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Knowles Reports Q4 & Full Year 2019 Financial Results and Provides Outlook for Q1 2020

Q4 Revenues Up 5 Percent Y/Y

Revenues from Non-Mobile More Than 70 Percent of Total Sales in 2019

Record Cash From Operations of $124 million in 2019

Knowles Corporation (NYSE: KN), a market leader and global provider of advanced micro-acoustic, audio processing, and precision device solutions, today announced results for the quarter and year ended December 31, 2019.

"In the fourth quarter, we reported revenues of $234 million, within our guidance range and up 5 percent from the year ago period as strong sales into the Ear and IoT markets were offset by continued soft trends in Mobile," said Jeffrey Niew, president and CEO of Knowles. "In Precision Devices, fourth quarter sales were up double digits year-over-year, however, gross margins for this segment were below expectations resulting in EPS that was below our guidance range. We anticipate total company gross margin improvement in 2020."

"We ended 2019 with total company revenue up 3 percent, despite a weak handset market, demonstrating the benefits of our strategy to deliver high value, differentiated solutions to a diverse set of growing end markets. In addition, we delivered record cash from operations, representing over 14 percent of sales. I expect our strategy to continue to deliver shareholder value by driving revenue growth with strong operating leverage and cash flow for full year 2020 and beyond," continued Niew.

Financial Highlights

The following table highlights the Company’s financial performance on both a GAAP and supplemental non-GAAP basis for continuing operations* (in millions, except per share data):

Q4FY19

Q3FY19

Q4FY18

Year Ago Period Change

Revenues

$233.9

$235.9

$223.8

5%

Gross profit

(as a % of revenues)

$89.6

38.3%

$93.5

39.6%

$94.3

42.1%

(5%)

Non-GAAP gross profit

(as a % of revenues)

$90.9

38.9%

$94.7

40.1%

$95.4

42.6%

(5%)

Diluted earnings (loss) per share**

$0.22

$0.27

$0.87

(75%)

Non-GAAP diluted earnings per share

$0.35

$0.38

$0.37

(5%)

* Current period results include $6.0 million in stock-based compensation, $1.8 million in restructuring charges, production transfer costs and other expenses, and $1.7 million in amortization of intangibles.

First Quarter 2020 Outlook

The forward looking guidance for the quarter ending March 31, 2020 on a continuing operations basis is as follows:

 

GAAP

Adjustments

Non-GAAP

Revenues

$160 to $190 million

-

$160 to $190 million

Gross Profit Margin

36.5% to 39.5%

1.0%

37.5% to 40.5%

EPS

($0.02) to $0.06

$0.10

$0.08 to $0.16

Q1 2020 GAAP results are expected to include approximately $0.07 per share in stock-based compensation, and $0.03 per share in amortization of intangibles and debt discount.

Non-GAAP Financial Measures

In addition to the GAAP results included in this press release, Knowles has presented supplemental non-GAAP gross profit, earnings before interest and income taxes, adjusted earnings before interest and income taxes, non-GAAP diluted earnings per share, as well as other metrics on a non-GAAP basis that exclude certain amounts that are included in the most directly comparable GAAP measure to facilitate evaluation of Knowles’ operating performance. Non-GAAP results are not presented in accordance with GAAP. Non-GAAP information should be considered a supplement to, and not a substitute for, financial statements prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this press release do not have standard meanings and may vary from similarly titled non-GAAP financial measures used by other companies. Knowles believes that non-GAAP measures are useful as supplements to its GAAP results of operations to evaluate certain aspects of its operations and financial performance, and its management team primarily focuses on non-GAAP items in evaluating Knowles’ performance for business planning purposes. Knowles also believes that these measures assist it with comparing its performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in Knowles’ opinion, do not reflect its core operating performance including, for example, stock-based compensation, certain intangibles amortization expense, fixed asset impairment charges, restructuring, production transfer costs, and other charges which management considers to be outside our core operating results. Knowles believes that its presentation of these non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that Knowles uses internally for purposes of assessing its core operating performance. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the reconciliation table accompanying this release.

Webcast and Conference Call Information

Investors can listen to a live or replay webcast of the Company’s quarterly financial conference call at http://investor.knowles.com. The live webcast will begin today at 3:30 p.m. Central time. The webcast replay will be available after 7:00 p.m. Central time today.

Investors can also listen to the conference call at 3:30 p.m. Central time today by calling (844) 589-0917 (United States) or (647) 253-8649 (International). The conference call replay will be available after 7:00 p.m. Central time today through 11:59 p.m. Central time on February 11, 2020 at (800) 585-8367 (United States) or (416) 621-4642 (International). The access code is 4164655.

About Knowles

Knowles Corporation (NYSE: KN) is a market leader and global provider of advanced micro-acoustic, audio processing, and precision device solutions, serving the mobile consumer electronics, communications, medtech, defense, automotive, and industrial markets. Knowles uses its leading position in MEMS (micro-electro-mechanical systems) microphones and strong capabilities in audio processing technologies to optimize audio systems and improve the user experience in mobile, ear, and IoT applications. Knowles is also the leader in acoustic components, high-end capacitors, and mmWave RF solutions for a diverse set of markets. Knowles’ focus on the customer, combined with unique technology, proprietary manufacturing techniques, rigorous testing, and global scale, enables it to deliver innovative solutions that optimize the user experience. Founded in 1946 and headquartered in Itasca, Illinois, Knowles is a global organization with employees in 12 countries. The company was spun out from Dover Corporation in 2014 and has been focused on reshaping its business portfolio and investing in high value solutions to diversify its revenue and increase exposure to high-growth markets. For more information, visit knowles.com.

Forward Looking Statements

This news release contains forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. The words "believe," "expect," "anticipate," "project," "estimate," "budget," "continue," "could," "intend," "may," "plan," "potential," "predict," "seek," "should," "will," "would," "objective," "forecast," "goal," "guidance," "outlook," "effort," "target," and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made. The statements in this news release are based on currently available information and the current expectations, forecasts, and assumptions of Knowles’ management concerning risks and uncertainties that could cause actual outcomes or results to differ materially from those outcomes or results that are projected, anticipated, or implied in these statements. These risks and uncertainties include, but are not limited to: unforeseen changes in MEMS microphone demand from our largest customers, in particular, two North American, a Korean, and Chinese OEM customers; the success and rate of multi-microphone and smart microphone adoption and proliferation of our "intelligent audio" solutions, including our audio edge processors, to high volume platforms; our ongoing ability to execute our strategy to diversify our end markets and customers; our ability to stem or overcome price erosion in our segments; fluctuations in our stock's market price; fluctuations in operating results and cash flows; our ability to prevent or identify quality issues in our products or to promptly remedy any such issues that are identified; the timing of OEM product launches; risks associated with increasing our inventories in advance of anticipated orders by customers; global economic instability including the recent economic slowdown in China; the impact of epidemics such as the coronavirus currently impacting China; the impact of changes to laws and regulations that affect the Company’s ability to offer products or services to customers in different regions; risks associated with shareholder activism, including proxy contests; our ability to achieve continued reductions in our operating expenses; the ability to qualify our products and facilities with customers; our ability to obtain, enforce, defend or monetize our intellectual property rights; difficulties or delays in and/or the Company’s inability to realize expected cost synergies from its acquisitions; increases in the costs of critical raw materials and components; availability of raw materials and components; managing new product ramps and introductions for our customers; our dependence on a limited number of large customers; our ability to maintain and expand our existing relationships with leading OEMs in order to maintain and increase our revenue; increasing competition and new entrants in the market for our products; our ability to develop new or enhanced products or technologies in a timely manner that achieve market acceptance; our reliance on third parties to manufacture, assemble, and test our products and sub-components; escalating international trade tensions, new or increased tariffs and trade wars among countries; financial risks, including risks relating to currency fluctuations, credit risks and fluctuations in the market value of the Company; market risk associated with fluctuations in commodity prices, particularly for various precious metals used in our manufacturing operation, and changes in tax laws, changes in tax rates and exposure to additional tax liabilities; and other risks, relevant factors, and uncertainties identified in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018, subsequent Reports on Forms 10-Q and 8-K and our other filings we make with the U.S. Securities and Exchange Commission. Knowles disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

INVESTOR SUPPLEMENT - FOURTH QUARTER 2019

 
KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except share and per share amounts)
(unaudited)
 

Quarter Ended

December 31, 2019

 

September 30, 2019

 

December 31, 2018

Revenues

$

233.9

 

$

235.9

 

$

223.8

 

Cost of goods sold

 

143.6

 

 

142.3

 

 

129.2

 

Restructuring charges - cost of goods sold

 

0.7

 

 

0.1

 

 

0.3

 

Gross profit

 

89.6

 

 

93.5

 

 

94.3

 

Research and development expenses

 

23.7

 

 

23.4

 

 

25.2

 

Selling and administrative expenses

 

34.6

 

 

34.6

 

 

35.1

 

Restructuring charges

 

0.5

 

 

1.9

 

 

0.3

 

Operating expenses

 

58.8

 

 

59.9

 

 

60.6

 

Operating earnings

 

30.8

 

 

33.6

 

 

33.7

 

Interest expense, net

 

3.6

 

 

3.8

 

 

3.9

 

Other expense (income), net

 

0.5

 

 

(0.6

)

 

0.2

 

Earnings before income taxes and discontinued operations

 

26.7

 

 

30.4

 

 

29.6

 

Provision for (benefit from) income taxes

 

5.6

 

 

5.0

 

 

(49.8

)

Earnings from continuing operations

 

21.1

 

 

25.4

 

 

79.4

 

(Loss) earnings from discontinued operations, net

 

(0.6

)

 

-

 

 

0.2

 

Net earnings

$

20.5

 

$

25.4

 

$

79.6

 

Earnings per share from continuing operations:
Basic

$

0.23

 

$

0.28

 

$

0.88

 

Diluted

$

0.22

 

$

0.27

 

$

0.87

 

(Loss) earnings per share from discontinued operations:
Basic

$

(0.01

)

$

-

 

$

-

 

Diluted

$

(0.01

)

$

-

 

$

-

 

Net earnings per share:
Basic

$

0.22

 

$

0.28

 

$

0.88

 

Diluted

$

0.21

 

$

0.27

 

$

0.87

 

Weighted-average common shares outstanding:
Basic

 

91,653,662

 

 

91,398,539

 

 

90,220,173

 

Diluted

 

95,742,308

 

 

93,859,446

 

 

91,592,320

 

  
KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
(in millions, except share and per share amounts)
(unaudited)
  
 

Year Ended

 

December 31, 2019

 

 

December 31, 2018

Revenues  

$

854.8

 

 

$

826.9

 

Cost of goods sold  

 

525.1

 

 

 

503.9

 

Restructuring charges - cost of goods sold  

 

1.7

 

 

 

0.4

 

Gross profit  

 

328.0

 

 

 

322.6

 

Research and development expenses  

 

96.8

 

 

 

100.6

 

Selling and administrative expenses  

 

145.7

 

 

 

142.5

 

Restructuring charges  

 

4.3

 

 

 

1.7

 

Operating expenses  

 

246.8

 

 

 

244.8

 

Operating earnings  

 

81.2

 

 

 

77.8

 

Interest expense, net  

 

14.5

 

 

 

16.0

 

Other expense, net  

 

0.4

 

 

 

0.7

 

Earnings before income taxes and discontinued operations  

 

66.3

 

 

 

61.1

 

Provision for (benefit from) income taxes  

 

16.6

 

 

 

(4.5

)

Earnings from continuing operations  

 

49.7

 

 

 

65.6

 

(Loss) earnings from discontinued operations, net  

 

(0.6

)

 

 

2.1

 

Net earnings  

$

49.1

 

 

$

67.7

 

  
Earnings per share from continuing operations:    
Basic  

$

0.55

 

 

$

0.73

 

Diluted  

$

0.53

 

 

$

0.72

 

  
(Loss) earnings per share from discontinued operations:    
Basic  

$

(0.01

)

 

$

0.02

 

Diluted  

$

-

 

 

$

0.02

 

  
Net earnings per share:    
Basic  

$

0.54

 

 

$

0.75

 

Diluted  

$

0.53

 

 

$

0.74

 

  
Weighted-average common shares outstanding:    
Basic  

 

91,156,124

 

 

 

90,050,051

 

Diluted  

 

93,439,023

 

 

 

91,194,747

 

...
KNOWLES CORPORATION
RECONCILIATION OF GAAP FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (1)
(in millions, except share and per share amounts)
(unaudited)
  
 Quarter Ended Year Ended
 December 31,
2019
September 30,
2019
December 31,
2018
 December 31,
2019
December 31,
2018
Gross profit  

$

89.6

 

$

93.5

 

$

94.3

 

 

$

328.0

 

$

322.6

 

Gross profit as % of revenues  

 

38.3

%

 

39.6

%

 

42.1

%

 

 

38.4

%

 

39.0

%

Stock-based compensation expense  

 

0.4

 

 

0.4

 

 

0.4

 

 

 

1.6

 

 

1.6

 

Restructuring charges  

 

0.7

 

 

0.1

 

 

0.3

 

 

 

1.7

 

 

0.4

 

Production transfer costs (2)  

 

0.2

 

 

0.7

 

 

0.4

 

 

 

2.3

 

 

2.2

 

Other (3)  

 

-

 

 

-

 

 

-

 

 

 

-

 

 

0.2

 

Non-GAAP gross profit  

$

90.9

 

$

94.7

 

$

95.4

 

 

$

333.6

 

$

327.0

 

Non-GAAP gross profit as % of revenues  

 

38.9

%

 

40.1

%

 

42.6

%

 

 

39.0

%

 

39.5

%

  
Research and development expenses  

$

23.7

 

$

23.4

 

$

25.2

 

 

$

96.8

 

$

100.6

 

Stock-based compensation expense  

 

(1.7

)

 

(1.5

)

 

(1.9

)

 

 

(7.6

)

 

(7.8

)

Production transfer costs (2)  

 

-

 

 

-

 

 

-

 

 

 

-

 

 

(0.4

)

Non-GAAP research and development expenses  

$

22.0

 

$

21.9

 

$

23.3

 

 

$

89.2

 

$

92.4

 

  
Selling and administrative expenses  

$

34.6

 

$

34.6

 

$

35.1

 

 

$

145.7

 

$

142.5

 

Stock-based compensation expense  

 

(3.9

)

 

(3.3

)

 

(3.9

)

 

 

(16.0

)

 

(17.6

)

Intangibles amortization expense  

 

(1.7

)

 

(1.8

)

 

(1.6

)

 

 

(7.0

)

 

(6.5

)

Other (3)  

 

(0.4

)

 

0.4

 

 

(0.2

)

 

 

(5.6

)

 

(0.4

)

Non-GAAP selling and administrative expenses  

$

28.6

 

$

29.1

 

$

29.4

 

 

$

117.1

 

$

118.0

 

  
Operating expenses  

$

58.8

 

$

59.9

 

$

60.6

 

 

$

246.8

 

$

244.8

 

Stock-based compensation expense  

 

(5.6

)

 

(4.8

)

 

(5.8

)

 

 

(23.6

)

 

(25.4

)

Intangibles amortization expense  

 

(1.7

)

 

(1.8

)

 

(1.6

)

 

 

(7.0

)

 

(6.5

)

Restructuring charges  

 

(0.5

)

 

(1.9

)

 

(0.3

)

 

 

(4.3

)

 

(1.7

)

Production transfer costs (2)  

 

-

 

 

-

 

 

-

 

 

 

-

 

 

(0.4

)

Other (3)  

 

(0.4

)

 

(0.4

)

 

(0.2

)

 

 

(5.6

)

 

(0.4

)

Non-GAAP operating expenses  

$

50.6