Joining us for our next East Coast IDEAS Conference presentation. Presenting next is Twin Disc, which trades on Nasdaq under the ticker symbol TWIN. Representing the company today is their Chief Financial Officer, Jeffrey Knutson. Jeffrey? Thank you. Hi, everybody. Happy to be here. Happy to share a little bit of the Twin Disc story with you. Yeah, just jump in with questions as I go through here if you see something that interests you or is confusing. What we like to do is start with just why should you be interested in Twin Disc? What's interesting about Twin Disc? We've been around forever, 100 + years. Midwest manufacturing industrial company. What makes us special, I guess, as an investment? We have been and are a leader in global power transmission technology. We've got a very diverse portfolio of products, technologies, markets. We've got some unbelievable tailwinds right now coming for us, working in our direction in the defense market both Land-Based and water-based, hybrid transmissions continue to present a great opportunity for us. As we work through the integration of some recent acquisitions, we've got some great margin enhancement operational initiatives that will continue to drive some better and better financial results. I think we've established a really good track record of integrating the acquisitions that we've done. That's helped support a really good cash flow generation, strong balance sheet, and really providing us with the fuel to continue to execute that strategy. A little bit of an overview of the company itself. Again, older company, almost 110 years old now. About 1,000 employees, headquartered in Milwaukee. Has always been headquartered in Wisconsin. Last year, we did $340 million of revenue. This year, we're going to do, probably just based on our Q3 run rate, we'll do something north of $380. Gross margin last year of 27%. By comparison, our Q3 was, I think, 28.2%. When I say Q3, we're on a June 30th fiscal year end. You can see a bit of the product split. We're now 59% Marine & Propulsion, and we'll get into what that means for us. 24% Land-Based, 12% Industrial P roducts, and then a little bit of other non-Twin Disc product. Really from a geographical perspective, really well-diversified with now Europe actually being the biggest customer of Twin Disc products and then North America and Asia kind of equivalent, balanced by everybody else. Long history. We like to think the last few years have been some of the most important years in the history of the company. Some interesting things, if you go back to the World War II kind of timeframe, we did the transmission on the D-Day landing craft. The unintended consequence of that was those boats wound up all over Europe after the war, became commercial vessels, fishing vessels, were put to use, and they have Twin Disc transmissions in them. Now we have a global marine business that we supported and allowed us to grow globally from what was really a clutch manufacturer for tractors in Racine, Wisconsin. Didn't really do many acquisitions for the next 80 or 90 years. Recently, we've had a really nice run of acquisitions. We bought Veth Propulsion back in 2018, right before COVID, an azimuth thruster company that has done very well. Really allowed us to establish a track record with our board and our investors, a credibility around identifying and executing acquisitions. Since then, we've done the acquisition of Katsa in Finland and Kobelt in Canada in the last couple of years. A little bit of our product groups. I mentioned marine propulsion was about 59% of the company. In summary, we do almost everything, every market of boats that is bigger than goes on a trailer, smaller than goes across the ocean. 60 ft up to 300 ft. We do mega yachts like this. We decided to put the sexiest application on the screen. We do tugboats, ferry boats, riverboat cruises, commercial vessels up and down the rivers in Europe, around Asia, coal tugs in Asia, fishing boats, Deadliest Catch style fishing boats. We are on almost all those vessels. A really broad-based commercial marine exposure. On the Land-Based side, it's a little more concentrated, really three applications there. What you see in this picture is an ARFF vehicle, so airport rescue and firefighting vehicle. We have the lion's share of that market globally. We also do, historically, the biggest part of our story has been the frack transmission for frack rigs in the oil and gas market. We do a military transmission for the U.S. tank retriever vehicle. On the Industrial side, it's sort of the genesis of the company. We do clutches, power takeoffs, hydraulic power takeoffs, pump drives, and now brakes with the Kobelt acquisition, and go in all of the industrial applications you can imagine: agriculture, construction, recycling, irrigation, wood chippers, road ditch diggers, manure spreaders. Probably the one that we like to talk about most right now is what you see there is a military vehicle produced by Patria in Finland. We supply a drop box for that vehicle. We're the sole supplier of that product to Patria. Provides a huge growth opportunity for us. Very fortunate timing for us. That happened within two years of our acquisition of that business. A really strong tailwind there. Talk a little bit about the defense market and what we're seeing. I think everybody's seeing that the investment in defense assets around the world is growing like we haven't seen in a long time. Just some statistics here. We've got a 13% year-over-year increase in U.S. defense spending, a 150% increase in NATO defense spending as a target of their GDP. We've got existing products and proven products that will benefit from those increases in spending. We have a marine transmission that goes into, and we'll get to the vessel, that goes into some of the autonomous unmanned vessels that the U.S. Navy is investing in. What you see on the right side there is the drop box that goes into the military vehicle. We've got existing customers in NATO and the U.S. Army and the U.S. Navy. We're seeing the orders. We've got a pipeline of $50 million-$75 million that we see coming at us across all those platforms. Defense as a% of our backlog continues to grow. It is just starting to show up on our P&L, but it's a big part of our backlog. A big part of what we're doing as an operation to prepare for that demand, getting our capacity ready, getting our suppliers ready, making sure that we can capitalize on the opportunity that's coming at us. If we step back a little bit and just talk about what's the strategy for the company and where do we think that strategy should take us. We've embarked on a hybrid electric strategy probably now five or six years ago, where we want to be the leading provider in our niche markets. We're not a Tesla style, 1,000s and 1,000s of units a day. Our niche is somebody wants to do eight tugboats, and he wants them to be hybrid electric. We can provide that solution. Somebody wants to do an electric ferry boat, we can provide that solution. These are all sort of custom solutions. They're very limited commonalities across those platforms. We have a lot of references out there. We did the full electric propulsion for the Maid of the Mist at Niagara Falls. That's a full electric tour boat that is powered by the falls, it goes and gets recharged by the falls and charges the battery. That's one of our, I guess, noteworthy applications. We've done a lot of ferry boats. Australia's very aggressive in investing in electric and hybrid electric solutions. I would say, for the most part, hybrid electric has been centered on the marine applications. We've also done some hybrid and full electric cranes with Manitowoc Company about a year or two ago, and have seen some good success there. That remains a focus of ours. We will continue to take our acquisitions to new regions, to new markets. It really has been the secret sauce that has allowed that to grow. We'll get to what that growth has been. Our ability as a global company with a strong reputation around the world in all of our markets for service and support, it's how you get a new customer to take a chance on a Veth thruster. When they were a small company in the Netherlands, they didn't have much of a chance competing against a global company when they're selling outside of their home market. They don't have any references. They don't have a reputation for support. These are vessels that that owner is going to want to know that that product is going to be supported. What we bring, we put our Twin Disc name and our Twin Disc reputation behind these products, and that provides them with the benefit of the reputation we have around the world for supporting our product. It's allowed Veth to grow from what they were when we bought them, $45 million. They'll do something north of $90 million this year. We still have a complicated footprint, and we'll get to that. We need to look at that more in terms of where our growth is going to be and are we doing it as efficiently as we can, knowing that our footprint has developed really around acquisitions. We have the ability now to rethink that and make sure we're doing things the most efficient way possible. We continue to look at additional acquisition opportunities. I think for us, as a $350 million - $400 million company, there are a lot of opportunities for companies like us in our markets with quality products that we can bring to our customers and help them grow outside of their home region. Our targets that we've put out there are to get to $500 million of revenue by 2030, get to 30% gross margin, and convert 60% of EBITDA into free cash flow. I think some would argue now the $500 million maybe is not aggressive enough given what we've done in the last year or two. I think the acquisitions that we've done and the growth that we're seeing, the projections that we have, I think a year ago, we would've said to get to $500 million, we need to do at least one or two more deals. I think we have a realistic chance of getting to $500 million without another deal. I think we would likely have to have capacity to meet the demand that we're seeing. I think for us, that means we have more options to get to $500 million, and I think it also means we have a good chance of going beyond that. I talked a little bit about hybrid electric and why are we focused on that. It's still a relatively small part of our backlog, a small part of our revenue, probably in the 5% range. When I talk about a hybrid electric solution, it's everything that makes that piece of equipment move, from the motors to the batteries, to the controls, to all the wires, the inverters, all the things that engineers know about that I don't know about. It's a lot of stuff. It's very complex. Why are we focused on that? What we're seeing is the demand is there. It continues to grow. We get more and more inquiries, and they're more and more serious inquiries. In some ways, financially, it almost never makes sense to do this, right? The expense of that type of technology in these applications is way more than you would pay in a normal, conventional sort of propulsion situation. There are other motivations, right? There can be regulations. In some ports, in particular in Europe, you have to be low noise, low emission, zero emission, zero noise. That continues to shift and evolve really in one direction, away from big diesel-powered engines churning up smoke in the harbors. That is not going away. There are certainly government incentives to go low emission, to go full electric. The applications are out there, but there aren't many that can do them like we can do them in our markets. That's something that we've spent a lot of time, invested a lot of money in. The good news, the payoff for us really is in a normal, let's say, tugboat application, we might do a $75,000 transmission. That would be our content on that boat. When we do a full application, it's five to 10 times that, so it can get between $500,000 and $750,000 for that same vessel when we do the full application. What it means is we now have to partner with a lot of these suppliers, all the battery suppliers, the motor suppliers. We don't anticipate acquiring along that route, to go deeper into vertically integrating in the electric space. That's, I think, an evolving space that what we've seen is very volatile. We've been working with a lot of battery companies around the world. They're here today, gone tomorrow, either acquired or bankrupt or changing. It's a big part of what we do is understanding who the players are out there, who are the right ones for us to partner with and work with. It will continue to be a bigger and bigger part of our business. This is just one example for a hybrid marine vessel. You can see a little bit. This is our boat in Australia that we designed this system, which is essentially a drop-in hybrid electric system. We took a conventional boat, and we designed a way to basically have a drop-in retrofit to make this boat hybrid electric. It's something that brings it into the realm of possibility for a lot of boat owners because to go from you own that 48-ft Riviera to you want it to be hybrid electric can be. It seems like an impossible task on the face of it. To develop that drop-in solution was, I think, three years in the making. Testing, design, trial and error. Battery companies disappear. Motor companies disappear. It's really been a journey, but we're really excited about getting that boat out. It will be at the boat shows in Australia going forward, and I think we expect to see some good volume start to develop in that area. I mentioned a little bit about Veth. Veth's the azimuth thruster company we bought in the Netherlands in 2018. This slide is a little dated now already. In fiscal 2025, like I said, we bought them, they were around $45 million. In fiscal 2025, they were going to do around $83 million. I think this year we're going to do north of $90 million, and we're really getting to the point where the capacity is the issue, not our ability to grow from a market standpoint. Now we're at the stage where we need to really think about expanding our capacity to meet the growing demand. I think what this tells us is, when we find that right company, that regional company in markets that we know with a technology and a quality that fits the Twin Disc level of performance, we can make that company grow, and really deliver to the bottom line. That's what's driven our future growth, our future acquisitions. We did Katsa and Kobelt within the last year and a half, a Finnish marine and industrial company and a Canadian industrial company. I think we'll continue to pursue that. I mentioned our geographic footprint. It's a little complex for a $300 million-$400 million company. We've got manufacturing, like I said, in Canada, two locations in the U.S., Finland, Netherlands, Belgium, Switzerland, Italy. We've got a joint venture in Japan. We've got distribution in Singapore and Australia, and we've got a sourcing office in India. It's a blessing and a curse in some ways, right? In a tariff environment like we've had, it gives us some real flexibility in where we do things. We can shift production from the U.S. to Europe in cases where that makes sense, or vice versa. It does create the question around, are we being as efficient as we can with that footprint? I think there are still opportunities for us to do better there. I think that's an opportunity. I think, the benefits that we've seen are huge. The other aspect of it is it allows us to flex capacity a little bit. For instance, our Dutch operation is at capacity, but our Belgian operation is not. We can shift some assembly down into Belgium fairly easily. It's a very regional kind of approach. We would look to do more and more of that across our group. Like I said, we'll continue to pursue M&A. Our focus would be in marine technology and industrial, which is kind of what we've done recently. The Veth was very much a marine technology acquisition. The azimuth thruster technology is an area that we did not have, and really felt like we needed. Industrial is a piece of the business, if you remember one of the earlier slides, it's only maybe 15%-20% of the business. We feel like that should be a bigger and bigger part of the business. It's the biggest addressable market we have. That's where a lot of opportunities are. It's a much broader product portfolio in industrial. Opportunities there, I think, will present themselves. We focus on the strategic fit. What are we good at? What are they good at? What can we bring to the group? Our initial focus was we want to diversify away from oil and gas. Anybody that has followed the company historically knows that we were very hyper-cyclical with oil and gas. We would go from $250 million - $150 million when oil and gas went away. We made the decision to really grow away from oil and gas, focus on acquisitions that made us a stronger company and really soften those cycles. That's what we've done. I think what we're seeing today in our numbers and what we're going to see is the success of that strategy. We've gotten excellent value for those deals. They've all grown very well and the synergies and integration has been very strong. These are two of the recent ones. Katsa in Finland, we paid about $23 million. In terms of valuation, that was, I think, 6.2x EBITDA. It's a leading manufacturer of products that we know. Power transmission components, gearboxes for end markets that we already play in. It diversifies us within our industrial product line, creates a lot of opportunities across manufacturing and purchasing. Kobelt, more recent acquisition, paid $16.5 million. That was about 5.5 x EBITDA. Really strong financial company, 30%+ gross margin, 20% EBITDA margin. They bring industrial brakes, which is an industrial product that we haven't had historically. Well-established company with a global name, but just lacking the resources to grow globally. The global industrial brake business is huge. They've got a small piece of it. We can help them double and triple that. When we look at our capital allocation priorities, it's nice to be able to look at priorities that aren't strictly survival, or bring debt down, or become covenant compliant. The strength of the company today allows us to look at our debt. We've got a very strong balance sheet today. We're under 2 x levered. We like to bring debt down in advance of an acquisition so that we never feel like we're overly levered and we're ready for. For instance, the Kobelt acquisition came right after the Katsa acquisition. We were well-positioned financially to do both of those. We'll continue to look at the dividend and continue to support that. I think we'll have more organic growth investments as we look at the need to support the growing defense demand that we're seeing. Likely some square footage. We will be adding a facility in Finland, a new leased facility in Finland to meet the military demand that we're seeing there, also continue to look at additional acquisitions as we go forward. Just a repeat of the investment highlights that we talked about before. Hopefully that all makes sense now that we've gone through some of the details. Open up for questions, if anybody has any. Yep. Who's your largest customer? Yeah. We don't have any incredibly large customers. The biggest would be Sewart Supply, typically, which is our marine distributor in the U.S. In the U.S., we sell primarily on the marine side through distribution, and we've got four distributors. When you think about OEMs, names that you would know, Vermeer is a big customer of ours on the industrial side. Let me think. Wärtsilä is a big customer of ours in Europe. Morbark is a big customer of ours. Some of the oil and gas companies, M.G. Bryan, ProFrac, are some big OEMs that we work with. You're the propulsion system for the boat, but somebody else is making the boat. Yep. They're installing your product. Yep On the boat. You mentioned price ranges of products. What would be an overall average selling price? Well, it's hard to give that. On the industrial side, a clutch can be $5,000. A PTO can be $25,000, $30,000. When you get into transmissions, on the low side, probably $80,000 up to $175,000. When you get to the azimuth thrusters, if I find one, I'll show you. Well, it's hard to get the scale of it. An azimuth thruster would be as tall as this room. It's going underneath a mega yacht, this boat that I showed here. That vessel, I think, has three azimuth thrusters underneath it. Each one of those would be about $800,000. That application, that project would be a $2.5 million project for a Veth. That's kind of the range, $8,000 - $800,000. Yep. Capital allocation. You want to de-lever even further, right? Get below two times. You also want to focus on accretive acquisitions. You have a small dividend. You had a buyback. You bought back 5% of your shares. You finished that buyback about a year ago. Would you ever reauthorize a buyback here? I won't say never. I think a year ago would've been more likely, when the stock was $7. I think right now with what we see and the likely need for the investment to meet the growth that we're seeing, I think we're more likely to focus on that until we're comfortable at that. I think it's probably priority C or D in terms of doing a buyback. Yep. I think you mentioned gross margin and free cash flow conversion targets. What's that converting? Is it EBITDA margins? EBITDA. Yep. What's the margin target on EBITDA? We're doing, I think we did 10% last year. Let's say we get leverage on that as we get bigger. Maybe we get up into the 11%-12% range on $400 million. If you're trying to get to a dollar amount, it's probably $25 million-$30 million of free cash flow, I think, if you just work through that math a little bit. I didn't realize Veth is a large part of the business now, and you mentioned capacity constraint. Where can you take that business, do you think? I think it can be a $200 million business. The nice thing about it is it's not that vertically integrated, it's mainly design, assembly, and test. We rely on our supply base to ramp up. What we do need to do is find more space. The facility when we bought it was a brand new facility, and it was meant to do double the volume that they were doing, and that's what we're doing today. What we thought was maybe a 10-year window has gotten shorter, and the product's gotten bigger. We used to do more things like this big. Now they're twice that big. We have some flexibility in the region. Our landlord has other facilities adjacent to the building that we're in that we could expand into, and we also have the building in Belgium that we have some flexibility in as well. Yeah, we have some options there, but it's one of those things that we'll need to address because. The projects in the backlog keeps going up, they're not really impacted by defense. This is all either existing markets or new markets in terms of pleasure craft. There are defense applications that would be available to them. They just haven't even gotten to that yet. I think there's a lot of runway yet for them to grow. How long will it take to add that capacity? It's How far along are you in the process? We've already shifted some production to Belgium. They're assembling some of the smaller thrusters to relieve the Dutch facility of that work. To be able to add capacity to do the bigger thrusters, the building exists, it's adding cranes. It's probably six months, realistically, to go from identifying the facility to having it be ready for assembly. It's not a big capital-intensive business, which is, when you're trying to grow capacity, that's the nice thing about it. As opposed to Katsa, right? Katsa is very vertically integrated, so a lot of machining. They do their own heat treat. To grow what they do generally would require significantly more investment. Veth, the investment is lighter, but we need bigger space, really, is what it comes down to. Do you need to expand Katsa also? We are expanding Katsa, right. We have a new leased facility that will be ready for production at the start of calendar 2027. That facility is being built by our landlord, to be expandable in three phases. What we're very conscious of, given all the scars from the oil and gas cyclicality, is the defense demand we believe is sustainable. There's likely some bubble aspect to it. We don't want to overexpand capacity and then regret it five years from now. The facility we're putting up provides us a lot of flexibility to make sure that we land in the right spot capacity-wise. Anybody else?