Twin Disc(US:TWIN)2019-05-06 18:42Financial Data and Key Metrics Changes - Sales for Q3 2019 were $77.4 million, an increase of $12.1 million or 19% from the prior year [13] - Excluding the impact of the Veth acquisition, sales were down 5% compared to the prior year [14] - Gross margin for the quarter was 29.9%, a decline of 200 basis points from the prior year [17] - Net profit for the quarter was $4.6 million or $0.34 per diluted share, a slight increase from $4.3 million or $0.37 per share in the prior year [23] - Operating cash flow was negative $8.4 million and free cash flow was negative $10.6 million in Q3 [27] Business Line Data and Key Metrics Changes - The marine backlog is growing globally, with positive signs in inquiries in the offshore space [7] - Industrial product sales increased nearly 16% compared to the prior first nine months [16] - Marine transmission sales increased nearly 3% [16] Market Data and Key Metrics Changes - The North American aftermarket demand for oil and gas products has reduced, impacting overall revenue [14] - Incoming order levels softened in Q3, but market activity and inquiry levels remained strong [26] Company Strategy and Development Direction - The company is focused on improving internal capacity and getting the Lufkin facility operational by January 2020 [29] - New product development remains a priority, particularly in marine, hybrid, and electrification markets [29] - The Veth acquisition is seen as a significant growth opportunity, particularly in North America [10] Management's Comments on Operating Environment and Future Outlook - Management expressed frustration over operational inefficiencies and supply chain challenges impacting sales [6] - The outlook for Q4 is cautiously optimistic, with expectations of stable demand across various markets [29] - Management does not foresee a repeat of the downturn experienced in 2015, indicating a more stable environment [29] Other Important Information - The company announced the hiring of Jim Feiertag as the new President and COO, succeeding Mac Moore [11] - The effective tax rate for Q3 was 23.9%, reflecting changes in jurisdictional earnings [22] Q&A Session Summary Question: Factors affecting operating efficiency - Management attributed operational inefficiencies roughly 50-50 between supply chain issues and labor challenges, with specific issues arising from a heat treat supplier [33][34] Question: Expectations for Q4 financial results - Management indicated that Q4 results would likely be comparable to Q3, including gross margin expectations [35] Question: Backlog changes and market softness - The decline in backlog was primarily due to oil and gas shipping not being replaced, rather than market softness [36] Question: Development synergies from Veth acquisition - The integration of Veth has accelerated hybrid product development, leveraging their expertise in dual input systems [39] Question: Free cash flow outlook - Positive free cash flow for the year is considered a stretch, but there is optimism for improved cash flow in Q4 [45] Question: Marine business improvement - Management noted signs of improvement in marine business discussions, particularly in offshore projects and orders from Asia [51] Question: Revenue from Veth in Q3 - Veth generated a little over $15 million in revenue during Q3 [57]