ROG earnings call analysis

NYSE:ROG Q1 2026 Earnings Call Transcript Generated on 6/6/2026 Kevin | Conference Operator: Good afternoon. My name is Kevin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Rogers Corporation First Quarter 2026 Earnings Conference Call. I would now turn the call over to your host, Mr. Steve Haymore, Senior Director of Investor Relations. Mr. Haymore, you may begin.

Steve Haymore | Senior Director of Investor Relations

Good afternoon, and welcome to the Rogers Corporation First Quarter 2026 Earnings Conference Call. The slides for today's call can be found in the investor section of our website, along with the news release that was issued earlier today. Please turn to slide two. Before we begin, I would like to note 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 uncertainties that exist in Roger's 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 made today. Please turn to slide three. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. 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. With me today are Ali El-Haj, interim president and CEO, and Laura Russell, senior vice president and CFO. I will now turn the call over to Ali.

Ali El-Haj | Interim President and CEO

Thanks, Steve. And thank you, everyone, for joining us today. I will begin on slide four. In the first quarter, we delivered solid results with all financial metrics meeting or exceeding the midpoint of our guidance for the third consecutive quarter. Q1 sales were $201 million, a 5% increase year over year from foreign currency benefits and a higher industrial demand in the U.S. If not for adverse weather conditions and multiple supplier disruptions, which impacted operations at some of our U.S. plants, Q1 sales would have approached the high end of guidance. We achieved a significant year-over-year improvement in profitability. Adjusted EPS more than doubled to 75 cents per share, and adjusted EBITDA margins expanded 580 basis points to 16%. For the second quarters, we are forecasting sales to increase 6% at the midpoint of our guidance. We expect Q2 growth in automotive, industrial, and electronics end markets. Adjusted EBITDA margins are projected to increase year over year by nearly 600 basis points. The improved Q1 results and stronger Q2 outlook demonstrate the progress we are making on our commercial and profitability initiatives. We are maintaining an intense focus on improving Roger's multi-year growth outlook. The past quarter, we secured important design wins and continued to gain customer attractions through our R&D pipeline. Turn to slide five. Beginning this quarter, we streamlined our reporting into four primary end markets. At 37% of sales, the industrial market remains our largest segment and now includes renewable energy and mass transit markets. Q1 industrial sales increased at a double digit rate compared to the first quarter of 2025. Growth was driven by increased demand aligned with improved manufacturing PMI activity in the US and Europe, as well as additional market share wins with Rogers to additional customers. The automotive market segment, which represented 24% of revenue in Q1, includes EV, HEV, ADAS, and all other ICE vehicle applications. Sales declined year over year at a high single-digit rate due to lower global light vehicle production and weakness in the US EV market. However, we are seeing positive design wind momentum in automotive. which we expect to translate to robust sales growth in the coming quarters. The electronic and communications market segment includes sales in consumer electronics, semiconductors, wired and wireless infrastructure. Accounting for 18% of sales in the first quarter, this segment increased at a double-digit rate, driven by higher smartphone and wireless infrastructure sales. The improved smartphone sales resulted from higher volume, a favorable mix of higher-end devices, and an increased share with existing customers. Lastly, aerospace and defense sales comprised 15% of revenues and improved slightly from last year. The growth was led by commercial aerospace sales in our AMS business. We expect aerospace and defense to remain a growth area for Rogers. Next on slide six, I will outline our progress toward 2026 priorities. Our objective to grow the top line in 2026 and in the coming years remain our highest priority. We secured several design wins during Q1 in support of that goal. First, in the AES business, our high frequency circuit material were designed into a new automotive radar application with a leading Asian OEM. Sales are planned to begin in the second quarter. In the EMS business, we were awarded several design wins for EV battery applications with leading OEMs in the United States and Asia. These solutions will be used across different platforms. We are further encouraged by the progress we continue to make across products in our R&D pipeline. We continue to test and validate our micro channel cooler technology for data centers with multiple customers. Feedback from our customers has been encouraging and we believe our technology possesses unique capabilities for cooling high power chips in data centers and AI applications. Development of high frequency circuit material for data centers is also ongoing. Recent internal testing showed promising results, and we expect customer sampling and testing to begin within the next two quarters. While these projects move forward, we are also actively advancing other high potential opportunities. We continue to make progress with our 2026 profitability improvement initiatives. Across most of our manufacturing operations, we have seen measurable improvement in cost structure and overall operating performance resulting from the focused effort of our dedicated team. The restructuring initiatives at our German facility remain underway with $13 million of annualized savings still expected by Q4 of this year. We also continue to efficiently manage operating expenses with strong control measures in place. Our capital allocation priorities support both organic and inorganic growth. Accordingly, we have increased our focus on evaluating potential M&A and we continue to assess opportunities that align with our strategic and financial objectives. Our organic growth will largely be supported with existing capacity, but we are prepared to allocate capital for CapEx to support opportunities in our R&D pipeline as needed. I will now turn it over to Laura to discuss our Q1 financial performance and Q2 outlook.

Laura Russell | Senior Vice President and CFO

Thank you, Ali. Starting in slide 7, I'll summarize our first quarter results. Sales, gross margin, adjusted EPS and adjusted EBITDA all met or exceeded the midpoint of our guidance for the first quarter. First quarter sales increased 5% or 10 million, inclusive of foreign currency benefits of 7.9 million. As Ali mentioned, there were weather and supply disruptions specific to several of our US manufacturing locations which tempered our Q1 sales. AES Q1 revenues increased by 3.4% versus Q1 of 25. By end market, sales increased in the electronics and communications segment and the industrial segment. EMS sales improved by 7% year over year. By end market, sales increased in the industrial, electronics and communications and A&D segments. This was partially offset by lower automotive sales. Adjusted earnings per share were 75 cents in Q1 and increased 178% from the prior year period, resulting from higher gross margin and significant improvements in operating expenses. Foreign currency fluctuations had only a small effect on adjusted EPS as their global operations act as a natural hedge. Turning to slide 8, Q1 adjusted EBITDA was 32 million and increased 580 basis points year over year to 16% of sales. The improvement in adjusted EBITDA was primarily a result of higher sales and improved product mix. Reductions in manufacturing costs, start-up and general and administrative expenses also contributed to the higher adjusted EBITDA. We continue to ramp our new factory capacity, which resulted in a 1.4 million headwind to EBITDA versus the prior year. However, new factory performance costs decreased versus Q4 of 25. Continuing to slide 9, I'll discuss cash utilization for the quarter. Cash at the end of Q1 was £196 million and changed only slightly from the end of the fourth quarter. Cash provided by operations was £5.8 million compared to £46.9 million in Q4 of 25. Inventory reductions were a key driver of the much higher operating cash flow in the prior quarter and this was not expected to repeat in Q1 of 26. Consistent with typical patterns, accounts receivable increased in Q1 following a large reduction in Q4 of 25. Higher accounts payable partially offset the Q1 increase in AR. Capital expenditures in Q1 were 4.7 million. Our expectation for full year 26 capital expenditures of 30 to 40 million is unchanged. We did not repurchase shares in the first quarter and will continue to balance return on capital to shareholders with other capital needs. Next, on slide 10, I'll review our guidance for the second quarter. On a year-over-year basis, we again anticipate improvement in Q2 sales, margin and profitability. We are guiding Q2 revenues to be between 210 and 220 million. The midpoint of the range is a 6% increase in sales year over year. The guidance includes our expectation for higher automotive sales from the start of new programme wins and continuation of existing programmes. In addition, smartphone sales should increase from normal seasonal factors. with some growth in industrial end markets continuing. We're gauging gross margin in the range of 32.5% to 33.5%. The midpoint of the range is 140 basis points higher than the prior year due to higher volumes and cost structure improvements. We expect Q2 adjusted operating expenses to remain approximately flat to the first quarter. Adjusted EPS is forecast to range from $0.90 to $1.10. The $1 midpoint compares to adjusted EPS of $0.34 in Q2 of 2025. Adjusted EBITDA is anticipated to range from $35 to $41 million. This equates to a 17.7% EBITDA margin at the midpoint of the range which would be a 590 basis points improvement versus the second quarter of 2025. Excluded from adjusted EPS are restructuring costs related to the ceramic actions in Germany. In Q1, we recognised 4.4 million of associated restructuring charges, bringing total restructuring for this programme to date to 9.8 million total. This is relative to our total estimated range of 12 to 15 million. The remaining restructuring costs associated with this action will largely be incurred from Q2 to Q3 of 26. The programme is still anticipated to deliver 13 million of annual run rate savings. Lastly, we project our non-GAAP full-year tax rate to be approximately 30%. I will now turn the call back over to Ali.

Ali El-Haj | Interim President and CEO

Thanks, Laura. In summary, we had another quarter of solid execution and delivered improved Q1 results. Our second quarter outlook also reflects solid year over year improvements and highlights the momentum behind our commercial and profitability initiatives. We remain focused on execution and driving greater value creation. That concludes our prepared remarks. I will now turn the call back to the operator for questions.

Kevin | Conference Operator

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. We ask you to please ask one question, one follow-up, then return to the queue. You may press star 2 if you'd like to remove your question from the queue. Once again, that's star 1 to be placed in the question queue. A confirmation tone will indicate your line is in the question queue, and we ask that you please ask one question and one follow-up, then return to the queue. Our first question today is coming from Craig Ellis from B-Reilly Securities. Your line is now live.

Craig Ellis | Analyst, B-Reilly Securities

Yeah, thanks for taking the question, and congratulations on the real strong execution team. Ali, I wanted to start just following up by one of the points you made about Calendar 26's focus areas in And you indicated that growth is the highest priority. Can you talk a little bit more about the design wins that were achieved in EB and ADAS and when those wins would convert to revenue? And as the second part of that question, go into a little more detail in terms of what you're seeing with the data center opportunity, how material are the engagements that you have now and how significant are the things that sound like they're more in the development or pipeline stage?

Ali El-Haj | Interim President and CEO

Okay. You know, as mentioned, regarding the design wins, as we've indicated in the prepared remarks, we had several in the EMS side, mostly related to EV batteries and other applications. And on the AAS side, we have, as I mentioned, one for radar applications with an Asian OEM. Both of these, or actually the majority of these wins will be in production between Q2 and Q4 of this year. So we will start seeing revenue out of these wins in Q2, Q3, and Q4 this year. As it relates to the data center, the opportunities are there, as we've been indicating for now the past two quarters. For 2026, however, revenue will not be significant. It will be mostly sampling or prototype type revenue. So it's not as significant as we would like it to be. I've always been indicating that this is probably a Q3, Q4 of 2027. And depending really on how fast our customer will accelerate their development and their qualification and the readiness for the product. But we see opportunities, as I indicated, for data centers in all of our product area, but mainly the highest volume or dollar impact will be out of our microchannels with the ceramic activities and the high-speed digital product lines.

Craig Ellis | Analyst, B-Reilly Securities

That's really helpful. And then I'll ask the follow-up question to you, Laura. Love the trajectory of gross margin as we start the year. Can you talk a little bit about what's driving the sequential strength? Is it all really volume or are there some things happening on the COGS management side that are coming in a little bit better than we might have expected three months ago?

Thank you. Laura Russell | Senior Vice President and CFO

Sure. No problem, Craig. I'll take that. With regards to the margin, what I would have to say is really a function of all of the above and what you mentioned. You know, we've spoken in the past in prior calls about our initiatives and our objectives in managing our operations to ensure that we're doing what we can to minimise yield loss and optimise on our input costs and really be effective in what we're running through our factories. Those initiatives continue and are in flight and they have some favourable impact, which you see in our EBITDA bridge and some of the transitions that we call out on a quarter over quarter basis. Now with that said, the other thing that's favourable there that we're also discussing is some of the structural changes that we undertook that are in the margins. That's all to say there's some other puts and takes that go the other way in terms of some transitions in terms of the segments and where we're realising some of the revenue growth and gains. So there's always some puts and takes across the margins. In general, I would agree with you, Craig. We're making the right progress. We're keen to continue to make additional inroads and incremental improvements, which are some of the key initiatives that will assist us as we continue to focus on growing the business on the top line.

Craig Ellis | Analyst, B-Reilly Securities

Very helpful.

Thank you. Kevin | Conference Operator

Thank you. Next question is from Daniel Moore from CGS Securities. Your line is now live.

Daniel Moore | Analyst, CGS Securities

Thank you, Ali. Thank you, Laura. Thanks for the color and taking the questions. I'm going to start with industrial. It gets a little less attention, but still a significant portion of your business. Sounds like gradual improvement. Can you maybe just talk about particular end markets within that bucket where things are improving or are there any that are becoming more challenging in the current environment?

Ali El-Haj | Interim President and CEO

No, I think really overall the whole industrial segment for the business is really growing. Where we see maybe more impact is the semi. So semiconductor industry, as you know, it is growing. So we realize some increase in our revenue in that area. You know, the rest of the economy and that, you know, just the manufacturing index here, PMI in the United States and Europe is higher. So we're tracking with that. In addition to some you know, recapturing some market share with some of our existing customers. So kind of if you, you know, you separate all the growth come from those three areas. One is general economy, one semiconductor growth, and the third element is recapturing some market share with our existing customers for existing applications or newer applications.

Daniel Moore | Analyst, CGS Securities

Helpful. And maybe as a follow-up, just piggybacking on Craig's question on the data center opportunity, You know, you talked in detail in the last calls about the sort of specific applications. Maybe just take the opportunity to talk again about, you know, whether it be replacing any existing thermal management technologies or completely complementary, and when might you be in a position to talk a little bit more about, you know, TAM and kind of what revenue might look like, you know, two, three, five years from now. Thanks again for the call.

Ali El-Haj | Interim President and CEO

Yeah, I'll take it backwards. So with regard to revenue and discussing revenue and potential, probably later this year, you know, as we get, you know, we have a pretty good idea of the target and the potential. But some of this, as you know, it's customer specific, so we need to be extremely cautious here of what we communicate. With regard to the opportunity itself, it's really a mix. One is we look at the technology that we're providing for a specific solution of difficult issues that exist today. So more of a complementary but really solving serious issues that remains with the current systems today. So it's a combination. We'll be taking some market share of existing applications as well as solving some difficult issues with existing technologies regarding the thermal management today. So we believe the technology that we're introducing here is more specific, more efficient, and will be more cost-effective to the end user.

Daniel Moore | Analyst, CGS Securities

I know I'm out of questions, but if I can sneak it in, Laura. Can you quantify the revenue that slipped from Q1 due to weather and supply disruptions, and how much of that is in your guide for Q2? Thank you again for all the telling.

Laura Russell | Senior Vice President and CFO

Yeah, no problem. So, Dan, yes, we did have some disruptions, which we alluded to in our prepared remarks. I would indicate that, you know, had we not encountered those disruptions, we probably have been trending more towards the high end of the guidance range that we've set.

Kevin | Conference Operator

Thank you. Our next question is coming from David Silver from Freedom Capital Markets for Miners Now Live.

David Silver | Analyst, Freedom Capital Markets

Yeah, hi, thank you. I did just want to level set one or two things, and then I have a couple of business questions. But I just want to make sure I'm not missing anything regarding your cost-saving targets. So as of December 31st, I believe you said you had achieved the run rate of $32 million. And in your remarks here, you've discussed the opportunity in Germany to capture an incremental 13 million, you know, by year end. Is that how I should think about the total, you know, efforts that you've created? Or might there be another program or two that maybe, you know, maybe I'm missing?

Laura Russell | Senior Vice President and CFO

David, it's Laura. Let me take that for you. So you're right insofar as what you said about 25 million in 25. However, what I would tell you is that was the savings we realised in calendar 25. But when you annualise that, there's an additional 7 million still to be realised through the P&L. Then when you add to that the savings that we'll realise, which will be an incremental 13 million on an annualised basis once we're through the restructuring, or Keramic facility in Germany, that will bring us to a cumulative savings total of 45 million. So that just will give you the information that allows you to fully triangulate the savings and where we are today and fully realizing them through the financials.

David Silver | Analyst, Freedom Capital Markets

Thank you. That was the issue, the 25 versus 32, and you read my mind very well there. Thank you. You're welcome. Okay. You know, Ali, I would just say the first quarter results reflect terrific work on the controllable factors. Your sales growth, I think, was modest, excluding the currency benefit, I guess, the currency tailwind. You know, you've cited maybe auto as a softer spot right here, but due to improve. I mean, overall, what are you hearing, you know, from your major OEM customers? Are they cautious because of the geopolitical environment or, you know, what might be holding them back from moving more like this is kind of a more meaningful recovery, I guess, in the future? in broad-based demand for your key end markets?

Ali El-Haj | Interim President and CEO

Well, if you're specifically referring to the automotive industry, obviously, it's not just geopolitical issues. You know, we've got regulations issues and regulatory changes, especially in the U.S., as you know. So that's really impacted the EV market, especially in North America, specifically the United States, and to a similar extent in Europe. However, Europe is recovering. And we see growth in that market in Europe. It started toward the fourth quarter of 2025, and it continues. So we see a pickup there. China first quarter was very soft. And again, some of the incentives for the EV market in China was taken away or pulled back. And we think some of that will be reinstated. So that market will turn positive even in China within the next quarter to two quarters. So we think EV market is coming back. It's not an issue. We are not severely impacted by the EV market. We're trying to address the whole automotive market, and not just for EV, but whether it's hybrid, whether it's EV, whether it's ICE-type applications, we're in. So we're targeting that market very heavily. We're engaged with a lot of the OEMs directly and indirectly as we speak. So we anticipate really continued growth. As I said, we have several design wins. in the fourth quarter of last year, first quarter of this year, and we anticipate that will continue into the balance of 2026. With regard to the other industries, whether it's electronics and portable electronics specifically, we see growth in there for us. The mix of the high-end, especially in the first quarter of this year, the sale of the higher-end mobile phones and cell phones What that did for us, it provided us higher revenue. We have higher content on those devices than just a standard lower cost version phone. So that did help our growth, and we expect that also to continue. So we're capturing more market share, more applications within that market segment, and the mix is helping us also significantly. So we see growth really in all of our areas, and we're targeting every segment of our business for growth for the balance of this year.

David Silver | Analyst, Freedom Capital Markets

And maybe just to follow up on, you know, your targeting of growth for the balance of the year, maybe going at it from a slightly different angle, but maybe for Laura, but, you know, you did highlight the capital expenditure budget, maybe the midpoint at $35 million. You know, I don't think of your company as kind of a capital-intensive one normally, but within that proposed, you know, call it $35 million plus or minus budget, is there growth or targeted growth investments included in there? And maybe if you wouldn't mind just what, you know, what areas of your company are, you know, are you directing kind of some discretionary or growth-oriented CapEx towards?

Thank you. Laura Russell | Senior Vice President and CFO

Okay, so let me start there, David, and then if needs be, Ali can add some additional color. So what I would say in terms of capital intensity, actually at the midpoint at 35 million, the intensity has declined versus where it was in prior year. So in 25, we were at 4%. I think in 24, we were at 7%. And what that's indicative of is, as you talked about, the capital intensity. We're largely through the investments in our facilities to expand capacity. It was made in the last three to five years, those investment decisions. So now what we're investing in is, number one, maintaining those facilities and automating as appropriate to improve our operational effectiveness. And then secondly, looking at the other auxiliary systems and processes that we have and how we can make them more effective and efficient in the business. So that's where we're currently largely investing. But the one thing that I did want to call out is that we also talk repeatedly to all about the potential and the opportunity for the business. And we continue to evaluate that month to month, quarter to quarter. and we'll make the appropriate decisions as we see fit based on potential return on any potential investment.

David Silver | Analyst, Freedom Capital Markets

Okay, that's great, Collar.

Thank you very much. Laura Russell | Senior Vice President and CFO

You're welcome.

Kevin | Conference Operator

Thank you. As a reminder, if you'd like to be placed in the question queue, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Once again, if you'd like to ask a question today, please press star 1 under telephone keypad. One moment, please, while we poll for questions. Our next question is a follow-up from Daniel Moore from the CGS Securities. Your line is now live.

Daniel Moore | Analyst, CGS Securities

Yes, I apologize. I missed a minute or two of the call, but on the defense side of aerospace and defense, has your outlook or growth expectations changed at all since the start of the war in Iran? Maybe, you know, not necessarily for this year, but looking out further just in terms of maybe a restock, et cetera.

Ali El-Haj | Interim President and CEO

No, it has not changed. I think we expect to continue to grow. You know, I think the Q1 Q1, we were heavily impacted by actually the commercial aerospace industry, not the defense. That was softer. And, again, that's just really timing of projects. Dan, as you know, these are projects-driven type activities. Because of the restocking issue that's expected, we expect growth in Q2, Q3, and going forward. That's our expectations right now.

Daniel Moore | Analyst, CGS Securities

All right.

Thank you again. Ali El-Haj | Interim President and CEO

Sure.

Kevin | Conference Operator

Thank you. Our next question is a follow-up from Craig Ellis from B Reilly Securities. Your line is now live.

Craig Ellis | Analyst, B-Reilly Securities

Yeah, thanks for taking the question. I wanted to use Laura's comments on capacity and the investment that has been made so that you do have sufficient capacity and just use that as a jumping off point with something that I see broadly in a lot of the end markets where Rogers materials wind up, and that is we're seeing increasingly tight supply conditions. And in other sectors, we've seen customer order patterns change, either with longer-term pipelining and visibility or other things. And so the question to you, Ali, is as we've seemingly gotten into more of a capacity-constrained environment, across the broader supply chain. How do you feel about your capacity and are you seeing any changes in your customer's order behavior?

Ali El-Haj | Interim President and CEO

No, we don't really have an issue or constraint on capacity. I think what we see in our business is shifting, let's say, geographical demand and needs where, you know, if you remember, we discussed the local for local strategy that Rogers has in place. So we've seen this is now playing more of a role in the business today and going forward than our capacity overall. So Roger's capacity overall is sufficient for what we forecast for the next probably six to eight quarters without any concerns, with the exception of the additional new R&D projects, new business that we discussed earlier. But for current business demand, we think we have sufficient capacity. However, shifting within regions or between regions, something we're looking at. So we may have to rebalance that available capacity in different regions. So it'd be more of a rebalancing rather than investing more.

Craig Ellis | Analyst, B-Reilly Securities

And the follow-up to that and the next question is, one is a follow-up. Does that present an opportunity for you to do things with pricing in an environment that just seems to be structurally tighter that can benefit what you bring home on the top line and gross margin? And then the next question is related to the tighter segment summary that you presented with auto and industrial, aerospace and defense, et cetera. What catalyzed the more consolidated look at end markets, and what does it do internally? for you in terms of how you're running the business.

Thank you. Ali El-Haj | Interim President and CEO

I don't think it's going to change the way we run the business. I think, you know, the business will continue, you know, the path we started a few quarters ago, I think we're going to continue running the business the same way. The only thing that I've mentioned is, again, rebalancing this capacity and the availability of production lines where to serve the local geographical needs. or serve the OEMs within those geographical areas. So this is something we're going to continue to work on going forward. With regard to pricing, you know, my comments in the past, this is market driven. We're going to continue to evaluate and study the market and understand that the pricing, the market tolerance for pricing and those conditions, and we'll act accordingly. But we try to mitigate any cost increases internally first before we try to go in and ask our customers for price increases. So we try to do that internally first, mitigate that with our efficiencies, our cost reduction activities first, then last resort will be going back to increasing pricing on customers or for certain customers.

Craig Ellis | Analyst, B-Reilly Securities

That's helpful. Thanks, Ali.

Ali El-Haj | Interim President and CEO

Thank you.

Kevin | Conference Operator

Thank you. We reached the end of our question and answer session. And ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation. jsPDF 3.0.3 D:20260606090412-00'00'

NYSE:ROG Q4 2025 Earnings Call Transcript Generated on 6/6/2026 Kevin | Conference Operator: Good afternoon. My name is Kevin, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Rogers Corporation Fourth Quarter 2025 Earnings Conference Call. I will now turn the call over to Mr. Steve Haymore, Senior Director of Investor Relations. Mr. Haymore, you may begin.

Steve Haymore | Senior Director of Investor Relations

Good afternoon, and welcome to the Rogers Corporation Fourth Quarter 2025 Earnings Conference Call. The slides for today's call can be found in the investor section of our website, along with the news release that was issued earlier today. Please turn to slide two. Before we begin, I would like to note 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 uncertainties that exist in Roger's 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 made today. Please turn to slide three. The discussions during this conference call will also reference certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles. A 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. With me today are Ali Alhaj, interim president and CEO, and Laura Russell, senior vice president and CFO. I will now turn the call over to Ali.

Ali Alhaj | Interim President and CEO

Thanks, Steve, and thank you, everyone, for joining us this afternoon. I'll begin on slide four. We finished 2025 with another quarter of solid performance. Q4 sales of $202 million approached the high end of the guidance adjusted EPS of 89 cents per share and adjusted EBITDA margins of 17.1%. Both exceeded the top end of guidance compared to the fourth quarter of 2024 sales improved 5% and adjusted EBITDA margins increased 500 basis points. We also generated significant free cash flow in the fourth quarter, and continue to return capital to shareholders with $14 million in share repurchase. The stronger finish to 2025 resulted from gradual end market improvements and implementing critical structural changes. With a simplified operating model and a leaner cost profile, Rogers is in a stronger position entering the new year. In 2026, the priority will remain on improving Rogers' multi-year growth outlook and continue to drive profitability initiatives. The organization has a clear understanding of the critical objectives for this year, and we have the right team and capabilities to deliver. Our Q1 guidance incorporates significant year-over-year improvements with sales growth of 5% and a 530 basis points increase in adjusted EBITDA margins. Laura will cover both the fourth quarter results and Q1 outlook in greater detail. Slide five. Total sales increased by 5% versus the fourth quarter of 2024, led by higher industrial, ADAS, and renewable energy end markets. Industrial sales remain our largest segment and ended the year at 27% of total revenue. Q4 industrial sales increased at a high single digit rate year over year, driven by market recovery and winning additional business from traditional customers. For the full year, sales improved at a mid single digit rate. Aerospace and defense sales were 16% of revenue. Despite a slight decline in Q4 compared to the same period last year, For the full year, the segment grew at a high single digit rate. The growth for the year was driven by both strong defense and commercial aerospace demands. EV, HEV sales remained at 14% of revenue. Q4 sales were lower year over year as decline in EMS sales more than offset growth in the AS segment. The decrease in EMS sales resulted from a higher concentration of customers in regions where EV demand has been challenging. Total full year sales ended well below the prior year with decline in both business units. We are continuing our efforts to grow in this market with our Keramik China expansion and the ongoing strategy to adapt to changes in the EV battery market and technology. ADAS sales increased year over year and for the full year grew at a double digit rate. Sales continued to benefit from increasing adoption of ADAS solution and higher level of vehicle autonomy. Lastly, portable electronic sales were lower both in Q4 year over year and for the full year primarily as a result of a product in AES business reaching end of life. Turning to slide six, we are already seeing results from the structural and organizational changes implemented during the second half of 2025 with enhanced customer relationships and improved service levels. We have revised our KPIs, targets, and objectives to ensure organizational alignment, focus on growth, and customer service. These changes have brought on an increased intensity in new product development efforts and will accelerate new product introductions, enabling design wins. We are confident that our talented team will continue to drive significant improvements in innovation and growth. In addition, we are seeing the results of actions taken to improve profitability. We realized $25 million in cost and operating expenses improvement in 2025, with another $20 million of annualized savings expected to be complete by the end of 2026. This included an 8% reduction in full-year operating expenses compared to the prior year. Lastly, through cost containment efforts and working capital management, we generated $71 million of free cash flow, repurchased shares totaling $52 million, and ended the year with $197 million of net cash. Next on slide seven and turning our attention to 2026. Returning to top line growth is Raja's highest priority this year. To achieve this objective, we remain committed to fully leveraging our global footprint to increase our competitiveness and grow share in all regions. With our customer-centric organization, we are intently focused on securing design wins to drive growth and further diversify our end markets. Our design win efforts are targeting both new and existing market segments. We have identified data centers as a significant potential new market for Rogers and secured some initial design wins in the EMS business during the fourth quarter. While these wins are an important start, We are pursuing much larger opportunities by leveraging our strength in thermal management and signal integrity technologies. We believe that our technical solutions in these areas are unique and provide compelling value for our customers. We expect at least one of these design awards decisions to be made later this year. Prioritizing and accelerating the pace of new product introduction in new and adjacent markets will be a critical enabler for our growth. Improving profitability will remain a key objective in 2026 with the restructuring of the ceramic Germany operations on track. We plan to keep 2026 adjusted operating expenses in line with 2025. As we execute on these priorities, we expect to grow full year adjusted EBITDA compared to 2025. Lastly, we will maintain a disciplined capital allocation strategy as we focus on improving returns to our shareholders. Capital expenditures are expected to be comparable to 2025 as we continue to invest in our facilities and operating structure. M&A will be an area of increased emphasis in 2026 with any potential targets requiring the right strategic fit and financial profile. The level of share repurchase activity will be subject to these other investment priorities. I will now turn it over to Laura to discuss our Q4 financial performance and Q126 outlook.

Laura Russell | Senior Vice President and CFO

Thank you, Ali. Starting on slide A, I'll begin with a summary of our fourth quarter financials. Q4 sales and gross margin were near the high end of our guidance for the quarter and adjusted earnings exceeded the top end of our range. Fourth quarter sales increased 5% compared to the prior year period. AES Q4 revenues increased by 14.6% versus Q4 2024 from higher sales in the EVHEV, ADAS, renewable energy and industrial markets. EMS sales declined by 6.7% over the same period due to lower EVHEV sales, which were concentrated in regions experiencing demand challenges. The decline was partially offset by higher industrial sales. Adjusted earnings per share of 89 cents in Q4 were nearly double the prior year period due to higher sales and significant improvements in operating expenses. Turning to slide 9, Q4 adjusted EBITDA was $34.4 million compared to $23.3 million in Q4 2024. Adjusted EBITDA margin of 17.1%, improved 500 basis points year over year. The improvement in EBITDA was a result of higher sales, improved product mix, and the benefits realized from our profitability improvement initiative over the past year. In particular, adjusted operating expense, excluding stock-based compensation, decreased by 6.3 million over this timeframe. Offsetting these improvements was a 1.7 million increase in underutilization costs, which is primarily related to the start of production for our Keramic China facility. Continuing to slide 10, I'll discuss cash utilisation for the quarter. Cash at the end of Q4 was £197 million, an increase of £29.2 million from the end of the third quarter. Cash provided by operations was £46.9 million, an increase from the prior quarter due to improved working capital management, particularly from a continued focus on managing inventories. Uses of cash in the quarter included share repurchases of 14.3 million and capital expenditures of 4.7 million. For the full year, capital expenditures were 30 million and at the low end of our guided range. As Ali discussed, we expect 2026 capital expenditures to be in a compatible range to last year. We are gazing 30 to 40 million for the full year The turning capital to shareholders will continue in 2026 with a level of buyback subject to other capital needs, including potential M&A transactions. Following our purchases in Q4, we have approximately 52 million remaining on our existing share repurchase program. Next, on slide 11, I'll review our guidance for the first quarter. Overall, we anticipate significant year-over-year improvement in Q1 2026 sales, margin and profitability, underscoring the impact of last year's initiative. Beginning with sales, we expect Q1 revenues to be between 193 and 208 million. The midpoint of the range is a 5% increase in sales year-over-year. The guidance reflects similar market conditions to the fourth quarter, with expected year-over-year improvement mainly in industrial sales. We are guiding gross margin in the range of 30.5% to 32.5%. The midpoint of the range is 160 basis points higher than the prior year, due to higher volumes and cost structure improvements. We expect adjusted operating expenses to decrease more than 5% compared to the first quarter of 2025, and increase slightly from fourth quarter levels, primarily a certain compensation cost reset in the new fiscal year. Adjusted EBITDA is anticipated to range from 27 to 35 million. This equates to 15.5% EBITDA margin at the midpoint of the range, which would be 530 basis points improvement versus the first quarter of 2025. Adjusted EPS is forecasted to range from 45 cents to 85 cents. The 65 cent midpoint compares to adjusted EPS of 27 cents in Q1 of 2025. Excluded from adjusted EPS are restructuring costs related to the ceramic actions in Germany. At the end of 2025, we incurred 5.4 million of associated restructuring charges relative to our total estimated range of 12 to 20 million. The remaining restructuring costs associated with this action will be incurred from Q1 to Q3 of 2026. The programme is still anticipated to deliver 13 million of annual run rate savings. Lastly, we project our non-GAAP full-year tax rate to be approximately 32%. The higher expected tax rate is mainly due to certain lost jurisdictions where no tax benefits can be realized. I will now turn the call back over to Ali.

Ali Alhaj | Interim President and CEO

Thanks, Laura. In summary, we had another quarter of solid execution. We delivered Q4 results that were above the midpoint of guidance for the quarter and generated significant free cash flow. We enter 2026 with a clear objective to achieve top line growth, further improve profitability, and deploy capital effectively. That concludes our prepared remarks. I will now turn the call back to the operator for questions.

Kevin | Conference Operator

Thank you. We'll now be conducting a question and answer session. If you'd like to be placed into question queue, please press star one on your telephone keypad We ask you to please ask one question and one follow-up, then return to the queue. If you'd like to remove yourself from the queue, please press star two. Once again, that's star one to be placed in the question queue. One moment, please, while we poll for questions. Our first question today is coming from Daniel Moore from CJS Securities. Your line is now live.

Daniel Moore | Analyst, CJS Securities

Thank you. Good afternoon, Ali. Good afternoon, Laura. Congrats on a solid end to the year. Maybe start with the guidance. Q1 pointing to mid-single-digit growth. I think you said that's kind of more of the same versus trends in Q4, improvement industrial, just your outlook near-term for ADAS, you know, any improvement in renewables and or defense. And I know you don't give fully your guide, but mid-single-digit growth, kind of the reasonable thought process, you know, kind of for the near-to-mid-term.

Ali Alhaj | Interim President and CEO

Yeah, thanks for the question. Again, our expectation for Q1, we still see a stronger and continued growth in the industrial section, the industrial sector of the business. However, we see some softening still remain and uncertainly on the automotive side, on the EV side. And as you know, portable electronics tend to be a little softer in Q1 than we experienced in the last two quarters. So that's probably what what's keeping the guidance the way it is for now. And as I mentioned prior to this, Q1, Q2, and 26, we expected to see some uncertainty here due to macroeconomics in general in those two sectors, the auto sector, specifically the EV and the portable electronics. But other than that, everything else, we really see some growth from high single digits to mid-single digits Got it.

Daniel Moore | Analyst, CJS Securities

Very helpful, Ali. And then as a follow-up, you know, you talked about data centers. Just elaborate on key applications there, presumably, you know, managing heat. You know, and you mentioned, I think, one new opportunity potentially in 2026. Can you give a little bit more color there? That would be really helpful.

Thank you. Ali Alhaj | Interim President and CEO

Yeah, as mentioned in the earlier remarks, this became our focus over the last, I would say, two to three quarters, and we're going to continue this effort. We believe we have a very strong opportunity coming up in the thermal management side. Also in the signal integrity technology, we're working on some opportunities there. Both of these, we really see strong momentum. We're working with Brand name OEMs, we cannot unfortunately give you more details on this except to say, you know, larger brand name OEMs actively qualifying these technologies. And we anticipate to be able to share more information and more details hopefully later on in 2026 with revenue impact sometimes in 27, maybe even in 26.

Laura Russell | Senior Vice President and CFO

I think the other thing we could add to that, Dan, is there is some smaller revenues for other applications in that segment, in that space. I think Ali may have previously mentioned that we've already captured a design more on the EMS side from a technology perspective that sells directly into data sensors from an application perspective.

Ali Alhaj | Interim President and CEO

Yeah, that's growing. That's really growing nicely revenue-wise. It's still smaller pieces of the pie, but we, you know, again, I think it's not as much. The impact is that newer technologies will be a lot more significant than the current business in this field.

Daniel Moore | Analyst, CJS Securities

I'll follow up and circle back with the follow-ups.

Thank you. Kevin | Conference Operator

Thank you. Next question is coming from Craig Ellis from B-Riley Securities. Your line is now live.

Craig Ellis | Analyst, B. Riley Securities

Yeah, thanks for taking the question. And Ali and Laura, congratulations on getting nice COGS and cost and working capital execution in the business. Nice to see. I wanted to follow up with some of Daniel's questions regarding your number one priority for this year, Ali, improving multi-year growth. So data center makes a lot of sense given the capabilities the company has and and the way voltages are rocketing higher there. And so it would seem that you'd have a lot you could do. My question is broader than data center and looking at what your ambitions are beyond that sleeve of industrial with the portfolio this year. Could you just talk about any specific initiatives that have been in play the last few quarters that you would expect to convert either to new design wins this year, new opportunities this year, and beyond data center, when would we see the revenue benefit of those initiatives?

Ali Alhaj | Interim President and CEO

That's a loaded question, but we'll try to answer it as much as we can to the extent of our ability here. I think the growth target is really across the board for all business segments. It's not just data center or one technology versus the other. We have initiated here certain targets, identified certain opportunities in certain end markets where we're going after both in the EMS and the AS side of the businesses. We realized some wins with existing customers, so we're expanding some market share there, especially on the EMS side. Some of the businesses with the current technologies will grow as the end markets continue to grow, whether it's automotive in the ADAS sector, for example. The adoption of some of those applications will continue to grow that business. But we also started sometime last year development in a newer industry. technologies that's really not a me-too type product for applications like the newer battery technology for EV and renewables, which will help us generate not just additional revenue, but really penetrate in the market in applications that are not there today that will help us grow that business in the double-digit rate type. On the automotive side, we're also trying to go directly engage with OEMs. So we're designing ourselves in with some of these products directly with OEMs. Obviously, working with our partners, the PCs, the converters, and some of the module makers to make sure we're designed in in conjunction with them. We think this type of approach to the market is going to help us expand and go the top line a lot faster rate than we have done in the past.

Craig Ellis | Analyst, B. Riley Securities

That sounds good. My follow-up question was on another 2026 priority and the ambition for profitability improvement. And the question is with significant momentum in this area given what I think was 30 million in initiatives that's largely been executed and then the 13 million I believe of ceramic related initiatives in 2026 with, I think that's starting to benefit Chris March in the back half of the year. Are there new additional initiatives that you're planning for 26 or is it executing on those two objectives and realizing and holding those gains?

Thank you. Laura Russell | Senior Vice President and CFO

So let me start with that, Craig. So you're largely correct in saying, you know, the initiatives we've already announced are already in flight and much of those savings are already seeing the fall through to the P&L. Where we're not fully concluded is, as you correctly stated, with the ceramic restructuring activity specific to operations in Germany as we respond to the demands that we're seeing for that business. We will see the benefit of that in the second half of 2026. And as I said in my prepared comments, the benefits we still anticipate to be in the range of 13 million annually and the cost of that programme still forecast in the range of what we committed as part of the restructuring. Now, what I would say is, you know, if I think about the business and the opportunity to optimise our financial performance, We've undertaken substantial restructuring to position ourselves positively, but really what's going to drive a substantial transition and shift is what Ali's talking about with regards to our top line expansions and the innovation and the technologies that are really going to allow us to differentiate ourselves from a market perspective and continue to command pricing in accordance to that. And what will complement that will be our continual management of the business, which is supported by the operating structure that's been implemented and the monthly reviews that ensure that we're very nimble in responding to current demand and capacity requirements and investing in accordance to that. I think just finally to round that out, we did mention the restructuring, the impact that had on our operating expense. You saw that that dropped from 210 million in 2024 to 194 and 25. That restructuring we're largely through, but we'll continue to monitor our levels of investment in accordance with the opportunities as we see them present themselves.

Craig Ellis | Analyst, B. Riley Securities

That's really helpful, Laura. And if I can sneak in one related follow-up. Ollie, is there anything you can share with us on how significantly you'll be able to load up the new ceramic facility in China as it gets going in the back half of the year?

Ali Alhaj | Interim President and CEO

Yeah, I mean, Craig, you know, we're still, to be honest, disappointed that it's going slower than we expected it to. But it is moving. I think the customers are still there and they're interested in buying from the China facility and move some of the products or source the China facility. What we're trying to do here is balance between aggressively going after the market and therefore we don't want to pay the price again. Let's put it this way. So we're trying to be diligent and be careful about not participating in a price erosion type for the market. We still anticipate the plans to be there. So our plans did not change. It just shifted from a time perspective. So we still see growth in that facility in Q2, Q3, Q4, but again, really slower than we expected. We expected to see better situation with M in Q1.

We're not there yet. Craig Ellis | Analyst, B. Riley Securities

I understand. Thanks, Heli. Thanks, Laura.

Good luck. Thank you. Ali Alhaj | Interim President and CEO

Thank you.

Kevin | Conference Operator

Thank you. As a reminder, that's star one to be placed into question Q. Our next question is coming from David Silver from Freedom Capital Markets. Your line is now live.

David Silver | Analyst, Freedom Capital Markets

Yeah. Hi. Thank you. I'm going to go back, and I'm hoping you can just level set me on the pace and the total of the cost savings. So my belief was, I guess, at the end of this year, you were expecting a run rate of 32%. And then there was the $13 million additional that was cited related to Germany. And then I believe you're using a number of $30 million, and I'm just trying to kind of separate what was, you know, mentioned last quarter versus what might be additional, you know, as of December 31st.

Thank you. Laura Russell | Senior Vice President and CFO

No problem. Let me start, David, and see if I can address your question. So you're right insofar as saying $25 million was the run rate for the initiative that we had announced previously. What you're also right in saying is the full year benefit of those initiatives is $32 million. But the difference between that $25 and the $32 is is the full year benefit, some of which we haven't yet seen realized in 2025. So I've got an incremental 7 million that will hit the P&L in 2026 for those initiatives that deliver 25 million of savings in 2025. In addition to that, the ceramic restructuring in Germany that we announced in the middle of last year hasn't yet delivered savings to the P&L. We're in the middle of that process. And as a result of that, we won't see the savings materialize into the financials for that until the second half of 26. So that 13 million we've not yet seen. And in addition, we've got another 7 million that hasn't yet hit the P&L. But 25 million is there. And I would share with you that about 70% of the 25 we did realize in 2025. The savings for that is in the expense category with the residual being in our gross margin and our COG.

David Silver | Analyst, Freedom Capital Markets

Okay, thank you for that detail. Much appreciated. So then my next question, which one did I want to ask here? Sorry. Okay. I wanted to go back to the press release, and in particular, Ali, you're quoted as saying, you know, you have an enhanced innovation strategy. So, you know, you have talked quite a bit about different business opportunities and qualification processes, but I'm just kind of scratching my head and I'm wondering when you say an enhanced innovation strategy, does that refer to, you know, an enlarged selling effort? Does that refer to increased R&D? I mean, what, you know, what qualitatively, what's included in your comment about an enhanced innovation strategy, you know, in service of improving long-term growth prospects?

Thank you. Ali Alhaj | Interim President and CEO

I think it's both. It's really enhanced selling process, but more importantly, we've identified and the team is working on distinct three different projects that we will differentiate it to the business. There really be differentiation from what the market today has, what's available on the market today, and those products, we believe they are unique. that will solve problems that exist today and for future issues that's facing, whether it's in data center applications or in communication applications or EV battery applications and new technologies. So we've identified those areas and we're developing products as we speak. Some of these products are in qualification process, as mentioned, for these applications. These applications, as you know, they're very high growth applications. And for us today, in some cases, we're not really participating in any material type way. We think those will be differentiated so that business going forward will allow us to have the growth rate that we want to do within Rogers. That's what I meant by enhanced. It is very specific, targeted for certain applications, and also differentiating. It's not a me-type technology, it's a me-type product. And within our capabilities and our expertise.

David Silver | Analyst, Freedom Capital Markets

Okay. Thank you for that. And then last one for me. This is kind of a question related to tariffs, I guess, but more second or third order effects. So, in other words, last April, you know, your company had to respond, you know, in short order to a one wave of tariff announcements. You know, this time it's seemingly from our administration here. It's more targeted. But on the other hand, we're also hearing stories about, you know, offshore partners deciding to trade with each other as opposed to maybe, you know, a U.S.-based supplier that might, you know, encounter some incremental difficulties. From your perspective, has there been any signs that your key OEM customers in offshore locations or headquartered in offshore locations, is there any change in the way you're doing business with them or are they diversifying away or adding non-US based suppliers in certain cases? In other words, How is the environment for doing business now, you know, with the lingering or more targeted, you know, tariff-related announcements? How does that affect your day-to-day, you know, strategies and your ability to pursue new business?

Ali Alhaj | Interim President and CEO

I think that the fact that Rogers is a global company and having manufacturing facilities globally really kind of neutralize that issue completely. So we're able to respond to our customers, whether they're in Asia or North America or Europe, because we're locally manufacturing all their needs, or in most cases, all their needs. We have seen some OEMs who are trying to shift again to buying locally. And that's for us actually, it's been a benefit. And we anticipate that to continue to be beneficial for us because we'll be able to respond to these needs. Again, just because of the way we are today, we've got the global capabilities, local capabilities on a global basis. So we can supply Asia from Asia. We can supply North America from North America. And in Europe, we can supply most of the products from within Europe. And we were looking to enhance our capability in additional manufacturing in the European continent within the next 12 months or so.

David Silver | Analyst, Freedom Capital Markets

Very good.

Thank you very much. Kevin | Conference Operator

Thank you. As a reminder, that's star one to be placed in the question queue. A confirmation tone will indicate your line is in the question queue. One moment, please, while we poll for further questions. Once again, if you'd like to ask a question at this time, please press star one under telephone keypad. A confirmation tone will indicate your line is in the question queue. One moment, please, while we poll for further questions. Ladies and gentlemen, we've reached the end of our question and answer session, and that does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today. jsPDF 3.0.3 D:20260606090413-00'00'

NYSE:ROG Q3 2025 Earnings Call Transcript Generated on 6/6/2026 Operator: Good afternoon, and welcome to the Redwood Trust Third Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Caitlin Moritz, Redwood's Head Investor of Relations. Please go ahead, ma'am.

Caitlin Moritz | Head of Investor Relations

Thank you, Operator. Hello, everyone, and thank you for joining us today for Redwood's Third Quarter 2025 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer of Dash Robinson, President, and Brooke Carrillo, Chief Financial Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts, and assumptions, include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our third quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the contents of today's conference call contain time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today. And with that, I'll turn the call over to Chris for opening remarks.

Chris Abate | Chief Executive Officer

Thanks, Kate, and thank you, everyone, for joining us today. On our last earnings call, we announced the acceleration of our strategic transition to a more scalable, simplified operating model, one designed to capitalize on the transformative opportunities we see emerging for our business. We committed to proactively repositioning our balance sheet, freeing up capital from legacy assets, and redeploying it into our highly profitable operating platforms. We set a target of reducing our legacy exposure from 33% of our capital at July 30th to 20% by year end, and in support of this transition, repurchased common shares. We can look back now in the third quarter as one of our most productive to date. Across our businesses, we locked or originated nearly $7 billion of loans, a new quarterly record for Redwood. This was despite an otherwise subdued housing market where industry volumes are roughly flat quarter over quarter. Our production included a record $5.1 billion of loans locked at Sequoia, 1.2 billion of loans locked at Aspire, which has rapidly ascended to become a market-leading non-QM loan aggregator, and 521 million of loans funded at Corvest across residential investor products. Volume drivers for the quarter included record contributions from bank sellers and a host of new distribution partners that have enabled us to turn our capital quickly and speak for more production. In step with the growing opportunity across our mortgage banking platforms, We've continued to scale them profitably, generating a core segments EAD of 20 cents per share for the third quarter. We've now maintained mortgage banking segment ROEs above 20% for five consecutive quarters, while boosting capital allocated to these businesses by 80% over that time. Importantly, this growth hasn't come at the expense of efficiency. We continue to build out an AI infrastructure and core in-house capabilities, owning our data, models, and workflows, while leveraging AI-driven document intelligence to extract data at scale and accelerate turn times. We're also partnering with leading Silicon Valley tech firms to stay ahead of the curve. Our AI tools aren't just operational upgrades. We expect them to become strategic assets that will help us drive scale and manage risk as volumes reach new heights, just as they did this past quarter. On the heels of such a productive period, And in recognition of the ongoing success of our existing partnership, we announced today that we have expanded our relationship with CPP Investments by extending the investment period of our joint venture and significantly increasing our corporate secured borrowing facility to $400 million from $250 million. We look forward to building on this foundational momentum with CPP Investments and will now turn our attention to fundraising for our flagship Sequoia platform. where growth prospects underscore the opportunity for additional institutional capital. Turning to our legacy portfolio, we significantly reduced our capital allocated to this segment in the third quarter, with it now representing 25% of our total capital. The noise of the legacy transition continues to play a part in our consolidated results, which Dash and Brook will cover, contributing to a small decline in gap book value to $7.34 per share at September 30th. Book value also included the effect of our $0.18 per share dividend paid to stockholders and 5 million shares of stock repurchased during the quarter. Zooming out on the broader markets, we are closely watching developments across the credit landscape and U.S. economy. Recent bankruptcies affecting clients of several large banks underscore growing pressure in certain consumer asset-backed sectors. While these events may appear isolated, they echo earlier chapters of the credit cycle reminiscent of conditions that preceded the mortgage reforms implemented after the global financial crisis. By contrast, today's residential mortgage market benefits from more rigorous underwriting standards, enhanced transparency, and stronger data integrity, principles deeply embedded in Redwood's credit culture and capital markets practices. And as we continue to see strong growth in the private label securitization market, Our advocacy in Washington to make capital flows into securitization more efficient is bearing fruit. Amidst a very ambitious agenda, SEC Chair Atkins launched a concept release in late September on how to streamline non-agency RMBS disclosures, which we think has the potential to crowd significant new capital into the sector and deepen demand for the assets we create. As we progress through the final quarter of the year, we continue to capture market share in what has been a very subdued housing market. However, with mortgage rates on the decline and with the prospect of further monetary easing ahead, we're optimistic that the housing finance sector will once again resume strong growth in the year ahead. With that, I'll turn the call over to Dash to discuss our operating results in more detail.

Dash Robinson | President

Thank you, Chris. The third quarter witnessed our strongest operating performance in the company's history, with ample progress in further reallocating capital and to continue profitably scaling our core activities. To start, Sequoia lost $5.1 billion of loans in the third quarter, a 53% increase from Q2 and a record for the platform. Against the more muted market backdrop in which many other large players reported minimal to no production growth, our volumes with both bank and non-bank sellers grew by over 50%. We estimate that our seller network now covers approximately 80% of market share for jumbo production, up from 20% to 30% as recently as 2023. In step, our estimated jumbo market share is now 7%, up from 1% to 2% over the same time period. This deeper access must be complemented by crisp execution, a continued strength of our platform across a deepening set of products. Sequoia's third quarter activity was split between traditional 30-year fixed, hybrid arms, closed-end second liens, and a number of other products, underscoring our role as a one-stop provider of timely and flexible liquidity for our loan origination partners. Of note, 48% of our third quarter volumes were bank collateral, and 25% was tied to season loans, reflective of trends we have anticipated for some time, namely a resurgence in bank M&A activity and increased rigor within bank C-suites in evaluating the true return profile of funding long-duration mortgages with deposits, irrespective of where the final Basel endgame rules land. By design, our operating progress has been coupled with continued momentum and distribution. Year-to-date, we have distributed nearly $9 billion of collateral, tops in the market, across 13 securitizations and whole loan sales to a variety of partners, including $2.6 billion in the third quarter. This already eclipses full-year 2024 activity and, with demand for securitization still elevated, notwithstanding a modest recent backup and overall execution, We expect activity to continue apace heading into year M. Complementing Sequoia's growth is our emergent Aspire platform, whose expanded loan program we launched in January of this year. This business primarily focuses on loans for prime quality borrowers who require an alternative underwriting approach, including evaluation of personal bank statements or rental income tied to the property. Aspire's $1.2 billion of third quarter locks were nearly four times second quarter volume. The business closed the quarter with a record month, $550 million in September alone, profitably establishing a run rate we expect to build upon in the quarters ahead. The pipeline continues to reflect a focus on well-underwritten loans to high-quality borrowers, with third-quarter production carrying an average credit score of 749, an average LTV of 71%. Aspire's emergence as a top five aggregator of non-QM loans underscores both the institutional strength of our platform and sellers' growing preference to consolidate relationships as they expand their own product offerings. A key element of Aspire's business plan has already played out. Existing sellers are meaningfully broadening the range of products they deliver through the platform. As recently as 18 to 24 months ago, many of our core seller relationships were brokering out or otherwise not directly addressing the expanded credit market. which market observers estimate could be up 40% from a year ago and top $125 billion in size in 2025. The shift has been noticeable and bodes well for the expanded credit market overall and Aspire's growth prospects in particular. Sellers seeking seamless and one-stop solutions for their products can now come to Redwood for their entire suite of non-agency offerings. Concurrently, Aspire continues to make important inroads with relationships new to our platform. critical progress to grow the platform responsibly, diversifying our seller base, and thereby driving reliable margins. The platform grew its loan originator partner base by nearly 50% in the third quarter, with plans to continue growing further, including with several top originators, in the coming quarters. While Aspire's distribution thus far has been focused on whole loan sales, we are in process to expand our distribution efforts further through securitization and joint ventures, outlets where we have had success and other channels of our business. Our residential investor loan platform, Corvest, continued to evolve its production mix while achieving its highest quarterly volume since mid-2022. Notably, originations within Corvest are increasingly driven by smaller balanced products. Originations of residential transition loans, or RTLs, and DSCR comprise 40% of Q3 volume and are up 45% versus the same period last year. The smaller balance market remains a significant opportunity for Corvus, given we have been relatively under-penetrated in a space that continues to grow and remains in demand with our capital partners. The broader origination landscape for investor loans remains robust but uneven, as many platforms' competitive posture as always ebbs and flows in step with their access to capital. Depth of distribution remains a competitive advantage for Corvus, which has distributed nearly $1.5 billion of loans year-to-date, via joint ventures and whole-loan sales. Concurrent with our operating progress, we significantly reduced our exposure to legacy investments since the end of the second quarter. We sold our full re-performing loan portfolio, SLST, and approximately half of our third-party HEI investments at accretive levels versus our June 30th, 2025 marks, while also resolving or transferring a significant portion of our legacy bridge loans, including selling over half of the portfolio into a partnership structure capitalized with multi-year non-recourse borrowings with preferred and residual co-investments by a third party. Pro forma for these activities, legacy investments now represent approximately 25% of total capital, down from 33% at June 30th, 2025, with further reductions expected through year end, primarily through additional resolutions in the legacy bridge portfolio. I'll now turn the call over to Brooke to discuss our financial results.

Brooke Carrillo | Chief Financial Officer

Thank you, Dash. For the third quarter, we reported a GAAP net loss of $9.5 million, or $0.08 per share, compared to a loss of $100 million, or $0.76 per share in the second quarter. The GAAP loss primarily reflected transaction-related expenses associated with the resolution or transfer of approximately $600 million of legacy bridge assets and the ongoing net interest income drag from our legacy investments portfolio. Book value per common share was $7.35 at September 30th compared to $7.49 at June 30th, and our economic return on book value was 0.5%, including $0.06 per share of accretion from share repurchases. Total repurchase activity since June was 6.5 million shares, or 5% of our outstanding common shares. On a non-GAAP basis, Core Segments Earnings Available for Distribution, or Core Segments EAD, was $27 million, or $0.20 per share, representing a 17% return on equity. This compares to 18 cents per share in the second quarter and underscores the continued earnings strength of our three core segments, Sequoia Mortgage Banking, which currently includes our Aspire platform, Corvest Mortgage Banking, and Redwood Investments. Across our operating platforms, we've increased capital allocation by more than 80% since mid-2024, including a $160 million increase since the end of the second quarter. Combined GAAP return on equity for mortgage banking segments reached 28% in Q3, marking the fifth consecutive quarter returns exceeded 20%. At Sequoia Mortgage Banking, segment net income rose to $34 million, producing a 29% ROE compared to $22 million and a 19% ROE in the prior quarter. Total lock volume reached $6.3 billion, including $5.1 billion from Sequoia and $1.2 billion from Aspire. Gain on sale margins averaged 93 basis points at the high end of our long-term target range. Portabas Mortgage Banking generated $3.5 million of segment net income and a 30% EAD return on equity. Funding volume of $521 million, the highest since 2022, was up 14% year-over-year, supported by strong loan distribution and a shift in production mix towards term, DSCR, and smaller balance bridge products. Redwood Investments delivered segment net income of $10 million and a 10% EADROE. The modest decline in net income relative to the second quarter was attributable to paydowns and sales of third-party securities, partially offset by gains on retained investments as rates declined and spreads tightened. We deployed approximately $30 million of capital into asset source from our operating businesses and completed our fourth non-recourse financing trade of retained investments, reducing total securities repo balances to just $28 million, which is down 85% from Q3 2024. The investment portfolio saw steady to declining delinquencies across products, including 90-plus-day delinquencies on securitized bridge loans that now sit below 3%, and where we continue to see healthy repayment velocity. Turning to legacy investments, the segment reported a $22 million net loss driven by the transaction costs and continued net interest margin pressure. On the $1 billion of assets sold or transferred this quarter, we recorded an approximate $0.05 EAD loss equating to negative 15% return versus returns exceeding 20% across our operating businesses where the $150 million of capital generated from resolution activity will be redeployed. Total operating expenses decreased 3% or $1.7 million from the second quarter driven by lower portfolio management costs. This is partially offset by higher G&A related to personnel and other expenses supporting the growth of our newer platforms. Across all operating segments, we saw continued gains in operating efficiency with notable improvements in cost per loan, reflecting the benefits of record quarter origination volumes this quarter. Turning to our balance sheet and capital structure, our overall recourse leverage increased from 3.2 times to 4 times, driven by warehouse utilization tied to record mortgage banking activity. Excluding recourse leverage from our mortgage banking businesses, Our combined corporate and portfolio leverage ratio declined from 1.9 to 1.6 times, consistent with the ongoing repositioning of the balance sheet towards our operating platforms. The 2.3 turns of recourse leverage associated with the warehouse lines remain well supported by highly liquid jumbo loans, where we return capital quickly. Recourse debt balances increased by $771 million from the second quarter, reflecting record funding volume of $5.1 billion, and two billion of which has already been sold or securitized month to date. Subsequent to quarter end, we retired our 2025 convertible notes and as announced today, expanded our revolving credit facility by 150 million to 400 million in total capacity, extending the maturity to September of 2028. These actions strengthen our liquidity, simplify our debt profile, and increase flexibility to support continued growth in our core platform. In addition, Our company-wide cost of funds declined approximately 40 basis points from the prior quarter, driven both by lower SOFR rates and narrow net spreads across our aggregate facilities. To close, Redwood is executing with focus and consistency. We are simplifying our business, scaling our core platforms, and redeploying capital into higher return opportunities. The progress this quarter underscores the strength of our operating model and the earnings potential of our core segments, repositioning Redwood to deliver sustainable profitability and and long-term value for our shareholders. And with that, I'll turn the call back over to the operator for questions.

Operator

Thank you. We will now be conducting a question and answer session where selected analysts are invited to ask a question. Our first question comes from Bose George from KBW. You may proceed with your question.

Bose George | Analyst, KBW

Hey, everyone. Good afternoon. Actually, first I wanted to ask about the EAD sort of longer-term earnings power. You know, you noted you largely expect the legacy assets to be rolled off by 2026. And so, when you look at the earnings power after that, should we look at, you know, the non-GAAP core number this quarter was 20 cents, you know, plus the deployment of all the capital that comes out of that's still in the legacy piece? Is that kind of the way to bridge to sort of the earnings power after?

Chris Abate | Chief Executive Officer

Hey, Bose. I can start on that one. The short answer is yes. I think as the legacy segment winds down, our consolidated earnings will start to look a lot closer to what we're generating in EAD today, in core EAD. So as you said, that was 20 cents exceeded the dividend. I think the redeployment is going to be a question of how quickly we can wind that down, but certainly in The third quarter, we turboed it, so to speak. And I think Brooke mentioned we'd freed up $150 million of capital for reinvestment. So that was capital that was generating a negative return on a consolidated basis and now can be redeployed into the mortgage banking segments, which I think we stated have generated greater than 20% ROEs for the past four or five quarters.

Bose George | Analyst, KBW

Okay. But just in terms of the $0.20, that basically just strips out the legacy piece. But as you redeploy that, there'll be essentially whatever, 20% return on that piece, right? So that's sort of incremental to the 20 cents. Is that fair?

Brooke Carrillo | Chief Financial Officer

Yeah, that's right. We still have $400 million of capital associated with our legacy segment. So as that capital is freed up, absolutely that will be redeployed into mortgage banking.

Bose George | Analyst, KBW

Okay, great. And then just one other quick one. The ROE on the Redwood investments, the non-GAAP EAD ROE looked like it was last quarter, I think it was 16. This quarter, it looked like it was 10. Was that right? So can you just discuss what drove that?

Brooke Carrillo | Chief Financial Officer

Yes, I'm happy to. So a lot of it came from just lower NII from our investment portfolio. We actually saw our net interest income up about a million dollars overall, and you're really starting to see kind of the benefit of our mix shift here where our capital is being redeployed from the portfolio into mortgage banking. So I think our mortgage banking NII was about $5 million. This was really from sales primarily and payoffs. We had about almost $450 million of payoffs in our bridge and term loans across our consolidated assets. So that was... Okay, that makes sense.

Unknown Analyst

Thank you.

Operator

Our next question comes from Rick Shane from JP Morgan. You may proceed with your question.

Rick Shane | Analyst, JP Morgan

Hey, everybody. Thanks for taking my questions. I have to queue in a little faster because Bo has asked most of what I wanted to discuss. Look, basically, if you sort of look at the timeline in terms of what you're describing for releasing capital from the legacy investment portfolio, it's about $100 million a quarter that's going to run over the next four or five quarters. When we look at the three remaining core businesses, I'm curious if which of those businesses will actually generate additional net income with additional capital? For example, does the mortgage banking business, is it capital constrained right now, or is it a market share issue? Um, and that additional cap, it will be about market share growing regardless of capital or, and so how should we think about that actual capital being allocated to the three different businesses?

Chris Abate | Chief Executive Officer

Hey, Rick. I'll take a stab at this one to start. You know, I would say we've shown, I think we said we've grown capital to that sector 80% or so over the past four or five quarters. So effectively what that means is every dollar that we've been able to free up, we've deployed. And I think that dynamic will continue into the foreseeable future. So as As we free up more capital, we have uses for it fairly quickly in mortgage banking across the three platforms, candidly. We have record quarter in Sequoia. We mentioned that Aspire grew 4x quarter over quarter. So when you think about those growth rates, the need for capital is going to continue to be there. It's a big reason why we continued, extended our relationship with CPP Investments which is a great partnership for us. And so I think we're pretty excited about our ability to deploy capital in the core businesses here over the next year or so.

Rick Shane | Analyst, JP Morgan

Got it. Okay. That's helpful, Chris. And when we think about it, and, you know, over the last two quarters, the math, the ROE math for Sequoia is bookended 19% to 28% ROE. Even on the low end, that's obviously very attractive and supports the dividend. I am curious, when you think about what drove the expansion and how we think about that going forward, is that ROE expansion a function of scale or is it more a function of shape of the curve and a particularly favorable environment in terms of margin in that business?

Dash Robinson | President

Hey, Rick. It's Dash. Great question. It's probably a little bit of all of the above. You know, we've always strived to be as capital efficient in that business as possible. You know, loans on average are coming on and leaving the balance sheet within a month. You know, we could probably continue to do that more efficiently. We've done now 13 securitizations already year to date, which is obviously, you know, above one per month. So that's very, very helpful. So capital efficiency is part of it. You know, our operating efficiency just in terms of just expenses to revenues continue to improve. Those improve notably from, you know, quarter on quarter. So that's obviously helpful from just an overall, you know, expense ratio perspective. The other big emerging story, which we talked about, is just the synergies between Aspire and Sequoia as well. You know, we're just scratching the surface, you know, with an Aspire in terms of our market share. You know, our implied market share annualized in that business is in Q3 is probably like 3% or so if you extrapolate our volumes versus, you know, full year volume. So you asked, you know, about market share, and I think for different reasons within Sequoia and Aspire, you know, those businesses are primed to, you know, continue to grow wallet share. Aspire in particular onboarding new sellers and penetrating existing Sequoia sellers that, as I mentioned, are adding to their product suite. That's a very big deal. You know, we talked a lot about bank posture, just the percentage of bank collateral that Sequoia did in the third quarter was close to 50%. You know, that's very meaningful, particularly when you think about what's going on in banks, C-suites, dispositions, rationalization of ROEs. So the runway is really long to continue to grow share, notwithstanding, you know, the size of the pie with rates, et cetera. And so I think when you put all of that together, you know, those can continue to drive ROEs, you know, hopefully to the wider end of the bookend that you talked about.

Got it. Unknown Analyst

Thank you guys very much.

Operator

Our next question comes from Doug Harder with UBS. You may proceed with your question.

Doug Harder | Analyst, UBS

Thanks. I guess sticking with returns, how do you think about the total size of the corporate expense as you look to maximize kind of the overall ROE And then also, how do you think about what the third-party investment ROE can be as you look to kind of allow the high mortgage banking ROE to fall to the bottom line as much as possible?

Brooke Carrillo | Chief Financial Officer

Yeah, Doug, I'm happy to take that. You know, I think it's really important not to view our expense base just in the context kind of of our capital base. You know, we've talked say a lot about our three scaled but still rapidly growing operating businesses. And when we think about who we're competing and what we're producing there, on the jumbo side, we've kind of been neck and neck with the biggest bank dealer desk of the top issuer of prime jumbo loans. And we're running that business on a fairly lean operating expense base. Aspire, as Dash just mentioned, just moved quickly into a top five non-QM aggregator. Corvus continues to kind of lead in the investment and small business lending. And meanwhile, for several years, we've really chosen not to raise dilutive capital and instead focus on returning capital shareholders through buybacks. So, you know, our operating expenses, it might look elevated as a percentage of equity, but we think the kind of right way to look at it is the amount of operating leverage and productivity that we have. have and manage on our platform today. You know, we basically manage 20 billion of assets with about 300 people, and so we remain highly focused on our expense structure, but we also believe that the real path to earnings creation is coming from, you know, further scaling our model and addressing our legacy capital rather than shrinking our infrastructure. So I think the third-party focus will remain, you know, fairly limited. We kind of talked a lot about our strategic pivot last quarter to focusing on our operating businesses that are franchise. I think we're, within third party, we're focused on assets that meet our cost of capital today. And obviously, you know, with where we were marked, that helped move assets that we thought were suboptimal from that perspective.

Unknown Analyst

Great. Thank you, Brooke.

Operator

Thank you. Our next question comes from Don Fandetti with Wells Fargo. You may proceed with your question.

Don Fandetti | Analyst, Wells Fargo

Yes, on the Aspire non-QM, can you talk a little bit about how you see the growth of that underlying market, you know, whether or not, you know, the GSE footprint shrinking could potentially increase that?

Dash Robinson | President

Thanks, Don, for the question. I think setting aside the GSEs for just a second, I think we see that market just organically increasing. you know, having significant growth runway. If you look at just the employment mix in this country, there's more and more consumers, you know, who earn non-traditional income away from W-2. I think that's, you know, that's a very big deal. The other piece is awareness. I think particularly with, you know, more originators, particularly larger IMBs, you know, involved in non-QM originations, I think more of the eligible consumer population that you know, can take out some of these loans is being reached, frankly, now that more, you know, originators are involved in this space. Technology, particularly AI, that's a very, very big deal in terms of managing cost to produce, you know, in this space. If you think back to when, like, bank statement loans, you know, really emerged 10 or 12 years ago, very manual, you know, took quite a while for an underwriter to responsibly get through underwriting one of those loans. That's significantly shorter now, and I think we're probably, you know, just at the tip of the iceberg in a good way in terms of, you know, how those efficiencies can come to bear. There's a lot to be, you know, careful about in terms of, you know, how those underwriting processes evolve. That's something we're very focused on, but that's also a big deal. And on DSCR, you know, just for context, about 40% of Aspire's volume was DSCR, which is sort of smaller balance, you know, rental loans. You know, rentership in this country continues to grow. I think rentership was up 2%, 3% annualized last quarter. you know, when you think about just continued challenges with housing affordability, et cetera. And so I just think organically, you know, Aspire's TAM is going to continue to grow for, you know, for good reasons. You know, as it relates to the GSE footprint, you know, these are not products that they really do right now. Far be it for me to fully prognosticate around, you know, how they think about the footprint going forward. We need to be ready for anything. Obviously, an overall footprint reduction with the GSEs on low limits would be a huge boon for all of our businesses, probably most notably Sequoia. But even away from what's going on in D.C., we just think the Aspire TAM is growing for good reasons.

Unknown Analyst

Thank you.

Operator

Our next question comes from Steve Delaney with JMP Securities. You may proceed with your question.

Steve Delaney | Analyst, JMP Securities

Thanks. Good afternoon, everyone. So I want to ask a question about rates, which is probably – after Chairman Powell didn't do a very good job at his little speech earlier today. So I guess we don't know where they're going. But what I want to get at is looking at your securitized prime jumbo portfolio and the WAC, kind of the coupons within those seasoned loans versus what you're quoting now on new prime jumbo loans. Help us get a picture maybe of what that dynamic looks like Are you, do you think your book is going to extend or could it accelerate in terms of CPR, you know, picking up? And just curious how you're going to approach that and got a follow-up related to that, if you would just kind of comment on where you stand with respect to coupon risk.

Chris Abate | Chief Executive Officer

Sure. Steve, good to hear your voice. I will take a shot here. You know, I think a third or so of our volume this quarter was refi, refi related. So, you know, a lot of, you know, most homeowners are sort of out of the money. And, you know, I think that that's reflected in our book as well. So I'm not sure we're going to see much on the back of Powell's remarks today, even though, of course, you know, the market's going to likely sell off in the near term. But by and large, we're growing the portfolio at a rate where it's trending towards current coupon. And to the extent that continues, the extent we're on a pace of more than a deal a month and we're retaining subs and likely IO, that puts us in a good position to continue to move the coupon up. And, you know, over time, you know, with a combination of IO, you know, we've got a good balance in the book today. So I'm not sure it's going to be overly meaningful for us because, again, you know, our business today is primarily the moving business. It's mortgage banking and, you know, it's less and less portfolio investing.

Steve Delaney | Analyst, JMP Securities

curious, what is the current, I haven't been in the market lately, but what is the sort of current range for Prime Jumbo, 30-year fix, Prime Jumbo loans?

Chris Abate | Chief Executive Officer

We were around six and a quarter this week. You know, again, we'll see what happens on the back of Powell's remarks. You know, Aspire is maybe 100 basis points higher than that. So the market has come down meaningfully and Again, we're starting to see more refi business in our pipeline, but that's been largely absent for the last three years or so. So to the extent we do see more easing, QT is officially done. So heading into 2026, if that could become a more meaningful component of our business, that just adds to the opportunity.

Steve Delaney | Analyst, JMP Securities

And the refi pickup that you're hearing here recently, is that kind of HPA driven where people have built up some nice equity and they're looking at that? I know that's probably an aspect of the Aspire program, but do you see that even in Sequoia where the people are really coming in and they want to do a little bit of a cash out, whether it's education or whatever the issues are?

Chris Abate | Chief Executive Officer

We're certainly seeing some of that. We have those products. I'd also say that just given the capacity in the origination system, people are getting calls sooner. So the old adage that you had to be 50, 75, 100 basis points in the money to refi, I think the combination of capacity and technology has really shortened that up where we're seeing some homeowners refiing. perhaps 25, 35 basis points in the money. I think that presents an opportunity for us. Again, technology is a big part of that. We talked about AI and just processing loans faster, getting approvals faster. Those are real upside opportunities for us as we build out the infrastructure.

Steve Delaney | Analyst, JMP Securities

I appreciate the comments. The mortgage business is changing for sure, but it sounds like you guys are kind of riding the wave and right on top of what's going on.

Unknown Analyst

So thanks for the feedback.

Thank you. Operator

Our next question comes from Eric Hagan with BTIG.

Unknown Analyst

You may proceed with your question.

Eric Hagan | Analyst, BTIG

Thanks, guys. I appreciate you. You know, really strong quarter for jumbo volume. We're looking out now, like, you know, call it a year and looking at your capital needs. And so if you stay on this pace, what do you think will be the amount of Jumbo volume that you securitize versus sell to third parties over the next year?

Chris Abate | Chief Executive Officer

Well, right now, you know, securitization has been, you know, a great option for us. I think we have the most liquid shelf in the sector, so our financing costs are the lowest. You know, in Jumbo, you know, the subordinates that we retain aren't overly thick, so the actual, you know, investment size isn't what it is at Aspire or certainly Corvest. So that business, we have the potential to grow through securitization for an extended period without necessarily needing outside capital per se. I would say, though, we've been able to invest every dollar of capital that we've put in that business. And I know that we can do more. So I think I mentioned fundraising for Sequoia and my prepared remarks, and we're going to be very focused on that over the next few months. We also, I think bank business was half of our volume in Q3. Again, that's way beyond where it's ever been, and I think it's reflective of why we're able to grow market share so significantly in a market that's essentially flat from a housing origination activity perspective. So that's another area, partnering with banks. So we've got great options in Sequoia, and to the extent we can grow Aspire and Corvus as well, I think the mortgage banking piece of the business has been pretty exciting for us.

Dash Robinson | President

Just one thing I'd add to that, Eric, sorry, is we talked a little bit about the upsides of the CPP secured facility, which I think is important to return to for a sec in terms of your question, because not only did we upsize that facility by $150 million of capacity, but basically the borrowing-based eligibility is moving in the direction you're indicating, which is, you know, more ability for us to use that facility to finance our operating activities and mortgage banking and not just hard assets. And, you know, the upsize is a big deal, but in terms of, you know, how we're able to use that capital going forward, that's pretty important too.

Eric Hagan | Analyst, BTIG

Yeah, that's helpful. That's helpful. What are you guys looking at right now to give you confidence or some visibility that the credit performance in the BPL portfolio has basically been stabilized at this point?

Dash Robinson | President

I think it continues to be, you know, a vintage issue. We've talked about that for quite a while. I think the issues are certainly the issues that have taken longer to – you know, deal with or, you know, have resulted in higher severities, you know, are still very much limited to that really first half 2022 vintage. You know, as Brooke articulated in her remarks, our securitized bridge portfolio, which is basically the last three years of production, net of prepays is, you know, now below 3%, 90 plus. That's a good number. We're seeing prepay velocity pick up. And if you look at the loss mid within those portfolios, we've seen You know, delinquencies, you know, come but be resolved efficiently and in many cases with little to no severity, which is a function of, you know, our pivot over the past few years to smaller balance, more single-family focused collateral. And so, you know, Eric, as you know, that business is not a no-loss business. But if you look at the composition of what we've been originating, I think multifamily was like 1% of our overall production last quarter. You're seeing it in just the overall roll rates, but also the efficiency of being able to resolve whatever does go delinquent in the last two, three years of production.

Brooke Carrillo | Chief Financial Officer

One thing I would just add to Dash's comment is I mentioned the amount of paydowns we had in the quarter. $280 million or so of that was bridge. That includes about $67 million of REO and some of our special assets. We are, I think, not only seeing the the repayment velocity in performing assets, but also moving that legacy book as well.

Unknown Analyst

Thanks, guys.

I appreciate it. Operator

This now concludes our question and answer session. I would like to turn the floor back over to Caitlin Moritz for closing comments.

Caitlin Moritz | Head of Investor Relations

Thank you, everyone, for joining today. We appreciate the ongoing engagement and sponsorship. If you haven't already, we encourage you also to check out our earnings materials, including the Redwood Review and Shareholder Letter on our website. We're always here to answer questions if you have any, and thank you, and have a good rest of your evening.

Operator

Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. Please disconnect your lines and have a wonderful day. jsPDF 3.0.3 D:20260606090415-00'00'