Knowles (KN) Q3 Earnings call transcript Oct 24, 2024

Knowles Corporation held its third quarter 2024 earnings call, revealing a strong performance with revenue at the high end of the guided range, driven by the acquisition of Cornell and organic growth. The company's CEO, Jeffrey Niew, and CFO, John Anderson, outlined the company's financial results and future prospects, addressing concerns from analysts regarding demand, end markets, and strategic initiatives.

Financial Performance and Outlook

The company's total revenue for the third quarter was $143 million, marking a 32% year-over-year growth, with adjusted EBITDA margins reaching 24.6%. The acquisition of Cornell significantly contributed to this growth, boosting the Precision Device segment's revenue by 57% compared to the previous year. Despite challenges in the industrial markets and inventory levels, the company expects to see modest sequential revenue growth in Q4, with a healthy pipeline of new opportunities in various end markets.

End Market Analysis

Jeffrey Niew provided insights into the company's end markets, highlighting the continued strength in the defense and medtech sectors. The defense market, particularly the RF segment, is expected to have opportunities for price increases. In the industrial market, inventory levels remain a concern, with distributors holding about 6 months' worth of inventory. Normalizing inventory levels will be crucial for a return to normal ordering patterns.

Strategic Initiatives and M&A

The sale of the Consumer MEMS Microphone business is part of Knowles' strategy to transition its portfolio towards higher-growth markets and products. The company is exploring acquisition opportunities, with a focus on businesses that offer synergies with its existing operations. The expanding EBITDA multiple, a result of the company's transformation into a higher-margin business, is expected to provide more options for accretive acquisitions.

Investor Forum and Future Prospects

The company plans to hold an investor forum in Q1 2025 to discuss its growth strategy and plans for the future. With a focus on expanding margins and optimizing operations, Knowles is well-positioned to capitalize on growth opportunities in the medtech, defense, electrification, and industrial sectors. The company's strategic initiatives, including the acquisition of Cornell and the divestiture of the Consumer MEMS Microphone business, demonstrate its commitment to driving long-term value for shareholders.

Conclusion

Knowles Corporation's third quarter 2024 earnings call underscored the company's resilience and strategic focus. Despite challenges in certain end markets, the company's strong financial performance and strategic initiatives position it for growth in the future. With a clear vision and a disciplined approach to cash deployment, Knowles is well on its way to becoming a leading industrial technology company.