Okay, we're gonna go ahead and get started, everybody. Thank you for joining us for one of the early sessions today. My name is Ruben Roy. I cover Applied Technologies here at Stifel, and I'm really pleased to have Rogers Corporation with us today. I do not formally cover the stock currently, but, Steve Haymore, Director of Investor Relations, and I have had, some really, really interesting chats. And, we had a nice bus tour down to your facilities, Colin Gouveia, CEO, not too long ago, and, it's. I think it's a really interesting story. So thank you for joining us. What we're gonna do is, Colin's gonna run through just a few slides to give us a baseline and overview of the company, and then we're going to jump into Q&A and hopefully make it interactive. Thank you.
Thanks, Ruben. That bus tour was in Phoenix a couple of months ago. The weather was great, but the weather is a lot better here now than it is in Phoenix in terms of temperature. I'll start off by our investment thesis in terms of why invest in Rogers, and we feel strongly that there are several reasons to do this. The first would be we have a growth focus in that more than 50% of our business is in secular growth markets, and we also have strong positions in the remaining 50% of our sales in what we call our core markets. We'll explain that a bit more later in the presentation. Rogers has a long history as an innovation leader. We have a proven track record of developing differentiated technologies in very technical fields and using unique material solutions for leading-edge applications.
Another thing is our value creation model. So in terms of how does Rogers generate business, we have highly trained sales engineers that work hand in glove with our tech service and development, and they actually call directly on OEMs in our leading end market segments, such as aerospace and defense, automotive, many other areas. And we work directly with the engineers or our counterparts at these OEMs to design in our materials and to lock them in on the print and win programs. And we have a very rich pipeline of design and wins, which I'm also going to expand on later in the program. So we really feel that that direct OEM contact gives us a better understanding of the customer CTQs and lets us take that back to our laboratories to make product tweaks or to drive longer-term innovation. And so that's something we're very proud of.
Then finally, in terms of financial opportunity, we're targeting significant revenue growth and EBITDA margin expansion over the next several years. Again, this will be a good session to talk through that in terms of how we're gonna deliver that. Just a quick note on our strategy. We've had a proven strategy, and it remains unchanged. It's based on four pillars. The first is that we're a market-driven company. In my experience, in 35 years in the material space, you really need to be market-driven and think about, "Hey, what is needed in the aerospace and defense market?" Rather than a product push. The second thing is innovation is a key piece. We have a lot of technology spend in regards to innovation, both from an R&D perspective and our technical service department. Operational excellence is also a key pillar.
We manufacture in the United States, Europe, and in Asia, and it's really important for us to be able to make the same technology with the same product specifications in each facility because our customers are global. And then finally, synergistic M&A. We have a long track record of successful bolt-on M&A over the past five or six years. We have zero debt now on our balance sheet. We have a very rich M&A pipeline, and we're working aggressively with the sponsors, so when these properties become actionable, we can move with an M&A acquisition. A quick glance at Rogers. We have about 3,300 employees globally. Our revenue was just over $900 million in 2023.
We have 15 manufacturing facilities and three global innovation centers, one in the U.S., one in Europe, and one in China, and we have more than 5,000 customers in 70 countries. The interesting thing about Rogers that I like to mention is we're pretty diverse. For a company with under $1 billion in sales, we're well-represented in all the regions. So 40% of our revenues are in Asia, of which 27% are in China, and then the remaining 60% of our revenues, it's split very evenly, 30% in the U.S. and 30% in Europe. So we have good geographical dispersion in terms of where our revenues are globally. So a couple quick quick descriptions on who we are. So these are a few areas in terms of problems we solve through our advanced material solutions.
So I was mentioning to someone earlier, I drove into Boston yesterday. I grew up in Connecticut, and I just reminded myself why I never drive into Boston. Why didn't I stop and take the T? But as I drove in, every time I would change lanes, I hit that turn signal, and in my side view mirror, that blinking light comes on, and that lets me know that I have someone in my dead space where I can't see them. And so that is automotive radar, and Rogers is one of the leading suppliers of technology that enables that to happen. Same with adaptive cruise control. Our radar technology is the market leader in terms of enabling that technology to exist in automobiles today. Another good example is, we've had a long history of participating in smartphone durability.
Not necessarily in the case that you buy to protect your phone, although we have technology in that, but also in the phone itself. So as phones have become more complex and more technical, the cameras are more sophisticated. You need much more protection around gasketing, around the camera array, so we provide technology that does that. We're in every major OEM, Western, South Korean, and Chinese OEM for their higher-end, higher-performing phones. That's a big area for us. We're very critical in defense applications with radar, and I can talk more about that in a bit, and many other different areas. I think, Rogers, once you get to know us, for a small company, we have a lot of complexity, but it's our job to explain it so that you can really understand where we participate and how we plan on growing.
That brings me to, you know, this slide, which highlights one pillar of our strategy, where we do like to talk markets. So the general industrial piece and the wireless infrastructure are very important to us, but as you move on this slide from left to the right, you get towards higher growing and even more complex markets. So the automotive radar piece was one I just discussed with that example from driving into Boston. Portable electronics is important for us, aerospace and defense, renewable energy, and electric vehicles. So this gives you kind of a good roadmap in terms of all the end markets, in terms of where we participate. But then when it comes to, how does that turn to growth? The next slide here explains a little bit more in terms about how we're thinking about it.
Starting on the significant growth, that would be the electric vehicle market, and it's hybrid and also full battery electric. The reason we like this end market segment is that all of our technologies from our four business units participate in different ways, and we look at this market as significant growth, and it grows for us in the high teens. One thing to mention is that EV/HEV is still a nascent technology, and so it still can be a bit lumpy, but, you know, we're looking at these growth expectations over a multi-year period, and we are convinced, as is most of the world, that electrification is the place to be. In that middle piece of the slide, we have our high-growth markets.
These markets can grow in the mid-single-digit growth rate or higher in some cases, and it's really led by our A&D segment, Aerospace and Defense. We also have that ADAS business. So the good thing about ADAS is that technology is supplied by our radio frequency solutions business, and pretty much every EV that gets built these days has some type of ADAS on it. But then we also see further penetration of ADAS into combustion engine vehicles. Back in the day, ADAS was only found on high-end vehicles, but now it's really penetrating pretty much all types of vehicles just because of its safety feature, and it's more affordable now for OEMs to do it. And we're still the market leader in terms of that technology to enable that benefit from taking place.
Finally, renewable energy and portable electronics round out the businesses that we consider high growth, and between high and significant, that's about 50% of our market. Finally, we talk about our core growth, and these businesses grow in the low single-digit rate, but they're very important for us because they help fill out the capacity of our networks globally. And, you know, sometimes they can face some headwinds, but it's also a high-margin business for us, and it's very important to our overall growth as well. And that would be what we call industrial, which is a catch-all for about 15 different end market segments that are more or less 3% of our revenues or less. We have our wireless infrastructure business in here, and we also sell a bit into what we call other markets. That would be something like a mass transit.
People always ask, "Hey, can you provide a little more detail in terms of how specifically does Rogers participate?" Here's an example of our businesses in terms of how we participate in electrification. Not included on this slide is our ADAS business, which pretty much, as I mentioned earlier, every battery electric vehicle or hybrid vehicle does have some type of ADAS radar system on it. But I'll start with our power substrate business. Our brand name for this technology is curamik, and it's used for advanced semiconductor packaging for silicon carbide and IGBT power modules. It maximizes the potential of silicon carbide chips by efficiently removing heat, and it has broad applications, not just in EV/HEV, but also in renewable energy and industrial. I'll explain this a bit more.
So what we're selling is a ceramic substrate bonded tightly to copper, and what we do for our customers is each one of these materials that we sell is specific to the end customer. We etch onto the copper circuitry they need, and then they mount the silicon carbide chips on the copper. So we package their chips that go into power modules, that then go into inverters, and then these chips are more efficient because we have the best-performing heat efficiency in terms of pulling heat away from these chips as they're performing what they're designed to do. Within the EV battery, in the middle picture, our elastomerics business provides gasketing and sealing for battery packs, for cooling plate requirements, also for pressure management, for pouch cell and prismatic cells, and also we provide environmental seals when needed.
All of that is through different technology, but we have good, strong positions across the patch in terms of EV battery solutions. And then finally, our power interconnects business. That brand name is ROLINX, and that is providing the interconnection to connect all the pieces of the electrification in an automobile. So that picture on your right is showing a battery pack of cylindrical batteries. So we'll make the piece that connects all the individual battery cells together. Then we'll sell the spine, which, as the electricity flows from each individual battery cell to what we call power distribution. It runs through the spine, which we also produce, and then power distribution sends the power to all the pieces of the automobile to make it work, i.e., sending electricity to the motor, to the headlights, radio, electronics, et cetera.
So that's a very, very quick snapshot in terms of how we participate in EV, HEV. So that pretty much brings us to the financial overview, and, Steve, in case you wanted to add something.
No, I think we can. This presentation is available on our website for others that would like to view the rest of it, but we can. I think end the presentation there and go into Q&A.
That sounds great. Thank you, guys. And, Colin, I really want to drill into some of the areas you talked about, especially the four pillars in your strategy. But here at the conference, certainly top of mind for a lot of investors is the macro and sort of how things are going out there. So can we just spend a few minutes on what you're seeing, what you're hearing from your customers? On your last conference call, it sounded like things were getting a little bit better from a demand perspective. So that would be a great place to start, and then we could drill in from a medium and longer term perspective.
Yeah, happy to start there. So, you know, our perspective from the macro, and what we said back in Q1, is that, we see finally some recovery. And there really was a strong inventory build in a lot of our end market segments, that we saw impact results last year. But we saw that finally working down and not being as much of a challenge as it had been, and that resulted in our Q1 revenues increasing from the prior quarter by about 4%. So within general industrial and then end market segments related to our elastomers business, we feel very confident or fairly confident going forward in terms of that could be a situation that is in the rearview mirror.
We did say that there is still a bit of an inventory challenge for our ceramic substrate business, so that's very specific to the value chain related to power modules and inverters. Ceramic is a very specialized, highly technical product, very differentiated, but the power module, one step downstream from us, is really about six or seven companies globally that have about 70% market share. And you can see them in the public domain, like in Infineon, et cetera. And they've been very, I think, forward in terms of saying, "Hey, there's a bit of an inventory challenge, and there's been a bit of a decrease, a little bit in EV, HEV." For us, in other segments besides ceramic, EV, HEV was strong.
In Q1, our EMS business had a record quarter into that end market segment, and I think it's more related to customer mix than, you know, the overall end market. So we feel very good in terms of our positioning with customers that are growing, even though there's been some discussion in the macro around a bit of a slowdown with EV, HEV.
That's great. Thank you for that. Okay, one more just.
Of course.
Clarification, I guess, for me on, on this point. You know, EV, as you said, it, it's not a surprise, I think, to anyone in the room that the EV market, you know, has been slow in some areas of the world, and some inventories have been built up, especially as we came out of supply, constraints and shocks, et cetera. You know, for Rogers, are you agnostic to whether we're talking about pure EV vehicles versus hybrid, and then silicon carbide versus, IGBTs? You know, do you, I'm just trying to figure out, you know, as parts of the market improve, what. Should you, should Rogers, benefit as, as we, you know, kind of get out of this inventory?
Sure. Well, starting with the semiconductor technology, you know, we're agnostic because they'll need to have that packaged either way with a ceramic type of technology. I will mention that silicon carbide chips are higher performing, and they run hotter, so that's better for us because our technology really shines in terms of acting as a heat sink. And the more energy, excuse me, the more heat you can get out of there improves the energy density of the power module. So, but either way, you know, we're going to participate. And then in terms of EV, HEV, we have good content across all of our product lines in EVs. That's battery electric vehicles. In terms of hybrid electric vehicles, we also have good content, so we're somewhat agnostic to an EV or a hybrid as well.
Got it. Okay, so, then I was thinking about the pillars and, you know, the market-driven comment, Colin, is interesting to me. We, i n a lot of areas that we're looking at, data center and otherwise, we're seeing companies really start to sit down with their customers at an architectural level. It sounds like, you know, Rogers has been around for a long time. You've got a broad base of customers. Maybe you can just walk us through how that's changing, how that's evolving, and, you know, how that might impact you from a competitive standpoint.
Sure. Sure. So I've been in the materials space for a long time, and when I started many years ago, there was a bit more of a technology product push type of approach, where, what can we invent, and then how can we sell it? I think I've also worked for companies that did it the opposite way, that had really good strategic marketing, that worked really closely with an R&D counterpart, somewhat like a two-in-the-box approach, and they did great voice of customer work, understanding what the unmet needs were or are, understanding the CTQs, and then got into an iterative process with the customer to develop technology. Where Rogers, I think, fits in really well with this in terms of our market-focused approach and working with customers, is that our technology really enables our customers' products to work really well.
And so, you know, that continues to be our strategy. So our sales engineers will go, as I mentioned earlier in our value creation model example, they'll go right in and work hand in glove with the engineers of major OEMs, understand what is needed for the next generation product, and then we can work closely with our tech service group to make adjustments to our existing technology. But then also, there's longer term investment we're doing for next generation work, which also gets fed into our R&D department. And that model allows us to stay current, to win new designs, and then also helps enable us to make sure our technology pipeline is relevant and will meet needs, and that we've got market pull for what we're trying to develop. And I think that's been a strong point for us for a long time.
Picking up on the R&D comment, if you think about the left to right markets from core all the way to significant growth, how do you think about investments, you know, by EV and then some of the different areas of the high growth markets?
Sure. Well, we have a balanced view in terms of how we're trying to invest. Certainly, we've put in a lot of capacity, so not quite the R&D question, but we've added a lot of capacity globally to make sure we can keep up with market demand. And we're very happy with how we've invested ahead of the curve, because now we're starting to start up assets that we've had in place for a year or two, and we're able to meet customer growth in terms of these significant and high growth markets, but while also still maintaining supply to the core business.
Then in terms of allocation, there are some cases where you can develop technology that goes across multiple segments, but then we also do target specific bespoke R&D programs to, you know, kind of the higher growth end markets where we wanna be. These higher end growth markets, for example, EV, HEV, are pretty nascent, so technology, I mean, I was just in our innovation center in Connecticut yesterday, and we were going through kind of our assumptions from two years ago to where they are today, and they've changed significantly. But we're nimble enough that we can adapt and make changes to our technology development to stay ahead. And I think it's those markets that are growing the fastest, that change the most rapidly, is where you have to have, you know, the right proportion of investment to make sure you don't fall behind.
Okay, I think I jumped ahead a little bit.
Yeah.
Because we got to a little bit of the.
No, that's okay. Did that answer the question?
It did. I appreciate it.
Yeah.
I think it's a good, you know, point to segue into, some of the financials and, you know, the model a little bit. But before I do that, are there any questions from the audience on the core business strategy, et cetera?
Please. Sure. So the question is, "Where, where does curamik intersect with the customer?" So the way the value chain works in terms of sales, it would go from us to power module to inverter, which could be a tier one or maybe not, then it's a tier one, then it's OEM. But our sales engineers in R&D, they work directly with the OEMs to understand what type of power density they're looking for from their inverter, because the cooling and heat sink capability of ceramic directly impact how well a power module or inverter works. And then we call along the entire value chain. So we would really have meetings with everybody from our customer to our customer's customer, and so on, just to make sure we understand exactly what the entire value chain is looking for.
I also should mention that this heat sink technology of a ceramic substrate bonded to copper, that was actually invented by the ceramic business. That was founded in 1983 and acquired by Rogers thereafter. But it came out of the fact that robotics were taking control, and they had a microchip in there that overheated. So a German scientist said, "Hey, if we mount it on copper with a ceramic substrate, the chip will cool faster, and the robotic arm can work without being interrupted." And from that, we built this, y ou know, they built, and going forward, we built this wonderful business. So I would say the ceramic business, in particular, is really well ingrained on the entire value chain, from us all the way down to OEMs, 'cause we've been doing it the longest out of anybody.
Follow-on question. It's like the Washington Press Corps, you know, one more question.
So we know that. S o we don't share that, but we are looking at having a lunch and learn in the future to talk about that a little bit more. When you look at materials, we're both a materials company and electronics company, and just by way of explanation, we know the electronics companies share a lot more of their TAM and their market share, and materials companies don't do that as much. So we have not shared our market share, but we have a leading position. And, you know, we're in discussions around a lunch and learn that we'll hold for whoever would like to attend to get more into details, and that would be something that comes up later this year. So sorry, I can't answer it specifically.
We do know our market share, but I can't share it specifically.
Thanks for those questions.
When is the lunch and learn?
It's not scheduled yet. Well, you'll be the first to know, Rob.
I think maybe we could spend a few minutes on, then, the margin structure of the company, and thinking through what you said, Colin, about the core business supporting, you know, capacity and utilization levels, et cetera, but then you do have ups and downs. We are coming out of a little bit of inventory correction. Where are we on margins, and, you know, sort of what are the longer term targets, and how are you thinking about that?
Sure. Gross margin percentage is a key goal for us. It's revenue growth, but not at the expense of lowering your gross margin percentage, so it's something we talk about every day. And we made good progress last year in terms of moving our gross margin percentage almost 100 basis points year-over-year, and, you know, it remains a strong focus for us today, and we view our company as a portfolio. So while we don't talk about gross margin percentage by product line, you know, we have targets that we wanna get to for an entire company.
What our CFO shared at our last investor call was that we're to a point now where we've done a lot of work with operations to improve efficiencies, to improve execution, to reduce scrap, and we've also done a lot of work on the procurement side to make sure we're dual sourced and doing all the right things there, and there's still more work to do that can help us with our margins. We also have been very good in terms of price, so we're very, I think, attentive to our pricing and, price over raw materials and driving price. Finally, I think it's also a volume play. So as we built out this capacity, we've had investment, and the volume, as it comes through, will really show an increase in our gross margin.
You know, we were not providing guidance, but, you know, as a proxy that we put out in our first quarter earnings, we said, "Hey, if you're in that range of $230 million revenue per quarter, you know, your gross margins, the way our system would currently work, is gonna be in that 35% range." We aspire to do more than that, so we have a multi-year plan. We haven't provided the specific timing yet, but we expect to get back to that 38%-40% gross margin in the future.
Right. Great.
Perfect.
Any follow-ups on the margin structure? Okay, then, we did talk a little bit about a CapEx and, you know, the free cash flows have also improved, for the company, which is great to see. Maybe you could touch on capital allocation policy, and Colin, you did mention, you know, being proactive on, M&A and, you know, adding technologies where, you know, Rogers sees some fits, et cetera. So how are you thinking about capital allocation philosophy, and.
Sure.
And we can go from there. Thank you.
So I would say from a CapEx perspective, we would rank it as our, our number one allocation priority would be organic growth. We have significantly built out capacity in all of our major product lines. Our capital intensity did increase quite a bit from what it had done previously. At one point, it was 10% of sales. It's a bit lower than that at this point, but we're still building out some additional lines. But what we think is that by mid-2025, we'll have put in the capacity we need for the next several years, so the capital intensity will decrease a little bit. The second priority, which we've taken care of, was to repay the debt.
So we've been able to repay the debt from our last acquisition, and so now we have zero debt on our balance sheet, which is great for us because that really puts us in a strong position when the right property finally is for sale, and we can be aggressive and move quickly on that. And then I think, the third, the third piece that we talked about, and fourth, you know. So those are, you know, M&A.
Right.
Would be the key piece, which would be number three, but really it's number two now, and then return to shareholders. So we're not afraid to do that. We've had share buybacks, but we really are focusing on the organic growth and M&A story for CapEx.
Great. Okay, we're down for the last two minutes. I think, Colin, at this point, you started off with the slide and, you know, sort of giving us an overview of who Rogers is and why investors should care. Maybe you can just finish off with a bullet point or two on maybe key messages you want everyone to leave the room with.
Sure, happy to do that, Ruben. First of all, thanks for coming for one of the earlier meetings. I think that, you know, from a personal perspective, you know, I've worked in many different companies, some large and then some small, owned by private equity, but I'm really excited to be part of Rogers. We've really done, I think, a very good job in the past 15 months in terms of skilling up our team. We had some folks leave. We also added some different talent to the business, and I think it's what we needed. We had a great team that got us to this point, but we're really looking to get to the next stage. So I'm really happy with the executive team we have in place, and also with the director-level folks we brought in.
We've been able to promote internally, but also bring in some additional talent from the outside to augment where we think we needed to. I think we're in a strong position overseas. I wanna mention, we have a lot of questions sometimes on, gosh, are you concerned about the China exposure? But we like to say we're in China for China. So we've been manufacturing in China for 25 years. We have an excellent team there. They've been with us for 10, 15, 20 years, which is unusual, 'cause in some cases, you see people migrate to different companies at a much faster cadence than that. But we're not in China for low-cost production. Most of our Chinese production stays in China or goes to Asia Pacific, but we're not there for low-cost production to ship back to the United States or Europe.
So I feel like we've got that good geographical presence. Our pipeline looks really good in terms of sales pipeline and technology. We've got most of the inventory headwinds behind us, with the exception of ceramic, and that soon will abate, and so we feel like we're in a really good position going forward.
Nailed it.
I was looking at that stopwatch.
Thanks very much, Colin.
Waiting for the cane to come out, you know?