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?

Thank you, sir. And everyone, if you would like to ask a question today, please press star 1 on your telephone keypad. Once again, that is star 1. If you have a question today, we'll take the first question from Christopher Rowland from Susquehanna.

Hi, guys. Thanks for the question. And yeah, I guess the large energy order and the thin film capacity products, I guess just first an update there. Have you guys seen a broadening in new customers for that product? And if you could remind us on your capacity addition plans, uh, and timing of, of, of revenue and, um, you know, any, any cam detail or something, uh, around that would be great as well. Yeah.

Yeah. Uh, so, you know, first on the interviewer, I mean, no different than we've kind of talked about, uh, you know, earlier, uh, last year, which, you know, we expect this, you know, to be in the neighborhood of 25 north of $25 million of revenue, uh, this year. and really getting going in the back half. We should have it fully ramped in Q2. And so that's a lot by the end of Q2. So I think you'll see more of that, a big portion of that 25 in the back half the year. Overall, for the specialty film line, I think we are seeing a definitely broadening of the customer base beyond some of the medical applications, You know, defib, radiotherapy, downhole fracking, military applications like rail guns. There's a definite broadening of the applications. And I think, you know, we had talked about this a few quarters ago, you know, that overall, including the energy order, you know, our expectations, you know, were in that, you know, I would say $50 to $65 million range for revenue off this product category in 2026. I think that still holds, that we're still in that range for this year. So I think what I kind of see here is that the specialty film line, including energy, really has a bright future as we look toward the future, Chris.

Excellent. Great. And then as we start thinking about the future, kind of what your next big hit might be, I guess first of all, do you have some prospects that you've identified organically or internally, some next kind of big hits? And or are you really looking outside? You know, you did mention acquisitions. If you could give us an update there, are you finding some high value targets here? And speaking of valuation, are they reasonable?

Yeah, I mean, obviously, it's very hard to comment specifically, but our pipeline continues to be good on the acquisition front. But to be honest with you, our organic opportunities over the next 24 to 36 months look pretty promising. And I'll just kind of go back to beyond the energy situation and the pulse power, especially film line, a couple other things that we talked about on the investor day to give a brief update. First, our microsolutions within MSA, that's where we are taking our existing technologies, our existing capacity, our existing R&D capability that we use for our hearing health and putting that into other medical applications. I would say I'm incrementally more positive about this than I was, say, two quarters ago. We got a lot of new medical applications where we're collecting NREs. at this moment that, you know, we should start ramping into higher volume production in 2027. I mean, it's not going to generate a ton of revenue this year, but, you know, remember these MedTech designs are typically three to five year design windows. And, you know, we're getting to the beginning of that, that three years in the 2027 year timeframe when we started this. So that's pretty positive. You know, defense spending, you know, I just sit there and I see you read it every day. We're well-positioned with defense spending with our RF and our capacitive products. I think that's more of a secular growth trend where we have some very differentiated products. And then lastly, I think we're doing some work in terms of ceramic caps, in terms of doing, I would say, in defense under munitions. We're doing some assembly work. There's a lot of good stuff going on here. Generally speaking, I think I've been pretty positive. We set our organic growth of 4% to 6%. Our first year out of the gate, we're at 7%. I think we're pretty excited about how we think about our organic growth opportunities over the next 24 to 36 months.

Thank you so much, guys. Congrats.

The next question today comes from Anthony Stoss, Craig Hallam.

Hey, Jeff, John, and Sarah. First off, John, maybe I missed it. Gross margin guide for March, I think in the past you were thinking about 42%. Maybe just confirm that. And I'm just curious what you think the June quarter gross margin might look like if the ramp is going to occur until late Q2. Does that spill into the June quarter gross margins? Thanks.

Yeah, Tony, we kind of moved away as we transitioned to industrial tech company. We kind of moved away from gross margin. So the focus on our guide is obviously revenue, EPS, and cash flow. I would say if you give a little detail on gross margin, we're at, call it, full year 2025. We're at 45.5%. And MSA was, as I mentioned, above 50%. I think the MSA margins are going to kind of hold in that area. in 26, but there is potential for margin expansion, especially in the back half of 2026 as we get to higher production volumes or ramped up production volumes on that specialty film line. So I think there, again, there's an opportunity to increase above that 44.5% in 26 by, call it 50 to 75 basis points, but weighted toward the back half of the year.

Got it. Thanks for that. And Jeff, I'm curious if you could kind of highlight the fastest growing markets or what you expect for 2026. I got to believe it's military. And I'm curious if you have exposure on the satellite side as well. We do have some exposure to satellite, but just a comment.

You know, I think I mentioned on the prepared remarks, you know, that we had a very strong PD and a very strong bookings quarter. And even with that, to book the bill was 1.06, even with that very strong shipment quarter. And, you know, I think we're already through January. We had a very strong January bookings month as well. And so, and it's pretty broad-based. You know, we tried to cut this up a number of different ways, you know, in terms of our key markets of being defense, med, industrial, and then we put EV and energy together. All of them are looking pretty strong right now. The bookings have been strong and supporting that. And so I think from our perspective, it's very broad based. And if I look, you know, OEM versus distribution, same thing. Both our OEM business and distribution business is doing very well. And so I think to pick one out and sit there and go, this one is doing the best. I mean, defense is doing well, but so is MedTech. Our MedTech business is doing well. You know the energy story. And I think the one that we're seeing more and more momentum in is energy. Sorry, industrial. We're seeing more momentum in industrial than we did six months ago. So I think that seems to be a pretty big positive change since the last six months.

Perfect. Congrats. Nice execution. Thank you. Thanks, Tony.

The next question comes from Robert Labic from CJS Securities.

Hey, this is Willen for Bob. I know you talked about the timeline of the energy orders, but can you talk more specifically about the production build-out? Has the new capacity been completed, tested? Where does it stand?

Yeah, so I mean, we have weekly calls with the team. This is obviously happening outside of Greenville, South Carolina. And so we have weekly calls. It's like every week there's something new. You know, a couple weeks ago we got the permits to start producing product in the facility. The equipment's being moved in. You know, we've got a team actually, you know, in Greenville from all over the world to help support this ramp-up. We're bringing in manufacturing engineering teams from across the globe to help with the ramp-up. So there's a lot going on. Plus, at the same time, we're still delivering, you know, low-volume units on this order and But the goal here is we're going to ramp this up like 10x in the next five months from where we are today. So I think we're on track. A lot to be done here, but we're on track in order to get to, by the end of Q2, the full volume production that we committed to. And again, I think it depends a lot on the auto orders and the rest of the specialty film business, exactly what we deliver on this energy order. But I think we're thinking in that $50 million to $65 million range from in the 20s this year, from 2025.

And Will, I will say, very modest amount in Q1. So it will help drive sequential growth from Q1 to Q2 as we ramp up.

Yeah, so I think that's a good point. I think, you know, obviously we're guiding to pretty decent organic growth year over year, but that's not really being driven by the energy order, obviously.

That's very helpful. Thank you. And can you remind us, can that capacity be used for other pulse power applications beyond the energy order if the demand arises? Yes.

Yeah, I mean, like, how we're setting this up, you know, quite frankly, is we're setting it up probably in the same facility but a little separated because the normal specialty line is much higher mix. This is essentially, you know, a low mix production, and we're working on a lot of things that will make the standard specialty line film line more productive over time, too, like automation. You know, we're doing a lot of things that will help longer term with the standard specialty film line, but we're setting them up right next to each other as opposed to trying to build, you know, one high-volume customer against more, like I call, higher-mix customers.

That's all for me. Thank you.

As a reminder, everyone, please press star one if you have a question. We'll go next to Tristan Guerra from Baird.

Hi, this is Tyler Bomba on for Tristan. Thanks for taking the questions. You've touched on it briefly already, but could you give us a more detailed update on the supply-demand dynamics in industrial? Do you expect the second half to see industrial revenue rebounding if the first half is kind of back to supply and demand balance?

Yeah, so, you know, when I look at, like, our numbers, you know, and our forecast here, you know, I think we expect, you know, in the first half right now, we expect pretty strong industrial shipments in the first half off of, you know, what was pretty strong in the back half of 2025. And then I would sit there and say, right now, the back half of the year looks more, right now, looks more flattish to the back half of 2025 for industrial specifically. But overall, we expect growth for industrial for the full year. Obviously, if you go back, Tyler, to when we were talking earlier last year, the first half in industrial of 2025 was still relatively meagerly weak. We're seeing a fair amount of growth in the first half of 2026. And then I think, you know, it's a little early. Industry is a lot more turns business. The lead times are shorter. But right now, you know, I think what I see here is, you know, it's going to be flattish year over year in the back half.

That's very helpful. A quick follow-up. We're starting to hear about shortages of components across the industry. Is this impacting your demand? And are the supply constraints expected to positively impact price in the second half?

Well, I mean, we're always looking at price, Tyler. So I think, you know, I think you're absolutely right. I mean, there's a number of things here, dynamics that I think are going on. And we continue to see, I mean, like I said, you know, in the previous question, with the book to bill, you know, when we were having these strong book to bills in the front half of 25, it was off of weak shipments. So you could, you got to take that book to bill with a grain of salt. But when you look at, you know, the Q4 numbers in terms of the revenue being $90 million, and we still booked, you know, I had to book the bill at $1.06. And I said, you know, January is already in the books, and the bookings in January were already strong again. And so it's definitely a topic here about capacity, capacity utilization, pricing. It's all intermixed. And to be honest with you, I would sit there and say we are starting to see some concerns as we enter towards the back half of the year. that we've got to make sure we're prepared for all the orders we're receiving. So I think if this demand continues at this rate.

Great. That's all from me. Thanks. Great.

And everyone, at this time, there are no further questions. That does conclude our conference for today. We would like to thank you all for your participation. You may now disconnect.