Good day, everyone, and welcome to Knowles Corporation's Fourth Quarter and Full Year 2025 Earnings Conference Call. At this time, I would like to hand the conference over to Ms. Sarah Cook. Please go ahead, Sarah.

Thank you, and welcome to our fourth quarter and full year 2025 earnings call. I'm Sarah Cook, Vice President of Investor Relations, and with me today are Jeffrey Niew, our President and CEO, and John Anderson, our Senior Vice President and CFO. Our call today will include remarks about future expectations, plans, and prospects for Knowles Corporation, which constitute forward-looking statements for purposes of the safe harbor provisions under applicable federal security 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-Ks for the fiscal year ended 12/31/2024, 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 Corporation 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, please note in our press release posted on our website at knowles.com and in our current report in Form 8-Ks 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 that can be found in the Investor Relations section of our website. With that, let me turn the call over to Jeffrey Niew, who will provide details on our results. Jeff?

Thanks, Sarah, and thanks to all of you for joining us today. 2025 was a breakthrough year for Knowles Corporation, 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 in high-growth markets that value our solutions. Before I discuss this a little more in detail, let me cover our Q4 2025 results. Q4 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 was 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 where we have significant competitive advantages results in increased organic growth and positions us well for future growth. Now 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. In hearing health, Knowles Corporation 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 armature speakers. We also see the opportunity to increase our content for the device in next-generation hearing health products. Beyond the hearing health market, we remain optimistic about the future growth opportunities within our microsolutions group that we detailed 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. Total year revenue grew 10% year over year, exceeding the high end of the organic growth target of 6% to 8% we presented at our Investor Day in May. 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 wins 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 communications to munitions. Defense spending is increasing and shifting toward electronic warfare, and our products are in high demand. In the industrial markets, we have seen inventory levels normalize with 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 horsepower capacitors late in the second quarter of this year. On a more quantitative basis, to summarize, we saw another quarter of healthy bookings even with extremely strong shipments in Q4, with a book-to-bill greater than one in our Precision Devices segment. Our continued collaboration with our customers has led to a 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 had 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 wins 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 continue 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 levels 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 us well for growth in 2026 and beyond. Now let me turn the call over to John Anderson to detail our financial results and provide our Q1 guidance.

Thanks, Jeff. 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 net working capital. In the medtech, 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. Q4 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 2024 as higher end-market demand and production volumes in ceramic capacitors and RF microwave product lines resulted in increased factory capacity utilization. This was partially offset by higher scrap costs 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 2026 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, 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, the net leverage ratio based on trailing twelve 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, 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 both 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 2026, revenues are expected to be between $143 and $153 million, up 12% year over year at the midpoint. R&D expenses are expected to be between $9 million and $11 million. Selling and administrative expenses are expected to be within the range of $25 million to $27 million. We're projecting an adjusted EBIT 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 $0.22 to $0.26 per share, up $0.06 or 33% year over year at the midpoint. This assumes weighted average shares outstanding during the quarter of 88 million on a fully diluted basis. We're projecting cash from operating activities to be within the range of negative $5 million 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 2026 and beyond. I'll now turn the call back over to the operator for the Q&A portion of our call.

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

Hi, guys. Thanks for the question. And yeah, I guess the large energy order and the thin film capacity products, I guess, 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, and timing of revenue, and any TAM detail or something around that would be great as well. Thank you, Jeff.

Yeah. So, you know, first on the energy order, being no different than we've kind of talked about earlier last year, which we expect this to be in the neighborhood of $25 million, north of $25 million revenue this year. And really getting going in the back half. Well, we should have it fully ramped by the end of Q2. So, you know, I think you'll see more of that, a big portion of that $25 million in the back half of the year. Overall, for the specialty film line, you know, I think we are seeing a definite broadening of the customer base, you know, beyond some of the medical applications, you know, defib, radiotherapy, downhole, fracking, military applications like rail guns, a definite broadening of the applications. And I think, you know, we've talked about this a few quarters ago. That overall, including the energy order, our expectations were in that, I would say, $50 to $65 million range for revenue off this product category in 2026. You know, 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, you know, 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, like, specifically, but, you know, our pipeline continues to be good on the acquisition front. But to be honest with you, our organic opportunities, you know, over the next twenty-four to thirty-six months look pretty promising. And I'll just kind of go back to beyond the energy order, you know, situation and of the Pulse Power specialty film line, a couple of other things that, you know, that we talked about on the Investor Day to give a brief update. First, our microsolutions in within MSA. 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 gonna 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 time frame 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. You know, we're well-positioned with the 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, you know, in terms of, you know, doing, I would say, in defense under munitions, doing some assembly work. There's a lot of good stuff going on here. And so generally speaking, you know, I think I've been pretty positive. We said our organic growth of 4% to 6%, our first year out the gate, we're at 7%. I think we're pretty excited about, you know, how we think about our organic growth opportunities over the next twenty-four to thirty-six months.

Thank you so much, guys. Congrats.

Yep.

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

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%. You maybe just confirm that. And then just curious what you think the June gross margin might look like if the ramp is gonna occur until late Q2? Does that spill into the June gross margins? Thanks.

Yes, Tony, we really we kind of moved away as we transitioned to an industrial tech company. We kind of moved away from gross margin. So the guide, the focus on our guide is, obviously, revenue, EPS, and cash flow. I would say from if you give a little detail on gross margin, you know, 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 gonna 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's, again, an opportunity to increase above that 44.5% in '26 by, you 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 in 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 in satellite, but just a comment. You know, I think I mentioned in the prepared remarks that we had a very strong PD and a very strong bookings quarter. And even with that, the book-to-bill was 1.06. Even with that very strong shipment quarter, and, you know, I think we're already cut 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 your key markets of being defense, med, industrial, then we put EV and energy together. All of them are looking pretty strong right now. The bookings have been strong in supporting that. And so I think from our perspective, it's very broad-based, and 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, 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. Sorry. Industrial. We're seeing more momentum in industrial than we did six months ago. So I think that that seems to be a pretty big positive change since the last six months.

Perfect. Congrats. Nice execution.

Thank you. Thanks, John.

The next question comes from Robert Labick from CJS Securities.

Hey. This is Will on 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, you know, we get we have weekly calls with the team. This is obviously happening in, you know, outside of Greenville, South Carolina. And so we have weekly calls. It's like every week there's something new. A couple of 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 of Green in manufacturing engineering team 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. But, you know, the goal here, you know, is we're gonna ramp this up, like, 10x in the next five months from where we are today. So, you know, I think we're on track, you know, 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 about auto orders and the rest of the specialty film business. You know, exactly what we deliver on this energy order, but, you know, I think we're thinking in that, you know, $50 to $65 million range from, you know, in the twenties. This year. For 2025. And, Will, I would just 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 obviously, we're guiding to pretty decent organic growth year over year, but that's not 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?

Yeah. I mean, like, how we're setting this up, you know, quite frankly, is 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 of, like, I call higher mix customers.

That's all for me. Thank you.

As a reminder, everyone, please press 1 if you have a question. We'll go next to Tristan Gerra from Baird.

Hi. This is Tyler Bomba on for Tristan. Thanks for taking the questions. Touched on it briefly already, but could you give us a more detailed update on the supply-demand dynamics in industrial? 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, in our forecast here, you know, I think we expect 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 2025. And then I would sit there and say, right now, the back half of the year looks more like, now it looks more flattish to the back half of 2025. For industrial. For industrial specifically. But overall, we expect growth for industrial for the full year. So, you know, like, you know, obviously, if you go back to, Tyler, to when we were talking earlier last year, the 2025 was still relatively, you know, meagerly weak. We're seeing a fair amount of growth. In 2026. And then I think, you know, it's a little early. Industrial 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, we're gonna it's gonna be flattish year over year in the back half.

That's very helpful. A quick follow-up. 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 are a number of things here and dynamics that I think are going on. And we continue to see, I mean, like I said, in a previous question, with the book-to-bill, when we were having these strong book-to-bills in the front half of 2025, it was off of weak shipments. So you could you gotta 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, at a book-to-bill of 1.06. And I said, January's 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 got to make sure we're prepared for all the orders we're receiving. So, you know, I think, you know, if this demand keeps continuing at this rate, great.

That's all for me. Thanks.

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.