KNOWLES CORPORATION 2026 Q3 Earnings Call

Sarah, please go ahead. Thank you, and welcome to our third 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 John Anderson, our Senior Vice President and CFO. 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 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 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 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 conference 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. 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 on 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, and thanks to all of you for joining us today.

To start out, I would like to take a moment to thank the Knowles team for delivering an outstanding third quarter. We had strong performance across our business, as demonstrated by our key financial metrics. Revenue was $184 million, up 20% year-over-year, and above the high end of our guided range. EPS was $0.38, and cash generated from operations was $45 million, both at the high end of our guided range. These results reflect the strength of our execution and the positive momentum across our business. I believe our results continue to demonstrate that our focus on markets and products where we have significant competitive advantages, is paying dividends and positions us well for future growth. In Q3, med tech and specialty audio revenue was $67 million, up 4% year-over-year.

Hearing health OEM customers typically launch new products annually in Q4. This year, however, we believe our customers' new products, which are implementing AI features, drove demand slightly earlier than usual. While this change in seasonality accelerated sales to earlier in the year, we continue to expect the hearing health market to grow at historical rates in 2026. Precision devices delivered Q3 revenue of $117 million, up 33% year-over-year, with strong demand across every major product line and end market we serve. Med tech, defense, industrial, and electrification. Our close collaboration with customers continues to drive a robust pipeline of design wins as customers continue to choose our innovative and differentiated solutions. I believe our year-over-year growth demonstrate the strength of our strategy and the momentum across the business. On a base of strong revenue growth, orders remained robust.

Precision devices had a book-to-bill of 1.5 in Q3, with broad-based order strength across our key end markets, both among OEMs and with our distribution partners. Q3 orders in PD segment were nearly $180 million, well above Q2 orders, reinforcing my confidence in continued growth. As noted on the Q2 earnings call, there was a $15 million order early in Q3 for RF filters for a defense customer that will be delivered over the next 36 months. I will now provide a little more color on the revenue and order strength across our PD end markets. In med tech, our pulse power film capacitors continue to win in defibrillator and radiotherapy applications, while our ceramic capacitors are securing strong design wins in next generation medical imaging and implantables. In defense, demand remains strong across all our product categories.

Our RF filters, film, and ceramic capacitors are in high demand in munitions and communications applications. We also serve a broad range of application in industrial markets. As an example, our ceramic capacitors and capacitor assemblies are growing in use for plasma generators and semiconductor equipment. With strong orders, a healthy backlog, and continued design wins, we are in the process of adding capacity across most of our precision devices product lines to support the demand. I expect this additional capacity to begin to come online in late Q1, with it being fully available in the second half of 2027. Our ability to continue to expand and meet increasing demand for our products is supported by our strong cash generation from operations. We have the ability to invest in growth while returning capital to shareholders and reducing debt.

In the third quarter, we repurchased $25 million in shares and reduced outstanding bank borrowings by $15 million, in addition to funding organic growth initiatives. Our strong balance sheet positions us well to support organic growth through disciplined capital investment and still pursue strategic accretive acquisitions. Before turning the call over to John to cover our financial results and provide our Q4 guidance, I would like to share my initial perspectives on 2027. Our strategy of combining unique technologies to create custom-engineered solutions and then quickly ramping them at scale with a world-class operational capability is driving revenue growth in our core products and markets, margin expansion, and strong cash flow. In 2027, as we add capacity, new design wins ramp, and we fulfill our healthy backlog within our PD segment, and our MSA segment continues to perform at historical growth levels.

We expect organic growth to continue to exceed the revenue targets presented at our May 2025 Investor Day. I also believe we'll be entering the next phase of revenue growth beyond our core, where we expect to have meaningful expansion of our SAM through the growth initiatives we outlined at our Investor Day. By following the same playbook we used in our core of investing in innovative technologies, using these technologies to develop customized solutions to solve our customers' problems, and then scaling into high-volume production, we expect three fundamental paths to supplementing our core growth. First, we are developing new products, such as attenuators and inductors for our existing markets. This is a great opportunity to provide a wider array of solutions to the markets and customers we already serve.

Second, we are utilizing existing technologies and capabilities for new customers and markets, as we are doing with our Micro Solutions Group and with pulse power capacitors. The breadth of opportunities we are pursuing that leverage our core competencies continues to expand with limited expansion of OpEx to support this new business. Lastly, we are seeing the opportunity to meaningfully grow content with existing products and technologies at current customers, as we have discussed in hearing health and with integrated capacitor solutions. All these initiatives are expected to meaningfully expand our SAM while complementing our strong core, and I look forward to providing a more detailed outlook and updates on these initiatives and others in 2027. Now, let me turn the call over to John for our financial results and our Q4 guidance.

Thanks, Jeff. We reported third-quarter revenues of $184 million, up 20% from the year-ago period and above the high end of our guidance range. EPS was $0.38 in the quarter, up $0.05 or 15% from the year-ago period, and at the high end of our guidance range. Cash provided by operating activities was $45 million, also at the high end of our guidance range. In the med tech and specialty audio segment, Q3 revenue was $67 million, up 4% compared with the year-ago period. Gross margins were 51.9%. The precision devices segment delivered third-quarter revenues of $117 million, up 33% from the year-ago period. Increased demand from both OEM customers and our distribution channel partners resulted in strong growth in the four major markets we serve: med tech, defense, industrial, and electrification.