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?

Thanks, Paul, and good morning, everyone. Let me first start by saying that I'm excited to have joined Interpac at the end of May as the CFO of the company. I was attracted to the great brand recognition quality product portfolio, and ascent transformation. And I'm very much looking forward to contributing to the value creation story here at Interpec. I'm also glad to be leading such a professional and talented finance and IT organization. Now turning to slide eight, let's review the adjusted third quarter results. Net sales were $152 million, which is a 10% increase in core sales when compared to the third quarter of fiscal 2021. Tool product core sales were up 12%, service core sales were up 1%, and quarterland sales were up 18%. Adjusted EBITDA margin was 12%, which reflects the increase in receivable reserves that Paul mentioned earlier. This charge had an approximate 720 basis point unfavorable impact on EBITDA margin performance in the quarter. The tax rate for the quarter was 22% compared to 3% in the prior year. This resulted in an adjusted EPS of $0.16, including a $0.14 impact related to the increase in receivable reserve, down from the $0.28 in the prior year. Turning to slide 9 for details on our sales performance. The strengthening of the U.S. dollar, primarily related to the Euro and GBP, resulted in just shy of a $5 million reduction in year-over-year sales. Product net sales increased roughly 8% with approximately 80% of the increase attributable to our tools products and the remainder to Cortland. As Paul discussed, we saw solid tools product growth across all regions except Europe, which benefited from a large wind project in the prior year that did not repeat in the current year and was also impacted by the Russia-Ukraine conflict. Service growth in the Americas and MENAC on the back of strong oil and gas opportunities was largely offset by declines in APAC and ESSA, the latter linked largely to the Russia-Ukraine conflict as many of our customers are postponing maintenance. Lastly, pricing actions contributed over $5 million to the top line. Turning to slide 10. The quarter reflects continued strong demand with IT&S product net sales exceeding the peak range of the five years prior to COVID each month in the third quarter. Transition to slide 11, I'd like to spend some time discussing the year-over-year change in adjusted EBITDA. First, let me briefly revisit the $11 million charge that we recorded in the quarter to increase our receivable reserves. This charge is in addition to the $2 million charge that we recorded last quarter and now fully reserves all outstanding receivable amounts owed to us by a former longstanding MENAC agent. We ceased doing business with the agent late last calendar year due to collection challenges that initially began around Q3 of fiscal 2021. While we continue to exhaust all reasonable efforts to collect these amounts, Based on the current facts and circumstances, we believe that this charge was appropriate to reflect the current collectability of this asset as of the end of Q3. On its own, it had over a 700 basis point impact on Q3 adjusted EBITDA margin. As Paul previously mentioned, we now continue to transact business in that country on a direct basis. Like sales, the stronger US dollar had an unfavorable impact to profitability, reducing EBITDA by approximately $1 million versus the prior year. Higher product sales volumes contributed roughly $4 million of the growth to EBITDA. As expected and previously communicated, the pricing actions that we have taken and continue to implement to proactively manage the impact of inflation resulted in net price cost realization in the quarter, increasing margin by approximately $3 million. Excluding the increase in receivable reserves and the favorable impact of costs resulting from the stronger dollar, SG&A was up approximately $2 million when compared to the prior year, despite benefits from the restructuring actions implemented earlier in the fiscal year. The increase was primarily driven by higher-than-normal employee medical costs due to several significant employee claims hitting in the quarter, along with incremental travel from our commercial and leadership teams, which were higher than the COVID-impacted travel levels of Q3 fiscal 2021. To summarize for the quarter, EBITDA margin gains from product volume growth and price realization were more than offset primarily by the receivable reserve charge. excluding the receivable reserve, our incremental margin would have been approximately 40%, excluding foreign currency, which is within our expected range. Moving on to operations, like many companies, the challenges caused by inflation, supply chain constraints, and logistic bottlenecks, compounded by the effects from the Russia-Ukraine conflict, continued during our third quarter. Results were also impacted by the COVID lockdowns in and around Shanghai that unexpectedly happened during the third quarter. We anticipate most of these supply chain and logistic challenges to continue to impact our operations for the remainder of the calendar year. Although we have started to recently see some minimal easing on China to US ocean freight costs and certain steel pricing specifically in China. During the quarter, COVID lockdowns in China resulted in our Taichung operations being temporarily shut down. And as a result, sales within our China region fall short of our expectations, a minimal $1 million. Additionally, our China suppliers on-time delivery also trended downwards in April and May as a result of the lockdowns. Despite these challenges, we were able to continue to ship components and products out of China. at a slower pace to our global partners as we quickly rerouted shipments that would typically go through Shanghai to Ningbo and other ports. Shanghai ports have since reopened, albeit with backups, resulting in roughly $2 million of our inventory waiting at the port to be cleared, which is anticipated to occur in the next 30 to 60 days. As the congestion at Shanghai ports free up, we anticipate that this will result in additional congestion congestion at our U.S. and European ports. As discussed during our last call, in anticipation of a U.S. West Coast port union strike this summer, we pulled forward purchase orders to ensure product availability for our customers. Because of these preemptive actions, combined with recent decisions to selectively reroute product through alternate ports, like Vancouver, We believe the anticipated congestion and port strike should have a minimal impact on our ability to execute on our fourth quarter commitments. We will continue to closely monitor the situation. As anticipated, the Russia-Ukraine conflict continued to drive up energy and oil prices, which had a direct effect on our manufacturing costs, including logistics, processing, and raw material costs. Given the fluidity in prices, we are seeing some quotes from suppliers that are only valid for 24 hours. We do not anticipate these costs and associated challenges subsiding as long as the conflict continues. Lead times in the U.S. remain very long, especially for castings, forgings, and electrical components, and our suppliers continue to struggle with availability of certain materials and components, such as plastic, and with labor. We continue to identify and implement alternatives to alleviate these availability issues. Late in the quarter, we did see costs stabilize on many categories we purchased, yet still at elevated rates. We do not anticipate this inflationary environment to subside in the near future, given the volatility and uncertainty in the global markets. Regarding inventory, despite sequential sales growth, inventory levels remained essentially flat the last quarter as we continued to focus on receiving components in order to complete and ship finished products. Offsetting the customer shipments was the incremental inventory delayed at the Shanghai ports, along with the strategic pull-forward inventory in anticipation of the West Coast port strike. Shifting over to backlog now, Continued strong demand for our product resulted in order rates greater than pre-COVID levels. And while our product shipments increased sequentially by 13%, this strong demand, order demand, coupled with the continued global supply chain challenges, again put pressure on our past due backlog, which increased from $6 to $8 million at the end of our second quarter to roughly $9 to $10 million at the end of Q3. We expect past due backlog to decrease slightly in Q4 as our supply chain team continues to work with our expanded supply base to bring in key missing parts and components to finalize finished goods for shipment. Now let's turn to pricing. During the quarter, and as referenced during our last call, we implemented additional pricing actions in response to the worsening inflation environment. Pricing actions up through the first half of the year largely covered inflationary costs over that period. The actions we took this quarter on top of the January 1st price increase across all regions and categories are expected to deliver 1% to 2% price cost realization on a run rate basis based on known cost increases. As discussed in the EBITDA margin walk, we saw the impact of the incremental pricing outweigh the cost increases as anticipated. We will continue to monitor inflationary pressures going forward and react with additional pricing actions as necessary. So I will wrap up with liquidity on slide 13. We generated $1 million in free cash flow during the quarter. Working capital increased by $16 million primarily on increased receivables due to sequentially stronger sales through the end of the quarter. Although inventory remained essentially flat sequentially, under normal seasonal trends, we would have seen a decrease in the higher sequential sales. Supply chains and logistic constraints, coupled with the previously mentioned congestion at the Shanghai ports and the intentional increases in inventory to minimize exposure to potential U.S. port strikes, were the main reasons for snapping the seasonal trend. Capital expenditures were $2 million in the quarter. In the prior year, we generated $35 million in free cash flow in the third quarter, which included $18 million of proceeds, net of transaction charges, from the sale of our China building. Our leverage is at 1.1 times in line with our prior year. The sequential increase was driven by the use of cash from our share repurchase program, as well as the EBITDA reduction, primarily related to the BAT debt reserve. We expect our leverage will improve in the fourth quarter on higher year-over-year EBITDA and anticipated cash generation. As Paul mentioned earlier, during the quarter, under our March 2022 share repurchase authorization, we purchased roughly 1.8 million shares for approximately $36 million, at an average price of $20.65 per share. Our liquidity positions us well to support our balanced capital allocation priorities, including our Ascend transformation program, along with internal investments, return to shareholders, and select M&A growth, and we will continue to remain disciplined stewards of our capital to ensure we create long-term value for our shareholders. With that, I will turn the call back to Paul.

Thanks, Tony. While demand remains strong, we have refined our full-year net sales guidance for fiscal 2022. Due to the ongoing impact of the stronger U.S. dollar, we are narrowing our previously issued range of 560 to 580 million, and we now expect full-year net sales to be 560 to 570 million. While we continue to have potential tailwinds that could help support growth, we remain cautious. We continue to expect incremental adjusted EBITDA profitability of 35% to 45%, excluding the impact of foreign currency and the incremental receivable reserve in the third quarter related to a MENAC agent. Our guidance is based on current economic conditions, such as foreign exchange and the macroeconomic environment. Before we open the line for questions, I'd like to reiterate my enthusiasm regarding the progress we've made on our Ascend transformation program, and we look forward to sharing more details with you at our Investor Day in the fall. As always, I would like to thank all our Interpac Tool Group employees around the world for their hard work and dedication to serving our customers and for their excellent efforts in driving our Ascend initiatives.

Operator, that concludes today's prepared remarks. Please open up the line for questions.

Thank you. Ladies and gentlemen, the floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Again, we do ask that you please limit yourself to one question and one follow-up in order to allow as many analysts as possible to ask questions. Again, that's star one to register a question. One moment, please, while we poll for questions. Once again, ladies and gentlemen, that is star one to register a question at this time. Our first question today will be coming from Dean Dre of RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Good morning, Dean.

Good morning. Hey, this came up a couple different times, and we're pretty familiar with this phenomenon, but in periods of spiking oil prices that the refiners are working so hard 24-7 that the MRO activities just get pushed out. So, It came up a couple different times. Can you size for us what that impact is? And at a certain point, they have to do this maintenance because then it becomes a safety issue. But what's the perspective? And any color there would be helpful.

Yeah, thanks, Dean. Yeah, this is Paul. So, yeah, I think you're right. You know, we did comment on that. I think it particularly impacted our ESSA region more significantly in Q3. And we did see, just given the high oil prices, and frankly, obviously, you know, the energy demands as countries there in Europe try to offset some of the energy, you know, demands and the need for energy that can't be met, obviously, with all the traditional Russian imports, you know, they're sort of running over time. So we do see that happening, and that has delayed some of our service work and maintenance projects. We haven't sized that externally, but what I would say is you're right. That can't go on forever. There is a period in time when they can opt to continue to run the assets, but at some point, maintenance requirements will catch up. Obviously, there are assets also coming back online and being utilized more. So as we see the supply-demand imbalance come to more of a balance, in the coming quarters, we expect that we'll see a return to, you know, kind of more traditional maintenance levels, particularly in the ESSA region. We did see strong activity, as we noted, in oil and gas, in our service business in the Americas, and frankly, even in MENAC, we saw some nice recovery there. So, it's really most predominantly in ESSA, but we do expect that should come back, you know, to benefit us in the coming quarters here.

Great. And just as a follow-up, I really appreciate all the color around the disruptions in China, the COVID shutdowns and the ripple effects on all the ports. And it sounds like you've been proactive about using alternative ports. So that's really helpful. If we just step back and say, are you seeing any signs of a slowdown? Maybe if you could give us the cadence of organic revenue growth in the month, by month, and was there any change in kind of like the day rates, order rates, as you progressed through the quarter? Thanks.

Yeah, I would say, Dean, demand was really strong, honestly, throughout Q3. We did not see any tail-off in activity, and actually it's remained solid in the first four weeks of our fourth quarter here. So no signs to date or indications of any slowdown that we can see, you know, at an overall macro level. Obviously, you know, when you get into granular details of, you know, specific accounts or certain countries here and there. But at an overall level across our regions and across our whole book of business, we haven't seen any significant drop in demand. That's real helpful. Thank you. Yeah, thank you.

Once again, ladies and gentlemen, that's star one to register a question at this time. The next question is coming from Jeff Hammond of KeyBank Capital Markets. Please go ahead.

Hey, good morning, guys. Hi, good morning, Jeff. Good morning. Just wanted to hit on kind of this end strategy and kind of where your early spending is being spent and And if you started to get a better sense of what you think maybe year one savings is, you know, coming out as we look into fiscal 23.

Yeah, sure. So, you know, again, we remain, you know, really excited and optimistic around the progress we've made on Ascend. We still continue to believe, you know, the numbers that we communicated last quarter to 40 to 50 million of incremental adjusted EBITDA exiting as a run rate exiting fiscal 2024. You know, we spent, as I referenced in my earlier remarks, you know, the last three months on pretty detailed kind of bottoms-up design work across dozens of initiatives. I'd say the focus was really in kind of five key areas. We've done a lot of work on product and go-to-market strategy, including SKUs and SKU rationalization. We've done an extensive amount of work on pricing, and that's What we're talking about in Ascend is what we call strategic pricing. So, you know, the pricing that we've taken to date, sort of I'll call transactional pricing to cover or over cover for inflationary costs is just that. But what we're looking at in Ascend is strategic pricing. We've done quite a bit of work on building up our analysis and initiatives that we'll be able to implement around that. We've also done an extensive amount of work on sourcing related initiatives. as well as manufacturing and footprint, and then finally on overall G&A spend and how we can be more efficient in different models of making that work more effectively in our company. So as I referenced, we've involved dozens of people across the company. I think close to 200 have been pretty deeply involved in various initiatives and aspects of the program to date. So we have not set out guidance for next fiscal year. either overall guidance or what we expect as benefits and costs from Ascend, but we do expect to lay that out at our investor day in mid-November in New York. We would expect to see some additional charges in Q4. The costs in Q3 were minimal, I think close to $4 million. That was largely related to some external support as we ramp up the start of the program, and we expect to see some additional costs in Q4. as we go forward with further implementation around Ascend. But again, we'll be able to share, I think, a lot more details at our investor day in the fall.

Okay. And then just on supply chain, I mean, it seems like in a lot of respects it's gotten worse or more complicated. I think you said past due backlog got worse. You think it's going to get better. What's the confidence that you can start to make a lot of progress on that past due backlog and kind of get back to neutral.

Yeah, look, I think as we talked about, you know, we continue to see supply chain and logistics challenges in the quarter. I don't think that's dissimilar from other industrial businesses as far as we hear and understand. Certainly the Russia-Ukraine conflict has created some incremental concerns. And frankly, I think we expect to see that for the foreseeable future. more than likely through this calendar year. Having said that, I think our operations and supply chain teams globally have done just an exceptional job working through that, just dealing with all the whack-a-mole, as I call it, of chasing parts and managing through all the logistics and freight challenges between port backup in Shanghai, what probably will be a port backup here in the U.S. as things shift from Asia to the West Coast, obviously the potential port strike on the West Coast itself. So I think we've been pretty diligent at trying to get as best as we can ahead of many of the challenges, but we're not immune to the issues that are facing many companies like ours. So we did see an increase in the past few backlog in the quarter. We do expect to make a decent dent in that here in Q4. But I think it remains to be seen how long these impacts will take effect. That said, with China lockdowns, largely behind us. Our production was down for about 10 days in China at our plant, and then we slowly ramped back up on kind of a closed-loop manning process there. But with that largely behind us, we expect to see a little bit more favorability and pickup, barring any other unknowns happening here in Q4 from a logistics challenge perspective. But that's where we That's our current, you know, sort of perspective on where we're going to be in Q4.

Okay. Appreciate it.

Okay. Thank you.

Thank you. At this time, I would like to turn the floor back over to Mr. Sternle for closing comments.

Okay. Well, thank you for joining our Q3 earnings call today. Have a good day, and we look forward to speaking with you again next quarter and at our Investor Day in New York City in mid-November. Take care and have a good day.

Ladies and gentlemen, thank you for your participation and interest in InterPAC Tool Group. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.