TWIN - Earnings call transcript Q2 2018

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Operator

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

Stan Berger

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

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

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

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

John Batten

good quarter XXXX and And fiscal second you, to call. morning, welcome everyone. Stan, our conference Thank

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

a spare business. the in in oil oil increase the still to like to rose our improved and also goes demand aftermarket remaining few the should market for going XX% idle of over and from driven Sales with utilization of the slightly, the offshore XX% parts first just exception. some global quarter surge North I'd a in Activity the gas quarter results, that supply -- over and highlights the FS moments We're year-over-year, by Jeff quarter. of go forward. Before take are OSVs our vessels estimating to markets the price gas rising lone and But worldwide. oil rate up marine fast markets the the American

to overhaul trend New counts activity see rig increasing are we horsepower American and continue in continuing. this pumping North inventories continuing the so and and are expand pressure rig American retrofit -- fleet an in the to the construction down, accelerating expand rate. up at fleet available is trend this Rotary North rate

move We we XXXX huge new clutch been across in to demand. have meet a hydraulic entire so lot activity in our developing as activity a markets are market. A us lot this on new space in in regions orders Again, through marine higher new there with the these to of all seen XXXX. project of exception of grow the and lot horsepower project expect industrial we offshore, our is also the capacity available, supplier supply longer partners increase in The of base. oil XXXX help to we strain demand rapid gas is a surge putting the from new and run-up no marine actively has

our CapEx to allow headcount and moment, keep actively XXXX us with a per or have Jeff few this an $X of run-up. that explain share increasing deferred up internal been Our us will market in through greater capacity a through just but restructuring sourcing $X.XX We partners. our gain will that our share XXXX more it helping also million. in demand not durability legislation and have operational we're reevaluation, improvements quarter are quality, for been the Had the believe the in this and and tax new capacity would at moments. asset under

over with so the comments some for financials. that, on it to Jeff I'll turn And

Jeffrey Knutson

improved growth, units a shipments of morning, were little activity. prior in $XX.X gas XX% Good for led for John trend. everyone. demand North Sales a John. the consecutive second by million quarter year the run primarily sustained demonstrating I'll year-over-year remains improved Thanks, oil nearly $XX.X North up This briefly numbers million and through or into accelerating the growth improved quarter drivers and represents The fourth also along transformation oil revenue quarter America, from the detail. of mentioned primary with quarter more of field second American the quarter. the in

degrees In craft, to global pleasure global marine. addition, North our commercial Asian industrial European American and including growth markets, we've marine, of craft, and patrol varying seen in all nearly commercial

mentioned, the offshore market John depressed. global remains supply As vessel

the For or are sales million $XX.X up million. half, to $XXX.X first now XX%

primarily the for sales to spending and the volume-driven engineering Our basis $X.X prior in XXX gross second the year increases efficiencies XXXX. volume This from improved operating also quarter to quarter XX.X% increased half. related margin and to for but This percent fiscal compared marketing, bonus, global was XX.X% in in to Year-to-date, fiscal quarter. million decreased increase was the quarter. a year second reduction But XX% compared improved on current stock for XX% compared and as XXXX XX.X% percent global fiscal gross XXXX second is in first XX.X% salary fixed in by expense. the quarter administrative driven or a in costs improvement XX.X% to cost. reflects prior to roughly margin of the compensation Spending

$X declined under as from XX% has of percent fiscal sales, -- has but a spending again the to reasons, XX.X% in XXXX first million half. similar For year-to-date just under by the XX% or increased

in and actions now driving European invested restructuring for and operations. $XXX,XXX in continue to to invest our the and cost quarter, primarily We million the half, in reductions efficiencies additional related another $X

in operating in operating prior 'XX. second improved the a million million improved operating results quarter margin and year a loss With the volume from fiscal million profit to $X.X $X.X our performance, by $X

half, new had obviously, results improved first expense have the a by $X the impact operating very to million significant year $X tax legislation, the an prior to tax for operating For on quarter. million. our profit of compared The

Belgium, in news to all remainder is, a resulted also corporate the with be assets. quarter, half We million, of reduced the for The fiscal of have profit tax companies despite U.S. of there fiscal for the a were trailing of to very net EBITDA, of the an $X.X million quarter rate the a some the cash, rate per reflects to account $X.XX and our down the As $X.XX these $XXX,XXX diluted per strong the or quarter share includes asset, reductions tax of structure over million a jurisdictions reduced assets. a million rate million booked of or in write despite X.X% million noncash write a year reflects resulted tax the of the rate tax incremental in in revolving $X.X charge our XX-month our well, in loss balance $X pretax of U.S. $X.X million blended charges. we that charges with capital the foreign of for the as now remeasurement which On restructuring second XXXX, $X.X $X.X deferred over improvement primarily, at of projecting down legislation. significant quarter, availability per charge Similarly, $X.X credit in position, XX%, $XX due reflecting of in of share a additional for our that U.S. assets. EBITDA good restructuring facility. in the tax The debt-to-total sheet are million are XXXX impact basis, a or quarter approximately noncash $X.X Net effective share, $X.XX million deferred on of now deferred $XX million. we remains of Positive

working $X free compared cash flow free of refund focus of While first million $XXX,XXX million. and negative receivable with strict million the flow this half, end quarter, million reflects inventory a exchange generated million to strong has benefiting in of positive performance, the management. half growing tax first the was along Free $X.X Through $X.X increased a a fiscal positive the we've a impact collection of XXXX, in flow second on $X.X fiscal cash since from capital cash in XXXX. $X demand,

$X range and for turn million first capital half anticipate the to in and to capital to as We And back it fiscal sourcing that, -- million equipment, programs I'll through spending with final have improvement for $X on $X the John some XXXX modern million fall new comments. products. to spent global in for invest continue the we

John Batten

the the previous a future versus as ago fiscal fiscal the about strong the outlook. at remain Jeff. we're optimistic look and continue up up see backlog year feeling Thanks, is XXX sales quick year-to-date of XXX% gas margin for just up always XX%, year-to-date a in 'XX. and XX% versus pretty we'll Operationally, with restructure demand to Obviously, a 'XX And growing the balance this basis cyclical. the and push that points oil company gross up quarter, and the conscious we

how much supply mentioned in improve with our fiscal I the will on depend our we coupled collective of As last quarter, chain. operations, internal XXXX efforts

the to products opportunities investing not speed across up process market growth I the and questions. the cyclical the the here become market. And the markets, that likely not here hyper space, out American will time that in provide Capturing That for stay. pressure to pressure are increasing frac pumping technologies this job. North with most of a seeing pumping us demand fleet to is full will while we many open it that, are and globe, in on say we're Matt, For future, in new contrary, meeting the share has will an backing of as it as we allow new up

Operator

And from [Operator to first Baird. will we go Tim Wojs Instructions].

Timothy Wojs

side. of that your maybe mean the thing, just pumping. on some demand you've So mean, quarters, improvement of the environment the pickup I over does pressure last kind pressure you indicate broader I are outside of in pumping couple guess first commentary, But the a seen seeing I

of of last bit us markets, over some maybe, if just marine. of specifically, in the maybe you what's could So your months, walk on terms X a changed end through little kind

John Batten

can say oil depending upon marine, Well, the is it say, be it flat huge But I -- up up obviously, that in XX%. I would would pressure numbers. and up pumping can be market, gas

of push some activity. run-up see mean, it that some dwarfed of But numbers flurry importing and of projects well. exciting the in and we activity gas. for then dwarfed that the idled Southeast Australian and pockets doing market the oil just well are the just by it's of that in are and projects craft. offshore Again, Europe, quarter, I -- good being pushing Couple Asian say, some last gas. marine. forward. the see the just in new here as had increasing, hybrid in it's is recovery yet that to now, It's been mentioned, in show U.S. the some to So pleasure most for fleet. in applications is activity We see some nice boat But back one are would right by oil is I has, sign I the doing There

For Gulf Mexico instance, and Asia. Southeast the of

Timothy Wojs

parts, kind now of okay. of how would based of of lot versus moving the about it pressure was much right it's X your to kind what way XX I how I X ago? annualized, mean, pumping? it -- And of pressure you how a or pumping, in revenue years but months much Okay, is maybe on Just is know terms the if to of right trying of don't now trailing think think or maybe the --

John Batten

I The Let's where run-up. still, for amount, short. In were. we're -- in say, -- just just quite the -- would shipment a we're half say of average, not recent monthly we're on to still we it's

Timothy Wojs

margins a forward Okay. -- of slightly kind steady been operating the incremental Jeff, gross -- better. for think you business? of should lot the maybe more we incremental environment how think mean, then go When And the of state How of kind the maybe for I Twin a margins what's obviously, have, Disc.

Jeffrey Knutson

at -- for look next delivering I little over our always gross that's think far. Well, so is where XX% quarters as to volume think that's we're be I we I go Yes, And two expectation the goes through that than as up. margins we're incremental think, where we least. so better a

Timothy Wojs

guess I question on the And Okay. last capital. just

on? to spending a consideration what guys But or on more being curious, maybe just the I spent kind are you any CapEx. reinstating little update of think then bit dividend? that's And any

John Batten

outside. where Sure, we to it's focused CapEx John on really process, in here. capacity now, on, can't The either that is right the internal find or an increasing backup

also do -- we're facilities. also looking housings, our at us the I housings. tools, at capital with both at can that looking at we suppliers -- supply machining invest gears machining the So housings new mean, investing We're machine for and that, and so gears their we're

So that's kind focused is right now. the where CapEx of new

We pointing here to right increase our to and an improving now And also just CapEx, some efficiency this for coming on there. It's agreement. both quarter-by-quarter. capacity question CapEx, we select have last just tooling are looking your We on still and at the we're meeting you the to up. increased point. and for assembly fixtures something test. that at signs know, demand machine it's to ABL not had our that we're increasing We're Board Certainly, it dividend, then And yesterday. reinstitute suppliers see all internally we as at tools, quarters do decided but at

-- that current that it's every the January right the we're it's -- quarter-over-quarter. we've at at historically, use of -- discussed the company. we So something But dividend it's it's cash I'd meeting, this this at not for best something moment review And and -- just not typically meeting. now,

that decided more couple -- will we right of strategic in was things a May. there revisit it bit but now, it little So

Operator

[Operator Instructions].

with will Jon we Kansas Capital. Next Braatz go to City

Jonathan Braatz

of you margins low If things all continues when at in this, back back on XXs. level in that the return maybe XXXX? your and were XXXX, to you're initiatives can business, XX%, we tempered lot out? years the I because me And what excess your the you to But question to out should were hot be market expenses talking a -- exceed of my can and you level a sense get how the the gross might XXXX, strong, cost you can play again, chain I saw you and a go guess XXXX, maybe SG&A margin XXXX, give as you be XX%, look can to during taken was XXXX is, a restructured assuming supply of bit period what in operating And -- margin -- you've guess about, of maybe the -- costs. little business. that

John Batten

leaner as give Jeff executives, we today every at answer it of middle here I'll level. the company you operations, can just are fewer Yes, of sit then certainly and more Fewer management across fewer the all Certainly, compare our workers. details. we and hourly

probably we're in look 'XX. back you peaked And XX if And we're low every So down. I think, XX be in around the of Certainly, kind get back of adding $XX we've at for -- section, I would operationally, I say, XXs ME&A also somewhere more the, do 'XX, And to with in business currently, million XX. headcount efficient. back and without that for Jon, can that of it we sure. level fewer we and can ME&A, and -- that think

so to potential have as gross we spend high, and margin the lower that ME&A a that margin, an think not I on that's grow percentage both higher. a is the margin, So operating ME&A

a get had mix back where be in we XXXX, to that back better. that the would significantly we if just results today, XXXX, So are we

Jeffrey Knutson

add really much Yes, have and I Jon, that. to don't to

I think, agree I with that.

I operating we're we plants, think, efficiency have I better been, in ever in wise, think particular. than the

bonus, a as is in of bonus we think, what stock as doing obviously, up in we're things year-over-year have terms and catch accounting And at this ramping ME&A cost, we we're seeing year. some zero year, growth which compensation. really to up, some last I on the that some are point ramp of up, now this continue was

I be. agree. bit elevated So what it's normal little maybe would But from even a

a to we think I better those again, and certainly growth we'll have margin. think, I if operating peak levels get

Jonathan Braatz

quantify might and there the room quarter the expenses can compensation the will improvement bonuses versus much way last sequential continue in been things stock how Jeff, you And second half? have if still the expense year? let's ME&A say, for, maybe, be in in are, they

Jeffrey Knutson

is. there Yes,

for stock incremental bonus quarter, about was second and about the million $X.X $XXX,XXX. the So year-over-year comp was for

that in projected included not year's million $X.X are. some like And were bit or and catch half, I they with year-over-year. be So about new second to recognizing start Last for $X.X-ish a now up said, did awards million expense. outlook of money, increase bonus the little we that

So we bonus terms better get bit little the and comps as second won't in have into of be we up. will a half expense the catch

So yes, I to is second there to think potential the be first half for the favorable half.

Jonathan Braatz

just that looking going to the of Okay. at that And then is a more internal as might margins, to volume in opposed generating? any function improvement improvements you margins, other gross be be gross

Jeffrey Knutson

it's going volume. think, I to be mainly Yes,

ability things lot to terms I in deliver think efficiencies. our done of the margins to improve a of we've high

alluded with, that have might be to. with the we're now it's John volume to achieve trying levels slightly -- -- a higher dealing right to, to we're volume As get that cost we

-- So margins. improving certainly is significantly volume contribute the in but to going into --

Operator

are this there further And no at questions time.

John Batten

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

Operator

call our Thank conclude for for participation. does that And you. Thank today. you

may You disconnect. now

Twin Disc (TWIN) 2 Feb 182018 Q2 Earnings call transcript