Twin Disc, Inc. (NASDAQ: TWIN) today reported
results for the third quarter of fiscal year 2023, which ended on
March 31, 2023.
Fiscal Third Quarter 2023 Highlights
- Sales increased 24.4% year-over-year to $73.8 million
- Net income attributable to Twin Disc was $2.7 million and
EBITDA* of $6.4 million
- Improved operating cash flow of $6.9 million
- Six-month backlog of $127.7 million at the highest level in
more than four years
- Veth business delivered a record-high 12-month backlog in the
third quarter
- Significant improvement in shipments and moderation of supply
chain headwinds
CEO Perspective“Our team remained agile during
the quarter capitalizing on robust end market demand and easing
supply chain headwinds to deliver a 24% increase in sales
year-over-year. While we are very proud of these results, our
margins were negatively impacted by a number of factors, including
component shortages and inflation that more than offset the partial
quarter of pricing realization. As we have discussed, we are
laser-focused on margin expansion and cash flow and expect to see
some of the actions we have taken bear fruit over the coming
quarters. Importantly, our third quarter backlog is at the highest
level we’ve seen since fiscal 2018 and inventory levels are
sequentially lower on a dollar and percentage of backlog basis. As
such, we remain optimistic as we look ahead and leverage our
competitive strengths across the business to drive profitable
growth over the long term,” commented John H. Batten, President and
Chief Executive Officer of Twin Disc.
Third Quarter ResultsSales for the fiscal 2023
third quarter increased 24.4% year-over-year to $73.8 million
driven by strong demand in both the Company’s Marine and Propulsion
Systems, as well as Land-Based Transmission markets, and solid
operational improvements resulting in higher quarterly shipments
than expected.
Sales by product group:
|
Product Group(Thousands of
$): |
Q3 FY23 Sales |
|
Q3 FY22 Sales |
|
Change |
|
|
Marine and Propulsion Systems |
43,854 |
|
33,162 |
|
32.2 |
% |
|
|
Land-Based Transmissions |
19,574 |
|
16,086 |
|
21.7 |
% |
|
|
Industrial |
7,304 |
|
8,461 |
|
(13.7 |
)% |
|
|
Other |
3,041 |
|
1,580 |
|
92.5 |
% |
|
|
Total |
73,772 |
|
59,289 |
|
24.4 |
% |
|
The Company delivered double-digit growth in North American and
Asia Pacific regions on both a sequential and year-over-year basis
driven by strong end market demand and the expansion of our Veth
business into new geographies and the luxury yacht market.
Gross profit increased 8.9% to $19.3 million compared to $17.7
million for the third quarter of fiscal 2022. Gross margin was
26.1% in the third quarter, compared to 29.8% in the prior year
period. The 370-basis point year-over-year decrease was primarily
driven by unfavorable mix and continued inflationary and supply
chain pressures. The Company implemented, and started to realize,
additional price increases during the quarter, which will favorably
impact margins going forward. Year-to-date gross profit increased
11.1% to $49.6 million. Year-to-date gross margin decreased 100
basis points to 25.7%.
Marketing, engineering and administrative (ME&A) expense
increased by $0.2 million, or 1.6%, to $14.6 million, compared to
$14.4 million in the prior year quarter. The increased ME&A
expense was primarily driven by a prior year Dutch subsidy of $0.7
million, a $0.7 million inflationary impact on wages, and a $0.4
million increase in travel costs as we return to more normal travel
levels. These increases were partially offset by a $1.2 million
reduction in the global bonus accrual. On a year-to-date basis,
ME&A expense increased 6.9% to $45.7 million.
Net income attributable to Twin Disc for the quarter was $2.7
million, or $0.20 per diluted share, compared to a net income
attributable to Twin Disc of $2.2 million, or $0.17 per share, for
the third fiscal quarter of 2022. The year-over-year improvement
was partially driven by lower income tax expense resulting from the
geographic mix of earnings. Year-to-date, the Company generated net
income attributable to Twin Disc of $1.8 million, or $0.13 per
diluted share, a 564.6% and 550.2% increase, respectively, from the
comparable prior year period.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) were $6.4 million in the quarter, compared to $5.6 million
in the year-ago period, primarily driven by higher depreciation and
amortization primarily related to an investment in the Company’s
ERP system. For the first three quarters of fiscal 2023, EBITDA
increased 16.1% to $12.8 million from $11.0 million in the
comparable prior year period.
On a consolidated basis, the backlog of orders to be shipped
over the next six months is approximately $127.7 million, compared
to $124.0 million at the end of the second quarter. As a percentage
of six-month backlog, inventory has improved from 110% at the end
of the second quarter to 107% at the end of the third quarter.
Compared to the end of fiscal 2022, cash increased 12.0% to $14.0
million and net debt* decreased $6.7 million to $17.3 million.
CFO PerspectiveJeffrey S. Knutson, Vice
President of Finance, Chief Financial Officer, Treasurer, and
Secretary stated, “While we have seen broad-based supply chain
headwind moderation, acute material and component shortages
continue to impact our profitability. I am cautiously optimistic
that the worst is behind us, and our team is in a much better place
to better anticipate and respond to these challenges. Further, as
inflation moderates, lower-margin orders flow out of the backlog,
and we realize the full benefit of our previous pricing actions, we
expect to see improved margin performance. We believe our
longer-term revenue, gross margin, and free cash flow conversion
targets are achievable, and our disciplined capital allocation
strategy and strong balance sheet place us in an enviable position
to take advantage of growth-focused opportunities ahead for Twin
Disc.”
Discussion of ResultsTwin Disc will host a
conference call to discuss these results and to answer questions at
11:00 a.m. Eastern time on April 28, 2023. The live audio webcast
will be available on Twin Disc’s website at
https://ir.twindisc.com. To participate in the conference call,
please dial 877-407-9039 approximately ten minutes before the call
is scheduled to begin. A replay of the webcast will be available at
https://ir.twindisc.com shortly after the call until April 27,
2024.
About Twin DiscTwin 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 words “anticipates,” “believes,”
“intends,” “estimates,” and “expects,” or similar anticipatory
expressions, usually identify forward-looking statements. The
Company intends that such forward-looking statements qualify for
the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. All forward-looking
statements are based on current expectations, and are subject to
certain risks and uncertainties that could cause actual results or
outcomes to differ materially from current expectations. Such risks
and uncertainties include the impact of general economic conditions
and the cyclical nature of many of the Company’s product markets;
foreign currency risks and other risks associated with the
Company’s international sales and operations; the ability of the
Company to successfully implement price increases to offset
increasing commodity costs; the ability of the Company to generate
sufficient cash to pay its indebtedness as it becomes due; and the
possibility of unforeseen tax consequences and the impact of tax
reform in the U.S. or other jurisdictions. These and other risks
are described under the caption “Risk Factors” in Item 1A of the
Company’s most recent Form 10-K filed with the Securities and
Exchange Commission, as supplemented in subsequent periodic reports
filed with the Securities and Exchange Commission. Accordingly, 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. The Company assumes no
obligation, and disclaims any obligation, to publicly update or
revise any forward-looking statements to reflect subsequent events,
new information, or otherwise.
*Non-GAAP Financial
InformationFinancial 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.
DefinitionsEarnings before interest, taxes,
depreciation and amortization (EBITDA) is calculated as net
earnings or loss excluding interest expense, the provision or
benefit for income taxes, depreciation and amortization
expenses.
Net debt is calculated as total debt less cash.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)(In
thousands, except per-share data; unaudited) |
|
|
|
For the Quarter Ended |
|
For the Three Quarters Ended |
|
|
March 31, |
|
|
March 25, |
|
|
March 31, |
|
|
March 25, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Net sales |
|
$ |
73,772 |
|
|
$ |
59,289 |
|
|
$ |
193,036 |
|
|
$ |
166,939 |
|
Cost of goods sold |
|
|
54,507 |
|
|
|
41,598 |
|
|
|
143,451 |
|
|
|
122,319 |
|
Gross profit |
|
|
19,265 |
|
|
|
17,691 |
|
|
|
49,585 |
|
|
|
44,620 |
|
|
|
|
|
|
|
|
Marketing, engineering and
administrative expenses |
|
|
14,626 |
|
|
|
14,396 |
|
|
|
45,688 |
|
|
|
42,753 |
|
Restructuring expenses |
|
|
33 |
|
|
|
303 |
|
|
|
208 |
|
|
|
1,542 |
|
Other operating (income)
loss |
|
|
1 |
|
|
|
(63 |
) |
|
|
(4,149 |
) |
|
|
(2,957 |
) |
Income from operations |
|
|
4,605 |
|
|
|
3,055 |
|
|
|
7,838 |
|
|
|
3,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
522 |
|
|
|
490 |
|
|
|
1,682 |
|
|
|
1,594 |
|
Other expense (income), net |
|
|
785 |
|
|
|
(498 |
) |
|
|
1,834 |
|
|
|
(608 |
) |
|
|
|
1,307 |
|
|
|
(8 |
) |
|
|
3,516 |
|
|
|
986 |
|
Income before income taxes and
noncontrolling interest |
|
|
3,298 |
|
|
|
3,063 |
|
|
|
4,322 |
|
|
|
2,296 |
|
Income tax expense |
|
|
548 |
|
|
|
753 |
|
|
|
2,349 |
|
|
|
1,757 |
|
|
|
|
|
|
|
|
Net income |
|
|
2,750 |
|
|
|
2,310 |
|
|
|
1,973 |
|
|
|
539 |
|
Less: Net earnings attributable
to noncontrolling interest, net of tax |
|
|
(76 |
) |
|
|
(79 |
) |
|
|
(188 |
) |
|
|
(223 |
) |
Net income attributable to Twin
Disc |
|
$ |
2,674 |
|
|
$ |
2,231 |
|
|
$ |
1,785 |
|
|
$ |
316 |
|
|
|
|
|
|
|
|
Income per share data: |
|
|
|
|
|
|
Basic income per share attributable to Twin Disc common
shareholders |
|
$ |
0.20 |
|
|
$ |
0.17 |
|
|
$ |
0.13 |
|
|
$ |
0.02 |
|
Diluted income per share attributable to Twin Disc common
shareholders |
|
$ |
0.20 |
|
|
$ |
0.17 |
|
|
$ |
0.13 |
|
|
$ |
0.02 |
|
|
|
|
|
|
|
|
Weighted average shares
outstanding data: |
|
|
|
|
|
|
Basic shares outstanding |
|
|
13,504 |
|
|
|
13,397 |
|
|
|
13,455 |
|
|
|
13,339 |
|
Diluted shares outstanding |
|
|
13,662 |
|
|
|
13,457 |
|
|
|
13,608 |
|
|
|
13,373 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
Net income |
|
$ |
2,750 |
|
|
$ |
2,310 |
|
|
$ |
1,973 |
|
|
$ |
539 |
|
Benefit plan adjustments, net of income taxes of $1, $4, $5, and
$4, respectively |
|
|
578 |
|
|
|
505 |
|
|
|
581 |
|
|
|
1,512 |
|
Foreign currency translation adjustment |
|
|
1,014 |
|
|
|
(2,721 |
) |
|
|
3,117 |
|
|
|
(6,359 |
) |
Unrealized gain on cash flow hedge, net of income taxes of $0, $0,
$0, and $0, respectively |
|
|
(224 |
) |
|
|
810 |
|
|
|
(26 |
) |
|
|
1,748 |
|
Comprehensive income |
|
|
4,118 |
|
|
|
904 |
|
|
|
5,645 |
|
|
|
(2,560 |
) |
Less: Comprehensive income attributable to noncontrolling
interest |
|
|
67 |
|
|
|
38 |
|
|
|
277 |
|
|
|
235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Twin Disc |
|
$ |
4,185 |
|
|
$ |
942 |
|
|
$ |
5,922 |
|
|
$ |
(2,325 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RECONCILIATION OF CONSOLIDATED NET INCOME TO
EBITDA |
(In thousands; unaudited) |
|
|
|
|
|
|
For the Quarter Ended |
For the Three Quarters Ended |
|
|
|
March 31, |
|
|
March 25, |
|
|
March 31, |
|
|
March 25, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to
Twin Disc |
|
$ |
2,674 |
|
$ |
2,231 |
|
$ |
1,785 |
|
$ |
316 |
Interest expense |
|
|
522 |
|
|
490 |
|
|
1,682 |
|
|
1,594 |
Income tax expense |
|
|
548 |
|
|
753 |
|
|
2,349 |
|
|
1,757 |
Depreciation and amortization |
|
|
2,670 |
|
|
2,112 |
|
|
6,936 |
|
|
7,317 |
Earnings before interest, taxes,
depreciation and amortization |
|
$ |
6,414 |
|
$ |
5,586 |
|
$ |
12,752 |
|
$ |
10,984 |
|
|
|
|
|
|
RECONCILIATION OF TOTAL DEBT TO NET DEBT |
(In thousands; unaudited) |
|
|
|
|
|
March 31, |
|
June 30, |
|
|
2023 |
|
2022 |
Current maturities of long-term debt |
|
$ |
2,000 |
|
$ |
2,000 |
Long-term debt |
|
|
29,276 |
|
|
34,543 |
Total debt |
|
|
31,276 |
|
|
36,543 |
Less cash |
|
|
14,024 |
|
|
12,521 |
|
|
|
|
|
|
|
Net debt |
|
$ |
17,252 |
|
$ |
24,022 |
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands; except share amounts, unaudited) |
|
|
|
|
|
|
March 31, |
|
June 30, |
|
|
|
2023 |
|
|
|
2022 |
|
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
14,024 |
|
|
$ |
12,521 |
|
Trade accounts receivable, net |
|
|
44,438 |
|
|
|
45,452 |
|
Inventories |
|
|
136,153 |
|
|
|
127,109 |
|
Assets held for sale |
|
|
2,968 |
|
|
|
2,968 |
|
Prepaid expenses |
|
|
10,025 |
|
|
|
7,756 |
|
Other |
|
|
8,341 |
|
|
|
8,646 |
|
|
|
|
|
Total current assets |
|
|
215,949 |
|
|
|
204,452 |
|
|
|
|
|
Property, plant and equipment,
net |
|
|
40,700 |
|
|
|
41,615 |
|
Right-of-use assets operating
leases |
|
|
12,415 |
|
|
|
12,685 |
|
Intangible assets, net |
|
|
11,239 |
|
|
|
13,010 |
|
Deferred income taxes |
|
|
2,542 |
|
|
|
2,178 |
|
Other assets |
|
|
2,668 |
|
|
|
2,583 |
|
|
|
|
|
TOTAL ASSETS |
|
$ |
285,513 |
|
|
$ |
276,523 |
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current maturities of long-term debt |
|
$ |
2,000 |
|
|
$ |
2,000 |
|
Accounts payable |
|
|
29,726 |
|
|
|
28,536 |
|
Accrued liabilities |
|
|
56,886 |
|
|
|
50,542 |
|
|
|
|
|
Total current liabilities |
|
|
88,612 |
|
|
|
81,078 |
|
|
|
|
|
Long-term debt, less current
maturities |
|
|
29,276 |
|
|
|
34,543 |
|
Lease obligations |
|
|
9,897 |
|
|
|
10,575 |
|
Accrued retirement benefits |
|
|
10,315 |
|
|
|
9,974 |
|
Deferred income taxes |
|
|
3,391 |
|
|
|
3,802 |
|
Other long-term liabilities |
|
|
5,403 |
|
|
|
5,363 |
|
|
|
|
|
Total liabilities |
|
|
146,894 |
|
|
|
145,335 |
|
|
|
|
|
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 |
|
|
42,145 |
|
|
|
42,551 |
|
Retained earnings |
|
|
136,815 |
|
|
|
135,031 |
|
Accumulated other comprehensive
loss |
|
|
(28,503 |
) |
|
|
(32,086 |
) |
|
|
|
150,457 |
|
|
|
145,496 |
|
Less treasury stock, at cost (818,115 and 960,459 shares,
respectively) |
|
|
12,527 |
|
|
|
14,720 |
|
|
|
|
|
Total Twin Disc shareholders' equity |
|
|
137,930 |
|
|
|
130,776 |
|
|
|
|
|
Noncontrolling interest |
|
|
689 |
|
|
|
412 |
|
Total equity |
|
|
138,619 |
|
|
|
131,188 |
|
|
|
|
|
TOTAL LIABILITIES AND EQUITY |
|
$ |
285,513 |
|
|
$ |
276,523 |
|
|
|
|
|
|
|
|
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS |
(In thousands; unaudited) |
|
|
|
|
|
For the Three Quarters Ended |
|
|
|
March 31, |
|
|
|
March 25, |
|
|
|
|
2023 |
|
|
|
2022 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,973 |
|
|
$ |
539 |
|
Adjustments to reconcile net income to net cash provided (used) by
operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
6,936 |
|
|
|
7,317 |
|
Gain on sale of assets |
|
|
(4,237 |
) |
|
|
(2,939 |
) |
Restructuring expenses |
|
|
(54 |
) |
|
|
(487 |
) |
Provision for deferred income taxes |
|
|
(1,462 |
) |
|
|
(1,383 |
) |
Stock compensation expense and other non-cash charges, net |
|
|
2,355 |
|
|
|
2,642 |
|
Net change in operating assets and liabilities |
|
|
1,348 |
|
|
|
(12,912 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided (used) by
operating activities |
|
|
6,859 |
|
|
|
(7,223 |
) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Acquisition of property, plant, and equipment |
|
|
(6,810 |
) |
|
|
(2,371 |
) |
Proceeds from sale of fixed assets |
|
|
7,177 |
|
|
|
9,152 |
|
Proceeds on note receivable |
|
|
- |
|
|
|
500 |
|
Other, net |
|
|
199 |
|
|
|
465 |
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing
activities |
|
|
566 |
|
|
|
7,746 |
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
|
|
Borrowings under revolving loan arrangements |
|
|
65,862 |
|
|
|
78,142 |
|
Repayments of revolving loan arrangements |
|
|
(69,823 |
) |
|
|
(73,192 |
) |
Repayments of other long-term debt |
|
|
(1,534 |
) |
|
|
(2,063 |
) |
Payments of finance lease obligations |
|
|
(204 |
) |
|
|
(726 |
) |
Payments of withholding taxes on stock compensation |
|
|
(463 |
) |
|
|
(487 |
) |
|
|
|
|
|
|
|
|
|
Net cash (used) provided by
financing activities |
|
|
(6,162 |
) |
|
|
1,674 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
on cash |
|
|
240 |
|
|
|
(1,712 |
) |
|
|
|
|
|
|
|
|
|
Net change in cash |
|
|
1,503 |
|
|
|
485 |
|
|
|
|
|
|
|
|
|
|
Cash: |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
12,521 |
|
|
|
12,340 |
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
14,024 |
|
|
$ |
12,825 |
|
|
Investors: Clermont PartnersTwinDiscIR@clermontpartners.com
Source: Twin Disc, Incorporated
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