Twin Disc, Incorporated (NASDAQ:TWIN) Q1 2024 Earnings Call Transcript

Twin Disc, Incorporated (NASDAQ:TWIN) Q1 2024 Earnings Call Transcript November 4, 2023

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Twin Disc, Inc. Fiscal First Quarter 2024 Conference Call. [Operator Instructions] Thank you. Jeff Knutson, you may begin your conference.

Jeff Knutson: 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 Batten, Twin Disc’s 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.

Any forward-looking statements that are made during this call are based on assumptions as of today, and the 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 262-638-4000 and we will send the release to you. Now I’ll turn the call over to John.

John Batten: 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 worked to capture stable demand for our products, drive increased shipments and resulting in a 13.7% year-over-year sales growth. We also achieved robust gross margin expansion, improving 240 basis points to 26.2%, despite incurring a onetime charge of $3.1 million, along with significant increases in EBITDA and cash generation. Owing to our improved financial position, I am pleased to announce that the Board has approved reinstating a quarterly cash dividend in the amount of $0.04 per share.

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 a record backlog in our airport rescue and firefighting transmission business, while inventories favorably declined. That also continues to perform strongly, driven by further growth beyond its core 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 in global commercial markets driving 24% growth in sales.

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Q&A Session

Production at our Belgium facility is already at capacity this fiscal year with projects booked through August 2024. Patrol boat projects grew in line with increased government defense spending, a trend which we expect may continue due to ongoing geopolitical turmoil, an 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 6-month backlog increased 17% sequentially. The collaboration between Veth and Rolla continues to be a highlight of the mega yacht market, representing a major long-term growth driver and as sales trend higher. This partnership gives us a competitive edge and unlocked opportunities within both new and established markets.

On to the land-based transmission business, sales grew 17% year-over-year, driven by higher demand from the oil and gas market. Within ARFF, 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. That said, 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 uncertainties in the macro environment. Demand has softened within the industrial product leading to a 19% decline in sales versus the prior year despite sourcing and supply chain headwinds having eased. This sluggish demand is largely tied to lower content commoditized products, including construction and irrigation equipment.

We are still seeing solid increase in demand for higher content, more sophisticated products, underscored by a new business award we received on a large shredder application with a major customer of [indiscernible]. Despite 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, the gradual alleviation of supply chain headwinds, coupled with solid operational execution has helped us make significant progress driving increased shipments. These supply chain improvements have been a major factor in enabling us to complete system build and deliver shipments in a reasonable time frame. We also continue 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. Veth reach continues to expand on a global scale, driven in part by the successful partnership with Rolla. 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 offerings 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, somewhat 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. Jeff?