Twin Disc — Fiscal Year 2026 Earnings Summary

Financial Performance

• Full-year 2026 sales increased 11.9% year-over-year to $381.3 million; fourth quarter 2026 sales increased 18.3% year-over-year to $114.4 million.
• Full-year 2026 net income attributable to Twin Disc was $27.1 million ($1.86 per diluted share), compared to a net loss of $697,000 ($0.05 per diluted share) in fiscal 2025.
• Fourth quarter 2026 net income attributable to Twin Disc was $9.4 million ($0.64 per diluted share), compared to $2.6 million ($0.19 per diluted share) in the prior year quarter.
• Full-year 2026 EBITDA increased 48.0% to $29.9 million from $20.2 million in fiscal 2025; fourth quarter 2026 EBITDA was $11.1 million, up 35.1% year-over-year.
• Full-year 2026 operating cash flow was $22.9 million and free cash flow was $9.2 million; fourth quarter 2026 operating cash flow was $20.6 million and free cash flow was $17.2 million.
• Full-year 2026 gross profit increased 9.2% to $102.6 million; fourth quarter 2026 gross profit decreased 3.5% to $30.1 million.
• Full-year 2026 gross margin decreased approximately 70 basis points to 26.9%; fourth quarter 2026 gross margin decreased approximately 600 basis points to 26.3%.
• Full-year 2026 Marketing, Engineering, and Administrative (ME&A) expenses increased 2.5% to $84.5 million; fourth quarter 2026 ME&A expenses decreased 10.0% to $22.2 million.
• Total debt decreased 5.2% to $29.8 million; net debt decreased $1.5 million to $13.8 million as of June 30, 2026.
• Cash decreased 0.6% to $16.0 million as of June 30, 2026.
• Six-month backlog was $178.3 million at the end of the fourth quarter 2026, compared to $179.5 million at the end of the third quarter.
• Inventory as a percentage of six-month backlog decreased from 107.2% in the third quarter to 99.9% in the fourth quarter.
• Organic revenue increased 15.9% in the fourth quarter and 4.6% for the full year, excluding acquisitions and foreign currency impacts.

Guidance and Future Outlook

• Management stated the near-term outlook remains strong, supported by a robust project pipeline and momentum in served markets.
• The company is well-positioned for fiscal 2027 with strong demand, a healthy backlog, a growing pipeline, and free cash flow to invest in long-term growth.
• Management expects gross margins to improve over the long-term as the company diversifies end markets and recognizes enhanced operating leverage.
• The company anticipates driving backlog conversion, margin improvement, and strong free cash flow generation in the future.

Business Segments and Product Lines

• Marine and Propulsion Systems sales grew 20.0% in the fourth quarter and 13.2% for the full year, driven by continued strength.
• Land-Based Transmissions sales grew 26.2% in the fourth quarter and 11.9% for the full year, driving sales growth in both periods.
• Industrial segment sales decreased 1.6% in the fourth quarter but increased 11.0% for the full year, showing stabilization.
• Defense activity is accelerating and serves as a key structural growth driver, supported by increasing demand from the US Navy and NATO.
• Oil and Gas performance is trending positively as the company prioritizes higher margin e-frac opportunities.
• Sales growth in the fourth quarter and full year was driven by demand for Land-Based Transmissions markets.

Market and Competitive Landscape

• Twin Disc delivered double-digit sales growth year-over-year in European and North American regions for fiscal 2026.
• The majority of sales continue to come from Europe, followed by North America, Asia Pacific, and Latin America.
• The company is expanding into high-margin verticals, including e-frac opportunities in Oil and Gas.

Risks and Challenges

• Gross margins were impacted by product mix, tariff dilution, and a favorable adjustment in the prior year fourth quarter.
• Full-year ME&A expenses were impacted by the addition of Kobelt, currency impacts, and inflationary pressures on wages and benefits.
• Forward-looking statements note risks including general economic conditions, cyclical nature of product markets, foreign currency risks, and the ability to implement price increases to offset commodity costs.

Management Commentary and Tone

• CEO John H. Batten described the fiscal year as closing with record fourth-quarter revenue, solid profitability, and enhanced free cash flow generation.
• CFO Jeffrey S. Knutson expressed confidence in the company's ability to drive backlog conversion and margin improvement, citing a new $90 million credit facility with BMO and JP Morgan for financial flexibility.
• Management highlighted a concerted effort to reduce past due backlog, which kept the six-month backlog level despite strong shipments.
• The tone was highly encouraged regarding growth opportunities ahead, emphasizing disciplined execution of strategy.

Other Key Points

• The company changed its inventory accounting method from LIFO to FIFO during the fourth quarter of fiscal 2026, resulting in a $32.1 million increase in inventory for the fiscal year ended June 30, 2025, and requiring recasting of historical information.
• Fiscal 2026 net income included a $14.0 million income tax benefit related to the reversal of the domestic valuation allowance.
• The company acquired Kobelt in the prior fiscal year, with acquisition impacts excluded from organic sales calculations.
• Dividends paid to shareholders were $2.285 million for the full year 2026, consistent with the prior year.
• A conference call to discuss results was held on August 20, 2026.