KN - Earnings call transcript Q4 2019

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Operator

Good afternoon and welcome to the Knowles Corporation Fourth Quarter and Full Year 2019 Financial Results Conference Call. [Operator Instructions] With that said, here with opening remarks is Knowles’ Vice President of Investor Relations, Mike Knapp. Please go ahead.

Mike Knapp

Thanks, Christine and welcome to our earnings call. I am Mike Knapp 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.

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

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

webcast information in operations otherwise indicated. IR unless available basis Also, the of release can which this addition, measures referenced call on GAAP comparable continuing found our made non-GAAP pursuant any in at be including our on on will financial found the website. to call selected have non-GAAP our conference today’s references In section most can directly website during Reg press on knowles.com, posted financial a be we to G, reconciliation be measures. slides All

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

Jeff Niew

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

offset we double-digits device ago in as were within reported of and For continued year were sales up and guidance our up soft year-over-year. X% sales the IoT mobile. strong into markets period Precision from by ear trends the million the range $XXX quarter, revenue

in will this that but challenges resulting improvement operational John EPS detail unanticipated of gross below company anticipate this we margins margin in moment, cover gross in greater segment However, range. pressured in XXXX. was in guidance total $X.XX our a

segment, audio ago revenue by of handsets. sales and into offset X% and In timing mmWave the strong high-end driven sales microphones a of markets balanced differentiated were year our from segment, period IoT end demand shipments by year markets the filters period XX% multiple precision increasing products was continued armature capacitors. device our for In up up softer QX speakers tuck-in weakness the was demand the and ear demand from and in our for ago of across shipments offset by industrial acquisition as partially for for partially

X% ended which demand particularly markets. high for growing of sales markets. up strategy and the of XXXX QX ear in value handsets, with IoT up audio our characterized mobile, earnings solutions differentiated of benefit We for revenue the and benefits to year weak a solutions the total by deliver the diversified to end during X% company highlights portfolio diverse our set demonstrate of

the as again to for am handset market year by I platforms. rollout weakness OEMs our from like worldwide, partially sales IoT will microphone of and Chinese lower of by devices half serve customers in our customer XXXX. from optimistic that our a declining grow headwind to platforms. continue particular a were non-mobile audio demand offset XG second ear, ago start stronger the period phones as on double-digits cautiously mobile largest smartphones of shipments worldwide computing the year-over-year grew business sales to OEM’s revenue premium ecosystem. mobile, Android with in handset lower In driven Sales non-mobile for Despite the portion this

analog higher increase opportunities We performance digital. to multi-mic and performance improved transition adoption device from and to through the per content seeing mics, are including

a acoustic Intelligent rebalancing our we opportunities for opportunity revenue products. Intelligent to smartphones high-end an lower million This demand said, XXXX to and That but to approximately in versus and Intelligent $XX Audio to gross Audio expenses accelerate our that disappointing R&D below sales in our XXXX. believe Intelligent our across leverage million operating are represents other of following investments enhance from plan are driving margins continue that XXXX came growth due DSPs. XXXX, In weak while was in for we to Audio, growth customers’ Android our strong XXXX be expected $XX shift spending in some opportunities. we Audio demand to

serving expects the and the primary XXXX. earlier, I ear significant driver with these the XXXX. mentioned of to million ship The Microphone ear enabled market of than ear counterpart true research more sales in market remains segment and XXXX. year to prior fastest true in IoT, and business wireless almost wireless as our end-markets XX% earphones to in growth earphone the growing up from markets XXX were grow to sales IoT Moving the as microphone MEMS in

We that power Sales speakers, our are their Xiaomi armature also including of smaller and and BAs for grew of performance. to consumer superior new in beginning are recognized the customers benefits products balanced only microphones, for our customers products use introduce but leverage XXXX size, OnePlus. as MEMS ear-worn efficiency see Anker, products not Amazon,

in pleased year from team. armature XXXX, line required our of automated the to and we we microphone balanced supplier ams�� many we for were result years to BA multiple from a benefit intellectual anticipate on it Knowles source new ASICs enhance to half expect foundry included position microphone MEMS In remain this QX, acquisition second this As online. business. in vertical market. as immediate goes ams financial to This we ASIC sales transaction MEMS with capacity and accelerating rights of ASIC design at in our announce the looked and partners and further the ASIC track been has integration wafers the property, leading

John be our develop R&D immediate further signal a innovative world talent provides portfolio transaction allow and mixed to leverage class bringing team to MEMS more will to products and us broadening moment. this in in leading to IP IP, cost about discuss savings our and We addition efficient design of activities industry which In to new microphones. this more design plan ASIC will

In continue our high-performance sales growth and from mmWave Industrial we see a to markets segment, continue RF our device precision of capacitors for capacitors markets. end set soft. for diverse high-performance to be solutions

However, med-tech the robust demand markets. end and in remains defense

are In power utilizing addition, within requiring are and more multi-layer seeing capacitors capacitor this we as market. customers positioned to vehicles high-temperature architectures for we grow electric believe our solutions. uniquely We are high-voltage new

year solutions million strong less than RF from will We XXXX XX to driven $XX ability essential end XXXX end solid in and devices, exposure growth As of primarily markets. to continue expected, anticipate increase driven revenue end value. to mmWave over see to markets per growing enhance from to be potential in mmWave markets by demand and the XXXX defense defense is grew that we XG another diverse our as and by opportunity. Precision long-term fast the shareholder the

plan the we restart very well produce microphones the than don’t is ability outside longer read we and This shutdown normally And filters, companies has in That talk capacitors operations turn I of as China shutdown not February take balanced in to coronavirus med-tech to fluid. following XX. Year as could region, we Before said, in our impact on the Chinese expect situation China. as the Chinese to capacitors production to for to our production armature holiday. a over are The Similar have factory the impact manufactured or it China. the John, operate current strong guidance QX industrial a range about and X extended result, in of keeping that wider other to of want on a outbreak since demand as does the over recent I a New end-market. are defense the shutdown week speakers mmWave minute for these our

that, it quarter. and John? for will over With to our financial guidance the provide to on John first expand results I our turn

John Anderson

reported than the same smartphone market. the demand both MEMS were weaker speakers and fourth and solutions period a armature growth the strong revenues IoT and for year segments. in the period The revenues of increased million the Thanks, with into up quarter device ago. million, balanced XX% from MEMS ago offset audio ago ear Audio by from year precision X% microphones by Intelligent period premium with ear markets was of partially Hearing period. shipments of shipments from more sales microphones Jeff. X% flat up $XXX the driven year IoT and in health the We for and were year $XXX up Audio ago

across quarter XXX XX.X%, guidance resulting result growth multiple overhead year range our gross reduced points period, Operational were of were include million, margins unfavorable completed segment the The our below precision up the down Precision expectations inventory. negatively XX% mix, early in driven of from continued below solid ago markets to XXXX. by the gross segment product period. demand was factory of Fourth and first entering challenges well absorption revenues gross affecting device an margins the adjustment which from quarter. margins and profit $XX organic lower quarter output basis in and fixed an X% the acquisition delivered end year ago device

X% in low-end lower costs. million, reductions $XX the into gross were in quarter the with higher intelligent in shipments. audio guidance. margins by to ago just and products period to compensation largely a Operating MEMS within The mature segment due microphone audio R&D our year the and finished unfavorable expectations were expenses In expense the company incentive decrease also driven from of audio segment, down and sales under mid handsets total spending and line lower

the adjusted EPS and basis below the operating profit year a and margins period range offset by reduced EBIT in margin quarter XX% points was lower from guidance rate. effective and tax partially $X.XX. down the quarter, our XXX expense gross ago was lower For

a improved press GAAP information year EPS increased today’s and website to be can non-GAAP revenues basis Further weak delivered knowles.com. we XXXX, the mobile EBIT full by XX tables also growth of results by margins X%, X% detailed market. our of release is financial reconciliation at and on a found our despite including in of points provided For

of million, XXXX turn will The QX. to million I the end $XX cash balance with impact which cash ams Now, totaled and the funded reflects acquisition cash late $XX sheet for of equivalents and flow. hand. at end Cash on in year closed was our cash the balance and

guidance hit record collections. level fourth $XX than and in quarter from XXXX, of generated customer better quarter. the a our lower inventories expected million spending For Capital million and was was $X cash operations than the to above range due at expected

EBITDA million operations For of cash X, We and XX% year two of resulting generated to exit a under the XXXX, free with record of revenues with for $XX full funding just both from year highs. during was while was total cash metrics total acquisitions $XXX flow XXXX debt in million.

segment filter project prior to X% be defense to up and $XXX over first $XXX Intelligent gross expect of levels by between to industrial ago first mmWave approximately demand and QX XX.X% to the China lower from we audio shipments markets for to expected is in from the Audio shipments to to to company quarter aerospace market million. from quarter microphone be demand lower mobile to be products. slightly the the and Precision period. Revenue approximately markets. approximately driven weak XXXX, high-performance year total We capacitors down year expected due MEMS XX.X%, offset by XXXX shipments of the Moving due is device up X% margins the revenue growth partially into in for be million weak revenue

a gross driven related partially Intelligent the of down be million to doubled XXX benefits by segment the ams microphones, from impact Intelligent driven basis palladium segment million, margins increased slightly is within high acquisition the ams are levels record by offset XXX expected MEMS to $XX in R&D lower expected prior Audio precision Audio the driven in acquisition. ago down Audio expense and reduction same offset points products from ago period be by higher pricing. the nearly the are up due spending be to partially from year to volume. margins basis which Gross by points cost, by of expected in offset partially device to between period spending largely year year by which $XX is customer QX

including We areas, also balanced in spending speakers. precision R&D expect growth armature and devices modest other increases

$XX as and We million administrative be to our are period million, to million and projecting selling protect $XX expense intellectual from due year ago $X we anticipated aggressively up between property. legal higher the expense

back half of half spending decrease significantly in We first the year. the to elevated of throughout expect XXXX, legal remain the but

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

an XX% forecasting rate for of quarter. XX% are the tax We effective to

For by and million the be between operations $XX million. quarter, be spending approximately capital to we to $X cash and utilized $XX expect million

for financial Now, I would some provide insight full like outlook XXXX. on to our year

return continue scale the of We as operational Operating increase in over capacitors challenges expense market, year. legal in for our significant XG we in XX% growth remain and the armature year. margins expect growth the mmWave handsets. defense and up to the between and the the Full precision address acquisition XXX to by EV the driven is to and the for and revenue XXXX revenues, half business levels ams than XX% XX% for to to Gross year filters device balanced of be to MEMS first over earnings are which expected to aerospace revenue by of points in second realized improve expected microphones is a half segment. basis includes more speakers, expected filter mmWave benefits of expense

is revenues. we XXXX, X% anticipate full revenue growth. capital Full For XXXX than year the forecasted triple of and more spending growth earnings of year X% between be to at rate

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

Jeff Niew

X% with company XXXX weak by and revenue handsets. the particularly ended up earnings during X% up total for characterized We year John. demand Thanks,

our we markets. with have differentiated solutions markets pleased our growth that end to to reaffirmed results diversify and exposure delivering the shareholder made XXXX in strategy Our I invest high-value to our increase is am progress value.

prior XX% than in with total average non-mobile greater above company XX% year growing at Revenues markets sales the represented of from over gross our margin. corporate XXXX from

sales. flow, nearly of XX% addition, representing company total In we delivered free record cash

enter remains positioned uniquely markets we the As serve. we XXXX, across our company

handset year sales to expect we for XG with by ear, XXXX be shareholder now confident and We markets. leverage value flow defense, growth revenue driving full to strong cash I Operator, by and and can the growth continue operating can am driven deliver take electric questions. vehicle we beyond.

Operator

Thank instructions] [Operator ROTH from of Your the question you. first from comes Capital. line Suji Desilva

open. is line Your

Suji Desilva

Thanks. ‘XX second carry-forward all be year? out tailwinds I And quarter? guidance you with quarter to that and effect Hi, you And laid about quarantine the into the second about prior talk talking half much impact and get the shutting the am the of in then you idea out how curious it would that John. XXXX and the are the quarter Jeff. some early full have effect if quantify seeing Hi, of as to the how first the year? And year-over-year the call too or conservatism, with the up first factory with shape you the year of could just of this is versus

Jeff Niew

premise Yes, has start so our even me the Suji, first been coronavirus before with that China business weak. yes, started, the okay. just let

talked quarter. It about we weak. still think that I is last

I production specifically will of side, our longer high primarily expected. the type to more start with business, think in customer to on guess Our affects our I But I how to very remains products. would say, business which shutdown put more an with part needless related think, the largest wouldn’t going And is than fact what generic, say, QX. And I performance the would QX be microphone say I that our of the still is exact business, it I are in guide number much capacitor coronavirus. we the industrial on strong we

we start still to facilities. Monday So reopen producing out next again again and these planning of are

history, I it’s on there to hard my on and demand take I Suji, risk can read get think a is anticipation the like. And that always this is what looks timing. only

back XXXX, question very If in – comes demand like XXXX, the is things came back. when think you back like virus the SARS it strong, but to

would think so China. and timing it’s once more that is resolved would in hope this I all And come the I about back demand

Suji Desilva

lot those of ask wins? coming into those I this balanced visibility are confident half, mean you or do those are half in specifically you What then and armature secured design to first for enough. fair you then are comments two Have maybe there as have unknowns the kind that’s you XG. and half about on mmWave obviously. here the second Okay, of made And in second just a how would already of for the the tailwind And segments? year? I

Jeff Niew

a say in see a being still our I driver this So opportunity. growth filter But this this would in for growth still RF strong specifically, mmWave long-term XXXX. we that year. big as we expect we XG that don’t And view business,

million $XX in project primarily over sales, of we with of on $XX I I think opportunity. last a million But still XXXX, station defense be had longer-term mmWave. sales XG will I say, view a XG it we little would bit aerospace year, and over in as well mmWave would the the basis in base

on still we primarily by expect So mmWave, growth driven defense. strong

the If to be category, these in of I no, the stuff to of our in lot definitely will production customers, to I you to work for line view the off that we’re in would product In will sampling the sampling So, customers we line as in to service QX, good look continue demand say we words, manual that there opportunity I to QX. with balanced talk as be the in roll-up for start that say and that starting we armature. now, fill there’s going automated the we QX, that year. in see, right QX very production a a In balanced will back have to QX, and to right? terms what try half meantime, would other of armature, we’re out

So target. is I the would line say automation that on

QX it all to in And like up talked then have the in-house of in We’re bringing design that full. going we’ve is pipeline about all QX kind along.

Suji Desilva

on Last the done understand having IA be have quick thumbnail in-house. different? you opportunities another from the question of the to from those what product product things about of like with ASIC what differentiate can acquisition, talked already you ams opportunity the kind you being Thanks. Can

Jeff Niew

Sure.

would the had So we and is that the What with go digital ASIC algorithms that it. team acquisition that own processors already, is specifically our signal the IA analog brings, with design goes focused the along on the standard and in digital ams mics.

so what guess what ams say had were we been ams we was analog were was I And would there duplication is, doing what doing and doing I efforts of primarily although and doing mics. internally, some between digital the primarily

I worlds. about digital owned focused signal these to we’re on, a is having what we of that choose we mics. to now best have so noise digital we won’t levels month each one ratio, both a power this And think or to and low high get analog and of focused design probably expertise, on duplicate about we’re what And be and mics see extremely think is we analog this. of if the certain centers of and lot having

the partners. buying externally. to duplicate But the obviously, get in secondly, both So some having not efforts, we’re internally become to first, from and efficient going more going to foundry directly we are wafers benefit, from

Suji Desilva

clarifications. Helpful Jeff. Thanks,

Operator

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

line is Your open.

Christopher Rolland

question. the for Thanks guys. Hey,

QX the other imply. and probably this than are understand customer, that some looks around guide your would some while okay, has guidance guys mean pretty better it’s to been China now. particularly QX in I numbers from for for audio, trying Just coming largest bad well-known

And mean to coming can don’t in, add So guys QX other in I with. big it’s particularly I so you hard? IA begin maybe details. wasn’t understand maybe any why

be Are think well. So Thanks. responsible it I would for should don’t share there or be any shifts this else about? as we anything thinking

John Anderson

Chris. Yes,

do down. with China do agree largest forecast our and expect that significantly the We on was we down the already would I over pretty to look year. So customer in demand, with how in started, this China. we premise sales start be concerns, before not going for QX. up year coronavirus QX you their is to the the is largest And forward business pretty about if coronavirus of majority nicely the think But customer, I inside our relative China at the

on supply. the into expect the can we they So Chinese the those Oppos, is names that Vivos, demand Chinese really like, other providing guys, as type much build, you primarily to customers, going they’re the – and economy. But of we’re hear, the yet as what be demand, we’ll the be typical not to the able clear

China over adds intelligent this it’s not say was weak you down And begin it, layer, so would with, another but to was year huge, I and that audio again, and mentioned year.

Christopher Rolland

then an from know cycle including was the we’re Okay. things, what’s it I little but of a precision there’s about of seems there? been. the going on it’s down outside we are here about kind quite why components, XX% involved under And compressing? margin bit think Thanks. thing, Maybe up bit why on market. It margins of how a revenue that, that? soft side where lot should regular devices palladium a Is our I on is then like a op and of capacitor pricing think talk for

John Anderson

Yes.

PD. the at at numbers for looking our I’m – if So

going is business year year up QX. in over be our So to

revenue of industrial up concerns little our the and facility. portion in of out be is RF revenue would China the capacitors say comes I So both of is there. there’s Probably, bit But that going up. solutions. is the to high-performance a business some that mmWave There

And would mean I growth production QX. stronger will I a be of that that QX in the going some designs there and in really the showing we expect up than are start things that of more going I So are some to see that to QX. would key say

Christopher Rolland

Okay. Thanks guys.

Operator

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

Your open. line is

Bob Labick

afternoon. Good

that total maybe was to how percent to remind or annually get been just change you again, I the kind the back a overall sales of declines? sense share maybe price guide, the expected driving in and us going if could audio, of of obviously, underlying seasonally, or there of Just get trying and changes a big is to has changing And market what’s sense and just wondering there? as China a

Jeff Niew

Yes.

So and I right before had I this again, as look to year, XX% is start coronavirus. with China the about of the now we revenue. last would was And QX forecast

at is to Our here. just them China I numbers, probably be sure these looking business got correct

John Anderson

Less than XX.

Jeff Niew

than Less XX in QX.

So, say I down a would only I customer, pretty not which some it has Huawei. just is that significantly. was there been share would losses, huge say customer, the but

end We are has qualified suppliers. there, there of would they push say think bit and use, been there and handsets. other have we to and what do account, have there OEMs phones, higher are it’s use mics in which in I not source that licenses I portion from selling would would end losses. to a that a than say around And I been would sell little say lot leads share to of of weakness specifically sit typically also been a the more the into mid-range the Chinese But for and mature Huawei. call, that that less But and is has non-U.S. market, I I low that mics more while.

toward the to some I primary that’s lesser drivers. say the at more would it’s more is and there share that of I phones use been But what China in mature move products. phones the now number right from There of buying. that driver. mics That’s they’re that So one wouldn’t headwinds use a has demand loss Huawei. say

Bob Labick

drivers the follow-up, in to in the And back expected to addition a then it. to of are year, just get Great. audio back BA half that what kind Got you the necessary of need growth see growth? to in

Jeff Niew

yes. Yes,

right? say grow to microphone our question. the a three within to things, that business. business and continue got there’s I would ear IoT good So that is probably We’ve

year But You – reduced expecting half audio. mentioned spend have not of and on over this back hopefully, have while we the talked amount the the yet, the year. – up year the touched we will that, BA are – on be sales of we that and have in we intelligent

that is back And I so but There course, to will three XG And that very we of those are of phones XG the be monitoring obviously our things microphone phones. help us mentioned then, will that the growth. business. closely, get mobile portion expectation

Bob Labick

it. Got

very thank much. Okay, you

Operator

Your of from comes the Bill question line JPMorgan. next Peterson from

open. is line Your

Bill Peterson

mentioned of Hi and at on few intelligent Do and taking obviously the Chinese you Google. for you Yes. last thanks that I addition can see some you in design question. more lead mics, but the content little to content the and audio, least later mic of IA in also sort had analog to any wins XG? regards to XG to year in this as that look have year? the good versus conventional see digital do content You sticking we makers in visibility as Maybe some a a specifically, think, uplift the repeats

Jeff Niew

necessarily see content. additional Well, I I XG don’t – don’t driving IA, in

mobile I something IoT continue would a market increasingly, Bill, the we to I guess, mobile fuller pipeline much customers continue the we And are but pursue what side. opportunistically. in more are that say to arena We is seeing the the pursue is to going on

is think that. to say I that would So relative I what

handsets in handsets that not and think we it’s design did the you the of now, – high I would at I business, phase right China the hopeful even to kind due – mic that there the some as them of a in say, think we’re end XG, of a, is of like far introduce we’re a XXXX As resurgence of lot that in if all. have, would customers premium

higher-end mics XG. comes the to features a as at higher phones hopeful are that And those getting we out, at are look more look and more to handset, premium so microphones, lot that a that’s to we to XG performance of that add are requests

Bill Peterson

wireless Okay, the at second I growth mmWave of carriers, is be that’s it you’re type kind particularly question the curious the I contributing acquired and filters U.S. for this that growth. not things so for for the guess, mmWave competitive a in of on is not some the business to most it’s clearly are this you’re that. matter or to going why guess, just is be not going Investor going thanks on defense Day, in investments is to infrastructure, not And much your it’s of the or mmWave this calling now that just filters I guess, the these Is seeing by driving being made going there be in year? in

Jeff Niew

Yes.

think space, risk I different I in of would we But we sure think say But all, in that better great opportunity. the out, I say seeing, for say, some the coming that is that as maybe the I defense think but we a more that we still farther there some that. see competition is a the don’t we it XG. also first not not So it we than there also rollout expected. that But gets expected risk are would be I may say I I of technology. today, to is that think there’s see – would

from $XX strong well in continue will And on see less demand We – side. extremely to again, XXXX. the think over defense from I be million we that

Bill Peterson

Thanks. Okay.

Operator

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

Your line is open.

Anthony Stoss

guys. Hey

try that have why you John spent point, the cut you and shift Can quoting already in maybe ASPs on you’re OpEx much confirm out then VA your I side, Then into your know conversations after being Intelligent this and for you of already? to you out automation confidence one have So I at how got follow-up had shift within Audio? in to million enter enough customers track. in Audio, Jeff, just potential secondly, would Intelligent last is then it on why lower And left that comments are not design those. mentioned $XX were

Jeff Niew

Yes.

starting off forward I that is that based shipping definitely to price around automation, are be support but what going saying that the So your to we’re the question would first is say automation until price. VA difficult we on to automation. that

So we are at point now. definitely that

QX, We are of to wins out we expect handing right. in QX, in the production samples middle And QX, with start in QX. starting design in

path a we’re there. good think I So on

year. now we the And the think line so I can right I comfortable in half back that of feel that fill

on trigger and I to the I is point an the if yet, decision second line. think us – be that’s that next pull don’t on do we I going the think next have answer do a but we for when question. when Tony,

As far IA, OpEx the I respect the in as comment.

in well $XX in than IA XXXX. R&D spend will million on less We

you a range. $XX the And we about talking numbers quarters in were so if few million remember ago,

to in we a John are and invest, cut there at cover XXXX of now. I see the can other the right XXXX, bridge I we more. in want it is, I think that are beginning we way did invest and second, of the some another but did see right which areas as make cuts So, and we about kind talking And

we range, so that XX% And XX% through dollars a to XX% that that going of and XX% think that are is expect in question do this we that go is a what on? right. process we normal to looking we And investing our R&D where on I to basis regular at is spend stay that

John Anderson

in going IA, And cut for couple to in bridge, mean, but all, acquisition. million coming the you, overall Tony, that ams more spending there $XX the of than first script just XXXX, we of a in, year-over-year, adds a little to in I is mentioned are Jeff

more points we by gross million microphone accretive on microphone XXX margins, than expenses. – of $X about it’s taking we are the $X.XX, have but basis R&D call MEMS it While improvement significant in

accretion, XXXX. than net are $X.XX at So XXXX confident or in in we more X% very –

half going add It’s will than mentioned first of the On more top for OpEx expect to the half, little million about in of last similar spending acquisition. $X not spend in $X – of in OpEx we the we the at QX. as it of go significantly back you legal million in then in to the that, the the target plan ams uptick but am to think XXXX. down it level. be in incentive of XXXX what it tell year. at QX, million comp $X then be versus $X for legal I is significant could And $X million cost, And I those incremental levels. but million spending So

to about And incentives pay $X what are million so or projecting there is so overall XXXX, relatively we out million are flat. in increase an $X versus

Jeff Niew

to a to going And in couple going it’s relatively would ‘XX mean, as that as one ‘XX. sales, spending dollars low it’s of still total up year-over-year our to well. John a million percentage that PD from add more is be I but the piece R&D is up I of

Anthony Stoss

have BA times get what to second follow-up, you going a enough late lead as a the given on start you many line coming line, line equipment, Jeff, by one produce second in year, any like need And sampling could the up to realize you can how units in you are a say, QX? let’s QX are in and

Jeff Niew

comment not am on to time. lead going I the Yes,

want end will our right think moment, but able the projection the to especially but I yield is – I That’s and units dependent, at some beginning. be factored front be comment X be information our month. it I build, is would now is that thinking it I first depending what have a this anticipate on are million of this that will at what – is around provide we Tony. yields the what somewhere we that that competitive Because line at into yields there to wouldn’t should this, there lower

Anthony Stoss

And John, or clear for, think bounce gross my on it you how either question fix last will inventory PD poor out back quarters Okay. to do utilization? to the margins, to many take then

John Anderson

And the primarily Yes. range. really I gross into was No, start And shortfall the The more was granularity good it’s the the were expected on versus where margins driven guidance margins a I miss quarter. the just was a at, a by really for midpoint me give came as XX.X% segment, mentioned in and QX. XX%. question. almost the guidance of basis gross going below we our little miss driven few XXX The mean, let what by range points things. PD

unfavorable we business major First talked of of the third second we kind significantly think ‘XX. changed before. film and overhead thin pretty fixed inefficiencies and flow made investments labor I in process the absorption, of all, quarter and that about in Within our it business,

palladium. yields and still we ‘XX. double made getting already almost do one made QX-over-QX, the still QX back to QX. ‘XX headwind significant, significant we have versus aren’t we will as so think are palladium so The exit we have The improvements And be costs is and though up but the efficiencies been we QX expect,

after starting at whether its pretty substituting surcharges We a are customers, action to with products. our look aggressive go plan

So, we improvement in expecting beginning a sequential are significant QX. pretty

So, long pretty answer are of to we get this to your seeing original margins in improvement year. question the some But at confident PD when in will we QX beginning see improvement?

Anthony Stoss

Thanks guys.

Operator

from the Your Gerra of from line Baird. comes next question Tristan

open. is line Your

Tristan Gerra

afternoon. Hi, good

conservative you Just disruptions? the manufacturing you sense revenue a disruptions said QX guidance without your was Could guidance, for back the account where to will on it revenue us give China. in of those be

Jeff Niew

up say get exactly. knew would I a has say to is I happen. say I level a call this a than This we just bit when already say like would Chinese it – going we a have bit there because what – in that going we whole built Chris, about on is added for this New I to going post normally another was normally, wouldn’t we of are Year QX, mean be. lot get I to little to normally I what’s little more unsurety cushion Yes. we question. would just would,

to of not think I strong earlier, will a what back consumer is and once think I because said demand. Chinese the Chinese it’s their am we customers demand are more concerned about I hard on into to customer, this of that But really I is largest reverse we their predict. for the China, very amount sales our is It’s us in sell As fair side majority market, resolved. primarily right sells come have

number not am conservatism I more definitely into forecast. we give here, So the but an going exact to build

Tristan Gerra

Okay. capacitors the in you could for have And then content us you remind opportunity dollar EVs?

Jeff Niew

have see the I that front could I dollar of this but EVs, per in We me. mean will car. we take in that I offline, content don’t know if

have So but right me. in not the I of don’t but it’s that offline, could I Maybe am have take I that exact we because insignificant. not front sure – number,

$X. like okay, if I content, not talking to we car could could that’s bit per me, of that recollects don’t here $XX little are maybe there more cover We $X.XX but or take Tristan. about a that that, could hold be If me offline, $XX it

Tristan Gerra

very useful. Thank Okay. No, that’s you.

Operator

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

line open. Your is

Charlie Anderson

for thanks Yes, my taking questions.

we full and think heard is to of margin, here as you on revenue relates mentioned guys OpEx. view sort recovery ams think a big and gross on and then the I it of year I But picture the EPS there acquisition. the sort

you I’ve year views had end picture a maybe got outlined getting if the wonder, So follow-up. and that plus the gross you I to And at for just a the cadence then of that whatnot? big any XX on margin

Jeff Niew

going $XX within then that’s at don’t my it’s We thin business. issues palladium margins. Yes, driven by million. we mentioned I about add Charlie. XX% In script, pursuing $XX improving and XXXX really it’s and gross PD, to aggressively to finished we recovery have the anymore that. to do million Jeff up confident mentioned of overhead surcharge again from XXXX. operational I exceed are can for mentioned that full We really XX.X%. scaling year addressing And film the

And year. scales the the really of margins and should gross kind that with that business business. the improve back similarly on of in get that BA up, you half So good drop-through as profitability

John Anderson

and is relative in primarily film, I comment products, margins right, thin film, to achieving would the a PD will fast thin again, was – million. not expect the lot capacitors, and more the What $XX is the margin IoT, short-term to be above Audio, average. ear would for armature of mean shortfall how And that balanced sit mean I And high-performance new on say XX, manufacturing in get dictate gross it’s it I have and right. corporate our in to those we can make to be the the Charlie, it’s still in whether the made be come mics we corporate the the EV, success there say I of products, down the business it’s new the Intelligent what does the to in it of QX. that would expectations average I the right with we below the gross that not above now will process. We in have film but corporate the average, changes QX thin

operationally we QX be gross see And as that, in we that of that the solved business, corporate to we issues will that will so improve grow some above had average. margin that we

Charlie Anderson

follow-up, spending my you IA. for less ago significantly were than then you And great. are a year Okay, on

that much. of wonder portfolio terms emphasis portfolio what going I of what the does so product portions in the of on now of terms there, forward? sort less – mean So Thanks have in you do

Jeff Niew

where come thought would would for on focused not we – process XXXX What terms say. in I to going is impact reducing we XXXX, are in the have that of our want we products long-term are here that new realign with team are jeopardizing we the out Yes, is go. the of we beyond say have I definitely to and R&D.

fair The of have people the working second who are thing amount a opportunity I think we today. is on

opportunities the right-sized That’s say, right-sized that to on I and I that the more today. algos, the we size. with just size number we have have like, would we of think the the aligned more be firmware,

Longer like term, it what today. not that, were that we to going but we we don’t the of jeopardizing I has handle impact in products are customers are are setup terms expectations we short-term, So see very interested to are a our big our think what in for we for hoping on do. product

Charlie Anderson

Thank Great. you so much.

Operator

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

Mike Knapp

today. joining us Great. for Thanks very much

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

Operator

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

disconnect. now may You

Knowles (KN) 4 Feb 202019 Q4 Earnings call transcript