Greetings, and welcome to the Twin Disc fiscal 2022 first quarter conference call. At 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 are 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, 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.
By 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 Annette Mianecki at 262-638-4000, and she will send you a copy. Hosting the call today are John Batten, Twin Disc Chief Executive Officer, and Jeff Knutson, the company's Vice President of Finance, Chief Financial Officer, Treasurer, and Secretary. At this time, I will turn the call over to John Batten. John?
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 will be happy to take your questions. Before Jeff goes over the quarter results, I will touch on some of the operational highlights from the quarter. As we mentioned in the press release, supply chain issues continue to be cause delays due to delayed transoceanic containers, backlogged ports, trucking shortages, and 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 Lufkin 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 across all product end markets, with the exception of some land-based oil and gas new units, but aftermarket rebuild parts for North American oil and gas continued at an elevated pace. We are seeing more rebuilds in the North American oil and gas frac fleet. New oil and gas unit shipments to Asia remain steady and should increase next calendar year. Projects in our global marine markets remain 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 shafts, machine castings and other parts, and we will focus our labor on gear production and assembly and test. With respect to the Rolla propeller manufacturing facility in Switzerland, we have been successful in outsourcing some of the 5-axis machining to other sources, which has allowed us to reduce our footprint by almost 50% while increasing capacity. Now I'll turn it over to Jeff to discuss the financials.
Thanks, John, and good morning, everyone. Briefly, the first fiscal quarter numbers. Sales were $47.8 million for the quarter, $1.6 million over 3.6% quarter.
Jeff, you're a little garbled, Jeff.
Is that better?
Slightly.
Is that any better?
No.
Dial back in?
Here, Jeff, I'll tell you what. If you wanna dial, I will read your script, and you can dial back in.
I'll dial back in.
Okay. While demand across our markets continues to improve, the 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 challenged 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 1.8%, 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 of $0.5 million 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 a NOW subsidy in the Netherlands of $0.7 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 2022 first quarter increased $600,000 or 5% compared to fiscal 2021.
The increase in the quarter is primarily due to the return of a global bonus plan accrual, inflationary increases, and a currency translation effect, partially offset by the favorable impact of the Employee Retention Credit. As a percentage of revenue for the first quarter, ME&A expenses were 27.4% compared to 27.0% in the prior year first quarter. While 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 charge to $3.3 million. This restructuring program will result in the elimination 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 2022 was $1.9 million or $0.14 per diluted share compared to a loss of $4 million or $0.30 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 positive $1.5 million. Capital spending at $800,000 for the quarter is off to a slow start for the fiscal year, but should increase in calendar 2022.
As we work through a very challenging 12-18 months, we focused on preserving liquidity and deferred all non-essential capital spending. This will result in some catch-up spending in fiscal 2022, where we expect to invest $9 million-$11 million while monitoring the ongoing market recovery for any pauses or setbacks. Now I'll go over some final comments. With COVID cases and COVID spread remaining a concern, at least in our subset of the universe, we see the severity of the pandemic waning significantly. People are testing positive with the variants, but they are not getting as sick. Despite the current supply chain issues, we feel that fiscal 2022 will be a much improved year. Demand in our market should continue to improve for several quarters to come.
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 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 our prepared remarks. Now Jeff and I will be happy to take your questions. Melissa, please open the line for questions.
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 in the question queue. 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.
Morning. Thanks for taking the questions, and Jeff, great to have you back. I guess just to start out with around the supply chain, you know, talking to a lot of companies, they say what they're doing right now is basically Whac-A-Mole, right?
Yeah.
If it's not containers, it's components. If it's not components, it's something else. Can you talk a little bit how you're managing through the supply chain pressure right now, some of the strategies that you're employing, whether it's, you know, dual sourcing or any other color you can provide? You know, what I think, with that respect, gives me some confidence that, you know, the bottleneck may be easing as we look out to the back half of the year.
Noah, yeah, it's John. It is very much Whac-A-Mole. At the end of the day, it's all labor hours related. Your suppliers not having enough people to get as much product as the demand, and their suppliers, and then, you know, the shipping issue is very much labor related at foreign ports, domestic ports, staff 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 is that the issues still exist, but that it's stabilized. You saw, you know, an 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.
It's stabilized, and it's actually starting to get a little bit better. In general, I would say that it all comes down to whatever supplier it is or who's moving the product. All labor-related, all seems to be getting better. COVID 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 know, 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. There are very, very real, I would say, capacity constraints.
If you're going to a bearing house for bearings, you pretty much can't get 100% of what you want. Maybe you can get 80%- 85%. It's, you know, the big thing that we're focusing on, Noah, is making sure that we're all on the same page, so that the 80% that we're asking for for the bearings, that we've prioritized those products. You know, completing those units, so that the same 80% at a Timken or SKF is gonna be the same 80% that we're giving to, as a priority list, to a foundry or a casting supplier. But you're right, Noah. It's very much every day, and it's stabilized. I don't think it's gonna get worse. It's at least in our supply chain. I don't think it's necessarily gonna get worse.
It's actually starting to get better and more, at least more predictable, if that helps.
It does help. Thanks. That really turns to a question about your current inventory balances.
Yep.
The extent to which that reflects higher work in progress versus finished.
Yep.
How do you think about kind of the timing of some of these cost pressures embedded in this inventory flowing into COGS? I guess the real question is, you know, are we looking at maybe some sequential cost headwinds, or do you feel like, you know, price cost is gonna improve?
You hit an issue right away. It's a lot of the inventory increase is actually work in process. As we waited for key components, you know, very much like the images of the Ford F-150 sitting in the lot waiting for chips.
Mm-hmm.
Very much not to the same magnitude, but we already sent the cash out for the raw material. We finished it and are waiting for some components. That's a big part. We also had some transmissions that we had to delay to a customer because they couldn't get engines.
Mm.
You know, it's a combination of things, but it is getting better. You know, all things like that that we're hearing from some of our customers don't ship. They see calendar 2022 improving for them as well. We'll ramp back up. But it's. Yeah. No, right now, it's a little bit of everything. It's different issues every day, but you know, same trends. In general, I would say it's stabilizing, more predictable, and we should start to see things get better.
Feeding into the cost question,
Oh, yeah.
How do you think about the dynamic?
You know, we've been getting price increases. We had, I would say, essentially across the board on July 1 and then October 1, we announced more pricing for January 1.
Mm.
You know, we're not waiting. 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 Dynamic Gas Blending is going to become just you know, pretty compelling as you know, some of these fleets are repowering and still obviously some interest around e-frac. Just can you kind of outline for us where you're at in terms of your collaborations around you know, some of those alternative fuels and the extent to which you're seeing that be a part of your mix?
We have some units going in that are gonna be starting up in e-frac. There's been a lot of talk about e-frac. I know there are spreads out there. They have issues like any other new technology. We're really not. I would say the dual fuel where the transmission doesn't care what fuel it is. We still see most of the activity and dollars CapEx spending being done rebuilding fleets. Again, I think there'd be more activity in new unit builds, more activity just in general. We're also in that market facing a labor shortage. Hopefully, that begins to ease. Certainly, if you can imagine, the phone's ringing a lot more now than it was three to six months ago.
It looks like the price of oil and gas, and most important for us is the natural gas price, because that plays right into our high horsepower transmission, the 8500. As these prices stay elevated, you're gonna 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.
All right. 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 and Jeff.
Hey. Morning, Josh.
Morning. I guess, following that same line of logic, I guess, as you look at the customers, how are you thinking about, you know, the field inventory within pressure pumping, and is there this dynamic where customers would actually forgo the idle equipment and pursue new equipment because of various benefits? Or how are you seeing that dynamic play out?
I think we're beginning to see that. I think we've also seen some acquisitions happen, some, you know, some players buying some other players to get equipment they're familiar with. In general, we are getting to the point where, you know, some stuff either needs to be rebuilt again right now or replaced. The activities, 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 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.
You just can't, you know. I would say there are quite a few players in the planning stage that haven't pulled the trigger yet.
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 will be, you know, a bit more desire to spend. But, you know, how are the customers talking about the timeline? Is it still fluid at this point?
I think they're right. They're looking at access to equipment, parts, supply, labor, and funding.
Mm-hmm.
There's three balls in the air, and I'm sure they're working as hard on labor and funding as they are for, you know, what's available to build. We're in a very good position to supply, so we can react very quickly. I'm hoping, you know, that 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, it seems like it's started to grow again, but off of a pretty low base. Could you talk about what you think the outlook there is and how much growth there could be in marine this year?
Well, good question. I think, you know, if in normal times that there weren't supply chain issues and chip issues, a lot of what we're seeing is repowering activity. I'm hopeful that like, you know, that there's inventory available on the engine side. Again, there was a lot of entrenched inventory at our North American distributor base in marine transmissions that 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 was 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 transmissions built in Racine and in Belgium, and in Italy.
I'm pretty confident that this trend is gonna continue. You know, just as you know, in Europe, a lot of our volume is based on inland passenger vessel, you know, inland, the river cruises. As that you know, as that post-COVID activity starts to pick up, we'll see more activity there. 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. We see the demand there improving throughout the calendar year. I don't know if I could give you a percentage, but it should be a significant part of our growth in dollar amount in calendar 2022.
Okay. Yeah, that's good to hear. Then, lastly, I guess, it's good to see that you feel better about spending. I guess, what kind of initiatives or maybe new products are you planning with the CapEx or even the OpEx spend increases this year?
As we announced with Belgium, you know, very similar to what we did here in Racine 20+ years ago, really in Racine here, we focused on, you know, gear production and machining complex housings. In Belgium, we very much we machined everything. We decided that we were just gonna focus on, as we reinvest in the Belgian operations, it would be just in gear cutting and assembly and test. The manufacturing of the gears, and we're able to find sources for our shafts and our housings. In Belgium, it's the volumes are 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 volume, you know, more variability. I think we're finding that we may end up investing more, again, recapitalization in the gear area, but also, putting some assets in on the shaft. It's very much we're gonna focus on capability and quantity and being able to deliver. We have some investments in Lufkin for test stands and things like that. You know, it's not necessarily on machine tools, it's on testing and safety equipment and capability. We'll be investing, I would say, significantly more in the hybrid and electrification area, as we ramp up those types of things. That's those kind of the areas that we're focused on right now.
It will be around, you know, a little bit in Europe, a little bit more in the United States.
That's great. Yeah, thanks for the color there, and good luck on the rest of the year.
All right. Thanks, Josh.
Thank you. Our next question comes from the line of Rand Gesing with Neuberger Berman. Please proceed with your question.
Hey.
Hi, Rand.
How are you guys? As we look at the backlog, are you seeing growth, sort of across the board? You may have mentioned that, at your-
Yeah.
Just to get a sense for how much of it is sort of rebuilds versus, you know, around a broader portfolio.
Jeff, yeah. Randy, the backlog has increased across the board in all markets. In oil and gas, the unit backlog still remains predominantly for Asia, but the aftermarket spare parts, you know, there is definitely a big component there for North America, which is the precursor to units. Don't have a significant backlog at all for units for North America yet, but I wouldn't. That's probably coming. You know, the backlog, when I look at the backlog, I smile. It's significantly better than it was a year ago.
I know you mentioned inland barge, and I know that with steel prices, you know, there is demand to put new barges in, but with steel prices, that's sort of being delayed. I mean, for you guys, is that business really more aftermarket, or would you benefit, you know, if we get back to, you know, rebuilding, refreshing the inland barge fleet?
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, it's very cost prohibitive to build a new vessel, but you're seeing a lot of repowers, and that is probably. I don't know if we do a good enough job or anybody does explaining that a lot of the big marine engines and marine gears that are sold into the North American fleet go into repowers. You take a 50-year-old hull, and they may be on their third engine and gearbox.
Okay.
Because 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 world. I mean, significantly older than in Europe. I venture to say that the fleet age in Asia and South America is probably older. When you look at the European fleet in general, much newer vessels. You have just as modern engines in the North American fleet, but they're in older hulls.
Okay. Just, you know, getting your help and, you know, insight into trying to figure this labor issue out. I mean, it's across the board. You know, I think in the summer, you know, one of the leading thesis, you know, was that, you know, people were taking stimulus, and once that came off, you know, people were gonna be coming back and looking for something to do. I just don't think that. I think it's something much more structural. You know, you're sort of in a key place to opine on that because you have, you know, the Amazon effect, and I just feel like there's different employers that are hoovering up these people that you would typically be hiring, you know, to go into the, you know, into Lufkin or what have you.
What's your sense for what's going on and how you are gonna be able to deal with that longer term?
I'll speak for our subset of the universe, which is, you know, just under 1,000 employees on a planet of 7 billion. Take that for what it's worth. The issue seems a little bit more constrained. You know, the labor issues seem more painful in the U.S. than in other markets. Although there are, you know, there are 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, we're, for those who don't know, we're on the shore of Lake Michigan between Milwaukee and Chicago.
The radius that you have to attract employees. You can't go east, because you'll just be hiring fish. You have to go north and west, and you double the radius. 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+ an hour range.
Yeah.
That, you know, what we do is complicated. And you, regardless of the position, whether you're machining something, assembling something, or just moving inventory, it's, you know, you're doing something different every minute of the day. It's a bit more complicated 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 in very much the things that we do. 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.
For instance, 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, and we can find sources to make the product line more competitive there. Again, we won't be getting rid of anybody in Racine because there's a lot of stuff that we need to do in Racine. In the salaried ranks, again, very similar. I think been talking about this with other execs in the area. You've definitely seen a trend where people in the mid-management you know, making lifestyle changes and choices about less responsibility.
Yeah
less salary, and they wanna do something else that, you know, again, find a job in an industry where I can work from home 100%. You know, we are very much, you know, guys and gals in our shop floor, they have to be here every day. We have to, you know, receive material, assemble it, get it out, ship it, and we've got a salaried staff that is equally dedicated to making that happen. I think, you know, the last thing, Rand, you've seen, the last 12-18 months, everything changed. There are opportunities for different positions in 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. That is very much a change. I don't...
I don't know what the overall effects are. I know that, you know, there's been a lot of turnover everywhere. You know, we've had some. I think we're doing a pretty good job, but we can always do better. It will continue to be a struggle. Our HR department-
Yeah. No, it's long-term.
is very, very busy. Yeah. Sorry for my long answer.
No, no. I love it. Is that what sort of went on with the president, or was that just a natural age out?
No, Jim always said he was gonna retire. There were some, I think, you know, some things in his personal life that changed that may, you know. Jim is a great person, great employee. I had hoped that we would be able to keep him for another year, but he had some other things that he wanted to do, and we fully supported that. We'll have an announcement here in, you know, the next couple weeks. He coached and mentored a fantastic team underneath him. Let's just say he accomplished everything that I wanted to do in three to four years. He got it done in two and a half years, so.
Yeah.
We wish him all the best. We just had dinner with him Wednesday night.
Okay.
Yeah, no, there'll be. You'll see some key additions on our management team here in the near future.
Okay. On the labor, you know, just getting new people in and stuff, do you think you just have to, you know, increase what you're paying and then sort of roll that through the inflation to customers?
Yeah.
I mean, what's the
Absolutely.
Yeah.
Absolutely. I mean, that there's no. You know, our hourly, our base hourly rate's probably gone up 10%-15%. Maybe more. I'm trying, you know, math in my head very quickly. That's gonna. That was obviously we've had, as I mentioned, two price increases. We've rolled that in. I think you're gonna see. I mean, again, another hard look. We're meeting again on it next week. We're gonna have to invest in capital and efficiency.
Mm.
Understanding that even if we wanted to increase our hourly headcount by 10%-20%, we can't. It's
Right
You know, we can't bank on that. You're gonna see us investing again in another wave of investing in fairly expensive machining centers that can take
Right
...the place of two or three, because, you know, the clock is ticking. We have very talented, experienced machinists who are probably gonna retire in five years. We have to get this stuff in and beat that curve. You'll see. I think the trend that you'll see is, again, a focus on capital that can do what, you know, multiple pieces of machinery and people were doing out. It's just, Rand, out of sheer necessity.
Will 3D printing play a role there or what?
3D printing, it plays a role on some of our prototyping and some of our, I would say, parts that we buy from suppliers. Yes.
Yeah.
3D printing is gonna play a role in the future, whether we're doing it in-house or contracting it. Along with, we'll be investing in, we have the new ERP journey coming up, I'm hoping that the next generation of ERP that we go to truly will have that transformational effect of allowing people to step back from many of the transactional duties that they do every day into more fun things like analysis and thinking.
Yeah.
Yeah. It's just, it's gonna be a technology for everyone. It's gonna be investment-
Yep.
in technology, understanding that you're just not gonna. You can't rely on sheer numbers of people to do what you did before.
Yep. Okay. Back to oil and gas. You know, you mentioned a number of factors, but you know, you left off the list, which is what I sort of think is, like, the biggest overlay. You know, on our team, you know, I'm the industrial guy, we have an energy guy, and we're just, like, battling. You know, he's telling me there's just no way in hell that oil and gas, you know, E&P companies are gonna take CapEx up because, you know, they've gotten religion. You know, all their shareholder base just doesn't want them to grow and invest CapEx. They want, you know, they want this price to flow through and free cash flow to come to the shareholders.
He's, you know, he's just like, "There's no way, you know, we're gonna see any units." I'm saying, "Well, these, you know, commodity prices are high. We're gonna see. They always spend, and we're gonna see it." You know, I think it's sort of critical for what, you know, your next two years looks like if, you know, you just get rebuilds and flat line versus, you know, you could be up 10%-15% this year and then 20% next year, would be the way that would be awesome for Twin Disc. Do you have any insight at all as to-
I-
On that point?
I agree with you that I doubt, highly doubt we will ever see a wave of capital spending the way we did three years ago and what, three-
Yeah.
five years. I think you said religion. Their shareholders and everyone. There comes a point. It won't be that huge wave where you were seeing, you know, 3x, 5x versus what they were doing the year before. I do think
Right.
You can see, you can expect some 10%- 15% increases because I
For Twin?
For Twin. In their capital spending, which would mean, you know, significantly more and you could see that for us based on shipments. We subscribe and we understand the, you know, the move towards hybridization, electrification. 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.
I'm telling you right now, Rand, that the existing fleet is not gonna last another year or two years without some attention, and so there will have to be some replacement and some rebuild activity. But you just won't see that 2017, 2018 spike. You know?
Yeah.
It's just not gonna be. I agree with you. I think I agree with you on both fronts.
Okay. If anything, your competitive position, if there's gonna be spends on transmission, you know, are you versus three or four years ago, are you guys much better positioned, a little better positioned, or is it still sort of the same, you know?
I think we're much.
Same allocation.
I think we're better positioned because we kept inventory at the last bottom. I highly doubt anybody could react faster than we could.
Yeah. All right, we'll see. Well, good to catch up. Thanks for taking the time.
All right. Thanks, Rand.
Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I'll turn the floor back to Mr. Batten for any final comments.
All right. Thank you, Melissa, and thank you for joining our conference call today. We appreciate your continuing interest in Twin Disc and hope that we have answered all of your questions. If not, please feel free to call either Jeff or myself, and we will get your question answered as quickly as possible. 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.