Twin Disc, Inc. (NASDAQ: TWIN) today reported
results for the fourth quarter and full fiscal year 2023, which
ended on June 30, 2023.
Fiscal Fourth Quarter 2023 Highlights
- Sales increased 10.5% year-over-year to $83.9 million
- Net income attributable to Twin Disc was $8.6 million and
EBITDA* of $13.0 million
- Significantly improved operating cash flow of $16.0
million
- Free cash flow* of $14.9 million compared to $(3.4) million in
the year-ago period
- Strong six-month backlog of $119.2 million supported by healthy
ongoing demand
CEO Perspective“Fiscal 2023 was a
tale of two halves. After facing significant supply chain headwinds
and cost increases in the first half of the year, our team
maintained focus and executed exceptionally. Since the start of the
year, we further streamlined shipments and caught up on past-due
orders. The cumulative benefit of our pricing actions from earlier
in the year and easing supply chain conditions, combined with
operational excellence, contributed to sales growth, sequential
gross margin expansion, and significant improvements to operating
and free cash flow,” commented John H. Batten, President and Chief
Executive Officer of Twin Disc.
“Global demand across product groups drove solid
year-over-year sales growth for the quarter and full year. We also
had several projects reactivated after being canceled during COVID.
The macroeconomic and geopolitical environment remains uncertain
though project visibility, customer inquiries, and after-market
demand continue to fuel our cautiously optimistic outlook. As we
look to fiscal 2024, we remain committed to maintaining our
momentum, driving further growth, and delivering value to our
stakeholders,” concluded Mr. Batten.
Fourth Quarter & Full-Year
ResultsSales for the fiscal 2023 fourth quarter increased
10.5% year-over-year to $83.9 million and fiscal 2023 sales
increased 14.0% to $277.0 million. Fourth quarter and full year
sales growth were similarly driven by demand for the Company’s
Marine and Propulsion Systems and Land-Based Transmissions markets,
and favorable product mix.
Sales by product group:
Product Group |
Q4 FY23 Sales |
Q4 FY22 Sales |
Change (%) |
(Thousands of $): |
Marine and Propulsion Systems |
|
48,634 |
|
39,693 |
22.4% |
Land-Based Transmissions |
|
22,864 |
|
23,259 |
(1.7)% |
Industrial |
|
7,928 |
|
9,800 |
(19.1)% |
Other |
|
4,497 |
|
3,222 |
39.6% |
Total |
|
$83,923 |
|
$75,974 |
10.5% |
Product Group |
FY23 Sales |
FY22 Sales |
Change (%) |
(Thousands of $): |
Marine and Propulsion Systems |
|
158,291 |
|
135,008 |
17.2% |
Land-Based Transmissions |
|
73,048 |
|
64,904 |
12.5% |
Industrial |
|
29,775 |
|
32,100 |
(7.2)% |
Other |
|
15,846 |
|
10,901 |
45.4% |
Total |
|
$276,960 |
|
$242,913 |
14.0% |
For fiscal 2023, Twin Disc delivered double-digit growth
year-over-year in the North America and the Asia-Pacific regions.
The distribution of sales across geographical regions was
consistent, with a slight increase in the proportion of total sales
coming from North America versus Europe.
Gross profit increased 2.3% to $24.7 million compared to $24.2
million for the fourth quarter of fiscal 2022. Fourth quarter gross
margin increased approximately 340 basis points sequentially to
29.5%, reflecting the benefit of prior pricing actions, continued
easing of supply chain headwinds, and successfully executing our
operational playbook. For fiscal 2023, gross profit increased 8.0%
to $74.3 million. For the fiscal 2023 full year, gross margin
decreased approximately 150 basis points to 26.8%.
Marketing, engineering and administrative (ME&A) expense
decreased by $0.8 million, or 4.5%, to $16.6 million, compared to
$17.3 million in the prior year quarter. The decreased ME&A
expense was primarily driven by lower bonus expense. For the fiscal
2023 full year, ME&A expense increased 3.6% to $62.2 million,
primarily driven by subsidies that did not recur in fiscal 2023,
wage inflation, and increased marketing activities. These were
partially offset by the impact of foreign exchange and reduced
bonus expense.
Net income attributable to Twin Disc for the quarter was $8.6
million, or $0.62 per diluted share, compared to net income
attributable to Twin Disc of $10.2 million, or $0.75 per share, for
the fourth fiscal quarter of 2022. The year-over-year decrease was
driven by higher income tax and interest expenses. For fiscal 2023,
the Company generated net income attributable to Twin Disc of $10.4
million, or $0.75 per diluted share, a decrease of 0.8% and 3.8%,
respectively, from fiscal 2022.
Earnings before interest, taxes, depreciation and amortization
(EBITDA) of $13.0 million in the fourth quarter were flat compared
to the fourth quarter of fiscal 2022. Full year fiscal 2023 EBITDA
increased 7.6% to $25.8 million from $24.0 million in fiscal 2022.
The year-over-year increase was primarily driven by higher income
tax expense.
On a consolidated basis, the backlog of orders to be shipped
over the next six months is approximately $119.2 million, compared
to $127.7 million at the end of the third quarter. As a percentage
of six-month backlog, inventory increased slightly from 107% at the
end of the third quarter to 111% at the end of the fourth quarter.
Compared to the end of fiscal 2022, cash increased 5.9% to $13.3
million and net debt* decreased $18.7 million to $5.4 million. The
decrease was primarily attributable to net payoff of long-term
debt.
CFO PerspectiveJeffrey S. Knutson, Vice
President of Finance, Chief Financial Officer, Treasurer and
Secretary stated, “Consistent and strong global demand across our
product groups and end markets drove sales growth through the year
as price, mix, and volume all contributed to our fiscal 2023
performance. Disciplined execution allowed our team to improve
past-due orders and strategically manage our inventory and backlog
levels, a fiscal 2023 priority and key milestone to achieve our
medium-term targets. We also made progress on our free cash flow
conversion target, generating $14.9 million of free cash flow, and
expect this momentum to continue in 2024.”
Other UpdatesTwin Disc’s pension accounting
method changed to modified mark-to-market during the fourth quarter
of fiscal year 2023. The change in accounting method has been
applied retroactively for the fourth quarter and full fiscal year
results presented in this earnings release. The modified
mark-to-market adjustment for fiscal year 2022 resulted in a $2.4
million increase in net income compared with what was originally
reported.
Discussion of ResultsTwin Disc will host a
conference call to discuss these results and to answer questions at
9:00 a.m. Eastern time on August 16, 2023. The live audio webcast
will be available on Twin Disc’s website at
https://ir.twindisc.com. To participate in the conference call,
please dial 866-652-5200 approximately ten minutes before the call
is scheduled to begin. A replay of the webcast will be available at
https://ir.twindisc.com shortly after the call until August 15,
2024.
About Twin DiscTwin Disc, Inc. designs,
manufactures and sells marine and heavy-duty off-highway power
transmission equipment. Products offered include marine
transmissions, azimuth drives, surface drives, propellers and boat
management systems, as well as power-shift transmissions, hydraulic
torque converters, power take-offs, industrial clutches and control
systems. The Company sells its products to customers primarily in
the pleasure craft, commercial and military marine markets, as well
as in the energy and natural resources, government and industrial
markets. The Company’s worldwide sales to both domestic and foreign
customers are transacted through a direct sales force and a
distributor network. For more information, please visit
www.twindisc.com.
Forward-Looking StatementsThis
press release may contain statements that are forward looking as
defined by the Securities and Exchange Commission in its rules,
regulations and releases. The words “anticipates,” “believes,”
“intends,” “estimates,” and “expects,” or similar anticipatory
expressions, usually identify forward-looking statements. The
Company intends that such forward-looking statements qualify for
the safe harbors from liability established by the Private
Securities Litigation Reform Act of 1995. All forward-looking
statements are based on current expectations, and are subject to
certain risks and uncertainties that could cause actual results or
outcomes to differ materially from current expectations. Such risks
and uncertainties include the impact of general economic conditions
and the cyclical nature of many of the Company’s product markets;
foreign currency risks and other risks associated with the
Company’s international sales and operations; the ability of the
Company to successfully implement price increases to offset
increasing commodity costs; the ability of the Company to generate
sufficient cash to pay its indebtedness as it becomes due; and the
possibility of unforeseen tax consequences and the impact of tax
reform in the U.S. or other jurisdictions. These and other risks
are described under the caption “Risk Factors” in Item 1A of the
Company’s most recent Form 10-K filed with the Securities and
Exchange Commission, as supplemented in subsequent periodic reports
filed with the Securities and Exchange Commission. Accordingly, the
making of such statements should not be regarded as a
representation by the Company or any other person that the results
expressed therein will be achieved. The Company assumes no
obligation, and disclaims any obligation, to publicly update or
revise any forward-looking statements to reflect subsequent events,
new information, or otherwise.
*Non-GAAP Financial
InformationFinancial information excluding the
impact of asset impairments, restructuring charges, foreign
currency exchange rate changes and the impact of acquisitions, if
any, in this press release are not measures that are defined in
U.S. Generally Accepted Accounting Principles (“GAAP”). These items
are measures that management believes are important to adjust for
in order to have a meaningful comparison to prior and future
periods and to provide a basis for future projections and for
estimating our earnings growth prospects. Non-GAAP measures are
used by management as a performance measure to judge profitability
of our business absent the impact of foreign currency exchange rate
changes and acquisitions. Management analyzes the company’s
business performance and trends excluding these amounts. These
measures, as well as EBITDA, provide a more consistent view of
performance than the closest GAAP equivalent for management and
investors. Management compensates for this by using these measures
in combination with the GAAP measures. The presentation of the
non-GAAP measures in this press release are made alongside the most
directly comparable GAAP measures.
DefinitionsEarnings before interest, taxes,
depreciation and amortization (EBITDA) is calculated as net
earnings or loss excluding interest expense, the provision or
benefit for income taxes, depreciation and amortization
expenses.
Net debt is calculated as total debt less cash.
Free cash flow is calculated as net cash provided (used) by
operating activities less acquisition of fixed assets.
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME (LOSS)(In
thousands, except per-share data; unaudited) |
|
|
|
For the Quarter Ended |
|
For the Year Ended |
|
|
June 30,2023 |
June 30,2022(As Adjusted) |
|
June 30,2023 |
June 30,2022(As Adjusted) |
|
|
|
Net sales |
|
$ |
83,923 |
|
$ |
75,974 |
|
|
$ |
276,960 |
|
$ |
242,913 |
|
Cost of goods sold |
|
|
59,177 |
|
|
51,782 |
|
|
|
202,628 |
|
|
174,101 |
|
Gross profit |
|
|
24,747 |
|
|
24,192 |
|
|
|
74,332 |
|
|
68,812 |
|
|
|
|
|
|
|
|
Marketing, engineering and
administrative expenses |
|
|
16,556 |
|
|
17,331 |
|
|
|
62,243 |
|
|
60,085 |
|
Restructuring expenses |
|
|
(31 |
) |
|
(569 |
) |
|
|
177 |
|
|
973 |
|
Other operating income |
|
|
(1 |
) |
|
(325 |
) |
|
|
(4,148 |
) |
|
(3,282 |
) |
Income from operations |
|
|
8,222 |
|
|
7,754 |
|
|
|
16,060 |
|
|
11,036 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(571 |
) |
|
(534 |
) |
|
|
(2,253 |
) |
|
(2,128 |
) |
Other income (expense),
net |
|
|
2,492 |
|
|
3,083 |
|
|
|
658 |
|
|
3,693 |
|
|
|
|
1,921 |
|
|
2,549 |
|
|
|
(1,595 |
) |
|
1,565 |
|
Income before income taxes and
noncontrolling interest |
|
|
10,144 |
|
|
10,304 |
|
|
|
14,465 |
|
|
12,601 |
|
Income tax expense |
|
|
1,439 |
|
|
66 |
|
|
|
3,788 |
|
|
1,823 |
|
|
|
|
|
|
|
|
Net income |
|
|
8,705 |
|
|
10,238 |
|
|
|
10,677 |
|
|
10,778 |
|
Less: Net earnings
attributable to noncontrolling interest, net of tax |
|
|
(110 |
) |
|
(88 |
) |
|
|
(297 |
) |
|
(311 |
) |
Net income attributable to
Twin Disc |
|
$ |
8,596 |
|
$ |
10,150 |
|
|
$ |
10,380 |
|
$ |
10,467 |
|
|
|
|
|
|
|
|
Income per share data: |
|
|
|
|
|
|
Basic income per share attributable to Twin Disc common
shareholders |
|
$ |
0.64 |
|
$ |
0.76 |
|
|
$ |
0.77 |
|
$ |
0.78 |
|
Diluted income per share attributable to Twin Disc common
shareholders |
|
$ |
0.62 |
|
$ |
0.75 |
|
|
$ |
0.75 |
|
$ |
0.78 |
|
|
|
|
|
|
|
|
Weighted average shares
outstanding data: |
|
|
|
|
|
|
Basic shares outstanding |
|
|
13,508 |
|
|
13,399 |
|
|
|
13,468 |
|
|
13,353 |
|
Diluted shares outstanding |
|
|
13,844 |
|
|
13,456 |
|
|
|
13,811 |
|
|
13,382 |
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
Net income |
|
$ |
8,704 |
|
$ |
10,238 |
|
|
$ |
10,677 |
|
$ |
10,778 |
|
Benefit plan adjustments, net of income taxes of $25, $(619), $21
and $(598), respectively |
|
|
85 |
|
|
(4,147 |
) |
|
|
667 |
|
|
(2,635 |
) |
Foreign currency translation adjustment |
|
|
(2,483 |
) |
|
(5,222 |
) |
|
|
634 |
|
|
(11,593 |
) |
Unrealized gain on cash flow hedge, net of income taxes of $0, $0,
$0, and $0, respectively |
|
|
81 |
|
|
501 |
|
|
|
54 |
|
|
2,250 |
|
Comprehensive income (loss) |
|
|
6,387 |
|
|
1,370 |
|
|
|
12,032 |
|
|
(1,200 |
) |
Less: Comprehensive income (loss) attributable to noncontrolling
interest |
|
|
(30 |
) |
|
(59 |
) |
|
|
248 |
|
|
176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) attributable to Twin Disc |
|
$ |
6,417 |
|
$ |
1,429 |
|
|
$ |
11,783 |
|
$ |
(1,376 |
) |
Note: Amounts may not foot due to rounding
|
|
RECONCILIATION OF CONSOLIDATED NET INCOME TO
EBITDA |
(In thousands; unaudited) |
|
|
|
For the Quarter Ended |
For the Year Ended |
|
|
June 30,2023 |
June 30,2022(As Adjusted) |
June 30,2023 |
June 30,2022(As Adjusted) |
Net income attributable to Twin Disc |
|
$ |
8,596 |
$ |
10,150 |
$ |
10,380 |
$ |
10,467 |
Interest expense |
|
|
571 |
|
534 |
|
2,253 |
|
2,128 |
Income tax expense |
|
|
1,439 |
|
66 |
|
3,788 |
|
1,823 |
Depreciation and amortization |
|
|
2,423 |
|
2,230 |
|
9,359 |
|
9,547 |
Earnings before interest,
taxes depreciation and amortization |
|
$ |
13,029 |
$ |
12,980 |
$ |
25,781 |
$ |
23,965 |
|
|
|
|
|
|
RECONCILIATION OF TOTAL DEBT TO NET DEBT |
(In thousands; unaudited) |
|
|
|
|
|
June 30,2023 |
June 30,2022 |
Current maturities of long-term debt |
|
$ |
2,010 |
$ |
2,000 |
Long-term debt |
|
|
16,617 |
|
34,543 |
Total debt |
|
|
18,627 |
|
36,543 |
Less cash |
|
|
13,263 |
|
12,521 |
|
|
|
|
|
|
Net debt |
|
$ |
5,364 |
$ |
24,022 |
|
|
RECONCILIATION OF NET CASH PROVIDED BY OPERATING ACTIVITIES
TO FREE CASH FLOW |
(In thousands; unaudited) |
|
|
|
|
|
|
For the Quarter Ended |
For the Year Ended |
|
|
June 30,2023 |
June 30,2022 |
June 30,2023 |
June 30,2022 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating
activities |
|
$ |
16,037 |
$ |
(1,090 |
) |
$ |
22,898 |
$ |
(8,313 |
) |
Acquisition of fixed
assets |
|
|
1,108 |
|
2,358 |
|
|
7,918 |
|
4,729 |
|
|
|
|
|
|
|
Free cash flow |
|
$ |
14,929 |
$ |
(3,448 |
) |
$ |
14,980 |
$ |
(13,042 |
) |
|
|
|
|
|
|
Note: Amounts may not foot due to rounding
|
|
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(In thousands; except share amounts, unaudited) |
|
|
|
|
|
|
June 30, |
June 30, |
|
|
|
2023 |
|
2022(As Adjusted) |
ASSETS |
|
|
|
Current assets: |
|
|
|
Cash |
|
$ |
13,263 |
|
$ |
12,521 |
|
Trade accounts receivable, net |
|
|
54,760 |
|
|
45,452 |
|
Inventories |
|
|
131,930 |
|
|
127,109 |
|
Assets held for sale |
|
|
2,968 |
|
|
2,968 |
|
Prepaid expenses |
|
|
8,459 |
|
|
7,756 |
|
Other |
|
|
8,326 |
|
|
8,646 |
|
|
|
|
|
Total current assets |
|
|
219,706 |
|
|
204,452 |
|
|
|
|
|
Property, plant and equipment,
net |
|
|
38,650 |
|
|
41,615 |
|
Right-of-use assets operating
leases |
|
|
13,133 |
|
|
12,685 |
|
Intangible assets, net |
|
|
12,637 |
|
|
13,010 |
|
Deferred income taxes |
|
|
2,244 |
|
|
2,178 |
|
Other assets |
|
|
2,811 |
|
|
2,583 |
|
|
|
|
|
TOTAL ASSETS |
|
$ |
289,181 |
|
$ |
276,523 |
|
|
|
|
|
LIABILITIES AND
EQUITY |
|
|
|
Current liabilities: |
|
|
|
Current maturities of long-term debt |
|
$ |
2,010 |
|
$ |
2,000 |
|
Accounts payable |
|
|
36,499 |
|
|
28,536 |
|
Accrued liabilities |
|
|
61,586 |
|
|
50,542 |
|
|
|
|
|
Total current liabilities |
|
|
100,095 |
|
|
81,078 |
|
|
|
|
|
Long-term debt, less current
maturities |
|
|
16,617 |
|
|
34,543 |
|
Lease obligations |
|
|
10,811 |
|
|
10,575 |
|
Accrued retirement
benefits |
|
|
7,608 |
|
|
9,974 |
|
Deferred income taxes |
|
|
3,280 |
|
|
3,802 |
|
Other long-term
liabilities |
|
|
5,253 |
|
|
5,363 |
|
|
|
|
|
Total liabilities |
|
|
143,664 |
|
|
145,335 |
|
|
|
|
|
Twin Disc shareholders’
equity: |
|
|
|
Preferred shares authorized:
200,000; issued: none; no par value |
|
|
- |
|
|
- |
|
Common shares authorized:
30,000,000; issued: 14,632,802; no par value |
|
|
42,855 |
|
|
42,551 |
|
Retained earnings |
|
|
120,299 |
|
|
109,919 |
|
Accumulated other
comprehensive loss |
|
|
(5,570 |
) |
|
(6,974 |
) |
|
|
|
157,584 |
|
|
145,496 |
|
Less treasury stock, at cost (960,459 and 984,139 shares,
respectively) |
|
|
12,491 |
|
|
14,720 |
|
|
|
|
|
Total Twin Disc shareholders' equity |
|
|
145,093 |
|
|
130,776 |
|
|
|
|
|
Noncontrolling interest |
|
|
424 |
|
|
412 |
|
Total equity |
|
|
145,517 |
|
|
131,188 |
|
|
|
|
|
TOTAL LIABILITIES AND
EQUITY |
|
$ |
289,181 |
|
$ |
276,523 |
|
|
Note: Amounts may not foot due to rounding
|
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In
thousands; unaudited) |
|
|
|
|
|
|
|
|
|
|
For the Year Ended |
|
|
June 30,2023 |
June 30,2022(As Adjusted) |
|
|
|
|
CASH FLOWS FROM
OPERATING ACTIVITIES: |
|
|
|
Net income |
|
$ |
10,677 |
|
$ |
10,778 |
|
Adjustments to reconcile net income to net cash provided (used) by
operating activities: |
|
|
|
Depreciation and amortization |
|
|
9,359 |
|
|
9,547 |
|
Gain on sale of assets |
|
|
(4,264 |
) |
|
(3,126 |
) |
Restructuring expenses |
|
|
137 |
|
|
(1,328 |
) |
Provision for deferred income taxes |
|
|
(634 |
) |
|
(849 |
) |
Stock compensation expense and other non-cash charges, net |
|
|
2,996 |
|
|
2,428 |
|
Other |
|
|
201 |
|
|
201 |
|
Net change in operating assets and liabilities |
|
|
4,426 |
|
|
(25,964 |
) |
|
|
|
|
Net cash provided by operating
activities |
|
|
22,898 |
|
|
(8,313 |
) |
|
|
|
|
CASH FLOWS FROM
INVESTING ACTIVITIES: |
|
|
|
Acquisition of property, plant, and equipment |
|
|
(7,918 |
) |
|
(4,729 |
) |
Proceeds from sale of fixed assets |
|
|
7,177 |
|
|
9,455 |
|
Proceeds on note receivable |
|
|
- |
|
|
500 |
|
Other, net |
|
|
333 |
|
|
675 |
|
|
|
|
|
Net cash (used) provided by
investing activities |
|
|
(408 |
) |
|
5,901 |
|
|
|
|
|
CASH FLOWS FROM
FINANCING ACTIVITIES: |
|
|
|
Borrowings under revolving loan arrangements |
|
|
81,620 |
|
|
104,473 |
|
Repayments of revolving loan arrangements |
|
|
(97,774 |
) |
|
(95,704 |
) |
Repayments of other long-term debt |
|
|
(2,037 |
) |
|
(3,081 |
) |
Payments of finance lease obligations |
|
|
(621 |
) |
|
(933 |
) |
Payments of withholding taxes on stock compensation |
|
|
(463 |
) |
|
(486 |
) |
Dividends paid to noncontrolling interest |
|
|
(236 |
) |
|
(214 |
) |
|
|
|
|
Net cash (used) provided by
financing activities |
|
|
(19,511 |
) |
|
4,055 |
|
|
|
|
|
Effect of exchange rate
changes on cash |
|
|
(2,237 |
) |
|
(1,462 |
) |
|
|
|
|
Net change in cash |
|
|
742 |
|
|
181 |
|
|
|
|
|
Cash: |
|
|
|
Beginning of period |
|
|
12,521 |
|
|
12,340 |
|
|
|
|
|
End of period |
|
$ |
13,263 |
|
$ |
12,521 |
|
|
Note: Amounts may not foot due to rounding
Investors: RiveronTwinDiscIR@Riveron.com
Source: Twin Disc, Incorporated
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