TWIN - Earnings call transcript Q1 2018

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Operator

Good day and welcome to the Twin Disc Inc. Fiscal First Quarter 2018 Investor Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stan Berger of SM Berger. sir. ahead, go Please

Stan Berger

joining On outlook. pleased the the that our financial you participate Brian. fiscal the Disc, first XXXX time of we’re in quarter for thank and extremely you and call, to behalf you, discuss management company’s business of results Twin to us Thank have taken

or especially statements the those course expectations of Before I like for forward-looking would hopes, during I predictions state statements. to remind intentions, conference company’s such materially are made It call, those results future introduce management, everyone that management's from that remember could differ in forward-looking certain important is the this actual that beliefs, projected statements. the to

those Annual SEC. in opened. issued the you by forward-looking contained before received factors in on be which company are was Report or the information the morning By release news results cause Additional concerning from that statements market company’s XX-K, could either the which the this obtained may a the now, materially copies Form contacting copy of of have actual to should differ

the have will you to Secretary. the a received this If Disc's Twin Hosting Annette over and At please Executive John Vice John and call President, turn company’s you. of to time, are call Batten, send the today Batten. copy Financial President John? Treasurer and Officer, XXX-XXX-XXXX, Chief a Mianecki at Knutson, I Chief call Officer; not she copy, Jeff will Finance,

John Batten

everyone. first conference quarter good Thank XXXX you, call. Stan, Welcome to morning fiscal our and

take I a Jeff your will to short happy As summary usual statement and with we questions. then will be begin and

take few from over to the go and some just quarter like highlights first Before Jeff moments the goes results, quarter. market a operational of to the I over would

But it in the construction equipment. new our we add fleet hydraulic which demand serve also end of take-offs year-over-year the nice and backlog in American products. for higher of in improved widespread quarter, Also aftermarket saw levels the both for The some saw increased through a broader parts increase, market. rig markets. horsepower our obvious pumping industrial of continued our power increase numbers ideal we to product shipment conditions demand is horsepower the North all of have our and As pressure overhauls year-over-year

Our most quarter our markets, river marine patrol inland and while Asian out soft. and America markets the marine our marine supply vessels remain markets taken global remaining of mixed of active, in our with markets with the offshore global offshore least vessels service markets, and North remaining XX% fast of at boat

We also Besides continued our success sequentially fishing XX% about in a cost six drove obvious more for level a sales. benefit gross transmission. significant markets management year versus a the feels prices XX% on with growing $XX ago, commodity fuel this lower most the in million and of demand eastern achieving month milestone backlog Canada was higher XX% and marine margin quarter

globally, tax beginning and cost Europe restructuring domestic this their programs know focus on hitting two XX drop. have in activity explanation to the work the the that the more our striving that, address the working our both services efforts XX% we our on that will plants. enacted with Much are to restructuring brunt on But is more quarter months, structure feel will done for work off. we an operations improvement backroom more the the reflect evaluation organizations efforts year coupled the our in reversal be I European operational come. do costs of and of Jeff cost reflect We where quarter these the first $XX of on over allowance. last financials. most and more in demand of operations have efficiency some here forward. last reflect to us been it we There both pay among have operational to turn has the will While and these which this restructuring shared costs to shows determination our have efficient we million, at our global work our going domestic that for the manufacturing to Jeff our and comments With saw and has are of stabilized charges the over there

Jeff Knutson

first $X.X will $XX.X from I million briefly of numbers XX% detail. John, good quarter the little first were and for nearly Thanks, prior the year quarter. or up a in quarter run morning Sales everyone. through million more the

the demonstrating oilfield the of quarter aftermarket growth units North shipments in for So growth was third driver revenue along sustained a The oil year-over-year it with by activity. represents improved transmission now into gas American improved and led demand consecutive trend. the America quarter North also primary of

While global industrial we global North flat first quarter. Asian remain through marine have had encouraging craft markets patrol markets, signs and demand European in American and our commercial and the marine

restructuring reduced Our year and driven the points but sales quarter to engineering improvement, marketing, quarter XXXX year gross in XX.X% several certainly to actions $X.X with for positive but a as quarter, first The the our less in the related mix We the by in spending demonstrating from a at than with additional volume This quarter. reduction also as first basis to or percent stock of invested efficiencies bonus increased in that in operating European we taken drive compared and the sales time quarters. past the a salary creating structure fiscal prior reduction million first improved decreased the have margin global primarily operation. over compared costs the driven in fixed related for the efficiencies, noted, was of many achieved improved and company roughly increases margin increase John the results expense, million at on in in quarter million improved to compensation XX% actions history cost on prior volume current to marks XXXX $XX to fiscal the quarter been quarter reflects XX.X% the percent as spend. XX% have $X.X XX.X% XXX and significant productivity XX.X% cost well and we to a that administrative costs. and global we first the Spending first

was foreign opportunity. driven With certain tax million improved the the significant improved recent by and execution compared volume related planning tax margin our reversal for by [$X the million operating operating expense. of the improved in of year's $X.X a restructuring [ph] performance, jurisdiction valuation in a and to prior loss increase The to results allowance quarter $X.X primarily benefit million]

capital impact conclusion item, the was reduction income consecutive effective an benefitted which rate This the million essentially quarter the XX the quarter, in EBITDA for for significant diluted strong despite in of our Balance rate in revolving first per month to availability sheet EBITDA near charges. million of $X.X with at negative effective net over on first the following profitable $X.X this a following magnified second rate the tax quarter row. positions $XXX,XXX restructuring Positive $X for facility. reserve remains million a $X.XX $X.X Excluding after had or share also position on pretax reflects results. audit, the are successful the quarter two million basis, XXXX now trailing a X% due a XX.X%. credit tax IRS over the fiscal from now of positive to uncertain of the incremental we improvement On in cash, of Net breakeven marks million quarters. breakeven seven quarter a quarters $XX a total debt

the quarter inventory. since reflects the million But with negative million. reflects flow flow of $X.X has over growing While and bonds global fiscal cash exchange end XXXX, this negative the XXXX prior cash first $X.X the payment was the this of of $X.X $X.X inventory hampered million. a free demand positive increased by along million an fiscal impact year improvement in increased Free

spent now in for fiscal on $X modern million sourcing we spending quarter with first final improvements to in full have programs anticipate to John for will turn and it that global the $X.X million fiscal in the We products. I some XXXX the and as back million equipment, range capital And $X we invest comments. XXXX of during

John Batten

XXXX, at a doubt in there we place were is we ago. a than a pressures for addressing fiscal is The big North no American are that much year fleet our pumping gap months six we in feel finally better horsepower outlook Looking even ago, their way.

chain. us. improve of in Our we be How with our a our fiscal industrial improving collective projects of for offshore a the internal on appear of Only XXXX ahead remains marine question lot supply will us. we markets depend efforts coupled much and mark marine operations see to

of lot increase We in is a effort our will have with it it as ensure chain demand turning just keep Brian, can With pressure with that, but over from a I hard more Disk. our to not This and lot will questions. of supply a tried suppliers that anticipate for up Twin global entities, turn demand work this us. into on put more is take to increased

Operator

we take from question now Instructions] Chan Josh will [Operator And first with our Baird.

Josh Chan

and Congrats on margin getting gross backlog the improvements.

is over the level got the expect Typically I of basically do quarter. year? the that quarter so remember obviously QX right to and margin, for on gross softest this stay XX% margin rest above So the you you if

John Batten

nothing yes. changes if I think dramatically, in mix the

lowest the historically gross lowest in again in I think seasonally that margin. -- level and this revenue the

yes, think a stone I for So, this stepping quarters to is come.

Josh Chan

Okay. Great. to hear. Good

kind like you business, that backlog on and given still things book can if or that. of So order get and oil ship the schedules production and fall you does into today gas an

John Batten

-- backlog. in orders still are any month our will taking are show that six We these we up today

now We on of to to the timeframe five able but What models And is are based based facility. four are their also to on that internal we build XXXX. deliver is in months that actually are able calendar somewhat in scheduling on but they at probably some our right constrictions still customers. out

QX booking most would now XXXX So are right say, I I see what is a calendar we really of delivery. for,

Josh Chan

least kind little how customers of the having about after do you beginning maybe demand Okay. beyond. kind this discussions of the of And with see bit then pacing you Are 'XX. a shaping, at initial

John Batten

stays mean growing we to the beyond stays activity of if stays the different same about theme at coming. builds oil there customer gap other I what even it would a call tends horsepower same, are the Again, be price is same, on fracking the and the talking gas potential have I from Yes. is they but say each order.

again have all XXXX, we as equipment, pressure seen same, gap the growing equipment has point taken everything more what same, more a pumping towards calendar So and stay be offline. the existing hours in to stays is oil

of construction have maintained for have been new hasn’t been a out seen that our balance and rigs current equipment being time. also we not a purchased we our equipment. and rebuilt -- models transmission. Rebuilding seen hasn’t a We So taking long of rebuilding but see different

think the next there mix gas price coming of across if is, theme There in is the growing stays of hours oil of the a So a number for gap but that pumping the and is same. market I for the stays broader horsepower years. same, the couple

were each or the into it's XXXX. it's mean gap. to, for can't you to that I they it's how having do that recognizing coming address to horsepower have placed a if encouraging. and are of the does -- fourth of what But people point the I are economics being certainly I just we horsepower [making] there XXXX So orders conversations think customers, quarter with [ph] most our to point gap is customer, calendar

Josh Chan

sounds That right. All good.

maybe side improvement the the On about you some of talked business, marine ahead.

you think to? what and happen areas referring you do might when that that So are

John Batten

vessels That the river obviously not Well, be still biggest the of the [ph] that we there Certainly of again well. kind confidence our, getting in inland, marine seems be core activity to certainly case] exploration is America. transmissions in I and growing some Gulf the the it's offshore. level traditional what of Europe. is in still types seems Southeast tied the soft. concern of area is similar and to on [deep to North activity activity along the have -- think The some business That in future better. tug the seems going consider that we We soft, construction but be to Asia. And Mexico in see some in still

and of question globally the say is for takeoffs. we I industrial year-over-year remains market mark, in one So seem released. if marine us, still Europe, products a markets. most soft, would The specific driven markets improved North better but And in horsepower, the off certainly the market it's I higher orders, still a low one have the is really it's by hydraulic I that still that If power say, geographically market. new very America level. then is there there Asian offshore doing to it's coming the have as market mentioned, would that But be

much We seem than And ago. general, a better year better versus quarter are just this were ago. in new doing year we a units

Josh Chan

great. then that’s for the Do lastly expect any right And further restructuring quarters? upcoming in charges All you me.

John Batten

that Europe, I would say, how Josh, addressing we organization. yes. streamlining operate Again, in

We and smaller what and going going forward. in sized the one and have, streamlining plant operate three did shared would I would say is medium to I addressing, we this one are services say course just how we certainly

Josh Chan

Any this Are smaller to bucket they quarter going charges? of like the Okay. future kind the or? way to of did you size be than

John Batten

anything Really let's just in we for larger actions But like manageable raw best I past. sources our sense. the we just say of each finding really Josh, of machine each and of am to telegraph ever done not that structure I it's operation. it but material the trying anything streamline to look and also cost I make reflects to where that. size say product than component. be, type hard would have are continued would say actions. right certainly we where would it do And type also or

make streamlined. So we European much to the more trying are just organization

Operator

will Rand we Instructions] now question next [Operator from Neuberger And Berman. Gesing our take with

Rand Gesing

sort a the this just a guys, come visibility bit little am we horsepower bit of this gas to pieces off. if Do a I perhaps cycle, and bit to Or question for road you into gap I been different, horsepower to have of strong fruition and it given where of get we it because had guess wondering more been to the have, short term a different last you that I sort building short term, continue could period [indiscernible]. this activity what then a experience two if the has sustainable? think make times very is fruition, oil that come just has this drop it's does gap. sort

John Batten

six I of back similar very actual would kind I the probably do last gap think, XXXX. different this to that is what's XXXX in horsepower. time years soon, I mind fresh. think about five ago, added think of time, Is I experience is But do that similar. the I ago years quickly still very go very the fresh And or too the to that too is I still much everyone's think Five, horsepower overbuild. too what we is

different I too afford to that one going make when soon, is thing lot back balance other very think everybody The too to, their clean did much they cash to were and XXXX, sheets go this a and could too of XXXX, you is quickly. had buy

those what's there. economics think is this I different just time aren't

situation. limited is that a think this is by be going make is more that sane potentially each I in because So different literally company to each what could buildout a customer it's

different. They are can't similar, just overbuild. Some some are afford to

-- as and think the out to it think can't you hope think to add, we big everyone once. other turns that have going to gap I some sanity it I be people if overbuilding just is is as So at is,

am itself. So this lot one that my we more repeat measured metered a be history I that and more seen out. hope. will does have But That’s of hopeful times certainly

Rand Gesing

Yes.

How in perspective the last in from this kind done relates up share guys you of it moment a about well time You particular share. do have as to of, got an pretty cycle. feel couple

John Batten

the fulfillment I think still stock. think And good deal, is... a I the it's that

Rand Gesing

talking about No, market am -- your am about sorry, no. share. talking I I am I

in share pressure pump. market Your

John Batten

have won but I at to. the good. been are look than -- am lot we there, fewer a that losing Rand. When out them we I ones of used good, feeling pretty know you that all the haven't pretty projects Feeling certainly we we

So, construction orders equipment being and for seeing good in pretty our new again, people's stuff us new certainly I yes, seeing stuff already field. about purchased replace the rebuild feeling am love am in it's I to our seeing I fleet. other and out

all feeling So good am very in I it. about all,

Rand Gesing

is I guys, ones are bit ordering. Are the guys of of just that seeing there have Because enough a the it more Allison all or are conversion is Twin typical what to sort tendency use you seeing you. think little all Disc you that you or of or Are that? a size

John Batten

am I No, seeing conversion. more

Operator

[Operator take Gabelli Instructions] And now Inc. will we question Mario our GAMCO from Investors, next with

Mario Gabelli

I in private look forward public. will to and you seeing ask you, ask Jeff, in that I questions couldn’t John I

the how you look down Kind in down, are mean like where other first tiny. are in organizations? you handle in I at costs with flow companies up, just receivables the saying at using way looking have am it partnering taking million handled make is The everyone looking just receivables up like were But Inventories have and cap, scale a look overhead market we $XXX you unusual. you being to involved know and small look were you you [indiscernible] kind the quarter big of with half up the cap, you sale, of scale, think XX the inventory. surprising up. in ventures, billion at of Do receivables the it's ones the too environment You your is corporate I but quarter. which corporate when and your to an was fourth public of market inventories at observation. the second the do which Do acquisitions? joint that got cash a about do

John Batten

a for course may having accounting our a changed time some firm four be it. have realizing firm. the the the Sure. of right audit company things $XXX that the we us. public, we million, of the first and big structure Mario, it's John. fit We corporate that look not years cost of at done XXX in of again, on all And for Certainly being

So that’s...

Mario Gabelli

So saved are Sarbanes-Oxley. a on you you $XXX,XXX that it but spending

got need doing a You things to I don’t you lot of it. do. are that

John Batten

saved to biggest what more I it staying acquisition, on lot absolutely certainly would to that on top But, mentioned on, you level at are report a And is... I be being partnering public no, say up you happy actively line. certainly with am this things impact looking the people, grow right, the than guess I that. are would Because all are we at growing.

Mario Gabelli

Okay.

a We a are of You got with handle have independent of we guys worked might, markets. pressure lot you are all recovery in But sharing your that we think and to of areas about. should you companies What have in to with and else those good launched the haven't pumping what going the area on have share aside all of that that on the forum technology in of products, cyclical if the you on that that market the in rest have and from yet Allison, that talked you seen or all R&D toying? any, what products, what we call. that, your sectors that public

John Batten

think not not to would very shift the pure can begun development the in and and say, I that would can, but combine area have has hybrid be, organic it quick one the corporate Sure. fragmented. in And say we I into can it's would both marine diesel Certainly have I all growth been also markets. hybrid. then been you electric would very, at and slow has trickle you

it's marine expanding content pieces our into key an content double, certainly our and organically acquisition, triple more where and lot as hybrid have And look adding we market we to So through sales vessel. of more maybe forms. for the It's but There different the put anymore a per transitions at can area together types and us components to controls. are the are key puzzle there control components, there electric systems. to and And transmission or there just of need that the not whole things motors, many are marine system design add. certainly invertors, of we that are

and think we a as forward clutch being, were just we then gearbox and going company. about So a

into growth. accelerate opportunity controls. moving to added space a provides that Certainly for have We us huge

Mario Gabelli

[ph] opportunities, Yes. we a company When one Unfortunately something similar. because four care. calls taking to technology talk BorgWarner land just a both. much. based you see doing Take based I which that had I forward into about time. have care. bought, Look you Take marine Thanks at all seeing [Stefcom] called very on

Operator

back appears this remarks. it would like for the or And over Instructions] further additional there closing you I at to time. to no any questions Batten, Mr. are [Operator John turn conference

John Batten

conference we And to you, the thank to for following of XXXX free Thank fiscal look the call February you all Disc interest today. our If Jeff in you have with call call your continuing joining We answered you. quarter. Twin or forward we your feel questions. in not, turn close that Brian. please appreciate hope I speaking second to And myself. Brian, back of now again will our and

Operator

that today's gentlemen, concludes call. and for ladies you And you. participation. your conference We Thank thank

Twin Disc (TWIN) 27 Oct 172018 Q1 Earnings call transcript