Q4 2023 Twin Disc Inc Earnings Call

Good day and welcome to the TwinDisk Cisco 4th Quarter 2023 Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero.

After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch tone phone. To withdraw your question, please press star then 2. Please note this event is being recorded.

Good morning and thank you for joining us today to discuss our fiscal 2023 fourth quarter and full year results. On the call with me today is John Batten, Twin Discs CEO . I would like to remind everyone that certain statements made during this conference call, especially statements expressing hopes, beliefs, expectations or predictions for the future, are forward-looking statements. It is important to remember that the company's actual results could differ materially from those projected in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements are contained in the company's annual report on Form 10-K , copies of which may be obtained by contacting either the company or the SEC.

discuss certain non-GAAP financial measures. For a definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. geared towardsEst pasta cantata

It's big. I mean it gets roll into much bigger vessels And it also helps vet with their customers, you know be more involved in the design process of the vessel And selecting horsepower and you know any any questions that they have on the hall and predicting Handling of the vessel so it's it's it's it's a big opportunity for us Okay, okay great a couple housekeeping items you're targeting a 30% gross margin Medium-term looks like you were almost there in the fourth quarter

By now you should have received the news release which was issued this morning before the market opened. If you have not received a copy, please call our office at 262-638-4000 and we will send a release to you. Now I'll turn the call over to John .

Was there something one-time benefit in that? And how should I think about gross margin for next year? Yeah, no, the fourth quarter was pretty clean, nothing really unusual other than it's the fourth quarter, which is usually our strongest quarter. So I think as we go forward into fiscal 24,

and a 14% increase year-over-year sales for fiscal 2023. Gross margin was 29.5% for the quarter, which was 236 basis point decrease from last year's historically high margins and a 340 basis point improvement sequentially. We generated $22.9 million of operating cash flow and $14.9 million in free cash flow for the year, which compares favorably to the cash outflow in fiscal 2022. Earlier in the year, we took a number of actions to respond to headwinds stemming from supply chain constraints and higher costs. Our team has continued to work with strategic vendors to source components that are in short supply.

we'd expect to have favorable comps to the prior year, but I would say Q1 starts with a favorable comp to Q4. So I think we'll build, hopefully, to that 30% and beyond as we work through fiscal 24. Yes, Simon, for us, you know, just

Any small trend that could affect as far as demand but in general we build on revenue and gross margin through our sequentially through our quarters and it's all based on shipping days we have the fewest fewer shipping days in the first quarter primarily due to shutdowns in Europe and then.

or that are currently sourced from a single supplier. We also made significant progress with our global footprint rationalization and expect to realize further benefits in fiscal 2024 as we enter the next phase of our plans.

The VET business ended fiscal 2023 with a record-high six-month backlog. Primarily, result of its continued expansion beyond its core northern European markets to North America and Asia Pacific. Shifting to our product groups, marine and propulsion systems continues to be our strongest product group and experience a very healthy demand.

Yeah, I think, you know, we'll be something a little bit higher than probably what we did this year. We're thinking in the 10 to 12 million range. Limited really by lead times again. You know, we have an appetite for some machine tools to drive productivity. Some of them are already on order, but with extended lead times even beyond Cisco 24. So I think that's the limitation for next year, I think. But yeah, we should be higher than this year again in the 10 to 12 million range.

Yeah, I think, you know, we'll be something a little bit higher than probably what we did this year. We're thinking in the 10 to 12 million range, limited really by lead times again. You know, we have an appetite for some machine tools to drive productivity. Some of them are already on order, but with extended lead times even beyond fiscal 24. So I think that's the limitation for next year, I think. But yeah, we should be higher than this year again in the 10 to 12 million range. Okay, great. Thank you.

on improved product performance and project design. A great example is our Elite Drive offering, which combines role of in-house CFD capability and vets hybrid experience to design and produce state-of-the-art hydrodynamic propellers and the most efficient azimuth thruster and deliver a complete hybrid system for the mega yacht market. This partnership continues to give TwinDisc a competitive advantage and unlocks new possibilities and opens doors to previously untapped markets. On the land-based transmission side of our business, the lack of oil and gas investment over the past few years has increased utilization and the need to rebuild and or replace fleets.

Again, as a reminder, if you have a question, please press star, then 1 to be joined into the queue. As we have no further questions, this concludes our question and answer session. I would like to turn the conference back over to John Batten for any closing remarks.

Thank you, Vaishnavi. I'd like to thank our global teammates for another great year. This would not be possible without them. And please reach out if you have any further questions for Jeff or myself and have a great day. And we'll look forward to talking to you after the close of our first fiscal quarter in October .

We've already sourced a new vendor for the supply constrained component and we expect to resolve any remaining past due backlog in the first quarter of fiscal 24. Our team continues to make headway in several hybrid electrification projects with various OEMs. These projects have a much longer development timeline with a year or more spent on field tests and trials. We'll continue to provide updates as we achieve milestones. Looking ahead, we are evaluating opportunities to drive further innovation, improve execution and accelerate our growth.

While challenging at the start of the year, supply chain headwinds eased sequentially, and operational execution enabled us to significantly improve shipments. This improvement has allowed us to clear a significant portion of our past due orders from backlog. Inventory as a percentage of backlog ticked up slightly from the third quarter.

Supply chain headwinds continue to ease as a result of the mitigating actions taken earlier in the year. Our teams were also able to clear much of our past due orders from backlog, an important step to laying the foundation for fiscal 2024.

Net income attributable to TwinDisk for the fourth quarter was $8.6 million or 62 cents per diluted share compared to $10.2 million or 75 cents per diluted share in the fourth quarter fiscal 22. The year-over-year decrease was primarily the result of higher income tax expense. For the fiscal year 2023, the company generated net income attributable to TwinDisk of $10.4 million or 75 cents per diluted share, a decrease of 0.8% and 3.8% respectively from fiscal 2022. Each of our product groups delivered continued growth sequentially with both marine and propulsion systems.

and land-based transmissions reporting another double-digit quarter, and the industrial product group delivering another quarter of sales in line with expectations. Across our business, quarterly sales growth remained fairly consistent across geographies, further implying robust global demand. In addition to strong end-market demand, our product groups are also benefiting from continued geographic expansion and strategic partnerships.

For example, the VET partnership with our high-end propeller design and manufacturing firm, ROLA, continues to deliver results that demonstrate 1 plus 1 can equal more than 2. Gross margin decreased approximately 236 basis points from the prior year period, primarily driven by inflation as well as mix. However...