Knowles Corporation

Good afternoon and welcome to the Knowles Corporation second quarter 2021 financial results conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you would like to withdraw the question, just press the band key. Please be advised that today's conference is being recorded. With that said, here with opening remarks is Knowles Vice President of Investor Relations, Mike Knapp. Please go ahead.

Thanks, Bloom, and welcome to our Q221 earnings call. I'm Mike Knapp, and presenting with me on the call today are Jeffrey New, our president and CEO, and John Anderson, our senior vice president and CFO. Our call today will include remarks about future expectations, plans, and prospects for NOLs, which constitute forward-looking statements for purposes of the safe harbor provision 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 on Form 10-K for the fiscal year ended December 31, 2020, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release. All forward-looking statements are made as of the date of this call, and NOLS 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 call can be found in our press release posted at our website at NOLS.com and in our current report on Form 8-K filed today with the SEC, including a reconciliation to the most directly comparable GAAP measures. All references on this call will be on a non-GAAP continuing operations basis unless otherwise indicated. Also, we've made selected financial information available in webcast slides, which can be found in the IR section of our website. With that, let me turn the call over to Jeff, who will provide some details on our results. Jeff?

Thanks, Mike, and thanks to all of you for joining us today. For Q2, we reported revenue of $200 million above the midpoint of our guidance and up 31% from the year-ago period driven by strong demand across our audio and precision device segments. Gross margins improved to 42.4% and our earnings per share were $0.31, both above the high end of our guidance range. In audio, revenue was up 43% from the year-ago period as hearing health sales doubled and we saw continued robust MEMS microphone demand in multiple end markets. Precision Devices delivered record revenues in Q2, up 5% from the year-ago period, underscored by a recovery in the MedTech market and an acquisition we completed in the quarter. Overall, a great quarter for the company that emphasized our leading position across a broad range of growing end markets, our focus on high-value products to improve gross margins, and our strong operating leverage. Let me provide some detail on the trends we are seeing by end markets. In audio, we saw broad-based improvement year-over-year in MEMS microphone sales across non-mobile and markets, particularly in ear, IoT, and computing devices, as work-from-anywhere and remote schooling trends continue. We anticipate non-mobile to represent more than 50% of microphone sales in 2021, as new true wireless and IoT devices are launched in the second half of the year. In addition, we are beginning to see emergence of new markets we can serve in the non-mobile category that may provide additional growth opportunities over the next several years. First, we are seeing increased design activity around the virtual reality market. IDC forecasts VR headset shipments to grow to over 28 million units in 2025 with a five-year CAGR of 41%. VR has the potential to revolutionize a number of industries, and high-performance audio is a critical piece of this equation to enable the best user experience. The second is LightGoods, where we recently introduced a complete development platform consisting of microphones and a digital signal processor that enables fast and easy voice integration for smart appliances. This solution was selected by Samsung in its Family Hub portfolio of smart appliances, and the first product launched, the correct product introduced, was a smart refrigerator. Finally, we see the automotive market becoming a potential opportunity for our MEMS microphone business as our customers focus on reducing unwanted road or engine noise in the cabin and enabling voice input to control the vehicle systems. We are seeing an accelerated transition from electric to MEMS microphones in automotive and have launched a new product portfolio for this market as customers are beginning to recognize the importance of higher quality and the supply assurance that Knowles offers. In mobile, Q2 mic sales came in as expected, and we expect a strong seasonal uptick in sales in Q3 as multiple OEMs around the world launch new handsets. For hearing health, shipments have recovered to pre-COVID levels, and we see improved demand in the audio file segment as U.S. concerts resume. In addition, the White House issued an executive order earlier this month, which could help accelerate the issuance of over-the-counter hearing aid regulations and products in the U.S. While this is not new news for the sector, it does highlight there is a potential upside for us to benefit from the large addressable market of people suffering from mild hearing loss. Overall, we expect continued strength in traditional hearing aid channels with momentum building in the over-the-counter market. We also expect continued rapid growth in the TWS segment with premium devices offering advanced features like active noise cancellation and assisted listening functionality. All this represents positive trends for ear-worn device acoustics over the next several years. In precision devices, Q2 sales reached record levels, with significantly improved gross margins, and demand in defense, medtech, industrial, and electric vehicle markets drove strong sequential improvement. We also acquired Integrated Microwave Corporation, a leader in the design and manufacturing of custom, high-performance RF filters for the aerospace, defense, and communications industries. By expanding our product portfolio, we grow our serviceable, available market while providing our customers a one-stop shop for their high-performance R solutions. John will discuss the financial impact from this transaction in just a moment. For the second quarter, we also saw record bookings again in PD, giving me confidence that we can grow precision device revenue again this year. We get a strong first half and expect the momentum to continue in Q3. I believe our leadership positions across the markets we serve and our strategies to deliver high-value, differentiated solutions to a diverse set of growing end markets positions us well for future growth. With that, I'll turn it over to John to expand on our financial results and provide guidance for the third quarter. John? Thanks, Jeff. We reported second quarter revenues of $200 million, up 31% from the year-ago period, driven by increased shipments in both the audio and precision device segments. Audio revenues of $150 million were up 43% due to increased shipments of MEMS microphones across non-mobile end markets and the recovery of the hearing health market to pre-COVID-19 levels. Precision Devices delivered record revenues of $50 million, up 5% year-over-year, as a result of organic growth driven by increased demand for high-performance capacitors in medtech, industrial, and automotive markets, and an acquisition completed in the second quarter of 2021. Second quarter gross profit margins were 42.4%, well above the high end of our guidance range, and up more than 10 percentage points versus the same period a year ago. Audio segment gross margins improved more than 12 percentage points, driven by higher factory capacity utilization and favorable product and customer mix. In the precision device segment, gross margins were five percentage points above prior year levels due to favorable product mix, productivity gains, and increased pricing, partially offset by higher precious metals cost. R&D expense in the quarter was $22 million, in line with expectations, and up $2 million from the year-ago period as higher incentive compensation costs and increased spending in MEMS microphones, hearing health, and precision devices was partially offset by the impact of restructuring actions taken in the second quarter of 2020. SG&A expenses were $28 million, $1 million above our guidance range, driven by higher incentive compensation costs and increased legal expense related to the favorable ruling we received in the Belsing lawsuit. SG&A was up $1 million from the prior year due to higher incentive compensation costs, partially offset by the impact of restructuring actions taken in the second quarter of 2020. For the quarter, adjusted EBIT margin was approximately 18% at the high end of our guidance range and up more than 18 percentage points from the same period a year ago, driven by increased shipment volumes and higher gross margins. EPS was 31 cents above our guidance range and up 32 cents from the prior year. Further information, including a detailed reconciliation of GAAP to non-GAAP results, is provided in the financial tables of today's press release and can also be found on our website at Knowles.com. Now I'll turn to our balance sheet and cash flow. Cash and cash equivalents totaled $94 million at the end of Q2. Cash generated by operations in the quarter was $21 million, above the high end of our guidance. due to higher EBITDA and lower than expected net working capital. Capital spending was $11 million in the quarter. During the quarter, we resumed buying under our share repurchase plan and acquired roughly 1 million shares. We also completed the acquisition of Integrated Microwave Corporation for $79 million, net of cash acquired. In 2022, we expect the acquisition to deliver more than $20 million in revenues at above-average gross margins and EPFs of 4 to 6 cents. Given our existing cash position and our expectations that we will continue to generate significant free cash flow, we intend to settle the principal amount of the convertible notes, which mature in Q4 of this year, in cash. Moving to the third quarter. We expect total company revenue to be between $227 and $237 million, up 13% at the midpoint versus the same period a year ago. Revenue from the audio segment is expected to be up approximately 6% from Q3 2020 due to increased shipments into non-mobile and hearing health applications. Precision device revenue is expected to be up more than 38% versus the prior year, driven primarily by organic growth in the defense, med tech, and EV markets, and the acquisition completed last quarter. We estimate total company gross margins for the third quarter to be 40 to 42%, up 430 basis points from the year-ago period, driven by both the audio and precision device segments on higher capacity utilization, favorable product and customer mix, and the acquisition completed in Q2. Our gross margin expansion in the first half of 2021 demonstrates the execution of our strategy to deliver high valued differentiated solutions to our end markets. We expect total company gross profit margins will exceed 40% for full year 2021. R&D expense in Q3 is expected to be between 21 and 23 million. up $3 million from prior year levels due to higher incentive compensation costs and increases in MEMS microphone and precision device spending. We're projecting selling at administrative expense to be between $26 and $29 million, up $1 million from the year-ago period, driven by higher incentive compensation costs and the impact of the acquisition completed in Q2, partially offset by lower legal expense. We're projecting adjusted EBIT margin for the quarter to be in the range of 19 to 21% and expect EPS to be within a range of 38 to 42 cents per share. This assumes weighted average shares outstanding during the quarter of 95.3 million on a fully diluted basis. We're forecasting an effective tax rate of 11 to 15% for the quarter. And we expect cash generated by operations in Q3 to be between $30 and $40 million, with capital spending of approximately $15 million. Please refer to our press release and to our Form 8-K filed today with the FCC for a GAAP to non-GAAP reconciliation. I'll now turn the call back over to Jeff for closing remarks, and then we'll move to the Q&A portion of the call. Jeff? Thanks, John. Before we move to the Q&A, there are a few points I'd like to highlight from our Q2 results and our Q3 guidance. First, the diversity of our revenue across a range of growing end markets is a significant benefit. In addition to participating in a number of compelling growth opportunities in markets that demand high-value solutions, we are continuing to reduce risk of being exposed to any one specific market. Second, our Q2 results cap off a very positive first half for revenue and gross margins, which coupled with operating leverage is driving increased even margins. Lastly, our strategy to deliver high-value, differentiated solutions to a diverse set of end markets producing strong cash flow that allows us to drive shareholder value through debt reduction, investment in high-growth margin products, accretive acquisitions, and stock buybacks. Operator, we can now take questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, to ask a question, please press star 1. To drop a question, just press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Bob Labic from CJS Securities. Your line is now open.

Good afternoon. Congratulations on the next quarter. Thank you. Thanks, Bob. I wanted to start with the gross margins. They were, you know, obviously fantastic above guidance, above expectations, et cetera. What were the primary drivers for the gross margins? And I know you guided to above 40 for the year. What does it take to get, or how long might it take to get to like a 42% annual number, and what would be the drivers to get there?

Yeah, Bob, let's start with Q2. And in the audio segment, gross margin improvement was really driven by favorable mix. Specifically, a higher portion of MEMS microphones shipped into non-mobile applications like ear, IoT, and compute, which typically carry above average margins. We also saw, with the recovery of our hearing health business, a higher proportion of sales into that market, which again, carry higher than average gross margins. And then lastly, we had very high factory capacity utilization in Q2. well north of 90%. And I think just to put a little bit more color around that, I think that's a theme we've been talking about for a while, that if we look at our investments and where we're developing products, where we're investing our CapEx, we're moving it more in a direction of higher gross margin products that will allow us to continue this trend of moving the gross margin up over time. Yeah. And, Bob, if I can just say, I talked about the specifics in audio. With respect to PD, a little different. I think, one, it made some really significant factory productivity gains over the last couple quarters, and it's really starting to hit in Q2. Also, the pricing trends are favorable there. We've been able to pass on, either through surcharges or higher pricing, some of the increased palladium costs. So those are the drivers. And lastly, again, a little favorable mix in that we're selling more into the higher margin defense and medical markets, which have recovered in Q2. We really expect that to continue over the course of the remainder of 2021. And I mean, I think in your question with respect to what would it take to get to 42%, I think it's just keep delivering what we're doing and what you saw demonstrated in Q2. I don't think there's anything specific. The one thing I will say that, you know, we do look forward to in 2022 is introduction of some new products that are coming in at higher gross margins. So it's really keep doing what we're doing in Q2 and then adding and layering in some new products at higher margins. No, I think that's probably a good discussion. We're thinking about capital allocation, whether it be in the R&D or CapEx and how we're spending that on higher gross margin products and markets. We'll continue that as well as we have a fair amount of new products that we think will have positive impact on gross margin in 2022.

Okay, super. And then just one more for me. You obviously made a nice and a creative acquisition that you just told us about. um you still have i think you were net cash before this so that you'll still be you have a very strong balance sheet and a strong free cash flow how is the you know market looking out there for additional lemonade are you still you know in the market looking for more tuck-ins and what areas would you be interested in and is that an opportunity to grow margin from there as well yeah let me just make the comment first you know we're really pleased with this acquisition that we were able to complete in q2

You know, it does a couple things for us. Number one, it expands the range of frequencies where we can offer RF solutions. It gives us more of a one-stop shop with our defense and aerospace customers. And, you know, I don't mention this in the pre-prepared remarks, but there's also a cross-selling opportunity here. You know, we have our customers we can walk into now with a new offering of products. So, you know, it's pretty positive. And, you know, and it's Our expectation for this acquisition, as John said, would be above 50% gross margin. And so I think there are other opportunities for us like this, Bob. And I think it's a matter of the timing of when they happen. But as I kind of looked through the past, it feels like in these markets, the PD markets, You know, there is these, I would say, bolt-on size acquisitions. It's a pretty target-rich environment. It's a matter of finding stuff that's right for us and that fits with what we're trying to do. But I would anticipate we're going to continue to do these things in the future.

Super. That sounds great. Thanks so much.

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

Thanks. My congrats as well, especially in the gross margins. Maybe you guys can comment about where you see them going midterm. Any thoughts related to that? And then, Jeff, love to hear your thoughts on growth of PD, record quarter. That's stellar. I'm curious where you think that goes. And lastly, maybe back to John, where is the bulk of your CapEx being spent right now?

Okay. You know, first on gross margin, you know, I think you know, that, you know, that when we put out, if you remember, we put a midterm model out here in 2019 of 42%, you know, I think this is a very achievable number. I, you know, I think there's an opportunity potentially to go higher than that with some of the things we're doing. And so, you know, I think, you know, I think we're still, that's what we're running towards, you know, getting above the midterm model. Now, you know, how long exactly takes, you know, depend on a few things, you know, one is, is, is, you know, this, again, And I want John to talk about this in a minute about CapEx, what we're spending CapEx on today, and maybe in contrast to maybe what it was three or four years ago. But I think it's really about this capital allocation and where we're spending our money, Tony. And I'll give you a couple of examples just on the R&D side. If you go back four or five years ago, most of our R&D spend was targeted at mobile on them mics. And now what we've done is, yes, we still have a fair amount. Mobile is an important business for us. But now we're developing products that are specific to the ear, specific to the compute, specific to the IoT market, which, you know, helps, again, shift the mix. We're spending more money on R&D with PD, right? You know, and so what you kind of see here is – and then a last piece, you know, I think – I'm as excited as I've ever been about the hearing health market. The core market, the normal channels, obviously are recovering very well from COVID. But in addition, we're getting a little bit more excited about the over-the-counter market. You're starting to see the ear goes of the world, start to talk about selling over the Internet. And this is really targeted at a portion of the market, Tony, that doesn't really buy today. People with loud hearing loss, they're sitting without a hearing aid. And so there's good opportunity. And then lastly, I don't want to discount this, and I know you ask a lot about it usually, but the balanced armature speaker automated line, that's still scheduled to go into production late this quarter, late in Q3. And, you know, I think it may take us, you know, nine months from when it's fully installed to get it, you know, up fully running, output to the full capacity. But, you know, I'm seeing more places where we can use that capacity, too. You know, I think, obviously, the true wireless market is interesting. But, you know, there may be some places in this over-the-counter market where using this automated line makes sense. And so I think overall, the hearing aid business also, again, shifting to all of our businesses that are above the corporate average through capital allocation and R&D spend. John, if you want to comment about CapEx? Yeah, sure. Tony, I mentioned we'll spend somewhere between 5% to 7% of revenues in 2021 on CapEx. You know, call it roughly $50 million. About 60% of that is in our MEMS business, and it really focuses on projects like our 8-inch conversion, also some new product introductions that will be coming into the market next year and beyond. Outside of the MEMS area, we do still have some payments related to the BA automated line that we'll be making this year. And then in PD, some capacity and some cost improvement opportunities that have really quick paybacks and ROI where you make the investment. So that's pretty much it. And let me just make one other comment. I mentioned this just briefly on the previous call. is that as we start looking at our markets for those mics, we're starting to think more about, I would call, the more commoditized portion of the MEMS microphone market. And we're starting to think, I would say more than starting to think, we're starting to actually self-guide as opposed to finished microphones so that this commoditized portion of the market can get access to the Knowles technologies without having to actually us sell a lower gross margin product. And that's another thing I think will start having impact in 2022. I think we have one last question about the PD growth. Yeah, I mean, you know, what I would just say here is if you remember last quarter, I talked about record bookings, and I said usually record bookings translate into record revenue, and that's what you're seeing in Q2. And, you know, the bookings continue to be very, very strong. And this is even without the acquisition. If I look at the numbers, even without the acquisition, it was a record shipment quarter for PD, even without the acquisition. So when you layer on the acquisition, you start seeing these numbers. You can see them are going north of $50 million per quarter of revenue. to see from the Q2 results. And so, you know, I think we still expect more growth in these markets in 2022. You know, possibly at the acquisition, and I'm hopeful there may be a couple more acquisitions that we can do, you know, over the next, you know, 12 to 18 months. Tony, if I could just add to that, to Jeff's comments on the PV growth, I mentioned in my script that we expect PV to grow about 38% year over year. The bulk of that is actually organic growth. About 25% of that growth is organic. 13% is due to the acquisition. I think that's good, Tony.

Thanks for all the color minutes. I guess making one just quickie last one here. Malaysia, Philippines, COVID kind of reemerging. We're hearing from other covered companies that they've got to close their plants for a couple of days. It's in fact here and there. Are you seeing any impact over the last week or two?

The last week or two, no. You know, I think we continue to monitor, but, you know, we've been pretty good about managing, you know, our factories. We're starting to actually see, Tony, a few of our factories are starting to get some amount of vaccinations. People are starting to get vaccinated. So, you know, we're hopeful. that, you know, we've really done our operations team, and I would really commend them and give them a big shout-out, have really worked through this, and we really haven't had a lot of closures related to COVID, you know, through the whole thing. And so, you know, we'll obviously continue to monitor, but right now I think we're in decent shape right now. We've got to keep monitoring.

Thanks, Jeff. Congrats, guys.

Thank you.

Your next question comes from the line of Tristan Guerra from Beard. Your line is now open.

Hi. Good afternoon. What patterns are you seeing from your larger smartphone customers, you know, given the well-advertised shortages? Do you think there's going to be an attempt to rebuild inventories in smartphones in the second half? Is that embedded in your guidance? You know, how do you think you're going to be shipping relative to demand in smartphones?

Yeah, so maybe I'm not going to comment specifically to the largest customer, but let me give you maybe just a little general color, Tristan, on capacity and not capacity but constraints. I would sit there and say right now, you know, seasonally we expect, you know, pretty rise up strong, but I would say we factored into this guide that there is going to be some, you know, shortfalls, right, relative to what we possibly could really shift in the quarter. And so, you know, I think, you know, if we can work through some of these issues, and I'll describe, you know, that, you know, we're starting to see a little bit of this, you know, hedging on whether I need the product, whether we can get some of the supplies that we need in the MEMS microphone. I'd say it's relatively limited right today, but that we did factor some of this into the guide that we've given, that, you know, there's a possibility that, you know, things could slow down. or upside growth could be limited by something that happens in the market, whether it be COVID, availability of wafers, you know, other silicon for us or our customers. We factored a little bit of that in.

Okay. That's useful. And then as a quick follow-up, if you could expand a little bit on the commentary in the Q&A that you're starting to sell microphone dyes without actually lowering your gross margin, what – What percentage of revenue or even units you think that could be by 20 to 23? What are the ASPs on that? Is it half of the typical mic ASPs? How should I look at this from a revenue contribution?

Obviously, the ASPs are lower because of the fact we're just selling the die and potentially the ASIC that goes with it, the wafers, as opposed to selling the whole microphone. But our target is that the gross margin should be above the corporate average by selling DAI. And the market that we're targeting here, I would sit there and say is, let's use the example, the very low end of the mobile market, the low end of the IoT market, the very low end of the ear market. And I would sit there and say, for the most part, we're not highly participating in a lot of these portions of the market today. How big this could be You know, I would sit there and say just from my perspective, and I wouldn't put a timeline on it, but if we're not thinking hundreds of millions of units, it's probably not worth pursuing. I mean, that's kind of in my mind. We're not talking about here trying to sell 10 million die or something like that. We're trying to sell hundreds of millions of die, and it was above the corporate average gross margin. Great. Very useful. Thank you.

Interesting. Your next question comes from the line of Chris Roland from Susquehanna Financial. Your line is now open.

Hey, guys. Thanks for the question. Your handset market in particular, mobile market in particular, this year, how should we think about seasonality and any differences in the seasonality, you know, into December and maybe even into March, if you could?

Yeah, I'm going to punt on March, but I'll kind of give you kind of my thought process on Q3 and Q4, which is, you know, if you look at last year, our handset was much stronger in Q4 than it was in Q3. I would say that if you go back previous years, that's usually, that's an anomaly, right, that Q4 in handsets is stronger than Q3. I would say we're going to return kind of more to, you know, a traditional where you're going to see Q3 be pretty large, relatively speaking, and then, you know, Q4 maybe, you know, down a bit, right? But here's the one caveat, of course, I got to give, Chris, is, you know, there's a lot of people introducing phones around the world, you know, from our largest customer to Korea. There's a lot of phones coming out in China. We've really got to see the sell-through on these to see, like, really what late Q4 into Q1, how that's going to develop.

Understood. And then just some housekeeping items on the acquisition. What did you guys pay for that? And if I heard you correctly, I think the annual run rate is $20 million there at 50% gross margin. And then when did it close in the quarter? How much was in this quarter's number?

Chris, we closed the acquisition on the first week of May, and so you have a couple months' worth of activity in there. Let me just make a comment. We knew going in the revenue might be a little lighter in the first couple months, but it starts to move up a little bit more in the next few quarters. And the acquisition price, including real estate, we acquired was $79 million net of cash.

Excellent. Thank you, guys.

As a reminder, to ask a question, please press star one. Your next question comes from the line of Suji De Silva from Ross Capital. Your line is now open.

Hi, Jeff. Hi, John. Congrats on the progress here. So looking at some of the different growth areas, you have, you know, I think headphones, TWS, you have the balanced armature, incremental hearing health you were talking about on this call and highlighting. You know, maybe you could talk, Jeff, about which of those you think are the better growth opportunities relatively in second half 21 or into 22, just so we can get some rank ordering in our understanding.

Yeah. So let me – I'm curious kind of what I would say about this is, you know, more and more I see the diversification of our markets and know i'm sitting there saying i think we've got a fair number you know of of singles and doubles here and so you know i mean i think the balance armature is a great opportunity which is going to be expanding beyond i would say the true wireless but also the over-the-counter market i think those are markets that are are developing uh that i think should you know provide growth for us in in in 2022 I think the ear market for microphones continues to still look positive for us, although it's going to be, I would say, more in the future, or at least there's going to be more customers in this success besides just a few. I'd say IoT continues to look very good for us in terms of, you know, it's always exploding. In fact, we're spending a lot of time developing programs around the long tail to pursue long tail customers with reference designs, which should drive more volume. The compute market's interesting, right? You know, I mean, it's been really on a nice run the last year and a half with work from home. I think, you know, there's a little bit of difference of opinion what 22 looks like. I mean, I guess what I would say is maybe it won't be as, you know, as fast as growth as we've seen because of work from home over the last year, year and a half. But we think inventories are still low, and so we think, you know, that things look decent next year in compute. Talk about hearing health. And then precision devices. You know, I would sit there and say, Defense and MedTech look to continue to be strong. Defense with RF filtering, especially now with this acquisition that gives us a broader range of products. In MedTech, we're just positioned in the right places. We're getting some new applications beyond just some of the traditional and plannable applications that we've had. And then lastly is the EV market. I think we're still assessing the total size of this market. It could be in three to four years. But, you know, we keep focusing on, I would call it high voltage, high temperature applications in the electric vehicle where, you know, we have a distinct advantage. And we're not selling, you know, jelly bean capacitors. We're selling capacitors that have high value. And this year, you know, I think it could approach roughly even $15 million in the EV market, which, you know, three, four years ago this was zero. So, you know, I don't want to say there's like, you know, there's no one home run here, but you've got so many great things going in a diversified set of markets. So I feel pretty good about all these markets.

Okay. I appreciate all that color, Jeff. And then I don't know if this is asked or already discussed, but the supply chain constraints that are around you guys and you're running tight yourselves, any impacts on your revenue and your ability to ship this quarter? And can you talk about sort of incrementally where those constraints are getting worse, stable or improving would be helpful.

Yeah, I would say, you know, we are having some constraints, you know, on the non-microphone side. You know, I'd say PD, we're not having any constraints. You know, hearing health, I would say there's, I wouldn't say constraints. I would say, you know, there's a lot of demand, and we're keeping up, but, you know, it's not really like we're having a constraint. It's just that, you know, our capacity is pretty full. But in men's mics, I would say that we factored into this guide that there is some constraints across certain products. And so we're working through this really hard, Suji, to try to solve these problems. And I'm hoping that we'll see some of this rectify itself late in the quarter, in Q4. In terms of trajectory, I haven't seen any major changes in the last... No, no, I wouldn't say major changes. I think we've been anticipating this because I think what you have here is you have, just generally speaking, you have... the seasonal market going up with tightness in supply, right? You already have that, right? And so we didn't have as much of that in the first half, right? And so the back half in Q3 specifically, we're kind of factoring a little bit into here, right, saying, well, we actually could ship more if we had more.

Okay. Encouraging your seasonality and strong. Great. Thanks, guys.

Thank you.

Great. Well, thanks very much for joining us today. As always, we appreciate your interest in NOLS, and we look forward to speaking with you on our next earnings call. Thanks, and goodbye.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.