Q1 2022 Twin Disc Inc Earnings Call

Greetings and welcome to the twin disc fiscal 2022 first quarter conference call.

This time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Stanley Berger. Please go ahead Sir.

Thank you Melissa on behalf of the management of twin disc. We're extremely pleased that you have taken the time to participate in our call and thank you for joining us to discuss the company's.

Fiscal 2022 first quarter financial results and business outlook.

Before introducing management I would like to remind everyone that certain statements made during this conference call, especially those that state management's intentions hopes.

Leaves 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 into.

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 companies, which make copies of which may be obtained by contacting either the company or the SEC.

Now you should have received a copy of the news release, which was issued this morning before the market opened if you have not received a copy please call in that manner.

2626, 384000, and she will send you a copy.

Hosting the call today are John Batten twin disc, Chief Executive Officer, and Jeff Knudson, The company's Vice President of Finance, Chief Financial Officer, Treasurer, and Secretary at this time ill turn the call over to John Batten John Thank.

Thank you Stan and good morning, everyone and welcome to our fiscal 2022 first quarter conference call as usual, we will begin with a short summary statement and then we'll be happy to take your questions before Jeff Jeff goes over the quarter results I will touch on some of the operational highlights from the quarter.

As we mentioned in the in the press release supply chain issues continue to continues to be caused delays due to trans ocean delayed trans ocean containers backlog ports trucking shortages in general labor shortages that easily accounted for $6 million in delayed shipments out of the quarter. This trend should continue through our second quarter and begin.

To ease this spring.

Shipments from our new lab facility in Lufkin were the most impacted due to delayed containers from India.

On the bright side orders in the first quarter continued their elevated pace and were driven by strong aftermarket demand demand across all product end markets with.

And have some land based oil and gas new units, but after aftermarket rebuild parts for North American oil and gas continued at an elevated pace. We are seeing rebuilds in North America more rebuilds in the North American oil and gas Frac fleet.

New oil and gas unit shipments to Asia remained steady and should increase our next calendar year projects and our global Marine markets remains strong and we should see orders continuing to improve in calendar 2022 the restructuring at our Belgian facility relates to the outsourcing of most of the machining operations not related to gear manufacturing.

We have been successful in finding better value sources for shaft shaft machine castings in other parts and we will focus our labor on gear production and assembly and test.

With respect to the role of propeller manufacturing facility in Switzerland, we have been successful in outsourcing some of the five axis machining to other sources, which has allowed us to reduce our footprint by almost 50%, while increasing capacity and now I'll turn it over to Jeff to discuss the financials.

Thanks, John and good morning, everyone.

The first of.

The first quarter.

It was $47 8 million for the call.

No they don't.

Yes.

Okay.

Jeff you were a little a little you're you're garbled Jeff.

Okay.

Uh huh.

That's better.

Lately.

Yeah.

Okay.

Hello.

Uh huh.

Exactly.

No.

So it all back.

And Jeff I'll I'll tell you what why don't you try to if you want a dialogue I will read your script and you can dial back in.

Although bucket.

Okay, while demand across our markets continues to improve quarter improvement in shipments from the prior year was limited by supply chain challenges across all our locations we experienced a significant increase in lead times from our suppliers increasingly unpredictable deliveries and difficulty in getting shipping containers. These issues also channel.

Our customers, causing them to push out deliveries of our products. Despite these challenges industrial sales were up 13, 1% and marine and propulsion sales up one 8% while transmission sales were essentially flat.

By region sales into North America were up 18% and sales into Europe were up 2%, while sales into Asia Pacific were down 9% foreign currency exchange was a net positive.

A half million dollars impact to the sales in the first quarter.

The first quarter margin percent was 28, 2% compared to 21.0% in the prior year first quarter. The first quarter benefited from the employee retention credit, which contributed $1 2 million to gross profit as well as in now subsidy in the Netherlands.

$7 million adjusting for these benefits gross profit would have been 24.0% still a significant year over year improvement, reflecting a more favorable sales mix driven by aftermarket activity in the north American oil and gas market and the positive impact of targeted cost reduction activities.

Spending on marketing engineering and administrative costs for the fiscal 'twenty two.

First quarter increased point, 600000, or 5% compared to fiscal 'twenty. One the increase in the quarter is primarily due to the return of a global bonus plan accrual inflationary increases and a currency translation effects, partially offset by the favorable impact of the employee retention credit.

As a percentage of revenue for the first quarter <unk> expenses were 27, 4% compared to 27.0% in the prior year fourth quarter.

Restructuring charges recorded in the quarter were minimal we did complete the negotiations with our Belgian operation to finalize the cost for the restructuring project announced last quarter. We will book, an additional charge of approximately $1 million in our second fiscal quarter, bringing the total charges of $3 3 million. This restructuring program will result in the elimination.

<unk> of 23 positions and drive annual savings of approximately $1 6 million.

During the first quarter, we completed a sale leaseback of our Swiss production facility for net proceeds of $9 1 million, resulting in a gain of $2 9 million recorded as other operating income.

Including the gain on the sale of the facility operating income for the quarter was a positive $3 2 million compared to an operating loss of $3 1 million in the prior first quarter the effective tax rate for the quarter of fiscal 2022 was 16, 2% compared to 19, 1% in the prior first quarter.

The current year rate was impacted by the domestic full valuation allowance, resulting in limited recognition of tax expense. The net profit for the first quarter of fiscal 'twenty. Two was $1 9 million or 14 cents per diluted share compared to a loss of 4 million or 30 cents per diluted share in the prior year first quarter EBITDA of $5 4 million.

For the quarter was improved from a loss of $1 6 million in the prior first quarter.

Turning to the balance sheet inventory was up $6 1 million in the quarter driven by supply chain imbalances with continued focus on liquidity and cash flow, we were able to generate $2 4 million of operating cash in the quarter, bringing free cash flow to a positive $1 5 million capital spending at 800000 for the quarter is off to a slow start for the fiscal year.

But should increase in calendar 2022.

As we worked through a very challenging 12 to 18 months, we focused on preserving liquidity and deferred all nonessential capital spending. This will result in some catch up spending in fiscal 2022, where we expect to invest $9 million to $11 million, while monitoring the ongoing market recovery for any pauses or setbacks.

And now I will just go over some just some final comments.

With Covid cases.

With Covid cases, and Covid spreads remaining are concerned.

At least in our subset of the universe, we see the severity of the pandemic waning significantly people are testing positive with the variance, but they are not getting a sick. Despite the current supply chain issues, we feel that fiscal 2022 will be a much improved year demand in our markets should continue to improve for several quarters to come our concerns are concerned.

Our concerns are no different than everyone else's supply of parts and labor and we are managing these issues daily a final thought is a big thank you to our employees customers and suppliers. This quarter is very much a continuation of the previous quarter with quarters with respect to stress levels managing new issues every day and doing the best you can for our end customers.

While managing scarce resources. Thank you for continuing to show up every day and make things happen.

That concludes this concludes our prepared marks in our remarks, and now Jeff and I will be happy to take your questions. Melissa. Please open the line for questions. Thank.

Thank you if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is another question. Kim you May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star key.

Our first question comes from the line of.

Noah Kaye with Oppenheimer. Please proceed with your question.

Hi, good morning, Thanks for taking the questions and great to have you back I get.

Alright with around the supply chain you know what I can do a lot of companies say, they say what they're doing right now is basically whack a mole right.

There are if it's not a container component of its back up Covid. Now. So you can you talk a little bit of heightened managing through the supply chain a pressure right now.

On the call.

There is no dual source, there or or any other color you can provide.

You know what I think with that respect.

Hum.

Maybe you think when you look out to the back half of the year.

So no it's yeah, it's John.

It is it is very much whack them all at the end of the day, it's all labor hours related your suppliers not having enough.

People to get a to get as much product as the demand and their suppliers and then you know the shipping issues very much labor related to foreign ports domestic ports staffs on you know in the global merchant Marine Fleet and then just the number of available drivers here in the U S.

To move stuff around I think what we've seen in or is that the issues still exist.

But that it's stabilized so you saw you know.

And average time for a container to get from India to the U S. It used to be six weeks, but it basically has doubled over the last couple of quarters, but it's stabilized and it's actually starting to get a little bit better.

So in general I would say that it all comes down to wherever supplier. It is or who is moving the product all labor related all seems to be getting better COVID-19 seems to be stabilizing your question on.

Dual sourcing.

Absolutely doing that I mean for a lot of our key components you know at one time they were all sourced in the U S. We have offshore sources. So you kind of have one foot in each canoe, we can go back and forth in general.

The costs from you know some of the components coming from India is less expensive, but we can still get it in the U S. But there are very very real.

I would say capacity constraints, so if you're going to have bearing house for bearings, you pretty much you can't get 100% of what you want maybe you can get 80%, 85%. So it's the big thing that we're focusing on now is making sure that we're all on the same page so that the 80%.

We're asking for for the bearings that we've prioritized those products.

Completing those units so that the same 80% at a timken or S. K S. There's going to be the same 80% that were giving too.

As a priority list to a foundry or a casting supplier.

But it's a bit you're right now it's very much everyday and it's stabilized I don't think it's gonna it's at least in our supply chain I don't think it's necessarily going to get worse, it's actually starting to get better and more at least more predictable.

That helps.

It does help banks and so then it really turns to.

A question about your current inventory balances Yep, Yep, and the extent to which that rec flex higher work in progress for spending how you think about kind of the timing of some of these cost pressures embedded in this inventory flowing into a into Cogs.

The real question is are we looking at maybe some sequential cost headwinds or do you feel like the price cost is going to improve so we still so E U.

You hit an issue right away, it's a lot of the inventory increase was actually work in process.

We waited for key components, you know very much like the images of the Ford F. 150 is sitting in the lot waiting for chips very much say not to the same magnitude, but we have already we already sent the cash out for the raw material. We finished it and are waiting for some components. So that's that's a that's a big part we also had some transmission.

<unk> that we had to delay to a customer because they couldn't get engines. So.

It's a combination of things, but it is getting better.

Things like that that we're hearing from some of our customers don't ship they see calendar 2022.

Improving for them as well.

So we will ramp back up.

But it's yes, no right now it's it's it's a little bit of everything it's a different issues every day, but you know same trends, but in general I would say, it's stabilizing more predictable and we should start to see things get better.

And so feeding into the protocols question Oh, yeah.

So we've been getting price increases we had a basic I would say across all essentially across the board on July one and then October one we announced another more pricing for January one.

So you know we're not we're not waiting as we see as we see the costs come in we're rolling it up seeing what the impact is on us and making sure that we get our pricing out as quickly as possible.

Okay, maybe just a quick final one you know it seems like they haven't gas blending is can it become.

Hum.

Pretty compelling as a you know some of these fleets of Repowering.

It's still obviously some interest around you're cracking.

Can you kind of outline for us where you're at in Covid collaborations around.

Some of those are appeal or Oh.

Sure thing that would be a part of your mix.

So we have some units going in that are going to be starting up an E. Frac.

There there's been a lot of talk about E. Frac out there there are spreads out there they're they have issues like any any other new technology I'm really not I would say the dual fuel where the transmission doesn't care what fuel it is I'm.

Still see most of the activity and dollars capex spending being done rebuilding fleets and again.

I think there'll be more activity in new unit build more activity just in general, but we're also in that market facing a labor our labor shortage. So hopefully that begins to ease, but certainly if you can imagine the phones ringing a lot more now than it was three to six months ago.

It looks like the price of oil and gas almost important for US is the natural gas price because that plays right into our high horsepower transmission. The 8500, but as these prices stay elevated youre going to see more and more rebuild activity and I think you'll start to see some new unit activity soon.

Okay. Thanks, so much I'll turn it over.

Thanks Noah.

Thank you, ladies and gentlemen, as a reminder, if you'd like to join the question queue. Please press star one on your telephone keypad. Our next question comes from the line of Josh Chan with Baird. Please proceed with your question Hi, good.

Morning, John Jeff Hey.

Hey, good morning, Josh.

Good morning, I'm I guess I'm following that same line of logic I guess as you look at the the customers. How are you thinking about you know the field.

Tori within pressure pumping and is there just a dynamic where customers would actually go forgo the idle equipment and pursue new equipment because of the various benefits or how how are you seeing that I meant that it may play out.

I think we're beginning to see that I think we've also seen some some acquisitions happen. Some you know some players buying some other players to get equipment equipment, they're familiar with but in general we are getting to the point where.

Some stuff either needs to be rebuilt again, right now or replaced.

So the activities, it's it's increasing we're getting closer but I can't say that as of right now we've seen the ordering activity for new new units like we did a few years ago.

Definitely a lot more discussions around it and timing but.

I'd also stress that labor is a bit of an issue here as well okay.

Yeah. It takes it's if you just can't you know they're there.

Say there are quite a few players in the planning stage they haven't pulled the trigger yet.

Okay. So then I guess, how are they talking about the timeline or the urgency because you know I think there's some expectation that maybe in the turn of the calendar year there'll be you know a.

A bit more of a desire to spend but you know how how are the customers talking about the timeline is still fluid at this point.

I think there they're looking at access to equipment parts supply labor and funding [laughter].

And so there's there's three balls in the air and they're there I am sure. They are working as hard on labor and funding as they are for you know what's available to build and we're in a very good position to supply.

So we can react very quickly so I'm I'm, hoping you know I'm, hoping that something something pops soon that we can talk about right. Yeah. That's true that's a lot of things to manage there.

If we can switch over to the marine business and it seems like it started to grow again, but off of a pretty low base. So could you talk about what you think the outlook there is and how much growth that there could be in marine this year.

Well. Good question I think you know if and in normal times that they werent supply chain issues and chip issues a lot of what we're seeing is repowering activity. So I'm I'm hopeful that like you know that there's inventory available on the engine side again there was.

A lot of interest in entrenched inventory at our North American distributor base in marine transmissions that they they have worked through that very nicely over the last 12 months. So we're starting to see replacement orders the market in Europe didn't come down for as much for us as it did in North America, meaning there were.

Market activity, but our distributors had so much inventory they could sell out of inventory, we're starting to see more orders across the board for our transmission built in Racine and in Belgium.

And in Italy, So I'm pretty confident that this trend is going to continue you know just as as you know in Europe, a lot of our volume is based on inland passenger vessel you know in the river cruises. So is that you know is that post COVID-19 activity starts to pick up we'll see.

More activity there certainly.

Now moving.

In general inland Marine here in North America is very much reflective of the overall economy and you know still moving goods all over the country. So we see the demand they're improving throughout the calendar year I I don't know if I could give you.

Percentage, but it it should be a significant.

Part of our growth in dollar amount and in calendar 'twenty two.

Okay. Yeah. That's that's good to hear and then lastly, I guess, it's it it's good to see that you're you feel better about spending so I guess, what what kind of initiatives or maybe new products or you're planning with with the capex or or even the opex spend increases this year.

So you know on cat as we announced with Belgium.

Rather than it very similar to what we did here in Racine 20 plus years ago.

Really in Racine here, we focused on you know gear production and machining complex Housing's in Belgium, we were very much we machined everything.

And we decided that we were just going to focus on as we reinvest.

And the Belgian operations it would be just in gear cutting and assembly and test. So the manufacturing of the gears and we're able to find sources for our chefs and our our housings.

In Belgium, it's the volumes or the size of the units are a little bit smaller, but the volumes per model are bigger that was a little bit easier to do to find suppliers, who are interested in that volume in racine.

The larger work boat transmissions much higher dollar content lower lower volume you know more variability I think we're finding that we may or we may end up investing more again.

Recapitalization in the gear area, but also.

Some assets in on on the chefs. So it's very much we're going to focus on capability and and quantity and then being able to deliver and then we have some investments in lufkin for test stands.

And things like that and then we'll also be Theres, a theres you know its not necessary on machine tools, it's on testing and safety equipment and capability will be investing I would say significantly more in the hybrid and electric electrification area.

As we ramp up those those types of things so.

That's so those are kind of the areas that we're focused on on right now and it's it will be around you know little bit in Europe, a little bit more in the United States.

That's great yeah. Thanks, Thanks for the color there and good luck in the rest of the year.

Thanks, Josh.

Thank you. Our next question comes from line of Ryan guessing with Neuberger Berman. Please proceed with your question.

Hey.

Hi, Randy how are you guys.

Okay.

It was if we look at the backlog are are you seeing growth sort of across the board you made mentioned that Oh, yeah. Okay.

Just to get a sense for how much of it is sort of rebuilds versus you know around the broader portfolio.

Oh, Jeff It's I, yes, so Randy the backlog has increased across the board in all markets in.

Excuse me in oil and gas the unit backlog still remains predominantly for Asia are but the aftermarket spare parts. You know there is definitely a big component there for North America, which is the precursor to unit. So don't have a significant backlog at all four units for North America, yet, but I wouldn't do that.

That's probably coming but you know the backlog.

When I look at the backlog I smile, it's significantly better than it was a year ago.

And I know you mentioned inland barge and.

Yeah I know.

With steel prices you know there isn't there isn't a man to put new barges in but steel prices that sort of being delayed I mean, if for you guys is that business really more aftermarket or would you benefit.

If we get back to you know a.

We rebuilt.

Pressure barge fleet.

So I think so it's it if if they were building new vessels I think that would help our market even more but a lot of what's happening and to your point is very cost prohibitive to build a new vessel, but youre seeing a lot of re powers and that is that's probably I don't know if we do a good enough job of anybody does <unk>.

Planing that a lot of the big Marine engines and Marine gears that are sold into the North American fleet go into re power. So you would take a 50 year old hull and they may be on their third third engine and gearbox, okay. Because the average the average age of the North American fleet.

I wish I had a sales guy here, but it's significantly older than in other places in the.

Significantly older than in Europe.

I venture to say that the fleet age in Asia, and South America is probably older but when you look at the European fleet in general much.

Much newer vessels you have just as modern engines in the North American fleet, but theyre in older hulls.

Okay.

And just you know getting your your help and you know insight into trying to figure. This labor issue out I mean, it's across the board.

In the summer you know one of the leading thesis was that are you know people were taking stimulus and once that came off their you know people are going to be coming back and looking for something to do I. Just don't think that I think is something much more structural and I. You know you were sort of in a key places opine on that because you have the Amazon effect and I just.

Feel like Theres different employer or is that or Hoovering up are these people that you would typically be hiring you know to go one of the you know the lufkin or or what have you. What's your what's your sense for what's going on and how you are going to end up.

Here with it longer term.

And again as.

Rand you know us well I'll speak for our subset of the universe, which as you have just under a thousand employees and our planet is 7 billion. So.

Take that for what it's worth but it see the issue seems a little bit more constrained the labor issues seem.

More painful in the U S than another markets. Although there are there shortages around the world, but it just seems when you're looking for employees in the U S. It's just the landscape it seems a little bit scarcer.

Definitely more challenging I would say for us in Racine.

Which you know were for those don't know where on the shore of Lake, Michigan between Milwaukee and Chicago. So the radius that you have to attract and point you can't go east cause you just be hiring fish. So you have to go north and West can you double the radius and there are a lot of businesses here and there's you know Amazon's moved in there are a lot of.

Businesses that are in that 20 to 20, plus dollar an hour range yeah sure not.

You know that what we do is complicated and regardless of the position whether you're machining something assembling something we're just moving inventory. It's it's you know youre doing something different every minute of the day, it's a bit more complicated than than other jobs that you can get for $20 an hour.

A little bit better in Lufkin made better by.

Companies vacating the area and you just had a workforce.

That was trained up and very much the things that we do so you know, but we have more jobs in racine, but there's more availability in lufkin. So we're trying to balance out you know are there things you know and for instance, and so we've moved the industrial product out of Racine down to Lufkin to help with the group in Racine. So they can.

Focus on doing more things, we're probably moving another product line to Italy, where we can find labor we can find sources to make the the product by more competitive there again and it wont be getting rid of anybody in Racine, because theres a lot of stuff that we need to do in Racine in and the salaried ranks.

Again, very similar I think been talking about this with other executives in the area.

Definitely seen a trend up.

Where people in the mid management you know.

Making lifestyle changes and choices about less responsibility and less salary.

I may want to do something else that you know again find a job in an industry, where I can work from home a 100% you know we are very much.

Guys and gals in our shop floor. They have to be here every day, we have to you know received material assemble it get it out ship it and we've got a salaried staff that is equally dedicated to making that happen, but I think the last thing brands you've seen in the last 12 to 18 months everything changed and there are opportunities for different positions and different.

Industries to work, 100% remote you know, we can do that in some areas, but in a lot of areas.

You gotta be here and so that is that is very much a change I don't I don't know what the overall effect size I know that.

You know theres been a lot of turnover everywhere. We've had some I think we're doing a pretty good job, but we can always do do better and it will continue to be a struggle. Our HR department, it's lumped very very busy year and sorry for my long answer.

No no.

Is that what sort of went on with the president or was that a just a natural age out.

President Jim Jim always said he was going to retire there were some I think some you know some things in his personal life. The change that maybe you know I I of course I had hoped.

Jim is.

A great person great employee I had hoped that we would be able to keep them for another year, but he had some some other things that he wanted to do and we fully supported that so we'll have an announcement here in the next couple of weeks, but he he coached and mentored a fantastic team underneath them.

So, let's just say he accomplished everything that I wanted to do in three to four years. He got it done in two two and a half so yeah. We wish him all the best and we just we just had dinner with them Wednesday night.

Okay, Yeah, no there'll be you'll see some you'll see some key additions on our on our management team here in the near future.

Okay, but on the labor you know just getting new people, new you know new people in and stuff do you think you just got to you know.

Increased what you're paying and then sort of roll that through the inflation to customers or I mean, what's the.

Absolutely absolutely I mean that there's no you know our hourly our base hourly rates probably gone up 10, 15%, maybe more I'm trying to you know math in my head very quickly that's against that that was obviously, we've had as I mentioned to two price increases, we've rolled that and and I.

Youre going to see I mean again, another hard look where we're meeting again on it next week, we're gonna have to invest in capital and efficiency understanding that even if we wanted to increase our scale our hourly head count by 10%, 20% we can't.

It's right we can't bank on that so you're going to see us investing again in another wave of investing in.

Fairly expensive machining centers that can take place of of two or three.

Because the clock is ticking we have we have very very talented experienced machinists.

And we're probably going to retire in five years. So we have to get we have to get this stuff and and and beat that curve. So you'll see I think the trend that you'll see is again a focus on capital.

That can do what you know what multiple pieces of machinery and people were doing it just ran out of sheer.

Necessity mhm well.

Three D printing play a role there or.

Three D printing is our it plays a role on some of our prototyping and some of our I would say parts that we buy from suppliers.

Three D printing is whether we're doing it in house or contracting it that is absolutely going to play a role in the future.

Along with you know, we'll be investing in we have the ear of the new ERP journey coming up and so I'm, hoping that the next generation of ERP that we go to truly will have that transformational effect of allowing allowing people to step back from many of the transactional.

Duties that they do every day and to more into more fun things like analysis and thinking so.

Yeah, It's just it's going to be a technology for.

Everyone is going to be investment in technology understanding that youre, just not going to you can't rely on sheer numbers of people that do what you did before.

Yep.

Okay.

To oil and gas you mentioned a number of factors, but you know you left off the list, which which is what I sort of think is like the biggest overlay.

No.

Our team you know I'm, the industrial Guy and we have an energy guy or just like battling.

He's telling me, there's just no way in Hell that oil and gas E&P companies are gonna take capex up because they've gotten religion or all of the shareholder base that doesn't want them that to grow and invest capex. They want they want. This this is priced.

Through and free cash flow to come to the shareholders.

So he's he's just like Theres no way with their you know we're going to see you know what are you seeing any units and I'm, saying well you know there's just these commodity prices are high and we're gonna see they always spend that we're going to see it but you know.

I think it's sort of critical for what your next two years. It looks like if you just kept rebuilds and flatline versus you know you could be up 10% to 15%. This year and then 20% next year would be the way that would be awesome for for twin disc. So do you have any insight at all as to <unk>.

So I agree with you that.

Doubt highly doubt, we will ever see a wave of <unk>.

Capital spending the way, we did three years ago and what three five years. So I think you said religion.

I think their shareholders and everyone, but there comes a point, but it won't be that huge wave where you were seeing you know three X five X versus what they were doing the year before but I do think that you can see you can expect some 10% 15% increases because for sure.

For twin and in their capital spending, which would mean you know significantly more and you can see that for us based on on shipments but.

We subscribe and we understand the you know the move towards hybridization electrification.

But we also understand that you know that natural gas is very much.

A significant part of that transition source of energy source of power right, So and I'm, telling you right now around that the.

The existing fleet is not going to last another year or two years without some attention.

And so that there will be there will have to be some replacement and some some rebuild activity, but you're not you just won't see that 2017 18 Spike you know, it's just not going to be.

So I agree with you I think I think I agree with you on both fronts.

Okay, and if anything your competitive positioning.

Position, if theres going to be spent on transmission.

Versus three or four years ago you guys.

Much better positioned a little better position or is there still sort of the same.

And I think what I'm sorry.

Asia.

Ah I think we're better positioned because we kept inventory at the last Bob's a week I I highly doubt anybody could react faster than we could.

Yeah.

Alright, well see well it could be good to catch up thanks for taking the time alright. Thanks Rande.

Thank you ladies and gentlemen, this concludes our question and answer session I'll turn the floor back to Mr. Bass for any final comments alright. Thank you Melissa and thank you for joining our conference call. Today. We appreciate your continuing interest in twin disc and hope that we've answered all of your questions. If not please feel free to call either.

For myself and we'll get your question answered as quickly as possible.

And we look forward to speaking with you again following the close of our fiscal 2022 second quarter, Melissa I'll now turn the call back to you.

Thank you ladies and gentlemen, this concludes our call. Thank you for your participation you may now disconnect your lines.