Thank you for standing by. My name is Andrea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Twin Disc Incorporated Fiscal First Quarter 2025 Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Jeffrey Knutson, Twin Disc CFO. Thank you. Please go ahead.

Good morning, and thank you for joining us today to discuss our fiscal 2025 first quarter results. On the call with me today is John Batten, the CEO. I would like to remind everyone that certain statements made during this conference call, especially statements expressing hope, expectations, or predictions for the future, are forward-looking statements. It is important to remember that the company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's annual report on Form 10-Ks, copies of which may be obtained by contacting either the company or the SEC. Any forward-looking statements that are made during this call are based on assumptions as of today, and the company undertakes no obligation to publicly update or revise these statements in light of subsequent events or new information. During today's call, management will also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. By now, you should have received the news release, which was issued this morning before the market opened. If you have not received a copy, please call our office at 262-638-4000, and we will send a release to you. Now, I'll turn the call over to John.

Good morning, everyone, and welcome to our fiscal 2025 first quarter conference call. To begin, I'd like to walk through some of the quarter's highlights. We are pleased to report a strong start to the year with double-digit revenue growth in the first quarter. We are making progress in advancing our long-term strategies, becoming a leading provider of hybrid and electrification solutions as we deepen our relationships with major OEMs and have continued to expand our reach on a global scale. Our performance in the quarter was primarily driven by the impact of the acquisition of Casa Hoye, along with growth in our marine and propulsion business, where demand remains exceptionally strong. As many of you recall, we took proactive steps in fiscal 2024 to build up inventory in anticipation of increased demand, which has since materialized. End market demand in our industrial business is stabilizing. However, the business grew this quarter largely due to the addition of Casa. The integration of Casa, our second-largest acquisition to date, is progressing ahead of schedule. The addition of Casa has broadened our global reach and opened up new cross-selling opportunities with leading European OEMs, which we expect to continue supporting our long-term performance. Sales in our marine and propulsion segment grew 22.9% year over year, driven by sustained activity in commercial markets and the impact of the Casa acquisition. Within the luxury yacht market, which continues to expand on a global scale, its backlog grew sequentially by 19% in the quarter. Incoming orders for our best products reached all-time highs in October, driven in part by the demand for our elite thrusters, which customers seek out for their increased fuel efficiency, added maneuverability, and low noise and vibration levels. We are gaining traction with the elite thrusters in new geographic markets beyond…

Thanks, John. Good morning, everyone. We delivered sales of $72.9 million for the quarter, up $9.3 million or 14.7% from the prior year, driven by a $9.2 million incremental benefit from Casa combined with healthy demand in our global end markets. Adjusting for the sale of the BCS business in 2024, first-quarter revenue was $11.1 million or 18% higher than the prior year quarter. Net loss attributable to Twin Disc for the first quarter was $2.8 million or $0.20 per diluted share compared to a net loss of $1.2 million or $0.09 per share in the first quarter of fiscal 2024. Earnings per share were impacted by an increase in other expenses related to foreign currency loss, additional interest expense on the acquisition of Casa, and additional pension amortization in the quarter. Gross profit margin increased to 26.5% compared to 26.2% during the prior year period, and gross profit increased 16.1% to $19.3 million. Sales in the quarter were consistent with inherent seasonal trends of our business. We saw double-digit growth in both the marine and propulsion systems and industrial segments, driven by consistent market demand and geographic expansion and the additional benefit of the Casa acquisition. The continued improvement in the industrial segment further supported year-over-year sales growth. In terms of geography, we saw increased sales in Europe as a result of our acquisition of Casa, as well as continued growth in sales proportion from Middle Eastern markets. Net debt increased $11.9 million to $13.1 million in the quarter, primarily driven by an increase in total debt due to the Casa acquisition. We ended the quarter with a cash balance of $16.7 million, 18.2% lower than the prior year. Operating cash generation was impacted by a near-term shift in order timing by certain customers along with increased inventory. EBITDA…

In closing, the first quarter was a solid start to the year. We have delivered strong sales growth and margin expansion driven by our strategic focus on innovation and operational excellence. Our steady backlog is supported by consistent demand across our end markets, and we continue to reap the benefits of strategic decisions that have not only enhanced our global reach but diversified our product offering. With our robust financial profile, we are confident in our ability to navigate any economic uncertainties while executing our growth strategy to deliver long-term value to our shareholders. That concludes our prepared remarks. Jeff and I will be happy to answer your questions.

Thank you. At this time, I would like to remind everyone in order to ask a question, press star one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Simon Wong with Gabelli Funds. Thank you. Please go ahead.

Hi. Good morning, John and Jeff. Just a couple of questions here. First, on the free cash flow, there was pretty sizable negative free cash flow generation this quarter. What's your outlook for the year?

Yeah. I mean, it's still positive. I think we get back on inventory reduction. The big impacts in the quarter were significant year-end accrual payments, and then we had inventory jump up on us as it was commented with some order pushouts. So we expect to jump back into generally positive, 60% of the EBITDA level free cash flow for the rest of the year, quarter by quarter. Hopefully picking up some of the shortfall in the quarter through the rest of the year.

Okay. And then the eFAC offering that you introduced about two or three quarters ago, any update on the offering?

It's still in the prototype stage, but we have not had any takers yet on pulling the trigger to buy a fleet. We are getting more calls for traditional rigs right now, and that seems to be where our customers are focusing.

Okay. One final quick one. What's the oil and gas business? How much did it contribute to this quarter?

Yeah. So oil and gas was a lower percentage of the quarter than we have seen in the past. It was about 10% of revenue for the quarter. If you compare that to last year's Q1, it was more like 15% of the quarter. So definitely down in the quarter and contributed to the unfavorable mix impact that we saw.

Okay. Great. Thank you.

Thank you again. If you would like to ask questions, press star one on your telephone keypad. No questions at this time. Please continue.

Alright, Andrea. I guess if there are no further questions, we can stop the call and hope to see everyone at our second-quarter call, which will be late January or early February of 2025.

Thank you. Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.