TWIN DISC INC Q2 FY2025 earnings call

• Strong double-digit sales growth in Q2 2025 with sales at $89.3 million, up 23.2% year over year.
• Continued contributions from Kato Oi and focus on integrating Casa, aiming for cross-selling, cost efficiencies, and strong execution.
• VET product shipments strong for electric, hybrid, and conventional propulsion; healthy backlog across end markets, with industrial business stabilizing.
• Marine propulsion growth driven by VET product line, North American commercial and luxury yacht demand, and defense spending due to geopolitical conflicts.
• Land-based transmission growth from airport rescue and firefighting transmission business.
• Oil and gas exports down but quoting activity up; industrial segment growth from Casa and Lufkin orders.
• Margin challenges due to a $1.6 million inventory write-down from Casa acquisition, $300,000 purchase accounting amortization, and unfavorable product mix.

Marine propulsion segment sales grew 23.9% year over year, driven by the ongoing strength in the VET product line which delivered record orders. Land-based transmission sales increased 19.8% year over year, reflecting momentum in the airport rescue and firefighting transmission business. Oil and gas exports were down 24% year over year compared to the prior year, but quoting activity was up with involvement in North American, Asian, and South American projects. The industrial segment grew 44.8% year over year, driven by the addition of Casa and a rebound in Lufkin orders. Revenue contribution: All three segments - Marine and Propulsion Systems, Land-Based Transmission, and Industrial - saw double-digit growth, with the Casa acquisition contributing to increased sales in Europe and North American VET projects.

• Remain disciplined in executing operational initiatives and exploring strategic acquisitions that complement core expertise.
• Focus on streamlining operations, optimizing cost structure, and driving efficiency across the supply chain.
• Prioritize higher-margin products and maintain pricing discipline.
• Target to convert 60% of EBITDA to free cash flow, with CapEx expected to be in the range of $12 to $14 million for the year.

• Margin pressure from inventory rationalization in the industrial segment and unfavorable product mix during Casa integration.
• Geopolitical conflicts impacting defense demand for patrol boat projects.
• Macroeconomic headwinds in the Asia Pacific region affecting oil and gas exports.

Q: Can you quantify the oil and gas segment's revenue and year-over-year decline?

A: Oil and gas was about 8% of revenue for the quarter and down 24% year over year compared to the prior year.

Q: Is the quoting activity in oil and gas North American, Asian, or other?

A: It's both North American, Asian, and South American.

Q: Is the ordering trend in oil and gas picking up due to changing administration?

A: It's an increased level of activity with new calls and potential projects, but early to say it's due to changing administration.

Q: Refresh CapEx outlook and free cash flow target?

A: CapEx expected to be $12-$14 million for the year, targeting to convert 60% of EBITDA to free cash flow, with Q2 free cash flow at $6.4 million.

Q: Any commercialized R&D contributing to growth this year?

A: No specific new products or technologies to report, but focus on hybrid electric market with ongoing development.

Q: Uptick in electric track fleet pilot?

A: Stable, ongoing with no newsworthy updates in the quarter.