Knowles Corporation · NYSE:KN
Knowles — Investor Day (February 2014)
66 slides from Knowles's investor day presentation, Feb 19, 2014
Slide 1: Knowles: The Acoustics Pioneer
Knowles: The Acoustics Pioneer February 2014 Exhibit 99.1
Slide 2: Introduction of Presenters
John Anderson Senior Vice President & Chief Financial Officer Jeffrey Niew President & Chief Executive Officer Mobile Consumer Electronics Specialty Components Michael Adell Co-President, Microphones Christian Scherp Co-President, Speakers & Receivers Gordon Walker Co-President, Acoustics & Hearing
Slide 3: Knowles: Who We Are
C ULTURE OF INNOVATION Knowles: Who We Are G LOBAL S CALE T OP T IER C USTOMER ENGAGEMENT units patents
Slide 4: Knowles: What We Do
Mobile Consumer Electronics Specialty Components Knowles: What We Do Mobile Consumer Electronics Specialty Components Provides the acoustic backbone to smartphones, tablets, headsets, laptops and other electronic products Includes acoustic solutions for hearing aids, and oscillators and capacitors u
Slide 5: Knowles: Why We Win
C ULTURE OF I NNOVATION P IONEERING A COUSTICS E XPERTISE E NTRENCHED C USTOMER R ELATIONSHIPS P ROPRIETARY M ANUFACTURING P ROCESSES D IFFERENTIATED P RODUCTS Knowles: Why We Win
Slide 6: Key Investment Highlights
1 2 3 4 5 Market-Leading Acoustic Supplier with Strong Engineering Relationships Key Investment Highlights Attractive End-Markets Innovative Technology Drives Differentiated Solutions Proprietary Operational Capabilities with Margin Expansion Potential Experienced Management with Proven Track Record
Slide 7: Market Leading Acoustics Supplier, Strong Engineering Relationships
M ARKET L EADERSHIP Hearing Aid Solutions 1 Microphones Speakers / Receivers Market Leading Acoustics Supplier, Strong Engineering Relationships Strong Financial Performance Acoustic Content Growth Product Development Leadership and Operational Excellence #1 Global Supplier Top 3 Supplier #1 Global
Slide 8: Attractive Markets
2 Attractive Markets Note: % of total sales based 2013 information.
Slide 9: Bulsueg
Bulsueg uopiuBooey seeds, IRSA BIN adloA, a 4€ knowles
Slide 10: Bulsueg
Bulsueg uopiuBooey seeds,
Slide 11: Knowles' technology stems from 500+ patents
Knowles’ technology stems from 500+ patents 3 Innovative Technology Drives Differentiated Solutions 2015+ Pace of acoustic features growing exponentially in recent years Microphones Speakers & Receivers High Performance Solutions Integration Embedded Software + Hardware Modules Knowles Acoustic Subs
Slide 12: Operational Capabilities with Margin Expansion Potential
18 11 4 TODAY MID TERM Targeting $40mm - Global Operational Capabilities with Margin Expansion Potential More efficient manufacturing footprint Lower cost geographies Focus on productivity and low cost sourcing 1: Exclusive of costs associated with restructuring. Restructuring of 4 of the 7 faciliti
Slide 13: Experienced and Successful Team
Average Years of Industry Experience 7 Team Members with >10 Years Knowles Experience 5 Experienced and Successful Team 15+ yrs >10 yrs*
Slide 14: Knowles: Investment Thesis
Goal to deliver strong operating margin leverage & enhanced shareholder value Knowles: Investment Thesis I NVESTMENT H IGHLIGHTS Calendar year ending December Profitable revenue growth Well positioned in high growth mobile consumer electronics business Stable revenues and cash flow from specialty co
Slide 15: Knowles Specialty Components (SC)
Knowles Specialty Components (SC) Gordon Walker Co-President, Acoustics & Hearing Health
Slide 16: Specialty Components Snapshot
Specialty Components Snapshot K EY P RODUCTS T OTAL R EVENUE ($ MM ) AND % C HANGE B USINESS D YNAMICS A DJ . EBITDA ($ MM ) AND % M ARGIN Microphones / Receivers Capacitors / Oscillators $473 $448 $437 Stable markets Customer intimacy Attractive margin and cash flow dynamics Adds stability and dive
Slide 17: Acoustic Products: What We Do
Hearing Aid Microphones Hearing Aid Receiver Acoustic Products: What We Do H EARING H EALTH P REMIUM A UDIO “ In Ear Monitors ” for musicians and enthusiasts Typically >$100 retail (up to $1,000) Receiver content: 1 - 8 receivers per ear Source: Knowles Management
Slide 18: Acoustic Products: Key Themes
1 2 3 Acoustic Products: Key Themes Leader in Stable, Resilient Market with Favorable Macro Trends Trusted Partner and Technology Leader Strong Margin Expansion Opportunities
Slide 19: Market Overview – Hearing Health Acoustics
Market Overview – Hearing Health Acoustics A TTRACTIVE M ARKET D YNAMICS S TABILITY OF H EARING M ARKET Stable market Limited Competition Market Leader Strong market position with all hearing-aid manufacturers (OEMs) Worldwide Hearing Units Sold (Millions of units) Source: William Demant “Trends and
Slide 20: Mega Trends: Hearing Health
Mega Trends: Hearing Health Rapidly aging population Longer life expectancy Increasingly affluent Improved distribution infrastructure N ORTH A MERICA A GING P OPULATION E MERGING M ARKETS Aged +60 (mm of people in North America) Source: United Nations, DESA (Population Division) Population of Adult
Slide 21: Acoustic Products: Why We Win
1 2 3 4 Acoustic Products: Why We Win Leading Product Portfolio Critical Role in Customers’ Products Collaborative Engineering and Development Relationships Most Reliable Partner in the Industry
Slide 22: Knowles Position in MEMs Microphones Demonstrates Technological Leadership
Present Future Partnered with lead customer in 2004 Became principal supplier to RIC segment from inception Today over 50% of world market is RIC Where We Are Going Product-Technology leadership, MEMs solves two problems for OEMs: 1. Hearing Instruments require greater stability, consistency 2. High
Slide 23: Low-Cost Manufacturing, Expanding Margins
Announced August 2013 First Tranche January 2014 To Be Completed Mid-2015 Suzhou, China Cebu, Philippines Low-Cost Manufacturing, Expanding Margins … L ED TO R ELOCATION OF S PEAKER & R ECEIVER M ANUFACTURING Estimated ~$10mm in Savings per Year C ONTINUED I NFLATION AND FX PRESSURE IN C HINA …
Slide 24: Acoustic Products: Key Takeaways
1 2 3 Acoustic Products: Key Takeaways Profitable Leader in a Range of Attractive End Markets Product and Technology Leader with Close Customer Relationship Significant Margin Expansion Opportunity
Slide 25: Knowles Specialty Components (SC) – Precision Devices
Knowles Specialty Components (SC) David Wightman Co-President Precision Devices
Slide 26: Precision Devices Snapshot
Precision Devices Snapshot K EY P RODUCTS Crystal Oscillators SAW Filters Thin Film Filters Single Layer Capacitors Multi-Layer Capacitors High Reliability Capacitors Precision Devices – Chosen by Engineers
Slide 27: Precision Devices: Key Themes
1 2 3 4 5 Precision Devices: Key Themes Why We Win Attractive Dynamics in Our Chosen Markets Selected Market Segments Innovation to Solve Customer Problems Margin Expansion Opportunity
Slide 28: Precision Devices: Why We Win
Precision Devices: Why We Win Customer Intimacy Product Innovation Market Segment Focus Operational Excellence
Slide 29: Attractive Dynamics in Our Chosen Markets
Military and Space Telecoms Medical Industrial Attractive Dynamics in Our Chosen Markets Smart Phone Technology advancements pushes global military communications Small Cell deployments supporting Data Traffic Cloud Computing supporting large data centers Medical equipment for an aging population In
Slide 30: Focused on Specific, Mission-Critical Market Segments
Consumer Electronics Focused on Specific, Mission-Critical Market Segments Medical Military and Aerospace Telecom Industrial Opportunity for Portfolio Expansion via Low Cost Manufacturing Knowles Focuses on Mission Critical Segments where Competitive Differentiation Leads to Strong Margins
Slide 31: Knowles Recipe for Success – Capacitor Innovation
Knowles Recipe for Success – Capacitor Innovation I DENTIFY THE P ROBLEM MRI Case Study Material development of ceramic and electrode systems New plating technique New tests for high energy pulse requirements Soldering techniques for high volume assembly Requires high-energy, non-magnetic capacitors
Slide 32: Margin Expansion Opportunity
Reduction in Footprint Direct Labor Savings Operational Excellence / SG&A Margin Expansion Opportunity Transition from four capacitor units into one global operation Relocating UK manufacturing to Suzhou, China Overhead and SG&A reduction opportunities Positioned for $9mm of Annualized Savings
Slide 33: Precision Devices: Key Takeaways
1 2 3 Precision Devices: Key Takeaways Profitable Leader in a Diversity of Carefully Selected End Markets Positioned to Build-On Knowles Attributes: Customer Intimacy, Product Leadership, Relationship with Engineering Communities Significant Margin Expansion Opportunity
Slide 34: Mobile Consumer Electronics (MCE)
Mobile Consumer Electronics (MCE) Christian Scherp Co-President, Speakers & Receivers Michael Adell Co-President, Microphones
Slide 35: Mobile Consumer Electronics Snapshot
Speakers / Receivers Mobile Consumer Electronics Snapshot Microphones T OTAL R EVENUE ($ MM )¹ AND % G ROWTH A DJ . EBITDA ($ MM )² AND % M ARGIN K EY P RODUCTS S TRONG F INANCIAL P ROFILE ¹ 2011 includes a partial year of Sound Solutions revenue ² Adj. EBITDA is defined as earnings before income ta
Slide 36: Typical Smartphone Acoustics Applications
Microphones Speakers / Receivers Typical Smartphone Acoustics Applications Main Microphone High Definition Loud Speaker Ear-Bud Speakers Hands-Free Reduces background noise Improves Video Sound Recording Calls / Voice Recognition Noise Canceling Microphones Clear sounds High Definition Media Playbac
Slide 37: MCE: Key Themes
1 2 3 4 5 MCE: Key Themes Attractive Growth Markets Market Leadership Commitment to Innovation Acoustic Content Growth Transition to Integrated Audio Solutions
Slide 38: Attractive End-Markets
1 Attractive End-Markets S MARTPHONES AND T ABLETS V OLUME Overall “total” market growing at ~6% CAGR Smartphone market slowing to low double digit growth Notebook declines offset by Tablet Knowles is well positioned in growth markets H IGHLIGHTS Focus Markets Continue to Grow Source: IDC (Nov. 2013
Slide 39: Machine
Machine Awareness Sensing Audio Value Human Communication Voice 4€ knowles
Slide 40: #1 global supplier of microphones
#1 global supplierof microphones Market leader ! . Top 3 supplierof speakers and receivers Key supplier / partner wuewel to all major OEMs Complete systems i solutions capabilities = gm = Key Acoustic Inventions Recognized + TelecomMicro Speakers technology leader in + Rectangular Speaker acoustics
Slide 41: Competitive Landscape
2 Competitive Landscape Knowles’ unique combination of application knowledge, silicon design, and proprietary manufacturing Source: Knowles Management
Slide 42: Commitment to Innovation
3 Commitment to Innovation Knowles is Constantly Innovating Across its Entire Business
Slide 43: Commitment to Innovation – Microphones
3 Commitment to Innovation – Microphones T REND T OWARD H IGHER P ERFORMANCE M ICS K NOWLES C OMMITMENT TO I NNOVATION Source: Knowles Management Strategically Positioned to Capture Trend to Next Generation Microphone Solutions
Slide 44: Commitment to Innovation – Speakers and Receivers
Over 6.6 billion pieces sold 3 Commitment to Innovation – Speakers and Receivers The best “acoustic brain” in the industry with strong pre-development capabilities Unique competence for ultra-thin future speaker solutions Pushing beyond acoustics to include software, silicon, sensors and more World’
Slide 45: Acoustic Content Growth
4 Acoustic Content Growth $1 - $2 - $3 - Receiver Dual Mics Speaker Receiver Single Mic Speaker Receiver Multi Mics Integrated Speaker Box/Antenna Addressable Content FUTURE Source: Knowles Management Opportunities to Increase Content in Each Successive Generation
Slide 46: Acoustic Content Growth
4 Acoustic Content Growth W ITH E ACH N EW P RODUCT, S ELLING P RICE R ISES S TRONG AND I NNOVATIVE I NFRASTRUCTURE Patented microphone technology In-house ASIC, MEMs, and packaging Robust product pipeline driven by new use-cases NPI = New Product Introduction Source: Knowles Management Product Inno
Slide 47: Integrated Solutions Model – Future Trends
5 Microphone Speaker/Receiver Integrated Audio Components Speaker Modules (Multi) Mic on Flex Intelligent Audio Smart Mic Intelligent Audio Smart Speaker Intelligent Audio Capturing Value through Audio Integration $ $$ $$$ Integrated Solutions Model – Future Trends
Slide 48: Integrated Solutions Model – Future Trends
Intelligent Audio System Integrated Speaker Box 5 Concert Recording AudioZoom Stereo Capture/Playback 2mic Noise Reduction 5.1 Surround Sound Capture / Playback Wind Noise Reduction Gesture Recognition Active Noise Cancellation Playback Optimization Hardware / Software System Future Knowles Products
Slide 49: MCE: Key Takeaways
1 2 3 4 5 MCE: Key Takeaways Attractive Growth Markets Market Leadership Commitment to Innovation Acoustic Content Growth Transition to Integrated Audio Solutions
Slide 50: Financial Overview
Financial Overview John Anderson Senior Vice President & Chief Financial Officer
Slide 51: Financial Highlights
Significant in Mobile Consumer Strong track record of to drive earnings growth and cash flow from Specialty Components Disciplined approach to Financial Highlights Earnings Growth Through Robust Revenue Improvement and Margin Expansion market and content growth cash flow generation Margin expansion
Slide 52: Track Record of Consistent Revenue Growth
Track Record of Consistent Revenue Growth R EVENUE ($ MM ) K EY G ROWTH D RIVERS Strong position in growing smartphone and tablet market Content growth through multi-mic adoption and integrated acoustic systems Hearing aid penetration in aging populations and developing markets Revenue Expansion Dri
Slide 53: Strong Margins and Cash Flow Generation
Strong Margins and Cash Flow Generation A DJ. EBITDA ( AND % M ARGIN )¹ K EY D RIVERS Higher volumes and scale efficiencies 2013 Adj. EBITDA margin expansion due to increased ASP on new products and improved operating leverage Productivity and restructuring actions beginning to lower costs Significa
Slide 54: Margin Expansion Strategy
18 11 Suzhou UK Cebu Suzhou Margin Expansion Strategy T ODAY M ID T ERM Footprint Consolidation Movement to Lower-Cost Regions Operational Excellence Low cost materials sourcing Lean focus / productivity enhancements Further back office streamlining Improved operating leverage Expect to Drive $40mm
Slide 55: Efficient Capital Structure and Capital Allocation
Intent to maintain Investment Grade-like credit metrics Efficient Capital Structure and Capital Allocation Organic growth investments Continued funding of research and development Productivity improvements Expanding manufacturing footprint in cost- competitive regions Bolt-on acquisitions Evaluate r
Slide 56: Historical Data and Projections for Q1'14
Revenue ($M) Gross Profit ($M) Gross Profit Margin (%) Operating Profit ($M) Operating Margin (%) Historical Data and Projections for Q1’14 (non-GAAP) Note: See Appendices for GAAP to Non-GAAP reconciliations. Q1’13 Q2’13 Q3’13 Q4’13 Q1’14E $276 $297 $312 $330 $260-265 $97 $106 $122 $125 $88-91 35.2
Slide 57: Mid Term Financial Model Targets
Where We Are Where We Are Going Mid Term Financial Model Targets Increased market share in high growth, high margin businesses Expansion into adjacent markets Additional customer penetration and content Lower cost structure Long-standing acoustic solutions market leader Highly diversified products G
Slide 58: Conclusion + Q&A
Knowles Conclusion + Q&A
Slide 59: Key Investment Highlights
Key Investment Highlights Market-Leading Acoustic Supplier with Strong Engineering Relationships Attractive End-Markets Innovative Technology Drives Differentiated Solutions Proprietary Operational Capabilities with Margin Expansion Potential Experienced Management with Proven Track Records
Slide 60: ZZ S
\ | i ZZ S ZS N\A SS
Slide 61: GAAP and Non-GAAP Financial Measures
KNOWLES CORPORATION GAAP FINANCIAL MEASURES AND NON-GAAP FINANCIAL MEASURES (1) (unaudited, dollars in millions) Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total Revenue 276.2 $ 296.7 $ 311.6 $ 330.3 $ 1,214.8 $ 261.1 $ 260.7 $ 299.6 $ 296.6 $ 1,118.0 $ Non-GAAP Gross profit 97.3 105.8 122.0 125.1 450.2 88.6 92.
Slide 62: Reconciliation of GAAP to Non-GAAP Financial Measures
KNOWLES CORPORATION RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (unaudited, dollars in millions) Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 Total GAAP Gross Profit 94.9 $ 100.1 $ 117.9 $ 118.6 $ 431.5 $ 88.6 $ 92.9 $ 111.5 $ 114.0 $ 407.0 $ Asset Impairment and Related Inventory Char
Slide 63: Reconciliation of Segment Non-GAAP Measures
KNOWLES CORPORATION (unaudited, dollars in millions) Mobile Consumer Electronics Adjusted EBITDA (1) 245.7 $ Asset Impairment and Related Inventory Charges (5.1) Restructuring Charges (7.3) Production Transfers Costs (2) (3.6) EBITDA (3) 229.7 $ MCE EBITDA as % of MCE Revenues 29.5% Specialty Compon
Slide 64: Reconciliation of Segment Non-GAAP Measures
KNOWLES CORPORATION (unaudited, dollars in millions) Mobile Consumer Electronics Adjusted EBITDA (1) 184.7 $ 154.8 $ Asset Impairment and Related Inventory Charges (1.7) - Restructuring Charges (1.2) - Production Transfers Costs (2) (1.7) - EBITDA (3) 180.1 $ 154.8 $ MCE EBITDA as % of MCE Revenues
Slide 65: Reconciliation of Earnings Before Taxes to EBITDA
KNOWLES CORPORATION (unaudited, dollars in millions) Revenues 1,214.8 $ Earnings Before Taxes 103.2 Depreciation and Amortization Expense 130.9 Interest Expense, net 42.0 EBITDA (1) 276.1 $ EBITDA margin (2) 22.7% RECONCILIATION OF EARNINGS BEFORE TAXES TO EBITDA (1) EBITDA is defined as net earning
Slide 66: Reconciliation of Net Earnings to EBITDA
KNOWLES CORPORATION (unaudited, dollars in millions) Revenues 1,118.0 $ 983.3 $ 730.4 $ 587.0 $ 630.4 $ Net Earnings 79.1 98.4 109.3 37.3 33.1 Depreciation and Amortization Expense 114.9 84.8 54.4 50.7 49.5 Interest Expense, net 56.5 39.9 20.3 21.2 37.5 Benefit from (provision for) income taxes (0.2