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]