Knowles Corp Earnings Call Signals Profitable Growth

Knowles Corporation ((KN)) has held its Q1 earnings call. Read on for the main highlights of the call.

Knowles Corporation’s latest earnings call struck an upbeat tone as management highlighted strong revenue and earnings growth, healthier margins, and a robust demand backdrop. Executives acknowledged some near-term cost and cash flow headwinds, but framed them as largely temporary investments tied to large orders and capacity ramps, leaving the overall narrative firmly positive for shareholders.

Strong Top-Line and EPS Growth

Knowles posted Q1 revenue of $153 million, up 16% year over year and at the high end of guidance, signaling solid demand across its portfolio. Adjusted EPS climbed 50% to $0.27, beating the top of the guided range and underscoring the earnings leverage emerging from higher volumes and better cost discipline.

Precision Devices Drives Segment Momentum

Precision Devices delivered standout Q1 revenue of $85 million, a 17% increase from a year earlier, with broad-based strength across medtech, defense, industrial, and electrification end markets. A book-to-bill ratio of 1.19 marked the sixth straight quarter above 1, pointing to sustained order momentum and a growing backlog that supports visibility into future growth.

MedTech & Specialty Audio Growth Rebounds

The MedTech & Specialty Audio segment generated Q1 revenue of $68 million, up 14% year on year, reflecting strong customer new product launches and higher hearing health shipments. The rebound in demand in this segment adds diversification to the growth story and complements the momentum in Precision Devices.

Gross Margin Expansion Across the Portfolio

Company-wide profitability benefited from sharp margin gains, with MedTech & Specialty Audio gross margin at 53.5%, up 480 basis points from last year, though management expects this to normalize around 51% in 2026. Precision Devices gross margin improved to 39.2%, up 350 basis points, helped by improved pricing and better factory utilization as volumes scale.

Guidance and Back-Half Upside

For Q2, management guided revenue to $152 million–$162 million, implying roughly 8% growth at the midpoint, along with an adjusted EBIT margin of 20%–22% and EPS of $0.28–$0.32. Executives also signaled that full-year 2026 revenue should grow above their previous organic targets, with adjusted EBITDA rising faster than the prior 10%–14% annual goal.

Energy Order and Specialty Film Ramp

Knowles is ramping execution on a large energy contract, with more than $25 million of that order expected to be fully ramped by the end of Q2 and to contribute meaningfully in the back half of 2026. Management expects this ramp, particularly in specialty film products, to add roughly 200–250 basis points of incremental margin to Precision Devices versus current levels once fully absorbed.

Strong Liquidity and Conservative Leverage

The company ended Q1 with $41 million in cash and $131 million drawn on its revolving credit facility, equating to net leverage of just 0.6x trailing adjusted EBITDA. Total liquidity exceeded $310 million when including undrawn revolver capacity, giving Knowles financial flexibility to fund growth initiatives and navigate cyclical swings.

Capital Allocation and Investment in Capacity

Management continued to return capital to shareholders, repurchasing 276,000 shares for $7.5 million during the quarter. At the same time, Q2 capex is guided to $8 million, with full-year capital expenditure expected to run about 4%–5% of revenue, largely to expand capacity tied to large orders in Precision Devices.

Operating Cash Usage and Legacy Outflows

Operating activities used $1 million of cash in Q1, a modest drawdown in the context of the growth ramp. Management noted that roughly $8 million of this reflected payments tied to a previously divested business, and emphasized these legacy outflows are now substantially complete, suggesting cash generation should improve going forward.

Short-Term Margin Drag from Specialty Film

While Precision Devices margins improved overall, higher factory costs in the specialty film product line weighed on profitability as the company ramped production to support the large energy program. Management framed these as transitional ramp costs that should subside as volumes increase and the new capacity is more fully utilized.

Higher Operating Expenses to Support Growth

R&D expenses rose to $10 million, up $1.4 million year over year, while SG&A climbed to $28 million, an increase of about $3 million. The company attributed these higher costs to greater sales commissions, timing of certain expenses, and additional headcount in Precision Devices necessary to support the stronger growth pipeline.

MSA Growth and Margin Outlook Moderated

Despite the strong start to the year, management tempered expectations for the MedTech & Specialty Audio segment, now targeting full-year 2026 revenue growth of just 2%–4%. They also expect MSA gross margins to hover around 51%, roughly flat with 2025 levels, indicating that the Q1 margin spike is unlikely to be sustained.

Balance Sheet Mix and Labor Needs

Although leverage remains low, the $131 million of revolver borrowings against only $41 million of cash leaves Knowles somewhat more reliant on credit lines than peers with larger cash cushions. Management also expects to add more direct labor as volumes ramp, particularly in Precision Devices and specialty film, creating near-term hiring and training costs even though incremental equipment needs should be limited.

Forward Guidance and Outlook

Looking ahead, Knowles projects Q2 2026 EPS between $0.28 and $0.32 and anticipates generating $20 million–$30 million of operating cash flow, while keeping R&D at $9 million–$11 million and SG&A at $26 million–$28 million. For the full year, leadership expects revenue growth above the high end of prior targets and further margin expansion driven by Precision Devices and the ramp of large energy-related orders.

Knowles’ earnings call painted the picture of a company entering a stronger growth phase, with both revenue and earnings trending ahead of prior expectations and margin expansion gathering pace. While higher costs, lower cash, and ramp-related headwinds bear watching, the combination of solid demand, conservative leverage, and a growing backlog positions the stock as an intriguing play on medtech, defense, and energy electrification themes.