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Twin Disc, Inc. Announces Fiscal 2018 Fourth Quarter Financial Results

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• Fourth quarter sales increased 37.7% to $73,774,000 versus fourth quarter FY17
• Gross profit percent improves 590-basis points from fourth quarter FY17
• Fourth quarter earnings per share improved to $0.51 versus $0.10 in the prior year
• Fiscal 2018 EBITDA of $21,047,000 represents significant improvement versus a prior year loss
• Six-Month backlog at $114,979,000 remains strong and increased 148% versus the prior year

RACINE, Wis., Aug. 06, 2018 (GLOBE NEWSWIRE) -- Twin Disc, Inc. (NASDAQ:TWIN) today reported financial results for the fiscal 2018 fourth quarter ended June 30, 2018. 

Sales for the fiscal 2018 fourth quarter were $73,774,000, compared to $53,591,000 for the same period last year. The 37.7% increase in 2018 fourth quarter sales was primarily due to improved demand for the Company's 8500 series transmission systems from North American fracking customers, and higher sales of aftermarket components. In addition, global demand continued to improve year-over-year across many of the Company's other markets.  For the fiscal 2018 full year, sales were $240,733,000, compared to $168,182,000 for fiscal 2017, an increase of 43%.  Currency movement contributed $1,670,000 and $5,269,000 to the fourth quarter and fiscal 2018 volume growth, respectively.

Commenting on the results, John H. Batten, President and Chief Executive Officer, said: "Fiscal 2018 fourth quarter financial results reflect positive momentum across many of our markets and the continued successful execution of our long-term strategic plan.  I am pleased by the increase in profitability we achieved during the fourth quarter as a result of investments made to our global manufacturing processes, favorable sales mix, controlled expenses, and leveraging fixed costs.  Gross profit percent during the fiscal 2018 fourth quarter was the second highest quarterly result in Twin Disc's history.  We are extremely excited with the acquisition of Veth Propulsion, which closed in early July.  We anticipate this will be accretive to sales and cash earnings in the fiscal 2019 first half.  The strategic acquisition expands Twin Disc's position in the global marine industry at a time when demand is accelerating, while diversifying our markets, geographies, and products.  Veth Propulsion enhances our future outlook and we expect fiscal 2019 to be another strong year." 

Gross profit percent for the fiscal 2018 fourth quarter was 37.3%, compared to 31.4% in the fiscal 2017 fourth quarter.  The 590-basis point increase in gross profit percent for the fiscal 2018 fourth quarter compared to the fiscal 2017 fourth quarter was primarily due to higher volumes, a more profitable sales mix, improved operating efficiencies and a global reduction in fixed manufacturing costs.  For the fiscal 2018 full year, gross profit was 33.3%, compared to 28.7% for the fiscal 2017 full year. 

For the fiscal 2018 fourth quarter, marketing, engineering and administrative (ME&A) expenses increased $4,225,000 to $18,226,000, compared to $14,001,000 for the fiscal 2017 fourth quarter.  The 30.2% increase in ME&A expenses in the quarter was primarily due to transaction costs related to the Veth acquisition, increased global bonus expense, additional stock compensation expense and a currency exchange impact. These items accounted for approximately $3,800,000 of the total increase in the fourth quarter.  For the fiscal 2018 full year, ME&A expenses increased $9,136,000, or 17.3%, to $61,909,000, compared to $52,773,000 for the fiscal 2017 full year. As a percent of revenues, for the fiscal 2018 full year, ME&A expenses improved to 25.7%, compared to 31.4% for the fiscal 2017 full year. 

Twin Disc recorded restructuring charges of $897,000 in the fiscal 2018 fourth quarter, compared to restructuring charges of $424,000 in the same period last fiscal year.  Restructuring activities during the fiscal 2018 fourth quarter related primarily to cost reduction and productivity actions at the Company's European operations.  For the fiscal 2018 full year, the Company recorded restructuring charges of $3,398,000, compared to $1,791,000 for the fiscal 2017 full year. 

The fiscal 2018 full year effective tax rate was 33.1%, compared to the fiscal 2017 rate of 35.8%.  The fiscal 2018 rate was 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.  Improvement in operating results, along with a business reorganization which provided favorable tax planning opportunities, allowed for the reversal of this valuation allowance.  During the second quarter of the current fiscal year, in compliance with the Tax Cuts and Jobs Act, the Company recorded a non-cash tax expense of $4,300,000, 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 reduced domestic rate resulting from the Tax Cuts and Jobs Act, the mix of earnings by jurisdiction and smaller discrete adjustments explain the remaining movement in the Company's effective tax rate.

Net income attributable to Twin Disc for the fiscal 2018 fourth quarter was $5,941,000, or $0.51 per diluted share, compared to $1,163,000 or $0.10 per diluted share, for the fiscal 2017 fourth quarter.  Net income for the fiscal 2018 fourth quarter, included $1,679,000 of one-time expenses associated with the Company's July 2018 acquisition of Veth Propulsion.  For the fiscal 2018 full year, net income attributable to Twin Disc was $9,528,000, or $0.82 per diluted share, compared to a loss of ($6,294,000), or ($0.56) per share for the fiscal 2017 full year.  Net income for the fiscal 2017 full year included a $2,646,000 non-cash impairment charge related primarily to goodwill associated with the Company's domestic industrial business. 

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)* were $9,924,000 for the fiscal 2018 fourth quarter, compared to $3,357,000 for the fiscal 2017 fourth quarter.  For the fiscal 2018 full year, EBITDA was $21,047,000 compared to ($2,388,000) for the fiscal 2017 full year. 

Jeffrey S. Knutson, Vice President – Finance, Chief Financial Officer, Treasurer and Secretary, stated: "During the past three years we proactively adjusted our business to improve our operations, increase efficiencies, and reduce capital requirements.  Since fiscal 2016, working capital as a percent of full year sales has improved from 53.5% to 40.3% at June 30, 2018.  In addition, our conservative approach to managing our balance sheet provided Twin Disc with the flexibility to complete the transformative acquisition of Veth Propulsion.  To help fund the acquisition, we successfully entered into a new $50 million asset-based line of credit and $35 million term note.  For fiscal 2018, we invested $6,328,000 in capital expenditures and expect to invest approximately $14,000,000 to $16,000,000 in capital expenditures in fiscal 2019.  The increase in expected capital expenditures is primarily focused on additional investments to upgrade our manufacturing capabilities and improve both quality and efficiencies." 

Mr. Batten concluded: "Our six-month backlog at June 30, 2018, was $114,979,000 compared to $116,292,000 at March 31, 2018, and $46,437,000 at June 30, 2017.  The slight decline in the six-month backlog over the past three months is primarily due to a rescheduling of deliveries for military transmission systems.  Twin Disc continues to experience strong demand in the oil and gas markets and we are well positioned to benefit from a strengthening capital investment cycle.  In addition, many of our other markets are experiencing favorable and improving demand trends.  As we celebrate our 100th anniversary, I am extremely encouraged by the direction Twin Disc is headed.  Throughout fiscal 2019, we will focus on successfully integrating the Veth Propulsion acquisition and capitalizing on compelling opportunities underway in many of our global markets." 

Twin Disc will be hosting a conference call to discuss these results and to answer questions at 11:00 a.m. Eastern Time on Monday, August 6, 2018. To participate in the conference call, please dial 800-263-0877 five to ten minutes before the call is scheduled to begin. A replay will be available from 2:00 p.m. August 6, 2018, until midnight August 13, 2018. The number to hear the teleconference replay is 844-512-2921. The access code for the replay is 3591165. 

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, 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 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.

Contact: Jeffrey S. Knutson 
(262) 638-4242

--Financial Results Follow--


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(In thousands, except per-share data; unaudited)

 
  Quarter Ended   Year Ended
  June 30,
2018
June 30,
2017
  June 30,
2018
June 30,
2017
   
Net sales $   73,774   $   53,591     $   240,733   $   168,182  
Cost of goods sold     46,284       36,775         160,497       119,950  
  Gross profit   27,490     16,816       80,236     48,232  
           
Marketing, engineering and administrative expenses   18,226     14,001         61,909       52,773  
Restructuring expenses   897     424         3,398       1,791  
Goodwill and other asset impairment charge     -       9         -       2,646  
Income (loss) from operations   8,367     2,382       14,929      (8,978 )
           
Interest expense   55     67       282     303  
Other income (expense), net     16       (661 )       (227 )     (248 )
Income (loss) before income taxes and noncontrolling interest   8,328      
1,654
      14,420      
(9,529

)
Income tax expense (benefit)     2,372       478         4,773       (3,414 )
                           
Net income (loss)     5,956     1,176       9,647     (6,115 )
Less: Net earnings attributable to noncontrolling interest, net of tax     (15 )     (13 )       (119 )     (179 )
Net income (loss) attributable to Twin Disc $    5,941   $   1,163     $   9,528   $   (6,294 )
                           
Net income (loss) per share data:          
  Basic income (loss) per share attributable to Twin Disc common shareholders $ 0.51   $ 0.10     $  0.82   $  (0.56 )
  Diluted income (loss) per share attributable to Twin Disc common shareholders $ 0.51   $  0.10     $  0.82   $ (0.56 )
           
Weighted average shares outstanding data:          
  Basic shares outstanding   11,315     11,250       11,295     11,239  
  Diluted shares outstanding   11,415     11,251       11,395     11,239  
           
Dividends per share $   0.00   $   0.00     $   0.00   $   0.00  
           
Comprehensive income:          
  Net income (loss)  $   5,956   $   1,176     $   9,647   $   (6,115 )
  Foreign currency translation adjustment     (3,897 )     3,441         981       985  
  Benefit plan adjustments, net of taxes of $2,043, $4,953, $3,207, and $6,149, respectively            5,242              8,396                  7,924       10,500  
  Comprehensive income   7,301     13,013       18,552     5,370  
  Less: Comprehensive income attributable to noncontrolling interest              (50 )              (44 )                (145
)
             (193 )
  Comprehensive income attributable to Twin Disc $        7,251   $      12,969     $        18,407  
$
         5,177  


Reconciliation of Consolidated net INCOME (LOSS) to EBITDA
(In thousands; unaudited)
 
Quarter Ended
 

Year Ended
  June 30,
2018
June 30,
2017
June 30,
2018
June 30,
2017
Net income (loss) attributable to Twin Disc $   5,941   $   1,163   $   9,528   $   (6,294 )
  Interest expense   55     67     282     303  
  Income taxes   2,372     478     4,773     (3,414 )
  Depreciation and amortization     1,556       1,649       6,464       7,017  
Earnings (loss) before interest, taxes,
depreciation and amortization
$   9,924   $   3,357   $   21,047   $   (2,388 )


CONDENSED CONSOLIDATED BALANCE SHEETS
  (In thousands; unaudited)
     
  June 30, June 30,
    2018     2017  
ASSETS    
Current assets:    
  Cash $   15,171   $   16,367  
  Trade accounts receivable, net   45,422     31,392  
  Inventories   84,001     66,193  
  Prepaid expenses   8,423     8,295  
  Other     6,252       7,187  
  Total current assets   159,269     129,434  
     
Property, plant and equipment, net   48,940     48,212  
Goodwill, net   2,692     2,585  
Deferred income taxes   18,056     24,198  
Intangible assets, net   1,906     2,009  
Other assets     3,850       4,460  
             
TOTAL ASSETS $   234,713   $   210,898  
             
LIABILITIES AND EQUITY    
Current liabilities:    
  Accounts payable $   29,368   $   21,301  
  Accrued liabilities     32,976       23,222  
             
  Total current liabilities   62,344     44,523  
     
Long-term debt   4,824     6,323  
Accrued retirement benefits   21,068     33,706  
Deferred income taxes   1,203     1,011  
Other long-term liabilities     1,658       1,768  
             
Total liabilities   91,097     87,331  
     
Twin Disc shareholders' equity:    
Preferred shares authorized: 200,000; issued: none; no par value   -     -  
Common shares authorized: 30,000,000;
  Issued: 13,099,468; no par value
   

11,570
     

10,429
 
Retained earnings   178,896     169,368  
Accumulated other comprehensive loss     (23,792 )     (32,671 )
    166,674     147,126  
  Less treasury stock, at cost
  (1,545,783 and 1,580,335 shares, respectively)
   

  23,677
     

  24,205
 
             
  Total Twin Disc shareholders' equity     142,997       122,921  
     
Noncontrolling interest     619       646  
Total equity     143,616       123,567  
             
TOTAL LIABILITIES AND EQUITY $   234,713   $   210,898  



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, unaudited)

 
  For the Year Ended
  June 30,
2018
June 30,
2017
     
Cash flows from operating activities:    
  Net income (loss) $   9,647   $   (6,115 )
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:    
  Depreciation and amortization   6,464     7,017  
  Goodwill and other asset impairment charge   -     2,646  
  Stock compensation expense   2,062     1,615  
  Restructuring of operations   238     92  
  Provision for deferred income taxes   (3,900 )   (4,245 )
  Other, net   (63 )   7  
  Net change in operating assets and liabilities     (7,937 )     2,161  
Net cash provided by operating activities     6,511       3,178  
             
Cash flows from investing activities:    
  Proceeds from sale of plant assets
  Capital expenditures
  Other, net
  152
(6,328)
  (128)
    217
(3,133)
  (126)
 
Net cash used by investing activities     (6,304 )     (3,042 )
             
Cash flows from financing activities:    
  Borrowings under revolving loan agreement   80,642     53,920  
  Repayments under revolving loan agreement   (82,143 )   (56,113 )
  Proceeds from exercise of stock options   29     -  
  Dividends paid to noncontrolling interest   (172 )   (109 )
  Payments of withholding taxes on stock compensation     (422 )     (140 )
Net cash used by financing activities     (2,066 )     (2,442 )
             
Effect of exchange rate changes on cash     663       400  
             
  Net change in cash   (1,196 )   (1,906 )
     
Cash:    
  Beginning of period     16,367       18,273  
             
  End of period $   15,171   $   16,367  


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