Q2 2021 Knowles Corp Earnings Call

I ask the question during the session you will need the breadth of our 1 of your telephone if you would like to withdraw the question just the breadth of banking.

Please be advised that the vs conference being recorded with that said here with the opening remarks isn't the Olsen Vice President of Investor Relations, Mike Knapp. Please go ahead.

Thanks, Bob and welcome to our Q2 'twenty.

1 of our earnings call.

Mike Knapp and presenting with me on the call today are Jeffrey New our president and CEO and John Anderson, Our senior Vice President and CFO.

The call today will include remarks about future expectations plans and prospects for Knowles, which constitute forward looking statements for purposes of the safe Harbor provision under applicable federal Securities.

These forward looking statements in this call will include comments about demand for company products anticipated trends in 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 of the risks and uncertainties in the company's SEC filings, including but not limited.

Due to the annual report on form 10-K for the fiscal year ended December 31, 2020 periodic reports filed from time to time with the SEC and the risks and uncertainties identified in today's earnings release.

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

Except as required by law. In addition, pursuant to Reg G. Any non-GAAP financial measures referenced during today's call can be found in our press release posted on our website at Knowles Dot com and in our current report on form 8-K filed today with the SEC, including a reconciliation for the most directly comparable GAAP measures.

Ill referenced.

References on this call will be on the non-GAAP continuing operations basis, unless otherwise indicated.

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

With that let me turn the call over to Jeff who will provide some details on our results Jeff Thanks, Mike and thanks to all of you for joining us today.

For Q.

Q2, we reported revenue of $200 million above the midpoint of our guidance and up 31% from a year ago period, driven by strong demand across our audio and precision device segments.

Gross margin improved to 42, 4% and our earnings per share were <unk> 31.

Both above the high end of our guidance range.

In audio revenue was up 43% from a year ago period at the hearing health sales doubled and we saw continued robust mems microphone demand in multiple end markets.

Precision devices delivered record revenues in Q2 up 5% from the year ago period underscored by a recovery in the med tech market and in the acquisition we completed.

Complete it in the quarter.

Overall, a great quarter for the company that emphasize the.

Leading position across a broad range of growing end markets, our focus on high value products to improve gross margins and our strong operating leverage.

Let me provide some detail on the trends we are seeing by end market.

In audio we saw broad.

Improvements year over year, and Mems microphone sales the cost non mobile end markets, particularly in gear Iot and computing devices has work from anywhere and remote schooling trends continue.

We anticipate non mobile to represent more than 50 per cent of microphone sales for 2021, as new truck true wireless and Iot device.

<unk> are launched in the second half of the year.

In addition, we are beginning to see emergence of new markets. We can serve the non mobile category that may provide additional growth opportunities over the next several years.

First we are seeing increased design activity around the virtual reality market.

IDC forecast VR headset shipments.

To grow to over 28 million units in 2025 with a 5 year CAGR of 41%.

The or has the potential to revolutionize a number of industries and high performance audio is a critical piece of this equation to enable the best user experience.

The second is white goods, where we recently announced the complete development platform.

Platform, consisting of microphones and the digital signal processor that enables fast and easy voice integration for smart appliances.

This solution was selected by Samsung family hub portfolio of smart appliances, and the first product launch credit products.

<unk> was the smart refrigerator.

Finally, we see the automotive market.

The becoming a potential opportunity for our Mems microphone business as our customers focus on reducing unwanted road or income noise in the cabin and enabling voice input to control of the vehicle systems.

We are seeing an accelerated transition from electric to Mems microphones and automotive and have launched the new product portfolio for this market as customers are beginning.

And that's the importance of higher quality and the supply assurance that Knowles offers.

The mobile Q2, mic sales kidney as expected and we expect a strong seasonal uptick in sales in Q3 as multiple Oems around the world launched new concepts.

For hearing health shipments have recovered.

The pre COVID-19 levels, and we see improved demand in the audio of power segment as U S concerts resume.

In addition, the White House issued an executive order earlier, this month, which could help accelerate the issuance of over the counter hearing aid regulations and products in the U S.

So this is not new news for the sector. It does highlight.

The potential upside for us to benefit from the large addressable market of people suffering from mild hearing loss.

Overall, we expect continued strength of traditional hearing of channels with momentum building in the over the counter market.

We also expect continued rapid growth in the TWC segment with premium devices offered offerings advanced.

Features like active noise cancellation and the assisted listing functionality.

All of this represents positive trends for ear worn device acoustics over the next several years.

The precision devices Q2 sales reached record levels with significantly improved gross margin at the managed defense Med Tech industrial and electric vehicle markets.

So a strong sequential improvement.

We also acquired integrated integrated microwave Corporation, a leader in the design and manufacturing of custom high performance RF filters for the aerospace defense the communications industry.

By expanding our product portfolio, we grow our serviceable available market, while providing our customers of 1.

Shop for their high performance of our solutions.

John will discuss the financial impact of the.

From this transaction and just the moment.

For the second quarter. We also saw record bookings again in PD, giving me confidence that we can grow of precision device revenue again this year.

We had a strong first half and expect the momentum.

The continued in Q3, I believe our leadership positions across the markets we serve.

Graduate to deliver high value differentiated solutions to a diverse set of growing end markets positions us well for future growth with that I'll turn it over to John expand on our financial results and provide guidance for the third quarter John.

Thanks, Jeff.

<unk> reported second quarter revenues of 200 million of 31% from the year ago period, driven by increased shipments in both the audio and precision device segments audio revenues of $150 million were up 43% due to increased shipments of Mems microphones across non mobile end markets and the recovery of the hearing.

We would market to pre COVID-19 levels per.

<unk> devices delivered record record revenues of $50 million up 5% year over year as early as the result of organic growth driven by increased demand for high performance capacitors in med Tech industrial and automotive markets and.

The <unk> physician completed in the second quarter of 2021.

Audio segment gross margins improved more than 12 percentage points.

Driven by higher factory capacity utilization and favorable product and customer mix.

In the precision device segment gross margins were 5 percentage points above prior year levels due to favorable product mix productivity gains and increased pricing, partially offset by higher pressure.

This metal cost.

R&D expense in the quarter was 22 million in line with expectations and up $2 million from the year ago period, as higher incentive compensation cost and increased spending in the Mems microphone hearing health and precision devices was partially offset by the impact of restructuring.

<unk> actions taken in the second quarter of 2020.

SG&A expenses were 28 million $1 million above our guidance range, driven by higher incentive compensation cost and increased legal expense related to the favorable ruling we received in the dosing lawsuit.

SG&A.

It's up $1 million from the prior year due to higher incentive compensation cost, partially offset by the impact of restructuring actions taken in the second quarter of 2020.

For the quarter adjusted EBIT margin was approximately 18% at the high end of our guidance range and up more than.

Teen percentage points from the same period a year ago.

Driven by increased shipment volumes and higher gross margins.

EPS was <unk> 31.

Above our guidance range and up 32 from the prior year.

Further information, including a detailed reconciliation of GAAP to non.

<unk> results is provided in the financial tables of today's press release and can also be found on our website at Knowles Dot com.

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

The cash and cash equivalents totaled $94 million at the end of Q2.

Cash generated by operations in the quarter was 20.

$21 million above the high end of our guidance due to higher EBITDA and lower than expected net working capital.

Capital spending was $11 million in the quarter.

During the quarter, we resumed buying under our share repurchase plan and acquired roughly 1 million shares. We also completed the acquisition.

<unk> vision of integrated microwave Corp for $79 million net of cash acquired.

In 2022, we expect the acquisition to deliver more than $20 million in revenues at above average gross margins and EPS of 4 to 6.

Given our existing cash position and.

Of our expectations that we will continue to generate significant free cash flow, we intend to settle the principal amount of the convertible notes, which mature in Q4 of this year in cash.

Moving to the third quarter we.

We expect total company revenue to be between 227 million and $237 million.

Up 13% at the midpoint versus the same period a year ago.

Revenue from the audio segment is expected to be of up approximately 6% from Q3.2020 due to increased shipments into the non mobile and hearing health applications.

Precision device revenue is expected to be up.

More than 38% versus the prior year, driven primarily by organic growth in the defense Med Tech and <unk> markets and the acquisition completed last quarter.

We estimate total company gross margins for the third quarter to be 40% to 42% up 430.

Basis points from the year ago period, driven by both the audio and precision device segments on higher capacity utilization and favorable product and customer mix and the acquisition completed in Q2.

Our gross margin expansion in the first half of 2021 demonstrates the execution.

<unk> of our strategy to deliver high valued differentiated solutions to our end markets. We expect total company gross profit margins will exceed 40% for full year 2021.

R&D expense in Q3 is expected to be between 21 and $23 million up 3 million.

And from prior year levels due to higher incentive compensation costs and increases in Mems microphone and precision device spending.

We're projecting selling and administrative expense to be between 26 and $29 million up $1 million from the year ago period, driven by higher incentive compensation cost and.

The impact of the acquisition completed in Q2, partially offset by lower legal expense.

We're projecting adjusted EBIT margin for the quarter to be in the range of 19 to 21 per cent and expect EPS to be within a range of 38 to <unk> 42 per share.

This assumes weighted.

Average shares outstanding during the quarter of $95.3 million kind of fully diluted basis.

We're forecasting an effective tax rate of 11% to 15% for the quarter.

And we expect cash generated by operations in Q3 to be between 30 and $40 million with capital spending of.

Of approximately $15 million.

Please refer to our press release and to our form 8-K filed today with the SEC for of GAAP to non-GAAP reconciliation.

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

Yeah.

Thanks, John before we move to the.

For a few points I'd like to highlight from our Q2 results and our keeps the guidance.

The first the diversity of our revenue across the range of growing end markets the significant benefit.

In addition to participating in a number of compelling growth opportunities in markets. The demand high value solutions, we have continued to reduce risk of being exposed to any 1 specific.

Vic market.

Second our Q2 results cap off of very positive first half for revenue and gross margin, which coupled with operating leverage is driving increased EBIT margins.

Lastly, our strategy to deliver high value differentiated solutions to a diverse set of end markets producing strong cash flow debt.

Allows.

As to drive shareholder value through debt reduction investment in high growth margin products accretive acquisitions and stock buybacks offers operator, we can now take questions.

Thank you as a reminder, cash a question you will need the branch of our walking of telephone against the ask a question. Please press star 1.

Could you ask the question just for the turnkey.

The fact that will look about the kidney roster.

Our first question comes from the line of Bob <unk> from CJS Securities. Your line is now open.

Good afternoon, and congratulations on nice quarter. Thank.

Thank you thanks, Bob.

I wanted to start with the gross margins there were obviously, a fantastic above the guidance from expectations et cetera, what were the.

Primary drivers for the gross margins and I know you guided to above 40 for the year, what does it take to get or how long might it take to get to like a 42% annual number.

And what would be the drivers to get there.

Yes, let's start with Q2.

And in the audio segment gross margin improvement was really driven by favorable mix, specifically, a higher portion of Mems microphone shipped into non mobile applications like year.

Coty and compute which.

Which typically carry above average margins. We also saw with the recovery of our hearing health business of higher proportion of sales into that market, which again.

The carry higher than average gross margins and then lastly.

Had very high factory capacity utilization in Q in Q2, north of well north of.

90% and I think the.

Put it a little bit more color around that I think that's the theme we've been talking about for a while that debt.

As we look at our investments and where we're developing products, where we're investing our capex.

Moving it more in the direction of higher gross margin products that will allow us to continue.

The trend of moving the gross margin of over time, yes.

And Bob for again, just as I talked about the specifics of the audio with respect to PD.

Little different I think 1 they've made some really significant factory productivity gains over the last.

A couple of quarters and it really starting to hit in Q2.

Also the pricing trends are favorable there we've been able to pass on either through surcharges are higher pricing some of the palladium increased palladium cost and.

So those of the driver then lastly, again, a little favorable mix in that we're selling more into the higher margin defense and medical markets.

Kits, which have recovered in Q2, we really expect that to continue over the course of of the remainder of 2021 and I think in your question with respect to what would it take to get to 42% I think it's the keep delivering what we're doing and what you saw demonstrated in Q2, I don't think theres anything specific the.

1 thing I will say that we do look forward to in 2022 is introduction of some new products that are coming in it at higher gross margin. So it's really keep doing what we're doing in Q2, and then adding in layering in some new products at higher margins Jeffrey.

The only thing that's probably good at some of the discussion.

A discussion of where.

We're thinking about capital allocation.

It would be in the R&D or capex in how we're spending that on higher gross margin products and markets will continue that as long as we have a fair amount of new products that we think we will have positive impact on gross margin in 2022.

Okay Super and then just 1 more for me.

You, obviously made a nice and accretive acquisition that you just told us about.

You still have I think the net cash before this.

It's tobi.

A very strong balance sheet and strong free cash flow how is the <unk>.

Market looking out there for additional M&A or are you still.

In the market looking for.

For more tuck ins and what areas would you be interested in and because of that an opportunity to grow margin from there as well.

Yes.

Just make the comment first we're really pleased with this acquisition that we were able to complete in Q2.

It does a couple of things for US number 1 it expands the range of frequencies, where we can offer RF.

It.

It gives us more of a 1 stop shop with our defense and aerospace customers and mentioned that in the numbers.

The pre prepared remarks, but theres also of cross selling opportunity here, we of our customers. We can walk into now with a new offering of products. So it's pretty positive and.

And that's where our expectation for this acquisition as John said, it will be above 50% gross margin and so.

I think there are other opportunities for us, but as Bob and I think it's a matter of the timing of when they happen, but as I kind of look through the path. It feels like in these markets. The P D markets the.

And there is at least I would say bolt on size acquisitions is the.

Pretty target rich environment, it's a matter of finding the right for us and the fits with what we're trying to do but I would anticipate we're going to continue to do these things in the future.

Super that sounds great. Thanks, so much.

Okay.

Your next question comes from the Atlanta for Anthony Stoss from Craig Hallum. Your line is now open.

My congrats as well, especially on the gross margin.

Maybe you guys can comment about where you see them going midterm any thoughts related to that and then.

Just love to hear your thoughts on growth of PD record quarter.

Of the stellar of I'm curious, where you think that goes and lastly, maybe back to John where is the bulk of your Capex being spent right now.

Okay.

First on gross margin I think that when we put out if you remember we put our mid term model out here in 2019 of.

42% and I think this is a very achievable number.

I think they're taking the opportunity potentially to go higher than that with some of the things we're doing and so.

I think we're still that's where we're running towards getting above the mid term model now how long the exactly take depending on a few things.

1 is is the again.

And I won't try to talk about this for a minute about capex.

Capex, what we're spending capex on today and maybe contrast, it to maybe of what it was 3 or 4 years ago, but but but I think it's really about this capital allocation and where were for spending your money Tony.

For a couple of examples just on the R&D side, Yeah. If you go back for 5 years ago most of our.

The R&D spend was targeted at mobile on Mems mics and now what we've done is yes, we still have a fair amount of mobile of an important the business for us but it is now developing price. They are specific to the ear of specific to the compute specific to the Iot market, which helped again shift the mix, we're spending more money in R&D.

With PD right and so what you kind of see here is and then lastly, I think.

I'm as excited as I've ever been about the hearing health market.

The core market of the normal channel are at.

We see of recovering very well from Covid, but in addition, we're getting a little bit more excited about the over.

Over the counter market right, we're starting to see like the ear of those of the world start to talk about selling over the Internet and this is really targeted at a portion of the market Tony that doesn't really buy today is people with the mountain here theyre sitting without of hearing it and so there's a good opportunity and then lastly, I don't want the discounters, but.

And I know you asked a lot about usually but the balanced armature speaker automated line.

Still scheduled to go into production late this quarter late in Q3, and I think it may take us 9.

9 months from when it's fully installed to get it up fully running I'll put a couple of the full capacity but.

I'm seeing more places, where we can use that capacity to yeah. I think obviously the true wireless market is interesting, but there may be some places in the over the counter market. We're using this automated line makes sense and so so I think overall the hearing aid business also again shifting to all of our businesses that are above the corporate average.

The.

Capital allocation, an R&D spend of Jonathan 1 of the comment about Capex, Yes, sure Tony I mean, I mentioned, we will spend somewhere between 5% to 7% of revenues in 2021 on Capex call. It roughly $50 million about 60% of that is in our Mems business and it really focuses on.

Projects like our 8 inch conversion also some new product introductions that will be coming into the market next year and beyond.

Outside of the Mems area. We are we do still have some payments related to the VA automated line that we will be making this year and then in PD.

Some capacity and some.

The cost improvement opportunities that have really quick paybacks, and ROI, where you make the investments so that's pretty much it.

Let me just make 1 of their kind of comment plenty of things, we're especially I mentioned this just briefly on the previous call is that as we start looking at our markets per loans, Mike We're starting to think more.

I would call the more commoditized portion of the Mems microphone market and we're starting to think I would say more in sort of thing we're starting to actually sell die as opposed to finish microphones. So that the commoditized portion of the market can get access to the Knowles technology.

Without having to actually.

More about sell of lower gross margin products and that's another thing I think they'll start.

Having impact.

In 2022, I think of 1 last question about the PD growth.

Yeah.

What I would just say here is if you remember last quarter I talked about record bookings and I said, usually record bookings translate into.

<unk>.

Record revenue and Thats, what youre seeing in Q2.

The the bookings continue to be very very strong and this is even without the acquisition if I look at the numbers.

Even with the out of without the acquisition it was a record shipment quarter for PD even without.

Our acquisition so when you layer on the acquisition you start seeing these numbers.

You can see them are growing north of $50 million per quarter of revenue and the.

C from the Q2 results and so I think we still expect more growth.

Markets in 2022.

Possibly of the.

And I'm I'm hopeful there maybe a couple of more acquisitions that we can do.

Over the next 12 to 18 months Tony of I'd, just add to that.

To Jeff's comments on the PD growth I mentioned in my script that we expect PV the grow about 38% year over year. The bulk of that is actually organic growth of about 25% of that.

Position as the organic 13% is due to the acquisition so I think thats good.

Of course.

But the thanks for all of the kind of man if I can sneak in 1 just quick last 1 here.

The Malaysia, the Philippines, Covid kind of Reemerging, we're hearing from other covered companies that they've got the closure plans for a couple of days of this in fact here and there are you seeing any impact.

That growth next week or 2.

And the last week or 2 now.

We continue to monitor but.

We've been pretty good about managing.

Our factories were starting to actually see Tony of few of our fact, our factories are starting to get some amount of vaccinations people are starting to vaccinate. So we're hopeful that that.

We've really done our operations team and I would really commend them and give them a big shout out.

It really work through it and we really haven't had a lot of closures related to COVID-19.

Through the whole thing and so we'll obviously continue to monitor but right now I think we're in decent shape right now, but we got to keep monitoring.

Thanks, Jeff Congrats guys.

Yes.

Your next question comes from the line of Justin Dara from Baird. Your line is now open.

Hi, good afternoon.

What's the patterns are you seeing from your.

I'll kind of smartphone customer as you know given the.

Yes.

Well as it ties to the shortages.

Do you think is going to the attempt to rebuild inventories in small tons in the second half is that embedded in your guidance. How do you think you're going to be shipping of relative to demand in smartphones.

Maybe I'm not going to comment specifically to the largest customer, but let me give.

Maybe just a little of general color interest in that.

No.

<unk> and the capacity but.

Range.

I would sit there and say right now.

We expect pretty ripe up strong, but I would say we've factored into the guide that there is going to be some you know.

Shortfalls right relative.

<unk> 2.

What we possibly could really shipped in the quarter and so I think if we can work through some of these issues and I'll describe that we're starting to see a little bit of as you know.

Catching on whether I need the product, whether we can get some of the supplies that we need in the Mems microphone.

It's relatively limited.

For today, but we did factor some of this into the guide that you've given that there is a possibility that things could slow.

All of our upside growth could be limited by something that happened to the market, whether it be COVID-19 availability of wafers.

The other silicon from for us for our customers we factored.

For that day.

Okay. That's used for it and then as a quick follow up if you could expand into that zone.

The commentary in the Q&A that you're starting to scale.

The Sun dies.

Without actually lowering your gross margin.

You know what percentage of the.

Whether you or even the units, you're saying that could be by 'twenty 2 'twenty 3.

And what about the Asp's and that is the is it has of the typical of my K S.

How should I look at this for me what the contribution.

Yeah.

Obviously, the Asps are lower.

For a little bit of it because of the fact, we're just selling the die and potentially the ASIC that goes with it the wafers as opposed to selling the whole microphone, but.

Our target is that the gross margin should be above the corporate average by selling day.

And.

The markets that we're targeting here I would sit there and say is let's.

Let's use. The example, the very low end of the mobile market. The low end of the Iot market. The very low end of the of the.

Ear market right and I would sit there and say for.

For the most part we're not highly participating in a lot of these portions of the market today.

Where how big this could be.

Sure.

I.

I would sit there and say just from my perspective, and I Wouldnt put a timeline it but if we're not thinking of hundreds of millions of units.

Probably not worth pursuing.

Kind of in my mind, it's not we're not talking about youre trying to sell 10 million the di or something like that we're trying to sell hundreds of millions of di and.

Above.

Above the corporate average gross margin.

Quiet periods for thank.

Thank you.

Each of the.

Your next.

Question comes from the line of Chris Rolland from Susquehanna Financial Your line is now open.

Hey, guys. Thanks for the question.

Your handset market in particular of mobile market in particular.

This year, how should we think about seasonality and any differences in the seasonality.

Into December and maybe even into the March if you could.

Yeah.

Having a pilot in March, but I'll kind of give you of kind of my thought process.

Q3 in the Q4, which is.

You don't get last year.

Of our handset was much stronger in Q4 than it was in Q3 I would say that if you go back previous years, that's usually after the anomaly right that Q4 in handsets of stronger than Q3.

I'd say were going to return kind of more too.

The traditional.

Additional.

There you're going to see Q3 be pretty large relatively speaking and then Q for baby.

The down a bit right.

But here's the 1 caveat of course I got to give Christmas.

There's a lot of people that are using funds around the world from our largest customer.

Customer to Korea, the Theres lots of thoughts coming out of China, We really got to see the sell through on the.

The C like really late Q4 into Q1, how the how that's going to develop.

Understood and then.

Just some housekeeping items on the acquisition.

What did you guys pay for that and if I heard.

Correctly, I think the annual run rates of $20 million there at 50% gross margin.

And then when did it close in the quarter how much was in this quarter's number Chris we closed the acquisition on the first week of May and so you have.

A couple of months worth of.

The activity.

Let me make a comment that we knew going in the revenue might be a little lighter in the first couple of months, but it started moving up a little bit more in the next few quarters and the acquisition price, including real estate, we acquired was $79 million net of cash.

Excellent. Thank you guys.

Okay.

As a.

Or do you credit to ask the question. Please press star 1.

Your next question comes from the line of Sujit de Silva from Roth Capital. Your line is now open.

Hi, Jeff Hi, John Congrats on the progress here so looking at looking at some of the different growth area do you have.

It had from Tw as you have the balance armature incremental hearing health you were talking.

Talking about lets call it highlighting.

If you could talk just about which of those of you think of the better growth opportunities relatively in second half 'twenty, 1 or into 'twenty..2 just so we can get the rank ordering in AR.

Understand.

So let me I guess.

Kind of what I would I'd say about this is as more and more items the diversification of our markets.

The thing is I think we got a fair.

It reminds me of <unk>.

Of singles and doubles here and so.

I think the balance armature is of great opportunity, which is going to be expanding beyond I would say the true wireless but also the over the current market I think those are markets that are developing that I think should provide growth for us.

In 2022.

I think the.

The year market for microphones.

To still look positive for us although it is going to be I would say more in the future.

Or is there going to be more customers.

The success Besides just a few.

Say Iot continues to look very good for.

Fair enough.

In terms of you know, it's always exploring we're spending a lot of time developing programs around the long tail.

The debt to pursue long tail customers with reference designs.

Which which should drive more volume the cause.

A few market is interesting right.

The really on a nice run the last year and of have worked.

Work from home I think there's a little bit of difference of opinion with 22 looks like I mean, I guess, what I would say maybe it won't be the fastest growth as we've seen because of work from home over the last year year and a half, but we think inventories are still low and so we think that things look decent next year and compute.

<unk> got about hearing health.

For us.

And then precision devices.

Current day defense in Med Tech look to continue.

With the continued to be strong defense with RF filtering, especially now with this acquisition that gives us a broader range of our products in med Tech where just position.

In the right places, we're getting some new Apple.

Ah patients beyond just some of the traditional implantable applications that we've had.

And then lastly is the EV market I think we're still assessing the total size of this market could be in 3 years to 4 years, but we keep focusing on I would call it high voltage high temperature applications and.

Africa vehicle, where we have a.

A distinct advantage.

And we're not selling.

Jelly Bean capacitors were selling capacitors that are of high value and this year I think it could approach roughly $15 million in the EV market of which 3.4 years ago. This was zero so.

I don't want to see if there is like there is no 1 of home run here, but we've got so many great things going in the diversified set of markets. So I feel pretty good about all of these markets.

Okay I appreciate all of the color, Jeff and then.

I don't know if this was asked already discussed but on the supply chain constraints that are around you guys and youre running tight yourselves any impacts on your revenue.

And your ability to ship this quarter and can you talk about sort of incrementally 1 of those constraints are getting worse stable or improving would be helpful.

Yes, I would say we are having some constraints.

On the Mems microphone side I'd say the PD, we're not having any constraints hearing health I would say there is I wouldn't say constraints I would say.

There's a lot of demand and we're keeping up but it's not really like we're having a constraint. It's just the capacity is pretty full but in Mems mics I would say that we factored into this.

The guide that there is some constraints across certain products.

And so we're.

We're working through this really hard to gauge.

To try to solve these problems.

And I'm, hoping that.

We will see some of the rectify itself late in the quarter in Q4 in terms of the trajectory I haven't seen any major changes in the lab no no major changes I think relative even the been anticipating this because I think.

What you have here is you have just generally speaking do you have the.

The seasonal market going up with tightness in supply right you already have that right and so we didn't have as much as of.

That in the in the first half right and so so the back half.

In Q3, specifically, we're kind of factoring of little bit.

Youre, saying, well, we actually could ship more if we had more.

Okay. Thank you a J.

Seasonality is strong for great. Thanks, guys.

Thank you.

Speakers I'm showing no further questions in the coupons convenience.

Great well. Thank you very much for joining us today as always we appreciate your interest in Knowles.

In the he forward to speaking with you on the next earnings call, Thanks and Goodbye.

The Houston gentlemen, this concludes today's conference call you may now disconnect.

Thank you for participating.

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And we look at.

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