Title

Presentation

Rogers Corporation misses on earnings expectations. Reported EPS is $ EPS, expectations were $0.6.

Operator: Good afternoon. My name is Alicia, and I’ll be your conference operator today. At this time, I would like to welcome everyone to Rogers Corporation’s Second Quarter 2024 Earnings Conference Call. I will now like to turn the call over to your host, Mr. Steve Haymore, Director of Investor Relations. Mr. Haymore, you may begin.

Steve Haymore: Good afternoon, everyone. And welcome to the Rogers Corporation second quarter 2024 earnings conference call. The slides for today’s call can be found on the Investor section of our website, along with the press release that was issued earlier today. Please turn to Slide 2. Before we begin, I’d 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 made today.

Please turn to Slide 3. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. Generally Accepted Accounting Principles. Reconciliations of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today’s call, which are available on our Investor Relations website. Turning to Slide 4, with me today is Colin Gouveia, President and CEO; and Ram Mayampurath, Senior Vice President and CFO. I will now turn the call over to Colin.

Colin Gouveia: Thanks, Steve. Good afternoon to everyone, and thank you for joining us today. I will start by highlighting the key messages for the quarter on Slide 5. Our execution was solid in the second quarter and results were in line with our expectations. Sales were near the midpoint and gross margin performance exceeded the high end of our outlook. The strong improvement in gross margin drove adjusted earnings near the top end of our guidance range. Sales were stronger in some areas, such as Portable Electronics and Wireless Infrastructure. Tempering this growth was elevated customer inventory levels of our ceramic products, which impacted the EV/HEV, Industrial and Renewable Energy markets. As we manage through the current customer inventory challenges and the uneven demand environment, we continue to drive improved performance in the areas we can control.

For example, in late Q1, as it became apparent, our ceramic power substrate customers were reducing orders due to high inventory levels and slowing end consumer demand, we moved swiftly to reduce manufacturing costs. This action significantly boosted our Q2 gross margins, while still retaining flexibility to increase output should demand return more quickly than anticipated. In addition, as we announced in June, we are consolidating our high-frequency circuit material manufacturing operations. Upon completion of this effort in mid-2025, we anticipate improved factory utilization rates, lower expenses and increased operating margins in the $7 million to $9 million range. The decision to consolidate was made in response to decreased customer demand for RFS products in Europe.

In the coming quarters, we will transition customers to our existing RFS manufacturing facility in China, enabling us to provide even higher levels of support. We also remain focused on driving innovation to support the future growth of the company. As our CTO, Griffin Gappert, discussed last quarter, we have implemented several actions to accelerate our technology development process. A key recent action was the decision to exit our Northeastern University location near Boston, Massachusetts. This location was established in 2014 in partnership with Northeastern to develop breakout new platform technology to support Rogers’ long-term growth. The intent was to co-locate select scientists with academia to develop new platform technologies while our existing R&D teams focused on innovation programs specific to each business unit.

Our commitment to innovation remains as strong as ever, but we now believe all long-term R&D is best conducted within the business unit R&D teams at our primary technology centers in the U.S., Europe and China. This approach will allow more flexibility to build a balanced innovation portfolio that can most effectively address the needs of our global customer base over the near-term and longer-term horizons. For longer-term projects, we will continue to collaborate with relevant ecosystem partners such as universities and other technical institutions with proven track records. Rogers’ future must be built on innovation and innovation remains one of the four key pillars of our growth strategy. In terms of capacity expansion, we are making substantial progress with the construction of our new ceramic power substrate facility in China.

Despite the slowdown this year, ceramic has been our fastest-growing product line for the past several years and we have a strong conviction this technology will be an impactful growth driver for many years to come. Our power module customers have been clear about the need for Rogers to have a China footprint to support their local production. Our new facility will expand our capability to provide the high level of support required to meet the needs of both Western OEMs manufacturing in China and domestic Chinese OEMs, with whom we have secured significant design wins in recent quarters. We expect mass production to begin in mid-2025, but will continue to monitor demand conditions and adjust timing as needed. Turning to Slide 6, I’ll next review the highlights of our second quarter results.

Sales of $214 million were approximately flat to the prior quarter, as stronger sales in Portable Electronics and Wireless Infrastructure were tempered primarily by lower ceramic power substrate sales in several end markets. Gross margin was 34.1%, a 210-basis-point increase from the prior quarter, while adjusted EPS improved to $0.69. We are pleased with the improvement in Q2 gross margin and that our operational excellence efforts are delivering on initiatives targeted to improve yields, reduce scrap, balance supply with demand and achieve procurement and supply chain savings. Returning to our topline results, I’ll summarize our sales performance in key markets. Beginning with the EV/HEV market, our sales were mixed in Q2. In the EMS business, we achieved a second consecutive quarter of record sales, as demand for our EV and HEV battery solutions remained strong.

Growth was strongest in our cell pad material used to address pressure management needs in both pouch and prismatic battery form factors. Sales of compression pads and environmental sealing solutions were also strong and were a key part of our results. As mentioned, sales of our ceramic power substrates in the EV/HEV market were lower as customers worked through higher inventory levels amid softer end consumer demand. As customers remain cautious about the current market conditions, we do not expect a recovery in 2024 for this product line. In our high growth markets, the increase in Portable Electronics was in line with seasonal expectations and points towards a moderately stronger smartphone refresh cycle in 2024. ADAS sales were flat to the prior quarter, and after an excellent Q1, A&D sales declined slightly in Q2 related to program timing.

In our core markets, we saw a strong improvement in Wireless Infrastructure sales due to higher demand in India. Based on order patterns, we expect Wireless Infrastructure sales to be stronger in Q3 before tapering off in Q4. We are working to secure design wins for the next generation of this project, which would ramp in 2025. Industrial Market sales declined in the second quarter, primarily due to the impact of elevated customer inventory levels in our power substrate product line. EMS General Industrial sales were nearly flat to Q1 and while we believe the customer destocking is complete across many of the industrial submarkets, we have not seen a meaningful increase in demand. This is consistent with U.S. and European PMI data, which continues to indicate that manufacturing activity levels remain subdued.

I’ll next discuss some of the recent wins that we have secured. Beginning with our AES business, a leading Asian EV manufacturer selected our advanced ceramic substrate technology to be used in their high power silicon carbide inverter for its latest generation vehicle. This development is another indication of the progress we’ve made in securing wins in recent quarters with Asian power module manufacturers and OEMs. In the Renewable Energy space, our substrate technology was designed in by a major U.S. power module supplier. This customer’s power module will utilize our technology to provide highly efficient solar power conversion for a key Asian inverter manufacturer. In EMS, our leading PORON polyurethane materials were selected by a leading European OEM for multiple applications in its HEV batteries.

Our materials will be used as cell pads to solve pressure management challenges and compression pads to address vibration management and other needs. Next, on Slide 7, I’ll discuss the highlights from our recently published 2024 Environmental, Social and Governance Report. At Rogers, our commitment to corporate social responsibility and sustainability is deeply rooted in our corporate culture and we are proud that our work contributes to a cleaner, safer and more connected world. Rogers materials feature prominently in markets such as Electric Vehicles, Renewable Energy and ADAS, which help reduce carbon emissions, enable safer driving environments, and improve lives. Our 2024 ESG report highlights the substantial progress we’ve made towards our ESG initiatives this past year and our dedication to operate our business with a strong sense of responsibility to all our shareholders and stakeholders.

For example, over the past two years, we have significantly reduced our greenhouse gas emissions and we intend to go further with a 20% reduction in GHG emissions by 2030. The report also highlights how we prioritize employee safety and development and our ongoing commitment to conducting business in an honest and ethical manner. We invite you to read the report on our website. In closing, I’ll recap today’s key messages. First, we have solid execution in Q2 to deliver improved gross margin and earnings. Second, we’re pushing forward with actions to further improve our cost structure as we focus on driving growth. Third, we are prioritizing innovation and making the necessary changes to accelerate our development efforts while also prudently investing in capacity to grow our topline.

Finally, we are highly focused on carefully managing costs, CapEx investments and our strong balance sheet to maximize cash flow. Now I’ll turn it over to Ram to discuss our Q2 financial performance and Q3 outlook.

Ram Mayampurath: Thanks, Colin. I’ll begin on Slide 8 with the highlights of our results for Q2. Overall, we had good execution in Q2 and achieved the results consistent with the guidance we provided in our prior earnings call. Sales were near the midpoint of our guidance range, and as mentioned, were somewhat tempered by higher customer inventories in some markets. Even with these challenges, we achieved adjusted EPS results near the high end of our range because of the improvement in gross margin. On Slide 9, I’ll discuss Q2 sales results in more detail. Net sales of $214 million were nearly flat versus the prior quarter as slightly higher volume was mostly offset by unfavorable foreign currency fluctuations of approximately $700,000.

On a reportable segment basis, AES revenue decreased from the prior quarter by 5.4% to $116 million. Higher sales in the Wireless Infrastructure market were more than offset by lower EV/HEV, Industrial, and Aerospace and Defense markets. The decline in our ceramic power substrate business has been substantial this year due to elevated customer inventory levels and softer end customer demand in the EV/HEV, Renewable Energy and Industrial Markets. Total ceramic sales were down by more than 30% compared to the first half of 2023 and we don’t expect to see a meaningful recovery this year. However, we are well positioned to navigate through these near-term challenges. We see great opportunity with our differentiated ceramic product technology and the broad commercial relationships we have with leading power module customers.

We are also encouraged by the support we have received from our customers on our expansion plans in China. EMS revenue increased by 10.5% to $95 million. The increase resulted from higher EV/HEV, and Portable Electronic sales and was slightly offset by lower A&D demand. We are encouraged by the strong traction we are seeing in the EV battery space. Turning to Slide 10, Q2 gross margins were 34.1% and increased by 210 basis points from the first quarter. The improved margins was primarily due to favorable product mix and the actions taken in Q1 to match cost levels to demand in our ceramic power substrate product line. As we mentioned on last quarter’s call, we took actions near the end of Q1 to address under-absorbed cost in parts of our operations.

These actions were an important contributor to the higher gross margins we achieved in Q2. In the second quarter, we are still carrying a small amount of excess cost primarily in our ceramic operations to ensure that we have the ability to respond to power substrate demand should it return sooner than expected. Adjusted net income increased from $11 million in the first quarter to $13 million in Q2. Q2 adjusted earnings per share was $0.69, compared to $0.58 in the prior quarter. The higher Q2 adjusted net income was primarily a result of improved gross margin and lower interest expenses, partially offset by higher adjusted operating expenses. The increase in OpEx was expected as the second quarter is typically the high point of our adjusted operating expenses due to the timing of certain variable compensation costs.

Continuing to Slide 11, cash at the end of June 30th was approximately $120 million, an increase of $3 million from the end of the prior quarter. We generated operating cash flow of $23 million in Q2. Capital expenditures were $14 million in the quarter and $24 million year-to-date. We expect full year CapEx to be in the range of $55 million to $65 million, slightly lower than our previous range. Share repurchases have totaled just under $8 million in 2024. Most of the repurchase happened in Q2. As we move forward through the year, we will focus on maximizing cash generation through margin improvement, cost reduction and working capital management. We will continue to fund organic growth with cash generated from operations and maintain a strong balance sheet should the right M&A opportunity be actionable.

Returning capital to shareholders will remain a priority. In Q2, our Board of Directors authorized an additional $100 million to be used for share repurchases, bringing the total available at the end of the quarter to $116 million. As we have done in the past, we will evaluate share repurchases opportunistically and accordance — and in accordance with our other capital allocation priorities. Next, on Slide 12, I will discuss our guidance for the third quarter. Net sales are expected to range between $215 million and $225 million. The midpoint of this range is a 3% increase from Q2 due to expected increase in Portable Electronics and EV/HEV sales in our EMS business. General Industrial sales are expected to be relatively flat in Q3. We will continue to watch this market closely for indications of improvement.

We mentioned on last quarter’s call that we expect total sales would be stronger in the second half of the year versus the first half. We expect that to hold true for our EMS business, but it is less clear for our AES business given the uncertain timing of recovery in ceramic power substrate sales. We are guiding gross margin to be in the range of 34% to 35% for Q3, the improvement coming from product mix and continuing operational excellence initiatives. As mentioned earlier, we will be carrying a small amount of excess cost in anticipation of stronger ceramic demand in the coming quarters. Third quarter adjusted SG&A expenses are projected to be lower versus Q2. Startup costs should remain similar to Q2 in the range of $1 million to $2 million.

Depending on how demand levels evolve, these startup costs may be adjusted further. Earnings per share is expected to range from $0.32 to $0.52 and adjusted EPS from $0.75 to $0.95. Our Q3 EPS range includes $0.30 of restructuring related expenses, with most of this associated with the wind down of our AES operations in Belgium. Lastly, we project our full year tax rate to be around 26% to 27%. With that, I will now turn the call back to the Operator for questions.

Operator: Thank you. [Operator Instructions] Thank you. Our first question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore: Thank you. Good afternoon, Collin. Good afternoon, Ram. Can we start with the ceramic? You mentioned down 30% year-to-date. And you — do you expect H2 to look similar to H1 or do you see kind of even more aggressive inventory destock in the near-term? That’s one. And as a B part to that question, just in terms of market share and longer-term margin potential, anything changed at all or is it simply temporary market softness and missing inventory management with that key customer and in those end markets? Thanks.

Colin Gouveia: Hi, Dan. Collin here. Thanks for the question. I’ll start by talking about, ceramic still remains one of our most important BUs and for the past several years it’s been our fastest growing organic growth business. And we’re fully committed to that product line and continuing to invest in our new facility in China. And then in terms of how we’re out there competing versus the market, we don’t see any major share loss to competition. In fact, our differentiated technology is still winning. Design-in wins with Western OEMs and Chinese OEMs. So we feel very good about the position we’re in in regards to our differentiated products and the future of the business. What we talked about at the last conference call is we had visibility in line of sight and the thinking was that the ceramic inventory issue and demand would recover the second half of the year.

But over the past three months in paying close attention to the market and talking a lot to customers and also further down the value chain, the issues around inventory and demand will last throughout 2024. So it’s unclear when things will turn around. It’s a question we want to answer as soon as possible, and we’re closely monitoring the situation. We do have the ability to ramp up capacity very quickly when the market does turn around. But the change from our last conference call is that the ceramic business will continue to be down significantly year-over-year.

Daniel Moore: Understood and certainly consistent with what we’re seeing in the marketplace. Just in terms of Industrial, and Ram, you described this well, but last quarter you saw maybe some green shoots. Are there areas where you’re still seeing positive momentum and are there other areas that maybe have stalled or are a little bit weaker, given the outlook that’s maybe flattish for Q3? What’s changed in the last 60 days, 90 days, if you will?

Colin Gouveia: Sure. Well, one thing that’s remained very consistent from the first quarter to the second quarter is the performance of our EMS business in the electric vehicle — hybrid electric vehicle space. So we had a record first quarter and that continued in the second quarter with another record in terms of our technology going into pressure management, sealing and vibration dampening, and environmental seals for battery packs, and a few other places that can be found on EVs or hybrids. In terms of General Industrial, we need to break it probably into two different segments. So for power industrial and these would be industrial applications where ceramic would participate, such as large motors and factories, robotics, also in some cases appliances.

We see that market down significantly year-over-year. We did at our last call as well and no change. And again, just repeating what I said earlier, that will continue, that slowness for the rest of the year. Ram will also comment on your margin question as soon as I finish the general market commentary. In terms of non-power industrial, these are the 15 or so end markets that are primarily served by our EMS business and they represent no more than 2% of total sales into an end segment, such as oil and gas or semiconductor. We did see a little bit of growth in Q1, those green shoots, and we anticipated more in Q2, but it seems there’s been a bit of a downturn in terms of the PMI manufacturing indices. Europe really hasn’t come back as it had started to and the U.S. also remains a bit flat in terms of demand.

We believe in the non-power industrial segment that the inventory issues are behind us and that inventory has normalized, but now it’s just a really not recovering as we had anticipated. It hasn’t gone downwards, but it still hasn’t increased as much as we thought. And let me just turn it over to Ram to just briefly talk about gross margin percentage to make sure we answer your earlier question.

Ram Mayampurath: Yeah. Dan, I think, your question was the impact of margins and long-term impact of margins to ceramic. I think, Colin covered the slowdown. It’s clearly near-term. We have full confidence in the product line and that we are continuing with the expansion plans we have in China. One of the main reasons for the improvement in gross margin, about 100 basis points of improvement from Q1 to Q2 is because of the cost corrections we have made to match cost with demand. So we have taken down the number of shifts. We have cut back on our temporary labor, all in Germany planned and also made some deeper cuts where possible to correct our cost structure. So that give — that improved our margins from Q1 to Q2 by about 100 basis points.

As we said, we are still carrying some cost. It’s probably a little less than 100 basis points, probably 70 basis points to 100 basis points of cost we are carrying. Just for some critical work force talent skills that will be hard to replace in anticipation of a quick recovery, faster than expected recovery in the market, which could come up. So that’s the margin impact. Does that answer your question?

Daniel Moore: It does. I’ll sneak a last one in and jump back in queue. But very helpful and clearly you were very, let’s say, aggressive on the cost reduction front to be able to hold — put the margin that you — post the margins that you did in the quarter and still very solid guidance from a margin perspective for Q3 despite softer revenue. Previously, you mentioned 35% at $230 million. If and when we get back to that level, do you see a little bit of upside for that target? Not putting a time frame on it, but just given the cost reduction actions that you have taken? Thanks again for all the color.

Colin Gouveia: Yes. We do. We are very confident with our operational excellence activities that are in progress and we’ll see a lot more drop to the bottomline when the topline comes back.

Operator: Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

Craig Ellis: Yeah. Thanks for taking the question. Congratulations on the margin execution. I wanted to start just by clarifying a few things that you spoke to in answering Dan’s question. So one, can you just help us better understand the real significant dissonance between the way the two automotive businesses are performing? One, battery pads, successive quarters of records, and yet the ceramic business, which is also EV related, is seeing significantly in excess inventories. How do we reconcile what’s going on with those two since they both serve the EV/HEV market?

Colin Gouveia: Hi, Craig. Colin here. Thanks for the question. And I’ll start because we actually spend a lot of time discussing that. The key reason I would say has a lot to do with customer mix. So when you think about ceramic, that technology goes to a small concentration of power module producers. And probably six or seven of those power module companies produce about 80% of the world’s power modules and then they go out to all the different end market segments for power modules, primarily Industrial, Renewable Energy and EV/HEV. And that’s led to ceramic growing so rapidly for such a long period of time. And really, that business hit a slowdown at the end of Q1, when pretty much the entire power module value chain came out and said, our inventory is too high and we’re seeing a slowdown.

And when you look at the overall EV/HEV growth, last year, it was quite strong globally. Across all regions, it was just north of 30% CAGR. This year, when we look at some of the third-party market research, they’re projecting the market growth to be a bit less than that, maybe 14% to 17% for the entire year and so that’s kind of led to the ceramic and power module slowdown. With EMS, what we’ve been able to do is really win some major programs with some key customers that have really just begun to ramp, and these were programs that we had anticipated to ramp middle of last year, but they got pushed out for about six months because some of these key OEMs that we were specced [ph] into were changing at the last minute specifications, or in some cases, could not get raw materials to produce their battery pack.

It wasn’t an issue from our perspective, but from some other suppliers. All that has come together now and these are major programs with large global OEMs that are just hitting at the right time for EMS with a customer mix, with the customer mix — with customer mix being the issue that’s driving that growth. Does that answer your question?

Craig Ellis: Yeah. That’s really helpful, Colin. Thanks for going into that level of detail. The second clarification I had was on personal electronics. Three months ago, I think we were really excited because the company had won a couple new personal electronic programs with China OEMs. And so the question is this, is some of the upside that we saw in 2Q related to those new programs and is it timing related relative to what might have been expected previously in the second half or were other factors at play with the strength that we saw in calendar 2Q?

Colin Gouveia: I would say that the Q2, the increase in Portable Electronics from Q1 to Q2 was impactful in driving our Q2 revenues higher. Of course, there was then the headwinds with ceramic and that’s what has brought us back to just a very slight increase Q1 over Q2. And then powering the growth that we’re going to have into Q3, the Portable Electronics end market segment is the biggest driver for that. Globally, I think the forecast from some independent third-party research organizations show that market growing about 4%. But we are excited because we do have significant program wins with OEMs in higher performing mobile phones and so we see that as a potential upside. I think what it will come down to in terms of further growth in those high end phones, I think what the market is waiting for, and this is what we’ve heard from our customers and also read from various publications is that, I think the consumers are still waiting to see if the AI phone leaders and there are several OEMs coming out with a performing AI phone, can they make a story around their AI strategy that’s clear and understandable, and then can these phone companies also demonstrate clearer use cases for AI in a mobile phone, and if that happens, that could really accelerate the growth rate of the premium phone segment.

So we’re waiting to see how that develops. It all depends on consumer demand, but we’re designed in on these prints and we have the capacity that we’ve installed, so we can supply if there’s upside.

Craig Ellis: Okay. So just to make sure I understand what you’re saying, Colin, it sounds like Portable Electronics is tracking basically in line with what you expected three months ago. It was a little bit better maybe in 2Q, but it wasn’t a pull in on some of the new China OEM programs still expect strong growth in 3Q quarter-on-quarter and that’s led by your legacy customer plus the new China customers. Is that right?

Colin Gouveia: That’s right.

Craig Ellis: Okay. Got it. And then the next one is for Ram. Ram, just a great improvement in gross margins quarter-on-quarter, but can you break out the contribution in the 210-basis-point increase that was due to mix versus that which is due to structural cost improvement?

Ram Mayampurath: Sure, Craig. So the structural cost improvement was about 100 basis points, the cost reduction, if you may, mostly related to the ceramic plant in Germany. The operational excellence activities continue, so there’s not a big change between Q1 and Q2. We are seeing the same level of improvements. So about half of the 200 basis points improvement came from cost reductions and the other half came from mix, which is driven mostly by to your previous question, the European product line, both in Portable Electronics and Electric Vehicles, and also our RF Solutions, the Wireless wins we are getting. So those are the two that — those are the three product mix impact that we got another 100 basis points from.

Craig Ellis: Got it. And if I could just sneak in one more. The leading chipset supplier for auto radar solutions recently commented that they expect a very strong second half of 2024. Can you just talk about what you’re seeing in the business on the ADAS side and if you’re seeing potential for that business to reaccelerate as we go through the second half?

Colin Gouveia: So ADAS remains one of our significant growth businesses, Craig, and we see that business growing for us in the mid-single-digit, maybe slightly higher range on an annual basis. We certainly had an excellent year with ADAS last year. We did see a little bit, just a slightly elevated number of customers saying inventories were a bit high at the first half of the year, but we’re anticipating that business to perform as it usually does for us for the second half of the year.

Craig Ellis: Okay. And that would be stronger just given new model launches and that kind of thing, Colin?

Colin Gouveia: That’s right. The ADAS growth across — all the light vehicle production is much higher than the 1% or 2% light vehicles grow, so it’s — that’s what’s driving it.

Craig Ellis: Got it. Thanks, guys. I’ll hop back in the queue.

Operator: Thank you. Our next question comes from the line of Daniel Moore with CJS Securities. Please proceed with your question.

Daniel Moore: Thanks again. Just a quick follow-up. I know you don’t guide beyond the current quarter, but typically Q4 seasonally a bit softer than Q3 and given a slightly softer outlook and macro challenges, is there any reason to expect things would be different this year or that sort of typical cadence of Q3 being one of the strongest quarters of the likely to hold unless something else picked up beyond what you’re seeing today in the macro? Thank you.

Ram Mayampurath: Yeah. That’s a good question, Dan. I think what we know about Q4 now is that the strength in EMS business that we saw and we are seeing now will continue. We expect, like I said, the second half of EMS to be stronger than first half, mostly driven by continued Portable Electronics that will spill into Q4 and Electric Vehicle battery pad order that we are seeing now that Colin said was delayed about six months. We continue to see that. So EMS, from an EMS point of view, we expect to have a strong Q4, but what we are watching is the AES product line closely or the business unit closely, particularly the ceramic recovery. From what we know today, we don’t expect a big bounce back in this year. We expect some of these trends to continue.

The inventory build in the chain will take a little time to burn through. So that’s the product line that will hold us back, if you may, in Q4. So without giving specific numbers, I think that the EMS growth will, to a great extent, be offset by some of the challenges we are continuing to see in the ceramic market, which we expect will recover quickly, but may not be this year.

Daniel Moore: Understood. Completely understood, Ram. And lastly, obviously, making great strides in EV/HEV, winning new business across multiple platforms and products. Just maybe talk about the opportunity funnel a little bit thus far in 2024, any other emerging technologies or products that we could really move the needle looking beyond the next one years or two years? Thanks again.

Colin Gouveia: Sure. I would say we’re very happy with our opportunity funnel, Dan, and there’s a lot of new technologies that are moving through the pipeline. I would say one thing that we are very excited about is our next generation radar technology. So currently, we participate quite strongly in ADAS, as you know, but some of the changes in technology around moving towards different type of radar technology, some people call it waveguide, will be the next gen. It’s not going to be something that happens overnight. It’ll be many years as this technology grows, but we’ve got what we feel is a very differentiated technology. We’ve got prototypes out to customers already, and they’re in, I would say, iterative testing with us and we feel like that will be something that really is exciting in terms of growth in the future.

There’s also other examples in other businesses, but the general comment would be we really do feel good about our innovation portfolio and feel like it will be quite robust in the coming years.

Daniel Moore: All right. Again, thanks again. I appreciate it.

Operator: Thank you. Our next question comes from the line of Craig Ellis with B. Riley Securities. Please proceed with your question.

Craig Ellis: Yeah. Thanks for taking the follow-up. I just wanted to go back to the announcement that was made in 2Q about consolidating manufacturing for ceramic into the U.S. and China, and what I wanted to make sure I understood is just the timing of the economic benefit as you make that move. One, is it fair to say that the timing of that benefit financially is all still in front of us or are you actually realizing some of that with some tactical moves presently? And when you do start to realize the benefit of it, should we expect that all the benefit falls to the bottomline or does some of that reinvest in R&D and other things? I think the benefit was pegged at $7 million to $9 million a year, so if you can just clarify some of those things, it would be appreciated?

Colin Gouveia: Sure, Craig. First, I’ll just say you had said ceramic, but I think it was the RFS piece you’re talking about in terms of us winding down our production in Belgium and then shifting.

Craig Ellis: Yeah.

Colin Gouveia: Okay. Yeah. So just to recap a little bit and then Ram can talk about the financial benefits. Really, we’re just trying to stay ahead of what we see as the customer demand, and so while we would prefer to keep as many locations open as possible, you have to make the choices to support the customers where they’re migrating to and we’d seen significant migration of our RFS customers in Europe for a certain particular product line migrate to China. And so ultimately, because we see this as a long-going situation and not reversing itself, we made the difficult decision to wind down manufacturing in Belgium. That’ll help service our customers in the long-term by adding more capacity to our China facility, making it more efficient.

It also shortens quite significantly logistics and supply chain. And overall, it’s a good decision for the company and our customers. And the benefit will be significant. It was $7 million to $9 million, that’s what we’re anticipating, and Ram will talk to you a little bit more about timing on when we can expect the full benefit.

Ram Mayampurath: Yeah. So, Craig, $7 million to $9 million, to your question, is net of any other cost that we need to make — any investments we need to make in China or elsewhere to absorb this production, so that is net benefit and we expect it in the second half of next year, 2025, full benefit.

Craig Ellis: Got it. And so maybe we get half of that in 3Q and the other half in 4Q Ram, so that as we exit next year, we’ve got it all in the model?

Ram Mayampurath: That’s correct. Exactly right.

Colin Gouveia: And I might want to mention that we do want to move as quickly as possible, but there are certain restrictions in terms of where we’re manufacturing in Europe and then we need to make sure that our customers are completely requalified for the production coming out of China. So there’s no miscues in terms of quality or performance. We don’t want to get that. We will make sure for certain we get that right.

Craig Ellis: Got it. Thank you.

Operator: Thank you. There are no further questions at this time. I’d like to turn the floor back over to Colin for closing comments.

Colin Gouveia: Thank you. I’d just like to say thanks everyone for joining and look forward to speaking with everyone next quarter. Thanks again.

Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.