Knowles Corp Files Q2 2024 10-Q

TL;DR

Knowles Corp's Q2 2024 10-Q is in. Check financials.

AI Summary

Knowles Corp filed its 10-Q for the period ending June 30, 2024, reporting on its financial performance. The filing details its financial position and operational results for the second quarter and first half of 2024, comparing them to the same periods in 2023. The company is based in Itasca, IL, and operates in the Household Audio & Video Equipment sector.

Why It Matters

This filing provides investors and analysts with the latest financial data for Knowles Corp, crucial for understanding the company's performance and making informed investment decisions.

Risk Assessment

Risk Level: low — This is a standard quarterly financial filing with no immediate red flags or significant new risks indicated in the provided header information.

Key Numbers

• 20240630 — Reporting Period End Date (Indicates the end of the fiscal quarter for which financial data is reported.)
• 20240731 — Filing Date (The date the 10-Q was officially submitted to the SEC.)

Key Players & Entities

• Knowles Corp (company) — Filer of the 10-Q
• 20240630 (date) — End of the reporting period
• 20240731 (date) — Filing date
• Itasca, IL (location) — Company's business and mailing address
• 630-250-5100 (phone_number) — Company's business phone number

FAQ

Key Financial Figures

• $0.01 — ange on which registered Common stock, $0.01 par value per share KN New York Stock E

Filing Documents

• kn-20240630.htm (10-Q) — 1535KB
• exhibit101knowles_2024co.htm (EX-10.1) — 11KB
• a2024630exhibit311.htm (EX-31.1) — 11KB
• a2024630exhibit312.htm (EX-31.2) — 11KB
• a2024630exhibit321.htm (EX-32.1) — 8KB
• exhibit101knowles_2024co001.jpg (GRAPHIC) — 292KB
• exhibit101knowles_2024co002.jpg (GRAPHIC) — 247KB
• exhibit101knowles_2024co003.jpg (GRAPHIC) — 35KB
• exhibit101knowles_2024co004.jpg (GRAPHIC) — 37KB
• exhibit101knowles_2024co005.jpg (GRAPHIC) — 34KB
• exhibit101knowles_2024co006.jpg (GRAPHIC) — 36KB
• exhibit101knowles_2024co007.jpg (GRAPHIC) — 33KB
• exhibit101knowles_2024co008.jpg (GRAPHIC) — 35KB
• exhibit101knowles_2024co009.jpg (GRAPHIC) — 37KB
• exhibit101knowles_2024co010.jpg (GRAPHIC) — 36KB
• 0001587523-24-000071.txt ( ) — 8905KB
• kn-20240630.xsd (EX-101.SCH) — 43KB
• kn-20240630_cal.xml (EX-101.CAL) — 67KB
• kn-20240630_def.xml (EX-101.DEF) — 309KB
• kn-20240630_lab.xml (EX-101.LAB) — 645KB
• kn-20240630_pre.xml (EX-101.PRE) — 529KB
• kn-20240630_htm.xml (XML) — 1097KB

— FINANCIAL INFORMATION

PART I — FINANCIAL INFORMATION 1 Item 1.

Financial Statements

Financial Statements 1 Consolidated Statements of Earnings (unaudited) for the three and six months ended June 3 0 , 2024 and 2023 1 Consolidated Statements of Comprehensive Earnings (unaudited) for the three and six months ended June 3 0 , 2024 and 2023 2 Consolidated Balance Sheets (unaudited) at June 3 0 , 2024 and December 31, 2023 3 Consolidated Statements of Stockholders' Equity (unaudited) for the three and six months ended June 3 0 , 2024 and 2023 4 Consolidated Statements of Cash Flows (unaudited) for the six m onths ended June 3 0 , 2024 and 2023 6

Notes to Consolidated Financial Statements (unaudited)

Notes to Consolidated Financial Statements (unaudited) 7

Forward-Looking Statements

Forward-Looking Statements 22 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 23 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 42 Item 4.

Controls and Procedures

Controls and Procedures 42

— OTHER INFORMATION

PART II — OTHER INFORMATION 42 Item 1.

Legal Proceedings

Legal Proceedings 42 Item 1A.

Risk Factors

Risk Factors 42 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 43 Item 5. Other Information 43 Item 6. Exhibits 44

SIGNATURES

SIGNATURES 45 Table of Contents

— FINANCIAL INFORMATION

PART I — FINANCIAL INFORMATION

Financial Statements

Item 1. Financial Statements KNOWLES CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS (in millions, except per share amounts) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Revenues $ 204.7 $ 173.0 $ 401.1 $ 317.3 Cost of goods sold 127.9 105.8 253.4 196.2 Gain on sale of fixed assets ( 1.1 ) ( 4.8 ) ( 1.1 ) ( 4.8 ) Restructuring charges - cost of goods sold 0.3 ( 1.7 ) 1.3 ( 1.6 ) Gross profit 77.6 73.7 147.5 127.5 Research and development expenses 20.9 19.7 41.5 39.7 Selling and administrative expenses 43.0 36.5 86.5 70.3 Goodwill impairment 249.4 — 249.4 — Restructuring charges ( 0.1 ) 0.6 1.4 1.6 Operating expenses 313.2 56.8 378.8 111.6 Operating (loss) earnings ( 235.6 ) 16.9 ( 231.3 ) 15.9 Interest expense, net 4.6 0.8 9.0 1.6 Other expense (income), net 0.3 ( 1.3 ) ( 0.1 ) 1.0 Gain on sale of asset, net — — ( 5.4 ) — (Loss) earnings before income taxes ( 240.5 ) 17.4 ( 234.8 ) 13.3 Provision for income taxes 18.8 3.8 22.0 4.9 Net (loss) earnings $ ( 259.3 ) $ 13.6 $ ( 256.8 ) $ 8.4 Net (loss) earnings per share: Basic $ ( 2.90 ) $ 0.15 $ ( 2.87 ) $ 0.09 Diluted $ ( 2.90 ) $ 0.15 $ ( 2.87 ) $ 0.09 Weighted-average common shares outstanding: Basic 89.4 91.4 89.5 91.4 Diluted 89.4 91.8 89.5 92.1 See accompanying Notes to Consolidated Financial Statements 1 Table of Contents KNOWLES CORPORATION CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (in millions) (unaudited) Three Months Ended June 30, Six Months Ended June 30, 2024 2023 2024 2023 Net (loss) earnings $ ( 259.3 ) $ 13.6 $ ( 256.8 ) $ 8.4 Other comprehensive loss, net of tax Foreign currency translation ( 3.2 ) ( 13.3 ) ( 6.6 ) ( 9.7 ) Employee benefit plans: Amortization or settlement of actuarial losses and prior service costs 0.2 0.2 0.3 0.4 Net change in employee benefit plans 0.2 0.2 0.3 0.4 Changes in fair value of cash flow hedges: Unrealized net losses arising during period ( 1.3 ) ( 4.0 ) ( 2.6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Basis of Presentation Background - Knowles Corporation (NYSE:KN) is a market leader and global provider of high performance capacitors and radio frequency ("RF") products, balanced armature speakers, advanced micro-acoustic microphones, and audio solutions, serving the medtech, defense, electric vehicle, industrial, communications, and consumer electronics markets. The Company uses its leading position in SiSonic TM micro-electro-mechanical systems ("MEMS") microphones and strong capabilities in audio processing technologies to optimize audio systems and improve the user experience across consumer applications. Knowles is also a leader in hearing health acoustics, high performance capacitors, and RF solutions for a diverse set of markets. The Company's focus on the customer, combined with its unique technology, proprietary manufacturing techniques, and global operational expertise, enable the Company to deliver innovative solutions across multiple applications. References to "Knowles," "the Company," "we," "our," and "us" refer to Knowles Corporation and its consolidated subsidiaries. Financial Statement Presentation - The accompanying unaudited interim Consolidated Financial Statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") for quarterly reports on Form 10-Q and do not include all of the information and note disclosures required by U.S. generally accepted accounting principles ("GAAP" or "U.S. GAAP") for complete financial statements. These unaudited interim Consolidated Financial Statements should therefore be read in conjunction with the Consolidated Financial Statements and Notes thereto for the year ended December 31, 2023 included in the Company's Annual Report on Form 10-K. The accompanying unaudited interim Consolidated Financial Statements have been prepared in accordance with U.S. GAAP, which requires management to make est

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 2. Recent Accounting Standards In November 2023, the FASB issued ASU 2023-07 to expand reportable segment disclosure requirements. This guidance requires that a public entity disclose, on an annual and interim basis, significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") and included within each reported measure of segment profit or loss. All annual disclosures about a reportable segment's profit or loss and assets currently required by ASC 280 must also be disclosed in interim periods. Additionally, this standard requires that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. This standard is effective for the Company beginning with its annual reporting for the year ended December 31, 2024 and its interim reporting for the three months ended March 31, 2025. Early adoption is permitted. The standard requires adoption on a retrospective basis for all prior periods presented in the financial statements. The Company does not expect the adoption of this standard to have a significant impact upon the financial statements. In December 2023, the FASB issued ASU 2023-09 to enhance the transparency of income tax disclosures. This guidance requires that public business entities disclose, on an annual basis, specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold. A public business entity is required to provide an explanation, if not otherwise evident, of the individual reconciling items disclosed, such as the nature, effect, and underlying causes and the judgment used in categorizing the reconciling items. This guidance also requires that all entities disclose, on an annual basis, the amount of income taxes paid (ne

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) The table below represents a preliminary allocation of the purchase price to net assets acquired as of November 1, 2023: (in millions) Receivables $ 13.4 Inventories 40.1 Property, plant, and equipment 30.6 Customer relationships 82.5 Developed technology 19.1 Trademarks 14.0 Operating lease right-of-use assets 3.4 Other assets and deferred charges 3.6 Goodwill 69.5 Current liabilities assumed ( 10.9 ) Deferred income taxes ( 15.8 ) Long-term operating lease liabilities ( 2.7 ) Total purchase price $ 246.8 The following unaudited pro-forma summary presents consolidated financial information as if CD had been acquired on January 1, 2022. The unaudited pro-forma financial information is based on historical results of operations and financial positions of the Company and CD. The pro-forma earnings are adjusted to reflect the comparable impact of depreciation and amortization expense resulting from the fair value measurement of tangible and intangible assets, nonrecurring deal-related costs, employee retention, inventory step-up charges, and interest expense on borrowings to fund the acquisition. The unaudited pro-forma financial information does not necessarily represent the results that would have occurred had the acquisition occurred on January 1, 2022. In addition, the unaudited pro-forma information should not be deemed to be indicative of future results. Three Months Ended June 30, Six Months Ended June 30, (in millions) 2024 2023 2024 2023 Revenues: As reported $ 204.7 $ 173.0 $ 401.1 $ 317.3 Pro-forma 204.7 207.5 401.1 389.0 Net (loss) earnings: As reported $ ( 259.3 ) $ 13.6 $ ( 256.8 ) $ 8.4 Pro-forma ( 256.5 ) 12.0 ( 250.2 ) 5.3 Basic (loss) earnings per share: As reported $ ( 2.90 ) $ 0.15 $ ( 2.87 ) $ 0.09 Pro-forma ( 2.87 ) 0.13 ( 2.80 ) 0.06 Diluted (loss) earnings per share: As reported $ ( 2.90 ) $ 0.15 $ ( 2.87 ) $ 0.09 Pro-forma ( 2.87 ) 0.13 ( 2.80 ) 0.06 9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 4. Inventories, net The following table details the major components of inventories, net: (in millions) June 30, 2024 December 31, 2023 Raw materials $ 142.8 $ 140.3 Work in progress 35.7 36.7 Finished goods 58.3 63.0 Subtotal 236.8 240.0 Less reserves ( 46.7 ) ( 43.6 ) Total $ 190.1 $ 196.4 5. Property, Plant, and Equipment, net The following table details the major components of property, plant, and equipment, net: (in millions) June 30, 2024 December 31, 2023 Land $ 14.1 $ 14.3 Buildings and improvements 121.0 122.5 Machinery, equipment, and other 511.2 518.2 Subtotal 646.3 655.0 Less accumulated depreciation ( 486.9 ) ( 479.6 ) Total $ 159.4 $ 175.4 Depreciation expense totaled $ 7.7 million and $ 8.2 million for the three months ended June 30, 2024 and 2023, respectively. For the six months ended June 30, 2024 and 2023 depreciation expense totaled $ 15.8 million and $ 17.4 million, respectively. During the three months ended June 30, 2023, the Company entered into an agreement to sell certain of its machinery and equipment related to the Consumer MEMS Microphones ("CMM") segment to a third party for total proceeds of $ 11.4 million, which were received in their entirety in the second quarter of 2023. In addition, the Company received $ 1.1 million in the second quarter of 2023, which was initially reserved for a third-party payment. The Company transferred control of assets with a fair value of approximately $ 5.7 million during the three months ended June 30, 2023, resulting in a gain on sale of approximately $ 5.7 million. The remaining assets were transferred to the buyer in the third quarter of 2023 for a gain on sale of $ 5.3 million and in the first quarter of 2024 for an immaterial gain. During the three months ended June 30, 2024, the Company recorded an additional gain on the sale of these assets of approximately $ 1.1 million as a result of changing its estimate on the

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 6. Goodwill and Other Intangible Assets The changes in the carrying value of goodwill by reportable segment for the six months ended June 30, 2024 are as follows: (in millions) Precision Devices MedTech & Specialty Audio Consumer MEMS Microphones Total Gross value at December 31, 2023 $ 132.8 $ 137.7 $ 741.1 $ 1,011.6 Accumulated impairment loss — — ( 470.9 ) ( 470.9 ) Net carrying value at December 31, 2023 132.8 137.7 270.2 540.7 Goodwill impairment — — ( 249.4 ) ( 249.4 ) Measurement period adjustments ( 0.1 ) — — ( 0.1 ) Net carrying value at June 30, 2024 $ 132.7 $ 137.7 $ 20.8 $ 291.2 The Company tests goodwill for impairment at least annually as of October 1, or more frequently if there are events or circumstances indicating the carrying value of individual reporting units may exceed their respective fair values on a more likely than not basis. Recoverability of goodwill is measured at the reporting unit level. The Company's three reporting units are Precision Devices ("PD"), MedTech & Specialty Audio ("MSA"), and CMM. The impairment assessment compares the fair value of each reporting unit to its carrying value. Impairment is measured as the amount by which the carrying value of a reporting unit exceeds its fair value. On September 18, 2023, the Company announced that it was reviewing strategic alternatives for the CMM business. This review included a range of possibilities, including a potential sale or restructuring of the business. During the second quarter of 2024, the Company evaluated the potential outcomes of its strategic review and determined that it was more likely than not that the fair value of the CMM reporting unit was below its carrying value and recorded a goodwill impairment charge of $ 249.4 million for the three and six months ended June 30, 2024. The goodwill impairment charge is presented within "Operating expenses" on the Consolidated Statements of Earnings. As of

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