10-Q: Knowles Corp. Q1 2026 Earnings Show Revenue Growth

Knowles Corporation reported a strong first quarter for 2026, with revenues increasing by 15.8% year-over-year, driven by robust demand in its Precision Devices and MedTech & Specialty Audio segments.

Summary

• Knowles Corporation reported first quarter 2026 revenues of $153.1 million, a 15.8% increase from $132.2 million in the first quarter of 2025.
• Net earnings from continuing operations were $11.3 million, a significant improvement from a loss of $0.4 million in the prior year's quarter.
• Gross profit margin improved to 43.8% from 40.3% in the prior year, attributed to higher volumes, cost reductions, and improved capacity utilization.
• The company's Precision Devices segment saw a 17.4% revenue increase, while the MedTech & Specialty Audio segment grew by 13.9%.
• Adjusted EBIT from continuing operations increased by $8.4 million to $30.1 million, with an improved margin of 19.7%.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this filing positively due to strong revenue growth, improved profitability, and healthy segment performance, indicating a solid operational quarter.

Positives

• Revenue increased by 15.8% to $153.1 million in Q1 2026 compared to Q1 2025.
• Net earnings from continuing operations improved to $11.3 million from a loss of $0.4 million.
• Gross profit margin expanded to 43.8% from 40.3%.
• Both Precision Devices (17.4% revenue growth) and MedTech & Specialty Audio (13.9% revenue growth) segments showed strong performance.
• Adjusted EBIT from continuing operations increased by $8.4 million to $30.1 million, with a margin of 19.7%.
• The company expects to remain in compliance with all debt covenants over the next twelve months.
• Cash and cash equivalents stood at $41.0 million at the end of Q1 2026.

Negatives

• Net cash used in operating activities was $0.7 million for Q1 2026, compared to $1.3 million provided in Q1 2025.
• Adjusted free cash flow was negative $3.1 million in Q1 2026, a decrease from $18.3 million in Q1 2025.
• Other expense, net, increased significantly to $3.4 million in Q1 2026, primarily due to unfavorable foreign currency exchange rate changes.
• Restructuring charges were $0.2 million in Q1 2026, compared to $2.9 million in Q1 2025.

Risks

• Fluctuations in operating results and cash flows.
• Risks associated with increasing inventories in advance of anticipated orders.
• Escalating international trade tensions, new or increased tariffs, and trade wars.
• The impact of changes to laws and regulations affecting the company's ability to offer products or services.
• Disruption caused by a cybersecurity incident, including cyber attacks or breaches.
• Increases in the costs of critical raw materials and components, and their availability.
• Managing new product ramps and introductions.
• Dependence on a limited number of large customers.
• Increasing competition and new market entrants.
• Global economic instability, including inflation and rising interest rates.
• Potential impairment of intangible or long-lived assets due to a sustained decline in stock price.
• Market risk associated with fluctuations in commodity prices.
• Changes in tax laws, tax rates, and exposure to additional tax liabilities.

Future Outlook

The company expects to remain in compliance with all of its debt covenants over the next twelve months. Capital expenditures in 2026 are expected to be in the range of 4% to 5% of revenues.

Management Comments

• Revenues for the first quarter of 2026 were $153.1 million, compared with $132.2 million for the first quarter of 2025, an increase of $20.9 million or 15.8%.
• The increases in gross profit and gross profit margin were primarily due to higher shipping volumes, company-wide product cost reductions, favorable product mix in our MSA business, and increased factory capacity utilization.
• The increases in EBIT and EBIT margin were due to higher gross profit, partially offset by higher operating expenses driven by higher commissions and additional headcount to support future growth.

Industry Context

StockSavvy.ai notes that Knowles Corporation's performance in Q1 2026, with significant revenue growth and improved profitability, aligns with a general trend of recovery and demand in the specialty electronic components market, particularly in industrial, defense, and medtech sectors. Competitors in these areas may face similar pressures regarding raw material costs and supply chain management.

Comparison to Industry Standards

• The reported gross profit margin of 43.8% and non-GAAP gross profit margin of 45.5% for Q1 2026 are strong indicators for the specialty electronic components industry, often outperforming broader semiconductor markets.
• The revenue growth of 15.8% is robust and suggests Knowles is capturing market share or benefiting from strong end-market demand, potentially exceeding the average growth rates seen in segments like industrial electronics or medical devices.
• The Adjusted EBIT margin of 19.7% indicates efficient operational management, which is a key benchmark for profitability in the highly competitive electronics manufacturing sector.

Legal Proceedings

• The company is involved in various legal proceedings and claims arising in the ordinary course of business, including commercial, warranty, employment, and intellectual property matters.
• The company believes the disposition of these matters will not have a material adverse effect on its financial condition.
• The company is involved in protecting and defending its patents and intellectual property, which may lead to retaliatory legal proceedings.

Related Party Transactions

• The company received Series D-2 preferred stock of Syntiant Corp. as partial consideration for the sale of the CMM business.
• The company provided financing of $6.4 million to Syntiant.
• The company shares certain separation costs with Syntiant.
• The company leases portions of its facilities to Syntiant.
• The company subleases portions of its manufacturing facilities to Syntiant at cost.

Stakeholder Impact

• Shareholders benefit from improved financial performance and potential for increased shareholder value.
• Employees may see continued investment in development activities and headcount growth in certain segments.
• Customers benefit from the company's ability to deliver innovative solutions and enhanced product performance.
• Suppliers may experience increased demand due to higher shipping volumes.
• Creditors are assured of the company's compliance with debt covenants and expected positive cash flow.

Next Steps

• Continue to monitor capital expenditures, which are expected to be 4% to 5% of revenues in 2026.
• Manage working capital effectively to improve cash flow from operations.
• Pursue potential tariff refunds following the Supreme Court ruling.

Key Dates

Recommendation

While the Q1 2026 results show significant improvement and revenue growth, the negative adjusted free cash flow and increased other expenses due to foreign currency fluctuations warrant a cautious approach. The company's ability to sustain this growth and improve cash generation will be key factors for a stronger recommendation.

Keywords

Knowles Corporation, Form 10-Q, Quarterly Report, Financial Results, Revenue Growth, Precision Devices, MedTech, Specialty Audio, Earnings, EBIT, Non-GAAP