Knowles Corporation (KN) | The Buildout — AI Infrastructure
The Verdict
Knowles designs and manufactures specialty electronic components—high-performance capacitors, RF filters, advanced microphones, and balanced-armature speakers—that perform critical functions in medtech, defense, industrial, and electrification/energy markets. In the AI-infrastructure buildout, it has no disclosed role; management does not discuss data centers, GPUs, or cloud infrastructure. The closest indirect vector is ceramic capacitors used in semiconductor manufacturing equipment, but management frames that demand as industrial, not AI.
| Market Cap | — |
| Revenue (TTM) | $635M |
| Revenue Growth | +12.8% |
| EBITDA Margin (TTM) | 20.6% |
| Net Debt | $101M |
| Earnings Beats | 2 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- Precision Devices book-to-bill reached 1.4 in Q2 2026, the seventh consecutive quarter above 1.0.
- FY2026 revenue growth guidance was raised to 10–12%, from an Investor Day target of 4–6%.
- FY2026 adjusted EBITDA growth is guided to 20–24%, with EBITDA margin expected above 25%.
- Defense customers are shifting from annual orders to 3–5 year commitments; a $15M+ radar order ships over 36 months starting in 2027.
- The large specialty-film energy order fully ramped on schedule with better-than-planned yields; $25M+ expected in 2026.
What We’re Watching
- Specialty-film pilot conversion across 20 customers remains unproven—the follow-on pipeline beyond the first energy order.
- MSA slowed from +14% y/y in Q1 to +2% in Q2; full-year guide remains 2–4%.
- Formal remaining performance obligations were immaterial at March 31, 2026, limiting long-duration backlog visibility.
- PD capacity and inventory are being added into a strong order cycle, risking overshoot if demand cools.
The thesis is strengthening on execution: guidance has been raised twice, the largest disclosed energy project delivered on schedule with better-than-planned yields, and defense procurement is shifting toward multiyear commitments. The open question is whether the Precision Devices order surge is structural or a sharp cyclical restocking—and whether any AI-adjacent demand ever becomes material.
Earnings
Q2 2026 revenue was $166.8M, up 14% year over year, with gross margin of 42.4%. Precision Devices revenue grew 25% year over year to $98M and PD book-to-bill reached 1.4, the seventh consecutive quarter above 1.0, while MedTech & Specialty Audio revenue rose 2% to $69M.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $167M | $153M | $146M | +14.3% |
| Gross margin | 42.4% | 41.3% | 40.8% | +160bps |
| EBITDA | $35M | $25M | $27M | +28.6% |
| EPS | $0.22 | $0.11 | $0.09 | +147.9% |
| PD book-to-bill | 1.4 | 1.19 | n/a | — |
Orders in the PD segment were nearly $140 million in Q2, well above Q1 bookings and providing me confidence in continued growth in the future.— Jeff Niew, CEO, July 23, 2026
Management tone: Management's tone shifted from directional in Q1 to quantified in Q2. In Q1 the CEO said Knowles had entered a period of accelerated organic growth; by Q2 that became explicit 10–12% revenue growth and 20–24% adjusted EBITDA growth guidance, plus a path to close to 30% EBITDA margins. Management was direct on pricing, margins, and defense mix, while reframing questions on design wins and satellite RF.
Management Guidance
Management raised FY2026 guidance to revenue growth of 10–12% and adjusted EBITDA growth of 20–24%, with EBITDA margin above 25% and capex around 5% of revenue. For Q3 2026, management guided revenue of $167M–$177M at a midpoint of +12.5% y/y, adjusted EBIT margin of 22–24%, cash from operations of $35M–$45M, and capex of $10M.
Trajectory
Revenue stepped up sequentially in Q2 2026, rising 8.9% quarter over quarter to $166.8M, while TTM revenue growth is 12.8%. Precision Devices accelerated from +17% y/y in Q1 to +25% in Q2, but MSA slowed from +14% to +2%, so the company's year-over-year rate eased from +16% to +14%. Gross margin was 42.4% in Q2, with segment adjusted margins improving year over year; volume, mix, and pricing are helping, while specialty-film ramp costs and capacity adds are partial offsets.
The Model
The model projects FY+1 revenue of $654M and EBITDA of $136M (20.8% margin), rising to FY+2 revenue of $700M and EBITDA of $160M (22.9% margin). The near-term anchor is continued Precision Devices order strength and the energy order's back-half contribution; the FY+2 outlook assumes defense multiyear orders, specialty-film follow-on, and pricing flow through to margins.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $593M | $654M | $700M |
| YoY Growth | — | +10.2% | +7.0% |
| EBITDA | $114M | $136M | $160M |
| EBITDA Margin | 19.3% | 20.8% | 22.9% |
Projections are the median of 5 independent model runs. The model’s revenue sits 1.9% above analyst consensus.
Management raised FY2026 guidance to revenue growth of 10–12% and adjusted EBITDA growth of 20–24%, with EBITDA margin above 25% and capex around 5% of revenue. For Q3 2026, management guided revenue of $167M–$177M at a midpoint of +12.5% y/y, adjusted EBIT margin of 22–24%, cash from operations of $35M–$45M, and capex of $10M.
What Could Go Right — and Wrong
- Specialty-film pilots across 20 customers convert into production orders beyond the first $75M+ energy order.
- Defense 3–5 year discussions become signed contracts beyond the $15M+ radar order.
- Missile program volumes rise 2–4x across 2027–2028 as management outlined.
- PD H2 gross margins reach the low-40% range and full-year PD gross margin improves at least 100 bps.
- MSA hearing-health data firms toward 4% growth or next-gen design wins increase content per device.
- PD order surge proves partly transient and book-to-bill falls back toward 1.
- Specialty-film pilots do not convert, leaving a single-customer energy order as the main driver.
- Defense budget increases slip to late 2027-2028 or miss Knowles programs.
- MSA's high margin erodes on customer concentration or hearing-health weakness.
- Capacity and inventory added into the ramp overshoot if demand cools.
Looking Ahead
The next 12 months test whether the Precision Devices order book holds. Management expects sequential growth into Q4, underpinning FY2026 revenue growth of 10–12%. The specialty-film pilot program, defense 3–5 year negotiations, and PD capacity additions for 2027 are the active threads; an Investor Day in 1H 2027 is likely to quantify energy, Micro Solutions, inductors, and downhole platforms.
- Q3 2026Q3 2026 earnings — Tests $167M–$177M revenue guide and PD order/book-to-bill strength
- H2 2026PD gross margin — Low-40% range; confirms full-year +100 bps commitment
- Through 2026Specialty-film pilot deliveries — 20 customers due for pilots; watch conversion to production
- 2027Defense radar order begins — $15M+ ships over 36 months starting 2027
- 1H 2027Investor Day — Quantify energy, Micro Solutions, inductors, downhole platforms
- 2027–2028Defense budget build — Missile volumes could rise 2–4x; budget impact late 2027
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $554M | $593M | $635M | +7.2% |
| Gross Margin | 39.7% | 41.1% | 42.3% | +147bps |
| EBITDA | $99M | $114M | $1.3B | +15.9% |
| EBITDA Margin | 17.9% | 19.3% | 20.6% | +145bps |
| Net Income | −$240M | $44M | $68M | +118.5% |
| Free Cash Flow | $116M | $82M | $818M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)42.3%
- EBITDA Margin (TTM)20.6%
- Net Margin (TTM)10.6%
- ROIC8.2%
- FCF Conversion48.6%
- SBC / Revenue2.6%
The Company
Knowles designs and manufactures specialty electronic components: high-performance capacitors, RF filters, advanced microphones, and balanced-armature speakers. These parts perform critical functions in medtech, defense, industrial, and electrification/energy markets, where reliability and custom engineering carry a premium. The business runs through two segments: Precision Devices and MedTech & Specialty Audio.
The company operates eight named sites across Suzhou, Cebu, Liberty, Mexicali, Cazenovia, New Bedford, Penang, and Itasca, covering manufacturing, R&D, sales, and distribution roles. It is vertically integrated in Micro Solutions assembly, and the 10-K discloses that ASIC and MEMS foundry partners are sole-source in some cases.
Business Segments
Competitive Landscape
Knowles positions itself as a custom-engineered, high-reliability, non-commoditized supplier. In Precision Devices, the 10-K names Kyocera AVX, Yageo Corporation's Kemet products, and Vishay Intertechnology as competitors; in MedTech & Specialty Audio, the primary competitor is Sonion. Management says the company avoids commoditized portions of markets.
- Kyocera AVXNamed in the 10-K as a Precision Devices competitor; not discussed further.
- Yageo Corporation's Kemet productsNamed in the 10-K as a Precision Devices competitor; not discussed further.
- Vishay IntertechnologyNamed in the 10-K as a Precision Devices competitor; the supply-chain scan's verified-neighbor transcript shows book-to-bill of 1.34 and defense 'very early innings.'
- SonionNamed in the 10-K as MSA's primary competitor; not discussed further.
Supply Chain
Knowles sits as a component supplier to defense, industrial, medtech, and electrification OEMs and distributors. Its verified direct customers are concentrated, and no AI/data-center neighbor names it.
More on KN: Earnings recap