Good afternoon and welcome to the Knowles Corporation First Quarter 2016 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. With that said, here with opening remarks is Knowles' Vice President of Investor Relations, Mike Knapp. Please go ahead.

Thanks, Laurel, and welcome to our First Quarter 2016 Earnings Call. I'm Mike Knapp, 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 and 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, 2015, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Knowles disclaims any duty to update such statements except as required by law. In addition, pursuant to Reg G, any non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at knowles.com, including reconciliation to the most directly comparable GAAP measures. All financial references on this call will be on a non-GAAP continuing operations basis unless otherwise indicated. Also we've made selected financial information available in webcast slides which can be found in the Investor Relations section of our website. With that, let me turn the call over to Jeff who will provide some details on our first quarter results. Jeff? Jeffrey S. Niew - President &…

Thank you. Your first question comes from the line of Jaeson Schmidt with Lake Street Capital. Your line is open.

Hey, guys. Thanks for your taking my questions. Wondering if you could talk a little bit about what you're seeing in China and if you're thinking you're gaining share there as well or if the strong snap-back in Q2 is more a function of market growth? Jeffrey S. Niew - President & Chief Executive Officer: The market growth that we see probably is – we're getting from the data that we see in the marketplace like everyone else does, which is we expect the Chinese OEMs, in terms of handset builds, to be up year-over-year but not as significantly as we see ourselves being up. We do see, in China, that in the microphone business, we are, we believe, taking share and we expect quarter-over-quarter, sequentially, that we'll be up 30% in Q2. The second thing I will just remind I think we talked about this before but from 2013 to 2015, we more than doubled our business in China. So it's been a real success story for us in China. And we are very optimistic – I think one last thing I would add is that we're optimistic about the adoption of intelligent audio in China. They seem to be some of the early adopters who are looking at it and saying there's an opportunity to change a paradigm and how they view the marketplace. So we're pretty happy about where we're heading in China.

Okay. That's helpful. And wondering if you could break out the Audience contribution in Q1? Jeffrey S. Niew - President & Chief Executive Officer: Well, let me just take this – well, John, do you want to take this or – when you look at Q1, we're not going to break it out specifically at this moment. But what I would say is this, is as we go through the year, the Audience investment or the investment we're making in intelligent audio is embedded in what we've given in our full year revenue, gross margin, and operating expenses. And let me just kind of lay this out for you, what this means for us. First of all, number one is we've achieved the $25 million in cost savings by the end of Q1. That's number one. Number two is, we talked a little bit about it, but we have reduced our investment in noncore R&D over the last quarter or so. Lastly, if you start talking about incremental revenue, as we look towards the back half of the year, right now, what's embedded in our forecast as we look out is $10 million to $20 million of incremental intelligent audio revenue in the back half of the year. Now let me just – just one more moment here to talk a little more about this. We really view this as transformative, what Audience or with the capability that Audience brought to Knowles is doing. And I want to just bring it back to Versant. We talked about this first customer that we're working with where we would've potentially one microphone in a solution like this, a premium headset. Now we're talking about multiple microphones. We're talking about two balanced armature speakers. We're talking about software with content in excess of $5 per headset. So I guess what we keep coming back to, is this is a transformative acquisition to allow us to start thinking about not only growing revenue and gross margins, but what we're starting to see is within our core, there's opportunities to protect ASPs, grow share, and then also expand into other markets that we have not been in, in the past. So we're really excited about where the capability is taking us. John S. Anderson - Chief Financial Officer & Senior Vice President: Jaeson, this is John. Just to address specifically the question you had with respect to the 30% sequential growth of our Chinese OEMs. That's really minimal impact from Audience. That's primarily our MEMS microphone business.

Okay, thanks. And then last one from me before I jump back into queue. Just wondering if you could talk about some of the reasons why you're gaining share in the low- and mid-end at your Korean customer? Jeffrey S. Niew - President & Chief Executive Officer: Well, I think there's a couple things. Number one is, if you look at the shift over time, over the last six months, there's been more effort to sell mid- and low-end handsets by the Korean OEM, and that's kind of what we see. And to that extent, we are a primary supplier on the high end, and there's no reason why we can't be a primary supplier on the mid and low range. And so I wouldn't say it's more of an area of focus of ours but where we see the market going is we have to have offerings for this mid and low end range. And we've got a very, very strong offering in the space, and the Korean guys will continue to use us.

All right. Thanks a lot, guys.

Thank you.

Your next question comes from the line of Bob Labick with CJS Securities. Please go ahead.

Good afternoon. Congratulations on a nice quarter and outlook.

Thanks, Bob.

I just wanted to follow up on the Audience question. Can you just talk a little bit about how Audience is tracking versus your initial expectations? And then obviously as you embed it within your business it's hard to measure, but how do you measure it versus your results initial expectations and how's it doing and how will you continue to track that going forward? Jeffrey S. Niew - President & Chief Executive Officer: I'll go back again, I think what we look at is when we talked in Q4 about what our expectations for the year, we embedded a fair amount of what our expectations were from Audience for the full year. And cost take-out I would say we are on target to ahead with some of the noncore R&D that we've taken out. On the revenue side, what I would say is what we're really pleased about here is that when we came out we were talking about, primarily, smart mics, that was the reason that we saw it as a great opportunity and it still is a great opportunity. What we're starting to see is that, let's use the example, again back to this Versant, and I hate to keep going back to this, but when we can go from selling maybe $0.30, $0.40 on a premium headset, to selling north of $5 on a headset, there's an above growth corporate average gross margins, we are very excited about the opportunity. I wish I could describe more because we don't want to go too far into this yet before we're ready to announce some of the new products that we're working on for later this year and into 2017 but it's fundamentally transformative for us in thinking about selling a solution to a problem as opposed to just selling a device.

Okay, great. No, very helpful. And then just moving beyond the intelligent audio and the Audience applications. You've talked about in the past your ultrasonics and that's been a growth initiative for you as well. Can you just update us on where that stands and what the potential applications are and how that looks if it's 2016, 2017, or beyond that you might think there would be some progress there? Jeffrey S. Niew - President & Chief Executive Officer: Yeah. I'd still say it's very early days here on our products in this category, but let me describe how we were before and where we are today. We've had the capability in terms of microphones to deliver an ultrasonic mic for, I don't know, three years we've had an ultrasonic mic in our catalogue. We'd walk into our customers and we'd say here's an ultrasonic mic, what do you want to do with that? And they kind of look at us and say, I don't know what we want to do with it. Now we walk in with our capabilities in terms of algorithms and signal processing and say, here is our ultrasonic mic with software and signal processing to solve a real world problem. Now I'm not prepared to expand on what kind of markets we're going to go into this but what I would say is it's outside of what you're normally thinking in terms of the traditional spaces we've been in. And again it's a 2017 play in that there's no guarantees that this all works out, but I would say this is the example of how this is transforming Knowles from being a device provider to a solutions provider.

Okay, great. Thanks very much.

Thanks, Bob.

Your next question comes from the line of Harsh Kumar with Stephens. Your line is open.

Hello. Can you hear me? John S. Anderson - Chief Financial Officer & Senior Vice President: Yeah, Harsh. How're you doing?

Yeah. Doing well. Thanks for asking. Congratulations, guys. Good numbers. I had a couple of questions, let me start off with the March quarter, so you had a very helpful breakdown of revenues but I noticed that March 2016, was barely up over March 2015. My recollection, I may be wrong, is that you didn't have so much help from your largest customer last year at this quarter that just ended, should we not have gotten a bigger number, bigger help from that customer? I'm just curious what were the other moving parts then? Jeffrey S. Niew - President & Chief Executive Officer: Yeah. I hate to really go into a tremendous amount of detail here by customer here, Harsh. But generally speaking, our expectations in Q2 from this largest customer of 2016 are, I would say, relatively modest. It's not from share loss. I would just sit there and say Q2's relatively a tough quarter. We kind of said on the prepared remarks: Korean and North American customer will be down in Q2. And if you remember going back to Q2 of 2015, we did get back share in Q2 of 2015 at that customer. So, I would look at it a little differently from the perspective that what we're seeing is again our North American and Korean customer down sequentially but China coming up to really pick up the slack from what's coming out of those two other customers.

That's fair. And then let me jump on over to the June quarter. I guess you're seeing your largest customer down, Korean customer down in 2Q like you said, China, basically massively. Are the two large – the Korean and the large customer – is that just seasonal or timing of product shipment? I'm trying to wrap my head around this. And then China, just a significant uptick. Is that all share gain? Or is there some new phones that are being launched that we haven't heard about? Jeffrey S. Niew - President & Chief Executive Officer: Well, let me cover China first. And so, China's a combination of things. I would say it's share gain. I would say it's multi-mic adoption driving that. As well, there are some new phones being introduced. So there is, I would say, some seasonality in that, in phones that are being introduced where we have very strong position. So I'd say those are the three things. So there is some seasonality with new phones introduced. As far as, again, the North American and Korean guys, on the Korean front, Q1 was pretty good for us on the Korean front. I think the expectations were ahead of what we would've said when we gave our guidance for Q1 but now we're kind of in the, I would say the seasonal lull with the Korean guys, before they introduce the next phone in the August/September timeframe, the larger phones. As far as our North American guy, I mean, I think it's normal seasonally to be down in Q2, and I think obviously we have to wait to hear what was sold. But remember, we sell early on in the channel, right? We've talked about before mics – we have to deliver the mics fairly far ahead of when the final phone bills are done. That's for all of our customers, not just the North American OEM. And so I think what you start to see is more of this transition to next generation products. And again, we feel pretty good of our position or where we feel like we're positioned on next generation products.

Got it. And I'll ask one more then get back in line. I missed a part of the answer that you gave earlier to somebody. I think it was in relative context to Audience, $10 million to $20 million revenues. Was that above what you assumed or is that what you're assuming, or what did I miss there? Jeffrey S. Niew - President & Chief Executive Officer: What I said was we could see $10 million to $20 million in the back half of 2016, of incremental revenue, driven by the capability of intelligent audio.

Thank you, guys, and I'll get back in line. Thank you.

Your next question comes from the line of Anthony Stoss with Craig-Hallum. Your line is open.

Hi, guys. Nice gross margins and OpEx controls. Congrats on that. Can you refresh us or just let us know what percentage of revenues China OEMs were in the March quarter? Also if you wouldn't mind sharing kind of what percent of revenues your biggest customer was in Q1. And then lastly, any view on or expectations – might be a little bit early – but kind of your share expectations amongst your biggest customers for the second half of 2016? Thanks. Jeffrey S. Niew - President & Chief Executive Officer: So let me let me take the share question first, if that's okay, Tony.

Sure. Jeffrey S. Niew - President & Chief Executive Officer: I would say what our expectations are right now is that we expect some pretty nice share gains in Chinese OEMs throughout the year. And if you look at our expectations in terms of percent on the Chinese OEMs, we're probably seeing Chinese OEMs coming in, in the 15% to 20% of MCE revenue, is from the Chinese OEMs. That would be in Q1. So that's accelerating in the Q2. Now back to your question relative to now share. We see pretty stable share as North American OEM and at the Korean OEM, pretty stable share in the first, second quarter, and quite frankly, through the year we see pretty stable share. So I think that answers the share question. And refresh my – what was the other question again?

Just presented total revenues, your biggest customer in the quarter. Jeffrey S. Niew - President & Chief Executive Officer: Oh, yeah, yeah, yeah. Okay. What I would say is we talked about before when we had the speaker/receiver business as part of the continuing operations, the North American OEM was a lot higher percentage of our overall revenue. So I would sit there and I'd say is as I look at the total company in the first half of the year, we expect probably our largest customer to be... John S. Anderson - Chief Financial Officer & Senior Vice President: In low teens. Jeffrey S. Niew - President & Chief Executive Officer: ...low teens. John S. Anderson - Chief Financial Officer & Senior Vice President: Low teens. Jeffrey S. Niew - President & Chief Executive Officer: And obviously, that would be higher in the back half of the year when they're ramping production of new products, but obviously, significantly less reliant on one customer than we had prior to announcing the proposed sale of the speaker/receiver business. John S. Anderson - Chief Financial Officer & Senior Vice President: Tony, just to add a little granularly to that. Think of it as low teens in Q1 and actually a little under 10% in Q2.

Very helpful. Jeffrey S. Niew - President & Chief Executive Officer: We have a large (29:59) North American OEM.

Perfect. Nice job, guys. Thanks.

Your next question comes from the line of Suji DeSilva with Topeka. Please go ahead.

Hi, guys. Nice job on the quarter here. I just want to dig into distinction of high-end mics versus low-end microphones. I'm presuming the non-China customers are mostly high-end microphones. I'm curious what percent of China you consider high-end microphones versus kind of low-end as a ballpark. Jeffrey S. Niew - President & Chief Executive Officer: I don't know if I have those numbers in front of me. I mean we might have to get back to you on this, but generally speaking, what I would say is the flagship phones of most of our customers use higher end mics. The question is, is what percentage of their mix is actually flagship phone. And so we talked about this in the past, the North American OEM, there's resets and new products every single year that we work on. In terms of Korea, there has been a little bit more of a challenge. We said that. They've been re-using similar mic on their flagship for awhile. And then the Chinese OEMs, what I would say is that there has been, I would say, more push on the – I'd say the mid tier and low end phones in the end market which they tend to use, what I would say is products that are more mature. Now they still use higher end mics on the flagship. And so it's a question of how much of the flagship gets sold. So as we kind of talk about in Q2, we're happy to see overall for the company, the gross margins are going to be up, I think, 130 basis points at the midpoint, held back a little bit by the fact that since China is increasing quite a bit, it brings down the margins slightly. I wouldn't say a huge amount, but it brings down the margins a little bit.

Yeah. That was kind of what I was trying to get at with my question, so that helps a lot. And then the other question is on intelligent audio. As it initially starts to ramp up here, would you expect a few customers to be the bulk of the revenues, or are you going to see good, broad customer penetration of intelligent audio right out of the gate? Jeffrey S. Niew - President & Chief Executive Officer: Well, depends on the product. I would sit there and say, as we look at our – the Versant product, which targets the premium headset market, I think it's going to be limited to a relatively small number of customers at the beginning. But as you look at smart mics, I think as we head toward the back half of the year, you'll start to see a more broad based adoption of smart mics albeit we don't expect any massive designs that are going to drive like huge volumes in the back half of the year but there's definitely an acceptance coming across in quite frankly, the Chinese OEMs.

Great. That's the color I was looking for. Thanks, guys.

Your next question comes from the line of Tristan Gerra with Baird. Please go ahead. Tristan Gerra - Robert W. Baird & Co., Inc. (Broker): Good afternoon. Hi. As a follow-up to the prior question on the Q&A about the year-over-year Web (32:58) comps in Q1, despite the market share gains that you had at your North America customer this year. How should we look at the core business year-over-year in the second half? So excluding the $10 million to $20 million incremental potential intelligent audio revenue, how should we look at the year-over-year comp and anything different in terms of ASPs or anything that will lead to an increase year-over-year in that business? Jeffrey S. Niew - President & Chief Executive Officer: Well, I think what's going to drive year-over-year increase, as we look toward the back half of the year, is going to be the Chinese OEMs. I think our share from our perspective, looks pretty stable across the majority of the other markets. I think there are a couple other headwinds that we are dealing with, like the laptop and tablet market, probably not as robust as we would like. You've got multi-mic adoption in the Chinese OEMs, coupled with our share gains. And then I think, again, pretty stable, I would say, at the other two large customers that make up a significant amount of our sales. So I mean... John S. Anderson - Chief Financial Officer & Senior Vice President: Tristan, as I mentioned kind of in the guide, if you look sequentially, the MCE business is basically at the midpoint going to be flat sequentially. And the growth sequentially is really coming from our specialty component business, and there it's pretty broad based, both our hearing health business and our precision device end markets.…

Your next question comes from the line of Robert Sassoon with R.F. Lafferty. Your line is open. Robert Sassoon - R.F. Lafferty & Co., Inc. (Research): Hi. Thank you for taking my question. Last time around you provided a page on your presentation pack for the full year 2016 outlook and your expectation was 40%, 60% split between first half and second half in terms of overall revenue from continuing operations. Is that still the case? John S. Anderson - Chief Financial Officer & Senior Vice President: Yeah. Bob, let me take this one. I think what we did in connection with the Q4 earnings call is we gave some expectations regarding certain financial metrics, revenues, gross profit, expenses, and what I would say is we performed better than expected in Q1, revenues were slightly ahead of the midpoint, our EPS came in almost a nickel above the midpoint. I would say Q2, we raised the guide a penny or two from what the consensus is. I don't see any change for the back half of the year at this point. So you can from that kind of imply the full year... Robert Sassoon - R.F. Lafferty & Co., Inc. (Research): Are you still going by the split of 40%, 60%, is that what you're saying or is it... Jeffrey S. Niew - President & Chief Executive Officer: We haven't had the split here, but what we're still expecting is modest growth for the full year. We're just – we're reconfirming what we said in (38:16) the last call. Robert Sassoon - R.F. Lafferty & Co., Inc. (Research): Yeah. Because if I look out the – assume that you achieved the midpoint of your second quarter revenue guidance, then the 40%-60% split presumes, assumes – I've done a quick back…

Thanks, Robert.

Your next question comes from the line of Harsh Kumar with Stephens. Please go ahead.

Hey, guys. Thanks for a follow-up opportunity. Jeff, I wanted to ask you about that $10 million to $20 million extra revenue or the incremental revenues from intelligent audio. Is this being driven by wins you have already, or is this optimism? Or have you got some new ones that you can talk about? Jeffrey S. Niew - President & Chief Executive Officer: I would sit there and say is, the majority of what we're projecting is we feel pretty comfortable that we've got design wins that obviously, some of the products, it depends on how their products sell in the end market – some of those, right? And that's why we're kind of hedging between the $10 million and $20 million. But the range is $10 million to $20 million in the back half of the year, incremental. And so, I would sit there and say, if their products do better, maybe it's closer to $20 million. And maybe if we get a few more design wins that aren't secure, closer to the $20 million, but we feel pretty comfortable about the $10 million. That's why we gave the range.

Got it. And if I can just ask you color-wise. What is the interest level from the Tier 1, the big headset makers, what do they think of this new technology that you guys are showing them? Jeffrey S. Niew - President & Chief Executive Officer: Well, I'm not going to comment about a specific customer, but I would just generally say for those of you on the call who have seen the demonstration, the reaction generally speaking is they don't believe it. And so we have to do it live to show how it works. And again, what's very interesting about this, Harsh, is that when we see the only way we could've presented a solution like this was by bringing our microphone, MEMS microphone capability, our balanced armature speaker from the hearing aid side capability, coupled with the algorithm in single processing capability from – that we acquired with Audience, to come up with a solution. And we're hopeful that we'll have other ones to talk about, other markets, other products, in the quarters to come, but we're really excited about this opportunity.

Got it. Thanks, Jeff, for that color. If I could ask one more. You talked about the $25 million cost reduction/reorganization. How much more is left? Are we getting to the point where you're fleshing out all the inefficiencies? You see this as a continuing theme, $20 million, $25 million a year next couple of years? John S. Anderson - Chief Financial Officer & Senior Vice President: Yeah, Harsh, I think I would say we're getting near the tail end of it. We aren't signing up for any more with respect to the Audience integration. We'll always look at opportunities whether it be footprint consolidation or other opportunities for cost takeout but right now, I think we're kind of near the tail end of the cost takeout and the focus is really on the top line. Jeffrey S. Niew - President & Chief Executive Officer: I think, Harsh, as John said, whether it be from a manufacturing footprint standpoint or the SG&A standpoint, we're constantly looking at this, but I think we've accomplished what we want to accomplish relative to the Audience integration, on the cost side.

Sure. And last one for me. Interest expense, how should we think about it? You paid off a little bit of the debt? I think that's the one line item that wasn't addressed in the guide. Do you have any... John S. Anderson - Chief Financial Officer & Senior Vice President: Yeah, Harsh, think of it roughly $4 million a quarter is kind of what we're trending at. We might have been a touch under that, I think $3.8 million in Q1 but given our debt is floating for the most part, with exception of $100 million that's fixed, I would say it's safe to assume $4 million a quarter.

Thanks, guys.

Thanks, Harsh.

I'm showing no further questions at this time. I'll now turn the call back to the presenters.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day. You may all disconnect.