Knowles Corporation

Hello, everyone. Thank you for joining us and welcome to the Q2 Knowles Corporation Earnings Conference Call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference over to Sarah Cook, Vice President of Investor Relations. Sarah, please go ahead.

Thank you and welcome to our second quarter 2026 earnings call. I'm Sarah Cook, Vice President of Investor Relations, and presenting with me today are Jeffrey Niew, our President and CEO, and Jon Anderson, our Senior Vice President and CFO. Our call today will include remarks about future expectations, plans, and prospects for NOLS, 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, 2025, 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 NOLS claims any duty to update such statements except as required by law. In addition, pursuant to Reg G, any non-GAAP financial measure referenced during today's conference call can be found in our press release posted on our website at NOLS.com. and in our current report on Form 8-K 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 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. Before getting into the specifics of the Q2 results and the commentary on what we are seeing in our end markets, let me say I'm very pleased with our performance. We had another quarter of strong broad-based organic growth as we continued to build on the momentum we saw in the first quarter. In our core products and markets, we continue to execute on the strategy detailed last year at our investor day, providing high value products to markets with strong secular growth trends. Additionally, we are beginning to see positive momentum in some of our new growth platforms and markets that bodes well to drive additional growth in 2027 and beyond. Now onto our results. In the second quarter, we delivered revenue of $167 million, up 14% year over year, exceeding the high end of our guided range. EPS of $0.33 was up 38% year-over-year above the high end of our guided range, and cash generated in operations was $28 million above the midpoint of the guided range. In Q2, MedTech and specialty audio revenue was $69 million. We continue to believe the hearing health market will grow at historical rates in 2026. Beyond 2026, we are well positioned to win next generation designs for MEMS microphones and balanced armature speakers. I remain confident in our prospects to increase our content per device in next generation hearing health products as Mills continues to demonstrate our ability to deliver unique solutions with superior technology and reliability our customers have come to depend on. This coupled with our microsolutions group's ability to expand our reach as a new platform, we expect an increase in growth of the historical rates for this segment in the future. In the precision device segment, Q2 revenue was $98 million, up 25% year-over-year with all end markets we serve, MedTech, defense, industrial, and electrification growing on a year-over-year basis. MedTech growth was supported by strong sales across a number of applications including defibrillators and MRI machines. In the defense market, our RF microwave product continues to support strong growth across many communications applications. We are seeing more defense customers coming to us wanting to place multi-year orders to secure capacity. As an example, early in July, we received a $15 million plus order for a radar application that is expected to ship over 36 months starting in 2027. We intend to continue to call these large multi-year orders as we receive them. In the industrial market, sales grew significantly again this quarter. Demand was broad-based at both our distribution partners and OEMs as our capacitor products support a multitude of applications and industries. We continue to see robust design wins in the industrial space. As an example, this quarter we saw strong sales with a new product introduction in the HVAC repair space. and lastly I'm happy to report we delivered more than five million dollars against our previously announced energy order and are fully ramped as we expected heading into Q3 with yields better than planned. Overall book to build in precision devices was 1.4. This marked the seventh consecutive quarter with a book to build greater than one. Order strength was across all our end markets both at the OEMs and with our distribution partners. It is worth emphasizing the strength of bookings in our core products as the book to build was 1.4, even with extremely strong shipments in Q2, including over $5 million of shipments on the energy order. Orders in the PD segment were nearly $140 million in Q2, well above Q1 bookings and providing you with confidence in continued growth in the future. I continue to be excited by the strength of our business and the momentum we built in the first half of the year. We are well positioned for continued strong organic revenue growth and margin expansion. As I've said on previous calls, I believe Knowles has entered a period of accelerated organic growth. With a very healthy backlog of existing orders, strong secular trends in the markets we serve, and an accelerating book to bill, we now expect our revenue growth in 2026 to be between 10 and 12%, well above the high end of our organic revenue growth target of 4 to 6% that we provided at our investor day in May of last year. Before I turn the call over to Jon to cover our financial results and provide our Q3 guidance, I would like to take a moment to reflect on where we have been, where we are now, and where we are heading. As it has been a little over a year since we did our investor day, let me provide an update on the changes we are seeing in our end markets and how it is supporting our accelerated revenue growth. Let me start with the MedTech market. Both precision devices and medtech and specialty audio segments participate in this market. The secular growth trends we communicated a year ago at Investor Day remain intact. Life expectancy rates are increasing and the aging population grows. Correlating healthcare expenditures are increasing as well. Our products supply the healthcare industry with capacitors for medical imaging, advanced life-saving therapies, and cardiovascular devices to name a few. Our hearing health business provides an array of solutions that help our customers enhance quality of life for those with hearing loss. On a blended global basis, for the specific portions of the market we serve, we are outpacing the general MedTech market growth rate communicated last year at Investor Day as we focus on design wins for next-generation medical solutions. Growth in this market comes from multiple sources. The hearing health market continues to consistently deliver 2-4% growth annually. In precision devices, our capacitors provide the energy delivery needed to ensure devices used in cancer treatments, imaging, and precision lasers perform reliably and with high performance. There are significant advances in medical technologies, and our products support these advances, evidenced by design wins and growth in the medtech space. The defense market is definitely growing at a more rapid rate than we anticipated in May of 2025 with global conflicts on the rise and increased defense spending, specifically on electronic warfare. Our RF filters and capacitors serve the defense market. Our microwave technologies serve a broad base of communication applications from radar, detection, and jamming to ground and sea communications. And we are being used in next generation of products ensuring reliable and secure military communication. We see strong order intake in our RF microwave products as we continue to be a sole source supplier on a number of key defense programs. Our capacitors provide the electrical energy source needed for extremely harsh applications like munitions and detonation devices. Additionally, we expect increasing demand in the future driven by replenishment of stocks in connection with the Iran conflict All this adds up to an expectation of continued strong organic growth with the possibility of an acceleration of growth in the midterm. Like MedTech and Defense, the industrial market is growing at a faster pace than we believed it would when we hosted our Investor Day last year. Knoll serves a very broad set of customers across the industrial markets both directly as well as through our distribution partners like TTI and Arrow Electronics. are capacitors you use in a wide array of solutions from factory robotics, HVAC equipment, precision lasers, and semiconductor equipment. As manufacturers are challenged to find solutions for manufacturing automation and product optimization, our capacitors provide an essential energy source that advances the performance of their solutions. Our strategy of leveraging our unique technologies to design custom engineered solutions and then deliver them at scale for blue chip customers Thanks, Jeff. We reported second quarter revenues of $167 million, up 14% from the year-ago period and well above the high end of our guidance range.