Rogers Corp (ROG) 2014 Q3 法說會逐字稿

Good morning. My name is Leanne and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation third-quarter 2014 earnings 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. Bill Tryon, Director of Investor and Public Relations, you may begin your conference.

Thank you, Leanne. Good morning, everyone, and 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.

Turning to slide 2. On the call today will be Bruce Hoechner, President and CEO; David Mathieson, Vice President and CFO; and Bob Daigle, Senior Vice President and CTO.

Please turn to slide 3. Before we begin, 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's 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 may include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation of those non-GAAP financial measures to the most comparable GAAP financial measures can be found in the slide deck for today's call, which can be found in the Investor section of our website.

I will now turn the call over to Bruce Hoechner.

Thank you, Bill. Good morning, everyone. As I'm sure you've seen by now, Rogers had another terrific quarter. Sales margins and earnings all exceeded guidance.

Turning to slide 4. In Q3, we achieved an all-time quarterly sales record of $163.1 million, up 14.2% over the prior year, outperforming our target of 10% sales growth. In addition, our commitment to improving our operational efficiency led to an all-time quarterly record in gross margin of 39.6%, an improvement of 380 basis points as compared to the third quarter of 2013. We also achieved a record operating margin of 17.4%, a 410 basis point improvement compared to the prior-year measure. This operating margin performance surpassed our goal of 15%.

Overall, as you can see from this slide, we had an outstanding Q3, delivering earnings per diluted share of $1.09, the highest in the Company's 182-year history on a comparable non-GAAP basis. The third quarter of 2014 also marks our seventh consecutive quarter of year-over-year sales growth.

Before we turn to our business segment highlights on slide 5, I want to step back and review our Company's progress to this point. In 2012, we began what we called our transformational journey. Our goal -- to enable Rogers to deliver consistently strong revenue and profit growth. 2013 was a watershed year. We established our five-year strategy, and defined our long-term goals of 10%-plus organic sales growth and an operating margin of greater than 15%.

We also initiated a number of actions, including streamlining initiatives, and investments in marketing, R&D, and operational excellence. In the second half of 2013, our efforts began to pay off. In 2014, we built on that momentum, delivering improvements across many key performance metrics, including revenue growth, gross margin, operating margin, and working capital. I believe our focus on operations, our participation in select higher growth global markets, and our innovative market-driven solutions, will drive continued strong performance into the future.

Turning to slide 5, you'll see our quarterly highlights by business segment. For the quarter, all three business segments contributed to our growth, led by Printed Circuit Materials, or PCM. Our PCM business segment provides our customers with innovative, unique printed circuit board laminate materials with exceptional electrical performance and tailored properties. PCM is having an incredible year in 2014, and achieved another growth record this quarter with a 34.5% increase in sales over the prior year.

This quarter, our business results were driven by significant demand for 4G LTE wireless infrastructure power amps, wireless antenna, as well as automotive safety sensors and applications in portable electronics for improved Internet connectivity. As we look forward, we see strong growth drivers for the 4G LTE market area. The recent Chinese government approval to expand the 4G LTE mixed domain trial to 24 new cities, in addition to the original 16 cities, heightens expectations for the 4G LTE base station buildout in 2015, by China Unicom and China telecom. In addition, China Mobile will continue to add to their 4G LTE network.

We are starting to see 4G LTE demand growing in markets beyond China, such as India and Europe. In automotive safety systems, we are at the early stages of this growth market with only about 5% adoption worldwide of new car production. Clearly, the strong consumer demand for this feature will accelerate broader adoption of this technology.

In the Power Electronic Solutions, or PES segment, we offer high-efficiency power module substrates and highly engineered busbars to meet the ongoing trend of greater electrification and automation. Our exceptional engineering skills are used extensively by our customers to support their complex design needs.

The third quarter sales increase of 2.5% for PES was led by strong demand in EV HEV vehicles, rail propulsion, energy-efficient motor control applications, and vehicle electrification or x-by-wire applications. These increases more than offset lower demand in laser diode and certain renewable energy applications. As we look forward, we see continued opportunities for unique solutions in clean energy, specifically in the HEV EV, motor control, and automotive electrification applications, as well as rail.

Our High-Performance Foams, or HPF, segment provides specially engineered impact cushioning and sealing materials for applications where unique performance characteristics are required. In Q3, HPF sales increased 5.1%, primarily due to higher demand in its general industrial segment, battery applications for hybrid and all electric vehicles, and Consumer Comfort and Impact Protection applications.

Growth in these areas offset lower demand in portable electronic applications. We see additional opportunities for growth in our HPF product lines through geographic expansion in Asia and Europe, as well as in the rapidly growing consumer applications area.

The diversity of Rogers' three core business segments helps to moderate the impact of unfavorable business performance in any one market sector. We saw this play out over the past 18 months, as sales in HPF were negatively impacted by design modifications in certain portable electronics applications. As a company, we were able to counterbalance this sales decline by sales gains made by PCM, as well as through our strong sales growth in other HPF segments, such as Consumer Comfort, and Impact Protection, and General Industrial Applications.

On slide 6, you will see an overview of net sales performance by market. For the third quarter, 61% of Rogers' sales were in our strategic megatrend categories -- again, reinforcing our belief that we are focused on the right markets that have strong sustainable global demand. We saw strong growth in both Internet connectivity and mass transit categories, while we remained essentially flat in clean energy.

In Internet connectivity, we continue to see significant demand for high-frequency circuit materials to support wireless base station and antenna applications in connection with the previously-mentioned global 4G LTE infrastructure buildout. In addition, we experienced continued demand for high-frequency circuit materials and applications that improve wireless connectivity in portable electronics.

In mass transit, we experienced a 20% increase overall, based primarily on demand in rail propulsion applications, specifically in Europe and China. Our flat performance in clean energy category was due in part to the very strong comparator quarter of Q3 2013, as well as lower demand for certain renewable energy applications during Q3 2014. This lower demand was offset by strong growth in hybrid electric and all electric vehicles, mass transit, energy efficient motor control applications, and vehicle electrification applications.

Beyond our strategic megatrend categories, we continue to build momentum in radar-based automotive safety systems, where we had a 34% sales increase over Q3 2013. In addition, we had -- we continued to see solid growth in the Consumer Comfort and Impact Protection category, which was up 22%. We believe our megatrend design opportunity pipeline is a helpful indicator of future sales growth prospects. And, in Q3, it continued to strengthen. We had 859 opportunities under evaluation in Q3 2014, up from 671 in Q3 2013, and up from 834 in Q2 2014. We also moved 45 projects into production this quarter.

Turning to slide 7, I want to share with you our blueprint for delivering consistent profitable growth. Rogers' core strength is our ability to provide engineered material solutions for the most demanding applications in highly specialized designs. We married this strength with a focus on applications in higher growth markets, which are driven by the megatrends of Internet connectivity, clean energy, and mass transit.

There are four critical elements to our strategy. We take a market-driven approach across the Company. Our employees are actively engaged in understanding customer and market needs, and aligning our actions to deliver differentiated value for our customers. Our teams regularly collaborate with key customers and industry contacts in order to fully understand current requirements, as well as future needs.

Our goal is to ensure Rogers is providing highly-valued products and services with the right performance, at the right time. Our investment in the Rogers Innovation Center at Northeastern University demonstrates we are creatively and cost-effectively developing innovative technologies to meet market demand. We continue to increase our investment in R&D, as well as enhancing our stage gate process to enable greater speed to market on products that we believe will have a significant impact.

Our third element is synergistic M&A, where we are targeting companies that are aligned with one or more of our current businesses. Our objective is to enhance our market reach and technology platform capabilities.

The final element of our strategy is our operational excellence, where we are implementing continuous improvement approaches through Lean Six Sigma, kaizen, and other leading methodologies. These efforts have already led to improved manufacturing yields, and greater efficiency and effectiveness of our supply and demand planning capabilities and manufacturing. We are starting efforts to gain further efficiencies in our work processes, particularly in our finance organization through our IT system improvements. And we are working to standardize those processes across divisions and locations in order to more efficiently and cost-effectively scale the Company as we grow.

At the bottom of the slide, you'll see our three-year goals. As previously mentioned, in Q3 2014, we outperformed our 10% sales growth goal as well as our 15% operating margin goal. We will review our annual Return On Invested Capital, ROIC, result for 2014 when we report our annual earnings in early 2015. We believe we have a winning, sustainable approach that, as we have seen, is already yielding strong results.

I will now turn the call over to David to report our financial highlights.

Thanks, Bruce. As reported in the press release, we achieved earnings from continuing operations of $1.09 per diluted share on net sales of $163.1 million. We estimate approximately $3 million of sales were pulled into the third quarter due to some customers in China taking inventory early in anticipation of the October holiday in the fourth quarter. Earnings from continuing operations exceeded guidance, due to stronger sales, margin improvement as a result of operational efficiencies, favorable adoption, product mix and improved yields, and a lower tax rate, due to favorable mix of earnings, with more coming from lower tax jurisdictions.

Turning to slide 9, as Bruce mentioned, we had record quarterly sales in Q3 of $163.1 million, with growth of 14.2%, driven by Printed Circuit Materials growing 34.5%, and a strong demand in wireless infrastructure. Power Electronics was up 2.5% and we had the second consecutive quarter of growth in High-Performance Foams of 5.1%. Gross margins came in at a record 39.6%, up 370 basis points from prior-year non-GAAP gross margin of 35.9%, driven by 175 basis points improvement from incremental volume, and [195] basis points from operational efficiencies.

On slide 10, our S&A increased this quarter from 17.8% to 18.5% of sales. S&A came in at $30.2 million for the third quarter of 2014, at about the level we had projected. This amount includes $1.3 million of the Rogers Work Smart business systems expense we discussed last quarter. The third quarter spending for this project was $2.4 million, where certain charges were able to be capitalized. The increase in S&A over the prior period is primarily due to increases in sales and marketing activities, M&A evaluation opportunities, and other S&A related costs.

Research and Development expenses were $6 million, or 3.7% in the third quarter of 2014 compared to the $5.4 million or 4.8% experienced in the third quarter of 2013. The lower percentage is primarily related to the impact of the quarter-over-quarter sales growth. Total gross spending did increase in the second quarter of 2014 by approximately $0.6 million, due mainly to investments in the Rogers Innovation Center.

On slide 11, operating profit margins improved by 300 basis points compared to the non-GAAP operating profit percent of the third quarter of 2013. This record result of 17.4% was due to the strength across margin increases, offset by an increase in commercial expenses of 70 basis points. Our diluted earnings per share increased by [32.9%] from a non-GAAP $0.82 in 2013 to $1.09 in 2014, with operating income adding $0.28 and a lower tax charge of $0.04, offset by share count dilution of $0.05.

On slide 12, PCM achieved all-time record sales for the quarter of $63.4 million, up 34.5% from Q3 2013. And operating income improved by 140.7%. The sales increase was driven by growth in wireless infrastructure and antenna applications, but our profitability was favorably impacted by strong operating leverage on incremental sales volumes.

On slide 13, growth in HEV, mass transit and the energy-efficient motor control applications, and the Power Electronic Solutions business, was offset by lower demand in laser diodes and certain renewable energy applications. Sales were up 2.5%, while operating income declined by 3.3% in the quarter, primarily due to an increase in allocated S&A costs, partially offset by the profit contribution on the increase in sales.

On slide 14, High-Performance Foams grew 5.1% in the quarter, driven by strong demand in HEV, General Industrial, and Consumer Comfort and Impact Protection, offset by lower demand into Portal Electronics, which is mobile Internet devices and feature phone applications. Operating income of $8.4 million was up 12.7% in the quarter.

On slide 15, we continue to generate cash and pay down our debt. Cash flow from operations for the first nine months was fifty-five-point -- $57.5 million, with capital expenditures of $18.8 million. And we repaid debt of $12.7 million. We ended the quarter with a cash balance of $228 million and a debt balance of $65 million.

Guidance for the fourth quarter is for our revenues to be in the range of $147 million to $154 million, and for non-GAAP net income from continuing operations per diluted share of $0.64 to $0.76, with (inaudible) projected special charges of $0.17 per diluted share related to the earlier payment of certain long-term pension obligations.

We expect to take a non-cash charge of about $0.17 per diluted share as we offer certain eligible former employees a cash offer to buy out their defined pension plan. We're also moving this quarter to allocate more pension plan assets from equities to fixed income. Both of these actions are expected to further reduce the risks associated with our pension plan. These actions have no significant cash impact on the Company.

At the midpoint, our Q4 guidance represents a sales increase of $14 million or 10.5% over Q4 2013. As a non-GAAP EPS midpoint of $0.70 per diluted share, this guidance shows a decline of $0.11 per diluted share compared to the non-GAAP EPS in Q4 2013.

This savings is due to several reasons, including firstly, $0.08 per diluted share of incremental S&A expense, which includes actions we have already taken to streamline our organization, and estimates for additional strategic activity.

Secondly, $0.07 per diluted share of incremental R&D expense, attributable primarily to the ramp-up of activity at a newly-established renovation center.

Thirdly, $0.10 per diluted share of incremental tax expense, as the Q4 2014 tax rate is forecasted to be approximately 12 percentage points higher than Q4 2013, where we had a nonrecurring event resulting in a discrete tax benefit.

And fourthly, $0.04 per diluted share impact related to the increased number of shares outstanding. These reductions were partially offset with the contributions on the increased net sales.

Lastly, this guidance takes into account estimated P&L spending on Rogers' Work Smart business systems of approximately $2 million in the quarter.

This completes my commentary. And I will now turn the call back over to Bruce.

All right, thank you, David. Leanne, we can go to questions now.

(Operator Instructions) Avinash Kant, D.A. Davidson & Company.

A few questions starting with just some understanding of the telecommunication business, like you talked about pretty strong growth in your base station infrastructure and the 4G antenna business. Could you give us some idea -- these two combined, how big were they as a percentage of your Internet connectivity segment?

Okay. Well, the -- let me take a quick look at that. But just to give you some background here, I mean, one of the issues that we've heard about from some of the investors is concern about future growth in this market. And as I outlined with some of the changes that have gone on and the buildout in China, we are now getting all three of the carriers moving to 4G LTE, which is a really great move. We think that this extends the runway at least two, three, four years out.

And as we've -- as I also mentioned, India is starting to move forward; Reliance, Geo, a new carrier there will be moving forward on 4G LTE towards the end of 2015. So we see that starting to build out over the time period. As a matter of fact, they are projecting 800,000 new base stations over the next five years in India. So that's a really good number for us to look at. About -- just getting back to your original question, about half of PCM is in that -- is in those market applications.

Okay. And then, again, you touched upon this one, but if you think of adoption in China, you had talked about a certain number of base stations. And now with the new -- the changes and the higher number of cities, where do you see the number of base stations going?

I don't have the specific data for next year, but I can tell you -- like China Mobile this year said they were going to build 0.5 million base stations, which they already did through the first three quarters of the year. They've added another 200,000 that they are trying to get in by the end of this year.

And then, as we move forward, we see them continuing to build that out. And so, we don't have specific numbers from China Unicom and China Telecom on what they are building out. But we know that they have to go into the 24 additional cities to the 18 that we identified in my text.

So, as we think of this extending for two to three -- two to four years maybe, what percentage of the adoption do you think has already happened, especially in China?

We are estimating right now about 25% adoption.

Okay. (multiple speakers)

Actually beyond that, that's not just in China; that's globally right now -- 25% adoption. And let's remember also that there's been almost no adoption in Europe. They're still on 3G.

Yes. So, Avinash, this is Bob Daigle. What I've read is it's a roughly 25% penetration, and the projections over the next couple of years, I think the number was 2016, that that gets up to about 50%. So, this is still -- we would characterize this as the early innings of the LTE rollout.

The other thing that's a key factor -- and again, I think we all notice it when we are in the cities and you really can't use your mobile Internet device because the networks are choking -- I think that we would also expect that the incremental capacity is going to play into this pretty significantly over the next few years, just because of bandwidth constraints.

Okay. My second question was on the gross margin side, you clearly saw a big bump. And if we were to think of contribution coming from certain segments, which segment did kind of contribute to the higher gross margins particularly?

All of the segments, actually, Avinash Kant. We had a stand-out result in each of the segments. I would say the star in the quarter from a margin perspective, though, was probably High-Performance Foams.

Yes, let me also add to that. In the PES business, I mean, it's no secret that the operating margin there is the lowest in the Company. And we continue to work in that business to find ways to improve profitability. In the Curamik product line, we've relocated some of our manufacturing processes to Hungary, and we continue to look at opportunities to reduce costs there, and also do what we can on the market side with new innovative products. But let me just point out that PES remains our focus for improving and working through some of those margin issues.

Okay. So, basically what you're saying is if revenues and mix were to be similar, you should be able to repeat this margin performance that you had?

Well, the third quarter, we had tremendous volumes. We surprised ourselves by how good these results were. We paid record sales, record gross margins, record operating margins, record EPS. We did not forecast that. So we surprised ourselves on the upside. So we have a tremendous incremental margins. But as we go into Q4, there is a seasonal dip in revenues and that normally reduces our margins, Avinash.

But you didn't see any meaningful change on the pricing side as such, right? It was just volumes going up.

Yes. Correct.

Okay. And two quick numbers. Did you give out the D&A numbers for the quarter and also the tax rate for Q4?

The D&A for the quarter is depreciation of 5.1% and amortization of 1.6%. And the fourth quarter tax rate is 22%.

Thank you, sir.

Daniel Moore, CJS Securities.

Thanks for taking the questions. (multiple speakers) I want to focus, Bruce, for a moment on the Foams business a little bit. It appears to be turning the quarter, second consecutive quarter of year-over-year growth. Maybe just talk about the change in mix that's taking place. Handheld is obviously still down a bit. You know, what does that represent as a percentage? And maybe kind of hone in on some of the growth drivers, hybrid electrics, the bigger drivers, and what the outlook looks like in that segment going forward.

So, just on the mix, your question about portable devices, it's about one-third of the sales of HPF. And so we see -- what we see is we continue to invent and introduce new products into that market. And it's things like Condux Plus, which is a conductive foam. We are getting some very good reads out there from the marketplace.

But what I would say also is we are seeing very high growth over on the consumer side as well as on the industrial side. And I've said in my comments that where we see the growth opportunities in some cases are geographic, and basically replicating what we've done in North America, particularly in the industrial area into Europe and into Asia. Historically, our focus in Asia specifically had been a lot of mobile Internet device. And now we are really moving towards a much more balanced approach with both consumer as well as industrial -- specialty industrial applications

Very helpful, thank you. And wanted to turn to -- R&D actually declined as a percentage of revenue a little bit. Obviously, that reflects the strong volumes and revenues. But how should we think about that ratio as we look out to 2015?

Yes. So, Dan, this is Bob Daigle. Yes, we're -- again, I think what we've talked about as our roadmap is, think of it as a roughly 4% of sales investment in R&D, with incremental projects that are going to come out of the Innovation Center that these are discrete opportunities that we are going to invest in to commercialize.

But I think as you think through -- I would think of 2015 in the 4% to 4.5% R&D investment range. And with the long-term roadmap as we add discrete projects that we are investing in, we're going to work our way towards 6%. But that's going to take some time.

Got it, perfect, very helpful. And also, other -- just generally other projects, the IT -- you are investing $2 million a quarter in Q4. Other investments that we should think about or keep in mind as we look out to 2015?

Well, in terms of capital investment, we are expanding specifically in the ACM -- in the PCM business. We are adding a line towards the end of this year in Arizona. We are putting another press into Suzhou in the early part of 2015. So, we continue to make those investments, but that would be on the capital side.

In terms of expenses, my view right now is we're really focused on improving our IT systems and our processes. So, as we've outlined before, you can count on that going forward for probably the next six to eight quarters as we continue to improve that system. And remember, the way that we are looking at this is, we want to standardize as much as we can across the Company to be able to leverage and build upon that standardization as the Company grows. So we don't have to grow the SG&A or the S&A at -- commensurate with the topline growth that we can differentiate and get that benefit of process standardization.

Got it. And Bruce, it's obviously always difficult to give color, but you're up to $9.00 a share, almost in net cash in the balance sheet, over $200 million. Talk about -- the M&A obviously has been a pillar of your growth strategy. Without naming names, is there anything you can say about how the environment and your confidence around the ability to execute on an opportunity over the next few quarters? And if not, would you explore other uses of cash on the balance sheet?

So, the way we approach it, we have target -- we've spent a lot of effort analyzing where we can find what we would call synergistic opportunities for the Company. And we've got a very, I would say, robust list. We continue to work, as evidenced over the last couple of quarters, some of the expenses that we've made in doing some diligence work on some of these opportunities.

I would say right now that we are continuing to work and continuing to discuss with various folks. So, you can never predict how these things will go. Right? There's -- it takes two to tango, and we are working diligently to do that. But I would say the opportunities are out there, without a doubt. And so I'm very positive -- a very forward-looking positive outlook on this. But you can never say when it's going to happen, at this point.

And any alternative uses?

Well, again, we've had a discussion, an ongoing discussion, with the Board about potentially doing share buybacks. And I've been with -- I've been to two Board meetings and it's been a topic of conversation at two Board meetings I've been at. And so that's something we're looking at in combination with other things, such as acquisitions. So we are having ongoing discussions with our Board about that.

Yes. And I would say we view the investment in synergistic acquisitions as the priority for us. But there's also we've had share dilution, which we hear from our investors, concerns them. And so that's part of the discussion that we are having with the Board, is there an opportunity there as well? But again, these discussions will continue.

Okay. Lastly, just in terms of visibility, it's always been a challenge and it will remain a challenge, but clearly a pretty significant beat versus your expectations. And David, you mentioned you were frankly surprised. What were the areas where you were most surprised, both -- in terms of both revenue and margin? And really just trying to get a gauge of how much of it is conservatism versus how much it is -- you know, you really just had a lot more revenue come in toward the end of the quarter?

Well, let me talk about the revenue; I'll let David talk about the profit side. But from the market perspective, we had pull-in because of the China holiday in the first week of October. So there was a lot of pre-buying that went on, about $3 million or so of revenue that came in, specifically in the PCM and the HPF businesses.

So, that was somewhat of a surprise. Sometimes we've seen it where it doesn't -- you don't get that pre-buy. So, that kind of bolstered the revenue.

I'll just make a comment on the profitability on the gross margin, particularly. As we've talked about, we've been implementing a lot of operational focus and operational excellence activities, primarily around reducing or improving yields, improving throughput, through our existing equipment. And when you consider that we had -- throughout the year, the first three quarters, 35% sales increase in our PCM business. And we've been able to meet those needs of our customers. Some of that has come through all of that debottlenecking work and process improvement, which obviously helps the profitability of the gross margins.

So, David, any other comments?

Yes. I think with the second quarter of solid growth in High-Performance Foams, but I need to also call out the tremendous performance of PCM. There's very few businesses indeed can improve or increase their volume by [34.5%] year-over-year to meet the demand. And to do that and to do it profitably is fantastic.

We had a tremendous performance in PCM. And just overall, Dan, to forecast of it would be to all of these records this quarter would've been -- I think we've been overoptimistic in our part. So I think it's just a tremendous, tremendous quarter.

You know, one more comment on this. There was a view held by a number of suppliers into the 4G LTE buildout that things in the third quarter would cool. You know, we are at the early part of the build, and we never saw that cooling. Although we went into the third quarter with a little bit of concern about what we were hearing from other folks. But early, I would say, we started seeing that strength really come on in September.

So, we are very clearly seeing that this continued strength on the 4G LTE, both base stations and for us antennas as well. And so some of this stuff is hard to predict. And you know some of it we just -- we know longer-term, it's all good for us. It's just quarter-to-quarter variation when the orders do come in.

Quarters clearly demonstrate the operating leverage and earnings power. So thank you again for taking the questions.

Great. Thanks, Dan.

Rich Glass, Deutsche.

Great quarter, congratulations. (multiple speakers) First, Dan tried to steal all my thunder, but following up on the Foams business, that 33% I believe you cited as the mobile business -- has that stabilized here over the last couple of quarters? Or is that still under pressure?

There is still some pressure. But when you think about specifically on the tablets, where we've mentioned in previous calls, the redesign, that's pretty well through. There is still noise going on, but we won't see anything akin to what we've experienced on the tablet side, certainly in any short-term.

But what we are seeing, though, is some changes in design. But we continue to get wins as well on the side of the mobile Internet devices. So, it's -- let's put it this way -- the storm has calmed down. We think we've got some interesting new products that people are looking at, that will also offset any smaller declines that we might see.

Okay. So it's a lesser headwind, if anything?

Yes.

My second question might be more of a speech than a question. But from the viewpoint of a major long-term shareholder here, you know we are looking at the situation with the capital allocation, and it is just horrible from where we are sitting. I mean, your stock is flat on the year, and you're putting up huge sales numbers and phenomenal quarters like this. And the long-term is bright and getting brighter.

And we're sitting on a huge pile of cash here with no end in sight of growing. You are producing a lot of cash; you don't have a big capital build coming that is any place on the horizon. And from a shareholder point of view, cash is earning zero -- number one.

Number two, I realize we're looking for M&A. Bruce, you've been the CEO for three years. We've all been looking for deals from before the three-year period you've been CEO as well.

The other thing we are hearing is that large deals are very expensive and very competitive. And so that doesn't increase our confidence that we are necessarily going to do a brilliant deal here if it's going to be some huge deal that you're going to bet the Company on. So as a shareholder, this is just not getting it done with the capital allocation.

You guys put up a phenomenal quarter here with a 5% growth in the share count, which just doesn't make any sense when we are sitting on a pile of cash that's huge and building. So is there any limit to the pile of cash that we need? Or is there a timeframe that we are looking at, where we are going to say, okay, now is when we're going to do it?

I mean, if your Board needs an education on capital allocation, have them give us a call. We'd be glad to spend some time on it. But as it is, this is just not getting it done.

Okay. Well, Rich, first of all, thanks for the speech. My -- our view is, look, we're patient. I know that there's frustration out there; without a doubt. But we believe we have the right approach here. And I think patience in the end will prove to be something that the shareholders will highly value.

And you can listen to me on this or you can choose not to listen to me on this. But I can tell you I believe in the strategy that we are pursuing. Deals might be frothy, but there is also deals out there that we believe are very, very synergistic for the Corporation. And so, we are endeavoring to make these things come to fruition.

I'll ask David if he wants to comment any more on share buyback or anything like that.

No, we hear you, Rich. And we've heard that from our other shareholders, and we're taking (inaudible) seriously.

Well, I can think of nothing nicer than you guys proving me 100% wrong. So, good luck.

I hope we will.

Okay, fair enough. We'll agree on that.

Avinash Kant, D.A. Davidson & Company.

Yes, just had a follow-up question. You talked about the charges that you're going to be taking, like there is a $0.17 charge that is the one that you'll recognize in Q4 and towards the non-cash expense pension settlement. I was just wondering, once you take the charge, how would that impact the P&L going forward in 2015? What will be the impact of that?

Well, the impact will be less volatility. You know, we haven't worked through our plan for next year, but we don't expect a huge impact. But the big thing from our point of view is that it will dramatically reduce the risk that we have in our pension fund. We've got $176 million in a pension fund, which has got 59% in equity. We want to reduce that to 25%, for example. And so that will take a significant amount of risk. And we're going for liability-driven investment strategy, just to reduce the risk. So, it's the avoidance of risk that we are aiming for here, Avinash.

Okay. So the equity component will go down and enhance the volatility, and enhance your payouts?

The volatility (multiple speakers) -- the risk of having an underfunded pension plan will go down significantly as we move to this liability-driven investment strategy. So, we are de-risking our pension plan.

Is your pension plan fully funded right now?

Yes. So we are in good shape to do that.

Thank you.

(Operator Instructions) Dana Walker, Kalmar Investments.

The PES opportunity, can you frame it for us as you view it now from a topline standpoint and what portions of the underlying mix would play what role?

Hi, Dana, it's Bob Daigle. So if you think about the -- some of the big pieces of our Power Electronics business, a good portion of it, let's say roughly one-third or so, is being driven by the energy-efficient motor drives, which, if you look at market reports, the projections there, that's about 10% growth industry.

Another sizable piece of that business is around vehicle electrification. But in the sense of not necessarily ATV EV in this case, but it's the -- what's often referred to as x-by-wire, taking loads off the engine to improve fuel efficiency, which again, has a very positive outlook. That's being rolled out very broadly by automakers as a way to meet the CAFE fuel mileage requirements.

You look at applications such as electric vehicles, which has been strong -- and the outlook continues to be very strong in terms of volumes in that segment. So again, when we look at the future of -- if you kind of do a weighted average across our Power business, we do believe that we've got some pretty nice tailwinds there. And roughly 10% across the various segments.

With the obvious malaise at work in Northern Europe right now, what role is that in muting -- what role is that playing in muting revenue growth there presently?

Yes, I'd say if you look at the quarter where we saw some headwinds were in applications like the laser diodes, which are used in a lot of industrial welding, cutting applications. So I would say in the industrial equipment sector, that that experienced some headwinds.

And one area that's always been volatile, which we saw some -- it was down in the quarter is volatility around some of the solar area in some partial segments. It was kind of a mixed bag, I would say, in the solar area. And again, I don't know if you can attribute that directly to the malaise in Europe, but globally, that saw mixed growth in the quarter

Can you speak to where you think you are on a return on sales ambition in that business? Or in the series of businesses?

Well, we continue to work to move up the curve. There is -- one of the more difficult things is that we have our -- all of our production in Curamik, with the exception of some inspection in Eschenbach. So it's a higher cost -- Eschenbach, Germany is a higher cost operation for us. But we continue to automate and do some process improvements there. So we believe that from a margin perspective, a gross margin perspective, we'll start seeing some affect as we move through the next few quarters.

Bruce, how would you quantify the opportunity at the gross margin level?

I would say the opportunity that we are looking for is to get the gross margins up as an average around 30% -- 30% to 35% for that business. So it will be a combination of pricing, new products that come into the market that we think we can get a premium for; and it's a combination of, as I outlined, some of the efficiency work that we are doing, both in the Curamik side as well as the rolling side.

Are you willing to say where you are now, if the goal is to get to 30% to 35%?

You can imagine that it's not 30% to 35%. So we are somewhere in the 20's. And we are just going to move it higher.

Do you view that as a three-year goal?

I would say two to three years. We believe that we have a path and a plan to get there.

Second topic of conversation, the Wi-Fi opportunity with tablets and handheld devices, how would you describe your penetration with given vendors thus far?

Yes, so, Dana, this is Bob Daigle. So we are still, I think, as we've talked about earlier, this technology to improve Wi-Fi performance is mostly being driven by one of the major tablet makers at this point. And we continue to sample and work with others. But the majority of that volume right now is being driven by one of the big players -- but across multiple platforms. It's not a single product application. There are multiple product lines that have adopted that technology.

So it's not just a tablet? It can be as well a smartphone?

Well, it actually is the tablets, but it's across multiple tablet platforms.

Understood. And Bruce, while you're talking, could you remind us what you're seeking to accomplish with Condux and where you think that stands in its adoption curve?

So, it's being evaluated by a number of different equipment manufacturers. And what it does it allows for grounding as well as protection, impact protection in mobile Internet devices. And the beauty of the product is that it allows for thinner mobile Internet devices. So, it allows you to combine some -- the two functionalities, and just make it thinner, which is, of course, what we're seeing as a major trend.

Final thing. And forgive me, I meant to say Bob, not Bruce there. But Bruce, you handled that beautifully. One last thing on antennas. As you have been designed into antennas, whereas several years back that was not the case, to what degree does that antenna opportunity play out in Synchrony with everything else you're doing with power amplifiers? Or can they happen independently of each other, where you have some type of a -- an existing -- or some of what you're doing with antennas can play out to a portion of the base station installed base that is not newly configured?

Yes. So, Dan -- again, it's Bob. So I'd say what the big driver on the antenna side has been and will continue to be is really moving towards multiband antennas -- or, and in some cases, I think this is all going to head towards broadband antennas for in support of LTE. Why is that necessary?

Because in order to get the bandwidth necessary, they are now -- there is over a dozen different frequency bands these days that are required to support things like LTE. So you either end up in a situation where you're putting up an awful lot of towers, you have an awful lot of antennas, or you need to start to migrate to more multiband antennas. And that's really what's driving this shift in the industry from what was traditionally antennas that were predominately made from bent metal cable to printed circuit material-based antennas.

It's the fact that it's a lot -- if you're going to go to a multiband technology, it's very difficult to do with bent metal. So we are seeing this technology shift from bent metal to circuit materials. So I'd say that's -- this is still very much in the early stages. And I do think it's not necessarily tied to the base station rollout. You could very easily see a lot of the antenna towers being retrofit with the broadband antennas, even post-LTE rollout.

Has that begun to happen?

Well, it's hard for us to see what that mix is, how much is new base stations, how much is retrofit. But I'll tell you, I mean, our year-over-year growth in this segment was very impressive. We were up about 75% year-over-year for certain materials in the antenna area. So it definitely -- it surpassed what we saw in the power amp area. And that's been true all year.

When you say that you have a hard time seeing what exactly is happening at the micro level, do you have a feel for how many of the base stations that are either being newly built or being updated, that you are seeing both of your applications play out rather than just one or the other?

I will tell you, I don't -- we don't really have that visibility, Dana. I don't -- yes, because we are selling through different -- it's a different set of customers. And ultimately, those decisions are being made at the service provider level. So we don't have great visibility there.

Very well. Thank you for the answers. And great work.

Thank you.

And this concludes our Q&A session for today. I now turn the call back over to our CEO, Bruce Hoechner, for closing remarks.

Thanks, Leanne. In closing, we are very pleased with our record-setting performance this quarter, which is a continuation of the success we've achieved since we began our transformational efforts more than two years ago.

We believe that market indicators point to additional growth in several of our key categories, including power amps for the 4G LTE buildout, antenna applications, automotive safety sensors, consumer comfort and impact protection, and energy efficient power applications. We will continue to focus on operational improvements in our business systems and our processes, as well as manufacturing practices such as yield improvements and equipment productivity, to sustain our gains and improve our margins.

We believe that our four strategic elements, market-driven, technology innovation, synergistic M&A and operational excellence, represent a solid, go-forward plan, and will lead to sustained growth in 2015 and beyond. Thank you for joining us on today's call.

And this concludes today's conference call. You may now disconnect.