TWIN - Earnings call transcript Q3 2019

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Operator

Good day, and welcome to the Twin Disc, Inc. Fiscal Third Quarter 2019 Earnings 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 Sandy. fiscal the Disc, third business XXXX time of outlook. we're in quarter for thank and extremely you months call to behalf you, discuss management company's financial of nine 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 third 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

work what the X some frustrating quarter In the the quarter. third the we to into many highlights represented of in Before million and was detail, Jeff results from effort the higher that goes been put I'll million X operational for it. that was amount could than quarter Sales touch easily fiscal the ways have on and over achieved. of quarterly

and like Some and due gears, certain components furnaces forgings, critical the castings, outs, order in quarter. caused supply to was treat this push particularly outsource all oil during delays heat of issues gas, continued and

demand remains an historic couldn't backlog that is strong 'XX there. oil QX. we more all One we a be offshore positive with growing. and and and into quarter the is 'XX, projects to new capacity at with progress quarter. with the conference our see as the into globally. life growing led fiscal offshore also in America extremely training, enter highs. week. of our and increased turnover we're are as in we after experienced this sign to issues marine Additionally, know has And Houston our been to historically gas market. inefficiencies The we're in of this applications employees Things in happier oil fourth gas and much we'll And which new making North backlog inquiries than we fiscal rigs pushed within improve, growing starting internal higher started backlog signs internal had but more Veth have the and for our in And RF space. far on But

online capacity year, but in added particularly next should will million also space. the X into fiscal and add manufacturing These during fourth gear We in over quarter. in our CapEx come quarter the they the help

tap will for will force labor into next new week, and operation. quarter got to the cycle. our business completely Lufkin construction of Lufkin be more under machining aftermarket more a in new facility. for will up these this currently allow Both in and which market space space assembly Our moving Racine facility its we're critical our also

Europe so in oversee this in far. be North to over couldn't with general, we Netherlands particularly America, the both and market but Veth acquisition salesman brought in their we from happier seen a business results, development. the Finally, We've in great

product engineering our both marine Additionally, thrusters, capacity Veth activities added but of our is and the line conventional capability marine transmission. dramatically speeding also the with up hybrid

recently as the Officer. week, hiring Chief We also of last our announced President new Feiertag Jim and Operating

able Chief For Bemis until the well be that has the from turn Jim couldn't Jim the XXXX. retirement financial. happier With President our transition And to been announced the was facilities, you for people hit Mac also I'll ground our We've knows will Operating the last Executive to running, Jim. will Operations, he over years, knows of and some Moore, Jeff the comments with was market, knows to five we Mac that, be of up Vice and who some of CEO Manufacturing, so remember our our Officer. of our it on

Jeffrey Knutson

third impact morning, the John. quarter the the the for acquisition quarter. of or results quarter XX.X million up Thanks, Veth X. closed quarter million Good sales everyone. of run year on of briefly Propulsion, XX% from through include I'll The third numbers, XX.X which the prior were July

compared The Excluding in third down is reduction related quarter primarily we're in American to of the to X% sales quarter. the the The aftermarket revenue prior Veth demands decline primary the some level oil resulting actually impact driver impacted high in for North continued excess supply inventory demand in and and in shipments quarter. also aftermarket John delayed following of in by was as 'XX. the gas quarter product a referenced challenges chain historically fiscal

or nearly Veth We craft global XX%. increases patrol markets of organic for industrial, momentum now see over marine first in are commercial, the and positive adjusting including three continue and XX.X quarters our sales Through acquisition the the markets. the to all strength million XX%, up

and sales this oil nine nearly first increased sales compared was the driven to transmission X%. While prior demand, have by XX% much and gas nearly industrial months marine of growth product increased

hampered the lower margin with being driver. an gross demand quarter for Our by product unfavorable performance was aftermarket the primary mix

result purchase amortization. quarter. the of margin decline acquisition related third XXX The of the quarter XX.X%, impact prior This third includes was the from accounting Veth points year percent a basis and

accounting XXXX X.X the increased the profit XX.X% and for addition million gross for can acquired intangibles. the Excluding prior engineering or approximately year. was roughly purchase quarter. quarter the to amortization, non-cash of entire amortization compared This on Veth of third to XX% Spending third attributed the and increase be marketing, administrative related costs Veth fiscal

increased also professional We some and expense a impact. stock by These spending fees, exchange increases offset reduced essentially foreign salaries, the have year. on to and prior comp, compared global bonus travel were marketing

the $XXX,XXX quarter XX% the Veth of months revenue line associated of As XX.X% are ME&A first on These prior Log fiscal quarter fell year's were revenue essentially XX.X% nine for operating adjustment in items months first XXXX year. the Through to two in totally to 'XX. fiscal for to nine at with a Included third percent in third of the million. to of compared results XX.X% expenses a the $X.X relate expenses an compared the prior Mill accrual ME&A business to sale the third the related with Propulsion gain $XXX,XXX and assets quarter acquisition. other the and

fiscal lines X.X levels debt slight decrease to the quarter with third capital increase net charges during out significant million quarter. million A operating the feel $XX expectations, the XX.X%. quarter volume jurisdictional headlines year. prior third or the a to The The million profit for the in operating from finished offering year from a by meaningful and the of per close EBITDA million the with 'XX in positive million to just of meet we $X.XX X.X or of months place year times. the have Through results With the of improvement from momentum 'XX recorded in rate diluted quarter impact fourth X of quarter tax no $XX profit spending months, impact million XXX change inventory $X.XX restructuring million by reflects like of to of and we but additional third the of the the improved improved with Through validated basis is follow effective other of year the in the Positive didn't XX million reduced million quarter X.X at items improved to profit million quarter. and total the the as million quarter third On EBITDA fiscal is million. fiscal million million rate of subsequent a fiscal a Veth XX.X% XX.X%, we rate of QX items in profit first to third XX to in and Backlog for processes to X.X X.X reflective $X.XX finished operating share for by legislation remains XX some restructuring continued We compared debt, share. this of inventory. profit we third year. was slight a drive operating Balance prior for material the third remaining acquisition on the 'XX $X.X XX a X.X debt we X.X ratio down $XX.X the the the XX.X of million noted, prior bottom operating a of in the the did per month the year. first tax quarter level. profit share as prior which in unnecessary improved backlog or QX $XX.X in Sheet far. million our so healthy which cancellations of discrete of or quarter impact we to the compared now XX prior nine either prior to reflects includes the order compared at proactively billion earnings reflecting quarter has the million, X.X mix of improvement a from million tailing bringing year. year new profit weren't over million ensure $X.X are the Net We per year nine income experience EBITDA, quarter

and and temporary million remain and move key to a back fiscal flow as negative levels positive 'XX. While John high by up now from in was priority. few spending, in 'XX some negative QX, we look was QX improved Operating customers. results reduction cash comments. by in incoming and third cash levels efforts softened market and into payment quarter capital And received trends a finished inventory impacted XX.X strong remained activity our and for have flow it inquiry we cash I'll ramp turn million fiscal delays free encouraged improvement fiscal a market. limited payments levels in early inventory end X.X final Significant for flow We the been in are in order

John Batten

now two on Thanks, a spend Jeff. I'll moment outlook. the And quick or

improving as and oil and quarter have fiscal very both into far our quarter like trend. 'XX Jeff we aftermarket and as at our XXXX. think And demand the beyond, units third markets to achieve we for our that unpredictable continues anything timing gas and seeing Looking not remain as a good QX fiscal and mentioned, we quarterly the feel markets. with we going to a stable. quarters. be for We bit And are fourth Like do in other backlog backlog all of other new enter

Our here for operational Racine main getting operational remains facility internal our by January capacity Lufkin in primarily improving our XXXX. focus and

look Sandy, product it questions. Jeff priority, and could and product I we've other and the marine, prepared with And line as our will we New please as our develop other question. end and be of take open development we and our electrification and end now conclude Veth apply a remarks. hybrid product to markets. the you happy continues marine take to markets to Those be our your for what learned beyond markets

Operator

Oppenheimer. Absolutely. at Kaye from [Operator our now. instructions] is question We'll first It Noah take

Noah Kaye

you different of Thanks. called appreciate out Good operating on a strikes in and question. the factors couple you quarter. efficiency John, taking morning, the as the

factors? chain, You are mentioned parse we kind the ease those actions supply talk you're then out to space about each the how bigger can which constraints, you of to And labor, the of going the taking of are just relatively bottlenecks?

John Batten

zero oil - would it's then we're from them - a quickly. we at years XX-XX. Sure, put I And and roughly very what up gas Noah, seeing, to and I fair, to ramp of had few be would went

through away labor capacity taking are we're demand suppliers and castings, hyper the when who they and get gears, ramped people of up, we're forgings So have trying us other from our then issues. supplying to markets all this

through What and stuff a supplies marine, to was get bubble the market, gas little them. it's say suppliers in one heat quarter, oil getting furnace would transmissions bit, in slowed RF continually the quarter. is as for I our those and issues for better of the primary gears our some new had through treat So

issue mole a was came that new the that So us. quarter that hindered up whack in the

just - but ways roughly moving would turnover say, up. employees were to rate But to the fiscal the seeing. to stepping attribute had the retiring up I that, they and used have And what in But we've to year. capabilities retirement So get had. seen, half a I bringing and long of guys hire throughout are and to a new also we're younger then continued we've go than also find much we're trying people to half higher that to

So or the were we're just XX, oil marine and XX, It's them gas. having having here multiple more could machines. are that key on, all tool instance, transmissions to one they of guys part training versus or assembling the years, the hire retiring Noah, transmissions that is XX for work that they to that assemble and just or more there and machine train another can't not -

challenge gas headcount your headcount demand, So other improving oil it's the the surging up, the is Does been the markets and trained well with leaving. get to headcount that a get says this that question? answer that the was to year

Noah Kaye

Yeah, June that, gross to kind to expect the results March commented on of you margin then well? you include results, Thank that on Q the as the of financial you. have line comparable does. just to it would a Q, follow kind And that

John Batten

say the estimation far gross margin I'd as a for I next fair happening quarters, - the that going two. gross that's mean, I for say the forward the issues. as couple I'd think what's is, we say supply of Yeah, next the margin, been for would

Although backlog looks drops fairly I get available lose next to anchor. account so purchase for we now the six that to off, right constant But 'XX, that like what once say fiscal months. have we the would ship an we

Noah Kaye

turning helpful backlog. to very the Okay, and

of was in explicit didn't kind of have kind you soft happened You this the that are what in of kind step down guys with there. duplicative last actual - shaking you in orders making softness any lot of were of any just backlog out you you and market? pretty was, or much know, really the understand want the quarter, versus a How quarter same the sure

John Batten

was not this was this and think and No, time, just I Yeah. replaced. this oil being gas shipping

So in but waiting we we we're orders. - gas, new shipped some orders for oil than for took we have and more

Jeffrey Knutson

I X the - right X remember in think cancellations the around I were million the million range Noah.

Noah Kaye

for of us actually on here, if I the of Veth, under products? transmissions. to here Okay. elaborate on development thrusters a propulsion squeeze specific a one commented strength Perfect. just sense just interest bit, but you continuing And in benefit on give seeing and side, the maybe for can kind mentioned you not You sort sort marine more strong could the hybrid that of you on of the the little the Can what please? synergies you're the

John Batten

Yeah.

motor a for have We're have in so master where dual transmissions. the electric which developing marine we're transmissions Veth, diesel our going marine of in lot in gearbox dual engineers system, more the propulsion the so into our clutches is standard with that to inputs input. Rotterdam So experience direct,

years doing So a have they the the for also hardware this been engineers developed. on software, the there have few but

So and the it handles controller the that screens the from all let happen helm.

So hybrid our standard jump is marine activity transmissions. started it for

were we a of so much So - we're farther ahead of before where after integration year acquisition. we've just seen the

to a Our propeller, so And vehicle the there. go are to controlling not like output we we're have transmission whether steers on philosophy master on control it's same controls the our expertise the for engineers controls thruster the where could Racine Veth a taking designed the just about from utilize of clutch able transmission. in or RF. the And the that be module marine gearbox, happier it of system,

to For well and the the understanding happen. how oil do on hardware gas the to also make to it, we way are it software but of

Noah Kaye

Perfect, thank you so much.

John Batten

Noah. Thanks,

Operator

[Operator question next from We'll Instructions] take Tim Baird. Wojs at our

Tim Wojs

morning. good gentlemen, Hey,

John Batten

Hey, good morning.

Tim Wojs

on reverses free get that free to cash bit drag maybe I'll little the it maybe the - just that Is quarter? to slight the of think much fourth flow, you in you a in that's year? going how stretch? maybe Do the third you positive capital saw flow just enough a working guess for I start So, of cash to be quarter

Jeffrey Knutson

this to I a at is for year honest. think stretch the point positive be

flow have very chance I cash think the quarter, a had don't think we good positive three in having far. quarters but of I that reverse the we've we so

flowing good of that that at we think well. will - chunk I least be through continue we a there's QX anticipate through have spending to flowing - in will as CapEx

Tim Wojs

kind that XXXX the down And of then on imagine XXXX Okay. I levels. inventory at some and we into would progress you drawdown further should step 'XX see from as look CapEx would

Jeffrey Knutson

think doing still that investment of have with be the we I a we'll facility. amount Lufkin new fair

at some, than it think a might I think I it'll average but - still at higher come down So historically be slightly level.

John Batten

too. Just that given

Jeffrey Knutson

rate, adding And that but next. Veth up to

we a through in I think quarter working 'XX. again capital good fiscal the fourth also and wise opportunity, have

Tim Wojs

you're I Okay. business, the maybe positive I little mean years. kind years has of you a the And are I mentioned on a there. John, sound mean, And the don't having a which with you think along customers business then kind notable bumped bit. that marine I discussions mean, of offshore you probably last a improvement marine six your offshore the now. over mentioned little in seeing a I bottom know, couple kind you've more of

John Batten

starting to see OTC just some happens - to arrived we're - they interested go very today. see what No, to well,

share there. seen but of little it what bit any signs doesn't because see projects market and to comes interested I'm more of discussion So helps in that, of life a out have I've Veth

the size activity Veth, river. I up Coast through also it's new No, is from here Racine. this again, by Gulf time coming. seen a inland has a a American So just But we've market, the but on growth being been Asia, continued honestly, driven in which orders some North for certain long class opportunity

a of from even kind changed bit , last so what's little slightly quarter improving that's So Asia. trends since stronger orders the and

Tim Wojs

the because customers bottlenecks kind or gas, talking oil the did then - what's I some about And there? kind your you how that summer through orders down quarter Okay. the extended of do into we've Has how are on of of of progress Permian. in on kind and how know had going kind

John Batten

half a more want lot we we inventory outs summer March kind I talked the so domestic But say to we - go some when quarter, and late late get February, will have still at that but late to, record in I see everyone thinks on remember, of to results. they're China. that it didn't the should it was timeframe in going early with of a to improving international, year Trying the some I of going fall cancellations third would ship. all, we fourth that they second mean, this of next orders into far quarter year. into push as fall projects but And both We trends Tim lot be as in and would but had

Tim Wojs

Yeah.

Okay, got you.

Okay. reversal that then to curious And were what dollars then the quarter, thing? us QX, accounting the the was Veth just or an and way a business was in in Veth revenue a there what just was the give for

Jeffrey Knutson

In you're that other income, referring operating is to? what

Tim Wojs

Yeah.

Jeffrey Knutson

Yeah.

earn-out to end and the was So our acquisition, to that there part be discretion. at cash was an what the accrual or stock we as was earn-out provision in paid an of - that either - had

was the QX. be we change stock market to the because therefore we to there of from in the the stock. sort And agreement adjustment in So of the of timing mark end would of that within the quarter made determination a price that the a paying

Tim Wojs

the the revenue million Got XX so in you, was And then or okay. quarter?

Jeffrey Knutson

million. XX over little A

Tim Wojs

time, Good Yeah. for rest luck of Got you, the great. fiscal Thanks on the the guys. year.

Jeffrey Knutson

Sure, thanks, Tim.

John Batten

Thanks, Tim.

Operator

that conference host. appears no your at further It would Instructions] this I time, to to turn the questions [Operator like back

Jeffrey Knutson

Sandy We can close

Operator

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

disconnect. now may You

Twin Disc (TWIN) 6 May 192019 Q3 Earnings call transcript