UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2023.

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-36102

Knowles Corporation

(Exact name of registrant as specified in its charter)

Delaware	90-1002689
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1151 Maplewood Drive, Itasca, IL

(Address of Principal Executive Offices)

60143

(Zip Code)

(630) 250-5100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol	Name of each exchange on which registered
Common stock, $0.01 par value per share	KN	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ☑  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes ☑  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☑	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐  No  ☑

The number of shares outstanding of the registrant’s common stock as of April 28, 2023 was 91,379,296.

Knowles Corporation

Form 10-Q

Table of Contents

		Page
PART I — FINANCIAL INFORMATION		1
Item 1.	Financial Statements	1
	Consolidated Statements of Earnings (unaudited) for the three months ended March 31, 2023 and 2022	1
	Consolidated Statements of Comprehensive Earnings (unaudited) for the three months ended March 31, 2023 and 2022	2
	Consolidated Balance Sheets (unaudited) at March 31, 2023 and December 31, 2022	3
	Consolidated Statements of Stockholders' Equity (unaudited) for the three months ended March 31, 2023 and 2022	4
	Consolidated Statements of Cash Flows (unaudited) for the three months ended March 31, 2023 and 2022	5
	Notes to Consolidated Financial Statements (unaudited)	6
Forward-Looking Statements		17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II — OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	30
SIGNATURES		31

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

KNOWLES CORPORATION

CONSOLIDATED STATEMENTS OF EARNINGS

(in millions, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Revenues	$	144.3	$	201.4
Cost of goods sold	90.4		118.1
Restructuring charges - cost of goods sold	0.1		—
Gross profit	53.8		83.3
Research and development expenses	20.0		23.1
Selling and administrative expenses	33.8		32.3
Restructuring charges	1.0		6.6
Operating expenses	54.8		62.0
Operating (loss) earnings	(1.0)		21.3
Interest expense, net	0.8		0.8
Other expense (income), net	2.3		(0.5)
(Loss) earnings before income taxes	(4.1)		21.0
Provision for income taxes	1.1		2.9
Net (loss) earnings	$	(5.2)	$	18.1
Net (loss) earnings per share:
Basic	$	(0.06)	$	0.20
Diluted	$	(0.06)	$	0.19
Weighted-average common shares outstanding:
Basic	91.4		92.3
Diluted	91.4		94.3

See accompanying Notes to Consolidated Financial Statements

1

KNOWLES CORPORATION 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS

(in millions)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Net (loss) earnings	$	(5.2)	$	18.1
Other comprehensive earnings (loss), net of tax
Foreign currency translation	3.6		(2.2)
Employee benefit plans:
Amortization or settlement of actuarial losses and prior service costs	0.2		0.1
Net change in employee benefit plans	0.2		0.1
Changes in fair value of cash flow hedges:
Unrealized net gains arising during period	0.1		—
Net losses (gains) reclassified into earnings	0.1		(0.3)
Total cash flow hedges	0.2		(0.3)
Other comprehensive earnings (loss), net of tax	4.0		(2.4)
Comprehensive (loss) earnings	$	(1.2)	$	15.7

See accompanying Notes to Consolidated Financial Statements

2

KNOWLES CORPORATION

CONSOLIDATED BALANCE SHEETS

(in millions, except share and per share amounts)

(unaudited)

	March 31, 2023		December 31, 2022
Current assets:
Cash and cash equivalents	$	52.0	$	48.2
Receivables, net of allowances of $0.1 and $1.1	109.5		134.7
Inventories, net	208.6		169.5
Prepaid and other current assets	12.9		10.0
Total current assets	383.0		362.4
Property, plant, and equipment, net	158.5		161.8
Goodwill	471.0		471.0
Intangible assets, net	82.2		85.1
Operating lease right-of-use assets	12.3		12.6
Other assets and deferred charges	88.5		91.0
Total assets	$	1,195.5	$	1,183.9
Current liabilities:
Accounts payable	$	70.7	$	41.4
Accrued compensation and employee benefits	21.1		26.9
Operating lease liabilities	7.4		8.4
Other accrued expenses	24.4		19.9
Federal and other taxes on income	1.7		2.5
Total current liabilities	125.3		99.1
Long-term debt	45.0		45.0
Deferred income taxes	0.9		0.9
Long-term operating lease liabilities	6.9		7.2
Other liabilities	30.0		38.8
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock - $0.01 par value; 10,000,000 shares authorized; none issued	—		—
Common stock - $0.01 par value; 400,000,000 shares authorized; 97,146,487 and 91,359,500 shares issued and outstanding at March 31, 2023, respectively, and 96,431,604 and 91,078,376 shares issued and outstanding at December 31, 2022, respectively	1.0		1.0
Treasury stock - at cost; 5,786,987 and 5,353,228 shares at March 31, 2023 and December 31, 2022, respectively	(110.8)		(103.3)
Additional paid-in capital	1,668.7		1,665.5
Accumulated deficit	(453.4)		(448.2)
Accumulated other comprehensive loss	(118.1)		(122.1)
Total stockholders' equity	987.4		992.9
Total liabilities and stockholders' equity	$	1,195.5	$	1,183.9

See accompanying Notes to Consolidated Financial Statements

3

KNOWLES CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in millions, except share amounts)

(unaudited)

	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares Issued	Amount		Shares	Amount
Balance at December 31, 2022	96,431,604	$	1.0	(5,353,228)	$	(103.3)	$	1,665.5	$	(448.2)	$	(122.1)	$	992.9
Net loss	—	—		—	—		—		(5.2)		—		(5.2)
Other comprehensive earnings, net of tax	—	—		—	—		—		—		4.0		4.0
Repurchase of common stock	—	—		(433,759)	(7.5)		—		—		—		(7.5)
Stock-based compensation expense	—	—		—	—		7.8		—		—		7.8
Exercise of stock options	182,736	—		—	—		1.4		—		—		1.4
Restricted and performance stock unit settlement, net of tax	532,147	—		—	—		(6.0)		—		—		(6.0)
Balance at March 31, 2023	97,146,487	$	1.0	(5,786,987)	$	(110.8)	$	1,668.7	$	(453.4)	$	(118.1)	$	987.4
	Common Stock			Treasury Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Stockholders' Equity
	Shares Issued	Amount		Shares	Amount
Balance at December 31, 2021	95,112,778	$	1.0	(3,217,798)	$	(62.4)	$	1,639.4	$	(18.1)	$	(100.4)	$	1,459.5
Net earnings	—	—		—	—		—		18.1		—		18.1
Other comprehensive loss, net of tax	—	—		—	—		—		—		(2.4)		(2.4)
Repurchase of common stock	—	—		(313,395)	(6.8)		—		—		—		(6.8)
Stock-based compensation expense	—	—		—	—		7.6		—		—		7.6
Exercise of stock options	332,336	—		—	—		4.2		—		—		4.2
Exercise of warrants	—	—		203,615	3.1		(3.1)		—		—		—
Restricted and performance stock unit settlement, net of tax	573,094	—		—	—		(6.1)		—		—		(6.1)
Balance at March 31, 2022	96,018,208	$	1.0	(3,327,578)	$	(66.1)	$	1,642.0	$	—	$	(102.8)	1,474.1

See accompanying Notes to Consolidated Financial Statements

4

KNOWLES CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(unaudited)

	Three Months Ended March 31,
	2023		2022
Operating Activities
Net (loss) earnings	$	(5.2)	$	18.1
Adjustments to reconcile net (loss) earnings to cash from operating activities:
Depreciation and amortization	12.1		14.8
Stock-based compensation	7.8		7.6
Non-cash interest expense and amortization of debt issuance costs	0.3		0.2
Deferred income taxes	4.1		2.9
Other, net	1.8		0.6
Changes in assets and liabilities (excluding effects of foreign exchange):
Receivables, net	25.3		3.4
Inventories, net	(38.0)		(24.6)
Prepaid and other current assets	(2.7)		(1.7)
Accounts payable	27.8		(7.1)
Accrued compensation and employee benefits	(5.9)		(18.2)
Other accrued expenses	(3.8)		4.5
Accrued taxes	(0.7)		2.0
Other non-current assets and non-current liabilities	(1.0)		(1.7)
Net cash provided by operating activities	21.9		0.8
Investing Activities
Capital expenditures	(3.9)		(6.8)
Net cash used in investing activities	(3.9)		(6.8)
Financing Activities
Repurchase of common stock	(7.5)		(6.8)
Tax on stock option exercises and restricted and performance stock unit vesting	(6.0)		(6.1)
Payments of finance lease obligations	(0.6)		(3.0)
Payments of debt issuance costs	(1.6)		—
Proceeds from exercise of stock options	1.4		3.9
Net cash used in financing activities	(14.3)		(12.0)
Effect of exchange rate changes on cash and cash equivalents	0.1		(0.2)
Net increase (decrease) in cash and cash equivalents	3.8		(18.2)
Cash and cash equivalents at beginning of period	48.2		68.9
Cash and cash equivalents at end of period	$	52.0	$	50.7
Supplemental information - cash paid for:
Income taxes	$	4.3	$	1.5
Interest	$	0.9	$	0.7

    

See accompanying Notes to Consolidated Financial Statements

5

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

1. Basis of Presentation

Background - Knowles Corporation (NYSE:KN) is a market leader and global provider of advanced micro-acoustic microphones and balanced armature speakers, audio solutions, and high performance capacitors and radio frequency ("RF") products, serving the consumer electronics, medtech, defense, electric vehicle, industrial, and communications markets. The Company uses its leading position in SiSonicTM 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, 2022 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 estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. Management uses historical experience and all available information to make these estimates. The unaudited interim Consolidated Financial Statements reflect all adjustments of a normal, recurring nature that are, in the opinion of management, necessary for a fair statement of results for these interim periods.

Share Repurchase Program - On February 24, 2020, the Company announced that its Board of Directors had authorized a share repurchase program of up to $100 million of the Company's common stock. On April 28, 2022, the Company announced that its Board of Directors had increased the authorization by up to $150 million in additional aggregate value. The timing and amount of any shares repurchased will be determined by the Company based on its evaluation of market conditions and other factors, and will be made in accordance with applicable securities laws in either the open market or in privately negotiated transactions. The Company is not obligated to purchase any shares under the program, and the program may be suspended or discontinued at any time. The actual timing, number, and share price of shares repurchased will depend on a number of factors, including the market price of the Company’s common stock, general market and economic conditions, and applicable legal requirements. Any shares repurchased will be held as treasury stock. During the three months ended March 31, 2023 and 2022, the Company repurchased 433,759 shares and 313,395 shares of common stock, respectively, for a total of $7.5 million and $6.8 million, respectively.

Non-cash Investing Activities - Purchases of property, plant, and equipment included in accounts payable at March 31, 2023 and 2022 were $2.3 million and $3.2 million, respectively. These non-cash amounts are not reflected as Capital expenditures within Investing Activities on the Consolidated Statements of Cash Flows for the respective periods.

2. Recent Accounting Standards

There are no recently issued or adopted accounting standards that impact the Consolidated Financial Statements of the Company as of March 31, 2023.

6

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

3. Acquisition

On May 3, 2021, the Company acquired all of the outstanding shares of common stock of Integrated Microwave Corporation ("IMC") for $81.4 million. During the first quarter of 2022, the Company recorded a purchase price adjustment of $0.7 million that was paid during the second quarter of 2022. The adjustment, which did not impact the Consolidated Statements of Earnings, resulted in an increase to goodwill of $0.7 million. The acquired business provides RF filters to the defense, industrial, and communications markets. The transaction was accounted for under the acquisition method of accounting and the results of operations are included in the Consolidated Financial Statements from the date of acquisition in the Precision Devices ("PD") segment.

4. Inventories, net

The following table details the major components of inventories, net:

(in millions)	March 31, 2023		December 31, 2022
Raw materials	$	145.1	$	116.1
Work in progress	31.8		28.3
Finished goods	71.6		62.8
Subtotal	248.5		207.2
Less reserves	(39.9)		(37.7)
Total	$	208.6	$	169.5

5. Property, Plant, and Equipment, net

The following table details the major components of property, plant, and equipment, net:

(in millions)	March 31, 2023		December 31, 2022
Land	$	12.6	$	12.5
Buildings and improvements	115.8		114.6
Machinery, equipment, and other	539.1		531.2
Subtotal	667.5		658.3
Less accumulated depreciation	(509.0)		(496.5)
Total	$	158.5	$	161.8

Depreciation expense totaled $9.2 million and $11.7 million for the three months ended March 31, 2023 and 2022, respectively.

7

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

6. Goodwill and Other Intangible Assets

There were no changes in the carrying value of goodwill by reportable segment for the three months ended March 31, 2023.

Other Intangible Assets

The gross carrying value and accumulated amortization for each major class of intangible assets are as follows:

	March 31, 2023				December 31, 2022
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortized intangible assets:
Trademarks	$	2.0	$	0.9	$	2.0	$	0.8
Customer relationships	36.4		11.4		36.4		10.3
Developed technology	45.4		21.8		45.4		20.1
Other	2.4		1.9		2.4		1.9
Total	86.2		36.0		86.2		33.1
Unamortized intangible assets:
Trademarks	32.0				32.0
Total intangible assets, net	$	82.2			$	85.1

Amortization expense totaled $2.9 million and $3.1 million for the three months ended March 31, 2023 and 2022, respectively. Amortization expense for the next five years, based on current definite-lived intangible balances, is estimated to be as follows:

(in millions)
Q2-Q4 2023	$	8.7
2024	11.6
2025	11.2
2026	5.3
2027	5.3
2028 and thereafter	8.1
Total	$	50.2

7. Restructuring and Related Activities

Restructuring and related activities are designed to better align the Company's operations with current market conditions through headcount reductions, targeted facility consolidations, and other measures to further optimize operations and align resources with growth opportunities.

During the three months ended March 31, 2023, the Company recorded restructuring charges of $0.8 million for severance pay and benefits to rationalize the MEMS Microphones product line, which is included within the Consumer MEMS Microphones segment, and $0.3 million for other costs.

During the three months ended March 31, 2023, the Company recorded total restructuring charges within Gross profit of $0.1 million, primarily for severance pay and benefits associated with the MEMS microphones product line. During the three months ended March 31, 2023, the Company recorded total restructuring charges within Operating expenses of $1.0 million primarily for severance pay and benefits associated with the MEMS microphones product line and other costs.

During the three months ended March 31, 2022, the Company restructured its MEMS Microphones product line, which is included within the Consumer MEMS Microphones segment. This action resulted in the termination of a research and development project and a reduction in workforce. During the three months ended March 31, 2022, the Company recorded restructuring charges of $5.4 million related to this action, including $4.2 million in contract termination costs and $1.2 million in severance pay and benefits.

8

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

In addition, during the three months ended March 31, 2022, the Company recorded restructuring charges of $1.2 million for severance pay and benefits to rationalize the Intelligent Audio product line workforce, which is included within the Consumer MEMS Microphones segment.

No restructuring charges were recorded within Gross profit for the three months ended March 31, 2022. During the three months ended March 31, 2022, the Company recorded total restructuring charges within Operating expenses of $6.6 million, primarily for contract termination costs and severance pay and benefits associated with the MEMS Microphones product line and other actions to rationalize the Intelligent Audio product line workforce.

The following table details restructuring charges incurred by reportable segment for the periods presented:

	Three Months Ended March 31,
(in millions)	2023		2022
Precision Devices	$	—	$	—
MedTech & Specialty Audio	—		—
Consumer MEMS Microphones	0.8		6.6
Corporate	0.3		—
Total	$	1.1	$	6.6

The following table details the Company’s severance and other restructuring accrual activity:

(in millions)	Severance Pay and Benefits		Contract Termination and Other Costs		Total
Balance at December 31, 2022	$	0.9	$	21.8	$	22.7
Restructuring charges	1.1		—		1.1
Payments	(1.1)		(3.0)		(4.1)
Other, including foreign currency	—		0.4		0.4
Balance at March 31, 2023	$	0.9	$	19.2	$	20.1

The severance and restructuring accruals are recorded in the following line item on the Consolidated Balance Sheets:

(in millions)	March 31, 2023		December 31, 2022
Other accrued expenses	$	8.5	$	4.0
Other liabilities	11.6		18.7
Total	$	20.1	$	22.7

9

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

8. Borrowings

Revolving Credit Facility

Revolving credit facility borrowings consist of the following:

(in millions)	March 31, 2023		December 31, 2022
Revolving credit facility	$	45.0	$	45.0
Less current maturities (1)	—		—
Total long-term debt	$	45.0	$	45.0

(1) There are no required principal payments due until maturity in February 2028.

On February 8, 2023, the Company entered into an Amended and Restated Credit Agreement (the "A&R Credit Agreement") that amends and restates the prior Credit Agreement, dated September 4, 2020 (the “2020 Credit Facility”), and provides for a senior secured revolving credit facility with borrowings in an aggregate principal amount at any time outstanding not to exceed $400.0 million (the "Credit Facility"). The A&R Credit Agreement, among other things, extends the maturity date of the Credit Facility from January 2, 2024 to February 8, 2028, replaces the London Inter-Bank Offered Rate (“LIBOR”) with the Term Secured Overnight Financing Rate (“Term SOFR”) as a reference rate available for borrowings, amends the minimum Interest Coverage Ratio, and amends certain other financial covenants with which the Company must comply, as described below.

Up to $100.0 million of the Credit Facility will be available in Euro, Pounds Sterling, and other currencies requested by the Company and up to $50.0 million of the Credit Facility will be made available in the form of letters of credit. Undrawn amounts under the Credit Facility accrue a commitment fee at a per annum rate of 0.225% to 0.350%, based on a leverage ratio grid.

At any time during the term of the Credit Facility, the Company will be permitted to increase the commitments under the Credit Facility or to establish one or more incremental term loan facilities under the Credit Facility in an aggregate principal amount not to exceed the sum of $200.0 million, plus additional amounts, so long as the senior secured leverage ratio does not exceed 2.00 to 1.00.

The A&R Credit Agreement includes requirements, to be tested quarterly, that the Company maintains (i) a minimum ratio of Consolidated EBITDA to consolidated cash interest expense of 3.00 to 1.00, (the "Interest Coverage Ratio"), (ii) a ratio of total indebtedness, minus netted cash in an aggregate amount not to exceed $50.0 million, to Consolidated EBITDA of 3.75 to 1.00 (the "Total Net Leverage Ratio"), and (iii) a maximum ratio of senior net secured indebtedness to Consolidated EBITDA of 3.25 to 1.00 (the "Senior Secured Net Leverage Ratio"). For these ratios, Consolidated EBITDA and consolidated interest expense are calculated using the most recent four consecutive fiscal quarters in a manner defined in the A&R Credit Agreement. At March 31, 2023, the Company was in compliance with these covenants and it expects to remain in compliance with all of its debt covenants over the next twelve months.

The interest rates under the Credit Facility will be, at the Borrowers' option (1) (A) in the case of borrowings denominated in U.S. dollars Term SOFR, (B) in the case of borrowings denominated in Sterling, Daily Simple Sonia, or (C) for borrowings denominated in Euro, EURIBOR, in each case, plus the rates per annum determined from time to time based on the total net leverage ratio of the Company as of the end of and for the most recent period of four fiscal quarters for which financial statements have been delivered (the "Applicable Margin"); or (2) in the case of borrowings denominated in U.S. dollars, alternate base rate ("ABR") (as defined in the A&R Credit Agreement) plus the Applicable Margin. The Applicable Margin for Term SOFR, Daily Simple Sonia, or EURIBOR could range from 1.50% to 2.50% while the Applicable Margin for ABR could range from 0.50% to 1.50%.

The weighted-average interest rate on the Company's borrowings under the Credit Facility and the 2020 credit facility was 6.01% and 2.12% for the three months ended March 31, 2023 and 2022, respectively. The weighted-average commitment fee on the revolving line of credit was 0.23% and 0.24% for the three months ended March 31, 2023 and 2022, respectively.

Warrants

In the second quarter of 2016, the Company entered into warrant transactions, whereby the Company sold warrants to acquire shares of the Company's common stock at a strike price of $21.1050 per share (the “Warrants”). The Company received aggregate proceeds of $39.1 million from the sale of the Warrants. The Warrants were separate transactions entered into by the Company, and were not part of the Notes, and were accounted for as part of additional paid-in capital.

10

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

The Warrants expired during the first quarter of 2022, which resulted in the Company delivering 0.2 million shares of its common stock held in treasury. Settlement of the Warrants resulted in a $3.1 million decrease in treasury stock, which was measured based on the acquisition cost of the delivered shares determined on a first-in, first-out (“FIFO”) basis, offset by an equivalent decrease in additional paid-in capital with no net impact to equity.

9. Other Comprehensive Earnings

The amounts recognized in other comprehensive earnings (loss) were as follows:

	Three Months Ended						Three Months Ended
	March 31, 2023						March 31, 2022
(in millions)	Pre-tax		Tax		Net of tax		Pre-tax		Tax		Net of tax
Foreign currency translation	$	3.6	$	—	$	3.6	$	(2.2)	$	—	$	(2.2)
Employee benefit plans	0.2		—		0.2		0.2		(0.1)		0.1
Changes in fair value of cash flow hedges	(0.1)		0.3		0.2		(0.3)		—		(0.3)
Total other comprehensive earnings (loss)	$	3.7	$	0.3	$	4.0	$	(2.3)	$	(0.1)	$	(2.4)

The following tables summarize the changes in balances of each component of accumulated other comprehensive loss, net of tax during the three months ended March 31, 2023 and 2022:

(in millions)	Cash flow hedges		Employee benefit plans		Cumulative foreign currency translation adjustments		Total
Balance at December 31, 2022	$	1.0	$	(16.3)	$	(106.8)	$	(122.1)
Other comprehensive earnings, net of tax	0.2		0.2		3.6		4.0
Balance at March 31, 2023	$	1.2	$	(16.1)	$	(103.2)	$	(118.1)

(in millions)	Cash flow hedges		Employee benefit plans		Cumulative foreign currency translation adjustments		Total
Balance at December 31, 2021	$	0.3	$	(17.1)	$	(83.6)	$	(100.4)
Other comprehensive (loss) earnings, net of tax	(0.3)		0.1		(2.2)		(2.4)
Balance at March 31, 2022	$	—	$	(17.0)	$	(85.8)	$	(102.8)

11

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

The following table summarizes the amounts reclassified from accumulated other comprehensive loss to earnings:

		Three Months Ended March 31,
(in millions)	Statement of Earnings Line	2023		2022
Pension and post-retirement benefit plans:
Amortization or settlement of actuarial losses and prior service costs	Other expense (income), net	$	0.2	$	0.2
Tax	Provision for income taxes	—		(0.1)
Net of tax		$	0.2	$	0.1
Cash flow hedges:
Net losses (gains) reclassified into earnings	Cost of goods sold	$	0.1	$	(0.3)
Tax	Provision for income taxes	—		—
Net of tax		$	0.1	$	(0.3)

10. Income Taxes

Income taxes for the interim periods presented have been included in the accompanying Consolidated Financial Statements on the basis of an estimated annual effective tax rate ("ETR"). The determination of the consolidated provision for income taxes requires management to make certain judgments and estimates. Changes in the estimated level of annual pre-tax earnings or loss, tax laws, and changes resulting from tax audits can affect the overall ETR, which impacts the level of income tax expense or benefit and net income or loss. Judgments and estimates related to the Company’s projections and assumptions are inherently uncertain and therefore, actual results could differ materially from projections.

The Company's ETR for the three months ended March 31, 2023 and 2022 was (26.8)% and 13.8%, respectively. The ETR includes discrete items totaling $0.6 million of tax expense and $1.0 million of tax benefit for the three months ended March 31, 2023 and 2022, respectively. The discrete items impacting the tax provision for the three months ended March 31, 2023 and 2022 were primarily attributable to stock-based compensation. Absent the discrete items, the ETR for the three months ended March 31, 2023 and 2022 was (12.2)% and 18.6%, respectively. The Company accrues taxes in various countries where it generates income and applies a valuation allowance in other jurisdictions, which resulted in the provisions for the three months ended March 31, 2023 and 2022.

The Company's ETR is favorably impacted by tax holidays granted to the Company. The benefit for these incentives for the three months ended March 31, 2023 was approximately $0.1 million, with no impact to basic earnings per share. The benefit for these incentives for the three months ended March 31, 2022 was approximately $2.6 million, or $0.03 on a basic per share basis. The decrease in the tax holiday benefits is attributable to the Company not satisfying all of the conditions of our tax holiday in Malaysia during the year ended December 31, 2022 due to the rapid decline in demand for global consumer electronics. As a result, our tax holiday benefit in Malaysia ended on December 31, 2022 and the Company is currently in appeal discussions with the Malaysian tax authorities regarding revised conditions.

11. Equity Incentive Program

Stock-based compensation expense recognized in the Consolidated Statements of Earnings totaled $7.8 million and $7.6 million for the three months ended March 31, 2023 and 2022, respectively. The tax benefit recognized related to stock-based compensation expense was $2.9 million and $3.2 million for the three months ended March 31, 2023 and 2022, respectively.

12

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

Stock Options and SSARs

The expense related to stock options granted in the three months ended March 31, 2022 was estimated on the date of grant using a Black-Scholes option-pricing model based on the assumptions shown in the table below. No stock options were granted during the three months ended March 31, 2023.

	Three Months Ended March 31,
	2022
Risk-free interest rate	0.85%
Dividend yield	—%
Expected life (years)	4.5
Volatility	34.3%
Fair value at date of grant	$6.29

The following table summarizes the Company's stock-settled stock appreciation right ("SSAR") and stock option activity for the three months ended March 31, 2023:

	SSARs						Stock Options
	Number of Shares	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (Years)	Number of Shares	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (Years)
(in millions, except share and per share amounts)
Outstanding at December 31, 2022	223,564	$	23.92				2,703,424	$	16.28
Granted	—	—					—	—
Exercised	—	—					(524,337)	12.37
Forfeited	—	—					—	—
Expired	(223,564)	23.92					—	—
Outstanding at March 31, 2023	—	$	—	$	—	0.0	2,179,087	$	17.22	$	1.7	3.0
Exercisable at March 31, 2023	—	$	—	$	—	0.0	1,999,866	$	16.90	$	1.7	2.8

There was no unrecognized compensation expense related to SSARs at March 31, 2023. At March 31, 2023, unrecognized compensation expense related to stock options not yet exercisable of $0.9 million is expected to be recognized over a weighted-average period of 1.5 years.

RSUs

The following table summarizes the Company's restricted stock unit ("RSU") activity for the three months ended March 31, 2023:

	Share units	Weighted-average grant date fair value
Unvested at December 31, 2022	1,880,521	$	19.96
Granted	1,118,098	19.09
Vested (1)	(723,041)	19.74
Forfeited	(30,595)	19.82
Unvested at March 31, 2023	2,244,983	$	19.60

(1) The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy statutory tax withholding requirements.

13

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

At March 31, 2023, $34.9 million of unrecognized compensation expense related to RSUs is expected to be recognized over a weighted-average period of 2.1 years.

PSUs

The Company grants performance share units (“PSUs”) to senior management. In each case, the awards will cliff vest three years following the grant date. PSUs will be settled in shares of the Company's common stock. Depending on the Company's overall performance relative to the applicable measures, the size of the PSU awards are subject to adjustment, up or down, resulting in awards at the end of the performance period that can range from 0% to 225% of target. The Company will ratably recognize the expense over the applicable service period for each grant of PSUs and adjust the expense for the expected achievement of performance conditions as appropriate. The fair value of PSUs is determined by using a Monte Carlo simulation. For the awards granted in February 2023, 2022, and 2021, the number of PSUs that may be earned and vest is based on total shareholder return (“TSR”) relative to the component companies of the Russell 2000 Index over a three-year performance period.

The following table summarizes the Company's PSU activity for the three months ended March 31, 2023:

	Share units	Weighted-average grant date fair value
Unvested at December 31, 2022	833,589	$	25.12
Granted	320,585	29.75
Vested (1)	(261,770)	16.14
Forfeited	—	—
Unvested at March 31, 2023	892,404	$	29.42

(1) The number of PSUs vested includes shares that the Company withheld on behalf of employees to satisfy statutory tax withholding requirements.

At March 31, 2023, $16.8 million of unrecognized compensation expense related to PSUs is expected to be recognized over a weighted-average period of 1.9 years.

12. Earnings per Share

Basic and diluted earnings per share were computed as follows:

	Three Months Ended March 31,
(in millions, except per share amounts)	2023		2022
Net (loss) earnings	$	(5.2)	$	18.1
Basic:
Net (loss) earnings per share	$	(0.06)	$	0.20
Weighted-average shares outstanding	91.4		92.3
Diluted:
Net (loss) earnings per share	$	(0.06)	$	0.19
Weighted-average shares outstanding	91.4		94.3

For the three months ended March 31, 2023 and 2022, the weighted-average number of anti-dilutive potential common shares for stock-based awards excluded from the diluted earnings per share calculation above was 2.9 million and 0.5 million, respectively.

14

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

13. Commitments and Contingent Liabilities

From time to time, the Company is involved in various legal proceedings and claims arising in the ordinary course of its business. The majority of these claims and proceedings relate to commercial, warranty, employment, and intellectual property matters. Although the ultimate outcome of any legal proceeding or claim cannot be predicted with certainty, based on present information, including management’s assessment of the merits of the particular claim, the Company believes that the disposition of these legal proceedings or claims, individually or in the aggregate, after taking into account recorded accruals and the availability and limits of insurance coverage, will not have a material adverse effect on its cash flow, results of operations, or financial condition.

The Company owns many patents and other intellectual property pertaining to its products, technology, and manufacturing processes. Some of the Company's patents have been and may continue to be infringed upon or challenged by others. In appropriate cases, the Company has taken and will take steps to protect and defend its patents and other intellectual property, including through the use of legal proceedings in various jurisdictions around the world. Such steps have resulted in and may continue to result in retaliatory legal proceedings, including litigation or other legal proceedings in various jurisdictions and forums around the world alleging infringement by the Company of patents owned by others. The costs of investigations and legal proceedings relating to the enforcement and defense of the Company’s intellectual property may be substantial. Additionally, in multi-forum disputes, the Company may incur adverse judgments with regard to certain claims in certain jurisdictions and forums while still contesting other related claims against the same opposing party in other jurisdictions and forums.

Intellectual Property Infringement Claims

The Company may, on a limited customer specific basis, provide contractual indemnities for certain losses that arise out of claims that its products infringe on the intellectual property of others. It is not possible to determine the maximum potential amount under these indemnification agreements due to the unique facts and circumstances involved in each particular agreement. Historically, the Company has not made significant payments under such indemnity arrangements. The Company’s legal accruals associated with these indemnity arrangements were not significant at March 31, 2023 and December 31, 2022.

14. Segment Information

The Company's three reportable segments are Precision Devices, MedTech & Specialty Audio, and Consumer MEMS Microphones. Information regarding the Company’s reportable segments is as follows:

	Three Months Ended March 31,
(in millions)	2023		2022
Revenues:
Precision Devices	$	53.7	$	55.7
MedTech & Specialty Audio	45.5		59.5
Consumer MEMS Microphones	45.1		86.2
Total revenues	$	144.3	$	201.4
(Loss) earnings before interest and income taxes:
Precision Devices	$	10.7	$	12.3
MedTech & Specialty Audio	11.4		21.7
Consumer MEMS Microphones	(8.2)		0.5
Total segments	13.9		34.5
Corporate expense / other	17.2		12.7
Interest expense, net	0.8		0.8
(Loss) earnings before income taxes	(4.1)		21.0
Provision for income taxes	1.1		2.9
Net (loss) earnings	$	(5.2)	$	18.1

15

Table of Contents	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	(unaudited)

Information regarding assets of the Company's reportable segments:

	Total Assets
(in millions)	March 31, 2023		December 31, 2022
Precision Devices	$	283.7	$	275.7
MedTech & Specialty Audio	363.0		358.1
Consumer MEMS Microphones	545.4		547.3
Corporate / eliminations	3.4		2.8
Total	$	1,195.5	$	1,183.9

The following table details revenues by geographic location. Revenues are attributed to regions based on the location of the Company's direct customer, which in some instances is an intermediary and not necessarily the end user. The Company's businesses are based primarily in Asia, North America, and Europe.

	Three Months Ended March 31,
(in millions)	2023		2022
Asia	$	80.0	$	128.9
United States	35.3		40.9
Europe	24.1		28.1
Other Americas	2.1		1.5
Other	2.8		2.0
Total	$	144.3	$	201.4

Receivables, net from contracts with customers were $96.2 million and $125.7 million as of March 31, 2023 and December 31, 2022, respectively. As of March 31, 2023 and December 31, 2022, our total remaining performance obligations were immaterial.

16

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 relating to our operations, results of operations, our continued business operations, and other matters that are based on our current expectations, estimates, assumptions, and projections. Words such as “believe,” “expect,” “anticipate,” “project,” “estimate,” “budget,” “continue,” “could,” “intend,” “may,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” “would,” “objective,” “forecast,” “goal,” “guidance,” “outlook,” “effort,” “target,” and similar expressions, among others, generally identify forward-looking statements, which speak only as of the date the statements were made. The statements in this Quarterly Report on Form 10-Q are based on currently available information and the current expectations, forecasts, and assumptions of our management concerning risks and uncertainties that could cause actual outcomes or results to differ materially from those outcomes or results that are projected, anticipated, or implied in these statements. Other risks and uncertainties include, but are not limited to:

o unforeseen changes in MEMS microphone demand from our largest customers, particularly our top five customers, who represent a significant portion of revenues for our Consumer MEMS Microphones segment;

o our ongoing ability to execute our strategy to diversify our end markets and customers;

o our ability to stem or overcome price erosion in our segments;

o fluctuations in our stock's market price;

o fluctuations in operating results and cash flows;

o our ability to prevent or identify quality issues in our products or to promptly remedy any such issues that are identified;

o the timing of OEM product launches;

o risks associated with increasing our inventories in advance of anticipated orders by customers;

o global economic instability, including due to inflation, rising interest rates, negative impacts caused by pandemics and public health crises, or the impacts of geopolitical uncertainties;

o the impact of changes to laws and regulations that affect the Company’s ability to offer products or services to customers in different regions;

o our ability to achieve reductions in our operating expenses;

o the ability to qualify our products and facilities with customers;

o our ability to obtain, enforce, defend, or monetize our intellectual property rights;

o disruption caused by a cybersecurity incident, including a cyber attack, cyber breach, theft, or other unauthorized access;

o difficulties or delays in and/or the Company's inability to realize expected cost synergies from its acquisitions;

o increases in the costs of critical raw materials and components;

o availability of raw materials and components;

o managing new product ramps and introductions for our customers;

o our dependence on a limited number of large customers;

o our ability to maintain and expand our existing relationships with leading OEMs in order to maintain and increase our revenue;

o increasing competition and new entrants in the market for our products;

o our ability to develop new or enhanced products or technologies in a timely manner that achieve market acceptance;

o our reliance on third parties to manufacture, assemble, and test our products and sub-components;

o escalating international trade tensions, new or increased tariffs, and trade wars among countries;

o financial risks, including risks relating to currency fluctuations, credit risks, and fluctuations in the market value of the Company;

o a sustained decline in our stock price and market capitalization may result in the impairment of certain intangible or long-lived assets;

o market risk associated with fluctuations in commodity prices, particularly for various precious metals used in our manufacturing operation; and

o changes in tax laws, changes in tax rates, and exposure to additional tax liabilities.

A more complete description of these risks, uncertainties, and other factors can be found under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. We do not undertake to update or revise our forward-looking statements as a result of new information, future events, or otherwise, except as required by law.

17

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our Consolidated Financial Statements and related Notes included elsewhere in this Quarterly Report on Form 10-Q.

Overview

We are a market leader and global provider of advanced micro-acoustic microphones and balanced armature speakers, audio solutions, and high performance capacitors and radio frequency ("RF") filtering products, serving the medtech, defense, consumer electronics, electric vehicle, industrial, and communications markets. Our focus on the customer, combined with unique technology, proprietary manufacturing techniques, and global operational expertise, enables us to deliver innovative solutions across multiple applications. References to "Knowles," the "Company," "we," "our," or "us" refer to Knowles Corporation and its consolidated subsidiaries, unless the context otherwise requires.

During the fourth quarter of 2022, we determined each operating segment represents a single reportable segment; thus, we now report three segments. These segments were determined in accordance with Financial Accounting Standards Board Accounting Standards Codification 280 - Segment Reporting and are comprised of (i) Precision Devices ("PD"), (ii) MedTech & Specialty Audio ("MSA"), and (iii) Consumer MEMS Microphones ("CMM"). The segments are aligned around similar product applications serving our key end markets to enhance focus on end market growth strategies.

•PD Segment

Our PD segment specializes in the design and delivery of high performance capacitor products and RF solutions primarily serving the defense, medtech, electric vehicle, and industrial markets. PD has sales, support, and engineering facilities in North America, Europe, and Asia as well as manufacturing facilities in North America and Asia.

•MSA Segment

Our MSA segment designs and manufactures microphones and balanced armature speakers used in applications that serve the hearing health and premium audio markets. MSA has sales, support, and engineering facilities in North America, Europe, and Asia, as well as manufacturing facilities in Asia.

•CMM Segment

Our CMM segment designs and manufactures micro-electro-mechanical systems ("MEMS") microphones and audio solutions used in applications that primarily serve the ear, Internet of Things ("IoT"), computing, and smartphone markets. CMM has sales, support, and engineering facilities in North America, Europe, and Asia, as well as manufacturing facilities in Asia.

We sell our products directly to original equipment manufacturers ("OEMs") and to their contract manufacturers and suppliers and through distributors worldwide.

Non-GAAP Financial Measures

In addition to the GAAP financial measures included in this item, we have presented certain non-GAAP financial measures. We use non-GAAP measures as supplements to our GAAP results of operations in evaluating certain aspects of our business, and our executive management team and Board of Directors focus on non-GAAP items as key measures of our performance for business planning purposes. These measures assist us in comparing our performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in our opinion, do not reflect our core operating performance. We believe that our presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that we use internally for purposes of assessing our core operating performance. The Company does not consider these non-GAAP financial measures to be a substitute for the information provided by GAAP financial results. For a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures, see the reconciliation included herein.