Knowles (KN) Q1 2026 earnings review
Accelerating Growth and Margin Expansion Post-Divestiture
Knowles delivered a stellar first quarter, validating its transformation into a pure-play industrial technology company following the December 2024 divestiture of its Consumer MEMS Microphones business. Organic revenue growth accelerated to 16% YoY ($153.1M), easily surpassing the company's 5-year target. Crucially, the volume growth translated to the bottom line—Non-GAAP EPS jumped 50% YoY to $0.27, and Adjusted EBITDA margins expanded 290 bps to 23.1%. While Q1 operating cash flow reversed into negative territory due to inventory builds for upcoming ramps, the fundamental operational trajectory across both Precision Devices and MedTech is highly accelerating.
🐂 Bull Case
Both segments demonstrated strong operating leverage. MedTech & Specialty Audio Adjusted EBITDA margin surged 480 bps YoY to 44.0%, and Precision Devices expanded 260 bps YoY to 20.8%, driven by pricing and increased factory utilization.
16% YoY revenue growth in Q1 handily outpaces the company's long-term organic targets. Management cited numerous new design wins and a healthy backlog across Medtech, Defense, Industrial, and Electrification markets.
🐻 Bear Case
The midpoint of Q2 revenue guidance ($157M) implies ~7.6% YoY growth, a sharp deceleration from the 15.8% print in Q1, hinting at tougher comps or a moderation in underlying demand.
Operating cash flow reversed to a negative $0.7M in Q1 from a positive $47.2M in Q4 and $1.3M a year ago. A sequential inventory build of $11.6M consumed significant working capital.
⚖️ Verdict: 🟢
Bullish. The post-divestiture Knowles is executing cleanly. Double-digit top-line growth combined with substantial margin expansion paints the picture of a highly profitable, streamlined industrial tech company, overshadowing seasonal cash flow weakness.
Key Themes
MedTech & Specialty Audio Volume Rebound
The MSA segment is accelerating. Revenue grew 13.9% YoY to $68.0M, driven by increased hearing health shipments tied to successful customer new product introductions (NPIs). More impressively, the segment's Adjusted EBITDA margin expanded by 480 bps YoY to 44.0%, validating management's strategy of prioritizing high-value, defensible medical niches over commoditized consumer electronics.
Precision Devices Firing on All Cylinders
Precision Devices revenue accelerated to 17.4% YoY growth ($85.1M). Management explicitly noted broad-based strength across all end markets (Defense, Industrial, Medtech, and Electrification). Crucially, pricing power and higher end-market demand are driving factory capacity utilization upward, lifting segment margins by 260 bps YoY.
Specialty Film & New Design Wins Ramping
CEO Jeffrey Niew confirmed 'numerous new design wins ramping across multiple end markets.' While the specific $25M+ large energy order was detailed heavily in prior quarters, the current quarter's backlog and record top-line results indicate that the operational issues previously hampering the specialty film line's capacity ramp in FY25 are largely resolving, facilitating accelerated organic growth.
Operating Cash Flow Reverses to Negative
Operating cash flow from continuing operations reversed to a cash burn of $0.7M, compared to positive $1.3M in the prior year and a massive $47.2M in 25Q4. While Q1 is historically seasonal, the core culprit was working capital: a $11.1M sequential increase in inventories and a $10.5M cash drain from accrued compensation. Management must prove this inventory build is strictly to service robust Q2/Q3 demand, not a sign of channel saturation.
Heavy Stock-Based Compensation Dilutes GAAP Results
The gap between GAAP and non-GAAP EPS remains substantial. Q1 GAAP EPS from continuing operations was $0.13, while non-GAAP was $0.27. Stock-based compensation ($10.4M) and intangible amortization ($4.0M) act as massive add-backs. SBC alone represented nearly 7% of total quarterly revenue, remaining a stable but persistent drag on true shareholder returns.
Implied Growth Deceleration in Q2
While management touted Q1's 16% YoY growth as beating long-term targets, the Q2 revenue guidance midpoint ($157M) implies a sharp deceleration to ~7.6% YoY growth. This break in the acceleration trend requires monitoring to ensure the Q1 outperformance wasn't merely a timing pull-forward of customer orders.
Other KPIs
Accelerating. Up 32% YoY from $26.7M in 25Q1. Adjusted EBITDA margin expanded to 23.1% from 20.2% a year ago, reflecting excellent operational leverage on the 16% revenue gain.
Stable. The company exited Q1 with $41.0M in cash and $131.0M in long-term debt. The net debt leverage ratio remains highly conservative at 0.6x trailing 12-month Adjusted EBITDA ($148.8M), leaving ample dry powder for future synergistic M&A.
Accelerating. Inventories grew sequentially by $11.6M from $124.6M at the end of 2025. Given the robust backlog commentary, this appears to be a strategic build ahead of specific customer ramps, but elevated inventory levels inherently increase working capital risk.
Guidance
Decelerating. The $157M midpoint implies ~7.6% YoY growth versus the $145.9M recorded in 25Q2. While sequentially higher than Q1 ($153.1M), the YoY growth rate drops by more than half compared to Q1's 16% pace.
Accelerating. The $0.30 midpoint implies 25% YoY growth over the $0.24 achieved in 25Q2. It also represents sequential growth from Q1's $0.27, indicating that gross margin improvements and operating leverage are expected to persist.
Reversing. Bouncing back from the -$0.7M burn in Q1. Hitting this target will be critical to validating management's claim that Q1's negative cash flow was purely seasonal and working-capital driven.
Key Questions
Revenue Deceleration Drivers
Your Q2 revenue guidance midpoint implies ~7.6% YoY growth, a noticeable deceleration from the 16% delivered in Q1. Which specific end-markets or product lines are driving this tougher comp, and does it change your confidence in exceeding the 5-year target?
Inventory Build Dynamics
Inventories increased by over $11 million sequentially in a quarter where operating cash flow was negative. Is this build directly tied to firm backlog for the anticipated specialty film/energy ramps, or are there areas where channel replenishment has slowed?
M&A Pipeline Status
With the divestiture fully in the rear-view mirror and leverage sitting at a conservative 0.6x, how aggressive is the current M&A posture, particularly given the strong cash flow expected in Q2 and beyond?