0001587523-26-000005
SEC filingRevenue growth driven by PD strength and MSA volume, with expanded GAAP and non-GAAP margins from operational leverage.
Knowles Corporation describes itself as a leading manufacturer of specialty electronic components. Founded in 1946 and headquartered in Itasca, Illinois, the company employs approximately 5,200 people across 11 countries. Knowles designs high-performance capacitors, radio frequency (RF) filters, advanced microphones, and balanced armature speakers that serve medtech, defense, industrial, and electrification/energy markets.
Knowles operates two reportable segments: Precision Devices (PD) and MedTech & Specialty Audio (MSA). The PD segment specializes in custom-designed high-performance capacitors and RF filtering solutions for defense, industrial, medtech, and electrification/energy markets. The MSA segment designs and manufactures balanced armature speakers and microphones for hearing health and specialty audio applications, serving medtech and industrial markets. Segment revenue shares are not disclosed in the Business section.
Key product categories include high-performance capacitors (with specialized requirements for high voltage, high temperature, and high reliability), RF filters, advanced microphones, and balanced armature speakers. These products enable demanding applications across the company's target markets.
Knowles sells products directly to original equipment manufacturers (OEMs) and through external sales representatives and distributors. The global distribution center is located in Penang, Malaysia. Two customers each accounted for 10% or more of total revenues in 2025: WS Audiology A/S (11%) and TTI, Inc. (10%). WS Audiology is a hearing aid manufacturer; TTI is a distributor of electromechanical components.
In the PD segment, competitors include Kyocera AVX, Yageo Corporation's Kemet products, Vishay Intertechnology, and a broad range of specialty companies. The PD end markets experience less pricing pressure with a fragmented competitive landscape. In the MSA segment, the primary competitor is Sonion. Knowles differentiates through innovation, customization, and the ability to customize at scale with deep engineering expertise.
Knowles' strategy centers on leveraging its unique technologies to design custom engineered solutions and deliver them at scale for customers in high-growth markets. For PD, the focus is on sales growth and improved margins by expanding in profitable markets through organic initiatives and acquisitions. For MSA, the focus is on sales growth and improved margins by leveraging core strengths in manufacturing and R&D. The company aims to offset price erosion on mature products through cost reductions, productivity improvements, and equipment efficiency.
As of December 31, 2025, Knowles had approximately 5,200 employees across 11 countries. The company emphasizes attracting, developing, and retaining talent through targeted recruitment, continuous learning, career development, and competitive total rewards. Initiatives include tuition reimbursement, leadership development, succession planning, and support for women in engineering through partnerships with universities like the University of Illinois at Chicago.
For the year ended December 31, 2025, Knowles Corporation reported revenue of $593.2 million, a 7.2% increase from $553.5 million in 2024. The growth was led by the PD segment, which rose 9.6% to $328.9 million due to higher demand across medtech, defense, industrial, and electrification/energy markets, as well as higher average pricing. MSA segment revenue increased 4.3% to $264.3 million, driven by higher shipments of metal cans to Syntiant and specialty audio products, partially offset by lower average pricing on mature products.
GAAP gross profit rose 9.2% to $256.3 million, with gross margin expanding 80 basis points to 43.2%. The improvement reflected higher shipping volumes, company-wide product cost reductions, increased factory capacity utilization in ceramic capacitor and RF filter businesses, lower CD-related acquisition and production transfer costs, and lower precious metal costs. These benefits were partially offset by unfavorable product mix, lower-than-expected yields in the CD business during its specialty film product line ramp, and impairment charges. Non-GAAP gross profit margin improved 20 basis points to 44.5%.
Operating income (EBIT) surged 43.7% to $73.3 million, with margin expanding to 12.4% from 9.2%, driven by improved operating leverage, higher gross profit, and $6.2 million in dividend income from a non-cash dividend on the Syntiant investment. Adjusted EBIT margin improved to 20.2% from 19.5%.
Net income from continuing operations nearly doubled to $50.9 million from $23.4 million, reflecting higher gross profit, lower interest expense, and dividend income, partially offset by higher operating expenses and income tax expense. Diluted EPS from continuing operations rose to $0.58 from $0.26, while non-GAAP diluted EPS increased to $1.11 from $0.92.
Precision Devices (PD) delivered a significant earnings recovery. PD EBIT increased 154.1% to $37.6 million, with EBIT margin expanding from 4.9% to 11.4%. The improvement was driven by higher gross profit from increased volumes, capacity utilization, cost reductions, and higher average pricing, along with lower operating expenses, particularly reduced CD acquisition-related costs. Adjusted EBIT margin rose to 19.2% from 16.7%.
MedTech & Specialty Audio (MSA) EBIT decreased 4.9% to $92.7 million, with margin contracting from 38.5% to 35.1%. The decline was due to lower gross profit from pricing pressure, higher factory costs, unfavorable product mix, and impairment charges, partially offset by product cost reductions and volume growth in specialty audio. Adjusted EBIT was nearly flat at $102.4 million, with margin declining to 38.7% from 40.4%.
Management highlighted the company's strategic transformation into a premier industrial technology company, focusing investments on medtech, defense, industrial, and electrification/energy markets. For 2026, Knowles expects capital expenditures to be in the range of 4% to 5% of revenues, funded through existing cash and operating cash flows. The company noted that foreign tax credits were fully utilized as of December 31, 2025, and expects the future non-GAAP effective tax rate to increase. The One Big Beautiful Bill Act, signed in July 2025, did not have a material impact on fiscal 2025 and is not anticipated to materially impact subsequent years.
As of December 31, 2025, Knowles Corporation held cash and cash equivalents of $54.2 million, a decrease from $130.1 million at year-end 2024. Total debt stood at $114.0 million, all drawn under the $400.0 million revolving credit facility, with no current maturities. The company's shareholders' equity was $775.8 million, up from $756.0 million, driven by net earnings and other comprehensive income partially offset by share repurchases. Inventory increased to $124.6 million (net of $46.4 million in reserves) from $118.0 million, reflecting higher raw materials and finished goods.
The Notes do not disclose any material purchase commitments or contractual obligations beyond lease liabilities and debt. Operating lease liabilities totaled $20.2 million (present value), with $5.2 million due within one year. Finance lease liabilities were $0.7 million. The company has a separation cost credit arrangement with Syntiant of up to $13.5 million, with $4.8 million remaining as of December 31, 2025. No other significant commitments were reported.
During 2025, Knowles repurchased 3,571,865 shares for $65.0 million. The board authorized an additional $150.0 million for share repurchases on February 13, 2025, leaving $129.0 million remaining under the program. No dividends were paid. The company reduced total debt by $88.5 million, primarily through repayment of the $72.7 million Seller Note. Capital expenditures totaled $32.1 million, or 5.4% of sales, up from $11.9 million in 2024, with the Precision Devices segment accounting for $24.9 million.
Knowles reports two segments: Precision Devices (PD) and MedTech & Specialty Audio (MSA). For 2025, PD generated $328.9 million in revenue (55.4% of total) and segment adjusted EBIT of $63.3 million (19.2% margin). MSA generated $264.3 million in revenue (44.6% of total) and segment adjusted EBIT of $102.4 million (38.7% margin). Revenue by geography: United States $248.8 million (41.9%), Asia $226.1 million (38.1%), Europe $95.4 million (16.1%), Other Americas $12.0 million (2.0%), and Other $10.9 million (1.8%). Two customers, WS Audiology A/S and TTI, Inc., each represented 11% and 10% of total revenues, respectively.
Knowles faces significant revenue concentration in both segments. The MSA segment's top five customers account for 76% of its revenue, with WS Audiology A/S alone representing 24% of MSA and 11% of consolidated revenue. The PD segment relies heavily on distributor TTI, Inc. (19% of PD revenue). Loss of either could materially reduce revenue.
U.S. government contracts in the PD segment require compliance with procurement laws; non-compliance risks debarment. Trade policy, particularly U.S.-China tariffs, has already adversely impacted PD revenue. Further restrictions could increase costs, reduce demand, or disrupt supply chains. Export controls and sanctions also pose risks.
Sole-source reliance on ASIC and MEMS foundry partners creates vulnerability to disruption from supplier financial distress, acquisition, or capacity constraints. Manufacturing is concentrated in Asia (China, Philippines, Malaysia), exposing the company to natural disasters, labor unrest, and geopolitical tensions.
Foreign currency exposure (Malaysian ringgit, Chinese yuan, Philippine peso, Mexican peso) and commodity price fluctuations (precious metals) could materially affect margins. The effective tax rate depends on geographic earnings mix; OECD minimum tax and U.S. tax reforms add uncertainty. The credit agreement's financial covenants (EBITDA/interest, debt/EBITDA) could constrain operations if breached.
Product complexity increases defect risk; a recall could result in disproportionate liability. Cybersecurity threats are increasing in frequency and sophistication; a breach could lead to loss of intellectual property, confidential data, or government classified information, with potential civil liability and reputational harm. The company uses the NIST Cybersecurity Framework but does not guarantee compliance.
Rapid technological change and intense competition require continuous innovation. Growth strategies (new products, adjacent markets) entail risks of higher costs or lower-than-expected returns. Acquisitions and divestitures (e.g., sale of CMM business to Syntiant) may not achieve expected benefits and could involve ongoing financial exposure.
Anti-takeover provisions in the charter and Delaware law could delay or prevent acquisitions. Stockholder activism has occurred in the past and could distract management and increase costs. Stock price volatility (range $12.76-$24.41 in 2025) could lead to securities litigation.
For fiscal year 2025, Knowles Corporation generated $150.0 million in cash from operations, a decline from $164.9 million in the prior year. The company's net income (not explicitly shown in the excerpt) likely underperformed relative to operating cash flow, but the decline in CFO suggests a tightening of working capital or lower earnings. Capital expenditures were stable at $33.0 million (2024: $33.5 million), resulting in a free cash flow of $117.0 million, which was entirely available for other purposes as the company did not repurchase shares or pay dividends. Investing activities included $59.7 million in net outflows, primarily for acquisitions or asset disposals. Financing activities showed net outflows of $79.2 million, largely due to debt repayments or other financing obligations. The cash conversion quality appears solid, with CFO covering capex by a factor of 4.5x, though the year-over-year decline in operating cash flow warrants monitoring for potential working capital drag or one-time items.