Q1 2024 Twin Disc Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the twin disc incorporated fiscal first quarter 2024 conference call.

All lines have been placed on mute to prevent any background noise.

After the Speakers' remarks, there will be a question and answer session.

If you would like to ask a question. During this time. Please press star followed by the number one on your telephone keypad.

I would like to withdraw your question again the press Star one thank you.

Jeff can you Sir you may begin your conference.

Yes.

Good morning, and thank you for joining us today to discuss our fiscal 2024 first quarter results.

On the call with me today is John <unk>.

I would like to remind everyone that certain statements made during this conference call, especially statements expressing hope.

<unk> expectations or predictions for the future are forward looking statements.

It is important to remember that the companys 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.

And in the company's annual report on Form 10-K.

Please of which may be obtained by contacting the company or the SEC.

Any forward looking statements that are made during this call are based on assumptions as of today and the <unk>.

Company undertakes no obligation to publicly update or revise these statements to reflect subsequent events or new information.

During today's call management will also 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.

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 206 to 638 4000.

And to really see.

Now I'll turn the call over to John.

Good morning, everyone and welcome to our fiscal 2024 first quarter conference call. Let's begin today's call with some highlights we had an impressive start to the new fiscal year building off the positive momentum generated in the fourth quarter to deliver growth in many of our markets.

Throughout the first fiscal quarter, our global teams work to capture stable demand for our products driving increased shipments and resulting in a 13, 7% year over year sales growth. We also achieved robust gross margin expansion, improving 240 basis points.

622%, despite incurring a one time charge of $3 1 million along with significant increases in EBITDA and cash generation.

Turning to our improved financial position I am pleased to announce that the board has approved reinstating a quarterly cash dividend in the amount of <unk> <unk> per share. These.

These results are largely due to hard work on the part of our team taking a disciplined approach in executing on operational priorities, our Singapore based sales team performed exceptionally well to drive growth and further expand our presence in Chinese market, especially the oil and gas one.

We ended the quarter with continued backlog growth underscored by our record <unk>.

Log in our airport rescue firefighting transmission business, while inventories favorably declined.

<unk> also continued to perform strongly driven by further growth beyond its core north northern European markets into North America, and the Asia Pacific region.

Shifting to our product group, we saw strong demand in our marine and propulsion systems with increased activity and global commercial markets driving 24% growth in sales.

Production at our Belgium facility is already at capacity this fiscal year with projects booked through August 2024.

Patrol bulk projects grew in line with increased government defense spending a trend, which we expect may continue due to ongoing geopolitical turmoil and uptick in what is called fleet readiness typically supports the aftermarket business as countries focused on repair and maintenance in times of uncertainty.

Coming off record levels last quarter that six month backlog increased 17% sequentially. The collaboration between veteran rollout continues to be a highlight of the mega yacht market, representing a major long term growth driver.

U S sales trend higher this partnership gives us a competitive edge and unlocked opportunities within both new and established markets.

Onto the land based transmission business sales grew 17% year over year, driven by higher demand from the oil and gas market.

Within our orders are coming in for our transmission built in the Racine facility helped driving the record backlog I mentioned earlier.

We are seeing a general increase in orders across the land based transmission segment.

We started to see early indications of a pullback in spare parts orders, indicating that customers might be taking a more cautious approach amidst the uncertainty in the macro environment.

Demand has softened within the industrial products group, leading to a 19% decline in sales versus the prior year, despite sourcing and supply chain headwinds have eased. This sluggish demand is largely tied to lower content commoditized products, including construction and irrigation equipment, we are still seeing solid inquiries and demand for <unk>.

Your content more sophisticated products underscored by a new business award received on a large shredder application with a major customer vermeer.

Spite some near term softness we remain focused on capturing opportunities to partner with major domestic Oems on a range of products.

Now turning to our inventory and backlog throughout the quarter to graduate alleviation of supply chain headwinds coupled with solid operational execution has helped us make significant progress driving increased shipment. These supply chain improvements have been a major factor in enabling us to complete system build and deliver shipments in a reasonable timeframe.

We also continued to drive inventory lower during the quarter driven in part by the asset sale I brought up earlier.

Before I turn the call over to Jeff I'd like to address our long term strategy as we work to move our business forward. We are always focused on keeping our actions aligned with our strategic priorities.

We aim to become a leading provider of hybrid and electrification solutions for marine and off highway land based applications as we advanced our relationships and collaboration with major Oems.

Thats reach continues to expand on a global scale driven in part by the successful partnership with rollout, we are making solid progress to rationalize and modernize our business, helping deliver improved shipments, while lowering inventory costs and lead times, while creating better results for all stakeholders, our focus remains on controls and systems integration.

Shifting our business into new avenues that will bring us profitable growth and with regards to M&A. We are actively looking into the industrial and marine technology sectors, both of which have ample opportunities for us to expand our offering in the hybrid and electrification space.

In closing, while we are extremely encouraged by our results. This quarter. It is important to note that broader macroeconomic environment remains volatile.

Im not limiting our visibility into the coming quarters with that in mind. Our performance continues to strengthen our financial profile bolstering our ability to work through potential challenges, while we stay on track to drive long term growth.

With that I will now turn it over to Jeff to discuss the financials.

Thanks, John Good morning, everyone. We delivered sales of $63 6 million for the quarter up $7 6 million or 13, 7% from the prior year as overall demand remains strong as shipments increase.

Net loss attributable to join this for the quarter was $1 2 million or <unk> <unk> per diluted share compared to a loss of $1 4 million or <unk> 11 per diluted share in the first quarter of fiscal 'twenty three.

Profit margin increased to 26, 2% compared to 2000.

For the same period of fiscal 'twenty three.

Gross profit was negatively impacted by $3 $1 million noncash accounting items related to the sale of an asset during the quarter.

Both marine and propulsion systems and land based transmission has recorded a double digit growth, while industrial sales decline looking at topline distribution across geographies.

Increased significantly across the Asia Pacific and European region compared to the prior year supported by robust demand, while North American sales declined.

We continued to strengthen our balance sheet through the solid cash generation delivered in the first quarter, we reduced net debt by approximately $4 1 billion to $1 2 million and ended the quarter with a cash balance of $24 million seven.

$7 $2 million higher versus the prior quarter Ed.

EBITDA was up significantly to $2 3 million from 600000 during the same period last year due to higher revenues favorable product mix the impact of prior pricing actions and the successful execution of our operational playbook.

Furthermore, we continued to decrease our leverage ratio this quarter to below one times EBITDA.

Gross profit margin of 26, 2% increased approximately 240 basis points from the prior year period.

Adjusting for the noncash impairment I previously mentioned gross profit margin for the first quarter would be approximately 30%.

This reflects the benefit of prior pricing actions continued easing of supply chain headwinds a favorable product mix and successful execution of our operational playbook.

With regards to inflationary headwinds commodities have largely stabilized and we have also seen some reductions in freight and fuel surcharges.

As John highlighted we are pleased to be in a position to resume paying a quarterly cash dividend in the amount of <unk> <unk> per share this quarter payable on December one to shareholders of record on November 17.

Consistent with the additional priorities outlined in our capital allocation framework, we are actively exploring acquisition opportunities focusing on marine technology industrial and the hybrid electric space.

Currently we will continue to make investments within the business in the form of research and development geographic diversification and enhancement of our marketing initiatives.

We will continue to evaluate our capital allocation strategy and priorities as the economic backdrop, and our operating environment continues to evolve.

I'd like to now turn the call back over to John to share some closing remarks.

Thanks, Jeff before we open the line for questions I'd like to highlight a few key takeaways from our first quarter performance.

In summary, we're seeing stable end market demand supporting our robust margin expansion and strong cash generation that supported the reinstatement of our quarterly dividend.

Operationally, we continued to increase backlog by taking a disciplined.

Our approach to inventory management with inventory as a percentage of backlog declining.

By chain headwinds have generally subsided largely due to effective actions taken by management over the prior quarters with all of these factors combined we have enhanced our financial profile and strengthened our balance sheet, giving us the flexibility to manage through any challenges that may come along in this uncertain operating environment, we continue to make progress towards our target.

Solidifying our financial position and driving long term value creation for our shareholders.

That concludes our prepared remarks, Jeff and I will be happy to take your questions.

Okay.

At this time I would like to remind everyone. If you would like to ask a question. Please press star followed by the number one on your telephone keypad.

For just a moment to compile any questions.

As a reminder, if you'd like to ask a question. Please press star followed by the number one on your telephone keypad.

There are currently no questions at this time I'll turn the call back over to management for any remarks.

Thanks, Josh we hope that Jeff and I have answered all of your questions. Today, if not please feel free to reach out to us directly and we look forward to talking to you in February after the close of our third quarter conference.

Conference call. Thanks, Josh.

Okay.

This concludes today's conference call. Thank you for joining you may now disconnect.

Yes.

Okay.

[music].

Thank you.

[music].

Yeah.

Yes.

[music].

Okay.

[music].

Thanks.

[music].

Yes.

Thanks.

Thank you.

[music].

Okay.

[music].