Knowles Corporation

Good afternoon and welcome to the Q3 2021 Knowles Corporation earnings conference call. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by one on your telephone keypad. If you would like to withdraw your question, again, press star one. With that said, here with opening remarks is NOLS Vice President of Investor Relations, Mike Knapp. Please go ahead.

Thanks, Emma, and welcome to our Q3 2021 earnings call. I'm Mike Knapp, and presenting with me on the call today are Jeffrey New, our President and CEO, and John Anderson, our Senior Vice President and CFO. Our call today will include remarks about future expectations, plans, and prospects for NOLS, which constitute forward-looking statements for purposes of the Safe Harbor provisions under applicable federal securities laws. Forward-looking statements in this call will include comments about demand for company products, anticipated trends in company sales, expenses and profits, and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties in the company's SEC filings, including but not limited to the annual report on Form 10-K for the fiscal year ended December 31, 2020, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release. All forward-looking statements are made as of the date of this call, and NOLS disclaims any duty to update such statements except as required by law. In addition, pursuant to Reg G, any non-GAAP financial measures referenced during today's conference call can be found in our press release, posted on our website at NOLS.com, and in our current report on Form 8K filed with the SEC including a reconciliation to the most directly comparable GAAP measures. All references on this call will be on a non-GAAP continuing operations basis unless otherwise indicated. Also, we've made selected financial information available on the webcast slides, which can be found on the IR section of our website. With that, let me turn the call over to Jeff, who will provide some details on our results. Jeff.

Thanks, Mike, and thanks to all of you for joining us today. For Q3, we reported revenue of $233 million above the midpoint of our guidance and up 13% from the year-ago period, driven by strong demand across our audio and precision device segments. Gross margins improved to 41.8% near the high end of our guidance range, and our earnings per share was $0.45 above the high end of our expectations. In audio, revenue was up 8% from the year-ago period as hearing health sales increased on strong end-market demand and MEMS microphone sales grew, driven primarily by IoT. Precision Device delivered record revenues again in Q3, up 35% from the year-ago period, driven by improved demand across a broad range of end markets we serve and an acquisition we completed in Q2. We also delivered cash from operations of $56 million. Overall, another strong quarter that demonstrates the benefit of our investment in differentiated products to increase revenue across a diverse set of growing end markets driving gross margins higher and delivering strong earnings and cash flow. Let me now spend some time detailing the trends we are seeing by the end markets in each one of our business segments. In audio, we saw broad-based improvement year-over-year in MEMS microphone sales, despite experiencing supply constraints. Hearing health sales also increased from the year-ago period on strong end market demand. As we look forward, we believe recently proposed rules from the FDA on over-the-counter hearing aids, if adopted, will make it easier for people with mild hearing loss to have access to technology to improve quality of life. We expect this new channel to bolster our growth in hearing health over the years to come. We are increasing our capacity to service our traditional hearing aid market and the opportunities for the over-the-counter and true wireless markets. Moving on to precision devices. sales reached record levels again in Q3 with significantly improved gross margins as demand from MedTech, industrial, defense, and electric vehicle markets drove strong year-over-year improvement. We continue to develop advanced solutions for mission-critical applications that rely on our high-performance capacitors and RF filters, which is yielding solid results. In high-performance capacitors, the MedTech market drove a significant portion of the year-over-year growth, as demand improved for our high-reliability products used in implantable devices and MRI machines. We are also beginning to see a broadening of our customer base in Asia and Europe as high-voltage EV platforms begin to go to production. In our filters, our products continue to see strong demand from defense customers in North America and Europe for communications and radar solutions. We are also beginning to see a number of new design opportunities in 5G millimeter wave telecom, and we secured several prototype orders for small cells and repeater equipment. For the third consecutive quarter, we saw record bookings in PD across a wide array of products, giving me confidence we can grow precision device revenue by greater than 15% this year, with the bulk of the growth being driven by organic initiatives. In a moment, John will discuss the Q3 results and the Q4 guide in more detail, but our revenue growth is currently being held back by a number of short-term issues that have recently been in the headlines, which include extended lead times and capacity constraints on semiconductors, and more recently, power disruptions in China, as well as some lingering COVID uncertainty. For the past several years, our strategy has been to focus our R&D investments, capacity expansions, and acquisitions in products for growing markets that value our differentiated solutions. This is paying dividends today as gross margin continues to expand, driving increased operating income and cash flows. As these headwinds start to dissipate, we expect the impact of our strategy to be even more pronounced on our financial results. Our team has delivered three strong quarters so far this year. I believe our leadership positions across the markets we serve and our strategy to deliver high-value solutions to a diverse set of growing end markets positions us well for the rest of 2021 and beyond. With that, I'll turn it over to John to expand on our financial results and provide the guidance for the fourth quarter. John?