Q2 2026 Knowles Corp Earnings Call

July 23, 2026

Operator 3: Hello, everyone. Thank you for joining us. 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.

Operator: Hello, everyone. Thank you for joining us. 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.

Speaker #1: If you would like to ask a question, please press *1 to raise your hand. To withdraw your question, press *1 again. I will now hand the conference over to Sarah Cook, Vice President of Investor Relations.

Speaker #1: Sarah, please go ahead.

Speaker #2: 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.

Sarah Cook: Thank you, and welcome to our Q2 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.

Speaker #2: 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.

Speaker #2: 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.

Sarah Cook: 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.

Speaker #2: 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.

Sarah Cook: 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 31 December 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 measure.

Speaker #2: 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.

Speaker #2: In addition, pursuant to Regulation 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.

Sarah Cook: 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 measure.

Speaker #2: 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.

Sarah Cook: 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?

Sarah Cook: 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?

Speaker #2: 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.

Speaker #2: Jeff?

Speaker #3: 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.

Jeffrey Niew: 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 Q1. In our core products and markets, we continue to execute on the strategy detailed last year at our Investor Day of 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.

Speaker #3: 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 continued to execute on the strategy detailed last year at our Investor Day of providing high-value products to markets with strong secular growth trends.

Speaker #3: 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.

Jeffrey Niew: 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.

Speaker #3: 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.

Jeffrey Niew: In Q2, 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 from 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 Knowles continues to demonstrate our ability to deliver unique solutions with superior technology and reliability our customers have come to depend on.

Speaker #3: EPS of $0.33 was up 38% year over year, above the high end of our guided range, and cash generated from operations was $28 million, above the midpoint of the guided range.

Speaker #3: In Q2, MedTech and Specialty Audio revenue was $69 million, slightly better than expected and up 2% year over year. We continue to believe the hearing health market will grow at historical rates in 2026.

Speaker #3: 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 Knowles continues to demonstrate our ability to deliver unique solutions with superior technology and reliability that our customers have come to depend on.

Jeffrey Niew: Beyond 2026, we are well positioned to win next-generation designs from 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 Knowles continues to demonstrate our ability to deliver unique solutions with superior technology and reliability our customers have come to depend on.

Speaker #3: Coupled with our Micro-Solutions Group's ability to expand our reach as a new platform, we expect an increase in growth over our historical rates for this segment in the future.

Jeffrey Niew: This, coupled with our Micro Solutions Group ability to expand our reach as a new platform, we expect an increase in growth above 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 product continues 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.

Speaker #3: 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.

Speaker #3: 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 continued to support strong growth across many communications applications.

Jeffrey Niew: 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 multiyear orders to secure capacity. As an example, early in July, we received a $15 million+ order for a radar application that is expected to ship over 36 months starting in 2027.

Speaker #3: 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.

Speaker #3: 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.

Jeffrey Niew: 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. 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 one. Order strength was across all our end markets, both at the OEMs and with our distribution partners.

Speaker #3: 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.

Speaker #3: 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.

Jeffrey Niew: 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 one. Order strength was across all our end markets, both at the OEMs and with our distribution partners.

Speaker #3: Overall, book to bill in Precision Devices was 1.4. This marked the seventh consecutive quarter with a book to bill greater than one. Order strength was seen across all our end markets, both at the OEMs and with our distribution partners.

Speaker #3: 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.

Jeffrey Niew: 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 with confidence in continued growth in the future. I continue to be excited by the strength of our business and the momentum we've built in H1. 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.

Speaker #3: Orders in the PD segment were nearly $140 million in Q2, well above Q1 bookings and providing me with confidence in continued growth in the future.

Speaker #3: I continue to be excited by the strength of our business and the momentum we've built in the first half of the year. We are well positioned for continued strong organic revenue growth and margin expansion.

Speaker #3: As I have 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.

Jeffrey Niew: 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 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 med tech market.

Speaker #3: 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.

Speaker #3: 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 this is supporting our accelerated revenue growth.

Speaker #3: Let me start with the MedTech market. Both Precision Devices and MedTech, as well as Specialty Audio segments, participate in this market. The secular growth trends we communicated a year ago at our Investor Day remain intact.

Jeffrey Niew: 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. As 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 med tech market growth rates 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.

Speaker #3: Life expectancy rates are increasing as the aging population grows, and correlated 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.

Speaker #3: In our hearing health business, we provide an array of solutions that help our customers enhance quality of life for those with hearing loss.

Speaker #3: 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 an investor day as we focus on design wins for next-generation medical solutions.

Jeffrey Niew: On a blended global basis for the specific portions of the market we serve, we are outpacing the general med tech market growth rates 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.

Speaker #3: 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-based lasers perform reliably and with high performance.

Jeffrey Niew: 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, 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. RF microwave technologies serve a broad base of communication applications from radar detection and jamming to ground and sea communications, we are being used in next generation of products, ensuring reliable and secure military communication.

Speaker #3: 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.

Speaker #3: Our RF filters and capacitors serve the defense market. RF microwave technologies support a broad base of communication applications, from radar, detection, and jamming to ground and sea communications. We are being used in next-generation products, ensuring reliable and secure military communication.

Jeffrey Niew: RF microwave technologies serve a broad base of communication applications from radar detection and jamming to ground and sea communications, we are being used in next generation of products, ensuring reliable and secure military communication.

Speaker #3: 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.

Jeffrey Niew: 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 the 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. 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.

Speaker #3: 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.

Speaker #3: All this adds up to an expectation of continued strong organic growth, with the possibility of an acceleration in 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.

Jeffrey Niew: 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.

Speaker #3: Knowles serves a very broad set of customers across the industrial markets, both directly as well as through our distribution partners like TTI and Aeroelectronics.

Speaker #3: Our capacitors are used in a wide variety of solutions, from factory robotics and HVAC equipment to precision lasers and semiconductor equipment. At manufacturers, our challenge is to find solutions for manufacturing automation and product optimization. Our capacitors provide an essential energy source that advances the performance of their solutions.

Jeffrey Niew: Our capacitors are used 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 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.

Speaker #3: Our strategy of leveraging our unique technologies to design custom-engineered solutions, and then delivering 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 generating strong cash flow to drive shareholder value.

Jeffrey Niew: 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.

Speaker #3: Now, let me turn the call over to John to review our financial results and give our Q3 guidance.

Speaker #2: Thanks, Jeff. We recorded second quarter revenues of $167 million, up 14 percent from the year-ago period and well above the high end of our guidance range.

John Anderson: Thanks, Jeff. We reported Q2 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 Q2 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, and electrification end markets.

Speaker #2: EPS was $0.33 in the quarter, up $0.09, or 38 percent, from the year-ago period, and above the high end of our guidance range.

Speaker #2: Cash provided by operating activities was $28 million, near the high end of our guidance range. In the MedTech and Specialty Audio segment, Q2 revenue was $69 million, up 2 percent compared with the year-ago period.

Speaker #2: Gross margins were 53.1 percent, 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 percent from the year-ago period.

John Anderson: The Precision Devices segment delivered Q2 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, and electrification end markets.

Speaker #2: Increased demand from both OEM customers and our distribution channel partners resulted in year-over-year growth in the MedTech, Defense, Industrial, and Electrification End Markets. Segment gross margins were 40.1 percent, 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.

John Anderson: Segment gross margins were 40.1%, up 140 basis points from Q2 2025, largely driven by increased production volume and factory capacity utilization as we deliver on strong demand across all markets and products. While we've delivered significant year-over-year gross margin improvement of more than 200 basis points in H1 2026, I remain confident in our ability to further improve Precision Devices gross margins in H2 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 a 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.

Speaker #2: 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 Device gross margins in the second half of the year on higher pricing, favorable mix, and increased factory capacity utilization.

Speaker #2: 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 the MSA and PD segments.

John Anderson: On a total company basis, R&D expense in the quarter was $9 million, up slightly compared to Q2 2025 on a 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.

Speaker #2: 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 to support new product initiatives.

Speaker #2: 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.

John Anderson: Interest expense for the quarter was $2 million, down $1 million from Q2 2025 due to lower average debt balances. Now, I'll turn to our balance sheet and cash flow. In Q2, we generated $28 million in cash from operating activities, and capital spending was $7 million. During Q2, 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 0.5 times, 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 Q3 2026, revenues are expected to be between $167 million and $177 million, up 12.5% year-over-year at the midpoint.

Speaker #2: 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. We exited the quarter with cash of $50 million and $131 million of borrowings outstanding under our revolving credit facility.

Speaker #2: Lastly, our net leverage ratio, based on trailing 12 months adjusted EBITDA, was 0.5 times, and we have liquidity of more than $315 million—as measured by cash plus unused capacity under our revolver.

John Anderson: 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 Q3 2026, revenues are expected to be between $167 million and $177 million, up 12.5% year-over-year at the midpoint.

Speaker #2: 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 percent year-over-year at the midpoint.

Speaker #2: R&D expenses are expected to be between $9 and $11 million. Selling and administrative expenses are expected to be within the range of $29 to $31 million.

John Anderson: 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 at $2 million, and we expect an effective tax rate of 15% to 19%. We're 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.

Speaker #2: We are projecting adjusted EBIT margin for the quarter to be within the range of 22% to 24%. Interest expense in Q3 is estimated at $2 million, and we expect an effective tax rate of 15% to 19%.

Speaker #2: We're projecting EPS to be within the range of $0.34 to $0.38 per share, up $0.03 or 9 percent year-over-year at the midpoint.

Speaker #2: 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.

John Anderson: 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.

Speaker #2: Capital spending is expected to be $10 million. We expect full-year capital spending to be approximately 5 percent of revenues, as we make investments in capacity to support increased customer demand in the Precision Device segment.

John Anderson: 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 H1, combined with a 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?

Speaker #2: Our strong growth and financial results in the first half of the year, combined with a robust backlog and increased order activity, give me confidence in our ability to deliver 2026 revenue growth of 10 to 12 percent, with adjusted EBITDA growth of 20 to 24 percent over 2025 levels, with both metrics well above the high end of the target ranges that we provided at our May 2025 investor day.

Speaker #2: I'll now turn the call back over to the operator for the Q&A portion of our call. Operator?

Speaker #3: We will now begin the question-and-answer session. If you would like to ask a question, please press star 1 to raise your hand.

Operator 3: We will now begin the 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. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Christopher Rolland with Susquehanna. Your line is open. Please go ahead.

Operator: We will now begin the 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. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question from the line of Christopher Rolland with Susquehanna. Your line is open. Please go ahead.

Speaker #3: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #3: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Christopher Rowland with Susquehanna.

Speaker #3: Your line is open. Please go ahead.

Speaker #4: Hey, guys. Congrats on the quarter. Thanks for the question. And 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.

Christopher Rolland: Hey, guys. Congrats on the quarter. Thanks for the question. As I think about that 10% to 12% for the full year, obviously great results here, but for Q4, it's maybe a little lower growth than I had previously modeled. I was wondering maybe if you could talk about maybe some of the moving parts there, and how to think about it for December, but also any other color on September and the moving parts there would be great too.

Speaker #4: I was wondering if you could talk about some of the moving parts there and how to think about it for December, but also, if you have any commentary on September and the moving parts there, that would be great too.

Speaker #2: Well, I mean, I think based on where we're at today, I would say we're going to see sequential growth from Q3 to Q4. And I think sequential growth will come from a number of different areas.

John Anderson: Well, I think, based on where we're at today, I would say we're going to see sequential growth from Q3 to Q4. I think the sequential growth will come from a number of different areas. You have to remember, Chris, as we kind of said, we started off with a bang in the MSA segment in Q1. A lot of the growth came in Q1 that they are going to produce to get to the 2% to 4%. We have a little bit of a headwind in our MSA segment in Q4, but the PD segment will continue to grow at the rates that are similar to what we said. I wouldn't read too much into this in terms of 1 quarter. The 10% to 12% is a number that we feel comfortable with, but it is sequentially up.

John Anderson: Well, I think, based on where we're at today, I would say we're going to see sequential growth from Q3 to Q4. I think the sequential growth will come from a number of different areas. You have to remember, Chris, as we kind of said, we started off with a bang in the MSA segment in Q1. A lot of the growth came in Q1 that they are going to produce to get to the 2% to 4%. We have a little bit of a headwind in our MSA segment in Q4, but the PD segment will continue to grow at the rates that are similar to what we said. I wouldn't read too much into this in terms of one quarter. The 10% to 12% is a number that we feel comfortable with, but it is sequentially up.

Speaker #2: You have to remember, Chris, as we've kind of said, we started off with a bang in the MSA segment in the first quarter, and a lot of the growth came in the first quarter. That is what they are going to produce to get to the 2% to 4%.

Speaker #2: So, we have a little bit of a headwind in our MSA/PD segment. We'll continue to grow at rates that are similar to what we said.

Speaker #2: So, I wouldn't read too much into this. In terms of one quarter, the 10 to 12 percent is a number that we feel comfortable with, but it is sequentially up.

Speaker #2: And just keeping in mind, the MSA segment is a little bit slower for the full year. It’s up in that 2% to 4% range.

John Anderson: Just keeping in mind, the MSA segment is a little bit slower. For the full year, it's up in that 2% to 4% range. I would add one other thing about the MSA segment. Probably a little too early to call this. There's been a fair amount of data that's 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%. Some of the things we've now seen is the MSA segment could be closer to the 4% range, or the end mark could be closer to the 4% range. I think, again, we're comfortable with the top 10% to 12%, the moving parts are PD continues the growth rate.

Speaker #2: I would add one other thing about the MSA segment. It's probably a little too early to call this, but there's been a fair amount of data that's come out about the hearing aid industry.

Speaker #2: And in the last day—and I honestly have not been able to fully digest what this all means—but we say 2% to 4%.

Speaker #2: Some of the things we've now seen at the MSA segment could be closer to the 4% range, or the end mark could be closer to the 4% range.

Speaker #2: So I think, again, we're comfortable with the 10 to 12, and the moving parts are PD continues the growth rate. MSA is going to be slower because, kind of what we talked about before, there's inventory building in the first half of the year, but no real problems there.

John Anderson: MSA is going to be slower because kind of what we talked about before, inventory building in H1 of the year, no real problems there. 2% to 4% for the full year.

Speaker #2: 2 to 4 percent for the full year.

Speaker #4: Perfect. Thank you, Jeff. And then, as a follow-up, as we talk about the passives market more broadly—and I know you have very specific products, very specific customers, and markets—but clearly it seems like it's a rising tide environment for all passives.

Christopher Rolland: Perfect. Thank you, Jeff. As a follow-up, as we talk about kind of the passives market more broadly, I know you have very specific products, very specific customers and markets. Clearly, it seems like it's a rising tide environment for all passives. I was wondering if there was any spillover into your market, tightness in other areas. Is it driving anything for you guys? Additionally, on the pricing dynamic, are you able to maybe take a little bit more price in H2, just considering how much tighter the whole industry and cycle is becoming?

Speaker #4: And I was wondering if there was any spillover into your market—tightness in other areas. Is it driving anything for you guys? Additionally, on the pricing dynamic, are you able to maybe take a little bit more price in the back half, just considering how much tighter the whole industry and cycle is becoming?

Speaker #2: Yeah, I mean, generally speaking, on the precision-specific precision device side, demand is definitely stronger in the back half of the year than we would project at the beginning of the year.

John Anderson: Yeah. I mean, generally speaking, on the Precision Devices side, demand is definitely stronger in the back half of the year than we would project at the beginning of the year. That's pretty broad-based across industrial, MedTech, and more pronounced even in defense for sure. I mean, industrial is probably kind of a little stronger as well. I'd say, generally, as I said before on pricing, we're not a commodity product, and we tend to raise prices on an annual basis in the PD segment, right? I would say the pricing environment is definitely stronger than it was last year, and we're probably going to get more pricing this year. Generally speaking, we're sole source positioned. We raise prices on an annual basis.

Speaker #2: And that's pretty broad-based across industrial, medtech, and more pronounced even in defense, for sure. I would sit there, and I mean, industrial is probably kind of a little stronger as well.

Speaker #2: And so, I'd say generally, as I said before, on pricing, we're not a commodity product. We tend to raise prices on an annual basis in the PD segment, right?

Speaker #2: I would say the pricing environment is definitely stronger than it was last year, and we're probably going to get more pricing this year. But again, generally speaking, we're in a sole source position.

Speaker #2: We raise prices on an annual basis. I think what you've seen is that a lot of the other passive people are reporting, who sell more commoditized products, their prices go up and down with market demand.

John Anderson: I think what you've seen a lot in the other passive people are reporting, who sell many more commoditized products, their prices go up and down with market demand. We don't really see our prices go down. I mean, it's relatively up every year. I would say the pricing is definitely more pronounced this year than it has been in previous years.

Speaker #2: We don't really see our prices go down. I mean, it's relatively up every year. But I would say the pricing is definitely more pronounced this year than it has been in previous years.

Speaker #4: Excellent. Thank you, guys.

Christopher Rolland: Excellent. Thank you, guys.

Speaker #3: Your next question is from the line of Bob Lebeck with CJS Securities. Bob, your line is open. Please go ahead.

John Anderson: Your next question from the line of Bob Labick with CJS Securities. Bob, your line is open. Please go ahead.

Speaker #4: Thanks, good afternoon. Congratulations, and thanks for taking our questions. So, obviously, really strong growth in PD in the quarter, and I think you mentioned about $5 million from the energy order, which is great to hear.

Bob Labick: Thanks. Good afternoon. Congratulations, and thanks for taking our questions. Obviously, really strong growth in Precision Devices in the quarter, and I think you mentioned about $5 million from the energy order, which is great to hear. That leaves the rest of Precision Devices at close to 20%. Doing the math real quick, it looked like it was just under 20% growth. Can you talk about what were the That's a pretty big number too. What were the big drivers there and talk about kind of cadence of both energy and then kind of remaining Precision Devices business for the balance of the year?

Speaker #4: But that leaves the rest of PD at close to 20 percent. Doing the math real quick, it looked like it was just under 20 percent growth.

Speaker #4: And can you talk about what were the—that's a pretty big number too. What were the big drivers there? And can you talk about the cadence of both energy and then the remaining PD business for the balance of the year?

Speaker #2: Yeah, yeah. I think I really tried to call this out. If you think about, on the energy order we shipped, it's actually more than 5 million.

Jeffrey Niew: Yeah. I think, I really tried to call this out. If you think about on the energy order we shipped, it's actually more than $5 million. It's a little more than $5 million. Take that off, and if you calculate, because we didn't receive a new order on energy, right? That, like, the book-to-bill on that was 0, right? If you think about, that's what I try to highlight here, we received almost $140 million in orders in the core. The bookings were very strong in Q2, and that was up from a little over $100 million of orders in Q1. It's very broad-based.

Speaker #2: So it's a little more than $5 million, but take that off. And if you calculate—because we didn't receive a new order on energy, right?

Speaker #2: So that the book-to-bill in that was zero, right? If you think about it—and that's what I was trying to highlight here—we received almost $140 million in orders in the core.

Speaker #2: And so the bookings were very strong in Q2, and that was up from a little over $100 million of orders in Q1. And so it's very broad-based.

Speaker #2: I wish I could sit here and point to one market or one application. But again, I think I've said this before—I cut it by market.

Jeffrey Niew: I wish I could sit there and point to one market or one application, but again, I think I've said this before, I cut it by market, I cut it by product, I cut it by OEM versus distribution. It's broad-based. We continue to watch because I think one of the things that we're just cognizant of here is that we don't want to be adding capacity for what I would call our transient orders, where we get orders for commoditized product, because the other guy's lead times go really long. While I think we've seen a couple examples of this, that is not the majority of the bookings that we're getting. It's pretty sustainable, long-term type stuff. What you're starting to see, even in July, I've already looked at the bookings for the first 27 days of the month. Bookings are strong again in July.

Speaker #2: I caught it by product. I caught it by OEM versus distribution. It's broad-based. And we continue to watch, because I think one of the things that we're just cognizant of here is that we don't want to be adding capacity for what I would call our transient orders—where we get orders for commoditized products because the other guys' lead times go really long.

Speaker #2: Well, I think we've seen a couple of examples of this. That is not the majority of the bookings that we're getting. It's pretty sustainable.

Speaker #2: Long-term type stuff. And what you're starting to see, even in July—I've already looked at the bookings for the first 20-some days of the month.

Speaker #2: Bookings are strong again in July, so we're having very strong—strong. And again, it's in industrial, defense, medtech, and we know about the deliveries on the energy order.

Jeffrey Niew: We're having very strong bookings. Again, it's an industrial defense, MedTech. We know about the deliveries on the energy order. I think when I look at it across the board, we've got a lot of great design wins. We got a lot of great product portfolio. Our product portfolio is really well-positioned, and I feel really good about where we are with our products. I wish I could point to one thing, but I look, again, by market, direct versus distribution, by product, everything's up.

Speaker #2: So I think, when I look across the board, we've got a lot of great design wins. We've got a lot of great products. Our product portfolio is really well-positioned.

Speaker #2: And I feel really good about where we are with our product. So I wish I could point to one thing, but I look, again, by market—direct versus distribution, by product—everything's up.

Speaker #4: That's wonderful. That sounds great. And then, I guess just for a follow-up—obviously, the release you discussed, next year potentially being above the organic targets.

Bob Labick: That's wonderful. That sounds great. I guess just for a follow-up, obviously in the release you discussed 2025 being potentially above the organic targets, also in the Investor Day, you talked about M&A over time. It's been part of the business model as well. Can you talk about the environment out there? It feels like you have so much ahead of you organically. Are you taking a back seat on M&A, or is there stuff to look at? What's the market like for you right now?

Speaker #4: And also, in the investor deck that you talked about, M&A over time has been part of the business model as well. Can you talk about the environment out there?

Speaker #4: I mean, it feels like you have so much ahead of you organically. So, are you taking a back seat on M&A, or is there stuff to look at?

Speaker #4: What's the market like for you right now?

Speaker #2: No, I wouldn't say we're taking a back seat on M&A. I would say we're being very selective in M&A. I mean, we want to make sure that, if you look back over two years ago, the Cornell deal for us is a home run.

Jeffrey Niew: No, I wouldn't say we're taking a back seat on M&A. I would say we're being very selective in M&A. We want to make sure that if you look back over two years ago, the Cornell deal for us is a home run. That is a real home run, we're looking for something that can be additive to what we do. The one plus one equals three. I know that's a corny thing that everybody says. With the organic growth opportunities that we have, I think we'll probably end up doing an Investor Day sometime in H1 2025. We really want to start laying out more detail on these growth platforms, whether it be energy or the Micro Solutions Group, or inductors or downhole applications.

Speaker #2: I mean, that's a real home run, and we're looking for something that can be additive to what we do—the one plus one equals three.

Speaker #2: I know that's a corny thing that everybody says. But with the organic growth opportunities that we have, and I think we'll probably end up doing an investor day sometime in the first half of next year, we really want to start laying out more detail on these growth platforms—whether it be energy, or the Micro Solutions group, or inductors, or downhole applications.

Speaker #2: There's a lot of stuff to talk about here, and we can see drivers of growth in the future that aren't driving a tremendous amount of growth this year, beyond the energy order.

Jeffrey Niew: There's a lot of stuff to talk about here that we can see driving growth in the future that isn't driving a tremendous amount of growth this year beyond the energy order. I think we're being pretty selective. We've looked at a lot of stuff. I'm not going to sit there and say we're not looking. I've got three full-time people internal who work on this. You obviously know we're generating a lot of cash. Our cash flow is going to be strong again this year. I think if we find the right deal, we will move forward on it, on the right deal.

Speaker #2: And so, I think we're being pretty selective. We've looked at a lot of stuff. I'm not going to sit there and say we're not looking.

Speaker #2: I've got three full-time people internally who work on this. And you obviously know we're generating a lot of cash. Our cash flow is going to be strong again this year.

Speaker #2: And so, I think if we find the right deal, we will move forward on the right deal.

Speaker #1: 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 at a little over 100 million dollars of debt at five and a quarter interest.

John Anderson: Bob, absent M&A, we'll continue our capital allocation program of buying back shares, we still have some debt to pay down. We're at a little over $100 million of debt at five and a quarter interest, we can still get some EPS benefit by using that cash to pay down debt.

Speaker #1: So, we can still get some EPS benefit by using that cash to pay down debt.

Speaker #4: Super. Thank you.

Bob Labick: Super. Thank you.

Speaker #3: Your final question comes from the line of Anthony Stoss with Craig-Hallum. Your line is open. You may now go ahead.

John Anderson: Yep. Your final question from the line of Anthony Stoss with Craig-Hallum. Your line is open. You may now go ahead.

Speaker #2: Thank you. Hey, Jeff, John, and Sarah. Nice execution, really. Jeff, I wanted to focus in on your commentary about being definitely more bullish on military defense—that it came in stronger—and that you said over the midterm it could accelerate.

Anthony Stoss: Thank you. Hey, Jeff, John, and Sarah. Nice execution, really. Jeff, I wanted to focus in on your commentary about definitely more bullish on military defense. It came in stronger, and I think you said over the midterm it could accelerate. What kind of visibility? Is it multi-year visibility? Also, shame on me for not knowing this, but I'd love just your guess what the splits are of filter revenues versus capacitor. I've got to believe it's probably more capacitor. Any more color you can provide on the military defense side would be helpful.

Speaker #2: What kind of visibility is a multi-year visibility also? Shame on me for not knowing this, but I'd love just your guess—what the splits are of filter revenues versus capacitor.

Speaker #2: I've got to believe it's probably more capacitor. But any more color you can provide on the military defense side would be helpful.

Speaker #1: Yeah. So I would—actually, it's the opposite. Filters are a much larger portion than capacitors.

Jeffrey Niew: Yeah. I would say it's actually the opposite. Filters are a lot larger portion than capacitors.

Speaker #2: Filters is roughly an $80 million business—over $80 million.

Jeffrey Niew: Filters are roughly $80 million business.

John Anderson: 80 plus.

John Anderson: 90% of that is defense.

Speaker #1: And 90% of that is defense.

John Anderson: 90% of that is defense.

Speaker #2: Right, right. And then you've got, in the capacitor business—I mean, I don't have the exact numbers right here—but I would say the capacitor business is probably another $50 million of defense.

Jeffrey Niew: Right. Then you've got in the capacitor business, I don't have the exact numbers right here, but I would say the capacitor business is probably another $50 million of defense. I don't have it broken out.

Speaker #2: I don't have it broken out by the, what do you call it?

Jeffrey Niew: You called it the $40 million to $50 million. All in, you're $125 million or so. Yeah, when we're net. I would say that the filter business is definitely growing very rapidly. I would say the vast majority of that, as John said, is defense and sole source, the vast majority of that. I would sit there and say we're getting more and more people coming to us saying, we're expecting to see significant increases in volume over the next 24 to 36 months. We want to make sure we can secure capacity with you. This is evidenced by, we did receive a big order in July, not reflected in our book-to-bill from last quarter, for over $15 million for a radar application. This is an example. We won't start shipping on this $15 million till 2027.

Speaker #1: By 40 million dollars.

Speaker #2: 40 to 50.

Speaker #1: So all in, you're at $125 million or so.

Speaker #2: Yeah, yeah, one more net. But I would say that the filter business is definitely growing very rapidly. And I would say the vast majority of that, as John said, is defense and sole source.

Speaker #2: The vast majority of that. I would sit there and say we're getting more and more people coming to us, saying they're expecting to see significant increases in volume over the next 24 to 36 months.

Speaker #2: We want to make sure we can secure capacity with you, and this is evidenced by the fact that we did receive a big order in July that is not reflected in our book-to-bill from last quarter.

Speaker #2: For over $15 million for a radar application. And this is an example. We won't start shipping on this $15 million sale until '27; it's going to take us 36 months to deliver all that.

Jeffrey Niew: It's going to take us 36 months to deliver all that. I think we're getting more visibility. I would say there's three things that I see that are going to drive and accelerate growth in defense. One is, we'll see how this all plays out. The White House is proposing a larger defense budget, significantly. Even if it's half the growth that they are talking about, that would be significant for us. A lot of this is in electronic warfare. We wouldn't start seeing that increase in defense spending probably till late 2027 into 2028. Second, you've got the issue of replacement of stocks. We've had a lot of discussions. We're expecting that some of the key programs we're on for missile and missile programs, the buys could go up two to four times what they are today. Again, not short term.

Speaker #2: So I think we're getting more visibility. I would say there are three things that I see that are going to drive and accelerate growth in defense.

Speaker #2: One is, we'll see how this all plays out. The White House is proposing a significantly larger defense budget. But even if it's half the growth that they're talking about, that would be significant for us.

Speaker #2: A lot of this is an electronic warfare. But we wouldn't start seeing that increase in defense spending probably till late 27 into 28. Second, you've got the issue of you've got the issue of replacement of stocks.

Speaker #2: We've had a lot of discussions. We're expecting that, for some of the key missile programs we're on, the volumes could go up two to four times what they are today.

Jeffrey Niew: We're expecting that some of the key programs we're on for missile and missile programs, the buys could go up 2x to 4x what they are today. Again, not short term.

Speaker #2: Again, not short-term. This is probably going to be more in the, I would say, one- to two-year time frame as they ramp up. And then lastly, you've got a big push by the United States to increase defense spending in our allies—in the U.S. allies.

Jeffrey Niew: This is probably going to be more in the, I would say, one to two-year timeframe as they ramp up. Lastly, you've got a big push by the United States to increase defense spending in our allies, in the US allies, and that's not yet reflected in what we see today. We're getting a lot more requests from the existing suppliers that we're at, because I think these, whether it be Germany or France or whoever it may be, they don't have their own defense industry today. They may try to develop it over time, but in the short term, they're probably going to be buying more from the same people that we're selling to today. I think it's definitely, quote activity's super high, design activity's super high, orders are super high.

Speaker #2: And that's not yet reflected in what we see today. We're getting a lot more requests from the existing suppliers that we're with because I think these—whether it be Germany, or France, or whoever it may be—they don't have their own defense industry today.

Speaker #2: They may try to develop it over time, but in the short term, they're probably going to be buying more from the same people that we're selling to today.

Speaker #2: So I think it's definitely, quote, activity super high, design activity super high, orders are super high. But there is the possibility, about a year from now or so, we're going to see an acceleration in this market.

Anthony Stoss: There is the possibility about a year from now or so, we're going to see an acceleration in this market. Wow. That's great to hear. My last question, I know, John, you called it out about higher gross margins for PD in H2 of this year. Just kind of broadly overall, you must have some pretty decent pricing power if you want to take it. Just curious, your thoughts on gross margins kind of heading into next year. Yeah, Tony, sure. The PD segment delivered gross margins about just 40.1% in Q2, and that was up more than 100 basis points from Q2 of 2025. It was really driven by improved factory capacity utilization, as we see the strong demand that Jeff talked about across all our markets and products.

Speaker #1: Wow, that's great to hear. And then my last question, and I know, John, you called it out about higher gross margins for PD in the second half of this year.

Speaker #1: But just kind of broadly overall, you must have some pretty decent pricing power if you want to take it. Just curious—your thoughts on gross margins heading into next year.

Speaker #2: Yeah, Tony, sure. So the PD segment delivered gross margins above just 40.1% in Q2, and that was up more than 100 basis points from the second quarter of 2025.

Speaker #2: It was really driven by improved factory capacity utilization. As we see the strong demand that Jeff talked about across all our markets and products, I think, going forward, we clearly see an opportunity to further improve PD gross margins in the second half of this year.

Jeffrey Niew: I think going forward, we clearly see an opportunity to further improve PD gross margins in H2 of this year, really driven by the pricing environment being favorable as well as mix, and then continued increased factory overhead absorption. I'm not giving specific guidance, but we should be in the low 40% range in that PD segment in H2 of the year. Yeah, I think just one other thing, Tony, I think you're asking more a little more next year. I do think there's the opportunity to expand gross margins again in 2027 in this business. Now, remember, some of this is going to be productivity, some of this is going to be absorption of overhead.

Speaker #2: This is really driven by the pricing environment being favorable, as well as mix, and then continued increased factory overhead absorption. I'm not giving specific guidance, but we should be in the low 40% range.

Speaker #2: And that PD segment, the back half of the year.

Speaker #1: Yeah. I think just one other thing, Tony. I think you're asking more of a little of our next year. I do think there's the opportunity to expand gross margins again in 2027 in this business.

Speaker #1: Now, remember, some of this is going to be productivity. Some of this is going to be absorption of overhead. But I think the other thing is pricing.

Jeffrey Niew: I think the other thing is pricing, because if you think about the pricing we do throughout the year, sometimes when we give a price increase, it's on the next order. Our lead times could be 20 weeks. Some of the pricing things that we're doing, actions we're taking today, don't really hit the P&L until next year. I think that's the thing. I just have one other thing. This is a little bit off the topic, but we are looking at spending, I think John mentioned, on CapEx. We're definitely looking at taking up capacity in a number of areas in the PD segment for 2027. We're going to keep this at that 5% of revenue for CapEx, but that's off a higher revenue number.

Speaker #1: Because if you think about the pricing we do throughout the year, sometimes when we give a price increase, it’s on the next order. And our lead times could be 20 weeks.

Speaker #1: So some of the pricing things that we're doing, actions we're taking today, don't really hit the P&L until next year. So I think that's the thing.

Speaker #1: Just to add one other thing—this is a little bit off topic, but we are looking at spending, I think John mentioned, on CapEx.

Speaker #1: We're definitely looking at taking up capacity in a number of areas, in the PD segment for 2027. And we're going to keep this at that 5% of revenue for CapEx.

Speaker #1: But that's off a higher revenue number. So we are going to be spending a little bit more on an absolute basis on CapEx because we're just seeing again, the bookings and the book to bill are so strong and so broad-based.

John Anderson: We are going to be spending a little bit more on an absolute basis on CapEx because we're just seeing, again, the bookings and the book-to-bill are so strong and so broad-based. Yeah, the last thing I would just wrap up with, Tony, is as we've kind of pivoted to an industrial tech company, EBITDA is a really important metric, even more important to us than gross margin. We see a path based on what we just provided today is EBITDA margins will be in excess of 25% this year. We see a path over the next two to three years to get EBITDA margins close to 30%. Again, it's through gross margin expansion, but also through operating leverage. That's it. Understood. Great job, team. Thank you.

Speaker #2: Yeah, the last thing I would just wrap up with, Tony, is as we've kind of pivoted to an industrial tech company, EBITDA is a really important metric—it's even more important to us than gross margin.

Speaker #2: And we see a path based on what we just provided today is EBITDA margins will be in excess of 25% this year. We see a path over the next two to three years to get EBITDA margins close to 30%.

Speaker #2: And again, it's through gross margin expansion, but also through operating leverage. That's it.

Anthony Stoss: Understood. Great job, team. Thank you.

Speaker #1: Understood. Great job, team. Thank you.

Operator 3: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

Operator: There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

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