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Rogers Corporation (NYSE:ROG)

Q2 2014 Results Earnings Conference Call

July 30, 2014; 09:00 a.m. ET

Executives

Bruce Hoechner - President & Chief Executive Officer

David Mathieson - Vice President, Finance & Chief Financial Officer

Bob Daigle - Senior Vice President & Chief Technology Officer

Bill Tryon - Director of Investor & Public Relations

Analysts

Daniel Moore - CJS Securities

Avinash Kant - D A. Davidson & Co.

Operator

Good morning. My name is Steve, and I will be your conference operator today. At this time I would like to welcome everyone to the Rogers Corporation, Second Quarter 2014 Earnings Conference Call.

All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions) Thank you.

Director of Investor and Public Relations, Bill Tryon, you may begin your conference.

Bill Tryon

Thank you, Steve. Good morning everyone. Thanks for joining us. The slides for today’s call can be found on the Investor section of our website, along with the news release that was issued yesterday.

Turning to slide two, on the call today will be Bruce Hoechner, President and CEO; David Mathieson, Vice President – Finance and CFO; and Bob Daigle, Senior Vice President and CTO.

Turning to slide three. Before we begin, I would like to point out to all our listeners 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 uncertainness 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.

Also, the discussions during this conference call may include certain financial measures that were not prepared in accordance with Generally Accepted Accounting Principles. Reconciliation 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 can be found on our website’s Investors section.

I will now turn the call over to Bruce Hoechner.

Bruce Hoechner

Thank you, Bill. Good morning everyone. First, I’d like to welcome David Mathieson to his first quarterly earnings call with Rogers. David’s extensive experience includes a role as Senior Vice President and Chief Financial Officer with our customer, Brady Corporation, where he completed 26 acquisitions. David’s perspective on our business from a customer’s point of view, in addition to his 27 years of financial and business experience has already stated to benefit Rogers.

Before we review the slides, I’d like to offer some insights regarding Roger’s 2014, second quarter results. The momentum we’ve gained over the past several quarters continues. We achieved strong top line performance and continue to improve our gross margins and operating profit. In addition, we continue to see the benefits of the decisive actions taken over the past two years, which has helped us improve operational efficiencies, pricing capabilities and capacity utilization.

Given our strong top-line growth, we believe the time is right to accelerate our investments in our business systems and processes, which we call the Rogers Work Smart initiative and enhanced investments in our M&A evaluation activities. While these investments will affect our near term SG&A expenses, we are confident they will enable us to scale the company more efficiently and effectively to support our growth and profit objectives.

Our very strong first half performance in revenue growth also drove a significant increase to bonus accruals in Q2. We have adjusted these bonus accruals based upon our current belief in the strength of our businesses. David will offer more specific commentary around the second quarter expenses later in the call.

In Q2 we saw robust demand in our megatrend categories of Internet connectivity and clean energy, as well as substantial sales increases in safety and protection applications such as automotive safety sensors, consumer impact protection.

In particular, we experienced strong demand for applications in telecom infrastructure, x-by-wire, energy efficient motor drives and automotive safety sensors. Thanks to strong market demand, dedicated employees and operational improvements, we achieved our sixth consecutive quarter of year-over-year quarterly sales growth in Q2.

Turning to slide four, you’ll see that Rogers overall and Printed Circuit Materials individually achieved all-time record quarterly sales. I’m pleased to note that all three of our business segments contributed to year-over-year sales growth in Q2.

Rogers sales grew by 15.9% in Q2 to an all-time quarterly record of $153.5 million. In addition we improved gross margins to 37.2% from 33.9% and operating margins to 10.6% from 10.1% on a non-GAAP basis.

As I mentioned, the Printed Circuit Materials business segment achieved an all-time quarterly sales record, with sales up 34.9% over Q2, 2013. This was driven primarily by the global growth of 4G/LTE wireless infrastructure in base station, power amps, as well as wireless antenna, automotive safety sensor applications and internet connectivity applications for hand-held devices. Overall, this performance was a result of robust market demand and continued dedication and hard work from our Printed Circuit Materials team.

The power electronics solutions business segment achieved sales growth of 5.2% over the second quarter of 2013. Strong demand in energy efficient motor drives, rail traction and x-by-wire was tempered by lower demand in the laser diode market, as well as specific EV, HEV applications due to customer internal supply chain constraints.

High performance phone sales grew 7.2% versus Q2, 2013. Increased demand for consumer impact protection, HEV battery applications and mass transit vibration management was partially offset by relatively flat demand in general industrial and mobile internet devices.

Moving onto slide five, you will see an overview of second quarter net sales performance by market. For the second quarter, 63% of Rogers sales were in our strategic megatrend categories as we continue to provide our customers with engineered materials solutions to support their robust growth in these areas of increasing global demand.

In the clean energy category, sales were up 11.2% over Q2, 2013, with increased demand for power modules used in energy efficient motor drives and automotive x-by-wire systems. The ongoing global build out of the wireless telecom infrastructure contributed to an impressive 51.3% growth in year-over-year revenues, in support of internet connectivity. We continue to benefit from the increase in 4G/LTE base station deployment around the world, especially in China.

We also experienced an increase in orders from one major mobile internet device OEM, for high frequency circuit materials and applications that improve wireless connectivity. Overall, demand for these applications continues to remain very robust.

Rogers sales in the mass transit category grew 9.2% over Q2, 2013, with increased demand across all major segments. Beyond our strategic megatrend categories, demand for radar based automotive safety systems drove growth for Rogers Printed Circuit Materials business. We believe we will benefit from further adoptions around the world, as governments increase their mandates for automotive safety measures and as consumers become increasingly aware of the safety advantages of such systems.

Higher sales of impact protection materials into the consumer markets also drove growth in safety and protection applications. Overall, safety and protection applications were a significant contributor with growth of 38% over Q2, 2013.

Turning to slide six, I want to highlight our growth enablers. Our team in the Rogers’ Innovation Center is taking shape and a number of new R&D projects are now underway, which we believe offer exciting opportunities for our customers. The unique partnership Rogers has with Northeastern University is enabling us to apply emerging technologies to commercial opportunities in a timely and cost effective way.

At the end of the second quarter, in our targeted megatrend categories of clean energy, internet connectivity and mass transit, we were tracking a cumulative total of 834 major design opportunities, which is an increase of more than 11% from Q2, 2013. Also in Q2 there were 475 opportunities in the design-in phase of the selling process, up from 425 in Q2, 2013.

During the quarter we moved 31 megatrend opportunities from design into production. Keeping our pipeline of opportunities growing is a helpful indicator of our future business growth. Our R&D marketing and new business development teams are collaborating with customers to develop engineered solutions to address real global market needs, enabling a new generation of technologies. We are balancing a long term and short term approach to building a robust sales pipeline that we will continuously refill as we convert projects into sales.

Our collaboration with customers is not limited to our R&D efforts. We are in the midst of a cultural transition to engrain market driven or outside-in behavior across the company. Globally we are conducting workshops and challenging all employees to find and adopt the best practices of global organizations, to improve processes and serve our customers better. This includes more outreach to our customers to learn what they need, so we can be a partner of choice to them.

As we’ve discussed, Rogers is actively pursuing an acquisition strategy that is aligned with our current businesses. Our business processes and systems optimization projects, the Rogers work smart initiative, are preparing us for integrating potential acquisitions through standardized systems and processes. We remain committed to our investments and operational improvements across the organization. Here too we are taking an outside-in view, ensuring these improvements reflect industry best practices across all departments.

I will now turn it over to David to report our financial highlights.

David Mathieson

Thanks Bruce and good morning everyone. Turning to slide eight, as Bruce mentioned, we had aggressive corporate sales in Q2 of $153.5 million, with growth of 15.9%, driven by Printed Circuit Materials growing 34.9%, with strong demand in wireless infrastructure. In Power Electronics we had growth of 5.2% and High Performance Foams showed a welcoming turn to growth of 7.2%.

Gross margins were strong at 37.2% up 330 basis points from prior year non-GAAP gross margin of 33.9%, 220 basis points from incremental volume and 110 basis points from efficiency.

On slide nine, our S&A increased this quarter from 19.1% to 22.5% of sales, and that increase was driven by incentive and equity compensation accruals of $4.1 million, which was higher this quarter due to a strong second quarter and first half year performance.

Spending on Rogers “Work Smart” business systems of $1.4 million, the CFO transition and other severance of $1 million, investment in sales and marketing of $0.9 million, professional services expenditures of $0.9 million, M&A opportunity evaluations of $0.5 million and a range of other costs of $2.5 million in legal fees, business taxes, merit increases fees and other cost increases. Offset by a $2.1 million pension benefit, comprised of $1 million of income in the second quarter 2014, compared to expense of $1.1 million in the second quarter of 2013.

Research and Development expenses were 4.2% in the second quarter of 2014, slightly lower that the 4.7% experienced in the second quarter of 2013. The lower rate is primarily related to the impact of quarter-over-quarter sales growth. Total gross spending did increase in the second quarter of 2014 by approximately $0.2 million, due to the investments in the Rogers Innovation Centre and strategic investments.

On slide 10, operating profit margins improved by 50 basis points compared to the non-GAAP operating profit percent of the second quarter of 2013. This increase is due to the strength of gross margin increases, offset by an increase in commercial expenses of 280 basis points.

Our diluted earnings per share was 9.4% from our non-GAAP $0.53 in 2013 to $0.58 in 2014, with operating income earning $0.14, offset by a higher tax charge of $0.05 due to geographic mix and share count dilution of $0.04.

On slide 11, all-time record sales for the quarter is up 34.9% to $61.5 million, driven by wireless infrastructure growth and antenna and applications and operating income up 157.7%.

On slide 12, growth in variable frequency motor drives, rail traction and Vehicle Electrification in the Power Electronics solution business was offset by lower demand in HEV, laser diode and solar markets. Sales were up 5.2% and the operating loss reduced by $0.7 million in the quarter.

On slide 13, high performance foams grew 7.2% in the quarter, driven by strong demand in HEV, mass transits and consumer impact protection, offset by more modest increases in General Industrial and is now demonstrating growth in the phase of the headwinds caused by the product design changes in the mobile internet device market. Operating income at $4.6 million was up 29.6% in the quarter.

In 2014 we continue to generate cash and to pay down our debt. Cash flow from operations in the quarter was $11.9 million, with capital expenditures of $8.1 million and we repaid debt of $3.8 million. We ended with a cash balance of $218.7 million and a debt balance of $70 million dollars.

On slide 15, guidance for the third quarter is for our revenues to be in the range of $153 million to $159 million and for EPS in the range of $0.65 to $0.75. This guidance is a kind of estimated P&L spending on Rogers “Work Smart” business systems of approximately $2 million in the quarter. The total expected cost of this project is approximately $15 million over the next two years.

Now this completes my commentary and I will now turn the call back over to Bruce.

Bruce Hoechner

So this concludes our prepared remarks and we’ll now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Daniel Moore with CJS Securities. Your line is open.

Daniel Moore - CJS Securities

Good morning.

Bruce Hoechner

Good morning.

Daniel Moore - CJS Securities

Perhaps if you can give us a little bit more color Bruce and David on the Work Smart initiatives. As you just closed you said you’d be spending about $15 million over the next one to two years. What will that entail and how specifically will that enable you to be better prepared to integrate potential acquisitions in the future?

Bruce Hoechner

Well Dan, I mean this – our approach here is very consistent I think with the strategies that we’ve talked about. Over the last couple of years we’ve focused very much on getting the top line organized and in line and I think we’ve seen that very well; certainly this year first half up 16% year-over-year on revenue and even last year we were up close to 8% over the previous year in revenue.

What we’re looking at now thought, as we’ve publically said, we are looking for acquisitions and part of that to grow the company and to achieve the next level of performance. Our belief is that we need to improve our business processes, our systems and so on and so that’s really the bottom line here on the Rogers Work Smart initiative.

We think that what we’ll accomplish out of this is more standardized processes, the ability to scale the company to the size that we believe we should and can be as we go through both the organic growth, which is targeted to be 10% a year and inorganic growth, which will range basically 5% or so if we average that out. At least, that’s what our plans are over a number of years.

So with that sort of background, let me turn it over to David to give a little bit more color maybe on the spend.

David Mathieson

Yes, we very much need this business system. I’ve seen the benefits over the years of getting in Oracle article for example in Honeywell, an SAP for example in Brady and on the Broad tenant (ph) where I have seen great progress being made in the business. These projects are very high return projects. It’s above 25%, so as soon as we can do it, the better as far as I’m concerned. It can reduce our inventories for example, the smart planning. So I’m looking forward to the next couple of years in getting this project done. Thank you, Bruce.

Bruce Hoechner

Sure. Just one more thing I’d like to add, this also has a component of planning involved and so when we look at our ability to get more out of our manufacturing plants, work our capital a little bit better, both CapEx, as well as working capital on inventories and so forth across the board. So we see this as really the next step in our transformation of the company.

Daniel Moore - CJS Securities

That’s helpful. I want to focus one moment on the tax rate. It was up about 600 bips in Q2. What tax rate is embedded in the fiscal Q3 guidance and do you still expect about 29% for the full year. I’m just trying to understand the delta there.

David Mathieson

Yes, we still expect around 29% for the year Dan. The third quarter we expect just a little bit under 31%.

Daniel Moore - CJS Securities

31%, okay, and then perhaps one more and I’ll jump back in queue. We’ve seen a significant surge in revenue over the past few quarters, driven by 4G base station build out among other factors. You’ll start to cycle again some pretty tough comps. Maybe just talk about your outlook for 4G in particular over the next four to six quarters. Do you expect dollars of revenue to continue to grow in that area and then your confidence around sustaining double-digit growth as you cycle against those comps in ’15?

Bruce Hoechner

Sure. So as you know, we give only next quarter guidance, but let me take a step back and give you my perspective on the PCM business, but also some of the other businesses at Rogers.

In PCM, certainly the 4G/LTE build out in China, particularly with China Mobile is really pushing this quarter, next quarter and through the end of the year. What we’re hearing and what we’re seeing and we were just in China, and heard this directly from a number of the OEMs is that China Unicom and China Telecom are now starting to roll forward on 4G, so that will take us through – we’ll see very strong demand coming in from them, probably Q4 and certainly into 2015.

So my confidence in year-on-year is still very strong. The other thing that we’ve seen is the Indian opportunity and there’s been a lot of work over the last six months or so in getting their frequencies and their systems organized and their carriers organized and we hear now that 4G will be started, 3G and some 4G will be started there in India as well. So we are looking at 2015 to see India coming in to play.

And as we all know or those of us who travel in Europe at least, 3G is in Europe and 4G is yet to come. So we see Europe certainly in 2015 and beyond as a great opportunity for us. So just in the PCM business alone, we see this as a continuation over the next certainly four to six to eight quarters of very, very strong growth on the 4G/LTE side.

The other thing that I’d like to talk about for PCM is the blind spot detection systems for automobiles. We are in our infancy there in growth and we had huge growth this quarter. We were up 33% year-on-year in that business in Q2 and we see that just starting to ramp even more than what we’ve seen already, so that has legs that go out at least two three four years in our view. So that’s the PCM business.

On the power business, power electronics business, we’re seeing again some good recovery in the second half of this year in rail. We’ll see a nice build up in EV, specifically with one manufacturer who has straighten up some of their internal supply chain issues, so we’ll see that come back pretty well, and the variable frequency motor drives, the power modules for those, as industrial activity continues to expand, we’re seeing very good demand there.

On HPF, I’m very pleased to see us return to a growth mode there. The team is working hard to grow our business beyond where we had very nice business in MID recovery and growth and safety and protection areas, particularly in the consumer area.

We’ve got a great application now in soccer or football shin guards, the first non-hard surface shin guards that are using our PORON material, plus all the safety helmet equipment in hockey and even now in soccer, some head gear. So we are seeing some very nice growth there. We’re seeing mass transit also, particularly with our silicone foams business starting to take off and we see that continuing.

And MID, we’ve introduced some new products in the MID area; particularly the back cushion and we’ve already got one application. We are waiting for that to come through and actually trip some volume for us.

So overall we’re very, very bullish moving forward on comps.

Daniel Moore - CJS Securities

Very good I appreciate it. I will jump back in queue.

Bruce Hoechner

Thanks Dan.

Operator

Thank you. (Operator Instruction). Your next question comes from line of Avinash Kant of D A. Davidson & Co. Your line is opened.

Avinash Kant - D A. Davidson & Co.

Good morning, everyone.

Bruce Hoechner

Hi, Avinash.

David Mathieson

Good morning

Avinash Kant - D A. Davidson & Co.

Just a few clarifications in the beginning. First, I was just trying to understand; in your prepared remark you talked about $4.1 million of increased quarterly accruals. This was in Q1 and Q2 combined raise. So could you give me the Q2 number?

David Mathieson

That was the Q2 number actually.

Avinash Kant - D A. Davidson & Co.

That’s the Q2 number. But when you pre-release…

David Mathieson

May be if you like to clarify, we probably, the catch up in Q2 was probably around $1.5 million. Had we planned this or forecast this, what actually happened is it put $1.5 million more in Q1 and $1.5 million last in Q2 if that helps.

Avinash Kant - D.A. Davidson & Co.

Okay. We’re trying to console this number with it, that when you did the pre-release you talked about $6 million to $7 million of additional expenses in Q2. If I add all this up, this one comes out to roughly $9 million or so. So am I doing the math right or there is some mistake here. Like if take all the negatives and add that with the opposite of $2.1 million in pension benefit, I get to somewhere around $11 million kind of number, $9 million kind of number.

David Mathieson

This is offset by at $2.1 million pension benefit Avinash.

Avinash Kant - D.A. Davidson & Co.

Yes, still even after offsetting that I get more than $9 million.

David Mathieson

No well, I get $8 million and that includes the offset of $2.1 million, so...

Avinash Kant - D.A. Davidson & Co.

So the $4.1 million was in the quarter. So $4.1 million and then $1.4 million and CFO transaction, let’s see, yes I would just like to get some clarity on that one. May be I’m doing something wrong here.

David Mathieson

Sure. We will do that off line Avinash.

Avinash Kant - D.A. Davidson & Co.

Okay, perfect. And then in the meantime the other question I was asking about. So it looks like SG&A you were talking about additional $2 million in the business smart initiatives. But could you give us a level of SG&A, the absolute level of SG&A that you are modeling at the midpoint of the guidance in Q3. We can kind of look at the number, but it should be close to $32.5 million or $32.3 million or so at the midpoint. Is that in the ballpark?

David Mathieson

No, it’s more like $30 million Avinash.

Avinash Kant - D.A. Davidson & Co.

$30 million?

David Mathieson

$30 million, yes.

Avinash Kant - D.A. Davidson & Co.

So are we expecting an improvement in gross margins here or…

David Mathieson

No, roughly flat.

Avinash Kant - D.A. Davidson & Co.

And, R&D also pretty flattish.

David Mathieson

Up about $1 million I would say.

Avinash Kant - D.A. Davidson & Co.

And that increase in R&D is that kind of you know where you want to be or is it going to something one time there on a percentage basis.

David Mathieson

Well, it jumps up and down a little bit, but up about $1 million for the quarter in the Innovation Center.

Avinash Kant - D.A. Davidson & Co.

Because over time you have talked about getting to kind of 6% R&D. I was thinking that this move will be in that direction. So what kind of timeframe should we be thinking of when we talk about getting to kind of 6% of revenues that’s being R&D expenses. You will get very close to 5% at this number maybe.

Bob Daigle

Yes, so Avinash, its Bob Daigle, maybe I can I help with that. So part of the increase you are seeing in Q3 is really the scaling up the Innovation Center as we have talked about earlier in the year, ramping up of some funded projects and having full staff. And the way we are approaching this is, our roadmap to go from as you point out maybe 4.5% to 5% in terms of R&D investment. That incremental investment is primarily going to be made up of this discreet opportunities that we identify in the Innovation Center that we choose to fund.

So we are thinking that’s over probably a couple year period. I don’t see that spiking up dramatically, but as we add discreet projects we see some nice opportunities to add revenue and growth to our businesses, we’ll be investing incrementally in those.

Avinash Kant - D.A. Davidson & Co.

Okay. And then of course on the revenue side, as you see some, in terms of the electronics side of the business where you are talking about the cell phone and tablets and all that, it looks like there has been some redesigning going on, but that business, seasonally should it be stronger in Q3 given the high units or Q3 and Q4 or not.

Bruce Hoechner

Seasonally we see, traditionally we see the increase in HPF in Q3. Q4 tends to be a little bit variable. It depends on the demands for Christmas and so forth and new product introductions, but what we’re looking for is relatively flat with last year in Q3 for MID HPF.

Avinash Kant - D.A. Davidson & Co.

Okay, perfect. Thank you so much.

Bruce Hoechner

Let me just add also and you’ve probably seen this in the press with Microsoft and Nokia, the changes that they’ve undertaken in their business model, going to basically from multiple, many multiple products to more like the other OEMs with a few products. So there will be some transition there.

Since we’re across the board in mostly everyone’s MID or cell phones or Smartphone systems, we’re covered, but there could be some variability there that we haven’t quite understood yet, because that announcement just came out.

Avinash Kant - D.A. Davidson & Co.

Thanks Bruce. Thanks for the clarity.

Operator

Thank you. Your next question comes from the line of Daniel Moore with CJS Securities. Your line is opened.

Daniel Moore - CJS Securities

Thank you. I just wanted to clarify, not to beat a dead horse, but you said about $30 million in SG&A for Q3, is that correct David?

David Mathieson

That’s correct Dan.

Daniel Moore - CJS Securities

And that includes the $2 million, sort of beginning incremental spend on the project that we talked about.

David Mathieson

Yes, it does.

Daniel Moore - CJS Securities

Okay. So what’s the total year-over-year increase in incentive compensation, equity comp that you now expect for 2014?

David Mathieson

Year-over-year.

Daniel Moore - CJS Securities

Correct.

David Mathieson

Ultimately double.

Daniel Moore - CJS Securities

So, I have to go back and check that, but is that in the $10 million to $12 million range.

David Mathieson

Yes.

Daniel Moore - CJS Securities

Okay. And I had one other follow up. You talked about the investment business systems; so as we go out, by my math gross profit will be up about $38 million or so give or take for 2014 year-over-year. It looks like maybe a quarter of that is going towards incentive comp. I just want to get a sense for, as we move forward, is that type of percentage a reasonable way to think about it, the percentage of improvement that we will see, that would flow through towards incentive compensation.

David Mathieson

Yes, hold on a minute Dan. Its year-over-year, right. We are talking about year-over-year performance.

Daniel Moore - CJS Securities

Correct. Correct, so as we move forward beyond 2014.

David Mathieson

Well, next year it will be higher, obviously. We are planning a continuous growth and improved profitability, so it will get higher as we grow the business.

Bruce Hoechner

Certainly we have new targets, right. I mean you’ve reset. We had a strong growth this year. Next year of course we are hoping to show very good growth as well as I outlined earlier, but we do have a new baseline, right. So we start over and we have to earn it.

Bob Daigle

Yes, so Dan one other thing that might be helpful for you guys is – this is Bob Daigle. When you think about this year’s performance, it’s really; we are hitting it out of the park. So if you look at our variable comp, its much higher than it was last year, because as Bruce mentioned we’re running through the first half, 16% year-over-year growth, very strong operating improvement.

So you kind of – although you get a little bit of increase, because in some cases you add staff, more participants in the bonus plan. This tends to be kind of – we’re approaching peak kind of levels of incentive comp based on the current staffing levels.

Daniel Moore - CJS Securities

Very good, and lastly on the kind of the same topic, about SG&A. $30 million as we grow a little bit in terms of the investment on that project. Is that a good base level to think of with some moderate growth from there going forward into Q4, into 2015?

David Mathieson

Yes, at this time, yes.

Daniel Moore - CJS Securities

Okay, thank you again.

Bruce Hoechner

Thanks Dan.

Operator

Thank you. There are no further questions at this time. Mr. Hoechner, I turn the call back over to you.

Bruce Hoechner

Great, thanks Steve. So in closing I’d like to summarize a few highlights of our call. First, we had a very strong second quarter, carrying through the momentum that began back in 2013 and making Q2 our sixth consecutive quarter of year-over-year quarterly sales growth.

We achieved all time quarterly sales records, driven primarily by the global demand for the internet connectivity, automotive safety sensors and clean energy. We believe that market indicators point to continued growth in these areas.

Secondly, we continue to improve our margins through our operationally excellence initiatives. We are seeing early returns from our process and system improvements within our Work Smart initiative, which are enabling us to better serve our customers through more robust business intelligence and process efficiency.

Lastly, our focus on innovation leadership for both the near and long term will help us create more value for our customers and our shareholders. We expect to expand our market share by taking an outside-in approach to understanding and conversing customers and market opportunities into sustainable profitable growth for the company.

We believe our recent sales growth performance is indicative of the health of our markets and the unique material engineered solutions we provide. Together, with strong market indicators, we feel we have a sustainable advantage in the market place and that we are well positioned for profitable growth throughout 2014 and beyond.

Thank you for joining us on today’s call.

Operator

This concludes today’s conference call. You may now disconnect.

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