Core Insights - Twin Disc, Inc. will have its Chief Financial Officer Jeff Knutson present at the Noble Capital Markets Emerging Growth Equity Conference on December 3, 2025 [1] - The company will also facilitate one-on-one meetings with registered investors during the conference [1] Company Overview - Twin Disc, Inc. specializes in designing, manufacturing, and selling marine and heavy-duty off-highway power transmission equipment [3] - The product range includes marine transmissions, azimuth drives, surface drives, propellers, boat management systems, power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, and control systems [3] - The company serves various markets, including pleasure craft, commercial and military marine, energy and natural resources, government, and industrial sectors [3] - Sales are conducted through a direct sales force and a distributor network, catering to both domestic and international customers [3]

Summary of Twin Disc FY Conference Call Company Overview - **Company**: Twin Disc (NASDAQ: TWIN) - **Industry**: Global power transmission manufacturing, focusing on gearboxes, control systems, and clutches for various applications including marine and land-based vehicles [8][9][10] Key Financials - **Revenue**: Finished the year at just under $341 million [9] - **Gross Margin**: Just over 27% [9] - **Employee Count**: Approximately 1,000 employees globally, with a significant presence in Europe [9] Market Dynamics - **Defense Spending**: Notable increase in defense spending, with a year-over-year increase of 13% and a 150% increase in NATO defense spending [15] - **Geographic Revenue Shift**: Historically dominated by North America, but recent acquisitions have shifted revenue distribution, with Europe and Asia now being significant contributors [10][11] Strategic Acquisitions - **Recent Acquisitions**: - Veth Propulsion (largest acquisition in company history) [12] - Katsa (Finland) and Kobelt (Canada) [13][31] - **Acquisition Strategy**: Focus on regional, family-owned companies with potential for global expansion through Twin Disc's network [27][30] Product Segments - **Marine and Propulsion**: Increased focus on marine products, particularly in the context of defense and autonomous vessels [15][16] - **Land-Based Applications**: Includes transmissions for airport rescue firefighting vehicles and specialty oil servicing rigs [14] Growth Strategy - **Revenue Target**: Aiming for $500 million in revenue by fiscal 2030, with a focus on organic growth and strategic acquisitions [16][33] - **Cash Flow Management**: Strong cash flow generation with a focus on debt reduction and maintaining dividends [32][33] Technological Advancements - **Hybrid and Electric Systems**: Significant push towards hybrid and electric propulsion systems, with ongoing projects in marine applications [16][18][22] - **Control Systems Development**: Long history in electronic controls, with recent acquisitions enhancing capabilities in hybrid control systems [21][22] Challenges and Considerations - **Supply Chain Issues**: Complications in sourcing batteries and motors for hybrid systems [18] - **Tariff Implications**: Ongoing tariffs affecting production strategies, with a shift towards more localized assembly to mitigate costs [45][46][47] Conclusion - **Market Position**: Twin Disc is well-positioned to capitalize on defense spending and the shift towards hybrid and electric systems, with a robust acquisition strategy and a diverse product portfolio [35][36]

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Core Viewpoint - Twin Disc, Inc. is actively engaging with investors through presentations and one-on-one meetings at the upcoming Three Part Advisors Southwest IDEAS Conference, indicating a focus on investor relations and transparency [1][2]. Company Overview - Twin Disc, Inc. specializes in designing, manufacturing, and selling marine and heavy-duty off-highway power transmission equipment, including marine transmissions, azimuth drives, surface drives, propellers, and boat management systems [3]. - The company serves various markets, primarily in pleasure craft, commercial and military marine sectors, as well as energy, natural resources, government, and industrial markets [3]. - Sales are conducted through a direct sales force and a distributor network, catering to both domestic and international customers [3].

Core Insights - Twin Disc, Incorporated (TWIN) reported a narrower net loss of 4 cents per share for Q1 fiscal 2026, compared to a loss of 20 cents per share in the same period last year, indicating improved financial performance [1][3] - The company's net sales increased by 9.7% to $80 million, driven by the acquisition of Kobelt and strong performance in the Marine and Propulsion Systems segment [2][4] - Gross profit rose to $22.9 million, an 18.7% increase year-over-year, with gross margin expanding by 220 basis points to 28.7% due to higher volumes and operational improvements [3][10] Financial Performance - EBITDA surged to $4.7 million, reflecting a 172.3% increase from the previous year, supported by higher sales and improved margins [3][9] - The company reported a six-month backlog of $163.3 million, up from $150.5 million in the previous quarter, indicating strong demand in propulsion and defense applications [7][8] - Total debt increased by 46.7% year-over-year to $43.7 million, while cash decreased by 14.8% to $14.2 million, resulting in a net debt of $29.5 million primarily due to the Kobelt acquisition [7] Business Segment Performance - The Marine and Propulsion Systems segment achieved sales of $48.2 million, a 14.6% year-over-year increase, driven by record new-unit bookings and demand for autonomous-vessel applications [4] - Land-Based Transmissions saw a modest sales increase of 1.6% to $17.6 million, with positive signs in North American oil and gas demand despite challenges in China [5] - The Industrial segment recorded a 13.2% increase in sales to $10.4 million, attributed to a recovery in demand and a favorable product mix [6] Management Commentary - The President and CEO emphasized the quarter as a solid start to the fiscal year, highlighting top-line growth and improved margins, along with strong defense orders [8] - The CFO noted that the year-over-year improvement in EBITDA was due to higher sales and improved margins, despite increased operating expenses [9] Factors Influencing Results - Gross margin expansion was a key highlight, driven by incremental volume and successful margin-enhancement initiatives [10] - A reduction in currency-related losses contributed to the narrower net loss, while marketing, engineering, and administrative expenses increased by 6.2% to $20.7 million due to the integration of Kobelt and inflationary pressures [11][12] Other Developments - The integration of the Kobelt acquisition has expanded Twin Disc's market presence in hybrid and electric applications, positively impacting sales growth [13]

Financial Data and Key Metrics Changes - Sales grew 9.7% year over year to $80 million, driven by strength in marine propulsion and industrial product groups [5][13] - Gross profit rose 18.7% to $22.9 million, with gross margin increasing 220 basis points to 28.7% [13][17] - EBITDA increased 172% year over year to $4.7 million, reflecting expanded sales and profitability [14][15] - Net loss attributable to Twin Disc improved to $518.04 per diluted share from a loss of $2.8 million or $0.20 last year [14] Business Line Data and Key Metrics Changes - Marine and propulsion business sales increased 14.6% year over year to $48.2 million, driven by workboat activity and government programs [8] - Land-based transmission sales were stable, up 1.6% year over year to $17.6 million, with oil and gas shipments nearly flat [9][10] - Industrial business grew 13.2% year over year, supported by acquisitions and broad-based customer activity [10] Market Data and Key Metrics Changes - North America was the primary driver of sales growth, with increased demand for VET products [15] - Defense-related projects represented a growing share of total backlog, increasing by $4 million sequentially and up 45% year over year [6][7] - The overall mix shifted toward North America, while Asia Pacific and the Middle East accounted for a smaller portion of total sales [15] Company Strategy and Development Direction - The company focuses on global footprint optimization, operational excellence, and disciplined capital allocation [11][12] - Near-term priorities include reducing debt and strengthening the balance sheet while investing in targeted organic initiatives [11] - The strategy emphasizes capturing emerging opportunities in defense and hybrid propulsion markets [4][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining outperformance and delivering strong profitability amid an evolving macroeconomic environment [4] - The company remains mindful of potential tariff developments, expecting a temporary 1-3% tariff impact on second quarter cost of sales [5] - Management is optimistic about the defense-related pipeline and the potential for growth in natural gas demand [29] Other Important Information - The company reported a robust backlog of $163.3 million, up 13% year over year, providing solid visibility for the balance of fiscal 2026 [10] - Inventory levels increased slightly due to strong demand and pre-buys [10][16] - The company maintains a conservative net leverage ratio of 1.3 times, providing flexibility to navigate the current macroeconomic environment [16] Q&A Session Summary Question: Can you help us with the timing of shipment acceleration and expected margin impact in military? - Management expects shipment volume for NATO vehicles to double in a year, with a similar growth trajectory for autonomous vessels [22][24] Question: Do you have the capacity to support that kind of ramp right now? - Management indicated that they have the capability to meet U.S. Navy demand and are evaluating CapEx spending to support growth [25] Question: Can you talk about changes in business conditions and order activity in the oil and gas business? - Management noted that while they are less dependent on oil and gas, they see signs of demand recovery and are cautiously optimistic about natural gas opportunities [26][29] Question: Can you discuss the relatively flat top line in land-based transmissions? - Management described steady demand but noted some shifts in volume between regions, with oil and gas trading off unit volume in China for North America [30][32] Question: How do you view the sustainability of the gross margin improvement? - Management believes the gross margin improvement is sustainable, contingent on maintaining the current mix and addressing tariff impacts [39][40] Question: What is the outlook for free cash flow this year? - Management targets 60% free cash flow as a percentage of EBITDA and aims to recover Q1 performance in Q2 [41][42]

Financial Performance - First quarter sales increased by 9.7% year-over-year to $80.0 million[8] - Organic sales increased by 1.1% year-over-year[8] - EBITDA increased by 172.3% year-over-year to $4.7 million, including currency translation loss and stock-based compensation[8] - Earnings per share (EPS) improved from a loss of $0.20 to a loss of $0.04 year-over-year[35] - Gross margin increased by 220 basis points year-over-year, from 26.5% to 28.7%[50] Backlog and Defense Market - The company has a robust six-month backlog of $163.3 million, higher sequentially[8] - Defense sector experienced a 45% year-over-year increase[11] - Defense accounts for approximately 15% of the total backlog[11] - The company is well-positioned to capture robust defense market demand, supported by increased US and NATO defense spending[9] Sales by Product Group - Marine & Propulsion Systems sales increased by 14.6% year-over-year[16] - Land-Based Transmissions sales increased by 1.6% year-over-year[20] - Industrial sales increased by 13.2% year-over-year[23]

Financial Performance - Net sales for the first quarter of fiscal 2026 increased by 9.7%, or $7.1 million, to $80.0 million compared to $72.9 million in the same quarter last year [111]. - Gross profit margin improved to 28.7% in the first quarter of fiscal 2026, up from 26.5% in the same period last year, reflecting successful margin improvement initiatives [114]. - The acquisition of Kobelt contributed $3.1 million in additional revenue during the quarter, with significant growth in demand for Veth propulsion systems [111]. - The North American region saw a revenue increase of $8.7 million (48.9%) due to the Kobelt acquisition and expansion of Veth product sales [111]. - The distribution segment experienced a sales decrease of $7.8 million (26.4%) compared to the prior year, primarily due to reduced demand for commercial marine products in Asia [113]. Expenses and Costs - Marketing, engineering and administrative expenses increased by $1.2 million (6.2%) to $20.7 million, representing 25.9% of net sales, down from 26.7% in the prior year [115]. - Total borrowings and long-term debt increased by $12.3 million to $43.7 million, with negative free cash flow reported at $11.0 million due to unfavorable working capital movements [125]. - The effective tax rate for the first quarter of fiscal 2026 was 172.2%, a significant change from (29.2%) in the prior year, influenced by a full domestic valuation allowance [117]. Assets and Liabilities - Trade receivables increased by $5.0 million (8.5%) to $63.9 million, with a notable increase in the percentage of sales to 79.9% compared to 70.7% in the prior year [120]. - Inventories rose by $6.3 million (4.2%) to $158.3 million, with a backlog of orders approximating $163.3 million, up from $150.5 million at the end of June 2025 [121]. Debt and Compliance - The Company's Total Funded Debt to EBITDA ratio must not exceed 3.50 to 1.00, and the Fixed Charge Coverage Ratio must not be less than 1.10 to 1.00 [133]. - The Company has pledged 65% of its equity interests in certain foreign subsidiaries as part of the Credit Agreement [134]. - Management believes that available cash, the Credit Agreement, and cash generated from future operations will be adequate to fund the Company's cash and capital requirements for the foreseeable future [136]. - The Company remains in compliance with its liquidity and other covenants [136]. Future Obligations and Risks - The Company expects to contribute $0.5 million to postretirement benefits and $0.7 million to its defined benefit pension plans in fiscal 2026 [137]. - The Company has long-term obligations related to its postretirement plans, which can vary significantly from year to year due to self-insurance [137]. - The Company has no material undisclosed guarantees and no additional material purchase obligations other than those related to inventory and property, plant, and equipment [137]. Agreements and Disclosures - The Company has amended various agreements to secure borrowings under the Credit Agreement, including a Security Agreement and IP Security Agreement [134]. - The Company is electing not to provide market risk disclosures due to its status as a Smaller Reporting Company [142]. - There have been no significant changes to the Company's critical accounting policies since June 30, 2025 [141].

Financial Performance - Sales for the first quarter of fiscal 2026 increased 9.7% year-over-year to $80.0 million, driven by the addition of Kobelt and strength in Marine and Propulsion Systems [5] - Gross profit rose 18.7% to $22.9 million, with gross margin expanding approximately 220 basis points to 28.7% compared to the prior year [7] - The net loss attributable to Twin Disc was $518 thousand, or ($0.04) per diluted share, an improvement from a net loss of ($2.8) million, or ($0.20) per diluted share in the first quarter of fiscal 2025 [10] - EBITDA for the first quarter was $4.7 million, up 172.3% compared to the first quarter of fiscal 2025 [10] - Net income for the quarter was a loss of $412 thousand, an improvement from a loss of $2,772 thousand in the same quarter last year [32] Order Backlog and Demand - The six-month backlog of orders increased to $163.3 million, up from $150.5 million at the end of the previous quarter, indicating healthy ongoing demand [9] - Marine and Propulsion Systems sales increased 14.6% year-over-year to $48.2 million, reflecting record new-unit bookings and strong aftermarket demand [6] - Twin Disc experienced double-digit growth in North America, leading to a shift in sales distribution away from the Middle East and Asia Pacific [6] Expenses and Cash Flow - Marketing, engineering, and administrative expenses rose by $1.2 million, or 6.2%, to $20.7 million, primarily due to the Kobelt acquisition and inflationary impacts [8] - Net cash used by operating activities was $(7,524) thousand, compared to $(4,344) thousand in the prior year, indicating a decline in cash flow [32] - Cash at the end of the period was $14,241 thousand, down from $16,711 thousand year-over-year, a decrease of 14.77% [32] Debt and Liabilities - Cash decreased 14.8% to $14.2 million, while total debt increased 46.7% to $43.7 million, largely due to higher long-term debt from the Kobelt acquisition [11] - Long-term debt increased to $40,719 thousand from $28,446 thousand, a rise of 43.2% [30] - Total liabilities rose to $202,648 thousand from $191,171 thousand, an increase of 6.05% [30] Assets and Retained Earnings - Total assets increased to $363,536 thousand from $355,562 thousand, representing a growth of 2.74% [30] - Current liabilities decreased to $122,201 thousand from $125,793 thousand, a reduction of 2.27% [30] - The company’s retained earnings decreased slightly to $124,330 thousand from $125,414 thousand, a decline of 0.87% [30] Depreciation and Financing Activities - The company reported a depreciation and amortization expense of $3,464 thousand, up from $3,238 thousand, reflecting a 7.03% increase [32] - Net cash provided by financing activities was $9,868 thousand, a significant increase compared to $934 thousand in the previous year [32] Growth Strategy - The company is focused on executing its growth strategy through disciplined operations, innovation, and customer engagement, with a healthy backlog supporting future growth [4]

Core Insights - Twin Disc, Inc. reported a solid start to fiscal 2026 with a 9.7% year-over-year increase in sales to $80.0 million, driven by the acquisition of Kobelt and strong performance in Marine and Propulsion Systems [5][9] - The company experienced significant growth in the Defense market, with a 8.5% increase in the six-month backlog since the end of fiscal 2025 [3][9] - Despite a net loss of $518 thousand, EBITDA improved significantly by 172.3% year-over-year to $4.7 million, reflecting higher sales and improved margins [10][12] Financial Performance - Sales increased by 9.7% year-over-year to $80.0 million, with organic sales growth of 1.1% [5][9] - Gross profit rose 18.7% to $22.9 million, with gross margin expanding by 220 basis points to 28.7% [7][9] - Marketing, engineering, and administrative expenses increased by 6.2% to $20.7 million, primarily due to the Kobelt acquisition and inflationary wage impacts [8][9] Product Group Performance - Marine and Propulsion Systems sales increased by 14.6% to $48.2 million, while Land-Based Transmissions saw a modest increase of 1.6% to $17.6 million [6] - Industrial product sales grew by 13.2% to $10.4 million, while the "Other" category experienced a decline of 11.7% [6] Market Outlook - The company remains focused on executing its growth strategy through operational discipline, innovation, and customer engagement, with a healthy backlog of $163.3 million [4][12] - Continued momentum in the Defense sector is expected, with accelerating orders and an expanding pipeline in both the U.S. and Europe [9][12] Balance Sheet and Cash Flow - Cash decreased by 14.8% to $14.2 million, while total debt increased by 46.7% to $43.7 million, primarily due to the Kobelt acquisition [11][12] - The company reported a net cash used in operating activities of $7.5 million for the quarter, reflecting normal seasonal patterns and investments in growth [31]