Knowles : Q3 2023 Knowles Corporation Earnings Conference Call Presentation

Forward Looking Statements

Non-GAAP Disclaimer

• Revenue down YoY primarily due to lower Precsion Devices revenue driven by excess customer and channel inventory and timing of defense shipments
• Non-GAAPGross Profit Margin of 44.6%, up 610bps versus prior year primarily due to the gain on sale of fully depreciated assets, productivity improvements, and lower factory costs, partially offset by lower capacity utilization
• Adjusted EBIT Margin up 520bps YoY driven by favorable gross profit margins, reduced spending in CMM, and lower incentive compensation costs in PD, partially offset by higher professional and legal fees associated with the exploration of strategic alternatives for CMM

• Revenue down 22% YoY driven by continued weak demand associated with excess channel inventory in the industrial and distribution markets and timing of shipments into the defense market
• Non-GAAPGross Profit Margin down 710bps driven by unfavorable capacity utilization

• Revenue up versus the prior year higher shipments as demand has returned to more normalized
• Non-GAAPGross Profit Margin increased year-over-year on productivity gains, favorable mix, and foreign currency benefits

• Revenue increased YoY driven by growth in non-mobile applications
• Non-GAAPGross Profit Margin up 1580 bps year-over-year driven by gain on the sale of fully depreciated assets, restructuring benefits, improved product mix, and higher factory capacity utilization, partially offset by pricing pressure in the mobile market

Outlook

Q4 2023 GAAP results are expected to include approximately $0.06 per share in stock-based compensation, $0.03 per share in amortization of intangibles, and $0.01 per share in restructuring charges excluded from Non-GAAP results.

July 28, 2021

Appendix

Reconciliation of GAAP Financial Measures to

Non-GAAP Financial Measures

		Quarter Ended September 30,
(in millions, except per share amounts)		2023				2022
Revenues	$	175.1	$	178.2
Gross profit	$	77.5	$	40.0
Gross profit margin		44.3	%			22.4 %
Stock-based compensation expense		0.5				0.5
Restructuring charges		0.1				28.1
Non-GAAP gross profit	$	78.1			$	68.6
Non-GAAP gross profit margin		44.6	%			38.5 %
Operating expenses	$	55.9	$	54.6
Stock-based compensation expense		(6.4)				(6.3)
Intangibles amortization expense		(3.0)				(3.1)
Restructuring charges		(1.5)			(2.7)
Acquisition-related costs (2)		(3.0)				-
Other (1)		(0.2)				-
Non-GAAP operating expenses	$	41.8	$	42.5
Non-GAAP operating expenses margin		23.9 %			23.8 %
Net earnings	$	16.6	$	2.7
Interest expense, net		0.6				1.1
Provision for (benefit from) income taxes		4.9				(16.3)
Earnings (loss) before interest and income taxes		22.1				(12.5)
Earnings (loss) before interest and income taxes margin		12.6 %			(7.0) %
Stock-based compensation expense		6.9				6.8
Intangibles amortization expense		3.0				3.1
Restructuring charges		1.6				30.8
Acquisition-related costs (2)		3.0				-
Other (1)		0.2				-
Adjusted earnings before interest and income taxes	$	36.8	$	28.2
Adjusted earnings before interest and income taxes margin		21.0 %			15.8 %

Notes:

1. In 2023, Other expenses include non-recurring professional service fees related to an evaluation of a reorganization. In addition, Other expenses include the ongoing net lease cost (income) related to facilities not used in operations. In 2022, Other expenses represent an adjustment to pre-spin-off pension obligations of $3.4 million, which was recorded during the second quarter of 2022 in Other expense (income), net line on the Consolidated Statements of Earnings, and the ongoing net lease cost related to facilities not used in operations.
2. These expenses are related to the acquisition of Cornell Dubilier by the Precision Devices segment.

Reconciliation of GAAP Financial Measures to

Non-GAAP Financial Measures

		Quarter Ended September 30,
(in millions, except per share amounts)		2023			2022
Net earnings	$	16.6	$	2.7
Interest expense, net		0.6			1.1
Provision for (benefit from) income taxes		4.9			(16.3)
Earnings (loss) before interest and income taxes	$	22.1		$	(12.5)
Non-GAAP reconciling adjustments (3)		14.7			40.7
Depreciation expense		7.6			9.8
Adjusted earnings before interest, income taxes, depreciation, and	$	44.4	$	38.0
amortization ("EBITDA")
Adjusted EBITDA margin		25.4 %			21.3 %
Net earnings	$	16.6	$	2.7
Non-GAAP reconciling adjustments (3)		14.7			40.7
Income tax effects of non-GAAP reconciling adjustments (4)		2.0			20.1
Non-GAAP net earnings	$	29.3	$	23.3
Diluted earnings per share	$	0.18	$	0.03
Earnings per share non-GAAP reconciling adjustment		0.13			0.22
Non-GAAP diluted earnings per share	$	0.31	$	0.25
Diluted average shares outstanding		91.4			92.0
Non-GAAP adjustment (5)		2.6			2.2
Non-GAAP diluted average shares outstanding (5)		94.0			94.2

Notes:

1. The non-GAAP reconciling adjustments are those adjustments made to reconcile Earnings (loss) before interest and income taxes to Adjusted earnings before interest and income taxes.
2. Income tax effects of non-GAAP reconciling adjustments are calculated using the applicable tax rates in the jurisdictions of the underlying adjustments.
3. 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.