Knowles Corporation · NYSE:KN
Knowles — Proxy Contest (April 2019)
17 slides from Knowles's proxy contest presentation, Apr 18, 2019
Slide 1: Who Knowles Precision Devices?
WHO KNOWLES PRECISION DEVICES? APRIL 18, 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% $70MM 31% 60
Slide 4: What Makes Up Knowles' Precision Devices
What Makes Up Knowles’ Precision Devices • Knowles’ Precision Devices (“PD”) segment, produces Precision Devices Financial Summary2 high-reliability, harsh environment ceramic capacitors and ($MM) electro magnetic interference (“EMI”) filters for use in 2016 2017 2018 mission-critical applications i
Slide 5: Precision Devices Is Not A Commodity Passive Component Supplier
Precision Devices Is Not A Commodity Passive Component Supplier • PD does not make commodity capacitors and filters that Ceramic Capacitor Producers LTM Gross Margins1 are found in a majority of consumer electronic devices 45% but instead makes ceramic capacitors with substantial 42.1% engineering c
Slide 6: Knowles Has Repeatedly Stated It Is Transitioning To An Audio Company
Knowles Has Repeatedly Stated It Is Transitioning To An Audio Company And That Precision Devices Is Not-Strategic To Knowles Transition to Audio Solutions Provider Date Public Statement 3Q 2018 “Our transition from an acoustic component supplier to an audio solutions provider is well underway.” Earn
Slide 7: Capital Invested Since Spin Demonstrates Knowles' Priorities On Audio
Capital Invested Since Spin Demonstrates Knowles’ Priorities On Audio • Since the Spin, Knowles has invested more than $700MM in the businesses that represent its current Audio Segment and less than $70MM in its current Precision Devices segment1 • Shareholders should expect Knowles to deploy its ca
Slide 8: Synergies In Strategic Combinations Are Enormous
Synergies In Strategic Combinations Are Enormous • Strategic buyers that either (i) currently manufacture ceramic based technologies or (ii) overlap in end-market applications will have material synergies with similar customers, products, and manufacturing facilities • These synergies are obviously
Slide 9: Case Study: Knowles' Timing Devices
Case Study: Knowles’ Timing Devices • Knowles sold its high reliability Timing device business to Microsemi in November 2017 for ~15x LTM EBITDA. At multiple investor conferences shortly after the acquisition closed, Microsemi management stated that they believed they were going to triple the operat
Slide 10: Path To $2+ Of EPS In 2020
Path To $2+ Of EPS In 2020 • High reliability components suppliers with significant Precision Devices Divestiture Generates Meaningful EPS Accretion defense and medical end-market exposure have transacted at mid-teens EBITDA multiples, including Knowles’ Timing Device Business 2019 Consensus PD EBIT
Slide 11: Argument That Knowles Will De-Rate From Divestiture Is Debunked
Argument That Knowles Will De-Rate From Divestiture Is Debunked By Its Own Trading History • One of the reasons Knowles has given to argue against a Forward EV/EBITDA Pre/Post Sound Solutions1 strategic review of Precision Devices is that they may “de- 12x rate” due to an increase in mobile handset
Slide 12: Divestiture Of Timing Devices Had Negligible Impact On Trading Multiples
Knowles’ Divestiture Of Timing Devices Had Negligible Impact On Trading Multiples • Similarly, the effect of the divestiture of Knowles’ crystal Forward EV/EBITDA Pre/Post Timing Devices1 oscillator division (“Timing Devices”) in 2017, which the 10x compensation committee cited as being “not core to
Slide 13: Cited Examples Of Handset Concentration Conflate Customer Concentration Effect
Cited Examples Of Handset Concentration Conflate Negative Effect Of Customer Concentration On Trading Multiples • Part of the Company’s misguided analysis regarding “de- Apple Concentration vs. Forward EV/EBITDA1 rating” is based on customers they cited with material 12x mobile handset exposure (CRU
Slide 14: What Is The Right Comp Set For Knowles?
What Is The Right Comp Set For Knowles? • Caligan and Falcon Edge ask investors – which peer set Rolling 90-Day Average KN Forward P/E1 does Knowles most closely resemble? 19x Electronic Components 18x LTM LTM R&D Disclosed LTM Gross EBITDA (% of LTM Customer 17x Margin Margin Revenue) ROIC Concentr
Slide 15: Divesting Precision Devices Should Force A Rationalization Of Corporate Expense
Divesting Precision Devices Should Force A Rationalization Of Knowles’ Unallocated Corporate Expense • Knowles divested its speaker and receiver business in KN Unallocated Corporate Overhead Growth 2016 and its oscillator business in 2017, reducing its total 60 8% revenues by ~$400mm since 2013. How
Slide 16: Outstanding Questions For Shareholders
Outstanding Questions For Shareholders Despite public pronouncements that Precision Devices is not strategically linked to Knowles’ audio business, the Board has seemingly concluded that it is not in the Board’s interest to explore a sale at this time. We disagree and believe that it is incumbent on
Slide 17: 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