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Twin Disc Reports Strong Fourth Quarter & Full Year Results

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Twin Disc, Inc. reported Q4 and full fiscal year 2023 results. Sales increased 10.5% YoY to $83.9 million. Net income was $8.6 million and EBITDA was $13.0 million. Operating cash flow improved to $16.0 million. Backlog stands at $119.2 million. CEO remains cautiously optimistic for fiscal 2024.
Positive
  • Sales increased 10.5% YoY to $83.9 million for Q4 2023.
  • Net income attributable to Twin Disc was $8.6 million.
  • EBITDA for Q4 2023 was $13.0 million.
  • Operating cash flow significantly improved to $16.0 million.
  • Free cash flow was $14.9 million compared to $(3.4) million in the year-ago period.
  • Six-month backlog stands at $119.2 million.
  • CEO remains cautiously optimistic for fiscal 2024.
Negative
  • None.

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 GroupFY23 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 EndedFor 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 EndedFor 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


FAQ

What were Twin Disc's sales for Q4 2023?

Twin Disc's sales for Q4 2023 were $83.9 million.

What was Twin Disc's net income for Q4 2023?

Twin Disc's net income for Q4 2023 was $8.6 million.

What was Twin Disc's EBITDA for Q4 2023?

Twin Disc's EBITDA for Q4 2023 was $13.0 million.

What was Twin Disc's operating cash flow for Q4 2023?

Twin Disc's operating cash flow for Q4 2023 was $16.0 million.

What was Twin Disc's free cash flow for Q4 2023?

Twin Disc's free cash flow for Q4 2023 was $14.9 million.

What is Twin Disc's backlog?

Twin Disc's backlog stands at $119.2 million.

What is the CEO's outlook for fiscal 2024?

The CEO remains cautiously optimistic for fiscal 2024.

Twin Disc, Incorporated

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