• Revenue: $205 million, up 18% year-over-year.
• EPS: $0.24, up 4% from Q2 2023.
• Cash from Operations: $25 million in Q2.
• MedTech and Specialty Audio Revenue: $60 million, down 2% year-over-year.
• Precision Devices Revenue: $74 million, up 55% year-over-year.
• Consumer MEMS Microphone Revenue: $71 million, up 9% year-over-year.
• Gross Margin: 54.6%, up more than 100 basis points year-over-year.
• Adjusted EBITDA Margin: Over 45% for the company.
• R&D Expense: $17 million, up 6% from Q2 2023.
• SG&A Expense: $32 million, $2 million higher than prior year.
• Interest Expense: Up $4 million year-over-year.
• Cash and Cash Equivalents: $84 million at the end of Q2.
• Total Debt: $261 million at the end of Q2.
• Net Debt Leverage Ratio: 1.1 times trailing 12 months adjusted EBITDA.
• Share Repurchase: 1.4 million shares at a cost of $25 million.

• Warning! GuruFocus has detected 7 Warning Signs with KN.

Release Date: July 31, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Knowles Corp (NYSE:KN) reported $205 million in revenue for Q2 2024, representing an 18% year-over-year growth.
• The MedTech and specialty audio segment showed sequential revenue growth of 4%, driven by strong demand in the hearing health market.
• Precision Devices segment saw a 55% year-over-year revenue increase, largely due to the acquisition of Cornell.
• The company achieved adjusted EBITDA margins of over 45%, indicating strong operational execution.
• Knowles Corp (NYSE:KN) repurchased $25 million of shares and reduced debt by $34 million, reflecting robust cash generation.

Negative Points

• The Consumer MEMS Microphone (CMM) business faced challenges, with flat sequential growth expected in Q3.
• Gross margins in the Consumer MEMS Microphone segment decreased by 550 basis points year-over-year.
• The industrial end market continues to face headwinds with elevated customer and channel inventories.
• The acquisition of Cornell led to a decrease in gross margins for the Precision Devices segment by 250 basis points.
• Knowles Corp (NYSE:KN) recorded a $249 million goodwill impairment charge related to the CMM business.

Q & A Highlights

Q: Can you provide insights on the sequential growth expectations for MedTech, specialty audio, and precision devices? A: Jeffrey Niew, President and CEO, explained that the sequential growth is primarily from the non-CMM portion of the business, particularly in the Precision Device segment. MedTech and specialty audio are expected to see more pronounced growth in Q4 compared to Q3. The CMM business is expected to remain flat in Q3 but showed strong year-over-year growth in Q2.

Q: Is there any update on the potential sale of the consumer mass microphone (CMM) business? A: Jeffrey Niew stated that they are inching closer to a conclusion regarding the strategic alternatives for the CMM business. The business is expected to see significant year-over-year growth for the full year.

Q: Regarding the Cornell Dubilier (CD) acquisition, is the revenue target for 2024 still $135 million to $140 million? A: John Anderson, CFO, confirmed that the revenue target remains unchanged, and they are on track to achieve $26 million in EBITDA for the year. Synergies from the acquisition are larger than expected, contributing to faster margin improvements.

Q: How is the pricing environment across your business segments? A: Jeffrey Niew noted that pricing in the MedTech and specialty audio segments is stable, with modest price increases in the Precision Devices segment. The CMM business, particularly in mobile, faces pricing challenges, but outside of mobile, pricing remains stable.

Q: Can you discuss the goodwill impairment in the CMM segment and its implications? A: John Anderson explained that a goodwill impairment charge of $249 million was recorded due to the likelihood that the fair value of the CMM reporting unit was below its carrying value, following a strategic review of the business.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.