Twin Disc(US:TWIN)2025-11-05 13:31Financial 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].