Knowles Corporation Q3 FY2025 earnings call

• Company achieved strong Q3 2025 results with revenue $153 million, up 7% y-o-y; EPS $0.33, up 22% y-o-y; cash from operations $29 million.
• Medtech & Specialty Audio saw 2% y-o-y revenue growth driven by specialty audio demand, with gross margins flat y-o-y but expected above 50% for full year 2025.
• Precision Devices had 12% y-o-y revenue growth across end markets, with defense market particularly strong due to design wins and bookings; expects to grow at high end of 6% to 8% in 2025.
• Company's strategy of leveraging unique technologies to design custom solutions and scale production is working, leading to year-to-date revenue growth 5% and EPS growth 15% y-o-y.

In Q3, Medtech & Specialty Audio revenue was $65 million, up 2% year-over-year. Precision Devices segment had Q3 revenue of $88 million, up 12% year-over-year. Medtech & Specialty Audio is expected to have revenue growth within 2% to 4% in 2025, while Precision Devices is expected to grow at the high end of 6% to 8% in 2025.

• Q4 2025 revenues expected between $151 million and $161 million, up 9% at midpoint y-o-y.
• R&D expenses expected $8 million to $10 million; SG&A expenses $26 million to $28 million.
• Adjusted EBITDA margin expected 22% to 24%; interest expense $2 million; effective tax rate 7% to 11%.
• EPS expected $0.33 to $0.37 per share; cash from operating activities $30 million to $40 million; capital spending $12 million.

• Exposure to tariffs less than 5% of revenue and 3% of COGS, but situation fluid.
• Specialty film line ramp impacting gross margin, with improvement expected but full benefit not until mid- to late Q2 2026.

Q: Remind us on current capacity, plans for capacity additions and demand for specialty film?

A: Specialty film energy order starting to be delivered in back half of 2025, with backlog over $25 million (excluding energy order) and more orders coming; capacity being expanded to fulfill orders.

Q: Update on M&A environment?

A: Focused on acquisitions, being picky to ensure 1 plus 1 equals 3; M&A environment improved from prior quarter with more assets and lower interest rate expectations but being disciplined.

Q: Book-to-bill and palladium impact on gross margins?

A: PD book-to-bill 1 for the quarter, second largest order quarter in last 4 quarters; palladium costs increased but prebuys in place through first half of 2026, monitoring closely but not negatively impacting gross margins at present.

Q: Impact of specialty film on gross margin and how long improvement will last?

A: Specialty film margins were below total company and PD average in Q3, with sequential improvement from Q3 to Q4 expected; full benefit of gross margin improvement from specialty film not until mid- to late Q2 2026 when energy order fully ramps.