Greetings, and welcome to Twin Disc Fiscal Third Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Jeff Knutson, Vice President of Finance, Chief Financial Officer, Treasurer and Secretary. Thank you. You may begin.

Thank you, Doug. Good morning, and thank you for joining us today to discuss our fiscal third quarter 2023 results. On the call with me today is John Batten, Twin Disc's 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. I'd like to start today's call with a few highlights from the quarter. Strong demand across our end markets, coupled with an easing supply chain constraints and, in turn, higher shipments translated into a 24% increase in sales year-over-year and double-digit sales growth in our North American and Asia Pacific regions. . Margins were adversely impacted by multiple factors, including a noncash LIFO charge related to a reevaluation of inventory and higher costs that more than offset the pricing actions we implemented mid-quarter. Normalizing for the noncash impact to margins, the operational accomplishments of our team would have resulted in sequential margin improvement, which has been and will continue to be a top priority. Further, we also generated nearly $7 million of cash from operations and ended the quarter with our highest backlog in more than 4 years and that's largest backlog ever. We have already taken a number of actions to respond to headwinds stemming from supply chain constraints and higher costs and we have been working with other strategic vendors to source components that are in short supply or that are currently sourced from a single supplier. The operational accomplishments of our team led to a significant improvement in shipments which will allow us to continue to decrease inventory and further improve lead times. I'm also encouraged by the results we are seeing from our collaboration between Veth and Rolla. The Veth team has been working with our propeller manufacturing, include more Twin Disc content in their designs and provide a better overall product to customers. There has been a noticeable increase in the number of applications of our hybrid and electric offerings, and we are seeing a correlated increase in new orders as a result. Our Marine…

Thanks, John. Good morning, everyone. We delivered sales of $73.8 million for the quarter, up $14.5 million or 24.4% from the prior year, driven by strong demand across our end markets, especially within our Marine and Propulsion Systems and Land-Based Transmission product groups. As John mentioned, shipments improved significantly in the quarter, and we are seeing light at the end of the tunnel for our supply chain. Net income attributable to Twin Disc for the quarter was $2.7 million or $0.20 per diluted share compared to $2.2 million or $0.17 per diluted share in Q3 of fiscal '22. The approximately 20% year-over-year improvement in net income was primarily the result of our sales performance and lower income tax which was driven by the geographic mix of earnings. Marine and Propulsion Systems and Land-Based Transmissions both delivered double-digit growth sequentially and year-over-year, while our Industrial Product Group delivered another quarter of sales in line with expectations. Looking at sales by geography. We saw year-over-year and sequential increased sales within North America and Asia Pacific regions were primarily driven by efforts to diversify the Veth business outside its core Northern European markets. That has had a number of wins recently and currently boasts a record high 12-month order backlog. We see a clear path to further growth in this business. As John mentioned, within the electric yacht market, Veth is now partnering with Rolla, our high-end propeller design and manufacturing firm to design and develop components that are more fluid dynamic and leverage additional content from Twin Disc. Gross margin of 26.1%, a decrease of 370 basis points from the prior year period were negatively impacted by a noncash write-down of domestic inventory as a result of LIFO accounting in the quarter. We expect this to similarly impact Q4 as we continue…

[Operator Instructions] We do have a question from the line of Simon Wong with Gabelli Funds.

Just starting with the oil and gas business. How big -- how much revenue was that in the quarter?

So it's a little bit hard to break that out real cleanly, but it was obviously a big part of the quarter, aftermarket and forward market. I would say, 25% to 30% in the quarter, top line.

Okay. Is that -- how much is that new equipment versus consumables or aftermarket?

I would say it's probably more than half aftermarket, maybe 60-40 aftermarket versus new equipment, with most of the new equipment headed to Asia.

Okay. I'm sorry, just to clarify, the 25% to 30%, is that total or -- of total revenue or just land-based transmission?

Total.

Okay. And then staying on the oil and gas, what are you seeing from your customers? I mean, given the recent volatility in oil prices and lower natural gas prices, are they continuing activity? Or are you starting to see them park equipment? I mean what are you seeing there?

We -- so Simon, we haven't seen any slowdown in the rebuild activity. They may have idled some equipment, but I think it's mostly equipment that needs to be rebuilt or replaced. And every conversation that I've had, whether it's for Asia or North America, the rebuild activity is going to continue, and they are actively looking at new spreads because some of the -- particularly in North America, traditional frac rigs are going on their fourth, fifth, maybe sixth rebuild. And there's still -- there's -- we're seeing that, that is going to continue through the rest of the calendar year. And availability of engines is still out a couple of quarters. So we probably won't see a significant attritional frac fleet, some build, but I expect to see that at the end of this calendar year.

Okay. Great. And then one more oil and gas question. In your last up-cycle, how big was the offshore part of the business for you guys?

Simon, offshore was historically a very big component. But I would say just that -- that was probably high single digits, 10% of our business when it was at -- when it was near its peak.

Okay. 10% at its peak. It can be a meaningful contributor going into the next few years if offshore really comes back as the industry saying it is. Okay. Just one last question, and I'll jump back in the queue. Outside of oil and gas, anything indeed on your new product pipeline that you're excited about, that you can talk about?

Well, just I would say a lot of the industrial products, some of our PTOs, whether it's electrically shifted or hydraulically shifted, those are starting to gain traction. And really what's exciting are the amount of hybrid and electrification applications, projects, quoting that we're doing and the systems, the Hinckley is the one that we've been able to talk about, but we should have some exciting industrial ones to talk about. And I'm guessing we'll have through this calendar year, certainly next fiscal year, a lot more coming out where the full system is provided by Twin Disc. So a lot of control development. And that's been a bit -- I mean our controls group has done an amazing job resourcing a lot of just the base components that were in such short supply over the last 12 to 18 months.

There are no other questions in the queue. I'd like to hand the call back to management for closing remarks.

Thank you, Doug. I just wanted to take a moment to thank our teammates around the world for their perseverance and hard work. Please reach out if you have any further questions for Jeff or me. Have a great rest of the day, and we look forward to speaking with you at our fiscal '23 year-end conference call later this summer. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.