0001587523-26-000018
SEC filingKnowles reported revenue growth of 15.8% YoY to $153.1M, driven by PD and MSA segments, with gross margin expansion but negative adjusted free cash flow.
For the three months ended March 31, 2026, Knowles reported revenue of $153.1 million, up 15.8% from $132.2 million in the prior year period. Gross profit increased 25.9% to $67.1 million, with GAAP gross margin expanding to 43.8% from 40.3%. Non-GAAP gross profit rose 26.7% to $69.7 million, with non-GAAP gross margin at 45.5% versus 41.6%. The improvement was driven by higher shipping volumes, product cost reductions, favorable product mix in MSA, and increased factory capacity utilization, partially offset by higher factory costs in MSA, specialty film line ramp costs, and production transfer costs.
EBIT from continuing operations increased to $12.5 million (8.2% margin) from $3.5 million (2.6% margin), reflecting higher gross profit partially offset by higher operating expenses. Net earnings from continuing operations turned positive to $11.3 million from a loss of $0.4 million, aided by a tax benefit of $0.3 million versus a provision of $1.2 million. Diluted EPS from continuing operations was $0.13 compared to nil. Non-GAAP diluted EPS rose to $0.27 from $0.18.
Precision Devices (PD): Revenue grew 17.4% to $85.1 million, driven by higher demand in industrial, defense, electrification, and medtech markets, plus higher average pricing. EBIT increased to $7.6 million (8.9% margin) from $3.2 million (4.4% margin), due to higher gross profit from volumes, cost reductions, and capacity utilization, offset by higher selling and administrative expenses (commissions and headcount for future growth). Adjusted EBIT margin improved to 17.7% from 14.8%.
MedTech & Specialty Audio (MSA): Revenue grew 13.9% to $68.0 million, primarily from higher hearing health market volumes. EBIT increased to $26.0 million (38.2% margin) from $19.3 million (32.3% margin), driven by higher gross profit from volumes, favorable mix, cost reductions, and capacity utilization, partially offset by higher factory costs. Adjusted EBIT margin improved to 40.7% from 35.7%.
Segment mix continues to favor MSA, which contributed 44.4% of total revenue (up from 45.2%? Actually MSA 68.0/153.1=44.4%, prior 59.7/132.2=45.2% so slight mix shift to PD). PD's faster growth (17.4% vs 13.9%) indicates strengthening in industrial and defense end markets.
Management did not provide explicit revenue or earnings guidance. However, capital expenditures are expected to be in the range of 4% to 5% of revenues (up from the current quarter's 7.1% of revenue? Actually capex $10.8M on $153.1M = 7.1%, so run rate above the guided range, possibly due to capacity investment). The company highlighted investments in the PD segment's specialty film line for electrification market growth. Liquidity remains adequate with $121.5 million remaining under the share repurchase program. The recent Supreme Court ruling on IEEPA tariffs creates potential refund opportunities but with uncertain timing. The new 10% global tariff under Section 122 adds uncertainty but is temporary. Management expects to generate positive cash flow from operations and has access to capital markets.
As of March 31, 2026, Knowles Corporation reported cash and cash equivalents of $41.0 million, a decrease from $54.2 million at year-end 2025. Total assets stood at $1.054 billion. Total debt increased to $131.0 million from $114.0 million, driven by net borrowings under the revolving credit facility. Stockholders' equity rose slightly to $780.2 million from $775.8 million, supported by net earnings and other comprehensive income, partially offset by share repurchases. Inventory increased to $136.2 million from $124.6 million, with raw materials rising significantly.
The Company disclosed commitments related to the sale of its Consumer MEMS Microphones (CMM) business to Syntiant Corp. A separation cost credit of up to $13.5 million exists, with $4.3 million accrued as of March 31, 2026. The Company also holds a note receivable from Syntiant of $5.9 million, maturing March 2029, bearing interest at 13.0% after the first six months. Additionally, the Company has debt principal payments of $131.0 million due in 2028 under its revolving credit facility. No other material purchase commitments were disclosed in the Notes.
During the three months ended March 31, 2026, the Company repurchased 276,309 shares of common stock for $7.5 million. The remaining authorization under the share repurchase program was $121.5 million, following a $150.0 million increase authorized on February 13, 2025. No dividends were declared or paid. Capital expenditures totaled $10.8 million, or 7.1% of revenues. Debt activity included $60.0 million in borrowings and $43.0 million in repayments under the revolving credit facility.
The Company operates two reportable segments: Precision Devices and MedTech & Specialty Audio. For Q1 2026, Precision Devices generated $85.1 million in revenue (up 17.4% YoY) with segment adjusted operating income of $15.1 million. MedTech & Specialty Audio generated $68.0 million in revenue (up 13.9% YoY) with segment adjusted operating income of $27.7 million. Combined segment adjusted EBIT was $42.8 million, compared to $32.0 million in Q1 2025. Geographically, revenues were attributed as: United States $65.0 million, Asia $57.9 million, Europe $24.4 million, Other Americas $3.7 million, and Other $2.1 million.
Net income for Q1 2026 was $9.7M, but operating cash flow was negative ($0.7M), indicating poor cash conversion due to working capital buildup: receivables increased $6.3M, inventories $11.1M, and prepaid assets $1.8M, while accounts payable rose only $1.5M and accrued expenses declined. Depreciation and amortization of $9.2M and stock compensation of $10.4M were the main non-cash add-backs. Excluding capex of $10.8M, free cash flow was negative $11.5M (not disclosed separately). Capital expenditures were more than double the prior year's $4.0M, reflecting growth investments. Share repurchases of $7.5M and tax withholdings on equity awards of $14.2M were funded partly by $60M in borrowings (net $17M after repayments). The company ended with $41.0M cash, down from $54.2M. The negative operating cash flow and heavy capex signal reliance on debt to fund capital returns.