Twin Disc, Incorporated

Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the fiscal 2024 third quarter result 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 1 again. I would now like to turn the call over to Jeff Knudson, Chief Financial Officer. Please go ahead.

Good morning, and thank you for joining us today to discuss our fiscal 2024 third quarter 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 of 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, we'll also discuss certain non-GAAP financial measures. For a definition of non-GAAP financial financial measures, and a reconciliation of gaps and non-gap 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 2024 third quarter conference call. Let's begin today's call with some highlights. We delivered solid results in the third quarter, continuing the trends seen throughout the year. As we continue to capture healthy end market demand, we achieved another quarter of margin expansion as well as robust free cash flow generation. These consistent results underscore the long-term impact of operational improvements we've made throughout our business in recent years, as well as ongoing tailwinds provided by disciplined working capital management to support overall performance. In line with our strategic focus on expanding our presence in the industrial and marine technology markets, we are pleased to have announced our recent agreement to acquire Kasa Oil, a leading manufacturer of high-quality power transmission components and gearboxes based in Finland. This acquisition will broaden Kasa's global reach as we've leveraged twin-disk global sales, distribution, and service network, while also generating cross-selling opportunities through Kasa's existing customer base as we tap into its long-standing relationships with leading European OEMs, similar to the dynamic we've achieved with VET. With our strong balance sheet and flexible financial profile, we will continue to explore similar strategic opportunities to drive sustained growth for TwinDisk. Moving on to results by product group, sales in marine and propulsion systems increased 3% year-over-year. The global commercial markets have remained active, providing a strong foundation for sustained demand. We continue to see an uptick in government defense spending tied to recent geopolitical turmoil, leading to an increase in patrol boat projects and other activities linked to fleet readiness. VET continues to perform well, supporting overall growth in marine propulsion as the mega yacht market remains strong. We saw a solid 16% sequential increase in six-month backlog, driving the recent inventory build to support rising demand. This uptick underscores the enduring strength of the VET and ROLA partnership, which has created an additional competitive edge for TwinDIS by unlocking additional growth opportunities within both new and established markets. We also continue to capture increased demand for workboat marine transmissions, particularly in the Asia-Pacific region due to the resurgence of projects for inland tugs in the region. A portion of this business is being driven by solid demand for coal tugboats utilized for transporting raw materials and coal from Indonesia to China. We will continue to focus on tapping into these regional opportunities to position the business for further growth. On to the land-based transmission business. Sales decreased 3% year-over-year, driven in part by sustained exports to the Asian oil and gas markets. That said, even if sustainable energy is still a focus globally, oil and gas exploration activity remains strong, and we are encouraged by demand in the North American oil and gas market. Additionally, the increasing ARF demand remains quite strong, which we will be even better positioned to capture with the addition of COTSA. Similar to last quarter, sales in our industrial segment remained off, declining 15% year over year. This dip can largely be attributed to reduced demand from our lower horsepower range of our offerings. Additionally, while commoditized products have experienced continued weakness, demand for more sophisticated, higher-content products has been relatively more resilient. We remain focused on advancing our OEM partnerships, which are crucial for our long-term growth strategy and allow us to leverage synergies and reach new markets effectively. Next, I'll speak to inventory and backlog. One of the key indicators for our company's strength and resilience is our backlog, which has been steadily increasing over the past six months. We are pleased to report that our backlog continues to grow both sequentially and on a year-over-year basis. Critically, inventory as a percentage of backlog has continued to trend downwards as well, reflecting our commitment to ongoing operational efficiency. Looking ahead, we anticipate further progress in inventory reduction during the fourth quarter of 2024 as we continue to work through our backlog, supporting continued cash generation. I'd like to briefly address our long-term strategy before Jeff takes us through the financial details. Our commitment to innovation and adaptation is at the forefront of our long-term strategy. We are steadfast in our mission to expand our presence into hybrid and electrification solutions for marine and land-based applications. As demonstrated by our agreements to acquire COTSA, we are committed to our efforts not only to develop but also acquire cutting-edge technologies that meet the demands of customers in our global markets. Our recent success in expanding the VET product line into untapped markets and regions also underscore our dedication to broadening our reach and solidifying our position as an industry leader. Moreover, our operational initiatives are geared towards enhancing efficiency and responsiveness, exemplified by the ongoing rationalization of our global footprint. By streamlining operations, we not only boost our competitive edge, but also strengthen our ability to cater to our customers' needs. With a keen focus on industrial and marine technology sectors, And protecting those with a hybrid-centric focus, we are poised to capitalize on emerging opportunities and further augment our portfolio. In closing, our unwavering dedication to innovation, operational excellence, and strategic partnerships will continue to drive our success and deliver value to all our stakeholders. With that, I will now turn it over to Jeff to discuss the financials.