EX-99.1 2 ex_154021.htm EXHIBIT 99.1 ex_154021.htm

Exhibit 99.1

 

 

 

NEWS RELEASE

 

Corporate Offices:

1328 Racine Street

Racine, WI 53403

 

 

                                                                                                                                                                           FOR IMMEDIATE RELEASE

 

Contact: Jeffrey S. Knutson

(262) 638-4242

 

 

TWIN DISC, INC. ANNOUNCES FISCAL 2019

FOURTH QUARTER FINANCIAL RESULTS

 

●  Veth Acquisition Accretive to EBITDA for Fiscal 2019

●  Marine Markets Represent 48% of Total Sales for Fiscal 2019

●  Generated $6,697,000 in Operating Cash Flow for the Fiscal 2019 Fourth Quarter

●  Focused on Executing Strategic Growth Plan and Improving Profitability

 

RACINE, WISCONSIN—August 9, 2019 — Twin Disc, Inc. (NASDAQ: TWIN), today reported financial results for the fiscal 2019 fourth quarter ended June 30, 2019.

 

Sales for the fiscal 2019 fourth quarter were $72,447,000, compared to $73,774,000 for the same period last year. The 1.8% decrease in 2019 fourth quarter sales was primarily due to reduced demand for the Company’s 8500 series transmission systems from North American fracking customers, partially offset by stable activity in the global industrial and commercial marine markets, and the contribution of Veth Propulsion. For the fiscal 2019 full year, sales were $302,663,000, compared to $240,733,000 for fiscal 2018, an increase of 25.7%.

 

Commenting on the results, John H. Batten, Chief Executive Officer, said: “Continued operational challenges associated with manufacturing and supply chain issues, compounded by a weak oil and gas environment, significantly impacted profitability during the fiscal 2019 fourth quarter. I am pleased with the meaningful progress we made executing our long-term strategic plan, which is focused on diversifying our product, geographic, and end market exposure, investing in our manufacturing and supply chain capabilities, and creating an agile and profit focused platform.”

 

“The Veth Propulsion acquisition was an important milestone and its fiscal 2019 financial performance was in line with our initial expectations. During fiscal 2019, we have completed most of the integration of Veth Propulsion, expanded Veth’s presence in the U.S. and improved our mix of marine sales. In fact, Veth’s backlog has increased approximately 30% since we acquired the business in July 2018. Overall, marine markets represented 48% of fiscal 2019’s total sales, compared to 38% last fiscal year. Our focus on diversification significantly helped us absorb the fourth quarter’s weak oil and gas market environment and confirms the benefits of our diversification strategy. I am pleased with Veth’s performance as it contributed to both sales and cash earnings for fiscal 2019. Based on current trends, we continue to believe the Veth Propulsion acquisition will generate diluted GAAP earnings accretion of $0.30 per share once fully integrated.”

 

 

 

 

Gross profit percent for the fiscal 2019 fourth quarter was 22.7%, compared to 37.4% in the fiscal 2018 fourth quarter. The decrease in gross profit percent for the fiscal 2019 fourth quarter compared to the fiscal 2018 fourth quarter was primarily due to a less profitable mix of revenues associated with reduced new rig construction and aftermarket demand in the North American fracking market and volume shifting to lower margin products. Margin was also impacted by a move to higher cost suppliers in order to meet production demands. The Company is actively pursuing cost reduction and pricing initiatives to improve gross margin and overall profitability. For the fiscal 2019 full year, gross profit was 29.6%, compared to 33.5% for the fiscal 2018 full year.

 

For the fiscal 2019 fourth quarter, marketing, engineering and administrative (ME&A) expenses decreased $1,811,000 to $16,272,000, compared to $18,083,000 for the fiscal 2018 fourth quarter. The fourth quarter decrease was due to lower professional fees ($1,078,000), bonus expense ($2,055,000) and the impact of the Mill Log divestiture ($1,138,000). These decreases were partially offset by the incremental Veth expense ($2,654,000). For the fiscal 2019 full year, ME&A expenses increased $10,446,000, or 17.1%, to $71,541,000, compared to $61,095,000 for the fiscal 2018 full year. As a percent of revenues, for the fiscal 2019 full year, ME&A expenses improved to 23.6%, compared to 25.4% for the fiscal 2018 full year.

 

Twin Disc recorded restructuring charges of $441,000 in the fiscal 2019 fourth quarter, compared to restructuring charges of $897,000 in the same period last fiscal year. Restructuring activities during the fiscal 2019 fourth quarter related primarily to cost reduction and productivity actions at the Company’s European operations. For the fiscal 2019 full year, the Company recorded restructuring charges of $1,179,000, compared to $3,398,000 for the fiscal 2018 full year.

 

The fiscal 2019 full year effective tax rate was 25.6% compared to the fiscal 2018 rate of 33.1%. The lower fiscal 2019 rate was primarily the result of the full year impact of the Tax Cuts and Jobs Act, which was enacted in the middle of the Company’s prior fiscal year. The prior year was also impacted by two significant discrete adjustments. During the first quarter of fiscal 2018, the Company recorded a tax benefit of $3,800,000 related to the reversal of a valuation allowance in a certain foreign jurisdiction that had been subject to a full valuation allowance. During the second quarter of the prior fiscal year, in compliance with the new Tax Cuts and Jobs Act, the Company recorded a non-cash tax expense of $3,800,000, primarily due to a remeasurement of deferred tax assets and liabilities. In addition, a rate change in Belgium resulted in a $400,000 non-cash tax expense due to remeasurement of deferred tax assets and liabilities. The mix of earnings by jurisdiction, smaller discrete adjustments and continued operational improvement explain the remaining movement in the Company’s effective tax rate.

 

The net loss attributable to Twin Disc for the fiscal 2019 fourth quarter was $(822,000), or $(0.06) per diluted share, compared to net income of $5,941,000 or $0.51 per diluted share, for the fiscal 2018 fourth quarter. For the fiscal 2019 full year, net income attributable to Twin Disc was $10,673,000, or $0.83 per diluted share, compared to net income of $9,528,000 or $0.82 per share for the fiscal 2018 full year.

 

Earnings before interest, taxes, depreciation and amortization (EBITDA)* was $2,868,000 for the fiscal 2019 fourth quarter, compared to $9,925,000 for the fiscal 2018 fourth quarter. For the fiscal 2019 full year, EBITDA was $29,923,000 compared to $21,047,000 for the fiscal 2018 full year.

 

 

 

 

Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: “During fiscal 2019 we completed several corporate actions to improve and invest in our long-term business platform and I am pleased with the successful follow-on offering completed in September 2018, as well as the strategic divestiture of Mill Log, which we completed during this year’s third quarter. We invested nearly $12,000,000 of capital expenditures this past fiscal year, nearly double that of the prior year, and expect to invest $12,000,000 to $14,000,000 in fiscal 2020. The investments we are making are focused on improving our operations, upgrading our manufacturing capabilities, and increasing our overall productivity. In addition, throughout fiscal 2020 we will continue to focus on operating cash flow, reducing leverage, and efficient balance sheet management.”

 

Mr. Batten concluded: “Our six-month backlog at June 30, 2019 was $99,593,000, compared to $113,703,000 at March 29, 2019 and $114,979,000 at June 30, 2018. As we enter the new fiscal year, we are focused on improving our performance, investing in our operations, and creating an infrastructure to support Twin Disc for the future. Components of this plan include our new operations facility in Texas, which is scheduled to open in the first calendar quarter of 2020, and our expanded Wisconsin distribution center, which opened in May 2019 and is now running at peak performance. We expect the investments we are making will start contributing to financial results during the second half of fiscal 2020. In addition, based on our current backlog of orders, we expect oil and gas market demand will remain soft throughout the fiscal 2020 first half. Despite the near-term market and operational challenges, we believe we are headed in the right direction to support our business and create shareholder value for the long-term.”

 

Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:00 a.m. Eastern Time on Friday, August 9, 2019. To participate in the conference call, please dial 888-394-8218 five to ten minutes before the call is scheduled to begin. A replay will be available from 2:00 p.m. August 9, 2019, until midnight August 16, 2019. The number to hear the teleconference replay is 844-512-2921. The access code for the replay is 2203957.

 

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.

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.

 

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 Company intends that such forward-looking statements be subject to the safe harbors created thereby. All forward-looking statements are based on current expectations regarding important risk factors including those identified in the Company’s most recent periodic report and other filings with the Securities and Exchange Commission. Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and 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.

 

*Non-GAAP Financial Disclosures

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.

 

 

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 AND

COMPREHENSIVE (loss) INCOME

(In thousands, except per-share data; unaudited)

 
   

Quarter Ended

   

Year Ended

 
   

June 30,

2019

   

June 30,

2018

   

June 30,

2019

   

June 30,

2018

 
                                 

Net sales

  $ 72,447     $ 73,774     $ 302,663     $ 240,733  

Cost of goods sold

    55,996       46,170       213,022       160,092  

Gross profit

    16,451       27,604       89,641       80,641  
                                 

Marketing, engineering and

                               

administrative expenses

    16,272       18,083       71,541       61,095  

Restructuring expenses

    441       897       1,179       3,398  

Other operating income

    (220 )     -       (1,577 )     -  

(Loss) income from operations

    (42 )     8,624       18,498       16,148  
                                 

Interest Expense

    (344 )     (55 )     (1,927 )     (282 )

Other expense, net

    (456 )     (240 )     (2,064 )     (1,446 )
      (800 )     (295 )     (3,991 )     (1,728 )

(Loss) income before income
taxes and noncontrolling interest

    (842 )     8,329       14,507       14,420  

Income tax (benefit) expense

    (69 )     2,373       3,711       4,773  
                                 

Net (loss) income

    (773 )     5,956       10,796       9,647  

Less: Net earnings attributable to

                               

noncontrolling interest, net of tax

    (49 )     (15 )     (123 )     (119 )

Net (loss) income attributable to Twin Disc

  $ (822 )   $ 5,941     $ 10,673     $ 9,528  
                                 

Net (loss) income per share data:

                               

Basic (loss) income per share attributable

to Twin Disc common shareholders

  $ (0.06 )   $ 0.51     $ 0.84     $ 0.82  

Diluted (loss) income per share attributable

to Twin Disc common shareholders

  $ (0.06 )   $ 0.51     $ 0.83     $ 0.82  
                                 

Weighted average shares outstanding data:

                               

Basic shares outstanding

    12,991       11,315       12,571       11,295  

Diluted shares outstanding

    13,129       11,415       12,690       11,395  
                                 

Comprehensive income:

                               

Net (loss) income

  $ (773 )   $ 5,956     $ 10,796     $ 9,647  

Foreign currency translation adjustment

    546       (3,897 )     (2,671 )     981  

Unrealized loss on cash flow hedge, net of taxes of $156, $0, $156 and $0, respectively

    (509 )     -       (509 )     -  

Benefit plan adjustments, net of taxes of ($1,679), $2,043, ($1,242), and $3,207, respectively

    (5,548 )     5,242       (4,121 )     7,924  

Comprehensive (loss) income

    (6,284 )     7,301       3,495       18,552  

Less: Comprehensive income

attributable to noncontrolling interest

    (46 )     (50 )     (98 )     (145 )

Comprehensive (loss) income attributable to

Twin Disc

  $ (6,330 )   $ 7,251     $ 3,397     $ 18,407  

 

 

 

 

 

 

Reconciliation of Consolidated net (loss) INCOME to EBITDA

(In thousands; unaudited)

 
   


Quarter Ended

   

 

Year Ended

 
   

June 30,

2019

   

June 30,

2018

   

June 30,

2019

   

June 30,

2018

 

Net (loss) income attributable to Twin Disc

  $ (822 )   $ 5,941     $ 10,673     $ 9,528  

Interest expense

    344       55       1,927       282  

Income taxes

    (69 )     2,373       3,711       4,773  

Depreciation and amortization

    3,415       1,556       13,612       6,464  

Earnings before interest, taxes,

depreciation and amortization

  $ 2,868     $ 9,925     $ 29,923     $ 21,047  

 

 

 

 

 

CONDENSED CONSOLIDATED BALANCE SHEETS

 

(In thousands; unaudited)

 
                 
   

June 30,

   

June 30,

 
   

2019

   

2018

 

ASSETS

               

Current assets:

               

Cash

  $ 12,362     $ 15,171  

Trade accounts receivable, net

    44,013       45,422  

Inventories

    125,893       84,001  

Prepaid expenses

    11,681       8,423  

Other

    8,420       6,252  

Total current assets

    202,369       159,269  
                 

Property, plant and equipment, net

    71,258       55,467  

Goodwill, net

    27,829       2,692  

Deferred income taxes

    18,178       18,056  

Intangible assets, net

    22,853       1,906  

Other assets

    3,758       3,850  
                 

TOTAL ASSETS

  $ 346,245     $ 241,240  
                 

LIABILITIES AND EQUITY

               

Current liabilities:

               

Short-term borrowings and current maturities of long-term debt

  $ 2,000     $ -  

Accounts payable

    31,468       29,368  

Accrued liabilities

    39,609       32,976  
                 

Total current liabilities

    73,077       62,344  
                 

Long-term debt

    40,491       4,824  

Lease obligations

    14,683       6,527  

Accrued retirement benefits

    25,878       21,068  

Deferred income taxes

    6,804       1,203  

Other long-term liabilities

    2,494       1,658  
                 

Total liabilities

    163,427       97,624  
                 

Twin Disc shareholders’ equity:

               

Preferred shares authorized: 200,000; issued: none; no par value

    -       -  

Common shares authorized: 30,000,000;

Issued: 14,632,802 and 13,099,468, respectively; no par value

    45,047       11,570  

Retained earnings

    196,472       178,896  

Accumulated other comprehensive loss

    (37,971 )     (23,792 )
      203,548       166,674  

Less treasury stock, at cost

(1,392,524 and 1,545,783 shares, respectively)

    21,332       23,677  
                 

Total Twin Disc shareholders' equity

    182,216       142,997  
                 

Noncontrolling interest

    602       619  

Total equity

    182,818       143,616  
                 

TOTAL LIABILITIES AND EQUITY

  $ 346,245     $ 241,240  

 

 

 

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

 
   

For the Year Ended

 
   

June 30,

2019

   

June 30,

2018

 
                 

Cash flows from operating activities:

               

Net income

  $ 10,796     $ 9,647  

Adjustments to reconcile net income to net cash (used)

               

provided by operating activities:

               

Depreciation and amortization

    9,335       6,464  

Amortization of inventory fair value step-up

    4,277       -  

Stock compensation expense

    2,591       2,062  

Restructuring of operations

    -       238  

Gain on sale of Mill Log

    (768 )     -  

Gain on contingent consideration of

Veth Propulsion acquisition

    (809 )     -  

Provision for deferred income taxes

    6,846       3,004  

Other, net

    84       (63 )

Net change in operating assets and liabilities

    (37,813 )     (14,841 )

Net cash (used) provided by operating activities

    (5,461 )     6,511  
                 

Cash flows from investing activities:

               

Capital expenditures

    (11,979 )     (6,328 )

Acquisition of Veth Propulsion, less cash acquired

    (60,195 )     -  

Proceeds from sale of plant assets

    239       152  

Proceeds from sale of business

    5,158       -  

Proceeds from life insurance policy

    101       -  

Other, net

    (233 )     (128 )

Net cash used by investing activities

    (66,909 )     (6,304 )
                 

Cash flows from financing activities:

               

Proceeds from issuance of common stock, net

    32,210       -  

Borrowings under long-term debt agreement

    44,480       -  

Borrowings under revolving loan agreement

    147,854       80,642  

Repayments under revolving loan agreement

    (129,548 )     (82,143 )

Repayments of long-term borrowings

    (24,752 )     -  

Payments of withholding taxes on stock compensation

    (1,005 )     (422 )

Dividends paid to noncontrolling interest

    (115 )     (172 )

Proceeds from exercise of stock options

    36       29  

Net cash provided (used) by financing activities

    69,160       (2,066 )
                 

Effect of exchange rate changes on cash

    401       663  
                 

Net change in cash

    (2,809 )     (1,196 )
                 

Cash:

               

Beginning of year

    15,171       16,367  
                 

End of year

  $ 12,362     $ 15,171