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    KN
    Earnings call· Jun 2026(Q2 FY26)

    Knowles Corp KN

    Jul 23, 2026 Source

    Executive summary

    Knowles Corporation Q2 FY26 — Strong Organic Growth and Raised Full-Year Outlook

    Knowles delivered a strong second quarter, driven by broad-based organic growth across its Precision Devices segment, leading to a significant raise in its full-year revenue and adjusted EBITDA guidance. The company is seeing robust demand in defense, industrial, and medtech markets, supported by strong bookings and a healthy backlog. Management remains confident in continued margin expansion and strategic capital allocation, including share buybacks and potential M&A.

    Highlights

    5

    • Revenue of $167 million, up 14% year-over-year, exceeding the high end of guidance.

    • Non-GAAP EPS of $0.33, up 38% year-over-year, above the high end of guidance.

    • Precision Devices (PD) segment revenue up 25% year-over-year, with broad-based growth across all end markets.

    • PD segment book-to-bill of 1.4, marking the seventh consecutive quarter above 1.

    • Full-year 2026 revenue growth guidance raised to 10%-12%, well above the previous 4%-6% target.

    Concerns

    2

    • Medtech and Specialty Audio (MSA) segment revenue growth was 2% year-over-year, slower than the PD segment.

    • MSA segment is expected to be slower in Q4 due to inventory building in the first half of the year.

    Guidance & targets

    13
    CategoryTargetConfidence
    Full-year 2026 Revenue Growth
    10% to 12%
    high materiality
    High
    Full-year 2026 Adjusted EBITDA Growth
    20% to 24%
    high materiality
    High
    Q3 2026 Revenue
    $167 million to $177 million
    high materiality
    High
    Q3 2026 R&D Expenses
    $9 million to $11 million
    medium materiality
    High
    Q3 2026 Selling and Administrative Expenses
    $29 million to $31 million
    medium materiality
    High
    Q3 2026 Adjusted EBIT Margin
    22% to 24%
    medium materiality
    High
    Q3 2026 Interest Expense
    $2 million
    low materiality
    High
    Q3 2026 Effective Tax Rate
    15% to 19%
    medium materiality
    High
    Q3 2026 Non-GAAP EPS
    $0.34 to $0.38
    high materiality
    High
    Q3 2026 Cash from Operating Activities
    $35 million to $45 million
    medium materiality
    High
    Q3 2026 Capital Spending
    $10 million
    medium materiality
    High
    Full-year Capital Spending
    approximately 5% of revenues
    medium materiality
    High
    EBITDA Margin
    close to 30%
    high materiality
    Medium

    Segment performance

    2
    SegmentRevenueYoYQoQMargin
    Medtech and Specialty Audio (MSA)
    Revenue slightly better than expected. Gross margins up 250 bps from prior year due to factory productivity gains. Hearing health market expected to grow at historical rates in 2026.
    		$69 million2%—53.1%
    Precision Devices (PD)
    Increased demand from OEM customers and distribution channel partners. Year-over-year growth in Medtech, defense, industrial, and electrification end markets. Gross margins up 140 bps from prior year due to increased production volume and factory capacity utilization. Expect further gross margin improvement in H2 FY26.
    Book-to-bill: 1.4Orders: nearly $140 million
    		$98 million25%—40.1%

    Operational metrics

    15
    Non-GAAP EPS
    $0.33up 38% year-over-year
    Q2 FY26

    Above the high end of guided range.

    Cash from Operating Activities
    $28 million
    Q2 FY26

    Near the high end of guided range.

    Medtech and Specialty Audio Gross Margin
    53.1%up 250 basis points year-over-year
    Q2 FY26

    Driven by factory productivity gains.

    Precision Devices Gross Margin
    40.1%up 140 basis points year-over-year
    Q2 FY26

    Largely driven by increased production volume and factory capacity utilization.

    R&D Expense
    $9 millionup slightly compared to Q2 2025
    Q2 FY26

    On higher project spending in both MSA and PD segments.

    SG&A Expenses
    $31 millionup $3 million from prior year levels
    Q2 FY26

    Driven primarily by higher sales commissions, annual merit increases and increased expenses primarily to support new product initiatives.

    Interest Expense
    $2 milliondown $1 million from Q2 2025
    Q2 FY26

    Due to lower average debt balances.

    Capital Spending
    $7 million
    Q2 FY26

    Shares Repurchased
    416,000
    Q2 FY26

    Cash and Investments Balance
    $50 million
    Q2 FY26

    As of quarter end.

    Borrowings Outstanding
    $131 million
    Q2 FY26

    As of quarter end.

    Net Leverage Ratio
    0.5x
    Q2 FY26

    Liquidity
    more than $315 million
    Q2 FY26

    As of quarter end.

    Precision Devices Gross Margin Improvement
    further improve
    H2 FY26

    Driven by higher pricing, favorable mix and increased factory capacity utilization. Expected to be in the low 40% range.

    EBITDA Margin
    in excess of 25%
    FY26

    Expected for the full year.

    Industry KPIs

    7
    MetricValueDetails
    Orders book to bill1.4
    Long term agreements—
    Content per device per vehicle—
    Design wins product cycle ramps—
    Order visibility backlog policy—
    Capacity expansion internal sourcing—
    End market revenue mix organic growth—

    Orderbook & backlog

    2
    Precision Devices Ordersnearly $140 millionQ2 FY26

    up from a little over $100 million in Q1

    Defense Radar Application Order$15 million plusJuly 2026

    Expected to ship over 36 months starting in 2027.

    Capital programs

    1
    Precision Devices Capacity Expansionunderway
    Period spend: approximately 5% of revenues (FY26)

    Benefit: increased customer demand

    Full year capital spending expected to be approximately 5% of revenues, with plans to increase absolute spending for 2027 capacity in a number of areas due to strong bookings and book-to-bill.

    Risks & headwinds

    2
    MSA Segment Slower Q4 GrowthQ4 FY26

    slower

    Mitigation: None explicitly stated, but full-year MSA growth still expected in 2%-4% range.

    Transient Orders for Commoditized Products

    couple of examples

    Mitigation: Cognizant of not adding capacity for transient orders; focusing on sustainable, long-term bookings.

    What to watch in Q3 FY26

    5

    Precision Devices Gross Margin

    H2 FY26
    Current40.1%
    Targetlow 40% range

    Why it matters

    Indicates the effectiveness of pricing actions, mix, and factory utilization in driving profitability.

    I think going forward⏳, we clearly see an opportunity to further improve PD gross margins in the second half of this year, really driven by the pricing environment being favorable as well as mix and then continued increased factory overhead absorption. I'm not giving specific guidance, but we should be in the low 40% range in that PD segment in the back half of the year.

    Q&A highlights

    4

    Asked about the lower implied Q4 growth given the full-year guidance and the impact of the broader passives market tightness and pricing power.

    Management expects sequential growth from Q3 to Q4, with PD continuing strong growth rates while MSA will be slower due to H1 inventory build. They noted the broader passives market tightness is not directly impacting their specialized products, but the pricing environment is stronger, allowing for more pronounced annual price increases in the PD segment.

    “I would say that the pricing is definitely more pronounced this year than it hasn't been in previous years.”

    asked by Christopher Rolland · answered by Jeffrey Niew

    2 min read5 chapters

    Detailed Narrative

    01

    Strong Q2 Performance and Raised Outlook

    Knowles reported Q2 FY26 revenue of $167 million, a 14% year-over-year increase, and non-GAAP EPS of $0.33, up 38% year-over-year, both exceeding the high end of guidance. This strong performance, coupled with robust backlog and increased order activity, led management to raise its full-year 2026 revenue growth guidance to 10%-12% (from 4%-6%) and adjusted EBITDA growth to 20%-24% over FY25 levels.

    02

    Precision Devices (PD) Segment Momentum

    The PD segment was a key driver, with Q2 revenue up 25% year-over-year to $98 million. Growth was broad-based across medtech, defense, industrial, and electrification end markets. The segment achieved a book-to-bill ratio of 1.4, marking the seventh consecutive quarter above 1, with orders nearly $140 million in Q2. This strong order intake and backlog provide confidence in continued growth.

    03

    Defense Market Acceleration

    The defense market is growing faster than anticipated, driven by global conflicts and increased spending, particularly in electronic warfare. Knowles' RF microwave products and capacitors are supporting key defense programs, with strong order intake and sole-source positions. Management expects continued strong organic growth and potential acceleration in the midterm due to proposed larger defense budgets, stock replenishment, and increased spending by U.S. allies.

    04

    Industrial Market Strength and Design Wins

    The industrial market is also growing at a faster pace than previously expected, with broad-based demand from OEMs and distribution partners. Knowles' capacitor products are used in a wide array of applications, including factory robotics, HVAC equipment, and semiconductor equipment. The company continues to secure robust design wins, evidenced by strong sales from a new product introduction in the HVAC repair space.

    05

    Margin Expansion and Capital Allocation

    Gross margins improved significantly, with MSA at 53.1% (up 250 bps YoY) and PD at 40.1% (up 140 bps YoY). Management expects further PD gross margin improvement in H2 FY26 due to higher pricing, favorable mix, and increased factory utilization. The company aims for EBITDA margins to reach close to 30% in the next 2-3 years. Capital allocation priorities include share buybacks (416,000 shares repurchased for $15 million in Q2) and debt reduction, alongside selective M&A.

    AI-generated summary of the company’s earnings call. Not investment advice.