Twin Disc CEO Discusses F2Q13 Results - Earnings Call Transcript

Jan.22.13 | About: Twin Disc, (TWIN)

Twin Disc, Incorporated (NASDAQ:TWIN)

F2Q13 Earnings Call

January 22, 2013 11:00 AM ET

Executives

Stan Berger - IR

Michael Batten - CEO

John Batten - President and COO

Christopher Eperjesy - VP, Finance and CFO

Analysts

Josh Chan - Robert W. Baird & Company

Andrea Sharkey - Gabelli & Co.

Jon Braatz - Kansas City Capital

Brian Uhlmer - Global Hunter Securities

Tim Fronda - Sidoti & Company

Rand Gesing - Neuberger Berman

Tony Gikas - Allerion Asset Management

Operator

Good day ladies and gentlemen. Thank you for standing by. Welcome to the Twin Disc Incorporated Second Quarter Fiscal 2013 Financial Results Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions). The conference is being recorded today, January 22, 2013.

I would now like to turn the conference over to Stan Berger. Please go ahead.

Stan Berger

Thank you, Ian. On behalf of the management of Twin Disc, we are extremely pleased that you have taken a time to participate in our call and thank you for joining us to discuss the company’s Fiscal 2013 Second Quarter and first half results and business outlook. Before I introduce management, I would like to remind everyone that certain statements made during the course of this conference call, especially those that state management’s “intentions,” “hopes,” “beliefs,” “expectations” or “predictions” for the future, are forward-looking statements.

It is important to remember that the Company’s actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the Company’s Annual Report on Form 10-K, copies of which may be obtained by contacting either the Company or the SEC.

By now, you should have received a copy of the news release which was issued this morning before the market opened. If you have not received a copy, please call Annette Mianecki at 262-638-4000 and she will send a copy to you.

Hosting the call today are Michael Batten, Twin Disc Chairman and Chief Executive Officer; John Batten, President and Chief Operating Officer; and Christopher Eperjesy, the Company’s Vice President of Finance, Chief Financial Officer and Treasurer.

At this time, I will turn the call over to Michael Batten. Mike?

Michael Batten

Thank you, Stan, and good day, everyone. Welcome to our Fiscal 2013 second-quarter conference call. I will begin with a brief summary statement and then John, Chris and I will be ready to take your questions. Our second quarter results reflect continuing weakness from the oil and gas industry, offset somewhat by improving conditions in the global commercial marine markets. Our near-term outlook remains challenging, as we worked through the bottom of the energy cycle, although we anticipate that demand will resume for our fiscal year 2014.

Looking at the results for the quarter, the sales for the second fiscal quarter of 2013 were $72 million, down from a record $83 million for the same period a year ago. Sales for the first six months were $141 million compared to $164 million the prior year. The decrease in sales was primarily the result of lower demand from customers in the pressure pumping sector in the North American oil and gas market. Offsetting those weaknesses in this market was higher demand from customers in the North American and Asian commercial marine markets.

Sales to customers serving the global mega yacht market remained at historical lows for the quarter, while demand remained steady for equipment used in airport rescue and firefighting and military markets.

Our gross margin for the second fiscal quarter was 30.8%, compared to 35.6% in the same period last fiscal year and 28.2% in the fiscal 2013 first quarter. The anticipated decline in gross margin was the result of lower sales volumes and less profitable mix of business. Year-to-date, gross margin was 29.6%, compared to 36.7% for the first half of fiscal year 2012.

Our marketing, engineering and administrative expenses for the second quarter for fiscal 2013 were 23.2% sale, compared to 24.2% sales for the same period a year ago. ME&A expenses decreased $3.3 million in the quarter due primarily to reduced stock-based compensation and annual bonus expenses, compared to the previous year. On a year-to-date basis ME&A expenses decreased $2.6 million from the same six months for prior year primarily, as a result of reduced stock-based compensation and bonus expenses offset somewhat by increased R&D activities wage inflation and additional headcount.

The effective tax rate for the first half of fiscal 2013 is 38.3%, which is slightly higher than the prior year rate of 35.6%. The current year rate is somewhat inflated due to the non-deductibility of the losses in certain foreign jurisdictions during the first half, due to an ongoing valuation allowance determination. The favorable impact of the recently extended R&D tax credit estimated to be approximately $500,000 and will be recorded in the third fiscal quarter.

Net earnings attributable to Twin Disc for the fiscal 2013 second quarter were $3.4 million, or $0.29 per diluted share, compared to $5.8 million, or $0.50 per diluted share, for the fiscal 2012 second quarter. Year-to-date, net earnings attributable to Twin Disc were 4.6 million or $0.40 per diluted share, compared to $15.5 million or $1.34 per diluted share for the fiscal 2012 first half.

EBITDA for the second quarter was $8.2 million, compared to $12.3 million for the same period a year ago. For the first six months EBITDA was $13.5 million, compared to $30.1 million last year. Our balance sheet and liquidity continue to improve during the second quarter, despite elevated inventory levels required to support growth in markets. We generated $12.1 million in cash from operations, in the quarter to increase our overall cash position to $20.6 million.

During the quarter the company and a European subsidiary entered into a $15 million multi-currency revolving credit agreement with Wells Fargo Bank that will provide our global operations with greater borrowing flexibility.

Also during the second quarter, we repurchased 185,000 shares of our common stock at an average price of $16.59 per share for a total cost of $3.1 million. We have 315,000 shares remaining under our current authorization. Capital expenditures through the first six months totaled $3.5 million and we anticipate $10 million in capital expenditures for fiscal year.

Turning now to our outlook, as we stated last quarter, our fiscal 2013 results will be challenged by a decline in market activity in North America for our pressure pumping transmissions. Despite the lack of demand from this market, we were able to keep the second quarter gross margin above 30% and maintain our overall profitability. This is a testament to our end market and geographic diversity, and flexible manufacturing operations.

Our six month backlog at December 28, 2012 was $68 million, compared to $82 million at end of the first quarter and $149 million a year ago. As discussed, the decline in backlog reflects continued weakness in demand from the oil and gas industry. While the near-term outlook from market is going to be more challenging than originally expected, we continue to anticipate a recovery in 7500 and 8500 pressure pumping transmission sales in fiscal 2014, which will be augmented by growing demand from customers in the commercial marine industrial legacy military markets, We are optimistic that we are well positioned to capitalize on the longer term trends in all of our end markets.

That concludes my prepared remarks for now and John and Chris and I will be happy to take your question. Ian, will you please open up the line for those questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question is from the line of Josh Chan with Robert W. Baird. Please go ahead.

Josh Chan - Robert W. Baird

I was just wondering about your view that the North American oil and gas outlook might improve in Fiscal 14, I was wondering if there was anything that you’re hearing specifically that gives you that confidence in terms of the timing?

John Batten

Yeah, I guess that the first thing that we’re hearing is just initial discussion for projects and tentative orders and knowing when these projects and orders would be, the first orders would fall into our fiscal 2014. So we’re starting to see some activities, some initial requests for timing. So that’s what’s giving us hope that the recovery is going to start in 2014.

We also have been pleasantly surprised to hear that some of our equipment that’s been sitting in North American in finished rig has begun to ship to Argentina and Australia, So it looks like even though the market has been pretty slow as far as new rig construction that some of that idle inventory is been used up and sent abroad.

Josh Chan - Robert W. Baird

Okay that’s definitely a positive. When you talk about orders timing being in fiscal 14 so does that mean that the translation into revenue probably occurs in the second half of fiscal 14? Is that the more likely outcome?

John Batten

That may start sooner than that but it’s certainly not going to have a big impact on the rest of fiscal 13. So yeah I would anticipate that as we get farther in the fiscal 14 oil and gas North America will be stronger.

Josh Chan - Robert W. Baird

Okay great and little bit to international markets, could you talk about international oil and gas and how that trended in the quarter for you?

John Batten

I would say almost all of the oil and gas in the second quarter was overseas and predominately China. So that part of the problem that we ran into with the inventory, the inventory manufacturing stuff actually came down during the quarter but there is a long transit time to get to get to Singapore and then into China. So, a lot of the inventory basically is on the water right now headed first to Singapore and then into China.

Josh Chan - Robert W. Baird

Okay. And typically your business like overall is it a bit stronger in the second half versus the first half? Do you think that’s still a reasonable outlook this year given the movement in the backlog?

John Batten

I think that is going to be harder this year. I think if you look at where our backlog has settled and we think it is pretty much at the bottom, kind of bouncing around the bottom within the quarter, anytime the backlog bottoms out, the next quarter or two are going to be challenging. So, I think we’re still optimistic that we could have a comparable second half as the first half but it’s going to be challenging, Josh. Just given where the backlog is right now and we know that any type of oil and gas drop in orders now really wouldn’t be until fiscal ‘14. So, we’re running out of time to fill in the second half.

Josh Chan - Robert W. Baird

Okay. That makes sense. And I guess the 30% gross margin that you guys achieved this quarter was certainly impressive. So, assuming the volume stays kind of the same as you’ve diluted to, is the 30% sustainable or is there anything unusual about it?

John Batten

I think you’re going to see margins in the third quarter more in the mid-20s to high 20s, something in that area, high 20s. It will be very tough for us in the third quarter to hold the 30% gross margin.

Operator

Thank you. And your next question is from the line of Andrea Sharkey with Gabelli. Please go ahead.

Andrea Sharkey - Gabelli & Co

A lot of my questions were just asked but maybe just a little bit more on the inventory, on the pressure pumping transmissions, I think last quarter you guys said there was about three to six months in excess inventory, sort of all the different channels. Is that about the same or is that coming down a little bit now?

John Batten

I think, it’s different. I think when I said three to six months probably, I meant in North America. China is consuming as they need it. Andrea, I’m hopeful that’s a little bit less now because I think some of idle inventories worked its way into production, into operation in North America and what we’ve heard is that the rigs that are going to Argentina and Australia are from the North American fleet. So, hopefully that that’s working down the unused inventory. And if it was three to six months last quarter, maybe you’re looking at two to four, average of about three now, but definitely the situation is getting better.

Andrea Sharkey - Gabelli & Co

Okay great that’s helpful and then, as you were saying you think your backlog has now bottomed. I guess what gives you confidence that it’s not getting any worse is just that the North American orders and demand and what’s in your backlog now is just pretty much non-existent or just that you know maintenance run rate and so there is really not much more that it can drop. Is that what’s make you think that.

John Batten

I guess what’s giving us confidence is that the backlog actually bottomed out during the quarter and we saw it come up within the quarter and just the overall optimism in each one of our end markets, about what’s going to happen and most of our customers deal in calendar 13, they’re pretty optimistic on a very good calendar 13. So I expect to see you know the backlog will not have gotten any worse, it may not get much better in the third quarter but it should, we’ve hit the bottom, it should start to come up. But one component that has been hardest hit is North American oil and gas and that is pretty much down very significantly. So that can’t get much worse, so I can only see that improving as we go forward.

Andrea Sharkey - Gabelli & Co

And then I don’t know if this is maybe not important but I have been seeing a lot of companies that are saying they’re switching their pressure pumping trucks and their rigs to run on natural gases that have diesel, does that have any impact on your oil and gas transitions or your transition can get just go on as the truck (inaudible)

John Batten

That has more impact on, I don’t want to say 100% of them have much impact on our transition but that is more of an impact on the engine and we certainly can run behind an engine that’s running on natural gas.

Andrea Sharkey - Gabelli & Co

Okay great and maybe just one more on different and market. I think read something that you guys are producing a next generation transition for the airport rescue and firefighting end market. I was just wondering if you can give us some details on that, what that is, how that’s going in terms of customer adoption and either you see that as potential revenue growth and.

John Batten

As far as revenue that wouldn’t hit until probably the end of the fiscal 14, into 2015 and this market which started off as niche market is even becoming more of niche market because this is truly an off road specialty vehicle, that is being on highway mission standard and so it’s a lot more challenging application on the engine and a lot of engine manufactures have dropped on highway in this power range.

So it is a much more challenging application for transmission because they have to meet certain acceleration requirements and so a lot of transmissions that are been used today we’ll not be able to use just because of the torque levels of the new engine.

So as we are coming up with the new transmission 4000 series, we’re going to have a pretty good place in the market with this because there are not going to be many other competitive products that can handle it.

Operator

Thanks you. Our next question is from the line of Jon Braatz with Kansas City Capital, please go ahead.

Jon Braatz - Kansas City Capital

Did I understand correctly that you said there were no transmission sales to the North American oil and gas market in the quarter?

John Batten

No, there were some but it was heavily weighted towards China. There were a few but a complete flip what we have been seeing as far as China being a small percentage and the North America being the majority, it completely flipped in the quarter.

Jon Braatz - Kansas City Capital

Okay. I am trying to get a better idea of the size of change that we have seen here. During the peak period, a couple of quarters ago or a year ago, I think you add rough ones to that oil and gas was may be about 30% of revenue, something of that magnitude. So, can you give us an idea where that has fallen to?

John Batten

Year-to-date, we are down more than half in oil and gas.

Jon Braatz - Kansas City Capital

So about 15%?

John Batten

Yeah, more or less that would be, that magnitude, yes.

Jon Braatz - Kansas City Capital

Okay, so obviously the North American segment, even greater and that were offset by increases in China?

John Batten

Yes, and the second half of the year was incredible. The second half of fiscal 2012 was equally as strong and we are not going to have strong second half in oil and gas this year.

Jon Braatz - Kansas City Capital

When you look out towards 2014 and maybe beyond, the oil and gas market in north America probably won’t be as heady as it once was, but when you sort of look at what some of customers are telling you, how much do you think that could ratchet back -- is there an environment where we can get back to that 30% level just because of the strength of China and some resumption in growth in the United States or what kind of recovery could you envision at this point?

John Batten

I answered a couple of ways. I think we can get back to our pick. That’s going to be with the addition of 7500 coming on and sustained levels in Asia meaning that I don’t see the peak in North America necessary coming back to its previous peak. I see us S having a bigger market share with the 7500 and then ongoing growing business outside of the U.S.

In retrospect, looking back at the last level in North America, it is clear that everybody over built. And maybe a lesson was learned and that won’t happen next time. But I think we can get back to close to those people with the two different components of the 7500 and Asia.

Jon Braatz - Kansas City Capital

With a more balanced environment and maybe pricing won’t be as strong, I’m not sure but with a more balanced environment do you think you could return to the same margin level?

John Batten

Yeah.

Operator

Our next question is from the line of Brian Uhlmer with Global Hunter. Please go ahead.

Brian Uhlmer - Global Hunter Securities

A quick question, what was the manufacturing and distribution revenue on our breakdown this quarter?

John Batten

You know Brian, I apologize, I don’t have those at my fingertips. We’re still finalizing our segment this quarter just for the queue. I apologize, I don’t have those exact figures.

Brian Uhlmer - Global Hunter Securities

No worries. But if I assumed relatively flat….

Michael Batten

Distribution had a relativity strong quarter for a lot of reasons John was talking about with Asia and Singapore.

Brian Uhlmer - Global Hunter Securities

Okay. Got it. Which implies data orders were up and sequentially Q1 to Q2, is that correct?

Michael Batten

No, I don’t think that would be correct. Because we’ve reduced our backlog by above $14 million.

Brian Uhlmer - Global Hunter Securities

Okay. Okay. And of your orders in Q2, during the right and around $40 million, $50 million range, what percentage of that do you believe was oil and gas? If you breakdown the various segments between oil and gas, they are (inaudible) and your segments a little bit in more detail?

Michael Batten

No as I think we’ve talked on the past we don’t generally breakdown revenue by those end markets. I just, I believe there was a time when John said that in the quarter certainly year-over-year that market down more than 50%, the oil and gas market and we have seen some significant growth in the commercial marine market, but we don’t disclose further than that.

Brian Uhlmer - Global Hunter Securities

Sure okay, can you give us a little update on Caterpillar, on JV and if you start receive, where we are in that process and when we’re going to start seeing orders and revenue flow through from that.

Michael Batten

Yeah first up Brian, just to clarify, it’s not a JV it’s a supplier arrangement. We have completed a handful of CAT360 vessels which our application team has signed off on. So we’ve got about three to six CAT dealers that are out now actively selling and can sell the joystick system. So we will start to see orders in the second half of the year and into fiscal 14. The project which is supplying our quick shift in joystick technology into their pod product, we’re still probably a year and half away from when we would see revenue from that. They’re probably year and half. 18 to 24 months from production. So we wouldn’t see that impact really until late fiscal ‘15, but we will start to see some impact later part of this year in fiscal 14 for the joystick component.

Brian Uhlmer - Global Hunter Securities

Okay that’s very helpful thank and final one just, where we talk about your margins, how they outperformed my expectations by several hundred basis points this quarter, so when we look at that. how much of that breakdown was operating leverage, how much was mix and kind of what were the various constituents that led to kind of that performance first year versus your expectation and our expectations.

Michael Batten

Sure I guess maybe part of it was we have fewest number not few but we have a lot of shut down in the first quarter. So you’re going to see and we had more or less the same type of mix of business from the first and second quarter, but we have had more working days and more shipping days and so the relative strength within the quarter, not versus last year or the year ago quarter, oil and gas, there were still some shipments during the quarter. So that helped. What’s going to hurt in the third quarter is we do have fewer shipping days and we just have a lot lower mix of oil and gas in the third quarter. So that’s why we’re saying that holding 30% for the third quarter is going to be difficult and from what your expectation was of the second quarter, I’m guessing the third quarter is going to be more in line with what you are expecting the second quarter.

Brian Uhlmer - Global Hunter Securities

Perfect and my final quick question is that you are talking about Argentina and Australia, just clarifying on it, those were units that were already built, that were sitting in North America, anyone shipped over there, do you have any idea on the count, on the number of units that we are talking 10, 20, 30….

Michael Batten

I think we are talking about if for both places more than 10, fewer than 50, I think we are probably looking at, maybe two to three spreads for each country and then I think what we’re waiting for is for them to get them up and operational and then more spreads would follow.

Brian Uhlmer - Global Hunter Securities

And was there a variety of customers or just one customer?

Michael Batten

There have been two customers.

Brian Uhlmer - Global Hunter Securities

Two, yes got it.it.

Operator

Thank you. Our next question is from the line of Tim Fronda with Sidoti & Company. Please go ahead.

Tim Fronda - Sidoti & Company

Good morning, just a couple of follow up questions. With the slowdown in the oil and gas market, what would you say set you apart from competitors and they may make you better able to handle the current weakness there?

Michael Batten

I think what’s coming out of this, which is really good is the feedback we are getting on a life, particularly the 8500 because those are the most units out there and that the 8500 is far surpassing expectations on time between overhaul and so I’m very hopeful that we’re building up more loyalty as we head into the next ramp up. So, it has been slow for everybody but its nice when you visit with customers and you hear positive things about your transmissions in the field.

Tim Fronda - Sidoti & Company

Okay and can you explain a little bit more, just the actions that you’re taking now in anticipation of recovery in fiscal 2014.

Michael Batten

When you go back to fiscal 2010, heading into 2010, it is much different outlook, lot more uncertainty that we were getting in rid of any inventory that we could, including oil and gas, that is not the case at this time. We are well positioned, both with raw materials some finished, bearings, clutch plates and agreements with our suppliers that we feel that we will be able to react more quicker than we even did the last run out when it comes. So we are much better prepared this time than we were last time for the next run up.

Operator

Thank you. Our last question is from the line of Rand Gesing with Neuberger Berman. Please go ahead.

Rand Gesing - Neuberger Berman

As it relates to oil store and gas, where you guys seeing in terms of international orders as buyers sort of income is still mainly China what other geographies?

John Batten

Yeah. Well, I’d say China because, China seems to be the farthest along as far as building the rigs in country with either American and German engines or American transmissions and pumps. So, they are building their own rigs but we are getting orders from China we’re delivering to rig manufactures in China. What seems to be the case in just following on Australia and Argentina is that they are at least for now buying rigs that is being produced by North American producers. So, will Argentina and Australia start to build their own frac rigs? I could see Australia getting into frac rig productions sooner than Argentina. So, for the next year or two, I foresee any demand going to Argentina, Australia being produced in North America. I guess does that help Rand?

Rand Gesing - Neuberger Berman

Would your assumption be that that equivalent would be equivalent that was already built for North America?

John Batten

Yeah.

Rand Gesing - Neuberger Berman

Instead of having any new build activity.

John Batten

I think they would use up existing inventory in North America and then continue to buy from those same suppliers. That’s what I see right now but that could change and Australia is an advanced Marine industry as far as boat building, I mean they could easily build the frac rigs if they wanted to. That would not be stretch at all. It’s just, do they want to do that and do they, the Australian dollar is so strong right now that they probably getting a pretty good deal importing from the U.S.

Rand Gesing - Neuberger Berman

Right. I was just trying to get sense for you guys actually having he manufacturing heat backup from those markets versus just having soaking up excess capacity that’s already out there. But it sounds like for the next year or so, we’re still going to be soaking?

John Batten

Well, I think it’ll be the first part of 2013. They’ll be helping to use up existing inventory in North America.

Rand Gesing - Neuberger Berman

Any of the other markets, it sounds like from one of your earlier comments that things are still pretty solid. I just was wondering, are there any other markets, key markets that are somehow kind of little more cautionary yellow in your mind, It didn’t sound like that from the commentary but I just wanted to ask a question?

John Batten

No. I mean there is nothing. I guess the market, the two that are moving are oil and gas, North America obviously slowing way down, but in the flipside we have seen nice growth for commercial marine markets, particularly in North American and Asia. The rest of the markets are kind of, just they’re not coming at any one month they could be going down little bit, coming back up, no real exciting moment either way, it’s been North American oil and gas coming way down but on the flipside commercial marine going way up.

Rand Gesing - Neuberger Berman

Okay all right. In the quarter, we had you know nice operating cash flow. What are your expectations for the second half? Shall we see that in each of the next quarter?

John Batten

Yeah, I would see little bit more cash generated from a reduction in inventory. As we finally move out the product that has shipped to Asia we will see some good cash generation there.

Christopher Eperjesy

This is Chris. Just to repeat what John said, I would expect a continuation of the same, is this the answer to an earlier question because I now have the figures, the manufacturing was down roughly 15% net segment, distribution was up roughly 15% year-over-year and now manufacturing is much larger, that’s why you see a net reduction. So some of what we’ll see as John’s talking about with respect to inventory will be as a result of what’s going with distribution operations in particular in Asia.

Operator

Thank you. Our next question is from line of Jay Foley (ph) who is Private Investor. Please go ahead.

Unidentified Analyst

Staying here in North America just for a second, is Twin just withdrawing from the old mechanical part take off or clutch market. I asked that in one of the trade shows. I see very few equipment using Twin Disk PTOs (ph).

John Batten

No we’re not withdrawing with it, the part of this segment that you see, are they product that has been produced in China, very price sensitive? We’re seeing, the market is fracturing a little bit, very price sensitive on the mechanical PTOs but then there is also a trend towards higher technology products, whether its hydraulically controlled dry clutches type PTO or hydraulic PTO meaning a wet clutch you’ve seen on marine transmission.

More and more of our business has been migrating to the higher technology components of the industrial market, but having said that we continue to work with outsourcing and trying to find more cost competitive suppliers so that we can make our baseline technology, a simple mechanical clutch PTO more competitive.

Operator

(Operator instructions). We do have a question from the line of Tony Gikas with Allerion Asset Management. Please go ahead.

Tony Gikas - Allerion Asset Management

Just a couple of little follow ups on inventory. Could you just give us a little more detail, just characterize the inventory, what parts of the business are you supporting there and then should we see the inventory come in the next three to six months as in turn more in line with sales, and then the last question, in the second half should we expect to see those ME&A expenses continue to be in a prudent zone if you will?

Christopher Eperjesy

This is Christopher. I will take the inventory question. I guess I’ll take both. On the inventory, John was talking about a lot of the inventories that you have seen increased particularly in the quarter and year-to-date, this is going to be an inventory that going through our Asian operation, which from a sales standpoint was at record levels last year, and the year before and again is at new record levels. So a lot of that, as John was describing is sitting on a boat or working and its way through that channel.

So the answer is yes. You will definitely over the next six months start to see that come down. Some of the inventories sitting here in North America, as John was also describing is somewhat intentional in that when that North American oil and gas market comes back, we feel like we’re better positioned to address that recovery as it ramps up.

On the ME&A front, I think the answer is yes. Certainly, we will expect to see it in line but however we are not going to achieve this significant adjustment in stock-based compensation expense in the third and fourth quarter which benefited this quarter. We will continue to invest in things, particularly in Asia as John was describing. So you are not going to see a significant ramp up but you are also not going to see the significant reversals of stock-based compensation expense, things like that as well.

Operator

Thank you and we have no further questions at this time.

Michael Batten

Okay, thank you, Ian and we would like to thank everyone who participated in the conference for joining today. We appreciate your continuing interest in our company and we hope that we have answered all of your questions. If not, please feel free to Chris, John or me. We look forward to speaking with you again in April at the close of our third quarter and with that Ian I’ll turn it back to you for closing the call.

Operator

Thank you, sir. Ladies and gentlemen this concludes the Twin Disc Incorporate second quarter fiscal 2013 financial results conference call. Thank you for your participation. You may now disconnect.

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