KN - Earnings call transcript Q3 2021

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Operator

Good afternoon, and welcome to the Q3 2021 Knowles Corporation Earnings Conference Call. My name is Emma, and I’ll be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session [Operator Instructions]. with Mike is Knapp. here of Vice said, Relations, Investor that opening Knowles' remarks President With Please ahead. go

Mike Knapp

Thanks, Emma, me and and President call. today I and welcome Jeffrey CEO, to our Mike are our and QX and Knapp CFO. John presenting Senior our with Niew, on Anderson, call am the President XXXX Vice earnings

provisions securities Our will include purposes and which Knowles, for statements call remarks for plans federal today constitute the of under Harbor Safe prospects laws. about future applicable forward-looking expectations,

Report in expenses statements Annual include number the risks SEC and and release. any periodic not statements about and investors Forward-looking materially such the this that call year XXXX, this comments the differ current filings, in the law. trends for XX, made including, uncertainties All a but SEC, to to, uncertainties from required as the demand December will Knowles and urges to anticipated to products, expectations. could review in for results company limited company's cause of the call involve statements, from and the company of risks duty and company's Form actual ended of update today's sales, as earnings on with are identified by profits, in and filed fiscal reports date forward-looking XX-K disclaims time-to-time except uncertainties risks The

GAAP be SEC, details can our otherwise references we be over knowles.com me our including a With in the current most provide the Reg financial to on at some pursuant operations found who X-K on our filed in G, any that, today's All website. non-GAAP comparable to found basis made results. indicated. can let the the addition, on webcast to report on will be selected today call non-GAAP this referenced slides, section release In IR our Jeff, in our directly continuing which will measures posted financial press reconciliation measures. call of Also, and on information website available turn have at with Form Jeff? unless call during

Jeffrey Niew

of Thanks, Mike today. to joining and us thanks you for all

For X% million by In audio up demand above range, earnings our year $XXX Gross from and ago of of strong driven improved completed device guidance, we market XX% sales audio, up microphone as high-end QX, revenue was above was demand. revenue IoT. $X.XX again high-end and and driven markets serve, near from sales segments. range guidance ago period, expectations. and demand in in XX.X% a our XX% of ago across our a QX, acquisition we delivered across driven Precision record end the by of MEMS period, margins from precision reported increased health of our a midpoint per year share and revenues broad the the our we on hearing QX. an up And year strong improved grew, period, primarily a by device

to $XX delivered and quarter the gross increase markets, of growing in flow. end and revenue Overall, benefit investment strong also cash operations products demonstrates a earnings that from strong of our of differentiated higher cash We delivering set across diverse million. margins another driving

market end year-over-year Health Hearing audio, we now trends in In broad are segments. detailing experiencing strong demand. of constraints. some supply we sales seeing each improvement from increased year also ago despite the spend Let period sales, end time MEMS me one business microphone the by in on our saw the markets based

to with technology recently believe make mild from we forward, access the hearing over-the-counter FDA look hearing to of improve for proposed life. we rules have loss quality easier it aid, will if to on people As adopted,

come. channel this over out to hearing our years the in new growth to bolster expect We

and market increasing are true to We our traditional markets. for aid capacity the our wireless over-the-counter and the hearing opportunities service

Moving from QX and on as industrial, with in improved significantly electric reached defense gross levels demand margins, precision improvement. to strong medtech, year-over-year devices, record vehicle again sales markets drove

beginning that in in mission-critical began system in solid develop results. rely portion a as our We're on customer as Asia North high MRI see broadening which of also reliability and to see solutions to filters, our products platforms is to base applications performance for drove solutions. yielding for and devices the high high In continue product Europe RF and voltage We continue capacitors our the improved production. significant America year-over-year strong and In radar communications from defense filters, performance to a machines. capacitors, market customers, advanced Europe, for high our of demand medtech go growth, to used our EV demand implantable

to also And wave secured beginning small repeater are in a of millimeter number We equipment. opportunities XG we new see orders design in prototype cells several telecom. for

For and the confidence a China, detail. guide we currently lead in quarter, growth of PD greater revenue this year, times some precision short-term by power headlines, than capacity as growth organic will John which the is of revenue consecutive the bulk well more constraints moment, third QX giving of wide products uncertainty. the as lingering we grow the number But the can driven by and recently, In being bookings with that disruptions results recently initiatives. issues by a record more across on have our discuss been array saw device COVID and in being XX% a include the held semiconductors, in QX back in extended

value margin continues growing in several dividend has strategy markets products the operating and income investment, today, and flows. to cash expand as that For years, past is to focus R&D solutions. been gross paying our increased our driving This capacity our differentiated for expansions acquisitions

to more dissipate, start headwinds to these As financial expect our results. on the our strategy of we pronounced impact be even

I'll to diverse solutions John, leadership rest of has markets and With us for to fourth team end that, it our the over on expand the across guidance the high provide three a the set markets results well and positions quarter. our beyond. delivered quarters serve strategy financial believe turn to year. of this far our XXXX John? for I deliver strong and Our to we growing so positions value

John Anderson

result Thanks, reported microphones of $XX driven in hearing revenues across higher growth an as from Audio MEMS and We stronger non-mobile organic third the XX% XX%, increased in delivered of and of segments. for period, million by devices the were demand million of year-over-year mobile million acquisition markets, Jeff. precision revenues shipments XXXX. and device sales. record and end completed $XXX aid a quarter $XXX of the of second Precision X% up audio to revenues up ago year both XX% due up quarter

reserve XXX by were in gross our of expense. $X basis and points, year range driven profit basis due margins inventory ago by devices than partially our and gains, offset the expense offset and an were in precision more of range, more favorable R&D higher improved were period, slightly improved $XX the higher to the a compensation line lower metals million, up levels margins was $XX than segment, XXX quarter higher points near precious productivity same gains, XX.X%, Audio prior capacity legal segment than guidance mix. new customer but up cost. factory points utilization, year Third acquisition, the factory high-end gross the by the utilization, productivity partially ago. more margins a due year gross expected and up quarter from hires. lower incentive In acquisition, of timing versus period SG&A by from favorable million, guidance the adjustments and million product driven prior with expenses costs primarily basis XXX than and year, to an

up For information a be a press also $X.XX by the guidance EBIT above margin at results detailed improved gross the EPS on GAAP year is was X today's reconciliation the the of ago, in driven the website from quarter, of than high-end higher leverage favorable and financial year. our profit end more and prior our margins, period XX.X% tables above of knowles.com. range, the was up from $X.XX, operating found non-GAAP release, and same Further including can guidance FX points range our percentage to of impacts. provided and adjusted high

and of at $XXX $XX equivalents expected I'll was the of cash above $XX net quarter. by guidance was due Capital than in working operations to the high-end in flow. capital. and totaled quarter balance million, Cash end generated the million our Now Cash our sheet lower to turn spending EBITDA the QX. and cash higher million

future, Given our position, flow next to which existing the month cash principal settle will convertible cash. expectations will generate we we free notes that continue amount the significant the of in mature in and cash our

product completed from the midpoint Moving partially between ago. down $XXX company offset capacity the gross mix segment by to to we same year for customer expected the up X% from chain quarter higher basis estimate than utilization, is end period, period be shipments, growth and launches and higher Revenue of the QX acquisition is We prior supply year company in the second year. industrial total defense, total be product resulting timing XXXX, revenue XXX by down of constraints, margins XX% quarter, XX% expected fourth favorable microphone driven Precision and million, more acquisition $XXX XX%, approximately million a reduced fourth completed up revenues. the XX% in be driven expect this versus by to the from the the QX. versus MEMS driven to of organic year, device the Health in revenue strong at audio quarter markets, Hearing ago to points and in medtech the by and

of Our high markets. to gross three solutions execution quarters of value differentiated the through the end strategy our to margin XXXX demonstrates expansion first our deliver

approximately profit with R&D year approximately $XX XXXX record million, year XXXX, $XX We to in full expect company QX XXX million expense is a the for reach and basis flat gross will expected levels. high points levels. XX% margins be and total between prior above

XX%. and revenue, for to discrete an the return. nearly impacting expected to XXXX between selling to projecting benefit outstanding above during $X.XX EPS per to million tax basis. of earlier shares million, this expected operating share. our federal forecasting a margins in filing expense We're tax are coupled challenges XX% is our on near-term XXXX with chain discipline in X% actions increase Despite of a year higher diluted the Adjusted quarter which EBIT and expense of of resulting range our includes quarter. $X.XX incentive within be of rate margin weighted be gross acquisition our the related is tax average million of of the $X for expected $XX fully spending levels. approximately range be full This improve is to year. to completed impact This supply quarter a $XX.X from an the effective assumes up cost EPS $XX period, year the million administrative to by ago the compensation driven and the We’re XX%

Please Jeff? now over turn the press to end for Form-XK million. increase capital today of Going potential effective by to and at portion to expected closing future to our we'll $XX to then rate $XX operations SEC $XX release forward for non-GAAP XX% cash Q&A to expiration a the the and a our between GAAP call million, XX%. and the to the back of call. our Jeff refer holiday We're generated QX be I'll of approximately due XXXX, expecting with in tax to the to million remarks. be may to And move filed tax reconciliation. spending

Jeffrey Niew

deliver longer-term new cash to prospects margins, Thanks, flow. to and of producing a strong value John. growing allowing income as operating differentiated high market our us solutions is confident We're and end while strategy increasingly gross expand set driving to our diverse about

high margin continue We drive gross in and stock will acquisitions accretive buybacks. shareholder through to products, investment value

With growth on like late Before capital we in Q&A, More provide future that, in expansion, our for for growth Q&A. an and it new allocation and to over mid-term we're as margins margin I are revenue follow we to means Call opportunities, to and our will I'll near provide what open for move cash turn on excited the to well the gross update our it share operating plans and details targets. as about November hosting strategy, flow. planning financial Investor opportunity would the and to announce

Operator

the line [Operator with Instructions] Securities. CJS question comes from Labick Your Bob of first

line open. Your now is

Bob Labick

things a Good earlier. afternoon. you in a dig nice Congratulations want I mentioned to few on on quarter.

looking and kind As it us of relates international give there, this big much of And revenue you then, is can shortage, the think how it will going how chips customers sense a to from long it is? you your of chain, ahead? do how impact supply you and labor roughly hit

Jeffrey Niew

Yeah, a make first, I’ll just comment. so

that guidance our in cautious providing. being are we're we think I

I think, would right now the $XX probably the estimate midst a detail, is the I XXXX plus in million in this, of probably ton going of in we're this kind of of without and year. back-half through

point majority think, we're in to I working It's But it's think some a So, plus. in suppliers, of I million about I on QX. $XX QX, had its for at we this which mainly obviously QX, power that's say, labor having number like or downtime that. call with that hard wouldn't probably early issues again, impact our major semiconductor. And QX. some some late have us had China, shortages in in we're

things these now, QX. And say, that that when start are clear going And But of to to continue we right rest right see we'll but again, Some there I Bob, around how of we're up. would right of into through being we of cautious. Again, now kind to but the see these seems linger have see to for now. view call exactly, passed sit that's and going I kind QX as, that's the to start I'm sure, this not maybe, what things possibly quarter. into

Bob Labick

it. Got

is, health for give us you Okay, market this how color. FDA mentioned ear the you, hearing sense of Can and great. long maybe opportunity And you? great take an No, over-the-counter of be a and for market. the where be that's could you the helpful to opportunity might big then the how

Jeffrey Niew

And see see this is to going incremental. and I'm who calls. it I And market, hearing and about hearing of just this look underserved talked loss, at to loss. Bob, going here's also portion hearing loss, it loss, what if not hearing way talk how to about portion how I'm is though, that's about loss. mouth we be to have we other why profound think hearing see on is people we is Yeah, that pyramid hearing And that where going the largest we going that do. government's of mild the talked most loss, I've think this significant targeted. speculate this But, the we this on you of

We I channel, of have to And couple number life improving aid one at age the marketplace buys tune of than the there's is I of sold And, is, us would again, that significantly days, earlier brings somebody cycles traditional over think introduced over-the-counter it much customers buying allows into is Number are were I have already positive XX hearing who and into preliminarily, think least to the life. their of for XX-years idea being points, today. and products a younger younger. is, average the the for us And the technology the over-the-counter make. of very some early people aid, to that one of the hearing time. hearing in multiple quality aid

hearing the So it loss it new a mild TAM, younger bringing increases age. the people increases TAM, because really but both also at in, you're

be they're I a performance, of would be focused a roughly this is, people probably performance. I point if overall three focused I the year. at market. a million our something We to would we're people have all, want million products hearing aids here size right? value kind about by is us, market, high with because they're and are X idea next And year. rough couple probably important speakers to big the years, in a be very look million that thinking buying that focused encouraged say two somebody that you the be not And introduced off aid products, because, the that's of really market XX And the hearing first on receivers. for our piece, kind on last it cheap, or first would this you people X, microphones, a don't costs, of so on could in experience to value market also turn aid to units they whether how -- hearing on That's but speculate with their want of --

Bob Labick

just device in last precision Thanks. of but and in the get And you've the made one you opportunities one sense in lot balance both there's great. to the continue and And M&A give Can us there? for some showing obviously sheet Okay, make precision too. back now a if device? success of pristine you with past out a market acquisitions your then through But, environment to I'll acquisitions queue. organically in

Jeffrey Niew

that say on important, Yeah, very perspective, disciplined to going valuations I think, area. from type M&A side, is my do. funnel also But what we're would I the of about really the within quite would say the especially are it's valuations And, high. We're pretty active. we're are at active the the reverse extremely I

I'm think, that earlier have or And did that other think we since very in year just three next we I say disciplined the been successful. that just did we successful. more the valuation. to ‘XX XX-months. that is over to I all point get can done this that trying I We mind up the be acquisitions been about although are that some want The record. we acquisition keep would But ones very has four hopeful keep track is,

Bob Labick

Super. much. Got it. Thanks very

Operator

Capital. of comes the question with Suji next Your Desilva ROTH line from

Your now line open. is

Suji Desilva

Hi, here. the margin on generation Jeff. execution cash Congrats Hi, the and John.

factors seen? maybe are that the we’re sustainable it, margins about what talk to thing up improvement some you've that is of gross event since there. the coming driving have an on but know of are strength? some I how first the So, What -- this key you

John Anderson

good Yeah, question Suji.

for running for reducing shipped margin we're defense successful and capacity plus, non-mobile lot sales passing applications. We've the growth terms think high made In they gross really excess successful, utilization. is really mix, driven customers. drivers, year-over-year MEMS progress the price We've margin proportion it's to a terms extent going similar, things. is probably been higher of and are really those are medical of and by higher our applications, profit productivity factories our proportion factories, probably into hearing great pretty a and at within levels, on specifically And then mix on business. helping, been sizes, costs also to I'd microphones in improvement really segment, audio Those of higher our and of is optimal With PD, in the higher at the obviously, of key chips. say paying gains pretty also health we're those really lot inventory. a both scrap main XX% also I

some also it's tackling, it's So blocking but and really some mix. favorable

Jeffrey Niew

our what's let just make get where focus like R&D Suji, little Yeah. our have now. trying broader we're products what's on is, think and of non-commoditized going terms that of quarters, And investing, into But, marketplace, over And, so the money products, quarters happening resources, we're investing a in bit in given seeing me the talked right where last this four on, me the you the I these like about I you're we're CapEx, three, got, as top-line, areas, detail, about spend we these couple right. to really mix. we more more we

John Anderson

Just In to to with expand we'll full Investor XX% talk we'll in margins XXXX. quarter, further. maybe for or at we this noted slightly I'm the confident about I gross opportunities even -- to finish respect up in year script that that later Call Suji, have be my above

Suji Desilva

a to questions that. then forward supply couple the look on Okay, And constraint.

quarter. wondering be might the the constraints, ordering this the mics, color not any of patterns kind of quarter the way that of I'm to given out the out, the would push the there customer ordering would in fourth first and that's the If would play helpful? lead if have happen terms some In

Jeffrey Niew

could first, not But was that, a last specific year. the just pattern. I'm kind certain I constrained of the clearly And, generally, that we it being year, what comment say that customers this quantify there's could Yeah, are some I'm But more launch think, customer. is me timing was the the million back-half $XX gotten constrained could one the to a there's across out shipped shipped was is customer constraints have products, issue think really to trying more to that and in off relative know there more have being going or million. base. I applications to are like more I customer, we again, earlier, here's said for what earlier to we But in slightly what we quantified but I'd by. all with traditional built of what the would microphones. by. is not not delayed, certain if $XX let it say not here, specific even It $XX that's we have COVID The we related from our million,

Suji Desilva

then to any That's strong that there. and component really the the trying clarification. lastly, the visibility that? of customers wondering helpful And Okay. in growth of needs, bookings versus their bookings, cover supply or PD, if it's on is to that driving constraints how I'm very supply much related that

Jeffrey Niew

be say that I expanding maybe custom business, see actually that, there's again, kind think don't products The a majority I of that being growth, is vast me out piece we would of have the custom. this, kind lot is they're business, we that be in that a least there there. custom is here, think normally But, distribution of than this this some which of defense PD, we ordering Life an rest industrial industrial/distribution I kind about the majority of solid. don't at all the ordering don't just demand and of or would could stuff, start this our And Sciences the minds, constraint of the that see the a the supply majority And really aerospace, within for. the area. business, I say, But when that see could in is you up Automotive bring really business, one let it of see. thinking more vast again, we of rate piece growth, pretty about way. don't than have would I there. faster at I XX% don't the ends of area

Suji Desilva

Okay. Thanks for color, the Jeff.

Operator

of comes Your next Tristan line with Baird. question Gerra the from

is line open. Your

Tristan Gerra

good Hi, afternoon.

a You as customers, could talked contributor? result? view a up be fairly about next could words, other should pricing a for we provide And and outlook different passing next higher year? year that In top-line this costs as to pricing

Jeffrey Niew

say that, guess I little I too is to that a think would it's I early call make yet. what Well,

think through, I for New as to China's see kind is and has we still been but pick point I still how this quite I we then mics favorable. mean, to we're talk always PD going through in here weak of have mind, U.S., in reasonably and holiday closer weak everything hearing the get we health to to as and a season we'll on, about the stand. in say, I the the see on time, get Chinese this lot got for would pricing mean, going both in in MEMS passing things Chinese where environment, environment, New Year, and But we see it's it's us. pricing spite still develops in my I get Year. weak. of us, costs, then

margin overall, we focus will goes what on that, gross [indiscernible]. and said portions the a think, pricing is the I more the questions guess positive So, of again, this to back become our market, ago, few non-commoditize we more I

Tristan Gerra

factory automated great. Philippines? And And do speaker? balance update you the that terms in then where on finalizing the of some stand Okay, extra in any

Jeffrey Niew

got question, I Tristan. glad that I'm

first fully I coming actually the yet. Obviously, But off the So with saw qualified yeah, products to customers a the team video there. shipping this so expecting we're it's quarter. be to just not is line.

the So before, there pain and think go just the it, the line. you total could they touch off automated if that's there's the got that a there I is know QX, shipping right they the said gone been as into had there. teams it thank quarantine so I for And for have before I the start expectation they about that seven are Philippines, By neck. now And we'll long. it's listening in that go maybe a factory, when days which in the in the some way, teams

teams willing the start we go see appreciate of closer next design in we the as year, of ‘XX. I there start full wins utilization probably to so that do capacity full won't back-half But we'll utilization expect ramp, and the that. first-half in of the And to ramping to

Tristan Gerra

Great. useful. Very Thank you.

Operator

comes from the Your Christopher Rolland International. question of line Susquehanna next with

open. now is line Your

Unidentified Analyst

This afternoon. Obviously, well, to table? Chris. just utilization good bit. can a curious like the for upside question. [indiscernible] gross more the And but now. is health as I up margin hearing said how to progression want You XX% follow quite the the part on actually right plus much already great here, a bring recovered Hi, it's seems I'm already

So help the are other target? of some to what to XX% get that could that drivers you

John Anderson

is one those them, in we're few to mentioned, talk I little mix as the Yeah, elaborate of But a a we'll mic on more There's expansion. levers that higher it hearing one. device, precision business, growth a the we'll a… on give going little about, that's the I’ll MEMS clarity health, and color call in future gross non-mobile margin drivers more

Jeffrey Niew

Let make comments. couple me

businesses will two, we capacity really we're drive I selling. to as Number number across talked our our of we've products one, products, think that, one. number intent pretty I obviously maintain in all not think, business, on new commoditized adding extensively of

about John Call, service also And we'll is, markets. Investor I on the And is there's as business to products to talked of so think, things think said, bottom. go off like -- to there fact yet keeps types see that of have it like able kind within gross We what the we through be gross margin of we’re die do November. that we've there's may late cells expansion. going those margin falls selling, mix in is And but those back lower details for some opportunity we'll the kind that obviously,

Unidentified Analyst

demand then past kicking interpret inventory, you're right quarter, overall? Or, inventory by quarters, couple the should in range comfortable XX-days. constraints seems strong been And but a now? you've down side, on you for building internal in? And this the say supply like good. Sounds it more we Would it as is this it was

Jeffrey Niew

the do of there supply I think closer product then definitely typically, being bit think mouth bring I drives and think both. constraints, go we of if raw there inventory QX, build QX, categories down, supply we a the this build inventory constraints or inventory and which either product. on seasonality, would we on the in to I it's there's QX, certain QX, and beyond is constraint in products. we're and materials normal I And supply mean, we we say to In have in, And would, we certain issue is more where QX I little quarter down. could through. have strongest QX, beyond our where, hand we

the But So this are build that is as saw. as to we'd normal following having constraints kind not like. of much that we us we allow path

John Anderson

that One of year, to and transitioning as go we're MEMS microphone inventory. a point transitioning carrying so inch, to we're it's kind I'd other expect down add to that little business is unique eight kind of to mid-XXXX. extra this I'd

Jeffrey Niew

at running about right capacity and running now. point I are to We're not point out, sit would Yeah. I not think at right at full utilization. of our Because microphone this supply in business capacity talked full we now. say, there And we constraints,

Unidentified Analyst

Thank you very good. Sounds much.

Operator

I turn time, there are Mr. questions. no Knapp, call back over you. this At further to the

Mike Knapp

And Emma. Thanks, today. Great. thanks, joining us for everyone,

Wells in X. XX, to on appreciate be Fargo we Knowles. interest on a always, your We're and Conference participating Conference ROTH also in the As November going December

to investor also So our next on or we call. more with have earnings information update out then hope our We'll on later November. in you speak

So, goodbye. thanks and

Operator

conference This call. concludes today's

disconnect. may You now

Knowles (KN) 28 Oct 212021 Q3 Earnings call transcript