Yahoo Finance Knowles Corporation (NYSE:KN) Q1 2024 Earnings Call Transcript
Knowles Corporation (NYSE:KN) Q1 2024 Earnings Call Transcript May 1, 2024
Knowles Corporation misses on earnings expectations. Reported EPS is $0.02762 EPS, expectations were $0.13. Knowles Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to the First Quarter 2024 Knowles Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Sarah Cook. Please go ahead.
Sarah Cook: Thank you, and welcome to our Q1 2024 earnings call. I'm Sarah Cook, Vice President of Investor Relations. And presenting with me today are Jeffrey Niew, our President and CEO; and John Anderson, our Senior Vice President and CFO. Our call today will include remarks about future expectations, plans and prospects for Knowles, which constitute forward-looking statements for purposes of Safe Harbor provisions under applicable federal securities laws. Forward-looking statements in this call will include comments about demand for company products, anticipated trends in company's sales, expenses and profits, and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations.
The company urges investors to review the risks and uncertainties in the company's SEC filings, including, but not limited to, the annual report on Form 10-K for the fiscal year ended December 31, 2023, periodic reports filed from time-to-time with the SEC, and risks and uncertainties identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Knowles disclaims any duty to update such statements, except as required by law. In addition, pursuant to Reg G, any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at knowles.com, and in our current report on Form 8-K filed today with the SEC, including a reconciliation to the most directly comparable GAAP measures.
All financial references on this call will be on a non-GAAP continuing operations basis unless otherwise indicated. We've made selected financial information available in webcast slides, which can be found in the Investor Relations section of our website. With that, let me turn the call over to Jeff who will provide details on our results. Jeff?
Jeffrey Niew: Thanks Sarah and thanks to all of you for joining us today. I'm very pleased with the start of 2024 as our first quarter results showed the potential of our businesses to expand EBIT margins and drive strong free cash flow. We are continuing to our transformation to focus on high-growth end markets where we have differentiated solutions and our Q1 financial performance is evidence that our strategy is working. In the first quarter, we delivered revenue of $196 million above the midpoint of our guided range, EPS of $0.20 at the high end of our guided range and cash from operations of $17 million, which exceeded the high end of our guided range. Turning to segment results, MedTech and specialty audio revenue was up 26% with over 90% adjusted EBIT growth versus the same period a year ago.
The end markets for our hearing health products remain robust as market dynamics such as aging populations, expansion of middle class globally and improved hearing aid penetration, all remain favorable. Second, our operational excellence continues to produce strong margin performance. This coupled with our success in new product adoption is driving revenue growth with expanding EBIT margins and cash flow for 2024. Precision Device revenue was up 38% from a year ago driven by the acquisition of Cornell. As we expected the end market challenges we experienced in the back half of 2023 continued into the first half of 2024 as inventory levels within distribution and the industrial end markets remain high. We remain focused on design activity, which continues to be robust in defense, life sciences, industrial and EV and positions us well for future growth.
We continue to be excited about the performance, synergistic opportunities and total available market expansion Cornell brings to the PD segment. With the beginning of an anticipated recovery in the second half of the year and the addition of Cornell, we expect to see double digit revenue and adjusted EBIT growth within this segment in 2024. Before moving to the results for the consumer mems microphone business, I will provide some brief commentary on the status of the strategic alternatives process that we announced last year. We are taking into consideration all the stakeholders from customers to suppliers and shareholders to employees, and I believe we are progressing to a conclusion. From an operational standpoint, CMM's financial result in the quarter were solid.
Revenue was up 44% from the same period a year ago, as the business has returned to more stabilized levels. We've expanded our mobile and ear share and expecting to continue to see revenue growth in the second quarter and for the full year 2024, as compared to 2023 levels. In closing, we expect to continue to generate robust cash from operations in Q2 and the remainder of 2024 despite excess share inventory negatively impacting demand within our PD segment. Our cash generation and strong balance sheet will allow us to explore acquisition opportunity, buy back shares and keep our debt at manageable levels. I am pleased with the financial performance to date in 2024 and I'm excited about the opportunities we have ahead of us. We are confident in our ability to deliver shareholder value, as we continue to drive operational excellence, execute on design wins in all three segments and expand our share across our businesses.
Now, let me turn the call over to John to detail our quarter results and provide some guidance.
John Anderson: Thanks, Jeff. We reported first quarter revenues of $196 million above the midpoint of guidance and up 36% from the year ago period, driven by double digit growth in all three segments. EPS was $0.20 in the quarter at the high end of our guidance range and $0.15 above the year-ago period, driven by increased gross profit associated with higher shipment volume, partially offset by higher interest expense. In the MedTech and specialty audio segment, revenue was $57 million, up 26% versus the first quarter of 2023 and increased demand in the hearing health market, as customer inventories have returned to normal levels. Gross margins were 54.8%, up 1,130 basis points versus the prior year driven by improved factory performance and favorable product mix.
The precision devices segment delivered revenues of $74 million, up 38% from the year ago period driven by the acquisition of Cornell, partially offset by lower shipments into the distribution and industrial end markets as channel and customer inventory levels remain elevated. Gross margins were 36.1%, down 1,100 basis points from prior year levels due to lower factory capacity utilization and the acquisition of Cornell. Consumer MEMS microphone revenues of $65 million were up 44% versus the year ago period, due to increased consumer demand and share gains in mobile, ear and compute markets. Gross margins were 26.2%, 450 basis points above Q1 2023 on improved factory capacity utilization, partially offset by lower pricing. On a total company basis, R&D expense in the quarter was $16.7 million flat compared to the prior year.
SG&A expenses were $32 million, $5 million higher than prior year levels, driven by the acquisition of Cornell, partially offset by the benefits of prior restructuring actions taken in both the Precision Devices and CMM segments. Interest expense was up $4 million versus the prior year due to the acquisition of Cornell in the fourth quarter of 2023. Now, I'll turn to our balance sheet and cash flow. In the first quarter, we generated $17 million in cash from operating activities above the high end of our guidance, driven by higher customer collections and lower than expected inventory levels. Capital spending was $3 million. We ended the quarter with cash and cash equivalents of $122 million. We exited the first quarter of 2024 with $293 million of debt, which includes $180 million of borrowings under our revolving credit facility and an interest free seller note which was issued in connection with the Cornell acquisition.
Lastly, our net leverage ratio based on trailing 12-months EBITDA was 1.1 times. Moving to our guidance. For the second quarter of 2024, revenues are expected to be between $199 million and $209 million, up 18% versus the year ago period, driven primarily by the acquisition of Cornell. R&D expenses are expected to be between $16 million and $18 million and selling and administrative expenses are expected to be within the range of $29 million to $31 million, up from prior year due to the Cornell acquisition. We're projecting adjusted EBIT margin for the quarter to be within a range of 14% to 16%. We're forecasting interest expense in Q2 to be approximately $5 million, which includes $2 million of non-cash imputed interest. And we expect an effective tax rate of 14% to 16% for both the quarter and full year 2024.
We're projecting EPS to be within a range of $0.22 to $0.26 per share. This assumes weighted average shares outstanding during the quarter of $93 million on a fully diluted basis. We're projecting cash from operations to be within a range of $20 million to $30 million and capital spending is expected to be $5 million. I will now turn the call back over to the operator for the questions-and-answers portion of the call. Operator?
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