Knowles - Q1 2023

Transcript

Operator (participant)

Good afternoon. Thank you for attending today's Knowles first quarter 2023 earnings call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to queue for a question on today's call, you can do so by dialing star one. I'd now like to pass the conference over to your host, Patton Hofer, the Vice President of Investor Relations with Knowles. Thank you. You may proceed.

Patton Hofer (VP of Investor Relations)

Thank you, Joel. Welcome to our first quarter 2023 earnings call. I'm Patton Hofer, Vice President of Investor Relations. Presenting with me on the call 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 law.

Forward-looking statements in this call will include comments about demand for company products, anticipated trends in company sales, expenses and profits, 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 31 December 2022, periodic reports filed from time to time with 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 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 and in our current report on Form 8-K filed today with SEC, including a reconciliation to the most directly comparable GAAP measures. All financial measures 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 form, 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 details on our results. Jeff.

Jeffrey Niew (President and CEO)

Thanks, Patton Hofer, and thanks to all of you for joining us today. Our first quarter results were largely in line with our expectations. Due to strong operational performance and the benefits of mix, we were able to deliver gross margins, adjusted EBIT margins, EPS, and cash from operations all above the midpoint of the guided ranges. Looking at first quarter in more detail, Knowles generated $144 million of revenue, slightly below the midpoint, driven by weak consumer electronics demand in the market and excess customer and channel inventory across all three segments.

In Precision Devices, revenue was down 4% from the prior year. EV, MedTech, and Defense all grew year-over-year, while our industrial market faced inventory challenges, which are now expected to continue through second quarter.

In MedTech and Specialty Audio, revenue was down 24% versus prior levels due to customer inventory adjustments and softer end market demand in the hearing health market. I would note MSA was better than expected as inventory moved faster than we anticipated, driving revenue higher in first quarter. In Consumer MEMS Microphones, revenue was down 48% from first quarter of 2022, as all end markets were down versus prior year.

Before I turn the call over to John, I'll spend some time discussing the current customer and market conditions for each segment with some insights into what we are seeing for second quarter and the rest of the year. For our Precision Device segments, we continue to have strong demand and growth in our three key end markets, Defense, MedTech, and EV.

In Defense, the demand for communications and electronic warfare systems continued to amplify the need for our RF filtering and high-performance capacitor products. Despite awards and shipments in this market being lumpy at times, we grew year-over-year again in first quarter for the seventh quarter in a row. We are confident based on current bookings and the expected awards we will generate growth in 2023.

For MedTech, our high-performance and high-reliability capacitor products grew again in first quarter. We continue to see demand growth throughout 2023. We believe this market continues to show resilience similar to our MSA segment in the face of economic or macroeconomic challenges. In the EV market, we grew 50% year-over-year in the first quarter. Knowles continues to expand its design wins in this exciting market with a broad range of new customers.

We expect continued growth throughout 2023, with the EV market being our fastest-growing market for Knowles. In the industrial market, which currently makes up less than 15% of company revenue, we are seeing continued weakness as distribution and customer inventory levels remain elevated. We expect the inventory challenges market to continue in the second quarter, but we see signs that lead us to believe a recovery is coming in the second half.

Overall for PD, we expect strong bookings in second quarter for our three key markets, and depending on the inventory consumption at our distributors, we can see a return to growth in the second half for this segment. In MedTech, and Specialty Audio, as we stated on the fourth quarter call, we started seeing signs early in first quarter that the inventory situation was improving, which gave us increasing confidence on strong sequential revenue improvement in second quarter.

Our guide reflects a more than 27% sequential improvement in MSA, driven by major hearing aid retailers around the globe starting to see a return to growth. This demonstrates the resilience of this end market and provides confidence in a return to growth starting in third quarter of this year. Lastly, our Consumer MEMS Microphones segment. Demand across all our end markets were down in first quarter versus prior levels, as we look ahead, we are starting to see recovery in some end markets.

Specifically, non-mobile shipments are expected to be up over 30% sequentially as channel inventory has improved and replacement cycles are expected to start in third quarter. These markets are still down from prior levels, definitely showing signs that the first quarter was the bottom. Finally, while the smartphone market has not degraded further, we are not yet seeing a recovery.

Due to excess capacity in the market, we are seeing further pricing pressure. While our strategy has not changed, in the short term, we will continue to fill our capacity with smartphone business. For CMM, due to normal seasonality of this business and improving market conditions, we are expecting strong sequential improvement for revenue and earnings starting in second quarter. We expect sequential improvement to continue for the remaining quarters in 2023.

Overall, for Knowles, the outlook for improvement in revenue, margins, and earnings as the year progresses remains unchanged from our last call.The inventory situation in the hearing aid market has improved as forecasted, and we are increasingly confident of second half growth. In Precision Devices, the defense, MedTech, and EV markets remain robust, while inventory challenges further dampen the industrial market in the near term.

Lastly, for CMM, we are seeing improving trends in computing and ear and IoT, while smartphone demand shows a slower return to recovery. In summary, we are now expecting 2% to 3% reduction off of last year's full year revenue. Let me turn the call over to John to give us some quarterly details and our guidance.

John Anderson (SVP and CFO)

Thanks, Jeff. We reported first quarter revenues of $144 million, down 28% from the year-ago period, driven primarily by lower shipment volumes in Consumer MEMS mics and MedTech and Specialty Audio. The Precision Devices segment delivered revenues of $54 million, down 4% from the prior year, driven by excess channel inventory in the industrial market, partially offset by increased shipments in EV, defense, and MedTech end markets.

In the MedTech and Specialty Audio segment, revenue was $46 million, down 24% versus the prior year, as our customers reduced inventory levels, and we faced difficult year-over-year comparables as the first half of 2022 demand benefited from strong COVID recovery. Consumer MEMS mic revenue of $45 million was down 48% versus the prior year, driven by weak global demand for consumer electronics and channel inventory adjustments across all end markets.

First quarter gross margins were 37.7%, 270 basis points above the high end of our guidance range, down 390 basis points from the same period a year ago. Precision Devices segment gross margins were 46.9%, up 130 basis points from the prior year due to factory productivity gains and lower raw material cost. MedTech and Specialty Audio segment gross margins were 43.5%, down 680 basis points versus the prior year, driven primarily by lower factory capacity utilization, partially offset by foreign currency benefits.

Consumer MEMS Microphones gross margins for the first quarter was 21.7%, down more than 11 percentage points versus the prior year, driven by significantly lower factory capacity utilization, pricing pressure in the mobile market, and unfavorable mix, partially offset by benefits of the restructuring actions announced in August of 2022. R&D expense in the quarter was $17 million, down $3 million from the prior year, with the reduction driven entirely by the benefits of the restructuring actions taken in the Consumer MEMS Microphones segment.

SG&A expenses were $27 million, $2 million higher than prior year levels, driven primarily by higher incentive compensation cost, partially offset by restructuring actions in the Consumer MEMS Microphones segment. For the quarter, adjusted EBIT margin was 5.6%, near the high end of the guidance range.

EPS was $0.05 in the quarter, above the midpoint of our guidance range. Now, I'll turn to our balance sheet and cash flow. Cash and cash equivalents totaled $52 million at the end of the quarter. We generated cash from operations of $22 million, above the midpoint of our guidance range, driven by lower net working capital. Capital spending was $4 million in the quarter, and we repurchased approximately 430,000 shares at a total cost of $7.5 million.

We ended the quarter with cash, net of outstanding borrowings, of $7 million. Moving to guidance for the second quarter. We expect total company revenue to be between $165 million and $180 million, up 20% sequentially and down 8% versus the same period a year ago.

We estimate gross margins for the second quarter to be approximately 39% to 41%, down 150 basis points from the year ago period, but improving 230 basis points sequentially. R&D expense is expected to be between $15 to 17 million, down $2 million from prior year levels, driven primarily by prior year restructuring actions in the Consumer MEMS mic segment.

We're projecting selling and administrative expense to be between $26 to 28 million, up $3 million from the year ago period, driven primarily by higher incentive compensation cost, partially offset by restructuring actions in the Consumer MEMS Microphones segment. We're projecting adjusted EBIT margin for the quarter to be in the range of 14% to 16% and expect EPS to be within a range of $0.20 to 0.24 per share.

This assumes weighted average shares outstanding during the quarter of $95.1 million on a fully diluted basis. We're forecasting an effective tax rate of 17% to 19% for both the quarter and full year 2023, which reflects a change in jurisdictional income and the potential impact of the unmet conditions for our tax holiday in Malaysia. For the quarter, we expect cash from operations to range from $5 to -5 million. Capital spending is expected to be approximately $5 million. We'll now turn the call back over to the operator for the question and answers portion of our call. Operator?

Operator (participant)

Absolutely. We will now begin the Q&A session. If you'd like to ask a question, please press star followed by one on your touchtone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly to allow questions to generate in queue. The first question is from the line of Bob Labick with CJS Securities. You may proceed.

Bob Labick (President)

Thanks. Good afternoon. Thanks for taking our questions.

Jeffrey Niew (President and CEO)

Hey, Bob.

John Anderson (SVP and CFO)

Hey, Bob.

Bob Labick (President)

Hi. I wanted to start, obviously, you guys are operating, I think, very well in a, you know, a difficult and volatile market. I wanted to kind of take a step back and just get like a big picture, you know, view. You've given medium-term, you know, targets, previously of, you know, I think it's 43% gross margin and the 22% to 24% adjusted EBIT margin. You know, a lot of the growth to getting there was mix shift to higher margin business plus utilization and then the recovery in CMM.

Maybe give us a sense of, you know, what the hurdles are, where we are in that timeline and, you know, where you stand, I guess, on CMM. You've done the restructuring. Is there more to come or is it now just utilization to catch up and, you know, kind of level set us back to the medium-term targets and where we stand given all of the volatility in the market?

Jeffrey Niew (President and CEO)

Bob, that's a good question. You know, let me just take a step back, like you said, and kind of give you on the bigger kind of picture here. You know, I kind of what we sit there and say is, I think we're making great progress on mix. You know, I think I'll take you back to, you know, some of our three key markets that we talk a lot about is MedTech, which includes MSA, you know, in the decks that we put together, you know, for investors, defense and EV. You know, if you go back, as I kind of said, in 2018, that was about 32% of our total company revenue. Last year, it was 47%.

I would say it would probably be over 55% of our business now is in between MedTech, EV, and defense. We're making good progress there. Those businesses continue to perform extremely well for us. I highlight, you know, first, you know, even in the short term, our MSA business, you know, which is the hearing health business, it's recovering faster than we had expected a quarter ago. It continues to demonstrate the resilience of the MedTech markets in the face of some of the macro conditions that we have. You know, we're very pleased about that.

Second, you know, I would sit there and say on PD, just a little bit more, you know, we are expecting to have extremely strong bookings, which possibly could be record bookings in second quarter based on our forecast this year, driven by, again, defense, MedTech, and EV. You know, I think as we see how we're investing, you know, whether it be our R&D dollars, our CapEx, this is kind of playing exactly the, you know, the place we wanna go. Now, if you go to the CMM business, as I kind of said in the prepared remarks, we are starting to see recovery in the non-mobile portions of the market.

You know, I would say that, you know, my recent kind of discussions like on Taiwan, which is primarily laptop, is that, you know, that this is coming up a little faster than we probably expected a quarter ago. I will sit there and say that the mobile portion of this business, we are not really seeing a lot of improvement here. You know, we're still hopeful with seasonality that we're going to see a strong uplift in the back half on capacity utilization. You know, if you take this overall, I don't think, you know, we're backing off our midterm targets that we've talked about at all.

In fact, I would sit there and say is if the rest of the year kind of plays out the way we're expecting, which, you know, I'll just say that, you know, it's about 2% to 3% down is what I kind of said in the prepared remarks. We'll be exiting the year probably at, like the gross margins that we're expecting, around 43%. You know, I think obviously we got to do that for a full year, but you can see the power that we're getting to with mix capacity utilization, to get to that 43% plus.

I would just caution, you know, I think, you know, the third quarter and second quarter are still gonna be a little volatile here. We are expecting sequential growth in third quarter again. You know, right now I've projected about 8% to 10% sequential growth off of the second quarter finish is where I'd see. Overall, I don't think we're changing any of what we're talking about for the midterm.

Bob Labick (President)

Okay, super. Thank you for all that color. Just kind of, I guess shifting over to your balance sheet. Obviously, you've done a fantastic job. You've paid down your net cash position now. It's an enviable balance sheet given the market. Can you discuss the M&A opportunities out there in your pipeline? Is this, you know, you've done some restructuring. Is it still an area of focus right now, or are you more focused internally? How should we think about, you know, M&A opportunities for you?

Jeffrey Niew (President and CEO)

Here's what I'd say. I would agree with you. We are very happy with our balance sheet right now, and, you know, we've been very disciplined about what we've been doing with the cash that we've been generating. We've been buying back a fair amount of shares over the last couple of years. I think, you know, we'll continue to buy back shares. We are still interested in M&A, and I would say specifically in the PD space.

You know, I think, you know, over the last couple of years up till maybe six months ago, you know, some of the valuations were getting kind of a little crazy, and we kind of just backed away from that and said, we'd rather keep that strong balance sheet.

I think we're gonna benefit from that, you know, whether it be this year or next, through some of the M&A opportunities that we have. I would sit there and say that, you know, it's likely we're going to do some M&A over the next 18 months or so, you know, and hopefully, you know, at prices that are, you know, a little bit more reasonable than, say, they were a year ago.

Bob Labick (President)

Okay, super. I'll jump back in queue. Thank you.

Jeffrey Niew (President and CEO)

Thanks, Tom.

Operator (participant)

Thank you. The next question is from the line of Christopher Rolland with Susquehanna. You may proceed.

Christopher Rolland (Senior Equity Analyst)

Hey, guys. Thanks for my question. You guys touched kind of on the inventory dynamic. I was wondering if you could go maybe a little bit deeper there. I think you even might have hinted towards inventory replenishment, even I wasn't sure on that. Maybe you could break this up kind of by end markets, if they stick out, if the inventory dynamic sticks out. Thank you.

Jeffrey Niew (President and CEO)

Yeah. Here's what I'd say is, you know, I think, you know, we kinda talked on the last call about, you know, that, you know, inventory for us would not be a headwind this year. We didn't see necessarily our inventory going down for the full year, but it wouldn't be a headwind again like it was last year. I think if you're referring maybe to the inventory in the channel, I would sit there and say is most of our end markets, I would say, are in pretty decent shape right now. Let me start with a few of them.

I would sit there and say, you know, after, you know, a year of a lot of challenges, the compute market is much better in terms of the channel inventory than it was, you know, say, six months ago. We feel pretty good about that. Our hearing health customers in MSA, you know, I visited all these customers in the last quarter.

I was with, you know, a number of the CEOs of these companies, and I would sit there and say they are optimistic about the full year for growth for that market. You know, I would sit there and say, we're gonna obviously get a benefit from that. It doesn't appear that, you know, the inventory we dealt with in first quarter is gonna continue the rest of the year.

In the PD segment, I would sit there and say, you know, MedTech, EV, defense, a lot of custom products that we're building. I wouldn't say our customers have a lot of inventory. I wouldn't say that's the issue. I would say it's in that industrial/distribution segment where we still see, and we're hearing there is inventory in the channel that needs to be burned down. You know, last quarter I thought, you know, we would probably start to see an uptick in second quarter in that portion of the business.

It hasn't materialized. It now appears to us that it's been pushed out a quarter, that, you know, we might see the inventory run down in the industrial portion of Precision Devices starting, you know, to dissipate in third quarter.

Christopher Rolland (Senior Equity Analyst)

That's great. I was talking about distribution, so thank you for that. You, you also have some kind of interesting options, I would say, for your business model, around, you know, EVs, RF, whether for defense or 5G, and balanced armature speakers. I guess I would ask, you know, what are you most optimistic about and, when could these be meaningful, drivers of your business?

Jeffrey Niew (President and CEO)

Yeah. I mean, again, as I kind of stated like a little earlier, you know, this is starting to become a pretty significant portion of our business. You know, I, you know, I look at, you know, defense, you know, this is... You know, if I go back a few years ago, this was, you know, less than, and I know some of this is through acquisition. If I go back to the 2020 timeframe, this was like a, you know, $30 to 40 million business.

Through acquisitions and growth, it's gonna be over $100 million. You know, again, we've grown our defense business on the back mainly of our filtering by a significant amount over the last four years. We're still very excited about this market, Chris.

We see a lot of opportunities both in terms of M&A, but also in terms of just organic growth with the product portfolio that we have. I think, you know, we're pretty happy with that. I would say generally speaking, our MedTech business, you know, it's not growing at like breakneck pace, but I would sit there and say it is extremely stable and extremely strong gross margins, and that goes for both MSA and PD.

You know, I would sit there and say, you know, we're now looking, you know, at our MedTech business being, you know, well over $250 million, right? It's a big business. Now, again, it doesn't grow at 10% per year, but it's extremely strong, a good gross margin with great cash flow.

We're gonna continue to look for opportunities to continue to grow that business. Lastly, you know, EV, like you mentioned, you know, it started from a small base, but I mean, you know, it was up 50% in the first quarter, bookings were extremely strong here. We're expanding our customer base. If I go back two years ago, the majority of our business came from a couple customers.

Now we've got many customers, we're pretty confident about our position in EV. If I'll remind you, this is all on high voltage charging systems. Right? It's not like, you know, we're replacing like, you know, commoditized low voltage capacitors.

These are extremely unique high voltage capacitors that are being put both in cars, and we're actually seeing some design wins in business in the charging stations now as well. I say those three markets are going to be our focus, you know, going forward over the next, you know, three to four years because good gross margin, generate great cash flow and growing.

John Anderson (SVP and CFO)

Great. Thanks so much, Jeff.

Operator (participant)

Thank you, Mr. Rolland. The next question is from the line of Tristan Gerra with Baird. You may proceed.

Speaker 7

Hi, this is Tyler in for Tristan. Thanks for taking my questions. First, building off of a previous question, hey, could you provide an update on the balanced armature speaker line, and then also how has the over-the-counter hearing aid market been trending?

Jeffrey Niew (President and CEO)

Yeah. No, I think those are two good questions. I appreciate those questions. First on the over-the-counter market, I would say I'm incrementally more optimistic than I was a quarter ago. I would say, you know, we've seen more orders coming in the over-the-counter market than I would've said a quarter ago for this year. One of the reasons, you know, that the MSA business has been doing a little bit better.

I would just say they're still concerned it could be channel filling and how that's actually gonna sell in the end market. You know, I'm still holding my breath here, but I say I'm incrementally more optimistic about the over-the-counter market.

As far as, you know, the BA line, you know, I think I mentioned this last quarter. We have not filled this line yet. I would say part of it is the reason is a lot of the designs that we've been working on with customers in China have been slower to come to production. Now with China reopening, we are starting to see more activity.

But I think what we are surprised at and happy about is the ASPs are significantly higher than we would've expected a year and a half ago, to the tune of 30% to 40% higher than we were expecting. The revenue coming off this line is approaching what we would've expected, you know, a year and a half ago at the lower ASPs.

I'd say there's three ways that we're gonna fill this line, which is probably a little different than we would've talked about two years ago. One is, you know, this high-definition audio, which is expanding the range of what you can listen to in the high frequency band, where you can only use a BA really to get that really great high definition at high frequency.

Number two, we are starting to see some of these over-the-counter hearing aid customers use our balanced armature line. Third, even some of our traditional hearing aid manufacturers are starting to use this as well. You know, we're very confident, of, you know, filling this line, and then hopefully buying another line.

I would say the other thing, you know, which has benefited the hearing aid business, which you can kind of see in the MSA margins, which is a lot of the learnings that we got off the automated lines have and are being applied to our manual lines, which is helping our gross margin in that business as well.

Speaker 7

Great. Yeah, that's really helpful. Then just for my follow-up, can you just provide an outlook on what you're seeing in China in the smartphone market, and then if there's anything you any signs you're seeing for a second half recovery there?

Jeffrey Niew (President and CEO)

You know, I think there's gonna be some recovery in China, the mobile market in the back half. I just don't know the size of it. I would just sit there and say is it's not great right now, the mobile market overall. I would say that's not just China, I would say that's the overall mobile market. I think it's a tough market. You know, our customers don't make money in this market, coupled with there's very little growth.

We still see this as a challenge, and I think it just continues to confirm what we've been talking about for two-plus years about, you know, our desire and our, now more than our desire, our efforts to diversify, you know, away from mobile, you know, as over the long term. You know, I think we've talked about this in the past, you know, in terms of mobile. You know, I think last year mobile was about 16% of our total company revenue. I would say this year we're probably looking at less than 15% this year. You know, I think we continue to execute on that strategy of diversifying away.

As our other markets recover, ear, IoT, compute in the MEMS microphone business, I think, you know, hopefully we'll be able to even reduce mobile as a smaller, to make an even smaller percentage of the total business.

Speaker 7

Great. Thanks again for taking the questions.

Jeffrey Niew (President and CEO)

Yeah. Thanks, Tyler.

Operator (participant)

Thank you. The next question is from the line of Anthony Stoss with Craig-Hallum. You may proceed.

Anthony Stoss (Senior Research Analyst)

Hey, Jeff and John. I'm curious if you've made any downshifts to your CapEx plans for the second half of the year. Maybe John, you can comment about your expected free cash flow in 2023 over 2022. I had a couple of follow-ups.

Jeffrey Niew (President and CEO)

Yeah, sure, Tony. In terms of CapEx, you know, I'd say two things. One, there's a shift. More of our CapEx will be tilted toward the MSA segment and the PD segment. Overall spend, it's coming down a bit. You know, we're kind of in the 4% of revenue range is what I would say for 2023. You know, if you think back a few years, we were higher, we were kind of in the 5% to 7% of revenue. Again, it's less capital that we're putting into, you know, the CMM segment. In terms of free cash flow, you know, I think it's important.

We had a decent free cash flow above our guidance in first quarter. second quarter is a bit more muted, but I think you really have to look at cash flow over a longer period than a quarter because it can really be influenced by timing, customer collections, payments to the end of the quarter. For full year 2023, you know, we feel really good of free cash flow. I feel really good about free cash flow generation of 15% or more revenues in 2023.

Anthony Stoss (Senior Research Analyst)

Got it. Thank you. Jeff, clearly, you've upticked quite a bit your excitement related to the EV side of the business. I know it's got great gross margins. I'm curious if you wanna share how big that business is or how big do you think it can become over the next several years for Knowles?

Jeffrey Niew (President and CEO)

Yeah. I think this year it'll probably be, you know, roughly about 3% of our company revenue this year, probably around $20 million, somewhere in that range. You know, probably, you know, up probably 30% to 40% over last year. I think what I guess what I would say my caution is with this business is, we've got a lot of design wins, the content level with each customer is different. We have some platforms where we have $20 worth of content per car, other platforms where it's more like, you know, $5.

What I guess, what's hard for me to kinda gauge at this point is, you know, in five years, three years, who are gonna be the big winners and losers, you know, in the end market, in the EV market. To that extent, I guess I would sit there and say, you know, I would be disappointed if in a couple of years this business isn't, you know, $40 to 50 million.

On the verse side, if, you know, we win with some of the winners, you know, it could be $60 million, $70 million, you know, in two to three years. You know, I think it's a little early to call, like how big this is gonna be, but I think what we like about this business is the macro of this market is, you know, it's gonna grow. The question is, you know, how fast is it gonna grow and, you know, what are our content per vehicle is gonna be.

Anthony Stoss (Senior Research Analyst)

Got it. The last question for John. I think I heard this correctly. You expect total revenues to be down 2% to 3% year-over-year. Can you maybe help us understand, you know, sometimes fourth quarter, the December quarter is up, sometimes it's down. What do you think fourth quarter shakes out versus third quarter?

Jeffrey Niew (President and CEO)

Well, let me just take that, Tony. So, you know, again, I kinda mentioned it. I would sit there and say right now we see kinda fourth quarter being the peak this year. It, it varies from year to year. I think what we kinda would add just the normal, the variance from year to year, but we'd also add the, what do you call it? The recovery, you know, that we are seeing, you know, and how it's happening.

You know, as I said, you know, last quarter, we gave some, I would say, some soft guidance on the sequential improvement we were gonna see in second quarter, which, you know, we're right on kind of what we said we were gonna do... [crosstalk]

John Anderson (SVP and CFO)

Actually, on the high end of what we... [crosstalk]

Jeffrey Niew (President and CEO)

Yeah.

John Anderson (SVP and CFO)

We said 15% to 20%... [crosstalk]

Jeffrey Niew (President and CEO)

Yeah.

John Anderson (SVP and CFO)

Close to 20% now.

Jeffrey Niew (President and CEO)

Correct.

Anthony Stoss (Senior Research Analyst)

All right.

Jeffrey Niew (President and CEO)

I would sit there and say right now we see third quarter being up 8% to 10% sequentially from second quarter. You know, I think with seasonality and further recovery, you know, we see fourth quarter will be the peak.

Anthony Stoss (Senior Research Analyst)

Got it. All right. Thanks, guys. Appreciate it.

Jeffrey Niew (President and CEO)

Thanks, Tony.

John Anderson (SVP and CFO)

Thanks, Tony.

Operator (participant)

Thank you. There are no further questions in queue. As a final reminder, if you would like to ask a question on today's call, please dial star one.