KN - Earnings call transcript Q4 2021

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Operator

Good afternoon. And welcome to the Q4 2021, Knowles Corporation Earnings 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] Thank you. you your Relations, Investor Bolun, may conference. begin Sloane

Sloane Bolun

our QX XXXX presenting earnings slides. Anderson, earnings you. Jeffrey me Welcome now, I'm our our full-year should our to Niew, are and today and Thank Senior call. Vice and CFO. of and Sloane webcast have the received call release and copy President and President CEO, on By John with you Bolun a

our website you on of If not IR documents received knowles.com. available they're at have both section

XX, as from to but review Knowles the including in periodic company's and fiscal the uncertainties the the for Report by disclaims are release. Our ended law. and which All profits, a actual for future any made filed identified provisions for Form the call actual demand risks laws. remarks to and and future filings, the year products, with current plans expectations, trends December could forward-looking about company or materially investors anticipated required the financial about Harbor from comments securities and risks call for in duty today reports SEC, will number that The constitute cause such include XX-K statements of Such date limited as and SEC uncertainties risks and prospects include expectations. forward-looking and under Safe today's on involve purposes Knowles, and time-to-time applicable results to not except statements, uncertainties federal -- statements to differ statements forward-looking cause thereafter this that in company earnings results of update urges Annual expenses of outlook, XXXX, of company sales, the

X-K our me that, provided our over our be Form slides a see financial Jeff, have some GAAP most the otherwise we Jeff. release will SEC at report continuing filed with references for All today the with current this of measures knowles.com, comparable reconciliations and who on the our let on website addition, call indicated. available to turn non-GAAP operations details results. Please And in and on directly on this earnings measures. provide unless the will webcast to call GAAP non-GAAP basis, quarter. and In both

Jeffrey Niew

Thanks, everyone Sloan. And thank joining you today. for us to

For strong we on those quarter joined very of you us financial investor progression our mid-term in who our toward demonstrates report to update our another that targets. November, pleased are

update eye and the and focus call, As in the towards made an transforming free to we significant cash we adjusted markets, company with EBIT improving come growth flow. highest the to strides strong margins [Indiscernible] have on driving

begin look of feel me XXX quarter. What range, challenging at even encouraging by and we was supply the noted on This back result we million, confidence certainly which and a continued is the health forward let in our expansion. to in our hearing As achieved our continued 'XX. most market -- chain at We in success last dynamics in revenue end our and With we was came results, that, fourth result our QX of higher devices. results. strategy quarter with look validation and strong and XXXX, progress guidance margin precision summary generated backdrop, the back with about execution driven of

range. fourth the above over our of basis was high-end Specifically, gross points quarter XXX or XX% margin guidance our

also of demonstrates has leverage we earnings company range. produced adjusted which we believe the in delivered In guided operating share of our margins $X.XX, the our per fourth total, business model. also above We quarter EBIT XX%,

flow. summarize, on our with EBIT Lastly, a strong free and will we strategy exceptional adjusted another where impressive margins to in continue focus John to yielding markets To free cash detail products cash drive flow higher-margin as is minute. quarter,

like I'd XXXX, minute take full-year our a now to well. And to strong For results our were accomplishments. highlight as

noted free of the runway shareholder create latest We're expansion, believe there flow value we for is top-line through plan, our proud investor same more generation. update, significant growth, execution and at against we margin the to XXXX success As cash proof-point is and positioned is to Knowles our ahead. say that of

with start we mix, made have on improved has Let's product shift margins past few and over the the how years.

we seen at growing the improvement above of margin. XXXX byproduct percentage over XX% strategy update, year-end gross increased revenues XX%, As points. declare noted our we XX% investor from to of to in our our of percentage can XXXX, From an XX that be

the drivers drove Now improvement. let and key me the of actions the a that detail few

attractive, performance position. that as audio, the we expand end particular as focus non-mobile RF business. opportunity and mix well computing filtering ear, both continued impact, as to our applications, Devices, I'd hearing John on in note growth a In our capacitor optimize margins. business. to and especially the leading First, the our speak of In our Precision health considering high continued is our mentioned, but we businesses have to margin market top-line for growing will markets these on IOT,

dynamics In end growth. and to are Knowles fired XXXX, for introductions within fourth favorable our gaining all on the and gains market new product share along and market Second, with in share hearing quarter market continues on Knowles with cylinders capitalize we strong this health market.

markets flow. growth, in continues filters both cash a as well as high Devices across free dividends an expansion, paying RF margin be of variety wide Investments in and Precision performance are to Third, out-performer. capacitors, revenue

I'd revenue growth highlight can and we've earnings against our our generated consistent financial that like was to strategy exits growth over despite fundamentally results, As lower the have from shown strategic execution margin as we moderated by XXXX since to flow investor Similar the cash progress period the same business. from margin has company. transformed free you see our update,

and shareholder over driven have in drive have the four We well better never past significant been to years a operating as value. position leverage

is which points, EBIT years value revenue into future which with APF is and This margins of M&A total, we grown EBIT an margins XXX and plan percentage nearly the completed proud by a come. cash deploy our global was basis by restrictions been an Equally of translated flow takeaway are the certainly independent by XX%. XX We company. In chain in quarters we is repurchases. and XXXX and we products. free four ending highest exceptional which share exciting supply CAGR we adjusted leverage through under to the since the something the points means creation to has of, adjusted the our upper but to improved have what impacted free past CAGR strategy This on have have focus X%, cash margins higher-value than more achieved with over our years, important, just flow for

compared precision year let proud compared and own, of or segments. some attractive precision sales outperform a each generates devices, year Starting Now growth device precision $XXX On we as just of Quarter, on segments very and the segment. is another quarter results device markets. our additional me its nearly illustrates market-leading impressive the on strong to for said, provide we're Total to results of of of higher just record our for of number million profitability. In the up with full detail That Fourth revenues the north XX% to the a across revenue our were end continue ago. posted XX% with position product XXXX. year with

in year is and ago, up such product gross margins end this basis were industrial. and happening category a compared market. defense, diverse across as points to segment one not markets XXX medical, very is Specifically or It EV

launches. the shift continued noted on faced top-line, lower given pressured products away markets. the Now mix as chain we our which a our tougher In to supply business, turn and to for environment customer the favorable microphone but I margins, gross were me product let revenue earlier, reasons our mentioned, issues MEMS and audio margins of segment, broader as was timing from

expect in years Additionally, that will new with of number our growth we launches are ahead. well-positioned technology product initiatives and augment the revenue a we

Our we to hearing with continue largest our we business company drove also The tougher pleased potential due mid-term am more Overall, in issues product as to the despite detail and on supply review when businesses, timing be investor leverage, business health also but customers. customer XXXX. which for at the strong our the health additional to a update. QX into you built few supply highlighting my spoke conclude by turns prepared will demand outlook give expectation in half, with and with Similar ramp issues, files chain John in hearing share. the about hearing product I have significant a believe will took profit environment the operating our minute, favorable. things we remarks to benefited second recent recovery our expansion other that and of the we more a in market a launches I'll continue saw as health global our the continues recovered audio business

single-digits. First, that I mid-to-high can the company conviction the have high in our grow top-line

XXXX are Looking there in at segments of retrospect, macro of impact factors that a differently. our each two clearly range

demand visibility mid-term we We growth in have dynamics to our through across market-leading position. and opportunities expect both the drive segments,

continue execute to and I Second, above my outperform conviction remarks, our maintain goals. XX%. to margins profitability gross as have achieve throughout highlighted we on We our

meaningfully years our mentioned, shift expect positive to as will be in the continue to the has already mix I come. contributed progress As to in we

confidence and drive XX% XX% me our drive more of flow us over background financial excited continued call of adjusted XXXX believe to to infrastructure progress let margins. over John team, opportunity to XX% there In and achieve summary, for XX% is John margin gives free to turn adjusted With cash our very and shareholders. review expansion, value margins ahead margins. existing proud track of delivered results. I'm even have us continued by and entire and about we it our achieve John? we I'm EBIT that, to are to the the Knowles to midterm on the leverage gross results revenue the With of -- we to opportunity This EBIT growth footprint model to

John Anderson

shipments margins IOT, completed in segment this of for and The in offset range volumes of higher-value reported from We our industrial record same in factory half improved margin points guidance basis shipments precision first the revenues a year, from organic new ear, from were spending partially the of lower half a revenues launches, profit defense, microphones increased Fourth higher capacity quarter health with into supply period up from completed inventory first of of million up by into above MEMS basis by delivered prior Audio and up basis chain, XXXX, revenues was as $XX connection from year-ago challenging by mix, in XXX medtech, favorable margins by related percentage down $XXX gross revenues segment audio, Devices points the in XXX the microphone and health decline the driven million new partially same factory Jeff. ago. by markets. a year, levels, well million, XX.X%, driven acquisition by utilization, precision driven as were and points XXX adjustments. hearing initiatives. fourth-quarter over revenues in prior reserve and year focus driven XXXX. product segment the and of Thanks, and in points productivity the a timing strong the offset of high-end market. markets, lower increased and XX.X%, a Precision by driven the product percentage our $XXX device Audio an The MEMS year XX growth on XX% an improvement gross gains, to acquisition period end segment hearing favorable XX% were gross almost shipment customer, improved margins down of period, ago, an XXXX devices. our X%

the XXXX full XXX the XXXX, margins deliver Our pre-COVID prior gross markets. XX.X% throughout impact above basis a incentive for of levels, at diverse first million, $XX half higher lower compensation to by impact was versus solutions expense. down differentiated company of and $X demonstrates completed Total million acquisition finished our driven offset XXXX gross XXXX, expense points margin year million $X of legal high-value partially cost prior set the SG&A levels. expenses million, the R&D expansion year. strategy to quarter in the by above the end of were in profit year $XX

a EPS high-end For the profit $X.XX, profit higher by offset was margin cost. up the above basis $X.XX by and to margins. points was adjusted the guidance, prior due tax rate, higher incentive our driven XX%, effective higher compensation XXX quarter, year, gross of EBIT was gross margins which from partially lower

margins adjusted leverage. higher For gross XX.X% XXXX, margins up and full-year XXXX driven by points levels, delivered we XXX EBIT of operating improved basis from

net high-end sheet our balance generated Capital above of at quarter. Quarter, spending Fourth million We from the equivalents a X.X we of capital. of and the at cash our million XX $XX XX cash I'll million EBITDA end lower Cash $XX to higher Now, to and repurchased turn million. in shares operations range totaled flow. and the cash expected the the and due XX working than guidance total of in quarter, was cost million million

XXXX, year a more repurchased than revenues. notes, million million, representing cash exited of total XXXX was shares and full We essentially $XXX at no cost $XX.X we For $X.X our of million, repaid fully debt. convertible net free flow XXXX with in XX%

guidance our XXXX. of to for the quarter Moving first

same million, a at million We year expect $XXX total period midpoint down between to and $XXX be company versus revenue ago. slightly the the

adjusted of cost. Audio estimate and up incentive year reduction to expected million revenue from the over chain quarter year American to proportion due and market. the This be XX% $X during due million down a QX, million, more supply an XX% defense, be year-ago as mix between last We're XX% the first than We're million Our by partially on COVID constraints markets. higher impacts increased $X.XX average of in North continue medtech, by is reflects be XX% prior shipments supply We $XX.X of expected broad-based up outstanding to manufacturing into period, projecting and for between global within down negatively year. selling the diluted be between offset be quarter the quarter demand in for to expected XXXX. million EPS by is we administrative and industrial range compensation forecasting strength be XXX to facilities. from QX million $XX up $XX -related XX%, million, by $XX XX% fully year driven driven the $X and from projecting in microphones, continued to expect MEMS per negative absences from be points expense a is and and completed $XX margin we non-mobile the lower in acquisition a to driven expense our period, as the basis levels, levels revenue and the in segment to R&D Revenue approximately impacted prior margins in to to $X.XX rate is health guidance XX% lower Device favorable potential the previous year-ago assumes chain tax a to expectations. the XXXX hearing be range to markets, gross Precision by to and demand weighted to completed acquisition from related for shortages, of shares which We're effective the for quarter of full basis. XXXX., expect XX% a share. EBIT than

end of to As we recently through the extension an holiday received Malaysia XXXX. our in tax

with million. spending back to normal is turn expected now Operator. line questions. For in line be and generated $XX X million the I patterns. to quarter, the call the seasonal will approximately Operator between we to expect to for our range from cash XX open operations Capital

Operator

one [Operator yourself please Instructions] We you follow-up. limit question and ask that one to

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

line Your open. is

Anthony Stoss

Hi execution of guys. John, start December Nice me the you. with let quarter.

and a And quarter higher the year, on gross thoughts have little have bit Jeff. for might you then, remainder for March me that maybe detail a hearing on the I follow-up why give a and health, on sequentially, the even any margin can then gross PD down For you of more guide margins is. bit also

John Anderson

Sure. Yeah, Tony.

factors, we're sequential seeing gross in actually lower business, and out health and really the mix in sequentially compute hearing unfavorable our compute utilization capacity lower with is above-average then margin. microphone two of gross and some terms MEMS nearing both In decline margin, our

it's those factors. two So

Jeffrey Niew

QX of of [Indiscernible] And X computer is this, just for seasonally level usual factor returning will level to quarter weaker right compute QX. that's a bookings in pretty back QX and of make would lower that at increase operate comment the in on now to, are little But indicating this in and portion bit we in say in a market kind the terms be is, in we a compute see utilization. normalized utilization us thing I an that QX, that capacity that what in the levels straightforward, is the

John Anderson

Yeah. and higher points guidance of remainder in over Tony, terms in year-ago And do the QX, the keep of part your of of is QX we year. levels. see it the second out? going into question see what the is looking too, improvement XXX midpoint do our basis than mind, for sequential even at the We

with really we room So in do progress further. think we while pleased we're XXXX, gross margin to delivered the there's

Anthony Stoss

Got follow-up on infrastructure. hear anything you in Jeff. in your And for curious, also, it. businesses. XG more I'm Thanks. to millimeter thoughts true I would then that And this your division. comment earbuds is growth that prepared wireless about and on remarks. hear Normally, -type wave didn't a just your love IOT of view the for your

Jeffrey Niew

Sure.

First on XXXX, in at look XXXX the If RF grew and I reasonably XXXX amount filter to it XXXX. business.

say I our did do think poised to filtering. real this. I this We're -- PD come well opportunity. us breakout $XX we more allowed XXXX 'XX. more that going -- really year year have I'd worked We've growth more defense. But the panning I A is here to say to We're had sales XXXX. last second for is is really out and the million the or about first And really $XX in majority we're in really this, going portfolio in There product got our our nice telecom in of would broadened design quarter lot a some quarter with is our in to of some see it just IMC wins. well. but pleased think in of acquisition filtering stock RF with over to we starting in Again, acquisition. customers. synergy this with with million

And so we're the RF out filtering of expecting some business. pretty significant growth

Specifically, couple production a number of I'll to which of over telecom, design that got said last year. I've what are I years, the is we've this say to wins think going

I the for be tier or very based the skeptical it's stuff revenue on, numbers. a And are what the they're hard to honest is on big generate, people I XXXX. could worth revenue, million a wins see house cell. we to roll-out have to the you, telling what $X wait-and-see. go challenge with real gauge about I'm of who design small it's to Tony, -- in and second on with they're a read think huge and here, -- of marketplace of us that's is this what lot home on I telecom But in us roll-outs or the going working do not it's got the real But we $XX what in but more that some going in the

Anthony Stoss

in that each quarter? it curious it on Okay, helpful. is on more keep everybody if chain when it I can I'm Does squeeze into your Does ease? facing. easing issues be the thoughts one XXXX? Any just supply might would thoughts last

Jeffrey Niew

Yeah.

on see supply got impacting The know we us and Here's sure for based in QX I in. thing what coming it. QX how is we chain

better as the supply chain back-half, wafers. is the we and the we that get will go we back-half we think get to there's One in two-pronged a approach here will I that see. think more

as to suppliers, new multiple wafer have that introduce load. try we said, suppliers products, to being the wafer can using Now, different balance we're and we

have some -- places enough. have So need. than we we enough in In more some suppliers, we not

get. even to that so secured think total, see we're have supply with back-half, -- the start So mix the sure products you're number are we of caused to enough but chain we going got to by in we the disruptions the make wafers into we independent as wafers of maximizing new I go comes,

Anthony Stoss

Got it. appreciate Thanks for detail Jeff, I

Operator

your Tristan line with line comes next from is question open. Your the of Baird, Gerra

Tyler Bomba

[Indiscernible] taking Hi, for thanks Tristan, for this Tyler my is questions.

few that you're the the of and what First, market, How do rest is smartphone the years. there? year? in in could -emphasized you've de past of the market market which talk about you How are takes see the China, a the you I notably for puts trends inventories seeing know in developing the China

Jeffrey Niew

there's for I trends China that mean, lot think the market, discussion I is the I a China of been better. doing think

the a on of has they've Chinese the end the and challenge been, issues. like A I of the Brazil, related on amount of COVID market with dealing highly lot real lot with these market think in focused suppliers still China been They're COVID. Indonesia. are -- India, the emerging in fair markets markets focused

margin business hopeful as the hopeful I'm first half -- it mobile. that rest came lower getting China look the a think deemphasizing in over I a is neighborhood about of probably gross selling pretty better. commoditized into we down I and market, our significantly. company So towards be XX we're half, better, years this was second the from We're And say of we that will ago. but this this couple again, market. our to even XXXX may the say XX% say, of more high very is, going I -- the mix and years, to health and the QX to that year will optimal. our you so of basis, where look to hearing, look is this where that's an lot when kind Precision want does to on draw mic's, quarter, because In you're to a for we at ready the and And year, margin. a It out want X sell that's a on as where Devices, and run look little in preface had we as we products And -emphasize don't XX% And to with maybe model we you would the I revenue see look continue very at bus it there QX, we're to -- think an that's we in it to are midterm day but I was commoditized powerful mobile products. we words, annual I this -- that am compute the mobile be gross year. under high be to total at it's ideally with going of the basis able our little I because for statement at be margin, your what IOT gross but at to want commoditized de are XX% we X other to say just annual not sold of you in be and we come proxy people that a the over to mobile didn't

Tyler Bomba

Great.

you my Maybe types margin follow-up, in growth As some mix of like year. maybe drivers could biggest seeing talk you're of the that. this or some or it's about products anything

Jeffrey Niew

about. got Yeah. that terms 's of like four Think margins of good talked in a quadrants. John we business our thing

got is quadrant. mobile one You

size. category. then there's You quadrant, were same and say roughly hearing the health then you've IOT, got quadrant. other and Precision microphones you the those And the ear, compute, year got the then all ago, got Device A we'd

four lowest mobile's actually, also it's the this those now margin. quadrants. probably smallest And the gross of Now moment at

working that then there device list. big margin and can you growth, the so What easy talked could It's at, there it about average to app at, [Indiscernible] make as profitability. see, just sit period. X% just And is above continue And you hearing we -- what And on, the or markets, in there gross to shift see that and the as gross than gave, investor update sit still corporate we mix our you of mobile to other so And operating precision shift. it QX And to the again, four growth margin portion. health update, obviously, how mobile goes this those in margins. productivity grows gross at I'll at, mix other go gross we've quadrants power put margin sit improvements EPS our XX% and can and grow to what faster can our the mix our through X% in the and we margins. we the expect a mid-term but the and over the through this get goes very We're shift. improve we look see we go X-year affects to mix

John Anderson

Yeah, we've area pricing, really whether other that it's businesses. and HHT is and microphone wafers, whether we're obviously passing those in seeing whether the been materials, especially on through seeing labor, I increases in it's input the PD in costs reasonably thing it's the just higher would affected costs, at other add high-value we're

So and gross margin. that's in been for opportunity increase another action

Tyler Bomba

Thanks so much. taking I you questions. the appreciate

Operator

Your next question comes Labick line your of from CJS the open. Securities, is Bob with line

Bob Labick

just we'd put kind market -- of been afternoon market. a up? lately, timing be back maybe Good the of you and thoughts calls previous lot about those the market. And OTC the talked go in or Any line. strong hearing If and that news congratulations if it we've the different too, and execution. OTC an on those would on kind together the can market update There's ready the opening the into it with aid update a on into automated balance but wanted, of, latest on on armature

Jeffrey Niew

Yes.

this first. with quite off producing and in update is QX Let full capacity We QX seeing But at the product true continue will and first line. in with I using there to it a technology and me give OTC are taken we'll parts. automated running going we're by and but where dividends operating going Obviously, is operating, parts than sold line is utilization. we're of the things wins -- you there of the this from Line the the market expected, to And us and wireless in to as of is -- would our think And think going way OTC market, all a come. back year customers that come in off back-half market forward, capacity interest and longer over it's well minute. design we're I'll some development for the balanced we in to as to today, health is that success the to half, sit that not sometime we're hearing us continue contributor. in I the yet, also to years say some I pursuing line be ramp here sell a around it armature, the hopefully full big seeing but pay through we our later getting terms production. the this VA is to the goal strong go the and

said the we to how see market, think it over-the-counter specifically develops. I -- this to I Now, got before,

put hearing so, their you I that lower. market similar the hearing they'll over-the-counter the of but optimistic drive -- XX% this is we're had can right? content I have is age, terms moderate, market. this penetration that a are have take is two that time over at like people to hearing for over-the-counter to who real to earlier It's pricing it a of more the there's an from all if aid, people -- profound us. think there wouldn't who doing number over It with loss to pretty is we're loss, once And so I opportunity today giving and hearing bring and I positioned my far well first is XX%, is as the is age, X% so things Right? traditional who mean, who seeing hearing mild in, penetration. mild think but with have of We in advantage targeted loss, at mid-term, the to market low they're and brought very does people one. lose appear it's where end to they Number the you get us always where hearing great people pyramid there's channel to very the develop who hearing really demand. are people this -- very it's XX look of have millions in, aid, over roughly aid otherwise you XX% going once that's not

it's are yet And mean, now say, health absolute is What used say definitely see so to means the we why but to we that's numbers, that's -- GDP-plus. GDP-plus. in hard terms hearing upside I today. business to where GDP, it's we an our that of

Bob Labick

you. I question, a then my use have precision And for of guess just Very capital other for great. Okay. great obviously, you. That's device been exciting. acquisitions Thank

So bit what any free cash expectations what's talk up, Your structure? just year, Is make the capital lever maybe might could ideal there's little if net you and to etc. right it you about pipeline, debt-free that acquisitions, if using this a now.

Jeffrey Niew

can quarter as QX in without looking we're and quite don't more, I is don't that. Well, trying but the had we one is speak And cash cash, And that say, okay I a say I'll the you just the in would think at, shares we're number of anything looking I We valuations the we more convert would back little are we're indicator. what overpay. is got ourselves off is but challenge And one a that in say I bought be is well. an marketplace. that see John high huge the that in things to terms bit to let honest, [Indiscernible] the funnel -- to the starting maybe we of paid challenge generate fair think little bit I'll I this to see a

do share call see it capital think the generating both. shareholders. about core, the return a more but, to And we we'll going need going there's to probably what be so core amount bit forward our cash you're [Indiscernible] of And spend capital what with for I doing that we're talking We allocation we're buybacks, not and or may possibility here we're that is of looking from time -- on think M&A think next that a acquisitions. mutually capable means I exclusive and little

John Anderson

Yes.

had believe And continue convertible then of in we percentages can it. XXXX. activities. with in cash mid-term to our flow the expansion the We of similar of XX% deployment, mentioned. strong revenues, the range, the mid-term. notes close low at end of summarize already $XXX range of or north XXXX, delivered think million of major very our Jeff financial terms deliver three capital to to in XXXX We in We We repaid Just target. that

we We stock. a net repurchased strategic with no debt. our business, at million also and key we're spent of PD time, our worth exiting financial $XX $XX million acquisition about And the on XXXX in same

we'll acquisitions in are the growth primarily so segment. And priorities continue creative really behind organic debt that for we'll unchanged. funding as the outline of through Jeff next parameters then it's said, And after capital is on our share look some repayment a of and call. matter We'll return repurchases. the that to of get try return around and So initiatives PT us, and basically, capital

Jeffrey Niew

going of And microphone down CapEx on MEMS business. the business you've thing our last of trending given. of seeing of after kind towards I our higher ranges What we've the strategy I lower just think the margin want as one end seen you're of that to add is kind is, with

to X% You remember X a had that years we X X% ago, used we year or and we're X% about or X% talk to X%. to

it of the what the to range. through another We're pay kind debt, we're below in doing capital X% share X%. returning of just with we're even as shareholders and the X% and now, how we buybacks. -- And a we're that sense investing think down capital to turning I we're that's Now trending how we're

John Anderson

that answer asked acquisition range. question the XX we're will going one is an the it be sheet, the maximum what ideal Bob, I investment-grade-like And so leverage, maintain Obviously to we'll and opportunities, XX leverage? didn't you but disciplined on depend balance to about,

Bob Labick

was Okay. Super. you much. very That Thank detail. great

Operator

of Your Rolland comes with next question line the from Chris Susquehanna.

open. line is Your

Christopher Roland

thanks for question. guys, Hey, the

down Regarding to shortages, there wanted I just little bit drill a more.

you you end volume running for supply? and as of you had those was can any more I meet lastly, to have you with you get could issues there kitting to into typically been the your customer well, running half wondering back issues, then you when revenues front-end, us? or share Do are through have able anecdotes do mentioned second been, enough You everything what and supply front-end have have some

John Anderson

Sure. Yeah.

let just cover first QX. So me

with dealing been I for two one around think a we're issues. probably that's while. temporary One bit more little that's and

as the issues I we're would are wafers. enough say, overall, I produced the for continuing one for and around our where front-end not enough today. products being getting linger while wafers. our that's chain is supply getting and have would to what is optimized to expect a necessarily wafers new I the by, do you we been side, front-end expect And to reverse that improvements, mentioned, going as on more material that capacity. also some goes we work that We're have year call products we'll on we'll the that. introduce utilize First, -- but say, we where pro the continue

I to going big that's help as of think think the be I I see back-half and year today, the a

Jeffrey Niew

well-lined. very we're

this example, PD to so parts. within projections provide. Within we as Like hearing don't business, microphone XX% Now, a stamp third chain. and for lot our this we year. problems order probably health, of reliant than metal of is is less on in huge our supply for not this with MEMS have We're parties

are majority based number. is we've and that's and they're QX of a X between one direct They're have issue their definitely weekly the percentage factories in the America, is been But labor. We basis guide, PD facing on we with significantly manufacturing our on in having business. stamping absenteeism This averaging the North XX year-over-year. impacting operation, in first a up example. our the own But one fabulous quarter

to I to impacting the million Omicron So would I probably chain in on $X say in is North probably this us in million tune QX. got America. got I $XX supply MEMS.

-- Omicron PD of is come come relative relative so lot a in right an my to in not down. We're issues And would see to should and of Again, to things hearing issues supply. end. absenteeism, concern terms main -- say seeing I that America starting now that's but Our to health, we're North

expect should taken We that care of end of. by the be QX that

the capacity don't, fabs product our have we For year versus think supply. we it's balance introductions I that that with use it's of we you wafer the excess words, back-half so our optimizing about In other we the better as new asked, mix. the where where

Christopher Roland

Thank help Does that appreciate. tougher largest question dynamic? is, up these then customer. to get, you, then December. wafer next a everyone's as accounts concerns, secondly, given as we pretty this in talk just pricing the seem substantially your seeing a And receivable And actually that shortage, to Maybe given just this have just little given related Jeff, your one, about well. quick

Jeffrey Niew

give specific, some your comment is --why does can chart? to but John me that comment--? Why Let customer specific agree

John Anderson

issue, are Chris. month the last sales to We timing These days in later. get the a which will typically XX had higher collected percentage simply of XX quarter, of our

that's so is. it And all

Jeffrey Niew

QX. shape sales If a look you the in QX, lot of of had we at

John Anderson

last the month. In

Jeffrey Niew

Sorry. In sorry. of December QX,

see think And that so as -- don't it's not been collected yet. we I

John Anderson

just I don't see there, risk credit any it's literally timing.

Jeffrey Niew

of of I seem trying to then and think brought s, here of a some the we and quadrant ASP HHT. and you In up, thing, of this costs. more you have might that PD IOT, wafer I pricing, up ear on four I quadrants, four this reasonably about we're s, mobile able but follows on. to wage flat commoditized you that some And be mean, well PD inflation cost to talked is wage pass to there the And then in I Mic, talked about say, have and right? wafer the lot about think where don't you sit pass we're you talk of inflation, three ASP HHT

there I'll more s. it you it's me ASP indicator. say, ask area the product, was I have commoditized People we where give and than better sit in always And the So one about would before.

products. extent this our we 'XX, mature product, it's mature have this. much Last it And could makes 'XX, see here's so us price. on easier were X% the to to and to of -- obviously remember, business, in to we thinking be you that year, reduction If you there sit on ASPs around XX% it going less for look, it go, two year, we're was sub X% This mature averaging products. on that

the from price. want us, is you buy to this If

Christopher Roland

it Awesome. Yeah, it. linearity. had was guys. Really Thanks, appreciate assumed guys. But I thanks,

Jeffrey Niew

Sure. Yes.

Operator

line question Your the Desilva ROTH with of next Suji comes from Capital.

Your open. line is

Suji Desilva

you talk the know here. share talked but could Hi about you you about Jeff. What's on opportunity. gain the gross driving Maybe Hi sustainable? execution business. the and about is talked that, health business, I John. that hearing core margin over-the-counter, Nice the

Jeffrey Niew

I think Yes, is. it

things of couple driving a there's this. think I

say I struggle a the over Asia, one fabulous market. last they aid think steady little going team. been really stuff, strong this COVID operational have cases, I a type to thing; of a some The XX job I operations bit competitors this, more the job in always throw can't and they Suji shout I'm in with months. of we to enough [Indiscernible] and out just our a our have done hearing done to facilities of fabulous in navigating maybe our and supplier. navigating mean, some

that's number think I so And think one, important center. I

gross the I really our Secondly, we higher the backdrop And where that hearing put bigger on share the a market. executed that's products in more our would a They higher becoming have new want also outsize hearing a bigger of corporate did R&D slope, MEMS the an health is it's team. slow I shout with of our customers. market. to average. I gross markets. this of we but things -- of -- and And to one our we all is well say with would with microphones about is margin portion think health portion reallocation that be -- health above And our think that fact the Hearing of there we are have in

execution, things with couple that together. incredible on new side towards microphones, three all you of operational more products shifts one Great give coupled execution, more will and MEMS NPI, these microphone thing. you So the new

lot to be think automated the even balance for for even which market, I aid our of line. the lines the are armature done we've now this a before, a starting lot learning line better. integrated automated into with making the on manual mentioned hearing the is I performance

production as all typically market. They to introduce X long a for production started go said, as sustainable platforms. on that are last the do to think And health guys platforms lot leading these of going years think so, XX And that be we've it's X won years. XX gains. the And we these the as month product, for X so the to over hearing share hitting next and are a months new things because in it's of I minimum, cylinders

Suji Desilva

it How penetration Okay. curious what Great, we What's the very your think it? notebook about Is market, growth mics helpful color. frame then, you on the growth share the should of there. notebook? opportunity mics? opportunity and I'm mics Is notebooks, it in MEMS per just That's the metric the of number Jeff. MEMS there? for And the

Jeffrey Niew

ago over I say, interesting a higher increase go some is would number the mid-term, ability little would performance. there people pre-COVID the probably them of years to that was it. to mics, check-the-box, I want And on got say put ever Two microphone use using and you takes more used I Again, there's back to sit this but I time. nobody They'd case microphone in. think, that laptop. a in

high expecting us the I for longer eventually using everybody's going I so advantage we're this but performance to And in we're but slowdown little through, come seeing say here that. mics. But going be laptops, think it's longer-term, And and downs customers term, right the ups consumer about rebound other talking a we're to about of Now, business it's QX, now And higher-performance again, mics in and to well-positioned it to in four of and laptops think market. some there's over a right? to we're very first, take bit I QX. of it would be going kind

Suji Desilva

guys. Thanks, Great.

Operator

this at the back the for questions company turn any time, I'll remarks. over call further no Hearing to closing

Sloane Bolun

to talking in us to you look future. appreciate let of forward follow-ups, Jeff and and know Thank much. so the all I we behalf so much and and please Investor on all everyone's John. time Thanks Relations and seeing you

Operator

you Thank conference This concludes for today's joining. call.

now You may disconnect.

Knowles (KN) 10 Feb 222021 Q4 Earnings call transcript