Knowles Q3 2024 Earnings Report

Knowles EPS Results

• Actual EPS: $0.26
• Consensus EPS: $0.20
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: $0.25

Knowles Revenue Results

• Actual Revenue: $142.50 million
• Expected Revenue: $140.97 million
• Beat/Miss: Beat by +$1.53 million
• YoY Revenue Growth: +31.80%

Knowles Announcement Details

• Quarter: Q3 2024
• Date: 10/24/2024
• Time: After Market Closes
• Conference Call Date: Thursday, October 24, 2024
• Conference Call Time: 4:30PM ET

Knowles (NYSE:KN) (NYSE: KN) is a global supplier of advanced audio, electronic and specialty component technologies. The company develops products that enable sound capture, processing and delivery in applications ranging from consumer electronics and communications equipment to medical devices and industrial systems.

Knowles’ product portfolio includes microelectromechanical systems (MEMS) microphones, audio processors, speakers and related acoustic components. It also provides capacitors, resistors and other specialty electronic components, as well as precision devices used in medical, defense, aerospace and other demanding applications.

With operations and customers across North America, Europe, Asia and other international markets, Knowles serves manufacturers in the consumer electronics, mobile communications, hearing health, automotive, industrial and aerospace and defense sectors. The company traces its roots to Knowles Electronics, founded in 1946, and became an independent publicly traded company after being spun off from Dover Corporation in 2014. Knowles is headquartered in Itasca, Illinois.

Knowles Q3 2024 Earnings Call Transcript

Key Takeaways

• In Q3, Knowles signed a definitive agreement to sell the consumer MEMS microphone business and transition toward higher-growth markets like medtech, defense, electrification and industrials.
• Q3 revenue of $143 million was at the high end of guidance, representing 32% year-over-year growth driven by the Cornell acquisition and 4% organic growth, with EPS of $0.26 and $53 million in operating cash flow.
• Total company adjusted EBITDA margin reached 24.6%, while Cornell acquisition synergies have driven a 700 basis-point margin expansion, with further improvement expected.
• Precision Device bookings remain inconsistent due to elevated distributor inventories in industrial markets, delaying a sustained recovery in that segment.
• For Q4, Knowles projects revenue of $141–151 million, adjusted EBIT margin of 21–23%, EPS of $0.26–0.30 and operating cash flow of $30–40 million.

Presentation

[Operator]

Standing by. My name is Brianna, and I will be your conference operator today. At this time, I'd like to welcome everyone to the Knowles Corporation Third Quarter 2024 Earnings Conference Call. Please note that this call is being recorded. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, press star one a second time. I will now turn the call over to Sarah Cook.

[Sarah Cook, VP of Investor Relations at Knowles Corporation]

Thank you, and welcome to our 3rd 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. 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.

[Sarah Cook, VP of Investor Relations at Knowles Corporation]

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 ended December thirty-first, twenty twenty-three, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Knowles disclaims any duty to update such statements except 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 8-K, filed today with the SEC. This will include a reconciliation to the most directly comparable GAAP measure.

[Sarah Cook, VP of Investor Relations at Knowles Corporation]

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, let me turn the call over to Jeff, who will provide details on our results. Jeff?

[Jeffrey Niew, President and CEO at Knowles Corporation]

Thanks, Sarah, and thanks to all of you for joining us today. Before I move on to the results in detail, I would like to remind you that all financial metrics given on today's call are on a continuing operations basis, unless otherwise noted, as we signed a definitive agreement in Q3 to sell the Consumer MEMS Microphones business. The sale will further our strategy of transitioning the company's portfolio to higher growth markets and products, where we have differentiated solutions that drive value for both our customers and shareholders. This positions Knowles for strong growth in both revenue and earnings in the future. As demonstrated by our third quarter results, our total company adjusted EBITDA margins were 24.6%, and as market conditions improve in the PD segment and we realize the full benefit of synergies from the Cornell acquisition, I expect additional margin expansion.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Now, turning to our results. We continued to deliver on expectations in the third quarter. Revenue of $143 million was at the high end of our guided range, which represents 32% growth on a year-over-year basis, driven by the Cornell acquisition, along with 4% organic growth. EPS of $0.26 was at the midpoint of our guided range, while cash from operations was $53 million, inclusive of CMM, exceeding the high end of our guided range. On to our segment. In Q3, MedTech and Specialty Audio revenue grew 4% sequentially and 10% on a year-over-year basis. Our continued operational excellence, sustained success of new product adoption, and cutting-edge technology is evidenced by our growth and strong margins. The end market for our hearing health product remains strong, and we are optimistic about our future.

[Jeffrey Niew, President and CEO at Knowles Corporation]

In Q3, Apple announced software updates that add over-the-counter hearing aid features to the AirPods Pro 2. Over-the-counter hearing aids address mild hearing loss, which is the least penetrated portion of the hearing health market. We believe these features will continue to drive hearing loss awareness, as users will now have a hearing test readily available that could help them in understanding and recognizing hearing loss sooner. This, coupled with the potential of eliminating the stigma of using hearing health device, could drive earlier adoption of traditional hearing aids. Similar to previous years, we are expecting the MedTech and Specialty Audio segment to finish 2024 strong, with Q4 revenue being the highest of the year, driven by normal seasonality from new product launches within the hearing health market.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Looking at our Precision Devices segment, in spite of continued headwinds in inventory levels in the industrial markets and with our distribution partners, revenue grew 6% sequentially, driven by defense and electrification end markets. On a year-over-year basis, revenues grew 57% due to the acquisition of Cornell. I am also pleased with the progress we are making on expanding margins as we improve capacity utilization, productivity, and pricing. Reflecting on our ownership of Cornell this past year, I continue to be excited by this acquisition. We have improved our adjusted EBITDA margins seven hundred basis points throughout the year by accelerating cost synergies, continual operational improvements, and increased pricing. We have also instilled a disciplined approach to cash deployment, leading to increased net operating cash flow...

[Jeffrey Niew, President and CEO at Knowles Corporation]

Despite continued challenges in our end markets, Cornell is expected to be accretive in its first year of ownership, a significant milestone and a critical pillar in our acquisition strategy. As I look forward for the full Precision Devices segment, we expect to see modest sequential revenue growth in Q4. While we have a very healthy pipeline of new opportunities in multiple end markets, which positions us well for growth as the market recovers in 2025, bookings continue to be inconsistent as we have yet to see a sustained recovery in the industrial end market and with our distribution partners. As I noted in the beginning of our call, I am pleased with the signing of the definitive agreement to sell the Consumer MEMS Microphones business.

[Jeffrey Niew, President and CEO at Knowles Corporation]

As already discussed, our quarterly results demonstrate our expanded margin profile as we continue to focus on more attractive growing end markets in the MedTech, defense, electrification, and industrial spaces. I am confident in our ability to deliver shareholder value as we complete this important step in our evolution to a leading industrial technology company. We expect the closing by the end of the fourth quarter and anticipate holding an investor forum in Q1 2025, where we will discuss our growth strategy and plans for the future in more detail. Now, let me turn the call over to John to detail our quarter results and provide Q4 guidance.

[John Anderson, SVP and CFO at Knowles Corporation]

Thanks, Jeff. Please keep in mind all measures that I'll be referencing today are on a continuing operations basis and exclude the Consumer MEMS Microphones business, unless specifically stated. We reported third quarter revenues of $143 million, at the high end of the guidance range and up 32% from the year ago period, driven by the acquisition of Cornell in the fourth quarter of 2023, and organic growth of 4%. EPS was $0.26 in the quarter, at the midpoint of our guidance range, and up $0.06 or 30% from the third quarter of 2023. In the MedTech and Specialty Audio segment, revenue was $64 million, up 10% versus the prior year on higher demand in both hearing health and specialty audio.

[John Anderson, SVP and CFO at Knowles Corporation]

Gross margins were 53.1%, down 60 basis points versus the year ago period, driven by unfavorable product mix and slightly lower production yields. The Precision Devices segment delivered revenues of $79 million, up 57% from the year ago period, driven by the acquisition of Cornell, partially offset by lower shipments of high-performance capacitors into the distribution channel and to OEMs in the industrial end market, as customer and channel inventories remain elevated. Shipments into the medical, defense, and electrification markets were up slightly and in line with expectations. Gross margins were 40%, down 40 basis points from the third quarter of 2023 due to the acquisition of Cornell, partially offset by a 230 basis point improvement in legacy PD margins, driven by factory productivity gains.

[John Anderson, SVP and CFO at Knowles Corporation]

While gross margins at Cornell are below our legacy precision device business, we saw a five hundred basis point gross margin improvement since Q1 of this year, driven by improved factory capacity utilization, supply chain savings, and higher pricing. On a total company basis, R&D expense in the quarter was $8.9 million, up $1 million from Q3 2023 due to the acquisition of Cornell. SG&A expenses were $24 million, $5 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 PD segment. Interest expense was up $3.3 million versus the prior year due to higher bank borrowings associated with the acquisition of Cornell in the fourth quarter of 2023. Now, I'll turn to our balance sheet and cash flow.

[John Anderson, SVP and CFO at Knowles Corporation]

In the third quarter, we generated $53 million in cash from operating activities above the high end of our guidance range on lower than expected net working capital and higher cash received from settlement of foreign exchange forward contracts. For the first nine months of 2024, we generated $95 million in operating cash flow, representing a $30 million increase over the first nine months of 2023. Please note that cash from operations for the three and nine months ended September 30 is inclusive of the Consumer MEMS Microphone business. Capital spending was $4 million in the quarter. During the third quarter, we repurchased 250,000 shares at a total cost of $4.5 million and reduced outstanding bank borrowings under our revolving credit facility by $38 million. We exited the quarter with cash of $93 million and $225 million of debt.

[John Anderson, SVP and CFO at Knowles Corporation]

That includes borrowings under our revolving credit facility and an interest-free seller note issued in connection with the Cornell acquisition. Lastly, our net leverage ratio, based on trailing twelve months adjusted EBITDA, was one times. Moving to our guidance. For the fourth quarter of 2024, revenues are expected to be between $141 million and $151 million, up 5% versus the year ago period, driven by the acquisition of Cornell. R&D expenses are expected to be between $8 million and $9 million, and selling and administrative expenses are expected to be within a range of $23 million-$25 million, flat with the prior year. We're projecting adjusted EBIT margin for the quarter to be within a range of 21%-23%. Interest expense in Q4 is estimated to be $3 million and includes non-cash imputed interest.

[John Anderson, SVP and CFO at Knowles Corporation]

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. We're projecting EPS to be within a range of $0.26-$0.30 per share. This assumes weighted average shares outstanding during the quarter of 91.2 million on a fully diluted basis. We're projecting cash from operating activities to be within a range of $30 million-$40 million, and capital spending is expected to be $6 million. Cash from operating activities includes $5 million-$10 million used by discontinued operations, and capital spending includes $2 million related to discontinued operations. In summary, our third quarter results and fourth quarter guidance highlight the margin profile of our continuing operations.

[John Anderson, SVP and CFO at Knowles Corporation]

In addition, our increased exposure to attractive end markets, which include MedTech, defense, electrification, and industrials, is expected to drive higher organic revenue growth rates, which we will cover in more detail at our investor forum, which is planned for Q1 of 2025. I'll now turn the call back over to the operator for the Q&A portion of our call. Operator?

[Operator]

Thank you. If you have dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad to raise your hand and join the queue. To withdraw your question, please press star one a second time. If you have dialed in and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Our first question comes from the line of Bob Labick with CJS. Please go ahead.

[Bob Labick, President at CJS Securities]

Good afternoon, and thanks for taking our questions, and congratulations on the, you know, further transformation of the company.

[John Anderson, SVP and CFO at Knowles Corporation]

Thanks. Thanks, Bob.

[Bob Labick, President at CJS Securities]

Yeah. So I wanted to start with kind of the underlying demand in PD. And I know... I think, John, in your remarks, you talked a little bit about the end markets, but I wasn't typing fast enough. So maybe you could kind of remind us what you said and then tell us the drivers. So what end markets in PD are the strongest right now, and what's driving that, and where is the weakness that you're seeing, and when do you see that kind of recovering?

[John Anderson, SVP and CFO at Knowles Corporation]

Okay, I'll let Bob handle this, John.

[John Anderson, SVP and CFO at Knowles Corporation]

Let me, let me just first give some color to this, Jeff. So I would sit there and say, generally speaking, the defense market still looks, you know, pretty okay. I think, obviously, you know, obviously with defense, there has been and can be a time to time lumpiness relative to timing of orders, but the underlying demand is still there, and, and I think that's been, you know, the strength. I think we've definitely seen, especially when you think about our MedTech business in PD, but if you take it overall with the MSA business, you know, our MedTech business continues to remain strong. I would say specifically in the PD area, we're starting to see the turn back to growth in MedTech in the PD section.

[John Anderson, SVP and CFO at Knowles Corporation]

You know, I think MSA still been doing very well, but MedTech is still growing. I think, you know, what I would sit there and say, you know, from my perspective is, you know, electrification, you know, in Q3, Q4 overall is probably flattish, you know, year over year, but the real weakness still remains in the industrial, and I would call with our distribution partners, which is a lot of industrial business. You know, and so that's kind of like the real weakness that we see yet. You know, I'd say. You know, I was with a number of our distributors, we're actually visiting Knowles yesterday, and then their commentary is, you know, kind of what we're seeing, which is, you know, one month bookings are good, next month they're a little weaker, then they come back.

[John Anderson, SVP and CFO at Knowles Corporation]

We're just not seeing yet in that portion of the market, the consistency of bookings that we need to really see, you know, consistent year-over-year growth. Now, what I would say is, you know, I think, you know, we're still hopeful as we get into, you know, late Q1 and Q2, we should start seeing some recovery. At least that's what some of our distribution partners are talking about. But I think the great, great thing is, in spite of all these things, the PD gross margin expanded through the year, and, you know, we expect there's opportunity for further expansion, first with the synergies and the things we're doing on the Cornell side, but also on capacity utilization relative to the traditional PD business that is not Cornell.

[Bob Labick, President at CJS Securities]

Okay, great. Appreciate that very much. And, you know, obviously with the transformation, you're gonna probably be a little more asset light, and you may have told us this, you know, previously, but could you remind us the kind of go-forward level of CapEx for kind of RemainCo or?

[John Anderson, SVP and CFO at Knowles Corporation]

Yeah, sure, Bob. I would say, you know, over a cycle, kind of 3% of revenue range, 3%.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yeah, I mean, I think, like, if you look at this-

[John Anderson, SVP and CFO at Knowles Corporation]

You could get, if we had some expansion in that area, you could have a period where it's a little above that, but I think overall, over a cycle, 3% of revenue.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yeah, over a cycle. And there could be a year where we're slightly lower, and then years where we're slightly over, you know, but, you know, probably 2% to 4%, 2% to 4.5%, depending on-

[John Anderson, SVP and CFO at Knowles Corporation]

Yep

[Jeffrey Niew, President and CEO at Knowles Corporation]

on, you know, where we are in the cycle.

[John Anderson, SVP and CFO at Knowles Corporation]

2024 will probably likely be a little under the 3%.

[Jeffrey Niew, President and CEO at Knowles Corporation]

That's what I'm saying. Correct.

[Bob Labick, President at CJS Securities]

Okay. Got it, great. And then last one, and I'll jump back in, in queue here, but, obviously, you know, this is kind of, you know, just the beginning, so to speak. Can you talk about the M&A environment, you know, for you right now and the characteristics of targets and, you know, how long it'll take you to kind of get back out and looking at things or, you know, or what's out there now?

[John Anderson, SVP and CFO at Knowles Corporation]

Yeah, I think it's a great question. Thanks for that. I think it's, you know, a core portion of our strategy going forward, you know, in terms of finding opportunities like Cornell, where there's good synergies with what we do.

[John Anderson, SVP and CFO at Knowles Corporation]

I would say, you know, that we have a number of opportunities in front of us that we're assessing right now. I mean, it's always hard to say, you know, when that's gonna come to fruition. We are going to be, you know, very selective in, like, what we do. We don't wanna do something that, you know, we come out in the street, we think which doesn't make sense, so we're being very careful what we do. I would just add one thing that we are very pleased about, you know, that I think helps really the M&A story, which is, you know, it's very clear for us, with all the transformation we've done into a higher margin business, our multiple is expanding, and I think that gives us more options relative to acquisitions.

[John Anderson, SVP and CFO at Knowles Corporation]

EBIT, EBITDA multiple.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Our EBITDA multiple is expanding, and so it gives us more options with M&A, you know, and so I to make things accrete a much faster on a higher multiple EBITDA basis. So I think this is very critical to our future, and we have a lot of resources being put into this. So, you know, While I can't definitively say when something happens, we are on the hunt right now. I mean, we are looking.

[Bob Labick, President at CJS Securities]

Got it. Okay, super. Thanks so much.

[Operator]

Our next question comes from the line of Christopher Rolland with Susquehanna. Please go ahead.

[Christopher Rolland, Semiconductor Analyst at Susquehanna Financial Group]

Hey, guys. Thanks for the question. I guess my first one is Cornell. That's pretty amazing margin expansion that you have there. I was wondering, do you still have continued opportunities? You know, I'd also love to focus a little bit on pricing there. Do you think you still have movement upwards in pricing? You know, is there something left here in terms of margin improvement that we could see for the CD business?

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yeah, let me handle the pricing first, and then I'll let John talk just generally to the margins overall. So, you know, if you remember when we went through this, I think, and don't hold me to the exact numbers, when we first announced the deal, we didn't really talk too much about price. By the end of the first quarter of ownership, we kind of talked about a couple million dollars of price. I think last quarter I talked about 3-4 million of price. I think we're gonna be, for the year, above $5 million of price that we're gonna get this year. And, you know, if you look at the timing of price, you know, we have longer term contracts with customers.

[Jeffrey Niew, President and CEO at Knowles Corporation]

There's a lot of inventory in the channels relative to industrials, so there's gonna be, based on the pricing actions we've already taken, there's gonna be more price in twenty twenty-five, so I would say $5 million this year, maybe another $2 million next, you know, a big portion of the margin improvement is coming from price. I'd say the second thing, and, you know, John can kind of expand on this, but, you know, we really haven't done a tremendous amount yet on, like, what I call value creation on the manufacturing floors with Cornell. That process will take start of next year, we'll start working on that. We'll start laying that out.

[Jeffrey Niew, President and CEO at Knowles Corporation]

But I think there's also opportunity to do the things that we do in the traditional Knowles business, whether it be PD or the MSA business, where, you know, we get a fair amount of value creation every single year. So, you know, I would say I'm reasonably confident that we're gonna have more margin expansion, and we'll talk more about the investor day, kind of, you know, overall for the PD segment, what kind of margin expansion that we can get. But we should get more from Cornell. I don't know, John, do you have any other comments?

[John Anderson, SVP and CFO at Knowles Corporation]

Yeah, just I think, just to kind of reiterate what Jeff said, I mean, we had 500 basis points of improvement in Cornell, and it was really driven by improved pricing. Also, to a lesser extent, we're getting some supply chain savings, material savings, so that's there. I think that will continue into 2025. And then also, we're planning on getting the major sites on our Oracle instance. Once we get that, there's some also, I'll call it OpEx synergies, to harvest from that. So there's room for-

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yeah

[John Anderson, SVP and CFO at Knowles Corporation]

... for increased margin in that Cornell.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yeah, I think what I just would kind of highlight here as the last thing on the price, because obviously, you know, this has been a relatively challenging year for the PD segment as a whole in terms of revenue, especially the industrial market, and we're still getting $5 million of price in the year. And I think that's bodes really well for as the market recovers, what it means.

[Christopher Rolland, Semiconductor Analyst at Susquehanna Financial Group]

Thank you, Jeff. And yeah, I did, as a lead in, want to talk a little bit more about industrial. So, it sounds like there might be some inventory there. Would love to know when you think that normalizes, how much inventory is there? And then if you could break this up into, you know, what you're seeing geographically, like east versus west. I know there's a debate over EVs, for example. China EVs look good, West EVs look a little soft, and anything like that would be.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yes

[Christopher Rolland, Semiconductor Analyst at Susquehanna Financial Group]

... would be helpful.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yeah. So, you know, I think our best indicator, you know, quite frankly, of inventory, it's really hard with a little harder with OEMs or direct customers to really know the exact amount of inventory. But with our distribution partners, you know, we get a, we have a pretty good view into the inventory that they have. You know, We still believe, based on the data they're reporting to us, that they, our distribution has about six months' worth of inventory on hand right now. In order to really get back to normal ordering patterns, that's still got to come down by about three months. Now, you know, when that happens, again, as I kind of said on the earlier question, you know, when we meet our distributor partners, they say one month's good, one month's poor. It's been inconsistent, right?

[Jeffrey Niew, President and CEO at Knowles Corporation]

Oh, just totally horrible, but it's been inconsistent. And, you know, this is primarily North America and Europe. There isn't as much business in our PD segment in the industrial markets in Asia. It's not as much. It's, like, and specific to electrification, now, that's really not China, but there we do have Asian customers. We are not doing a tremendous amount in electrification in China. I would say we're doing, and that, again, right now, in the back half of the year, you know, looking at this, it's flattish year over year in terms of. 'Cause what I'd say is, yes, the electrification market is weak, as you kind of pointed out, but we also have new design wins going to production.

[Jeffrey Niew, President and CEO at Knowles Corporation]

We are, you know, garnering new opportunities that are starting production. So that's kind of offsetting, you know, being down in electrification, even though, you know, we're not participating as heavily in China.

[Christopher Rolland, Semiconductor Analyst at Susquehanna Financial Group]

Awesome. Thank you.

[Operator]

Again, if you would like to ask a question, please press star one. Our next question comes from the line of Tristan Gerra with Baird. Please go ahead.

[Tristan Gerra, Senior Research Analyst at Baird]

Hi, good afternoon. Looking at the macro environment, and you highlighted the continued weakness in industrial. The first question is: have you seen in other end markets, including consumer, any changes in demand patterns over the past few months, or is it stable? And also, if you could talk about pricing, excluding the impressive progress you're making at Cornell, are you seeing any unusual pricing changes in the high-end capacitors? What are you hearing from your customers as you perhaps renegotiate some annual pricing contracts there?

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yeah. So first, I'll just make a comment. Obviously, we've moved the CMM business to discontinued ops, and that's our exposure to consumer until, you know, obviously, that is, you know, fully sold. That is in line with our expectation going into the quarter, you know, and as I look, even in the Q4, it's running in line with expectation. I think it's doing fine. You know, and so I think there aren't any big issues we see in consumer at this moment. Now, you asked about the pricing environment, within first within MSA, you know, I would say stable. That's what I would say.

[Jeffrey Niew, President and CEO at Knowles Corporation]

We're not seeing a tremendous amount of pricing increases, but we're not seeing pricing reductions either, that you know that are pointing to any you know any issues, and then in PD, which is you know primarily ceramic capacitors and which is a lot of end markets, and then RF, which is primarily defense. I would actually say in defense, there is we still think some opportunity in terms of price in the RF market going forward, and then in the traditional cap space, I would say it's stable. You know, I think the one of the benefits we have in our businesses is that you know a big portion of our businesses in PD is sole source positions.

[Jeffrey Niew, President and CEO at Knowles Corporation]

You know, I think we're in long-term contracts with a lot of people, and we don't see a tremendous amount of price pressure in these markets, even in a down market.

[Tristan Gerra, Senior Research Analyst at Baird]

Great. That's, that's great to hear. And then, how should we be looking at this coming quarter, as you know, the sequential trends for the various end market within the PD?

[John Anderson, SVP and CFO at Knowles Corporation]

Yeah. Okay, let me think. Let me look at these. On a sequential basis, you know, we're expecting, but first, let me say, for PD overall, you know, I kind of said on the prepared remarks, we're expecting modest sequential growth, right? You know, and so, you know, if I look at the end markets overall, defense is gonna be up, MedTech is gonna be up, electrification is flat, and industrial is flat, right? You know, so, you know, again, you know, back to my kind of a point about industrial and distribution, which is a lot of industrial customers. It's not like we're seeing a degradation sequentially, but, you know, obviously, these numbers were running a lot higher if you go back, you know, a year and a half ago.

[John Anderson, SVP and CFO at Knowles Corporation]

We're just not seeing the continued improvement that we kinda saw. We did see some improvement from Q2 to Q3 in the industrial market, but that's kinda like now back to flat sequentially from Q3 to Q4.

[Tristan Gerra, Senior Research Analyst at Baird]

Great. Thank you very much.

[Jeffrey Niew, President and CEO at Knowles Corporation]

Yep.

[Operator]

There are no further questions at this time. This will conclude today's conference call. Thank you all for your participation. You may now disconnect.

Participants

Executives

• Sarah Cook, VP of Investor Relations
• Jeffrey Niew, President and CEO
• John Anderson, SVP and CFO

Analysts

• Bob Labick, President at CJS Securities
• Christopher Rolland, Semiconductor Analyst at Susquehanna Financial Group
• Tristan Gerra, Senior Research Analyst at Baird