TWIN - Earnings call transcript Q1 2019

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Operator

Good day. And welcome to the Twin Disc, Inc. Fiscal First Quarter 2019 Investor Conference Call. Today’s conference is being recorded. At this time, I’d like to turn the conference over to Mr. Berger. SM of Berger Stan Please go sir. ahead,

Stan Berger

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

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

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

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

John Batten

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

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

North not expect seeing at fiscal did more levels have better we in affect on people the results sales QX. due Disc exceeded we our in core by of forward. Historically, the the overall was quarters that will which market. last our quarter. Jeff Operationally, I the margins. but American like were that but Gross and compared ARFF more MD&A the XXXX spending effect quarter lot The shipments our our while for on our an quarter, vacations saw shutdowns were of out driven that operations results, explanation fourth many some spending to activities best and customers, to of in of the highlight anticipated two from challenging drove our that quarter Twin Before Jeff When from of customers the year. our Veth the a more market. backing goes to improve than Veth. I also did Much the few first quarter by of will accounting and fiscal global up bring facility our on summer European and efficiency our expectation we most areas. we're operational Jeff XXXX demand quarter, and a marine somewhat, on would one-off our and gross online purchase first in of of XX% the going to addition will margins, considerably. of over touch have also But Asian driven color for increases was

since area in Veth anniversary, propulsion. our our was and Twin the of first which our distribution the the into our is acquisition push Tractor, highlights in invite of first centennial evolution Racine, and meeting technology Disc the anyone see marine it. to public very included The The Gallery of global visiting creation to the which Heritage strategy the the here Wallis and by stop and and we gallery of open collection hybrid

was September offering is which our was not follow-on anniversary September, actually that announced date a note to second of offering decision The took follow XXXth lightly. we on XXXX. in item that on a did we The XX,

As for to we despite be right do grow wisely it market management acquisition determined and ready mentioned to in have the previous has conditions to calls, and timing.

our We we imminent briefly announcing flexibility. the the also In maintain are we that floor but need for touched prior not domestic want two calls, to on anything space for is additional operation. our

operation depot allow IXX entity. the moving and XXst to past we more X out west run consolidated two flexibility us up of just some we and Over have years, to are free space assembly separate plan Racine. operation business aftermarket our off and at a the our which back operations and as The Racine, this shipping miles Street here business

to to American our depot next North We be square functions XX,XXX XX,XXX have ready financials. will should least the at this are assembly to install decided turn plant, in which in in to expand allow to new moves square summer. our will tools Lufkin, that arriving test feet and assembly two Jeff our comments free some coming new machine These for over and Texas, us industrial and a transmission also on our months. up move With facility I'll area it that, foot by the

Jeff Knutson

I'll million the of were Veth and $XX.X Propulsion, million or up impact good the quarter on through numbers. from XX% for results which quarterly acquisition closed include the morning of first Xnd. everyone. Veth the prior The Sales July quarter briefly first Thanks, quarter. the run John, Propulsion, of year $XX.X

first gas into American led were been North driver, quarter mentioned, trend for improved middle improved growth along which sales America, the compared oil unit the in XXXX. up the the with demand, the has enjoyed remains we've activity. oilfield improved which quarter, growth, impact also The the aftermarket seventh year-over-year to Veth, as of year John sustained of the fiscal by revenue North and prior of since the the represents primary of quarter shipments transmission demonstrating Excluding consecutive XX%

nearly patrol quarter. increased In global the and and market. to to all addition, marine compared improving the prior first year in of nearly Marine markets, we propulsion our trends continue commercial see craft including sales XX%

margin prior year result was the for This basis performance quarter. of the includes margin of impact and related the the amortization. purchase first for acquisition of the accounting XXX gross an also Our points solid Veth improvement with quarter XX.X,

is profit $X.X of or oil XX.X%. represents approximately fiscal marketing, quarter XXXX the primarily driven gas This to administrative compared improvement of half roughly also XX% continues was increase Veth the gross prior the first engineering addition million increased amortization but and and Spending the this Veth, and Excluding mix. and to for year. and costs strong aftermarket Approximately related reflect volume acquired intangible. of

million related the during unique first also non-recurring roughly We had $X to of spending activities quarter.

the equity recruiting offering fees acquisition with John the activities As quarter. marketing and debt Veth the and also related centennial Company’s acquisition, for these financing, significant to mentioned, associated celebration; costs the included included professional

in the fiscal a XXXX ME&A As percent to to expenses quarter, of fiscal revenue compared XX.X% XXXX. first for declined XX.X%

EBITDA the continuing the for million improved first million the ’XX. new the prior valuation performance $X.X $X.X our a impacts prior for from first The quarter prior improvement that reflects quarter reflects allowance the and year. quarter fiscal we XXXX of as in legislation. Positive and reflecting XX $X million. $X.X or we year to of million $X.XX loss close remains now $XX.X healthy profit to for over prior With EBITDA, by basis, slight The profit ’XX. tax $X.X of the valuation restructuring quarter significant operating in the of reduced the reflects sheet results impact very was XX.X%, per volume first the out spending, allowance. $XXX,XXX of restructuring of a charges fiscal rate year operating tax year reversal are effective million significant quarter quarter. in the due $X.X decrease margin operating million $X.X improved share reversal Net the On from the million quarter fiscal million which diluted rate fiscal first the trailing Balance at first of month includes of of impact

million up spending $XX capital I'll With with $XXX.X of and of payment, some flow a Veth which headlines of by back free six flow and nearly follow-on in offering ratio the the million million the Veth capital debt was debt, with backlog the total it net finished positive quarter. of Veth being returns $XX balance debt we a quarter, to a $XX.X to the This of our excluding nearly to for XX% to And impact over reached to XX.X% sheet fiscal quarter, EBITDA was equity increase months Operating impact, in XXXX. the of -- Veth and now, acquisition X.X. the to previous million to of first to increase in fiscal was the impact the backlog, subsequent inventory doubled increase This compared growth our the negative increased is increasing activity. an be our quarter while the first by operational and pursuing $XXX,XXX supported bonus X% the significant quarter allowing actions. us acquired explained operation the with quarter for increase strength, up strategic the accommodate our in Veth along continuing of cash in a position This largely order ramp the at inventory includes John aggressively in quarter in $X.X backlog U.S. the in previous is continue million The in comments. turn acquisition final cash quarter.

John Batten

Thanks, Jeff.

moment quick our a outlook. spend to on Now

was As on Jeff and business. up backlog mentioned, Disc six-month Twin traditional XX% X% our

for American market, this Veth nice the month very see North are to three pleased some We backorders for ever strongest in market. the

in demand history at strongest Disc We are experiencing Twin RF my transmission. also the for

we're optimistic Veth Our our just about ability to introduction to this the in global business. be network is beginning very to growing distribution and successful

whether to new Heading construction, XXXX, year. open Jeff feel you our balance are ability will we our and strong That line still now to for Finally, bullish we very gas, rebuild good for for oil take continue the about questions. retrofit it's can I shipments into in And prepared your strong the or please our question. and on activity. be concludes remarks. happy another Naomi,

Operator

will We first Wojs from Baird. ahead. our question Instructions] go Tim go Please and from take [Operator ahead

Tim Wojs

start to I gas have with business. maybe oil question a and maybe just off few the

talking of We been Permian. about have suppliers issues the some takeaway in -- there's your

seeing any show maybe over any related order about there should is the all. in curious think months, pause there conversion So, is to next you’re to spending I’m just at how if and the we customer that takes puts in that? And six revenue to books if backlog

John Batten

construction versus would say heading are optimistic seen transmission that answer question. selling what transmissions, XXXX. again, retrofit existing is add the necessarily mix and last I XXXX the higher orders we're will primarily transmission mix But to horsepower, a of as from Certainly, I Tim, see That the definitely the competitive taking older in new rig so into rebuild I to which would what topic backlog of would our still customers out that we’ve very is we and in about and are rig. more I just in. say say that’s in mix in our filling that discussion say I first selling ours of I new what ones an some replace to new a though, horse so, we're everywhere, been just the rebuild and putting would general, some for say, units to replacing mix shifted existing or not the just power. month activity, would

Tim Wojs

think am ago. the strength compare a of as And think there backlog, it still industrial were maybe And that were and market? industries organic how I’m oil and seeing quarters if in is few is secondarily, just a your by out asking to backlog. the marine, are of we boarding couple sub-industries? about does then I the basis about where that And then backlog and really you up way sequentially or Disc to to just why we maybe a core specific Is curious end a gas? overall all Twin just

Jeff Knutson

degrees. growth seen we’ve Certainly, varying to product families across the

I has commercial growth but oil think significant line marine, quite gas shown in and with particular in marine, not significant.

were up up digits. higher that probably about the bit marine little sales backlog high in said, probably industrial space; XX% I single As than

yes, I would So say line. product across broad the movement positive

Tim Wojs

little first am if expectations shy guess of just there might some of was in curious were financial quarter seasonality what negatively with I Veth, we revenues contribution? line for. that I your And are looking terms is the then in impact that? the Europe And the in on

Jeff Knutson

I think you're right.

maybe and some unfavorable I mix. was seasonality think slight some mix, unfavorable there

broadly understand still would expected. how but working quarter-to-quarter, what say really had with of We’re line to I details works business we their in the

Tim Wojs

year? second two quarter? just think about share just be we last free fiscal What the modest ‘XX, generate the count diluted flow then should will able forma pro then you And to for generation amount for the of ones. cash for And free a cash

Jeff Knutson

first million shares about the we’re one, XX.X So outstanding. at

course the through grow to the continue will of year. average that So

So wise probably QX. especially yes, around expected out. up a probably honestly inventory free year-to-date cash at the average go the did probably I think flow better cash first little -- quite the on significant XX.X, I And in think had XX.X roughly we flow, in QX we we ramp for payments were free considering than and quarter, we XX.X

So, the year we of to rest course expect generate of over flow positive to free cash the be full year. cash the

Tim Wojs

confirm. And just to

of quarter the XX.X? the end So, count share was

Jeff Knutson

Right.

Operator

move Capital. from Please Dowling you. next to Jefferies question on our We’ll Thank go Jim ahead. from

Jim Dowling

or expanding And I possibly little ended You at quarter questions. headwinds you've argue completed projects bit all backlogs, without Veth that the so. addressed us on the next you at the if have two you’ve the got and the basic as business? you've would labor. look for for the from out. we Can over which of of quantification but you a But Can offset some three margins, look on you know some on just the issue quarters last the months quantification as I all can. business you various margins increasing those by more of give the acquisition? give benefit margins, us margins had XX basic

Jeff Knutson

shutdowns, So was to coming QX expected excluding very margin Veth significantly volume entirely, QX acquisition of for have quarter in base QX compared off strong the first the business Obviously, higher a we that which on has what the roughly always is margins, XX%. QX the over would etc. summer XX.X%,

QX I and forward. that��s going the think pretty much line expect would business, So with performance in on still that we what levels, base wise, margin wise,

Jim Dowling

the projects middle completed the will be that two you next calendar And that announced just sometime in of year…

Jeff Knutson

Yes.

Jim Dowling

What do margins? they do to

Jeff Knutson

in XXst of But in probably the there'll again the be say expand. our so to operation headwinds. couple expect overall would quarters, I we efficiency

our we a overhead the certainly bit expand both impact be the for levels So, we’re again, and of margin shipment up a starting should volume a those quarters, drag. expect Racine to lease additional the expense as of be which us facilities, within operation, up little able while facilities. in gross make expense, capacity will But and couple more than having our the two

the more facility and meant should in be specific here facility aftermarket free the -- So, will our my I west miles Racine, aftermarket And industrial be assembly that operation online in our to which February in X and go the Racine facility, next July then will that about square XX,XXX in up feet probably operation, in will expand, and of test. comments. of operational facility, Lufkin depot year. The fully

So, we’re staggering them apart.

the also components to next machine tackle these square for expensive XX,XXX so outside, and bigger footage we tackle buying our tools looking to by about to not operation again test. costs, assembly So, allow for feet reduce of our then us Racine capacity one. but very But increase cut one gears, on some square the we’re then we’re new in expand

the margins North help here in all overall, should So operations. gross American when see done, greatly this are you the

Jim Dowling

to was the backlog quickly, said My little I on the may it. writing a I bit previous Veth the thought on I that second excluding have the backlog. track you about question from back your is that missed quarter… increased comments so X% acquisition sequential just

Jeff Knutson

That’s correct…

Jim Dowling

you gave whether without said you numbers, Veth. or don’t and Then with some that know I this

flat? industrial gas You that’s that said suggest high-single-digit. marine was If was true, was would it oil XX, and up up

Jeff Knutson

period you’re what on depends it But comparing to.

comparing oil we’re to and flat. I quarter, gas orders. previous We took say shipped orders. the new yes, if relatively So, significant was in We would

industrial it XX% up marine XX% high probably range was to that single-digits. slightly and So, in

Jim Dowling

third business for the selling and or to question quantify them can Veth between what you the degree basic returns is, cross are And my the acquisition? the then qualify early the that

John Batten

that that think strongest three were would a Disc. really months don't part of they their had that it's I I say American Veth now coincidence North orders Twin of

now smaller gave it here, lot customers of Veth was to from going think Veth. bought think some there order joint finally They part big a maybe team, they’re projects application of thrusters. confidence I our of had I some customers. which customers the But here and lot to a our in for were that

forward, the we our of some in can hybrid you’re And diesel far selling, our diesel or hardware whether happy -- hybrid would in that we’re in development in some working that for electric on transmission, and we hardware. here. where the synergy hybrid as Veth of there. the we’re grow see the of components will cross big our, going to our see that its mostly So, can you’ll about traditional I very as say thing selling invest and is think use think lot business of system clutches going electrics software cross and I that use a

So, also customers already has of in the we’ve the but components begun cross-selling with that utilization our joint developed.

Operator

on [John move [indiscernible]. Please We’ll Wolfhausen] ahead. go from from question our to next

Unidentified Analyst

think and seeing and quick what to steel rising we’ve you’re a question, be? Just prices mentioned you I impact prices steel don’t -- what expect out of the there

Jeff Knutson

We’re on say, starting I XX. overall castings. buy we compensate a that that. recent bar it’s see seen product pricing materials to we’ve forging, China some our seen cases, that Thankfully system, transmission But would for from steel. the typically impacts don’t the small that on coming do actions cost larger components. raw closer structure. control XX% increase. buy, mid our of a source some have that, On we percentage We electronic components in have We’ve very lot on we from raw single-digits, pricing of for And are had seen our pricing projects increases to impact. We to of stocks, in that

from buying we’re castings, answer tariffs. yes, suppliers. seen forging domestic impacts have and the question, your to we So stock bar suppliers, On domestic the the of

Unidentified Analyst

addressing increases price And are by that yourself or… you

Jeff Knutson

costs. price instituting -- increasing capture are to Yes, those increases price we increased

Operator

Holding. ahead. next go Curro from our Tim Value question Move on Please from to

Tim Curro

you question clarify hoping, just the was an margin. gross could I regarding accounting

does So, or I exclude with gross if go associated amortization the write-up a with up your inventory, down? margin

Jeff Knutson

starting XX.X%, in you from -- $X.X the if so about where the guess you're I from, million quarter. amortization was

So, XX.X% becomes over a little XX%.

comparing it's in not coming QX question? Does the down at your you answer it business certainly If results, to gross because our Veth overall are profit. XX% that

Tim Curro

you. thank Yes,

Operator

Thank you. ahead. go on Baird. to Wojs Please our Tim with question We’ll move

Tim Wojs

should more things, make Just the accounting can we few there guys. first what’s the have the two next be then for numbers. the any model our for more purchase guess year? over so And Just in we expectation quarters? sure restructuring chargers I

Jeff Knutson

to with. think, the we'll one, first begin answer I

saw costs you was sold in what accounting $X.X likely That to So, ME&A QX now, projecting about in amortization. that is $XXX,XXX goods million little -- underway, the purchase work at we’re in to be have any related and bit. reason will to at don't those point, a is that. could preliminary this still same. there to expect move so valuation still we around right chance that The a intangibles But

assumption. was question, logical most second your that’s So, the What Tim?

Tim Wojs

just I asking but was about question. one that restructuring,

write the much away continues, at So, that how of inventory because some go point, up right? should

Jeff Knutson

so That’s appropriate… million fiscal this but for year, a quarter phenomenon, just $X.X fourth it's

Tim Wojs

just then And restructuring…

Jeff Knutson

to anticipate continue don't of anything point. significant, We this at restructuring. see level will We some

plus first minus what or saw So, the a reasonable in range around you quarter.

Operator

you Instructions]. Thank [Operator

over time. turn no this at it We back to you, I Stan. questions to have further like would

Stan Berger

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

Operator

concludes your you you. participation. today’s for Thank call. This Thank

disconnect. now may You

Twin Disc (TWIN) 29 Oct 182019 Q1 Earnings call transcript