Knowles Corporation · NYSE:KN
Knowles — Investor Day (September 2019)
70 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 Exhibit 99.1
Slide 2: Forward Looking Statements
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,” “could,”
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
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
Slide 6: Portfolio Transformation is Delivering Results
Portfolio Transformation is Delivering Results Key Portfolio Moves Acquisition of Audience Inc. Attained DSP and algorithm capabilities TAM Expansion Speaker / Receiver divestiture End market diversification Footprint optimization New product innovation Gross Margin Improvement Timing business dives
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 Headquartered: Itasca, IL Listed: KN Countries: 11 KN is a market leader in: Balanced Armature Speakers Edge Processors RF Filtering Solutions MEMS Microphones High Performance Capacitors
Slide 8: Large End Markets with Attractive Growth Rates
Large End Markets with Attractive Growth Rates Multiple sources were used in compiling KN’s addressable market size including industry databases, third party research reports, industry/trade reports, and KN competitive research. Refer to each segment’s SAM for source notes. SAM $3.7B 2022 SAM $2.1B
Slide 9: Capitalizing on Diverse, Attractive End Markets
Capitalizing on Diverse, Attractive End Markets MedTech includes Hearing Health & Implantables MedTech IoT Mobile Ear MedTech MEMS Microphones Audio Edge Processors RF Filtering Solutions Balanced Armature Speakers High Performance Capacitors Telecom Infrastructure Ear IoT Ear Mobile CORE GROWTH Med
Slide 10: Diversified Core Markets Provide Consistent Growth
$1.6B to $1.7B SAM by 2022 47% of 2022 SAM Diversified Core Markets Provide Consistent Growth MedTech Deep customer relationships Transitioning to MEMS mics Aging global population Enabling mission-critical applications 4% SAM CAGR 2019-2022 Mobile Market share leader 5G upgrade cycle Multi-mic adop
Slide 11: Innovative Solutions Accelerating Growth
IoT Voice as a User Interface Audio Edge Processing +30% SAM CAGR 2019-2022 Telecom Infrastructure 5G infrastructure build out New generation of fixed access +40% SAM CAGR 2019-2022 Ear True Wireless devices Multi-mic adoption +35% SAM CAGR 2019-2022 Electric Vehicle Global conversion to EV Power sy
Slide 12: 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 High Performance Capacitors Hig
Slide 13: Our Team
Our Team Jeffrey S. Niew President & CEO Company Overview Key Takeaways John Anderson Senior Vice President & CFO Financial Overview Chris Dugan President, Precision Devices RF Filtering Solutions Mike Polacek President, Intelligent Audio Audio Edge Processors Christian Scherp President, Performance
Slide 14: MEMS Microphones
MEMS Microphones Voice as the User Interface
Slide 15: Our Leading MEMS Microphone Product Offering
Our Leading MEMS Microphone Product Offering MEMS Microphones Best acoustic performance, smallest size Broadest portfolio, serving all applications Integrated design and manufacturing scale What is inside of SiSonic MEMS Microphones? ASIC MEMS
Slide 16: MEMS Microphones Market Overview
MEMS Microphones Market Overview Primary SAM Sources: IHS, Yole, SAR Insights, IDC, US Hearing Industry Association, Futuresource and KN competitive research. MEMS Microphones $1.2B 2022 SAM Leading market share Strong growth across diverse end market applications Growth Core Mobile MedTech IoT Ear
Slide 17: Mobile MEMS
Mobile MEMS Primary SAM Sources: IHS, Yole, KN competitive research. MEMS Microphones Mobile SAM ($) Voice Communications ● Voice User Interface ● Video Recording Sound ● Selfie-mode Recording Sound ● Digital Shift Flagship 5G Best-in-class audio New features Context awareness Multi-media focus Main
Slide 18: IoT Use Cases and Market Drivers
IoT SAM ($) IoT Use Cases and Market Drivers Voice as the User Interface Driving “Microphones Everywhere” ...IoT Market Trends Primary SAM Sources: IHS, SAR Insights, IDC, and KN competitive research. MEMS Microphones TVs Home IoT Other / Non-Home IoT Wearables Automotive Smart Speakers 22% CAGR
Slide 19: Ear Market Trends
…Ear Market Trends MEMS Microphones Primary SAM Sources: Futuresource and KN competitive research. Ear SAM ($) Ear Use Cases and Market Drivers 16% CAGR True Wireless Voice as a User Interface Active Noise Cancellation Increased content and higher consumer value Wireless Over the Ear Wired
Slide 20: MedTech Market Trends
…and MedTech Market Trends MEMS Microphones Primary SAM Sources: US Hearing Industry Association and KN competitive research. MedTech SAM ($) MedTech Use Case and Market Drivers 13% CAGR Electret Microphone to MEMS conversion Aging population with a willingness to pay for features Developing over th
Slide 21: Why We Win in MEMS Core Market
Why We Win in MEMS Core Market MEMS Microphones Well-positioned with market leaders Top supplier across all Mobile tiers Global manufacturing scale and support Investing to meet market trends Growth Above the Market Rate Margin Expansion
Slide 22: Why We Win in MEMS Growth Markets
Why We Win in MEMS Growth Markets MEMS Microphones Growth at Market Rate Gross Margins Above Corporate Average IoT Aligning with key IoT ecosystems MEMS and ASIC capabilities Ear Lowest power and smallest microphones Enabling cutting edge features MedTech Leveraging MEMS leadership with our deep cus
Slide 23: MEMS Microphones Key Takeaways
MEMS Microphones Key Takeaways MEMS Microphones Voice as a User Interface Market leading share and scale with diversity of end market applications Profitable growth through technological differentiation
Slide 24: Balanced Armature Speakers
Balanced Armature Speakers Enabling Superior Portable Audio
Slide 25: Our Leading Balanced Armature Product Offering
Our Leading Balanced Armature Product Offering Balanced Armature Speakers World’s smallest speaker Lowest power Superior audio Balanced Armature is the Worlds Smallest Speaker Technology Coil Electrical Output Yoke Permanent Magnets Reed Acoustic Output Diaphragm Drive Rod Balanced Armature Dynamic
Slide 26: Balanced Armature Speaker Market Overview
Balanced Armature Speaker Market Overview Balanced Armature Speakers Primary SAM Sources: US Hearing Industry Association, Futuresource and KN competitive research. $345M 2022 SAM Growth Ear Core MedTech $230M 2019 SAM Leading market share Earphones and Hearing Aids
Slide 27: Balanced Armature Speakers Enable Growth Across Ear Use Cases
Differentiated Balanced Armature Speakers Enable Growth Across Ear Use Cases… Balanced Armature Speakers Ear SAM ($) Ear Use Cases and Market Drivers Primary SAM Sources: Futuresource and KN competitive research. 48% CAGR Customers demanding full range sound with open fit Dual driver with premium tw
Slide 28: Balanced Armature in MedTech
…and MedTech Balanced Armature Speakers Primary SAM Sources: US Hearing Industry Association and KN competitive research. Hearing Health Use Case and Market Drivers MedTech SAM ($) 4% CAGR Aging population willing to pay for advanced features Developing over the counter (OTC) market Hearing Aids Soc
Slide 29: Why We Win in Balanced Armature Markets
Why We Win in Balanced Armature Markets Balanced Armature Speakers Track record of innovation and delivering premium performance to customers Broad suite of high performance solutions Manufacturing capability and scale Growth at Market Rate Gross Margins Above Corporate Average
Slide 30: Balanced Armature Key Takeaways
Balanced Armature Key Takeaways Balanced Armature Speakers Leadership position in multiple markets Small size, low power, superior audio enable new use cases Innovative design and manufacturing process
Slide 31: Audio Edge Processors
Audio Edge Processors Enabling Use Cases Beyond a Continuous Cloud Connection
Slide 32: What is Edge Processing?
What is Edge Processing? Edge Processors Advantages of Edge Processing Off load cloud Latency to cloud Privacy Reduced reliance on connection Always on use cases Efficiency AP platform independence Development efficiency Device differentiation From Edge Sensors to the Centralized Cloud The Edge Comp
Slide 33: Audio Edge Processing Business and Market Overview
Audio Edge Processing Business and Market Overview Primary SAM Sources: IHS, Futuresource, SAR and KN competitive research. Edge Processors $960M 2022 SAM Growth IoT Ear Mobile $95M 2019 SAM Leader in the emerging Audio Edge Processing market
Slide 34: Advantages of AISonic Audio Edge Processors
Advantages of AISonic Audio Edge Processors Edge Processors Enables always on use cases Deployable across different models and application processors Open DSP allowing for use case customization OPEN
Slide 35: Audio Edge Processing Delivering on Voice Opportunities in Mobile
Audio Edge Processing is Delivering on Voice Opportunities in Mobile… Edge Processors Primary SAM Sources: IHS and KN competitive research. Mobile SAM ($) Voice Wake ● Voice User Interface ● Context Awareness ● Sensor Processing Flagship Best-in-class Voice UI New always on features around sensors,
Slide 36: Rapidly Expanding IoT and Ear Markets
…the Rapidly Expanding IoT and Ear Markets Edge Processors Primary SAM Sources: IHS, Futuresource, SAR and KN competitive research Ear and IoT SAM ($) 78% CAGR Voice User Interface ● Voice Communications ● Premium Earphone Features IoT and Ear Use Cases and Market Drivers Smart TVs Low power voice w
Slide 37: Why We Win in Audio Edge Processing Growth Markets
Why We Win in Audio Edge Processing Growth Markets Edge Processors Growth at Market Rate Gross Margins Above Corporate Average Optimal, low power edge processing Open platform for customer and third-party innovation Early stage alignment with leading players creates opportunity both within and acros
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
Slide 39: High Performance Capacitors
High Performance Capacitors Creating Solutions for the Most Demanding Applications
Slide 40: Our Leading High Performance Capacitor Product Offering
Our Leading High Performance Capacitor Product Offering High Performance Capacitors Broad Portfolio Multi-Layer Single Layer High Reliability Precision Variable EMI Filters Differentiated Technology High Voltage High Temp High Reliability Cap Density A Capacitor is a Passive Device that Stores Energ
Slide 41: High Performance Capacitors Market Overview
High Performance Capacitors Market Overview High Performance Capacitors Primary SAM Sources: Paumanok and KN competitive research. Growth Core MedTech $805M 2022 SAM $530M 2019 SAM Electric Vehicle Telecom Infrastructure Industrials Defense Leader in High Reliability / High Performance
Slide 42: Broad Portfolio Driving Steady Demand in Core Markets
Broad Portfolio of Solutions Driving Steady Demand in Core… High Performance Capacitors Primary SAM Sources: Paumanok and KN competitive research. Capacitor Core SAM ($) Delivering high performance in unique form factors to address broad range of applications Core Market Use Cases and Market Drivers
Slide 43: Increasing Demand in Growth Markets
…And Increasing Demand in Growth Markets High Performance Capacitors Primary SAM Sources: Paumanok and KN competitive research. Capacitor Growth SAM ($) Addressing high voltages and temperatures in space efficient form factors Growth Market Use Cases and Market Drivers Telecom Infrastructure 5G Tele
Slide 44: Electric Vehicles Presents High Growth Opportunity
Electric Vehicles Presents High Growth Opportunity High Performance Capacitors Accelerating EV adoption 500M+ EVs on the road globally by 2040 EV powertrain requirements driving demand for our high performance products DC/DC PCU DC/DC EV ECU ECU BMS AC/DC DC/AC On-Board AC/DC Charger Battery Managem
Slide 45: Why We Win in High Performance Capacitors
Why We Win in High Performance Capacitors High Performance Capacitors Ability to solve complex challenges Resources aligned to key markets Application customization through close collaboration with customers Unique ceramic formulations Demonstrated reliability commands premium pricing Growth at Mark
Slide 46: High Performance Capacitors Key Takeaways
High Performance Capacitors Key Takeaways High Performance Capacitors Well-established technology leader in specialty markets Positioned to win by leveraging established high-performance capabilities Electric Vehicle growth and 5G tailwinds
Slide 47: RF Filtering Solutions
RF Filtering Solutions Designing Filters for the Future of Connectivity
Slide 48: Spectrum Summary
Spectrum Summary RF Filtering Solutions Broad Deployment Dense Area Deployment Knowles Participation Existing Mobile Spectrum New Mobile Spectrum Coverage & Capacity Low Latency High Capacity Below 1GHz 1-6 GHz 30 GHz mmWave Bands 100 GHz Macro Cells Existing Mobile TV WiFi Macro & Small Cells Fixed
Slide 49: Our Leading RF Filter Product Offering
Our Leading RF Filter Product Offering RF Filtering Solutions Most compact filters Unique ceramic formulations Custom designs An RF Filter Permits the Passage of Select Frequencies mmWave Communications 5G Public Safety Weather Satellite Knowles RF Filter
Slide 50: RF Filtering Solutions Market Overview
RF Filtering Solutions Market Overview Primary SAM Sources: Small Cell Forum: Small Cells Market Status Report and KN competitive research. RF Filtering Solutions $300M 2022 SAM Growth Telecom Infrastructure Core Defense $155M 2019 SAM Market Leader in compact microwave / mmWave Filtering
Slide 51: Leveraging First Mover Advantage Across RF Filtering Markets
Leveraging First Mover Advantage Across RF Filtering Markets RF Filtering Solutions Primary SAM Sources: Small Cell Forum: Small Cells Market Status Report and KN competitive research. Use Cases and Market Drivers Radar Defense upgrades of radar and communications systems Defense Communications Adva
Slide 52: Enabling the Transition to 5G
Enabling the Transition to 5G RF Filtering Solutions = Widespread Commercial Deployment (Mobile Experts) ● = License/Auction Activity (GSA) mmWave Deployment Schedule 2018 2019 2020 2021 2022 2023 2024 2025 US ● Japan ● Australia ● South Korea ● China ● Europe ● ● ● Base Station Estimates 4 – 16 fil
Slide 53: Why We Win in RF
Why We Win in RF RF Filtering Solutions Technology widely deployed and proven in critical environments Proprietary substrate materials and processing techniques Unique in-house design and testing capabilities Investing in high-volume manufacturing line to meet 5G demand Growth at Market Rate Gross M
Slide 54: RF Filtering Solutions Key Takeaways
RF Filtering Solutions Key Takeaways RF Filtering Solutions Leveraging historical defense technology leadership Only technology that can achieve filtering and size requirements Leader in 5G mmWave filtering
Slide 55: Financial Overview
_ Financial Overview John Anders ) . poe a . * « knowles
Slide 56: Financial Priorities
Financial Priorities Operating Expense Discipline Improved Operating Leverage R&D Optimization Lean Initiatives and IT Scale Expand Gross Margins Product Mix Shift New Product Introductions Product Cost Reductions Increase Revenues Core Markets Growth Markets Acquisitions Earnings Growth
Slide 57: 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 (as % of revenue) $300M 40.3% $327M 39.5% $330 - 356M 39% - 41% Adjusted EBIT (as % of revenue) $111M 14.9% $117M 14.2% $128 - 138M 15% - 16% Non-GAAP Diluted
Slide 58: Grow Revenues Mid to High Single Digits
Grow Revenues Mid to High Single Digits Revenue Drivers 5G infrastructure: RF Filtering Solutions Ear/true wireless: Mics/BAs/Audio Edge Processors IoT/smart home: Mics/Audio Edge Processors Electric Vehicles: High Performance Capacitors Increased smartphone content (multi-mic, analog to digital, 5G
Slide 59: Expand Gross Profit Margin
Expand Gross Profit Margin Non-GAAP Gross Profit Margin Drivers Multiple Growth Opportunities at Above Average Gross Margins MEMS Microphone Product Mix (Analog to Digital) Product Cost Reductions, Net of ASP Erosion Productivity Gains Improved Gross Margin though Growth in High Value New Products,
Slide 60: Operating Expense Discipline
Operating Expense Discipline Non-GAAP Operating Expenses Expense Management SG&A Operational Leverage with Revenue Growth IT Optimization Lean Back Office R&D Investing in Product Roadmaps Leveraging Low Cost Regions Ongoing Portfolio ROI Review Process Significant Operating Leverage through Discipl
Slide 61: Disciplined Capital Allocation Strategy
Disciplined Capital Allocation Strategy Invest in the Business Maintenance and Growth CapEx Invest in Innovation Next Generation Manufacturing Technology Acquisitions Pay Down Bank Revolver Today Selective Investment to Maintain Leadership and Growth Maintain Investment Grade Credit Metrics Debt Red
Slide 62: Financial Target Model
Financial Target Model 2018 2019E Target Model (3-4 Years) Revenues $827M $845 – $870M Mid to high single digit growth Non-GAAP Margins Gross Profit 39.5% 39-41% 42% or higher Adjusted EBIT 14.2% 15-16% 20% or higher GAAP to Non-GAAP Reconciliation can be found in the Appendix for 2018 Results.
Slide 63: Key Takeaways
Key Takeaways 4€ knowles
Slide 64: 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 $1B in revenue and achieve 50% increase in o
Slide 65: Appendix
Appendix 4€ knowles
Slide 66: GAAP to Non-GAAP Gross Profit Reconciliation (2014)
GAAP to Non-GAAP Gross Profit Reconciliation ($M's) December 31, 2014 Revenues $1,141.3 Gross profit $232.7 Gross profit as % of revenues 20.4% Stock-based compensation expense 0.8 Fixed asset and other related charges 39.5 Restructuring charges 23.3 Production transfer costs1 24.5 Other2 15.0 Non-G
Slide 67: GAAP to Non-GAAP Gross Profit Reconciliation (2018, 2017)
GAAP to Non-GAAP Gross Profit Reconciliation ($M's) December 31, 2018 December 31, 2017 Revenues $826.9 $744.2 Gross profit $322.6 $286.0 Gross profit as % of revenues 39.0% 38.4% Stock-based compensation expense 1.6 1.8 Impairment charges - 1.4 Restructuring charges 0.4 4.0 Production transfer cost
Slide 68: Earnings from Continuing Operations to Adjusted EBIT Reconciliation
Earnings from Continuing Operations to Adjusted EBIT Reconciliation ($M's) December 31, 2018 December 31, 2017 Revenues $826.9 $744.2 Earnings from continuing operations before interest and income taxes $77.1 $40.0 Stock-based compensation expense 27.0 24.7 Intangibles amortization expense 6.5 7.3 I
Slide 69: GAAP to Non-GAAP Diluted EPS Reconciliation
GAAP to Non-GAAP Diluted EPS Reconciliation ($M's) December 31, 2018 December 31, 2017 Earnings from continuing operations $65.6 $6.5 Non-GAAP reconciling adjustments (1) 40.1 70.6 Interest expense, net non-GAAP reconciling adjustments (2) 6.3 6.1 Income tax effects of non-GAAP reconciling adjustmen
Slide 70: GAAP to Non-GAAP Operating Expense Reconciliation
GAAP to Non-GAAP Operating Expense Reconciliation ($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