Microphone Sales to Ear & IoT Markets Up
More Than 25 Percent Y/Y
Precision Devices Revenues Reach Record Levels
for Fifth Consecutive Quarter
Gross Profit Margin Improves 150 Bps Y/Y
Knowles Corporation (NYSE: KN), a market leader and global
provider of advanced micro-acoustic, audio processing, and
precision device solutions, today announced results for the quarter
ended March 31, 2019.
“In the first quarter, Knowles continued to perform well against
the backdrop of a weak handset market. Revenues exceeded the
midpoint of our guidance range and were up from the year ago period
due to strong demand for Precision Devices, higher than expected
Audio sales to Chinese OEMs, and increased microphone demand for
Ear and IoT applications,” said Jeffrey Niew, president and CEO of
Knowles. “As we enter the second quarter, we believe stabilizing
business conditions in mobility, coupled with continued strong
demand in non-mobile applications and Precision Devices, will
enable us to outperform the end markets we serve.”
“In Audio, macro trends around better performance and edge
processing remain favorable and are enabling us to expand our total
available market and grow our business. In Precision Devices, sales
reached record levels for the fifth consecutive quarter as we
continue to execute our playbook and drive strong revenue growth
and operating margin improvement, both organically and through tuck
in acquisitions. We believe that our strategy to invest in
high-value, differentiated solutions and diversify our end markets
and customers will drive continued revenue growth with strong
operating leverage in 2019,” continued Niew.
Financial Highlights
The following table highlights the Company’s financial
performance on both a GAAP and non-GAAP basis for continuing
operations* (in millions, except per share data):
Q1FY19 Q4FY18
Q1FY18 Year Ago Period Change Revenues
$179.8 $223.8 $178.5 1%
Gross
profit $68.5 $94.3 $65.3
5%
(as a % of revenues)
38.1%
42.1%
36.6%
Non-GAAP gross profit $69.9 $95.4 $66.7
5%
(as a % of revenues)
38.9%
42.6%
37.4%
Diluted (loss) earnings per share** $(0.03)
$0.87 $0.00 NM***
Non-GAAP diluted earnings per
share $0.13 $0.37 $0.11 18%
* Continuing operations excludes the results of our timing
device business which was sold on November 28, 2017.
** Current period results include $6.7 million in stock-based
compensation, $2.8 million in restructuring charges and production
transfer costs, $2.0 million in other expenses, and $1.8 million in
amortization of intangibles.
*** Not meaningful.
In addition to the GAAP results included in this press release,
Knowles has presented supplemental non-GAAP gross profit, earnings
before interest and income taxes, adjusted earnings before interest
and income taxes, non-GAAP diluted earnings per share, as well as
other metrics on a non-GAAP basis that exclude certain amounts that
are included in the most directly comparable GAAP measure to
facilitate evaluation of Knowles’ operating performance. Non-GAAP
results are not presented in accordance with GAAP. Non-GAAP
information should be considered a supplement to, and not a
substitute for, financial statements prepared in accordance with
GAAP. In addition, the non-GAAP financial measures included in this
press release do not have standard meanings and may vary from
similarly titled non-GAAP financial measures used by other
companies. Knowles believes that non-GAAP measures are useful as
supplements to its GAAP results of operations to evaluate certain
aspects of its operations and financial performance, and its
management team primarily focuses on non-GAAP items in evaluating
Knowles’ performance for business planning purposes. Knowles also
believes that these measures assist it with comparing its
performance between various reporting periods on a consistent
basis, as these measures remove from operating results the impact
of items that, in Knowles’ opinion, do not reflect its core
operating performance including, for example, stock-based
compensation, certain intangibles amortization expense, fixed asset
impairment charges, restructuring, production transfer costs, and
other charges which management considers to be outside our core
operating results. Knowles believes that its presentation of these
non-GAAP financial measures is useful because it provides investors
and securities analysts with the same information that Knowles uses
internally for purposes of assessing its core operating
performance. For a reconciliation of these non-GAAP financial
measures to the most directly comparable GAAP financial measures,
see the reconciliation table accompanying this release.
Second Quarter 2019 Outlook
The forward looking guidance for the quarter ending June 30,
2019 is as follows:
GAAP Adjustments
Non-GAAP Revenues $185 to $205 million - $185 to $205
million
Gross Profit Margin 37 to 40% 1% 38 to 41%
EPS $0.05 to $0.09 $0.12 $0.17 to $0.21
Q2 2019 GAAP results are expected to include approximately $0.06
per share in stock-based compensation, $0.03 per share in
amortization of intangibles and debt discount, $0.02 per share from
a higher effective tax rate, and $0.01 per share related to
production transfer costs. Expected Q2 2019 GAAP results exclude
potential professional service fees related to shareholder
activism, as well as discrete income tax and restructuring
items.
Webcast and Conference Call Information
Investors can listen to a live or replay webcast of the
Company’s quarterly financial conference call at
http://investor.knowles.com. The live webcast will begin today at
3:30 p.m. Central time. The webcast replay will be available after
7:00 p.m. Central time today.
Investors can also listen to the conference call at 3:30 p.m.
Central time today by calling (844) 589-0917 (United States) or
(647) 253-8649 (International). The conference call replay will be
available after 7:00 p.m. Central time today through 11:59 p.m.
Central time on May 1, 2019 at (800) 585-8367 (United States) or
(416) 621-4642 (International). The access code is 3297175.
About Knowles
Knowles Corporation (NYSE: KN) is a market leader and global
provider of advanced micro-acoustic, audio processing, and
precision device solutions, serving the mobile consumer
electronics, communications, medical, defense, automotive, and
industrial markets. Knowles uses its leading position in MEMS
(micro-electro-mechanical systems) microphones and strong
capabilities in audio processing technologies to optimize audio
systems and improve the user experience in mobile, ear, and IoT
applications. Knowles is also the leader in acoustic components,
high-end capacitors, and mmWave RF solutions for a diverse set of
markets. Knowles’ focus on the customer, combined with unique
technology, proprietary manufacturing techniques, rigorous testing,
and global scale, enables it to deliver innovative solutions that
optimize the user experience. Founded in 1946 and headquartered in
Itasca, Illinois, Knowles is a global organization with employees
in 11 countries. The company was spun out from Dover Corporation in
2014 and has been focused on reshaping its business portfolio and
investing in high value solutions to diversify its revenue and
increase exposure to high-growth markets. For more information,
visit knowles.com.
Forward Looking Statements
This news release 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,” “intend,” “may,” “plan,” “potential,”
“predict,” “seek,” “should,” “will,” “would,” “objective,”
“forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” and
similar expressions, among others, generally identify
forward-looking statements, which speak only as of the date the
statements were made. The statements in this news release are based
on currently available information and the current expectations,
forecasts, and assumptions of Knowles’ management concerning risks
and uncertainties that could cause actual outcomes or results to
differ materially from those outcomes or results that are
projected, anticipated, or implied in these statements. These risks
and uncertainties include, but are not limited to: unforeseen
changes in MEMS microphone demand from our largest customers, in
particular, two North American, a Korean, and Chinese OEM
customers; the success and rate of multi-microphone and smart
microphone adoption and proliferation of our “intelligent audio”
solutions, including our audio edge processors, to high volume
platforms; our ongoing ability to execute our strategy to diversify
our end markets and customers; our ability to stem or overcome
price erosion in our segments; fluctuations in our stock's market
price; fluctuations in operating results and cash flows; our
ability to prevent or identify quality issues in our products or to
promptly remedy any such issues that are identified; the timing of
OEM product launches; risks associated with increasing our
inventories in advance of anticipated orders by customers; global
economic instability including the recent economic slowdown in
China; the impact of changes to laws and regulations that affect
the Company’s ability to offer products or services to customers in
different regions; risks associated with shareholder activism,
including proxy contests; our ability to achieve continued
reductions in our operating expenses;; our ability to obtain,
enforce, defend or monetize our intellectual property rights;
increases in the costs of critical raw materials and components;
availability of raw materials and components; managing new product
ramps and introductions for our customers; our dependence on a
limited number of large customers; our ability to maintain and
expand our existing relationships with leading OEMs in order to
maintain and increase our revenue; increasing competition and new
entrants in the market for our products; our ability to develop new
or enhanced products or technologies in a timely manner that
achieve market acceptance; our reliance on third parties to
manufacture, assemble, and test our products and sub-components;
escalating international trade tensions, new or increased tariffs
and trade wars among countries; financial risks, including risks
relating to currency fluctuations, credit risks and fluctuations in
the market value of the Company; and changes in tax laws, changes
in tax rates and exposure to additional tax liabilities; and other
risks, relevant factors, and uncertainties identified in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2018,
subsequent Reports on Forms 10-Q and 8-K and our other filings we
make with the U.S. Securities and Exchange Commission. Knowles
disclaims any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise, except as required by law.
INVESTOR
SUPPLEMENT - FIRST QUARTER 2019
KNOWLES CORPORATION CONSOLIDATED STATEMENTS
OF EARNINGS (in millions, except share and per share
amounts) (unaudited) Quarter Ended
March 31, 2019 December 31, 2018 March 31,
2018 Revenues $ 179.8 $ 223.8 $ 178.5 Cost of goods sold
110.8 129.2 113.2 Restructuring charges - cost of goods sold
0.5 0.3 -
Gross profit
68.5 94.3 65.3 Research and development expenses 24.7 25.2 24.8
Selling and administrative expenses 37.6 35.1 35.8 Restructuring
charges 1.8 0.3 0.4
Operating expenses 64.1 60.6
61.0
Operating earnings 4.4 33.7 4.3 Interest
expense, net 3.5 3.9 4.0 Other expense (income), net 1.0
0.2 (0.1 )
(Loss) earnings before
income taxes and discontinued operations (0.1 ) 29.6 0.4
Provision for (benefit from) income taxes 2.6
(49.8 ) 0.8
(Loss) earnings from continuing
operations (2.7 ) 79.4 (0.4 ) Earnings from discontinued
operations, net - 0.2 0.1
Net (loss) earnings $ (2.7 ) $ 79.6 $ (0.3 )
(Loss) earnings per share from continuing operations: Basic
$ (0.03 ) $ 0.88 $ - Diluted $ (0.03 ) $ 0.87 $ -
Earnings per share from discontinued operations: Basic $ - $
- $ - Diluted $ - $ - $ -
Net (loss) earnings per
share: Basic $ (0.03 ) $ 0.88 $ - Diluted $ (0.03 ) $ 0.87 $ -
Weighted-average common shares outstanding: Basic
90,535,188
90,220,173 89,718,318 Diluted
90,535,188
91,592,320 89,718,318
KNOWLES CORPORATION RECONCILIATION
OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES
(1) (in millions, except share and per share amounts)
(unaudited) Quarter Ended
March 31,
2019
December 31,
2018
March 31,
2018
Gross profit $ 68.5 $ 94.3
$ 65.3 Gross profit as % of revenues 38.1 % 42.1 %
36.6 % Stock-based compensation expense 0.4 0.4 0.4 Restructuring
charges 0.5 0.3 - Production transfer costs (2) 0.5 0.4 0.8 Other
(3) - - 0.2
Non-GAAP gross profit $ 69.9
$ 95.4 $ 66.7
Non-GAAP gross profit as % of revenues 38.9 % 42.6 % 37.4 %
Research and development expenses $ 24.7
$ 25.2 $ 24.8 Stock-based compensation
expense (2.1 ) (1.9 ) (2.0 ) Production transfer costs (2) -
- (0.2 )
Non-GAAP
research and development expenses $ 22.6
$ 23.3 $ 22.6
Selling and administrative expenses $
37.6 $ 35.1 $ 35.8 Stock-based
compensation expense (4.2 ) (3.9 ) (4.6 ) Intangibles amortization
expense (1.8 ) (1.6 ) (1.6 ) Other (3) (2.0 )
(0.2 ) (0.1 )
Non-GAAP selling and administrative
expenses $ 29.6 $
29.4 $ 29.5
Operating expenses $ 64.1 $ 60.6
$ 61.0 Stock-based compensation expense (6.3 ) (5.8 )
(6.6 ) Intangibles amortization expense (1.8 ) (1.6 ) (1.6 )
Restructuring charges (1.8 ) (0.3 ) (0.4 ) Production transfer
costs (2) - - (0.2 ) Other (3) (2.0 ) (0.2 )
(0.1 )
Non-GAAP operating expenses $
52.2 $ 52.7
$ 52.1 (Loss) earnings from
continuing operations $ (2.7 ) $
79.4 $ (0.4 ) Interest expense,
net 3.5 3.9 4.0 Provision for (benefit
from) income taxes 2.6
(49.8 ) 0.8 Earnings
from continuing operations before interest and income taxes
3.4 33.5 4.4 Earnings from continuing
operations before interest and income taxes as % of revenues 1.9 %
15.0 % 2.5 % Stock-based compensation expense 6.7 6.2 7.0
Intangibles amortization expense 1.8 1.6 1.6 Restructuring charges
2.3 0.6 0.4 Production transfer costs (2) 0.5 0.4 1.0 Other (3)
2.0 0.2 0.3
Adjusted earnings from continuing operations before interest and
income taxes $ 16.7 $
42.5 $ 14.7 Adjusted
earnings from continuing operations before interest and income
taxes as % of revenues 9.3 % 19.0 % 8.2 %
Interest
expense, net $ 3.5 $ 3.9 $
4.0 Interest expense, net non-GAAP reconciling adjustments
(4) 1.7 1.6 1.5
Non-GAAP interest expense $ 1.8
$ 2.3 $ 2.5
Provision for (benefit from) income taxes $
2.6 $ (49.8 ) $ 0.8
Income tax effects of non-GAAP reconciling adjustments (5)
0.5 55.1 0.7
Non-GAAP provision for income taxes $ 3.1
$ 5.3 $ 1.5
(Loss) earnings from continuing operations
$ (2.7 ) $ 79.4 $
(0.4 ) Non-GAAP reconciling adjustments (6) 13.3 9.0
10.3 Interest expense, net non-GAAP reconciling adjustments (4) 1.7
1.6 1.5 Income tax effects of non-GAAP reconciling adjustments (5)
0.5 55.1 0.7
Non-GAAP net earnings $ 11.8
$ 34.9 $ 10.7
Diluted (loss) earnings per share from continuing
operations $ (0.03 ) $ 0.87 $ - Earnings (loss) per share
non-GAAP reconciling adjustment 0.16
(0.50 )
0.11
Non-GAAP diluted earnings per share $
0.13 $ 0.37
$
0.11
Diluted average shares outstanding
90,535,188 91,592,320 89,718,318 Non-GAAP
adjustment (7) 3,185,581 1,687,972
3,389,994
Non-GAAP diluted average
shares outstanding (7) 93,720,769
93,280,292 93,108,312
Notes:
(1) In addition to the GAAP financial measures included herein,
Knowles has presented certain non-GAAP financial measures that
exclude certain amounts that are included in the most directly
comparable GAAP measures. Knowles believes that non-GAAP measures
are useful as supplements to its GAAP results of operations to
evaluate certain aspects of its operations and financial
performance, and its management team primarily focuses on non-GAAP
items in evaluating Knowles' performance for business planning
purposes. Knowles also believes that these measures assist it with
comparing its performance between various reporting periods on a
consistent basis, as these measures remove from operating results
the impact of items that, in Knowles' opinion, do not reflect its
core operating performance. Knowles believes that its presentation
of non-GAAP financial measures is useful because it provides
investors and securities analysts with the same information that
Knowles uses internally for purposes of assessing its core
operating performance.
(2) Production transfer costs represent duplicate costs incurred
to migrate manufacturing to facilities primarily in Asia. These
amounts are included in the corresponding Gross profit and Earnings
from continuing operations before interest and income taxes for
each period presented.
(3) In 2019, Other expenses of $1.5 million represent
professional service fees related to shareholder activism and the
remaining Other expenses relate to the acquisition of DITF
Interconnect Technology, Inc. by the Precision Devices segment. In
2018, Other expenses in Gross profit and Operating expenses
represent expenses related to acquisitions.
(4) Under GAAP, certain convertible debt instruments that may be
settled in cash (or other assets) upon conversion are required to
be separately accounted for as liability (debt) and equity
(conversion option) components of the instrument in a manner that
reflects the issuer’s nonconvertible debt borrowing rate.
Accordingly, for GAAP purposes we are required to recognize imputed
interest expense on the Company’s $172.5 million of convertible
senior notes due 2021 that were issued in a private placement in
May 2016. The imputed interest rate is 8.12% for the convertible
notes due 2021, while the actual coupon interest rate of the notes
was 3.25%. The difference between the imputed interest expense and
the coupon interest expense is excluded from management’s
assessment of the Company’s operating performance because
management believes that this non-cash expense is not indicative of
its core, ongoing operating performance.
(5) Income tax effects of non-GAAP reconciling adjustments are
calculated using the applicable tax rates in the jurisdictions of
the underlying adjustments. Adjustments are also made to exclude
certain impacts of the Tax Reform Act and the resulting
consequences that were accounted for as uncertain tax
positions.
(6) The non-GAAP reconciling adjustments are those adjustments
made to reconcile Earnings from continuing operations before
interest and income taxes to Adjusted earnings from continuing
operations before interest and income taxes.
(7) The number of shares used in the diluted per share
calculations on a non-GAAP basis excludes the impact of stock-based
compensation expense expected to be incurred in future periods and
not yet recognized in the financial statements, which would
otherwise be assumed to be used to repurchase shares under the GAAP
treasury stock method.
KNOWLES CORPORATION CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
(unaudited) March 31, 2019
December 31, 2018 Current assets: Cash and cash
equivalents $ 41.3 $ 73.5 Receivables, net of allowance of $0.6
130.5 140.3 Inventories, net 159.3 140.1 Prepaid and other current
assets 13.8 11.1 Total current assets
344.9 365.0
Property, plant, and
equipment, net 216.1 211.7
Goodwill 891.1 887.9
Intangible assets, net 58.3 56.7
Operating lease
right-of-use assets 39.3 -
Other assets and deferred
charges 25.3 26.6
Total
assets $ 1,575.0 $ 1,547.9
Current
liabilities: Accounts payable $ 71.7 $ 77.2 Accrued
compensation and employee benefits 22.9 40.2 Operating lease
liabilities 8.9 - Other accrued expenses 20.3 20.1 Federal and
other taxes on income 3.6 4.3 Total
current liabilities 127.4 141.8
Long-term debt 170.0 158.1
Deferred income taxes 2.1
2.1
Long-term operating lease liabilities 30.1 -
Other
liabilities 28.9 34.3
Liabilities of discontinued
operations - -
Commitments and contingencies
Stockholders' equity: Preferred stock - $0.01 par value;
10,000,000 shares authorized; none issued - - Common stock - $0.01
par value; 400,000,000 shares authorized; 90,864,952 and 90,212,779
shares issued and outstanding at March 31, 2019 and December 31,
2018, respectively 0.9 0.9 Additional paid-in capital 1,548.7
1,545.9 Accumulated deficit (226.9 ) (224.2 ) Accumulated other
comprehensive loss (106.2 ) (111.0 ) Total
stockholders' equity 1,216.5 1,211.6
Total liabilities and stockholders' equity $ 1,575.0
$ 1,547.9
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version on businesswire.com: https://www.businesswire.com/news/home/20190424005861/en/
Mike KnappKnowles Investor RelationsPhone: (630) 238-5236Email:
mike.knapp@knowles.com
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