Knowles Corporation (KN) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
Despite some concerns about management's lack of clarity on gross margin guidance, the overall sentiment is positive. The company reported strong financial performance, with significant revenue growth in key segments and optimistic guidance for 2025. The Q&A session highlighted promising organic growth opportunities and strong demand across various markets. The company's strategic initiatives and operational efficiencies are expected to drive further growth, supporting a positive stock price movement in the short term.
Key Financial Performance
Q4 2025 Revenue $162 million, up 14% year-over-year. Reasons: Strong financial performance and exceeding the high end of the guided range.
Q4 2025 EPS $0.36, up 33% year-over-year. Reasons: Above the midpoint of the guided range.
Q4 2025 Cash from Operations $47 million, exceeding the high end of the guided range. Reasons: Increased EBITDA and lower-than-expected net working capital.
Full Year 2025 Revenue $593 million, up 7% year-over-year. Reasons: Organic growth and strategic focus on markets and products.
Full Year 2025 EPS $1.11, up 21% year-over-year. Reasons: Revenue and EPS growth driven by strategic initiatives.
MedTech and Specialty Audio Q4 2025 Revenue $73 million, up 4% year-over-year. Reasons: Increased shipment volume.
MedTech and Specialty Audio Full Year 2025 Revenue $264 million, up 4% year-over-year. Reasons: Growth in Specialty Audio and increased shipment volume of stamped metal cans.
Precision Devices Q4 2025 Revenue $90 million, up 23% year-over-year. Reasons: Normalized channel inventory levels and strength across all key end markets.
Precision Devices Full Year 2025 Revenue 10% year-over-year growth. Reasons: Strength across all end markets and product lines.
Q4 2025 Gross Margins 51.9%, up slightly year-over-year. Reasons: Increased shipment volume and operational efficiencies.
Precision Devices Q4 2025 Gross Margins 40.1%, up 230 basis points year-over-year. Reasons: Higher end market demand, increased factory capacity utilization, partially offset by higher scrap costs and production inefficiencies.
Precision Devices Full Year 2025 Gross Margins Improved 140 basis points year-over-year. Reasons: Production volume increases in RF microwave products and ceramic capacitors.
Full Year 2025 Adjusted EBITDA $140 million, up 9% year-over-year. Reasons: Higher gross profit margins and increasing operating leverage.
Full Year 2025 Cash from Operations $114 million, 19.2% of revenues. Reasons: Strong operational performance and cash generation.
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Operating Highlights
MEMS microphones and balance armature speakers: Winning next-generation designs for MEMS microphones and balance armature speakers in the Hearing Health market, improving comfort, fit, and performance with low power.
High-performance ceramic capacitors and pulse power film capacitors: New design wins and production ramping in MedTech market, used in implantable devices, medical imaging, and life-extending treatments.
Precision Devices segment: Revenue grew 10% year-over-year, exceeding the organic growth target of 6%-8%. Growth observed across MedTech, Defense, Industrial, EV, and Energy markets.
Energy market: New specialty film line expected to start producing high-volume pulse power capacitors in late Q2 2026, indicating future growth opportunities.
Revenue and EPS growth: 2025 revenue of $593 million (up 7% YoY) and EPS of $1.11 (up 21% YoY), driven by strong operational focus and market positioning.
Gross margin improvement: Precision Devices segment gross margins improved by 140 basis points in 2025 due to increased production volumes and capacity utilization.
Portfolio transformation: Completion of portfolio transformation in 2024, positioning Knowles as an industrial technology company focused on custom engineered solutions.
Synergistic acquisitions and share buybacks: Strong cash generation and balance sheet to support acquisitions and share repurchases while maintaining manageable debt levels.
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Risk or Challenges
Production inefficiencies in specialty film line: Higher scrap costs and production inefficiencies in connection with the specialty film line have impacted gross margins in the Precision Devices segment. This could pose a challenge to achieving optimal profitability.
Seasonal revenue fluctuations: The first quarter of the year is typically seasonally low, which may impact revenue growth and financial performance in the short term.
Debt levels and interest expense: Although debt levels are described as manageable, the company still incurs interest expenses, which could become a challenge if cash flow generation slows or if borrowing costs increase.
Supply chain normalization risks: While inventory levels have normalized, any disruptions in the supply chain could impact the company's ability to meet demand and maintain revenue growth.
Increased SG&A expenses: Selling, General, and Administrative (SG&A) expenses have increased, driven by higher incentive compensation costs, which could pressure operating margins if not managed effectively.
Energy market production ramp-up risks: The new specialty film line for the energy market is expected to start high-volume production in late Q2 2026. Delays or inefficiencies in this ramp-up could impact revenue and profitability.
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Guidance & Outlook
Revenue Growth: The company expects continued strong organic revenue growth above historic levels in 2026, with Q1 revenues projected between $143 million and $153 million, representing a 12% year-over-year increase at the midpoint.
Segment Performance: MedTech and Specialty Audio segment revenue is expected to grow, driven by increased shipment volumes and new design wins. Precision Devices segment is projected to benefit from normalized inventory levels, increased demand, and strong secular growth trends in markets such as MedTech, Defense, Industrial, EV, and Energy.
Energy Market Expansion: The new specialty film line is expected to start producing and delivering high-volume pulse power capacitors in late Q2 2026, contributing to growth in the energy market.
Profitability and Margins: Adjusted EBIT margin for Q1 2026 is projected to be within the range of 18% to 20%. Segment gross margins in Precision Devices are expected to improve further in 2026 due to increased capacity utilization and efficiencies in the specialty film line.
Capital Expenditures: Full-year capital spending is expected to be approximately 4% to 5% of revenues, with investments focused on capacity expansion for the energy market.
Earnings Per Share (EPS): Q1 2026 EPS is projected to be within a range of $0.22 to $0.26 per share, up 33% year-over-year at the midpoint.
Cash Flow: Cash from operating activities for Q1 2026 is expected to range from negative $5 million to $5 million, with full-year cash flow growth anticipated to drive shareholder value.
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Shareholder Return Plan
Share Buyback Program: During the fourth quarter, the company repurchased 451,000 shares at a total cost of $10 million. The company emphasized its strong balance sheet and robust cash generation, which enables it to continue share repurchases while maintaining manageable debt levels.
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Key Q&A
Q:Have you seen a broadening in new customers for the thin film capacity products? Can you provide an update on capacity addition plans, timing of revenue, and TAM details?
A:The energy order is expected to generate over $25 million in revenue this year, with a significant portion in the back half of the year. Full ramp-up is anticipated by the end of Q2. The specialty film line is seeing a broadening customer base beyond medical applications, including defibrillators, radiotherapy, downhole fracking, and military applications like rail guns. Revenue expectations for this product category, including the energy order, remain in the $50 million to $65 million range for 2026.
Q:What are your prospects for the next big hit, and are you focusing on organic growth or acquisitions?
A:The company sees promising organic growth opportunities over the next 24 to 36 months. Updates include progress in micro solutions within MSA for medical applications, with higher volume production expected in 2027. Defense spending is a secular growth trend, and work is ongoing in ceramic caps for defense and munitions. Organic growth is projected at 4%-6%, with 7% achieved in the first year.
Q:Can you confirm the gross margin guide for March and provide insights into June quarter gross margins?
A:The company has moved away from gross margin guidance, focusing instead on revenue, EPS, and cash flow. Full-year 2025 gross margin was 45.5%, with MSA above 50%. Margins are expected to hold steady in 2026, with potential expansion of 50-75 basis points in the back half of the year due to higher production volumes.
Q:What are the fastest-growing markets expected for 2026, and do you have exposure to the satellite market?
A:The company has some exposure to the satellite market. Key markets, including Defense, MedTech, Industrial, and Energy/EV, are all performing strongly. Industrial is showing more momentum compared to six months ago.
Q:Can you provide an update on the production build-out for energy orders?
A:The production build-out is progressing, with permits obtained and equipment being moved into the facility in Greenville, South Carolina. The goal is to ramp production to 10x current levels within the next five months, reaching full volume production by the end of Q2. The capacity can also be used for other pulse power applications if demand arises.
Q:What are the supply/demand dynamics in industrial, and do you expect industrial revenue to rebound in the second half?
A:Strong industrial shipments are expected in the first half of 2026, with the back half likely to be flat compared to 2025. Overall, industrial revenue is expected to grow for the full year.
Q:Are shortages of components across the industry impacting your demand, and will supply constraints positively impact pricing in the second half?
A:The company is monitoring capacity, utilization, and pricing dynamics. Strong bookings in Q4 2025 and January 2026 indicate robust demand. There are concerns about meeting demand in the back half of the year, which could impact pricing.
Q:Review of Unclear Management Responses
A:Management avoided providing a direct answer to the gross margin guide for March, stating that they have moved away from gross margin guidance and instead focus on revenue, EPS, and cash flow. This response lacked clarity and specific details about gross margin expectations.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Audio end
Cash end
Conference conference
Day Health
Day Precision
Day expectation
Defense Industrial
Devices end
EV Energy
Energy color
Full Conference
Health Knowles
Industrial EV
Knowles Full
Knowles completion
Knowles technology
MedTech Defense
MedTech market
Ms investor
ability technology
acceleration end
advantage segment
application generation
application robotics
armature speaker
balance armature
basis momentum
custom product
end Investor
film capacitor
intimacy
life
market MedTech
market opportunity
market solution
pulse power
reliability
scale
technology custom
volume
KN Transcript
Knowles Corporation (KN) Q4 2025 Earnings Call Transcript
Positive2-5
Despite some concerns about management's lack of clarity on gross margin guidance, the overall sentiment is positive. The company reported strong financial performance, with significant revenue growth in key segments and optimistic guidance for 2025. The Q&A session highlighted promising organic growth opportunities and strong demand across various markets. The company's strategic initiatives and operational efficiencies are expected to drive further growth, supporting a positive stock price movement in the short term.
Knowles Corporation (KN) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call highlights strong revenue growth, improved gross margins, and strategic expansion in specialty films, with optimistic guidance for MedTech and Precision Devices. While there are some uncertainties in M&A timelines and industrial segment growth, the overall sentiment remains positive due to high demand, operational improvements, and robust bookings. The Q&A session reinforced confidence in future growth and margin improvements, leading to a positive outlook for stock price movement.
Knowles Corporation (KN) Q2 2025 Earnings Call Transcript
Positive7-24
The company reported strong financial performance with an 8% revenue increase and a 20% EPS rise. While SG&A expenses increased, the company maintained manageable debt levels and reduced interest expenses. Share repurchases of $30 million reflect confidence in cash flow. Positive guidance and strong bookings further support a positive outlook. Despite some margin pressures, the overall sentiment is positive, especially with expected margin improvements and continued revenue growth.
Knowles Corporation (NYSE:KN) Q1 2025 Earnings Call Transcript
Positive4-26
The earnings call reveals a mixed but generally positive outlook. Financial performance is stable with strong cash flow and debt reduction, despite slight revenue decline and margin pressure. Optimistic guidance for Q2 and beyond, along with strategic customer commitments, suggests future growth. Share repurchase and debt reduction enhance shareholder value. The Q&A indicates potential market share gains and improved margins. Tariff impacts are minimal, and customer demand remains solid. Overall, these factors suggest a potential positive stock price movement over the next two weeks.
KN Slides
KN Report
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