TWIN DISC INC Q3 FY2024 earnings call

• Delivered solid Q3 results with margin expansion and robust free cash flow generation. - Announced acquisition of Katsa Oy to expand presence in Industrial and Marine Technology markets. - Marine and Propulsion Systems benefited from global commercial and defense spending, with Veth performing well and backlog increase. - Land-based transmission had sales decline but North American oil and gas demand was encouraging. - Industrial segment saw recent quarter as best order quarter in few quarters, broad-based. - Strong balance sheet with reduced debt and increased cash balance.

Marine and Propulsion Systems sales increased 3% year-over-year. The global commercial markets and government defense spending provided a strong foundation, with the mega yacht market remaining strong and a 16% sequential increase in six-month backlog. Land-based transmission sales decreased 3% year-over-year, affected by sustained exports to the Asian oil and gas market but with encouraging demand in the North American oil and gas market. Industrial segment sales declined 15% year-over-year, with the past quarter being the best order quarter in a few quarters, broad-based across lower horsepower ranges in various regions.

• Anticipates challenging Y/Y comparison in Q4 but expects continued margin and cash generation strength. - Focus on M&A in marine technology, industrial, and hybrid electric sectors. - Allocate capital to internal investments, R&D, geographic expansion, and marketing. - Commit to returning capital to shareholders via share repurchases and dividends.

Q: How much of this quarter's revenue is derived from oil and gas customers? And break down between new equipment and consumables?

A: Around 10% to 15% evenly split between consumables and units.

Q: Any update on the timing of closing of the Katsa acquisition and approval?

A: Got approval this week, should close around end of the month within 30-40 days.

Q: Signs of stabilization in Industrial segment?

A: Past quarter was best order quarter in few quarters, broad-based, lower horsepower range in Europe, US, Australia.

Q: Margin profile of Katsa acquisition and new markets?

A: Margin profile in high 20s to low 30s, Katsa is strong in gear production, expands into global markets.

Q: Opportunity in hybrid and electrification markets?

A: Huge opportunity, content can multiply, marine and construction applications, some mandates in California, waiting for market acceptance.