Twin Disc — First Quarter 2027 Earnings Summary

Financial Performance:

• Sales increased 10.9% year-over-year to $88.7 million; organic sales increased 11.8% year-over-year.
• Gross profit increased 10.9% to $25.4 million from $22.9 million in the prior year quarter; gross margin remained consistent at 28.7%.
• Net income attributable to Twin Disc was $3.4 million ($0.24 per diluted share), compared to a net loss of $0.5 million ($0.04 per diluted share) in the prior year quarter.
• EBITDA was $7.7 million, a 62.6% increase from the prior year quarter.
• Free cash flow was positive $5.6 million.
• Cash increased 87.7% to $26.7 million; total debt increased 9.0% to $39.8 million; net debt decreased $16.4 million to $13.1 million.
• Marketing, engineering, and administrative (ME&A) expense was $20.8 million, consistent with the prior year.
• Interest expense decreased to $0.4 million from $0.8 million in the prior year quarter.

Guidance and Future Outlook:

• Management stated the company is well-positioned to drive strong growth and execute against long-term strategic goals in fiscal 2027.
• Defense continues to be a powerful growth driver with accelerating order activity from U.S. and European customers.
• Specific orders tied to the U.S. Navy's initial unmanned vessel program have begun to reach the order book.
• The company plans to prioritize investing in growth, including expanding its European footprint and building out manufacturing capabilities in Racine.
• Management is evaluating M&A opportunities while maintaining financial discipline to strengthen the balance sheet and pay down debt.

Business Segments and Product Lines:

• Marine and Propulsion Systems sales increased 14.4% to $55.2 million.
• Land-Based Transmissions sales decreased 14.7% to $15.0 million.
• Industrial sales increased 35.3% to $14.0 million, driven by the reclassification of $4.7 million in Katsa sales previously classified in Land-Based Transmissions.
• Other segment sales increased 19.5% to $4.6 million.
• Veth product line strength contributed to overall sales growth.
• Higher alternative fuel unit sales improved product mix in Land-Based Transmissions.
• Katsa and Veth operate at gross margins below the company average but continue to improve.
• Double-digit sales growth was delivered in European and Asia-Pacific regions.

Market and Competitive Landscape:

• Demand remains healthy across end markets, supported by generally strong global market conditions.
• Improved oil and gas demand contributed to sales growth.
• The six-month backlog reached a record $190.6 million, a 7% increase from the fiscal year-end backlog of $178.3 million.
• Inventory as a percentage of six-month backlog decreased from 99.9% to 93.9%.
• Sales distribution remains consistent with the majority coming from Europe, followed by North America, Asia Pacific, and Latin America.

Risks and Challenges:

• Forward-looking statements note risks including general economic conditions and the cyclical nature of product markets.
• Risks include foreign currency risks associated with international sales and operations.
• Potential inability to successfully implement price increases to offset increasing commodity costs.
• Risks related to generating sufficient cash to pay indebtedness as it becomes due.
• Possibility of unforeseen tax consequences and the impact of tax reform in the U.S. or other jurisdictions.

Management Commentary and Tone:

• CEO Mr. Batten highlighted that results built on strong momentum from fiscal 2026, with defense acting as a powerful growth driver.
• CFO Jeffrey S. Knutson noted healthy revenue growth, margins, and strong earnings per share, attributing net debt reduction to disciplined inventory management despite increased capital expenditures.
• Management emphasized maintaining financial discipline to enhance free cash flow and strengthen the balance sheet.

Other Key Points:

• Dividends per share increased to $0.05 from $0.04 in the prior year quarter.
• Capital expenditures increased, with $5.8 million spent on the acquisition of property, plant, and equipment.
• The company hosted a conference call on November 4, 2026, to discuss results.
• Restructuring expenses were $0.05 million in the current quarter compared to none in the prior year.
• Other operating income was $0.05 million in the current quarter.
• Net income attributable to noncontrolling interest was $0.04 million.
• Weighted average diluted shares outstanding increased to 14.6 million from 13.9 million in the prior year quarter.