Earnings call transcript: Twin Disc Q4 2025 misses EPS forecast, revenue up

Twin Disc, Inc. (TWIN), a $130.44 million market cap industrial equipment manufacturer, reported its fourth-quarter 2025 earnings, revealing a significant miss on earnings per share (EPS) forecasts but a slight beat on revenue expectations. The company announced an EPS of $0.10, falling short of the anticipated $0.57, marking an 82.46% negative surprise. Revenue for the quarter reached $96.7 million, surpassing the forecast of $93.3 million by 3.62%. Despite the earnings miss, Twin Disc’s stock rose 13.08% in pre-market trading, reflecting investor optimism about the company’s strategic initiatives and market position. According to InvestingPro analysis, the company appears undervalued based on its Fair Value calculation, suggesting potential upside for investors.

Key Takeaways

• Twin Disc’s EPS of $0.10 missed the forecast by a wide margin.
• Revenue exceeded expectations, reaching $96.7 million.
• The stock surged 13.08% in pre-market trading.
• Strong growth in defense and industrial segments.
• Focus on innovation in hybrid and electrification solutions.

Company Performance

Twin Disc’s overall performance in Q4 2025 showed mixed results. While the company experienced a notable miss in EPS, it reported a 14.5% increase in quarterly sales compared to the previous year. The company’s strategic focus on defense and industrial markets contributed to a strong backlog of $150.5 million. Additionally, Twin Disc’s efforts in restructuring and innovation have begun to show positive returns, as highlighted by its CEO, John Batten.

Financial Highlights

• Revenue: $96.7 million, up 14.5% year-over-year
• Earnings per share: $0.10, compared to a forecast of $0.57
• Gross margin: Improved by 130 basis points to 31%
• Net income: $1.4 million for Q4
• Full-year sales: $340.7 million, up 15.5% year-over-year

Earnings vs. Forecast

Twin Disc’s EPS of $0.10 significantly missed the forecast of $0.57, resulting in an 82.46% negative surprise. This marks a challenging quarter for the company in terms of profitability, although revenue exceeded expectations by 3.62%, reaching $96.7 million.

Market Reaction

Despite the earnings miss, Twin Disc’s stock price increased by 13.08% in pre-market trading, reaching $8.63. This positive market reaction suggests investor confidence in the company’s strategic direction and growth potential, particularly in the defense and industrial segments.

Outlook & Guidance

Looking forward, Twin Disc aims to achieve $500 million in revenue and 30% gross margins by 2030. The company plans to invest $12-14 million in capital expenditures in fiscal 2026 and anticipates the oil and gas segment to return to 15% of revenue. Strategic initiatives include continued focus on bolt-on acquisitions and organic growth.

Executive Commentary

CEO John Batten stated, "We’re beginning to see the returns on our efforts to streamline and modernize our business." He also highlighted the strong demand in global defense, RF transmissions, and hybrid solutions, which continue to exceed expectations.

Risks and Challenges

• Supply chain disruptions could impact production and delivery timelines.
• Market saturation in core segments may limit growth potential.
• Geopolitical tensions could affect international operations.
• Fluctuations in oil and gas demand may influence revenue streams.
• Increasing competition in hybrid and electrification technologies.

Q&A

During the earnings call, analysts inquired about Twin Disc’s capacity management in the defense market and explored commercial synergies from recent acquisitions. The company also addressed strategies for margin improvement and differentiation of its e-frac transmission technology.

Full transcript - Twin Disc Incorporated (TWIN) Q4 2025:

Conference Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Twin Disc, Inc. Fiscal Fourth Quarter and Full Year twenty twenty I would now like to turn the conference over to Jeff Knudson. You may begin.

Jeff Knudson, CFO, Twin Disc, Inc.: Good morning and thank you for joining us today to discuss our fiscal twenty twenty five fourth quarter and full year 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 ks, copies of which may be obtained by contacting either the company or the SEC.

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. Now I’ll turn the

John Batten, CEO, Twin Disc, Inc.: call over to John. Good morning, everyone, and welcome to our fiscal twenty twenty five fourth quarter conference call. We closed out the fiscal year with our strongest quarter, an outcome that reflects our team’s consistent execution and resilience in dynamic markets. I’m incredibly proud of how our global organization continues to deliver even amid ongoing global uncertainty, including tariff related pressures and shifting demand patterns. For the full year, we delivered top line growth of 15.5% with sales reaching 340,700,000.0, supported by a broad based demand and strong order activity across our portfolio.

Although EBITDA margins were hampered by the impacts of non operating and non cash items, such as currency translation loss and stock based compensation, we continue to generate consistent free cash flow of 8,800,000.0. In addition to our strong performance, this year marked a pivotal step forward in modernizing our operating model. We now manage the business across four product aligned business units led by Tim Batten in his new role as Executive Vice President, where he will be leading our global business operations. This supports our agile global manufacturing and supply chain structure that allows us to scale effectively, seamlessly integrate acquisitions, all about expanding our fixed infrastructure. We also made meaningful progress on our strategic priorities, including the integration of Kafka and Cobalt.

These acquisitions have expanded our capabilities, broadened our customer base, and strengthened our long term platform for growth. I am pleased with our progress to date and look forward to reaping the full benefits of this combined platform. Turning to the fourth quarter, we closed the year with our strongest performance of the fiscal year as sales grew 14.5% year over year to 96,700,000. While organic net sales declined due to reduced activity in oil and gas markets, this was more than offset by continued strength in marine and propulsion systems as well as ongoing demand for higher content transmissions. Order momentum remained healthy and our six month backlog increased to 150,500,000, reflecting strength in government and hybrid marine programs.

Looking ahead, we remain confident in our growth trajectory, particularly in the defense market where we are well positioned to capture robust end market demand fueled by increased defense spending across both US and NATO budgets. Given this increased activity, we are seeing strong momentum for our marine transmissions, controls and steering systems, propulsion systems, gearboxes, and transfer case products across geographies as we serve as an approved supplier to end users such as the US Army, US Navy, and NATO. This is well illustrated in our total backlog as orders related to defense products grew approximately 45% versus fiscal twenty four, now making up nearly 15% of our total backlog. With 50 to 75,000,000 in defense related pipeline, we have significant runway for growth. As we further capitalize on end market strength, execute on our clear path to broaden geographic reach and remain committed to disciplined capital deployment strategy, we are poised to build on this year’s momentum and continue delivering value for our shareholders.

Let me walk you through the segment performance. In marine and propulsion systems, sales grew 12.2% in the fourth quarter to 53,000,000, supported by robust activity in work boats, government contracts, and Vets Elite thruster products. Notably, we are seeing strong momentum for orders for unmanned US Navy vessels in the 300 to 400 foot range, autonomous platforms built for extended patrol periods. These orders signal a meaningful shift towards larger persistent defense platforms and validate the investments that we’ve made in our marine transmissions and controls technology. And our backlog for VET thrusters in The US continues to grow both in work boat and the cruise vessel segments.

CoVELT contributed as expected in this quarter, primarily within our commercial marine controls business, which is now fully integrated into our systems offering. Marine aftermarket also remains strong, driven by continued utilization of military and commercial fleets. Aftermarket revenue for the quarter totaled 4,700,000.0 in marine alone with a margin contribution exceeding 60%. In land based transmissions, revenue rose 4.5% year over year to 26,100,000.0 in the fourth quarter. While oil and gas shipments into China declined, activity in North America and Asia remained stable.

ARF demand stayed strong. And in addition, we continue to see action in our new e frac systems with our first meaningful order for this segment representing 14 units totaling 2,300,000.0. This validates our technical offering and supports a more optimistic medium term outlook. Aftermarket sales in this segment were down year over year at $3,000,000 compared to $5,500,000 in the ’24, reflecting a low lower rebuild volumes tied to idle fleets. Our industrial segment saw strong sequential growth with fourth quarter sales rising thirty thirty five percent sequentially to 13,100,000.0.

Year over year, our industrial products grew 82% in the fourth quarter. The improvement was broad based across customers and supported by strength in CASA’s industrial parts business. When excluding this acquisition, the industrial segment grew 13% compared to the prior year period. Lufkin also had a strong quarter shipping 4,100,000 in the fourth quarter versus 3,100,000 average run rate. While the recovery is still early, we’re encouraged by positive order trends and share gains.

Our six month backlog rose to 150,500,000 up both sequentially and year over year. This reflects healthy demand and the benefit of the Costa and Covelt acquisitions. At the same time, we have continued to reduce inventory levels as a percentage of backlog, highlighting our focus on working capital discipline. In closing, I’d like to also address our long term strategy before Jeff takes us through the financial overview. I remain committed to our strategy built on global footprint optimization, operational excellence, and targeted acquisitions.

Our recent purchases of CASA and COVAL are clear examples of how we’re broadening engineering capabilities and market reach by unlocking meaningful synergies across our operations. These strategic additions complement our core expertise and accelerate our entry into higher value niches, reinforcing our ability to deliver sustainable growth for customers, employees, and shareholders. The second cornerstone of our plan is to lead the industry in hybrid and electrification solutions. We are intensifying investment in controls and systems integration because these technologies multiply potential on every vessel of the vehicle we serve. Growing customer interest in hybrid and fully electric propulsion, particularly within marine applications, positions us to capture new opportunities, and our advanced VET and CASA platforms give us a tangible head start.

We are already winning hybrid projects in commercial and defense markets, and ongoing R and D and investment will ensure we remain the partner of choice as sustainability requirements tighten worldwide. Operational resilience is equally critical. Our flexible global manufacturing network and organizational streamlining allows us to shift production swiftly in response to geopolitical dynamics and tariff regimes, preserving both service levels and cost competitiveness. We have quantified tariff exposure at roughly 1% of cost of goods sold and have pricing actions, alternative sourcing, and surcharge mechanisms in place to offset any further impact. At the same time, our robust backlog of approximately $150,000,000 provides clear visibility, while continued inventory discipline and efficiency projects underpin margin expansion.

Looking further ahead, we remain steadfast in achieving our 2,030 objectives of about $500,000,000 in revenue, 30% gross margins, and consistent free cash flow conversion of at least 60%. The cash we generate will be reinvested in organic growth and further bolt ons, ensuring we stay on the front foot while maintaining a prudent balance sheet. With that I’d like to now turn it over to Jeff to discuss the financials. Jeff.

Jeff Knudson, CFO, Twin Disc, Inc.: Thanks, John. Good morning, everyone. During the quarter we delivered $96,700,000 in sales for Q4, up 14.5% from $84,400,000 in the prior year period. As John mentioned earlier, fiscal twenty twenty five sales totaled $340,700,000 compared to $295,100,000 last year, an increase of 15.5%. On an organic basis, for M and A and FX, revenue declined approximately 8.4 in Q4 driven by reduced oil and gas activity, particularly in China.

As a reminder, our fiscal fourth quarter factored in the full impact of the Covelt acquisition. For the full year revenue increased 1% on an organic basis driven by strength in the company’s land based transmission markets with healthy demand in marine and propulsion systems. Fourth quarter gross profit rose 19.7% to $30,000,000 and gross margin improved 130 basis points to 31%, supported by a favorable product mix and one time cost capitalization adjustments in our cost of inventory. Excluding the impact from this one time inventory adjustment, gross margin was 28% for the quarter. For the full year, profit was $92,700,000 or 27.2% of sales.

ME and A expenses were 24,600,000 in Q4 compared to $20,400,000 last year. The increase reflects the addition of CASA and CoVelt as well as ongoing wage and professional services inflation. Fiscal full year MEA was $82,400,000 versus $71,600,000 in fiscal year twenty four. Net income attributable to Twin Disc for the quarter was $1,400,000 or $0.10 per diluted share compared to $7,400,000 or $0.53 per diluted share last year. Full year net loss was 1,900,000 or $0.14 per share compared to net income of $11,000,000 or $0.79 per share in fiscal twenty four.

EBITDA was $7,000,000 for the fourth quarter and $19,000,000 for the full year versus $11,800,000 and $26,500,000 respectively in the prior year. This fiscal twenty twenty five full year EBITDA swing reflects non operating or non cash impacts of currency translation losses, stock based compensation, inventory adjustments, defined pension amortization and other items as shown in our press release issued earlier today. From a geographic perspective, sequential sales growth was led by the North American market where strong demand for vet products contributed to an increased share of quarterly sales. On a year over year basis, European market captured a greater proportion of total sales reflecting the contributions from our recent acquisitions. For the full year, we delivered double digit growth in both European and Asia Pacific regions.

The overall sales mix shifted toward Europe, while Asia Pacific represented a smaller proportion of total sales compared to the prior year in part due to regional market dynamics and our targeted expansion efforts in Europe. We remain focused on disciplined capital management throughout fiscal twenty five. Net debt increased to $15,300,000 primarily reflecting our strategic acquisition of Cobalt. We ended the year with a cash balance of $16,100,000 down 19.7 from the prior year. We generated positive free cash flow of $8,800,000 for the year and maintained a conservative net leverage ratio of 0.8 times amid a challenging environment.

Entering fiscal twenty twenty six, we are well positioned to navigate macroeconomic uncertainty with flexibility and discipline. Our balance sheet supports our ongoing evaluation of targeted bolt on acquisitions that complement our innovation strategy and expand our product portfolio. As stated previously, gross margin improved by approximately 130 basis points to 31% in the fourth quarter when compared to the prior year period, driven by the continued benefits of cost reduction initiatives, enhanced operational efficiencies, and a more favorable product mix. When removing an inventory adjustment for Costa, we achieved gross margin of 28% demonstrating sequential improvement. As we enter fiscal twenty twenty six, we remain focused on sustaining this positive momentum by further optimizing our cost structure and driving margin accretive growth across our portfolio.

Strengthening profitability remains a key priority as we execute on our strategic initiatives. Our capital allocation priorities remain unchanged, grounded in a balanced approach to growth and value creation. We continue to pursue disciplined M and A opportunities that align with our core strengths in marine and industrial technologies while also investing in organic initiatives such as R and D, geographic expansion and innovation, particularly in hybrid and electrification solutions. With a healthy net leverage position and a clear strategic focus, we are well positioned to drive long term sustainable growth. I’ll now turn the call back to John for his closing remarks.

John Batten, CEO, Twin Disc, Inc.: As we look ahead to fiscal twenty twenty six, I’m encouraged by the foundation we’ve built. Our backlog is strong, our global operations are aligned, and our leadership team is focused. We’re beginning to see the returns on our efforts streamline and modernize our business across commercial, operational, and strategic dimensions. Demand in global defense, RF transmissions, and hybrid solutions continue to outpace expectations. Our ongoing collaboration with major OEMs and system integrators places us at the forefront of next generation propulsion and power solutions.

Our focus remains on disciplined execution, profitable growth, and long term value creation for all stakeholders. That concludes our prepared remarks. Jeff and I are now happy to take your questions.

Conference Operator: Thank you. And your first question comes from the line of David MacGregor with Longbow Research. Your line is open.

David MacGregor, Analyst, Longbow Research: Yes. Good morning, everyone.

John Batten, CEO, Twin Disc, Inc.: Hey, David. Me start Good morning, David. With

David MacGregor, Analyst, Longbow Research: Hey, good morning. Good morning. Can I just start with the backlog? Obviously, very strong $150,000,000 You talked about the acquisitions as a contributing factor. You talked about defense.

Can you just walk us through maybe where else across the mix we may be seeing particular strength? Is it broad based or is it particularly in these two verticals and just a little more detail there would be helpful.

Jeff Knudson, CFO, Twin Disc, Inc.: Yeah, think you hit that the two biggest, right? I think there’s strength across the portfolio. I think even within oil and gas, we’re starting to see some good improvements. I think we noted it’s not in the year end backlog, but we did get some initially frac orders as we rolled into fiscal twenty twenty six. So quarter over quarter, most of that improvement was in the markets that you point out.

So defense, propulsion continues to be really strong globally, pleasure craft, the vet operation continues to book at sort of record levels quarter over quarter. So, yes, a lot of strength in the markets.

John Batten, CEO, Twin Disc, Inc.: Yes, David, I would only add, this is John. With the part that’s beginning that’s really picked up, I would say in the last quarter is the defense. It’s for us, it’s been in the Marine for The U. S. It’s been in Marine area and in Europe, it’s been in land based transmission products for NATO all wheel drive vehicles.

David MacGregor, Analyst, Longbow Research: And just maybe can you elaborate a little further around the defense and I realize it’s historically been maybe a smaller part of the overall business, but it sounds like the growth prospects there are improving rather dramatically. Just talk about how you plan to manage that and what the potential could look like.

John Batten, CEO, Twin Disc, Inc.: Well, is basically making sure that we have the capacity to meet the demand. When we acquired Kobel, sorry, when we acquired Katsa, in between the agreement and closing Finland joined NATO and then Sweden joined NATO. And we’ve been blessed with an approved supplier, that is feeding a lot of the trucks in NATO and these programs are growing. So our number one focus is making sure that we can meet the demand in Finland for these vehicles. And a lot of that’s going to entail what products and when we brought when we acquired Katsa, it was for their capability and also their product line that they developed.

They were a part supplier, they had fantastic machining capability, but they were really in their infancy in supplying finished product like gearboxes. It’s big time now. So it is, you know, it’s going to be what can we take from Finland and assemble and build other places to make sure that we have the capacity to meet that. And we do. And so that is it’s exciting because there’s a huge growth potential there.

As

Simon Wong, Analyst, Gabelli Funds: these vehicles as more and more

John Batten, CEO, Twin Disc, Inc.: of these vehicles are built and the more contracts coming. So it’s going to be, what do we offload? And we have facilities depending on what the product is, what the tariff structure is, but we could move assembly to Belgium, to Italy, to Texas, you know, to meet that demand. And same for the Marine transmissions for the US Navy. This is really ramping up.

And we have right now we have we believe we have the capacity in Racine, but that’s easily something that we could offload into Lufkin if we need help.

David MacGregor, Analyst, Longbow Research: Good. Sounds pretty encouraging. I wanted to maybe just ask you to talk about some of the commercial synergies and the cross selling. Noted in the press release that integration efforts are creating more commercial opportunities. I just wondered if you could expand on that.

John Batten, CEO, Twin Disc, Inc.: Yes. So it’s two different scenarios really with so Veth, when we acquired Veth, they had sales agents around the world didn’t really have distributors, what we would think of as distributors in our industry. Something like what Twin Disc would have or Caterpillar or Cummins, where you have dedicated workshops, trained mechanics, spare parts, on the shelf locally. And that’s what we brought to Veth. We had a delay in the growth because of COVID and then we had supply chain issues, but now that those are mostly behind us, we’re really starting to see the vet product take off in other geographies.

And I think right now, North America might be if it’s not number one, it’s number two in their backlog. And it’s across its river cruise ships, it’s work boats. And so it took some time, but now it’s starting to happen and we’re starting to see that momentum build in Asia. We’ve had projects in Australia. It’s the same thing we’re going to do.

Katsa, very similar, had one external agent. So Katsa has one external agent. And so we’re starting to bring that global support to their product line. And we’ve integrated one of their hydraulic PTOs into our product line. And so they had no real distribution around the world.

Cobalt does have a lot of dealers around the world. And this is going to be a different integration and synergy because some of their dealers we feel could be very influential in helping us sell some of our products. And vice versa, we think in some regions, where we have company owned subsidiaries in Asia and Australia, we think we’re going to be very strong in growing their products in different regions. But we’re really excited about both acquisitions, bring new products, new customers, but it’s something that we can plug into our system, particularly with Covelt, their industrial brake line, which they’ve had some good success with in parts of North America in different applications. We think that we can really take that business globally.

David MacGregor, Analyst, Longbow Research: We’ve talked before about as you sort of enter some of these new markets, there’s pressures on margins just associated with getting the brand and the product and the engineering reputation seated in that market. But the expectation of course was that once you were in that market, you established yourself that you’d start to see some margin improvement. Do you feel like we’re at sort of an inflection point there and that as you enter 2026, these businesses, it sounds like they’re getting well seated and well situated that you’re going to see that margin improvement or is that maybe a little longer?

John Batten, CEO, Twin Disc, Inc.: Yes, I do. I think we’ve the supply chain disruption, it lingered as far as suppliers not making it in different areas and you’re having to change quickly and it’s not really about the price, it’s we just need this part so we’re going to pay what we have to pay to get the parts so we can ship the product. That’s starting to dissipate. We’re also we have a large section of our supply in India, and we’re moving suppliers in India to get a lower price. And so the acquisition in Katsa is absolutely helping us lower the way they manufacture gears is a very effective way to do it with the bar stock and internal heat treat.

So that is something that we’re learning. They’re doing more of our internal gear supply for other operations. So I do think we’re at an inflection point. We’re also being a little bit more disciplined in products that we don’t want to make anymore and get those out of our portfolio and subset. Every product has a right to die and we’re being more vigorous on that and focusing on the products with where we can succeed and have a higher margin.

David MacGregor, Analyst, Longbow Research: Good. Thanks for that. Just a couple more from me quickly. The marketing engineering administration that was up in the quarter. I’m mindful that some of this is variable, of course, but what level of revenue growth can you support with the existing MENA spend?

Jeff Knudson, CFO, Twin Disc, Inc.: I think we have that infrastructure can support well north of 400,000,000. I think we don’t see the need to add any significant investment at that layer. Most of what the increase within the quarter was sort of a full run rate of co belt. We have some purchase accounting amortization flowing through there. So I would say Q4 wouldn’t be what we would expect a run rate to be going forward.

And I think the run rate that we’ll have, will support from 400 to $500,000,000 without any really meaningful increase.

David MacGregor, Analyst, Longbow Research: Good, good. And then I guess just looking forward in 2026, your sort of high level thoughts around the balance sheet and free cash flow. How are you thinking about leverage? How are you thinking about cash flow conversion in ’26?

Jeff Knudson, CFO, Twin Disc, Inc.: I mean, we state our target is to deliver 60% of EBITDA to free cash flow. I think we’ve done a reasonable job in the 2025 getting back on track in terms of generating free cash flow. I think we have inventory at pretty high level as we enter fiscal twenty twenty six given the orders on the books and the demand that we’ve got coming at us. I don’t see that continuing to grow. I think we’ll get some good cash flow coming out of inventory as we work through the year.

Maybe it stays flat, maybe it comes down, but I think we’re on a good growth pattern. So I think operating cash will improve in the year. We like to see our leverage ratio come down because we want to do more COTSA and cobalt type of actions. We’ve seen what that can do, for the company. So that’s a priority for us.

Part of that is getting the balance sheet back to a position where we can do that comfortably.

David MacGregor, Analyst, Longbow Research: And I guess that sort of begs the question is 26 a year of integration or additional acquisitions possible?

Jeff Knudson, CFO, Twin Disc, Inc.: I mean, I think they can both happen, right? I think our integration team is well, along the path of all the activities that John mentioned, getting the training done, getting the product, in the right channels with the right partners. But in the meantime, I think we continue to look for what the next step is. I wouldn’t say, we’re going to continue to do two acquisitions a year. That was a bit of acceleration for us, but I think we want to continue working that side of the equation and making sure we’re developing both sides of growth bubble.

Yes, guess David,

John Batten, CEO, Twin Disc, Inc.: let me just follow on a little bit with some color. Yes, so when we have the businesses aligned in verticals And the industrial business is being led by a guy from Tatza. And the transmission business is being run by a guy out of Racine where most the transmissions, Marine is being run by a gentleman who’s, you know, he doesn’t have any plans to reporting directly to him, but he’s kind of he has multiple products. His products coming from multiple plants and propulsion, he’s got the whole plant there. And CoVelt right now is being run as a separate business unit, as we really haven’t just begun the integration.

But I would say, we haven’t done a lot of acquisitions in our history. And when we did vet, we quickly ran into COVID and it was, I would say, a little bit more difficult integration. But once we got through that, it integrated pretty quickly. My point is that we think we have COTSA pretty well integrated after a year of getting them on SEC reporting, getting the IT and everything buttoned up. But I’m really impressed with how quickly we’ve been able to integrate them operationally.

And now we have one gentleman there who’s running our industrial business. And the other person there is he has the traditional manufacturing operations, twin disc manufacturing operations reporting to him in Finland. So this one, is just been for us, think it’s been a huge success, CASA.

David MacGregor, Analyst, Longbow Research: Great. Thanks for that color, John. Congratulations on

John Batten, CEO, Twin Disc, Inc.: right. Thank

Conference Operator: And we have another question from Simon Wong of Gabelli Funds. Your line is open.

John Batten, CEO, Twin Disc, Inc.: Good morning, guys. Good morning, morning,

Simon Wong, Analyst, Gabelli Funds: Looks like you between the two acquisition and the growth in defense, you’ve done a good job in diversifying away from the oil and gas business. So I guess my first question is how big is your oil and gas business now for the company?

Jeff Knudson, CFO, Twin Disc, Inc.: Yes, I mean, it was a difficult year as we I think we pointed out in terms of demand coming out of China for a variety of reasons. So it was down, as a percent of revenue for the year, it was, around 8%, which compares that’s about half of what it was a few years ago, in terms of percent of total revenue. So part of that is growing obviously the other pieces of revenue, but revenue within that particular market was also down year over year.

Simon Wong, Analyst, Gabelli Funds: Yeah, it’s definitely a difficult year. It’s encouraging to see or hear that you got your first order for the e frac. I recall correctly, your offering in e frac is pretty differentiated from what’s on the market. Can you remind me what what’s your e frac offering is?

John Batten, CEO, Twin Disc, Inc.: Yeah. So we use our standard standard, you know, geared transmission, 70 based off the July. And the big difference is that, so you have just a regular motor, electric motor, and you shift the speed with our transmission versus doing a variable frequency drive. And we think that our solution is not only less expensive, it’s more robust and will last longer. And it’s a better solution to drive the pump.

So we were thankfully, And we’ve worked very hard at this and we got our first spread order after the fiscal year closed. But it also throughout Simon that we have, we’ve been working on modifying the 7,600 as well to work with some pure natural gas engines. So we think that that is also going to be a big opportunity for us in the coming fiscal year and particularly more in fiscal twenty twenty seven. But we think this was probably the lowest, you know, looking back and looking forward, fiscal twenty twenty six is probably going to be our lowest year for oil and gas as a percentage of sales.

Simon Wong, Analyst, Gabelli Funds: What do you think oil and gas can go back to as a percentage of total? I

John Batten, CEO, Twin Disc, Inc.: could see it getting back to 15%.

Simon Wong, Analyst, Gabelli Funds: Okay, great.

John Batten, CEO, Twin Disc, Inc.: Yeah, there’s a lot there’s more activity. I mean, have orders for North America, we have orders for South America, we have orders for China. Know, we think the outlook is certainly better than it was in fiscal twenty six.

Simon Wong, Analyst, Gabelli Funds: Okay. All right. And then just a housekeeping question really quick. What’s your CapEx for ’26?

Jeff Knudson, CFO, Twin Disc, Inc.: Yes, I think with the additional acquisitions and cost of being a very machine intensive kind It’ll be a little bit higher than what we’ve been seeing. So I think in the 12,000,000 to $14,000,000 range.

Simon Wong, Analyst, Gabelli Funds: Okay, all right, great. Okay, that’s it for me guys. Thank you.

John Batten, CEO, Twin Disc, Inc.: Thanks, Simon.

Simon Wong, Analyst, Gabelli Funds: And

Conference Operator: another follow-up question from David MacGregor with Longbow Research. And another follow-up question from David McGregor with Longbow Research.

David MacGregor, Analyst, Longbow Research: Yes. Can you hear me okay?

John Batten, CEO, Twin Disc, Inc.: Yep. Yep. Hey, David.

David MacGregor, Analyst, Longbow Research: Hey. Sorry. Just wanted to come back on with with with one, quick one. And and we’ve talked before about, some of the businesses in North America that maybe are playing at a lower margin level, but that there’s a fairly good opportunity to improve margins there. I guess I’m just thinking 2026, it sounds like you’ve got a very strong order book across a lot of these businesses.

Is the margin improvement at this point really just volume related and the order book would portend pretty substantial improvement there or are there other factors that we should be thinking through?

John Batten, CEO, Twin Disc, Inc.: Yeah, well, it’s certainly volume related. It is, as I said, Katsa has shown that they are more effective in certain gear production costs. So moving gears to Katsa and lower more focus on different lower cost countries and then moving within suppliers in India. So we have all of that going on. And then certainly the CapEx that we’ve put in, in Twinco, which is our North American operations and in Belgium.

So it’s a lot of everything. It’s focused on lean, it’s focused on part quality. There’s several initiatives that are making that up, but certainly volume, there’s no substitute for volume. That really helps. Okay.

David MacGregor, Analyst, Longbow Research: Terrific. Thank you very much.

John Batten, CEO, Twin Disc, Inc.: Yep.

Conference Operator: And seeing no further questions, I would now like to turn the call back over to John Batim for closing remarks.

John Batten, CEO, Twin Disc, Inc.: Thanks, Demi. And again, thank you for your continued interest in Twin Disc. If you have any follow-up questions, please contact either Jeff or myself. And we look forward to speaking with you in November for our fiscal twenty twenty six first quarter call. And Demi, we’ll turn it back over to you.

Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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