Twin Disc, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2024, ended September 29, 2023; comparable quarter ended September 30, 2022. Unless stated otherwise, financial amounts are in millions of dollars. Twin Disc manufactures and distributes marine and heavy-duty off-highway power transmission equipment, with manufacturing and distribution reportable segments.
Financial results and condition
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Net sales | $63.6 | $55.9 |
| Gross profit / margin | $16.6 / 26.2% | $13.3 / 23.8% |
| Operating loss | $(0.3) | $(1.8) |
| Net loss attributable to Twin Disc | $(1.2); $(0.09) per share | $(1.4); $(0.11) per share |
| Operating cash flow | $9.8 | $(0.7) |
| Capital expenditures | $3.7 | $2.2 |
- Sales increased 13.7% year over year. Marine and propulsion sales rose 24.3%, land-based transmission shipments increased 16.6%, and industrial shipments declined 19.1%.
- Reported gross margin included a $3.1 million non-cash inventory write-down associated with the boat management systems product line sale. Excluding that charge, management reported gross margin of 31.1%.
- ME&A expense rose 12.2% to $16.9 million, but declined as a share of sales to 26.6% from 27.0%. Management cited higher wages and benefits, professional fees, travel and software costs, and investment supporting its hybrid-electric strategy.
- Cash increased to $20.4 million from $13.3 million at June 30, 2023. Operating cash flow less capital expenditures was positive $6.1 million, as defined by the company. Management reported net debt of $1.2 million, down from $5.4 million at fiscal year-end.
- At September 29, total debt was $21.7 million, including $10.6 million of revolver borrowings and an $11.0 million term loan. The company reported approximately $27.0 million of available revolver borrowings. Cash and total debt are reported figures; net debt is management’s measure.
- Current assets were $209.2 million and current liabilities $92.2 million; working capital was $117.0 million, down $2.6 million from June 30. Inventory was $126.2 million, down $5.7 million over the quarter.
Changes, outlook and risks
- Regional results were uneven: Asia-Pacific sales increased $7.3 million and European sales increased $6.0 million, while North American sales fell 17.1%, primarily reflecting softer oil-and-gas aftermarket demand. Currency translation added $2.2 million to sales.
- Six-month order backlog was approximately $122.5 million, versus $119.2 million at June 30, 2023 and $108.9 million a year earlier. The filing does not provide formal sales or earnings guidance. The company expects fiscal 2024 capital investment of $9–$11 million, subject to market conditions and capital availability.
- The company agreed to sell certain boat management systems assets, inventory and legal relationships; the transaction closed October 30, 2023, after quarter-end. Inventory write-downs totaled $3.7 million: $2.1 million on inventory related to the sale and $1.6 million on other related inventory.
- The company changed its pension and postretirement accounting for actuarial gains and losses, applying the method retrospectively. The July 1, 2022 cumulative effect reduced retained earnings and increased accumulated other comprehensive income by $25.1 million, with no net change to equity from that reclassification. Prior-period results were adjusted.
- The effective tax rate was (101.7)%, reflecting foreign earnings and a full valuation allowance on domestic deferred tax assets; domestic losses received no tax benefit. Unrecognized tax benefits, including interest and penalties, were approximately $0.9 million and could change with ongoing tax matters.
- Credit facilities require a maximum total funded debt-to-EBITDA ratio of 3.50:1.00, a minimum fixed-charge coverage ratio of 1.10:1.00, and a tangible-net-worth minimum. The company stated it was in compliance with liquidity and other covenants. Borrowings are secured by substantially all personal property and certain subsidiary equity interests.
- Management identified warranty estimates as subject to uncertainty; the warranty reserve rose to $4.2 million from $3.5 million at the start of the quarter. Litigation outcomes were not determinable, but management did not expect a material impact. Product-liability claims were described as insured or not material. No material changes to previously disclosed risk factors were reported.
- Management cited ongoing inflation, market softness in industrial and North American energy aftermarket demand, supply-chain and delivery conditions, foreign currency movements, and the ability to manage costs. It continued restructuring and fixed-cost reduction actions.
Most important facts for investors to verify
- Whether sales growth and backlog convert into shipments and cash flow, particularly given weaker industrial and North American demand.
- The realized economics and any subsequent financial effects of the boat management systems sale, including the related inventory write-downs.
- Whether gross-margin improvement persists after excluding the one-time write-down and amid continued inflation.
- Cash generation, inventory levels, revolver usage and covenant headroom as the company executes its capital-spending plans.
- Developments in domestic tax-asset realizability, unrecognized tax benefits, warranty claims and litigation contingencies.