0001587523-25-000066
SEC filingRevenue grew 7.9% YoY driven by MSA and PD, while GAAP gross margin contracted 130 bps due to impairment charges.
For the three months ended June 30, 2025, Knowles reported total revenues of $145.9 million, a 7.9% increase from $135.2 million in the prior-year quarter. The growth was led by the MedTech & Specialty Audio (MSA) segment, which contributed an additional $6.3 million, driven by higher shipping volumes of metal cans to Syntiant and increased volumes into specialty audio and hearing health markets, partially offset by lower average pricing on mature products. The Precision Devices (PD) segment added $4.4 million from higher demand in electrification and defense markets and higher average pricing.
GAAP gross profit increased 4.8% to $60.6 million, but gross profit margin contracted 130 basis points to 41.5% due to $3.6 million in impairment charges, unfavorable product mix, inventory reserve adjustments, and production inefficiencies in the CD specialty film line. Non-GAAP gross profit improved 7.9% to $64.5 million, with non-GAAP gross margin stable at 44.2%. GAAP EBIT grew to $13.8 million (margin 9.5%) from $12.4 million (9.2%), while adjusted EBIT increased to $27.7 million (margin 19.0%) from $25.2 million (18.6%). Net earnings from continuing operations rose to $7.8 million ($0.09 diluted EPS) from $4.8 million ($0.05), supported by higher gross profit and lower interest expense.
Precision Devices: Revenues increased 5.9% to $78.5 million. Segment EBIT improved significantly to $8.2 million (10.4% margin) from $4.2 million (5.7%), benefiting from higher shipping volumes, increased factory utilization, product cost reductions, and lower acquisition/restructuring costs. Adjusted EBIT rose to $13.9 million (17.7%) from $11.8 million (15.9%). Headwinds included production inefficiencies in the CD specialty film ramp, unfavorable product mix, and inventory adjustments.
MedTech & Specialty Audio: Revenues grew 10.3% to $67.4 million. GAAP EBIT declined to $21.0 million (31.2% margin) from $24.1 million (39.4%), largely due to $3.6 million in impairment charges, lower average pricing, unfavorable mix, and higher factory costs from increased low-margin metal can shipments. However, adjusted EBIT increased to $26.1 million (38.7%) from $25.1 million (41.1%), reflecting higher shipping volumes.
Management highlighted continued normalization of inventory levels in industrial markets, with PD experiencing increased bookings for three consecutive quarters. The divestiture of the Consumer MEMS Microphones business, completed in December 2024, simplifies the company's focus on Precision Devices and MedTech & Specialty Audio. While tariffs imposed in April 2025 are not expected to have a material impact based on preliminary analysis, the company is monitoring trade policy and implementing cost controls and pricing actions. Capital expenditures for 2025 are expected to be 4% to 6% of revenues, primarily for specialty film capacity expansion and cost savings. Knowles ended the quarter with $103.2 million in cash and $159.0 million remaining under its share repurchase authorization.
As of June 30, 2025, Knowles held $103.2 million in cash and cash equivalents, down from $130.1 million at year-end 2024, primarily due to share repurchases and debt repayments. Total debt decreased to $190.0 million from $202.5 million, consisting of $119.0 million drawn on the $400 million revolving credit facility (weighted-average interest rate 6.18% for H1 2025) and a $71.0 million seller note from the Cornell Dubilier acquisition. The seller note is interest-free but imputed at 7.1% and matures on November 1, 2025, requiring a $72.7 million payment in Q3-Q4 2025. The company remains in compliance with all debt covenants, including a total net leverage ratio below 3.75x.
No significant purchase commitments or contractual obligations were disclosed beyond debt maturities. The seller note principal payment of $72.7 million is due within one year, while the revolver matures in 2028. Operating lease liabilities increased to $20.9 million (current $3.7M + long-term $17.2M), driven by new lease commitments including subleases to Syntiant.
Knowles has an active share repurchase program with $159 million remaining authorization after spending $35 million in H1 2025 on 2.18 million shares. No dividends are paid. Capital expenditures totaled $9.1 million (3.3% of sales), primarily supporting manufacturing operations. Debt reduction was minimal: $15 million repaid on the revolver, partially offset by accretion on the seller note ($2.5M imputed interest added to principal).
Segment performance in Q2 2025: Precision Devices revenue $78.5M (+5.9% YoY) with adjusted EBIT of $13.9M (17.7% margin); MedTech & Specialty Audio revenue $67.4M (+10.3% YoY) with adjusted EBIT of $26.1M (38.7% margin). The strong margin in MTSA reflects revenue from Syntiant ($4.0M in Q2) and high-margin product mix. Geographically, revenues were driven by Asia ($58.5M, +35% YoY) and United States ($58.7M, flat), while Europe declined to $24.0M.
Net earnings improved significantly to $5.8 million from a loss of ($256.8) million in the prior period, driven by the absence of a $249.4 million goodwill impairment and improved operating results. However, cash from operations (CFO) of $37.7 million declined from $42.2 million, largely due to a $20.8 million use of cash in accounts payable compared to a $2.8 million source in the prior period, and a $1.7 million increase in prepaids. The $18.1 million in depreciation and amortization and $16.5 million in stock-based compensation were key non-cash add-backs.
Capex intensity increased modestly to 24.1% of CFO ($9.1M vs. $6.6M), a manageable level. Free cash flow (CFO less capex) was $28.6 million, covering the $41.9 million in capital returns ($35.0M repurchases + $6.9M tax on stock vesting) by 68%, indicating reliance on balance sheet cash. The $15.0 million net revolving credit facility repayment further reduced leverage. Overall cash generation quality is average; the working capital drag warrants monitoring.