Knowles Corporation (KN) Bundle
Understanding Knowles Corporation (KN) Revenue Streams
Understanding Knowles Corporation’s Revenue Streams
Knowles Corporation reported total revenues of $142.5 million for the third quarter of 2024, reflecting an increase of 31.8% compared to $108.1 million in the same quarter of 2023.
Breakdown of Primary Revenue Sources
The company’s revenue is primarily derived from two segments: Precision Devices (PD) and MedTech & Specialty Audio (MSA).
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Precision Devices (PD):
- Third Quarter 2024 Revenue: $78.8 million
- Third Quarter 2023 Revenue: $50.2 million
- Year-over-Year Growth: 57.0%
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MedTech & Specialty Audio (MSA):
- Third Quarter 2024 Revenue: $63.7 million
- Third Quarter 2023 Revenue: $57.9 million
- Year-over-Year Growth: 10.0%
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, total revenues were $411.0 million, a 29.4% increase from $317.6 million in the same period of 2023.
Contribution of Different Business Segments to Overall Revenue
The contribution of each segment to the overall revenue for the nine months ended September 30, 2024, is summarized in the table below:
| Segment | Revenue (2024, in millions) | Revenue (2023, in millions) | Year-over-Year Growth Rate |
|---|---|---|---|
| Precision Devices | $227.2 | $151.7 | 49.8% |
| MedTech & Specialty Audio | $183.8 | $165.9 | 10.8% |
| Total Revenue | $411.0 | $317.6 | 29.4% |
Analysis of Any Significant Changes in Revenue Streams
The significant increase in PD revenue is attributed to the acquisition of the Cornell Dubilier (CD) business, which added approximately $75.5 million to the revenue. However, this was partially offset by lower demand from the industrial and communication markets in the legacy PD business due to excess customer and channel inventory. In contrast, MSA revenue growth was driven by higher shipping volumes of hearing health products, bolstered by stronger end-market demand.
A Deep Dive into Knowles Corporation (KN) Profitability
Profitability Metrics
Gross Profit: For the third quarter of 2024, gross profit was $62.9 million, compared to $50.4 million in the third quarter of 2023, reflecting an increase of 24.8%. The gross profit margin for this period was 44.1%, down from 46.6% year-over-year.
Operating Profit: Earnings from continuing operations before interest and income taxes (EBIT) for Q3 2024 stood at $16.1 million, an increase from $11.9 million in Q3 2023. The EBIT margin improved slightly to 11.3% compared to 11.0% in the previous year.
Net Profit: Net earnings from continuing operations for Q3 2024 were $9.2 million, down from $15.2 million in Q3 2023. The diluted earnings per share from continuing operations was $0.10, compared to $0.17 in the same quarter of the previous year.
Trends in Profitability Over Time
For the nine months ended September 30, 2024, revenues were $411.0 million, up from $317.6 million in the same period of 2023, marking a 29.4% increase. Gross profit for this nine-month period was $173.9 million compared to $145.2 million in 2023. However, net earnings decreased to $13.0 million from $39.0 million in the prior year.
Comparison of Profitability Ratios with Industry Averages
The Adjusted EBIT margin for Q3 2024 was 21.1%, compared to 22.8% in Q3 2023. Comparatively, the industry average Adjusted EBIT margin is approximately 23.0%. The company's gross margin of 44.1% is slightly below the industry average of 45.0%.
Analysis of Operational Efficiency
Cost of Goods Sold (COGS) for Q3 2024 was $79.5 million, an increase of 38.3% from $57.5 million in Q3 2023. This rise in COGS has impacted the gross margin. The operating expenses for Q3 2024 were $44.2 million, which is up from $39.0 million in the previous year.
| Metric | Q3 2024 | Q3 2023 | Change (%) |
|---|---|---|---|
| Gross Profit | $62.9 million | $50.4 million | 24.8% |
| Gross Profit Margin | 44.1% | 46.6% | -5.4% |
| EBIT | $16.1 million | $11.9 million | 35.4% |
| EBIT Margin | 11.3% | 11.0% | 2.7% |
| Net Earnings | $9.2 million | $15.2 million | -39.5% |
| Net Earnings Margin | 6.5% | 14.1% | -54.9% |
The adjusted earnings from continuing operations before interest and income taxes for the nine months ended September 30, 2024, were $78.5 million, compared to $59.5 million in the same period of 2023, representing a significant increase of 32.0%.
Overall, the financial metrics indicate a mixed performance, with increases in gross and operating profits but a notable decrease in net earnings, highlighting the need for improved operational efficiency and cost management.
Debt vs. Equity: How Knowles Corporation (KN) Finances Its Growth
Debt vs. Equity: How Knowles Corporation Finances Its Growth
Debt Levels
As of September 30, 2024, Knowles Corporation reported total liabilities of $393.9 million, which includes both long-term and short-term debt. The short-term debt was $64.0 million, while long-term debt stood at $329.9 million.
Debt-to-Equity Ratio
The company's debt-to-equity ratio is calculated as follows: With total liabilities of $393.9 million and total stockholders' equity of $777.4 million, the debt-to-equity ratio is approximately 0.51. This is below the industry average, which typically ranges from 0.6 to 1.0.
Recent Debt Issuances and Credit Ratings
- In November 2023, Knowles Corporation completed the acquisition of Cornell Dubilier for a total price of $246.8 million, funded by borrowings on the revolving credit facility and a seller note amounting to $122.9 million.
- The interest expense for the third quarter of 2024 was $3.9 million, significantly higher than $0.6 million reported in the same quarter of 2023.
Credit Ratings
As of September 30, 2024, Knowles Corporation has not publicly disclosed specific credit ratings from major rating agencies. However, the company's interest expense and the weighted average interest rate on borrowings was reported at 7.24%.
Balancing Debt Financing and Equity Funding
The company maintains a balance between debt and equity financing through strategic decisions. For instance, the total stockholders' equity decreased from $1,034.1 million at the end of 2023 to $777.4 million by September 30, 2024, indicating a shift towards utilizing debt for growth initiatives.
| Type of Debt | Amount (in millions) |
|---|---|
| Short-term Debt | $64.0 |
| Long-term Debt | $329.9 |
| Total Liabilities | $393.9 |
| Total Stockholders' Equity | $777.4 |
| Debt-to-Equity Ratio | 0.51 |
| Interest Expense (Q3 2024) | $3.9 |
| Weighted Average Interest Rate | 7.24% |
Assessing Knowles Corporation (KN) Liquidity
Assessing Knowles Corporation's Liquidity
Current Ratio: As of September 30, 2024, the current ratio was 1.56, calculated as current assets of $198.4 million divided by current liabilities of $127.0 million.
Quick Ratio: The quick ratio was 1.24, with quick assets totaling $150.0 million and current liabilities at $127.0 million.
Working Capital Trends
The working capital as of September 30, 2024, stood at $71.4 million, indicating a robust liquidity position. This represents an increase from $60.0 million at the end of 2023.
| Period | Current Assets (in millions) | Current Liabilities (in millions) | Working Capital (in millions) |
|---|---|---|---|
| September 30, 2024 | $198.4 | $127.0 | $71.4 |
| December 31, 2023 | $183.0 | $123.0 | $60.0 |
Cash Flow Statements Overview
For the nine months ended September 30, 2024, the cash flow from operating activities was $95.0 million, an increase from $62.3 million in the same period of 2023.
Investing activities resulted in a net cash outflow of $3.1 million, primarily due to capital expenditures.
Financing activities showed a net cash outflow of $87.2 million, which included $29.5 million for stock repurchases and $52.0 million in net payments on the revolving credit facility.
| Cash Flow Type | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Activities | $95.0 | $62.3 |
| Investing Activities | ($3.1) | $0.3 |
| Financing Activities | ($87.2) | ($35.3) |
Potential Liquidity Concerns or Strengths
The company has maintained a strong cash position with $92.6 million in cash and cash equivalents as of September 30, 2024. However, a significant portion, $32.7 million, is held outside the U.S., which may incur taxes upon repatriation.
Management anticipates a reduction in cash balances in the second half of 2024 due to the payment of a $122.9 million seller note related to the acquisition of Cornell Dubilier Electronics, which could affect short-term liquidity. The company is also leveraging a revolving line of credit for additional liquidity.
Overall, the liquidity position appears stable, yet the upcoming obligations will require careful management of cash flows.
Is Knowles Corporation (KN) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.
Price-to-Earnings (P/E) Ratio
The diluted earnings per share (EPS) for the third quarter of 2024 was $0.10, while the non-GAAP diluted EPS was $0.26. The stock price as of September 30, 2024, was approximately $10.00. This results in a P/E ratio of:
P/E Ratio = Stock Price / EPS = 10.00 / 0.10 = 100.0
Price-to-Book (P/B) Ratio
The total stockholders' equity as of September 30, 2024, was $777.4 million with 98.3 million shares outstanding. The book value per share is:
Book Value per Share = Total Stockholders' Equity / Shares Outstanding = 777.4 / 98.3 = 7.91
The P/B ratio is then calculated as:
P/B Ratio = Stock Price / Book Value per Share = 10.00 / 7.91 = 1.27
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EBITDA for the last twelve months (LTM) can be estimated based on the adjusted earnings before interest and taxes. The adjusted EBIT for the first nine months of 2024 was $78.5 million. Assuming a similar quarterly performance, the annualized EBITDA would be:
Annualized EBITDA = Adjusted EBIT x 4 = 78.5 x 4 = 314.0 million
To calculate the enterprise value (EV), we need the market capitalization and total debt. The market capitalization is $983 million (assuming the stock price of $10.00 and shares outstanding of 98.3 million). The total debt as of September 30, 2024, was $150 million. Therefore:
EV = Market Cap + Total Debt - Cash = 983 + 150 - 92.6 = 1040.4 million
EV/EBITDA Ratio = EV / EBITDA = 1040.4 / 314.0 = 3.32
Stock Price Trends
Over the last 12 months, the stock price has shown a decline from approximately $12.50 in October 2023 to $10.00 as of September 30, 2024.
Dividend Yield and Payout Ratio
The company does not currently pay a dividend, resulting in a dividend yield of 0%. The payout ratio is also 0% due to the absence of dividends.
Analyst Consensus on Stock Valuation
As of October 2024, the consensus among analysts is a hold rating, with a target price of approximately $11.00.
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 100.0 |
| P/B Ratio | 1.27 |
| EV/EBITDA Ratio | 3.32 |
| Stock Price (Sept 30, 2024) | $10.00 |
| Stock Price (12 months ago) | $12.50 |
| Analyst Consensus | Hold |
| Dividend Yield | 0% |
Key Risks Facing Knowles Corporation (KN)
Key Risks Facing Knowles Corporation
Overview of Internal and External Risks
Knowles Corporation faces a range of internal and external risks that could impact its financial health. Key risks include:
- Industry Competition: The global market for precision devices and audio solutions is highly competitive, with numerous players offering similar products, which can lead to pricing pressures.
- Regulatory Changes: Changes in regulations, particularly in the healthcare sector, can increase operational costs or restrict market access.
- Market Conditions: Economic downturns or shifts in consumer demand can adversely affect sales, especially in the specialty audio and hearing health markets.
Operational, Financial, or Strategic Risks
Recent earnings reports have highlighted several operational and financial risks:
- Demand Weakness: The legacy Precision Devices (PD) business has faced lower demand due to excess customer inventory, impacting revenue growth.
- Acquisition Risks: The acquisition of Cornell Dubilier Electronics (CD) for $246.8 million poses integration risks and could affect profitability if not managed effectively.
- Foreign Currency Exposure: The company’s international operations expose it to foreign currency fluctuations, impacting earnings when converted to USD.
Financial Data Summary
| Financial Metric | Q3 2024 | Q3 2023 | % Change |
|---|---|---|---|
| Revenues | $142.5 million | $108.1 million | 31.8% |
| Gross Profit | $62.9 million | $50.4 million | 24.8% |
| EBIT | $18.7 million | $11.4 million | 64.9% |
| Net Earnings (Loss) | $0.5 million | $16.6 million | -96.9% |
| Adjusted EBIT Margin | 20.4% | 19.3% | 5.7% |
Mitigation Strategies
The company has implemented several strategies to mitigate risks:
- Operational Efficiency: Focus on improving factory productivity and reducing production costs to enhance margins.
- Diverse Product Portfolio: Expanding product lines to reduce reliance on any single market segment.
- Strategic Acquisitions: Pursuing acquisitions that complement existing operations and enhance market position.
The financial data and insights provided underscore the importance of navigating these risks effectively to maintain financial health and investor confidence.
Future Growth Prospects for Knowles Corporation (KN)
Future Growth Prospects for Knowles Corporation
Knowles Corporation is poised for significant growth driven by several key factors in the upcoming years.
Analysis of Key Growth Drivers
The company is focusing on product innovations, market expansions, and strategic acquisitions to fuel its growth trajectory. For instance, the acquisition of Cornell Dubilier Electronics, completed on November 1, 2023, for a total purchase price of $246.8 million, is expected to enhance its Precision Devices segment, which reported revenues of $227.2 million for the nine months ended September 30, 2024, compared to $151.7 million for the same period in 2023, marking an increase of 49.8%.
Future Revenue Growth Projections and Earnings Estimates
Revenue for the nine months ended September 30, 2024, reached $411.0 million, up 29.4% from $317.6 million in the same period of 2023. The adjusted earnings from continuing operations before interest and taxes for the Precision Devices segment were $37.7 million with an adjusted EBIT margin of 16.6%. The MedTech & Specialty Audio segment also showed growth, with revenues increasing to $183.8 million from $165.9 million, a 10.8% rise.
Strategic Initiatives or Partnerships that May Drive Future Growth
Strategic partnerships and ongoing investments in research and development are crucial for future growth. R&D expenses for the third quarter of 2024 were $10.2 million, up from $8.1 million in the same quarter of 2023. The company expects these initiatives to lead to innovative product offerings in the hearing health and specialty audio markets, which are expected to experience increased demand.
Competitive Advantages that Position the Company for Growth
Knowles Corporation benefits from a strong market position, supported by its expanded product portfolio and enhanced operational efficiencies. The adjusted EBIT for the MedTech & Specialty Audio segment was $75.0 million for the nine months ended September 30, 2024, indicating improved operational leverage and a 40.8% adjusted EBIT margin. Furthermore, the company has implemented cost reductions and productivity improvements that enhance profit margins across its segments.
| Segment | 2024 Revenues (in millions) | 2023 Revenues (in millions) | Growth Rate (%) | Adjusted EBIT (in millions) | Adjusted EBIT Margin (%) |
|---|---|---|---|---|---|
| Precision Devices | $227.2 | $151.7 | 49.8% | $37.7 | 16.6% |
| MedTech & Specialty Audio | $183.8 | $165.9 | 10.8% | $75.0 | 40.8% |
| Total | $411.0 | $317.6 | 29.4% | $112.7 | 27.4% |
These figures reflect the robust growth potential and strategic positioning of Knowles Corporation as it navigates the evolving market landscape.
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Article updated on 8 Nov 2024
Resources:
- Knowles Corporation (KN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Knowles Corporation (KN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Knowles Corporation (KN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.