KN - Earnings call 4 2023 | Knowles Corporation

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Operator

Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Knowles Fourth Quarter and Full Year 2023 Earnings Call. Today's conference is being recorded. [Operator Instructions]

would turn I to conference time, Cook. Sarah this like the to over At ahead. go Please

Sarah Cook

Relations, Audra, Anderson, you, year Sarah of and today call. full to our Niew, Vice XXXX I'm with President Investor President are President CFO. Jeffrey Vice and Thank Cook, welcome Senior earnings and John our CEO; presenting me our and QX and and

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

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

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

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

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

Jeffrey Niew

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

on into we for the get start I remarks what our year. and QX, of the my off like with seeing from status Before I would to markets the and QX highlights some previous results are

products, will correction with our increased the We again business half, shareholder in our higher-value first value strong significant drive in we half years XX% to In growth believe progress in operating in transforming the to a Medtech after Audio sequential revenue of Specialty which inventory large the made XXXX, we delivered come. business, second margins. &

of great success new enter momentum Our XXXX. us we operational the coupled products, gives performance, as our with

segment, capacitors significantly Device the growth. Since acquisition key Precision higher synergies initial be our Cornell available which of closing In we we in market total our now for opportunities drives for the and our will expectations. successfully than QX, markets completed believe future in expands Dubilier,

to very buy the company to opportunities This at $XXX out of with while debt million strong back continue or organic look closed to revenues. markets, free manageable in another continuing flow of and all additional target allowed our Lastly, us XXXX cash and levels. has our acquisition year XX% keeping growth at shares fund of

are shareholder We drive and value to in we the will we are continue beyond. excited heading and very believe about XXXX direction

above operations our our range. of which results. and QX within Now on with was $X.XX, of range, of million, to the guidance of our We end $XX high revenue $XXX from million EPS delivered cash guided

of mid- the year the market of to Medtech point to The results. to expansion increasing long was of hearing Hearing Cornell. growth in the penetration and the people revenue acquisition the segment first XX% loss globally, market XXXX. economies, of perform ago. year-over-year with period expecting Western mild-to-moderate Device strong of year-over-year, dynamics and X% continues Health in term. Precision class to The up a was revenue our well, all same up Audio Turning populations we Specialty dynamics in & half aging including versus middle are positive

industrial growth inventory in the will utilization complement cost specifically to the be second and and focus controls our Cornell half the improvement With remained increased associated and gross of distribution, XXXX underlying and earnings this acquisition we as in remains customers, be demand Channel in driven design markets on and appears and will PD margin normalization of across with inventory OEM While capacity number backdrop, for high. we expected optimization. organic stable, a by its activity XXXX core channel expected high, and in earnings our growth. expect Earnings synergies.

the Turning business. Microphone MEMS to Consumer

We forward was alternatives. up move period X% year quarter, In the continue revenue of ago. same the strategic the with from to a exploration

We the of in recovery have non-mobile sequential growth, by in demand share, market. now driven PC and X growing quarters mobile expanded products, the ongoing seen

We expect quarter growth to see XXXX. and of first year-over-year strong revenue in earnings the

half are higher well, confidence identified expected, perform to shown us channel initially earnings continues and in beginning than back expecting to recovery XXXX and MSA the are gives in to materialize projected the QX in of half we revenue In with to XXXX. XXXX. correct PD, demand growth. the momentum summarize, the be in Synergies begin and inventory of in To association to Cornell second acquisition

full For expect year achieve growth CMM, revenue modest in we XXXX. to

Heading challenging have units company business year, total second the with XXXX, revenue in a all cash flow. into continued of we optimistic across performed growth was half. our along earnings, well and am in I X robust XXXX we While

to strategic taken continue and long-term company drive I'm our We value. shareholder to the we've higher products value will transform markets, and actions confident

EPS over cash it John, and will operations to guidance. revenue, remember, we providing be from turn I Before

for company's believe our QX, metrics are the are to we business measures said best I these As in the and aligned focus.

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

John Anderson

the acquisition fourth quarter, the on EPS guidance and within of by $X.XX $XXX driven year in up $X.XX Cornell, million, completed below of levels. X. We was range, X% with which ago Jeff. reported our year we Thanks, the in quarter period, and line prior from revenues November guidance

versus the and margins favorable revenue points Audio basis improvements, Hearing XXX XX.X%, fourth In up and of the factory Specialty increased were up Gross million, the the quarter X% prior demand $XX foreign market. Health versus mix product in by year, productivity impacts. & XXXX Medtech segment, driven was currency

channel continued were of acquisition industrial revenues shipments Precision down markets XX% to as utilization capacity see lower the to factory segment $XX points we the from lower versus The million, Gross XX.X%, inventory. due the XX-percentage prior and the year margins prior excess Cornell. end by Device driven offset distribution up delivered partially of acquisition Cornell, year, by of in and the

million Consumer prior $XX shipments mobile MEMS revenues higher versus up of the into markets. the Microphone X% by were year, compute and driven

XXXX, combination in growth Gross full share an sequential we first higher through a of XX.X%, revenues revenue capacity above driven ago and Although by were year period delivered factory year growth gains. over year margins the market utilization. quarter, points the down a extremely weak basis same XX remainder XX% on were of the

and than driven of a fees and R&D legal $XX SG&A by total $XX basis, expenses the alternatives of in exploration to Cornell year million, levels, prior with professional associated million company $X compared On expense were an strategic up for higher prior the the the million, was slightly acquisition year. in CMM. increase quarter

capital cash and flow. operating from million. was and sheet balance We our in to $XX the million turn cash generated quarter activities in $X spending I'll Now

cash repurchased X.X was full also repurchased total shares We at of and flow approximately year On ended of million free and cost XX% year shares approximately million the $XX million $XXX revenues, a equivalents a at basis, cash of million. a $XX we cost cash X.X million. with or of million $XX and

million under note revolving connection facility which debt, includes with was issued a Cornell seller which and We million exited XXXX of with $XXX borrowings the acquisition. credit of our $XXX in

our leverage EBITDA. Lastly, X.Xx was XXXX net ratio

moving our Now guidance. to

to between $XX $XX $XX million be year quarter R&D XX% from to and first million, are by the and the the expected ago million $XXX Cornell. up and to expected both and within administrative the million, and due $XX between of growth range $XXX are to acquisition. versus million, be of expenses the of up be acquisition revenues Cornell driven are expenses million to selling XXXX, period, For year organic expected prior

EBIT million, which $X for of quarter in XX% the XX%. be $X expense to million a approximately forecasting $X margin range We're within of projecting and interest between includes to noncash adjusted QX interest. We're million to be imputed

both expect year the expense For quarter XXXX, rate for full of full XX% interest an tax effective $XX of expect and year XX% to we XXXX. we And million.

basis. quarter to million We're period. a [ This within the shares projecting outstanding on range the $X.XX ] assumes during average weighted per up to EPS XX of diluted year-ago from (sic) fully be a of $X.XX $X.XX $X.XX share,

million, Lastly, operations is be of to we're $X and projecting spending cash a million. expected be from $X to within capital to range $XX

to and for operator I'll now the our of back turn over the the questions answers Operator? call. portion call

Operator

[Operator Instructions] Susquehanna. go first Christopher We'll at Rolland to

Christopher Rolland

or talked So maybe this I and we as your guess revenues affect -- was for through discuss inventory areas some might in out markets. look if you channel flesh we future could excess perhaps some kind wondering end about of I us, you as XXXX? that of how

Jeffrey Niew

Thanks, question. Chris, Yes. for the

big some is lot listened inventories, And industrial/distribution So a the it that primary in we what calls, would the area to see say what I channels. call we of we've the impacting a distributors segment, our seeing portion. well PD no the of channel they're amount PD traditional in is business, doubt, as inventory. specifically Cornell the both And it the and portion as in fair of

of the But may our again, we're Cornell in and number cost I a think our factories. CMM business our to people in revenue getting the in factory Now And there a half in inorganic on have well by optimizing as we're that's our first acquisition, lot of do think through making portion. projecting our back we're we additional hearing business. the really growth focused are is, year. half as first cost be again, from factories, here the quarter, that creation being what primarily on term, it's organic strong MSA that end, in one, utilization, sure recovery in the driven as focused well value the get And in we're I we short as the the course, control --

businesses, so number are channel focused very that be until going our to we inventory point, but in in seeing those But little meantime, industrial the recovery. this a and primarily problem of see are we're the things distribution. on And at we

Christopher Rolland

Excellent.

all-encompassing to line to clues would your on would And for top changes EPS the the also love then sorry moving on those kind to love to but March, know how parts you the OpEx, guys question, segment. balance but And any know margin and get by between And gave and line, of bottom for this trend? guidance. of sequential kind gross

bit of to your some question assume little working a And there's what know then had a mark adjustments, lastly, operations. I to John, but I capital those cash from getting love would were.

Jeffrey Niew

Okay.

-- revenue just portion So the handle segment. by I'll

do less kind strong in see. normally in business a is I significantly microphone We're as year-over-year. expect the of think I business, demand quite we the down said, year-over-year CMM in still sequentially, probably QX. but we It than growth little good seeing

seasonally it's a as normally year. we in as So not down normal would expect

our in strongest in Hearing our is is business, on where products have aid hearing building then MSA And it seasonally where A our quarter lot goes in launched typically QX are Health early a we QX. big market, in show QX. of down.

is up pretty But year-over-year. again, our Hearing Health business So is usually significantly seasonally, lower. QX

look would significantly you you'd lot if it's marginally up the segment, then it's being by Cornell Device go And or up sit sorry, there but total, -- pretty the being and you a sequentially, to driven sequentially, in acquisition. Precision it's

and over the talk John numbers. it to turn the cash to EPS more about I'll Now flow on

John Anderson

Yes, sure.

you margins, QX. expect margins very of kind to talk prepared sequential remainder gross XXXX. my thing as QX guidance, the can R&D think OpEx, then didn't in similar remarks, specifically is And in I SG&A increases really well for as margins. revenue levels Chris, I of The but the So QX we of and gross provided EBIT provided I being both over only about

interest the and the I piece. provided expense was think taxes. I that first also

have have. the EPS get So we all that guidance I mechanics think you to to

question other your think free cash I was on flow.

Christopher Rolland

cash operations joined I And Yes, a from little the call late. specifically. apologize, I

John Anderson

Yes.

the the have if look little acquisition. and benefit at have We for about the a of inventory that million. sheet, you XXXX year. So you balance down out, the $XX to Cornell inventory, tailwind. strip because a it's When legacy cash from And sustainable. a reduction about QX full operations I would inventory, which business, of is some in very you the both camouflaged, million, lot the I'll related created for in But call did this a $XX say, strong

were extremely cash also CapEx than I'd for say a They year from normal. 'XX. standpoint, full low were lower free flow

projects and pushed think we've focused ROI. highest out on investments I some really with

would say XXXX, revenue a more X% bit into to could tick I little So going of up like a that range. to X%

Christopher Rolland

guide was from if wondering I talking capital was operations there? I cash to some Okay. specifically at working XX. for adjustments in about there the there to X get was

John Anderson

ops cash For QX, QX free is lowest cash quarter. seasonally from flow our and

You that. you'll 'XX see 'XX can or and go back to of QX

We have in big outflow. bonus a payouts That's QX.

But from working year. -- be inventory some net materials for a swing. and not other components in huge taking in raw the there's will in ramp-ups of capital, building building as later increases we're There

historically a slow little the quarter there a cash from be So may in standpoint. QX again, But is a flow headwind quarter.

Jeffrey Niew

robust expecting free in still year very full Even though to flow. a for cash low, the QX we're have of again year terms is historically

John Anderson

a the full flow again, lower touch But than strong for maybe Similar, XXXX. year. cash pretty

caution X I at looking just quarter. So

Operator

We'll move at to Labick Bob next Securities. CJS

Lee Jagoda

Lee actually Bob for Jagoda It's today.

the first half? with half, Can process. second And time it or I've other, a got kind some it follow-ups. the one starting frame Is decision be and whether the strategic then give business Just event? us XXXX way of a you CMM alternatives for any

Jeffrey Niew

along Obviously, complete this trying as line time as this. we're no process to definitive can, all at we but to there's move quickly

I'd is say process what that's now. So And progressing. for the

Lee Jagoda

results? of the And moment. how it might variables process well sounds as or then, relatively your on? I is impact the going guess, prepared do to key that the XXXX that's remarks, And faring you see in drivers the like sort What at business

Jeffrey Niew

I up well back pretty the back difficult the is very mean, very you're well. And would I after half, looking half, half as specifically well. what XXXX, say, Well, of right, especially very, a QX front 'XX, shaped QX

dynamics share introductions gains -- number the of we've are that here our new side we've customers and seen. some coupled product on so a some do products, got our are And really that of with

and we So think pretty we -- market recovery. some feel

some had overall, we're mean, that I side think So X year. we year-over-year. think of growth line expect modest expectations revenue growth. And crazy we kind our it's expect months modest with I wouldn't I in on growth expecting number this But I ago.

Lee Jagoda

last one one me. And then just for

of of cash not strong flow of had like repurchase... you would returning sort QX? you in to through cash your flow It So had such sounds free hit XX% goal have free shareholders

John Anderson

came December under than free good Yes, catch. XX%, and versus close. -- was was it's flow the XX%, It's in just think Good because We catch. at return. we cash really it's probably Yes. XX% stronger anticipated. But I

Lee Jagoda

out we a cash we of think back deployment? we as And loan, the look even XXXX, that if some about to should how sale to pay don't is have

John Anderson

Yes.

in I change think we -- there's our capital huge not allocation. a

debt it under we where do down repurchasing versus we and Given the pay are interest fact borrowings now rates debt evaluating, shares. have our are is given advantageous revolver, to more

evaluating interest But that set lower. think significantly of flow cash given combination I return, free of that. rates it, some combination were are XX% we will it a -- of be we when

So evaluating. -- we'll we're

Operator

Tristan to Gerra next at move We'll Baird.

Tristan Gerra

the revenue purchase? if in now QX on you And then down guidance? the expected have you you visibility higher that the the of the accretion that some from Cornell post expand break embedded and What's close on contribution what's in the Could than could business from that QX expect Cornell? you driving also,

Jeffrey Niew

you're So specifically from asking revenue QX? about from in -- Cornell the

Tristan Gerra

yes. if QX, Correct. QX possible, and

Jeffrey Niew

say if monthly of probably kind Yes. $XX would bit It months, for expectations was roughly slightly the And month that a in laid when in higher would for in line X our November that in QX, some EPS be million higher I we QX, starting $XX and run at revenue, the the remember rate million on with deal, say, in neutral. QX than announced I metrics. QX. we X the a little closing you than to out of about

I think the we what we're on -- line. is in pretty side, revenue said

maybe line, close is pretty EBITDA I think tad the higher. in a

date, the But side, thing to on months $X synergies. XX of is had, We within the I million biggest committed of about cost talk on closing the I here think as think, the we close. around

think with on this or business, really I that thing of million. to ahead actually know, up raise an what I and to opportunity time target, time show of think maybe prices this which for to biggest if think the results. the to on in I you call bring there's come that, a we're with it there lead think distribution bit a inventory, was the our But pricing actual is take that in I'd kind little may table product for slightly come $X we we've management

won't probably is, of half we say in 'XX. the on pricing. we based -- a savings, see would in But especially a coming purely now, of see just this back improvement I'd back start 'XX, starting into what half significant, it $X the the think margins So of million business from cost I until lot say, I beyond reasonably going

John Anderson

a accretion. just add Tristan, bit the to on little

expect again it neutral to QX. We be in

to We be XXXX. in accretive expect it to the of kind half back of earnings beginning

to in had million I interest, out in a what both We I think calculation cash thing interest. we And that call point and in $XXX interest-free there's connection is of imputed the one include we with script, the loan do the this mentioned then acquisition. accretion,

of rate So we X.XX% interest. calculate using on about a market impute

that's in So included that.

Jeffrey Niew

really good Tristan, us, is into of I X nice acquisition in margin say, mean, to we the that the side nice the opportunity on X about feel we a I be starting where this grower X, into -- the the I'd months for half months pretty EBITDA a year. and has are really overall, guess back what this side, this, fit and

Tristan Gerra

how also telecom, going pricing defense? LTA guessing I'm give spot? the Device you looking the for if like then for that's moving. type that you various segments follow-up, most or are can Precision is well agreements, could given of it some pricing how as details remind But is the industrial, you which of on business, if weakest, us And us have going whether automotive, on. is business? any all deleveraging on And And commentary my the capacitor, the obviously also agreements, to be the Great. inventory within

Jeffrey Niew

Yes.

think portion first, on I the talked and pricing, the in Cornell about acquisition. pricing So of the we

in over lot XXXX. over I business the think obviously, PD modest years. we've gone work, in pricing price expect But of XXXX increases traditional a through the we the

that in biggest very, the the still terms is industrial/distribution thing And see still Cornell we and see the think kind that of what I this we but is weak it -- this in in moment. as said Cornell, line this announced the I well. on markets business closing the But we of at November see kind time we business factored very when the the we closure by in was the business. or of X

So their industrial/distribution and really that I OEMs, it's telecom. think clear really still own. business But relatively large about to would of and There which a few, It's that's I we you shall about that, some quickly. say, industrial this that have believe recover. inventory going are up nameless, should remain when

half. creation focused meantime, control in are on in now But factories, and through the interim the optimize this we're utilization, get value factories we to hard in the in capacity what probably first period That's OpEx. right working the really

Operator

remarks. turn would are time. And I conference Cook for at closing questions the like this there to over further to Sarah no

Sarah Cook

us joining today. for you Thank

appreciate interest goodbye. in and we to speaking on and forward our earnings As you next your you, look with Thank Knowles call. always,

Operator

participation. call. for today's Thank concludes conference your This you

You may now disconnect.

Knowles (KN) 7 Feb 242023 Q4 Earnings call transcript