Knowles Corp Q3 FY2024 earnings call

• Signed definitive agreement to sell Consumer MEMS Microphone business to focus on higher growth markets. - Third quarter revenue $143 million (high end of guided range), 32% YOY growth (Cornell + 4% organic), EPS $0.26 (midpoint of guided range), cash from operations $53 million (exceeding guided range). - Medtech & Specialty Audio grew 10% YOY; Apple's AirPod Pro 2 software update expected to drive hearing aid adoption. - Precision Device saw revenue growth from Cornell, margin expansion via cost synergies, pricing, and capacity utilization; expects modest sequential revenue growth in Q4 with healthy pipeline.

In Q3, Medtech & Specialty Audio revenue was $64 million, up 10% year-over-year, representing 44.76% of total revenue ($143 million). Gross margins were 53.1%, down 60 basis points. Precision Device revenue was $79 million, up 57% year-over-year (driven by Cornell acquisition), 6% sequentially. Gross margins were 40%, down 40 basis points, but Cornell's gross margin improved 500 basis points since Q1.

• Fourth quarter 2024 revenues expected $141M - $151M (up 5% YOY). - R&D expenses $8M - $9M, SG&A $23M - $25M. - Adjusted EBIT margin 21% - 23%, EPS $0.26 - $0.30. - Cash from operations $30M - $40M, capital spending $6M.

• Inconsistent bookings in industrial end market. - Inventory levels in industrial and distribution partners. - Risks related to demand, trends, and potential material differences from expectations as per SEC filings.

Q: Underlying demand in PD, end markets, weakness, recovery?

A: Defense is okay, medtech growing, electrification flattish, industrial weak (North America/Europe), distribution has 6 months inventory, needs to come down 3 months.

Q: CapEx go-forward, M&A environment?

A: CapEx over cycle ~3% of revenue, M&A selective, EBITDA multiple expanding, looking at opportunities.

Q: Cornell margin expansion, pricing, industrial inventory?

A: Pricing to add ~$5M this year, more in 2025; industrial distribution inventory ~6 months, needs to come down 3 months.

Q: Industrial sequential trends, end markets geographically?

A: PD expecting modest sequential growth, defense/medtech up, electrification/industrial flat; industrial in NA/Europe, less in Asia.