Table of Contents
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,June 30, 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)
Delaware90-1002689
(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 classTrading symbolName of each exchange on which registered
Common stock, $0.01 par value per shareKNNew 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,July 31, 2023 was 91,379,296.91,144,116.


Table of Contents
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 andsix months ended March 31June 30, 20232023 and 20222022
1
Consolidated Statements of Comprehensive Earnings (unaudited) for the three and six months ended March 31,June 30, 2023 and 2022
2
Consolidated Balance Sheets (unaudited) at MarchJune 310, 20232023 and December 31, 20222022
3
Consolidated Statements of Stockholders' Equity (unaudited) for the three and six months ended March 31,June 30, 2023 and 2022
4
Consolidated Statements of Cash Flows (unaudited) for the threeand six months ended March 31,June 30, 2023 and 2022
56
Notes to Consolidated Financial Statements (unaudited)
67
Forward-Looking Statements
1719
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
1820
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
2938
Item 4.
Controls and Procedures
2938
PART II — OTHER INFORMATION
2938
Item 1.
Legal Proceedings
2938
Item 1A.
Risk Factors
2938
3039
39
Item 6.
Exhibits
3040
SIGNATURES
3141


Table of Contents

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, Three Months Ended June 30,Six Months Ended June 30,
20232022 2023202220232022
RevenuesRevenues$144.3 $201.4 Revenues$173.0 $188.0 $317.3 $389.4 
Cost of goods soldCost of goods sold90.4 118.1 Cost of goods sold105.8 110.3 196.2 228.4 
Gain on sale of fixed assetsGain on sale of fixed assets(4.8)— (4.8)— 
Restructuring charges - cost of goods soldRestructuring charges - cost of goods sold0.1 — Restructuring charges - cost of goods sold(1.7)— (1.6)— 
Gross profitGross profit53.8 83.3 Gross profit73.7 77.7 127.5 161.0 
Research and development expensesResearch and development expenses20.0 23.1 Research and development expenses19.7 21.3 39.7 44.4 
Selling and administrative expensesSelling and administrative expenses33.8 32.3 Selling and administrative expenses36.5 30.7 70.3 63.0 
Impairment chargesImpairment charges— 239.8 — 239.8 
Restructuring chargesRestructuring charges1.0 6.6 Restructuring charges0.6 0.5 1.6 7.1 
Operating expensesOperating expenses54.8 62.0 Operating expenses56.8 292.3 111.6 354.3 
Operating (loss) earnings(1.0)21.3 
Operating earnings (loss)Operating earnings (loss)16.9 (214.6)15.9 (193.3)
Interest expense, netInterest expense, net0.8 0.8 Interest expense, net0.8 0.8 1.6 1.6 
Other expense (income), net2.3 (0.5)
(Loss) earnings before income taxes(4.1)21.0 
Other (income) expense, netOther (income) expense, net(1.3)1.7 1.0 1.2 
Earnings (loss) before income taxesEarnings (loss) before income taxes17.4 (217.1)13.3 (196.1)
Provision for income taxesProvision for income taxes1.1 2.9 Provision for income taxes3.8 25.8 4.9 28.7 
Net (loss) earnings$(5.2)$18.1 
Net earnings (loss)Net earnings (loss)$13.6 $(242.9)$8.4 $(224.8)
Net (loss) earnings per share:
Net earnings (loss) per share:Net earnings (loss) per share:
BasicBasic$(0.06)$0.20 Basic$0.15 $(2.64)$0.09 $(2.44)
DilutedDiluted$(0.06)$0.19 Diluted$0.15 $(2.64)$0.09 $(2.44)
Weighted-average common shares outstanding:Weighted-average common shares outstanding:Weighted-average common shares outstanding:
BasicBasic91.4 92.3 Basic91.4 92.0 91.4 92.2 
DilutedDiluted91.4 94.3 Diluted91.8 92.0 92.1 92.2 

See accompanying Notes to Consolidated Financial Statements
1
Table of Contents

KNOWLES CORPORATION 
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(in millions)
(unaudited)
Three Months Ended March 31, Three Months Ended June 30,Six Months Ended June 30,
20232022 2023202220232022
Net (loss) earnings$(5.2)$18.1 
Net earnings (loss)Net earnings (loss)$13.6 $(242.9)$8.4 $(224.8)
Other comprehensive earnings (loss), net of tax
Other comprehensive loss, net of taxOther comprehensive loss, net of tax
Foreign currency translationForeign currency translation3.6 (2.2)Foreign currency translation(13.3)(15.6)(9.7)(17.8)
Employee benefit plans:Employee benefit plans:Employee benefit plans:
Amortization or settlement of actuarial losses and prior service costsAmortization or settlement of actuarial losses and prior service costs0.2 0.1 Amortization or settlement of actuarial losses and prior service costs0.2 (0.1)0.4 — 
Net change in employee benefit plansNet change in employee benefit plans0.2 0.1 Net change in employee benefit plans0.2 (0.1)0.4 — 
Changes in fair value of cash flow hedges:Changes in fair value of cash flow hedges:Changes in fair value of cash flow hedges:
Unrealized net gains arising during period0.1 — 
Net losses (gains) reclassified into earnings0.1 (0.3)
Unrealized net losses arising during periodUnrealized net losses arising during period(4.0)(3.1)(3.9)(3.1)
Net losses reclassified into earningsNet losses reclassified into earnings0.4 0.9 0.5 0.6 
Total cash flow hedgesTotal cash flow hedges0.2 (0.3)Total cash flow hedges(3.6)(2.2)(3.4)(2.5)
Other comprehensive earnings (loss), net of tax4.0 (2.4)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax(16.7)(17.9)(12.7)(20.3)
Comprehensive (loss) earnings$(1.2)$15.7 
Comprehensive lossComprehensive loss$(3.1)$(260.8)$(4.3)$(245.1)

See accompanying Notes to Consolidated Financial Statements

2
Table of Contents

KNOWLES CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except share and per share amounts)
(unaudited)
March 31, 2023December 31, 2022 June 30, 2023December 31, 2022
Current assets:Current assets:  Current assets:  
Cash and cash equivalentsCash and cash equivalents$52.0 $48.2 Cash and cash equivalents$54.4 $48.2 
Receivables, net of allowances of $0.1 and $1.1109.5 134.7 
Receivables, net of allowances of $0.4 and $1.1Receivables, net of allowances of $0.4 and $1.1118.0 134.7 
Inventories, netInventories, net208.6 169.5 Inventories, net191.9 169.5 
Prepaid and other current assetsPrepaid and other current assets12.9 10.0 Prepaid and other current assets11.6 10.0 
Total current assetsTotal current assets383.0 362.4 Total current assets375.9 362.4 
Property, plant, and equipment, netProperty, plant, and equipment, net158.5 161.8 Property, plant, and equipment, net149.9 161.8 
GoodwillGoodwill471.0 471.0 Goodwill471.0 471.0 
Intangible assets, netIntangible assets, net82.2 85.1 Intangible assets, net79.3 85.1 
Operating lease right-of-use assetsOperating lease right-of-use assets12.3 12.6 Operating lease right-of-use assets11.5 12.6 
Other assets and deferred chargesOther assets and deferred charges88.5 91.0 Other assets and deferred charges88.4 91.0 
Total assetsTotal assets$1,195.5 $1,183.9 Total assets$1,176.0 $1,183.9 
Current liabilities:Current liabilities:  Current liabilities:  
Accounts payableAccounts payable$70.7 $41.4 Accounts payable$48.5 $41.4 
Accrued compensation and employee benefitsAccrued compensation and employee benefits21.1 26.9 Accrued compensation and employee benefits23.9 26.9 
Operating lease liabilitiesOperating lease liabilities7.4 8.4 Operating lease liabilities6.1 8.4 
Other accrued expensesOther accrued expenses24.4 19.9 Other accrued expenses29.9 19.9 
Federal and other taxes on incomeFederal and other taxes on income1.7 2.5 Federal and other taxes on income— 2.5 
Total current liabilitiesTotal current liabilities125.3 99.1 Total current liabilities108.4 99.1 
Long-term debtLong-term debt45.0 45.0 Long-term debt45.0 45.0 
Deferred income taxesDeferred income taxes0.9 0.9 Deferred income taxes0.9 0.9 
Long-term operating lease liabilitiesLong-term operating lease liabilities6.9 7.2 Long-term operating lease liabilities6.3 7.2 
Other liabilitiesOther liabilities30.0 38.8 Other liabilities28.9 38.8 
Commitments and contingencies (Note 13)
Commitments and contingencies (Note 14)Commitments and contingencies (Note 14)
Stockholders' equity:Stockholders' equity:Stockholders' equity:
Preferred stock - $0.01 par value; 10,000,000 shares authorized; none issuedPreferred stock - $0.01 par value; 10,000,000 shares authorized; none issued— — 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, respectively1.0 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)
Common stock - $0.01 par value; 400,000,000 shares authorized; 97,228,853 and 91,142,187 shares issued and outstanding at June 30, 2023, respectively, and 96,431,604 and 91,078,376 shares issued and outstanding at December 31, 2022, respectivelyCommon stock - $0.01 par value; 400,000,000 shares authorized; 97,228,853 and 91,142,187 shares issued and outstanding at June 30, 2023, respectively, and 96,431,604 and 91,078,376 shares issued and outstanding at December 31, 2022, respectively1.0 1.0 
Treasury stock - at cost; 6,086,666 and 5,353,228 shares at June 30, 2023 and December 31, 2022, respectivelyTreasury stock - at cost; 6,086,666 and 5,353,228 shares at June 30, 2023 and December 31, 2022, respectively(115.8)(103.3)
Additional paid-in capitalAdditional paid-in capital1,668.7 1,665.5 Additional paid-in capital1,675.9 1,665.5 
Accumulated deficitAccumulated deficit(453.4)(448.2)Accumulated deficit(439.8)(448.2)
Accumulated other comprehensive lossAccumulated other comprehensive loss(118.1)(122.1)Accumulated other comprehensive loss(134.8)(122.1)
Total stockholders' equityTotal stockholders' equity987.4 992.9 Total stockholders' equity986.5 992.9 
Total liabilities and stockholders' equityTotal liabilities and stockholders' equity$1,195.5 $1,183.9 Total liabilities and stockholders' equity$1,176.0 $1,183.9 

See accompanying Notes to Consolidated Financial Statements


3
Table of Contents

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except share amounts)
(unaudited)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' EquityCommon StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Shares IssuedAmountSharesAmount Shares IssuedAmountSharesAmount
Balance at December 31, 202296,431,604$1.0 (5,353,228)$(103.3)$1,665.5 $(448.2)$(122.1)$992.9 
Balance at March 31, 2023Balance at March 31, 202397,146,487$1.0 (5,786,987)$(110.8)$1,668.7 $(453.4)$(118.1)$987.4 
Net earningsNet earnings—— —— — 13.6 — 13.6 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax—— —— — — (16.7)(16.7)
Repurchase of common stockRepurchase of common stock—— (299,679)(5.0)— — — (5.0)
Stock-based compensation expenseStock-based compensation expense—— —— 7.1 — — 7.1 
Exercise of stock optionsExercise of stock options10,505— —— 0.2 — — 0.2 
Restricted stock unit settlement, net of taxRestricted stock unit settlement, net of tax71,861— —— (0.1)— — (0.1)
Balance at June 30, 2023Balance at June 30, 202397,228,853 $1.0 (6,086,666)$(115.8)$1,675.9 $(439.8)$(134.8)$986.5 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Shares IssuedAmountSharesAmount
Balance at March 31, 2022Balance at March 31, 202296,018,208$1.0 (3,327,578)$(66.1)$1,642.0 $— $(102.8)$1,474.1 
Net lossNet loss—— —— — (5.2)— (5.2)Net loss—— —— — (242.9)— (242.9)
Other comprehensive earnings, net of tax—— —— — — 4.0 4.0 
Other comprehensive loss, net of taxOther comprehensive loss, net of tax—— —— — — (17.9)(17.9)
Repurchase of common stockRepurchase of common stock—— (433,759)(7.5)— — — (7.5)Repurchase of common stock—— (936,100)(18.6)— — — (18.6)
Stock-based compensation expenseStock-based compensation expense—— —— 7.8 — — 7.8 Stock-based compensation expense—— —— 7.2 — — 7.2 
Exercise of stock optionsExercise of stock options182,736— —— 1.4 — — 1.4 Exercise of stock options167,191— —— 1.8 — — 1.8 
Restricted and performance stock unit settlement, net of taxRestricted and performance stock unit settlement, net of tax532,147— —— (6.0)— — (6.0)Restricted and performance stock unit settlement, net of tax69,242— —— (0.1)— — (0.1)
Balance at March 31, 202397,146,487 $1.0 (5,786,987)$(110.8)$1,668.7 $(453.4)$(118.1)$987.4 
Balance at June 30, 2022Balance at June 30, 202296,254,641 $1.0 (4,263,678)$(84.7)$1,650.9 $(242.9)$(120.7)$1,203.6 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Shares IssuedAmountSharesAmount
Balance at December 31, 202195,112,778$1.0 (3,217,798)$(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 options332,336— —— 4.2 — — 4.2 
Exercise of warrants—— 203,6153.1 (3.1)— — — 
Restricted and performance stock unit settlement, net of tax573,094— —— (6.1)— — (6.1)
Balance at March 31, 202296,018,208 $1.0 (3,327,578)$(66.1)$1,642.0 $— $(102.8)1,474.1 

See accompanying Notes to Consolidated Financial Statements

4
Table of Contents

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in millions, except share amounts)
(unaudited)
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Shares IssuedAmountSharesAmount
Balance at December 31, 202296,431,604$1.0 (5,353,228)$(103.3)$1,665.5 $(448.2)$(122.1)$992.9 
Net earnings—— —— — 8.4 — 8.4 
Other comprehensive loss, net of tax—— —— — — (12.7)(12.7)
Repurchase of common stock—— (733,438)(12.5)— — — (12.5)
Stock-based compensation expense—— —— 14.9 — — 14.9 
Exercise of stock options193,241— —— 1.6 — — 1.6 
Restricted and performance stock unit settlement, net of tax604,008— —— (6.1)— — (6.1)
Balance at June 30, 202397,228,853 $1.0 (6,086,666)$(115.8)$1,675.9 $(439.8)$(134.8)$986.5 
Common StockTreasury StockAdditional Paid-In CapitalAccumulated DeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Shares IssuedAmountSharesAmount
Balance at December 31, 202195,112,778$1.0 (3,217,798)$(62.4)$1,639.4 $(18.1)$(100.4)$1,459.5 
Net loss—— —— — (224.8)— (224.8)
Other comprehensive loss, net of tax—— —— — — (20.3)(20.3)
Repurchase of common stock—— (1,249,495)(25.4)— — — (25.4)
Stock-based compensation expense—— —— 14.8 — — 14.8 
Exercise of stock options499,527— —— 6.0 — — 6.0 
Exercise of warrants—— 203,6153.1 (3.1)— — — 
Restricted and performance stock unit settlement, net of tax642,336— —— (6.2)— — (6.2)
Balance at June 30, 202296,254,641 $1.0 (4,263,678)$(84.7)$1,650.9 $(242.9)$(120.7)$1,203.6 


See accompanying Notes to Consolidated Financial Statements
45
Table of Contents

KNOWLES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(unaudited)
Three Months Ended March 31, Six Months Ended June 30,
2023202220232022
Operating ActivitiesOperating Activities  Operating Activities  
Net (loss) earnings$(5.2)$18.1 
Adjustments to reconcile net (loss) earnings to cash from operating activities:
Net earnings (loss)Net earnings (loss)$8.4 $(224.8)
Adjustments to reconcile net earnings (loss) to cash from operating activities:Adjustments to reconcile net earnings (loss) to cash from operating activities:
Depreciation and amortizationDepreciation and amortization12.1 14.8 Depreciation and amortization23.2 28.8 
Stock-based compensationStock-based compensation7.8 7.6 Stock-based compensation14.9 14.8 
Impairment chargesImpairment charges— 239.8 
Gain on sale of fixed assetsGain on sale of fixed assets(4.8)— 
Non-cash restructuring chargesNon-cash restructuring charges(1.7)— 
Non-cash interest expense and amortization of debt issuance costsNon-cash interest expense and amortization of debt issuance costs0.3 0.2 Non-cash interest expense and amortization of debt issuance costs0.4 0.3 
Deferred income taxesDeferred income taxes4.1 2.9 Deferred income taxes3.7 2.1 
Other, netOther, net1.8 0.6 Other, net(2.8)(3.9)
Changes in assets and liabilities (excluding effects of foreign exchange):Changes in assets and liabilities (excluding effects of foreign exchange):Changes in assets and liabilities (excluding effects of foreign exchange):
Receivables, netReceivables, net25.3 3.4 Receivables, net16.9 18.0 
Inventories, netInventories, net(38.0)(24.6)Inventories, net(26.8)(40.2)
Prepaid and other current assetsPrepaid and other current assets(2.7)(1.7)Prepaid and other current assets(2.4)(3.4)
Accounts payableAccounts payable27.8 (7.1)Accounts payable7.3 (24.1)
Accrued compensation and employee benefitsAccrued compensation and employee benefits(5.9)(18.2)Accrued compensation and employee benefits(2.7)(17.6)
Other accrued expensesOther accrued expenses(3.8)4.5 Other accrued expenses0.5 3.0 
Accrued taxesAccrued taxes(0.7)2.0 Accrued taxes(2.6)25.0 
Other non-current assets and non-current liabilitiesOther non-current assets and non-current liabilities(1.0)(1.7)Other non-current assets and non-current liabilities(9.1)2.6 
Net cash provided by operating activitiesNet cash provided by operating activities21.9 0.8 Net cash provided by operating activities22.4 20.4 
Investing ActivitiesInvesting Activities  Investing Activities  
Proceeds from the sale of property, plant, and equipmentProceeds from the sale of property, plant, and equipment12.1 — 
Capital expendituresCapital expenditures(3.9)(6.8)Capital expenditures(7.9)(13.9)
Acquisitions of business (net of cash acquired)Acquisitions of business (net of cash acquired)— (0.7)
Purchase of investmentsPurchase of investments(0.4)— 
Net cash used in investing activities(3.9)(6.8)
Proceeds from the sale of investmentsProceeds from the sale of investments0.4 — 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities4.2 (14.6)
Financing ActivitiesFinancing Activities  Financing Activities  
Payments under revolving credit facilityPayments under revolving credit facility— (15.0)
Borrowings under revolving credit facilityBorrowings under revolving credit facility— 18.0 
Repurchase of common stockRepurchase of common stock(7.5)(6.8)Repurchase of common stock(12.5)(25.4)
Tax on stock option exercises and restricted and performance stock unit vestingTax on stock option exercises and restricted and performance stock unit vesting(6.0)(6.1)Tax on stock option exercises and restricted and performance stock unit vesting(6.1)(6.2)
Payments of finance lease obligationsPayments of finance lease obligations(0.6)(3.0)Payments of finance lease obligations(1.2)(3.6)
Payments of debt issuance costsPayments of debt issuance costs(1.6)— Payments of debt issuance costs(1.9)— 
Proceeds from exercise of stock optionsProceeds from exercise of stock options1.4 3.9 Proceeds from exercise of stock options1.6 6.0 
Net cash used in financing activitiesNet cash used in financing activities(14.3)(12.0)Net cash used in financing activities(20.1)(26.2)
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents0.1 (0.2)Effect of exchange rate changes on cash and cash equivalents(0.3)(0.8)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents3.8 (18.2)Net increase (decrease) in cash and cash equivalents6.2 (21.2)
Cash and cash equivalents at beginning of periodCash and cash equivalents at beginning of period48.2 68.9 Cash and cash equivalents at beginning of period48.2 68.9 
Cash and cash equivalents at end of periodCash and cash equivalents at end of period$52.0 $50.7 Cash and cash equivalents at end of period$54.4 $47.7 
Supplemental information - cash paid for:Supplemental information - cash paid for:Supplemental information - cash paid for:
Income taxesIncome taxes$4.3 $1.5 Income taxes$7.0 $0.7 
InterestInterest$0.9 $0.7 Interest$1.8 $1.4 
    

See accompanying Notes to Consolidated Financial Statements

56

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 threesix months ended March 31,June 30, 2023 and 2022, the Company repurchased 433,759733,438 shares and 313,3951,249,495 shares of common stock, respectively, for a total of $7.5$12.5 million and $6.8$25.4 million, respectively.

Non-cash Investing Activities - Purchases of property, plant, and equipment included in accounts payable at March 31,June 30, 2023 and 2022 were $2.3$1.8 million and $3.2$5.3 million, respectively. These non-cash amounts are not reflected as Capital expenditures"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,June 30, 2023.

67

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, netImpairment Charges

The following table detailsCompany tests goodwill for impairment at least annually as of October 1, or more frequently if there are events or circumstances indicating the major componentscarrying value of inventories, net:
(in millions)March 31, 2023December 31, 2022
Raw materials$145.1 $116.1 
Work in progress31.8 28.3 
Finished goods71.6 62.8 
Subtotal248.5 207.2 
Less reserves(39.9)(37.7)
Total$208.6 $169.5 
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 Consumer MEMS Microphones ("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.

5. Property, Plant,During the second quarter of 2022, the Company identified a triggering event requiring an interim impairment assessment for the CMM reporting unit (previously referred to as Mobile Consumer Electronics or "MCE"), which resulted in a goodwill impairment charge of $239.8 million. The triggering event occurred due to the identification of a rapid decline in current demand and Equipment, neta reduction in the expected future growth rate for global consumer electronics, which resulted in reductions to forecasted revenue and terminal growth rates and profit margins. The goodwill impairment charge is presented within "Impairment charges" in "Operating expenses" on the Consolidated Statements of Earnings. The Company had not incurred any previous goodwill impairment charges.

The following table detailsAdditionally, during the major componentsfourth quarter of property, plant,2022, the Company identified another triggering event requiring an impairment assessment of the CMM reporting unit, which resulted in a goodwill impairment charge of $231.1 million. This triggering event occurred due to the identification of further declines in forecasted demand for global consumer electronics, resulting in reductions to forecasted revenue and equipment, net:
(in millions)March 31, 2023December 31, 2022
Land$12.6 $12.5 
Buildings and improvements115.8 114.6 
Machinery, equipment, and other539.1 531.2 
Subtotal667.5 658.3 
Less accumulated depreciation(509.0)(496.5)
Total$158.5 $161.8 
profit margins. In addition, the Company’s assumptions for weighted average cost of capital and income tax rates increased as a result of rising interest rates and not satisfying certain tax holiday conditions.

Depreciation expense totaled $9.2 millionFair value was estimated using a discounted cash flow model that included the Company’s market participant assumptions, forecasted future cash flows based on historical performance and $11.7 millionfuture estimated results, determinations of appropriate discount rates, and other assumptions which were considered reasonable and inherent in the discounted cash flow analysis. The fair value estimate was based on known or knowable information at the assessment date. Significant assumptions used in the model included forecasted revenue and terminal growth rates, profit margins, income taxes, and the Company's weighted average cost of capital. The fair value measurements for reporting units are based on significant unobservable inputs, and thus represent Level 3 inputs.

Fair value measurements require considerable judgment and are sensitive to changes in underlying assumptions. As a result, there can be no assurance that estimates and assumptions made for purposes of the three months ended March 31, 2023impairment assessment will prove to be an accurate prediction of the future. Potential circumstances that could have a negative effect on the fair value of our reporting units include, but are not limited to, lower than forecasted growth rates or profit margins and 2022, respectively.changes in the weighted average cost of capital. A reduction in the estimated fair value of the reporting units could trigger an impairment in the future. The Company cannot predict the occurrence of certain events or changes in circumstances that might adversely affect the carrying value of goodwill.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Inventories, net

The following table details the major components of inventories, net:
(in millions)June 30, 2023December 31, 2022
Raw materials$141.4 $116.1 
Work in progress29.5 28.3 
Finished goods61.3 62.8 
Subtotal232.2 207.2 
Less reserves(40.3)(37.7)
Total$191.9 $169.5 

6. Property, Plant, and Equipment, net

The following table details the major components of property, plant, and equipment, net:
(in millions)June 30, 2023December 31, 2022
Land$12.5 $12.5 
Buildings and improvements112.9 114.6 
Machinery, equipment, and other487.0 531.2 
Subtotal612.4 658.3 
Less accumulated depreciation(462.5)(496.5)
Total$149.9 $161.8 

Depreciation expense totaled $8.2 million and $11.0 million for the three months ended June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, depreciation expense totaled $17.4 million and $22.7 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 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. The Company transferred control of a portion of these assets with a fair value of approximately $5.7 million to the buyer during the three months ended June 30, 2023, resulting in a gain on sale of approximately $5.7 million. This gain on sale is reflected in the Consolidated Statements of Earnings for the three and six months ended June 30, 2023 as follows: $4.8 million has been recognized in "Gain on sale of fixed assets," which relates to the transition to the next generation of MEMS wafer manufacturing technology, and $0.9 million has been recognized within "Restructuring charges - cost of goods sold" - see also Note 8. Restructuring and Related Activities.

The Company has deferred the remaining sale proceeds related to this agreement of approximately $5.7 million until it completes the transfer of control of the remaining assets to the buyer, which is expected to occur primarily in the third quarter of 2023. This liability is included in "Other accrued expenses" on the Consolidated Balance Sheet as of June 30, 2023.

7. Goodwill and Other Intangible Assets

There were no changes in the carrying value of goodwill by reportable segment for the threesix months ended March 31,June 30, 2023.
9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

Other Intangible Assets

The gross carrying value and accumulated amortization for each major class of intangible assets are as follows:
March 31, 2023December 31, 2022June 30, 2023December 31, 2022
(in millions)(in millions)Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization		(in millions)Gross Carrying
Amount		Accumulated
Amortization		Gross Carrying
Amount		Accumulated
Amortization
Amortized intangible assets:Amortized intangible assets:Amortized intangible assets:
TrademarksTrademarks$2.0 $0.9 $2.0 $0.8 Trademarks$2.0 $0.9 $2.0 $0.8 
Customer relationshipsCustomer relationships36.4 11.4 36.4 10.3 Customer relationships36.4 12.5 36.4 10.3 
Developed technologyDeveloped technology45.4 21.8 45.4 20.1 Developed technology45.4 23.6 45.4 20.1 
OtherOther2.4 1.9 2.4 1.9 Other2.4 1.9 2.4 1.9 
TotalTotal86.2 36.0 86.2 33.1 Total86.2 38.9 86.2 33.1 
Unamortized intangible assets:Unamortized intangible assets:Unamortized intangible assets:
TrademarksTrademarks32.0 32.0 Trademarks32.0 32.0 
Total intangible assets, netTotal intangible assets, net$82.2 $85.1 Total intangible assets, net$79.3 $85.1 

Amortization expense totaled $2.9 million and $3.1$3.0 million for the three months ended March 31,June 30, 2023 and 2022, respectively. For the six months ended June 30, 2023 and 2022, amortization expense was $5.8 million and $6.1 million, respectively. Amortization expense for the next five years, based on current definite-lived intangible balances, is estimated to be as follows:
(in millions)(in millions)(in millions)
Q2-Q4 2023$8.7 
Q3-Q4 2023Q3-Q4 2023$5.8 
2024202411.6 202411.6 
2025202511.2 202511.2 
202620265.3 20265.3 
202720275.3 20275.3 
2028 and thereafter2028 and thereafter8.1 2028 and thereafter8.1 
TotalTotal$50.2 Total$47.3 

7.8. 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, theThe Company recorded restructuring charges of $0.8$0.6 million and $1.4 million during the three and six months ended June 30, 2023, respectively, 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.Corporate charges for the six months ended June 30, 2023. The Company recognized the majority of these costs within Operating expenses, resulting in total restructuring charges within Operating expenses of $0.6 million and $1.6 million for the three and six months ended June 30, 2023, respectively.

During the three months ended March 31,June 30, 2023, the Company recorded totala $0.9 million gain on the sale of certain machinery and equipment that was previously written off through 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. DuringIn addition, during the three months ended March 31, 2022,June 30, 2023, the Company recorded a $0.8 million reversal of restructuring charges of $5.4 millionwithin the Consumer MEMS Microphones related to this action, including $4.2a change in estimate. The Company recognized these transactions within Gross profit, resulting in total restructuring credits within Gross Profit of $1.7 million in contract termination costs and $1.2$1.6 million in severance payfor the three and benefits.six months ended June 30, 2023, respectively.

810

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
During the six months ended June 30, 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 six months ended June 30, 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.

In addition, during the threesix months ended March 31,June 30, 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.segment, and $0.5 million for other costs.

No restructuring charges were recorded within Gross profit for the three and six months ended March 31,June 30, 2022. During the three and six months ended March 31,June 30, 2022, the Company recorded total restructuring charges within Operating expenses of $6.6$0.5 million and $7.1 million, respectively, 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, Three Months Ended June 30,Six Months Ended June 30,
(in millions)(in millions)20232022(in millions)2023202220232022
Precision Devices$— $— 
MedTech & Specialty Audio— — 
Consumer MEMS MicrophonesConsumer MEMS Microphones0.8 6.6 Consumer MEMS Microphones(1.1)— (0.3)6.6 
CorporateCorporate0.3 — Corporate— 0.5 0.3 0.5 
TotalTotal$1.1 $6.6 Total$(1.1)$0.5 $— $7.1 

The following table details the Company’s severance and other restructuring accrual activity:
(in millions)(in millions)Severance Pay and BenefitsContract Termination and Other CostsTotal(in millions)Severance Pay and BenefitsContract Termination and Other CostsTotal
Balance at December 31, 2022Balance at December 31, 2022$0.9 $21.8 $22.7 Balance at December 31, 2022$0.9 $21.8 $22.7 
Restructuring chargesRestructuring charges1.1 — 1.1 Restructuring charges1.7 (1.7)— 
PaymentsPayments(1.1)(3.0)(4.1)Payments(1.8)(3.2)(5.0)
Other, including foreign currencyOther, including foreign currency— 0.4 0.4 Other, including foreign currency— 0.4 0.4 
Balance at March 31, 2023$0.9 $19.2 $20.1 
Balance at June 30, 2023Balance at June 30, 2023$0.8 $17.3 $18.1 

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

(in millions)(in millions)March 31, 2023December 31, 2022(in millions)June 30, 2023December 31, 2022
Other accrued expensesOther accrued expenses$8.5 $4.0 Other accrued expenses$7.5 $4.0 
Other liabilitiesOther liabilities11.6 18.7 Other liabilities10.6 18.7 
TotalTotal$20.1 $22.7 Total$18.1 $22.7 

9. Borrowings

Revolving Credit Facility

Revolving credit facility borrowings consist of the following:
(in millions)June 30, 2023December 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.

911

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
8. Borrowings

Revolving Credit Facility

Revolving credit facility borrowings consist of the following:
(in millions)March 31, 2023December 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,June 30, 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%6.24% and 2.12%2.18% for the threesix months ended March 31,June 30, 2023 and 2022, respectively. The weighted-average commitment fee on the revolving line of credit was 0.23% and 0.24% for the threesix months ended March 31,June 30, 2023 and 2022, respectively.2022.

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

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.

12
9.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. Other Comprehensive Earnings

The amounts recognized in other comprehensive earnings (loss)loss were as follows:
Three Months EndedThree Months EndedThree Months EndedThree Months Ended
March 31, 2023March 31, 2022 June 30, 2023June 30, 2022
(in millions)(in millions)Pre-taxTaxNet of taxPre-taxTaxNet of tax(in millions)Pre-taxTaxNet of taxPre-taxTaxNet of tax
Foreign currency translationForeign currency translation$3.6 $— $3.6 $(2.2)$— $(2.2)Foreign currency translation$(13.3)$— $(13.3)$(15.6)$— $(15.6)
Employee benefit plansEmployee benefit plans0.2 — 0.2 0.2 (0.1)0.1 Employee benefit plans0.1 0.1 0.2 0.1 (0.2)(0.1)
Changes in fair value of cash flow hedgesChanges in fair value of cash flow hedges(0.1)0.3 0.2 (0.3)— (0.3)Changes in fair value of cash flow hedges(4.0)0.4 (3.6)(2.5)0.3 (2.2)
Total other comprehensive earnings (loss)$3.7 $0.3 $4.0 $(2.3)$(0.1)$(2.4)
Total other comprehensive lossTotal other comprehensive loss$(17.2)$0.5 $(16.7)$(18.0)$0.1 $(17.9)
Six Months EndedSix Months Ended
June 30, 2023June 30, 2022
(in millions)(in millions)Pre-taxTaxNet of taxPre-taxTaxNet of tax
Foreign currency translationForeign currency translation$(9.7)$— $(9.7)$(17.8)$— $(17.8)
Employee benefit plansEmployee benefit plans0.3 0.1 0.4 0.3 (0.3)— 
Changes in fair value of cash flow hedgesChanges in fair value of cash flow hedges(4.1)0.7 (3.4)(2.8)0.3 (2.5)
Total other comprehensive lossTotal other comprehensive loss$(13.5)$0.8 $(12.7)$(20.3)$— $(20.3)

The following tables summarize the changes in balances of each component of accumulated other comprehensive loss, net of tax during the threesix months ended March 31,June 30, 2023 and 2022:
(in millions)(in millions)Cash flow hedgesEmployee benefit plansCumulative foreign currency translation adjustmentsTotal(in millions)Cash flow hedgesEmployee benefit plansCumulative foreign currency translation adjustmentsTotal
Balance at December 31, 2022Balance at December 31, 2022$1.0 $(16.3)$(106.8)$(122.1)Balance at December 31, 2022$1.0 $(16.3)$(106.8)$(122.1)
Other comprehensive earnings, net of tax0.2 0.2 3.6 4.0 
Other comprehensive (loss) earnings, net of taxOther comprehensive (loss) earnings, net of tax(3.4)0.4 (9.7)(12.7)
Balance at March 31, 2023$1.2 $(16.1)$(103.2)$(118.1)
Balance at June 30, 2023Balance at June 30, 2023$(2.4)$(15.9)$(116.5)$(134.8)

(in millions)(in millions)Cash flow hedgesEmployee benefit plansCumulative foreign currency translation adjustmentsTotal(in millions)Cash flow hedgesEmployee benefit plansCumulative foreign currency translation adjustmentsTotal
Balance at December 31, 2021Balance at December 31, 2021$0.3 $(17.1)$(83.6)$(100.4)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)$(102.8)
Other comprehensive loss, net of taxOther comprehensive loss, net of tax(2.5)— (17.8)(20.3)
Balance at June 30, 2022Balance at June 30, 2022$(2.2)$(17.1)$(101.4)$(120.7)

1113

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The following table summarizestables summarize the amounts reclassified from accumulated other comprehensive loss to earnings:
Three Months Ended March 31,Three Months Ended June 30,
(in millions)(in millions)Statement of Earnings Line20232022(in millions)Statement of Earnings Line20232022
Pension and post-retirement benefit plans:Pension and post-retirement benefit plans:Pension and post-retirement benefit plans:
Amortization or settlement of actuarial losses and prior service costsAmortization or settlement of actuarial losses and prior service costsOther expense (income), net$0.2 $0.2 Amortization or settlement of actuarial losses and prior service costsOther (income) expense, net$0.1 $0.1 
TaxTaxProvision for income taxes— (0.1)TaxProvision for income taxes0.1 (0.2)
Net of taxNet of tax$0.2 $0.1 Net of tax$0.2 $(0.1)
Cash flow hedges:Cash flow hedges:Cash flow hedges:
Net losses (gains) reclassified into earningsCost of goods sold$0.1 $(0.3)
Net losses reclassified into earningsNet losses reclassified into earningsCost of goods sold$0.5 $1.0 
TaxTaxProvision for income taxes— — TaxProvision for income taxes(0.1)(0.1)
Net of taxNet of tax$0.1 $(0.3)Net of tax$0.4 $0.9 
Six Months Ended June 30,
(in millions)(in millions)Statement of Earnings Line20232022
Pension and post-retirement benefit plans:Pension and post-retirement benefit plans:
Amortization or settlement of actuarial losses and prior service costsAmortization or settlement of actuarial losses and prior service costsOther (income) expense, net$0.3 $0.3 
TaxTaxProvision for income taxes0.1 (0.3)
Net of taxNet of tax$0.4 $— 
Cash flow hedges:Cash flow hedges:
Net losses reclassified into earningsNet losses reclassified into earningsCost of goods sold$0.6 $0.7 
TaxTaxProvision for income taxes(0.1)(0.1)
Net of taxNet of tax$0.5 $0.6 

10.11. 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 and six months ended March 31,June 30, 2023 and 2022 was (26.8)% and 13.8%, respectively. The ETR includes21.8% (inclusive of discrete items totaling $0.6$0.1 million of tax expenseexpense) and $1.036.8% (inclusive of discrete items totaling $0.7 million of tax benefit for the three months ended March 31, 2023 and 2022,expense), respectively. The discrete items impacting the tax provision for the three and six months ended March 31,June 30, 2023 and 2022 were primarily attributable to stock-based compensation. Absent the discrete items, the ETR for the three and six months ended March 31,June 30, 2023 was 21.3% and 31.6%, respectively. The Company's ETR for the three and six months ended June 30, 2022 was (11.9)% (inclusive of discrete items totaling $0.6 million of benefit) and (14.6)% (inclusive of discrete items totaling $1.6 million of benefit), respectively. The discrete items impacting the tax provision for the three and six months ended June 30, 2023 were primarily attributable to stock-based compensation. Absent the discrete items, the ETR for the three and six months ended June 30, 2022 was (12.2)% and 18.6%(15.5)%, 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.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
The Company's ETR is favorably impacted by tax holidays granted to the Company. The benefit for these incentives for the three and six months ended March 31,June 30, 2023 was approximately $0.1$0.5 million with no impact toand $0.6 million, respectively, or $0.01 on a basic earnings per share.share basis for both periods. The benefit for these incentives for the three and six months ended March 31,June 30, 2022 was approximately $2.6$2.4 million and $5.0 million, respectively, or $0.03 and $0.05 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 and2022.

The Company believes it is reasonably possible that a U.S. valuation allowance of approximately $11.6 million related to foreign tax credits will be released within the Company is currently in appeal discussions with the Malaysian tax authorities regarding revised conditions.next twelve months.

11.12. Equity Incentive Program

Stock-basedThe following table summarizes the stock-based compensation expense recognized inby the Consolidated Statements of Earnings totaled $7.8 million and $7.6 millionCompany 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.periods presented:
 Three Months Ended June 30,Six Months Ended June 30,
(in millions)2023202220232022
Total pre-tax stock-based compensation expense$7.1 $7.2 $14.9 $14.8 
Tax benefit0.3 0.8 3.2 4.0 
Total stock-based compensation expense, net of tax$6.8 $6.4 $11.7 $10.8 

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Stock Options and SSARs

The expense related to stock options granted in the threesix months ended March 31,June 30, 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 and six months ended March 31,June 30, 2023.
 ThreeSix Months Ended March 31,June 30,
 2022
Risk-free interest rate0.85%
Dividend yield—%
Expected life (years)4.5
Volatility34.3%
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 threesix months ended March 31,June 30, 2023:
SSARsStock Options
 Number of SharesWeighted-Average Exercise PriceAggregate Intrinsic ValueWeighted-Average Remaining Contractual Term (Years)Number of SharesWeighted-Average Exercise PriceAggregate Intrinsic ValueWeighted-Average Remaining Contractual Term (Years)
(in millions, except share and per share amounts)
Outstanding at December 31, 2022223,564 $23.92 2,703,424 $16.28 
Granted— — — — 
Exercised— — (524,337)12.37 
Forfeited— — — — 
Expired(223,564)23.92 — — 
Outstanding at March 31, 2023— $— $— 0.02,179,087 $17.22 $1.7 3.0
Exercisable at March 31, 2023— $— $— 0.01,999,866 $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 unitsWeighted-average grant date fair value
Unvested at December 31, 20221,880,521 $19.96 
Granted1,118,098 19.09 
Vested (1)
(723,041)19.74 
Forfeited(30,595)19.82 
Unvested at March 31, 20232,244,983 $19.60 
(1) The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy statutory tax withholding requirements.

SSARsStock Options
 Number of SharesWeighted-Average Exercise PriceAggregate Intrinsic ValueWeighted-Average Remaining Contractual Term (Years)Number of SharesWeighted-Average Exercise PriceAggregate Intrinsic ValueWeighted-Average Remaining Contractual Term (Years)
(in millions, except share and per share amounts)
Outstanding at December 31, 2022223,564 $23.92 2,703,424 $16.28 
Exercised— — (534,842)12.45 
Forfeited— — (12,684)20.97 
Expired(223,564)23.92 — — 
Outstanding at June 30, 2023— $— $— 0.02,155,898 $17.20 $3.2 2.7
Exercisable at June 30, 2023— $— $— 0.01,998,054 $16.91 $3.2 2.5

1315

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
There was no unrecognized compensation expense related to SSARs at June 30, 2023. At June 30, 2023, unrecognized compensation expense related to stock options not yet exercisable of $0.7 million is expected to be recognized over a weighted-average period of 1.3 years.

RSUs

The following table summarizes the Company's restricted stock unit ("RSU") activity for the six months ended June 30, 2023:
 Share unitsWeighted-average grant date fair value
Unvested at December 31, 20221,880,521 $19.96 
Granted1,251,627 18.81 
Vested (1)
(813,275)19.60 
Forfeited(82,174)20.19 
Unvested at June 30, 20232,236,699 $19.44 
(1) The number of RSUs vested includes shares that the Company withheld on behalf of employees to satisfy statutory tax withholding requirements.

At March 31,June 30, 2023, $34.9$31.1 million of unrecognized compensation expense related to RSUs is expected to be recognized over a weighted-average period of 2.12.0 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 threesix months ended March 31,June 30, 2023:
Share unitsWeighted-average grant date fair value Share unitsWeighted-average grant date fair value
Unvested at December 31, 2022Unvested at December 31, 2022833,589 $25.12 Unvested at December 31, 2022833,589 $25.12 
GrantedGranted320,585 29.75 Granted320,585 29.75 
Vested (1)
Vested (1)
(261,770)16.14 
Vested (1)
(261,770)16.14 
ForfeitedForfeited— — Forfeited(37,125)29.20 
Unvested at March 31, 2023892,404 $29.42 
Unvested at June 30, 2023Unvested at June 30, 2023855,279 $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,June 30, 2023, $16.8$14.2 million of unrecognized compensation expense related to PSUs is expected to be recognized over a weighted-average period of 1.91.7 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)20232022
Net (loss) earnings$(5.2)$18.1 
Basic:
Net (loss) earnings per share$(0.06)$0.20 
Weighted-average shares outstanding91.4 92.3 
Diluted:
Net (loss) earnings per share$(0.06)$0.19 
Weighted-average shares outstanding91.4 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.

1416

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
13. Earnings per Share

Basic and diluted earnings per share were computed as follows:
 Three Months Ended June 30,Six Months Ended June 30,
(in millions, except per share amounts)2023202220232022
Net earnings (loss)$13.6 $(242.9)$8.4 $(224.8)
Basic:
Net earnings (loss) per share$0.15 $(2.64)$0.09 $(2.44)
Weighted-average shares outstanding91.4 92.0 91.4 92.2 
Diluted:
Net earnings (loss) per share$0.15 $(2.64)$0.09 $(2.44)
Weighted-average shares outstanding91.8 92.0 92.1 92.2 

For the three and six months ended June 30, 2023, the weighted-average number of anti-dilutive potential common shares for stock-based awards excluded from the diluted earnings per share calculation above was 3.3 million and 2.4 million, respectively. For the three and six months ended June 30, 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 3.0 million and 2.0 million, respectively.

14. 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,June 30, 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)20232022
Revenues:  
Precision Devices$53.7 $55.7 
MedTech & Specialty Audio45.5 59.5 
Consumer MEMS Microphones45.1 86.2 
Total revenues$144.3 $201.4 
(Loss) earnings before interest and income taxes:
Precision Devices$10.7 $12.3 
MedTech & Specialty Audio11.4 21.7 
Consumer MEMS Microphones(8.2)0.5 
Total segments13.9 34.5 
Corporate expense / other17.2 12.7 
Interest expense, net0.8 0.8 
(Loss) earnings before income taxes(4.1)21.0 
Provision for income taxes1.1 2.9 
Net (loss) earnings$(5.2)$18.1 

1517

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
15. 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 (certain prior year information has been reclassified to conform to the current year presentation):
 Three Months Ended June 30,Six Months Ended June 30,
(in millions)2023202220232022
Revenues:  
Precision Devices$47.8 $59.5 $101.5 $115.2 
MedTech & Specialty Audio60.6 61.6 106.1 121.1 
Consumer MEMS Microphones64.6 66.9 109.7 153.1 
Total revenues$173.0 $188.0 $317.3 $389.4 
Earnings (loss) before interest and income taxes:
Precision Devices$4.8 $11.0 $15.5 $23.3 
MedTech & Specialty Audio23.6 23.1 35.0 44.8 
Consumer MEMS Microphones6.3 (239.3)(1.9)(238.8)
Total segments34.7 (205.2)48.6 (170.7)
Corporate expense / other16.5 11.1 33.7 23.8 
Interest expense, net0.8 0.8 1.6 1.6 
Earnings (loss) before income taxes17.4 (217.1)13.3 (196.1)
Provision for income taxes3.8 25.8 4.9 28.7 
Net earnings (loss)$13.6 $(242.9)$8.4 $(224.8)

Information regarding assets of the Company's reportable segments:
Total AssetsTotal Assets
(in millions)(in millions)March 31, 2023December 31, 2022(in millions)June 30, 2023December 31, 2022
Precision DevicesPrecision Devices$283.7 $275.7 Precision Devices$290.1 $275.7 
MedTech & Specialty AudioMedTech & Specialty Audio363.0 358.1 MedTech & Specialty Audio339.9 358.1 
Consumer MEMS MicrophonesConsumer MEMS Microphones545.4 547.3 Consumer MEMS Microphones542.7 547.3 
Corporate / eliminationsCorporate / eliminations3.4 2.8 Corporate / eliminations3.3 2.8 
TotalTotal$1,195.5 $1,183.9 Total$1,176.0 $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, Three Months Ended June 30,Six Months Ended June 30,
(in millions)(in millions)20232022(in millions)2023202220232022
AsiaAsia$80.0 $128.9 Asia$108.9 $113.0 $188.9 $241.9 
United StatesUnited States35.3 40.9 United States34.0 44.7 69.3 85.6 
EuropeEurope24.1 28.1 Europe25.7 27.6 49.8 55.7 
Other AmericasOther Americas2.1 1.5 Other Americas1.3 1.1 3.4 2.6 
OtherOther2.8 2.0 Other3.1 1.6 5.9 3.6 
TotalTotal$144.3 $201.4 Total$173.0 $188.0 $317.3 $389.4 

Receivables, net from contracts with customers were $96.2$107.3 million and $125.7 million as of March 31,June 30, 2023 and December 31, 2022, respectively. As of March 31,June 30, 2023 and December 31, 2022, our total remaining performance obligations were immaterial.

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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:
ounforeseen 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;
oour ongoing ability to execute our strategy to diversify our end markets and customers;
oour ability to stem or overcome price erosion in our segments;
ofluctuations in our stock's market price;
ofluctuations in operating results and cash flows;
oour ability to prevent or identify quality issues in our products or to promptly remedy any such issues that are identified;
othe timing of OEM product launches;
orisks associated with increasing our inventories in advance of anticipated orders by customers;
oglobal economic instability, including due to inflation, rising interest rates, negative impacts caused by pandemics and public health crises, or the impacts of geopolitical uncertainties;
othe impact of changes to laws and regulations that affect the Company’s ability to offer products or services to customers in different regions;
oour ability to achieve reductions in our operating expenses;
othe ability to qualify our products and facilities with customers;
oour ability to obtain, enforce, defend, or monetize our intellectual property rights;
odisruption caused by a cybersecurity incident, including a cyber attack, cyber breach, theft, or other unauthorized access;
odifficulties or delays in and/or the Company's inability to realize expected cost synergies from its acquisitions;
oincreases in the costs of critical raw materials and components;
oavailability of raw materials and components;
omanaging new product ramps and introductions for our customers;
oour dependence on a limited number of large customers;
oour ability to maintain and expand our existing relationships with leading OEMs in order to maintain and increase our revenue;
oincreasing competition and new entrants in the market for our products;
oour ability to develop new or enhanced products or technologies in a timely manner that achieve market acceptance;
oour reliance on third parties to manufacture, assemble, and test our products and sub-components;
oescalating international trade tensions, new or increased tariffs, and trade wars among countries;
ofinancial risks, including risks relating to currency fluctuations, credit risks, and fluctuations in the market value of the Company;
oa sustained decline in our stock price and market capitalization may result in the impairment of certain intangible or long-lived assets;
omarket risk associated with fluctuations in commodity prices, particularly for various precious metals used in our manufacturing operation; and
ochanges 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.
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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, industrial, communication, electric vehicle, and industrialdistribution 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.

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Results of Operations for the Three Months Ended March 31,June 30, 2023 compared with the Three Months Ended March 31,June 30, 2022
Three Months Ended March 31, Three Months Ended June 30,
(in millions, except per share amounts)(in millions, except per share amounts)20232022(in millions, except per share amounts)20232022
RevenuesRevenues$144.3 $201.4 Revenues$173.0 $188.0 
Gross profitGross profit$53.8 $83.3 Gross profit$73.7 $77.7 
Non-GAAP gross profitNon-GAAP gross profit$54.4 $83.8 Non-GAAP gross profit$72.7 $78.1 
(Loss) earnings before interest and income taxes$(3.3)$21.8 
Earnings (loss) before interest and income taxesEarnings (loss) before interest and income taxes$18.2 $(216.3)
Adjusted earnings before interest and income taxesAdjusted earnings before interest and income taxes$8.1 $39.4 Adjusted earnings before interest and income taxes$27.7 $37.6 
Provision for income taxesProvision for income taxes$1.1 $2.9 Provision for income taxes$3.8 $25.8 
Non-GAAP provision for income taxesNon-GAAP provision for income taxes$2.2 $5.0 Non-GAAP provision for income taxes$5.0 $5.1 
Net (loss) earnings$(5.2)$18.1 
Net earnings (loss)Net earnings (loss)$13.6 $(242.9)
Non-GAAP net earningsNon-GAAP net earnings$5.1 $33.6 Non-GAAP net earnings$21.9 $31.7 
Diluted (loss) earnings per share$(0.06)$0.19 
Diluted earnings (loss) per shareDiluted earnings (loss) per share$0.15 $(2.64)
Non-GAAP diluted earnings per shareNon-GAAP diluted earnings per share$0.05 $0.35 Non-GAAP diluted earnings per share$0.23 $0.33 

Revenues

Revenues for the firstsecond quarter of 2023 were $144.3$173.0 million, compared with $201.4$188.0 million for the firstsecond quarter of 2022, a decrease of $57.1$15.0 million or 28.4%8.0%. CMMPD revenues decreased $41.1$11.7 million, primarily due to lower demand for MEMS microphones infrom the mobile, IoT, computing,industrial, distribution, and earcommunication markets. The decreases in these markets were primarily driven by weak global demand for consumer electronics and excess inventory in the supply chain. In addition to lower end market demand, shipping volumes were unfavorably impacted this quarter by financial incentives offered to customers resulting in higher shipping volumes in the fourth quarter of 2022. CMM revenues were also impacted bydecreased $2.3 million, primarily due to lower average pricing on mature products, shipped intopartially offset by higher demand in the mobile market.ear and IoT markets. MSA revenues decreased $14.0$1.0 million, primarily due to lower shipping volumes into the hearing health and premium audio markets as customers reduced their inventory levels. In addition to lower end market, demand, shipping volumes were unfavorably impacted this quarterpartially offset by financial incentives offered to customers resulting in higher shipping volumes ininto the fourth quarter of 2022. PD revenues decreased $2.0 million, primarily due to lower demand from the industrial and communication markets, partially offset by increased demand in the electric vehicle and medtech markets.premium audio market.

Cost of Goods Sold

Cost of goods sold ("COGS") for the firstsecond quarter of 2023 was $90.4$105.8 million, compared with $118.1$110.3 million for the firstsecond quarter of 2022, a decrease of $27.7$4.5 million or 23.5%4.1%. This decrease was primarily due to lower shipping volumes, product cost reductions, benefits of prior year restructuring actions, and lower shipping volumes, and favorable foreign currency exchange rate changes, and a decrease in precious metal costs, partially offset by lower factory capacity utilization and unfavorable product mix.utilization.

19
TableGain on Sale of ContentsFixed Assets

As a result of transitioning to our next generation of MEMS wafer manufacturing technology, we sold certain machinery and equipment related to the CMM segment in the second quarter of 2023 and recorded a gain of $4.8 million. In addition, CMM expects to recognize further gains on sale of fixed assets in the third quarter of 2023. For additional information, refer to Note 6. Property, Plant, and Equipment, net to our Consolidated Financial Statements.

Restructuring Charges

During the firstsecond quarter of 2023, we recorded a $0.9 million gain on the sale of certain machinery and equipment that was previously written off through restructuring charges and a $0.8 million reversal of restructuring charges related to a change in estimate, all within Gross profit and the CMM Segment. We also recorded restructuring charges of $0.8$0.6 million in Operating expenses for severance pay and benefits to rationalize our CMM segment, and $0.3 million for other costs.segment. For additional information, refer to Note 7.8. Restructuring and Related Activities to our Consolidated Financial Statements.

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During the firstsecond quarter of 2022, we restructured our MEMS Microphones product line, which is included within the CMM segment. This action resulted in the termination of a research and development project and a reduction in workforce. We recorded restructuring charges of $5.4 million related to this action. In addition, we recorded restructuring charges of $1.2$0.5 million to rationalize the Intelligent Audio product line workforce, which is also included within the CMM segment. For additional information, refer to Note 7. Restructuring and Related Activities to our Consolidated Financial Statements.Operating expenses.

Gross Profit and Non-GAAP Gross Profit

Gross profit for the firstsecond quarter of 2023 was $53.8$73.7 million, compared with $83.3$77.7 million for the firstsecond quarter of 2022, a decrease of $29.5$4.0 million or 35.4%5.1%. Gross profit margin (gross profit as a percentage of revenues) for the firstsecond quarter of 2023 was 37.3%42.6%, compared with 41.4%41.3% for the firstsecond quarter of 2022. The decrease in gross profit was primarily due to lower shipping volumes. The decrease in gross profit margin was due to lower factory capacity utilization, unfavorable product mix,volumes, lower average pricing on mature products shipped into the mobile market and lower factory capacity utilization, partially offset by product cost reductions, the gain on sale of fixed assets, benefits of prior year restructuring actions, and favorable foreign currency exchange rate changes. The increase in gross profit margin was primarily driven by product cost reductions, the gain on sale of fixed assets, benefits of prior year restructuring actions, and favorable foreign currency exchange rate changes, partially offset by lower average pricing and a decrease in precious metal costs.lower factory capacity utilization.

Non-GAAP gross profit for the firstsecond quarter of 2023 was $54.4$72.7 million, compared with $83.8$78.1 million for the firstsecond quarter of 2022, a decrease of $29.4$5.4 million or 35.1%6.9%. Non-GAAP gross profit margin (non-GAAP gross profit as a percentage of revenues) for the firstsecond quarter of 2023 was 37.7%42.0%, compared with 41.6%41.5% for the firstsecond quarter of 2022. The decrease in non-GAAP gross profit was primarily due to lower shipping volumes. The decrease in non-GAAP gross profit margin was primarily due to lower factory capacity utilization, unfavorable product mix, andvolumes, lower average pricing on mature products shipped into the mobile market and lower factory capacity utilization, partially offset by product cost reductions, the gain on sale of fixed assets, benefits of prior year restructuring actions, and favorable foreign currency exchange rate changes. The increase in gross profit margin was primarily driven by product cost reductions, the gain on sale of fixed assets, benefits of prior year restructuring actions, and favorable foreign currency exchange rate changes, partially offset by lower average pricing and a decrease in precious metal costs.lower factory capacity utilization.

Research and Development Expenses

Research and development expenses for the firstsecond quarter of 2023 were $20.0$19.7 million, compared with $23.1$21.3 million for the firstsecond quarter of 2022, a decrease of $3.1$1.6 million or 13.4%7.5%. Research and development expenses as a percentage of revenues for the firstsecond quarter of 2023 and 2022 were 13.9%11.4% and 11.5%11.3%, respectively. The decrease in expenses was primarily driven by reduced spending in our CMM segment driven by the benefits of prior year restructuring actions, partially offset by increased development activities in our MSA and PD segment.segments. The increase in expenses as a percentage of revenues was driven by our lower revenues.

Selling and Administrative Expenses

Selling and administrative expenses for the firstsecond quarter of 2023 were $33.8$36.5 million, compared with $32.3$30.7 million for the firstsecond quarter of 2022, an increase of $1.5$5.8 million or 4.6%18.9%. Selling and administrative expenses as a percentage of revenues for the firstsecond quarter of 2023 and 2022 were 23.4%21.1% and 16.0%16.3%, respectively. The increase in expenses was primarily driven by higher professional service fees, higher incentive compensation, and a change in our deferred compensation liability and increased travel activity.liability. The increase in expenses as a percentage of revenues was driven by our increase in expenses and lower revenues.

Impairment Charges

No impairment charges were recorded during the second quarter of 2023. Impairment charges for the second quarter of 2022 were $239.8 million related to a goodwill impairment charge for the CMM segment. For additional information related to these impairment charges, refer to Note 4. Impairment Charges to our Consolidated Financial Statements.

Interest Expense, net

Interest expense for the firstsecond quarter of 2023 and 2022 was $0.8 million. We had a lower outstanding revolving credit facility balance during the firstsecond quarter of 2023 compared to the firstsecond quarter of 2022, offset by higher interest rates. For additional information on borrowings and interest expense, refer to Note 8.9. Borrowings to our Consolidated Financial Statements.

Other Expense (Income), net

Other expense for the first quarter of 2023 was $2.3 million, compared with income of $0.5 million for the first quarter of 2022, a change of $2.8 million. The change is primarily due to unfavorable impacts from foreign currency exchange rate changes, partially offset by the appreciation in our investment balances.

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Other (Income) Expense, net

Other income for the second quarter of 2023 was $1.3 million, compared with expense of $1.7 million for the second quarter of 2022, a change of $3.0 million. Income in the second quarter of 2023 represents favorable foreign currency exchange rate impacts and the unrealized gains in our investment balances. Expense in the second quarter of 2022 represents an adjustment to pre-spin-off pension obligations and the unrealized losses in our investment balances, partially offset by favorable foreign currency exchange rate impacts.

Provision for Income Taxes and Non-GAAP Provision for Income Taxes

The effective tax rate ("ETR") for the firstsecond quarter of 2023 and 2022 was (26.8)%21.8% and 13.8%(11.9)%, respectively. The ETR for the firstsecond quarter of 2023 and 2022 includes discrete items totaling $0.6$0.1 million of tax expense and $1.0$0.6 million of tax benefit, respectively. The discrete items impacting the tax provision for first quarter of 2023 and 2022 arerespectively, primarily attributable to stock-based compensation. Absent the discrete items, the ETR for the firstsecond quarter of 2023 and 2022 was 21.3% and (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 provision for both the firstsecond quarter of 2023 and 2022. The change in the ETR was mainly due to the book goodwill impairment recorded in the second quarter of 2022, as well as the mix of earnings and losses by taxing jurisdictions and net discrete items.

The non-GAAP ETR for the firstsecond quarter of 2023 and 2022 was 30.1%18.6% and 13.0%13.9%, respectively. The non-GAAP ETR includes discrete items totaling $0.9 million of tax expense for the firstsecond quarter of 2023.2022 was impacted by a net discrete benefit totaling $0.4 million. Absent the discrete items, the non-GAAP ETR for the firstsecond quarter of 2023 and 2022 was 17.8%18.6% and 13.0%14.9%, respectively. The change in the non-GAAP ETR was primarily due to lower pre-tax earnings and net discrete items including the impactloss of the increase in our Malaysian tax rate on our 2022 non-GAAP provision.holiday.

The ETR and non-GAAP ETR deviate from the statutory U.S. federal income tax rate, mainly due to the taxing jurisdictions where we generate taxable income or loss. As a result of the rapid decline in demand for global consumer electronics during 2022, we did not satisfy all of the conditions of our tax holiday in Malaysia. As such, we are not including this tax holiday benefit in our 2023 GAAP ETR and non-GAAP ETR. We are currently in appeal discussions with the Malaysian tax authorities regarding revised conditions. For additional information on these tax holidays refer to Note 10.11. Income Taxes to our Consolidated Financial Statements.

Net Earnings (Loss) Earnings

Net lossearnings for the firstsecond quarter of 2023 was $5.2were $13.6 million, compared with earningsa loss of $18.1$242.9 million for the firstsecond quarter of 2022, a decreasean increase of $23.3$256.5 million. As described above, the decreaseincrease is primarily due to impairment charges in the second quarter of 2022 that did not recur in the second quarter of 2023 and lower gross profit,income tax expense, partially offset by lower gross profit and higher operating expenses and restructuring charges.expenses.

Earnings (Loss) Earnings and Adjusted Earnings Before Interest and Income Taxes

Loss before interest and income taxes for the first quarter of 2023 was $3.3 million, compared with earnings of $21.8 million for the first quarter of 2022, a decrease of $25.1 million. (Loss) earningsEarnings before interest and income taxes ("EBIT") for the second quarter of 2023 was $18.2 million, compared with a $216.3 million loss for the second quarter of 2022, an increase of $234.5 million. EBIT margin (EBIT as a percentage of revenues) for the firstsecond quarter of 2023 was (2.3)%10.5%, compared with 10.8%(115.1)% for the firstsecond quarter of 2022. The decreases arechange is primarily due to lower gross profit,impairment charges recorded in the second quarter of 2022 that did not recur in the second quarter of 2023, partially offset by lower gross profit and higher operating expenses and restructuring charges.expenses.

Adjusted earnings before interest and income taxes ("Adjusted EBIT") for the firstsecond quarter of 2023 was $8.1$27.7 million, compared with $39.4$37.6 million for the firstsecond quarter of 2022, a decrease of $31.3$9.9 million. Adjusted EBIT margin (Adjusted EBIT as a percentage of revenues) for the firstsecond quarter of 2023 was 5.6%16.0%, compared with 19.6%20.0% for the firstsecond quarter of 2022. The decreases were primarily due to lower non-GAAP gross profit partially offset by lowerand higher non-GAAP operating expenses.

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Diluted Earnings (Loss) Earnings per Share and Non-GAAP Diluted Earnings per Share

Diluted lossearnings per share was $0.06$0.15 for the firstsecond quarter of 2023, compared with earningsloss per share of $0.19$2.64 for the firstsecond quarter of 2022, a decreasean increase of $0.25.$2.79. As described above, the decreasechange is primarily due to lower gross profit,impairment charges recorded in the second quarter of 2022 that did not recur in the second quarter of 2023, partially offset by lower gross profit and higher operating expenses and restructuring charges.expenses.

Non-GAAP diluted earnings per share was $0.05$0.23 for the firstsecond quarter of 2023, compared with $0.35$0.33 for the firstsecond quarter of 2022, a decrease of $0.30.$0.10. As described above, the decrease was primarily due to lower non-GAAP gross profit partially offset by lowerand higher non-GAAP operating expenses.

Results of Operations for the Six Months Ended June 30, 2023 compared with the Six Months Ended June 30, 2022
 Six Months Ended June 30,
(in millions, except per share amounts)20232022
Revenues$317.3 $389.4 
Gross profit$127.5 $161.0 
Non-GAAP gross profit$127.1 $161.9 
Earnings (loss) before interest and income taxes$14.9 $(194.5)
Adjusted earnings before interest and income taxes$35.8 $77.0 
Provision for income taxes$4.9 $28.7 
Non-GAAP provision for income taxes$7.2 $10.1 
Net earnings (loss)$8.4 $(224.8)
Non-GAAP net earnings$27.0 $65.3 
Diluted earnings (loss) per share$0.09 $(2.44)
Non-GAAP diluted earnings per share$0.28 $0.68 

Revenues

Revenues for the six months ended June 30, 2023 were $317.3 million, compared with $389.4 million for the six months ended June 30, 2022, a decrease of $72.1 million or 18.5%. PD revenues decreased $13.7 million, primarily due to lower demand from the industrial, distribution, and communication markets, partially offset by increased demand in the electric vehicle market. CMM revenues decreased $43.4 million, primarily due to lower demand for MEMS microphones in the mobile, IoT, and computing markets. The decreases in these markets were primarily driven by weak global demand for consumer electronics and excess inventory in the supply chain. In addition to lower end market demand, shipping volumes were unfavorably impacted this period by financial incentives offered to customers resulting in higher shipping volumes in the fourth quarter of 2022. CMM revenues were also impacted by lower average pricing on mature products shipped into the mobile market. MSA revenues decreased $15.0 million, primarily due to lower shipping volumes into the hearing health market as customers reduced their inventory levels, partially offset by higher shipping volumes into the premium audio market. In addition to lower end market demand, shipping volumes were unfavorably impacted this period by financial incentives offered to customers resulting in higher shipping volumes in the fourth quarter of 2022.

Cost of Goods Sold

COGS for the six months ended June 30, 2023 was $196.2 million, compared with $228.4 million for the six months ended June 30, 2022, a decrease of $32.2 million or 14.1%. This decrease was primarily due to lower shipping volumes, product cost reductions, benefits of prior year restructuring actions, and favorable foreign currency exchange rate changes, partially offset by lower factory capacity utilization.
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Gain on Sale of Fixed Assets

As a result of transitioning to our next generation of MEMS wafer manufacturing technology, we sold certain machinery and equipment related to the CMM segment in the six months ended June 30, 2023 and recorded a gain of $4.8 million. In addition, CMM expects to recognize further gains on sale of fixed assets in the third quarter of 2023. For additional information, refer to Note 6. Property, Plant, and Equipment, net to our Consolidated Financial Statements.

Restructuring Charges

During the six months ended June 30, 2023, we recorded a $0.9 million gain on the sale of certain machinery and equipment that was previously written off through restructuring charges and a $0.8 million reversal of restructuring charges related to a change in estimate, all within Gross profit and the CMM Segment. We also recorded restructuring charges of $1.4 million in Operating expenses for severance pay and benefits to rationalize our CMM segment, and $0.3 million for other costs. For additional information, refer to Note 8. Restructuring and Related Activities to our Consolidated Financial Statements.

During the six months ended June 30, 2022, we restructured our MEMS Microphones product line, which is included within the CMM segment. This action resulted in the termination of a research and development project and a reduction in workforce. We recorded restructuring charges of $5.4 million related to this action and $0.5 million for other costs. In addition, we recorded restructuring charges of $1.2 million to rationalize the Intelligent Audio product line workforce, which is also included within the CMM segment. For additional information, refer to Note 8. Restructuring and Related Activities to our Consolidated Financial Statements.

Gross Profit and Non-GAAP Gross Profit

Gross profit for the six months ended June 30, 2023 was $127.5 million, compared with $161.0 million for the six months ended June 30, 2022, a decrease of $33.5 million or 20.8%. Gross profit margin for the six months ended June 30, 2023 was 40.2%, compared with 41.3% for the six months ended June 30, 2022. The decrease in gross profit was primarily due to lower shipping volumes. The decrease in gross profit margin was primarily due to lower factory capacity utilization, and lower average pricing on mature products shipped into the mobile market, partially offset by product cost reductions, benefits of prior year restructuring actions, the gain on sale of fixed assets, and favorable foreign currency exchange rate changes.

Non-GAAP gross profit for the six months ended June 30, 2023 was $127.1 million, compared with $161.9 million for the six months ended June 30, 2022, a decrease of $34.8 million or 21.5%. Non-GAAP gross profit margin for the six months ended June 30, 2023 was 40.1%, compared with 41.6% for the six months ended June 30, 2022. The decrease in non-GAAP gross profit was primarily due to lower shipping volumes. The decrease in non-GAAP gross profit margin was primarily due to lower factory capacity utilization and lower average pricing on mature products shipped into the mobile market, partially offset by product cost reductions, benefits of prior year restructuring actions, the gain on sale of fixed assets, and favorable foreign currency exchange rate changes.

Research and Development Expenses

Research and development expenses for the six months ended June 30, 2023 were $39.7 million, compared with $44.4 million for the six months ended June 30, 2022, a decrease of $4.7 million or 10.6%. Research and development expenses as a percentage of revenues for the six months ended June 30, 2023 and 2022 were 12.5% and 11.4%, respectively. The decrease in expenses was primarily driven by reduced spending in our CMM segment driven by the benefits of prior year restructuring actions, partially offset by increased development activities in our PD and MSA segments. The increase in expenses as a percentage of revenues was driven by our lower revenues.

Selling and Administrative Expenses

Selling and administrative expenses for the six months ended June 30, 2023 were $70.3 million, compared with $63.0 million for the six months ended June 30, 2022, an increase of $7.3 million or 11.6%. Selling and administrative expenses as a percentage of revenues for the six months ended June 30, 2023 and 2022 were 22.2% and 16.2%, respectively. The increase in expenses was primarily driven by higher professional service fees and higher incentive compensation incurred in the second quarter of 2023 and a change in our deferred compensation liability. The increase in expenses as a percentage of revenues was driven by our lower revenues and an increase in expenses.
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Impairment Charges

No impairment charges were recorded during the six months ended June 30, 2023. Impairment charges for the six months ended June 30, 2022 were $239.8 million related to a goodwill impairment charge for the MCE reporting unit. For additional information related to these impairment charges, refer to Note 4. Impairment Charges to our Consolidated Financial Statements.

Interest Expense, net

Interest expense for the six months ended June 30, 2023 and 2022 was $1.6 million. We had a lower outstanding revolving credit facility balance during the six months ended June 30, 2023 compared to the six months ended June 30, 2022, offset by higher interest rates. For additional information on borrowings and interest expense, refer to Note 9. Borrowings to our Consolidated Financial Statements.

Other (Income) Expense, net

Other expense for the six months ended June 30, 2023 was $1.0 million, compared with expense of $1.2 million for the six months ended June 30, 2022, a change of $0.2 million. Expense in 2023 represents unfavorable foreign currency exchange rate impacts, partially offset by the unrealized gains in our investment balances. Expense in 2022 represents an adjustment to pre-spin-off pension obligations and the unrealized losses in our investment balances, partially offset by favorable foreign currency exchange rate impacts.

Provision for Income Taxes and Non-GAAP Provision for Income Taxes

The ETR for the six months ended June 30, 2023 and 2022 was 36.8% and (14.6)%, respectively. The ETR for the six months ended June 30, 2023 and 2022 includes discrete items totaling $0.7 million of tax expense and $1.6 million of benefit, respectively. The discrete items impacting the tax provision for first quarter of 2023 and 2022 are primarily attributable to stock-based compensation. Absent the discrete items, the ETR for the six months ended June 30, 2023 and 2022 was 31.6% and (15.5)%, respectively. The Company accrues taxes in various countries where it generates income and applies a valuation allowance in other jurisdictions, which resulted in the provision for both the six months ended June 30, 2023 and 2022. The change in the ETR was mainly due to the book goodwill impairment recorded in the second quarter of 2022, as well as the mix of earnings and losses by taxing jurisdictions and net discrete items.

The non-GAAP ETR for the six months ended June 30, 2023 and 2022 was 21.1% and 13.4%, respectively. The non-GAAP ETR includes discrete items totaling $0.9 million of tax expense for the six months ended June 30, 2023 and a net discrete benefit totaling $0.4 million for the six months ended June 30, 2022. Absent the discrete items, the non-GAAP ETR for the six months ended June 30, 2023 and 2022 was 18.4% and 13.9%, respectively. The change in the non-GAAP ETR was primarily due to lower pre-tax earnings and the loss of our Malaysian tax holiday.

The ETR and non-GAAP ETR deviate from the statutory U.S. federal income tax rate, mainly due to the taxing jurisdictions where we generate taxable income or loss. As a result of the rapid decline in demand for global consumer electronics during 2022, we did not satisfy all of the conditions of our tax holiday in Malaysia. As such, we are not including this tax holiday benefit in our 2023 GAAP ETR and non-GAAP ETR. For additional information on tax holidays refer to Note 11. Income Taxes to our Consolidated Financial Statements.

Net Earnings (Loss)

Net earnings for the six months ended June 30, 2023 was $8.4 million, compared with a loss of $224.8 million for the six months ended June 30, 2022, an increase of $233.2 million. As described above, the increase is primarily due to impairment charges in the second quarter of 2022 that did not recur in the second quarter of 2023 and lower income tax expense, partially offset by lower gross profit.

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Earnings (Loss) and Adjusted Earnings Before Interest and Income Taxes

EBIT for the six months ended June 30, 2023 was $14.9 million, compared with a loss of $194.5 million for the six months ended June 30, 2022, an increase of $209.4 million. EBIT margin for the six months ended June 30, 2023 was 4.7%, compared with (49.9)% for the six months ended June 30, 2022. The change is primarily due to impairment charges recorded in 2022 that did not recur in 2023, partially offset by lower gross profit.

Adjusted earnings before interest and income taxes for the six months ended June 30, 2023 was $35.8 million, compared with $77.0 million for the six months ended June 30, 2022, a decrease of $41.2 million. Adjusted EBIT margin for the six months ended June 30, 2023 was 11.3%, compared with 19.8% for the six months ended June 30, 2022. The decreases were primarily due to lower non-GAAP gross profit.

Diluted Earnings (Loss) per Share and Non-GAAP Diluted Earnings per Share

Diluted earnings per share was $0.09 for the six months ended June 30, 2023, compared with a loss per share of $2.44 for the six months ended June 30, 2022, an increase of $2.53. As described above, the change is primarily due to impairment charges recorded in 2022 that did not recur in 2023, partially offset by lower gross profit.

Non-GAAP diluted earnings per share was $0.28 for the six months ended June 30, 2023, compared with $0.68 for the six months ended June 30, 2022, a decrease of $0.40. As described above, the decrease was primarily due to lower non-GAAP gross profit.

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Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures (1)
Three Months EndedThree Months EndedSix Months Ended
March 31,June 30,June 30,
(in millions, except per share amounts)(in millions, except per share amounts)20232022(in millions, except per share amounts)2023202220232022
Gross profitGross profit$53.8 $83.3 Gross profit$73.7 $77.7 $127.5 $161.0 
Stock-based compensation expense
Stock-based compensation expense
0.5 0.5 
Stock-based compensation expense
0.7 0.4 1.2 0.9 
Restructuring charges Restructuring charges0.1 —  Restructuring charges(1.7)— (1.6)— 
Non-GAAP gross profitNon-GAAP gross profit$54.4 $83.8 Non-GAAP gross profit$72.7 $78.1 $127.1 $161.9 
Net (loss) earnings$(5.2)$18.1 
Net earnings (loss)Net earnings (loss)$13.6 $(242.9)$8.4 $(224.8)
Interest expense, net
Interest expense, net
0.8 0.8 
Interest expense, net
0.8 0.8 1.6 1.6 
Provision for income taxes
Provision for income taxes
1.1 2.9 
Provision for income taxes
3.8 25.8 4.9 28.7 
(Loss) earnings before interest and income taxes(3.3)21.8 
Earnings (loss) before interest and income taxesEarnings (loss) before interest and income taxes18.2 (216.3)14.9 (194.5)
Stock-based compensation expense
Stock-based compensation expense
7.8 7.6 
Stock-based compensation expense
7.1 7.2 14.9 14.8 
Intangibles amortization expense
Intangibles amortization expense
2.9 3.1 
Intangibles amortization expense
2.9 3.0 5.8 6.1 
Impairment charges
Impairment charges
— 239.8 — 239.8 
Restructuring charges
Restructuring charges
1.1 6.6 
Restructuring charges
(1.1)0.5 — 7.1 
Other (2)
Other (2)
(0.4)0.3 
Other (2)
0.6 3.4 0.2 3.7 
Adjusted earnings before interest and income taxesAdjusted earnings before interest and income taxes$8.1 $39.4 Adjusted earnings before interest and income taxes$27.7 $37.6 $35.8 $77.0 
Provision for income taxesProvision for income taxes$1.1 $2.9 Provision for income taxes$3.8 $25.8 $4.9 $28.7 
Income tax effects of non-GAAP reconciling adjustments (3)
Income tax effects of non-GAAP reconciling adjustments (3)
1.1 2.1 
Income tax effects of non-GAAP reconciling adjustments (3)
1.2 (20.7)2.3 (18.6)
Non-GAAP provision for income taxesNon-GAAP provision for income taxes$2.2 $5.0 Non-GAAP provision for income taxes$5.0 $5.1 $7.2 $10.1 
Net (loss) earnings$(5.2)$18.1 
Net earnings (loss)Net earnings (loss)$13.6 $(242.9)$8.4 $(224.8)
Non-GAAP reconciling adjustments (4)
Non-GAAP reconciling adjustments (4)
11.4 17.6 
Non-GAAP reconciling adjustments (4)
9.5 253.9 20.9 271.5 
Income tax effects of non-GAAP reconciling adjustments (3)
Income tax effects of non-GAAP reconciling adjustments (3)
1.1 2.1 
Income tax effects of non-GAAP reconciling adjustments (3)
1.2 (20.7)2.3 (18.6)
Non-GAAP net earningsNon-GAAP net earnings$5.1 $33.6 Non-GAAP net earnings$21.9 $31.7 $27.0 $65.3 
Diluted (loss) earnings per share$(0.06)$0.19 
Diluted earnings (loss) per shareDiluted earnings (loss) per share$0.15 $(2.64)$0.09 $(2.44)
Earnings per share non-GAAP reconciling adjustment
Earnings per share non-GAAP reconciling adjustment
0.11 0.16 
Earnings per share non-GAAP reconciling adjustment
0.08 2.97 0.19 3.12 
Non-GAAP diluted earnings per shareNon-GAAP diluted earnings per share$0.05 $0.35 Non-GAAP diluted earnings per share$0.23 $0.33 $0.28 $0.68 
Diluted average shares outstandingDiluted average shares outstanding91.4 94.3 Diluted average shares outstanding91.8 92.0 92.1 92.2 
Non-GAAP adjustment (5)
Non-GAAP adjustment (5)
3.3 2.0 
Non-GAAP adjustment (5)
3.1 3.4 2.7 3.6 
Non-GAAP diluted average shares outstanding (5)
Non-GAAP diluted average shares outstanding (5)
94.7 96.3 
Non-GAAP diluted average shares outstanding (5)
94.9 95.4 94.8 95.8 

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(1)    In addition to the GAAP financial measures included herein, Knowles has presented certain non-GAAP financial measures that exclude certain amounts that are included in the most directly comparable GAAP measures. Knowles believes that non-GAAP measures are useful as supplements to its GAAP results of operations to evaluate certain aspects of its operations and financial performance, and its management team primarily focuses on non-GAAP items in evaluating Knowles' performance for business planning purposes. Knowles also believes that these measures assist it with comparing its performance between various reporting periods on a consistent basis, as these measures remove from operating results the impact of items that, in Knowles' opinion, do not reflect its core operating performance. Knowles believes that its presentation of non-GAAP financial measures is useful because it provides investors and securities analysts with the same information that Knowles uses internally for purposes of assessing its core operating performance.
(2)    In 2023, Other expenses representrelate to non-recurring professional service fees incurred primarily in the second quarter including an evaluation of restructuring actions. In addition, Other expenses include the ongoing net lease cost related to facilities not used in operationsoperations. In 2022, Other expenses represent an adjustment to pre-spin-off pension obligations of $3.4 million, which was recorded during the second quarter of 2022 in Other expense (income), net line on the Consolidated Statements of Earnings, and the ongoing net lease cost related to facilities not used in operations.
(3)    Income tax effects of non-GAAP reconciling adjustments are calculated using the applicable tax rates in the jurisdictions of the underlying adjustments.
(4)    The non-GAAP reconciling adjustments are those adjustments made to reconcile (Loss) earningsEarnings (loss) before interest and income taxes to Adjusted earnings before interest and income taxes.
(5)    The number of shares used in the diluted per share calculations on a non-GAAP basis excludes the impact of stock-based compensation expense expected to be incurred in future periods and not yet recognized in the financial statements, which would otherwise be assumed to be used to repurchase shares under the GAAP treasury stock method.

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Segment Results of Operations for the Three Months Ended March 31,June 30, 2023 compared with the Three Months Ended March 31,June 30, 2022

The following is a summary of the results of operations of our three reportable segments: Precision Devices, Medtech & Specialty Audio, and Consumer MEMS Microphones.

See Note 14.15. Segment Information to the Consolidated Financial Statements for (i) a reconciliation of segment revenues to our consolidated revenues and (ii) a reconciliation of segment earnings before interest and income taxes to our consolidated earnings.

Precision Devices
Three Months Ended March 31, Three Months Ended June 30,
(in millions)(in millions)2023Percent of Revenues2022Percent of Revenues(in millions)2023Percent of Revenues2022Percent of Revenues
RevenuesRevenues$53.7 $55.7 Revenues$47.8 $59.5 
Earnings before interest and income taxesEarnings before interest and income taxes$10.7 19.9%$12.3 22.1%Earnings before interest and income taxes$4.8 10.0%$11.0 18.5%
Stock-based compensation expenseStock-based compensation expense0.9 0.7 Stock-based compensation expense1.1 0.7 
Intangibles amortization expenseIntangibles amortization expense1.4 1.5 Intangibles amortization expense1.4 1.4 
Other (1)
Other (1)
— 3.4 
Adjusted earnings before interest and income taxesAdjusted earnings before interest and income taxes$7.3 15.3%$16.5 27.7%
(1) 2022 expenses represent an adjustment to pre-spin-off pension obligations.
(1) 2022 expenses represent an adjustment to pre-spin-off pension obligations.
Adjusted earnings before interest and income taxes$13.0 24.2%$14.5 26.0%

Revenues

PD revenues were $53.7$47.8 million for the firstsecond quarter of 2023, compared with $55.7$59.5 million for the firstsecond quarter of 2022, a decrease of $2.0$11.7 million or 3.6%19.7%. Revenues decreased primarily due to lower demand from the industrial, distribution, and communication markets, partially offset by increased demand in the electric vehicle and medtech markets.

Earnings and Adjusted Earnings Before Interest and Income Taxes

PD EBIT was $10.7$4.8 million for the firstsecond quarter of 2023, compared with earnings of $12.3$11.0 million for the firstsecond quarter of 2022, a decrease of $1.6$6.2 million. EBIT margin for the firstsecond quarter of 2023 was 19.9%10.0%, compared to 22.1%18.5% for the firstsecond quarter of 2022. The decreases were primarily due to lower revenues and increased operating expenses,lower gross profit margin, partially offset by higher gross profit margins.the absence of adjustments to pre-spin-off pension obligations in 2023. The gross profit margin increasedecrease was primarily driven by a decrease in precious metal costs and product cost reductions.lower factory capacity utilization.

PD Adjusted EBIT was $13.0$7.3 million for the firstsecond quarter of 2023, compared with $14.5$16.5 million for the firstsecond quarter of 2022, a decrease of $1.5$9.2 million. Adjusted EBIT margin for the firstsecond quarter of 2023 was 24.2%15.3%, compared with 26.0%27.7% for the firstsecond quarter of 2022. The decreases were primarily due to lower revenues and increased operating expenses, partially offset by higherlower non-GAAP gross profit margins.margin. The non-GAAP gross profit margin increasedecrease was primarily driven by a decrease in precious metal costs and product cost reductions.lower factory capacity utilization.

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MedTech & Specialty Audio
Three Months Ended March 31, Three Months Ended June 30,
(in millions)(in millions)2023Percent of Revenues2022Percent of Revenues(in millions)2023Percent of Revenues2022Percent of Revenues
RevenuesRevenues$45.5 $59.5 Revenues$60.6 $61.6 
Earnings before interest and income taxesEarnings before interest and income taxes$11.4 25.1%$21.7 36.5%Earnings before interest and income taxes$23.6 38.9%$23.1 37.5%
Stock-based compensation expenseStock-based compensation expense0.9 0.7 Stock-based compensation expense0.8 0.7 
Adjusted earnings before interest and income taxesAdjusted earnings before interest and income taxes$12.3 27.0%$22.4 37.6%Adjusted earnings before interest and income taxes$24.4 40.3%$23.8 38.6%

Revenues

MSA revenues were $45.5$60.6 million for the firstsecond quarter of 2023, compared with $59.5$61.6 million for the firstsecond quarter of 2022, a decrease of $14.0$1.0 million or 23.5%1.6%. Revenues decreased primarily due to lower shipping volumes into the hearing health and premium audio marketsmarket as customers reduced their inventory levels.levels, partially offset by higher shipping volumes into the premium audio market.

Earnings and Adjusted Earnings Before Interest and Income Taxes

MSA EBIT was $23.6 million for the second quarter of 2023, compared with earnings of $23.1 million for the second quarter of 2022, an increase of $0.5 million or 2.2%. EBIT margin for the second quarter of 2023 was 38.9%, compared with 37.5% for the first quarter of 2022. The increases were primarily due to higher gross profit margins, partially offset by higher operating expenses. The higher gross profit margin was driven by product cost reductions, higher factory capacity utilization, and favorable foreign currency exchange rates.

MSA Adjusted EBIT was $24.4 million for the second quarter of 2023, compared with $23.8 million for the second quarter of 2022, an increase of $0.6 million. Adjusted EBIT margin for the second quarter of 2023 was 40.3%, compared to 38.6% for the second quarter of 2022. The increases were primarily due to higher non-GAAP gross profit margins, partially offset by higher operating expenses. The higher non-GAAP gross profit margin was driven by product cost reductions, higher factory capacity utilization, and favorable foreign currency exchange rates.

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Consumer MEMS Microphones
 Three Months Ended June 30,
(in millions)2023Percent of Revenues2022Percent of Revenues
Revenues$64.6 $66.9 
Earnings (loss) before interest and income taxes$6.3 9.8%$(239.3)(357.7)%
Stock-based compensation expense1.9 1.6 
Intangibles amortization expense1.5 1.6 
Impairment charges— 239.8 
Restructuring charges(1.1)— 
Other (1)
(0.2)— 
Adjusted earnings before interest and income taxes$8.4 13.0%$3.7 5.5%
(1) Other represents the ongoing net lease cost related to facilities not used in operations.

Revenues

CMM revenues were $64.6 million for the second quarter of 2023, compared with $66.9 million for the second quarter of 2022, a decrease of $2.3 million or 3.4%. Revenues decreased primarily due to lower average pricing on mature products, partially offset by higher demand in the ear and IoT markets.

Earnings (Loss) and Adjusted Earnings Before Interest and Income Taxes

CMM EBIT was $6.3 million for the second quarter of 2023, compared with a loss of $239.3 million for the second quarter of 2022, an increase of $245.6 million. The increase was primarily due to impairment charges in the second quarter of 2022 that did not recur in the second quarter of 2023, higher gross profit margins, and lower operating expenses, partially offset by lower revenues. The higher gross profit margin was driven by the gain on sale of fixed assets, benefits of prior year restructuring actions, product cost reductions, and favorable foreign currency exchange rates, partially offset by decreased factory capacity utilization and lower average pricing on mature products shipped into the mobile market.

CMM Adjusted EBIT was $8.4 million for the second quarter of 2023, compared with earnings of $3.7 million for the second quarter of 2022, an increase of $4.7 million. Adjusted EBIT margin for the second quarter of 2023 was 13.0%, compared to 5.5% for the second quarter of 2022. The increases were primarily due to higher non-GAAP gross profit margins and lower non-GAAP operating expenses, partially offset by lower revenues. The higher non-GAAP gross profit margin was driven by the gain on sale of fixed assets, benefits of prior year restructuring actions, product cost reductions, and favorable foreign currency exchange rates, partially offset by decreased factory capacity utilization and lower average pricing on mature products shipped into the mobile market.

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Segment Results of Operations for the Six Months Ended June 30, 2023 compared with the Six Months EndedJune 30, 2022

Precision Devices
 Six Months Ended June 30,
(in millions)2023Percent of Revenues2022Percent of Revenues
Revenues$101.5 $115.2 
Earnings before interest and income taxes$15.5 15.3%$23.3 20.2%
Stock-based compensation expense2.0 1.4 
Intangibles amortization expense2.8 2.9 
Other (1)
— 3.4 
Adjusted earnings before interest and income taxes$20.3 20.0%$31.0 26.9%
(1) 2022 expenses represent an adjustment to pre-spin-off pension obligations.

Revenues

PD revenues were $101.5 million for the six months ended June 30, 2023, compared with $115.2 million for the six months ended June 30, 2022, a decrease of $13.7 million or 11.9%. Revenues decreased primarily due to lower demand from the industrial, distribution, and communication markets, partially offset by increased demand in the electric vehicle market.

Earnings and Adjusted Earnings Before Interest and Income Taxes

PD EBIT was $15.5 million for the six months ended June 30, 2023, compared with earnings of $23.3 million for the six months ended June 30, 2022, a decrease of $7.8 million. EBIT margin for the six months ended June 30, 2023 was 15.3%, compared to 20.2% for the six months ended June 30, 2022. The decreases were primarily due to lower revenues, lower gross profit margin, and increased operating expenses, partially offset by the absence of adjustments to pre-spin-off pension obligations in 2023. The gross profit margin decrease was primarily driven by lower factory capacity utilization, partially offset by product cost reductions and a decrease in precious metal costs.

PD Adjusted EBIT was $20.3 million for the six months ended June 30, 2023, compared with $31.0 million for the six months ended June 30, 2022, a decrease of $10.7 million. Adjusted EBIT margin for the six months ended June 30, 2023 was 20.0%, compared with 26.9% for the six months ended June 30, 2022. The decreases were primarily due to lower revenues, lower non-GAAP gross profit margin, and increased non-GAAP operating expenses. The non-GAAP gross profit margin decrease was primarily driven by lower factory capacity utilization, partially offset by product cost reductions and a decrease in precious metal costs.

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MedTech & Specialty Audio
 Six Months Ended June 30,
(in millions)2023Percent of Revenues2022Percent of Revenues
Revenues$106.1 $121.1 
Earnings before interest and income taxes$35.0 33.0%$44.8 37.0%
Stock-based compensation expense1.7 1.4 
Adjusted earnings before interest and income taxes$36.7 34.6%$46.2 38.2%

Revenues

MSA revenues were $106.1 million for the six months ended June 30, 2023, compared with $121.1 million for the six months ended June 30, 2022, a decrease of $15.0 million or 12.4%. Revenues decreased primarily due to lower shipping volumes into the hearing health market as customers reduced their inventory levels, partially offset by higher shipping volumes into the premium audio market. In addition to lower end market demand, shipping volumes were unfavorably impacted this quarterperiod by financial incentives offered to customers resulting in higher shipping volumes in the fourth quarter of 2022.

Earnings and Adjusted Earnings Before Interest and Income Taxes

MSA EBIT was $11.4$35.0 million for the first quarter ofsix months ended June 30, 2023, compared with earnings of $21.7$44.8 million for the first quarter ofsix months ended June 30, 2022, a decrease of $10.3$9.8 million or 47.5%21.9%. EBIT margin for the first quarter ofsix months ended June 30, 2023 was 25.1%33.0%, compared with 36.5%37.0% for the first quarter ofsix months ended June 30, 2022. The decreases were primarily due to lower revenues, and lower gross profit margins. The lower gross profit margin, and higher operating expenses. The gross profit margin decrease was primarily driven by lower factory capacity utilization, unfavorable product mix, and inflationary impacts, partially offset by product cost reductions and favorable foreign currency exchange rate changes.mix.

MSA Adjusted EBIT was $12.3$36.7 million for the first quarter ofsix months ended June 30, 2023, compared with $22.4$46.2 million for the first quarter ofsix months ended June 30, 2022, a decrease of $10.1$9.5 million. Adjusted EBIT margin for the first quarter ofsix months ended June 30, 2023 was 27.0%34.6%, compared to 37.6%38.2% for the first quarter ofsix months ended June 30, 2022. The decreases were primarily due to lower revenues, and lower non-GAAP gross profit margins. The lower non-GAAP gross profit margin, and higher operating expenses. The gross profit margin decrease was primarily driven by lower factory capacity utilization, unfavorable product mix, and inflationary impacts, partially offset by product cost reductions and favorable foreign currency exchange rate changes.

mix.

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Consumer MEMS Microphones
Three Months Ended March 31, Six Months Ended June 30,
(in millions)(in millions)2023Percent of Revenues2022Percent of Revenues(in millions)2023Percent of Revenues2022Percent of Revenues
RevenuesRevenues$45.1 $86.2 Revenues$109.7 $153.1 
(Loss) earnings before interest and income taxes$(8.2)(18.2)%$0.5 0.6%
Loss before interest and income taxesLoss before interest and income taxes$(1.9)(1.7)%$(238.8)(156.0)%
Stock-based compensation expenseStock-based compensation expense1.7 1.9 Stock-based compensation expense3.6 3.5 
Intangibles amortization expenseIntangibles amortization expense1.5 1.6 Intangibles amortization expense3.0 3.2 
Impairment chargesImpairment charges— 239.8 
Restructuring chargesRestructuring charges0.8 6.6 Restructuring charges(0.3)6.6 
Other (1)
Other (1)
(0.4)0.3 
Other (1)
(0.6)0.3 
Adjusted (loss) earnings before interest and income taxes$(4.6)(10.2)%$10.9 12.6%
Adjusted earnings before interest and income taxesAdjusted earnings before interest and income taxes$3.8 3.5%$14.6 9.5%
(1) Other represents the ongoing net lease cost related to facilities not used in operations.
(1) Other represents the ongoing net lease cost related to facilities not used in operations.
(1) Other represents the ongoing net lease cost related to facilities not used in operations.

Revenues

CMM revenues were $45.1$109.7 million for the first quarter ofsix months ended June 30, 2023, compared with $86.2$153.1 million for the first quarter ofsix months ended June 30, 2022, a decrease of $41.1$43.4 million or 47.7%28.3%. Revenues decreased primarily due to lower demand for MEMS microphones in the mobile, IoT, computing, and earcomputing markets. The decreases in these markets were primarily driven by weak global demand for consumer electronics and excess inventory in the supply chain. In addition to lower end market demand, shipping volumes were unfavorably impacted this quarterperiod by financial incentives offered to customers resulting in higher shipping volumes in the fourth quarter of 2022. Revenues were also impacted by lower average pricing on mature products shipped into the mobile market.

(Loss) EarningsLoss and Adjusted (Loss) Earnings Before Interest and Income Taxes

CMM loss before interest and income taxes was $8.2$1.9 million for the firstsix months ended June 30, 2023, compared with a loss of $238.8 million for the six months ended June 30, 2022, an improvement of $236.9 million. The increase was primarily due to impairment charges in the second quarter of 2022 that did not recur in the second quarter of 2023 compared with earnings of $0.5 million for the first quarter of 2022, a decrease of $8.7 million. EBIT margin for the first quarter of 2023 was (18.2)%, compared with 0.6% for the first quarter of 2022. The decreases were primarily due toand lower revenues and gross profit margins,operating expenses, partially offset by lower restructuring chargesrevenues and lower operating expenses.gross profit margins. The lower gross profit margin was driven by decreased factory capacity utilization and lower average pricing on mature products shipped into the mobile marketand unfavorable product mix,, partially offset by the benefits of prior year restructuring actions, andthe gain on sale of fixed assets, product cost reductions, and favorable foreign currency exchange rates.

CMM Adjusted loss before interest and income taxesEBIT was $4.6$3.8 million for the first quarter ofsix months ended June 30, 2023, compared with earnings of $10.9$14.6 million for the first quarter ofsix months ended June 30, 2022, a decrease of $15.5$10.8 million. Adjusted EBIT margin for the first quarter ofsix months ended June 30, 2023 was a loss of 10.2%3.5%, compared to earnings of 12.6%9.5% for the first quarter ofsix months ended June 30, 2022. The decreases were primarily due to lower revenues and non-GAAP gross profit margins, partially offset by lower non-GAAP operating expenses. The lower non-GAAP gross profit margin was driven by decreased factory capacity utilization and lower average pricing on mature products shipped into the mobile marketand unfavorable product mix,, partially offset by the benefits of prior year restructuring actions, andthe gain on sale of fixed assets, product cost reductions.reductions, and favorable foreign currency exchange rates.

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Liquidity and Capital Resources

Historically, we have generated and expect to continue to generate positive cash flow from operations. Our ability to fund our operations and capital needs will depend on our ongoing ability to generate cash from operations and access to capital markets. We believe that our future cash flow from operations and access to capital markets will provide adequate resources to fund our working capital needs, capital expenditures, strategic investments, and share repurchases. We have secured a revolving line of credit in the United States from a syndicate of commercial banks to provide additional liquidity. Furthermore, if we were to require additional cash above and beyond our cash on the balance sheet, the free cash flow generated by the business, and availability under our revolving credit facility, we would most likely seek to raise long-term financing through the U.S. debt or bank markets.

Due to the global nature of our operations, a significant portion of our cash is generated and typically held outside the United States. Our cash and cash equivalents totaled $52.0$54.4 million and $48.2 million at March 31,June 30, 2023 and December 31, 2022, respectively. Of these amounts, cash held by our non-U.S. operations totaled $44.9$45.2 million and $40.0 million as of March 31,June 30, 2023 and December 31, 2022, respectively. To the extent we repatriate these funds to the U.S., we may be required to pay U.S. state income taxes and applicable foreign withholding taxes on those amounts during the period when such repatriation occurs. Management will continue to reassess our need to repatriate the earnings of our foreign subsidiaries.

On February 8, 2023, we entered into an Amended and Restated Credit Agreement (the "A&R Credit Agreement") that amends and restates the prior Credit Agreement (the "2020 Credit Agreement"), which 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. As of March 31,June 30, 2023, outstanding borrowings under the Credit Facility were $45.0 million. At any time during the term of the Credit Facility, we will be permitted to increase the commitments under the Credit Facility or to establish one or more incremental term loan facilities under the New Credit Facility in an aggregate principal amount not to exceed $200.0 million for all such incremental facilities. Commitments under the Credit Facility will terminate, and loans outstanding thereunder will mature, on February 8, 2028. For additional information, refer to Note 8.9. Borrowings to our Consolidated Financial Statements.

On February 24, 2020, we announced that our Board of Directors had authorized a share repurchase program of up to $100 million of our common stock. On April 28, 2022, we announced that our 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 us based on our 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. We are 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 our common stock, general market and economic conditions, and applicable legal requirements. Any shares repurchased will be held as treasury stock. During the threesix months ended March 31,June 30, 2023 and 2022, we repurchased 433,759733,438 shares and 313,3951,249,495 shares of common stock, respectively, for a total of $7.5$12.5 million and $6.8$25.4 million, respectively.

Cash flows from operating, investing, and financing activities as reflected in our Consolidated Statements of Cash Flows are summarized in the following table:
Three Months Ended March 31, Six Months Ended June 30,
(in millions)(in millions)20232022(in millions)20232022
Net cash flows provided by (used in):Net cash flows provided by (used in):  Net cash flows provided by (used in):  
Operating activitiesOperating activities$21.9 $0.8 Operating activities$22.4 $20.4 
Investing activitiesInvesting activities(3.9)(6.8)Investing activities4.2 (14.6)
Financing activitiesFinancing activities(14.3)(12.0)Financing activities(20.1)(26.2)
Effect of exchange rate changes on cash and cash equivalentsEffect of exchange rate changes on cash and cash equivalents0.1 (0.2)Effect of exchange rate changes on cash and cash equivalents(0.3)(0.8)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents$3.8 $(18.2)Net increase (decrease) in cash and cash equivalents$6.2 $(21.2)




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Operating Activities

Cash provided by operating activities adjusts net earnings for certain non-cash items, including impairment charges, depreciation expense, amortization of intangible assets, stock-based compensation, changes in deferred income taxes, and the effects of changes in operating assets and liabilities. The increase in cash provided by operating activities in the first quarter of 2023 as compared to the first quarter of 2022 wasis primarily due to the favorable changesan improvement in working capitalcapital and lower incentive compensation payments in 2023, partially offset by lower net earnings.earnings, after adjusting for non-cash expense items. The favorable changes in working capital in 2023 were primarily driven by an increase in accounts payable and a decreasereduction in accounts receivable, partially offset by an increase in inventories related to last time buy requirements as we transition our products into new technology platforms.inventories.

Investing Activities

The cash provided by investing activities during 2023 was primarily driven by proceeds from the sale of certain machinery and equipment. The cash used in investing activities during 2023 and 2022 was primarily driven by cash used for capital expenditures to support product innovation and cost savings.

In 2023, we expect capital expenditures to be in the range of 4%3% to 5%4% of revenues.

Financing Activities

Cash used in financing activities during 2023 was primarily related to the $7.5$12.5 million of repurchases of common stock, the $6.0$6.1 million payment of taxes related to net share settlement of equity awards, and the $1.6$1.9 million payment of debt issuance costs, partially offset by proceeds of $1.4$1.6 million from the exercise of options. Cash used in financing activities during 2022 was primarily related to the $6.8$25.4 million of repurchases of common stock and the $6.1$6.2 million payment of taxes related to net share settlement of equity awards, partially offset by proceeds of $3.9$6.0 million from the exercise of options.

Contingent Obligations

We are involved in various legal proceedings, claims, and investigations arising in the ordinary course of business. Legal contingencies are discussed in Note 13.14. Commitments and Contingent Liabilities to our Consolidated Financial Statements.

Critical Accounting Estimates

This discussion and analysis of results of operations and financial condition is based on our Consolidated Financial Statements, which have been prepared in conformity with U.S. GAAP. The preparation of these financial statements requires the use of estimates and assumptions related to the reporting of assets, liabilities, revenues, expenses, and related disclosures. In preparing these financial statements, we have made our best estimates and judgments of certain amounts included in the financial statements. Estimates are revised periodically. Actual results could differ from these estimates.

The information concerning our critical accounting estimates can be found under Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission on February 9, 2023. There are no material changes in our previously reported critical accounting estimates.

Recent Accounting Standards

As included in Note 2. Recent Accounting Standards to our Consolidated Financial Statements, there are no recently issued or adopted accounting standards that have had or are not expected to have a significant impact on our revenue, earnings, or liquidity.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

During the threesix months ended March 31,June 30, 2023, there were no material changes to the information on market risk exposure disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022. For a discussion of our exposure to market risk as of December 31, 2022, refer to Item 7A, Quantitative and Qualitative Disclosures about Market Risk, contained in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management has evaluated, under the supervision and with the participation of our chief executive officer ("CEO") and chief financial officer ("CFO"), the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on that evaluation, our CEO and CFO have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that information required to be disclosed in our Exchange Act reports is (1) recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the firstsecond quarter of 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls

Our management, including the CEO and CFO, do not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, will be detected. These inherent limitations include the realities that judgments in decision making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by intentionally falsified documentation, by collusion of two or more individuals within Knowles or third parties, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

For a discussion of contingencies related to legal proceedings, see Note 13.14. Commitments and Contingent Liabilities to our Consolidated Financial Statements, which is incorporated herein by reference.

Except as otherwise noted above, there have been no material developments in legal proceedings.

Item 1A. Risk Factors

There have been no material changes from the risk factors previously disclosed under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

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.

Below is a summary of share repurchases for the three months ended March 31,June 30, 2023:

(in millions, except share and per share amounts)(in millions, except share and per share amounts)(in millions, except share and per share amounts)
PeriodPeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramApproximate Dollar Value of Shares That May Yet Be Purchased Under The ProgramPeriodTotal Number of Shares PurchasedAverage Price Paid per ShareTotal Number of Shares Purchased as Part of Publicly Announced ProgramApproximate Dollar Value of Shares That May Yet Be Purchased Under The Program
February 2023433,759$17.28 433,759$137.7 
May 2023May 2023299,679$16.68 299,679$132.7 

Item 5. Other Information

Director and Officer Trading Plans and Arrangements
Name (Title)Action TakenDate of ActionType of Trading ArrangementTotal Number of Shares of Common Stock to be Purchased or Sold Pursuant to Trading ArrangementExpiration Date
Rule 10b5-1*Non-Rule 10b5-1**
Jeffrey Niew
(President & Chief Executive Officer)
Adopt5/12/2023XUp to 125,000 Shares to be Sold12/29/2023
John Anderson
(Senior Vice President & Chief Financial Officer)
Adopt5/25/2023XUp to 20,000 Shares to be Sold1/31/2024
Daniel Giesecke
(Senior Vice President & Chief Operating Officer)
Adopt5/31/2023XUp to 10,075 Shares to be Sold2/9/2024
* Intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)
** Not intended to satisfy the affirmative defense of Rule 10b5-1(c)
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Item 6. Exhibits
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  
Joint Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following financial information from Knowles Corporation's Quarterly Report on Form 10-Q for the quarterly period ended March 31,June 30, 2023 formatted in Inline XBRL: (i) Consolidated Statements of Earnings (Unaudited) for the three and six months ended March 31,June 30, 2023 and 2022, (ii) Consolidated Statements of Comprehensive Earnings (Unaudited) for the three and six months ended March 31,June 30, 2023 and 2022, (iii) Consolidated Balance Sheets (Unaudited) as of March 31,June 30, 2023 and December 31, 2022, (iv) Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended March 31,June 30, 2023 and 2022, (v) Consolidated Statements of Cash Flows (Unaudited) for the threesix months ended March 31,June 30, 2023 and 2022, and (vi) the Notes to the Consolidated Financial Statements (Unaudited) tagged as blocks of text and including detailed tags.
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,June 30, 2023, formatted in Inline XBRL and contained in Exhibit 101.



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Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 KNOWLES CORPORATION
  
Date:MayAugust 2, 2023/s/ John S. Anderson
 John S. Anderson
 Senior Vice President & Chief Financial Officer
 (Principal Financial Officer)

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