Knowles Corporation (KN) - 2025 Annual Report Summary
Business Context and Reporting Period
This summary covers the fiscal year ended December 31, 2025. Knowles Corporation is a leading manufacturer of specialty electronic components, operating through two reportable segments: Precision Devices (PD), serving defense, industrial, medtech, and electrification markets, and MedTech & Specialty Audio (MSA), serving hearing health and specialty audio markets. The company completed the sale of its Consumer MEMS Microphones (CMM) business to Syntiant Corp. in late 2024, classifying CMM results as discontinued operations.
Key Financial Metrics (Fiscal Year 2025)
| Metric | 2025 Value | 2024 Value |
|---|---|---|
| Revenues | $593.2 million | $553.5 million |
| Gross Profit | $256.3 million | $234.8 million |
| Gross Margin | 43.2% | 42.4% |
| Operating Earnings | $70.3 million | $51.8 million |
| Net Earnings (Continuing Ops) | $50.9 million | $23.4 million |
| Diluted EPS (Continuing Ops) | $0.58 | $0.26 |
| Adjusted Free Cash Flow | $114.4 million | $93.8 million |
| Total Debt (Long-term) | $114.0 million | $134.0 million |
| Cash and Equivalents | $54.2 million | $130.1 million |
Material Changes vs. Prior Period
- Revenue Growth: Consolidated revenue increased 7.2% year-over-year, driven by a 9.6% increase in the PD segment (higher demand in defense/industrial and pricing) and a 4.3% increase in the MSA segment (higher volumes of metal cans to Syntiant and specialty audio).
- Profitability: Earnings from continuing operations more than doubled to $50.9 million, aided by improved gross margins, lower interest expense (due to repayment of the CD Seller Note), and $6.2 million in non-cash dividend income from Syntiant.
- Discontinued Operations: The 2024 period included a massive $261.2 million loss from discontinued operations due to CMM goodwill impairment. In 2025, the loss from discontinued operations was $6.7 million, primarily related to transaction adjustments.
- Segment Performance: PD Adjusted EBIT grew 26.6% to $63.3 million. MSA Adjusted EBIT remained flat at $102.4 million, though GAAP EBIT declined slightly due to lower pricing on mature products and dis-synergies from the CMM sale.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects 2026 capital expenditures to range between 4% and 5% of revenues, funded by existing cash and operating cash flows.
- Share Repurchases: The company has $129.0 million remaining under its share repurchase program as of December 31, 2025.
- Key Risks:
- Customer Concentration: WS Audiology A/S (11% of revenue) and TTI, Inc. (10% of revenue) are significant customers. The MSA segment relies heavily on a limited number of customers.
- Supply Chain: Reliance on specialized suppliers and sole-source foundries for critical components; manufacturing is concentrated in Asia (China, Malaysia, Philippines).
- Trade Policy: Exposure to tariffs and trade restrictions, particularly between the U.S. and China, which could impact costs and demand.
- Commodity Prices: Fluctuations in precious metals (palladium, gold) and other raw materials affect margins.
Investor Verification Checklist
- Customer Concentration: Verify the stability of relationships with WS Audiology and TTI, Inc., which collectively represent over 20% of revenue.
- Discontinued Operations: Confirm the finalization of the CMM sale purchase price adjustment and the status of separation cost sharing with Syntiant.
- Debt Covenants: Review compliance with the Revolving Credit Facility covenants (Interest Coverage Ratio and Leverage Ratios), though the company reported compliance as of year-end.
- Inventory Reserves: Assess the adequacy of inventory reserves ($46.4 million) given the company's exposure to technological obsolescence and demand fluctuations.
- Non-GAAP Reconciliations: Scrutinize the adjustments made to reach Non-GAAP metrics, specifically the exclusion of stock-based compensation ($28.4 million) and intangible amortization ($16.2 million).