TWIN - Earnings call transcript Q3 2018

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Operator

Good day everyone, and welcome to the Twin Disc, Inc. Fiscal Third Quarter 2018 Conference Call. Today's call is being recorded. And now your host for today’s conference Mr. Stan Berger of SM Berger. ahead. go Please Mr. sir. go-ahead Burger, please

Stan Berger

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

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

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

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

John Batten

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

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

Sales operational rising the a and have tides across of forward year also increase results, in rose Obviously transmission well. oil over industrial on our most strong I'd goes markets increase compared most other nice some in and markets. ago to quarter. markets of as the sales a sector, highlights was the the touch was many year-over-year and demand in Demand quarter businesses. year-over-year, we land-based XX% but our Before top seen the gas quarter our after-market marine our third of saw quarter from both for dramatic Jeff we demand was our across

work the mentioned been As A Sales of of expansion. have adding lot meet are which in suppliers will but improved ramp and increase pressure up. the our Currently primarily through to spent at situation CapEx. quarter internal of and X is anticipation test we putting Many key production easily new time before and the in higher internal on all about components additional our and gear calls, have throughout for necessary chain. and had the we’re X management million able prior meet to on has could new processes the been do. assembly of get securing to capacity capacity quarter capacity in of we overall the CapEx million demand. order this a on to supply our suppliers lot needed are the parts still The we we this full

area South-eastern this free As distribution for throughput, this distribution function manufacturing shop we activity deeper our part moved To of new rationalization we years improve seeing when be process, and we location a using in our to divested have some of over factor machines. entity cost new capacity the the will space US. our moving of our the part

improves installed. of the due CapEx new of quarter the a to slipped the bit lot January as should hires new reverse online during the coming and new but is the a after employees Xst, Our productivity trends productivity

supply vessels. to for higher gross except warranty related the in for points the expense basis Our XXX one-off fast margin have been could marine the quarter transmission

them Jeff well the While for times, were to be we on low were turn it financials some meeting to the comments that threshold that, outlook marine back XX end. over update the I’ll and period. I’ll warranty gears and this the our at then decided past internal felt were not in there we the activity standard With for

Jeff Knutson

sustained consecutive quarter and good were revenue shipment or the transmission improved John growth improved run XX.X through by oilfield of America the mentioned year-over-year morning gas, aftermarket growth this as which third improved prior I’ll accelerating briefly units nearly activity. with trend. John Thanks demonstrating and quarter everyone. into The quarter, North XX.X more American primary is year of million demand the also in for oil the remains million the and from the along a detail. in a in driver little represents XX% quarter third quarter numbers Sales fifth North of up led

pleasure of In addition, our global of American vessel craft, commercial and industrial offshore in all European nearly markets North global marine. we’ve degrees seen in remains to craft, commercial marine, increase size growth global supply market, The depressed. however, varying agent and petrol including

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

and the improved compared fixed the third quarter. also global year in basis primarily Our prior reflects driven This but reduction volume improvement percent in XXX for XX.X% gross by to improved cost. operating quarter margin a is XX.X% points efficiencies to

primarily Year-to-date sales in XXXX XX.X% fiscal XX.X% percent somewhat and third market the quarter an million fiscal quarter. current hampered XXXX from the engineering to global sales year-to-date as third charge warranty related issue in cost to of resulting increased increase well XXXX, months. in Similarly, bonus first to nine by of and for percent $XXX,XXX $XXX,XXX for compared fiscal and The fiscal the in through $X the invested $X.X the to $XXX,XXX at the XX.X% additional million but million expense roughly European margin quarter has operation. efficiencies a spending as now marketing, XX%, in and first XXXX declined in drive compared impact. $X.X has quarter million mentioned, quarter. increased the restructuring our increase or assets nine in was for X% XX.X% March Spending XX.X% to As as a an for the months as a or gross John was another fiscal related the in cost to XXXX XX.X% spending nine currency performance We quarter the decrease administrative months. reduction isolated $X.X at of to primarily a

million With of the the profit margin $X.X prior loss $X.X improved performance results by operating to volume operating a million operating $X.X our third XXXX. and year quarter the million improved fiscal in from

a increased profit $XX.X item. net to working the the over Cash $XX.X the increase prior quarters, XXXX. reflecting is the flow by the tax improved tax been For cash to year XXX% quarter nine months increase flow months $X.X have loss over fiscal our for in has a million $XX $XX third resulting quarter compared hampered inventory quarter of profit inventory $X.X fiscal this The growth XXXX, Free million. supported remains of reflects the the million year negative includes operating X.X% a represents million basis, the over prior fiscal we improve XX% increased sheet now the at a increase discrete prior cash, flow performance of quarter. while the total over for sales an diluted that a capital are compared negative $X.XX growth The backlog reach effective for inventory of $X.X million cash the of prior free fiscal availability in has third quarter. sales reported million million million million. quarter and On Net The impact share months legislation million in the XX% million a the third $X.X the operating over to impact along the three nine and with $X.X in $X.X volume. the by was which volume in working $XX.X quarter, free cash our at to has improvement balance capital per exchange the to to million of facility, third revolving the trailing was of million. EBITDA XX% in XX the $X.X rate results growing Through first the the and of driven months in position nine impacted quarter year of XXXX new reflects year-to-date the Positive first million of of a also of prior increases by third end an in $X.X fiscal demand EBITDA first quarter strong year or which quarter. over compared six smaller within increase results. debt year we’ve profit $X.X to end $X.X charges of trailing positive the very This second compared million million XX inventory of million negative as prior with increased the favorable flow by XX.X% of the $X.X continuing $X.X period. year in credit restructuring timing at million the months for capital turn of reflects $X.X million increase $XXX.X months improvement

And global as In modern million fiscal addition, turn I’ll now range spending and John started capital after it sourcing clause to to fall $XX new to million extended CapEx we $XX in XXXX noted, final ramp as for products. the John anticipate programs comments. invested up to we back equipment, for some we

John Batten

And I’ll moment a just outlook. quick spend on Thanks, Jeff.

XX% months would pumping, since outside a improvements increased Asia. I than it’s call as is backlog market areas months six the last Our in Jeff higher short, North that better three of the pressure In XXX% a backlog. last and American of ago the biggest is a change and mix particularly year our say in mentioned

a marine demand coming all and that after-market of Asia, continued signals seen order the is new product market across both life. of have We gas in activity and lines to in and our lot oil

And XX% be in last business. OTC we for attendance into Our goal was extremely many year-over-year. for Jeff question. some very your and marine will opportunity show almost invest Lucas, remarks. gas to products had in are But land-based it open of expect and this I now our be concludes and positive The to line time And that to active customers discussion. to our it diversify our and and please is We very industrial a oil it’s happy Houston busy new to use technologies and up with XXXX prepared respect submarket, take outlook shipments to to the at week’s through our XXXX. share That come. optimism.

Operator

And Baird. go to with for our Instructions]. [Operator question Chan Josh first we

Josh Chan

and the times and North the Yes, time mean it’s gas. market is lead the you you be or having guys. balanced you for will quarter start of the whether talk conversations and I I drove whether you for sort some kind on coming capacity if on? that American you’re of that can with of think with Could just oil and obviously the customers the undersupplied think that’s sort about

John Batten

My -- that that is we of midstream investment orders. and and seems of still discussions it’s know in don’t last orders we’re sense where we there’s that was our there talking in they’re going done Houston. undersupply. are more builds in to entire kind but think my multiple I Josh And well positive very for conversations in lot our I a that And quarters. that customers lot I’d phase long of in for I come. a of And say there’s of think state team the we sense how sense runway. are it our we’re certainly lot follow-on a to production is, currently a of are already done

lot added. I a is activity the healthy. So, a that There’s of overall still market going the of equipment think being lot on, sense new is rebuild

looking months so, to out. us And we delivering are eight for out nine

end of probably very our So, be be not it fiscal end but third -- would very now quarter everything quarter XXXX in third the we of fiscal ‘XX. is that would scheduling calendar at quarter through first -- the

many in reasons. many overall OTC years best So the for

Josh Chan

That’s that that. good on to some hear visibility Great. there’s

quarter? a you talk strong of, do kind amount could the that or So, terms orders kind of kind of like this one like number of the on order think there in to diversity it’s backlog that drove very the of I large of about guess was backlog, you the contributed growth concentration or

John Batten

most That and it should And customers, say was mix of orders Asia part. orders most us coming of different region. by a different oil year, of three type I have the marine part gas North that and that life gas, would the two the a the wasn’t its big I couple say multiple or certainly from oil we it -- while driven hadn’t -- and thing was been markets, made optimistic of just that seen it but only commercial significance with all that’s in and that it American better why wasn’t to

Josh Chan

That’s is troubles encouraging. And adding of your hiring, in of finding a capacity. managing comments about, on of that going up sounds you and lot whether following between pieces like sort moving terms people you are Could this. some then coming you having talk on about of how kind you’re equipment terms of in and the and know there in

John Batten

of triple to most additional Sure, the finding I challenging it's with that here and you suppliers and going want adding sourcing of it’s and would finding them mix but certain quarters. did third But lot how a right the quarter, the I and components going coming ago. come those two we guys but lot have suppliers, than guys CapEx. certainly, entire going months big, for coming a we I machines, to a employees three get are new speed. has just and over made people in But hiring is been the machines always time of can lot and to but the gals Certainly, that that hiring the is a run challenge it's additional to up manufacturing in. out better dual headway say the do to feel be more work out and to nicely few that the to fit are was bring a next schools and CapEx that now and know trade that’s rolled in in certainly, guys in a everybody, train made

Josh Chan

the potentially more when would working and account CapEx think how then guess we the year cash cash the of and and demand should of increase flow cash capital last and guess free for this into year given is the year Thanks flow flow, investment into color you free Okay. I question that. so take as I capital will an have in and ’XX in I investments, next all working on

Jeff Knutson

sustainable going that’s I how year’s I don’t to investment know fair look XX% this year. is the be. in Yeah, think to year-over-year-round at growth

think we’ll into I some I So, see more see get of CapEx. fiscal off working capital when but we’ll think next leveling we year

flow looking we but those see when ’XX. two turn to a into think So, little balance I might fiscal bit we’re certainly cash positive generation

Operator

Thanks.

question next with to our Dowling we For Company. Jefferies go Jim

Jim Dowling

future your getting you would more but go Yeah, history business you’re specifically you operating potential and your Where were in new the the referenced you look and for back margins? strong a you last when versus equipment streamlining back make I in time uptrend. didn’t talking about went peak very categorize CapEx and past profitable. and the margins basically the if

John Batten

combination XXX is be a lower points new a of higher points cost that higher, to Jim would and the basis and basis it's basically. I but fixed say peak potential and higher its higher XXX going say CapEx

seeing peak we’ll number, this a we XXX time the and hourly we fewer last facilities the have peak with when as and trade we’re fewer The employees demand levels was. around heads off where had world. just more to get Our those CapEx rough

So, peak. higher we a minimum, see I of XXX right I end do if would say points than everything basis at could that

Operator

Simon to Wong with question Company. to go Instructions] we next [Operator And & our Gabelli

Simon Wong

Good morning.

the and that at the gas is quantify quarter? look new businesses related that backlog, much in other Just versus the you during oil can came how to

John Batten

and gas rest consider rest the market, is every Sure. is rest what roughly Simon, the the [we'll] is I and other rest. is -- land-based is it half the oil guess

you backlog of that because as a the So, XX again months, half XX backlog year it just back the ago. years months it’s bottom much that’s better mix than our significantly the better is two was of why at or

Simon Wong

And backlog, the able much then on that you reflects are identify do versus Okay. that? how feel staying to you

John Batten

Sure.

the replacement. don’t I for of is build, rough I unit, significantly the a quarter least at replacement. the if new say that just that order you would look it’s XX%, all let be quarters know, we but But magnitude. slide will component So, three different the is certainly, my XXX% of And I than it say, if aftermarket at is would see

Simon Wong

in [just When to build. lumping rebuild new you're a] you it build, new a say as

John Batten

Yeah.

So, roughly the unit replacement into rig what are saying have not I’m that to they’re order probably they’re going on is and of going. keep we our ground that again, units XX% building for but new rig of the construction a for new they quarter engine are to rebuild trail going going up, new

Simon Wong

Right.

John Batten

business the obviously aftermarket rebuild. And then XXX% is for of a

Simon Wong

Okay.

is incremental, about your margin And expense of more that for should high the I the main how the terms incremental of the going forward? in Now, driver working quarter. think

Jeff Knutson

Yeah. That’s exactly Simon. right

the without So, And in would that is XXX that about that was higher the quarter. have in onetime, forward discrete issue been basis points we that quarter. look very now

margin to what been would we performer performance that. follow So, sort without the QX have would expect of the

Simon Wong

at Okay. I’m looking expense. what higher XX% forward? rough And a Is looking without that the incremental just calculation, should for going be I warranty

Jeff Knutson

as to past XX% to comps quarters. forward mixed that the XX%, favorable In say quarters the quarters think three go we’re over or I two very comparing

maybe XX% So, XX%. necessarily more drifting see we won’t it’s towards the

Simon Wong

there in And jump the anything driving then [BSL.] finally, quarter? Okay. the Is

Jeff Knutson

of the operational We -- heavily we there suppliers caused weighted had shipments right quarter. a be of the of as is. Yes, noted, issues John lot end towards sort more to that

which quarter collectible drove those quarter of obviously up So within days not the significantly. were last three the weeks

Operator

our questions the Therefore, for gentlemen, I turn closing and Mr. Batten ladies we that, with will you to And any over further no conference roster. have on remarks.

John Batten

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

Operator

Ladies conference. will for Thank you, and today’s Thank conclude gentlemen, you this participation. your sir.

disconnect. may You now

Twin Disc (TWIN) 7 May 182018 Q3 Earnings call transcript