Rogers (US:ROG)2022-11-08 22:54Part I – Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) This section presents Rogers Corporation's unaudited condensed consolidated financial statements as of September 30, 2022, detailing operations, financial position, cash flows, and equity, with accompanying accounting notes Condensed Consolidated Statements of Operations Net sales for Q3 2022 increased to $247.2 million, but net income significantly decreased to $14.8 million due to higher costs, with similar trends observed for the nine-month period Condensed Consolidated Statements of Operations (Three Months Ended, in thousands) | Indicator | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net sales | $247,231 | $238,263 | | Gross margin | $78,064 | $91,654 | | Operating income | $18,476 | $33,799 | | Net income | $14,838 | $25,129 | | Diluted earnings per share | $0.78 | $1.33 | Condensed Consolidated Statements of Operations (Nine Months Ended, in thousands) | Indicator | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net sales | $747,467 | $702,434 | | Gross margin | $249,976 | $270,986 | | Operating income | $61,763 | $106,737 | | Net income | $49,321 | $85,002 | | Diluted earnings per share | $2.60 | $4.51 | Condensed Consolidated Statements of Comprehensive Income (Loss) The company reported a comprehensive loss of $(20.1) million for Q3 2022, primarily due to significant negative foreign currency translation adjustments, a trend also seen in the nine-month period Comprehensive Income (Loss) Summary (in thousands) | Period | Net Income | Foreign Currency Translation Adj. | Comprehensive Income (Loss) | | :--- | :--- | :--- | :--- | | Three Months Ended | | | | | Sep 30, 2022 | $14,838 | $(35,035) | $(20,110) | | Sep 30, 2021 | $25,129 | $(8,126) | $17,055 | | Nine Months Ended | | | | | Sep 30, 2022 | $49,321 | $(80,383) | $(30,817) | | Sep 30, 2021 | $85,002 | $(18,627) | $66,548 | Condensed Consolidated Statements of Financial Position Total assets increased slightly to $1.626 billion as of September 30, 2022, driven by higher inventories and borrowings, while shareholders' equity decreased to $1.090 billion Key Balance Sheet Items (in thousands) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $236,461 | $232,296 | | Inventories | $173,610 | $133,384 | | Total assets | $1,625,790 | $1,598,566 | | Liabilities & Equity | | | | Borrowings under revolving credit facility | $290,000 | $190,000 | | Total liabilities | $535,937 | $479,671 | | Total shareholders' equity | $1,089,853 | $1,118,895 | Condensed Consolidated Statements of Cash Flows Net cash from operating activities for the nine months ended September 30, 2022, significantly declined to $1.8 million, while investing activities used $(81.0) million and financing provided $90.0 million Cash Flow Summary (Nine Months Ended, in thousands) | Cash Flow Activity | Sep 30, 2022 | Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,834 | $106,115 | | Net cash used in investing activities | $(81,048) | $(42,697) | | Net cash provided by (used in) financing activities | $89,997 | $(30,844) | | Net increase in cash and cash equivalents | $4,165 | $29,116 | Condensed Consolidated Statements of Shareholders' Equity Total shareholders' equity decreased to $1.090 billion for the nine months ended September 30, 2022, primarily due to an $80.1 million increase in accumulated other comprehensive loss - Total Shareholders' Equity decreased to $1,089.9 million as of September 30, 2022, from $1,099.3 million a year prior. The decrease was primarily driven by an $80.1 million other comprehensive loss, which offset the $49.3 million in net income for the nine-month period16 Notes to Condensed Consolidated Financial Statements This section provides detailed explanations of accounting policies and financial data, covering fair value, hedging, goodwill, debt, leases, contingencies, segment information, and the terminated DuPont merger Item 2. Management's Discussion and Analysis of Results of Operations and Financial Position Management discusses Q3 and YTD 2022 financial performance, covering the DuPont merger termination, supply chain impacts, long-term growth strategy, operational results by segment, liquidity, and capital resources Company Background and Strategy Rogers Corporation, a high-performance engineered materials manufacturer, focuses its growth strategy on advanced mobility and connectivity markets, aiming to double annual revenues within five years - The company's growth strategy is based on four principles: being market-driven, innovation leadership, synergistic M&A, and operational excellence112 - Key growth drivers are advanced mobility (EV/HEV, ADAS) and advanced connectivity (5G smartphones)112 - Rogers has a strategic goal to double its annual revenues over the next five years, driven by projected market growth rates of over 25% in EV/HEV and double-digits in ADAS115 - A manufacturing expansion plan has been initiated to support the revenue growth target, which will require a significant increase in capital spending compared to historical levels116 Terminated Merger with DuPont DuPont terminated its merger agreement to acquire Rogers Corporation on November 1, 2022, due to unobtained Chinese regulatory approval, resulting in Rogers receiving a $162.5 million termination fee - The merger agreement with DuPont, entered into on November 1, 2021, was terminated on November 1, 2022104117 - The termination was due to the failure to receive regulatory approval from the State Administration for Market Regulation of China (SAMR) by the agreement's deadline104118 - Rogers received a regulatory termination fee of $162.5 million from DuPont as a result of the termination104118 Executive Summary Q3 2022 net sales grew 3.8% to $247.2 million, but gross margin declined 690 basis points to 31.6%, impacted by supply chain issues and $18.3 million in merger-related expenses Q3 2022 vs Q3 2021 Performance | Metric | Q3 2022 | Q3 2021 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $247.2M | $238.3M | +3.8% | | Gross Margin | 31.6% | 38.5% | -690 bps | | Operating Income Margin | 7.5% | 14.2% | -670 bps | - Performance in the first nine months of 2022 was tempered by continued raw material shortages and supply chain disruptions, which are expected to persist into Q4 2022121 - The company incurred $18.3 million in expenses related to the terminated DuPont merger in the first nine months of 2022121 Results of Operations Q3 2022 net sales rose 3.8% to $247.2 million, but gross margin fell to 31.6% due to higher costs, while operating income decreased to $18.5 million, and the effective tax rate was 16.0% Net Sales and Gross Margin (in thousands) | Period | Net Sales | Gross Margin | Gross Margin % | | :--- | :--- | :--- | :--- | | Q3 2022 | $247,231 | $78,064 | 31.6% | | Q3 2021 | $238,263 | $91,654 | 38.5% | | YTD 2022 | $747,467 | $249,976 | 33.4% | | YTD 2021 | $702,434 | $270,986 | 38.6% | - Q3 2022 gross margin was unfavorably impacted by higher fixed overhead, unfavorable absorption, higher freight costs, and unfavorable product mix125 - SG&A expenses for the nine months of 2022 increased 21.6% year-over-year, primarily due to a $13.4 million increase in professional services and an $8.5 million increase in compensation, including costs related to the terminated DuPont merger130131 - The effective tax rate for Q3 2022 was 16.0%, down from 26.4% in Q3 2021, mainly due to a decrease in accruals for uncertain tax positions141 Operating Segment Net Sales and Operating Income Q3 2022 AES segment sales decreased 3.2% to $130.6 million with operating income down 83.8%, while EMS sales grew 13.3% to $111.0 million but operating income fell 20.9% Advanced Electronics Solutions (AES) Performance (Q3, in thousands) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $130,608 | $134,991 | -3.2% | | Operating Income | $2,263 | $13,945 | -83.8% | - AES operating income decline was primarily due to unfavorable shared service expense allocations related to the terminated DuPont merger, higher overheads, and lower volume144 Elastomeric Material Solutions (EMS) Performance (Q3, in thousands) | Metric | Q3 2022 | Q3 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $110,983 | $97,951 | +13.3% | | Operating Income | $14,322 | $18,104 | -20.9% | - EMS net sales increase was driven by the acquisition of Silicone Engineering ($9.8 million) and higher sales in the general industrial market148 Liquidity, Capital Resources and Financial Position As of September 30, 2022, cash and equivalents were $236.5 million, with inventories up 30.2% to $173.6 million, borrowings at $290.0 million, and full-year capital spending projected between $120.0 million and $130.0 million - Cash and cash equivalents stood at $236.5 million as of September 30, 2022. Approximately $119.1 million of this was held by non-U.S. subsidiaries159161 - Inventories increased by 30.2% to $173.6 million from year-end 2021, driven by raw material cost increases and purchases to meet anticipated demand167 - Borrowings under the revolving credit facility increased by $100.0 million during the first nine months of 2022, reaching a total of $290.0 million167 - Expected capital spending for the full year 2022 is projected to be in the range of $120.0 million to $130.0 million163 Item 3. Quantitative and Qualitative Disclosures About Market Risk There were no material changes in the company's market risk exposure during Q3 2022, with further details available in the Annual Report on Form 10-K - There were no material changes in the company's market risk exposure during Q3 2022168 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022169 - There were no material changes in the company's internal control over financial reporting during the most recently completed fiscal quarter170 Part II – Other Information Item 1. Legal Proceedings This section refers to Note 12 of the financial statements for details on legal proceedings, including environmental matters and asbestos litigation - For information on legal proceedings, the report directs readers to Note 12, which covers environmental, asbestos, and other litigation matters173 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including corporate governance documents, CEO/CFO certifications, and iXBRL formatted financial data - The exhibits filed with this report include corporate governance documents, CEO/CFO certifications, and financial statements in iXBRL format174175