Twin Disc, Inc. (NASDAQ: TWIN), today
reported financial results for the fiscal 2023 first quarter ended
September 30, 2022.
Sales for the fiscal 2023 first quarter were
$55.9 million, compared to $47.8 million for the same period last
year. The 17.1% increase in 2023 first quarter sales was primarily
due to improving demand within the Company’s global oil and gas,
industrial and marine markets compared to the same period last
fiscal year. The positive impact of improving market conditions was
partially offset by global supply chain challenges, which continued
to limit sales growth during the fiscal 2023 first quarter. Foreign
currency exchange had a $4.8 million negative impact on fiscal 2023
first quarter sales. On a constant currency1 basis first quarter
sales increased 27.2%. The strengthening of the U.S.
dollar has also negatively impacted the Company’s competitiveness
on U.S. produced goods sold into Europe.
John H. Batten, President and Chief Executive
Officer, commented: “Trends across our global markets are
recovering, and helped drive solid year-over-year sales growth
during the first quarter, despite continued supply chain issues and
the impact of foreign currency exchange rates. Continued supply
chain challenges and higher component costs had a material impact
on our European operations’ profitability during the first quarter.
We are taking quick and decisive actions to improve performance,
focusing resources on supply chain issues and reducing our European
cost structure. We expect these actions will improve our gross
profit margin throughout the remainder of fiscal year 2023.”
“Our six-month backlog at September 30, 2022,
was $108.9 million, compared to $86.1 million at September 24,
2021, and $101.2 million at June 30, 2022. Our growing backlog is
supported by strengthening demand across many of our global markets
as well as new, market-leading transmission and power control
systems for hybrid, hydrogen, and electric vehicle applications. In
addition, we continue to anticipate renewed investments from North
American pressure pumping operators will benefit our financial
results during fiscal year 2023. While we are disappointed by first
quarter profitability, we expect sales and profitability to improve
throughout the remainder of the year and we believe fiscal 2023
will be a year of robust sales growth and higher profitability,”
concluded Mr. Batten.
Gross profit percent for the fiscal 2023 first
quarter was 23.8%, compared to 28.2% in the fiscal 2022 first
quarter. However, fiscal 2022 first quarter gross profit margin
included the favorable impact of the Employee Retention Credit
(“ERC”), a COVID-19 relief program of the U.S. government, recorded
in the fiscal 2022 first quarter of $1.3 million, the impact of the
NOW subsidy of $0.7 million, a COVID-19 relief program of the
Netherlands government and a favorable adjustment to the Company’s
warranty reserve ($0.5 million). Adjusting for these items, the
prior year gross profit percent would have been 22.9%. The slight
improvement in the current year first quarter reflects the impact
of additional volume and strong North American demand for oil and
gas related products, partially offset by the negative impact of
inflation, primarily at our European operations.
For the fiscal 2023 first quarter, marketing,
engineering and administrative (ME&A) expenses increased $2.0
million to $15.1 million, compared to $13.1 million for the fiscal
2022 first quarter. The increase in ME&A expenses in the
quarter was primarily due to the incremental impact of prior year
COVID subsidies in the U.S. and the Netherlands ($0.8 million),
increased marketing activities ($0.4 million), higher salary
expense ($0.5 million), the accrual for the global bonus program
($0.3 million), travel costs ($0.2 million), professional fees
($0.3 million) and other inflationary impacts ($0.4 million). These
increases were partially offset by a foreign currency translation
impact of $0.9 million. As a percent of revenues,
ME&A expenses decreased to 27.0% for the fiscal 2023 first
quarter, compared to 27.4% for the same period last year.
During the fiscal 2022 first quarter, Twin Disc
completed a sale leaseback of its Rolla production facility in
Switzerland for net proceeds of $9.1 million, which resulted in a
gain of $2.9 million and was recorded in other operating income for
the full year period.
The fiscal 2023 first quarter effective tax rate
was 26.3% compared to 16.2% in the prior fiscal year first quarter.
The mix of foreign earnings by jurisdiction resulted in the
increase to the effective tax rate.
Net loss attributable to Twin Disc for the
fiscal 2023 first quarter was ($2.0) million or ($0.15) per share,
compared to net income attributable to Twin Disc of $1.9 million or
$0.14 per diluted share for the prior fiscal year first
quarter.
Earnings before interest, taxes, depreciation,
and amortization (EBITDA)* was essentially break even for the
fiscal 2023 first quarter, compared to $5.4 million for the fiscal
2022 first quarter.
Jeffrey S. Knutson, Vice President – Finance,
Chief Financial Officer, Treasurer and Secretary stated,
“Challenging supply chain and shipping conditions continued to
impact inventory levels during the first quarter, and reducing
inventory is a key priority during fiscal 2023. We continue to
believe we will generate higher levels of positive operating cash
flow during fiscal 2023 as our growing backlog converts to sales,
we pursue actions that improve profitability and ease supply chain
challenges. As free cash flow is expected to improve during the
remainder of fiscal 2023, we will allocate capital to pay down
debt, strengthen our balance sheet, and invest in our operations
and growth initiatives.”
Twin Disc will be hosting a conference call to
discuss these results and to answer questions at 11:00 a.m. Eastern
Time on November 4, 2022. To participate in the conference call,
please dial 1-877-407-9039 five to ten minutes before the call is
scheduled to begin. A replay will be available from 2:00 p.m.
November 4, 2022, until midnight November 11, 2022. The number to
hear the teleconference replay is 1-844-512-2921. The access code
for the replay is 13734019.
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 webcast 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.
Definition – Constant CurrencyThe current
quarter revenue in local currency translated into U.S. dollars
using the same translation rate as the prior year comparable
period.
1 Constant currency is a non-GAAP financial
measure described more fully later in this release.
--Financial Results Follow--
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ANDCOMPREHENSIVE (LOSS) INCOME(In
thousands, except per-share data; unaudited) |
|
For the Quarter Ended |
|
September 30,2022 |
September 24,2021 |
Net sales |
$ |
55,913 |
|
$ |
47,761 |
|
Cost of goods sold |
|
42,616 |
|
|
34,314 |
|
Gross profit |
|
13,297 |
|
|
13,447 |
|
Marketing, engineering
and administrative expenses |
|
15,079 |
|
|
13,091 |
|
Restructuring expenses |
|
11 |
|
|
48 |
|
Other operating income |
|
- |
|
|
(2,939) |
|
(Loss) income from
operations |
|
(1,793) |
|
|
3,247 |
|
|
|
|
|
|
|
|
Interest expense |
|
566 |
|
|
530 |
|
Other (income) expense, net |
|
260 |
|
|
355 |
|
(Loss) income before income
taxes and noncontrolling interest |
|
(2,619) |
|
|
2,362 |
|
Income tax (benefit) expense |
|
(688) |
|
|
382 |
|
|
|
|
|
|
|
|
Net (loss) income |
|
(1,931) |
|
|
1,980 |
|
Less: Net earnings attributable
to noncontrolling interest, net of tax |
|
(98) |
|
|
(60) |
|
Net (loss) income attributable
to Twin Disc |
$ |
(2,029) |
|
$ |
1,920 |
|
(Loss) income per share
data: |
|
|
|
|
|
|
Basic (loss) income per share |
$ |
(0.15) |
|
$ |
0.14 |
|
Diluted (loss) income per share |
$ |
(0.15) |
|
$ |
0.14 |
|
Weighted average shares
outstanding data: |
|
|
|
|
|
|
Basic shares outstanding |
|
13,407 |
|
|
13,283 |
|
Diluted shares outstanding |
|
13,407 |
|
|
13,350 |
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
Net (loss) income |
$ |
(1,931) |
|
$ |
1,980 |
|
Benefit plan adjustments, net of income taxes of $1 and $117,
respectively |
|
518 |
|
|
384 |
|
Foreign currency translation adjustment |
|
(6,290) |
|
|
(1,938) |
|
Unrealized gain on cash flow hedges, net of income taxes of $0 and
$63, respectively |
|
793 |
|
|
204 |
|
Comprehensive (loss) income |
|
(6,910) |
|
|
630 |
|
Less: Comprehensive income (loss) attributable to noncontrolling
interest |
|
136 |
|
|
(136) |
|
Comprehensive (loss) income
attributable to Twin Disc |
$ |
(6,774) |
|
$ |
494 |
|
RECONCILIATION OF CONSOLIDATED NET (LOSS)
INCOME TO EBITDA(In thousands; unaudited)
|
For the Quarter Ended |
|
September 30,2022 |
September 24,2021 |
Net (loss) income attributable to Twin Disc |
$ |
(2,029) |
|
$ |
1,920 |
Interest expense |
|
566 |
|
|
530 |
Income taxes (benefit) |
|
(688) |
|
|
382 |
Depreciation and amortization |
|
2,140 |
|
|
2,550 |
Earnings (loss) before interest,
taxes, depreciation and amortization |
$ |
(11) |
|
$ |
5,382 |
CONDENSED CONSOLIDATED BALANCE SHEETS |
(In thousands; unaudited) |
|
|
|
|
September 30, |
June 30, |
|
|
2022 |
|
|
2022 |
|
ASSETS |
|
|
Current assets: |
|
|
Cash |
$ |
13,214 |
|
$ |
12,521 |
|
Trade accounts receivable, net |
|
40,007 |
|
|
45,452 |
|
Inventories |
|
128,100 |
|
|
127,109 |
|
Assets held for sale |
|
5,769 |
|
|
2,968 |
|
Prepaid expenses |
|
8,207 |
|
|
7,756 |
|
Other |
|
6,521 |
|
|
8,646 |
|
Total current assets |
|
201,818 |
|
|
204,452 |
|
|
|
|
|
|
|
|
Property, plant and equipment,
net |
|
38,989 |
|
|
41,615 |
|
Right-of-use assets operating
leases |
|
11,492 |
|
|
12,685 |
|
Intangible assets, net |
|
11,560 |
|
|
13,010 |
|
Deferred income taxes |
|
2,846 |
|
|
2,178 |
|
Other assets |
|
2,846 |
|
|
2,583 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ |
269,551 |
|
$ |
276,523 |
|
|
|
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current maturities of long-term debt |
$ |
2,000 |
|
$ |
2,000 |
|
Accounts payable |
|
30,706 |
|
|
28,536 |
|
Accrued liabilities |
|
49,158 |
|
|
50,542 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
81,864 |
|
|
81,078 |
|
|
|
|
|
|
|
|
Long-term debt |
|
35,112 |
|
|
34,543 |
|
Lease obligations |
|
9,483 |
|
|
10,575 |
|
Accrued retirement benefits |
|
9,860 |
|
|
9,974 |
|
Deferred income taxes |
|
3,422 |
|
|
3,802 |
|
Other long-term liabilities |
|
5,042 |
|
|
5,363 |
|
|
|
|
|
|
|
|
Total liabilities |
|
144,783 |
|
|
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 |
|
41,285 |
|
|
42,551 |
|
Retained earnings |
|
133,002 |
|
|
135,031 |
|
Accumulated other comprehensive
loss |
|
(37,103) |
|
|
(32,086) |
|
|
|
137,184 |
|
|
145,496 |
|
Less treasury stock, at cost (845,670 and 974,978 shares,
respectively) |
|
12,964 |
|
|
14,720 |
|
|
|
|
|
|
|
|
Total Twin Disc shareholders' equity |
|
124,220 |
|
|
130,776 |
|
|
|
|
|
|
|
|
Noncontrolling interest |
|
548 |
|
|
412 |
|
Total equity |
|
124,768 |
|
|
131,188 |
|
TOTAL LIABILITIES AND EQUITY |
$ |
269,551 |
|
$ |
276,523 |
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In
thousands; unaudited) |
|
|
|
|
|
|
|
For the Quarter Ended |
|
September 30,2022 |
September 24,2021 |
|
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES: |
|
|
Net (loss) income |
$ |
(1,931) |
|
$ |
1,980 |
|
Adjustments to reconcile net (loss) income to net cash (used)
provided by operating activities, net of acquired assets: |
|
|
|
|
|
|
Depreciation and amortization |
|
2,140 |
|
|
2,550 |
|
Gain on sale of assets |
|
(42) |
|
|
(2,939) |
|
Restructuring expenses |
|
(68) |
|
|
(125) |
|
Provision for deferred income taxes |
|
(1,623) |
|
|
(814) |
|
Stock compensation expense and other non-cash changes, net |
|
864 |
|
|
937 |
|
Net change in operating assets and liabilities |
|
(36) |
|
|
785 |
|
Net cash (used) provided by
operating activities |
|
(696) |
|
|
2,374 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING
ACTIVITIES: |
|
|
|
|
|
|
Acquisitions of property, plant and equipment |
|
(2,237) |
|
|
(846) |
|
Proceeds from sale of fixed assets |
|
2 |
|
|
9,139 |
|
Proceed on note receivable |
|
- |
|
|
500 |
|
Other, net |
|
534 |
|
|
(81) |
|
Net cash (used) provided by
investing activities |
|
(1,701) |
|
|
8,712 |
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES: |
|
|
|
|
|
|
Borrowings under revolving loan arrangement |
|
20,221 |
|
|
20,591 |
|
Repayments under revolver loans |
|
(18,685) |
|
|
(20,591) |
|
Repayments of other long-term debt |
|
(651) |
|
|
(278) |
|
Payments of withholding taxes on stock compensation |
|
(168) |
|
|
(292) |
|
Net cash provided (used) by
financing activities |
|
717 |
|
|
(570) |
|
|
|
|
|
|
|
|
Effect of exchange rate changes
on cash |
|
2,373 |
|
|
(764) |
|
|
|
|
|
|
|
|
Net change in cash |
|
693 |
|
|
9,752 |
|
|
|
|
|
|
|
|
Cash: |
|
|
|
|
|
|
Beginning of period |
|
12,521 |
|
|
12,340 |
|
|
|
|
|
|
|
|
End of period |
$ |
13,214 |
|
$ |
22,092 |
|
Contact: Jeffrey S. Knutson(262) 638-4242
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