Twin Disc, Incorporated

Hello, and welcome to the TwinDisk Incorporated Fiscal First Quarter 2026 Conference Call. We will begin with introductory remarks from Jeff Knitzen, TwinDisk's CFO.

Good morning, and thank you for joining us today to discuss our Fiscal 2026 First Quarter results. On the call with me today is John Batten, TwinDisk'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 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 call over to John.

Good morning, everyone, and welcome to our fiscal 2026 first quarter conference call. We begin the year with strong momentum, delivering another quarter of profitable growth and meaningful progress on our strategic priorities. Sales and margins improved year over year, supported by steady execution across our global operations, with healthy demand across all three core product groups, contributing to our robust backlog. Our performance this quarter underscores the strength of our diversified portfolio and the operational discipline that continues to define our success. As we move through fiscal 2026, we are encouraged by the resilience of our end markets and by the growing contribution from areas such as defense and hybrid propulsion. These growth factors position us well to sustain outperformance and deliver strong profitability amid an evolving macroeconomic environment. That said, we remain mindful of potential tariff developments and expect a 1% to 3% tariff impact on second quarter cost of sales versus roughly 1% previously. This increase is temporary and will not affect the remainder of the year, and as such, we expect tariff impact to return to roughly 1% of cost of sales in the second half of the fiscal year. Now let me take you through the quarter's highlights. Sales grew 9.7% year-over-year to $80 million, marking another quarter of steady top-line growth, led by our marine propulsion business, along with the integration of CAATSA and Cobalt, which continues to advance ahead of plan, and together are broadening our capabilities and expanding global reach while driving meaningful synergies. On an organic basis, net sales increased 1.1%, which excludes the impacts of acquisitions and foreign currency exchange. We continued to streamline operations in the quarter, efforts that effectively helped us deliver 220 basis points of gross margin expansion year over year, as gross margins increased to 28.7% for the quarter. EBITDA margins remained strong despite the impacts of non-operating and non-cash items, such as defined benefit pension amortization, stock-based compensation, and currency translation loss, in addition to costs from recent acquisitions. We also delivered a robust six-month backlog of 163.3 million, driven by sustained demand across our end markets, illustrating a strong start to fiscal 2026. Defense momentum remains exceptionally strong, Orders continue to accelerate during the quarter, and defense-related projects continue to represent a growing share of total backlog, increasing by 4 million sequentially and up 45% year-over-year, comprising 15% of total backlog. In the U.S. and Europe, we are actively supporting multi-year government initiatives to modernize both marine and land-based platforms, while our recent acquisition of CAATSA continues to generate strong demand in Europe. Our work includes contracts tied to NATO vehicle programs and U.S. Navy patrol vessels, where we're serving as a trusted propulsion and systems partner. With a defense-related pipeline that continues to expand, we see significant runway ahead, supported by elevated government budgets and increased focus on marine and hybrid applications. Now let me walk you through product group performance. Our marine and propulsion business continues to perform exceptionally well, and sales increased 14.6% year-over-year to 48.2 million, driven by workboat activity, government programs, and demand for VETS elite thrusters. Record new unit bookings combined with the growing demand for hybrid and autonomous vessel solutions continue to underscore the strength of our products and market position. In September alone, we booked 20 million in new unit orders, surpassing previous records. Order supporting the unmanned U.S. Navy platforms class continued to build, and we are excited about our entry into the new class of autonomous patrol vessels, extending our presence on higher-value platforms. In addition, we are seeing traction with the U.S. Vestor thruster market, with backlogs increasing across workboat and cruise applications. Lastly, aftermarket remains resilient with steady utilization of military and commercial fleets. We're flat when compared to a year ago. Within land-based transmission, sales were stable, up 1.6% year-over-year to $17.6 million. Oil and gas shipments were nearly flat as China continued to decline. North American customers also remained cautious with a focus on rebuilds and refurbishments. However, we are seeing an emerging tailwind as the rebuild cycle matures and replacement demand begins to materialize. ARC demand remains strong, and we continue to advance next-generation EFRAC solutions. securing an initial order during the quarter representing 14 units, totaling 2.3 million. Overall, we continue to remain well-positioned to capture emerging opportunities as activity improves. Our industrial business grew 13.2% year-over-year, with growth supported by acquisitions and broad-based customer activity. Steady demand for higher content solutions is reinforcing our mix and helping sustain momentum as we extend COTSA's engineering and parts capability across the portfolio. Our backlog of $163.3 million, up 13% year-over-year and 9% sequentially, provides solid visibility for the balance of fiscal 2026. Inventory is up slightly because of our strong demand and pre-buys. As we look at the remainder of the year, we remain focused on further optimizing inventory levels with delivery schedules as we convert our backlog and maintain flexibility across our manufacturing footprint to support demand while protecting margins. As we look to the balance of the year and beyond, I want to reaffirm our strategy centered on global footprint optimization, operational excellence, and disciplined capital allocation. Our near-term priority remains reducing debt and strengthening our balance sheet while continuing to invest in targeted organic initiatives that enhance productivity and margin expansion. We have made great progress streamlining our business into more agile and globally integrated operating model. one that breaks down silos, drives collaboration across our end business units, and going to market as one consolidated company, which leverages our scale and shows the power of our consolidated platform. This starts with the business units and their leadership, which is now reporting through Tim Batten, our Executive Vice President. These efforts are improving execution speed, driving margin improvement, and laying the foundation for sustainable growth. With these ongoing efficiency and integration initiatives, TwinDisk is well-positioned to deliver strong results through the remainder of the year and to achieve our long-term targets, driving sustained profitability and lasting value for our shareholders. With that, I'll now turn the call over to Jeff to discuss our financial results in greater detail.