Rogers Corp (ROG) 2015 Q4 法說會逐字稿

Good morning. My name is Chris, and I will be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation 2015 fourth-quarter and full-year conference call. (Operator Instructions) Bill Tryon, Director of Investor and Public Relations, you may begin your conference.

Thank you, Chris. Good morning everyone and welcome to the Rogers Corporation 2015 fourth-quarter and full-year earnings conference call. The slides for today's call can be found on the Investors section of our website, along with the news release that was issued yesterday.

Turning to slide 2, with me today is Bruce Hoechner, President and CEO; Janice Stipp, Vice President, Finance and CFO; and Bob Daigle, Senior Vice President and CTO. Please move to slide 3.

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.

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-GMAC financial measures to the most directly comparable GMAC financial measures can be found in the slide deck for today's call, which is posted on the Investors section of our website.

I will now turn the call over to Bruce.

Thank you, Bill. Good morning, everyone. In Q4 2015 Rogers delivered record fourth-quarter net sales of $152.9 million, a 3.5% increase over Q4 2014. In addition, we achieved non-GAAP earnings of $0.69 per diluted share, exceeding our previously announced guidance.

During the quarter, we again experienced strong contributions from our synergistic acquisition that were partially offset by a decrease in organic net sales. We believe that the organic sales decline was due to a number of factors, including global macroeconomic conditions which impacted our business segments. I will discuss the segments and details in a few moments.

Our outlook remains cautious in the near term based on the uncertain timing of the global economic recovery. However, our growth strategy remains sound, we are focused on execution, and we remain confident in our longer-term growth prospects in our key megatrend markets.

Turning to slide 4, I would like to review our growth strategy. This roadmap has enabled us to deliver sound results, and we believe that it positions us well to capitalize on the opportunities that lie ahead, particularly when the global economy recovers.

As a market-driven organization, we leverage our strong understanding of the link between our markets and technology to develop solutions to solve unmet needs in the marketplace. A good example of this is the strong position we have established in Advanced Driver Assistance Systems. We experienced increased demand for these applications in 2015 and expect that trend to continue based upon our customer relationships and the growth predictions for this market.

In the area of innovation leadership, we continue to cultivate a robust pipeline from the work we're doing in our innovation centers, as well as in the operating units where our R&D teams are focused on next-generation solutions. One of the innovation centers early developments is a pioneering platform technology that enables substantially smaller, higher performance, higher frequency antennas. This technology is now being scaled up in our Advanced Connectivity Solutions business initially targeted for defense applications, and we expect broader adaption of this in commercial applications.

The Arlon acquisition has demonstrated the strength of our approach to synergistic M&A. The acquisition was completed within our 12-month goal, and it outperformed our expectations during the year. A textbook example of a successful integration, it will serve as a blueprint for future acquisitions.

We continue to see progress from our investments in operational excellence. These initiatives are helping us reduce manufacturing costs, improve inventory management, and achieve greater on-time delivery to request for our customers.

In addition, our ERP upgrade is helping our back office teams work more efficiently as we improve and standardize our systems and processes. This work also prepares us to quickly integrate future acquisitions.

At the bottom of this slide, you will see our interim three-year financial goals which serve as a checkpoint in our long-term plan. While market conditions impacted our 2015 results, we remain confident in our longer-term ability to achieve 15% revenue growth through a combination of organic and acquired growth.

Turning to slide 5, we see how our commitment to this strategy is delivering sustained progress in revenue and profit performance over the past three years. We saw a slight margin dip in 2013 as we dealt with the macroeconomic conditions, but we were pleased with the contributions from our operational excellence initiatives.

On slide 6, I would like to take a brief look at our profitability from a slightly different perspective, EBITDA. We believe this is a key measure of our performance in assessing our internal core operating results, which improved 260 basis points. Janice will provide more detail on the significance of this metric in her comments.

On slide 7, I would like to highlight some achievements from 2015. First, I've spoken about it often but it bears repeating, our acquisition and integration of the Arlon business was highly successful. This acquisition led us to record revenues in 2015, and we are excited by the opportunities for organic growth in the future. I will address our megatrends in a few slides, but here I would like to highlight that we are confident that our megatrend categories are focused on the right markets for future growth. In 2015, we selected safety and protection as a new Rogers megatrend category based upon the opportunities we see for applications in growing markets like automotive safety and consumer impact and protection. We believe that our core capabilities align well with this megatrend, and we are executing on those opportunities.

As I mentioned earlier, we continue to see strong results from our investments in improving our overall operating capabilities. These initiatives are helping us lower costs and drive efficiencies in both our manufacturing and back office environments. Our focus on delivering shareholder value is reflected in our capital allocation strategy.

In 2015, we initiated a $100 million share repurchase program and bought back $40 million in shares. Building on the success of our North American Innovation Center in Burlington, Massachusetts, we opened the Asia Innovation Center in September 2015 to leverage the talent and opportunities we see in that region.

Turning to slide 6, ACS delivered record fourth-quarter net sales of $63.8 million, driven by $16.4 million from the acquisition, which was an increase of 11% over Q4 2014. ACS organic sales for the quarter declined 16.4% on a currency neutral basis. Strong demand for Advanced Driver Assistance Systems and aerospace and defense applications were offset by weaker demand and inventory rebalancing in the 4G LTE base station market, primarily in China.

Looking ahead in ACS, we anticipate that the base station recovery in China and growth in small cells will help drive demand for high-frequency circuit materials. We are very pleased with the consistently strong demand for applications for Advanced Driver Assistance Systems as these features continue to expand into mass-market automobile models.

In addition, we expect the adoption of new technologies linked to the Internet of Things and e-mobility to help drive growth in ACS.

On slide 7, EMS achieved net sales of $42.5 million, including $6.1 million from the acquisition, which is roughly flat year over year. Organic net sales were down 13.5% from 2014 on a currency neutral basis. Solid results in consumer impact and protection and automotive applications were offset by weaker demand for certain portable electronics applications. The EMS organization is addressing the headwinds in display gasket applications for portable electronics by refocusing the business on other solutions. For example, we are seeing strong interest in the new smartphone back pad solutions that we introduced in 2014, which are partially offsetting the weaker demand for display gaskets.

We also have had several design wins for sealing applications in the automotive market. In addition, we see opportunity through European and Asian geographic expansion in general, industrial and mass transit, as well as greater market penetration in consumer impact and protection applications.

Turning to slide 8, PES net sales were $36.7 million, a 12% decrease compared to Q4 2014. On a currency neutral basis, PES net sales declined 3.4% from Q4 2014. Foreign exchange rates and a global slowing in industrial and infrastructure investments due to challenging macroeconomic conditions impacted PES more than our other two business segments.

During the quarter, increased demand in EV, HEV, as well as certain renewable energy applications were offset by weaker demand in mass transit. We believe the outlook for the mid- to long-term is positive. Government mandates and climate change agreements are strengthening demand for energy-efficient motor drives and renewable energy applications. In addition, fuel efficiency regulations continue to drive demand for EV, HEV and vehicle electrification applications.

On slide 11, we continue to be encouraged by the positive growth expectations for our key markets. Demand in areas like mobile data traffic, EV, HEV and automotive safety are expected to drive substantial growth in the mid- to long-term.

For our 2016 plan, we are not anticipating significant movements in commodity pricing or foreign exchange rates at this time. While lower global GDP growth is muting revenue expansion, wage stability across our operating geographies appears to be in check, helping us manage operating costs.

In the face of weaker global economic conditions, we are addressing issues such as selective pricing pressures by continuing to reduce manufacturing costs. The industrial slowdown that we believe started during Q2 2015 affected sales into certain applications we serve within the industrial sector. We do expect to see an improvement in demand for these industrial applications when the global markets recovery.

Turning to slide 12, our market-driven approach is helping us form deeper partnerships with our customers. These relationships are contributing to a strong sales pipeline and positioning us to be designed into new applications and technologies.

I am very encouraged by our product development opportunities. Our investments in next-generation and new products closely align to our megatrend markets, which accounted for 66% of our sales in Q4 and full-year 2015. Synergistic M&A opportunities continued to be actively pursued by Rogers, and we will use the successful integration of Arlon as a blueprint for future acquisitions.

We are capitalizing on the investments we have made in our processes and systems to reduce costs and gain efficiency, which will also serve to accelerate the integration of future acquisitions.

In order to increase productivity and reduce costs, we are in the process of shifting some manufacturing to lower-cost locations, as well as rationalizing capacity. In addition, we are leveraging our shared service organizational model to better utilize resources.

And finally, we will continue to practice disciplined capital deployment, making strategic investments to move our growth strategies forward and deliver value to our shareholders.

Moving to slide 13, now I would like to introduce Janice Stipp who joined Rogers in November of 2015 as Chief Financial Officer. She brings to us extensive knowledge and experience in the manufacturing, technology and automotive industries with publicly traded and global corporations, as well as private equity firms.

I will now turn the call over to Janice who will report our Q4 and full-year financial results in greater detail.

Thank you, Bruce, and good morning, everyone. I'm very pleased to be part of the Rogers team and look forward to interacting with all of you in the months and years to come.

Before I review the results for Q4 2015, I would like to briefly touch upon my priorities and objectives as we move forward. If you turn to slide 14, I've outlined five key areas that will be a focus for the finance organization and supporting the goals Bruce touched upon earlier. As a market-driven organization, we are partnered with sales and technologies to continue to look for areas to increase revenue by strategically investing in technologies that will drive upon the goals of margin expansion, customer and geographic diversification, and long-term growth outlooks of the markets we participate in.

Optimizing our cost structure and focusing on increasing cash flow, we will -- but the key is we partner with operations, supply chain, and other departments to support Rogers operational excellence initiatives. At any time, but especially during times of global economic uncertainty as we have today, it is important to benchmark the global competitiveness of the Company's cost structure and adjust as necessary maximized use of working capital and deploy a balanced discipline and flexible approach in managing our capital structure.

Lastly, the synergistic approach to M&A will allow Rogers to continue to identify and leverage acquisition opportunities that will deliver on established targets similar to the benefits obtained recently through the Arlon acquisition.

These priorities are all focused on creating value for our shareholders, and we will continue to prioritize those initiatives that meet that objective. Before we move on to slide 15, I wanted to highlight that we will be introducing some new metrics during our call today that will establish the basis of how we communicate results in the future. In certain slides, the consolidated results presented will exclude restructuring, non-cash stock-based compensation, amortization, and other discrete special charges, while other signs are presented using the historical Rogers methodology. Each financial metric has been footnoted as its calculation, and the reconciliation to GAAP and non-GAAP is included at the back of this presentation.

The new metrics are aimed at addressing the continuing core operations of Rogers on a comparative basis. I will first begin by covering our fourth-quarter results, followed by a brief overview of our full-year 2015 performance, and then lastly, I will discuss our Q1 2016 guidance.

Now let's take a look at our Q4 2015 financial results, beginning with slide 15. On this slide, we will be reviewing the results as Rogers has historically communicated them. In the fourth quarter of 2015, net revenues of $152.9 million was up 3.5% compared to the fourth quarter of 2014. Adjusted operating margin was down 380 basis points, primarily due to low organic revenue and higher investment in R&D, both of which are partially offset with lower incentive compensation expense and other SG&A cost saving initiatives. The lower margin drove the overall reduction in non-GAAP earnings-per-share to $0.69 in the fourth quarter of 2015 compared to $0.91 in the fourth quarter of 2014.

Moving to slide 16, we introduced the new metrics I just earlier. One such metric is EBITDA defined as earnings before interest, taxes, depreciation, amortization adjusted for restructuring, non-cash stock-based compensation, and other discrete special charges. Management believes this measurement assisted in comparing our operating performance over various reporting periods on a consistent basis because it removes our operating results (inaudible) that in management's opinion do not reflect core operating performance.

In addition, we believe EBITDA is useful because it provides analysts, investors and others the same information that we use internally for purpose of assessing our core operating performance. However, this financial measure should not be construed as a better measurement than financial measurements calculated in accordance with GAAP.

Lastly, I will caution that other companies that calculate EBITDA differently; therefore, our EBITDA may not be comparable to other companies.

Adjusted operating margin was down 300 basis points from 16.9% in the fourth quarter of 2014 to 13.9% in the fourth quarter of 2015. The improvement from the historical non-GAAP operating income of 80 basis points was driven by 90 basis points from intangible amortization, partially offset by 10 basis points from non-cash stock-based compensation.

EBITDA was down 270 basis points for primarily the same reason. The lower operating margin led to the overall reduction in adjusted earnings per share to $0.88 in the fourth quarter of 2015 compared to $1.04 in the fourth quarter of 2014.

Slide 17 provides greater detail on revenue in the quarter. As Bruce stated, there are significant market headwinds resulting in delays in capital investments and key infrastructure projects that impacted our organic revenue this quarter, which contributed to a deterioration of 11% on a currency neutral basis. Our organic revenue in each of our business segments was unfavorable resulting in $16.2 million revenue deterioration in Q4 of 2015.

ACS segment results were favorably impacted by strong growth in high-frequency circuit materials used in automotive Advanced Driver Assistance Systems and aerospace defense applications. However, weaker demand in the 4G LTE base station supply chain, primarily in China, led to an overall decline in ACS segment revenue for the quarter.

While our EMS segment results were favorably impacted by increases in consumer automotive applications, the continued decline in certain portable electronic applications led to overall reduced revenue in the segment.

Lastly, results for our PES segments were favorably impacted by increased demand in electric vehicles and certain renewable energy applications, although lower demand in mass transit applications resulted in lower organic revenue for this segment. Fluctuations in currency exchange has unfavorably impacted net revenue by 3.5%. The acquisition of Arlon contributed $26.6 million or 18% of our revenue in the quarter.

Looking at our adjusted operating income on slide 18, fourth-quarter results declined 300 basis points or $3.7 million compared to the fourth quarter of 2014. Gross margin declined 530 basis points, primarily due to low organic volume mix, (inaudible) related pricing and absorption, and warranty expense. Commercial expenses were lower by 230 basis points due to lower incentive compensation accruals and cost initiatives, partially offset by higher investment in R&D.

Let's take a look at our segment finances on slide 19. Since Bruce has already covered segment revenue in some detail, I will focus on operating income adjusted here for restructuring and other non-discrete special charges only. ACS operating income was $10 million, down $0.1 million from 2014 Q4 or 190 basis points as a percent of revenue. This decrease was primarily due to low organic revenue and unfavorable absorption, partially offset by the acquisition operating income. EMS operating income was $4.3 million, down $1.9 million from Q4 of 2014 or 440 basis points as a percent of revenue. This decrease was the result of low organic revenue, as well as unfavorable mix and absorption, partially offset by the acquisition of operating income.

PES operating income was $0.8 million, down $2.7 million. As a percent of revenue, a decrease of 620 basis points. This decrease was primarily due to low organic revenue barring rebates or any expense and unfavorable absorption.

Moving to slide 20, you'll see the waterfall chart switching the changes in adjusted earnings per share from Q4 2014 to Q4 2015. The $1.04 of adjusted earnings per share last year is reduced by $0.06 of intangible amortization and $0.07 of non-cash stock-based compensation, resulting in $0.91 for Q4 2014, earnings-per-share less special adjustments. This was reduced by $0.68 due to the lower volume, volume-related pricing, unfavorable absorption and mix.

Reduced commercial expenses contributed $0.25 of earnings-per-share improvement, primarily due to lower incentive compensation accruals in 2015, which is being partially offset by $0.05 of earnings-per-share deterioration due to increased investment in R&D. The Arlon acquisition added $0.26 to earnings-per-share, which resulted in $0.69 of Q4 2015 earnings-per-share special adjustments, which exceeded the guidance estimate of $0.53 to $0.63 per share.

As I mentioned earlier, Rogers will be introducing some new metrics. The management team believes, to better understand the core operational business performance, we've added back intangible amortization and non-cash stock-based compensation to calculate an adjusted earnings-per-share metric. As you can see on this chart, starting with the $0.69 of Q4 2015 earnings-per-share less special adjustments, adding $0.11 for intangible amortization and $0.08 for non-cash stock-based compensation, the core business performance was $0.88 of adjusted earnings-per-share.

Now let's take a look at the full-year 2015 financial results, beginning on slide 21. This slide illustrates the results as Rogers has historically communicated them. Rogers delivered all-time record revenue of $641.4 million, an increase of 5% over fiscal year 2014. Organic sales were down 6.9% on a currency neutral basis, and fluctuation in currency exchange rates lowered results by 4.5%. The Arlon acquisition increased revenue by 16.4%. Adjusted operating margin was down 90 basis points from 14.6% in 2014 to 13.7% in 2015.

The main contributing factors are accretive results of the acquired business, partially offset by purchase accounting, as well as SG&A savings primarily due to lower incentive compensation, partially offset by organic volume and mix and higher investment in R&D. Non-GAAP earnings-per-share was $3.08 in 2015, which is down 9.7% over $3.41 in 2014.

Turning to slide 22, you'll see the full-year 2015 results with the new metrics. Adjusted operating margin was up 10 basis points from 16.8% for the full-year 2014 to 16.9% for the full-year 2015. The improvement from the historical non-GAAP operating income of 100 basis points was driven by 70 basis points from intangible amortization and 30 basis points from non-cash stock-based compensation.

EBITDA is also up 10 basis points from 20.6% for the full year of 2014 to 20.7% in the full year of 2015, which is driven by the explanations already noted. Adjusted earnings-per-share is $3.84 in 2015, which is down 2.2% over the $3.92 in 2014. The primary reason for the decline is due to increased interest expense and tax rates associated with the adjusted earnings-per-share.

On slide 23, you'll see the full-year segment financials. ACS revenue increased 11.1% in 2015. Organic revenue declined 11.4%. Currency fluctuations decreased results by 1.3%, and the acquisition added 23.8% as compared to the prior year. ACS operating income for 2015 increased by $3.5 million but was lower by 70 basis points. Lower organic revenue was partially offset by the addition of the operating income from the acquisition, favorable results from the continued efforts targeted at manufacturing efficiency and improvements, and favorable inventory absorption. Organic revenue in our EMS segment declined 7.9%, while currency fluctuations decreased results by 1.8% and the acquisition added 13.8% of growth as compared to the prior year.

EMS operating income declined 180 basis points, primarily due to the lower organic revenue and mix, partially offset by the addition of operating income from the acquisition and productivity improvement.

PES organic revenue was basically flat compared to 2014, despite an unfavorable currency impact of 12% when compared to the prior year. PES operating income declined 110 basis points, primarily due to organic revenue and mix, unfavorable currency exchange impact, volume price rebates, warranty expense, partially offset by improvements in yield and productivity.

Turning to slide 24, you can see we ended the year with a strong cash position of $204.6 million. Rogers generated $73.9 million of cash flow from operations and repurchased $40 million of shares during the last half of the year.

We also made progress on executing on our growth strategy by utilizing $125 million of borrowings in our bank credit facilities to help fund the successful acquisition of Arlon.

During the year, we also invested $24.8 million in capital expenditures that helped change our competitive position, as well as we exited a non-core product line.

Slide 25 highlights our capital allocation over the last three years. Capital expenditures have been roughly 30% of the operating cash flow, another 17% toward share repurchase and 14% toward net acquisition activity. We are remaining flexible on our operating cash flow to support a strong balance sheet in the face of continued economic uncertainty, as well as any opportunistic acquisition. We will stay focused on value-enhancing initiatives and assets attended to deploy operating cash flow in a balanced and disciplined manner towards accretive strategic acquisitions, capital investments and continued share repurchases.

Taking a look at our Q1 2016 guidance on slide 26, revenues are estimated in the range of $148 million to $156 million and net earnings to be in the range of $0.51 to $0.61 per diluted share, which (inaudible) to $0.83 on an adjusted earnings-per-share basis. At the midpoint, our Q1 2016 revenue guidance represented an organic revenue decline of 2% over Q1 2015. Another 3% unfavorable currency fluctuation and additional 3% resulting from the Q4 2015 divestiture of non-core product line.

Guidance for earnings-per-share has a midpoint of $0.56 per diluted share, which reflects a reduction of $0.37 per diluted share compared to earnings-per-share on Q1 2015. This decrease is due to several factors, including $0.32 related to lower revenue and expected higher R&D investments of $0.03. Given the recent developments in our global markets, I would like to take a moment to compare the Q1 2015 guidance estimate to the Q4 2015 results.

Compared to Q4 of 2015, we expect first-quarter revenues to remain relatively flat. Because even though we anticipate a slight increase in the organic business, that increase will be offset by the divestiture of the non-core product line.

We also expect a decline in earnings-per-share of $0.13 per diluted share at the midpoint compared to Q4 2015 non-GAAP earnings-per-share like special charges of $0.69 per diluted share. This decrease is due to higher forecasted SG&A, primarily due to incentive compensation expense, as well as a planned higher tax rate in Q1 2015 due to the absence of the release of certain tax provisions that occurred in the fourth quarter of 2015. The negative impact of these items is expected to be partially offset by the higher organic revenue.

In summary, we believe we are well positioned to deliver shareholder value in 2016 and beyond. We continue to aggressively optimize our cost structure in the face of economic uncertainties as (inaudible) while remaining strategically positioned to capitalize on growth in our megatrend markets pursuing accretive acquisitions and continuing to invest in technology and innovation that address our customers' needs.

I will now turn the call back over to Bruce. Bruce?

Thanks, Janice. This concludes our prepared remarks, and we will now open the line for Q&A.

(Operator Instructions) Daniel Moore, CJS Securities.

Maybe just update us, what are you seeing with regard to end market demand for 4G telecom equipment, specifically in China, and how confident are you that your customers have now worked through the majority of the inventory level reductions?

Okay. Well, certainly what we've seen -- we've seen a number of third-party reports. We've heard from our customers and also the big three telecoms in China are all reporting pretty similar outlook. They look at 2016 with an increase in base station production or implementation.

So what we are seeing is about 200,000 more base stations that are being rejected for 2016. So that, in combination with what we believe is a good balance of inventory to demand in the supply chain that was giving us some headwinds in 2015, we think that's in shape. So we look positively towards 2016 on the base stations.

Thank you. Switching gears a little, you worked really hard to get your gross margins up toward 40% over the last few years. Took a bit of a step back in the quarter. Quickly mentioned a number of things in the prepared remarks, but maybe just give us a little bit more color. What are the factors that are impacting gross margin in Q4, and how quickly can we get those back toward that 40% goal?

So let me take a step back. In 2015, organic sales were down as we all know. And that volume decline had an effect -- an impact on our capacity utilization in many of our units. It also caused under absorption during the year.

So -- also in Q4, we had some discrete one-time manufacturing costs related to quality and some claims that we don't think we will see again as we move forward.

The other thing that I will point out, the addition of the Arlon product mix, which was absent obviously in 2014, had a slight negative impact on margins. So as we look ahead into 2016, we believe that the manufacturing excellence initiatives will continue to enhance our margin profile, and certainly as we see the recovery in global markets, we think and believe that, as that volume returns, it will have certainly a positive effect on our margin profile.

So Janice, you might care to add some other comments.

No, I would agree. I think that we are looking forward. I think that the revenue being up a little bit next year, although we lost our non-core products, might hurt us a little bit, but I think we will be okay. I think our operational excellence and our pursuit of productivity will offset anything we lose in that type of sales.

Lastly, and I will jump back into queu, how much revenue from Arlon is included in your Q1 guidance? And Arlon obviously had a great year in 2015. Specifically there talk about the outlook, the sustainability, your expectations for organic revenue and EPS growth for that part of your business in 2016?

It's approximately about $20 million.

For Q1?

The Q1.

Okay. And just in general, commentary about market outlook of 2016 or any antennas and the rest of Arlon's business?

So, on the antenna side, again, we know that as the buildout continues in places like China, we believe we will continue to see good strength in that market. Again, this is a penetration play as well as operators move from bent metal antenna systems to the print circuit material systems.

The other thing I will point out and it was interesting to note, if you look at the press over the last month or so, India now seems to be a place where we are starting to see a lot of growth. Reliance Jio, their CEO made some commentary in the press that they are going to buy the second half of 2016 be able to cover 80% of the population of India with 4G. This is obviously a key and big move. And so as we've talked a lot in the past about China, we are now starting to see the 4G LTE move into India, which I think bodes well over the next few years for us both on the antenna side, as well as on the base station side.

Appreciate the color.

(Operator Instructions) Joan Tong, Sidoti and Company.

so couple of questions here. First off regarding share buyback, obviously you bought a little bit over $3 million during the quarter, and it's a step back from that over $30 million in the third quarter. So I'm just wondering what is your thinking in terms of capital deployment going forward?

Yes, we're still going. We think -- we purchased buyback as a part of our value to our shareholders that we want to continue to do. We are going to not be as -- aggressively, we acquired $40 million last year, so obviously that was somewhat of a catch-up from prior years. So you won't see that type of impact, but we definitely will be looking at the economic headwinds to find out if the economy is going down so that we can maintain a strong balance sheet. But in that regard, we do anticipate at least acquired enough to offset any of our stock compensation that we are giving to our executives.

The other thing that I would like to point out on share buyback is we are constantly assessing our strategy, and part of our strategy as a corporation is M&A. So my view is that takes priority on our capital allocation, and so we will continue to balance that versus the other needs of capital. Certainly also capacity expansion and so forth and investment in our operations is a key component of that capital as well.

Okay. That's fair. And I have -- just follow up on the margin question then, the profitability -- obviously you did a great job in the third quarter. The margin actually surprised on the upside, and then on the fourth quarter, it's a little bit weaker than what I expect and probably what people expected in the first quarter also the same situation. And I get asked a lot, there's questions regarding incremental margin. I know that a lot of this is due to deleveraging. It's due to the operating deleveraging and mix and things like that. But going forward, when things start to improve, the volume is going to pick up. Are you still comfortable with that incremental margin that you have talked about in the past, that 50% to 60% going forward?

Without a doubt, yes. You've got the number right. It is about 50%, 60%, so that just drops right through. So we would anticipate as we look forward, and I'm not -- we don't make predictions beyond the quarter, right, but in talking -- I've talked to a number of our customers, been out traveling, and what we are hearing is, towards the second half of the year, we believe that we will start seeing this industrial recession recover that we have noted in Q2 of 2015. So, as those volumes start coming back into our units, we fully expect to see that margin profile improve.

Okay. And may I ask you, what is your utilization rate right now? And also Bruce, I think you mentioned during your prepared remarks, you mentioned that some sort of -- you tried to rationalize your footprint, the capacity. Is there anything incremental other than the things that you already announced in the past, or is it still kind of like a continual process? So multipart questions here.

Sure, yes. So our capacity utilization is approximately 70% or so right now across our units. It's obviously unit by unit and business by business, but that's a pretty good number for you.

In terms of our -- looking at our footprint and so forth, we've talked about the movement to Hungary of our final inspection in curamik. I would also say that we are looking very carefully at our excellence initiatives -- our manufacturing excellence initiatives to really drive costs out of our existing facilities, and that's one area that I fully believe we will see continuing in 2016 where we will get some very good payback on the investment in that -- in those projects.

And again, as I think you pointed out, this is an ongoing analysis that we have across our network of what locations make the most sense linked to where our customers are as well.

So we continue to evaluate where we should be manufacturing to reduce not only what I would say is lower wage area -- to focus on lower wage areas, but also on areas like logistics and transportation that also have a very impactful effect on our profitability. So it's a multipronged approach that we are focusing on in addition to our supply chain pressures that we are putting on our suppliers.

Okay. That's very great. Thanks for the update. And really finally, regarding macro, everyone is kind of worried about China's falling apart. I know that a big chunk of your business is from China, but you also mentioned not everything being in China or consuming China. So can you just kind of -- help us to dissect how we should think about your exposure in some of those problematic emerging markets?

Well, again -- and I think you called it correctly -- we are in those locations -- in those locales primarily due to our customers. So our customers are adjacent to us in many of our places in China, and so we are supplying to them, and they are assembling and completing the products, and some are being sold as you can imagine on smart phones and some electronics being sold locally. But this is a global business.

And so what I would -- it is very hard for us to understand where all the products go. But when we look at telecom for example -- and we were just talking about India but also expansions in Europe, expansions in Latin America, expansions in Southeast Asia and North America -- it's very hard to track because these are global customers, they might manufacture in China or in those locales, but they ship globally.

So I don't think I can give you much more detail on the split, but certainly I am very confident that as the global economies go, so goes Rogers. It's not -- we are not so tied to one or another specific economy.

Thank you very much.

Juan Molta, B. Riley.

Good morning, guys. Thank you for taking the question. First question, if you can -- hi, how are you? Can you reconcile the comment that Janice just made in her prepared remarks regarding the sequential guidance Q4 to Q1 where you expect organic revenue growth to be positive when you back out the sale of the non-core business? Is that accurate what I heard?

Yes, it is.

Okay. And from a high level in the conference call and in your remarks, you've talked about a weak macro as you being cautious. So if you are seeing an organic revenue growth sequentially, then things must be pretty good from what you are seeing.

Our products -- it's lower than what we anticipated. We had a good economy, but we are still seeing positive transference on overall sales for Rogers. So you are correct. It would just be higher if the market was different.

okay. All right. Would it be possible to quantify or approximate your exposure to automotive in each of the segments since it was a source of strength in all three of your segments?

And, of course, it varies by segment, but I would tell you it is relatively small as a component of Rogers. I would -- I'm trying to estimate, but I -- just looking at some numbers here, I would say it's in the range of maybe 10% to 12%-ish, but really what we are seeing is this is a penetration play for us. And I will talk about the blind spot detection and so forth. That market is growing at 30%, and that's not because obviously the automotive market is growing at 30%. It's because of the penetration of that application into those market areas.

And so our exposure to automotive is relatively small, and it's usually -- and it's very much oriented towards very specific applications where we have a very defined competitive advantage and technology capability that is unique. And so, as we see that develop, we will continue to grow with it, but again we don't see ourselves as an automotive supplier per se. We see ourselves as a technology supplier and going into various industries and penetrating with that technology.

Okay. You mentioned a new product introduction at the beginning of the call. Could you address any other new product introduction that you have planned for the year?

We have multiple products that are coming into the market in existing market areas but also in some newer ones. I'm going to ask Bob Daigle, our Chief Technology Officer, to talk a little bit about the antenna system that I talked about earlier because I think it's a very good example of the platform technologies that Rogers is bringing forward to the marketplace.

Yes, so this is Bob Daigle. So what Bruce referred to earlier in terms of new platform technologies, really aimed -- the initial launch is really focused on defense antenna applications, and with this technology, you basically can significantly reduce the size and footprint of an antenna without sacrificing performance. We are using this as kind of a platform -- as really a foothold in the defense market, but are now very busy looking at commercial applications where clearly there's a lot of value in either shrinking antennas, improving the efficiency in some cases, and longer-term, enabling really better data rates between handhelds and mobile cell phone towers. Clearly going to be necessary for 5G infrastructure and supporting the new applications around the Internet of Things.

So a lot of strong work around new platforms that are going to drive growth in the three- to five-year range, and ongoing effort in terms of products that are maintaining their positions in the technology leaders and current generation antennas, making sure we are extremely well-positioned in 5G infrastructure to maintain the high market shares that we've enjoyed with 4G.

Okay. Very good. And I will ask a couple others. Regarding the other areas of strength you mentioned, it was consumer and renewable energy. Can you talk a little bit more about what specific applications or what industries inside those sectors you are seeing the strength in?

So in consumer impact and protection, this is in our phones business -- I'm sorry, in the elastomerics business, and this is -- some specific applications in things like sporting goods, sporting apparel, protection and so forth, and it is a very -- each application has its own demand and criteria, and we have unique capabilities with our phone elastomerics to participate there. So that's one area.

The other one in terms of clean technology -- clean energy and energy efficiency, we are seeing renewed interest in areas like solar, and this has a big impact on our Power Electronics Solutions business, and certainly we continue to see a high level of interest around the globe in our EV/HEV application areas.

So this is not only in places like California where you can imagine there's lots of interest in these kinds of applications, but in places like China where there are many more mandates for EV/HEV automobiles, not necessarily from a saving oil or saving gasoline approach, but much more from an environmental approach. And there is mandates in places like Beijing and Shanghai for these electric vehicles, and we are seeing a lot of interest in those areas as well for Rogers technology.

Okay. Thanks. And then my final question, as you look across all three segments, did you -- have you added new customers during the quarter or the beginning of this year? Or is it same customer, just with these same -- changing their order flows?

I would say the customer bases remain relatively stable for us. Certainly with the acquisition, that brought into it a new group of customers, which, again, was -- we see it as a great sales synergy and revenue synergy for Rogers. This has enabled us to have access to customers that historically we hadn't really had too much contact with. Now we are bringing our full pallet of products to those customers of the Arlon organization.

So from a customer perspective, I think the Arlon acquisition has brought us a new group of customers, but in our existing organic legacy business, it's pretty much the same customer base.

Okay. Thank you very much.

David Cohen, Midwood Capital.

I was just looking for a little more clarity on the bridge of GAAP earnings to non-GAAP earnings, especially given the fact that you have a tax benefit in the fourth quarter. I'm just wondering why it doesn't make sense to incorporate some sort of pro forma tax rate to get you to more normalized non-GAAP earnings -- incorporating a more normalized tax rate?

I guess we're just -- actually walking through the actual facts. I understand what your point is. I mean if we look at Q4 and obviously with the tax benefit, without the benefits really with some of the Financial 48 that you will see in the 10-K, we are more at the 32% tax rate versus the 30% tax rate. So not a significant spring but some movement for the year.

Okay. But so --

That was for the text, yes, the FIN 48.

Okay. And then if you look at the special items -- environmental charge, severance, loss and sale of business -- are those -- is there any tax impact -- are those tax affected anyway or are those gross?

No, they will be gross, but they will have tax impact, yes, of course.

Right. But you are adding back the full amount of the adjustment, not a tax-adjusted amount of the adjustments, is that right?

No, it's a tax impact or tax adjusted, I'm sorry.

So, let's say, for example, nine minutes of charge is $0.11. Is that net of taxes?

Yes, yes, it is.

Okay. And the same question applies, to get to the non-GAAP adjusted EPS, the intangible amortization and the equity compensation, is that gross or is that net?

Net.

Okay. And just as a suggestion, maybe that's better off being called -- because we already have a non-GAAP number. Maybe that's better off being called cash earnings per share or something like that? Have you seen that more commonly among the companies? Yes. Something (multiple speakers)

No, that's good. I will take that under advisement.

All right. Thank you.

Dana Walker, Kalmar Investments.

on Advanced Driver initiatives, Bruce, can you talk about how you would expect the pacing of that to evolve, particularly with the USR appearing to flatten out?

So our view -- and this is looking at industry reports, multiple industry reports -- the view is that this market will grow 30% a year through 2020. So -- and this is penetration, again. This is not necessarily tied to unit production per se of the automotive industry, but it is much more around the penetration of the technology from a safety perspective. And we've mentioned in the past the European authorities are demanding that this technology be in the cars, and the US Department of Transportation is also recommending it in terms of blind spot and adaptive cruise and so forth.

The other thing that is driving that will drive this, and this one is a little bit more uncertain of timing, but nonetheless we believe it will happen, is the self-drive automobiles. And our materials are used pretty extensively in a number of the experimentals that are out there. So we see this certainly not next year, but over the planning horizon of maybe five years, you'll see more and more of this, which requires multiple number of sensors, more than just the blind spot and adaptive cruise that we currently see today.

Are there certain car companies whether they be here or abroad that are a primary driver of the delta in growth? Mercedes was obviously an early adopter or some of the more recent car companies. Any ones you can name?

Well, first of all, we don't name our customers because they don't like that, but I'm going to ask Bob to comment on this.

Dana, the way to think about that is the radar sensors are actually being built by the Tier 1s. So you have about a dozen Tier 1 manufacturer with these radar sensors that are being sold to pretty much all the major automakers, and it is pretty broad these days. If you look at the marketplace, at least in the West, so if you look at Europe and North America and it is starting to emerge in China now where these are typically options on available with pretty reasonable price almost vehicles. In some cases, it's a standard in the high-end vehicles.

So you have the dynamic really around more and more of the platforms adopting -- new vehicle platforms adopting these sensors. You also have the number of sensors going up where what we used to talk about, which the lane change radar, you had two sensors in the back bumpers. You now have -- you have the adaptive cruise pre-breaks -- pre-collision braking systems, and now you are starting to see a lot more of the transverse sensors where basically if you are backing out of a parking spot, you pick up whether there's a vehicle coming at you from the side. So you're now seeing the average number of sensors go up significantly.

And this is anecdotal, but just -- it's interesting because you think about that Audi Q7 that they drove to the Detroit Auto Show autonomously to Bruce's point earlier. That has seven radar sensors and five camera systems. So that combination of technology to provide the autonomous driving experience.

So, again, I think generally speaking when we've seen the industry reports with a 30% CAGR, so far in recent years, they've actually -- the industry has outperformed those growth rates and what we see based on our experience. So it seems to be coming very mainstream in the auto industry.

Your sense for your share of market at this point and your projectable share of market would be what?

Yes, we believe we are north of 80%, and we are well-positioned to maintain a high share. And roughly speaking when we estimate market penetration today globally, these radar sensors, somewhere -- if you do the math, it's 10% to 12% market penetration. So there's still -- we're still in the first inning of this industry.

Bruce, you were talking earlier about the belief that there would be more base stations built in 2016 than in 2015 in China. If -- given that your compares begin to ease, I presume that would be in Q2 at least as it would apply to China. In what timeframe might you expect to see year-over-year growth in your power amplifier business?

We -- again, we are being very cautious coming into 2016, and you know we don't project past the current quarter. But our outlook for the year based upon the public information that we've seen and also conversations with our customers is that we will see in China a buildout of the base stations greater than what we saw in 2015. So I'm optimistic but cautious, and let's see how we get through the first quarter here.

Yes, and Dana just a note, I think you would probably recall -- we've talked about this, but first quarter of 2015 was very strong in the base station infrastructure part of our business, but Q2 fell off very dramatically in the power amplifier area. It was down around 40% or so and flatlined. So, again, I think the year-over-year comparison will obviously get a lot easier after Q1.

How about one final question on -- you talked about the back display application in phones. Where does your phone business stand for PORON type products? And maybe you can annualize that at year-end and whether you would expect that to be negative, neutral, or growth as you look out over the next year to two?

Well, certainly over the last couple of years, we've gone from about 45% of our -- of the EMS business to about 25% that is associated with the personal or portable electronics business. We are optimistic that our back pad business will mute some of the decline in cascading -- the display cascading that we've seen during the last couple of years. It is very difficult to predict primarily because these are very application-specific and specific to certain customer wins. And so how fast these new applications come on board, how fast some of the older applications go away is very difficult for us to predict.

Just on a ongoing basis, in every handheld we believe we have about $0.02 of sales of our phone into the handhelds. So we are impacted by the market -- the handheld market. So if it is up -- the number of units are up, we are up accordingly from that kind of supply side.

Now certainly the back pads are a greater real estate area on the smart phones, and accordingly we have a higher value to us. But again, it's very, very difficult for us to project forward on that. But our outlook is -- we believe we have some very good products out there and our customers are telling us that.

Maybe I will sneak one more in. Janice, hi there. If you were to describe the revenue and the EPS effect of the divestiture, that would be helpful.

We don't give the detail of just one product line at this point in time, but we did talk about that the revenue for the first quarter was approximately 3% of the sales that would be deteriorating quarter over quarter. But we never really got -- we've never given details to the profitability.

One presumes there was some EBIT involved there rather than you selling a losing operation?

Dana, I think we've couched this before as we talked about the acquisition. The piece of the business was -- when we acquired Arlon, we put in the other category was basically we didn't believe that it contributed much to our future from a growth, and quite frankly -- I think I made this comment before -- we paid a multiple of EBITDA for Arlon, and we didn't -- that didn't cost us anything to give you a sense. (laughter) So we wouldn't expect this to have a material impact on our profitability. So it's a decline in revenue without an impact on process.

Bob, one day when you retire, you can get into the furniture business so that you can couch things. Thank you.

Daniel Moore, CJS Securities.

Just one follow-up triangulating a few comments, and maybe Bruce, you can give us a little bit of outlook just on the overall M&A environment. You mentioned Janice that you wouldn't be buying back as much stock in 2016, but by our calculations, get $25 million net cash, probably add another $60 million to $80 million plus potentially this year. Are you holding back as the M&A? Are you seeing much more in the way of opportunities in M&A and that's why you're holding back? Maybe provide us a little bit more color there, Bruce.

Again, I always go back to our core strategy. Our core strategy is both organic and inorganic growth, and the inorganic growth world today for us, we've got numbers of teams focused on opportunities. We think with some of the decline in the recession that we've seen in the industrial sector, there's opportunities here.

And so we continue as part of our core strategy to focus on this area, and as I said earlier, this is a priority for us when I look at our capital allocation across the corporation. So we are fulfilling our strategy approach here by doing our work and understanding where those opportunities are.

Any additional color in terms of geography and/or type of end markets where you are seeing more things bubble up?

No, it's generally -- I would say certainly what we've seen as multiples have come down over the last year or so, and so we think it's a little bit more positive environment. So we will see.

Okay. Thank you.

Showing no further questions at this time, we will turn the call back over to Mr. Hoechner for any closing remarks.

Okay. Thank you, Chris. In 2015, like many global companies, Rogers was affected by the volatility in the global economy. Despite these conditions, we still delivered record Q4 and full-year sales thanks in large part to the contributions from the acquisition we made early in 2015.

Looking ahead, we are confident in our growth strategy, which has delivered sustained solid results over the past three years. We are seeking new acquisition opportunities, implementing operational improvements to reduce costs and increased efficiency and cultivating a robust pipeline of new products. We believe that we are focused on the right megatrend categories. By actively growing our business, controlling costs, and maintaining disciplined capital allocation, we expect to deliver solid returns to our shareholders.

Thank you for joining us on today's call.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.