ROGERS CORP 10-Q

Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Position As used herein, the “Company,” “Rogers,” “we,” “us,” “our” and similar terms include Rogers Corporation and its subsidiaries, unless the context indicates otherwise. Forward-Looking Statements This Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. Such statements are generally accompanied by words such as “anticipate,” “assume,” “believe,” “could,” “estimate,” “expect,” “foresee,” “goal,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “seek,” “target” or similar expressions that convey uncertainty as to future events or outcomes. Forward-looking statements are based on assumptions and beliefs that we believe to be reasonable; however, assumed facts almost always vary from actual results, and the differences between assumed facts and actual results could be material depending upon the circumstances. Where we express an expectation or belief as to future results, that expectation or belief is expressed in good faith and based on assumptions believed to have a reasonable basis. We cannot assure you, however, that the stated expectation or belief will occur or be achieved or accomplished. Among the factors that could cause our results to differ materially from those indicated by forward-looking statements are risks and uncertainties inherent in our business including, without limitation: • failure to capitalize on, volatility within, or other adverse changes with respect to growth opportunities, such as delays in adoption or implementation of new technologies; • uncertain business, economic and political conditions in the U.S. and abroad, particularly in China, Germany, England, Belgium, South Korea and Hungary where we maintain significant manufacturing, sales or administrative operations; • the global trade policy dynamics between nations reflected in trade agreement negotiations, the imposition of tariffs and other trade restrictions, as well as the potential for global supply chain decoupling; • fluctuations in foreign currency exchange rates; • our ability to develop innovative products and the extent to which they are incorporated into end-user products and systems that achieve commercial success; • the ability and willingness of our sole or limited source suppliers to deliver certain key raw materials, including commodities, to us in a timely and cost-effective manner; • business interruptions due to catastrophes, geopolitical events, or other similar events, such as natural disasters, war, terrorism or public health crises; • the impact of sanctions, export controls and other foreign asset or investment restriction; • failure to realize, or delays in the realization of, anticipated benefits of acquisitions and divestitures due to, among other things, the existence of unknown liabilities or difficulty integrating acquired businesses; • our ability to attract and retain management and skilled technical personnel; • our ability to protect our proprietary technology from infringement by third parties and/or allegations that our technology infringes third party rights; • changes in effective tax rates or tax laws and regulations in the jurisdictions in which we operate; • failure to comply with financial and restrictive covenants in our credit agreement or restrictions on our operational and financial flexibility due to such covenants; • the outcome of ongoing and future litigation, including our asbestos-related product liability litigation; • changes in environmental laws and regulations applicable to our business; and • disruptions in, or breaches of, our information technology systems. Our forward-looking statements are expressly qualified by these cautionary statements, which you should consider carefully, along with the risks discussed in this section and elsewhere in this report in addition to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2025 (the Annual Report) and our other reports filed with the SEC, any of which could cause actual results to differ materially from historical results or anticipated results. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and the related notes that appear elsewhere in this Form 10-Q along with our audited consolidated financial statements and the related notes thereto in our Annual Report. 23 Company Overview and Strategy We design, develop, manufacture and sell high-performance and high-reliability engineered materials and components to meet our customers’ needs. We operate two strategic operating and reportable segments: AES and EMS. Our remaining operations, which represent non-core businesses, are reported in our Other operating segment. We are headquartered in Chandler, Arizona. Our growth and profitability strategy is based upon the following principles: (1) market-driven organization, (2) innovation leadership, (3) operational excellence, and (4) synergistic mergers and acquisitions. Our priorities in executing this strategy are focused on driving near-term improvements to profitability and improving the growth outlook for the Company over the next several years by further strengthening our focus on commercial activities, optimizing our global capacity to meet customer demand and driving innovation. As a market-driven organization, we are focused on capitalizing on growth opportunities across multiple end markets. This includes the aerospace and defense industry, with opportunities driven by the advancement of communication systems and expanding global air travel. Also, the automotive industry where there are market opportunities resulting from continuing trends in vehicle electrification and ADAS adoption. In the electronics and communications industries there are compelling opportunities resulting from growth in data centers and next-generation smartphones. Industrial markets provide growth opportunities in certain sub-markets, including renewable energy which continues to expand globally. Our growth strategy is based on addressing trends in these markets and maintaining a strong customer-centric focus. Our sales engineers and technical service employees work closely with our customers to understand their needs and then leverage our development capabilities and applications expertise to provide customized solutions. Our strategy is supported by an expansive product portfolio and a reputation for producing high performance and reliable products. We expect to secure further commercial wins and improve sales as we execute on this strategy. Our operational excellence efforts are focused on driving ongoing cost improvements and efficiencies to further enhance our profitability while enhancing the agility and customer focus of the organization. These efforts include focusing on improving yields, throughput, procurement capabilities, and manufacturing processes. We have also taken specific cost improvement actions in recent quarters that have and will benefit our performance. These actions include optimizing our manufacturing footprint and reducing manufacturing and corporate employees. We continue to review and re-align our manufacturing and engineering footprint in an effort to maintain a leading competitive position globally and to support our customers’ growth initiatives. We seek to enhance our operational and financial performance by investing in research and development, manufacturing and materials efficiencies, and new product initiatives that respond to the needs of our customers. We strive to evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and evolving industry trends. If we successfully execute this growth and operational improvement strategy, we see an opportunity, over the next several years, to increase revenues from current levels and further improve profitability. The increase in revenues is largely expected to come from our organic business, with the potential to augment this growth through targeted acquisitions. Executive Summary The following synopsis and factors should be considered when reviewing our results of operations, financial position and liquidity: • In the first quarter of 2026 as compared to the first quarter of 2025, our net sales increased approximately 5.2% to $200.5 million, our gross margin increased approximately 230 basis points to 32.2% from 29.9%, and we had an operating margin of 5.3% compared to an operating loss of 0.2%. • We recognized restructuring charges of $5.7 million in the first quarter of 2026 due to our manufacturing footprint consolidation in our Eschenbach, Germany facility, our executive leadership transition and additional reduction in force actions. 24 Results of Operations The following table sets forth, for the periods indicated, selected operations data expressed as a percentage of net sales: Three Months Ended March 31, 2026 March 31, 2025 Net sales 100.0 % 100.0 % Gross margin 32.2 % 29.9 % Selling, general and administrative expenses 20.6 % 23.4 % Research and development expenses 3.4 % 3.7 % Restructuring and impairment charges 2.9 % 3.1 % Other operating (income) expense, net — % (0.1) % Operating income (loss) 5.3 % (0.2) % Other income (expense), net 0.1 % (0.8) % Interest income, net 0.2 % 0.2 % Income (loss) before income taxes 5.6 % (0.8) % Income tax (benefit) expense 3.4 % (0.1) % Net income (loss) 2.2 % (0.7) % Net Sales and Gross Margin Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Net sales $ 200.5 $ 190.5 Gross margin $ 64.6 $ 57.0 Percentage of net sales 32.2 % 29.9 % Net sales increased by 5.2%, or $10.0 million, inclusive of a $7.9 million benefit from the appreciation of the euro and Chinese yuan relative to the U.S. dollar. By end market, sales increased in the industrial and electronics and communications markets, partially offset by lower net sales in the automotive market, in the first quarter of 2026 compared to the first quarter of 2025. Gross margin as a percentage of net sales increased approximately 230 basis points to 32.2% in the first quarter of 2026 compared to 29.9% in the first quarter of 2025. Gross margin in the first quarter of 2026 increased due to higher net sales, favorable mix, and cost savings following our manufacturing footprint consolidation in Belgium. Selling, General and Administrative Expenses Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Selling, general and administrative expenses $ 41.2 $ 44.5 Percentage of net sales 20.6 % 23.4 % SG&A expenses decreased 7.4% in the first quarter of 2026 from the first quarter of 2025, primarily due to a $2.3 million reduction in professional services costs, and a $0.9 million reduction in software costs. Research and Development Expenses Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Research and development expenses $ 6.7 $ 7.1 Percentage of net sales 3.4 % 3.7 % R&D expenses decreased 5.6% in the first quarter of 2026 from the first quarter of 2025, primarily due to a reduction in employee compensation and benefits. 25 Restructuring and Impairment Charges Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Restructuring and impairment charges $ 5.9 $ 5.9 We incurred restructuring and impairment charges of $5.9 million in the three months ended March 31, 2026, due to our footprint consolidation actions in our Eschenbach, Germany facility, the executive leadership transition an additional reduction in force, and the impairment of our Mexico facility lease. For additional information, refer to “Note 13 – Supplemental Financial Information” to the condensed consolidated financial statements in Part I, Item 1, of this Form 10-Q. Other Income (Expense), Net Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Other income (expense), net $ 0.3 $ (1.6) Other income (expense), net was income of $0.3 million in the first quarter of 2026 compared to expense of $1.6 million in the first quarter of 2025. The increase was primarily due to $2.6 million of favorable year-over-year changes in impacts from foreign currency transactions, partially offset by $1.0 million in unfavorable performance on foreign exchange and copper derivative contracts. Interest Income, Net Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Interest income, net $ 0.3 $ 0.3 Interest income, net, was flat year-over-year. Income Taxes Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Income tax (benefit) expense $ 6.8 $ (0.2) Effective tax rate 60.2 % 12.5 % Compared to the 21% U.S. statutory federal income tax rate, we had a tax rate of 60.2% in the first quarter of 2026. During the quarter, our effective tax rate was unfavorably impacted by an increase in the valuation allowance attributable to loss jurisdictions in which no tax benefit is anticipated to be realized. We had a tax rate of 12.5% in the first quarter of 2025 when we incurred a loss before income taxes of $1.6 million, which, when taxed at the 21% U.S. statutory federal income tax rate, resulted in an immaterial income tax benefit, partially offset by insignificant tax adjustments that caused the effective tax rate to differ from the statutory rate. Operating Segment Net Sales and Gross Margin Advanced Electronics Solutions Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Net sales $ 107.7 $ 104.2 Gross margin $ 31.4 $ 29.1 Percentage of net sales 29.2 % 27.9 % AES net sales increased by 3.4%, or $3.5 million, inclusive of a $5.3 million benefit from the appreciation of the euro and Chinese yuan relative to the U.S. dollar. Inclusive of the foreign currency benefits, net sales by end market increased for electronics and communications, and industrial, while net sales in the aerospace and defense market were lower, in the first quarter of 2026 compared to the first quarter of 2025. 26 Our AES operating and reportable segment gross margin as a percentage of net sales in the first quarter of 2026 was 29.2% as compared to 27.9% in the first quarter of 2025. Gross margin improved primarily due to cost savings following our manufacturing footprint consolidation in Belgium, partially offset by lower utilization from a new production line. Elastomeric Material Solutions Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Net sales $ 88.4 $ 82.6 Gross margin $ 31.3 $ 26.7 Percentage of net sales 35.4 % 32.3 % EMS net sales increased by 7.0%, or $5.8 million, including $2.5 million of favorable impact from the appreciation of the euro and Chinese yuan relative to the U.S. dollar. By end market, sales increased in the industrial, electronics and communications, and aerospace and defense markets, partially offset by lower sales in the automotive market, in the first quarter of 2026 compared to the first quarter of 2025. Our EMS operating and reportable segment gross margin as a percentage of net sales in the first quarter of 2026 was 35.4% as compared to 32.3% in the first quarter of 2025. Gross margin improved primarily due to increased sales volume and related utilization benefits and favorable mix. Other Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Net sales $ 4.4 $ 3.7 Gross margin $ 1.9 $ 1.2 Percentage of net sales 43.2 % 32.4 % Liquidity, Capital Resources and Financial Position We believe that our existing sources of liquidity and cash flows that we expect to generate from our operations, together with our available credit facilities, will be sufficient to fund our operations, currently planned capital expenditures and R&D efforts, for at least the next 12 months. We regularly review and evaluate the adequacy of our cash flows, borrowing facilities and banking relationships in an effort to ensure that we have the appropriate access to cash to fund both our near-term operating needs and our long-term strategic initiatives. The following table illustrates the location of our cash and cash equivalents by our three major geographic areas: (Dollars in millions) March 31, 2026 December 31, 2025 U.S. $ 109.3 $ 100.1 Europe 44.2 40.7 Asia 42.3 56.2 Total cash and cash equivalents $ 195.8 $ 197.0 Approximately $86.5 million of our cash and cash equivalents were held by non-U.S. subsidiaries as of March 31, 2026. We did not make any changes in the three months ended March 31, 2026 to our position on the permanent reinvestment of our earnings from foreign operations. With the exception of certain of our Chinese subsidiaries, where a substantial portion of our cash and cash equivalents located in Asia are held, we continue to assert that historical foreign earnings are indefinitely reinvested. (Dollars in millions) March 31, 2026 December 31, 2025 Key Financial Position Accounts: Cash and cash equivalents $ 195.8 $ 197.0 Accounts receivable, net $ 142.1 $ 130.6 Inventories, net $ 127.5 $ 125.0 27 Changes in key financial position accounts and other significant changes in our statements of financial position from December 31, 2025 to March 31, 2026 were as follows: • Cash and cash equivalents were $195.8 million as compared to $197.0 million as of December 31, 2025, a decrease of $1.2 million, or 0.6%. This decrease was primarily due to cash used in investing and financing activities, partially offset by cash provided by operations and favorable impacts of exchange rates on cash. • Accounts receivable, net increased 8.8% to $142.1 million as of March 31, 2026 from $130.6 million as of December 31, 2025. The increase was primarily due to higher net sales in the last month of the first quarter of 2026 compared to the last month of the fourth quarter of 2025. • Inventories were $127.5 million as of March 31, 2026, compared to $125.0 million as of December 31, 2025. The change was due to higher levels of raw materials and work-in-process inventory, offset by lower levels of finished goods. Three Months Ended (Dollars in millions) March 31, 2026 March 31, 2025 Key Cash Flow Measures: Net cash provided by operating activities $ 5.8 $ 11.7 Net cash provided by (used in) investing activities $ (4.5) $ 3.9 Net cash used in financing activities $ (1.6) $ (1.6) In 2026, we expect capital spending to be in the range of approximately $30.0 million to $40.0 million. We plan to fund our capital spending in 2026 with cash from operations and cash on-hand. Restrictions on Payment of Dividends The Fifth Amended Credit Agreement generally permits us to pay cash dividends to our shareholders, provided that (i) no default or event of default has occurred and is continuing or would result from the dividend payment and (ii) our total net leverage ratio does not exceed 2.75 to 1.00. If our total net leverage ratio exceeds 2.75 to 1.00, we may nonetheless make up to $20.0 million in restricted payments, including cash dividends, during the fiscal year, provided that no default or event of default has occurred and is continuing or would result from the payments. Our total net leverage ratio did not exceed 2.75 to 1.00 as of March 31, 2026. Contingencies During the first quarter of 2026, we did not become aware of any material developments related to environmental matters disclosed in our Annual Report, our asbestos litigation or other material contingencies previously disclosed or incur any material costs or capital expenditures related to such matters. Refer to “Note 9 – Commitments and Contingencies” to the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q for further discussion of these contingencies. Critical Accounting Policies and Estimates There have been no material changes in our critical accounting policies and estimates from those disclosed in our Annual Report. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in our exposure to market risk during the first quarter of 2026. For discussion of our exposure to market risk, refer to “Item 7A. Quantitative and Qualitative Disclosures About Market Risk ” contained in our Annual Report.