Enerpac Tool Group Corp.

Ladies and gentlemen, thank you for standing by. Welcome to Interpac Tool Group's first quarter earnings conference call. As a reminder, this conference is being recorded December 21st, 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 first quarter fiscal 23 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. 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 GAAP to non-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. Now, I will turn the call over to Paul.

Thanks, Bobbie, and good morning, everyone. Thank you for joining our Q1 earnings call. I'm pleased to discuss our fiscal 2023 first quarter results with you this morning. But before we jump into the quarterly results and strategy update, I want to spend a few moments recapping our recent Investor Day that we held in November in New York City. The theme of our Investor Day was Raising the Bar, and the event was a great opportunity to showcase our new management team, share our focused growth strategy, provide an update on our Ascend transformation program, launch our new long-term financial targets, and interact with both investors and analysts. We thank all of you that joined us both in person and virtually. If you were not able to attend, we encourage you to watch the replay of the event that is available on our website under the investor section. Based on the updated growth strategy that we laid out, which includes a focus on four growth verticals, including infrastructure, wind, rail, and industrial MRO, Our digital transformation program, our updated innovation approach, and our Asia-Pacific growth strategy, along with the benefits of our Ascend transformation program, we issued updated four-year financial targets, including 6% to 7% organic revenue CAGR, 25% adjusted EBITDA margins as we exit fiscal 2024, and greater than 25% adjusted EBITDA margins in fiscal 26, and greater than 100% free cash flow conversion in the latter years of the plan as we continue to invest in Ascend over the next two years. The compounding effect of these targets creates a robust recurring cash generation model that is driven by our strong sales and our solid game plan to achieve margin expansion and we remain confident in our ability to grow and execute. Now, moving on to the first quarter, I want to start by thanking our employees across the globe for their hard work in helping us deliver another solid quarter. We experienced strong top-line results that were consistent with our expectations, with core growth in all four regions. The team's execution of driving sales and implementing Ascend can be seen in our adjusted EBITDA margins and over 60 percent incremental EBITDA profit in the quarter, well in excess of our historical 35 to 45 percent incrementals, resulting in nearly 600 basis points improvement year over year. Tony will provide additional details on the financial results, but I just want to reiterate how excited I am about the progress that we're making across the organization unlock the full potential for Interpac Tool Group to create value for all our stakeholders. Moving on to slide five, as we announced in March, 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. We have made very solid progress on Ascend, and we've now reached a mature late-stage funnel of opportunities in excess of our target. We continue to expect $40 to $50 million of adjusted EBITDA benefit as a result of the program as we exit fiscal 2024, including $12 to $18 million of benefit in the current fiscal year. An additional overview of the Ascend Transformation Program can be found in the appendix of today's presentation. Now, before we move on, I did want to take a few moments this morning to highlight some of the great progress that our team continues to make on a few of our various Ascend initiatives. On the commercial side, we've taken actions to simplify our distribution network, and we are refocusing our efforts on and disproportionately investing behind our partners that are focused on helping to grow the Interpac business and who are best positioned to win in the marketplace. In addition, we've simplified our distributor discount structure to a tiered approach that rewards the growth of Interpac sales. As it relates to procurement, we are consolidating both our direct material and indirect spend using an 80-20 approach and key supplier negotiations. We've also tightened the controls around discretionary spend to drive greater visibility and additional cost savings. And on SG&A, we started to take actions to move some back office functions to shared service center models in lower cost regions. And last but not least, by reducing the number of legal entities across Interpac Tool Group, we reduced the complexity of our business and the associated costs of maintaining an overly complex legal entity structure and all the additional work associated with this from an accounting, tax, and legal perspective. These are just a few examples of the exciting initiatives within Ascend, which demonstrates the broad reach of the program across our organization. Of the $12 to $18 million of adjusted EBITDA benefit that we anticipate in fiscal 2023 related to Ascend, we experienced a benefit of approximately $6 million in the first quarter, which will be partly offset by future additional costs for example, to backfill some roles, for an estimated net recurring benefit of approximately $4 to $5 million. And we saw roughly 300 basis points of improvement in our SG&A as a percent of revenue, excluding adjusted costs, as a result of the ASCEND actions taken to date. Again, 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. Also, as we highlighted at Investor Day, innovation is a key aspect of our growth strategy, so I wanted to spend a moment to touch base on our NPD activity in Q1. I'm excited to share that we launched our new battery-powered machine skates for industrial movers in the first quarter, and we have already received several orders. Moving heavy industrial machinery is always a challenge, especially in confined spaces where conventional methods are either labor intensive or unsafe. These innovative machine skates are self-propelled, eliminating the need to manually push or pull the load. They also ensure the safety of the operator by allowing them to work at a safe distance away from the load. These battery-powered machine skates keep the load close to the ground reducing the overhead clearance required to move the load through the facility, and more importantly, increase overall safety. This is just one example of how we're driving customer-backed innovation to help make complex, often hazardous jobs possible safely and efficiently. Turning to slide six, as it relates to our markets, we continue to see solid demand across all four of our regions, with particular strength in Americas and Europe, and notable year-over-year total core growth of 14% for our products. While there continues to be macroeconomic uncertainty, in the first quarter we did not see signs of a recession or pending recession within our business, and order rates have remained solid the first few weeks into the second quarter. We've continued to see slowing in the rate of commodity price inflation and our past due backlog decreased slightly quarter over quarter, though component availability remained a challenge. When Tony walks through the waterfalls, you'll see that the pricing actions we've taken have more than offset the impact of inflation, and I'm pleased that we've begun to see the benefits of our Ascend initiatives positively impacting our EBITDA margins and our incrementals in the first quarter. Moving on to the regions, the Americas experienced solid core sales growth in the high teens percentages in the first quarter. This was primarily driven by year-over-year product growth. In particular, standard product sales were solid and showed demand across most manufacturing sectors. The Americas experienced some nice activity within rail due to ongoing maintenance of rolling stock, and Arrow had solid shipments as a result of demand for our digital turning tools. Our heavy lift business, or HLT, is seeing some interesting opportunities around wind. As towers are getting bigger and bigger and moving offshore, wind turbine OEMs are looking for ways to streamline the transportation and build process for those turbines, creating future opportunities for HLT. The modest year-over-year growth within service was driven by rental demand within oil and gas, but was partially offset by the push-out of some projects in the marine space. While stocking orders were in line with expectations and demand was steady within the channel, distributor sentiment remained cautious, driven by the concern of a potential recession. Moving on to Europe, this region delivered year-over-year core growth in the low double-digit percentages driven by both product and service. From a vertical market perspective, the region benefited from continued government investment in both infrastructure and rail with additional future opportunities. The ongoing government investment to address aging infrastructure is also creating some good opportunities for our HLT business in Europe. Oil and gas was favorable due to the pent-up demand created by the Russia-Ukraine crisis. And work that was previously being deferred is now taking place. In particular, our leak-sealing services are in very high demand. Overall, distributor sentiment is generally neutral, with caution in some areas due to the current macroeconomic environment. In Central and Eastern Europe, this is, of course, a direct consequence of the Russia-Ukraine conflict driving energy prices up and investment sentiment down. Now moving on to Asia-Pacific, The region had a year-over-year core growth percentage in the low single digits. Unfortunately, COVID continues to be a challenge, specifically in China, with COVID restrictions creating some supply chain disruptions in the quarter. As of December 1st, some of the local governments are gradually easing the COVID test and travel restrictions, and China is now moving from no COVID to living with COVID. From a vertical market perspective, mining continues to be favorable in the quarter, driven by demand for iron ore, coal, and some precious materials in Australia, and coal in China. Shipbuilding in Korea and Japan was also positive, primarily driven by the transportation of liquefied natural gas. Turning to the MENAC, or Middle East region, MENAC experienced year-over-year core growth in the low single-digit percents. As we've seen the last few quarters, overall spending on oil and gas activity in the region has continued to ramp up. Energy producers continue to make large investments into downstream activity and maintenance work that was previously being pushed out the past few quarters has begun to be actioned in the first quarter and we expect will continue into our fiscal Q2. From a vertical market perspective, oil and gas continues to be favorable and the region continues to make investments in new projects related to infrastructure and power generation, including significant investments in renewable energy. And moving on to Cortland, our Cortland business delivered core growth of 26% year-over-year in the first quarter. On the medical side of the business, demand and order rates for commercial products remained stable, and we launched two additional orthopedic products that moved from development into production in the first quarter. With over 20 projects in the development phase, we have a very healthy pipeline to fuel future growth. Moving on to the industrial side of the Cortland business, overall it was a strong first quarter with solid performance across nearly all Cortlands and markets. In particular, oil and gas and seismic, aerospace and defense, and oceanographic were favorable in the quarter. driven by federal funding for government-related aero and defense and oceanographic projects. Overall, improved lead times enable Cortland to be more responsive to customer requests and capture additional orders in the first quarter. I'll now turn it over to Tony to walk us through the Q1 financial results, as well as an update on operations. Tony?