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CST: 18/08/2019 20:27:26   

Twin Disc, Inc. Announces Fiscal 2019 Third Quarter Financial Results

104 Days ago

• Q3 Net Sales Increase 18.5% to $77,420,000, Including the Benefits of the Veth Propulsion Acquisition
• Net Income of $4,560,000 Increases 5.8% Versus the Prior Year Period
• Q3 EBITDA of $9,965,000 Increases 39.1% Versus the Prior Year Period
• Sale of Mill Log for $7,658,000 Completed in Third Quarter
• Investments Focused on Creating Additional Capacity and Improving Efficiency

RACINE, Wis., May 06, 2019 (GLOBE NEWSWIRE) -- Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results for the fiscal 2019 third quarter ended March 29, 2019. 

Sales for the fiscal 2019 third quarter increased to $77,420,000, from $65,349,000 for the same period last year.  The 18.5% increase in 2019 third quarter sales was primarily due to the contribution from the Veth Propulsion acquisition, stable demand for the Company’s oil and gas transmission systems and aftermarket components from North American fracking customers, and improved activity in the global industrial and commercial marine markets. Year-to-date, sales were $230,216,000, compared to $166,960,000 for the fiscal 2018 nine months. 

Commenting on the results, John H. Batten, President and Chief Executive Officer, said: “Financial results continue to improve from the prior fiscal year period as a result of the contribution of the Veth acquisition and stable demand across most of our global markets.  Significant supply chain challenges contributed to reduced efficiencies and impacted shipments during the third quarter.  We are focused on implementing operational improvements, which include investments in equipment, people, and suppliers.”

“During the third quarter we sold Mill Log, our distributor in the Pacific Northwest and Western Canada, to further focus our efforts on product development, engineering and customer support.  We also broke ground on a new 50,000 square foot operations facility in Lufkin, Texas, which is expected to open in January 2020 and will expand our production capacity and capabilities.  It will take a couple of quarters for these investments to be implemented, but once fully operational we believe efficiencies will expand as we improve our manufacturing, supply chain, and distribution / logistics infrastructure,” continued Mr. Batten. 

Gross profit for the fiscal 2019 third quarter was 29.9%, compared to 31.9% in the fiscal 2018 third quarter.  The 200-basis point decrease in gross profit percent for the fiscal 2019 third quarter compared to the fiscal 2018 third quarter was primarily due to a less profitable mix of revenues and reduced operating efficiencies.  Year-to-date, gross profit was 31.8%, compared to 31.8% for the fiscal 2018 nine months. 

For the fiscal 2019 third quarter, marketing, engineering and administrative (ME&A) expenses grew $2,826,000 to $17,375,000.  The 19.4% increase in ME&A expenses in the quarter was primarily due to the addition of Veth Propulsion, including the amortization of purchase accounting intangibles of $708,000. Other changes included increased professional fees, salaries, travel and marketing expenses related to the Veth Propulsion acquisition.  These increases were offset by reduced global bonus expense and a foreign exchange impact.  As a percent of revenues, ME&A expenses were 22.4% for the fiscal 2019 third quarter, compared to 22.3% for the same period last fiscal year.  Year-to-date, ME&A expenses were $55,269,000, compared to $43,013,000 for the fiscal 2018 nine-month period. As a percent of revenues, year-to-date ME&A expenses declined 180 basis points to 24.0%, compared to 25.8% for the same period last fiscal year.

Twin Disc recorded restructuring charges of $131,000 in the fiscal 2019 third quarter, compared to restructuring charges of $452,000 in the same period last fiscal year. Restructuring activities during the fiscal 2019 third quarter related primarily to ongoing cost reduction and productivity actions at the Company’s European operations.  Year-to-date, the Company recorded restructuring charges of $738,000, compared to $2,501,000 for the same period last fiscal year.

The Company reported $1,357,000 in other operating income during the fiscal 2019 third quarter, which was associated with a gain on the sale of Mill Log and the reversal of certain accruals associated with the Veth Propulsion acquisition.

The fiscal 2019 third quarter tax rate of 23.9%, compared to 20.7% for the fiscal 2018 third quarter, is reflective of the jurisdictional mix of earnings.  There were no material discrete tax adjustments in the quarter for fiscal 2019 or 2018.  

Net income attributable to Twin Disc for the fiscal 2019 third quarter was $4,560,000, or $0.34 per diluted share, compared to net income attributable to Twin Disc of $4,308,000, or $0.37 per diluted share, for the fiscal 2018 third quarter.  Year-to-date, net income attributable to Twin Disc was $11,494,000, or $0.90 per diluted share, compared to net income attributable to Twin Disc of $3,586,000, or $0.31 per diluted share, for the fiscal 2018 nine months. 

Earnings before interest, taxes, depreciation and amortization (EBITDA)* were $9,965,000 for the fiscal 2019 third quarter, compared to $7,166,000 for the fiscal 2018 third quarter.  For the fiscal 2019 nine-month period, EBITDA was $27,054,000 compared to $11,122,000 for the fiscal 2018 comparable period. 

Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary stated, “While our balance sheet remains strong, we did not experience the meaningful reductions in inventory and working capital levels we expected as a result of the third quarter’s execution issues.  As our operational improvements progress, we expect reduced inventory and working capital levels in the fourth quarter and on a year-over-year basis next fiscal year.  As part of our strategies to improve our operations, we are making additional investments to upgrade our manufacturing capabilities and improve both quality and efficiencies.  Year-to-date, we have invested $8,911,000 in capital expenditures and expect to invest approximately $14,000,000 in capital expenditures in total during fiscal 2019.”

Mr. Batten concluded, “Our six-month backlog at March 29, 2019, was $113,703,000, which includes the contribution of the Veth Propulsion acquisition, compared to $114,979,000 at June 30, 2018, and $116,292,000 at March 30, 2018.  Our strategies to expand and diversify our end markets, product categories, and geographies are taking hold and have created a more stable business platform.  However, further investments are needed to support current and future demand.  Improving our operations is a key component to our strategy over the next 12 months.  As part of this effort, in May we will be moving into a new leased aftermarket warehouse, allowing for more capacity and improved efficiencies in our Racine manufacturing facility.  Veth Propulsion continues to meet expectations and benefit our financial and operating results.  We look forward to ending the year on a strong note and I am encouraged with the positive trends in our business and end markets.”

Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:00 a.m. Eastern Time on May 6, 2019. To participate in the conference call, please dial 800-263-0877 five to ten minutes before the call is scheduled to begin. A replay will be available from 2:00 p.m. May 6, 2019 until midnight May 13, 2019. The number to hear the teleconference replay is 844-512-2921. The access code for the replay is 8208862.

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.

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
(In thousands, except per-share data; unaudited)
 
  Quarter Ended   Three Quarters Ended
  March 29,   March 30,   March 29,   March 30,
  2019   2018   2019   2018
Net sales $   77,420     $   65,349     $   230,216     $   166,960  
Cost of goods sold     54,303         44,527         157,026         113,922  
Gross profit   23,117       20,822       73,190       53,038  
           
           
Marketing, engineering and administrative expenses   17,375       14,549       55,269       43,013  
Restructuring expenses     131         452         738         2,501  
Other operating income     (1,357 )       -         (1,357 )       -  
Income from operations   6,968       5,821       18,540       7,524  
                               
Interest expense   449       80       1,583       227  
Other expense, net     490         272         1,608         1,206  
                               
Income before income taxes and noncontrolling interest   6,029       5,469       15,349       6,091  
Income tax expense     1,442         1,133         3,780         2,401  
           
Net income   4,587       4,336       11,569       3,690  
Less: Net earnings attributable to noncontrolling interest, net of tax     (27 )       (28 )       (75 )       (104 )
Net income attributable to Twin Disc $   4,560     $   4,308     $   11,494     $   3,586  
           
Net income per share data:          
Basic net income per share attributable to Twin Disc common shareholders $ 0.35     $ 0.37     $ 0.91     $ 0.31  
Diluted net income per share attributable to Twin Disc common shareholders $ 0.34     $ 0.37     $ 0.90     $ 0.31  
           
Weighted average shares outstanding data:          
Basic shares outstanding   12,914       11,313       12,437       11,289  
Diluted shares outstanding   13,146       11,344       12,652       11,320  
           
Comprehensive income          
Net income $   4,587     $   4,336     $   11,569     $   3,690  
Benefit plan adjustments, net of taxes of $146, $212, $437, and $1,164, respectively     478         474         1,427         2,682  
Foreign currency translation adjustment     (869 )       1,849         (3,217 )       4,878  
Comprehensive income   4,196       6,659       9,779       11,250  
Less: Comprehensive income attributable to noncontrolling interest   (44 )     (26 )     (52 )     (95 )
                               
Comprehensive income attributable to Twin Disc $ 4,152     $ 6,633     $ 9,727     $ 11,155  


 
RECONCILIATION OF CONSOLIDATED NET EARNINGS TO EBITDA
(In thousands; unaudited)
     
  Quarter Ended Three Quarters Ended
  March 29, March 30, March 29, March 30,
  2019 2018 2019 2018
                       
Net income attributable to Twin Disc $   4,560   $   4,308   $   11,494   $   3,586
Interest expense   449     80     1,583     227
Income taxes   1,442     1,133     3,780     2,401
Depreciation and amortization     3,514       1,645       10,197       4,908
Earnings before interest, taxes, depreciation and amortization $   9,965   $   7,166   $   27,054   $   11,122


 
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands; unaudited)
     
  March 29, June 30,
  2019  2018
ASSETS    
Current assets:    
Cash $   15,757     $   15,171  
Trade accounts receivable, net     48,207         45,422  
Inventories     128,168         84,001  
Prepaid expenses     7,591         8,423  
Other   8,591       6,252  
     
Total current assets   208,314       159,269  
     
Property, plant and equipment, net   67,422       55,467  
Goodwill, net   26,672       2,692  
Intangible assets, net   23,114       1,906  
Deferred income taxes   15,313       18,056  
Other assets   3,989       3,850  
     
TOTAL ASSETS $ 344,824     $ 241,240  
     
LIABILITIES AND EQUITY    
Current liabilities:    
Current maturities of long-term debt $   2,000     $   -  
Accounts payable     27,825         29,368  
Accrued liabilities   39,512       32,976  
     
Total current liabilities   69,337       62,344  
     
Long-term debt   47,280       4,824  
Lease obligations   13,325       6,527  
Accrued retirement benefits   19,172       21,068  
Deferred income taxes   6,971       1,203  
Other long-term liabilities   2,097       1,658  
     
Total liabilities   158,182       97,624  
     
Twin Disc shareholders’ equity:    
Preferred shares authorized: 200,000; issued: none; no par value   -       -  
Common shares authorized: 30,000,000;              
Issued: 14,632,802 and 13,098,468, respectively; no par value   44,755       11,570  
Retained earnings   197,293       178,896  
Accumulated other comprehensive loss   (32,462 )     (23,792 )
    209,586       166,674  
Less treasury stock, at cost              
(1,534,290 and 1,545,783 shares, respectively)   23,500       23,677  
     
Total Twin Disc shareholders' equity   186,086       142,997  
     
Noncontrolling interest   556       619  
Total equity   186,642       143,616  
     
TOTAL LIABILITIES AND EQUITY $ 344,824     $ 241,240  


 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)
  For the Three Quarters Ended
  March 29, March 30,
  2019 2018
     
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net income $   11,569     $   3,690  
Adjustments to reconcile net income to net cash (used) provided    
by operating activities, net of acquired assets:    
Depreciation and amortization   6,974       4,908  
Amortization of inventory fair value step-up   3,223       -  
Restructuring expenses   28       162  
Gain on sale of Mill Log   (865 )     -  
Gain on contingent consideration of Veth Propulsion acquisition   (492 )     -  
Provision for deferred income taxes   1,158       3,455  
Stock compensation expense and other non-cash changes, net   2,123       1,330  
Net change in operating assets and liabilities   (35,876 )     (12,544 )
Net cash (used) provided by operating activities   (12,158 )     1,001  
     
CASH FLOWS FROM INVESTING ACTIVITIES:    
Proceeds from sale of Mill Log   5,158       -  
Acquisition of Veth Propulsion, less cash acquired   (60,195 )     -  
Acquisitions of fixed assets   (8,911 )     (4,354 )
Proceeds from sale of fixed assets   145       141  
Other, net   (229 )     (129 )
Net cash used by investing activities     (64,032 )       (4,342 )
     
CASH FLOWS FROM FINANCING ACTIVITIES:    
     
Proceeds from issuance of common stock, net   32,210       -  
Borrowings under long-term debt arrangement   44,151       -  
Borrowings under revolving loan arrangement   123,904       54,415  
Proceeds from exercise of stock options   36       -  
Repayments of revolver loans   (99,156 )     (53,138 )
Repayments of long-term borrowings   (23,872 )     -  
Dividends paid to noncontrolling interest    (115 )      (172 )
Payments of withholding taxes on stock compensation     (926 )       (422 )
Net cash provided by financing activities     76,232         683  
     
Effect of exchange rate changes on cash     544         1,406  
     
Net change in cash   586       (1,252 )
     
Cash:    
     
Beginning of period     15,171         16,367  
     
End of period $   15,757     $   15,115  
               

Contact: Jeffrey S. Knutson
(262) 638-4242

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