Q4 Revenue and Adjusted EBIT Margin at High-End
of Projections
Q4 non-GAAP EPS Exceeds Expectations
Generated $66 million in Cash from Operations
in Q4
Company Announces Intent to Sell MCE Speaker
and Receiver Product Line
Knowles Corporation (NYSE: KN), a market leader and global
supplier of advanced micro-acoustic solutions, audio processing,
and specialty component solutions, today announced results for the
fourth quarter and year ended December 31, 2015.
“We are pleased to report that Q4 revenue came in at the
high-end of our original expectations,” said Jeffrey Niew,
president and CEO of Knowles. “In our mobile consumer electronics
segment, sales increased sequentially driven by strong demand from
our largest customer early in the quarter, and improving trends
with Chinese OEMs. Revenue from our specialty components segment
was up 4 percent quarter over quarter driven by robust sales into
the hearing health market. In addition, our Q4 non-GAAP gross
margins expanded more than 800 basis points from Q1 levels
highlighting the strength in our core business, and reflecting the
benefits of higher utilization rates and an optimized manufacturing
footprint.”
“Today, we are also announcing our intent to sell the speaker
and receiver product line in our mobile consumer electronics
segment,” stated Niew. “While we’ve made operational improvements
to this product line over the past several years, we do not believe
this electro-mechanical business can leverage our long-term
investment in semiconductor and software design capabilities. By
exiting this product line, we anticipate meaningful improvements to
our overall gross and operating margins while reducing capex
intensity and improving free cash flow.”
“As we enter 2016, we plan to focus on businesses where we
believe we have strong competitive advantage to sustain long-term
revenue growth. We expect our leading position in microphones,
intelligent audio and hearing health, combined with stable sales of
precision devices will drive top-line growth and strong operating
margins in the future.”
Financial Highlights
The following highlights the Company’s financial performance on
both a GAAP and supplemental non-GAAP basis (in millions except for
per share data):
Q4FY15 Q3FY15 Q4FY14
Sequential Change
Year Ago Period Change
Revenue $310.5 $294.6 $286.1 5% 9%
Gross Profit $43.4
$88.7 $63.6 (51%) (32%)
Non-GAAP Gross Profit $101.7 $94.5
$70.3
(as % of revenue) 32.8% 32.1% 24.6% 8% 45%
Loss
Before Interest and Income Taxes* $(199.0) $(14.6) $(1.2) NM**
NM**
Adjusted Earnings Before Interest and Income Taxes
$26.4 $19.6 $17.6
(as % of revenue) 8.5% 6.7% 6.2% 35% 50%
Diluted loss per share $(2.11) $(0.17) $(0.01) NM** NM**
Non-GAAP Diluted Earnings Per Share $0.34*** $0.16 $0.14
113% 143%
Cash From Operations $66.0 $11.9 $26.3 455% 151%
* Current period results include $144.3 million impairment of
intangible assets, $11.1 million from amortization of intangibles,
$6.4 million in restructuring charges, $4.9 million in stock-based
compensation, $53.0 million in fixed asset and related inventory
charges, and $3.8 million in production transfer costs.
** NM means Not Meaningful
*** Non-GAAP EPS impacted by reduction in our Q4 2015 effective
tax rate due to a recently enacted R&D tax credit and a change
in the geographic mix of earnings.
In addition to the GAAP results included in this press release,
Knowles has presented supplemental non-GAAP gross profit, loss
before interest and income taxes, adjusted earnings before interest
and income taxes, diluted loss per share, cash from operations as
well as other metrics on a non-GAAP basis that excludes 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 uses non-GAAP measures as supplements to its
GAAP results of operations in evaluating certain aspects of its
business, and its Board of Directors and executive management team
focus on non-GAAP items as key measures of Knowles’ performance for
business planning purposes. These measures assist Knowles in
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.
Company Plans to Sell Mobile Consumer Electronics Speaker
& Receiver Product Line
Today, Knowles announced its intention to sell its speaker and
receiver product line within the mobile consumer electronics
business segment. As a result, the Company expects to reclassify
the assets, liabilities and results of the operations of the
product line to discontinued operations in the first quarter of
2016. Knowles has not entered into any definitive agreement for the
sale of the product line and there can be no assurance that Knowles
will complete a sale in a timely manner or at all.
During the fourth quarter of 2015, Knowles recorded a pre-tax
impairment charge of $191.5 million resulting from the carrying
value of the speaker and receiver product line’s net assets being
less than their fair-market value.
As of December 31, 2015, the speaker and receiver product line
had total assets and liabilities of $441.1 million and $51.8
million, respectively. For the twelve months ended December 31,
2015, the speaker and receiver product line had revenues of $235.0
million and pre-tax losses of $272.4 million. Adjusted loss before
interest and income taxes of the speaker and receiver product line
was $49.5 million for the same period.
First Quarter 2016 Outlook
The forward looking guidance for the quarter ending March 31,
2016 on a continuing operations basis is as follows:
Revenue $170 to $190 million
Non-GAAP Gross
Margin
36 to 38 Percent
Adjusted EBIT Margin 3 to 5 Percent
Non-GAAP EPS
$0.01 to $0.07
Q1 2016 GAAP results for the company are expected to include
approximately $6 million in stock-based compensation, $4 million in
amortization of intangibles, $2 million in production and
restructuring related costs, and related tax effects on these
items.
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. Slides will be made available on the
website that will be referred to during the conference call. 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
through May 1, 2016.
Investors can also listen to the conference call at 3:30 p.m.
Central time today by calling (877) 359-9508 (United States) or
(224) 357-2393 (International). The conference call replay will be
available after 7:00 p.m. Central time on February 11, 2016 through
11:59 p.m. Central time on February 18, 2016 at (855) 859-2056
(United States) or (404) 537-3406 (International). The access code
is 26518603.
About Knowles
Knowles Corporation (NYSE: KN) is a market leader and global
supplier of advanced micro-acoustic, audio processing, and
specialty component solutions, serving the mobile consumer
electronics, communications, medical, military, aerospace, 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 smartphones, tablets,
and wearables. Knowles is also the leader in acoustics components
used in hearing aids and has a strong position in high-end
oscillators (timing devices) and capacitors. 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 has approximately 12,000 employees in 15 countries around
the world. 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 current plans, expectations, forecasts and assumptions involving
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: the pace and
success of achieving the cost savings from our announced
restructurings, acquisitions and operating expense reduction
efforts; 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; customer purchasing behavior in light of anticipated
mobile phone launches; downward pressure on the average selling
prices for our products; risks associated with increasing our
inventories in advance of anticipated orders by customers;
macroeconomic conditions, both in the U.S. and internationally;
foreign currency exchange rate fluctuations; our ability to
maintain and improve costs, quality and delivery for our customers;
our ability to qualify our products and facilities with customers;
risks and costs inherent in litigation; our ability to obtain,
enforce, defend or monetize our intellectual property rights;
increases in the costs of critical raw materials and components;
availability of raw materials and components; anticipated growth
for us and adoption of our technologies and solutions that may not
occur; the success and rate of multi-microphone adoption and our
“intelligent audio” solutions; managing rapid declines in customer
demand for certain of our products or solutions, delays in customer
product introductions and other related customer challenges that
may occur; our ability to successfully consummate acquisitions and
divestitures, including the proposed divestiture of our speaker and
receiver product line, and our ability to integrate acquisitions
following consummation; our obligations and risks under various
transaction agreements that were executed as part of our spin-off
from our former parent company, Dover Corporation; managing new
product ramps and introductions for our customers; risks associated
with international sales and operations; retaining key personnel;
our dependence on a limited number of large customers; our need to
maintain and expand our existing relationships with leading OEMs
and to establish relationships with new OEMs in order to maintain
and increase our revenue; business and competitive factors
generally affecting the advanced micro-acoustic solutions and
specialty components industry, our customers and our business;
fluctuations in demand by our telecom and other customers and
telecom end markets; our ability to enter new end user product
markets; 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; changes in tax laws or our ability to
utilize our tax structure and any net operating losses and other
factors that we may not have currently identified or quantified;
and other risks, relevant factors and uncertainties identified in
our Annual Report on Form 10-K for the fiscal year ended December
31, 2014, subsequent Reports on Forms 10-Q and 8-K and our other
filings we make with the SEC. 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 2015
KNOWLES CORPORATION CONSOLIDATED
STATEMENTS OF EARNINGS (in millions except share and per
share amounts) (unaudited) Quarter Ended
December 31, 2015 September 30, 2015 December 31,
2014 Revenues $ 310.5 $ 294.6 $ 286.1 Cost of goods sold
214.0 204.9 220.1 Impairment of fixed and other assets 49.9 0.5 0.2
Restructuring charges - cost of goods sold 3.2
0.5 2.2
Gross profit 43.4 88.7 63.6
Research and development expenses 36.8 33.0 21.1 Selling and
administrative expenses 57.1 58.8 45.5 Impairment of intangible
assets 144.3 0.4 - Restructuring charges 3.2
8.9 0.7
Operating expenses 241.4
101.1 67.3
Operating loss
(198.0 ) (12.4 ) (3.7 ) Interest expense, net 3.5 3.7 2.1 Other
expense (income), net 1.0 2.2
(2.5 )
Loss before income taxes (202.5 ) (18.3 ) (3.3 )
Benefit from income taxes (15.5 ) (3.4 ) (2.2
)
Net loss $ (187.0 ) $ (14.9 ) $ (1.1 )
Basic
loss per share $ (2.11 ) $ (0.17 ) $ (0.01 )
Diluted loss
per share $ (2.11 ) $ (0.17 ) $ (0.01 )
Weighted
average common shares outstanding: Basic 88,474,926
88,429,627 85,069,459
Diluted 88,474,926 88,429,627
85,069,459
KNOWLES CORPORATION CONSOLIDATED STATEMENTS OF
EARNINGS (in millions except share and per share
amounts) (unaudited) Year Ended
December 31, 2015 December 31, 2014 Revenues $
1,084.6 $ 1,141.3 Cost of goods sold 785.1 883.9 Impairment of
fixed and other assets 53.4 1.4 Restructuring charges - cost of
goods sold 3.6 23.3
Gross profit
242.5 232.7 Research and development expenses 112.1 83.0 Selling
and administrative expenses 208.1 196.5 Impairment of intangible
assets 144.7 - Restructuring charges 12.7 6.3
Operating expenses 477.6 285.8
Operating loss (235.1 ) (53.1 ) Interest expense, net
12.7 6.6 Other expense (income), net 1.1 (4.6
)
Loss before income taxes (248.9 ) (55.1 ) (Benefit from)
provision for income taxes (15.1 ) 31.9
Net
loss $ (233.8 ) $ (87.0 )
Basic loss per share $
(2.69 ) $ (1.02 )
Diluted loss per share $ (2.69 ) $ (1.02 )
Weighted average common shares outstanding:
Basic 86,802,828 85,046,042
Diluted 86,802,828
85,046,042
KNOWLES CORPORATION RECONCILIATION OF GAAP
FINANCIAL MEASURES TO NON-GAAP FINANCIAL MEASURES (1)
(in millions, except for share and per share amounts)
(unaudited) Quarter
Ended Year Ended December 31, September
30, December 31, December 31, December 31,
2015 2015 2014 2015
2014 Gross profit $ 43.4
$ 88.7 $ 63.6 $ 242.5
$ 232.7 Stock-based compensation expense 0.3 0.4 0.3
1.3 0.8 Fixed asset, inventory and other charges 49.9 0.5 (1.0 )
53.4 39.5 Restructuring charges 3.2 0.5 2.2 3.6 23.3 Production
transfer costs (2) 3.8 3.6 5.2 18.0 24.5 Other (3) 1.1
0.8 - 1.9
15.0
Non-GAAP gross profit
$ 101.7 $ 94.5
$ 70.3 $ 320.7
$ 335.8 Non-GAAP gross profit as % of
revenues 32.8 % 32.1 % 24.6 % 29.6 % 29.4 %
Research and
development expenses $ 36.8 $ 33.0
$ 21.1 $ 112.1 $ 83.0
Stock-based compensation expense (1.0 ) (0.7 ) 0.1 (2.1 ) (0.3 )
Fixed asset, inventory and other charges (3.0 )
- - (3.0 )
-
Non-GAAP research and development expenses $
32.8 $ 32.3
$ 21.2 $ 107.0
$ 82.7 Non-GAAP research and development
expenses as % of revenues 10.6 % 11.0 % 7.4 % 9.9 % 7.2 %
Selling and administrative expenses $ 57.1
$ 58.8 $ 45.5 $ 208.1
$ 196.5 Stock-based compensation expense (3.6 ) (3.9
) (2.3 ) (13.1 ) (7.9 ) Intangibles amortization expense (11.1 )
(11.1 ) (10.5 ) (42.1 ) (42.6 ) Fixed asset, inventory and other
charges (0.1 ) - - (0.1 ) - Production transfer costs (2) - - - -
(0.7 ) Other (3) (0.8 ) (3.4 ) -
(6.8 ) (2.3 )
Non-GAAP selling and
administrative expenses $ 41.5
$ 40.4 $ 32.7
$ 146.0 $ 143.0
Non-GAAP selling and administrative expenses as % of revenues 13.4
% 13.7 % 11.4 % 13.5 % 12.5 %
Operating expenses
$ 241.4 $ 101.1 $ 67.3
$ 477.6 $ 285.8 Stock-based
compensation expense (4.6 ) (4.6 ) (2.2 ) (15.2 ) (8.2 )
Intangibles amortization expense (11.1 ) (11.1 ) (10.5 ) (42.1 )
(42.6 ) Fixed asset, inventory and other charges (3.1 ) - - (3.1 )
- Restructuring charges (3.2 ) (8.9 ) (0.7 ) (12.7 ) (6.3 )
Impairment of intangible assets (144.3 ) (0.4 ) - (144.7 ) -
Production transfer costs (2) - - - - (0.7 ) Other (3) (0.8
) (3.4 ) - (6.8 )
(2.3 )
Non-GAAP operating expenses $
74.3 $ 72.7
$ 53.9 $ 253.0
$ 225.7 Non-GAAP operating expenses as % of
revenues 23.9 % 24.7 % 18.8 % 23.3 % 19.8 %
Net loss
$ (187.0 ) $ (14.9 )
$ (1.1 ) $ (233.8 )
$ (87.0 ) Interest expense, net
3.5 3.7 2.1 12.7 6.6 (Benefit
from) provision for income taxes (15.5 )
(3.4 ) (2.2
) (15.1 ) 31.9
Loss before interest and income taxes (199.0
) (14.6 ) (1.2 ) (236.2
) (48.5 ) Stock-based compensation expense 4.9
5.0 2.5 16.5 9.0 Intangibles amortization expense 11.1 11.1 10.5
42.1 42.6 Fixed asset, inventory and other charges 53.0 0.5 (1.0 )
56.5 39.5 Restructuring charges 6.4 9.4 2.9 16.3 29.6 Impairment of
intangible assets 144.3 0.4 - 144.7 - Production transfer costs (2)
3.8 3.6 5.2 18.0 25.2 Other (3) 1.9 4.2
(1.3 ) 8.7 16.0
Adjusted earnings before interest and income taxes
$ 26.4 $ 19.6
$ 17.6 $ 66.6
$ 113.4 Adjusted earnings before
interest and income taxes as % of revenues 8.5 % 6.7 % 6.2 % 6.1 %
9.9 %
(Benefit from) provision for income taxes
$ (15.5 ) $ (3.4 )
$ (2.2 ) $ (15.1 )
$ 31.9 Income tax effects of non-GAAP reconciling
adjustments 8.1 5.0
5.8 12.2 (19.4 )
Non-GAAP (benefit from) provision for income taxes $
(7.4 ) $ 1.6
$ 3.6 $ (2.9 )
$ 12.5 Net loss $
(187.0 ) $ (14.9 ) $
(1.1 ) $ (233.8 ) $
(87.0 ) Non-GAAP reconciling adjustments (4) 225.4
34.2 18.8 302.8 161.9 Income tax effects of non-GAAP reconciling
adjustments 8.1 5.0
5.8 12.2 (19.4 )
Non-GAAP net earnings $ 30.3
$ 14.3 $ 11.9
$ 56.8 $ 94.3
Non-GAAP net earnings as % of revenues 9.8 % 4.9 % 4.2 % 5.2 % 8.3
% Non-GAAP diluted earnings per share $ 0.34 $ 0.16 $ 0.14 $
0.65 $ 1.10
Diluted average shares outstanding (5)
88,474,926 88,429,627 85,069,459
86,802,828 85,046,042 Non-GAAP adjustment (6)
1,138,179 1,166,388
481,298 961,841 539,734
Non-GAAP diluted average shares outstanding (6)
89,613,105 89,596,015
85,550,757 87,764,669
85,585,776
Notes:
(1) In addition to the GAAP financial
measures included herein, Knowles has presented certain non-GAAP
financial measures. Knowles uses non-GAAP measures as supplements
to its GAAP results of operations in evaluating certain aspects of
its business, and its Board of Directors and executive management
team focus on non-GAAP items as key measures of Knowles'
performance for business planning purposes. These measures assist
Knowles in 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. Knowles believes that
its presentation of 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.
(2) Production Transfer Costs represent one-time and
duplicate costs incurred to migrate manufacturing to new or
existing facilities in Asia. These amounts are included in the
corresponding Gross profit, Selling and administrative expenses,
Operating expenses and Loss before interest and income taxes for
each period presented. (3) In 2015, Other represents
expenses related to the Audience acquisition. In 2014, Other in
Gross profit represents a charge related to the resolution of
customer claims for products no longer produced, and Other in
Operating expenses represents expenses related to the spin-off of
Knowles from Dover Corporation. (4) The Non-GAAP reconciling
adjustments are those adjustments made to reconcile Loss before
interest and income taxes to Adjusted earnings before interest and
income taxes. (5) Diluted average shares outstanding are
consistent with basic average shares outstanding as all periods are
reporting a net loss. (6) The number of shares used in the
diluted per share calculations on a non-GAAP basis excludes the
impact of stock-based compensation expense expected to be incurred
in future periods and not yet recognized in the financial
statements, which would otherwise be assumed to be used to
repurchase shares under the GAAP treasury stock method.
KNOWLES
CORPORATION CONSOLIDATED BALANCE SHEETS (in millions,
except for share and per share amounts)
December 31, 2015 December 31, 2014
(unaudited) Current assets: Cash and cash equivalents
$ 63.3 $ 55.2 Receivables, net of allowances of $1.8 and $0.8 192.4
236.3 Inventories, net 152.0 162.0 Prepaid and other current assets
11.6 10.7 Deferred tax assets - 9.8
Total current assets
419.3 474.0
Property, plant and
equipment, net 224.8 315.9
Goodwill 925.8 914.7
Intangible assets, net 97.0 270.3
Other assets and
deferred charges 30.8 23.6
Total
assets $ 1,697.7 $ 1,998.5
Current
liabilities: Current maturities of long-term debt $ 30.0 $ 15.0
Accounts payable 116.5 172.1 Accrued compensation and employee
benefits 37.3 38.7 Other accrued expenses 41.6 48.8 Federal and
other taxes on income 1.5 14.0 Total
current liabilities 226.9 288.6
Long-term debt 400.0 385.0
Deferred income taxes 18.4
49.2
Other liabilities 45.6 39.5
Commitments and
contingencies Stockholders' equity: Preferred stock -
$0.01 par value; 10,000,000 shares authorized; none issued - -
Common stock - $0.01 par value; 400,000,000 shares authorized;
88,451,564 and 85,061,449 shares issued at December 31, 2015 and
December 31, 2014, respectively 0.9 0.9 Additional paid-in capital
1,449.9 1,372.6 Accumulated deficit (317.8 ) (84.0 ) Accumulated
other comprehensive loss (126.2 ) (53.3 ) Total
stockholders' equity 1,006.8 1,236.2
Total liabilities and stockholders' equity $ 1,697.7
$ 1,998.5
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160211006266/en/
Financial Contact:Knowles Investor RelationsMike Knapp,
(630) 238-5236mike.knapp@knowles.comorMedia Contact:Knowles
CommunicationsRoxanne Pipitone, (630)
238-5257roxanne.pipitone@knowles.com
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