Twin Disc, Inc. (NASDAQ: TWIN), today reported
financial results for the fiscal 2021 first quarter ended September
25, 2020.
Sales for the fiscal 2021 first quarter were
$46.1 million, compared to $59.3 million for the same period last
year. The 22.2% decrease in 2021 first quarter sales was primarily
due to year-over-year softness in the Company’s oil and gas,
industrial, and marine markets, and the continued impacts the
COVID-19 crisis is having across Twin Disc’s global markets.
Foreign currency exchange had a $1.5 million positive impact on
fiscal 2021 first quarter sales.
John H. Batten, Chief Executive Officer,
commented: “Our six-month backlog at September 25, 2020, was $69.4
million, compared to $96.7 million at September 27, 2019, and $66.6
million at June 30, 2020. I am encouraged by the direction we are
headed despite the near-term economic challenges and uncertainty
the COVID-19 crisis has created. While first quarter sales at Veth
Propulsion (our Dutch operation) were down year-over-year, we ended
the quarter with strong order and backlog growth. Oil and gas
demand continues to experience significant year-over-year declines
due to the current pricing environment and the number of idled
fracking rigs in North America. However, we believe much of the
idled capacity has been recently brought back online or scrapped.
As a result, we expect to benefit from improving oil and gas demand
in the coming quarters as the North American fracking fleet is
repaired and replaced. We are also well positioned to benefit from
growing global demand for hybrid and electric technology within the
industrial off-highway market as a result of our leading power
control technologies, capabilities, and experience. We see
increasing demand trends within this market, which we anticipate
accelerating in the coming years.”
“As you can see, we are successfully navigating
the unprecedented effects the COVID-19 crisis has had across many
of our global markets, while protecting the health and safety of
our global employees, customers, and partners, and investing in our
future. Our success is a testament to the resiliency of our
business, the experience of our senior leadership team, and our
commitment to quality, engineering, and customer service. In
addition, we continue to diversify our end markets, drive
efficiencies across our footprint, and optimize our global assets,
which we believe will enable us to emerge from the COVID-19 crisis
with increased agility, profitability, and market share,” continued
Mr. Batten.
“Additional initiatives are currently underway
that will further transform Twin Disc’s operating model and support
additional expense reductions. This includes a potential sale of
our corporate office in Racine that, once completed, will allow us
to consolidate our corporate operations into other existing Twin
Disc facilities. Along with the operating savings and cash
generation this sale will provide Twin Disc, this will also allow
the community to benefit from a more effective use for this
under-utilized asset, contributing to the ongoing redevelopment of
Racine. I am also pleased with the progress we are making at our
new Lufkin, TX manufacturing facility. We anticipate production at
this facility will start at the beginning of the calendar year,
which will further improve our manufacturing and logistic
capabilities, while concentrating resources closer to many of our
customers,” concluded Mr. Batten.
Gross profit percent for the fiscal 2021 first
quarter was 22.3%, compared to 16.3% in the fiscal 2020 first
quarter. Gross profit, as a percent of fiscal 2020 first quarter
sales, adjusted for an isolated prior year $3.9 million product
performance accrual related to one of our pressure-pumping models,
was 22.8%. The slight year-over-year decline in adjusted gross
profit, as a percent of sales, was due to reduced volume and a less
profitable mix of revenues associated with reduced new rig
construction and aftermarket demand in the North American fracking
market and lower overall sales, partially offset by improved
efficiencies, proactive expense management and the positive impact
of foreign COVID-19 relief programs.
For the fiscal 2021 first quarter, marketing,
engineering and administrative (ME&A) expenses decreased $3.3
million to $13.0 million, compared to $16.3 million for the fiscal
2020 first quarter. The 20.3% decrease in ME&A expenses in the
quarter was primarily due to reduced domestic salaries and benefits
($1.5 million), corporate travel ($0.3 million), marketing
activities ($0.3 million), lower bonus expense ($0.4 million) and
general cost containment actions ($0.8 million). As a percent of
revenues, ME&A expenses increased to 28.2% for the fiscal 2021
first quarter, compared to 27.6% for the same period last year.
Twin Disc recorded restructuring charges of $0.4
million in the fiscal 2021 first quarter, compared to restructuring
charges of $0.1 million in the same period last fiscal year.
Restructuring activities during the fiscal 2021 first quarter
related primarily to ongoing cost reduction and productivity
actions at the Company’s European operations and actions to adjust
the cost structure at our domestic operation.
The effective tax rate for the fiscal 2021 first
quarter was 19.1%, compared to 20.5% for the same period last
fiscal year. The slight decline in the effective tax rate is
primarily the result of the mix of earnings by jurisdiction.
Net loss attributable to Twin Disc for the
fiscal 2021 first quarter was $(4.0) million or $(0.30) per share,
compared to a net loss attributable to Twin Disc of $(6.3 million),
or $(0.48) per share for the prior fiscal year first
quarter.
Earnings (loss) before interest, taxes,
depreciation, and amortization (EBITDA)* were a loss of $(1.6
million) for the fiscal 2021 first quarter, compared to a loss of
$(4.6 million) for the fiscal 2020 first quarter.
Jeffrey S. Knutson, Vice President – Finance,
Chief Financial Officer, Treasurer and Secretary, stated: “The
initiatives we have taken to eliminate expenses and drive
efficiencies across our organization are taking hold and we believe
these actions will improve future levels of profitability in the
coming quarters. In addition, we are focused on strengthening our
balance sheet, reducing working capital levels, and generating
positive operating cash flow. We continue to focus on controlling
expenses and investments, and currently expect to invest $5 million
to $7 million in capital expenditures during fiscal 2021.”
Twin Disc will be hosting a conference call to
discuss these results and to answer questions at 11:00 a.m. Eastern
Time on October 30, 2020. To participate in the conference call,
please dial 866-548-4713 five to ten minutes before the call is
scheduled to begin. A replay will be available from 2:00 p.m.
October 30, 2020 until midnight November 6, 2020. The number to
hear the teleconference replay is 844-512-2921. The access code for
the replay is 6281019.
The conference call will also be broadcast live
over the Internet. To listen to the call via the Internet, access
Twin Disc's website at http://ir.twindisc.com/ and follow the
instructions at the web cast link. The archived webcast will be
available shortly after the call on the Company's website.
About Twin Disc, Inc.Twin Disc, Inc. designs,
manufactures and sells marine and heavy-duty off-highway power
transmission equipment. Products offered include marine
transmissions, azimuth drives, surface drives, propellers, and boat
management systems, as well as power-shift transmissions, hydraulic
torque converters, power take-offs, industrial clutches, and
control systems. The Company sells its products to customers
primarily in the pleasure craft, commercial and military marine
markets, as well as in the energy and natural resources,
government, and industrial markets. The Company’s worldwide sales
to both domestic and foreign customers are transacted through a
direct sales force and a distributor network. For more information,
please visit www.twindisc.com.
Forward-Looking StatementsThis press release may
contain statements that are forward looking as defined by the
Securities and Exchange Commission in its rules, regulations, and
releases. The Company intends that such forward-looking statements
be subject to the safe harbors created thereby. All forward-looking
statements are based on current expectations regarding important
risk factors including those identified in the Company’s most
recent periodic report and other filings with the Securities and
Exchange Commission. Accordingly, actual results may differ
materially from those expressed in the forward-looking statements,
and the making of such statements should not be regarded as a
representation by the Company or any other person that the results
expressed therein will be achieved. Risk factors also include the
effects of the COVID-19 pandemic, and any impact the COVID-19
pandemic may have on the Company’s business operations, as well as
its impact on general economic and financial market conditions.
*Non-GAAP Financial Disclosures Financial
information excluding the impact of asset impairments,
restructuring charges, foreign currency exchange rate changes and
the impact of acquisitions, if any, in this press release are not
measures that are defined in U.S. Generally Accepted Accounting
Principles (“GAAP”). These items are measures that management
believes are important to adjust for in order to have a meaningful
comparison to prior and future periods and to provide a basis for
future projections and for estimating our earnings growth
prospects. Non-GAAP measures are used by management as a
performance measure to judge profitability of our business absent
the impact of foreign currency exchange rate changes and
acquisitions. Management analyzes the company’s business
performance and trends excluding these amounts. These
measures, as well as EBITDA, provide a more consistent view of
performance than the closest GAAP equivalent for management and
investors. Management compensates for this by using these measures
in combination with the GAAP measures. The presentation of the
non-GAAP measures in this press release are made alongside the most
directly comparable GAAP measures.
Definition – Earnings Before Interest, Taxes,
Depreciation and Amortization (EBITDA)The sum of, net earnings and
adding back provision for income taxes, interest expense,
depreciation and amortization expenses: this is a financial measure
of the profit generated excluding the above-mentioned items.
--Financial Results Follow--
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS ANDCOMPREHENSIVE
INCOME (LOSS)(In
thousands, except per-share data; unaudited)
|
|
|
For the Quarter Ended |
|
September 25,2020 |
|
|
September 27,2019 |
|
Net sales |
$ |
46,143 |
|
|
$ |
59,290 |
|
Cost of goods sold |
|
35,866 |
|
|
|
49,654 |
|
Gross profit |
|
10,277 |
|
|
|
9,636 |
|
Marketing, engineering
and administrative expenses |
|
13,022 |
|
|
|
16,346 |
|
Restructuring expenses |
|
405 |
|
|
|
121 |
|
Loss from operations |
|
(3,150 |
) |
|
|
(6,831 |
) |
|
|
|
Interest expense |
|
573 |
|
|
|
389 |
|
Other expense, net |
|
1,143 |
|
|
|
691 |
|
Loss before income
taxes and noncontrolling interest |
|
(4,866 |
) |
|
|
(7,911 |
) |
Income tax benefit |
|
(929 |
) |
|
|
(1,618 |
) |
|
|
|
Net loss |
|
(3,937 |
) |
|
|
(6,293 |
) |
Less: Net earnings
attributable to noncontrolling interest, net of tax |
|
(42 |
) |
|
|
(18 |
) |
Net
loss attributable to Twin Disc |
$ |
(3,979 |
) |
|
$ |
(6,311 |
) |
Loss per share data: |
|
|
Basic loss per share |
$ |
(0.30 |
) |
|
$ |
(0.48 |
) |
Diluted loss per share |
$ |
(0.30 |
) |
|
$ |
(0.48 |
) |
Weighted average shares
outstanding data: |
|
|
Basic shares outstanding |
|
13,197 |
|
|
|
13,111 |
|
Diluted shares outstanding |
|
13,197 |
|
|
|
13,111 |
|
|
|
|
Comprehensive income
(loss): |
|
|
Net loss |
$ |
(3,937 |
) |
|
$ |
(6,293 |
) |
Benefit plan adjustments, net of income taxes of $177 and $169,
respectively |
|
553 |
|
|
|
557 |
|
Foreign currency translation adjustment |
|
3,612 |
|
|
|
(2,996 |
) |
Unrealized gain (loss) on cash flow hedge, net of income taxes of
$22 and ($44), respectively |
|
75 |
|
|
|
(143 |
) |
Comprehensive income (loss) |
|
303 |
|
|
|
(8,875 |
) |
Less: Comprehensive income attributable to noncontrolling
interest |
|
(55 |
) |
|
|
(36 |
) |
Comprehensive income (loss)
attributable to Twin Disc |
$ |
248 |
|
|
$ |
(8,911 |
) |
|
|
|
|
|
|
|
|
RECONCILIATION OF CONSOLIDATED
NET LOSS TO EBITDA(In
thousands; unaudited)
|
|
|
For the Quarter Ended |
|
September 25,2020 |
|
September 27,2019 |
Net loss attributable to Twin Disc |
$ |
(3,979 |
) |
|
$ |
(6,311 |
) |
Interest expense |
|
573 |
|
|
|
389 |
|
Income taxes |
|
(929 |
) |
|
|
(1,618 |
) |
Depreciation and amortization |
|
2,758 |
|
|
|
2,926 |
|
Loss before interest, taxes,
depreciation and amortization |
$ |
(1,577 |
) |
|
$ |
(4,614 |
) |
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS (In thousands;
unaudited)
|
|
|
|
September 25, |
|
June 30, |
|
2020 |
|
2020 |
ASSETS |
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash |
$ |
9,313 |
|
|
$ |
10,688 |
|
Trade accounts receivable, net |
|
31,824 |
|
|
|
30,682 |
|
Inventories |
|
120,216 |
|
|
|
120,607 |
|
Prepaid expenses |
|
5,277 |
|
|
|
5,269 |
|
Other |
|
5,946 |
|
|
|
6,739 |
|
Total current assets |
|
172,576 |
|
|
|
173,985 |
|
|
|
|
Property, plant and equipment,
net |
|
77,775 |
|
|
|
72,732 |
|
Intangible assets, net |
|
18,817 |
|
|
|
18,973 |
|
Deferred income taxes |
|
29,057 |
|
|
|
24,445 |
|
Other assets |
|
4,118 |
|
|
|
3,992 |
|
|
|
|
Total assets |
$ |
302,343 |
|
|
$ |
294,127 |
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
Current liabilities: |
|
|
Current maturities of long-term debt |
$ |
3,700 |
|
|
$ |
4,691 |
|
Accounts payable |
|
23,293 |
|
|
|
25,663 |
|
Accrued liabilities |
|
42,432 |
|
|
|
36,380 |
|
Total current liabilities |
|
69,425 |
|
|
|
66,734 |
|
|
|
|
Long-term debt |
|
39,016 |
|
|
|
37,896 |
|
Lease obligations |
|
17,836 |
|
|
|
13,495 |
|
Accrued retirement
benefits |
|
27,600 |
|
|
|
27,938 |
|
Deferred income taxes |
|
5,527 |
|
|
|
5,501 |
|
Other long-term
liabilities |
|
2,384 |
|
|
|
2,605 |
|
|
|
|
Total liabilities |
|
161,788 |
|
|
|
154,169 |
|
|
|
|
Twin Disc shareholders’
equity: |
|
|
Preferred shares authorized:
200,000; issued: none; no par value |
|
- |
|
|
|
- |
|
Common shares authorized:
30,000,000; Issued: 14,632,802; no par value |
|
40,814 |
|
|
|
42,756 |
|
Retained earnings |
|
152,676 |
|
|
|
156,655 |
|
Accumulated other
comprehensive loss |
|
(36,998 |
) |
|
|
(41,226 |
) |
|
|
156,492 |
|
|
|
158,185 |
|
Less treasury stock, at cost (1,080,698 and 1,226,809 shares,
respectively) |
|
16,560 |
|
|
|
18,796 |
|
|
|
|
Total Twin Disc shareholders' equity |
|
139,932 |
|
|
|
139,389 |
|
|
|
|
Noncontrolling interest |
|
623 |
|
|
|
569 |
|
Total equity |
|
140,555 |
|
|
|
139,958 |
|
|
|
|
TOTAL LIABILITIES AND
EQUITY |
$ |
302,343 |
|
|
$ |
294,127 |
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS(In thousands; unaudited)
|
|
|
For the Quarter Ended |
|
September 25,2020 |
|
September 27,2019 |
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
Net loss |
$ |
(3,937 |
) |
|
$ |
(6,293 |
) |
Adjustments to reconcile net loss to net cash (used)
provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
2,758 |
|
|
|
2,926 |
|
Provision for deferred income taxes |
|
(4,908 |
) |
|
|
(1,663 |
) |
Stock compensation expense and other non-cash changes, net |
|
709 |
|
|
|
457 |
|
Net change in operating assets and liabilities |
|
4,662 |
|
|
|
6,054 |
|
Net cash (used) provided by
operating activities |
|
(716 |
) |
|
|
1,481 |
|
|
|
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
|
|
Acquisitions of fixed assets |
|
(1,419 |
) |
|
|
(4,037 |
) |
Proceeds from sale of fixed assets |
|
19 |
|
|
|
29 |
|
Other, net |
|
(129 |
) |
|
|
(129 |
) |
Proceeds from sale of Mill Log, net of costs to sell |
|
300 |
|
|
|
- |
|
Net cash used by investing
activities |
|
(1,229 |
) |
|
|
(4,137 |
) |
|
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
|
|
Borrowings under revolving loan arrangement |
|
18,301 |
|
|
|
33,095 |
|
Repayments under revolver loans |
|
(18,674 |
) |
|
|
(25,397 |
) |
Repayments of other long-term debt |
|
(155 |
) |
|
|
- |
|
Dividends paid to noncontrolling interest |
|
- |
|
|
|
(127 |
) |
Payments of withholding taxes on stock compensation |
|
(224 |
) |
|
|
(913 |
) |
Net cash (used) provided by
financing activities |
|
(752 |
) |
|
|
6,658 |
|
|
|
|
|
|
|
Effect of exchange rate
changes on cash |
|
1,322 |
|
|
|
141 |
|
|
|
|
|
|
|
Net change in cash |
|
(1,375 |
) |
|
|
4,143 |
|
|
|
|
|
|
|
Cash: |
|
|
|
|
|
Beginning of period |
|
10,688 |
|
|
|
12,362 |
|
|
|
|
|
|
|
End of period |
$ |
9,313 |
|
|
$ |
16,505 |
|
|
|
|
|
|
|
|
|
Contact: Jeffrey S. Knutson(262) 638-4242
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