Rogers Corp: Form 10-Q for the period ended Mar 31, 2025

As used herein, the “Company,” “Rogers,” “we,” “us,” “our” and similar terms include Rogers Corporation and its subsidiaries, unless the context indicates otherwise.

Forward-Looking Statements

This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such statements are generally accompanied by words such as “anticipate,” “assume,” “believe,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “seek,” “target” or similar expressions that convey uncertainty as to future events or outcomes. Forward-looking statements are based on assumptions and beliefs that we believe to be reasonable; however, assumed facts almost always vary from actual results, and the differences between assumed facts and actual results could be material depending upon the circumstances. Where we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and based on assumptions believed to have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur or be achieved or accomplished. Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation:

• failure to capitalize on, volatility within, or other adverse changes with respect to our growth drivers, such as delays in adoption or implementation of new technologies;
• failure to successfully execute on our long-term growth strategy;
• uncertain business, economic and political conditions in the U.S. and abroad, particularly in China, South Korea, Belgium, Germany, England, and Hungary where we maintain significant manufacturing, sales or administrative operations;
• the trade policy dynamics between the U.S. and other countries where the Company does business, in particular China, as reflected in recently escalated tariff impositions and associated countermeasures, as well as the potential for U.S.-China supply chain decoupling;
• fluctuations in foreign currency exchange rates;
• our ability to develop innovative products and the extent to which they are incorporated into end-user products and systems;
• the extent to which end-user products and systems incorporating our products achieve commercial success;
• the ability and willingness of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely and cost-effective manner;
• business interruptions due to catastrophes or other similar events, such as natural disasters, war, terrorism or public health crises;
• the impact of sanctions, export controls and other foreign asset or investment restriction;
• failure to realize, or delays in the realization of, anticipated benefits of acquisitions and divestitures due to, among other things, the existence of unknown liabilities or difficulty integrating acquired businesses;
• our ability to attract and retain management and skilled technical personnel;
• our ability to protect our proprietary technology from infringement by third parties and/or allegations that our technology infringes third party rights;
• changes in effective tax rates or tax laws and regulations in the jurisdictions in which we operate;
• failure to comply with financial and restrictive covenants in our credit agreement or restrictions on our operational and financial flexibility due to such covenants;
• the outcome of ongoing and future litigation, including our asbestos-related product liability litigation;
• changes in environmental laws and regulations applicable to our business; and
• disruptions in, or breaches of, our information technology systems.

Our forward-looking statements are expressly qualified by these cautionary statements, which you should consider carefully, along with the risks discussed in this section and elsewhere in this report, including under the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 (the Annual Report) and our other reports filed with the SEC, any of which could cause actual results to differ materially from historical results or anticipated results. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes that appear elsewhere in this Form 10-Q along with our audited consolidated financial statements and the related notes thereto in our Annual Report.

Company Overview and Strategy

We design, develop, manufacture and sell high-performance and high-reliability engineered materials and components to meet our customers’ challenges. We operate two strategic operating segments: AES and EMS. Our remaining operations, which represent non-core businesses, are reported in our Other operating segment. We are headquartered in Chandler, Arizona.

Our growth and profitability strategy is based upon the following principles: (1) market-driven organization, (2) innovation leadership, (3) synergistic mergers and acquisitions, and (4) operational excellence. Our priorities in executing this strategy are focused on driving near-term improvements to profitability and improving the growth outlook for the Company over the next several years by further strengthening our focus on our portfolio and commercial activities, optimizing our global capacity to meet customer demand and driving innovation.

As a market-driven organization, we are focused on capitalizing on growth opportunities in several different end markets. This includes the automotive industry, where there are market opportunities resulting from the increasing electrification of vehicles, and in the expanding use of ADAS. Other opportunities are driven by the advancement of communication systems in aerospace and defense, the growth of next-generation smartphones in the portable electronics industry, and the continued expansion of renewable energy. In addition to our focus on these markets, we sell into a variety of other markets, including general industrial, wireless infrastructure and mass transit.

Our growth strategy is based on addressing trends in these markets and applying our repeatable customer engagement process. Our sales engineers and technical service employees work closely with our customers to understand their complex challenges. They then leverage our innovation and technology capabilities and deep applications expertise to provide unique solutions to customers’ challenges. In addition to these capabilities, our strategy for success is also built on our reputation for high performance and reliability, trusted customer relationships and an expansive product portfolio. Through this strategy we expect to be able to drive further commercial wins, which provide the potential for future growth. This growth strategy includes both organic and inorganic investments from which we strive to ensure high-quality solutions for our customers.

Our operational excellence efforts are focused on driving ongoing cost structure improvements to further enhance our profitability. These efforts include focusing on improving yields, throughput, procurement capabilities, and manufacturing processes. We have also taken specific cost improvement actions in recent quarters that have and will benefit our performance. These actions include optimizing our manufacturing footprint, divesting non-core product lines and reducing manufacturing and corporate employees. We continue to review and re-align our manufacturing and engineering footprint in an effort to maintain a leading competitive position globally and to support our customers’ growth initiatives.

We seek to enhance our operational and financial performance by investing in research and development, manufacturing and materials efficiencies, and new product initiatives that respond to the needs of our customers. We strive to evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business.

If we are able to successfully execute on our strategy, we see an opportunity, over the next several years, to increase revenues from current levels and further improve profitability. The increase in revenues is expected to come from a combination of organic growth and targeted acquisitions. This outlook is supported by our participation in a number of growth markets and by our competitive positions in these markets. The fastest growing market opportunity is expected to be EV/HEV where third-party analysis projects that the market will increase at a compound annual growth rate of between 10% and 15% over the next several years. Within the EV/HEV market, we believe our advanced battery cell pads and ceramic substrates provide multiple content opportunities to capitalize on this growth. Other markets with good growth opportunities include ADAS, aerospace and defense, portable electronics and renewable energy.

Executive Summary

The following synopsis and factors should be considered when reviewing our results of operations, financial position and liquidity:

• In the first quarter of 2025 as compared to the first quarter of 2024, our net sales decreased approximately 10.7% to $190.5 million, our gross margin decreased approximately 210 basis points to 29.9% from 32.0%, and we had an operating margin of 0.2% compared to an operating margin of 5.5%, a decrease of approximately 570 basis points.
• We recognized restructuring charges of $5.9 million for the three months ended March 31, 2025 primarily related to our announced intent to wind down our manufacturing operations for our AES operating segment in our Evergem, Belgium facility, along with a reduction of our global workforce.

Results of Operations

The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales:

Net Sales and Gross Margin

(Dollars in millions)

Net sales decreased by 10.7% in the first quarter of 2025 compared to the first quarter of 2024. Our AES and EMS operating segments had net sales decreases of 14.7% and 3.6%, respectively. The decrease in net sales was primarily due to lower net sales in the EV/HEV and wireless infrastructure markets. We experienced lower EV/HEV net sales as customers continued to manage inventory levels and adjusted to softer end market demand. We experienced lower wireless infrastructure net sales as a program for a key customer was launched and completed in 2024.

Gross margin as a percentage of net sales decreased approximately 210 basis points to 29.9% in the first quarter of 2025 compared to 32.0% in the first quarter of 2024. Gross margin in the first quarter of 2025 declined due to lower volumes and unfavorable mix.

Selling, General and Administrative Expenses

(Dollars in millions)

SG&A expenses decreased 6.3% in the first quarter of 2025 from the first quarter of 2024, primarily due to a $3.4 million decrease in compensation and benefits expense and a $1.0 million decrease in professional services expenses, partially offset by a $1.0 million increase in fixed asset depreciation and software cost amortization expense.

Research and Development Expenses

(Dollars in millions)

R&D expenses decreased 20.2% in the first quarter of 2025 from the first quarter of 2024 due to a $0.8 million decrease in compensation and benefits expense and a $0.5 million decrease in trial costs.

Restructuring and Impairment Charges

(Dollars in millions)

We incurred restructuring charges of $5.9 million in the three months ended March 31, 2025 related to our announced intent to wind down our manufacturing operations for our AES operating segment in our Evergem, Belgium facility, along with a reduction of our global workforce. For additional information, refer to “Note 13 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Equity Income in Unconsolidated Joint Ventures

(Dollars in millions)

Prior to November 5, 2024, we had two unconsolidated JVs, each 50% owned: RIC and RIS, at which point, our JV relationships were discontinued resulting in the year-over-year decrease in equity income in those unconsolidated JVs. For additional information, refer to “Note 15 - Mergers and Acquisitions” to the condensed consolidated financial statements in Part I, Item I of this Form 10-Q.

Other Income (Expense), Net

(Dollars in millions)

Other income (expense), net decreased to expense of $1.6 million in the first quarter of 2025 from income of $0.4 million in the first quarter of 2024. The decrease was due to unfavorable year-over-year changes in impacts from our foreign currency transactions.

Interest Income (Expense), Net

(Dollars in millions)

Interest income (expense), net, was $0.3 million of income in the first quarter of 2025 compared to $0.8 million of expense in the first quarter of 2024. The year-over-year change was due to a lower weighted-average outstanding balance for our borrowings under our revolving credit facility and higher income on interest-bearing cash accounts.

Income Taxes

(Dollars in millions)

The below discussion of the effective tax rate for the periods presented in the condensed consolidated statements of operations is in comparison to the 21% U.S. statutory federal income tax rate.

Our effective tax rate was 12.5% in the first quarter of 2025. During the first quarter of 2025, we incurred a loss before income taxes of $1.6 million, which, when taxed at the 21% U.S. statutory federal income tax rate, resulted in an immaterial tax benefit, partially offset by insignificant tax adjustments that caused the effective tax rate to differ from the statutory rate.

During the first quarter of 2024, our effective tax rate was 32.8%. During the first quarter of 2024, our effective tax rate was unfavorably impacted primarily by the write-off of deferred tax assets related to stock compensation.

Operating Segment Net Sales and Gross Margin

Advanced Electronics Solutions

(Dollars in millions)

AES net sales decreased by 14.7% in the first quarter of 2025 compared to the first quarter of 2024. The decrease in net sales over the first quarter of 2024 was primarily driven by lower net sales in the EV/HEV, wireless infrastructure and industrial markets. We experienced lower EV/HEV net sales as customers continued to manage inventory levels and adjusted to softer end market demand. We experienced lower wireless infrastructure net sales as a program for a key customer was launched and completed in 2024.

Our AES operating segment gross margin in the first quarter of 2025 declined primarily due to significantly lower volumes and unfavorable mix. As a percentage of net sales, gross margin in the first quarter of 2025 was 27.9% as compared to 28.4% in the first quarter of 2024.

Elastomeric Material Solutions

(Dollars in millions)

EMS net sales decreased by 3.6% in the first quarter of 2025 compared to the first quarter of 2024. The decrease in net sales over the first quarter of 2024 was primarily driven by lower net sales in the EV/HEV and aerospace and defense markets.

Our EMS operating segment gross margin in the first quarter of 2025 declined due to unfavorable mix and utilization headwinds caused by lower volumes. As a percentage of net sales, gross margin in the first quarter of 2025 was 32.3% as compared to 36.5% in the first quarter of 2024.

Other

(Dollars in millions)

Net sales in this segment decreased by 33.9% in the first quarter of 2025 from the first quarter of 2024. Our Other operating segment gross margin in the first quarter of 2025 declined due to lower volume. As a percentage of net sales, gross margin in the first quarter of 2025 was 32.4%, an approximately 690 basis point decrease as compared to 39.3% in the first quarter of 2024.

Liquidity, Capital Resources and Financial Position

We believe that our existing sources of liquidity and cash flows that we expect to generate from our operations, together with our available credit facilities, will be sufficient to fund our operations, currently planned capital expenditures and R&D efforts, for at least the next 12 months. We regularly review and evaluate the adequacy of our cash flows, borrowing facilities and banking relationships in an effort to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives.

The following table illustrates the location of our cash and cash equivalents by our three major geographic areas:

(Dollars in millions)

Approximately $81.4 million of our cash and cash equivalents were held by non-U.S. subsidiaries as of March 31, 2025. We did not make any changes in the three months ended March 31, 2025 to our position on the permanent reinvestment of our earnings from foreign operations. With the exception of certain of our Chinese subsidiaries, where a substantial portion of our Asia cash and cash equivalents are held, we continue to assert that historical foreign earnings are indefinitely reinvested.

(Dollars in millions)

Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2024 to March 31, 2025 were as follows:

• Cash and cash equivalents were $175.6 million as compared to $159.8 million as of December 31, 2024, an increase of $15.8 million, or 9.9%. This increase was primarily due to the $13.4 million of proceeds from the sale of our Price Road facility and our cash flows provided by operations, partially offset by $9.6 million in capital expenditures, and $1.2 million in tax payments related to net share settlement of equity awards.
• Accounts receivable, net increased 2.9% to $139.2 million as of March 31, 2025 from $135.3 million as of December 31, 2024. The increase from year-end was primarily due to higher net sales at the end of the first quarter of 2025 compared to at the end of 2024.
• Inventories, net increased 0.5% to $143.0 million as of March 31, 2025, from $142.3 million as of December 31, 2024, primarily driven by higher levels of raw material and work-in-process inventory, mostly offset by a lower level of finished goods inventory.

(Dollars in millions)

In 2025, we expect capital spending to be in the range of approximately $30.0 million to $40.0 million. We plan to fund our capital spending in 2025 with cash from operations and cash on-hand, as well as our existing revolving credit facility, if necessary.

Restrictions on Payment of Dividends

The Fifth Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our total net leverage ratio does not exceed 2.75 to 1.00. If our total net leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our total net leverage ratio did not exceed 2.75 to 1.00 as of March 31, 2025.

Contingencies

During the first quarter of 2025, we did not become aware of any material developments related to environmental matters disclosed in our Annual Report, our asbestos litigation or other material contingencies previously disclosed or incur any material costs or capital expenditures related to such matters. Refer to “Note 9 – Commitments and Contingencies” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further discussion of these contingencies.

Critical Accounting Policies

There were no material changes in our critical accounting policies during the first quarter of 2025.

There have been no material changes in our exposure to market risk during the first quarter of 2025. For discussion of our exposure to market risk, refer to “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” contained in our Annual Report.

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We conducted, with the participation of our Chief Executive Officer and Chief Financial Officer, an evaluation of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d- 15(e) under the Exchange Act, as of March 31, 2025. Our disclosure controls and procedures are designed (i) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2025.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

We are in the process of a multi-year implementation of a new global ERP system, which will replace our existing operating and financial systems. The implementation is expected to occur in phases over the next several years. During the first quarter of 2025, we completed the implementation of our new ERP system for one of our manufacturing sites. The portion of the transition to the new ERP system that we have completed to date did not result in significant changes in our internal control over financial reporting. However, as the next phases of the updated processes are rolled out in connection with the ERP implementation, we will give appropriate consideration to whether these process changes necessitate changes in the design of and the testing for effectiveness of internal controls over financial reporting.

There were no changes in the Company’s internal control over financial reporting during the first quarter of fiscal year ending December 31, 2025, that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting, as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act.

In addition to the other information set forth in this Form 10-Q, you should carefully consider the following risk factor, along with the factors discussed in Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2024 and the Company’s other filings with the SEC, which are available at www.sec.gov (http://www.sec.gov) and on the Company’s website at www.rogerscorp.com (http://www.rogerscorp.com).

Changes in U.S. trade policy, including the imposition of tariffs and the resulting consequences, may have a material adverse impact on our business, operating results, and financial condition.

The recent imposition by the United States of tariffs, sanctions and other restrictions on goods imported into the United States, and countermeasures imposed by foreign countries in response to such government actions, if not significantly and promptly moderated or eliminated, is expected to increase the cost of goods for our products or reduce our ability to sell products globally, which may adversely affect our operating results and financial condition. The ultimate impact of these trade measures on our business operations and financial results is uncertain and may be affected by various factors, including whether and when such trade measures are implemented, the timing of when such measures may become effective, and the amount, scope, or nature of such trade measures, and our ability to execute strategies to mitigate the negative impacts.

Additionally, the U.S. government has adopted new approaches to trade policy and in some cases, may renegotiate, or potentially abrogate, certain existing bilateral or multi-lateral trade agreements. The U.S. government has also imposed significant, additional tariff increases to capture other countries and types of foreign goods. Such current and future tariff increases, expanding tariffs to capture other countries and types of foreign goods or other changes in U.S. trade policy, if not significantly and promptly moderated or eliminated, is expected to make it more difficult or costly for us to procure necessary materials and equipment to conduct our business as a manufacturer and supplier of engineered materials and components, and may adversely affect our operating results and financial condition.

In addition, in response to tariffs, other countries have implemented retaliatory tariffs on U.S. goods. The imposition of retaliatory (or new) tariffs on the sale of U.S. goods into foreign countries, if not significantly and promptly moderated or eliminated, may result in a reduction in our net sales in foreign markets, which may adversely affect our operating results and financial condition.

Political tensions as a result of trade policies could reduce trade volume, investment, technological exchange, and other economic activities between major international economies, resulting in a material adverse effect on global economic conditions and the stability of global financial markets, which could, in turn, have a material adverse impact on our business and financial condition.