Knowles Corporation (KN) - Q1 2026 10-Q Summary
Business Context and Reporting Period
This report covers the quarterly period ended March 31, 2026. Knowles Corporation is a leading manufacturer of specialty electronic components, including high-performance capacitors, RF filters, and advanced medtech microphones. The company operates through two reportable segments: Precision Devices and MedTech & Specialty Audio. Following the sale of its Consumer MEMS Microphones (CMM) business in late 2024, CMM results are reported as discontinued operations.
Key Financial Metrics
| Metric (in millions) | Q1 2026 | Q1 2025 |
|---|---|---|
| Revenues | $153.1 | $132.2 |
| Gross Profit | $67.1 | $53.3 |
| Gross Margin | 43.8% | 40.3% |
| Operating Earnings | $15.9 | $4.0 |
| Net Earnings (GAAP) | $9.7 | $(2.0) |
| Diluted EPS (GAAP) | $0.11 | $(0.02) |
| Adjusted EPS (Non-GAAP) | $0.27 | $0.18 |
| Cash and Equivalents | $41.0 | $101.9 |
| Long-Term Debt | $131.0 | $114.0 |
| Operating Cash Flow | $(0.7) | $1.3 |
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 15.8% year-over-year to $153.1 million, driven by higher demand in industrial, defense, and electrification markets (Precision Devices) and increased shipping volumes in the hearing health market (MedTech & Specialty Audio).
- Profitability Improvement: The company returned to profitability with $9.7 million in net earnings, compared to a $2.0 million loss in Q1 2025. Operating earnings surged to $15.9 million from $4.0 million.
- Margin Expansion: Gross margin improved to 43.8% from 40.3%, aided by product cost reductions, favorable mix, and higher capacity utilization, partially offset by ramp-up costs in the specialty film line.
- Restructuring: Restructuring charges decreased significantly to $0.2 million in Q1 2026 from $2.9 million in Q1 2025, as the company completed rightsizing efforts following the CMM divestiture.
- Interest Expense: Net interest expense declined to $1.5 million from $2.7 million, primarily due to the full repayment of the Seller Note from the Cornell Dubilier acquisition in late 2025.
Guidance, Outlook, and Risks
- Capital Expenditures: Management expects 2026 capital expenditures to range between 4% and 5% of revenues, driven by capacity expansion in the Precision Devices segment.
- Tariff Environment: A Supreme Court ruling in February 2026 invalidated certain IEEPA tariffs, prompting the company to pursue potential refunds. However, a new temporary 10% global tariff under Section 122 of the Trade Act of 1974 was implemented, creating uncertainty regarding future trade costs.
- Share Repurchases: The company repurchased $7.5 million of stock in Q1 2026. Approximately $121.5 million remains available under the $400 million authorization program.
- Risks: Key risks include global economic instability, geopolitical tensions (specifically the conflict in Iran affecting maritime traffic), supply chain disruptions, and the impact of fluctuating commodity prices on raw materials.
Investor Verification Checklist
- Working Capital Trends: Verify the sustainability of the $11.1 million increase in inventory and $6.3 million increase in receivables, which contributed to negative operating cash flow of $0.7 million.
- Tariff Refund Realization: Monitor the progress and timing of potential refunds related to the invalidated IEEPA tariffs and the impact of the new 10% global tariff on margins.
- Discontinued Operations: Confirm the finalization of the purchase price adjustment for the CMM sale and the status of shared separation costs with Syntiant Corp.
- Non-GAAP Reconciliations: Review the $17.6 million in non-GAAP adjustments to net earnings, specifically the treatment of stock-based compensation ($10.4 million) and intangible amortization ($4.0 million).
- Debt Covenants: Verify continued compliance with the Interest Coverage Ratio (3.00:1) and Total Net Leverage Ratio (3.75:1) under the revolving credit facility.