Twin Disc, Incorporated

Good day and welcome to the Twin Disc Cisco 4th Quarter 2023 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jeff Knudson, Vice President of Finance, CFO, Treasurer, and Secretary. Please go ahead.

Good morning, and thank you for joining us today to discuss our fiscal 2023 fourth quarter and full year results. On the call with me today is John Batten, TwinDisk CEO. I would like to remind everyone that certain statements made during this conference call especially statements expressing hopes, beliefs, 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-K, 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 to reflect 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 thank you for joining us today. Let's begin today's call with some highlights. Throughout the quarter, we experienced strong demand for our products across end markets, coupled with easing supply chain constraints and higher shipments. This translated to a 10.5% increase in sales year-over-year for the fourth quarter and a 14% increase year-over-year sales for fiscal 2023. Gross margin was 29.5% for the quarter, which was 236 basis point decrease from last year's historically high margins and a 340 basis point improvement sequentially. We generated 22.9 million of operating cash flow and 14.9 million in free cash flow for the year, which compares favorably to the cash outflow in fiscal 2022. Earlier in the year, we took a number of actions to respond to headwinds stemming from supply chain constraints and higher costs. Our team has continued to work with strategic vendors to source components that are in short supply or that are currently sourced from a single supplier. We also made significant progress with our global footprint rationalization and expect to realize further benefits in fiscal 2024 as we enter the next phase of our plans. The VET business ended fiscal 2023 with a record high six-month backlog, primarily a result of its continued expansion beyond its core northern European markets to North America and Asia Pacific. Shifting to our product groups, Marine and Propulsion Systems continues to be our strongest product group and experience a very healthy demand. sales for the quarter increased 22% year-over-year. We are seeing elevated inquiries from the U.S. and Canada, and production at our Belgian plant is at capacity with solid projects in the pipeline, and we are now booking projects into August of 2024 and beyond. Propulsion continues to be a driver with the partnership between VET and ROLA making considerable progress on improved product performance and project design. A great example is our elite drive, offering, which combines ROLA's in-house CFD capability and VETS hybrid experience to design and produce state-of-the-art hydrodynamic propellers and the most efficient azimuth thruster, and deliver a complete hybrid system for the megayacht market. This partnership continues to give TwinDisc a competitive advantage and unlocks new possibilities and opens doors to previously untapped markets. On the land-based transmission side of our business, the lack of oil and gas investment over the past few years has increased utilization and the need to rebuild and or replace fleets. Customers continue to face constraints on new engine availability from third parties, which has led to delayed orders for new transmissions. Instead, we've seen sustained demand at elevated levels to rebuild existing transmissions. While part of our normal offering, what has changed is the number of times we have been asked to rebuild a given transmission. Typically, we'd see a transmission rebuilt two or three times before it is replaced. With these third-party engine manufacturing delays, we've seen some transmissions come into our facilities for a fifth or sixth rebuild. Our EFRAC testing continues to progress, and the feedback to date remains positive. We anticipate orders to begin in the United States starting in fiscal 2024. Within the industrial group, we continue to experience stable demand across end markets and have been able to maintain volumes. During the fourth quarter, we faced some sourcing headwinds that our team worked to address as quickly as possible. We've already sourced a new vendor for the supply-constrained component, and we expect to resolve any remaining past-due backlog in the first quarter of fiscal 24. Our team continues to make headway on several hybrid and electrification projects with various OEMs. These projects have a much longer development timeline with a year or more spent on field tests and trials. We'll continue to provide updates as we achieve milestones. Looking ahead, we are evaluating opportunities to drive further innovation, improve execution, and accelerate our growth. While challenging at the start of the year, supply chain headwinds eased sequentially, and operational execution enabled us to significantly improve shipments. This improvement has allowed us to clear a significant portion of our past due orders from backlog. Inventories, a percentage of backlog ticked up slightly from the third quarter. though the overall trend toward historical levels continues. We have seen shortages of certain components and materials continue. The steps taken to incorporate alternatives as a means of mitigating these constraints have paid off and will benefit Twin Disks over the long term. To be clear, the bulk of the supply chain henwoods faced in prior quarters, like heat treatment capacity constraints, have subsided, and we believe that these trends will continue. However, we operate in uncertain times, and are ready to address future challenges head on. As we evaluate each opportunity, we need to explore the puts and takes from multiple vantage points, including how our actions align with our commitments and our long-term strategy. Through fiscal 2023, our team has done a great job making progress on both fronts. We continue to rationalize and modernize our legacy facilities, equipment, processes, and geographic footprint. This work has and is expected to continue to deliver improved shipments, lower inventory, reduced lead times, and lower costs, all of which will contribute better results for TwinDisk and enhance value for all of our shareholders. As we transition to fiscal 2024, I'm especially excited to bring our EFRAC offering to market. I'm also encouraged by the VET and ROLA partnership opportunities in the marine and propulsion systems area and the progress our industrial group is having with OEMs on several electrification and hybrid systems projects. With that, I'll now turn it over to Jeff to discuss the financials. Jeff?