Q3 2025 Twin Disc Inc Earnings Call
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Alex: Thank you for standing by. My name is Alex and I will be your conference operator today. At this time, I would like to welcome everyone to the Twin Disc Incorporated Fiscal Third Quarter 2025 Conference Call.
Alex: All Hines have been placed in new to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star, follow the number one on your telephone keypad. If you would like to withdraw your question, press star one.
Speaker Change: And press star one again. Thank you. I would now like to turn the conference over to Mr. Jeff Knutson. You may begin.
Jeff Knutson: Good morning and thank you for joining us today to discuss our fiscal 2025 third-quarter results.
Jeff Knutson: on the call with me today is John Batten, Twin Disc CEO .
Jeff Knutson: I would like to remind everyone that certain statements made during this conference call, especially statements expressing hopes, beliefs, expectations or predictions for the future are forward-looking statements.
Jeff Knutson: is an important remember that the company's actual results could differ materially from those projected in such foreign-looking statements.
Jeff Knutson: Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's annual report on Form 10K, copies of which may be obtained by contacting either the company or the FCC.
Jeff Knutson: Any forward-looking statements that are made during this call are based on assumptions as of today and the company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information.
Jeff Knutson: During today's call management, we'll also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of gap to non-GAAP financial results, please see the earnings release issued earlier today.
Jeff Knutson: By now, you should have received the news release which was issued this morning before the market opened. If you have not received a copy, please call our office at 262-638-4000 and we will send a release to you. Now I'll turn the call over to John .
John Batten: Good morning everyone and welcome to our fiscal 2025 third quarter conference call. We appreciate you joining us today.
John Batten: On an organic basis, which excludes the impacts of acquisitions and foreign currency exchange, revenue increased 1.7 percent on continued strength in the best product, offset by softened oil and gas shipments into China.
John Batten: While revenue improved marginally compared to last quarter, we saw significant month-over-month improvements throughout the third quarter, reflecting strong operational execution and continued healthy market conditions.
John Batten: Our recent acquisition of co-belt is off to a solid start to fight some initial headwinds related to tariff uncertainties, and we remain committed to fully leveraging synergies from both the co-belt and casa integrations as we look ahead.
John Batten: The robust performance in our marine and propulsion business continues driven by a sustained global demand, notably in commercial marine and luxury markets. We are encouraged by ongoing stabilization in our industrial business and maintain a healthy backlog entering the
John Batten: Given that tariffs are top of mind for many, and conditions continue to evolve rapidly, I'd like to briefly highlight our company's relative installation from direct impacts on our cost structure.
John Batten: As it stands today, we estimate approximately 500,000 of terra-related impacts for the upcoming fourth quarter.
John Batten: representing roughly 1% of our costs of goods sold. This impact primarily results from our sourcing activities in India, the European Union, and Japan with only a negligible contribution from China.
John Batten: Despite this modest exposure, we anticipate successfully mitigating much of these incremental costs through strategic pricing actions and targeted surcharges.
John Batten: Additionally, as a part of our ongoing risk management, we consistently evaluate alternative sourcing options to further limit potential exposure. We will continue monitoring develops closely, maintaining flexibility to optimize performance and mitigate any evolving risks.
John Batten: Turning to our marine propulsion segment, sales increased by 10.7% largely due to the acquisitions of COPSA and COGO, while demand remained robust as we continue to benefit from consistent strength in our product line.
John Batten: We saw notable strengths in the commercial marine market in North America, Riverboat vessels, and European luxury yachts, underscoring the global appeal of our propulsion solutions.
John Batten: Customers increasingly recognize the unique design advantage of best azimuth drives, which offer compact, efficient propulsion solutions that maximize onboard space, which has proven to be a key differentiator driving substantial growth in the pleasure craft market.
John Batten: Turning to government defense spending, we continue to see sustained demand for patrol vote applications driven by persistent geopolitical dynamics.
John Batten: Given the strong demand we are supplementing production using our existing Belgium and Texas facilities to support and relieve near-term capacity constraints, particularly given prolonged lead times driven by sustained order momentum.
In addition, immigration efforts continue to pay dividends.
John Batten: particularly within our European operations where margins improve substantially. Overall, we remain strategically positioned to capitalize on growing customer interest in electrification and hybrid propulsion systems, furthering our leadership and sustainable marine technologies.
John Batten: In land-based transmission, demand remains strong, driven primarily by the airport and firefighting market. Our specialized pump and roll transmission technology continues to be a compelling differentiator supporting substantial backlog growth as global airport expansion and fleet renewal initiatives advance.
John Batten: In oil and gas, North American New Build activity remains muted as customers maintain capital discipline and focus on rebuilding and extending the life of existing equipment.
John Batten: However, our aftermarket business remains resilient, supported by fleet aging and ongoing maintenance needs. In China, volumes have remained stable, however, tariff uncertainties have led to a more measured pace and new build activity, even if long-term fundamentals remain strong.
John Batten: Our industrial segment shows stable performance underpinned by positive contributions from CASA and initial contributions from cobalt.
John Batten: Provost specialized break products brought in our industrial portfolio and we are actively working to enhance their global market penetration by leveraging our international sales and service network as part of our ongoing integration efforts.
John Batten: Similarly, CASA continues expanding its reach with innovative solutions benefiting from our global service capabilities. Overall, the industrial markets remain steady, with continued engineering driven demand for specialized higher-content solutions across diverse markets.
John Batten: Our backlog strength is sequentially to approximately 134 million, indicating sustained robust demand across our product lines.
John Batten: Operational Improvements, Discipline Inventory Management, and Increase Production Efficiency Draw positive cash flow during the quarter, and we anticipate continue positive free cash flow moving forward.
John Batten: In conclusion, we continue executing our long-term strategy of global footprint optimization, operational excellence, and strategic acquisitions. Our recent acquisitions of Katsun Kobel exemplify our commitment to expanding engineering capabilities, enhancing market reach, and driving new synergies across our global operations.
John Batten: Our flexible global manufacturing strategy positions as well to navigate potential care of impacts, enabling strategic adjustments in production locations based on customer demand and geopolitical dynamics.
John Batten: Also, our long-term strategic initiatives and hybrid electric propulsion system position as well for future market shifts.
John Batten: Although adoption rates vary across end markets, we are uniquely suited to serve niche applications requiring specialized, high performance solutions, and we are increasingly recognized as a trusted technology partner for operators transitioning to sustainable solutions.
John Batten: While supply chain stability remains critical, particularly for specialized components such as motors and batteries, we continue to take a proactive approach focusing on sourcing strategies to ensure reliability for our customers.
John Batten: Looking forward, our priorities remain clear through discipline and execution, margin enhancement, and proactive market leadership and sustainable propulsion solutions.
John Batten: Additionally, we are taking steps to streamline our reporting structures in ways that bring decision-making closer to the operating businesses while freeing up the corporate team to focus us more intently on growth, strategy, and synergy capture.
John Batten: These changes, which are expected to take effect at the start of fiscal 2026, are designed to enhance the accountability, improve execution, and position our organization for long-term success, and we look forward to sharing more details and provide a fuller update during our end-to-the-year results call.
John Batten: Overall, we remain confident that our strategic initiative and strong operational focus will deliver long-term sustainable value for our customers, employees, and shareholders. With that, I'm now turning it over to Jeff to discuss our financial performance in greater detail. Jeff.
Jeff Knutson: Thanks, John . Good morning, everyone. There's a third quarter we delivered sales of $81.2 million, up $7 million or 9.5% from the prior year, primarily driven by contributions from our recent acquisitions and steady demand across most of our global markets.
Jeff Knutson: On an organic basis, excluding the impact of acquisitions in foreign currency, revenue increased 1.7%, reflecting sustained momentum in key product segments.
Jeff Knutson: Net loss attributable to Twin Disc for the quarter was 1.5 million or a loss of 11 cents per deluded share compared to net income of 3.8 million or 27 cents per deluded share in the prior to your period.
Jeff Knutson: Brings for share were impacted by $1.6 million in other expenses primarily due to currency translation impact.
Jeff Knutson: Gross Profit, Margin, improves sequentially to 26.7% up from 24.1% last quarters, reflecting a favorable comparison to the inventory right down in the previous quarters and enhanced operational efficiencies with an improved product mix.
Gross Profit for the quarter told $21.7 million $1.
Jeff Knutson: Looking at top-line sales distribution, we delivered stable performance across our marine and propulsion systems, land-based transmissions, and industrial segments. Geographic sales growth was notable in our European markets, benefiting from our recent acquisition and continued strength and marine-related projects.
Jeff Knutson: Compared to the prior year quarter net debt increased to $24.5 million, largely reflecting the recent acclimations of cost that in Kovale.
Jeff Knutson: We ended the quarter with a cash balance of 16.2 million maintaining adequate liquidity.
Jeff Knutson: Operating cash flow generation was positive totaling approximately $3.4 million, driven by working capital timing related to receivables and the phasing of sales ships during the quarter, positioning up for a strong fourth quarter. He bit that for the third quarter was approximately $4 million.
Jeff Knutson: Gross margins remain strong, driven by operational efficiencies and improved product mix. Moving forward, we remain disciplined in our approach to managing inventory, optimizing our cost structure, and maintaining pricing discipline to mitigate potential currency
Jeff Knutson: We anticipate continued positive margin trend to remove my product mix and ongoing operational improvement.
Jeff Knutson: Our capital allocation priorities remain consistent. We remain committed to discipline acquisitions that complement our existing expertise, particularly in marine and industrial technologies.
Jeff Knutson: Equally important is our ongoing investment in organic growth, including targeted research and development, geographic expansion, and enhanced marketing initiatives, ensuring sustained long-term growth and value creation for shareholders.
John Batten: I'll now turn the call back to John to his closing remarks.
John Batten: To wrap up, we delivered a solid porter highlighted by strong gross margins, positive operational momentum, and continued strength across key end markets, notably marine propulsion systems and industrial segments.
John Batten: Our strategic acquisitions and organic growth initiatives continue to drive our business forward, enhancing our competitive position in global reach.
John Batten: Looking ahead, we remain vigilant and proactive in managing potential tariff impacts and global market uncertainties, leveraging our operational flexibility and strong global infrastructure.
John Batten: We are confident our long-term growth trajectory underpin by our robust backlog, discipline, capital, allocation, and ongoing investments in technology and innovation driving sustainable growth for our customers, employees, and stakeholders.
John Batten: That concludes our prepared remarks, Jeff and I will now be happy to answer your questions.
John Batten: Thank you. We will now begin the question and answer session.
John Batten: If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening by a loudspeaker or nerdy-vice.
Speaker Change: Please speak up your handset and ensure that your phone is not in mute when asking your question. Again, press star 1 to join the queue. Your first question comes from the line of, David McGregor, with Longbow Research, please go ahead.
David McGregor: Yes, good morning everyone. I apologize in advance for the background noise. I'm in an airport, but I want to start off just given all the concern that seems to be occurring these days around the macro. It's just talking about order patterns. And you know as your order backlog was up looks like about my map is correct about 8%, which was pretty much where you were last quarter as well. So it seems to be fairly stable at those levels.
David McGregor: Are we seeing order growth normalizing here in that kind of range or maybe talk about to what extent you're seeing any order cancellations or deferrals?
David McGregor: I know third floor is normally an important quarter for marine in terms of maintenance work and that seems to come through as well. So did you see any evidence of cyclical pressures on, you know, like operators deferring maintenance or anything like that? It's trying to get a feel for what you're seeing in the macro.
So David, it's interesting it's
David McGregor: I would say we haven't really been affected as far as cancellations in the lead.
A lot of these projects.
David McGregor: are in the pipeline. Your ships are being built. Transmissions are coming in. I would say the order rate, if anything, are in the strengthening.
David McGregor: at Trend Right Now. We have a lot of, you know, marine orders, whether it's for marine transmissions or the vet asthma thrusters in the European, in Europe , produced in Europe . So those seem to be very well in North America, to marine.
David McGregor: Backlog I would say is only going to be increasing and what's happened again right now just in the macro level
David McGregor: with all the uncertainty around, I would say security again. We see trends increasing for patrol boat and military.
Certainly within Europe , but also within North America.
The Plan .
Speaker Change: Right now is going forward since 9-11 defense spending has been primarily devoted to land-based type stuff
Speaker Change: and also planes and other technology, but the focus has definitely switched into marine and a lot of vessels coming up in our horsepower range.
Speaker Change: So Batten looks good, Europe looks good, North American, Workboat looks good. I would say what I would expect to see some softness is and it's a much smaller part of our backlog in business.
Is I, you could see some pleasure crafts some yachts.
Speaker Change: I would say a pause in the orders or just, you know, wait and see because
Speaker Change: There's a lot of American customers buying yachts in Europe , and those are going to be tariff 10%. A lot of yachts are built in Australia and Taiwan, and so there'd be some tariff rates there. So if anything out near term that might have a little bit of delay, it's going to be in the pleasure craft base.
Speaker Change: in kind of that mega yacht segment, but it's a much smaller component to what we're seeing as far as strengthening in the...
in workboat and government defense.
Speaker Change: and we had a May 1 price increase. Are you getting immediate traction on that? Or is there going to be some risk in the fourth quarter margins around just the lag and price and traction versus the immediate implementation of the terrace?
Yeah, I think I think we're
Speaker Change: You know, pretty proactive on this one, David. I think, you know, we went out with the price release, our price increase with some anticipation of what was happening. We're doing a lot of work around.
Speaker Change: Where we're sourcing from what the tariff impact would be, what products that goes into, so yeah, there could be some fallout, certainly there's some, you know, market dynamics that might have some impact, but I don't think there will be a significant impact margins in Q4.
Speaker Change: You know, we're also looking at sourcing strategies and making sure we're getting it from the right place so it's not all price. We're looking at all the levels there to make sure we're doing the best we can on the side, but I don't expect them to be impact on 2-4 margins.
Okay, good to hear.
Speaker Change: And then I wanted to ask you about Cobalt. Maybe just it's early you've just completed that acquisition but you know what were your thoughts so far in terms of your ability to sort of replicate the vet playbook here by you know scaling globally by leveraging your system and maybe any ongoing observations around cats as well.
So, um...
Speaker Change: It's interesting, it's a great question. We're all here in Milwaukee for our global business plan meeting so it's the first time that we've gotten
Speaker Change: The leader of Cobalt, the leaders of Costa in with, you know, in the cycle of doing the business plan, I've been incredibly happy with the opportunity that we see to do the same thing that we've done with that with both, with both companies.
They have Katsa, we acquired Katsa last year.
They were very much OEM Direct.
Speaker Change: I'm very successful in that model of engineer to engineer from Kata to the engineering center.
Speaker Change: but didn't really have a global support that's, you know, dealer network distribution networks.
Speaker Change: They have come up with some, you know, market designs, markets an industrial hydraulic clutch.
Speaker Change: which we're releasing later this year. The other products that are going to be coming out that are a marine transmission line that is basically not designed specifically for an OEM, but for the broader market. Fantastic designs have been very well received by, you know, initial sampling in the market.
Speaker Change: Cobalt comes with us with a global dealer network, but it's, I would say, very uneven. We would recognize some of the dealers are a lot like a twin distributor where they have a lot of people who turn wrenches and support them, support the market on the ground. Some of them aren't.
Speaker Change: So I think there's a lot of work to do. I'm just going to be a full-time job for someone here very quickly to sort that out and how we bring these to networks.
Speaker Change: but they are in oil and gas, they're in paper, they're in steel, they're in wind, they're in marine applications on ships other than shaft brakes so we've just scratched the surface there. So I think there's, unfortunately with that...
Speaker Change: Covid got in the way for a lot of the traction of growth and synergy so it was delayed through that but I think you'll see
Speaker Change: A lot quicker expansion of revenue for Katsa and Kogo's, given that we don't have a global pandemic.
Speaker Change: We have a global tariff issue right now, but I don't see much of an impact on slowing that down. Again, right now, what we've seen in front of us a lot of cuts is...
Speaker Change: Growth Potential is within the EU, so no tariff impact there, but you know, there's things that we can do with co-belt to go across borders if we have to, if it cares to become an issue.
Jeff Knutson: Right, it's great color, thanks. And the last question for me, I just wanted to go back to a comment selling that Jeff made with regard to the gross margins, and he talked about enhanced operational efficiencies.
Jeff Knutson: I know you've got a lot going on in that bucket, but maybe you could just talk about some of the bigger ingredients that you were able to achieve just four or three hand-stopperational
Yeah, so I think um
in particular, the transmission that goes into...
Jeff Knutson: The ARP application, the airport rescue firefighting vehicles, a lot of work's been done there both in the factory, high-end events to drive. It's an efficient assembly process.
to drive better quality, and then I'm sourcing side.
to really look at.
Jeff Knutson: You know, globally, where's the best solution, you know, total landed cost, including quality aspects.
Jeff Knutson: And then from a design perspective, you know, having engineering review the drawing review design of that product to make sure that
We can continue to drive improved profitability in that particular
Jeff Knutson: in that particular product because it is something that we have high demand for and it goes out a couple of years at this point so a real good opportunity for us to move the needle on margin. David, I would also add that
Speaker Change: You never have steady state for all products at all facilities.
Speaker Change: and right now we're seeing some product lines in different facilities where we're bursting at the seams and we've done a lot of analysis on what it would take to move production around so we have what where it makes sense.
Speaker Change: to move product out of one facility into another, what's required, what cat-backs is needed, and mostly cat-stands and assembly fixtures.
Speaker Change: You know, I say we were ready to pull the trigger but right now we continue with the planning and doing the studying and you know one of the variables on the spreadsheet is you know what's the tariff impact.
Speaker Change: is going to be if we make these moves. So I think we'll probably just pause and just wait and see where the 90-day window is coming up this summer, see where it is, but I think after that, once we have a clearer answer on...
Speaker Change: and get them into some of our other facilities where we have skilled labor that can help right away. And so we don't have to add bricks and mortar or additional ships at certain facilities.
David McGregor: Okay. Got it. Makes sense. Congratulations on all the progress. Thank you. All right. Thank you, David.
Speaker Change: Again, if you would like to ask a question for a star in the number one on your telephone
Speaker Change: John Batten, John Batten, John Batten,
Speaker Change: There are no questions asked. That concludes our Q&A session. I will now turn the conference back over to John Batten for closing remarks.
Speaker Change: Thank you, Alex, and thank all of you for joining us for our fiscal 2025 third quarter conference call and your continued interest in Twin Disc. If you have any further questions, please contact either Jeff or myself, and we look forward to speaking with you at our fiscal 25 fourth quarter and end of your call in August . Thank you everyone.
John Batten, John Batten, Simon Wong, Twin Disc Inc
Speaker Change: John Batten, John Batten, Simon Wong, Twin Disc Inc
John Batten, John Batten, Simon Wong, Twin Disc Inc
John Batten, John Batten, Jeffrey Knutson, Simon Wong, Twin Disc Inc
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Speaker Change: John Batten, Jeffrey Knutson, Simon Wong, Twin Disc Inc
Speaker Change: Be a Bernard Fan Two moulded bobble heads Two focused pencils A pair of arms Some glue A sherry A black sign Perform arrangements Grow a stem Cutency Transparency Providence Safety Excitement � Lacing Scraping Transition Treatment Infadation
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John Batten, John Batten, Simon Wong, Twin Disc Inc
John Batten, John Batten, Jeffrey Knutson, Simon Wong
David MacGregor, John Batten, Jeffrey Knutson, David MacGregor, Simon Wong, Twin Disc Inc [inaudible]
John Batten, John Batten, Jeffrey Knutson, Simon Wong, Twin Disc Inc, John Batten, Jeffrey Knutson, Simon Wong, Twin Disc Inc. [inaudible]
David MacGregor, John Batten, Jeffrey Knutson, David MacGregor, Simon Wong
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John Batten, John Batten, Jeffrey Knutson, Simon Wong
Alex: Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Twin Disc Incorporated Fiscal Third Quarter 2025 Conference Call.
Alex: All Hines have been placed new to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, follow bit number one on your telephone keypad. If you would like to withdraw your question, press star one.
Alex: and press star one again. Thank you. I would now like to turn the conference over to Mr. Jeff Knutson. You may begin.
Jeff Knutson: Good morning, and thank you for joining us today to discuss our fiscal 2025 third-quarter
Speaker Change: on the call with me today is John Batten, Twin Disc's CEO . I would like to remind everyone that certain statements made during this conference call, especially statements expressing hopes, beliefs, expectations, or predictions for the future are forward-looking statements.
Jeff Knutson: is an important remember that the company's actual results could differ materially from those projected in such foreign-looking statements.
Jeff Knutson: Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's annual report on Form 10K, copies of which may be obtained by contacting either the company or the FCC.
Jeff Knutson: Any forward-looking statements that are made during this call are based on assumptions as of today, and the company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information.
Jeff Knutson: During today's call, management will also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of gap to non-GAAP financial results, please see the earnings release issued earlier today.
Jeff Knutson: By now, you should have received the news release, which was issued this morning before the market opened. If you have not received a copy, please call our office at 262-638-4000 and we will send a release to you. Now I'll turn the call over to John .
John Batten: Good morning everyone and welcome to our fiscal 2025 3rd quarter conference call. We appreciate you joining us today.
Speaker Change: We are pleased to report solid results for the quarter, delivering sales of 81.2 million up approximately 10% over the prior period and achieving strong growth margins reaching 26.7%.
Speaker Change: On an organic basis, which excludes the impacts of acquisitions and foreign currency exchange, revenue increased 1.7% on continued strength in the best product, offset by softened oil and gas shipments into China.
Speaker Change: While revenue improved marginally compared to last quarter, we saw significant month-over-month improvements throughout the third quarter, reflecting strong operational execution and continued healthy market conditions.
Speaker Change: Our recent acquisition of co-belt is off to a solid start to fight some initial headwinds related to tariff uncertainties, and we remain committed to fully leveraging synergies from both the co-belt and casa integrations as we look ahead.
Speaker Change: The robust performance in our marine and propulsion business continues driven by a sustained global demand, notably in commercial marine and luxury markets. We are encouraged by ongoing stabilization in our industrial business and maintain a healthy backlog entering the
Speaker Change: Given that tariffs are top of mind for many, and conditions continue to evolve rapidly, I'd like to briefly highlight our company's relative installation from direct impacts on our cost structure.
Speaker Change: Representing roughly 1% of our costs of goods sold. This impact primarily results from our sourcing activities in India, the European Union and Japan with only a negligible contribution
Speaker Change: Despite this modest exposure, we anticipate successfully mitigating much of these incremental final costs through strategic pricing actions and targeted surcharges.
Speaker Change: Additionally, as a part of our ongoing risk management, we consistently evaluate alternative sourcing options to further limit potential exposure. We will continue monitoring develops closely, maintaining flexibility to optimize performance and mitigate any evolving risks.
Speaker Change: Turning to our marine propulsion segment, sales increased by 10.7%, largely due to the acquisitions of COPSA and COVILP, while the man remained robust as we continue to benefit from consistent strength in our debt product line.
Speaker Change: We saw notable strengths in the commercial marine market in North America, Riverboat vessels, and European luxury yachts, underscoring the global appeal of our propulsion
Speaker Change: Customers increasingly recognize the unique design advantage of best azimuth drives which offer compact, efficient propulsion solutions that maximize onboard space which has proven to be a key differentiator driving substantial growth in the pleasure craft market.
Speaker Change: Turning to government defense spending, we continue to see sustained demand for patrol vote applications driven by persistent geopolitical dynamics.
Speaker Change: Given the strong demand, we are supplementing production using our existing Belgium and Texas facilities to support and relieve near-term capacity constraints, particularly given prolonged lead times driven by sustained order momentum.
Speaker Change: In addition, integration efforts continue to pay dividends, particularly within our European operations where margins and proofs substantially. Overall, we remain strategically positioned to capitalize on growing customer interest in electrification and hybrid propulsion systems, furthering our leadership and sustainable marine technologies.
Speaker Change: In land-based transmission, demand remains strong, driven primarily by the airport and firefighting market. Our specialized pump-and-roll transmission technology continues to be a compelling differentiator supporting substantial backlog growth as global airport expansion and fleet renewal initiatives advance.
Speaker Change: In oil and gas, North American New Build activity remains muted, as customers maintain capital discipline and focus on rebuilding and extending the life of existing equipment.
Speaker Change: However, our after-market business remains resilient, supported by fleet aging and ongoing maintenance needs. In China, volumes have remained stable, however, tariff uncertainties have led to a more measured pace in new-build activity, even if long-term fundamentals remain strong.
Speaker Change: Our industrial segment shows stable performance underpinned by positive contributions from CASA and initial contributions from co-bel.
Speaker Change: Provost Specialized Break Products brought in our industrial portfolio, and we are actively working to enhance their global market penetration by leveraging our international sales and service network as part of our ongoing integration efforts.
Speaker Change: Similarly, COSA continues expanding its reach with innovative solutions benefiting from our global service capabilities. Overall, the industrial markets remain steady, with continued engineering driven demand for specialized higher-content solutions across diverse markets.
Speaker Change: Our backlog strength is sequentially to approximately 134 million, indicating sustained robust demand across our product lines.
Speaker Change: Operational Improvements, Discipline Inventory Management, and Increase Production Efficiency Drill of Positive Cash Flow during the quarter. And we anticipate continue positive free cash flow moving forward.
Speaker Change: Despite currency headlines, we remain focused on maintaining operational discipline and delivering inventory efficiencies relative to our backlog.
Speaker Change: In conclusion, we continue executing our long-term strategy of global footprint optimization, operational excellence, and strategic acquisitions.
Speaker Change: Our recent acquisitions of Kaatsun Kobel exemplify our commitment to expanding engineering capabilities, enhancing market reach, and driving synergies across our global operations.
Speaker Change: Our flexible global manufacturing strategy positions as well to navigate potential care of impacts, enabling strategic adjustments in production locations based on customer demand and geopolitical dynamics.
Speaker Change: Also, our long-term strategic initiatives in the hybrid electric propulsion system position as well for future market shifts.
Speaker Change: Although adoption rates vary across end markets, we are uniquely suited to serve niche applications requiring specialized, high-performance solutions, and we are increasingly recognized as a trusted technology partner for operators transitioning to sustainable solutions.
Speaker Change: While supply chain stability remains critical, particularly for specialized components such as motors and batteries, we continue to take a proactive approach focusing on sourcing strategies to ensure reliability for our customers.
Speaker Change: Looking forward, our priorities remain clear through discipline and execution, margin enhancement, and proactive market leadership and sustainable propulsion solutions.
Speaker Change: Additionally, we are taking steps to streamline our reporting structures in ways that bring decision-making closer to the operating businesses while freeing up the corporate team to focus more intently on growth, strategy, and synergy capture.
Speaker Change: These changes, which are expected to take effect at the start of fiscal 2026, are designed to enhance accountability, improve execution, and position our organization for long-term success, and we look forward to sharing more details and provide a fuller update during our end-to-the-year results call.
Speaker Change: Overall, we remain confident that our strategic initiative and strong operational focus will deliver long-term sustainable value for our customers, employees, and shareholders. With that, I'll turn it over to Jeff to discuss our financial performance and greater detail.
Jeff Knutson: Thanks, John . Good morning, everyone. There's a third quarter we delivered sales of $81.2 million, up $7 million or 9.5% from the prior year, primarily driven by contributions from our recent acquisitions and steady demand across most of our global markets.
Speaker Change: On an organic basis, excluding the impacted acquisitions in foreign currency, revenue increased 1.7% reflecting sustained momentum in key product segments.
Speaker Change: Net loss attributable to Twin Disc for the quarter was 1.5 million, or a loss of 11 cents per deluded share compared to net income of 3.8 million, or 27 cents per deluded share in the prior year period.
Speaker Change: Brings for Share were impacted by $1.6 million in other expenses primarily due to currency translation impacts.
Speaker Change: Gross Profit, Margin, improves sequentially to 26.7% up from 24.1% last quarters, reflecting a favorable comparison due to inventory right down in the previous quarters and enhanced operational efficiencies with an improved product mix.
Close profit for the quarter total $21.7 million.
Speaker Change: Looking at top line sales distribution, we delivered stable performance across our marine and propulsion systems, land-based transmissions, and industrial segments. Geographic sales growth was notable in our European markets, benefiting from a recent acquisition and continued to strengthen marine-related projects.
Speaker Change: Compared to the prior year quarter net debt increased to $24.5 million, largely reflecting the recent acclimations of cost that encode out.
Speaker Change: We ended the quarter with a cash balance of $16.2 million maintaining adequate liquidity. Operating cash flow generation was positive totaling approximately $3.4 million, driven by working capital timing related to receivables and the phasing of sales ships during the quarter, positioning up for a strong fourth quarter.
He bit that for the third quarter was approximately $4 million.
Speaker Change: Gross margins remain strong, driven by operational efficiencies and improved product mix. Moving forward, we remain disciplined in our approach to managing inventory, optimizing our cost structure, and maintaining pricing discipline to mitigate potential currency
Speaker Change: We anticipate continued positive margin trends to improve my product mix and ongoing operational improvements.
Speaker Change: Our capital allocation priorities remain consistent. We remain committed to discipline acquisitions that complement our existing expertise, particularly marine and industrial technologies.
Speaker Change: Equally important is our ongoing investment in organic growth, including targeted research and development, geographic expansion, and enhanced marketing initiatives, ensuring sustained long-term growth and value creation for shareholders.
John Batten: I'll now turn the call back to John to his closing remarks.
John Batten: To wrap up, we delivered a solid porter highlighted by strong gross margins, positive operational momentum, and continued strength across key end markets, notably marine propulsion systems and industrial segments.
John Batten: Our strategic acquisitions and organic growth initiatives continue to drive our business forward, enhancing our competitive position in global reach.
John Batten: Looking ahead, we remain vigilant and proactive in managing potential tariff impacts and global market uncertainties, leveraging our operational flexibility and strong global infrastructure.
John Batten: We are confident our long-term growth trajectory underpin by our robust backlog, discipline, capital allocation, and ongoing investments in technology and innovation driving sustainable growth for our customers, employees, and stakeholders.
John Batten: That concludes our prepared remarks, Jeff and I will now be happy to answer your questions.
John Batten: Thank you. We will now begin the question and answer session.
John Batten: If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening by allowed speaker or nearby, please speak up your handset and ensure that your phone is not in mute when asking your question.
John Batten: Again, press star 1 to join the queue. Your first question comes from the line of David McGregor with Longbow Research, please go ahead.
David McGregor: Yes, good morning, everyone. I apologize in advance for the background noise I'm in an airport, but I wanted to start off just given all the concern that seems to be occurring these days around the macro. It's just talking about the order patterns. And you know as your order backlog was up, looks like my map is correct about 8%, which was pretty much where you were last quarter as well. So it seems to be fairly stable at those levels.
Speaker Change: Are we seeing order growth normalizing here in that kind of range, or maybe talk about to what extent you're seeing any order cancellations or deferrals?
Speaker Change: I know third four is normally an important quarter for marine in terms of maintenance work and that seems to come through as well. So did you see any evidence of physical pressures on, you know, like operators deferring maintenance or anything like that? Just trying to get a feel for what you're seeing in the macro.
Speaker Change: I would say we haven't really been affected as far as cancellations in the lead.
Speaker Change: A lot of these projects are in the pipeline. Your ships are being built. Transmissions are coming in. I would say the order rates if anything are in the strengthening.
Speaker Change: trend right now. We have a lot of marine orders, whether it's for marine transmissions or the vet asthma thrusters.
in the European, in Europe produced in Europe .
so those seem to be very well.
in North America, to Marine.
Speaker Change: Backlog I would say is only going to be increasing and what's happened again right now just in the macro level?
Speaker Change: with all the uncertainty around, I would say security again, we see trends increasing for patrol boat and military.
Certainly within Europe but also within North America.
The Plan .
Speaker Change: Right now, going forward, since 9-11, defense spending has been primarily devoted to land-based type stuff.
Speaker Change: and also planes and other technology, but the focus has definitely switched into marine and a lot of vessels coming up in our horsepower range.
Speaker Change: So Batten looks good, Europe looks good, North American workboat looks good, I would say what I would expect to see some softness is and it's a much smaller part of our backlog in business is I you could see some pleasure crafts some yachts
Speaker Change: I would say a pause in orders or just you know, wait and see because
Speaker Change: There's a lot of American customers buying yachts in Europe , and those are going to be tariff 10%. A lot of yachts are built in Australia and Taiwan, and so there'd be some tariff rates there. So if anything out in your term that might have a little bit of delay, it's going to be in the pleasure craft space.
Speaker Change: and in kind of that Yacht and Mega Yacht segment, but it's a much smaller component to what we're seeing as far as strengthening in...
in workboat and government defense.
Speaker Change: And we had a May 1 price increase. Are you getting immediate traction on that? Or is there going to be some risk in the fourth quarter margins around just a lag in price and traction versus the immediate implementation of the of the terrace?
Yeah, I think, I think we're prepared for you.
David McGregor: You know, pretty proactive on this one, David. I think, you know, we went out with the price release, our price increase with some anticipation of what was happening. We're doing a lot of work around.
David McGregor: Where we're sourcing from what the tariff impact would be, what products that goes into, so yeah, there could be some fallout. Certainly, there's some, you know, market dynamics that might have some impact, but I don't think there will be a significant impact margins in Q4.
David McGregor: You know, we're also looking at sourcing strategies and making sure we're getting it from the right place. So it's not all price, we're looking at all the labors there to make sure we're doing the best we can on the cross side, but I don't expect a big impact on 2-4 margins.
Okay, good to hear
David McGregor: And then I wanted to ask you about Cobalt, maybe just, it's early you've just completed that acquisition, but you know, what were your thoughts so far in terms of your ability to sort of replicate the vet playbook here by, you know, scaling globally, by leveraging your system and maybe any ongoing observations around cats as well.
So, um...
David McGregor: It's interesting, it's a great question. We're all here in Milwaukee for our global business plan meeting so it's the first time that we've gotten
David McGregor: The leader of co-belts, the leaders of COXA in the cycle of doing the business plan, I've been incredibly happy with the opportunity that we see to do the same.
thing that we've done with both companies.
They have COTSA when we acquired COTSA last year
They were very much OEM Direct
I'm very successful in that model of engineer to engineer from
from COTSA to the Engineering Center.
David McGregor: but didn't really have a global support that's, you know, dealer network distribution network.
David McGregor: They have come up with some, you know, market designs, markets, an industrial hydraulic clutch.
David McGregor: which we're releasing later this year. The other products that are going to be coming out that are a marine transmission.
David McGregor: line that is basically not designed specifically for an OEM, but for the broader market. Fantastic designs have been very well received by, you know, initial sampling in the market.
David McGregor: Cobalt comes with us with a global dealer network, but it's, I would say, very uneven. We would recognize some of the dealers are a lot like a twin distributor where they have a lot of people who turn wrenches and support them, support the market on the ground. Some of them aren't.
David McGregor: So, I think there's a lot of work to do and it's going to be a full-time job for someone here very quickly to sort that out and how we bring these two networks.
David McGregor: COVID got in the way for a lot of the traction of growth and synergy, so it was delayed through that. But I think you'll see
of Revenue for Katya and Kogelts.
given that we don't have a global pandemic.
That's not yet.
David McGregor: We have a global tariff issue right now, but I don't see much of an impact on slowing that down. Again, right now, what we see in front of us, a lot of cuts is...
David McGregor: Growth Potential is within the EU, so no tariff impact there, but there's things that we can do with co-belt to go across borders if we have to, if tariffs become an issue.
Speaker Change: Right. It's great color. Thanks. And the last question for me, I just wanted to go back to a comment so that Jeff made with regard to the gross margins and he talked about enhanced operational efficiencies. I know you've got a lot going on in that bucket, but maybe you could just talk about some of the bigger things that you were able to achieve this quarter through the enhanced operational efficiencies.
Yeah, so I think, um...
Speaker Change: You know, there's a big focus on some of our high volume or higher volume products, in particular the transmission that goes into
The RF Application Airport Rescue Firefighting Vehicles
Speaker Change: A lot of work's been done there, both in the factory, high zen events to drive an efficient assembly process.
The drive better quality and then on the sourcing side.
to really look at.
Speaker Change: You know, globally, where's could that solution, you know, total landed cost, including quality aspects
Speaker Change: And then from a design perspective, you know, having engineering review the drawing review design of that product to make sure that
Speaker Change: in that particular product because it is something that we have high demand for and it goes out a couple of years at this point. So a real good opportunity for us to do to move the needle on margin. Yeah, David. I would also add that
David McGregor: You know, you never have steady state for all products and all facilities [inaudible]
David McGregor: and right now we're seeing some product lines in different facilities where we're bursting at the seams and we've done a lot of analysis on what it would take to move production around so we have what where it makes sense.
David McGregor: to move product out of one facility into another, what's required, what cat fax was needed, and it's mostly cat stands and assembly fixtures.
David McGregor: You know, I say we were ready to pull the trigger, but right now we continue with the planning and doing the studying, and you know, one of the variables on the spreadsheet is, you know, what's the tariff impact?
onto the scene.
David McGregor: for a few years, I had another 90 days, but hopefully something stable, we can start to make these moves and relieve some facilities that are bursting at the seams and get them into some of our other facilities where we have skilled labor that can help right
David McGregor: and so we don't have to add bricks and mortar or additional ships at certain facilities.
David McGregor: John , it makes sense. Congratulations on all the progress. Thank you. All right, thanks. Thank you, David.
Speaker Change: Again, if you would like to ask a question for a star, for a star in the number one on your telephone keypad
Speaker Change: There are no questions asked. That concludes our Q&E session. I will now turn the conference back over to John Batten for closing remarks.
John Batten: Thank you, Alex, and thank all of you for joining us for our fiscal 2025 third quarter conference call and your continued interest in Twin Disc. If you have any further questions, please contact either Jeff or myself.
Speaker Change: And we look forward to speaking with you at our fiscal 25 fourth quarter and end of your call in August . Thank you everyone.