KN - Earnings call transcript Q1 2022

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good afternoon and welcome to the Knowles Corporation First Quarter 2022 Financial Results Conference Call. Today’s call is being recorded. [Operator Instructions] And with that said, here are the opening remarks with Sloane Bolun, Investor Relations.

Sloane Bolun

Thank you, Savannah. Welcome to our Q1 earnings call. and and Niew, me and our our Vice Bolun today the John Sloane Senior Jeffrey are President President am presenting on with call Anderson, I CFO. and CEO conference Please be is recorded. call advised being today’s that copy now, release our and By earnings of received slides. should have you a webcast

documents, of you at our If both knowles.com. not on available have or are do website the received not they IR section

the SEC today’s are results future release. of required as purposes including, in in fiscal review anticipated expectations, trends constitute as call uncertainties the plans current prospects limited and expectations. differ about Our year remarks and today company products, under number statements duty date uncertainties which the for Knowles thereafter forward-looking profits this include demand such involve materially for the urges of laws. the expenses reports and the XX, disclaims and annual risks statements statements, ended for The to, a except filed and investors provisions and actual SEC identified future December the to XXXX, but of on forward-looking XX-K Harbor made with time about risks company that time statements the call periodic to securities All any not earnings report update risks to Form Such of company will from Safe by Knowles, filings, company’s law. for outlook uncertainties and federal include in and from financial applicable and to forward-looking comments sales, cause could

provided on both have and GAAP addition, measures non-GAAP this quarter. In financial we

who earnings otherwise see in our will call a the be slides this Jeff, continuing provide a directly on Jeff? X-K our operations SEC on current our measures. website our basis, call turn me and indicated. please the unless and non-GAAP on report knowles.com on the available comparable filed As comments that, Form over let results. most GAAP of with webcast at will reconciliation Please to for With release some referenced

Jeffrey Niew

for thanks Thanks, everyone Sloane to us and today. joining

begin We with are very performance XXXX. Knowles’ pleased to

you reported our Best these above all, mid-term another friction dampening before margins moment, for of on we expectations expected high additional a EPS our our gross in chain. financial will already of stronger in these I and on last the COVID As range. causing reemergence than China an I we results supply the our end and but we stretched Mainland today’s targets in quarter guided headwinds despite detailed Day the I saw conviction headwinds to to release, reiterate with at demand of do, achieved touch want near-term November. Investor from

significant value $XXX of confidence highly attractive cash most Our me year-to-date let results, in our particularly opportunity summary With segment, increased through our that, Precision have results. only million in Device demand in year quarter which growth free growth strong end Devices flow Hearing strong give to that in growth higher-margin was $XX in line drive the vast in share with and continued being Precision shareholder compared was a segment million expansion our totaled in Revenue quarter, to Device very first up with of a of organic. markets with Precision mix continued by our XX% and driven revenues of majority a the first guidance market Health. ago, dynamics.

our secular across most drivers. record Additionally, was of driven The segment end the this see quarter for it’s with another delivered demand rewarding Precision to aligned and markets so long-tailed broadly for well our bookings. segment strategy Device

good end robust. remains growth continued Health Hearing market Turning for to to our products business show these the as Audio,

share. gain issues, chain new have managing execution us to which strong products and supply to ongoing continue has on We allowed

not While we quarter, and is focus microphone year-over-year higher-margin on performing expectations with the products the as markets. business grow in MEMS did line it for

pipeline is typical year’s to business. customers this for half ahead, product Looking more seasonality from new of our this year, the weighted the which is back

a before like detail bit headwinds macroeconomic give on I to Next, more profitability. impacting continued speak our I little on the would to success our business

well. are in chain hearing in elsewhere you supply first remain the very quarter and Knowles the were As industry, real challenges for as

While is it happen at it’s point. very next, difficult to this our predict business what impacting will

associated consumer we consumer electronics. increasingly for challenges, seen smartphones have demand and our in is government chain MEMS latest and microphone This causing supply impacting outbreaks the COVID headwinds business. Beyond in China other lockdowns demand

I year-over-year our compare, a pleased with we situations, we the our business in we persist face progress microphone were to more financial China noting compared our in the our the but to and essentially given year-over-year shift fluid million, less on the guidance, especially continue ago pricing detail revenue on strength which said, up grew consumer mix, do me XXX QX ability that, to profitability. make power With margins continue That IMC challenging not acquisition. the year to provide We’ll XQ up period will products benefit on MEMS the to our the more of to affect markets, our the turn given flat of the current issues was microphone in lower to Precision factory our am worth segment, on commitment While discussing is highlight driver the to both achieve of sensitive utilization Device believe macroeconomic mid-term to very major year. headwinds the in margins, our where expect impact favorable are basis inherently our the It The targets. demand. challenges diversification X% revenue. about Knowles half business. The business. first gross will capacity to $XX profit MEMS and reinforce margins let and economically higher-value points when

QX, Similarly, ago grew period. XX% increase to XXX Our is strong also $X.XX over year. and which to to allowed above our year over the us share, represents basis expense and of of XX% growth per for strategy, an execution margins EPS EBIT guided range we points adjusted from close has management achieve last

increasingly confident Let again, is and in strength our and flow underappreciated business. cash reiterate the we stability me financial of aspect mid-term believe targets an of annual our free are our

we approved authorization. about pleased Finally, earnings capital strategy that our refining on our $XXX Board are new last this announce spoke call, we recently to allocation our share quarter. million of To Directors point, repurchase a

our shareholders that to of value With a of to me we proposition commitment our future our in hope also are more and a bright the return over serves return in the and the in it new believe acquisitions pursuing turn We as while free In will of to let share quarter Knowles’ future of addition, be to for confidence flow XX% this capital shareholders to and to repurchases. that, financials. existing review planning cash annual our committing bolt-on Knowles’s recognized part John first strong company. strategy our sign form

John Anderson

Hearing period driven from the revenues market $XXX shortages. compute and in continued increased revenues flat in completed Device MEMS gains period prior electronics share million year on by markets in revenues by in supply weak ago, was same by and Precision a down Thanks, industrial Audio of the and of of smartphone ago, revenues chain and $XX partially in the reported the same the from XXXX. The consumer million, $XXX challenging year demand microphone The chain a Precision decline offset to by strong shipments revenues demand Jeff. acquisition higher driven markets. were Audio microphone both lower We quarter med-tech by million, growth. segment offset XX% growth with an shipments a delivered of Health organic XX% and supply weak segment first in and second up driven due year, Devices, in defense, quarter

the XX.X%, XXX capacity expense our gains, the XX completed prior mix, our factory million, productivity R&D basis basis gross above in high offset microphone year, and and points XX by driven mix, by product factory a profit XXXX. customer utilization XXXX from basis gross and QX the $XX in quarter was range acquisition margins and XXX quarter an improved improved utilization partially points margins gross were period favorable same driven by with First year. spending SG&A prior Devices the basis XX.X%, year XXXX, capacity margins up were lower over ago. points of the segment lower acquisition levels, from were of the Precision quarter in second guidance flat end legal product Audio by completed expenses driven up the by year favorable business. in segment costs. $XX lower slightly MEMS above levels, factory offset points prior million, partially

end high with margins. profit quarter, rate. our adjusted above driven by from points increase up $X.XX, higher by QX which $X.XX the was XXXX, XX.X%, the a EBIT basis effective above margin the and driven guidance year, prior gross profit lower was XXX higher was EPS gross For $X.XX and the margins tax of

shares Now to due million. we I end flow. inventory our approximately levels $X totaled of Cash which and quarter, was million, $X will total and at balance the at to primarily sheet timing collections. and cash range, the operations the and of near the end turn XXX,XXX Capital was higher cash of from Cash guidance was million our $XX repurchased in $X.X million the equivalents quarter. spending low a cash cost of

share recently authorized as guidance, program. million a our repurchase of Before to Jeff moving $XXX Board second increase quarter our to the Directors stated,

balance the planning cash to sheet, us with continue annual and of XX% coupled strategy higher-value shareholders focus free to form to bolt-on strong share solutions acquisitions, Our pursue to in return performance repurchases. financial will improved our of our to allow flow on while

for revenue Moving guidance between we year to to with and total million, XXX ago. the a quarter, period our same $XXX flat be company the expect second

than of due are Hearing is completed impact X% costs. in lower driven Devices incentive an our second utilization down from expense lower shipments XX%, by due improved Precision XX% prior basis XX to lower productivity to the These and million, $X levels, higher-margin gains defense, and to chain microphones supply offset be offset Revenue to capacity between demand by acquisition revenue QX $XX from of which the guidance lower expected utilization prior to in continued down in partially QX quarter more global for factory partially in levels to R&D are market. industrial market. challenges, due to COVID-related approximately margins the to Audio from business be gross chain the expected China is and increased and reflects XXXX to in the the compensation supply the year period both constraints. Precision unfavorable XX Device MEMS and segment Health. for Our be We broad-based MEMS continued expected Hearing up year lockdowns negative by estimate impacts million and be year negative in and XXXX. microphone over mix markets from compute is capacity and Health ago strength demand driven med-tech XX% revenue down by points

XX and by $XX projecting by to year completed We’re million, and the administrative lower partially selling last down year. be driven slightly costs, incentive acquisition compensation period, expense from ago offset between the

EBIT are fully share. to This of shares quarter margin diluted weighted assumes to range average We during on within in be and to to a projecting adjusted for XX% quarter range million a outstanding per be of of XX% $XX.X $X.XX EPS the basis. the the $X.XX

XXXX. to rate quarter an full XX% year forecasting are We effective for and XX% of tax the

$XX turn For million. our generated now and operations to million the to the cash questions. million second and be capital approximately $XX quarter, Operator? back for between from to operator open $XX line call to spending I the will we be expect

Operator

[Operator Baird. question come ahead. will you. Please go from with Gerra our first Instructions] Thank And Tristan

Unidentified Analyst

even little talk the on for a Tristan. know is Yes, but Thanks you you qualitatively Could more it lockdowns? I about about Tyler indirectly? it, disruptions talked little from maybe a about are it extent for quantify you or or you the seeing taking bit China affecting hi. This directly you either of questions. the talk

Jeffrey Niew

in That’s that is some to of are of to can we said what kind different say, first of order have our to materials, number supply get the which – in I that about a And wafers. them customers not get well, think now we build. to things issues customers. by that terms previous were think little that materials, because there held Yes. we talked are right, bit fact ship you talked China of is the than That’s starting case. other quarters think I And some we is that they of the take I in Number one have to back I we in about would two, now – chain. half, causing That’s us was products with the longer supply on still to can’t dealing say before. so right first the shipping had one. less our with things we

think they need build. been customers of are probably so is some not And get all our added that’s to I materials that able the being that’s on in layer order to the that

piece, forecast and which And in say in pre-lockdown. not that there be China. at consumer QX, third supply that been are starting The are to we related, and chain definite compared hear it’s our down that expectations – we in that we have forecast is QX would broad-based that would for demand are slowdown going is a what moment is see this I of giving reflected terms that’s in to our but necessarily demand in pretty seeing to

exposure of for PD. the we operations But add think hearing are XX% that’s as in key. makes China, of more limited and demand I is China on I I our this, and outside I is a the that very now going China. of are PD thing facility think most for in some do manufacturing at hearing would China. with Most will one hopeful health There chain outside in say point, about our COVID little or revenue. impact health we right same by lockdowns terms And of have of what’s would end. demand their up of bit so, the for business, And supply

MEMS most. the our microphone And business it’s affecting really so overall,

Unidentified Analyst

current then going if And they mid could you total follow-up, help devices be that And the is going of exposure my it your to fair forward? is to are revenue? may high-single your say digit geopolitical for Great. precision of defense to then talk events if about

Jeffrey Niew

that? am didn’t hear part sorry, second of I I the

Unidentified Analyst

to forward? your geopolitical current precision The going going are they benefit business events, device

Jeffrey Niew

we us. don’t We from that. lot operations. benefiting of will know do the a it I and I have we think market. if Well, defense I mean mean benefit been already med I have with work U.S.

benefiting that been a have that benefit. be already. we will think that I I from think But continued

we our exposure, I full our digits. as to high-single year of deck, say it take last far stated closer you would defense I If was back to it’s believe As pretty in a defense well market, expectations are our both about investor we XX% to I acquisition good last XXXX, is a organic on growth, IMC. of the year our And acquisition which our going as revenue have as of year. in mixture the growth, –

Unidentified Analyst

questions. for the Thanks Great. taking

Operator

question with Securities. next come Labick Our from will go CJS ahead. Please Bob

Bob Labick

Good Thanks. afternoon. strong Congratulations operations. on

Jeffrey Niew

Thank Bob. you,

Bob Labick

your are pressures inflation. if biggest inflationary to of any? take strong are are to You thing impact China. just of we What maintain have what the you actions are And the also talking facing, companies of from the overall demand impact macro headwinds been? the spoke are margins One is about to the about they most able in you as as obviously just talking

John Anderson

can Bob, It’s that. Yes, John. take I

primary in margins, recently, being chips mean input labor to-date, ASIC seen like have significant they costs year-over-year. I gross in a And areas commodities our certain the and increase cost, then are can you palladium. see up We

been it’s we the We in the maybe or some it or costs at passing successful have of PD would our our whether in customers on area of increases cost elsewhere, But these exception see have microphones. successful only to increases the in permanent these solutions and gross passing being in say price of the surcharges. pretty higher-value I form you mics, commodity margin. HHT pretty in and been

Jeffrey Niew

me let add little a color. And more

with expect sales. to about mobile than our less sales. our of about talked This mobile XX% XX% was we XX%, last we be year, of year think I

are fair to to we trying where commoditized our And right mobile, as so say inflation. are I amount on a have of mics, space. our on previous mics, said commoditized – and now, harder mics exposure our that to reduce we to commoditize necessarily exposure it’s in And wouldn’t but pass reduce calls,

Bob Labick

look exciting You and very precision flow? shares cash the the And XX% repurchase the in capital great. sense you still expect And a have the been with give obviously free have on devices authorization I you then just XX to in for don’t that’s and know, us M&A potentially if market, pipeline will of you news successful and any allocation you next, looks what months tuck-ins? to the Can of like? said would tuck-ins to any Yes, the there. in X repurchase months, commitment

Jeffrey Niew

return to repurchases. XX% that strongly the right. be I to right going tuck-in really why of think some do cash for we looks to sheet, that when do. form pipeline That do flow of over look in years, here, what the It’s in pretty I of deals something at want can do standpoint, it, difficult very consolidation, we last in successful. or being us we very now these successful the good a total, in that, balance in shareholders environment. four mean that’s would you do say year, the acquisitions. how coupled very us. we as it’s PD our I and been kind said, not is we at would next you felt our and of products addition would whether we the be But in kind done from have added new for the specifically I Bob. whether extremely pretty disciplined said X financial customers, to for of have to of past, I continue area, our can things, that PD target-rich a This share with over Well, cases, be And in more we that say some look been from to all free total, hopeful it’s terms is

really does, a Knowles do what cash an remarks, it’s underappreciated is of flow. As I portion which of we on said fair amount think the prepared generating

Bob Labick

you. Congratulations. Absolutely. Thank

Operator

And our Christopher next Please Rolland go Susquehanna. with question will from come ahead.

Duksan Jang

the Jang you. to forward? lot strength. margins alleviate over the want just was But driving we mix how half of mix is on you. strong, ask as do are I come to as obviously. – think microphones about you And about should Chris. you Thank second are very going going your shortages a Duksan behalf how and talked about how and This margins. back, Thank They MEMS gross

Jeffrey Niew

a I which PD Yes. our order think that is grow, half, microphone and I gross now, our couple a has on which MEMS the capacity assuming businesses. business for being But two years stronger grow we gets the as been our in have health that’s said, have you business I think in the hearing trend are important typically those mean the back will also in half. we half, the margins. in you of business right, lower other than market a this will back going side, more see back is mix other utilization piece been very That towards is growing on better

of for these I trying health, markets, of I are we are to us, EV look the down say, we end us commoditized as you med, in to market will markets back the add to away some that the John are our hearing market a from terms in that from Day, and if So, that plus to Investor both this, flat – type versus, microphones. generally keep it, color PD, that thing walk are going you hearing ask is to growing to mobile is fastest defense, think the is see I to going at

us laid the we to strong to continue of of a to mix order goal in kind think XX%. I out in get big future that will for driver be mid-term

John Anderson

along but mix of solutions. we are they from higher our I mean the of in were for PD, gross and Jeff the margins mentioned, what I Yes. microphone unchanged over not we several XXXX. benefit just I full year, guidance the am coming sales related expect they that expansion we giving shift, lines of kind the gross high-value year have realized proportion theme same from than margin of a HHT is mean as last to from be to just really continue higher to second the do half quarters, MEMS

Duksan Jang

you Because the Got the also then ongoing online new think there I And coming it. products you. period. tends and wafer seasonally half to you. support Thank also shortages that second are that still in you Do stronger to coming have guide? enough a you June said Thank impacting be are and supplies mentioned growth? that

Jeffrey Niew

Yes.

what to again, will So before. I it, to piggyback we similar it’s very said

it’s first had And enough wafers of customers the in – new the one that excess think other short-term, we total, fabs term, were from capacity in have the the an longer wafers very at I In I products, new our wrong. wafer but we was availability products and we in more to introduce hard in words, to gives a In as mix it to when or I in enough new us not getting change another. bring think we total, even opportunity at introduce certain and half, say fab demand. where another. supplier

So, is, to that back we the suppliers the aligned terms we at half where better is. our wafer we will our in is of where our capacity year, relative of towards have demand be look hope

Duksan Jang

you. Thank

Operator

from Capital. next Please go come ROTH [Operator our Desilva with ahead. Instructions] And question Suji will

Suji Desilva

John. Hi, Jeff. Hi,

Jeffrey Niew

Suji. Hi

Suji Desilva

demand. can to you sort a your segments a How qualitatively? bit, China go trying understand, Do microphone articulate non-China softening just given or have versus versus IoT demand of the in ear you are sense? end smartphone much if So, customer I you numbers of mean either component?

Jeffrey Niew

you is mobile, sit segments, is a right. in and Yes. IoT QX – I in going say there market laptop/compute I to the starting to demand across – thinking MEMS QX, business, broad of global is And China, into our predicted in ear and and phenomenon. this, what overall are of we think like the but recover soft statement, all our be I then was and that’s It’s we backdrop terms of QX. that for a would down this mean and of right, when say, kind microphone kind

laptop I of think the more business.

forecast what consumer that our seen in think terms call in across abrupt is in electronics. so from you well, – a what we pretty I that of it, reductions March, do customers board And have the

Now, keep expect again, the revenue But year, say this coming we expect to what’s still to how this, going quarter, long it’s back happen bottom going is, growth line earnings are growth the to lockdowns still this go. to to hard we year. I

we of As to higher margin focus continue on value, moving higher portions business. our towards

Suji Desilva

And half, of Okay. you growth you sub-segments what have the look segments in second as the ahead to maybe optimism about do most some drive of or recovery? terms of helping

Jeffrey Niew

look the would are that are say record very like majority, I answer my I press are either PD And had there say, that where Yes. the on continues because I can demand. markets bookings mean the lot look market, I if in I defense these just my business may not, later the quarter strong. or for this in custom prepared would think people things products bullish bookings release, we these our in of like on I this another at are the be be bookings relative And PD. the people I medical to very built a – of fact for mentioned over-ordering. the mean see just are canceled we remarks vast blockbuster to we script the that

PD the business. very feel I about good so, And

John Anderson

I would challenge I output. is add, biggest our just increasing in PD mean Suji,

this on We are working QX output from backlog. to QX increase to to sequentially QX

Jeffrey Niew

Correct.

again, like business, like if market disappear hearing real turns is could feel don’t this robust. remains weakens. business the that demand. so and This health – is demand In And the we our

kind an when the terms with COVID from always minimized I of the say the affected health hearing think on team, they this have issues they excellent of really by supply job I XXXX. products, chain executing done ramp-up in coupled in was that during of business new back

But our QX, how develop. microphone year we hearing got a so will MEMS all robust. of it’s robust. that’s is obviously but is monitor perspective, I Suji, says that and And this more And feel we and from think mean to to the really think EPS this in a We when into the see my looks the but factored flow. looks our business, I microphone by. and growth lockdowns get are develops operating I that, MEMS increasing see I business like can business, to little we have still I health terms it’s as come increasing are for power I how see you think and back going numbers on business continue we of margins, wait cash so think to this profitability goes that to good the our in demand rest story these the really also our in like

Suji Desilva

Okay, great. Thanks guys.

Operator

And further thank with and no you conclude evening a interest Have Knowles. questions, great that call. today’s your will for in

Knowles (KN) 30 Apr 222022 Q1 Earnings call transcript