TWIN - Earnings call transcript Q1 2020

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Good day, ladies and gentlemen, and welcome to the Twin Disc, Inc. Fiscal First Quarter 2020 Earnings Conference Call and Webcast. Please note, today's conference is being recorded.

At this time, I will turn the conference over to Mr. Stanley Berger. sir. ahead, go Please

Stanley Berger

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

hopes, predictions I management, I those that the during made statements call, forward-looking introduce would especially everyone statements. or Before this state that beliefs, future, are intentions, management's certain for like to expectations conference remind

It is that statements. the in results actual from company's forward-looking materially those important to such remember could differ projected

Form information concerning may be copies by materially statements differ the of contacting Additional to obtained forward-looking or company either that on factors are contained actual company's the XX-K, results those the SEC. in cause which from in the could report annual

you By which morning issued this should a news the received market release, now, copy was the have before of opened.

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

call At Batten. this over turn time, I John? will the John to

John Batten

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

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

touch results, some highlights quarter Before the I'll the on Jeff the over goes quarter. from of operational

and order meet products, to vendors of several always to challenges in move previously and other in mentioned faced In we the the we cost. run-up to XXXX XXXXs fiscal supply the lower the supply on at had other prior we call, not demand in As XXXX.

quick some transmission, pricing This RF to Availability with to in key and prices marine of and on reduction our supply in of some who models. coupled we wait. for I'm customers newer concern that of the component not see key business oil cost were are went beginning and our gas resulted just reduction, and our transmissions components resulted decisions combination and to efforts. report cost higher a out quality suppliers effects happy because between could maintain primary a just

come many the come of suppliers, finding Wisconsin. new of While recently new wins installed from have wins here in from plant CapEx improved have our other equipment our efficiency the in

would over Assuming supply bring we going the mix X we as volume online. expect going quarters margins an X static a sources new see the forward, forward and improved as example, next to to

address as the also will other such cost We drivers, overhead make necessary and adjustments.

Now a for our I'll to objectives moment. key turn a strategic of couple

and drive and of limit electrification for our continue our cycles markets. actions and deep us to gas We that exposure evolution to will strategies the oil prepare

and we challenges took the biggest we Wisconsin. the of free oil an One cycle top face to our action in is which plant Racine, of here gas physical main capacity, in space at why is up

warehouse As with efficiency facility almost hour. production fourth facility to a better to organization has have doubled along including of fiscal of respect out we in VLM quarter picks efficient we stated The the storage system, main and call, aftermarket more moved the per our layout plant a new I-XX. XXXX parts, our

to more has so move be freed More staging could importantly, with we locations. space efficient our the up assembly plant our closer valuable that in inventory

layouts held to of to Lufkin. for and in need beginning so the optimize they will here that operation our we fourth on progress be of quarter, we made summer We've significant our events several should the employees XX,XXX facility can square foot what rain. are the a facility quarter, in after hire in Lufkin by processes We at the train we the Kaizen During operational heavy Racine.

of Europe. with products Veth with industrial needed. improve impact grow on looking in our progress, are see diversification, and areas in our hybrid greatly our and marine our facility direct will hybrid us and respect not as $XX having and here could indirect projects applications development. reduce our With especially markets of to of develop provided both a be labor date growth but electrification could have and is all dedicated We non-oil to with million opportunity acquisition has well. proposal, the experience synergy in be North terms to and We X significant efficiency, to the also Asia amount and labor, and the for of and the the Veth's with and that efforts. gas happier we outside in that of transmission better, not ones to teams America business continue opportunity Having between in industrial

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

Jeff Knutson

the new quarter aftermarket along quarter fracking the American related the in of in sales or quarter. continuation reduction build fiscal and Thanks, John, reduction good numbers. I'll down of million run with quarter everyone. first in 'XX activity. million result a the This first fiscal and in briefly XX.X% activity of of prior first through the were decline accounted the The saw fourth reduction is market, from we significant $XX.X is North morning, the million year $XX.X slowdown for the the quarter 'XX. the for of $XX.X in quarter Sales

While we our a this in to temporary growth markets. pause, industrial continue see solid market is in important

primarily prior in marine timing. first of following industrial fiscal volume project X.X% were Global 'XX. year up XX% on quarter, over down sales X.X% prior quarter, the from propulsion the products first growth and Global was year

strong project we continue as fiscal through see marine volumes We work increasing commercial anticipate 'XX. and market global and the in quoting activity to

was year compared margin first XX.X% the quarter. to percent prior The first XX.X% in quarter

continuation experienced the in for Our drivers. impacted rig aftermarket fourth gross new lower being the reduced construction performance with severely the mix fracking quarter was quarter margin for the by unfavorable fiscal product a demand primary and 'XX of demand

will transmission unique set This $X.X a to characteristics. of on population high application $X.X addressed charge resulting cover the with address be million and existing a associated million. a of horsepower issue approximately cost the $X.X recorded performance we cash charge is estimate we addition, entire with impacted product of intended of inventory, to In net that units, impact fracking the in million our

been quarter the fourth would charge, Excluding slightly XX.X% fiscal first profit this 'XX the level. XX.X% higher of quarter, have in first quarter for gross than on the reduced reported sales

have call, margin reduction in a we to on year-end difficult improvement. earnings of continuation cost anticipated As discussed and and focusing mix pricing sales drive the actions this been we

anticipate these We have started and to improving through fiscal actions the benefits of 'XX. initial margins see

along first or nearly fiscal spending, XX% a $X.X the million on reduced the Log of compared and Spending marketing professional 'XX. Mill bonus, quarter decreased The decrease administrative marketing, to for compensation the sale. engineering impact 'XX is and costs of with fees, stock-based fiscal result

quarter an the we $X.X the With first reduced first volume, $X.X loss profit million to performance product 'XX million quarter in reported quarter. operating product fiscal in operating charge, of a challenging mix compared and the

slightly quarter or EBITDA rate first and the prior to first million effective in million million $X.XX healthy $X.X reduced capital reduction year Negative XX.X%, a profit to commitment. $X.X and of with quarter to down up fiscal from in X.XX. fiscal quarter. is prior year per the per 'XX for volume of quarter. slightly ratio prior share of down were than vendor net as of or was earnings. the debt a $X.X sheet year fiscal the the for $XX lower mix Balance compared of by 'XX. 'XX million diluted finished a backlog at share efforts hampered of the debt, net $X in positive quarter total end $X.XX million diluted quarter XX.X% $XXX at is first remains for The slightly the loss was was from million the quarter tax million, The debt-to-EBITDA of first which due of $XX the of X-month the rate jurisdictional Inventory XX.X%

cash in Operating cash limited significant million first $X inventory reduced quarter Free $XXX,XXX $X.X which quarter. is despite the prior in negative significantly of $X.X earnings quarter CapEx positive improvement. was than flow was the and better year with flow the million million,

to cost productivity million spend year $XX in million and modern we machining and expect We and this quality invest drive to between improvement. $XX as technology

turn for comments. final that, some And I'll John with to back it

John Batten

Thanks, Jeff.

a questions. go our mind timing spend in main lower. rebound promises have. I lower and North and good America in know if question the believe on prices will is political are could think return Both improve, and to than We a moment I'll mid-XXXX. is everyone's the outlook. what, could rig you horsepower it effects construction Now effective any, I quick people demand new the on most much or see fracking ban If of do believe that

for ready potentially, that of be XX% growth, Some applications. and are type may solutions, to E-frac we of XX% those

the see completion. be With federal gas If would to widespread I for cost I don't universally implemented ban soar. respect pumping how it everyone to can pressure fracking, production promises oil realize don't were, and is of And and that net beyond energy people political think lands. how for somehow

begin in that growth short-term to to of forward address even should going focus the and message convey the us, as want we improve these diversification the Finally, to few continues management quarters. and next we margin on ahead challenges

opportunities our development. We enhance industrial grow continue explore to our and further to business hybrid

please prepared and be questions. for happy line to That I open take Jeff will And Holly, concludes my now questions. your remarks. the

Operator

come will with Kaye from today question first Our Instructions] Noah Oppenheimer. [Operator

Noah Kaye

really the with product issue up? us confined issue that start on drove Can of is I customer-specific was give more bit you guess just that application that application. color and charge mentioned discrete function your you a and kind the a maybe of maybe confidence to the here a the buttoned drives what just

John Batten

give really details would rate some it's, highest involved. I per you details. day. extreme other and give the I'll highest Well, usage because application, But an horsepower, you the all highest there components pressure it are can't say, I is, Noah,

that really And and amount hours And multiple rig shortest in most longer, So the other like there in the is there's down overall things just vibration, sitting it torsional general, then things how in. addressing application multiple people, generating has. the and suppliers where time. it could last alignment, involved are of this

in our warranty the cases, many up it components. to living of is, life period, is expected exceeding but transmission well some It our other and not

Jeff's there. out potential unit comments, it it every to almost So covers really,

rig transmission. something address So without a we're our we're conservative we by, that having is pull And can on to in being our it addressing estimate. it

Noah Kaye

Okay. And to the the just strategic then improve sort margin. on actions of

what, I if static we of sort about add really kind items listed a different the of kind number guess up, think of biggest here in what of environment? You demand margin of order this And maybe of here. of the magnitude are to drivers all any way just improvement? kind

John Batten

Sure.

costs. our very to best and for the time, XXXXs, sourcing decisions there's lot make We of call, to know if had, for and is obviously much to not, the And first. respect RF answer, moment. it a would, in margin. goal, very lot moving So the year for get we cost in were get answer increase. with a gross of looking did I in capacity too don't And chance XX%. in we've we'll resulted that to suppliers the the the clearly how just the XX%. a XX% honest, and marine and transmission other we'll oil brought to so availability. exit XXXX Noah, to quality I to so gas high But inventory I That, free ramp-up for up XXXX other in we've of good is, to the net has do mentioned products to

just where We there, the for never, have knew we oftentimes, couple volume to the we increases. we first shops business. castings, I'm had were find the happy much production for moved report lower key a of impact primarily castings out some price gone we were stop. significant didn't just now because castings, immediately of the we And significantly. at that availability, but to We're up scrambling door. through a new looking these with sources coming cost that's of because we went seeing We that costs found that had suppliers,

found based on So we steady few you're expensive. decreases back that next we with to That's driver. newer one we've it inside, over less that components brought see sources quarters do for or the going improvement can cost and

our starting would effect, RF and quarter, and Second gas early driver, our lower of into say, next quarter models cost on horsepower Those going oil increase, price some models. transmission late this I are this quarter. and increases

are pricing would have the we'll be Those main the, would cost I drivers. no, improvement, those So improvement. say, X

operating efficiently. we see You'll some, have, aftermarket more is

direct indirect, here The I and to our say, to ratio, we out, moving the of time in particularly, still a and very temps. have, efficiency greatly accordingly. much the plant Once industrial get ratio we this product spend will around. inventory we I would improve we'll say plant is we at overhead of lot here too full, indirect adjust be Racine, would have still the able

combination due components to So see and it's X effect But will going to roughly XX-XX of the of be margin be improvement a immediate that those. lower prices. all higher on cost of you'll

Noah Kaye

that. you think stability I on in respect demand. Great. on appreciate continued with commented I the now to guess environment, I And obviously backlog. seeing are quoting marine, positive direction for demand and the kind of you

kind Just uncertainty we impacting theme right, continue is broadly, of for as macro this global because to about wondering CapEx industrial. a hear

trending? has portion can your marine would spending backlog, And trajectory. of the on end been to markets, any characterize Just how give relating how you you specifically the color marine

John Batten

perspective, because they a big are, $X for vessel. small million is order over project one a to in several is Sure. new hundred Veth it dimension typically I would, put thousand is us dollars, a for a the

business, a Asia is when constant, and more we're more in America. has more you development North So Europe, have in and it's getting $XX big And order that a and more but remained interest because, chunk. each million and project actually activity

is what we a were it declining a definitely to in just to So in a more us business, I if say decline, have even in here bit traditional chance think actually, the little America the out flat our we sales. tied or market, gives chance, stagnant particularly confidence that to or It's overall that's tougher a and Racine, on which remain Asia, our increase North market, economy. to of is have more, particularly

So in to backlog. to our to, well, were trends. marine, environment, were macroeconomic as it the I where economy expect see is decline and a things confident, the you'd our marine the transmission marine remain, as reflect is to the transmission long doing decline people market, are right domestic it think I if If in now, slight

Noah Kaye

Okay. this Great. impact mix, seeing you Any just are what beginning any over. or more fuels? And one is squeeze usual? if it on turning before I X, how electric any Or really? or implementation normally in marine alternative other be maybe is give you IMO business XXXX on on an could demand January battery, shift can any color to on as would having there impact

John Batten

a are back, get every What Noah, dig into design up. throw for is I can us or at least, hybrid both more it's and they and But more applications details. month, not more a where marine, or and would a bad solution have and vehicles. millions good is coming of it to X or will I every Honda quarter, platforms sell one Toyota there across in GM, X

design each a for with boat dealing each builder, You're owner.

each particularly solution, or of concerns, application. in And any driven environmental a customer it's hybrid any is it's So emissions. not, more lot diesel-electric for absolutely exploring, But being market work marine, any a solution. absolutely, by size in

are there incentives cases, tax it. many In to do

that of all. But to it's it economic. solution part design one hard fits is So

to we're good doing designing marine market of with of diesel-electric in want to to be be our transmissions the plug-and-play. able solutions to to any go with that we're and very job one think multiple of we're designing can marine doing, Veth a able system on a our simplify I markets. multitude each So We or control react a across it's, models, hybrid

is. know, hybrid. a where lot that's We and we of want to going our to ready. development product thinking it's And go be So particularly,

in our want a if difficult purely We goes is electric to be achieve. of electric. it marine But ready also purely to markets, lot

Noah Kaye

for Jeff, I manufacturing Yes, eliminations quarter? apologize. chance, provide the the Any revenue distribution housekeeping and in could just and quick one, I'm you sorry, Yes. understood. breakdown one

JeffKnutson

I yes, information one don't, I that have second. currently. do

for it $XX quarter, So about million $XX in eliminations. numbers, was, the round $XX manufacturing, distribution and million million

Operator

from come [Operator Instructions] Our with next will Baird. Chan question Josh

Josh Chan

industrial? is predominantly now? of were first fair improvement my would kind you kind get is the gas think in any now Would what be backlog on be guess right it top if oil backlog. and marine your number I as the question of and on that to right of of to And

Jeff Knutson

absolutely. Yes, Yes.

Josh Chan

Okay.

guess, that projects. you And on to then, oil I continuing you're so I quote and potential mean mentioned guys gas improvement. the

how quarters? what by, customers that about couple is of in So terms suppose, from next timing are your I they're what over the you dictated hearing and thinking of

John Batten

small, have Josh, We call a the peak still it's of overall we Asia. in John. it, what was

So Permian out in continued think have the of being Asia. we America, going in projects I issue say on it's, the addressed. the I is capacity, would pipeline North

company. honestly, think, again, and cash talk stability I cost it's each it's, price each I flow. for different person to, and But

effective you're horsepower fleet. going in think see to North to the do I continue American the think, I decline

So you'll of the see on turn back Maybe pricing, get in in I see again, demand something on, next X the problem we get out, XXXX. not I rig the new is construction. quarters to improved general think any I closer a that we it's if if think, there's quarter. there, sustained, election. middle But But is, faucets

but is Josh, North used is equipment worse rig So the every it it in again, day. now all getting But construction see America. don't can, we'll almost rigs, everything our that new I than see, being everything much of that, single on right

Josh Chan

Right.

And on And a it then just to the there sure the in wouldn't the also, just make expectation that similar charge, of be that, the Okay. Yes. is charge mechanics I next wanted it. quarter?

would took kind of gross of have kind the you that against that that margin? would mean would through. how that sell Just you you lower kind inventory, flow when it If inventory, of

Jeff Knutson

Yes.

wouldn't taking inventory. need would to rigs. in be that components the We the So be be to selling inventory replace no, out the we replaced

accrual impacted inventory the cover That to in population accrual made. was an units. reduction that a the offsetting So to we of it and be intended would reduction

today, know what an don't So we charge. anticipate yes, additional based on we

John Batten

would covered spending, it. would If else, today. something I be about would, we think don't But that else, our Anything normal under that warranty Josh, that know warranty yes, accrual. be

Josh Chan

then first are And how great. on this expectation be based able What is your to last generate year free positive the the this is, question Jeff? still flow That's there, gone? Okay. has cash might quarter you thoughts that

Jeff Knutson

I Yes. of in accelerated of bit of It's little of, CapEx say, going in to just I be timing had we deliveries timing mean, machines. terms tight, right? would a

a ease somewhat lot the some does. I'm on depends that year. going rest that of average reduction, should over So see the of we're confident to the what but market on inventory

chance I would we positive and So the for year of flow. a say, a of full free think the I think, have breakeven, target. cash for is being reasonable good rest the I year,

John Batten

I imperative Yes. strategic we would and would running. that that say But bringing if for Lufkin get be. weren't we us to a is online, up

Operator

And at or any conference questions remarks. to for this I'll over our closing time, speakers no queue. we our in back further additional have turn the

John Batten

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

Operator

ladies that conference gentlemen, for thank And your for participation. today. We you. conclude and you Thank our does

Twin Disc (TWIN) 3 Nov 192020 Q1 Earnings call transcript