KN 10-K & 10-Q changes, risk factors and insider trading

We derive a significant portion of our revenues from a limited number of OEM customers.customers and distributors. If revenues derived from these customerspartners decrease or the timing of such revenues fluctuates, our operating results could be adversely affected.

The loss of any one of our top customers or a reduction in the purchases of our products by such customers would reduce our total revenues and may have a material adverse effect on our operating results, and any delay of a significant volume of purchases by any one of our top customers, even if only temporary, would reduce our revenues in the period of the delay and may have a material adverse effect on our operating results. For example, in fiscal 2022 we experienced customer purchasing adjustments due to excess inventory in the supply chain, which were partially offset by financial incentives offered to customers during the fourth quarter. Further, concentrationConcentration of market share among a few companies and the corresponding increase in purchasing power of these companies may result in lower prices for our products which, if not offset by a sufficient increase in the volume, or favorable changes in the mix, of purchases of our products, could have a material adverse effect on our revenues and margins. Further, the timing, volume, and mix of purchases by our significant customers may be impacted by the timing of such customers’ new or next generation product introductions, and the timing of such introductions may have a material adverse effect on our operating results. Accordingly, if current market and industry dynamics continue, MSA's revenues will continue to depend largely upon, and be impacted by the timing, volume, and mix of future purchases by a limited number of ourits OEM customers.

Certain of our businesses rely on highly specialized suppliers or foundries for critical materials, components, or subassemblies that are used in our products. In some cases, our suppliers or foundries are our sole source of supply, such as with our ASIC and MEMS foundry partners. Additionally, some of our suppliers or foundries are a strategic supplier to one of our competitors or a customer. Should an event occur which affects the ability or willingness of a key or sole supplier or foundry to continue to deliver materials or components to us in a timely manner, we may not be able to identify or qualify an alternative supplier in a timely manner which, in any such period and future periods, could have a material adverse effect on our results of operations. Potential events or occurrences which could cause business or supply disruptions or affect the ability or willingness of a supplier or foundry to continue to supply us include changes in market strategy, the acquisition of, sale, or other change in control or ownership structure of a supplier or foundry, strategic divestiture, bankruptcy, insolvency or other financial difficulties, business disruptions (including COVID-19-related supplier plant shutdowns or slowdowns, governmental regulatory and enforcement actions,actions and work stoppages), operational issues, or capacity constraints at a supplier or foundry.

If we are unsuccessful in implementing our investment and acquisition strategy, or integrating acquired companies, or managing divestitures and other significant transactions our business and financial results may be adversely effected.

We engage in strategic transactions and make strategic investments, including investments in emerging technology companies and intellectual property, which are focused on growth by positioning the Company for expansion into new markets, territories or technologies, exploiting new or growing customer or market opportunities, and developing new technologies and products. Such acquisitions and strategic investments naturally entail significant risks and uncertainties, some of which are beyond our control. To the extent we are successful in making acquisitions, such as our acquisition of Cornell Dubilier, we may not realize the expected benefits of our acquisitions or strategic transactions,acquisitions, or be able to retain those benefits even if realized. We may not, for example, be able to retain key employees, customers, or suppliers of acquired companies, derive value from acquired technology or assets, and we may experience delays in achieving cost or revenue synergies or encounter higher than expected costs in implementing them. Further, the internal control environment of an acquired entity may not be consistent with our standards or with regulatory requirements, and may require significant time and resources to align or rectify. In addition, due to our inexperience with certain adjacent or complimentary technologies and doing business in certain geographic regions that may be served by acquired businesses, we may underestimate the costs or overestimate the benefits that we expect to realize from such acquisitionsacquisitions. We have in the past, and may in the future, consider divesting certain business operations. For example, in 2024 we consummated the sale of our Consumer MEMS Microphone ("CMM") business to Syntiant Corp. Divestitures may involve a number of risks, including an impact on our revenue or investments,profit that is larger than expected. Further, we might have financial exposure in the divested business, such as through our minority equity ownership of Syntiant, our provision of financing to Syntiant, and wecertain mayfinancial notor achieveperformance them.guarantees, indemnities, or other obligations, such that conditions outside of our control might negate the expected benefits of the disposition. We cannot, therefore, provide assurance that each of our acquisitionsacquisitions, divestitures, or strategicother investmentssignificant transactions will be accretive or generate anticipated financial returns. If, for any of these or for unforeseen reasons, our strategic acquisitions or investmentstransactions fail to meet our expectations or forecasts, our business and results of operations may be materially adversely affected.

Our products are complex and could contain defects, which could result in material costs to us. Product development in the markets we serve is becoming more focused on audio signal processing for improved audio performance and to enable intelligent and more sophisticated audio solutions. The increasing complexity of our products increases the risk that we or our customers or end users could discover latent defects or subtle faults after significant volumes of product have been shipped. This could result in material costs and other adverse consequences to us including, but not limited to: loss of customers, reduced margins, damage to our reputation, a material product recall, replacement costs for product warranty and support, payments to our customers related to recall claims as a result of various industry or business practices, a delay in recognition or loss of revenues, loss of market share or failure to achieve market acceptance, and a diversion of the attention of our engineering personnel from our product development efforts. In addition, any defects or other problems with our products could result in financial losses or other damages to our customers who could seek damages from us for their losses. A product liability or warranty claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend. Due to the complex nature of our products, quality and reliability issues may be identified after significant volumes of a product have been shipped to a large customer. A warranty or product liability claim against us in excess of our available insurance coverage and established reserves, or a determination that we have liability or an obligation to cover the costs of a customer product recall, could have a material adverse effect on our business, results of operations, and financial condition.

Global economic conditions can be uncertain and volatile. Our business and results of operations have in the past been, and may continue to be, adversely affected by changes in global economic conditions including inflation, consumer spending rates, rising interest rates, the negative impacts caused by pandemics and public health crises, such as the COVID-19 pandemic, as well as the potential impacts of geopolitical uncertainties (including the ongoing conflict between Russia and Ukraine, and China-Taiwan relations). As global economic conditions continue to be volatile or economic uncertainty remains, trends in end-user consumer spending also remain unpredictable. Many of our customers purchase our products, particularly in our MSA segment, based on end-user demand from consumers. As a result, unfavorable economic conditions may lead our customers to delay or reduce purchases of our products.

Risks Related to Intellectual PropertyProperty, Cybersecurity, and CybersecurityTechnology

We are a leading manufacturer of specialty electronic components. We design parts that perform unique and critical functions for innovative technologies. Through extreme reliability, custom engineering, and scalable manufacturing, we enable businesses to succeed in the most demanding applications across medtech, defense, industrial, and industrialelectrification/energy markets. Our high performance capacitors, radio frequency ("RF") and microwave filters, advanced medtech microphones, and balanced armature speakers,speakers enable and enhance the performance of ourtechnologies customerswith productsthe power to change, improve, and save lives. Our focus on the customer, combined with unique technology, proprietary manufacturing techniques, and global operational expertise, enables us to deliver innovativecustomized solutions across multiple applications. References to "Knowles," the "Company," "we," "our," or "us" refer to Knowles Corporation and its consolidated subsidiaries, unless the context otherwise requires.

At December 31, 2024,2025, we had two reporting segments: (i) PD and (ii) MSA. These segments were determined in accordance with Financial Accounting Standards Board Accounting Standards Codification 280 - Segment Reporting. We previously reflected our CMM business as a reportable segment; however, CMM's results were reclassified to discontinued operations in 2024 based on the Company's intention and eventual divestiture of this business. The results of operations and the related assets and liabilities for CMM have been classified as discontinued operations for all periods presented. The remainingThese segments are aligned around similar product applications serving our key end markets to enhance focus on end market growth strategies.

Our PD segment specializes in the custom design and delivery of high performance capacitor products and RF solutions primarily serving the defense, industrial, medtech, electrification, and industrialelectrification/energy markets. PD has sales, support, and engineering facilities in North America, Europe, and Asia,Asia as well as manufacturing facilities in North America and Asia.

Our MSA segment designs and manufactures balanced armature speakers and microphones used in hearing health and specialty audio applications that serve the hearing healthmedtech and premium audioindustrial markets. MSA has sales, support, and engineering facilities in North America, Europe, and Asia, as well as manufacturing facilities in Asia.

In addition to the generally accepted accounting principles ("GAAP") financial measures included in this item, we have presented certain non-GAAP financial measures. We use non-GAAP measures as supplements to our GAAP results of operations in evaluating certain aspects of our business, and our executive management team and Board of Directors focus on non-GAAP items as key measures of our performance for business planning purposes. These measures assist us in comparing our performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in our opinion, do not reflect our core operating performance. We believe that our presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that we use internally for purposes of assessing our core operating performance. The Company does not consider these non-GAAP financial measures to be a substitute for the information provided by GAAP financial results. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the reconciliation included herein.

Revenues for the year ended December 31, 20242025 were $553.5$593.2 million, compared with $456.8$553.5 million for the year ended December 31, 2023,2024, an increase of $96.7$39.7 million or 21.2%.7.2%. PD revenues increased $78.6$28.9 million, primarilymillion due to our acquisition of the CD business, partially offset by lowerhigher demand from the medtech, defense, electrification/energy, and industrial market in our legacy PD businessmarkets, as awell resultas ofhigher continuedaverage demand weakness associated with excess customer and channel inventory.pricing. MSA revenues increased $18.1$10.8 million, primarily due to higher shipping volumes of hearingmetal healthcans productsthat drivenwe bymanufacture strongerand endsell marketto demand,Syntiant partiallyas offsetpart byof lowerour supply agreement associated with the sale of CMM, and higher shipping volumes into the specialty audio marketmarket, andpartially offset by lower average pricing on mature products. In addition, revenues in the year ended December 31, 2023 were unfavorably impacted by financial incentives offered to customers in the fourth quarter of 2022, which resulted in higher shipping volumes in the fourth quarter of 2022 and lower revenues in the first quarter of 2023.

Cost of goods sold ("COGS") for the year ended December 31, 20242025 was $316.8$332.5 million, compared with $251.9$316.8 million for the year ended December 31, 2023,2024, an increase of $64.9$15.7 million or 25.8%.5.0%. This increase was primarily due to ourhigher acquisitionshipping ofvolumes, CDunfavorable product mix, and lower than expected yields in our CD business as we ramped up our specialty film product line, partially offset by company-wide product cost reductions, increased factory capacity utilization in our legacyceramic PD business, partially offset by product cost reductionscapacitor and favorableRF MSAfilter productbusinesses, mix.a reduction of CD-related acquisition and production transfer costs, and lower precious metal costs.

Gross profit for the year ended December 31, 20232025 was $203.8$256.3 million, compared with $227.0$234.8 million for the year ended December 31, 2022,2024, aan decreaseincrease of $23.2$21.5 million or 10.2%.9.2%. Gross profit margin (gross profit as a percentage of revenues) for the year ended December 31, 20232025 was 44.6%,43.2%, compared with 47.4%42.4% for the year ended December 31, 2022.2024. The decreaseincrease in gross profit wasand gross profit margin were primarily due to lowerhigher shipping volumes, company-wide product cost reductions, increased factory capacity utilization,utilization in our ceramic capacitor and RF filter businesses, a reduction of CD-related acquisition and production transfer costs, higher average pricing in PD, and lower shippingprecious volumes,metal costs, partially offset by unfavorable product mix, andlower-than-expected higheryields restructuringin charges,our partiallyCD offsetbusiness byas we ramped up our specialty film product costline, reductionslower average pricing on mature products in the MSA business, and favorableimpairment foreign currency exchange rate changes. The decreasecharges in gross profit margin was primarily due to lower factory capacity utilization and unfavorable product mix product, partially offset by product cost reductions and favorable foreign currency exchange rate changes.2025.

Non-GAAP gross profit for the year ended December 31, 20232025 was $207.7$263.7 million, compared with $228.1$245.4 million for the year ended December 31, 2022,2024, aan decreaseincrease of $20.4$18.3 million or 8.9%.7.5%. Non-GAAP gross profit margin (non-GAAP gross profit as a percentage of revenues) for the year ended December 31, 20232025 was 45.5%,44.5%, compared with 47.6%44.3% for the year ended December 31, 2022.2024. The decreaseincreases in non-GAAP gross profit was primarily due to lower factory capacity utilization, lower shipping volumes, and unfavorable product mix, partially offset by product cost reductions and favorable foreign currency exchange rate changes. The decrease in non-GAAP gross profit margin waswere primarily due to lowerhigher shipping volumes, company-wide product cost reductions, increased factory capacity utilization in our ceramic capacitor and RF filter businesses, higher average pricing in PD, and lower precious metal costs, partially offset by unfavorable product mix, partiallylower-than-expected offsetyields byin our CD business as we ramped up our specialty film product cost reductionsline, and favorablelower foreignaverage currencypricing exchangeon ratemature changes.products in the MSA business.

Research and development expenses for the years ended December 31, 20232025 and 20222024 were $32.4$40.2 million and $29.3$39.5 million, respectively, an increase of $3.1$0.7 million or 10.6%.1.8%. Research and development expenses as a percentage of revenues for the years ended December 31, 20232025 and 20222024 werewas 7.1%6.8% and 6.1%, respectively.7.1%. The increase in expenses was primarily driven by additionalincreased development activities in both our MSA and PD segments as we continue to invest in our businesses.businesses Inand addition,higher ourincentive acquisition of the CD business increased expenses in our PD segment.compensation. The increasedecrease in expenses as a percentage of revenues was driven by our increased investment and lowerhigher revenues.

Selling and administrative expenses for the year ended December 31, 20242025 were $142.0$142.8 million, compared with $125.8$142.0 million for the year ended December 31, 2023,2024, an increase of $16.2$0.8 million or 12.9%.0.6%. Selling and administrative expenses as a percentage of revenues for the yearyears ended December 31, 20242025 and 20232024 were 25.7%24.1% and 27.5%,25.7%, respectively. The increase in expenses was primarily driven by ourthe acquisitionacceleration of CD,stock-based compensation expense for employees who are nearing or have reached retirement eligibility and higher incentive compensation, partially offset by lowera professionalreduction feesof andCD-related acquisition costs, the benefits of PD restructuring actionsactions, takenand inreduced theintangible prioramortization year.costs. The decrease in expenses as a percentage of revenues was driven by higher revenues, lower professional fees, and the benefits of PD restructuring actions taken in the prior year.revenues.

Interest expense, net for the year ended December 31, 20242025 was $16.3$9.3 million, compared with $5.4$16.3 million for the year ended December 31, 2023,2024, ana increasedecrease of $10.9$7.0 million or 201.9%.42.9%. The increasedecrease was primarilyis due to lower imputed interest expense on our Seller Note andfrom the CD acquisition, a higherlower outstanding revolving credit facility balancebalance, asand alower resultinterest ofrates during the acquisitionyear ofended CD.December 31, 2025. For additional information on borrowings and interest expense, refer to Note 11. Borrowings to our Consolidated Financial Statements under Item 8, "Financial Statements and Supplementary Data."

Other Expense (Income),Expense, net

Other expense for the year ended December 31, 20242025 was $0.8$3.2 million, compared with $0.7$0.8 million for the year ended December 31, 2023,2024, a change of $0.1$2.4 million. Expense in both 20242025 and 20232024 is primarily due to unfavorable foreign currency exchange rate changes.changes, partially offset by unrealized gains in our investment balances.

Provision for (Benefit from) Income Taxes and Non-GAAP Provision for Income Taxes

The effective tax rate ("ETR") for the year ended December 31, 20232025 was (75.9)%20.5% or a $28.3$13.1 million tax benefit,provision, compared with 24.3%32.6% or a $21.3$11.3 million tax provision for the year ended December 31, 2022.2024. The change in the ETR was primarily duerelated to the release of a portion of the valuation allowancedecrease in theU.S. Subpart F income and U.S. andGlobal theIntangible impactLow-Taxed ofIncome intangibleinclusions propertycompared transfersto in 2023.2024. The change in ETR was also impacted by the mix of earnings and losses by taxing jurisdictions.

The non-GAAP ETR for the year ended December 31, 20232025 was 22.1%11.8% or a $18.3$13.1 million tax provision, compared with 17.0%8.4% or a $20.4$7.7 million tax provision for the year ended December 31, 2022.2024. The increasechange in the non-GAAP ETR was primarily due to lowerdecreased pre-taxutilization earningsof foreign tax credits compared to the prior year. As of December 31, 2025, the foreign tax credits have been fully utilized, and we expect the lossfuture ofnon-GAAP ourETR Malaysianto tax holiday.increase.

Earnings from continuing operations for the year ended December 31, 20242025 was $23.4$50.9 million, compared with $65.6$23.4 million for the year ended December 31, 2023,2024, aan decreaseincrease of $42.2$27.5 million. As described above, the decreaseincrease iswas primarily due to income tax expense in 2024 compared to a benefit in 2023, higher operatinggross expenses,profit, and higherlower interest expense, and dividend income recorded in 2025, partially offset by higher grossoperating profit.expenses, other expense, and income tax expense.

Earnings before interest and income taxes from continuing operations ("EBIT") for the year ended December 31, 20242025 was $51.0$73.3 million, compared with $42.7$51.0 million for the year ended December 31, 2023,2024, an increase of $8.3$22.3 million or 19.4%.43.7%. EBIT margin (EBIT from continuing operations as a percentage of revenues) for the year ended December 31, 20242025 was 9.2%,12.4%, compared with 9.3%9.2% for the year ended December 31, 2023.2024. The increase in EBIT isand EBIT margin was primarily due to higherimproved grossoperating profitleverage from the acquisition of CD, partially offset byon higher operating expenses from the acquisition of CD. The decrease in EBIT margin is primarily due to higher operating expenses and impacts of the acquisition of CD on gross margins, partially offset byrevenues, higher gross profit.profit, and dividend income recorded in 2025.

Adjusted earnings before interest and income taxes ("Adjusted EBIT") from continuing operations for the year ended December 31, 20242025 was $107.9$120.1 million, compared with $88.2$107.9 million for the year ended December 31, 2023,2024, an increase of $19.7$12.2 million or 22.3%.11.3%. Adjusted EBIT margin (adjusted EBIT from continuing operations as a percentage of revenues) for the year ended December 31, 20242025 was 19.5%,20.2%, compared with 19.3%19.5% for the year ended December 31, 2023.2024. The increase in Adjusted EBIT is primarily due to higher non-GAAP gross profit from the acquisition of CD, partially offset by higher non-GAAP operating expenses from the acquisition of CD. The increase inand Adjusted EBIT margin was primarily due to improved operating leverage on higher revenues and higher non-GAAP gross profit, partially offset by higher non-GAAP operating expenses, and impacts of the acquisition of CD on gross margins.profit.

(Loss) Earnings from Discontinued Operations, net

EarningsLoss from discontinued operations for the year ended December 31, 20232025 was $6.8$6.7 million, compared with a loss of $496.5$261.2 million for the year ended December 31, 2022.2024. The increase in earningsLoss from discontinued operations for the year ended December 31, 2025 was primarily duedriven by adjustments to ourthe loss on sale of CMM and tax expense. Loss from discontinued operations for the year ended December 31, 2024 was primarily driven by CMM goodwill impairment charges inand 2022tax thatexpense, didpartially notoffset recurby inincome 2023from CMM operations prior to disposal and highera grossgain profit.on sale of technology. For additional information, refer to Note 2. Disposed and Discontinued Operations to our Consolidated Financial Statements.

Non-GAAP dilutedDiluted earnings per share from continuing operations was $0.58 for the year ended December 31, 2023 was $0.69,2025, compared with $1.05$0.26 for the year ended December 31, 2022,2024, aan decreaseincrease of $0.36.$0.32. As described above, the decreaseimprovement wasis primarily due to lower non-GAAPhigher gross profit, lower interest expense, dividend income recorded in 2025, and reduced share count, partially offset by higher non-GAAP operating expenses, increased interestother expense, and unfavorableincome foreigntax currency exchange rate impacts.expense.

Results of Operations for the Three Months Ended MarchJune 31,30, 2026 compared with the Three Months Ended MarchJune 31,30, 2025

Revenues for the firstsecond quarter of 2026 were $153.1$166.8 million, compared with $132.2$145.9 million for the firstsecond quarter of 2025, an increase of $20.9 million or 15.8%.14.3%. Precision Devices ("PD") revenues increased $12.6$19.8 million due to higher demand in the industrial, defense,electrification, electrification,medtech, and medtechdefense markets, as well as higher average pricing. MedTech & Specialty Audio ("MSA") revenues increased $8.3$1.1 million, primarily due to higher shipping volumes into the hearing health market, partially offset by lower shipping volumes into the specialty audio market.

Cost of goods sold ("COGS") for the firstsecond quarter of 2026 was $85.9$92.1 million, compared with $78.4$81.7 million for the firstsecond quarter of 2025, an increase of $7.5$10.4 million or 9.6%.12.7%. This increase was primarily due to higher shipping volumes, higherunfavorable factoryproduct costs in our MSA business, higher costs in our CD business specialty film line as we ramp up production capacity to support our growth in the electrification market,mix, and increased production transfer costs in our ceramic capacitor business, partially offset by company-wide product cost reductions, favorable product mix in our MSA business, and increased factory capacity utilization.business.

During the firstsecond quarter of 2025,2026, we recorded restructuring charges of $0.5$0.1 million within Gross profit and $2.4$0.1 million within Operating expenses related primarily to headcount reductions acrosswithin our PD segment. No restructuring charges were recorded during the Companysecond to rightsize operating expenses subsequent to the salequarter of CMM.2025. For additional information, refer to Note 8. Restructuring and Related Activities to our Consolidated Financial Statements.

Gross profit for the firstsecond quarter of 2026 was $67.1$74.6 million, compared with $53.3$60.6 million for the firstsecond quarter of 2025, an increase of $13.8$14.0 million or 25.9%.23.1%. Gross profit margin (gross profit as a percentage of revenues) for the firstsecond quarter of 2026 was 43.8%,44.7%, compared with 40.3%41.5% for the firstsecond quarter of 2025. The increases in gross profit and gross profit margin were primarily due to higher shipping volumes, company-wideimpairment product cost reductions, favorable product mixcharges in our2025 MSAthat business,did not recur in 2026, pricing, and increased factory capacity utilization, partially offset by higherunfavorable factoryproduct costs in our MSA business, higher costs in our CD business specialty film line as we ramp production capacity to support our growth in the electrification market,mix and increased production transfer costs in our ceramic capacitor business.

Non-GAAP gross profit for the firstsecond quarter of 2026 was $69.7$75.7 million, compared with $55.0$64.5 million for the firstsecond quarter of 2025, an increase of $14.7$11.2 million or 26.7%.17.4%. Non-GAAP gross profit margin (non-GAAP gross profit as a percentage of revenues) for the firstsecond quarter of 2026 was 45.5%45.4% compared with 41.6%44.2% for the firstsecond quarter of 2025. The increases in non-GAAP gross profit and non-GAAP gross profit margin were primarily due to higher shipping volumes, company-wide product cost reductions, favorable product mix in our MSA business,pricing, and increased factory capacity utilization, partially offset by higherunfavorable factoryproduct costs in our MSA business and higher costs in our CD business specialty film line as we ramp production capacity to support our growth in the electrification market.mix.

Research and development expenses for the firstsecond quarter of 2026 were $11.7$10.6 million, compared with $9.7$10.0 million for the firstsecond quarter of 2025, an increase of $2.0$0.6 million or 20.6%.6.0%. Research and development expenses as a percentage of revenues for the firstsecond quarter of 2026 and 2025 were 7.6%6.4% and 7.3%,6.9%, respectively. The increase in expenses was primarily driven by increased development activities related to new products and applications.

Selling and administrative expenses for the firstsecond quarter of 2026 were $39.4$39.2 million, compared with $37.2$35.9 million for the firstsecond quarter of 2025, an increase of $2.2$3.3 million or 5.9%.9.2%. Selling and administrative expenses as a percentage of revenues for the firstsecond quarter of 2026 and 2025 were 25.7%23.5% and 28.1%,24.6%, respectively. The increase in expenses was primarily driven by higher commissionscommissions, andan increase to our deferred compensation liability, higher incentive compensation, additional headcount within the PD segment to support future growth.growth, and annual merit increases. The decrease in expenses as a percentage of revenues was driven by higher revenues.

Interest expense for the firstsecond quarter of 2026 was $1.5$1.7 million, compared with $2.7$2.5 million for the firstsecond quarter of 2025, a decrease of $1.2$0.8 million. The decrease is primarily due to nothe absence of imputed interest expense in 2026 on our Seller Note from the CD acquisition, which was paid in full in 2025. For additional information on borrowings and interest expense, refer to Note 9. Borrowings to our Consolidated Financial Statements.

Other expense for the firstsecond quarter of 2026 was $3.4$0.4 million, compared with expense of $0.5$0.9 million for the firstsecond quarter of 2025, a change of $2.9$0.5 million. Expense in 2026 and 2025 is primarily due to unfavorable foreign currency exchange rate changes.changes, Expensepartially inoffset 2025 primarily representsby unrealized lossesgains in our investment balances.

EffectiveThe effective tax rate ("ETR") from continuing operations for the firstsecond quarter of 2026 and 2025 was (2.7)%18.6% and 150.0%,31.0%, respectively. The ETR from continuing operations for the firstsecond quarter of 2026 and 2025 includes discrete items totaling $3.8 million and $0.5$0.9 million of tax benefit,benefit and $0.1 million of tax expense, respectively. The discrete items impacting the tax benefit and provision for 2026 and 2025 are primarily attributable to stock-based compensation. Absent the discrete items, the ETR from continuing operations for the firstsecond quarter of 2026 and 2025 was 31.8%22.6% and 212.5%,30.1%, respectively. The Company accrues taxes in various countries where it generates income and applies a valuation allowance in other jurisdictions, which resulted in the benefit and provision for the firstsecond quarter of 2026 and 2025, respectively.2025. The change in the ETR from was due to the mix of earnings and losses by taxing jurisdictions and net discrete items.items, primarily stock-based compensation.

The non-GAAP ETR from continuing operations for the firstsecond quarter of 2026 and 2025 was 16.8%16.9% and 14.7%,15.9%, respectively. The non-GAAP ETR from continuing operations includes no discrete impact for the firstsecond quarter of 2026 or 2025. The change in the non-GAAP ETR was primarily due to decreased utilization of foreign tax credits and the increasemix inof incomeearnings comparedand tolosses theby priortaxing year.jurisdictions.

Earnings (Loss) from Continuing Operations

Earnings from continuing operations for the firstsecond quarter of 2026 was $11.3$18.4 million, compared with a loss of $0.4$7.8 million for the firstsecond quarter of 2025, an improvement of $11.7$10.6 million. As described above, the improvement is primarily due to higher gross profit, alower taxinterest benefit in 2026 compared to tax expense in 2025,expense, and lower interestother expense, partially offset by higher otheroperating expenseexpenses and operatinghigher expenses.income tax expense.

Earnings from continuing operations before interest and income taxes ("EBIT") for the firstsecond quarter of 2026 was $12.5$24.3 million, compared with $3.5$13.8 million for the firstsecond quarter of 2025, an increase of $9.0$10.5 million. EBIT margin (EBIT as a percentage of revenues) for the firstsecond quarter of 2026 was 8.2%,14.6%, compared with 2.6%9.5% for the firstsecond quarter of 2025. The increases in EBIT and EBIT margin were primarily due to higher gross profit, partially offset by higher other expense and operating expenses.

Adjusted earnings before interest and income taxes ("Adjusted EBIT") from continuing operations for the firstsecond quarter of 2026 was $30.1$36.1 million, compared with $21.7$27.7 million for the firstsecond quarter of 2025, an increase of $8.4 million. Adjusted EBIT margin (Adjusted EBIT from continuing operations as a percentage of revenues) for the firstsecond quarter of 2026 was 19.7%,21.6%, compared with 16.4%19.0% for the firstsecond quarter of 2025. The increases in Adjusted EBIT and Adjusted EBIT margin were primarily due to higher non-GAAP gross profit, partially offset by higher non-GAAP operating expenses and other expense.expenses.

We recorded a loss from discontinued operations of $0.6 million for the six months ended June 30, 2026 and a loss of $1.6 million for both the firstsix quartermonths ofended 2026June and the first quarter of30, 2025. The loss from discontinued operations for the firstsix quartermonths ofended June 30, 2026 was driven by updates to estimates regarding certain tax liabilities related to CMM's historical operations.operations, partially offset by final adjustments to the CMM sale transaction. The loss from discontinued operations for the firstsix quartermonths ofended June 30, 2025 was primarily driven by unfavorable working capital adjustments for the disposal of CMM. For additional information, refer to Note 3. Discontinued Operations to our Consolidated Financial Statements.

Non-GAAP dilutedDiluted earnings per share from continuing operations was $0.27$0.34 for the firstsix quartermonths ofended June 30, 2026, compared with $0.18$0.08 for the firstsix quartermonths ofended June 30, 2025, an improvement of $0.09.$0.26. As described above, the improvement is primarily due to higher non-GAAP gross profit and lower interest expense,profit, partially offset by higher non-GAAP operating expenses, other expense, and non-GAAP income tax expense.expenses.

(4) Other expenses include foreign currency exchange rate impacts on restructuring balances and non-recurring professional service fees related to the execution of various reorganization projects.balances. Other expenses for the firstthree quarterand ofsix months ending June 30, 2026 also includes foreign currency exchange rate adjustments related to certain balances retained subsequent to the disposal of CMM; these adjustments were not deemed material for prior2025 periods.