TWIN - Earnings call transcript Q2 2020

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Operator

Good day, and welcome to the Twin Disc Fiscal Second Quarter 2020 Financial Results Call. Today's conference is being recorded.

At this time, I would like to turn the conference over to Stan Berger. Please go ahead, sir.

Stan Berger

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

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

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

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

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

not have will you Mianecki she call please and If XXX-XXX-XXXX copy a at received you. a Annette send copy, to

today Twin President of John call Vice Financial Treasurer Officer, Hosting Batten, Chief company's Executive Secretary. and Disc Officer; Jeff the Finance, the are and Knutson, Chief

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

John Batten

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

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

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

changes to fiscal supplier cost some in of on XXXX. four been the our gas issues mentioned transmission we addressing As and models prior and calls, due we've in oil XXXX marine run-up during and

progress to go approved. XXXX more suppliers out and continue we other from cost. few production. we a to a not fiscal over million $X identified have this in had many expect components and supply just to to other demand We three to in spread are vendors savings and add and move as new for bring date, quarter lower models, over To on parts order actually into out had at we the new meet In made significant products, always to

margins supply volume Assuming eight to also sources to a and suppliers in key new static a Asia partner over identify improve help mix quarters, with more expect next to bring and us going an the to work region. as many outside we online. We've the example, to to begun continue we validate forward four

early In the offered our we've quarter, second reduced year. operations, XX% to million employees the in headcount the about we $X.X domestic by also and package an our half our retirement about of domestic another savings for and

this online to capacity As as our demand it added facility of lost in will some be our Lufkin improved, comes market this summer.

to continue global the cost as, such address as make necessary We other – to nonessential adjustment. on adjustment a overhead and drivers basis,

the out were wish program. One another end but isn't in continue outcome was may write-offs. the the marine accounting in program the it bullet that the release probably time moment a This We form. propulsion and any or in of charges This the of end of story. cancellation partner an stood also different, is

surpass to of and a The America diversification continues the North continue point grow. our Now, to focal our I'll orders for a strategic Veth for Veth expectations to active their to moment. couple objectives acquisition Asia in and and projects turn be effort.

you getting the Mist at the coming near One is ferry a recent should integrated of is with applications of more the Veth our future Maid all-electric of in boat see lot more from the that an L-drive Niagara and Propulsion. Falls attention

markets in between our drive our and develop to other hybrid and Twin as solutions continues market strategy The cross-pollinization Disc continue system both we as component to our Veth evolve.

facility gas along you business American and moved a the in Corridor our to for oil planning that aftermarket capacity we full In North including the ups terms stand-alone cycle, have we told the of I-XX has were running facility of the we and That since when man-hours Chicago. shipment are factory. last we terms more and than up we were efficiently in per between summer Milwaukee in running been and

lift transmissions the location more in much dedicated using modules our as Currently, for we facility a are and depot parts to operation our the operation. coming efficient. Vertical is a making European layout marine from

first should Our facility nearing fiscal the completion and is shipments Texas in Lufkin fiscal in XXXX. occupancy with first fourth we in our take quarter of the quarter

the personnel XXXX a begun a ramp talented Access to identified in we grow Shipments models should Racine, key from labor to hiring the help growth have for We will is force from and American different growing production. for fiscal throughout as program objective. North plant get Texas move plant who critical our limited operational. up

planning Finally how our operations main a new and run and our retool program sales begun processes facility at in we our to we've business. Wisconsin,

freed XX- downturn an time and two CapEx our the reset journey recent that this all of past it With the kicked perfect to earlier we hires new up XXXX, This space. to is floor to and the of retirements is off years, best utilize new in spending XX-month our month. and

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

Jeff Knutson

just good prior second I'll quarter. second XX% quarter million of down from Sales the through the Thanks, with $XX.X under year everyone. run numbers. morning, for and briefly John were previous quarter quarter and XXXX the $XX.X million the flat fiscal or

market the of activity a American gas XXXX. is second decline and the decline oil new and quarter build fourth million of in the significant industrial $XX.X the in marine saw with reduction reduction global for and aftermarket is slowdown in sales primarily accounted the continuation the result of quarter we and in the softening fiscal The markets. The quarter along fracking North the in in

prior down XX.X% to foreign million million Through year with contributing first exchange $XX $X.X or now currency compared are decrease. sales to that half, the the

compared the Second quarter to was year margin XX.X% percent quarter. second prior in XX.X%

new by for rig performance demand fiscal quarter aftermarket which the construction unfavorable XXXX of with for introduced lower in being continuation drivers. Our began again primary was mix impacted gross the quarter product demand margin severely a fracking the fourth the

of the on the the for in overall reduction over a production trend targeted cost second products which improved focus first and Gross efficiency. key was has containment improving XX.X% of This quarter quarter cost and actions profit result XX.X%. fourth on fiscal XXXX, of is quarter percent

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

expect of We this XXXX. continuation a trend see to through fiscal positive

sale or marketing, on a marketing the last decrease quarter compared administrative XXXX. million spending, Spending result fiscal over engineering impact and fiscal third stock-based is fees, Log XX% happened with in the the of of fiscal quarter of reduced $X.X for professional The comp and second XXXX, along costs decreased to just which year. bonus Mill

decline With three struggling This charge gross to aggressively provided related pursued partner-driven production restructuring quarters, and cost included termination a charge we million over $X.X was propulsion market and the oil services. million gas marine to program opportunities $X.X the for the the reduction development second compensate profit. A in of had reported past of in quarter. which we've the for

charge the to $X.X write-offs assets non-cash $X million was with settle million cash in commitments $X.X comprised million associated accrual supplier of program. This of the a and

recorded at our restructuring we $X reductions charges and to headcount In operations. domestic European in addition related million about

quarter second quarter will little reductions the those annualized John half $X $X in and million of As volume, reduced operating of loss over mix just to an generate we million reported basis. fiscal million $X charge a the savings the a and an in quarter. second noted, on over With operating significant the product compared in XXXX challenging million restructuring second $X.X profit

year. operating in we $XX.X declined the first to quarter. Through has million first prior of charge the the $X.X a of recorded of loss includes profit restructuring in operating million product charges and first $XX.X the million XXXX half profit $XX.X fiscal The by operating compared half to $X.X the profit – performance million million

The rate foreign domestic credits XXXX first position. significantly effective was fiscal and lower year provisions The than significantly of was income a certain Tax the loss current by GILTI tax than of requires rate but prior of prohibits inclusion just foreign impacted for half the year Jobs Act, in deductions X.X%, Cuts rate XX.X%. which the the the

$X.XX first the $X.XX for XX.X%. rate a tax net net XXXX quarter loss half or to profit or by second $X.X diluted compared of inclusion GILTI million The per of The fiscal was million $X.X decrease share per the share $X.XX per net loss to second was year $X.XX fiscal compared the million prior the the $X.X $XX.X share million in first or or quarter. of in per half. Year-to-date, a diluted share XXXX net profit

quarter. for $X positive Negative million second EBITDA million the a $X from of in the quarter year prior of is down EBITDA

in covenant slight million we're EBITDA credit issue half. half, negative recently first million, and positive anticipating the compliance is decline the results with debt in $X.X XXXX likely in increase in first maintaining the agreement. to compared in fiscal EBITDA now EBITDA For debt-to-EBITDA This levels a a $XX.X our

provides to was amendment well with agreement January of quarter through finished of market we covenant We X.X. and challenges. the to the the quarter This we work began we're third the discussions the X.XX, amendment, debt-to-EBITDA covenant BMO able amendment which with relief ratio current the temporary credit within as this during requirement Under revised on close a XX.

in the the as was $X.X resulted this and by vendor as the the a of propulsion was the in of accounting volume was in million program Inventory credit up commitments. reduced million efforts the $X.X related time at $X.X program, canceled. the increase quarter, to balance million cumulative percentage reduction of termination hampered completion were inventory

from significant capital spending, free the fiscal in flow is $X.X Six-month the the in a finished $XX.X end million, was backlog and With million just which of slightly debt. $X cash no million improvement quarter at increase million inventory at XXXX. negative driving down $XXX the quarter

remained positive better first $X.X prior Operating relatively in levels than cash reduced investments first in and machinery CapEx half despite year inventory. earnings increase high on slightly equipment. key some an flow and as half significantly the was for execute million we the

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

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

John Batten

Sure. I'll the spend Thanks, moment Jeff. on outlook. a now quick

the faces second XXXX same challenges The of the oil gas first of still of domestic half. and half fiscal some

of We oil are and a seeing broad aftermarket gas. across signals of range including life markets

this are activity and hope that remainder increased throughout of continues the year. We fiscal seeing the rebuild

the the January the A this backed are was rapid in happened market, starts disappointment speaking industrial second with early positive by quarter up across orders. in aftermarket in drop suppliers increased demand

in until fourth don't quarter also provided the and should domestic and trend better have doesn't terms customers this see in in quarter recent continue. make of to third new our We demand summer. a gas the that margins and our any oil dramatically revenue improvement affect coronavirus see We quarter outbreak backlog Asia unit

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

Operator

question we'll with Instructions] [Operator And you. Kaye our Thank take Yes. Oppenheimer. first from Noah

Noah Kaye

good Thanks, morning. and

on? what efforts activity? to factors that back come clearly, back stripping consider and the some to further So got likely gross to through, we in it mentioned to restructuring, you kind in for EBITDA you're out of are margin. looks like how the the you half just Just the vis-à-vis Sequentially your improvement rest some help trying costs. foresee cost improved to normal Which how you this...? reduction kind of take year-over-year Are out commentary mentioned understand in potential back your of us markets? around any improvement cost actions levels going decrementals of you you I'm get those the continue levers pressing that balancing

John Batten

Sure.

finding John. new going to two material the parts -- well suppliers. three parts. So in cost We're We've variable continue Noah, got coming its

cost our in we're out I that Second then actively efficient down reorganizing operations here, Texas, But improvements of three to all being North one more there's of America our is plant getting rationalization a say outside processes. component would with operational domestic the and fixed and industrial on working is still those.

Noah Kaye

America helpful. clear, prepared it transmission And remarks, soon, to gas come certainly the back of then North not oil you expecting end That's OE be to time correct? market at the not said any you're and Okay. your

John Batten

year. some But we fiscal be there be shipments there year my into in significant this won't think won't orders tells I they're see -- this putting this could use. shipments it gut any me any fiscal fiscal but year,

Noah Kaye

a the Okay. could essentially that program? termination If legacy How Veth of marine that understand was… Twin little to a ask a can Right. of on just program? it that give color that bit program, you Was Was on I us propulsion that?

John Batten

sure. -- was It

Noah Kaye

that? of …component

John Batten

North That's never it's Sure. close that years John It's their maybe here strategy program announced still we program -- in We production. engine and changed eight with ago to the again. a got more yeah, into an And a was OEM America. canceled. has

-- lot on a continue of continuation it. has is part it there's our -- So name to charge it on the will have a of have where if this we to

here continue We the it. So lot with of it. there's name can't charges reflect on on another a pause and a

of Noah. third there's a quarter call, I not the certainly the the I there's release certainly, third to story a have before the the it's you. rest chance end of hope So the story I by hope conference conference call that but quarter here for have

Noah Kaye

I’ll that. jump queue. in check I’ll the back

John Batten

Okay.

Operator

We'll next Tim from take Wojs our Baird. question with

Tim Wojs

guys. morning enough. good Hey, Close

John Batten

Hi, Tim.

Tim Wojs

as the the $XX Maybe half you in can half of kind use this first back revenue orders year as the of million some back of we think rate you're the improvements you've to marine, just if seen in in base? run you to we see -- do like half the got, maybe of some a million big in Asian that maybe about thinking and a of the you've how ramp? Can just $XX

Jeff Knutson

We're just it's Yeah. to Yeah, I John what XX% anticipated. Jeff. side-barred. XX% thinking is and is

Tim Wojs

half? From the first

Jeff Knutson

Yeah.

Tim Wojs

Okay.

Got Okay. you.

what the how you the mentioned impacts release delays then I -- that shipments material? that? big in was think the big the was And was Is some Okay. that press production had -- how

Jeff Knutson

Yeah.

way do our the be. it's expect had been we materials million about should the and enable where the up that gone that able quantify needed out we So assembly to we that to have could we to get we ramp assembly to $X

in So impact it's $X quarter. the about million

Tim Wojs

would in -- be third the that you And of Okay. shift would included so quarter? really kind in that the think

Jeff Knutson

Yeah.

Tim Wojs

you. Got Okay.

be I you of comments some the on John. find the the kind Okay. that to what the down workforce Because just couple Texas? in hard to there Racine from people for And to been we've voluntary of over in Is guess going guess then from years, restructuring I shifting made it's you Racine. some retirement structurally last and seen of

to color background of And on of the retirement? so -- the kind kind just maybe I'm the voluntary just curious of some

John Batten

retirement had is and on fronts. age a are timing plant It's Racine have we down two the Yeah. -- at capacity in I in who right terms near people mean, in We excess of online coming retirement Texas.

So right. you're absolutely

retirement. here. comes early the in Lufkin to we Texas. we the online, got a as of the lot We've we lot have lot knowledge of take that's production But of handle right, those you're and And hiring We as bodies happen that a people -- leaving. can replacing a of right going absolutely

Tim Wojs

Okay.

John Batten

down of one their of Again, was we we're very there. reasons because chose And Lufkin optimistic. the specifically labor pools

Tim Wojs

Okay.

John Batten

find And employees down we've that quality of able there. to the been

Tim Wojs

Okay.

look the Okay. Lufkin can think anything Jeff, aware or we like type of there And at? that of then, sort And underabsorption gross level Is margin as comes what of? do you we XXXX, as kind should you year that be up. of then at any exit

Jeff Knutson

Yes.

are last think, targeting mix. probably and slippage said ramp I XXs the change being absorption a some exit would get Lufkin, we activities that in we've been quarter in high I I good first think, change have down So, well, wind as the mix we to be no -- moved up as we some in I guide. year, as and maybe might think will we And in to we significant assuming the quarter. to think, Any Lufkin

John Batten

-- whenever quarter, bringing in drag to be won't just want in because slowly. of will We're a a will to we QX shipping up will right. have -- think going the -- we moving XXX%. I Yes. Well, be We'll do can't improve. the definitely first increase just in bit be it but of it quarters, take We for little expense -- few first it it it

Tim Wojs

Okay.

at the an million kind $XX sense. makes expect to if from of I $XX be kind consistent of pretty do SG&A perspective, sustainable? SG&A of for level of you guess, level or this That kind million revenue, you're And then, Okay. just

Jeff Knutson

Yes, or I think, a within minus plus so. couple I mean, of range, that Yes. percent?

Tim Wojs

then And with just positive cash last the for be Okay. to of the you All do able year? generate inventory, rest think right. free one, flow you'll

John Batten

was glad a I was a negative going propulsion jump there. foresee marine just Tim, -- was I'm ask that, And asked reversal like program. Despite I'm of I that. you glad you the you bit inventory I'm asked the like the to again, didn't for make me. to the shock So interject that because I going on from question.

But in lot the down We a primarily went the factories actually our inventories shipped not December Racine, in that quarter. at in make of factory, had from cutoff. here stuff did quarter

So transit gotten haven't or our the distributors in they're -- and don't customer and got either yet. distributors, we they they to our company-owned to

trend that be trend. will see during the the second the remainder I of So, will improving think, of you the an year half

Tim Wojs

mean, I like it Okay. sounds --

John Batten

the to to it getting factory. this at down and had go We see in First, it's customer. factory the Yes.

Tim Wojs

it the pretty called $X million to with what decent you're production marries I that's that's and push inventory probably that's you delays, out, out. probably of of Right. some transit kind seeing mean, going on in that

So --

John Batten

There's a right big now. chunk transit of it in

Tim Wojs

Okay.

Okay. of Great. rest guys. on the Appreciate the time. Good the luck year, Thanks.

John Batten

Thanks, Tim.

Operator

our to go from next Neuberger Berman. with Rand we'll And Gesing question

Rand Gesing

guys. Hey,

John Batten

Hi, Rand.

Rand Gesing

we that little On specific? push? some margins out? inventory you bit I more gross in coming see rising mean, for was to could generate your can million flow Given be half? a supposed second cash and mean, operating I the $XX question, I last

John Batten

be Yes. might $XX the side. million high on

half. we what – call positive like We it, think Free in we think, spend. to CapEx, the will cash, halfway would do have say be operating we thought definitely I'd we're second cash, I I half. should in we positive through which, yes, the be about, second

cash might half, X% to I operating to $X maybe million we So, in what I cash X% of think think, free second in million expect. is in that and $X the

Rand Gesing

this sense a for Okay. can Veth to the give I the revenues acquire it's the side, impressive know, And at there us time? you on but company,

John Batten

of bit a on question. the cut the Rand, you first part little out

Rand Gesing

Yes.

the acquisition new On Veth, new. relatively the acquisition, on the

John Batten

Yes.

Rand Gesing

grower? it's a mid-single assuming I'm of digit And revenues? the sort are What

Jeff Knutson

big first million, through I say project-oriented would the the very shipments first Yes. half; so their revenues were That's around half in $XX -- their they're $XX come million. chunks.

flat previous to year. the kind was half of First compared

think the activity we -- as a North particular what -- right have America in in we I growth now optimism seeing fiscal we're that is the lot around get activity order of in into XXXX. driving

Rand Gesing

Okay.

Is had XX% end throughout of of I case just base weak or broaden that your revenue So, obviously, are weakness out a me? sort sort whole think. the markets that of of a for the we've bit characterize to that

Jeff Knutson

I Yes, think so.

beyond right growing them. of markets there are X% would X%. I that are across I And weakness end most say no think now there's or

few are as there is right a spots. it bright yes, about So, as gets Stable good now.

John Batten

would I the-- say that So,

Rand Gesing

hear you can Guys me?

John Batten

Yes. Rand I would add this. that those

Veth with are are taking we though, even and down Asia we gaining market. America in -- Okay, North share market in a

our expect in to at the would growth growth to I -- So, rate to Veth market rate. continue Veth outperform

Rand Gesing

Okay, great.

better results in brighter and the some a to Thanks. XXXX. forward Looking half on second --

John Batten

Thanks Rand.

So you. are Thank we.

Operator

And take Instructions] Simon [Operator our G.research. next we'll with from question Wong

Simon Wong

how Can your you this business big quantify quarter? is energy

Jeff Knutson

kind -- a specifically We is a we wise know guess. bit the aftermarket shipped question. A units energy good the of little like of that more

So, would million combine to million. $X forward It you the around $X aftermarket. say my I would million and guess when best be it's $X in

Simon Wong

Okay.

new some in builds is there. there So,

I So, mean--

Jeff Knutson

In Asia.

Simon Wong

Okay.

Jeff Knutson

Yes, went Simon China. I quarter second would guess, most -- new in yes, to units say you the have of the would I well, -- that XX XXX%

Simon Wong

Okay.

is just how was what business. the trying And great. aftermarket trying to the for mean business? Because energy I get -- at. I big aftermarket Yes. That's I back Okay, to I'm understand

Jeff Knutson

quarter quarter half. roughly This it this was say would I --

Simon Wong

Okay.

that also been some offshore? offshore you up Okay. And few that orders rate have quarters Been offshore. in a picking business energy order for incoming the now. going you Are a hearing in seeing pickup then your to

Jeff Knutson

distributors. our that's all at see well at some to quote fortunately, activity. -- handled just And existing project We're starting being inventory -- our inventory by of

that's out then first us inventory thing sitting for we market orders. do replacement have is, into we'll get the get So, and to

would I market. some that there's -- of some say yes, small signs So, signs been in life

Simon Wong

how That's I were back for offshore look six to Okay. you? encouraging. If these years ago was five or initiatives big

Jeff Knutson

Five 'XX. or six in

I to peak. have almost been That our million. double XX -- So mention want would you're probably but $XX check it, back I going to will

Simon Wong

you side, How goes for? long it yes? gotten amendment? amendment on to Okay. the then four the that And leverage. amendment covenant that Great. right. you've All after times is mentioned And good then just does -- And what an go that back

Jeff Knutson

Yes.

will that filed. So, there's an X-K be

fourth up we've X:X backing see 'XX quarter quarters essentially quarter back get the and You calendar that the goes quarter quarter over in of details. down ended, 'XX. got X:X next we can and But the to the X:X to fiscal two just starts for next the the of the then in second a it or

four really a it's three, of relief. So, quarters

Simon Wong

All Okay. all questions I That's the Great. had. right.

Jeff Knutson

is -- EBITDA the charge Remember -- add-back the charge. is component of also potentially it back type of that I million in other guess a restructuring charge of other performance maybe the added treating to we includes important the QX. gets product the Simon $X.X that as kind

Simon Wong

Okay. Great. Thank you.

Operator

closing no It you questions this back appears I'll Mr. any time. there turn the Batten, for are call to remarks. further or at additional

John Batten

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

Operator

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

now may disconnect. You

Twin Disc (TWIN) 31 Jan 202020 Q2 Earnings call transcript