Knowles(KN) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q3 2024 revenue of $143 million, representing a 32$0.26, up 30% from the previous year [10][12] Business Line Data and Key Metrics Changes - Medtech & Specialty Audio segment revenue grew 10% year-over-year to $64 million, driven by higher demand in Hearing Health and Specialty Audio [10][11] - Precision Devices segment revenue increased 57$79 million, primarily due to the Cornell acquisition, despite lower shipments in the industrial end market [10][11] - Gross margins for Medtech & Specialty Audio were 53.1%, down 60 basis points year-over-year, while Precision Devices had gross margins of 40%, down 40 basis points [10][11] Market Data and Key Metrics Changes - The defense market remains strong, while the industrial market shows weakness with inconsistent bookings from distribution partners [18][19] - The electrification market is flat year-over-year, with new design wins offsetting some declines [31] - Distribution partners report approximately six months of inventory on hand, indicating a need for inventory normalization [29][30] Company Strategy and Development Direction - The company is transitioning its portfolio to higher growth markets and products, focusing on Medtech, defense, electrification, and industrial sectors [4][9] - The sale of the Consumer MEMS Microphone business is part of the strategy to enhance shareholder value and focus on more attractive markets [4][9] - An Investor Forum is planned for Q1 2025 to discuss growth strategies and future plans in detail [9][15] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the Hearing Health market, especially with new features in Apple products driving awareness and adoption [6][7] - There is cautious optimism for recovery in the industrial market by late Q1 and Q2 of 2025, although current conditions remain inconsistent [19][30] - The company anticipates modest sequential revenue growth in Q4 2024, with guidance for revenues between $141 million and$151 million [14][15] Other Important Information - The company generated $53 million in cash from operating activities, exceeding guidance due to lower net working capital [12] - Capital spending for Q3 was$4 million, with expectations for Q4 capital spending to be around $6 million [12][14] - The net leverage ratio based on trailing 12 months adjusted EBITDA was 1x, indicating a strong balance sheet position [13] Q&A Session Summary Question: Demand in Precision Devices (PD) segment - Management noted that the defense market remains strong, while industrial markets show weakness with inconsistent bookings [18][19] Question: CapEx expectations - Management indicated a go-forward CapEx level of around 3% of revenue, with potential fluctuations based on business cycles [20][21] Question: M&A environment - The company is actively assessing M&A opportunities, focusing on targets that align with their higher margin business strategy [23][24] Question: Margin expansion opportunities in Cornell - Management highlighted continued opportunities for margin improvement through pricing and operational efficiencies [25][27] Question: Inventory levels and geographic demand patterns - Distribution partners report about six months of inventory, with expectations for normalization in the coming months [29][30] Question: Changes in demand patterns in other end markets - Management stated that consumer demand remains stable, with no significant issues observed [33]