Knowles Corporation · NYSE:KN
Knowles — Investor Day (September 2019)
72 slides from Knowles's investor day presentation, Sep 17, 2019
Slide 1: Knowles Corporation 2019 Analyst & Investor Day
Knowles Corporation 2019 Analyst & Investor Day September 17, 2019
Slide 2: Safe Harbor
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. The words “believe,” “expect,” “anticipate,” “project,” “estimate,” “budget,” “continue
Slide 3: Agenda
Agenda 9:00 Introduction Mike Knapp — Vice President, Investor Relations Company Overview Jeffrey S. Niew — President, Chief Executive Officer MEMS Microphones Christian Scherp — President, Performance Audio Balanced Armature Speakers Jon Kiachian — Vice President, Hearing Health Technologies Audio
Slide 4: Company Overview & Key Takeaways
Company Overview & Key Takeaways Jeffrey S. Niew President and CEO 4
Slide 5: Differentiated Solutions for Growing Markets
Differentiated Solutions for Growing Markets Large, attractive, and growing end markets Innovative product portfolio sustains differentiation Driving accelerated revenues and margin expansion 5
Slide 6: Portfolio Transformation is Delivering Results
Portfolio Transformation is Delivering Results Key Portfolio Moves TAM Expansion Gross Margin Improvement Reduced Leverage Diversification 2014 Other Mobile 49% 51% +$1B 29% to 40% 2014 2019E 2.5x to 1.0x 12/31/14 2019E 2019E • Acquisition of Audience Inc. • Speaker / Receiver divestiture • Timing b
Slide 7: Leading Provider of High-Performance Audio, Audio Processing and Precision Device Solutions
Leading Provider of High-Performance Audio, Audio Processing and Precision Device Solutions Countries: 11 KN is a market leader in: MEMS Balanced Armature Headquartered: Microphones Speakers Itasca, IL Listed: Edge High Performance RF Filtering KN Processors Capacitors Solutions 7
Slide 8: Large End Markets with Attractive Growth Rates
Large End Markets with Attractive Growth Rates SAM Mobile Industrials $3.7B Defense 2022 SAM MedTech $2.1B Ear Telecom 2019 SAM Infrastructure IoT Electric Vehicle Multiple sources were used in compiling KN’s addressable market size including industry databases, third party research reports, industr
Slide 9: Capitalizing on Diverse, Attractive End Markets
Capitalizing on Diverse, Attractive End Markets MEMS Audio Edge Balanced Armature High Performance RF Filtering Microphones Processors Speakers Capacitors Solutions Mobile MedTech MedTech Defense CORE Industrials Defense Telecom Telecom MedTech Mobile Ear Infrastructure Infrastructure GROWTH Ear Ear
Slide 10: Diversified Core Markets Provide Consistent Growth
Diversified Core Markets Provide Consistent Growth Mobile Defense • Market share leader • 5G upgrade cycle 2% • Radar and communication system upgrades 4% SAM CAGR • Multi-year program commitments SAM CAGR • Multi-mic adoption 2019-2022 2019-2022 0.6% Mobile Phone Unit Growth CAGR $1.6B to $1.7B SAM
Slide 11: Innovative Solutions Accelerating Growth
Innovative Solutions Accelerating Growth IoT Ear • Voice as a User Interface • Audio Edge Processing +30% • True Wireless devices • Multi-mic adoption +35% SAM CAGR SAM CAGR 2019-2022 2019-2022 $0.5B to $1.9B SAM by 2022 Telecom Infrastructure Electric Vehicle 53% of 2022 SAM • 5G infrastructure bui
Slide 12: Innovation Expands Gross Margin
Innovation Expands Gross Margin MEMS Microphones Smallest with the highest signal to noise ratio at the lowest power Balanced Armature Speakers Smallest speaker with the greatest output at the lowest power Edge Processors Superior audio and machine learning optimization with lowest power and latency
Slide 13: Our Team
Our Team Jeffrey S. Niew John Anderson President & CEO Senior Vice President & CFO Company Overview Financial Overview Key Takeaways Christian Scherp Jon Kiachian Mike Polacek Sam Vinci Chris Dugan President, Vice President, President, Vice President, President, Performance Audio Hearing Health Tech
Slide 14: MEMS Microphones
MEMS Microphones Voice as the User Interface Christian Scherp President, Performance Audio 14
Slide 15: Our Leading MEMS Microphone Product Offering
MEMS Our Leading MEMS Microphone Product Offering Microphones What is inside of SiSonic MEMS Microphones? Best acoustic performance, smallest size Broadest portfolio, serving all applications MEM S ASIC Integrated design and manufacturing scale 15
Slide 16: MEMS Microphones Market Overview
MEMS MEMS Microphones Market Overview Microphones Core $1.2B Mobile Leading market 2022 SAM share Growth Strong growth across diverse $1.0B MedTech end market 2019 SAM applications Ear IoT Primary SAM Sources: IHS, Yole, SAR Insights, IDC, US Hearing Industry Association, Futuresource 16 and KN comp
Slide 17: Mobile MEMS Microphones
MEMS Mobile MEMS Microphones Mobile SAM ($) Mobile Use Cases and Market Drivers Voice Communications ● Voice User Interface ● 2% Video Recording Sound ● Selfie-mode Recording Sound ● Digital Shift CAGR Flagship Mainstream Entry • 5G • Audio feature expansion • Improved 4G feature phones 585M • Best-
Slide 18: IoT Market Trends
MEMS ...IoT Market Trends Microphones IoT SAM ($) IoT Use Cases and Market Drivers 22% Smart Wearables CAGR Speakers TVs 190M Other / Automotive Home IoT Non-Home IoT 105M Voice as the User Interface Driving “Microphones Everywhere” 2019 2022 Primary SAM Sources: IHS, SAR Insights, IDC, and KN compe
Slide 19: Ear Market Trends
MEMS …Ear Market Trends Microphones Ear SAM ($) Ear Use Cases and Market Drivers 16% Wireless Over the Ear Wired CAGR True Wireless Active Noise Cancellation 250M 160M Voice as a User Interface Increased content and higher consumer value 2019 2022 Primary SAM Sources: Futuresource and KN competitive
Slide 20: and MedTech Market Trends
MEMS …and MedTech Market Trends Microphones MedTech SAM ($) MedTech Use Case and Market Drivers 13% CAGR Hearing Aids 65M Electret Microphone to MEMS Aging population with a Developing over the counter conversion willingness to pay for features (OTC) market 45M 2019 2022 Primary SAM Sources: US Hear
Slide 21: Why We Win in MEMS Core Market
MEMS Why We Win in MEMS Core Market Microphones Well-positioned with market leaders Growth Above the Top supplier across all Mobile tiers Market Rate Global manufacturing scale and support Margin Expansion Investing to meet market trends 21
Slide 22: Why We Win in MEMS Growth Markets
MEMS Why We Win in MEMS Growth Markets Microphones Aligning with key IoT ecosystems MEMS and ASIC capabilities IoT Growth at Lowest power and smallest microphones Market Rate Enabling cutting edge features Ear Gross Margins Above Corporate Leveraging MEMS leadership with our deep customer partnershi
Slide 23: MEMS Microphones Key Takeaways
MEMS MEMS Microphones Key Takeaways Microphones Voice as a User Interface Market leading share and scale with diversity of end market applications Profitable growth through technological differentiation 23
Slide 24: Balanced Armature Speakers
Balanced Armature Speakers Enabling Superior Portable Audio Jon Kiachian Vice President, Hearing Health Technologies 24
Slide 25: Our Leading Balanced Armature Product Offering
Balanced Armature Our Leading Balanced Armature Product Offering Speakers Balanced Armature is the Worlds Smallest Speaker Technology Dynamic Speaker Balanced Armature World’s smallest speaker Less than ½ the size Lowest power Electrical Output Diaphragm Drive Rod What is inside a Balanced Acoustic
Slide 26: Balanced Armature Speaker Market Overview
Balanced Armature Balanced Armature Speaker Market Overview Speakers $345M Core 2022 SAM MedTech Leading market share $230M Earphones and 2019 SAM Hearing Aids Growth Ear Primary SAM Sources: US Hearing Industry Association, Futuresource and KN competitive research. 26
Slide 27: Differentiated Balanced Armature Speakers Enable Growth Across Ear Use Cases
Balanced Armature Differentiated Balanced Armature Speakers Enable Growth Speakers Across Ear Use Cases… Ear SAM ($) Ear Use Cases and Market Drivers Hybrid True Wireless Premium Earphones Earphones Earphones 48% CAGR • Customers demanding • High quality audio • Small size enables multiple full rang
Slide 28: and MedTech
Balanced Armature …and MedTech Speakers MedTech SAM ($) Hearing Health Use Case and Market Drivers Hearing Aids 4% CAGR Aging population willing to pay for advanced Developing over the counter (OTC) market features 215M Social acceptance of in-ear devices Full range of output options allows customer
Slide 29: Why We Win in Balanced Armature Markets
Balanced Armature Why We Win in Balanced Armature Markets Speakers Track record of innovation and delivering premium performance to customers Growth at Broad suite of high performance solutions Market Rate Gross Margins Above Corporate Manufacturing capability and scale Average 29
Slide 30: Balanced Armature Key Takeaways
Balanced Armature Balanced Armature Key Takeaways Speakers Leadership position in multiple markets Small size, low power, superior audio enable new use cases Innovative design and manufacturing process 30
Slide 31: Audio Edge Processors
Audio Edge Processors Enabling Use Cases Beyond a Continuous Cloud Connection Mike Polacek President, Intelligent Audio 31
Slide 32: What is Edge Processing?
What is Edge Processing? Edge Processors From Edge Sensors to the Centralized Cloud The Edge Computing Ecosystem Primary Segments Advantages of Edge Processing • Off load cloud Centralized Cloud • Latency to cloud • Privacy • Reduced reliance on connection • Always on use cases Edge Devices • Effici
Slide 33: Audio Edge Processing Business and Market Overview
Audio Edge Processing Business and Market Overview Edge Processors $960M Growth 2022 SAM Mobile Leader in the emerging Audio Edge Processing $95M Ear market 2019 SAM IoT Primary SAM Sources: IHS, Futuresource, SAR and KN competitive research. 33
Slide 34: Advantages of AISonic Audio Edge Processors
Advantages of AISonic Audio Edge Processors Edge Processors Enables always on use cases Deployable across different models and application processors OPEN Open DSP allowing for use case customization 34
Slide 35: Audio Edge Processing is Delivering on Voice Opportunities in Mobile
Audio Edge Processing is Delivering on Voice Opportunities Edge Processors in Mobile… Mobile SAM ($) Mobile Use Cases and Market Drivers Voice Wake ● Voice User Interface ● Context Awareness ● Sensor Processing 650M 153% CAGR Flagship Mainstream Entry • Best-in-class Voice UI • Robust Voice UI • Low
Slide 36: the Rapidly Expanding IoT and Ear Markets
…the Rapidly Expanding IoT and Ear Markets Edge Processors Ear and IoT SAM ($) IoT and Ear Use Cases and Market Drivers Voice User Interface ● Voice Communications ● Premium Earphone Features 78% 310M CAGR Smart Home Smart TVs Smart Speaker Ear • Low power voice • Low power voice • Low power voice •
Slide 37: Why We Win in Audio Edge Processing Growth Markets
Why We Win in Audio Edge Processing Growth Markets Edge Processors Optimal, low power edge processing Growth at Market Rate Open platform for customer and third-party OPEN innovation Gross Margins Above Corporate Early stage alignment with leading players creates Average opportunity both within and
Slide 38: Audio Edge Processing Key Takeaways
Audio Edge Processing Key Takeaways Edge Processors Explosion of voice/audio/sensor data Unique low power, high performance platform Open platform enables full participation across ecosystems 38
Slide 39: Knowles Corporation 2019 Analyst & Investor Day
Knowles Corporation 2019 Analyst & Investor Day September 17, 2019
Slide 40: Chris Dugan
Chris Dugan President, Precision Devices 40
Slide 41: High Performance Capacitors
High Performance Capacitors Creating Solutions for the Most Demanding Applications Sam Vinci Vice President, Precision Devices 41
Slide 42: Our Leading High Performance Capacitor Product Offering
High Performance Our Leading High Performance Capacitor Product Offering Capacitors A Capacitor is a Passive Device that Stores Broad Portfolio Energy in an Electrical Field • Multi-Layer • Single Layer • High Reliability Single-Layer Multi-Layer • Precision Variable • EMI Filters “Terminations” Dif
Slide 43: High Performance Capacitors Market Overview
High Performance High Performance Capacitors Market Overview Capacitors Core $805M MedTech 2022 SAM Industrials Leader in High Reliability / High $530M Performance Defense 2019 SAM Growth Telecom Infrastructure Electric Vehicle Primary SAM Sources: Paumanok and KN competitive research. 43
Slide 44: Broad Portfolio of Solutions Driving Steady Demand in Core
High Performance Broad Portfolio of Solutions Driving Steady Demand in Core… Capacitors Capacitor Core SAM ($) Core Market Use Cases and Market Drivers 4% CAGR Delivering high performance in unique form factors to address broad range of applications 450M 400M MedTech Industrials Defense MRIs and imp
Slide 45: And Increasing Demand in Growth Markets
High Performance …And Increasing Demand in Growth Markets Capacitors Capacitor Growth SAM ($) Growth Market Use Cases and Market Drivers Addressing high voltages and temperatures in space efficient form factors 40% 355M CAGR Telecom Infrastructure Electric Vehicles 5G Telecom expansion Power system
Slide 46: Electric Vehicles Presents High Growth Opportunity
High Performance Electric Vehicles Presents High Growth Opportunity Capacitors Battery On-Board AC/DC Charger DC/DC Management Converter Systems Accelerating EV adoption • 500M+ EVs on the road globally by 2040 DC/DC BMS AC/DC DC/AC DC/DC EV powertrain requirements PCU driving demand for our high EC
Slide 47: Why We Win in High Performance Capacitors
High Performance Why We Win in High Performance Capacitors Capacitors Ability to solve complex challenges Resources aligned to key markets Growth at Application customization through close Market Rate collaboration with customers Gross Margins Unique ceramic formulations In Line With Corporate Avera
Slide 48: High Performance Capacitors Key Takeaways
High Performance High Performance Capacitors Key Takeaways Capacitors Well-established technology leader in specialty markets Positioned to win by leveraging established high-performance capabilities Electric Vehicle growth and 5G tailwinds 48
Slide 49: RF Filtering Solutions
RF Filtering Solutions Designing Filters for the Future of Connectivity Chris Dugan President, Precision Devices 49
Slide 50: Spectrum Summary
RF Filtering Spectrum Summary Solutions Existing Mobile Spectrum New Mobile Spectrum Coverage & Capacity Low Latency High Capacity Below 1GHz 1-6 GHz Microwave Bands 30 GHz mmWave Bands 100 GHz WiFi TV Existing Mobile Fixed Links and Satellites Macro Cells Macro & Small Cells Small Cells Broad Deplo
Slide 51: Our Leading RF Filter Product Offering
RF Filtering Our Leading RF Filter Product Offering Solutions An RF Filter Permits the Passage of Select Frequencies Most compact filters mmWave Communications Unique ceramic formulations Public Safety Weather Satellite Knowles RF Filter 5G Custom designs 51
Slide 52: RF Filtering Solutions Market Overview
RF Filtering RF Filtering Solutions Market Overview Solutions $300M Core 2022 SAM Defense Market Leader in compact $155M microwave / mmWave Filtering 2019 SAM Growth Telecom Infrastructure Primary SAM Sources: Small Cell Forum: Small Cells Market Status Report and KN competitive 52 research.
Slide 53: Leveraging First Mover Advantage Across RF Filtering Markets
RF Filtering Leveraging First Mover Advantage Across Solutions RF Filtering Markets Use Cases and Market Drivers Defense 5G Base Stations Radar Communications 5G mmWave deployment Defense upgrades of radar and Advanced detection communications systems and jamming Core SAM ($) Growth SAM ($) 8% CAGR
Slide 54: Enabling the Transition to 5G
RF Filtering Enabling the Transition to 5G Solutions Base Station Estimates Deployment Expectations 4 – 16 filters mmWave Antenna Point mmWave Deployment Schedule mmWave Sub-6GHz 5G 2018 2019 2020 2021 2022 2023 2024 2025 Antenna mmWave US ● Antenna Japan ● Australia ● South Korea ● China ● 5G mmWav
Slide 55: Why We Win in RF
RF Filtering Why We Win in RF Solutions Technology widely deployed and proven in critical environments Proprietary substrate materials and processing Growth at techniques Market Rate Gross Margins Unique in-house design and testing capabilities Above Corporate Average Investing in high-volume manufa
Slide 56: RF Filtering Solutions Key Takeaways
RF Filtering RF Filtering Solutions Key Takeaways Solutions Leveraging historical defense technology leadership Only technology that can achieve filtering and size requirements Leader in 5G mmWave filtering 56
Slide 57: Financial Overview
Financial Overview John Anderson Senior Vice President & CFO 57
Slide 58: Earnings Growth
Financial Priorities Operating Expense Increase Revenues Expand Gross Margins Discipline • Core Markets • Product Mix Shift • Improved Operating Leverage • Growth Markets • New Product Introductions • R&D Optimization • Acquisitions • Product Cost Reductions • Lean Initiatives and IT Scale Earnings
Slide 59: Driving Results: 2017-2019 Financial Performance
Driving Results: 2017-2019 Financial Performance 2017 2018 2019E CAGR (2017-2019) Revenues $744M $827M $845 - 870M 7.4% Non-GAAP Gross Profit $300M $327M $330 - 356M (as % of revenue) 40.3% 39.5% 39% - 41% Adjusted EBIT $111M $117M $128 - 138M (as % of revenue) 14.9% 14.2% 15% - 16% Non-GAAP Diluted
Slide 60: Grow Revenues Mid to High Single Digits
Grow Revenues Mid to High Single Digits Revenue Drivers • 5G infrastructure: RF Filtering Solutions $1-$1.1B Mid to High • Ear/true wireless: Mics/BAs/Audio Edge Processors $827M $845-$870M Single Digit Growth+ • IoT/smart home: Mics/Audio Edge Processors • Electric Vehicles: High Performance Capaci
Slide 61: Expand Gross Profit Margin
Expand Gross Profit Margin Non-GAAP Gross Profit Margin Drivers • Multiple Growth Opportunities at Above Average Gross Margins 42% or higher • MEMS Microphone Product Mix (Analog to Digital) • Product Cost Reductions, Net of ASP Erosion 39-41% 39.5% • Productivity Gains 2018 2019E New Products Mix C
Slide 62: Operating Expense Discipline
Operating Expense Discipline Non-GAAP Operating Expenses Expense Management SG&A • Operational Leverage with Revenue Growth 11.2% 10.5% • IT Optimization 10-11% • Lean Back Office 14.3% R&D 14.0% 11-12% • Investing in Product Roadmaps • Leveraging Low Cost Regions 2018 2019E 3-4 Years • Ongoing Port
Slide 63: Disciplined Capital Allocation Strategy
Disciplined Capital Allocation Strategy Today Future Invest in the Business Selective Investment to Maintain Leadership and Growth Maintenance and Growth CapEx Maintain Investment Grade Credit Metrics • Invest in Innovation • Debt Reduction • Next Generation Manufacturing Technology • Acquisitions •
Slide 64: Financial Target Model
Financial Target Model 2018 2019E Target Model (3-4 Years) Revenues $827M $845 – $870M Mid to high single digit growth Gross Profit 39.5% 39-41% 42% or higher Non-GAAP Margins Adjusted EBIT 14.2% 15-16% 20% or higher GAAP to Non-GAAP Reconciliation can be found in the Appendix for 2018 Results. 64
Slide 65: Key Takeaways
« knowles Key Takeaways 65
Slide 66: Powering Sustainable Growth
Powering Sustainable Growth Large, attractive, and growing end markets Innovative product portfolio sustains differentiation Driving accelerated revenues and margin expansion Strong financial foundation and disciplined capital allocation On path to exceed $1B in revenue and achieve 50% increase in o
Slide 67: Appendix
Appendix « knowles
Slide 68: GAAP to Non-GAAP Gross Profit Reconciliation
GAAP to Non-GAAP Gross Profit Reconciliation ($M's) December 31, 2014 Revenues $1,141.3 Gross profit $232.7 Gross profit as % of revenues 20.4% Stock-based compensation expense 0.8 Fixed asset and other related charges 39.5 Restructuring charges 23.3 Production transfer costs1 24.5 Other2 15.0 Non-G
Slide 69: GAAP to Non-GAAP Gross Profit Reconciliation
GAAP to Non-GAAP Gross Profit Reconciliation ($M's) December 31, 2018 December 31, 2017 Revenues $826.9 $744.2 Gross profit $322.6 $286.0 Gross profit as % of revenues 39.0% 38.4% Stock-based compensation expense 1.6 1.8 Impairment charges - 1.4 Restructuring charges 0.4 4.0 Production transfer cost
Slide 70: Earnings from Continuing Operations to Adjusted EBIT Reconciliation
Earnings from Continuing Operations to Adjusted EBIT Reconciliation ($M's) December 31, 2018 December 31, 2017 Revenues $826.9 $744.2 Earnings from continuing operations before interest and income taxes $77.1 $40.0 Stock-based compensation expense 27.0 24.7 Intangibles amortization expense 6.5 7.3 I
Slide 71: GAAP to Non-GAAP Diluted EPS Reconciliation
GAAP to Non-GAAP Diluted EPS Reconciliation ($M's) December 31, 2018 December 31, 2017 Earnings from continuing operations $65.6 $6.5 Non-GAAP reconciling adjustments (1) 40.1 70.6 Interest expense, net non-GAAP reconciling adjustments (2) 6.3 6.1 Income tax effects of non-GAAP reconciling adjustmen
Slide 72: GAAP to Non-GAAP Operating Expense Reconciliation
GAAP to Non-GAAP Operating Expense Reconciliation ($M's) December 31, 2018 December 31, 2017 Revenues $826.9 $744.2 Research and development expenses $100.6 $93.4 Stock-based compensation expense (7.8) (6.1) Production transfer costs (1) (0.4) - Non-GAAP research and development expenses $92.4 $87.3