Twin Disc(US:TWIN)2023-04-28 18:46Financial Data and Key Metrics Changes - Sales for Q3 2023 reached $73.8 million, a 24.4% increase year-over-year, driven by strong demand across end markets [16] - Net income attributable to Twin Disc 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, reflecting a 20% year-over-year improvement [16] - Gross margin decreased to 26.1%, down 370 basis points from the prior year, primarily due to a noncash LIFO charge related to inventory [17] Business Line Data and Key Metrics Changes - Marine and Propulsion Systems and Land-Based Transmissions both experienced double-digit growth sequentially and year-over-year, while the Industrial Product Group maintained sales in line with expectations [16] - The backlog reached its highest level in over four years, indicating strong demand and improved operational execution [10][12] Market Data and Key Metrics Changes - North America and Asia Pacific regions saw year-over-year and sequential sales increases, largely due to efforts to diversify the Veth business beyond Northern Europe [17] - The oil and gas sector contributed approximately 25% to 30% of total revenue for the quarter, with more than half of that being aftermarket sales [20][21] Company Strategy and Development Direction - The company aims to be a leading provider of hybrid and electric solutions for marine and off-highway land-based applications, focusing on controls and systems integration for greater sales and margin opportunities [12] - Capital allocation priorities include reducing net debt, resuming dividends only after establishing a track record of free cash flow generation, and pursuing bolt-on or transformational acquisitions [13][14] Management Comments on Operating Environment and Future Outlook - Management noted that supply chain headwinds are moderating, and they are actively working to resolve component shortages [20] - The company expects to achieve revenues of approximately $400 million with gross margins of 30% over the next 3 to 5 years, driven by hybrid and electrification opportunities [19] Other Important Information - The company generated nearly $7 million in cash from operations during the quarter [6] - Despite commodity pricing trends downward, raw material costs have not decreased, and the company has implemented pricing actions to protect margins [15] Q&A Session Summary Question: How much revenue was generated from the oil and gas business in the quarter? - The oil and gas business contributed approximately 25% to 30% of total revenue for the quarter [20] Question: What is the breakdown between new equipment and consumables or aftermarket in the oil and gas sector? - The breakdown is approximately 60% aftermarket and 40% new equipment, with most new equipment headed to Asia [21] Question: Are customers continuing activity in light of recent oil price volatility? - There has been no slowdown in rebuild activity; customers are actively looking to rebuild or replace equipment [23] Question: What was the size of the offshore business during the last up-cycle? - The offshore business historically accounted for about 10% of total revenue at its peak [24] Question: Are there any new products in the pipeline that the company is excited about? - The company is seeing traction in industrial products and hybrid/electrification applications, with several exciting projects in development [25]