Q3 2022 Knowles Corp Earnings Call
Good afternoon, and welcome to the Knowles Corporation third quarter 2022 financial results Conference call. My name is Harry and I'll be your operator today.
Ask your question during the Q&A P style store followed by one on your telephone keypad.
With that said with opening remarks is Sloan Bohlen Investor Relations. Please go ahead.
Thank you Harry and welcome to our Q3 earnings call I'm Sloan Bohlen, presenting with me on the call today are Jeffrey New our president and CEO and John Anderson, Our senior Vice President and CFO . Please be advised that today's conference call is being recorded by now you should have received a copy of our earnings release and webcast slides. If you have not received.
Both documents are available on the IR section of our website at Knowles Dot Com. Our call. Today will include remarks about future expectations plans and prospects for Knowles, which constitute forward looking statements for purposes of the safe Harbor provisions under applicable Federal Securities laws such forward looking statements include comments about demand for company products anticipated.
Painted trends in company sales expenses and profits and future financial outlook 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 SEC filings, including but not limited to the annual report on Form 10-K for the fiscal year end.
At December 31, 2021 periodic reports filed from time to time thereafter, 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 as required by law. In addition, we have provided both GAAP and non-GAAP financial measures this quarter.
As referenced on this call will be all references on this call will be non-GAAP on a continuing operations basis, unless otherwise indicated please see our earnings release and webcast slides available at our website at Knowles Dot com and in our most current report on form 8-K filed with the SEC today for a reconciliation to the most direct.
The comparable GAAP measures and with that let me turn the call over to Jeff who will provide some details on our results Jeff.
Thank you Sloan and thank you to everyone for joining us. This afternoon, the third quarter was above our expectations, but clearly a difficult one for markets and industries around the world.
<unk> I get into the results and market commentary I'd like to highlight the aggressive stance. We've taken in response to this backdrop.
As announced on our last call we are accelerating the strategic repositioning of our Mems microphone business to further deemphasize our exposure to commodity products.
We have been very proactive and have already seen the benefits of this strategy and our second half results now.
Now, let me get into the financials for the quarter.
<unk> generated $178 million consolidated revenue, which was down 24% versus the prior year, driven primarily by very challenging market conditions in the consumer electronics portion of our audio segment.
In contrast, precision devices delivered record revenues of $64 million and grew 16% year over year as we continue to see robust demand across most end markets.
While challenging audio segment revenue largely in line with our expectations due to factors. We cited last quarter, specifically, a weak backdrop for consumer electronics demand excess channel inventory across most markets and persistent COVID-19 related shutdowns in China.
On a consolidated basis those delivered against each of our guided performance metrics for the third quarter revenue gross margins and adjusted EBIT margins were all above the midpoint and EPS was above the guided range.
Cash generated by operations was near the low end of our range this quarter due to higher than expected inventory and timing of collections we.
We anticipate strong sequential improvement in cash flow in the fourth quarter and remain confident in our previously stated view of a faster path to a medium term free cash flow margin target of 15% to 17%.
Now I'd like to provide perspective on the current demand dynamics in each of our end markets. We understand tracking demand of our products is challenging, especially given the diversity of our markets and the cross cards, such as inventory corrections and strategic mix decisions like the ones. We have made in our Mems microphone business today I would like to provide additional <unk>.
To help understand our business.
First in precision devices, we continue to see strong end market demand driven by secular trends across defense Med Tech and E D.
We still see organic growth in the mid to high single digits going forward, where an addressable market that is over $1 billion in growing.
In addition to strong growth.
Segment continues to show resilience in the face of market uncertainty with bookings in the quarter continuing to exceed expectations.
Both of our product categories high performance capacitors, and RF filters continue to demonstrate our superior technical capabilities, which provide a competitive advantage for Knowles in markets, where we have strong tail was today and in the future.
Now I'll turn to our audio segment.
First the hearing health market continues to be much less volatile in the volatile in the face of weak consumer demand similar to the pattern. We have observed in previous downturns. In fact, we remain confident the business will provide 3% to 5% annual growth over a cycle and are increasingly optimistic about the over the counter hearing aid demand based on recent customer.
No no announcements and partnerships.
Given these market dynamics and our strong competitive offering for acoustic solutions. We will continue to invest in hearing health and believe it is an underappreciated asset in our portfolio.
Now onto our Mems microphone business, while we expect sequential revenue improvement in Q4, the growth is driven primarily by new product introductions by our customers as opposed to positive changes in end market demand or sentiment.
Headwinds across most end markets and geographies, including Pcs and smartphones.
Additionally, inventory in the channel is still being worked through which presents additional obstacles to resume year over year growth.
We feel validated our decision to move quickly to reposition the Mems business for for the future by further de emphasizing the commodity portion of this business.
I am pleased to see the impact of our strategy show up in our second half results and I'm confident the Mems microphone business is well positioned to improve our revenue and profitability when the market recovers.
On that point, let me speak to the drivers and considerations that went into our strategic repositioning and why we believe it will add significant value for shareholders in the quarters and years ahead.
Over the last few years, we have taken the challenging global market conditions to accelerate our transformation.
This transformation is already delivering results with more than 60% of our revenue coming from products with above corporate gross above average corporate gross margins.
Our strategy to focus on higher value products and markets has been coupled with strong execution and dedication from the Knowles team in the face of significant macro challenges caused by the pandemic and its unpredictable after effects.
I want to thank everyone in the organization for their hard work and execution in the face of these Jones challenges.
Our strategy is working which gives me strong conviction in our ability to achieve the midterm mid term financial targets. We introduced last November sooner than expected with that let me turn the call over to John to provide more detail on our quarter. Thanks.
Thanks, Jeff we reported third quarter revenues of $178 million in line with expectations and down 24% from the same period, a year ago, driven by weak demand from microphones, partially offset by continued strength in the precision devices segment.
Audio revenues of $114 million were down 36% from the same period, a year ago due primarily to weak global microphone demand for consumer electronics continued COVID-19 related lockdowns in China, and excess PC and smartphone channel inventory. In addition, hearing health market demand was lower in the quarter as our cut.
<unk> pulled forward orders into the first six months of the year.
The precision device segment delivered record revenues of $64 million up 16% from prior year with growth driven by increased demand in defense Med Tech and <unk> end markets.
Third quarter gross profit margins were 38, 5% above the midpoint of our guidance range and down 330 basis points from the same period a year ago.
Audio segment gross margins finished at 670 basis points below 2021 levels, driven by lower factory capacity utilization and unfavorable mix in our Mems microphone business, partially offset by lower factory spending and favorable foreign exchange rate impacts.
Sure.
Precision devices segment gross margins were 47, 5% up 50 basis points from the prior year, driven by favorable mix and productivity gains.
R&D expense in the quarter was $17 million down more than $3 million from the prior year, driven by lower incentive compensation costs restructuring savings and timing of project spending in Mems microphones.
SG&A expenses were 26 million $1 million lower than prior year levels, driven by lower incentive compensation cost.
For the quarter adjusted EBIT margin was 15, 8% 280 basis points above the high end of the guided range driven by the timing of project spending favorable foreign currency impacts and higher than expected savings from the restructuring program, we announced early in the third quarter.
EPS was <unk> 25, which was <unk> <unk> above the high end of our guidance range, driven by higher EBIT and a lower than expected share count.
Now I'll turn to our balance sheet and cash flow cash and cash equivalents totaled $42 million at the end of the quarter cash from operations was $19 million near the low end of our expectations, primarily due to higher than expected net working capital.
Capital spending was $11 million in the quarter and we repurchased approximately one 1 million shares at a total cost of $18 6 million.
Year to date, we've repurchased two 3 million shares at a cost of $44 million.
Moving to guidance for the fourth quarter, we expect total company revenue to be between 202 hundred $20 million up nearly 20% sequentially driven by growth in both the audio and precision device segments precision device segment is expected to deliver another quarter of record revenues.
And be up more than 3% sequentially driven by continued strength in med Tech and defense.
Video segment revenues are expected to increase 26% sequentially driven by the timing of our customers' new product introductions and typical seasonal patterns in hearing health.
We estimate gross margins for the fourth quarter to be approximately 36, and a half to 38, 5% down 100 basis points sequentially, driven primarily by lower factory capacity utilization and a higher proportion of microphone sales in our audio segment, partially offset by benefits of the restructuring program.
Announced in the third quarter.
R&D expense is expected to be between 16, and $18 million and selling and administrative expense is expected to be between 25 and $27 million.
We're projecting adjusted EBIT margin for the quarter to be approximately 17% and EPS to be within a range of 31 to 35 per share. This assumes weighted average shares outstanding during the quarter of 94 million on a fully diluted basis.
We're forecasting an effective tax rate of 12% to 16% for the quarter.
And for the fourth quarter, we expect cash generated from operations to be between 40, and $50 million capital spending to be $10 million and we expect to exit 2022 with zero net debt.
I'll now turn the call back to our operator to open the line for questions operator.
Thank you very much as a reminder, if you'd like to ask a question. Please I'll stop in about one on go to the phone keypad now.
Now first question of the day.
Is from Anthony Stoss of Craig Hallum until your line is now open.
Hey, guys.
Nice results all things considered maybe let me start with John .
I'm curious just the moves you're making strategically can you give us a glimpse into what you think gross margins might look like in 2023 or just.
A range of how much it might be up kind of year over year and then after that Jeff I'd love to hear kind of your view on the PD Division. The visibility you have for 2023 lead times.
Anything on that.
Order cancellations et cetera would be helpful.
Sure.
Take the first one person if you don't mind I'll take the BD question first.
I would sit there and say right now if you look at what's been happening the bookings are still exceeding expectations. Obviously, you know the bookings can be cancelled in some cases, but the reality is a lot of our business in defense and met our custom products. So when we received these orders. These are for like are noncancelable.
Orders really like maybe like slightly pushed out we're not seeing really anything in that going down EV I would sit there and say the bookings have been very strong.
The deliveries are probably been a little less strong and it's been we think but we are hearing a lot of still some chip shortages that are still holding back the demand, but as I look into 'twenty three.
Our design pipeline for E V looks very good for.
'twenty three.
The only market I would say that we see.
I would say a little bit of weakness is part of why you live with that.
I'll catch all well wishes.
Kind of we call it an industrial which is kind of really other and but I wouldn't say, it's dramatic at this point like we're not seeing like a massive drop off we're just saying it's not growing at the rate that we had seen earlier in the year. So overall you know if I think about it.
Bookings are with PD and going into the fourth quarter, you know I feel very comfortable.
At least at this point through through the first quarter and probably even the second with where things are headed based on the backlog that we have.
Yeah, Tony in terms of gross margins, we reported gross margins of 38, 5% in Q3. The guide the midpoint of the guide is 37 five in Q4.
Those are lower than we had prior year.
The Delta Delta is really related to our Mems microphone business capacity utilization, we're working down inventory, we're actually in Q3 and Q4, we're running it at close to 50% capacity utilization. If you went back to a more normalized level it add two to 300.
Basis points to the total company gross margins you'd see them both in both quarters slightly above 40% that's really the biggest.
And I see that continuing at least in the first quarter of Q1 2023.
It is just outside of the Mems microphone I mean, you can see the PD margins are holding steady last five quarters, they've been above 45%.
I see that continuing and maybe even some potential improvement there and you don't see it but our hearing health net margins to well above the corporate a stable stable and well above the corporate average so hopefully that provides some flavor.
One more thing I think as John said.
Our sales are higher than our capacity would reflect or a unit sold are higher their capacity might reflect but you could see in our balance sheet. The inventory has grown and we felt it was a pretty prudent for us right now and into the first quarter to really kind of slowed down production and work on the inventory situation or in my opinion in our midst.
Mike This is Mike.
Got it and then maybe one last one for John when you look at Opex say exiting are.
The December quarter of 2023, what's the rough kind of quarterly Opex.
Ballpark, yes.
Based on the guide I provided today, you know, we're kind of in that 40 to 43 million level in Q2, and Q3 and Q4.
Q1, we will have normalized.
<unk> comp levels will have some merit increases I would say like the $45 million range is a good starting point for a run rate going into 2023 and that should be fairly stable over the course of the year.
About $45 million, so it was up year over year.
$45 million, what's that Tony.
Not down year over year that you guys were making some moves to try to cut costs well that incentive comp is the biggest we have been very very clear that the incentive comp is not is not going to pay out that well. This year. So so you know.
And we're gonna be below plan, and we're going to take that back up to the plan in a in 'twenty three so thats why youre seeing kind of this little bit of a rise, but I still kind of in that $45 million run rate is a good.
A good range given we will have some merit increases and going back to a more normalized level of incentive comp costs.
Okay. Thanks, guys I appreciate it.
Yep.
Our next question is from the line of Bob Leduc from CJS Securities. Your line is now open.
Thanks, Hey, good afternoon, and congratulations on strong operations in the face of a tough market.
Thanks, Bob.
I wanted to just maybe taken a little further on the discussion in terms of give us a sense of you know inventory.
Inventory versus end market demand kind of when you see the balance and how much impact is kind of built into expectations for Q4, and I think John you said, maybe there'll be still a little bit of a headwind in Q1, but give us a sense of like when do you see this becoming imbalance.
Yeah, let me kind of like they can talk about this and I guess I would I would focus a little bit probably back ended up the PC market because that one got the data that's most readily available and I think some of what representative although something maybe a little bit worse, something maybe a little bit better, but you know I think if you look at what the Mark.
It is saying right now the PC market itself and unit demand is going to be down a little over 20% now that's what people are saying and remember when we started this year. The PC market was planning for 5% to 10% growth right and so they were buying and we and we were ordering and buy for 5% to 10%.
So our estimate is there somewhere probably a neighborhood of four to six months of excess inventory out there and it's clearly starting to be worked out.
But I think the exact date it all depends on demand yeah, I guess, what I would sit there and say for right now what we see is it's probably going to continue through Q1 does any of this inventory overhang. That's again, our customers inventory overhang now I'll, let John come because you know our inventory overhangs, a little bit different but why don't you comment on that.
Yeah, Bob as it ended up and you probably haven't had a lot of time to see our Q, but our inventory actually increased about $40 million from the end of 2021. So we're $1 50 up to about 194 at the end of Q3, we do expect some reductions to inventory in Q4, so our selling volume is good.
And to be higher than our production volume as we kind of work this inventory down and so that should be a little tailwind for us in Q4 in cash flow and I would expect as we go into 'twenty three we won't have the headwind on inventory that we had this year again, we had a call it $40 million build in headwind.
The first three first three quarters of this year and it's really given that you know pretty abrupt demand drop starting kind of in the second.
Second quarter and on top of that we have commitments with most of our material suppliers and we were unable to cancel those commitments. So we still had material coming in but again, we do expect reductions in inventory beginning this quarter, but again I just highlight again I know it to the last question I think its important point that if we were not dealing with us.
Inventory situations and running our capacity at a more optimized level. You would you you would've saw our gross margin as a company well over 40% in Q4.
Got it okay, great and then I.
I know, we can't really kind of dig in and see this entirely but maybe give us a sense of the kind of the demand expectations for hearing health next year and and also in I know they're different but.
Similar in it and truly wireless how does that market kind of evolving and what do you see for it as well for next year in general.
Yeah. So.
I think just to be clear on the true wireless you're talking about the balanced armature receivers in the true wireless correct, that's what you're referring to yes.
Yes, yes, yes.
Yeah, Okay. So first I'm hearing health.
To give you the exact number for hearing health, but I think if.
Yeah, we look at this data pretty regularly.
I would sit there and say is it.
If you go back and I don't have the exact numbers in front of me, but if you go back to 18 and look we're going to finish in 'twenty to the hearing health business has been growing at a CAGR of about 3% and that's through the pandemic right.
So yeah, you know I'm not going to sit there and say it wont be it could be four four and a half it could be two five it depends on inventory and channel yeah, there's like what's new products go to production, but we.
Saying that this is a GDP plus business over a cycle and that's how we've been very resilient and very resilient very resilient.
I made the comment you know I spent a lot of time with the hearing aid customers their expectations for this year have come down a little bit, but just kind of give you an idea of when I talk to our customers. They expected, 4% to 6% unit growth. This year now theyre expecting maybe two to three right. So that's the kind of.
What we're talking about in terms of instability due to market conditions.
So yeah, yeah Gee people out so that's kind of what we think about.
I think on the OTC LTC.
LTC market also though I think this could be an upside yeah. I don't know if you saw theres been a lot of recent announcements are Walmart that's by Sony you can look up some of these these announcements, but more and more people are starting to look at this market, we will see how it develops but I'm incrementally more optimistic about the next why say GDP plus when it's granted growing at GDP in the past.
Last question on the true wireless.
You know I think where we are here is we've got we've got a number of things in production.
Next year, we're focused on trying to fill this capacity, but we're also focused on making sure we keep asp's high.
And at the gross margin on the balanced armature speakers for the the true wireless.
Headsets are high so I'd say that my expectations are probably modest relative and tucked inside to the the whole hearing health business, but it hasn't yet.
The ability to be pretty accretive in terms of adding to our gross margin.
Okay, great. Thank you.
Thank you and our next question is from the line of Tristan Tristan Your line is now open.
Hi, This is Tyler on for Tristan Thanks for taking the questions digging a little deeper into the OTC market should we expect a potential inventory ramp for retail over the next few quarters.
Yeah, I mean, I would sit there and say.
There may be some but I think that the level maybe different than you think of like a traditional consumer product we.
We do expect you know.
As we look at.
The people who are introducing over the counter hearing AIDS, we think we have.
Probably higher than we are sure that we have at our hearing aid business based on the design wins that we know about the content is very similar to what it is in our hearing aid hearing aid business. So so so.
We don't see any difference in ASP or gross margin.
Yeah, there will be a modest let's say a modest inventory ramp next.
Next year I think we just have to watch how this develops and how come.
Customers take to these over the counter hearing AIDS.
One of the things you see on the positive of course, you don't have to go into an audiologist. So it's easier for someone to get access but on the reverse side.
You can sit there and see like the hearing AIDS are being introduced somewhere in neighborhood of a pair for $7 99, all the way we've seen 11 99. So these aren't at a tremendous discount to what you could buy a couple of hearing AIDS.
From an audiologist, let's say a costco in the retail channel.
Great. Thanks, and then as we think about more the longer term how should we look at the potential for M&A.
Yeah, I mean, I think we've shown a definite a desire to do M&A through action in our PD organization. Our PD group. We've done I think now five acquisitions in 2017, our last one being about a year and a half ago.
We acquired IMC at our filter company in Southern California.
I would sit there and say the valuations have been very high and we want to be very disciplined about what we do but it is a target rich environment and we are continuing on a regular basis to assess and.
And if we find something that makes sense strategically for us it fits either expanding our product portfolio moving us into new markets.
We're going to we're going to be active but just be temporary ones expectation that we're going to be disciplined in what we buy and making sure that it makes sense from from.
Multiple.
It fits our profile of what we're looking for yeah, Tyler I'd just add that you know as I mentioned in my script.
We're going to exit 2022 with essentially no net debt, we've got very strong expectations for cash flow in 2023. So we can continue our stock repurchase program and make strategic acquisitions, yes isn't it either or.
That's a good point I think we've got we've got a fair up because of the fact that we really kept the balance sheet clean we've got a fair amount of dry powder here to do M&A, but again that doesn't mean, we should we got to find the right opportunities.
Great I appreciate it guys.
Yeah.
As a reminder, if you would like to ask a question. Please I'll start off with the one on your telephone to keep out now.
Our next question is from the line of <unk> Silva of Roth Capital <unk>. Your line is open.
Hi, Jeff Hi, John can you remind us in the audio my guess is the audio microphone business can you remind us the gross margin.
Mixed dynamic that was unfavorable this quarter I think of it the restructuring youre going to structurally improve the mix. So can you talk about what the near term audio mix mix was okay. Yeah. There is some there is some mix you know that.
Impacting the business there is some but I would say the overwhelming thing that we're really looking at here and again.
Our company gross margin would've been over over 40% closer to 41% without without the capacity utilization issues. So it's usually when I think about this we're starting to see some of the benefits of course of the restructuring.
The majority will be in there, but you know when you are running 50% of our capacity.
It's very difficult to be a super efficient with your fixed overhead and so you know again, we're selling a lot more than that than that 50% of capacity and you know I think again. This will go probably into the first quarter as we tried to work on inventory, but once this is done I think we will pick up where we kind of left off in terms of having the right mix.
Focusing on high margin business with new products, and we will have a cost structure that fits that we think we can we can keep relatively full the whole year and just to add just a little bit of clarity the mobile business mobile mic Mems microphone for mobile we expect to be below 20% of total revenues in 2022.
Got it okay.
Okay, and then switching over to the P. D. The automotive end market I'm curious if the if the nature of customer engagements are multiyear sort of commitments or whether you kind of have to go year by year and if you can start to see programs and pipeline layering on there for visibility and multi year visibility.
Yeah, I would sit there and say you know I think it is platform based so they are kind of but I think the difference do you think about these these are multi year visibility I'd say a lot more challenging in the EV market and it would be in the traditional.
Combustion engine market and I'll tell you why do.
You sit there and you see all the platforms we're working on.
It's a who's who of the automotive industry, but the question is who is going to be the winners in three or four years like who's going to be selling a lot of these EV, it's much more difficult to predict that right now our goal is we view this as greenfield it's al.
Brand New high voltage application that has not existed even older versions of of Evs and we're trying to again capture as much of a greenfield as we can in terms of design wins.
And I would say one of their pieces. We also have different levels of content per platform as well. So it's a little bit more challenging to look at and say what the what that's my business. If I look at what it looked like you know again, it's gonna be a little north of $15 million this year.
If you go back.
Years ago. It was half that we think it can double again you know in the next two to three years and I think that's probably on the conservative side and that's based on existing that's based on existing designs and so I think if we.
Win with the winners this it could be a lot bigger and I, but.
But I think it was 30 doubling that business in the next two to three years is very realistic on the conservative side.
Okay helpful color. Thanks, guys.
Okay.
Thank you and our next question is from the line of Christopher Rolland of Susquehanna Group Christopher Your line is now open.
Thanks and I'll.
I'll I'll just piggyback on synergies for a second there his question.
In precision devices.
You just gave us easy, but I was wondering if you could talk about.
The the size of defense in Med Tech.
And their relative growth rates for each and how you see it over the next year or two.
Yeah. So so first on defense it depends it's becoming a larger and larger portion of our business I think.
It is gonna be approaching 40, 40%, maybe 40% of our P. D. A.
About $100 million business, now and that's up pretty significantly since into 'twenty.
Here.
A little over 70 million couple of years ago. So that business has been growing at a pretty rapid rate.
And the combination there is no one acquisition in there, but it's also organic is organically growing pretty rapidly to I'd say just generally speaking.
Christmas that the defense market is looking very positive for the type of products, we sell which are our radio frequency filters for our radar Jammers I mean, it's looking very positive and so you know as we look into next year, we see another strong organic growth year for defense and I would say.
From my perspective. This is a pretty baked this is not like theres a lot of risk that these orders are going to come in and so we feel pretty good about that.
On the led business.
Not counting hearing health.
I think this is another business that's been growing pretty rapidly now I'll caution you. These growth rates are probably a little higher than they will be in the future because remember we kind of had this downward pressure on the business during COVID-19.
Kind of brought that business down, but but this was this was a little over $20 million business in 2020.
It's approaching $40 million in 'twenty, two and so I wouldn't expect that growth rate going forward.
But you could see you know 567% growth going forward.
Based on the design wins, we have and where we're at so I think it is.
Very positive the med tech business portion of PD I'd, just add to Chris the defense and medical attractive gross margins, yes, it's very attractive.
For sure Yeah P. D. Overall is is excellent thanks, guys and then.
As a follow up first a clarification you talked in the Mems microphone business about new product introductions are wanted to know what the deal. There is it is it just.
Higher S N R or is there something else and are there better asps with that any details there would be great and then just a bigger picture question you know what what's the kind of next big thing for you guys. I mean previously we've talked about balanced armature speakers or O T C. Here.
AIDS you know if there was any upside to it.
Call It street models or something like that from next year is there a product or something like that that that that could accelerate growth for you guys.
Yeah, and you're supposed to talk about specifically in the Mems microphone business.
You know in the Mems microphone business, Texas, I'd say, we have a constant.
Group of introduction of new products, but what I was referring to new product introduction Jeffrey Chris I was referring what was driving with our customers' new product introductions as opposed to Oh got it got it.
But you know I mean.
Just say you know in terms of new products I don't want to get too far ahead of ourselves. We've got some exciting developments in terms of different a different types of microphones I'm not sure we're ready to discuss this yet, but we got some exciting stuff that we're working on that I think hopefully next year, we'll be able to begin talking about but it's a different class of them.
Microphone and anything that we do today and so we're working on this very hard in our R&D group I would say that's probably.
Of interest and then the other one is we still think that theres going to be some opportunity over the next two to three years to grow in.
Our VR type applications are they are requiring microphones and they are in some cases, requiring a different type of microphone and so I think that might be an opportunity for us to have some growth in the Mems microphone business.
You know I would say hopefully very good gross margins.
Okay.
Hi, it's exciting thanks guys.
Yeah.
Graham we have no further questions registered for today. So this concludes the Knowles Corporation third quarter 2022 financial results Conference call. Thank you all for joining and you may now disconnect your lines.
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