Twin Disc(TWIN) - 2025 Q4 - Annual Results

Executive Summary Twin Disc's fiscal year 2025 saw increased sales but a net loss, while Q4 showed sales growth and net income, with both periods impacted by currency and operating expenses Fiscal Full Year 2025 Highlights Twin Disc reported a 15.5% increase in full-year sales to $340.7 million, driven by Land-Based Transmissions, Marine and Propulsion Systems, and Industrial segments, despite a net loss of ($1.9) million and a decrease in EBITDA to $19.0 million due to currency translation losses and other items - Sales increased 15.5% year-over-year to $340.7 million[8] - Net loss attributable to Twin Disc was ($1.9) million[8] - EBITDA of $19.0 million, including the impact from currency translation loss, stock based compensation, and other items[8] - Operating cash flow of $24.0 million and Free cash flow of $8.8 million[8] - Healthy six-month backlog of $150.5 million supported by strong ongoing order activity[8] Fiscal Fourth Quarter 2025 Highlights The fourth quarter saw a 14.5% year-over-year sales increase to $96.7 million, with net income of $1.4 million, however, EBITDA decreased to $7.0 million due to increased currency translation losses, higher operating expenses, and stock-based compensation - Sales increased 14.5% year-over-year to $96.7 million[8] - Net income attributable to Twin Disc was $1.4 million[8] - EBITDA of $7.0 million, including the impact from currency translation loss, stock based compensation, and other items[8] - Operating cash flow of $16.4 million and Free cash flow of $8.7 million[8] CEO Perspective CEO John H. Batten highlighted Q4 as the strongest, driven by robust defense-driven demand in Marine and Propulsion and steady recovery in Industrial, noting advancement in electrification, pricing discipline, and margin protection, with acquisitions expanding global footprint and diversifying end markets - Q4 was the strongest quarter, reflecting consistent execution and resilience in dynamic markets[4] - Marine and Propulsion led with robust defense-driven demand, while Industrial saw steady recovery[4] - Advanced electrification strategy with new e-frac activity, despite oil and gas challenges[4] - Maintained pricing discipline and protected margins amidst tariff noise and cost pressures[4] - Recent acquisitions expanded global footprint and diversified end markets[4] - Entering the new fiscal year in a stronger operational and strategic position, supported by a healthy backlog and greater organizational agility[5] - Committed to driving growth, maintaining disciplined operations, and executing on long-term value creation strategy[5] CFO Perspective CFO Jeffrey S. Knutson expressed satisfaction with financial performance, emphasizing disciplined execution, strong integration, a healthy cash position, well-positioned inventory, and ongoing global manufacturing optimization for efficient scaling and sustainable profitability - Pleased with financial performance, marked by disciplined execution and strong integration progress[14] - Inventory is well positioned to support demand heading into the new year[14] - Cash position remains healthy, providing flexibility to invest in growth while maintaining a strong balance sheet[14] - Continued progress on global manufacturing optimization to scale efficiently and support sustainable profitability[14] Financial Results Analysis Twin Disc reported significant sales growth for both Q4 and the full fiscal year 2025, primarily driven by Land-Based Transmissions, Marine and Propulsion Systems, and Industrial segments, though organic growth was much lower, indicating that acquisitions and foreign currency impacts were significant contributors to the reported growth Sales Performance Twin Disc reported significant sales growth for both Q4 and the full fiscal year 2025, primarily driven by Land-Based Transmissions, Marine and Propulsion Systems, and Industrial segments, however, organic growth was much lower, indicating that acquisitions and foreign currency impacts were significant contributors to the reported growth Overall Sales Growth Sales for fiscal 2025 Q4 increased 14.5% year-over-year to $96.7 million, with full-year sales up 15.4% to $340.7 million, driven by Land-Based Transmissions, Marine and Propulsion Systems, and Industrial segments - Sales for the fiscal 2025 fourth quarter increased 14.5% year-over-year to $96.7 million[6] - Fiscal 2025 full year sales increased 15.4% to $340.7 million when compared to the prior year[6] - Sales growth was driven by demand for Land-Based Transmissions markets, with strength in Marine and Propulsion Systems and a stabilization in the Industrial segment[6] Sales by Product Group This section details sales performance across Marine and Propulsion Systems, Land-Based Transmissions, Industrial, and Other product groups for Q4 and the full fiscal year 2025 compared to 2024 | Product Group | Q4 FY25 Sales (Thousands of $) | Q4 FY24 Sales (Thousands of $) | Change (%) | FY25 Sales (Thousands of $) | FY24 Sales (Thousands of $) | Change (%) | | :-------------------------- | :----------------------------- | :----------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Marine and Propulsion Systems | 53,011 | 47,228 | 12.2% | 201,101 | 171,765 | 17.1% | | Land-Based Transmissions | 26,122 | 24,989 | 4.5% | 80,192 | 78,519 | 2.1% | | Industrial | 13,141 | 7,219 | 82.0% | 41,502 | 25,669 | 61.7% | | Other | 4,404 | 4,982 | -11.6% | 17,943 | 19,174 | (6.4%) | | Total | 96,678 | 84,418 | 14.5% | 340,738 | 295,127 | 15.5% | Organic Sales Performance Organic sales for Q4 FY25 decreased 8.4% year-over-year, primarily due to reduced oil and gas transmission shipments to China, while full-year organic revenue increased 1.0% - On an organic basis (excluding acquisitions and foreign currency exchange), fourth quarter revenue decreased 8.4% year-over-year, due primarily to reduced shipments of oil and gas transmissions into China[6] - For the fiscal 2025 full year, revenue increased 1.0% on an organic basis when compared to the prior year[6] | Metric | Q4 FY25 (Thousands of $) | Q4 FY24 (Thousands of $) | FY25 (Thousands of $) | FY24 (Thousands of $) | | :------------------------ | :----------------------- | :----------------------- | :-------------------- | :-------------------- | | Net Sales | 96,678 | 84,418 | 340,738 | 295,127 | | Less: Acquisitions/Divestitures | (16,457) | - | (43,973) | (2,556) | | Less: Foreign Currency Impact | (2,915) | - | (1,423) | - | | Organic Net Sales | 77,306 | 84,418 | 295,342 | 292,571 | Geographical Sales Distribution For fiscal 2025, Twin Disc achieved double-digit growth in European and Asia-Pacific regions, including acquisitions, with a shift towards a greater proportion of sales from Europe and less from Asia-Pacific - For the fiscal 2025 full year, Twin Disc delivered double-digit growth year-over-year in the European and Asia-Pacific regions including the impact of acquisitions[9] - The distribution of sales across geographical regions shifted, with a greater proportion of sales coming from Europe, and a lower proportion coming from the Asia-Pacific region[9] Profitability Analysis While gross profit increased in both Q4 and FY25, gross margin improved in Q4 but declined for the full year, with ME&A expenses rising significantly due to acquisitions and inflationary pressures, leading to a substantial decrease in net income for Q4 and a net loss for the full year, and declining EBITDA primarily due to increased currency translation losses and higher operating costs Gross Profit and Margin Gross profit increased 19.7% to $30.0 million in Q4 FY25, with gross margin improving 130 basis points to 31.0%, while full-year gross profit increased 11.3% to $92.7 million, but gross margin decreased 100 basis points to 27.2% - Gross profit increased 19.7% to $30.0 million compared to $25.1 million for the fourth quarter of fiscal 2025[10] - Fourth quarter gross margin improved approximately 130 basis points to 31.0% from the prior year period, supported by a favorable product mix and one-time cost capitalization adjustments in Katsa inventory[10] - For the fiscal 2025 full year, gross profit increased 11.3% to $92.7 million, and gross margin decreased approximately 100 basis points to 27.2%[10] Operating Expenses (ME&A) Marketing, engineering, and administrative (ME&A) expenses increased 20.9% to $24.6 million in Q4 FY25 and 15.1% to $82.4 million for the full year, primarily due to acquisitions, professional fees, and inflationary impacts on wages and benefits - Marketing, engineering and administrative (ME&A) expenses increased by $4.3 million, or 20.9%, to $24.6 million in Q4 FY25[11] - For the fiscal 2025 full year, ME&A expense increased 15.1% to $82.4 million[11] - The increased ME&A expense was primarily driven by the addition of Katsa and Kobelt, an increase in professional fees, and an inflationary impact on wages and benefits[11] Net Income (Loss) and EPS Twin Disc reported a net income of $1.4 million in Q4 FY25, down from $7.4 million in Q4 FY24, and a full-year net loss of ($1.9 million), or ($0.14) per diluted share, a significant decrease from FY24 | Metric | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :------------------------------------------ | :------ | :------ | :----- | :----- | | Net income (loss) attributable to Twin Disc | $1.4M | $7.4M | ($1.9M) | $11.0M | | Diluted EPS | $0.10 | $0.53 | ($0.14) | $0.79 | - For the fiscal 2025 full year, the Company generated a net loss attributable to Twin Disc of ($1.9 million), or ($0.14) per diluted share, a decrease of 116.8% and 116.5%, respectively, from fiscal 2024 full year[12] EBITDA Performance EBITDA decreased 40.4% to $7.0 million in Q4 FY25 and 28.3% to $19.0 million for the full fiscal year, driven by increased currency translation losses, higher operating expenses, stock-based compensation, and inventory adjustments | Metric | Q4 FY25 (Thousands of $) | Q4 FY24 (Thousands of $) | FY25 (Thousands of $) | FY24 (Thousands of $) | | :----- | :----------------------- | :----------------------- | :-------------------- | :-------------------- | | EBITDA | 7,031 | 11,803 | 19,019 | 26,533 | - EBITDA was $7.0 million in the fourth quarter, down 40.4% compared to the fourth quarter of fiscal 2024[12] - Full year fiscal 2025 EBITDA decreased 28.3% to $19.0 million from $26.5 million in fiscal 2024[12] - The year-over-year change was driven by increased currency translation losses, higher operating expenses, stock based compensation, and inventory adjustments[12] Items Impacting EBITDA This section details various items impacting EBITDA, including restructuring, non-cash stock-based compensation, strategic inventory write-downs, acquisition costs, bargain purchase gains, currency translation, and defined benefit pension amortization for Q4 and full fiscal year 2025 and 2024 | (Thousands of $) | Q4 FY25 | Q4 FY24 | FY25 | FY24 | | :-------------------------------- | :------ | :------ | :----- | :----- | | Restructuring | 52 | 11 | 408 | 218 | | Non-cash stock based compensation | 1,389 | 1,373 | 4,068 | 3,383 | | Non-cash strategic inventory write-down | - | - | 1,579 | 3,099 | | Acquisition costs | 40 | 488 | 839 | 856 | | Non-cash bargain purchase gain | - | (3,724) | - | (3,724) | | Currency translation (gain)/loss | 2,935 | (703) | 4,825 | (377) | | Non-cash defined benefit pension amortization | 191 | (258) | 885 | (1,076) | Cash Flow and Financial Position Operating cash flow decreased for the full year, and free cash flow saw a significant reduction, while the backlog increased, the company's cash balance decreased, and total debt and net debt increased, primarily due to recent acquisitions Operating and Free Cash Flow Net cash provided by operating activities was $16.4 million in Q4 FY25 and $24.0 million for the full year, while free cash flow was $8.7 million in Q4 and $8.8 million for the full year, a significant decrease from the prior year | Metric | Q4 FY25 (Thousands of $) | Q4 FY24 (Thousands of $) | FY25 (Thousands of $) | FY24 (Thousands of $) | | :---------------------------------- | :----------------------- | :----------------------- | :-------------------- | :-------------------- | | Net cash provided by operating activities | 16,448 | 11,499 | 23,979 | 33,716 | | Acquisition of property, plant, and equipment | (7,705) | (1,109) | (15,157) | (8,707) | | Free cash flow | 8,743 | 10,390 | 8,822 | 25,009 | Backlog The six-month backlog of orders increased to approximately $150.5 million at the end of Q4, up from $133.7 million at the end of Q3, with inventory as a percentage of backlog decreasing to 101.0% - The backlog of orders to be shipped over the next six months is approximately $150.5 million at the end of the fourth quarter, compared to $133.7 million at the end of the third quarter[13] - As a percentage of six-month backlog, inventory decreased from 103.2% at the end of the third quarter, to 101.0% at the end of the fourth quarter[13] Debt and Cash Cash decreased 19.7% to $16.1 million, while total debt increased 21.8% to $31.4 million, and net debt surged 167.1% to $15.3 million, primarily due to higher long-term debt from the Katsa and Kobelt acquisitions | Metric | June 30, 2025 (Thousands of $) | June 30, 2024 (Thousands of $) | Change (%) | | :---------- | :------------------------------- | :------------------------------- | :--------- | | Cash | 16,109 | 20,070 | -19.7% | | Total debt | 31,446 | 25,811 | 21.8% | | Net debt | 15,337 | 5,741 | 167.1% | - The increase in total debt was primarily attributable to higher long-term debt related to the Katsa and Kobelt acquisitions[13] Company Information This section provides an overview of Twin Disc's business, including its products, markets, and distribution, along with important disclaimers regarding forward-looking statements and associated risks About Twin Disc Twin Disc, Inc. designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment, serving diverse global markets through direct sales and a distributor network - Twin Disc, Inc. designs, manufactures, and sells marine and heavy-duty off-highway power transmission equipment[16] - Products offered include marine transmissions, azimuth drives, surface drives, propellers, boat management systems, power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, and control systems[16] - The Company sells its products to customers primarily in the pleasure craft, commercial and military marine markets, as well as in the energy and natural resources, government, and industrial markets[16] - Worldwide sales to both domestic and foreign customers are transacted through a direct sales force and a distributor network[16] Forward-Looking Statements This section serves as a disclaimer regarding forward-looking statements, identifying them by specific terms and noting that they are subject to risks and uncertainties that could cause actual results to differ materially, with the company disclaiming any obligation to update these statements - This press release may contain forward-looking statements, identified by words like 'anticipates,' 'believes,' 'intends,' 'estimates,' and 'expects'[17] - Such forward-looking statements qualify for the safe harbors from liability established by the Private Securities Litigation Reform Act of 1995[17] - All forward-looking statements are based on current expectations and are subject to certain risks and uncertainties that could cause actual results or outcomes to differ materially[17] - Risks include general economic conditions, foreign currency risks, ability to implement price increases, ability to generate sufficient cash to pay indebtedness, and unforeseen tax consequences[17] - The Company assumes no obligation, and disclaims any obligation, to publicly update or revise any forward-looking statements[17] Non-GAAP Financial Measures & Definitions This section explains Twin Disc's use of non-GAAP financial measures to provide a more meaningful comparison of performance and offers clear definitions for key non-GAAP metrics like Organic net sales, EBITDA, Net debt, and Free cash flow Non-GAAP Financial Information Twin Disc uses non-GAAP financial measures, such as those excluding asset impairments, restructuring charges, foreign currency exchange rate changes, and acquisitions, as well as EBITDA, to provide a more meaningful comparison to prior and future periods, believing these measures offer a consistent view of performance and are used in conjunction with GAAP measures - Financial information excluding the impact of asset impairments, restructuring charges, foreign currency exchange rate changes and the impact of acquisitions are not measures defined in U.S. GAAP[18] - Management believes these non-GAAP measures are important to adjust for in order to have a meaningful comparison to prior and future periods and to provide a basis for future projections and for estimating earnings growth prospects[18] - These measures, as well as EBITDA, provide a more consistent view of performance than the closest GAAP equivalent for management and investors, and are used in combination with GAAP measures[18] Definitions This section provides clear definitions for key non-GAAP financial metrics used in the report: Organic net sales, Earnings before interest, taxes, depreciation, and amortization (EBITDA), Net debt, and Free cash flow - Organic net sales is defined as net sales excluding the recent acquisitions of Katsa and Kobelt while adjusting for the effects of foreign currency exchange[19] - Earnings before interest, taxes, depreciation, and amortization (EBITDA) is calculated as net earnings or loss excluding interest expense, the provision or benefit for income taxes, depreciation, and amortization expenses[19] - Net debt is calculated as total debt less cash[20] - Free cash flow is calculated as net cash provided (used) by operating activities less acquisition of fixed assets[21] Condensed Consolidated Financial Statements This section presents Twin Disc's key financial statements, including statements of operations, reconciliations for non-GAAP measures like EBITDA, net debt, and organic net sales, along with balance sheets and cash flow statements, providing a comprehensive overview of the company's financial performance and position Statements of Operations and Comprehensive Income (Loss) This statement presents the company's revenues, costs, and profits (or losses) for the fourth quarter and full fiscal year 2025 compared to 2024, detailing net sales, cost of goods sold, gross profit, operating expenses, and ultimately net income (loss) and comprehensive income (loss) attributable to Twin Disc | | For the Quarter Ended | | | For the Year Ended | | | :------------------------------------------ | :---------- | :---------- | :---------- | :---------- | | | June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | | Net sales (Thousands of $) | $96,678 | $84,418 | $340,738 | $295,127 | | Gross profit (Thousands of $) | $30,018 | $25,086 | $92,726 | $83,319 | | Income from operations (Thousands of $) | $5,345 | $4,719 | $9,887 | $11,479 | | Net income (loss) attributable to Twin Disc, Incorporated (Thousands of $) | $1,424 | $7,410 | ($1,894) | $10,988 | | Diluted income (loss) per share | $0.10 | $0.53 | ($0.14) | $0.79 | | Comprehensive income attributable to Twin Disc, Incorporated (Thousands of $) | $13,814 | $9,053 | $8,741 | $9,653 | Reconciliation of Net (Loss) Income to EBITDA This reconciliation details the adjustments made to convert net income (loss) attributable to Twin Disc to EBITDA for both the fourth quarter and full fiscal year 2025 and 2024, with key adjustments including adding back interest expense, income tax expense, and depreciation and amortization | | For the Quarter Ended | | | For the Year Ended | | | :------------------------------------------ | :---------- | :---------- | :---------- | :---------- | | | June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | | Net income (loss) attributable to Twin Disc, Incorporated (Thousands of $) | $1,424 | $7,410 | ($1,894) | $10,988 | | Interest expense (Thousands of $) | 855 | 394 | 2,646 | 1,443 | | Income tax expense (Thousands of $) | 47 | 1,515 | 3,368 | 4,121 | | Depreciation and amortization (Thousands of $) | 4,705 | 2,484 | 14,899 | 9,981 | | EBITDA (Thousands of $) | $7,031 | $11,803 | $19,019 | $26,533 | Reconciliation of Total Debt to Net Debt This reconciliation shows the calculation of net debt by subtracting cash from total debt as of June 30, 2025, and June 30, 2024, highlighting the increase in both total debt and net debt year-over-year | | June 30, 2025 (Thousands of $) | June 30, 2024 (Thousands of $) | | :-------------------------- | :------------------------------- | :------------------------------- | | Current maturities of long-term debt (Thousands of $) | $3,000 | $2,000 | | Long-term debt (Thousands of $) | 28,446 | 23,811 | | Total debt (Thousands of $) | 31,446 | 25,811 | | Less cash (Thousands of $) | 16,109 | 20,070 | | Net debt (Thousands of $) | $15,337 | $5,741 | Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow This reconciliation illustrates how free cash flow is derived from net cash provided by operating activities by deducting the acquisition of property, plant, and equipment for both the fourth quarter and full fiscal year 2025 and 2024, showing a significant decrease in free cash flow for FY25 | | For the Quarter Ended | | | For the Year Ended | | | :---------------------------------- | :---------- | :---------- | :---------- | :---------- | | | June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | | Net cash provided by operating activities (Thousands of $) | $16,448 | $11,499 | $23,979 | $33,716 | | Acquisition of property, plant, and equipment (Thousands of $) | (7,705) | (1,109) | (15,157) | (8,707) | | Free cash flow (Thousands of $) | $8,743 | $10,390 | $8,822 | $25,009 | Reconciliation of Reported Net Sales to Organic Net Sales This reconciliation adjusts reported net sales by removing the impacts of acquisitions/divestitures and foreign currency exchange to arrive at organic net sales for both the fourth quarter and full fiscal year 2025 and 2024, highlighting that a significant portion of reported sales growth was non-organic | | For the Quarter Ended | | | For the Year Ended | | | :------------------------ | :---------- | :---------- | :---------- | :---------- | | | June 30, 2025 | June 30, 2024 | June 30, 2025 | June 30, 2024 | | Net Sales (Thousands of $) | $96,678 | $84,418 | $340,738 | $295,127 | | Less: Acquisitions/Divestitures (Thousands of $) | (16,457) | - | (43,973) | (2,556) | | Less: Foreign Currency Impact (Thousands of $) | (2,915) | - | (1,423) | - | | Organic Net Sales (Thousands of $) | $77,306 | $84,418 | $295,342 | $292,571 | Condensed Consolidated Balance Sheets This statement provides a snapshot of Twin Disc's assets, liabilities, and equity as of June 30, 2025, and June 30, 2024, showing increases in total assets, total liabilities, and total equity year-over-year, with notable changes in cash, inventories, and debt | | June 30, 2025 (Thousands of $) | June 30, 2024 (Thousands of $) | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Total assets (Thousands of $) | $355,562 | $312,058 | | Total liabilities (Thousands of $) | $191,171 | $157,004 | | Total equity (Thousands of $) | $164,391 | $155,054 | | Cash (Thousands of $) | $16,109 | $20,070 | | Inventories, net (Thousands of $) | $151,951 | $130,484 | | Total debt (Current + Long-term) (Thousands of $) | $31,446 | $25,811 | Condensed Consolidated Statements of Cash Flows This statement details the cash inflows and outflows from operating, investing, and financing activities for the fiscal years ended June 30, 2025, and 2024, revealing a decrease in net cash provided by operating activities and a significant increase in cash used by investing activities, primarily due to acquisitions | | June 30, 2025 (Thousands of $) | June 30, 2024 (Thousands of $) | | :------------------------------------------ | :------------------------------- | :------------------------------- | | Net cash provided by operating activities (Thousands of $) | $23,979 | $33,716 | | Net cash used by investing activities (Thousands of $) | ($32,899) | ($32,069) | | Net cash (used) provided by financing activities (Thousands of $) | ($965) | $2,754 | | Net change in cash (Thousands of $) | ($3,961) | $6,807 | | Cash, end of period (Thousands of $) | $16,109 | $20,070 |