Enerpac Tool Group Corp.

Ladies and gentlemen, thank you for standing by. Welcome to InterPAC Tool Group's second 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 March 23, 2022. It is now my pleasure to turn the conference over to Bobbi Belsner, Senior Director of Investor Relations and Strategy. Please go ahead, Ms. Belsner.

Thank you, operator. Good morning, and thank you for joining us for Interpac Tool Group's second quarter fiscal 22 earnings conference call. On the call today to present the company's results are Paul Sternlieb, President and Chief Executive Officer, and Rick Dillon, Chief Financial Officer. Also with us is Barb Boland, Chief Strategy Officer. Our earnings release and slide presentation for today's call are available on our website at interpactoolgroup.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 to GAAP measures in the schedules to this morning's release. We would also 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 law. 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 Paul.

Thanks, Bobbie, and good morning, everyone. Thank you for joining our Q2 earnings call. I'm pleased to provide you an update not only on our second quarter results, but most importantly to share what we confirmed from our work over the past several months as a result of our review of the business and our intended path forward. As I mentioned in our Q1 earnings call, we had begun a deep dive holistic review of the business and our markets. We spent several months evaluating commercial opportunities, operations and footprint, support functions, and organizational structure. This was an extensive effort in which we looked across the entire business and market landscape with deep involvement from dozens of Interpac team members, yielding unique insights on both commercial and operational areas. Through that evaluation, we have identified meaningful growth and efficiency opportunities that we believe will enable us to not only achieve but exceed our previously communicated 25% adjusted EBITDA margin target. As we announced this morning, we have launched our Ascend Transformation Program to enhance shareholder value. This is a strategic program focused on driving accelerated earnings growth and efficiency across the business. The program is built on three main pillars, including accelerating organic growth through focused market penetration and updated go-to-market strategies, improving operational excellence and production efficiency, by utilizing a lean approach and driving greater efficiency and productivity in SG&A by better leveraging resources to create a more efficient and agile organization. This will be underpinned with an 80-20 approach to help simplify what we do both commercially and operationally. With elements of the program intended to drive both organic growth and margin improvement, The initial phase of Ascend will focus more on driving greater efficiencies and reducing operating costs. We expect our Ascend program to drive between $40 to $50 million of incremental annualized adjusted EBITDA, which would be in our run rate as we exit fiscal 24, with the full impact in our fiscal 2025 projections. And we anticipate investing between $60 to $65 million over the program period to support the Ascend initiatives, which could include any potential restructuring costs. And we'll continue our work on other key growth initiatives, such as innovative NPD, digital and IoT enablement in our products and services, and stronger regional strategies in developing markets. We also expect to pursue a disciplined M&A strategy while continuing our focus on the pure play industrial tools and services market. The board and management team are very excited about this program and the potential to drive significant value creation by improving how we go to market, innovate, buy materials, manufacture product, and serve our customers. We'll provide further updates as we progress on the planning and implementation of the specific initiatives. In addition, We expect to hold an investor day later this calendar year where we can share more details on our strategy, the Ascend Transformation Program, and our view on a multi-year financial framework for the company. In addition to investing in ourselves, another important aspect of our capital allocation strategy includes returning capital to shareholders through opportunistic share repurchases. As we announced this morning, the Board of Directors has approved a new share repurchase program of up to 10 million shares of the company's common stock. This share reauthorization and our intent to purchase shares reflects the confidence we have in our strategy and in our ability to create shareholder value and generate cash to invest in both internal opportunities such as Ascend as well as M&A. And we expect that our available cash existing credit facilities, and access to capital markets will support a disciplined M&A strategy as we continue to identify complementary additions to the Interpac Tool Group portfolio. Moving to slide six, I'll provide an update on what we are seeing within the markets that we serve. I was pleased that we broke our typical Q2 seasonal trend in which Q2 net sales are generally lower than Q1 due to broad-based improvement in demand. As expected, supply chain and logistics challenges persisted throughout the quarter, which Rick will speak to in more detail. But I do want to thank our supply chain and operations teams across the globe for their incredibly hard work managing through these challenging times. In January, we took the pricing actions that we discussed on our Q1 earnings call to offset the ongoing inflationary pressures, and we will continue to evaluate the need for additional pricing actions which Rick will also cover. While COVID-related challenges continue to impact the business in Q2 to varying degrees by region, we have seen some improvement in recent weeks in certain regions, which we expect to continue through the back half of our fiscal year should COVID continue on its current path. As it relates to the ongoing conflict in Russia and Ukraine, our thoughts are with all those impacted by this tragic situation. While Interpac Tool Group does not have a material top-line exposure in Russia or Ukraine, we are managing the ancillary impact of the crisis on our business, which is primarily related to supply chain, increased commodity costs, FX, and dealer confidence, particularly in parts of Europe. And in March, we suspended sales into Russia to comply with sanctions imposed by NATO nations. I'll now provide some detail from a regional perspective, including key verticals and distribution. So in the Americas, core sales were strong with approximately 20% year-over-year core growth, and general industrial markets showed solid signs of activity. This was primarily driven by product with growth in the mid-20% range, while service was up mid-single digits as a result of being impacted by the delayed start of projects and the overall outage season partially driven by COVID-related labor shortages. Our heavy lift business continues to see favorable trends in Q2, with an uptick of inquiries in the past month related to bridge and infrastructure, power generation, and mining activity. Earlier in the quarter, distributors and customers continued to limit in-person visits. However, in an encouraging sign, these restrictions started to ease toward the end of February. Distributor sentiment in the US remains cautiously optimistic, though inflation and supply chain issues continue to be a concern. Latin America is seeing solid results from copper mining and oil and gas activity, despite several companies continuing to have restrictions regarding supplier visits. Moving on to Europe, this region experienced low single-digit year-over-year core growth in the second quarter, with more challenges in our service business as COVID restrictions were put in place in response to the Omicron spike for several key customers, thereby limiting access for our personnel. Overall, product improvement was broad-based, with end customer demand increasing in most geographies, and infrastructure was strong in the quarter due to continued government spending on aging infrastructure. Distributor sentiment in much of Europe is generally favorable, with some variation by region. with Central and Eastern Europe recently more cautious due to the crisis in Ukraine. Moving to Asia Pacific, the region delivered high single-digit year-over-year core sales growth. COVID appeared to have stabilized within the region during Q2, although we have seen an uptick over the past several weeks, and the majority of verticals continue to be steady or improving with broad-based improvement in the quarter. Both oil and gas and power generation were strong for the region in the quarter, driven by the high demand for energy. In addition, mining was also positive in the quarter, driven by high iron ore prices and coal demand. Moving to slide eight in the MENAC or Middle East region, MENAC experienced solid year-over-year core growth of approximately 25%. From a vertical market perspective, the region has seen a strong pickup in oil and gas activity due to underinvestment the past few years. While there are large new projects and major shutdowns occurring, some maintenance work has continued to be pushed out due to the high oil prices and customers postponing shutdowns to continue producing. While protocols remain in place, COVID-related travel restrictions have started to ease in some countries as the region returns to a more normalized state with increasing end customer demand. And in addition to oil and gas, power generation and infrastructure were particularly strong in the quarter. Now moving on to Cortland, the business experienced core growth of 35% year-over-year in the second quarter. On the medical side of the business, demand and order rates continued to rise throughout Q2 to pre-COVID levels. In the quarter, there were several sports medicine and orthopedic products that moved from the development phase and into production, and our team's collaboration with customers on new product development opportunities remains high. Moving to the industrial side of the Cortland business, overall order rates have normalized and lead times and on-time delivery continues to improve despite ongoing supply chain and logistics challenges. From a vertical market perspective, utilities and recreational remain strong, oil and gas is expected to improve due to crude pricing, and seismic is showing positive signs for the first time in over two years. While COVID challenges continued in the quarter, we have seen improvement in recent weeks, which we expect will continue. With that, I'll hand it over to Rick to take us through the financials, as well as an update on supply chain and operations. Rick?