Twin Disc

Release Details

Twin Disc Reports Strong Fourth Quarter & Full Year Results

August 16, 2023

MILWAUKEE, Aug. 16, 2023 (GLOBE NEWSWIRE) -- 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 Results
Sales 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 Perspective
Jeffrey 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 Updates
Twin 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 Results
Twin 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 Disc
Twin 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 Statements
This 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 Information
Financial 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.

Definitions
Earnings 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:
Riveron
TwinDiscIR@Riveron.com

Source: Twin Disc, Incorporated


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Source: Twin Disc, Incorporated