follow-up. 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?

I don't think it's going to change the way we run the business. I think the business will continue -- the path we started a few quarters ago, I think we're going to continue running the business in the same way. The only thing that I've mentioned is, again, rebalancing this capacity and the availability of production lines where to serve the local geographical needs or serve the OEMs within those geographical areas. So this is something we're going to continue to work on going forward.

With regard to pricing, my comments in the past, this is market-driven. We're going to continue to evaluate and study the market and understand the pricing -- the market tolerance for pricing and those conditions and we'll act accordingly. But we try to mitigate any cost increases internally first before we try to go in and ask our customers for price increases. So we try to do that internally first, mitigate that with our efficiencies, our cost reduction activities first, then last resort will be going back to increasing pricing on customers or for certain customers.

Thank you. We reached the end of our question-and-answer session. And 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.

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 Fourth Quarter 2025 Earnings Conference Call. I will now turn the call over to Mr. Stephen Haymore, Director of Investor Relations. Mr. Haymore, you may begin.

Good afternoon, and welcome to the Rogers Corporation Fourth Quarter 2025 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.

Thanks, Steve, and thank you, everyone, for joining us this afternoon. I'll begin on Slide 4. We finished 2025 with another quarter of solid performance. Q4 sales of $202 million approached the high end of the guidance. Adjusted EPS of $0.89 per share and adjusted EBITDA margins of 17.1%, both exceeded the top end of guidance. Compared to the fourth quarter of 2024, sales improved 5% and adjusted EBITDA margins increased 500 basis points. We also generated significant free cash flow in the fourth quarter and continued to return capital to shareholders with $14 million in share repurchase. The stronger finish to 2025 resulted from gradual end market improvements and implementing critical structural changes.

With a simplified operating model and a leaner cost profile, Rogers is in a stronger position entering the new year. In 2026, the priority will remain on improving Rogers multiyear growth outlook and continue to drive profitability initiatives. The organization has a clear understanding of the critical objectives for this year, and we have the right team and capabilities to deliver. Our Q1 guidance incorporates significant year-over-year improvements with sales growth of 5% and a 530 basis point increase in adjusted EBITDA margins. Laura will cover both the fourth quarter results and Q1 outlook in greater detail.

Slide 5. Total sales increased by 5% versus the fourth quarter of 2024, led by higher industrial, ADAS and renewable energy end markets. Industrial sales remain our largest segment and ended the year at 27% of total revenue. Q4 industrial sales increased at a high single-digit rate year-over-year, driven by market recovery and winning additional business from traditional customers.

For the full year, sales improved at a mid-single-digit rate. Aerospace and defense sales were 16% of revenue despite a slight decline in Q4 compared to the same period last year. For the full year, the segment grew at a high single-digit rate. The growth for the year was driven by both strong defense and commercial aerospace demand. EV/HEV sales remained at 14% of revenue. Q4 sales were lower year-over-year as decline in EMS sales more than offset growth in the ADAS segment. The decrease in EMS sales resulted from a higher concentration of customers in regions where EV demand has been challenging. Total full year sales ended well below the prior year with decline in both business units.

We are continuing our efforts to grow in this market with our ceramic China expansion and the ongoing strategy to adapt to changes in the EV battery market and technology. ADAS sales increased year-over-year and for the full year grew at a double-digit rate. Sales continue to benefit from increasing adoption of ADAS solution and higher level of vehicle autonomy. Lastly, portable electronics sales were lower both in Q4 year-over-year and for the full year, primarily as a result of a product in AES business reaching end of life.

Turning to Slide 6. We are already seeing results from the structural and organizational changes implemented during the second half of 2025 with enhanced customer relationships and improved service levels. We have revised our KPIs, targets and objectives to ensure organizational alignment, focus on growth and customer service. These changes have brought on an increased intensity in new product development efforts and will accelerate new product introductions, enabling design wins.

We are confident that our talented team will continue to drive significant improvements in innovation and growth. In addition, we are seeing the results of actions taken to improve profitability. We realized $25 million in cost and operating expenses improvement in 2025 with another $20 million of annualized savings expected to be complete by the end of 2026. This included an 8% reduction in full year operating expenses compared to the prior year.

Lastly, through cost containment efforts and working capital management, we generated $71 million of free cash flow, repurchased shares totaling $52 million and ended the year with $197 million of net cash.

Next, on Slide 7 and turning our attention to 2026. Returning to top line growth is Rogers' highest priority this year. To achieve this objective, we remain committed to fully leveraging our global footprint to increase our competitiveness and grow share in all regions. With our customer-centric organization, we are intensely focused on securing design wins to drive growth and further diversify our end markets. Our design win efforts are targeting both new and existing market segments. We have identified data centers as a significant potential new market for Rogers and secured some initial design wins in the EMS business during the fourth quarter. While these wins are an important start, we are pursuing much larger opportunities by leveraging our strength in thermal management and signal integrity technologies. We believe that our technical solutions in these areas are unique and provide compelling value for our customers. We expect at least one of these design awards decisions to be made later this year.

Prioritizing and accelerating the pace of new product introduction in new and adjacent markets will be a critical enabler for our growth. Improving profitability will remain a key objective in 2026 with the restructuring of the ceramic Germany operations on track. We plan to keep 2026 adjusted operating expenses in line with 2025. As we execute on these priorities, we expect to grow full year adjusted EBITDA compared to 2025. Lastly, we will maintain a disciplined capital allocation strategy as we focus on improving returns to our shareholders. Capital expenditures are expected to be comparable to 2025 as we continue to invest in our facilities and operating structure. M&A will be an area of increased emphasis in 2026 with any potential targets requiring the right strategic fit and financial profile. The level of share repurchase activity will be subject to these other investment priorities.

I will now turn it over to Laura to discuss our Q4 financial performance and Q1 '26 outlook.

Thank you, Ali. Starting on Slide 8, I'll begin with a summary of our fourth quarter financials. Q4 sales and gross margin were near the high end of our guidance for the quarter and adjusted earnings exceeded the top end of our range. Fourth quarter sales increased 5% compared to the prior year period. AES Q4 revenues increased by 14.6% versus Q4 2024 from higher sales in the EV/HEV, ADAS, renewable energy and industrial markets. EMS sales declined by 6.7% over the same period due to lower EV/HEV sales, which were concentrated in regions experiencing demand challenges. The decline was partially offset by higher industrial sales. Adjusted earnings per share of $0.89 in Q4 were nearly double the prior year period due to higher sales and significant improvements in operating expenses.

Turning to Slide 9. Q4 adjusted EBITDA was $34.4 million compared to $23.3 million in Q4 2024. Adjusted EBITDA margin of 17.1% improved 500 basis points year-over-year. The improvement in EBITDA was a result of higher sales, improved product mix and the benefits realized from our profitability improvement initiatives over the past year. In particular, adjusted operating expense, excluding stock-based compensation, decreased by $6.3 million over this time frame. Offsetting these improvements was a $1.7 million increase in underutilization costs, which is primarily related to the start of production for our ceramic China facility.

Continuing to Slide 10, I'll discuss cash utilization for the quarter. Cash at the end of Q4 was $197 million, an increase of $29.2 million from the end of the third quarter. Cash provided by operations was $46.9 million, an increase from the prior quarter due to improved working capital management, particularly from a continued focus on managing inventories. Uses of cash in the quarter included share repurchases of $14.3 million and capital expenditures of $4.7 million. For the full year, capital expenditures were $30 million and at the low end of our guided range.

As Ali discussed, we expect 2026 capital expenditures to be in a comparable range to last year. We are guiding $30 million to $40 million for the full year 2026. Returning capital to shareholders will continue in 2026 with a level of buybacks subject to other capital needs, including potential M&A transactions. Following our purchases in Q4, we have approximately $52 million remaining on our existing share repurchase program.

Next, on Slide 11, I'll review our guidance for the first quarter. Overall, we anticipate significant year-over-year improvement in Q1 2026 sales, margin and profitability, underscoring the impact of last year's initiatives. Beginning with sales, we expect Q1 revenues to be between $193 million and $208 million. The midpoint of the range is a 5% increase in sales year-over-year. The guidance reflects similar market conditions to the fourth quarter with expected year-over-year improvement mainly in industrial sales. We are guiding gross margin in the range of 30.5% to 32.5%. The midpoint of the range is 160 basis points higher than the prior year due to higher volumes and cost structure improvements. We expect adjusted operating expenses to decrease more than 5% compared to the first quarter of 2025 and increase slightly from fourth quarter levels, primarily as certain compensation costs reset in the new fiscal year.

Adjusted EBITDA is anticipated to range from $27 million to $35 million. This equates to a 15.5% EBITDA margin at the midpoint of the range, which would be 530 basis points improvement versus the first quarter of 2025. Adjusted EPS is forecasted to range from $0.45 to $0.85. The $0.65 midpoint compares to adjusted EPS of $0.27 in Q1 of 2025. Excluded from adjusted EPS are restructuring costs related to the ceramic actions in Germany. At the end of 2025, we incurred $5.4 million of associated restructuring charges relative to our total estimated range of $12 million to $20 million. The remaining restructuring costs associated with this action will be incurred from Q1 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 32%. The higher expected tax rate is mainly due to certain loss jurisdictions where no tax benefits can be realized.

I will now turn the call back over to Ali.

Thanks, Laura. In summary, we had another quarter of solid execution. We delivered Q4 results that were above the midpoint of guidance for the quarter and generated significant free cash flow. We entered 2026 with a clear objective to achieve top line growth, further improve profitability and deploy capital effectively. That concludes our prepared remarks. I will now turn the call back to the operator for questions.

[Operator Instructions]

Our first question today is coming from Daniel Moore from CJS Securities.

Congrats on a solid end to the year. Maybe start with the guidance, Q1 pointing to mid-single-digit growth. I think you said that's kind of more of the same versus trends in Q4, improvement in industrial. Just your outlook near term for ADAS, any improvement in renewables and/or defense. And I know you don't give full year guide, but mid-single-digit growth kind of the reasonable thought process kind of for the near to midterm?

Yes. Thanks for the question. Again, our expectation for Q1, we still see a stronger and continued growth in the industrial section -- the industrial sector of the business. However, we see some softness still remain and uncertainty on the automotive side, on the EV side. And as you know, portable electronics tend to be a little softer in Q1 than we experienced in the last 2 quarters. So that's probably what's keeping the guidance the way it is for now. And as I mentioned prior to this, Q1, Q2 and '26, we expected to see some uncertainty here due to macroeconomics in general in those 2 sectors, the auto sector, specifically the EV and the portable electronics. But other than that, everything else, we really see some growth from high single digits to mid-single digits in Q1.

Got it. Very helpful, Ali. And then as a follow-up, you talked about data centers. Just elaborate on key applications there, presumably managing heat. And you mentioned, I think, one new opportunity potentially in 2026. Can you give a little bit more color there? That would be really helpful.

Yes. As mentioned in the earlier remarks, this became our focus over the last, I would say, 2 to 3 quarters, and we're going to continue this effort. We believe we have a very strong opportunity coming up in the thermal management side. Also on the signal integrity technology, we're working on some opportunities there. Both of these, we really see strong momentum. We're working with brand name OEMs. We cannot, unfortunately, give you more details on this, except to say larger brand name OEMs actively qualifying these technologies. And we anticipate to be able to share more information and more details, hopefully later on in 2026 with revenue impact sometimes in '27, maybe even late '26.

I think the other thing we could add to that, Dan, is there is some smaller revenue for other applications in that segment in that space. I think Ali may have previously mentioned that we already captured a design more on the EMS side from a technology perspective that sells directly into data centers from an application perspective.

Yes, that's growing. That's really growing nicely. Revenue-wise, it's still a smaller piece of the pie, but we -- again, I think it's not as much -- the impact of the newer technologies will be a lot more significant than the current business in this industry.

Next question is coming from Craig Ellis from B. Riley Securities.

Ali and Laura, congratulations on getting nice COGS and cost and working capital execution in the business. Nice to see. I wanted to follow up with some of Daniel's questions regarding your #1 priority for this year, Ali, improving multiyear growth. So data center makes a lot of sense given the capabilities the company has and the way voltages are rocketing higher there. And so it would seem that you'd have a lot you could do. My question is broader than data center and looking at what your ambitions are beyond that sleeve of industrial with the portfolio this year. Could you just talk about any specific initiatives that have been in play the last few quarters that you would expect to convert either to new design wins this year, new opportunities this year? And beyond data center, when would we see the revenue benefit of those initiatives?

That's a lot of questions. We'll try to answer it as much as we can to the extent of our ability here. I think the growth target is really across the board for all business segments. It's not just data center or one technology versus the other. we have initiated here certain targets, identified certain opportunities in certain end markets where we're going after, both in the EMS and the ADAS side of the businesses. We've realized some wins in -- with existing customers. So we're expanding some market share there, especially on the EMS side. Some of the businesses with the current technologies will grow as the end markets continue to grow, whether it's automotive in the ADAS sector, for example, the adoption of some of those applications will continue to grow that business.

But we also started sometime last year development in the newer technologies that's really not a me-too type product for applications like the newer battery technology for EV and renewables, which will help us generate not just additional revenue, but really penetrating the market in applications we're not there today that will help us grow that business in the double-digit rate type. So on the automotive side, we're also trying to go directly engage with the OEMs. So we're designing ourselves in with some of these products directly with the OEMs. Obviously, working with our partners, the PCs, the converters and some of the module makers to make sure we're designed in, in conjunction with them. We think this type of approach to the market is going to help us expand and grow the top line a lot faster rate than we have done in the past.

That sounds good. My follow-up question was on another 2026 priority and the ambition for profitability improvement. And the question is, with significant momentum in this area, given what I think was $30 million in initiatives that's largely been executed and then the $13 million, I believe, of ceramic-related initiatives in 2026 with -- I think that's starting to benefit gross margin in the back half of the year. Are there new additional initiatives that you're planning for '26? Or is it executing on those 2 objectives and realizing and holding those gains?

So let me start with that, Craig. So you're largely correct in saying the initiatives we've already announced are already in flight and much of those savings are already seeing the fall through to the P&L. Where we're not fully concluded is as you correctly stated, with the ceramic restructuring activity, specific to our operations in Germany as we respond to the demand that we're seeing for that business. We will see the benefit of that in the second half of 2026. And as I said in my prepared comments, the benefits we still anticipate to be in the range of $13 million annually and the cost of that program is still forecast in the range of what we committed as part of the restructuring.

Now what I would say is, if I think about the business and the opportunity to optimize our financial performance, We've undertaken substantial restructuring to position ourselves positively. But really what's going to drive a substantial transition and shift is what Ali is talking about with regards to our top line expansions and the innovation and the technologies that are really going to allow us to differentiate ourselves from a market perspective and continue to command pricing in accordance to that.

But what will complement that will be our continued management of the business, which is supported by the operating structure that's been implemented and the monthly reviews to ensure that we're very nimble in responding to current demand and capacity requirements and investing in accordance to that. I think just finally to round that out, we did mention the restructuring, the impact that had on our operating expense. You saw that, that dropped from about $210 million in 2024, about $193 million, $194 million in '25. That restructuring, we're largely through, but we'll continue to monitor our levels of investment in accordance with the opportunities as we see them present themselves.

That's really helpful, Laura. And if I can sneak in one related follow-up. Ali, is there anything you can share with us on how significantly you'll be able to load up the new ceramic facility in China as it gets going in the back half of the year?

Yes. I mean, Craig, we're still, to be honest, disappointed that it's going slower than we expected it to. But it is moving. I think the customers are still there and they're interested in buying from the China facility and move some of the products or source the China facility. What we're trying to do here balance between aggressively going after the market and therefore, we don't want to play the price game, let's put it this way. So we're trying to be diligent and be careful about not participating in a price erosion type for the market. We still anticipate the plans to be there. So our plans did not change. It just shifted from a time perspective.

So we still see growth in that facility in Q2, Q3, Q4. But again, really slower than we expected it. We expected to see better situation we're in, in Q1. We're not there yet.

Our next question is coming from David Silver from Freedom Capital Markets.

I'm going to go back, and I'm hoping you can just level set me on the pace and the total of the cost savings. So my belief was, I guess, at the end of this year, you were expecting a run rate of $32 million. And then there was the $13 million additional that was cited related to Germany. And then I believe you're using a number of $30 million. And I'm just trying to kind of separate what was mentioned last quarter versus what might be additional as of December 31.

No problem. Let me start, David, and see if I can address your question. So you're right in so far as saying $25 million was the run rate for the initiatives that we had announced previously. What you're also right in saying is the full year benefit of those initiatives is $32 million. But the difference in that $25 million and the $32 million is the full year benefit, some of which we haven't yet seen realized in 2025. So I've got an incremental $7 million that will hit the P&L in 2026 for those initiatives that deliver $25 million of savings in '25.

In addition to that, the ceramic restructuring in Germany that we announced in the middle of last year hasn't yet delivered savings to the P&L. We're in the middle of that process. And as a result of that, we won't see the savings materialize into the financials for that until the second half of '26. So that $13 million we've not yet seen. And in addition, we've got another $7 million that hasn't yet hit the P&L. But $25 million is there, and I would share with you that about 70% of the $25 million we did realize in 2025. The savings for that is in the expense category with the residual being in our gross margin and our COGS.

Okay. appreciated. So then my next question, which one did I want to ask here? Sorry. I wanted to go back to the press release and in particular, Ali, you quoted as saying you have an enhanced innovation strategy. So you have talked quite a bit about different business opportunities and qualification processes. But I'm just kind of scratching my head and I'm wondering when you say an enhanced innovation strategy, does that refer to an enlarged selling effort? Does that refer to increased R&D? I mean what qualitatively, what's included in your comment about an enhanced innovation strategy in service of improving long-term growth prospects?

I think it's both. It's really enhanced selling process, but more importantly, it's -- we've identified and the team is working on distinct 3 different projects that we will differentiate to the business. There really be differentiation from what the market today has, what's available on the market today. And those products, we believe they are unique that will solve problems that exist today and for future issues that's facing whether it's in data center applications or in communication applications or EV battery applications, and new technologies. So we've identified those areas, and we're developing products as we speak. Some of these products are in qualification process, as mentioned.

For these applications, these applications, as you know, they're very high-growth applications. And for us today, in some cases, we're not really participating in any material type way. We think those will be differentiators to the business going forward, will allow us to have the growth rate that we want to do within Rogers. That's what I meant by enhanced. It is very specific, targeted on -- for certain applications and also differentiated. It's not a me type technology, me type product and within our capabilities and our expertise.

Okay. And then last one for me. This is kind of a question related to tariffs, I guess, but more second or third order effects. So in other words, last April, your company had to respond in short order to one wave of tariff announcements. This time, it's seemingly from our administration here, it's more targeted. But on the other hand, we're also hearing stories about offshore partners deciding to trade with each other as opposed to maybe a U.S.-based supplier that might encounter some incremental difficulties.

From your perspective, has there been any signs that your key OEM customers in offshore locations or headquartered in offshore locations? Is there any change in the way you're doing business with them? Or are they diversifying away or adding non-U.S.-based suppliers in certain cases? In other words, how is the environment for doing business now with the lingering or more targeted tariff-related announcements? How does that affect your day-to-day strategies and your ability to pursue new business?

I think that the fact that Rogers is a global company and having manufacturing facilities globally really kind of neutralize that issue completely. So we're able to respond to our customers, whether they're in Asia or North America or Europe because we're local manufacturing -- we're locally manufacturing all their needs or in most cases, all their needs. We have seen some OEMs who are trying to shift again to buy locally. And that for us actually has been a benefit, and we anticipate that to continue to be beneficial for us because we'll be able to respond to these needs, again, just because of the way we are today, we've got the global capabilities, local capabilities on a global basis. So we can supply Asia from Asia. We can supply North America from North America. And in Europe, we can supply most of the products from within Europe. And we're looking to enhance our capability in additional manufacturing in the European continent within the next 12 months or so.

[Operator Instructions]

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

Good afternoon. My name is Alicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation Third Quarter 2025 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.

Good afternoon, and welcome to the Rogers Corporation Third Quarter 2025 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 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, which are available on our Investor Relations website.

With me today are Ali El-Haj, Interim President and CEO; and Laura Russell, Senior Vice President and CFO.

I'll now turn the call over to Ali.

Thanks, Steve. Good afternoon, everyone, and thank you for joining us today. I'll begin on Slide 4 with the key messages for the quarter.

First, since taking on this role in mid-July, I have engaged extensively meeting with Rogers' employees and customers in Asia, Europe and the United States. These meetings and discussions have reinforced Rogers' core strengths and the key growth opportunities ahead. They have also shown the areas where we must improve to achieve renewed growth and sustainable operating performance. To capitalize on these opportunities and to deliver greater returns to shareholders, we are executing on a plan with several critical focus areas. I will cover these in detail and share the progress we have made thus far.

Turning to our Q3 results. Our sales, gross margins and adjusted EPS results were all at the upper end of the guidance and exceeded Street consensus. Sales increased by 6.5% from prior quarter, led by improvements in portable electronics, industrial, aerospace and defense end markets. Compared to the prior year, sales increased by 2.7%. Q3 results benefited from delivering on cost and expense reduction actions.

For the fourth quarter, we expect sales and earnings to improve versus the prior year, while typical seasonal factors will lead to a sequential decline. With expense reduction actions completed, adjusted EBITDA margin should improve around 300 basis points versus the prior year. Laura will cover both the Q3 financials and fourth quarter outlook in more detail.

On Slide 5, I will discuss the critical initiatives we are advancing in the near and midterm. First, we are committed to improving Roger's top line growth potential. To achieve this, we are intensifying our customer focus with actions underway to better anticipate their needs and improve service levels. As we work to delight our customers, we will leverage our global manufacturing capabilities to increase our competitiveness and market share in each region.

We have recently expanded this capability as we have started production in the new curamik facility in China. With a localized supply chain and a regionally competitive cost structure, we are positioned to compete effectively.

Delivering innovative new products is also key to achieving our growth objectives. There are compelling opportunities in the technology pipeline and significant future potential applications. In the coming quarters, Rogers will be introducing new products in all business units, targeting new and adjacent market segments.

The next critical priority is to maintain a lean and efficient cost structure. Expense reduction actions and footprint optimization efforts that were started in recent quarters are taking hold, improving EBITDA margins and cash flow. We are making significant progress on the previously announced restructuring of curamik operations in Germany. Cost savings from this initiative will begin in the fourth quarter with $13 million of annualized savings targeted by late 2026.

We will continue to evaluate our global footprint and make refinements as needed. This may include selective investments to support growth opportunities that meet certain return criteria. These investments will be carefully balanced with vigilant cost control.

Operational excellence will remain a top priority, focused on creating a more flexible and dynamic organization. Actions already completed include changes made to the commercial, R&D and operations organizational structure in both business units. These changes were implemented to increase the speed of execution, improve accountability and simplify how we operate. We already are seeing results with significant reduced lead times, some by as much as 60% while reducing inventories and improving working capital.

Our revised operating model will continue to drive these types of improvements. As we reshape our structure into a customer-centric organization, we expect to see more consistent performance and improved returns to shareholders.

Lastly, we are also intensely focused on critical initiatives to grow and strengthen Rogers over the long term. While these objectives are not part of today's discussion, we will share our plans at the appropriate time.

On Slide 6, we'll discuss our sales for the third quarter by end market. Beginning with industrial markets, sales were higher versus the prior quarter in both AES and EMS business units. In Q3, the improvement was broad-based with sales increasing across all regions. This marks the third consecutive quarter of higher industrial sales and on a year-to-date basis, we have continued to show growth. Aerospace and Defense sales also improved sequentially. EMS sales increased driven by stronger commercial aerospace demand in the North American market. AES defense sales remained strong and were in line with the prior quarter.

On a year-to-date basis, total A&D sales have increased at low double-digit rate. EV and HEV sales were relatively unchanged versus the prior quarter. AES sales increased from improved power substrate demand.

Year-to-date, sales remained well below the prior year. We anticipate further growth in this market, supported by the recent curamik expansion in China and the recovery in demand from the Western power module manufacturers.

As anticipated, ADAS sales decreased sequentially. The sales decline tracked lower light vehicle production in Q3. Year-to-date sales remained solidly ahead of 2024.

Lastly, portable electronics was the largest driver of the sequential improvement in revenue. The double-digit increase versus the prior quarter was in line with expected seasonal patterns.

I will now turn it over to Laura to discuss our Q3 financial performance and Q4 outlook.

Thank you, Ali. Starting on Slide 7, I'll begin with a summary of our third quarter financials. Q3 results improved meaningfully from the prior quarter with all financial metrics at the top end of guidance. Sales increased across most end markets with the largest increase in portable electronics and industrial.

AES revenues increased by 5.2% and EMS revenues were 8.7% higher on a quarter-on-quarter basis. GAAP EPS of $0.48 improved significantly from the prior quarter, mainly due to lower restructuring-related expenses. Adjusted earnings per share in Q3 increased to $0.90 from $0.34 in Q2, a result of the improvement in sales and gross margin and reductions in G&A expenses.

Turning to Slide 8. Q3 adjusted EBITDA was $37.2 million or 17.2% of sales. The 540 basis point improvement from the prior quarter was driven by multiple factors. First, gross margin increased 190 basis points to 33.5% due to higher volumes, favorable product mix and reductions in manufacturing costs.

Late in the third quarter, we started production in our curamik facility in China. Cost for the initial factory ramp had only a slight impact on Q3 margin. The impact of tariffs on gross margin was minor in Q3. This was a result of continued mitigation efforts and the agreement between the U.S. and China to delay tariff rate increases.

Next, adjusted operating expense, excluding stock-based compensation, decreased by $2.5 million quarter-on-quarter. The lower OpEx resulted from reductions in professional services and global workforce restructuring.

Lastly, other income improved $2.6 million due to favorable quarter-over-quarter changes in foreign currency transaction.

Continuing to Slide 9, I'll discuss cash utilization for the quarter. Cash at the end of Q3 was $168 million, an increase of $10.6 million from the end of the second quarter. Cash provided by operations was $20.9 million and improved due to higher sales and operating income.

In addition, we improved working capital, particularly inventory through continued focus. Uses of cash in the quarter included share repurchases of $10 million and capital expenditures of $7.7 million. For the full year, we forecast capital expenditures in the range of $30 million to $40 million.

Returning capital to shareholders will remain a priority. Our current view is that share repurchases in Q4 will exceed Q3 levels. Following our purchases in Q3, we have approximately $66 million remaining on our existing share repurchase program.

Next, on Slide 10, I'll review our guidance for the fourth quarter. Beginning with sales, we expect Q4 revenues to be between $190 million and $205 million. The midpoint of the range is a 3% increase in sales year-over-year and a 9% decline quarter-over-quarter. The guidance reflects the normal sequential decline in portable electronics sales from Q3 to Q4 and slower order patterns across most end markets as customers manage year-end inventory.

We are guiding gross margin in the range of 30% to 32%. The midpoint of this range is 110 basis points lower than the prior year with an 80 basis point headwind from the ramp of our curamik factory in China. Compared to the prior quarter, gross margin is 250 basis points lower due to volume and mix.

We expect adjusted operating expenses to decrease from third quarter levels, primarily from lower start-up costs, which have moved into gross margin following the start of production at the curamik facility. EPS is projected to range from breakeven to earnings of $0.40. The adjusted EPS range is $0.40 to $0.80 of earnings. We expect adjusted EBITDA margin between 13.5% and 16.5%, a roughly 300 basis point improvement versus the prior year at the midpoint of the range.

The margin and EPS guidance assumes that tariff policies in place today remain unchanged for the quarter. Adjustments to arrive at our non-GAAP EPS and adjusted EBITDA are mainly comprised of restructuring costs related to the curamik actions in Germany.

As communicated last quarter, the restructuring costs associated with this action will be incurred from Q4 of 2025 to Q3 of 2026. We anticipate savings, albeit small to start in late Q4 of '25. 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 35%. The higher expected tax rate is mainly due to certain loss jurisdictions where no tax benefits can be realized.

I will now turn the call back over to Ali.

Thanks, Laura. In summary, there is a clear focus on the key initiatives to grow the top line, improve the cost structure and further operational excellence. Combined with a renewed customer focus and new product introductions, we see significant opportunity to improve Rogers' performance over the near and long term. That concludes our prepared remarks.

I will now turn the call back to the operator for questions.

[Operator Instructions]

Our first question comes from the line of Daniel Moore with CJS Securities.

I'll start with the top line and just kind of general revenue trends. Guidance for Q4 implies 2% to 3% growth at the midpoint year-on-year. Just talk about the confidence in demand continuing to build in those key end markets that you called out like industrial, aerospace and defense and some of your larger end markets.

And as we look out to the first half of '26, would you expect similar, if not improved year-on-year growth, particularly given some of the easier comps that we have in the first half of the year?

Dan, it's Ali. Look, we're confident in the range that we've given you based on what we see today. Absent macroeconomics change, we're very confident with the range that we've given you for Q4. So we expect the market to continue strong for us in all activities -- the only one that we -- all market segments.

The only one we're probably still hesitant is the EV market and how far can it recover for us. That's the only concern. But that's baked into the forecast that we -- or the guidance that we provided.

As for the first 6 months of 2026, we actually have high confidence in better performance and continued growth in all business segments.

Very helpful. And maybe for Laura, the gross margin recovered to 33.5% this quarter. Obviously, mix helps. It's a seasonally stronger quarter. But as we look out, 2 questions. One, the 80 basis point headwind in Q4, how should we think about that kind of dissipating as we move into the first half of next year?

And two, what in your mind is sort of a baseline for gross margins on an annualized basis? And what could an upside scenario look like? And I'll jump back in queue with any follow-ups.

Okay. Sounds good. So let me address the first half of your question, Dan. So the 80 basis points headwind that we're going to face in the fourth quarter associated to the ramp of the curamik facility in China is pretty typical of what we would anticipate as we begin production in that facility. I think as Ali mentioned in the prepared remarks, we have activities ongoing with many customers, and we're looking to qualify and ramp those customers into full manufacturing production volumes, which will facilitate us getting ahead of that headwind and turn into return from that facility, which correlates with the investment we undertook to build out our regional capability and capacity and allow us to be far better positioned to compete locally in that market.

So what I would anticipate is it will take time to fully ramp the capacity through 2026, not necessarily because of our readiness, but because of the time it takes to qualify the customers' product and their solution directly from our factory. So those activities are ongoing. And we would anticipate as we reach the back end of next year to not be facing the same extent of headwind to the margin from that operation.

In terms of thinking about the potential for the business and the margin optimized, Ali spoke about the initiatives and the objectives that we have. A lot of them will crystallize and improve financial results as we embed the new operator model and deliver improved operational effectiveness and grow the top line.

I spoke previously about our current investments and the capacity being in place. So now we're turning our attention to optimizing that capacity and utilizing it to serve the demand and the potential that we see.

Our next question comes from the line of Craig Ellis with B. Riley Securities.

Laura, I'll just start on the theme that Daniel is on and just take the cost and margin dynamics a step further perhaps. So my sense from your characterization as you walk through some of the slides and the cost savings, which I think are targeted at $25 million this year with a $32 million run rate, and then we've got $13 million coming from the German facility next year.

Is that there may be other cost benefits that could be executed against beyond things that are in progress and the German facility benefit, one. Is that correct? And two, how material could those things be? And when could they start to be things that would be actionable as we look at where profitability and cash conversion can ultimately go for the business?

Okay. So let me start, and Ali can add additional comment as he sees fit. So in terms of the plans that we've already outlined, Craig, and where we're at in executing those. The $25 million savings in $25 million that I've spoken to, you can see that crystallizing in the P&L at the moment based on the guide that we've given.

If you look on a year-on-year basis, if you look at the OpEx in totality, we were roughly $210 million last year. And with our guidance, we're probably about $18 million to $20 million below that in our update for 2025. So you can see that coming to fruition. From a full year basis -- and sorry, just to give clarity, that's because of the 70% of the $25 million is in OpEx and the residual is in gross margin.

If you look on an annualized basis, as you stated, that should be more like $32 million benefit across both P&L geographies in '26. And in addition to that, as we announced last quarter and as you correctly commented, the restructuring in Germany has commenced. The program is largely on track, and that's set to deliver $13 million on an annualized run rate basis.

Just to remind you, that $13 million, though is a COGS saving, not an OpEx saving. We won't see that fully materialize until later into 2026, just as we go through the ramp down of the capacity and the ramp-up in servicing some of those customers in the new geography in China. So that's what we have there.

In terms of incremental opportunity beyond that, what I would tell you is you hear us talk about efficiency in the operating model, and we will look to optimize the financial performance of the business month-to-month, and that's exactly the discipline that we have, but with an increased intensity of that discipline with the processes and the approach that is now being deployed.

So with that, we will evaluate the business and the market opportunities as they present themselves and make appropriate investments or savings as is needed. In terms of defined plans at the moment, it's the ones that we've already shared, and I've just walked through just now.

That's very helpful. And I think the execution on cost and other things have been quite notable over the last 3 to 4 quarters, Laura. So it will be nice to see those continue.

Ali, I'll turn my second question to you. You noted in your prepared remarks that the industrial end market, which is our biggest, was an area of strength. My question is, as you look at the dynamics in that end market, what is it that drove that strength? And as you think about growth in that large end market, what are the opportunities specifically to drive growth? And do you think that we're at a point where supply chain inventories are no longer a headwind to that business?

Yes, thanks. I'll answer the question kind of backwards from inventory and supply chain issues, I think that's way behind us now. So that's all kind of cleared up. I think we're looking forward and the potential for growth. So we have 3 elements that we're targeting or we're working on.

One is we're capturing more market share from products and customers that we already have and customers that we didn't have in the past. So increasing market share, this is key for us. And again, this is for assets that we have. So we can utilize these assets. We have the capacity to supply these type of products.

In addition to that, and this is significantly important, I think our customers started to see our improvement in response and service and for their demand and need. So we're seeing a lot more demand and a lot more of these volumes shifted back to us.

The third element is introduction of new products. So as I indicated, we would be launching. We actually started this in Q4 of this year going forward, several new products that will allow us to even penetrate markets that we have not participated in, in the past. So I think all those 3 elements were really given us a lot more confidence that we will continue to grow the top line.

That's very helpful. And if I could just ask a clarification on the heels of those 3 drivers, Ali. As you've interacted with the internal team, as you've interacted with partners and customers, do you feel like pricing is at the right level for the high value that Rogers products bring to market? Or is there opportunity to do things tactically with pricing so that more of the functional value that Rogers provides come home to the top line and down to the bottom line?

I think the simple answer is a combination of both. So I think Rogers brand name and quality and commands obviously a premium pricing. In certain markets, certain applications, that's been a key for us. However, there's other markets and areas where really the market commands the pricing. And in this case, what we're doing internally is we need to make sure we're focused on the cost structure that we have today to be able to compete effectively in these markets and be able to realize the margins and the returns that we expect to get.

Just one point of clarification just before we jump off, Craig. Naturally, what I was discussing in the OpEx bridges was adjusted OpEx.

Our next question comes from the line of David Silver with Freedom Capital Markets.

First question would be for Ali. And I took note in your opening remarks that your first task, I guess, upon becoming interim CEO was to visit with a number of your key customers, I guess, you mentioned globally. So I guess your company has gone through an extended -- or the industry has gone through an extended period of kind of softer demand. There's been inventory issues. There's been more recently tariff issues.

Would you say that the relationships with your key customers remain as strong as they were, let's say, 18 months ago? Or due to some of those changes, does Rogers need to take maybe some further steps to even more closely align with your key customers and collaboration partners in order to meet your goals?

So what is the status of the relationships over an extended period of reduced demand? And then the significant steps you've taken thus far to reduce costs and tighten your alignment, are there further steps tactically or strategically that you need to undertake?

Yes. Thank you for the question. I think, again, I think the relationship with our customers is very strong. I think it's solid. There's a lot of history here behind some of those customers, especially the key customers. I think my objective was really to develop some deeper understanding of the needs, listen to their voice and understand their needs, expectations from Rogers and making sure we're really paying attention to that and addressing those issues. So this communication really improved our understanding of their expectations.

That could have been, in some cases, maybe because of outside factors, whether it's supply chain interruptions, raw materials that we went through in the past 3, 4 years. And obviously, that caused some hiccups and that or some -- I would say, minor disruption and caused some pain to some of those customers. So I think we -- this understanding really now is very clear.

Our understanding of their needs is very clear. And we aligned the organization itself internally to make sure we address those issues day in and day out across the whole spectrum throughout the whole organization, not just the sales of the R&D, but when it comes to service, and we've mentioned some of the improvements we've made internally, cutting lead time to 60 in some plants even higher than that. So we're responsive. We're being more responsive.

We think now -- we expect by the end of 2026, hopefully to be the benchmark in the industry when it comes to the service level and quality and these type of activities.

With regard to the second half of your question, continuous improvements never stop. So this is going to be an ongoing effort to continue to work on our operations and continue to improve our processes, whether it's in the manufacturing processes or, again, the customer service area, the sales area, the development processes.

We're looking to reduce our development time in engineering significantly to be able to introduce products faster and because we need to be, again, expecting the demand and need of the customers and be up there and upfront and be there when they need us. Not react and supply them stuff beyond or delaying their expectations and delaying their introductions. So these are things we continue to focus on. A lot of it is in our -- within our control, and therefore, we -- I'm very confident we're going to get these things accomplished.

Okay. I did want to maybe ask a question about your philosophy about share buybacks and returning cash to shareholders in general. But the funds, I guess, over the past few quarters, including the current one, I mean, the funds allocated to buybacks have increased significantly over, let's say, the trend over the past several years.

And I think Laura indicated there'll be further repurchase activity in the fourth quarter. Just philosophically, is this a decision by management to act opportunistically because of maybe where the share price was earlier this year? Or would you say it's more programmatic and share repurchases are likely to continue at a higher level than has been the typical levels over the past several years?

David, so let me start with that. So yes, it would be fair to say that it's been somewhat opportunistic. It's an indication of our belief in our potential with the share repurchases that we had undertaken this year when our stock price was where it was.

We did do a further $10 million in Q3, and I had indicated in our call that we would likely do a little more than that in the fourth quarter. What I think is critical, though, is you asked about the philosophy around share buyback. And really for us, it's about looking for optimizing returns to our shareholders as part of our capital allocation structure.

And what we had seen through '25 is whilst we were still active in evaluating M&A and potential opportunities, there hasn't been presented opportunity or target that met our investment and return criteria. And we had already explained we were largely through the organic investments that we saw for expanding the company in its existing structure with its existing technologies.

So that's what resulted in the pivot to the share repurchase activity. Now as with every quarter, we'll continue to evaluate the investment potential and seeking to optimize those returns, and we'll balance what we do on a go-forward basis between all 3 legs of those the capital allocation structure.

[Operator Instructions] Our next question comes from the line of Daniel Moore with CJS Securities.

First couple of questions, more high level looking out to next year. But just in terms of Q4, you came in at the top end of the range this quarter. Guidance for Q4 again implies a pretty wide range. Just talk about the puts and takes that could cause you to come in toward the lower or higher of that range this quarter.

Do you want to take that?

So Dan, it's Laura. Let me start. So we guided based on our current visibility. And we stated in the prepared remarks, really, what we typically experience and what we've incorporated is the slowdown in portable electronics into the fourth quarter versus the third and the customer management of inventories.

Now we may see some change in that inventory management. We may see some -- we've got a substantial exposure in the industrial space. If we see those indices shift and increased investments, then we have capability to respond to demand as it comes in.

And if we go the other way and there's any weakness, which is not anticipated based on the guide, then we would manage the way we do week-to-week, month-to-month on our activity. So at the moment, with the visibility we have, the guidance is as it stands.

[Operator Instructions] Our next question comes from the line of Craig Ellis with B. Riley Securities.

I was hoping to go back and just get a real long-term perspective on what the view is with the China curamik facility, both with respect to the diversity of customers that you think you can have in that facility? How you're thinking about being able to ramp up that facility beyond the very near-term gating factors like the specific customer and program costs that would start product?

But what are the strategies the company has to engage with customers and grow both domestics and internationals that might need manufacturing autos there? And then anything else that would help us form an insightful view on what you think is possible over the next 2 to 3 years with that facility?

Yes. Okay, Craig. I think, obviously, we did not build this plant. So we were engaging with customers before we started the facility and started building the facility and restructuring. So from a customer activities and potential, it's all available to us is there. So I can assure you that we already have several programs that were being sourced and committed by some of our customers.

So what we're going through is what we indicated earlier. We have some qualification that product qualification, process qualification that we're going through with our customers. And that's probably the gating item here. As some of these things get approved, they will launch because the demand is there. We -- and it's multiple customers, some existing customers and a few additional newer customers and newer applications for us.

So the future for the curamik facility in China is very bright as we see it today. We expect significant growth in the facility and in the overall curamik business. So we still believe that the growth there is very solid, and we can forecast it.

And to follow up on one of the points that you made and understand it more deeply, if the gating factor near term is just the quals that we're doing, whether it be product or process, what are the levers that the company has to maximize the speed at which that can happen, whether it be how you're staffing the facility, the shifts that may be running or just technical things that need to be done? Just any further color there would be helpful.

Yes. I mean the facility is already staffed for the current volume and for the expected forecasted volume for the next quarter. With regard to the expertise and experts and all the staffing that we need the support function, the functions, they're already available and it's already staffed.

I think some of the issues that I've mentioned is these type of qualification is really at the customer's end. We've done all the work internally for most customers. And now the next phase is their own qualification of the product itself. And we're trying to assist some of those customers actually doing some testing for them to speed up that process. So I think overall, we believe we're on track to hit the numbers that we are forecasting for 2026.

Thank you. There are no further questions at this time. And with that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.