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 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Jeff Knutson, 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, 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 forward-looking statements are contained in the company's Annual Report on Form 10-K, copies of which may be obtained by contacting you to 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 the 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 Katsa Oy, a leading manufacturer of high quality power transmission components and gearboxes based in Finland. This acquisition will broaden Katsa's global reach as we leveraged Twin Disc global sales, distribution and service network, while also generating cross-selling opportunities through Katsa's existing customer base as we tap into its long-standing relationships with leading European OEMs, similar to the dynamics we've achieved with that. With our strong balance sheet and flexible financial profile, we will continue to explore similar strategic opportunities to drive sustained growth for Twin Disc. Moving on to results by product. 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. [Veth] (ph) continues to perform well, supporting overall growth in Marine and Propulsion as the mega yacht market remains strong. We saw a solid 16% sequential increase in six month backlog, driving the recent inventory build…

Thanks, John. Good morning, everyone. We delivered sales of $74.2 million for the quarter, up $389,000 or 50 basis points from the prior year period as overall demand remains solid. Net income attributable to Twin Disc for the third quarter was $3.8 million or $0.27 per diluted share compared to $3.3 million or $0.24 per diluted share in the third quarter of fiscal 2023. Gross profit margin increased to 28.2% compared to 26.1% during the prior year period, and gross profit increased 8.7% to $20.9 million. This improvement reflects the realization of previous price increases, continued easing of supply chain headwinds and successfully executing our operational playbook. Marine & Propulsion Systems reported 3% growth, while land-based transmission and industrial sales reported a year over sales declines of 3% and 15%, respectively. Looking at top-line distribution across geographies, sales continue to increase across the Asia Pacific and European regions compared to the prior year, supported by robust demand, while the proportion of sales in North American markets declined. We also saw a notable increase in sales within the Middle East, in particular, Turkey, which drove sales up $2.2 million year-over-year with increased best sales for offshore wind projects. We continue to strengthen our balance sheet due to solid cash generation delivered in the third quarter. We reduced debt by $24.1 million to negative $6.8 million compared to the prior year period. And ended the quarter with a cash balance of $23.8 million, approximately $9.8 million higher versus the prior year period. EBITDA remained strong at $7 million compared to the same amount during the prior year period. We continue to decrease our leverage ratio this quarter to negative [0.3 times] (ph), putting us in an excellent position to invest in our business while executing inorganic growth opportunities. As noted earlier, gross…

Thanks, Jeff. Before we open the line for questions, I'd like to highlight a few key takeaways from our quarterly results. Our third quarter performance highlights our continued operational excellence, marked by a notable margin expansion and robust cash generation. Our strong balance sheet, bolstered by consistent profitable growth and solid working capital management positions us favorably to navigate market uncertainties and take advantage of strategic growth opportunities. Looking ahead, we maintain our cautiously optimistic outlook driven by sustained demand dynamics. Our resilient amid external challenges reaffirms our agility and adaptability in capturing market opportunities, and our performance not only reflects our operational prowess, but also underscores our commitment to delivering long-term value to shareholders. I'd like to thank all of our teams for their continued hard work and dedication to supporting our business this quarter. As we approach the end of the fiscal year, we look forward to continuing our growth journey as we drive Twin Disc forward and generate long-term value for our shareholders. That concludes our prepared remarks. Jeff and I will be happy to answer your questions.

Thank you, we will now begin the question-and-answer session. [Operator Instructions] And we have one question that comes from the line of Simon Wong with Gabelli Funds. Please go ahead.

Hi, this is [Rita] (ph) filling in for Simon today. Maybe just my first question here. I guess how much of this quarter's revenue is derived from oil and gas customers? And I guess what is the break that down between new equipment and consumables.

Yes, it's a good question. I would say it's been a pretty normal quarter for oil and gas. In terms of percentage of revenue for the quarter. I'm doing some quick math probably around 10% to 15% kind of evenly split between consumables and units.

Okay. Thanks. And then -- and maybe my second question, I guess, what are you seeing -- well, I guess what is the company seeing in terms of North American frac customers?

I would say -- this is John. I'd say we've seen an uptick in the calendar year in new spare parts orders and we have some limited units going out. But I’d say that, I mean, our outlook is that will probably pick up through the rest of the calendar year, just given what's happening in the Middle East, I think we are going to see some more activity here at home as well as in Asia.

Okay. Thanks. And then I guess you're working down your inventory for 4Q -- fiscal year 4Q '24. How should we think about inventory as a percentage of backlog for next quarter?

I think it's going to keep -- continue to ratchet down. We are not going to have incredible shift. I think we'll see a trajectory kind of like what we've seen in the last few quarters.

Okay. And then just my last question here. I guess any update on the timing of closing of the Katsa acquisition? And does the acquisition need approval from Finland's Economic Minister to close?

Yes. So we did get that approval this week, and we should be closing, I would say, around the end of the month within 30 days to 40 days will be closed.

Okay, thank you, that’s all my question.

Thank you.

Your next question comes from the line of Will Nasgovitz with Heartland. Please go ahead.

Good morning. Thanks for taking my questions. And congratulations on a strong quarter, particularly on the free cash flow generation. It's great to see. I'm just curious on the industrial side. just on industrial, I know you commented in your opening remarks -- are you seeing signs of stabilization there? You had a kind of sequential pickup in broader ordering in some of that in the industrial bucket, just overall thoughts on the Industrial segment would be helpful.

Yes, I’d say that this past quarter has been the best order quarter in a few quarters. And it's been broad-based as far as the lower horsepower range, both in Europe and in the US, and in Australia, I would kind of be the big markets for us. But we've seen it pick up a little bit. Again, this past quarter was a much better order quarter. And we have some of the higher -- some of the gearboxes with electronic controls that have been on order. So again, it's looking up, but it's still -- we got a ways to go to get back to where we were.

Okay. And then the acquisition, as I recall, maybe it was $30 million in revenue or something around that level. Can you just provide any additional perspective on just like the margin profile of the company? And is it a new end market, new customers? And just some additional color would be useful.

Sure. So I would say the margin profile is really -- it kind of falls right in-line with where we are. Depending upon the product line, it's going to bounce around high 20s to low 30s. But it's -- there's so much there, Will. They're going to be a great supplier for us on gears for our product that we build in the US in the Netherlands, in Italy and their product -- they started off as a component supplier, so they're heavily invested in very complex machining centers to do gears. They were I would say the last-third of their life, they've been getting into the gearbox business, whether it's in the industrial space and specialty marine gears, they do transfer cases for all-wheel drive military vehicles. Until recently, it was just Finland. But then again, as Finland has joined Mato, they've gotten orders from Germany and Sweden. So we see some good market expansion. And again, if you look at the horsepower range where they have product, it's pretty much right on top of Twin Disc. These are all customers and markets that we understand, but they have just been so heavily focused on the European market and the Scandinavian market that we feel that there's a real potential to bring them out into the global market. So all of our guys, whether they are in the Marine business, the industrial business or the transmission business, they are chomping at the bit to get a hold of the Katsa products and introduce them to the global customers.

Thanks for that elaboration. I guess my final one here is just back to our opening comments, John, on the end you before you hand it off to Jeff, just talking about innovation, electrification, hybrid, et cetera. I'm just wondering if you could just frame for us the opportunity. Obviously, you steeped in know-how and traditional transmission -- can you just frame for us any perspective on the opportunity as you continue to take this technology, there's now how to apply to the hybrid and electrification markets? Thank you.

Yes. So Will, there is a huge opportunity and it really is in our space, off-highway, whether it's marine or construction or RF, it's putting the package together for the OEM to help them. So we have -- if you think about our mechanical product, whether it's a pump drive or transmission, it's kind of the heart of hybrid. So it allows for an ICE engine propulsion system, but then also has input for electric motor coming from a battery. And our control system is the brain. And there are a lot of other parts that we put in -- put together in the system, the inverter, all sorts of other things, the wiring. But it's the content, one crane application we would sell a gearbox, let us just say, the $20,000. The hybrid system can be $160,000 to $200,000. That's a big multiplier. But again, we are relying on that OEM to be able to sell that hybrid crane for a considerable premium over a traditional crane. We look at some of the marine applications that we are doing. We are quoting systems that are $500,000 to $1 million, depending upon if it's single or [Twin’s crew] (ph). And just a few years ago, that would have been almost the cost of the entire vessel. So we're proving to ourselves and our customers that we have the technological solution. Now we're just waiting for these things to get through testing and seeing how they play out in the market. If the market is willing to spend extra for this type of performance in this type of, I would say, just profile as far as emissions. Now in some cases, in California, they're mandating that some of these government-funded vessels go completely electric or hybrid. So we see some wins coming up very quickly. In some of the other markets, whether it is construction or other things, it is a wait and see. They are building the equipment and then seeing how well they are accepted in the market. But just to answer your question, it's a big -- our content can easily can go up from 4 times to 8 times pretty quickly.

Well, thanks for that elaboration and again congrats on the great quarter and best of luck in your fourth quarter. Thanks so much for the time.

Thanks Will.

That concludes our Q&A session. I will now turn the conference back over to John Batten for closing remarks.

Thanks, Alex. Again, we'd like to thank you for participating in our Q3 call and look forward to speaking with you in August for our Q4 and Fiscal Year End '24 Conference Call. Thank you, everyone.

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