Twin Disc Q2 2025 Earnings Report

Twin Disc EPS Results

• Actual EPS: $0.07
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Twin Disc Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Twin Disc Announcement Details

• Quarter: Q2 2025
• Date: 2/5/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, February 5, 2025
• Conference Call Time: 9:00AM ET

Twin Disc (NASDAQ:TWIN) engages in the design, manufacture, and sale of marine and heavy duty off-highway power transmission equipment in the United States, the Netherlands, China, Australia, Italy, and internationally. The company operates in two segments, Manufacturing and Distribution. Its principal products include marine transmissions, azimuth drives, surface drives, propellers, and boat management systems, as well as power-shift transmissions, hydraulic torque converters, power take-offs, industrial clutches, and controls systems. The company also provides third-party manufactured products. It sells its products through a direct sales force and distributor network to customers primarily in the pleasure craft, commercial marine, patrol, and military marine markets, as well as in the energy and natural resources, government, agriculture, recycling, construction, oil and gas, and industrial markets. The company was incorporated in 1918 and is headquartered in Milwaukee, Wisconsin.

Twin Disc Q2 2025 Earnings Call Transcript

Presentation

[Operator]

Welcome to the Twin Disc, Inc. Fiscal Second Quarter twenty twenty five Conference Call. We will begin with introductory remarks from Jeff Newton, Twin Disc's CFO.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Good morning, and thank you for joining us today to discuss our fiscal twenty twenty five second quarter results. 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. It is important to remember that the company's actual results could differ materially from those projected in such forward looking statements. 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 10 K, copies of which may be obtained by contacting either the company or the FCC.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

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. 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 GAAP to non GAAP financial results, please see the earnings release issued earlier today. 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 the release to you.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Now, I'll turn the call over to John.

[John Batten, CEO & President at Twin Disc]

Good morning, everyone, and welcome to our fiscal twenty twenty five second quarter conference call. I appreciate you joining us today. We are pleased to report another quarter of strong double digit sales growth with second quarter sales of $89,300,000 reflecting a 23.2% year over year increase as we close out a successful first half of the fiscal year. We continue to see meaningful contributions from Casa Oi, which is allowing us to extend our global footprint and deepen our engineering capabilities, particularly in Europe and North America. We remain committed to ensuring seamless integration of Casa and are excited to unlock its full potential.

[John Batten, CEO & President at Twin Disc]

Our focus is on capitalizing on cross selling opportunities, optimizing shared cost efficiencies, streamlining our business lines and maintaining strong execution. At the same time, we are pleased to see continued strength in shipments of Veth products meeting the robust demand for cutting edge electric, hybrid and conventional propulsion system. We are maintaining a healthy backlog across all of our end markets and are encouraged by the continued stabilization with our industrial business over the quarter. Shifting to the product segment. Sales in our Marine and Propulsion segment grew 23.9% year over year.

[John Batten, CEO & President at Twin Disc]

This performance was driven by ongoing strength in our Veth product line, which once again delivered record orders as demand remains consistent globally. Incoming orders were driven in part by demand from both new North American projects within commercial applications in the luxury yacht market supported by our FET ROLA partnership. Meanwhile, increased government defense spending has sustained demand for patrol boat projects, mainly driven by evolving market dynamics surrounding ongoing geopolitical conflicts in Southeast Asia and Europe. The integration of Veth continues to yield meaningful synergy, positioning us to capture market opportunities in conventional electric and hybrid propulsion applications with our hybrid marine transmissions and control system. We remain focused on leveraging these synergies to address evolving customer needs, particularly around sustainability and electrification.

[John Batten, CEO & President at Twin Disc]

In our land based transmission, sales increased 19.8 year over year, reflecting continued momentum in our airport rescue and firefighting transmission business, where we shipped a significant volume of units this quarter. As we mentioned last quarter, demand for ARFF vehicles remained strong, driven by our advanced configurations, unique torque capabilities and innovative power dividing systems, which continue to position us as the supplier of choice. This trend persists as we benefit from growing international airport development, the replacement of aging fleets and the global shift towards emissions compliant transmission. Turning to Oil and Gas. Exports were down during the ongoing macroeconomic headwinds in the Asia Pacific region and subdued newbuilds in North America.

[John Batten, CEO & President at Twin Disc]

However, we anticipate momentum will begin to build as we have seen recent uptick in quoting activity. Aftermarket demand for replacement parts in oil and gas applications remains stable, underscoring the resilience of both our installed base and the demand driven by North American usage trends. As fleets continue to age through the replacement cycle, this indicates potential for newbuilds and sustained growth for the business. Our Industrial segment grew 44.8% year over year, driven by both the addition of Casa and a rebound in our Lufkin orders. We are seeing a continued stabilization sequentially within this segment as order momentum from our Lufkin facility has picked up.

[John Batten, CEO & President at Twin Disc]

Overall segment demand has improved, particularly for higher end content industrial products. We believe our continued engineering focus positions us to capture share in markets that demand specialized solutions, whether that's agricultural equipment, construction machinery or other high torque applications. Our backlog remains healthy and we are encouraged by the rate of sustained order momentum across our portfolio. As we executed during the quarter, our six month backlog is lower both sequentially and year over year due to high shipments. Foreign exchange also accounted for $11,500,000 versus the prior year quarter.

[John Batten, CEO & President at Twin Disc]

As we move through the year, we remain committed to disciplined inventory management and optimizing to lower inventories compared to the backlog. To conclude my comments, I'd like to address the significant progress we have made to date in executing our long term strategy. Over the past several quarters, we have maintained strong focus on our long term strategy and our recent acquisitions underscore that commitment. The successful integration of Casa expanded our engineering capabilities and market reach, particularly in Europe and North America. By enhancing our portfolio with Casa's specialized solutions, we are capturing share in industrial end markets that value customization and technical expertise.

[John Batten, CEO & President at Twin Disc]

From an operational perspective, we have made significant progress in integration, rationalizing inventory, aligning product lines and leveraging cross selling opportunities to enhance the customer experience. At the same time, we continue to optimize costs through improved supply sourcing, Kaizen driven facility enhancement and strategic inventory management, positioning us for sustained margin expansion. Looking ahead, we will remain disciplined in executing our operational initiatives and exploring additional strategic acquisitions that complement our core expertise. By steadily improving efficiency, enhancing profitability and strengthening our technology portfolio, we believe we are well positioned to deliver sustainable long term value for our customers, employees and shareholders. With that, I will now turn it over to Jeff to discuss the financials.

[John Batten, CEO & President at Twin Disc]

Jeff?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Thanks, John. Good morning, everyone. In the second quarter, we delivered sales of $89,900,000 for the quarter, up $15,900,000 or 23.2% from the prior year, driven by a $10,000,000 incremental benefit from Casa. On an organic basis, which excludes the impact of acquisitions and foreign currency exchange, revenue increased 10.1% as demand in our global end markets remained healthy. Net income attributable to Twin Disc for the second quarter was $900,000 or $0.07 per diluted share compared to a net loss of $900,000 or $0.07 per diluted share in the second quarter of fiscal twenty twenty four.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Earnings per share were impacted by an increase in other expenses related to interest expense and additional pension amortization in the quarter. Gross profit margin decreased to 24.1% compared to 28.3% during the prior year period and gross profit increased 5% to $21,700,000 The decline in gross profit margins was driven by a $1,600,000 inventory write down related to the Casa acquisition as we eliminated redundant inventory along with a $300,000 purchase accounting amortization expense tied to the acquisition and unfavorable product mix in the quarter. Looking at top line sales distribution, we delivered double digit growth in all three of the Marine and Propulsion Systems, Land Based Transmission and Industrial segment. This was mainly driven by ongoing healthy market demand and geographic expansion, including the additional benefit of the Casta acquisition and the continued stabilization in the Industrial segment, which fostered strong year over year growth. Touching on geographic distribution, we again saw increased sales in Europe as a result of our acquisition of Casa as well as the larger proportion of sales from North American markets on strength in the Veth projects in the region.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Compared to the second fiscal quarter of twenty twenty four, net debt increased $12,300,000 to $9,000,000 in the quarter, primarily driven by an increase in total debt due to the Costa acquisition. We ended the quarter with a cash balance of $15,900,000 20 4 point 3 percent lower than the prior year. Operating cash generation of $4,300,000 was strong in the quarter and EBITDA increased to $6,300,000 in the second quarter, up 13.5% compared to the second quarter of fiscal twenty twenty four. Gross margin decreased approximately four twenty basis points from the prior year period, largely reflecting the impact of inventory rationalization in our Industrial segment as we continue to integrate Hadza and eliminated redundant inventory. Additionally, we saw unfavorable mix in the quarter, which further pressured margins.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

As we move through the year, we are taking a disciplined approach by streamlining operations, optimizing our cost structure and driving efficiency across our supply chain. At the same time, we continue to prioritize higher margin products and services while maintaining a strong focus on pricing discipline. In terms of inflationary and supply chain challenges, we have seen near term shipment delays that impacted the prior quarter largely subside. On capital allocation, our priorities remain the same. We are committed to generating consistent cash flow in order to maintain leverage within a comfortable range.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Our primary focus for acquisitions is on businesses that complement our expertise in industrial marine technology, allowing us to accelerate growth in these key markets while enhancing our value proposition to customers. Equally important is our commitment to fueling organic growth. This means investing in research and development to push the boundaries of innovation, expanding our presence in underpenetrated geographies and advancing market efforts to deepen customer engagement and capture new opportunities. By balancing disciplined external investments with thoughtful internal initiatives, we're ensuring that Twin Disc is positioned for sustained growth and shareholder value creation both now and in the future. I'd now like to turn the call back to John to share some closing remarks.

[John Batten, CEO & President at Twin Disc]

Thanks, Jeff. In summary, we delivered another strong quarter of top line growth, buoyed by robust demand in Marine and Propulsion and recovery in industrial along with ongoing integration successes with Casa. While we navigated margin headwinds from product mix, we have made proactive steps to right size our inventory rationalization and enhance profitability. Our backlog, albeit lower sequentially due to FX, remains at a healthy level and cash flow has improved significantly as a result of inventory management. We believe we are well positioned for long term growth, thanks to our expanding portfolio of higher content, high value solutions and increasingly diversified global footprint and a strategic focus on electrification and hybrid systems.

[John Batten, CEO & President at Twin Disc]

We are committed to delivering value to our customers, employees and shareholders through consistent execution and strategic investment. That concludes our prepared remarks. And now Jeff and I will be happy to answer your questions.

[Operator]

Thank you. And our first question comes from the line of Simon Wong from Gabelli Funds.

[Jeff Knutson, CFO & VP at Twin Disc]

Just

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

a quick note. John, unfortunately, wasn't able to join us for the Q and A session today, but I'm happy to take your question and anybody's question.

[Simon Wong, Research Analyst at Gabelli Funds]

Okay. No problem. Just my quick question on the Oil and Gas. You talked about export being down. Can you quantify how much your Oil and Gas business is this quarter?

[Simon Wong, Research Analyst at Gabelli Funds]

And how much was the down year over year?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Yes. Good question. And I was prepared for that question, Simon. Yes, it was down it was about a little under 8% of revenue for the quarter and down compared to the prior year Q2 down about 24%.

[Simon Wong, Research Analyst at Gabelli Funds]

Okay. In your prepared remarks, you talked about quoting activity remains high. Is that North America quoting activity or is that Asian quoting activity?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

It's both. It's North America, it's Asia and also some South American activity as well.

[Simon Wong, Research Analyst at Gabelli Funds]

South America or?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Yes.

[Simon Wong, Research Analyst at Gabelli Funds]

Okay. And then it sounds like the ordering trend or activity from the oil and gas customers in light of the change in administration, you're seeing them getting back to work. Is that correct statement?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

I think maybe it's a little bit early to say that. I think what we've seen is, yes, increased level of activity, some new calls, some new potential projects. So it feels like, yes, we would say it's kind of a renewed level of activity in that market.

[Simon Wong, Research Analyst at Gabelli Funds]

Okay, great. And then can you just refresh your CapEx outlook for the year? And then on the free cash flow, you should plan are you still targeting to convert 60% of your EBITDA to free cash flow?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Yes, I mean that's certainly our goal, right? And we as we talked about after Q1, we had a difficult Q1 for a variety of reasons in terms of free cash flow, bounced back nicely in Q2. Free cash flow in Q2 above $6,400,000 So, yes, we're still targeting to get to that 60% of EBITDA. I think it's a bit of a stretch this year given the difficult Q1, but we're on a good trend now following Q2. In terms of CapEx, I think no big change there.

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

We were, I would say, a little bit behind pace. We've spent something like $5,000,000 through the first half of the year. We have some bigger projects coming through in the second half. I think in the range of $12,000,000 to $14,000,000 is probably where I'd peg it right now.

[Simon Wong, Research Analyst at Gabelli Funds]

Okay. If I can squeeze one more in, if I can. You talked about R and D, investing in R and D to expand the market or to capture growth in market. Anything that you can talk about that's being commercialized this year that will contribute to growth?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

No, I don't think there's anything that we're ready to talk about specifically in terms of new products or new technologies. I think we continue to focus on the hybrid electric market and that's an ongoing development. We get we continue to get more and more traction there, more orders, more interest, more activity and we continue to expand our capabilities in that market and that's a big focus for growth for us.

[Simon Wong, Research Analyst at Gabelli Funds]

Perfect.

[Simon Wong, Research Analyst at Gabelli Funds]

Thank you.

[Operator]

Thank you. And our question comes back from the line of Simon Wong from Gabelli Funds. Please go ahead.

[Simon Wong, Research Analyst at Gabelli Funds]

Jeff, since no one is asking questions, let me get one more in. The electric frac fleet that you are piloting about two, three quarters ago, any uptake on that product?

[Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary at Twin Disc]

Yes, I would say it's stable. It's ongoing. I wouldn't say there's anything newsworthy in the quarter that we could share. It's just an ongoing process for us.

[Simon Wong, Research Analyst at Gabelli Funds]

Okay. Thank you.

[Operator]

Thank you. It seems like there are no more questions in the queue. That concludes our question and answer session. It also concludes this conference call. Thank you for joining.

[Operator]

You may now disconnect.

Participants

Executives

• Jeffrey Knutson, VP of Finance, CFO, Treasurer & Secretary
• John Batten, CEO & President
• Jeff Knutson, CFO & VP

Analysts

• Simon Wong, Research Analyst at Gabelli Funds