Knowles Corporation · NYSE:KN
Knowles — Investor Presentation (November 2022)
37 slides from Knowles's investor presentation, Nov 28, 2022
Slide 1: Investor Presentation November 29, 2022
Investor Presentation November 29, 2022
Slide 2: Safe Harbor Forward Looking Statements
2 Safe Harbor Forward Looking Statements This presentation 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 perfor
Slide 3: Our Company
Our Company 4« knowles
Slide 4: A global technology leader and manufacturer
A global technology leader and manufacturer Knowles develops advanced micro-acoustic microphones and speakers, audio solutions, high performance capacitors and RF filters for the world’s leading technology providers. Who We Are 13 Countries 1000+ Engineering & Technology Employees ~7000 Total Employ
Slide 5: Strategic shift has delivered margin expansion and driven profitability
5 Strategic shift has delivered margin expansion and driven profitability Business Transformation • Realigned R&D and CapEx spend to higher value markets • Drove SG&A and overhead expense efficiencies • Shifted internal incentive program to focus on operating margins and free cash flow generation 20
Slide 6: 2022E Revenue & Non-GAAP Gross Profit Margin by Segment
2022E Revenue & Non-GAAP Gross Profit Margin by Segment 2022 estimates are calculated using the mid-point of Q4 guidance as of November 29, 2022 and the nine months ended September 30, 2022. * For this Non-GAAP financial measure see the Appendix for GAAP to Non-GAAP reconciliation. 6 Diversified mar
Slide 7: Investment Thesis: Repositioned to drive improved financial performance
Delivering strong earnings and cash flow by optimizing our product and market portfolio, while bringing unparalleled innovation and manufacturing expertise to the complex, technical challenges that face our customers. 7 Repositioned to drive improved financial performance. Investment Thesis Investme
Slide 8: Our Markets and Products
4« knowles Our Markets and Products
Slide 9: Long-held reputation in delivering high performance products
Long-held reputation in delivering high performance products 9 Product Innovation With decade upon decade of manufacturing expertise, our technology has consistently outperformed competitive products. We are uniquely capable of creating innovative solutions to complex technical needs, enabling perfo
Slide 10: Precision Devices revenue growth
Revenue Growth 10 Delivering specialty high performance components across a broad range of applications 2022 estimates are calculated using the mid-point of Q4 guidance as of November 29, 2022 and the nine months ended September 30, 2022. Sources for Market CAGR and SAM: Mobile Experts LLC, Global D
Slide 11: MedTech & Specialty Audio revenue growth
TRUE WIRELESS Revenue Growth 11 Delivering the highest performing solutions to address hearing loss 2022 estimates are calculated using the mid-point of Q4 guidance as of November 29, 2022 and the nine months ended September 30, 2022. Sources for Market CAGR and SAM: Futuresource Consulting Ltd, SAR
Slide 12: Consumer MEMS Microphones revenue growth
Revenue Growth 12 Driving innovation to enable voice control, communication and superior audio recording 2022 estimates are calculated using the mid-point of Q4 guidance as of November 29, 2022 and the nine months ended September 30, 2022. Sources for Market CAGR and SAM: Futuresource Consulting Ltd
Slide 13: Shift in mix of markets drives higher gross margins
13 Shift in mix of markets drives higher gross margins 2022 estimates are calculated using the mid-point of Q4 guidance as of November 29, 2022 and the nine months ended September 30, 2022. Market Shift We have expanded the markets we serve beyond the smartphone industry. Today, our business is more
Slide 14: Strategy provides a path to greater returns
* Reconciliations of these forward-looking Non-GAAP financial measures to the most directly comparable GAAP financial measures are not provided because the information needed to complete a reconciliation is unavailable without unreasonable effort. Strategy provides a path to greater returns Growth P
Slide 15: Our Financials
Our Financials 4« knowles
Slide 16: Proven track record of expanding profitability
827 778 2018 2022E 19.7 23.6 2018 2022E Adjusted EBIT Margin* (%) Revenue ($M) Adjusted EBITDA Margin* (%) 39.5 39.8 2018 2022E Non-GAAP Gross Profit Margin* (%) Non-GAAP Diluted EPS* ($) 16 Proven track record of expanding profitability Financial Performance 14.2 18.2 2018 2022E -2% CAGR +30 bps +4
Slide 17: Precision Devices: growth and margin expansion
Impressive growth and margin expansion with resilient end markets Precision Devices 42. 1 46. 8 2018 2022E 144 .7 245 .6 2018 2022E +14% CAGR 23. 4 27. 7 2018 2022E +470 bps +430 bps 27. 6 31. 0 2018 2022E +340 bps • Growth across all end markets • Margin expansion through strategic pricing and fact
Slide 18: MedTech & Specialty Audio: leading technology in niche market
18 Industry leading technology in niche market driving steady growth and profitability MedTech & Specialty Audio 42. 2 48. 8 2018 2022E 20 9.2 225 .6 2018 2022E +2% CAGR 29. 8 36. 4 2018 2022E +660 bps +660 bps 32. 6 40. 0 2018 2022E +740 bps • Growth through new product introductions, MEMS micropho
Slide 19: Consumer MEMS Microphone: decreasing exposure to cyclical markets
19 20. 0 15.0 2018 2022E Decreasing exposure to cyclical consumer end markets with challenging margins Consumer MEMS Microphone 38. 1 28. 0 2018 2022E 473 .0 30 6.4 2018 2022E Revenue ($M) Non-GAAP Gross Profit Margin* (%) -10% CAGR Adjusted EBIT Margin* (%) 13. 5 7.5 2018 2022E -1010 bps -600 bps A
Slide 20: Mix shift and recovery expected to drive improved gross margins
Mix shift and recovery in Consumer MEMS expected to drive improved gross margins * Reconciliations of these forward-looking Non-GAAP financial measures to the most directly comparable GAAP financial measures are not provided because the information needed to complete a reconciliation is unavailable
Slide 21: Proven ability to deliver strong free cash flow
Proven ability to deliver strong free cash flow Cash Generation 2.2 9.7 12.6 15.4 6.4 15.0+ 2018 2019 2020 2021 2022E 2023 Target** Free Cash Flow Margin* (%) 2022 estimates are calculated using the mid-point of Q4 guidance as of November 29, 2022 and the nine months ended September 30, 2022. * For
Slide 22: Strong balance sheet and strategic capital deployment
22 Strong balance sheet and proven cash flow generation enhances shareholder value through strategic capital deployment * 2022 estimates are calculated using Q4 guidance of $50M ending cash balance and $350M available borrowings under the revolving credit facility. For this Non-GAAP financial measur
Slide 23: Accelerating path to mid-term financial targets
23 Accelerating path to mid-term financial targets These forward-looking statements are made as of November 29, 2022, and Knowles disclaims any duty to update these statements. * Reconciliation of this forward-looking Non-GAAP financial measure to the most directly comparable GAAP financial measure
Slide 24: Key Takeaways
Focusing on market segments with the most favorable tailwinds including Ear, IoT, MedTech, EV and DefenseDiversification in high-growth markets Successful debt reduction and operating performance enables return of Free Cash Flow through increased share repurchasesCash generation Unparalleled product
Slide 25: Appendix
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Slide 26: Q4 2022 Guidance
GAAP Adjustments Non-GAAP Revenue $200–220M — $200–220M Gross Profit Margin 36.2–38.2% 0.3% 36.5–38.5% Diluted EPS $0.20–0.24 $0.11 $0.31–0.35 July 28, 2021 26 Q4 2022 Guidance Projections as of November 29, 2022; Q4 2022 GAAP results are expected to include approximately $0.07 per share in stock-ba
Slide 27: Precision Devices Key Financial Metrics
July 28, 2021 27 Precision Devices Years Ended Dec. 31, Key Financial Metrics (Unaudited) 2018 2019 2020 2021 2022E Revenue 144.7 172.0 173.1 201.1 245.6 Non-GAAP Gross Profit Margin* 42.1% 39.4% 38.4% 44.7% 46.8% Adjusted EBIT* 33.9 37.7 35.2 52.5 68.1 Adjusted EBIT Margin* 23.4% 21.9% 20.3% 26.1%
Slide 28: MedTech & Specialty Audio Key Financial Metrics
July 28, 2021 28 MedTech & Specialty Audio Years Ended Dec. 31, Key Financial Metrics (Unaudited) 2018 2019 2020 2021 2022E Revenue 209.2 214.4 173.6 231.3 225.6 Non-GAAP Gross Profit Margin* 42.2% 42.5% 37.3% 47.2% 48.8% Adjusted EBIT* 62.4 62.0 26.0 79.5 82.2 Adjusted EBIT Margin* 29.8% 28.9% 15.0
Slide 29: Consumer MEMS Microphones Key Financial Metrics
July 28, 2021 29 Consumer MEMS Microphones Years Ended Dec. 31, Key Financial Metrics (Unaudited) 2018 2019 2020 2021 2022E Revenue $473.0 468.4 417.6 435.7 306.4 Non-GAAP Gross Profit Margin* 38.1% 37.6% 34.9% 37.8% 28.0% Adjusted EBIT* 63.8 68.3 59.0 84.1 23.0 Adjusted EBIT Margin* 13.5% 14.6% 14.
Slide 30: Reconciliation of GAAP to Non-GAAP Financial Measures
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures (Unaudited) July 28, 2021 30 Year Ended December 31, (Continuing operations, in millions, except per share amounts) 2022E (1) 2021 2020 2019 2018 Revenues $ 777.6 $ 868.1 $ 764.3 $ 854.8 $ 826.9 Gross profit $ 279.3 $ 359.5 $ 2
Slide 31: Reconciliation of Net Earnings to Adjusted EBITDA
31 Year Ended December 31, (Continuing operations, in millions, except per share amounts) 2022E (1) 2021 2020 2019 2018 Net (loss) earnings $ (201.2) $ 150.2 $ 2.9 $ 49.7 $ 65.6 Interest expense, net 3.6 14.2 16.4 14.5 16.0 Provision for (benefit from) income taxes 16.4 (45.6) 8.4 16.6 (4.5) (Loss)
Slide 32: Segment Gross Profit Reconciliation
Precision Devices MedTech & Specialty Audio Consumer MEMS Microphones Year Ended December 31, Year Ended December 31, Year Ended December 31, (Continuing operations, in millions) 2022E(1) 2021 2020 2019 2018 2022E(1) 2021 2020 2019 2018 2022E(1) 2021 2020 2019 2018 Revenues $245.6 $ 201.1 $ 173.1 $
Slide 33: Segment Operating Earnings Reconciliation
33 Precision Devices MedTech & Specialty Audio Consumer MEMS Microphones Year Ended December 31, Year Ended December 31, Year Ended December 31, (Continuing operations, in millions) 2022E(1) 2021 2020 2019 2018 2022E(1) 2021 2020 2019 2018 2022E(1) 2021 2020 2019 2018 Operating earnings (loss) $ 58.
Slide 34: Reconciliation of Segment EBIT to Consolidated Net Earnings
34 Year Ended December 31, (Continuing operations, in millions) 2022E (1) 2021 2020 2019 2018 (Loss) earnings before interest and income taxes Precision Devices $ 56.0 $ 43.7 $ 31.7 $ 30.4 $ 27.5 MedTech & Specialty Audio 79.3 77.0 22.3 58.1 58.1 Consumer MEMS Audio (267.0) 60.0 22.6 49.2 47.6 Total
Slide 35: Free Cash Flow Reconciliation
35 Years Ended December 31, (in millions) 2022E (1) 2021 2020 2019 2018 Cash provided by operating activities $ 84.5 $ 182.1 $ 128.1 $ 123.9 $ 98.5 Less: Capital expenditures (34.7) (48.6) (31.9) (41.2) (80.1) Free cash flow (2) 49.8 133.5 96.2 82.7 18.4 Free cash flow as a % of revenues (1) 6.4 % 1
Slide 36: Reconciliation of Net Debt
36 Year Ended December 31, 2022E (1) (Continuing operations, in millions) Current maturities of long-term debt $ — Long-term debt 50.0 Total debt 50.0 Less: Cash and cash equivalents (49.8) Net debt $ 0.2 (1) 2022 estimates are calculated using the mid-point of Q4 guidance as of November 29, 2022. R
Slide 37: Reconciliation of Liquidity
37 Year Ended December 31, 2022E (1) (in millions) Maximum borrowings permitted on revolving credit facility $ 400.0 Less: Outstanding borrowings on revolving credit facility (50.0) Availability on revolving credit facility 350.0 Cash and cash equivalents 49.8 Liquidity $ 399.8 (1) 2022 estimates ar