Knowles (NYSE:KN) reported first-quarter financial results on Thursday. The transcript from the company’s first-quarter earnings call has been provided below.
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Summary
Knowles reported strong Q1 2026 results with revenue of $153 million, up 16% year-over-year, and EPS of $0.27, up 50% year-over-year, both exceeding guidance.
MedTech and Specialty Audio (MSA) revenue grew by 14% year-over-year to $68 million, driven by new product introductions, with full-year 2026 growth expected in the 2-4% range.
Precision Devices segment saw a 17% year-over-year revenue increase to $85 million, with strong demand across MedTech, defense, industrial, and electrification markets.
The company anticipates continued strong organic growth and margin expansion throughout 2026, with revenues projected to exceed the high end of their 4-6% organic growth target.
Q2 2026 guidance includes revenues between $152 and $162 million, EPS between $0.28 and $0.32, and cash from operating activities of $20 to $30 million.
Management highlighted robust demand in defense markets, particularly driven by ongoing OEM investments and replenishment needs related to geopolitical conflicts.
The company is executing on a strategy to leverage unique technologies for custom solutions, enabling it to command premium margins across high-growth markets.
Full Transcript
OPERATOR
Thank you for standing by. My name is Prayla and I will be your conference operator today. At this time I would like to welcome everyone to The Knowles Corporation Q1 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After this speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, please press STAR followed by the number one again. Thank you. I would now like to turn the conference over to Sarah Cook. You may begin.
Sarah Cook (Vice President of Investor Relations)
Thank you and welcome to our first quarter 2026 earnings call. I’m Sarah Cook, Vice President of Investor Relations and presenting with me today are Jeffrey New, our President and CEO, and John Anderson, our Senior Vice President and cfo. Our call today will include remarks about future expectations, plans and prospects for Knowles, which constitute forward looking statements for purposes of the safe harbor provisions under applicable federal security laws. Forward looking statements in this call will include comments about demand for company products, anticipated trends in company sales, expenses and profits, and involve a number of risks and uncertainties that could cause actual results to differ materially from current expectations. The Company urges investors to review the risks and uncertainties in the Company’s SEC filings, including but not limited to the annual report on Form 10K for the fiscal year ended December 31, 2025, periodic reports filed from time to time with the SEC, and the risks and uncertainties identified in today’s earnings release. All forward looking statements are made as of the date of this call and NOLS disclaims any duty to update such statements except as required by law. In addition, pursuant to Regulation G, any non GAAP financial measures referenced during today’s conference call can be found in our press release posted on our [email protected] and in our current report on Form 8K filed today with the SEC. This will include a reconciliation to the most directly comparable GAAP measure. All financial references on this call will be on a non GAAP continuing operations basis with the exception of cash from operations or unless otherwise indicated. We’ve made select financial information available in webcast slides which can be found in the Investor Relations section of our website. With that, let me turn the call over to Jeff who will provide details on our results.
Jeffrey New (President and CEO)
Jeff thanks Sarah. Thanks to all of you for joining us today. We started 2026 with solid financial results in Q1 and great momentum entering the rest of the year. Our strategy of leveraging our unique technologies to design custom engineered solutions and then delivering them at scale for blue chip customers and in high growth markets. That value our solutions is proving to be a powerful combination. We had strong organic growth in the first quarter as we delivered revenue of 153 million up 16% year over year at the high end of our guided range. EPS of $0.27, up 50% year over year exceeded the high end of our guided range and cash utilized in operations of 1 million was within our guided range. Now on to our Segment results in Q1, MedTech and Specialty Audio revenue was 68 million up 14% year over year. Our customers new product introductions coupled with our position on these platforms have led to stronger than expected growth in the first quarter. Knowles continues to demonstrate our ability to deliver unique solutions with superior technology and reliability. Our customers have come to depend on MSA’s first quarter revenue grew well above our annual organic growth target of 2 to 4%. However, the hearing health end market is expected to continue to grow at normal historical rates in 2026. Therefore, we are projecting Medtech and Specialty Audio will grow within the 2 to 4% range for the full year 2026. Beyond 2026 we are positioned well to win next generation designs for MEMS microphones and balanced armature speakers. As I said during our year end call we also see the prospect to increase our content for device in next generation hearing health products and expand our reach with our microsolutions group which provides the opportunity in the future to increase growth rates above the historical rates. In the precision device segment, Q1 revenues was 85 million up 17% year over year. With all our end markets we serve MedTech, Defense, Industrial and electrification growing on a year over year basis. Let me share a couple highlights driving growth in our end markets this quarter we saw strength in the defense market across our product families. Our capacitors were in demand supporting ongoing OEM investments in defense programs, new products, starting production and share gains. We also saw broad based orders our RF microwave products as we continue to be a sole supplier on a number of key defense programs. Additionally, we do expect increasing demand in 2027 and beyond driven by the replenishment of stocks in connection with the Iran conflict. In the industrial market, demand continued to grow with strong order activity across a wide range of our capacitor products supporting a multitude of applications and industries at both our distribution partners and OEMs. As an example, our ceramic capacitors were in high demand in the semiconductor equipment market and also for use in downhole applications. Additionally, with inventory challenges we saw behind saw last year behind us, we believe our distributor partners orders are aligned with end market demand. In addition to the strong shipments we saw in the first quarter, our book to build in precision devices was very strong at 1.19. This ordering pattern was broad based and this marked the sixth consecutive quarter where the book to build was greater than one. We see ordering strength across all our end markets both at OEMs and with our distribution partners. A robust pipeline of new design wins coupled with favorable secular trends gives me confidence in our ability to continue to grow revenue and above the high end of the organic growth target of 6 to 8% for Precision Devices in 2026. I continue to be excited by the strength of our business and the momentum we exited the first quarter with. We are well positioned for continued strong organic revenue growth and margin expansion through 2026. We believe this momentum is sustainable for two key reasons. First, our portfolio of businesses are well positioned to in markets with strong secular growth trends. Whether it be defense, medical, industrial or electrification. The secular drivers of growth in these markets is forecasted to be positive for the foreseeable future. Second, we design high performance customized solutions for our customers that have demanding applications and we have the manufacturing capabilities that allow us to ramp up these solutions quickly and efficiently. This combination differentiates us, allowing us to garner premium margins for the products we produce. This is proving to be a winning combination. Before I turn the call over to John to cover our financial results and provide our Q2 guidance, I would like to reiterate what I’ve said on previous calls. I believe Knowles has entered a period of accelerated organic growth with a very healthy backlog of existing orders. We now expect our revenue growth in 2026 to to be above the high end of our target organic revenue target of 4 to 6% that we provided at our Investor Day in May of last year. Our strategy of leveraging our unique technologies to design custom engineered solutions and then deliver them at scale for blue chip customers in high growth markets. That value our solutions is proving to be a powerful combination driving revenue growth, expanding margins and strong cash flow to drive shareholder value. Now let me turn the call over to John for our financial results and our Q2 guidance.
John Anderson (Senior Vice President and CFO)
Thanks Jeff. We reported first quarter revenues of 153 million 16% from the year ago period and at the high end of our guidance range. EPS was $0.27, in the quarter, up $0.09 or 50% from the year ago period and above the midpoint of our guidance range. Cash utilized by operating activities was 1 million within our guidance range in the MedTech and Specialty Audio segment Q1 revenue was 68 million, up 14% compared with a year ago period driven by increased hearing health shipments associated with our customers successful new product introductions. Q1 gross margins were 53.5%, up 480 basis points from the year ago period driven by both increased federal factory capacity utilization and favorable mix. For full year 2026, we expect MSA gross margins to be in line with 2025 margins of 51%. The Precision Devices segment delivered first quarter revenues of 85 million, up 17% from the year ago period driven by broad based strength across medtech, defense and industrial end markets segment gross margins were 39.2%, up 350 basis points from the first quarter of 2025 as improved pricing and higher end market demand is driving increased factory capacity utilization. These improvements were partially offset by higher factory costs in our specialty film product line as we ramp up production capacity to support our 75 million plus energy order. While we delivered significant year over year margin improvement in the first quarter, I’m confident in our ability to further improve precision device gross margins in the second half of 2026 as we increase production volume in our specialty film line. On a total company basis, R and D expense in the quarter was 10 million, up 1.4 million compared to Q1 2025. On higher project spending in both MSA and PD Segments, SGA expenses were 28 million, up 3 million from prior year levels driven primarily by higher sales commission, timing of expenses and additional headcount within the precision Device segment to support future revenue growth including new product initiatives. Interest expense for the quarter was 2 million 1 million lower than last year due to lower average debt balances. Now I’ll turn to our balance sheet and cash flow. In the first quarter we utilized 1 million in cash from operating activities and capital spending was 11 million. Cash from operations includes 8 million in outflows related to the CMM business which was divested at the end of 2024. Payments related to the CMM business are now substantially complete. During the first quarter we repurchased 276,000 shares at a total cost of 7.5 million. We exited the quarter with cash of 41 million and 131 million of borrowings under our revolving credit facility. Lastly, our net leverage ratio based on trailing twelve months adjusted EBITDA was 0.6 times and we have liquidity of more than 310 million as measured by cash plus unused capacity under our revolving credit facilities. Moving to our Q2 guidance for the second quarter of 2026 revenues are expected to be between 152 and 162 million, up 8% year over year. At the midpoint, R and D expenses are expected to be between 9 and 11 million. Selling and administrative expenses are expected to be within the range of 26 to 28 million. We’re projecting adjusted EBIT margin for the quarter to be within the range of 20 to 22%. Interest expense in Q2 is estimated at 2 million and we expect an effective tax rate of 15 to 19%. We’re projecting EPS to be within a range of 28 to 32 cents per share, up 6 cents or 25% year over year at the midpoint. This assumes weighted average shares outstanding during the quarter of 87 million on a fully diluted basis. We’re projecting cash from operating activities to be within the range of 20 to 30 million. Capital spending is expected to be 8 million. We expect full year capital spending to be approximately 4 to 5% of revenues as we continue to make investments in the first half of this year associated with capacity expansion related to the large energy order we received in 2025. We’ve started 2026 with significant year over year revenue and earnings growth and we have positive momentum entering the remainder of the year. Our first quarter performance combined with a robust backlog and increased order activity throughout the first four months of the year give me confidence in our ability to deliver an increase in 2026 adjusted EBITDA above our cumulative annual growth target of 10 to 14%. I’ll now turn the call back over to the operator for the Q and a portion of our call. Operator.
OPERATOR
Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, simply press a star followed by the number one on your telephone keypad to raise your hand and join the queue. And if you would like to withdraw your question, please simply press the star one. Again, your first question comes from the line of Christopher Roland with Susquehanna. Please go ahead.
Christopher Roland (Equity Analyst)
Hey guys, thanks for the question and congrats on the results. So in your press release I think you mentioned numerous design wins across multiple end markets. And Jeff, you might have addressed this fully in your prepared remarks. I’m not sure. But if you didn’t, if you could highlight perhaps those products, the applications kind of how you view the lifetime value just broadly of these sockets, all of that would be appreciated.
Jeffrey New (President and CEO)
Yeah, I mean, Chris, I wish I could sit there and point to one specific one, you know, I mean, the one obviously that, you know, that we continue to ramp on or work on is the energy order, which, you know, will be fully ramped up at the end of Q2. So that’s not a significant contributor in Q1, but it’s very broad based, you know, whether it be in medical, you know, we have a lot of applications, you know, relative to wearable type devices. You can go into industrial and we have a lot of things going on in downhole applications. A lot of good stuff going on there. Defense, I would characterize just briefly, you know, orders are up. There’s no doubt orders are up, but the level of activity, you know, relative to everything that’s going on in the globe is like really high. And so you’re going to see, we think in defense some strength in 27, you know, 26, rather, that’s probably stronger than we expected. But you know, 27 looks to be shaping up to be even better for defense. And so overall, you know, I think we’re executing on this concept of that we built out an engineering team that can customize to solve really hard problems across these applications and then we can scale the production very quickly on these customized solutions. And it’s just very broad based, what we’re seeing.
Christopher Roland (Equity Analyst)
Excellent. And then maybe. John, a question for you. You know, gross margin expansion, you talked about that. I think you talked about pricing, favorable pricing. Maybe if you can talk about pricing increases, whether you put them on or, or whether you have an ability to increase price from here and then just more broadly the drivers of gross margin beyond pricing, I think you talked about ramping the specialty film line, which is great. Any other things to think about on gross margin and drivers?
Jeffrey New (President and CEO)
There would be great. Chris, let me take the pricing question and I’ll let John cover the other drivers of gross margin expansion. I mean, I think more and more, Chris, what we’re starting to realize as we go through this journey is that and we have a lot of very strong positions and we’re looking at this on a regular basis. And I would say it’s more specific to the PD business, you know, where, where, you know, we have a lot of different applications, a lot of different customers and you know, pricing strategies becoming a big part of our opportunity every single year, you know, and I would sit there and say, you know, the things that we’ve done, you know, should lead us in that, you know, you know, 2 to 4% in the PE business on price a year, somewhere in that range yet we should be able to garner, you know, it’s a little different in the MSA business. You know, I Think, you know, we have a very limited customer base. We have very strong margins in that business. So we aren’t really seeing like pricing increases that business. Hence why we’re sitting there saying that the gross margins are not expected to expand. But I think, you know, John can talk a little more about it. Pricing is one piece, but there’s other things as well.
John Anderson (Senior Vice President and CFO)
Chris. So I talked in my prepared remarks about the MSA gross margins. We kind of expect that to be flat around the 51% level for full year. They were above that in Q1. It’s really, we were operating near full, you know, maximum capacity. We also had some favorable mix. But MSA kind of think of it year over year, you know, flattish at, you know, very attractive 51% from PD. That’s where we think there’s margin expansion opportunity. You know, we delivered 39.1% this quarter. And as we look, you know, Q2 will be kind of in that range. But as we enter in the back half of 26, we see increasing capacity utilization in both the specialty film line as we ramp up production, you know, we’ll, we’ll be kind of ramped up as Jeff mentioned, as we exit Q2 there. And so we should see some really good improvement in capacity utilization in the back half. But also in our specialty in our ceramic capacitor line and our RF filters. As in demand is increasing, we think there, there’s opportunity. Our variable margins, you know, are very strong in all of our businesses. And right now, you know, obviously we will probably need to hire more direct labor as the continues to ramp in these businesses. But there isn’t a tremendous amount of overhead that’s needed in order to support increased volume.
Christopher Roland (Equity Analyst)
That’s great. Thank you guys. Sure.
Jeffrey New (President and CEO)
Thanks Chris.
OPERATOR
And your next question comes from the line of Robert Lavic with CJS Securityskahead.
Will
Hi, this is Will on for Bob looking at specially filmed pilot programs. You’ve discussed downhill fracking and energy transmission pilots. Can you give us an update on how they’re progressing?
Jeffrey New (President and CEO)
What do you know if they may, you know, convert to larger programs? And did you win any new pilots in the quarter? There’s a list, you know, we review on a very regular basis of the pilots and I would say we’re due to deliver pilots on 20 different customers over the next say, quarter. So just figure, you know, every quarter we’re delivering pilot based applications downhole. Yeah, I would sit there and say, you know, just little bit more specific on the energy order. We are on track from a ramp standpoint. We are on track from, you know, a yield standpoint. And so we feel very strongly about that. 25 million plus at, you know, pretty good gross margins for the rest of the year. Right. Especially in the back half as it’s fully ramped. You know, bottom line is, I think, you know, everything’s heading kind of right direction here for the specialty film line. And we see the opportunity, as John kind of laid out, that within the precision devices, this is going to be especially on a year over year basis and a sequential basis going to help drive improved gross margin within the specialty within the pd.
John Anderson (Senior Vice President and CFO)
Yeah, I will be surprised. At full year we don’t improve gross margins within the PD segment by 100 basis points. And it’s really driven in the back half of 2026.
Jeffrey New (President and CEO)
That is super helpful. Thank you. And you talked about the tailwinds from the war in defense. Are there any headwinds from the war that you’re evaluating?
John Anderson (Senior Vice President and CFO)
You know, just a little bit on input costs? I mean, our transportation costs are fairly low. You think of the size of our components are very, very small. And we manufacture in a lot of the regions that we’re selling, so they’re fairly nimble. But that’s really the only thing we’ve seen any, you know, maybe some resin based products, some, some modest increases, but not significant. Yeah, I mean, the, you know, the cost that we’re looking at here, you know, you know, if it were to become more substantial, you know, we would, you know, like on the transportation cost, a lot of our customers, you know, take possession at our dock and we’re not paying for the shipping anyway. So I mean, I think. And then there are some input costs like resins and things like that, but it doesn’t seem to be a big portion of our bill of materials. Thank you very much.
OPERATOR
Thank you. And once again, if you would like to ask a question, simply press Star one on your telephone keypad. Your next question comes from the line of Anthony Stoss with Craig. Helen, please go ahead.
Anthony Stoss
Thank you very much, Jeff. Just getting back to pricing power, because maybe I wasn’t following it correctly. It seems like there’s a ton of activity, especially on the military defense side.
Jeffrey New (President and CEO)
Maybe there’s puts and takes in each of the different divisions. Do you, given the nature of activity, do you think it’s fair to say that gross margins and pricing in 2027 on average is going to be higher than 2026? No, I would sit there and say, you know, we have a pretty strong cadence of how we do pricing at this point. I wouldn’t sit there and say that, you know, that we’re, we’re going to sit there and see pricing. You know, if I say it’s in PD 2 to 4% per year, maybe it gets toward the higher end of that range. I’m not seeing that. I mean, you’re right. The demand, I mean, just more than defense. The demand across the board is pretty high. You know, I looked and we talked about the book to bill being 1.19. That’s on top of 16% growth. Right. So that book to Bill represents, you know, a fair amount of orders. And I just, you know, got off the phone with our sales team. The order rate in April is already strong. Again. We’re looking at another strong month of bookings in April. You know, I think we’re. We’re starting to spend a little bit more time obviously, analyzing, you know, pricing and things like that. But just remember, you know, we don’t have huge amounts of cost in order to get these units out. They’re very profitable already, you know, in the, in the PD segment. And so I think we’re going to continue to follow our kind of, you know, what I would say, playbook of increasing price on a somewhat regular basis, you know, by market, by product, by customer, you know, to cover any cost increase and, you know, and some more
John Anderson (Senior Vice President and CFO)
where we can, I would add, Tony, I do think from a gross margin standpoint, there is some opportunity in 27 to be above 26, just because think of the trajectory through 26. We’re increasing gross margins as we 27 margin should be similar to what the margins we exit 26 at, which will be, again, higher than we’re delivering right now.
Anthony Stoss
Got it. That makes sense. And then two last questions on the Energy Ramp. Is there any technical hurdles or either production setup hurdles that you still need to overcome before the end of Q2, or is it. Pretty much. It’s a lot of blocking and tackling, you know, and, and I would sit there and say, you know, we’re in the process. All the equipment is on site. It’s a matter of bringing it up, fully qualifying it, and then running, you know, high volume through it. I mean, there, there’s. There isn’t. I would sit there and say, like, we’re waiting for a piece of equipment that may not arrive on time. I mean, everything’s in place. And so it’s a matter of just bringing everything up. You know, I would sit there and say, you know, in Q1, they were slightly ahead of what they had projected in terms of output and getting things qualified. You know, I’m not committing that we’re going to be ahead for the, for the first half, but, but, but, you know, I think everything seems to be, you know, I was just down there a week and a half ago at the facility. I mean, everything looks great. And so I think we’re in pretty good shape. Okay, last question. You know, your group that you don’t
Jeffrey New (President and CEO)
talk about that often, the RF side, quite a few of the RF power amp folks are all talking about just huge orders in satellite. Do you have any products that are exposed to satellite or can you tweak anything that you could gain exposure to? Huge satellite. I mean, here’s the thing. If you think about our line, we do have some satellite business. I wouldn’t say, you know, it’s a huge driver. You know, I think what, what we have, what we provide is these super, super high performance RF filters. And hence why, you know, we, we can garner great gross margins. We can, you know, and we make good, good money in the space. I would say, you know, there’s a more of a mix in the satellite business of using like more commercially available RF filters versus specialized stuff. To the extent, and I would almost say this to the satellite businesses, like where we are with ev, you know, where we can be differentiated, we’ll sell into that market. But if they come to us and say we want something really low cost and we want it to be, you know, at very low margin, at very low price, we tend to say there’s other guys are willing to do that kind of stuff. So we do have some, but it’s, it’s usually where they need something very unique and special where we can garner very good gross margins. And Tony, I would just add, you
John Anderson (Senior Vice President and CFO)
know, we talked about 17% year over year revenue growth in Q1 in the Precision of Ice segment. RF was a big contributor to that. Yeah, they grew. It’s small, you’re right, it’s smaller. And as far as percent of the total, but their growth rate was in the double digits.
Jeffrey New (President and CEO)
Yeah, I mean, I guess my point being is we’re just not going to deviate from the idea here. We don’t really want to be in the commodity portions of the market and there are some commoditized portions of the market. And I would say my take is satellite is a little bit more mixed in terms of what they’re looking for. Got it. Thanks for all the color guys. Thank you.
OPERATOR
Thank you. And the next question comes from the line of Tristan Garrah with beard Please go ahead.
Tristan Garrah
Hi, good afternoon. In Precision Devices, could you give us a sense of where your front end utilization rates are? And as ultimately utilization rates, you know, go to full utilization above 90%, what type of gross margin would that imply? And then are you also able to quantify the impact on gross margin currently from the energy order production ramp and when does that headwind go away?
Jeffrey New (President and CEO)
So first, let me just cover on capacity utilization. It is different from product to product. You have our filters, we have ceramic caps, we have film caps, which is the old Cornell acquisition. It’s a little different from product to product. But generally speaking, we have done a lot of capacity planning for the mid to longer term in the last quarter. And what we’re seeing, you know, with the growth rate that we’re having at least within 2026 and into probably 1H27, we’re going to need more direct labor. We’re not going to need a lot more, I would say equipment or maybe some selective places. We need equipment. We’re probably running on average in the 80% range right now across the PD business. That’s probably where we’re running. And we, we have some room to still, you know, bring up output without adding a lot of expensive capacity. So I think, you know, again, the stuff that’s going to, our variable margins are very strong. We expect we’re going to drop a lot of this growth, the revenue to the bottom line. As far as the energy order, you know, I think how I kind of see the energy order is this. It is definitely weighing on the PD segment. We really haven’t quantified to the extent that it is at this point. But you know, I think it is going to be a driver of margin expansion in the back half.
John Anderson (Senior Vice President and CFO)
Just directionally. Tristan, think of maybe 200 to 250 basis points better than we’re doing today as it relates to the PD segment. And that’s driven heavily by this energy order.
Tristan Garrah
Okay, great, that’s very useful. And then given lead time expanding and all type of shortages happening in the industry, are you seeing appetite from customers to try to secure capacity into 27? And have you done LTSS in the past? Is that the type of discussion that customers are coming to you with or is it mostly, you know, short lead time type of orders?
Jeffrey New (President and CEO)
I would sit there and say, you know, in our distribution business, for the most part it’s been short lead time orders. In our OEM business, I would sit there and say there is a lot more discussion specifically in the defense area about larger orders. We’re starting to see more people come to us saying we would want to place an order with you for instead of a year, which would be more typical for defense, we want to place a three or a five year order in defense. So there’s a lot of negotiations and discussion going on about that right now. I would say industrial and medical, you know, we have, you know, long, very long term customers. We get regular forecast from them and you know, we are prepared, you know, to make sure we meet their requirements. But I think defense is the area where we’re starting to see at least more discussions about bigger orders. But I will add that book to bill of that 1.19. We did not have any real like big orders that, that were scheduled out more than a year. So there’s nothing in that, that book to Bill that would be an anomaly that drove that book to bill up to 1.19. I would say 97% of that book to bill will be shipped within 12 months.
Tristan Garrah
Great. That’s very useful. Thank you.
OPERATOR
Thank you. And there are no further questions at this time. Ladies and gentlemen. This now concludes today’s conference call. You may now disconnect.
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