管理層發言
Hello, everyone. Thank you for joining us, and welcome to the Q2 Knowles Corporation Earnings Conference Call. 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 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 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 Knowles disclaims 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 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 measures. 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 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. 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 continue 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 on to 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 & Specialty Audio revenue was $69 million, slightly better than expected, up 2% year-over-year. 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 and next-generation hearing health products, as Knowles 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 Micro Solutions group's ability to expand our reach as a new platform, we expect increased growth at historical rates for this segment in the future. In the Precision Devices 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 products continue to support strong growth across many communications applications. We are seeing more defense customers coming to us, wanting to place multiyear 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 multiyear 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 $5 million against our previously announced energy order and are fully ramped, as we expected heading into Q3 with yields better than planned. Overall, book-to-bill in Precision Devices was 1.4. This marked the seventh consecutive quarter with a book-to-bill greater than 1. 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-bill 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 me 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 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 John 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 & Specialty Audio segments participate in this market. The secular growth trends we communicated a year ago at our Investor Day remain intact. Life expectancy rates are increasing and the aging population growth and correlating health care expenditures are increasing as well. Our products supply the health care industry with capacitors for medical imaging, advanced lifesaving therapies, and cardiovascular devices, to name a few. In our Hearing Health business — 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% to 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. For significant advances to medical technologies, 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 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 migrated 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 products, ensuring reliable and secure military communications. 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 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. Knowles 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. Our capacitors are used in a wide array of solutions from factory robotics, HVAC equipment, precision lasers, and semiconductor equipment. As manufacturers face the challenge 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 in high-growth markets that value our solutions is proving to be a powerful combination, driving revenue growth, expanding margins and strong cash flow to drive shareholder value. Now let me turn the call over to John to review our financial results and give our Q3 guidance.
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. EPS was $0.33 in the quarter, up $0.09 or 38% from the year-ago period and above the high end of our guidance range. Cash provided by operating activities was $28 million, near the high end of our guidance range. In the Medtech & Specialty Audio segment, Q2 revenue was $69 million, up 2% compared with the year ago period. Gross margins were 53.1%, up 250 basis points from the year ago period driven by factory productivity gains. The Precision Devices segment delivered second quarter revenue of $98 million, up 25% from the year-ago period. Increased demand from both OEM customers and our distribution channel partners resulted in year-over-year growth in medtech, defense, industrial, electrification end markets. Segment gross margins were 40.1%, up 140 basis points from the second quarter of 2025, largely driven by increased production volume and factory capacity utilization as we deliver on strong demand across all markets and products. While we delivered significant year-over-year gross margin improvement of more than 200 basis points in the first half of 2026, I remain confident in our ability to further improve Precision Devices gross margins in the second half of the year on higher pricing, favorable mix, and increased factory capacity utilization. On a total company basis, R&D expense in the quarter was $9 million, up slightly compared to Q2 2025 on higher project spending in both MSA and PD segments. SG&A expenses were $31 million, up $3 million from prior-year levels, driven primarily by higher sales commissions, annual merit increases, and increased expenses primarily to support new product initiatives. Interest expense for the quarter was $2 million, down $1 million from the second quarter of 2025 due to lower average debt balances. Now I'll turn to our balance sheet and cash flow. In the second quarter, we generated $28 million in cash from operating activities and capital spending was $7 million. During the second quarter, we repurchased 416,000 shares at a total cost of $15 million. We exited the quarter with cash of $50 million and $131 million of borrowings outstanding under our revolving credit facility. Lastly, our net leverage ratio based on trailing 12 months adjusted EBITDA, was 0.5x, and we have liquidity of more than $315 million, as measured by cash plus unused capacity under our revolver. Moving to our Q3 guidance. For the third quarter of 2026, revenues are expected to be between $167 million and $177 million, up 12.5% 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 $29 million to $31 million. We are projecting adjusted EBIT margin for the quarter to be within the range of 22% to 24%. Interest expense in Q3 is estimated $2 million, and we expect an effective tax rate of 15% to 19%. We are projecting EPS to be within the range of $0.34 to $0.38 per share, up $0.03 or 9% year-over-year at the midpoint. This assumes weighted average shares outstanding during the quarter of 87 million on a fully diluted basis. We're projecting cash from operating activities to be within the range of $35 million to $45 million. Capital spending is expected to be $10 million. We expect full-year capital spending to be approximately 5% of revenues as we make investments in capacity to support increased customer demand in the Precision Devices segment. Our strong growth and financial results in the first half of the year, combined with the robust backlog and increased order activity, give me confidence in our ability to deliver 2026 revenue growth of 10% to 12% with adjusted EBITDA growth of 20% to 24% over 2025 levels. With both metrics well above the high-end of the target ranges that we provided at our May 2025 Investor Day. I'll now turn the call back over to the operator for the Q&A portion of our call. Operator?
分析師問答
Your first question from the line of Christopher Rolland with Susquehanna. Please go ahead.
Congrats on the quarter. As I think about that 10% to 12% for the full year, obviously, great results here. But for the fourth quarter, it's maybe a little lower growth than I had previously modeled. I was wondering if you could talk about some of the moving parts there and how to think about it for December, and also any other color on September and the moving parts there would be great, too.
Based on where we are today, I would say we're going to see sequential growth from Q3 to Q4. The sequential growth will come from a number of different areas. Remember, we started off with a strong quarter in the MSA segment in the first quarter and a lot of the growth came in the first quarter when they were going to produce to get to the 2% to 4% range. So we have a little bit of a headwind in our MSA segment in Q4. But the PD segment will continue to grow at rates similar to what we said. I wouldn't read too much into a single quarter. The 10% to 12% is a number that we feel comfortable with, and it is sequentially up. Keep in mind the MSA segment is a little bit slower. For the full year, it's up in that 2% to 4% range. One other point about the MSA segment: it's probably a little early to call this, but there's been a fair amount of data that has come out about the hearing aid industry in the last day. I honestly have not been able to fully digest what this all means. We say 2% to 4%, and some of the things we've now seen in the MSA segment could be closer to the 4% range. So I think, again, we're comfortable with the 10% to 12%. The moving parts are PD continuing its growth rate and MSA being a little slower because of inventory building in the first half of the year, but no real problems there — 2% to 4% for the full year.
Perfect. And then as a follow-up, as we talk about the passives market more broadly, and I know you have very specific products, customers, and end markets, it seems like it's a rising tide environment for all passives. I was wondering if there was any spillover into market tightness in other areas? Is it driving anything for you? Additionally, on the pricing dynamic, are you able to take a little more price in the back half, considering how much tighter the whole industry and cycle is becoming?
On the Precision Devices side, demand is definitely stronger in the back half of the year than we would have projected at the beginning of the year. That's broad-based across industrial, medtech and more pronounced in defense. Industrial is also a bit stronger. Generally, pricing is stronger than it was last year, and we're probably going to realize more pricing this year. We are not a commodity product and we tend to raise prices on an annual basis in the PD segment. Many other passive suppliers sell more commoditized products whose prices go up and down with market demand. We don't really see our prices go down; they are relatively up every year. So the pricing environment is definitely more pronounced this year than in previous years. Also, we are often in a sole-source position, which helps with pricing.
Your next question from the line of Bob Labick with CJS Securities. Please go ahead.
So obviously, really strong growth in PD in the quarter. You mentioned about $5 million from the energy order, which is great to hear. That leaves the rest of PD at close to 20% growth, just under 20% by my math. Can you talk about what the big drivers were there? And talk about the cadence of both the energy order and then the remaining PD business for the balance of the year?
If you think about the energy order, we shipped more than $5 million. Take that off, and if you calculate the growth, it's still very strong. We didn't receive a new energy order in the quarter; the shipments are what drove that revenue, which is why in that segment the book-to-bill on that specific order looked like zero for bookings. We received almost $140 million in orders in the core PD business in Q2, up from a little over $100 million of orders in Q1. The bookings were very strong and broad-based. I wish I could point to one market or one application, but they were wide-ranging across market, product, OEM versus distribution. One thing we are mindful of is avoiding adding capacity for transient orders where customers are buying commoditized product because competitors' lead times are long. That is not the majority of our bookings. Most of the bookings are sustainable, long-term type orders. Bookings have been strong into July as well; I reviewed the first 20-some days of the month and bookings remain strong. It's across industrial, defense, medtech, and we know about the deliveries on the energy order. We have many design wins and the product portfolio is well positioned, so I feel very good about where we are. Everything is up across the board.
That's wonderful. And then as a follow-up, in the release you discussed next year potentially being above your organic targets and at Investor Day you talked about M&A over time being part of the model. Can you talk about the M&A environment? It feels like you have a lot ahead of you organically. Are you taking a back seat on M&A, or is there activity to look at? What's the market like for you right now?
We are not taking a back seat on M&A, but we are being very selective. We want deals that are additive and where 1 plus 1 equals 3. The Cornell deal from two years ago was a home run for us. We're looking for opportunities that complement our organic growth. We may host an Investor Day in the first half of next year to provide more detail on growth platforms such as energy, the Micro Solutions Group, inductors, and downhole applications. There's a lot to discuss that can drive future growth but may not drive a tremendous amount of growth this year beyond the energy order. We are actively looking; I have three full-time people internally focused on M&A and we are generating strong cash flow this year. If we find the right deal, we will move forward on it.
And Bob, absent M&A, we'll continue our capital allocation program of buying back shares, and we still have some debt to pay down. We're in a little over $100 million of debt at 5.25% interest. So we can still get some EPS benefit by using that cash to pay down debt.
Your final question from the line of Anthony Stoss with Craig-Hallum.
Jeff, John, Sarah — nice execution. Jeff, I wanted to focus on your commentary about being more bullish on military defense; it came in stronger and you said over the midterm it could accelerate. What kind of visibility do you have? Is it multiyear visibility? Also, can you give a rough split of RF filter revenues versus capacitors in defense? I would guess capacitors are larger, but any color on the military defense side would be helpful.
Actually, filters are a larger portion than capacitors in our defense business. We're seeing increasing demand and more customers asking to secure multiyear capacity. As John noted, the filter business is roughly $80 million, and about 90% of that is defense. The capacitor business in defense is another significant amount — roughly $40 million to $50 million. The filter business is growing rapidly and the vast majority of that growth is defense-related and often sole source. Customers are telling us they expect significant increases in volume over the next 24 to 36 months and want to secure capacity. For example, the $15 million-plus radar order we mentioned earlier won't start shipping until 2027 and will take 36 months to deliver. I see three factors that could drive accelerated growth in defense. First, proposed increases in defense budgets, including what the White House has proposed; even if only a portion of that happens, it would be meaningful for us. Much of this is electronic warfare and related systems; those increases might show up in late 2027 into 2028. Second, replenishment of stocks — volumes on some key programs could increase 2x to 4x current levels, which would play out over a one- to two-year timeframe as they ramp up. Third, the U.S. push for increased defense spending among allies could lead to more procurement from existing suppliers in the near term. We are seeing high design activity and strong orders now, with the possibility of further acceleration in about a year.
Wow, that's great to hear. And then my last question: John, you called out higher gross margins for PD in the second half of this year. Broadly, you must have some pricing power if you want to take it. Any thoughts on gross margins heading into next year?
The PD segment delivered gross margins of about 40.1% in Q2, up more than 100 basis points from Q2 2025, driven by improved factory capacity utilization as demand strengthened across markets and products. Going forward, we clearly see an opportunity to further improve PD gross margins in the second half of this year, driven by favorable pricing, better mix, and continued increased factory overhead absorption. While I'm not giving specific long-term guidance here, we should be in the low 40% range in the PD segment in the back half of the year.
One additional point on next year: there is opportunity to expand gross margins again in 2027. Some of this will come from productivity and absorption of overhead, and some from pricing. When we implement price increases, they sometimes apply to the next order and with long lead times, actions taken now may not hit the P&L until next year. We are looking at adding capacity in a number of areas in the PD segment for 2027. We will keep CapEx at approximately 5% of revenue, but on a higher revenue base, so absolute CapEx spend will be higher as we invest to meet customer demand given the strong bookings and book-to-bill.
The last thing I would wrap up with is that as we've pivoted to an industrial tech company, EBITDA is a very important metric, even more important to us than gross margin. We see a path where EBITDA margins will be in excess of 25% this year, and we see a path over the next two to three years to get EBITDA margins close to 30%. That improvement will come through gross margin expansion and operating leverage.
There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.