Good morning. I'm Sarah Cook, Vice President of Investor Relations, and on behalf of the entire Knowles team, I would like to welcome you to the 2025 Knowles Investor Day. Before we begin, I would like to call your attention to the disclaimer on the screen. Some comments today may be forward-looking in nature and, as such, are subject to certain risks and uncertainties. We'll also make reference to non-GAAP financial measures. You can find the related reconciliations to GAAP in today's materials, which have been filed with the SEC and posted to our IR website. Lastly, all financial references on this webcast will be on a non-GAAP continuing operations basis unless otherwise noted. We have an exciting morning lined up for you today. Presenting is Jeffrey Niew, our President and CEO. Jeff will be discussing the company's strategy, customers we serve, and exciting markets we participate in.
He joined Knowles in 2000, and since 2013, he has held his current position. In his time here, shaping the company's portfolio into a group of high-performance, high-margin, industrial technology businesses. John Anderson, our Chief Financial Officer, will be presenting the company's financial overview, highlighting Knowles' historic financial performance, future growth targets, and capital allocation strategy. He joined Knowles in 2012 and is responsible for the company's global financial strategy and financial activities. John was directly involved with the spinoff from Dover and assisted Knowles in putting in place a team and financial processes to operate as a standalone public company. John, in partnership with Jeff, has been actively involved in our transformation, helping expand EBITDA margins and reduce debt levels. We also have with us today three of our business unit presidents and our Head of Corporate Development.
Amrita Khemchandani will be leading our discussion on ceramic capacitors and RF filters. Rick Bielan will present on our film and electrolytic capacitors, and John Kiyashin will walk us through our medtech and specialty audio business. Each will detail our ability to differentiate our solutions, why we win in the markets we serve, and discuss future plans for each business. Brian Crannell, our Senior Vice President of Corporate Development, will walk us through our acquisition strategy, including our successes, playbook, and acquisition criteria. Before I turn it over to Jeff, let's get started with a short video about who Knowles is today.
Knowles operates in spaces where extreme performance is a must. For us, not succeeding is not an option. We make parts that help power some of the most noble missions in the world, help keep our world safe, help push the boundaries of exploration, help doctors save lives, and help scientists improve them. We help bring the magic of sound back to those who have lost it. Innovators know they can come to us to solve the unsolvable because we have the engineering expertise, the manufacturing techniques, and the quality standards to do so. At Knowles, we work tirelessly to build products to meet the most challenging specifications, and we deliver as many as needed. We are prepared to meet the kind of demand no one else can. The future of innovation depends on it.
Sarah, thank you for the introduction and the video, and welcome to everyone to the 2025 Knowles Investor Day. I'm genuinely excited to be here today to not only discuss the heavy lifting we have done as a company over the last five years to transform Knowles, but also to go into detail on where we are headed. Our vision of Knowles as a premier industrial technology company has arrived. We would like you to come away from today with a better understanding of the attractive end markets we serve and why our customers choose our innovative and differentiated solutions. We will also detail how this powerful combination has, and we believe, will continue to drive revenue and earnings growth with robust cash flow. Additionally, we will discuss our plans to accelerate revenue and earnings by leveraging our cash flow and strong balance sheet. Let's dig in.
Knowles has undergone a pivotal transformation that culminated in 2024. The precision devices and medtech and specialty audio businesses of Knowles use innovative technologies that are customized to create unique solutions that help enable some of the world's most demanding applications. We have aligned our product portfolio toward the medtech, defense, and industrial end markets where secular trends are favorable today and for the foreseeable future. With a laser focus on what we do best, designing custom-engineered products and delivering them at scale for customers and markets that value our solutions, we are positioned extremely well for future growth. With the sale of the consumer MEMS microphone business in 2024, our investors can now see easily our historical performance of our remaining businesses and their revenue and earnings potential.
MedTech, defense, and industrial markets tend to have longer cycles, and so we believe it was important to look at the historical performance through a full cycle. Through a combination of organic and strategic acquisitions from 2017 to 2024, we have achieved a revenue CAGR of 8% and an adjusted EBITDA CAGR of 11%. Adjusted EBITDA margins have improved by 400 basis points over that same period. Over the next five years, we believe the performance of the existing portfolio businesses will be incrementally better than the previous cycle as we are a more focused company in driving organic growth with a significantly better balance sheet allowing for additional strategic M&A. We expect our revenue CAGR to be 8%-10%. Adjusted EBITDA margins are expected to improve another 300-500 basis points, leading to an adjusted EBITDA CAGR of 10%-14%.
I'm sure there will be periods within the cycle where organic growth will be more dominant and others where M&A will drive more of the growth. Over the last 24 months, M&A drove an outsized share of our growth, but in 2025, we are entering a period where I anticipate organic growth to be higher than historic rates. In the slides and discussion to come, we will demonstrate our ability to win and share how we expect continued growth both organically and through acquisitions. First, it's important to understand where we've been. Knowles spun off from Dover Corporation as a semiconductor company with a portfolio of products primarily focused on consumer markets and more particularly the mobile phone market with a highly leveraged balance sheet. As a public company, the strategic shift to become a premier industrial technology company was thoughtful, deliberate, and paced.
It started with a significant shift in investing in R&D and CapEx on core technologies for markets where returns were best. This resulted in a reduction in investment in the consumer market while at the same time increasing investment in the MSA and PD segments with a particular focus on medtech, defense, and industrial end markets. Ultimately, the success of focusing on products and markets with the best returns led us to plan to divest underperforming assets to further improve the balance sheet. Beyond the divestitures of these underperforming assets, Vectron and the consumer MEMS microphone business, we started the process of strengthening our market positions, expanding our product offerings, and adding our technology to our technology base through acquisitions. Our acquisitions of DITF and Integrated Microwave Corporation expanded our RF capabilities and technologies.
Similarly, our acquisition of CompEx and Cornell expanded our capacitor portfolio, introducing new products and technologies to our existing customer base and opening the door to new customers and markets in the industrial and energy sectors. As we were adding to our portfolio of products and expanding our addressable markets, we resegmented the business. This enabled investors to better assess the true value of the medtech and specialty audio business. It also allowed Knowles to better position CMM for disposition. The sale, which was completed in December of 2024, was the final step in our transition. This brings us to today, a completed transformation in an innovative industrial technology company. Knowles is proud to be the leading manufacturer of specialty electronic components through a unique ability to design customized solutions with our differentiated technologies for applications requiring performance and reliability and then quickly scaling into production.
We enable pioneering customers to succeed in the most demanding applications. Focusing on higher growth markets, we expect to continue to expand our margin profile and to generate robust cash flow. This will allow us to invest in organic growth, acquire complementary businesses, and buy back shares while still maintaining a strong balance sheet. I am pleased with how far we have come through this transformation, and I am excited about our future. Transformed, Knowles has two operating segments: Precision Devices making up 54% of the total company revenue and MedTech and Specialty Audio making up 46% of the company revenue. We serve four major markets, which I will dive into in the coming slides: MedTech, defense, industrial, and the electrification energy market. Our long legacy of designing and manufacturing exceptional products is supported by the backbone of a large and experienced engineering team. Knowles has a distinct competitive advantage.
We win using a three-pronged approach of going to market. First, through deep engineering expertise, we build products that meet stringent performance requirements in the toughest conditions. Second, we enable the innovation of our customers. Our engineers work hand in hand with our customers to understand their applications and produce solutions that are critical for the creation and success of their new products. Lastly, we have the ability to customize these solutions at scale. We are positioned to offer the best of all worlds, designing custom components with the agility needed to feed innovation with the production capabilities and resources of a large manufacturer. We do all of this in demanding growth markets. Our products are built to serve exceptional needs for unique applications within large growing markets: medtech, defense, industrial, and energy. At Knowles, we offer a wide array of solutions to our customers that can be uniquely customized.
The foundation of each of these products has a common thread: our high-performance technology. While each of our products serves a very specific purpose for our customers, they are all rooted in the standards of exceptional quality and reliability. Our core technologies consistently deliver the solutions our customers need and the performance they require. We have an amazing list of customers. Our blue chip customers drive innovation and change in the world they operate in. They hold themselves to the highest standards of reliability and innovation. We are trusted partners with many relationships existing for decades, standing on generations' worth of technological advancement that have enabled our customers to successfully develop better products for their customers. Through collaboration, Knowles precision devices and MedTech specialty audio teams showcase their deep engineering expertise and unwavering pursuit to design the highest performing electronic components.
The ability to customize at scale is what truly sets us apart. Our exceptional engineering teams partner with our customers to design product solutions to any size, performance, function, or specification. We have a strong intimacy with our customer applications that they have come to expect. This, coupled with our world-class supply chain and earned reputation for quality and flexible and scalable manufacturing platforms, allows us to demand higher returns on our products. Now, let me talk about our secular growth trends. The world we live in is dynamic and ever-changing. We pride ourselves on foreseeing these changes in the markets we serve, ensuring our continued growth. As life expectancy rates increase and the aging population grows, the correlating healthcare expenditures are increasing. Our products supply the healthcare industry with capacitors for medical imaging, advanced lifesaving therapies, and cardiovascular devices, to name a few.
Our hearing health business provides an array of solutions that help our customers enhance the quality of life for those with hearing loss. Second, global conflict has given rise to increasing defense spending on electronic warfare. With over 20% of our company's revenue coming from defense, our capacitors and RF microwave solutions serve a wide variety of military applications. From our RF filters being used in next-generation applications ensuring reliable and secure military communications to our capacitors providing the electrical energy source needed for extremely harsh applications like munitions and detonation devices, we are there to solve their most demanding needs. Third, the velocity with which the Fourth Industrial Revolution is progressing is now challenging manufacturers to find solutions for product optimization and manufacturing automation.
Our capacitors are used in a wide array of solutions from factory robotics, precision lasers, and semiconductor equipment, providing an essential energy source that advances the performance of their solution. Lastly, AI and the digital transformation are increasing energy consumption globally. We are helping to power new innovative solutions that support modern energy infrastructure and increased energy output. Now, turning to the markets we serve, I would like to note that the external research supporting the market growth rates are referenced in the appendix. Medtech and specialty audio and precision devices participate in the medtech market. On a blended global basis for the specific portions of the market we serve, the medtech market is expected to grow at a CAGR of 4%-6%. Growth in this market comes from multiple sources. There are significant advances in medical technologies, and our products support these advances.
From cancer treatments to imaging and precision lasers, our capacitors provide the energy delivery needed to ensure these devices perform reliably and with high performance. The number of medical devices being used to extend life expectancy and ensure sustained quality of life is also on the rise. Our custom medical-grade capacitors can be found in a multitude of implantable devices. In hearing health, Knowles is known for its superior technology and reliability. Our customers depend on our ability to deliver unique solutions to improve the comfort of fit and performance with extremely low power and high reliability. For over 75 years, we have been at the forefront in enabling innovation and helping shape the direction of the hearing health markets. Knowles RF filters and capacitors serve the defense markets. Our RF microwave technologies serve a broad base of communications applications from radar detection and jamming to ground communications.
Our ceramic and film capacitors provide the energy sources needed for detonation and munitions applications. The global defense markets are expected to have a 3%-5% CAGR, and we believe we will participate in that growth through a multitude of the products we offer. 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. The global forward-looking growth rates for the portions of the industrial markets we serve is 4%-6%. As the Fourth Industrial Revolution demands manufacturers to find automation solutions, our ceramic, film, and electrolytic capacitors support the energy conversion needs in continuous automation. Our capacitors ensure the proper storage and release of energy on demand to stabilize voltage used in continuous operation devices such as motors and battery backups.
The electrification and energy space we support is very dynamic and is expected to grow globally at 8%-10%. Our capacitors are used in battery energy storage, EV charging applications. This year, we expanded the reach of our film capacitors into energy sectors we have not yet historically supported, securing the largest single order in the company's history. We have the technology to support our customers' pioneering innovative solutions for the world's increasing demand for energy consumption. I am excited about the growth opportunities we have in this market. Turning to our business segments, let's look at the precision devices and its performance. You may not know our products, but you absolutely know the applications our products are in. Knowles products are in some of the most demanding applications, such as implantable medical devices, defense communication systems, and high-heat industrial applications for truly harsh environments.
We are a niche player in the capacitor space and are well-positioned for an acceleration of organic growth beginning in the second half of 2025. Over the next five years, we expect the segment to have an organic revenue CAGR of 6%-8%. In addition, the competition for the precision device product is highly fragmented, leaving a target-rich acquisition environment for Knowles. Within the precision device segment, we serve a broad set of demanding growth markets. In 2024, its market makeup was approximately 40% in defense, 40% industrial, and the remaining in medtech and energy electrification. The secular trends in these markets support our organic growth story. As I mentioned earlier, defense budgets are on the rise globally. As you will hear in just a few minutes, our RF microwave products and high-performance capacitors win in this category.
As the population continues to age, the need for our medical-grade capacitors is growing to support medical imaging, implantable medical devices, and life-extending treatments. The Fourth Industrial Revolution continues to create demand for reliable energy storage and discharge devices like our high-performance capacitors that can support robotics, welding, and induction heating. Finally, demands on energy usage are increasing, and our film pulse power capacitors win in this sector. Our precision device segment has products ranging from the size of a pen tip to a 500 lb, 3 ft box. Energy storage and discharge solutions include ceramic, electrolytic, mica, and film capacitors. Beyond high-performance capacitors, our technology extends to RF microwave filters. Here to talk about these innovative solutions and how we win in the markets we serve are business unit presidents Amrita Khemchandani and Rick Bielan. I'm excited to have each of them walk you through the businesses they run.
They have the expertise and the on-the-ground experience to share examples of our ability to differentiate and win in the markets we serve. Amrita? Thank you, Jeff. Good morning, everyone. I'm Amrita Khemchandani, Vice President and GM of High-Performance Ceramic Capacitors at Knowles Precision Devices. I bring over 20 years of experience across industrials, technology, and aerospace, with a strong focus on strategy, transformation, and end-to-end P&L management. Prior to Knowles, I held leadership roles at Johnson Controls and Honeywell, where I consistently drove double-digit growth, operational and commercial excellence, and innovation in complex, highly regulated environments. My career has spanned engineering, product management, marketing, and general management, and I hold engineering degrees from Carnegie Mellon and Cornell and an MBA from Columbia. I'm passionate about scaling innovation and leading high-performance products and portfolios.
I'm excited to have the opportunity to talk to you about our high-performance ceramic capacitors and RF microwave solutions. Our portfolio is the result of over 30 years of strategic acquisitions uniting trusted brands like Dielectric Laboratories, NovaCap, Cypher, Voltronics, and more. Together, they form the backbone of our advanced high-performance offerings. This collective strength allows us to deliver a broader range of innovation solutions with greater speed, efficiency, and global reach. Today, I'll cover what sets us apart, the markets we serve, why we win, and the growth ahead. First, a few key concepts. Capacitors are passive electronic components that store and regulate electrical energy, critical for voltage control, noise filtering, and power stability, making them essential in a wide variety of electronic systems. RF filters are also passive electronic components that allow certain frequencies to pass while blocking others.
They are used in radio frequency communication systems to separate channels or eliminate interference. The choice of materials used for both capacitors and RF filters directly impacts their performance characteristics, suitability for specific applications, and overall differentiation. With the basics covered, let's take a closer look at what truly sets us apart. It begins with our technology. We develop proprietary ceramic materials in-house, optimizing performance across voltage, capacitance, and frequency. Additionally, unlike most competitors, we build our own manufacturing equipment, giving us full control over the proprietary production process that lends itself to rapid and cost-effective customization for our customers. Our precision manufacturing enables high voltage and customized sizes. Our designs include built-in redundancy, essential for reliability in safety-critical environments. Our materials deliver stable performance across extreme temperatures from minus 55 to 200 degrees Celsius. Just as vital as our technology is our ability to deliver customized solutions.
From the earliest design stages, our engineers collaborate closely with customers to understand their specific needs and align with their goals. By combining deep ceramic materials expertise with custom electromechanical fabrication, advanced assembly techniques, and specialized testing, we create solutions precisely tailored to each application. This solutions-driven mindset has earned us a strong reputation as a trusted problem solver in demanding high-performance markets where off-the-shelf products fall short and custom solutions are required. Finally, our rigorous in-house testing rounds out the key differentiators that truly set us apart. We go beyond industry standards by subjecting components to thousands of hours of testing, designed to weed out even the rarest failures and ensure flawless performance in mission-critical environments like aerospace, defense, and medical. With specialized equipment and deep expertise in complex certifications, we deliver unmatched quality and reliability that few in the industry can replicate.
This commitment to precision is what Knowles is trusted for, where performance matters most. While my focus today is on high-performance ceramic capacitors, our precision devices portfolio also includes film and electrolytic capacitors, each serving distinct applications, and my colleague Rick will elaborate more on that a little later. Before diving into the types of ceramic capacitors we offer and the applications they serve, let's first understand what a ceramic capacitor is. Ceramic capacitors are valued for their high stability, compact size, and performance at higher frequencies. They range in size from a grain of sand to a postage stamp and are most commonly used in frequency applications in the kilohertz to gigahertz range. We offer three main types. High-reliability capacitors are built for mission-critical use in medical, aerospace, and defense, where failure is not an option. Multilayer ceramic capacitors are designed for industrial and electrification markets.
These capacitors offer high voltage durability and long-term performance, even as electronic systems evolve and operational demands intensify. Trimmer capacitors are used in defense, medical, and semiconductor systems for precise signal control, like non-magnetic trimmers in MRI machines where stability is essential. Much like our high-performance ceramic capacitors, our RF and microwave products leverage proprietary ceramic materials to optimize performance across size, weight, and power for aerospace and defense applications. Specifically, we offer RF passive components that are building blocks in RF circuits that split, combine, and adjust signal levels. We offer the smallest size, the lightest weight, and the highest performance components. RF filters are high-reliability filters that select desired signals and block interference in mission-critical extreme environments. Single-layer capacitors are ceramic capacitors used with active RF components, such as RF amplifiers, to improve performance over a wide frequency range. We offer the smallest temperature-stable capacitors available.
Now, let's take a closer look at the markets we serve and what drives our success in each. In MedTech, we focus on applications where performance is critical, such as implantable devices and medical imaging. For implantables, our zero-fail capacitors, typically the size of a grain of sand, are critical in life-sustaining devices for consistent, reliable performance because patient lives depend on it. In medical imaging, we specialize in low-loss capacitors and trimmers. Low-loss components efficiently store and transfer energy, maintaining performance without heat loss, like a well-insulated thermos. They're vital for producing high-resolution images, enabling earlier and more accurate diagnoses and improving patient outcomes. Defense is another key market with critical applications across several domains. First, for ceramic capacitors. In an application like munitions, our capacitors deliver precise, high-energy pulses to initiate detonation where timing and reliability are essential.
We specialize in high-energy density or small and light capacitors specifically for this purpose, where flawless execution is mission-critical. In communications and radar, our ceramics technology allows us to control temperature variations and ensure our low-loss capacitors can provide stable, high-frequency performance and preserve signal integrity throughout the system. In space systems, we create custom EMI filters to suppress electrical noise, ensuring clean and reliable signals in the most extreme and unpredictable environments. Defense is also a key market for ceramic RF and microwave devices. These applications require managing signals at a wide range of frequencies, like a radio system at 300 megahertz to a missile detector at 27 gigahertz. Our advanced ceramics, combined with our ability to create solutions that withstand harsh environments, are critical to success in these applications.
In radar, our filters support a wide range of operating frequencies and high power levels while minimizing size and weight. In electronic warfare, our filters meet the most demanding technical specifications to enable the highest performance for complex electronic spectrum operations. In missiles and space, our filters deliver exceptional performance and reliability in the harshest operating conditions. In the industrial sector, we focus on niche segments where our larger ceramic capacitors, about the size of a postage stamp, deliver strong margins on par with medtech and defense. Specifically, we support advanced manufacturing applications with high-voltage, high-energy-efficient capacitors, particularly in lasers and semiconductor processing, including lithography. Our custom high-power capacitors handle high currents with low-loss ceramics, operating at tens of megahertz with minimal self-heating while ensuring precision and reliability, critical to the success of these cutting-edge technologies. What distinguishes us here is our end-to-end customer or market application engagement.
From design to delivery, we move with speed and agility, earning us our strong reputation in this space. In electrification, we meet the growing demands of onboard charging systems and stations where higher voltage in a very compact size is key for faster charging and reduced energy loss. As a leader in high-voltage ceramic capacitors up to 6 kilovolts, we offer safety capacitors to reduce electrical noise and ensure system safety, and resonant capacitors to maximize efficiency in power conversion systems. Our ability to rapidly innovate and deliver high-voltage solutions drives better EV performance, keeping us ahead of competitors in this dynamic market. As Jeff mentioned, Precision Devices is expected to grow revenue organically 6-8% annually over a cycle.
When I think about how high-performance capacitors and RF filters contribute to that growth, I'm confident that our core business will continue to perform strongly across all four markets, driven by strong design wins and robust customer demand. Beyond our established strengths, we're also excited about new areas of organic growth. As leaders in ceramic capacitors specializing in custom solutions and high-reliability applications, we're now combining these strengths into a single integrated offering. These new products bring together multiple high-performance capacitors into a single precision machine solution, all built to our stringent reliability standards. The result is a plug-and-play solution that not only meets specific customer needs but guarantees performance at a system level and also simplifies their supply chains. This approach delivers clear value to customers and strengthens our market position. By offering more integrated solutions, we drive higher margins and create value for precision devices.
Additionally, we're expanding our technology into adjacent products with the launch of our new ceramic inductor line, building on our core expertise in ceramic materials. While it's still very early days, we believe this expansion could contribute revenue growth to our business over the next three to five years, creating meaningful upside to the 6-8% annual revenue growth over a cycle in our core portfolio. Inductors, like capacitors, are passive components, but while capacitors store electrical energy, inductors store magnetic energy. By adding inductors to our portfolio, we optimize power management and signal integrity, boosting overall system efficiency and performance. Inductors work alongside high-efficiency ceramic capacitors in the same circuits, making them a natural extension in the applications we already win, such as medtech and defense.
These are sticky applications with long design cycles, and our ability to support a larger portion of the circuit strengthens our position as a strategic supplier. This expansion not only increases our share of wallet by leveraging existing customer relationships and sales channels, but also allows us to win new business, bringing precision, customization, and reliability at the level our customers expect. We have covered a lot today, and there are three things I would like for you to walk away with. They are, one, we lead the industry with cutting-edge ceramic technologies and the agility to rapidly deliver customized high-reliability solutions. Two, our strong foothold in demanding growth sectors like medtech and defense continues to fuel sustainable success. Three, our fully integrated model, from design to delivery, enables fast, scalable solutions that differentiate us in the industry.
That's what makes our portfolio a smart investment, built on innovation, powered by growth, and engineered for long-term value. I've really enjoyed sharing the exciting developments in our ceramic-based capacitors and RF microwave solutions with you today. Now, to dive deeper into our film and electrolytic-based capacitors, I'll hand it over to Rick Bielan. Rick.
Thank you, Amrita. Good morning, everyone. My name is Rick Bielan, and I am the Vice President and General Manager of Knowles' Film and Electrolytics Business. I received my industrial engineering degree, an MBA, from Purdue University, and prior to joining Knowles, I held a number of leadership roles at multinational companies such as Emerson Electric and Amitech. As the newest member of the Knowles team, I am excited to be here to talk about the multitude of opportunities ahead of us, specifically focusing on the film and electrolytic capacitor markets.
The acquisition of the Cornell Dubilier business in 2023 has provided Knowles with an attractive combination of profitable growth and complementary capacitor technology. Cornell's film and electrolytic capacitors are a true complement to Knowles' existing ceramic capacitors, given the minimal overlap in markets and applications. Shortly after joining the business, it was quite apparent to me the power that the Cornell Dubilier brand has in the market. The brand has roots dating back over 110 years when William Dubilier invented the mica capacitor, which revolutionized radio broadcasting by enabling transmission over longer distances. Fast forwarding to today, whether it's the defense or medtech customers who have long since specified our products on their tightly controlled platforms or the new technology innovator in the energy market, Cornell Dubilier remains a go-to brand for high-performance film and electrolytic capacitors.
What helped Cornell become a market leader is our well-established North American-based footprint and a culture of leveraging our engineering expertise to work directly with customers and solve their specific challenges. As a part of Knowles, Cornell has greatly benefited from a broader market reach and the implementation of Knowles' disciplined business processes. This has opened up new growth opportunities and improved the overall performance and cash flow from our operations. Our plan is to continue to invest in the business going forward as we see long-term growth opportunities that are both diverse and plentiful. On the next few slides, I will discuss more about these opportunities, focusing on our competitive advantage, the markets we serve, and why we are the preferred brand. Before we move on from this slide, I'd like to start with what sets us apart from the competition.
We offer industry-leading aluminum-based electrolytic capacitors for use in a wide variety of applications, while also providing more specialized film capacitors for higher temperature, voltage, or frequency applications. We have the unique ability of taking these base capacitor technologies, customizing a solution for our customers or a specific application, and then scaling up for larger volume production. All of our capacitors start with the building block of industry-leading technology, which are then enhanced by decades of application, design, and materials expertise. Our teams are experts at knowing which combination of product attributes are essential to meeting the needs of our customers and their applications. We're also known in the market for our customer and application intimacy. Our engineering teams work directly with our customers to ensure we solve their most difficult problems quickly and effectively.
Once the solution is designed, we have the ability to scale production at volumes from the tens to the tens of thousands of units. As our customers continue to innovate their products and platforms, they return to us and continue this cycle that has brought us so much success. Moving on to a more general overview of the products, we are well-positioned to maintain healthy growth thanks to the diversity of our portfolio. As previously mentioned, these products are an ideal complement to Knowles' ceramic capacitor portfolio. Film and electrolytic capacitors provide customers with additional technology choices for higher energy storage and variable capacitance applications, such as radar pulses or power supply backup. Our products and solutions have proven resilient and adaptable, even in an environment of ever-changing secular trends.
For example, our supercapacitor modules, which are a type of electrolytic capacitor, provide a more reliable and efficient alternative to lithium-ion batteries, given the rapid charging needs of many applications, such as in AGVs or automated guided vehicles used in warehouses. With charging pads installed on the warehouse floors, these AGVs can operate without interruption, thanks to the supercapacitor's ability to charge rapidly while the vehicle is in motion. These same supercapacitors can be designed to provide essential power supply backup for servers in data centers, where uptime is critical. Additionally, I am very excited about the growth potential of our film capacitors, particularly the specialty film product line. Demand for our specialty film capacitors has been rapidly increasing as our customers' applications and design requirements are more demanding than ever.
These capacitors are designed to handle even more extreme temperatures and voltages while discharging the energy with greater precision than a standard film capacitor. One of the key growth areas is impulse power. As the name suggests, these applications require a precise pulse of energy at a very specific moment in time. I'll provide more detail on some of these and other applications on the following slides, but regardless of capacitor technology, our customers have confidence in us to select the correct solution and provide them with a customized design that meets their needs each and every time. Now let's talk a bit more about the markets that we serve, starting with medtech. Our customers have very specific requirements given the critical and, in some cases, life-saving nature of the applications.
The platforms and equipment where our capacitors are sole-sourced undergo very long design cycles, sometimes lasting five or more years that often require FDA approval before commercial use. We benefit from strong relationships with OEMs in markets such as defibrillators and radiotherapy devices, which are used for targeted tumor treatment. It's important to understand the role that our capacitor plays in these applications. For example, a defibrillator must be able to release a very precise amount of energy at an exact moment on demand. The film capacitor is one of the most critical components of the device because the energy stored in the capacitor is what delivers the precise pulsed electric shock to the patient, restoring a normal heartbeat.
Lithium-ion batteries cannot discharge the energy fast enough, so a capacitor is the key to the device's success, the patient's life, and our ability to deliver a product that can meet these very strenuous requirements. Failure isn't an option, and our proven quality and reliability are why we have maintained such a strong presence in the market. Our medtech application opportunities aren't limited to just defibrillators. As doctors and scientists have made strides in life-enhancing therapies, the film capacitor plays a key role in ensuring that radiotherapy machines operate with the precision needed. Our film capacitors store and then deliver a pulse of energy to charge particles like electrons that are accelerated to very high speeds. These particles can be directed at very specific locations on a patient's body, targeting tumors or other abnormalities.
We conduct extensive reliability and performance testing with our designs that have proven essential in securing our capacitors for use in these critical devices. In defense and aerospace, we have worked with many of our customers for decades, benefiting from the product stickiness in these tightly controlled markets. We provide capacitors across an array of applications, from unique weapons platforms like the rail gun to more broadly used ground and ship-based radar and control systems. For those who have not heard of a rail gun before, it is an advanced projectile weapon that operates without explosives or chemical propellant. Instead, large banks of hundreds of our capacitors discharge an enormous electric pulse at a single point in time, creating a powerful magnetic field. This field is then transmitted along a rail to accelerate a projectile at incredible speeds.
With such precision required across so many capacitors, customers rely on us to apply our expertise and provide them with a solution designed for optimal performance. In addition to our expertise, we are uniquely positioned to remain sole-sourced on a number of these key platforms, thanks to our U.S.-based design teams and our defense and aerospace quality-compliant manufacturing facilities. The industrial segment is our most diverse in terms of these applications we serve. What you see on the slide is just a small sample of the thousands of applications where a broad spectrum of products is used in the market. We win across these applications in large part because of our long history of providing a comprehensive, customized product portfolio and maintaining a broad market reach through key distribution partners.
I previously mentioned the use of supercapacitors for critical power supply backup, but there are many more examples where high-performance capacitors play critical roles. For example, whether by the hand of a person or through an automated machine, welding is a necessary part of industrial production. Our aluminum electrolytic capacitors allow for the precise discharge of high-current pulses, providing the reliable and repeatable heat and pressure cycles required for precision welding. Imagine not being confident in the integrity of a weld on a piece of structural steel, a pressurized pipeline, or the vehicle that you drive every day. The importance of the capacitor and the peace of mind we offer cannot be overstated. That is why our customers continue to rely on Knowles as a strategic supplier. The channel strategy is what also differentiates the industrial segment from most of our other core markets.
Our distribution channel partners play a key role in our go-to-market strategy and provide us with easier access to the thousands of customers in this segment. These partners allow our customers to one-stop shop for a variety of capacitors without sacrificing their desire for customization. In many cases, we work directly with our customers to define the application needs and then utilize the convenience of distributors to provide the many options with the shortest lead time possible. In the energy market, I'd like to begin by celebrating the success of our engineering-to-engineering approach as we announced in Q1 the receipt of the largest single order in the history of the company. Working alongside our customer, we solved their initial challenges by utilizing our quick-turn prototype capabilities, turning a handful of custom-engineered units into the largest order ever.
We are currently ramping up production capabilities in support of the $75-plus million order, with deliveries expected to begin in 2026 at margins above the Knowles corporate average. More broadly, the energy market is expected to provide us with significant growth in the coming years as more and more customers engage with us in need of highly reliable pulse power specialty film capacitors. Before I conclude, I'd like to share some exciting examples of where there are opportunities to accelerate our growth using our existing proven technology. The current method of hydraulic fracturing, also known as fracking, involves a massive amount of liquid and sand called slurry injected into an oil or gas well to create fractures in the rock and release the oil or gas.
We are working with our customers on the next generation of fracking technology using short, high-pressure pulses to fracture the rock, requiring very little fracking fluid and lowering their operating costs. A pulse power specialty film capacitor is an ideal solution given it must operate reliably in a very confined space at very high pressures and temperatures. Our film technology also has the opportunity to play a key role as many nations embark on an upgrade cycle of their electric grid. High-voltage direct current is a more economical method to transport electric power over longer distances. This requires high-voltage direct current converters with banks of our film capacitors at strategic locations along the grid. The capacitor helps filter out the harmonics generated by these converters, reducing power loss and stabilizing the voltage.
This results in much less signal loss over longer distances, leading to greater transmission efficiency and lower operating costs than a traditional alternating current transmission system. In closing, we are well-positioned to capitalize on the many growth opportunities for both our film and electrolytic capacitors. The Cornell Dubilier brand, benefiting from Knowles' ownership, is poised to build on its 110-plus years of success. Our differentiated portfolio and manufacturing scalability provide us with a winning strategy at a time when customers demand more from the capacitors they source. Thank you for the opportunity to share our great story, and we look forward to capitalizing on the many organic growth opportunities ahead of us. I'm now going to turn it over to John Kiachian , who will discuss our medtech and specialty audio business.
Thank you, Rick. Good morning, everyone. My name is John Kiachian.
I'm the President of the MedTech and Specialty Audio, or MSA, business unit at Knowles. Before joining Knowles, I held leadership roles at Texas Instruments, National Semiconductor, Atmel, and successful startups in the semiconductor industry. I've been at Knowles for almost eight years now, and not only am I incredibly proud of what we have accomplished during that time frame, I'm even more excited about the growth opportunities that we are well-positioned to capitalize on. Approximately 75 years ago, Knowles founder Hugh Knowles enabled the modern hearing aid industry when he invented miniature, high-quality transducers. Today, the hearing aid market for our customers is approximately $6.5 billion. For those of you not familiar with the term, a transducer is an electronic device that converts energy from one form to another. For example, Knowles BA speakers convert electrical signals into sound, and Knowles microphones convert sound into electrical signals.
Today, I'm going to explain what makes medtech and specialty audio a great business. I'll walk you through the markets we serve, why we win, the products we sell, and how our focus on innovation, customers, and supply chain excellence positions us for continued success and future profitable growth. Let me start with hearing health, a market which represents approximately 90% of MSA's revenue. MSA has been integral to the success of the hearing aid market, which has been stable, lucrative for participants in the value chain, and growing for the last 75 years. The hearing aid market stability is due to resilient end-user demand and the relatively low out-of-pocket costs that hearing aid buyers incur. User demand is driven by the necessity that people with hearing loss have a solution that allows them to continue to function independently.
Customers are on the average 71-year-old individuals who have suffered from progressive hearing loss for approximately eight years. At the time of their purchase, they have finally reached a point where they cannot stop denying that they have trouble hearing and have overcome the stigma associated with wearing a hearing aid. In other words, hearing aids are not a discretionary purchase; they are essential. Patients who wear them need them to function. Because this is an essential device, during periods of macroeconomic weakness, there's often a short-term decline followed by a rebound in demand. By way of example, in 2000, when the dot-com bubble burst, in 2008, during the financial crisis, and in 2020, during COVID. The market contracted for one or two quarters in response to the economic uncertainty, with demand returning quickly to normalized levels.
Several characteristics make the hearing aid market lucrative for retailers, manufacturers, and suppliers. These characteristics include the fact that the market is regulated, has a fragmented retail channel, and has substantial barriers to entry. MSA's primary customers are five manufacturers who make up approximately 90-plus % of the global market. These top customers include three public companies: Sonova, Demant, and GN, privately held WS Audiology, and Starkey. Knowles is one of two main providers of transducers to the hearing aid manufacturers. The hearing aid market has significant room to grow. Favorable demographics, as the developed world ages, and the expansion of hearing health care access in emerging markets is expected to drive volume growth. Currently, penetration in developed countries is approximately 33%. The key to increasing penetration is reducing both the stigma associated with hearing aids and potential users' denial that they need hearing aids. Thankfully, both are declining.
Penetration in emerging markets is less than 5%. This is a function of the growth of the middle class and infrastructure needed to gain access. In addition, recent U.S. government regulations have enabled people with mild hearing loss to buy hearing aids over the counter, eliminating the need for a licensed audiologist in the purchasing process. This opens new channels for individuals where adoption of hearing aids is extremely low. MSA also participates and is the leading provider of acoustic solutions in two additional markets: communications and audiophile. These markets represent approximately 10% of our segment revenue. On the communications front, we service multiple sectors with our boom mic products.
Our customers in the audiophile market service two types of end users: entertainers who use in-ear monitors while they are on stage to protect their hearing and keep the show in sync, and individuals who will not accept "good enough" from their audio equipment and demand a premium product. In both markets, we leverage our extensive product portfolio of miniature, high-performance, and high-quality speakers and microphones. Both markets are very fragmented and are primarily made up of small businesses who rely on Knowles to provide custom solutions based on our products: balanced armature speakers and microphones. As the leading provider of transducers to the hearing aid market, Knowles has been introducing innovation for over 75 years. We built the first miniature microphone and speaker for hearing aids in 1954 and haven't stopped innovating since then. Hearing health is in our DNA.
We have strong business and technical relationships with our customers at all levels. Not only do they view us as a critical supplier, but they also view us as a collaborative partner who develops high-quality, reliable transducers that push the boundaries of size and performance. This ensures that we meet the evolving needs of the market and eliminate any unnecessary supply chain risk. We are completely aligned with our customers' long-term roadmaps. Our core operational strengths stem from our world-class supply chain and manufacturing centers of excellence located in the Philippines and Malaysia. This enables us to efficiently deliver a high-mix portfolio of miniature solutions at scale. With industry-leading quality and reliability, we are uniquely positioned to drive sustained value in demanding end markets. The Knowles brand is trusted by market leaders, and we're the only fully vertically integrated supplier of transducers focusing on hearing health.
From microphones to balanced armature speakers, our products are not just components. They're enabling technologies that make hearing aids smaller, extend battery life, and increase reliability. Let's talk about the products we sell to the hearing health market. There are two types of transducers inside a typical hearing aid: microphones that pick up the sound from the outside world and balanced armature speakers that play the amplified sound in the user's ear. Knowles is the leading supplier for both. In fact, if you know someone who wears a hearing aid, it probably has a Knowles transducer inside. On the microphone front, Knowles pioneered MEMS mic technology and was solely responsible for its adoption in the hearing health market. In the context of a hearing aid, the MEMS mic is where everything begins.
If the sound quality picked up is noisy or low quality, no amount of post-processing can give the user a desirable experience. While the MEMS microphone may be where the hearing aid's audio journey begins, the balanced armature speaker, our BA, is where it ends. Sound picked up by the microphone is processed and amplified for the patient's specific hearing loss and gets played in the user's ear through our BA speakers. Hearing aids must be small, comfortable, and power-efficient enough to operate for 20 hours a day without a recharge. Our microphone and BA technologies meet these requirements. Knowles is a one-stop shop for receiver and canal, our RIC subsystems. We build plastic housing, cables, connectors, and plugs. That covers MSA's hearing health solutions. Now I'd like to switch gears and talk about industrial communications and audiophile solutions.
On the communications front, our boom mic offering services multiple sectors, including aviation, defense, and industrial. A boom mic is a high-performance microphone which is surrounded by a robust housing and mounted on a flexible arm, which is connected to a headset. In the aviation sector, boom mics must block out aircraft and engine noise and, due to safety considerations, must perform flawlessly. In the defense sector, not only is crisp, clear communication a matter of life or death, the environments where these communications take place pose a threat to the physical integrity of the microphone itself. Our vertical integration gives us a unique edge in the aviation, defense, and industrial sectors. So far, we have talked about how Knowles services hearing health and industrial communications. Let me now touch on another high-end space, the high-performance audiophile market.
While some people are happy enough with the audio quality they get from their wireless earphones, there are many who yearn for a fuller, richer audio experience. These people are called audiophiles, and they are willing to pay a premium to listen to richer sounds. The challenge is hardware limitations. This is where Knowles comes in. Think of a home theater system. Most home theaters have at least six speakers. The purpose of having multiple speakers is to optimize each speaker for a specific frequency. A typical earphone, like your AirPods, has only one dynamic speaker that is supporting the entire frequency range, from low-frequency bass to high-frequency treble. Having one speaker support the entire range makes for a suboptimal listening experience that frustrates audiophiles. High-end audiophile earphones correct this in the same way as your home theater system by adding speakers tuned for different frequencies.
Knowles balanced armature speakers are fundamental to this market. Because of their smaller size, high range of output, and maximum power efficiency, multiple BAs can be squeezed into these products. Knowles has built BAs from the ground up that enable a home theater to literally fit into a user's ears. In addition, the Knowles brand has become so powerful in this space that several OEMs brand their packaging with the Knowles logo, akin to an Intel Inside campaign for PCs. All of the attributes that set us apart in the hearing health business also apply to our medtech micro solutions. In this new business line, we are leveraging our existing core capabilities and producing miniature components in coil winding, metal stamping, and plastics molding, and applying them to specific applications such as cardiac rhythm management, neuromodulation, diagnostics, and surgical navigation for tier-one medtech companies.
The competencies I just mentioned exist due to our vertical integration in the hearing health and industrial markets. The broader medtech market requires miniature, high-precision, high-quality, scalable manufacturing. Products are frequently sole-sourced, and there are significant qualifying and switching costs for customers. Recently, all MSA's factories have been medtech certified, and we've been awarded new design wins in the cardiac rhythm management and diagnostics that are expected to start production within the next 12 months. I'm very excited about the traction and feedback we have received from this market. This opportunity represents no significant increase to fixed overhead or operating costs. Simply put, we expect to expand our revenue at high margins based on existing core competencies while leveraging existing customer relationships and channels, accelerating the MSA segment revenue growth beyond the 2-4% annual CAGR.
Knowles is an acoustic innovation leader, and we have been leveraging that capability to participate in and lead the medtech, hearing health, and industrial communications and audiophile markets. Because we sell both transducers and complete solutions to these markets, we have developed strong manufacturing capabilities that the broader medtech market is in the process of adopting. All of the markets we do business in are stable and growing. Knowles' innovation leadership, strong customer relationships, best-in-class supply chain and manufacturing, and quality and reliability provide Knowles a differentiated position, driving high margins and robust cash generation. Now, let me turn it back over to Jeff.
Thanks, John. We have heard from the BU presidents on how Knowles will grow organically. With strong design wins and participations in sticky markets with a strong customer base, I am confident in our ability to deliver organic growth of 4-6% over a cycle.
Now, we will hear from Brian Crannell, who will discuss our acquisition program and how we intend to supplement our organic growth in the future. Brian?
Thanks, Jeff. Good morning. I am Brian Crannell, the Senior Vice President of Corporate Development. I'm pleased to have the opportunity to share with you our strategy and outlook for M&A. I joined Knowles in 2011 on the management team Hearing Health Division. Working with the customers and R&D teams was a great opportunity to learn the dynamics of that business and the history of Knowles as an innovator. After our separation from Dover, Jeff asked me to take on the corporate development role, a position I had previously held at Littelfuse, where we had some very good success rapidly expanding that business.
The corp dev role at Knowles has been a great opportunity to work with the team to build our strategy and execute a number of acquisitions and divestitures. This has put us in a strong position as a high-performance, high-reliability, high-margin industrial technology company. As my colleagues have described the technologies and markets we are organically growing, my team's efforts build upon these to increase our growth and earnings with strategic acquisitions. Our lens for transactions looks for three types of deals where we have demonstrated the ability to drive value: consolidations, extensions, and adjacencies that are close to our core. As we've undertaken our transformation, we've completed four acquisitions and two divestitures. The Compex business was a consolidation in ceramic capacitors. The DITF and Integrated Microwave transactions were both focused on extending our offering for the RF microwave defense customer base.
These two transactions enabled us to scale the RF spectrum served and build deeper relationships with new custom capabilities. The Cornell transaction is a good example of an extension acquisition, and I'll spend more time on this on a future slide. These growth acquisitions have been key to enabling our transformation in conjunction with the exit from our consumer mobile business. As we were a pioneer in MEMS microphones, the complexity to separate while preserving core technology for our hearing health business was a very challenging undertaking. With the closing of the consumer transaction in December of last year, my team and I have been able to redeploy our energy on our M&A funnel and are excited about the potential. With a strong core asset base and stable growth markets, we are fully focused on growth, having completed all planned divestitures.
Our acquisition strategy is built around buying businesses which have the characteristics that our customers value Knowles on providing for them. This is the deep engineering and manufacturing expertise to solve complex application demands. We know that customer respect is earned over many years, and finding businesses which have the right talent and technology is a core principle we all focus on. Given all of our efforts to develop our strong positions in medtech, defense, and industrial, we continue to hunt in these end markets. We're looking for great teams in growth markets where we can hit the ground running on delivering value for Knowles. I've talked a bit about our M&A playbook and how we build upon our growth strategies to screen for potential targets. In conjunction with the funnel work are the important processes we use in our acquisition activities.
With the experience from sourcing, closing, and living with 30 transactions throughout my career, I put a ton of value on having a rigorous cross-functional diligence process and a disciplined valuation approach. Doing the right work upfront and aligning the team on the value drivers sets us up for a fast start on our comprehensive integration program. We focus on the key attributes which have made a target successful with its customers, how Knowles can leverage these strengths, and what are the clear levers to drive synergies. Moving to the Cornell transaction, this is a prime example of our M&A strategy in action. The transaction was born from a long-term strategic approach. We took the time to build a relationship with the owners to give them comfort that Knowles was the right home for the business.
This acquisition allowed us to extend our product offering in electronic capacitors and added new capabilities with the higher power pulse capacitors. The combination has increased our scale in medtech, defense, and industrial, as well as opened new markets for us in electrification and energy. Since closing the transaction in the fourth quarter of 2023, we've successfully consolidated and integrated key elements of the business while maintaining its technical leadership and customer trust. Through this combination, we are seeing the benefits for our customers and channel partners. The adoption of Knowles' operations and financial business processes has driven improved financial performance, and we're excited about the new lanes for profitable long-term growth. Cornell demonstrates Knowles' core ability: customization at scale. Entering year two, we are confident on the value creation for Knowles' shareholders from the Cornell transaction. Now, let me recap our M&A strategy.
We are focused on creating value through disciplined execution. We target acquisitions, which will be EPS accretive within 12 months of closing, are expected to generate financial benefits for our shareholders by achieving a return on investment of 200-300 basis points above our cost of capital and provide growth in both revenue and earnings. With the expected strong cash flow of the post-transformation Knowles, we've increased our capacity for tuck-in and bolt-on transactions. We will continue our disciplined approach to capital deployment, ensuring we maintain a strong balance sheet with a net leverage ratio of less than 2.75 times adjusted EBITDA. As I look ahead, our M&A pipeline is robust. We are actively evaluating opportunities to grow our position in the precision device segment through product consolidation, extension, and adjacency transactions.
We are also looking at acquisition opportunities to supplement growth within our medtech micro solutions, which leverages our precision manufacturing capabilities. While we see some challenges on deal activity with the current market uncertainties, we are active, and we will be patient for good properties to come to market. We are focused on using our proven playbook, staying nimble, and making the case that we can provide an attractive combination of value and a good home for teams and technologies to continue to be part of Knowles. We have built a proven and repeatable M&A process that aligns with our vision and positions Knowles for sustained long-term growth. I am excited for what is ahead and confident in our ability to continue to execute and deliver results. Now, let me turn it over to John Anderson, who will give you our financial overview and outlook. Thanks, Brian.
Brian just highlighted how acquisitions will be an integral component of our long-term growth strategy. I'm excited to provide an overview of the key organic initiatives that will drive revenue and earnings growth and expand our margin profile. I will also address the capital deployment priorities we intend to pursue to drive long-term shareholder value. Let's start by looking at the historical financial performance of Knowles on a continuing operations basis. Revenues increased from $321 million in 2017 to $554 million in 2024, resulting in a CAGR over that timeframe of 8%, with approximately half of the growth being generated organically and the other half coming from acquisitions. During that same period, adjusted EBITDA grew from $61 million in 2017 to $129 million in 2024, resulting in a CAGR of 11%.
The adjusted EBITDA increase was driven by a combination of revenue growth and adjusted EBITDA margin expansion of more than 400 basis points. Our historical revenue and adjusted EBITDA growth rates reflect the focus we have put on investing in growth markets where our products have a differentiated value. As I mentioned on the previous slide, we improved our adjusted EBITDA margin profile by more than 400 basis points from 19% in 2017 to more than 23% in 2024. I'd like to provide some details on how this improvement was achieved. Let's start with pricing. We have a dynamic approach to price optimization, which is primarily based on benefits and solutions our product brings to our customers.
For example, as part of our due diligence in connection with the 2023 acquisition of Cornell Dubilier Electronics, we identified significant pricing opportunities based on sole source positions and custom solutions the company held with many customers. In the year following the acquisition, we were able to increase price by more than $5 million on an annualized basis with limited attrition. Now, let's move to cost. At the product level, we have a relentless focus on lean manufacturing, and we establish annual targets for improvements in efficiency, factory productivity, and yields. In addition, we continually evaluate opportunities for footprint consolidation. For example, in 2024, we transferred our RF filter product line from Minden, Nevada, into an existing filter facility, resulting in a reduction to fixed overhead of more than $2 million annually. Lastly, we continually look for reductions to material spend through supplier negotiations, design changes, and material substitution.
The final pillar in our approach to expanding our margin profile is expense management. We've demonstrated that we can control selling, general, and administrative expense by optimizing our low-cost shared service organization in the Philippines and moving our business units to a single ERP system. In terms of R&D, we continue to optimize spending for better ROI and are finding ways across our business units to leverage R&D spending. As we move forward, our target is to increase operating expenses at no more than 50% of our organic revenue growth rate, which enables us to improve operating leverage. Now, let's move to our expectations for full year 2025 and beyond.
While I recognize we are currently operating in a volatile macroeconomic environment, we are reconfirming the Q2 guidance we previously provided, and we're estimating full year revenues of $560 million-$590 million, resulting in an organic growth rate of 4% at the midpoint. In addition, we expect full year adjusted EBITDA to be within a range of $140 million-$150 million, a 13% increase over 2024 levels at the midpoint. Adjusted EBITDA margins are expected to increase by 180 basis points from 23.2% in 2024 to 25% in 2025. Cash from operating activities is expected to be within a range of $80 million-$100 million, or 16% of revenues. We remain confident in our ability to continue to deliver growth in revenue, adjusted EBITDA, and cash from operations over the next five years, which will replicate or slightly exceed our historical financial performance for the period 2017 to 2024.
Specifically, we expect organic revenue to grow at a rate of 4-6% annually and expect acquisitions to add an additional 4% for a total annual growth rate of 8-10%. Adjusted EBITDA is expected to grow at a rate of 10-14% annually, including acquisitions. Lastly, we expect to generate operating cash flow of 16-20% of revenues. I continue to believe that as we grow the top line and scale our business, there will be many additional levers to push adjusted EBITDA margins above our current outlook for 2025 of 25%. Our focus on attractive growth markets, combined with our ability to customize at scale, truly sets us apart from the competition. Let's dive into the three components of our future revenue growth.
Starting with the Precision Devices segment, which represents roughly 54% of revenues, we expect an average organic annual growth rate of 6-8% over the next five years. As Amrita and Rick mentioned, PD growth will be driven by anticipated market growth in industrial, medical, and defense, increasing content by delivering new integrated capacitor solutions, expanding our product offering into adjacencies like inductors, and ramping up our specialty film capacity to meet the demand related to recently awarded business for the energy market. Now, let's move to the MedTech and Specialty Audio segment, which represents 46% of total revenues, and we expect to deliver growth of 2-4% annually.
Growth will be driven by our market-leading position in the hearing health market, favorable developing macro tailwinds, including aging baby boomers in North America, increased market penetration in developing countries, and a greater awareness of hearing aids as technology has progressed significantly in recent years. In addition to the expected growth within the hearing aid market, we're very excited about growth opportunities for the MSA segment within the medtech market as we leverage our core capabilities in coil winding, metal stamping, and plastic molding to win new business. Finally, as Brian mentioned earlier today, we have the balance sheet, dedicated team, and proven processes to supplement our annual organic growth rates by 4% by making value-creating acquisitions. I briefly described the components of our expected revenue growth on the previous slide.
Now, let's walk through the path of how we intend to deliver annual adjusted EBITDA growth of 10-14%. First, we expect significant EBIT drop-through on increased volume. Specifically, for every dollar of revenue growth, we target to deliver 35-45% in EBIT to the bottom line. Next, we'll continue to drive gross margin expansion by pricing optimization, factory productivity gains, and material cost reductions. We will continue to be disciplined with respect to operating expense, with a goal of limiting increases to 50% of our top line organic growth rate. This will be accomplished through leveraging our low-cost shared service center in the Philippines and moving all our businesses, including future acquisitions, to a single ERP system. Lastly, we'll continue to execute on our acquisition strategy, ensuring we deploy a disciplined approach targeting acquisitions, which we expect to be accretive to EPS within 12 months of closing.
I'm confident that with the people and the processes that we have in place, future adjusted EBITDA growth will continue to significantly outpace revenue growth. Before moving to our capital allocation priorities, I'd like to spend a minute and provide an overview of our global manufacturing footprint and, more specifically, describe our manufacturing and supply chain strategy. Knowles is a proximity manufacturer, meaning the vast majority of the product manufactured in the U.S. is shipped within the U.S., and product manufactured in Asia ships within Asia or Europe. Further, our world-class global supply chain team, where possible, procures materials geographically close to our production facilities. Based on the current tariff situation, we believe that less than 5% of our total company revenues and less than 3% of cost of goods sold are directly impacted by tariffs. Moving to capital deployment.
In 2014, we spun out of Dover with $400 million of debt and a leverage ratio of close to 3. From 2017 to 2024, we reduced net debt by $212 million while also investing $132 million, or roughly 4% of revenues over that period, in our business to support organic growth. In addition to our capital investments, we invested more than $350 million in acquisitions, and since 2020, we returned over $200 million of capital to shareholders through our share repurchase program. As we look to the future, our capital allocation priorities will continue to include funding organic growth opportunities with the highest potential returns, and we are targeting capital expenditures of 3-5% of revenues over the next five years. We do expect to be closer to the high end of the range in both 2025 and 2026 to support our accelerating organic growth.
We anticipate increasing our focus on M&A as this is expected to be a significant component of our growth strategy. Important to note that we'll continue with a disciplined approach to M&A, including targeting a maximum net leverage ratio of 2.75. Lastly, we'll remain committed to returning capital to shareholders through our share repurchase program. At a minimum, we expect to repurchase enough shares to offset EPS dilution resulting from annual stock awards related to our stock-based compensation plan. Depending on acquisition activity, there is the potential to use as much as 50% of our free cash flow for share repurchases. In conclusion, it's a very exciting time for Knowles, and I believe the company is uniquely positioned in each of the markets we participate, which I expect will drive strong revenue and earnings growth for our shareholders over the next several years.
With that, I'd like to turn it back over to Jeff for key takeaways. Jeff? Thanks, John. You've heard a lot today. Let me recap. Our portfolio of businesses has a proven record of financial success in dynamic markets with strong secular growth trends. We design high-performance, customized solutions for our customers that have demanding applications, and we have the manufacturing processes that allow us to do this at scale. This sets us apart from our competitors, allowing us to garner a premium margin for the products we produce. On top of our organic growth plans, our strong balance sheet and robust cash generations are expected to fuel inorganic growth, driving shareholder value. My confidence level and excitement for what is to come has never been higher. Thank you for your time and attention. Now, let's move to the Q&A session.
Our first question has come in over chat from Chris Roland from SIG. He asks, "Can you talk about your manufacturing footprint, both front end and back end, across your various products, and are there any changes you can make to mitigate, one, tariffs for import into the US, and two, tariffs into China and the rest of the world?"
Thanks, Chris, for the question. First, let me just kind of make the comment and maybe a little bit of reiteration of what kind of John just spoke about. Generally speaking, most of our manufacturing ships within the regions that the manufacturing is done. Now, that being said, I think we've tried to divide this up into three areas that could impact us. First is on direct sales basis.
In other words, do we ship from, say, Asia into the U.S. where it might be subject to tariff or vice versa? We think less than 5%, based on what we see today, of our revenue would be subject to tariff. Now, on that piece, we'll always be looking for opportunities to optimize if it makes sense to continue to be a proximity manufacturer. I would also add, it was kind of discussed on our last earnings call, there may be opportunities where some of our competition is shipping from overseas into the U.S., and we have U.S. manufacturing for us to take some share. We will be looking at that very closely, and obviously, this is very dynamic. The second thing I would bring up is our cost of goods sold.
We have inputs that go into our manufacturing process, whether it be done in Asia or the U.S. We've estimated at this point about 3% of our cost of goods sold could be subject to tariff. It's not a big number, but what I would say, both on our direct tariffs from our sales and our cost of goods sold, we believe we can pass on the full extent of any tariffs that are levied against us, either through price increases or through surcharges. The last impact that could be had from tariffs would be on the end market demand, our customers' demand. Obviously, this is a little harder to track in the short term, but generally speaking, we think we have some good insulation from that.
Our three main markets, first medtech, most of our products are essential, and I would sit there and say, we've seen this in the past, as John Kiachian went through when he talked about the hearing health business, where sometimes if there's a recession, we see a slight contraction for a quarter, and then the business goes right back to where it was, as people have to buy a hearing aid when they need one. I think one of the things he didn't mention, 50% of hearing aids sold are second-time buyers. In other words, if you're used to having a hearing aid and your hearing aid breaks or you lose it, you have to go get a new one. In the defense market, I would say 95% of our product more probably is made in the U.S. and shipped in the U.S.
The programs we're on, we think, are very insulated from any type of tariffs or even any type of recession. That leads me to industrial. In our industrial markets, we do have probably more sensitivity in this market if in the event there was a recession, but what I can tell you is we have not seen a change in demand. In fact, what I would add, I think I talked about on our earnings call how strong the bookings were in Q1. We have our April revenue numbers and bookings already, and we had another very strong April in terms of bookings, a strong month of bookings.
We continue to see demand increasing through a combination of reduction of inventory in the industrial channel, which seems to be normalized, new products going to market that we have not participated in before, and this is driving a lot of our demand going forward.
A reminder for those of you listening live on Zoom, if you have a question, please raise your hand, and we will be happy to take your question live. Guys, we have another question from the chat. "Can you talk about any new and emerging products for Knowles, like the specialty film capacitor line, and what are the applications for this line and any other new products that may have similar prospects in the future?" I think that is an interesting question. We tried to lay out a little bit in this investor day.
First of all, what we see over the next cycle, the next one to five years in terms of growth, both for our MSA and PD segment, but there are some upsides that we are partially counting in on, but not fully baking in. First is the specialty film line. I think that's probably the furthest along in terms of where we are. We've talked a lot about this. Last year, it was a little over $20 million. This year, we expect that to be in the mid-$30 million in terms of millions of dollars of revenue. With the energy we received, we would expect that probably to be in the range of $50-$60 million in 2026. This does cut across multiple markets. There's definitely medical applications. There's definitely industrial applications, including energy, as well as defense.
I think, generally speaking, what's unique about this product, and Rick Bielan described this very well, is the pulse power aspect of this product, delivering an extremely high amount of energy at a very precise moment in time reliably. The best example he gave was the defibrillator, where when someone says charging, that's the lithium-ion battery, which cannot just charge fast enough, charging up our capacitor, and then the energy has to be released at a very specific time and a very specific amount of energy. There are many applications for this across industrial, medical, defense. We talked about medical. He did talk about defense in terms of rail guns. That's a very interesting application that we're seeing demand for. Of course, the energy market, which we've talked some about. Other opportunities that were also discussed were inductors.
You'll be seeing very shortly that we're going to be introducing a line of ceramic inductors to the marketplace, very complementary to our ceramic capacitors in the application, same applications. Now, this is early days for this. We think we have some very strong competitive advantages, which we'll discuss a great deal in the future, but we'll probably start seeing revenue from this in the three- to five-year horizon. The third one I'd just like to highlight would be in the MSA area, which is our micro solutions group. We've been working on this for about a year and a half, almost two years. Again, the design cycles are very long. We have some nice wins already that will start production in 2026 in diagnostics, as well as cardio rhythm management.
This is in the area, again, where we're taking our core capabilities of metal stamping, micro metal stamping, micro plastic molding, and micro coil windings, and applying these to other medical markets. Again, the design cycles are long. These are sticky applications, and we're getting what I would call, quite frankly, I'm shocked at the amount of customers that are coming to us and saying, "If you can do what you do for the hearing aid industry for us, we want you to be a supplier." Some really great opportunities to possibly get towards the higher end or maybe even above the organic range that we talked about.
Our next question is a live question from Bob Labick from CJS Securities. Bob, you can unmute and go ahead. Bob, can you please unmute at this time? Okay.
We're going to switch over to Chris while we work through Bob's technical difficulties. Chris, you're on with the guys.
Can you guys hear me? Yeah, I can hear you, Chris. I can hear you. Okay, great. Good. Thank you for the question. A couple of quick ones. Your top line guide, it looks like you went from high single digits to 8-10%. Is that, if I'm interpreting correctly, a little bit better there? Is that just due to the sale of the consumer mic business, or is that a small bump in the growth expectation and what's driving that? John, perhaps a quick one for you. What's the DNA number that you're assuming for the year to arrive at the $150 million midpoint? Sure. Chris, just first, let me cover on the revenue front.
Over the last seven years, not including acquisitions, we've grown this set of businesses at 4%. Now, we're projecting now going forward to grow it at 4-6%. People probably were asking, "Well, why do you think it'll grow faster than it did in the previous cycle?" What I would say is, remember, our mix has changed and moving towards higher growth areas. If you go back to 2017, when we started the measurement, our hearing health business, which, again, growing 2-4%, was a larger portion of the total. Since then, the PD business obviously has grown quite a bit organically, and we've added Cornell, which would now be organic going forward in 2025, 2026, and beyond.
We think growing at 4-6% in total is not a big stretch based on the fact that our mix is shifting towards higher growth markets than the hearing health market. Chris, with respect to your DNA question, roughly $20 million in 2025 of depreciation and amortization. I would say, as I mentioned in my comments, we're going to be on the high end for 2025 and 2026 in terms of CapEx. Moving forward, if I was putting a model together, I might increase that depreciation by $1 million or $2 million annually.
Thank you, guys.
We have Bob's question. Bob wanted to know, is the ceramic inductor opportunity organic or M&A, and how big is the opportunity, and why will Knowles win?
Yeah, that's a good question, Bob. Right now, I would sit there and say the opportunity is organic.
We have, I would say, a team of world-class ceramic materials experts who have developed some interesting ceramics to be used in the inductor market. Everything we're doing today would be organic. I would add, though, and I'll get back to the quantification, how big this could be, that once we're in this market, I would say it would open up another lane in terms of acquisition opportunities that we would be looking at other ceramic inductor companies in terms of acquisitions. How big could this be? I would sit there and say, remember, we are not going after the consumer business. We're not going after applications that we hand them a sample and three months later, they're buying the product. We're going after some pretty sticky, longer cycle designs, medical, defense, and industrial.
I think in the short term, I think you could probably see this in the next 12-18 months, two years. Probably it's not going to be a huge contributor to the growth rate that we've laid out there. As we move in the three to five-year horizon, our expectation is that it should start to play a role in our growth that would be more outsized than it would be in the short term. Again, going after the same markets, the same sticky applications.
Our next question comes from Tony Stoss from Craig Hallum, who will ask his question live. You can unmute, Tony.
Thanks. Hopefully, you guys can hear me. Yeah, we can hear you now. Can you hear me, Tony? Great. I wanted to follow up on the high voltage direct current product line.
When that segment was discussed, so was the $75 million new win. Can you talk about if the $75 million new win is directly related to that? Seems like upgrading the electrical grid is a fast-growing market. Any thoughts you have on the market dynamics, the growth would be helpful. Thanks.
Yeah, that's a good question, Tony. The answer is no. The energy order we already took is a separate market from the high voltage direct current market. We look at the high voltage direct current market as another opportunity that we're working towards that could be large in the future. Obviously, upgrading the grid is a big focus in the United States over the next 5 to 10 years. We think we've got some interesting products to offer in that market. As I said, the energy order we took is not related specifically to that market.
It's a separate market.
Our next question is from Josh Overholt from William Blair. Josh, you can unmute and ask the guys your question. Josh, if you're there, you can unmute, or else we'll ask the question for you.
All right. Can you hear me now? Hey, Josh. Hi, Josh. Okay, great. Thanks, guys. Can you give a little bit more color on the pipeline of deals, kind of the size and scale of that? Yeah. And the potential.
Yeah, I mean, I would say first, Josh, the one thing I would say is obviously there was hope with the new administration, there was going to be a lot more deals done. I think what we've kind of seen, at least in the short term, the uncertainty relative to tariffs has kind of slowed things down some.
Now, that being said, I mean, we've been working a deal funnel for a while. I think it's just a matter of timing. That'd be the first thing I'd say. Secondly, I think we try to divide it up into three areas that we're really looking at and let me describe. First, consolidation. Consolidation meaning we're buying somebody who's doing something pretty similar to what we're doing. We would say there would be a fair amount of synergy, probably not a huge amount of expansion of TAM, but there would be a fair amount of synergy, whether it be SG&A, R&D, manufacturing overhead. There'd be a lot of opportunities. That's the first type of deal. Second would be extensions. Cornell fell in that area. Now, I know they're making capacitors, and we made capacitors before the acquisition. The reality is we made only ceramic capacitors.
They make film, electrolytic, and micro capacitors, which takes us into a whole new TAM. We are looking at other deals like that. We might be able to expand into, I would say, an extension of what we do in the existing markets. Lastly, which I kind of alluded to in one of the previous questions, there are adjacencies for us to look at, stuff that, what I would say, sold in the same market, sold maybe on the same exact application where we could walk in and sell. I would sit there and follow inductors would be an area like that, or resistors, magnetics. These are the areas that we are looking at. It is a little further afoot than what obviously we do today. We want to be very careful what do we get ourselves into.
On the reverse side, I think if you look at Cornell, it's a great example of how we got to know the market, we got to know the owner, and it significantly reduced our risk because of our relationship with the owner prior to the purchase. John, if you want to color it.
No, I think you hit on it. I mean, Josh, again, focus is going to be on existing markets, med, defense, industrial. We want to make sure there's a path to get operating margins close to 20%, EBITDA margins close to 25%. That might not be there day one, but we want to make sure there's a path there. I think Jeff kind of hit on the other points. Yeah. I think accretive within the first 12 months is our target. One last thing I just would comment on.
I think if you look at our history of acquisitions since 2017, obviously when we started that period, our balance sheet was very different than it is today. We did a number of smaller acquisitions from between 2017 and 2022. Obviously, Cornell was a larger acquisition. I think when we say that we can replicate 4% acquisition growth over the next five years, I do not think that is stepping out too far because of the balance sheet of where we are. We will be disciplined, as John kind of said. I think we have got a good story here. I think we have got good organic growth opportunities. I think nothing is worse than a bad acquisition. We are going to be very disciplined and careful what we do. I would just add one other thing, Josh.
I mean, Brian and Jeff both mentioned, given the macroeconomic uncertainty, there is maybe a little slowdown in M&A. But on an organic basis, we feel very confident that if you take the midpoint of the long-term guidance that I provided of 5% of revenue growth, we think because of our EBITDA margin expansion opportunities, we can grow EBITDA 8-9% on that 5% revenue growth and grow EPS even higher than that, more 10-11% because of reduced interest expense and then share repurchases. Yeah. I think that's an important point. I think John gave us, gave full year guidance, our full year outlook today. We're at 4% revenue growth this year, organically, all organic. We're going to have 13% EBITDA growth this year. Actually, we're doing a little bit better than we're projecting, but we're trying to be a little conservative.
We have another follow-up question from Tony Stoss. Go ahead, Tony.
Hey, guys. Just wanted to follow up on this M&A topic. How important is gross margins when you're looking at M&A? Do you want each and every additional acquisition to have higher gross margins? Yeah. Tony, I think. Oh, go ahead. I was just going to just tie it on. How important is it to make acquisitions in new markets to expand your overall market versus just keep making the similar acquisitions in the similar markets to gain more scale? Maybe I'll hit the margins and you can talk about the TAM.
From a margin standpoint, Tony, when we came out of Dover and we were semiconductor, gross margin was really a key metric for us. As we've evolved to industrial tech, we're really more focused on EBITDA margins and EBIT margins.
Obviously, gross margin is a key component of that. It is really we are looking at properties that have a path to deliver 20% EBIT margins or operating margins, 25% EBITDA margins. Along with that, obviously, to hit those numbers, you are going to have to have a pretty good gross margin. I do not know, Jeff. Second question. I think we are looking for companies that have attributes similar to what Knowles has. First, number one is sticky designs, sticky applications with growing markets. That is number one. Number two is we want somebody who has customer intimacy. We see that as a real differentiator where we know our customers' applications very well, and it helps us help them design, whether it be in our medtech space or defense space or even in our industrial applications. Customer intimacy is important.
We want to be able to see, quite frankly, that they are going to be able to customize their products at scale. This is one of the things we saw with Cornell Dubilier Electronics, that they were able to do this custom work like we do, but then scale it up relatively quickly. I think Rick Bielan, who runs the film and electrolytic capacitors business, formerly Cornell Dubilier Electronics, talked about the energy order. That was born of us sitting with the engineering teams on the other side and designing a capacitor specific to their needs that was going to meet their requirements, and then telling them and giving them the confidence we could deliver that in high volume.
Our next question is from Tristan Gara from Baird. Tristan will be live on the line. Go ahead, Tristan.
While we figure out Tristan's technical difficulties, why don't we go with a question from the chat? Absent an acquisition in the near future, what do you expect adjusted EBITDA growth to be?
I'll let John answer. Sure. I mentioned that in previous questions. Absent an acquisition, we think if you take the midpoint of our organic revenue growth rate of 5%, on that 5% through drop-through of EBIT and margin expansion, we think we can deliver 8-9% EBITDA growth. That would result in 10-11% EPS growth. I would highlight, as I did in the last question, which is this year we'll have 4% revenue growth with 13% EBITDA growth based on the outlook John provided.
Okay. We're going to try to bring Tristan in one more time. Go ahead, Tristan. You can unmute at this time. Okay.
We'll try to get Tristan's question over email. In the meantime, what do you consider the barriers of entry into the products and markets you serve?
Yeah, I think it goes back to kind of our three-pronged approach, which I've kind of highlighted again through this Q&A. First, we have a strong intimacy with our customers and our markets. We understand the needs of these markets. If someone comes to us and says, "Look, do you have an off-the-shelf product that we can buy?" our answer is there's other guys that can do that. We try to find applications, and we do find a lot of them, where an off-the-shelf product just won't do. Customers want to work with us to design something unique and special to differentiate their products. Second, we have some outstanding core technologies.
I just go through whether it be our hearing health business, the MSA segment, or PD with ceramics, or the film capacitors. We have unique technologies that we can offer our customers that they can get very few places in the world. I think what truly differentiates us in terms of the marketplace is we're willing to customize, and we've built our production around customization at scale. A lot of our competition that we see in a lot of our markets, they're used to building one product over and over and over versus most of our businesses are pretty high mix, lower volume, number of part numbers we sell. I was used to hearing health business. When you think about the number of parts we sell to only those five customers, it's in the hundreds of parts. Those have been developed over generations.
We have some pretty strong competitive moats that put us in a very strong position.
Great. We have received Tristan's question. He asked, "The fragmentation in capacitors, inductors, resistors reminds me of analog 20 years ago. Opportunities for consolidation can play very well. Can you give me a sense of your market share in high-end capacitors and what is the TAM in adjacencies such as inductors, resistors? And what would be the gross margin profile of these adjacencies?"
Yeah. Let me focus on capacitors because that is the one we actually know the best. I would sit there and say, "This year in the ceramic capacitor business, we will be in the neighborhood of $120 million." We think over time, just to be clear, and Amrita brought this up, before when Dover owned this business, they had bought a number of ceramic capacitor businesses.
This was the beginning, kind of a roll-up of different brands. I would sit there and say, and again, this is a management kind of view, we're 120. I would say the market for this is probably north of $500 million. That's where it's at. As you kind of said, it's very fragmented. There's still a fair amount of family-owned businesses that participate in this market. We're aware of them all. We continue to stay in touch with them. How we kind of view this is maybe not today, maybe not tomorrow, but maybe three days from now, there may be an opportunity. We have done a lot of work in inductors, resistors, magnetics, and there are similar type dynamic in these markets where it's very fragmented.
I would say from what we've seen, the inductor market, resistor market is probably today even more fragmented because there hasn't been a consolidator like Knowles yet. There could be a great opportunity for us if we are able to find the right one. I think the struggle here is in the inductor and resistor market is to go and buy someone who, let's make this up, has $10 million of revenue as your first purchase. That's kind of a hard starting point. We would rather buy someone who's a little larger to be the basis to start growing. I will go back to Cornell. Cornell is the leading supplier of these specialty film, electrolytic, and microcapacitors. We've opened up a whole new world of acquisitions in that space for acquisition as well, which at some point we may acquire someone in that space.
I would just add, Tristan, on the gross margin potential. I mean, if you're running at close to full capacity, margin should be solidly in the 40% range. Anywhere, if you're running lower capacity, maybe it's high 30s, low 40s. If you're running close to 90% plus, you should be mid to high 40% range for margins.
Our final question comes from Coleman Hubbard from Barrow Hanley. You've talked about specialty film. Can you give us more details about how broad that application is and the demand for it?
Yeah. I mean, as I work with the team, obviously, we had some challenges in the back half of last year. We're working through those challenges still in the first half in order to ramp up. I'm very surprised at the diversity of customers across multiple applications.
What you're finding is in the applications, and again, this is very broad-based, medical, industrial, energy, defense, is that there are a lot of applications that you cannot plug something into a wall and get the amount of power necessary in order to actually get the output that you need. You can't use a battery. You can't directly use power from the wall. They're using these pulse power capacitors to drive the device. Another good example would be lasers. High-performance, high-energy lasers cannot be powered by a wall outlet. It needs to be powered by a capacitor. We have a pretty broad base of customers. Obviously, we spent a lot of time talking about this large energy order. Quite frankly, if you look at the number of customers we have in this area, it's in the hundreds of customers already for the specialty film.
We're pretty excited about the opportunity there. Is that the last question? Q&A. Thank you, everyone, for your questions. Great. Just wanted to make a couple of closing remarks. Thank you so much for joining us today. If you have any follow-up questions, please contact Sarah Cook to set up one-on-one meetings. We'll be available, John and I, to have meetings with you guys as well in order to talk more in detail about the business and where we're headed. Thanks for your interest in Knowles. Yeah. Thanks for your interest in Knowles.