TWIN DISC INC

Current report

Net sales for the first quarter increased 10.9%, or $8.7 million, to $88.7 million from $80.0 million in fiscal 2026. The Company continues to see strong growth from the Veth product line, along with the initial impact of expanding military demand at the Katsa operation in Finland, improved oil and gas demand and generally strong market conditions across the global enterprise. Global sales of marine and propulsion products improved 14.4% from the prior year, largely on the strength of the Veth product demand. Sales of industrial products improved 35.3% from the prior year first quarter, with a significant contribution from demand for military applications at our Finnish operation. Shipments of off-highway transmission products decreased (14.7%) with reduced shipments of ARFF transmissions as we transition assembly to our Lufkin facility. The North American region, saw a significant decrease in revenue ($3.1 million or 11.8%) as the current tariff structure continues to hamper shipments into the region. Sales into the North American region represented 26.3% of total revenue compared to 33.1% in the prior year first quarter. Sales into Europe increased 31.4%, or $9.8 million, on growing demand for the Veth and Katsa product lines. With this growth, Europe represented 46.4% of total revenue for the quarter compared to 39.1% in the prior year. The Asia Pacific region increased 26.2%, or $3.8 million, on stronger commercial marine demand and improved shipments of oilfield transmissions into China. With this improvement, Asia Pacific represented 20.4% of fiscal first quarter revenue compared to 17.9% in the first quarter of fiscal 2026. Currency translation had an unfavorable impact on fiscal 2027 sales compared to the prior year totaling $0.7 million, primarily due to the weakening of the euro against the U.S. dollar.

Current report

Sales for our manufacturing segment increased 8.4%, or $6.2 million, versus the same period last year. The Company’s Veth propulsion operation in the Netherlands experienced a 17.5% increase in sales compared to fiscal 2026, continuing a strong growth trend. The primary driver for this increase remains growing demand through market and geographic penetration for the Company’s innovative propulsion solutions around the globe, along with improving supply chain and operational performance. The Company’s Katsa operation in Finland experienced an increase of 31.9%, with acceleration in demand from European military applications. The Company’s domestic manufacturing operation had essentially flat revenue compared to the prior year first quarter, as improved oil and gas demand was offset by reduced ARFF shipments. The Company’s Italian manufacturing operations reported a 6.7% decrease in sales from fiscal 2026 reflecting a difficult European market for its marine and propulsion products. The Company’s Belgian manufacturing operation was essentially flat with the prior year first quarter, with shipments into the US still hampered by the existing tariff structure. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, experienced a 15.0% decrease in sales compared to the first quarter of fiscal 2026, primarily due shipment timing on some larger propulsion projects.

Current report

Gross profit for the first quarter of fiscal 2027 improved $2.5 million, or 10.9%, to $25.4 million on a sales increase of $8.7 million. Gross profit as a percentage of sales remained level with the prior year first quarter at 28.7%. Margin for the quarter was favorably impacted by the additional sales volume (approximately $3.5 million). This positive movement was partially offset by a less favorable mix of products ($1.0 million), along with the incremental impact of tariff dilution.

Current report

Marketing, engineering, and administrative (ME&A) expenses of $20.8 million were up just $0.1 million, or 0.7%, in the first quarter of fiscal 2027 compared to the prior fiscal year. As a percentage of sales, ME&A expenses decreased to 23.5% of sales versus 25.9% of sales in the first quarter of fiscal 2026. The small increase in ME&A spending in fiscal 2027 compared to the prior year first quarter was primarily driven by an inflationary impact to wages and benefits nearly offset by active and aggressive spending controls.

Current report

Interest expense of $0.4 million for the fiscal 2027 first quarter was $0.4 million lower than fiscal 2026 due to a reduced average balance and a lower average interest rate.

Current report

In the fiscal 2027 first quarter, other expense, net, of $0.2 million decreased by $0.6 million from the prior fiscal year first quarter other expense, net, of $0.9 million. This change is primarily due to a decrease in defined benefit pension amortization ($0.6 million).

Current report

Total equity increased $0.4 million to $220.3 million as of September 25, 2026. The net income during the first quarter increased equity by $3.5 million, partially offset by an unfavorable foreign currency translation of $0.2 million. The net change in common stock and treasury stock resulting from the accounting for stock-based compensation decreased equity by $2.2 million. The quarterly dividend decreased equity by $0.7 million.

Current report

On June 30, 2026, Twin Disc, Incorporated (the “Company”) entered into a Credit Agreement (the “Credit Agreement”) among the Company, as Borrower; Kobelt Manufacturing Co. Ltd. ("Kobelt"), as Guarantor; Bank of Montreal, as a Lender, Administrative Agent, Swing Line Lender, and L/C Issuer; and JPMorgan Chase Bank, N.A. ("Chase"), as a Lender. The Credit Agreement refinanced and replaced the credit agreement dated February 14, 2025 among the Company, Kobelt, and Bank of Montreal. Capitalized terms that are not otherwise defined herein are defined in the Credit Agreement.

Current report

The Credit Agreement also allows the Company to enter into Revolving Loans with the Lenders from time to time prior to June 30, 2031 (the “Revolving Credit Termination Date”) in amounts not to exceed $60.0 million (the “Revolving Credit Commitment”). The Revolving Credit Commitment includes a $5.0 million sublimit for Swing Loans and a $4.0 million sublimit for Letters of Credit that may be requested by the Company from time to time until the Revolving Credit Termination Date. Each Swing Loan or Letter of Credit provided pursuant to the terms of the Credit Agreement shall be a Revolving Loan provided under the Revolving Credit Commitment.

Current report

Contractual Obligations

Previous report

Net sales for the third quarter increased 19.0%, or $15.5 million, to $96.7 million from $81.2 million in the same quarter a year ago. Currency translation had a favorable impact on third quarter fiscal 2026 sales compared to the third quarter of the prior year totaling $7.5 million primarily due to the strengthening of the euro against the U.S. dollar. The remaining organic increase of $8.0 million (9.8%) reflects strength across most of the Company’s markets including commercial marine, global defense and land-based transmission. Global sales of marine and propulsion products were up 20.0% compared with the prior year, as improved commercial marine demand in Asia combined with continued strength in global demand for Veth propulsion products. Shipments of off-highway transmission products increased by 22.2%, with improved ARFF shipments in the quarter following some delays in the second fiscal quarter. Shipments of industrial products improved by 15.2% as demand for the Katsa product continues to grow, along with the favorable impact from the Kobelt acquisition. The European region saw a significant increase in revenue ($7.4 million or 21.3%) thanks primarily to strong regional demand for the Veth and Katsa products. Sales into North America increased 33.7%, or $7.3 million, driven by improved commercial marine and transmission shipments, along with the addition of Kobelt. The Asia Pacific region increased 9.0%, or $1.6 million, on improved demand for commercial marine transmissions in the region.

Previous report

Sales at our manufacturing segment increased 15.5%, or $11.0 million, versus the same quarter last year. The Company’s new acquisition, Kobelt, in Canada contributed $2.2 million of incremental revenue. The U.S. manufacturing operations experienced an 8.0%, or $2.3 million, increase in sales versus the third fiscal quarter of 2025, with a recovery in shipments of ARFF products impacted by tariff driven delays in the second quarter. The Company’s operation in the Netherlands saw a slight decrease in revenue of $1.1 million (4.7%) compared to the third fiscal quarter of 2025, primarily due to timing of shipments of projects. The Company’s Belgian operation saw a decrease compared to the prior year third quarter (10.7% or $0.6 million), with weaker demand for its marine transmission products due in part to the domestic tariff structure. The Company’s Italian manufacturing operation was up $0.7 million (16.0%) compared to the third quarter of fiscal 2025, due primarily to stronger European demand for industrial and commercial marine products. The Company’s operation in Finland saw revenue increase 86.2% ($6.1 million), with strong demand for defense related products in the region. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $1.3 million (94.0%) compared to the prior year third quarter.

Previous report

Our distribution segment experienced an increase in sales of $2.5 million (8.3%) in the third quarter of fiscal 2026 compared to the third quarter of fiscal 2025. The Company’s Asian distribution operations in Singapore, China and Japan were up 22.2% or $2.7 million from the prior year on improved demand for commercial marine transmissions and oil and gas transmissions for China. The Company’s North America distribution operation saw a decrease ($0.3 million or 6.0%), negatively impacted by the existing tariff structure and related impact on goods coming from European manufacturing operations. The Company’s European distribution operation saw a decline ($1.0 million or 16.4%) on weaker shipments of commercial marine projects. The Company’s distribution operation in Australia and New Zealand, which provides boat accessories, propulsion and marine transmission systems for the pleasure craft market, saw an increase in revenue of 16.7% from the prior year third fiscal quarter, primarily due to improved pleasure craft demand.

Previous report

Gross profit as a percentage of sales for the third quarter of fiscal 2026 improved to 28.1%, compared to 26.7% for the same period last year. The current quarter was impacted by a positive volume impact and the positive impact of cost initiatives, offsetting a less favorable product mix and the impact of margin dilution resulting from the invoicing of tariffs..

Previous report

For the fiscal 2026 third quarter, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 21.7%, compared to 24.0% for the fiscal 2025 third quarter. ME&A expenses increased $1.5 million (7.6%) over the same period last fiscal year. The increase in ME&A spending for the quarter was comprised of the addition of Kobelt ($0.3 million) and a foreign currency impact ($1.0 million), along with a general inflationary impact offset by cost savings initiatives.

Previous report

Interest expense was up $0.1 million to $0.8 million in the third quarter of fiscal 2026, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Previous report

Other expense (benefit) of $(0.3) million for the third fiscal quarter was primarily attributable to a currency gain ($1.0 million), partially offset by pension amortization expense ($0.7 million).

Previous report

Comparison of the First Nine Months of Fiscal 2026 with the First Nine Months of Fiscal 2025

Previous report

Net sales for the first nine months increased 9.3%, or $22.8 million, to $266.9 million from $244.1 million in the same period a year ago. The acquisition of Kobelt, completed in the third quarter of fiscal 2025, contributed $8.7 million of additional revenue in the first nine months. Currency translation had a favorable impact of $14.9 million on revenue for the first nine months of fiscal 2026 sales compared to the same period of the prior year due to the strengthening of the euro against the U.S. dollar. The remaining decrease of $0.8 million reflects continued growth in demand for the company’s Veth propulsion systems, offset by weakness in global demand for commercial marine products through the first half of the fiscal year. Global sales of marine and propulsion products improved 10.8% from the prior year, driven by strong demand for the Veth product and a third quarter recovery in commercial marine demand. Shipments of industrial products improved by 16.8%, driven by the addition of Katsa and Kobelt. Shipments of off-highway transmission products improved by 4.9%, with recovery in ARFF shipments that were delayed in the previous quarter. The European region saw a significant increase in revenue ($12.5 million or 12.4%) thanks primarily to growing demand for the Veth and Katsa products in the region. Sales into North America increased 29.1%, or $18.2 million, on improved industrial and commercial marine shipments in the second and third quarters. The Asia Pacific region decreased 10.70%, or $5.8 million, on weaker demand for commercial marine and oil and gas transmissions in the region during the first half of the fiscal year.

Previous report

Sales at our manufacturing segment increased 12.9%, versus the same period last year. The Company’s new acquisition, Kobelt, in Canada contributed $8.5 million of incremental revenue. The U.S. manufacturing operations experienced a 1.5%, or $1.3 million, decline in sales versus the first nine months of fiscal 2025, with tariff concerns creating a drag on shipments. The Company’s operation in the Netherlands saw increased revenue of $7.4 million (11.5%) compared to the first nine months of fiscal 2025, which includes a favorable currency impact, as this operation continues to experience record demand for its propulsion systems and has begun to increase capacity to satisfy the growing demand. The Company’s Belgian operation saw a decrease compared to the prior year first nine months (14.4% or $2.3 million), with weaker US demand for its marine transmission products, impacted by tariffs. The Company’s Italian manufacturing operation was up $3.9 million (33.6%) compared to the first nine months of fiscal 2025, due primarily to stronger European demand for industrial and commercial marine products. The Company’s operation in Finland saw revenue increase 34.1% ($9.0 million), with improving demand for defense related products in the region. The Company’s Swiss manufacturing operation, which supplies customized propellers for the global mega yacht and patrol boat markets, was up $2.3 million (51.9%) compared to the prior year first nine months.

Previous report

Gross profit as a percentage of sales for the first nine months of fiscal 2026 improved to 27.1%, compared to 25.7% for the same period last year. The prior year includes the impact of a non-cash inventory write-down of $1.6 million. This write-down reflected the results of a product rationalization exercise of the Company’s industrial product line following the acquisition of Katsa. Excluding this adjustment, the fiscal 2025 gross profit percentage was 26.3%. The improvement in gross profit percentage versus the prior year first nine months is attributed to the increased volume, operational execution at our Veth operation and successful margin improvement initiatives, partially offset by margin dilution resulting from the invoicing of tariff charges.

Previous report

For the fiscal 2026 first nine months, marketing, engineering and administrative (“ME&A”) expenses, as a percentage of sales, were 23.3%, compared to 23.7% for the same period of fiscal 2025. ME&A expenses increased $4.5 million (7.8%) over the same period last fiscal year. The increase in ME&A spending for the first nine months was comprised of the addition of Kobelt ($1.4 million), a foreign currency translation impact ($2.0 million), and general inflationary increases partially offset by the favorable impact of savings initiatives.

Previous report

Interest expense was up $0.6 million to $2.4 million in the first nine months of fiscal 2026, with a higher average outstanding revolver balance following the Katsa and Kobelt acquisitions.

Previous report

Other expense of $1.2 million for the first nine months was primarily attributable to pension amortization expense ($2.1 million), partially offset by a currency gain ($0.9 million).

Previous report

The fiscal 2026 first nine-month effective tax rate was (284.5%) compared to 1,469.0% in the prior fiscal year first nine months. The reversal of the full domestic valuation allowance in the current year explains the significant fluctuation in the effective tax rate.

Previous report

Total equity increased $22.1 million, or 13.5%, to $186.5 million as of March 27, 2026. The net earnings during the first nine months increased equity by $25.2 million, while other decreases related to a favorable foreign currency translation of $4.6 million and dividends paid to shareholders of $1.7 million. The net change in common stock and treasury stock resulting from the accounting for stock-based compensation increased equity by $0.8 million. The net remaining increase in equity of $2.4 million primarily represents the amortization of benefit plan adjustments on the Company’s defined benefit pension plans, an unrealized loss on cash flow hedges and an increase to a noncontrolling interest.

Previous report

On February 14, 2025, the Company entered into an amended and restated Credit Agreement (the “Credit Agreement”) with Bank of Montreal (the “Bank”) that refinances and replaces the credit agreement dated as of June 29, 2018, as amended, between the Company and BMO Harris Bank, N.A. (the “Prior Credit Agreement”).

Previous report

In addition, the Company may, from time to time prior to the maturity date, enter into Revolving Loans in amounts not to exceed, in the aggregate and subject to a Borrowing Base, $50.0 million (the “Revolving Credit Commitment”). The Borrowing Base is the sum of (a) 85% of outstanding unpaid Eligible Receivables and (b) the lesser of $40.0 million for each fiscal month ending on or prior to August 31, 2025 (reduced to $35.0 million for each fiscal month ending on or prior to August 31, 2026, and further reduced to $32.5 million for each fiscal month ending thereafter) and 60% of Eligible Inventory for each fiscal month ending on or prior to August 31, 2025 (reduced to 55% of Eligible Inventory for each fiscal month ending on or prior to February 28, 2026, and 50% of Eligible Inventory for each fiscal month ending thereafter). The Credit Agreement also allows the Company to obtain Letters of Credit from the Bank, which if drawn upon by the beneficiary thereof and paid by the Bank, would become Revolving Loans. Under the Credit Agreement, the Company may not pay cash dividends on its common stock in excess of $5.0 million in any fiscal year. The term of the Revolving Loans under the Credit Agreement runs through April 1, 2027.

Previous report

The Company used the increased borrowing capacity under the Credit Agreement to help finance its acquisition of Kobelt. Kobelt is included as a Borrower under the Credit Agreement, and may borrow directly under the Credit Agreement up to the lesser of the Revolving Credit Commitment or $25.0 million. For purposes of determining the Borrowing Base under the Credit Agreement, Eligible Receivables and Eligible Inventory of Kobelt are included.

Previous report

The Credit Agreement requires the Company to meet certain financial covenants. Specifically, the Company’s Total Funded Debt to EBITDA ratio may not exceed 3.50 to 1.00, and the Company’s Fixed Charge Coverage Ratio may not be less than 1.10 to 1.00. In determining whether the Company is in compliance with its Total Funded Debt/EBITDA Ratio, the Company’s EBITDA will include transaction expenses of up to $0.6 million for each of the Company’s Kobelt Acquisition and the Company’s prior Katsa acquisition, as well as pro-forma EBITDA of Katsa and Kobelt as permitted by the Bank. The Company’s Tangible Net Worth may not be less than $100.0 million plus 50% of positive Net Income for each fiscal year ending on or after June 30, 2024.