Knowles Corporation (KN) Cash Flow Statement

The OCF/NI ratio has ranged from -0.65 to 18.86 over the past ten quarters, indicating that net income is not a reliable predictor of cash generation on a quarterly basis. The Q2 2026 ratio of 1.45 is moderate, but the extreme swings in prior quarters, such as 18.86 in Q3 2024, point to significant accrual adjustments. Investors should focus on the cumulative cash conversion over multiple quarters rather than any single period.

The FCF margin has fluctuated between -7.5% and 34.5% over the last ten quarters, with no clear upward trend. The Q2 2026 margin of 13.0% is below the 19.7% and 21.5% seen in Q4 2025 and Q2 2025, respectively, indicating that the recovery is not yet back to peak levels. The gap between net income and FCF in Q2 2026 is modest, but the quarterly volatility warrants monitoring for sustained improvement.

The CapEx/Revenue ratio has trended upward from 2.3% in Q4 2024 to 3.9% in Q2 2026, indicating a deliberate increase in capital spending. Given the company's high fixed-cost base and MEMS fabrication facilities, this may reflect maintenance capex to keep existing lines running, but the increase could also signal expansion into higher-growth areas like Precision Devices. The absolute level remains low, suggesting the business is not capital-intensive, but the trend is worth monitoring.

The working capital line has been the most volatile component of operating cash flow, with swings ranging from -$36.5M to +$15.5M over the past ten quarters. The Q1 2026 negative change was a major drag on cash flow, while Q2 2026 saw a smaller negative impact, indicating some normalization. This pattern suggests that the company may be building inventory ahead of expected demand or facing collection delays, which warrants close monitoring for potential obsolescence or credit issues.

Buybacks have been a regular use of cash, ranging from $4.5M to $30.0M per quarter over the last ten quarters, indicating a commitment to returning capital to shareholders. In Q4 2024, acquisition net cash outflow was $58.0M, reflecting the Cornell Dubilier acquisition, which aligns with management's stated strategy to pivot toward Precision Devices. The combination of buybacks and acquisitions suggests a balanced approach to capital deployment, but the sustainability of buybacks depends on consistent cash generation.

The cumulative gap between operating cash flow and net income is substantial, driven primarily by the -$259.3M net income in Q2 2024, which likely included a large non-cash impairment. Excluding that quarter, net income would be positive, but the cumulative cash generation still outpaces net income, suggesting that non-cash charges like depreciation and amortization are significant. This indicates that reported earnings understate the company's cash-generating ability, but investors should be cautious about the quality of that cash given the working capital volatility.