Q2 2024 Knowles Corp Earnings Call

Thank you for standing by. My name is Kayla and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2024 Knowles Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: At this time, I would like to welcome everyone to the Q2 2024 Knowles Corporation earnings conference call. All lines have been placed on mute to prevent any background noise.

Operator: At this time, I would like to welcome everyone to the Q2 2024 Knowles Corporation Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator: After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star in one.

Speaker Change: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press the star and 1.

Sarah Cook: I would now like to turn the call over to Sarah Cook. You may begin. Thank you and welcome to our second quarter 2024 earnings call.

Operator: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press the star followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again press the star and 1. I would now like to turn the call over to Sarah Cook. You may begin.

Sarah Cook: Thank you, and welcome to our second quarter 2024 earnings call. I'm Sarah Cook, Vice President of Investor Relations, and presenting with me today are Jeffrey Niew, our President and CEO, and John Anderson, our Senior Vice President and CFO.

Speaker Change: I would now like to turn the call over to Sarah Cook, you may begin.

Sarah Cook: I'm Sarah Cook, Vice President of Investor Relations, and presenting with me today are Jeffrey Niew, our President and CEO, and John Anderson, our Senior Vice President and CFO. Our call today will include remarks about future expectations, plans, and prospects for Knowles, which constitute board-looking statements for purposes of the safe harbor provisions under applicable federal securities law. Board-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 the risks and uncertainties and then companies' SEC filings, including but not limited to.

Speaker Change: Thank you and welcome to our second quarter 2024 earnings call. I'm Sarah Cook, Vice President of Investor Relations, and presenting with me today are Jeffrey Niew, our President and CEO , and John Anderson, our Senior Vice President and CFO .

Sarah Cook: 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. 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 the risks and uncertainties in the company's SEC filings, including but not limited to the annual report form 10-K for the fiscal year ended December 31, 2023, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release.

Speaker Change: 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.

Speaker Change: Board-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.

Speaker Change: The company urges investors to review the risks and uncertainties in the company's SEC filings, including but not limited to The annual report, Form 10-K , for the fiscal year ended December 31st, 2023

Sarah Cook: The annual report formed 10-K for the fiscal year ended December 31st, 2023, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release. All four looking statements are made as of the date of this call, and Knowles does not claim any duty to update such statements except as required by law.

Speaker Change: Periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release.

Sarah Cook: 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, pursuant to Reg G, any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at Knowles.com and in our current report on Form 8K filed today with the SEC. This will include a reconciliation to the most directly comparable gap measure.

Speaker Change: 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.

Sarah Cook: In addition, pursuant to RegGee, any now and get financial measures referenced during today's conference call can be found in our press release posted on our website at Knowles.com and in our current report on Form 8-K filed today with the SEC. This will include a reconciliation to the most directly comparable GAAP measure. All financial references on this call will be on a non-GAAP, continuing operations basis unless otherwise indicated.

Speaker Change: In addition, pursuant to Reg G, any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at Knowles.com and in our current report on Form 8K filed today with the SEC.

Speaker Change: This will include a reconciliation to the most directly comparable gap measure.

Sarah Cook: All financial references on this call will be on a non-GAAP, continuing operations basis unless otherwise indicated. We've made selected financial information available in webcast slides, which can be found in the Investor Relations section of our website. With that, I'll turn the call over to Jeff, who will provide details on our results. Jeff? Thanks.

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

Sarah Cook: We've made selected financial information available in webcast slides, which can be found in the Investor Relations section of our website.

Speaker Change: We've made selected financial information available in webcast slides, which can be found in the Investor Relations section of our website.

Jeffrey Niew: With that, let me turn the call over to Jeff, who will provide details on our results. Jeff? Thanks, Sarah, and thank you all for joining us today. Let me start by saying I'm pleased with the performance of our business in the second quarter. We continue to execute on our plan of focusing on high growth and markets where we have differentiated solutions, and in Q2, the business performed as we expected. We deliver 205 million in revenue, which is at the midpoint archive range and represents 18% growth on a year-over-year basis. EPS of 24 cents and cash from operations of 25 million were both in line with their expectation and at the midpoint of archived range.

Jeffrey S. Niew: Thanks, Sarah, and thank you all for joining us today. Let me start by saying I'm pleased with the performance of our business in the second quarter. We continue to execute on our plan of focusing on high growth and markets where we have differentiated solutions, and in Q2, the business performed as we expected. We delivered $205 million in revenue, which is at the midpoint of our guided range and represents 18% growth on a year-over-year basis. EPS of $0.24 and cash from operations of $25 million were both in line with our expectation and at the midpoint of our guided range.

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

Jeff: Thanks, Sarah, and thank you all for joining us today. Let me start by saying I'm pleased with the performance of our business in the second quarter. We continue to execute on our plan of focusing on high growth and markets where we have differentiated solutions and in Q2, the business performed as we expected.

Speaker Change: We deliver $205 million in revenue, which is at the midpoint of our guided range and represents 18% growth on a year-over-year basis.

Speaker Change: EPS of 24 cents and cash from operations of 25 million were both in line with our expectation and at the midpoint of our guided range.

Jeffrey Niew: From a segment perspective, Medtech and specialty audio revenue grew 4% sequentially as the end market for our hearing health products remained strong. The market dynamic of the aging population, expansion of the middle-class globally, and improved hearing new penetration all remain favorable. We reported adjusted EBITDA margins of over 45%. Urban by continued operational execution and our sustained success of new product adaption. We expect the strength to remain throughout the year within 2024 and for 2024 to be a year of growth for the MedTech and especially audio assignment. Despite the continued headwinds from normalization of inventory levels in our industrial and debuted distribution and markets, precision devices delivered solid results in the second quarter.

Jeffrey S. Niew: From a segment perspective, MedTech and specialty audio revenue grew 4% sequentially as the end market for our hearing health products remained strong. As the market dynamics of the aging population, expansion of the middle class globally, and improved hearing aid penetration all remain favorable, we reported adjusted EBITDA margins of over 45%, driven by continued operational execution and our sustained success of new product adoption. We expect the strength to remain throughout the year within 2024 and for 2024 to be a year of growth for medtech and specialty audio.

Speaker Change: From a segment perspective, MedTech and specialty audio revenue grew 4% sequentially as the end market for our hearing health products remained strong.

Speaker Change: The market dynamic of the aging population, expansion of the middle class globally, and improved hearing aid penetration all remain favorable.

Speaker Change: We reported adjusted EBITDA margins of over 45%

Speaker Change: driven by continued operational execution and our sustained success of new product adoption.

Speaker Change: We expect the strength to remain throughout the year within 2024 and for 2024 to be a year of growth for the medtech and specialty audio segment.

Jeffrey S. Niew: Despite continued headwinds from the normalization of inventory levels in our industrial and distribution end markets, precision devices delivered solid results in the second quarter. Driven by the acquisition of Cornell, revenue was up 55% on a year-over-year basis.

Speaker Change: Despite the continued headwinds from normalization of inventory levels in our industrial and distribution end markets, Precision Devices delivered solid results in the second quarter.

Jeffrey Niew: Driven by the acquisition of Cornell, revenue was up 55% on a year-over-year basis. Adjusted EBITDA margins increased nearly 260 basis points sequentially on flat revenue, driven by strong operational execution and improvements in growth margin within Cornell. We have begun to see signs of inventory reduction, our distribution channel and industrial and markets, and we are ready to capitalize on growth as the man improves. I would also add our design activity remains robust, and we are well positioned to grow as the market recovers.

Speaker Change: Driven by the acquisition of Cornell, revenue was up 55% on a year-over-year basis.

Jeffrey S. Niew: Adjusted EBITDA margins increased nearly 260 basis points sequentially on flat revenue driven by strong operational execution and improvements in gross margin within Cornell. We have begun to see signs of inventory reduction through our distribution channel in industrial and retail markets, and we are ready to capitalize on growth as demand improves. I would also add that our design activity remains robust, and we are well positioned to grow as the market recovers. On our consumer microphone business, we continue to progress to a conclusion in the strategic alternatives process, taking into consideration all stakeholders from customers to suppliers and shareholders to employees.

Speaker Change: Adjusted EBITDA margins increased nearly 260 basis points sequentially on flat revenue driven by strong operational execution and improvements in gross margin within Cornell.

Speaker Change: We have begun to see signs of inventory reduction in our distribution channel in industrial end markets, and we are ready to capitalize on growth as demand improves.

Speaker Change: I would also add our design activity remains robust and we are well positioned to grow as the market recovers.

Jeffrey Niew: On our consumer mass microphone business, we continue to progress to a conclusion on the strategic alternative process, taking into consideration all stakeholders from customers to suppliers and shareholders to employees. From an operational standpoint, CMM financial results in the quarter were solid. Revenue was up 9% for the prior quarter, and adjusted EBITDA margins grew by 330 basis points.

Speaker Change: On our Consumer Mevs Microphone business, we continue to progress to a conclusion on the strategic alternatives process, taking into consideration all stakeholders from customers to suppliers and shareholders to employees.

Jeffrey S. Niew: From an operational standpoint, CMM's financial results in the quarter were solid. Revenue was up 9% from the prior quarter and adjusted even to a margin screw by 330 basis points. Before I conclude, I would like to touch on our capital allocation activity. In the second quarter, based on our continued robust cash generation, we repurchased $25 million of shares while also reducing our debt by $34 million. We expect sustained cash generation for the remainder of 2024.

Speaker Change: From an operational standpoint, CMM financial results in the quarter were solid. Revenue was up 9% from the prior quarter and adjusted EBITDA margins grew by 330 bp.

Jeffrey Niew: Before I conclude, I would like to touch on our capital allocation activities. In the second quarter, based on our continued robust cash generation, we re-purchased $25 million of shares while also reducing our debt by $34 million. We expect sustained cash generation for the remainder of 2024. The first half of 2024 produced solid financial results. I continue to be pleased with the performance of the business, and I am excited about the opportunities we have ahead of us. My confidence and our ability to deliver shareholder value remains strong as our teams continue to demonstrate operational excellence, execution, innovative products, and expanding our market share across our core businesses.

Speaker Change: Before I conclude, I would like to touch on our capital allocation activities.

Speaker Change: In the second quarter, based on our continued robust cash generation, we repurchased $25 million of shares while also reducing our debt by $34 million. We expect sustained cash generation for the remainder of 2024.

Jeffrey S. Niew: The first half of 2024 produced solid financial results. I continue to be pleased with the performance of the business, and I'm excited about the opportunities we have ahead of us. My confidence in our ability to deliver shareholder value remains strong as our teams continue to demonstrate operational excellence, execute innovative products, and expand our market share across our core business. Now, let me turn the call bridge on to go into the details of our quarterly results and provide the Q3 guide. Thanks, Jeff. We reported second quarter revenues of $205 million, at the midpoint of guidance and up 18% from

Speaker Change: The first half of 2024 produced solid financial results. I continue to be pleased with the performance of the business and I am excited about the opportunities we have ahead of us.

Speaker Change: My confidence in our ability to deliver shareholder value remains strong as our teams continue to demonstrate operational excellence, execution of innovative products, and expanding our market share across our core businesses.

John Anderson: Now, let me turn to Colbert John to go into the details where quarterly results provide the Q3 guidance. Thanks, Jeff. We reported second quarter revenues of $205 million at the midpoint of guidance and up 18% from the year ago period, driven by organic growth of 2% and the acquisition of Cornell in the fourth quarter of 2023. EPS was 24 cents in the quarter at the midpoint of our guidance range and up 1 cent, or 4%, from the second quarter of 2023. In the Medtech and specialty audio segment, revenue was 60 million, down 2% versus the prior year.

Speaker Change: Now, let me turn the call to John to go into the details of our quarterly results and provide the Q3 guidance.

John S. Anderson: Thanks, Jeff. We reported second quarter revenues of $205 million, at the midpoint of guidance and up 18% from the year-ago period, driven by organic growth of 2% and the acquisition of Cornell in the fourth quarter of 2021. EPS was 24 cents in the quarter, at the midpoint of our guidance range and up one cent or four percent from the second quarter of 2023. In the medtech and specialty audio segment, revenue was $60 million, down 2% versus the prior year. Our hearing health business was up 5%, offset by lower demand in the specialty audio market.

John S. Anderson: Thanks, Jeff. We reported second quarter revenues of $205 million at the midpoint of guidance and up 18% from the year-ago period, driven by organic growth of 2% and the acquisition of Cornell in the fourth quarter of 2023.

Speaker Change: EPS was $0.24 in the quarter, at the midpoint of our guidance range, and up $0.01 or 4% from the second quarter of 2023.

Speaker Change: In the medtech and specialty audio segment, revenue was $60 million, down 2% versus the prior year.

John Anderson: Our hearing health business was up 5%, offset by lower demand in the specialty audio market. Gross margins were 54.6%, up for the 100 basis points versus the year-ago period, driven by favorable product mix and benefits from foreign currency. The precision device segment delivered revenues of 74 million, up 55% from the year-ago period, driven by the acquisition of Cornell, partially offset by lower shipments of high performance capacitors into distribution and OEMs in industrial and market, as customer and channel inventories remain elevated. Gross margins were 37.2%, down 250 basis points from the second quarter of 2023 due to the acquisition of Cornell.

Speaker Change: Our hearing health business was up 5% offset by lower demand in the specialty audio market.

John S. Anderson: Gross margins were 54.6%, up more than 100 basis points versus the year-ago period, driven by favorable product mix and benefits from foreign currency. The Precision Devices segment delivered revenues of $74 million, up 55% from the year-ago period, driven by the acquisition of Cornell, partially offset by lower shipments of high-performance capacitors into distribution and OEMs in the industrial end market, as customer and channel inventories remain elevated. Gross margins were 37.2%, down 250 basis points from the second quarter of 2023 due to the acquisition of Cornell.

Speaker Change: Gross margins were 54.6% up more than 100 basis points versus the year-ago period driven by favorable product mix and benefits from foreign currency.

Speaker Change: The precision devices segment delivered revenues of $74 million, up 55% from the year-ago period driven by the acquisition of Cornell, partially offset by lower shipments of high-performance capacitors into distribution and OEMs in the industrial end market as customer and channel inventories remain elevated.

Speaker Change: Gross margins were 37.2%, down 250 basis points from the second quarter of 2023 due to the acquisition of Cornell.

John Anderson: While the gross margins that Cornell remained lower than that of the legacy precision devices business, we saw sequential margin improvement at Cornell of 340 basis points, and we expect margins to continue to improve throughout 2024. Excluding Cornell, year-over-year gross margins within the PD segment were flat. Consumer MEMS microphone revenues of 71 million were up 9% versus the year-ago period due to share gains and increased consumer demand, primarily in year and IoT and markets. Gross margins were 28.1%, a 550 basis point decrease from the prior year due to the absence of a 4 million benefit related to the sale of fixed assets, which was recorded in the second quarter of 2023.

John S. Anderson: While the gross margins at Cornell remain lower than that of the legacy Precision Devices business, we saw sequential margin improvement at Cornell of 340 basis points, and we expect margins to continue to improve throughout 2025. Excluding Cornell, year-over-year gross margins within the PD segment were flat. Consumer MEMS microphone revenues of $71 million were up 9% versus the year-ago period due to share gains and increased consumer demand, primarily in the ear and IoT markets.

Speaker Change: While the gross margins at Cornell remain lower than that of the legacy precision devices business, we saw sequential margin improvement at Cornell of 340 basis points, and we expect margins to continue to improve throughout 2024.

Speaker Change: Excluding Cornell, year-over-year gross margins within the PD segment were flat.

Speaker Change: Consumer MEMS microphone revenues of $71 million were up 9% versus the year-ago period due to share gains and increased consumer demand, primarily in ear and IoT end markets.

John S. Anderson: Gross margins were 28.1%, a 550 basis point decrease from the prior year due to the absence of a $4 million benefit related to the sale of fixed assets recorded in the second quarter of 2020. On a total company basis, R&D expense in the quarter was $17 million, up 6% from Q2 2023 due to the acquisition of Cornell. SG&A expenses were $32 million, $2 million higher than prior year levels, driven by the acquisition of Cornell, partially offset by restructuring actions taken in the second half of 2023 in the precision device cycle. Interest expense was up $4 million versus the prior year due to higher bank borrowings associated with the acquisition of Cornell in the fourth quarter of 2023.

Speaker Change: Gross margins were 28.1 percent, a 550 basis point decrease from the prior year due to the absence of a $4 million benefit related to the sale of fixed assets.

John Anderson: On a total company basis, R&D expense in the quarter was $17 million, up 6% from Q2 2023 due to the acquisition of Cornell. SG&A expenses were 32 million higher than prior year levels, driven by the acquisition of Cornell, partially offset by restructuring actions taken in the second half of 2023 in the precision device segment. Interest expense was up 4 million versus the prior year due to higher bank borrowings associated with the acquisition of Cornell in the fourth quarter of 2023.

Speaker Change: which was recorded in the second quarter of 2023.

Speaker Change: On a total company basis, R&D expense in the quarter was $17 million, up 6% from Q2 2023 due to the acquisition of Cornell.

Speaker Change: SG&A expenses were $32 million, $2 million higher than prior year levels driven by the acquisition of Cornell, partially offset by restructuring actions taken in the second half of 2023 in the precision device segment.

Speaker Change: Interest expense was up $4 million versus the prior year due to higher bank borrowings associated with the acquisition of Cornell in the fourth quarter of 2023.

John Anderson: Now I'll turn to our balance sheet and cash flow. In a second quarter, we generated 25 million in cash from operating activities at the midpoint of our guidance. For the first 6 months of 2024, we generated 42 million in operating cash flow, representing a 20 million increase over the first 6 months of 2023. Capital spending was 3 million in Q2, and we ended the quarter with cash and cash equivalence of 84 million. During the second quarter, we repurchased 1.4 million shares at a total cost of 25 million, and we reduced outstanding borrowings under our revolving credit facility by 34 million.

John S. Anderson: Now I'll turn to our balance sheet and cash flow. In the second quarter, we generated $25 million in cash from operating activities, at the midpoint of our guidance. For the first six months of 2024, we generated $42 million in operating cash flow, representing a $20 million increase over the first six months of 2020. Capital spending was $3 million in Q2, and we ended the quarter with cash and cash equivalents of $84 million.

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

Speaker Change: In the second quarter, we generated $25 million in cash from operating activities at the midpoint of our guidance.

Speaker Change: For the first six months of 2024, we generated $42 million in operating cash flow, representing a $20 million increase over the first six months of 2023.

Speaker Change: Capital spending was $3 million in Q2 and we ended the quarter with cash and cash equivalents of $84 million.

Speaker Change: During the second quarter, we repurchased 1.4 million shares at a total cost of $25 million and we reduced outstanding borrowings under our revolving credit facility by $34 million.

John S. Anderson: During the second quarter, we repurchased 1.4 million shares at a total cost of $25 million, and we reduced outstanding borrowings under our revolving credit facility by $34 million. We exited the second quarter with $261 million of total debt, which includes $146 million of borrowings under our revolving credit facility and an interest-free seller note issued in connection with the Cornell acquisition. Lastly, our net debt leverage ratio based on trailing 12 months adjusted EBITDA was 1.1 times. Moving on to our guidance.

John Anderson: We exited the second quarter with 261 million of total debt that includes 146 million of borrowings under our revolving credit facility and an interest-free seller node issued in connection with the Cornell acquisition. Lastly, our net debt leverage ratio based on trailing 12 months adjusted diva. was 1.1 times moving to our guidance.

Speaker Change: We exited the second quarter with $261 million of total debt that includes $146 million of borrowings under our revolving credit facility and an interest-free seller note issued in connection with the Cornell acquisition.

Speaker Change: Lastly, our net debt leverage ratio based on trailing 12 months adjusted EBITDA was 1.1 times.

John Anderson: For the third quarter of 2024, revenues are expected to be between 210 and 220 million. Up 23% versus the year-ago period driven by organic growth of 3% and the acquisition of Cornell. R&D expenses are expected to be between 16 and 18 million, and selling and administrative expenses are expected to be within a range of 29 to 31 million. Up 5 million from the prior year due to increases associated with the Cornell acquisition. We're projecting adjusted diva margin for the quarter to be within a range of 16 to 18%. We're forecasting interest expense in Q3 to be approximately $4 million, which includes $2 million of non-cash imputed interest.

John S. Anderson: For the third quarter of 2024, revenues are expected to be between $210 and $220 million, up 23% versus the year-ago period, driven by organic growth of 3% and the acquisition of Cornell. R&D expenses are expected to be between $16 million and $18 million, and selling and administrative expenses are expected to be within a range of $29 million to $31 million, up $5 million from the prior year due to increases associated with the Cornell Act.

Speaker Change: Moving to our guidance.

Speaker Change: For the third quarter of 2024, revenues are expected to be between $210 million and $220 million, up 23 percent versus the year-ago period, driven by organic growth of 3 percent and the acquisition of Cornell.

Speaker Change: R&D expenses are expected to be between $16 million and $18 million, and selling and administrative expenses are expected to be within a range of $29 million to $31 million.

Speaker Change: up $5 million from the prior year due to increases associated with the Cornell acquisition.

John S. Anderson: We're projecting adjusted EBIT margin for the quarter to be within a range of 16 to 18 percent. We're forecasting interest expense in Q3 to be approximately $4 million, which includes $2 million of non-cash imputed interest. We expect an effective tax rate of 9-13% for the quarter, which is lower than normal due to the utilization of the foreign tax credit, and we're projecting EPS to be within the range of 29 to 33 cents, assuming weighted average shares outstanding during the quarter of $92.2 million, on a fully diluted basis.

Speaker Change: We're projecting adjusted even margin for the quarter to be within a range of 16 to 18 percent.

Speaker Change: We're forecasting interest expense in Q3 to be approximately $4 million, which includes $2 million of non-cash imputed interest.

John Anderson: We expect an effective tax rate of 9 to 13% for the quarter, which is lower than normal due to the utilization of foreign tax credits. And we're projecting EPS to be within the range of 29 to 33 cents per share. This assumes weighted average shares outstanding during the quarter of 92.2 million fully diluted basis. We're projecting cash from operations to be within a range of 35 to 45 million, and capital spending is expected to be 5 million.

Speaker Change: We expect an effective tax rate of 9-13% for the quarter, which is lower than normal due to the utilization of foreign tax credits.

Speaker Change: and we're projecting EPS to be within the range of $0.29 to $0.33 per share.

Speaker Change: This assumes weighted average shares outstanding during the quarter of 92.2 million, a fully diluted basis.

John S. Anderson: We're projecting cash from operations to be within a range of $35 to $45 million, and capital spending is expected to be $5 billion. I'll now turn the call back over to the operator for the questions and answers portion of our call. I'll now turn the call back over to the operator for the questions and answers portion of our conversation.

Speaker Change: We're projecting cash from operations to be within a range of $35 to $45 million, and capital spending is expected to be $5 million.

Operator: I'll now turn the call back over to the operator for the questions and answers portion of our call. Operator? At this time, I would like to remind everyone that in order to ask a question, please press star, then the number one on your telephone keypad.

Speaker Change: I'll now turn the call back over to the operator for the questions and answers portion of our call. Operator?

Operator: At this time, I would like to remind everyone that in order to ask a question, please press star then the number one on your telephone keypad. Our first question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

Speaker Change: At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad.

Christopher Rolland: Our first question comes from the line of Christopher Rolland with Susquehanna; your line is open. Hey guys, thanks for the question. I know you guided for sequential and year of your growth in Medtech and specialty audio and precision devices. I assume that's also going to include consumer. And if you could just kind of force rank or give us some idea of what that sequential strength might be for those different segments, that would be great.

Speaker Change: Our first question comes from the line of Christopher Rolland with Susquehanna. Your line is open.

Christopher Adam Jackson Rolland: Hey guys, thanks for the question. I know you guided for sequential and year-over-year growth in med tech and specialty audio and precision devices. I assume that's also going to include consumer. And if you could just kind of forecast or give us some idea of what that sequential strength might be for those different segments, that would be great.

Speaker Change: Hey guys, thanks for the question.

Christopher Adam Jackson Rolland: I know you guided for sequential and year-over-year growth in med tech and specialty audio and precision devices. I assume that's also going to include...

Christopher Adam Jackson Rolland: consumer and if you could just kind of force rank or you know give us some idea of what that sequential strength might be for those different segments that would be great

Jeffrey Niew: Yeah, so Chris, thanks for the question. First, I think being very deliberate about this, the sequential growth is coming from the non-CMM portion of the business. I think what we're starting to see, particularly in the precision device business, we think we're starting to see sequential improvement on our way at some point and hopefully in the near future are returned to year-over-year growth on a pro form of basis when you view flu Cornell. And we're seeing that being relatively broad-based. So I think we're pretty pleased. We are seeing some sequential growth in the MedTech and specialty audio.

Jeffrey S. Niew: Yeah, so Chris, thanks for the question. So, you know, first, I think, being very deliberate about this, the sequential growth is coming from the non-CMM portion of the business. So, you know, I think what we're starting to see, particularly in the precision device business, we think, you know, we're starting to see sequential improvement on our way, you know, at some point, and hopefully in the near future, a return to year-over-year growth on a pro forma basis when you include Cornell. And we're seeing that, you know, being relatively broad-based. So, you know, I think we're pretty pleased.

Speaker Change: Yeah, so Chris, thanks for the question. So, you know, first, I think for being very deliberate about this, the sequential growth is coming from the non-CMM portion of the business.

Speaker Change: So, you know, I think what we're starting to see, you know, particularly in the precision device business, you know, we think, you know, we're starting to see sequential improvement, you know, on our way, you know, at some point, and hopefully in the near future, a return to year-over-year growth on a pro forma basis when you include Cornell.

Speaker Change: And we're seeing that, you know, being relatively broad-based. So, you know, I think, you know, we're pretty pleased. We are seeing some sequential growth in the MedTech and specialty audio.

Jeffrey S. Niew: We are seeing some sequential growth in MedTech and specialty audio. I think it's going to be, quite honestly, a little bit more pronounced in Q4 versus Q3. But we do expect precision devices to again have sequential growth in Q4 from Q3. As far as the CMM business is concerned, we are not, in Q3, seeing a lot of sequential growth. I'd say it's flattish, but it is coming off, I'd say, a pretty strong Q2 on a year-over-year basis. We had a pretty strong Q2. I think the CMM business was up about 8 or 9 percent year-over-year in Q2. So it's coming off a pretty strong quarter.

Jeffrey Niew: I think it's going to be, quite honestly, a little bit more pronounced the sequential growth in Q4 versus Q3. But we do expect in precision devices to again have sequential growth in Q4 from Q3.

Speaker Change: I think it's going to be, quite honestly, a little bit more pronounced, the sequential growth in Q4 versus Q3. But we do expect in precision devices to again have sequential growth in Q4 from Q3.

Jeffrey Niew: As far as the CMM business, we are not in Q3, seeing a lot of sequential growth. I'd say it's flatish, but it is coming off. I'd say a pretty strong Q2 on a year-over-year basis. We had a pretty strong Q2. I think that the CMM business was about 8% or 9% year-over-year in Q2. So it's coming off a pretty strong Q2.

Speaker Change: As far as the CMM business, we are not in Q3 seeing a lot of sequential growth.

Speaker Change: Laddish

Speaker Change: but it is coming off, you know, I'd say a pretty strong Q2 on a year-over-year basis. We had a pretty strong Q2. I think the CMM business was up about eight or nine percent year-over-year in Q2. So it's coming off a pretty strong Q2.

Jeffrey S. Niew: Great, and then I guess maybe following up there, because September for a CMM typically is... pretty busy for you guys. Are you seeing something different in content? Uh... or is it just purely timing, and then lastly, you know any update on uh... potentially selling that business, and we'll just stop there. Uh... I would say not a huge update from the last quarter, but I would say we're inching closer to a conclusion.

Christopher Rolland: Great. And then I guess maybe following up there because September for CMM typically is pretty strong for you guys.

Speaker Change: Great, and then I guess maybe following up there, because September for CMM typically is pretty strong for you guys. Are you seeing something different in content?

Jeffrey Niew: Are you seeing something different in content, or is it just purely timing? And then lastly, any update on potentially selling that business? And yeah, we'll just stop that.

Speaker Change: or is it just purely timing? And then lastly, you know, any update on potentially selling that business? And yeah, we'll we'll just stop there. So let me take the second question first. I would say

Jeffrey Niew: So let me take the second question first. I would say not a huge update from the last quarter, but I would say we're inching closer towards a conclusion. And so I think that's about what we can say at this point. Where is inching closer towards a conclusion. I would say overall for the full year, the CMM business is actually going to be up pretty significantly year-over-year. And so I think it appears, I would say we're not going to comment by quarter, but I think it's up 8% or so; that's we're seeing for the full year.

Speaker Change: Not a huge update from the last quarter, but I would say, you know, we're inching closer towards a conclusion. You know, and so, you know, I think that's about what we can say at this point. We're inching closer towards a conclusion.

Jeffrey S. Niew: And so I think that's about what we can say at this point. We're inching closer to a conclusion. I would say overall for the full year, the CMM business is actually going to be up pretty significantly year over year. And so I think it appears, I would say, we're not going to comment by quarter, but I think it's up about.

Speaker Change: You know, I would say, you know, overall, for the full year,

Speaker Change: The CMM business is actually, you know, going to be up pretty significantly year over year. And so, you know, I think it appears, you know, I would say, you know, we're not going to comment by quarter, but, you know, I think it's up about a quarter.

Jeffrey S. Niew: 8% or so that we're seeing for the full year.

Christopher Adam Jackson Rolland: Okay, great. Well, great, great results in the parts that matter. Thanks, guys.

Christopher Rolland: Okay, great. Well, great, great results in the parts of the matter. Thanks, guys.

Speaker Change: 8% or so, that's what we're seeing for the full year.

Speaker Change: Okay, great. Well, great, great results in the parts that matter. Thanks, guys.

Anthony Stoss: And your next question comes from the line of Anthony Stoss with Craig Hallum. Your line is open. Anthony, guys, I have a couple of questions on the CD acquisition. I think the past quarter, you were kind of ballparking it to quite to about 135 to 140 million for the full year 2024. Is that change? Or is that still kind of the right number to think about?

Operator: And your next question comes from the line of Anthony Stoss with Craig Hollum. Your line is open.

Speaker Change: And your next question comes from the line of Anthony Stoss with Craig Hollum. Your line is open.

Anthony Joseph Stoss: Afternoon, guys. I have a couple questions.

Anthony Joseph Stoss: Afternoon guys, I have a couple questions. On the CD acquisition I think...

Anthony Joseph Stoss: On the CD acquisition, I think... In the past quarter, you were kind of ballparking it to equate to about $135 to $140 million for the full year 2024. Has that changed, or is that still kind of the right number to think about? I'd say it's a little lower than that, although here's what I would say. I think when we announced the deal, we talked about $26 million in EBITDA for this year. We're still sticking together.

Speaker Change: The past quarter, you were kind of...

Anthony Joseph Stoss: ballparking it, took away to about $135 to $140 million for the full year 2024.

Jeffrey Niew: I'd say it's a little lower than that. Although, here's what I would say: you know, I think when we announced the deal, we talked about $26 million in EBITDA for this year. We're still sticking. We're going to hit the 26 million of EBITDA even on the lower number. And the way we're doing that, quite frankly, is the synergies are larger than we had expected. I think we've talked about that probably in the past. I think a couple of quarters ago, we were talking maybe a couple of million dollars of kind of price opportunity. Last quarter, we talked maybe three to four.

Speaker Change: Is that change or is that still kind of the right number to think about? I'd say it's a little lower than that, you know, although here's what I would say.

Speaker Change: You know, I think when we announced the deal, we talked about $26 million in EBITDA for this year. We're still sticking. We're going to hit the $26 million of EBITDA, even on the lower number.

Jeffrey S. Niew: We're going to hit the $26 million of EBITDA, even on the lower number, and the way we're doing that, quite frankly, is the synergies are larger than we had expected, and I think we've talked about that probably in the past. I think a couple quarters ago, we were talking maybe a couple million dollars of price opportunity. Last quarter, we talked maybe three to four. I would say it's probably closer to five now in terms of price in that business, so we're feeling pretty good about where we are, and I think what I'd say, Tony, about CD acquisition is the margins are coming up probably a little faster than we would have expected, even on lower revenue, which is, I think, a really good sign, because as the market starts to recover, we can see that the margins are going to expand, and we're going to get to the target margins that we had kind of talked about early on faster than we probably would have said.

Speaker Change: and the way we're doing that, quite frankly, is the synergies are larger than we had expected. I think we've talked about that probably in the past. I think, you know, a couple quarters ago, we were talking maybe a couple million dollars of kind of price opportunity.

Jeffrey Niew: I would say it's probably closer to five now in terms of price in the business. So we're feeling pretty good about where we are. And I think, you know what I'd say 20 of CD acquisition is, you know, the margins are coming up like probably a little faster than we would have expected. Even on lower revenue, which is, I think, a really good sign because as the market starts to recover, you know, we can see that the margins are going to expand. And we're going to get to the target margins that we've kind of talked about early on, faster than we probably would have said.

Tony: Last quarter we talked maybe three to four. I would say it's probably closer to five now in terms of price in that business. So we're feeling pretty good about where we are and I think, you know what I'd say, Tony, about CD acquisition is

Tony: The margins are coming up probably a little faster than we would have expected, even on lower revenue, which is, I think, a really good sign, because as the market starts to recover, we can see that the margins are going to expand, and we're going to get to the target margins pretty quickly.

John S. Anderson: Tony, just to give a little color to that, when we acquired CD, in Q4 of last year, margins were right around 30%. Same thing in Q1 of this year, and we're seeing pretty significant sequential improvement. We expect to be kind of in the high 30s as we exit 2024.

Jeffrey Niew: Tony, just to give a little color to that, you know, when we acquired CD Q4 of last year, margins were right around 30%. Same thing in Q1 of this year, and we're seeing sequential, pretty significant sequential improvement.

Tony: that we had kind of talked about early on faster than we probably would have at San Antonio. Just to give a little color to that, you know, when we acquired CDQ4 of last year, margins were right around 30%.

Tony: Same thing in Q1 of this year, and we're seeing pretty significant sequential improvement. We expect to be kind of in the high 30s as we exit 2024. And that's a combination, obviously, of some of this capacitalization, but it's also getting the synergies.

Jeffrey Niew: We expect to be kind of in the high 30s as we exit 2024. Yeah, and so net the combination, you know, obviously some of this compensation, but it's also getting the synergies. Got it perfect.

John S. Anderson: And that's a combination, obviously, of some of this capitalization, but it's also getting synergy.

Anthony Joseph Stoss: Got it, perfect. Second question, I just want to confirm something. So in the September guide, are you assuming anything from your previous biggest handset customer in terms of content in a handset?

Anthony Stoss: Second question, just wanted to turn something. So the September guide, are you assuming anything from your prior biggest handset customer in terms of content in a handset? So, so here again, what I would kind of say is, you know, absolutely we're not going to make comments on specific customers. You know, overall, I would just make the comment again: the growth sequentially is coming from the non-CMM portion of the business. You know, and I think we keep continuing to focus on overall reducing our exposure to mobile, which is one of our lowest gross margin markets. And, you know, but overall, you know, if you look at for the full year, the CMM business will be up 8% based on, you know, what we're seeing for this year for the full year.

Speaker Change: Got it, perfect. Second question, I just want to confirm something. So the September guide, are you assuming anything from your prior biggest handset customer in terms of content in a handset?

Jeffrey S. Niew: So, again, what I'm trying to say is, you know, actually, we're not going to make comments on specific customers. You know, I think, you know, overall, I would just make the comment, again, the growth sequentially is coming from the non-CMM portion of the business, you know, and I think, you know, we keep continuing to focus on overall, you know, reducing our exposure to mobile, which is our, you know, one of our lowest gross margin markets, and, you know, but overall, you know, if you look at for the full year, the CMM business will be up 8% based on, you know, what we're seeing for this year, for the full year.

Speaker Change: So, again, what I'm trying to say is, you know, actually, we're not going to make comments on specific customers, and I think, you know, overall, I would just make the comment, again, the growth sequentially is coming from the non-CMM portion of the business, you know, and I think, you know, we continue to focus on overall

Speaker Change: Reducing our exposure to mobile, which is one of our lowest gross margin markets. But overall, if you look at for the full year, the CMM business will be up 8% based on what we're seeing for this year, for the full year.

Anthony Joseph Stoss: Got it. Okay, then lastly, Jeff. I think in previous quarters you were sitting with about five months worth of inventory in PD, and you wanted to bring it down to two months. Are we still in that same five months, or is it starting to come in?

Jeffrey Niew: Got it. Okay, then lastly, Jeff, I think in past quarters, you're sitting with about five months' worth of inventory and PD, and you wanted to bring it down to two months. Are we still in that kind of same five months, or is it starting to come in? So, you're referring to inventory in the channel, correct? That's what you're referring to. Yeah. So, we're definitely seeing. So, you know, here's like, again, I kind of brought this up. We're expecting PD both, you know, in the classic PD as well as Cornell to be sequentially improving in Q3, and we expected to improving in Q4.

Jeff: Got it. Okay, then lastly Jeff, I think in past quarters you were sitting with about five months worth of inventory in PD and you wanted to bring it down to two months. Are we still in that kind of same five months or is it starting to come in?

Jeffrey S. Niew: So you're referring to inventory in the channel, correct? That's what you're referring to? Yeah.

Jeff: So you're referring to inventory and the channel, correct? That's what you're referring to? Yeah.

Jeffrey S. Niew: Yeah, so we're definitely seeing, so, you know, here's like, again, I kind of brought this up, we expect PD both, you know, in the classic PD as well as Cornell to be sequentially improving in Q3, and we expect it to improving in Q4. We are seeing the inventory in the channel starting to come down, you know, but it's probably coming down a little bit slower than we expected, so, you know, the steepness of the sequential improvement is probably a little less than we would have expected, but we're definitely seeing it, you know, when I look at the numbers, you know, we had some nice even sequential growth we're going to have from in Cornell, but again, in classic PD from Q2 to Q3, so the inventory is definitely coming down in the channel, you know, and there are still pockets where there's still probably too much inventory, but overall, we're starting to kind of see, you know, the light at the end of the tunnel in the PD markets.

Jeff: Yeah, so we're definitely seeing, so you know here's like again I kind of brought this up, we expect PD both you know in the classic PD as well as Cornell

Speaker Change: to be sequentially improving in Q3 and we expect it to be improving in Q4. We are seeing the inventory in the channel starting to come down, but it's probably coming down a little bit slower than we expected.

Jeffrey Niew: We are seeing the inventory in the channel starting to come down. But it's probably coming down a little bit slower than we expected. So, you know, the steepness of the sequential improvement is probably a little less than we would have expected, but we're definitely seeing it. And I look at the numbers. You know, we had some nice, even sequential growth we're going to have from Cornell, but again in classic PD from Q2 to Q3. So, the inventory is definitely coming down in the channel. You know, in our sell pockets where there's still probably too much inventory.

Speaker Change: You know, the steepness of the sequential improvement.

Speaker Change: It's probably a little less than we would have expected, but we're definitely seeing it.

Speaker Change: And we had some nice even sequential growth we're going to have from

Speaker Change: from in Cornell, but again in classic PD from Q2 to Q3. So the inventory is definitely coming down in the channel. You know, and there are still pockets where there's still probably too much inventory. But overall, we're starting to kind of see, you know, the light at the end of the tunnel in the PD markets.

Jeffrey Niew: But overall, we're starting to kind of see, you know, the light at the end of the tunnel in the PD markets.

Jeffrey Niew: So, let's say I just would kind of make a comment on Tony's, you know, passes versus sound like conductors because I think we sometimes get these things mixed. You know, what we're seeing is the semiconductor channel, which you know, we're not obviously involved with as much. There is a lot of inventory still in semiconductors, but the passive inventory in the channel, the passive inventory has been reducing at a faster rate than we've been semiconductor in the channel. Very good.

Jeffrey S. Niew: Let me just kind of make a comment on Tony's, you know, passives versus semiconductors because I think we sometimes get these things mixed up. You know, what we're seeing is the semiconductor channel, which, you know, we're not obviously involved with as much. There is a lot of inventory still in semiconductors, but the passive inventory in the channel, the passive inventory has been reducing at a faster rate than we've been selling in the channel. Very good.

Speaker Change: Well, the last thing I just would kind of make a comment on, Tony, is, you know, passives versus semiconductors, because I think we sometimes get these things mixed.

Speaker Change: You know, what we're seeing is the semiconductor channel, which, you know, we're not obviously involved with as much, there is a lot of inventory still in semiconductors, but the passive inventory in the channel, the passive inventory, has been reducing at a faster rate than semiconductor in the channel.

Anthony Joseph Stoss: Very good. Thanks, Jeff, for all the color.

Jeffrey Niew: Thanks, Jeff, for all the color.

Speaker Change: Very good. Thanks, Jeff, for all the color.

Tyler Bomba: In your next question, comes from the line of Tristan Gerra, with Baird; your line is open. Hi, this is Tyler on for Tristan. Thanks for taking the question. I know you talked about some of the price and opportunities you have on the Cornell side, but can you speak to pricing across the rest of your businesses? Yeah, sure. I can talk about it. You know, I would sit there and say, first in the math tech, especially on pricing stable. You know, I wouldn't say we've gotten big price increases for reductions. It's very, very stable. You know, again, a lot of things we have with these customers are longer term contracts, very stable when they grow very valuable, valuable supplier.

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

Speaker Change: And your next question comes from the line of Tristan Gerra with Baird. Your line is open.

Tyler Allen: Hi, this is Tyler Allen on behalf of Tristan. Thanks for taking the questions. I know you talked about some of the pricing opportunities you have on the Cornell side, but can you speak to pricing across the rest of your businesses? Yeah.

Tyler: Hi, this is Tyler for Tristan. Thanks for taking the questions. I know you talked about some of the pricing opportunities you have on the Cornell side, but can you speak to pricing across the rest of your businesses?

Jeffrey S. Niew: Yeah, sure. I can talk about it.

Jeffrey S. Niew: You know, I would sit there and say, first, in MedTech, especially audio pricing, stable. You know, I wouldn't say we've gotten big price increases or reductions. It's very, very stable. You know, again, a lot of things we have with these customers are longer-term contracts. Very stable. I think we're a very valued supplier.

Speaker Change: Yeah, sure, I can talk about it. You know, I would sit there and say first in the MedTech, especially audio pricing stable You know, I wouldn't say we've gotten big price increases or Reductions, it's very very stable, you know again a lot of things we have with these customers are longer-term contracts

Jeffrey S. Niew: In the precision device segment outside of Cornell, you know, we're seeing some modest price increases. I think, you know, again, I think I've talked about this before, Tyler, where when we first started doing pricing in the classic PD section, we had some larger increases. Now it's kind of smaller but constant.

Jeffrey Niew: In the, you know, in the precision device segment outside of Cornell, you know, we're seeing some modest pricing increases. I think, you know, again, I think I've talked about this before, Tyler, where, you know, when we first started doing pricing in the classic PD section, we had some larger increases. Now it's kind of smaller but continual. And then, you know, I think lastly, the CMM business, you know, I'd say, you know, outside of mobile pricing has been pre stable in our CMM business. You know, mobile is still challenged. I would sit there and say mobile is still challenged.

Speaker Change: very stable, I think we're a very valuable value supplier.

Speaker Change: In the precision device segment, outside of Cornell, we're seeing some modest price increases.

Speaker Change: I think, you know, again, I think I've talked about this before, Tyler, where, you know, when we first started doing pricing in the classic PD section, we had some larger increases. Now it's kind of smaller but continual.

Jeffrey S. Niew: And then, you know, I think lastly, the CMM business. I'd say, outside of mobile, pricing's been pretty stable in our CMM business. But mobile's still challenged. I would sit there and say mobile is still challenged. And so, you know, that's probably our biggest challenge in the mobile area. And again, you know, as we try to, over time, reduce our exposure to mobile, we will probably see less and less price decreases in that business.

Speaker Change: And then, you know, I think lastly, the CMM business, you know, I'd say, you know, outside of mobile, pricing's been pretty stable in our CMM business.

Jeffrey Niew: And so, you know, that's probably our biggest challenge is the mobile area. And again, you know, as we tried to over time reduce our exposure to mobile, you know, we would probably see less and less price decreases in that business.

Speaker Change: You know, mobile is still challenged. I would sit there and say mobile is still challenged. And so, you know, that's probably our biggest challenge is the mobile area. And again, you know, as we try to, over time, reduce our exposure to mobile, you know, we would probably see less and less price decreases in that business.

Jeffrey Niew: Great. And then just looking at the here and health business, had we seen anything notable to call out on the OTC market, any sense that this outside relative to your expectations for that business? Yeah, you know, we've been on the call like many times talking about OTC, and you know, I've always kind of like trying to hold back expectations, you know, in terms of how big this could be. It's still not really like becoming a significant piece of business for us. And what I can sit there and say pretty confidently, there's no socket. I can point to that we've really lost that of any significant volume.

Jeffrey S. Niew: Great, and then just looking at the here and health business, have you seen anything notable to call out on the OTC market? Any sense that there's upside relative to your expectations for that business? Yeah, you know, I...

Speaker Change: Great and then just looking at the here and health business, have you seen anything notable to call out on the OTC market? Any sense that there's upside relative to your expectations for that business?

Jeffrey S. Niew: We've been on the call many times talking about OTC, and I've always tried to hold back expectations in terms of how big this could be. It still isn't really becoming a significant piece of business for us, but I can sit there and say pretty confidently, there's no socket I can point to that we've really lost any significant volume. It's just not developing the way people had hoped, but it's kind of in line with what we'd hoped.

Speaker Change: Yeah, you know, we've been on the call many times talking about OTC, and I've always kind of tried to hold back expectations.

Speaker Change: in terms of how big this could be.

Speaker Change: It still is not really like...

Speaker Change: becoming a significant piece of business for us. And what I can sit there and say pretty confidently...

Jeffrey Niew: And so, so it just not developing the way people had hoped. But more, it's kind of in line with what we helped out what I would say. I still think that OTC market is helping with the traditional hearing aid market where, you know, people hearing more about hearing aids. And maybe they go look in over-the-counter hearing aid and then they opt into at the traditional hearing aid channel. And these are complicated devices. And, you know, I think there's probably a little bit of a, I would say, an under appreciation for, you know, the value of the audiologist in the way this works in terms of a person getting a hearing aid.

Speaker Change: There's no socket I can point to that we've really lost it of any significant volume And so so it's just not developing the way people had hoped

Jeffrey S. Niew: Now, what I would say is I still think the OTC market is helping with the traditional hearing aid market, where people are hearing more about hearing aids, and maybe they go look at an over-the-counter hearing aid, and then they opt for the traditional hearing aid channel. These are complicated devices, and I think there's probably a little bit of an underappreciation for the value of the audiologist in the way this works in terms of a person getting a hearing aid.

Speaker Change: But more, it's kind of in line with what we've helped. Now, what I would say...

Speaker Change: I still think...

Speaker Change: The OTC market is helping.

Speaker Change: with the traditional hearing aid market.

Speaker Change: where, you know, people hearing more about hearing aids.

Speaker Change: and maybe they go look in the over-the-counter hearing aid and then they opt into the traditional hearing aid channel. These are complicated devices.

Speaker Change: And, you know, I think there's probably a little bit of a...

Speaker Change: underappreciation for the value of the audiologist

Jeffrey Niew: And I think people are starting to realize that. And again, having been in the market for many years, you know, we didn't factor in too much in for OTC.

Jeffrey S. Niew: I think people are starting to realize that. Again, having been in the market for many years, we didn't factor in too much for OTC. It's probably meeting expectations, but at a very low level, but the traditional hearing.

Speaker Change: [inaudible]

Operator: And it's probably meeting expectation, but at a very low level. But the traditional hearing aid channel continues to very well. Great. Thanks again for taking the question. And, as a reminder, if you would like to ask a question, please press stars in the number one on your telephone keypad.

Tyler Allen: Great. Thanks again for taking the questions.

Speaker Change: Great. Thanks again for taking the questions.

Operator: And as a reminder, if you would like to ask a question, please press star and the number one on your telephone keypad. Our next question comes from the line of Bob Labick with CJS Securities. Your line is open.

Speaker Change: And as a reminder, if you would like to ask a question, please press star and the number one on your telephone keypad. Our next question comes from the line of Bob Labick with CJS Securities. Your line is open.

Robert Labick: Our next question comes from the line of Bob Labick with CJS Securities; your line is open. Thanks, good afternoon. Hi, so you talk, obviously, about in precision device. In particular, you have the D stock going on in inventory and the channel and stuff.

Robert James Labick: Hi, so you talked obviously about precision devices in particular, you have the D stock going on inventory in the channel and stuff. But can you maybe talk a little bit about, you know, overall end market demand, where the biggest drivers are, where you see that, and you know, how long it takes to kind of get back up to that? Yeah, yeah. So let me kind of try to divide it up into a few different markets. We've got defense, medtech, industrial, and other. We'll make some comments a little bit about electric as well. You know, Cornell, as well as the traditional public domain, participates in all these areas.

Robert James Labick: Thanks. Good afternoon.

Robert James Labick: Hey, Bob. Hi, Bob.

Robert James Labick: Hi, so you talked obviously about in precision device in particular, you have the D-stock going on and inventory in the channel and stuff, but can you maybe talk a little bit about the overall end market demand, where the biggest drivers are, where you see that, and how long it takes to kind of get back up to that growth rate?

Jeffrey Niew: But can you maybe talk a little bit about the, you know, overall end market demand, where the biggest drivers are, where you see that, and you know how long it takes to kind of get back up to that growth rate. Yeah, yeah, so let me kind of try to divide it up into a few different markets. We got defense, meant tech, industrial other; we'll make some comments a little bit about electric as well. And again, you know, Cornell as well as the traditional PD participate in all these areas. And so what I would say, let me start with defense. You know, we're definitely seeing growth in defense.

Speaker Change: Yeah, yeah, so let me kind of try to divide it up into a few different markets. We got defense, medtech, industrial, other, we'll make some comments a little bit about electric as well.

Cornell: Cornell, as well as the traditional PD.

Jeffrey S. Niew: And so, what I would sit there and say, let me start with defense. You know, we're definitely seeing growth in defense. We are seeing some growth in defense. It's probably not as high as we would have expected, but, you know, for the full year, we will see growth in defense. MedTech, you know, there have been a number of areas where we have seen inventory issues, not the hearing aids, but in some of our other precision device markets.

Cornell: participate in all these areas.

Speaker Change: And so what I would sit there and say, let me start with defense.

Speaker Change: You know, we're definitely seeing growth in defense, we are seeing some growth in defense.

Jeffrey Niew: We are seeing some growth in defense. You know, it's not probably as high as we would have expected. But, you know, for the full year, we will see growth in defense. Met tech, you know, there, there has been a number of areas where we have seen, you know, inventory issues, not the hearing aid, but you know, some of our other precision device markets. But we are expecting that some pretty strong year-over-year growth in Met tech in the back half the year as the inventory has kind of waned it down. Right, so we are starting to see that in the marketplace.

Speaker Change: It's not probably as high as we would have expected, but for the full year, we will see growth in defense. Medtech, there has been a number of areas.

Speaker Change: where we have seen, you know, inventory issues, not the hearing aid, but in some of our other precision device markets.

Jeffrey S. Niew: But we are expecting some pretty strong year-over-year growth in MedTech in the back half of the year, as the inventory has kind of waned down, right? So, we are starting to see that in the marketplace. I guess what I would sit there and say is that the one market that's probably a little bit, probably the more murky of all, is the industrial slash other. And that market has been, I'd say, not still in decline, and there's some modest improvement that we're seeing going forward.

Speaker Change: But we are expecting that some pretty strong year-over-year growth in medtech in the back half of the year, as the inventory has kind of waned it down, right? So we are starting to see that in the marketplace.

Jeffrey Niew: I guess what I would sit there and say is that the one market that's probably a little bit probably the more murky of all is the industrial slash other. And that market, you know, has been, you know, I'd say not still in decline. And there's some modest improvement that we're seeing going forward. But it's not like in that part of the area when I kind of set up front that the steepness of the recovery is probably not as large as we thought. Probably really more in the industrial area. We're seeing some sequential improvement.

Speaker Change: I guess what I would sit there and say is that the one market that's probably a little bit probably the more murky of all is the industrial slash other and and that market you know has been you know I'd say

Speaker Change: Not big still in decline and there's some modest improvement that we're seeing going forward but it's not like and that's probably the area when I kind of said up front that that The steepness of the of the recovery is probably not as large as we thought

Jeffrey S. Niew: But it's not like... And that's probably the area when I kind of said up front that the steepness of the recovery is probably not as large as we thought, probably really more in the industrial area. We're seeing some sequential improvement. Now, let me just cut it another way.

Jeffrey Niew: Now let me kind of the different way I can also kind of the different way, which is OEM versus distribution. You know, we're expecting some pretty strong back half of the year sequential improvement at our OEM customers. A lot of that driven by Med and our distribution work, expecting modest sequential growth in the back half the year.

Speaker Change: probably really more in the industrial area. We're seeing some sequential improvement.

Jeffrey S. Niew: I could also cut it a different way, which is OEM versus distribution. We're expecting some pretty strong back half of the year sequential improvement at our OEM customers. A lot of that driven by med and our distribution, we're expecting modest sequential growth in the back half of the year. Okay, got it. Thanks. And then I haven't really had to fully go through this, so at the risk of sounding a little silly, could you talk about the goodwill impairment in CMM and what I guess the process was and what that kind of says? about that. Here, Bob, I can take-

Speaker Change: Now let me cut it a different way. I could also cut it a different way, which is OEM versus distribution.

Speaker Change: You know, we're expecting some pretty strong back half of the year sequential improvement at our OEM customers, a lot of that driven by MED, and our distribution we're expecting modest sequential growth in the back half of the year.

Robert Labick: Okay, guys, thanks. And then I haven't really had a chance to fully go through this. So, at the risk of sounding a little silly.

Speaker Change: Okay, got it. Thanks. And then I haven't really had a chance to fully go through this, so at the risk of sounding a little silly, could you talk about the goodwill impairment in CMM and, you know, what I guess the process was and what that, you know, kind of says to us about that segment?

Jeffrey Niew: Could you talk about the goodwill impairment in CMM and, you know, what I guess the process was and what that, you know, kind of says to us about that segment? Sure, Bob, I can take that. So, as you recall, in the third quarter of last year, we announced that we were reviewing strategic alternatives for the CMM business. That review included, you know, a range of possibilities, including a potential sale or restructuring the business. During the second quarter of 2024, we evaluated the potential outcomes of our review, and we concluded as a management team that it's more likely than not the fair value of the CMM reporting unit was below its carrying value.

John S. Anderson: Here, Bob, I can take that. So, as you recall, in the third quarter of last year, we announced that we were reviewing strategic alternatives for the CMM business. That review included, you know, a range of possibilities, including a potential sale or restructuring of the business. During the second quarter of 2024, we evaluated the potential outcomes of our review, and we concluded as a management team that it was more likely than not that the fair value of the CMM reporting unit was below its carrying value, and as a result, we recorded a goodwill impairment charge of $245,000.

Speaker Change: Here, Bob, I can take that. So, as you recall, in the third quarter of last year, we announced that we were reviewing strategic alternatives for the CMM business. That review included, you know, a range of possibilities, including a potential sale or restructuring of the business.

Speaker Change: During the second quarter of 2024, we evaluated

Speaker Change: You know, the potential outcomes of our review, and we concluded as a management team that it's more likely than not the fair value of the CMM reporting unit was below its carrying value, and as a result, we recorded a goodwill impairment charge of $249 million.

Jeffrey Niew: And as a result, we recorded a goodwill impairment charge of 249 million. Okay, got it. And basically, you said you're inching towards a resolution there. Can you talk about M&A? I mean, you've talked about it, you know, most likely in the PD segment, but can you still, is M&A still doable with the kind of ongoing CMM strategic alternatives?

Jeffrey S. Niew: Got it. And basically, you said you're inching towards a resolution there. Can you talk about M&A? I mean, you've talked about it, you know, most likely in the PD segment, but can you still, is M&A still doable with the kind of ongoing CMM strategic alternatives, or are they going to be, you know, separate events? You finish CMM, and then you get back to potential M&A, or how's that process playing out? Well, let me start with the first statement, which is that our cash flow continues to be very robust.

Speaker Change: Okay, got it. And basically you said you're inching towards a resolution there.

Speaker Change: Can you talk about

Speaker Change: M&A, I mean, you've talked about it, you know, most likely in the PD segment, but can you still, is M&A still doable with the kind of ongoing CMM strategic alternatives, or are they going to be, you know, separate events, you'll finish CMM and then

Jeffrey Niew: Or are they going to be separate, you know, separate events? You'll finish CMM and then get back to potential M&A, or how's that process playing out? Well, let me start with the first statement, which is our cash flow continues to be very robust. You know, we're very pleased with the cash flow in the first half. You know, normally, your seasonally cash flow is usually weaker in the first half. We had a very strong first half crack cash flow. We're expecting that to continue in the back half. And I would sit there and say, we are definitely looking at acquisitions, you know, but I guess what I would just say is we want to make sure we don't do anything that, you know, our shareholders would look at and say, "Why are they doing that?"

Speaker Change: get back to potential M&A, or how's that process?

Speaker Change: Well, let me start with the first statement, which is...

Jeffrey S. Niew: You know, we're very pleased with the cash flow in the first half. Normally, seasonally, cash flow is usually weaker in the first half. We had a very strong first half cash flow, and we're expecting that to continue in the second half. And I would sit there and say, we are definitely looking at acquisitions. But I guess what I would just say is we want to make sure we don't do anything that our shareholders would look at and say, "Why are they doing that?"

Speaker Change: Our cash flow continues to be very robust. You know, we're very pleased with the cash flow in the first half.

Speaker Change: Normally, seasonally, cash flow is usually weaker in the first half. We had a very strong first half cash flow. We're expecting that to continue in the back half.

Speaker Change: And I would sit there and say, we are definitely looking at acquisitions, you know, but I guess what I would just say is we want to make sure we don't do anything that, you know, our shareholders would look at and say, why are they doing that?

Jeffrey Niew: There's a lot of opportunities out there. You know, and I point to the Cornell acquisition, which, you know, we think is, you know, from a synergy standpoint, from a how it fits with what we do. I mean, this has been a really great acquisition for us. We're looking for that next Cornell.

Jeffrey S. Niew: There are a lot of opportunities out there. And I point to the Cornell acquisition, which we think is, from a synergy standpoint, from how it fits with what we do, I mean, this has been a really great acquisition for us. We're looking for that next Cornell.

Speaker Change: There's a lot of opportunities out there, and I point to the Cornell acquisition, which we think is, from a synergy standpoint, from a how it fits with what we do, I mean, this has been a really great acquisition for us.

Jeffrey Niew: And so I don't think it's going to take for a conclusion of the CMM process to move forward the M&A. If we find the right thing, our balance sheets and grid shape, we are going to move forward with M&A. And by what we've always said, we're going to maintain modest debt levels, you know, not going above called 275 on a net leverage ratio.

Speaker Change: We're looking for that next Cornell, and so I don't think it's going to take for a conclusion of the CMM process to move forward with M&A. If we find the right thing, our balance sheet's in good shape, we are going to move forward with M&A. And Bob, we've always said we're going to maintain

John S. Anderson: And Bob, we've always said we're going to maintain modest debt levels, you know, not going above call it 275 on a net leverage ratio, you know, and that kind of leads to just a little bit on the capital allocation. You know, we are continuing to buy back shares as well because of the cash flow.

Robert James Labick: modest debt levels, you know, not going above call it 275 on a net leverage ratio, you know. Yeah. And that kind of leads to just a little bit on the capital allocation. You know, we are, we're continuing to buy back shares as well because of the cash flow.

Jeffrey Niew: You know, and it kind of leads to just a little bit on the capital allocation. You know, we are continuing to buy back shares as well because of the cash flow. Okay, super. Thank you very much.

Robert James Labick: Okay, great. Thank you very much.

Speaker Change: Okay, super. Thank you very much.

Operator: And there are no further questions at this time.

Sarah Cook: And there are no further questions at this time. I will turn the call back over to Sarah Cook.

Sarah Cook: I will turn the call back over to Sarah Cook. Thank you for joining us today.

Speaker Change: And there are no further questions at this time. I will turn the call back over to Sarah Cook.

Sarah Cook: Thank you for joining us today. As always, we appreciate your interest in Knowles and look forward to speaking with you on the next earnings call. This concludes our call today.

Sarah Cook: As always, we appreciate your interest and knowles on my forward speaking with you in the next earning call.

Sarah Cook: Thank you for joining us today. As always, we appreciate your interest in Knowles and look forward to speaking with you in the next earning call. Let's conclude our call today.

Operator: This concludes our call today.

Operator: And this concludes today's conference call. He may now disconnect.

Operator: And this concludes today's conference call. You may now disconnect.

Sarah Cook: And this concludes today's conference call. You may now disconnect.