Twin Disc(TWIN) - 2024 Q1 - Quarterly Report

Part I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 FY2024, including balance sheet, operations, and cash flows, along with detailed notes on accounting policies and key financial items Condensed Consolidated Financial Statements Twin Disc reported Q1 FY2024 net sales of $63.6 million, a net loss of $1.17 million, and improved operating cash flow of $9.8 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 29, 2023 (in thousands) | June 30, 2023 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $209,208 | $219,706 | | Total Assets | $277,981 | $289,181 | | Total Current Liabilities | $92,218 | $100,095 | | Total Liabilities | $137,806 | $143,664 | | Total Equity | $140,175 | $145,517 | Condensed Consolidated Statement of Operations (in thousands, except per share data) | Metric | Q1 FY2024 (ended Sep 29, 2023, in thousands) | Q1 FY2023 (ended Sep 30, 2022, in thousands) | | :--- | :--- | :--- | | Net Sales | $63,554 | $55,913 | | Gross Profit | $16,637 | $13,297 | | Loss from Operations | $(280) | $(1,793) | | Net Loss Attributable to Twin Disc | $(1,173) | $(1,422) | | Diluted Loss Per Share | $(0.09) | $(0.11) | Condensed Consolidated Statement of Cash Flows (in thousands) | Cash Flow Activity | Q1 FY2024 (ended Sep 29, 2023, in thousands) | Q1 FY2023 (ended Sep 30, 2022, in thousands) | | :--- | :--- | :--- | | Net cash provided (used) by operating activities | $9,802 | $(696) | | Net cash used by investing activities | $(3,645) | $(1,701) | | Net cash provided by financing activities | $643 | $717 | | Net change in cash | $7,165 | $693 | Notes to Condensed Consolidated Financial Statements These notes detail significant accounting policies, including a pension plan accounting change, inventory write-downs, segment performance, debt compliance, and assets held for sale - The company changed its accounting method for pension and postretirement benefit plans to recognize actuarial gains and losses immediately above a 20% threshold, rather than amortizing them, with this change applied retrospectively[14][15] - In Q1 FY2024, the company recognized a total inventory write-down of $3.7 million ($2.1 million in Italy and $1.6 million in the U.S.) related to its boat management system product line[20] Net Sales by Segment (in thousands) | Segment | Q1 FY2024 Sales (in thousands) | Q1 FY2023 Sales (in thousands) | | :--- | :--- | :--- | | Manufacturing | $54,537 | $48,997 | | Distribution | $32,853 | $24,307 | - The company is in compliance with its debt covenants, which include maintaining a Total Funded Debt to EBITDA ratio not exceeding 3.50 to 1.00 and a Fixed Charge Coverage Ratio of at least 1.10 to 1.00[50][54] - The company is actively marketing its former corporate headquarters and, in Q1 FY2024, entered an agreement to sell certain assets of its boat management systems product line, reclassifying them to 'Assets Held for Sale'[66][69] Management's Discussion and Analysis (MD&A) Management discusses a 13.7% increase in net sales, improved gross margin, positive free cash flow, and strengthened liquidity, driven by strong product and regional performance Results of Operations Q1 FY2024 net sales increased 13.7% to $63.6 million, driven by marine and off-highway products and strong Asia Pacific/Europe sales, with gross margin improving to 26.2% Q1 FY2024 vs Q1 FY2023 Performance (in millions, except percentages) | Metric | Q1 FY2024 | Q1 FY2023 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $63.6M | $55.9M | +13.7% | | Gross Profit % | 26.2% | 23.8% | +2.4 p.p. | | Loss from Operations | $(0.3)M | $(1.8)M | +84.4% | - Sales growth was driven by strong performance in specific product lines and regions: - Product Growth: Marine/propulsion products (+24.3%), Off-highway transmission products (+16.6%) - Regional Growth: Asia Pacific (+58.9%), Europe (+38.5%) - Decline: Industrial products (-19.1%), North America sales (-17.1%)[97] - Gross margin improved to 26.2%, and adjusted for a non-recurring $3.1 million inventory write-down, the gross profit percentage would have been 31.1%[100] - The six-month order backlog increased to $122.5 million as of September 29, 2023, compared to $108.9 million at September 30, 2022[108] Financial Condition, Liquidity and Capital Resources The company's financial condition strengthened with increased cash, reduced net debt, positive free cash flow, and compliance with debt covenants, projecting $9-11 million in FY2024 capital expenditures - The company generated positive free cash flow of $6.1 million (defined as operating cash flow less acquisitions of fixed assets) during the quarter[111] Key Balance Sheet Changes (Sep 29, 2023 vs June 30, 2023, in millions) | Account | Change | Reason | | :--- | :--- | :--- | | Cash | +$7.2M | Positive free cash flow | | Inventories | -$5.7M | Asset sale and increased shipments | | Total debt, net of cash | -$4.2M | Improved to $1.2M from $5.4M | - As of September 29, 2023, the company had approximately $27.0 million of available borrowings under its Credit Agreement[57] - The company expects to invest between $9 million and $11 million in capital assets in fiscal 2024, focusing on modernizing manufacturing, assembly, and testing processes[109] Quantitative and Qualitative Disclosure About Market Risk The company, as a Smaller Reporting Company, has opted not to provide quantitative and qualitative disclosure about market risk - Due to its status as a Smaller Reporting Company, the company has opted out of providing the quantitative and qualitative disclosure about market risk[122] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 29, 2023, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures are effective[124] - No material changes were made to the company's internal control over financial reporting during the most recent fiscal quarter[125] Part II. OTHER INFORMATION Legal Proceedings The company is involved in product liability claims, which are either insured or not considered material to its financial condition - Ongoing product liability claims are not expected to have a material impact on the company's financial condition, as they are either insured or the amounts are not deemed material[126] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2023 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2023 Annual Report on Form 10-K have occurred[127] Unregistered Sales of Equity Securities and Use of Proceeds The company did not sell unregistered equity or make open market purchases, but acquired 138,141 shares for tax obligations, with 315,000 shares authorized for repurchase - The company did not purchase any shares on the open market during the quarter, but 138,141 shares were acquired from employees to cover withholding taxes on vested stock awards[131] - A board authorization to repurchase 315,000 shares of common stock remains outstanding and has no expiration date[132] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications required by Sarbanes-Oxley Act and Inline XBRL financial data - The exhibits include required CEO and CFO certifications under the Sarbanes-Oxley Act and interactive data files (Inline XBRL)[138]