Company Overview and History
Knowles Corporation, a leading global supplier of high-performance electronic components, has been at the forefront of driving innovation in various industries. With a diverse portfolio of specialized products, including capacitors, radio frequency (RF) filters, advanced medtech microphones, and balanced armature speakers, Knowles has established itself as a trusted partner for companies seeking cutting-edge solutions.
Founded in 1946 and headquartered in Itasca, Illinois, Knowles has a rich history of technological advancements and strategic growth. The company's beginnings can be traced back to the development of innovative microphone and audio components, which laid the foundation for its current success. Over the decades, Knowles has consistently expanded its capabilities, successfully navigating industry shifts and adapting to the evolving needs of its customers. Starting as a manufacturer of specialty electronic components, Knowles has grown into a global organization with facilities located in 11 countries around the world.
A significant milestone in the company's history occurred in 2014 when Knowles became a publicly traded company, listing its shares on the New York Stock Exchange under the ticker symbol KN. This move opened up new opportunities for growth and expansion. In the following years, Knowles made strategic acquisitions to enhance its product portfolio and strengthen its market position. A notable example is the 2023 purchase of Cornell Dubilier, a manufacturer of film, electrolytic, and mica capacitors used in medtech, defense, and industrial applications. This acquisition further solidified Knowles' position in key markets and expanded its technological capabilities.
Business Segments
Today, Knowles operates in two key segments: Precision Devices (PD) and MedTech Specialty Audio (MSA). The PD segment specializes in the design and delivery of high-performance capacitor products and RF solutions, primarily serving the defense, medtech, industrial, and electrification markets. The MSA segment, on the other hand, focuses on the production of innovative audio products, including microphones and balanced armature speakers, catering to the hearing health and premium audio markets.
Financials
Knowles' financial performance has been robust, showcasing its ability to capitalize on industry trends and customer demand. In the fiscal year 2024, the company reported total revenues of $553.5 million, reflecting a 21% increase from the previous year. This growth was driven by strong performance across both the PD and MSA segments, with the PD segment experiencing a remarkable 36% revenue increase and the MSA segment recording an 8% rise.
The company's profitability has also been noteworthy, with non-GAAP diluted earnings per share (EPS) growing by 32% in 2024 compared to 2023. This impressive financial performance is a testament to Knowles' operational excellence, strategic investments, and its ability to adapt to changing market dynamics.
Breaking down the segment performance, the PD segment reported revenues of $300.0 million in 2024, a 35.5% increase compared to 2023. This growth was primarily attributed to the acquisition of Cornell Dubilier, partially offset by lower demand from the industrial market in Knowles' legacy PD business. The PD segment's adjusted earnings before interest and income taxes (Adjusted EBIT) reached $50.0 million, up 23.5% from the previous year.
The MSA segment generated revenues of $253.5 million in 2024, representing a 7.7% increase from 2023. This growth was driven by higher shipping volumes of hearing health products due to stronger end-market demand, partially offset by lower shipping volumes in the specialty audio market and lower average pricing on mature products. The MSA segment's Adjusted EBIT was $102.3 million, up 13.7% from 2023, benefiting from improved operating leverage and favorable product mix.
For the most recent fiscal year, Knowles reported an annual net income of $23.4 million and an annual operating cash flow of $130.1 million. The company's annual free cash flow stood at $93.8 million. In the most recent quarter, Knowles generated revenue of $142.5 million and net income of $18.5 million, representing a 2% year-over-year revenue increase while net income decreased from the prior year quarter.
Geographically, Knowles' revenue distribution in 2024 was as follows: 42.6% from the United States, 33.8% from Asia, 18.7% from Europe, and 5.0% from other regions. This global presence allows the company to serve a diverse customer base and capitalize on various market opportunities.
Over the past five years, Knowles has delivered a revenue CAGR of 12% and an adjusted EBITDA CAGR of 36% through a combination of organic growth and strategic acquisitions. The company's focus on growing end markets such as medtech, defense, industrial, and electrification has been a key driver of this sustained performance.
Liquidity and Strategic Moves
One of the key highlights of 2024 was the company's divestiture of its Consumer MEMS Microphones (CMM) business to Syntiant Corp. for approximately $150 million in total consideration. This strategic move aligns with Knowles' focus on its core PD and MSA segments, positioning the company for continued growth and profitability. It's worth noting that this divestiture came after Knowles faced challenges with its CMM business, including a significant goodwill impairment charge recorded in 2022, which led the company to reevaluate its strategic direction.
Knowles maintains a strong financial position with a debt-to-equity ratio of 0.28 and cash and cash equivalents of $130.1 million as of the end of 2024. The company has access to a $400 million revolving credit facility, of which $134 million was outstanding at the end of 2024. Knowles' current ratio stands at 1.83, while its quick ratio is 1.23, indicating a healthy liquidity position.
In a move to enhance shareholder value, Knowles' board has authorized an additional $150 million for share buybacks, demonstrating confidence in the company's financial strength and future prospects.
Future Outlook
Looking ahead, Knowles' guidance for the first quarter of 2025 suggests continued momentum. The company expects revenues to be in the range of $124 million to $134 million, with non-GAAP diluted EPS projected between $0.16 and $0.20 per share. Additionally, Knowles anticipates R&D expenses between $8 million and $9 million, SG&A expenses between $23 million and $25 million, and an adjusted EBIT margin between 16% and 18%.
For the full year 2025, Knowles expects to deliver operating cash flow of more than 15% of revenues from continuing operations. The company also projects resuming year-over-year revenue and earnings growth starting in the second quarter of 2025.
A significant development for future growth is a new $75 million+ order received in Q1 2025 from the energy sector, with $25 million expected to ship in 2026. This order underscores Knowles' ability to secure large contracts in diverse markets.
Competitive Advantages and Challenges
Knowles' success can be attributed to its unwavering commitment to innovation, operational excellence, and customer-centric approach. The company's investments in research and development have enabled it to develop cutting-edge products that address the evolving needs of its diverse customer base. Additionally, Knowles' global manufacturing capabilities and supply chain resilience have been crucial in maintaining its competitive edge.
However, the company is not without its challenges. The ongoing trade tensions and geopolitical uncertainties have presented risks that Knowles must navigate carefully. The company's exposure to the global semiconductor supply chain and its reliance on international operations also expose it to potential disruptions.
Conclusion
Despite these challenges, Knowles' strong financial position, diversified product portfolio, and proven track record of execution position the company well for continued success. As the world continues to demand more advanced and reliable electronic components, Knowles stands ready to power the future with its innovative solutions. With its focus on high-growth markets, strategic acquisitions, and commitment to operational excellence, Knowles Corporation is well-positioned to capitalize on emerging opportunities and drive long-term value for its shareholders.