Q3 2019 Earnings Call

At this time all participants are in listen only mode. After the speakers presentation. So good question and answer session to ask a question. During this session you will need to press star one on your telephone if you require any further assistance. Please press star zero with that said here with opening remark.

Its nose, Vice President of Investor Relations, Mike now. Please go ahead.

Thanks, Christine and welcome to our Q3 2019 earnings call I'm, Mike now presenting with me on the call today or Jeff do our President and Chief Executive Officer, John Anderson, or senior Vice President and Chief Financial Officer.

Our call today will include remarks about future expectations plans and prospects for Nols, which constitute forward looking statements for purposes of the safe Harbor provisions under applicable Federal Securities laws.

Forward looking statements in this call will include comments about demand for company products anticipated trends and company sales expenses and profits and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations.

The company urges investors to review the risks and uncertainties in the company's as she she filings, including but not limited to the annual report on Form 10-K for the fiscal year ended December 31st 20 team periodic reports filed from time to time with the FCC in the recent uncertain and uncertainties identified in today's earnings release, all forward looking statements were made us.

The data this call an old disclaims any duty to update such statements except as required by law.

Addition, pursuant to read GE any non-GAAP financial measures reference during today's call can be found in our press release posted on our website at <unk> Dot com, including a reconciliation to the most directly comparable GAAP measures.

All references on this call will be on a non-GAAP continuing operations basis, unless otherwise indicated.

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

Let me turn call over to Jeff Who'll provide some details on our results Jeff.

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

In Q3, we continued to make solid progress against our strategy to deliver high value differentiated solutions to a diverse set of growing end markets.

For the quarter, we reported revenue of 236 million above the midpoint of our guidance range and flat from a year ago carried as strong sales into the year. It I O T markets and solid demand for precision devices were offset by continued soft trends and mobile.

Yes of 38 cents was inline with our expectation.

In our audio segment Q3 revenue was down 3% from year ago period due to softer demand for high end headsets in China that leverage our Mems microphone and intelligent audio solution solutions, largely offset by record sales of microphones and increasing shipments of belt arbitrage speakers into the year in I O T markets.

In the precision device segment sales were up 13% from year ago period due to continued demand for our differentiated products across multiple markets and a tuck in acquisition.

In mobile worldwide shipments of smartphone serve as a headwind for our or audio business in Q3.

City don't estimates the smartphone shipments in North America will be down 5% in 2019 versus the prior year and down 9% in China, we see these downward trends to be even more pronounced for high end smartphones.

That said our largest cost at our largest customer we experienced stable mobile trends in Q3 and are seeing year over year growth in this Oems nonmobile platforms.

The oldest Oems mobile business is expected to be down year over year, we anticipate full year revenue growth from this customer in 2019, given our increasing sales to their year, aiotv and computing applications with higher value microphone solutions.

Sales to Chinese Oems were lower than a year ago period, and well, we're seeing weakness in this market the positive macro trends continued to be favorable for audio solutions.

I'm increasingly optimistic that the mobile market will start to grow again as our customers begin to wrought by GE phones in 2020.

We see an opportunity to increase content per device and pre performance through multi mic adoption and higher performance, Mike mikes, including the transition from analog to digital.

In addition, we continue to discuss movie more processing to the engine that worked with our customers in mobile which represents an opportunity for our edge processors.

We're very pleased to build on the success, we see in the mobile market with the recent launch of a customers black ship handsets. It uses our Mems microphones and there the first handsets to leverage our quad core audio edge processor.

Able context aware audio applications and exciting new Dod audio features.

This customer chose to run these complex algorithms that are open DSP platform due to its high performance at very low power.

In addition processing had been moved from the clubs the edges that work and many applications that have struck historically had only been available in one could connected to the internet can now work off line.

Our platform also allows for complex actions with no latency and because it processes audio locally it keeps more the consumers information right.

This is one of several platforms, we expect to be introduced over the next several years with advanced etch processing capabilities.

Continue to believe that intelligent audio is important growth opportunity for us the synergistic with our caustic products.

Moving to erode LT, we were pleased to see Amazon launched their new eco, but the company's first to wireless headphones.

These headphones you six Mems microphones and for belt arbitrage speakers to enable better voice control active noise reduction and superior audio quality.

I'll start introducing adoption consumer wireless headphones, because they're the world small speakers delivering starting clarity and twice the battery life at a fraction of the size and weight of traditional dynamic speakers.

In addition to Amazon anchor recently launched a neutral wireless headset, leveraging our belt armored your drivers to deliver Chris troubled with full enrich base.

I will discuss more big wins in the future as these products are launched.

And I have T Amazon launch new products, including echoes dots and loop all using Mems microphones.

Beyond Amazon nearly every consumer device you can think of from smart Tvs Smartwatches Wearables the cars and other devices inside and outside the home are adopting voice enabled applications with the use of Mems microphones.

No. This is well positioned to enable voice control across a diverse set of end market applications.

We are diversifying our business beyond mobile and the investments, we're making in growth markets like geared OTI are enabling us to deliver solid financial performance in spite of this weekend set market.

In our precision device segment, we continue to see sales growth from our high proposed capacitors and millimeter wave RF solution for a diverse set of end markets.

This business remains essential to our ability to increase exposure to fast growing end markets and enhance shareholder value.

Demand for high performance capacity remains robust in the defense and med Tech in markets.

Despite a broader slow down in our industrial markets are differentiated solutions has seen sustained demand achieved through a combination of ceramic leadership customization high reliability production in a skilled sales application team that has built close relationships with our key customers to solve problems for their mission critical applications.

And millimeter wave RF solutions, we are seeing solid demand from the defense end markets for radar systems and we recently, we were awarded a multimillion dollar contract with BHP for Lockheed Martin's F 35 joint strike Fighter program.

We're also started to ship solutions into the Fiveg millimeter wave base stations, which will serve as a large growth opportunity for us over the next several years.

While we're at the very early stages of the <unk> of the millimeter wave Fiveg rollout, we see continued growth in military demand and expect revenue familiar with our resolutions to grow over $30 million in 2019 from less than $20 million and 20 818.

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

Yeah.

Thanks, Jeff.

We reported third quarter revenues of 236 million above the midpoint of our guidance range and flat from the year ago period.

Record microphone shipments into year in I O T markets and continued growth in precision devices was offset by lower shipments of microphone and intelligent audio solutions into the smoke smartphone market.

Audio revenues of 194 million were down 3% from the year ago period due to weaker demand for high end smartphones in China that use our Mems microphones and intelligent audio solutions. These declines were largely offset by increased shipments of microphones and balanced armature speakers into that year and I O T markets.

Hearing health sales were up slightly from the year ago period.

The precision device segment delivered revenues of 42 million up 13% from the third quarter of 2018, which was the result of 8% organic growth driven by strong demand for high performance capacitors in the defense and Med Tech end markets and an acquisition completed early in the first quarter.

2019.

Third quarter gross profit margins were 40.1% within our guidance range and up 170 basis points from a year ago period, driven by favorable product mix within audio specifically higher microphone sales to the year and Aiotv markets.

Precision device segment margins were flat year over year has improved pricing and high performance capacitors was offset by higher raw material costs and increased manufacturing capacity to support future growth in our millimeter wave filtering solutions.

Operating expenses in the quarter were 51 million down 2% from a year ago period due to reductions in R&D spending within the audio segment.

For the quarter adjusted EBIT margin was 19% at the midpoint of our guidance range up 250 basis points from the year ago period on a higher gross profit margins and reduced operating expense.

EPS was 38 cents at the midpoint of our guidance range and up 12% over the third quarter of 2018.

Further information, including a detailed reconciliation of GAAP to non-GAAP results is provided in the financial tables of today's press release and can also be found on our web site at Nols Dot com.

Now I'll turn to our balance sheet and cash flow.

Cash and cash equivalents totaled 70 million at the end of Q3.

For the third quarter cash generated from operations was 40 million at the low end of our guidance range due to timing of receivable collections within the year.

Capital spending was 8 million in the quarter.

Also during the quarter, we repaid all outstanding Bank borrowings.

Moving to the fourth quarter.

We expect total company revenue to be between 225 and 250 million.

The new from the audio segment is expected to be between 185, and 200 million up 4% from Q4 2018 due to higher shipments of mikes into year, and I O T applications, partially offset by weaker handset demand in China.

Precision device revenue is expected to be between 40, and 50 million up 16% over prior year levels, driven by organic growth across telecom defense and med Tech markets in the impact of an acquisition, which could which was completed earlier this year.

We project gross profit margins for the fourth quarter to be approximately 39.5% to 42.5%.

More than 160 basis points from the year ago period due to a supplier credit recorded in Q4 2018 that will not repeat.

R&D spending in Q4 is expected to be between 20, and 22 million down 2 million from prior year levels due to optimization of R&D spending within the audio segment.

We're projecting selling and administrative expense to be between 20 931 million up 1 million from a year ago period due to higher anticipated legal expense.

We're projecting adjusted EBIT margin for the quarter to be in the range of 19% to 21% and expect EPS to be within a range of 30 743 cents per share. This assumes weighted average shares outstanding during the quarter of 95.7 million a fully diluted basis.

We're forecasting effective tax rate of 13% to 16% for the quarter.

Please refer to our press release for a GAAP to non-GAAP reconciliation.

For the fourth quarter, we expect cash generated from operations to be between 60, and 70 million and capital spending to be between 10 and 20 million.

Full year 2019 capital spending is now expected to be slightly below 6% of revenues.

For the full year revenue growth is expected to be between 3% to 4% with gross profit margins near 40%.

R&D and SGN today are expected to be approximately 10, and 14% of revenues respectively.

Lastly, we're forecasting an effective tax rate to be between 13 and 17% for the full year.

I'll now turn the call back over to Jeff for closing remarks.

And we'll move to the Q and a portion of the call Jeff.

Thanks, John .

Our Q3 results in our Q4 guidance reaffirms our strategy to invest in high value differentiated solutions and diversify our end markets and deliver shareholder value.

I'm pleased with the continued progress we've made to increase our exposure to growth markets like year.

Fiveg infrastructure and edge processing.

Expect net revenues from non mobile markets will represent over 70% of our total company revenue revenue in 2019.

Sorry at greater than 10% from the prior year with above corporate average gross margins.

For 2019, we expect our full year company revenue increased by approximately 4% and EPS to increased by 12%.

As we look towards 2020, our company remains uniquely positioned across the markets we serve.

In audio macro trends around better acoustic performance and edge processing remain positive and are enabling us to increase our content per device.

In precision devices, we continued to deliver strong revenue and earnings growth, both organically and through tuck in acquisitions.

With our strong positions in core markets, coupled with the investments we are making in growth product I'm increasingly confident that we can drive continued revenue growth was strong operating leverage in 2020.

Operator, we can now take questions.

Thank you as a reminder to ask a question you need to press Star then one on your telephone to withdraw your question press the pound or hash key please standby well, we can pile of acuity roster.

Yeah.

Your first question comes from line of Suji de Silva from Roth Capital. Your line is open.

Hi, Jeff Hi, John Congratulation on the progress here I just couple of questions on the end markets do you still expect in the the a year and aiotv apart the business. It aiotv would be stable relatively and here would be the growth drivers that's still the expectation.

Well, yes. Good question I would say generally speaking I think it will still be up but nowhere near the rate of your this year.

Thats kind of been flipping in flopping from year to year.

I would just make the comment.

I think we've talked about this you know in past calls that in 2016, you were at our Ti revenue in our Mike business was about 7% or the revenue mikes.

This year, it's going to come in over 30% of the revenue. This year will actually begun mikes will be in here and I have t.. So yes, I would say the the majority of growth is coming from here, but there still is growth that aiotv.

Okay, and then congratulations on the one at Amazon or the wins content like should we think the contact you described for Amazon. There is a typical headset going forward at a premium headset, how can we compare the Amazon content to but maybe the typical truly through wireless headset content for you guys. Yes, yes, I think thats a like a little.

I have a tougher question to answer it entirely to the state. So let me just taken pieces.

I would say on the on the balance amateur side I would say this is probably premium.

To balance amateurs per year, we're probably talking premium.

On the on the microphones when you have three per year I would say its premium today, but I think if you look at the design pipeline, where people are talking about having three microphones per year is probably going to become pretty standard in the longer term.

That's mainly the third Mike is being added had the inside of the year for for active noise cancellation with the two microphones on the outside primarily to improve our voice communication improve anything you're doing in terms of with voice recognition.

Okay and then one quick question on the the I didn't hear if it was an update on the 2020 5 million expectation for 19, that's not the range you're expecting.

Yes.

I'd say, it's going to be tough for us to get to the low end of that range.

But with that said, we're pretty excited about the products the handsets that were introduced.

The last week.

Our using our quad core DSP.

I think this is like.

Pretty important moment for us from the perspective of all the things that you can do with our with our Quad core DSP some of its audio and actually now some of its non audio so we're pretty excited about this opportunity and we're pretty excited about 2020.

Okay, great Congratulations again.

Thank you.

Our next question comes from line of Christopher Roman from SaaS Company. Your line is open.

Thanks for the question I had a good execution on the quarter here.

The balance or what your speaker market, perhaps you can talk about what those revenues were in Threeq, you and your expectations for for Q.

Also perhaps if you could discuss I know you said you talk about them what they were a lease but just generally what that pipeline looks like for you guys.

How it sizes up to that roughly.

I guess call it 90 million.

Our current year opportunity that you guys highlighted at your analyst day. Thanks.

Yes, So look let me start by just.

Breaking out we have a pretty robust balance amateur business overall to begin with and that divided up between our hearing health market.

Which you know that we do very well and then there's balance our merger what I would call to the premium the really premium headphone market the guys who are.

300, 400, $500 range, that's a pretty robust business for US now as we start talking about the true wireless opportunity as I said in the past if you look at these true wireless headsets, they're looking more and more like a hearing aid I mean, they are looking more and more like that now that being said we are kind of limited in terms.

I would say the capacity now in probably total into mid Q3 two into late Q2 was when that all that capacity will be going on line and that's what we would really expect to see the revenue from balance our mature in the true wireless market start to accelerate so so I mean.

Not going to break out the exact number at this moment, it's virtue wireless it's relatively small I'm not going to say, it's very large, but but I would say is we have a lot of interest we have a lot of customers are interested in moving forward and I think we're preparing for the back half of next year is when we really see the growth is going to come.

Great. Thank you for that and then Oh precision devices. You know it was it maybe a tad bit softer than I expected I think you guys talked about.

Pricing on high performance capacitors, there, obviously, you know as I have LCC market.

It has moved through a super bubble you know, obviously lower end products, there, but maybe pricing starting to from there. So is this just like there on the side do you expect any more changes.

In pricing and then within precision devices.

He said are not your fiveg filters, what's the timing on when do you might ship a your first thank you.

Yes. So so first let me take the first question.

I would say it was a little softer than we expected going into the quarter and it's like is that kind of said my script.

The industrial market, we have seen a little bit of a slowdown but that would that being said, we still had I want to say was 13% growth overall year over year. So I mean, not too shabby still so we were expecting a little bit more as they look to Q4.

I think there, it's a little bit better than than what we had in Q3 in terms of.

The year over year growth as well as it's a it's a pretty good step up in terms of.

The sequential as well so I would say that we're seeing some weakness in industrial and that's I would say that general market place that you referred to but but still when I say weakness. This is not like it's down significantly it's still growing just modestly versus it was growing pretty quickly in the past I got your.

Second question was related to the Fiveg millimeter wave base stations, we are already shipping into Fiveg millimeter wave base stations for production units. So we started shipping for that and we expect that will continue.

What we've kind of set and what can you just say this is the military demand continues to be very strong in this space.

And the design activity around.

Gee millimeter wave base station still is strong although I think we're seeing a small push out to the right in terms of the actual demand for the five millimeter wave base stations, but we are shipping into production units right now.

Excellent. Thank you guys.

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

Hi, guys my congrats as well you're one of the few chip companies that are actually growing this year year over year.

Two part question. If you were district, where just the IR team your segment, what kind of growth rate you think you could see.

In 2020 or even in the immediate term and then now that I fixed it's got the Google pixel fortunate on shown your DSP.

Lumpy here your thoughts and I know, Jeff you mentioned you got the design traction for 2020 can you quantify that at all thanks, Yeah. So let me think first question I wish I understand the first question are you asking me about the mobile market for microphones versus that you're in I O T for microphones after asking me not nonmobile here and I O T.

So right there.

Yes, Nonmobile your IP, we would expect to grow again in 2020 I would say what's changed is is I'm cautiously optimistic about the mobile market I mean, it's been a pretty big headwind for us in the old for full year 2019 from that perspective, we'd always happen with largest customer earlier in here there has been.

Weakness fair amount of weakness in China, but I think what we're starting to see is that as fiveg starts to roll out in a bigger way next year. There's some fiveg this year, but realistically it's more next year.

Or even if we can get this which were hopeful up to a flat market year over year. It no longer becomes a headwind to our business and that's why I think we highlighted.

Tony is that about we have over 70% of our businesses Nonmobile now and in that 30%.

As a headwind in 2018, but we think it could be flattish in in 2020, which which would be really great for us to see that that might be flat.

Second question you asked me about the Quad core DSP, let me just take a couple of their comments on this.

Just generally speaking.

We're pretty excited about the yen I wanted to kind of lay it out for a moment interest may take a moment 20, but you think about what they're doing with the device first what do you need real time processing like actually like no latency and processing, where you need the device to be always on right and then there is a combination of I would call preprocessing.

Before it goes keeping the aipu off before the 80 or that application processor gets turned out but there's also pieces for the full application is running on our chip now and so let me give a couple of applications one you've heard of it's the keyword detection.

You've heard of that that's running on the device. Another one is like echo cancellation in barge and running as I said, if you have music, yet and you want a barge into the device.

It can do that right.

Third thing, which is kind of interesting is there are others sensors in this platform that are that need real time.

Need are always on power that are now being processed through our device as well and this is not to do with the gesture recognition.

So what you're starting to see is is that customers are starting to say themselves is yes audio has to be real time, yes audio has to be always on but there's other sensors that need is too and this devices pretty valuable.

For the advice as far as buildup design pipeline, we're working really really hard here Tony for next year.

To continue the momentum we're having into the back half year on design side, and I think thats kind of widely even for right now.

Can I follow up on that is there any quantification on the Mt, you're saving the device maker from.

Handling everything in the the handset itself versus hitting the cloud is there a cost savings that you quantified any of that and do they recognize that.

Yeah, I think thats pretty hard to quantify I think theres a couple of things is I would say that that's kind of like you know I think a secondary from their perspective, they see the cloud as not being taxed as much I think they're focused on this idea of real time processing with no latency.

Having multiple devices sensors, including microphones being one of them on idle time for CAD contextual awareness into a lot different different things and then the third is that you will ultimately I think if you look at the real thought players they want to have more things done locally from the perspective also of privacy.

Got it thanks, a lot congrats.

Your next question comes from a line of Bob go back from T.J.F. Securities. Your line is open.

Good afternoon highest Bob Labick from C. J S.

Hi, Bob just wanted to Hey, just wanted to start I'm sick with a b a for a minute here can you talk about you know your current manufacturing and given the growth in your that's just starting in the nice when it with the Echo Bugs and others. How are you managing the inventory for.

And in towards the.

With this growth in the path towards the automation, which I think you're expecting the first half of next year to have a new automated line just talking about the process of the inventory management the expected growth.

For this category.

Sure. So I mean I wouldn't expect in the in the short term that we'd have a significantly a lot more inventory to do this.

I would say, it's probably the opposite here is it demand increases were trying to balance the demands that that are out there against the fact that we don't really want to have to add a lot more manual assembly in or do it knowing and it's kind of leads that the automation is coming on line.

I was I view the automation this week.

It's on track.

Two.

To be ready in the first half and we're excited to get that installed because I think one thing that has come out of this the echo buds for US is it's getting a lot of I would say second tier players. The say this is kind of interesting when can we start having more discussions and so.

So I think there's going to be a real balance here in the next six months and and I have lot of design wins in revenue relative to the fact that we don't really have the capacity in place to handle this yet till the back half the year.

Got it okay, great and I think just one thing to add Bob to is as Jeff said, we'll have that first automated line in place in Q2 at some point in Q2 and if the did if we see demand increasing here will kind of pull things forward on a second line and we could have that probably in place back.

Right.

Let me temper that let me tell her that though just saying is is that the issue I'm just a little bit I want to make sure is that that this is a brand new designs are belts amateur a band brand new production process, we've got to make sure all works properly before we would order the second life.

Got it okay Super Thank you very much.

Your next question comes from the line of harsh Kumar from Piper Jaffray. Your line is open.

Great job once again, managing expectation that earnings in a tough environment, Jeff I had one for you I look at your guidance for the audio business.

And compared to September numbers, you're basically calling for flattish kind of trends.

I know that we're going into the Christmas Bill and then we have Chinese new year little bit early this year, but he was 10 week 27, so I expect kind of like a double drive if you will in consumer stuff, including handsets, how do I think of your guidance for December audio business versus the Chinese new year being sort of early.

This year on top of Christmas.

Yes.

So kind of look at the numbers here I mean, we usually have seen.

In Q4 versus.

Great.

The that large customer that big ramp and then kind of members and I would say no kind of looked at the numbers you know if I look at last year, we had a pretty.

A large sequential down in Q4 last year and this year, that's a lot smaller this year and they get I would say is.

Year in Aiotv are a much larger portion of the business than they were a year ago and to the extent that that's the case you know.

We're not seeing as much of this downward trend in Q4.

Now I think you started now move into Q1 and I'm not I can't it's really hard for me to give you a lot of guidance into Q1, but I, but I will say this.

You know that.

We usually have a pretty strong build through China to Chinese new year, and then we have a drop off and then we see out reserves at the end of Q1.

I guess all in all of its I would say is is that that it's a little early my biggest concern right. Now is is in terms of you want to talk about the audio business overall is China has been weak overall.

In the in the call that are in the remarks. It has been weak and so I think we want to see how this goes up the Chinese new year, but but then I would say that by one concern just overall, China has been weak, especially high in handsets.

That's very adept can I from my follow up I know you probably have seen the initial order runs our order book for the Amazon headset.

Have you gotten an indication of how they're thinking about ramping that that particular piece or they want to evaluate how things go through Christmas and then come back to you guys.

I mean, I'm going to I'm going to ponder on that I mean, I think that.

Now, we're talking about really specifically about a customer's product and I think it's pretty confidential at this point harsh it's really cats.

Okay. Thanks. Thanks.

Yes.

Your next question comes from line of Charlie Anderson from Dougherty Your line is something.

Yeah. Thanks for taking my questions and my congrats on strong results.

Just first one on be a obviously really strong products for your strong product cycle here and you do get the added volume next year with the automated line I guess I'm curious if you give maybe just speak to some other competitive differentiation long term do you expect to hold very high market share here do you have some.

In terms of weather manufacturing process or IP kind of a boat.

Do you expect a second sources at some point just any additional color there that I've got a follow up.

I think it's little too early to say I mean, there is we do have comp some competition in the in the hearing AIDS side today and I think you know that that that there's no reason why that competition.

Interest as market, if we develop it but I, but I also do think is we are pioneering this market and the mode that we're building around this market is very different than the mode. We have in the hearing health side, you know the hearing health side generally speaking is a lower volume high mix business and this is going to be what we think is going to be a higher volume low mix lower.

Next business and and that's why we decide we wanted to go after this market. We said we're going to redesign these products.

Specifically for this higher volume market. So what does that do it allows us number one.

There is IP around this allows us number one to ramp it faster when we want to allows us to have less labor in order to do it it targets a much.

More I would say aggressive cost structure than than we typically have had the hearing l. side. So I think we're building a competitive mode for the.

For the commercial market or the two wireless market similar to what we have on the hearing health side, but with quite frankly, similar technology, but a different set of products.

Perfect and then for my follow up on the precision devices gross margin I think there was a reference in the script to a few elevated costs. There I think one was putting capacity the other ones may be higher raw materials or something like I Wonder if you maybe just kind of speak to the outlook.

Over the next year.

Just first question all right I mean, let John speak Yeah, Charlie PD gross margins, where they were lower than expected in Q3, and they were flat with Q3 of 2018 levels. It was really due to a little lower than anticipated production volumes. So we had unfavorable fixed overhead absorption.

Due to softening industrial end market. We also had some manufacturing inefficiencies at one of our facility. We expect these manufacturing issues to be fully addressed early in the current corridor and expect to sequential improvement pretty significant increase improvement in gross margins at PD in Q4. So.

I would kind of call this oh.

One time in Q3 impact.

Okay. That's perfect. Thanks, so much.

Your next question comes from the line fill Peterson from JP Morgan Your line is open.

Hi, This is Alex can volume behalf of felt Peterson. Thank you for letting me ask a question I want to ask about Capex first on so last quarter, you mentioned capex would be about seven six or 7% of revenue and 20% of that Capex is going to your balance I'm not sure business are you sticking to that 20% number and.

Do you anticipate that number going up potentially to more quickly ramp essential also address potential supply issues to meet that demand for bees and also how should we think about capex for 2020, and the breakdown between microphones and balance our measures.

Yeah in terms of the first question I'd say that assumptions are still valid would I provided earlier, we may be a little below 6% as a total company in 2019.

But that amount related to the balanced our mature business is unchanged at this point.

It's a little early to give guidance for 2020, but I would expect as a percent of revenue to be kinda. It very similar range in 2020 versus 2019 kind of round this 6% or so but we'll provide more guidance later.

Okay. Thank you and coal so how should we think about opex for 2020.

The trajectory.

You know in terms of Opex, it's too early to go into 2020, but if you look at what our trend has been an opex over the last I'll call. It three years, we've been pretty good at holding Opex very very very very modest increases and as a result.

Revenue growth.

In the 4% to 5% or 3% to 4%. This year are higher than that last year. We've gotten very good operating leverage I would expect this same trends to continue moving forward I think what we generally said is that we were really trying to control as gionee on the R&D side. We've tried said, we're going to keep that down 11% range of sales.

I still think those those things hold.

We've been kind of trying to do over the last few years, one thing I think the important just to give a little granularity in Q3 in Q4 of this year. We did have increased legal spend if you take that relating to a specific IP dispute that we're pursuing if you take that out our year over year SGN, a is flat if that slightly down year over year.

Okay, and just to clarify you said R&D, 11% of sales and then has seen a little less let me pick out will be R&D, a little less than that we originally early in the year, we're estimating 11%, it's coming down closer to 10% as we optimize R&D spending and the audio segment.

Okay, and then I shouldn't say flat if you take out the legal spend.

Correct.

All right. Thank you so much.

Sorry, no further questions at this time Mr., Mike now I turn the call back over to you.

Great. Thanks, very much for joining us today as always we appreciate your interest in Nols and look forward to speaking with you on our next earnings call. Thanks, and good bye.

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

Okay.