Earnings call transcript Q2 2023

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Operator

Good afternoon and thank you for attending today's Knowles Second Quarter 2023 Earnings Conference Call. My name is Kayla Baker, and I will be your conference operator today. 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]

the of to Investor pass Hofer, host, now President Vice Relations will conference your over Patton I with Knowles. you and you may Thank proceed.

Patton Hofer

I'm and me and on welcome XXXX call Vice today of Thanks, President our Niew, the John Relations, Patton our Anderson, Jeffrey call. Senior President Investor with and President and Hofer, CFO. presenting Kayla, and are Vice CEO; to earnings QX our

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

comments Forward-looking in demand statements materially in profits risks this call expenses cause sales, that company will involve trends differ include actual anticipated uncertainties current number to of about and from products, expectations. and a for company could results

investors year review the with the as from reports XX, time forward-looking to, the filed as and uncertainties such urges filings, but duty except the made XX-K update company Form ended time fiscal identified law. uncertainties on to by call, risks to for not in including, the are statements the release. and of December Annual today's limited SEC to company's risks periodic The earnings of Knowles XXXX, in disclaims All this statements, and any SEC required date the and Report

knowles.com, a otherwise call Also, at in information the will be SEC, addition, our website. website with All found financial be operations we've can in Form measure. made of reconciliation conference webcast in on the section on basis measures pursuant which available Relations directly be on slides, X-K to our on report call continuing today's financial our on In to release today comparable can found during Investor this most Reg GAAP financial the selected G, a our non-GAAP non-GAAP indicated. including on unless referenced filed press posted current any and references

will turn provide Jeff, the results. call some details over let our who Jeff? to on that, me With

Jeffrey Niew

of results Thanks, second of joining of with EBIT of of to solid revenues guided and high above $X.XX, above you guidance our the for EPS Patton, certain globe delivered the the XX% adjusted finishing Knowles teams the all thanks quarter XX% range midpoint fixed for improve light finished improve continue the efficiency, and of million, our and of all margins macro the mix in margins us of around end today. Gross challenges range. costs $XXX and end markets. in reduce to

prior QX year. Devices, Precision In revenue down from the XX% was

and delays revenue. and as impacted found challenges the prior project further telecom distribution continued the year Given QX. experienced markets in we in inventory have industrial to due awards was in have weakness and revenue versus Defense bookings

we wins the prior versus as and design Electric Vehicle exciting onboard for in QX year Finally, to Knowles additional infrastructure the fixed for secure again market growing remains continue charging.

In declined revenue MedTech the anticipated. sequentially & down as than year, inventory X% faster XX% was more originally we prior up levels customer Specialty than from Audio, but

XXXX. past definitely first in the We inventory are experienced the quarter we of correction

team as MSA delivered to factories. the in I'd testament a also quarter, they and our true excellence products our moment differentiated to margins a like outstanding take operational commend to in our

impacting quarter, driven especially this be gross upgrade very than are a down up difficult, from in non-mobile margins market segment. improved as the is price prior channel in expected and last MEMS the continues to IoT. expected. shift than earlier inventory previously demand and sell-through of versus in mix product Both compute gear X% the China, VO is has microphones, smartphone for cycles finishing IoT and Consumer returning positively Computing year, spot in year, launches also better in In revenue was new improved by was

before segment the total remain industrial We and current the inventory improve discussing for the currently Precision on year. the we down provide each Now over In John XX% and second expected levels we half. of the segment. But elevated. of minutes remainder seeing situation third up telecom now to spend these a to which are with guidance. markets call inventory previously I'll current continued Device company quarter the and weakness based in expect conditions to Starting the be turning outlook, markets, few the customer in to revenue, the make market approximately

the of and unchanged range to For our continues our three with from is expectations. a growth its defense, end markets outlook expand markets, design Knowles customers. key previous EV, in long-term these broad MedTech the wins

space Demand to in the expect return current year inventory. starting growth in of And QX. some year-over-year excess with relatively has the on flat been we to demand, MedTech in the for components first half based

For have Defense, a the for number in QX bookings projections electronic our delayed. programs, which been radar previous year communications, warfare of for revenue and factored

these While XXXX. we and for in industrial the bookings in for in second are our believe continued our reducing unchanged, trend, core secular within markets with expectations are in the of in half defense position our PD, markets weakness revenue delayed along

delays, mitigate in improve will provide John to measures these have To portion for profitability. his detail actions more these several the call. Devices of we implemented Precision impact the of on costs to reduce

stabilized audio, around specialty more to Health inventories Hearing globe Moving to market returned hearing the has MedTech as and have levels. normal the demand

driven for than increases provides market, is aid more US growth the returning the XXXX, half positive XX% in particularly the to XXXX. by in in confidence are reflects growth sign of traditional situation demand versus a in which year, hearing a very growth prior guidance the inventory we QX in improved that the Our and second revenue

seasonality segment. year. this for of to market improvement expecting to in of microphone and improving throughout conditions sequential normal our non-mobile, we MEMS the are consumer the remainder business revenue Due Lastly, on the

less market. recovery primarily driven smartphone than The to the second half now previously pronounced we is be by expected discussed

the products the XXXX of by additional demand to levels improved weakness In are driven cycles business, In versus non-mobile market, further for Hearing China driving year this and half CMS. significantly inventory expected new computing in channel expectations prior in on applications, half and the second replacement smartphone up are pressure and recovery back Health computing. in the be for upside in limiting ultimately demand in the

growth. Overall, for for we us, are the in margin second improvement still have hearing versus behind in second we confident the situation, and health revenue of expecting the outlook softened, growth year. earnings and MSA's expansion Knowles, are the increasingly market half revenue half is inventory although as forecasted, prior In

XXXX. In defense, main however, Precision impacted robust. revenue the for secular Devices, industrial market we -- defense with coupled remainder in and the have EV market, in for the delays weakness continued We believe, of in MedTech trends orders expectations

now CMM, slow primarily total in in market demand for a smartphone of we've we and margins seeing summary, to half consumer near adjusted implemented, are and In our softer expect year Lastly, second And the electronics, XX%. the year to revenues with we greater the EBIT be are actions recovery favorable due China. we company expecting mix second in the cost be prior levels. along efficiencies with half than to

let call me our the to quarterly turn guidance. Now over results John detail and to

John Anderson

into The Jeff. by period, industrial driven prior in Precision from timing continued XX% $XXX and and down from MEMS of weak in markets Precision X% We shipments defense with million, excess the Mics. segment and channel Device shipment associated primarily demand by distribution the lower revenues million, quarter year, the $XX reported Thanks, Devices delivered revenues market. down volumes driven the Consumer year-ago the of inventory of second

XXXX of in by half and segment, comparables of tough global faced was applications. Medtech as was offset nonmobile down the strong the growth prior recovery. million, first weak driven year-over-year versus million $XX smartphones, Specialty In $XX year the X% revenue from X% Consumer COVID prior demand the year Mics Audio for revenue versus down as MEMS demand by partially we benefited

gross period basis points of XXX the margins down our lower Specialty and up gross from were were basis a segment basis year margins Devices benefits. XX.X% guidance the gross Precision segment costs basis versus quarter points Second and utilization. ago. the up currency from by high capacity XX% above were gains, productivity to XXX same end and XX points year XX.X%, factory range due year and Audio prior Medtech foreign margins the XXX driven and points prior unfavorable

points delivered announced mix by by and in assets, benefits XX.X%, market. partially a actions the basis in product improved sale gross on gain offset prior XXXX, pricing MEMS mobile restructuring the August year the margins of of driven Consumer up of XXX Microphones pressure versus the

actions prior Consumer restructuring segment. by driven million, levels, higher compensation actions legal Microphone R&D fees, $XX MEMS taken incentive year million the driven and $X cost higher higher expense in in the the restructuring Consumer from down benefits $X million quarter million, was with the the $XX SG&A the by of were MEMS expenses and partially segment. Microphone the offset by year than prior professional in reduction primarily

the high guidance For $X.XX the quarter, range. of at range. EPS was the slightly margin the XX% EBIT the above our of midpoint was guidance adjusted in end quarter,

I'll our Now $X and at collections. and total million was $X of Capital driven cash million. customer end million. million balance the of cash spending We the flow. of the equivalents quarter. $XX of outstanding approximately our cash at borrowings guidance net quarter, XXX,XXX cost bank repurchased ended turn We operations totaled million of the and cash to range, above of Cash from generated sheet midpoint by $X with timing a quarter we shares of $X the in

the I quarter, specific comment impacts outlook. briefly reduction guidance our actions within to Precision revenue we're reduced some for moving want of the cost to Before Device on of third taking to mitigate the segment, the

in total These complete, at will margins $XX a end in actions company year, $XX to million, of expenses near previous In QX, the expected end range of we we this expect to of result operating also by million $X put return and per XXXX savings quarter. cost our will expect levels. than to implementation is to This million of $X low more operating PD the which when of roughly be million. charge place incur is annualized

Moving to quarter. third for the guidance

between ago from for year MEMS XX.X%, is and the We be prior actions XX.X% expect $XXX period. the R&D third from down versus We be the driven the by to restructuring down estimate million ago. approximately margins in quarter million year segment. gross to a company slightly Consumer expense million, like X% period to points total year and $XXX basis between same $XX $XX expected XXX revenue million, levels, to up be

XX% million, the expense year expect between be of Device to administrative to Precision range and the projecting Consumer to to This XX% fully driven be to by $XX.X and million. million be an to the within the per million We're million of XX% expected to of and quarter during share. for adjusted range in restructuring selling tax actions We're spending million. from MEMS of expect ago weighted quarter for period, rate $XX a to range the $XX forecasting $X.XX cash $X primarily from $XX $X on a operations shares be and basis. segments. million the XX% margin We're down EPS projecting Capital assumes outstanding and $X.XX average EBIT diluted from effective is quarter $XX in to we

over operator now question-and-answer Operator? the back for the I'll to of call. the the turn call portion

Operator

Instructions] our of the from question with comes [Operator line Rolland Susquehanna. first And Christopher

is open. line Your

Christopher Rolland

Thanks for Hey here. so the much guys. question

expect Street I market strength Just a of play think, your how sequentially, might still the PD for like at deemphasizing have as came it or Does this over to areas kind was in other talking It you. about seems maybe expecting this you've dampen was. really December come were your whole them into all here of seasonality? been that? you know is just Thank half. strong that related particular, does largest XX-plus% the And the But affect company, where like time. back seasonal customer, I what can well. we for from

Jeffrey Niew

Yes.

would specifics, So, close I back speaking, pretty and by slightly in the thought down, half. but not to say, customer where we're China. be the we generally CMM altogether. there the business smartphone primarily It's to I It's sit driven think would in going without

coming in So, I in say But I specific, seen weaker. here, more coming relatively phone would think I’ve our weaker. us. And China is look definitely strong even for compute, to is continue

CMM said probably than three ago. months it's So, expectations our slightly overall have we would for less

prior think here what probably would be the I of the versus talked driver we kind more primary on of the about side expectations. PD

Christopher Rolland

think well? maybe is on sounds other. Thanks. it go And of where PD through as in when there kind Yes. on as you you and is you by that inventory like as the here? Maybe well, inventory think the however inventory build, to terms it? some the some defence-related of get going to things you weeks surprise side side then want is think It inventory And well. or pushouts, of there's you caught work I finally And guys define through what where

Jeffrey Niew

see in now, portion frankly. of think the the all And in in back not starting for a seeing kind we're PD, the we're at half. recovery Well, that distribution to recovery original business the projections of such industrial I right quite

haven't back in industrial that's We been more just I So going growth recovery I think make for programs To the that on stable with And to it's a position, defense. our and medtech it. delayed, Medtech half PD. changed call do first comments, be delayed. expect but There's to was number few the distribution. into then make half. I'll which return XXXX a larger a in a been the we comment delayed have been of

announced just a That they're going XXX ago number ago I And about their to a deliver is projection. original call due the can was to joint deliver or were only strike they Chris, week fighters over little this XXX now a Lockheed of specific. side. the that kind year. And of week on one issues to a projecting out, more

delays other programs larger that's like here the that. in kind we're So about defense. couple talking a There's of of

it the Our position in are for hasn't changed some but of still orders really looks very long-term good, defense, these defense prognosis delayed. and

We in And could it the to materialize. the orders expected probably of materialize didn't they're QX, we the XXXX.. but really question them going year some in on half, whether to deliver draws back get within calendar they these

Jeffrey Niew

Jeff. much, so Thanks Great.

Operator

the CJS from the with And Securities. comes of next Labick Bob question line

is open. line Your

Unidentified Analyst

are Bob for tonight. How you? [indiscernible] It's Hi.

Jeffrey Niew

Okay.

Unidentified Analyst

that to with in north margins total, -- and I expect Is just say heard just to your clarify you the you revenues back think guidance, half correct? So start in I flat of EBITDA XX%.

Jeffrey Niew

That is correct.

Unidentified Analyst

Okay.

also without looks visibility of that have conservatism would And much how you to question question visibility be So is what around the QX. first flat -- I the revenue flat I guess or imply for is that consolidated? to versus revenue guess

Jeffrey Niew

me sit by go say and is, let business would there I Well, unit. through it

think say projections specialty year-over-year the half. within consumer business, that the very it you comfortable with Kind growth microphone about of medtech audio do I have talked I we're year-over-year. MSA, is is in the they would -- the when the -- back in do flattish

slightly maybe then -- the Device is down. so And obviously and Precision business up

the are defense month I can't to get predict say, the side, to within just area, Device these Now Precision going I would think we sit I exact we're and there it. going on orders. get the

we'll orders calendar be and a in because we're bit could on it conservatism able that little come have count can't in there I XXXX the but to yet, sooner the within now, fact would that so in I orders And of and already the rather be year -- August. right -- than deliver don't yet later, I hand

in right this the market until distribution sometime that XXXX. we're and The lot frankly, Yes. second in trajectory and change? kind piece is it a quite ship of industrial this don't But recovery not of in portion seeing expect saying kind now, Could of market. we're to

Unidentified Analyst

stronger. the guess, sheet balance Got lines keeps your it. getting of along then And I

You've talked with related flow your to us couple years? cash towards to XX% areas repurchase. Can give And any allocating last free size of update you focus has acquisitions, the about of versus or share then regard changed anything there? either of

Jeffrey Niew

the Well, I first. think first, acquisition cover portion we

one XXXX, discipline don't basis overpay million. there purchase look was look sheet, I probably that we opportunity something. the want I larger that with the the And our think balance for think are at about than that a in with around largest past done some in acquisitions we the to the we've on price to things at $XX is

the talked kind high. multiples like kind were we that in of about this previous of a years, lot And

terms very to going lot acquisitions, a things. but that over about And plays a this what they so we're could how optimistic in we year. I'm to be disciplined we're larger. six months do again, of next of be we'll out see And And different all the at looking

the think committed as far flow not go but As XX% towards than our we've share free to cash of repurchase. more buyback, XX%, stock I

the think past. year-to-date than with QX in we've in repurchases. year, full flow continue actually And the about shares to year-to-date, we'll buy we've what line on of I through for XX% back cash more spent the share talked

Unidentified Analyst

Great. update Are the for one hop seeing and then any new back queue. aid OTC And just more you Anything in I'll Any me hearing more demand? lines? market? on those entrants, along

Jeffrey Niew

Yes, of is have market seeing doing months answer far. short would But hearing expected a data would see said say; the than there aid our ago. we than sit to is so not actually traditional continue doing we we originally I lot that sell-through expected better it's we're six than and better

say I it's until of a but it's over-the-counter number expected. little sell-through not see think One, And I super in a again, sustainable. say So, it to market the that too the two is we on would year, half better this meaningful is things. early data than first the

see right In marginal they difference attritional the we hearing market meantime, traditional looking interested is market there's they're aid quite in only getting is and at when could what people a be that hearing doing hearing and traditional seeing over-the-counter price for aid is actually now. a service the that you in here get hearing because that maybe aids with the market well full opting the

Unidentified Analyst

it. Appreciate Great.

Operator

line [Operator Instructions] our of Craig-Hallum. Anthony And next Stoss the comes question from with

line open. Your is

Anthony Stoss

Hey follow-up environment. tough Jeff, to gross guys. Nice a margins I QX. on in wanted

in or to roughly XX%. you Are hit cetera, to QX year expecting kind an with need ago, bounce do flat up et to sequentially of really So, smartphones, up and through the quarter, for back what come a you is China QX December? XX% December

Jeffrey Niew

and mean, were we nowhere have back go near to of But some to I the mean QX. sequential improvement to XXXX, the numbers quarter numbers QX do shipping end QX we we're per I prior to the at I mean XXXX. Yes, I if QX from

and since China. -- quarter doable. down, so amounts would And for I sit have our And it I last this again, like mean come say, is there reasonable expectations seems

mean, which XX%. XXXX what is being I with at looking that's not great year I full essentially mean year flat flattish about, China, the we're talking China. a for for

John Anderson

to we improvement, here modest in is sequential Tony, that from the built very And have QX QX,

Anthony Stoss

or back to tell the closer on delays those And how then you you can I in delays expected business if see you it. if PD is slowing down on general defense defense mean, side, side? Got the much it guys of -- in it just the didn't is what you up

Jeffrey Niew

to compared say, we had a quarter would seeing were quite ago, I back. I kind we're of look to back it probably quarter point. ago, this the at shortfall just about XX% way. we of of back is what where to for expecting, industrial coming if levels, were just rebound a seeing defense a mean at to I that. the in the distribution, industrial would back thought I and XX% rest XXXX stronger starting we expecting not to say, is not not a but We're distribution come start And

improving delays its industrial of in XX% defense. distribution say and So XX% about XX%, not

Anthony Stoss

last the for question And me. it. Got

going down called stronger. at You definitely that if are you a for whole? you out XXXX as compute curious think or versus see. PCs PC XXXX looked to you to still being Do guys? be just year-over-year, nice It's business I'm

Jeffrey Niew

year-over-year. what to the I year. was half be growth there back is But now, going say definitely would and flattish in it PC right to sit market compared our last

year-over-year. in expecting, nice in market, low, especially really the tablet demand orders we're the some half QX QX, in we and first on and growth weak notebook a So really based had QX was

these of IoT in would market. stronger say, weaker just compute compute a our that being, half. roughly overall, could one in in the market. flattish what terms We're lot right, back a seeing lot first year-over-year, The year, So markets is here be IoT but Tony, say, definitely I recovery I I'd seeing the a smartphone. the in year we're not it in it -- but and of half guess for of full flattish compute exception

Anthony Stoss

then XX%, John, your than guys for on side go-forward on compliments performing peers, and let you better might a compute there use definitely that number pull XX% are sure. drop good of That's me even are how And the throw I to is it the kind further? you guess, to OpEx, that think one to basis, my you or on on levers still a more

John Anderson

forward the we than Yes. We have end rate. low would a had I million normal pulled some down that guide, run QX. the of quarter see it's of year from Tony, think number higher I that you back But in is half I the fee professional go this back did with OpEx. guide to towards can midpoint think my for We spending OpEx the in in of $XX go into the QX.

XXXX. it for I in would million, $XX keep of remainder million So that kind $XX the of

Jeffrey Niew

some just Tony, to we we've growth on I the at is actions year, of were which from of mean, nice number not were the beginning we materializing. taken -- very Yes. say, based expecting a PD,

the we've side maintain to taken on that sure so make we cost profitability. And action can

close on You see with we're holding in even shortfall kind and the operating margins are pretty profitability of revenue, the up. a

John Anderson

say Yeah, fairly holding and margins challenges operating up given are I both the top the well margins on would line. gross

Anthony Stoss

All guys. right. exactly. it. Yes, Appreciate Thanks,

Operator

disconnect. are no This further conference today's call, may now And you questions this at concludes and time. there

Knowles (KN) 2 Aug 232023 Q2 Earnings call transcript