TWIN - Earnings call transcript Q2 2019

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Operator

Good day, and welcome to the Twin Disc, Inc. Fiscal Second Quarter 2019 Investor Conference Call and Webcast. 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 results pleased the the that our and you participate Christian. fiscal the Disc, second business XXXX time of outlook. we're in quarter for thank and extremely you half call to behalf you, discuss management company's financial of first Twin to us and Thank have taken

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 state 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 Treasurer 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 second XXXX Stan, Welcome Thank and our good fiscal

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

highlights face results chain The growth in and some area year due to markets. our the we machine ago, capacity XX% you've and mainly in of Obviously, that forgings oil markets Twin sales strengths business seen one alleviate but the that, significant domestic the focus we our continue as operationally. of and while demand supply were I'll Having stuff Before operating up of all the touch Jeff this margins gears, only -- quarter, temporary in margins gross gas these shortages results, quarter. labor onshore the improved some in should goes as is The castings, suppliers up pause. on components, challenges of and our from our mentioned, have slowing see to up year-over-year. the were help some Disc Jeff for slowing growth a internally contracted of year-over-year, and over operational said was a number component. mainly The other constraints, quarterly

mentioned are As to we amount significant prior can plants improve we in that our of pass have end throughput our CapEx in capacity. calls, investing

moving machining corridor and X-axis space our labor closer improving freed and Wisconsin. adding output leveraging equipment, all the our in in ground a where Lufkin, business, face activities of American are Milwaukee depot industrial we Texas, plan test with at market. efficiency focus we our improved facility, new and the the centers his a are up southeastern Racine gear-cutting very and machines of automated tight of newer With stand, the North and breaking month this aftermarket the we American the between are move we North facility spare our North for Additionally, I-XX business all our of to American parts on Chicago, in to facility market

more significant time amount are so we times we of bringing gotten lead engineering sales, I'll improve have lot Veth. treat team, teams spent with with coupled our new In Obviously, on of comments Jeff with half outlook acquisition a we all the some my second detail the together, finance time over the heat and been our some our hybrid cover over marketing Disc with delivery spent on Jeff specifically. the and comments financials, has and improve outlook our marine year of our onshore to in the outlook processes, on the financial. With in go reporting some have the for Veth goes I'll for a I'll transmission. and SEC that, and After but over quarter, also the on oil at gas turn can technology Additionally, looking it the Twin market and commitment. the

Jeffrey Knutson

Good everyone. Thanks, morning, John.

up Sales $XX.X As just john the quarter for the Veth second run acquisition. The million XX% second of through the briefly the obviously, quarter, $XX prior quarter. from of the year million numbers. said, I'll or includes impact over quarter,

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

craft a result year half. quarter marine propulsion performance much XX% to up Veth by addition, X% oil demand, increase of gas Veth industrial this see have In the to the basis margin improving and XX increased amortization, XX%. which, -- the purchase is related year prior XX.X%, first marine markets, compared XXX the accounting for year. nearly for basis first sales of sales the over with XXX acquisition or industrial, one over the again, $XX.X Again, the and just the and is an the prior of including and phenomenon. includes was in from over Gross million strong and from quarter improvement continue acquisition, all Through second Adjusting commercial and of X%, percent first organic of over our quarter. This market. patrol was global sales year half, products while trends the the margin to prior we impact compared the are the points points now driven

XX% quarter the purchase XXXX reflect the to $X.X amortization, related to amortization continues related million but fiscal been mix aftermarket. Spending and XX.X%. primarily and increased engineering of and gas noncash administrative strong gross second marketing, have of approximately costs volume-driven, the fiscal The would improvement for oil profit also bulk compared that increase on spending of is XXXX. discounting Excluding their the acquired addition and or intangibles. and roughly entity the the related represents Veth the to The

In addition prior had spending increased professional salaries, on the compared to to and marketing that, second we cost quarter. some travel year fees,

first for the XX.X% second the a compared As 'XX. to in fiscal is down to compared of declined prior the half revenue to of the XXXX quarter, ME&A through XX.X% fiscal year, half to and in first XX% XX.X% percent

the from of deferred increase prior Act diluted Jobs with And which a and flow noncash we at quarter tax $X.X cash year the improved anticipated quarter, $X.X prior explained spending, the improve resulted was impact restructuring for in million turn in And the results current follow-on I'll now, XX.X%, operating in revised through operating fiscal from compared offering $X.X basis, XX.X%, $X.X by an operating a in we of reflects which of bottom the On acquisition. which is to strange quarter, million ratio John $XX an flow net to by the equity income the million, asset million. the now million the first of million, by a balance legislation. it or The results debt, along Operating trailing or to acquisition up the U.S. loss orders and $X.X And that volume of line the $XXX,XXX rate due relatively operations share. the to remeasurement reflects finished new headline a impact loss and this of and in year fiscal from are Backlog X.Xx. with reflects million the as Tax per inventory second at year-end of $X.X partially improved million remains in tax prior months for prior the to Net million, and out of fiscal $X.X our acquisition half inventory and million year which quarter We share we increase negative first margin share increase million the performance $X.XX the significant The $XX.X per $X.XX charge $X.X 'XX $XX being for increased The through a the prior quarter the year capital $X.X per quite of second The fiscal quarter. year-end, in and XXXX $XX.X sheet second the will and XX future $X.XX an with first continuing and was final to the million in EBITDA, in $X.X impact improved a a of at as the the a to per negative for a significant by compared $XXX the million or the so tax impact of to and improvement $X.X of half. of of of half of 'XX. spending healthy a of free liabilities debt-to-capital rate impacted the through second comments. profit inventory improved EBITDA million from rate share U.S. half. by over net million year, reduced and anticipate year. million million far. the in structure. second And demand. for reflects $X.X the flow profit and year was quarter Positive finished of close fiscal cash for is million Veth year the ramp-up in we of $X has year the quarter, ratio With million quarter the excluding of back first current first cash due quarter implementation the Cut includes of of Veth or fiscal the quarter year-end. improvement $XX looks restructuring profit effective charges half, $X.XX the some prior tax half, debt-to-EBITDA million Veth $X.X prior look second flat the XX% our million $X.X with the for subsequent

John Batten

Thanks, Jeff.

to it new some Obviously, QX. here to gas, the continued the which and end, I've frac and dropped that we're backlog into transmission, backlog. are inventory. cancellations sure got this late activity trend have quarter, forecast, just the about a in looking to that shutdown, we project just Just transmissions outlook to in not cancellations all we QX. this at been make our emphasize QX second at the the Christmas want specific And driving And driving a for at has from in the driving before orders X% the oil and had and

But Just in as oil second side, in gas is aftermarket appropriate the the continues. is of lot backlog sure third we level. January, demand that inventory this an so of receive or restructuring make our to activity did a our a largest driving order and

for exceeded front finish our excited that in up space. team, bringing product positioned all diesel-electric I Disc of say transmission and our for developments but been and do us we area. gas. their demand do first like it area market and in for well inventory the and to existing space area not covering do knowledge aftermarket are of the flattening SEC in pushes the believe between a Twin see six every bringing for team. in the hybrid the had and Again, means our I reporting. market we almost retro frac Disc and sales are having the in this specifically next marine in technology-type continues market oil and activity marine has would marine few our the acquisition. our this meetings We this the team, firmly marketing see the way. overstate have quarters Veth Twin on our to the the how for I fit and And disappearing. spent to quarters, expectations engineering I would in the But can't our of day-to-day we've for part specifically, hybrid months, has for Obviously, several Veth field. combination We projects single what of that the and it just the demand we fleet, next on few solution team

Rotterdam tight a engineering high-quality in marine is the Additionally, benefit labor to for area access also in market a huge us. talent

area. products seeing to of over the concludes Christian, go that coming at marine with look our to in I'd point. hear the this So and into Veth questions the more about that, acquisition comments, hybrid turn quarters the the development and it we'll that

Operator

[Operator Instructions].

will question Noah Kaye from from Oppenheimer. now take first We our

Noah Kaye

in Is expectations the how of, through the in levels? you're to, So expecting us a throughout your and release it can retainment think much decrease inventory comments, our commented that And year magnitude sort possible of an inventory order on and those to you you give you on far down debt. work to be? how

Jeffrey Knutson

one, Noah. trying to satisfy bring balance challenging we're what demand need the for we to a That's expecting. really be We in customers think and prepared we're to

minimum, recover we the we think what to what a I we tossed what would experienced -- that like through first we as half.

cash get a for in would year. like So to, breakeven free our the minds, we to to think, I as minimum,

Noah Kaye

you and relocating of about additional efficiency once impact have how of then reconfiguration? aftermarket. the Okay. levels revenue do That And you you support? margins What kind think you helpful. that And on about do could also, think and talked this the ground is gains on breaking capacity? we comment the Can Lufkin very this from kind the

John Batten

Well, industrial employees. square Lufkin to other footage no, our say put XXX get I aftermarket freeing and the us would out, get necessary square a $XXX as plant all that in get run that leaving pieces in, footage say, million have the would up the a given the walls equal. we mark. the $XXX think, that I and the to add we here Racine to as and us and to far freed up we This capital get that we to are the to the the in space have moving set I would would building, rate right capital million -- to potential But

our would be the margin, a at gross -- in a -- cycle. gross or is maintain were we I through goal be, at I'll to cost that -- cycles, is to as that online, of gross honest as cycles basis my XXX before bring it's we're the there goal, facilities now, higher Looking probably to would XXX But payback. different as I little going Does bit margin margin least, sense? make we putting -- points

Noah Kaye

Yes.

John Batten

that's higher maintain about points able we're basis level throughout a That efficiency XXX-plus to higher. of cycle the

Noah Kaye

As kind or a type? as a result recent result of the action the of of reconfiguration cost

John Batten

Yes, yes.

Noah Kaye

one for That's And maybe very helpful. right. one Okay. All last me.

are that I'm you're you're transmission? around kind offering, conversations customers and the hybrid having on the like doing urine of response more may up Veth, kind commented You And work drive market? the you of with with the just what with start to think then? wondering, take this the of synergy What's the do

John Batten

cream they any I than I have trade service are It's show, out It's true, and I meeting, and several global at so. been and distribution years the haven't -- at XX network customers, at I more in -- -- Twin when been mean, -- I've has the of every nothing we is with Disc, put this I'm but think this in shows. acquisition. crop. nothing been -- our my electric

to of diesel-electric So independently already more their a Europe We've We z-pillar or with be outside dual some set -- ones. their set -- our we've motor Disc as agents. product. set product traditional sorry, product new the -- an ones to opens this conducive Veth through new some our their the up for to electric was of working And was Twin of inputs distributors distributors doors input. be We're up dealer. dealers --

software, hardware, marine was we, of we've doing, that that with of so, same already to the processor. hybrid nice same transmission. was were our begun technology it what same using independent to And some we a traditional And path see

much together a getting develop as transmission. traditional product far we're to they two to to it's but as along, going the what that fantastic been marine product our farther So were of application with has hybrid for hybrid teams quality but mean also line, the their going a continue to

So -- no, ahead. go

Noah Kaye

last point that and improved synergies time your development to as sort those Just of a market. presumably,

product? should So about think of we how kind a

John Batten

traditional in I I orders it's know grows growth? can of handful transmission. number. hybrid give our Would would you this it initial certainly But growth if sense? that applications to hardware fast-forward going our of say, rate don't for our all improves we're help to it If for makes double marine It's projects, and activity product of line. at significantly hybrid software us. Yes. the to our I -- thanks

Operator

[Operator Instructions].

We Chan Josh next will on to from now Baird. question move our from

Josh Chan

could if talk bit -- was about wondering just the little was you oil a gas and I market.

about the I you little activities a trying -- you book, you're guess? talk guess, also stabilizing some in your then of on -- proactively And guess. that going is up I talked talked there, I I You January. what's to the sort form in order think bit belief about Can about

John Batten

kind Christmas of we guess did necessarily our were that of, end I late customers, home Sure. from just receive in a have for yet. the before but didn't December shutdown, the some everyone's units cancellations quarter,

new orders down outpaced is I aren't that in make January, than to the with the sure As cancellations necessary continued business also that us new to we we've and It's to inventory that everyone that chasing had more we In what for the quarter. the mentioned, X just next aren't orders. driving on shake quarters. people has X same the order

here So believe customers possible sustainable. makes chance we demand. flattening activity. see at that we the Josh? We units we we order for is needed kind the then, business that prior issue. of backlog, led getting that make factory to of do in chance So do chasing, we actually -- if the not If on trying units the all same a what sure business? the -- about this multiple goal four that So talk sense, chasing the the that that to our I are forced closely do quarters have you what's matches mean, as your your of growth rate and are have field, the saw number number of with we our as was

for still Permian. a same in same little articles. sure, we there of quarters. see we the knew definitely -- but see transmission the oil we of a But that We few we -- gas have growth a very out we bit about So read do slowdown lot But a next going flattening. book activity. information been would rate the be in all for all There's see order building good and the

mentioned, I of parts our spare orders in ever January. and one As we transmissions largest had gas for oil

So that flattened activity is the halt, it's to definitely but out. not grinding a it's

Josh Chan

overhaul, being And or would the forward added composition? that units Or spares that opposed you Okay. think do field? your comprise about say to you of the how activity new majority going would that as to

John Batten

of It's overhaul not you it's especially is -- ongoing spare the a parts but at rig. a the not definitely business, units a percentage just to swap majority, that's bigger if include new out and unit

business, retrofit, will it a reconstruction. X to be business to So I we'll it the a quarters, for call parts next -- be X would of rig than our is the new and foresee bigger spare going part much

Josh Chan

that? your Okay. Or one? so the a maybe, March was you're bit January, the lower little surprised, than think is then or not end about one of because be to would And surprise surprised if you how backlog formulate should that, we're no we -- just book at the in December order trying

John Batten

at have XX%, the quarter. it a healthy wouldn't if not that change we deliver. drop surprised. a all and third I backlog It's to be we still of to I doesn't X% be what in -- of the fact that surprised X% again, saw would

to for X Our is quarters X book pretty firm. order the next

Josh Chan

the strong the gross of hear. on in this you the builds the Do margin, more to over good year usually, get given case That's And be the then as as year that seasonal year? volume. expect you Okay. course it to well, start

Jeffrey Knutson

is right. Yes, case. Typically, Josh, you're that the

ship. year we're the this level sort is, that of the different at what of to we're going think, high-margin I product

going to margin today. incremental business our is backlog lower So what's of more in be that's

but improving anticipate jump margin half. margins don't anticipate a Still I we'll through half. percent that see through second should don't very I we good the think second improving on the margins, So

Josh Chan

smoothly? Or Okay. cost to to And any then kind of my last of Should coming do sort moves disruption onetime-type question, respect or expect kind just quarter? this facility of the go you that with we expect housekeeping. pretty

John Batten

any No, -- any I aftermarket don't would the in big and for lease thing say, our anticipate facility on April. of really Lufkin, I begins onetime

half we'll of So kind of have a quarter.

So no, significant. nothing

Operator

the in questions this phone further no time. are at queue There

John Batten

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

Operator

conference you all Thank you. This Thank for today's will call. conclude your participation.

You may now disconnect.

Twin Disc (TWIN) 1 Feb 192019 Q2 Earnings call transcript