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Knowles (KN) Jeffrey S. Niew on Q1 2016 Results - Earnings Call Transcript

Q1 2016 Earnings Call

April 25, 2016 4:30 pm ET

Executives

Michael J. Knapp - Vice President-Investor Relations

Jeffrey S. Niew - President & Chief Executive Officer

John S. Anderson - Chief Financial Officer & Senior Vice President

Analysts

Jaeson A. M. Schmidt - Lake Street Capital Markets LLC

Robert Labick - CJS Securities, Inc.

Harsh V. Kumar - Stephens, Inc.

Anthony Joseph Stoss - Craig-Hallum Capital Group LLC

Suji DeSilva - Topeka Capital Markets

Tristan Gerra - Robert W. Baird & Co., Inc. (Broker)

Robert Sassoon - R.F. Lafferty & Co., Inc. (Research)

Operator

Good afternoon and welcome to the Knowles Corporation First Quarter 2016 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

With that said, here with opening remarks is Knowles' Vice President of Investor Relations, Mike Knapp. Please go ahead.

Michael J. Knapp - Vice President-Investor Relations

Thanks, Laurel, and welcome to our First Quarter 2016 Earnings Call. I'm Mike Knapp, Vice President of Investor Relations. And presenting with me on the call today are Jeff Niew, our President and Chief Executive Officer; and John Anderson, our Senior Vice President and Chief Financial Officer.

Our call today will include remarks about future expectations, plans, and prospects for Knowles, 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 and 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, 2015, 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 Knowles 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 knowles.com, including reconciliation to the most directly comparable GAAP measures. All financial references on this call will be on a non-GAAP continuing operations basis unless otherwise indicated.

Also we've made selected financial information available in webcast slides which can be found in the Investor Relations section of our website.

With that, let me turn the call over to Jeff who will provide some details on our first quarter results. Jeff?

Jeffrey S. Niew - President & Chief Executive Officer

Thanks, Mike. And thanks to all of you for joining us today.

For Q1, we were pleased to report revenue of $185 million, gross margin of almost 38%, and EPS of $0.08. Revenue and gross margins came in above the midpoint of our guidance and we delivered EPS that was above the high end of our projected range. Revenue in our mobile consumers segment was down 27% from Q4, better than our projections due to higher microphone shipments to North American and Korean handset customers. Sales to Chinese OEMs were largely in line with our expectation as were sales from intelligent audio solutions. Overall revenue from MCE comprised 45% of total sales in the first quarter.

In our MEMS microphone business, we saw stronger than expected demand from a North American OEM during the quarter. We also benefited from the launch of new high end handsets in a Korean customer, which was better received than originally expected. Additionally, we gained share in this customer's low- and mid-range handsets. In Q2 we expect volumes at North American and Korean customers to be down. This is expected to be offset by significant sequential growth from Chinese OEMs and highlights the benefit of our diversified customer base. As we look to the second half of 2016, we are well positioned in microphones and I'm optimistic that our second half growth will be driven by our customers' new product launches, share gains, and normal seasonality.