Twin Disc, Incorporated

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 TwinDIS Incorporated fiscal third quarter 2025 conference call. All signs have been placed on mute 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 followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one and press star one again. Thank you. I would now like to turn the conference over to Mr. Jeff Knudson. You may begin.

Good morning, and thank you for joining us today to discuss our fiscal 2025 third quarter results. On the call with me today is John Batten, TwinNISC 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 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. 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.

Good morning, everyone, and welcome to our fiscal 2025 third quarter conference call. We appreciate you joining us today. 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 gross margins, reaching 26.7%. On an organic basis, which excludes the impacts of acquisitions and foreign currency exchange, revenue increased 1.7% on continued strength in the VET product, offset by softened oil and gas shipments into China. 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. Our recent acquisition of Cobalt is off to a solid start despite some initial headwinds related to tariff uncertainties, and we remain committed to fully leveraging synergies from both the Cobalt and CASA integrations as we look ahead. The robust performance in our marine and propulsion business continues, driven by sustained global demand, notably in commercial marine and luxury yacht markets. We are encouraged by ongoing stabilization in our industrial business and maintain a healthy backlog entering the fourth quarter. 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 insulation from direct impacts on our cost structure. As it stands today, we estimate approximately 500,000 of tariff-related impact for the upcoming fourth quarter, representing roughly 1% of our cost 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. Despite this modest exposure, we anticipate successfully mitigating much of these incremental costs through strategic pricing actions and targeted surcharges. 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. Turning to our marine propulsion segment, sales increased by 10.7%, largely due to the acquisitions of COTSA and COVELP, while demand remained robust as we continue to benefit from consistent strength in our product line. We saw notable strengths in the commercial marine market in North America's riverboat vessels and European luxury yachts, underscoring the global appeal of our propulsion solutions. Customers increasingly recognize the unique design advantage of Vest's 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. Turning to government defense spending, we continue to see sustained demand for patrol boat applications driven by persistent geopolitical dynamics. 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, integration efforts continue to pay dividends, 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 in sustainable marine technologies. 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 expansions and fleet renewal initiatives advance. 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. 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 in new build activity, even as long-term fundamentals remain strong. Our industrial segment showed stable performance underpinned by positive contributions from CASA and initial contributions from Cobalt. Cobalt's specialized brake products broaden 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. 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. Our backlog strengthens sequentially to approximately 134 million, indicating sustained robust demand across our product lines. Operational improvements, disciplined inventory management, and increased production efficiency drove positive cash flow during the quarter, and we anticipate continued positive free cash flow moving forward. Despite currency headwinds, we remain focused on maintaining operational discipline and delivering inventory efficiencies relative to our backlog. In conclusion, we continue executing our long-term strategy of global footprint optimization, operational excellence, and strategic acquisitions. Our recent acquisitions of Casa and Cobalt exemplify our commitment to expanding engineering capabilities, enhancing market reach, and driving synergies across our global operations. Our flexible global manufacturing strategy positions us well to navigate potential tariff impacts, enabling strategic adjustments in production locations based on customer demand and geopolitical dynamics. Also, our long-term strategic initiatives in hybrid electric propulsion systems position us well for future market shifts. Although adoption rates vary across end markets, we're uniquely suited to serve niche applications requiring specialized high-performance solutions and we're increasingly recognized as a trusted technology partner for operators transitioning to sustainable solutions. 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. Looking forward, our priorities remain clear through discipline execution, margin enhancement, and proactive market leadership in sustainable propulsion solutions. 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. 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-of-year results call. Overall, we remain confident that our strategic initiatives and strong operational focus will deliver long-term, sustainable value for our customers, employees, and shareholders. With that, I'll now turn it over to Jeff to discuss our financial performance in greater detail.