Rogers Corporation (ROG) Earnings

Management highlights

Overall Financial Results - Delivered solid year-over-year growth and profitability improvement: Q2 2026 adjusted EBITDA reached $37.6 million (17.3% of sales), a 550 basis point margin increase year-over-year, while adjusted EPS was 92 cents, up 171% year-over-year. - Gross margin reached 32.5%, up 90 basis points year-over-year, with higher sales volume and improved product mix as the largest contributors to margin expansion, alongside ongoing manufacturing and operating expense reduction. - Cash flow improved significantly quarter-over-quarter: operating cash flow was $24.4 million, free cash flow was $18.3 million, with ending cash and short-term investments exceeding $211 million, supporting a strong balance sheet and strategic flexibility. - Capital return and expenditure: $3 million in shares were repurchased in Q2 to offset share issuance dilution; full-year 2026 capital expenditures are projected to range between $30 million and $35 million. Operational and Strategic Progress - Management has focused on building a more agile, customer-focused organization and improving operating efficiency, with ongoing progress driving market share gains across core segments. - R&D pipeline progress: Testing and validation of microchannel cooler technology for high-power AI and data center applications is advancing with multiple customers, with strong positive feedback on differentiated performance that addresses unmet signal integrity needs for next-generation AI server architectures. - Additional high-potential R&D programs are advancing in EV and industrial end markets, with further details to be shared at the upcoming investor event. - Rogers will host an Analyst and Investor Day on September 30, 2026 in New York City, which will provide comprehensive updates on corporate strategy, growth opportunities, innovation, the company's value creation framework, capital allocation priorities, and long-term financial planning, with deep dives into AI data center and vehicle electrification opportunities. Ramping Activities - The new ceramic power substrate factory in China is in the ramp phase, creating ongoing underutilization headwinds, but initial momentum is building; significant new design wins are expected to start ramping from late Q3 2026 through early 2027. - The $13 million cost restructuring program for the ceramics facility is on track to meet full-year 2026 savings targets, with some savings already reflected in financial results.

Guidance

- Q3 2026 revenue is projected between $233 million and $243 million, with the midpoint representing a 10% year-over-year increase; growth is expected across all four end markets, with particularly strong performance from aerospace and defense and general industrial. - Q3 2026 gross margin is guided between 33.2% and 34.2%, with the midpoint 20 basis points higher than the prior year; margin expansion is driven by higher volumes and cost structure improvements, partially offset by China factory ramp underutilization and elevated commodity costs. - Q3 2026 adjusted EPS is projected between $1.10 and $1.30, with a $1.20 midpoint, up from 90 cents in Q3 2025. - Q3 2026 adjusted EBITDA is guided between $44 million and $50 million, with a midpoint margin of 19.7%, representing a 250 basis point year-over-year margin improvement. - Full-year 2026 non-GAAP tax rate is projected to be approximately 32%. Management expects full-year 2026 capital expenditures to remain in the $30 million to $35 million range, and anticipates cash flow will improve further in the second half of 2026 consistent with historical patterns. - No changes were made to the previously announced full-year 2026 $13 million cost restructuring savings target.

Segment performance

Rogers Corporation reported total Q2 2026 sales of $216.8 million, a 6.9% year-over-year increase. By end market segment: 1) Industrial: Largest segment, 37% of year-to-date sales, delivered high single-digit year-over-year growth, driven by improving EMS general industrial demand in the U.S. and Europe and strong mass transit rail demand, with the silicon solutions business gaining market share. 2) Automotive: 25% of Q2 sales, delivered low single-digit year-over-year revenue growth, supported by higher ADAS and ICE vehicle application sales; EV battery material sales were flat year-over-year (improved sequentially) as higher power substrate revenues offset lower order volumes, with stronger second-half growth expected from ramping new design wins. 3) Electronics and Communications: 18% of Q2 sales, delivered double-digit year-over-year revenue growth, driven by higher demand from wireless infrastructure and smartphone markets; smartphone sales grew year-over-year from favorable high-end device mix and ongoing customer share gains. 4) Aerospace and Defense (A&D): 15% of Q2 sales, revenue decreased slightly year-over-year, as lower defense sales from normal order timing variability were partially offset by improving commercial aerospace sales; significant defense sales growth is expected in the second half of 2026, with ongoing strong commercial aerospace demand. By business unit: Advanced Electronics Solutions (AES) sales grew 7.8% year-over-year; Engineered Materials Solutions (EMS) sales grew 6% year-over-year.

Risks & headwinds

- Ongoing supply chain headwinds: Raw material shortages for silver and copper persist, and freight transit times have extended from 4-6 weeks to over 12 weeks in some cases due to Middle East geopolitical instability, increasing costs and creating operational delays. - A one-time small facility fire in a Q2 plant suspended production for several days and incurred cleanup costs, resulting in a residual negative impact to Q2 adjusted EPS of roughly 2-3 cents per share. All fire-related issues have been resolved with no employee safety incidents. - The ramp of the new China ceramic factory creates ongoing underutilization headwinds, expected to pressure Q3 2026 gross margin by approximately 85 basis points. - Elevated commodity costs continue to pressure margins, with a lag between cost increases and customer price adjustment implementation. - Macroeconomic and geopolitical uncertainty creates risks to customer demand and supply chain operations, though management has not observed material negative shifts in customer program planning to date. - The 32% full-year 2026 non-GAAP tax rate is elevated relative to historical levels due to valuation allowances in international jurisdictions, creating a near-term drag on bottom-line results.

Analyst Q&A

• Q: Analyst Daniel Moore asks for details on Q2's supply chain headwinds and one-time facility event, and whether these issues are resolved for Q3. /

  A: A small plant fire that suspended production caused the one-time event, and all related issues are fully resolved with no employee injuries. Ongoing supply chain issues include extended freight transit times from Middle East disruptions and ongoing silver and copper raw material tightness, though management sees early signs of improvement coming. The combined impact of these issues pulled Q2 adjusted EPS more than 10 cents below the guidance midpoint, with roughly 70-80% of the hit from supply chain/OPEX impacts and 20-30% from the fire.

• Q: Analyst Craig Ellis asks what is driving the recent acceleration in year-over-year revenue growth (from 5% to 7% to 10% over three quarters), and whether the growth is sustainable long-term or short-term/seasonal. /

  A: Management attributes the growth acceleration to broad-based market share gains from improved operational performance (shorter lead times, faster customer response, faster new product adoption) and new design wins that are launching across Q3-Q4 2026. The growth is not seasonal, and management expects the upward top-line momentum to continue across all end markets.

• Q: Analyst David Silver asks for an update on the $13 million full-year cost cutting program, and how much of the savings have been realized to date. /

  A: The $13 million ceramics facility restructuring program is on track to deliver full-year savings as originally committed. Some savings have already been reflected in the P&L, but the benefits are partially offset by near-term underutilization costs from the ramp of the new China ceramic factory.

• Q: Analyst David Silver asks if management sees increased M&A opportunities in the current volatile market environment, given the company's strong balance sheet. /

  A: Management has been actively evaluating acquisition opportunities in recent months. Strategic fit remains the top priority, but the current market environment may create more attractive valuation opportunities than in the past two years. The evaluation process is ongoing, and management hopes to share an update within the next couple quarters.