Knowles Corporation (KN) Earnings Call Transcript & Summary

Hi. Good afternoon. This is Bill Peterson. I cover Knowles here at the firm. We're pleased to have Jeff Niew and John Anderson from Knowles. Jeff will provide an introduction to the company, and then we'll begin the fireside chat. I have a number of questions, but feel free to ask questions, and we'll take a look at that and bring them in from the audience. Click on the Q&A button and type your questions. John, and Jeff, welcome. Great to have you. Take it from here.

Sure. Thanks for hosting us, Bill. Just a little bit about Knowles. As many of you may know, Knowles has a long legacy of being a leader across many product categories and a diverse set of end markets, where we have a strong competitive position and the opportunities to win based on our product differentiation. In our MEMS microphone market, we are the global leader across the mobile, ear and IoT markets. Knowles has pioneered this category over 15 years ago. And year after year, we continue to introduce new products that push state of the art to new levels. This enables users to have a better performance within existing products and experience new features that did not exist in the past. Our MEMS mics are ubiquitous for voice capture across many consumer devices and are even more important as voice has become a primary interface for people to control their devices. It's very difficult to find an application where you'd not participate. We'd estimate that at least half the world population utilizes one of our microphones daily, considering that we've shipped over 16 billion microphones to date and well over 2 billion in 2019 alone. We also pioneered the balanced armature speakers over 50 years ago and are known as the leader for audio output in the hearing health market as well as high end of the consumer headphone market. As we see the requirements for hearing aids and consumer ear-worn devices converge, we are again pioneering a new class of speakers that are optimized for high-volume consumer applications. We are currently in the process of automating this balanced armature capability to support a number of true wireless customers that are extremely interested in the small size and power efficiency and superior sound that balanced armature has enabled. On the precision device side of our business, we are focused on differentiated high-performance capacitors that are trusted to perform in some of the world's most critical applications like implantable devices, defense systems and electric vehicles. We also have millimeter wave RF solutions that can handle high-frequency filtering. This product category was originally designed for the defense market. And we are becoming an enabler, and working towards design wins with 5G telecom infrastructure. We believe we have a unique position in this product category with a sustainable competitive advantage. We are investing in these product categories to maintain or expand our positions across the end markets we serve. We have leading positions in our core markets, which are mobile, medtech, industrial and defense. The growth rate of these markets is projected to be slightly above GDP over the long term, but there are opportunities for us to grow faster. With the customer list of some of the world's most respected companies and a track record of delivering innovative solutions over many years, we believe there are opportunities for content and share gains in these core markets. Pandemic aside, we also believe many of these markets are less volatile, providing a stable base of consistent business through global cycles. In our growth markets, which include ear, IoT and telecom infrastructure and electric vehicles, we see a very rapid expansion of our SAM. In almost all the product categories, we are leveraging our existing capabilities and our core to expand in these new markets. Our company remains uniquely positioned across the markets we serve, and I believe our strategy to deliver high value, differentiated solutions to a diverse set of growing end markets position us well to enable us to deliver shareholder value by driving revenue growth with strong operating leverage in 2021 and beyond. I think, Bill, that's my intro.

Yes, that's great. Thanks for that. And we'll definitely touch on a few of those. Maybe starting off with some of the COVID-19 impacts and maybe specifically supply. Different parts of the semiconductor and food chains have talked about coming largely back online. You guys are a bit unique in that some of your facilities are still being impacted. Can you give us an update on your manufacturing operations in Philippines and Malaysia, I think, in particular? I believe China and the U.S. are largely back online. But if you can give us an update on all your manufacturing sites, please.

Yes. Sure. Just quickly, again, U.S., we have not had too many problems in the U.S. Obviously, there's been some restrictions, but most of our facilities have been deemed essential, servicing medical industries as well as defense industries. In China, it was a very rough Q1, like I think a lot of people had post Chinese New Year, it was very slow coming up back to a normalized level, but we're back to a normal level in our China operations, which is primarily MEMS microphones and -- for the consumer market and our high-performance capacitor business. And then, of course, in the Philippines and Malaysia, this started really hitting us toward the latter half of the first quarter, late in March, when there were worse restrictions put in place, which are still in place today. The facilities are operating at a less than 100% capability, but we're still operating, and we haven't -- across all the issues we've had, we haven't really missed any customer shipments. We've been able to manage all the customer shipments we have. But I think it's been very, very challenging in Malaysia and the Philippines, and it still is as we're in May, right, today.

Yes. And the other side was, obviously, Q2, you had basically not enough visibility to provide a precise guidance, and a lot of that was related to the hearing health. The audiologist offices are closed. I believe a lot of them are still closed. What are you seeing from the demand of your customers that support the hearing health? When do you see the hearing health customers coming back at this stage?

Yes. I think there's a couple of things going on here. First of all, I would just say that we're one of the top suppliers into the hearing aid market. So we have pretty good access to high level people within the hearing -- our hearing aid customers. And I think you said it right, Bill. The first step is, is the audiologist, the dispensers have to reopen. We're starting to see that in some countries. In some parts of the U.S., that's starting to happen. But I think once that's happened, I think the next piece is that when people start coming out in order to actually get a hearing aid. And as people probably know, the majority of people who buy hearing aids are older. And so with COVID having an outsized impact on them, it's not really clear when they will come back and back to a normalized level like it was in 2019. And so I think here's what we got to look for. We're looking for a treatment. Is there going to be a treatment that gives people confidence? Is there social distancing that's giving people confidence? And ultimately, is there a vaccine that -- and when will a vaccine come, that will give people the ultimate confidence to come out and buy hearing aids? The way I would view this is that we kind of view this as returning to 2019 levels. I think our most optimistic customers or people looking at this market say by Q4 of '19. I'd say the most pessimistic at this moment think Q2 of 2021 is when we'll return to a normalized level. But I would just stress one thing, it's not a financial issue. So we don't view it as that people once they feel comfortable with COVID, that it's going to be an issue of not wanting to spend the money. Our experience in prior downturns with the hearing aid market is that recessions have very limited impact on the hearing aid market. And why is that? Number one is older people are typically on fixed incomes. So they're not worried about losing a job or income not coming in. They typically own their house and they're not worried about selling their house, so the value of their house doesn't drive decision-making. And then lastly, most older people are not as heavily invested in equities, which means the return on their portfolio is much more consistent. And so what our belief is, is that this will recover to 2019 levels. It's a question of when, and it's not years, it's quarters. It's really about quarters.

Yes. Understood. And I guess maybe if you think about your interactions with the top hearing aid makers, how is your engagement for next-generation products? And presumably, they're still trying to work on, obviously, the latest and greatest technology as well. How is your engagements on those products?

Yes, I think I would say to the Knowles employees, I've been really pleased with -- and obviously, Knowles employees are not on here. But I've been really pleased with how our employees have reacted working from home, and we really haven't missed a beat on the next-generation products. And I think we're starting to get forecast for our new products in the hearing aid market that will be introduced late this year. And I would just tell you is our hearing aid customers are pretty excited, and we're excited to be part of it, whether it be on microphones or on the speaker side.

Yes. I guess coming back to the supply as it relates to Malaysia and Philippines as well. Some of these movement controls are expected to come off basically now or this month. So do you expect to be back to normal production run rate? Or is that also dependent on the demand aspects as well?

Yes. I would say it's -- as we start to return to normal, which I think barring any major changes with what's going on with COVID, I would think sometime probably in late May to June, we'll be returning to normal in all the facilities. That's at least the hope today. But I think the demand in the hearing aid side is significantly down year-over-year in Q2. How significant? Well, it's really hard to say exactly where this is going to end up. But I think we're really trying to align output to demand. Our goal is here not to build a lot of inventory so that when this is over and when the hearing health market returns to normal, we aren't dealing with a ton of inventory maybe that's unsellable. So we're really trying to manage this pretty tightly. So I think what I would say is that you could expect the hearing aid side is going to be probably running at some level sub what we normally say an optimal level in order to optimize gross margins for the foreseeable future, whether because of sheltering in or because we're aligning output to demand.

Yes, understood. Let's move to, I guess, some of your core end markets. I'd like to discuss handsets, the hearing -- the ear, headsets, commercial, and some of the other drivers. But just starting off with handsets, most -- almost everybody has talked about weaker demand or expectations of weaker demand. You discussed perhaps a 15% or so decline in units. I guess the first question is, how do you see the mix of units for the high-end versus the mid-tier trending? And then also, do you really expect the typical seasonal sequential growth in the back half of the year, third quarter, fourth quarter coming off of a weaker Q2?

Yes. I think -- so I spent a fair amount of time talking about that the mix over the last 6 to 9 months has been more towards the mid-range and low-end phones. I think where we are here today, Bill, is we're cautiously optimistic about the rollout of 5G phones as we go into the back half of the year will drive demand in higher-end phones. And what higher-end phones means for us is either digital microphones, more microphones and higher performance microphones. And that mix would really favor us is -- if more people bought 5G phones. I would just say we're cautiously optimistic. I think we're seeing a lot of reports. I'm sure that some of them that are published by JPMorgan would say that it's being pushed a little bit to the left in terms of the full rollout of 5G phones, but we are optimistic about it. As far as seasonality, I mean, right now, I mean, I think we're seeing a normal ramp-up in the back half of the year as compared to the front half. Now I put a lot of caveats on that. Obviously, there's been a lot of discussions about, is it going to be more in Q3 or Q4. That's still yet to be seen. But I do think -- my take is, whatever the build plan is of our customers, they're going to try to build the same number of phones even if it's later in a compressed period of time to make sure that they have the product on the shelf if people are wanting to buy it. And then, of course, normally, after the end of the -- after Chinese New Year and into the New Year for -- the normal New Year for us, you see what happens with inventory. And that's what -- usually there's an inventory correction or we sold majority of the inventory. But right now, we're seeing normal seasonal trends as we go to the back half of the year.

Yes. Okay. Understood. Regarding your -- really your growth here in your microphone business for the ear and IoT. It feels that the home speaker type of product is kind of plateauing. But on the other hand, here in headset, it still feels like it's growing. You've talked about a 22% SAM expansion in IoT, 16% SAM expansion in ear. How's the market tracking to those expectations?

Yes. I think, overall, I think there's a couple of trends that we see here. I think as we go through 2020, into 2021, our focus is being more in the ear side on other customers than the big customer. I think -- we think this is going to start following what we call like the tablet type of a thing where there's -- the first people get in, they get to a certain level of market share. And then competitors come in, albeit at a lower price, and then it starts -- their market share kind of plateaus. So I think we're going to see that as we go into 2020, '21. So -- and we're really excited. First, we got the microphones, right, of course, which there's new features being added, which are driving demand for more microphones. But secondly, we also have the opportunity with balanced armature. And so we're pretty excited about that in terms of being able to lower power in these -- through all these devices, being able to make the device significantly smaller or to add features or just to make the device or the battery larger, also -- or to enhance the sound quality, whether it's through multiple BAs per ear, or actually, we're seeing a number of customers combine a dynamic speaker with a balanced armature in order to optimize the sound. So overall, we're pretty optimistic about the ear market going into the rest of this year -- obviously, it's a tough year, but going into 2021.

Yes. And we'll speak -- really curious to hear your progress on the balanced armature, but just maybe summing up a few on the microphone. The competitive landscape seems to be changing. You now have Infineon, which I guess has always been a competitor on the die, but now they're working on packaged products. On the other hand, you had some historical competitors, GoerTek, AAC. Some people have left like ST, WOLFSON, how's the competitive dynamics in the MEMS microphone space today relative to a few years ago?

Well, it's very interesting, Bill, because we've been involved with the market since the beginning, since we pioneered it. And so it's followed, I would call, this normal business school type thing where for a period of time, 4 or 5 years, we were sole-sourced by ourselves after we introduced the product. As the market grew, a number of competitors decided to get in, Infineon being one of them, being teamed up with people like GoerTek and AAC. But there was other people who tried to enter the market, like Analog Devices and ST and Cirrus Logic. There's a lot of people. And what you see is it's really come down to this, I call, the Knowles platform and the Infineon platform is where we're at today. So there's 2 platforms. And I think there's a lot of movement in the Infineon portion of it in terms of what's happening with the supply chain. I don't want to speculate exactly what's going on there. But what I feel comfortable about is that we have a very strong road map of products. Our share has been very stable for the last 4 or 5 years. And I think the market is looking for 2 platforms. They're not looking for 2 subsets of a platform. And so I think we're in a pretty good position in 2020 compared to where we were 3 or 4 years ago.

Yes. It makes sense. We'll definitely monitor that and see how that manifests itself in pricing and so forth. But I would agree it sounds favorable from a market share perspective. One of the interesting things coming out of your last call, we really haven't talked about it too much, is microphone attaching things like TVs and PCs and so forth. Yes. I guess these don't -- kind of we think about smartphones first and foremost and the ear, secondarily. But how should we think about the growth in these other markets? Can you help size the business and give us a perspective on both of these?

I would say this whole thing of work at home is actually having a very, I think, short-term positive and I think even a longer-term positive on our tablet/laptop business. I think if you go back 4, 5, 6 years ago, we've been the #1 supplier of microphones to the tablet and the laptop market for many years. It was looked as a throwaway. Everybody put a microphone in. You said you got to have one. But more and more, what we're seeing is that the sound quality and the value of that microphone is becoming larger as more people are doing things like this, like Zoom. So I sit here with an HP computer, which is a very large customer of ours, and then looking up, there's 2 microphones right next to the camera, one on each side. And what we see is, from a lot of our customers, starting to think about improving the quality by moving to 3, 4, 5, and somebody we've even heard like 8 microphones in laptops. And so I think there is a real opportunity here in laptops that could become larger over time. You brought up -- what other market was it that you brought up?

TVs and...

TVs. Yes. Yes. That's another market that is developing. I think we've seen a lot more demand from TVs. I think we're starting to see that, ultimately, TVs will replace that speaker that you -- that Amazon Alexa type speaker in your home, and be able to do the same function that Amazon Echo does. We also see a trend that's starting to come where people are talking about eliminating the remote control. I think, everyone -- I think a lot of people at least who have Comcast or XFINITY use that voice remote which uses our microphones. I think what we're starting to hear from people is -- the TV manufacturers is the ultimate goal is to eliminate the need for a remote control and that you'll be able to do whatever you want, similar to like your Amazon Alexa, where you can ask questions, you can do things with it, plus you can go to whatever channel you want. You can surf the -- and figure out what you want to watch. So we're pretty excited. That's a new market for us, TVs. And again, it's good for us because we're well positioned with most of these customers because we already sell them -- who make TVs. We already sell them microphones for other products they make.

Sounds good. You alluded to it earlier, but your balanced armature business. Can you update us on the status of the automated line, customer interest, customer engagements and the content opportunities? And [ as we talked about ] in the past, you can start clearing $10 for some of these headsets?

Yes. So I think, what I said is, on the call, we've had a little bit of a delay, I'd say 1- to 2-month delay from what we talked about in previous quarters, primarily driven not by technical issues, but driven by the pandemic, where there's restrictions on the supplier working and how many people they can have. Plus there's a restriction on us being able to travel to their facility. But we're starting to see that clear up. And everything seems to be working technically. So I've been really pleased with the work of the team in order to get this done. And so we're still anticipating that in the next 4 to 8 weeks, the equipment will be shipping from a supplier to our facility in the Philippines. So once that's there, we'll be bringing it up in terms of getting it up and running. That may take 4 weeks or so to get it up and running and start yielding product off of it. But I think we're past -- we're over the hump of technical risk. That's what I would say. As far as the demand goes, I think some of our customers, and I think we've heard this across the board, some of their products are delayed. I mean, fortunately, for us, that's kind of lined up with our delay in terms -- in order to meet the demand. So I think at one point, we had said we thought we could fill the line for the whole back half of the year. I would sit there and say that we're probably being a little bit more modest this year now in what we think we can sell off that line. But it wasn't intended to have a huge impact this year. I think the big thing is this, first of all, we've got what I would call some smaller customers to start. We didn't want to sell stuff off the automated line to a really large customer without really having proven it will work. So we have some smaller customers, which we'll talk more about as they come to market. But we do have a pretty robust funnel of Tier 1 type customers who are interested in balanced armature. And when we start seeing some of these demands come to fruition, we're going to have to make a decision to order a second line. I'm still hopeful, possibility, we can order a second line by the end of this year. Lead time's less than a year, but it's more than 6 months to bring another line in. So we're really thinking about that a lot. But on the demand side, I think, again, there's really 3 categories of people that we're really pursuing. One is people who are focused on power and size. And the balanced armatures are the lowest power speakers at the marketplace. And that's why the hearing aid companies use these balanced armatures. And what it allows you to do, the size, and this can be lower power, it can allow you to add, because it's so small, other sensors like a heart rate monitor into the ear, an accelerometer into the ear, it creates more space or make the battery larger. So it does that. We have a second category of people who are sitting there saying, "I want better acoustic performance than a balanced armature -- sorry, than a dynamic speaker." And they're actually combining a dynamic speaker and a balanced armature together to get what they call a hybrid device. And I got to tell you, I've listened to some of these. There's a few in the market. The sound quality for the price is just outstanding. And then there's like a third class of people who are really looking for something that's like exceptional, where they -- we talk about 2 balanced armatures per speaker. But we have a couple of customers who are really looking at high-end stuff. They're talking about 4 or 5 balanced armatures per ear. So what I would sit there and say is what we're learning about the market is, is we have so many different advantages with balanced armature. It's hard to believe in a TAM that we think is probably 100 million headsets, that -- selling 20 million, 30 million units here. When you consider TAM is 100 million headsets, that's really 200 million ears, right? It seems very logical we should be able to capture a reasonable share of this market based on the advantages we have.

Kind of leads into the next question on that. I mean it sounds like the design activity is good. The customer interest is good. Obviously, the caveat is on the supply with COVID and maybe demand this year, but how should we think about the potential size of this business, I guess, later this year, and maybe more importantly, next year in a normalized demand environment?

Yes. I think it's a function of the number of lines that we order, right? I mean we talked about this, off of one line, we can run about 1 million units a month. That's roughly -- I mean we're still getting -- working through the yield and everything like that, but roughly 1 million units a month. And I think it's going to be a function of when we close a number of opportunities with other customers and when we order more lines. Again, I'm trying to push the team in a direction that we really want to order a second line before the end of the year, which would give us sometime late in '21 the capacity of, say, 25 million units per year, right? And so think of it this way, we -- right now, today, we make about 25 million balanced armatures in total, right, for the hearing aid market, right? So this is like we'd be doubling the amount of our output over a 1.5 years period of time. And I think based on what I'm hearing from the customers, I think there's a good opportunity for us to do that.

Moving on to Intelligent Audio. Last year, we're sitting here at the same conference. Well, we're sitting together in the same conference in Boston. You'd expect around $30 million to $40 million in revenues. Some of the demand for the products you had wins in didn't really come in as good as expected. I believe the revenues came in below $20 million. You've taken action to rightsize the business with some operating expense cuts. But looking ahead, what are the key areas of focus for you and the team in terms of the applications and the customers?

Yes. So I think, unfortunately, 2019 was a disappointment in terms of we had a number of design wins that could have been quite large for us, especially in the mobile area. And unfortunately, they just didn't, like, come to fruition in terms of the volume. So we were designed in, but the volumes just didn't materialize. I think what we're starting to think about here is that the opportunity longer term for us is with the existing products in the IoT market. We're starting to see more and more opportunities in IoT, where we can offer some very good solutions to some very difficult problems. And most of these customers are not getting a lot of attention from the biggest players on the market. And so we're starting to see these opportunities start to materialize. We still hear -- we go into the Tier 1 guys, like who we sold to last year and got designed in, who say, "You guys have the best audio processors in the world. They're the most efficient. They run audio algorithms the best that we've seen in any ICs." And so we're trying to translate this into IoT. The unfortunate part of IoT is it's a lot of smaller customers. It's not one big customer. But hopefully, that means it's more sustainable business. And our intent is to continue to support the existing products and support the existing customers on their current projects and future projects where they want to design the product in.

And last year, and then you repeated it also at your -- the analyst event, around $1 billion opportunity. Do you still anticipate those type of levels by 2023? Or is this being pushed out? I guess the second part of the question would be, does some of that market just go to the apps processor or remain in the cloud versus your opportunity? How should we think about the potential opportunity from here?

Well, I think the -- I think we were ahead in terms of predicting edge processing. You hear a lot about edge processing, and it's definitely here and/or coming. But I think you kind of hit it on the head here, is that while we can offer better performance than, say, an apps processor, our solution is not viewed as free. And so I think what we said here is we'll continue to look opportunistically at some of the opportunities in the mobile market. But I just don't see us seeing mobile driving significant demand. And so while I still believe the TAM is going to be large -- is large, I think with the reduced investment, we're going to narrow in on a smaller portion of the market where we believe the ASPs are higher and there's a sustainable competitive advantage without bigger players that can just integrate this in. And so our TAM may have grown less, but I also would sit there and say, we're -- as we go into 2021, this is not going to be a drag on earnings anymore, the Intelligent Audio.

Understood. Let's move on to precision devices, capacitor business and millimeter wave. [ But of course ], it feels like it's still tracking fairly well and maybe on track for growth as well. What are the near-term trends you're seeing across some of the end markets such as TV, medical, defense and industrial in your businesses?

Yes. So if we talk about -- there's 2 segments to our precision device business. There's the high-performance capacitor business, and then there's the RF filtering business. So first in the high-performance capacitor business, we've been pretty excited about the markets that we're in here, and it's growing. So we had growth in defense aerospace or mainly defense. Life sciences has been good for us. I think we have a pretty strong position in implantables across many different products. And our telecom business for high-performance capacitors has actually been pretty good as well, starting off this year for 5G. Now the last piece is automotive. And more specifically, electric vehicle, we see a trend moving towards more and more high-voltage systems for charging. And it really plays into our wheelhouse. If you think about the existing suppliers to the consumer electronics market for capacitors, they've been focused a long time on low voltage and smaller parts. We chose niches. And one of the niches we chose was high voltage, and another niche we chose was high temp. And this is now playing very well for us in the electric vehicle market. Now this is starting from a very low base, I'm going to tell you, from a very low base in 2019. But we are still seeing -- even with the pandemic, we are seeing a pretty significant growth year-over-year in our EV business. And so we're pretty excited about EV and overall high performance capacitors. If you move to the RF filtering, I think we've talked about -- a little bit more about this product. The growth primarily today is being driven by defense. We still anticipate to be in that roughly $40 million range in sales this year, up from a little over $30 million last year. And I think the thing that has changed though is millimeter wave is not being deployed at the rate people maybe have thought a year ago. And it's also being pushed out to the left. It's being pushed out further. And so as we're learning, I think other people are learning more about our millimeter wave. I think, first of all, number one, it's not going to be on every corner for every handset. It's going to be something that is used in stadiums or in Times Square, where there's a high density of people with a lot of phones that need a lot of data. That's where it's going to be primarily deployed, mainly because you need line of sight. The other area which will see how this plays out is fixed wireless access, right? And so we're cautiously optimistic about this. I think the challenge is going to be is -- is that there's an existing supplier of your Internet service in just your house that has probably fully depreciated infrastructure, and so we'll see how this all plays out. So it is moving a little bit to the left. We are seeing some other opportunities with 5G in our thin film filters, which we're starting to assess, which is more around other pieces besides the base station, like the receive side. I'm not talking about phones, but maybe on your house, if you have a device that expects 5G. And so there's a fair amount of opportunities here. But in the meantime, our defense business will continue to grow.

Understood. Maybe moving to the financials. You -- on the OpEx side, you're taking out OpEx this year, looking to get down to around $43 million from $55 million in the first quarter. And it sounds like you're going to try to keep OpEx growth even next year fairly in check. We obviously know a significant portion is coming out of Intelligent Audio, but what parts of the business are you investing in? I guess if we assume a normalized environment of demand next year, explain what kind of operating leverage we can see from there.

Yes. So if we get into any numbers, I got John right here. I'll pull him in here, I'll move over and put him on the screen. But I think here's the places we're investing. We're investing more in R&D in PD, in precision devices. And we're also investing more in MEMS microphones. We see the opportunity for next-generation MEMS that will start to be introduced in 2021, and we're investing more in that space. Obviously, it's around the MEMS die itself and around ASICs. I mean that's where we're -- and that was -- hence, the ams acquisition that we did last year. I do think, overall, and I'll let John speak to this for a minute, we are reducing our OpEx overall, and it's more than Intelligent Audio. And so we're looking at everything that we're doing to make sure that this is the right thing to do. And -- but I think he talks about we could leave the year somewhere around roughly $43 million per quarter in OpEx. There'll be some, obviously, merit increases and some inflation. But we think, next year, we could be at $45 million per quarter in OpEx, which is significantly down over where we were at the beginning of this year and 2019. What that says to me is this -- for shareholders is even if sales don't return to 2019 levels, we think we can get pretty close to 2019 levels in terms of profitability on a significant lower number of sales. So I don't know, John, if you have any -- you want to comment.

You kind of covered it.

See, I covered it for him.

Well, that's about all the time we have, but thanks for the update, Jeff, and good luck, John. Take care.

Thank you, Bill.