Enerpac Tool Group Corp.

Ladies and gentlemen, thank you for standing by. Welcome to InterPAC Tool Group's third 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 keypad. 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 June 28, 2022. It is now my pleasure to turn the conference over to Bobi Beltzner, Senior Director of Investor Relations and Strategy. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining us for InterPAC Tool Group's third 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 Tony Colucci, Chief Financial Officer. Also with us is Barb Bolins, Chief Strategy Officer, and Brian Johnson, VP of Finance and Chief Accounting 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 schedule 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 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 it over to Paul.

Okay, thanks, Bobbie, and good morning, everyone. Thank you for joining our Q3 earnings call. I'm pleased to have the opportunity to discuss our third quarter results with you and provide an update on our Ascend transformation program. Before we get started, I want to first welcome Tony Colucci to the Interpac team. Tony joined us as CFO on May 30th, and we are very excited to have him on board. While he's only been here four short weeks, he's already getting up to speed quickly on the business and making an impact. Now, to touch on the quarter, overall it was a solid quarter driven by strong demand across many of the key end markets that we serve. Excluding the $10.8 million of additional receivable reserves related to a MENAC agent that we spoke about on our Q2 call, operating results were positive and overall in line with our expectations. While the need for this additional reserve is certainly very disappointing, It is isolated to one agent in one country and has not impacted our operations there. We continue to do business in the MENAC region and are working directly with the end customers that were previously serviced through this agent. Without this additional reserve, adjusted EBITDA margin would have been 19.2% for the quarter. The last time we achieved an adjusted EBITDA margin that high was in Q3 of fiscal 2015. which I believe is an early indication we're on the right course. Tony will provide additional color on the Q3 financial results in a few moments. As we announced on our last earnings call, we launched our Ascend transformation program focused on driving organic growth, operational excellence improvement, and greater efficiency and productivity in SG&A to enhance shareholder value. With the help and hard work of numerous employees throughout the organization, Over the past three months, we have made significant progress identifying and vetting dozens of initiatives and developing more detailed plans, milestones, and the associated costs and benefits across several functions that will help us achieve our objectives. We continue to expect Ascend to deliver between $40 to $50 million of incremental adjusted EBITDA, which will be in our run rate as we exit fiscal 2024. We anticipate the investment to achieve the incremental EBITDA will be between $60 and $65 million, of which $6 to $10 million we believe will be restructuring charges. While we've begun to incur costs this quarter related to the development phase of ASCEND, and we recorded $3.9 million of ASCEND-related expenses in Q3, we do not anticipate a benefit as a result of the program until fiscal 23. Some initiatives will take longer to progress, such as footprint rationalization. However, there are several others that will create more near-term impact, such as strategic pricing actions, enhancements to our go-to-market strategies, skew rationalization, and cost structure initiatives. During our Q4 earnings call in September, we will provide more information regarding our expectations on impacts of ASCEND for fiscal 2023. I would like to reiterate Ascend is much more than a restructuring program. There is a high degree of focus and discipline associated not only with our cost structure, but also organic growth and operational efficiency and productivity. We very much view Ascend as a transformation program, not a restructuring program. And we'll provide further details and progress on the Ascend transformation program, along with specific milestones and targets in our investor day, which I'm pleased to announce will be held in mid-November in New York City. Also, I would like to make a few comments around our progress on innovation here at Interpac. As we continue to explore product opportunities within key industry vertical markets, our innovation teams are hard at work on gathering customer insights on pain points and unmet needs so we can understand how to improve safety and efficiency within their workspace. In fact, I had the opportunity to join one of our teams earlier this month on several end customer visits to review multiple prototypes and gather direct customer feedback. It's great to see our teams continuing to drive process improvements in our innovation program, and I remain excited about the product pipeline and roadmap. As part of that roadmap, we continue to keep digital and connectivity front and center. In fact, starting with our new XC2 and FC battery pumps, which we will be releasing later this calendar year, we are giving our users access to over-the-air, or OTA, software updates downloaded and installed directly through our new InterPAC Connect mobile app. In the past, we would have required our customers to bring their tools to a nearby service center where trained technicians would manually upload new firmware. This process was time-consuming, and limited the frequency of required updates. Our new efficient OTA method of updating our products is a clear win and time savings for our customers, reduces downtime, and also gives our engineering teams more opportunities to enhance the characteristics of our products. I'm excited about the potential for additional digital connectivity as we continue to build out Interpac Connect capabilities. Now, moving on to slide four, An important aspect of our balanced capital allocation strategy continues to include returning capital to shareholders through opportunistic share repurchases. As we announced in our Q2 earnings call, the Board of Directors approved a new share repurchase program of up to 10 million shares of the company's common stock. In the third quarter, we repurchased nearly 1.8 million shares for a total of $36 million at an average price of $20.65 per share. This share repurchase program reflects the confidence we have in our strategy and in our ability to create shareholder value and gives us the ability to buy shares when we believe our stock price does not reflect the intrinsic value of our business. Turning to slide five, I'll provide an update on what we're seeing within the markets that we serve. I'm pleased that we continue to see strong demand in three of our four regions, with a particularly strong quarter in the Americas. As expected, supply chain and logistics challenges persisted throughout the quarter, which Tony will speak to in more detail. But I want to reiterate my sincere thanks to our global supply chain and operations team members for their continued hard work managing these day-to-day challenges. We continue to take additional pricing actions in the quarter across the globe to cover increasing costs and preserve margins. COVID-related challenges continued to impact the business in Q3, primarily related to the China lockdowns, although the impact to the quarter was minimal as we developed methods to continue production in our plant for part of the lockdown, and we maintained frequent dialogue with all our key suppliers in China. Further, while Interpac Tool Group does not have a material top-line exposure in Russia or Ukraine, the war has had ancillary impacts to our business that we continue to manage in the third quarter, including supply chain challenges, increased commodity costs, foreign currency impacts, lower dealer confidence in parts of Europe, and delayed maintenance as refineries continue to run to reduce dependency on Russian oil, particularly in Europe. I'll now provide some detail from a regional perspective, including key verticals and distributions. The Americas experienced solid core sales growth in the mid-20s percent in the third quarter. This was driven by both product and service, with service being up 40% year-over-year in the region. Oil and gas was favorable in the quarter due to higher oil prices and turnaround season being in full swing. General industrial MRO demand was also very strong from our national distributors, and almost all verticals are showing steady growth and improvement. In South America, mining continues to be favorable with the higher commodity prices driving strong product sales. The nice recovery within the service business was driven by seasonal shutdown activity at refineries and also strong demand for field machine work related to shipbuilding. Distributor sentiment varied within the region, and while there was some distributor caution driven by inflationary pressures, Others were quite positive due to continued solid demand. Moving on to Europe, this region experienced a core decline of approximately 10% year-over-year, primarily driven by a large service project that did not repeat and a decrease in service due to delayed maintenance work as pipelines continued to operate to reduce dependency on oil and gas coming from Russia. Looking at vertical markets, the region continued to experience strong demand within infrastructure, due to government spending on aging infrastructure throughout Europe. Military and defense was also favorable as a result of government spending in relation to the crisis in Ukraine. And the focus on reducing dependency on Russian oil and gas was a nice tailwind for the wind market. While service in Europe was down in the third quarter, we have started to see some increased activity in the North Sea, and we expect both infrastructure and wind projects to continue to be favorable for the region. Distributor sentiment varies within the region, with Western and mainland Europe being positive, while distributors in Eastern Europe are more cautious due to the Ukraine conflict. Moving to Asia Pacific, the region delivered mid-single-digit year-over-year core sales growth, despite COVID-related shutdowns in China. While COVID restrictions have started to ease in China, lockdowns are still in place for areas with positive cases. In Australia, COVID-related restrictions have mostly been removed, but some major projects have been affected by COVID outbreaks. The mining market was favorable in the third quarter, driven by continued demand across the region for raw materials out of Australia. Oil and gas activity was positive due to sustained growth in energy demand. And positive trends in infrastructure were driven by government spending on capital projects, particularly in China, Australia, and Japan. Moving to MENAC or the Middle East region, MENAC delivered solid year-over-year core growth in the mid-20s percent. As we started seeing last quarter, overall spending on oil and gas activity in the region continued to pick up. National oil companies are busy in the exploration phase of development of new oil fields to find a substitute for Russian gas to Europe, which will eventually create additional downstream opportunities for our service business about 18 plus months out. While work on some projects, including production, new builds, and expansions, has started in Q3, with revenues expected to continue in fiscal 2023, maintenance work and shutdowns on certain sites are being pushed to the right to leverage the high oil prices. Travel restrictions related to COVID have been lifted across the region, and nearly all customers now allow for sales visits. As we are having more customer-facing meetings, it is helping improve our hit rate on product and service opportunities. From a vertical market perspective, oil and gas was favorable in the quarter with national oil company spending resulting in product orders and new long-term service contracts. The region continues to invest in new projects related to power generation to meet the increasing electricity demands with the trend to move to natural gas, and with significant investment in renewable energy sources. The returns from higher oil prices are also driving economic reinvestment within the region, including an increase in infrastructure projects. Moving on to Cortland, the business experienced core growth of 18% year-over-year in the third quarter. Starting off with the medical side of the business, demand levels continue to improve in the quarter to levels at or above pre-COVID run rates. Several new cardiovascular and orthopedic projects enter the final qualification stage in the quarter, and we expect to see order activity for recently launched orthopedic products in the fourth quarter. Moving to the industrial side of the Cortland business, recreational demand remains strong, and we saw improvement in off-road consumer demand, including tow ropes and shackles, and industrial, driven by the overall improvement in the economy. Lead times and on-time delivery continues to improve, but as in the tools business, we also continue to see supply chain and logistics challenges. With that, I'll hand it over to Tony to take us through the financials, as well as an update on supply chain and operations. Tony?