10-K: Knowles Reports Strong 2025 Growth, Strategic Shift Pays Off

Knowles Corporation reported a significant increase in 2025 revenues and earnings from continuing operations, driven by strong demand in its Precision Devices segment and strategic focus on high-growth markets.

Summary

• Revenues increased by 7.2% to $593.2 million in 2025, up from $553.5 million in 2024.
• Earnings from continuing operations rose significantly to $50.9 million in 2025, compared to $23.4 million in 2024.
• Diluted earnings per share from continuing operations increased to $0.58 in 2025, from $0.26 in 2024.
• The Precision Devices (PD) segment's revenues grew by 9.6% to $328.9 million, driven by higher demand from the medtech, defense, electrification/energy, and industrial markets, as well as higher average pricing.
• The Medtech & Specialty Audio (MSA) segment's revenues increased by 4.3% to $264.3 million, primarily due to higher shipping volumes of metal cans to Syntiant and specialty audio products.
• Adjusted free cash flow increased to $114.4 million in 2025, up from $93.8 million in 2024.
• The company repurchased $65.0 million of common stock in 2025, with $129.0 million remaining under the share repurchase authorization as of December 31, 2025.
• The sale of the Consumer MEMS Microphones (CMM) business to Syntiant Corp. was completed on December 27, 2024, for approximately $141.9 million in total consideration.
• The acquisition of Cornell Dubilier (CD) on November 1, 2023, for $259.8 million, has been integrated into the PD segment.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a strong performance, with significant growth in revenues and earnings from continuing operations, driven by successful strategic realignment and improved operational efficiency, despite some segment-specific challenges.

Positives

• Total revenues increased by 7.2% to $593.2 million in 2025, demonstrating solid top-line growth.
• Earnings from continuing operations more than doubled to $50.9 million in 2025, indicating improved profitability.
• Diluted EPS from continuing operations significantly improved from $0.26 in 2024 to $0.58 in 2025.
• The PD segment achieved robust revenue growth of 9.6%, driven by strong demand in strategic high-growth markets (medtech, defense, industrial, electrification/energy) and favorable pricing.
• Gross profit margin improved to 43.2% in 2025 from 42.4% in 2024, reflecting better operational efficiency and product mix.
• Adjusted free cash flow increased to $114.4 million in 2025, highlighting strong cash generation from continuing operations.
• The company successfully executed its strategic plan to shift focus from the consumer market to more profitable industrial technology sectors.
• Interest expense, net, decreased by 42.9% to $9.3 million in 2025, primarily due to lower outstanding debt balances and interest rates.
• A non-cash dividend income of $6.2 million was recorded in 2025 from the investment in Syntiant.
• The company maintained effective internal control over financial reporting as of December 31, 2025.
• An income tax benefit of $2.9 million was recognized in Q4 2025 due to the reversal of a deferred tax asset valuation allowance on certain U.S. state tax attributes.

Negatives

• The MSA segment experienced lower average pricing on mature products, partially offsetting revenue gains.
• Lower than expected yields in the CD business were noted during the ramp-up of its specialty film product line.
• MSA EBIT from continuing operations decreased by 4.9% to $92.7 million in 2025, and its EBIT margin declined to 35.1% from 38.5% in 2024.
• An impairment charge of $3.6 million was recorded in 2025 to write down the carrying value of certain machinery and equipment.
• Restructuring charges of $3.8 million were incurred in 2025, primarily related to headcount reductions following the CMM sale.
• A loss from discontinued operations of $6.7 million was reported in 2025, mainly due to adjustments to the CMM sale and tax expense.
• Cash provided by operating activities decreased to $114.0 million in 2025 from $130.1 million in 2024, partly due to CMM-related payments and an increase in net working capital.
• Capital expenditures attributable to continuing operations increased to 5.4% of revenues in 2025, up from 2.1% in 2024.
• Unfavorable foreign currency exchange rate changes contributed to an 'Other expense, net' of $3.2 million in 2025.
• The non-GAAP effective tax rate increased to 11.8% in 2025 from 8.4% in 2024, with an expectation for future increases as foreign tax credits have been fully utilized.

Risks

• Deriving a significant portion of revenues from a limited number of OEM customers and distributors (WS Audiology A/S and TTI, Inc. each accounted for 10% or more of total revenues in 2025) could adversely affect operating results if purchases decrease or fluctuate.
• The MSA segment's top five customers accounted for approximately 76% of its revenues for fiscal 2025, increasing concentration risk.
• Dependence on U.S. government contracts in the PD segment requires compliance with various procurement laws and regulations, with potential for civil/criminal penalties, contract termination, or debarment for non-compliance.
• Reliance on highly specialized or sole-source suppliers for critical materials and components could lead to material adverse impacts from supply disruptions or capacity constraints.
• Implementation of growth strategies, including new product development and market expansion, may not be successful or generate anticipated financial returns.
• Risks associated with integrating acquired companies (e.g., retaining key personnel, realizing synergies) and managing divestitures (e.g., larger than expected impact on revenue/profit, financial exposure in divested business) could adversely affect business and financial results.
• Inability to attract and retain key employees, particularly specialized engineering and technical talent, due could materially impair business strategies.
• Fluctuations in the effective tax rate due to geographic composition of earnings, changes in tax regulations, valuation of deferred tax assets, and ongoing global tax policy evaluations (e.g., OECD's minimum tax) could adversely affect financial results.
• Complex products could contain defects, resulting in material costs, loss of customers, damage to reputation, product recalls, and potential liability disproportionate to product revenue.
• Highly competitive global markets and rapid technological change require continuous innovation to avoid loss of market share or revenue.
• Deterioration of global economic conditions, inflation, rising interest rates, geopolitical uncertainties, and public health crises could adversely affect customer orders and demand for products.
• Foreign operations and supply chain are subject to various risks, including labor unrest, natural disasters, health crises, acts of terrorism, political/economic instability, trade barriers (tariffs, export controls), and transportation delays.
• Changes in U.S. and international trade policy, including tariffs and sanctions, could limit business with customers/suppliers, increase costs, delay production, or impact competitive position.
• Fluctuations in commodity prices (e.g., palladium, gold, brass, stainless steel, copper) and foreign currency exchange rates (e.g., Malaysian ringgit, Chinese renminbi, Philippine peso, Mexican peso) could materially adversely affect operating results and financial condition.
• Inability to protect intellectual property rights or successful intellectual property litigation against the company could materially adversely affect revenues and operating results.
• Security breaches, cybersecurity incidents, unauthorized disclosures, or network disruptions could lead to remedial expenses, loss of intellectual property, disclosure of confidential data, system disruptions, civil liability, fines, and reputational harm.
• Issues related to the use of artificial intelligence may present business, compliance, or reputational risks.
• Failure to comply with financial covenants in the credit agreement (minimum Interest Coverage Ratio, maximum Total Net Leverage Ratio, maximum Senior Secured Net Leverage Ratio) could result in an event of default.
• Indebtedness could reduce cash flow available for other purposes, limit ability to obtain additional financing, reduce flexibility, and increase vulnerability to interest rate fluctuations.
• Stockholder activism could cause significant expense, hinder strategy execution, and impact the trading value of securities.
• Certain provisions in the certificate of incorporation, by-laws, and Delaware law may prevent or delay an acquisition of the company.
• Stock price volatility could adversely impact investor confidence and increase the likelihood of securities class action litigation.

Future Outlook

Knowles expects capital expenditures in 2026 to be in the range of 4% to 5% of revenues, funded through existing cash balances and operating cash flows. The company anticipates its non-GAAP effective tax rate to increase in the future as foreign tax credits have been fully utilized. The strategic shift towards medtech, defense, industrial, and electrification/energy markets is expected to position the company for future growth.

Management Comments

• "We are a leading manufacturer of specialty electronic components. We design parts that perform unique, critical functions for innovative technologies."
• "Our strategy is focused on leveraging our unique technologies to design custom engineered solutions and then deliver them at scale for customers in high growth markets that value our solutions."
• "As we focus on what we do best, designing custom engineered products and delivering them at scale for customers and markets that value our solutions, we believe that we are well-positioned for future growth."
• "Our ability to attract, develop, and retain a high-performing workforce is essential to executing our business strategy and driving sustainable growth."
• "Management believes that it is more likely than not that the Company will realize the benefits of the remaining deferred tax assets."

Industry Context

StockSavvy.ai notes that Knowles' strategic pivot towards high-growth markets like medtech, defense, industrial, and electrification/energy aligns with broader industry trends emphasizing specialized, high-reliability components. The increasing global defense spending and demand for domestic manufacturing footprints, as well as the aging population driving hearing health care growth, provide tailwinds for Knowles' PD and MSA segments, respectively. The company's focus on custom engineering and scalability positions it well against competitors like Kyocera AVX and Sonion, who operate in similar specialized niches.

Comparison to Industry Standards

• Knowles' PD segment competes with Kyocera AVX, Yageo Corporation's Kemet products, and Vishay Intertechnology in high-performance capacitors and RF filtering solutions, operating in a fragmented competitive landscape with less pricing pressure.
• In the MSA segment, Sonion is identified as the primary competitor. Knowles differentiates itself through leading technology and R&D investments focused on high reliability, size, broad frequency response, and low power products to enhance end-user experience.
• The company's strategy of expanding into profitable markets through organic initiatives and acquisitions, exemplified by the Cornell Dubilier acquisition, is a common industry practice for growth and market share consolidation.

Legal Proceedings

• The company is involved in various legal proceedings and claims arising in the ordinary course of business, primarily related to commercial, warranty, employment, and intellectual property matters.
• Management believes that the disposition of these legal proceedings or claims, individually or in the aggregate, will not have a material adverse effect on its cash flow, results of operations, or financial condition, after considering recorded accruals and insurance coverage.
• The company owns many patents and other intellectual property that have been and may continue to be infringed upon or challenged by others, potentially leading to legal proceedings and substantial costs.
• The company may provide contractual indemnities for intellectual property infringement claims, but historically has not made significant payments under such arrangements, and legal accruals were not significant at December 31, 2025.

Related Party Transactions

• The company holds Series D-2 preferred stock of Syntiant Corp. with a fair value of $77.2 million (increased to $83.4 million at December 31, 2025, due to a non-cash dividend) as partial consideration for the sale of the CMM business.
• A non-cash dividend of $6.2 million on the Syntiant investment was recorded in 2025, in the form of additional Series D-2 shares.
• The company provided financing of $6.4 million to Syntiant, with a balance of $5.9 million at December 31, 2025, bearing interest at the prime rate until six months post-closing, then 13.0%.
• The company shares certain separation costs with Syntiant related to the CMM sale, with a credit of up to $13.5 million. The balance of this credit was $4.8 million at December 31, 2025, with future costs to be shared equally below the $7.0 million contractual threshold.
• Lease payments of $2.8 million from Syntiant for portions of facilities leased by the company have been applied to the separation credit.
• The company subleases portions of its manufacturing facilities to Syntiant at cost, totaling $5.2 million at December 31, 2025.
• Revenue totaling $17.3 million was recognized in 2025 related to transactions with Syntiant, reflected in the MedTech & Specialty Audio segment.
• Receivables, net, include $4.2 million due from Syntiant at December 31, 2025.
• The company sold certain machinery and equipment associated with the MedTech & Specialty Audio segment to Syntiant Corp. for a nominal selling price, resulting in a $3.6 million impairment charge in 2025.

Stakeholder Impact

• Shareholders: Positive impact from increased earnings, EPS, adjusted free cash flow, and ongoing share repurchase program, but exposed to stock price volatility and risks from customer concentration and global economic conditions.
• Employees: Affected by restructuring charges and headcount reductions in 2025, but benefit from competitive total rewards, continuous learning, career development, and a healthy/safe workplace.
• Customers: Benefit from custom engineered solutions, high reliability, and innovation in medtech, defense, industrial, and electrification/energy markets, though the company's reliance on a limited number of OEM customers and distributors presents a risk.
• Suppliers: Critical specialized or sole-source suppliers are integral to the company's operations, but supply disruptions could have a material adverse impact.
• Creditors: Impacted by the company's debt levels and compliance with financial covenants; the repayment of the Seller Note reduces overall debt exposure.

Next Steps

• Continue to focus on sales growth and improved margins by expanding presence in profitable markets through organic initiatives and acquisitions in the PD segment.
• Leverage core strengths in manufacturing and R&D for sales growth and improved margins in the MSA segment.
• Fund capital expenditures in 2026 (expected 4-5% of revenues) through existing cash balances and operating cash flows.
• Continue the share repurchase program, with $129.0 million remaining authorization as of December 31, 2025.
• Monitor and manage cybersecurity risks through ongoing assessments, employee training, systems monitoring and testing, and maintenance of protective systems and contingency plans.
• Evaluate the impact of recently issued accounting standards (ASU 2024-03, ASU 2025-09, ASU 2025-10) on future financial statements.

Key Dates

Recommendation

Knowles Corporation demonstrates strong financial performance in 2025 with significant revenue and earnings growth from continuing operations, driven by successful strategic execution in high-growth markets. The company's improved gross profit margins, increased adjusted free cash flow, and ongoing share repurchase program indicate robust financial health and a commitment to shareholder returns. While customer concentration and supply chain risks exist, the strategic shift away from the volatile consumer market towards more stable and profitable industrial and medical sectors, coupled with effective cost management and debt reduction, positions Knowles for continued positive momentum. The current valuation appears attractive given the growth trajectory and strategic clarity.

Keywords

Specialty Electronic Components, Capacitors, RF Filters, Microphones, Balanced Armature Speakers, Medtech, Defense, Industrial, Electrification, Energy, SEC Filing, 10-K, Financial Results, Knowles Corporation, KN, Supply Chain, Intellectual Property, Cybersecurity, Share Repurchase, Acquisition, Divestiture, Corporate Governance