Knowles Corp SEC 10-K Report

Knowles Corporation, a leading provider of advanced micro-acoustic microphones, speakers, and high-performance capacitors, has released its 2024 10-K report. The report details the company's financial performance, business operations, strategic initiatives, and the challenges it faces as it continues to transform into an industrial technology company.

Financial Highlights

Knowles Corporation reported significant financial growth in 2024, driven by strategic acquisitions and increased shipping volumes in key segments:

• Revenues: $553.5 million, an increase of 21.2% from 2023, primarily due to the acquisition of the CD business and higher shipping volumes in the MSA segment.
• Gross Profit: $234.8 million, reflecting a gross profit margin of 42.4%, impacted by the acquisition of CD and product cost reductions.
• Operating Earnings: $51.8 million, up from $43.4 million in 2023, driven by higher gross profit despite increased operating expenses.
• Net (Loss) Earnings: $(237.8) million, significantly impacted by a loss from discontinued operations, including goodwill impairment charges.
• Diluted Earnings per Share from Continuing Operations: $0.26, a decrease from $0.72 in 2023, due to higher operating expenses and interest expense.

Business Highlights

Knowles Corporation operates through two main segments, each contributing to the company's overall performance:

• Business Segments: The Precision Devices (PD) segment focuses on high-performance capacitors and RF solutions for defense, medtech, electrification, and industrial markets. The MedTech & Specialty Audio (MSA) segment specializes in balanced armature speakers and microphones for hearing health and premium audio markets.
• Geographical Performance: Knowles maintains manufacturing facilities in North America and Asia for the PD segment, and primarily in Asia for the MSA segment. Significant operations are located in the Philippines and Malaysia for the MSA segment.
• Sales Units: The MSA segment saw increased shipping volumes of hearing health products due to stronger end market demand, while the PD segment experienced lower demand from the industrial market due to excess inventory.
• New Product Launches: The company continues to focus on developing new products through its research and development efforts, particularly in the MSA segment, to meet customer requirements for size, frequency response, and power efficiency.
• New Production Launches: During 2024, Knowles undertook restructuring activities to optimize operations within the PD segment, including transferring certain capacitor manufacturing to existing facilities.
• Future Outlook: Knowles is focused on expanding its presence in profitable markets through organic initiatives and acquisitions, with a continued emphasis on innovation and operational efficiency to drive growth in its key segments.

Strategic Initiatives

Knowles Corporation has undertaken several strategic initiatives to align with its transformation into an industrial technology company:

• Divestiture: The company divested its Consumer MEMS Microphones business to Syntiant Corp. for approximately $150 million, aligning with its strategic shift.
• Acquisitions: Knowles acquired Kaplan Electronics, Inc. and certain assets of Cornell Dubilier Electronics, Inc. for $259.8 million to enhance its Precision Devices segment, focusing on medtech, defense, and industrial electrification applications.
• Capital Management: The company actively managed its capital through a share repurchase program, buying back 2,987,697 shares for $53.7 million in 2024. It also amended its credit agreement to facilitate the acquisition of Cornell Dubilier, incurring a Seller Note of $122.9 million. The company maintained a revolving credit facility with a borrowing capacity of $400 million, with $134 million outstanding as of December 31, 2024. Additionally, Knowles increased its share repurchase authorization by $150 million in February 2025.
• Future Outlook: Looking ahead, Knowles plans to focus on its core industrial technology segments, Precision Devices and MedTech & Specialty Audio, while managing potential dis-synergies from the CMM divestiture. The company expects capital expenditures to be between 3% to 5% of revenues in 2025, funded through existing cash and operating cash flows. Knowles aims to continue generating positive cash flow from operations to support strategic investments and share repurchases.

Challenges and Risks

Knowles Corporation faces several challenges and risks that could impact its operations and financial performance:

• Divestiture Risks: The divestiture of the Consumer MEMS Microphones business to Syntiant Corp. may not yield the expected strategic and financial benefits, potentially impacting financial condition, results of operations, or cash flows.
• Customer Concentration: The company relies on a limited number of OEM customers, which could adversely affect operating results if revenues from these customers decrease.
• Supply Chain Risks: Dependence on highly specialized suppliers could impact operations if supply disruptions occur.
• Acquisition Integration: Challenges in integrating acquisitions, such as Cornell Dubilier Electronics, Inc., could affect business and financial results.
• Employee Retention: The need to attract and retain key employees is critical for the company's ongoing success.
• Tax Rate Fluctuations: Fluctuations in the effective tax rate could impact financial results.
• Product Defects: Potential product defects could result in material costs and harm to the business.
• Industry Risks: Intense competition and rapid technological changes could impact the company's ability to develop new products and compete effectively.
• Global Economic Conditions: Inflation and geopolitical uncertainties may adversely affect customer orders and demand for products.
• Foreign Operations: Risks from foreign operations and supply chain disruptions could materially impact results of operations and financial condition.
• Market Risks: Fluctuations in commodity prices and foreign currency exchange rates could materially affect operating results and financial condition.
• Regulatory Environment: The evolving regulatory environment, particularly regarding export restrictions and economic sanctions, poses additional risks that could impact the company's ability to conduct business globally.

SEC Filing: Knowles Corp [ KN ] - 10-K - Feb. 13, 2025