Rogers Corp (ROG) 2013 Q3 法說會逐字稿

Good morning. My name is Cheryl Lee and I will be your conference operator today. At this time I would like to welcome everyone to the Rogers Corporation 2013 third-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

Thank you. Mr. Bruce Hoechner, President and CEO, you may begin your conference, sir.

Thank you Cheryl Lee. Good morning, everyone. Thank you for joining us.

The slides for today's call can be found on the investor section of our website along with the news release that was issued yesterday. With me today are Dennis Loughran, Vice President Finance and Chief Financial Officer and Bob Daigle, Senior Vice President and Chief Technology Officer.

I will now turn it over to Dennis to dispense with the formalities.

Thank you, Bruce.

I would like to point out to all our listeners 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 statements.

Also the discussions during this conference call will include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliations 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 that can be found on our websites investor section.

I will now turn it back over to Bruce.

Thank you, Dennis.

I am pleased to share with you today Rogers' third-quarter results and the great work our team is doing to drive margin improvement and grow revenues. On our last call at the end of the second quarter, we talked about the journey of transformation well underway at Rogers and the progress we have made in improving both revenues and margins. We also forecasted an even stronger third quarter due to improving market conditions, seasonal demand, and continued focus by our global team on growth and profitability initiatives. Today I am pleased to say that we delivered even stronger performance than anticipated. We finished the quarter ahead of our revenue and earnings guidance due to strong demand for our products and our combined efforts to control costs and improve performance. Earnings per share were up 55% net of special charges compared to last quarter. Overall, it was a very good quarter for Rogers and we are all pleased that our actions are showing in our results.

Now we would like to spend a few minutes providing more details on Rogers' performance in the quarter. Then Dennis will share further insights on our financials and earnings guidance for the balance of this year, followed by your questions.

Moving to Slide 4, you will find an overview of third-quarter performance by market. Overall, for the quarter, 59% of our sales fell into our strategic mega trend categories. Rogers focus on solving material challenges in support of global mega trends continues to drive our growth along with the Company's broad portfolio of advanced technologies that are helping power, protect, and connect our world. In the Clean Technology category, sales were up 45% over Q3 of 2012 with a strong rebound in demand for power modules for burial frequency motor drives, electric vehicles, and wind and solar applications.

In support of global demand for internet connectivity, we delivered record third-quarter sales. The market for 4G LTE based station deployment was very active, especially in China. Additional growth in new applications enabling wireless connectivity from mobile Internet devices also drove demand for Rogers' high-frequency Printed Circuit Materials. In mass transit, revenues were up 7% as China rail spending began to ramp-up again. Additional growth areas included circuit materials for automotive safety systems, power electronics for energy-efficient appliances, and laser diodes, and advanced cushioning products for safety and protection.

Turning to slide 5, let's look at the Company's performance by business segment. Overall, net sales were $142.8 million, up 10.6% compared to last year's third quarter. For those of you who listened to our calls frequently, you know that we have talked a lot about the ongoing ramp in-demand for Rogers high-frequency Printed Circuit Materials in the 4G LTE wireless infrastructure market. The momentum we have seen continues to build, contributing to record sales for the PCM business in the third quarter if we compare revenues from our current portfolio of continuing business. As mentioned earlier, PCM delivered strong growth in auto safety sensor circuit materials as well is new wireless connectivity applications for mobile devices. Softer demand in the satellite TV market for low noise block down converters or LNB offset some of this growth. Defense and Aerospace Printed Circuit Materials demand remained stable for the quarter, despite sequestration concerns.

In Power Electronics Solutions, revenues were up 45% versus third quarter of last year with robust performance across all key applications. PES saw high demand for Curamik power module substrates and variable frequency drive markets. The business also delivered double-digit growth in substrate applications for wind and solar power, hybrid electric, and drive by wire automotive, as well as appliances and laser diodes. Power Distribution Systems also delivered double-digit revenue growth across all key application areas as well. This solid performance extended to the rail market as the Chinese government began implementing its announced investments in rail expansion, driving demand for rail propulsion system components.

High-performance foam's revenue, on the other hand, were down 7.5% versus third quarter of 2012. Delays in next-generation tablet introductions and softer demand in transportation applications were key factors. In applications from mobile internet devices, our foams business also continued to be negatively impacted by changes in tablet device design, a shift too smaller size tablets, and better production utilization at our customers that have reduced the amount of total foam content in those devices. On the positive side, volume was up in Smartphones and consumer applications for sport impact protection and industrial safety.

Moving to slide 6, we have many initiatives underway at Rogers to drive future growth. Across the Company we are focused on becoming more market-driven. We are undertaking a journey of marketing excellence designed to enhance our capabilities in understanding market needs in order to deliver greater value to our customers. We are building a closer linkage between marketing and R&D as we work to improve our innovation capabilities and accelerate delivery of differentiated market-driven solutions. Our previously announced innovation center in collaboration with Northeastern University is progressing well and we plan to have members of our innovation team co-located with Northeastern researchers by the end of the year. We continue to improve our design collaboration capabilities and the quality of our pipeline, in addition to the number of opportunities.

If you look at the snapshot of opportunities at the end of the third quarter, our targeted mega trend categories of cleantech, internet, and mass transit, we were tracking a cumulative total of 671 major design opportunities of which 388 advanced to the designing phase of the selling process. During the quarter we moved 39 large mega trend opportunities from design into production. We are also capturing wins across a wide array of other markets such as industrial, automotive, and consumer. Looking ahead, we will win in the marketplace by aligning our entire organization around market and customer needs, building our innovation capabilities, and focusing on operational excellence.

I will now turn it over to Dennis to report are financial highlights. Dennis.

Thank you, Bruce and good morning to everyone again.

As reported in the press release, we achieved earnings from continuing operations of $0.76 per diluted share which includes net special charges of $0.06 per diluted share. The special charges we're related to the 2013 cost improvement initiatives commencing in the first half of the year. With $0.01 related to the unexpected completion, -- with the expected completion of the [Curamik] move to Hungary and the remaining $0.05 resulting from adjustments and final costs related to the first half personnel moves. While we had forecast only $0.01 of special charges in our guidance. You can see from our results that are underlying non-GAAP results substantially outperformed expectations, more than offsetting the extra special charges during the quarter, resulting in GAAP results at the high end of that guidance range.

Our non-GAAP result of $0.82 per diluted share put us $0.05 above the high end of our Q3 non-GAAP guidance for the quarter, while sales for the quarter came in at $142.8 million, just slightly above the high end of our guidance range. The combination of stronger sales and better than anticipated cost performance produced better than expected gross margins and operating profit margins at 35.8% and 13.3%, respectively, on a GAAP basis. In comparison to last year's third quarter call the numbers are equally favorable. The top-line is up $13.7 million or 10.6%. On a non-GAAP basis operating profit margin improved from 11.2% in Q3 2012 to 14.4% in Q3 2013. The $13.7 million sales increased delivered $8 million in gross margin improvement or a 59% contribution level. This margin improvement stems mainly from the impact of this year's cost improvement efforts which provided approximately $1.2 million in cost improvements above Q3 2012 already enhanced cost picture.

As we had mentioned all year, our quarterly results in 2013 are impacted by incentive compensation accruals in 2013 that were not present in 2012. Approximately $2.4 million in Q3. However, we also achieved net sustainable SG&A cost reductions in the quarter totaling approximately $1.9 million resulting from our 2013 profit improvement efforts. Overall, we improved non-GAAP operating profit by 42%, confirming our improvement efforts are bearing fruit quickly.

On Slide 8 profitability improvement, we continued to track favorably to previously performance improvements with third quarter non-GAAP operating profit at 14.4%, which is 870 basis points higher than our Q1 2012 starting point level at 5.7%. This quarter does represent our typical third quarter seasonal high point, but still compels pairs very favorably to last year's Q3 high point of 11.2% or a 320 basis point improvement period-over-period.

Our gross margins for the last five quarters are depicted on slide 9. With the third quarter of 2013 at 35.8% on a GAAP basis and 35.9% on a non-GAAP basis after removing the cost associated with the start-up of the inspection operation at Curamik's Hungary location and other special charges. That non-GAAP result represents a 240 basis point improvement as compared to the 33.5% non-GAAP gross margin reported in the third quarter 2012. Approximately 84 basis points of this improvement is the result of the $1.2 million in streamlining benefits realized this quarter as compared to last year's third quarter. We also improved 156 basis points related to the addition of incremental volume at our average portfolios 50% contribution level as we continue to absorb lower-cost incremental manufacturing capacity through our manufacturing base.

Turning to commercial expenses on slide 10. Excluding special charges that total 0.1% during the quarter, non-GAAP selling administrative percentage as a sales of the third quarter of 2013 and 2012 were 17.8% and 18.6% respectively. The net decrease was primarily related to top-line sales increasing at a faster pace than expenses with approximately $1.9 million in cost reductions, offsetting higher incentive and stock compensation costs of $2.4 million not in the 2012 comparable period. In addition, as previously described, S&A spending was negatively impacted by higher intangible amortization related to Curamik purchase accounting of $0.4 million. We also incurred approximately $0.5 million in higher cost related to investments in key strategic areas including sales and marketing as well as other organizational initiatives, representing only a 2.5% annual rate of increase on prior-year base spending levels. Research and development expenses were 3.8% of sales in the third quarter 2013, slightly higher than the 3.7% rate experienced in the third quarter of 2012. In the near-term, we expect our R&D spending rate to continue to grow toward the range of 4.5% to 5.0% of sales as we begin to fund staffing and initiatives related to the opening of the Rogers Innovation Center at Northeastern University.

Turning to slide number 11. Rogers ended the third quarter with a cash and cash equivalence position of $158.6 million, as compared to $137 million at June 30, 2013. As represented in the slide, we have continued to manage cash in a manner that maintain sufficient liquidity reserves for our current and future needs, and we also improved our net debt metric to a positive $77.6 million, representing a $92.5 million improvement versus the third quarter of last year. In the third quarter of 2013, the net increase in cash was primarily attributable to strong cash generated from operations of approximately $14.7 million, net of a $9.9 million increase in networking capital, primarily related to growth related increases in accounts receivable offset by reductions in inventory, and cash received from the exercise of stock options of $17.9 million. Those amounts were primarily offset by capital expenditures of $3 million, and long-term debt repayments totaling $11.75 million or representing a $3.75 million schedule repayment against our term loan facility, and a voluntarily payment of $8 million against our revolver. We currently have $81 million of outstanding debt, down from $106 million at the end of third quarter 2012.

Turning to slide number 12, for the fourth quarter of 2013, we forecast net sales between $129 million and $135 million and net income from continuing operations on a GAAP basis of between $0.68 and $0.80 per diluted share. At the midpoint, this guidance represents a $7.8 million or 6.3% sales improvement versus 4Q 2012 net sales. In operating profit as shown in the table at the bottom of the slide, at the midpoint of our range we expect to deliver $4.8 million in margin improvement with contribution on the increased sales and 61.3%. That percentage is well above our normal expected average of 50%, as the benefit of $0.9 million in improved cost performance, $0.7 million related to the 2013 streamlining and $0.2 million related to improved absorption and mix, favorably impact our gross margins, which we expect will improve to a level of 34.7% from last year's 33.0% in the fourth quarter of 2012. That contribution is expected to be offset by the incurrence of an additional $2.5 million in cost related to incentive compensation in the fourth quarter of 2013 as compared to the fourth quarter of 2012, which had no incentive compensation expense.

You will also see we are estimating $2.4 million of cost savings, offset by annual inflation and strategic investments in marketing and sales totaling approximately $1.2 million, as well as significantly higher expenditures for R&D in line with our published goals of investing in technology to support our growth targets. Overall, we expect that midpoint of our guidance should deliver a 22.5% improvement in operating income, compared to Q4 2012. That should achieve an operating profit of 12.1% as a percent of sales compared to the 10.5% reported in Q4 2012. Below operating income we project negligible impact of favorable JV incomes $0.2 million, lower interest expense on lower debt $0.2 million, slightly unfavorable net FX impact of $0.2 million, all offset by a projected favorable Q4 2013 tax rate of 16.6% versus the 21.2% in the fourth quarter of 2012, resulting in a favorable impact of taxes of approximately $0.8 million.

This concludes my remarks, and I will now turn the call back over to Bruce.

Thanks Dennis. This concludes our prepared remarks and we will now open the call up for questions.

(Operator Instructions)

Our first question comes from the line of Avinash Kant from Davidson & Company.

Good morning Bruce, Dennis and Bob. A few questions, first in terms of the revenue guidance that you are providing, could you give us some idea in terms of the segments, how would they do, at least qualitatively? Whether it'll be up or down in the next quarter sequentially?

In the next quarter sequentially we are down about $8 million. The biggest portion of that is in our Power Electronics business where we are expecting a seasonal decline, as well as some, I guess, industry related concern about volumes in the fourth quarter. We typically have fourth quarter issues of people not buying and then waiting until the first quarter. A little bit down. When you look at that business versus prior-year, it'll still be up I think close to 20%, Avinash. Then seasonally we have high-performance foams down about $2.5 million from its third quarter numbers. I think that's mainly related to high third quarter volumes as typical in that segment.

Right. Okay. So nothing atypical there right? I believe you talked about, did I get the tax rate in Q4 is going to be 16.6%?

Correct. As we have said and as many companies say, there are certain quarters we file our tax return at the end of the third quarter so there are return to provision adjustments and other discrete items that you are only allowed to reflect the full annual impact when the events occur and can be certified, and so that is the case in the fourth quarter. I would look to our average rate of about 27% as we basically have been saying we are in the mid- to high 20s and that is where we come out on an average basis, it is just that you are not allowed to spread these impacts over a year.

Okay. Going forward like to 2014 we should be thinking about 27% tax rate?

In that 25% to 28 range call yes.

Okay. And did you give out like the new program opportunities you been talking about every quarter and design wins, I think I got the design, but new program opportunities were how many?

What we have in the slides, we have our design wins and I am just looking at the slide now. We noted that we had design wins of 388 and under evaluation of 283. We moved 39 into production. What we do here with this data is really look at the quality of the pipeline. What we have seen is on average an increase in the dollar amount per opportunity, which is what we are trying to establish again is the improved quality of the pipeline.

Okay. Because historically we've gotten a number new called new program opportunities. I was trying to reconcile is this the some of these two numbers.

It is the sum. Yes.

Plus the 39 that you moved or no, excluding that?

No. The 39 is out of that opportunity because they've already been into production.

Okay. The one question I had was about the gross margins and of course contribution lately has been high. Now, if you were to think of year-over-year changes and think on a full-year basis, what kind of, on similar revenues, what should we expect, where should we expect margins to be for the full-year in 2014? Just to understand the impact, -- and I believe there are no more towards anymore in the Q4?

Well, Avinash were not guiding to a gross margin number at this point, but if you think of 2013, we implemented what we said was an annualized impact of about $12 million with that split between gross margin and operating profit margin, we've got about half of that in 2013. We are looking for about $6 million of annualized benefit going forward into 2014, that I believe about half of that will be in gross margin, half will be in operating, -- in SG &A.

Okay. No more charges and Q4?

No more charges in Q4.

Good. Thank you so much.

Our next question comes from the line of Daniel Moore from CJS Securities. Your line is open.

Good morning.

Hi Daniel.

I wanted to focus a little on the advanced driver assistance systems specifically what percentage of printed circuit materials revenue did that comprise in Q3? And then maybe just a little bit more about the current penetration of the systems today, were you see them three to five years from now and where content per vehicle might be going? Just a little bit more detail to help us kind of think in terms of the opportunities.

Just stepping back and looking at the market, let's look at that. What we are seeing is a compounded growth rate according to industry sources in that market of about 30% up through 2020. The data we have shows by 2017, 25% of all cars will have sensors. And so, this from our perspective is a real growth opportunity for us. Year-on-year we were up 72% in auto sensors. That market continues to be something that we think is going to be a real winner for us. In terms of some of the specifics, the volume it's about 10% of our sales of PCN right now.

Great and then shifting gears a little bit to 3G and 4G in the wireless infrastructure, a lot of moving parts with 3G stepping down in some areas and 4G growing. Where do you see that in the lifecycle right now? Do you see significant opportunity for further growth in 2014 and beyond?

Yes.

Maybe just a little bit more detail there.

Sure. As we look at 2014 and 2015, again, the industry information that we have particularly coming out of China, is there are significantly, a significant number of new base stations being put in. Our view there is we are just in the midst of the growth for 4G LTE. Not only in China but we're also seeing equipment being expanded in the United States as well as places like Brazil and Russia. The base station business in addition to the antenna business for 4G the variable frequency antennas is continuing to grow. In the antenna side we were up about 65% year-on-year in that market, which is, again, been a real growth driver for us.

And lastly, I would jump back in the queue, Curamik we have seen huge swings over the last two years with inventories channels filled and corrected then filling again. Where do you see that in the cycle? How much of the growth in Q3 was inventory restocking versus true end-market demand.

What we have seen pretty consistent from our customers and we have heard from them, pretty consistent pull in the marketplace on the demand side. It is always difficult to tell exactly how much is the inventory refill. I'm sure there is some of that in that number, but going forward, we have seen the recovery, particularly in variable frequency drives, but also maybe surprisingly in solar where particularly in Asia, we have seen that recovery come quite strongly.

Very good. I will jump back in the queue. Thank you.

Thanks. Thanks Dan.

(Operator Instructions)

Our next question comes from the line of Jiwon Lee from Sidoti & Co. Please go ahead.

Thank you. I just wanted to ask a quick questions about the high frequency circuit materials. If you could talk a little bit about the rough mix breakdown between your 4Gs, and automotive. I believe you also highlighting some newer type of opportunities in the mobile connectivity as well?

Yes. Let me take your last part of your question first. What we have seen is some nice growth in what we would call internet connectivity's, Wi-Fi performance. What we have seen is some new designs using are high-Frequency circuit materials that improve Wi-Fi performance in the latest generation of tablets by about twice the capability that they previously had. This has been a very nice ramp for us, recently, I would say over the last few quarters we started to see this business materialized. That is an area that is strong for us. Again, a growth opportunity in that business. In the breakouts of the PCN business, 60% is in the mobile interconnect.

Mobile interconnect. I would say about 10% is the auto radar and then the other 30% is split up between military, LNB for satellite TV dishes and the likeness, Jiwon.

That is very helpful. Sort of, kind of going back to Curamik, I believe back in September 2011 you had quarterly revenue close to $37 million and you have recovered a lot of those revenue. I wonder, in addition to moving some of the production's in Hungary now, how is the production split? Are you supporting most overseas growth from the German and Hungary based? If you could talk similarly, some of the mix breakdown within the segment a little bit please.

So, in terms of Curamik, the base manufacturing is in Eschenbach Germany and that continues to be there, what we moved into Hungary was the final inspection of the produced master cards. So we continue to service that business out of Europe from a manufacturing perspective and in terms of the split of the Curamik business, about 60% is variable frequency drives, 15% to 20% would be the solar energy efficiency --

Energy efficiency.

Wind, solar, and so forth that is part of that business.

Dennis call could you talk a little bit, just remind us again some of the incremental cost-savings that you should expect in the first half of next year?

What we have is, and if you look on the cost-savings chart on slide 8, we've sort of projected out to the Q1 2014 a total of $8.9 million. What we are looking at is if you see each of the quarter's there in black, for example, in the Q1 of 2013 our cumulative 2 year was about $5 million. In Q1 you will have about a $8.9 million compared to that, so Q1 versus that comparison would be about $4.9 million in improvement. You are looking at substantial quarter-over-quarter, until you get to late in the second half of next year when we would have gotten much of this 2013-year improvement already in the third and fourth quarter. What we have is some of the moves and things that were taking during the third quarter and fourth quarter will have some benefit, but not as much between, sequentially between fourth quarter and first quarter going forward, but it is a substantial amount of cost-savings cumulative when you look at year-over-year.

Very good. And lastly, for me, Bruce, a lot of things are going well in terms of a lot of the new products I guess ramp, but in terms of the tablets and Smartphones, especially the tablets should we be holding down the expectations for the foreseeable future?

Well, I think there's been a number of changes and we've talk about these on the past couple of calls. Specifically in this quarter what has happened is the delay in the next-generation tablets by one of the major producers. That delayed what we would see as early on would be an inventory build. We will see some of that as we move forward because we continue to be designed in to these products for NexGen.

What's happened is the reduced content due to the smaller size of the tablets and the improved material utilization by converters, so this is a business that we see for the foreseeable future in NexGen's and so forth being part of, a good part of our portfolio. It continues to get redesigned. They continue to get redesigned every 8 to 12 months, and so we will be watching carefully, but we have been very successful in addressing the needs of the tablet producers.

That is fair. Thank you so much.

Sure.

(Operator Instructions)

Our next question comes from line of Dana Walker with Kalmar Investments your line is open.

Good morning, everybody. Could you address when you would expect to see your foam business grow again?

Well we have a lot of work ongoing certainly on the design sides and continued work with tablet and smartphone producers. But, what we are also seeing and getting very good results on is the growth in our consumer area. We have made some very good inroads in sporting goods and continue to expand that position and also on the industrial safety side, foot and hand safety. We expect things to level out here on the MID side and we believe that we will see some really good growth coming from the consumer side and also the industrial side of the business. We have a very strong position and a good pipeline of opportunities.

Again, we get swung around a little bit by design changes, and inventory builds, and depletions growth, but we still believe this is a very strong part of our portfolio. I will mention that we did see good growth in are Smartphone business. So when we divide out in the MIDs the Smartphones and tablets we did see continued growth on Smartphones. In line with us maintaining our share in that market.

Bruce, can you talk about the implications of Smartphone unit progression as well as the larger screen sizes that we are now seeing in Smartphones on your product portfolio and your results?

We continue to have good content, although the content in Smartphones and on a dollar value or cent per unit value has declined, I would say, over the last two years. Probably two years ago we were in the range of about 15% to 20% with the change, cents not percent, the $0.15 to $0.20. With the changes in some of the technology of how they apply, how the producers put together the shell and the lens or the screen, they've eliminating in some cases the need for the gasketing. In some cases we see it returned. It becomes very dependent upon the OEM and their experience with glass popping out and so forth. Right now, we're down, in about, on average between $0.05 and $0.07 per unit but it can vary widely depending on the specific design. Going forward, its again, it becomes difficult to project whether we will see an increase in content. We have seen one major producer come back to using these, our gasketing because of problems with glass popping out.

You introduced PORON tape not all that long ago, how's that going?

We've got some very good feedback from the OEMs and the people we are working with. Still in evaluation. We would anticipate seeing some of that hitting next year.

Has the evaluation process lasted longer than you would've thought?

I would say yes. We have seen, like I said, interest in the next generation designs. I think we probably missed the design points over the summer that because we introduced a bit later than we had hoped, but for the next round we should see it come back in. Another 5 to 7 months.

You detailed the market segmenting within the circuit materials business. Would you be able to do that in the foam business?

Our foam business, it's, when you look at high performance foam it's got silicone polyurethane's, about 50% of it is this group that we call industrial and consumer at this point. Then you have mass transit of about 25% which mostly is the silicone's and the mobile internet Smartphones, the feature phones, and tablets being about 25%.

Final question, where is the LNB business today? And is this at some point a growth business or is this going to continue to migrate lower?

We see that sort of stabilizing, migrating lower over the coming years. Over the years, people predicted that would start going away. We haven't seen significant decline. It just moderates. It is also tied to some world events sporting events like Olympics and so forth, people will get a satellite television, depending on what their needs are, but it is, I would not view this as any sort of growth opportunity. We see it as a just migrating down slowly over the coming years.

Good stuff. Thank you guys.

Thanks Dana.

Our next question comes from the line of Avinash Kant from Davidson and company. Your line is open.

Last, the depreciation and amortization number for the quarter?

We had $6.6 million, Avinash with depreciation 5.1 of that total.

And how should we think of CapEx going forward for the next year?

We give general guidance in the 5% to 6% range. This year we have been completing the treater in China. Next year we probably we'll start some capacity expansions that we will need in the beginning of 2015 and 2016, likely in the foams end of the business later in that cycle. Our circuit material as you have heard has got across many sectors advancing, so new press capacity will probably be started and brought on stream. Fortunately for us, we built the laminating facility in China with a brick-and-mortar and available space that really is just putting in fairly modest increases in press capacity. Not buildings and those kind of infrastructures. Where looking maybe, we're predicting $23 million this year total. You will probably see a slight increase but not substantial next year.

And that to will be more second half rated, I would think?

I think so.

Okay. Thank you.

There are no further questions in the queue at this time. I will turn the call back over to Mr. Hoechner.

Thanks Cheryl Lee.

In closing, let me sum up a few highlights of the call. First we are reaping the benefits of our streamlining initiatives as evidenced by the solid margin improvement we delivered again in Q3. More importantly, we have been able to sustain and build upon the gains made over the past 18 months. Second, we are executing on our goal to grow our value to shareholders. Volume growth and strong operational execution combined with cost reduction efforts have enabled us to grow earnings per share by double digits for the last two quarters. We believe this is compelling evidence that our business transformation is gaining traction.

Third our focused markets of Clean Technology and internet growth are driving robust revenue growth and we expect that to continue for the balance of the year. Our diversified portfolio of applications in both of these spaces, along with others in mass transit, advanced automotive, safety and protection position us will for the future. And finally, as we look ahead to Q4 call we expect to again deliver year-over-year revenue and earnings growth with our key operating metrics in good shape and a solid balance sheet Rogers financial strength allows us to invest in accelerating innovation, developing our team, exploring new opportunities and driving the engine for Rogers future growth. Our focus markets our improving. Our costs are well under control and we are confident in our ability to deliver continued value to our shareholders in the future.

Thanks for joining us today on the call.

Thank you Mr. Hoechner are. This concludes today's call. You may now disconnect.