KN - Earnings call transcript Q3 2019

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Operator

Good afternoon and welcome to the Knowles Corporation Third Quarter 2019 Financial Results Conference Call. [Operator Instructions].

Here with opening remarks is Knowles' Vice President of Investor Relations, Mike Knapp. Please go ahead.

Michael Knapp

Thanks, Christine, and welcome to our Q3 2019 Earnings Call. President presenting our on Officer; President Anderson, Senior and are call and Knapp Officer. our Niew, Financial Jeff and Vice Mike with the me today John I'm Chief and Chief Executive

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

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

made statements update as as such by except the this call date are and duty Knowles statements forward-looking All required law. to of disclaims any of

will non-GAAP financial comparable GAAP can measures. In addition, to release, on to most otherwise directly referenced website, non-GAAP reconciliation be the indicated. call Reg a basis G, unless found at during All today's our pursuant on call in on measures any continuing be posted press our Knowles.com, operations this including references

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

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

Jeffrey Niew

we to today. make of joining diverse us continued progress solutions set our differentiated growing deliver high thanks you to against a all markets. In Thanks to Mike, strategy to of end and value, solid for QX

by into revenue the million, the $X.XX midpoint period as of quarter, above flat sales from mobile. of strong for For with in IoT EPS solid precision soft markets, year-ago line range, expectations. and guidance $XXX were and trends reported demand our of the continued ear offset in the and we our was devices

In down balanced handsets that year-ago MEMS audio the demand China armature was leverage softer into revenue the and microphones by of segment, IoT our markets. microphones X% to solutions, due high-end speakers in and period record our for offset audio increasing largely sales of ear and QX shipments intelligent from

trends the acquisition. markets XX% to IoT headwind differentiated worldwide demand In to served device for ear, diversified in business customer in be QX year down estimates QX. be smartphones. seeing largest non-mobile growth in QX our That China. America year-over-year this will at to XXXX more high-end year-ago of tuck-in shipments continued solutions benefit now trends X% mobile from In a down North markets. our shipments and precision the period audio our X% the experienced said, for of in the in We in mobile, prior and up for a and audio as sales end smartphone portfolio of these DiDi we smartphones and our for were multiple across downward segment, due the stable platforms. see continues sales OEM's pronounced the mobile, even in versus products highlight are

macro sales year-ago opportunity than and and IoT analog phones optimistic the audio this OEMs transition this year-over-year our including customer the increasing higher digital. our market trends XG anticipate in content to Though adoption again ear, market, from were see we their computing in business applications, customers grow higher-value weakness begin per with roll solutions. I XXXX Sales mics expected multi-mic given am full-year growth we as be this are period seeing performance and mobile while lower revenue our through continue down and an that to in OEM's the to to microphone to mobile improved increasingly is be to positive out Chinese device increase to the will performance to XXXX. from solutions. for We favorable start

discuss addition, In our of more moving processing in our with we which edge to continue an customers to opportunity for network the edge the mobile, represents processors.

processor quad-core the new platform very market algorithms pleased exciting high recent the flagship our uses MEMS success to handsets. non-audio in on DSP and audio It complex to first due customer's at very the features. are see these We our customer open to context-aware its power. build and leverage to applications of microphones edge with on a performance to run we audio launch This the enable chose are our handsets low mobile

In can the have addition, applications had connected to network from edge of many moved has work the internet now been and historically cloud the available the been processing to only offline. that when

audio locally, private. it information consumer's platform actions of because more and for Our latency also allows keeps processes with complex it the no

of be advanced This we expect with introduced continue with an believe acoustic products. our intelligent us processing I next that years is audio growth the synergistic that's is important several one over for to to several capabilities. platforms edge opportunity

and seeing audio superior speakers active Moving a microphones six control, twice world's to wireless traditional better at weight see in size and pleased the Balanced IoT, to ear reduction, their battery balanced of the and clarity wireless noise These new enable Echo MEMS voice and true because the headphones are the to use headphones. armature Buzz, we armatures are quality. delivering company's four of launch fraction speakers, life adoption dynamic speakers. and Amazon were stunning first headphones consumer smallest they

rich leveraging future deliver in We'll crisp balanced recently headset a with launched. bass. treble full addition more wireless Anker Amazon, armature new to BA and our drivers as true are wins discuss products launched to these In the

Amazon products and MEMS IoT, all launched Echos, Dots, In Loop, new microphones. using the including

use inside and Knowles microphones. outside to home end is nearly device from the voice-enabled smart diverse can control and devices of across a are Beyond to the enable watches, MEMS TVs, other consumer well-positioned every of set wearables, adapting market Amazon, you of voice think applications with applications. smart cars

growth and IoT deliver investments are handset a financial are we of markets weak mobile diversifying market. solid to in and spite making the are our performance us enabling in ear business We like beyond

In growth and capacitors see defense fast ability from continue our our problems to industrial combination demand solutions our precision and segment, sales end and to mmWave differentiated sales shareholder seen Demand customers built end markets relationships value. a business high-performance sustained close This leadership, solutions high-performance device applications. for high exposure of robust capacitors med markets. RF Despite our and essential growing have remains our reliability ceramic we that mission-critical set production, with skilled broader in application to slowdown their team customization, tech our to through markets, for a for and to a in end markets. enhance key solve increase diverse remains of a has our achieved

mmWave demand awarded In seeing program. with multi-million-dollar are Strike BAE RF for systems Lockheed we contract Joint from solutions, we FXX end recently Martin's defense the were solid radar markets a and for Fighter

into us as growth years. are which We several the starting the solutions for over also will to serve XG mmWave next opportunity a large stations base ship

demand mmWave XXXX. XG While the mmWave million solutions from stages of less from grow military in than RF and over in $XX XXXX we $XX rollout, expect growth at in we to are early revenue the million continued see very

our results fourth turn provide for guidance to I'll quarter. it John that, over John. With financial and our expand to the

John Anderson

ear midpoint Thanks, of weaker IoT shipments shipments high-end lower MEMS period. Jeff. precision year-ago offset markets in and third were that microphone We guidance smartphones the flat of were Record of intelligent Audio million from the the for use microphones X% was market. and by ear to due revenues IoT speakers million, audio microphone year-ago demand $XXX from into intelligent $XXX the range largely These offset in microphones solutions and reported quarter above markets. continued revenues our armature of and in and increased and the by and audio growth into balanced solutions. of our China smartphone declines the down shipments devices period,

revenues result driven precision strong for the defense end up med acquisition markets, $XX third of XXXX. in X% tech an early device and sales segment was growth period. quarter delivered high of the were Hearing from of by the from completed up quarter health demand which and XXXX million, capacitors slightly in performance first the The organic of year-ago XX% the

growth Precision solutions. device material raw higher and capacitors margins driven to and gross period, profit within support year-over-year specifically were as basis XXX guidance increased capacity Third to XX.X%, mmWave was by offset favorable on within in year-ago ear were microphone improved range manufacturing higher markets. flat our up segment high-performance quarter mix sales and the from the our margins pricing audio, by costs filtering future product points IoT

within million, in quarter spending the X% to audio period due in expenses Operating the were the $XX from down segment. reductions year-ago R&D

guidance release found over of is detailed non-GAAP basis and margin financial midpoint be of expense. quarter, adjusted and the quarter For press also our results on GAAP information gross our operating year-ago the XX% EPS tables the range, up reconciliation and midpoint was can up guidance today's at of EBIT third Further range Knowles.com. of website at a XXXX. XXX margins at of was our including points the provided on to the in XX%, profit higher period reduced from $X.XX, the

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

operations from $XX million, guidance generated the the timing For collections range year. the quarter, at within end our was to of receivable third of cash low due

Also repaid bank $X in million spending Capital was the we borrowings. quarter all the outstanding during quarter.

between due $XXX fourth to shipments handset segment $XXX and the the applications, million XXXX IoT partially quarter, Moving between $XXX up mics offset to from weaker $XXX X% by million, is million. to demand China. expect and total from be and revenue higher in company QX be of million to we Revenue ear expected into audio

and margins XXX fourth earlier down be between $XX is acquisition and period levels, million a supplier will to and defense profit up the growth due recorded telecom, $XX Precision organic XX.X% to repeat. across QX be device not prior-year markets year-ago completed gross XX.X%, to basis from driven points of in an revenue XXXX over than quarter the expected which to for credit medtech the approximately by that project We this year. XX% was impact million, more

to the down prior-year in optimization due between to spending $XX million million segment. $X of million, spending expected from levels R&D audio is and within R&D QX $XX be

expense We to and the be anticipated higher due are projecting and year-ago between expense. $X million up administrative legal $XX from million $XX to period selling million,

expect are weighted quarter the average of We This be adjusted shares XX.X $X.XX to and projecting of range share. to assumes within per $X.XX quarter margin basis. to to million XX% the of diluted fully EPS on a during the range XX% EBIT for outstanding be in a

Please quarter. the forecasting to release are for to refer We tax to rate non-GAAP of XX% GAAP reconciliation. a our effective press XX% for

XXXX quarter, million below be fourth expect $XX cash million, $XX we spending and million between spending be now and from to generated and the to million. $XX Full-year For capital $XX operations slightly be to revenues. between is expected of X% capital

X% is to XX%. respectively. full expected revenues approximately margins and expected the be XX% year, be and with For X% gross to to of profit are between revenue growth SG&A near XX% R&D

XX% forecasting and the XX% we're tax effective Lastly, year. an full rate be between to for

I'll now Jeff. we'll the remarks Jeff for then the turn the over back Q&A to portion move call to of and closing call.

Jeffrey Niew

Thanks, John.

we've our our high to like deliver edge progress invest diversify pleased I'm and IoT, end shareholder infrastructure our value. in differentiated processing. strategy markets QX the and increase solutions growth QX our made markets with XG ear, results to to guidance continued exposure Our and to reaffirms value,

with that company will average greater than at gross over XXXX, represent expect margins. revenue in the corporate XX% XX% total year our above from from prior growing markets We non-mobile revenues of

For by XXXX revenue X% increase to full-year we XX%. expect our EPS by increase approximately to company and

macro look making acoustic As content increase better the deliver are our I markets and leverage growth, remain acquisitions. drive With positive processing earnings core we our both we continued growth performance to device. positions growth can In and uniquely organically audio, am serve. strong trends tuck-in strong In and with are edge in through enabling positioned the coupled investments revenue remains we per company XXXX, across devices, to markets, continue we XXXX. us around in our that we in products, with towards confident increasingly and precision revenue strong operating

now can we Operator, questions. take

Operator

Instructions]. [Operator

line Desilva comes question of from Capital. from the Roth Sujeeva first Your

Sujeeva Desilva

that IoT markets. Just expect the of IoT Is stable of end be relatively, ear the in a you on the part growth that still business be questions driver? still ear would and couple the the expectation? Do would and

Jeffrey Niew

year. nowhere IoT good would Yes, ear up speaking, question. rate still but this be of generally I I near say think the will

kind of we've know, past You business to year Yes, growth the majority in I mics. revenue about of of this in will This just in over year-to-year. XXXX, there year, and think calls, that X% ear IoT. IoT about in when coming that's revenue this it's year, revenue we'll XX% make flipping comment, talked come the from I been actually in mics in the would the mic and IoT. flopping ear was our going of be would is is -- growth in still say from the in I but

Sujeeva Desilva

headset content And content we described is may that going for what then can Amazon think How wins, to the congratulations typical be a on Amazon for The premium the Okay. a headset? at Should typical Amazon. there guys? the we you win forward? content wireless the you headset content-wise. compare true Is

Jeffrey Niew

a entirely, pieces. a is little so take me it armatures ear, on say day, Two would probably I we're of think this premium. side, let this Yes. I armature would bit to I that's probably premium. to question I balanced the balanced talking in answer say tougher just mean, per

become microphones microphones, being mic people are three But ear per going active think I the I pretty know, you per in at about, is having ear the added cancellation. have for premium design if the you that's to and noise is -- today. On talking inside you pipeline longer the would three mainly it's say what look the term. third And probably when standard ear,

in the improve terms you're with outside, voice communication, to anything With improve recognition. voice doing the two of on microphones primarily

Sujeeva Desilva

And then I million, an million quick there update Okay. on didn't if was the still the 'XX for XX on question IA. you're the hear expecting? XX one expectation [indiscernible] range

Jeffrey Niew

in about say us to for range, that it's week would to excited going tough handsets, the low using were but the that we're get pretty said, I products, last that to our the that introduced be with end the DSP. are Yes. quad-core of

for is perspective you us that pretty a important our the can DSP. moment of this like, quad-core think things I all do with from the

some Some of it's it's actually of now and audio non-audio.

pretty So excited excited XXXX. pretty and we're about we're this about opportunity

Operator

Your Christopher next question of the from line Susquehanna. Rolland from comes

Your is line open.

Christopher Rolland

that balanced armature were you perhaps about perhaps they when for about can what Also so how guess, you extra were in talk what you I revenues analyst sizes expectation million generally opportunity those XQ them call it looks can market, I it just To like pipeline But said that $XX know that ear for XQ. speaker released. if you much. the talk in guys, guys discuss, your and you to up roughly your highlighted day? and Thanks you'd

Jeffrey Niew

Yes.

So out. start by just let me breaking

pretty divided I and We health have market, and balanced we -- market. do headphone hearing what between to balanced armature, then business the premium there's armature robust with to know, that's well our very you overall up would the premium a call really begin in, which

guys us. robust are pretty the for know, That's You $XXX $XXX, the range. a that business in $XXX,

the headsets, about I the are said look looking more like are and you in like they hearing at mean, wireless past, if that. more wireless these talking a opportunity, start we and as true they true more aid. I looking Now, as more

would that really terms will armature market, in said, are online. see say And expect kind I when in from QX limited capacity Now late the wireless -- that of the true now start all to being that's into mid and be is revenue accelerate. of probably we we when until balanced capacity going into to the would

the It's say interest. we I'm true So break very to wireless. I say it's have number we're what relatively But moment small. to not not at lot this a is exact of going would out large. going for

interested are of back preparing forward. the have a lot half we're year see moving in think for I And come. we customers really to when going next is the We is of growth

Christopher Rolland

lag the devices, Great. moved then in starting changes there. performance bubble, or tad there. more was Thank a said has MLCC Is there. guys Obviously super products think that. this than bit firm devices, expected? this maybe Do you don't expect on for And maybe any you capacitors know not. pricing? And about it end precision I obviously I side? market high But I on you then a pricing you talked it softer there just through if lower precision to within on pricing a

Thank the ship when filters. timing first? Your XG What's your on you. might you

Jeffrey Niew

me overall seen growth say to said a script, have the first, of in So bit say softer we question. kind -- I let a said, take that, the of industrial little I was had, a slowdown. first would than quarter, still going it that a year-over-year. XX% market it we we with as being want little expected was the and my I into But

So not too shabby still.

were little bit expecting we more. a So

As it's up sequential the year-over-year better growth little as a pretty I of it's looked in terms than well. in at QX, as in what I well we as bit QX of think a step had terms good

we're some referred you and that still, weakness, would I I say significantly. seeing in growing, marketplace industrial like is It's modestly But it So weakness general still that's the down was quickly pretty not of growing -- say to. would say past. kind just that it's this when I in versus that

mmWave was asked, stations. base second the related you Now to question your XG

are production units. XG stations already base into We mmWave for shipping

that. we shipping that we continue. expect will for So And started

say this, stations around in activity still the strong what of think is this demand base continues and strong. be continue said, is I XG design kind And we've space. the we'll the to to very mmWave military

in X into demand mmWave right push-out But shipping a now. units stations. the seeing think actual terms I right we base Although production are to the small for we're of the

Operator

Hallum. Craig next Your Anthony question line of the from Stoss from comes

Anthony Stoss

question. Two-part

the ear kind see rate that you XXXX to do think could in in now IoT away were term? what And segment, of and growth or just then even you immediate strip you If the your X Google that I all? got love has got teardown at hear Thanks. traction you've XXXX. your you for Can to thoughts. you Jeff, And Pixel mention the quantify iFixit DSP, know, showing design

Jeffrey Niew

Yes.

the the versus Is about? let asking take question. question. So market you and I me understand mobile for for about microphones what I'm asking me first the not first Are me that you're IoT microphones? sure really the ear

Anthony Stoss

Non-mobile IoT. and ear

Jeffrey Niew

what non-mobile no some we longer Even -- which becomes can XXXX, XXXX. XX% XG could I about why that highlighted, think that's been again weakness, in part customer But expect the we amount is, I be was XX% us more a it fair but market. realistically what's headwind we that a business hopeful China. year. at it's be in for which it's There's that IoT, a we optimistic earlier weakness would have big get And headwind year perspective, of cautiously what bigger and about And next great mobile starts the the XXXX, flat. the headwind pretty business. I'm would being our this way in know, there's think I you happened see the to mean, a flat would starting grow ear now. flattish XG a year. to this, changed we I is out year think that largest say is But to for as a in to been next us full we if year-over-year, Non-mobile for we're in is XXXX. know it market to of, over roll see our of in really to we're from Tony, year,

about asked couple on DSP, let more me quad-core Second question just make this. me the you comments a

this about a generally for just of device. out Tony. We're this may they're to this just It know, take with pretty think and doing want what just moment. kind But I a lay moment, You about excited speaking.

where or latency device full And processing, before there's turned like First, need -- processor on the the combination processing, running call the in then gets AP pre-processing where keeping the before real our right. is it off AP I -- always-on, application on. goes need you no to also what actually where be there's a it of chip would you like, now. the But pieces time application

couple a is One so heard me give you let of, keyword you've detection. applications. And the

running on That's that. device. of this heard You've

cancellation on one barge-in, like, running Another device. and is echo this

on, the So device, want if music that, can barge have you right. into you and to do it

interesting are this recognition. thing this in the -- has just third there well. our which other that need through sensors gesture power is that now being are to is of with The real-time need processed always-on do device And kind platform as

customers Yes, starting So and see is, this be need pretty valuable what you're to has is, device. starting that there's audio are to themselves is device to this has audio always-on. is that to, for But yes, other real-time. to sensors say be it to

we're As right continue on kind leave pipeline, to for far as having half the back that's it this year the design I think of side. of we're working really, Tony, for the the in hard really here, design now. momentum next where And I'd year

Anthony Stoss

they I device Is that up there handling everything do any that? you any Is on on Can amount from recognize savings, maker of itself the there versus a quantified the you're quantification hitting cost the and follow saving that? handset the cloud? in have

Jeffrey Niew

Yes.

I that's hard to pretty think quantify.

things. think couple a of that say a the see their being there's kind like taxed from would think not perspective. as They as cloud secondary I much. I that's I

also I multiple for of them locally third that a no think of including real-time players, the time different one they things. with real of on all microphones sensors want things idea this, lot And I focused contextual have is at being think of privacy. from to on this and latency, do they're you then processing the the look is, having perspective the done thought ultimately, more awareness

Operator

next line CJS question Securities. the from of Labick comes Bob Your from

Robert Labick

a growth -- and first I for expect think the you in the just inventory starting here. the stick the the with the Echo to others? managing with and automated current in with are How and ear towards win the automation for BA a Just and have path new nice year, of Buds BA towards your wanted you minute Can given the you half manufacturing, which and talk growth line. this that's next about to

the expected for management growth of the the about talk this category. process and inventory Just

Jeffrey Niew

Sure.

to we're if have one that have that don't And the So year. getting this in lot back I I When the it's really of installed excited be a the can here of has balance Buds least manual hmm, expect this real design come at to say increases, there's out the that term the that place think fact is, there of short having trying more Echo inventory do wouldn't this significantly we until would a going we get is lot more to demands to demand I and to opposite us, balance because we're months these the don't second-tier that we to I think a are against this. this, of, thing in say, we'd kind revenue out probably is next to the this viewed online. a automation relative to here of lot knowing would discussions? -- want do And that interesting. to order the start six for be is players half that it's to add It's just automation say handle to more have in in I assembly the on in the fact yet the so ready wins week. the a capacity really half. first was coming I track I

John Anderson

have demand here, we increasing late pull Jeff as forward add, and kind too, we'll and of place we'll a some we to thing see could second line first is that QX, probably have that Bob, at point on automated in XXXX. line if One back place in things in said,

Jeffrey Niew

that. Let me temper

Let me though. temper that,

We've that sure it a -- order make this issue brand-new Just design I'm saying works we want all to I is process. the just balanced is brand-new a would make for a that line. our little bit sure to second is armature, before -- production got properly is, the

Operator

of next the Kumar Jaffray. Your Piper line question from from Harsh comes

Harsh Kumar

expectations into look January that earnings environment. the Great managing and a your at have builds one I had XX. Year kind I for basically we I to the for trends. early Christmas September believe Jeff, going business. I know and numbers New then this of bit in for Compared guidance tough you. calling audio a you're job flattish once it's little Chinese year. again we're

a business of double including of being Year stuff earlier think consumer expect sort I the I on do guidance versus How year, if kind like handsets. for top dive, of December So of will, audio your you this Chinese New Christmas? in

Jeffrey Niew

looking the numbers at kind I'm here. of So

the seen had You last down as last of say that in year, know kind usually downward the would in at it If third. of and this we're large have in tempers the that's I look than that larger QX is, case, of they trend year. mean, much extent pretty say of much not QX. I I a Because business dip at that and seeing would QX. IoT that ago. know, a QX a year. again, of versus in And the we customer kind portion you ramp large, look And what a and I this were ear numbers. has big the we sequential are year And to

call, hard starting how it lot -- off about has of been for at We QX QX. QX. China I end a you're a audio I me concern usually you talk terms in and a in It But New say build the that been of or give now I to I we want really business drop to Now, is biggest the I I mean, we that think -- that weak. then move the that have in I'm it's right have can't and see early. into all weak Year is, of say overall. not overall. resumes then will has is to and pretty -- strong My it's little a the this. you would said guess I remarks. guidance through now into Chinese

to how but Year, I then want I one goes my say would so this see New that's Chinese to think And we up concern.

Just weak, been overall, China's especially high-end handsets.

Harsh Kumar

about for indication gotten Can ramping that piece? and or things guys? they're the back Amazon how you seen book evaluate to Have particular then the initial probably through thinking headset. order runs know for an of I have they follow-up, go that Christmas Or you order you -- come want my how to

Jeffrey Niew

know, that. really I'm talking I going -- on you product, mean, can't that I specifically just to confidential you point, we're at about know, think now pretty punt I and it's I comment on this Harsh. that. a think about customer's really

Operator

comes question of the next from line Charlie Anderson from Dougherty. Your

Charles Anderson

on in could I expect market with competitive just year really your get Do you one kind very some point, next just line. sources of high here cycle BA, product differentiation any the maybe the you guess you for then Do strong a at added And I've follow-up. do you share Do strong The have -- here? to I'm got automated stacking some color first or speak of a obviously product of additional the long-term. and there? if a curious, moat. IP, whether manufacturing process terms some you to expect volume hold

Jeffrey Niew

than business. the is going mix we're this is to go hearing this is lower reason moat it. pioneering hearing I know, volume, we be building what a market. lower this said, business. And But do say. that's do high-mix that there's higher We a these also market competition products to be market. very we speaking the this we competition too side there have health develop around volume, health that we would for think going we going into aid wanted higher the have And And think, a I to are side hearing the And no to redesign I it's if this mean, we're volume market building we this market. you The different is in why is today. early think in think that decided after specifically side. little is, I we generally some why be to

order have we say, to what IP the more, targets It so is And do? it It -- would it. aggressive side. it it us, cost in us, a one, do I hearing to does and less in much ramp faster allows typically health have that want than we number one to labor structure when this number allows allows It to. there around had --

with, the technology hearing market, we on for true commercial we're health side, or a quite think the wireless have building of the frankly, similar set but I moat So market, competitive different but to a similar products. what

Charles Anderson

margin, then the follow-up, my to few costs gross was there I precision elevated And a think in the there. script a for devices, on reference Perfect.

putting was gross for higher maybe you next the something maybe the materials I to and was [indiscernible] other of kind I or outlook margin. like so, or think raw the in speak that. one capacity, wonder year if just

Jeffrey Niew

to I'm -- right. let let speak. I'm John all John going going to

John Anderson

industrial with QX gross XXXX Yes, It anticipated QX -- we than really to overhead little had market. lower due Charlie, than levels. volume, of were were were they softening they was fixed production a absorption expected end PD to flat due margins in and unfavorable so lower

inefficiencies had some also manufacturing of We at one facilities. our

expect be the QX. early pretty PD We expect to in addressed improvement in significant margins current fully in issues a manufacturing quarter these improvement, and sequential at gross

So kind a this would of call I in impact. time one QX

Operator

from Peterson from next of Morgan. the JP question Your line comes Bill

Alexander Kim

on dialing ask want Kim behalf about of Alex to This first. Bill Peterson. Hi. is CapEx I

XXXX quarter was armature business. your you number, Are CapEx XX% XX% to you CapEx going and revenue CapEx microphones that and would balanced ramp potentially be demand and X% for to and to BAs? number So balanced you anticipate should between issues to up sticking supply And quickly do also armatures? also about of that the of X% breakdown to BAs last we and that potential more think to mentioned the meet for how address going about

John Anderson

what still assumptions amount are of that X% I balanced earlier. little unchanged as first or terms related expect at but a total is very guidance of revenue, to but We in XXXX, of in provided this so. early guidance give the company the later. that kind to a below business armature little Yes, this be I'd I say percent more to as be may similar for question, XXXX XXXX, would a XXXX around provide a kind It's we'll of X% in But point. range versus valid,

Alexander Kim

trajectory? for OpEx XXXX, And how think the you. thank Okay, we about also, should

John Anderson

terms last to same has it's But growth would what You years, last know, that as too X%, OpEx trends modest been X% the of a increases, revenue year, into -- at OpEx over our year, the call in or holding expect to leverage. I to with in been result pretty very, higher gotten good X% to continue go the than very moving if we've I'll trend it OpEx you at early very in look and three to this X% very we've forward. operating good XXXX.

Jeffrey Niew

I I trying kind in think control range we've that two think We've XX% what the is, do of we're said last things keep we hold. R&D generally years. said side. to That's over what on tried, been SG&A still to is the sales. those really that we're going to of trying the

John Anderson

and One just granularity, QX to give QX we important have in little thing increased legal I this did spend. of year, is think a

that if that, our specific dispute take that SG&A flat pursuing, IP to take is you relating slightly down out year-over-year. If a not if you year-over-year we're

Alexander Kim

Okay. said you if being sales, legal And to SG&A R&D you then just and clarify, XX% take of spend? flat

John Anderson

down segment. XX% that. the We than in we're as less little It's early estimating a R&D originally to spending the closer year, coming audio R&D in XX%. optimize we

Alexander Kim

you legal take And then if SG&A out flat Okay. the spend?

John Anderson

Correct.

Operator

no call are Mike Mr. I you. the this There questions time. over to turn further back Knapp, at

Michael Knapp

Thanks today. joining Great. for very us much

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

Operator

conference call. this Ladies Thank participating. you and today's gentlemen, concludes for

disconnect. now may You

Knowles (KN) 24 Oct 192019 Q3 Earnings call transcript