Q1 Gross Profit Margins Exceed High-End of
Guided Range
Q1 Cash from Operations Above Expectations
Strong Sequential Revenue and Earnings Growth
Expected in Q2
Knowles Corporation (NYSE: KN) ("Knowles" or the "Company"), a
market leader and global provider of advanced micro-acoustic
microphones and balanced armature speakers, audio solutions, and
high performance capacitors and radio frequency (“RF”) products,
today announced results for the quarter ended March 31, 2023.
"Knowles delivered gross margins, adjusted EBIT margins,
Non-GAAP diluted EPS, and cash from operations all above the
mid-point of our guided ranges, driven by favorable mix and
productivity gains in our operations," commented Chief Executive
Officer Jeffrey Niew. "Our better than expected gross margins and
cash from operations demonstrate the benefits of our diversified
portfolio and track record of operational excellence as our teams
around the globe identify savings to partially offset the negative
effects of the low factory capacity utilization."
Looking ahead to the second quarter, we expect to see strong
sequential revenue and earnings growth. I am increasingly
optimistic that channel inventory levels are improving in several
of the end markets we serve. Based on the improving trends across
most of our markets I expect to return to year over year growth in
the second half of this year."
Mr. Niew continued, "Knowles is well positioned across the
markets we serve and despite the near term market challenges our
strategy to focus on higher margin markets and products coupled
with the restructuring actions taken gives us confidence to achieve
our mid-term financial targets."
Financial Highlights
The following table highlights the Company’s financial
performance on both a GAAP and supplemental non-GAAP basis (in
millions, except per share data):
Q1-23
Q4-22
Q1-22
Revenues
$144.3
$197.1
$201.4
Gross profit
$53.8
$75.3
$83.3
(as a % of revenues)
37.3%
38.2%
41.4%
Non-GAAP gross profit
$54.4
$79.6
$83.8
(as a % of revenues)
37.7%
40.4%
41.6%
Diluted (loss) earnings per share*
$(0.06)
$(2.28)
$0.19
Non-GAAP diluted earnings per share
$0.05
$0.33
$0.35
Net cash provided by operating
activities
$21.9
$46.8
$0.8
* Current period results include
$7.8 million in stock-based compensation, $1.1 million in
restructuring charges, and $2.9 million in intangibles amortization
expense that are excluded from non-GAAP results.
Second Quarter 2023 Outlook
The forward looking guidance for the quarter ending June 30,
2023 is as follows:
GAAP
Adjustments
Non-GAAP
Revenues
$165.0 to $180.0 million
—
$165.0 to $180.0 million
Gross Profit Margin
38.7% to 40.7%
0.30%
39.0% to 41.0%
Diluted EPS
$0.11 to $0.15
$0.09
$0.20 to $0.24
Q2 2023 GAAP results are expected to include approximately $0.06
per share in stock-based compensation and $0.03 per share in
amortization of intangibles.
Non-GAAP Financial Measures
In addition to the GAAP results included in this press release,
Knowles has presented supplemental non-GAAP gross profit, earnings
before interest and income taxes, adjusted earnings before interest
and income taxes, non-GAAP diluted earnings per share, free cash
flow, as well as other metrics on a non-GAAP basis that exclude
certain amounts that are included in the most directly comparable
GAAP measure to facilitate evaluation of Knowles’ operating
performance. Non-GAAP results are not presented in accordance with
GAAP. Non-GAAP information should be considered a supplement to,
and not a substitute for, financial statements prepared in
accordance with GAAP. In addition, the non-GAAP financial measures
included in this press release do not have standard meanings and
may vary from similarly titled non-GAAP financial measures used by
other companies. Knowles believes that non-GAAP measures are useful
as supplements to its GAAP results of operations to evaluate
certain aspects of its operations and financial performance, and
its management team primarily focuses on non-GAAP items in
evaluating Knowles’ performance for business planning purposes.
Knowles also believes that these measures assist it with comparing
its performance between various reporting periods on a consistent
basis, as these measures remove from operating results the impact
of items that, in Knowles’ opinion, do not reflect its core
operating performance including, for example, stock-based
compensation, certain intangibles amortization expense, impairment
charges, restructuring, production transfer costs, and other
charges which management considers to be outside our core operating
results. Knowles believes that its presentation of these non-GAAP
financial measures is useful because it provides investors and
securities analysts with the same information that Knowles uses
internally for purposes of assessing its core operating
performance. For a reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP financial measures,
see the reconciliation table accompanying this release.
Webcast and Conference Call Information
Investors can listen to a live or replay webcast of the
Company’s quarterly financial conference call at
http://investor.knowles.com. The live webcast will begin today at
3:30 p.m. Central time. The webcast replay will be available after
7:00 p.m. Central time today.
A conference call replay will be available after 7:00 p.m.
Central time on April 27 through 11:59 p.m. Central time on May 5
at (866) 813-9403 (United States); (226) 828-7578 (International).
The conference ID is 252067. A webcast replay will also be
accessible via the Knowles website at http://investor.knowles.com
for a limited time.
About Knowles
Knowles is a market leader and global provider of advanced
micro-acoustic microphones and balanced armature speakers, audio
solutions, and high performance capacitors and RF products, serving
the consumer electronics, medtech, defense, electric vehicle,
industrial, and communications markets. Knowles uses its leading
position in SiSonic™ micro-electro-mechanical systems ("MEMS")
microphones and strong capabilities in audio processing
technologies to optimize audio systems and improve the user
experience across consumer applications. Knowles is also a leader
in hearing health acoustics, high performance capacitors, and RF
solutions for a diverse set of markets. Knowles’ focus on the
customer, combined with unique technology, proprietary
manufacturing techniques, and global operational expertise, enables
it to deliver innovative solutions across multiple applications.
Founded in 1946 and headquartered in Itasca, Illinois, Knowles is a
global organization with employees in over a dozen countries. The
Company continues to invest in high value solutions to diversify
its revenue and increase exposure to high growth markets. For more
information, visit knowles.com.
Forward-Looking Statements
This news release contains forward-looking statements within the
meaning of the safe harbor provisions of the United States Private
Securities Litigation Reform Act of 1995, such as statements about
our future plans, objectives, expectations, financial performance,
and continued business operations. The words “believe,” “expect,”
“anticipate,” “project,” “estimate,” “budget,” “continue,” “could,”
“intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,”
“will,” “would,” “objective,” “forecast,” “goal,” “guidance,”
“outlook,” “effort,” “target,” and similar expressions, among
others, generally identify forward-looking statements, which speak
only as of the date the statements were made. The statements in
this news release are based on currently available information and
the current expectations, forecasts, and assumptions of Knowles’
management concerning risks and uncertainties that could cause
actual outcomes or results to differ materially from those outcomes
or results that are projected, anticipated, or implied in these
statements. Other risks and uncertainties include, but are not
limited to: unforeseen changes in MEMS microphone demand from our
largest customers, particularly our top five customers, who
represent a significant portion of revenues for our Consumer MEMS
Microphone segment; our ongoing ability to execute our strategy to
diversify our end markets and customers; our ability to stem or
overcome price erosion in our segments; fluctuations in our stock's
market price; fluctuations in operating results and cash flows; our
ability to prevent or identify quality issues in our products or to
promptly remedy any such issues that are identified; the timing of
OEM product launches; risks associated with increasing our
inventories in advance of anticipated orders by customers; global
economic instability, including due to inflation, rising interest
rates, negative impacts caused by pandemics and public health
crises, or the impacts of geopolitical uncertainties; the impact of
changes to laws and regulations that affect the Company’s ability
to offer products or services to customers in different regions;
our ability to achieve reductions in our operating expenses; the
ability to qualify our products and facilities with customers; our
ability to obtain, enforce, defend or monetize our intellectual
property rights; disruption caused by a cybersecurity incident,
including a cyber attack, cyber breach, theft, or other
unauthorized access; difficulties or delays in and/or the Company’s
inability to realize expected cost synergies from its acquisitions;
increases in the costs of critical raw materials and components;
availability of raw materials and components; managing new product
ramps and introductions for our customers; our dependence on a
limited number of large customers; our ability to maintain and
expand our existing relationships with leading OEMs in order to
maintain and increase our revenue; increasing competition and new
entrants in the market for our products; our ability to develop new
or enhanced products or technologies in a timely manner that
achieve market acceptance; our reliance on third parties to
manufacture, assemble, and test our products and sub-components;
escalating international trade tensions, new or increased tariffs
and trade wars among countries; financial risks, including risks
relating to currency fluctuations, credit risks and fluctuations in
the market value of the Company; a sustained decline in our stock
price and market capitalization may result in the impairment of
certain intangible or long-lived assets; market risk associated
with fluctuations in commodity prices, particularly for various
precious metals used in our manufacturing operation, changes in tax
laws, changes in tax rates and exposure to additional tax
liabilities; and other risks, relevant factors, and uncertainties
identified in our Annual Report on Form 10-K for the fiscal year
ended December 31, 2022, subsequent Reports on Forms 10-Q and 8-K
and our other filings we make with the U.S. Securities and Exchange
Commission. Knowles disclaims any intention or obligation to update
or revise any forward-looking statements, whether as a result of
new information, future events or otherwise, except as required by
law.
INVESTOR SUPPLEMENT -
FIRST QUARTER 2023
KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF
EARNINGS
(in millions, except per share
amounts)
(unaudited)
Quarter Ended
March 31, 2023
December 31,
2022
March 31, 2022
Revenues
$
144.3
$
197.1
$
201.4
Cost of goods sold
90.4
117.7
118.1
Restructuring charges - cost of goods
sold
0.1
4.1
—
Gross profit
53.8
75.3
83.3
Research and development expenses
20.0
18.0
23.1
Selling and administrative expenses
33.8
33.3
32.3
Impairment charges
—
231.1
—
Restructuring charges
1.0
(0.2
)
6.6
Operating expenses
54.8
282.2
62.0
Operating (loss) earnings
(1.0
)
(206.9
)
21.3
Interest expense, net
0.8
1.2
0.8
Other expense (income), net
2.3
0.4
(0.5
)
(Loss) earnings before income
taxes
(4.1
)
(208.5
)
21.0
Provision for (benefit from) income
taxes
1.1
(0.5
)
2.9
Net (loss) earnings
$
(5.2
)
$
(208.0
)
$
18.1
Net (loss) earnings per share:
Basic
$
(0.06
)
$
(2.28
)
$
0.20
Diluted
$
(0.06
)
$
(2.28
)
$
0.19
Weighted-average common shares
outstanding:
Basic
91.4
91.0
92.3
Diluted
91.4
91.0
94.3
KNOWLES CORPORATION
RECONCILIATION OF GAAP
FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (1)
(in millions, except per share
amounts)
(unaudited)
Quarter Ended
March 31, 2023
December 31,
2022
March 31, 2022
Gross profit
$
53.8
$
75.3
$
83.3
Gross profit as % of revenues
37.3
%
38.2
%
41.4
%
Stock-based compensation expense
0.5
0.2
0.5
Restructuring charges
0.1
4.1
—
Non-GAAP gross profit
$
54.4
$
79.6
$
83.8
Non-GAAP gross profit as % of revenues
37.7
%
40.4
%
41.6
%
Research and development
expenses
$
20.0
$
18.0
$
23.1
Stock-based compensation expense
(1.7
)
(1.4
)
(1.6
)
Intangibles amortization expense
(1.6
)
(1.6
)
(1.6
)
Other (2)
—
(0.2
)
(0.2
)
Non-GAAP research and development
expenses
$
16.7
$
14.8
$
19.7
Selling and administrative
expenses
$
33.8
$
33.3
$
32.3
Stock-based compensation expense
(5.6
)
(5.4
)
(5.5
)
Intangibles amortization expense
(1.3
)
(1.4
)
(1.5
)
Other (2)
0.4
0.7
(0.1
)
Non-GAAP selling and administrative
expenses
$
27.3
$
27.2
$
25.2
Operating expenses
$
54.8
$
282.2
$
62.0
Stock-based compensation expense
(7.3
)
(6.8
)
(7.1
)
Intangibles amortization expense
(2.9
)
(3.0
)
(3.1
)
Impairment charges
—
(231.1
)
—
Restructuring charges
(1.0
)
0.2
(6.6
)
Other (2)
0.4
0.5
(0.3
)
Non-GAAP operating expenses
$
44.0
$
42.0
$
44.9
Net (loss) earnings
$
(5.2
)
$
(208.0
)
$
18.1
Interest expense, net
0.8
1.2
0.8
Provision for (benefit from) income
taxes
1.1
(0.5
)
2.9
(Loss) earnings before interest and
income taxes
(3.3
)
(207.3
)
21.8
(Loss) earnings before interest and income
taxes as % of revenues
(2.3
)%
(105.2
)%
10.8
%
Stock-based compensation expense
7.8
7.0
7.6
Intangibles amortization expense
2.9
3.0
3.1
Impairment charges
—
231.1
—
Restructuring charges
1.1
3.9
6.6
Other (2)
(0.4
)
(0.5
)
0.3
Adjusted earnings before interest and
income taxes
$
8.1
$
37.2
$
39.4
Adjusted earnings before interest and
income taxes as % of revenues
5.6
%
18.9
%
19.6
%
Net (loss) earnings
$
(5.2
)
$
(208.0
)
$
18.1
Interest expense, net
0.8
1.2
0.8
Provision for (benefit from) income
taxes
1.1
(0.5
)
2.9
(Loss) earnings before interest and
income taxes
(3.3
)
(207.3
)
21.8
Non-GAAP reconciling adjustments (4)
11.4
244.5
17.6
Depreciation expense
9.2
9.2
11.7
Adjusted earnings before interest,
income taxes, depreciation, and amortization ("EBITDA")
$
17.3
$
46.4
$
51.1
Adjusted EBITDA as a % of revenues
12.0
%
23.5
%
25.4
%
Quarter Ended
March 31, 2023
December 31,
2022
March 31, 2022
Provision for (benefit from) income
taxes
$
1.1
$
(0.5
)
$
2.9
Income tax effects of non-GAAP reconciling
adjustments (3)
1.1
5.8
2.1
Non-GAAP provision for income
taxes
$
2.2
$
5.3
$
5.0
Net (loss) earnings
$
(5.2
)
$
(208.0
)
$
18.1
Non-GAAP reconciling adjustments (4)
11.4
244.5
17.6
Income tax effects of non-GAAP reconciling
adjustments (3)
1.1
5.8
2.1
Non-GAAP net earnings
$
5.1
$
30.7
$
33.6
Diluted (loss) earnings per
share
$
(0.06
)
$
(2.28
)
$
0.19
Earnings per share non-GAAP reconciling
adjustment
0.11
2.61
0.16
Non-GAAP diluted earnings per
share
$
0.05
$
0.33
$
0.35
Diluted average shares
outstanding
91.4
91.0
94.3
Non-GAAP adjustment (5)
3.3
2.5
2.0
Non-GAAP diluted average shares
outstanding (5)
94.7
93.5
96.3
Notes:
(1)
In addition to the GAAP financial measures
included herein, Knowles has presented certain non-GAAP financial
measures that exclude certain amounts that are included in the most
directly comparable GAAP measures. Knowles believes that non-GAAP
measures are useful as supplements to its GAAP results of
operations to evaluate certain aspects of its operations and
financial performance, and its management team primarily focuses on
non-GAAP items in evaluating Knowles' performance for business
planning purposes. Knowles also believes that these measures assist
it with comparing its performance between various reporting periods
on a consistent basis, as these measures remove from operating
results the impact of items that, in Knowles' opinion, do not
reflect its core operating performance. Knowles believes that its
presentation of non-GAAP financial measures is useful because it
provides investors and securities analysts with the same
information that Knowles uses internally for purposes of assessing
its core operating performance.
(2)
Other expenses represent the ongoing net
lease cost related to facilities not used in operations.
(3)
Income tax effects of non-GAAP reconciling
adjustments are calculated using the applicable tax rates in the
jurisdictions of the underlying adjustments.
(4)
The non-GAAP reconciling adjustments are
those adjustments made to reconcile (Loss) earnings before interest
and income taxes to Adjusted earnings before interest and income
taxes.
(5)
The number of shares used in the diluted
per share calculations on a non-GAAP basis excludes the impact of
stock-based compensation expense expected to be incurred in future
periods and not yet recognized in the financial statements, which
would otherwise be assumed to be used to repurchase shares under
the GAAP treasury stock method.
KNOWLES CORPORATION
CONSOLIDATED BALANCE
SHEETS
(in millions, except share and
per share amounts)
(unaudited)
March 31, 2023
December 31, 2022
Current assets:
Cash and cash equivalents
$
52.0
$
48.2
Receivables, net of allowances of $0.1 and
$1.1
109.5
134.7
Inventories, net
208.6
169.5
Prepaid and other current assets
12.9
10.0
Total current assets
383.0
362.4
Property, plant, and equipment,
net
158.5
161.8
Goodwill
471.0
471.0
Intangible assets, net
82.2
85.1
Operating lease right-of-use
assets
12.3
12.6
Other assets and deferred
charges
88.5
91.0
Total assets
$
1,195.5
$
1,183.9
Current liabilities:
Accounts payable
$
70.7
$
41.4
Accrued compensation and employee
benefits
21.1
26.9
Operating lease liabilities
7.4
8.4
Other accrued expenses
24.4
19.9
Federal and other taxes on income
1.7
2.5
Total current liabilities
125.3
99.1
Long-term debt
45.0
45.0
Deferred income taxes
0.9
0.9
Long-term operating lease
liabilities
6.9
7.2
Other liabilities
30.0
38.8
Commitments and contingencies
Stockholders' equity:
Preferred stock - $0.01 par value;
10,000,000 shares authorized; none issued
—
—
Common stock - $0.01 par value;
400,000,000 shares authorized; 97,146,487 and 91,359,500 shares
issued and outstanding at March 31, 2023, respectively, and
96,431,604 and 91,078,376 shares issued and outstanding at December
31, 2022, respectively
1.0
1.0
Treasury stock - at cost; 5,786,987 and
5,353,228 shares at March 31, 2023 and December 31, 2022,
respectively
(110.8
)
(103.3
)
Additional paid-in capital
1,668.7
1,665.5
Accumulated deficit
(453.4
)
(448.2
)
Accumulated other comprehensive loss
(118.1
)
(122.1
)
Total stockholders' equity
987.4
992.9
Total liabilities and stockholders'
equity
$
1,195.5
$
1,183.9
KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF
CASH FLOWS
(in millions)
(unaudited)
Three Months Ended March
31,
2023
2022
Operating Activities
Net (loss) earnings
$
(5.2
)
$
18.1
Adjustments to reconcile net (loss)
earnings to cash from operating activities:
Depreciation and amortization
12.1
14.8
Stock-based compensation
7.8
7.6
Non-cash interest expense and amortization
of debt issuance costs
0.3
0.2
Deferred income taxes
4.1
2.9
Other, net
1.8
0.6
Changes in assets and liabilities
(excluding effects of foreign exchange):
Receivables, net
25.3
3.4
Inventories, net
(38.0
)
(24.6
)
Prepaid and other current assets
(2.7
)
(1.7
)
Accounts payable
27.8
(7.1
)
Accrued compensation and employee
benefits
(5.9
)
(18.2
)
Other accrued expenses
(3.8
)
4.5
Accrued taxes
(0.7
)
2.0
Other non-current assets and non-current
liabilities
(1.0
)
(1.7
)
Net cash provided by operating
activities
21.9
0.8
Investing Activities
Capital expenditures
(3.9
)
(6.8
)
Net cash used in investing
activities
(3.9
)
(6.8
)
Financing Activities
Repurchase of common stock
(7.5
)
(6.8
)
Tax on stock option exercises and
restricted and performance stock unit vesting
(6.0
)
(6.1
)
Payments of finance lease obligations
(0.6
)
(3.0
)
Payments of debt issuance costs
(1.6
)
—
Proceeds from exercise of stock
options
1.4
3.9
Net cash used in financing
activities
(14.3
)
(12.0
)
Effect of exchange rate changes on cash
and cash equivalents
0.1
(0.2
)
Net increase (decrease) in cash and
cash equivalents
3.8
(18.2
)
Cash and cash equivalents at beginning of
period
48.2
68.9
Cash and cash equivalents at end of
period
$
52.0
$
50.7
Supplemental information - cash paid
for:
Income taxes
$
4.3
$
1.5
Interest
$
0.9
$
0.7
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230427005090/en/
Patton Hofer Knowles Investor Relations Email:
investorrelations@knowles.com
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