Enerpac Tool Group Corp.

Ladies and gentlemen, thank you for standing by. Welcome to Interpac Tool Group's second quarter earnings conference call. As a reminder, this conference is being recorded today, March 22nd, 2023. It is 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 second 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 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 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 laws. Please see our SEC filings for 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 Q2 earnings call this morning. I'm happy to cover our fiscal 2023 second quarter results with you today. I'd like to start by providing some additional color on our Ascend transformation program and the excellent progress that we are making on several of the focused growth pillars from our strategic plan that we laid out at our investor day in November. Moving to slide three, as we reach the one year anniversary of the launch of our Ascend transformation program, I am extremely pleased with the progress made to date And the results can be seen in our strong gross profit margins and adjusted EBITDA margins in the second quarter, which are both the new record highs since the launch of Interpac Tool Group in 2019. Ascend is focused on driving organic growth, operational excellence improvement, and greater efficiency and productivity in SG&A to enhance shareholder value. This program includes many hundreds of initiatives across all functions and regions of the business and is led by nearly 100 Workstream leads and initiative owners across the company. Based on the work and accomplishments to date, we are increasing our expected adjusted EBITDA benefit of the program from the original plan of $40 to $50 million to a new target of $50 to $60 million as a result of additional initiatives added to the project funnel over the past year and initiatives executing at a higher success rate. We now expect $32 to $38 million of adjusted EBITDA benefit from Ascend in the current fiscal year, up from the previous estimate of $12 to $18 million. This is driven by $15 million of EBITDA from Ascend initiatives included in our original fiscal 2023 guidance that have now matured through our Ascend pipeline and will be attributable to Ascend, but that are not incremental to our guidance, as well as the acceleration of several key Ascend initiatives. We continue to expect to achieve the updated EBITDA run rate as we exit fiscal 2024 and expect it will be built into our fiscal 2025 full-year guidance. Before we move on to an update on our growth strategy, I'd like to highlight a few examples of the accelerated progress that we continue to make on our Ascend initiatives. In the area of commercial growth, one area we're working on is building new marketing and engineering capabilities within the rail vertical. We are targeting key customer accounts through both distributors and direct channels, and our engineering group has designed a new rail stressor specifically for the European market. As a result, we recently secured a major contract win for our rail stressor kit in the UK for approximately $1 million. As it relates to infrastructure, in the US, we're focused on building relationships with large bridge construction end users, both directly and through our distributors. These targeting efforts have resulted in multiple wins for our core products, particularly pumps and cylinders, and has created a strong funnel of future opportunities. In addition, we recently won a heavy lifting technology or HLT opportunity for approximately $1 million in that vertical. We are very excited about the progress made and our future opportunities within these verticals. It's still early days as we start to execute on our vertical market growth initiatives, but we are already seeing promising progress and impact. Now, moving on to footprint rationalization, I'm pleased that we've started to make headway in this initiative, as we knew it would be one of the longer tail items coming out of Ascend. As part of the process, we reviewed the cost structure and manufacturing location of all products and parts we produce across the globe. And at this time, we've identified, planned, and announced the consolidation of one of our facilities in the European region, and we've created a detailed implementation plan to ensure a very smooth transition. We expect this to drive an annual benefit of approximately $1 million, and we're undertaking further analysis on our overall footprint to evaluate additional opportunities. We are also leveraging lean tools and techniques in all our factories and operations processes to continuously drive efficiency improvements. Again, these are just a few examples of the progress that we continue to make on our initiatives within the ASCEND program. Of the updated $32 to $38 million of adjusted EBITDA benefit that we anticipate in fiscal 23 related to ASCEND, we experienced a benefit of approximately $15 million in the second quarter and approximately $21 million year to date. With regards to SG&A, If we exclude the adjusted costs and the increase in AR reserve in the prior year, we saw 320 basis points of improvement in year-over-year SG&A in the second quarter as a result of the ASCEND actions taken today. As a reminder, ASCEND is much more than a restructuring program. There's a high degree of focus, discipline, and rigor associated not only with our cost structure, but also organic growth and operational efficiency and productivity as demonstrated in the examples covered on the progress made in the quarter. Moving on to slide five, I'm excited to share some of the progress we have made on our strategic plan growth initiatives. As a reminder, at our investor day in November last year, we laid out our focus growth plan around four key pillars, including expansion in targeted vertical markets, specifically infrastructure, wind, rail, and industrial MRO, digital transformation, customer-driven innovation, and expansion in the Asia-Pacific region. Last quarter, we highlighted innovation. In this quarter, I wanted to share some of the progress that we're making within our focused verticals, specifically WIN, and also within our enhanced digital marketing program. I'm very encouraged by the progress we have made in a short period of time in both of these growth areas. As it relates to the WIN vertical, Global growth in wind energy takes on many forms, from building out local manufacturing plants to new wind site permitting to advanced monitoring. And Interpac has built a dedicated, best-in-class global wind team to look after all facets and regions where wind is growing and where we're seeing results. And in fact, our team has a few recent wins, including an order with expedited expectations from a global offshore wind customer, providing a tailored and repeatable solution for the growing offshore market. The total impact of these wins is approximately $1 million to date, and we remain very excited about the future of this growth vertical. Moving on to our digital transformation, specifically in this case our digital marketing efforts, we've been hard at work building out this function with a larger, expanded digital team. In fact, we've already hired several critical roles to help accelerate our digital marketing efforts, and we've begun actively targeting potential buyers searching online for related brands and products with product listing ads, search ads, and outbound ads. We are passionate about building a white glove online experience for our customers, and we'll continue to optimize our websites in that pursuit. Recently, we've optimized hundreds of product pages with enhanced copy and imagery, we've simplified our menu and site navigation, We've added live chat support, and we've implemented other key enhancements to support the buying experience online. As a result of this work, in the first half of fiscal 2023, compared to the first half of fiscal 2022, our website traffic is up 30%, and our e-commerce revenue is up nearly 350% year over year. This is a truly exciting area of investment for us, as the returns are very clear and measurable, and we are still in the very early innings. Moving on to our second quarter results and our markets, we continue to see steady demand across the regions, with particular strength in the Americas and Europe, and year-over-year total core growth of 10% for our IT&S products, despite tougher year-over-year comparables, where in Q2 of last year we saw very significant core growth of 15%. I also had the opportunity to meet with our teams and visit several customers in the Asia Pacific and Middle East regions during Q2, and I was very encouraged by the positive sentiment there. While the macroeconomic uncertainty continues, overall order rates remain steady in the quarter, which has continued into the first few weeks of the third quarter. When Tony walks through the waterfalls, you'll see that our pricing actions to date have contributed significantly to both the top and bottom line, and I'm pleased that our Ascend initiatives also drove a substantial improvement in our adjusted EBITDA margins in the quarter, enabling us to reach record levels since the launch of InterPAC Tool Group in 2019. Tony will provide additional details of the financial results, but I just want to reiterate how excited I am about the progress we're making across the organization unlock the full potential for Interpac Tool Group to create significant shareholder value. Moving on to the regions, the Americas delivered core sales growth in the low double-digit percentages in the second quarter, driven by year-over-year improvement in both product and service. Both the infrastructure and rail verticals continue to perform well as a result of ongoing government investment and maintenance. And in our heavy lifting technology or HLT business, We saw several large projects convert to orders in the second quarter, delivering some immediate revenue and helping to build our backlog for the remainder of the fiscal year. In addition, performance from our OEM customers was strong, with many of our top partners placing orders and taking shipments in the quarter. And within Latin America, core product sales were driven by copper mining and rail car manufacturing, while the oil and gas market generated nice activity on the service side. Demand continued to be steady across the board within the region. However, distributor sentiment remained cautious, driven by inflation and the concern of a potential recession. Moving on to Europe, this region delivered solid year-over-year core growth in the mid-teens percentages, driven by broad-based improvement in both product and service. And from a vertical market perspective, the region continued to benefit from government investment in both infrastructure and rail, while wind also experienced strong activity as a result of the focus on renewable energy. On the service side of the business, the year-over-year improvement was driven by increased oil and gas maintenance spend with a few large projects in Germany. In addition, our highly differentiated leak sealing services continue to be in very high demand with new clients and projects in the region driving geographical expansion. HLT also experienced solid activity and several large orders in the second quarter. Despite strong demand, distributors remain cautious as a result of the uncertain macroeconomic environment. Moving on to Asia Pacific, the region had a year-over-year core growth percentage in the low single digits. From a vertical market perspective, mining continued to be favorable in the quarter, driven by demand for iron ore, coal, and precious metals. Infrastructure was strong in Australia due to government investment in large projects including roads, railings, and airports. In addition, shipbuilding in Korea and Japan continued to be positive, driven by the transportation of liquefied natural gas. And turning to the MENAC or Middle East region, MENAC experienced a year-over-year core decline in the low double-digit percentages, driven by our continued implementation of 80-20 and a more selective process for quoting service projects, particularly focused on more differentiated solutions. This has led to a year-over-year positive impact to the bottom line in the region. Overall, service activity remains strong, and maintenance work that had been pushed out in late fiscal 2022 began last quarter and continued in Q2. And from a vertical market perspective, oil and gas continues to be favorable, driven by oil and gas prices, and the region continues to make investments in both infrastructure and power generation including significant investments in alternative energy. Moving on to Cortland, the Cortland business delivered core growth of 4% year-over-year in the second quarter. As it relates to the medical portion of the business, demand and order rates continue to be solid for commercial products with orders received for the two orthopedic products that we launched in Q1. We anticipate additional commercial launches in the third quarter, including both cardiovascular and orthopedic products. And moving on to the industrial side of the Cortland business, we experienced solid activity in our industrial end market with ropes and slings being used in various construction and heavy lift applications. Cortland Industrial continued to benefit from federal funding for government-related projects evidenced by the activity in the aerospace, defense, and oceanographic markets. Significantly improved lead times also allowed Cortland to be more responsive to customer requirements and capture additional orders in the quarter. Now I'll hand it over to Tony to take us through the Q2 financial results and provide an update on operations. Tony?