TWIN — Twin Disc, Incorporated

Twin Disc, Incorporated Q2 2026 Earnings Call Summary

1. Key Financial Results and Metrics:

• Sales: $90.2 million, up 0.3% year-over-year from $89.9 million.
• Organic Revenue: Decreased approximately 7.9% due to shipment delays.
• Gross Profit: Increased 3.2% to $22.4 million; gross margin improved 70 basis points to 24.8%.
• Net Income: $22.4 million or $1.55 per diluted share, significantly up from $919,000 or $0.07 per share in the prior year, largely due to a $21.8 million tax benefit.
• EBITDA: $4.7 million, a 25% decrease year-over-year.
• Backlog: Reached a record $175.3 million, up 41.4% year-over-year and 7% sequentially.
• Net Debt: Increased to $29 million, attributed to the acquisition of CoVelt.
• Free Cash Flow: Generated $1.2 million, showing improvement from the previous quarter.

2. Strategic Updates and Business Highlights:

• Diversified Portfolio: Continued robust demand across marine, defense, and select industrial applications.
• Defense Sector Growth: Defense-related backlog increased 18% sequentially, driven by elevated spending in the U.S. and NATO.
• Operational Enhancements: Focus on footprint optimization and operational flexibility, including relocating RF assembly to a tariff-advantaged facility in Lufkin.
• Market Positioning: Strong demand for higher content systems and hybrid propulsion solutions in marine applications.

3. Forward Guidance and Outlook:

• Expectations for Q3 and Q4: Management anticipates improved revenue growth in the second half of the fiscal year, despite near-term volatility.
• Tariff Impact: Expected to moderate as mitigation strategies take effect, with a focus on reducing tariff exposure through operational adjustments.
• Long-term Strategy: Continued emphasis on global footprint optimization, operational excellence, and disciplined capital allocation.

4. Challenges and Points of Concern:

• Tariff Pressures: Elevated tariff impacts (approximately 3% of cost of sales) continue to create friction, affecting order placement and shipping lead times.
• Mixed Segment Performance: Marine and propulsion sales were flat year-over-year, with challenges noted in the commercial marine business in Asia Pacific.
• Cautious Oil and Gas Market: North American oil and gas customers remain cautious, impacting new equipment purchases.
• Short-term Aftermarket Softness: Noted delays in aftermarket activity due to customer timing and year-end dynamics.

5. Notable Q&A Insights:

• Revenue Growth Projections: Management is optimistic about revenue growth in the second half, although tariffs remain unpredictable.
• Gross Margin Dynamics: Factors affecting margins included tariff impacts and operational delays; management expects normalization as shipment patterns stabilize.
• International Oil and Gas Demand: Signs of improvement noted in China, with increased customer engagement exceeding expectations.
• Military Orders: Strength in defense orders is attributed to unmanned vessel programs and NATO-related initiatives, with a focus on ensuring production capacity meets anticipated demand growth.

Overall, Twin Disc demonstrated resilience amid challenges, with a strong backlog and strategic initiatives aimed at mitigating tariff impacts and enhancing operational efficiency. The outlook remains cautiously optimistic for the second half of the fiscal year.