Executive Summary

Q3 FY25 revenue grew 9.5% YoY to $81.24M but fell 9.6% QoQ; diluted EPS was -$0.11 versus +$0.27 in Q3 FY24 and $0.07 in Q2 FY25, with sequential gross margin expansion to 26.7% from 24.1% on mix improvement and operational efficiencies .
Against S&P Global consensus, TWIN modestly missed revenue and significantly missed EPS and EBITDA: Revenue $81.24M vs $83.40M*, EPS -$0.11 vs $0.21*, EBITDA $4.0M vs $6.6M*; coverage remains thin (1 estimate each)* .
Backlog strengthened to ~$133.7M from $124.0M in Q2, underpinned by Marine & Propulsion (Veth) strength and contributions from Kobelt and Katsa; operating cash flow was ~$3.4M in the quarter .
Management flagged potential Q4 tariff cost headwinds of ~$(0.5)M (~1% of COGS) but expects pricing and sourcing actions (including a May 1 price increase) to limit margin impact; tone remained constructive on defense, commercial marine and hybrid/electric propulsion opportunities .

What Went Well and What Went Wrong

What Went Well
- Sequential margin improvement: gross margin rose to 26.7% from 24.1% in Q2, aided by operations and mix (ARFF transmission initiatives, Kaizen, sourcing, engineering reviews) .
- Backlog momentum and demand breadth: six‑month backlog rose to ~$133.7M, sustained by Veth, riverboat and European luxury yacht demand, and growing defense patrol boat activity in North America and Europe .
- Integration traction: Katsa and newly acquired Kobelt expanded industrial/marine offerings and are being scaled across TWIN’s network, with synergies and channel enhancement underway .
What Went Wrong
- EPS miss and YoY profit compression: diluted EPS of -$0.11 vs $0.27 YoY, driven by lower operating income and a $1.6M increase in Other Expense (FX loss ~$1.1M and higher pension amortization ~$0.5M) .
- Mix headwinds: Gross margin down ~150 bps YoY on reduced oil & gas transmission shipments into China; industrial/oil & gas dynamics continued to weigh on product mix .
- Higher operating expense base: ME&A up $2.3M YoY to $19.4M on acquisitions (Katsa, Kobelt), professional fees, and wage/benefit inflation .

Financial Results

Actuals vs prior periods and consensus

Metric	Q3 FY24	Q2 FY25	Q3 FY25	Consensus Q3 FY25
Revenue ($USD Millions)	$74.16	$89.92	$81.24	$83.40*
Diluted EPS ($)	$0.27	$0.07	-$0.11	$0.21*
Gross Profit ($M)	$20.94	$21.68	$21.71	N/A
Gross Margin (%)	~28.2% (calc from $20.94/$74.16)	24.1%	26.7%	N/A
Operating Income ($M)	$3.60	$2.76	$1.95	N/A
Net (Loss) Income to TWIN ($M)	$3.82	$0.92	-$1.47	N/A
EBITDA ($M)	$6.96	$6.26	$3.99	$6.60*

Notes: Consensus from S&P Global; number of estimates = 1 for revenue and EPS*. Values retrieved from S&P Global.

Segment breakdown (Q3 FY25 vs Q3 FY24)

Product Group ($USD Thousands)	Q3 FY24	Q3 FY25	YoY %
Marine & Propulsion Systems	$44,530	$49,297	10.7%
Land-Based Transmissions	$19,090	$17,776	-6.9%
Industrial	$6,232	$9,734	56.2%
Other	$4,309	$4,435	2.9%
Total	$74,161	$81,242	9.5%

KPIs and balance sheet

KPI	Q3 FY24	Q2 FY25	Q3 FY25
Six‑month Backlog ($M)	N/A	$124.0	$133.7
Inventory as % of Six‑month Backlog	N/A	103.4%	103.2%
Operating Cash Flow ($M)	N/A	$4.32	~$3.4 (quarter highlight)
Cash ($M)	$23.84	$15.91	$16.25
Total Debt ($M)	$17.04	$24.87	$40.77
Net Debt ($M)	$(6.80)	$8.97	$24.53

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY25/Q4	None provided	None provided	N/A
Gross Margin	Q4 FY25	None numeric	Management does not expect a significant tariff impact on Q4 margins; sequential trend positive	New qualitative color
Tariff Impact	Q4 FY25	None	Est. ~$0.5M (~1% of COGS); mitigated via pricing/surcharges and sourcing	New disclosure
Free Cash Flow	Near term	Prior target discussed: convert ~60% of EBITDA to FCF (stretch for FY25)	“Anticipate continued positive free cash flow”	Updated tone-only
OpEx (ME&A)	FY25	None numeric	Higher due to Katsa/Kobelt, pro fees, wage inflation	Informational
Dividend	Ongoing	$0.04/qtr (declared Feb 5, 2025)	$0.04/qtr (declared May 9, 2025, payable Jun 2, 2025)	Maintained

No formal revenue/EPS guidance was issued in the quarter; management commentary emphasized backlog strength, margin initiatives, tariff mitigation, and disciplined execution .

Earnings Call Themes & Trends

Topic	Q1 FY25 (Nov 2024)	Q2 FY25 (Feb 2025)	Q3 FY25 (May 2025)	Trend
Hybrid/Electric propulsion	Building inventory for Veth; Katsa integration progressing	Focus on electrification; continued traction; synergies with Veth/control systems	Positioning as leader in hybrid/electric marine; customer interest rising	Improving adoption narrative
Supply chain/Operations	Inventory elevated vs backlog; working down	Shipment delays subsided; Kaizen and sourcing improvement	Operational efficiencies driving margin; ARFF transmission process, sourcing, engineering optimization	Execution improving
Tariffs/Macro	Not highlighted	Not highlighted	Q4 headwind ~$0.5M (~1% COGS); mitigation via pricing/surcharges and sourcing	Emerging risk, manageable
Product performance (Veth)	Well‑positioned, solid demand	Record orders; strong NA/Europe demand	Robust demand continues; differentiating design (compact azimuth drives)	Sustained strength
Regional trends	Europe/Latin America growth	More Europe mix via Katsa; NA strength	Europe double‑digit YoY; NA riverboats, EU luxury yachts; defense demand up	Balanced, positive
Defense/government	Not emphasized	Stable; pipeline building	Accelerating patrol boat demand NA/EU; capacity relief via BE/TX facilities	Strengthening
Oil & Gas	Asia slowdown; stabilization signs	O&G ~<8% of rev; down ~24% YoY; quoting improved	NA new builds muted; aftermarket resilient; China cautious	Mixed but stabilizing

Management Commentary

CEO: “Our third quarter results reflect another solid performance, with sequential margin improvement and strong momentum exiting the quarter… order activity for Veth remained robust… Our six-month backlog grew meaningfully sequentially, supported by sustained order activity across key markets along with the addition of Kobelt.” .
CEO: “We remain focused on… integrating recent acquisitions, driving operational efficiencies, and positioning Twin Disc as a leader in hybrid and electric marine solutions.” .
CFO: “Gross margins remained strong at 26.7%, reflecting improvement through the quarter, with Veth performance showing notable progress… While foreign exchange volatility impacted results, core operational trends were encouraging.” .
CEO (call): Estimated tariff impact in Q4 of ~$500k (~1% COGS) with mitigation via pricing/surcharges and sourcing flexibility .
CFO (call): Sequential margin recovery to 26.7% from 24.1% in Q2; positive operating cash generation (~$3.4M) and continued focus on inventory/cost structure .

Q&A Highlights

Orders/backlog and macro: No material cancellations in marine; order rates strengthening, with growing defense patrol boat demand in NA/EU; potential pause in pleasure crafts from tariff effects (smaller exposure) .
Tariff mitigation: May 1 pricing implemented; proactive sourcing optimization; management does not expect a significant Q4 margin impact .
M&A integration synergies: Katsa expanding into broader market designs; Kobelt network to be rationalized and integrated; significant runway, especially in brake products across marine/industrial end markets .
Operational efficiencies: ARFF transmission line benefited from Kaizen, sourcing, and design review; evaluating production transfers to relieve capacity constraints post tariff clarity .

Estimates Context

Revenue modest miss: $81.24M actual vs $83.40M* consensus (one estimate)* .
EPS significant miss: -$0.11 actual vs $0.21* consensus (one estimate)* .
EBITDA below consensus: $3.99M actual vs $6.60M* consensus* .
Coverage remains thin (1 estimate for EPS and revenue), implying outsized impact from single-analyst modeling and higher estimate volatility*.
Values retrieved from S&P Global.

Key Takeaways for Investors

Sequential margin rebound supports the cost/operations improvement narrative; gross margin rose to 26.7% from 24.1% in Q2 with further initiatives underway (ARFF line, sourcing, engineering) .
Demand/backlog resiliency offsets macro noise: backlog increased to ~$133.7M from $124.0M, driven by Marine & Propulsion (Veth), European luxury yachts, NA riverboats, and strengthening defense .
Tariff headwind manageable: ~$0.5M (~1% COGS) expected in Q4, with proactive pricing/surcharges and sourcing mitigation; management does not foresee a significant Q4 margin hit .
Profitability pressure vs consensus this quarter (EPS/EBITDA misses) largely tied to FX and pension amortization; estimate dispersion risk remains elevated given sparse coverage .
Integration of Katsa and Kobelt expands product breadth and channel reach; cross‑selling and network optimization are near‑term catalysts, especially in industrial brakes and higher‑content engineered solutions .
Dividend steady at $0.04/share; balance sheet levered post M&A (net debt $24.5M), but liquidity adequate with $16.2M cash and positive operating cash flow .
Trading setup: trajectory hinges on gross margin sustainability, defense pipeline conversion, and tariff cost absorption; any upside surprise on Q4 margins or defense orders could be a stock catalyst .

Additional Context and Disclosures

Q3 FY25 details: Sales $81.24M; EBITDA $3.99M; backlog $133.7M; operating cash flow ~$3.4M .
Q2 FY25 comparison: Sales $89.92M; gross margin 24.1%; backlog $124.0M .
Q1 FY25 baseline: Sales $72.90M; gross margin 26.5% .
Kobelt acquisition closed Feb 18, 2025 (~$14M 2024 revenue; expected to be immediately accretive to GAAP earnings) .

Footnote: Asterisked estimate values are from S&P Global consensus and may reflect differing metric definitions vs company-reported figures. Values retrieved from S&P Global.

TWIN DISC INC (TWIN)·Q3 2025 Earnings Summary