Enerpac Tool Group Corp.

Ladies and gentlemen, thank you for standing by. Welcome to the Interpac Tool Group's fourth quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterward, we'll conduct a question-and-answer session. At that time, if you have a question, please press star followed by 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 September 29, 2022. It's now my pleasure to turn the conference over to Bobbie 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 fourth 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 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 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 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. Now I will turn the call over to Paul.

Thanks, Bobby, and good morning, everyone. Thank you for joining our Q4 earnings call. I'm glad to have the opportunity to discuss our fiscal 2022 fourth quarter results with you and provide an update on the progress of our SEND transformation program. Before we get started, I want to first welcome Marcus Limburger to Interpac Tool Group. Marcus joined us as Executive Vice President of Operations on September 1st. and we are very excited to have him as a member of our leadership team. His background includes a strong focus on operational excellence and proven success in developing and executing operation strategies to achieve sustained improvements in performance with extensive experience in lean and continuous improvement. Marcus will be instrumental as we execute on our global operational excellence initiatives here at Interpac. Now, to touch on the quarter, as we wrapped up the fiscal year, we experienced nice momentum heading into the last several weeks of the quarter. I'm very pleased with our results, which were driven by continued solid demand in both our product and service businesses in two regions, and we achieved a quarterly adjusted EBITDA margin of 21.1%, which is a record high following the EC&S divestiture in 2019. Tony will provide additional commentary on the fourth quarter financial results in a moment. But before I move on, I want to thank our global team for the solid execution throughout the fiscal year and their dedication to serving our customers. Overall, with the exception of the additional receivable reserve in the third quarter, it was a strong fiscal year, which we will continue to build on here in fiscal 2023. Now, moving on to slide three, As we announced on our Q2 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. In the fourth quarter, we moved from the design stage to the implementation phase of the program, and we continued to work diligently on hundreds of individual initiatives across the company to position the business to achieve its full potential. I sincerely appreciate the extra efforts from all levels of the organization to make this transformation a success. Without our dedicated and driven team members, none of this progress would be possible. The work done to date continues to support our view that we expect Ascend will 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, and we recorded $9.8 million of Ascend-related expenses in Q4 with the first benefits of the transformation program to be realized in fiscal 2023. Turning to slide four, I want to take a minute to give a brief update regarding the progress we have made on just a few of our ascend initiatives. On the commercial side, we have started to implement strategic pricing adjustments based on our analysis of our price position in our key product categories. In addition, through continued implementation of 80-20 frameworks, we have been focused on skew rationalization to simplify our product offering and reduce complexity in our business. We have also reviewed our sales coverage model, and as a result, we have increased territory management support in key territories where we believe we are underpenetrated. On the operational side, we are implementing warehouse digital scheduling and capacity planning tools, along with optimization initiatives to improve picking accuracy and receiving throughput. These are just a sample of some of the exciting initiatives within Ascend, which demonstrates the broad reach of the program and the level of engagement across and throughout the organization. As it relates to our expectations on the impact of ASCEND for fiscal 2023, we currently anticipate that we will see $12 to $18 million of EBITDA benefit, which is included in the guidance that we will cover at the end of today's call. Again, I want to reiterate that 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 will provide further details on the Ascend transformation program at our investor day, which I'm excited to announce will be held on November 16th in New York City. We will be sending out details and registration information in early October, so please watch for that, and we hope to see you there. Now, moving on to slide five, an important aspect of our balanced capital allocation strategy includes 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 fourth quarter, we repurchased an additional 2 million shares for a total of $39 million. So, combined with our activity in the third quarter, this amounts to a total share repurchase under the new authorization of $75 million since March 2022. This share repurchase program reflects the confidence our board has in our strategy, and in our ability to create shareholder value. Turning to slide six, I'll provide a market update based on what we experienced across our business in the quarter. I'm pleased that we continue to see strong core growth in two of our four regions with another strong quarter in the Americas and a nice recovery in our MENAC or Middle East region. While some pricing and availability has started to stabilize, supply chain challenges remain throughout the quarter which Tony will cover in more detail. Our global supply chain operations team members continue to work tirelessly to manage these day-to-day challenges, and while our past due backlog did increase slightly, I am encouraged that we were able to shift some of our past due backlog from the third quarter and keep inventory levels flat quarter over quarter, excluding the impact of foreign currency, thanks to their hard work. We also took additional pricing actions to cover increasing costs and preserve margin, and I'm glad to say that COVID-related challenges had less of an impact on our business in the quarter. While Interpac Tool Group does not have a material top-line exposure in Russia or Ukraine, the conflict there has had ancillary impacts to our business that we continue to manage in the fourth quarter, including supply chain challenges, foreign currency impacts, and delayed maintenance as refineries continued to run to reduce dependency on Russian oil, particularly in Europe. Moving on to the regions, the Americas experienced solid core sales growth in the mid-teens percents in the fourth quarter. This was driven by both product and service, with service having strong year-over-year improvement. Overall, the improvement in the quarter was broad-based, with rail being positive due to investments in maintenance activities. We continue to see solid performance from our OEM and national accounts, reflecting steady underlying industrial growth and demand, and inquiries for our heavy lift business, or HLT, was also strong in the quarter. In South America, mining continues to be favorable, driven by copper and iron ore. The ongoing recovery within the service business was driven by strong demand for field machining work related to shipbuilding and power gen decommissioning work, offset by delays as many refineries stayed online to support national and global demand for petroleum and chemical products. While demand was steady within the channel, distributor sentiment was cautious, driven by inflationary pressures. Moving on to Europe, this region experienced a slight core decline 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 continue to operate due to high oil prices and to reduce dependency on oil and gas coming from Russia. From a vertical market perspective, the region experienced strong demand within power generation, and particularly wind, driven by the need to become independent from Russian oil and gas. And while oil and gas exploration activities increased due to high oil and gas prices, Big shutdowns are being postponed, impacting our service business. Infrastructure was flat in the quarter after growth in the first half of 2022 due to inflation, labor shortages, and the Russia-Ukraine conflict. In general, manufacturing industries in Europe have been impacted by a combination of supply chain issues, high energy prices, labor shortages, and inflation, while there are increasing concerns about a recession in some countries in the region. Overall, distributor sentiment is cautious due to the current macroeconomic environment. Moving on to Asia Pacific, the region was flat from a core growth perspective year over year. While the region continues to experience some COVID-related lockdowns and closures, COVID had much less of an impact on the business in the fourth quarter. From a vertical perspective, mining continued to be favorable in the fourth quarter, driven by demand across the region for raw materials. Shipbuilding and infrastructure were also positive, with infrastructure primarily driven by government spending on capital projects, particularly in Australia. And turning to the MENAC or Middle East region, MENAC delivered solid year-over-year core growth in the mid-30s percent. As we've seen the last few quarters, overall spending on oil and gas activity in the region continued to ramp up. Energy producers are making large investments into downstream activity. However, maintenance work on some facilities continues to be pushed out a few months to leverage the high oil prices. Travel restrictions related to COVID have been lifted, and while each country has its own COVID protocols, it did not limit our work scopes in the fourth quarter. From a vertical market perspective, oil and gas continues to be favorable, and the region continues to make investments in new projects related to power generation, including renewable energy and infrastructure. Now moving on to Cortland, our Cortland business experienced core growth of 14% year-over-year in the fourth quarter. On the medical side of the business, demand continues to improve for commercial products above historical levels, in diagnostics, robotic surgery, and orthopedics. We transferred another orthopedic product from development to production and also produced several new design and development samples for potential new orthopedic and cardiovascular products in the quarter. Moving on to the industrial side of the Cortland business, oil and gas, aerospace and defense, and industrial were favorable in the fourth quarter. while marine was challenged due to the high fuel prices and operating costs. Lead times and supply chain challenges improved sequentially in the fourth quarter. I'll now turn it over to Tony to walk us through the Q4 financial results, as well as an update on supply chain and operations. Tony?