Knowles Corporation (KN) Q1 2014 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Good afternoon, and welcome to the Knowles Corporation First Quarter 2014 Financial Results Conference Call. [Operator Instructions] As a reminder, 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, sir.

Thanks, Jamie, and welcome to our first quarter 2014 earnings call. I'm Mike Knapp, Knowles' Vice President of Investor Relations. And presenting with me on the call today are Jeff Niew, our President and Chief Executive Officer; and John Anderson, our Senior Vice President and Chief Financial Officer. 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 on Form 10-K for the fiscal year ended December 31, 2013, and periodic reports filed from time to time with the SEC. 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 Regulation 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, including a reconciliation to the most directly comparable GAAP measures. All financial references on this call will be non-GAAP unless otherwise indicated. Also, we have made selected financial information available in webcast slide, 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 some first quarter highlights. Jeff?

Thanks, Mike. Thanks to all of you for joining us today. To briefly recap, we've reported Q1 results with revenue of $273 million, gross margins of 32.6% and operating margins of 11.7%. We were pleased to deliver revenue above the high end of our Analyst Day projections, driven by both of our segments. Operating income was within the range of our expectations, and better-than-expected revenue was partially offset by discrete SG&A expenses. Now let me provide an overview of the trends we saw in our segments and end markets, discuss some of our new innovative solutions that will enable our future growth. After that, John will provide financial highlights for Q1 and our guidance for Q2. In our Mobile Consumer Electronics segment, Q1 revenue decreased by 3% from a year ago, well ahead of our prior expectation. We saw stronger sales in Q1, driven by North American OEM. In this segment, growth from a year ago, excluding BlackBerry and Nokia, would have been up 12% year-over-year. Revenue for Mobile Consumer Electronics comprised approximately 60% of total sales compared to 61% in the year-ago period. Note that about 3/4 of the revenue comes from the handset market, with the remainder coming from tablets, laptops and other consumer devices. As we look forward, we're well positioned with design wins on major OEM product launches planned for the second half of this year. In addition, there are several trends we are continuing to see in the mobile consumer space, which we believe will drive growth in the second half of '14 and beyond. Generally speaking, consumers around the world are demanding improved acoustics from their devices, regardless of the country they live and/or the type of device they're using. Whether it's for improved voice quality in a call, a better experience when watching movie or listening to music or enhanced audio capture when recording a home movie, consumers want better performance. To satisfy these demands, the general trend is for acoustic dollar content to increase across consumer electronic devices for 2 primary reasons. First, most of the solutions we are introducing are higher performance and command higher value. Second, many OEMs are increasing the number of acoustic components per device. As an example, over the last -- the past several years, we have seen an increase in the number of microphones used in numerous devices, particularly in smartphone. The benefit to the user are substantial, including reduced background noise, improved voice recognition, better hands-free communication and enhanced audio recording and playback capabilities. For OEMs, acoustics can truly help differentiate their products in the marketplace. We believe an additional opportunity exists with these audio trends proliferating to midrange phones and tablets, as well as the emerging wearables market. Knowles can capitalize on these market demands by leveraging our acoustics expertise, proprietary process technologies and entrenched engineering relationships to deliver solutions that improve the performance of the consumers' devices. Given Knowles' long-standing technology leadership in the acoustics market and significant scale, we continue to garner content across key mobile phone, tablet and other consumer platforms. Over the past several months, we've talked a lot about product innovation and how critical it is for Knowles' long-term success. We are constantly introducing new products in all areas of our business. As an example, we recently released -- shipped 30 million units, in Q1, of the world's first digital multimode microphone, which features 3X lower power consumption relative to other digital microphones and performance matching to enable longer battery life and always-on listening functionality. I want to spend a moment to highlight one other area of innovation we are particularly excited about, which is our Integrated Audio Solution technology. This solution is a highly customized module that improves speaker quality and customer time to market. Consumers that use our solutions benefit from superior acoustics and ease of implementation using a space-efficient module. The level of integration we provide allows us to increase our content while providing higher-performance solutions for our customers. These products have been well received, and we shipped approximately 2 million units to a leading Chinese smartphone OEM in Q1. In addition, this dedicated team has numerous other integrated designs in development that leverage our broad acoustic product portfolio and years of experience in manufacturing industry-leading solutions. We'll discuss more about these opportunities later in the year as they become available in the market. Overall, the trends in our Mobile Consumer Electronics market are positioned with new products [indiscernible] are expected to drive growth for 2014. In the Specialty Components segment, Q1 sales were up 3% from a year ago and represented about 40% of the total company revenue. The growth was slightly better than our Analyst Day projections. Strength was primarily driven by sales in Precision Devices, fueled by improved communication infrastructure spending as 4G/LTE rollouts are beginning in China and continuing in other regions. We remain focused on securing design wins with solutions that enables high-performance mission-critical applications in the wireless infrastructure, medical, military and aerospace end markets. We are able to quickly deliver solutions for our customers' applications because of our specific knowledge of their systems and our leadership in crystal oscillator and capacitor technologies. Within our acoustic component business, we continue to be the leader of all top hearing aid manufacturers. Our latest technology is integral to some very exciting new products like GN ReSound's LiNX product, that is the first hearing aid certified for Apple's Made For iPhone program. We are also seeing continued adoption of our MEMs solutions in the hearing aid market and expect MEMs penetration to continue over the next several years. As the global leader in MEMs microphone technology, we are uniquely positioned in this market. Overall growth in this market is stable, and we expect favorable macro trends, like the world's aging population and emerging markets, to support steady, long-term growth in the years to come. As discussed, both of our segments will also benefit from our continuing effort to optimize our global manufacturing footprint. Our previously announced restructurings of our capacitor and hearing health businesses are on track. In addition, we recently announced the closure and transfer of our Vienna manufacturing operations, which primarily supported BlackBerry and Nokia. This is expected to drive significant margin expansion beginning in Q4. With that, I'll turn it over to John to expand on our financial results and provide our guidance for the June quarter. John?

Thanks, Jeff. As Jeff mentioned earlier, we've reported quarterly revenue of $273 million, above the first quarter guidance provided at our Analyst Day in February. Mobile Consumer Electronics revenues of $164 million were down 3% from the prior year as year-over-year shipments to Nokia and BlackBerry were down over 20 million in connection with their lower share of the handset market. Excluding Nokia and BlackBerry, Mobile Consumer revenues were up 12% from the first quarter of 2013. Specialty Component revenues of $109 million were up 3% from the year ago quarter as demand improved for Precision Devices due primarily to the strength in the wireless communication infrastructure market, especially in China. First quarter gross margin of 32.6% was down from the prior year, driven by lower volume, unfavorable product mix and reduced fixed cost leverage within Mobile Consumer Electronics. Gross margin within the Specialty Components group was up from the prior year due to higher volume and the benefit of previously announced restructurings. Operating expense in the first quarter was $56.5 million or 20.7% of revenues, down slightly from the year-ago level of 21.2%. Savings from prior restructuring activities were partially offset by higher legal spending in connection with ongoing litigation related to our intellectual property within the Mobile Consumer segment. R&D spending during the quarter was $19.2 million or 7% of revenues, slightly lower than prior year level. EBIT margin on an adjusted basis was 11.7% in the quarter versus 14.8% in the year-ago period, with the decrease driven by lower gross margin and higher legal spending. We recognize tax expense of $3.9 million in the quarter, resulting in an effective tax rate of 12%. The effective tax rate differs from statutory rates principally due to our tax holiday in Malaysia and the tax benefits associated with losses in certain non-U.S. tax jurisdictions. Non-GAAP diluted EPS was $0.32 during the quarter compared with $0.31 for the first quarter of 2013, with lower interest expense partially offset by lower operating income. Further information, including a detailed reconciliation of GAAP and 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 $51.4 million at the end of March. For the quarter, we generated $19.3 million in free cash flow or 7% of revenues. Cash flow from operating activities was $43.2 million and included nonrecurring payments of approximately $5 million related to Dover's 2013 long-term compensation plan. Spending related to capital expenditures was $23.9 million, with the majority relating to new product introductions within mobile consumer, which we expect our customers to launch in the second half of this year. We also made investments in the quarter in connection with the transfer of production to our low-cost manufacturing plant in the Philippines. During the quarter, the company entered into a $500 million 5-year credit facility and borrowed $400 million on February 28 to finance a cash payment to Dover in connection with the spinoff. Interest expense of $0.7 million in the quarter relates to borrowings outstanding of $400 million from February 28 to March 31. With that, let me turn to our Q2 projections. For the second quarter of 2014, we expect revenue of $270 million to $280 million, a decrease from prior year of 6% to 9%, roughly flat sequentially. Sales from Mobile Consumer products are expected to decrease by approximately 12% to 16% due to lower year-over-year shipments in Nokia and BlackBerry, a late design change resulting in lower acoustic content on 1 phone platform, and lower demand at a Tier 1 Asian OEM. Specialty Component sales are expected to be up 3% to 5% over prior year levels due primarily to improved demand in connection with wireless communications infrastructure spending, particularly in China. We project gross margin to be approximately 30%, plus or minus 1%, down from prior year due to lower volume and lower pricing on mature products. This is partially offset by productivity gain and the benefits from prior restructurings. We continue to make significant investments in new product innovation, particularly within Mobile Consumer, and expect to slightly increase R&D spending in the quarter to $23.5 million or 8% of revenues. We expect adjusted EBIT margin to be between 6% and 8%, and we are projecting an effective tax rate of 12% to 14%. We expect non-GAAP diluted EPS for the second quarter to be within a range of $0.15 to $0.19 per share. This assumes weighted average shares outstanding during the quarter to be 85.3 million on a fully diluted basis. Earlier this month, we announced plans to close our Vienna, Austria manufacturing facility and transfer production to existing facilities in Asia. We expect pretax charges associated with the closure of $72 million to $77 million, including $40 million to $45 million in noncash asset impairment expense. We expect a majority of the charges related to the facility closure and production transfer to be recorded in the second quarter and anticipate completion of production transfer by midyear. This closure is part of the company's plans to consolidate our manufacturing footprint and is expected to contribute significantly to our sequential margin improvement through Q4. Savings from the facility closure and production transfer will begin to be realized midway through Q3, with the full effect expected in Q4. With that summary, I'll turn the call over to Jeff for closing remarks, and then we'll turn to the Q&A portion of the call. Jeff?

Thanks, John. In closing, we expect new product launches, primarily in the second half of the year, coupled with labor and overhead reductions through our optimization of our manufacturing footprint, to allow us to grow revenue and expand operating margins in 2014. With that, operator, we can now take questions.

[Operator Instructions] The first question comes from Harsh Kumar from Stephens.

Jeff, I had a couple of questions. You talked about the second half. It sounds like you're expecting a little bit of a pickup. Could you talk about the visibility for the second half? Yes, just that.

Yes. Harsh, good talking to you again. Here's what I'll just say, I think it's -- what we continue to talk about is we are very well positioned on a number of product platforms across our product categories with the designs. It's a little hard for us to predict the actual introduction date from our customers, and there could be plus or minus 4 or 6 weeks. We can't predict if there's going to be supply-chain problems with somebody else. But what I can do -- can definitely tell you is we are very well positioned with all these major product launches in the back half of the year.

Great, Jeff. And another one, if I can, the Nokia and the BlackBerry had been -- I know you've talked publicly before about when they're expected to go away. Would you remind us what that time frame is and if that time frame has shifted all?

No. The time frame had not shifted all. What we see is -- we go back to -- if you remember what was going on about a year ago right now, BlackBerry was still ramping up their BB10 product. So we still expect that there's going to be impact through Q3 from Nokia and, BlackBerry. But as we head into Q4, that overhang becomes very, very small as Nokia becomes an increasingly small portion of our business and BlackBerry is essentially 0.

Okay. And then last one and I'll get back in line after this, Jeff, x Nokia and BlackBerry, you're talking about a 12% sort of mobile growth. Is that something that we should look at kind of as a forward number for you guys on an ongoing basis, sort of greater than 10%? Or is it closer to the 8 sort of percent that you've talked about before?

I think, as we talked about it, what we saw was -- remember, our total mix of products was in about the 6% range the markets are growing. And we expected to grow in that 8% to 10% range over the long term as a whole. I think, though, we're sticking with our midterm target, that 8% to 10% growth.

The next question comes from Alex Gauna from JMP Securities.

I was wondering if you could offer a little color about that late change to that 1 specific platform impacting your outlook. How common is that sort of thing? What is the magnitude, perhaps in percentage terms, on how that's weighing against you? And if we look beyond that platform, I'm just wondering, with the spring refresh that's coming here from so many OEMs, how do you feel about acoustic content in general? And I'm particularly curious about, in aggregate, the burgeoning opportunities in some of the Tier 1 Chinese OEM platforms. Are you seeing content increases there?

Yes. Alex, good to talk to you again. Good questions. We'll just, first of all, say is -- let me explain a little bit about the design change. It was really like a 23rd-hour design change, where a new feature was added in and quite frankly, it made it unavoidable to remove one of the microphones. It was unfortunate, but it was very, very late in the game. We don't see this as a general trend in the marketplace at all. In fact, what I'd point to is, is that -- as we look towards the Chinese OEMs, which is kind of what you're asking about is, is that there's a real proliferation now even in the midrange phones, even starting to move towards the lower-end phones, are starting to move to more acoustic content. And we keep going back to that story that no matter where you are, if you're sitting in India, if you're sitting in China, you're in Indonesia, it doesn't matter where you are, you want better acoustics than what you have. And we view this situation as a one-off. I don't have the exact impact in the quarter. But John, do you have the...

Yes. Alex, it's John Anderson. Roughly $11 million in the quarter was the impact.

Okay. And if I'm understanding your response to the question, something unrelated to acoustics caused the design change in the phone, and they needed the space. They simply had to remove a microphone. They didn't replace you with something else.

Correct, correct. It was a non-acoustic-related feature that got added in at the last second. It required that it had to be in the port. And the microphone was in the port, and there was just no way to put it in. It was unavoidable to remove it in order to put that extra feature in.

Got you. That's a very helpful. And then I'm wondering in terms of -- with the Vienna facility that you gave color around, can you remind us your intermediate cost-savings target? And how far along to your full cost savings does this get us? Because this is not the full of your measures. Or is it?

Yes. That's a very good question as well, Alex. Here's how we frame it. We're still sticking to our $40 million to $50 million in terms of cost savings. But I think what we're starting to see is the ability to bring the timeline in to realize those cost savings sooner. And I think that's what we're kind of like heading towards. So we're not in a position to say it will be more than $40 million to $50 million, but we can get those cost saving sooner.

The next question comes from Bob Labick from CJS Securities.

I wanted to ask a question. You obviously just alluded to your midterm targets from your Analyst Day and how you haven't change those. I was wondering if you could take a step back and tell us, broadly speaking, what's included in those growth targets. What would be upside? And conversely, what's the biggest risk to those targets that you've set out there?

Let me think about how I want to frame that answer. I think, we still think that acoustic content could definitely be something that could be an upside to the numbers. We're committing to those beyond what we have in the midterm target, but we definitely still see there's demand for much higher-performance products, especially as we head into '15 and '16, as we start to work with people on next-generation design. In terms of the downside risk, I think, it's the similar things that other people in our space are saying, which is it's all related to the market and the demand for handsets. If we have to change -- we've looked at, again, our market's growing at 6% in this space. If that -- we were to say now it grows by 5%, which we're not saying today, we're sticking with that number, we would have to advise that -- revise that slightly down. So those are probably the 2 things I think about.

Bob, just to add-- this is John. Just to add in. What we've communicated on our Investor Day is the way we came up with that 7% kind of midterm outlook is we looked at the IDC data for the markets we play in. So in smartphones, feature phones, laptops, notebooks, tablets, premium earphones, as well as wearables, the IDC data projected, from 2014 to 2016, unit device growth of about 6.5%. Then, we looked at our ability to increase content, and that's about 2% to 3%. So on the Mobile Consumer side, which is about 2/3 of our business, we're projecting annual growth rate of 8% to 10%. And then we've said on the Specialty side, it's a GDP growth business, 2% to 3%. If you take that and do a weighted average, you get to the 7%. Given what we're seeing with 4G/LTE, there is -- maybe that's an opportunity to have a little more than GDP-like growth on that side of the business.

Okay, great. Great color. And then maybe taking a step back and looking broadly at your business. Some of the questions we've been getting from investors has been about the moat around your business and the confidence that you can maintain your strong market share. I was hoping you could talk a little bit about -- obviously, you have fantastic share in microphones and looking to grow it in the speaker side. Talk a little bit about your ability to maintain that share down the road.

Yes. I mean, that's a very good question. How I'd frame this out for is, is if you look back in the history of the acoustic business, there were significantly more suppliers 4, 5 years ago. And what happened is -- what you see is, first of all, number one, is the performance of these devices is increasing with every single generation. The sizes of devices are getting smaller, and the need to ramp them up and have the scale in a very, very short period of time is becoming more and more challenging as well. And what we've seen is that the number of competitors in the space is actually -- is reduced, and it's because of product innovation, which includes performance and size, coupled with the need to have scale to be able to compete and provide products in these lines. These big moats that are very deep channeling to get around.

The next question comes from Tristan Gerra from Baird.

Looking at the model. So you reiterated the belief that you can grow year-over-year the top line. So that would imply about 14%, 15% sequential revenue growth in the back half. What's going to be driving this? Because it's going to be significantly higher than what you posted in the previous years. And I understand that there is the BlackBerry and Nokia headwind that goes away, but if you could provide maybe a little bit more color on the second half in terms of whether the math is correct and whether it's going to be mostly driven by design wins or if you expect anything else that would act as a driver.

Well, clearly -- you talked the Blackberry, Nokia overhang going away, especially in Q4, that's number one. Number two is, I'll just say we're very well positioned for the new product launches in the back half of the year. So our new product introductions are going to drive this. And the last piece, I think, that we've been talking a bit about is our integrated audio devices are going to start being a significant contributor to our revenue growth in the back half of the year. And this is a real great story where it isn't necessarily all about the Tier 1s. It's about the Chinese OEMs and their need or desire to get to market faster with higher-performance products. So if you look at it, we try to divide it -- you know the 2 Tier 1s that we refer to. We're very well positioned with those guys, and we're very well positioned with content growth with the Chinese OEMs. So the numbers are correct. Just in the -- the numbers are correct, and we feel very good about those numbers as we go into the back half of the year.

Okay, that's very useful. And then in terms of gross margin, if you could elaborate a little bit on the mix that you mentioned as a reason for the gross margin decline. And is a gross margin rebound taking place really in Q4? Or is there a catalyst in Q3? And if you could maybe talk about the various factors that you think will act as a catalyst for gross margin into the second half.

Yes. I would say it starts to show up a little bit in Q3, but it really takes full effect in Q4. And there's 2 primary reasons. First, number one is, we've been supporting -- we've recently announced the closure of the Vienna facility, which it was, obviously, not a full factory. That is a significant -- probably, the primary driver of improvement in gross margin as we look towards the back half of the year. But the second thing that is probably a little bit smaller factor, but still a factor, is when you -- when we get these new products out, that move us away from more mature products that we're selling in the first half of the year. But again, I think, primarily, it's this closing the Vienna facility that's primarily been supporting BlackBerry and Nokia that's driving the significant portion of the margin improvement as we get into Q4.

Okay, great. And then just last question for me. LTE exposure, could you elaborate a little bit in terms of your content? Where does the product sit in the wireless infrastructure supply chain? And what's your customer concentration in that area?

Wireless, LTE? Can you repeat that? We had a little difficulty hearing, Tristan.

I need a better microphone. So yes, the question is regarding LTE and wireless infrastructure, if you could elaborate a little bit about where your products sit in the LTE supply chain and what the content is. And also, is there any specific customer concentration in that area?

What I'd say is it's primarily oscillators and capacitors, both. And it's mainly, what I would say, with the Western suppliers. We have some business with the Chinese suppliers, but it's primarily with the Western suppliers. And what we said is we sell directly to them, and we're at the higher end of the chain. We provide the premium products in this market that very few people are able to make. And we're benefiting, right now, clearly, in China from the rollout of LTE, where -- and some of the Western businesses that are winning business in China now.

The next question comes from Harsh Kumar from Stephens.

Just a couple of follow-ups. Jeff, if I can ask you about integrated audio product. I think you mentioned that there's 2 million of these shipped. I assume that's predominantly China. Are you seeing design wins for such products, perhaps to other Chinese OEMs? Or is this is a broad-based phenomenon you're seeing and also the U.S. OEMs or maybe the European OEMs?

Yes. We're definitely seeing it with other Chinese OEMs. And I think, again, we'll talk in more detail about this, Harsh, as we get further on in the year. But we have a number of design wins that we see will drive significant growth, mainly with the Chinese OEMs, and that's our focus. We really haven't been working -- I would just say, we've been focused mainly on the Chinese OEMs because they seem to put significant value on our ability to integrate these devices and provide these premium products for them. So it's primarily Chinese OEMs, and it's broad-based. It's not just 1 Chinese OEM. It's a multitude of them.

Got it. Thank you for that color, Jeff. Maybe a question for John. John, you've got starting debt of $400 million, the payment you have to make to your ex-parent. You are now generating some cash. I'm curious, a, how much level of debt is the company comfortable with. And then, secondly, what will be the primary use of cash as we get out -- certain number of quarters out and you start building a nice cash position?

Let me answer the second question first. I think no change to what we articulated at Investor Day. In terms of priorities for our cash, it's going to be organic growth opportunities. We will also look at some technology investments. We also, remember, have to fund the restructuring activities that we've announced. And then we'll think of longer-term and mid-term return of capital to shareholders. In terms of debt, it's our intention to maintain an investment-grade-like balance sheet. I think, clearly, there's some capacity to increase where we are now, if we needed it. Right now, there's nothing in front that would require us to increase -- right in front of us that would require us to increase debt above current levels.

Got it. And last question, back up to Jeff. Jeff, in your press release, I think you mentioned that U.S. business was actually up. Was that primarily handset-related or was that non-handset-related business?

I don't know if I -- maybe I'm thinking the quote that you were thinking about is with North American OEM. I think we're referring to 1 OEM that I think you guys all know about, that we've tried to avoid talking too much about. But it's really -- primarily, the strength was with the 1 North American OEM that everyone knows.

The next question comes from Alex Gauna from JMP Securities.

I was wondering if you could talk about if you're seeing any sort of feedback coming down through the chain about some of the tensions in Eastern Europe right now. Is that having any impact that you can discern, just broadly speaking, on the ecosystem that you see. And then, given the Sound Solutions acquisition, do you have any concentrated exposure that you could characterize to that region right now?

The answer to the first question, no, we're not seeing anything that would affect our business relative to the things in the EU that are happening. We do have a very small facility, a subcontractor in the Ukraine, but it has not been impacted at all. So there's been no impact. It's not in one of the primary large cities. And admittedly, when we -- this came about, we made sure that there was not any issues. As well as, on most of our products, we have backup capability in one of our facilities in Asia. So we're seeing limited to no impact.

Okay. Then, a different question InvenSense and Sonion announced a new agreement to work together this quarter. Any way you could comment on that? And does that change the competitive landscape in hearing aids? Is that -- or would you anticipate it to?

Well, here's what I'd say, I think it validates our strategy. I mean we've got multiple design wins for MEMs microphones already in the hearing health market. In fact, we've been shipping in volume for quite some time already. I think it validates our strategy. I also think it's an interesting story. Normally, we've had 1 competitor in the space, and that's Sonion. If you probably -- Alex, we've talked about at Investor Day, we have roughly 70% share, and they have roughly 30%. And it's been that way for a very, very long time, and I think that dynamic stays relatively the same. And I think Sonion had to come up with an answer to the fact that we were starting to have success with MEMs microphones. So I think it just validates our strategy, and it doesn't really affect us in terms of how we think about the business going forward.

Okay. One more, if I could. I think there are some concerns out there that we're seeing the peak of wireless infrastructure demand in China right now, and there's a void out there maybe a quarter or 2 out. What can you say about lead times and visibility and how you would expect that business to hold up into the second half of the year?

Here's what I say. We had a very good first quarter. We're expecting to have a very good second quarter. But we're sticking to our -- still, our GDP-type growth midterm model for this business. And I think that's a reflection of the fact that -- we kind of agree with you, it's hard to predict what's going to happen beyond the next 2 quarters. So I think we're in total agreement with you, and that's why when we look at the midterm model, we're not going to change from the 2 to 3 percentage points, although in the first 2 quarters, we're at the higher end of that range.

I am showing no further questions. I would now like to turn the call back over to Mike Knapp for closing remarks.

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

Ladies and gentlemen, that does conclude the conference for today. Again, thank you for your participation. You may all disconnect. Have a good day.