Knowles Corporation (KN) Q1 2021 Earnings Call Transcript

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Knowles Corporation (KN -0.26%)
Q1 2021 Earnings Call
Apr 22, 2021, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Knowles Corporation First Quarter 2021 Financial Results Conference Call.

[Operator Instructions] With that said, here with opening remarks is Knowles' Vice President of Investor Relations. Mike Knapp, please go ahead.

Michael J. Knapp -- Vice President of Investors Relation

Thanks, Anita, and welcome to our Q1 '21 earnings call. I'm Mike Knapp and presenting with me on the call today are Jeff Niew, our President and Chief Executive Officer; and John Anderson, our Senior Vice President and Chief Financial Officer. Our call today will include remarks about future expectations, plans and prospects for Knowles, which constitute forward-looking statements for purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements in this call will include comments about demand for company products, anticipated trends in company sales, expenses and profits and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations.

The company urges investors to review the risks and uncertainties in the company's SEC filings, including, but not limited to, the annual report on Form 10-K for the fiscal year ended December 31, 2020, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today's earnings release. All forward-looking statements are made as of the date of this call, and 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 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 the SEC, including a reconciliation to the most directly comparable GAAP measures. All references on this call will be on a non-GAAP continuing operations basis unless otherwise indicated. Also, we've made selected financial information available in webcast slides, which can be found in the IR section of our website. With that, let me turn the call over to Jeff, who will provide some details on our results. Jeff?

Jeffrey S. Niew -- President and Chief Executive Officer

Thanks, Mike. Thanks to all of you for joining us here today. For Q1, we reported revenue of $201 million, above the midpoint of our guidance and up 23% from the year ago period on strong MEMS microphone demand in multiple end markets and improving trends in hearing health. Precision Device revenues were in line with our expectation. Gross margins improved 330 basis points to 39%, and our earnings per share was above the high end of our guidance range at $0.29. Overall, another solid quarter highlighting our operating leverage as demand improves across a broad range of our end markets, coupled with our focus on high-value products to improve gross margins.

Let me now provide some detail on the trends we are seeing by end market. In audio, sales were up 36% from the year ago quarter, better than our expectations going into the quarter. We saw broad-based improvement year-over-year in the MEMS microphone sales across nonmobile and mobile end marks. Sales to nonmobile applications were driven by work-from-home and remote schooling as well as the ongoing trend toward applications requiring high-performance audio solutions. We expect these favorable trends to continue throughout 2021 and in the years to come. Since our last call, we made two new product announcements, which support our focus on nonmobile applications. First, we announced AI Sonic Bluetooth Standard Solution, a new complete development solution that enables fast and easy voice integration into Bluetooth devices.

The development kit includes a Knowles DSP, coupled with multiple microphones to enable OEMs to build voice-activated control and far-field speech recognition capabilities into Bluetooth devices. We also announced earlier this month the availability of two new MEMS microphones for automotive applications. The new microphones are engineered to a higher standard of quality to support the increasing demands of the automotive market for hands-free calling, advanced voice assistance and in-cabin noise cancellation. In mobile, stronger sales to Chinese OEMs and North American OEMs drove the majority of the year-over-year increase. Trends in Q1 were better than normal given the timing of product launches last year and improved demand from Chinese OEMs. In Q2, we expect demand in mobile to decrease sequentially due to product cycle timing from last year's launches. While we expect sequential improvement in mobile for Q3, third-party data enhanced expectations for the second half of 2021 indicate that year-over-year rate of growth will moderate and be more aligned with what we have seen over the last few years.

This validates our focus on faster-growing nonmobile applications, which reduces our reliance on growth from the mobile market. For hearing health, shipments were slightly higher than expectations for the quarter. March data showed improved momentum in the BA hearing aid channel, indicating continued gradual improvement in the hearing aid markets as vaccinations roll out and private practice audiologists remain open. While demand from the audio file portion of this market remains soft versus pre-pandemic levels, we have seen some improvement and are optimistic we will see demand accelerate in the second half of the year. In Precision Devices, Q1 sales were down about 12%, as expected, as COVID continued to impact our medtech and defense end markets.

At the same time, we saw record bookings in PD during the quarter, driven by improved demand in our defense and medtech end markets and sustained strength in demand from electric vehicle and industrial customers. This gives me increased confidence that we can grow precision devices revenue again this year as the medtech and defense end markets recover throughout the rest of 2021. We are off to a great start in 2021, and I believe our leadership positions across the markets we serve and our strategy to deliver high value, differentiated solutions to a diverse set of growing end markets positions us well for future growth. With that, I'll turn it over to John to expand on our financial results and provide the guidance for the second quarter. John?

John S. Anderson -- Chief Financial Officer & Interim Principal Accounting Officer

Thanks, Jeff. We reported first quarter revenues of $201 million, up 23% from the year ago period, driven by increased shipments in the audio segment. Audio revenues of $163 million were up 36% due to increased shipments of MEMS microphones across multiple end markets and a recovery in the hearing health market to pre-pandemic levels. The Precision Device segment delivered revenues of $38 million, in line with our expectations and down 12% from Q1 2020 levels as shipments into the medtech and defense markets were negatively impacted by COVID-19.

First quarter gross profit margins were 39%, at the high end of our guidance range and up 330 basis points versus the same period a year ago. Audio segment gross margins improved 470 basis points, driven by favorable product and customer mix, higher factory capacity utilization and lower factory spending. In the Precision Devices segment, gross margins were 150 basis points below the prior year due to unfavorable mix and lower factory capacity utilization. R&D expense in the quarter was $20 million, in line with expectations and down $2 million from the year ago period on reduced spending in Intelligent Audio, partially offset by higher incentive compensation costs and increased spending in MEMS microphones. SG&A expenses were $25 million, in line with our guidance and down almost $9 million from prior year, driven by a $4 million reduction of legal expenses, reduced spending in Intelligent Audio, and the impacts of restructuring actions taken in the second quarter of 2020.

For the quarter, adjusted EBIT margin was 17%, at the high end of our guidance range and up more than 13 percentage points from the same period a year ago, driven by increased shipment volume, higher gross margins and operating expense reductions. EPS was $0.29 in Q1, above our guidance range and up $0.26 from the prior year. Further information, including a detailed reconciliation of GAAP to non-GAAP results, is provided in the financial tables of today's press release and can also be found on our website at knowles.com. Now I'll turn to our balance sheet and cash flow. Cash and cash equivalents totaled $182 million at the end of Q1.

Cash generated by operations in the quarter was $40 million, well above the high end of our guidance due to higher EBITDA and lower-than-expected net working capital. Capital spending was $5 million in the quarter. Given our existing cash position and our expectations that we will continue to generate free cash flow in the future, the company intends to settle the principal amount of the convertible notes, which mature in Q4 of this year, in cash. Moving to the second quarter of 2021. We expect total company revenue to be between $185 million and $205 million, up 28% at the midpoint versus the same period a year ago. Revenue from the audio segment is expected to be up approximately 41% from Q2 2020 due to increased shipments into nonmobile and hearing health applications. Precision Device revenue is expected to be flat versus prior year levels, but up more than 20% sequentially as defense and medtech demand improves.

We estimate total company gross margins for the second quarter to be 39% to 41%, up 770 basis points from the year ago period, driven by improved capacity utilization, favorable mix within the MEMS microphone business and continued recovery in the hearing health market. Our Q2 gross margin guidance reflects favorable mix, and we have increasing confidence that total company gross profit margins will approach 40% for full year 2021. R&D expense is expected to be between $20 million and $22 million, up $1 million from prior year levels due to higher incentive compensation and increases in MEMS microphone and Precision Device spending, partially offset by a reduction in spending related to intelligent audio.

We're projecting selling and administrative expense to be between $25 million and $27 million, down $1 million from the year ago period. The reduction is due to a decrease in legal expense and the impact of restructuring actions taken in the second quarter of 2020, partially offset by higher incentive compensation cost and merit increases. We're projecting adjusted EBIT margin for the quarter to be in the range of 14% to 18% and expect EPS to be within the range of $0.23 to $0.29 per share. This assumes weighted average shares outstanding during the quarter of 96.5 million on a fully diluted basis. We're forecasting an effective tax rate of 13% to 17% for the quarter. For the quarter, we expect cash generated by operations to be between $10 million and $20 million and capital spending to be approximately $10 million. Please refer to our press release and to our Form 8-K filed today with the SEC for a GAAP to non-GAAP reconciliation. I'll now turn the call back over to Jeff for closing remarks, and then we'll move to the Q&A portion of the call. Jeff?

Jeffrey S. Niew -- President and Chief Executive Officer

Thanks, John. Before we move to the Q&A, there are three points I'd like to highlight from our Q1 results and our Q2 guide. First, the diversity of our revenue across a range of growing end markets is a significant benefit. In addition to participating in a number of compelling growth opportunities in markets that demand high value solutions, we have reduced our risk of being exposed to any one specific market and are lowering volatility in our business.

Second, our Q1 results demonstrate that we are off to a good start, but there is more improvement to come as we expect the recovery demand in PD from the medtech and defense end markets. Third, we have increased our focus on gross margin expansion across the company. You have seen this gross margin improvement in Q1 results and the guidance for Q2, and this focus will continue to be a priority for us as we move forward. In closing, our strategy to deliver high-value, differentiated solutions to a diverse set of end markets is paying off, and I'm confident we can drive shareholder value by delivering strong earnings growth and cash flow in 2021 and beyond. Operator, we could now take questions.

Questions and Answers:

Operator

[Operator Instructions] And your first question comes from Harsh Kumar with Piper Sandler.

Harsh Kumar -- Piper Sandler -- Analyst

Congratulations on very solid performance, very solid results. Jeff, John and the team. Quick question for you guys. Jeff, you mentioned that you expect the rate of audio -- audio or, call it, mobile to moderate through the rest of the year. I was hoping -- the rate of growth, at least. I was hoping you could maybe clarify how you're seeing the rest of the year? I don't want exact numbers. I know you're not in a position to give it, but just some color would be helpful based on whatever you've seen so far. And I've got one more follow-up.

Jeffrey S. Niew -- President and Chief Executive Officer

Yes. So I think if we look at our nonmobile applications, and I'll talk about it that way. I still think we expect the nonmobile applications to be pretty strong throughout the year, Harsh. I think whether it be -- you look at the laptop PC market, we think that's going to continue to be strong. Our IoT business continues to be very strong. There are a number of new products that are launching in the ear market that should help us. So I think from our perspective, the nonmobile portion of this business is pretty good.

I think what we're just kind of looking at in terms of mobile is that it's third-party data. We had a very strong Q1 in mobile. But Q2, based on the timing of product launches from last year, is weaker in mobile in Q2. And I wouldn't think we're -- I wouldn't say we're pessimistic about mobile in the back half. I just think the rate of growth, obviously, will moderate as -- the back half of the year for mobile was pretty good. So I mean, that's kind of more I would say. We're a little bit more cautious about mobile. But overall, for the MEMS microphone business, we still feel very good for the full year as a whole business.

Harsh Kumar -- Piper Sandler -- Analyst

Got it. Very helpful, Jeff. And then maybe I'll link these two questions together. I was sort of surprised. I think John mentioned the $10 million capex. I believe that might have been for the second quarter. And maybe with that, you could also give us the update for the line for BAs. I suppose that's related, if I'm not mistaken, maybe?

Jeffrey S. Niew -- President and Chief Executive Officer

Well, I'll let John kind of talk about the $10 million in a second, but let me talk just briefly about the BA line. I would say that generally speaking, we have a nice funnel of opportunity still. But I do have to say we're still seeing additional COVID-related delays. I think we're coming from a perspective here in the U.S. where that -- I don't know what the exact numbers are, but 20% to 25% of the population has been vaccinated, hopefully heading to 50%. In the locations we're installing these equipment, COVID is still causing somewhat of problems for us on an ongoing basis.

And so I think we had said we hoped that it would be installed in Q2. I think we're pushing that into Q3 now based on still COVID-related delays. And I think it's a tough situation, no doubt on this, but on the reverse side is we're going to get there. The machine's there. It's powered up. It's actually running some stuff, but there have been other COVID-related issues we've run into in the factory that have slowed down the installation.

John S. Anderson -- Chief Financial Officer & Interim Principal Accounting Officer

Harsh, with respect to the $10 million capex estimate for Q2, I mean, there is a small portion of that, that relates to the automated BA line, but the majority of it relates to our MEMS microphone business and really new products and an 8-inch conversion.

Operator

And your next question comes from Bob Labick from CJS Securities.

Bob Labick -- CJS Securities -- Analyst

Good afternoon. Congratulations as well. I wanted to ask, a year plus into the pandemic and getting closer to kind of new normal, and you've talked a fair bit -- so I wanted to kind of tie it into the nonmobile market that you're selling into. How have the sizes of the various end markets for MEMS mics changed post pandemic, if at all? And what's the next growth area for MEMS mics for you?

Jeffrey S. Niew -- President and Chief Executive Officer

That's an interesting question. I mean, I think -- I got to be honest, I still think we see a fair amount of opportunity in the markets that we've seen, as you know, is ear, IoT and, increasingly, notebook and tablet are great opportunities for us. So I think those still have to play out. A little color on those. I think on ear, I think we've kind of talked about this over the last maybe 2, three quarters, the fact that, increasingly, that there'll be more a larger group of customers that will be doing business with us on the year. And I think that's going to be a growth opportunity this year in the back half, front half and into next year. IoT, I think we've had two things going on in IoT.

One is upgrade the higher performance mics, which has been helpful to our revenue in terms of higher ASP. But I think the other thing that we're starting to see is this idea of the long tail that -- while it's not a huge number today, we could see the start to be growing. Of course, we like this because this long tail has got very nice gross margins as well. And so this is more like kind of selling the solution, helping people enable voice in this long tail. And then lastly, in the notebook market, I think -- tablet market, I think, again, we talked about this over the last few quarters, but just to reiterate, work from home, home schooling, a lot of this stuff is not going away for a lot of people.

And if I go back 3, four years ago, that microphones on laptops and tablets were not used a lot. Now they're being used on a daily basis. I don't -- we don't see this going away. In fact, we see this, hopefully, accelerating into higher performance mics and more microphones per device as we go into future years. So I think it's pretty good. I think another market, hard to say where this goes. I think we're getting a little bit more focus on automotive. I don't know where this goes yet, but I mean it seems to be these things continue to prop up, these new applications, that always require microphones.

Bob Labick -- CJS Securities -- Analyst

Got it. Got it. That's great. And then switching gears a little bit. Congratulations on the net cash position that you're in now. And I appreciate that you're going to settle the converts with cash. So kind of two questions there. Can you talk about what's the right capital structure for the long-term for you? And then also, are you looking at any M&A? And if so, what's the market like out there right now?

Jeffrey S. Niew -- President and Chief Executive Officer

Yes. So I would definitely say that -- and I think this is something we've talked about in the past, that we're still -- we are looking at some bolt-on M&A opportunities within PD. I think that is an area of focus of ours. We had done, I think, four deals between '17 and the beginning of '20, that were all accretive very quickly after the deal was done. I think that's kind of what we're looking for, is acquisitions that are pretty immediately accretive. And I think we have a -- we've put this obviously on pause with everything that happened during the pandemic last year, but we're definitely moving that process forward and looking for things in that space. As far as the capital structure, I'll let John comment a little bit about that.

John S. Anderson -- Chief Financial Officer & Interim Principal Accounting Officer

Yes, Bob, I would say our intent is definitely to maintain investment-grade like credit metrics. So think of maximum leverage of two seven five if we -- again, if we saw some acquisition out there, but we're going to be fairly disciplined with respect to anything we do there and maintaining debt at that level or below.

Operator

Our next question comes from Suji Desilva from ROTH Capital.

Suji Desilva -- ROTH Capital -- Analyst

So you spoke about the gross margin drivers and mix opportunity. Can you be more specific as what some of the elements there are in the gross margin expansion opportunity specifically?

Jeffrey S. Niew -- President and Chief Executive Officer

I'll let John start this, and then I'll put some color on it at the end.

John S. Anderson -- Chief Financial Officer & Interim Principal Accounting Officer

Yes, sure, Suji, I mean, we're very pleased with the overall trajectory in our gross margins, which were 39% in Q1. We guided to 40%, the midpoint for Q2. And really, the drivers there are kind of what Jeff talked about, is growth, higher proportion of revenues and business coming from nonmobile applications in MEMS mics. And then we're running at -- consistently running at 90% plus in terms of capacity utilization across most of our businesses. We expect that to continue through 2021. Those are the big drivers. And then also in the back half, we have some new products coming on that typically carry above-average gross margins. Those are the three biggest drivers. So it's that mix, new products and capacity utilization.

Jeffrey S. Niew -- President and Chief Executive Officer

Yes. And to speak other comment about this is that if you think about where we've been, where we've come to and where we're going, mobile is a very important market to us. We're not going to say it's not an important market. But the reality is as mobile as an end market is just not growing at the rate it was, say, 5, six years ago in terms of the number of units that are available. Some of these other markets, we've talked about ear, IOT, the tablet market, the defense market, PD, EV, there's still the BA opportunity out there, they're growing much faster. And so to the extent that this becomes a larger portion of our business, that's -- the mix kind of helps us drive gross margin.

Suji Desilva -- ROTH Capital -- Analyst

Okay. And maybe related to that somewhat, a follow-up question. On the AISonic Bluetooth solution, I'm just trying to understand if this is sort of an approach or something that you've had for years with different product solutions? And if so, what's the revenue end market penetration impact of something like that? And are there more solutions like AISonic coming down the pipeline? Hello?

Operator

This is the conference operator. I apologize but there will be a slight delay in today's conference. Please hold and the conference will resume shortly. [Technical Issues]

Jeffrey S. Niew -- President and Chief Executive Officer

We're back.

Suji Desilva -- ROTH Capital -- Analyst

Mike, it's Suji, can you hear me?

Jeffrey S. Niew -- President and Chief Executive Officer

Yes.

Suji Desilva -- ROTH Capital -- Analyst

Okay. So let me repeat my follow-up question then. So on the follow-on to the gross margin question. The AISonic Bluetooth solution that you announced, I'm curious if that's sort of a new type of product or something you guys have always been doing? And what's the revenue model impact or end market penetration impact, content impact, something like that is? And are there additional sort of reference design or solutions like this coming, similar to AISonic in the future?

Jeffrey S. Niew -- President and Chief Executive Officer

Yes. So what I'd say is this is really targeted, Suji, at the long tail of customers. And we've got a number of these reference designs now in the works. There's four or five of them. What we're trying to do is design like one solution that can go to many end customers as opposed to a custom solution for each customer we deal with. It's a little early to say what this means yet because it is long tail. And I think we'll be talking about this more in the quarters to come. But I think what really -- the takeaway I would sit there and say for everyone is this is: is that it's -- first, for sure, we have this line of DSPs, which we'd like to sell a long tail and give them a solution. But we're also open to working with third-party DSP to provide solutions as well, to drive more microphone sales.

And I think, again, we're starting to see this in a number of different locations. And it's a little early to say how big this could be, but there's the IoT market, for sure, in a long tail, and increasingly, as we've kind of talked about the ear market for true wireless, there's a long tail there as well. And I'm trying to give you just one other kind of piece of something that we're working on right now, which we'd probably talk more about in the quarters to come, is what we've actually now started to build an entire headset reference design. And it's very interesting that we could go to customers and say, here is the full design, microphones, BAs, all the software, usually algorithms with third parties, in order to provide a total solution on true wireless to smaller companies who really don't have the ability to put something like this together.

Operator

And your next question comes from Anthony Stoss with Craig-Hallum.

Anthony Stoss -- Craig-Hallum -- Analyst

Jeff, I wanted to follow-up on your comments relating to a moderating mobile phone business. Can you comment on where you think content is right now? Is content number of mics per phone peaked? Is it flat? Is it going to be down, do you think, year-over-year per device? And then also on the ear side of the business, kind of ex BA as you're waiting to get the automated lines up, what does content look like within the year just related to mics?

Jeffrey S. Niew -- President and Chief Executive Officer

Yes. So let me take your question first. I just would sit there and say the general trend right now is to move toward more microphones. I would sit there and say that there's a number of different applications that are driving that. But we're starting to see a larger and larger portion of what people are doing. I'm thinking about three microphones per year, versus a couple of years ago, it was one to two per year. So I think the content story on ear is pretty strong over the next year or 2. Coupled with, again, obviously, the ear has been dominated by a small group of customers. We're starting to see that diversify more into more customers. And I kind of attune to some of the other markets that have been developed or pioneered by certain customers and then it usually kind of fans out into new customers.

So the ear opportunity, I still think for the next couple of years still looks pretty good for us. I think it's pretty positive, both from content and still some growth in the market. As far as the mobile side, I would sit there and say the number of mics per is probably, I would say, moderated in terms of increases. We are seeing some increase, obviously, with mix as more 5G phones are being sold. I think the next big leg up still that's out there is the move from analog to digital in terms of the mobile market. I would say it's a relatively small percentage of the market has moved toward digital microphone. But I think over time, if you look at the other markets, whether it be the tablet market, the IoT market, the ear market, all these markets are eventually moving toward digital microphones. And I think mobile will come along with that as well.

Anthony Stoss -- Craig-Hallum -- Analyst

And as a follow-up, your comments about record bookings from PD in the quarter, I presume that's through the remainder of this year. And is there any way of gauging whether or not you think some of this is tied up to component shortages, double ordering? Or do you think you've got visibility on designs?

Jeffrey S. Niew -- President and Chief Executive Officer

I think we've got pretty good visibility in designs. And so here, what I would say is it's pretty broad-based. And I would say that the areas that really improved the most significantly since last year in terms of bookings and in this year, are med, which is a lot of the implantable devices. So MRI and implantables, there's also some new applications in implantables that we're designed into. So I don't really see that as some type of double ordering. Then there's the defense market, which they had a lot of supply chain issues through the back half of this year into the first quarter. I do not see that as double ordering. It's either mostly our custom products that are very specific for them.

They're not like off-the-shelf products. And so I don't see that there. The area that we would tend to see, if we were to see double ordering, would be typically in the distribution business, would probably be something that would be more double ordering at PD. And that's -- as I see that business, that portion of the business, it is up but over the first half, but not a lot. It's not where the growth is coming from, it's the distributor business. So we're not really seeing that there's -- we don't think there's a lot of double ordering. The one thing about PD is that their pretty -- they have pretty long lead times based on some of the products. And so we have pretty reasonably degree a high degree of confidence on the revenue numbers at least within the quarter, where we're usually very fully booked into what we're going to shift within the quarter going into it.

John S. Anderson -- Chief Financial Officer & Interim Principal Accounting Officer

And Tony, if you heard in my script, I mean, we're projecting at the midpoint, 20% sequential growth in the PD business from Q1 to Q2.

Anthony Stoss -- Craig-Hallum -- Analyst

Got it. Thanks for the details nice quarter guys.

Operator

[Operator Instructions] Our next question comes from Chris Rowland with CIG.

Jeffrey S. Niew -- President and Chief Executive Officer

Chris?

Chris Rowland -- CIG -- Analyst

Sorry about that. The dreaded mute button. If you guys could actually talk about the supply situation for you guys right now. Are there any constraints there? Have you guys seen your lead times go up? And then just maybe talk about that ratio of bookings, what's sort of coming in right now to billings and what you can fulfill.

Jeffrey S. Niew -- President and Chief Executive Officer

Yes. So let's first -- I don't think we have any constraints that I'm aware of today that would impact PD, our hearing health business. I think we're pretty OK there. I would say in the MEMS microphone business, as I said last quarter, the lead times for wafers have gone out. And that -- if you think about within MEMS microphone, there's the MEMS die and then there's the ASIC that goes along with it. The MEMS die, we don't have any constraints on it all. I think we've talked about this, but we have a very solid relationship with our supplier there.

We have dedicated capacity to some of the stuff that's going on there. We have had, I'd say, longer lead times on the ASIC that goes in. This has not, so far, been any type of issue that has held us back from shipping. Now what I will say is we have had some price increases on wafers passed on to us in order to meet the demand. But so far, we've been able to pass those price increases on into the marketplace. And so I think right now, I think what our expectations are for the quarter in the back half of the year for us, I think we're pretty well aligned. If there was another big rise in demand in MEMS mics, I think we'd have to obviously look at this again. But right now, I think we're in reasonably good shape relative to supply matching up with demand.

Chris Rowland -- CIG -- Analyst

And just as a follow-up, you had mentioned pricing in pushing along some price increases there. Previously, you've talked about kind of high single-digit on the microphone side going to mid. Is there any chance that we could get to low single-digit ASP declines or even flat for the audio side of your business, just considering how tight things are kind of across the industry? Does that give you some extra pricing power?

Jeffrey S. Niew -- President and Chief Executive Officer

Yes. And so interesting question, and I think it's worth mentioning. I think if you go back, let's just forget about 2020. 2020 was kind of this pandemic year with a lot of crazy stuff going on. But in '19, we had talked about slightly less than 4% price erosion on mature products. I think we're seeing now for 2020, it's going to be less 2020 -- 2021, sorry. It's going to be less than 4% for sure. And so I think you're absolutely right. I would also say that one other piece that -- obviously, it will be dependent on the back half of the year. But that ASPs overall, this is not including mature products, I believe you are going to be roughly flat with last year.

So I think this is all being to the point that you're right, we're kind of in a market here where demand is tied. And I think I talked about this in the last call, the intent is not to add capacity at this point in the MEMS microphone business. So we're highly focused on, what I would say, the high-value portions of the market and the new products that are coming out that are associated with it. And so we feel pretty good about where ASPs are relative to where they were, say, '16, '17. '19 was a pretty good year for us, and we think there's the opportunity to invest that in 2021.

Chris Rowland -- CIG -- Analyst

Thanks Jeff.

Operator

Okay. And there are no further questions. I'll now turn the conference back over to you for closing remarks.

Jeffrey S. Niew -- President and Chief Executive Officer

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

Operator

[Operator Closing Remarks]

Duration: 38 minutes

Call participants:

Michael J. Knapp -- Vice President of Investors Relation

Jeffrey S. Niew -- President and Chief Executive Officer

John S. Anderson -- Chief Financial Officer & Interim Principal Accounting Officer

Harsh Kumar -- Piper Sandler -- Analyst

Bob Labick -- CJS Securities -- Analyst

Suji Desilva -- ROTH Capital -- Analyst

Anthony Stoss -- Craig-Hallum -- Analyst

Chris Rowland -- CIG -- Analyst

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