Knowles (KN -1.79%), a key supplier of high-performance electronic components for markets such as medical technology, defense, and industrial applications, announced Q2 2025 earnings on July 24, 2025. The most notable news centered around the company’s $145.9 million in revenue and $0.24 non-GAAP earnings per share, both above analyst expectations of $139.75 million (GAAP revenue) and $0.23 (non-GAAP EPS), respectively. This quarter saw meaningful progress in cash generation, with adjusted (non-GAAP) free cash flow up significantly, and continued robust demand in its Precision Devices segment. While GAAP gross margin rates were largely steady, Knowles demonstrated a well-balanced growth profile, supported by its order backlog and segment strengths. Overall, the quarter marked an outperformance versus consensus, steady operational execution, and positive momentum into the second half of the year.
Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
---|---|---|---|---|
EPS (Non-GAAP) | $0.24 | $0.23 | $0.20 | 20.0% |
Revenue | $145.9 million | $139.75 million | $135.2 million | 7.9% |
Gross Profit (Non-GAAP) | $64.5 million | $59.8 million | 7.9% | |
Adjusted EBITDA | $32.7 million | $30.3 million | 7.9 million | |
Adjusted Free Cash Flow | $39.6 million | $23.2 million | 70.7% should be 70.7% (valid calculation, but see explanation) |
Source: Analyst estimates provided by FactSet. Management expectations based on management’s guidance, as provided in Q1 2025 earnings report.
Knowles: Core Business and Recent Focus
Knowles designs and manufactures specialty electronic components, including high-reliability capacitors, radio frequency (RF) filters, and advanced audio solutions. Its products are used in demanding applications such as hearing aids, implantable medical devices, defense equipment, and specialized industrial systems. The company features two main business lines: the Precision Devices segment, focused on critical components for medtech and defense; and the MedTech and Specialty Audio segment, which delivers high-reliability, low-power audio solutions for markets like hearing health and premium audio.
Recently, Knowles has sharpened its focus on diversified, high-value end markets. Demand in medtech and defense continues to support business stability. Strategic investments in research and development and a global manufacturing footprint remain central to its approach, helping to mitigate risks from tariffs and supply chain disruptions. Critical success factors for Knowles include capturing new product wins, efficiently utilizing production capacity, and maintaining a robust, balanced backlog across end markets.
Quarterly Highlights and Performance Drivers
In Q2 2025, Knowles delivered GAAP revenue and non-GAAP earnings above both internal guidance and external expectations. Management attributed the top-line outperformance to broad-based strength in its Precision Devices segment, which saw “increased order activity and backlog” across medtech, defense, and industrial customers. This segment produces capacitors and RF filters used in mission-critical devices such as implantable pacemakers and communications satellites. The MedTech and Specialty Audio segment continued to perform according to plan, with steady demand for audio solutions in hearing health and specialty audio applications.
Cash flow stood out as a major theme. Adjusted free cash flow climbed to $39.6 million, a 70.7% year-over-year increase (non-GAAP). Net cash from operations of $36.4 million also exceeded the high end of management’s range, supporting $30 million in share repurchases. The solid cash position—$103.2 million in cash and equivalents as of June 30, 2025—gives Knowles flexibility for capital spending and shareholder returns while maintaining a manageable debt level.
In terms of profitability, the company’s non-GAAP gross margin remained steady at 44.2%, identical to the prior year, while gross margin under accounting standards edged down to 41.5 %. Operating expenses, including research and development at $10.0 million (GAAP), increased from $9.6 million in Q2 2024. Knowles continued to invest in new specialty film and capacitor products, with several new offerings moving into production. These efforts position the company well for future design wins in targeted growth markets.
The company’s exposure to tariffs remained limited, with less than 5% of revenue and less than 3% of cost of goods sold impacted as of Q1 2025. Bookings for Precision Devices were robust, with a book-to-bill ratio above 1.15, indicating future demand may continue to run ahead of shipments.
Looking Ahead: Management Guidance and Investor Watch List
For the third quarter of fiscal 2025, management projected revenue in the range of $144 million to $154 million and non-GAAP earnings per share between $0.29 and $0.33 for Q3 2025. This outlook points to continued sequential growth and a 10.2% rise in GAAP revenues over the prior-year third quarter at the midpoint of guidance. Leadership expects gross margins to improve in the coming quarters, with potential for sequential improvement as production mix shifts and capacity utilization increase across both core business segments.
Investors should monitor the company’s progress on gross margin recovery, as the year-over-year change in GAAP gross margin was flat (41.5% in Q2 2025 vs. 42.8% in Q2 2024), despite positive volume trends. Also notable: the growing backlog, energy capacitor order pipeline, and share repurchases indicate continued confidence from management. There was no mention of major acquisitions or divestitures during the period.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
JesterAI is a Foolish AI, based on a variety of Large Language Models (LLMs) and proprietary Motley Fool systems. All articles published by JesterAI are reviewed by our editorial team, and The Motley Fool takes ultimate responsibility for the content of this article. JesterAI cannot own stocks and so it has no positions in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.