KN - Earnings call transcript Q3 2017

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Operator

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Knowles Corporation Third Quarter 2017 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. [Operator Instructions] With that said, here with opening remarks is Knowles' Vice President of Investor Relations, Mike Knapp. ahead. go Please

Mike Knapp

Officer; welcome Mike and call QX earnings Financial Chief XXXX are Vice our Thanks, and President and to presenting I'm Chief Executive and President Knapp, Niew, the John with call. Anderson, Jeff Senior Mike, Officer. our our and me today on

provisions about Our forward-looking of purposes statements remarks plans under federal prospects laws. future harbor securities applicable today call include for and for the expectations, will Knowles, constitute safe which

Form and of demand of filings, fiscal periodic this for company's with cause in annual will and uncertainties for and as risks materially the call expectations. company in differ reports the as trends profits date in comments about from company's that to to, statements update products, of All are statements but except in risks the The Knowles company uncertainties from made law. the call, Forward-looking forward-looking ended urges XXXX, sales, and including, include anticipated limited involve risks could and not to expenses investors required the results time such the SEC current filed a XX-K actual number on and duty to time to today's earnings any uncertainties December statements, and XX, by disclaims release. this report the identified SEC year review

call any on over webcast measures available a our references during non-GAAP most With Jeff? in referenced be Relations found including of will results. some this the G, which financial me comparable call we've continuing to the today's website. made operations Also, can Jeff, can otherwise non-GAAP who basis, at Reg posted provide selected slides, our details release a let will the our on financial section turn Investor measures. information that, press in unless directly to on be to in indicated. be All call pursuant found addition, our on In reconciliation GAAP knowles.com, conference website

Jeff Niew

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

sequentially, reported revenue guidance. was of expected. and mid for we capacitor range QX, up XX% our segment, sales $X.XX, as over sales of mid sequentially of largest X% in MEMS million, comprised up the total XX.X% our the largely XX% point expenses up to Device with Precision Audio our in quarter. more ramp our margins year guidance. of sales operating above the the to For or sequentially In revenue in period Overall, XX% of grew microphone the and X% within customer stronger In from XX% as above EPS guidance point were its segment, revenue of new of expected and due than over demand began Audio resulting our handsets. third ago devices. sequentially $XXX from came Gross

We order in about continue for demand in these defense, revenue see products. represented company to auto our driving Devices of improving total trends XX% markets medical Precision QX. and

it. IoT deploy interactions the engage racing to natural the to want From mobile segment through necessary at years, devices. spoken are critical emerging are our technology to see speakers phones ear we for demand to mobile, develop to and and several TV commands feature. As a strong headsets to over voice continue smart we and as powered with Audio the and trends from look and across and the Consumers appliances technology benefiting markets enable voice-enabled next OEMs

cancellation four China went feel in very and of and for and for visited in to Phone input demand series Essential there parallel enable to technology. remained most customers position players better in of good has one launched Our algorithms leveraging position more handsets our V acoustics, handset. this recently but noise from beam-forming. In an XXXX, its to with the placed to microphones move I microphone OEM unparallel market. voice to In enable core ideal about recently are audio us with and two our mobile, in and soft processing capabilities improve key customers signal microphones digital Vivo to the to latest continue

customer, continue the well content anticipate our advantages microphones new increase cases, We flagship to shipments mics from as recovers. smart to in of DSP as sequential we as demand device. to QX use which China and enable to increases handsets our I in additional improve performance With growth levels demonstrate ramp. QX audio based new largest expect per continue

cycle in carryover QX drives year strong growth this XXXX. of year-over-year we remains expect will and and revenue into strong next share product Audio Our in

over-the-ear market, For headset both announced with that are microphones. today's new leverages detect dB market microphones active a other the headset expect pleased and external the on noise-canceling see AMC becoming the our our exceptional in headsets and headsets noise Knowles Active XX is of solutions hit Samsung this to makes new design in noise-cancellation key ear left noise a ratio ear customers. address microphone five device feature we to side we compacts of soon. highly needs relative The announced recently we The to signal-to-noise users in many to portable headset providing and right the reduction.

unwanted an to input portfolio our we capture mic for leadership believe and We In with in our markets, experience audio adding the user speakers. and continue a technology product broaden point voice-enabled better our its in enable to remove are better noise highest applications. IoT headset inflection deliver I expand smart in worldly audio

the the smart speaker HomePod. Over the including several Sonos there's weeks, past the of been Max flurry Apple a One, and Google Home new announcements

performance continues like Spot devices high the has the the Today, and revenue capture. products field bulk an our array of who Echo last Echo, new of IoT that products. audio of the these Plus quarter new from microphones Echo deliver enhance come Amazon, All levers far to

our customer Now starting expand. we are IoT to to begin see base

in seeing the platform will allow to also we new service customer to Japanese in China, are developers base, And launched its consumers. geographies smart voice-enabled smart platforms. of Indian smart recently recently our it be Amazon In we audio believe devices. the voice-enabled addition developing elective I are penetration to supplier days open still speaker, six IoT and input and the Xiaomi microphones. will across technology Knowles early which these IoT premier a of that announced speaker broader in of very expect I uses

markets, single activity Let markets me progress the shipping our to smart of with intelligent about customers expect audio DSP little and more across we design all our been ear first core for which of solutions. our the wins several begin discuss making in high a has mobile end XXXX. bit open we're have mics we with the in Design and

we multi-core and performance Beyond smart is complete recently battery DSP. through mics, far input of the highly our as first needs designed optimized field audio as launched devices. upon built for well system the open audio solution is smart complex This powered voice a audio applications DSP mic for requirements the and solution industry’s power architecture proves low

learning seeing breakthroughs important to trend across is are in markets accuracy. to that human an We leading is improve that machine interaction our voice end

use intelligent recognition available, audio users improve processing algorithms. As will the through becomes to data more with of continue speech microphones more and voice

the the audio power This today’s the to recognition and the embedding solution conductivity. aware devices us thus of allows such new moments and reducing to and most closer environment. managing of better trend. and and during of limitation popular of processing, the By user by addresses Our consumption the device, user the the noise, by on factors intelligence experience into for enhancing capitalize as local source the pauses moving, context enhancing It user voice-enabled privacy. of sounds is a need voice unnatural of edge their more enables the more keeping limited improving being product environmental this background network

interest Over we to with several stages engaged in few Overall, of secured our IoT wide first it design expand months, financial for for activity expect fourth to half to to grow our in high next our product wins, shipping the quarter. interest first last voice John? the across driving design continues and markets family the is a progress. application forward results levels we I'll and John provide ear guidance to and begin There mobile, communicating that the our we companies the of DSP. the turn which complexity and audio of early year. our With IoT and of look diversity input of development have of over new

John Anderson

Jeff. Thanks,

quarter As revenue as Jeff by projected was reported segment third $XXX third and precision X% up of a were we in increase midpoint sequentially XX% Mentioned, offset quarter million, down the slightly the revenues X% basis partially an year-over-year revenue devices. On Audio in declines range. of our above

than later were driven on primarily shipments medical as our and a sales due revenues lower up of normal the reduced of the pricing year-over-year $XXX handsets year X% as disciplined share the also segment, in basis from new to Precision Chinese million result resulting to In million we a audio of continue increased year-over-year Device $XX practices. MEMS’ and OEMs. in decrease were handset from were expected be down our largest microphone shipments lower health market revenues a Hearing of sales to capacitor period by automotive defense, markets. As to launch customer a at XX% ago

better Operating our general were and and the MEMS of gross of our compensation reduce warranty and the margins Third settlement efforts impacted quarter unfavorable administrative by margins lower launch the from and expenses as of guidance ago a of year midpoint million to later XX.X% new midpoint million as than than result were negatively were microphone business quarter overhead $X a period a with $XX.X our in expense. absorption with below than associated year customer's in fixed prior our levels claim expected down ongoing in the the handset. guidance more costs the and connection of incentive costs

adjusted reconciliation and financial GAAP For including is diluted on $X.XX non-GAAP results, information margin provided the a website Further in was of at and today's can detailed release non-GAAP EBIT also press the our to respectively. tables quarter XX% EPS found and knowles.com. be of

and totaled Cash XX. and to cash turn Now, million sheet our cash I'll $XX flow. September at equivalents balance

provides capital $XX secured from borrowings and The For the moves million. by Knowles fourth this credit replaces revolving flexibility quarter. QX of increased term operations greater revolving since facility, quarter we million credit the XXXX maturity with from financial month, a Earlier Dover new facility. place bank million year quarter outstanding and million borrowings from and cash which date to $XX $XX flow Bank $XXX the the was the facility and XXXX. and senior five in spinoff spending in was executed was the loan

quarter our guidance. to fourth Moving

company sequentially period. and between $XXX million with expect the for up $XXX total midpoint year X% revenue the to ago and the million We quarter X% be from

as well increase a microphones reflects sequential driven shipments guidance largest as both increased OEMs revenue of and increase new our in QX flagship handset sequential Chinese Our at for by volumes. year-over-year a to in handsets mobile customer shipments

Lastly, flagship X% we period expect and year customer the year-over-year new our in demand sequentially revenue Precision from audio later result XXXX. strong flat by capacitor up ago of handsets than several at is markets. of to growth device across expected revenue QX in increased launch be the driven normal strong QX to largest

We’re to of selling XX% the to GAAP to EPS flat the projecting effective non-GAAP XX% margin average ago on R&D and $X.XX for midpoint in and quarter. range assumes offset over We're forecasting diluted an be projecting to be for year $XX during within our expense. of basis. to non-GAAP diluted expenses non-GAAP expect expect million to operating tax of EBIT press the at just as range period quarter adjusted $X.XX margin XX% outstanding $XX This to million the rate weighted We're by and a between per a increased million gross XX is lower the non-GAAP reconciliation. spending for between fully QX be and shares for quarter with a the X% administrative be share. refer Please and XX% of to XX% to release

in continue the to to quarter, be call MEMS I'll million. we million expected back For closing to to quarter $XX to over generated our the capacity cash to Jeff call. spending Capital then portion and Jeff? million $XX expand new and microphone approximately Q&A in move as introduce the the $XX of remarks expect approximately we'll is be now for fourth turn we products the business. from operations

Jeff Niew

John. Thanks,

remain acoustics ability to challenges introduced solutions our broader audio in to these single our to signal also am to [ph] anticipate hearing cycle will handset precision with enabling health capitalize microphones products algorithms mobile, their most the our which We largest our in deliver the I sales believe product digital difficult look and we DSP optimistic to end I on the that expect with benefit platforms. [ph] driving the well of XXXX, accelerate ear and in stable headset these uniquely I for next timing leading focus markets. trends. strategy, opportunities and new is markets investment generation roadmaps as customer devices. customer, market. and from aligned to shipments are these IoT about multi-core we solve in and cross input as As at customers’ as family in Operator, take combines solutions customers devices audio our our China positioned and recovery edge string IoT audio to the of well growth can trends into our and market, processing we of questions. now I best-in-class

Operator

Peterson from Instructions] Bill Your JPMorgan. is first from [Operator question

Bill Peterson

for have have IoT, year upper in off think you of follow-ups. should the said audio. like announcements guess and believe of the of call then somewhere we few. Thanks when last taking of digits I this few these exit a run if we XX% revenue you couldn’t expect a at single this home question. I start I hi. achieve Yeah, rate the with least have, have to We connected you based an

Jeff Niew

about the mean year should mean – really because what every I if quarter, don't for that pretty – would alluded the home. which talk this But but changed know think is the the devices expand to, I that a to in that sure next I speaker of prepared we're the we're floury this that space in asking lot beyond achieving smart to you're weren’t what has I that of last and leader first the second that we we Bill all the speaker. put And Yeah, know by is of say per microphones seeing be these is business. confident we're is that I XX% really that of leveraging but announcements the call in we we growth from of thing into getting space is continued other to what U.S. feel everybody good of this smart in people about a you kind one seeing

be QX we year And what think into so, that China, hopeful probably QX go this the will is who other in I announcements of first, Xiaomi market. that we're but is more and as see next people addressing will

that next year I than sales more So from comfortable of IoT. feel our saying come XX% pretty will

Bill Peterson

for the if growth products year. of these sounds DSP frame growth rates sort opportunities can Okay. I opportunity guess should multi-core growth DSP can set It to expect switching well of those your what your over Which to sooner, intelligent audio, a next of think I in guess described let’s that’d us XXXX? then expect first if revenue you better level in the mic as opportunity be or But as be with like we you say rate, the terms about solution. but can we plus is run we of kind great. you DSP on into if

Jeff Niew

in think this Yeah, been around are based, multi-core opportunities were smart let me we've only the already tell – more if working customers than sooner. area. kind standalone around it you remember had because And with DSP I DSP that not of smart we introduced so a was first mic generation immediate mic

me is hinges I going you little because the let of the about lot early mic. we a talk products. of the how it about smart to kind think success XXXX the of little to a what tell just it's a view on in revenue be But bit has

one it probably if they first usually not on be algorithms a order one advantage increase microphone digital. device. mic, drives mic, three you the First an which included does, the all, is a smart take run be in when to being to thing only going are say every to because would use mic, in of in that count smart have smart customer it decides but of That's the

three space. are and that move you digital to microphones we people sole add analog that So now in across to likely source more all get are from now microphones

So that will to give and if two frame a analog kind million buying, share make maybe phones, customer about I of you microphones. a here up, maybe we get a think you this XX% of

we're share share a XXX% Now, a a likely going and of mic XXX% digital get of to microphones. smart two

that power the So you making the would sure see that to market. small make taking a across we could power markets: be what get mobile, And ear that's of want and this the relatively all in probably three IoT our large. it opportunity we

Bill Peterson

you driving I last could this quarter you’re Okay, others further like and quarter. one mention It more. few Vivo adoption, multi-mic just sounds mentioned Oppo and if sneak

So if exit of XX% about How how multi-mic last year? did think about conventional microphones? we year adoption your the Thank we think the we you. you think should I growth.

Jeff Niew

probably high going much that’s would next Yeah, next was I say but high digits as going probably it as say quite into increases it’s but year, not single high single wouldn't year, digits this probably to increasing. year. be as still I

Bill Peterson

jump Okay, Thank guide. and Congrats you. thanks. back. on results the I'll

Jeff Niew

Thank you.

Operator

question from is Bob CJS Labick from Securities. next The

Bob Labick

Good afternoon. Thank you.

Jeff Niew

Bob. Hi,

John Anderson

Bob. Hi,

Bob Labick

find I opportunity help Hi. processor And you that is I more what is you or to customers? and discuss. and have wanted expand specifically how Just you've more the a customer it the you there case think us end a new build the signed we on understand do? this it just be markets addressing? different the Could on than but said out already up, started hope it you audio a is bit will what's to market? little just to What about that talk

Jeff Niew

we've of have pre-launch one but up introduced, to working the of customers. the And first. first half signed been answer number Yeah, next shipping so start customer alpha year. in was a do I’ll to customers the question second we Well, product with

the And have quickly IoT are promotion. an but able and I we've ear primarily a do of that to is – so, it’s portable high been new web ear. which and we're write mobile, the performance think and relative tools an markets. primary are low product the in we're we done getting feedback, we DSP. is to I’d what's power page important with excited to we're we today for some into this say say I’d way primary us the positioning extremely program our move in marketplace level have IoT allows very we've is lot amount especially the pretty customers a STK differentiates and to what maybe IoT this applications. to opportunities this customer, we've And software lastly, this the of this to coupled focused only focus product very a and What the on with of fair for parties There third piece, not That's but and designed but focus. – own our software, a that, is

of got the advantage they're really hard that the of is right one about product at know, have performance, a think saying you their has. a DSP and have thing starting product to write of there. we power, DSPs smart things And to piece we people software low we I you're also think customers the porting at And out ten so, now close time, this the already but signed companies to are big And right same now that the program up lot raise one to mic, right great the to and are actually have that with this been it's with I DSP. software software a this this time is talking the really we've architecture actually the number

Bob Labick

just then That's great. and question. Okay, one other very helpful

largest as is next but end how just your think discussed you've update you you the the out that's of out the – you out I added obviously, the expectation Could on much capacity customer, have for year. You at enough and XX%, give remarks where there's an us will MEMS for capacity of build going? And that's How the shift for far? your worked John too. this microphones so

be You're capacity more going year to et next adding cetera.

John Anderson

invested midpoint Bob. year markets. growth than microphone MEMS where should at again the end for another than I about easier question, Yeah, million grow in feel script but today, of put to be said normal feel we additional you growth cost to of Yeah, know, CapEx it's in because good about higher and listen this That's good we starting we've we’re good forward. the invest It kind in that's carrying pretty our the XXXX XX% XXXX, primarily unit capacity really greater you as in going in place QX. if put unit $XX capacity to to XXXX

Jeff Niew

Let that to me add a front. competitive little the color on

We've that us. I Couple coming and the a have environment a as John who think people kind favorable We've who reduced few think market. exited focus with, very that what on previous the seen calls eluded markets we’ve especially we've be increasingly seems microphone you ear I space. this have – on of know are seen their competitive seen few for this end people to the IoT said, strong. more

we're pretty be we've that of so, to going feeling into XXXX prepared. And got good

probably And think so capacity up in XXXX I well. ending to as adding be we'll

John Anderson

the about QX what X% and I range, our in revenues we'd Yes, given expect it, know than XXXX. that closer I it you of mentioned at will again a Bob, in the low the still that range but think you high to of would to of will about year-to-date much to high it we point in mentioned end end of X% be this range. be be kind if spending year be

Bob Labick

much. thanks Great, very

Operator

is The from Charlie Company. Dougherty next question from & Anderson

Charlie Anderson

quick. to real in in than – callouts any my revisions for are timing questions product of A business questions. there cycle the earlier? the customer of largest sort were good maybe Other I thanks about the with products, of about new the forecasts lot just terms taking so will elsewhere ask there the the Yeah, guide from any

Jeff Niew

production We disappointment of of to a that were a versus We claim And I warranty had probably resolution really would No, I that's our bit as gross of basis had our a a things. margin. then had we subcontractor customer a bit XX noted again had say couple QX QX, a points that at margins handsets points impact plan gross margins, roughly in that's is of the little of QX to XXX But noted our forecast. – expect basis due roughly the in because normal launch we our later major on scaled midpoint of as than XX%. impact. back the

So…

John Anderson

Let probably the the me had a quite I a side. and in to in we is, sure I disappointment struggle in I thing China think on that the that extend had bit from up we're little color China one XXXX is more the market was revenue numbers still QX of for mean we one at continue dramatically still with expected. see spite think the we've was is And looking weaker XXXX. in China, that end the than

little the recently was our IE about few market. of other are ahead especially all China here itself our focused the last got that with good in think China of around kind of mics position up lot our and I maybe I XXXX. And a So, Chinese sales – think there. smart activity words feel the significantly customers And starting in to market a but from bit I we’re is weeks and

that QX a recovery So, it pretty going be feel we quarter a to strong will hopefully XXXX. into and good lead that is

Charlie Anderson

that’s me for Great question a on new just products. and the

or just device business. portion also of of IOT the could device margin some if then and then you also wonder maybe and If in becomes us mics, for bracket out then DSP content some you Thanks. and that section the guys the opportunity of I hearable per gross win fact multi-core larger that a the

John Anderson

still ourselves. that that be figure smart think in higher terms about, $X.XX range start obviously in probably smart talking the as mean to end Yeah, do. perspective we're – we're we're wide to the to how low that about us A that would mic do working software with the got activity the at we of of going other that versus to for than going the much the We've capability on of speak in this have. We're house. software of just to just up microphone. love saying for them want we standard in range about somewhere a that – caution DSP, to I you the multi-core all the of saying know multi-core We've mic of microphones I everything customers XX% the some a customers do got are look would DSP, can you We’d to XX%, actually we a we the are a fact all XX%, the software do And think from then are lot that’s what us. open. $X.XX breadth some

be from there very I our That's corporate above pretty it’s margin. gross I a going our wide but so why all And say is DSP. it is to ASP, would relative of what to would is the high And average. of say breathe expectation definitely north perspective, the $X on the

Charlie Anderson

so Great, thanks much.

Operator

question next from Your is Stoss Craig-Hallum. Anthony from

Anthony Stoss

kind the then number maybe you can speaker? compare And if And roster. speaker six secondly of on generally if and overall. if it year ASP seeing? you maybe versus your have if you're customers if of couple where sharing smart you at guys, one you’re what not you what or per say I'm you’ll part wouldn’t year your Hey, would if seen I'm of mic ago now mics you've and Is at looked Thanks. mind contrast per this sure But a ago. a smart mine you average – number available. Jeff, it curious seven customers was

Jeff Niew

speaking us of somewhere up that think, or of seen buying and I roster I the terms was eight in I really we're roster is one probably I have was smart we me let now question first, will microphones. year the at What are first. had us. that majority – Generally we've think buying what go products Yeah, the we would say from time customer see speakers. to this four take to the from these probably – first seven the between last seven

see we'll how only are couple there think but device. There's priced marketplace I Google think all I in microphones there's some this I mean aggressively discussion extremely, that, a the on many. out. plays an exceptions the and been that's in

is So, but I – is two you think capture good – know, I voice probably with expectation not that be microphones. our think good may with

of there's So breathe a I opportunities think different here. wide

volume I mics opportunities on a smart microphones. from the We’ll got high with think space. win. nice Xiaomi not some be some We smart there’ll already super with

there's wide I a think So breathe.

our into going next year. think I here focus

on the the recapture we are we think think I in America North smart players – what IoT speakers.

China is, I wring, phase and dissipate strong coming a that smart about but I American could is good lot China, be don't anticipate, in speakers. this is think the but there's next don't of really China the in this design China to around definitely space it because activity people North in into the be really are of I

to the So phase to that’s be going the next expand roster.

Your little a talked last said we – at of the call, call we wish said to and end we’re last typically question we XX% bit the to we first products said X% matured high on ASPs, XXXX we range. I on about XXXX what reiterate down think at in or that

we’ve projected think XXXX. in I

mentioned below, think it's now factors. I I middle I mean the think us that positive earlier on based I still price the think turning in environment erosion the things – we the probably the And again XXXX. possibly the matured that end the but for holds. too products. think how hard – And of new below XX% erosion in number but think question that. at and higher of I a lower I of XXXX, even earlier think I that to very price that more nature towards be end be it's Maybe that competitive couple products to competitive call XXXX, go of introducing is right we X% the above that predict to we're market to going in little early with even probably will on that range We’ll the as and

Anthony Stoss

Great, you guys. thank

Operator

Street from The Jason Lake next question from Capital. is Smith

Jason Smith

my Hey, revenue. wondering as Thanks China guys. questions. much Really for take represented as far to QX quickly you how

Jeff Niew

revenue… QX

John Anderson

here… numbers of bit Little

Jeff Niew

We’re calculating. now, calculating it right

We have processor. a slow

Jason Smith

No worries.

John Anderson

business. a Roughly just the under XX% of mobile little

Jason Smith

guided for $XX you've in should about operating QX. looking And at expenses, we How helpful. think that's Okay I XXXX? OpEx know ramping then

John Anderson

can to going guidance I expense current normal market on aware going I likely always up below to a any levels levels really incentive because the but XXXX. target little any major and bit increases costs wage for Other I'm than not not expect give have that other XXXX, are you're operating than is comp of above increases. inflation what our to they're major rate say I’m really go wouldn't

Jason Smith

Okay, thanks lot. a

Operator

Capital. Suji is The ROTH next Desilva question from from

Suji Desilva

Hi guys. Hi hi Jeff, John.

think the the to In stable thoughts that's for helpful? any forward just the can terms you be would going whether health business, there, the going there growing talk of you or hearing about dynamics be GDP,

John Anderson

in of that I the we're the we've that pricing conversions previous mean little thought maintain we business profitable a that activity that assisted we’ve with we on is margin. think more lot listening and We stabilize and Yes on devices. is activity businesses of on good been lot certain at share. there’s a disciplined call from would I year. say still about I we're to the a is that just good a talked about not business remaining defend seeing We're think around think trajectory around say the also the a these this more a position current our we would what piece I still bit see to And levels. perspective

lower we some that margin we're based see business. hopeful next on a will be year that XXXX won’t year so in we stable faced from walking the headwinds and And that away

Suji Desilva

like other some some my so others. it systems versus compete qualified that it’s try of for And get mic It questions around you getting great. to socket phone you seems of kind Okay intelligent you're by for socket into. mic when designed these

you if even Is With competition mic? or there's whether these play kind the that for intelligent there, your still mic automatically mic three end mics along do two the in intelligent systems or mic? intelligent sockets, with have out the those where main get micro be swept of how you

Jeff Niew

we're walking used a just of speaking the these competition elevating the rest but of is to I I number in right feeling like a it's to ourselves days is solving above think case, designs, specific it's opposed in – doing of cellular think as we're generally problem a microphone. what we're been the relative early

normal considered sure well I'm microphones so couple for a And another consider, they customers the these consider source.

end and work to we're in think customers a I to the that as talking these different optimized we how have happen. about things system within to a these now level really make

think very as do. microphone that good start I of percent chance the a there's a So hundred we can garner where get share I we

Suji Desilva

thanks that the guys. was color looking I that was to. forward Great, Well

Operator

from Baird. Tristan comes with question Gerra next The

Maggie Mcnally

Tristan. the growth from the improvement given I'm Maggie how margin gross smart is speakers? the that on Mcnally XQ. wondering is mix for profile, just driving is coming this meaningful XX% And with what for Hi

Jeff Niew

the… Yes can you think said I dragging you,

Maggie Mcnally

Driving…

Jeff Niew

The claim XX couple, margin in was don't QX one we had improvement absence the time points from really QX. we to expect of a warranty that we QX That basis a had to is recur. again

our We points. had production also basis plan XXX scaled back about slightly. That

XX%. you were basis add close or two So very we north back QX. to capacity if you of add in XXX those for We're think that points items, to just XX% capacity you're running close

slight terms capacity get mean mid-XXs uptick I the you versus, we’re a to So in probably in of QX. in utilization

the that's of that really improvement it drivers basis call sequentially. XXX So point

Maggie Mcnally

prior Okay a you models? Do your customer follow-up. you. North American in expect then And at as market great, just share thank similar

Jeff Niew

what Yes year-over-year. I it's see shifting mean too stable to in don’t dramatically that, ramp anything from share that, out I we beyond think is think, but quarter-to-quarter, far speak the vary can projecting quarters. I it we're

Maggie Mcnally

you. Thank Okay.

Operator

next The Instructions] Christopher [Operator Rolland from is Susquehanna. from question

Christopher Rolland

thanks guys, for question. Hey the

opinion And that kind is into your QX? models, the push of actually So push out American delay North in customer, or your of how given that then all much in out pushes QX? revenue

John Anderson

of think, we specific I lot Precision we that, a guess hearing moving obviously getting I I I mean business. into have Devices number. that health we're have Well parts the business, there's

a there's of But right. And lot so moving would not parts say it's here. I insignificant,

mean the that talking a couple we're dollars flagship. a million uncertainty not here. of about There’s fair like demand for So new also in it's amount I

Jeff Niew

releases pulled we only more this is, all like the press just mean all is read And you I still the would there's I and do. about I guys say look, just that thing think that is hard the that goes are out, going coverage feel to It's say goes say, like the that really to mortgage get some is but I full this going would growth is, into QX, year what the in right. over that ramp, we possibility that QX. we're nice of hard year-over-year out,

that. some fee; about beyond multi in success just this the so So had relative to we've good pretty comment, mics other feel I’d think customer increase. year we that handset. good And I also one

talk about little heard about everyone’s Home we bit the that everyone think I about Pod, Pod. Air

going it's us this with there's on So more customer. thing still nice a to small while it’s relative there, phone, in the coming for that’s

John Anderson

audio mean growth I Chris we the my said I and both it’s in Group. Jeff’s revenue of in on QX expect basis year-over-year a Group think in We strong listed XXXX. segment,

Jeff Niew

Correct.

Christopher Rolland

the the Got of you can expect can important maintaining are do maybe the a for it architectures of devices? quality, got you it. unit think And you of then speaker there, those key lot smart season the number that And mics, growth quality give seven six or the do side, out reduce those to is to Maybe Kind then expectation you Thanks. numbers lastly, have total that. your you mics them category? give us of for year-on-year mic that holiday mics and of for on

Jeff Niew

space up. season is First largest our holiday our year-over-year that customer in think be the for question expectation I will the IoT

were the past, source. last we discussed though we think sole in I year

vast shipping that but a there second majority into We is customers. are that still of that volume, getting source the

of know winners marketplace. in even and I So lot have I to certain going to the at going my well on how say, It's the say and say get we is to of to it’s of say this sell the expectations they're we're for not ramp to I say who struggle come and yet we looking at read, a year-over-year. marketplace point but other difficult. think lot the are which microphones hard how for us going got think of the believe say the in units. wait a IoT. to to to I'm stuff, how I in, needless mean volume, a a numbers, going number I'm up. nice products of of with to a losers do. to But to yet in and to are going got forecast business I it's fair they’re little but we actually shipping the get much the at design number to look exactly can sell. they're be but they're lot see breath because other products. customers hold they I We microphones very going They're this a build the lot the

with mean market number in IoT less better mobile, we that going is results what's going there mics the is of think as there that not far I see ear, there and coming are and our – are more in As products still, voice mics. say worked I’m input. per, believe still in to as to all microphones, but fundamental in sit mics as out six I we

And so tradeoffs there are though.

to product, If I'm quite cross you cost say, going you're strip trying out, very maybe you're a to low sacrifice for going simply.

majority it between four the on somewhere it's it, products descript, about think think I have I if so I early the the still of goes, seven So those microphones. but you and think mentioned

a other which couple the Now earlier I products there's like of a Mini, mentioned that microphone. Google couple have of only

early, better it's little have So more to means a early but say, still speaking, to believe too we generally mics performance.

John Anderson

to going on to just I’m Chris granularity little IoT. your a add question

think I had it too. Bill

double going IoT close moving terms of You growth XXXX, think we roughly sales. into levels in shipped about was to we XXXX. in It IoT of million into QX XX our beyond low in forward. are in it And the on really to it's revenue mic first confident market that XXXX,

Christopher Rolland

Yeah and guys. a doing great category. Thanks

Operator

to the over There back the are time. presenters. will no call further this I questions turn at

Jeff Niew

Great. Thanks us for very much today. joining

Knowles. in with and call. And bye. look interest we forward your good appreciate to we our Thanks earnings always speaking next As on you

Operator

concludes today's call. conference This

disconnect. now may You

Knowles (KN) 25 Oct 172017 Q3 Earnings call transcript