Question · Q3 2025
Tristan Guerra asked about the gross margin leverage on incremental utilization rates and current utilization levels across Knowles Corporation's operations. He also sought details on the gross margin impact from the specialty film ramp in Q3 and whether the expected improvement would be linear or more concentrated. Finally, he inquired if the distribution and industrial exposure within Precision Devices remained around 40% and if inventory levels in those segments had normalized.
Answer
President and CEO Jeffrey Niew and SVP and CFO John Anderson explained that gross margin leverage and utilization vary by product line, with some ceramic capacitor lines near full capacity. They estimated a 35-40% drop-through to the bottom line on incremental revenue. For specialty film, they anticipate linear gross margin improvement from Q4 2025 through Q2 2026, followed by a larger jump in Q3 2026 as full production for the energy order ramps, contributing to higher overall company EBITDA margins in 2026. Regarding distribution and industrial, Mr. Niew confirmed that a significant portion of distribution is industrial, showing nice growth, and inventory levels have normalized, with ordering trends now aligning with end-market demand.