Business Context and Reporting Period
Rogers Corporation designs and manufactures high-performance engineered materials and components for advanced mobility, advanced connectivity, automotive, EV/HEV, wireless infrastructure, clean energy, aerospace and defense, industrial, and other markets. The company reports Advanced Electronics Solutions (AES), Elastomeric Material Solutions (EMS), and Other segments. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
Key Financial Metrics
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $238.3 million | $201.9 million | $702.4 million | $591.9 million |
| Gross margin | $91.7 million; 38.5% | $75.5 million; 37.4% | $271.0 million; 38.6% | $211.1 million; 35.7% |
| Operating income | $33.8 million; 14.2% | $8.8 million; 4.4% | $106.7 million; 15.2% | $47.4 million; 8.0% |
| Net income | $25.1 million | $7.0 million | $85.0 million | $34.8 million |
| Diluted EPS | $1.33 | $0.37 | $4.51 | $1.86 |
| Operating cash flow | Not separately provided | Not separately provided | $106.1 million | $113.7 million |
- Q3 revenue increased 18.0%; nine-month revenue increased 18.7%.
- Q3 gross margin expanded approximately 110 basis points; nine-month gross margin expanded approximately 290 basis points.
- Q3 operating income increased approximately 284%; nine-month operating income increased approximately 125%.
- Cash and cash equivalents were $220.9 million at September 30, 2021, versus $191.8 million at December 31, 2020.
- Capital expenditures were $43.4 million for the first nine months, and management expected full-year 2021 capital spending of approximately $70 million to $80 million.
- Net cash used in investing activities was $42.7 million, while net cash used in financing activities was $30.8 million for the first nine months.
- There were no borrowings under the revolving credit facility at September 30, 2021, compared with $25.0 million at December 31, 2020. The facility provides up to $450 million of borrowing capacity, plus a $175 million accordion feature, and matures March 31, 2024.
- Accounts receivable increased to $163.8 million and inventories increased to $118.2 million from $134.4 million and $102.4 million, respectively, at year-end 2020.
Material Changes Versus the Prior Comparable Period
- AES revenue increased 20.9% in Q3 and 20.1% for the first nine months, driven primarily by EV/HEV, wireless infrastructure, clean energy, ADAS, aerospace and defense demand. AES operating income increased to $13.9 million in Q3 from $0.3 million and to $47.1 million for the nine months from $22.1 million.
- EMS revenue increased 13.3% in Q3 and 15.5% for the first nine months. EMS operating income increased to $18.1 million in Q3 from $7.4 million and to $53.8 million for the nine months from $21.9 million.
- Results benefited from higher volume, fixed-cost absorption, productivity, product mix, and lower inventory reserve provisions. Comparisons also benefited from substantially lower restructuring charges and the absence of significant accelerated DSP intangible amortization recorded in 2020.
- SG&A declined 4.7% in Q3, primarily because of lower intangible amortization, but increased 2.3% for the nine months because of higher compensation, professional services, software, and other operating costs.
- Interest expense declined to $0.4 million in Q3 and $1.5 million for the nine months, compared with $3.6 million and $6.5 million, respectively, in 2020, due primarily to lower average borrowings.
- The effective tax rate increased to 26.4% in Q3 from 8.1% and to 25.7% for the nine months from 23.1%, primarily reflecting the absence of favorable 2020 R&D credit valuation allowance changes and jurisdictional tax mix.
- Other comprehensive loss was $8.1 million in Q3 and $18.5 million for the nine months, largely reflecting unfavorable foreign currency translation.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- Management expected global supply-chain disruptions, including semiconductor and component shortages, raw-material and labor constraints, freight pressures, and China power outages, to continue into the fourth quarter of 2021. These conditions tempered sales and gross margin.
- Management stated that liquidity and expected operating cash flow, together with available credit facilities, should fund operations, planned capital expenditures, R&D, and debt service for at least the next 12 months.
- Management’s longer-term strategy targeted potentially doubling annual revenue over five years, supported by EV/HEV, ADAS, advanced connectivity, aerospace and defense, clean energy, and portable electronics markets. The filing does not provide formal quarterly or annual earnings guidance.
- A February 2021 fire at the UTIS facility in South Korea disrupted operations into at least the first quarter of 2022. The company recorded $1.4 million of net fire-related expense in Q3 and $4.2 million for the nine months, partially offset by anticipated insurance recoveries. Additional costs remain possible.
- The company recorded $0.6 million of Q3 and $2.9 million of nine-month restructuring charges related primarily to manufacturing footprint optimization. The remaining restructuring severance balance was $1.9 million at September 30, 2021.
- On October 8, 2021, Rogers acquired Silicone Engineering Ltd. for $175.6 million, net of cash acquired. The company subsequently borrowed approximately $190.0 million under its credit facility, substantially to fund the acquisition. Purchase accounting was incomplete at the filing date.
- On November 1, 2021, Rogers agreed to be acquired by DuPont in an all-cash transaction for $277.00 per share. Completion required shareholder approval, regulatory approvals, and other customary conditions. The merger agreement restricted certain corporate actions and dividends and could require a $135.0 million termination fee in specified circumstances.
- Asbestos-related liabilities were $73.0 million, substantially offset by $66.8 million of insurance receivables. There were 547 outstanding asbestos claims at September 30, 2021. Insurance coverage, claim frequency, settlement costs, and insurer solvency remain uncertain.
- The company had a $0.9 million accrual for future environmental remediation at its Rogers, Connecticut site and $16.4 million of unrecognized tax benefits, including $1.6 million of accrued interest.
- Management reported effective disclosure controls and procedures as of September 30, 2021, with no material changes to internal control over financial reporting.
Most Important Facts for Investors to Verify
- Whether the DuPont merger received required shareholder and regulatory approvals, closed, or was terminated, including any termination fee or litigation exposure.
- The post-quarter impact of the Silicone Engineering acquisition on debt, leverage, earnings, cash flow, and purchase-price accounting.
- The duration and financial impact of UTIS facility disruption, insurance recoveries, rebuilding costs, and any additional fire-related liabilities.
- Whether supply-chain, raw-material, labor, freight, tariff, and semiconductor constraints continued to pressure revenue and gross margin after the reporting date.
- Actual full-year capital spending relative to the $70 million to $80 million expectation and the resulting effect on free cash flow.
- The adequacy and collectability of asbestos-related insurance receivables and the sensitivity of recorded liabilities to future claims and coverage assumptions.