Twin Disc(TWIN) - 2025 Q3 - Quarterly Report

Part I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements for Q3 and nine months ended March 28, 2025, with notes on acquisitions, segments, and debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 28, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Total Assets | $332,882 | $312,058 | | Total Current Assets | $231,968 | $219,631 | | Total Liabilities | $182,693 | $157,004 | | Total Current Liabilities | $109,857 | $99,516 | | Long-term Debt | $37,774 | $23,811 | | Total Equity | $150,189 | $155,054 | Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Q3 2025 | Q3 2024 | Nine Months 2025 | Nine Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $81,242 | $74,161 | $244,060 | $210,709 | | Gross Profit | $21,706 | $20,940 | $62,708 | $58,233 | | Income from Operations | $1,947 | $3,602 | $4,542 | $6,758 | | Net (Loss) Income Attributable to Twin Disc | $(1,472) | $3,822 | $(3,317) | $3,579 | | Diluted (Loss) Income Per Share | $(0.11) | $0.27 | $(0.24) | $0.26 | Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Nine Months Ended March 28, 2025 | Nine Months Ended March 29, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,531 | $22,273 | | Net cash used by investing activities | $(23,970) | $(7,765) | | Net cash provided (used) by financing activities | $10,189 | $(5,083) | | Net change in cash | $(3,825) | $10,580 | - The company completed the acquisition of 100% of the outstanding common stock of Kobelt Manufacturing Co. Ltd. on February 14, 2025, a Canadian manufacturer of controls, propulsion, steering, and braking systems[14][22] Note B: Acquisition of Kobelt Manufacturing Co. Ltd. Details the February 14, 2025 acquisition of Kobelt Manufacturing for $16.6 million, including financing and provisional purchase price allocation - The acquisition of Kobelt was completed on February 14, 2025, for an aggregate cash payment of approximately $16,586 thousand[22][23] - The acquisition was partially financed through a new $6,500 thousand credit agreement with BMO Harris Bank N.A[24] Preliminary Purchase Price Allocation (in thousands) | Account | Amount | | :--- | :--- | | Total consideration | $16,960 | | Total identified net assets acquired | $14,829 | | Goodwill | $2,131 | Note F: Business Segments Analyzes Manufacturing and Distribution segments, noting Q3 FY2025 sales and net income changes Net Sales by Segment (in thousands) | Segment | Q3 2025 | Q3 2024 | Nine Months 2025 | Nine Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Manufacturing | $72,484 | $62,640 | $212,265 | $175,545 | | Distribution | $30,138 | $37,022 | $95,448 | $107,117 | Net Income (Loss) by Segment (in thousands) | Segment | Q3 2025 | Q3 2024 | Nine Months 2025 | Nine Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Manufacturing | $1,574 | $5,662 | $6,574 | $9,298 | | Distribution | $1,738 | $3,248 | $3,918 | $7,427 | Total Net Sales by Product Group - Q3 2025 (in thousands) | Product Group | Total Net Sales | | :--- | :--- | | Industrial | $9,734 | | Land-based transmissions | $17,776 | | Marine and propulsion systems | $49,298 | | Other | $4,434 | | Total | $81,242 | Note K: Long-term Debt Details the increase in long-term debt to $40.8 million for acquisitions and the terms of the new $50 million credit agreement Long-term Debt Composition (in thousands) | Debt Component | March 28, 2025 | June 30, 2024 | | :--- | :--- | :--- | | Revolving loans | $25,751 | $16,288 | | Term loan | $15,000 | $9,500 | | Subtotal | $40,774 | $25,811 | - On February 14, 2025, the company entered into a new credit agreement that refinanced and replaced the prior agreement, increasing the term loan to $15 million and the revolving credit commitment to $50 million[80][81][82] - The credit agreement requires the company to maintain a Total Funded Debt to EBITDA ratio not exceeding 3.50 to 1.00 and a Fixed Charge Coverage Ratio of at least 1.10 to 1.00[72] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes financial performance, highlighting 9.5% Q3 net sales growth from acquisitions, gross margin decline, and liquidity changes Results of Operations Examines Q3 FY2025 net sales growth of 9.5% to $81.2 million from acquisitions and a gross margin decline to 26.7% Q3 Fiscal 2025 vs Q3 Fiscal 2024 (in thousands) | Metric | Q3 2025 | Q3 2024 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $81,242 | $74,161 | +9.5% | | Gross Profit | $21,706 | $20,940 | +3.7% | | Gross Margin | 26.7% | 28.2% | -1.5 p.p. | | Income from Operations | $1,947 | $3,602 | -46.0% | - The acquisitions of Katsa Oy and Kobelt contributed $7.1 million and $1.2 million of additional revenue in the quarter, respectively[121] - The decline in gross profit percentage is primarily attributed to a less favorable product mix and purchase accounting amortization related to the recent acquisitions[124] - For the first nine months of FY2025, net sales increased 15.8% to $244.1 million, with acquisitions contributing $27.5 million in revenue[128] Financial Condition, Liquidity and Capital Resources Assesses financial position, noting cash decrease, debt increase for acquisitions, and stable order backlog - Total borrowings and long-term debt increased by $15.0 million to $40.8 million, mainly to finance the Kobelt acquisition[141] - Inventories increased by $7.5 million (5.7%) to $138.0 million, with the Kobelt acquisition accounting for a $6.0 million increase[138] - The company's order backlog to be shipped over the next six months is approximately $133.7 million, consistent with the level at June 30, 2024[138] - Management believes existing liquidity sources are adequate to fund the company's cash and capital requirements for the foreseeable future[162] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of March 28, 2025, with no material changes to internal control - The CEO and CFO concluded that the company's disclosure controls and procedures are effective in ensuring timely and accurate reporting[167] - No material changes were made to the company's internal control over financial reporting during the most recent fiscal quarter[168] Part II. OTHER INFORMATION Item 1. Legal Proceedings Discusses ongoing product liability claims, which management deems not material to the company's financial condition - Ongoing product liability claims are not expected to have a material impact on the company's business or financial condition[170] Item 1A. Risk Factors Identifies new risk factor concerning tariffs and trade policies, potentially impacting operations, costs, and margins - The company has identified a new risk related to tariffs and trade policies, which could materially and adversely impact business operations, costs, and margins[172][173] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Reports no unregistered equity sales or share repurchases, with 315,000 shares remaining authorized for buyback - No shares were purchased under the company's stock repurchase program during the quarter[176] - As of March 28, 2025, 315,000 shares remain authorized for purchase under the company's stock buyback plans, which have no expiration date[176]