Enerpac Tool Group Corp.

Ladies and gentlemen, thank you for standing by. Welcome to InterPAC Tool Group's fourth quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a question and answer session. At that time, if you have a question, please press star followed by the number one on your telephone. If at any time during the conference you need to reach an operator, please press star zero as a reminder this conference is being recorded. on September 30, 2020. It is now my pleasure to turn the conference over to Bobbi Belsner, Director of Investor Relations and Strategy. Thank you. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining us for Interpac Tool Group's fourth quarter 2020 earnings conference call. On the call today to present the company's results are Randy Baker, President and Chief Executive Officer, Rick Dillon, Chief Financial Officer, and Jeff Schmaling, Chief Operating Officer. Also with us are Barb Bolins, Chief Strategy Officer, Fabrizetti, General Counsel, and Brian Johnson, Chief Accounting Officer. Our earnings release and slide presentation for today's call are available on our website at enterpactoolgroup.com in the Investor section. We are also recording this call and will archive it on our website. During today's call, we will reference non-GAAP measures, such as adjusted profit margins and adjusted earnings. You can find a reconciliation of non-GAAP measures to GAAP in the schedules to this morning's release. We also would like to remind you that we will be making statements in today's call and presentation that are not historical facts and are considered forward-looking statements. We are making those statements pursuant to the safe harbor provisions of federal securities laws. Please see our SEC filings for the risks and other factors that may cause actual results to differ materially from forecasts, anticipated results, or other forward-looking statements. Consistent with how we've conducted prior calls, we ask that you follow our one-question, one-follow-up practice in order to keep today's call to an hour and also allow us to address questions from as many participants as possible. Thank you in advance for your cooperation. Now I will turn the call over to Randy.

Thanks, Robbie, and good morning, everybody. We're going to start today on slide three. Consistent with prior calls, before we review the fourth quarter earnings, I'd like to spend a few minutes reviewing the impact the global pandemic has had on the company. Interpac has three priorities. Firstly, continuing to focus on our employees' health and safety as we navigate the crisis. Secondly, how we respond to the dramatic drop in sales while maintaining our focus on future execution of our strategy. And finally, making sure Interpac Tool Group is an employer where all employees feel accepted and part of a company with a very bright future. These times have been very stressful for everyone worldwide, and I want to express my sincere thanks to our entire team for their continued commitment to our company. Currently, Interpac has about 40% of our employees working remotely. which has declined as we entered the second phase of our return-to-work strategy. All of our plants remain in operation with additional safety measures, including temperature checks, risk assessment, and full protective equipment. Our sales and marketing teams have resumed moderate dealer and customer visits coupled with increased safety measures. All these actions have provided a safe work environment, and to date we've had less than 100 COVID-19 cases worldwide with very few serious symptoms. Our response to the drop in sales is focused on controlling our expenses to drive positive decremental margins and cash generation. Our temporary actions in the quarter yielded $9 million in savings and permanent cost measures announced as part of the ECS divestiture provided a total of $33 million of savings to date. Additionally, the footprint rationalization announced earlier this year is proceeding and will be completed during our fiscal 2021 period. All of our efforts to control costs while protecting our ability to execute our growth strategy have been successful, and we believe Interpac is well-positioned to grow as the global economy returns to normal. Maintaining the morale of our company, of our team, and ensuring we provide the best possible communication is very important to us at Interpac. Over the past six months, we've conducted weekly safety briefings and bi-weekly meetings and focus groups dedicated to the discussion of the culture of InterPAC. As we look forward to the next phase of our return to work strategy, we are carefully monitoring local government guidelines and the clear objective of maintaining employee safety. Now, flipping over to slide four, the past six-month sales have been very volatile. The third quarter experienced the highest decline, followed by a moderate improvement in the fourth quarter. Our sequential order chart provides a visible trend for both order dollars and the year-over-year comparison. The weekly orders have improved sequentially starting in June, although the year-over-year comparison reflects a higher volatility due to the record sales in August of 2019. Inbound orders are normally comprised of dealer stock, retail demand, and large product sales, all of which improved in the fourth quarter. Dealers are becoming more positive relative to retail demand and are willing to begin the restocking process. Additionally, large civil construction and alternative energy projects are advancing, resulting in order demand. Oil and gas prices stability has also improved demand for both tool sales and service revenue during the quarter. All of these factors contributed to improving sales dynamics in the fourth quarter and are continuing in the first few weeks of 2021. And moving on to slide five. The fourth quarter experienced a moderate improvement sequentially from the third quarter results. Core sales declined by 27% year-over-year, comprised of 23% down in products and 45% in service. From a positive standpoint, we were able to generate a free cash flow in the quarter despite the dramatic decline in sales and maintain a debt leverage of 1.8 times. This was a direct result of our effort to contain costs in the quarter and achieve a decremental margin of 28%, which is well below our stated range of 35% to 45%. The rate of recovery has been inconsistent globally. European operations was the best-performing region with sales down in mid-teens. North America improved moderately to down 20%, while Asia and Mideast continued to struggle with sales declining over 30%. We are cautiously optimistic about the continued recovery over the coming quarters, provided the world does not experience a resurgence of the virus requiring regional lockdowns. And moving on to slide six, as I mentioned, the protection of the Interpac strategy is a top priority for the company. We have balanced our need for cost reductions with the investment required to maintain a top-performing tool business. I'm very proud of the results achieved by engineering, marketing, manufacturing, and sales teams, which have exceeded our objective for new product sales during the quarter and fiscal 2020. During the fourth quarter, we launched six new product families and were solidly above our 10% target. For the year, Interpac completed 18 new projects, adding 22 new product families and over 370 new products to our catalog. This is fundamental to our continued organic growth and maintaining our competitive advantage. Looking forward, we have multiple new projects coming in 2021, including advanced lifting systems, hydraulic pumps, and bulking products. Additionally, we are releasing the fully integrated HTL and Interpac bulking product line, which completes our three-tier strategy and opens the full competitive landscape. We've also protected our coverage strategy to ensure both our distributors and customers do not experience a decline in Interpac support. Now more than ever, our dealers and customers need us through virtual training, e-commerce, and digital marketing. As we emerge from the global pandemic and our business returns to normal, we will restart our efforts to acquire products and technology which can enhance the Interpac tool group. Our work to identify types and vertical markets remain valid and we are committed to either develop or acquire tools to expand InterPAC. We continue to be very focused on our capital allocation strategy and are on priority of investing internally first to ensure a bright future for our company. I'm going to turn the call over to Jeff, and Rick now provides some additional insights on our performance during the quarter. Then I'll come back with some closing remarks. Jeff, over to you.