0001587523-25-000079
SEC filingRevenue grew 7.3% YoY to $152.9M, driven by PD segment strength and improved margins.
For the three months ended September 30, 2025, Knowles reported revenue of $152.9 million, a 7.3% increase from $142.5 million in the prior-year quarter. The growth was driven by a $9.4 million increase in Precision Devices (PD) revenue, reflecting higher demand across defense, electrification, medtech, and industrial markets, as well as higher average pricing. MedTech & Specialty Audio (MSA) revenue rose $1.0 million, primarily from increased metal can shipments to Syntiant and higher specialty audio volumes, partially offset by lower hearing health shipments.
Gross profit improved 11.1% to $69.9 million, with gross margin expanding 160 basis points to 45.7%. The margin expansion was driven by higher shipping volumes, company-wide product cost reductions, and increased factory capacity utilization in ceramic capacitor and RF filter businesses, partially offset by unfavorable product mix and lower-than-expected yields in the CD specialty film product line. Non-GAAP gross margin rose to 46.2% from 45.5%.
EBIT from continuing operations increased to $24.6 million (16.1% margin) from $16.1 million (11.3% margin), primarily due to higher gross profit. Adjusted EBIT rose to $34.5 million (22.6% margin) from $30.0 million (21.1% margin). Net earnings from continuing operations more than doubled to $18.0 million ($0.21 diluted EPS) from $9.2 million ($0.10), benefiting from higher gross profit, lower interest expense, and a reduced share count, partially offset by higher income tax expense.
Precision Devices revenue grew 11.9% to $88.2 million, with EBIT margin improving to 16.2% from 10.7%, driven by higher gross profit from volume, cost reductions, and factory utilization. Adjusted EBIT margin rose to 22.9% from 20.4%. MSA revenue increased 1.6% to $64.7 million, but EBIT margin declined slightly to 38.6% from 39.2% due to unfavorable product mix and higher volumes of lower-margin metal can products. Adjusted EBIT margin fell to 40.5% from 41.0%.
Management noted that inventory levels in industrial markets have begun to normalize, with PD experiencing increased bookings for the past four quarters and growing backlog across capacitor products. The company is optimizing operations and implementing pricing actions to mitigate tariff risks, which are not expected to have a material impact. The CMM divestiture supports the transformation into an industrial technology company, and cost restructuring actions are underway to rightsize expenses. Capital expenditures are expected to be 4% to 6% of revenue in 2025. The company generated adjusted free cash flow of $81.2 million in the first nine months of 2025, up from $63.5 million a year ago, supported by customer prepayments and higher earnings.
Total assets decreased $30M to $1.088B from Dec 2024. Cash and equivalents fell to $92.5M ($130.1M at year-end), largely due to $55M in share repurchases and $30M net debt repayment. Inventory increased $5.9M to $123.9M, while receivables remained stable. The deferred revenue balance of $19.8M relates to the Syntiant transition credit. Current maturities of debt ($72.3M) are the seller note due Nov 1, 2025; the company has $104M drawn on the revolver maturing 2028. Operating lease liabilities increased significantly (ROU assets from $8.6M to $19.7M) due to new leases.
No material purchase commitments were disclosed. The company has $139M remaining under its $400M share repurchase authorization. Deferred revenue and separation credits with Syntiant represent $19.8M and $6.2M, respectively. The seller note of $72.3M matures in Q4 2025; interest expense reflects $6.2M paid in 9M2025.
Knowles aggressively repurchased 3.12M shares for $55M in 9M2025, exhausting a portion of its program. The board authorized an additional $150M in Feb 2025, bringing total authorization to $400M. No dividends. Debt decreased $26.2M net, with $30M repaid on the revolver. Capital expenditures of $16.8M were 3.9% of revenue, up from $10.3M in the prior year period.
Precision Devices generated $88.2M revenue (+11.9% YoY) with segment adjusted EBIT of $20.2M (22.9% margin). MedTech & Specialty Audio revenue of $64.7M grew 1.6%, with adjusted EBIT of $26.2M (40.5% margin). Geographic mix (by customer location): US 44%, Asia 37%, Europe 16% in Q3 2025.
Operating cash flow of $66.8M significantly exceeded net earnings of $23.2M, indicating strong cash generation from operations. Key non-cash addbacks included depreciation ($27.1M), stock-based compensation ($22.4M), and fixed asset impairment ($3.6M). Working capital was a net use of cash, with accounts payable declining $20.8M and inventories increasing $4.8M. Capex of $16.8M represented 25% of operating cash flow, a moderate intensity. Free cash flow was not explicitly stated but would be approximately $50M before financing. Share repurchases of $55.0M exceeded operating cash flow, funded partly by debt repayments and borrowings. Financing activities also included $30.0M in revolving credit facility payments, leading to net financing outflow of $88.6M. Overall, cash generation remains decent but weakened YoY due to higher working capital outflows and lower net income.