TWIN — Twin Disc, Incorporated

Summary of Twin Disc, Inc. Q1 2026 Earnings Call

1. Key Financial Results and Metrics

• Sales: $80 million, up 9.7% year-over-year from $73 million.
• Organic Sales Growth: 1.1% (adjusted for acquisitions and foreign currency).
• Gross Profit: $22.9 million, an 18.7% increase year-over-year.
• Gross Margin: Expanded by 220 basis points to 28.7%.
• Net Loss: $518,000 or $0.04 per diluted share, improved from a loss of $2.8 million or $0.20 in the prior year.
• EBITDA: $4.7 million, a 172% increase compared to the previous year.
• Backlog: $163.3 million, up 13% year-over-year and 9% sequentially.
• Net Debt: Slight increase, with a conservative net leverage ratio of 1.3x.

2. Strategic Updates and Business Highlights

• Strong performance attributed to the marine and propulsion business, with a 14.6% year-over-year sales increase to $48.2 million.
• Successful integration of Katsa and Kobelt, contributing to expanded capabilities and synergies.
• Significant growth in defense-related projects, with a 45% year-over-year increase in defense backlog.
• Continued focus on operational efficiencies, global footprint optimization, and disciplined capital allocation.
• Positive momentum in hybrid propulsion and autonomous vessel solutions.

3. Forward Guidance and Outlook

• Expecting a temporary increase in tariff impact on cost of sales of 1% to 3% in Q2, returning to approximately 1% in the second half of the fiscal year.
• Confident in sustaining profitable growth and achieving long-term targets, driven by a robust backlog and strategic initiatives.
• Targeting double-digit EBITDA margins, with a goal of reaching 15% in the future.

4. Bad News, Challenges, or Points of Concern

• Potential tariff impacts could affect cost structures, particularly in Q2.
• The oil and gas segment remains cautious, with flat sales and dependency on a recovery in demand for growth.
• Seasonal cash flow dynamics led to a decline in cash balance, down 14.8% year-over-year.
• Inventory levels increased due to strong demand and pre-buys, which may affect cash flow conversion.

5. Notable Q&A Insights

• Defense Shipments: Anticipated significant growth in defense-related shipments, particularly for NATO vehicles and U.S. Navy autonomous platforms, with expectations of doubling volumes in the coming years.
• Oil and Gas Outlook: Management remains cautiously optimistic about recovering demand in the oil and gas sector, particularly for natural gas applications, despite current challenges in China.
• Land-Based Transmission Performance: Flat sales attributed to timing of shipments and steady demand rather than significant declines.
• Gross Margin Sustainability: Management believes the gross margin improvement is sustainable, contingent on maintaining product mix and operational efficiencies.

Overall, Twin Disc reported a solid start to fiscal 2026, with strong sales growth and improved margins, while navigating challenges related to tariffs and market conditions in certain sectors. The company remains focused on strategic growth initiatives and operational efficiencies to drive future profitability.