Executive Summary

Q4 FY25 delivered record sales of $96.7M, up 14.5% YoY, with gross margin reported at 31.0% (≈28% ex. one-time inventory capitalization), and EBITDA of $7.0M . Revenue beat consensus by ~$3.7M (+4.0%)* but EPS of $0.10 missed a $0.26 consensus*, driven by higher operating expenses and FX losses .
Backlog rose to $150.5M (+$16.8M QoQ) on defense and propulsion strength; defense-related orders grew ~45% YoY and now comprise ~15% of backlog .
Segment highlights: Marine & Propulsion +12.2% YoY to $53.0M, Industrial +82% to $13.1M; Land-Based Transmissions +4.5% to $26.1M .
Oil & gas remained a drag (organic Q4 sales -8.4% YoY) due to lower China shipments, but first e-frac spread order (14 units; ~$2.3M) supports medium-term recovery .
Management reiterated long-term targets (2030: ~$500M revenue, 30% GM, ≥60% FCF conversion) and guided FY26 capex of $12–14M; quarterly dividend maintained at $0.04 .

What Went Well and What Went Wrong

What Went Well

Strong top line and backlog momentum: Q4 sales +14.5% YoY to $96.7M; six‑month backlog reached $150.5M, up from $133.7M in Q3 .
Defense & propulsion strength: CEO noted defense backlog and pipeline expansion (defense orders +~45% YoY; ~15% of backlog), with US Navy unmanned platforms and NATO land systems driving growth .
Margin actions and underlying improvement: Reported Q4 gross margin of ~31.0% benefited from one-time inventory capitalization; underlying margin ~28% as cost actions and mix improved sequentially .
Quote: “We closed out the fiscal year with our strongest quarter… Marine and Propulsion led the way with robust defense-driven demand…” (John Batten) .

What Went Wrong

EPS miss despite revenue beat: Diluted EPS $0.10 vs $0.26 consensus*, impacted by FX losses, higher operating expenses and stock-based comp; EBITDA down YoY .
Organic decline in Q4: Organic net sales fell 8.4% YoY (lower oil & gas shipments into China), highlighting continued energy market headwinds .
Elevated operating costs: ME&A up 20.9% YoY to $24.6M in Q4 on acquisitions, professional fees, and wage inflation; one-time items and FX weighed on EBITDA .

Financial Results

Summary P&L, Margins, Cash, Backlog (oldest → newest)

Metric	Q2 FY25	Q3 FY25	Q4 FY25
Revenue ($M)	$89.921	$81.242	$96.678
Diluted EPS ($)	$0.07	$(0.11)	$0.10
Gross Margin (%)	24.1%	26.7%	31.0%
EBITDA ($M)	$6.262	$3.989	$7.031
Operating Cash Flow ($M)	$4.315	$3.4	$16.448
Free Cash Flow ($M)	—	—	$8.743
Backlog ($M)	$124.0	$133.7	$150.5
Net Debt ($M)	$8.967	$24.529	$15.337
Gross Margin ex. one-time (%)	—	—	~28.0%

Notes: Q4 gross margin lifted by one‑time Katsa inventory capitalization; underlying margin ~28% .

Q4 Year-over-Year

Metric	Q4 FY24	Q4 FY25
Revenue ($M)	$84.418	$96.678
Diluted EPS ($)	$0.53	$0.10
Gross Profit ($M)	$25.086	$30.018
Gross Margin (%)	~29.7%	31.0%

Segment Breakdown – Q4 FY25 vs Q4 FY24

Product Group ($000s)	Q4 FY24	Q4 FY25	YoY %
Marine & Propulsion Systems	$47,228	$53,011	12.2%
Land-Based Transmissions	$24,989	$26,122	4.5%
Industrial	$7,219	$13,141	82.0%
Other	$4,982	$4,404	(11.6%)
Total	$84,418	$96,678	14.5%

KPIs and Balance Sheet Metrics

KPI	Q3 FY25	Q4 FY25
Six‑Month Backlog ($M)	$133.7	$150.5
Inventory as % of Six‑Month Backlog	103.2%	101.0%
Cash ($M)	$16.245	$16.109
Total Debt ($M)	$40.774	$31.446
Net Debt ($M)	$24.529	$15.337
Quarterly Dividend ($/sh)	$0.04	$0.04 / declared 8/7

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Capex	FY26	—	$12–$14M	New
Free Cash Flow Conversion Target	LT	≥60% of EBITDA (prior articulation)	≥60% reiterated	Maintained
LT Revenue Target	2030	—	~$500M	Reiterated/Framed
LT Gross Margin Target	2030	—	~30%	Reiterated/Framed
Dividend	Quarterly	$0.04 prior	$0.04 maintained; payable Sep 1, 2025	Maintained

Note: No quantitative near‑term revenue/EPS/margin range was provided in the Q4 materials; commentary focused on backlog strength, defense pipeline, and cost/margin actions .

Earnings Call Themes & Trends

Topic	Q2 FY25 (8‑K)	Q3 FY25 (8‑K)	Q4 FY25 (Call)	Trend
Defense	—	—	Defense orders +~45% YoY; ~15% backlog; capacity expansion across US Navy and NATO programs	Strongly increasing
Oil & Gas	“Challenges in Asian oil & gas”	Reduced China shipments; mix headwind	Oil & gas ~8% of FY25 revenue; first e‑frac order (14 units; ~$2.3M) post‑Q4; potential recovery	Stabilizing with green shoots
Electrification/Hybrid	Strategy emphasis	Continued focus	E‑frac drive solution; hybrid projects in commercial/defense marine	Building momentum
Margins/Costs	Q2 GM 24.1%; inventory write‑down impacts	GM 26.7%; FX headwinds	GM 31.0% reported; ~28% ex one‑time; ongoing cost actions	Improving underlying
M&A Integration	Katsa integration benefits contemplated	Katsa/Kobelt contributing; ME&A higher	Synergies, global channel leverage; organizational realignment into 4 BUs	Positive
Supply Chain/Tariffs	—	—	Tariff exposure ~1% of COGS; pricing/sourcing offsets	Managed risk
Regional Mix	EU/N. America growth	EU share higher; APAC lower	Mix shift persists; NA Veth strong	Sustained EU/NA tilt

Management Commentary

“We closed out the fiscal year with our strongest quarter… Marine and Propulsion led the way with robust defense‑driven demand… maintained pricing discipline and protected margins” (CEO) .
“Fourth quarter gross margin improved… to 31%… Excluding the… inventory adjustment, gross margin was 28% for the quarter” (CFO) .
“Defense… is really ramping up… approved supplier… for US Army, US Navy, and NATO… defense products grew ~45% YoY… nearly 15% of our backlog” (CEO) .
“Tariff exposure [is] roughly 1% of cost of goods sold… pricing actions, alternative sourcing, and surcharge mechanisms… to offset” (CEO) .
“Target… deliver 60% of EBITDA to free cash flow” (CFO) .

Q&A Highlights

Defense ramp/capacity: Management plans to flex assembly across Finland, Belgium, Italy, and Texas to meet NATO/US Navy demand; sees “huge growth potential” in land and marine defense .
Commercial synergies: Leveraging Twin Disc’s global distributor network to accelerate Veth/Katsa/Kobelt sales; cross‑selling controls, PTOs, and brakes through expanded channels .
Oil & gas mix and e‑frac: Oil & gas ~8% of FY25 revenue (about half of a few years ago); first e‑frac spread order (14 units; ~$2.3M) and natural‑gas engine adaptations support recovery outlook .
Margin drivers: Volume leverage, Katsa low‑cost gear production, supplier shifts (incl. India), and capex/lean initiatives underpin 2026 margin improvement plans .
Capital allocation: FY26 capex $12–14M; prioritize deleveraging to re‑open capacity for “Katsa/Kobelt‑type” bolt‑ons; aim for ≥60% EBITDA‑to‑FCF conversion .

Estimates Context

Q4 FY25: Revenue $96.678M vs consensus $93.0M* (+$3.68M, +4.0%); Diluted EPS $0.10 vs $0.26* (miss by $0.16)* .
Q3 FY25: Revenue $81.242M vs consensus $83.4M* (−$2.16M, −2.6%); Diluted EPS $(0.11) vs $0.21* (miss by $0.32)* .

Values marked with an asterisk (*) are retrieved from S&P Global consensus via GetEstimates.

Period	Revenue Actual ($M)	Revenue Consensus ($M)*	Surprise ($M)*	EPS Actual ($)	EPS Consensus ($)*	Surprise ($)*
Q3 FY25	81.242	83.4*	−2.16*	(0.11)	0.21*	−0.32*
Q4 FY25	96.678	93.0*	+3.68*	0.10	0.26*	−0.16*

S&P Global consensus details: Primary EPS and Revenue estimates; 1 contributing estimate for each period*.

Implications: Expect upward revisions to revenue where defense/propulsion visibility is strong; EPS estimates may be recalibrated for higher ME&A, FX volatility, and lower oil & gas mix until margin actions flow through .

Key Takeaways for Investors

Defense and propulsion are the near‑term growth engines: backlog up to $150.5M with defense ~15% and pipeline of $50–$75M underscoring multi‑quarter visibility .
Quality of beat/miss: Q4 revenue beat but EPS missed—higher operating costs and FX losses offset mix benefits; monitor underlying margin (~28% ex. one‑time) trajectory into FY26 .
O&G stabilization with catalysts: First e‑frac order and NG engine adaptations offer upside as traditional oil & gas exposure sits at ~8% of FY25 revenue .
Integration synergies should aid margins: Katsa low‑cost gear production, supplier shifts, and network cross‑sell are tangible levers; volume ramp in defense could accelerate flow‑through .
Cash and balance sheet: Robust Q4 operating cash flow ($16.4M) and lower net debt QoQ ($15.3M) support capex and optionality; dividend maintained .
Watch items: FX volatility, tariff costs (~1% of COGS), and China energy demand remain swing factors; management indicates mitigation levers in place .
Trading setup: Narrative skew is positive on backlog/defense and underlying margins; EPS cadence hinges on cost normalization and conversion of defense pipeline to shipments .

TWIN DISC INC (TWIN)·Q4 2025 Earnings Summary