Knowles(US:KN)2023-02-10 02:29Financial Data and Key Metrics Changes - The company reported Q4 2022 revenues of $197 million, down 16% year-over-year, primarily due to weak demand in consumer electronics and inventory adjustments [22][44] - Gross margins for Q4 were 40.4%, which was above the high end of the guidance range but down 290 basis points from the previous year [23][45] - For the full year 2022, gross margins were 40.6%, a decrease of 110 basis points from 2021, with record margins in Precision Devices and MedTech & Specialty Audio segments offset by declines in consumer MEMS microphones [30][48] Business Line Data and Key Metrics Changes - Consumer MEMS microphones segment revenue was $72 million in Q4, down 31% year-over-year, and down 33% for the full year due to weak global demand and inventory adjustments [14][22] - Precision Devices segment delivered revenue growth of 21% for the full year, with gross margins at 47%, an increase of 140 basis points year-over-year [24][29] - MedTech & Specialty Audio segment revenue was flat for the full year, with Q4 revenue at $2 million, down 13% year-over-year [28][29] Market Data and Key Metrics Changes - The company anticipates strong organic growth in the mid to high-single digits driven by defense, medtech, and EV markets [9] - The consumer MEMS microphone market is expected to see modest improvements in Q2, primarily due to recovery in China [39][42] - The Precision Devices segment is expected to experience mid-single-digit growth in 2023, driven by strong demand in defense and EV markets [61][98] Company Strategy and Development Direction - The company is focusing on high-value markets and products, which has allowed it to achieve strong EBIT margins and generate cash despite market challenges [34] - A restructuring plan was implemented to diversify away from commodity microphones, resulting in over $28 million in annualized savings [26] - The company aims to achieve midterm targets of 22% to 24% EBIT margins and 15% to 17% free cash flow [51] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism for modest improvements in Q2, particularly in the consumer MEMS market, as inventory levels normalize [39][42] - The company expects significant sequential improvement in revenue and profitability from Q1 to Q2, with anticipated growth across all segments [50][51] - Management highlighted the challenges posed by weak demand and inventory corrections but remains confident in the resilience of the market [10][34] Other Important Information - The company ended Q4 with cash and cash equivalents totaling $48 million and generated cash from operations of $47 million [31] - Free cash flow for the full year 2022 was $54 million, representing just over 7% of revenue, marking the first time since the spin-off that the company ended the year in a net cash position [48] - The company secured an extension of its $4 million revolving credit facility until 2028, reflecting a strong balance sheet [43] Q&A Session Summary Question: Can you talk more about the first half end market demand versus inventory corrections? - Management indicated that bookings are improving and they are optimistic about sequential growth in Q2, with strong bookings already seen [38][39] Question: Is there any market share shifts? - Management stated that they are taking share in the defense market and have sustained share gains in MedTech & Specialty Audio, with no significant changes in the consumer microphone business [66][68] Question: Are you done with restructuring? - Management feels confident about the current capacity levels and indicated that they will take further restructuring actions if necessary [70][74] Question: Can you talk about the inventory in the channel for Precision Devices? - Management noted that there isn't much inventory in the channel for Precision Devices, as most orders are custom and specific [92][93] Question: What is the outlook for the EV auto market? - Management expects 30% to 40% growth in the EV segment for 2023, with strong bookings indicating potential for significant revenue growth in the coming years [114][117] Question: What is the expected run rate for OpEx going forward? - Management indicated a run rate of approximately $45 million, which reflects the benefits of restructuring and increased incentive compensation [120]