What Knowles (KN) Said on Its Q3 Earnings Call

Key Points

• Knowles delivered a strong third quarter: Revenue rose 20% year over year to $184 million, exceeding guidance, while adjusted EPS increased 15% to $0.38 and operating cash flow reached $45 million.
• Precision Devices led growth, with revenue up 33%, a 1.5 book-to-bill ratio and orders nearing $180 million. The company is expanding capacity, but constraints may limit sequential growth in the first half of 2027.
• Management issued a positive outlook: Fourth-quarter revenue is projected at $180 million to $190 million, and Knowles expects continued margin expansion, with a path toward a 30% medium-term EBITDA margin while investing more heavily in capacity during 2027.

Knowles NYSE: KN reported third-quarter 2026 revenue of $184 million, up 20% from a year earlier and above the high end of its guidance range, as demand accelerated across its precision devices portfolio. Adjusted earnings per share were $0.38, up 15% year over year, while cash from operating activities reached $45 million.

President and Chief Executive Officer Jeffrey Niew said the results reflected execution across the company’s businesses and continued momentum in markets where Knowles believes it has differentiated products. The company’s precision devices segment posted revenue growth of 33%, while its med tech and specialty audio segment grew 4%.

Precision Devices Orders and Revenue Accelerate

Precision devices revenue totaled $117 million in the third quarter, with growth driven by demand across med tech, defense, industrial and electrification markets. The segment recorded a book-to-bill ratio of 1.5, and quarterly orders approached $180 million, according to Niew.

“Our close collaboration with customers continues to drive a robust pipeline of design wins as customers continue to choose our innovative and differentiated solutions,” Niew said.

The company cited demand for pulse-power film capacitors used in defibrillator and radiotherapy applications, ceramic capacitors for medical imaging and implantable devices, and products serving defense communications and munitions applications. In industrial markets, Knowles said ceramic capacitors and capacitor assemblies are gaining use in plasma generators and semiconductor equipment.

Knowles is adding capacity across most precision devices product lines to address demand. Niew said the added capacity is expected to begin coming online late in the first quarter and be fully available during the second half of 2027. Until then, capacity constraints are expected to limit sequential growth in precision devices during the first half of 2027, even as year-over-year growth remains strong.

The company also said a previously disclosed $15 million defense order for RF filters, received early in the third quarter, will be delivered over 36 months.

Hearing Health Demand Shifted Earlier

Med tech and specialty audio revenue was $67 million, up 4% from the prior-year quarter. Niew said hearing-health original equipment manufacturer customers typically introduce new products in the fourth quarter, but demand shifted somewhat earlier this year as customers introduced products incorporating artificial intelligence features.

Despite the seasonal timing shift, management said it continues to expect the hearing-health market to grow at historical rates in 2026. For 2027, Niew said the business should perform at historical levels, though the company expects a 2% to 3% revenue headwind, particularly in the first half, from the expiration of a supplier’s last-time-buy arrangement tied to the divested consumer business.

Management said the lost stamping revenue was on a cost-plus basis and is not expected to have a substantial effect on EBIT. Chief Financial Officer John Anderson said med tech and specialty audio gross margin could rise by about one percentage point in 2027 from the low-50% range discussed for 2026.

Margins, Cash Flow and Capital Allocation

Third-quarter gross margin in med tech and specialty audio was 51.9%. Precision devices gross margin was 41.6%, up 10 basis points from a year earlier, as higher volume was partly offset by unfavorable inventory adjustments.

Research and development expense rose to $10 million from $9 million a year earlier, reflecting higher project spending in both segments. Selling, general and administrative expense increased by $4 million to $30 million, due primarily to higher sales commissions, incentive compensation and additional headcount supporting demand and new product initiatives.

Knowles generated $45 million in operating cash flow and spent $7 million on capital expenditures during the quarter. It also repurchased 695,000 shares for $25 million and reduced bank borrowings by $15 million. The company ended the quarter with $47 million in cash, $116 million drawn under its revolving credit facility and more than $330 million in liquidity.

Anderson said capital spending is expected to rise to 5% to 7% of revenue in 2027, above the company’s historical 3% to 5% range, as Knowles invests in precision devices capacity. Management also said it expects to continue pursuing strategic acquisitions while funding internal growth investments, returning capital to shareholders and reducing debt.

Fourth-Quarter Outlook and 2027 Commentary

For the fourth quarter, Knowles forecast revenue of $180 million to $190 million, representing 14% year-over-year growth at the midpoint. The company projected adjusted EBIT margin of 23% to 25%, adjusted EPS of $0.39 to $0.43, and operating cash flow of $60 million to $70 million.

• R&D expense is expected to be $10 million to $12 million.
• Selling and administrative expense is expected to be $29 million to $31 million.
• Interest expense is projected at $1.5 million.
• The effective tax rate is expected to be 15% to 19%.
• Capital spending is projected at $8 million in the fourth quarter and about 5% of full-year revenue.

For the full year, Anderson said the company expects revenue growth of 16% at the midpoint of its guidance and adjusted EBITDA growth of 24% over 2025. Both measures would exceed the upper end of the targets presented at Knowles’ May 2025 investor day, he said.

Management said it sees continued margin expansion potential. Anderson said the company’s fourth-quarter guidance implies gross margin slightly above 46% at the midpoint and that Knowles sees room for roughly 100 basis points of annual gross-margin improvement, supplemented by operating leverage. Niew said the company expects to exit 2026 above 25% EBITDA margin and sees a path toward 30% over the medium term.

Looking beyond its core markets, Knowles highlighted opportunities in its Micro Solutions Group, pulse-power capacitors, attenuators and inductors. Niew said Micro Solutions Group revenue was about $1 million in 2025, could approach $3 million in 2026, exceed $5 million in 2027 and rise above $10 million in 2028. He said management plans to provide more detail on these growth initiatives during 2027.

About Knowles (NYSE:KN)

Knowles Corporation NYSE: KN is a global manufacturer of advanced electronic components and solutions for audio, communications, medical, industrial and other specialized applications. The company develops products that support sound capture, audio processing, signal management and high-performance connectivity in a range of electronic devices and systems.

Its portfolio includes microelectromechanical systems (MEMS) microphones, audio processors, speakers, receivers, balanced armature drivers and other acoustic components.

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