Twin Disc, Inc. (NASDAQ: TWIN), today reported
financial results for the fiscal 2021 second quarter and first half
ended December 25, 2020.
Sales for the fiscal 2021 second quarter were
$48.4 million, compared to $59.5 million for the same period last
year. The 18.6% decrease in fiscal 2021 second quarter net 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 $2.1 million favorable impact on
fiscal 2021 second quarter sales and a $3.6 million favorable
impact on fiscal 2021 year-to-date sales. Year-to-date sales
decreased 20.4% to $94.6 million, compared to $118.8 million for
the fiscal 2020 first half.
John H. Batten, Chief Executive Officer,
commented: “The COVID-19 crisis continued to impact many of our
global markets during our second quarter. We remain focused on
emerging from this challenging period as a stronger, leaner, and
more diverse company. I am pleased to announce that we have started
manufacturing industrial clutches in our new Lufkin, TX facility.
Throughout the year, we will shift more production to Lufkin, which
we believe will increase manufacturing efficiencies and enhance our
long-term profitability. In addition, we have seen an acceleration
in hybrid/electric inquiries for both marine and industrial
applications, and are encouraged by the progress we are making in
this important developing market space. Finally, we continue to
focus on supporting our global customers, while investing in new
power control technologies that we believe will enhance our
competitive advantage in the coming years.”
“I am encouraged by the sequential and
year-to-date improvements in our six-month backlog. At December 25,
2020, our six-month backlog was $74.9 million, compared to $69.4
million at September 25, 2020 and $66.6 million at June 30, 2020.
While we expect challenging conditions to continue over the near
term, we are seeing early indications of improving demand across
many of our markets. Veth Propulsion, our Dutch
operation, had its best incoming order month in over a year in
December, and so far, we are seeing momentum continue during our
fiscal 2021 third quarter. In addition, while the rebuild cycle in
the North American fracking industry has taken longer to
materialize, we continue to believe a repair and replacement cycle
will occur in the next four quarters.”
“I am proud of how our team has responded to the
unprecedented effects the COVID-19 pandemic has had on our
business. I want to thank our customers for their support and our
employees for their dedication during this challenging period. I
remain confident in our ability to emerge from the crisis and
create long-term value for our shareholders,” concluded Mr.
Batten.
Gross profit percent for the fiscal 2021 second
quarter was 19.6%, compared to 26.4% for the same period last year.
The decline in gross profit percent for the fiscal 2021 second
quarter was primarily 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 resulting from the economic uncertainty brought on by
the COVID-19 pandemic. Year-to-date, gross margin was 20.9%
compared to 21.3% for the fiscal 2020 first half.
For the fiscal 2021 second quarter, marketing,
engineering and administrative (ME&A) expenses decreased $2.4
million to $14.0 million, compared to $16.4 million for the fiscal
2020 second quarter. The 14.9% decrease in ME&A expenses in the
quarter was primarily due to reduced domestic salaries and benefits
($1.1 million), corporate travel ($0.5 million), marketing
activities ($0.6 million), amortization expense ($0.5 million) and
a global focus on cost containment. These reductions were partially
offset by an exchange driven increase ($0.4 million). As a percent
of revenues, ME&A expenses were 28.8% for the fiscal 2021
second quarter, higher than the 27.6% for the same period last
fiscal year. Year-to-date, ME&A expenses were $27.0 million,
compared to $32.8 million for the fiscal 2020 first half. As a
percent of revenues, ME&A expenses were 28.5% for the fiscal
2021 first half, compared to 27.6% for the same period last fiscal
year.
Twin Disc recorded restructuring charges of $0.1
million in the fiscal 2021 second quarter, compared to
restructuring charges of $4.2 million in the same period last
fiscal year. Restructuring activities during the fiscal 2021 second
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.
Year-to-date, the Company recorded restructuring charges of $0.5
million, compared to $4.4 million for the same period last fiscal
year.
Other expense of $1.7 million in the quarter and
$2.9 million for the first half was primarily attributable to
translation losses related to Euro denominated liabilities.
The fiscal 2021 first half effective tax rate
was 30.3% compared to just 4.3% in the prior fiscal year first
half. The significant change from the prior year is largely due to
the Global Intangible Low-Taxed Income (“GILTI”) provisions of the
Tax Cuts and Jobs Act. As the GILTI regulations were not final in
the prior year, the Company had a GILTI inclusion and no offsetting
GILTI credits decreasing the rate by 18.6%. During the current year
the Company was able to take advantage of the newly enacted high
tax exception regulations which were passed on July 23, 2020. The
company filed its federal tax return during the quarter utilizing
the high tax exception and had no GILTI inclusion decreasing the
rate by 9%.
Net loss attributable to Twin Disc for the
fiscal 2021 second quarter was $(4.3 million) or ($0.33) per share,
compared to a net loss attributable to Twin Disc of $(6.5 million)
or ($0.49) per share, for the fiscal 2020 second quarter.
Year-to-date, the net loss attributable to Twin Disc was $(8.3
million), or ($0.63) per share, compared to a net loss attributable
to Twin Disc of $(12.8 million), or ($0.98) per share for the
fiscal 2020 first half.
Earnings (loss) before interest, taxes,
depreciation and amortization (EBITDA)* were a loss of $(3.6
million) for the fiscal 2021 second quarter, compared to a loss of
$(2.0 million) for the fiscal 2020 second quarter. For the fiscal
2021 first half, EBITDA was a loss of $(5.2 million), compared to a
loss of $(6.6 million) for the fiscal 2020 comparable period. With
the second quarter EBITDA result, the Company fell out of
compliance with the cumulative EBITDA covenant under the Company’s
credit facility. On January 27, 2021, the Company and BMO Harris
Bank entered into a forbearance agreement and amendment under which
BMO has agreed to forbear from exercising its right and remedies
under the credit agreement with respect to the noncompliance with
the cumulative EBITDA covenant through the forbearance period,
which extends through September 30, 2021. Further details on this
agreement are described in the 8K filed on January 29, 2021.
Jeffrey S. Knutson, Vice President – Finance,
Chief Financial Officer, Treasurer and Secretary, stated: “During
the COVID-19 crisis we have focused on controlling expenses,
generating positive operating cash flow, and strengthening our
balance sheet. ME&A expenses as a percent of revenue remains
stable, operating cash flow has increased $2.7 million
year-over-year, and net debt has declined 6.2% since June 30, 2020.
We continue to control 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 January 29, 2021. To participate in the conference call,
please dial 800-239-9838 five to ten minutes before the call is
scheduled to begin. A replay will be available from 2:00 p.m.
January 29, 2021, until midnight February 5, 2021. The number to
hear the teleconference replay is 844-512-2921. The access code for
the replay is 9287075.
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 Statements This 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.
*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
AND COMPREHENSIVE INCOME (LOSS)(In
thousands, except per-share data; unaudited) |
|
|
For the Quarter Ended |
For the Two Quarters Ended |
|
December 25,2020 |
December 27,2019 |
December 25,2020 |
December 27,2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
$ |
48,438 |
|
$ |
59,536 |
|
$ |
94,581 |
|
$ |
118,826 |
|
Cost of goods sold |
|
38,953 |
|
|
43,825 |
|
|
74,819 |
|
|
93,479 |
|
Gross profit |
|
9,485 |
|
|
15,711 |
|
|
19,762 |
|
|
25,347 |
|
|
|
|
|
|
Marketing, engineering and
administrative expenses |
|
13,973 |
|
|
16,413 |
|
|
26,996 |
|
|
32,759 |
|
Restructuring expenses |
|
120 |
|
|
4,248 |
|
|
525 |
|
|
4,369 |
|
Loss from operations |
|
(4,608 |
) |
|
(4,950 |
) |
|
(7,759 |
) |
|
(11,781 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
590 |
|
|
447 |
|
|
1,163 |
|
|
836 |
|
Other expense, net |
|
1,719 |
|
|
29 |
|
|
2,862 |
|
|
720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes and
noncontrolling interest |
|
(6,917 |
) |
|
(5,426 |
) |
|
(11,784 |
) |
|
(13,337 |
) |
Income tax (benefit) expense |
|
(2,637 |
) |
|
1,040 |
|
|
(3,567 |
) |
|
(578 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
(4,280 |
) |
|
(6,466 |
) |
|
(8,217 |
) |
|
(12,759 |
) |
Less: Net earnings attributable
to noncontrolling interest, net of tax |
|
(33 |
) |
|
(50 |
) |
|
(75 |
) |
|
(68 |
) |
Net loss attributable to Twin
Disc |
$ |
(4,313 |
) |
$ |
(6,516 |
) |
$ |
(8,292 |
) |
$ |
(12,827 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share data: |
|
|
|
|
Basic loss per share attributable to Twin Disc common
shareholders |
$ |
(0.33 |
) |
$ |
(0.49 |
) |
$ |
(0.63 |
) |
$ |
(0.98 |
) |
Diluted loss per share attributable to Twin Disc common
shareholders |
$ |
(0.33 |
) |
$ |
(0.49 |
) |
$ |
(0.63 |
) |
$ |
(0.98 |
) |
|
|
|
|
|
Weighted average shares
outstanding data: |
|
|
|
|
Basic |
|
13,255 |
|
|
13,164 |
|
|
13,227 |
|
|
13,135 |
|
Diluted |
|
13,255 |
|
|
13,164 |
|
|
13,227 |
|
|
13,135 |
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
Net loss |
$ |
(4,280 |
) |
$ |
(6,466 |
) |
$ |
(8,217 |
) |
$ |
(12,759 |
) |
Benefit plan adjustments, net of taxes of $177, $169, $353, and
$338, respectively |
|
555 |
|
|
548 |
|
|
1,108 |
|
|
1,105 |
|
Foreign currency translation adjustment |
|
4,899 |
|
|
1,647 |
|
|
8,511 |
|
|
(1,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) on cash flow hedge, net of income taxes of
$32, ($45), $55, and $(1), respectively |
|
104 |
|
|
146 |
|
|
179 |
|
|
3 |
|
Comprehensive income (loss) |
|
1,278 |
|
|
(4,125 |
) |
|
1,581 |
|
|
(13,000 |
) |
Less: Comprehensive income attributable to noncontrolling
interest |
|
(45 |
) |
|
(50 |
) |
|
(99 |
) |
|
(86 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Twin Disc |
$ |
1,233 |
|
$ |
(4,175 |
) |
$ |
1,482 |
|
$ |
(13,086 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CONSOLIDATED NET LOSS TO
EBITDA(In thousands; unaudited) |
|
|
|
|
For the Quarter Ended |
For the two Quarters Ended |
|
December 25, 2020 |
December 27, 2019 |
December 25, 2020 |
December 27, 2019 |
Net loss attributable to Twin Disc |
$ |
(4,313 |
) |
$ |
(6,516 |
) |
$ |
(8,292 |
) |
$ |
(12,827 |
) |
Interest expense |
|
590 |
|
|
447 |
|
|
1,163 |
|
|
836 |
|
Income taxes |
|
(2,637 |
) |
|
1,040 |
|
|
(3,567 |
) |
|
(578 |
) |
Depreciation and amortization |
|
2,765 |
|
|
3,000 |
|
|
5,523 |
|
|
5,926 |
|
Earnings (loss) before interest,
taxes, depreciation and amortization |
$ |
(3,595 |
) |
$ |
(2,029 |
) |
$ |
(5,173 |
) |
$ |
(6,643 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands; except share amounts, unaudited) |
|
|
|
|
December 25, |
June 30, |
|
2020 |
2020 |
ASSETS |
|
|
Current assets: |
|
|
Cash |
$ |
11,838 |
|
$ |
10,688 |
|
Trade accounts receivable, net |
|
31,893 |
|
|
30,682 |
|
Inventories |
|
122,161 |
|
|
120,607 |
|
Prepaid expenses |
|
4,206 |
|
|
5,269 |
|
Other |
|
5,096 |
|
|
6,739 |
|
|
|
|
|
|
|
|
Total current assets |
|
175,194 |
|
|
173,985 |
|
|
|
|
Property, plant and equipment,
net |
|
78,187 |
|
|
72,732 |
|
Intangible assets, net |
|
18,856 |
|
|
18,973 |
|
Deferred income taxes |
|
30,924 |
|
|
24,445 |
|
Other assets |
|
3,422 |
|
|
3,992 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ |
306,583 |
|
$ |
294,127 |
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current maturities of long-term debt |
$ |
5,569 |
|
$ |
4,691 |
|
Accounts payable |
|
26,615 |
|
|
25,663 |
|
Accrued liabilities |
|
42,924 |
|
|
36,380 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
75,108 |
|
|
66,734 |
|
|
|
|
Long-term debt |
|
36,195 |
|
|
37,896 |
|
Lease obligations |
|
18,099 |
|
|
13,495 |
|
Accrued retirement benefits |
|
27,156 |
|
|
27,938 |
|
Deferred income taxes |
|
5,564 |
|
|
5,501 |
|
Other long-term liabilities |
|
2,066 |
|
|
2,605 |
|
|
|
|
|
|
|
|
Total liabilities |
|
164,188 |
|
|
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 |
|
39,918 |
|
|
42,756 |
|
Retained earnings |
|
148,363 |
|
|
156,655 |
|
Accumulated other comprehensive
loss |
|
(31,452 |
) |
|
(41,226 |
) |
|
|
156,829 |
|
|
158,185 |
|
Less treasury stock, at cost (985,426 and 1,226,809 shares,
respectively) |
|
15,102 |
|
|
18,796 |
|
|
|
|
|
|
|
|
Total Twin Disc shareholders' equity |
|
141,727 |
|
|
139,389 |
|
|
|
|
Noncontrolling interest |
|
668 |
|
|
569 |
|
Total equity |
|
142,395 |
|
|
139,958 |
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
$ |
306,583 |
|
$ |
294,127 |
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In
thousands; unaudited) |
|
|
|
|
For the Two Quarters Ended |
|
December 25,2020 |
December 27,2019 |
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
Net loss |
$ |
(8,217 |
) |
$ |
(12,759 |
) |
Adjustments to reconcile net loss to net cash provided by operating
activities, net of acquired assets: |
|
|
Depreciation and amortization |
|
5,523 |
|
|
5,926 |
|
Restructuring expenses |
|
22 |
|
|
3,844 |
|
Provision for deferred income taxes |
|
(7,122 |
) |
|
(3,901 |
) |
Stock compensation expense and other non-cash charges, net |
|
1,317 |
|
|
774 |
|
Net change in operating assets and liabilities |
|
11,254 |
|
|
6,232 |
|
|
|
|
Net cash provided by operating
activities |
|
2,777 |
|
|
116 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
Acquisition of fixed assets |
|
(2,788 |
) |
|
(6,860 |
) |
Proceeds from sale of fixed assets |
|
48 |
|
|
55 |
|
Proceeds from sale of Mill Log |
|
600 |
|
|
- |
|
Other, net |
|
(17 |
) |
|
(129 |
) |
|
|
|
|
|
|
|
Net cash used by investing
activities |
|
(2,157 |
) |
|
(6,934 |
) |
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
Borrowings under revolving loan agreement |
|
34,241 |
|
|
58,993 |
|
Repayments of revolver loans |
|
(36,276 |
) |
|
(48,130 |
) |
Repayments of long-term debt |
|
(261 |
) |
|
(603 |
) |
Payments of withholding taxes on stock compensation |
|
(224 |
) |
|
(913 |
) |
Dividends paid to noncontrolling interest |
|
- |
|
|
(127 |
) |
|
|
|
|
|
|
|
Net cash (used) provided by
financing activities |
|
(2,520 |
) |
|
9,220 |
|
|
|
|
|
|
|
|
Effect of exchange rate changes
on cash |
|
3,050 |
|
|
72 |
|
|
|
|
|
|
|
|
Net change in cash |
|
1,150 |
|
|
2,474 |
|
|
|
|
Cash: |
|
|
Beginning of period |
|
10,688 |
|
|
12,362 |
|
|
|
|
|
|
|
|
End of period |
$ |
11,838 |
|
$ |
14,836 |
|
|
|
|
|
|
|
|
Contact: Jeffrey S. Knutson(262) 638-4242
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