Twin Disc, Inc. Announces Fiscal 2021 First Quarter Financial Results
10/30/2020 - 08:00 AM
Continued focus on driving efficiencies and optimizing operations Production at new Lufkin, TX manufacturing facility expected to begin in early calendar 2021 Sales and profitability expected to improve through the fiscal year Six-month backlog at September 25, 2020 was $69.4 million , a 4.2% increase from June 30, 2020 RACINE, Wis., Oct. 30, 2020 (GLOBE NEWSWIRE) -- Twin Disc, Inc. (NASDAQ: TWIN) , today reported financial results for the fiscal 2021 first quarter ended September 25, 2020.
Sales for the fiscal 2021 first quarter were $46.1 million , compared to $59.3 million for the same period last year. The 22.2% decrease in 2021 first quarter sales was primarily due to year-over-year softness in the Company’s oil and gas, industrial, and marine markets, and the continued impacts the COVID-19 crisis is having across Twin Disc’s global markets. Foreign currency exchange had a $1.5 million positive impact on fiscal 2021 first quarter sales.
John H. Batten, Chief Executive Officer, commented: “Our six-month backlog at September 25, 2020, was $69.4 million , compared to $96.7 million at September 27, 2019, and $66.6 million at June 30, 2020. I am encouraged by the direction we are headed despite the near-term economic challenges and uncertainty the COVID-19 crisis has created. While first quarter sales at Veth Propulsion (our Dutch operation) were down year-over-year, we ended the quarter with strong order and backlog growth. Oil and gas demand continues to experience significant year-over-year declines due to the current pricing environment and the number of idled fracking rigs in North America. However, we believe much of the idled capacity has been recently brought back online or scrapped. As a result, we expect to benefit from improving oil and gas demand in the coming quarters as the North American fracking fleet is repaired and replaced. We are also well positioned to benefit from growing global demand for hybrid and electric technology within the industrial off-highway market as a result of our leading power control technologies, capabilities, and experience. We see increasing demand trends within this market, which we anticipate accelerating in the coming years.”
“As you can see, we are successfully navigating the unprecedented effects the COVID-19 crisis has had across many of our global markets, while protecting the health and safety of our global employees, customers, and partners, and investing in our future. Our success is a testament to the resiliency of our business, the experience of our senior leadership team, and our commitment to quality, engineering, and customer service. In addition, we continue to diversify our end markets, drive efficiencies across our footprint, and optimize our global assets, which we believe will enable us to emerge from the COVID-19 crisis with increased agility, profitability, and market share,” continued Mr. Batten.
“Additional initiatives are currently underway that will further transform Twin Disc’s operating model and support additional expense reductions. This includes a potential sale of our corporate office in Racine that, once completed, will allow us to consolidate our corporate operations into other existing Twin Disc facilities. Along with the operating savings and cash generation this sale will provide Twin Disc, this will also allow the community to benefit from a more effective use for this under-utilized asset, contributing to the ongoing redevelopment of Racine. I am also pleased with the progress we are making at our new Lufkin, TX manufacturing facility. We anticipate production at this facility will start at the beginning of the calendar year, which will further improve our manufacturing and logistic capabilities, while concentrating resources closer to many of our customers,” concluded Mr. Batten.
Gross profit percent for the fiscal 2021 first quarter was 22.3% , compared to 16.3% in the fiscal 2020 first quarter. Gross profit, as a percent of fiscal 2020 first quarter sales, adjusted for an isolated prior year $3.9 million product performance accrual related to one of our pressure-pumping models, was 22.8% . The slight year-over-year decline in adjusted gross profit, as a percent of sales, was due to reduced volume and a less profitable mix of revenues associated with reduced new rig construction and aftermarket demand in the North American fracking market and lower overall sales, partially offset by improved efficiencies, proactive expense management and the positive impact of foreign COVID-19 relief programs.
For the fiscal 2021 first quarter, marketing, engineering and administrative (ME&A) expenses decreased $3.3 million to $13.0 million , compared to $16.3 million for the fiscal 2020 first quarter. The 20.3% decrease in ME&A expenses in the quarter was primarily due to reduced domestic salaries and benefits ($1.5 million ), corporate travel ($0.3 million ), marketing activities ($0.3 million ), lower bonus expense ($0.4 million ) and general cost containment actions ($0.8 million ). As a percent of revenues, ME&A expenses increased to 28.2% for the fiscal 2021 first quarter, compared to 27.6% for the same period last year.
Twin Disc recorded restructuring charges of $0.4 million in the fiscal 2021 first quarter, compared to restructuring charges of $0.1 million in the same period last fiscal year. Restructuring activities during the fiscal 2021 first quarter related primarily to ongoing cost reduction and productivity actions at the Company’s European operations and actions to adjust the cost structure at our domestic operation.
The effective tax rate for the fiscal 2021 first quarter was 19.1% , compared to 20.5% for the same period last fiscal year. The slight decline in the effective tax rate is primarily the result of the mix of earnings by jurisdiction.
Net loss attributable to Twin Disc for the fiscal 2021 first quarter was $(4.0) million or $(0.30) per share, compared to a net loss attributable to Twin Disc of $(6.3 million ), or $(0.48) per share for the prior fiscal year first quarter.
Earnings (loss) before interest, taxes, depreciation, and amortization (EBITDA)* were a loss of $(1.6 million ) for the fiscal 2021 first quarter, compared to a loss of $(4.6 million ) for the fiscal 2020 first quarter.
Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: “The initiatives we have taken to eliminate expenses and drive efficiencies across our organization are taking hold and we believe these actions will improve future levels of profitability in the coming quarters. In addition, we are focused on strengthening our balance sheet, reducing working capital levels, and generating positive operating cash flow. We continue to focus on controlling expenses and investments, and currently expect to invest $5 million to $7 million in capital expenditures during fiscal 2021.”
Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:00 a.m. Eastern Time on October 30, 2020. To participate in the conference call, please dial
The conference call will also be broadcast live over the Internet. To listen to the call via the Internet, access Twin Disc's website at http://ir.twindisc.com/ and follow the instructions at the web cast link. The archived webcast will be available shortly after the call on the Company's website.
About Twin Disc, Inc . www.twindisc.com .
Forward-Looking Statements
*Non-GAAP Financial Disclosures
Definition – Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) The sum of, net earnings and adding back provision for income taxes, interest expense, depreciation and amortization expenses: this is a financial measure of the profit generated excluding the above-mentioned items.
--Financial Results Follow--
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS ANDINCOME (LOSS) (In thousands, except per-share data; unaudited)
For the Quarter Ended September 25,20 20 September 27,2019 Net sales $ 46,143 $ 59,290 Cost of goods sold 35,866 49,654 Gross profit 10,277 9,636 Marketing, engineering and administrative expenses 13,022 16,346 Restructuring expenses 405 121 Loss from operations (3,150 ) (6,831 ) Interest expense 573 389 Other expense, net 1,143 691 Loss before income taxes and noncontrolling interest (4,866 ) (7,911 ) Income tax benefit (929 ) (1,618 ) Net loss (3,937 ) (6,293 ) Less: Net earnings attributable to noncontrolling interest, net of tax (42 ) (18 ) Net loss attributable to Twin Disc $ (3,979 ) $ (6,311 ) Loss per share data: Basic loss per share $ (0.30 ) $ (0.48 ) Diluted loss per share $ (0.30 ) $ (0.48 ) Weighted average shares outstanding data: Basic shares outstanding 13,197 13,111 Diluted shares outstanding 13,197 13,111 Comprehensive income (loss): Net loss $ (3,937 ) $ (6,293 ) Benefit plan adjustments, net of income taxes of $177 and $169, respectively 553 557 Foreign currency translation adjustment 3,612 (2,996 ) Unrealized gain (loss) on cash flow hedge, net of income taxes of $22 and ($44), respectively 75 (143 ) Comprehensive income (loss) 303 (8,875 ) Less: Comprehensive income attributable to noncontrolling interest (55 ) (36 ) Comprehensive income (loss) attributable to Twin Disc $ 248 $ (8,911 )
RECONCILIATION OF CONSOLIDATED NET LOSS TO EBITDA
For the Quarter Ended September 25,2020 September 27,2019 Net loss attributable to Twin Disc $ (3,979 ) $ (6,311 ) Interest expense 573 389 Income taxes (929 ) (1,618 ) Depreciation and amortization 2,758 2,926 Loss before interest, taxes, depreciation and amortization $ (1,577 ) $ (4,614 )
CONDENSED CONSOLIDATED BALANCE SHEETS
September 25, June 30, 20 20 20 20 ASSETS Current assets: Cash $ 9,313 $ 10,688 Trade accounts receivable, net 31,824 30,682 Inventories 120,216 120,607 Prepaid expenses 5,277 5,269 Other 5,946 6,739 Total current assets 172,576 173,985 Property, plant and equipment, net 77,775 72,732 Intangible assets, net 18,817 18,973 Deferred income taxes 29,057 24,445 Other assets 4,118 3,992 Total assets $ 302,343 $ 294,127 LIABILITIES AND EQUITY Current liabilities: Current maturities of long-term debt $ 3,700 $ 4,691 Accounts payable 23,293 25,663 Accrued liabilities 42,432 36,380 Total current liabilities 69,425 66,734 Long-term debt 39,016 37,896 Lease obligations 17,836 13,495 Accrued retirement benefits 27,600 27,938 Deferred income taxes 5,527 5,501 Other long-term liabilities 2,384 2,605 Total liabilities 161,788 154,169 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 40,814 42,756 Retained earnings 152,676 156,655 Accumulated other comprehensive loss (36,998 ) (41,226 ) 156,492 158,185 Less treasury stock, at cost (1,080,698 and 1,226,809 shares, respectively) 16,560 18,796 Total Twin Disc shareholders' equity 139,932 139,389 Noncontrolling interest 623 569 Total equity 140,555 139,958 TOTAL LIABILITIES AND EQUITY $ 302,343 $ 294,127
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands; unaudited)
For the Quarter Ended September 25,20 20 September 27,2019 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (3,937 ) $ (6,293 ) Adjustments to reconcile net loss to net cash (used) provided by operating activities: Depreciation and amortization 2,758 2,926 Provision for deferred income taxes (4,908 ) (1,663 ) Stock compensation expense and other non-cash changes, net 709 457 Net change in operating assets and liabilities 4,662 6,054 Net cash (used) provided by operating activities (716 ) 1,481 CASH FLOWS FROM INVESTING ACTIVITIES: Acquisitions of fixed assets (1,419 ) (4,037 ) Proceeds from sale of fixed assets 19 29 Other, net (129 ) (129 ) Proceeds from sale of Mill Log, net of costs to sell 300 - Net cash used by investing activities (1,229 ) (4,137 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving loan arrangement 18,301 33,095 Repayments under revolver loans (18,674 ) (25,397 ) Repayments of other long-term debt (155 ) - Dividends paid to noncontrolling interest - (127 ) Payments of withholding taxes on stock compensation (224 ) (913 ) Net cash (used) provided by financing activities (752 ) 6,658 Effect of exchange rate changes on cash 1,322 141 Net change in cash (1,375 ) 4,143 Cash: Beginning of period 10,688 12,362 End of period $ 9,313 $ 16,505
Contact: Jeffrey S. Knutson
