Knowles Corporation

non-GAAP financial measures referenced during today's conference call can be found in our press release posted on our website at knolls.com and in our current report in Form 8K filed today with the SEC. This will include a reconciliation to the most directly comparable GAAP measure. All financial references on this call will be on a non-GAAP continuing operations basis with the exception of cash from operations or unless otherwise indicated. 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 details on our results. Jeff?

Thanks, Sarah. Thanks to all of you for joining us today. 2025 was a breakthrough year for Knowles, marked by the completion of our portfolio transformation at the end of 2024 and the beginning of our journey as an industrial technology company. Our organic growth in 2025 exceeded our investor day expectations and demonstrates our strategy of leveraging our unique technologies to design custom engineered solutions and then deliver them at scale for blue chip customers and high growth markets that value our solutions. Before I discuss this a little more in detail, let me cover our Q4 2025 results. Before was another quarter of strong financial performance Revenue was $162 million, up 14% year-over-year, exceeding the high end of our guided range. EPS was $0.36, up 33% year-over-year and above the midpoint of our guided range. Cash from operations was $47 million, also exceeding the high end of our guided range. On a full year basis, revenue of $593 million, up 7% year-over-year, and EPS was $1.11, up 21% compared to 2024. As I said last quarter, I believe our results continue to demonstrate that our focus on markets and products will be of significant competitive advantages, resulting in increased organic growth and positions as well for future growth. Now I'm turning to our segment results. In Q4, MedTech and specialty audio revenue was $73 million, up 4% year-over-year. Full-year revenue was $264 million, up 4% from 2024, and at the high end of the organic growth target of 2% to 4%, we presented at our investor day in May last year. In hearing health, Knowles is known for its superior technology and reliability. Our customers depend on our ability to deliver unique solutions to improve comfort of fit and performance with extremely low power. Our unique technologies, coupled with strong intimacy with our customers' applications, is allowing us to win next-generation designs for MEMS microphones as well as balanced amateur speakers. We also see the opportunity to increase our content for device in next-generation hearing health products. Beyond the hearing health market, we remain optimistic about the future growth opportunities within our micro-solutions group that we detail at our investor day. In the precision device segment, Q4 revenue was $90 million, up 23% year over year. As channel inventory levels are now normalized and orders are matching end market demand, we saw strength across all our key end markets, leading to an acceleration of revenue in the second half of the year. Full year revenue grew 10% year over year, exceeding the high end of the organic growth target of 68% we presented at our investor day in May last year. Within precision devices, as I stated earlier, we saw growth in all our end markets, medtech, defense, industrial, EV, and energy, with revenue growing year over year. Let me provide a little color by end market. In the medtech market, we have new design winds ramping and repeat orders in production spanning across multiple product lines, such as high-performance ceramic capacitors and pulse power film capacitors. The number of medical devices being used to extend life expectancy and to ensure sustained quality of life is on the rise. Our custom high reliability capacitors can be found in a multitude of implantable devices, medical imaging, and life-extending treatments. Our defense business continues to be strong. As a sole source supplier on a number of key programs, order volumes continue to grow. As I mentioned on our last earnings call, our capacitors and RF microwave solutions serve a wide variety of military applications, spanning from radar to communications to munitions. Defense spending is increasing and shifting toward electronic warfare, where our products are in high demand. In the industrial markets, we have seen inventory levels normalize at our distribution partners. our high-performance ceramic film electrolytic capacitors serve a diverse set of applications from robotics to welding and induction heating in the industrial sector. The energy market continues to be an exciting opportunity for growth in 2026 and beyond with our new specialty film line expected to start producing and delivering high-volume pulse power capacitors late in the second quarter of this year. On a more quantitative basis to summarize, Even with extremely strong shipments in Q4, we saw another quarter of healthy bookings with a book to build greater than one in our precision devices segment. Our continued collaboration with our customers have led to robust pipeline of new design wins as our customers continue to choose our innovative and differentiated solutions. This coupled with strong secular growth trends in the markets we serve gives me confidence in our ability to continue to grow revenue throughout 2026 and beyond. Across the company, we are leveraging our unique technologies, creating custom products through our customer application intimacy, and then scaling into production with our world-class operational capabilities for end markets with strong secular growth trends. Our 2025 results demonstrate this is a winning combination, leading to revenue and EPS growth on a year-over-year basis. I would like to reiterate what I have previously said. I'm excited about the momentum and strength of our business, We have entered 2026 positioned well for continued strong organic revenue growth above historic levels. While the first quarter of the year is typically seasonally low, I expect to see strong year-over-year growth in the first quarter. New design winds are ramping. We have a very healthy backlog of existing orders, and we are seeing increased demand for our products. Our organic growth and increasing EBITDA continues to produce robust cash generation, resulting in a very strong balance sheet, which will allow us to pursue synergistic acquisitions and continue to buy back shares while keeping our debt at very manageable levels. To close, we are laser focused on what we do best, designing custom engineered products and delivering them at scale for customers and markets that value our solutions, positioning as well for growth in 2026 and beyond. Now, let me turn the call over to John to detail our financial results and provide our Q1 guidance.

Thanks, Jeff. We reported fourth quarter revenues of $162 million, up 14% from the year-ago period and above the high end of our guidance range. EPS was $0.36 in the quarter, up $0.09, or 33% from the year-ago period and above the midpoint of our guidance range. Cash generated by operating activities was $47 million, also above the high end of our guidance range, driven by both increased EBITDA and lower-than-expected networking capital. In the MedTech and specialty audio segment, Q4 revenue was $73 million, up 4%, compared with the year-ago period, driven by increased shipment volume. On a full-year basis, revenue increased by 4% over prior-year levels, due primarily to growth in specialty audio and an increase in shipment volume of stamped metal cans. Due port gross margins were 51.9%, up slightly from the year-ago period. As expected, segment gross margins for full year 2025 were above 50%. The precision devices segment delivered fourth quarter revenues of $90 million, up 23% from the year-ago period. On a full year basis, revenue increased by 10% over prior year levels, driven by strength across all our end markets and product lines. Revenue accelerated throughout the back half of the year as inventory levels normalized at our distribution partners. Segment gross margins were 40.1%, up 230 basis points from the fourth quarter of 2024 as higher end market demand and production volumes in ceramic capacitors and RF microwave product lines resulted in This was partially offset by higher scrap cost and production inefficiencies in connection with our specialty film line. For the full year, segment gross margins improved 140 basis points from 2024 levels, despite headwinds from our specialty film line. We experienced production volume increases in RF microwave products and ceramic capacitors, driving the gross margin improvement. I'm confident in our ability to continue to improve segment margins further in 26 as capacity utilization increases and efficiencies in connection with our specialty film line are realized. On a total company basis, R&D expense in the quarter was $9 million, flat with Q4 2024 levels. SG&A expenses were $27 million, up $2 million from prior year levels, driven primarily by higher incentive compensation costs. Interest expense was $2 million in the quarter, and down $2 million from the year-ago period as we continue to use cash generated by operations to reduce our debt levels. Now I'll turn to our balance sheet and cash flow. In the fourth quarter, we generated $47 million in cash from operating activities and capital spending was $15 million. During the fourth quarter, we repurchased 451,000 shares at a total cost of $10 million. We exited the quarter with cash of $54 million and $114 million of borrowings under our revolving credit facility. Lastly, our net leverage ratio based on trailing 12 months adjusted EBITDA was 0.4 times and we have liquidity of more than $340 million as measured by cash plus unused capacity under our revolving credit facility. Before turning to Q1 guidance, I want to briefly highlight our performance relative to our full year 2025 outlook and five-year targets that we provided at our May 2025 Analyst Day. Full-year revenue was $593 million and up 7% versus 2024, which was above the high end of our outlook of $560 to $590 million. Revenues exceeded the high end of our organic growth target of 4% to 6%. From a segment perspective, MedTech and specialty audio revenue grew by 4%, and precision device revenue grew by 10%, with full segments meeting or exceeding the organic revenue growth targets of 2% to 4% and 6% to 8% respectively. Adjusted EBITDA from continuing operations was $140 million, up 9% from 2024, driven by higher gross profit margins and increasing operating leverage, and within the outlook range we provided. Cash from operations was 114 million, or 19.2% of revenues, above the midpoint of our full year outlook. Moving to our Q1 guidance. For the first quarter of 2026, revenues are expected to be between 143 and 153 million, up 12% year-over-year at the midpoint. RD expenses are expected to be between 9 and 11 million. Selling and administrative expenses We're projecting adjusted even margin for the quarter to be within the range of 18 to 20%. Interest expense in Q1 is estimated at 2 million, and we expect an effective tax rate of 15 to 19%. We're projecting EPS to be within a range of 22 to 26 cents per share, up 6 cents or 33% year-over-year at the midpoint. This assumes weighted average shares outstanding during a quarter of 88 million on a fully diluted basis. We're projecting cash from operating activities to be within the range of negative 5 to 5 million. Capital spending is expected to be 10 million. We expect full year capital spending to be approximately 4 to 5% of revenues as we continue investments associated with capacity expansion related to the large energy order we received in 2025. In conclusion, we delivered strong year-over-year revenue, earnings, and cash flow growth in the fourth quarter and for full year 2025. As we exited the year, we have a robust backlog and increased order activity, which gives me confidence in our ability to continue to achieve revenue, earnings, and cash flow growth, which is expected to drive shareholder value throughout 26 and beyond. I'll now turn the call back over to the operator for the Q&A portion of our call. Operator?