Knowles Corporation · NYSE:KN
Knowles — Proxy Contest (April 2019)
14 slides from Knowles's proxy contest presentation, Apr 3, 2019
Slide 1: Who Knowles Intelligent Audio?
WHO KNOWLES INTELLIGENT AUDIO? APRIL 3, 2019 WWW.THEFUTUREOFKNOWLES.COM
Slide 2: Additional Information
Additional Information • THIS PRESENTATION AND THE VIEWS EXPRESSED HEREIN ARE ONLY TO BE USED TO PROVIDE GENERAL INFORMATION REGARDING KNOWLES CORPORATION (“KNOWLES” OR THE “COMPANY”). THIS PRESENTATION AND THE VIEWS EXPRESSED HEREIN DO NOT HAVE REGARD TO THE SPECIFIC INVESTMENT OBJECTIVE, FINANCIAL
Slide 3: How We Think About Knowles
How We Think About Knowles • Knowles is comprised of four distinct businesses with different end-markets, competitive positioning, growth drivers, and market maturity. KN Overview (FY 2018)1 Operating Segment: Revenue1 % Total Profit (Adj) Margin % Total Hearing Health (“HH”) $225MM 27% $70MM 31% 60
Slide 4: Divestitures & Re-Segmentation Have Obscured Underlying Profitability of Core Acoustic Components Businesses
Divestitures & Re-Segmentation Have Obscured Underlying Profitability of Core Acoustic Components Businesses Hearing Health1 MEMS Microphones2 • Beginning in 2017, Knowles changed its reporting • When Knowles divested Sound Solutions in 2016, the segments, moving Hearing Health from Specialty restat
Slide 5: First Generation Intelligent Audio Products
First Generation Intelligent Audio Products Knowles1 Audience2 • Knowles 1st Gen IA (Versant and VoiceIQ) were • Prior to its acquisition by Knowles, Audience had discussed in detail on earnings calls for several proprietary, purpose-built digital signal processors quarters (“DSPs”) and audio codecs
Slide 6: Knowles' Current Intelligent Audio Products
Knowles’ Current Intelligent Audio Products1 Knowles publicly offers two products in their Intelligent Audio segment Design Wins Announced to Primary Product Date Competition Application Market opportunity IA61x Smart Mic Oppo Find X In mobile applications, the Always on Mobile Vivo NEX functionalit
Slide 7: Knowles' SmartMic Product Isn't A Long-Term Strategy For Mobile, By Their Own Admission
Knowles’ SmartMic Product Isn’t A Long-Term Strategy For Mobile, By Their Own Admission • Knowles’ only announced Intelligent Audio design wins for SmartMics are Oppo and Vivo adopting them in two handsets. The SmartMic provides low power voice-wake capabilities in a combination of a single-core DSP
Slide 8: Sell-Side Research Has Publicly Questioned The Market Opportunity and Knowles' Competitive Positioning In Intelligent Audio for Years
Sell-Side Research Has Publicly Questioned The Market Opportunity and Knowles’ Competitive Positioning In Intelligent Audio for Years • Longstanding questions regarding the market opportunity and Knowles’ strategy for Intelligent Audio remain unanswered JPM April 2, 2019 Research Caligan/Falcon Edge
Slide 9: Knowles Has Not Been Transparent About Intelligent Audio Spend
Knowles Has Not Been Transparent About Intelligent Audio Spend Intelligent Audio (IA) Implied Performance - 2017 ($MM) • We believe that Knowles has not been transparent with shareholders about the magnitude of operating losses in Audio Performance 1 2 Intelligent Audio (“IA”) Segment Audio Implied
Slide 10: Quarterly Non-GAAP Operating Expenses ($MM)
Audio Segment Shows Massive Expense Increase Post-Audience Acquisition Quarterly Non-GAAP Operating Expenses For Performance Audio, Intelligent Audio, & Unallocated Corporate ($MM) Acquisition 55 of Audience “Lastly, we achieved our goal of $25 million in annual cost savings 50 associated with the i
Slide 11: Revenue Necessary to Justify Investment Appears Unachievable
Revenue Necessary to Justify Investment Appears Unachievable • Based on Knowles’ disclosures, we estimate that to justify Necessary IA Revenue ($MM) Knowles’ investment, Knowles would need to generate Justify Investment To Breakeven $272MM of revenue from IA. Simply operating IA at 1 breakeven, whil
Slide 12: JP Morgan Research Report Highlights Key Issues; Reiterates Underweight
JP Morgan Research Report Highlights Key Issues; Reiterates Underweight Issue JPM April 2, 2019 Research Report Caligan/Falcon Edge Commentary Market Is Capitalizing “Thus, we think operating expense in Intelligent Audio Investors should look at core earnings, excluding Intelligent Audio Losses is m
Slide 13: Key Questions That We Are Asking Knowles to Answer
Key Questions That We Are Asking Knowles to Answer We are asking Knowles to provide disclosures about Intelligent Audio that allow investors to more appropriately value the business; in-line with disclosures provided by Knowles’ competitors. The key questions that we believe shareholders deserve ans
Slide 14: Contacts & Additional Information
Contacts & Additional Information Investors Edward McCarthy / Geoffrey Weinberg / Peter Aymar D.F. King & Co., Inc. (212) 269-5550 KN@dfking.com Press Robert Laman Mark Cho Caligan Partners, LP Falcon Edge Capital, LP +1 (646) 859-8205 +1 (212) 230-2295 rl@caliganpartners.com MCho@falconedgecap.com