KN - Earnings call transcript Q3 2024

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Operator

Thank you for standing by. My name is Briana, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Knowles Corporation Third Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. [Operator Instructions].

the to turn Cook. now will call Sarah over I

Sarah Cook

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

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

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

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

to reconciliation X-K on conference will GAAP to This our G, website report knowles.com, with In call addition, at a our current pursuant measures release today directly today's financial Form on posted the Reg in the comparable can any include in referenced during non-GAAP measures. press be found filed and most SEC. our

indicated. on found section the slides, continuing financial a available which can operations website. call Relations this on We've will webcast financial All in be Investor our information non-GAAP basis, selected otherwise made of be in unless references

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

Jeffrey Niew

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

given strategy financial drive business. company's both definitive have that signed you are on for for basis to higher-growth otherwise of and to our transitioning move further we on QX detail, Knowles the I like continuing in we markets would The MEMS Consumer operations both all This in we the that in a on Before differentiated a agreement results metrics remind customers sale unless products growth and to value today's future. as sell Microphone to the solutions noted, where strong and revenue positions will portfolio our in earnings the shareholders. call

segment conditions our results, EBITDA company the in demonstrated PD from third realized additional expect the the were full of benefit improved quarter total our and adjusted as and expansion. margins acquisition, As margin we market by XX.X% I Cornell synergies

our to turning results. Now

a acquisition, was deliver on to X% represents the $XX range. growth. continue range, range, guided of while was our XX% third exceeding along in the end growth guided cash was CMM, driven Cornell high organic of midpoint $X.XX by our of operations inclusive $XXX at basis the with of EPS We million, our of at of from high the quarter. which the Revenue on expectations guided million end year-over-year

and segment. Medtech a Audio Specialty our sequentially QX, In on grew to X% On & basis. XX% revenue year-over-year

our optimistic operational about growth strong continued our The future. and by strong new sustained is technology remains product market evidenced end we are Our adoption and and success cutting-edge excellence, for margins. Health of our Hearing products

of them Apple We device hearing of aids these health that available the of hearing in market. the least X. This, updates add traditional AirPods hearing to users stigma address health Over-the-counter eliminating to earlier which using that In hearing understanding over-the-counter QX, Apple and the penetrated the hearing could Pro loss believe hearing have recognizing is now loss, aids. potential of hearing mild the will adoption coupled aid a hearing continue drive readily features awareness as sooner. features portion will loss announced help test could hearing with software drive

years, previous to highest by product we market. QX & Audio launches the normal year, seasonality of within Medtech with the hearing expecting from being Similar driven finish Specialty health revenue are the XXXX segment strong new to the

Looking Cornell. industrial at defense driven markets. our and Precision grew levels in of to XX% revenues our acquisition with Device On continued due electrification headwinds grew inventory distribution basis, X% and segment, in year-over-year sequentially, in revenue spite the a the of by markets partners, and

progress improve I utilization, expanding we the on as margins am productivity capacity are making pricing. also pleased we and with

to acquisition. Reflecting our be ownership of Cornell year, by continue excited I this past this

the Despite margin EBITDA adjusted net deployment our improvements to operational We've be first cash flow. significant disciplined throughout to in pricing. leading a to cash is challenges our to in operating critical approach Cornell expected its increased accelerating end improved strategy. continued cost ownership, markets, XXX acquisition points and pillar of a by also milestone year accretive basis our a have year increased We and synergies, continual instilled

industrial market partners. us for forward to XXXX. full to a end Precision healthy look have in I Bookings the we growth inconsistent be in for revenue recovers market of our modest we expect segment, a recovery pipeline opportunities and As well yet sustained new continue distribution end in in see as with positions as to the multiple Device we while have which see growth sequential very the QX, markets,

am As with our call, I business. signing Microphone to Consumer pleased beginning the definitive the MEMS I noted of of agreement in sell the the

margin as our our on discussed, electrification already markets results quarterly the end focus demonstrate attractive growing continue profile industrial defense, more expanded to Medtech, in we As and spaces.

important as a industrial deliver to company. we to technology ability leading value our evolution in confident this complete our am step in I shareholder

an future of discuss the in will quarter Investor plans end Forum where XXXX, the for we the closing and QX by growth and expect in anticipate fourth strategy detail. We our more holding the

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

John Anderson

quarter the basis of the MEMS XXXX of business, high Please mind, the be third stated. and referencing range measures the Consumer exclude and revenues end of of unless Thanks, by continuing Microphone organic on XX% at of today and the in keep a specifically growth ago Jeff. all quarter guidance year I'll driven that from period We fourth up reported are Cornell X%. million the acquisition operations $XXX in

$X.XX and $X.XX in at demand Audio. and revenue segment, midpoint $XX higher up quarter was of range or Hearing from the million, the both versus the guidance up year Specialty third Health the quarter Specialty prior XX% & Audio EPS our the of in In on Medtech XXXX. was XX%

margins down Gross yields. the basis year versus by and lower period, slightly driven points production XX.X%, ago mix unfavorable product XX were

of driven market by partially year period, the by to Precision elevated. million, revenues capacitors segment The in of lower inventories Cornell, delivered and acquisition the $XX distribution Devices XX% customer of channel the the offset high-performance end as remain up and shipments industrial OEMs channel from ago into

Shipments Gross with XXXX medical, and factory quarter margins offset from points markets up of point into legacy the due XX%, XXX the of defense basis partially expectations. PD down basis XX the improvement and in in gains. to productivity electrification by were a were line slightly third by margins Cornell, acquisition driven

utilization, we margins higher improvement at year, Precision by point this Device business, QX gross saw since gross and basis factory our pricing. XXX driven supply below of capacity legacy improved margin Cornell While savings chain are

$X acquisition segment. quarter in the Cornell, by prior to were $X.X R&D by offset in of basis, $XX million, SG&A million, PD higher acquisition million driven company year QX million restructuring expenses XXXX $X up was actions second half partially Cornell. from levels, XXXX the expense of the total than a the On due taken of the in

quarter due prior the was Interest the fourth associated up year borrowings of $X.X million to acquisition versus expense with XXXX. of the higher Cornell in bank

Now of on the million cash and net foreign our we sheet guidance range the to balance lower-than-expected cash from third working I'll from and capital end cash flow. activities, in our exchange operating above forward higher received high turn contracts. settlement generated In of quarter, $XX

cash spending XXXX, we $XX business. first of representing the million X operations is and months $XX a For the generated $X that over the the months quarter. flow, XX note operating Consumer ended Capital the for Please of X from inclusive X of Microphone was X MEMS million increase first XXXX. in September million cash in months

third credit $XXX the under the facility cost borrowings the our $XX note reduced million. revolving bank exited of We During at interest-free we of $X.X borrowings debt that quarter, credit revolving $XX with million and cash total shares of million and connection seller XXX,XXX by a with outstanding repurchased facility under quarter Cornell our an and in acquisition. million includes issued

trailing leverage our Lastly, EBITDA XX was Xx. ratio months net based adjusted on

Moving to guidance. our

$X between XXXX, period, are R&D for to ago year $X XX% acquisition million of up million XX%. are expected expected and quarter $XXX and be by be versus X% the projecting are revenues For $XXX expenses expenses the million million between Cornell. and be We're of million, with the range to EBIT a expected and $XX be driven to adjusted to million, the within year. the quarter to a of range selling within margin to of flat administrative prior $XX fourth

QX estimated expense and Interest is noncash imputed be $X to in million includes interest.

normal tax of of quarter, to foreign the the XX% to effective X% an expect lower tax is for rate due We which than credits. utilization

$XX assumes We're projecting shares the EPS spending from from $X million to operating includes is capital basis. a a projecting fully outstanding $XX be be $X.XX range million weighted within to capital quarter to discontinued discontinued includes cash of activities XX.X range operating Cash during per to million share. used million to operations. of related by diluted activities average $X.XX million and $X $X to and on of operations We're million be This spending $XX within a expected million. to

the fourth continuing In quarter and guidance third margin results our highlight summary, our profile quarter of operations.

increased portion call is for drive cover electrification over forum, the markets, growth defense, our industrials our call. which investor expected more which exposure QX back at operator detail to to of will the is rates, addition, revenue Operator? of for we Medtech, higher end our to In XXXX. now which the turn Q&A in planned I'll organic include attractive and

Operator

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

Bob Labick

the on further transformation company. Congratulations the of

of in to about talked end markets, little the I I start underlying typing -- remarks, PD. John, the And I demand bit fast wasn't know So kind think, but your I in enough. you a wanted with

you could you remind driver. what said kind the tell of us then maybe So and us

of recovering? strongest driving And that? see that that where markets So And the you PD what's do kind now? when the is are And you're seeing? what right in weakness end

John Anderson

let... I'll

Jeffrey Niew

first This Jeff. Let some is me just give color.

there part, sit would I defense okay. and it generally speaking, pretty say, still So looks the

timing with has time can and I think to think been been the still the lumpiness relative to And that's be underlying of obviously, I time always you're there. there of is orders, but defense, strength. demand

We're PD, starting you Medtech turn our business, area. say take in I PD business I when continues about in growth especially but think remain we've our the would medtech to section. it you think MSA in in MedTech to with definitely strong. the seen, if to see the the business specifically back overall PD

I think very MSA is still is But still well. been Medtech doing growing.

QX sit which still what of my our there a from the I electrification distribution think QX, would real -- industrial the in partners, is industrial, I perspective business. in with is probably would overall and flattish say, weakness year-over-year. I But call and lot remains is

kind the And of that so yet. like see weakness we that's real

a of was I And is yesterday. Knowles are good. with X month what say of I'd visiting their distributors, our seeing, kind actually number which commentary is we're who bookings are

just Next portion see month, to bookings consistent of the they're of not weaker, We're year-over-year growth. consistency back. then come need that a in really seeing little we yet that market, a they

as margin is, partners I year, should our and we QX, through thing we are what think say think some we're But all for least I would great expanded get recovery, in these further that's hopeful of at spite I into seeing and we talking the the distribution things, late expect the still of opportunity some there's what start gross PD QX is, about. expansion. Now

the the also things on Cornell utilization side, traditional but First, with on capacity that not the synergies and is relative the doing to PD Cornell. business we're

Bob Labick

light. probably a that Appreciate transformation, Great. be little more you're very much. asset And Okay. going to the obviously, with

of of level have the is previously, may this for us kind could You RemainCo remind kind of or... us but CapEx go-forward told you

John Anderson

cycle, of X% X%. of Yes. say I Sure, over range, a kind Bob. would revenue

Jeffrey Niew

Yes. I at... I mean if think look you

John Anderson

where if think it's get, period had . above a expansion little in I we some an cycle, that. But X% you Could area, over a a overall, could have

Jeffrey Niew

on be slightly could to probably we're where we're where cycle. -- year slightly depending and a the over And then X% lower, are Yes X% in year over, cycle. to X% but there we X.X% a

John Anderson

probably likely be XXXX X%. under a little will the

Jeffrey Niew

That's I'm what Correct. saying.

Bob Labick

out you the characteristics And here. this of long talk Got back in just you to speak. right of will about then Okay. and it. or I'll last jump Great. now one, to what's back kind targets you at now? But the how kind take for Can so of things beginning, and looking out is obviously, queue get environment the and it there M&A

Jeffrey Niew

question. Yes, I that. think it's Thanks a great for

I with what that our always front forward a going of assessing it's say, I portion of synergies opportunities going mean we there's come I us have when fruition. that's core we're in say defining number it's think would now. of good like of we hard Cornell opportunities strategy to right a terms to to in where do.

We are to we think come what do sense. we be like it out that We doesn't very the make want in to street, going selective in something don't do. would

what being we're So very careful we do.

with which us is multiple relative are all gives pleased think transformation And we it's us I about would think higher-margin add acquisitions... business, we've really clear story into the done helps the very I that options that thing I for M&A a -- more expanding. our is one very to just that

John Anderson

multiple... EBITDA

Jeffrey Niew

Our expanding. EBITDA multiple is

And us options so with basis. of so M&A EBITDA -- it more and to multiple things a much at gives faster higher accretive, make

lot and I to we being have a this. So our is this put of very into think resource critical future,

mean when So happens, we I on something can't we definitively hunt right well, the are say are I looking. now.

Operator

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

Christopher Rolland

still Cornell, you there. focus in amazing margin still Do of there pricing? see wondering, upwards that also margin to I have for the that bit you terms is little you I'd in love Is continued do improvement guess opportunities. first here on pricing left have a could you something business? pretty CD that's we I there. think have my one expansion was movement

Jeffrey Niew

just John the handle margins Let to me let talk I'll overall. and the pricing first, then generally

about talked owner, you we couple the these remember announced dollars and hold exact if By first So of million the this, numbers. first really went of didn't we much kind a of the think, we talk When of when of end price. we don't through deal, I price. too quarter about

of I $X million price. talked about think quarter, last I $X to million

think million year. get be going to we're price for I to year going $X this that above we're of the

timing with look price, longer-term we if of And you at have customers. contracts the

there's industrials. of -- lot the have to in We inventory relative channel

So on already pricing there's be based price there's more taken, we've going be, going to to the actions XXXX. in

million next. this million year, would couple So maybe I another say $X of

price. So is margin of the a big improvement portion from coming

working opportunity where there's that that out. we be kind the this. That done on traditional of year. Knowles single things business value do a the second laying start I'd haven't next But the manufacturing yet on on we'll of amount MSA will we of on say like PD thing, I Cornell. value amount or with really and I start can tremendous But we'll expand a take -- the John also what whether the business, call in and to start process we fair -- every think get creation creation floors that, it do year, in

more the we margin your would segment, expansion. talk reasonably we're more the kind from of for Cornell. don't confident can we Investor we'll that more Day I should have And I'm comments... expansion I going get PD that to other about know, margin get. any kind John, what say of So But overall

John Anderson

Yes.

driven we're just basis to I chain savings. by said, material and getting kind really lesser it Also, improvement XXX a was Jeff of in we to had supply of Cornell, points what think savings, pricing. reiterate extent, improved some

So there. that's

continue to get on I'll instance. also, that. harvest major also, I planning call there's from sites that, it, think OpEx getting our Oracle we're that And synergies Once 'XX. will into we on then the some

margin So there's increased in that Cornell for business. room

Jeffrey Niew

Yes.

here a it still in price getting revenue, of thing obviously, kind especially has last price, million year. the because recovers, in I as highlight the would the the is that market of challenging just I terms been means. year industrial well bodes what what think And for we're whole And relatively market. of the a on $X the think PD really this as I segment

Christopher Rolland

I little about And want then industrial. yes, bit hesitantly talk -- did a to more

versus there. think be could when what this Would if know sounds like inventory normalizes, into then is you much there? break it I for China EVs look soft. example, you you're love And to seeing there's over a there anything EVs West, West might East some And EVs, inventory a how like like be that helpful? know that geographically debate little look good. So up would

Jeffrey Niew

Yes.

based really think direct partners, that we to reporting hard with -- -- little have. inventory they're with view harder our a I So they or distribution months' believe, have still X inventory, that the inventory now. our OEMs it's We our frankly, indicator, right quite inventory. of amount hand pretty on they know good really have the customers distribution worth best the of about data us exact But on to of into a

In normal to come months. about got still order to ordering really to down get back X by patterns, that's

that they kind totally when when Hasn't been happens, good, as month the month say with question, we Now X our of earlier been but partners, X poor, horrible, right? meet said distributor on again, inconsistent, I it's just been it's is inconsistent. is

I our the much do Europe. primarily not Asia. And now America to segment It's not customers. say, electrification, There is have Asian China, as as specific much. would industrial and markets business but North we And that's in in in really PD this isn't

production. yes say as say electrification the we terms looking market We -- in back doing going weak, design a have electrification China. of to But out. in that, in of it's year-over-year this, flattish pointed is are of -- also I right what half you the kind because at wins is, we're and the new not again, of year, I doing tremendous would now amount

are opportunities We that starting production. are new garnering

though electrification, as we're offsetting heavily participating China. that's kind in of being down not So even in

Operator

from question next line of Tristan with the Baird. comes Our Gerra Instructions] [Operator

Tristan Gerra

Looking macro weakness and at continued you environment, highlighted industrial. the the in

changes is, seen demand the the over your first stable? some progress you about there? the at And high-end you you're any other few question any in renegotiate you pricing in past Cornell, in months? making consumer patterns The as pricing also, annual contracts What have markets, perhaps excluding talk unusual you changes from could is are pricing it impressive you customers seeing capacitors. if including end Or are hearing

Jeffrey Niew

Yes.

exposure comment. our discontinued I'll in first, that's our the And even is just consumer as quarter. to in that's with into That obviously, ops. line I make QX, So the running we've expectation. CMM expectation going into until it's And into fully Obviously, moved sold. look line with business

I doing fine. it's think

So I moment. big think see aren't at any there issues in we consumer this

and then then actually which market opportunity in of amount guess within would -- going which increases, the we markets, and And still think in of that that's -- we're tremendous forward. about RF in pricing to environment is is the stable. RF, pricing in but reductions primarily seeing -- defense, end And say. stable, would a either say cap price seeing I in some primarily I ceramic is not would not PD, say it's -- first, defense, a which MSA. terms I are is lot the any within space, of would in say I We're I capacitors what then there issues. pointing traditional pricing

PD of the our big one is think positions. our that have portion benefits businesses in businesses of is we I in sole-source a

a -- we're of of in in a with we price down pressure don't these think lot tremendous market. I don't and contracts in markets, we see even amount so a long-term And people,

Tristan Gerra

this markets as PD? Great. how the be various should hear. then That's for end we quarter the great trends -- sequential looking And within coming at to

Jeffrey Niew

Yes.

Okay.

me sequential look in On said medtech defense if -- Let growth, modest, so the industrial expecting the overall, And let up, to at is end overall, for and me up, right? going as flat, we're going we're to these. a be is is right? flat but markets look I is say, be electrification PD -- basis, I remarks, prepared expecting on first sequential

is higher obviously, X.X back degradation, seeing to running if distribution, kind which of like again, lot were industrial a But these So back it's not points numbers customers, you sequentially. about my years a and industrial go lot a of ago. we're

sequentially in continued we're now not the that's We of saw. industrial QX we So back market, like that seeing just improvement but kind to to from improvement QX. see of from QX the flat, did QX to some kind

Operator

today's Thank further conference this no you your questions call. are participation. all This There at time. for will conclude

disconnect. now may You

Knowles (KN) 24 Oct 242024 Q3 Earnings call transcript